In re Carlson, Bankruptcy No. BKY 4-84-147.
| Decision Date | 01 June 1984 |
| Docket Number | Bankruptcy No. BKY 4-84-147. |
| Citation | 40 BR 746 |
| Parties | In re Grant Carl CARLSON and Ruth Ann Carlson, fdba Grant Carlson Salvage, Debtors. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
Robert Milavetz, Joan McCormack and Steve Elias, Milavetz & Associates, P.A., Crystal, Minn., for petitioner.
Joel T. Miller, Duluth, Minn., for Norwest Bank of Duluth.
Daniel J. Buivid, Jr., St. Paul, Minn., for the firm & Employers Mut. Cas. Ins. Co.
Lommen, Nelson, Sullivan & Cole, P.A., Minneapolis, Minn., Jon J. Hoganson, Minneapolis, Minn., for Dunlap, Keith, Finseth, Berndt & Sandberg.
Winthrop, Weinstine & Sexton, St. Paul, Minn., William L. French, Muir, Heuel & Carlson, P.A., Rochester, Minn., for Road Constructors, Inc. & William Quick.
Bruce Elliot, Cousineau, McGuire, Shaughnessy & Anderson, Minneapolis, Minn., for H.S. Dresser Co.
Paul J. Scheerer, Dorsey & Whitney, Minneapolis, Minn., for Mayo Clinic & St. Mary's Hosp.
Thomas F. Miller, Minneapolis, Minn., Trustee.
ORDER ALLOWING EXEMPTION
This matter came on for hearing on various objections to the debtors' claim of certain exempt property. Robert Milavetz and Joan McCormack appeared on behalf of the debtors, Paul J. Scheerer appeared on behalf of the Mayo Clinic and St. Mary's Hospital, Inc. Joel T. Mitchell appeared on behalf of Norwest Bank Duluth and Thomas F. Miller, the trustee, appeared in propria persona. Based on the files and records, the argument and agreement of counsel, I make the following:
FINDINGS OF FACT1
1. In October of 1981, the debtor, Grant Carlson, was injured in a construction accident.
2. A lawsuit was filed on his behalf and on behalf of his wife, debtor, Ruth Ann Carlson, against Road Constructors, Inc. and H.S. Dresser & Sons, Inc. (Dresser) in Winona County District Court.
3. A settlement of that litigation was reached and the terms of that settlement read into the record on January 19, 1984. As part of the settlement, the defendants agreed to pay the plaintiffs $47,500.00. In exchange, the Carlsons agreed to release both defendants from all claims which normally arise from such personal injury actions including past and future medical expenses, past and future pain and suffering and permanent disability. Ruth Ann Carlson was also a plaintiff and agreed to release her claims for her loss of companionship and other damage suffered as a result of her husband's injury. The settlement did not deal with the division of the payment between the two defendants nor how the debtors would share the settlement.
4. On January 20, 1984, CNA, Dresser's insurer, issued its draft in the amount of $7,500.00 payable to the debtors and their attorneys.
5. On January 27, 1984, Employers Mutual, Road Constructors' insurer, issued its draft in the sum of $40,000 payable to the debtors and their attorneys.
6. Also on January 27, 1984, the debtors filed their Chapter 7 bankruptcy petition.
7. With their petition, the debtors attached a Schedule B-2 listing as one of their assets, the litigation against Road Constructors and Dresser stating "Settlement pending—Approx. net value $27,000.00". On their Schedule B-4 they claimed as exempt "right of action for injuries to the person of the debtors MSA 550.37(22) 27,000.00".
8. On January 31, Road Constructors which had a prior judgment against the debtors served a garnishment summons on the Commissioner of Insurance purporting to garnish the $40,000.00 insurance draft.
9. Also on January 31, 1984, Dresser's attorney mailed the $7,500 draft to the debtors' attorney.
10. On February 1, 1984, the attorneys for Road Constructors received the $40,000.00 draft from Employers Mutual.
11. On February 6, 1984 the debtors filed an amended Schedule B-4 amending that schedule to claim as exempt their right of action for injuries to the persons of the debtor in the new amount of $47,500.00.
12. Also on February 6, 1984, the attorneys for Road Constructors received their first actual notice of the filing of the bankruptcy in a phone conversation with one of the attorneys for the debtors.
13. On February 9, 1984, the debtors signed a release of Dresser and endorsed the $7,500.00 insurance draft as did the debtors' attorneys. $4,500.00 of that amount was paid to the debtors and $3,000.00 was retained by the debtors' attorneys.
14. On February 10, 1984 the attorneys for Road Constructors notified the debtors' attorney that he intended to send Road Constructors draft directly to the trustee.
15. On March 8, 1984, the trustee received the $40,000.00 draft.
16. Also on March 8, 1984, Road Constructors filed an objection to the debtors' claim of their personal injury action as exempt.
17. On March 10, 1984, the trustee endorsed the $40,000.00 draft. No release was signed other than whatever language appears on the reverse side of the draft.
18. On March 14, 1984, the trustee filed an objection to the debtors' claim of their personal injury action as exempt.
19. On March 19, 1984, Norwest Bank Duluth filed an objection to the debtors' claim of their personal injury action as exempt.
20. On March 29, 1984, the Mayo Clinic and St. Mary's Hospital, Inc. filed an objection to the debtors' claim of their personal injury action as exempt.
21. On April 25, 1984, a hearing was held on the various objections to the exemption claim.
The debtors have exercised the right given them by 11 U.S.C. § 522(b)(2) to claim as exempt in their bankruptcy those exemptions granted to them by the laws of the state of Minnesota. This exemption dispute centers around Minn.Stat. § 550.37, subd. 22 which provides an exemption from attachment, garnishment or sale on any final process for "rights of action for injuries to the person of the debtor or of a relative whether or not resulting in death." Specifically two questions arise. At the time their bankruptcy petition was filed, did the debtors possess a "right of action for injuries," or was their interest something else. Secondly, it is necessary to decide the scope of the exemption provided by that Minnesota statute. Subd. 22 was added by 1980 Minn.Laws, c. 599. The exemption provision was added to that law in a conference committee. As a result, there is no committee report or even committee hearings to help determine the meaning of that subdivision. There are also no reported decisions by any Minnesota court construing the exemption. Thus I am left in the very uncomfortable position of attempting to interpret a state statute without any guidance from the legislature or the courts of this state. Since it is a task that cannot be avoided, I will do the best that I can.
I will first face the question that I posed second. Specifically, I must determine whether or not the exemption covers Grant Carlson's claim including permanent disability, pain and suffering, past or future medical expenses, loss of past or future income or other economic loss. Likewise, I must determine whether or not Ruth Ann Carlson is entitled to exempt her claims from the estate which for lack of a better term can be summed up in the common phrase, "loss of consortium". The objectors all urge a narrow construction of the statute to include apparently only claims for permanent disability. I disagree. While I always hesitate to ascribe any intention to a legislative body, I conclude that the Minnesota legislature intended an extremely broad exemption in subd. 22. I think so for at least three reasons.
With the exception of the substitution of the word debtor for bankrupt, subd. 22 is identical to § 70a(5). Although included in the title to property section of the Bankruptcy Act, the quoted language from § 70a(5) is in effect a federal exemption in bankruptcy without explicitly calling it such. The Minnesota Supreme Court has held that an unliquidated personal injury claim is not subject to garnishment. Northwestern National Bank of Bloomington —Richfield v. Hilton & Associates, 271 Minn. 564, 136 N.W.2d 646 (1965). Therefore, under § 70(a)(5) the entire personal injury action (i.e. right of action for injuries to the person) did not pass to the trustee, was in effect exempt. The language in § 70 had been broadly interpreted under the act to include basically the entire cause of action resulting from a personal injury.
The onset of the new Bankruptcy Code resulted in such causes of action becoming property of the estate under § 541 and those debtors claiming the state exemptions would not now be able to keep those causes of action from the trustee. Thus I think it is a fair conclusion that the legislature intended the exemption in § 522 to be a replacement in the state exemptions for the de facto exemption which had been lost with the repeal of § 70a(5).
Secondly, I think if we look to the timing of the adoption of the new exemption and the circumstances surrounding it, we can get some hint of what the legislature had in mind. The Bankruptcy Reform Act was effective October 1, 1979. For the first time, debtors in bankruptcy cases had their choice between the exemptions found in 11 U.S.C. § 522(d), the so-called federal exemptions or the...
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