Opinion
Civil No. 03-4542 ADM, Bankruptcy No. 03-40923
November 12, 2003
Thomas F. Miller, Esq., Thomas F. Miller, P.A., Minneapolis, MN, for Debtor/Appellant
Patrick B. Hennessy, Esq., Best Flanagan, LLP, Minneapolis, MN, for Trustee/Appellee
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
On November 5, 2003, this matter came before the undersigned United States District Judge on Debtor/Appellant Thomas Paul dark's ("Appellant") Motion for Certification of Legal Question [Docket No. 10]. This Motion relates to the pending Appeal [Docket No. 1] from Bankruptcy Judge Robert J. Kressel's July 2, 2003 Order Sustaining Objections to Exemptions ("Bankruptcy Order"), in which Judge Kressel ruled that the Debtor's Individual Retirement Annuity ("IRA") does not qualify as a property exemption under the relevant Minnesota law. See Bankr. Order at 1; Tr. of Hearing Held on 7/02/03 at 10 (Appellant's Br. and Addendum Items II, III). Appellant seeks to certify the question of the Bankruptcy Court's interpretation of Minnesota Statutes Section 550.37, subd. 24, the sole issue on appeal, to the Minnesota Supreme Court for clarification. For the reasons set forth below, Appellant's Motion is granted and the Court will issue a certification order pursuant to Minnesota Statutes Section 480.065, subd. 5.
II. DISCUSSION
The Minnesota Supreme Court "may answer a question of law certified to it by a court of the United States . . . if the answer may be determinative of an issue in pending litigation in the certifying court and there is no controlling appellate decision, constitutional provision, or statute of this state." Minn. Stat. § 480.065, subd. 3. The decision of whether or not to certify is at the discretion of the federal court. Lehman Bros, v. Schein. 416 U.S. 386, 391 (1974).
It is undisputed that the question of whether an IRA such as Appellant's is exempt under Minnesota law is determinative of the pending Appeal. Likewise, the parties agree there is no controlling appellate decision or constitutional provision on point. The contested determination is whether the statute itself resolves the issue. Minnesota Statutes Section 550.37, subd. 24 provides a property exemption for:
the Debtor's right to receive present or future payments, or payments received by the Debtor, under a stock bonus, pension, profit sharing, annuity, individual retirement account, Roth IRA, individual retirement annuity, simplified employee pension, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent of the Debtor's aggregate interest under all plans and contracts up to a present value of $30,000 [$54,000 currently per indexing] and additional amounts under all plans and contracts to the extent reasonably necessary for the support of the Debtor and any spouse or dependent of the Debtor.
Judge Kressel found that Appellant's IRA, established to receive a rollover of his former 401(k) plan, was not exempt under this provision because Appellant has the ability to withdraw the entire balance of the account at any time, subject only to an early withdrawal penalty. Tr. at 9-10. He concluded that the present availability of funds meant that Appellant's right to payments was not conditioned on "illness, disability, death, age, or length of service," as required by the statute. Id.: Bankr. Order at 1. Appellant argues this construction reverses years of an accepted understanding by bankruptcy practitioners in Minnesota that IRAs receive automatic exemptions under section 550.37. Thus, it is argued, the issue is appropriate for certification to the Minnesota Supreme Court for clarification, as the "new" interpretation affects cases beyond the case at bar.
The Trustee and Appellee, Dwight R.J. Lindquist, ("Appellee") opposes certification on the ground that the text of the statute conclusively resolves the dispute, especially when read in light of recent Eighth Circuit precedent interpreting the analogous federal exemption statute.See Rousey v. Jacoway. No. 02-3505, 2003 WL 22382955, at *3 (8th Cir. Oct. 20, 2003). In Rousey. the court ruled that because the debtors had "unlimited access" to the corpus of their IRA, it did not meet the qualifications of the Bankruptcy Code exemption.Id (citing 11 U.S.C. § 522(d)(10)(E)).
Despite the Minnesota law's strong similarities in language and structure to 11 U.S.C. § 522(d)(10)(E), as well as valid policy considerations supporting Appellee's arguments, the Court finds certification is warranted based upon the lack of authoritative state court interpretation, the split in opinion on this issue at the federal level and the practical implications for pending bankruptcy cases. Certification is permissible because the contested provision does not, standing alone, resolve the determinative issue of the Appeal.See Minn. Stat. § 480.065, subd. 3. Its interpretation is central to the litigation and is open to dispute. The clear text expressly specifies that payments must be "on account of one of the listed criteria and Appellant admits the only impediment to his access to the IRA funds is an early withdrawal fee. However, four U.S. Courts of Appeals have held such IRAs exempt under similar state statutes and the federal provision on the ground that these accounts are "designed to provide retirement benefits" and therefore provide payments on account of age. Dettman v. Brucher. 243 F.3d 242, 243, 244 (6th Cir. 2001) (quoting In re Carmichael, 100 F.3d 375, 378 (5th Cir. 1996)). "The fact that early withdrawal might be available . . . is irrelevant, as the statute does not require that the payment be made `solely' on account of age."Id at 244; see also Farrar v. McKown. 203 F.3d 1188, 1190 (9th Cir. 2000); DuBroff v. First Nat'1 Bank of Glans Falls. 119 F.3d 75, 76-78, 80 (2d Cir. 1997). Although the Minnesota law differs slightly from the statutes analyzed in these cases, which, of course, do not bind the State Supreme Court, all contain the identical phrasing, "on account of illness, disability, death, age, or length of service," at issue in this case and thus reveal an alternative plausible construction of the exemption. Furthermore, if the Minnesota legislature did intend IRAs to qualify for an automatic exemption under section 550.37, subd. 24, as Appellant argues, the Court believes this issue should be clarified as soon as possible to permit affected individuals to plan accordingly. While the Court agrees with his textual analysis, Judge Kressel's Order appears to represent a departure from previous understanding of this exemption. Counsel for Appellee did not contest that Minnesota practitioners may have relied on this statute as providing automatic protection for IRAs, and are now adapting their practices to take this new ruling into account.
Appellant's argument that the qualifying language modifies only "similar plan or contract" requires an awkward reading of the provision. As explained in this Order, however, multiple reasonable interpretations are possible without reading language out of the statute.
Accordingly, the Court will hold the Appeal in abeyance and forward a certification order to the Minnesota Supreme Court on the question of whether or not a debtor's IRA that is presently accessible subject to a withdrawal penalty is exempt under Minnesota Statutes Section 550.37, subd. 24. Pursuant to the procedures outlined by the certification statute, the parties shall submit to the Court a stipulated statement of relevant facts. If they cannot agree upon such a statement, the Court will determine the material facts and include them in the certification order. See Minn. Stat. § 480.065, subd. 6(b). The parties are also to submit proposed language for the certified question. A certification order will follow.
III. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that:
1. Appellant's Motion for Certification of Legal Question [Docket No. 10] is GRANTED.
2. The parties shall, no later than December 1, 2003, submit to the Court a stipulated statement of relevant facts and a proposed question of law to be answered. The Court will issue a certification order to the Minnesota Supreme Court subsequent to receipt of these submissions.
3. The Appeal [Docket No. 1] is STAYED pending the certification process and further order of this Court.