In re Orso, Bankruptcy No. 94-11491.
| Decision Date | 23 March 1998 |
| Docket Number | Bankruptcy No. 94-11491. |
| Citation | 219 BR 402 |
| Parties | In re Paul William ORSO, Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of Louisiana |
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Derren S. Johnson, Baton Rouge, LA, for Debtor.
George L. Clauer, III, Baton Rouge, LA, for Valerie Canfield.
Martin A. Schott, Baton Rouge, LA, Chapter 7 Panel Trustee of Bankruptcy Estate.
RULING
Now before the court is the objection of Valerie Canfield, formerly known as Valerie Canfield Orso ("Canfield"), to the claim of exemption of Paul William Orso (the "Debtor") under La. R.S. 22:647 (1995) of the proceeds of annuities (the "Annuities") issued in accordance with § 130 of the Internal Revenue Code and pursuant to a structured tort settlement (the "Tort Settlement"), as compensation for personal injury damages sustained by the Debtor.
This court has original jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(a). Pursuant to 28 U.S.C. § 157(b)(2)(A), this is a proceeding over which the court has authority to issue a final order.
Resolution of Canfield's objection requires that this court decide, pursuant to 11 U.S.C. § 522(b)(2)(A), the domicile of the debtor during the 180 days prior to the petition date (or where the debtor had been domiciled for the longest portion of the period), as there is a dispute over whether the debtor was domiciled in Alabama or Louisiana.1 For reasons set forth below, the court finds that the debtor was, prior to the bankruptcy petition date, a domiciliary of the state of Louisiana.
Secondly, the court must, in light of the domicile finding, determine whether the Fifth Circuit case, Matter of Young, 806 F.2d 1303 (5th Cir.1987),2 is controlling authority which dictates the outcome requested by the objector, that the debtor's rights in, to, and upon the "annuities" and the payments thereunder are not properly claimable as exempt under Louisiana law. As will be shown, the court concludes that Young is inapplicable to this proceeding, and that upon analysis of the Louisiana state law of exemption of annuities (along the way, the court takes a look at Young and finds, to its satisfaction, that it does not correctly state Louisiana law on the issue of annuities and exemptions and that a future panel of the court, if faced with the same question raised in Young, would be bound to reverse it), Orso's rights in, to, and upon the annuities at issue are exempt.
For reasons set forth below, the court dismisses the objection of Canfield.
On November 11, 1986, only a few months after he married Canfield, the Debtor's life as he, his wife, his family, and his friends knew it was forever and inexorably altered. As a result of a closed head injury which he sustained in a car accident on that date, the Debtor was permanently and severely brain damaged, rendering him mildly mentally retarded with an I.Q. of less than seventy and unable to function as he had prior to the accident.
On November 9, 1987, the Debtor and Canfield filed suit against Cook Construction Company, Inc. of Mississippi ("Cook Construction") and its insurer, Liberty Mutual Insurance Company ("Liberty Mutual"); C & S General Contractors, Ltd. ("C & S") and its insurer, American General Fire & Casualty Company ("American General"); and the State of Louisiana (the "State"), in the Eighteenth Judicial District Court in the Parish of West Baton Rouge, Louisiana, seeking damages as a result of the injuries the Debtor had sustained in the car accident. On September 29, 1989, the Debtor and Canfield entered into a Consent Judgment with the defendants (the "Consent Judgment").
Pursuant to the Consent Judgment, Cook Construction and its insurer, Liberty Mutual, agreed to pay to Canfield the sum of $39,375.00, upon the signing of the judgment, and agreed to pay to the Debtor the sum of $240,846.45, upon the signing of the judgment, plus $1,180.00 per month to the Debtor for life, commencing October 15, 1989, with thirty years of these monthly payments guaranteed to him or to his estate should he die before thirty years. In addition, C & S and its insurer, American General, agreed to pay to Canfield the sum of $3,750.00, and to pay to the Debtor the sum of $41,704.55, upon the signing of the judgment. Lastly, the State agreed to pay to Canfield the sum of $19,375.00, upon the signing of the judgment, and to the Debtor the sum of $55,625.00 upon the signing of the judgment, plus the sum of $850.00 monthly for life, with thirty years of these payments being guaranteed to the Debtor or to his estate should he die before thirty years, with such payments commencing on October 26, 1989. In addition, the State agreed to pay the following lump sum payments to the Debtor: $ 5,000 to be paid at the end of five years from entry of the Consent Judgment; $15,000 at the end of ten years from entry of the Consent Judgment; $20,000 at the end of fifteen years from entry of the Consent Judgment; and $35,000 at the end of twenty years from entry of the Consent Judgment.
The parties to the Tort Settlement also agreed that all funds paid to the Debtor and to Canfield were their respective separate property. In return for receiving these sums of money, the Debtor and Canfield agreed to dismiss with prejudice all their claims against the defendants.
Also on September 29, 1989, the Debtor, Cook Construction, and Liberty Mutual entered into a Settlement and Release and Satisfaction of Consent Judgment (the "Liberty Mutual Agreement"). The Liberty Mutual Agreement provided that Cook Construction or Liberty Mutual had the right to:
. . . fund Periodic Payments to the Debtor by purchasing a "qualified funding asset," within the meaning of Section 130(d) of the Internal Revenue Code, in the form of an annuity policy from Liberty Life Assurance Company of Boston the "Liberty Mutual Annuity". All rights of ownership and control of such annuity policy shall be vested in the Defendant Cook Construction or the Insurer Liberty Mutual.
Moreover, in the Liberty Mutual Annuity "Policy Information," the Debtor is designated as the "Annuitant," if living; otherwise, all payments made pursuant to the Annuity are to be made to the following beneficiaries: to Janice Elaine Orso, the Debtor's mother, and Adam Paul Orso, the Debtor's father, equally, if living, and if not living, to the survivor, if any, and otherwise to the Estate of the last surviving payee. In addition, regarding a change of beneficiary of the Liberty Mutual Annuity, this Annuity states:
You the Owner — Cook Construction or Liberty Mutual may change the Owner or any Beneficiary by written request during the Annuitant\'s lifetime.
Therefore, the Debtor is the annuitant, but not the owner, under the Liberty Mutual Annuity, and lacks the authority to change beneficiaries under this Annuity. As the recipient of the proceeds of the Liberty Mutual Annuity, the Debtor, however, is the payee under this Annuity.
Like Cook Construction, the State also desired to purchase an annuity to fund its obligation to the Debtor, and on September 22, 1989, the Debtor, Canfield, and the State entered into a Receipt and Release and Indemnity Agreement (the "State Agreement"), pursuant to which the State assigned its obligation to make future periodic payments to Conseco Annuity Guaranty Company ("Conseco"), which agreed to fund this obligation by purchasing an annuity from Western National Life Insurance Company ("Western National").
The State Agreement provides that Conseco is the Owner of the Western National Annuity and that Conseco has the sole authority to change beneficiaries:
Conseco, as owner of the annuity contract purchased to fund the periodic payment obligation to the Debtor, possesses the sole authority to designate a change of beneficiary, but in no event shall the request of the payee be unreasonably withheld or denied.
Moreover, in the Western National Annuity, the Debtor is the "Measuring Life," i.e., the Annuitant. The Western National Annuity does not appear to designate beneficiaries.
Shortly after the Tort Settlement of the lawsuit, the Debtor's and Canfield's marriage apparently deteriorated, and on May 21, 1990, a Judgment of Separation was entered in the family court of East Baton Rouge Parish, Louisiana. On that same date, the Debtor and Canfield entered into a Settlement of Community Agreement pursuant to which the debtor agreed to transfer to Canfield the house in which they had lived in Baton Rouge, all household furniture, furnishings, appliances, and equipment located in the house, all of Canfield's personal clothing and belongings, including personal jewelry, and a 1988 Ford Mustang. Canfield agreed to assume the $72,000 note covering the house, and to be responsible for paying off the balances on two credit cards.
In addition, the Debtor and Canfield acknowledged that any funds they had received pursuant to the Tort Settlement of the lawsuit were separate funds, and Canfield relinquished any interest she might have in the Debtor's social security benefits, Navy benefits, and a 1990 Jeep Wrangler. Finally, the Debtor agreed to pay to Canfield $1,250 per month through May, 1994, if Canfield remained enrolled as a student, either part-time or full-time, at Louisiana State University ("LSU") until that date, but that if Canfield dropped out of LSU, then the monthly payments would decrease to $1,000 per month, with all payments terminating in May, 1994. However, if Canfield dropped out of LSU and then re-enrolled, the monthly payments again would increase to $1,250 per month for all such months that she was enrolled as an LSU student, until May, 1994, when all payments would terminate.
Canfield apparently could not make the mortgage payments on the house, so on August 31, 1990, the Debtor and Canfield...
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