Court Opinion

ID: 1033637
Source: CourtListenerOpinion
Date Created: 2013-07-13 00:00:59.175479+00
Date Added: 2024-06-11T15:27:01.906853
License: Public Domain

United States Court of Appeals
                              For the Eighth Circuit
                          ___________________________

                                  No. 12-3448
                          ___________________________

In re: Abdullah I Abdul-Rahim, formerly known as Larry Hickson; Stephanie A. Abdul-Rahim

                                lllllllllllllllllllllDebtors

                              ------------------------------

               Abdullah I Abdul-Rahim; Stephanie A. Abdul-Rahim

                              lllllllllllllllllllllAppellants

                                            v.

                                 John V. LaBarge, Jr.

                               lllllllllllllllllllllAppellee

                              ------------------------------

             National Association of Consumer Bankruptcy Attorneys

                   lllllllllllllllllllllAmicus on Behalf of Appellants
                                         ____________

                     Appeal from the United States Bankruptcy
                       Appellate Panel for the Eighth Circuit
                                  ____________

                              Submitted: April 10, 2013
                                Filed: July 12, 2013
                                  ____________
Before WOLLMAN, BEAM, and MURPHY, Circuit Judges.
                          ____________

BEAM, Circuit Judge.

       Abdullah and Stephanie Abdul-Rahim ("Debtors") appeal the decision of the
Bankruptcy Appellate Panel (BAP), which affirmed the bankruptcy court's ruling that
the holding of In re Benn, 491 F.3d 811 (8th Cir. 2007), compelled the conclusion
that the Debtors' unliquidated personal injury claim may not be exempted from their
bankruptcy schedules. We affirm.

I.    BACKGROUND

       Debtors filed a Chapter 13 bankruptcy petition on August 3, 2011, and later,
in an amended schedule, claimed as exempt an unliquidated personal injury claim,
ostensibly pursuant to Missouri Revised Statute § 513.427 and the common law. The
Trustee objected to the exemption and the bankruptcy court cited In re Benn in
disallowing the exemption. Debtors appealed to the BAP, arguing that In re Benn
was inapposite, distinguishable or wrong based upon Missouri state law. Further,
Debtors argued that the reasoning underlying the denial of the exemption violated the
Erie1 doctrine and was contrary to the Supreme Court bankruptcy decision Butner v.
United States, 440 U.S. 48, 54-55 (1979) (holding that in bankruptcy proceedings, the
question of whether a security interest in property extended to rents and profits
derived from that property was resolvable by reference to state, rather than federal
law). The BAP was unpersuaded, and, relying upon In re Benn, affirmed the
bankruptcy court. On appeal, Debtors advance substantially similar arguments as
those advanced to the BAP.

      1
          Erie R.R. Co. v. Tomkins, 304 U.S. 64 (1938).

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II.   DISCUSSION

       On an appeal from the BAP, we act as a second reviewing court of the
bankruptcy court's decision, independently applying the same standard of review as
the BAP, reviewing findings of fact for clear error and conclusions of law de novo.
In re Treadwell, 637 F.3d 855, 863 (8th Cir. 2011).

        The Bankruptcy Code allows debtors to exempt certain property from their
bankruptcy estates, which are otherwise comprised of all the debtor's legal or
equitable interests in property. 11 U.S.C. §§ 522(d), 541(a). Section 522 sets forth
a list of property that may be exempted by the debtor, and also sets forth the general
rule that a debtor may choose between the scheme of federal exemptions prescribed
in § 522(d); or the debtor may proceed to exempt property based upon other federal
law and the law of the debtor's domiciled state. Id. § 522. However, a state may "opt
out" of the Code's exemptions in § 522 and if that has occurred, a debtor from that
state may only claim exemptions based upon federal or state exemptions other than
those found in § 522. In re Benn, 491 F.3d at 813. Missouri has opted out of the
Code's exemptions, see Mo. Rev. Stat. § 513.427, so debtors are limited to the non-
522 exemptions.

       Debtors argue that under Missouri law, they are or should be allowed to exempt
an unliquidated personal injury claim arising from an automobile accident. However,
there is no specific Missouri statute that specifies that an unliquidated tort claim can
be exempted from the bankruptcy estate. Section 513.427, the "opt out" statute,
provides that Missouri debtors "shall be permitted to exempt from property of the
[bankruptcy] estate any property that is exempt from attachment and execution under
the law of the state of Missouri." Mo. Rev. Stat. § 513.427. Another Missouri
statute, section 513.430, lists the kinds of property that are exempt from attachment
and accordingly may be exempted from the bankruptcy estate. The proceeds of
personal injury or tort claims, unliquidated or otherwise, are not listed in section

                                          -3-
513.430.2 Nor are they listed as exempt in any other Missouri or federal statute
outside of § 522.3 Consequently, the Trustee objected to the Debtors' claimed
exemption, and cited as authority for the objection our In re Benn decision. The
Debtors argue that the holding of In re Benn is limited and has been improperly
expanded by the bankruptcy courts in Missouri and the Eighth Circuit bankruptcy
appellate panels.

       In In re Benn, the debtors, Missouri citizens, attempted to exempt their state tax
refund from their bankruptcy estate, and argued that in addition to serving as the
state's "opt out" provision, Missouri Revised Statute § 513.427 also defined
additional forms of property that a debtor may exempt from the bankruptcy estate.
491 F.3d at 814. The In re Benn debtors focused on language in section 513.427
stating that debtors in Missouri were entitled to exempt from the bankruptcy estate
"any property that is exempt from attachment and execution under the law of the state
of Missouri." Mo. Rev. Stat. § 513.427. In rejecting the notion that section 513.427
was an exemption statute in addition to an opt-out statute, we held that the meaning
of the "law of the state of Missouri" was that Missouri debtors may exempt property
only "where another Missouri statute specifies that certain property is exempt." In
re Benn, 491 F.3d at 814 (emphasis added). Under the reasoning of In re Benn, a
Missouri debtor may only exempt property from the bankruptcy estate if Missouri
Revised Statute § 513.430, or some other Missouri legislative pronouncement
(statute) provides for exemption from bankruptcy. In re Benn, 491 F.3d at 814.

      2
      For an example of an "opt out" state's exemption statute authorizing such
exemptions, see Nebraska Revised Statute §§ 25-1563.02, 25-15,105.
      3
        11 U.S.C. § 522(d)(11)(D) actually does allow the debtor to exempt, up to
$22,975, his or her right to receive property traceable to a payment on account of
personal bodily injury. As noted, Missouri debtors are not able to avail themselves
of the exemptions in § 522. See Mo. Rev. Stat. § 513.427.

                                          -4-
       Although none of our cases have construed In re Benn, it has been routinely
interpreted by the district and bankruptcy courts in Missouri to require a state
statutory basis for bankruptcy exemptions. See Dylewski v. Amco Ins. Co., No. 4:10-
CV-00289, 2010 WL 1727870, at *3 (E.D. Mo. April 29, 2010) (construing In re
Benn and noting in a non-bankruptcy case that "an unliquidated claim based on
personal injury may not properly be excluded from a bankruptcy estate"); In re
Parsons, 437 B.R. 854, 858 (Bankr. E.D. Mo. 2010) (holding, in light of In re Benn,
"[a]ll debtors henceforth must make do with the Missouri exemptions where the
Missouri Legislature has explicitly identified property that a judgment debtor can
keep away from creditors, not those that were created in practice and went without
objection"); In re Mahony, 374 B.R. 717, 719 (Bankr. W.D. Mo. 2007)
("Unfortunately for the Debtors, however, the Eighth Circuit's [In re Benn] opinion
is very clear that, unless there is a specific Missouri statute, or a federal statute other
than § 522, providing an exemption in property, a Missouri debtor in bankruptcy
cannot claim an exemption in it.").

       Nonetheless, the Debtors argue that In re Benn's holding is narrow and stands
only for the proposition that Missouri Revised Statute § 513.427 does not create an
exemption for tax refunds, nor does any other Missouri or federal statute. See In re
Benn, 491 F.3d at 816. Debtors characterize the remaining language of In re Benn
as dicta, and also point to a 1987 bankruptcy case from Missouri, In re Mitchell, as
the primary authority to support their argument that unliquidated personal injury
claims may be exempted from the bankruptcy estate. 73 B.R. 93, 94 (Bankr. E.D.
Mo. 1987). The Mitchell court specifically held that the language of section 513.427
"permits Missouri residents to claim exemptions created by statutory and
constitutional law as well as common law." Id. The Mitchell court explained such
claims should be exempt from the bankruptcy estate because they are contingent,
uncertain, and unattachable and therefore fall within the language of section 513.427
(even though not listed in section 513.430). 73 B.R. at 95. In addition to relying
upon Mitchell, Debtors further argue that the Missouri legislature's silence on the

                                           -5-
issue of the exemption of unliquidated personal injury claims means that it does not
intend to preclude such claims. Finally, Debtors point out that Missouri state courts
disagree with our In re Benn opinion. E.g., Russell v. Healthmont of Mo., LLC., 348
S.W.3d 784, 787 (Mo. Ct. App. 2011) (stating that we "disregarded . . . extensive
Missouri case law interpreting § 513.427" by holding that it was an "opt out" statute
only).

       While we appreciate the reasoning of Mitchell, its substance–that section
513.427 contains exemptions in addition to the opt out language–was overruled by
In re Benn, 491 F.3d at 814.4 Further, while Russell is instructive on the issue of
Missouri statutory history, we cannot escape the language from In re Benn. The In
re Benn court construed the meaning of Missouri Revised Statute § 513.427, and the
language Debtors point to as dicta–that section 513.427 is an opt out rather than an
exemption statute–is an integral part of In re Benn's analysis. 491 F.3d at 814.
Further as the Trustee points out, the Missouri legislature has apparently declined the
opportunity to amend its exemption statute, section 513.430, to add unliquidated
personal injury claims, even in light of the numerous Missouri bankruptcy court
decisions precluding such claims from exemption.

       It is true that Missouri courts have long held that personal injury claims are
exempt from attachment, and under our reasoning, the Trustee has the ability to seek
more assets to repay creditors than does a non-Trustee creditor outside of the
bankruptcy process. Debtors argue that this result is contrary to Butner. In Butner,
the Court held that in bankruptcy proceedings, the question of whether a security
interest in property extended to rents and profits derived from that property was
resolvable by looking to state, rather than federal, law. 440 U.S. at 55. The Butner

      4
       In light of Mitchell's overruling, we disagree with Debtors' Erie arguments
based upon the rule allegedly established in Mitchell, and further note that the Erie
doctrine's reach is limited in bankruptcy cases. U.S. Trust Co. of N.Y. v. Zelle, 191
F.2d 822, 825 (8th Cir. 1951).

                                         -6-
Court qualified its holding, however, stating that "[u]nless some federal interest
requires a different result," property rights should be the same under both state and
federal law. Id. As we noted in In re Benn, the federal interests in balancing and
promoting the multiple purposes of the Bankruptcy Code provide sufficient
justification for why a bankruptcy trustee might have more remedies available to it
than another Missouri creditor. In re Benn, 491 F.3d at 816. Ultimately, we conclude
that unless In re Benn is overruled en banc or by the Supreme Court, it remains
binding precedent, and is directly applicable to the issues in this case.

III.   CONCLUSION

       For these reasons, we affirm.
                       ______________________________

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