In re Johnson

• Decision Date: 10 October 2003
• Docket Number: No. BKY 03-31044.,BKY 03-31044.
• Citation: 300 B.R. 471
• Parties: In re Lucy Young JOHNSON, Debtor.
• Court: U.S. Bankruptcy Court — District of Minnesota

300 B.R. 471

In re Lucy Young JOHNSON, Debtor.

No. BKY 03-31044.

United States Bankruptcy Court, D. Minnesota.

October 10, 2003.

Juan J. Martinez, Alan W. Weinblatt, St. Paul, MN, for debtor.

Michael J. Iannacone, Lake Elmo, MN, trustee.

ORDER SUSTAINING TRUSTEE'S OBJECTION TO DEBTOR'S CLAIM OF EXEMPTION

GREGORY F. KISHEL, Chief Judge.

This Chapter 7 case came on before the Court for hearing on the Trustee's objection to the Debtor's claim of exemption in certain funds in an account. Trustee Michael J. Iannacone appeared as objector and counsel to the bankruptcy estate. The Debtor appeared by her attorneys, Juan J. Martinez and Alan W. Weinblatt. After post-hearing augmentation of the record, the Court took the matter under advisement. On the record thus made, the Court memorializes the following decision.

PROCEEDING AT BAR

The Debtor filed a voluntary petition under Chapter 7 on February 14, 2003. At item 33 of her Schedule B, she noted an interest in personal property described as "Proceeds of workers compensation settlement (Oppenheimer Funds)." She stated the value of this asset as $26,400.00. In her Schedule C, the Debtor elected the exemptions available to her under Minnesota state law, and claimed the full stated value of this asset as exempt under Minn.Stat. § 176.175.

The Trustee timely objected to this claim of exemption. As grounds, he stated that Minn.Stat. § 176.175, Subd. 2, identifies a "claim for compensation owned by an injured employee or dependent" as the asset subject to its exemption. This, he maintained, "does not include actual proceeds of a workers compensation settlement." The Debtor responded to the objection. This is the matter at bar.

FINDINGS OF FACT

1. In 1992-1993, the Debtor sustained injuries to her back and neck during the course of her employment as a licensed practical nurse.

2. The Debtor filed a claim against United Hospital, her employer, with the Workers' Compensation Division of the Minnesota Department of Labor and Industry. In May, 1994, she and United

Hospital settled her claim. The settlement provided for a lump-sum payment to the Debtor in the amount of $32,000.00, in lieu of periodic payments for temporary and permanent partial disability.

3. After a deduction of allowed attorney fees, the Debtor received that lump-sum payment in the form of a check in the amount of $25,400.00.

4. The Debtor invested these proceeds of settlement through a brokerage into a vehicle described as "Oppenheimer Funds." She did so to provide an income supplement for herself and her family; she recognized that her permanent injuries would prevent her from returning to her long-term nursing employment in a hospital setting and would permanently decrease her employability.

5. The Debtor kept the Oppenheimer Funds account through the date of her bankruptcy filing, nearly nine years after receiving the settlement payment. As of the date of her bankruptcy filing, the value of the account was $24,913.79.

6. The Debtor was not employed as of the date of her bankruptcy filing. In the Statement of Financial Affairs for this case, she recited that she had had income of $80,000.00 in 2002 and $120,000.00 in 2001.

DISCUSSION

The Minnesota's Workers' Compensation Act provides, in pertinent part:

Nonassignability. No claim for compensation or settlement of a claim for compensation owned by an injured employee or dependents is assignable. Except as otherwise provided in this chapter, any claim for compensation owned by an injured employee or dependents is exempt from seizure or sale for the payment of any debt or liability.

Minn.Stat. § 176.175, Subd. 2.

In objecting to the Debtor's claim of exemption in the monies in her Oppenheimer Funds account, the Trustee relies on the facial content of this statute. He invokes the "plain meaning" approach to statutory construction favored by the United States Supreme Court in much of its recent bankruptcy jurisprudence.¹ The Trustee argues that the exemption is limited to unfixed, unliquidated claims for workers' compensation benefits. As he would have it, once an employee realizes on a claim after settlement or determination, the funds she receives in-hand are no longer an intangible "claim"; rather, they are liquid cash or a cash equivalent that is outside the protection of the statute.

The Debtor's response to the objection made it more complicated than that. The Debtor relies on Gagne v. Christians, 172 B.R. 50 (D.Minn.1994).

Gagne arose out of two different bankruptcy cases. In both of them, the debtors had settled claims for workers' compensation benefits and had received lump-sum payments pursuant to the settlements before they filed for bankruptcy. The trustee in both cases objected to the debtors' claims of exemptions to the proceeds. Both debtors had claimed their exemptions under Minn.Stat. § 176.175, Subd. 2. The bankruptcy court sustained the trustee's objections in both cases. In re Gagne, 163 B.R. 819 (Bankr.D.Minn.1994). On appeal, the District Court held that the language of Minn.Stat. § 176.175 that was on the books in 1994 provided an exemption for the proceeds in the forms in which the debtors held them when they filed for bankruptcy. Since the issuance of the District Court's Gagne decision, no court has published a decision construing Minn.Stat. § 176.175, Subd. 2, on the same facts.

As a result of the Debtor's reliance on Gagne, the parties to this case framed three issues.

1. Whether the District Court's rationale in Gagne is precedent that is binding on the Bankruptcy Judges for this District.

Stare decisis is the principle of Anglo-American judicature that dictates adherence to the prior decisions of higher courts. 5 AM. JUR.2d Appellate Review § 599 (1965) ("Under the doctrine of stare decisis, once a point of law has been established by a court, that point of law will generally be followed by the same court and all courts of lower rank in subsequent cases where the same legal issue is raised..."). See also In re Osborne, 76 F.3d 306, 309 (9th Cir.1996); Northwest Airlines, Inc. v. Air Line Pilots Ass'n, Internat'l, 373 F.2d 136, 140 (8th Cir.1967); Percy v. Hofius, 370 N.W.2d 490, 491 (Minn.Ct.App.1985). The Debtor's counsel insists that the doctrine of stare decisis compels this Court to follow Gagne and to overrule the Trustee's objection.

The issue here is whether the ruling of one district judge sitting pursuant to 28 U.S.C. § 158(a) on an appeal from a bankruptcy judge's decision is binding thereafter on all of the bankruptcy judges of the same district. It is a difficult one. The text of the statute, 28 U.S.C. § 158, is utterly silent on the issue. The Eighth Circuit Court of Appeals has not spoken to the issue. As the Eleventh Circuit observed several years ago, neither the United States Supreme Court nor any of the Courts of Appeal have ruled on the issue. In re Hillsborough Holdings Corp., 127 F.3d, 1398, 1403 n. 3 (11th Cir.1997).

The published case law is of limited utility; there is quite a split on the question among the courts below the circuit level. Id. At least one judge of a district court has ruled on each side of the issue. In re KAR Dev. Assocs., LP, 180 B.R. 629, 640 (D.Kan.1995) (holding that bankruptcy judges are not bound by appellate rulings of single district judges, even those from their own district); Bryant v. Smith, 165 B.R. 176, 180-181 (W.D.Va.1994) (bankruptcy judges are bound by decisions rendered by the district court in bankruptcy appeals).

Predictably, there is a greater number of published decisions by bankruptcy judges, and again the authors weigh in on both sides of the issue. Compare In re Login Bros., Book Co., Inc., 294 B.R. 297, 300 n. 1 (Bankr.N.D.Ill.2003), In re NHB, LLC, 287 B.R. 475, 479 and n. 3 (Bankr.E.D.Mo.2002), In re Virden, 279 B.R. 401, 409 n. 12 (Bankr.D.Mass.2002), In re Carrozzella & Richardson, 255 B.R. 267, 271-273 (Bankr.D.Conn.2000) Bairstow v. Sullivan, 198 B.R. 417, 423 n. 34 (Bankr.D.Mass. 1996), In re Barakat, 173 B.R. 672, 678 (Bankr.C.D.Cal.1994), and In re Gaylor, 123 B.R. 236, 241-243 (Bankr.E.D.Mich.1991) (all holding that appellate decisions of single district judges in multiple-judge districts are not binding on bankruptcy judges for the district) with, e.g., In re Phipps, 217 B.R. 427, 430-431 (Bankr.W.D.N.Y.1998), In re Holdenried, 178 B.R. 782, 786 (Bankr.E.D.Mo.1995), and In re Jehan-Das, Inc., 91 B.R. 542, 546 (Bankr.W.D.Mo.1988) (all holding that bankruptcy judges are bound by rulings of district judges from their own district). In the reported decisions, a small majority of bankruptcy judges seems to favor the option of not according precedential effect. However, that statistical happenstance has no meaning... particularly when one considers the placement of those making the pronouncement against the nature of the question.

Structural circumstances support the argument against precedentiality.

In the first instance, district judges — like bankruptcy judges — sit as coequals in a court that presides over litigation on the trial level. See 28 U.S.C. § 132(c). Each judge is responsible for her or his own docket, and each has full judicial independence under the Constitution, statute, and custom. Absent binding precedent, district judges are free to decide legal issues as the application of logic, the general principles of the common law, the rules of statutory construction, persuasive authority, public policy, and their own sense of right and wrong will suggest. These considerations achieve their proportions under the guidance of reason and balance — but this is done by individuals, rather than by a collective.² Consistent with these structural and functional characteristics, there is no provision in statute or rule that binds one district judge to a prior ruling made by a colleague in a different case. There is, in fact, opinion to the contrary from one of this district's district judges: Mueller v. Allen, 514 F.Supp. 998,...