Muff Corp. v. Paige ( 2022 )

IN THE COURT OF APPEALS OF IOWA
No. 21-1904
Filed September 21, 2022
MUFF CORP., THOMAS P. MUFF, Individually and as Conservator for the
JOSEPH ALAN MUFF CONSERVATORSHIP,
Plaintiffs-Appellants,
and
LAWRENCE J. MUFF, Individually and as Conservator for the JOSEPH ALAN
MUFF CONSERVATORSHIP,
Plaintiff-Appellant,
vs.
TADD JOSHUA PAIGE,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Crawford County, Tod Deck, Judge.
After winning summary judgment in its conversion action, the creditor-estate
appeals a ruling that the defendant-debtor’s inherited IRAs were exempt from
execution. REVERSED AND REMANDED.
Maura Sailer of Lohman, Reitz, Sailer, Ullrich & Blazek, Denison, for
appellant.
Justin F. Reininger of Boerner & Goldsmith Law Firm, P.C., Ida Grove, for
appellee.
Considered by Bower, C.J., and Vaitheswaran and Tabor, JJ.
2
TABOR, Judge.
Tadd Joshua Paige stole over three-quarters of a million dollars from his
stepfather, Joseph Muff (Joe). Paige also inherited from Muff two individual
retirement accounts (IRAs) valued at nearly $60,000.1
Muff Corporation brought a conversion action alleging that Paige funneled
cash from his stepfather’s investments without permission and wrote checks from
the family farm accounts for his own benefit.2 The district court granted Muff’s
unresisted motion for summary judgment but denied a request to execute against
the inherited IRAs. The estate appeals that denial, arguing the inherited IRAs are
not exempt from Paige’s creditors under Iowa Code section 627.6(8)(f) (2018).
Because inherited IRAs are not “retirement investments” under the exemption
statute, we reverse and remand for further proceedings.
I. Facts and Prior Proceedings
Paige’s mother was married to Muff. After she died in 2015, Muff’s physical
and mental health deteriorated. Paige lived with his stepfather. About a year after
his mother’s death, Paige started withdrawing money from Muff’s investments
without his knowledge. That deception led the State to charge Paige with multiple
thefts.3
1 One of the accounts was a simplified employee pension plan (SEP), but the
parties and the district court refer to them both as IRAs.
2 The plaintiffs included Muff Corporation, as well as Thomas and Lawrence Muff,
as conservators for Joe and as individuals. Joe died while the action was pending,
and the parties stipulated to the substitution of his estate. We will refer to the
plaintiffs collectively as Muff or the estate.
3 In a forty-five-count trial information, the Crawford County Attorney charged
Paige with felony theft and specified unlawful activity. He pleaded guilty to three
counts of first-degree theft.
3
Paige described the scheme at his guilty plea hearing:
I called The Hartford [Core Equity Fund] and impersonated
Joe and had them send the checks to our mutual address that I
shared with Joe. And then when the checks arrived [by mail], I
endorsed Joe’s name on them and deposited money into the bank.
Meanwhile, Muff sued Paige alleging the stepson converted cash belonging
to the family corporation, the farm business, and Muff’s personal accounts. The
suit asked the district court to appoint a receiver to take control of “Paige’s” assets
because he was reportedly “quickly selling off property and has scattered property
in different locations.” Acting on that request, the court appointed George Blazek
as receiver in July 2018. Muff died two months later, and his estate was
substituted.
The estate moved for summary judgment, asking for $770,370.00 in
damages. Noting no resistance, the court granted the estate’s motion. Then the
court scheduled a hearing to determine the disposition of the property preserved
by the receiver. As of June 2021, the receivership held property from Paige valued
at just over $46,000.00. On top of that, the receiver intercepted two retirement
accounts that Muff had at Defiance Bank: a traditional IRA valued at $34,536.36
and an SEP plan valued at $24,143.05—both of which named Paige as a
beneficiary payable on death.
In preparation for the hearing, receiver Blazek briefed this issue: are
decedent Muff’s traditional IRA and his SEP account exempt from claims by
Paige’s creditors, under Iowa Code section 627.6(8)(f)(1)(d), for IRAs established
under section 408(a) of the Internal Revenue Code? According to Blazek’s
analysis, once received by Paige, the IRAs were no longer exempt from creditors
4
because they were not “established” under section 408(a). The estate argued the
same.
The district court read the statute differently. It held that the inherited IRAs
were exempt from execution because once they were “established” or “brought
into existence” under section 408(a), they retained that designation, even beyond
the decedent’s lifetime. The estate now appeals.
II. Scope and Standards of Review
Because this case calls for interpretation of the exemption statute, we
review the district court ruling for the correction of legal error. Com. Bank v.
McGowen, 956 N.W.2d 128, 132–33 (Iowa 2021). “It is the wise policy of the law
to construe exemption statutes liberally but it is not the province or power of the
court to enlarge or extend the provisions of the legislative grant.” Iowa Methodist
Hosp. v. Long, 12 N.W.2d 171, 175 (Iowa 1943). Thus, we must keep in mind the
benefit that the legislature intended to convey through the exemptions. See
Roberts v. Parker, 90 N.W. 744, 744 (1902). Yet our fundamental task is “to
determine the fair and ordinary meaning of the statutory language at issue.”
McGowen, 956 N.W.2d at 133. We construe words and phrases “according to the
context and the approved usage of the language.” Iowa Code § 4.1(38). If the text
is unambiguous and its meaning is clear, we can stop our inquiry. In re Est. of
Voss, 553 N.W.2d 878, 880 (Iowa 1996). But if the language is ambiguous or
5
vague, we “may resort to other tools of statutory interpretation.” McGowen, 956
N.W.2d at 133 (citation omitted).
As the debtor, Paige bears the burden to show an exemption applies. See
First Nat’l Bank v. Larson, 239 N.W. 134, 136 (1931).
III. Analysis
The sole question on appeal is whether Paige, who owes Muff’s estate over
$770,000.00 in damages, may hold exempt from execution of that judgment two
IRAs that he inherited from Muff.4 To answer, we look to the exemptions for
retirement investments in Iowa Code chapter 627.
A debtor who is a resident of this state may hold exempt from
execution the following property:
....
8. The debtor’s rights in:
....
4 Paige raises a preservation-of-error argument. He contends we should dismiss
this appeal because Muff makes a different argument here than in the district court.
Muff argued in the district court that Paige’s inherited IRAs were not exempt under
section 627.6(8)(f)(1)(d) because they were not “established under section 408(a)
of the Internal Revenue Code.” Paige insists that “Muff has completely abandoned
that argument” and instead couches its entire appeal on Iowa Code
section 627.6(8)(f)(2) that provides only IRAs “funded by the debtor or his
employer are exempt from execution.” Paige also emphasizes that the district
court did not rule on that argument under paragraph (2).
In reply, Muff accuses Paige of confusing the receiver’s argument with the
position advanced by the estate. True, the receiver concentrated on the
“established under section 408(a)” language of the exemption statute. But the
estate points to a more general statement by its lawyer at the hearing contending,
“the plain language of the statute on exemptions does not include a gift to [Paige].”
The estate maintains that it is making that same argument on appeal, “merely
stating it more precisely.” Finally, the estate notes the district court did rule on the
“ultimate issue” by holding that Paige’s inherited IRAs were exempt property.
We agree with Muff on error preservation. Granted, neither the receiver nor
the estate cited section 627.6(8)(f)(2) in the district court. But the estate’s present
discussion of that paragraph is “additional ammunition for the same argument” it
made in the district court—“not a new argument advanced on appeal.” JBS Swift
& Co. v. Ochoa, 888 N.W.2d 887, 893 (Iowa 2016).
6
f. (1) Contributions and assets, including the accumulated
earnings and market increases in value, in any of the plans or
contracts as follows:
....
(d) For simplified employee pension plans, self-employed
pension plans (also known as Keogh plans or H.R. 10 plans),
individual retirement accounts established under section 408(a) of
the Internal Revenue Code, individual retirement annuities
established under section 408(b) of the Internal Revenue Code,
savings incentive matched plans for employees, salary reduction
simplified employee pension plans (also known as SARSEPs), and
similar plans for retirement investments authorized in the future
under federal law, the exemption for contributions shall not exceed,
for each tax year of contributions, the actual amount of the
contribution deducted on the debtor’s tax return or the maximum
amount which could be contributed to an individual retirement
account established under section 408(a) of the Internal Revenue
Code and deducted in the tax year of the contribution, whichever is
less. The exemption for accumulated earnings and market increases
in value of plans under this subparagraph division shall be limited to
an amount determined by multiplying all the accumulated earnings
and market increases in value by a fraction, the numerator of which
is the total amount of exempt contributions as determined by this
subparagraph division, and the denominator of which is the total of
exempt and nonexempt contributions to the plan.
....
(2) For purposes of this paragraph “f”, “market increases in
value” shall include, but shall not be limited to, dividends, stock splits,
interest, and appreciation. “Contributions” means contributions by
the debtor and by the debtor’s employer.
Iowa Code § 627.6(8)(f)(1)(d), (2) (emphasis added).
We then ask: did the district court wrongly determine the inherited IRAs
were exempt from execution by focusing on the phrase “established under section
408(a) of the Internal Revenue Code” in section 627.6(8)(f)(1)(d)?5 Muff says “yes”
5 The district court found that both accounts should be “treated the same” because
they were both IRAs, noting “the simplified employee pension plan in relevant
terms is merely an indication of the method by which the account was funded.”
Trouble is, section 627.6(8)(f)(1)(d) separately lists SEP plans and IRAs
“established under section 408(a) of the Internal Revenue Code.” So the court’s
reliance on that qualifying phrase would apply only to the traditional IRA.
7
because the “contributions” referenced in paragraph (f) are limited to “contributions
by the debtor and by the debtor’s employer.” See id. § 627.6(8)(f)(2). In the
estate’s view, it doesn’t matter if the IRAs were established under section 408(a)
because they were not established by the debtor.
Paige counters that Muff’s argument ignores the language after
“contributions” in section 627.6(8)(f)(1), namely, “contributions and assets,
including the accumulated earnings and market increases in value.” (Emphasis
added.) Paige ventures that “an inherited IRA is undoubtedly an ‘asset’ of the
debtor whether they contribute to it or not.” Muff replies that such a broad reading
of “assets” would render the limitation on “contributions” in paragraph (2)
meaningless “because all contributions to an IRA in the debtor’s name would
necessarily belong to the owner of the IRA.”
As a first step in resolving this interpretive snarl, we must decide whether
the language is ambiguous. See State v. Doe, 903 N.W.2d 347, 351 (Iowa 2017).
If reasonable minds could differ as to its meaning, the statute is ambiguous and
requires us to resort to principles of construction. State v. Zacarias, 958 N.W.2d
573, 581 (Iowa 2021). We find the term “assets” in section 627.6(8)(f)(1) to be
ambiguous. On the one hand, it could simply mean property that has value. On
the other hand, paired with contributions, it could be limited to property that has
value and began as contributions from the debtor or the debtor’s employer. See
Iowa Code § 627.6(8)(f)(2).
Having found ambiguity, we turn to the rules of statutory construction. One
of those rules is the presumption that the entire statute must be given effect. Iowa
Code § 4.4(2). On this point, we share the estate’s view that Paige’s broad reading
8
of “assets” would render superfluous the limitation on “contributions” (as being from
the debtor and the debtor’s employer) in paragraph (2). Those contributions act
as seed money for the retirement investment plans. With time, those contributions
become “accumulated earnings” and, along with “market increases in value,”
amount to the debtor’s “assets” mentioned at the outset of section 627.6(8)(f)(1).
So, in context, “assets” cannot be viewed as encompassing inherited IRAs when
the original contributions did not come from the debtor or the debtor’s employer.
That contextual view is confirmed by looking to the limits placed on the
exemption amounts under paragraph (d) of section 627.6(8)(f)(1). For example,
the exemption for contributions is limited by the debtor’s tax deductions or potential
tax deductions. And the exemption for accumulated earnings and market
increases in value is limited to the product of a multiplication exercise. Paige does
not explain how those calculations would apply to his rights in the inherited IRAs.
And that contextual view is a natural segue to the whole-text canon. That
canon “calls on the judicial interpreter to consider the entire text, in view of its
structure and of the physical and logical relation of its many parts.” See Antonin
Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal
Texts 167 (2012). To that end, when deciding whether inherited IRAs are exempt
from judgment creditors, we must consider not only the whole text of
subsection (8)(f)(1)(d) on retirement investments, but all the general exemptions
in section 627.6.
So, zooming out, we look to the nature of those general exemptions and the
purpose they serve. In short, “the purpose of an exemption is to prevent a debtor
from becoming destitute.” In re Irish, 311 B.R. 63, 67 (Bankr. App. 8th Cir. 2004)
9
(quoting Exempt property, Black’s Law Dictionary (7th ed. 1999)). Most
exemptions in section 627.6 fit that bill, including wearing apparel and household
goods; burial plots; life insurance policies; health aids; social security,
unemployment compensation, public assistance, veterans, or disability benefits;
alimony; a motor vehicle; tools of the trade; cash on hand or bank deposits not to
exceed $1000; and rental housing deposits.6 See Iowa Code § 627.6(4), (5)–(7),
(9), (11), (12), (14), (15). Like those listed categories, “[t]he purpose behind
exempting pension plans is to secure for the debtor a subsistence level of income
in retirement.” See In re Pepmeyer, 273 B.R. 782, 787 (N.D. Iowa 2002)
(examining Iowa Code § 627.6(8)).
But that same subsistence theory does not apply to inherited IRAs. Why?
Because “[i]nherited IRAs do not operate like ordinary IRAs.” Clark v.
Rameker, 573 U.S. 122, 125 (2014). The Clark court noted four main differences:
(1) with the exception of the owner’s spouse, the owner of an inherited IRA may
not “roll over” the funds but must “hold the IRA as an inherited account”; (2) “an
individual may withdraw funds from an inherited IRA at any time, without paying a
tax penalty”; (3) in fact, the beneficiary “must either withdraw the entire balance in
the account within five years of the original owner’s death or take minimum
distributions on an annual basis”; and (4) the owner of an inherited IRA may not
contribute to the account. Id. Given those differences, “inherited IRAs represent
an opportunity for current consumption, not a fund of retirement savings.” See In
6 Other exemptions serve more sentimental or historical purposes, for example,
wedding or engagement rings; one shotgun and either one rifle or musket; and
private libraries, family bibles, and portraits. See Iowa Code § 627.6(1), (2), (3).
10
re Clark, 714 F.3d 559, 562 (7th Cir. 2013). In affirming the Seventh Circuit, the
Supreme Court held that an IRA inherited by the debtor from her late mother did
not qualify as “retirement funds” under 11 U.S.C. section 522(b)(3)(C) of the
federal exemption statute. Clark, 573 U.S. at 129–30 (2014) (noting exemptions
serve important purpose of protecting debtor’s “essential needs” but exempting
inherited IRAs would be “free pass” to debtor (citation omitted)).
Unlike the federal provision, Iowa’s exemption statute does not use the
phrase “retirement funds.” But section 627.6(8)(f)(1)(d) does reference “retirement
investments”—a similar concept. After listing SEP plans, IRAs established under
26 U.S.C. section 408(a), and other specific instruments, this subsection extends
the exemption to “similar plans for retirement investment authorized in the future
under federal law.” Iowa Code § 627.6(8)(f)(1)(d). That listing invokes the
associated-words canon. See Scalia & Garner, Reading Law: The Interpretation
of Legal Texts at 195 (advising that “words grouped in a list should be given related
meanings (citation omitted)). That is, to be exempt, IRAs must be retirement
investments. Inherited IRAs are not retirement investments. Cf. Clark, 573 U.S.
at 130 (“In ordinary usage, to speak of a person’s ‘retirement funds’ implies that
the funds are currently in an account set aside for retirement, not that they were
set aside for that purpose at some prior date by an entirely different person.”). Like
the Clark court interpreting federal exemptions, we determine an inherited IRA falls
outside our statute’s reference to contributions and assets set aside for retirement
by the benefactor.
Which brings us back to the district court’s interpretation of “established
under” in Iowa’s exemption statute. Citing the dictionary, the court defined
11
“establish” as “to begin or create” or “to bring into existence.” From that definition,
the court found,
The IRAs at issue here were unquestionably began, created, and
brought into existence under Section 408(a). They were established
under 408(a). Unless their designation as inherited IRAs changes
their character in some manner that causes them to be reestablished
or established as something different than they were during the
decedent’s lifetime, they are exempt.
The court distinguished a Montana Supreme Court case cited by the receiver. See
In re Golz, 360 P.3d 1142, 1143 (Mont. 2015) (holding that inherited IRA was not
exempt under state statute because the legislature exempted IRAs “as defined in
26 U.S.C. section 408(a)” and inherited IRAs were defined in
section 408(d)(3)(C)(ii)).7 The court determined that “defined in” (used by the
Montana legislature) carried a different meaning than “established under” (adopted
by Iowa lawmakers).
We disagree with the district court’s interpretation. While defining
“establish,” the court overlooked the word “under.” The phrase “established under”
refers to the source of the authorization for exempted IRAs, that is section 408(a)
of the Internal Revenue Code.8 See generally United States v. Marine Shale
7 In a similar interpretive exercise with a different result, the Rhode Island Supreme
Court decided an inherited IRA was exempt under its state statute because the
exemption extended to IRAs “as defined in the Internal Revenue Code, 26 U.S.C.
§§ 408 and 408A” with no restriction to subsection (a) of section 408. In re
Kapsinow, 220 A.3d 1231, 1234 (R.I. 2019).
8 These retirement plans were added to the exemption statute in 1999 to eliminate
perceived discrimination between the types of accounts covered. According to
legislative history, qualified plans under the federal Employee Retirement Income
Security Act, such as most employer-maintained pension plans, were exempt from
the claims of creditors. But self-employed persons using a Keogh plan or IRA as
their retirement vehicle were not similarly protected. See H.S.B. 6, 78th Gen.
Assembly, 1st Sess. (Iowa 1999).
12
Processors, 81 F.3d 1329, 1356 (5th Cir. 1996) (defining phrase “established
under” in federal regulation as source of state’s authority for issuing permit). It
does not refer to the creation of Muff’s particular retirement accounts. And even if
it did, the character of the accounts did change when inherited by Paige. As
discussed above, inherited IRAs are governed by different rules. The accounts
were “retirement investments” when owned by Muff but not when passed to Paige.
See Clark, 714 F.3d at 561 (“[T]he ‘IRA’ part of ‘inherited IRA’ (as the Internal
Revenue Code uses the phrase) designates the funds’ source, not the assets’
current status . . . . [A]n inherited IRA does not have the economic attributes of a
retirement vehicle.”). The district court’s focus on the meaning of “established”—
in isolation from the rest of the exemption statute—defied the whole-text and
associated-words canons.
In the end, when interpreting our exemption statute, we “must not
substantially depart from [its] express language” or “extend the legislative grant.”
In re Hahn, 5 B.R. 242, 244 (Bankr. S.D. Iowa 1980). Nowhere does Iowa Code
section 627.6(8)(f) mention inherited IRAs. Contra In re Kara, 573 B.R. 696, 701
(Bankr. W.D. Tex. 2017) (noting Texas statute expressly provided that “an
inherited individual retirement account . . . is exempt from attachment, execution,
and seizure for the satisfaction of debts” (citation omitted)). We cannot add an
exemption where our legislature did not do so. Because Paige did not prove the
inherited IRAs were exempt under Iowa law, we reverse the district court order and
remand to allow the estate to collect on those accounts.
REVERSED AND REMANDED.