Butcher, In re

• Decision Date: 15 September 1997
• Docket Number: No. 96-2637,96-2637
• Citation: 125 F.3d 238
• Parties: Bankr. L. Rep. P 77,501 In Re: Patrick A. BUTCHER; In Re: Lisa A. Butcher, Debtors. GOVERNOR PLAZA ASSOCIATES, Plaintiff-Appellant, v. Patrick A. BUTCHER; Lisa A. Butcher, Defendants-Appellees, v. STATE OF MARYLAND; United States of America, Parties in Interest-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 238

125 F.3d 238

Bankr. L. Rep. P 77,501

In Re: Patrick A. BUTCHER; In Re: Lisa A. Butcher, Debtors.

GOVERNOR PLAZA ASSOCIATES, Plaintiff-Appellant, v. Patrick A. BUTCHER; Lisa A. Butcher, Defendants-Appellees, v. STATE OF MARYLAND; United States of America, Parties in

Interest-Appellees.

No. 96-2637.

United States Court of Appeals Fourth Circuit.

Argued June 4, 1997.

Decided Sept. 15, 1997.

ARGUED: Michael Jay Schwarz, Law Offices of Michael J. Schwarz, Baltimore, MD, for Appellant. Joel Ira Sher, Shapiro & Olander, Baltimore, MD, for Appellees. ON BRIEF: Sandra A. Manocchio, Shapiro & Olander, Baltimore, MD, for Appellees Butcher; J. Joseph Curran, Jr., Attorney General of Maryland, Susan A. Griisser, Assistant Attorney General, Office of the Attorney General, Baltimore, MD, for Appellee State of Maryland.

Before RUSSELL and NIEMEYER, Circuit Judges, and TILLEY, United States District Judge for the Middle District of North Carolina, sitting by designation.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge RUSSELL and Judge TILLEY joined.

OPINION

NIEMEYER, Circuit Judge:

The issue presented in this case is whether debtors in a Maryland bankruptcy may exempt from their bankruptcy estate the proceeds of a structured settlement of their personal injury claims. Because Maryland has, pursuant to 11 U.S.C. § 522(b), opted out of the exemptions provided by the Bankruptcy Code, see Md.Code Ann., Cts. & Jud. Proc. § 11-504(g), the resolution of this issue requires us to determine whether Maryland exempted such settlements in Md.Code Ann., Cts. & Jud. Proc. § 11-504(b)(2).

A creditor of the bankruptcy estate challenged the constitutionality of the state-defined exemption, both facially and as applied, because it violated a "reasonableness" limitation imposed by Article III, § 44, of the Maryland Constitution. Both the bankruptcy court and the district court rejected this challenge, and we affirm.

I

In August 1980, when Patrick Butcher examined a propane water heater in the basement of his home, it exploded, causing second and third degree burns across 85% of his body. Butcher sustained permanent disfiguring and psychological injuries, and he continues to experience physical and psychological pain. Butcher's wife and son, who witnessed his injury, also suffer from psychological injury. Butcher's treatment involved numerous plastic surgeries, and his economic damages exceeded $800,000.

The Butchers, contending that the water heater was defectively manufactured, sued its manufacturer for compensatory and punitive damages. In settlement of that claim, the manufacturer's insurance company, Travelers Indemnity Company, agreed to pay the Butchers a lifetime income on a monthly basis that totals about $250,000 each year. The 1993 present value of that structured settlement is estimated to be $4.5 million.

While the suit against the manufacturer alleged both compensatory and punitive damages, the settlement agreement did not state the basis for payment nor did it allocate an amount to either category of damages. Rather the settlement agreement stated:

[T]his settlement is a compromise of a disputed claim, and ... the payment made is not to be construed as an admission of liability on the part of [the manufacturer] and [the manufacturer] denies liability and intends merely to avoid litigation but does deny all liability.

In 1993, Mr. and Mrs. Butcher filed a voluntary petition in bankruptcy to reorganize their affairs under Chapter 11 due to the financial collapse of their health club business. In their bankruptcy petition, they sought to exempt from the bankruptcy estate the proceeds of their personal injury settlement, as permitted by the Maryland exemption statute, Md.Code Ann., Cts. & Jud. Proc. § 11-504(b)(2).

Governor Plaza Associates, a creditor who provided financing for the health club and to whom the Butchers gave personal guarantees, filed an exception to the exemption which, it observed, would essentially shield most of the Butchers' assets from their creditors. Governor Plaza contended that at least part of the personal injury settlement was made in respect of the Butchers' punitive damage claim and therefore was not subject to a statutory exemption. Governor Plaza also argued that the Maryland exemption statute was unreasonable and therefore unconstitutional because it had no dollar limitation. They argued alternatively that even if a reasonableness requirement was read into the exemption statute, the $4.5 million exempted in this case was unreasonable and in violation of the Maryland Constitution which authorizes laws exempting only reasonable amounts.

The bankruptcy court found that the personal injury settlement was reasonable compensation for the serious personal injuries sustained by the Butchers and that none of the proceeds were attributable to punitive damages. The court also rejected all of Governor Plaza's arguments challenging the constitutionality of the exemption statute. The district court affirmed, and this appeal followed.

II

Governor Plaza's principal argument on appeal centers on its contention that Maryland's exemption statute is facially unconstitutional under Article III, § 44, of the Maryland Constitution and, alternatively, that even if the statute is constitutional, its application to exempt the $4.5 million settlement in this case violates the reasonableness requirement of the Maryland Constitution. Before addressing directly these arguments, it will be useful to provide a statutory background.

The Bankruptcy Code authorizes a debtor in bankruptcy to exempt from the bankruptcy estate either the property listed in 11 U.S.C. § 522(d) or, if the state elects to opt out of that provision, property exempted by the state. See 11 U.S.C. § 522(b). Maryland has opted out of the federal exemptions and has provided its own. See Md.Code Ann., Cts. & Jud. Proc. §§ 11-504(b) & (g). Included in the list of property that Maryland exempts is:

Money payable in the event of sickness, accident, injury, or death of any person, including compensation for loss of future earnings. This exemption includes but is not limited to money payable on account of judgments, arbitrations, compromises, insurance, benefits, compensation, and relief.

Md.Code Ann., Cts. & Jud. Proc. § 11-504(b)(2).

Government Plaza argues first that because this statutory exemption contains no "reasonableness" limitation, it is unconstitutional under the Maryland Constitution which provides in pertinent part:

Laws shall be passed by the General Assembly, to protect from execution a reasonable amount of the property of the debtor.

Md. Const. art. III, § 44. Governor Plaza thus contends that because § 11-504 is unconstitutional, it is an ineffective effort by the state to exercise its option granted by federal law.

While it is readily apparent that the Maryland statute does not contain an express limitation of "reasonableness," we consider it undoubtedly accurate that the Maryland statute is to be read as providing an exemption only for reasonable compensation for personal injuries. In reaching this conclusion, we begin with the presumption that the Maryland legislature acted legally and in compliance with the Maryland Constitution which provides that the legislature shall exempt only reasonable amounts of property from execution. We can hardly attribute to the legislature an intent to exempt unreasonable amounts in violation of the Maryland Constitution in the absence of a plain and clear demonstration of the Act's invalidity. See, e.g., Wilson v. Board of Supervisors, 273 Md. 296, 328 A.2d 305, 308 (1974); Salisbury Beauty Schools v. State Bd. of Cosmetologists, 268 Md. 32, 300 A.2d 367, 374 (1973); see also Atkinson v. Sapperstein, 191 Md. 301, 60 A.2d 737, 742 (1948) ("the Courts are disposed to uphold rather than to defeat the statute, and since every presumption favors the validity of a statute, it cannot be stricken down as void, unless it plainly contravenes a provision of the Constitution; a reasonable doubt in its favor is enough to sustain it"). Accordingly, when a statutory text admits of two interpretations--one which conflicts with constitutional norms and renders the statute a nullity and one which does not--Maryland courts adopt the reading of the statute which avoids the constitutional conflict and gives meaning to the text. See, e.g., Curran v. Price, 334 Md. 149, 638 A.2d 93, 104-05 (1994); Schochet v. State, 320 Md. 714, 580 A.2d 176, 181 (1990); Wilson, 328 A.2d at 308; see also 2A Norman J. Singer, Sutherland Statutory Construction § 45.11 (5th ed.1992).

An interpretation of § 11-504 that reads reasonableness into the exemption is also supported by the language of the statute itself. In exempting "[m]oney payable in the event of sickness, accident, injury, or death of any person, including compensation for loss of future earnings," Md.Code Ann., Cts. & Jud. Proc. § 11-504(b)(2), the statute intended to exempt only money due to and compensatory for sickness, accident, injury, or death. In so limiting the exemption, the legislature made manifest its objective of withholding from creditors funds necessary to recompense the debtor for injuries to his physical person, to make the debtor whole in the eyes of the law, and to restore human capital to the extent monetarily possible. Cf. Niedermayer v. Adelman, 90 B.R. 146, 148 (D.Md.1988) (interpreting § 11-504(b) in the context of mental injury). If the exemption were construed to exempt unreasonable amounts, the money payable would no longer be attributable to or compensatory for personal injury. "Compensation" by definition aims at "making up, making good, or counterbalancing." Webster's Third New International Dictionary 463 (1961). Thus it implies a payment that counterbalances injury intending that the amount of money be equal to the value of the injury, but no greater. The statutory text, accordingly, compels...