In re Benn

• Court: U.S. Bankruptcy Appellate Panel, Eighth Circuit
• Writing for the Court: Mahoney
• Citation: In re Benn, 340 B.R. 905 (B.A.P. 8th Cir. 2006)
• Decision Date: 06 April 2006
• Docket Number: No. 04-6053EM.,No. 04-6054EM.,04-6053EM.,04-6054EM.
• Parties: In re Charles BENN, Jr., Debtor. Charles Benn, Jr., Debtor — Appellant. v. James S. Cole, Trustee — Appellee. In re Steven Mohrhard and Jennifer Mohrhard, Debtors. Steven Mohrhard and Jennifer Mohrhard, Debtors — Appellants, v. James S. Cole, Trustee — Appellee.

340 B.R. 905

In re Charles BENN, Jr., Debtor.

Charles Benn, Jr., Debtor — Appellant. v. James S. Cole, Trustee — Appellee.

In re Steven Mohrhard and Jennifer Mohrhard, Debtors.

Steven Mohrhard and Jennifer Mohrhard, Debtors — Appellants, v. James S. Cole, Trustee — Appellee.

No. 04-6053EM.

No. 04-6054EM.

United States Bankruptcy Appellate Panel for the Eighth Circuit.

Submitted: March 2, 2006.

Filed: April 6, 2006.

David Shinkle of Des Moines, IA, for appellant.

John S. Courter, AUSA, Des Moines, IA, for appellee.

Before KRESSEL, Chief Judge, VENTERS, and MAHONEY, Bankruptcy Judges.

MAHONEY, Bankruptcy Judge.

These cases were consolidated for purposes of oral argument on appeal. The appeal in each case is from an order of the bankruptcy court filed September 24, 2004, overruling a claim of exemption to a federal and state tax refund and ordering turnover of the refund to the Chapter 7 Trustee. This matter was originally submitted after oral argument on February 8, 2005. The panel remanded the matter to the bankruptcy judge for particular findings. The findings have been made and the matter was reargued on March 2, 2006. For the reasons stated below, we reverse.

STANDARD OF REVIEW

The findings of fact are uncontested and no review thereof is sought by the parties. The matter before the court concerns a conclusion of law. Conclusions of law are reviewed de novo. Ardrey v Blackwell (In re Ardrey), 316 B.R. 531, 532 (8th Cir. BAP 2004). A bankruptcy court's denial of a claim of exemption is a final, appealable order. Id.

BACKGROUND

Mr. Benn filed a petition under Chapter 7 on December 31, 2003. In his third amended schedules, he claimed an exemption in all possible 2003 tax refunds under Mo.Rev.Stat. § 513.427, 26 U.S.C. § 6402, and 31 U.S.C. § 3727. The trustee filed an objection to the claimed exemption. Prior to an order being entered concerning the claim of exemption, the debtor received a refund of the 2003 federal income tax withholdings in the amount of $1,502. He also received a refund of the 2003 state income tax withholding in the amount of $36. The attorney for the debtor is holding the refunds pending a final judgment. After the debtor received the refund checks, the Trustee filed a motion for turnover of the refunds to which the debtor objected.

Steven Mohrhard and Jennifer Mohrhard filed a Chapter 7 petition on November 14, 2003. In their original schedules, the debtors claimed an $800 exemption in their 2003 tax refunds, which were estimated in the total amount of $2,154. Thereafter, the Trustee filed a motion for turnover of the refunds. Prior to a hearing on the motion for turnover, the debtors received a refund of 2003 federal income tax withholdings in the amount of $8,091.60. They also received a refund of 2003 state income tax withholdings in the amount of $1,080. The attorneys for the debtors are holding the original refunds pending a final judgment. After receiving the refund checks, the debtors filed an amended Schedule C claiming that all of the 2003 tax refunds are exempt pursuant to Missouri statutes. The Trustee then filed an objection to exemptions.

In each case, the bankruptcy judge found, based upon prior case law in the district, that a debtor's anticipated tax refund is not exempt. The court therefore sustained the Trustee's objection to exemptions and ordered turnover to the Trustee.

DISCUSSION

Each of the debtors claimed that the federal and state tax refunds were exempt under Missouri law, relying upon a specific Missouri statute, Section 513.427.¹ That statute permits debtors to exempt any property that is not subject to attachment and execution under Missouri or federal law. The Missouri legislature has specified which property may be seized and sold upon attachment and execution in Section 513.090. In addition, the Missouri legislature has defined in Section 521.240 other types of property which may be attached. Neither statute specifically mentions an anticipated state or federal tax refund as property which may be attached.

The phrase "exempt from attachment and execution" is not defined in Missouri statutes. It is also apparently not defined in Missouri case law. However, Missouri practitioners have ample authority with regard to the meaning of the terms attachment and execution. As discussed in appellants' consolidated reply brief, at 2-3, the meanings have been clearly defined in Missouri in various treatises and practice aids. See, e.g., 2 Mo. Practice Series, Methods of Practice: Litigation Guide § 23.2 (West 4th ed. 2002) ("An `execution' is the writ or process by which a judgment creditor is able to enforce the court's judgment and reach the nonexempt assets of the judgment debtor."); 7 C.J.S. Attachment § 1 (West 2004) ("Attachment is a remedy by which the defendant's property is secured and held to satisfy a debt that the plaintiff hopes to prove or the writ by which the purpose of the proceeding is accomplished."). Pre-judgment attachments are in derogation of the common law. State ex rel. Froidl v. Tillman, 662 S.W.2d 907 (Mo.Ct.App.1983). Prejudgment attachments are a creature of statute. 7 C.J.S. Attachment § 2 (West 2004). See also Mo.Rev.Stat. § 521.010 et seq.

Two bankruptcy decisions from the Eastern District of Missouri relied on a straightforward view of the terms "attachment and execution" in the statute. In re Sanders, 69 B.R. 569 (Bankr.E.D.Mo.1987) and In re Mitchell, 73 B.R. 93 (Bankr. E.D.Mo.1987). In Sanders, the court was required to determine whether a certain amount of pre-petition wages could be exempted pursuant to Section 513.427. The court ruled that the Missouri wage garnishment statute, when read in conjunction with Section 513.427 made certain pre-petition wages exempt under Missouri law. The Sanders court, when discussing Section 513.427, observed that "the `opt-out' statute itself clearly implies that bankrupt and non-bankrupt debtors are to be treated alike in terms of the exemptions available to them." Sanders, 69 B.R. at 576. The Mitchell court quoted that language with approval. 73 B.R. at 95.

The Mitchell case dealt with whether an unliquidated pre-petition claim for personal injury was exempt under Section 513.427. Since there was not a specific statute dealing with exemption of personal injury claims, the debtors had claimed their interest in the cause of action for personal injury as exempt under the statutory language of Section 513.427. The court, when discussing the type of items of property which may be subject to attachment, stated the following:

In a 1970 case the Missouri Court of Appeals cited an 1876 Missouri Supreme Court case for the proposition that "`The debt for which an attachment may issue must possess an actual character and not be merely possible, and dependent upon a contingency which may never happen.'" State, Government Employees Ins. Co. v. Lasky, 454 S.W.2d 942, 950 (Mo.App.1970); citing, Hearne, et al. v. Keath, et al., 63 Mo. 84, 89 (1876). The court in the Lasky case further noted that "by an unbroken line of decisions since that time our Courts have held that to be the subject of a garnishment the debt must be certain and not contingent." Lasky, 454 S.W.2d at 950.

73 B.R. at 95.

In this case, the tax refunds that the trustee argues are not exempt did not exist in fact on the petition dates. Both petition dates precede the end of the tax year. The refunds, if any, could not be determined by the Internal Revenue Service or anyone else on the petition date, because of income which could have been earned following the filing of the petition, or of deductions or credits for which the debtors/taxpayers may have been eligible following the petition date. Therefore, the "refunds" in question were contingent and not certain on the petition date. Under the Lasky analysis as discussed in Mitchell, such contingent interest could not be attached under Missouri law by any creditor.

Section 513.427 was again discussed in Gaines v. Nelson (In re Gaines), 121 B.R. 1015 (W.D.Mo.1990). In Gaines, the debtors had argued that ERISA-qualified pension plans and individual retirement accounts were exempt under Section 513.427 because they could not be attached or executed upon.

The district court, sitting in an appellate capacity, wrote:

It would seem that the same plain reading of the statute given § 513.427 by the Sanders and Mitchell courts results in ERISA funds being covered by the state exemption statute. In other words, 1) Missouri has opted-out and has chosen to allow as exempt in bankruptcy "any property that is exempt from attachment and execution under... Missouri or ... federal law"; 2) ERISA benefits are made exempt from attachment and execution by Section 206(d) of ERISA; so therefore, 3) ERISA pension benefits are exempt in bankruptcy in Missouri.

121 B.R. at 1020.

The Gaines court then stated: "This Court holds that the debtors' interest in their ERISA pension plans are exempt under Missouri's state exemption statute (§ 513.427) if the statute has not been preempted by ERISA." Id. He then found that the statute had been preempted by ERISA and therefore the debtors could not use Section 513.427 to exempt the ERISA benefits.

The Sanders, Mitchell, and Gaines cases indicate that those courts felt the statutory language was clear and should be applied as written. That reading of Section 513.427 is consistent with what has now become known as "plain meaning doctrine" when analyzing and interpreting statutory language. The United States Supreme Court, in United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), requires such statutory analysis to begin with "the language of the statute itself."

Similarly, under Missouri non-bankruptcy case law, when considering the meaning of a statute, a court

"is to ascertain the intent of the legislature from the language used, to give effect to that intent if possible, and to consider the words used...