In re Simpson
| Citation | 557 F.3d 1010 |
| Decision Date | 23 February 2009 |
| Docket Number | No. 07-15626.,No. EC-06-01198-DMoPa.,07-15626.,EC-06-01198-DMoPa. |
| Parties | In the Matter of Bruce Edward Howard SIMPSON, Debtor. Bruce Edward Howard Simpson, Appellant. v. Michael F. Burkart, Trustee, Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
H. Lee Horner, Jr., Goldstein, Horner & Horner, Cortaro, AZ, for debtor-appellant.
Michael F. Burkart, Chapter 7 Trustee, Carmichael, CA, appellee pro se.
Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Pappas, Montali, and Dunn, Bankruptcy Judges, Presiding.
Before: J. CLIFFORD WALLACE, SIDNEY R. THOMAS, and SUSAN P. GRABER, Circuit Judges.
Debtor Bruce Simpson claims that his single-premium annuity is exempt property. His bankruptcy trustee objected to the exemption, the bankruptcy court sustained the objection, and the Bankruptcy Appellate Panel ("BAP") affirmed. We conclude that, under the circumstances presented by the case, the annuity does not qualify as exempt property, either as life insurance or as a private retirement account, and we affirm.
Simpson paid his bankruptcy attorney, who also sells financial products, $10,000 for the purchase of a single-premium annuity known as the Keyport Index Multipoint Annuity ("the Keyport Annuity"). Simpson designated himself as the annuity contract owner and the annuitant. He designated his two sons as beneficiaries.
The Keyport Annuity is equity-indexed against the Standard & Poor's 500 Index. Although the annuity's interest rate depends on the performance of stocks in the index, the annuity has a "guaranteed minimum growth" of no less than 1.75% on 90% of the premium paid. The annuity contract states that the annuity is non-qualified for IRS purposes.1 The annuity has no loan value, so Simpson could not borrow against any part of the principal or accrued interest. The annuity contract provides that Simpson would begin receiving payments on a specified "Income Date." Prior to the Income Date, Simpson could surrender the annuity, but would be assessed an early surrender penalty.
The annuity's promotional materials refer to it as a retirement savings tool with a taxable death benefit. The section entitled "Death Benefit" provides that, if Simpson were to die prior to the Income Date, his beneficiaries could surrender the annuity without paying the ten percent penalty and would receive the principal, along with all interest accrued up to that point, as if it were fully vested. Alternatively, they could keep the annuity, wait for it to mature, and then receive the payments Simpson would have received.
A few months after purchasing the Keyport Annuity, Simpson filed a voluntary petition in bankruptcy under Chapter 7 of the Bankruptcy Code. He claimed that the Keyport Annuity was exempt under California Civil Procedure Code section 704.115, which pertains to "private retirement plans." Simpson later filed an amended schedule, claiming that the annuity was also exempt under California Civil Procedure Code section 704.100, which pertains to life insurance policies.
The trustee objected to Simpson's claimed exemptions for the Keyport Annuity. At the hearing on the trustee's objection, Simpson testified that he intended the annuity to provide a supplemental retirement income and viewed the annuity as an investment. He also testified that he viewed the annuity as containing a death benefit because of its waived early-surrender penalty and accelerated vesting provisions.
The bankruptcy court sustained the trustee's objections to Simpson's claimed exemptions and froze the annuity pending appeal. Simpson appealed to the BAP, which affirmed. Simpson v. Burkart (In re Simpson), 366 B.R. 64 (9th Cir.BAP 2007). This timely appeal followed.
We independently review a bankruptcy court's decision on appeal from the BAP. Educ. Credit Mgmt. Corp. v. Nys (In re Nys), 446 F.3d 938, 943 (9th Cir.2006). We review a bankruptcy court's findings of fact for clear error, and review de novo a bankruptcy court's conclusions of law, including statutory interpretations. Id.; DeMassa v. MacIntyre (In re MacIntyre), 74 F.3d 186, 187 (9th Cir.1996).
Whether the exemption statutes at issue apply to annuities is a question of statutory interpretation. In re MacIntyre, 74 F.3d at 187. Whether the features of a specific annuity, when considered together with the debtor's intent, demonstrate that the product's primary purpose and effect are life insurance, a retirement plan, or another financial instrument, is a factual determination that we review for clear error. Jacoway v. Wolfe (In re Jacoway), 255 B.R. 234, 237 (9th Cir.BAP 2000).
California has enacted legislation "opting out" of the federal bankruptcy exemption scheme provided under 11 U.S.C. § 522. Cal.Civ.Proc.Code § 703.130 (2007). Therefore, California law governs substantive issues regarding claimed exemptions. Little v. Reaves (In re Reaves), 285 F.3d 1152, 1155-56 (9th Cir.2002).
The BAP and the bankruptcy court properly rejected Simpson's claim that the Keyport Annuity was exempt life insurance under California Civil Procedure Code section 704.100(a),2 which provides:
Unmatured life insurance policies (including endowment and annuity policies), but not the loan value of such policies, are exempt without making a claim.
In deciding whether an annuity qualifies as exempt life insurance under California law, we undertake two inquiries. The first is a question of statutory interpretation that is, whether the claimed statutory exemption includes the asset at issue. See Lieberman v. Hawkins (In re Lieberman), 245 F.3d 1090, 1091 (9th Cir. 2001) (). If the statutory exemption categorically includes the questioned asset, then the inquiry is at an end. If the asset is not categorically embraced within the statutory exemption, then the question is whether, as a factual matter, the particular financial instrument qualifies for the exemption.3
In analyzing § 704.100, we conclude that the section applies categorically only to life insurance and that annuities are not included within the statute's reach. Bernard v. Coyne (In re Bernard), 40 F.3d 1028, 1032 (9th Cir.1994); see also Kennedy v. Pikush (In re Pikush), 157 B.R. 155, 159 (9th Cir.BAP 1993), aff'd, 27 F.3d 386 (9th Cir.1994).
It is true that the statute has an important parenthetical reference to life insurance "including endowment and annuity policies." However, we agree with the BAP's careful statutory analysis in Pikush that this phrase "was intended to clarify that life insurance that includes the essential features of an annuity or endowment policy does not lose its exempt character." 157 B.R. at 157. As the BAP noted:
Had the California legislature intended to create an exemption for all endowment policies and annuity policies, whether or not they are life insurance policies, it presumably would have enacted a statute that exempted "matured life insurance, endowment and annuity policies."
Consistent with this analysis, and with our examination in Bernard, we conclude that single-premium annuities are not included categorically within California's statutory life insurance exemption.
Because section 704.100 applies only to life insurance, we next consider Simpson's argument that, alternatively, the Keyport Annuity is nonetheless exempt under the statute because it is actually a life insurance policy. After a thorough examination of the record, we conclude that the bankruptcy court did not err in determining that the Keyport Annuity did not constitute life insurance.
A single-premium annuity that provides a guaranteed stream of income and has no contingencies that can divest the debtor or his beneficiaries of their right to payment is an investment, not a life insurance policy. Bernard, 40 F.3d at 1032; Pikush, 157 B.R. at 159. To analyze whether a particular annuity falls within this rule, we examine the non-exclusive factors identified by the BAP in Turner v. Marshack (In re Turner), 186 B.R. 108, 117 (9th Cir.BAP 1995), namely: (1) whether the annuity is truly contingent; (2) whether the debtor can accelerate the maturity date; (3) whether the debtor can borrow against the policy; (4) who owns the policy; (5) whether payment of the premium is consistent with an investment or payment; (6) whether the seller was licensed to sell life insurance in the debtor's state; (7) what, if any, is the opinion of testifying experts; (8) what provisions of the application are also part of the policy; and (9) whether a life insurance policy in the debtor's state must contain a death benefit.4 Id.
The BAP considered six of these factors and concluded that the Keyport Annuity was not life insurance based on the following findings:
Unlike a life insurance policy, the payments under the Keyport Annuity are not contingent upon the debtor's life. ...
... The Keyport Annuity does not allow for the debtor to accelerate the maturity date. ...
The Keyport Annuity ... does not allow the debtor to borrow against it.[5] ...
. . . .
... [T]he Keyport Annuity is in the nature of an investment ... [because], "[i]nstead of creating an immediate estate for the benefit of others, the annuitant [reduced his] immediate estate in favor of future contingent income."
. . . .
[S]imply because the Keyport Annuity contains a death benefit does not make it the equivalent of a life insurance policy. ... These limited death benefits do not change the fundamental purpose of the Keyport Annuity — to provide the debtor with fixed, periodic payments for life or a stated period of time, without requiring his death to trigger Sun Life's obligation to pay.
... Sun Life is authorized to sell life insurance ... [but this is] not dispositive as to whether the annuity contract qualifies as life insurance exempt under California law.
Simpson, 366 B.R. at 72-74 (quoting ...
To continue reading
Request your trial
-
Massachusetts Mut. Life Ins. Co. v. United States
...can divest the debtor or his beneficiaries of their right to payment is an investment, not a life insurance policy." In re Simpson, 557 F.3d 1010, 1015 (9th Cir. 2009). Defendant additionally argued that "people buy participating policies in part because they hope to receive or benefit from......
-
In re Segovia
...rev'd 2007). California is one of thirty-four states that has opted out of the federal exemption system. Id.; see also In re Simpson, 557 F.3d 1010, 1014 (9th Cir. 2009); Jacoway, 255 B.R. at 237 (citing Cal.Code Civ. Proc. § Here, Segovia claims that the unexercised stock options under the......
-
Harkey v. Grobstein (In re Point Ctr. Fin., Inc.)
...The question of the statutory construction of Fed. R. Bankr. P. 9006 is also a question of law reviewed de novo. In re Simpson , 557 F.3d 1010, 1014 (9th Cir. 2009).Appellee argues that the standard of review of the bankruptcy court’s order is plain error because Appellants forfeited their ......
-
O'Brien v. Ambs Diagnostics, LLC
...(1) the "debtor's subjective intent" in designing and using the plan or account ( Rucker , at p. 1162 ; Simpson v. Burkart (In re Simpson ) (9th Cir. 2009) 557 F.3d 1010, 1018 ); (2) the "chronology" or timing of the creation of the plan or account vis-à-vis other events ( Yaesu , supra , 2......