Monday, February 06, 2006

Another Judge Applies Homestead Cap Broadly; What Would Scalia Do?

We've previously noted several decisions that wrestle with the new BAPCPA provision imposing a dollar cap on the homestead exemption which can be claimed by debtors who acquired their homes less than 1,215 days before filing -- see Homestead Havens Still Viable?; Florida Bankruptcy Judge Applies Homestead Cap; Another Court Applies Homestead Cap; Another Florida Judge Joins Homestead Debate; also see the ABI Journal written with my colleague David Samole, "Homestead Exemption No Longer Debtor's Paradise". We can now add Judge Markell of Nevada to the list of judges who interpret the cap broadly as applying in all states, and not merely those that permit an election between federal and state exemptions. In re Kane, __ B.R. __, 2006 WL 181369 (Bankr. D. Nev. 1/12/06). Judge Markell joins fellow Nevada Judge Riegle and Judges Mark and Friedman of Florida in the broad approach, leaving Judge Haines of Arizona as the only judge who has found that the language used by Congress invoking the cap "as a result of electing" state law exemptions limits the cap to only the "non-opt-out" states. See 11 U.S.C. 522(p).

Judge Markell's route for getting to that result diverges somewhat from those taken by the other judges, though. Judge Mark found 522(p) to be ambiguous, and accordingly referred to legislative history which overwhelmingly reflected congressional intent to limit the homestead exemption available in all states, including notorious debtor havens like Florida (an "opt-out" state). Judge Riegle on the other hand found that the "electing" language referred to the decision to claim a homestead exemption (although she alternatively held that the statute was ambiguous and relied on the legislative history to reach the same conclusion as Judge Mark). Judge Markell, meanwhile, takes what might be called the "What Would Scalia Do?" approach.

First, Judge Markell notes that under the wording of 522(p), the homestead cap only comes into effect "as a result of electing" to exempt property under state law; but in "opt-out" states, debtors cannot and do not "elect" anything, thus "nothing happens as the 'result of electing'" in such states. After summarizing the five decisions construing 522(p) discussed previously here, he then goes on to review the legislative history of the amendment, including House and Senate debates and the House Report on the bill, demonstrating the congressional intent to close the "mansion loophole." Although recognizing that "as Section 522(p) is written and as it was enacted," the language only applies to opt-out states (which means only five jurisdictions where homestead exemptions exceed the $125,000 cap), he finds that limited result "inconceivable" in light of the legislative history and "demonstrably not what members of Congress thought they were implementing" when they voted in favor of the bill.

As a result, Judge Markell concludes that the "result of electing" language is "a mistake in drafting the text of the statute" and that the drafters "no doubt used the word 'electing' without realizing that it made any difference." (Like many of us who puzzle over the ambiguities or outright drafting errors of BAPCPA, Judge Markell is less than convinced by the commentary of Professor Todd Zywicki, who testified to the Senate Judiciary Committee that the act was "fine as it is" and that "There is no word that I would change in this particular piece of legislation.") The question asked in Kane, then, is under what circumstances may a court correct a "scrivener's error" in legislation?

To answer this question, Judge Markell effectively poses another: What Would Scalia Do? His reasoning: since Justice Scalia is among the strictest of textualists, if the methods used by Scalia would permit reformation of the statute, then it must be OK. In applying the "WWSD?" test, Judge Markell reviews several Scalia dissents and concurrences in cases involving legislative snafus, and finds that Scalia acknowledges the appropriateness of correcting a scrivener's error "where on the very face of the statute it is clear to the reader that a mistake of expression (rather than of legislative wisdom) has been made." The Kane decision identifies two requirements under the "WWSD?" test: first, the plain meaning of the statute must lack any rational purpose -- not just the probable intent, but any plausible purpose whatsoever; and second, the intended meaning must be obvious -- in other words, inadequately expressed but absolutely clear.

Applying this test, Judge Markell concludes that the text of 522(p) meets both of Justice Scalia's requirements. He finds that there could be no plausible purpose in linking the 1,215-day ownership requirement to the debtor's ability to choose between federal and state exemptions, and not a shred of evidence in the legislative history demonstrating such an intent. He further finds that extensive record makes the intent of Congress "crystal clear," and that there is "no feasible rationale or policy for enacting what the text of the statute says." As a result, the Kane decision concludes that it is proper to give 522(p) the meaning that Congress intended, and accordingly holds that the cap applies in all states notwithstanding the "electing" language it "inartfully, unthinkingly, and, as it turned out, incorrectly" used.


David Katzen said...

As described, the first prong of the WWSD test is "the plain meaning of the statute must lack any rational purpose," and Judge Markell found "no plausible purpose in linking the 1,215-day ownership requirement to the debtor's ability to choose between federal and state exemptions."

Query: Could Congress think that if a debtor had the option of using the "enlightened" federal bankruptcy exemption scheme (which is more generous and, given the wildcard, more flexible than the exemption set in some states), then a debtor choosing instead to invoke a big homestead should be restricted by the 1,215-day cap, whereas the constraint wouldn’t be warranted if the debtor had no opportunity to select the federal bankruptcy exemptions? Would that be a plausible purpose for the linkage? If so, would Scalia "fix" the drafting?

Frodnesor said...

First, let's be realistic: I think we all know that Congress really did intend to cap all states; the real question is whether principles of statutory construction support that interpretation under the language they chose.

If there's a flaw in the Kane case, I think it's that the WWSD? test requires you to look for any plausible purpose before looking to the legislative history. On that front, it's clear from the existing structure of 522 that Congress intended to preserve the rights of states to provide their citizens with different exemptions (and to limit their options to only those provided by state law). Otherwise there wouldn't be the opt-out provision.

If there was a plausible purpose for that in the first place, there could very well be a plausible purpose for likewise applying the exemption cap differently depending on whether the state has opted out or not, such as you've suggested.

Was it what Congress intended? I sincerely doubt it. But I'm not convinced that's the question under the WWSD? test.