Kukowski v. Wagner

KRESSEL, Chief Judge, VENTERS and McDONALD, Bankruptcy Judges.

McDONALD, Bankruptcy Judge.

Debtor appeals from the order of the bankruptcy court1 sustaining Trustee’s objection to Debtor’s claim of exemption of monthly payments he receives pursuant to an annuity. We affirm.

I.

The relevant facts are not in dispute. Debtor, a North Dakota resident, was severely injured in a car accident in 1989 in which he became permanently disabled. Debtor is unable to work because of the disability. Debtor brought a personal injury action against the other driver. The other driver’s insurance company, State Farm Fire and Casualty (“State Farm”), eventually reached a settlement of the tort claim with Debtor in 1991. (the “Settlement Agreement”).

Pursuant to the Settlement Agreement, State Farm paid a lump sum of $20,000.00 to Debtor and also purchased an annuity from Prudential Insurance Company (“Prudential”) in favor of Debtor, (the “Annuity”). Under the terms of the Annuity, beginning in January 1992, Debtor receives $290.00 per month until he dies. The Annuity, however, also provides that Prudential will pay Debtor or his beneficiary the $290.00 monthly payment for 360 months beginning in January 1992 regardless of whether Debtor dies within that time period. Thus, the payments under the Annuity will be payable to Debtor’s beneficiaries upon Debtor’s death only if Debtor dies before January 1, 2022.

Debtor and his wife filed a joint petition for relief under Chapter 7 of the Bankruptcy Code on October 9, 2005. Debtor claimed his interest in the payments under the Annuity as exempt under N.D. Cent. Code § 28-22-03.1(3). Trustee objected, arguing that § 28-22-03.1(3) only exempts annuities that are payable on account of the annuitant’s death. The bankruptcy court agreed and sustained Trustee’s objection. This appeal follows.

II.

We review questions of law de novo and findings of fact for clear error. Bankr.R. 8013. The question of whether the bankruptcy court correctly construed the North Dakota exemption statute at issue is a question of law. Stuart v. Carter (In re Larsen), 59 F.3d 783, 785 (8th Cir.1995). Our review of the bankruptcy court’s order, therefore, is de novo. Id.

III.

Because North Dakota has opted out of the Code’s exemption scheme, we look to North Dakota law to determine whether Debtor’s interest in the Annuity is exempt. Mueller v. Buckley (In re Mueller), 215 B.R. 1018, 1022-23 (8th Cir. BAP 1998). The North Dakota exemption statute in question, N.D. Cent. Code § 28-22-*71503.1(3), provides in relevant part that a resident of North Dakota may exempt:

“Pensions, annuity policies or plans, and life insurance policies that, upon the death of the insured, would be payable to the spouse, children, or any relative of the insured dependent, or likely to be dependent, upon the insured for support and which have been in effect for a period of at least one year; ... ”.

The bankruptcy court held that because the “upon the death of the insured” qualification modifies the three preceding types of assets, pensions, annuities and life insurance policies, the Annuity did not fall within the scope of § 28-22-03.1(3). Debt- or initially argues that the “upon the death of the insured” language only modifies the immediately preceding noun, life insurance policies. Given the unique context in which the North Dakota Legislature amended the statute in 1991, we find that the bankruptcy court’s construction of the statute is correct.

Prior to 1991, the three types of assets listed in the first part of § 28-22-03.1(3), pensions, annuities and life insurance policies, were separated by semi-colons. See N.D. Cent. Code § 28-22-03.1(3) (1990). Judge Hill, who also issued the opinion sub judice, held in 1990 that because the Legislature used semi-colons instead of commas to separate the three nouns, the modifying phrase beginning with “upon the death of the insured” only applied to life insurance policies, which is the immediately preceding noun. In re Smith, 113 B.R. 579, 585 (Bankr.D.N.D.1990). Judge Hill expressly stated that if the Legislature had intended for the modifying phrase to apply to all three of the assets listed, it would have separated the three by commas instead of semi-colons. Id.

A year after Judge Hill issued the Smith opinion, the North Dakota Legislature amended § 28-22-03.1(3) by separating the three types of assets listed in the statute with commas instead of semi-colons. 1991 NORTH DAKOTA LAWS CH. 341 (H.B.1335). This is the only change that the Legislature made to the statute during the 1991 session. Because it is clear that the Legislature enacted the 1991 Amendment in response to Judge Hill’s opinion in In re Smith, the amendment unequivocally demonstrates the Legislature’s intent to overrule Judge Hill’s interpretation of § 28-22-03.1(3) contained in In re Smith.

Under North Dakota’s rules of statutory construction, a court must give meaning to amendments to statutes. State v. Brossart, 565 N.W.2d 752, 757 (N.D.1997). Also, it is presumed that the Legis lature is aware of prior judicial constructions of a statute when it amends that same statute. Johnson v. Johnson, 527 N.W.2d 663, 666 (N.D.1995). Thus, when the Legislature amends a statute that substantively differs from a prior and recent judicial interpretation of the same statute, a court should infer that the Legislature intended to overrule the judicial construction of the statute announced in that prior case. Id. at n. 2 (citing Merchant v. Pielke, 9 N.D. 245, 83 N.W. 18 (1900)).

Here, Judge Hill expressly stated in Smith that because the Legislature separated pensions, annuities and life insurance policies with semi-colons instead of commas, the modifying clause beginning with “upon the death of the insured” only applied to life insurance policies. A year later, the North Dakota Legislature amended § 28-22-03.1(3) by replacing the semi-colons with commas. This is the only change that the Legislature made to § 28-22-03.1(3) during the 1991 legislative session.

Given this context in which the North Dakota Legislature enacted the 1991 *716Amendment, it is clear that Legislature intended to overrule Judge Hill’s interpretation of § 28-22-03.1(3) contained in Smith. Thus, the 1991 Amendment demonstrates that Legislature’s intent that the modifying phrase beginning with “upon the death of the insured” should modify pensions, annuities and life insurance policies. Thus, the bankruptcy court’s finding that the term “upon the death of the insured” modifies the noun “annuities” is not erroneous.2

Debtor further argues that because the payments under the Annuity may be payable to his beneficiaries upon his death, the Annuity does fall within the scope of § 28-22-03.1(3) even if the “payable upon death” clause modifies annuities. Judge Hill rejected this argument, finding that the Legislature only intended annuities as part of a death benefit to fall within the ambit of this exemption statute. We agree.

The term “annuity” is broad and generic and a court should examine the text and overall structure of the exemption statute in question to glean whether the legislature intended for the annuity to fall within the scope of that statute.3 Eilbert v. Pelican (In re Eilbert), 162 F.3d 523, 527 (8th Cir.1998) (interpreting 11 U.S.C. § 522(d)(10)(E)). After reviewing the text and structure of § 28-22-03.1(3), we believe that the statute does not encompass an annuity that stems from the settlement of a tort claim and that may not be payable to the debtor’s beneficiaries upon the debtor’s death.

First, as illustrated above, the North Dakota Legislature enacted the 1991 Amendment so that annuities are exempt only if they are payable to the insured’s beneficiaries “upon the death of the insured”. Thus, we believe the Legislature intended to include only annuities where the annuitant’s beneficiaries have an unconditional right to receive payment after the annuitant dies to fall within the scope of § 28-22-03.1(3). Here, the payments under the Annuity are payable to Debtor’s beneficiaries upon his death only if Debtor dies before January 1, 2022. Thus, Debt- or’s beneficiaries only have a conditional right to receive the payments under the Annuity upon Debtor’s death.

Second, in a later portion of § 28-22-03.1(3), the North Dakota Legislature lists other assets that a debtor may exempt that are payable during the debtor’s life time and that are not subject to the “payable upon death” qualification. The *717Legislature’s omission of a particular provision in one place in a statute when it has included the provision in another place in the same statute evidences its intent that the provision should not apply where omitted. Tibor v. Tibor, 623 N.W.2d 12, 23 (N.D.2001). Thus, the Legislature’s omission of annuities with the assets listed in the later portion of § 28-22-03.1(3) evidences its intent to exclude from the scope of the section annuities that are payable to the debtor during the debtor’s lifetime but may not be payable to the debtor’s beneficiaries upon the debtor’s death.

Finally, the Legislature specifically dealt with what portion of the proceeds of a personal injury tort claim a debtor may exempt in another subsection of § 28-22-03. Section 28-22-03.1(4)(b) provides that a debtor may exempt a payment, not to exceed seven thousand five hundred dollars, on account of personal bodily injury, not including pain and suffering and actual pecuniary loss.

A statute that specifically addresses a topic takes precedence over a statute that generally addresses the same topic. Case Credit Corp. v. Oppegard’s, Inc., 701 N.W.2d 891, 896-97 (N.D.2005). There is no question that the payments under the Annuity are on account of personal bodily injury to Debtor.4 Thus, § 28-22-03.1(4)(b) specifically addresses what portion of the payments under the Annuity that Debtor may exempt and must trump the more general treatment of annuities contained in § 28-22-03.1(3).

The dissenting opinion suggests that our conclusion that Debtor may exempt the payments under the Annuity only under § 28-22-03.1(4)(b) circumvents the North Dakota Legislature’s intent to allow its residents to exempt payments that are necessary for their support. This is too narrow a view of the extent to which Debt- or may exempt the payments from the Annuity under § 28-22-03.1(4)(b). The $7,500.00 cap contained in § 28-22-03.1(4)(b) does not apply to the portion of the payments attributable to “pain and suffering and actual pecuniary loss”. Thus, § 28-22-03.1(4)(b) allows Debtor to exempt the entire portion of the payments under the Annuity that is attributed to either pain and suffering or that constitutes a wage substitute because of his inability to work. In re Cramer, 130 B.R. 193, 196 (Bankr.E.D.Pa.1991) (interpreting § 522(d)(ll)(E)).5

Given this overall structure of § 28-22-03.1, it is clear that the Legislature did not intend for an annuity that stems from the settlement of a tort claim and that may not be payable to the annuitant’s beneficiaries upon the annuitant’s death to be exempt under § 28-22-03.1(3). Rather, the Legislature intended for such an annuity to be exempt to the extent allowed by § 28-22-03.1(4)(b).6

*718IV.

The 1991 Amendment to § 28-22-03.1(3) and the overall structure and text of the statute indicate that the North Dakota Legislature did not intend for that subsection to encompass an annuity that is an essential element of a settlement of the debtor’s personal injury tort claim and that may not be payable to the debtor’s beneficiaries upon the debtor’s death. Rather, such an annuity is clearly “on account of personal bodily injury” to the debtor and a debtor may exempt his interest in such an annuity under § 28-22-03.1(4)(b). Debtor’s interest in the payments under the Annuity, therefore, do not fall within the scope of § 28-22-03.1(3). The bankruptcy court, therefore, did not err in sustaining Trustee’s objection. Accordingly, we affirm the judgment of the bankruptcy court.

. The Honorable William A. Hill, Chief Judge, United States Bankruptcy Court for the District of North Dakota.

. The dissenting opinion applies a "plain language" construction of the statute and finds that the modifying phrase beginning with "upon the death of the insured" only applies to life insurance policies, just as Judge Hill found in Smith. The dissenting opinion, therefore, misses the unassailable point that the only purpose of the 1991 Amendment was to overrule Judge Hill’s construction of the statute contained in Smith. Accordingly, the dissenting opinion’s construction of the statute renders the 1991 Amendment entirely superfluous, which obviously fails to effectuate the intent of the Legislature.

. The dissenting opinion’s construction of the exemption statute fails to recognize this important point. The dissenting opinion points out that an annuity is defined as a financial instrument that yields "a sum of money payable yearly or at other regular intervals” and concludes that all such instruments are exempt under the plain language of § 28-22-03.1(3). Thus, for example, payments to a debtor under a promissory note, which are generally made on a regular interval, must be construed as an "annuity” and would be exempt up to $100,000.00 under the dissenting opinion's analysis. Such a result in surely contrary to the intent of the Legislature and is why the Eighth Circuit requires courts to examine the entire structure of exemption statute to determine if the financial instrument in question is truly an "annuity” within the purview of the statute.

. The dissenting opinion states that the Annuity was purchased with funds derived from the Settlement Agreement. The record, however, demonstrates that State Farm purchased the Annuity from Prudential for the benefit of Debtor as part of the Settlement Agreement that terminated Debtor's tort claim. Thus, State Farm’s purchase of the Annuity itself was integral to the settlement of Debtor’s personal injury tort claim and falls squarely within the ambit of § 28-22-03.l(4)(b).

. We also note that Trustee, as the objecting party, would have the burden of proof in demonstrating by a preponderance of the evidence that the payments under the Annuity are not on account of pain and suffering or actual pecuniary loss. Bankr.R. 4003(c); In re Whitson, 319 B.R. 614, 617 (Bankr.E.D.Ark.2005).

. It appears from the record that Trustee would not object to Debtor amending his schedules to exempt at least a portion of the Annuity payments under § 28-22-03.l(4)(b).