Storer, In re, 94-3295

• Citation: 58 F.3d 1125
• Decision Date: 13 July 1995
• Docket Number: No. 94-3295,94-3295
• Parties: Bankr. L. Rep. P 76,552 In re Larry D. STORER and Margaret K. Storer, Debtors. Larry D. STORER and Margaret K. Storer, Debtors, Plaintiffs-Appellants, v. Bruce C. FRENCH, Trustee, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 1125

58 F.3d 1125

Bankr. L. Rep. P 76,552

In re Larry D. STORER and Margaret K. Storer, Debtors.

Larry D. STORER and Margaret K. Storer, Debtors, Plaintiffs-Appellants, v. Bruce C. FRENCH, Trustee, Defendant-Appellee.

No. 94-3295.

United States Court of Appeals, Sixth Circuit.

Argued May 18, 1995.

Decided July 13, 1995.

Benjamin F. Yale, Waynesfield, OH (argued and briefed), for plaintiffs-appellants.

Bruce Comly French, Lima, OH (argued and briefed), for defendant-appellee.

Before: MILBURN and SILER, Circuit Judges; COOK ^*, Chief District Judge.

MILBURN, Circuit Judge.

Plaintiffs appeal the decision of the district court sustaining the bankruptcy court's ruling that 11 U.S.C. Sec. 522(b)(1) and Ohio Revised Code Sec. 2329.662 were not unconstitutional. On appeal, the issues are (1) whether Ohio Revised Code Sec. 2329.662 violates the Privileges and Immunities Clause of the Fourteenth Amendment to the Constitution of the United States by denying citizens of Ohio the right to exercise federal bankruptcy exemptions, (2) whether Ohio Revised Code Sec. 2329.662 is invalid under the Supremacy Clause of the Constitution of the United States, and (3) whether 11 U.S.C. Sec. 522(b)(1) violates the Fifth Amendment to the Constitution of the United States by denying citizens of Ohio either due process of law or equal protection of the laws. For the reasons that follow, we affirm.

I.

At all times relevant to this appeal, plaintiffs Larry D. Storer and Margaret K. Storer were citizens of the State of Ohio. On October 7, 1992, plaintiffs filed a bankruptcy petition under Chapter 7 of the United States Bankruptcy Code ("Bankruptcy Code"), 11 U.S.C. Secs. 101-1330. In the schedules accompanying their bankruptcy petition, plaintiffs claimed an interest in real estate valued at $22,000 with a mortgage balance of $7800, leaving a net equity of $14,200. Plaintiffs claimed a homestead exemption for the $14,200 equity in the real estate pursuant to the federal bankruptcy exemption statute, 11 U.S.C. Sec. 522(d)(1), which, at the time, entitled debtors to a homestead exemption of up to $7500, or $15,000 in the case of joint debtors.

Defendant Bruce C. French, trustee of plaintiffs' bankruptcy estate, objected to the claim of the federal homestead exemption because Ohio Revised Code Sec. 2329.662, enacted pursuant to 11 U.S.C. Sec. 522(b)(1), denies debtors the use of the federal bankruptcy exemptions of 11 U.S.C. Sec. 522(d) and allows a homestead exemption of up to only $5000, or $10,000 in the case of joint debtors. Plaintiffs submitted a memorandum to the bankruptcy court in which they argued that 11 U.S.C. Sec. 522(b)(1) and Ohio Revised Code Sec. 2329.662 were unconstitutional. The bankruptcy court rejected plaintiffs' arguments and ruled that both provisions were constitutional. Plaintiffs appealed to the district court, and the district court sustained the bankruptcy court. This timely appeal followed.

II.

Bankruptcy Code Sec. 522(d) entitles debtors to exempt certain property from their bankruptcy estate. 11 U.S.C. Sec. 522(d). One such exemption, commonly referred to as the "homestead" exemption, provided, at the time of plaintiffs' petition, that a debtor may exempt up to $7500 in property used by the debtor as a residence. 11 U.S.C. Sec. 522(d)(1) (1988). ¹ Bankruptcy Code Sec. 522(b)(1) gives the debtor a choice between exempting the property specified in Bankruptcy Code Sec. 522(d) or exempting the property protected by federal nonbankruptcy law or state or local law "unless the State law that is applicable to the debtor ... specifically does not so authorize." 11 U.S.C. Sec. 522(b)(1). ² Thus, Congress vested states with the authority to deny their citizens the ability to use the federal exemption scheme embodied in Bankruptcy Code Sec. 522(d). Ohio is one of the many states that has elected to "opt-out" of the federal exemption scheme. See Ohio Rev.Code Sec. 2329.662. ³ Ohio has replaced the federal exemptions with its own state exemptions, which are those generally available to debtors under Ohio's general debtor-creditor law. Ohio's counterpart to the federal homestead exemption allows a debtor to exempt up to $5000 (instead of $7500 as under the federal exemption) in one parcel or item of property used by the debtor as a residence. Ohio Rev.Code Sec. 2329.66(A)(1). ⁴

Plaintiffs ask us to review the district court's determinations that Bankruptcy Code Sec. 522(b)(1) and Ohio Revised Code Sec. 2329.662 are not unconstitutional. Because those determinations are conclusions of law, we review them under the de novo standard. Society Nat'l Bank v. Barrett, 964 F.2d 588, 591 (6th Cir.1992).

A.

Plaintiffs argue that Ohio Revised Code Sec. 2329.662 violates the Privileges and Immunities Clause of the Fourteenth Amendment to the Constitution of the United States because it denies citizens of Ohio the right to exercise federal bankruptcy exemptions. Plaintiffs contend that as a result of Ohio's exemption scheme, citizens of Ohio receive a lesser right to discharge in federal bankruptcy proceedings than citizens of states who can utilize the federal exemptions.

The Fourteenth Amendment forbids states from abridging the privileges and immunities that flow from national citizenship. U.S. Const. amend. XIV, Sec. 1. This clause has been interpreted to protect only those rights that are unique to being a citizen of the United States rather than an individual state. Shapiro v. Thompson, 394 U.S. 618, 667, 89 S.Ct. 1322, 1348, 22 L.Ed.2d 600 (1969); see also Slaughter-House Cases, 83 U.S. (16 Wall) 36, 79-80, 21 L.Ed. 394 (1873). However, the Supreme Court has indicated that the Privileges and Immunities Clause of the Fourteenth Amendment affords no protection where Congress has imposed or authorized the infringement. Shapiro, 394 U.S. at 667, 89 S.Ct. at 1348. In Shapiro, two groups of appellees challenged the one-year welfare residence requirements of the states of Pennsylvania and Connecticut, which had been enacted pursuant to congressional authorization. In rejecting the appellees' Fourteenth Amendment privileges and immunities argument, the Court stated:

This kind of objection to state welfare residence requirements would seem necessarily to vanish in the face of congressional authorization, for except in those instances when its authority is limited by a constitutional provision binding upon it (as the Fourteenth Amendment is not), Congress has full power to define the relationship between citizens and the Federal Government.

Id. at 668, 89 S.Ct. at 1349.

We believe that Shapiro forecloses plaintiffs' argument that Ohio Revised Code Sec. 2329.662 violates the Privileges and Immunities Clause of the Fourteenth Amendment. ⁵ As the text of the statute indicates, Ohio Revised Code Sec. 2329.662 was enacted pursuant to Bankruptcy Code Sec. 522(b)(1), by which Congress vested states with the authority to deny their citizens the ability to use the federal exemption scheme embodied in Bankruptcy Code Sec. 522(d). Because Ohio Revised Code Sec. 2329.662 was enacted pursuant to this specific congressional authorization, the Privileges and Immunities Clause of the Fourteenth Amendment affords plaintiffs no protection.

B.

Plaintiffs also argue that Ohio Revised Code Sec. 2329.662 is invalid under the Supremacy Clause of the Constitution of the United States. Specifically, plaintiffs argue that a state law cannot abridge or modify a federal law. In addition, plaintiffs argue that Congress cannot delegate the authority to promulgate exemption laws.

These arguments, however, were answered by our decision in Rhodes v. Stewart, 705 F.2d 159 (6th Cir.), cert. denied, 464 U.S. 983, 104 S.Ct. 427, 78 L.Ed.2d 361 (1983), wherein we determined that Tennessee's opt-out provision, Tennessee Code Annotated Sec. 26-2-112, was not invalid under the Supremacy Clause. In Rhodes, we stated:

It is ... axiomatic ... that Congress has not preempted an area wherein it has legislated when it expressly and concurrently authorizes the state legislatures to disregard or opt-out of such federal legislative area. In such instance, rather than preempting the area, Congress expressly authorizes the states to "preempt" the federal legislation. Congress did not intend to preempt bankruptcy exemptions through the promulgation of 11 U.S.C. Sec. 522(d) since it vested in the states the ultimate authority to determine their own bankruptcy exemptions.

Id. at 163 (emphasis in original). We noted that "the states are empowered to create whatever exemptions they elect," even if they are less inclusive (or more restrictive) than the exemptions afforded debtors by the federal exemption scheme. Id. (citing McManus v. Avco Fin. Servs. (In re McManus ), 681 F.2d 353, 355-56 (5th Cir.1982)). Likewise, " 'states may enact different exemptions which would possibly conflict with Congress' own exemption policy as it was reflected in Sec. 522(d).' " Id. at 164 (quoting McManus, 681 F.2d at 357 n. 7). We also noted parenthetically that " ' Sec. 522(b)(1) is not an unconstitutional delegation of congressional legislative power but rather is merely a recognition of the concurrent legislative power of the state legislatures to enact laws governing bankruptcy exemptions.' " Id. (quoting Kosto v. Lausch (In re Lausch ), 16 B.R. 162, 165 (M.D.Fla.1981)). We concluded:

Indeed if Congress intended to foreclose the states from promulgating more restrictive exemptions it could simply have enacted the exemption scheme currently embodied in Sec. 522(d) and not provided the states with an election to opt-out. The Supremacy Clause would have prevented the states from promulgating more restrictive and, therefore, inconsistent bankruptcy exemptions.

Id. The Ohio statute involved in this case is similar in purpose and effect to the Tennessee statute involved in Rhodes. Accordingly, Rhodes governs this case, and plaintiffs' argument that Ohio Revised Code Sec. 2329.662 is...