Ring v. Mason et al

Filing 5

ORDER affirming Order of the Bankruptcy Court. Clerk of Court to close case. Signed by Hon. Richard J. Arcara on 7/14/2009. (JMB)

UNITED STATES DISTRICT COURT W ESTERN DISTRICT OF NEW YORK

In Re:

RICHARD V. MASON and JOLENE M. MASON, D E C IS IO N AND ORDER 0 8 -C V - 6 1 3 A

Debtors.

P u r s u a n t to 28 U.S.C. § 158(a)(1), this case comes before the Court on a p p e a l from an Order of the United States Bankruptcy Court for the W e s t er n D is tric t of New York (Bucki, C.J.), entered on June 20, 2008. In its Order, the B a n k ru p tc y Court denied the Trustee's motion objecting to the debtors' claimed e xe m p tio n in the proceeds and avails of a certain annuity (the "Annuity") issued o n or about December 24, 2002 by Liberty Life Assurance Company of Boston, b e a rin g policy number NP3-023438. The Annuity came into being as part of a s e ttle m e n t of a personal injury action that the debtors had maintained. The issue o n appeal is whether the two remaining payments (the "Payments") on the A n n u ity are exempt from the debtors' bankruptcy estate. The Trustee filed his appellant brief on August 29, 2008. The debtors filed th e ir appellee brief on September 5, 2008. This Court heard oral argument on J u ly 2, 2009. For the reasons below, and after considering the arguments that th e parties have raised in their briefing and at oral argument, the Court decides th a t the Payments are exempt and that the Order of the Bankruptcy Court should b e affirmed.

B AC K G R O U N D T h is appeal concerns the Payments from the Annuity, an annuity contract e s tab lis h e d as part of a personal injury settlement. In 2001, the debtors c o m m e n c e d an action in New York State Supreme Court to recover damages fro m personal injuries that they allegedly sustained on or about June 11, 1999. On or around December 13, 2002, the debtors and the insurance carrier for the d e fe n d a n ts in the state court action entered a settlement agreement. Among o th e r terms, the settlement agreement provided for the establishment of the A n n u ity, purchased and maintained by the insurance carrier for the defendants. T h e Payments are the last two payments that the debtors are owed on the A n n u ity: one payment of $12,000 to be paid on January 5, 2013; and one p a ym e n t of $18,727 to be paid on January 5, 2018. O n January 28, 2008, the debtors filed a voluntary petition for relief under C h a p te r 7 of the United States Bankruptcy Code. The debtors claimed that the P a y m e n ts were exempt from their bankruptcy estate since they were proceeds a n d avails of an annuity contract pursuant to Section 282 of New York's Debtor a n d Creditor Law. The Trustee subsequently made a motion before the B a n k ru p tc y Court to object to the claimed exemption. The Trustee argued then a n d maintains now on appeal that the Payments cannot qualify for exemption b e c a u s e the Annuity itself is not part of the bankruptcy estate. Additionally, the T ru s te e argued that at most, the debtors might qualify for a limited exemption of 2

$ 7 ,5 0 0 under Section 282(iii)(3)(iii) of the Debtor and Creditor Law. In opposition to the Trustee's motion, the debtors argued then and maintain now on appeal th a t, regardless of ownership of the Annuity's contract itself, the Payments c o n s titu te "proceeds and avails" of an annuity contract under Debtor and Creditor L a w § 282(ii) and are thus fully exempt. The Bankruptcy Court denied the T ru s te e 's motion in its entirety. This appeal followed. D IS C U S S I O N T h e debtors' right to collect the Payments necessarily constitutes an asset th a t falls within the bankruptcy estate. W ith exceptions not relevant here, a b a n k ru p tc y estate includes "all legal or equitable interests of the debtor in p ro p e rty as of the commencement of the case." 11 U.S.C. § 541(a)(1); see also R e g a n v. Ross, 691 F.2d 81, 83 (2d Cir. 1982) (holding that Section 541 "reflects a congressional intent to include( ) as property of the estate all property of the d e b to r, even that needed for a fresh start") (internal quotation marks and citation o m itte d ). Under the terms of the settlement of the personal injury action in state c o u r t, the insurance company for the defendants had an obligation to establish the Annuity and the Payments. The terms of the settlement agreement therefore g a ve the debtors a right to seek the Payments. Although the parties appear to c o n tes t the exact nature of that right, they do not contest that the debtors have s o m e kind of right that will enable them to receive the Payments at the scheduled tim e s . In fact, that right likely would be enforceable in court if the Payments do 3

n o t occur as scheduled. The debtors' right to the Payments thus is a legal or e q u ita b le interest within the meaning of the Bankruptcy Code. T h e debtors properly exempted their right to the Payments under the plain la n g u a g e of the applicable state statutes. Pursuant to 11 U.S.C. § 522(b)(3)(A), N e w York has decided to substitute its own list of bankruptcy exemptions for the d e fa u lt list found in the Bankruptcy Code. See N.Y. Debt. & Cred. Law § 282. Section 282 explicitly exempts from a bankruptcy estate "annuity contracts and th e proceeds and avails thereof as provided in section three thousand two h u n d re d twelve of the insurance law." Id. § 282(ii) (emphasis added). The d e b to rs ' right to the Payments, therefore, need not include ownership of the A n n u ity itself, so long as Section 3212 of the New York Insurance Law addresses it in its present form. Section 3212 of the Insurance Law, in turn, explicitly states th a t "[t]he benefits, rights, privileges and options which, under any annuity c o n tra c t are due or prospectively due the annuitant, who paid the consideration fo r the annuity contract, shall not be subject to execution." N.Y. Ins. Law § 3212(d)(1). The parties do not appear to dispute that debtor Richard Mason is th e annuitant under the Annuity. The parties further do not appear to dispute that th e debtors paid valuable consideration for the right to the Payments when they g a ve up their right to continue their personal injury litigation in state court. Cf. In re Tappan, 277 B.R. 491, 492 (Bankr. W .D .N .Y . 2002) ("By reason of her e xe c u tio n of a release of claims arising from a personal injury, [the debtor] paid 4

c o n s id e ra tio n for the annuity contract of which she is a beneficiary.") There can b e no reasonable dispute that the debtors' right to the Payments is a right owed to them under an annuity contract, regardless of who owns that contract. Consequently, the plain language of Insurance Law § 3212(d)(1) places the d e b to rs within the exemption provision of Section 282(ii) of the Debtor and C re d ito r Law. Cf. In re Keating, No. 04-87159, 2006 W L 2690239, at *3 (E .D .N .Y . Sept. 18, 2006) ("Section 3212(d)(1) provides that payments under an a n n u ity contract are exempt from execution."). In re Constantino, 274 B.R. 580 (B a n k r. N.D.N.Y. 2002), which analyzed a different subsection under Section 282, d o e s not require a different conclusion. The Court need not address any other a rg u m e n ts raised by the parties since the plain language of Section 282(ii) of the D e b to r and Creditor Law suffices to resolve this appeal. See Robinson v. Shell O il Co., 519 U.S. 337, 340 (1997) ("Our first step in interpreting a statute is to d e te rm in e whether the language at issue has a plain and unambiguous meaning w ith regard to the particular dispute in the case. Our inquiry must cease if the s ta tu to ry language is unambiguous and the statutory scheme is coherent and c o n s is te n t.") (internal quotation marks and citations omitted). The debtors thus h a ve claimed correctly that their right to the Payments is entirely exempt from th e ir bankruptcy estate.

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C O N C L U S IO N F o r the foregoing reasons, the Order of the Bankruptcy Court is affirmed.

SO ORDERED.

s/ Richard J. Arcara
HONORABLE RICHARD J. ARCARA CHIEF JUDGE UNITED STATES DISTRICT COURT DATED: July 14, 2009

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