Kukowski v. Wagner

VENTERS, Bankruptcy Judge,

dissenting.

I must, respectfully, dissent. The decision of the bankruptcy court should be reversed and the Trustee’s objection to the Debtors’ claim of an exemption in the Annuity should be overruled based on the plain language of § 28-22-03.1(3), regardless of whether the Trustee’s or Debtors’ interpretation of that statute is adopted.7

The language of § 28-22-03.1(3) bears repeating. It provides in pertinent part:

In addition to the exemptions from all attachment or process, levy and sale upon execution, and any other final process issued from any court, otherwise provided by law, a resident of the state may select:
(3) 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; individual retirement accounts; Keogh plans, Roth individual retirement accounts under section 408A of the Internal Revenue Code ..., and proceeds, surrender values, payments, and withdrawals from such pensions, policies, plans, and accounts, up to one hundred thousand dollars for each pension, policy, plan, and account with an aggregate limitation of two hundred thousand dollars for all pensions, policies, plans, and accounts. The dollar limit does not apply to the extent this property is reasonably necessary for the support of the resident and that resident’s dependents, except that the pensions, policies, plans, and accounts or proceeds, surrender values, payments, and withdrawals are not exempt from enforcement of any order to pay spousal support or child support, or a qualified domestic relations order under sections 15-39.1-12.2, 39-03.1-14.2, and 54-52-17.6.

The bankruptcy court held that the Annuity is not exempt under this provision because, under its interpretation of the statute, the phrase “upon the death of the insured, would be payable to the spouse, children, or any relative of the insured dependent” qualifies “annuity,” and the Debtor’s Annuity, it concluded, does not qualify for the exemption because it (or *719some portion of it) is payable during Kukowski’s lifetime.

The bankruptcy court’s holding is erroneous in two respects.

First, it misconstrues the plain language of the statute.8 From a purely grammatical standpoint, the clause beginning with “upon the death of the insured” does not, as the bankruptcy court held and the majority affirms, modify “pensions, annuity policies or plans, and life insurance policies.” Rather, it modifies only “life insurance policies.” To accomplish the interpretation advanced by the bankruptcy court and the majority, the statute would have to be rewritten with a comma between “life insurance policies” and “that,” i.e., “Pensions, annuity policies or plans, and life insurance policies, that, upon the death of the insured, would be payable to the spouse ... and which have been in effect for a period of at least one year.” But that isn’t the way it is written. And until the statute is so rewritten, it does not matter whether there is a common or semicolon at the end of that list.

The statute’s grammar isn’t the only barrier to the bankruptcy court’s interpretation of the statute; there are semantic inconsistencies as well. Why would the phrase “upon the death of the ‘insured’” apply to an annuitant and a pensioner? It is hard to imagine a clearer sign that the phrase only modifies insurance policies. In fact, the word “insured ” appears three times in the questioned phrase, further reinforcing the conclusion that the phrase applies only to life insurance policies. In contrast, annuitants and pensioners are generally referred to as “annuitants ” and “pensioners; ” they are not called “insureds.” Moreover, it defies logic and common sense to interpret the statute as applying to pensions and annuities that are only payable upon the death of the “insured” (pensioner or annuitant). Pensions and annuities are usually, if not always, paid to pensioners or annuitants while they are alive, not upon their death, although both pensions and annuities may — like the annuity in this case — contain survivorship provisions as well.9 Quite simply, the bankruptcy court’s (and the majority’s) interpretation of § 28-22-03.1(3) leads to a grammatically and semantically strained reading of the statute which is at odds with its plain language and unwarranted in light of the policy to construe exemption statutes liberally in favor of a debtor.10

*720Second, the Annuity is exempt even if the phrase “upon the death of the insured ... and which have been in effect for at least a year” applies to annuities — the Annuity is payable to Kukowski’s spouse and dependents upon his death (if that occurs within 360 months) and the annuity has been in effect for 15 years — far longer than one year.

The bankruptcy court rejected this argument, citing its earlier decision in In re Johnson,11 in which the bankruptcy court found that “it was reasonable to infer that the North Dakota legislature intended for ‘annuities’ in the context of retirement instruments be exempted, not annuities based upon tort settlements.”12

With all due respect, I find nothing reasonable in that conclusion. The plain language of the statute puts no limitation on the exemption based on the annuity’s purpose or the source of the funds used to purchase it. The conclusion expressed in Johnson is wholly incompatible with the bankruptcy court’s ultimate holding that § 28-22-03.1(3) only exempts annuities payable to a debtor’s dependents upon the debtor’s death. I suppose we all retire when we die, but it would appear that an annuity purchased as a “retirement” instrument is only useful (and the interpretation of the statute logical) if the statute applies to annuities payable during an annuitant’s lifetime.

I am also unpersuaded by the reasoning set forth by the majority in its opinion affirming the bankruptcy court’s order.

The majority places great importance on the fact that the North Dakota legislature amended § 28-22-03.1(3) to include a semicolon after the “upon the death of the insured ... and in effect for a period of at least one year” clause, presumably in response to the statement in In re Smith that doing so would make that clause apply to annuities.13 I believe that this importance is misplaced.

Given, there is a canon of statutory interpretation which directs courts to presume that a legislature is aware of prior judicial constructions of a statute when it amends that same statute. However, that canon of statutory interpretation does not override the fundamental rule that a court should look no further than the plain language of a statute unless doing so would *721produce an absurd result.14 Limiting the application of the “upon the death of the insured” clause to life insurance policies does not produce an absurd result. To the contrary (as noted above), it is the application of that clause to annuities and pensions which leads to an absurd result. The North Dakota legislature may have intended to amend the statute to more clearly indicate that only annuities and pensions payable upon the death of the “insured” are exempt, but we have no way of knowing that, and the amended text of the statute simply does not support that interpretation.

Moreover, I am unsatisfied by the reason given for the majority’s determination that the Annuity is not exempt even though it is payable to Kukowski’s dependents upon his death and has been in effect for more than one year. The majority states that § 28-22-03.1(3) “requires that there be an unequivocal relationship between the right of the debtor’s beneficiaries to receive the annuity payments and the debtor’s death.” I do not know what is meant by “an unequivocal relationship,” and I do not find any support for this statement in the text of the statute. Nor do I believe that it is logically accurate to conclude that the requirement that an annuity be payable upon the annuitant’s death means that it cannot also be payable during his lifetime and still be exempt. In other words, “if not A, then not B,” cannot be deduced from, “if A, then B.” Under the majority’s logic, pensions and annuities that are paid to a pensioner and annuitant before death would be excluded from the purview of the statute, and that position is untenable and violative of the statute.

Finally, I am troubled by the majority’s position that § 28-22-03.1(3) does not apply to annuities purchased with funds derived from a personal injury tort claim because North Dakota has a specific exemption for property traceable to a personal injury claim. There is nothing in § 28-22-03.1(3) limiting the statute to a particular type of annuity or preventing a debtor from choosing the most beneficial exemption available under the statute. In light of the rule that exemption statutes are to be liberally construed in favor of the debtor, debtors are — and should be — permitted to select the exemption that is most beneficial to them.

It appears to me that the North Dakota bankruptcy court, aided now by the majority in this case, has engrafted various provisions onto the statute that are unwarranted and improper. First, the bankruptcy court determined that only annuities purchased “in the context of retirement instruments ... not annuities based upon tort settlements” could be exempted,15 although there is no such limiting language in the statute. Now, the bankruptcy court and the majority seem to be saying that pensions or annuities that are paid during the lifetime of a pensioner or annuitant cannot be exempted under the statute. Surely, the North Dakota legislature did not intend to deprive North Dakota residents and their dependents of necessary support payments, either during the lifetimes of the residents or after the death of the pensioner or annuitant; in fact, a comprehensive reading of the statute makes it clear that the legislature intended pensions, annuities, and the other types of investments enumerated in the statute to be available for the support of residents and their dependents, without regard to the $200,000 limitation otherwise contained in the statute.*72216

In my estimation, the bankruptcy court’s and the majority’s interpretation and application of the exemption statute at issue here are unjustifiably narrow, and, frankly, incorrect. For these reasons, I believe that the Debtors’ Annuity is exempt under § 28-22-03.1(3) and I would reverse the decision of the bankruptcy court.

. I would note that the Annuity appears to be owned by State Farm Fire and Casualty Company, not Debtor Jeff Kukowski. (Appellant’s App. 44) However, the parties and the bankruptcy court have treated the Annuity as if it were owned by Kukowski, and I will proceed on that assumption.

. See Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) ("[W]hen the statute’s language is plain, the sole function of the courts — at least where the disposition required by the text is not absurd — is to enforce it according to its terms.”); N.D. Cent.Code § 1-02-05 ("When the wording of a statute is clear and free of all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit.”). See also, In re Smith, 113 B.R. 579, 584-85 (Bankr.D.N.D.1990) ("The federal case law as well as the North Dakota Supreme Court hold that in divining the purpose or intent of a statute, court's [sic] must resort in the first instance to the language of the statute itself... .The language of the statute itself is regarded as conclusive of legislative intent unless the statute is clearly ambiguous or creates an irrational result. Legislative history ... cannot be used to create the ambiguity or the irrational result.”).

. A pension is defined as a fixed sum paid regularly to a person (who is presumably alive), a gratuity granted (as by a government) as a favor or reward, or money paid under given conditions to a person following retirement from service or to surviving dependents. An annuity is defined as "a sum of money payable yearly or at other regular intervals.” www.websters.com.

. See Norwest Bank Nebraska, N.A. v. Tveten, 848 F.2d 871, 875 (8th Cir.1988) (“ 'the policy of [exemption] statutes is to favor the debtors, at the expense of the creditors ... such statutes are construed liberally in favor of the exemption.’ ”) (citing Forsberg v. Security State Bank, 15 F.2d 499, 501 (8th Cir.1926)); *720Murray v. Zuke, 408 F.2d 483, 487 (8th Cir.1969) ("exemption laws were manifestly enacted for the relief of a debtor ... and should be liberally construed”).

. 108 B.R. 240 (Bankr.D.N.D.1989).

. Id. at 242.

. Judge Hill's ruling in the Smith case actually supports a ruling that the debtor’s annuity in this case should be exempt under the statute. On pages 587-88, Judge Hill states: The creation of the exemption was a means of not only shielding the proceeds from the claims of the medical providers but was also in furtherance of providing Kyle (the debtor) with minimal financial security in the future ... The annuity was entirely appropriate as a means of providing Kyle with the means of survival, a way to rehabilitate himself, and the means of protecting himself as well as his dependent from impoverishment. Seven hundred and twenty-eight dollars per month is not a great sum and barely places Kyle above the poverty level even in light of his current employment which is just at minimum wage. The social policy behind the exemptions has not been violated in this case.

In the instant case, the Settlement Agreement and Release (App., p. 64(a)) expressly provided that Kukowski was to receive $290.00 a month "commencing on 1-1-92 to continue as an income for 30 years certain and life.” This is a far cry from the $728.00 a month that Judge Hill approved as reasonable in the Smith case more than 15 years ago. It was to provide some minimal level of support for Kukowski and, in the event of his early death, for his family.

. See supra n. 1

. Johnson, 108 B.R. at 242.

. “The dollar limit does not apply to the extent this property is reasonably necessary for the support of the resident and that resident's dependents.... ” N.D. Cent.Code § 28-22-03.1(3).