Sheehan v. Ash, CIVIL ACTION NO. 1:16CV109
Decision Date | 27 June 2017 |
Docket Number | CIVIL ACTION NO. 1:16CV109 |
Citation | 574 B.R. 585 |
Parties | Martin P. SHEEHAN, Appellant/Trustee, v. Keith Doyle ASH and Phyllis Jean Ash, Appellees/Debtors. |
Court | U.S. District Court — Northern District of West Virginia |
Martin P. Sheehan, Sheehan & Nugent, PLLC, Wheeling, WV, for Appellant/Trustee.
Eugene R. Wedoff, Oak Park, IL, Todd B. Johnson, Johnson Law, PLLC, Morgantown, WV, for Appellees/Debtors.
Trustee Martin P. Sheehan ("Trustee") appeals an order entered by the Honorable Patrick M. Flatley, United States Bankruptcy Judge ("Bankruptcy Court"), overruling his objection to certain exemptions claimed by Keith Doyle Ash and Phyllis Jean Ash ("Debtors") in their voluntary petition for bankruptcy pursuant to Chapter Seven of the Bankruptcy Code. The question presented is whether Louisiana's exemptions, which the Bankruptcy Code directs the Debtors to apply, encompass personal property situated outside Louisiana at the time of filing. For the reasons that follow, the Court concludes that the Debtors may apply Louisiana's exemptions to their personal property in West Virginia, and thus AFFIRMS the Bankruptcy Court's Order.
The parties stipulated to the relevant facts before the Bankruptcy Court. The Debtors lived in Louisiana from 2011 until March 2015, at which time they relocated to West Virginia. On July 24, 2015, the Debtors filed a voluntary petition for bankruptcy in the Northern District of West Virginia under Chapter 7 of the Bankruptcy Code (Dkt. No. 8–8 at 1). At the time of filing, the Debtors owned real and personal property still situated in Louisiana. The Debtors also owned personal property situated in West Virginia, including a checking account, appliances, televisions, clothing, a wedding band, two guns, a 2002 Geo Tracker, and a possible payment of workers' compensation.1 Id. at 1–2.
It is this personal property that is at issue in this appeal.
When an individual debtor files for bankruptcy, "all legal or equitable interest[s] of the debtor in property" become part of a bankruptcy estate. 11 U.S.C. § 541(a). "To help the debtor obtain a fresh start, however, the Bankruptcy Code allows debtors to exempt from the estate limited interests in certain kinds of property." Clark v. Rameker, ––– U.S. ––––, 134 S.Ct. 2242, 2244, 189 L.Ed.2d 157 (2014) (quotation omitted) (quoting Rousey v. Jacoway, 544 U.S. 320, 325, 125 S.Ct. 1561, 161 L.Ed.2d 563 (2005) ). According to the House Judiciary Committee, " ‘[t]he historical purpose’ of bankruptcy exemptions has been to provide a debtor ‘with the basic necessities of life’ so that she ‘will not be left destitute and a public charge.’ " Id. at 2247 n.3 (quoting H.R. Rep. No. 95–595, at 126 (1977)). Indeed, "statutes creating debtors' exemptions must be construed liberally in favor of the debtor and the exemption." In re Nguyen, 211 F.3d 105, 110 (4th Cir. 2000).
Sheehan v. Peveich, 574 F.3d 248, 251 (4th Cir. 2009). In essence, Congress expressly delegated to the states "the power to create state exemptions in lieu of the federal bankruptcy exemption scheme." Id. at 252. These two alternatives are described generally as the "federal exemptions" and the
The Bankruptcy Code directs debtors to identify their applicable state law as follows:
State or local law that is applicable on the date of the filing of the petition to the place in which the debtor's domicile has been located for the 730 days immediately preceding the date of the filing of the petition or if the debtor's domicile has not been located in a single State for such 730-day period, the place in which the debtor's domicile was located for 180 days immediately preceding the 730-day period or for a longer portion of such 180-day period than in any other place.
11 U.S.C. § 522(b)(3)(A). Prior to The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), the statute had instead directed debtors "to apply the exemption laws from the state that was their domicile for the 180 days immediately preceding the date of the filing of the petition or the state where they were domiciled for the greater portion of that 180-day period."
In re Ste phens, 402 B.R. 1, 3 (10th Cir. BAP 2009). The more lengthy 730-day "look-back" window reflects a congressional effort to curb debtors from forum shopping for a state with more favorable exemptions. See In re Willis, 495 B.R. 856, 859–60 (Bankr. W.D. Wis. 2013) ; H.R. Rep. No. 109–31, pt. 1, at 15–16 (2005), as reprinted in 2005 U.S.C.C.A.N. 88, 102 ( ).
BAPCPA also added what is known as the "hanging paragraph." At the end of § 522(b)(3), an unnumbered provision states that, "[i]f the effect of the domiciliary requirement under subparagraph (A)," quoted above, "is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is specified under subsection (d)," which lists the federal bankruptcy exemptions. This provision ensures that a debtor may apply the federal exemptions if his applicable state under § 522(3)(A) is an opt-out state, but the limitations of its exemption law nonetheless prevent the debtor from taking "any exemption."2
The parties agree that, because the Debtors relocated to West Virginia less than 730 days prior to filing, their prior domicile, Louisiana, provides the applicable law (Dkt. No. 8–8 at 1). Louisiana is an "opt-out" state that does not permit an "individual debtor" to take advantage of the federal exemptions. See La. Stat. Ann. § 13:3881(B)(1) ().3 Therefore, the Debtors are confined to the Louisiana exemptions.
On July 24, 2015, the Debtors filed a voluntary petition for bankruptcy pursuant to Chapter 7 of the Bankruptcy Code (Dkt. No. 8–3 at 1). At that time, they held assets with a total value of $85,771. The Debtors' real property, a house on approximately two acres in Coushatta, Louisiana, accounted for $65,000. The remaining $20,771 in assets comprised personal property located in both Louisiana and West Virginia. Id. at 8. As discussed, the Bankruptcy Code instructed the Debtors to claim exemptions pursuant to Louisiana law, and they did so on Schedule C of their petition. Id. at 15.
The Trustee objected to the Debtors' claims of exemptions for personal property located outside Louisiana at the time of filing (Dkt. No. 8–4). He argued "that the State of Louisiana lacks the power as a sovereign entity to prescribe exemptions for property which was not within the State of Louisiana on the date of filing and further that the use of such exemptions is prohibited by the Due Process clause of the Fourteenth Amendment." Id. at 2. The Trustee relied on the "presumption against extraterritoriality" of federal law, as well as traditional principles of state sovereignty, to argue that laws promulgated by states cannot apply to property outside their borders. Id. (citing Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108, 133 S.Ct. 1659, 185 L.Ed.2d 671 (2013) ).
In its Order, the Bankruptcy Court overruled the Trustee's objection. It reasoned that, because Congress incorporated state exemptions into the Bankruptcy Code, federal law—not state law—creates the possibility that a state's exemption laws will be applied outside a state's borders (Dkt. No. 8–9 at 4–5). To determine whether Louisiana's exemptions should be applied to property in other states, it adopted the majority approach, which liberally construes state exemptions to apply extraterritorially absent state-specific restrictions to the contrary. Id. at 5. Moreover, it declined to apply a "presumption against extraterritoriality" to states, noting that the Supreme Court has applied the rule only to international concerns. Id. at 5–6. The Trustee appealed from this judgment.
District courts have jurisdiction to hear appeals "from final judgments, orders, and decrees ... of bankruptcy judges entered in cases and proceedings" under the Bankruptcy Code. 28 U.S.C. § 158(a). Such proceedings include "core proceedings," which encompass "allowance or disallowance of ... exemptions from property of the estate." Id.§ 157(b)(2)(B). Indeed, the "[g]rant or denial of a claimed exemption is a final appealable order from a bankruptcy proceeding." Sumy v. Schlossberg, 777 F.2d 921, 923 (4th Cir. 1985).
A district court sitting in its capacity as a bankruptcy appellate court reviews "findings of...
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