Taylor, In re
| Decision Date | 02 November 1988 |
| Docket Number | No. 87-3920,87-3920 |
| Citation | 861 F.2d 550 |
| Parties | , Bankr. L. Rep. P 72,526 In re Paul David TAYLOR; Carol Elizabeth Taylor, dba Paul Taylor Logging, Debtors. RAINIER EQUIPMENT FINANCE, INC., Appellant, v. Paul David TAYLOR; and Carol Elizabeth Taylor, Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Donald R. Murray, Murphy, Robinson, Heckathorn & Phillips, P.C., Kalispell, Mont., for appellant.
No appearance, for appellees.
Appeal from the Ninth Circuit Bankruptcy Appellate Panel.
Before NELSON, BOOCHEVER and BRUNETTI, Circuit Judges.
BACKGROUND
Rainier Equipment Finance, Inc. appeals the decision of the Bankruptcy Appellate Panel for the Ninth Circuit, 73 B.R. 149, which affirmed the Bankruptcy Court for the District of Montana in allowing the debtors in bankruptcy to avoid a nonpossessory, nonpurchase-money security in interest in a logging truck and trailer valued at approximately $50,000.
The appellee-debtors filed for Chapter 11 bankruptcy in Montana in 1985. The petition was later converted to Chapter 7 liquidation bankruptcy. At the time of the filing Rainier had a nonpossessory, nonpurchase-money security interest in a Kenworth logging truck and trailer owned by the debtors and used in their business as independent logging contractors. The debtors claim that this property, which is valued at $50,000, is exempt under Montana's "tools of the trade" exemption statute. The facts are not in dispute.
Montana has opted out of the federal list of exempt property and provides an unlimited exemption for tools necessary to carry on a trade. The Bankruptcy Court and the Bankruptcy Appellate Panel both allowed the lien to be avoided after determining that the truck and trailer were tools of the debtors' trade and that they were necessary for the debtors to earn a living. The Bankruptcy Appellate Panel relied primarily on a recent Montana case, MacDonald v. Mercill, 714 P.2d 132 (Mont.1986) which allowed a self-employed excavation contractor to avoid liens on a backhoe and flatbed trailer under the same exemption, holding, "No dollar limit is specified in section 25-13-612(1)(b), MCA, the code section applicable here, and, absent guidance by the legislature it would be improper for this Court to place a dollar value ceiling on the relevant exempt property." MacDonald, Id. at 135.
Rainier raises three arguments in this appeal. The first argument is that liens on valuable property, particularly motor vehicles, should not be avoidable under Montana's exempt property statute. Second, the appellant asserts that the Montana exempt property statute does not apply to property that is encumbered with a lien. Third, the appellant urges the panel to read a limit into Montana's exemption statute.
In October 1977, debtors Paul and Carol Taylor, dba Paul Taylor Logging, purchased a 1978 Kenworth truck for $52,000. $42,500 of the purchase price was financed through Union Bank, which took a purchase-money security interest in the truck. In July 1982 the Taylors refinanced this obligation and consolidated other obligations through United Bank of Libby, Libby, Montana. The consolidated balance owed by the Taylors to United Bank was $45,759. In February 1984 the Taylors' obligation to United was again refinanced and consolidated with other obligations; this time through appellant Rainier Equipment Finance, Inc. Rainier took a security interest in the truck and various other items of property including a homemade trailer. Following this refinancing the amount owed by the debtors to Rainier was $120,000. The debtors filed a Chapter 11 bankruptcy petition on February 5, 1985, which was subsequently converted to a Chapter 7 filing on December 10, 1985. At the time of the filing the debtors owed Rainier $126,730. In February 1986 Rainier sought relief from the automatic stay and the release of its collateral. The debtors responded that the truck and trailer were exempt property under Montana's tools of the trade exemption statute and sought to avoid the lien. The parties agree that at all relevant times the debtors were independent logging contractors operating jointly as a sole proprietorship.
We have jurisdiction under 28 U.S.C. Sec. 1294(1). The only issue on appeal is whether a debtor in bankruptcy may avoid a nonpossessory, nonpurchase-money security interest in a logging truck and trailer under the "tools of the trade" exemption of 11 U.S.C. Sec. 522(f)(2)(B) and section 25-13-612 of the Montana Code. We affirm on the basis of MacDonald.
Questions of law are reviewed de novo. Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir.1986). The lower court's interpretation of state law is reviewed under the same standard as are questions of federal law. Jackson Water Works v. Public Utilities Commission, 793 F.2d 1090, 1092 (9th Cir.1986).
The filing of a petition in bankruptcy creates an estate in bankruptcy which is comprised of all of the debtor's property. 11 U.S.C. Sec. 541. Section 522 of the Bankruptcy Code allows the debtor to exempt certain property from the estate, and to avoid liens on that property, to ensure that the debtor will not become "a public charge." H.R.Rep. No. 595, 95th Cong., 2d Sess. 126, U.S.Code Cong. & Admin.News 1978, pp. 5787, 6087. Section 522(f) empowers the debtor to avoid certain liens:
(f) [T]he debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is--
* * *
(2) a nonpossessory, nonpurchase-money security interest in any--
* * *
(B) implements, professional books, or tools of the trade of the debtor....
Thus, liens can be avoided only to the extent that they impair an exemption under subsection (b). Section 522(b) provides three alternatives for defining exempt property: (1) the federal "laundry list" of exempt property that is contained in subsection (d); (2) the federal list as expressly modified by State law; or (3) the list of exemptions as defined by the State without reference to the federal list.
Montana has opted out of the federal exemption provisions of 11 U.S.C. Sec. 522(d), electing instead to define its own classes of exempt property. Section 31-2-106 of the Montana Code provides:
As of February 1985 the relevant sections of Title 25, Chapter 13, part 6 were somewhat antiquated, being substantially unrevised since their enactment in 1895. Section 25-13-612 provided:
(1) [T]here shall be exempt to all judgment debtors the following property:
* * *
(b) to a mechanic or artisan: tools or implements necessary to carry on his trade;
* * *
(h) to a cartman, hackman, huckster, peddler, teamster, or laborer; one horse or mule and harness for two animals or two oxen and harness, and one cart or wagon, one dray or truck ... by the use of which such person habitually earns his living.
* * *
(2) No article, however, or species of property mentioned in this section is exempt from execution issued upon a judgment recovered for its price or upon a judgment of foreclosure of a mortgage lien thereon....
Section 25-13-617 provides:
(1) In addition to all other exemptions, one truck or automobile of the value of not more than $1000 is exempt from attachment or execution....
The appellant concedes that both the truck and the trailer qualify as "tools of the trade" within the meaning of Montana's exempt property statute, Sec. 25-13-612 Mont.Code Ann. (1985). The appellant's primary argument is that Congress never intended to include motor vehicles in the lien avoidance provisions of Sec. 522(f) of the Bankruptcy Code, 11 U.S.C., and as a result the State of Montana should be precluded from providing an exemption for motor vehicles that qualify as tools of the trade.
There is a plethora of case law interpreting the "tools of the trade" allowance in the context of motor vehicles, and the The appellant's argument that the Montana exemption statute does not apply to motor vehicles is not persuasive. First, Montana has elected to opt out of the federal provisions and allow lien avoidance by the debtor in specific categories of property that were enumerated by the legislature. There is no dollar limitation on the value of a lien that can be avoided if the property can be characterized as a tool of the trade. Thus, the value of the property is not a consideration. See MacDonald, 714 P.2d at 134 (). Second, section 25-13-617, which provides a limited exemption for a truck or automobile, begins with the language, "[i]n addition to all other exemptions...." This seems to indicate that the legislature did contemplate that vehicles could be exempted under other sections of the statute. We see no reason to depart from MacDonald; indeed, "we are...
To continue reading
Request your trial
-
In re Giffune
... ... 11 U.S.C. § 522( l ); FED. R. BANKR.P. 4003(a). "Unless a party in interest objects, the property claimed as exempt on such list is exempt." 11 U.S.C. § 522( l ); see also Taylor v. Freeland & Kronz, 503 U.S. 638, 642, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). Bankruptcy Rule 4003(b) establishes that an objection to the list of property claimed exempt must be filed within 30 days after the conclusion of the meeting of creditors or within 30 days after any amendment to the ... ...
-
In re Neal
... ... 1982) (citing H.Rep. No. 595, 95th Cong., 1st Sess. 126 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5963, 6087. The purpose of the exemption provisions is to secure the debtor's fresh start, so as to prevent his becoming "a public charge". See In re Taylor, 861 F.2d 550, 552 (9th Cir.1988) (citing H.Rep. No. 595, 95th Cong., 2d Sess. 126 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 6087 ... 140 BR 637 In furtherance of the fresh start policy, Congress also provided debtors the ability to place certain of their ... ...
-
In re Gaydos
... ... Taylor (In re Taylor), 861 F.2d 550, 553-54 (9th Cir.1988) (affirming allowance of exemption under Montana "tools of the trade" statute for logging truck and trailer in debtors' logging business) with Belsome v. Belsome (In re Belsome), 434 F.3d 774, 779 (5th Cir.2005) (holding that Louisiana statute ... ...
-
In re Garcia
... ... ( Id. at 5.) The Court disagrees on both counts. First, the Court holds that a motor vehicle can be considered a tool of the trade for purposes of federal lien avoidance under 11 U.S.C. 522(f). The bankruptcy court's reasoning was rejected by the Ninth Circuit in In re Taylor, which held that although courts are divided, [l]ien avoidance on motor vehicles as tools of the debtor's trade ... is generally allowed in situations where the vehicle is necessary to the debtor's trade, and the state has opted out of the federal laundry list ... Rainier Equipment Finance, Inc ... ...