Sheehan et al v. Ash
Filing
25
MEMORANDUM AND OPINION AND ORDER AFFIRMING ORDER OF THE BANKRUPTCY COURT: The Court AFFIRMS the Bankruptcy Courts Order overruling the Trustees objection to the applicability of Louisiana exemptions for the Debtors property notlocated in Louisiana. I n doing so, it adopts the majority, state-specificinterpretation of extraterritoriality under § 522(b). The Court DIRECTS the Clerk to enter a separate judgment order. Signed by District Judge Irene M. Keeley on 6/27/17. (jss) Modified on 6/27/2017 - copy USBC NDWV (jss).
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
MARTIN P. SHEEHAN,
Appellant/Trustee,
v.
CIVIL ACTION NO. 1:16CV109
(Judge Keeley)
KEITH DOYLE ASH and
PHYLLIS JEAN ASH,
Appellees/Debtors.
MEMORANDUM OPINION AND ORDER
AFFIRMING ORDER OF THE BANKRUPTCY COURT
Trustee Martin P. Sheehan (“Trustee”) appeals an order entered
by the Honorable Patrick M. Flatley, United States Bankruptcy Judge
(“Bankruptcy
exemptions
Court”),
claimed
by
overruling
Keith
Doyle
his
Ash
objection
and
to
Phyllis
certain
Jean
Ash
(“Debtors”) in their voluntary petition for bankruptcy pursuant to
Chapter Seven of the Bankruptcy Code. The question presented is
whether Louisiana’s exemptions, which the Bankruptcy Code directs
the Debtors to apply, encompass personal property situated outside
Louisiana at the time of filing. For the reasons that follow, the
Court concludes that the Debtors may apply Louisiana’s exemptions
to their personal property in West Virginia, and thus AFFIRMS the
Bankruptcy Court’s Order.
I. BACKGROUND
A.
Factual Background
The parties stipulated to the relevant facts before the
Bankruptcy Court. The Debtors lived in Louisiana from 2011 until
SHEEHAN V. ASH, ET AL.
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MEMORANDUM OPINION AND ORDER
AFFIRMING ORDER OF THE BANKRUPTCY COURT
March 2015, at which time they relocated to West Virginia. On July
24, 2015, the Debtors filed a voluntary petition for bankruptcy in
the Northern District of West Virginia under Chapter 7 of the
Bankruptcy Code (Dkt. No. 8-8 at 1). At the time of filing, the
Debtors
owned
real
and
personal
property
still
situated
in
Louisiana. The Debtors also owned personal property situated in
West
Virginia,
including
a
checking
account,
appliances,
televisions, clothing, a wedding band, two guns, a 2002 Geo
Tracker, and a possible payment of workers’ compensation.1 Id. at
1-2.
It is this personal property that is at issue in this appeal.
1
In
addition
to
his
original
argument
regarding
extraterritorial application of state law, which was addressed by
the Bankruptcy Court and is discussed below, the Trustee now seeks
to preclude the Debtors’ claimed exemption for the possible payment
of West Virginia workers’ compensation based on his contention that
the language of the Louisiana exemption covers only Louisiana
workers’ compensation (Dkt. No. 19-1 at 10). Because the Trustee
failed to raise this objection below, the Court will not consider
it on appeal. See Muth v. United States, 1 F.3d 246 (4th Cir. 1993)
(“[I]ssues raised for the first time on appeal generally will not
be considered.”); see also Taylor v. Freeland & Kronz, 503 U.S.
638, 643-44 (1992) (reasoning that objections may not be raised
after the time provided by Rule 4003(b)). As the Debtors note, had
this argument been raised, it would have prompted the Bankruptcy
Court to address conflicting decisions concerning whether an
individual federal exemption may apply in the absence of a
correlating state exemption (Dkt. No. 23 at 14, 22-23).
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B.
Bankruptcy Exemptions
When an individual debtor files for bankruptcy, “all legal or
equitable interest[s] of the debtor in property” become part of a
bankruptcy estate. 11 U.S.C. § 541(a). “To help the debtor obtain
a fresh start, however, the Bankruptcy Code allows debtors to
exempt from the estate limited interests in certain kinds of
property.” Clark v. Rameker, 134 S.Ct. 2242, 2244 (2014) (quotation
omitted) (quoting Rousey v. Jacoway, 544 U.S. 320, 325 (2005)).
According to the House Judiciary Committee, “‘[t]he historical
purpose’ of bankruptcy exemptions has been to provide a debtor
‘with the basic necessities of life’ so that she ‘will not be left
destitute and a public charge.’” Id. at 2247 n.3 (quoting H.R. Rep.
No. 95-595, at 126 (1977)). Indeed, “statutes creating debtors’
exemptions must be construed liberally in favor of the debtor and
the exemption.” In re Nguyen, 211 F.3d 105, 110 (4th Cir. 2000).
“Congress designed the exemption system . . . to allow states
to participate in th[e] regulation of debtor/creditor relations.”
Hovis v. Wright, 751 F.2d 714, 715-16 (4th Cir. 1985). As the
Fourth Circuit has explained,
[t]he Bankruptcy Code provides two alternative exemption
schemes. Unless state law provides otherwise, a debtor
may choose to exempt from the estate either property
listed in the federal bankruptcy exemptions set forth in
§ 522(d) of the Bankruptcy Code or property exempt under
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applicable state or local law, together with property
exempt under federal, non-bankruptcy law. 11 U.S.C.
§ 522(b)(1). However, § 522(b)(2) of the Bankruptcy Code
authorizes the states to opt out of the federal
bankruptcy exemption scheme and thereby deny debtors the
right to elect the federal bankruptcy exemptions
contained in § 522(d). By opting out, a state restricts
its debtors to any exemptions available under state or
local law and federal, non-bankruptcy law.
Sheehan v. Peveich, 574 F.3d 248, 251 (4th Cir. 2009). In essence,
Congress expressly delegated to the states “the power to create
state exemptions in lieu of the federal bankruptcy exemption
scheme.” Id. at 252. These two alternatives are described generally
as the “federal exemptions” and the “state exemptions.”
The
Bankruptcy
Code
directs
debtors
to
identify
their
applicable state law as follows:
State or local law that is applicable on the date of the
filing of the petition to the place in which the debtor's
domicile has been located for the 730 days immediately
preceding the date of the filing of the petition or if
the debtor's domicile has not been located in a single
State for such 730-day period, the place in which the
debtor's domicile was located for 180 days immediately
preceding the 730-day period or for a longer portion of
such 180-day period than in any other place.
11 U.S.C. § 522(b)(3)(A). Prior to The Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (“BAPCPA”), the statute had
instead directed debtors “to apply the exemption laws from the
state
that
was
their
domicile
for
the
180
days
immediately
preceding the date of the filing of the petition or the state where
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they were domiciled for the greater portion of that 180-day
period.” In re Stephens, 402 B.R. 1, 3 (B.A.P. 10th Cir. 2009). The
more lengthy 730-day “look-back” window reflects a congressional
effort to curb debtors from forum shopping for a state with more
favorable exemptions. See In re Willis, 495 B.R. 856, 859-60
(Bankr. W.D. Wis. 2013); H.R. Rep. No. 109-31, pt. 1, at 15-16
(2005), as reprinted in 2005 U.S.C.C.A.N. 88, 102 (discussing how
the window prevents debtors from moving to states with generous
exemptions for home equity).
BAPCPA also added what is known as the “hanging paragraph.” At
the end of § 522(b)(3), an unnumbered provision states that, “[i]f
the effect of the domiciliary requirement under subparagraph (A),”
quoted
above,
exemption,
the
“is
to
debtor
render
may
the
elect
debtor
to
ineligible
exempt
property
for
that
any
is
specified under subsection (d),” which lists the federal bankruptcy
exemptions. This provision ensures that a debtor may apply the
federal exemptions if his applicable state under § 522(3)(A) is an
opt-out state, but the limitations of its exemption law nonetheless
prevent the debtor from taking “any exemption.”2
2
There is some debate over whether the hanging paragraph is
triggered only in the extreme circumstance that a debtor may not
use even a single exemption under applicable state law, or whether
debtors may claim individual federal exemptions for particular
5
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The parties agree that, because the Debtors relocated to West
Virginia less than 730 days prior to filing, their prior domicile,
Louisiana, provides the applicable law (Dkt. No. 8-8 at 1).
Louisiana is an “opt-out” state that does not permit an “individual
debtor” to take advantage of the federal exemptions. See La. Stat.
Ann. § 13:3881(B)(1) (“In cases instituted under the provisions of
Title 11 of the United States Code, entitled ‘Bankruptcy’, there
shall be exempt from the property of the estate of an individual
debtor only that property and income which is exempt under the laws
of the state of Louisiana and under federal laws other than
Subsection (d) of Section 522 of Title 11 of the United States
Code.”).3 Therefore, the Debtors are confined to the Louisiana
exemptions.
property that is not exempt under applicable state law. Compare In
re Wilson, No. 14-20557-TLM, 2015 WL 18550919 (Bankr. D. Idaho Jan.
13, 2015), with In re Kelsey, 477 B.R. 870 (Bankr. M.D. Fla. 2012).
The Bankruptcy Court in this District has previously suggested that
it would subscribe to the more liberal construction. See In re
Capelli, 518 B.R. 873, 880 (Bankr. N.D.W. Va. 2014).
3
Because the Louisiana opt-out statute is not limited to its
residents, the Court need not address whether non-residents such as
the Debtors are eligible to select the federal exemptions. See
Shell v. Yoon, 499 B.R. 610, 614 (N.D. Ind. 2013); In re George,
440 B.R. 164 (Bankr. E.D. Wisc. 2010) (permitting a debtor to take
the federal exemptions where, although Illinois exemption law
applied, the debtor “no longer reside[d] in Illinois, and the
Illinois ‘opt-out’ [wa]s specifically limited to residents”).
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C.
Procedural Background
On July 24, 2015, the Debtors filed a voluntary petition for
bankruptcy pursuant to Chapter 7 of the Bankruptcy Code (Dkt. No.
8-3 at 1). At that time, they held assets with a total value of
$85,771. The Debtors’ real property, a house on approximately two
acres in Coushatta, Louisiana, accounted for $65,000. The remaining
$20,771 in assets comprised personal property located in both
Louisiana and West Virginia. Id. at 8. As discussed, the Bankruptcy
Code
instructed
the
Debtors
to
claim
exemptions
pursuant
to
Louisiana law, and they did so on Schedule C of their petition. Id.
at 15.
The Trustee objected to the Debtors’ claims of exemptions for
personal property located outside Louisiana at the time of filing
(Dkt. No. 8-4). He argued “that the State of Louisiana lacks the
power as a sovereign entity to prescribe exemptions for property
which was not within the State of Louisiana on the date of filing
and further that the use of such exemptions is prohibited by the
Due Process clause of the Fourteenth Amendment.” Id. at 2. The
Trustee relied on the “presumption against extraterritoriality” of
federal
law,
as
well
as
traditional
principles
of
state
sovereignty, to argue that laws promulgated by states cannot apply
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to property outside their borders. Id. (citing Kiobel v. Royal
Dutch Petroleum Co., 133 S.Ct. 1659 (2013)).
In its Order, the Bankruptcy Court overruled the Trustee’s
objection. It reasoned that, because Congress incorporated state
exemptions into the Bankruptcy Code, federal law - not state law creates the possibility that a state’s exemption laws will be
applied outside a state’s borders (Dkt. No. 8-9 at 4-5). To
determine whether Louisiana’s exemptions should be applied to
property in other states, it adopted the majority approach, which
liberally construes state exemptions to apply extraterritorially
absent state-specific restrictions to the contrary. Id. at 5.
Moreover,
it
declined
to
apply
a
“presumption
against
extraterritoriality” to states, noting that the Supreme Court has
applied the rule only to international concerns. Id. at 5-6. The
Trustee appealed from this judgment.
II. JURISDICTION
District courts have jurisdiction to hear appeals “from final
judgments, orders, and decrees . . . of bankruptcy judges entered
in cases and proceedings” under the Bankruptcy Code. 28 U.S.C.
§
158(a).
Such
proceedings
include
“core
proceedings,”
which
encompass “allowance or disallowance of . . . exemptions from
property of the estate.” Id. § 157(b)(2)(B). Indeed, the “[g]rant
8
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AFFIRMING ORDER OF THE BANKRUPTCY COURT
or denial of a claimed exemption is a final appealable order from
a bankruptcy proceeding.” Sumy v. Schlossberg, 777 F.2d 921, 923
(4th Cir. 1985).
III. STANDARD OF REVIEW
A district court sitting in its capacity as a bankruptcy
appellate court reviews “findings of fact only for clear error, but
consider[s] the relevant legal questions de novo.” In re Varat
Enters., Inc., 81 F.3d 1310, 1314 (4th Cir. 1996). When the parties
do not dispute the relevant facts, the Court’s review is de novo.
See In re Jones, 591 F.3d 308, 310 (4th Cir. 2010).
IV. DISCUSSION
The Trustee argues that the well-established “presumption
against extraterritoriality” and traditional limits on state power
preclude application of a state’s exemptions to property outside
that state at the time of filing (Dkt. No. 19 at 13). The Trustee
frames the issue broadly, focusing on the limited authority of the
states as sovereigns to enact laws that apply outside their
borders. Although this consideration is relevant, it is also
undoubtedly ancillary. Because bankruptcy is governed by statute,
the question presented is one of statutory interpretation. See
Shell, 499 B.R. at 614. That is, when Congress directed particular
9
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debtors to exempt property according to the law of their prior
domicile, how did it intend for that state’s law to apply?
When interpreting a statute, a court’s analysis begins with
the text of the statute itself. Othi v. Holder, 734 F.3d 259, 265
(4th Cir. 2013). If the language is “clear and unambiguous,” then
the Court is “duty bound to give effect to that language.” Metro
Mach. Corp. v. Dir., Office of Worker’s Comp. Programs, 846 F.3d
680, 689 (4th Cir. 2017). The focus should be on a statute’s plain
meaning, with an eye toward “the language itself, but also the
specific context in which that language is used, and the broader
context of the statute as a whole.” Country Vintner of N.C., LLC v.
E. & J. Gallo Winery, Inc., 718 F.3d 249, 258 (4th Cir. 2013)
(quoting In re Total Realty Mgmt., LLC, 706 F.3d 245, 251 (4th Cir.
2013)). “[W]here statutory language is ambiguous, we ‘turn to other
evidence to interpret the meaning of the provision,’ interpreting
provisions
harmoniously,
where
possible,
or
by
reference
to
legislative history, and always with the goal of ascertaining
congressional intent.” Johnson v. Zimmer, 686 F.3d 224, 235 (4th
Cir. 2012) (quoting New Cingular Wireless PCS, LLC v. Finley, 674
F.3d 225 (4th Cir. 2012)). “Statutory interpretations that render
superfluous other provisions in the same enactment are strongly
10
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disfavored.” Nat’l Endowment for the Arts v. Finley, 524 U.S. 569,
609 (1998).
Here,
although
the
Debtors
reside
in
West
Virginia,
§ 522(b)(3)(A) directs them to exempt “any property that is exempt
under”
Louisiana
law.
Despite
the
clarity
of
the
statute’s
language, the simple command that the Debtors exempt property that
“is
exempt”
unanswered.
under
Louisiana
law
leaves
critical
questions
As the district court queried in In re Fernandez:
Should the Court strictly construe the phrase “is exempt”
and look to what [Louisiana] courts would allow debtors
to exempt in non-bankruptcy actions? Should the Court
look to [Louisiana] law to see if [Louisiana] would
permit out-of-state property to be exempt in bankruptcy?
Or should the Court treat the subsection as a choice of
law provision, and simply apply the categories and
amounts of [Louisiana] exemption to Debtor’s bankruptcy
estate, paying no attention to any potential limitations
[Louisiana] law might impose on applying [Louisiana] law
outside [Louisiana]? The statute’s terse command to
determine what “is exempt under . . . State” law provides
no clear answer.
In re Fernandez, No. EP-11-CV-123-KC, 2011 WL 3423373, at *6 (W.D.
Tex. Aug. 5, 2011).
Judicial responses to these questions have produced no fewer
than three interpretations.4 The alternatives hold that state
4
Notably, while the extraterritorial application of state
exemption law was an issue prior to BAPCPA, the extended look-back
window of BAPCPA appears to have made it a more frequently raised
one. See In re Fernandez, 2011 WL 3423373, at *4.
11
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exemptions either never, sometimes, or always may be applied to
persons or property outside state borders. These alternatives have
been denominated respectively as the anti-extraterritoriality,
state-specific, and preemption interpretations. Id. Although the
Trustee
urges
application
of
the
anti-extraterritoriality
interpretation, this Court agrees with the Bankruptcy Court’s
conclusion that the majority approach, which is the state-specific
interpretation, best embodies congressional intent and the liberal
construction afforded to bankruptcy exemptions.
A.
Anti-Extraterritoriality Interpretation
Under the anti-extraterritoriality interpretation espoused by
the Trustee, “bankruptcy courts may not give extraterritorial
effect to any state’s exemption laws.” In re Fernandez, 2011 WL
3423373, at *7. “In other words, when applying a former domicile
state’s exemption laws, the bankruptcy court should apply them as
if it were a state court of the forum state where the bankruptcy
court were located, giving them like effect.” Id.
1.
In re Fernandez
The Bankruptcy Court for the Western District of Texas is the
only
court
to
have
applied
the
anti-extraterritoriality
interpretation. See id. Its reasoning, resting on grounds similar
12
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MEMORANDUM OPINION AND ORDER
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to those argued by the Trustee, was overturned on appeal to the
district court.
In In re Fernandez, the debtor, a resident of Texas, attempted
to use the applicable homestead exemption of his prior domicile,
Nevada, to exempt his home in Texas. 445 B.R. 790, 793-94 (Bankr.
W.D. Tex. 2011), rev’d, No. EP-11-CV-123-KC, 2011 WL 3423373 (W.D.
Tex. 2011). The bankruptcy court reasoned that exemption laws “do
not have extraterritorial effect for the obvious reason that one
state cannot impose its remedial scheme on another state,” nor is
any state required to give full faith and credit to the exemption
laws of another state. Id. at 798. Although “Congress chose to
incorporate state law exemption schemes,” the bankruptcy court
reasoned that it had “expressed no intention, either express or
implied,
that
those
schemes
would
in
the
process
become
‘federalized.’” Id. at 802. Therefore, it concluded that the
statute
plainly
directed
the
court
not
to
apply
the
Nevada
exemption to property in Texas. Id. at 816.
On appeal, the district court disagreed sharply with this
conclusion, finding a “crucial difference between a state being
required to give effect to another state’s exemption laws and a
state being allowed to give effect to another state’s exemption
laws.”
According
to
the
district
13
court,
“[t]hat
a
state
is
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prevented from imposing its laws on another state does not mean
that a state may not offer its laws for use by another state, if
that other state so wishes, or that a state may not, in actions
brought in its own courts, apply its own state law to property
located elsewhere.” In re Fernandez, 2011 WL 3423373, at *8. When
federal law directs a court to apply the law of a particular state,
there is no concern that the state is impermissibly imposing its
laws on another jurisdiction. See id. On the contrary, contractual
and state choice of law principles regularly and permissibly
require courts to give effect to another state’s laws, with the
“modest” limitations of the Due Process and Full Faith and Credit
Clauses. Id.
The
district
court
further
reasoned
that
the
anti-
extraterritoriality interpretation renders too much of the statute
irrelevant. More particularly, selecting the appropriate law under
§ 522(b)(3)(A) would be a fruitless exercise for most relocated
debtors to whom the section applies. Such debtors likely have no
property in their prior domicile, would be categorically ineligible
for its exemptions, and would take advantage of the hanging
paragraph. Had Congress intended this result, it simply could have
directed application of the federal exemptions. Id. at *9-*10.
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Moreover, the anti-extraterritoriality approach would render the
hanging paragraph superfluous:
[Section] 522(b)(2) requires application of state opt-out
law to determine if a debtor may use the federal
exemptions. Specifically, the statute states that the
federal exemptions are available “unless the State law
applicable to the debtor under paragraph (3)(A)
specifically does not so authorize.” [If a state’s
exemption law cannot apply outside its boundaries], there
is no state law that would ever be “applicable” to a
debtor under paragraph (3)(A), so there is no state law
to use to make this determination. With no state opt-out
law to apply and with state exemptions always unavailable
. . ., the debtor is left with a Hobson’s choice between
the federal exemptions and no exemptions at all.
Id. at *10; see also Finley, 524 U.S. at 609. Based on this
reasoning, the district court rejected the anti-extraterritoriality
interpretation and adopted the state-specific approach.
2.
The Trustee’s Arguments
The Trustee supplements his argument in favor of the antiextraterritoriality approach with reference to the “presumption
against extraterritoriality” and constitutional limits on the
states’ sovereign power. Neither of these arguments is convincing,
however;
each
fails
to
address
the
concerns
articulated
so
effectively by the district court in In re Fernandez.
The “presumption against extraterritoriality” is a canon of
statutory construction that limits the application of federal law
on an international level. In Kiobel v. Royal Dutch Petroleum Co.,
15
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for example, the Supreme Court considered “whether and under what
circumstances courts may recognize a cause of action under the
Alien Tort Statute, for violations of the law of nations occurring
within the territory of a sovereign other than the United States.”
133 S.Ct. 1659, 1662 (2013). The Alien Tort Statute (“ATS”)
provides
that
“[t]he
district
courts
shall
have
original
jurisdiction of any civil action by an alien for a tort only,
committed in violation of the law of nations or a treaty of the
United States.” Id. at 1663 (quoting 28 U.S.C. § 1350). The
plaintiffs, former residents of Nigeria, brought suit under the
ATS, alleging that the respondent companies had violated the law of
nations
by
aiding
and
abetting
the
Nigerian
government’s
atrocities. Id. at 1662-63.
The
Supreme
Court
applied
the
presumption
against
extraterritorial application, which “provides that when a statute
gives no clear indication of an extraterritorial application, it
has none, and reflects the presumption that United States law
governs domestically but does not rule the world.” Id. at 1664
(quoting Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247 (2010);
Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007)) (internal
quotation
and
citation
omitted).
The
presumption
prevents
“unintended clashes” between domestic and foreign laws “which could
16
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result in international discord.” Id. (quoting EEOC v. Arabian Am.
Oil Co., 499 U.S. 244, 248 (1991)). The Supreme Court concluded
that,
absent
contrary
congressional
intent,
the
presumption
prevented application of the ATS to “conduct within the territory
of another sovereign.” Id. at 1665, 1669.
In this case, the Bankruptcy Court recognized that, although
states are analogous to international sovereigns, the presumption
against
extraterritorial
application
remains
a
canon
of
construction confined to the international context (Dkt. Nos. 8-9
at 5-7; 23 at 18-19). There, the presumption rests on concern that
the judiciary will unwittingly affect foreign policy or spark
international discord. Kiobel, 133 S.Ct. at 1664. There is no such
concern when Congress directs that the law of a particular state be
applied in bankruptcy, a wholly domestic affair, and there thus is
no need to apply the presumption in this case.
Connecting Kiobel to the instant case, however, the Trustee
argues that a similar presumption should apply between states
because they too are sovereigns that may legislate only within
their
boundaries
(Dkt.
No.
19
at
24).
Citing
the
familiar
principles of federalism, due process, and full faith and credit,
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the Trustee asserts that states simply have no power to enact
exemption laws with extraterritorial effect. Id. at 24-29.5
Undoubtedly,
“[t]he
principle
that
state
laws
may
not
generally operate extraterritorially is one of constitutional
magnitude.” Carolina Trucks & Equip., Inc. v. Volvo Trucks of N.A.,
Inc., 492 F.3d 484, 489 (4th Cir. 2007) (citing Healy v. Beer
Inst., 491 U.S. 324, 335 (1989) (commerce clause); Baldwin v.
G.A.F. Seelig, Inc., 294 U.S. 511, 521 (1935)). Nonetheless, the
5
See, e.g., Nevada v. Hall, 440 U.S. 410 (1979) (holding that
the Constitution did not require a California court to apply a
Nevada statute limiting damages recoverable against the state of
Nevada); National League of Cities v. Usery, 426 U.S. 833 (1976)
(commerce clause); Pac. Emp’rs Ins. Co. v. Indus. Accident Comm’n,
3006 U.S. 493, 502 (1939) (“[T]he full faith and credit clause does
not require one state to substitute for its own statute, applicable
to persons and events within it, the conflicting statute of another
state . . . .”); Farnum v. Blackstone Canal Corp., 8 F. Cas. 1059,
1065 (C.C.D.R.I. 1830) (“Every legislature, however broad may be
its enactments, is supposed to confine them to cases or persons
within the reach of its sovereignty. . . . It cannot be presumed,
that the Massachusetts legislature meant to exceed its legitimate
authority.”); Grover Irrigation & Land Co. v. Lovella Ditch,
Reservoir & Irrigation Co., 131 P. 43 (Wy. 1913) (“It is a familiar
elementary principle that the laws of a state have no
extraterritorial effect. And it is not necessary for a state
statute to contain words expressly confining its operation within
the state. That it is so confined is generally understood.”); State
v. Hall, 19 S.E. 602, 602 (N.C. 1894) (“It is a general principle
of universal acceptation that one state or sovereignty cannot
enforce the penal or criminal laws of another, or punish crimes or
offenses committed in and against another state or sovereignty.”);
Wooster v. Great Falls Manf. Co., 39 Me. 246, 250 (Me. 1855).
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restraints on state sovereignty cited by the Trustee do not cure
the shortcomings of the anti-extraterritoriality interpretation.
First, the Constitution is not offended when Congress directs
a federal court to apply state law.6 Rather, states “have the power
to enact laws relating to exemptions in any fashion [they] deem
appropriate,” Hovis, 751 F.2d at 716, and Congress is at equal
liberty to adopt those state laws for national application. See
United States v. Sharpnack, 355 U.S. 286, 293-95 (1958) (reasoning
that Congress may assimilate state law and providing the Bankruptcy
Code’s use of state exemptions as an example); see also Yee v.
Jewell, No. 16-490, 2017 WL 78473 (D.D.C. Jan. 9, 2017) (“[E]ven
where federal law borrows from state rules or procedures, it
remains federal law.”). This is true even when the state law has
6
The Trustee cites a number of cases for the proposition
that, outside the context of bankruptcy, exemptions are limited to
the territory of the forum state (Dkt. No. 19 at 29-30). See, e.g.,
Chicago, R.I. & P. Ry. Co. v. Sturm, 174 U.S. 710, 717 (1899)
(“Exemption laws . . . are part of the remedy, and subject to the
law of the forum.”); Sherwin-Williams Co. v. Morris, 156 S.W.2d 272
(Tenn. Ct. App. 1941) (“Exemption laws are considered as statutes
affecting the remedy only, and have no extraterritorial force.
Questions of exemption, therefore, are to be determined solely by
the laws of the forum.”). According to the Trustee, this authority
supports “the notion that limiting exemptions to one state is not
peculiar at all” (Dkt. No. 19 at 30). While the Court does not
question the Trustee’s premise, these cases simply do not address
whether and to what extent Congress intended state law to apply
pursuant to § 522(b).
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yet to be enacted, such as § 522(b)(3)(A)’s direction to apply
state law applicable “on the date of the filing.” See Sharpnack,
355 U.S. at 296. Therefore, the fact that a state lacks power to
impose its laws on persons and property situated outside its
boundaries does not mean that a state’s laws may never be applied
extraterritorially if Congress sees fit to do so.
Second, as discussed above, the Trustee’s reasoning would
render
the
730-day
look-back
window
almost
pointless,
In
re
Fernandez, 2011 WL 3423373, at *9-*10, and would result in many
relocated debtors applying the federal exemptions. Congress could
have applied those exemptions, but notably chose to direct certain
debtors to the law of their prior domicile.
The anti-extraterritoriality approach thus rests on the flawed
premise
that
state
power,
rather
than
congressional
intent,
determines the scope of bankruptcy exemptions. Moreover, such an
interpretation often would render the look-back window a fruitless
endeavor.
Therefore,
extraterritoriality
in
approach
this
Court’s
advanced
by
view,
the
the
Trustee
antiis
not
consistent with the intent of Congress as to how § 522(b) is to
operate, and the Court declines to adopt this view.
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B.
State-Specific Interpretation
The second approach, which is embraced by the majority of
courts and was applied by the Bankruptcy Court in this case, is the
state-specific interpretation, under which “a state’s exemption
laws may be used by out-of-state debtors for out-of-state property
to the extent that each state’s exemption law permits.” In re
Fernandez, 2011 WL 3423373, at *11 & n.3 (collecting cases).7 In
other words, “if the state’s exemption statutes or decisional
authority interpreting them do not explicitly limit the use of the
exemptions to in-state residents or to in-state property, then the
bankruptcy court should apply the state’s exemption laws to the
debtor’s property, wherever located.” In re Footen, No. 11-38619,
2012 WL 669849 (Bankr. D. Or. Feb. 29, 2012) (quoting In re
Fernandez, 2011 WL 3423373, at *11).
The
state-specific
approach
acknowledges
that
the
straightforward direction of § 522(b)(3)(A) is a choice-of-law
provision. See, e.g., In re Drenttel, 403 F.3d 611 (8th Cir. 2005);
7
The district court in In re Fernandez compiled a list of 40
cases considering the extraterritorial application of state
exemptions and found that, although their rationale is varied, 36
courts looked to state law when making their determination. 2011 WL
3423373, at *11 & n.3. These cases include “three of the four cases
decided by Circuit Courts of Appeals or Bankruptcy Panels of
Circuit Courts of Appeals.” Id. at *11.
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In re Arrol, 170 F.3d 934, 936 (9th Cir. 1999) (citing In re
Calhoun, 47 B.R. 119, 122 (Bankr. E.D. Va. 1985)); In re Stephens,
402 B.R. at 5; In re Jevne, 387 B.R. 301 (Bankr. S.D. Fla. 2008).
Therefore, because § 522(b)(3)(A) simply directs the Court to apply
“State or local law that is applicable,” it is reasonable to ask
whether that jurisdiction intends to apply its exemptions to outof-state property, not whether it has the power to do so.
The Court is constrained to agree that this is the plainest
meaning of the statute, as well as the most liberal interpretation
that feasibly may be applied to § 522(b)(3)(A).8 In re Nguyen, 211
F.3d at 110. As the bankruptcy appellate panel reasoned in In re
Stephens:
If the plain language of the pertinent . . . statute
restricts its application to property located within the
state, the statute cannot be given extraterritorial
effect by the bankruptcy court . . . . If the plain
language of a state’s . . . statute is silent as to its
extraterritorial effect, the Court must then look to that
state’s case law to see if the appellate courts of that
state have interpreted their . . . statute to apply to
property located outside of the state.
If no state case law exists on whether the exemption has
extraterritorial application, the bankruptcy court must
then interpret the state’s . . . law according to its
general principles governing exemptions . . . .
8
As discussed in detail below, the more liberal construction
of the preemption interpretation is foreclosed.
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In re Stephens, 402 B.R. at *6. In many cases that reach the final
inquiry, the liberal construction afforded to exemptions will
counsel
that
they
be
applied
extraterritorially.
See
In
re
Fernandez, 2011 WL 3423373, at *12. But see In re George, 440 B.R.
at 166 (reasoning that the applicability of state exemptions is
impliedly limited by a state’s power to affect residents within its
jurisdiction); In re Sanders, 72 B.R. 124 (Bankr. M.D. Fla. 1987)
(reasoning that Florida’s constitutional homestead exemption is
impliedly limited to property within the state).
Here, the majority approach dictates the extraterritorial
application of Louisiana’s exemption laws to the Debtor’s property
located in West Virginia at the time of filing. The plain language
of the Louisiana exemption statutes at issue does not restrict
their application to property within the state. See La. Stat. Ann.
§§ 13:3881, 23:1205. Nor has the Trustee provided any Louisiana
case law interpreting these exemptions to apply exclusively instate. On the contrary, it is apparent that Louisiana, much like
many other states, liberally construes its exemptions. See, e.g.,
Thompson-Ritchie & Co. v. Graves, 120 So. 1024, 1028 (La. 1929);
Cloud v. Cloud, 127 So.2d 560 (La. Ct. App. 1961); Mounger v.
Ferrell, 11 So.2d 56, 60 (La. Ct. App. 1942).
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The Trustee argues for a presumption that state exemption law
should be given extraterritorial effect not when state law is
silent, but only if the state makes “an affirmative approval [or
an] effort to insist on extraterritorial effect” (Dkt. Nos. 19-1 at
8; 24 at 14). The Trustee’s concerns are sufficiently addressed by
existing state law, however, as many states employ a prudential
presumption that their laws will not apply extraterritorially. See,
e.g., Nevares v. M.L.S., 345 P.3d 719, 727 (Utah 2015); Sullivan v.
Oracle Corp., 254 P.3d 237, 248 (Cal. 2011); Carolina Trucks, 492
F.3d at 489; Union Underwear Co., Inc. v. Barnhart, 50 S.W.3d 188,
190 (Ky. 2001). Such case law will be informative when applying the
state-specific interpretation articulated above. See, e.g., In re
Ginther, 282 B.R. 16, at *19 (Bankr. D. Kan. 2002) (refusing to
apply the Kansas homestead exemption to out-of-state property based
on Kansas case law precluding extraterritoriality).
C.
Preemption Interpretation
The
final
approach
to
§
522(b)
is
the
preemption
interpretation. Under this interpretation, “a state’s exemption
laws may be applied to non-residents and to out-of-state property,
regardless
of
whether
that
state’s
laws
allow
for
such
extraterritorial effect or not.” In re Fernandez, 2011 WL 3423373,
at *6.
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As its name implies, the preemption interpretation rests on
the
presumption
provision
that
that
does
§
522(b)
not
rely
is
on
a
a
preemptive
state’s
choice-of-law
intent
regarding
extraterritorial effect. See id. at *17. Neither the parties nor
the
Bankruptcy
Court
urges
adoption
of
this
minority
interpretation. See, e.g., In re Shell, 478 B.R. 889, 897-98
(Bankr. N.D. Ind. 2012), rev’d, 499 B.R. 610 (N.D. Ind. 2013); In
re Garrett, 435 B.R. 434 (Bankr. S.D. Tex. 2010); In re Camp, 396
B.R. 194 (Bankr. S.D. Tex. 2010), rev’d on other grounds, 631 F.3d
757 (5th Cir. 2011). Although the approach would be the simplest to
apply, it appears unlikely Congress intended such an application.
“The Supremacy Clause of the Constitution makes federal law
‘the supreme Law of the Land.’” College Loan Corp. v. SLM Corp.,
396 F.3d 588, 595 (4th Cir. 2005) (quoting U.S. Const. art. VI, cl.
2). “Federal law may preempt state law in three ways, denominated
as express preemption, field preemption, and conflict preemption.”
H&R Block E. Enters., Inc. v. Raskin, 591 F.3d 718, 723 (4th Cir.
2010).
Express preemption occurs “when Congress has clearly expressed
an intention to do so.” College Loan Corp., 396 F.3d at 596. “Field
preemption may occur when the federal scheme of regulation of a
defined field is so pervasive that Congress must have intended to
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leave no room for the states to supplement it.” City of Charleston
v. A Fisherman’s Best, Inc., 310 F.3d 155, 169 (4th Cir. 2002).
Finally, conflict preemption occurs when a state law actually
conflicts with a federal law by standing “as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress.” Raskinu, 591 F.3d at 723 (quoting Chi. & N.W. Transp.
Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 317 (1981)). With
regard to bankruptcy exemptions, the Fourth Circuit has reasoned
that preemption cannot exist because “Congress ‘expressly and
concurrently authorizes’ state legislation on the subject. In such
instance, rather than preempting the area, Congress expressly
authorizes
the
states
to
‘preempt’
the
federal
legislation.”
Sheehan, 574 F.3d at 252.
Here, express preemption is not a possibility, as the statute
does not suggest that Congress intended to disregard all stateimposed limitations on extraterritoriality. To the contrary, by
allowing states to opt out of the federal exemptions, it appears
Congress “intended to authorize the states in some cases to preempt
federal exemption law that would otherwise apply.” In re Townsend,
No. 10-14167, 2012 WL 112995 (D. Kan. Jan. 12, 2012) (relying on In
re Stephens, 402 B.R. at 5); see also In re Rody, 468 B.R. 384, 391
& n.3 (D. Ariz. 2012). Had Congress intended to preempt state
26
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exemption limitations, it likely would have directed debtors to
exempt property that “would be” exempt under the law of their
former domicile, not property that “is” exempt. Use of the latter
construction
imports
the
state
exemptions
along
with
their
limitations. In re Fernandez, 2011 WL 3423373, at *22.
Field preemption meets a similar fate, as Congress clearly
left room for states to implement their own bankruptcy exemptions,
rather than restrict all debtors to the use of federal exemptions.
See id. at *19. Likewise, conflict preemption is precluded by
inclusion of the hanging paragraph, which provides that federal
exemptions may be used in those circumstances where Congress has
deemed state law too restrictive. See id. at *20. The hanging
paragraph would be superfluous had Congress intended to preempt
state limitations on extraterritoriality. In re Long, 470 B.R. 186,
190 (D. Kan. 2012) (“If preemption were intended, nearly everyone
who resided in any state or territory for more than 90 days before
the commencement of the 730-day period would be able to claim the
exemptions of that state. No one other than people who had been
domiciled in foreign countries would need the federal fail-safe.”);
see also In re Fernandez, 2011 WL 3423373, at *20-*21.
That Congress did not intend for § 522(b) to preempt state
limitations on extraterritorial application of exemption law is
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clear, and the Court therefore declines to adopt the minority
preemption interpretation.
V. CONCLUSION
For the reasons discussed, the Court AFFIRMS the Bankruptcy
Court’s
Order
overruling
the
Trustee’s
objection
to
the
applicability of Louisiana exemptions for the Debtors’ property not
located in Louisiana. In doing so, it adopts the majority, statespecific interpretation of extraterritoriality under § 522(b).
It is so ORDERED.
The Court DIRECTS the Clerk to transmit copies of this Order
to counsel of record, to enter a separate judgment order, and to
remove this case from the Court’s active docket.
DATED: June 27, 2017.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
28
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