Shell v. Yoon

• Decision Date: 24 September 2013
• Docket Number: Civil Action No. 2:12–CV–439–JVB.
• Parties: Deborah Rosetta SHELL, Debtor–Appellant, v. Stacia L. YOON, Trustee–Appellee.
• Court: U.S. District Court — Northern District of Indiana

499 B.R. 610

Deborah Rosetta SHELL, Debtor–Appellant,

v.Stacia L. YOON, Trustee–Appellee.

Civil Action No. 2:12–CV–439–JVB.

United States District Court, N.D. Indiana.

Sept. 24, 2013.

Laura R. Caputo, Nathan E. Curtis, Geraci Law LLC, Chicago, IL, for Debtor–Appellant.

Stacia L. Yoon, Genetos Retson Yoon & Molina LLP, Merrillville, IN, for Trustee–Appellee.

OPINION & ORDER

JOSEPH S. VAN BOKKELEN, District Judge.

The Honorable J. Philip Klingeberger, United States Bankruptcy Judge, called the issue now on appeal before this Court “droll and easily resolved, by simply reading the statute in its proper context.” In re Shell, 478 B.R. 889, 901 (Bankr.N.D.Ind.2012). Though the Court admires the dry humor of his opinion itself; as further explained below, the bankruptcy court's order must be reversed, because it is not supported by the statutory text.

I.

Appellant, Deborah Shell, resided in Illinois from 2005 until she moved to Indiana in April of 2011. She petitioned for relief under Chapter 7 of the United States Bankruptcy Code on July 22, 2011, seeking to exempt property from the bankruptcy estate pursuant to 11 U.S.C. § 522(d), which specifies what this Order will call the “federal exemptions.” These are available to debtors in bankruptcy except as limited by State law.¹§ 522(b)(1)-(2). Illinois, the State of interest here, see§ 522(b)(2)-(3)(A), has prohibited its residents, and no one else, from using the federal exemptions. See735 Ill. Comp. Stat. 5/12–1201 (Illinois's opt-out statute). Stacia Yoon, as trustee of the bankruptcy estate, did not contest any relevant facts ( see Mem. in Opp'n to Obj'n to Exemptions, DE 1–6 (stipulated facts)), but objected to Shell's use of the federal exemptions. Judge Klingeberger sustained the objection, ruling that § 522 preempts Illinois law insofar as Illinois would otherwise allow nonresidents who were domiciled in Illinois at the time determined by § 522(b)(2) and (3)(A) to use the federal exemptions. Shell, 478 B.R. at 897, 901.

This appeal has followed, and it is timely. SeeFed. R. Bankr.P. 8002(a); (Notice of Transmittal, DE 1–9). The Court has jurisdiction under 28 U.S.C. § 158(a)(1). Because there are no factual disputes at issue, the standard of review is de novo. See Kovacs v. United States, 614 F.3d 666, 672 (7th Cir.2010).

Shell shows that Illinois's opt-out statute restricts only its residents, points out that she no longer resided in Illinois when she petitioned for bankruptcy, and argues she therefore may exempt as provided in § 522(d). Yoon has no response. On these stipulated facts, the controlling statutory texts plainly leave the federal exemptions open to Shell.

The starting point is the framework of § 522:

(b)(1) ... [A]n individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection....

(2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize.

(3) Property listed in this paragraph is—

(A) ... any property that is exempt under Federal law, other than subsection (d) of this section, or 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.

...

If the effect of the domiciliary requirement under subparagraph (A) is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is specified under subsection (d). [ ²]

Because Shell's domicile was located in Illinois for the 180 days before the two years before she filed for bankruptcy, the law of Illinois of July 22, 2011, is “the State law that is applicable to [Shell] under paragraph (3)(A).” § 522(b)(2). So the fundamental question appears to be, as Shell contends, whether Illinois law let her exempt under subsection (d).³ As she further shows, it is true that Illinois's opt-out statute limited only residents of the State:

In accordance with the provision of Section 522(b) of the Bankruptcy Code of 1978, (11 U.S.C. 522(b)), residents of [Illinois] shall be prohibited from using the federal exemptions provided in Section 522(d) of the Bankruptcy Code of 1978 (11 U.S.C. 522(d)), except as may otherwise be permitted under the laws of Illinois.

735 Ill. Comp. Stat. 5/12–1201 (unchanged during interim).

II.

The bankruptcy court saw things differently. Interpreting § 522's references to state exemption law as “potential choices of law,” Shell, 478 B.R. at 898, Judge Klingeberger urged—

the only way to make real sense of 11 U.S.C. § 522(b)(3) is to place the debtor in a state ordained by 11 U.S.C. § 522(b)(3)(A) during the applicable 180 day period—if that is possible under applicable laws which determine domicile— and to then apply the actual factual circumstances of the debtorat the time of placement to the issue of domicile.

Id. at 897. He put across that the filling-in of the federal structure of the Bankruptcy Code by State law is not unusual, and likened the analysis to a federally-funded highway construction project in which State authorities control the construction. Id. at 898. Four principal supporting premises were offered.

First, the current form of § 522 resulted from the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), the purpose of which, Judge Klingeberger said, was “to avoid the effects of exemption forum shopping.” Id. at 898;see also id. at 900 (“Congress' goal in drafting the 2005 amendments to § 522 was to prevent, or at least to curb, what was perceived as rampant forum shopping under the former law.”). He concluded that because his approach nullifies the effect of Shell's move on her menu of exemptions, his interpretation does a better job of realizing the legislature's purpose than Shell's approach would. Id. at 898–901.

Second, Judge Klingeberger found that the text of § 522 compelled his construction. In this vein, the opinion declared the statute “not in any manner ambiguous,” id. at 898, and ruled:

[T]he phrase “that is applicable on the date of the filing of the petition to the place ...” in ... § 522(b)(3)(A) ... simply states exactly what it says: once placed, a debtor—if deemed domiciled in a state under that state's law—is subject to the exemption law of that state as that law was effective on the date of the petition....

Id. at 898–99 (first omission in original). The court continued by explaining why, when a bankruptcy petitioner has made exactly one interstate move in the relevant time frame, during which the debtor's former State changed its exemptions, the petitioner is eligible to exempt only as permitted by the former State's amended law. Id. at 899. This does not conflict with Shell's position on appeal, however, and ultimately presents no issue here, because no one has contended that Illinois law changed at any relevant time. It also does not show how or why the words of the statutes oblige the meaning the bankruptcy court attributed to them.

Third, Shell, in transferring her State of domicile from Illinois to Indiana, moved from one opt-out State to another. Under such circumstances, Judge Klingeberger concluded that letting her invoke the federal exemptions would be “absurd.” Id. at 901. The Court returns to this argument below.

Fourth, where determining whether a State's opt-out statute or exemptions have extraterritorial effect is hard, the bankruptcy court's method is easier to apply than the approach advocated by Shell. Id. at 901. This consideration, of course, takes a back seat to the plain requirements of the statutory text. See Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253–54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992) (demonstrating that the meaning of unambiguous text controls).

The bankruptcy court also discussed at length the role of the savings clause, which the preemptive interpretation of § 522 renders useless, according to one of this theory's leading proponents. Laura Bartell, The Peripatetic Debtor: Choice of Law and Choice of Exemptions, 22 Emory Bankr. Dev. J. 401, 424 (2006) (advocating the preemption view and explaining the savings clause should never apply, because “§ 522(b)(3)(A) should be read to incorporate the applicable state's exemptions without regard to any conflict of laws principles, or any limiting language, that restricts the applicability of the exemptions to persons not including the debtor”). Recognizing that courts generally avoid interpretations that render some of the text redundant or meaningless, e.g., United States v. Berkos, 543 F.3d 392, 396 (7th Cir.2008) (citing Gustafson v. Alloyd Co., 513 U.S. 561, 574–75, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995) and Kungys v. United States, 485 U.S. 759, 778, 108 S.Ct. 1537, 99 L.Ed.2d 839 (1988)), Judge Klingeberger sought to illustrate uses of the savings clause that are compatible with preemption. He began with what he characterized as the “remote” hypothetical case presented by a debtor who has moved interstate during the 730 days just before the petition, having been domiciled in one State for half of the 180–day period and in one other State for the other half. Shell, 478 B.R. at 899. In the next six instances, the bankruptcy court assumed establishing the State of the debtor's domicile for purposes of § 522 would be impossible. All these examples fail because § 522(b)(2) is always subject to whatever State law paragraph (3)(A) points to, if any. If paragraph (3)(A) determines no particular State for a debtor, then, regardless of the savings...