Wittman v. Koenig

831 F.3d 416, 2016 U.S. App. LEXIS 13577, 2016 WL 3997251
CourtCourt of Appeals for the Seventh Circuit
DecidedJuly 26, 2016
DocketNo. 15-2798
StatusPublished
Cited by17 cases

This text of 831 F.3d 416 (Wittman v. Koenig) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Wittman v. Koenig, 831 F.3d 416, 2016 U.S. App. LEXIS 13577, 2016 WL 3997251 (7th Cir. 2016).

Opinion

HAMILTON, Circuit Judge.

The sole issue in this appeal is how to apply a Wisconsin statute that exempts from the assets available to creditors to execute judgments a debtor’s annuity contract that “complies with the provisions of the internal revenue code.” See Wis. Stat. § 815.18(3)(j)2.a. The Wisconsin statute does not specify which of the Internal Revenue Code’s provisions (codified in Title 26 of the United States Code) an annuity must comply with to qualify for an exemption. But the statute does require us to construe the exemption to “secure its full benefit to debtors.” Wis. Stat. § 815.18(1).

In this case, debtors Timothy and Jill Koenig claimed exemptions under § 815.18(3)(j) for several annuity contracts they owned. The trustee challenged the exemptions. He argued that an annuity, to qualify for the exemption, must comply with 26 U.S.C. §§ 401-09, which generally deal with tax-deferred “qualified” retirement plans. The debtors argue that an annuity is exempt under §815.18(3)0) as long as the annuity qualifies for favorable tax treatment under 26 U.S.C. § 72, which deals with annuities more generally. The federal bankruptcy courts, in Wisconsin have consistently agreed with the debtors’ interpretation of the statute. We do too, so we affirm the judgment of the bankruptcy court. The key statutory text is ambiguous on the decisive point, but the statute’s structure and purpose, along with the legislature’s instruction to construe exemptions in favor of debtors, persuade us that the bankruptcy court and debtors are correct here.

I. Factual and Procedural Background

Timothy and Jill Koenig filed for Chapter 7 bankruptcy protection in 2014. They claimed exemptions under Wisconsin’s bankruptcy exemption statute for three annuities worth a total of $292,185.97 as of the date of the bankruptcy. They had bought those annuities in the approximately year and a half before filing their bankruptcy petition. See 11 U.S.C. § 522(b)(3)(A) (allowing state-law bankruptcy exemptions). The trustee objected to the exemptions. Following prior decisions of bankruptcy courts in Wisconsin, the bankruptcy court overruled the trustee’s objection and held that the annuities are exempt from the bankruptcy estate. The trustee, the debtors, and this court all agreed it was appropriate to use the procedure under 28 U.S.C. § 158(d)(2)(A) to bypass the district court and to try to resolve this issue of law on direct appeal to our [419]*419circuit. We review de novo this issue of statutory interpretation. In re Bronk, 775 F.3d 871, 875 (7th Cir. 2015).

Wisconsin’s exemption statute defines an annuity broadly as “a series of payments payable during the life of the annuitant or during a specific period.” Wis. Stat. § 815.18(2)(am). An annuity can fall into one of two statutory bankruptcy exemptions under §815.18(3). Paragraph (3)(j) fully exempts retirement assets, including annuities, that meet certain requirements discussed below. Paragraph (3)(f) protects a broader category of annuities that do not meet the requirements of (3)(j). See Wis. Stat. § 815.18(3)(f)2. But paragraph (3)(f) imposes dollar limits on the amount of the exemption. The exemption is limited to $150,000, except that the cap is just $4,000 for annuities issued less than 24 months before the debtor claims the exemption.1

The debtors argue that their annuities meet the requirements for the full exemption under § 815.18(3)(j). Paragraph (3)(j) applies to “Assets held or amounts payable under any retirement, pension, disability, death benefit, stock bonus, profit sharing plan, annuity, individual retirement account, individual retirement annuity, Keogh, 401-K or similar plan or contract....” Wis. Stat. §815.18(8X3)1 (emphasis added). But paragraph (3)(j) imposes additional requirements on the assets it protects. First, those assets must provide “benefits by reason of age, illness, disability, death or length of service and payments made to the debtor therefrom.” Id.) In re Bronk, 775 F.3d at 877. Second, the assets must be either employer-sponsored or debtor-owned assets that “compl[y] with the provisions of the internal revenue code.” Wis. Stat. § 815.18(3)(j)2.2

[420]*420The trustee and the debtors agree that the Koenigs’ annuities pay benefits by reason of age and death and are not employer-sponsored. The parties further agree that the annuities comply with 26 U.S.C. §72 but do not comply with §§ 401-09. The decisive issue is whether an annuity that complies with § 72 but not with §§ 401-09 “complies with the provisions of the internal revenue code” within the meaning of the (3)(j) exemption.

Federal bankruptcy courts in Wisconsin have held consistently that annuities that qualify for tax deferred status under 26 U.S.C. §72 satisfy the requirements of § 815.18(3)0). See In re Woller, 483 B.R. 886, 900-01 (Bankr. W.D. Wis. 2012); In re Vangen, 334 B.R. 241, 244 (Bankr. W.D. Wis. 2005); In re Bogue, 240 B.R. 742, 745-46 (Bankr. E.D. Wis. 1999); In re Bruski, 226 B.R. 422, 424-26 (Bankr. W.D. Wis. 1998). A trustee raised this question of statutory construction before this court in In re Bronk. We noted a reservation about the earlier decisions of the bankruptcy courts, but we held that the trustee had waived the issue in that case by failing to raise it in the bankruptcy court. 775 F.3d at 878. No other reported cases have construed which Internal Revenue Code provisions satisfy the “complies with” requirement under § 815.18(3)(j)2.a. We have not directly faced the question until this case, where the question is presented squarely, [421]*421with able briefing and argument on both sides.

We now affirm the bankruptcy courts’ longstanding construction of § 815.18(3)©. As instructed by the Wisconsin Supreme Court, we first consider the statute’s language and also look to the statute’s structure and purpose to inform our analysis of the statutory language. See State ex rel. Kalal v. Circuit Court for Dane County, 271 Wis.2d 633, 681 N.W.2d 110, 123-26 (2004). If the language is ambiguous, we may also consider external sources such as legislative history, albeit with suitable caution. See id. at 126-26.

II.

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Bluebook (online)
831 F.3d 416, 2016 U.S. App. LEXIS 13577, 2016 WL 3997251, Counsel Stack Legal Research, https://law.counselstack.com/opinion/wittman-v-koenig-ca7-2016.