Opinion
Case Number: 15-10427-399
11-09-2015
In Re: GLEN ALLEN HELMES, JR. and CATHERINE JOY HELMES, Debtors.
Chapter 13
Re: Docs. 40 and 45
MEMORANDUM OPINION
The matter before me is the eligibility of Glen Allen Helmes, Jr. and Catherine Joy Helmes (Debtors) to claim the proceeds of their 2014 federal tax refund as exempt property. Jurisdiction is proper under 28 U.S.C. §§ 151, 157, 1334, and Local Rule 81-9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under § 157(b)(2)(B). For the reasons stated below, I sustain the Chapter 13 Trustee's (Trustee) objection to the Debtors' claim of exemption.
BACKGROUND AND FACTS
Like many taxpayers, the Debtors filed their 2014 federal income tax return through H&R Block's tax preparation services. They listed H&R Block Bank (HR) as the direct deposit account to which any refund should be directed, and instructed HR to forward the refund to their account with the Bank of New Madrid (Madrid). HR did so. When it received the Debtors' refund from the Internal Revenue Service (IRS), which was attributable to the federal Earned Income Tax Credit and the federal Additional Child Tax Credit, HR forwarded $9,701.60 to Madrid. This amount represented the total refund distributed by the IRS less interest, fees, and the amount of a cash advance HR had provided to the Debtors.
The Debtors were obligated to repay HR a filing fee in the amount of $34.95. They were also obligated to repay the principal amount of the cash advance, $1,764.00, along with interest.
The money, however, was never deposited into any account held by the Debtors at Madrid. The Debtors closed their account with Madrid nearly three weeks before HR made the transfer. Following the closure of their account but before the money was transferred by HR to Madrid, Madrid was served with a garnishment against all funds it held in any of the Debtors' accounts. Notwithstanding the fact that the Debtors no longer held accounts at Madrid, Madrid transferred the funds it received from HR to the garnishor.
Approximately two months later, the Debtors filed their Chapter 7 bankruptcy petition. They subsequently converted their case to a proceeding under Chapter 13. On their schedules, the Debtors claim $6,842.13 of the tax refund as exempt property under MO. REV. STAT. § 513.430.10(a). Debtors' counsel is currently holding $9,422.07 in trust pending resolution of the entitlement to the exemption.
Debtors' counsel was only able to recover $9,422.07 of the $9,701.60 that was sent to Madrid by HR. --------
DISCUSSION
"A debtor's anticipated tax refund, to the extent it is attributable to events occurring prior to the filing of the petition for bankruptcy, is part of the bankruptcy estate." In re Benn, 491 F.3d 811, 813 (8th Cir. 2007). The Debtors may, however, "exempt' certain property from the estate and retain it for the purpose of making a 'fresh start' after the bankruptcy proceeding is concluded." Id. Although a variety of federal exemptions are available under § 522 of the Bankruptcy Code, states may "opt out," and provide their residents with state exemptions in lieu of the federal exemptions. Dittmaier v. Sosne (In re Dittmaier), No. 4:14-CV-883 CEJ 2015 WL 94541 (E.D. Mo. Jan. 7, 2015). Missouri is an "opt out" state. As Missouri residents, therefore, the exemption status of the Debtors' tax refund is governed by Missouri law. Benn, 491 F.3d at 813.
The proceeds of the Debtors' tax refund are exempt public assistance benefits under the relevant Missouri exemption statute, MO. REV. STAT. § 513.430.10(a), provided that the Debtors still had the "right to receive" the funds before their bankruptcy filing. See Hardy v. Fink (In re Hardy), 787 F.3d 1189 (8th Cir. 2015) (discussing the exempt status of tax refund proceeds relating to the federal Additional Child Tax Credit) and Dittmaier 2015 WL 94541 at 2 (discussing the same with respect to the federal Earned Income Tax Credit). "As a matter of law, the 'right to receive' terminates upon receipt." In re McGoy, 86 B.R. 174, 176 (Bankr. E.D. Mo. 1988) (defining the meaning of "right to receive" under Missouri exemption law). Receipt occurs where "money from an exempt fund is paid out and placed in a bank account ..." In re Anderson, 410 B.R. 289, 291 (Bankr. W.D. Mo. 2009). In this case, the Debtors argue that receipt never took place because they closed their account with Madrid before the refund was ever actually made available to them.
I disagree. Receipt of the Debtors' tax refund occurred when their agent, HR, received the refund from the IRS. "An agency relationship may be created by written words, spoken words, or other conduct of the principal 'which, reasonably interpreted, causes the agent to believe that the principal desires the agent so to act on the principal's account." Cook v. Polineni, 967 S.W.2d 687, 691 (Mo. Ct. App. 1998) (quoting Leidy v. Taliaferro, 260 S.W.2d 504, 506-07 (Mo. 1953). An express agency exists where there is a specific agreement between the principal and the agent "authorizing the one to act for and under the control of the other." Dudley v. Dumont, 526 S.W.2d 839, 844 (Mo. Ct. App. 1975). Such is likely the case here. Although the Debtors did not provide me with any contract between them and HR, I must assume that one existed. It is not credible that HR would advance the Debtors over $1,000 without express assurance that it would be repaid as it was. That it had access to the tax refund before it was made available to the Debtors supports this view. It also supports the view that the Debtors exercised control over the refund proceeds before they filed their bankruptcy petition by directing the refund to go to HR first.
In any event, I conclude that an agency relationship existed between HR and the Debtors even in the absence of an express agreement. An agency relationship exists, irrespective of a written agreement, if three requirements are met. State ex rel. Bunting v. Koehr, 865 S.W.2d 351, 353 (Mo. 1993). First, 'an agent ... holds a power to alter legal relations between the principal and third persons and between the principal and himself." Id. "When an agent acts in accordance with his instructions from his principal, the agent has the power to affect the legal relations of the principal to the same extent as if the principal has so acted." Bach v. Winfield Foley Fire Prot. Dist., 257 S.W.3d 605, 610 (Mo. 2008). This requirement has been met because it is undisputed that HR served as the direct deposit recipient of the Debtors' tax refund at the direction of the Debtors."Second, 'an agent is a fiduciary with respect to matters within the scope of his agency." Bunting, 865 S.W.2d at 353. "[A]n agent receiving or holding money or property on behalf of the principal has a duty to the principal not to receive or deal with the money or property such that they appear to belong to the agent." In re Lomantini, 252 B.R. 469, 475 (Bankr. E.D. Mo. 2000) (citing First Christian Church of Dexter v. Leazenby (Estate of Stickler), 551 S.W.2d 944, 951 (Mo.Ct.App.1977)). The parties agree that HR was only to deduct fees and the amount of its cash advance with interest after receiving the refund from the IRS. Nothing suggests that HR was authorized to take any additional action with respect to the funds other than to forward it to Madrid. Thus, the second requirement has been met. "Third, the 'principal has the right to control the conduct of the agent with respect to matters entrusted to him." Bunting, 865 S.W.2d at 353. Again, the Debtors directed HR to deduct certain amounts and forward the remainder to Madrid. The Debtors controlled every aspect of HR's relationship to the funds it was holding on behalf of the Debtors. All three requirements of an implied agency relationship, therefore, existed between the Debtors and HR.
Having established that HR was acting as the agent of the Debtors when the IRS transferred the refund to it, the ineligibility of the refund for exempt status becomes clear. Receipt of the tax refund occurred when it was paid out and placed into an account with the Debtors' agent, HR. That the Debtors were never actually able to spend the proceeds of the refund is immaterial. Receipt by the Debtors' agent is receipt, nonetheless.
CONCLUSION
For the reasons stated, the Trustee's objection to the Debtors' claim of exemption is sustained in that none of the Debtors' 2014 tax refund is eligible for exempt status. DATED: November 9, 2015 St. Louis, Missouri uvb
/s/_________
Barry S. Schermer
United States Bankruptcy Judge
Copies to: D. Matthew Edwards
Burns, Taylor, Heckemeyer, Green & Edwards
733 N. Main
P.O. Box 67
Sikeston, MO 63801
John V. LaBarge Jr.
Chapter 13 Trustee
P.O. Box 430908
St. Louis, MO 63143
Fred H. Thornton III
Thornton & Robison
P.O. Box 40
113 West North Street
Sikeston, MO 63801
Glen Allen Helmes Jr. and Catherine Joy Helmes
Debtors
130 St. Mark Lane
New Madrid, MO 63869