Respondents Brief — Owen v. Owen
Supreme Court brief1991
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In THE
Supreme Court of the United States
OCTOBER TERM, 1990
DWIGHT H. OWEN,
Pe tition *
Ve
HELEN OWEN,
Re spond nf
On Writ of Certiorari to the United States
Court of Appeals for the Eleventh Circuit
BRIEF FOR THE RESPONDENT
TIMOTHY B. Dyk
(Counsel of Record)
PETER M. Lin
JONES, Dax, REAVIs & POGUE
1450 G Street, N. W.
Suite 700
Washington, D.C, 20005
(202) 879-3939
Of Counsel: Counsel for Responde nt
DAVID A. TOWNSEND
TOWNSEND & ARNOLD
220 E. Madison Street
Tampa, Florida 88602
Witeon ~- Eras Paring Co.. Inc. - 789-0006 - Wasninoron, D.C. 2000!
. , _
QUESTIONS PRESENTED
Whether, under Section 522 of the Bankruptcy Code—
which authorizes the states to establish categories of
exempt property for purposes of bankruptcy—a state may
limit its homestead exemption so as to preserve a judicial
lien.
Whether Section 522(f) of the Bankruptcy Code, which
provides for avoidance of certain liens on exempt prop-
erty, was intended to require retroactive application of a
state exemption statute to invalidate a pre-existing judi-
cia! lien.
(i)
TABLE OF CONTENTS
4
QUESTIONS PRESENTED
TABLE OF AUTHORTTIIESS e
STATEMENT OF FACTS
A. The Federal Bankruptcy System.
B. The Background of this Case
SUMMARY OF ARGUMENT
ARGUMENT. <....-.---:--cesovssveevssosssvssnssnnseneennsnnsensensennssnnsnsseees
L PETITIONER WAS NOT ENTITLED TO AN
EXEMPTION, AND ACCORDINGLY CAN-
NOT AVOID THE LIEN ..
A. Congress Conferred on the States Broad
Power To Define Bankruptcy Exemptions....
cede Those Choices .
C. Section 522 (f) Was Not Designed To Avoid
Liens Preserved by State LAW
CLUDE THE STATES FROM ENACTING
EXEMPTION PROVISIONS WHICH OPER-
ATE PROSPECTIVELY ONLY XT.
CONCLUSION
(iii)
12
18
iv
TABLE OF AUTHORITIES
CASES Page
Aetna Insurance Co. v. LaGasse, 223 So. 2d 727
r nace a7 ET aa 5, 29
Bessemer v. Gersten, 881 So. 2d 1344 (Fla. 1980).. 5
Bowen v. Georgetown University Hospital, 488
ff RE a 30
Bowers v. Mozingo, 399 So. 2d 492 (Fla. App.
r ˙ aan Seno) ee MARY i 6 aa aN 29
Carey v. Douthitt, 140 Cal. App. 409, 35 P.2d 682
(1934) . ˖—”i, ABs a 14
Claridge Apartments Co. v. Commissioner, 323
r 29
Clements v. Henderson, 70 Fla. 260, 70 So. 439
4JJ4w ———T—T— ele ee OS Se 29
England v. Sanderson, 236 F.2d 641 (9th Cir.
J A ROP RT oa OT 14
aten v. Cheek, 254 F.2d 667 (9th Cir. 1958) . 14
Greene v. United States, 376 U.S. 149 (1964) 29
Holt v. Henley, 282 U.S. 637 (1914) ....................... 30
Hanover National Bank v. Moyses, 186 U.S. 181
AERTS EER aN) hc m 18
In re Ashe, 712 F.2d 864 (3d Cir. 1983), cert. de-
nied, 465 U.S. 1024 (1984) . . . . . . . 32, 33
In re Bland, 798 F.2d 1172 (11th Cir. 1986) 8, 25
In re Hall, 752 F.2d 582 (11th Cir. 1985) .....8, 21, 25, 26
In re Leonard, 866 F.2d 335 (10th Cir. 1989) 23, 26
In re McManus, 681 F.2d 358 (5th Cir. 1982) 23, 28
In re Pine, 717 F.2d 281 (6th Cir. 1983), cert.
denied, 466 U.S. 928 (1984) . . . 23, 28
In re Snow, 899 F.2d 337 (4th Cir. 1990) ................ 22
In re Webber, 674 F.2d 796 (9th Cir.), cert. de-
nied, 459 U.S. 1086 (1982) 32
In re Wyllie, 30 Fed. Cas. 733 (No. 18,112) (W. D.
JJ EN Oe rae ne $1
Kaiser Aluminum & Chemical Corp. v. Bonjorno,
e 30, 32
Kener v. La Grange Mills, 231 U.S. 215 (1913) ..31, 32, 33
Keystone Water Co. v. Bevis, 278 So. 2d 606 (Fla.
— — —— 5
v
TABLE OF AUTHORITIES—Continued
Page
Lamb v. Ralston Purina Co., 21 So. 2d 127 (Fla. 8
| ——— ——
Local Loan Co. v. Hunt, 292 U.S. 234 (1984) ‘Sane 2
Long v. Bullard, 117 U.S. 617 (1886) 1 10, 19
Louisville Bank v. Radford, 295 U.S. 555 (1935) 20
Lyon v. Arnold, 46 F.2d 451 (5th Cir. 1931)........ 5, 18
Matthews v. Jaecle, 61 Fla. 686, 55 So. 865 ,
0 ———.————————.——
Miller v. United States, 294 U.S. 435 (1935) 29
Pasco v. Harley, 75 So. 30 (Fla. 1917). 5, 14
Schuler-Knor Co. v. Smith, 62 Cal. App. 2d 86,
144 P Ad & (19600 ———ꝛ; 14
United States v. Estate of Donnelly, 397 U.S. 286 5
1 .
United States v. Heth, 7 U.S. (3 Cranch) 399 **
898 ————
* Magnolia Petroleum Co., 276 U.S. 1
100 (19265 ————y——eʒũ—'ꝛ——
United States v. Security Industrial Bank, 459
I 10, 29, 30, 32
Volpitta v. Fields, 369 So. 2d 367 (Fla. App.),
cert. denied, 379 So. 2d 204 (Fla. 1979) ............
CONSTITUTIONAL AND STATUTORY PROVI-
SIONS
Ariz. Rev. Stat. Ann. § 33-1122 (Supp. 1982-1983) .. 14
Ark. Code Ann. § 16-66-218(a) (Supp. 1987)........ 26
Ark. Const. art. 9, § 3 (1947) . . 14
Fla. Const. art. 10, § 4 (a) (1) 1, 4, 5, 28
Fla. Const. art. 11, 6 5 (e ————r.— 5
Fla. Stat., Chapter 222.20 .- 17
Ga. Code Ann. § 44-13-100 (Supp. 1988) 26
Hawaii Rev. Stat. 651-122 (Supp. 1982) 14
Ky. Rev. Stat. Ann. § 427.160 (Michie Supp. ‘
i —————ß—ß—5ß2—
N. M. 2 Ann. § 42-10-86 (Supp. 1978). 14
e 31
13 cena nnn cceveccncecccnceceecscccosccsscccsecseeeeess $1
vi
TABLE OF AUTHORITIES—Continued
Page
Lene 32
Dine 2, 13
Tex. Const. art. 16, § 50 —.— 27
11 U.S.C. §§ 101 et e.. — 13
11 U.S.C. § 522 77 passim
TC ann 2
| cee 2
D S 2
11 U.S.C. Chp. 54444 5 bigs 19
20688000 —..K——7örßv5ðV,˖v— 19
11 U.S.C. Chap. 56 ————:—Är—— 19
20889800000. ————75vð—ỹ 19
11 UC. 560 —.—ꝗ9gᷣð—õ——ꝙͤ.— 19
²³§ĩ. — 12
11 U.S.C. § 726 6⅝äũʒ1ÿ tileenainadnabinieaal * 3
a0 1060. ———75ß5＋«ç:e.l!üͤͥ'—'n2qgñ 2
LEGISLATIVE MATERIALS
Bankruptcy Reform Act of 1978: Hearings on
S. 285 and S. 236 Before the Subcomm. on Im-
provements in Judicial Machinery of the Sen-
ate Comm. on the Judiciary, 94th Cong., Ist
Sess. (1975) 15, 16
Bankruptcy Reform Act of 1978: Hearings on
H.R. $1 and 32 Before the Subcomm. on Civil
and Constitutional Rights of the House Judi-
ciary Comm., 94th Cong., 2d Sess. (1976)........ 22
123 Cong. Rec. H85444, H35452 (daily ed. Oct. 27,
1977) 12
124 Cong. Rec. 814719, 814721-22 (daily ed. Sept.
7, 1978) . 14,18
124 Cong. Rec. H11095 (daily ed. Sept. 28, 1978).. 17, 18
H.R. Rep. No. 595, 95th Cong., Ist Seas. (1977),
reprinted in 1978 U.S. Code Cong. & Admin.
News 5787 14, 18, 21, 24
Report of the Commission on the Bankruptcy
Laws of the United States, H.R. Doc. No. 137,
98d Cong., Ist Sess., Pts. I and II (19783) 15, 22
Haines, Section 522’s Opt-Out Clause: Debtors’
vil
TABLE OF AUTHORITIES—Continued
Page
S. Rep. No. 989, 95th Cong., 2d Sess. (1978),
reprinted in 1978 U.S. Code Cong. & Admin.
News 5787 ..16, 18, 21, 24
BOOKS AND ARTICLES
8 Collier on Bankruptcy, {| 522.01 (15th ed. 1989) 13
8 Collier on Bankruptcy, {| 522.02 (15th ed. 1989) .. 17
8 Collier on Bankruptcy, {| 522.04 (15th ed. 1989) .. 22
8 Collier on Bankruptcy, {| 522.06 (15th ed. 1989) .. 27
8 Collier on Bankruptcy, {I 522.08 (15th ed. 1989). 24
4 Collier on Bankruptcy, Chapters 544, 547, 548,
550 (15th ed. 1989) — 19
Countryman, For « New Exemption Policy in
Bankruptcy, 14 Rutgers L. Rev. 678 (1960) 13
T. Eisenberg, Bankruptcy and Debtor—Creditor
Law (2d ed. 1988) ... 6— —— 27
4 .. 2—7jvꝰ̃ — 14
T. Jackson, The Logic and Limits of Bankruptcy
Law (1986) . 27 12, 25, 27
R. Jordan & W. Warren, Bankruptcy (2d ed.
1989) . — — 27
Kennedy, Limitation of Exemptions in Bankruptcy,
45 Iowa L. Rev. 445 (1960)... — 13
W. Norton, Norton Bankruptcy Law and Practice 2
1 ͤ»wö ͤ—ͤMU—
In THE
Supreme Court of the United States
OCTOBER TERM, 1990
No. 89-1008
DWIGHT H. OWEN,
Petitioner
v.
HELEN OWEN,
Respondent
On Writ of Certiorari to the United States
Court of Appeals for the Eleventh Circuit
BRIEF FOR THE RESPONDENT
STATEMENT OF FACTS
In the course of a personal bankruptcy case brought
under chapter 7 of the Bankruptcy Code, petitioner sought
a discharge of further liability for his outstanding debts
and exemption of his residence from the claims of credi-
tors. At the time petitioner commenced his chapter 7
case, Florida, pursuant to section 522(b) of the Bank-
ruptey Code, had adopted a homestead exemption,’
1 Appendix to Petition for Certiorari (hereinafter Pet. A.“) at
8-4. Citations to J. A.“ are to the Joint Appendix. Citations to
“Br.” are to the Petitioner’s Brief.
711 U.S.C. § 522 (b); Fla. Const. art. 10, f 4a) (). J. A. 18-14.
exempting petitioner’s condominium from being included
in the bankruptcy estate, but not exempting that property
from a preexisting lien in favor of respondent, his former
spouse. The issue is whether section 522(f) of the Bank-
ruptey Code, 11 U.S.C. § 522 (f), requires the bankruptcy
court to avoid this lien, a lien that existed before the
homestead exemption became effective and that was spe-
cifically preserved by state law.
Necessary to an understanding of this issue is a
description of applicable federal bankruptcy law, the
exemption provided under Florida law, and the facts of
this particular case.
A. The Federal Bankruptcy System
Under chapter 7 of the Federal Bankruptcy Code, an
individual may commence a bankruptcy case and seek an
orderly liquidation of his assets in payment of his lia-
bilities. Congress has long been concerned that individ-
uals have the opportunity to make a so-called “fresh
start“ after the bankruptcy proceedings have been con-
cluded.’ Accordingly, one consequence of the bankruptcy
proceeding is that most of the debtor’s debts are dis-
charged, that is, the debtor is no longer personally liable.“
Federal bankruptcy law also provides, and has provided
since 1898,° that state law may create exemptions in in-
dividual bankruptcy for certain property so that it is
excluded from the bankruptcy estate and is immune from
ereditors.“ In effect, federal law provides that a debtor
® See, e. g., Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1984).
In this chapter 7 case, the governing provision is section 727 of
the Code, 11 U.S.C. §727. Section 523, 11 U.S.C. § 523, provides
exceptions to discharge, and section 524, 11 U.S.C. § 524, specifies
the effects of discharge.
Section 6, 30 Stat. 544, 548 (1898).
11 U.S.C. 8 522 (b) (1). Section 541 of the Bankruptcy Code,
11 U.S.C. § 541, provides that the commencement of a bankruptcy
case creates an estate that broadly consists of al] of the debtor’s
“ exempt from property of the estate . . . any prop-
ty that 2 . under State or local law that is
applicable on the date of the filing of the petition at the
place in which the debtor’s domicile has been located for
the 180 days immediately preceding the filing of the peti-
tion... . As a consequence, exempt property is not
sold (liquidated) in the course of the proceeding.
However, bankruptcy law has always shown a special
solicitude for secured creditors. The mere fact that prop-
erty is exempt from the bankruptcy estate does not avoid
security interests in that property. And even though a
debtor is discharged, the debtor’s property may remain
subject to a pre-existing security interest in favor of a
creditor. (A prime example would be a purchase money
mortgage on a residence qualifying for a homestead
exemption. )
Section 522(f) of the Bankruptcy Code defines the
circumstances in which security interests in exempt prop-
erty may be avoided’ (eliminated).
(f) Notwithstanding any waiver of exemptions, the
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 sec-
tion [which specified the exemptions], if such lien
is—
(1) a judicial lien; or
(2) a nonpossessory, nonpurchase-money secur-
ity interest in [specified types of property].
property. After the debtor has exempted property from the estate
rsuant to section 522, property of the estate is distributed in a
pret i 7 case pursuant to section 726 of the Code, 11 U.S.C. § 726.
7 11 U.S.C. § 522(b).
8 See Long v. Bullard, 117 U.S. 617 (1886); 11 U.S.C. § 522 (e)
discussd below at pp. 19-22.
® 11 U.S.C. § 522 (f) (emphasis supplied).
—_
3
4
This case involves a judicial lien addressed by subsec-
tion (1).
B. The Background of this Case
In December 1975, respondent obtained a money judg-
ment against the petitioner in Florida state court in the
amount of $158,703.° A copy of the judgment was re-
corded in the public records of Sarasota County, Florida,
on July 29, 1976." The petitioner owned no property in
Sarasota County at that time, but under Florida law the
judgment would attach to any after-acquired property.”
On November 27, 1984, the tioner -
dominium in Sarasota — ag the 2 the —
chase, the condominium did not qualify for a homestead
exemption from judgment liens under article 10, section
4 of the Florida Constitution, because the petitioner was
a single man and the exemption was only available to
the “head of a family.” However, on January 8, 1985,
10 Pet. A. 2, 15. The dollar amount a i i
* mea ppears in the Order cited in
11 Jd.
12 Pet. A. 2.
18 Pet. A. 3, 15.
Pet. A. 3, 15-16. In November 1984, article 10, section 4(a)
(1) of the Florida Constitution had provided homes
exemption as follows: ** —
(a) There shall be exempt from forced sale under process of
any court, and no judgment, decree or execution shall be a lien
thereon, except for the payment of taxes and assessments
thervon, obligations contracted for the purchase, improvement
or repair thereof, or obligations contracted for house, field or
other labor performed on the realty, the following property
owned by the head of a family:
(1) a homestead, if located outside a munici to
extent of one hundred sixty acres of ash nme wan par =
provements thereon, which shall not be reduced without the
owner’s consent by reason of subsequent inclusion in a munici-
pality; or if located within a municipality, to the extent of
5
after the lien attached, an amendment to the Florida
Constitution became effective extending the exemption to
single individuals.“ With certain exceptions not appli-
cable here, the amendment provided that “no judgment
_.. Shall be a lien” on a homestead “owned by a natural
person.” * Respondent’s lien remained effective both be-
cause (1) under Florida law, where a debtor qualifies
for a homestead exemption only after a judgment lien has
attached to his property, the property is not exempt from
the lien, wand (2) respondent’s lien attached to the peti-
tioner’s condominium before the effective date of the con-
stitutional amendment, and the amendment did not apply
retroactively to destroy the lien.
one-half acre of contiguous land, upon which the exemption
shall be limited to the residence of the owner or his family.
18 The amendment was adopted before the lien attached but be-
came effective only after it attached. Article 11, section 5(c) for
the Florida Constitution provides:
If the proposed amendment or revision is approved by vote
of the electors, it shall be effective as an amendment to or re-
vision of the constitution of the state on the first Tuesday
after the first Monday in January following the election, or on
such other date as may be specified in the amendment or
revision.
Pet. A. 38. Thus the amendment became effective on January 8,
1985.
10 Fla. Const. art. 10, f 4 (a) (1), Pet. A. 36-37.
17 F. g., Lyon v. Arnold, 46 F.2d 451, 452 (5th Cir. 1931) (con-
struing Florida law); Bessemer v. Gersten, 381 So. 2d 1344, 1347
n.1 (Fla. 1980); Aetna Insurance Co. v. LaGasse, 223 So. 2d 727,
728 (Fla. 1969).
18 Pasco v. Harley, 75 So. 30, 33 (Fla. 1917) (“homestead ex-
emptions’ do not exist as against a judgment obtained or convey-
ance made before the exemption was provided for by law”); Mat-
thews v. Jeacle, 61 Fla. 686, 55 So. 865, 867 (1911) (Florida home-
stead exemption did not operate retroactively); accord Keystone
Water Co. v. Bevis, 278 So. 2d 606, 608-09 (Fla. 1973) (a statute
“ig not to be given retrospective application unless it is required by
the terms of the [s]tatute or it is unequivocally implied”).
6
On January 13, 1986, petitioner commenced a chapter
7 bankruptcy case.“ In schedules accompanying the peti-
tion, petitioner listed himself as owing debts which ex-
ceeded the total amount of his assets. Among the assets
was petitioner’s condominium, which he valued at
$135,000. Among his liabilities were two debts totalling
in excess of $346,000 owed to his former spouse, respond-
ent in this case.”
Petitioner sought to discharge respondent’s debts and
at the same time to preserve his ownership in the con-
dominium.” Accordingly, the petitioner claimed his con-
dominium as exempt Florida homestead property pur-
suant to the newly adopted Florida constitutional pro-
vision.” There was no dispute that the debt would be
discharged as a personal liability of the debtor. It was
also clear that unsecured debts could not be enforced
against the condominium, because the Florida exemption
for single persons was effective at the time of the bank-
ruptcy filing. In May 1986, the bankruptcy court granted
petitioner à discharge.“ Three months later, that court
sustained the claimed exemption.
After his discharge, the petitioner, apparently realizing
for the first time that his condominium remained subject
to respondent’s lien, moved to reopen his chapter 7 case
and to avoid respondent’s judicial lien, pursuant to 11
19 Pet. A. 16.
In re Owen, Order on Objection to Claim of Exempt Property,
United States Bankruptcy Court for the Middle District of Flor-
ida, Tampa Division, No. 86-106, at 2, Aug. 13, 1986; Schedule of
Current Income and Current Expenditures, Jan. 13, 1986. These
documents were part of the record in the bankruptcy court but were
not included in the record on appeal. They have been lodged with
the Clerk of this Court.
21 Pet. A. 16-17.
22 Pet. A. 16.
23 J. A. 1; Pet. A. 17.
2% J. A. 1-2.
7
U.S.C. § 522 (f) (1), 80 — — could retain =
homestead property lien- bankruptcy court
„„ in February 1988, denied
the petitioner’s motion to avoid respondent’s judicial
lien.“ Finding that the judicial lien had attached before
the petitioner’s condominium qualified for the homestead
exemption, the bankruptcy court concluded that the lien
could not be avoided under section 522(f)(1) of the
Bankruptcy Code.” The District Court for the Middle
District of Florida affirmed, agreeing that the lien could
not be avoided because it attached to petitioner’s condo-
minium before the property qualified for the exemption.
In affirming the district court, the Eleventh Circuit noted
that petitioner
d] that federal law [gave] him an exemption
that * law would not, even though the exemp-
tions in Florida are defined by state law because of
its ‘opting out’ of the federal exemption.
Congress did not intend through section 522 (f),
Ran. 2 to provide a federal exemption greater
25 J.A. 2.
to
26 The bankruptcy court at first granted petitioner’s motion
avoid the judicial lien. J.A. 3. After the respondent filed a timely
motion to amend the initial order, the bankruptcy court reversed
its initial ruling. J.A. 3-4.
27 Pet. A. 26. The bankruptcy court stated, in pertinent part:
Clearly, if at the time the certified copy of the Judgment
was recorded in the Public Records, the Debtor owned the
property but for whatever reason did not qualify to claim the
property as homestead, such judgment lien would be clearly
nonavoidable under § 522 (f) (1) of the Bankruptcy Code. As
the judgment lien in this case attached before the p
qualified as homestead, the judgment lien is not of the
included within the ambit of §522(f)(1) and may not
avoided.
Pet. A. 25-26.
28 Pet. A. 22-23; 86 Bankr. 691, 694 (M.D. Fla. 1988).
15
8
than that protected by state law where the exemp-
tion is created by state law.”
The court concluded that
[w]here, as here, the judgment attached prior to the
homestead right, there is no impairment because the
exemption is specifically subject to this exception.“
The court held that respondent’s lien could not be
avoided under section 522(f).
In view of a conflict in the circuits, this Court granted
the petition for certiorari on May 14, 1990.
2° 877 F.2d at 47, Pet. A. 9-10.
80 Jd. Petitioner has pointed out that the Eleventh Circuit de-
cision in this case appears to conflict with that circuit’s decision in
In re Hall. Br. at 30. In In re Hall, 752 F.2d 582 (11th Cir. 1985), a
panel of the Eleventh Circuit found that the Georgia legislature
had defined exemptions in a manner which precluded debtors from
avoiding liens under section 522(f), and held that Georgia had no
authority to do so. However, in In re Bland, 798 F.2d 1172, 1174
(11th Cir. 1986), the Eleventh Circuit sitting en bane found that
“the Hall panel moved too quickly to the question of whether a
state can opt out of section 522(f)” because the Georgia legisla-
ture had not intended to limit exempt property t unencumbered
property. The court declined to decide whether a state can over-
ride section 522(f) by defining available exemptions to exclude en-
cumbered property. Id. at 1175 n.5. While the Eleventh Circuit
opinion in this case did not discuss either Hall or Bland, the court
appeared to be rejecting the position it took in Hall when it con-
cluded that Congress “did not intend through Section 522(f) .. .
to provide a federal exemption greater than that protected by state
law where the exemption is created by state law.” 877 F.2d at 47.
We note that, in « concurring opinion in Bland, Judge Hill con-
cluded that “the only way to determine whether or not the debtor
may avail himself of the lien avoidance provision is to consult
state law. Federal law place- no limits on the generosity cr lack
thereof with which states may define such exemptions.” 793 F.2d
at 1176 (concurring dubitante) .
;
\ SUMMARY OF ARGUMENT
I. To assist individual debtors to make a “fresh start”
after bankruptcy, section 522(b) of the Bankruptcy Code,
11 U.S.C. § 522 (b), allows a debtor to “exempt from
. .. any property that is exempt
g
3
is that the exempted property is not sold in the course
of the bankruptcy proceeding to satisfy the claims of
creditors.
the states broad power to define bankruptcy exemptions
pursuant to section 522(b). The State of Florida, while
exempting homestead property from the claims of un-
secured creditors, has limited that exemption to preserve
liens, such as the one involved here, that predated the
effective date o* the state’s homestead exemption. There
is nothing in section 522(b) or its legislative history
that suggests that Congress intended to deny states the
power to so limit their exemptions. In fact, that legisla-
tive history shows that Congress consistently rejected
proposals to limit state power to define exemptions—
proposals to impose a uniform list of federal exemptions
or to adopt an alternative list of federal exemptions that
would have been available to debtors regardless of state
law.
Petitioner’s suggestion that section 522(f) of the Code,
11 U.S.C. § 522(f), was designed to limit state power is
untenable. Section 522(f) was a new provision included
in the 1978 Bankruptcy Code. It provides that certain
liens on exempt property may be avoided (eliminated) if
they impair an exemption “to which the debtor would
have been entitled under” section 522(b). Here there is
no exemption to which the debtor “would have been en-
titled” since the Florida exemption preserved the lien.
10
The legislative history of section 522(f) shows that it
was not designed to limit state power to define exemptions
but rather to make available exemptions effective. Before
the enactment of section 522(b), this Court’s decision in
Long v. Bullard, 117 U.S. 617 (1886), had construed
federal bankruptcy law to preserve liens in exempt prop-
erty. Section 522(f) partially repealed the effect of this
Court’s decision in Long v. Bullard and thus eliminated
this federal impediment to the effectuation of exemption
policy. It was not designed to override the states’ policy
choices reflected in their exemption statutes.
II. Even if a state exemption provision could not limit
the exemption to preserve liens on otherwise exempt prop-
erty, section 522(f) should not be construed to require
retroactive application of state exemption statutes to
liens predating the creation of the state exemptions. This
Court has long made clear that federal legislation, par-
ticularly in the bankruptcy area, should not be construed
to operate retroactively absent a clearly manifested Con-
gressional intent. This Court in United States v. Security
Industrial Bank, 459 U.S. 70 (1982), specifically held
that section 522(f) should not be construed to avoid liens
arising before its enactment in 1978. Similarly section
522(f) should not be construed as requiring the retro-
active application of state law where, as here, the state
has decided that its own exemption statute should not
operate to avoid liens created before the effective date of
the exemption. There is no federal policy that could
possibly be served by compelling states to apply their
exemption statutes retroactively, and there is no indica-
tion in the language of the Bankruptcy Code or its legis-
lative history remotely suggesting any such purpose.
Rö nnn
!
11
ARGUMENT
In urging this Court to reverse the decision below,
petitioner argues that section 522 (f) (1) of the Bank-
ruptey Code must be applied independently of state law
definitions of exemptions.“ This argument is wrong for
two separate reasons. First, as we discuss in Part I
below, it ignores the language of section 522 (f) (1),
which permits a debtor to avoid a judicial lien only if the
lien impairs an exemption “to which the debtor would
have been entitled under” applicable law. The debtor
here was entitled to an exemption under state law only
to the extent of the property not subject to a lien, and
accordingly the lien did not interfere with any exemp-
tion “to which the debtor would have been entitled.”
Second, as we discuss in Part II below, even if sections
522(b) and 522(f) of the Bankruptcy Code were read
as denying Florida the power to limit the exemption to
unencumbered property, those sections should not be con-
strued to require retroactive application of state exemp-
tion statutes to invalidate pre-existing liens.
I. PETITIONER WAS NOT ENTITLED TO AN EX-
EMPTION, AND ACCORDINGLY CANNOT AVOID
THE LIEN.
As petitioner appears to concede,” section 522 (f) can
be employed to avoid a judicial lien only in those situa-
tions where the lien “impairs an exemption to which the
debtor would have been entitled under subsection (b)” of
section 522. Here it is clear that that condition is not
satisfied because Florida law, and hence section 522(b),
does not create an exemption for this property to the
extent that it is subject to a pre-existing lien.“ In de-
31 Br. at 19.
82 Br. at 21, 23.
33 11 U.S.C. § 522(f).
34 See p. 5 supra.
*
12
fining the scope of the exemption, Florida was doing
what Congress contemplated it would do and empowered
it to do.
A. Congress Conferred on the States Broad Power To
Define Bankruptcy Exemptions.
In individual bankruptcy the Bankruptcy Code seeks
to reconcile the claims of creditors with the so-called
“fresh start” policy designed to assist the individual bank-
rupt’s rehabilitation.* That reconciliation is generally re-
flected in two provisions of the Bankruptcy Code. The
first of these—the provision for discharge—is governed
entirely by federal law.“ This provision generally pro-
vides that the individual debtor will receive a discharge
in bankruptcy which will eliminate his personal liability
for his debts.*”
The second aspect of this reconciliation between creditor
claims and the need for a “fresh start” is reflected in
the Bankruptcy Code provisions concerning exemptions.”
These exemptions exempt some limited portion of the
debtor’s property from the claims of creditors by per-
mitting the debtor to exclude the exempt property from
the bankruptcy estate and hence to prevent its liquidation
and sale to satisfy the claims of creditors.” The states
See note 3 supra; see generally T. Jackson, The Logic and
Limits of Bankruptcy Law, 225-52 (1986).
56 See T. Jackson, The Logic and Limits of Bankruptcy Law, 254
(1986). See also 11 U.S.C. § 722 (redemption).
* See note 4 supra.
38 See T. Jackson, The Logic and Limits of Bankruptcy Law, 254-
59. See also 123 Cong. Rec. H85444, H 35452 (daily ed. Oct. 27,
1977) (statements of Mr. Edwards and Mr. Drinan) (legislative
history of the 1978 Bankruptcy Code recognizing the importance
of exemptions to the “fresh start” policy).
39 11 U.S.C. § 522(b).
13
are specifically empowered by section 522(b) of the Code
to define the scope of the exemptions.”
Section 522 was adopted as part of the Bankruptcy
Reform Act of 1978“ and was considered against the
background of the former Bankruptcy Act, enacted in
1898. The Bankruptcy Act of 1898 did not itself define
the exemptions to which an individual would be entitled
upon filing a bankruptcy petition. Rather Congress al-
lowed the scope of a debtor’s exemptions to be defined
principally by reference to state law.“ The exemptions
many states provided were limited in scope and amount.“
Limitations such as those involved here on a debtor’s
right to exempt property interests encumbered by judicial
liens were not uncommon.“ A number of state statutes
4011 U.S.C. § 522 (b) (2) (A) (“an individual debtor may exempt
from property of the estate . . . any property that is exempt under
Federal law, other than subsection (d) of this section, or State or
local law W..).
1 11 U.S.C. $§ 101 et seq.
42 30 Stat. 544 (1898).
48 Section 6, 30 Stat. 544, 548 (1898). That Act, in section 6,
permitted “bankrupts” to claim “the exemptions which are pre-
scribed by the [non-bankruptcy] laws of the United States or by
the State laws in force at the time of the filing of the peti-
tion. .” In earlier bankruptcy acts, federul law or a combina-
tion of federal and state law had governed exemptions. See 3 Col-
lier on Bankruptcy, { 522.01, at 522-8 to 522-9 (15th ed. 1989).
Constitutional challenges to the adoption of state exemptions on
the ground that this made federal bankruptcy law impermissibly
non-uniform have been consistently rejected. See, e.g., Hanover
National Bank v. Moyses, 186 U.S. 181 (1902).
44 Professor Countryman described the limited scope of state
exemption in For a New Exemption Policy in Bankruptcy, 14
Rutgers L. Rev. 678 (1960). See also Kennedy, Limitation of
Exemptions in Bankruptcy, 45 Iowa L. Rev. 445 (1960).
45 Florida’s rule preserving judicial liens which attached to prop-
erty before the property qualified for an exemption long predated
the Bankruptcy Code. See Lyon v. Arnold, 46 F.2d 451 (5th Cir.
—
14
modified the definition of exemption under state law to
generally exclude property encumbered by valid liens.
Some of these statutes substantially predated the Bank-
ruptey Code.“ While there is no indication that, at the
time that it considered the 1978 Code, Congress specifically
focused on state statutes that defined exemptions to ex-
clude lien-encumbered property, Congress was certainly
aware of the discretion states had exercised in defining
and limiting exemptions and that this had resulted in
disparate results in different parts of the country.“
Although some in Congress sought to change the bank-
1981); Lamb v. Ralston Purina Co., 21 So. 2d 127, 182 (Fla.
1945) ; Pasco v. Harley, 75 So. at 33. California law provided that
a judgment lien prevailed if it attached to property before the
debtor filed a homestead declaration as to the property. See Esten
v. Cheek, 254 F.2d 667 (9th Cir. 1958); Schuler-Knoz Co. v. Smith,
62 Cal. App. 2d 86, 144 P.2d 47, 53 (1944); Carey v. Douthitt, 140
Cal. App. 409, 35 P.2d 632 (1934). Independently, California
courts construed that state’s exemption provisions to operate pros-
pectively only. England v. Sanderson, 236 F.2d 641, 642 & n.2 (9th
Cir. 1956), citing Application of Rauer’s Collection Co., 87 Cal.
App. 2d 248, 253, 196 P.2d 803, 807-08 (1948).
46 See Haines, Section 522’s Opt-Out Clause: Debtors’ Bank-
ruptcy Exemptions in a Sorry State, 19838 Ariz. L.J. 1, 26 n.153
citing Ariz. Rev. Stat. Ann. § 33-1122 (Supp. 1982-1983) (enacted
1976); Ark. Const. art. 9, §3 (1947); Hawaii Rev. Stat. § 651-122
(Supp. 1982) (enacted 1976, amended 1978); N.M. Stat. Ann. § 42-
10-6 (Supp. 1978) (enacted 1971).
* See H.R. Rep. No. 595, 95th Cong., lst Sess., at 126 (1977),
reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 6087
(criticizing “[m]ost” state exemption laws as “outmoded, designed
for more rural times, and hopelessly inadequate to serve the needs
of and provide a fresh start for modern urban dwellers”); 124
Cong. Rec. 814721-22 (daily ed. Sept. 7, 1978) (remarks of Sen.
Thurmond) (advocating “the approach of current law which
adopts the exemption law of the State in which the debtor is lo
cated” as the “fairer way [which] allow[s] a fresh start, but on
a limited basis“).
15
ruptcy statute’s dependence on state law for definition
of exempt property, they ultimately failed to do so.
The Bankruptcy Commission Report, which formed the
basis for the 1978 Bankruptcy Code, recommended that a
system of federal exemptions be adopted, replacing en-
tirely the state exemptions permitted by the Bankruptcy
Act. The concern was that state exemptions had in some
states been too generous and in others too restrictive and
that overall uniformity was required for the federal bank-
ruptey system.“ This approach of federalizing the ex-
emptions did not win favor in the Senate or the House,
but efforts to curtail the power of the states to define
exemptions continued. The House sought to create greater
uniformity nationwide by establishing a federal list of
exemptions contained in the Bankruptcy Code and giving
the debtor the option of selecting either the Code’s list of
exemptions or exemptions in the debtor’s state of domi-
eile.“ The Senate rejected this proposal. Seeking to
48 Report of the Commission on the Bankruptcy Laws of the
United States (“Commission Report“), H.R. Doc. No. 137, 93d
Cong., Ist Sess., Pts. I and II, at 170-71 (1973). See also Bank-
ruptey Reform Act of 1978: Hearings on S.235 and S236 Before
the Subcomm. on Improvements in Judicial Machinery of the Senate
Comm. on the Judiciary, 94th Cong., Ist Sess., at 36 (1975) (state
ment of Harold Marsh, Jr., Chairman of Comm’n on Bankruptcy
Laws of the United States) (“in same [sic] States the level of
exemption is highly unreasonable in both directions“).
4% Section 522 (b) of the House bill, H.R. 8200, provided in per-
tinent part:
(b) Notwithstanding section 541 of this title, an individual
may exempt from property of the estate either-—
(1) property that is specified under subsection (d) of
this section; or, in the alternative,
(2) (A) any property that is exempt under Federal,
State, or local law, other than subsection (d) of this
section
(emphasis supplied).
The so-called judges’ bill, which was also important in shaping
Congressional thinking, included a similar proposal that would
16
preserve the discretion of the states to prescribe exemp-
tions, the Senate passed a bill which did not contain a
list of federal bankruptcy exemptions, but rather pro-
vided that an individual could exempt from property of
the estate “any property that is exempt under Federal
{non-bankruptcy], State, or local law... .”’ The Sen-
ate and House reached a compromise by enacting, in sec-
tion 522(d) of the Code, a list of federal exemptions and,
at the same time, allowing the states, by legislation, to
preclude debtors from choosing the new federal exemp-
tions as an alternative to state exemptions in bankruptcy
have given “the debtor an option to choose State law exemptions
or the federal laws but put a maximum of $25,000 on the exemp-
tions that can be claimed under the Federal bankruptcy laws.”
Bankruptcy Reform Act of 1978: Hearings on S.235 and S.236
Before the Subcomm. on Improvements in Judicial Machinery
of the Senate Comm. on the Judiciary, 94th Cong., Ist Sess., at 25
(1975) (statement of Frank Kennedy, Executive Director of
Comm’n on Bankruptcy Laws of the United States).
50 Section 522 (b) of the initial Senate bill, S. 2266, was sub-
stantially the same as the exemption provision under the former
Bankruptcy Act. S. Rep. No. 989, 95th Cong., 2d Sess., at 75
(1978), reprinted in 1978 U.S. Code Cong. & Admin. News 5787,
5861. The Report of the Senate Judiciary Committee on S. 2266
listed some of the items that may be exempted under federal laws
other than the Bankruptcy Code:
Foreign Service Retirement and Disability payments, 22
U.S.C. 1104; Social security payments, 42 U.S.C. 407; Injury
or death compensation payments from war risk hazards, 42
U.S.C. 1717; Wages of fishermen, seamen, and apprentices, 46
U.S.C. 601; Civil service retirement benefits, 5 U.S.C. 729,
2265; Longshoremen’s and Harbor Workers’ Compensation Act
death and disability benefits, 33 U.S.C. 916; Railroad Retire-
ment Act annuities and pensions, 45 U.S.C. 228(L); Veterans
benefits, 45 U.S.C. 352(E); Special pensions paid to winners
of the Congressional Medal of Honor, 38 U.S.C. 3101; and
Federal homestead lands on debts contracted before issuance
of the patent, 43 U.S.C. 175.
Id.
a a ere e.. Fe
17
cases.“ To satisfy the Senate, this compromise imposed
lee exemp-
ons.
As a result of this legislative compromise, section 522
(b) of the Code provides that an individual debtor may
exempt either property listed in section 522(d) of the
Code or “any property that is exempt under Federal law,
cther than subsection (d) of this section, or State or local
law ....” The Code also permits states to “opt out” of
section 522(d) and thereby preclude debtors from choos-
ing the list of federal exemptions appearing in that sec-
tion. Florida became one of the states banning debtor
election of the federai list of exemptions."
The legislative history of section 522(b) confirms Con-
gress’ intent to give states broad discretion to define
exemptions. The Report of the Senate Judiciary Com-
mittee accompanying the Senate’s bill, S. 2266, mentioned
no limits on the discretion of states in defining exemp-
tions. The Report in fact indicated that the exemption
provision of the bill, section 522 (b), “track[ed] current
51124 Cong. Rec. H11095 (daily ed. Sept. 28, 1978) (joint ex-
planatory statement of the House and Senate floor managers ex-
plaining compromises that were reached) (“Section 522 of the
House amendment represents a compromise on the issue of exemp-
tions between the position taken in the House bill, and that taken
in the Senate amendment. Dollar amounts specified in section 522
(d) of the House bill have been reduced from amounts as con-
tained in H.R. 8200 as passed by the House. The States may, by
passing a law, determine whether the Federal exemptions will
apply as an alternative to State exemptions in bankruptcy cases“)
5211 U.S.C. §522(b)(1) (“an individual debtor may exempt
from property of the estate. . property that is specified under
subsection (d) of this section, unless the State law that is appli-
cable to the debtor under paragraph (2)(A) of this subsection
specifically does not so authorize .. .”) (emphasis added).
58 Chapter 222.20, Florida Statutes, J.A. 16. Thirty-five states
have enacted legislation prohibiting citizens from electing the feu-
eral exemptions contained in 11 U.S.C. § 522 (d). 3 Collier on
Bankruptcy, N 522.02, at 522-11 n.4 (15th ed. 1989) (listing states).
Of course, even where a state has opted-out, federal non-bankruptcy
exemptions remain available. 11 U.S.C. § 522 (b) (2) (A).
18
law.” * Even the House Report, in urging the approach
ultimately rejected by the Conference Committee, recog-
nized that “the circumstances do vary in different parts
of the country” and continued to permit states “to set
exemption levels appropriate to the locale” under the op-
tional provision.“ The legislative history accompanying
the House-Senate compromise on section 522(b) contains
no suggestion that Congress intended to limit the discre-
tion of States in defining exemptions.”
B. Section 522(f) Was Designed To Protect State and
Federal Policy Choices Reflected in the Exemption
Provisions, Not To Supercede Those Choices.
At the same time that Congress in section 522(b)
authorized the states to create exemptions and created an
alternative list of federal exemptions, Congress in other
portions of section 522 sought to protect the policy choices
reflected in the state or federal exemptions. Such action
was necessary because the creation of exemptions, in and
of itself, would not protect the property from certain
types of claims. Thus Congress provided in:
—subsection (c), that the exempt property was net
liable “during or after the case“ for pre-existing debts
with the exception of certain non-dischargeable debts
(generally taxes, alimony, and child-support payments)
and non-avoidable liens;
—subsection (e), that waivers of exemptions in favor
of unsecured creditors would be ineffective;
54S. Rep. No. 989, 95th Cong., 2d Sess., at 75 (1978), reprinted
in 1978 U.S. Code Cong. & Admin. News 5787, 5861. See also 124
Cong. Rec. 814719 (daily ed. Sept. 7, 1978) (remarks of Sen.
Wallop) (“the current law allowing States to determine the prop-
erty exemptions that debtors will have for their fresh start after
bankruptcy will be retained”).
88 H.R. Rep. No. 595, 95th Cong., Ist Sess., at 126 (1977),
reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 6087.
56 See 124 Cong. Rec. H11095 (daily ed. Sept. 28, 1978).
19
—subsection (f), that “[n]otwithstanding any waiver
of exemptions,” certain liens in exempt property would
be avoided “to the extent that such lien Is] impair[] an
exemption to which the debtor would have been entitled
under subsection (b).;
—subsections (g), (h), and (i), that the debtor could
exempt certain property recovered by the trustee (or
the debtor himself) under the so-called avoiding powers;
and
—subsection (k), that the exempt property would be
liable for administrative expenses of the bankruptcy case
only to a limited extent.
The need for a provision such as section 522(f) was
particularly important in light of this Court’s 1886 deci-
sion in Long v. Bullard, 117 U.S. 617 (1886). In that
case, Long and his wife had mortgaged exempt home-
stead property to Bullard. After Long had received a
discharge in bankruptcy, Bullard brought an action seek-
ing to compel a judicial sale of the exempt property to
pay off the debt. In rejecting the Longs’ claim that the
mortgage was no longer effective, this Court stated:
[Bullard's] security was preserved notwithstanding
the bankruptcy of his debtor ....
The setting apart of the homestead to the bank-
rupt under § 5045 of the Revised Statutes [provid-
ing for exemptions] did not relieve the property
from the operation of liens created by contract be-
fore the bankruptcy.”
* Under the Bankruptcy Code, the trustee is able to avoid prefer-
ential, fraudulent, and certain other transfers. E.g., 11 U.S.C.
88 544, 547, 548, 549, and 550. See generally 4 Collier on Bankruptcy,
Chapters 544, 547, 548, 550 (15th ed. 1989).
$8 See 11 U.S.C. § 522(c), (e)-(i), (k).
5° 117 U.S. at 620-21.
This Court thus held that neither the debtor’s discharge
nor state exemption of the debtor’s property protects that
property from holders of secured interests.
Congress in the 1898 Act did not alter that rule. The
situation prevailing under the 1898 Act was described
by Justice Brandeis in Louisville Bank v. Radford, 295
U.S. 555 (1935), as follows:
Some States had granted to debtors extensive ex-
emptions of unencumbered property from liability to
seizure in satisfaction of debts; and these exemp-
tions were recognized by the bankruptcy act of
1867, as well as that of 1898. But unless the mort-
gagee released his security, in order to prove in
bankruptcy for the full amount of the debt, a
mortgage even of exempt property 1 us not dis-
turbed by bankruptcy proceedings.”
Thus, the 1898 Act looked to state law for the definition
of exemptions, but federal law preserved security inter-
ests in exempt property pursuant to this Court’s decision
in Long v. Bullard.
The drafters of the 1978 Code sought to change this
federal lien preservation policy in some respects and thus
to afford greater protection for the exemptions defined by
state cr federal law. This goal was accomplished by
providing:
—in section 522 (e), that “property exempted...
is not liable during or after the case for any debt.
that arose . . . before the commencement of the case,
except. . . (2) a debt secured by a lien that is [not
avoided] ;” and
—in section 522(f), that certain liens that might
exist in the exempt property would be avoided.
© Jd. at 582-82, citing Long v. Bullard, 117 U.S. 617 (emphasis
supplied).
21
This lien avoidance extended only to two
„ tote Mass tad see entoeer,
nonpurchase money liens.“ Even the latter types of liens
were to be avoided only in specified property.
The reasons for adopting these lien avoidance provi-
sions was described most explicitly in the House Report.
[T]he bill gives the debtor certain rights not avail-
able under current law with respect to exempt prop-
erty. The debtor may void any judicial lien on
exempt property, and any nonpurchase money se-
curity interest in certain exempt property such as
household goods. The first right allows the debtor to
undo the actions of creditors that bring legal action
against the debtor shortly before bankruptcy... .
The [second] exemption provision allows the debtor,
after bankruptcy has been filed, and creditor col-
lection techniques have been stayed, to undo the con-
sequences of a contract of adhesion, signed in ignor-
ance, by permitting the invalidation of nonpurchase
money security interests in household goods.”
Both the Senate and the House Reports made clear, how-
ever, that the “rule of Long v. Bullard, 117 U.S. 617
(1886), is accepted with respect to the enforcement of
valid liens. . on exempt property.“ The effect, there-
* Thus, for example, purchase money liens may not be avoided
under section 522(f). See In re Hall, 752 F.2d at 586 n.5. Other
types of liens are, of course, avoided by other sections of the Code
but for different reasons.
© H.R. Rep. No. 595, 95th Cong., Ist Sess., at 126-27 (1977), re-
printed in 1978 U.S. Code Cong. & Admin. News 5787, 6087-88 (foot-
notes omitted and emphasis supplied). As to the first right, the
House Committee believed that the exemption should be preserved
even if “a creditor beats the debtor into court” and as to the second
it concluded that “over-reaching creditors” should not have an “un-
fair advantage.” Jd.
6 H.R. Rep. No. 595, 95th Cong., Ist Sess., at 361 (1977), re-
printed in 1978 U.S. Code Cong. & Admin. News 5787, 6317; S.
Rep. No. 989, 95th Cong., 2nd Sess., at 76 (1978), reprinted in
1978 U.S. Code Cong. & Admin. News 5787, 5862 (emphasis sup-
While not disputing that section 522(b) makes the
exemption in this case entirely dependent on state law,“
petitioner urges that the policy of section 522(f) would
somehow be frustrated if the states were permitted under
section 522(b) to define their exemptions to preserve
state-created liens, stating
It is not reasonable to conclude that Congress pro-
vided lien avoidance remedies which affected, pri-
marily, encumbrances arising by virtue of state law
and, at the same time, “impliedly” relinquished to
the states the power to evade that federal remedy
through the means of exemption ‘exceptions.’
plied). See also 3 Collier on Bankruptcy, N 522.04, at 622-17 (15th
ed. 1989) (“the discharge will not prevent the enforcement of valid
liens—even on exempt property“).
For example, the Bankruptcy Commission bill described its
equivalent of section 522(f) as “avoid[ing] one of the means by
which the policy of §6 of the Act [adopting state exemptions] was
frustrated.” Commission Report at 130. See also Bankruptcy Re-
form Act of 1978: Hearings on H.R. 81 and 32 Before the Sub-
comm. on Civil and Constitutional Rights of the House Judiciary
Comm., 94th Cong., 2d Sess., at 979 (1976) (statement of Bernard
Shapiro, National Bankruptcy Conference) (exemptions “are also
valueless if a creditor has a security interest in exempt property“)
® See Br. at 30.
* Br. at 33. As noted below, some courts of appeals have
agreed. In re Snow, 899 F.2d 337 (4th Cir. 1990) (holding that
lien for rent may be avoided under section 522(f) even though
Virginia statute excepted liens for rent from homestead exemp-
partially overrule that decision and thus to li
federal role in the process hardly 2 1 5
Second, it is quite clear that Con i
gress did not intend
to restrict state power. Section 522(b) on its face does
tion); In re Leonard, 866 F.2d 335, 386 (10th Cir. 1989
„ 5 ) (avoid-
— lien on household goods, even though Colorado provision lim-
f exemption for household goods to the extent of $1,500 in
‘value” and defined “value” as the difference between the fair
market value and the amount of the lien).
In addition to the present case, the issue has
come up pri-
2 ly in cases under section 522 (f) (2) involving liens on Fi
old goods, ¢.g., In re Pine, 717 F.2d 281, 283 (6th Cir. 1983)
provided that household goods subject to a chattel mortgage
were
= exempt). One case decided under section 522(f)(1) involved a
—— —— — preserved judicial liens [f lor rent.” In
* It is significant that not one of the court of appeals’
decisi
finding that section 522(f) overrode state exemption policy dis.
cussed either this Court's decision in Long v. Bullard or the fact
24
not limit the states’ discretion to define exemptions.”
Rather section 522(b) allows a debtor to exempt
property of the estate “any property
State or local law.” Section 522(b)
states to exempt any particular kinds of preperty. Con-
gress and the courts have repeatedly recognized the
of the states to fashion their exemptions as they choose.
Thus it is clear that the states may place a dollar limit
if
Hi
* Petitioner argues that the phrase, ‘. . would have been en-
titled under sub-section (b) .. .’ [appearing in section 522 (f)]
supports the contention that (f) was meant to apply in situations
where enjoyment or assertion of an exemption was prevented by
an encurabrance of the type described in (f) (1) and (f)(2).” Br.
at 24-25. The use of the word “would” rather than “is” in section
522(f) hardly suggests that Congress intended to override state
policy defining exempt property. The use of the word would“
reflected the fact that exempt property that is encumbered by a
lien would remain encumbered under the rule of Long v. Bullard
absent avoidance of the lien. Section 522 (f) thus permits avoid-
ance of a lien “to the extent that such lien impairs any exemption
to which the debtor would have been entitled under subsection
(b).” 11 US.C. 6622 (f). It does not, however, permit avoidance
of a lien where the lien impairs no exemption to which the debtor
“would” have been entitled under state law.
7 Addressing these dollar value limits, the House and Senate
committee reports indicate that one important purpose of section
522(f) was to avoid a judicial lien “to the extent that the prop-
erty could have been exempted in the absence of the lien.” H.R.
Rep. No. 595, 95th Cong., Ist Sess., at 362 (1977) reprinted in
1978 U.S. Code Cong. & Admin. News 5787, 6318; S. Rep. No. 989,
95th Cong., 2d Sess., at 76 (1978), reprinted in 1978 U.S. Code
Cong. & Admin. News 5787, 5862.
71 See 8 Collier on Bankruptcy, N 522.08 (15th ed. 1989).
7 The earlier decision of the Eleventh Circuit in In re Hall,
while rejecting the suggested construction of 522(f), noted that
“Tiln granting the states the power to opt out of the federal list
Petitioner cites no legislative histo i
ry suggesting that
section 522 (f) had any purpose to limit state power to
define exemptions.” In view of the states’ virtually un-
ray ta it is difficult to see what federal policy would
2 if the state statute is permitted to limit
exemption to property not subject to liens. Dean
Thomas Jackson, a leading expert in the field of bank-
ruptey law, has agreed: In a regime where nonbank-
ruptey law determines what is exempt and when the
* categories are nonconsensual instead of consens-
, there is little reason for bankruptcy law to override
included in the Senate version of the bill. As noted below, pp. 26-27,
section 522(f) serves important purposes
quite apart from the fed-
eral exemption provisions contained in section 522(d). ah ice
™ T. Jackson, The Logie and Limits of Bankruptcy Law 266.
© Section 522 (d) (1) provides a homestead ex
emption “not to
exceed $7,500 in value.” The initial House bill, H.R. 8200, pro-
that Section 522(f) (2), dealing with non-possessory non-
purchase money liens, does not even apply to avoid liens
on residences: 2
i , contrary to tioner’s view sug-
Pt the Tenth Aare section 522(f) would not
be rendered meaningless if it were construed to give def-
erence to the state definition of the scope of the exemp-
tions. As we have discussed, in view of this Court’s de-
cision in Long v. Bullard, section 522(f) was essential
to ensure that state policy reflected in the exemption stat-
ute would be effectuated by the avoidance of liens. The
domiciliary state law in and of itself would often not
provide a mechanism for avoiding such liens. For ex-
ample, many state exemption statutes provide only that
the property will be exempt in bankruptcy cases and do
not prevent the fixing of liens in such property in the
first instance. Avoidance of liens created in a non-
hile,
vided a homestead exemption not to exceed $10,000 in value, w
as described above, the initial Senate bill, S. 2266, provided no
federal homestead exemption. As part of the compromise, the dol-
lar amount in section 522 (d) (1) was lowered.
76 Br. at 31. :
* See In re Leonard, 866 F.2d at 337 (“[a]ny other reading o
10 would make the language meaningless and would lead to
an absurd result”). ;
The earlier Eleventh Circuit decision in In re Hall also stated
that that failure to invalidate state liens “would render the statute
useless, a resut inconsistent with the well-established principle of
statutory construction requiring that all parts of an act be given
effect, if at all possible.” 752 F.2d at 586.
78 F. 9., Ark. Code Ann. § 16-66-218(a) (Supp. 1987) (“[t]he
following property shall be exempt from execution under bank-
ruptey proceedings . ); Ga. Code Ann. § 44-13-100 (Supp.
1988) (“any debtor who is a natural person may exempt, pursuant
to this article, for purposes of bankruptcy, the following prop-
erty .. ); Ky. Rev. Stat. Ann. § 427.160 (Michie Supp. 1989)
(“[i]n addition to other exemptions provided in this chapter every
debtor shall have a general exemption not to exceed one thousand
dollars ($1,000) in value to be applied toward any property, real or
personal, tangible or intangible in his estate when he has filed for
ruptcy Code.” Indeed, section 522(f) seems to a signifi-
essary to avoid liens impairing exemptions created by
federal non-bankruptcy law.”
bankruptcy under the provisions of the Bankruptcy Code of 1978
-.."). In some cases, of course, a judicial lien would not exist in
the state creating the exemption since the exemption would itself
bar the fixing of a judicial lien. F. 9., Tex. Const. art. 16, § 50
(“[n]o mortgage, trust deed, or other lien on the homestead shall
ever be valid, except for the purchase money therefor, or improve-
ments made thereon ...’’).
7 See 3 Collier on Bankruptcy, N 522.06, at 622-28 (15th ed. 1989).
% See, e. g., T. Jackson, The Logic and Limits of Bankruptcy Law,
264 (“In part, this section is necessary because of the bank-
ruptey exemptions of section 522 (d). These kinds of property are
protected by bankruptcy law itself and may have picked up liens
or security inte’ ests outside of bankruptcy, where they may not
have been considered exempt.”); R. Jordan & W. Warren, Bank-
ruptey, 67 (2d ed. 1989) (“[s]ince g 522 (d) provides a federal
schedule of exemptions, the lien may relate to property that the
debtor can exempt in bankruptcy even though that property may
have been nonexempt under the state law”); 1 W. Norton, Norton
Bankruptcy Law and Practice § 26.41 (1981) (section 522(f) (1)
“has particular application to permitting avoidance of judicial
liens on property that is exempt under the federal alternative
exemption scheme though not exempt under state law“) (footnote
omitted).
e This design is suggested by the “similarity in phrasing be-
tween the items protected by § 522(f) (2) and the items listed in
§ 522(d) (3), (4), (6) and (9).” See T. Eisenberg, Bankruptcy
and Debtor-Creditor Law, 493 (2d ed. 1988).
See note 50 supra for a partial list of such exemptions. Under
section 522(b), states which have opted out of section 522(d) and
thereby precluded debtors from claiming exemptions listed in that
ment)” of the exemptions created by or federal
— Its purpose was not to expand the scope of state
exemptions by avoiding liens that the states acted to pre-
The courts of appeals in this and in the
Even if section 522(f) were to be construed generally
to override state laws defining the scope of the exemp-
tions to exclude encumbered property, that section would
not permit avoidance of the lien in this case because that
lien arose before the exemption became effective. There
is not the slightest indication that Congress intended to
require retroactive application of a state exemption pro-
vision, such as the Florida provision, where under state
law the provision operates prospectively only.
Article 10, section 4 (a) (1) of the Florida Constitu-
tion by its terms precludes the attachment of new judi-
cial liens to exempt homestead property, and the courts
of that state have held that liens based on judgments filed
section cannot prevent debtors from claiming exemptions available
under federal laws other than the Bankruptcy Code. That is be-
cause a debtor may still exempt “any property that is exempt under
Federal law, other than subsection (d) of this section” in addition
to property that is exempt under “State or local law.” 11 U.S.C.
§ 522 (b) (2) (A).
83 In re Pine, 717 F.2d at 283-284; In re McManus, 681 F.2d 353
(5th Cir. 1982).
29
after the property qualifled for the exemption do not at-
tach to the exempt property.“ When Florida amended the
constitution to extend the homestead exemption to all
“natural person [s],“ however, it acted prospectively.”
Thus, a judieial lien on property which otherwise quali-
fies for the homestead exemption remains enforceable
under Florida law where, as here, it attached before the
effective date of the amendment.”
This Court has long recognized the presumption that
legislation is to be applied only prospectively unless Con-
gress specifies otherwise.” As the Court noted in Bowen
v. Georgetown University Hospital, “congressional enact-
ments and administrative rules will not be construed to
8 See Aetna Insurance Co. v. LaGasse, 223 So. 2d at 729 (prior-
ity given to homestead right if homestead right and lien attach
simultaneously); Bowers v. Mozingo, 399 So. 2d 492, 494 (Fla.
App. 1981) (same); Volpitta v. Fields, 369 So. 2d 367, 369 (Fla.
App.) (“po judgment can be a lien upon homestead property
if the property acquired homestead exempted status prior to the
existence of the judgment lien”), cert. denied, 379 So. 2d 204 (Fla.
1979) ; Clenf®nts v. Henderson, 70 Fla. 260, 70 So. 439 (1915) (per
curiam) (permitting a homesteader to quiet title as against judg-
ment lien).
85 See cases cited at note 18 sup: a.
86 See note 18 supra.
87 United States v. Security Industrial Bank, 459 U.S. 70, 79
(1982) (It jhe principle that statutes operate only prospectively,
while judicial decisions operate retrospectively, is familiar to every
law student”); Greene v. United States, 376 U.S. 149, 160 (1964);
Claridge Apartments Co. v. Commissioner, 323 U.S. 141, 164 (1944) ;
Miller v. United States, 294 U.S. 485, 439 (1935) (“a statute cannot
be construed to operate retrospectively unless the legislative inten-
tion to that effect unequivocally appears”); United States v.
Magnolia Petroleum Co., 276 U.S. 160, 162-63 (1928); United States
v. Heth, 7 U.S. (3 Cranch) 399, 413 (1806) (“[wlords in a statute
ought not to have a retrospective operation, unless they are so clear,
strong, and imperative, that no other meaning can be annexed to
them, or unless the intention of the legislature cannot be otherwise
satisfied”).
have retroactive effect unless their language requires
this result.” » The rule has been repeatedly recognized
in tke bankruptcy context.” This Court has specifically
held that this principle of construction applies to section
522(f) of the Bankruptcy Code. In United States v.
Security Industrial Bank, the Court held that section 522
(f), in a case involving the federal bankruptcy exemp-
tions in section 522(d), should not be applied to liens
arising before its date of enactment because:
[n]o bankruptcy law sual! be construed to eliminate
property rights which existed before the law was
enacted in the absence of ar explicit command from
Congress.”
While the present retroactivity issue arises in a slightly
different context, the retroactivity question presented
88 488 U.S. 204, 207 (1988). In Kaiser Alu ninum & Chemical
Corp. v. Bonjorno, this Court noted, but did not reconcile, the
“apparent tension” between that rule and two recent cases saying
that a “statute that went inte effect during the pendency of [an]
appeal was to be applied by the appellate court,” 110 S. Ct. 1570,
1576, 1577 (1990) (referring to Bradley v. Richmond School Bd.,
416 U.S. 696 (1974) and Thorpe v. Durham Housing Authority,
393 U.S. 268, 282 (1969)). The Court need not resolve this tension
here, because the presumption applied in Bradley and Thorpe has
been limited to “cases in which the statute has been enacted after
initial adjudication,” Kaiser, 110 S. Ct. at 1586 (Scalia, J., con-
curring) and is subject to an “exception” where retroactive applica-
tion “ ‘would infringe upon or deprive a person of a right that had
matured or became unconditional,’” id. at 1585 (Scalia, J., con-
curring), quoting Bradley, 416 U.S. at 720. In this case, the Florids
amendment became effective long before the commencement of this
case or any appeal, and this is also a case where retroactive applica-
tion would destroy respondent’s lien “that had matured” before the
Florida amendment became effective.
89 Holt v. Henley, 232 U.S. 637, 639 (1914) (“the reasonable and
usual interpretation of [bankruptcy] statutes is to confine their
effect, so far as may be, to property rights established after they
were passed“).
90 459 U.S, at 81-82.
31
here is in principle the same as that involved in Security
Industrial Bank, for it is not state law here that creates
the retroactivity problem, but federal law. Just as sec-
tion 522(f) was construed in Security Industrial Bank
not to have retroactive application, so here it should not
be construed as requiring that state policy be retro-
actively applied. Kener v. La Grange Mills, 231 U.S.
215 (1913)." In view of the well-established federal
policy against retroactive lien avoidance, it would be odd
indeed to find that Congress intended the federal Bank-
ruptey Code to require that state exemption statutes be
given retroactive effect, particularly when the state itself
deliberately chose to make the exemption provisions pro-
spective only.
Neither the Bankruptcy Code nor its legislative his-
tory manifests a Congressional purpose to require that
state exemption provisions be given retroactive effect.
Even far more specific language has been found insuffi-
cient to mandate retroactive operation of state exemption
law.“ Just as in Security Industrial Bank, where section
522(f) was construed not to operate retroactively, section
522’s silence cannot constitute the “clear, strong and im-
“In Kener, this Court held that federal bankruptcy law cannot
constitutionally require retroactive application of state exemptions
to invalidate pre-existing liens. The Court’s decision rested inde-
pendently on principles of statutory construction. Id. at 218. Here,
as in Security Industrial Bank, the existence of constitutional doubts
supports a limiting construction.
“The Bankruptcy Act of 1867 provided for certain uniform
federal exemptions, plus exemptions as were available under other
federal laws and the laws of the debtor’s domicile in force in 1864.
14 Stat. 523 (1867). In 1872, Congress amended the statute to per-
mit debtors to claim exemptions available under state exemption
laws in force in 1871. 17 Stat. 334, chap. 339 (1872). After at
least one court held that Congress had not intended to incorpo-
rate state exemption laws to the extent those laws operated retro-
spectively to impair prior debts, In re Wyllie, 30 Fed. Cas. 733 (No.
18,112) (W.D. Va. 1872), Congress stated in an 1873 amendment
that state exemption provisions were to operate retroactively. The
32
perative” expression of intent necessary to require state
exemption provisions such as Florida’s to operate retro-
actively.“
1873 Amendment provided that it was the true intent and mean-
ing” of the 1872 amendment:
that the exemptions allowed the bankrupt by the amendatory
act should, and it is hereby enacted that they shall, be the
ant ount allowed by the constitution and laws of each State [in
force in 1871] and that such exemptions be valid against debts
contracted before the adoption and passage of such State con-
stitution and laws, as well as those contracted after the same,
and against liens by judgment or decree, of any State court,
any decision of any such court rendered since the adoption and
passage of such constitution and laws to the contrary notwith-
standing.
17 Stat. 577, chap. 235 (1873). As noted above, note 91 supra,
this Court refused to give effect even to the 1873 amendment in
Kener v. La Grange Mills, 231 U.S. 215 (1913).
98 United States v. Heth, 7 U.S. (3 Cranch) at 413. We recognize
that this Court in Security Industrial Bank did not resolve the ques-
tion of whether section 522(f) could be applied to avoid liens created
during the “gap period” between enactment of the statute and its
effective date, 459 U.S. at 82 n.11; that at least one court of appeals
after Security Industrial Bank has held that section 522(f) avoids
liens arising during the gap period, In re Ashe, 712 F.2d 864 (3d
Cir. 1983), cert. denied, 465 U.S. 1024 (1984); Cf. In re Webber,
674 F.2d 796 (9th Cir.), cert. denied, 459 U.S. 1086 (1982) (de-
cided before Security Industrial Bank; and that the lien in ques-
tion here arose between the enactment and effective date of the
Florida constitutional provision. However, we suggest that In re
Ashe was incorrectly decided. The entire purpose of having a sepa-
rate effective date is to avoid application of the statute upon its
enactment date. See United States v. Estate of Donnelly, 397 U.S.
286, 294 (1970) (“[a]ets of Congress are generally to be applied
uniformly throughout the country from the date of their effective-
ness onward”) (emphasis supplied); Kaiser, 110 S. Ct. at 1578
(amendment to federal postjudgment interest statute, 28 U.S.C.
§ 1961, did not govern interest rate on judgment predating amend-
ment’s effective date; “Congress delayed the effective date on the
amended version cannot be applied before the effective date of 1982”).
prepare for the change in the law. ... Thus, at the very least, the
amended version cannot be applied before the effective dat of 1982’’).
In any event, the theory of Jn re Ashe has no application here. First,
in concluding that section 522(f) could be applied during the gap
ba wee Cet DA be Te. ee ee) ed ie Sl n RR 1 ~~ ae —_— "ee Se eee a Oe eee
8
33
Because ther 2 is no indication in either the language
of section 522 or the legislative history that Congress in-
tended to require retroactive operation of state exemp-
tion provisions, section 522(f) should not be construed to
override Florida’s decision to have the exemption operate
prospectively only, and respondent’s lien should be pre-
served.
CONCLUSION
For the foregoing reasons, the judgment of the court
of appeals should be affirmed.
Respectfully submitted,
TIMOTHY B. Dyk
(Counsel of Record)
PETER M. LIEB
JONES, DAY, REAVIs & PoGUE
1450 G Street, N.W.
Suite 700
Washington, D.C. 20005
(202) 879-3939
Of Counsel: Counsel for Respondent
DAVID A. TOWNSEND
TOWNSEND & ARNOLD
220 E. Madison Street
Tampa, Florida 33602
August 10, 1990 ri
period between the passage and effective date of the Code, Ashe
rested on Congressional intent. In re Ashe, 712 F.2d at 868. By
contrast, there is no reason to believe that Congress intended to
override a state exemption provision to the extent it did not apply
retroactively. Kener v. La Grange Mills, 231 U.S. 215 (1913). The
decision in Ashe also rested on the fact that notice existed of the
effect of the Code upon its enactment. In re Ashe, 712 F.2d at 868
(creditors acquiring liens during the gap period had notice of the
future effect of the Code). Whether or not Congress provided effec-
tive warning of the possibility of lien avoidance in connection with
the alternative list of federal exemptions, no such notice existed
K * hap peo security holders that liens arising
0 e effective e new constitutiona isi
— provision would
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