In re Lampe

• Decision Date: 03 June 2003
• Docket Number: No. 02-3221.,02-3221.
• Parties: In re Donald R. LAMPE and Shelia L. Lampe, Debtors. Donald R. Lampe and Shelia L. Lampe, Appellees, v. Darcy D. Williamson, Chapter 7 Trustee, Appellant, and Iola Bank & Trust Co. Kansas Bankers Association, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

331 F.3d 750

In re Donald R. LAMPE and Shelia L. Lampe, Debtors Donald R. Lampe and Shelia L. Lampe, Appellees, v. Darcy D. Williamson, Chapter 7 Trustee, Appellant, and Iola Bank & Trust Co Kansas Bankers Association, Amicus Curiae.

No. 02-3221.

United States Court of Appeals, Tenth Circuit.

June 3, 2003.

Darcy D. Williamson, Trustee, Topeka, Kansas, for the Appellant.

William E. Metcalf, Metcalf & Justus, Topeka, Kansas, for the Appellees.

Anne L. Baker, Wright, Henson, Somers, Sebelius, Clark & Baker, LLP, Topeka, Kansas, filed an Amicus Curiae Brief on behalf of Kansas Bankers Association in Support of Appellant.

Before LUCERO, BALDOCK, and O'BRIEN, Circuit Judges.

BALDOCK, Circuit Judge.^*

Debtors Donald and Shelia Lampe are husband and wife farmers who filed for Chapter 7 bankruptcy. The Lampes each claimed as exempt from the bankruptcy estate $7500 worth of farm equipment as "tools of the trade" under the applicable Kansas exemption statute. The Trustee objected to Shelia Lampe's claim, arguing she did not have a sufficient ownership interest in the farm equipment to claim the exemption. The United States Bankruptcy Court for the District of Kansas agreed with the Trustee, and held Shelia Lampe could not claim the exemption. The Lampes appealed. The United States Bankruptcy Appellate Panel of the Tenth Circuit (BAP) reversed, holding Shelia Lampe was entitled to the "tools of the trade" exemption. The Trustee appeals, arguing Shelia Lampe does not have an ownership interest in the farm equipment. The Trustee further argues that if Shelia Lampe does have an ownership interest in the farm equipment, then the Lampes' farm operation was a partnership, in which case neither Shelia nor Donald Lampe may claim the "tools of the trade" exemption. We have jurisdiction pursuant to 28 U.S.C. § 158(d). We affirm the BAP decision.

I.

Donald and Shelia Lampe married in 1980. Both actively participated in farming activities from that time until at least 2000. Donald Lampe performed all the activities required in the farming operation, and Shelia Lampe performed all the same activities except running the planter and the combine. In approximately 1997, Shelia Lampe began working part-time as a secretary to supplement the family income. She continued to work on the farm in addition to her outside employment. The Lampes obtained loans from Iola Bank & Trust and the Farm Services Agency, but eventually they were unable to meet these financial obligations. Upon filing a joint Chapter 7 petition, the Lampes each claimed as exempt from the bankruptcy estate $7500 worth of "tools of the trade" exemptions under Kan. Stat. Ann. § 60-2304(e) for certain farm equipment.¹ The Trustee and Iola State Bank & Trust filed timely objections thereto.²

The bankruptcy court held an evidentiary hearing at which Donald and Shelia Lampe testified about the claimed exemptions. Donald Lampe testified that although he obtained some of the equipment from his father, most of it was purchased with money earned from the farm operation that had been deposited in their joint bank account. Both Lampes signed the notes and security agreements to obtain operating loans for which the farm equipment served as collateral. Donald Lampe testified that Shelia had an ownership interest in the equipment, stating they owned the equipment "half and half." Shelia Lampe also testified that she and her husband owned the equipment together, and that they farmed as a team. She denied they had a partnership agreement in the legal, non-marital sense. Shelia Lampe deposited income from her outside job into the joint account. On the Lampes' joint tax returns, Donald Lampe is shown as the sole proprietor of the farming business, and the business took depreciation deductions for the farm equipment. Only Donald Lampe reported self-employment income and self-employment taxes for the farm enterprise.

The bankruptcy court held that in order to qualify for the exemption, Shelia Lampe must have an ownership interest in the property. The court determined that because Kansas is not a community property state, Shelia Lampe acquired no interest in the property by virtue of the marital relationship. Instead, she had to show she acquired an interest in the property "by gift or inheritance, by purchase with [] her sole and separate property, or by some agreement involving a partnership, joint venture, association, corporation, or other business entity legally recognized by Kansas law." Finding that Donald Lampe was the sole proprietor of the farm business, and that he acquired the farm equipment with proceeds from the farm business or through some unspecified manner from his father, the bankruptcy court held Donald Lampe owned as his sole and separate property the business and the equipment. Finally, the court noted that if Shelia Lampe did have an ownership interest in the farm equipment, then her interest was as her husband's partner. If the farming operation was a partnership, neither Donald nor Shelia Lampe could claim the exemption because partnerships cannot claim a tools of the trade exemption under Kansas law.

The Lampes appealed, and the BAP reversed. In an able opinion authored by the late bankruptcy judge Donald Cordova, the BAP concluded that "based on the... Debtors' intent, their conduct in carrying on the farming operation, in purchasing the equipment from a joint account funded by earnings from the farm, and in pledging the equipment together as security for operating loans, Shelia Lampe co-owned the property for purposes of the tools of the trade exemption." In re Lampe, 278 B.R. 205, 213 (10th Cir.BAP 2002). The BAP also rejected the suggestion that the Lampe farming operation was a partnership in the legal sense; instead, the BAP concluded it was "a family business operating as a proprietorship with each Debtor as a co-owner of the equipment." Id. at 214. Consequently, the BAP held Shelia Lampe was entitled to claim $7500 in "tools of the trade" exemptions on the farm equipment.

II.

On appeal from BAP decisions, we independently review the bankruptcy court's decision. In re Albrecht, 233 F.3d 1258, 1260 (10th Cir.2000). "[W]e review the bankruptcy court's legal determinations de novo, and its factual findings under the clearly erroneous standard." In re Miniscribe Corp., 309 F.3d 1234, 1240 (10th Cir. 2002).

A.

Upon filing a bankruptcy petition, the debtors' property becomes property of the bankruptcy estate subject to the exemptions listed in 11 U.S.C. § 522. See 11 U.S.C. §§ 522 & 541. Section 522(b) specifies that the debtor can take the exemptions enumerated in § 522(d) unless applicable state law specifically provides otherwise. Kansas has opted out of the federal plan, and has enacted its own set of exemptions. See Kan. Stat. Ann. § 60-2312. "When determining the validity of a claimed state law exemption, bankruptcy courts look to the applicable state law." In re Urban, 262 B.R. 865, 866 (Bankr. D.Kan.2001). Under Kansas law,

[e]very person residing in [Kansas] shall have exempt from seizure and sale upon any attachment, execution, or other process issued from any court in this state, the following articles of personal property:

. . .

(e) The books, documents, furniture, instruments, tools, implements and equipment... or other tangible means of production regularly and reasonably necessary in carrying on the person's profession, trade, business or occupation in an aggregate value not to exceed $7500.

Kan. Stat. Ann. § 60-2304(e).

To claim the "tools of the trade" exemption under § 60-2304(e), the farm equipment must "belong to" the debtor and must be "necessary" and "personally used for the purpose of carrying on his [or her] trade or business." Reeves & Co. v. Bascue, 76 Kan. 333, 91 P. 77, 77 (1907); see also Kan. Stat. Ann. § 60-2304 (describing exempt property as "personal property" subject to "seizure and sale upon any attachment, execution or other process"). On appeal, the Trustee does not dispute that Shelia Lampe is a farmer and that the equipment is necessary for her trade. Instead, the Trustee argues that Shelia Lampe has no ownership interest in the claimed farm equipment, and because it is not her personal property, she is not entitled to the exemption. In determining whether a debtor is entitled to claim an exemption, "the exemption laws are to be construed liberally in favor of exemption." In re Ginther, 282 B.R. 16, 19 (Bankr.D.Kan.2002). Once a debtor claims an exemption, the objecting party bears the burden of proving the exemption is not properly claimed. Id.

The Trustee relies primarily on In re Goebel, 75 B.R. 385 (Bankr.D.Kan.1987). In Goebel, husband and wife farmers filed a joint bankruptcy petition. Both claimed as exempt tools of the trade various items of property. A creditor objected that Mrs. Goebel was not entitled to the exemption because she did not have an ownership interest in the property claimed as exempt. After noting a spouse does not automatically acquire an ownership interest in property simply by virtue of the marital relationship, see Kan. Stat. Ann. §§ 23-201(a) & 23-204, the Goebel court held that to demonstrate an ownership interest in business property, a spouse must acquire it with her "sole and separate property, receive it by gift or inheritance, contribute toward its purchase with sole and separate funds, or acquire it by some agreement, such as in a partnership, joint venture, association, corporation or other such legally recognized business entity or vehicle." Goebel, 75 B.R. at 387. Finding no evidence that Mrs. Goebel acquired an ownership interest by any of these means, the court concluded she was not entitled to exempt the equipment as tools of the trade. Id.; see also In re Oetinger, 49 B.R. 41 (Bankr.D.Kan.1985) (finding farm wife acquired ownership interest in farm equipment through legal partnership with husband, not by marital relationship, and therefore farm operation was a...