In re Lawrence

• Citation: 219 BR 786
• Decision Date: 18 March 1998
• Docket Number: No. 1:97-cv-217.,Bankruptcy No. 96-11249,1:97-cv-217.
• Parties: In re Michael Warren LAWRENCE d/b/a Family Foot Care Centers; d/b/a Northgate Podiatry Center; d/b/a Tri-State Podiatry Center, Debtor. Michael Warren LAWRENCE, Appellant, v. Richard P. JAHN, Trustee, Appellee.
• Court: United States District Courts. 6th Circuit. Eastern District of Tennessee

219 B.R. 786 (1998)

In re Michael Warren LAWRENCE d/b/a Family Foot Care Centers; d/b/a Northgate Podiatry Center; d/b/a Tri-State Podiatry Center, Debtor Michael Warren LAWRENCE, Appellant, v. Richard P. JAHN, Trustee, Appellee.

Bankruptcy No. 96-11249, No. 1:97-cv-217.

United States District Court, E.D. Tennessee, at Chattanooga.

March 18, 1998.

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Thomas E Ray, Shannon L Seckler, Ray & Associates, PC, Chattanooga, TN, for appellants.

Richard P Jahn, Jr, Jahn & Clem, Chattanooga, TN, U.S. Trustee.

MEMORANDUM

EDGAR, District Judge.

This is a direct appeal from a final decision by the United States Bankruptcy Court. Appellant Michael Lawrence ("Lawrence") brings the appeal pursuant to 28 U.S.C. § 158(a) and Bankruptcy Rule 8001. After reviewing the record, the Court concludes that the bankruptcy court's decision is correct, and it will be AFFIRMED. The appeal by Lawrence will be DISMISSED.

I. Standard of Review

The bankruptcy court is the finder of fact. In re Isaacman, 26 F.3d 629, 631 (6th Cir. 1994); In re Caldwell, 851 F.2d 852, 857 (6th Cir.1988). This Court is required to uphold the findings of fact made by the bankruptcy court unless those findings are determined to be clearly erroneous. The bankruptcy court's conclusions of law are reviewed de novo on appeal. In re 255 Park Plaza Associates Ltd. Partnership, 100 F.3d 1214, 1216 (6th Cir.1996); Isaacman, 26 F.3d at 631; In re Zick, 931 F.2d 1124, 1126 (6th Cir.1991); Bankruptcy Rule 8013. This Court has the authority to affirm, modify, or reverse the judgment of the bankruptcy court. This Court may also remand the case, if necessary, to the bankruptcy court for further proceedings. Bankruptcy Rule 8013.

II. Facts

The essential facts are not in dispute. This Court agrees with the bankruptcy court's uncontested findings of fact. On March 11, 1996, Lawrence filed a Chapter 13 petition for bankruptcy. He subsequently converted the petition into a Chapter 7 bankruptcy pursuant to 11 U.S.C. § 1307. Lawrence was in private business as a self-employed licensed podiatrist, and he was a solo practitioner.

Prior to filing his bankruptcy petition, Lawrence accumulated $140,000 in unpaid patient accounts receivable. Lawrence claimed 75% of the $140,000 in accounts receivable, after taxes, as property exempt from bankruptcy pursuant to the Tennessee garnishment statute, TENN.CODE ANN. § 26-2-106. The Bankruptcy Trustee objected to this claimed exemption. Lawrence and the Trustee disagreed about the interpretation and application of Tenn.Code Ann. §§ 26-2-105 and 26-2-106. Lawrence contended that his accounts receivable are "disposable earnings" under § 26-2-105.¹ He also argued that the restriction on garnishment of disposable earnings in § 26-2-106(a)(1) constitutes an exemption of such earnings from bankruptcy within the purview of 11 U.S.C. § 522(b).

The Trustee argued in opposition that the accounts receivable of a self-employed podiatrist are not enough like wages or a salary paid by an employer to an employee to qualify as "earnings" within the meaning of TENN. CODE ANN. § 26-2-105(1). The Trustee further contended that TENN.CODE ANN. § 26-2-106 merely limits the amount of earnings which may be garnished outside of bankruptcy and does not purport to create an exemption of earnings from bankruptcy cognizable under 11 U.S.C. § 522(b).

III. Bankruptcy Court Opinion

In a well-reasoned opinion, Bankruptcy Court Judge John C. Cook ruled in the Trustee's favor and denied the claimed exemption. In re Lawrence, 205 B.R. 115 (Bankr.E.D.Tenn.1997). Judge Cook determined that Tenn.Code Ann. § 26-2-106 does not create an exemption for a debtor's earnings cognizable in bankruptcy. The bankruptcy court found it unnecessary to address the merits of the other question concerning whether the accounts receivable are "earnings" within the meaning of TENN.CODE ANN. § 26-2-105(1).²

IV. Issues on Appeal

Lawrence raises two issues on appeal: (1) whether Tenn.Code Ann. § 26-2-106 provides an exemption for earnings in bankruptcy; and (2) whether Lawrence's accounts receivable concerning medical services rendered to his patients are "earnings" under TENN.CODE ANN. § 26-2-105(1).

V. Analysis

The Court agrees with the bankruptcy court and concludes that TENN.CODE ANN. § 26-2-106 does not provide an exemption for earnings in bankruptcy proceedings. The first issue presented on appeal must be resolved in favor of the Trustee. The Court need not address the second issue concerning whether the accounts receivable are "earnings" under TENN.CODE ANN. § 26-2-105. The second issue is moot.

A. Bankruptcy Exemptions Under 11 U.S.C. § 522(b)

The Trustee bears the burden of proving that the exemption claimed by Lawrence is improper and should be disallowed. Bankruptcy Rule 4003(c). 11 U.S.C. § 541(a)(1) provides that the property of the Chapter 7 bankruptcy estate consists of "all legal or equitable interests of the debtor in property as of the commencement of the case." The accumulated accounts receivable of debtor Lawrence are property of the Chapter 7 bankruptcy estate pursuant to § 541(a)(1).

11 U.S.C. § 522(b) provides that notwithstanding 11 U.S.C. § 541, an individual debtor may exempt from the bankruptcy estate the property listed in either § 522(b)(1) or (b)(2). Section 522(b) grants States the authority to "opt out" of the federal scheme of property exemptions enumerated in 11 U.S.C. § 522(d). In re Storer, 58 F.3d 1125 (6th Cir.), cert. denied, 516 U.S. 990, 116 S.Ct. 520, 133 L.Ed.2d 428 (1995); Rhodes v. Stewart, 705 F.2d 159 (6th Cir.), cert. denied, 464 U.S. 983, 104 S.Ct. 427, 78 L.Ed.2d 361 (1983). The State of Tennessee has the right to create and substitute its own scheme of property exemptions for purposes of bankruptcy. Storer, 58 F.3d 1125; Rhodes, 705 F.2d 159. The Sixth Circuit has recognized that the United States Congress and the Tennessee Legislature share concurrent authority to promulgate bankruptcy laws governing exemptions. Storer, 58 F.3d at 1129; Rhodes, 705 F.2d at 163. Tennessee is an "opt out" state under 11 U.S.C. § 522(b). Tennessee requires its citizens who file for bankruptcy to rely on the exemptions granted by Tennessee law rather than the exemptions listed in 11 U.S.C. § 522(d). TENN. CODE ANN. § 26-2-112, In re Lucas, 924 F.2d 597, 599 n. 4 (6th Cir.1991); Rhodes, 705 F.2d 159; In re Clemmer, 184 B.R. 935, 939-40 (Bankr.E.D.Tenn.1995).

Moreover, Tennessee is empowered by 11 U.S.C. § 522(b) to create whatever property exemptions in bankruptcy it may elect, even if the state exemptions are less inclusive or more restrictive than the exemptions afforded debtors by the federal exemption scheme in 11 U.S.C. § 522(d). Storer, 58 F.3d at 1128-29; Rhodes, 705 F.2d at 163-64. Likewise, Tennessee may enact different exemptions which would possibly conflict with the federal exemptions reflected in § 522(d). Storer, 58 F.3d at 1128-29; Rhodes, 705 F.2d at 164; In re McManus, 681 F.2d 353, 357 n. 7 (5th Cir. 1982). As the Seventh Circuit stated in Clark v. Chicago Mun. Emp. Credit Union, 119 F.3d 540, 544 (7th Cir.1997), federal case law reflects that the "fresh start" for debtors policy in the BANKRUPTCY CODE does not require states that have opted out of the federal exemptions to provide state exemptions comparable, concomitant or corresponding to the federal exemptions in 11 U.S.C. § 522(d). Consequently, the State of Tennessee may prescribe its own requirements for exemptions of particular property from bankruptcy which may "either circumscribe or enlarge the list of exempt property." McManus, 681 F.2d at 355-56 (quoted with approval in Rhodes, 705 F.2d at 163).

To resolve the first issue raised by Lawrence on appeal, the Court must look to both federal and Tennessee law. The Court has the task of interpreting 11 U.S.C. § 522(b) and TENN.CODE ANN. § 26-2-106. As Judge Cook explains in his opinion, § 522(b) provides that an individual debtor may exempt from the bankruptcy estate such property that is "exempt" under state law. Although Tennessee is authorized by § 522(b) to devise its own list of property that Tennessee considers exempt from the creditors in bankruptcy, the question of whether certain property is "exempt" within the meaning of § 522(b) of the BANKRUPTCY CODE is ultimately one of federal law. Cf. Patterson v. Shumate, 504 U.S. 753, 757-59, 112 S.Ct. 2242, 2246, 119 L.Ed.2d 519 (1992). As a general rule, words and phrases contained in federal statutes are defined by reference to federal law. This is particularly true where the federal statute such as 11 U.S.C. § 522(b) of the BANKRUPTCY CODE is intended to have uniform nationwide application. In re Hodgson, 167 B.R. 945, 949-50 (D.Kan.1994). The term "exempt" as used in § 522(b) must be given the proper meaning and application intended by Congress.

State exemption statutes are applicable to cases under the BANKRUPTCY CODE to no greater or lesser extent than that authorized by Congress in § 522(b). In re Butcher, 189 B.R. 357, 371-72 (Bankr.D.Md.1995), aff'd, 125 F.3d 238 (4th Cir.1997). The laws of the State of Tennessee must be applied in a manner consistent with the goals and policies of the federal BANKRUPTCY CODE. When a conflict occurs between Tennessee law and the federal bankruptcy statutes, bankruptcy policy prevails. In re McCafferty, 96 F.3d 192, 196 (6th Cir.1996); In re Omegas Group, Inc., 16 F.3d 1443, 1450-51 (6th Cir.1994).

When interpreting 11 U.S.C. § 522(b), we must first consider its text. United States v. Alvarez-Sanchez, 511 U.S. 350, 356, 114 S.Ct. 1599, 1603, 128 L.Ed.2d 319 (1994); Floyd v. U.S. Postal Service, 105 F.3d 274, 276 (6th Cir.1997). Courts are required to interpret and enforce statutes according to the plain meaning of their language as long as the language is unambiguous. Toibb v. Radloff, 501 U.S. 157, 111 S.Ct. 2197, 115 L.Ed.2d 145 (1991); United States v. Ron Pair Enters., 489 U.S....