Amicus Curiae Brief — Sheehan v. Jackson (No. 09-481)
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MOTION FILED
In The
Supreme Court of the Anited States
¢
MARTIN PATRICK SHEEHAN, TRUSTEE,
Petitioner,
Vv.
SCOTT LEMOYNE JACKSON,
THE STATE OF WEST VIRGINIA,
Respondents.
+
ON PETITION FOR WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
For THE FOURTH CIRCUIT
¢
BRIEF OF AMICUS CURIAE, ROGER SCHLOSSBERG,
Morris L. HORWITZ, AND JILL L. FORD,
EACH CHAPTER 7 PANEL TRUSTEES, INDIVIDUALLY,
IN SUPPORT OF THE PETITIONER
¢
Roger Schlossberg
Counsel of Record
SCHLOSSBERG & ASSOCIATES
Post Office Box 4227
Hagerstown, Maryland 21740
(301) 739-8610
Counsel for Amicus Curiae Dated: November 23, 2009
——
THE LEX GROUP” ¢ 1750 K Sureet N.W. @ Suite 475 @ Washington, DC 20006
(202) 955-0001 @ (800) 815-3791 @ Fax: (202) 955-0022 @www.thelexgroup.com
NO. 09-481
IN THE SUPREME COURT OF THE UNITED
STATES
MARTIN PATRICK SHEEHAN, TRUSTEE,
Petitioner,
SCOTT LEMOYNE JACKSON,
THE STATE OF WEST VIRGINIA,
Respondents.
Motion to File an Amicus Curiae Brief in
Support of the Petitioner
Now comes Roger Schlossberg, Esgq., on behalf
of Roger Schlossberg, Morris Horwitz, and Jill L.
Ford, each of whom are Chapter 7 Panel Trustees
and moves this Court to permit the filing of the
attached amicus curiae brief in support of Petitioner,
Martin P. Sheehan, Esquire, Trustee of the
Bankruptcy Estate of Scott Lemoyne Jackson. In
support of this motion, the amicus asserts as follows:
:: Each of the Trustees are interested in
the outcome of this case because it
contains an issue of concern to each of
them in their capacity as Chapter 7
Panel Trustees.
li
List of All Parties to the Proceeding
The parties to this proceeding are all listed in
the caption.
The amicus curiae are Roger Schlossberg,
Morris L. Horwitz, and Jill L. Ford. Each is a
member of a panel of trustees appointed by a United
States Trustee pursuant to 28 U.S.C.
§ 586(a)(1). Mr. Schlossberg is a member of the panel
for the United States Bankruptcy Court for the
District of Maryland. Mr. Horwitz is a member of the
panel for the United States Bankruptcy Court for
the Western District of New York. Ms. Ford is a
member of the panel for the District of Arizona.
Maryland, New York and California are
States, like West Virginia, whose laws provide
debtors with exemptions, applicable only in the
bankruptcy context and not in proceedings to enforce
judgements in state court proceedings. Mr.
Schlossberg, Mr. Horwitz, and Mr. Speier are
frequently confronted with exemptions under the
laws of the State in which they serve as trustees. Ms.
Ford has had to confront California exemptions as
part of her service as a trustee in Arizona. She
objected to the use of a California bankruptcy only
exemption scheme that was claimed in Arizona in In
re: Regevig, 389 B.R. 736 (Bankr. D. Ariz. 2008). She
prevailed on her’ objection. The California
bankruptcy-only scheme was held to have been
preempted. This is the opposite conclusion to that
reached by the United States Court of Appeals for
the Fourth Circuit in the instant case.
1
Reaching the issues presented by the petition,
which asserts such statutes have been preempted,
and are otherwise unconstitutional, would assist
each of the amici in bankruptcy proceedings in each
of their respective jurisdictions.
1V
Table of Contents
Page
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List of All Parties to the Proceeding ......................2.. ll
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Interest of the Amicus Curiae.......................0.cecccceee es 1
Citation of the Official and
Unofitcial Opinions and Orders ....................cescscesseses :
Concise Statement of the Basis for Jurisdiction ....... 3
Constitutional and Statutory Provisions at Issue..... 3
Article I, Section 8, clause 4 ............... cece cece sees 3
pee ee S|) 4
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12. U.S.C. & SABGe) Chwcis (A) .......ccceccccscccessss 4
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Table of Cited Authorities
Page(s)
Cases
BFP v. Resolution Trust Corp.,
EE UF, Re hic cccccnciccncccvcens 31, 24. 26, 27
In re: Kanter,
506 F.2d 226 (O® Cir. 1974) ......0<cescccecscesessces. 29
In re: Morell,
394 B.R. 405 (Bankr. N.D. W.Va. 2008).......... 2
In re: Regevig,
389 B.R. 736 (Bankr. D. Ariz. 2008)................ 1
In re: Scott LeMoyne Jackson,
Bm OI ons ccce secs cceccssecevcsesessassescaces 2
Sheehan v. Peveich,
574 F.3d 248 (4th Cir. 2009) ............ 2, 22, 23-24
Constitutional Provisions
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Statutes
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ee Dacia s ncinh bdwendstercuncacsusthenenevanacexess 3
Bankruptcy Act of 1898, 30 Stat. 544.000.000.000... 24, 28
Chandler Act, 52 Stat 840 .........000..00..... eapeceearuesed 24
Longshoreman and Harbor Workers’ Act of 1927,
a oct tl load cds nuk iehvoncunseceekekekeLeueutasieds 28
California Code of Civil Procedure § 703.140(b)........ 1
Md. Code Ann., Cts. and Jud. Proc. Art..,
RG sacs scscsessccscccssssacccenncesersescesseovassevesscesesenseevs 1
New York Debtor and Creditor § 282................ccccee. 1
Bs Ie Oe os vss deekadi ss ccccccectnceincessens 3, 10, 22
Other Authorities
H.R. 95-595 95t Congress, Second Session,
I si | cleans euuere pas cehakeetoeneens 29
Sen. R. 95-989, 95*® Congress, Second Session,
EMIS GN Gi oviscdicne cds encccscciscnsesess OL ee 29
U.S. Code Congressional & Administrative News
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U.S. Code Congressional & Administrative News
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Collier on Bankruptcy (15* revised edition)
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Interests of the Amicus Curiae!
The amicus curiae are Roger Schlossberg,
Morris L. Horwitz, and Jill L. Ford. Each is a
member of a panel of trustees appointed by a United
States Trustee pursuant to 28 U.S.C. § 586(a)(1).
Mr. Schlossberg is a member of the panel for the
United States Bankruptcy Court for the District of
Maryland. Mr. Horwitz is a member of the panel for
the United States Bankruptcy Court for the Western
District of New York. Ms. Ford is a member of the
panel for the District of Arizona.
Maryland, New York and California are
States, like West Virginia, whose laws provide to
debtors, exemptions, applicable only in_ the
bankruptcy context,2 and not in proceedings to
enforce judgements in state court proceedings. Mr.
Schlossberg and Mr. Horwitz are frequently
confronted with exemptions under the laws of the
State in which they serve as trustees. Ms. Ford has
had to confront California exemptions as part of her
service as a trustee in Arizona. She objected to the
use of a California bankruptcy only exemption
scheme that was claimed in Arizona in In_re:
Regevig, 389 B.R. 736 (Bankr. D. Ariz. 2008). She
INo party has made a financial contribution to the
preparation of this brief other than the named amici.
Roger Schlossberg is the sole author of this Brief. A
motion for Leave to file the Brief of Amicus Curiae
will be filed contemporaneously with the Brief.
2 Md. Code Ann., Cts. and Jud. Proc. Art., § 11-504
(f); New York Debtor and Creditor § 282; and,
California Code of Civil Procedure § 703.140(b)
prevailed on her’ objection. ‘lhe California
bankruptcy-only scheme was held to have been
preempted. This is the opposite conclusion to that
reached by the United States Court of Appeals for
the Fourth Circuit in the instant case.
Reaching the issues presented by the petition,
which asserts such statutes have been preempted,
and are otherwise unconstitutional, would assist
each of the amici in bankruptcy proceedings in each
of their respective jurisdictions.
Citations of the Official and
Unofficial Opinions and Orders
The decision of the United States Court of
Appeals for the Fourth Circuit in the proceedings
below were made as part of a series of consolidated
proceedings involving eight specific cases joined
under case no. 08-2202(L). The instant case was
docketed at the Court of Appeals as case no. 08-2205.
The opinion below was published and is reported a
Sheehan v. Peveich, 574 F.3d 248 (4th Cir. 2009)
The decision of the United States Bankruptcy
Court for the Northern District of West Virginia was
made as part of a series of consolidated proceedings
in twenty-three cases joined under lead case no.
5:08-bk-00519, In re: Morell. The instant case was
individually docketed at case no. 5:08-bk-00454. The
opinion of the Bankruptcy Court was published, and
is reported as In re: Morrell, 394 B.R. 405 (Bankr.
N.D. W.Va. 2008). The opinion in the Morrell case
was cited in the order entered in In _ re: Scott
LeMoyne Jackson, 5:08-bk-00454.
Concise Statement of the
Basis for Jurisdiction
Judgement was rendered by the United States
Court of Appeals for the Fourth Circuit on July 24,
2009. There was no request for a rehearing.
This court has jurisdiction for consideration of
a petition for certiorari pursuant to 28 U.S.C. §
1254(1).
The instant case constitutes a challenge to the
constitutionality of a state statute, W.Va. Code § 38-
10-4. The Attorney General of the State of West
Virginia was notified of the challenge to that statute
in the Bankruptcy Court. At that time, the Attorney
General chose to intervene in the case, and the State
of West Virginia is now a party to the proceedings.
Constitutional and Statutory
Provisions at Issue
Article I, Section 8, Clause 4
The Congress shall have Power
To establish an uniform Rule of
Naturalization, and uniform Laws on the
subject of Bankruptcies throughout’ the
United States;
Article I, Section 10
No State shall... pass any ... Law
impairing the Obligation of Contracts... .
Article VI
This Constitution, and the Laws of the United
States which shall be made in Pursuance
thereof; and all Treaties made, or which shall
be made, under the Authority of the United
States, shall be the supreme Law of the Land;
and the Judges in every State shall be bound
thereby, any Thing in the Constitution or
Laws of any state to the Contrary
notwithstanding.
11 U.S.C. § 522
(a) In this section -
(1) “dependent” includes_ spouse,
whether or not actually dependent;
and
(2) “value” means fair market value
as of the date of the filing of the
petition or, with respect to property
that becomes property of the estate
after such date, as of the date such
property becomes property of the
estate.
(b) (1) Notwithstanding section 541 of
this title, an individual debtor may
exempt from property of the estate
the property listed in either
paragraph (2) or, in the alternative,
paragraph (3) of this subsection. In
joint cases filed under section 302 of
this title and individual cases filed
under section 301 or 303 of this title
by or against debtors who are
husband and wife, and whose
estates are ordered to be jointly
administered under Rule 1015(b) of
the Federal Rules of Bankruptcy
Procedure, one debtor may not elect
to exempt property listed in
paragraph (2) and the other debtor
elect to exempt property listed in
paragraph (3) of this subsection. I[f
the parties cannot agree on the
alternative to be elected, they shall
be deemed to elect paragraph (2),
where such election is permitted
under the law of the jurisdiction
where the case is filed.
(2) Property listed in this paragraph
is property that is specified under
subsection (d), unless the State law
that is applicable to the debtor
under paragraph (3)(A) specifically
does not so authorize.
(3) Property listed in this paragraph
iS -
(A) subject to subsections (0) and
(p), any property that is exempt
under Federa! law, other than
subsection (d) of this section, or
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 730 days
immediately preceding the date
of the filing of the petition or if
the debtor’s domicile has not
been located at a single State for
such 730-day period, the place in
which the debtor’s domicile was
located for 180 days immediately
preceding the 730-day period or
for a longer portion of such 180-
day period than in any other
place;
(B) any interest in property in
which the debtor had,
immediately before the
commencement of the case, an
interest as a tenant by the
entirety or joint tenant to the
extent that such interest as a
tenant by the entirety or joint
tenant is exempt from process
under applicable nonbankruptcy
law; and ;
(C) retirement funds to the
extent that those funds are in a
fund or account that is exempt
from taxation under section 401,
403, 408, 408A, 414, 457, or
501(a) of the Internal Revenue
Code of 1986. If the effect of the
domiciliary requirement under
subparagraph (A) is to render the
debtor ineligible for any
exemption, the debtor may elect
to exempt property that 1s
specified under subsection (d).
(4) For purposes of paragraph (3)(C)
and subsection (d)(12), the following
shall apply:
(A) If the retirement funds are in
a retirement fund that has
received a favorable
determination under _ section
7805 of the Internal Revenue
Code of 1986, and that
determination is in effect as of
the date of the filing of the
petition in a case under this title,
those funds shall be presumed to
be exempt from the estate.
(B) If the retirement funds are in
a retirement fund that has not
received a favorable
determination under such section
7805, those funds are exempt
from the estate if the debtor
demonstrates that -
(i) no prior determination to
the contrary has been made
by a court or the Internal
Revenue Service; and
(11) (1) the retirement fund is in
substantial compliance
with the applicable
requirements of the
Internal Revenue Code of
1986; or
(II) the retirement fund
fails to be in substantial
compliance with the
applicable requirements of
the Internal Revenue Code
of 1986 and the debtor is
not materially responsible
for that failure.
(C) A direct transfer of
retirement funds from 1 fund or
account that is exempt from ~
taxation under section 401, 403,
408, 408A, 414, 457, or 501(a) of
the Internal Revenue Code of
1986, under section 401(a)(31) of
the Internal Revenue Code of
1986, or otherwise, shall not
cease to qualify for exemption
under paragraph (3)(C)~ or
subsection (d)(12) by reason of
such direct transfer.
(D)G@) Any distribution that
qualifies as an_ eligible
rollover distribution within
the meaning of section 402(c)
of the Interna! Revenue Code
of 1986 or that is described in
clause (11) shall not cease to
qualify for exemption under
paragraph (3)(C) or subsection
(d)(12) by reason of such
distribution.
(11) A distribution described in
this clause is an amount that
(I) has been distributed
from a fund or account
that is exempt from
taxation under section 401,
403, 408, 408A, 414, 457,
or 501(a) of the Internal
Revenue Code of 1986; and
(II) to the extent allowed
by law, is deposited in
such a fund or account not
later than 60 days after
the distribution of such
amount.
(c) Unless the case is_ dismissed,
property exempted under this section is
not liable during or after the case for
any debt of the debtor that arose, or
that is determined under section 502 of
this title as if such debt had arisen,
before the commencement of the case,
except -
(1) a debt of a kind specified in
paragraph (1) or (5) of section 523(a)
10
(in which case, notwithstanding any
provision of applicable
nonbankruptcy law to the contrary,
such property shall be liable for a
debt of a kind specified in section
523(a)(5));
(2) a debt secured by a lien that is -
(A) (1) not avoided under
subsection (f) or (g) of this
section or under section 544,
545, 547, 548, 549, or 724(a)
of this title; and
(ii) not void under section
506(d) of this title; or
(B) a tax lien, notice of which is
properly filed;
(3) a debt of a kind specified in
section 523(a)(4) or 523(a)(6) of this
title owed by an institution-affiliated
party of an insured depository
institution to a Federal depository
institutions regulatory agency acting
in its capacity as _ conservator,
receiver, or liquidating agent for
such institution; or
(4) a debt in connection with fraud
in the obtaining or providing of any
scholarship, grant, loan, tuition,
discount, award, or other financial
assistance for purposes of financing
11
an education at an institution of
higher education (as that term is
defined in section 101 of the Higher
Education Act of 1965 (20 U.S.C.
1001)).
(d) The following property may be
exempted under subsection (b)(2) of this
section:
(1) The debtor’s aggregate interest,
not to exceed $15,000 in value, in
real property or personal property
that the debtor or a dependent of the
debtor uses as a residence, in a
cooperative that owns property that
the debtor or a dependent of the
debtor uses as a residence, or in a
burial plot for the debtor or a
dependent of the debtor.
(2) The debtor’s interest, not to
exceed $2,400 in value, in one motor
vehicle.
(3) The debtor’s interest, not to
exceed $400 in value in any
particular item or $8,000 in
aggregate value, in_ household
furnishings, household goods,
wearing apparel, appliances, books,
animals, crops, or musical
instruments, that are held primarily
for the personal, family, or
household use of the debtor or a
dependent of the debtor.
12
(4) The debtor’s aggregate interest,
not to exceed $1,0C0 in value, in
jewelry held primarily for the
personal, family, or household use of
the debtor or a dependent of the
debtor.
(5) The debtor’s aggregate interest
in any property, not to exceed in
value $800 plus up to $7,500 of any
unused amount of the exemption
provided under paragraph (1) of this
subsection.
(6) The debtor’s aggregate interest,
not to exceed $1,500 in value, in any
implements, professional books, or
tools, of the trade of the debtor or
the trade of a dependent of the
debtor.
(7) Any unmatured lfe insurance
contract owned by the debtor, other
than a credit life insurance contract.
(8) The debtor’s aggregate interest,
not to exceed in value $8,000 less
any amount of property of the estate
transferred in the manner specified
in section 542(d) of this title, in any
accrued dividend or interest under,
or loan value of, any unmatured life
insurance contract owned by the
debtor under which the insured is
the debtor or an individual of whom
the debtor is a dependent.
13
(9) Professionally prescribed health
aids for the debtor or a dependent of
the debtor.
(10) The debtor’s right to receive -
(A) a _ social security benefit,
unemployment compensation, or
a local public assistance benefit;
(B) a veterans’ benefit;
(C) a_ disability, illness, or
unemployment benefit;
(D) alimony, support, or separate
maintenance, to the extent
reasonably necessary for the
support of the debtor and any
dependent of the debtor;
(EK) a payment under a _ stock
bonus, pension, profitsharing,
annuity, or similar plan or
contract on account of illness,
disability, death, age, or length of
service, to the extent reasonably
necessary for the support of the
debtor and any dependent of the
debtor, unless —
i) such plan or contract was
established by or under the
auspices of an insider that
employed the debtor at the
time the debtor’s rights under
such plan or contract arose;
14
(ii) such payment is. on
account of age or length of
service; and
(iii) such plan or contract does
not qualify under section
401(a), 403(a), 403(b), or 408
of the Internal Revenue Code
of 1986.
(11) The debtor’s right to receive, or
property that is traceable to -
(A) an award under a crime
victim’s reparation law;
(B) a payment on account of the
wrongful death of an individual
of whom the debtor was a
dependent, to the extent
reasonably necessary for the
support of the debtor and any
dependent of the debtor;
(C) a payment under a life
insurance contract that insured
the life of an individual of whom
the debtor was a dependent on
the date of such individual’s
death, to the extent reasonably
necessary for the support of the
debtor and any dependent of the
debtor;
(D) a payment, not to exceed
$15,000, on account of personal
15
bodily injury, not including pain
and suffering or compensation for
actual pecuniary loss, of the
debtor or an individual of whom
the debtor is a dependent; or
(E) a payment in compensation of
loss of future earnings of the
debtor or an individual of whom
the debtor is or was a dependent,
to the extent reasonably
necessary for the support of the
debtor and any dependent of the
debtor.
(12) Retirement funds to the extent
that those funds are in a fund or
account that is exempt from taxation
under section 401, 403, 408, 408A.
414, 457, or 501(a) of the Internal
Revenue Code of 1986.
W.Va. Code § 38-10-4. Exemptions of
property in bankruptcy proceedings.
Pursuant to the provisions of 11 U.S.C.
§522(b)(1), this state specifically does not authorize
debtors who are domiciled in this state to exempt the
property specified under the provisions of 11 U.S.C.
§ 522(d).
Any person who files a petition under the
federal bankruptcy law may exempt from property of
16
the estate in a bankruptcy proceeding the following
property:
(a) The debtor’s interest, not to exceed twenty-
five thousand dollars in value, in real property
or personal property that the debtor or a
dependent of the debtor uses as a residence, in
a cooperative that owns property that the
debtor or a dependent of the debtor uses as a
residence or in a burial plot for the debtor or a
dependent of the debtor: Provided, That when
the debtor is a physician licensed to practice
medicine in this state under article three or
article fourteen, chapter thirty of this code,
and has commenced a bankruptcy proceeding
in part due to a verdict or judgment entered in
a medical professional liability action, if the
physician has current medical malpractice
insurance in the amount of at least one
million dollars for each occurrence, the debtor
physician’s interest that is exempt under this
subsection may exceed twenty-five thousand
dollars in value but may not exceed two
hundred fifty thousand dollars per household.
(b) The debtor's interest, not to exceed two
thousand four hundred dollars in value, in one
motor vehicle.
(c) The debtor’s interest, not to exceed four
hundred dollars in value in any particular
item, in household furnishings, household
goods, wearing apparel, appliances, books,
animals, crops or musical instruments that
are held primarily for the personal, family or
household use of the debtor or a dependent of
17
the debtor: Provided, That the total amount of
personal property exempted under this
subsection may not exceed eight thousand
dollars.
(d) The debtor’s interest, not to exceed one
thousand dollars in value, in jewelry held
primarily for the personal, family’ or
household use of the debtor or a dependent of
the debtor.
(e) The debtor’s interest, not to exceed in value
eight hundred dollars plus any unused
amount of the exemption provided under
subsection (a) of this section in any property.
(f) The debtor’s interest, not to exceed one
thousand five hundred dollars in value, in any
implements, professional books or tools of the
trade of the debtor or the trade of a dependent
of the debtor.
(g) Any unmeasured life insurance contract
owned by the debtor, other than a credit life
insurance contract.
(h) The debtor’s interest, not to exceed in
value eight thousand dollars less any amount
of property of the estate transferred in the
manner specified in 11 U.S.C. § 542(d), in any
accrued dividend or interest under, or loan
value of, any unmeasured life insurance
contract owned by the debtor under which the
insured is the debtor or an individual of whom
the debtor is a dependent.
18
(i) Professionally prescribed health aids for
the debtor or a dependent of the debtor.
(j) The debtor’s right to receive:
(1) A social security benefit, unemployment
compensation or a local public assistance
benefit;
(2) A veterans’ benefit;
(3) A disability, illness or unemployment
benefit;
(4) Alimony, support or separate
maintenance, to the extent reasonably
necessary for the support of the debtor and
any dependent of the debtor;
(5) A payment under a_ stock bonus,
pension, profit sharing, annuity or similar
plan or contract on account of illness,
disability, death, age or length of service,
to the extent reasonably necessary for the
support of the debtor and any dependent of
the debtor, and funds on deposit in an
individual retirement account (IRA),
including a simplified employee pension
(SEP) regardless of the amount of funds,
unless:
(A) The plan or contract was
established by or under the auspices of
an insider that employed the debtor at
the time the debtor’s rights under the
plan or contract arose;
19
(B) The payment is on account of age or
length of service;
(C) The plan or contract does not
qualify under Section 401(a), 403(a),
403(b), 408 or 409 of the Internal
Revenue Code of 1986; and
(D) With respect to an _ individual
retirement account, including a
simplified employee pension, the
amount is subject to the excise tax on
excess contributions under Section 4973
and/or Section 4979 of the Internal
Revenue Code of 1986, or any successor
provisions, regardless of whether the
tax is paid.
(k) The debtor’s right to receive or property
that is traceable to:
(1) An award under a crime victim's
reparation law;
(2) A payment on account of the wrongful
death of an individual of whom the debtor
was a dependent, to the extent reasonably
necessary for the support of the debtor and
any dependent of the debtor;
(3) A payment under a life insurance
contract that insured the life of an
individual of whom the debtor was a
dependent on the date of the individual's
death, to the extent reasonably necessary
20
for the support of the debtor and any
dependent of the debtor;
(4) A payment, not to exceed fifteen
thousand dollars on account of personal
bodily injury, not including pain and
suffering or compensation for actual
pecuniary loss, of the debtor or an
individual of whom the debtor is a
dependent;
(5) A payment in compensation of loss of
future earnings of the debtor or an
individual of whom the debtor is or was a
dependent, to the extent reasonably
necessary for the support of the debtor and
any dependent of the debtor;
(6) Payments made to the prepaid tuition
trust fund or to the savings plan trust
fund, including earnings, in accordance
with article thirty, chapter eighteen of this
code on behalf of any beneficiary.
Statement of the Case
The Amicus Curiae adopt the Statement of the
Case in the Petition for a Writ of Certiorari.
Statement of Facts
The Amicus Curiae adopt the Statement of the
Case in the Petition for a Writ of Certiorari.
21
Summary of the Argument
The opinion below’ declares Congress
authorized States to enact exemption schemes that
would only operate in bankruptcy proceedings
without any analysis of language of the Bankruptcy
Code. Jt is inconsistent with other opinions,
including that of the United States Court of Appeals
for the Ninth Circuit, and numerous bankruptcy
courts, as the opinion itself recognizes. The result
reached is inconsistent with the view of the leading
treatise on bankruptcy law.
The portion of bankruptcy law existing in the
pre-Code version of bankruptcy law permitting use
of non-bankruptcy exemptions is_ linguistically
similar to the language contained in the Bankruptcy
Code permitting use of non-bankruptcy exemptions.
Inferring a grant of authority to States from such a
change in the relevant language is inconsistent with
the analysis done in BFP v. Resolution Trust Corp.,
511 U.S. 531 (1994), concerning the vitality of pre-
Code practices. The result is inconsistent with
legislative history prepared in connection with the
adoption of the Bankruptcy Code reflecting an
intention to eliminate property rights arising from
the filing of a bankruptcy petition.
The issue involved has widespread
implications and is important to the administration
of the Bankruptcy Code.
22
Argument
A.
Not only is the ruling of the United States
Court of Appeals inconsistent with numerous other
Court, see Sheehan v. Peveich, 574 F.3d 248, 251 n.
2 (4th Cir. 2009), it is also inconsistent with the
leading treatise on bankruptcy law. Collier on
Bankruptcy (15t' revised edition) § 522.02[4]
recognizes that 11 U.S.C. § 522(b)(2) authorizes
States to deny debtors access to the exemptions
established in § 522(d). To accomplish this objective
a State must only prohibit the selection of an
exemption under the federal statute. The first
sentence of W.Va. Code § 38-10-4 achieves this
objective. It reads: “Pursuant to the provisions of
11 U.S.C. § 522(b)(1), this state specifically does not
authorize debtors who are domiciled in this state to
exempt the property specified under the provisions
of 11 U.S.C. § 522(d).”
The Colliers treatise goes on to observe that;
In some instances, though, states have
gon farther than prohibiting debtors’
selection of exemptions under section
522(d). In some states, the property
debtors may claim as exempt in
bankruptcy proceedings differs frem
that which they may claim as exempt
outside of bankruptcy....
Arguably these provisions are
analytically distinct from those statutes
that opt out of the federal bankruptcy
23
exemption scheme. These provisions
operate only in the event of a
bankruptcy proceeding. Therefore,
exemptions in those states are not even
internally uniform and may be
susceptible to objection on that ground.
Furthermore, these enactments may be
vulnerable to attack on the grounds
that they are bankruptcy provisions
rather than exemption provisions... .
Section 522(b)(2) does not authorize the
states to enact bankruptcy laws.
Once a state has properly opted out of
the federal exemption scheme, section
522(b)(3) authorizes the selection of
exemptions under other federal law and
pursuant to “State or local law that is
applicable on the date of the filing of
the petition. Since bankruptcy is federal
law, a statute that would only operate
in a bankruptcy proceeding is arguably
not a “State or local law.” Therefore,
state exemptions that apply only in
bankruptcy proceedings should not fall
under the authorizing language of
section 522(b)(3). These bankruptcy-
sparked state exemption provisions
have been successfully challenged in
several recent cases.
Id. at Collier on Bankruptcy (15 revised ed:tion) {
522.02[4](footnotes omitted).
The decision of the United States Court of
Appeals in Sheehan v. Peveich, 574 F.3d 248 (4* Cir.
24
2009), which Petitioner sewks to have reviewed,
declares a different result without any analysis of
the statute.
B.
In BFP v. Resolution Trust Corp., 511 U.S.
531 (1994) both the majority and the dissent agreed
that, in adopting the Bankruptcy Code, Congress
had no obligation to expressly override historical
practices. Compare 511 U.S. at 546 with 511 U.S. at
566. The agreement extended to the notion that
where repeal by implication had been
unambiguously accomplished, then judicial
recognition of change was required.
It is plain that some change in exemption law
was effected when Congress permitted, under what
is now 11 U.S.C. § 522(b)(1), a choice between the
exemptions previously available under state law and
non-bankruptcy federal law, and the newly created
federal scheme of exemption contained in 11 U.S.C.
§ 522(d). However, the non-bankruptcy law
alternative continued the scheme previously
contained in Section 6 of the Bankruptcy Act of 1898,
as amended.’ That law provided;
This Act shall not affect the allowance
to bankruptcy of the exemptions which
3 When enacted section 6 of the Bankruptcy Act of
1898, 30 Stat 544 permitted exemption of property
exempt from execution and levy at state law. In
1938, the Chandler Act, 52 Stat 840, added
exemptions under other federal laws to section 6.
25
are prescribed by the laws of the United
States or by the State laws in force at
the time of the filing of the petition in
the State wherein they have had their
domicile for the six months immediately
aoe ; ae
preceding the filing of the petition, or
for a longer portion of such six months
Upon passage in 1978, the Bankruptcy Code
provided in section 522(b), as follows:
Notwithstanding section 541 of this
title, an individuai debtor may exempt
from property of the estate either
(1) property that is specified under
subsection (d) of this section, unless
the State Law that is applicable to
the debtor under paragraph (2)(A) of
this subsection specifically does not
so authorize; or, in the alternative,
(2) (A) any property that is exempt
under Federal law, other than
subsection (d) of this section, or
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 date
of the filing of the petition, or for
a longer portion of such 180-day
period than in any other place:
and
26
(B) any interest in property in
which the debtor had,
immediately before the
commencement of the case, an
interest as a tenant by the
entirety or joint tenant to the
extent that such interest as a
tenant by the entirety or joint
tenant is exempt from process
under applicable nonbankruptcy
law.
The underlined language of these two statutes
reflects little variance in the choice of language
between the pre-Code version of the Bankruptcy Act,
and the provisions of the Bankruptcy Code.
Certainly, there is nothing in these changes which
might be said to authorize States to enact State
exemption schemes that would only operate in the
bankruptcy context.4 Inferring such a change is
inconsistent with the view of both the majority and
the dissent in BFP.
With passage of the Bankruptcy Code,
Congress permitted a choice between the new federal
bankruptcy exemption scheme, and the traditional
4 Section 522 has been amended in several respects
since 1978. None of those amendments have caused
these central provisions of Section 522 to be
eliminated, or significantly changed. Instead, the
amendments have a) required joint debtors to use
the same exemption scheme, hb) have attempted to
restrict efforts to manipulate exemptions by moving,
and c) have created access to a uniform federal
exemption scheme for retirement assets.
27
non-bankruptcy law exemption scheme. Although
Congress permitted States to enact legislation which
would bar access to the federal scheme, and to
require use of the available non-bankruptcy law
alternative, there is no reason to infer Congress
intended to permit States to pass bankruptcy only
exemption schemes of to supercede the new federal
bankruptcy exemption scheme. Such inferences
would be inconsistent with the analysis of BFP.
C.
The last minute compromise that led to
adoption of section 522 caused there to be virtually
no legislative history for the version of this section
which became law. Consequently it is difficult to
make real inquiry into the intent of Congress on the
issue raised by Petitioner. Still, there is insight into
a more general approach to how bankruptcy laws
should function in some of the legislative history of
the Bankruptcy Code.
28
With respect to a necessary’ coordinating
amendment® to the Longshoreman and Harbor
Workers’ Compensation Act of 1927, 33 U.S.C. § 917,
44 Stat 1434, made in the Bankruptcy Reform Act of
1978, both the Senate Report and the House Report
provide:
Bankruptcy policy strongly favors
equality of treatment of all creditors,
and strongly disfavors the creation
of property rights upon the filing of
a bankruptcy case. The purpose of
bankruptcy is to enforce rights that
have arisen before bankruptcy, and to
enforce them in an orderly liquidation
process. Springing interests unfairly
defeat legitimate expectations of
5 In Title III of the Bankruptcy Reform Act of 1978
Congress deleted a provision of the Longshoreman
and Harbor Workers’ Act that had previously
provided a springing property right. That provision
stated as follows:
(a) Any person entitled to compensation
under the provisions of this chapter
shall have a lien against the assets of
the carrier or employer for such
compensation without limit of amount
and shall, upon insolvency, bankruptcy
or reorganization in bankruptcy
proceedings of the carrier or employer,
or both, be entitled to preference and
priority in the distribution of the assets
of such carrier or employer, or both.
29
other creditors who may have relied on
the absence of any such prior interests
in extending credit. Section 67 of the
present Bankruptcy Act and section 545
of proposed title 11 of the United States
Code implement this = important
bankruptcy policy.
(Emphasis added.) Sen. R. 95-989, 95 Congress,
Second Session, reprinted in U.S. Code
Congressional & Administrative News at page 5950
(1978); and H.R. 95-595 95t Congress, Second
Session, reprinted in U.S. Code Congressional &
Administrative News at page 6412 (1978).
Having made an effort to eliminate springing
claims, other than the exemption scheme specifically
provided by Congress, it seems odd that Congress
would somehow have implicitly authorized States to
create such rights by passing several bankruptcy
only schemes. It seems particularly unlikely since
there had been no prior practice of creating
bankruptcy only exemptions at State law. The only
pre-Code case which attempted to have a bankruptcy
only rule had been rejected in In re: Kanter, 505
F.2d 228 (9th Cir. 1974).
Conclusion
WHEREFORE, the undersigned ask that
the petition for certiorari to the United States Court
of Appeals for the Fourth Circuit be granted because
of the division in the Courts below and because of
the importance of the issue to the _ proper
administration of bankruptcy law.
30
Respectfully submitted,
Roger Schlossberg,
Counsel of Record
SCHLOSSBERG & ASSOCIATES
Post Office Box 4227
Hagerstown, Maryland 21740
(301) 739-8610
Counsel for Amicus Curiae
Roger Schlossberg, Morris, L Horwitz, and
Jill L. Ford, each Chapter 7 Panel Trustees
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