In re Nuara
| Decision Date | 16 October 2019 |
| Docket Number | Case No.: 8-18-75891-las |
| Citation | 607 B.R. 116 |
| Parties | IN RE: Francis NUARA aka Frank C. Nuara aka Francis C. Nuara and Lori Nuara aka Lori A. Nuara, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Heath S. Berger, Berger, Fischoff, Shumer, Wexler & Goodman, LLP, Syosset, NY, for Bebtor
Spiros Avramidis, Andrew M. Thaler, Thaler Law Firm PLLC, Westbury, NY, for Trustee.
This matter is before the Court on the objection of the chapter 7 trustee, Andrew M. Thaler, Esq., to the exemption claimed by the debtors pursuant to 11 U.S.C. § 522(b),1 New York Debtor and Creditor Law § 282(2),2 and Bankruptcy Rule 4003(b) in a certain workers' compensation award of $45,623.23 received by the debtors before they filed for bankruptcy. Specifically, the trustee asserts that under NYDCL § 282(2)(c) only the right to receive a workers' compensation benefit is exempt in bankruptcy, not the prepetition payment of the benefit itself. According to the trustee, once a workers' compensation payment or benefit has been received, it is no longer exempt should the recipient subsequently file for bankruptcy. The debtors take a different view of the applicable statute and its import. They argue that all disability benefits, of which workers' compensation is one, are exempt no matter when paid, and this is particularly so when the proceeds of the award are identifiable at the time a bankruptcy petition is filed. The debtors therefore contend they are entitled to their claimed exemption for the workers' compensation award.
The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) and the Standing Order of Reference entered by the United States District Court for the Eastern District of New York pursuant to 28 U.S.C. § 157(a), dated August 28, 1986, as amended by Order dated December 5, 2012, effective nunc pro tunc as of June 23, 2011. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) in which final orders or judgment may be entered by this Court pursuant to 28 U.S.C. § 157(b)(1).
The Court has considered carefully the arguments of counsel and has reviewed thoroughly the parties' submissions. This Memorandum Decision and Order constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, made applicable here by Bankruptcy Rules 9014 and 7052. To the extent a finding of fact includes a conclusion of law, it is deemed a conclusion of law, and vice versa.
For the following reasons, the Court finds in favor of the debtors. Accordingly, the trustee's objection is overruled and the exemption is allowed.
The relevant facts are not in dispute. On August 3, 2018, Chubb/ACE Property and Casualty Insurance Company issued a check to Mr. Nuara in the amount of $45,623.23 pursuant to a Notice of Decision issued by the State of New York Workers' Compensation Board ("Board"). Tr. Obj. Ex. 2. The award was rendered after a hearing held on May 2, 2018 at which the Board found that Mr. Nuara suffered a permanent partial disability relating to the use of his right leg due to an accident that occurred on October 1, 2012. Tr. Obj. Ex. 1. The disability payment was for a period of 57.6 weeks starting October 1, 2012 and ending November 7, 2013 at a rate $792.07 a week. Id. Mr. Nuara' average wage for the year he worked before the work-related injury was $1,935.11 per payroll period.
On August 30, 2018, the debtors filed a chapter 7 bankruptcy petition together with required schedules and statements. [dkt. no. 1]. The debtors' schedule I (income) specifies that during the months leading up to the petition date, Mr. Nuara received disability payments from his former employer from February 2018 through June 21, 2018. Id. Schedule I explains that since Mr. Nuara is no longer employed, the long-term disability payment from his employer ended. He also received short term disability payments from New York State from January 2018 through July 2018 in the amount of $736.67 a month. Id. Additionally, he received long term disability from New York State from May 2018 to the petition date in the amount of $3,309 per month. Id. This long-term disability is his only source of income. Mr. Nuara claims he is disabled for life. Jan. 15, 2019 Hr'g Tr. ("Hr'g Tr.") at 4:2-3.
Prior to the commencement of their bankruptcy case, the debtors received the workers' compensation check in the amount of $45,623.23. At the time this matter was heard by the Court, the debtors had not cashed the check and the parties do not dispute that the proceeds are identifiable as a workers' compensation disability payment.
In schedule C (property claimed as exempt), the debtors claimed an $8,550 exemption under NYDCL § 282(3)(iii) for workers' compensation in an unknown amount. [dkt. no. 1]. On October 24, 2018, the trustee filed an objection to the debtors' claimed exemption arguing that the funds are not exempt under NYDCL § 282(3)(iii) nor under NYDCL § 282(2)(c). [dkt. no. 10]. The debtors amended their schedule C on November 15, 2018 to withdraw their claim for an exemption under NYDCL § 282(3)(iii). [dkt.no. 13]. They now claim that the workers' compensation award is exempt in its entirety under NYDCL § 282(2)(c), New York Workers' Compensation Law §§ 33, 218,3 and New York Labor Law § 595(2).4 The debtors filed opposition to the trustee's objection on November 29, 2018. [dkt. no. 16]. The trustee filed a reply on December 4, 2018. [dkt. no. 17]. A hearing on the trustee's objection was held on December 6, 2018 at which the trustee requested that the matter be scheduled for oral argument. On December 13, 2018, the trustee filed a letter in which he again requested that this matter be set down for oral argument [dkt. no. 19]. The trustee filed a supplemental brief on January 9, 2019. [dkt. no. 22]. The Court heard oral argument on January 15, 2019. At the conclusion of the hearing and for the reasons set forth on the record, the Court ruled in favor of the debtors and allowed the claimed exemption. The trustee subsequently requested that the Court issue a written opinion allowing the claimed exemption. This Memorandum Decision and Order is consistent with the Court's bench ruling and explains further the bases of the Courts' ruling.
The trustee does not dispute that disability and workers' compensation benefits are generally exempt outside of bankruptcy and concedes that such benefits would be exempt if made payable or earned after the bankruptcy filing. However, the trustee contends that benefit payments received by a debtor prior to filing for bankruptcy are not exempt from creditors' reach in bankruptcy. The trustee urges the Court to follow In re Wydner , 454 B.R. 565 (Bankr. W.D.N.Y. 2011) where the bankruptcy court held that a workers' compensation disability payment received by a debtor before bankruptcy is not exempt under NYDCL § 282(2)(c). In Wydner , the court distinguished its prior ruling in In re Herald , 294 B.R. 440 (Bankr. W.D.N.Y. 2003) where it found that future payments of workers' compensation benefits are exempt under NYDCL § 282(2)(c). The dispute in Wydner was whether the debtor could exempt a lump sum workers' compensation award received before commencement of the bankruptcy case which was traceable to the award itself. The Wydner court said no and held that only the right to receive the payment in the future, and not the payment itself, is exempt. In so finding, the Wydner court concluded that the phrase at issue here "the debtor's interest in" rendered the text of NYDCL § 282(2) ambiguous thus requiring consideration of the legislative history. In going beyond the statutory text and considering the limited legislative history, the Wydner court determined that the phrase "the debtor's interest in" applied only to subclause (e) of NYDCL § 282(2) and not to subclauses (a)-(d).
Based on the Wydner court's reasoning, the trustee asks this Court to find that (1) the phrase "the debtor's interest in" as set forth in NYDCL § 282(2) is ambiguous, (2) the New York legislature intended the phrase "the debtor's interest in" to apply only to certain ERISA-qualified retirement plans under NYDCL § 282(2)(e) to exempt payments under those plans in bankruptcy, but did not intend to exempt "the debtor's interest in" any of the benefits set forth in NYDCL § 282(2)(a)-(d), and (3) because only a debtor's "right to receive" a benefit under NYDCL § 282(2)(c) is exempt in bankruptcy and not the benefit (i.e., the payment) itself, a workers' compensation payment that is received prepetition is not exempt.
The trustee also contends that while NYDCL § 282(3)5 provides an express mechanism for tracing the source of payments to determine whether the payments may properly be claimed as exempt, such tracing mechanism is not found in NYDCL § 282(2). In short, the trustee argues that although payments received prepetition are exempt under state law, that is not the case in bankruptcy. According to the trustee, these prepetition payments should be viewed as cash upon a bankruptcy filing and the source of the payment is irrelevant unless the payment is received post-petition. The trustee also argues that even if NYDCL § 282(2) permits an exemption for "the debtor's interest in" a disability and unemployment benefit, "payment" is different from "benefit" and payment is excluded from the exemption provided under NYDCL § 282(2)(c). In sum, the trustee contends that an exemption for a prepetition payment of disability or unemployment benefits gives debtors a head start as opposed to the well-recognized bankruptcy policy of a fresh start.
The debtors argue that workers' compensation and disability awards are generally exempt under Work. Comp. Law §§ 33 and 218(2) and Labor Law § 595(2). They contend that the award continues to be...
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