Court Opinion

ID: 9906118
Source: CourtListenerOpinion
Date Created: 2023-12-01 01:00:39.559552+00
Date Added: 2024-06-11T09:24:06.469060
License: Public Domain

Case: 23-50383        Document: 00516985410             Page: 1      Date Filed: 11/30/2023

             United States Court of Appeals
                  for the Fifth Circuit                                        United States Court of Appeals
                                                                                        Fifth Circuit
                                     ____________
                                                                                      FILED
                                                                              November 30, 2023
                                      No. 23-50383
                                    Summary Calendar                             Lyle W. Cayce
                                    ____________                                      Clerk

   In the Matter of Frank W. Gordon; Judith B. Gordon,

                                                                                     Debtors,

   John Patrick Lowe,

                                                                                Appellant,

                                            versus

   Frank W. Gordon; Judith B. Gordon,

                                                                                 Appellees.
                     ______________________________

                     Appeal from the United States District Court
                          for the Western District of Texas
                               USDC No. 1:22-CV-947
                     ______________________________

   Before Jones, Smith, and Dennis, Circuit Judges.
   Per Curiam: *
         Appellant John Patrick Lowe is the duly appointed Chapter 7 Trustee
   (the “Trustee”) of the bankruptcy estate of the appellees, Debtors Frank W.

         _____________________
         *
             This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 23-50383      Document: 00516985410          Page: 2   Date Filed: 11/30/2023

                                    No. 23-50383

   Gordon and Judith B. Gordon (collectively “Debtors”). After Debtors
   claimed the surrender value of two life-insurance policies as exempt from the
   bankruptcy proceedings under Texas state law, the Trustee objected to the
   exemption before the United States Bankruptcy Court for the Western
   District of Texas, which overruled his objection. The United States District
   Court for the Western District of Texas affirmed the bankruptcy court’s
   ruling on appeal. For the following reasons, we Affirm.
                  I.    Facts and Procedural History
          Debtors filed for Title 11 Chapter 7 Bankruptcy on May 16, 2022.
   Under 11 U.S.C. § 522(b)(3), they elected to exempt property from their
   bankruptcy under Texas state law. Debtors claimed as exempt two life-
   insurance policies. For both policies, Frank W. Gordon is the insured, and
   Judith B. Gordon is the direct beneficiary. The Trustee timely objected to the
   exemption of the policies’ cash surrender value, arguing that it could be only
   claimed by the “insured” or “beneficiary” of the policy, and that at the time
   of bankruptcy, the Debtors were merely the “owners” of the policy, and thus
   ineligible for exemption under Texas state law. The bankruptcy court
   overruled this objection, and the Trustee appealed to the district court. The
   district court affirmed the bankruptcy court, finding that because the life-
   insurance policies named the Debtors as the insured and beneficiary, the
   exemption was proper under Texas state law, and it need not reach the
   “owner” question. This appeal followed.
                        II.    Standard of Review
          Because this case is purely a question of law, we review it de novo. See
   Matter of Hawk, 871 F.3d 287, 290 (5th Cir. 2017) (“The ‘[d]etermination
   [of] whether an exemption from the bankruptcy estate exists is a question of
   law, which we review de novo.’”) (quoting In re Zibman, 268 F.3d 298, 301
   (5th Cir. 2001))).

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                                III.      Analysis
          Generally, when debtors commence a bankruptcy, all their property
   becomes part of the bankruptcy estate. 11 U.S.C. § 541(a)(1) and (2). But
   debtors may remove property from the estate by using the exemptions
   described in federal or state law. 11 U.S.C. § 522(b). Here, the Debtors
   claimed the cash surrender value of the two life-insurance policies in question
   under Sections 1108.001 and 1108.051 of the Texas Insurance Code. See 11
   U.S.C. § 522(b)(3) (state and nonbankruptcy federal exemptions).
          As both parties acknowledge, the propriety of the Debtors’ exemption
   depends on the interpretation of Texas Insurance Code §1108.051, which
   provides:
          (a) . . . [T]his section applies to any benefits, including the cash
          value and proceeds of an insurance policy, to be provided to an
          insured or beneficiary under:
                 (1) an insurance policy . . . issued by a life, health, or
                 accident insurance company, including a mutual
                 company or fraternal benefit society . . .
          (b) Notwithstanding any other provision of this code,
          insurance ... benefits described by Subsection (a):
                 (1) inure exclusively to the benefit of the person for
                 whose use and benefit the insurance ... is designated in
                 the policy . . .; and
                 (2) are fully exempt from:
                         (A) garnishment, attachment, execution, or
                         other seizure;
                         (B) seizure, appropriation, or application by any
                         legal or equitable process or by operation of law
                         to pay a debt or other liability of an insured or of
                         a beneficiary, either before or after the benefits
                         are provided; and

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                                     No. 23-50383

                         (C) a demand in a bankruptcy proceeding of the
                         insured or beneficiary.
   Tex. Ins. Code § 1108.051.
          Because the issue here depends on the interpretation of a Texas
   statute, we apply the same statutory analysis as a Texas court. LaSalle Bank
   Nat. Ass’n v. Sleutel, 289 F.3d 837, 839 (5th Cir. 2002). “In Texas the
   cardinal rule of statutory construction is to ascertain the legislature’s intent,
   and to give effect to that intent. The duty of the court is to construe a statute
   as written and ascertain the legislature’s intent from the language of the act.”
   Id. (quoting McNeil v. Time Ins. Co., 205 F.3d 179, 183 (5th Cir. 2000) (further
   internal quotations omitted).
          Further, under longstanding Texas Supreme Court precedent, Texas
   “exemption laws should be liberally construed in favor of express
   exemptions, and should never be restricted . . . to minimize their operation
   . . . Without doubt the exemption would generally be resolved in favor of the
   claimant.” Hickman v. Hickman, 234 S.W.2d 410, 413 (Tex. 1950); see also
   Matter of Walden, 12 F.3d 445, 448 (5th Cir. 1994) (noting that when the Fifth
   Circuit interprets Texas exemption laws, “we are given more than firm
   guidance in our interpretation by the Texas courts’ longstanding admonition
   that exemption statutes are to be liberally construed in favor of the
   claimant”) (internal quotations omitted).
          Here, despite the Debtors’ being defined as either the insured or the
   beneficiary of both life-insurance policies, the Trustee objected to the
   exemption of the cash surrender value of the policies from the bankruptcy
   estates. As with all objections to exemptions under bankruptcy law, “[t]he
   objecting party has the burden of proving the exemptions are not properly
   claimed.” Fed. R. Bankr. P. 4003(c). He argues that the Debtors are the
   “owners” of the life-insurance policies’ cash surrender value, not the

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                                    No. 23-50383

   “insured” or “beneficiaries.” Therefore, because § 1108.051 does not allow
   owners to claim the cash surrender value as exempt, the Debtors’ claim is
   improper.
          However, the Trustee failed to meet his burden to prove the
   exemptions improper. See Fed. R. Bankr. P. 4003(c). As the district
   court correctly found below, the text and legislative history of § 1108.051
   support the Debtors’ interpretation of the statute, not the Trustee’s. The
   insured or beneficiary of a life-insurance policy can claim the cash surrender
   value of the policy as exempt under Texas Law for two reasons.
          First, the plain language of the statute unambiguously provides for an
   exemption for “any benefits, including the cash value and proceeds of an
   insurance policy, to be provided to an insured or beneficiary” under a life-
   insurance policy. Tex. Ins. Code. § 1108.051. While the Trustee’s arguments
   focus on the Debtors’ status as the “owners” of the policy, he does not
   dispute that the policies themselves name Mr. Gordon as the insured and
   Mrs. Gordon as the beneficiary. As the Trustee helpfully noted in his brief,
   under Fifth Circuit precedent, “[i]n matters of statutory interpretation, text
   is always the alpha.” Whitlock v. Lowe, 945 F.3d 943, 947 (5th Cir. 2019). To
   ignore the plain text of the statute in favor of the Trustee’s interpretation
   would violate this core tenet. And it would certainly run contrary to the Texas
   Supreme Court’s command that “exemption laws . . . should never be
   interpreted . . . to restrict their operation.” Hickman, 234 S.W.2d at 413; see
   also Walden, 12 F.3d at 448.
          Second, as the district court noted, “throughout the multiple
   amendments of §1108.051, ‘the Insurance Code has continually reaffirmed
   its elemental character providing an exemption for…money or benefits of any
   kind…to be paid or rendered…to any beneficiary under any policy of
   insurance.’” In re Gordon, No. 1:22-CV-00947-LY, 2023 WL 3595375, at *5

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                                        No. 23-50383

   (W.D. Tex. Apr. 18, 2023) (quoting In re Young, 166 B.R. 854, 857 (Bankr.
   E.D. Tex. 1994) (further internal quotations omitted)). Since the statute was
   first enacted in 1927, it has allowed the insured and beneficiary of a life-
   insurance policy to claim the policy’s proceeds as exempt from bankruptcy. 1
   Overruling the Debtors’ exemption due to some alleged extratextual status
   as “owners,” when the policy names them as the insured and beneficiary,
   would violate the legislature’s clear intent. LaSalle, 289 F.3d at 839 (“In
   Texas the cardinal rule of statutory construction is to ascertain the
   ‘legislature’s intent,’ and to give effect to that intent.”)
          Just as the district court found, we need not analyze whether the
   Debtors are the “owners” of the policy to uphold their exemption. The text
   of the statute clearly demonstrates that the Texas legislature intended to
   allow the insured and the beneficiaries of life-insurance policies, like the
   Debtors, to claim the cash surrender value of those policies as exempt.

                                IV.      Conclusion
          In accordance with the foregoing, we AFFIRM the district court’s
   judgment in favor of the appellees.

          _____________________
          1 The statute provided for the exemption of life-insurance benefits to both the

   insured and the beneficiary upon its enactment in 1927, as Article 21.22(1) of the Texas
   Insurance Code. Act Approved March 30, 1927, 40th Leg., R.S., ch. 234, 1927 Tex. Gen.
   Laws 348 (appeared originally as Tex. Rev. Civ. Stat. art. 5068a).

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Case: 23-50383   Document: 00516985410   Page: 7   Date Filed: 11/30/2023