1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 Dale D Ulrich, No. CV-20-01328-PHX-GMS
10 Appellant, ORDER
11 v.
12 Clinton Jacob Kauer, et al.,
13 Appellees. 14 15 16 Before the Court is Appellant Dale D. Ulrich’s (“Appellant”) Appeal of the United 17 States Bankruptcy Court’s Order overruling objections to Debtor’s claim of federal 18 exemptions (“Order”). (Doc. 5.) For the following reasons, the Order is affirmed. 19 BACKGROUND 20 Clinton Jacob Kauer and Alicia Marie Kauer (“the Debtors”) commenced a Chapter 21 7 Bankruptcy action on January 31, 2020. (Doc. 6-1 at 8.) Appellant was appointed to act 22 as the trustee in the case. (Doc. 6-4 at 1.) Pursuant to 11 U.S.C. § 522(d), the Debtors 23 elected to claim exemptions under federal law. (Doc. 6-5 at 2.) Appellant filed a timely 24 objection to the use of federal exemptions on April 2, 2020. (Doc. 6-4 at 2.) The United 25 States Bankruptcy Court issued a written ruling denying Appellant’s objection on June 29, 26 2020. (Doc. 1 at 9.) Appellant subsequently brought the instant appeal of the denial, 27 claiming that the Bankruptcy Court erred by allowing the Debtors to claim federal 28 exemptions because (1) the Idaho homestead exemption was available to the Debtors; and 1 (2) Idaho exemptions outside Title 11 were not limited by Title 11’s residency 2 requirements. 3 DISCUSSION 4 I. Standard of Review 5 As the objecting party, a trustee bears the burden of proving that a claim of exemption 6 is improper. Fed. R. Bankr. P. 4003(c); Carter v. Anderson, 182 F.3d 1027, 1029 n.3 (9th 7 Cir. 1999). A district court reviews the legal conclusions of a bankruptcy court de novo. In 8 re Olshan, 356 F.3d 1078, 1083 (9th Cir. 2004). 9 II. Analysis 10 Under 11 U.S.C. § 522(b), debtors may exempt certain assets included in property 11 of the bankruptcy estate to shield them from liquidation. Both federal and state exemption 12 schemes exist. When debtors have lived in different states prior to filing their bankruptcy 13 petition, the Code provides:
14 [A]ny property that is exempt under Federal law, other than subsection (d) of this section, or [under] State or local law that is applicable on the date of 15 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 16 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 17 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 18 the domiciliary requirement under subparagraph (A) is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is 19 specified under subsection (d). 20 11 U.S.C. § 522(b)(3). 21 Here, the Debtors were not domiciled in Arizona for more than 730 days prior to 22 the date they filed for bankruptcy and, therefore, cannot claim Arizona exemptions. Idaho’s 23 exemption laws instead apply under § 522(b)(3)(A) because the Debtors were domiciled 24 in Idaho for the greater part of the 180-day period preceding the 730-day period. However, 25 the Debtors are entitled to claim exceptions under the Federal Code because they are not 26 eligible for exemptions under Idaho law. 27 Most Idaho exemptions are limited to residents. The Idaho Code limits Title 11 28 exemptions to Idaho residents by providing: “Residents of this state are entitled to the 1 exemptions provided by this act. Nonresidents are entitled to the exemptions provided by 2 the law of the jurisdiction of their residence.” Idaho Code Ann. § 11-602; (Doc. 10 at 5). 3 Of the remaining provisions, none contain exemptions that the Debtors are qualified to take 4 in this case. Appellant offers no support for his assertions that other exemptions apply, 5 citing only to a complete list of Idaho’s exemptions, (Doc. 6-6 at 38), without factual or 6 legal support. Bare reference to these statutes does not meet Appellant’s burden of 7 establishing that the federal exemptions were improperly claimed. Moreover, as explained 8 by the Bankruptcy Court, most of the provisions fall within Title 11, and therefore do not 9 apply to the Debtors.1 10 Nor does the homestead exemption apply to the Debtors. Although the statute is 11 silent on extraterritorial reach and state appellate courts have not yet interpreted the scope 12 of the exemption, federal courts consistently limit Idaho’s homestead exemption to land 13 within the state. In In re Stephens, for example, the Ninth Circuit Bankruptcy Appellate 14 Panel reasoned:
16 1 Title 11 contains broad provisions which encompass many of the other exemptions outside the Act. The Bankruptcy Court explained: 17 [M]ost of these other exemptions are in fact also exemptions under Title 11 as disability benefits, public assistance, wages, insurance, retirement 18 benefits, and the like. Specifically, I.C. § 55-1011 (ERISA qualified pensions and retirement benefits), I.C. § 41-1836 (annuity proceeds), I.C. § 50-1517 19 (police officer retirement benefits), I.C. § 59-1317 (public employee retirement benefits), and I.C. § 72-1422 (firefighter retirement benefits) are 20 provided for within the more generalized exemption in I.C. § 11-604(A) as retirement benefits under any employee benefit plan. I.C. § 56-223 (public 21 assistance) is provided for in I.C. § 11-603(4) as “federal, state or local public assistance legislation.” I.C. § 63-3022K (medical savings accounts) 22 expressly falls within I.C. § 603(5) as “the amount in a medical savings account.” I.C. § 41-1834 (disability insurance), I.C. § 41-1833 (life 23 insurance), I.C. § 41-1835 (group life and group disability insurance), and I.C. § 41-1930 (life insurance policy settlements) are subsumed in I.C. § 11- 24 604 and § 11-604(A) as “proceeds of insurance.” I.C. § 72-802 (workers’ compensation) also falls within the limits of I.C. § 11-207 and § 11-603. See 25 State, Dept. of Health & Welfare ex rel. Lisby v. Lisby, 890 P.2d 727 (Idaho 1995) (noting different portions of workers’ compensation may qualify as 26 medical benefits or wages subject to Idaho’s exemptions in I.C. § 11-603 and § 11-207). 27 (Doc. 1 at 12.) Appellant’s assertion that, because a residency requirement is absent from these provisions, they cannot come within the requirements of Title 11 is 28 outweighed by the plain and broad provisions of the Act, which implicitly incorporate more specific exemptions. 1 [B]ased on our reading of Idaho Supreme Court precedent, we predict that the Idaho Supreme Court would limit the applicability of Idaho’s homestead 2 exemption law to real property located within Idaho.
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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 Dale D Ulrich, No. CV-20-01328-PHX-GMS
10 Appellant, ORDER
11 v.
12 Clinton Jacob Kauer, et al.,
13 Appellees. 14 15 16 Before the Court is Appellant Dale D. Ulrich’s (“Appellant”) Appeal of the United 17 States Bankruptcy Court’s Order overruling objections to Debtor’s claim of federal 18 exemptions (“Order”). (Doc. 5.) For the following reasons, the Order is affirmed. 19 BACKGROUND 20 Clinton Jacob Kauer and Alicia Marie Kauer (“the Debtors”) commenced a Chapter 21 7 Bankruptcy action on January 31, 2020. (Doc. 6-1 at 8.) Appellant was appointed to act 22 as the trustee in the case. (Doc. 6-4 at 1.) Pursuant to 11 U.S.C. § 522(d), the Debtors 23 elected to claim exemptions under federal law. (Doc. 6-5 at 2.) Appellant filed a timely 24 objection to the use of federal exemptions on April 2, 2020. (Doc. 6-4 at 2.) The United 25 States Bankruptcy Court issued a written ruling denying Appellant’s objection on June 29, 26 2020. (Doc. 1 at 9.) Appellant subsequently brought the instant appeal of the denial, 27 claiming that the Bankruptcy Court erred by allowing the Debtors to claim federal 28 exemptions because (1) the Idaho homestead exemption was available to the Debtors; and 1 (2) Idaho exemptions outside Title 11 were not limited by Title 11’s residency 2 requirements. 3 DISCUSSION 4 I. Standard of Review 5 As the objecting party, a trustee bears the burden of proving that a claim of exemption 6 is improper. Fed. R. Bankr. P. 4003(c); Carter v. Anderson, 182 F.3d 1027, 1029 n.3 (9th 7 Cir. 1999). A district court reviews the legal conclusions of a bankruptcy court de novo. In 8 re Olshan, 356 F.3d 1078, 1083 (9th Cir. 2004). 9 II. Analysis 10 Under 11 U.S.C. § 522(b), debtors may exempt certain assets included in property 11 of the bankruptcy estate to shield them from liquidation. Both federal and state exemption 12 schemes exist. When debtors have lived in different states prior to filing their bankruptcy 13 petition, the Code provides:
14 [A]ny property that is exempt under Federal law, other than subsection (d) of this section, or [under] State or local law that is applicable on the date of 15 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 16 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 17 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 18 the domiciliary requirement under subparagraph (A) is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is 19 specified under subsection (d). 20 11 U.S.C. § 522(b)(3). 21 Here, the Debtors were not domiciled in Arizona for more than 730 days prior to 22 the date they filed for bankruptcy and, therefore, cannot claim Arizona exemptions. Idaho’s 23 exemption laws instead apply under § 522(b)(3)(A) because the Debtors were domiciled 24 in Idaho for the greater part of the 180-day period preceding the 730-day period. However, 25 the Debtors are entitled to claim exceptions under the Federal Code because they are not 26 eligible for exemptions under Idaho law. 27 Most Idaho exemptions are limited to residents. The Idaho Code limits Title 11 28 exemptions to Idaho residents by providing: “Residents of this state are entitled to the 1 exemptions provided by this act. Nonresidents are entitled to the exemptions provided by 2 the law of the jurisdiction of their residence.” Idaho Code Ann. § 11-602; (Doc. 10 at 5). 3 Of the remaining provisions, none contain exemptions that the Debtors are qualified to take 4 in this case. Appellant offers no support for his assertions that other exemptions apply, 5 citing only to a complete list of Idaho’s exemptions, (Doc. 6-6 at 38), without factual or 6 legal support. Bare reference to these statutes does not meet Appellant’s burden of 7 establishing that the federal exemptions were improperly claimed. Moreover, as explained 8 by the Bankruptcy Court, most of the provisions fall within Title 11, and therefore do not 9 apply to the Debtors.1 10 Nor does the homestead exemption apply to the Debtors. Although the statute is 11 silent on extraterritorial reach and state appellate courts have not yet interpreted the scope 12 of the exemption, federal courts consistently limit Idaho’s homestead exemption to land 13 within the state. In In re Stephens, for example, the Ninth Circuit Bankruptcy Appellate 14 Panel reasoned:
16 1 Title 11 contains broad provisions which encompass many of the other exemptions outside the Act. The Bankruptcy Court explained: 17 [M]ost of these other exemptions are in fact also exemptions under Title 11 as disability benefits, public assistance, wages, insurance, retirement 18 benefits, and the like. Specifically, I.C. § 55-1011 (ERISA qualified pensions and retirement benefits), I.C. § 41-1836 (annuity proceeds), I.C. § 50-1517 19 (police officer retirement benefits), I.C. § 59-1317 (public employee retirement benefits), and I.C. § 72-1422 (firefighter retirement benefits) are 20 provided for within the more generalized exemption in I.C. § 11-604(A) as retirement benefits under any employee benefit plan. I.C. § 56-223 (public 21 assistance) is provided for in I.C. § 11-603(4) as “federal, state or local public assistance legislation.” I.C. § 63-3022K (medical savings accounts) 22 expressly falls within I.C. § 603(5) as “the amount in a medical savings account.” I.C. § 41-1834 (disability insurance), I.C. § 41-1833 (life 23 insurance), I.C. § 41-1835 (group life and group disability insurance), and I.C. § 41-1930 (life insurance policy settlements) are subsumed in I.C. § 11- 24 604 and § 11-604(A) as “proceeds of insurance.” I.C. § 72-802 (workers’ compensation) also falls within the limits of I.C. § 11-207 and § 11-603. See 25 State, Dept. of Health & Welfare ex rel. Lisby v. Lisby, 890 P.2d 727 (Idaho 1995) (noting different portions of workers’ compensation may qualify as 26 medical benefits or wages subject to Idaho’s exemptions in I.C. § 11-603 and § 11-207). 27 (Doc. 1 at 12.) Appellant’s assertion that, because a residency requirement is absent from these provisions, they cannot come within the requirements of Title 11 is 28 outweighed by the plain and broad provisions of the Act, which implicitly incorporate more specific exemptions. 1 [B]ased on our reading of Idaho Supreme Court precedent, we predict that the Idaho Supreme Court would limit the applicability of Idaho’s homestead 2 exemption law to real property located within Idaho. In making this 3 prediction, we particularly rely upon a line of Idaho Supreme Court cases holding that, “[i]n the absence of any extraterritorial phraseology contained 4 in the [statute in question], it cannot be construed to have an extraterritorial 5 effect, on the theory that the legislature so intended.” 6 In re Stephens, No. BAP ID-11-1304-MKHJU, 2012 WL 3205362, at *3 (B.A.P. 9th Cir. 7 Aug. 2, 2012) (quoting Ore-Ida Potato Prods., Inc., v. United Pac. Ins. Co., 87 Idaho 185, 8 193, 392 P.2d 191, 196 (1964)); see In re Capps, 438 B.R. 668, 672 (Bankr. D. Idaho 9 2010); In re Stephens, No. BR 10-41450-JDP, 2011 WL 1790777, at *2 (Bankr. D. Idaho 10 May 10, 2011) (“Standing in the way of Debtor’s successful claim of an exemption, 11 however, is a line of decisional law from this Court which holds that Idaho’s statutes may 12 not be used to establish a homestead exemption on real property located outside of the 13 State.”). The Idaho homestead exemption therefore cannot apply to the Debtors here. 14 Appellant’s assertion that this line of cases is “fruit of a poisonous tree” is unpersuasive 15 and unsupported. Policy arguments in favor of applying an exemption do not outweigh 16 clear authority to the contrary. 17 Further, Appellant’s contention that because remaining Idaho exemptions could 18 apply to the Debtors, they are therefore “eligible” within the meaning of § 522 distorts the 19 statute’s plain meaning and purpose. Such a reading would mean federal exemptions could 20 not apply to debtors unless every state exemption was expressly limited to residents. But 21 the “hanging paragraph” following § 522(b)(3)(C) is intended to ensure that debtors are 22 not denied the opportunity to claim “any” exemption. See, e.g., In re Long, 470 B.R. 186, 23 190 (Bankr. D. Kan. 2012) (holding that the hanging paragraph in § 522 is plainly designed 24 to prevent a debtor from being denied any exemptions). Courts understand this safeguard 25 as contemplating access to relief; they thus ask whether a debtor could actually claim an 26 exemption, not merely whether some exemption under the state’s code could apply if the 27 debtor were in a different factual scenario. In re Rodenbough, 579 B.R. 545, 551 (Bankr. 28 D. Idaho 2018); In re Capps, 438 B.R. at 673–74 (“[A]s long as the debtor may take || advantage of some state exemption, the hanging paragraph does not allow the debtor to use || the § 522(d) exemptions.”); In re Wilson, No. 14-20557-TLM, 2015 WL 1850919, at *4 (Bankr. D. Idaho Jan. 13, 2015) (“So long as debtors can receive some exemptions under 4|| the applicable state law, there is no reason for recourse to § 522(d) federal exemptions as 5|| a fallback under § 522(b)(3)’s hanging paragraph.”). Appellant cites no authority 6 || contradicting this principle; the broad contention that the plain meaning of “eligible” must be read more narrowly is outweighed by practical examples to the contrary. As there is no 8 || indication that Debtors own property which qualifies them for the remaining Idaho provisions, they are entitled to claim federal exemptions. 10 CONCLUSION 11 For the reasons stated above, the Order overruling Appellant’s objection to the || Debtors’ exemptions under federal law is affirmed. 13 IT IS THEREFORE ORDERED the Bankruptcy Court’s Order Overruling Appellant’s Objection is AFFIRMED. 15 Dated this 30th day of December, 2020. 16 Wi, 17 A Whacrsay Sooo) 18 Chief United states District Judge 19 20 21 22 23 24 25 26 27 28
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