In re Medill

Decision Date09 October 1990
Docket NumberBankruptcy No. BKY 3-88-2955.
PartiesIn re Mark E. MEDILL and Robin L. Medill, Debtors.
CourtU.S. Bankruptcy Court — District of Minnesota

Willard L. Wentzell, Jr., Sieben, Grose, VonHoltum, McCoy, Carey, Ltd., Minneapolis, Minn., for debtors.

Mark C. Halverson, Mankato, Minn., Chapter 7 Trustee.

ORDER SUSTAINING TRUSTEE'S OBJECTION TO DEBTORS' CLAIM OF EXEMPTION, AND DECLARING STATE STATUTE UNCONSTITUTIONAL

GREGORY F. KISHEL, Bankruptcy Judge.

This Chapter 7 case came on before the Court on July 27, 1989, for hearing on the Trustee's objection to Debtors' claim of exemption. Chapter 7 Trustee Mark C. Halverson appeared for the bankruptcy estate. Debtors appeared by Willard L. Wentzell, Jr. Upon the moving and responsive documents and the record made at hearing, the Court makes the following order.

FINDINGS OF FACT AND PROCEDURAL HISTORY

Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code on September 21, 1988. On their B Schedules, they did not list any right in legal causes of action as an exempt or non-exempt asset; they did note the pendency of personal injury litigation by Robin Medill as party-plaintiff in the Minnesota state courts on Item 12 of their Statement of Financial Affairs. The Court granted a Chapter 7 discharge to Debtors on December 20, 1988.

In an amended Schedule B-4 filed on January 27, 1989, Debtors changed their theory of exemption from the exemptions available under 11 U.S.C. § 522(d), to those available under Minnesota state law. They also added an entry for "right of action for injuries to person of the debtor or of a relative whether or not resulting in death ie debtors v. Jack and Lee Schafer." This reference signified a lawsuit then pending in the Minnesota State District Court for the Fifth Judicial District, Cottonwood County. This lawsuit had arisen out of a 1984 automobile accident in which Debtor Robin Medill had been involved, and in which she had been injured. Debtors claimed "100 percent" of the value of this asset as exempt, pursuant to MINN.STAT. § 550.37 subd. 22.

The Court subsequently approved the Trustee's employment of Debtors' pre-petition state-court counsel to represent the bankruptcy estate's interest, if any, in the litigation and trial of this lawsuit. On February 21, 1989, the Trustee timely filed an objection to Debtors' claim of exemption in the personal-injury right of action, noting the pendency of the trial in the state court.

In fact, the trial in Cottonwood County District Court had convened in late January and early February 1989. After full trial, and via a special verdict form, the jury determined Robin Medill's general damages as the sum of $67,500.00, plus $6,000.00 in future special damages for medical care, and Mark Medill's derivative damages as the sum of $3,000.00.1 It assessed the parties' comparative fault at 40 percent for Robin Medill, and at 60 percent for the defendants. The jury's findings resulted in the entry of a net judgment in favor of Robin Medill in the sum of $44,280.00 plus interest and costs, and in favor of Mark Medill in the sum of $1,860.00.

DISCUSSION
1. Issues Presented.

For the purposes of their bankruptcy case, Debtors have claimed their interest in the personal-injury right of action in litigation in Cottonwood County District Court as exempt, pursuant to the following language of MINN.STAT. § 550.37:

Subdivision 1. The property mentioned in this section is not liable to attachment, garnishment, or sale on any final process, issued from any court.
. . . . .
Subd. 22. Rights of action for injuries to the person of the debtor or of a relative whether or not resulting in death.2

The asset in question here was, as of the date of Debtors' bankruptcy filing, a disputed, unliquidated claim for damages against third parties, which had arisen from personal injury suffered by Robin Medill. As such, it fell squarely within the ambit of the statute on whose authority Debtors claim it as exempt. In re Carlson, 40 B.R. 746, 750 (Bankr.D.Minn.1984).3

The Trustee makes two alternative arguments in his objection to this claim of exemption.

First, he maintains that subd. 22, having no objective criteria limiting the value of the asset which may be exempted under its authority, violates MINN. CONST. art. 1, § 12;4 that as a consequence the statute is void and of no effect; and that the full value of the pre-petition right of action is property of Debtors' bankruptcy estate. He argues that the decision of Judge Dennis D. O'Brien of this Court in In re Bailey, 84 B.R. 608 (Bankr.D.Minn.1988) was substantively wrong, and should not be given deference in this case.

In the alternative, he argues that, if this Court adopts the Bailey rationale, the estate is still entitled to some portion of the recovery in the state-court litigation, to the extent that it is the fruit of a right to damages which is not traceable to Robin Medill's bodily injury.

In their response, Debtors first request that this Court certify the constitutional issue to the Minnesota Supreme Court pursuant to MINN.STAT. § 480.061. As their second argument, going to the substantive aspects of the Trustee's objection, they argue that the Trustee has not demonstrated beyond a reasonable doubt that subd. 22 is unconstitutional under art. 1, § 12. In the alternative, they argue that invalidating subd. 22 would then deprive Debtors of other rights guaranteed them under the Minnesota state constitution.

2. Necessity of Certification to Attorney General of Minnesota.

Before the hearing on this matter, the Trustee formally notified the Attorney General of the State of Minnesota of the pendency of his constitutional challenge to the statute, and invited his intervention. Via the July 19, 1989 letter of Peter M. Ackerberg, Special Assistant Attorney General, the State of Minnesota announced its decision not to intervene at this time, with a reservation of the right to intervene in the event of an appeal. As a result, formal certification to the state Attorney General pursuant to 28 U.S.C. § 2403(b) would be duplicative, and is unnecessary.

3. Appropriateness of Certification to Supreme Court of Minnesota.

Under the pertinent provision of MINN. STAT. § 480.061 subd. 1,

The Minnesota supreme court may answer questions of law certified to it by . . . a United States bankruptcy court . . . when requested by the certifying court if there are involved in any proceeding before it questions of law of this state which may be determinative of the cause then pending in the certifying court and as to which it appears to the certifying court there is no controlling precedent in the decisions of the Supreme Court of this state.

This statute, the Uniform Certification of Questions Law Act, empowers the Minnesota Supreme Court to decide unsettled issues of Minnesota state law at the request of a certifying federal or collateral state court. If a party requests a court to certify a question under this statute, that court must first conclude that the issue in question is central to the disposition of the proceeding before it. Then, it must conclude that "there is no controlling precedent" in the decisions of the Minnesota Supreme Court. While it is recognized that certification "does . . . in the long run save time, energy and resources and helps build a cooperative judicial federalism," Lehman Bros. v. Schein, 416 U.S. 386, 391, 94 S.Ct. 1741, 1744, 40 L.Ed.2d 215 (1974), its use should be confined largely to instances where the state supreme court has never addressed the dispositive issue, e.g. Minn. Recipients Alliance v. Noot, 527 F.Supp. 140 (D.Minn.1981), or where that court has previously indicated a willingness to change a substantive rule of law but has not actually done so by a definitive ruling in a live controversy, see Guillard v. Niagara Mach. & Tool Works, 488 F.2d 20 (8th Cir.1973).

The constitutional issues at bar are certainly determinative of the Trustee's objection to Debtors' claim of exemption. To be sure, the Minnesota Supreme Court has never ruled on the constitutionality of subd. 22. However, in a long line of cases applying art. 1, § 12 to various exemption statutes enacted by the Minnesota state legislature, that line commencing almost with the advent of statehood and extending through In re Haggerty, 448 N.W.2d 363 (Minn.1989), the Minnesota Supreme Court has announced and refined an analysis which provides ample guidance to this Court. The published history of the framing of the Minnesota state constitution also sheds light on the questions posed. The lines of authority for the present inquiry are settled, and certification is not warranted.

4. Constitutionality of MINN.STAT. § 550.37, subd. 22 Under MINN. CONST. art. 1, § 12.

Since statehood, the Minnesota Constitution has provided:

A reasonable amount of property shall be exempt from seizure or sale for the payment of any debt or liability. The amount of such exemption shall be determined by law.

MINN. CONST. art. 1, § 12.

This provision both empowers the state legislature to enact exemption statutes,5 and expressly mandates the enactment of exemption laws in some form. See, e.g., McPherson v. University Motors, Inc., 292 Minn. 147, 149, 193 N.W.2d 616, 618 (1972) ("This provision makes it the duty of the legislature to provide by law a reasonable exemption"); Barton v. Drake, 21 Minn. 299, 302 (1875); Kelly v. Baker, 10 Minn. 154, 155 (Gil. 124, 125) (1865).

In the same breath, art. 1, § 12 limits the grant of power to the legislature:

The constitutional provision in question prohibits the legislature from exempting an unreasonable amount of property.

In re How, 59 Minn. 415, 419, 61 N.W. 456, 457 (1894). The Minnesota Supreme Court has enforced this implied requirement of a reasonable limit by invalidating exemption statutes which imposed no limit on the amount of property which was facially subject to their protection. S...

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