In re Duffin, No. 09-28879

• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Utah
• Writing for the Court: R. KIMBALL MOSIER
• Citation: 441 B.R. 692
• Parties: In re Coby R. DUFFIN and Jeanie Marie Duffin, Debtors.
• Docket Number: No. 09-28879
• Decision Date: 12 April 2010

441 B.R. 692

In re Coby R. DUFFIN and Jeanie Marie Duffin, Debtors.

No. 09-28879.

United States Bankruptcy Court,
D. Utah.

April 12, 2010.

441 B.R. 694

Geoffrey C. Dietrich, G.C. Dietrich Law, P.C., Clearfield, UT, for Debtors.

MEMORANDUM DECISION

R. KIMBALL MOSIER, Bankruptcy Judge.

This matter initially came before the Court on the Objection to Exemption (Objection) filed by Stephen W. Rupp (Trustee), the Chapter 7 trustee in this case. The Court denied the Trustee's Objection. The Trustee filed a motion under Rule 60 of the Federal Rules of Civil Procedure for relief from the Court's order denying the Trustee's Objection and a motion under Rule 59 of the Federal Rules of Civil Procedure to alter or amend the Court's order and for a new hearing. The Court granted the Trustee's motion for a new hearing. For the reasons set forth herein, the Court denies the Trustee's motion under Rule 60 for relief from the Court's order denying the Trustee's Objection and the motion under Rule 59 to alter or amend the Court's order.

FACTS

Coby R. Duffin and Jeanie Marie Duffin (Debtors) filed a Chapter 7 bankruptcy petition on August 20, 2009 (Petition Date). On the Petition Date, the Debtors owned two State Farm Insurance Company universal life insurance policies (Policies). One of the Policies is owned by Coby R. Duffin and is listed on the Debtors' "Schedule B—Personal Property" at a value of $4,000.00. The other policy is owned by Jeanie Marie Duffin and is listed at a value of $4,500.00. The Debtors claimed the full value of the Policies exempt in their "Schedule C—Property Claimed As Exempt".

On October 8, 2009, the Trustee timely objected to the Debtors' claimed exemption of the Policies. The Trustee's Objection argued that the Debtors testified at the first meeting of creditors that during the year prior to the Petition Date they made premium payments on the Policies totaling $300.00 per month for a total of $3,600.00, and that under Utah Code Annotated § 78B-5-505(1)(a)(xiii) (the Statute), the Debtors are not entitled to an exemption of payments made on the Policies during the one-year period prior to the Petition Date.

The Debtors' response to the Trustee's Objection states that at the first meeting of creditors, they erroneously overstated the amount of the contract payments on the Policies and that the Debtors only paid $226.00 per month for a total of $2,712.00 during the one-year period prior to the Petition Date. The Debtors contend that payments made on universal life policies consist of separate components: 1) a term life component plus administrative fees; and 2) an investment component with an accruing cash value, and that only payments made on the investment component should be excluded from their claimed exemption. At the hearing, the Trustee conceded that the Debtors only paid $226.00 per month on the Policies for a total paid during the one-year period of $2,712.00.

JURISDICTION AND VENUE

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(b)(2)(A), (B), (E), and (O), and 1334. Venue is appropriate under 28 U.S.C. § 1408(1).

ANALYSIS

I. The Utah Insurance Policy Exemption Statute.

441 B.R. 695

Under 11 U.S.C. § 522(b),¹ a state may determine that state law exemptions apply in bankruptcy cases and preclude debtors from claiming federal exemptions in bankruptcy cases. The State of Utah did this. See Utah Code Annotated § 78B-5-513. The Debtors claimed the Policies exempt under Utah Code Annotated § 78B-5-505, which provides that an individual is entitled to exemption of proceeds and avails of unmatured life insurance policies. Utah Code Annotated § 78B-5-505(1)(a)(xiii) reads as follows:

(1)(a) An individual is entitled to exemption of the following property:
....

(xiii) proceeds and avails of any unmatured life insurance contracts owned by the debtor or any revocable grantor trust created by the debtor, excluding any payments made on the contract during the one year immediately preceding a creditor's levy or execution[.]

To resolve the Trustee's Objection, this Court must interpret the Statute under the laws of the State of Utah. When a federal court is called upon to interpret state law, the federal court must look to the rulings of the highest state court, and, if no such rulings exist, it must endeavor to predict how that high court would rule. The decision of an intermediate appellate state court is a datum for ascertaining the state law question. Stickley v. State Farm Mutual Automobile Insurance Co., 505 F.3d 1070 (10th Cir.2007). The Court is unaware of any Utah State Supreme Court or intermediate court cases interpreting U.C.A. § 78B-5-505(1)(a)(xiii). Neither of the parties to this dispute cited to any cases decided by a court of the State of Utah. Where no state cases exist on a point, a federal court must turn to other state court decisions, federal decisions, and the general weight and trend of authority to interpret the state law question. Estate of Harris v. Harris, 218 F.3d 1140 (10th Cir.2000). This Court will approach the analysis accordingly.

The plain meaning of legislation should be conclusive, except in the rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters. In such cases, the intention of the drafters, rather than the strict language, controls. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 243, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). It is well established that when a statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms. Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004). Both clauses found under U.C.A. § 78B-5-505(1)(a)(xiii) avail themselves to interpretation under the plain meaning rule.

The first clause of the Statute operates to allow an exemption for proceeds and avails of any unmatured life insurance contracts. Neither party argues that the first clause of the Statute does not serve to grant an exemption of the Debtors' Policies. This Court finds that the plain language of the first clause grants an exemption of the proceeds and avails of the Policies owned by the Debtors.

The second clause of the Statute serves to exclude from exemption, any payments made on life insurance contracts during the one year immediately preceding a creditor's levy or execution. In this case, the Debtors made payments on the Policies

441 B.R. 696

during the one year immediately preceding the Petition Date that total $2,712.00. The Trustee argues that under the terms of the second clause of the Statute, the entire amount of the $2,712.00 paid by the Debtors during the one year immediately preceding the Petition Date must be excluded from the Debtors' exemption. The Debtors argue that only payments allocated to the investment savings component of the Policies should be excluded from the Debtors' claimed exemption. For the reasons set forth below, the Court does not address the argument advanced by the Debtors.

The Trustee alleges that the Debtors filed for protection under the bankruptcy laws on August 20, 2009 and seeks to exclude from exemption all payments the Debtors made on the Policies within one year prior to the Petition Date. The flaw in the Trustee's argument is that the Statute does not provide for the exclusion of payments made on a life insurance contract during the one year prior to the filing of a bankruptcy petition. The Statute excludes payments made on a life insurance contract during the one year immediately preceding a creditor's levy or execution. By its own terms, the second clause of the Statute only comes into operation when there has been a creditor's levy or execution. The Statute is not open ended and does not invite additional triggering events.

Although the Trustee appears to treat the Debtors' voluntary bankruptcy petition as a creditor's levy or execution for purposes of the Statute, another canon of statutory construction prohibits this Court from doing so. "We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last and judicial inquiry is complete." Connecticut Nat. Bank v. Germain, 503 U.S. 249, 253-254, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992) (citations omitted).

Any argument that the Utah Legislature may have meant to include the event of a bankruptcy petition as a triggering event for the second clause of the Statute is further...