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Web posted and Copyright © October 1, 2004, American Bankruptcy Institute.

The 2004 term of the U.S. Supreme Court begins on Oct. 4, 2004. So far, the Court has accepted certiorari in one case, Rousey v. Jacoway, though several other petitions are pending. In Rousey, the Court agreed to resolve a three-way circuit conflict over whether and to what extent Individual Retirement Accounts (IRAs) are exempt from a bankruptcy estate under 11 U.S.C. 522(d)(10)(E). The case below can be found at 347 F.3d 689 (8th Cir. 2003). Following are excerpts from the certiorari petition and the brief in opposition.

From the Petition for Certiorari1

Individual Retirement Accounts Are Eligible for Bankruptcy Exemption Under §522(d)(10)(E)

RAs fall squarely within the exemption defined by §522(d)(10)(E). A straightforward application of the statue reveals that, as a matter of law, an IRA confers "the right to receive a payment under a stock bonus, pension, profit sharing, annuity or similar plan or contract on account of illness, disability, death, age or length of service."

The statute's text and structure make clear that IRAs are included within the exemption that §522(d)(10)(E) defines. Specifically, after identifying a group of plans and contracts that qualify for exemption, §522(d)(10)(E)(iii) then denies exemptions to certain plans contracts that do not "qualify under §408 of the Internal Revenue Code." Section 408 is the provision that defines IRAs. Under settled principals of statutory construction, §522(d)(10)(E) must include at least some plans defined under §408; the explicit exclusion of plans that do not fall within §408 from the exemption would otherwise constitute mere surplusage. As the Ninth Circuit pointed out in Farrar v. MeKown, 203 F.3d 1188, 1190 (9th Cir. 2000), "[t]here could be no reason for legislators to exclude non-qualifying IRAs from exemption, as the exemption does, unless they intended that qualifying IRAs could be exempt. Indeed there could be no reason to even mention §408, the IRA section, unless 'similar plan or contact' included them (emphasis added)." Accorded Carmichael v. Osherow, 100 F.3d 375, 378 (5th Cir. 1996); Dattmann v. Brucher, 243 F.3d 242, 243 (6th Cir. 2001): Dubroff v. First Nat'l. Bank of Glen Falls, 119 F.3d 75, 77-78 (2nd Cir. 1997).

Despite the statute's specific inclusion of IRAs, the Third and Eighth Circuits nevertheless have drawn erroneous distinctions to exclude IRAs from exemption. Contrary to the Third Circuit's suggestion in Clark, see 711 F.2d at 23, the language of §522(d)(10)(E) does not distinguish between "present payments" and "future payments," nor does anything in the provision's text, structure or legislative history suggest that Congress intended to draw any time- or age-based distinctions. "The language of the section does not include words like 'presently,' 'currently' or 'immediately,'" Carmichael, 100 F.3d at 379, nor does it include any other indication of intent to exclude future payments. Indeed an exclusion would be at odds with the statutes express inclusion of pension plans, profit-sharing plans and annuities, all of which involve an entitlement to future payments. The provision's legislative history explicitly states that "paragraph (10) exempts certain benefits that are akin to future earnings of the debtor." H.R. Rep. 95-595, at 362 (1977) (emphasis added). Like other plans listed in the statute, "IRAs too are substitutes for future earnings." Carmichael, 100 F.3d at 378.

The Eighth Circuit opinion is silent regarding whether its holding...applies to these...plans as well as to IRAs, but either way its reasoning is unjustified.

It is similarly unsupportable for the Eighth Circuit to exclude IRAs from exemption simply because holders may make early withdrawals subject to a tax penalty. The "right to receive payments" from an IRA is unquestionably triggered by four events—"age 59," "death," "being disabled" or "medical care;" see 26 U.S.C. 72(t)(2)(A)(i)-(iii); Id., §72(t)(2)(B)—that precisely parallel four of the five alternative conditions for exemption set out in §522(d)(10)(E): "illness, disability, death, age or length of service." Tax-penalized, early withdrawal cannot be a basis for concluding that a plan does not qualify for exemption. Such a withdrawal is not only a feature of all IRAs, but also of all other instruments listed in the statues: stock bonuses, pensions, profit-sharing plans and annuities. The Eighth Circuit opinion is silent regarding whether its holding—requiring that a plan specifically bar early withdrawal in order to qualify for exemption—applies to these other types of plans as well as to IRAs, but either way its reasoning is unjustified. Either the Eighth Circuit holds IRAs nonexemptible on the basis of a statutory feature they share in common with exemptible plans, or it holds that no plan of any type qualifies for exemption unless it contains an unheard-of provision barring early withdrawal. The first possibility is patently illogical, and the second creates an unprecedented rule so restrictive that it would effectively eviscerate the entire exemption.

Because it conflicts with both the plain language and the intent of §522(d)(10)(E), the decision of the Eighth Circuit in this case should be reversed.

From the Brief in Opposition2

The Impact of this Case on Individual Retirement Accounts Is Overstated by Petitioners

The emphasis the petitioners place on this case to establish a uniform rule for the exemption of IRAs is misguided. The implication that a uniform rule would result from a decision in this case is illusory, as certainty would only extend to jurisdictions opting in to the federal bankruptcy exemption scheme or having state statutes materially identical to 11 U.S.C. §522(d)(10)(E).

The Eighth Circuit's Opinion Is Correct on the Merits

Review of this case is not justified because the decision of the Eighth Circuit is based on the only logical interpretation and application of the statute. The petitioners mischaracterize the Eighth Circuit's findings, as the court did not explicitly state that the practitioners' IRAs were "similar plans or contracts." The court clarified its position by stating that "if Congress had intended all IRAs which qualify under §408 to be exemptible as a 'similar plan or contract,' it would have been a very easy legislative task to have affirmatively accomplished."

The Eighth Circuit correctly interpreted that the reference to 26 U.S.C. §408 contained within 11 U.S.C. §522(d) (10)(E)(iii) does not automatically render all IRAs exempt. A conclusion otherwise required the court to disregard the exclusive laundry list of factors set forth in 11 U.S.C. §522(d)(10)(E) that trigger a debtor's right to receive a payment. A statute "ought, upon the whole, to be so construed that if it can be prevented, no clause, sentence or word shall be superfluous, void or insignificant." TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001). The Eighth Circuit recognizes that specific, triggering events are enumerated in 11 U.S.C. §522(d) (10)(E), and that the court should not read in additional factors that would invoke the debtor's right to payment.

If there were an unlimited number of events that would allow a debtor to claim an exemption in a right to receive a payment, it would serve no purpose to list specific requirements for exemption as set out by 11 U.S.C. §522(d)(10)(E). Applicable here is the statutory construction expresso unius est exclusio alterus. "Where Congress explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied in the absence of evidence of contrary legislative intent." Id. at 28 (citing Andrus v. Glover Construction Co., 466 U.S. 608, 616-617 (1980)).


1 Thomas C. Goldstein, Debtor-Petitioner Counsel of Record. Return to article

2 Colli C. McKiever, Counsel for Respondent Trustee, Jill R. Jacoway. Return to article


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