Nelson v. Long , 843 F.3d 871 ( 2016 )

FILED
United States Court of Appeals
Tenth Circuit
December 12, 2016
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
In re: BOBBY DALE LONG,
Debtor.
--------------------
LYLE R. NELSON, Chapter 7 Trustee,
Appellant,
v. No. 16-6073
BOBBY DALE LONG,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
(D.C. No. 5:15-CV-01197-F)
Submitted on the briefs:
Lyle R. Nelson, Attorney, Elisabeth D. Brown, Attorney, and Wyatt D. Swinford,
Attorney, of Elias, Books, Brown & Nelson, P.C., Oklahoma City, Oklahoma, for
Appellant.
J. David Ezzell, Attorney, and Ben Ezzell, Attorney, of Ezzell & Shepherd, PLLC, Enid,
Oklahoma, for Appellee.
Before BRISCOE, EBEL and PHILLIPS, Circuit Judges.
BRISCOE, Circuit Judge.
The debtor in this Chapter 7 bankruptcy proceeding, Bobby Long, claimed an
exemption in $60,000 worth of life insurance proceeds that he received as a beneficiary
shortly prior to filing his bankruptcy petition. The Trustee objected to the claimed
exemption, but the bankruptcy court overruled the objection and sustained Long’s
claimed exemption. The Trustee appealed to the district court, which affirmed the
bankruptcy court’s decision. The Trustee now appeals to this court. Exercising
jurisdiction pursuant to 28 U.S.C. § 158(d)(1), we affirm.1
I
Donna Long, the wife of debtor Bobby Dale Long (Long), held a life insurance
policy (the Policy) in the amount of $60,000. Long was the named beneficiary under the
Policy. Donna Long died on July 22, 2014. On October 8, 2014, Long received the
proceeds of the Policy in the form of a $60,000 check. Long cashed the check on
December 11, 2014, depositing $56,500 of the funds into his savings account and $1,500
into his personal checking account, and retaining $2,000 in cash.
On November 4, 2014—after he received the life insurance check, but before he
cashed it—Long filed a voluntary Chapter 7 bankruptcy petition in the United States
1
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is, therefore,
submitted without oral argument.
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Bankruptcy Court for the Western District of Oklahoma. Long subsequently filed an
amended Schedule C claiming an exemption in and to the $60,000 he received as
beneficiary under the life insurance policy.
On May 19, 2015, the Trustee filed an objection to Long’s amended schedule,
arguing that Long was not entitled to an exemption in the life insurance proceeds. In
response, Long argued that “the life insurance policy payout . . . [was] exempt pursuant to
36 Okla. Stat. §3631.1(A) [sic].” Jt. App. at 44. The Trustee argued in reply that section
3631.1(A) does not exempt insurance policy proceeds that have already been paid out to a
beneficiary.
On October 8, 2015, the bankruptcy court issued a written order sustaining Long’s
claimed exemption. The Trustee filed a timely notice of appeal, electing to have the
appeal heard by the district court. On February 16, 2016, the district court issued a
written order affirming the bankruptcy court’s ruling.
The Trustee now appeals to this court.
II
On appeal, the Trustee argues that the bankruptcy court erred in interpreting Okla.
Stat. tit. 36, § 3631.1(A) to afford Long with an exemption in the $60,000 proceeds he
received from the Policy. “In an appeal from a final decision of a bankruptcy court, ‘we
independently review the bankruptcy court’s decision, applying the same standard as the
[bankruptcy appellate panel] or district court.’” In re Millenium Multiple Emp’r Welfare
Benefit Plan, 772 F.3d 634, 638 (10th Cir. 2014) (quoting In re Baldwin, 593 F.3d 1155,
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1159 (10th Cir. 2010)). “In doing so, we treat the bankruptcy appellate panel or district
court as a ‘subordinate appellate tribunal whose rulings are not entitled to any deference
(although they may certainly be persuasive).’” Id. (quoting In re Miller, 666 F.3d 1255,
1260 (10th Cir. 2012)). “A bankruptcy court’s legal conclusions are reviewed de novo,
while its factual findings are reviewed for clear error.” Id.
The filing of a Chapter 7 bankruptcy petition “creates an estate,” 11 U.S.C.
§ 541(a), and “the debtors’ property becomes property of the bankruptcy estate subject to
the exemptions listed in 11 U.S.C. § 522,” Lampe v. Williamson (In re Lampe), 331 F.3d
750, 754 (10th Cir. 2003). “Section 522(b) specifies that the debtor can take the
exemptions enumerated in § 522(d) unless applicable state law specifically provides
otherwise.” Id. As applicable here, the State of Oklahoma has opted out of the federal
exemption scheme and has enacted its own set of exemptions. See Okla. Stat. tit. 31,
§ 1(B) (“No natural person residing in this state may exempt from the property of the
estate in any bankruptcy proceeding the property specified in subsection (d) of Section
522 of the Bankruptcy Reform Act of 1978 . . . except as may otherwise be expressly
permitted under this title or other statutes of this state.”).
At issue is whether Okla. Stat. tit. 36, § 3631(A)(4) affords Long an exemption in
the Policy proceeds. Section 3631.1, which is part of Oklahoma’s Insurance Code, is
entitled “Certain money and benefits exempt from legal process or seizure—Exceptions.”
Subsection (A) of the statute states:
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All money or benefits of any kind, including policy proceeds and cash
values, to be paid or rendered to the insured or any beneficiary under any
policy of insurance issued by a life, health or accident insurance company,
under any policy issued by a mutual benefit association, or under any plan
or program of annuities and benefits, shall:
1. Inure exclusively to the benefit of the person for whose use and benefit
the money or benefits are designated in the policy, plan or program;
2. Be fully exempt from execution, attachment, garnishment or other
process;
3. Be fully exempt from being seized, taken or appropriated or applied by
any legal or equitable process or operation of law to pay any debt or
liability of the insured or of any beneficiary, either before or after said
money or benefits is or are paid or rendered; and
4. Be fully exempt from all demands in any bankruptcy proceeding of the
insured or beneficiary.
Okla. Stat. tit. 36, § 3631.1(A).
The Trustee argues, as he did below, that the phrase “to be paid or rendered” in the
opening sentence of subsection (A) places a temporal requirement on the exemption.
More specifically, the Trustee argues that this phrase clearly demonstrates an intent for
the exemption to apply only up to the point at which the policy proceeds are actually paid
to the insured or beneficiary. Although the Trustee acknowledges that subsection (A)(3)
employs the phrase “before or after said money or [insurance] benefits is or are paid or
rendered,” he argues that subsection (A)(3) is inapplicable in this case for two reasons.
First, he argues that only subsection (A)(4), which directly references “bankruptcy
proceedings,” governs what happens in bankruptcy proceedings. Second, and relatedly,
he argues that the Oklahoma Legislature expanded the temporal limitation of the statute
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in subsection (A)(3), but did not do so in subsection (A)(4), and instead intended for the
general temporal limitation to apply in bankruptcy proceedings.
The Trustee’s arguments hinge in large part on the proper interpretation of the
opening clause of Subsection (A) of the statute, which refers to “[a]ll money or benefits
of any kind . . . to be paid or rendered to the insured or any beneficiary.” As noted, the
Trustee asserts that the phrase “to be paid or rendered” limits application of Subsection
(A) to only the “money or benefits of any kind” that will be paid or rendered to an insured
or beneficiary at some point in the future and are thus still in the possession of the “life,
health or accident insurance company,” “mutual benefit association,” or “plan or program
of annuities and benefits” referred to in the remainder of the opening clause of Subsection
(A). Thus, the Trustee asserts, the opening clause of Subsection (A) does not encompass
any money or benefits that have already been paid to an insured or beneficiary. In
contrast, Long argues, and the bankruptcy court agreed, that the phrase “to be paid or
rendered” refers to “[a]ll money or benefits of any kind” whenever paid to an insured or
beneficiary. In other words, Long argues, there is no temporal limitation imposed by the
opening clause of Subsection (A), and thus it applies, for example, to insurance proceeds
already paid to a beneficiary.
The plain language of the opening clause of Subsection (A), viewed in isolation,
can most certainly be read in the manner suggested by the Trustee. Specifically, the
phrase “to be paid or rendered,” can reasonably be read as the future tense of the verbs
“pay” and “render,” and would thus indicate that the clause is referring to all types of
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money or benefits that will be paid or rendered to an insured or beneficiary at some point
in the future (whether or not the triggering event for payment of such money or benefits
has or has not already occurred). See United States v. Gibbons, 71 F.3d 1496, 1500 n.3
(10th Cir. 1995) (noting that the use of “to be” indicates future tense); Ferguson v. Flying
Tiger Line, Inc., 688 F.2d 1320, 1323 (9th Cir. 1982) (holding that the phrase “‘[t]o be
taken’ is, of course, a future tense of the verb ‘take.’”). Under such a reading, the
opening clause of Subsection (A) would exclude any money or benefits that have already
been paid to an insured or beneficiary.
Two longstanding decisions of the Oklahoma Supreme Court, however, lead us to
conclude that the opening clause of Subsection (A) must be interpreted in the broader
manner argued by Long. See Etherton v. Owners Ins. Co., 829 F.3d 1209, 1223 (10th
Cir. 2016) (“If the state’s highest court has interpreted a state statute, we defer to that
decision. If the state’s highest court has not interpreted a state statute, we instead predict
how that court would rule.”) (citation omitted); In re Borgman, 698 F.3d 1255, 1259 (10th
Cir. 2012) (holding that the scope and application of state exemptions are defined by the
state courts, and that we are bound by their interpretations). In State ex rel. Lankford v.
Collins, 174 P. 568 (Okla. 1918), and later in First Nat’l Bank of Cushing v. Funnell, 290
P. 177 (Okla. 1930), the Oklahoma Supreme Court interpreted two similarly-worded and
-purposed insurance statutes. At issue in Lankford was a 1910 Oklahoma statute “relating
to fraternal insurance associations” that read as follows:
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The money or other benefit, charity, relief or aid to be paid, provided or
rendered by any association authorized to do business under this article
shall not be liable to attachment by trustee, garnishee or other process, and
shall not be seized, taken, appropriated or applied by any legal or equitable
process, or by operation of law, to pay any debt or liability of the certificate
holder, or of any beneficiary named in any certificate, or any person who
may have any right thereunder.
174 P. at 569. The Oklahoma Supreme Court, after acknowledging that some other states
had interpreted similarly-worded statutes in a strict manner to include only money or
benefits to be paid in the future, held that the phrase “to be paid, provided or rendered,” as
used in this statute, was “descriptive of the benefits and not of the exemption, [and] d[id]
not limit the exemption to any particular time or to any condition not specifically
expressed in the s[tatute].” Id. at 571–72.
In Funnell, the Oklahoma Supreme Court addressed a 1925 Oklahoma statute
dealing with mutual benefit associations that read as follows:
The money or other benefit to be paid, provided or rendered by any
association authorized to do business under this Act, shall not be liable to
attachment by trustee, garnishee or other process.
290 P. at 177. The defendant in Funnell argued that the statute “only exempt[ed] money
to be paid; that the exemption d[id] not obtain after payment to the beneficiary and
deposit thereof by him in [his] bank.” Id. The Oklahoma Supreme Court, citing its prior
decision in Lankford, rejected the defendant’s proposed interpretation. Id. (“The question
. . . has been settled in this state adversely to the contention of defendant.”). Notably, the
defendant in Funnell argued “that the statute [at issue] was amended since the rendition of
the opinion in the Lankford Case, and that the rule therein announced therefore no longer
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applie[d].” Id. at 177–78. The Oklahoma Supreme Court summarily rejected that
argument, stating: “The amendment did not materially change the statute in this respect.
We adhere to the rule therein announced [in Lankford].” Id. at 178.
Returning to the opening clause of Subsection (A), the only textual difference
between it and the statutes at issue in Lankford and Funnell is that Subsection (A)
employs the phrase “to be paid or rendered” rather than the phrase “to be paid, provided
or rendered.” That difference, however, is insignificant. In light of Lankford and
Funnell, we are bound to interpret the opening clause of Subsection (A) in a similar
manner. We thus conclude that Subsection (A) does not place any temporal limitation on
the money or benefits referred to in the clause, but instead encompasses money or
benefits that have or will be paid to an insured or beneficiary.
We note that, contrary to the Trustee’s suggestion, this interpretation of Subsection
(A) is bolstered by the language of Subsection (A)(3). Subsection (A)(3) states that the
“money or benefits” referred to in the opening clause of Subsection (A) shall “[b]e fully
exempt from being seized, taken or appropriated or applied by any legal or equitable
process or operation of law to pay any debt or liability of the insured or of any
beneficiary, either before or after said money or benefits is or are paid or rendered.”
Okla. Stat. tit. 36, § 3631.1(A)(3) (emphasis added). If, as argued by the Trustee, the
opening clause of Subsection (A) encompassed only “money or benefits” that have not
yet been paid to an insured or beneficiary, then the emphasized language of Subsection
(A)(3) would prove meaningless, and indeed absurd. More specifically, Subsection
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(A)(3) refers to “said money or benefits,” obviously referring to the “money or benefits”
described in the opening clause of Subsection (A). If the “money or benefits” described
in Subsection (A) included only money or benefits that have yet to be paid to an insured
or beneficiary, then, by necessity, there would never be any money or benefits actually
paid or rendered to an insured or beneficiary. In other words, Subsection (A)(3)’s
reference to “after said money or benefits is or are paid or rendered” would be
unnecessary and thus meaningless.
That leaves only the Trustee’s argument that Subsection (A)(4) alone governs
bankruptcy proceedings and that Subsection (A)(3) has no application in bankruptcy
proceedings. We need not resolve whether (A)(3) applies to bankruptcy proceedings.
Having concluded that the opening clause of Subsection (A) encompasses “[a]ll money or
benefits of any kind” that have or will be paid to an insured or beneficiary, it is beyond
dispute that Subsection (A)(4) operates to render such money or benefits “fully exempt
from all demands in any bankruptcy proceeding of the insured or beneficiary.”
For these reasons, we agree with the bankruptcy court that Long was entitled to an
exemption in the $60,000 of life insurance proceeds that he received prior to filing his
bankruptcy petition.
AFFIRMED.
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