In re Riendeau

• Decision Date: 11 October 2002
• Docket Number: No. 2:01-CV-240.,2:01-CV-240.
• Citation: 293 B.R. 832
• Court: U.S. District Court — District of Vermont
• Parties: In re Leonard L. RIENDEAU, Debtor. Leonard L. Riendeau, Debtor-Appellant, v. John R. Canney, Trustee-Appellee.

293 B.R. 832

In re Leonard L. RIENDEAU, Debtor.

Leonard L. Riendeau, Debtor-Appellant, v. John R. Canney, Trustee-Appellee.

No. 2:01-CV-240.

United States District Court, D. Vermont.

October 11, 2002.

COPYRIGHT MATERIAL OMITTED

Kathleen Walls, Esq., Middlebury, VT, for Debtor/Appellant.

John R. Canney, III, Esq., Rutland, VT, for Appellee.

OPINION AND ORDER

SESSIONS, Chief Judge.

This is an appeal from a decision of the Bankruptcy Court sustaining the Chapter 7 Trustee's objection to Debtor Riendeau's claimed exemption of certain pre-petition income from a bankruptcy proceeding. The Debtor has asked this Court to reverse the ruling of the Bankruptcy Court. For the reasons described below, the Court affirms the Bankruptcy Court's decision.

I. Background

Leonard L. Riendeau, another Vermont family dairy farmer in dire straits, filed for Chapter 7 bankruptcy on December 19, 2000. He elected, under 11 U.S.C. § 522(b)(2), to use the exemptions available under applicable nonbankruptcy federal and Vermont law. Along with his bankruptcy petition, Riendeau filed a Schedule C, listing several of his personal property items in order to claim them as exempt in line with this law.

Later that month, after the filing, he received a check in the amount of $11,210.03 as payment received for milk his farm produced during that month. From that amount, $3,686.95 was automatically deducted for farm operation expenses. None of it was withheld for income tax purposes. The Debtor also received, post-petition, a federal subsidy compensating farmers for lower than expected milk prices during the year 2000. This check was for $11,490, and no income tax was withheld from it either. Both checks were received in connection with the Debtor's pre-petition business as a dairy farmer.

After receiving the two checks, the Debtor amended his Schedule C to list them, pursuant to Vt. Stat. Ann. tit. 12, § 3170(b)(1) (Lexis Supp.2001), as exempt at a rate of "75% of his weekly earnings, or 30 times the federal minimum hourly wage, whichever is determined to be greater."

On April 20, 2001, the Trustee filed an objection to the Debtor's claimed exemption of both checks, arguing that § 3170 does not apply to the case at hand. Specifically, the Trustee argued that: 1) § 3170 exemptions apply solely to judgment debts; 2) § 3170 only pertains to the garnishment of future earnings to pay an existing debt; and 3) the Debtor's milk subsidy check did not constitute "disposable earnings" as defined under § 3170. In re Riendeau, No. 00-11440-63, 2001 WL 34050699 at *1 (Bankr.D.Vt. July 16, 2001) (Order Sustaining Trustee's Objection). In his Supplemental Response to the Trustee's Objection to Exemption [Dkt. # 53-1], the Debtor asserted that he is entitled to an automatic, self-executing federal wage exemption in bankruptcy, under the federal garnishment limitation provision of the Consumer Credit Protection Act (CCPA), 15 U.S.C. § 1601 et seq.

A hearing on the Trustee's Objection was held on June 19, 2001. The Bankruptcy Court sustained it on the grounds that: 1) § 3170 "provides for the exemption from the trustee process and is not a bankruptcy exemption" and 2) the Debtor had "not amended his Schedule C further to claim an exemption under any other purported exemption statute, including 15 U.S.C. § 1673." In re Riendeau, No. 00-11440-63, 2001 WL 34050699 at *1.

II. Jurisdiction

This court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 158(a) and Vermont Local District Court Rule 83.9(a)(1) which give the Federal District Courts authority to hear appeals from final judgments, orders and decrees of bankruptcy judges entered in "core proceedings" (cases and proceedings involving purely bankruptcy matters).

III. Standard of Appellate Review

A bankruptcy judge's findings of fact may not be set aside unless they are determined to be clearly erroneous. Fed. R. Bankr.P. 8013; In re Manville Forest Prods. Corp., 896 F.2d 1384 (2d Cir.1990); Cassani v. Glinka (In re Cassani), 214 B.R. 459, 462 (D.Vt.1997). Questions of law in a bankruptcy proceeding are reviewed de novo. U.S. Rural Housing & Comm. Dev. Serv. (RECDS) v. Loper, 222 B.R. 431, 434 (D.Vt.1998) (citing In re Manville Forest, 896 F.2d at 1388). The questions raised in this appeal are questions of law and will be reviewed de novo.

IV. Discussion

Two questions have been raised in this appeal. The first is whether Vt. Stat. Ann. tit. 12, § 3170 applies as an exemption in the bankruptcy context. The second is whether the Debtor is entitled to an automatic, self-executing federal wage exemption under a federal garnishment limitation provision of the Consumer Credit Protection Act (CCPA), 15 U.S.C. § 1601 et seq, despite raising it for the first time in his Supplemental Response to Trustee's Objection to Exemption.

a. Applicability of § 3170 in Bankruptcy

Riendeau, as a Chapter 7 debtor, is afforded any exemption available under "state and local law that is applicable on the date of the filing of the petition." 11 U.S.C. § 522(b)(2); accord Parrotte v. Sensenich (In re Parrotte), 22 F.3d 472, 474 (2d Cir.1994). The Trustee bears the burden of proving that the exemption claimed is improper and should be disallowed. Fed. R. Bankr.P. 4003(c).

A strong and fundamental public policy underlying Vermont's exemption statutes is to protect a debtor against total poverty, without excessively restricting a creditor's right to collect debts. David W. Lynch, Vermont's New Debtor Exemption Statute, 13 Vt. L.Rev. 609 (Winter 1989). To effectuate this policy, Vermont courts have long held that exemption statutes "ought to receive a liberal construction in favor of the debtor." Webster v. Orne, 45 Vt. 40, 42 (1868). However, Vermont's tradition of so constructing has always been "within the parameters of [the exemption statute's] plain meaning." See In re Christie, 139 B.R. 612, 613 (Bankr.D.Vt.1992). Indeed, the Bankruptcy Court has consistently applied plain meaning language interpretations to its rulings concerning exemptions in the bankruptcy context. See, e.g., In re Gabelhart, 138 B.R. 425, 426 (Bankr.D.Vt.1992); see also In re Thibault, No. 90-00100, 1992 WL 77619 (Bankr.D.Vt. April 8, 1992) (noting that "[w]hen a statute's language is plain, `the sole function of the courts is to enforce it by its terms'" quoting Caminetti v. U.S., 242 U.S. 470, 37 S.Ct. 192, 61 L.Ed. 442 (1917)).

Section 3170 reads, in pertinent part:

(a) No order approving the issuance of trustee process against earnings shall be entered against a judgment debtor who was, within the two month period preceding the hearing provided in section 3169 of this title, a receipt of assistance from the Vermont department of prevention, assistance, transition, and health access. The judgment debtor must establish this exemption at the time of hearing.

(b) The earnings of a judgment debtor shall be exempt as follows:

(1) seventy-five percent of the debtor's weekly disposable earnings, or 30 times the federal minimum hourly wage, whichever is greater.

(Lexis Supp.2001). The plain language of § 3170 alone, through its use of terms such as "judgment debtor" and the fact that it clearly establishes trustee process as its context, precludes its applicability to bankruptcy.¹

Relevant Vermont case law, although meager, underscores § 3170's plain meaning, and demonstrates that it was enacted to establish the legal process by which a judgment debtor's earnings are sought to be garnished by a judgment creditor. See Olson v. Townsend 148 Vt. 135, 530 A.2d 566 (1987) (noting the purpose of trustee process as such).²

In coordination with the "plain meaning" rule, Vermont courts have also indicated that a correct interpretation of the statute in question must further the legislative scheme — in this case Vt. Stat. Ann. tit. 12, §§ 3167-3172 — of which the provision at issue is a part. See Holmberg v. Brent, 161 Vt. 153, 155, 636 A.2d 333 (1993); see also Davis v. Hunt, 167 Vt. 263, 267, 704 A.2d 1166, 1169 (1997). The statutory scheme that surrounds § 3170(b) highlights the notion that it applies to trustee process and not in the bankruptcy context. For example, § 3170(c) states that "after hearing, the court shall enter an appropriate order which may provide for repetitive withholding of earnings...." This language is prospective. It assumes the garnishment of future wages, which does not comport with the discharge aspect of bankruptcy. Indeed, extending § 3170 in the bankruptcy context would be inconsistent with the "fresh start" policy underlying the bankruptcy process.

Other provisions in the trustee process scheme also support limiting § 3170(b)'s application to trustee process. Vt. Stat. Ann. tit. 12, §§ 3167-3172 (Supp.2001). Section 3167 states that the purpose of trustee process is "the enforcement of a money judgment in any civil action...." and that it cannot commence "until the judgment becomes final." Section 3169 indicates that the purpose of the "hearing" mentioned in § 3170(a) is to determine whether "a judgment debtor has neglected or refused to pay or make reasonable arrangements to pay a money judgment in any civil action...." Section 3171 allows a judgment creditor to serve an order for garnishment on the trustee of the funds to be garnished. Finally, § 3172 prohibits any employer from firing an employee based on such an order or garnishment.

Taken as a whole, these provisions do not contemplate the process by which assets are assembled into a bankruptcy estate. The exclusive purpose of this statutory scheme is instead to limit the periodic garnishment of future wages after final judgment in a civil action.

The Debtor argues that such an application of the plain language rule would lead to absurd and irrational consequences in this case. He reasons that few of Vermont's traditionally applied bankruptcy exemptions could ever apply under the reasoning advanced by the Bankruptcy Court because these statutes do...