Court Opinion

ID: 3150719
Source: CourtListenerOpinion
Date Created: 2015-10-29 18:06:22.499205+00
Date Added: 2024-06-11T11:55:31.851675
License: Public Domain

131 t4ev., Advance Opinion
                       IN THE SUPREME COURT OF THE STATE OF NEVADA
                                                                               85

                ERNEST A. BECKER, IV,                               No. 65335
                INDIVIDUALLY; ERNEST A. BECKER,
                IV, AND KATHLEEN BECKER, AS
                TRUSTEES OF THE ERNEST A.
                BECKER, IV, AND KATHLEEN C.                              FILED
                BECKER FAMILY TRUST; EB FAMILY                            OCT 2 9 2015
                HOLDINGS, LLC; KIMBERLY RIGGS;
                                                                         TRACE K.
                SALLIE BECKER; BRIAN BECKER;
                AND WILLIAM A. LEONARD,                               BY*7-liti: DU, Ay CLERK
                TRUSTEE,
                Appellants,
                vs.
                ERNEST AUGUST BECKER, V,
                Respondent.

                           Certified question under NRAP 5 concerning the extent to
                which stocks in a closely held corporation are exempt property in
                bankruptcy proceedings under NRS 21.090(1)(bb) and NRS 78.746.
                United States Bankruptcy Court, District of Nevada; Bruce T. Beesley,
                Bankruptcy Court Judge.
                           Question answered.

                Nitz Walton & Heaton, Ltd., and James H. Walton, Las Vegas,
                for Appellants Ernest A. Becker, IV, individually; Ernest A. Becker, IV,
                and Kathleen Becker, as Trustees of the Ernest A. Becker, IV, and
                Kathleen C. Becker Family Trust; EB Family Holdings, LLC; Kimberly
                Riggs; Sallie Becker; and Brian Becker.

                Schwartzer & McPherson Law Firm and Jason A. Imes and Lenard E.
                Schwartzer, Las Vegas, for Appellant William A. Leonard.

SUPREME COURT
        OF
     NEVADA

(D) I947A                                                                       \c-3   - 3 302 L
                Mark Segal, Chartered, and Mark Bruce Segal, Las Vegas; The Law Office
                of Monica T. Centeno, a Professional Corporation, and Monica T. Centeno
                for Respondent.

                BEFORE THE COURT EN BANC.

                                                 OPINION

                By the Court, GIBBONS, J.:
                            In response to a certified question submitted by the United
                States Bankruptcy Court for the District of Nevada, we consider whether
                NRS 21.090(1)(bb) allows a debtor to exempt his entire interest in a closely
                held corporation, or whether the exemption is limited to the debtor's
                noneconomic interest in the corporation. We conclude that under NRS
                21.090(1)(bb), a debtor can exempt his stock in the corporations described
                in NRS 78.746(2), but his economic interest in that stock can still be
                subject to the charging order remedy in NRS 78.746(1).
                            FACTUAL AND PROCEDURAL BACKGROUND
                            Appellant Ernest A. Becker (debtor) filed a voluntary Chapter
                7 bankruptcy petition. On his personal property schedule, debtor listed
                "Ensworth Corporate Stock" with a value of $1,362,000, and "Eagle Rock
                Gaming, Inc.," stock with a value of $219,000. On his claimed exemption
                schedule, debtor asserted that, pursuant to NRS 21.090(1)(bb), his entire
                interest in both corporations' stock was exempt from the bankruptcy
                estate.
                            Several creditors, interested parties, and the bankruptcy
                trustee (collectively, the objecting parties) filed objections. The objecting
                parties argued that under NRS 21.090(1)(bb), debtor can only exempt his
SUPREME COURT
     OF
   NEVADA
                                                      2
(0) 1947A cen
                noneconomic interest in the corporate stock and that debtor's economic
                interests, including all distributions and dividends, are part of the
                bankruptcy estate. The bankruptcy court held a hearing on the matter
                and decided to certify a question to this court.
                            In its certified question, the bankruptcy court asks whether
                NRS 21.090(1)(bb) allows a debtor to exempt his entire interest in a closely
                held corporation' or whether the exemption is limited to the debtor's
                noneconomic interest in the corporation.
                                               DISCUSSION
                            "Under NRAP 5(a), this court may answer questions of law
                certified to it by federal courts when the 'answers may "be determinative"
                of part of the federal case, there is no controlling [Nevada] precedent, and
                the answer will help settle important questions of law."          Savage v.
                Pierson, 123 Nev. 86, 89, 157 P.3d 697, 699 (2007) (quoting Volvo Cars of
                N. Am. v. Ricci, 122 Nev. 746, 751, 137 P.3d 1161, 1164 (2006)). In the
                present case, (1) answering the question presented by the bankruptcy
                court will determine part of an ongoing bankruptcy case, (2) it appears

                      'Although the bankruptcy court described the corporations as
                "closely held" corporations, it did not specify how many persons are
                stockholders of record of the corporations, whether the corporations are
                publicly traded, or whether the corporations were incorporated under NRS
                Chapter 78 (private corporations) or 78A (close corporations) or another
                NRS chapter. The parties have not addressed these questions or raised
                them as issues and thus, for purposes of this opinion, we assume that the
                corporations are not publicly traded and interpret "closely held" to mean
                that the corporations have less than 100 shareholders.            See NRS
                78.746(2)(c)(1)-(2). Because NRS 78.746 is applicable to close corporations
                under NRS 78A.010, we also assume that the corporations are
                incorporated under either NRS Chapter 78 or 78A.

SUPREME COURT
         OF
      NEVADA
                                                       3
(0) 1.447A
                that there is no Nevada precedent on the question presented in this case,
                and (3) the answer will settle an important question of law regarding the
                scope of NRS 21.090(1)(bb). Accordingly, we will address the question
                presented to this court.
                Standard of review
                            This case raises issues of statutory interpretation that this
                court reviews de novo. MGM Mirage v. Nev. Ins, Guar. Ass'n, 125 Nev.
223, 226-27, 209 P.3d 766, 768 (2009). "This court has established that
                when it is presented with an issue of statutory interpretation, it should
                give effect to the statute's plain meaning."   Id. at 228, 209 P.3d at 769.
                "Thus, when the language of a statute is plain and unambiguous, such
                that it is capable of only one meaning, this court should not construe that
                statute otherwise." Id. at 228-29, 209 P.3d at 769.
                NRS 21.090(1)(bb) does not provide for a complete exemption of corporate
                stock
                            "When a debtor files a Chapter 7 bankruptcy petition, all of
                the debtor's assets become property of the bankruptcy estate . . . subject to
                the debtor's right to reclaim certain property as 'exempt."       Schwab v.
                Reilly, 560 U.S. 770, 774 (2010). Under 11 U.S.C. § 522(b), debtors may
                choose the exemptions afforded by state law. Thus, bankruptcy debtors in
                Nevada may claim the exemptions listed in NRS Chapter 21.
                            In the present case, debtor seeks to exempt his stock in two
                closely held corporations pursuant to NRS 21.090(1)(bb). Debtor argues
                that NRS 21.090(1)(bb) allows him to exempt both his economic and
                noneconomic interests in the closely held corporations. In contrast, the
                objecting parties argue that NRS 21.090(1)(bb) only allows debtor to
                exempt his noneconomic interests in the closely held corporations.

SUPREME COURT
        OF
     NEVADA
                                                      4
(0) 1947A
                              NRS 21.090(1)(bb) states:
                                    1. The following property is exempt from
                              execution, except as otherwise specifically
                              provided in this section or required by federal law:

                                     (bb) Stock of a corporation described in
                              subsection 2 of NRS 78.746 except as set forth in
                              that section.
                  (Emphasis added.) Thus, understanding what NRS 21.090(1)(bb) exempts
                  requires examining NRS 78.746.
                  Background and effect of NRS 78.746
                              NRS 78.746 allows creditors to obtain charging orders against
                  a debtor's interest in small, nonpublic corporations. NRS 78.746(1). NRS
                  78.746 states:
                                    1. On application to a court of competent
                              jurisdiction by any judgment creditor of a
                              stockholder, the court may charge the
                              stockholder's stock with payment of the
                              unsatisfied amount of the judgment with interest.
                              To the extent so charged, the judgment creditor
                              has only the rights of an assignee of the
                              stockholder's stock.
                                     2. Subject to the provisions of NRS 78.747,
                              this section:
                                    (a) Provides the exclusive remedy by which
                              a judgment creditor of a stockholder or an
                              assignee of a stockholder may satisfy a judgment
                              out of the stock of the judgment debtor. No other
                              remedy, including, without limitation, foreclosure
                              on the stockholder's stock or a court order for
                              directions, accounts and inquiries that the debtor
                              or stockholder might have made, is available to
                              the judgment creditor attempting to satisfy the
                              judgment out of the judgment debtor's interest in
                              the corporation, and no other remedy may be
                              ordered by a court.
SUPREME COURT
        OF
     NEVADA
                                                        5
(0) 1947A    ce
                                  (b) Does not deprive any stockholder of the
                            benefit of any exemption applicable to the
                            stockholder's stock.
                                  (c) Applies only to a corporation that:
                                         (1) Has fewer than 100 stockholders
                            of record at any time.
                                        (2) Is     not   a publicly traded
                            corporation or a subsidiary of a publicly traded
                            corporation, either in whole or in part.
                                        (3) Is not a professional corporation as
                            defined in NRS 89.020.
                                   (d) Does not apply to any liability of a
                            stockholder that exists as the result of an action
                            filed before July 1, 2007.
                                  (e) Does not supersede any written
                            agreement between a stockholder and a creditor if
                            the written agreement does not conflict with the
                            corporation's articles of incorporation, by laws or
                            any shareholder agreement to which the
                            stockholder is a party.
                                   3. As used in this section, "rights of an
                            assignee" means the rights to receive the share of
                            the distributions or dividends paid by the
                            corporation to which the judgment debtor would
                            otherwise be entitled. The term does not include
                            the rights to participate in the management of the
                            business or affairs of the corporation or to become
                            a director of the corporation.
                (Emphases added.)
                            A charging order is "[a] statutory procedure whereby an
                individual [shareholder's] creditor can satisfy its claim from the
                [shareholder's] interest in the [corporation].   Black's Law Dictionary 283
                (10th ed. 2014). NRS 78.746 limits the creditor's attachment, however, to
                the debtor's economic interest in the corporations. NRS 78.746(1), (3). In
                other words, a creditor can get a charging order to attach a debtor's
SUPREME COURT
        OF
     NEVADA
                                                      6
(0) I947A
                stream of income from the corporation, such as distributions and
                dividends, but the creditor cannot foreclose on the shares or take over
                management of the corporation. Id. NRS 78.746 prohibits creditors from
                attaching debtors' noneconomic interests in small corporations because
                "most. . . closely-held corporations are family-owned and they
                would. . . be disrupted" if creditors could take over management. Hearing
                on S.B. 317 Before the Assembly Comm. on Judiciary, 74th Leg. (Nev.,
                May 7, 2007). Accordingly, NRS 78.746 strikes a balance by allowing
                creditors to satisfy their judgments from the debtor's economic interest in
                the corporation, without disturbing the corporation's management.    See id.
                            Thus, creditors can obtain a charging order to charge a debtor
                shareholder's interest in a corporation, but creditors only have the rights
                of an assignee, NRS 78.746(1), who only has a right to the shareholder's
                economic interest in the corporation. NRS 78.746(3). And, the charging
                order remedy in NRS 78.746(1) only applies to small, nonpublic
                corporations. NRS 78.746(2)(c); see also NRS 86.401; Weddell v. H20, Inc.,
                128 Nev., Adv. Op. 9, 271 P.3d 743 (2012) (limiting a charging order to a
                debtor's economic interest in a limited liability company); but see NRS
                87.280; Tupper v. Kroc, 88 Nev. 146, 494 P.2d 1275 (1972) (permitting
                foreclosure of a charging order against a partnership interest).
                Stock that is exempt under NRS 21.090(1)(bb) can still be subject to a
                charging order pursuant to NRS 78.746(1)
                            Although NRS 78.746 permits a creditor to charge a debtor's
                stock, debtor argues that NRS 21.090(1)(bb)'s language exempting "[s]tock
                of a corporation described in subsection 2 of NRS 78.746 except as set forth
                in that section" (emphasis added) means that he gets a complete
                exemption of his corporate stock—both his economic and noneconomic
                interests—as long as his corporations meet the criteria for closely held
SUPREME COURT
        OF
     NEVADA
                                                      7
(0) 1947A
                  corporations in NRS 78.746(2)(c). Debtor contends that the only reason
                  NRS 78.746 is referenced in NRS 21.090(1)(bb) is to explain what type of
                  stock is completely exempt—i.e., stock in closely held corporations.
                              In contrast, the objecting parties argue that NRS
                  21.090(1)(bb)'s language permits debtors to exempt stock in corporations—
                  as described in NRS 78.746(2)—but only to the extent allowed by the rest
                  of NRS 78.746. In other words, a debtor may exempt his noneconomic
                  interest in small corporations, but creditors may still obtain a charging
                  order against his economic interests pursuant to NRS 78.746W.
                              We hold that NRS 21.090(1)(bb) does not provide for a
                  complete exemption of stock in small corporations. We conclude that use
                  of the word "section" in "except as set forth in that section" in NRS
                  21.090(1)(bb) shows that the exemption is limited by all of NRS 78.746,
                  including NRS 78.746(1)'s charging order remedy. See Perry v. First Nat'l
                  Bank, 459 F.3d 816, 820 (7th Cir. 2006) ("[T]he phrase 'this section' [in a
                  statute] unambiguously refers to [the] section. . as a whole."). Thus,
                  based on a plain reading of NRS 21.090(1)(bb), debtors can exempt stock
                  in corporations that meet the criteria in NRS 78.746(2), but the stock can
                  still be subject to a charging order pursuant to NRS 78.746(1). If a
                  charging order is issued, the creditors charge the debtor's            economic
                  interest in the corporation, but the debtor retains his noneconomic interest
                  in the corporation. NRS 78.746(3).
                  NRS 78.746(2)(b) does not prohibit charging orders on shares of stock
                              Debtor argues, however, that NRS 78.746(2)(b)'s provision
                  that "this section[ d]oes not deprive any stockholder of the benefit of any
                  exemption applicable to the stockholder's stock" means that his corporate
                  stock exemption cannot be limited in any way, such as limiting it to his
                  noneconomic interest in the stock. We disagree.
SUPREME COURT
        OF
     NEVADA

(0) 1947A    ea
                            We conclude that NRS 78.746(2)(b) simply clarifies that NRS
                78.746(1)'s charging order remedy does not prohibit debtors from claiming
                other exemptions that apply to their economic interest in the corporation.
                For example, NRS 21.090(1)(z)—the so-called wildcard exemption—allows
                a debtor to exempt up to $1,000 in any personal property, including stock.
                Thus, NRS 78.746(2)(b) simply clarifies that even though a creditor can
                charge a debtor's economic interest in a corporation, the debtor can still
                apply the wildcard exemption to retain up to $1,000 in distributions from
                the corporation. 2 See In re Foos, 405 B.R. 604, 609 (Bankr. N.D. Ohio
                2009) (concluding that a statute similar to NRS 78.746(2)(b) simply
                clarifies that although creditors can attach a debtor's economic interest in
                a partnership, the debtor can still claim other exemptions that apply to his
                economic interest).
                            Further, debtor's interpretation of NRS 21.090(1)(bb) and NRS
                78.746(2)(b)—that they provide for a complete exemption of stock in small
                corporations—would render NRS 78.746(1) meaningless.            See Carson-
                Tahoe Hasp. v. Bldg. & Constr. Trades Council of N. Nev., 122 Nev. 218,
                220, 128 P.3d 1065, 1067 (2006) (stating that "[filo part of a statute should
                be rendered meaningless"). NRS 78.746(1) allows for charging orders so
                that judgment creditors can attach shareholders' economic interest in
                small corporations. If NRS 21.090(1)(bb) and NRS 78.746(2)(b) then
                allowed for a complete exemption of stock, judgment creditors could never

                      2There are several other exemptions that could possibly apply to a
                debtor's economic interest in a closely held corporation, for example, if the
                debtor received the stock as payment for criminal restitution, NRS
                21.090(1)(x), or as compensation for a personal injury, NRS 21.090(1)(u).

SUPREME COURT
        OF
     NEVADA
                                                      9
(0) 1947A
                get the charging order remedy in NRS 78.746(1). Such an interpretation
                is impermissible.
                                                  CONCLUSION
                                We conclude that based on a plain reading, NRS
                21.090(1)(bb)'s language exempting "[shock of a corporation described in
                subsection 2 of NRS 78.746 except as set forth in that section" (emphasis
                added) means that a debtor can exempt stock in the corporations described
                in NRS 78.746(2), but his economic interest in that stock can still be
                subject to the charging order remedy in NRS 78.746(1). 3

                                                            •   ibbons

                We concur:

                 /              gERA:c   , C.J.
                Hardesty

                                                           akartil,
                Douglas?                                   Cherry

                Saitta                                     Pickering

                         3 We
                           have considered the parties' remaining arguments and conclude
                that they are without merit.

SUPREME COURT
        OF
     NEVADA
                                                      10
(0) I947A