Lampe v. Williamson (In Re Lampe)

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JUN 3 2003
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

In re: DONALD R. LAMPE and
SHELIA L. LAMPE,

Debtors.

DONALD R. LAMPE and
SHELIA L. LAMPE,

Appellees,
v. No. 02-3221
DARCY D. WILLIAMSON, Chapter 7
Trustee,

Appellant,

and

IOLA BANK & TRUST CO.

KANSAS BANKERS ASSOCIATION,

Amicus Curiae.

APPEAL FROM THE UNITED STATES
BANKRUPTCY APPELLATE PANEL OF THE TENTH CIRCUIT
(B.A.P. No. KS-01-007)

Submitted on the briefs:
Darcy D. Williamson, Trustee, Topeka, Kansas, for the Appellant.

William E. Metcalf, Metcalf & Justus, Topeka, Kansas, for the Appellees.

Anne L. Baker, Wright, Henson, Somers, Sebelius, Clark & Baker, LLP, Topeka, Kansas,
filed an Amicus Curiae Brief on behalf of Kansas Bankers Association in Support of
Appellant.

Before LUCERO, BALDOCK, and O’BRIEN, Circuit Judges.

BALDOCK, Circuit Judge.*

Debtors Donald and Shelia Lampe are husband and wife farmers who filed for

Chapter 7 bankruptcy. The Lampes each claimed as exempt from the bankruptcy estate

$7500 worth of farm equipment as “tools of the trade” under the applicable Kansas

exemption statute. The Trustee objected to Shelia Lampe’s claim, arguing she did not

have a sufficient ownership interest in the farm equipment to claim the exemption. The

United States Bankruptcy Court for the District of Kansas agreed with the Trustee, and

held Shelia Lampe could not claim the exemption. The Lampes appealed. The United

States Bankruptcy Appellate Panel of the Tenth Circuit (BAP) reversed, holding Shelia

Lampe was entitled to the “tools of the trade” exemption. The Trustee appeals, arguing

Shelia Lampe does not have an ownership interest in the farm equipment. The Trustee

*
After examining the briefs and the appellate record, this panel has determined
unanimously to honor the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f). The case therefore is submitted without oral
argument.

2
further argues that if Shelia Lampe does have an ownership interest in the farm

equipment, then the Lampes’ farm operation was a partnership, in which case neither

Shelia nor Donald Lampe may claim the “tools of the trade” exemption. We have

jurisdiction pursuant to 28 U.S.C. § 158(d). We affirm the BAP decision.

Donald and Shelia Lampe married in 1980. Both actively participated in farming

activities from that time until at least 2000. Donald Lampe performed all the activities

required in the farming operation, and Shelia Lampe performed all the same activities

except running the planter and the combine. In approximately 1997, Shelia Lampe began

working part-time as a secretary to supplement the family income. She continued to work

on the farm in addition to her outside employment. The Lampes obtained loans from Iola

Bank & Trust and the Farm Services Agency, but eventually they were unable to meet

these financial obligations. Upon filing a joint Chapter 7 petition, the Lampes each

claimed as exempt from the bankruptcy estate $7500 worth of “tools of the trade”

exemptions under Kan. Stat. Ann. § 60-2304(e) for certain farm equipment.1 The

Trustee and Iola State Bank & Trust filed timely objections thereto.2

1
The claimed equipment is (1) an Allis Chambers wide front tractor ($600); (2) a
Case auger wagon ($300); (3) a cattle trailer ($500); (4) a 1962 International truck
($2250); (5) cattle panels ($450); (6) a fifth wheel trailer ($1500); (7) a 1984 C-7000 4 ½
ton grain truck ($3000); (8) a 1984 GMC flatbed pickup truck ($1400); and (9) equity in a
1980 IHC 3588 2+2 tractor ($5000); for a total of $15,000 in combined exemptions.
2
Iola State Bank & Trust appealed to the BAP, but does not join the Trustee in
(continued...)

3
The bankruptcy court held an evidentiary hearing at which Donald and Shelia

Lampe testified about the claimed exemptions. Donald Lampe testified that although he

obtained some of the equipment from his father, most of it was purchased with money

earned from the farm operation that had been deposited in their joint bank account. Both

Lampes signed the notes and security agreements to obtain operating loans for which the

farm equipment served as collateral. Donald Lampe testified that Shelia had an

ownership interest in the equipment, stating they owned the equipment “half and half.”

Shelia Lampe also testified that she and her husband owned the equipment together, and

that they farmed as a team. She denied they had a partnership agreement in the legal,

non-marital sense. Shelia Lampe deposited income from her outside job into the joint

account. On the Lampes’ joint tax returns, Donald Lampe is shown as the sole proprietor

of the farming business, and the business took depreciation deductions for the farm

equipment. Only Donald Lampe reported self-employment income and self-employment

taxes for the farm enterprise.

The bankruptcy court held that in order to qualify for the exemption, Shelia Lampe

must have an ownership interest in the property. The court determined that because

2
(...continued)
this appeal. The Bank and the Trustee argued below that the Lampes were not entitled to
a “tools of the trade” exemption for farm equipment because by the time of the
bankruptcy petition, the Lampes obtained outside employment and thus were no longer
farmers by trade. The bankruptcy court and the BAP held the Lampes’ primary
occupation was farming despite their efforts to supplement farm income with outside
employment, and the Trustee does not appeal that holding.

4
Kansas is not a community property state, Shelia Lampe acquired no interest in the

property by virtue of the marital relationship. Instead, she had to show she acquired an

interest in the property “by gift or inheritance, by purchase with [] her sole and separate

property, or by some agreement involving a partnership, joint venture, association,

corporation, or other business entity legally recognized by Kansas law.” Finding that

Donald Lampe was the sole proprietor of the farm business, and that he acquired the farm

equipment with proceeds from the farm business or through some unspecified manner

from his father, the bankruptcy court held Donald Lampe owned as his sole and separate

property the business and the equipment. Finally, the court noted that if Shelia Lampe did

have an ownership interest in the farm equipment, then her interest was as her husband’s

partner. If the farming operation was a partnership, neither Donald nor Shelia Lampe

could claim the exemption because partnerships cannot claim a tools of the trade

exemption under Kansas law.

The Lampes appealed, and the BAP reversed. In an able opinion authored by the

late bankruptcy judge Donald Cordova, the BAP concluded that “based on the . . .

Debtors’ intent, their conduct in carrying on the farming operation, in purchasing the

equipment from a joint account funded by earnings from the farm, and in pledging the

equipment together as security for operating loans, Shelia Lampe co-owned the property

for purposes of the tools of the trade exemption.” In re Lampe, 278 B.R. 205, 213 (BAP

10th Cir. 2002). The BAP also rejected the suggestion that the Lampe farming operation

5
was a partnership in the legal sense; instead, the BAP concluded it was “a family business

operating as a proprietorship with each Debtor as a co-owner of the equipment.” Id. at

214. Consequently, the BAP held Shelia Lampe was entitled to claim $7500 in “tools of

the trade” exemptions on the farm equipment.

II.

On appeal from BAP decisions, we independently review the bankruptcy court’s

decision. In re Albrecht, 233 F.3d 1258, 1260 (10th Cir. 2000). “[W]e review the

bankruptcy court’s legal determinations de novo, and its factual findings under the clearly

erroneous standard.” In re Miniscribe Corp., 309 F.3d 1234, 1240 (10th Cir. 2002).

Upon filing a bankruptcy petition, the debtors’ property becomes property of the

bankruptcy estate subject to the exemptions listed in 11 U.S.C. § 522. See 11 U.S.C.

§§ 522 & 541. Section 522(b) specifies that the debtor can take the exemptions

enumerated in § 522(d) unless applicable state law specifically provides otherwise.

Kansas has opted out of the federal plan, and has enacted its own set of exemptions. See

Kan. Stat. Ann. § 60-2312. “When determining the validity of a claimed state law

exemption, bankruptcy courts look to the applicable state law.” In re Urban, 262 B.R.

865, 866 (Bankr. D. Kan. 2001). Under Kansas law,

[e]very person residing in [Kansas] shall have exempt from seizure and sale
upon any attachment, execution, or other process issued from any court in
this state, the following articles of personal property:
...

6
(e) The books, documents, furniture, instruments, tools, implements and
equipment . . . or other tangible means of production regularly and
reasonably necessary in carrying on the person’s profession, trade, business
or occupation in an aggregate value not to exceed $7500.

Kan. Stat. Ann. § 60-2304(e).

To claim the “tools of the trade” exemption under § 60-2304(e), the farm

equipment must “belong to” the debtor and must be “necessary” and “personally used for

the purpose of carrying on his [or her] trade or business.” Reeves & Co. v. Bascue, 91 P.

77, 77 (Kan. 1907); see also Kan. Stat. Ann. § 60-2304 (describing exempt property as

“personal property” subject to “seizure and sale upon any attachment, execution or other

process”). On appeal, the Trustee does not dispute that Shelia Lampe is a farmer and that

the equipment is necessary for her trade. Instead, the Trustee argues that Shelia Lampe

has no ownership interest in the claimed farm equipment, and because it is not her

personal property, she is not entitled to the exemption. In determining whether a debtor is

entitled to claim an exemption, “the exemption laws are to be construed liberally in favor

of exemption.” In re Ginther, 282 B.R. 16, 19 (Bankr. D. Kan. 2002). Once a debtor

claims an exemption, the objecting party bears the burden of proving the exemption is not

properly claimed. Id.

The Trustee relies primarily on In re Goebel, 75 B.R. 385 (Bankr. D. Kan. 1987).

In Goebel, husband and wife farmers filed a joint bankruptcy petition. Both claimed as

exempt tools of the trade various items of property. A creditor objected that Mrs. Goebel

was not entitled to the exemption because she did not have an ownership interest in the

7
property claimed as exempt. After noting a spouse does not automatically acquire an

ownership interest in property simply by virtue of the marital relationship, see Kan. Stat.

Ann. §§ 23-201(a) & 23-204, the Goebel court held that to demonstrate an ownership

interest in business property, a spouse must acquire it with her “sole and separate

property, receive it by gift or inheritance, contribute toward its purchase with sole and

separate funds, or acquire it by some agreement, such as in a partnership, joint venture,

association, corporation or other such legally recognized business entity or vehicle.”

Goebel, 75 B.R. at 387. Finding no evidence that Mrs. Goebel acquired an ownership

interest by any of these means, the court concluded she was not entitled to exempt the

equipment as tools of the trade. Id.; see also In re Oetinger, 49 B.R. 41 (Bankr. D. Kan.

1985) (finding farm wife acquired ownership interest in farm equipment through legal

partnership with husband, not by marital relationship, and therefore farm operation was a

partnership through which husband had apparent authority to bind partnership without

wife’s signature). The Trustee urges us to adopt this reasoning and likewise deny Shelia

Lampe’s claimed exemption.

The Kansas state courts have not addressed this precise issue, and the bankruptcy

courts in the district of Kansas do not uniformly adopt the Goebel approach. In several

decisions, Kansas bankruptcy courts have allowed a farm wife a tools of the trade

exemption in similar circumstances. For example, in In re Zink, 177 B.R. 713, 714-15

(Bankr. D. Kan. 1995), the bankruptcy court held that Mrs. Zink co-owned with her

8
husband a feed truck even though she presented no evidence she purchased the truck with

her separate property. Mrs. Zink’s name was on the title, however, and the bankruptcy

court noted that spouses may co-own marital property under Kansas law. Id. at 715.

Likewise, the bankruptcy court held in In re Kobs, 163 B.R. 368, 373 (Bankr. D. Kan.

1994), that Mrs. Kobs co-owned machinery where she and her husband testified they

jointly owned everything on the farm, Mrs. Kobs joined her husband as a responsible

party on notes and mortgages related to funds borrowed for farming purposes, and the

bank presented no evidence Mrs. Kobs did not own the machinery. And the bankruptcy

court in In re Griffin, 141 B.R. 207, 210 (Bankr. D. Kan. 1992), held Mrs. Griffin was

entitled to a tools of the trade exemption where she possessed the equipment, she used the

equipment to farm, farm proceeds and outside wages were deposited in a joint account

from which farm expenses were paid, all equipment was purchased during the marriage,

she testified that she co-owned the equipment, and the bank presented no rebuttal

evidence suggesting she did not have an ownership interest in the equipment.3

Absent contrary authority from the Kansas courts, we are persuaded by the

reasoning expressed by the BAP’s opinion in this case, and by the other Kansas

3
See also In re Kieffer, 279 B.R. 290, 295-97 (Bankr. D. Kan. 2002) (relying on
the BAP’s published opinion in Lampe to rule wife is co-owner by virtue of work done on
farm, debtors’ intent to co-own, and wife’s signature on security agreements); In re
Meckfessel, 67 B.R. 277, 278 (Bankr. D. Kan. 1986) (farm wife entitled to exemption
where wife helped farm their mutual property for their mutual benefit and bank presented
no rebuttal evidence).

9
bankruptcy court decisions permitting a wife to claim a tools of the trade exemption on

farm equipment. Although we agree with the Trustee that spouses can own separate

property under Kansas law, they need not do so. Spouses may co-own property. See

Kan. Stat. Ann. § 23-201(b) (referring to spousal property co-owned such as in joint

tenancy or tenancy in common); see also In re Zink, 177 B.R. at 715 (spouses may co-

own marital property under Kansas law); In re Kobs, 163 B.R. at 373 (same); In re

Griffin, 141 B.R. at 210 (same). Thus, we agree with the BAP that the test for co-

ownership for purposes of the tools of the trade exemption is not whether a spouse can

demonstrate he or she acquired an ownership interest by purchase with separate property,

gift or inheritance, as in Goebel. Instead, the debtors’ intent and conduct controls. In re

Lampe, 278 B.R. at 213; see also In re Griffin, 141 B.R. at 210 (“Since co-ownership of

personal property acquired during marriage is allowed, the Court must be able to

determine its existence from evidence of the intent and conduct of the party claiming title,

unless some rule of law prevents it.”). This test recognizes the practical realities of the

marital relationship. Spouses do not regularly document gifts between themselves, and

many spouses choose to co-mingle assets and co-pay expenses out of joint accounts

without keeping the strict accounting requirements required to prove co-ownership under

Goebel. Thus, the BAP’s test is more compatible with Kansas’ general rule that

exemptions are to be construed liberally in favor of allowing the exemption. See In re

Kobs, 163 B.R. at 373-74.

10
Here, the Lampes testified that they jointly owned the equipment. Their conduct

supports that view. Shelia Lampe worked on the farm and operated all equipment except

the planter and combine. All proceeds from the farming operation were placed in a joint

account, and funds to pay for the equipment came out of this account. Shelia Lampe also

deposited her outside employment income into the joint account, out of which the farm

equipment was purchased. Shelia Lampe co-signed on the notes and security agreements

to obtain operating loans for which the farm equipment served as collateral. Based on the

Lampes’ intentions and conduct, the Trustee failed to meet its burden of proving Shelia

Lampe lacked an ownership interest in the farm equipment.4

The Trustee alternatively argues that if Shelia Lampe does have an ownership

4
Shelia Lampe deposited wages she earned from her outside employment into the
joint account from which the farm equipment was purchased. Although Donald Lampe
characterized her salary as insignificant when compared to the farm income, Shelia
Lampe arguably contributed her income to purchase the farm equipment. Further, the
testimony below arguably suggests Donald Lampe gifted one half the equipment to his
wife. “To establish a gift inter vivos there must be (a) an intention to make a gift; (b) a
delivery by the donor to the donee; and (c) an acceptance by the donee.” Heiman v.
Parrish, 942 P.2d 631, 633 (Kan. 1997). Donald Lampe testified to his intention that his
wife own the property “half and half,” indicating his intent to gift to her a one-half
interest in all property. Shelia Lampe also testified she used the equipment for farming
and believed she owned half the equipment, indicating her acceptance of her husband’s
gift. The Lampes did not argue below or on appeal that they established separate property
purchases or gifts. The bankruptcy court made no findings on whether Shelia Lampe’s
funds were used to purchase the equipment, or whether Donald Lampe intended to gift a
one-half interest in the property to his wife. We note simply that the record was not
bereft of evidence of separate property purchases or gifts in this case.

11
interest in the farm equipment, then the Lampes’ farming operation was a partnership, not

a sole proprietorship. Under Kansas law, individual partners may not claim an exemption

for partnership property. See In re Kane, 167 B.R. 224, 226 (Bankr. D. Kan. 1993); Kan.

Stat. Ann. § 56a-203 (“Property acquired by a partnership is property of the partnership

and not of the partners individually.”). Thus, the Trustee argues that if Shelia Lampe co-

owns the equipment, she is her husband’s partner in the farming operation, and neither

spouse is entitled to the exemption as partners.

The bankruptcy court noted that the Lampes testified they did not intend to create a

partnership, and “their tax returns support that claim.” But the bankruptcy court

concluded that if Shelia Lampe had an ownership interest in the farm equipment, then the

Lampes operated their farm as a partnership:

To qualify for the tool of trade exemption . . . Mrs. Lampe could not
passively co-own the farm equipment but had to participate personally in
the farming operation to be able to claim farming as her primary
occupation. Under the [Revised Uniform Partnership Act of 1997], though,
if she co-owned the farm equipment purchased with the proceeds from the
farm, her personal participation in the operation, combined with sharing the
profits with her husband, would have made their farming relationship into a
partnership.

The BAP rejected this analysis, and held the Lampes’ farming operation “was not a

partnership in the legal sense, but a family business operated as a proprietorship with each

Debtor as co-owner of the equipment.” In re Lampe, 278 B.R. at 213.

Pursuant to Kan. Stat. Ann. § 56a-202, “the association of two or more persons to

carry on as co-owners a business for profit forms a partnership, whether or not the

12
persons intend to form a partnership.” Kansas does not have filing or creation

requirements for partnerships; rather, the parties’ intentions, the terms of their agreement,

and the manner in which they carry out their business determines their status. Grimm v.

Pallesen, 527 P.2d 978, 982 (1974). In determining whether a partnership has been

formed, Kansas considers the following:

(1) Joint tenancy, tenancy in common, tenancy by the entireties, joint
property, common property, or part ownership does not by itself establish
a partnership, even if the co-owners share profits made by the use of the
property.
(2) The sharing of gross returns does not by itself establish a partnership,
even if the persons sharing them have a joint or common right or interest
in property from which the returns are derived.
(3) A person who receives a share of the profits of a business is presumed
to be a partner in the business, unless the profits were received in payment
[of a debt, for services or wages, of rent, of an annuity or other retirement
or health benefit, of interest or other charge on a loan, or for the sale of
goodwill].

Kan. Stat. Ann. § 56a-202(c)(1)-(3).

The Lampes co-owned the farm equipment, jointly participated in the work, and

shared the profits. Thus, their farm operation reflects some elements of a partnership.

But the existence of a partnership where the alleged partners are spouses raises complex

legal issues. The usual indicia of a partnership are blurred by the marital relationship.

The co-owning of property, sharing of profits, and the apparent authority for one spouse

to act on behalf of the other are all common to the marital relationship even absent a

business. See In re Griffin, 141 B.R. at 211-12.

The Trustee bears the burden of proving an exemption is improperly claimed. See

13
In re Ginther, 282 B.R. at 19. Thus, the Trustee bears the burden of proving a partnership

relationship existed between the Lampes in this case. Both Donald and Shelia Lampe

testified that no partnership was intended, and they filed their joint tax returns reflecting

that the farming business was a sole proprietorship. Although the Lampes deposited

profits in a joint account, no evidence suggested this arrangement was required by an

agreement to share profits as partners rather than the voluntary co-mingling of funds as

spouses. The Trustee has not directed us to any evidence the Lampes held themselves out

to creditors or customers as a legal partnership. Absent a showing of some other indicia

of a partnership beyond those incident to the marital relationship, the Trustee has not met

its burden of proving a partnership existed, and Shelia Lampe therefore is entitled to

claim the “tools of the trade” exemption.

AFFIRMED.