In re Hummel
| Decision Date | 19 November 2010 |
| Docket Number | Bankruptcy Nos. 09-32894-EWH,BAP Nos. AZ-10-1202-JuBaPa,Bankruptcy Nos. 10-02018-EWH,BAP Nos. AZ-10-1206-JuBaPa |
| Citation | 440 B.R. 814 |
| Parties | In re Ronda Liane HUMMEL, Debtor. Trudy A. Nowak, Chapter 7 Trustee, Appellant, v. Ronda Liane Hummel, Appellee. In re Joan A. Tober, Debtor. Beth Lang, Chapter 7 Trustee, Appellant, v. Joan A. Tober, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Appellant Trudy A. Nowak, Esq., Rochester, NY, argued for herself and appellant Beth Lang.
Alan R. Solot, Esq., Tucson, AZ, argued for appellees Ronda L. Hummel and Joan A. Tober.
Before: JURY, BAUER,1 and PAPPAS, Bankruptcy Judges.
Chapter 7 2 trustee Trudy A. Nowak ("Nowak") appeals the bankruptcy court's order overruling her objection to debtor Ronda L. Hummel's ("Hummel") exemption under Ariz.Rev.Stat. § 33-1126(A)(6) and § 20-1131(D) (BAP No. 10-1202).
Chapter 7 trustee Beth Lang ("Lang") appeals the bankruptcy court's order overruling her objection to debtor Joan A. Tober's ("Tober") exemption under Ariz.Rev.Stat. § 33-1126(A)(7) (BAP No. 10-1206).
Both appeals involve the construction of the identical phrases contained in Ariz.Rev.Stat. §§ 33-1126(A)(6) 3 and (7), which allow a debtor to exempt the cash surrender value of life insurance policies and proceeds of annuity contracts if they name certain beneficiaries. At issue is whether either subsection of the statute requires that a child named as a beneficiary also be a dependent of the debtor in order for the debtor to obtain the exemption.
As a matter of first impression in Arizona, we hold that the statute imposes such a requirement and REVERSE the bankruptcy court's order in each appeal.
On January 27, 2010, Hummel filed her chapter 7 petition. Nowak was appointed the chapter 7 trustee. At the time Hummel filed her petition, she owned three Prudential Whole Life Insurance Policies with cash surrender values of $27,608.02, $3,266.82, and $10,188.01. Hummel listed the policies in her Schedule B and claimed them 100% exempt in Schedule C under Ariz.Rev.Stat. § 33-1126(A)(6) and § 20-1131(D). Hummel named her adult, nondependent daughter as the beneficiary under each policy. Hummel did not list her daughter as a dependent in her Schedule I or tax returns.
Nowak objected to Hummel's exemption in the cash surrender value of the policies on the ground that the exemption did not apply if the named beneficiary was an adult, nondependent child of the debtor. The bankruptcy court overruled her objection by order entered on May 26, 2010. Nowak timely appealed.
On December 21, 2009, Tober filed her chapter 7 petition. Lang was appointed the chapter 7 trustee. When Tober filed her petition she owned a Nationwide Annuity valued at $33,316.52, which she listed in her Schedule B and claimed 100% exemptin Schedule C under Ariz.Rev.Stat. § 33-1126(A)(7). Tober named her adult, nondependent daughter as the beneficiary in the annuity contract. Tober did not list her daughter as a dependent in her Schedule I or tax returns.
Lang objected to Tober's exemption in the annuity contract on the ground that the exemption did not apply if the named beneficiary was an adult, nondependent child of the debtor. The bankruptcy court overruled her objection by order entered on May 26, 2010. Lang timely appealed.
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 over this core proceeding under § 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
Whether Ariz.Rev.Stat. § 33-1126(A)(6) and (7) require that a child of the debtor named as a beneficiary under a life insurance policy or an annuity contract also be a dependent of the debtor in order for the debtor to obtain the exemption.
We review the bankruptcy court's conclusions of law and questions of statutory interpretation de novo. Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 32 (9th Cir. BAP 2008).
Section 541(a)(1) of the Bankruptcy Code provides that "property of the estate" includes "all legal or equitable interests of the debtor in property as of the commencement of the case." It is undisputed that debtors Hummel and Tober owned the property they claimed exempt which became part of their respective estates.
The Bankruptcy Code permits a debtor to exempt from property of the estate certain property for which an exemption is available under either state or federal law. § 522(b). Arizona has opted out of the federal exemptions, leaving debtors in Arizona to resort to the state law exemptions. See Ariz.Rev.Stat. § 33-1133(B). Therefore, substantive issues regarding the allowance or disallowance of the claimed exemptions at issue in this appeal are governed by Arizona law. Turner v. Marshack (In re Turner), 186 B.R. 108, 113 (9th Cir. BAP 1995).
For Arizona residents, the exemption of certain insurance and annuity benefits or proceeds is governed by Ariz.Rev.Stat. § 33-1126 which provides in relevant part:
The trustees contend that the listed beneficiaries in each subsection (surviving spouse, child, parent, etc.) are, in effect, a subset of the subsequent phrase "other dependent family members." In essence, the trustees urge us to view the word "other" as a connecting modifier and, thus, all beneficiaries specifically listed in the statute, and "any others", must be (1) family members and (2) dependent on the debtor. On the other hand, debtors assert that the phrase "any other dependent family member" constitutes a separate class of beneficiaries from those previously listed. Under this view, the word "other" would seem to be one of differentiation. See Jama v. Immigration & Customs Enforcement, 543 U.S. 335, 343 n. 3, 125 S.Ct. 694, 160 L.Ed.2d 708 (2005) ().
No Arizona court has addressed the question before us. In the absence of a controlling decision we interpret the statute as we believe the highest state court would. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1548 (9th Cir.1990). When interpreting a statute, Arizona courts look to its plain language as the best indicator of the legislature's intent. Ariz. Tile, L.L.C. v. Berger, 223 Ariz. 491, 224 P.3d 988, 992 (2010). If the meaning of the statutory language is clear and unambiguous, the court does not employ any other methods of construction. Id. We conclude the statutory language at issue in this appeal is ambiguous because it is susceptible to plausible, although contradictory, interpretations. Accordingly, we employ other methods of statutory construction to ascertain the legislature's intent. See Hayes v. Cont'l Ins. Co., 178 Ariz. 264, 872 P.2d 668, 672 (1994).
When a statute contains a list, as here, we are mindful that the legislature in drafting the statute could not possibly specify all the family members who may be named as beneficiaries. Thus, in reading the statute, we use the rule of statutory construction that "[w]hen several words are followed by a clause which is applicable as much to the first and other words as to the last, the natural construction of the language demands that the clause be read as applicable to all." Porto Rico Ry., Light & Power Co. v. Mor, 253 U.S. 345, 348, 40 S.Ct. 516, 64 L.Ed. 944 (1920). While not dispositive, application of this rule lends support to the trustees' position. Under a "natural construction," the phrase "dependent family member" applies as much to the previously enumerated family members (surviving spouse, parent, child, etc.) as it does to "any other" family member. Moreover, this construction gives meaning both to the specific words listing family members and the general words that extend the provisions of the statute to everyone embraced in that class—"any other dependent family member."
We also examined the legislative history for each of the subsections at issue. 6Ariz.Rev.Stat. § 33-1126(A)(7) was added to Ariz.Rev.Stat. § 33-1126 in 2005. The legislative history we reviewed reveals no useful information pertaining to the interpretation of the phrase at issue or the purpose behind the annuity contract exemption. However, our review of the legislative history for the 1992 amendment of subsection (A)(6) (formerly (A)(5)) regarding the exemption for the cash surrender value of life insurance policies provides us with some meaningful guidance.7
Prior to 1992, Ariz.Rev.Stat. § 33-1126(A)(6) provided in relevant part:
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