Howe v. Richardson

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 99-9005



                          JAMES R. HOWE,



                        Debtor, Appellant,



                                v.



                  ANDREW S. RICHARDSON, ESQUIRE,



                   Chapter 7 Trustee, Appellee,



                               and



        RHODE ISLAND DEPOSITORS ECONOMIC PROTECTION CORP.,



                  Unsecured Creditor, Appellee.

                       ____________________



     APPEAL FROM THE UNITED STATES BANKRUPTCY APPELLATE PANEL



                      FOR THE FIRST CIRCUIT


Before



                      Selya, Circuit Judge,

                                

                Campbell, Senior Circuit Judge,

                                

                   and Boudin, Circuit Judge.


George M. Prescott, Jr. with whom George M. Prescott and Law 

Office of George M. Prescott were on brief for appellant.

     Andrew S. Richardson with whom Thomas P. Quinn and Boyajian,

Harrington & Richardson were on brief for Chapter 7 trustee,

appellee.

     Justin T. Shay with whom Charles S. Beal and Cameron &

Mittleman LLP were on brief for unsecured creditor, appellee.


____________________



                        October 8, 1999

                         ____________________  BOUDIN, Circuit Judge.  On November 20, 1997, James

Howe  filed a petition in the federal bankruptcy court in Rhode

Island under chapter 7, 11 U.S.C.  701 et seq.  In amended

schedules, he claimed as exempt three legal claims then pending

or to be asserted by him in different courts, assigning them

values as follows: a claim for personal injuries sustained by

Howe in a motor vehicle accident ($15,000); a claim for breach of

contract and related wrongs ($600,000); and a claim to recover on

a dishonored check ($10).  Like all of Howe's property as of the

date he filed for bankruptcy, his legal claims became part of the

bankruptcy "estate" under the Bankruptcy Code, 11 U.S.C.

541(a)(1), and are available to his creditors, unless they are

exempt property.

  The Bankruptcy Code permitted Howe to retain "any

property that is exempt under . . . [Rhode Island] or local law,"

11 U.S.C. 522(b)(2)(A), but the Code does not say "exempt" from

what.  Obviously, the general notion is exempt from creditors,

not (say) exempt from local property taxes.  Some states have

statutes listing property that is exempt "for purposes of

bankruptcy," e.g., Ga. Code Ann.  44-13-100, but Rhode Island

law is less explicit.  Nevertheless, one provision listing

property "exempt from attachment" includes a series of items akin

to those commonly exempted in bankruptcy (e.g., wearing apparel,

working tools up to $500, furniture up to $1,000, homestead up to

$100,000), R.I. Gen. Laws  9-26-4, 4.1, and the parties accept

that the listing sets forth bankruptcy exemptions.

  The three legal claims sought to be exempted by Howe do

not fit within any specific category in sections 9-26-4 and 9-26-

4.1; but Howe argued that they do fit within a catch-all

category, comprising "[s]uch other property, real, personal, or

mixed, in possession or actions as is or shall be exempted from

attachment and execution, either permanently or temporarily, by

general or specific acts, charters of incorporation, or by the

policy of the law."  R.I. Gen. Laws  9-26-4(10).  Howe argued in

the bankruptcy court that under Rhode Island common law, his

unliquidated legal claims against others could not be seized and

that they therefore fell within the statute's provision for

property "exempted from attachment and execution . . . by the

policy of the law."

  The trustee and an unsecured creditor objected, and the

bankruptcy court rejected Howe's position, as well as other

arguments not pressed on this appeal.  The Bankruptcy Appellate

Panel sustained the bankruptcy court.  Howe has now appealed to

this court.  He contends, and we assume this to be true, that

"the policy of the law" phrase includes exemptions that would

otherwise qualify even if they exist in common rather than

statutory law.  Cf. Arch Lumber Co. v. Dohm, 98 A.2d 840 (R.I.

1953) (exempting children's toys).  The critical question is what

Rhode Island law provides as to unliquidated legal claims and

whether what it provides amounts to a bankruptcy exemption.

  In previous centuries, it was very hard in a law action

for a creditor to lay hands on potential legal claims that the

debtor might have against a third party or even an unliquidated

debt where the  obligation was admitted but the amount in

dispute.  Pre-judgment "attachment," to establish jurisdiction or

secure an anticipated judgment, was not generally available as to

any property at common law, Martin v. Lincoln Bar, Inc., 622 A.2d

464, 469 (R.I. 1993); see generally Crandall, Hagedorn & Smith,

The Law of Debtors and Creditors  6.04[1][b], at 6-33 (rev. ed.

1991).  As for post-judgment "execution" against the debtor's

assets, this was achieved through specific writs (e.g., fieri

facias authorizing seizure and sale of personal property) that

failed to reach equitable interests of the debtor and certain

intangibles.  Crandall, supra,  6.05[5][a], at 6-115.   

  Thereafter, pre-judgment attachment was developed as a

remedy by statute.  E.g., R.I. Gen. Laws  10-5-1 et seq.  Post-

judgment remedies were expanded initially by the equity courts,

which allowed a "creditor's bill," one of whose functions was to

reach equitable interests of the debtor that fell outside the

common law writs.  Crandall, supra,  6.05[5][a], at 6-115 to 6-

116.  Statutes, in turn, have expanded and in some measure

supplanted the non-statutory common law and equitable remedies of

judgment creditors.  E.g., R.I. Gen. Laws  9-26-1 et seq., 9-

28-1 et seq.

  There is a false neatness to this picture.  The Rhode

Island statutes pertaining to such remedies are a tangle of

provisions cobbled together over time; they use words like

"attachment" with somewhat different meanings in different

contexts; and they include other important remedies, such as

garnishment--which may be pre- or post-judgment--to reach debtor

assets in the hands of third parties, R.I. Gen. Laws  10-17-1

et seq..  Statutory statements that such and such may or may not

be "attached" appear, variously phrased, in various locations. 

E.g., id.  9-26-4, 9-26-4.1, 9-26-5, 36-10-34.

  Still, nothing in the Rhode Island statutes to which we

have been directed expresses any affirmative policy against the

attachment, either pre- or post-judgment, of a debtor's legal

claims as a class.  Certainly specific kinds of legal claims

(e.g., to receive pensions or back wages) are affirmatively

protected to one degree or another from attachment, e.g., R.I.

Gen. Laws  9-26-4(8), (12), and we will return to Rhode Island's

special treatment of attempts to assign personal injury claims. 

But there is no general statutory bar to seizure of intangibles. 

Indeed, as we shall see, Rhode Island law facilitates such

seizures.  Against this background, we return to the question of

what meaning should be given to section 9-26-4(10).

  In Howe's view, that his legal claims could not (we

will assume) be attached at common law pre-judgment, or executed

against post-judgment, means that Rhode Island does have a

"policy of the [common] law" that "exempt[s] from attachment and

execution" such legal claims.  But an alternative view is that

the failure of common law remedies to reach such claims should be

regarded merely as a gap in the law, reflecting the writ-based

character of the common law (no writ, no right) and not as an

"exemption" reflecting a policy or purpose to safeguard such

interests from seizure by creditors in general or bankruptcy

creditors in particular.

  Either reading of section 9-26-4(10) accords with its

language, and fortunately we have an answer from the Rhode Island

courts as to how they construe the section.  In Rhode Island Nat.

Bank v. Chase, 12 A. 233 (R.I. 1887), the state supreme court

faced a claim that the predecessor to this section prevented

attachment of someone's interest in life insurance policies that

had no cash surrender value, the objection being made that the

property interest was not attachable because it was "equitable,

uncertain and contingent."  Id. at 234.  In language that

effectively rejects Howe's present position, the court said that

"property which is meant to be protected by the  exemption

referred to is not property which is, from its nature, beyond the

reach of attachment, but property which it is a matter of public

policy to protect from attachment."  Id..

  Howe counters by saying that the insurance policies had

an ascertainable value and refers us to McKendall v. Patullo, 160

A. 202 (R.I. 1932), in which the Rhode Island Supreme Court

referred to "[t]he general rule . . . that an unliquidated claim

cannot be garnished."  Id. at 203.  There are obvious policy

objections to a garnishment of an unliquidated debt to the extent

that it calls on the garnishee to pay over moneys before they are

found to be owed.  But here the trustee does not seek garnishment

or any immediate payment at all from those against whom Howe has

what we will assume are disputed claims; rather, the trustee

seeks only to take over Howe's claims against those third

parties, a step that does not implicate the concerns of the

McKendall court.

  There is further evidence that Rhode Island has no

general policy against attachment of claims against third

parties.  In the course of codifying execution remedies for

judgment creditors, Rhode Island enacted a statutory provision

codifying and arguably expanding the old creditor's bill devised

by the equity courts.  R.I. Gen. Laws 9-28-1.  This provision

permits an unsatisfied judgment creditor to  reach "any equitable

estate, any equitable assets, or any choses in action of the

judgment debtor, except such as shall be exempt from attachment

by virtue of statutory provision."  On its face, this language

refutes any claim that Rhode Island is hostile to creditors

taking over debtors legal claims against third parties.

  Howe responds by pointing to the just quoted

qualification ("except such . . ."), arguing that this

incorporates section 9-26-4(10)'s reference to "policy"

exemptions.  But we have already explained why, under Chase, the

gap left at common law as to intangibles is not properly viewed

as an exemption at all.  Further, Howe's contrary view would

virtually moot the inclusion in section 9-28-1 of "any choses in

action of the judgment debtor" since in general these were not

subject to attachment at common law and, on Howe's reading, would

have been added by the statute as a remedy only to be immediately

subtracted by the "except such" proviso.

  Howe's approach to section 9-26-4(10) was rejected by

the Supreme Court, in an analogous context, almost a century ago. 

Page v. Edmunds, 187 U.S. 596 (1903).  Still, one can find more

recent decisions looking in both directions.  Compare In re

Geise, 992 F.2d 651, 658-59 (7th Cir. 1993) (holding that

property not subject to sequestration is not therefore exempt),

with In re Mitchell, 73 B.R. 93 (Bankr. E.D. Mo. 1987) (holding

property exempt where, inter alia, claim not subject to

garnishment, aff'd 855 F.2d 859 (8th Cir. 1988).  In the end

almost everything turns on how an individual state construes its

own mix of statutes and common law rules pertaining to

exemptions.  Happily, Chase provides us such guidance, even

though Howe can find scraps of language in his favor in other

Rhode Island cases.  But who would expect otherwise after more

than a century of decisions?

  This brings us to a different, narrower issue, namely,

whether Rhode Island law "exempts" personal injury claims from

being reached by creditors even though it does not exempt claims

against third parties in general from attachment or execution. 

Interestingly, the "federal" list of exemptions does provide an

exemption of up to $16,150 for a debtor's right to receive actual

compensation for "personal bodily injury" (not including pain and

suffering or compensation for actual pecuniary loss).  11 U.S.C.

 522(d)(11)(D).  But Howe chose the alternative list of

exemptions available under Rhode Island law, and while one can

imagine that Rhode Island might have a policy reflecting the same

protective concerns toward bodily injury, neither Rhode Island's

statutes nor its case law adopts such a position.

  What Rhode Island cases do express is a policy of

refusing to enforce the "assignment" of personal injury claims

before they are reduced to judgment.  Tyler v. Superior Court, 73

A.  467 (R.I. 1909).  But this rule, although apparently still in

force, is based on concerns--reflected in the now hoary rules

against champerty and maintenance--about promoting litigation by

"intermeddling volunteers" who purchase personal injury claims

"for their own profit."  Etheridge v. Atlantic Mut. Ins. Co., 480

A.2d 1341, 1344-46 (R.I. 1984).  Those concerns are pretty faint

in the case of a bankruptcy trustee who is simply trying to

muster the bankrupt's property for the benefit of creditors, none

of whom likely wanted to be in the business of pursuing the

debtor's claims against anyone.

  While we have found no Rhode Island case directly in

point, its courts have sensibly relaxed the ban against

assignment of personal injury claims where the concerns just

noted are not implicated.  E.g., id. at 1345; see also DeSenne v.

Jamestown Boat Yard, Inc., 968 F.2d 1388, 1390 (1st Cir. 1992)

(applying Rhode Island law).  Thus, it strikes us as doubtful

that Rhode Island's anti-assignment policy would bar an

assignment in favor of creditors.  However this may be, we think

it clear in light of Chase that the Rhode Island policy limiting

assignability of personal injury claims would never be described

as an "exemption" within the meaning of section 9-26-4(10).

  Affirmed.