Filed: October 16, 1997

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 96-2637

(CA-96-277-CCB, BK-93-2122-5-JS)

Governor Plaza Associates,

Plaintiff - Appellant,

versus

Patrick A. Butcher, et al,

Defendants - Appellees.

ORDER

The Court amends its opinion filed September 15, 1997, as

follows:

On page 4, fourth full paragraph, line 1 -- "Government Plaza"

is corrected to read "Governor Plaza."

For the Court - By Direction

/s/ Patricia S. Connor

Clerk
PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: PATRICK A. BUTCHER; In Re:

LISA A. BUTCHER,

Debtors.

GOVERNOR PLAZA ASSOCIATES,

Plaintiff-Appellant,

v.

No. 96-2637

PATRICK A. BUTCHER; LISA A.

BUTCHER,

Defendants-Appellees,

v.

STATE OF MARYLAND; UNITED STATES

OF AMERICA,

Parties in Interest-Appellees.

Appeal from the United States District Court

for the District of Maryland, at Baltimore.

Catherine C. Blake, District Judge.

(CA-96-277-CCB, BK-93-2122-5-JS)

Argued: June 4, 1997

Decided: September 15, 1997

Before RUSSELL and NIEMEYER, Circuit Judges, and

TILLEY, United States District Judge for the

Middle District of North Carolina, sitting by designation.

_________________________________________________________________

Affirmed by published opinion. Judge Niemeyer wrote the opinion,

in which Judge Russell and Judge Tilley joined.
COUNSEL

ARGUED: Michael Jay Schwarz, LAW OFFICES OF MICHAEL J.

SCHWARZ, Baltimore, Maryland, for Appellant. Joel Ira Sher, SHAPIRO & OLANDER, Baltimore, Maryland, for Appellees. ON

BRIEF: Sandra A. Manocchio, SHAPIRO & OLANDER, Baltimore,

Maryland, for Appellees Butcher; J. Joseph Curran, Jr., Attorney General of Maryland, Susan A. Griisser, Assistant Attorney General,

OFFICE OF THE ATTORNEY GENERAL, Baltimore, Maryland,

for Appellee State of Maryland.

_________________________________________________________________

OPINION

NIEMEYER, Circuit Judge:

The issue presented in this case is whether debtors in a Maryland

bankruptcy may exempt from their bankruptcy estate the proceeds of

a structured settlement of their personal injury claims. Because Maryland has, pursuant to 11 U.S.C. § 522(b), opted out of the exemptions

provided by the Bankruptcy Code, see Md. Code Ann., Cts. & Jud.

Proc. § 11-504(g), the resolution of this issue requires us to determine

whether Maryland exempted such settlements in Md. Code Ann., Cts.

& Jud. Proc. § 11-504(b)(2).

A creditor of the bankruptcy estate challenged the constitutionality

of the state-defined exemption, both facially and as applied, because

it violated a "reasonableness" limitation imposed by Article III, § 44,

of the Maryland Constitution. Both the bankruptcy court and the district court rejected this challenge, and we affirm.

I

In August 1980, when Patrick Butcher examined a propane water

heater in the basement of his home, it exploded, causing second and

third degree burns across 85% of his body. Butcher sustained permanent disfiguring and psychological injuries, and he continues to experience physical and psychological pain. Butcher's wife and son, who

witnessed his injury, also suffer from psychological injury. Butcher's

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treatment involved numerous plastic surgeries, and his economic

damages exceeded $800,000.

The Butchers, contending that the water heater was defectively

manufactured, sued its manufacturer for compensatory and punitive

damages. In settlement of that claim, the manufacturer's insurance

company, Travelers Indemnity Company, agreed to pay the Butchers

a lifetime income on a monthly basis that totals about $250,000 each

year. The 1993 present value of that structured settlement is estimated

to be $4.5 million.

While the suit against the manufacturer alleged both compensatory

and punitive damages, the settlement agreement did not state the basis

for payment nor did it allocate an amount to either category of damages. Rather the settlement agreement stated:

[T]his settlement is a compromise of a disputed claim, and

. . . the payment made is not to be construed as an admission

of liability on the part of [the manufacturer] and [the manufacturer] denies liability and intends merely to avoid litigation but does deny all liability.

In 1993, Mr. and Mrs. Butcher filed a voluntary petition in bankruptcy to reorganize their affairs under Chapter 11 due to the financial

collapse of their health club business. In their bankruptcy petition,

they sought to exempt from the bankruptcy estate the proceeds of

their personal injury settlement, as permitted by the Maryland exemption statute, Md. Code Ann., Cts. & Jud. Proc. § 11-504(b)(2).

Governor Plaza Associates, a creditor who provided financing for

the health club and to whom the Butchers gave personal guarantees,

filed an exception to the exemption which, it observed, would essentially shield most of the Butchers' assets from their creditors. Governor Plaza contended that at least part of the personal injury settlement

was made in respect of the Butchers' punitive damage claim and

therefore was not subject to a statutory exemption. Governor Plaza

also argued that the Maryland exemption statute was unreasonable

and therefore unconstitutional because it had no dollar limitation.

They argued alternatively that even if a reasonableness requirement

was read into the exemption statute, the $4.5 million exempted in this

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case was unreasonable and in violation of the Maryland Constitution

which authorizes laws exempting only reasonable amounts.

The bankruptcy court found that the personal injury settlement was

reasonable compensation for the serious personal injuries sustained by

the Butchers and that none of the proceeds were attributable to punitive damages. The court also rejected all of Governor Plaza's arguments challenging the constitutionality of the exemption statute. The

district court affirmed, and this appeal followed.

II

Governor Plaza's principal argument on appeal centers on its contention that Maryland's exemption statute is facially unconstitutional

under Article III, § 44, of the Maryland Constitution and, alternatively, that even if the statute is constitutional, its application to

exempt the $4.5 million settlement in this case violates the reasonableness requirement of the Maryland Constitution. Before addressing

directly these arguments, it will be useful to provide a statutory background.

The Bankruptcy Code authorizes a debtor in bankruptcy to exempt

from the bankruptcy estate either the property listed in 11 U.S.C.

§ 522(d) or, if the state elects to opt out of that provision, property

exempted by the state. See 11 U.S.C. § 522(b). Maryland has opted

out of the federal exemptions and has provided its own. See Md. Code

Ann., Cts. & Jud. Proc. §§ 11-504(b) & (g). Included in the list of

property that Maryland exempts is:

 Money payable in the event of sickness, accident, injury,

or death of any person, including compensation for loss of

future earnings. This exemption includes but is not limited

to money payable on account of judgments, arbitrations,

compromises, insurance, benefits, compensation, and relief.

Md. Code Ann., Cts. & Jud. Proc. § 11-504(b)(2).

Governor Plaza argues first that because this statutory exemption contains no "reasonableness" limitation, it is unconstitutional

under the Maryland Constitution which provides in pertinent part:

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 Laws shall be passed by the General Assembly, to protect

from execution a reasonable amount of the property of the

debtor.

Md. Const. art. III, § 44. Governor Plaza thus contends that because

§ 11-504 is unconstitutional, it is an ineffective effort by the state to

exercise its option granted by federal law.

While it is readily apparent that the Maryland statute does not contain an express limitation of "reasonableness," we consider it

undoubtedly accurate that the Maryland statute is to be read as providing an exemption only for reasonable compensation for personal

injuries. In reaching this conclusion, we begin with the presumption

that the Maryland legislature acted legally and in compliance with the

Maryland Constitution which provides that the legislature shall

exempt only reasonable amounts of property from execution. We can

hardly attribute to the legislature an intent to exempt unreasonable

amounts in violation of the Maryland Constitution in the absence of

a plain and clear demonstration of the Act's invalidity. See, e.g.,

Wilson v. Board of Supervisors, 328 A.2d 305, 308 (Md. 1974);

Salisbury Beauty Schools v. State Bd. of Cosmetologists, 300 A.2d

367, 374 (Md. 1973); see also Atkinson v. Sapperstein, 60 A.2d 737,

742 (Md. 1948) ("the Courts are disposed to uphold rather than to

defeat the statute, and since every presumption favors the validity of

a statute, it cannot be stricken down as void, unless it plainly contravenes a provision of the Constitution; a reasonable doubt in its favor

is enough to sustain it"). Accordingly, when a statutory text admits of

two interpretations -- one which conflicts with constitutional norms

and renders the statute a nullity and one which does not -- Maryland

courts adopt the reading of the statute which avoids the constitutional

conflict and gives meaning to the text. See, e.g., Curran v. Price, 638

A.2d 93, 104-05 (Md. 1994); Schochet v. State, 580 A.2d 176, 181

(Md. 1990); Wilson, 328 A.2d at 308; see also 2A Norman J. Singer,

Sutherland Statutory Construction § 45.11 (5th ed. 1992).

An interpretation of § 11-504 that reads reasonableness into the

exemption is also supported by the language of the statute itself. In

exempting "[m]oney payable in the event of sickness, accident,

injury, or death of any person, including compensation for loss of

future earnings," Md. Code Ann., Cts. & Jud. Proc. § 11-504(b)(2),

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the statute intended to exempt only money due to and compensatory

for sickness, accident, injury, or death. In so limiting the exemption,

the legislature made manifest its objective of withholding from creditors funds necessary to recompense the debtor for injuries to his physical person, to make the debtor whole in the eyes of the law, and to

restore human capital to the extent monetarily possible. Cf.

Niedermayer v. Adelman, 90 B.R. 146, 148 (D. Md. 1988) (interpreting § 11-504(b) in the context of mental injury). If the exemption

were construed to exempt unreasonable amounts, the money payable

would no longer be attributable to or compensatory for personal

injury. "Compensation" by definition aims at "making up, making

good, or counterbalancing." Webster's Third New International

Dictionary 463 (1961). Thus it implies a payment that counterbalances injury, intending that the amount of money be equal to the

value of the injury, but no greater. The statutory text, accordingly,

compels exemption only for those funds which fulfill this legislative

objective. Indeed, it would be irrational to read the exemption to

encompass funds which are not reasonably related to compensation

for "sickness, accident, injury, or death." Such an interpretation would

potentially allow any amount to be exempted regardless of its lack of

connection to the events articulated in the statute. And the legislature

is presumed not to have enacted futile laws or laws which generate

such absurd results, but rather laws which fulfill the Constitution's

requirements. See Romm v. Flax, 668 A.2d 1, 2 (Md. 1995);

Dickerson v. State, 596 A.2d 648, 652 (Md. 1991); Kaczorowski v.

City of Baltimore, 525 A.2d 628, 633 (Md. 1987); Kindley v.

Governor, 426 A.2d 908, 911-12 (Md. 1981); Gravenstine v.

Gravenstine, 472 A.2d 1001, 1010-11 (Md. Ct. Spec. App. 1984); see

also 2A Singer, Sutherland Statutory Construction at § 45.12.

Finally, by reading reasonableness into the statute and thereby

excluding unreasonable payments from exemption, we adhere to

long-established canons of statutory interpretation followed both by

the federal courts and the courts of Maryland. See, e.g., Standard Oil

Co. v. United States, 221 U.S. 1, 60 (1911) (considering Congress to

have intended an unspecified but "indubitably contemplat[ed] . . .

standard of reason" to limit operation of the Sherman Antitrust Act);

In re Taylor, 537 A.2d 1179, 1185 (Md. 1988) (interpreting the bankruptcy exemption for tools of one's trade to be limited to those

"reasonably necessary" for one's profession despite the absence of the

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word "reasonable" in the statutory text); see also 2A Singer,

Sutherland Statutory Construction at §§ 45.11-12.

Governor Plaza relies on authority from several other jurisdictions

that it contends have held that unlimited exemptions offend state constitutional prescriptions of reasonableness. Our review of these cases

reveals that its reliance is not fully justified. In In re Hudspeth, 92

B.R. 827, 831 (Bankr. D. Ark. 1988), the court held merely that an

Arkansas statute allowing exemption for the cash value of certain

insurance policies violated that state's $500 constitutional limitation

on exemptions. Likewise, in Citizen's Nat'l Bank v. Foster, 668

N.E.2d 1236, 1242 (Ind. 1996), the Indiana Supreme Court held a

limitless exception for life insurance policy assets to be "constitutionally suspect" under a "reasonableness" requirement, but sustained its

validity by reading in an exemption for "necessities of life." And in

Estate of Jones, 529 N.W.2d 335, 337 (Minn. 1995), the Minnesota

Supreme Court held unconstitutional under a reasonableness requirement an unlimited exemption for certain retirement plans. But that

same court also held that an unlimited exemption for personal injury

compensation was constitutional. See Medill v. State, 477 N.W.2d

703, 707-08 (Minn. 1991). In Medill, the court recognized, as we have

here, that reasonableness is introduced into the exemption by the "inherent judicial limitations on the size of a compensatory damage

award" and the fact that "no party will agree to an `unreasonable' settlement." Id. at 707.

In addition to its facial challenge of Maryland's exemption statute,

Governor Plaza argues that the $4.5 million amount exempted in this

case by the Maryland statute is an unreasonable application of the

statute in violation of the Maryland Constitution. Their challenge on

an as-applied basis, however, is little more than a challenge to the

factfinding by the bankruptcy court that $4.5 million was reasonable

for the injuries sustained. The bankruptcy court reviewed the injuries

in some detail and concluded that Butcher's injuries were "absolutely

life threatening, devastating, horrendous" and that "there is no amount

of money that will make [the Butchers] whole." The bankruptcy court

also concluded that the settlement amounts were entirely compensatory and not punitive. Because we cannot conclude that these findings

are clearly erroneous, we cannot say that the exemption violates the

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command of reasonableness given by Article III,§ 44, of the Maryland Constitution.

III

Governor Plaza advances two additional arguments for including

the Butchers' settlement proceeds in the bankruptcy estate. We find

neither persuasive.

It argues first that Maryland's 1986 limitation for noneconomic

damages in personal injury cases, see Md. Code Ann., Cts. & Jud.

Proc. § 11-108(b)(1) (limiting recovery for noneconomic damages to

$350,000), should be considered when determining the reasonableness of the Butchers' 1983 settlement. The Maryland cap on noneconomic damages, however, was not enacted to define the

reasonableness of an exemption as that term is used in the Maryland

Constitution and as it applies to the Maryland exemption statute. Section 11-108 was enacted in response to a perceived crisis concerning

the availability and cost of liability insurance in Maryland. See

Murphy v. Edmonds, 601 A.2d 102, 114 (1992). The Maryland legislature concluded that "[a] cap on noneconomic damages may lead to

greater ease in calculating premiums, thus making the market more

attractive to insurers, and ultimately may lead to reduced premiums,

making insurance more affordable for individuals and organizations

performing needed services." Id. at 115. In regulating the amount of

recovery for noneconomic damages, the Maryland legislature was

merely exercising its power to "completely eliminate a cause of action

for negligence or repeal whole categories of recoverable damages

under recognized torts," Franklin v. Mazda Motor Corp., 704 F.

Supp. 1325, 1333 (D. Md. 1989), and it was not defining what quantities for economic or noneconomic damages are reasonable. Moreover,

we believe that the enactment of a cap on noneconomic damages in

1986 is simply irrelevant to whether a personal injury settlement

based on a 1980 accident was reasonable.

Finally, Governor Plaza argues that in claiming the Maryland

exemption for their personal injury settlement on schedule C of their

bankruptcy petition, the Butchers cited § 11-504(b)(5) and not § 11-

504(b)(2). Subsection (b)(5) provides a cash property exemption of up

to $3,000, whereas subsection (b)(2) provides exemption for personal

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injury compensation. In open court, the Butchers characterized their

reference to (b)(5) instead of (b)(2) as a typographical error, and the

bankruptcy court acknowledged the error, noting that all parties had

been treating the claimed exemption as one for a personal injury settlement under subsection (b)(2). It therefore granted the Butchers

leave to correct the record to refer to subsection (b)(2), which the

Butchers did, although somewhat belatedly. We review the reference

to subsection (b)(5) on the bankruptcy schedule as simply a mechanical error on which neither party relied and which was appropriately

corrected. We can find no basis on which Governor Plaza can now

rely on this error to its benefit.

For the foregoing reasons, we affirm the judgment of the district

court.

AFFIRMED

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