Petition for Writ of Certiorari — Storer v. French, 116 S. Ct. 520 (1995) (No. 95-597)

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QRRIGE OF THE CLERK

In The

Supreme Court of the Gnited States

October Term, 1995

LARRY D. STORER AND

MARGARET K. STORER,

Petitioners,

Vv.

BRUCE COMLY FRENCH, TRUSTEE

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE U.S. COURT OF APPEALS

FOR THE SIXTH CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

MARK BIGGERMAN BENJAMIN F. YALE*

783 Runyan Avenue Benjamin F. Yale & Associates

Lima, OH 45801 Co., L.P.A.

(419) 228-2530 102 West Wapakoneta St.

P.O. Box 100

Waynesfield, OH 45896

(419) 568-5751

Attorneys for Petitioners

October 11, 1995

*Counsel of Record

QUESTIONS PRESENTED FOR REVIEW

1. Can Congress permit the states to determine the amount of

contract impairment under 11 U.S.C. §522(b)(1) (the State “opt-

out” provision for property exemptions) without violating the

requirement of “uniformity” under Bankruptcy Clause and the

Contract Clause of the U.S. Constitution?

(I)

PARTIES TO THE PROCZEDING

AND RULE 29.1 STATEMENT

The petitioners in this case are Larry D. and Margaret K.

Storer. They were debtors in the bankruptcy court, appellants in

both the district court and court of appeals.

The respondent, Bruce Comly French, was the Chapter 7

trustee in the bankruptcy court, and appellee in both the district

court and the court of appeals.

28 U.S.C. §2403(b) applies. The State of Ohio,

represented by Betty Montgomery, and the United States of

America, represented by the Solicitor General, may also be

respondents.

No party is a corporation.

(iD)

SOLD Pr s

AS SUT RT NS haa

SE EPI age.

TABLE OF CONTENTS

Page No

QUESTIONS PRESENTED FOR REVIEW ......... I

PARTIES TO THE PROCEEDING

AND RULE 29.i STATEMENT .............. IT

SABLE GP OGNTENTS | oi oo... ca dvicu cee ces Il

SAL, ose wees od dade bdcderwrweur l

Ss ben oe sce tae hbet % Moskvskes) o: 2

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED IN THIS CASE ... 2

STATEMENT

REASONS CERTIORARI SHOULD BE GRANTED . 6

CONCLUSION

APPENDICES

(IIT)

TABLE OF AUTHORITIES

Cases Page No.

Cooley v. Bd. of Warrens, 53 U.S. 299 (1851) ........... 10

General Motors Corporation v. Romein, 503 U.S. 181, 186

CIEE) cccvccvcceshseswididtintMmAae hive i4

Gustafson v. Alloyd, _ U.S. _, 115 §.Ct. 1061 (1995) ..... 10

Hanover Nat’ Bank v. Moyses, 186 U.S. 181 (1902) 6-8, 13-17

In re Beckerford, 3 Fed.Cas. 26

ia: FA Ge SRP ona bance do teeed, ease aun 13

In re Davis, 16 B.R. 62 (Bankr. D. Md. 1981) ............ 7

In re Deckert, 7 Fed.Cas. 343 (No. 3,728 C.C.E.D. Va 1874) 13

In re Freelander, 93 B.R. 446 (Bankr. E.D. Va. 1988) ..... 13

In re Locarno, 23 B.R. 622 (Bankr. D. Md.) .............. 7

In re Sullivan, 680 F.2d 1131, 1134 (7th Cir. 1982) .... 13,17

Jones & Laughlin Steel, 301 U.S. 1 (1937) ...........046. 14

Maryland v. Wirtz, 392 U.S. 183 (1968) .............0. 14

Railway Labor Executives’ Association v. Gibbons, 455 U.S. 457

CE +G's 00 Ven en ets UakhadWees eabensennocesest es 13

Rhodes v. Stewart, 705 F. 2d 159 (6% Cir.), cert. denied, 464 U.S.

i eee rr ny Peery Peer rT 6,7

Storer v. French, 58 F.3d. 1125 (6th Cir. 1995) ........... 6

(IV)

Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122 (1819) .... 8

U. S. Term Limits, Inc. v. Thorton, U.S. , 115 S.Ct.

setgnels meduuty: PEELE CLES PET ET POOP er eT ee 17

U.S. v. Watson, 423 U.S. 411 (1975)... 0... eee cece ee 10

United States v. Lopez, __ U.S. __, 115 S.Ct. 1624, 1628-29

6 ood scdceu ens cUhadjedablscted HQ UG 14,17

Statutes and Rules

Ss PEPE EC TER ETE tt ie 16

Os Ce Oe, COG OD viv cc csc ccnccccceveds 7, 8, 15

eo Ok ES Sate eee ee 8-11, 13, 17

Oe WR ME Si baa kb es cc ceo heeteeeec eae 10

ee. Pe ea re 3, 15-17

EE an NTE 85 oes eV A ET 3, 6

ry) ke ee ee a a 11

BO DUPMIOND ob ibis sie issekdisciicrieneke 11

Bankruptcy Act of 1800, 2 Stat. 19 (1800) .............. il

Bankruptcy Act of 1841, 5 Stat. 440 (1841) ............. 11

Bankruptcy Act of 1898, 30 Stat. 544, chap. 541 (1898) 5, 13, 15

Bankruptcy Act of 1978, 11 U.S.C.

fee Fi, | ann ry sree e 3-8, 13, 14, 16

(VI)

IOWA CODE ANN. § 561.16 (West 1995) .........ceeeeees 4

KAN. ST. ANN. § 60-2301 (1995) ..... 0. ccc cceeceeeeeees 4

MICH. COMP. LAWS § 27A.6023(1)(h) (1995) .........000. 5

N.D. CENT. CODE. § 47-18-01 (1995) 2.2... .cccceeeueces 4

OHIO REV. CODE ANN. § 2329.662 (Baldwin 1995) ....... 3

OHIO REV. CODE ANN. §2329.66(A)(1)(b) (Baldwin 1995) .. 3

OHIO REV. CODE ANN. §2329.66(A)(18) (Baldwin 1995) . 5, 16

OHIO REV. CODE ANN. §2329.66(A)(4) (Baldwin 1995) 5, 6, 16

OR. REV. STAT. § 23.240 (1995)... 0. cc cece ec eeeceuees 4

. 6 es Se 0 BR eee 3

ee eo ane ehee Oana es 3

TEX. PROP. CODE § 41.002 (West 1995) ...........00005. 3

Miscellaneous

1 COLLIER ON BANKRUPTCY § 0.03 (14th ed. 1974) ....... 11

4 ELLIOT’S DEBATES ON THE ADOPTION OF THE FEDERAL

CONSTITUTION 490 (J. Elliot 1845) 2... 0... cece eee eeee 1]

Comment, Bankruptcy Exemptions: Whether Illinois’s [sic] Use

of the Federal‘ Opt-Out’ Provision is Constitutional, 1981 S. ILL.

UO. E, EGS FOS! (ISSR) oc ccccccccccce dstussGaccebwar 12

(VIT)

Comment, The New Bankruptcy Code: A Comparison of Texas

and Federal Exemptions,

17 Hous. L. REV. 373, 381-82 (1981) .................. 12

J. Story, 2 COMMENTARIESON THE CONSTITUTION 45 (4th ed.

Bs ID ED bons bade vccdenveseencéses ll

Jeff Testerman, How much is a $6 Million Mansion in Avila

Worth?, ST. PETERSBURG TIMES, Dec. 6, 1993, at1A ..... 12

Judith Schenck Koffler, The Bankruptcy Clause and Exemption

laws: A Reexamination of the Doctrine of Geographic

Uniformity, 58 N.Y.U.L. REV. 22, 41 (1983) ......... 10, 17

Nadelman, On the Origin of the Bankruptcy Clause, | AM. J.

LEGAL HIST. 215, 221 (1957); Koffler, 58 N.Y.U.L. REV. 22, 54

CRs bn 4545 be olla cn MERA GAG de dcece We dices 12

Note: Federal Exemptions and the opt-Out Provisions of Section

522; A Constitutional Challenge, 58 IND. L. J. 143 (1982). . 17

Senate Doc. No. 65, 72nd Cong., Ist Sess. ((1932) 51,n.6) . 11

THE ADMINISTRATIVE OFFICE OF THE UNITED STATES

COURTS, FEDERALJUDICIAL WORKLOADSTATISTICS,6 (March

Sig CIO SRIE ASCE AS SNS hoe ac HORN 17

THE FEDERALIST No. 42, at 308 (J. Madison) (B. Wright ed.

PP oes Pe eT CPT TEL TPL Teer’ 9

(1)

No.

In The

SUPREME COURT of the UNITED STATES

October Term, 1995

LARRY D. STORER AND

MARGARET K. STORER,

Petitioners,

Vv.

BRUCE COMLY FRENCH, TRUSTEE

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE U.S. COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Petition for a Writ of Certiorari

OPINIONS BELOW

The court of appeais opinion (Pet. App. la-9a) is reported

at 58 F. 3d 1125 (6th Cir. 1995).

The opinion by the district court is not reported but is

found at Pet. App. 10a-1 la.

The opinion by the bankruptcy court is not reported but

is found at Pet. App. 12a-1Sa.

ee eS C+

(2)

JURISDICTION

On July 13, 1995 the court of appeals issued a final

decision. App. mfra, la. Petitioners filed this petition for

certiorari on October 11, 1995. The jurisdiction of this Court is

invoked under 28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY’

PROVISIONS INVOLVED IN THIS CASE

Section 522 of Title 11, United States Code, Sections

2329.66 and 2329.662, Ohio Revised Code, Article I, Section 8,

Clause 4, Article I, Section 10, Clause 1, and Amendments V and

XIV of the U.S. Constitution are reproduced, in relevant part, at

App., infra, 16a-32a.

STATEMENT

1. Congress has the authority to enact “[ujniform laws on the

subject of Bankruptcies ...” U.S. CONST., art. I, § 8, cl. 4. States

have some coextensive authority in bankruptcy law, but states

cannot relieve a debtor of his or her obligations without impairing

contract in violation of the Contract Clause. U.S. CONST. art. I,

§ 10, cl. 1.

Exempt property is property that the law permits a debtor

to retain and protect from the trustee and creditors. Its policy

rationale is to provide the debtor with a “fresh start”. To the

extent the value of a debtor’s property exceeds the limits of the

exemptions, the amount of debt discharged in bankruptcy is

effectively reduced. The reason is the debtor must pay the debt,

at least in part, by making the non-exempt property or its

equivalent available for payment on that debt. The difference

between debts and non-exempt property constitutes the amount

of debt discharged.

(3)

a. The Bankruptcy Act of 1978, 11 U.S.C. §§ 101-151326

(1995), introduced a new exemption scheme resulting in a

hodgepodge of federal and state bankruptcy exemption Jaws

across the country. The federal exemptions, found at 11 U.S.C.

§522(d) (1995), permitted, as relevant in this case, a debtor to

exempt up to $7,500.00 in a homestead. Joint debtors could

exempt $15,000.00'

States also have exemption statutes which restrict the

amount of a debtor’s assets can be reached by a creditor in state

court. Section 522 also allows states to “opt-out” of the federal

exemption schedule and utilize their own schedules. 11 U.S.C.

§522(b)(1) (1995). Ohio directed that its residents must only

utilize the Ohio exemptions. OHIO REV. CODE ANN. §2329.662

(Baldwin 1995). Ohio residents may only exempt $5,000.00 in a

homestead. OHIO REV. CODE ANN. §2329.66(A)(1)(b) (Baldwin

1995).

b. The states’ responses to Section 522(b)(1) have varied. In

total 39 states allow law debtors the use of federal exemptions or

the equivalent. Ohio does not. Section 522 (b)(1) coupled with

the various state laws permits debtors, and their creditors, to

potentially face five different outcomes dependent upon the

debtor’s residence at the time of filing: a) twenty three (23) states

only allow use of their own more generous state exemptions; b)

eleven (11) states permit only use of their own exemptions which

are more restrictive than the federal exemptions; c) two (2) states

permit use of only their own exemptions, which are equivalent to

the federal exemptions; d) eleven (11) states allow debtors to

choose between their state and the federal exemptions; and e)

three (3) states and the District of Columbia only make use of the

federal exemptions.

‘In 1995, this was amended to allow for exemptions of $15,000 and $30,000

respectively. Pub. L. 103-394, Sec. 108(d)(6).

(4)

Of those forbidding the use of federal exemptions, rather

than reducing the exemption like Ohio, many states have made

their homestead exemption unlimited in value. For example, a

Texas debtor can exempt one or two lots in a city, town or village

not exceeding one acre of land plus the improvements thereon,

with no dollar limit. TEX. CONST. art. 16, § 50: TEX. PROP. CODE

§ 41.002 (West 1995) App.., in/ra, 34a. Since the value is unlimited,

one could exempt even a million dollar mansion.

The effect of the 1978 Act is such that creditors and

debtors in the same or different states are treated dissimilarly.

Dissimilar treatment of debtors and creditors occurs in different

states where state A opts-out of the federal exemptions and state

B does not. In this case, debtors in state A are bound to state A

exemptions while debtors in state B have access to the federal

exemptions. Dissimilar treatment of debtors and creditors in the

same state also occurs where a state does not opt-out of the

federal exemptions. Here, debtors have a choice between the state

or federal exemptions. In some states, such as Ohio, debtors are

confronted with a mix of bankruptcy and state insolvency

exemptions.

Kansas does not permit its citizens to use the federal

exemptions but allows the debtor to protect the entire homestead.

KAN. ST. ANN. § 60-2301 (1995) App., infra, 33a. North Dakota

likewise does not permit use of the federal exemptions, but

protects up to $80,000 of the homestead. N.D. CENT. CODE. §

47-18-01 €1995). Oregon allows exemption of $25,000 for an

individual and $33,000 for joint petitions. OR. REV. STAT. §

23.240 (1995) App., infra, 36a. Iowa’s homestead exemption is

only subject to a forty acre limit with no monetary restrictions.

IOWA CODE ANN. § 561.16 (West 1995) App., infra 36a.

Michigan’s schedule is less than Ohio ($3,500), MICH.

COMP. LAWS § 27A.6023(1)(h) (1995) App., infra, 36a, but the

debtor may choose the higher federal exemptions.

(5)

These examples illustrate that there is a significant

difference in the “uniformity” of the Bankruptcy Act of 1898, 30

Stat. 544, chap. 541 (1898) and 1978 Acts. Under the 1898 Act,

all debtors nationwide were able to fix the amount of property

exempt under their state insolvency laws. In that case, both

creditors and debtors could uniformly look only to state law to

determine their remedies. Under the 1978 Act, debtors and

creditors in different, and in some cases in the same states, can be

bound by either federal, state, or federal-state exemption schemes.

The various exemption schemes sometimes differ not only

in monetary amounts but by the interest exempted. Some states

protect only realty used for a residence while others include

personalty (for example, a mobile home or cooperative apartment

unit) used for residence. The federal exemptions include burial

plots but Ohio does not. Some states treat the homestead

exemption as a separate exemption. Others, as does Ohio, include

the homestead exemption in formulating caps on other

exemptions. OHIO REV. CODE ANN. §2329.66(A)(4) (Baldwin

1995).

The state exemptions in bankruptcy are not always the

same as in state collection actions. Some states have established

exemptions only available in federal bankruptcy. For example,

Ohio allows a $400 exemption for cash or other property in

federal bankruptcy, but not in its own collection cases. OHIO

REV. CODE ANN. §2329.66(A)(4)\(a), (18) (Baldwin 1995).

2. The Debtor-Appellants, Larry D. and Margaret K. Storer,

commenced a case under Chapter 7 of the 1978 Act. Their home

was valued at $22,000, with a mortgage of $7,800. This left an

equity of $14,200. After utilizing the Ohio exemptions, there

remained $4,200 of non-exempt property. The Trustee moved to

have the house appraised and auctioned in order to liquidate the

non-exempt equity. In their amended schedules, the Storers each

claimed an exemption of up to $7,500.00 ($15,000.00 jointly)

(6)

under Section 522(d)(1) rather than OHIO REV. CODE ANN. §

2329.66(A)(4) (Baldwin 1995).

3. The Trustee objected to Storers’ use of the federal exemption.

The bankruptcy court, per Judge Richard Speer, agreed with the

Trustee and denied the exemption. App., infra, 12a - 15a. The

Storers timely appealed to the district court. By consent of the

parties, the matter was heard by then magistrate judge, now

district judge, James Carr. Relying upon the Sixth Circuit’s

decision in Rhodes v. Stewart, 705 F. 2d 159 (6th Cir.), cert.

denied, 464 U.S. 983 (1983), he affirmed the bankruptcy court.

App., infra, 10a- 11a. Storers timely appealed the decision of the

district court to the court of appeals. 28 U.S.C. § 1291 (1995).

4. On July 13, 1995, the Sixth Circuit affirmed the trial court.

Storer v. French, 58 F.3d. 1125 (6th Cir. 1995), App., infra, la-9a.

That court relied upon this Court’s holding in Hanover Nat’

Bank v. Moyses, 186 U.S. 181 (1902). The court of appeals, citing

its former decision in RAodes, which relied on Moyses, held that

Congress did not intend to foreclose the states from enacting

more restrictive exemptions or it would not have enacted the opt-

out language in Section 522(d). RAodes, 58 F.3d at 1129 (App.,

infra, 6a-7a).

REASONS CERTIORARI SHOULD BE GRANTED

This Court’s decision in Moyses needs to be reconsidered

in light of the 1978 Act. In Moyses, this Court held that since the

right to legislate bankruptcy laws was coextensive between the

federal and state governments, deferral (not delegation) to state

law was not unconstitutional. Moyses, 186 U.S. at 188. After all,

the creditor had the right to the present property of the debtor

through the state courts while the debtor had a personal

obligation to pay the debt. States could pass laws limiting the

amount of property that a creditor could forcibly obtain in its

state courts, but because of the Contract Clause, they could not

pass laws that abrogated the underlying obligations or afford

(7)

relief to the debtor from actions in other states’ courts. /d.

Congress, on the other hand, could legislate avoidance of

contracts altogether through bankruptcy. /d.

Moyses, however, did not deal with the establishment of

federal exemptions concurrent with state exemptions, and the

simultaneous grant of authority to the states to deny its citizens

the use of the federal scheme. Further, it failed to consider the

effect of a state setting the amount of contract abrogation in

violation of the Contract Clause.

The result of the 1978 Act is distinctly different from the

uniformity facing the Moyses court. The current system is a

heterogony of federal exemptions in some states, state exemptions

in other states, and both federal and state exemptions in still other

states. Additionally, some state exemptions apply to both

bankruptcy and state actions, some to only bankruptcy. Thus,

where, a debtor in 1902, regardless of his or her domicile state,

could protect the same property in federal bankruptcy as he or

she could in state insolvency proceedings, today, depending on

state citizenship, some debtors can avail themselves to additional

or different protection in federal bankruptcy proceedings. These

inequities caused by the 1978 Act have resulted in a conflict of

opinions. Compare Rhodes, 705 F. 2d 159, and the court of

appeals decision in this case (App. infra, at la-4a), with Jn re

Locarno, 23 B.R. 622 (Bankr. D. Md.), and /n re Davis, 16 B.R.

62 (Bankr. D. Md. 1981).

The resulting scheme of national bankruptcy law can

force an Ohio couple in federal bankruptcy to lose their modest

home for $4200, while a debtor in Texas in federal bankruptcy

can keep a million dollar mansion on 200 acres. This defies

rationality and the uniformity required by U.S. CONST. art. I, §

8, cl. 4, and was not considered by this Court’s decision in

Moyses. It is this disparity in levels of exemptions, based entirely

on state residency and state legislature’s involvement in contract

impairment, that compels a revisit to the definition of “uniform

(8)

laws” and consideration of the line demarcating the limits of

exclusive power of Congress in the area of commerce and

bankruptcy.

[.

Among the objectives of the United States Constitution’s

Framers was to provide Congress with the power to establish

“uniform Laws on the subject of Bankruptcies throughout the

United States;” U.S. CONST. art. I, § 8, cl. 4. Concurrent with

this grant was the limitation on the states in the same area: “[N]o

State shall...pass any...Llaw impairing the Obligation of

Contracts.” U.S. CONST. art. I, § 10, cl. 1. The misuse by the

court of appeals of this Court’s decision in Moyses construing a

completely different bankruptcy law as approval of the 1978 Act

in the area of property exemptions counters the Framers’ clear

intent as to what the states could and could not do in the area of

bankruptcy.

A.

In 1819, Chief Justice Marshall analyzed the Framers’

intent in Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122 (1819).

Marshall stated:

If, in the opinion of congress, uniform laws

concerning ought not to be established, it does not follow,

that partial laws may not exist, or that State legislation on

the subject must cease. It is not the mere existence of the

power, but its exercise, which is incompatible with the

exercise of the same power by the states. It is not the

right to establish these uniform laws, but their actual

establishment, which is inconsistent with the partial acts

of the states.

Id. at 196. In other words, Marshall believed that the Bankruptcy

Clause presented Congress with two options. If it exercised its

(9)

bankruptcy power, federal bankruptcy laws would be established

and the states’ partial laws would be suspended for the duration

of the federal laws. If Congress did not exercise its power, the

partial laws of the states would remain in tact. This suggests a

notion of consistent (or “true”) uniformity without deferral to

state laws.

James Madison specifically addressed the Bankruptcy Clause

in The Federalist Number 42. He wrote:

The power of establishing uniform laws of

bankruptcy is so intimately connected with the regulation

of commerce, and will prevent so many frauds where the

parties or their property may lie or be removed into

different States that the expediency of it seems not likely

to be drawn into question.

THE FEDERALIST No. 42, at 308 (J. Madison) (B. Wright ed.

1961). The relevancy of this writing was explained by one

commentator:

Madison thus promoted the bankruptcy clause as

a grant of power to safeguard the nation’s interest in

establishing and maintaining a single market for the

extension of credit without interference from parochial or

otherwise obstreperous action on the part of the states.

Judith Schenck Koffler, The Bankruptcy Clause and Exemption

laws: A Reexamination of the Doctrine of Geographic

Unifonnity, 58 N.Y.U.L. REV. 22, 41 (1983).

In light of our more mobile society (recognized by

Congress in 11 U.S.C. § 109 through the expansive definition of

a debtor) and the comparison of the Texas and Ohio exemption

laws above, one can foresee the realistic potential for abuse of the

federal bankruptcy laws. For example, prior to filing bankruptcy,

a debtor could liquidate all his assets, move to Texas, buy an

(10)

expensive house, then declare bankruptcy. In this scenario, the

debtor could exempt the entire homestead from the bankruptcy

estate. ‘Those Ohio residents unable to move to another state and

claim exemptions uniform with other states are treated

differently. This militates against any possibility of uniformity.

This was one of the evils the Framers sought to cure.

In as much as the Framers used the word “uniform” twice

in the same clause (once for “uniform rule of naturalization” and

once for “uniform bankruptcy laws”), it follows that the Framers

anticipated the same uniformity for naturalization as that for

bankruptcy--no state encroachment. This Court has drawn

inferences based upon “the presumption that a given term is used

to mean the same thing throughout a statute,” as well as the

maxim noscitur a sociis (“a word is known by the company it

keeps”). See, e.g., Gustafson v. Alloyd, _ U.S. _, 115 §.Ct. 1061

(1995).

Early Congressional interpretation of the Bankruptcy

Clause confirm this. This Court has stated that the acts of early

Congress deserve the courts’ careful attention when the

constitutionality of a statute is being examined. See U.S. v.

Watson, 423 U.S. 411 (1975); Cooley v. Bd. of Warrens, 53 U.S.

299 (1851). The reason behind this proclamation is that the acts

of early Congress provide credible evidence as to the intent of the

Constitution’s drafters. Jd. An examination of the early

bankruptcy laws reveals legislative intent to enact consistent

national uniform bankruptcy law.

The first Congressional interpretation of the Bankruptcy

Clause was nation’s first bankruptcy law which was enacted in

1800, only eleven years after the Constitution’s ratification.

Bankruptcy Act of 1800, 2 Stat. 19 (1800). During those eleven

years, there was a multitude of varying and inadequate state

insolvency laws. 1 COLLIER ON BANKRUPTCY ¥ 0.03 (14th ed.

1974). The property exemptions in the Act of 1800 were

te

oo

(11)

independent of state law and debtors were entitled only to those

exemptions listed in the Act. 2 Stat. 19, §§ 5, 18, 34, 35.

Though the Act of 1800 was repealed in 1803, 2 Stat. 248

(1803), the role that the Act of 1800 played in demonstrating the

manner in which early Congress incorporated the Framers’

intentions was not affected. “In 1824...Daniel Webster

introduced and strongly supported a bill for a bankruptcy law

designed to supplant the ‘twenty-four different and clashing

systems’ of the States. President Adams recommended the

passage of the law in 1825.’” COLLIER ON BANKRUPTCY at 4

0.04 (citing Senate Doc. No. 65, 72nd Cong., Ist Sess. ((1932) 51,

n.6). Senator Hayne, speaking to the Senate on May 1, 1825,

supported enacting a federal bankruptcy law which would

preempt the states’ insolvency laws which he characterized as

“inefficient, unjust, and ruinous in their operation.” 4 ELLIOT’S

DEBATES ON THE ADOPTION OF THE FEDERAL CONSTITUTION

490 (J. Elliot 1845). In 1841, the nation’s second bankruptcy law

was passed. Bankruptcy Act of 1841, 5 Stat. 440 (1841) (repealed

1843). This Act retained its predecessor’s uniform treatment of

exempt property. /d. at Ch.9, § 3,5.

Justice Joseph Story stated that the bankruptcy

uniformity provision was designed to remedy the havoc created

by the multiplicity of state laws. J. Story, 2 COMMENTARIESON

THE CONSTITUTION 45 (4th ed. 1873) (Ist ed. Boston 1833).

Story’s analysis has drawn additional and recent support. See

¢.g., Nadelman, On the Origin of the Bankruptcy Clause, | AM.

J. LEGAL HIST. 215, 221 (1957); Koffler, 58 N.Y.U.L. REV. 22,

54 (1983); Comment, Bankruptcy Exemptions; Whether Ilinois’s

[sic] Use of the Federal ‘Opt-Out’ Provision is Constitutional,

1981 S. ILL. U. L. J. 65, 73-82 (1982).

One need only look at the result of the 1978 Act to see the

lack of uniformity. As indicated earlier, under Ohio law, the

(12)

Storers’ modest home is subject to being auctioned in order to

liquidate approximately $4000 of equity. On the other hand, a

Texas debtor would not face such a risk in similar or even much

greater property values. One commentator explained the

combined effect of the federal and Texas’ exemption laws:

[I}f a debtor’s property and improvements at the date of

filing of the petition are worth $200,000, but subject to a

$70,000 mortgage, the homestead will be exempt to the

extent of $7,500 [under the federal exemptions] compared

to a possible $190,000 exemption under the Texas urban

homestead exemptions. Furthermore, the same house

and property located in rural Texas could be exempt in its

entirety. The remaining $192,500 will be nonexempt

property under the federal exemption...

Comment, The New Bankruptcy Code: A Comparison of Texas

and Federal Exemptions, 17 HOUS. L. REV. 373, 381-82 (1981).

This comparison illustrates a possible $195,000 difference between

potential creditor exemptions in Ohio and Texas. A similar,

example occurred recently in Florida. There, a debtor was

allowed to exempt his 37,000 square foot home worth $6,000,000.

See Jeff Testerman, How much is a $6 Million Mansion in Avila

Worth?, ST. PETERSBURG TIMES, Dec. 6, 1993, at 1A.

Another example of the resulting non-uniformity under

the 1978 Act can be illustrated by the result in Jn re Freelander,

93 B.R. 446 (Bankr. E.D. Va. 1988). In that case, a Virginia man

was able in federal bankruptcy court to exempt a horse claimed

to be valued between $50,000 and $640,000. This compares to the

Storers inability under the same federal bankruptcy law to protect

their equity in their home worth a small fraction of the horse.

The Court in Moyses did not inquire into the

Constitution’s Framers’ intent behind the uniformity

requirement. Rather, Chief Justice Fuller’s opinion in Moyses

relied on two circuit court cases that arose and were decided

ee

a

- A

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under the earlier Bankruptcy Act of 1867. U.S. at 189. Jn re

Deckert, 7 Fed.Cas. 343 (No. 3,728 C.C.E.D. Va 1874), and Jn re

Beckerford, 3 Fed.Cas. 26 (No. 1,209 C.C.D. Mo. 1870). “The

1867 Act was, however, different in an important respect from the

1898 Act.” Jn re Sullivan, 680 F.2d 1131, 1134 (7th Cir. 1982).

The 1867 Act provided federal minimum exemptions in addition

to property that was exempt under state law. /d. Therefore,

“(t]he Moyses Court relied on Deckert and Beckerford without

discussing the differences between the 1867 Act and the 1898 Act

and without acknowledging that the uniformity challenges to the

earlier Act had never been fully resolved by the Supreme Court.”

Id.

C.

The Federalist Papers make it clear that bankruptcy was

an extension of the commerce power. The 1978 Act authorizes

the states to intrude into an exclusive congressional prerogative

over commerce: impairment of contract. Recently, this Court

has defined a limit to what authority Congress has over

commerce:

But even these modern-era precedents which have

expanded congressional power under the Commerce

Clause confirm that this power is subject to outer limits.

In Jones & Laughlin Steel, (301 U.S. 1 (1937),] the Court

warned that the scope of the interstate commerce power

“must be considered in the light of our dual system of

government and may not be extended so as to embrace

effects upon interstate commerce so indirect and remote

that to embrace them, in view of our complex society,

would effectually obliterate the distinction between what

is national and what is local and create a completely

centralized government.” [citations omitted]

Similarly, in Maryland v. Wirtz, 392 U.S. 183 (1968), the

Court reaffirmed that “the power to regulate commerce,

———— —— —— a

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though broad indeed, has limits” that “[t}he Court has

ample power” to enforce. [citations omitted]

United States v. Lopez, __U.S. _, 115 §.Ct. 1624, 1628-29 (1995).

There is an area of commerce exclusively for states, an

area exclusively for Congress, and a co-extensive area in between.

The “uniform” bankruptcy laws falls in the second, not the third.

The Contract Clause prohibition of the states to abrogate

contract is a limitation on state authority over commerce of no

less force than the limitations on commerce power of Congress as

this Court explained in Zopez. It is merely addressing the same

issue of line definition but from a different direction. If Congress

cannot cross the constitutional boundaries, it cannot invite under

Section 522(b) the states to cross their boundary.

Il.

Section 522(b)(1) also delegates the power to impair

contracts to the states. Unlike insolvency law, there is not a

coextensive power to impair contracts. The Contract Clause of

the U.S. Constitution states: “No State shall...pass any...Law

impairing the Obligation of Contracts.” U.S. CONST. art. I, § 10,

cl. 1. This Court has explained that determination of whether a

state law substantially impairs a contractual relationship consists

of a three part inquiry: “whether there is a contractual

relationship, whether a change in law impairs that contractual

relationship, and whether the impairment is substantial.”

General Motors Corporation v. Romein, 503 U.S. 181, 186

(1992).

In Moyses, Hanover National Bank brought suit to

enforce a judgment against a bankrupt debtor. 186 U.S. at 183.

The bank argued that the Bankruptcy Act of 1898 violated the

Bankruptcy Clause because it failed to provide uniform laws on

bankruptcies. Jd. at 183. This Court held that federal

bankruptcy laws must conform to geographical, not personal

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uniformity. /d. at 188.’ Therefore, it found that the Act of 1898

was, “in the constitutional sense, uniform throughout the United

States, when the trustee takes in each State whatever would have

been available to the creditors if the bankrupt law had not

been passed.” Jd. at 190. (emphasis added).

Thus this Court recognized the property rights in

existence prior to the bankruptcy. As such, honoring state

exemption laws, and none other, was in essence not impairment

of contract. This is not unlike the recognition in federal

bankruptcy of state law on secured transactions, lien law, or the

like. Rather than impairment of contract rights, the law merely

affirms them. On the other hand, when states chose whether state

or federal law will apply in a national bankruptcy, the state has

now entered the area of contract impairment.

Thus this Court’s holding in Moyses it is not applicable

to the present law because under the 1978 Act, in some states the

trustee takes different from what is available to creditor had there

been no bankruptcy law passed. For example, in Ohio state

insolvency proceedings a creditor can reach all cash and other

property. An Ohio domiciliary in bankruptcy can protect $400 in

cash or other property OHIO REV. CODE ANN. §2329.66(A)(4)

and (18) (Baldwin 1995).

iil.

The states’ response to the 1978 Act wherein a state may

determine the amount of debt discharge (a federal prerogative)

and, in the process, deny its citizens the opportunity to exercise

the options afford by Section 522 risks violation of the

2True uniformity in federal bankruptcy and a reexamination of Moyses will

not undermine Railway Labor Executives’ Association v. Gibbons, 455 U.S.

457 (1982), which stands for the position that bankruptcy laws for particular

persons is unconstitutional.

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Fourteenth Amendment. The Privileges and Immunities Clause

of the Fourteenth Amendment of the U.S. Constitution states:

“No state shall make or enforce any law which shall abridge the

privileges or immunities of citizens of the United States.” U.S.

CONST. Amend. XIV (emphasis added). Because Oiiio’s

exemptions are lower, the Storers’ modest house is subject to

being auctioned. The Storers’ case exemplifies how Ohio’s

departure from the federal exemptions actually deprives an

individual of federal opportunity.

In as much as States cannot impair contracts, Section

522(b)(1) is not deferral of coextensive authority, but the

improper delegation of Congress’ exclusive national authority to

impair contract. Thus Congress has invited the states to deprive

its residents of privileges only Congress can create or deny. This

Court was never asked to consider this critical issue in Moyses.

IV.

The issue in this case is ripe for this Court’s

determination. As of March 1993, there were nearly 872,000

personal bankruptcies filed within the previous twelve month

period. THE ADMINISTRATIVEOFFICE OF THE UNITED STATES

COURTS, FEDERALJUDICIAL WORKLOADSTATISTICS,6 (March

31, 1993). Though the number of filings is huge, there are few

reported cases such as this on the issue of exemptions. The fact

that there are not more appeals and decisions on the issue of

exemptions does not evidence settled law. Instead it reflects the

unappealing economics of bringing such an action through the

appellate courts. The few courts of appeals facing the issue have

felt bound by Moyses, some with doubts about its correctness

but, nonetheless, still bound to its holdings. See, eg., In re

Sullivan, 680 F.2d at 1134.

Those Commentaries who have examined the issue view

the Moyses application of geographical uniformity to be

inconsistent with modern constitutional analysis. See e.g.,

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Koffler, 58 N.Y.U.C. Rev. 22 (1983); Note: Federal Exemptions

and the opt-Out Provisions of Section 522: A Constitutional

Challenge, 58 IND. L. J. 143 (1982).

This case also provides a vehicle to further delineate the

areas of exclusive authority of the national government. In

addition to Lopez, supra, earlier this year this Court has found an

area exclusively within the federal arena. U. S. Term Limits, Inc.

v. Thorton, _U.S.____, 115S.Ct. 1842 (1995) (“States cannot

impose term limits on members of Congress”).

CONCLUSION

Congress’ delegation of its exclusive power to impair

contracts to the states via Section 522(b)(1) warrants

consideration by this Court as to its constitutionality in light of

the Bankruptcy Clause and the Contract Clause.

WHEREFORE, for the foregoing reasons, the Storers

respectfully request that this Court issue a writ of certiorari to the

U.S. Court of Appeals, Sixth Circuit.

Respectfully submitted, BENJAMIN F. YALE *

Benjamin F. Yale &

MARK BIGGERMAN Associates, Co., L.P.A.

783 Runyan Avenue 102 W. Wapakoneta St.

Lima, OH 45801 P. O. Box 100

(419) 228-2530 Waynesfie!d, Ohio 45896

October 11, 1995 419-568-5751

Fax 419-568-6413

* Counsel of Record