Court Opinion

ID: 6319956
Source: CourtListenerOpinion
Date Created: 2022-03-03 21:01:01.01987+00
Date Added: 2024-06-11T09:00:46.798121
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                            MAR 3 2022
                    UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

                           FOR THE NINTH CIRCUIT

In re: MARK CHRISTIAN SCHREIBER;                No.    21-16028
DEBORAH JEAN SCHREIBER,
                                                D.C. No. 2:20-cv-01993-JJT
          Debtors,
______________________________
                                                MEMORANDUM*
ROBERT A. MACKENZIE, Trustee,

             Appellant,

 v.

MARK CHRISTIAN SCHREIBER;
DEBORAH JEAN SCHREIBER,

             Appellees.

                   Appeal from the United States District Court
                            for the District of Arizona
                   John Joseph Tuchi, District Judge, Presiding

                      Argued and Submitted February 8, 2022
                                Phoenix, Arizona

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: O’SCANNLAIN and GRABER, Circuit Judges, and FITZWATER,** District
Judge. Partial Concurrence and Partial Dissent by Judge O’SCANNLAIN.

      Appellant Robert A. MacKenzie (“Trustee”), a Chapter 7 trustee, appeals the

district court’s judgment affirming the bankruptcy court’s order overruling the

Trustee’s objection to the exemptions claimed by Appellees Mark Christian Schreiber

and Deborah Jean Schreiber, two Chapter 7 debtors. We have jurisdiction under

28 U.S.C. § 158(d)(1) and affirm.

                                           I

      The Schreibers resided in the state of Kansas before moving to Arizona. When

they filed for Chapter 7 protection in Arizona, they claimed the federal exemptions

under 11 U.S.C. § 522(d). The Trustee objected, contending that the Schreibers must

use the Kansas exemptions. The bankruptcy court overruled the objection and held

that the Schreibers could elect the federal exemptions. The district court affirmed.

      In the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

(“BAPCPA”), Pub. L. No. 109-8, 119 Stat. 23 (2005), Congress revised 11 U.S.C.

§ 522(b)(3)(A) to tighten the bankruptcy domiciliary requirement, and, in turn, restrict

the exemptions that a debtor can use when relocating the debtor’s domiciliary from

one state to another.     Recognizing that the effect of this stricter domiciliary

      **
            The Honorable Sidney A. Fitzwater, United States District Judge for the
Northern District of Texas, sitting by designation.

                                         -2-
requirement might render a debtor ineligible for any exemption, BAPCPA enacted the

so-called “hanging paragraph” of § 522(b)(3), which provides: “[i]f the effect of the

domiciliary requirement under subparagraph (A) is to render the debtor ineligible for

any exemption, the debtor may elect to exempt property that is specified under

subsection (d).”

      The Schreibers maintain that they are entitled to claim the exemptions specified

under subsection (d)—i.e., the federal exemptions—because they have been rendered

ineligible for at least one Kansas exemption. The Trustee contends that the Schreibers

are still theoretically eligible for some Kansas exemptions, so the hanging paragraph

does not afford them the option of electing the federal exemptions.

                                          II

      We review the district court’s decision de novo, and we review the bankruptcy

court’s conclusions of law de novo and its findings of fact for clear error. Eskanos &

Adler, P.C. v. Leetien, 309 F.3d 1210, 1213 (9th Cir. 2002).

      1. To decide this appeal, we interpret the hanging paragraph to apply when

§ 522(b)(3)(A)’s domiciliary requirement renders a debtor ineligible for all state law

exemptions for which the debtor would otherwise be eligible given the debtor’s actual

                                        -3-
circumstances and assets.1 This is distinguishable from a case in which a debtor can

theoretically claim one or more exemptions (e.g., because the exemption is not limited

to resident debtors).2

      2. Applied to this case, this interpretation of the hanging paragraph means that

the Trustee was obligated to prove that the domiciliary requirement under

subparagraph (A) does not have the effect of rendering the Schreibers ineligible for

all Kansas exemptions that they would otherwise be eligible for given their actual

circumstances and assets. See In re Carter, 182 F.3d 1027, 1029 n.3 (9th Cir. 1999)

(“Once an exemption has been claimed, it is the objecting party’s burden (the trustee

      1
              The meaning of the term “any” in the hanging paragraph is the subject
of disagreement in the bankruptcy courts. Some hold that a debtor may claim the
federal exemptions pursuant to the hanging paragraph only if the debtor is entirely
ineligible for all state exemptions due to the domiciliary requirements of
§ 522(b)(3)(A); others permit a debtor to invoke the hanging paragraph if the debtor
is rendered ineligible for some, but not all, state exemptions. Compare In re Wilson,
No. 14-20557, 2015 WL 1850919, at *4 (Bankr. D. Idaho Jan. 13, 2015), with In re
Goldstein, No. 20-20406, 2021 WL 5443542, at *9 (Bankr. D. Me. Nov. 19, 2021).
For purposes of this appeal, we need decide only that the Trustee’s interpretation of
the hanging paragraph, which is more restrictive than any interpretation endorsed by
a bankruptcy court, is incorrect. Accordingly, we need not, and do not, decide among
other competing interpretations of the hanging paragraph.
      2
             The bankruptcy court found that “[t]he two items on the laundry list of
exemptions that the Trustee states are available to the Debtors are not factually
applicable in this case. The Debtors are not innkeepers in Kansas . . . and the Debtors
are not members of the Kansas National Guard . . . .” Therefore, it found “that the
facts of this case are such that these Debtors would not be able to claim these
exemptions.”

                                         -4-
in this case) to prove that the exemption is not properly claimed.” (citing Fed. R.

Bankr. P. 4003(c))).

      3. The bankruptcy court did not err in holding that the Schreibers were

ineligible for all Kansas personal property exemptions that they would otherwise have

been eligible for given their actual circumstances and assets.

      4. The bankruptcy court did not err in holding that, in addition to their inability

to claim all personal property exemptions for which they would otherwise have been

eligible given their actual circumstances and assets, the Schreibers could not claim a

homestead exemption under Kansas law for their mobile home located in Arizona.

The Kansas homestead exemption does not have extraterritorial effect. See In re

Ginther, 282 B.R. 16, 19 (Bankr. D. Kan. 2002) (“While Kansas case law does not

address this specific question, the Kansas Supreme Court has several times held that

state law, and in particular, state exemption law, is without effect beyond the

territorial boundaries of the state.” (citing State v. Holcomb, 116 P. 251, 252 (1911))).

      AFFIRMED.

                                          -5-
                                                                              FILED
                                                                               MAR 3 2022
MacKenzie v. Schreiber, No. 21-16028                                       MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

O’SCANNLAIN, Circuit Judge, concurring in part and dissenting in part:

      I concur in the Court’s holding that the Schreibers are ineligible for Kansas’s

personal property exemptions. However, I would certify the issue of whether they

can claim the Kansas homestead exemption to the Supreme Court of Kansas because

state authorities seem to point in two directions and because the homestead

exemption codifies a protection enshrined in the Kansas constitution, making this

issue an important state matter. See K.S.A. § 60-3201.

                                           I

      Neither of the two Kansas Supreme Court cases discussed by the parties is

exactly on point. In Burlington & M.R.R. v. Thompson, decided in 1884, the plaintiff

sued a corporation operating a railroad running from Nebraska to Kansas seeking to

garnish the wages of its employee, a Nebraska resident. 1 P. 622, 623 (Kan. 1884).

Under Nebraska law, wages were exempt from garnishment. Id. The question was

whether those exemptions applied in a lawsuit brought in Kansas. Id. The state

Supreme Court decided that they did not. Id. In so holding, it relied heavily on the

principle that “[t]he laws of a state have no extraterritorial force.” Id. It noted that

this principle also covers “exemption[s].” Id. Burlington, therefore, stands for the

proposition that exemptions of other states are irrelevant in a suit brought in Kansas.
      In turn, State v. Holcomb, while mentioning the extraterritoriality principle,

mostly relied on the canon that tax exemptions are to be read narrowly. 116 P. 251

(Kan. 1911). The municipality of Kansas City, Missouri operated a waterworks plant

located in Wyandotte county, Kansas. Id. Under Kansas’s constitution, “all property

used exclusively for . . . municipal . . . purpose . . . [is] exempted from taxation.” Id.

at 252. Based on this provision, the municipality argued that its plant too was

exempt. Id. at 251. The Kansas Supreme Court disagreed. It concluded that the tax

break did not apply because Kansas City was a municipality in Missouri, not Kansas.

Id. Although the Court briefly mentioned the rule that “laws have no extraterritorial

force,” the main thrust of the opinion was that the tax exclusion was to be read

narrowly and only applicable to Kansas municipalities. Id. at 252. The principle

underlying the exemption, the Court held, was that taxing its own municipalities

“would amount to no more than taking money from one pocket and putting it in

another.” Id. at 251.

      Relying on the extraterritoriality canon mentioned in these opinions, two

lower federal courts concluded that Kansas’s homestead exemption does not apply

to property located outside the state. Ordinarily, the homestead exemption extends

to the proceeds of the sale of a homestead if the debtor intends to invest such

proceeds in another home. See, e.g., First National Bank v. Dempsey, 11 P.2d 735,

737 (Kan. 1932). However, relying on Burlington, the Kansas district court held

                                            2
“that proceeds of . . . sale of Michigan homestead could not be exempt under Kansas

homestead statute even if debtor intended to use proceeds to purchase a Kansas

homestead.” In re Sipka, 149 B.R. 181, 182–83 (D. Kan. 1992) (emphasis added).

Similarly, relying on Holcomb and Burlington, the bankruptcy court for the district

of Kansas concluded that the debtor cannot exempt the proceeds from the sale of a

Kansas homestead when he intends to use those proceeds to purchase a home in

Colorado. In re Ginther, 282 B.R. 16, 19–20 (Bankr. D. Kan. 2002). Both cases note

that there is no Kansas decision that directly addresses the issue. Id. at 19 (“Kansas

case law does not address this specific question.”); In re Sipka, 282 B.R. at 182 (“Our

research discloses no Kansas case that has directly addressed this issue.”).

      In re Sipka and In re Ginther are not binding on this Court and their

applications of Holcomb and Burlington are not ironclad. The opinions were issued

by district and bankruptcy courts, respectively. While deserving of careful

consideration, they are in no way binding on us. Further, as discussed, Holcomb

reaches its conclusion based mostly on the canon that tax exemptions are to be

narrowly construed. In addition, the property in that case was in Kansas. Thus, that

decision has little import on whether the homestead exemption applies to property

located elsewhere. Burlington is more on point, but it discusses the application of

exemptions of other states in a suit brought in Kansas, not whether Kansas law can

be applied outside the state.

                                          3
      In addition to a lack of clear command from state courts, Kansas statutes imply

that the homestead exemption does apply extraterritorially. K.S.A. § 60-2309

provides that “[w]ages earned out of this state and payable out of this state shall be

exempt from attachment or garnishment in all cases where the cause of action arose

out of this state . . . .” In this statute, the Kansas legislature explicitly exempted an

out-of-state property, albeit not a physical one, in direct contradiction to the

extraterritoriality canon. Although the argument can be made that § 60-2309 deals

with movable property while § 60-2301 covers the typically fixed homesteads, this

distinction makes little difference since the later section also covers “mobile

home[s]”—the type of home that the Schreibers happen to own.

      Further, the legislature explicitly limited only some exemptions to Kansas

residents. For example, K.S.A § 60-2304 (personal property exemptions) and K.S.A.

§ 60-2313 (exemptions from legal process) only apply to “person[s] residing in this

state.” In contrast, the homestead exemption does not contain such a limitation. In

re Ginther, 282 B.R. at 19. Just as applications of exemptions to property outside the

state, applications of exemptions to nonresidents are extraterritorial. Thus, since the

legislature felt the need to limit explicitly the application of some exemptions but

not of the homestead exemption, it is possible that an extraterritorial reach was

contemplated.

                                           4
      Finally, Chambers v. Cox, decided in 1880, adds to the ambiguity by holding

that the rights of nonresidents are protected by the homestead exemption. 23 Kan.

393, 395 (1880). It interpreted Art. 15, § 9 of the Kansas constitution, which was

codified almost verbatim in the statutory exemption at issue in this appeal. Compare

Kan. Const. art. XV, § 9, with K.S.A. § 60-2301. In that case, the husband of a

woman “who had never been an actual resident of Kansas” transferred the title in his

homestead to the buyer without his wife’s consent. Cox, 23 Kan. at 394. The Court

started from the proposition that had the wife been a resident, there would be no

question that the deed was invalid, as the constitution requires the consent of both

spouses for alienation. Id. It then concluded that the fact that the wife had never been

a resident of the state does not dispense with the mutual consent requirement. Id. at

395. The Court, thus, refused to read-in a condition that both spouses be “residents

of the state” for the protection to apply. Id. Therefore, Cox suggests that a Kansas

court could read the statutory homestead exemption to protect extraterritorially

property outside the state.

      Because Kansas caselaw and statutory scheme do not clearly resolve the

question of whether the homestead exemption applies extraterritorially, I would

certify this important issue to the Kansas Supreme Court. The homestead exemption

is paramount to the state. It has been enshrined in its constitution, Kan. Const. art.

XV, § 9, and serves the important role of protecting “the family of the debtor.” Iowa

                                           5
Mut. Ins. Co. v. Parr, 370 P.2d 400, 404 (1962). Taking an Erie guess, thus,

“prevent[s] the informed evolution of state policy by state tribunals.” Moore v. Sims,

442 U.S. 415, 430 (1979).

                                          II

      In sum, we correctly affirm the district court on the Kansas personal property

exemptions, but we should have certified the homestead exemption issue to the

Kansas Supreme Court.

                                          6