Opinion
Case No. 00-10032-SSM Chapter 7
August 23, 2000
Q. Russell Hatchl, Esquire, Alexandria, VA, Counsel for the debtor.
Thomas P. Gorman, Esquire, Tyler, Bartl, Burke Gorman, PLC, Alexandria, VA, and Office of the United States Trustee, Alexandria, VA, Counsel for H. Jason Gold, Trustee.
MEMORANDUM OPINION
A hearing was held in open court on June 20, 2000, on the debtor's motion for reconsideration of an order disallowing his claim of exemption in certain real estate located in Brazil. The debtor was npresent in person and was represented by counsel. The chapter 7 trustee was present by counsel. At the conclusion of the hearing, the court took the matter under advisement. For the reasons stated, the motion for reconsideration will be denied.
As alternative relief, the debtor requests that this court grant leave to appeal the order disallowing the exemption to the United States District Court. No leave, however, is required of this court in order to appeal the order. An order allowing or disallowing a claim of exemption is a final order, immediately appealable to the District Court as a matter of right. 28 U.S.C. § 158(a)(1); Sumy v. Schlossberg, 777 F.2d 921, 923 (4th Cir. 1985). Even if the order disallowing exemption were an interlocutory order, the determination of whether to grant leave for an interlocutory appeal is made by the District Court, not this court. 28 U.S.C. § 158(a)(3); Fed.R.Bankr.P. 8003 (motion for leave to appeal is filed with the clerk of the bankruptcy court but is forwarded to the District Court for determination).
Background
On January 6, 2000, Marc Albert, the chapter 7 trustee for European American Travel, Inc., filed an involuntary petition under chapter 7 of the Bankruptcy Code against Leif Moller ("the debtor") in this court. An order for relief was entered on February 25, 2000. The debtor is a citizen of Denmark and claims to be a permanent resident of Brazil. However, he lives and works for most of the year in the United States as a sojourner to support his wife, who resides in Brazil. Among the assets listed on his schedules is an apartment located in Sao Paulo, Brazil, described as 70 Rua Jacurici, Apto. 71. The property is described on the schedules as being held "jointly with wife, Dora Moller, by virtue of Brazilian law, Brazil being a community property jurisdiction." The debtor values the property at $190,000, and his community interest at $95,000. The debtor claimed his entire interest in the property exempt under Brazilian law on Schedule C, relying on a opinion letter drafted by Celio Guilherme Christiano Filho, a Brazilian attorney. All of his other assets are claimed exempt under Virginia law.
The trustee disputes the claim of joint ownership and notes that the deed to the property appears to name only the debtor as grantee ("outorgado"). The deed is of course drawn in Portuguese, and neither party has provided the court with a translation. However, the body of the deed plainly appears to refer to the debtor's status as a member of the marital community with his wife ("casado no regime da comunheo de bens com DORA EDITH TAPIR VILLALOBOS MOLLER, brasileira"). The court can take judicial knowledge that Brazil is a community property jurisdiction. Given the current sketchy state of the record, the court will simply assume, without deciding, that the debtor's interest in the apartment is as a member of the marital community composed of himself and his wife.
On April 25, 2000, H. Jason Gold, the chapter 7 trustee in the debtor's case, filed an objection to debtor's exemption of the apartment. A hearing was held on May 16, 2000, at which time the court sustained the trustee's objection. An order reflecting that ruling was entered on the docket on May 23, 2000. In his motion to reconsider, which was filed on May 22, 2000, the debtor maintains that the court made a mistake in holding that the law of Virginia controls the exemption of the condominium. It is the debtor's position that, because the property is located in Brazil, the court must look to Brazilian law to determine whether the property can be exempted in this bankruptcy case. The trustee, in addition to reiterating his previous arguments made with respect to the objection, stresses that the debtor has cited to no additional authority and is simply asking the court to rethink its prior ruling.
Discussion
The motion for reconsideration requests relief under Federal Rule of Bankruptcy Procedure 9024. However, since it was filed before ten days after the date the order was entered on the docket, it is properly treated as a motion to alter or amend under Federal Rule of Bankruptcy Procedure 9023, which incorporates Rule 59(e), Federal Rules of Civil Procedure. A motion under Rule 59(e) to alter or amend an order requires a showing that relief is proper (1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest injustice. Hutchinson v. Stanton, 994 F.2d 1076, 1081 (4th Cir. 1993).
Neither of the first two grounds is applicable, and the question, as framed by the debtor, resolves to whether the court's prior ruling constitutes a clear error of law.
I.
As a threshold matter, it is necessary to address the burden of proof. The debtor, as noted, relies on Brazilian law as protecting his interest in the apartment, and as support for this proposition relies on an opinion letter from a Brazilian attorney. Federal Rule of Bankruptcy Procedure 4003(c) places the burden of proof on the party objecting to a debtor's claimed exemptions, here the trustee. To determine foreign law, however, the court must look to Fed.R.Civ.P. 44.1, made applicable by Fed.R.Bankr.P. 9017. It is well settled that the party that seeks to rely on foreign law has the burden of demonstrating its content. 9 Moore's Federal Practice, § 44.104[1] at 44.1-9 (Matthew Bender 3d ed.). See also Neely v. Club Med Mgmt. Servs., Inc., 63 F.3d 166, 189 n. 25 (3d Cir. 1995); Riffe v. Magushi, 859 F. Supp. 220, 223 (S.D.W.Va. 1994); Industrial Graphics, Inc. v. Asahi Corp., 485 F. Supp. 793, 800 n. 8 (D.Minn. 1980). In this connection, the trustee objects to the opinion letter of the Brazilian attorney on the ground that it is inadmissible hearsay. See Fed.R.Evid. 801(c) and 802. However, this argument is misplaced since courts may consider "any relevant material in their determination of foreign law, whether the material would be admissible under the Federal Rules of Evidence or not." 6 Moore's Federal Practice, § 44.1.04[5] at 44.1-17. Most courts have held that a court is under no obligation to conduct its own research and analyze foreign law independently. 6 Moore's Federal Practice, § 44.1.04[4] at 44.1-16. However, courts are encouraged to do so whenever possible. Twohy v. First Nat. Bank of Chicago, 758 F.2d 1185, 1193 (7th Cir. 1985). In the present case, the court does not have ready access to Brazilian legal materials, and, even if it did, would be unable to make effective use of them because the court does not read Portuguese. The debtor, as noted, has the burden of proof as to foreign law. The letter from the Brazilian attorney, although hearsay, makes out at least a prima facie case that Brazilian law would treat the property as exempt from the claims of ordinary creditors. The trustee has cited to nothing suggesting that the law of Brazil is to the contrary. Accordingly, for the purpose of the present motion, the court finds that a creditor in Brazil would not be able to reach the debtor's interest in the apartment.
In his opinion letter, Brazilian counsel cites to Brazilian Law 8.009, dated March 23, 1990, which (as translated by counsel) reads as follows:
The residential real estate of the couple, or family, is restrained from mortgaging and will not be used for payment of any civil, commercial, tax, social security debt or of any other, which was made by the husband and wife who reside in it, except for the mortgages mentioned in the law.
Fed.R.Civ.P. 44.1 reads as follows:
A party who intends to raise an issue concerning the law of a foreign country shall give notice by pleadings or other reasonable written notice. The court, in determining foreign law, may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court's determination shall be treated as a ruling on a question of law.
II.
The issue nevertheless remains as to whether Brazilian exemption law controls. Under § 541, Bankruptcy Code, the filing of a bankruptcy petition creates an "estate" comprised of all legal and equitable interests of the debtor in property, "wherever located and by whomever held." This includes a debtor's interest in property held as community property with a non-debtor spouse. § 541(2), Bankruptcy Code. Nevertheless, as part of his or her "fresh start," an individual debtor may "exempt from property of the estate" — and thus hold, free from the claims of the trustee and most creditors-either the property specified in § 522(d), Bankruptcy Code ("the Federal exemptions"), or, alternatively, the exemptions allowable under general (nonbankruptcy) Federal law and the law of the state or locality "in which the debtor's domicile has been located for the 180 days immediately preceding the filing of the petition, or for a longer portion of such 180-day period than in any other place" (emphasis added). § 522(b)(2)(A), Bankruptcy Code. If the debtor claims state rather than Federal exemptions, the debtor may additionally exempt "any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law." § 522(b)(2)(A). A state may "opt out" of allowing its residents to take advantage of the Federal bankruptcy exemptions. § 522(b)(1), Bankruptcy Code. Virginia has done precisely that, with the result that domiciliaries of Virginia filing bankruptcy petitions may claim only those exemptions allowable under Virginia law and general (nonbankruptcy) Federal law. Va. Va. Ann. § 34-3.1; In re Smith, 45 B.R. 100 (Bankr.E.D.Va. 1984).
Relevant to the present discussion is the change effected by the Bankruptcy Reform Act of 1978, which repealed the former Bankruptcy Act of 1898 and enacted the present Bankruptcy Code. As explained in Tignor v. Parkinson, 729 F.2d 977, 980 (4th Cir. 1984), "Under the old Act only non-exempt property was included as part of the bankruptcy estate[.] Under the Reform Act, however, all property of the debtor is included in the bankruptcy estate, including exempt property." (citation omitted). Therefore, after all of the debtor's property becomes part of the bankruptcy estate, the debtor must look to the exemption scheme set up under § 522, Bankruptcy Code, regardless of whether creditors could have reached the property under state law. Id. at 981 ("Bankrupt estate property must qualify for exemption, if at all, under the scheme of 11 U.S.C. § 522"). Tignor is a case in point. There the debtor had claimed exempt a personal injury cause of action. Because such causes of action were nonassignable under Virginia law, they were effectively beyond the reach of creditors in state proceedings, even though no statute specifically made them exempt. In bankruptcy, however, such causes of action could be administered by the trustee and could be exempted only to the extent permitted by the Virginia homestead exemption, which was limited to $5,000.00.
Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, § 401, 92 Stat. 2549, 2682.
Subsequent to Tignor, the Code of Virginia was amended to provide a specific exemption for personal injury causes of actions. Va. Code Ann. § 34-28.1; see In re Webb, 210 B.R. 266 (Bankr. E.D. Va. 1997), aff'd 214 B.R. 553 (E.D.Va. 1997).
The point is simply that Congress decides what property can be claimed exempt in bankruptcy. Congress has clearly mandated under § 522(b)(2)(A) that the debtor who does not (or is not permitted to) elect the Federal exemptions may use the exemptions only of the state in which he or she was "domiciled" prior to the bankruptcy petition. In re Stockburger, 192 B.R. 908, 910 (E.D.Tenn. 1996) ("The statute clearly makes the exemption dependent upon the state law of the debtor's domicile."). To be a domiciliary of a state, one must be physically present in the state and have an intention to make it one's home. BLACK'S LAW DICTIONARY 485 (6th ed. 1990). Accordingly, "it is well established that a person may have more than one residence, but only one domicile." In re Koons, 225 B.R. 121, 122 (Bankr.E.D.Va. 1998). As a consequence, even though a debtor may have property in more than one jurisdiction, he or she is nevertheless limited to a single set of exemptions. (As will be discussed, property held in a tenancy by the entireties need not be located in the debtor's domicile in order to be exempt if state exemptions are claimed, but that is a separate issue.) In the present case, the debtor, by electing Virginia exemptions on his schedules, has effectively identified Virginia as his domicile (at least within the United States) and the question therefore resolves to whether Virginia would recognize the debtor's interest in the Sao Paulo apartment as exempt.
III.
The exemptions available to Virginia debtors are set forth in Title 34, Code of Virginia (1950). The most important of these are a "homestead" exemption, which may be claimed in either real or personal property, in the amount of $5,000.00, plus $500 for each dependent, and a "poor debtor's exemption" that may be applied to specified personal property. Va. Code Ann. §§ 34-4 (homestead exemption) and 34-26 (poor debtor's exemption). No Virginia statute specifically allows a debtor to claim exemptions under the law of another jurisdiction, and no reported Virginia case requires a Virginia court to recognize another jurisdiction's exemptions. The debtor nevertheless contends that Virginia would recognize the apartment as exempt under Brazilian law based on the following principle stated in Hotchkiss v. Middlekauf, 96 Va. 649, 654, 32 S.E. 36, 38 (1899): "It is settled law that real estate is exclusively subject to the laws and jurisdiction of the courts of the nation or state in which it is located. No other laws or courts can affect it." Therefore, the debtor urges, a Virginia court would apply Brazilian law and recognize his interest in the apartment as exempt.
Hotchkiss, however, does not support the debtor's argument. Hotchkiss did not involve a claim of exemptions, but rather the validity of a deed by which a committee appointed by a New York court for a New York resident who had been adjudged a "lunatic" had conveyed lands owned by that person in Virginia. In ruling that the New York court had no power to decree the sale of the land in question — and thus that the grantee did not acquire good title — the Court carefully limited its holding to the facts presented by that case, in which, as the Court noted, the incompetent had "made no deed . . . and was under no obligation, by contract or otherwise, to make a deed." Id. at 656, 32 S.E. at 39.
The Court expressly affirmed, however, the continuing vitality of its own earlier cases which had recognized the power of a court having personal jurisdiction over a party to compel conveyance of property located in another state:
[I]n cases of fraud, trust, or contract, courts of equity will, whenever jurisdiction over the parties has been acquired, administer full relief without regard to the nature or situation of the property . . . even where the relief sought consists in a decree for the conveyance of property which lies beyond the control of the court, provided it can be reached by the exercise of its powers over the persons[.]
96 Va. at 655, 32 S.E. at 38 (quoting Wimer v. Wimer, 82 Va. 901, 5 S.E. 536 (1888)) (emphasis added). Thus, "[a] foreign court can compel a party within its jurisdiction to do an act in Virginia, which act, if voluntarily performed by him, would not violate the sovereignty of this State." Id. at 655-656, 32 S.E. at 39.
It is of course fundamental that the nature and extent of interests in real property are defined by the locus of the property. Accordingly, Virginia courts would unquestionably apply Brazilian law to determine the nature and extent of the debtor's property rights in the apartment. However, exemption laws do not amount to a property right. Instead, an exemption "is a privilege allowed by law to a . . . debtor, by which he may hold property to a certain amount . . . free from all liability to levy and sale on execution or attachment." BLACK'S LAW DICTIONARY 572 (6th ed. 1990). Accordingly, it seems clear that a Virginia court having personal jurisdiction over a judgment debtor would not be prevented by the exemption laws of another jurisdiction from compelling the debtor to surrender property located there.
IV.
On remaining point requires comment. As noted, a debtor who does not claim the Federal exemptions may exempt, in addition to property that is exempt under the laws of his or her domicile, any interest as a "tenant by the entirety or joint tenant" to the extent that such interest "is exempt from process under applicable nonbankruptcy law." § 522(b)(2)(B), Bankruptcy Code. Nothing in the statutory language requires that the "applicable nonbankruptcy law" be that of the debtor's domicile, and the reported cases seem consistent in looking to the law of the state where the property is located, where that is different from the debtor's domicile, to determine whether tenancy by the entireties property is "exempt from process." Kaplan v. First Options of Chicago, Inc. (In re Kaplan), 189 B.R. 882 (E.D.Pa. 1995) (disallowing exemption of entireties property located in New Jersey because New Jersey law allowed a creditor of one spouse to reach it); In re Cochrane, 178 B.R. 1011 (Bankr.D.Minn. 1995) (recognizing that Florida law would exempt entireties property from claims against only one spouse).
The debtor in this case has not claimed an exemption under Section 522(b)(2)(B). But even if he had, the exemption could not be allowed, for the simple reason that the debtor's interest is not that of a "tenant by the entirety" or a "joint tenant." Both of those terms refers to specific common-law modes of holding title. Although community property is a form of joint ownership, the debtor's interest is not, in the strict or technical sense, that of a "joint tenant." Congress elsewhere in the Bankruptcy Code made numerous references to community property interests and was clearly aware that property could be held in that form of ownership. Section 522(b)(2)(B), however, makes no reference to community property, only to interests held as a "tenant by the entirety" or as a "joint tenant." Where Congress, as here, uses specialized terms of art, it must be assumed that Congress intended them to be understood in their specialized sense. A community property interest, whatever else it may be, is not a tenancy by the entirety or a joint tenancy. Accordingly, § 522(b)(2)(B) provides no basis for looking to Brazilian law.
V.
For the reasons stated, the court concludes that there was no error in the ruling sustaining the trustee's objection and disallowing the debtor's claimed exemption of the apartment. A separate order will be entered denying the motion for reconsideration.