In re Davis, 22935

• Citation: 681 NW 2d 452,2004 SD 70
• Decision Date: 26 May 2004
• Docket Number: No. 22935,22935
• Court: Supreme Court of South Dakota
• Parties: IN RE: DOROTHY DAVIS, Bankruptcy Debtor.

2004 SD 70

681 NW 2d 452

IN RE: DOROTHY DAVIS, Bankruptcy Debtor.

No. 22935

Supreme Court of South Dakota.

Argued on February 18, 2004

Opinion Filed May 26, 2004

LAWRENCE E. LONG, Attorney General, DAVID D. WIEST, Assistant Attorney General, Pierre, South Dakota, Attorneys for Intervenor.

JAMES A. CRAIG, Sioux Falls, South Dakota, Attorney for Bankruptcy Debtor Dorothy Davis.

JOHN S. LOVALD of Olinger, Lovald, McCahren and Reimers, Pierre, South Dakota, Chapter 7 Bankruptcy Trustee.

KONENKAMP, Justice.

[¶ 1.] The United States District Court for the District of South Dakota, the Honorable Lawrence L. Piersol, Chief Judge, certified two questions for this Court: (1) Whether the last sentence of SDCL 43-45-3(2) violates Article VI §18 of the South Dakota Constitution. (2) Whether the last sentence of SDCL 43-45-3(2) violates Article XXI §4 of the South Dakota Constitution. On the first question, we rule in the negative, but on the second question, we hold that because the last sentence of SDCL 43-45-3(2) fails to set a limit on the amount of a homestead exemption that may be claimed by persons seventy or older, it violates Article XXI §4 of our Constitution.

Background

[¶ 2.] The debtor, Dorothy Davis, filed a Petition for Relief under Chapter 7 of the United States Bankruptcy Code. At the time, she was seventy-five years of age. Because she was over seventy, she sought a homestead exemption for the entire equity of her home. The value of the claimed exemption surpassed $30,000.

[¶ 3.] The bankruptcy trustee objected to this unlimited exemption on the ground that it violates the South Dakota Constitution. Specifically, the trustee questioned whether the last sentence of SDCL 43-45-3(2) violates either Article VI §18 or Article XXI §4 of the South Dakota Constitution. Because resolving these issues would have required a federal court to determine whether a South Dakota statute violated the South Dakota Constitution, the questions were certified to this Court for consideration.

Analysis and Decision

[¶ 4.] Homestead exemptions protect the security of the home and family against the claims of creditors. Speck v. Anderson, 318 NW2d 339, 343 (SD 1982). This Court has always jealously guarded these exemptions guaranteed in both our Constitution and statutes. Id. Our primary duty is to our Constitution. Laws violating the Constitution cannot stand. We presume that statutes are constitutional unless shown otherwise beyond a reasonable doubt. Accounts Management, Inc. v. Williams, 484 NW2d 297, 299 (SD 1992). If possible, we interpret statutes reasonably to find them constitutional and valid. State v. Krahwinkel, 2002 SD 160, ¶43, 656 NW2d 451, 466. The party asserting the unconstitutionality of a statute bears the burden of persuasion. Id.

I.

[¶ 5.] Question 1: Whether the last sentence of SDCL 43-45-3(2) violates Article VI §18 of the South Dakota Constitution. The trustee argues that SDCL 43-45-3(2) violates Article VI §18 of the South Dakota Constitution by creating two classes of debtors. Article VI §18 provides:

No law shall be passed granting to any citizen, class of citizens or corporation, privileges or immunities which upon the same terms shall not equally belong to all citizens or corporations.

"[W]hen a statute has been called into question because of an alleged denial of equal protection of the laws," we employ our traditional two-part test. Accounts Management, 484 NW2d at 299-300. First, we determine whether the statute creates arbitrary classifications among citizens. City of Aberdeen v. Meidinger, 89 SD 412, 233 NW2d 331, 333 (1975). Second, if the classification does not involve a fundamental right or suspect group, we determine whether a rational relationship exists between a legitimate legislative purpose and the classifications created. Accounts Management, 484 NW2d at 300.

[¶ 6.] Homestead laws are designed to protect societal and familial interests centered on a secure home, by restricting the circumstances where a home may be taken for payment of debts. Gross v. Gross, 491 NW2d 751, 753 (SD 1992); Kingman v. O'Callaghan, 4 SD 628, 637-38, 57 NW 912, 915 (1894). The final sentence in SDCL 43-45-3(2) grants an unlimited homestead exemption to those over the age of seventy. Effectively, then, the statute creates two distinct classes of debtors: those who have attained the age of seventy and those who have not.

[¶ 7.] Nonetheless, we cannot say that the Legislature's creation of the separate classes was arbitrary. We consider such classifications arbitrary only if they were made "[w]ithout adequate determining principle." Accounts Management, 484 NW2d at 300. As pointed out by Amicus Curiae, AARP, approximately 73,000 of South Dakota's citizens who are seventy years of age or older live outside of an institutionalized setting. Of these, nearly half have some disability. In addition, the income of elderly South Dakotans is significantly less than that of the general population. We believe that such obvious discrepancies between elderly South Dakotans and all others provide an adequate "determining principle" upon which the Legislature may have deemed it appropriate to create the separate classifications. Therefore, SDCL 43-35-3(2) meets the first part of our test.

[¶ 8.] Under the second part, the State need only show that a rational relationship exists between the creation of the classifications and some legitimate state interest. Accounts Management, 484 NW2d at 300. Numerous courts have found that age classification promotes legitimate and rational state interests. See, e.g., Jefferson v. Hackney, 406 US 535, 92 SCt 1724, 32 LEd2d 285 (1972) (higher welfare benefits); Acevedo v. Nassau County, 500 F2d 1078 (2dCir 1974) (low income housing); Action Alliance for Senior Citizens of Greater Philadelphia v. Shapp, 400 FSupp 1208 (EDPa 1975)(property tax relief); Ex parte Melof, 735 So2d 1172 (Ala 1999) (tax exemption for state retirees); Kahn v. Thompson, 916 P2d 1124, 1128 (ArizCtApp 1995) (discounts at local businesses); Doran v. Cullerton, 283 NE2d 865 ( Ill 1972) (homestead exemption for persons 65 and older); State ex rel. Harvey v. Morgan, 139 NW2d 585 (Wis 1966) (tax relief). In accord with the same principles, we believe public policies assisting older South Dakotans to stay in their homes as they age is rationally related to a legitimate state interest.

[¶ 9.] The trustee cites as controlling our earlier decision in O'Leary v. Croghan, 42 SD 210, 173 NW 844 (1919). In O'Leary, this Court held that the Legislature's attempt to create separate classes of debtors was not authorized by Article XXI §4 of the Constitution and was "expressly prohibited by the provisions of [Article VI §18]." 173 NW at 845. The Court reasoned that "[t]he discriminations that have been attempted by the Legislature may be wise and in the interest of the public at large, but until the Constitution has been changed the Legislature is without authority to make them." Id. While the Constitution has not changed, our test for deciding when a statute violates the "Privileges and Immunities Clause" has. See City of Aberdeen, 89 SD 412, 233 NW2d 331. A strict reading of that clause is limited to matters involving suspect classes or fundamental rights. See Accounts Management, 484 NW2d at 300

. Therefore, insofar as our opinion in O'Leary contradicts our conclusion here, it is overruled.

II.

[¶ 10.] Question 2: Whether the last sentence of SDCL 43-45-3(2) violates Article XXI §4 of the South Dakota Constitution. Our constitutional provisions do not confer power upon the Legislature, rather they impose limitations on legislative authority. Breck v. Janklow, 2001 SD 28, ¶9, 623 NW2d 449, 454. As such, in determining the constitutionality of statute, our first task is to ascertain the limitations on legislative authority set down by our Constitution.

[¶ 11.] Article XXI §4 of the South Dakota Constitution declares:

The right of the debtor to enjoy the comforts and necessaries of life shall be recognized by wholesome laws exempting from forced sale a homestead, the value of which shall be limited and defined by law, to all heads of families, and a reasonable amount of personal property, the kind and value of which to be fixed by general laws.

[¶ 12.] We have not dealt directly with the question how the Constitution requires the Legislature to limit the value of a homestead exemption. However, this Court has determined that in regard to the personal property exemption, the Constitution mandates a monetary limit. In Skinner v. Holt, 9 SD 427, 69 NW 595, 597 (1896), this Court ruled that a legislative act, which provided that proceeds received by a debtor from a life insurance policy were exempt without limit from the payment of debts, violated Article XXI §4 of the Constitution. Reasoning that an unlimited exemption "furnishe[d] no basis for computation or measure of value," the Court held that such an unlimited exemption was "clearly repugnant to . . . the [C]onstitution of this [S]tate."¹ Id.

[¶ 13.] The debtor points to our discussion in Hansen v. Hansen, 40 SD 114, 166 NW 427 (1918), as standing for the proposition that the Legislature need not impose a monetary limit on the amount that may be exempted. This argument is unpersuasive. The issue presented in Hansen was whether, by statute, the Legislature had limited the value of a homestead, not whether our Constitution mandated that the value of a homestead exemption be limited. In concluding that our Constitution did not mandate a limit on the value of a homestead, the Hansen Court differentiated between a statute limiting and defining the value of a homestead with one limiting and defining the value of a homestead exemption.² Id. The Court reasoned:

At first glance, this section appears to contain, or rather to recognize, a limitation on the value of the homestead. But such is not the case. [This section] does not purport to define or limit the homestead

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