09- 4656
- bk

I nre B ak er UN I TED STATES CO UR T OF A PP EALS F ORTH E S EC ON D C IR C U IT
A ugus tT er m , 2009 ( A r gued: A pr i l 29, 2010 D eci ded: M ay14, 2010) D ocketN o. 09- 4656- bk
In R e : W I L L I AM W ES L EY B AK ER D ebtor.
M AR K W. S W I MEL AR , C hapt er13 T r us t ee, Ap p e lla n t,

— v . — W I L L I AM W ES L EY B AK ER , d o ing b u sine ss as T h e S tage D o o r, Appel l ee .

____________________ B efor e: R AG GI , H A LL , and C H IN , C i r cui tJudges
.

____________________ A ppeal fr om a j udgm entof t he U ni t ed S t at es D i s t r i ct C our t for t he N or t her n D i s t r i ct
o f N e w Y o rk (G le n n T . S u d d a b y , Judge ) , aff i r m i ng t he deci s i on of t he bankrup tcy co u rt (M a rg a re t C a n g ilo s -R u iz , Judge ) exempt i ng t he proc eeds of an annui t yfr om t he C hapt er132

bankrupt cyes t at e under N ew Y or k D ebt or and C r edi t or L aw § 282 and N ew Y or k I ns ur ance L a w § 3 2 1 2 . W e re

jec t th e tru ste e ’s a rg u m e n ts th a t th e c laim e d e x e m p tio n d o e s n o t ap p ly beca us e ( 1) t he i ns ur ance companyow ns t he annui t y , and (2) the d ebt ordi d notpay
cons i der at i on fort he annui t ycont r act . W e conc l ude t hatN ew Y or k l aw per m i t s t he debt or t o exempt t he annui t ypaym ent s and t hathe gave c o n side rat i on fort he contr actw hen he
r e l e a s e d a wr o n g f

u l d e a t h c l a i m. A F F I R MED .

M AX SE N D AV I D C H A MP I ON , L aw O ffi ce of M ar k W
. Sw i m el ar , Sy r acus e, N ew Y o rk , f orAppel l ant . J AMES H AR B ER SO N (A n th o n yIn s e rr a , on t he br i ef ), W a te rt o w n , N e w Y o rk, f or Appel l ee .

R EEN A R AG GI , C i r cui t

Judge : I n f i l i n g f o rr e l i e f u n d e rCh a p t e r1 3 o f

t h e Un i t e d S t a t e s Ba n k r u p t c yCo d e , 1 1 U. S
. C. § § 1 3 0 1 -1 3 3 0 , d e b to r W ill iam W e sle yB a k e r so u g h t to e x e m p t th e p ro c e e d s o f a n a n n u ity
w or t h $155, 000 fr om t he bankrupt cy es t at e, r el y i ng on N ew Y or k D ebt orand C r edi t orL aw § 282 and N ew Y or k I ns ur ance L aw § 3212. C ont endi ng t hatt he exe m pt i on w as noti n t he bes ti nt er es tof t he cr ed it o rs, bankrupt cyt r us t ee M ar k W
. Sw i m el arobj ect ed. T he t r us t ee
ar gued t hatB akercoul d notexempt the an n u it y b eca us e ( 1) i tw as ow ned byan i ns ur ance company , and (2) B aker had not “pai d t he consi der at i on fort he annui t ycont r act , ” as r equi r edT he r ec o rd d o es notcont ai n det ai l s r egar di ng t he 2003 w r ongful death act i on. 1 B efor e t he bankrupt cycour t , t he t r us t ee “ acc ept [ed] ” B aker ’ s al l egat i ons “for purpos es of t hi s pr ocee di ng. ” M em. of Law i n Supp. of Trus t ee’ s O bj ect i on at2. T he re cor d i ndi cat es t hatt he annui t yw as pur chas ed byH ar t for d C E B SC O and t hat 2 t h e a n n u i t y c o n t r a c tm a y s u b s e q u e n t l y h a v e b e e n a s s i g n e d t o G M A C
. F o r t h e s a k e o f c l a r i t y, w e w ill r e f

e r t o th e a n n u ity o w n e r s im p ly as th e “ in s u ra n c e c o m p a n y .” 3 byN ew Y or k I ns ur ance L aw § 3212( d) ( 1)
. T he U ni t ed St at es B ankrupt cyC our tfort he N o rt h e rn D is tr ic t o f

N e w Y o rk (M a rg a re t C a n g ilo s -R u iz , Judge ) ov erru led th e trustee ’s obj ect i on s, and t he U ni t ed St at es D i s t r i ctC our tfor t he N or t her n D i s t r i ct of N ew Y or k ( G l enn T . S u d d a b y , Judge ) aff i r m ed. B eca us e w e agr ee w i t h bot h t he bankrupt cy cour tan d the di s t r i ctcour tt hatt he t r us t ee’ s obj ect i ons l ack mer i t , w e affi r m t he j udgm entof t he di s t r i ct
c o u rt. I . Backr ound T h e a n n u ityat i ssu e h as it s o ri g ins in an ac ti o n that B ak er f il ed in 2 0 0 3 fo r his w ife’s
w r ongful d ea th. I n 2004, as par tof t he s et t l ement of t hatact i on, an i ns ur ance company 1 pur chas ed an a nnui t yforB aker ’ s benef i t . U n dert hatannui t y , w hi ch i s ow ned byt he in su ra n c e c o m p a n y , B a k e r is e n tit led to th e f o llo w in g six p a y m e n ts: (1 ) $ 1 0 ,0 0 0 o n A p ril 2 2 9 , 2 0 0 6 ; (2 ) $ 1 5 ,0 0 0 o n A p ril 2 9 , 2 0 0 9 ; ( 3 ) $ 2 5 ,0 0 0 o n A p ril 2 9 , 2 0 1 2 ; ( 4 ) $ 3 0 ,0 0 0 o n A p ril 29, 2015; ( 5) $35, 000 on A pr i l 29, 2018; and ( 6) $50, 000 on A pr i l 29, 2021. On S e p t e mb e r2 6 , 2 0 0 7 , Ba k e rf i l e d f o rCh a p t e r1 3 b a n k r u p t c y . Un d e r1 1 U. S
. C. § 5 2 2 ( b ) ( 3 ) , Ba k e r c l a i me d e x e mpt i o n s f r o m th e b a n k r u p t c y e s t a t e wor t h a t o t al of $267, 472. 68, i ncl udi ng futur e annui t y paym ent s . B aker vol unt ar i l y pr opos ed t o i ncl ude one4

$15, 000 annui t ypaym en t in the bankrupt cyes t at e and s oughtt o exempt t he r emai ni ng $140, 000. On De c e mb e r1 2 , 2 0 0 7 , r e l y i n g o n I n r e Co n s t a n t i n o , 2 7 4 B. R. 5 8 0 ( Ba n k r . N. D. N. Y. 2002) , t he t r us t ee obj ect ed t o B aker ’ s cl ai m ed annui t yexempt i on. T he t r us t ee a r gued, i nt er al i a, t hatt he annui t ycont r actw as nott he pr oper t y o f the bankrupt cyes t at e bec aus e t he in su ra n c e c o m p a n y , n o t B a k e r, o w n e d it. O n M ar ch 30, 2009, t he bankrupt cycour to v erru l ed t he t r us t ee’ s obj ect i on and p erm it ted B ak er to e x em p t $1 4 0 ,0 0 0 in f u ture a n n u ityp ay m en ts. T h e b an k rup tcyco u rt
r eas oned t hatB akers at i s fi ed t he N ew Y or k exempt i on beca us e he pa i d cons i der at i on fort he annui t ycont r actw hen he ga ve up hi s w r ongful death cl ai m . I t al s o r ecogni zed i t s di s cr et i on to o rde r B ak er to p ay a p o rt ion o f th e a n n u ityp ay m en ts t o cre d it o rs un d er N ew Y o rk I ns ur ance L aw § 3212( d) ( 2) , butdecl i ned t o exer ci s e s uch di s cr eti on beca us e “[ t ] her e has been no s how i ng t hatt he D ebt or s t r uctur ed t he pay m ent s undert he annui t ycont r actw i t h t he in ten t o f a v o id in g p a y m e n t to c re d ito rs n o r [ is a n o th e r] b a sis p re se n ted f o r th e c o u rt to
exer ci s e i t s di s cr et i on t o i nvade the annui t y . ” I n r e B aker , N o. 07- 32440, 2009 W L 2872830, at *3 & n . 3 (B an k r. N
. D
. N
. Y
. M ar. 30 , 2 0 0 9 ). T h e d istric t co u rt a f

f irm e d , p ro m p tin g th is a p p e a l. I I . D i s cus s i on A
. St andar d of R evi ew O n appea l fr om t he di s t r i ct cour t ’ s r evi ew of a bankrupt cycour tdeci s i on, “w e r evi ew5

th e b a n k ru p tcy co u rt d e c isio n in d e p e n d e n tly , ac c e p tin g its f a c tu a l f in d in g s u n les s c lea rly
erro n eo u s b u t r ev iew ing it s co n clus ion s o f law d e n o v o .” M id land C o g en era ti o n V en ture L t d. P’ s hi p v. E nr on C orp. ( “I n r e E nr on C orp. ”) , 419 F. 3d 115, 124 ( 2d C i r . 2005) ( i nt er nal q u o tat ion m ark s o m it ted). B
. E x e m p tio n s f

ro m a B a n k ru p tcy E sta te A C h a p ter 1 3 b a n k ru p tcy e sta te c o m p rise s, in ter a lia, “ a ll le g a l o r e q u itab le in ter e sts of t he debt ori n pr oper t y as of t he com m ence m entof t he ca s e. ” 11 U
. S. C
. § 541( a) ( 1) ; s ee i d
. § 1 3 0 6 ( d e f

i n i n g p r o p e r t yo f

e s t a t e f o rCh a p t e r1 3 b a n k r u p t c y )
. Un d e r1 1 U. S
. C. § 5 2 2 (b ), d e b to rs m a ye x e m p t ce rta in p ro p e rtyf ro m th e ir b a n k ru p tcy es tate . S e e g e n e ra lly R o u sey v . Jac o w ay , 5 4 4 U
. S
. 3 2 0 , 3 2 2 (20 0 5 ) (no ti n g that B an k rup tcy C o d e p erm it s d eb tors

“ t o r e t a i n [ c e r t a i n ] a s s e t s r a t h e r t h a n d i v i d e t h e m a mo n g t h e i r c r e d i t o r s ” )
. I n t h i s c a s e , we focus on an exe m pt i on pr ovi ded byN ew Y or k l aw . See 11 U
. S. C
. § 522( b) ( 3) ( A ) ( al l ow i ng d e b t o rt o e x e m p t“ a n y p r o p e r t y t h a ti s e x e m p t u n d e r . . . S t a t e o r l o c a l l a w ” ) ; C F C U C m t y. C r edi tU ni on v. H ayw ar d, 552 F. 3d 253, 258 ( 2d C i r . 2009) ( obs er vi ng t hatN ew Y or k has “opt ed out ” of f

eder al exempt i on s cheme, choos i ng i ns t ead t o pr ovi de i t s ow n excl us i ve s et
o f e x em p ti o n s fo r de b tors d o m ici led in stat e). N ew Y or k al l ow s an i ndi vi dual debt or t o exempt “annui t ycont r act s and t he pr ocee ds and avai l s t her eof as pr ovi ded i n s ect i on t hr ee thous and t w o hundr ed t w el ve of the i ns ur ance law .” N .Y . D e b t. & C re d . L a w § 2 8 2
. T h e c ited se c tio n o f th e In su ra n c e L a w p ro v id e s, in turn , that “[ t] h e be n ef

it s, ri g h ts, p ri v il eg es an d o p ti o n s w h ich, u n d er an y an n u ity co n tr ac t areT o t he ext entt he t r u stee ar gues t hatt he bankrupt cycour terr ed i n “cr eat [i ng] ” an 3 “equi t abl e ow ner s hi p i nt er es t ” overt hes e paym ent s , he i s m i s t aken. A p p ell an t’ s B r . at8. T he annui t ycont r actcr eat es a l egal r i ghtfor B aker t o r ece i ve t he chal l enged pa y m ent s , and N ew Y or k l aw pr ovi des t hatt he paym ent s m aybe exe m ptfr om t he bankrupt cy es t at e. See 6 d u e o r pr o sp e c tiv e ly d u e th e a n n u itan t, w h o p a id th e c o n sid e ra tio n f o r th e a n n u ityc o n tra c t,
s h a ll n o t b e s u b

je c t to e x e c u tio n .” N .Y . In s . L a w § 3 2 1 2 (d )( 1 ). C
. B a k e r H a s a n In ter e st in th e A n n u ityP a y m e n ts O n appea l , t he t r us t ee m ai nt ai ns t hat B aker cannot r el yon N ew Y or k l aw t o exempt t he annui t yati s s ue fr om t he bankrupt cyes t at e bec au se h e does notow n i t . T he ar gum ent is f law e d in c o n f

latin g th e a n n u ityc o n tra c t, w h ich is o w n e d b yth e in su ra n c e c o m p a n y , w ith t he pr ocee ds pay abl e undert hatcont r act , w hi ch ar e due s ol el y t o B aker
. N ew Y or k l aw does
n o t e x e m p t o n ly th e a n n u ity; it e x e m p ts th e “ p ro c e e d s a n d a v a ils th e re o f ,” N .Y . D e b t. & C r ed. L aw § 282, s peci fi cal l ypr ovi di ng t hat “[t ] he benefi t s , r i ght s , [and] pr i vi l eges ” under t he ann ui t y c on t r a c t a r e “ no t s ub j e c t t o e xe c ut i on , ” N
. Y
. I ns . Law § 32 12 ( d) ( 1)
. T hese pr ovi s i o n s a r e b r o a d e n o u g h t o a l l o w Ba k e r t o e x e mpt f u t u r e a n n u i t y p a y me n t s f r o m t he bankrupt cyes t at e. See I n r e K ei l , 88 F. 2d 7, 8 ( 2d C i r . 1937) ( obs er vi ng t hat“[e ] xempt i on statu tes are to b e l ibera ll y co n stru ed ” i n interpre ti n g term “p roc ee d s an d av ail s”); W eb ster’s T hi r d N ew I nt er n a t i o n a l D i ct i onar y150 ( 1986) ( defi ni ng “ava i l s ” as “pr ofi t s orpr ocee ds es p. f ro m a b u sin e ss o r f

ro m th e sa le o f

p ro p e rty ” ); id . at 1 8 0 7 (d e f in in g “ p ro c e e d s” a s “ w h a t is pr oduced by or der i ved fr om s om et hi ng ( as a s al e, i nves t m ent , l evy , bus i nes s ) byw ayof t ot al
rev en u e” ). 3N
. Y
. D eb t. & C red
. L aw § 2 8 2 ; N
. Y
. Ins. L aw § 3 2 1 2 (d)(1 ). 7 T he t r us t ee’ s ar gum ent t o t he cont r ar y cont r adi ct s i t s el f. T he t r us t ee s ugges t s t hatt he
an n u ityp roc ee d s are n o t part of the b an k rup tcyestate f o r pu rpo ses o f th e e x em p ti o n b u t are p rop ertyo f th e e stat e f o r pu rpo ses o f d istri b u ti o n to c re d it o rs. T o the e x tent In re C ons t ant i no, 274 B
. R
. 580, s uppor t s t hi s pos i t i on, i t i s not per s uas i ve. C o n sta nt i no acknow l edged thatt he r i ghtt o r ece i ve annui t y p ay m ent s w as pr oper t yof t he bankrupt cy
e sta te. S e e 2 7 4 B .R . at 5 8 2 . In h o ld in g th a t a d e b to r c o u ld e x e m p t an n u ityp a y m e n ts o n ly t o t he l im it ed ext entnece s s ar yfort he s uppor tof t he debt orunderN ew Y or k D ebt orand C red it o r L aw § 2 8 2 (3)(ii ), C o n stan ti n o m isco n stru ed the an n u ity ex em p ti o n o f N e w Y o rk D ebt orand C r edi t orL aw § 282 and I ns ur ance L aw § 3212 t o appl yonl yt o annui t i es ow ned byt he debt or . See 274 B
. R
. at582- 83. T h is concl us i on over l ooks t he pl ai n l anguage of § 3 2 1 2 (d )(1 ), w h ich g o v e rn s a n n u iti e s a n d e x e m p ts f ro m a tta c h m e n t n o t o n lya n n u ity cont r act s ow ned byt he debt or , butal s o t he “be nefi t s , r i ght s , pr i vi l eges and opt i ons ” of a n annui t ycont r actforw hi ch t he annui t ant“pai d t he c o n s i der at i on. ” B ankrupt cycas es addr es s i ng § 3212 have t hus concl uded t hat debt or s m ay exempt annui t y paym ent s fr om t he b a n k r u p t c ye s t a t e . S e e J a c o b v . S wi me l a r( “ I n r e J a c o b ” ) , 4 1 8 B. R. 3 7 , 4 0
- 4 1 ( N. D. N. Y. 2 0 0 9 ) ; I n r e Ly o n s , 3 8 1 B. R. 4 4 4 , 4 5 0
- 5 5 ( Ba n k r . S
. D. N. Y. 2 0 0 8 ) ; I n r e Ta p p a n , 2 7 7 B. R. 4 9 1 , 4 9 2 ( Ba n k r . W. D. N. Y. 2 0 0 2 )
. We t h i n k t h e s e c a s e s a c c u r a t e l ys t a t e Ne w Yo r k l a w. Fi nal l y , t he gap be t w een ourappr oach a nd t hatempl oy ed i n C ons t ant i no m aynotbe8

a s w id e a s th e p a rties su g g e st. In C o n sta n tin o , the c o u rt p e rm itt e d th e d e b to r to e x e m p t o n ly
s o mu c h o f

t h e a n n u i t yp a y me n t s a s wa s “ ‘ r e a s o n a b l yn e c e s s a r yf o r[ h e r ] s u p p o r t . ’ ” 2 7 4 B. R. at 58 3 (qu o ti n g N
. Y
. D eb t. & C red
. L aw § 2 8 2 (3)(ii )). U n d er In su ran ce L aw § 3 2 1 2 (d)(2 ),
a “ c o u rt m a yo rd e r th e a n n u itan t to p a y to a ju d g m e n t c re d ito r o r a p p ly o n th e ju d g m e n t in i ns t al l m ent s , a por t i on of s uch bene fi t s t hatappea r s j us tand p rop er to t he cour t , w i t h due
r egar d fort he r eas onabl e re qui r ement s of t he j udgm ent debt or and hi s fami l y . ” W e nee d not
n o w d e c i d e wh e t h e ro rwh e n t hi s s ub s e c t i o n p e r mi t s a b a n k r u p t c yc o u r tt o a t t a c h s o me por t i on of an annui t y i f doi ng s o w oul d be “j us t and prope r , ” s ee I n r e Ly ons , 381 B
. R
. at452 (in ter p re tin g “

ju d g m e n t cr e d ito r” in N .Y . In s. L a w § 3 2 1 2 (d ) (2 ) “ to e x ten d to a n yp a rtyin i n t e r e s t i n a b a n k r u p t c y c a s e ” ) , b e c a u s e t h e b a n k r u p t c y c o u r t c o n c l u d e d t h a t n o b a s i s w as “pr es ent ed for t he cour t t o exer ci s e i t s di s cr et i on t o i nvade t he annui t y , ” I n r e B aker , 2009 W L 2872830, at *3 n. 3. M or eover , as t he t r us t ee a cknow l edged a tor al ar gum ent , t he t r us t ee d id n o t in v o k e § 3 2 1 2 (d )(2 ) in th e b a n k r u p tc yc o u rt, th e d istric t co u rt, o r th is c o u rt in h is
o p en ing b ri ef
. S ee V ir g il io v
. C ityo f N ew Y o rk, 40 7 F
. 3 d 1 0 5 , 1 1 6 (2 d C ir
. 2 0 0 5 ) (“In gener al w e r efr ai n fr om passi ng on i s s ues notr ai s ed bel ow . ” ( i nt er nal quot at i on m ar ks
o m itt e d )); N o rto n v . S a m ’s C lu b , 1 4 5 F .3 d 1 1 4 , 1 1 7 (2 d C ir. 1 9 9 8 ) (“Is su e s n o t su f f icie n tly arg u ed in the b ri ef

s are co n side red w aive d an d n o rm all y w il l n o t be a d d resse d o n ap p ea l. ”). A c c o rd in g ly , w e h e re c o n c lu d e o n lyth a t th e d e b to r h e ld a n in ter e st in a n n u ity pr ocee ds t hatN ew Y or k l aw per m i t t ed hi m t o exempt fr om t he bankrupt cyes t at e.9

D
. B akerPr ovi ded C ons i der at i on for t he A nnui t yC ont r actW hen H e R el eas ed H is W ro n g f

u l D e a th C laim T he t r us t ee c ont ends t hatt he annui t yi s notexempt beca us e B akerdi d not“pa[ y ] t he
cons i der at i on fort he annui t ycont r act . ” N
. Y
. I ns . L aw § 3212( d) ( 1)
. W e ea s i l yconcl ude, how eve r , t hatB akerpr ovi ded t he r equi s i t e cons i der at i on w hen he r el eas ed hi s w r ongful death cl ai m . See P engui n G r oup ( U SA ) I nc. v. St ei nbeck, 537 F. 3d 193, 201 ( 2d C i r . 2008) (“F o rbe ara n ce to asse rt a v ali d claim , if b arg aine d fo r, is suf ficien t con side rati o n to su p p o rt
a c o n t r a c t . ” ( i n t e r n a l q u o t a t i o n ma r k s a n d a l t e r a t i o n o mi t t e d ) ) ; Ha me r v . S i d wa y , 1 2 4 N. Y. 538, 545 ( 1891) ( “I t i s enough t hats om et hi ng i s pr om i s ed, done, forbor ne ors uffe r ed byt he par t yt o w hom t he pr om i s e i s m ade as cons i der at i on for t he pr om i s e made t o hi m . ” ( i nt er nal quot at i on m ar ks om i t t ed) ) ; acc or d H ol t v. Fei genbaum, 52 N
. Y
. 2d 291, 299, 437 N
. Y
. S. 2d 654, 658 ( 1981)
. T o t he ext ent t he t r us t ee sugge s t s t hat B aker di d not have the r i ghtt o gi ve up a w r ongful death cl ai m , t hatar gum entfai l s beca us e “[ a] caus e of a ct i on to r ecove r damages forw r ongful death i s a pr oper t y ri g h t be l ongi ng s ol el yt o t he di s t r i but ees of t he deced ent and vest s i n t hem at t he deced ent’ s death. ” C art er v. N
. Y
. C i t y H eal t h & H osps. C orp. , 47 A
. D
. 3d 661, 663, 851 N
. Y
. S. 2d 588, 590 ( 2d D ep’ t 2008) ( i nt er nal quot at i on m ar ks
om i t t ed)
. I n anyevent , “good-fait h reli nqui s hm entof a c aus e of a ct i on, even one w hi ch p rov es to b e u n en fo rce ab le, co n sti tutes v ali d co n side rati o n . ” N o lfi M aso n ryC orp . v . L ask erG ol dm an C orp. , 160 A
. D
. 2d 186, 187, 553 N
. Y
. S. 2d 156, 157 ( 1s tD ep’ t1990) ( ci t i ng B y r ne
v . P ad d en , 2 4 8 N
. Y
. 2 4 3 (19 2 8 )).10

I I I . C oncl usi on A ccor di ngl y , w e conc l ude t hatN ew Y or k l aw al l ow s B aker t o exempt t he cha l l enged annui t ypaym ent s fr om hi s C hapt er13 bankrupt cyes t at e. A F F I R MED .