Mark Schreiber v. Robert MacKenzie ( 2022 )

FILED
NOT FOR PUBLICATION
MAR 3 2022
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: MARK CHRISTIAN SCHREIBER; No. 21-16028
DEBORAH JEAN SCHREIBER,
D.C. No. 2:20-cv-01993-JJT
Debtors,
______________________________
MEMORANDUM*
ROBERT A. MACKENZIE, Trustee,
Appellant,
v.
MARK CHRISTIAN SCHREIBER;
DEBORAH JEAN SCHREIBER,
Appellees.
Appeal from the United States District Court
for the District of Arizona
John Joseph Tuchi, District Judge, Presiding
Argued and Submitted February 8, 2022
Phoenix, Arizona
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: O’SCANNLAIN and GRABER, Circuit Judges, and FITZWATER,** District
Judge. Partial Concurrence and Partial Dissent by Judge O’SCANNLAIN.
Appellant Robert A. MacKenzie (“Trustee”), a Chapter 7 trustee, appeals the
district court’s judgment affirming the bankruptcy court’s order overruling the
Trustee’s objection to the exemptions claimed by Appellees Mark Christian Schreiber
and Deborah Jean Schreiber, two Chapter 7 debtors. We have jurisdiction under
28 U.S.C. § 158(d)(1) and affirm.
I
The Schreibers resided in the state of Kansas before moving to Arizona. When
they filed for Chapter 7 protection in Arizona, they claimed the federal exemptions
under 11 U.S.C. § 522(d). The Trustee objected, contending that the Schreibers must
use the Kansas exemptions. The bankruptcy court overruled the objection and held
that the Schreibers could elect the federal exemptions. The district court affirmed.
In the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(“BAPCPA”), Pub. L. No. 109-8, 119 Stat. 23 (2005), Congress revised 11 U.S.C.
§ 522(b)(3)(A) to tighten the bankruptcy domiciliary requirement, and, in turn, restrict
the exemptions that a debtor can use when relocating the debtor’s domiciliary from
one state to another. Recognizing that the effect of this stricter domiciliary
**
The Honorable Sidney A. Fitzwater, United States District Judge for the
Northern District of Texas, sitting by designation.
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requirement might render a debtor ineligible for any exemption, BAPCPA enacted the
so-called “hanging paragraph” of § 522(b)(3), which provides: “[i]f 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 is specified under
subsection (d).”
The Schreibers maintain that they are entitled to claim the exemptions specified
under subsection (d)—i.e., the federal exemptions—because they have been rendered
ineligible for at least one Kansas exemption. The Trustee contends that the Schreibers
are still theoretically eligible for some Kansas exemptions, so the hanging paragraph
does not afford them the option of electing the federal exemptions.
II
We review the district court’s decision de novo, and we review the bankruptcy
court’s conclusions of law de novo and its findings of fact for clear error. Eskanos &
Adler, P.C. v. Leetien, 309 F.3d 1210, 1213 (9th Cir. 2002).
1. To decide this appeal, we interpret the hanging paragraph to apply when
§ 522(b)(3)(A)’s domiciliary requirement renders a debtor ineligible for all state law
exemptions for which the debtor would otherwise be eligible given the debtor’s actual
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circumstances and assets.1 This is distinguishable from a case in which a debtor can
theoretically claim one or more exemptions (e.g., because the exemption is not limited
to resident debtors).2
2. Applied to this case, this interpretation of the hanging paragraph means that
the Trustee was obligated to prove that the domiciliary requirement under
subparagraph (A) does not have the effect of rendering the Schreibers ineligible for
all Kansas exemptions that they would otherwise be eligible for given their actual
circumstances and assets. See In re Carter, 182 F.3d 1027, 1029 n.3 (9th Cir. 1999)
(“Once an exemption has been claimed, it is the objecting party’s burden (the trustee
1
The meaning of the term “any” in the hanging paragraph is the subject
of disagreement in the bankruptcy courts. Some hold that a debtor may claim the
federal exemptions pursuant to the hanging paragraph only if the debtor is entirely
ineligible for all state exemptions due to the domiciliary requirements of
§ 522(b)(3)(A); others permit a debtor to invoke the hanging paragraph if the debtor
is rendered ineligible for some, but not all, state exemptions. Compare In re Wilson,
No. 14-20557, 2015 WL 1850919, at *4 (Bankr. D. Idaho Jan. 13, 2015), with In re
Goldstein, No. 20-20406, 2021 WL 5443542, at *9 (Bankr. D. Me. Nov. 19, 2021).
For purposes of this appeal, we need decide only that the Trustee’s interpretation of
the hanging paragraph, which is more restrictive than any interpretation endorsed by
a bankruptcy court, is incorrect. Accordingly, we need not, and do not, decide among
other competing interpretations of the hanging paragraph.
2
The bankruptcy court found that “[t]he two items on the laundry list of
exemptions that the Trustee states are available to the Debtors are not factually
applicable in this case. The Debtors are not innkeepers in Kansas . . . and the Debtors
are not members of the Kansas National Guard . . . .” Therefore, it found “that the
facts of this case are such that these Debtors would not be able to claim these
exemptions.”
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in this case) to prove that the exemption is not properly claimed.” (citing Fed. R.
Bankr. P. 4003(c))).
3. The bankruptcy court did not err in holding that the Schreibers were
ineligible for all Kansas personal property exemptions that they would otherwise have
been eligible for given their actual circumstances and assets.
4. The bankruptcy court did not err in holding that, in addition to their inability
to claim all personal property exemptions for which they would otherwise have been
eligible given their actual circumstances and assets, the Schreibers could not claim a
homestead exemption under Kansas law for their mobile home located in Arizona.
The Kansas homestead exemption does not have extraterritorial effect. See In re
Ginther, 282 B.R. 16, 19 (Bankr. D. Kan. 2002) (“While Kansas case law does not
address this specific question, the Kansas Supreme Court has several times held that
state law, and in particular, state exemption law, is without effect beyond the
territorial boundaries of the state.” (citing State v. Holcomb, 116 P. 251, 252 (1911))).
AFFIRMED.
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FILED
MAR 3 2022
MacKenzie v. Schreiber, No. 21-16028 MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
O’SCANNLAIN, Circuit Judge, concurring in part and dissenting in part:
I concur in the Court’s holding that the Schreibers are ineligible for Kansas’s
personal property exemptions. However, I would certify the issue of whether they
can claim the Kansas homestead exemption to the Supreme Court of Kansas because
state authorities seem to point in two directions and because the homestead
exemption codifies a protection enshrined in the Kansas constitution, making this
issue an important state matter. See K.S.A. § 60-3201.
I
Neither of the two Kansas Supreme Court cases discussed by the parties is
exactly on point. In Burlington & M.R.R. v. Thompson, decided in 1884, the plaintiff
sued a corporation operating a railroad running from Nebraska to Kansas seeking to
garnish the wages of its employee, a Nebraska resident. 1 P. 622, 623 (Kan. 1884).
Under Nebraska law, wages were exempt from garnishment. Id. The question was
whether those exemptions applied in a lawsuit brought in Kansas. Id. The state
Supreme Court decided that they did not. Id. In so holding, it relied heavily on the
principle that “[t]he laws of a state have no extraterritorial force.” Id. It noted that
this principle also covers “exemption[s].” Id. Burlington, therefore, stands for the
proposition that exemptions of other states are irrelevant in a suit brought in Kansas.
In turn, State v. Holcomb, while mentioning the extraterritoriality principle,
mostly relied on the canon that tax exemptions are to be read narrowly. 116 P. 251(Kan. 1911). The municipality of Kansas City, Missouri operated a waterworks plant
located in Wyandotte county, Kansas. Id. Under Kansas’s constitution, “all property
used exclusively for . . . municipal . . . purpose . . . [is] exempted from taxation.” Id.
at 252. Based on this provision, the municipality argued that its plant too was
exempt. Id. at 251. The Kansas Supreme Court disagreed. It concluded that the tax
break did not apply because Kansas City was a municipality in Missouri, not Kansas.
Id. Although the Court briefly mentioned the rule that “laws have no extraterritorial
force,” the main thrust of the opinion was that the tax exclusion was to be read
narrowly and only applicable to Kansas municipalities. Id. at 252. The principle
underlying the exemption, the Court held, was that taxing its own municipalities
“would amount to no more than taking money from one pocket and putting it in
another.” Id. at 251.
Relying on the extraterritoriality canon mentioned in these opinions, two
lower federal courts concluded that Kansas’s homestead exemption does not apply
to property located outside the state. Ordinarily, the homestead exemption extends
to the proceeds of the sale of a homestead if the debtor intends to invest such
proceeds in another home. See, e.g., First National Bank v. Dempsey, 11 P.2d 735,
737 (Kan. 1932). However, relying on Burlington, the Kansas district court held
2
“that proceeds of . . . sale of Michigan homestead could not be exempt under Kansas
homestead statute even if debtor intended to use proceeds to purchase a Kansas
homestead.” In re Sipka, 149 B.R. 181, 182–83 (D. Kan. 1992) (emphasis added).
Similarly, relying on Holcomb and Burlington, the bankruptcy court for the district
of Kansas concluded that the debtor cannot exempt the proceeds from the sale of a
Kansas homestead when he intends to use those proceeds to purchase a home in
Colorado. In re Ginther, 282 B.R. 16, 19–20 (Bankr. D. Kan. 2002). Both cases note
that there is no Kansas decision that directly addresses the issue. Id. at 19 (“Kansas
case law does not address this specific question.”); In re Sipka, 282 B.R. at 182 (“Our
research discloses no Kansas case that has directly addressed this issue.”).
In re Sipka and In re Ginther are not binding on this Court and their
applications of Holcomb and Burlington are not ironclad. The opinions were issued
by district and bankruptcy courts, respectively. While deserving of careful
consideration, they are in no way binding on us. Further, as discussed, Holcomb
reaches its conclusion based mostly on the canon that tax exemptions are to be
narrowly construed. In addition, the property in that case was in Kansas. Thus, that
decision has little import on whether the homestead exemption applies to property
located elsewhere. Burlington is more on point, but it discusses the application of
exemptions of other states in a suit brought in Kansas, not whether Kansas law can
be applied outside the state.
3
In addition to a lack of clear command from state courts, Kansas statutes imply
that the homestead exemption does apply extraterritorially. K.S.A. § 60-2309
provides that “[w]ages earned out of this state and payable out of this state shall be
exempt from attachment or garnishment in all cases where the cause of action arose
out of this state . . . .” In this statute, the Kansas legislature explicitly exempted an
out-of-state property, albeit not a physical one, in direct contradiction to the
extraterritoriality canon. Although the argument can be made that § 60-2309 deals
with movable property while § 60-2301 covers the typically fixed homesteads, this
distinction makes little difference since the later section also covers “mobile
home[s]”—the type of home that the Schreibers happen to own.
Further, the legislature explicitly limited only some exemptions to Kansas
residents. For example, K.S.A § 60-2304 (personal property exemptions) and K.S.A.
§ 60-2313 (exemptions from legal process) only apply to “person[s] residing in this
state.” In contrast, the homestead exemption does not contain such a limitation. In
re Ginther, 282 B.R. at 19. Just as applications of exemptions to property outside the
state, applications of exemptions to nonresidents are extraterritorial. Thus, since the
legislature felt the need to limit explicitly the application of some exemptions but
not of the homestead exemption, it is possible that an extraterritorial reach was
contemplated.
4
Finally, Chambers v. Cox, decided in 1880, adds to the ambiguity by holding
that the rights of nonresidents are protected by the homestead exemption. 23 Kan.
393, 395 (1880). It interpreted Art. 15, § 9 of the Kansas constitution, which was
codified almost verbatim in the statutory exemption at issue in this appeal. Compare
Kan. Const. art. XV, § 9, with K.S.A. § 60-2301. In that case, the husband of a
woman “who had never been an actual resident of Kansas” transferred the title in his
homestead to the buyer without his wife’s consent. Cox, 23 Kan. at 394. The Court
started from the proposition that had the wife been a resident, there would be no
question that the deed was invalid, as the constitution requires the consent of both
spouses for alienation. Id. It then concluded that the fact that the wife had never been
a resident of the state does not dispense with the mutual consent requirement. Id. at
395. The Court, thus, refused to read-in a condition that both spouses be “residents
of the state” for the protection to apply. Id. Therefore, Cox suggests that a Kansas
court could read the statutory homestead exemption to protect extraterritorially
property outside the state.
Because Kansas caselaw and statutory scheme do not clearly resolve the
question of whether the homestead exemption applies extraterritorially, I would
certify this important issue to the Kansas Supreme Court. The homestead exemption
is paramount to the state. It has been enshrined in its constitution, Kan. Const. art.
XV, § 9, and serves the important role of protecting “the family of the debtor.” Iowa
5
Mut. Ins. Co. v. Parr, 370 P.2d 400, 404 (1962). Taking an Erie guess, thus,
“prevent[s] the informed evolution of state policy by state tribunals.” Moore v. Sims,
442 U.S. 415, 430 (1979).
II
In sum, we correctly affirm the district court on the Kansas personal property
exemptions, but we should have certified the homestead exemption issue to the
Kansas Supreme Court.
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