Court Opinion

ID: 2964062
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:19:52.905061+00
Date Added: 2024-06-11T11:42:49.892210
License: Public Domain

USCA1 Opinion

	

                            United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________
        No. 95-2320

                  IN RE: ODA JOSEPH CARON AND LORRAINE NORMA CARON,

                                       Debtor.

                                 ____________________

                     ODA JOSEPH CARON, D/B/A CARON & SONS MOBIL,
              F/D/B/A WAKEFIELD COUNTRY STORE AND LORRAINE NORMA CARON,

                                     Appellants,

                                          v.

                               FARMINGTON NATIONAL BANK
                     AND LAWRENCE P. SUMSKI, CHAPTER 13 TRUSTEE,

                                      Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF NEW HAMPSHIRE

                    [Hon. Paul J. Barbadoro, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                                 Selya, Circuit Judge,
                                        _____________
                            Aldrich, Senior Circuit Judge,
                                     ____________________
                              and Stahl, Circuit Judge.
                                         _____________
                                 ____________________

            Grenville Clark, III  with whom Gray Wendell  & Clark, P.C. was on
            ____________________            ___________________________
        brief for appellants.
            David P. Azarian with whom Michael, Jones  & Wensley was on  brief
            ________________           _________________________
        for appellees.
                                 ____________________
                                    April 25, 1996
                                 ____________________

                      STAHL, Circuit Judge.  Oda J. Caron and Lorraine N.
                      STAHL, Circuit Judge.
                             _____________

            Caron   appeal  the  district   court's  affirmance   of  the

            bankruptcy  court's  denial  of  an exemption  for  the  cash

            surrender value  of an insurance policy on  Mr. Caron's life.

            Because we  find that the courts  below correctly interpreted

            the applicable New Hampshire statute, we affirm.

                                      Background
                                      Background
                                      __________

                      Appellants, husband and wife, filed a joint Chapter

            13 bankruptcy petition in  the United States Bankruptcy Court

            for the District  of New  Hampshire.  In  their statement  of

            financial  affairs, they  listed as  an asset  a Metropolitan

            Life Insurance Company policy  on the life of Mr.  Caron, and

            they  claimed  the  policy's  $19,260 cash  value  as  exempt

            property pursuant  to   522(b)(2)(A) of the  Bankruptcy Code.

            Because New Hampshire enacted legislation "opting out" of the

            federal exemptions, New Hampshire debtors are  only permitted

            to exempt property pursuant to state-enacted exemptions,  not

            those specified in  11 U.S.C.   522(d).   See N.H. Rev. Stat.
                                                      ___

            Ann.       511:2-a (opting out of  federal exemption scheme).

            Farmington National  Bank, a  creditor of the  Carons, timely

            filed  an objection  to  the exemption  claim,  in which  the

            chapter 13 trustee joined.

                      After a  hearing  before the  bankruptcy court,  at

            which  a  copy of  the life  insurance  policy was  placed in

            evidence, the court ruled that the policy was property of the

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            estate  under  11  U.S.C.     541(a)(1)  and  that  the  cash

            surrender value of  the life insurance policy was  not exempt

            under  New Hampshire law.  The Carons appealed that ruling to

            the United  States District  Court  for the  District of  New

            Hampshire, which affirmed the  order of the bankruptcy court.

            This appeal followed.

                      The  sole issue  for determination  is whether  the

            courts below erred in holding that the  life insurance policy

            was not exempt property.  The parties agree with the relevant

            factual findings made  by the bankruptcy  court: that at  the

            time  of the  filing of  the  bankruptcy petition,  Mr. Caron

            owned the  life insurance  policy and  retained the  right to

            change  the  beneficiary  (his wife  and  co-debtor  Lorraine

            Caron) and the contingent  beneficiaries (their children), as

            well as the right to surrender the policy for its cash value.

            Thus, for purposes of this appeal,  all that is before us  is

            the  legal conclusion that the policy was not exempt, and our

            standard of review is de novo.   See T I Federal Credit Union
                                  __ ____    ___ ________________________

            v. DelBonis, 72 F.3d 921, 928 (1st Cir. 1995).
               ________

                                      Discussion
                                      Discussion
                                      __________

                      In order to determine whether the cash value of the

            policy is exempt,  we begin with  the New Hampshire  statute,

            N.H. Rev. Stat. Ann.   408:2, which provides: 

                           If  a policy  of  life or  endowment
                      insurance  is effected  by any  person on
                      his own life or on another life, in favor
                      of a person other than  himself having an

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                      insurable  interest  therein, the  lawful
                      beneficiary thereof other than himself or
                      his   legal  representatives,   shall  be
                      entitled  to its  proceeds and  all other
                      benefits     against    creditors     and
                      representatives  of the  person effecting
                      the  same; provided, that, subject to the
                      statute of limitations, the amount of any
                      premiums for said insurance paid in fraud
                      of  creditors,   with  interest  thereon,
                      shall  enure to  their  benefit from  the
                      proceeds of the policy. 

                      The bankruptcy court ruled  that the policy was not

            exempt,  incorporating  by  reference its  discussion  of the

            issue in In re  Monahan, 171 B.R. 710, 715-21  (Bankr. D.N.H.
                     ______________

            1994)  where  it  decided   three  separate  cases  involving

            exemption  claims  under   New  Hampshire's  life   insurance

            exemption statute,   408:2.  

                      Because  the New  Hampshire  Supreme Court  has not

            rendered any  decisions construing   408:2,  we interpret the

            statute  as  we think  that court  would  interpret it.   The

            district  court agreed  with  the bankruptcy  court that  the

            plain meaning of the statute restricts the exemption right to

            the   beneficiary   and  provides   no  protection   for  the

            insured/owner of the policy.  Because the policy in this case

            provided the  beneficiary with  no right  to the proceeds  or

            other benefits of  the policy  except upon the  death of  the

            insured, the  district court ruled that Mrs. Caron, the named

            beneficiary, had no right  during the life of her  husband to

            maintain the  policy  for her  benefit  or to  surrender  the

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                                          4

            policy for its cash value, and that her sole  interest was as

            the beneficiary in the event of Mr. Caron's demise.

                      The  appellees, Farmington  National  Bank and  the

            Chapter  13 Trustee,  argue  that the  New Hampshire  statute

            distinguishes between  the owner/insured of the  policy and a

            third  person  beneficiary  and clearly  specifies  that  the

            person entitled  to the exemption is  "the lawful beneficiary

            thereof," not  the insured/owner.   The appellees  argue that

            only  when the insured has "parted with all of his beneficial

            interest  therein" would  a life  insurance policy  be exempt

            from the  insured's creditors, quoting from  and relying upon

            In re Bray,  8 F. Supp. 761, 763 (D.N.H.  1934).  They reason
            __________

            that since Mr. Caron,  at the time of the  bankruptcy filing,

            had  not "parted  with all  his beneficial  interest" in  the

            policy,  but  rather retained  ownership and  the concomitant

            rights to reach its cash value and to change the beneficiary,

            he still  effectively retained all  the beneficial  interest.

            Mrs. Caron's  interest, they  assert, was both  defeasible by

            Mr. Caron and contingent upon his death.

                      While the  statute is  not a model  of clarity,  we

            find the reasoning  of the bankruptcy court  and the district

            court to be compelling.  We  agree that the statute cannot be

            read to exempt the  policy in favor of an  owner/insured, but

            only in favor of a beneficiary.   And here, the rights of the

            beneficiary,  Mrs.  Caron, do  not  arise  until Mr.  Caron's

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                                          5

            death,  and  her  prospective  rights can  be  diminished  or

            terminated  by him during his lifetime.  As such, because Mr.

            Caron  was alive at the  time the petition  in bankruptcy was

            filed,  Mrs. Caron had no rights in the proceeds, cash value,

            or other benefits of the policy.   Thus, she had no  interest

            in the policy  that could be  exempted by  the statute.   The

            rights  and   powers  under   the  policy  retained   by  the

            owner/insured, Mr.  Caron, became the property  of the estate

            as of the filing of the petition.   See 11 U.S.C.   541(a)(1)
                                                ___

            (all legal or equitable  interests of the debtor  in property

            become property of the estate upon commencement of the case).

            Accordingly, neither Mr.  Caron nor his wife  are entitled to

            the statutory exemption.1 

                      While  we recognize  that generally  courts are  to

            construe  exemption  statutes   liberally  to  reflect  their

            remedial  purposes, we  find reasons  here to  afford  a more

            narrow  reading.  While the result that the Carons seek would

            apparently obtain under  the analogous federal  exemption, 11

            U.S.C.   522(d)(7), see In re Monahan, 171 B.R. at 716 & n.8,
                                ___ _____________

            legislative history indicates that New Hampshire opted out of

                                
            ____________________

            1.  We note, but  do not rely upon, the  fact that Mrs. Caron
            is  a  co-debtor in  this  joint bankruptcy,  and  it appears
            therefore that  her interest in  the insurance policy  was an
            asset of  the estate in any  event, subject to the  claims of
            her creditors if  not Mr.  Caron's.  At  most, the  exemption
            ___
            statute shelters a policy from the creditors of  the insured;
            it  makes no reference  to the creditors  of the beneficiary.
            See N.H. Rev. Stat. Ann.   408:2.  
            ___

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                                          6

            the federal  exemption scheme  because it was  too "liberal,"

            overly  indulgent of  debtors at  the expense  of creditors.2

            Even more  persuasive is legislative  history indicating that

            the  New Hampshire  legislature specifically chose  to delete

            language that would have made the Carons' arguments much more

            plausible.   The  statute at  issue, as  originally proposed,

            provided that the exemption was available "whether or not the

            right to change the beneficiary  is reserved or permitted  to

            such  person  [the  owner/insured],"  but  that language  was

            struck.    New  Hampshire House  Report  on  House Bill  224,

            Journal of  the House, April 29, 1931, at 698.  We infer from

            the  deletion that  the  legislature declined  to extend  the

            exemption to  policies where  the owner/insured  retained the

            power  to alter  the  beneficiary.   Of  like import  is  the

            legislature's deletion of the provision that "No court and no

            trustee or assignee for the benefit of creditors, shall elect

            for  the person  effecting  such insurance  to exercise  such

            right to change  the named beneficiary."  Id.   We infer from
                                                      ___

            this deletion  a legislative  intent that the  statute should

            not  prevent  a bankruptcy  trustee  from  stepping into  the

                                
            ____________________

            2.  See New  Hampshire House Judiciary Comm.  Report, Journal
                ___
            of  the House, 1981 January  Session, April 23,  1981, at 533
            (stating  that  the proposed  opt-out  statute  "prevents New
            Hampshire residents from filing with the more liberal federal
            bankruptcy  law.");  Minutes  of  House  Judiciary  Committee
            executive session April 20, 1981, statement of Representative
            Eaton  (federal bankruptcy  act  is "very  liberal" and  that
            state exemptions ought to control instead).

                                         -7-
                                          7

            policy  owner's  shoes to  exercise  policy  rights, such  as

            reaching the cash  value or changing the beneficiary.   Thus,

            the legislative history strongly  suggests a narrow scope for

            New Hampshire's  life insurance  exemption,  and the  Carons'

            exemption claim falls outside that scope.

                      Contrary to the Carons' arguments, we are not bound

            to  follow,  and  need   not  overrule,  the  district  court

            decisions in In re  Whelpley, 169 F. 1019 (D.N.H.  1909), and
                         _______________

            In re  Bray,  8 F.  Supp. 761  (D.N.H. 1934).   The  Whelpley
            ___________                                          ________

            decision predates  the enactment  of the present  statute and

            the aforementioned legislative choices  to set a narrow scope

            for  the  exemption.   Moreover,  the  two-paragraph Whelpley
                                                                 ________

            opinion is devoid of  analysis.  In Bray, the  district court
                                                ____

            held  that the life insurance policy was not exempt under the
                                                     ___

            statute at issue here.  Bray, 8  F. Supp. at 763.  While Bray
                                    ____                             ____

            provides more  analytical discussion,  it is not  clear which

            aspects of the insurance policy  rendered it non-exempt.   It

            is just as plausible,  in our view,  to read Bray as  support
                                                         ____

            for the appellees' arguments as it is for the Carons'.  Thus,

            having  considered  both  Whelpley  and Bray,  we  find  them
                                      ________      ____

            unpersuasive.

                      Because the language of the  exemption statute does

            not encompass the insurance policy in this case, the decision

            of the district court is affirmed.
                                     ________

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