In re Camp

• Decision Date: 25 September 2008
• Docket Number: No. 08-11056-CAG.,08-11056-CAG.
• Citation: 396 B.R. 194
• Parties: In re Melvin Joseph CAMP, Jr., Debtor.
• Court: U.S. Bankruptcy Court — Western District of Texas

396 B.R. 194

In re Melvin Joseph CAMP, Jr., Debtor.

No. 08-11056-CAG.

United States Bankruptcy Court, W.D. Texas, Austin Division.

September 25, 2008.

Robert W. Berry, Austin, TX, for Debtor.

MEMORANDUM OPINION IN SUPPORT OF AMENDED ORDER SUSTAINING TRUSTEE'S OBJECTION TO EXEMPTIONS

CRAIG A. GARGOTTA, Bankruptcy Judge.

On July 22, 2008, came on to be heard the Trustee's Objection to Exemptions (the "Objection") filed on behalf of Ronald Ingalls, the Chapter 7 Trustee in the above-styled and numbered case. Counsel for the Trustee and counsel for the Debtor appeared and argued, and the relevant facts are undisputed. At the conclusion of the hearing the Court took the matter under advisement.

BACKGROUND

(The Facts and the Issues Presented)

The overall issue in this case is whether the Debtor may claim the exemptions offered under the Bankruptcy Code — specifically, under 11 U.S.C. § 522(d) [hereinafter, "Code Exemptions"]. The parties do not dispute the applicable facts or what laws govern that question, but do disagree regarding the legal interpretation of the provisions that govern.

The parties agree that the starting place for the Court's analysis is § 522(b), which provides in relevant part:

(b) (1) ... [A]n individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. ...

(2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize.

(3) Property listed in this paragraph is —

(A) ... any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 730 days immediately preceding the date of the filing of the petition or if the debtor's domicile has not been located at a single State for such 730-day period, the place in which the debtor's domicile was located for 180 days immediately preceding the 730-day period. ...

* * *

If the effect of the domiciliary requirement under subparagraph (A) is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is specified under subsection (d).

There is no dispute that the Debtor, although he properly filed this case in Texas, has not lived in Texas "for the 730 days immediately preceding the date of the filing of the petition." The parties also agree that the "the place in which the debtor's domicile was located for 180 days immediately preceding the 730-day period" was Florida. They also agree that it is Florida's "opt-out" statute that, under § 522(b)(2), determines at least in part whether he may claim Code Exemptions. They disagree, however, on how that Florida opt-out statute should be applied in this case. In particular, they disagree on whether that statute "specifically does not ... authorize" the Debtor to claim Code Exemptions.

In the alternative, the Debtor argues that even if the Florida opt-out statute does not authorize him to elect Code Exemptions, he is nevertheless entitled to claim them under the above-quoted savings clause contained in the "hanging paragraph" at the end of § 522(b).

APPLICABILITY OF THE FLORIDA OPT-OUT STATUTE

(Whether Florida's Opt-Out Statute Applies to the Debtor, a Non-Resident of Florida)

The Debtor cites In re Battle, 366 B.R. 635 (Bankr.W.D.Tex.2006), and In re Schulz, 101 B.R. 301 (Bankr.N.D.Fla.1989) upon which Battle relied, as support for the Debtor's position that, according to § 522(b)(2), he is entitled to claim Code Exemptions because the law of Florida, undisputedly applicable to him under § 522(b)(3)(A), does not prohibit that claim. Battle and Schulz held that because the language of the Florida opt-out statute, § 222.20 of the Florida Statutes, limits its application to residents of Florida, if (as here) the debtor is not a resident of Florida on the petition date the opt-out statute does not apply to the debtor, who may therefore elect Code Exemptions.

In response, the Trustee argues in essence that Battle was wrongly decided and that this Court should reject its reasoning and result. He urges the Court to instead decide that Florida law "specifically does not so authorize" the Debtor's use of Code Exemptions and that he is, therefore, restricted according to § 522(b)(2) to claiming exemptions under Florida law and any applicable non-bankruptcy federal exemption law [hereinafter, "Florida Exemptions"].

This Court has carefully reviewed the Battle opinion and considered its reasoning, and acknowledges that other bankruptcy courts, both before and after Battle, have also held that where the choice of law provisions of § 522(b)(3)(A) require the application of the exemption laws of a state in which the debtor did not reside as of the petition date, and such state has opted out of the Code Exemptions, the debtor may nevertheless choose Code Exemptions where the state's opt-out statute expressly states that it is not applicable to non-residents.¹

At first blush, these courts' reasoning appears sound. It relies exclusively on the language of the applicable opt-out statute. In this case, the applicable Florida statute provides:

Nonavailability of federal bankruptcy exemptions

In accordance with the provision of s. 522(b) of the Bankruptcy Code of 1978 (11 U.S.C. s. 522(b)), residents of this state shall not be entitled to the federal exemptions provided in s. 522(d) of the Bankruptcy Code of 1978 (11 U.S.C. s. 522(d)). Nothing herein shall affect the exemptions given to residents of this state by the State Constitution and the Florida Statutes.

Fla. Stat. § 222.20 (2008). Florida has thus expressed its judgment that its residents who file bankruptcy should be restricted to claiming Florida Exemptions. Congress decided when it enacted the 1978 Bankruptcy Code to honor such decisions by the states that have made them, by expressly incorporating such "opt-out" provisions by reference in § 522(b)(2).

Residency restrictions in a state's exemption laws, including residency restrictions applicable to its opt-out statute, are equivalent to choice of law provisions— they address the question of what state's laws should determine the exemptions of a debtor who has moved from one state to another. Laura B. Bartell, The Peripatetic Debtor: Choice of Law and Choice of Exemptions, 22 Emory Bankr.Dev. J. 401, 417-18 (2006) [hereinafter, The Peripatetic Debtor]. However, by adopting § 522(b)(2) and (3)(A), Congress expressed its own judgment that, in instances where a debtor moves from one state to another within 730 days before filing bankruptcy, his exemptions should be determined by the exemption laws (including any opt-out law) of his former domiciliary state. Thus, the issue in this case (and in Battle and similar cases) arises because of the conflict between a state law choice of law provision and the federal choice of law provision contained in § 522(b)(2) and (3)(A). Such conflicts are traditionally resolved by applying the doctrine of preemption. See e.g., Boggs v. Boggs, 520 U.S. 833, 844, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997) ("In the face of this direct clash between state law and the provisions and objectives of [a federal statutory scheme], the state law cannot stand [because c]onventional conflict pre-emption principles require pre-emption where compliance with both federal and state regulations is a physical impossibility, ... or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.") (internal quotation marks and citation omitted); CSX Transp., Inc. v. Easterwood 507 U.S. 658, 663, 113 S.Ct. 1732, 123 L.Ed.2d 387 (1993) ("Where a state statute conflicts with, or frustrates, federal law, the former must give way."); Gade v. National Solid Wastes Management Ass'n, 505 U.S. 88, 103, 112 S.Ct. 2374, 120 L.Ed.2d 73 (1992) ("In determining whether state law stands as an obstacle to the full implementation of a federal law, ... it is not enough to say that the ultimate goal of both federal and state law ... is the same, [but rather a] state law also is pre-empted if it interferes with the methods by which the federal statute was designed to reach th[at] goal.") (internal quotation marks and citations omitted).

The courts deciding Battle and similar cases, however, did not address this conflict between the applicable state opt-out statute and the federal statute, § 522(b)(3)(A), or the question of preemption. Instead, those courts assumed, without discussion, that § 522(b)'s incorporation of each state's substantive exemption laws also incorporated the state law choice of law provisions that each state applies to its exemption laws outside of bankruptcy (e.g., the residency restriction in its opt-out statute). In doing so, those courts have effectively written out of § 522(b)(3)(A) Congress's own considered policy judgment on which state's law should apply when a debtor moves before filing bankruptcy.

In two cases where the Courts did explicitly address whether state law choice of law provisions were incorporated by § 522(b)(3)(A)'s incorporation of the exemption laws of a particular state, the Eighth and Ninth Circuit Courts of Appeals have both (1) noted that § 522(b)(3)(A)² is a federal choice of law provision, and (2) held that it does not incorporate the whole of a state's laws and therefore does not incorporate its choice of law principles. See In re Drenttel, 403 F.3d 611, 614-15 (8th Cir.2005)³ and In re Arrol, 170 F.3d 934, 936 (9th Cir.1999).

This Court agrees with the holdings in Drenttel and Arrol that state law choice of law provisions like residency restrictions are not incorporated in § 522(b)(3)(A). Section 522(b)(2) directs us to look at "the State law that is...