Court Opinion

ID: 2966748
Source: CourtListenerOpinion
Date Created: 2015-09-22 01:04:40.241012+00
Date Added: 2024-06-11T13:13:53.650356
License: Public Domain

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.

                               O R D E R

    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, SHA-
PIRO & OLANDER, Baltimore, Maryland, for Appellees. ON
BRIEF: Sandra A. Manocchio, SHAPIRO & OLANDER, Baltimore,
Maryland, for Appellees Butcher; J. Joseph Curran, Jr., Attorney Gen-
eral 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 Mary-
land 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 dis-
trict 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 perma-
nent disfiguring and psychological injuries, and he continues to expe-
rience 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 dam-
ages. 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 manu-
        facturer] denies liability and intends merely to avoid litiga-
        tion but does deny all liability.

In 1993, Mr. and Mrs. Butcher filed a voluntary petition in bank-
ruptcy 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 exemp-
tion 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 essen-
tially shield most of the Butchers' assets from their creditors. Gover-
nor 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

                    3
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 puni-
tive damages. The court also rejected all of Governor Plaza's argu-
ments 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 con-
tention that Maryland's exemption statute is facially unconstitutional
under Article III, § 44, of the Maryland Constitution and, alterna-
tively, that even if the statute is constitutional, its application to
exempt the $4.5 million settlement in this case violates the reason-
ableness requirement of the Maryland Constitution. Before addressing
directly these arguments, it will be useful to provide a statutory back-
ground.

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 exemp-
tion 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 con-
tain an express limitation of "reasonableness," we consider it
undoubtedly accurate that the Maryland statute is to be read as pro-
viding 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 contra-
venes 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),

                     5
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 credi-
tors funds necessary to recompense the debtor for injuries to his phys-
ical 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) (interpret-
ing § 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 counterbal-
ances 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 bank-
ruptcy exemption for tools of one's trade to be limited to those
"reasonably necessary" for one's profession despite the absence of the

                    6
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 con-
stitutional 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 "constitution-
ally 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 require-
ment 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 "in-
herent judicial limitations on the size of a compensatory damage
award" and the fact that "no party will agree to an `unreasonable' set-
tlement." 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 compensa-
tory and not punitive. Because we cannot conclude that these findings
are clearly erroneous, we cannot say that the exemption violates the

                    7
command of reasonableness given by Article III,§ 44, of the Mary-
land 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 reasonable-
ness of the Butchers' 1983 settlement. The Maryland cap on noneco-
nomic 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. Sec-
tion 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 legis-
lature 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 quanti-
ties 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

                   8
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 set-
tlement 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 mechani-
cal 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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