In re Vasko
| Decision Date | 07 October 1980 |
| Docket Number | Bankruptcy No. 80-00292. |
| Parties | In re Gerald Andre VASKO, aka G.A. Vasko, Gerry Vasko, Jerry Vasko, Indiv. and fdba Vasko Electronics, Debtor. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
Samuel J. Nugent, Toledo, Ohio, for debtor.
Philip R. Joelson, Toledo, Ohio, trustee in bankruptcy.
MEMORANDUM AND ORDER OVERRULING TRUSTEE'S OBJECTIONS TO DEBTOR'S CLAIM OF EXEMPT PROPERTY
This matter came on to be heard upon the Trustee's objections to the debtor's claim of exemptions to $800.00 of property as allowed by Ohio's Exemption Statute, Ohio Rev.Code Sec. 2329.66(A)(4)(a) and (17). The Trustee argues that these sections are unconstitutional since the Ohio Legislature has limited their application only to bankruptcy proceedings. In pertinent part Sec. 2329.66 provides as follows:
Ohio debtors may claim as exempt only such property specified under Ohio Revised Code 2329.66 because, as permitted by 11 U.S.C. § 522(b)(1), the Ohio Legislature has "opted out" of the federal exemption scheme set forth in 11 U.S.C., § 522(d). Section 2329.66.2 Ohio Rev.Code provides as follows:
"Pursuant to the `Bankruptcy Reform Act of 1978\', 92 Stat. 2549, 11 U.S.C. 522(b)(1), this state specifically does not authorize debtors who are domiciled in this state to the exempt property specified in the `Bankruptcy Reform Act of 1978\', 92 Stat. 2549, 11 U.S.C. 522(d)."
The Trustee raises two constitutional issues in his attack on Ohio's Exemption Statute:
In his first argument the Trustee maintains that the application of 2329.66(A)(4)(a) and (17), as exemption statutes, violate the uniformity requirement of Article I, Section 8, Clause 4.
This article grants Congress the power "To establish * * * uniform laws on the subject of bankruptcies throughout the United States", and can be read together with Article I, Section 8, Clause 18, which gives Congress the power "to make all laws which shall be necessary and proper for carrying into execution the foregoing power, and all other powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof."
In support of his position the Trustee relies on Hanover National Bank v. Moyses, 186 U.S. 181, 22 S.Ct. 857, 46 L.Ed. 1113 (1902). One of the issues presented to the Supreme Court in Hanover was whether or not Sec. 6 of the Bankruptcy Act of 1898, which provided that bankrupts shall be allowed the exemptions prescribed by state law in force at the time of the filing of the petition in bankruptcy, violated the constitutional requirement that bankruptcy laws be uniform.
In ruling that Sec. 6 was constitutional, the Supreme Court, at page 188, 22 S.Ct. at page 860 reasoned that:
"The laws passed on the subject must, however, be uniform throughout the United States, but that uniformity is geographical and not personal, and we do not think that the provision of the act of 1898 as to the exemptions is incompatible with the Rule * * *."
Explaining why uniformity exists even through different exemptions will apply in different states the Court held, at Page 190, 22 S.Ct. at page 861:
Based on Hanover the Trustee contends that uniformity is only satisfied by the use of general state exemption statutes in bankruptcy proceedings. When general exemptions are used, the Trustee receives that which would have been available to creditors in the state if no bankruptcy law had been passed. By denying the Trustee property which creditors can obtain in state courts, since the two exemptions in issue apply only in bankruptcy proceedings, the Trustee argues that the uniformity requirement as propounded in Hanover is lacking.
Numerous decisions by various Courts have discussed the uniformity requirement. Judge White in In re Hill, 4 B.R. 310 (Bkrtcy.N.D.Ohio, 1980), at Page 314, held that "absolute uniformity in the application of the bankruptcy act is impossible, since Congress cannot create uniform conditions and circumstances in the various states of the Union."
In Stellwagen v. Clum, 245 U.S. 605, 38 S.Ct. 215, 62 L.Ed. 507 (1918) at page 613, 38 S.Ct. at page 217, the Supreme Court spoke on the consequences of the application of state law with regard to uniformity holding:
The Hanover case, supra, relied on by the Trustee, and the other cases discussed above, have addressed the constitutional requirement of uniformity of Article I, Section 8, Clause 4. Each case has held that recognition or adoption of state law in bankruptcy proceedings does not violate the uniformity requirement of the Constitution. The statute in issue in each of the above cases and particularly in Hanover, Sec. 6 of the Act, was a federal statute. In this proceeding the Trustee is objecting to the validity of a state statute. But Article I, Section 8, Clause 4, and Article I, Section 8, Clause 18, are only controlling as to the congressional exercise of power. Each state maintains its sovereign power to pass laws. As the Court held in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943) at page 359, 63 S.Ct. at page 317:
"The governments of the states are sovereign within territory save only as they are subject to the prohibitions of the Constitution as their action in some measure conflicts with powers delegated to the National Government, or with Congressional legislation enacted in the exercise of those powers."
It was long ago settled that state laws, to the extent that they conflict with the laws of Congress on the subject of bankruptcies, are suspended. While this is true, state laws are thus suspended only to the extent of actual conflict with the system provided by Congress. See Sturges v. Crowninshield, 4 Wheat. 122, 4 L.Ed. 529 (1819); Ogden v. Saunders, 12 Wheat. 213, 6 L.Ed. 606 (1827). The passage of the new Bankruptcy Code by Congress has not precluded the states from making exemption laws which apply only in bankruptcy proceedings. If an exemption constructed in such a manner is unconstitutional it will be so because it is in conflict with the federal legislation.
The second major argument of the Trustee is that 2329.66(A)(4)(a) and (17) are in conflict with the bankruptcy law, and therefore violate the Supremacy Clause, Article VI, Clause 2 which provides:
"This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary not-withstanding."
The Trustee cites Perez v. Campbell, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971) which is the leading case concerning the application of the Supremacy Clause in the area of bankruptcy. In Perez the Supreme Court set forth the test to determine whether a state statute is in conflict with the bankruptcy law. The Court in Perez, at 644, 91 S.Ct. at 1708, determined that, "the test calls for a two-step process of first ascertaining the construction of the two statutes and then determining the constitutional question whether they are in conflict".
Unlike the situation in Perez, the Ohio statute in question has no legislative history. Nor are there any reported state court cases interpreting the statute. In a Bankruptcy Court opinion by Judge O'Neill, In re Bloom, 5 B.R. 451 (Bkrtcy.N.D.Ohio, 1980) recently decided, the court, in speaking of the Ohio exemption law, 2329.66(A)(4)(a) and (17) held at page 454:
"Though not as liberal as the Code\'s exemption, the Ohio law is in conformity with the federal legislative intent to provide the mandated `fresh start\' to debtors in bankruptcy."
A reading of the Ohio law clearly shows that it is an exemption statute with the purpose of protecting debtors and enabling them to achieve a fresh start.
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