
USCA1 Opinion

	




                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 95-2320                  IN RE: ODA JOSEPH CARON AND LORRAINE NORMA CARON,                                       Debtor.                                 ____________________                     ODA JOSEPH CARON, D/B/A CARON & SONS MOBIL,              F/D/B/A WAKEFIELD COUNTRY STORE AND LORRAINE NORMA CARON,                                     Appellants,                                          v.                               FARMINGTON NATIONAL BANK                     AND LAWRENCE P. SUMSKI, CHAPTER 13 TRUSTEE,                                      Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF NEW HAMPSHIRE                    [Hon. Paul J. Barbadoro, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                 Selya, Circuit Judge,                                        _____________                            Aldrich, Senior Circuit Judge,                                     ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Grenville Clark, III  with whom Gray Wendell  & Clark, P.C. was on            ____________________            ___________________________        brief for appellants.            David P. Azarian with whom Michael, Jones  & Wensley was on  brief            ________________           _________________________        for appellees.                                 ____________________                                    April 25, 1996                                 ____________________                      STAHL, Circuit Judge.  Oda J. Caron and Lorraine N.                      STAHL, Circuit Judge.                             _____________            Caron   appeal  the  district   court's  affirmance   of  the            bankruptcy  court's  denial  of  an exemption  for  the  cash            surrender value  of an insurance policy on  Mr. Caron's life.            Because we  find that the courts  below correctly interpreted            the applicable New Hampshire statute, we affirm.                                      Background                                      Background                                      __________                      Appellants, husband and wife, filed a joint Chapter            13 bankruptcy petition in  the United States Bankruptcy Court            for the District  of New  Hampshire.  In  their statement  of            financial  affairs, they  listed as  an asset  a Metropolitan            Life Insurance Company policy  on the life of Mr.  Caron, and            they  claimed  the  policy's  $19,260 cash  value  as  exempt            property pursuant  to   522(b)(2)(A) of the  Bankruptcy Code.            Because New Hampshire enacted legislation "opting out" of the            federal exemptions, New Hampshire debtors are  only permitted            to exempt property pursuant to state-enacted exemptions,  not            those specified in  11 U.S.C.   522(d).   See N.H. Rev. Stat.                                                      ___            Ann.       511:2-a (opting out of  federal exemption scheme).            Farmington National  Bank, a  creditor of the  Carons, timely            filed  an objection  to  the exemption  claim,  in which  the            chapter 13 trustee joined.                      After a  hearing  before the  bankruptcy court,  at            which  a  copy of  the life  insurance  policy was  placed in            evidence, the court ruled that the policy was property of the                                         -2-                                          2            estate  under  11  U.S.C.     541(a)(1)  and  that  the  cash            surrender value of  the life insurance policy was  not exempt            under  New Hampshire law.  The Carons appealed that ruling to            the United  States District  Court  for the  District of  New            Hampshire, which affirmed the  order of the bankruptcy court.            This appeal followed.                      The  sole issue  for determination  is whether  the            courts below erred in holding that the  life insurance policy            was not exempt property.  The parties agree with the relevant            factual findings made  by the bankruptcy  court: that at  the            time  of the  filing of  the  bankruptcy petition,  Mr. Caron            owned the  life insurance  policy and  retained the  right to            change  the  beneficiary  (his wife  and  co-debtor  Lorraine            Caron) and the contingent  beneficiaries (their children), as            well as the right to surrender the policy for its cash value.            Thus, for purposes of this appeal,  all that is before us  is            the  legal conclusion that the policy was not exempt, and our            standard of review is de novo.   See T I Federal Credit Union                                  __ ____    ___ ________________________            v. DelBonis, 72 F.3d 921, 928 (1st Cir. 1995).               ________                                      Discussion                                      Discussion                                      __________                      In order to determine whether the cash value of the            policy is exempt,  we begin with  the New Hampshire  statute,            N.H. Rev. Stat. Ann.   408:2, which provides:                            If  a policy  of  life or  endowment                      insurance  is effected  by any  person on                      his own life or on another life, in favor                      of a person other than  himself having an                                         -3-                                          3                      insurable  interest  therein, the  lawful                      beneficiary thereof other than himself or                      his   legal  representatives,   shall  be                      entitled  to its  proceeds and  all other                      benefits     against    creditors     and                      representatives  of the  person effecting                      the  same; provided, that, subject to the                      statute of limitations, the amount of any                      premiums for said insurance paid in fraud                      of  creditors,   with  interest  thereon,                      shall  enure to  their  benefit from  the                      proceeds of the policy.                       The bankruptcy court ruled  that the policy was not            exempt,  incorporating  by  reference its  discussion  of the            issue in In re  Monahan, 171 B.R. 710, 715-21  (Bankr. D.N.H.                     ______________            1994)  where  it  decided   three  separate  cases  involving            exemption  claims  under   New  Hampshire's  life   insurance            exemption statute,   408:2.                        Because  the New  Hampshire  Supreme Court  has not            rendered any  decisions construing   408:2,  we interpret the            statute  as  we think  that court  would  interpret it.   The            district  court agreed  with  the bankruptcy  court that  the            plain meaning of the statute restricts the exemption right to            the   beneficiary   and  provides   no  protection   for  the            insured/owner of the policy.  Because the policy in this case            provided the  beneficiary with  no right  to the proceeds  or            other benefits of  the policy  except upon the  death of  the            insured, the  district court ruled that Mrs. Caron, the named            beneficiary, had no right  during the life of her  husband to            maintain the  policy  for her  benefit  or to  surrender  the                                         -4-                                          4            policy for its cash value, and that her sole  interest was as            the beneficiary in the event of Mr. Caron's demise.                      The  appellees, Farmington  National  Bank and  the            Chapter  13 Trustee,  argue  that the  New Hampshire  statute            distinguishes between  the owner/insured of the  policy and a            third  person  beneficiary  and clearly  specifies  that  the            person entitled  to the exemption is  "the lawful beneficiary            thereof," not  the insured/owner.   The appellees  argue that            only  when the insured has "parted with all of his beneficial            interest  therein" would  a life  insurance policy  be exempt            from the  insured's creditors, quoting from  and relying upon            In re Bray,  8 F. Supp. 761, 763 (D.N.H.  1934).  They reason            __________            that since Mr. Caron,  at the time of the  bankruptcy filing,            had  not "parted  with all  his beneficial  interest" in  the            policy,  but  rather retained  ownership and  the concomitant            rights to reach its cash value and to change the beneficiary,            he still  effectively retained all  the beneficial  interest.            Mrs. Caron's  interest, they  assert, was both  defeasible by            Mr. Caron and contingent upon his death.                      While the  statute is  not a model  of clarity,  we            find the reasoning  of the bankruptcy court  and the district            court to be compelling.  We  agree that the statute cannot be            read to exempt the  policy in favor of an  owner/insured, but            only in favor of a beneficiary.   And here, the rights of the            beneficiary,  Mrs.  Caron, do  not  arise  until Mr.  Caron's                                         -5-                                          5            death,  and  her  prospective  rights can  be  diminished  or            terminated  by him during his lifetime.  As such, because Mr.            Caron  was alive at the  time the petition  in bankruptcy was            filed,  Mrs. Caron had no rights in the proceeds, cash value,            or other benefits of the policy.   Thus, she had no  interest            in the policy  that could be  exempted by  the statute.   The            rights  and   powers  under   the  policy  retained   by  the            owner/insured, Mr.  Caron, became the property  of the estate            as of the filing of the petition.   See 11 U.S.C.   541(a)(1)                                                ___            (all legal or equitable  interests of the debtor  in property            become property of the estate upon commencement of the case).            Accordingly, neither Mr.  Caron nor his wife  are entitled to            the statutory exemption.1                       While  we recognize  that generally  courts are  to            construe  exemption  statutes   liberally  to  reflect  their            remedial  purposes, we  find reasons  here to  afford  a more            narrow  reading.  While the result that the Carons seek would            apparently obtain under  the analogous federal  exemption, 11            U.S.C.   522(d)(7), see In re Monahan, 171 B.R. at 716 & n.8,                                ___ _____________            legislative history indicates that New Hampshire opted out of                                            ____________________            1.  We note, but  do not rely upon, the  fact that Mrs. Caron            is  a  co-debtor in  this  joint bankruptcy,  and  it appears            therefore that  her interest in  the insurance policy  was an            asset of  the estate in any  event, subject to the  claims of            her creditors if  not Mr.  Caron's.  At  most, the  exemption            ___            statute shelters a policy from the creditors of  the insured;            it  makes no reference  to the creditors  of the beneficiary.            See N.H. Rev. Stat. Ann.   408:2.              ___                                         -6-                                          6            the federal  exemption scheme  because it was  too "liberal,"            overly  indulgent of  debtors at  the expense  of creditors.2            Even more  persuasive is legislative  history indicating that            the  New Hampshire  legislature specifically chose  to delete            language that would have made the Carons' arguments much more            plausible.   The  statute at  issue, as  originally proposed,            provided that the exemption was available "whether or not the            right to change the beneficiary  is reserved or permitted  to            such  person  [the  owner/insured],"  but  that language  was            struck.    New  Hampshire House  Report  on  House Bill  224,            Journal of  the House, April 29, 1931, at 698.  We infer from            the  deletion that  the  legislature declined  to extend  the            exemption to  policies where  the owner/insured  retained the            power  to alter  the  beneficiary.   Of  like import  is  the            legislature's deletion of the provision that "No court and no            trustee or assignee for the benefit of creditors, shall elect            for  the person  effecting  such insurance  to exercise  such            right to change  the named beneficiary."  Id.   We infer from                                                      ___            this deletion  a legislative  intent that the  statute should            not  prevent  a bankruptcy  trustee  from  stepping into  the                                            ____________________            2.  See New  Hampshire House Judiciary Comm.  Report, Journal                ___            of  the House, 1981 January  Session, April 23,  1981, at 533            (stating  that  the proposed  opt-out  statute  "prevents New            Hampshire residents from filing with the more liberal federal            bankruptcy  law.");  Minutes  of  House  Judiciary  Committee            executive session April 20, 1981, statement of Representative            Eaton  (federal bankruptcy  act  is "very  liberal" and  that            state exemptions ought to control instead).                                         -7-                                          7            policy  owner's  shoes to  exercise  policy  rights, such  as            reaching the cash  value or changing the beneficiary.   Thus,            the legislative history strongly  suggests a narrow scope for            New Hampshire's  life insurance  exemption,  and the  Carons'            exemption claim falls outside that scope.                      Contrary to the Carons' arguments, we are not bound            to  follow,  and  need   not  overrule,  the  district  court            decisions in In re  Whelpley, 169 F. 1019 (D.N.H.  1909), and                         _______________            In re  Bray,  8 F.  Supp. 761  (D.N.H. 1934).   The  Whelpley            ___________                                          ________            decision predates  the enactment  of the present  statute and            the aforementioned legislative choices  to set a narrow scope            for  the  exemption.   Moreover,  the  two-paragraph Whelpley                                                                 ________            opinion is devoid of  analysis.  In Bray, the  district court                                                ____            held  that the life insurance policy was not exempt under the                                                     ___            statute at issue here.  Bray, 8  F. Supp. at 763.  While Bray                                    ____                             ____            provides more  analytical discussion,  it is not  clear which            aspects of the insurance policy  rendered it non-exempt.   It            is just as plausible,  in our view,  to read Bray as  support                                                         ____            for the appellees' arguments as it is for the Carons'.  Thus,            having  considered  both  Whelpley  and Bray,  we  find  them                                      ________      ____            unpersuasive.                      Because the language of the  exemption statute does            not encompass the insurance policy in this case, the decision            of the district court is affirmed.                                     ________                                         -8-                                          8
