MPM FINANCIAL GROUP, INC. V. MICHAEL P. MORTON
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CORRECTED : JUNE 29, 2009
RENDERED : JUNE 25, 2009
TO BE PUBLISHED
"$ixyrrMr Cnaixrf of
2007-SC-000652-DG
ON REVIEW FROM COURT OF APPEALS
CASE NO . 2005-CA-002539-MR
FAYETTE CIRCUIT COURT NO . 03-CI-00740
MICHAEL P. MORTON
APPELLEE
OPINION OF THE COURT BY JUSTICE VENTERS
REVERSING AND REMANDING
This case is before this Court on a grant of discretionary review to
determine whether KRS 427 .170, which incorporates by reference the federal
bankruptcy exemptions of 11 U .S .C . § 522(d), applies only to debtors in
bankruptcy proceedings, or whether it renders those exemptions ,available to all
individual debtors in Kentucky, including those who are not involved in
bankruptcy proceedings . The Court of Appeals concluded that the plain
language of the statute was not ambiguous, and since it failed by express
language to limit its application to debtors in bankruptcy, it applied to all
individual debtors, the non-bankrupt as well as the bankrupt . We disagree,
and accordingly reverse .
I . APPLICABLE FACTS
The material facts in this case were not disputed, and are set forth
below . First, we provide the history of the statutes involved, followed by a
recitation of the pertinent procedural facts.
A. Statutory Framework
Our analysis of the issue requires an examination of KRS 427.170 before
and after its amendment in 2005, and its relationship to federal bankruptcy
proceedings . KRS 427.150, KRS 427.160 and KRS 427.170, were enacted in
1980, as a legislative response to the 1978 revision of the federal bankruptcy
code which was codified as 11 U.S.C. § 522(b)(1) and (2) . That revision
provided that an individual debtor in bankruptcy could choose to exempt from
his or her estate either the exemptions provided under the federal bankruptcy
code, or the exemptions available under the debtor's state law, unless that
state had enacted legislation prohibiting such a choice . Each state was thus
given the option of making the federal exemptions unavailable to debtors in
bankruptcy, thereby limiting those debtors to the same exemptions provided by
state law to non-bankrupt debtors domiciled in the state . By virtue of KRS
427 .170, Kentucky exercised its option, which in its original form, read as
follows :
An individual debtor domiciled in this state is not authorized to
exempt from property of said debtor's estate the property specified
under subsection (d) of section 522 of The Bankruptcy Code of
1978, 92 Stat. 2549 (1978), Public law 95-598.
The title given to the statute was "Federal Bankruptcy Code Exemptions Not to
Apply in Kentucky ." Obviously, by its enactment of KRS 427 .170, the General
Assembly expressed the policy that Kentucky would "opt-out" of the
exemptions otherwise available to bankrupt debtors . It should also be noted
that KRS 427.150 and 427 .160 enumerated some of the exemptions that would
be available to Kentucky debtors in bankruptcy court, in lieu of those identified
in 11 U .S .C . § 522(d) . Although in its original form KRS 427 .170 did not
expressly limit its application to debtors in bankruptcy, the statute made no
sense outside the context of a bankruptcy proceeding. There was no other
context in which the non-availability of the federal bankruptcy exemptions
mattered .
In 2005, Congress again made substantial changes to the federal
bankruptcy code by way of the Bankruptcy Abuse Prevention and Consumer
Protection Act (BAPCPA) . At the same time, the General Assembly reconsidered
the various exemptions allowed under our statutes . Although broader
revisions of our statutory exemptions were proposed, the legislature passed a
revision of KRS 427 .170 which simply deleted the word "not" from the statute,
thereby converting Kentucky from an "opt-out" state to an "opt-in" state with
respect to the exemptions provided by 11 U .S .C . § 522(d) . Thus, in its present
form, the statute reads:
An individual debtor domiciled in this state is authorized to
exempt from property of said debtor's estate the property
specified under 11 U .S .C . § 522(d) .l
The 2005 revision also modified the form by which the federal statute was cited, an
immaterial change .
The statute was re-titled: "Federal Bankruptcy Code Exemptions Applicable in
Kentucky ."
B. Procedural Background
Appellant, MPM Financial Group, Inc. (MPM), sued Appellee, Michael P.
Morton, in the Fayette Circuit Court, alleging theft and embezzlement . On
January 5, 2004, judgment was entered against Morton for the sum of
14,000.00, plus court costs and interest . After entry of the judgment, Morton
could not be located, and MPM's effort to execute the judgment was hindered
accordingly. Eventually, Morton was found and MPM sought sources of funds
or other property that could be garnished or attached to satisfy the judgment .
Morton had purchased a private disability insurance policy from UNUM
Provident and was currently receiving benefits under that policy amounting to
$3750 per month. In July 2005, MPM served an order of garnishment on
UNUM Provident. On August 11, 2005, Morton filed an Affidavit to Challenge
Garnishment, claiming that the payments were "disability benefits" and were
thus "totally exempt (from garnishment) per KRS 427.150 ." KRS 427.150(d)
allows for an exemption of property consisting of "compensation of the loss of
future earnings". A month later, he filed a "Notice of Exercise of Exemptions
per KRS 427 .170" in which he asserted KRS 427 .170 as an additional basis for
claiming an exemption of the policy benefits. 11 U .S .C . § 522(d) exempts from
the bankrupt debtor's estate disability insurance policy benefits.
Eventually, the trial court rejected Morton's claim that the policy
proceeds were exempted by KRS 427 . 150, reasoning that disability policy
proceeds are not the same thing as compensation for future loss of earnings.
However, the trial court granted the challenge to the garnishment under KRS
427.170, holding that exemptions allowed under 11 U.S .C. § 522(d), and
incorporated by reference into KRS 427 .170, are available to any individual
debtor domiciled in Kentucky . The Court of Appeals affirmed that conclusion .
It declined to consider Morton's argument that trial court erred in its holding
with respect to KRS 427 .150, on the grounds that the issue had not been
properly preserved by the filing of a cross appeal. MPM sought discretionary
review of the Court of Appeals opinion, which we granted . Morton did not file a
cross-petition for discretionary review with respect to the availability of an
exemption under KRS 427.150.
MPM argues that the Court of Appeals failed to give due deference to the
words and phrases of KRS 427 .170 that have acquired specialized technical
meaning, as required by KRS 446 .080(4), which states:
All words and phrases shall be construed according to the common and
approved usage of language, but technical words and phrases, and such
others as may have acquired a peculiar and appropriate meaning in the
law, shall be construed according to such meaning .
Morton argues that the Court of Appeals followed KRS 446.080(4) by giving the
words and phrases in KRS 427.170 their common and approved plain
meaning.
Before resolving that dispute, let us note first and foremost, that we are
bound by subsection (1) of KRS 446 .080, which directs that "[a]11 statutes of
this state shall be liberally construed with a view to promote their objects and
carry out the intent of the legislature ." Thus, the cardinal rule of statutory
construction is that the intention of the legislature should be ascertained and
given effect. Cabinet for Human Resources, Interim Office of Health Planning
and Certification v. Jewish Hospital Healthcare Services, Inc . , 932 S.W.2d 388,
390 (Ky. App. 1996) . We also bear in mind that where the language of a
statute is clear and unambiguous on its face, we are not free to construe it
otherwise even though such construction might be more in keeping with the
statute's apparent purpose . Whittaker v. McClure, 891 S .W .2d 80, 83 (Ky.
1995) .
II. ANALYSIS
Upon review of KRS 427.170, we cannot escape the conclusion that a
latent ambiguity exists in the statute' 2 It is not clear and unambiguous on its
face . Its direct reference to 11 U .S .C. § 522 and its incorporation by reference
of exemptions listed therein create ambiguity because 11 U .S .C . § 522 is
applicable only in a bankruptcy proceeding . While the word "debtor," its
possessive form "debtor's", and the word "estate" in KRS 427.170 are each, as
the Court of Appeals opined, "words of plain and ordinary meaning," each has
also acquired, "a peculiar and appropriate meaning in the law" (KRS 446 .080)
in the form of technical definitions from the federal bankruptcy code . Under
When that ambiguity does not appear on the face of the statute, but instead arises
when the statutory term is applied, the ambiguity is latent . Whitley Whiz, Inc. v.
Whitley County, 812 S.W.2d 149, 150-51 (Ky. 1991) .
11 U.S .C . § 541, an "estate", in the technical sense, does not exist until an
action in bankruptcy court has been commenced. It is created by the
commencement of the action in bankruptcy . "Debtor," as used in 11 U.S .C. §
522, takes on the peculiar definition assigned to it by 11 U.S.C . § 101(13), and
by that definition, it is a "person . . . concerning which a case under this title [a
bankruptcy proceeding] has been commenced." The legislature's incorporation
of the federal statute into KRS 427.170 by reference thereto, created an
ambiguity because it is not clear from the statute alone if the General Assembly
intended to also assimilate the federal definitions embodied in the federal
statute, or if it intended otherwise .
Thus, both Morton and MPM offer reasonable but mutually exclusive
interpretations of the statute . Morton, applying what he calls the "plain
meaning of the words," would have us conclude that the statute affords him all
of the exemptions allowed under the federal bankruptcy code, 11 U.S .C §
522(d) because KRS 427.170 does not expressly limit the scope of its protection
to debtors in bankruptcy. MPM would allow the use of the federal exemptions
only to debtors involved in bankruptcy proceedings, arguing that it is
incongruous to incorporate the words used by the federal law without also
using the definitions attached to the words by the federal law. When the
undefined words or terms in a statute give rise to two mutually exclusive, yet
reasonable constructions, the statute is ambiguous . Young v. Hammond, 139
S.W. 3d 895, 910 (Ky. 2004) ; See also Black's Law Dictionary 88 (8th ed. 2004),
(defining ambiguity as : "An uncertainty of meaning or intention, as in a
contractual term or statutory provision.") ; Black's Law Dictionary 73 (5th ed .
1979) (a term is "ambiguous" when "it is reasonably capable of being
understood in more than one sense") .
Faced with competing interpretations of an ambiguous statute, we look
to traditional rules of statutory construction . As noted above, KRS 427 .170
and 427 .150 were enacted together in 1980 . In Kotila v. Commonwealth, 114
S .W .3d 226, 239-240 (Ky. 2003) (overruled on other grounds by Matheney v .
Commonwealth, 191 S.W .3d 599 (Ky. 2006)), we expressed the general rule
that statutes dealing with the same subject matter should be harmoniously
construed so far as possible to allow both to stand and to give force and effect
to each. See also Commonwealth v. Phon, 17 S .W.3d 106, 108 (Ky. 2000)
(holding that construction of a statute that render portions thereof meaningless
or ineffectual must be avoided) . Because all of the exemptions provided by KRS
427.150 are also provided by 11 U .S .C . § 522(d), Morton's construction of KRS
427 .170 renders KRS 427.150 void of any significant meaning or purpose . If
all debtors, regardless of their bankruptcy status, may claim the bankruptcy
exemptions via KRS 427 .170, there is no need for KRS 427 .150. It would be
duplicative, or superfluous. But, when we impart to the words of KRS 427 .170
the meaning they have in the context of federal bankruptcy statutes, KRS
427 .150 retains substance and a clear purpose . We presume that the General
Assembly was aware of KRS 427 .150 when it acted to modify KRS 427 .170 and
that if it had intended to eliminate or repeal the former when it modified the
latter, it would have clearly done so . Shewmaker v . Commonwealth, 30 S.W .3d
807, 809 (Ky. App. 2000) .
MPM argues that we should consider the legislative history and the
transcript of legislative committee hearings on the 2005 modification of KRS
427.170 . We are generally reluctant to do so, but where the language of a
statute has been found to be ambiguous or uncertain, reference may be had to
the legislative records showing the legislative history of the act in order to
ascertain the intent of the legislature . Temperance League of Kentucky v.
' Perry, 74 S.W.3d 730, 737 (Ky. 2002) . The portions of that transcript of record
in this case strongly indicate that the 2005 revision was not intended to affect
the exemptions then available to non-bankrupt debtors .
The conclusions reached by the trial judge and the Court of Appeals, and
urged upon us by Morton, would mark a substantial departure from a longestablished legislative policy on the subject of exemptions and exempt property,
which we believe raises doubt about whether the legislature intended such a
result, and warrants an examination of available information bearing on the
purpose behind the legislation in question . Travelers Indemnity Co. v. Reker,
100 S.W .3d 756, 763-764 (Ky. 2003) . From 1980 to 2005, there can be no
doubt that KRS 427.170 had no purpose beyond its expression of Kentucky's
option to allow or disallow Kentucky debtors in bankruptcy court to claim the
federal exemptions allowed by 11 U.S .C . § 522(d) . Then, the General Assembly
elected to disallow the federal exemptions and rely solely upon the exemptions
crafted by our legislature . In 2005, the simple deletion from the statute of the
word "not" suggests nothing more than a decision to reverse the option, from
one that disallowed the federal exemptions to bankrupt residents to one that
allowed them to claim the exemptions . We cannot read into the modified
statute any intent or purpose to do more . Prior to 2005, the phrase "property
of said debtor's estate," in KRS 427 .170, referred only to the property of
bankrupt debtors. Nothing about the deletion of the word "not" implies that
the meaning of that phrase was changed by the amendment.
Furthermore, Morton's interpretation of KRS 427 .170 results in the
conclusion that the General Assembly's reference in KRS 427.170 to the federal
bankruptcy code is merely a shorthand means of incorporating into Kentucky
law, for all debtors, whatever exemptions Congress may choose to adopt. We
find it doubtful that, after controlling the determination of statutory
exemptions since the establishment of the Commonwealth itself, and after
maintaining such control for twenty-five years after receiving the option of
making federal exemptions available to Kentucky debtors in Bankruptcy Court,
the General Assembly, by simply striking a single word from the statute, would
cede to the U.S. Congress its authority to determine the exemptions which
should be available to Kentucky debtors in all cases whatsoever. We will not
infer such intent or purpose from the face of the legislative enactment at issue
here, nor do we see anything in the legislative record that evinces such an
intent or purpose . The legislative record strongly suggests that the legislature
simply chose to "opt-in" the federal exemptions in bankruptcy cases, and to
defer for future consideration any other change in the exemptions otherwise
allowed under state law .
Based upon the legislative history and record ; and upon our reluctance
to interpret a statute in such a way that, by implication, renders other statutes
meaningless or superfluous; and upon the principle that words which have "a
peculiar and appropriate meaning in the law" (KRS 446.080(4)) should be
construed accordingly, we conclude that KRS 427.170, as modified in 2005,
authorizes only Kentucky residents in bankruptcy cases to avail themselves of
the exemptions specified under 11 U .S .C. § 522(d), and that such exemptions
are not otherwise available to debtors in Kentucky .
III . MORTON WAIVED THE RIGHT TO CLAIM AN EXEMPTION UNDER KRS
427 .150(2)(D)
Morton's initial challenge to the garnishment of his disability insurance
benefits was based on the exemptions provided under KRS 427.150(2)(d) . The
Fayette Circuit Court rejected the challenge, ruling that Morton's disability
insurance payments did not fall within the exemption under KRS 427 .150(2)(d)
extended to compensation paid for the loss of future earnings . The Court of
Appeals declined to consider the issue because he had not properly preserved
the issue by filing a cross-appeal . It affirmed Morton's judgment on other
grounds. MPM sought discretionary review of the adverse opinion of the Court
of Appeals but Morton did not . Civil Rule 76.21(1) requires that if a motion for
discretionary review is granted by this Court, a respondent has ten days
thereafter within which to seek similar review of additional issues which,
although not presented in the motion granted, should be considered to properly
dispose of the case . Morton's failure to file a cross-motion for discretionary
review to address that issue precludes our consideration of the issue .
IV. CONCLUSION
For the reasons set forth herein, we reverse the decision of the Court of
Appeals and remand this matter to the Fayette Circuit Court for further
proceedings consistent with this opinion .
All sitting . All concur .
COUNSEL FOR APPELLANT:
Carroll Morris Redford III
Miller, Griffin and Marks, PSC
271 West Short Street
Suite 600
Lexington, Kentucky 40507-1292
Susan Yuk Wo Chun
Miller, Griffin and Marks, PSC
271 West Short Street
Suite 700
Lexington, Kentucky 40507
COUNSEL FOR APPELLEE :
Charles William Arnold
401 W Main St Ste 303
Lexington, Kentucky 40507
COUNSEL FOR AMICUS CURIAE:
KENTUCKY BANKERS ASSOCIATION
John T. McGarvey
M. Thurman Senn
Morgan and Pottinger, P.S .C .
601 West Main Street
Louisville, Kentucky 40202
Debra Kaye Stamper
Kentucky Bankers Association
General Counsel
600 W. Main St., Ste 400
Louisville, Kentucky 40202
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2007-SC-000652-DG
MPM FINANCIAL GROUP, INC .
V.
APPELLANT
ON REVIEW FROM THE COURT OF APPEALS
CASE NO . 2005-CA-002539-MR
FAYETTE CIRCUIT COURT NO . 03-CI-00740
MICHAEL P . MORTON
APPELLEE
ORDER CORRECTING
The Opinion of The Court by Justice Venters rendered June 25,
2009, is corrected on its face by substitution of the attached pages 1 and
10 in lieu of pages 1 and 10 of the original opinion . Said correction does
not affect the holding of the original Opinion of the Court.
ENTERED: June 29, 2009 .
CHI
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