In re: Moosman

Filing 25

ORDER affirming the Bankruptcy Courts decision granting the Trustees summary judgment motion by Judge Lewis T. Babcock on 8/20/13. (dkals, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
LEWIS T. BABCOCK, JUDGE
Civil Case No. 12-cv-02023-LTB
IN RE:
MARLENE M. MOOSMAN,
Debtor.

ROBERTSON B. COHEN,
Plaintiff-Appellee,
v.
MARLENE M. MOOSMAN,
Defendant-Appellant.
_____________________________________________________________________________
ORDER
______________________________________________________________________________
Appellant, Debtor Marlene M. Moosman, appeals an order of the United States
Bankruptcy Court for the District of Colorado dated July 5, 2012, denying her Motion for
Summary Judgment and granting the Motion for Summary Judgment filed by the Appellee,
Chapter 7 Trustee Robertson B. Cohen. [Appellate Record (“AR”) at Doc #12-1, 32]. Oral
argument would not materially assist in the determination of this appeal. After consideration of
the record and the parties’ briefs, and for the reasons set forth below, I affirm the order of the
Bankruptcy Court.
I. Facts
The underlying facts in this case are undisputed. On August 31, 2010, Debtor filed a
voluntary petition for relief under Chapter 7, Title 11, of the United States Bankruptcy Code.

[AR Doc. # 12-3, 6-8]. On her Schedule B list of personal property, Debtor listed a Prudential
Insurance Company of America (“Prudential”) whole life insurance policy (“Policy”) valued at
$6,250.00. [Id. at 18].
Debtor’s Policy provides that “Tabular [Cash] Value” is the value of the Policy “if all due
premiums have been paid, there is no contract debt, and there are no dividend credits.” [Id. at
125]. In other words, “the increase in tabular cash value is the result of premium payments and
dividends do not factor into increases in the tabular cash value.” [Id. at 154]. “Net Cash
Surrender Value” is cash value of the Policy that is obtained by subtracting the amounts due on
loans from “Total Cash Surrender Value.” [Id. at 125] (providing that the policy holder may
“surrender this contract for its net cash value,” and providing the methods of calculation). The
“Total Cash Surrender Value” is determined by adding the “Tabular Cash Value” to “Termination
Dividends,” “Cash Value PUAs” (Paid-Up Additions), and other returns. [Id. at 156, 158]. A
“Termination Dividend” is an extra dividend paid upon the termination of the policy, and “Cash
Value PUAs” are the credits for annual dividends paid on the anniversary of the Policy and are
treated as life insurance additions paid-up on an insured’s life. [Id. at 123, 181].
Forty-eight months prior to Debtor’s petition date, August 31, 2006, the Policy’s Tabular
Cash Value was $4,617. [Id. at 156, 158]. On the petition date, August 31, 2010, the Policy’s
Tabular Cash Value was $6,495.75. [Id. at 158]. Thus, in the forty-eight month period before
Debtor’s petition date the Policy’s Tabular Cash Value had increased $1,878.75. Additionally,
the Total Cash Surrender Value of the Policy on August 31, 2006, was $7,841.23, and was
$7,615.71 on August 31, 2010. [Id. at 156, 158]. Thus, as of Debtor’s August 31, 2010 petition
date, taking into account the Debtor’s outstanding loans of $6,155.92 against the Policy, the

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Policy’s Net Cash Surrender Value was $1,459.79. [Id. at 158].
Debtor’s Schedule C claimed an exemption for the value of the Policy under Colo. Rev.
Stat. (“C.R.S.”) § 13-54-102(1)(l)(A) (2010). [Id. at 21]. The Trustee, also citing to C.R.S. § 1354-102(1)(l)(A), objected to the exemption of the Policy. [Id. at 56-57].
On May 4, 2011, the Bankruptcy Court denied Debtor’s claimed exemption on the
Prudential Policy. [Id. at 61]. The Trustee then commenced an adversary proceeding against
Prudential seeking turnover of the non-exempt cash value of the Policy. [Id. at 64]. Debtor
sought, and was permitted to intervene, essentially arguing that there were no increases in the
cash value on the Policy during the forty-eight months prior to her petition. [Id. a 12-1, 15-16].
Debtor filed a Motion for Summary Judgment on March 16, 2012, essentially arguing that
because the “Net Cash Surrender Value” of the Policy had decreased from $7,841.23 to
$1,459.79, there was not any non-exempt increases in the Policy’s value for the Trustee to
recover. [Id. at 87-88].
The Trustee then filed a Cross-Motion for Summary Judgment and Response to Debtor’s
Motion for Summary Judgment, arguing that while C.R.S. § 13-54-102(1)(l)(A) does provide an
exemption for the cash surrender value of a life insurance policy, the statute also provides for an
exclusion from the exemption for increases in cash value from contributions (i.e. premium
payments) made by the Debtor during the forty-eight month period prior to bankruptcy, per In re
Marriage of Gedgaudas, 978 P.2d 677 (Colo. App. 1999). [Id. at 107-15]. The Trustee
contended that, according to the Policy’s definitions and Prudential’s discovery responses,
Debtor’s “Tabular Cash Value” reflected the effect of Debtor’s contributions through premium
payments (i.e. the cash value in C.R.S. § 13-54-102(1)(l)(A)). [Id.] In the forty-eight months

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prior to bankruptcy, the Trustee argued, this amount had increased by $1,878.75, all of which was
non-exempt. [Id.] However, because the Policy’s “Net Cash Surrender Value” on the petition
date was less than $1,878.75, the Trustee argued that the entire “Net Cash Surrender Value” of
$1,459.79 was non-exempt. [Id.]
On July 5, 2012, the Bankruptcy Court granted Trustee’s summary judgment motion. In
re Moosman, 473 B.R. 385 (Bankr. D. Colo., July 5, 2012). The Court explained that the
language of C.R.S. § 13-54-102(1)(l)(A) prescribes different measures for the exemption and the
exclusion from the exemption. In re Moosman, 473 B.R. at 390. The Court found Debtor’s
argument that she is entitled to summary judgment because the “Net Cash Surrender Value” of
the Policy declined in the forty-eight months prior to her bankruptcy contrary to the language of
the statute and the holding in Gedgaudas. 978 P.2d at 667. Id. Thus, the Court declared the
entire Net Cash Surrender Value of Debtor’s Policy non-exempt and ordered Prudential to turn
the entire amount over to the Trustee. Id. at 392.
Debtor appealed the decision to the Bankruptcy Appellate Panel. [Doc. # 3]. On August
2, 2012, Trustee elected to remove the appeal to the District Court pursuant to 28 U.S.C. §§
158(a), 158(c)(1)(B). [Doc. # 4].
II. Standard of Review
In reviewing a Bankruptcy Court’s decision, the district court functions as an appellate
court and is authorized to affirm, reverse, modify, or remand the Bankruptcy Court’s ruling. 28
U.S.C. §158(a); Fed. R. Bankr. P. 8013. As relevant here, a Bankruptcy Court’s legal
conclusions – as opposed to its factual findings – are reviewed de novo. In re Warren, 512 F.3d
1241, 1248 (10th Cir. 2008); In re D.E. Frey Group, Inc., 2008 WL 630044, 2 (D. Colo. 2008).

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III. Analysis
The legal issue here is whether the Bankruptcy Court’s interpretation and application of
C.R.S. § 13-54-102(1)(l)(A) was proper.
On appeal Debtor essentially makes two arguments: (1) that C.R.S. § 13-54-102(1)(l)(A)
is ambiguous, that the reasoning in Gedgaudas was improperly applied, and that the Bankruptcy
Court erred in ordering Prudential to turnover the $1,459.79 petition date Net Cash Surrender
Value of the Debtor’s Policy because the $1,878.75 forty-eight month increase of Tabular Cash
Value of the insurance policy exceeded the petition date Net Cash Surrender Value [Doc. # 15];
and (2) that the Bankruptcy Court’s order and the statute improperly impair the contractual
obligations between Debtor and Prudential, in violation of the contracts clause of the United
States Constitution. [Doc. # 15].
A.

C.R.S. § 13-54-102(1)(l)(A)

The exemption under Colorado law provides:
The cash surrender value of policies or certificates of life insurance to the
extent of one hundred thousand dollars for writs of attachment or writs of
execution issued against the insured; except that there is no exemption for
increase in cash value from moneys contributed to a policy or certificate of
life insurance during the forty-eight months prior to the issuance of the writ
of attachment or writ of execution.
C.R.S. § 13-54-102(1)(l)(A).
The Colorado Court of Appeals addressed the different terminology used by the
legislature to define the extent of the exemption (“cash surrender value”) and the extent of the
exclusion from the exemption (“cash value”) in Gedgaudas. 978 P.2d at 681-82. The court

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explained that when the legislature “uses different terms, it is presumed that they have different
meanings; that is, ‘cash surrender value’ and ‘cash value’ are not synonymous terms.” Id. at 680.
The court “without fashioning [its] own precise definition of each,” said that “‘[c]ash value’ is a
value of the insurance contract determined in accordance with the terms of that contract . . . [that]
increases incrementally with the payment of each premium and does not vary with the amount of
any outstanding loans,” and that “‘[c]ash surrender value’ is the cash value less, among perhaps
other things, the amount of any outstanding loans and accrued but unpaid interest.” Id. at 681.
Thus, any arguable ambiguity was resolved by the clarifications provided by the Colorado
Court of Appeals. Further, the Bankruptcy Court correctly applied the statute and Gedgaudas,
978 P.2d 677 in line with the purposes the Colorado Court of Appeals enumerated in Gedgaudas.
The statute’s exclusion for money contributed to a life insurance policy during the forty-eight
months prior to bankruptcy reflects a balancing of the purposes of the exemption: “to encourage
individuals to insure their lives for the benefit of their families,” Gedgaudas, 978 P.2d at 680,
against “a policy of preventing abusive pre-bankruptcy planning through converting non-exempt
cash into exempt cash surrender value.” In re Moosman, 473 B.R. at 390. “The concern over the
conversion of non-exempt to exempt property is especially justified in the case of life insurance
because it is relatively easy to ‘reconvert’ the exempt cash surrender value to cash after a
bankruptcy is filed.” Id.
Here, the court of appeals’ definition of “cash surrender value” in Gedgaudas, 978 P.2d at
681, corresponds to Prudential’s term “Net Cash Surrender Value.” “Cash value,” as defined in
Gedgaudas, i.e. the value of a life insurance policy that increases incrementally with the payment
of each premium and does not vary with the amount of outstanding loans, most closely
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corresponds with Prudential’s term “Tabular Cash Value.” As discussed above, in the forty-eight
month period before the Debtor’s petition date, the Policy’s Tabular Cash Value or cash value (as
enumerated in Gedgaudas) had increased $1,878.75, and the Policy’s Net Cash Surrender Value
(cash surrender value per Gedgaudas) was $1,459.79. Because the Policy’s $1,878.75 cash value
attributable to premiums exceeds the $1,459.79 cash surrender value of the Policy and the cash
surrender value is what the Debtor may surrender the Policy for (Gedgaudas, 978 P.2d at 681),
the Bankruptcy Court’s holding that the entire cash surrender value of $1,456.79 was non-exempt
was proper. The Bankruptcy Court’s holding is supported by the plain language of the statute and
the holding in Gedgaudas.
Furthermore, such an application is supported by the rationale behind the exclusion from
the exemption. As the Bankruptcy Court properly explained, “the exclusion from the exemption
clearly focuses only on ‘increases in value’ occasioned by contributions to a policy during the
forty-eight month period.” Id. Thus, the Bankruptcy Court’s interpretation of the statute
preserves the proper balance between an individual’s right to insure their lives for the benefit of
their families, and preventing the creation of what is essentially an exempt savings account by
individuals contributing cash to their life insurance policies during the forth-eight month period
before bankruptcy. Id.
Accordingly, Debtor’s claims related to C.R.S. § 13-54-102(1)(l)(A) fail.
B.

Contracts Clause

Debtor further argues, for the first time on appeal, that the Bankruptcy Court’s order and
the statute improperly impair the contractual obligations between Debtor and Prudential, in
violation of the contracts clause of the United States Constitution. As a general rule, “a federal
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appellate court does not consider an issue not passed upon below.” Lyons v. Jefferson Bank &
Trust, 994 F.2d 716, 720 (10th Cir. 1993) (quoting Singleton v. Wulff, 428 U.S. 106, 120 (1976)).
While there are exceptions to this general rule–none of which are applicable here–such power is
only exercised in “the most unusual circumstances,” of which this case is not. Id. at 721.
To the extent that Debtor argues that her contracts clause argument was sufficiently raised
in the Bankruptcy Court this argument likewise fails. For an issue to be addressed on appeal it
must “be presented to, considered and decided by the trial court.” Id. (quotations omitted).
“Vague, arguable references to a point in the [lower] court proceedings do not preserve the issue
on appeal.” Id. (citations and quotations omitted). Similarly, “where an issue is raised but not
pursued . . . it cannot be the basis for [an] appeal.” Id. at 722. Here, Debtor only raised the
argument in her response to trustee’s motion for summary judgment. In her response Debtor
committed only two sentences to her argument, stating: “[t]he court is without authority to rewrite
the debtor’s contract with the insurer”; and “[t]o allow such to occur is unconstitutional; impairs
the obligation of contract; and exposes the insurance carrier, on account uncertainty, to excessive
risk.” [AR Doc. # 12-2, 21]. These two sentences are not sufficient to preserve the issue for
appeal. Even if the issue were to be considered sufficiently raised, it was not further pursued by
Debtor. Thus, Debtor’s contracts clause argument was not presented to, considered, or decided
by the Bankruptcy Court, and consequently addressing it would not be proper on appeal.
Furthermore, it is not clear whether Debtor is challenging the constitutionality the
Bankruptcy Court’s order or of the Colorado statute. In her briefing Debtor discusses case law
related to challenging the constitutionality of a state statute under the contracts clause of the
United States Constitution as applied to the Bankruptcy Court’s decision. To the extent she
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challenges the Bankruptcy Court’s decision, such a challenge is improper under the contracts
clause. See Rogers v. Tennessee, 532 U.S. 451 (2001) (holding that the ex post facto clause is a
limitation upon the powers of the legislature and does not of its own force apply to the judicial
branch of government); Marks v. U.S., 430 U.S. 188 (1977); Bouie v. City of Columbia, 378 U.S.
347 (1964) (providing that the prohibition against ex post facto laws ordinarily applies to
legislative acts only, and not to judicial acts, except when there is an unforeseeable judicial
enlargement of a criminal statute, applied retroactively).
To the extent Debtor is challenging the constitutionality of C.R.S. § 13-54-102(1)(l)(A),
she was required to file a notice of constitutional question pursuant to Fed. R. Civ. P. 5.1(a) and
Fed. R. Bankr. P. 9005.1. The Court is unaware of any such notice filed in this case. However,
failure to file such a notice does not waive claims. Fed. R. Civ. P. 5.1(a). For the contracts clause
to be applicable, the statute must retroactively effect an already existing contract. U.S. Const.
Art. I, § 10, cl. 1. Here, the statute was in effect at the time Debtor filed her petition for
bankruptcy application. See In re Larson, 260 B.R. 174 (Bankr. D. Colo, Mar. 12, 2001).
Accordingly, Debtor’s contracts clause claim fails.
IV. Conclusion
For the foregoing reasons, the court concludes that the Bankruptcy Court’s decision
ordering Prudential to turn over to the Trustee the $1,459.79 petition date cash surrender value of
Debtor’s Policy was proper. Additionally, Debtor’s arguments on appeal are without merit.
Accordingly, IT IS ORDERED that the Bankruptcy Court’s decision granting the
Trustee’s summary judgment motion is AFFIRMED.

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Dated: August 20 , 2013 in Denver, Colorado.

BY THE COURT:

s/ Lewis T. Babcock
LEWIS T. BABCOCK, JUDGE

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