Nelson v. Long (In re Long)

• Decision Date: 12 December 2016
• Docket Number: No. 16-6073,16-6073
• Citation: 843 F.3d 871
• Parties: In re: Bobby Dale Long, Debtor. Lyle R. Nelson, Chapter 7 Trustee, Appellant, v. Bobby Dale Long, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

843 F.3d 871

In re: Bobby Dale Long, Debtor.

Lyle R. Nelson, Chapter 7 Trustee, Appellant,

v.Bobby Dale Long, Appellee.

No. 16-6073

United States Court of Appeals, Tenth Circuit.

Filed December 12, 2016

Submitted on the briefs: Lyle R. Nelson, Attorney, Elisabeth D. Brown, Attorney, and Wyatt D. Swinford, Attorney, of Elias, Books, Brown & Nelson, P.C., Oklahoma City, Oklahoma, for Appellant.

J. David Ezzell, Attorney, and Ben Ezzell, Attorney, of Ezzell & Shepherd, PLLC, Enid, Oklahoma, for Appellee.

Before BRISCOE, EBEL and PHILLIPS, Circuit Judges.

BRISCOE, Circuit Judge.

The debtor in this Chapter 7 bankruptcy proceeding, Bobby Long, claimed an exemption in $60,000 worth of life insurance proceeds that he received as a beneficiary shortly prior to filing his bankruptcy petition. The Trustee objected to the claimed exemption, but the bankruptcy court overruled the objection and sustained Long's claimed exemption. The Trustee appealed to the district court, which affirmed the bankruptcy court's decision. The Trustee now appeals to this court. Exercising jurisdiction pursuant to 28 U.S.C. § 158(d)(1), we affirm.¹

I

Donna Long, the wife of debtor Bobby Dale Long (Long), held a life insurance policy (the Policy) in the amount of $60,000. Long was the named beneficiary under the Policy. Donna Long died on July 22, 2014. On October 8, 2014, Long received the proceeds of the Policy in the form of a $60,000 check. Long cashed the check on December 11, 2014, depositing $56,500 of the funds into his savings account and $1,500 into his personal checking account, and retaining $2,000 in cash.

On November 4, 2014—after he received the life insurance check, but before he cashed it—Long filed a voluntary Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Western District of Oklahoma. Long subsequently filed an amended Schedule C claiming an exemption in and to the $60,000 he received as beneficiary under the life insurance policy.

On May 19, 2015, the Trustee filed an objection to Long's amended schedule, arguing that Long was not entitled to an exemption in the life insurance proceeds. In response, Long argued that "the life insurance policy payout ... [was] exempt pursuant to 36 Okla. Stat. § 3631.1(A) [sic]." Jt. App. at 44. The Trustee argued in reply that section 3631.1(A) does not exempt insurance policy proceeds that have already been paid out to a beneficiary.

On October 8, 2015, the bankruptcy court issued a written order sustaining Long's claimed exemption. The Trustee filed a timely notice of appeal, electing to have the appeal heard by the district court. On February 16, 2016, the district court issued a written order affirming the bankruptcy court's ruling.

The Trustee now appeals to this court.

II

On appeal, the Trustee argues that the bankruptcy court erred in interpreting Okla. Stat. tit. 36, § 3631.1(A) to afford Long with an exemption in the $60,000 proceeds he received from the Policy. "In an appeal from a final decision of a bankruptcy court, ‘we independently review the bankruptcy court's decision, applying the same standard as the [bankruptcy appellate panel] or district court.’ " In re Millen n ium Multiple Emp'r Welfare Benefit Plan, 772 F.3d 634, 638 (10th Cir. 2014) (quoting In re Baldwin, 593 F.3d 1155, 1159 (10th Cir. 2010) ). "In doing so, we treat the bankruptcy appellate panel or district court as a ‘subordinate appellate tribunal whose rulings are not entitled to any deference (although they may certainly be persuasive).’ " Id.(quoting In re Miller, 666 F.3d 1255, 1260 (10th Cir. 2012) ). "A bankruptcy court's legal conclusions are reviewed de novo, while its factual findings are reviewed for clear error." Id.

The filing of a Chapter 7 bankruptcy petition "creates an estate," 11 U.S.C. § 541(a), and "the debtors' property becomes property of the bankruptcy estate subject to the exemptions listed in 11 U.S.C. § 522," Lampe v. Williamson (In re Lampe), 331 F.3d 750, 754 (10th Cir. 2003). " Section 522(b) specifies that the debtor can take the exemptions enumerated in § 522(d) unless applicable state law specifically provides otherwise." Id. As applicable here, the State of Oklahoma has opted out of the federal exemption scheme and has enacted its own set of exemptions. SeeOkla. Stat. tit. 31, § 1(B) ("No natural person residing in this state may exempt from the property of the estate in any bankruptcy proceeding the property specified in subsection (d) of Section 522 of the Bankruptcy Reform Act of 1978 ... except as may otherwise be expressly permitted under this title or other statutes of this state.").

At issue is whether Okla. Stat. tit. 36, § 3631(A)(4) affords Long an exemption in the Policy proceeds. Section 3631.1, which is part of Oklahoma's Insurance Code, is entitled "Certain money and benefits exempt from legal process or seizure—Exceptions." Subsection (A) of the statute states:

All money or benefits of any kind, including policy proceeds and cash values, to be paid or rendered to the insured or any beneficiary under any policy of insurance issued by a life, health or accident insurance company, under any policy issued by a mutual benefit association, or under any plan or program of annuities and benefits, shall:

1. Inure exclusively to the benefit of the person for whose use and benefit the money or benefits are designated in the policy, plan or program;

2. Be fully exempt from execution, attachment, garnishment or other process;

3. Be fully exempt from being seized, taken or appropriated or applied by any legal or equitable process or operation of law to pay any debt or liability of the insured or of any beneficiary, either before or after said money or benefits is or are paid or rendered; and

4. Be fully exempt from all demands in any bankruptcy proceeding of the insured or beneficiary.

Okla. Stat. tit. 36, § 3631.1(A).

The Trustee argues, as he did below, that the phrase "to be paid or rendered" in the opening sentence of subsection (A) places a temporal requirement on the exemption. More specifically, the Trustee argues that this phrase clearly demonstrates an intent for the exemption to apply only up to the point at which the policy proceeds are actually paid to the insured or beneficiary. Although the Trustee acknowledges that subsection (A)(3) employs the phrase "before or after said money or [insurance] benefits is or are paid or rendered," he argues that subsection (A)(3) is inapplicable in this case for two reasons. First, he argues that only subsection (A)(4), which directly references "bankruptcy proceedings," governs what happens in bankruptcy proceedings. Second, and relatedly, he argues that the Oklahoma Legislature expanded the temporal limitation of the statute in subsection (A)(3), but did not do so in subsection (A)(4), and instead intended for the general temporal limitation to apply in bankruptcy proceedings.

The Trustee's arguments hinge in large part on the proper interpretation of the opening clause of Subsection (A) of the statute, which refers to "[a]ll money or benefits of any kind ... to be paid or rendered to the insured or any beneficiary." As noted, the Trustee asserts that the phrase "to be paid or rendered" limits application of Subsection (A) to only the "money or benefits of any kind" that will be paid or rendered to an insured or beneficiary at some point in the future and are thus still in the possession of the "life, health or accident insurance company," "mutual benefit association," or "plan or program of annuities and benefits" referred to in the remainder of the opening clause of Subsection (A). Thus, the Trustee asserts, the opening clause of Subsection (A) does not encompass any money or benefits that have already been paid to an insured or beneficiary. In contrast, Long argues, and the bankruptcy court agreed, that the phrase "to be paid or rendered" refers to "[a]ll money or benefits of any kind" whenever paid to an insured or beneficiary. In other words, Long argues, there is no temporal limitation imposed by the opening clause of Subsection (A), and thus it applies, for example, to insurance proceeds already paid to a beneficiary.

The plain language of the opening clause of Subsection (A), viewed in isolation, can most certainly be read in the manner suggested by the Trustee. Specifically, the phrase "to be paid or rendered," can reasonably be read as the future tense of the verbs "pay" and "render," and would thus indicate that the clause is referring to all types of money or benefits that will be paid or rendered to an insured or beneficiary at some point in the future (whether or not the triggering event for payment of such money or benefits has or has not already occurred). SeeUnited States v. Gibbons, 71 F.3d 1496, 1500 n.3 (10th Cir. 1995) (noting that the use of "to be" indicates future tense); Ferguson v. Flying Tiger Line, Inc., 688 F.2d 1320, 1323 (9th Cir. 1982) (holding that the phrase " ‘[t]o be taken’ is, of course, a future tense of the verb ‘take.’ "). Under such a reading, the opening clause of Subsection (A) would exclude any money or benefits that have already been paid to an insured or beneficiary.

Two longstanding decisions of the Oklahoma Supreme Court, however, lead us to conclude that the opening clause of Subsection (A) must be interpreted in the broader manner argued by Long. SeeEtherton v. Owners Ins. Co., 829 F.3d 1209, 1223 (10th Cir. 2016) ("If the state's highest court has interpreted a state statute, we defer to that decision. If the state's highest court has not interpreted a state statute, we instead predict how that court would rule.") (citation omitted); In re Borgman, 698 F.3d 1255, 1259 (10th Cir. 2012) (holding that the scope and application of state exemptions are defined by the state courts, and that we are bound by their interpretations). In State ex rel. Lankford v. Collins, 70 Okla. 323, 174 P. 568 (1918), and later in First Nat'l Bank of Cushing v. Funnell, 144 Okla. 188, 290 P....