Mpm Financial Group, Inc. v. Morton, No. 2007-SC-000652-DG.
| Citation | 289 S.W.3d 193 |
| Decision Date | 25 June 2009 |
| Docket Number | No. 2007-SC-000652-DG. |
| Parties | MPM FINANCIAL GROUP, INC., Appellant v. Michael P. MORTON, Appellee. |
| Court | United States State Supreme Court — District of Kentucky |
This case is before this Court on a grant of discretionary review to determine whether KRS 427.170, which incorporates by reference the federal bankruptcy exemptions of 11 U.S.C. § 522(d), applies only to debtors in bankruptcy proceedings, or whether it renders those exemptions available to all individual debtors in Kentucky, including those who are not involved in bankruptcy proceedings. The Court of Appeals concluded that the plain language of the statute was not ambiguous, and since it failed by express language to limit its application to debtors in bankruptcy, it applied to all individual debtors, the non-bankrupt as well as the bankrupt. We disagree, and accordingly reverse.
The material facts in this case were not disputed, and are set forth below. First, we provide the history of the statutes involved, followed by a recitation of the pertinent procedural facts.
Our analysis of the issue requires an examination of KRS 427.170 before and after its amendment in 2005, and its relationship to federal bankruptcy proceedings. KRS 427.150, KRS 427.160 and KRS 427.170, were enacted in 1980, as a legislative response to the 1978 revision of the federal bankruptcy code which was codified as 11 U.S.C. § 522(b)(1) and (2). That revision provided that an individual debtor in bankruptcy could choose to exempt from his or her estate either the exemptions provided under the federal bankruptcy code, or the exemptions available under the debtor's state law, unless that state had enacted legislation prohibiting such a choice. Each state was thus given the option of making the federal exemptions unavailable to debtors in bankruptcy, thereby limiting those debtors to the same exemptions provided by state law to non-bankrupt debtors domiciled in the state. By virtue of KRS 427.170, Kentucky exercised its option, which in its original form, read as follows:
An individual debtor domiciled in this state is not authorized to exempt from property of said debtor's estate the property specified under subsection (d) of section 522 of The Bankruptcy Code of 1978, 92 Stat. 2549 (1978), Public law 95-598.
The title given to the statute was "Federal Bankruptcy Code Exemptions Not to Apply in Kentucky." Obviously, by its enactment of KRS 427.170, the General Assembly expressed the policy that Kentucky would "opt-out" of the exemptions otherwise available to bankrupt debtors. It should also be noted that KRS 427.150 and 427.160 enumerated some of the exemptions that would be available to Kentucky debtors in bankruptcy court, in lieu of those identified in 11 U.S.C. § 522(d). Although in its original form KRS 427.170 did not expressly limit its application to debtors in bankruptcy, the statute made no sense outside the context of a bankruptcy proceeding. There was no other context in which the non-availability of the federal bankruptcy exemptions mattered.
In 2005, Congress again made substantial changes to the federal bankruptcy code by way of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). At the same time, the General Assembly reconsidered the various exemptions allowed under our statutes. Although broader revisions of our statutory exemptions were proposed, the legislature passed a revision of KRS 427.170 which simply deleted the word "not" from the statute, thereby converting Kentucky from an "opt-out" state to an "opt-in" state with respect to the exemptions provided by 11 U.S.C. § 522(d). Thus, in its present form, the statute reads:
An individual debtor domiciled in this state is authorized to exempt from property of said debtor's estate the property specified under 11 U.S.C. § 522(d).1 The statute was re-titled: "Federal Bankruptcy Code Exemptions Applicable in Kentucky."
Appellant, MPM Financial Group, Inc. (MPM), sued Appellee, Michael P. Morton, in the Fayette Circuit Court, alleging theft and embezzlement. On January 5, 2004, judgment was entered against Morton for the sum of $14,000.00, plus court costs and interest. After entry of the judgment, Morton could not be located, and MPM's effort to execute the judgment was hindered accordingly. Eventually, Morton was found and MPM sought sources of funds or other property that could be garnished or attached to satisfy the judgment. Morton had purchased a private disability insurance policy from UNUM Provident and was currently receiving benefits under that policy amounting to $3750 per month. In July 2005, MPM served an order of garnishment on UNUM Provident. On August 11, 2005, Morton filed an Affidavit to Challenge Garnishment, claiming that the payments were "disability benefits" and were thus "totally exempt (from garnishment) per KRS 427.150." KRS 427.150(d) allows for an exemption of property consisting of "compensation of the loss of future earnings". A month later, he filed a "Notice of Exercise of Exemptions per KRS 427.170" in which he asserted KRS 427.170 as an additional basis for claiming an exemption of the policy benefits. 11 U.S.C. § 522(d) exempts from the bankrupt debtor's estate disability insurance policy benefits.
Eventually, the trial court rejected Morton's claim that the policy proceeds were exempted by KRS 427.150, reasoning that disability policy proceeds are not the same thing as compensation for future loss of earnings. However, the trial court granted the challenge to the garnishment under KRS 427.170, holding that exemptions allowed under 11 U.S.C. § 522(d), and incorporated by reference into KRS 427.170, are available to any individual debtor domiciled in Kentucky. The Court of Appeals affirmed that conclusion. It declined to consider Morton's argument that trial court erred in its holding with respect to KRS 427.150, on the grounds that the issue had not been properly preserved by the filing of a cross appeal. MPM sought discretionary review of the Court of Appeals opinion, which we granted. Morton did not file a cross-petition for discretionary review with respect to the availability of an exemption under KRS 427.150.
MPM argues that the Court of Appeals failed to give due deference to the words and phrases of KRS 427.170 that have acquired specialized technical meaning, as required by KRS 446.080(4), which states:
All words and phrases shall be construed according to the common and approved usage of language, but technical words and phrases, and such others as may have acquired a peculiar and appropriate meaning in the law, shall be construed according to such meaning.
Morton argues that the Court of Appeals followed KRS 446.080(4) by giving the words and phrases in KRS 427.170 their common and approved plain meaning.
Before resolving that dispute, let us note first and foremost, that we are bound by subsection (1) of KRS 446.080, which directs that "[a]ll statutes of this state shall be liberally construed with a view to promote their objects and carry out the intent of the legislature." Thus, the cardinal rule of statutory construction is that the intention of the legislature should be ascertained and given effect. Cabinet for Human Resources, Interim Office of Health Planning and Certification v. Jewish Hospital Healthcare Services, Inc., 932 S.W.2d 388, 390 (Ky.App. 1996). We also bear in mind that where the language of a statute is clear and unambiguous on its face, we are not free to construe it otherwise even though such construction might be more in keeping with the statute's apparent purpose. Whittaker v. McClure, 891 S.W.2d 80, 83 (Ky.1995).
Upon review of KRS 427.170, we cannot escape the conclusion that a latent ambiguity exists in the statute.2 It is not clear and unambiguous on its face. Its direct reference to 11 U.S.C. § 522 and its incorporation by reference of exemptions listed therein create ambiguity because 11 U.S.C. § 522 is applicable only in a bankruptcy proceeding. While the word "debtor," its possessive form "debtor's", and the word "estate" in KRS 427.170 are each, as the Court of Appeals opined, "words of plain and ordinary meaning," each has also acquired, "a peculiar and appropriate meaning in the law" (KRS 446.080) in the form of technical definitions from the federal bankruptcy code. Under 11 U.S.C. § 541, an "estate", in the technical sense, does not exist until an action in bankruptcy court has been commenced. It is created by the commencement of the action in bankruptcy. "Debtor," as used in 11 U.S.C. § 522, takes on the peculiar definition assigned to it by 11 U.S.C. § 101(13), and by that definition, it is a "person ... concerning which a case under this title [a bankruptcy proceeding] has been commenced." The legislature's incorporation of the federal statute into KRS 427.170 by reference thereto, created an ambiguity because it is not clear from the statute alone if the General Assembly intended to also assimilate the federal definitions embodied in the federal statute, or if it intended otherwise.
Thus, both Morton and MPM offer reasonable but mutually exclusive interpretations of the statute. Morton, applying what he calls the "plain meaning of the words," would have us conclude that the statute affords him all of the exemptions allowed under the federal bankruptcy code, 11 U.S.C. § 522(d) because KRS 427.170 does not expressly limit the scope of its protection to debtors in bankruptcy. MPM...
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