In Re: WILLIAM SCHRAMM NANCY SCHRAMM
| Decision Date | 17 June 2010 |
| Docket Number | No. 09-8064,Case No. 09-13948,09-8064 |
| Parties | In re: WILLIAM SCHRAMM and NANCY SCHRAMM, Debtors.HENRY E. MENNINGER, JR., CHAPTER 7 TRUSTEE, Appellant,v.WILLIAM SCHRAMM and NANCY SCHRAMM, Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
ARGUED: Michael J. Menninger, WOOD & LAMPING LLP, Cincinnati, Ohio, for Appellant. Jon C. Hapner, HAPNER & HAPNER, Hillsboro, Ohio, for Appellees. ON BRIEF: Michael J. Menninger, WOOD & LAMPING LLP, Cincinnati, Ohio, for Appellant. Jon C. Hapner, HAPNER
& HAPNER, Hillsboro, Ohio, for Appellees.
Appeal from the United States Bankruptcy Court for the Southern District of Ohio
Before: FULTON, HARRIS, and RHODES, Bankruptcy Appellate Panel Judges.
ARTHUR I. HARRIS, Bankruptcy Appellate Panel Judge. In this case, Henry E. Menninger, Jr., Chapter 7 Trustee, ("Trustee") appeals an order of the bankruptcy court allowing Nancy Schramm ("Debtor") to claim the proceeds of her husband's life insurance policies as exempt pursuant to Ohio Revised Code §§ 2329.66(A)(6)(b) and 3911.10. For the reasons that follow, we REVERSE the order of the bankruptcy court.
The issue on appeal is whether the bankruptcy court erred when it found that the Debtor was entitled to claim the proceeds of her husband's life insurance policies as exempt under Ohio Revised Code §§ 2329.66(A)(6)(b) and 3911.10.
The Bankruptcy Appellate Panel has jurisdiction to decide this appeal, as authorized by the United States District Court for the Southern District of Ohio. 28 U.S.C. §§ 158(b)(6) & (c)(1). The bankruptcy court entered its decision on October 7, 2009, and the Trustee filed a timely notice of appeal on October 16, 2009.
A bankruptcy court's final order may be appealed as ofright. 28 U.S.C. § 158(a)(1). For the purpose of this appeal, a final order is one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citation and quotation marks omitted). An order sustaining or overruling an objection to a debtor's claim of exemption is a final order for purposes of appeal. See Wicheff v. Baumgart (In re Wicheff), 215 B.R. 839, 840 (B.A.P. 6th Cir. 1998).
The Bankruptcy Appellate Panel reviews conclusions of law de novo. Caradon Doors & Windows, Inc. v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus., Inc.), 447 F.3d 461, 463 (6th Cir. 2006). A bankruptcy court's application or interpretation of state law is a conclusion oflaw. See Van Aken v. Van Aken (In re Van Aken), 320 B.R. 620, 623 (B.A.P. 6th Cir. 2005). Interpretation of a state's exemption statute involves a question of law and is reviewed de novo. Hamo v. Wilson (In re Hamo), 233 B.R. 718, 721 (B.A.P. 6th Cir. 1999).
De novo review requires the "appellate court [to determine] the law independently of the trial court's determination." O'Brien v. Ravenswood Apartments, Ltd. (In re Ravenswood Apartments, Ltd.), 338 B.R. 307, 310 (B.A.P. 6th Cir. 2006) ). Essentially, the reviewing court decides the issue "as if it had not been heard before." Mktg. & Creative Solutions, Inc. v. Scripps Howard Broad. Co. (In re Mktg. & Creative Solutions, Inc.), 338 B.R. 300, 302 (B.A.P. 6th Cir. 2006). "No deference is given to the trial court's conclusions of law." Id.
On June 22, 2009, Nancy Schramm ("Debtor" or "Appellee") and her husband, William Schramm, filed a joint voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Ohio. Henry Menninger, Jr. was appointed Chapter 7 trustee ("Trustee" or "Appellant"). On July 11, 2009, William Schramm died.
The debtors listed three life insurance policies from Western Southern Life Insurance ("Insurance Policies") in Schedule B accompanying their bankruptcy petition. The Insurance Policies were owned by William Schramm and named the Debtor as the beneficiary. The debtors initially claimed the Insurance Policies as exempt pursuant to Ohio Revised Code §§ 2329.66(A)(6)(c) and 3917.05. After William Schramm died, Western Southern Life paid the Debtor $35,806.36. On August 10, 2009, the Trustee filed a preemptive objection to any claim of exemption that the Debtor might make on the proceeds of the Insurance Policies. On August 28, 2009, the Debtor filed a response in which she claimed the proceeds of the Insurance Policies as exempt pursuant to §§ 2329.66(A)(6)(b) and 3911.10. On August 31, 2009, the Debtor filed amended schedules B and C claiming the proceeds of the Insurance Policies as exempt pursuant to §§ 2329.66(A)(6)(b) and 3911.10.
On October 7, 2009, the bankruptcy court held that the Debtor could claim the proceeds from the Insurance Policies as exempt under § 2329.66(A)(6)(b). The court found that the Debtor had been a dependent of her husband and determined that this made her eligible to claim an exemption pursuant to § 2329.66(A)(6)(b). On October 16, 2009, the Trustee timely filed this appeal.
Section 541 of the Bankruptcy Code defines "property of the estate." Subject to a few specifically enumerated exceptions, the estate consists of all legal and equitable interests in property a debtor has at the commencement of a Chapter 7 case. See 11 U.S.C. § 541. However, the Bankruptcy Code allows a debtor to claim certain property as exempt. See 11 U.S.C. § 522. A state may adopt the federal exemptions contained in § 522, or create its own exemption framework. Id. Ohio has opted out of the federal exemptions. See OHIO REV. CODE § 2329.662. Therefore, any property that a debtor domiciled in Ohio seeks to exempt must fall within an exemption authorized under Ohio law or nonfederal bankruptcy law.
"The principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor." Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367, 127 S. Ct. 1105, 1107 (2007) (internal quotations and citations omitted). Exemptions further this policy goal by allowing a debtor to protect property which is necessary for the survival of both the debtor and the debtor's family. As such, exemptions are to be construed liberally in favor of the debtor. See Daugherty v. Cent. Trust Co. of Ne. Ohio, N.A., 504 N.E.2d 1100, 1104-05 (Ohio 1986). A party objecting to the debtor's claim of exemptions "has the burden of proving that the exemptions are not properly claimed." Fed. R. Bankr. P. 4003(c).
The first issue we must address is whether the Debtor's claim of exemption should be examined under Ohio Revised Code § 2329.66(A)(6)(b) or § 2329.66(A)(6)(c). While both provisions exempt interests in certain insurance policies, the two provisions apply to different types of policies. Section 2329.66(A)(6)(b) allows a debtor to claim an exemption in an individual life insurance policy, while § 2329.66(A)(6)(c) allows a debtor to claim an exemption in a policy ofgroup insurance. In its opinion, the bankruptcy court examined the Debtor's claim that the proceeds from the Insurance Policies are exempt under § 2329.66(A)(6)(b) as asserted in the Debtor's amended Schedule C. There is no evidence that the Insurance Policies were group insurance policies. Therefore, the Debtor's claim of exemption should be analyzed under § 2329.66(A)(6)(b).
The bankruptcy court found that the Debtor was entitled to an exemption under § 2329.66(A)(6)(b). The court determined that the Debtor was a dependent of her husband and therefore eligible to claim the insurance proceeds as exempt property. The Trustee argues that the bankruptcy court erred, and that based upon the plain meaning of the statute a beneficiary, even a dependent beneficiary, is ineligible to claim an exemption under § 2329.66(A)(6)(b). The Trustee asserts that § 3911.10 only exempts insurance proceeds from creditors of the insured and not from creditors of a beneficiary.
The Debtor argues that in determining whether a debtor may claim an exemption under § 2329.66(A)(6)(b) a court must look to whether the debtor-beneficiary was a dependent of the owner of the insurance policy. The Debtor further argues that not allowing debtor-beneficiaries who are dependents of an insured person to exempt insurance proceeds would run counter to the purpose of the statute. Finally, the Debtor argues that a court must read the insurance exemptions in Ohio Revised Code § 2329.66 along with Ohio Revised Code § 3911.14.
Section 2329.66(A)(6)(b) exempts "[t]he person's interest in contracts of life or endowment insurance or annuities, as exempted by section 3911.10 of the Revised Code." In turn, Ohio Revised Code § 3911.10 states in pertinent part:
All contracts of life or endowment insurance or annuities upon the life of any person, or any interest therein, which may hereafter mature and which have been taken out for the benefit of, or made payable by change of beneficiary, transfer, or assignment to, the spouse or children, or any persons dependent upon such person... shall be held, together with the proceeds or avails of such contracts... free from all claims of the creditors of such insured person or annuitant.
The case law on this issue is sparse. Perhaps for this reason, the parties and the bankruptcy court have relied on references to § 2329.66(A)(6)(b) in case law actually applying § 2329.66(A)(6)(c).
While there are relatively few cases that address this issue, the cases with facts most similar to the instant case support the Trustee's position. See In re Kudela, 427 B.R. 643 (Bankr. N.D. Ohio 2010); In re Huth, No. 97-63986, 1998 WL 404153 (Bankr. N.D. Ohio June 30, 1998). In Kudela, the debtor's husband owned a...
To continue reading
Request your trial