In re McKeag

• Decision Date: 30 August 1989
• Docket Number: Bankruptcy No. 6-88-597.
• Citation: 104 BR 160
• Parties: In re Roderick James McKEAG, Debtor.
• Court: U.S. Bankruptcy Court — District of Minnesota

104 B.R. 160 (1989)

In re Roderick James McKEAG, Debtor.

Bankruptcy No. 6-88-597.

United States Bankruptcy Court, D. Minnesota.

August 30, 1989.

David Nycklemoe, Fergus Falls, Minn., for debtor.

Lowell Bottrell, Fargo, N.D., for trustee.

Merwyn Peterson, Office of Atty. Gen., St. Paul, Minn., for intervenor, State of Minn.

MEMORANDUM ORDER

NANCY C. DREHER, Bankruptcy Judge.

The above entitled matter came on for hearing on the 11th day of July, 1989, for a determination on the objection by the trustee to the debtor's claim of exemption in his Teacher's Retirement Annuity Fund. Appearances were as follows: Lowell Bottrell for the trustee; Merwyn Peterson for Intervenor, State of Minnesota; and David Nycklemoe for the Debtor. The court has jurisdiction to hear and determine this matter pursuant to 28 U.S.C. §§ 157 and 1334, and Local Rule 103. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).

PROCEDURAL BACKGROUND

Debtor is and for the last 21 years has been employed by the State of Minnesota, Fergus Falls Community College. As an employee of the College, he is required to be a member of the Teachers Retirement Association ("TRA"). See Minn.Stat. § 354.41, Subd. 2 (1988). Pursuant to the statute, as a member of TRA, four and one-half percent¹ of his salary is deducted from his check by his employer and sent to the TRA fund. Id. § 354.42, subd. 2. In addition, because the debtor is a college professor, five percent of the amount of his salary which is over six thousand dollars and under fifteen thousand dollars per year is also required to be deposited into the TRA fund. Id., § 136.81, subd. 1. For the debtor and most college teachers, this amounts to five percent of nine thousand dollars per year or $450.00 per year.

On December 18, 1988, the date of the filing of debtor's petition, debtor had approximately $21,000.00 in the two TRA accounts. The debtor claimed these amounts as exempt under Minn.Stat. § 354.10, subd. 1² which provides:

Exemption; exceptions. The right of a teacher to take advantage of the benefits provided by this chapter, is a personal right only and shall not be assignable. All money to the credit of a teacher\'s account in the fund or any money payable to the teacher from the fund shall belong to the state of Minnesota until actually paid to the teacher or a beneficiary pursuant to the provisions of this chapter. Any power of attorney, assignment or attempted assignment of a teacher\'s interest in the fund, or of the beneficiary\'s interest therein, by a teacher or a beneficiary, shall be null and void and the same shall be exempt from taxation under chapter 291 and from garnishment or levy under attachment or execution, except as provided in subdivision 2 of section 518.58, 518.581 or 518.611.³

Id. (emphasis added). A corresponding provision exempting the portions of his contributions that had been made under Minn. Stat. § 136.81 is found in Minn.Stat. § 136.84.

The trustee has objected to the claim to exemption of the debtor's TRA account funds. He asserts that the statute pursuant to which the debtor has claimed his exemption is unconstitutional in that the exemption is not limited to a "reasonable amount of property" as that term is used in article 1, section 12 of the Minnesota Constitution, and/or amounts to constitutionally impermissible special legislation in contravention of article 12, section 1 of the Minnesota Constitution.

The State of Minnesota, in response, asserts that:

1) the constitutional challenge to Minn. Stat. § 354.10 is moot because the debtor can claim the exemption under Minn.Stat. § 550.37, Subdivision 24, as recently amended,

2) Minn.Stat. § 354.10 exempts only a reasonable amount of property and therefore it is not unconstitutional under Minn. Const. art. 1, § 12, and

3) Minn.Stat. § 354.10 is not special legislation prohibited by Minn. Const. art. 12, § 1.

The debtor appears to assert only the second and third arguments advanced by the State.⁴

DISCUSSION

Debtor makes no claim that the property in his TRA account is not property of the estate pursuant to 11 U.S.C. § 541(c)(2). That issue was put to rest in the case of Humphrey v. Buckley, (In re Swanson), 873 F.2d 1121 (8th Cir.1989). The TRA account is property of the debtor's estate. Only if valid exemption provisions allow the fund to be exempted from the estate will the account be protected from creditors.

It is the position of the State of Minnesota that I can avoid reaching the issue of the constitutionality of Minn.Stat. § 354.10 because, under recently amended Minn.Stat. § 550.37, subd. 24, debtor would be entitled to a $30,000.00 exemption for benefits of this type and that is all he is claiming. Since it is appropriate to avoid constitutional issues wherever possible, the State asserts that this court should decide to apply the amendment of Minn.Stat. § 550.37, subd. 24 newly enacted on June 1, 1989. The State thus argues that the amendment applies to debtor's case. However, for the reasons set forth below, I conclude that the newly enacted amendment does not apply to the debtor's case.

In 1986, Minn.Stat. § 550.37, subd. 24 exempted the following:

Subd. 24. Employee Benefits. The debtor\'s right to receive present or future payments, or payments received by the debtor, under a stock bonus, pension, profit sharing, annuity, individual retirement account, individual retirement annuity, simplified employee pension, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

Id. (emphasis added).⁵

For unexplained reasons, effective April 12, 1988, the Minnesota Legislature amended Minn.Stat. § 550.37, subd. 24, to delete the underlined wording. In In re Netz, 91 B.R. 503 (Bktcy.D.Minn.1988), Judge Kishel, following a long line of cases in this district, declared the newly amended statute unconstitutional under Minn. Const. art. 1, § 12 because it failed to place any limitations on the amount of money a debtor could claim as exempt. The precursors of his opinion included In re Bailey, 84 B.R. 608 (Bktcy.D.Minn.1988), In re Hilary, 76 B.R. 683 (Bktcy.D.Minn.1987) and In re Tveten, 402 N.W.2d 551 (Minn.1987).

In 1989, in response to Netz, the Minnesota Legislature again amended Minn.Stat. § 550.37, subd. 24, to add a limitation on the amount a debtor can claim as exempt for such things as retirement accounts. The new version of subdivision 24 provides:

Subd. 24. EMPLOYEE BENEFITS.

The debtor\'s right to receive present or future payments, or payments received by the debtor, under a stock bonus, pension, profit sharing, annuity, individual retirement account, individual retirement annuity, simplified employee pension, or similar plan or contract on account of illness, disability, death, age, or length of service:

(1) to the extent the plan or contract is described in section 401(a), 403, 408, or 457 of the Internal Revenue Code of 1986, as amended, or payments under the plan or contract are or will be rolled over as provided in section 402(a)(5), 403(b)(8), or 408(d)(3) of the Internal Revenue Code of 1986, as amended; or

(2) to the extent of the debtor\'s aggregate interest, under all plans and contracts up to a present value of $30,000 and additional amounts under all the plans and contracts to the extent reasonably necessary for the support of the debtor and any spouse or dependent of the debtor.

Sec. 2. EFFECTIVE DATE

Section 1 is effective the day following final enactment and applies retroactively to April 12, 1988.

Act of June 1, 1989, ch. 284 H.F. 761, 1989 Minn.Laws 1557. The 1989 amendment thus purports to give new subdivision 24 retroactive effect.

Debtor's petition for relief was filed in the interim period between the amendment of April 12, 1988 and the Legislature's further amendment thereto on June 1, 1989. If the Legislature's attempt at retroactive legislation is enforceable the new amendment would apply.

Absent constitutional barrier, it is permissible for a Legislature to make an act retroactive in effect. In re Gardner's Trust, 266 Minn. 127, 123 N.W.2d 69 (1963); Petersen v. City of Minneapolis, 285 Minn. 282, 173 N.W.2d 353 (1969). However, no law is presumed retroactive, unless explicitly so intended. Minn.Stat. § 645.21. Here, the Legislature expressed a specific intent for retroactive application. Its attempt to legislate retroactively, however, runs afoul of the supremacy clause of the United States Constitution (U.S. Const. Art. VI, cl. 2)⁶.

Under the Supremacy Clause of the United States Constitution duly enacted laws of Congress are the supreme law of the land; state statutes which conflict with federal statutes are subordinate and unenforceable. See Bunch v. Cole, 263 U.S. 250, 44 S.Ct. 101, 68 L.Ed. 290 (1923). Deciding whether a state statute is in conflict with a federal statute is a two step process of first ascertaining the construction of the two statutes and then determining the constitutional question of whether they are in conflict. Perez v. Campbell, 402 U.S. 637, 644, 91 S.Ct. 1704, 1708, 29 L.Ed.2d 233 (1971). Here, the two statutes involved are 11 U.S.C. § 522(b)(2)(A) and Minn.Stat. § 550.37, subd. 24.

Under 11 U.S.C. § 522(b)(2)(A), a debtor may elect to use state exemptions rather than those allowed in 11 U.S.C. § 522(d), the federal list of exemptions. Section 522(b)(2)(A), however, specifically provides that a debtor, in electing state exemptions, is entitled to exempt only "property that is exempt under . . . State or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition. . . ." 11 U.S.C. § 522(b)(2)(A) (emphasis added). This section has been uniformly construed to mean that a debtor may not take advantage of changes in a state...