KSB

Judge Somers

10-20713 Howley (Doc. # 39) - Document Text

SO ORDERED.
SIGNED this 26 day of October, 2010.

 

Dale L. Somers
UNITED STATES BANKRUPTCY JUDGE

Designated for print publication and on-line use.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
ALEN RAY HOWLEY and CASE NO. 10-20713
JEANNIE MARIE HOWLEY, CHAPTER 7
DEBTORS.

MEMORANDUM OPINION AND ORDER
SUSTAINING TRUSTEE’S OBJECTION TO DEBTOR’S EXEMPTION CLAIM

The matter before the Court is the Chapter 7 Trustee’s objection to Debtor Jeannie
Marie Howley’s claim of exemption of her interest in per capita payments from the
Prairie Band of Potawatomi Indians. The Trustee, Carl R. Clark, appears by Carl R.
Clark and Shane McCall of Lentz Clark Deines PA. The Debtors, Alen and Jeannie
Howley, appear by Mark W. Neis of Neis & Michaux, P.A. There are no other
appearances. The Court has jurisdiction.1 Having considered the joint stipulation of

1 This Court has jurisdiction pursuant to 28 U.S.C. § 157(a) and §§ 1334(a) and (b) and the
Standing Order of the United States District Court for the District of Kansas that exercised authority

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facts, the briefs, and the arguments of counsel made at oral argument, the Court is now
ready to rule. For the reasons stated below, the Court sustains the Trustee’s objection to
the claimed exemption.

FINDINGS OF FACT.

Based upon the parties’ joint stipulation, the Court finds the following facts.
Debtors Alen and Jeannie Howley filed for relief under Chapter 7 on March 14, 2010. On
Schedule C of Debtors’ voluntary petition, they claimed household goods, clothing,
jewelry, and one vehicle valued at $4,000 as exempt under Kansas law.2 In addition,
Debtor Jeannie Howley (hereafter “Debtor”) claimed as exempt her per capita income
accruing from gaming revenues of the Prairie Band of Potawatomi Indians (hereafter
“Prairie Band”) in the amount of approximately $400 per month (hereafter “Per Capita
Payments”) under § 4-10-16(H) of the Potawatomi Law and Order Code (hereafter
“Tribal Code”). Since 2007, Debtor has resided in Lecompton, Kansas, and from 2002 to
2007 resided in Topeka, Kansas. She has never resided on the Prairie Band reservation,
which is located near Mayetta, Kansas.

The Trustee objected to the claimed exemption of the Per Capita Payments. He
asserts that the right to receive such payments is not exempt under the Bankruptcy Code

conferred by § 157(a) to refer to the District’s Bankruptcy judges all matters under the Bankruptcy Code
and all proceedings arising under the Code or arising in or related to a case under the Code, effective July
10, 1984. Objections to exemptions are core proceedings which this Court may hear and determine as
provided in 28 U.S.C. § 157(b)(2)(B). There is no objection to venue or jurisdiction over the parties.

2 K.S.A. 60-2304.

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or any other applicable law. Debtor responds that the Tribal Code on which she relies for

the exemption is “local law” within the meaning of 11 U.S.C. § 522(b)(3)(A), and

therefore her claimed exemption should be allowed

ANALYSIS AND CONCLUSIONS OF LAW.

Debtor claims that her Per Capita Payments are exempt pursuant to 11 U.S.C.

§ 522(b), which provides in part as follows:

(b)(1) Notwithstanding section 541 of this title, an individual
debtor may exempt from property of the estate the
property listed in either paragraph (2) or, in the
alternative, paragraph (3) of this subsection. . . .

(2)
Property listed in this paragraph is property that is
specified under subsection (d), unless the State law that
is applicable to the debtor under paragraph (3)(A)
specifically does not so authorize.
(3)
Property listed in this paragraph is —
(A)
subject to subsections (o) and (p), any property
that is exempt under Federal law, other than
subsection (d) of this section, or State or local
law that is applicable on the date of the filing of
the petition at the place in which the debtor’s
domicile has been located for the 730 days
immediately preceding the date of the filing of
the petition. (Emphasis supplied).
She argues that because Kansas is an opt-out state pursuant to § 522(b)(2),3 her

exemptions are governed by § 522(b)(3)(A). As to the “State or local law” that was

applicable on the date of filing of the petition at the place where she was domiciled for

3 See K.S.A. 60-2312.

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730 days prepetition, she relies on Kansas law for all exemptions except the Per Capita
Payments, which she claims are exempt under § 4-10-16(H) of the Tribal Code.

The Prairie Band’s Per Capita Ordinance formalizes the tribe’s plan for allocation
of gaming revenues and Per Capita Payments. It provides for allocation of 30% of the net
gaming revenues for per capita distribution to all eligible enrolled tribal members.
Distributions are made quarterly, within 30 days after the close of the quarter, by tribal
check made payable to the eligible tribal member, except in the case of incompetents and
minors.4 Debtor is eligible to receive such payments.5

Section 4-10-16 of the Tribal Code establishes exemptions. The introductory
phrase provides:

Section 4-10-16. Exempt Property.

The following property shall be exempt, from
garnishment, attachment, execution, sale, and other process
for the payment of principal and interest, costs, and attorney
fees upon any judgment of the Tribal Court.

The section then enumerates the exempt property as follows: A portion of wages earned;

one automobile not exceeding $1,000 in value; tools of the trade; restricted title lands

held by the United States; a dwelling including up to five acres of land; household goods,

4 Additional information regarding the Prairie Band and the gaming revenue distributions are
included in the decisions of Bankruptcy Judge Karlin in In re McDonald, 353 B.R. 287 (Bankr. D. Kan.
2006) and In re Hutchinson, 354 B.R. 523 (Bankr. D. Kan. 2006).

5 Although the stipulation does not include the fact that Debtor is an enrolled member of the
Prairie Band, the Court so finds, based upon the agreement of the parties that she is entitled to the Per
Capita Payments.

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wearing apparel, and personal effects; ceremonial or religious items; and gaming revenue
per capita payments.6 The exempt per capita payments are described in § 4-10-16(H) as
follows:

(H) Gaming revenue per capita payments to Prairie
Band Potawatomi Nation tribal members, provided that this
exemption shall not apply to Potawatomi Nation Tribal Court
actions to enforce or satisfy child support obligations of a
tribal member of the Nation.
The Trustee objects7 to Debtor’s exemption based upon McDonald,8 a decision of
Judge Karlin of this Court, holding that Prairie Band per capita distributions are not
exempt.9 Debtor responds that McDonald erred when holding the exemption is not
available to a tribe member domiciled outside the reservation’s physical boundaries. She
argues that to not allow the exemption would subvert the intent of the tribal exemption,10
that “local law” should be construed to mean all “all exempt property law other than
Federal bankruptcy exemptions that applies to Joint Debtor,”11 or that the “jurisdiction of
the Tribal Law And Order Code to exempt per capita payments is based on the

6 Potawatomi Law and Order Code § 4-10-16(A)-(H).
7 As the objecting party, the Trustee has the burden of proving that the exemption is not properly


claimed. Fed. R. Bankr. P. 4003(c).
8 In re McDonald, 353 B.R. at 287.
9 At oral argument, but not in his brief, the Trustee also cited In re Enfield, 133 B.R. 515 (Bankr.

W.D. Mo 1991), which holds that a charter ordinance of the City of Kansas City, Missouri exempting
pensions of city employees is a local law for purposes of § 522(b)(3)(A). This case is discussed below.
10 Doc. 30, pp.1, 7.
11 Id. at 7.
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geographical location of the gaming revenues and is thus ‘applicable law,’ as provided in
§ 522(b)(3).”12 Debtor cites no case law as supporting her positions. The Trustee argues
that Debtor cannot claim her Per Capita Payments exempt under § 4-10-16 of the Tribal
Code since that code is not applicable law under § 522(b)(3).13

The facts in McDonald are indistinguishable from this case. Debtor McDonald
was an enrolled member of the Prairie Band who did not reside on the reservation. She
had received, and was likely to continue to receive, per capita distributions. The Chapter
7 trustee sought turnover of the payments, contending that they were property of the
estate and not exempt. Debtors raised the defense that the payments were exempt and
relied in part upon § 522(b)(3)(B) and Tribal Code § 4-10-16.14 The court found that
debtors were not entitled to rely upon the tribal exemption of per capita distributions.
Judge Karlin stated:

The Court finds Debtors are not entitled to rely upon
the exemptions contained in the Potawatomi Tribal Code.
First, § 522(b) allows individual debtors to choose between
exemptions found in § 522(d) or those exemptions available
in the state in which the debtor is domiciled for the 730 days
prior to the filing of the bankruptcy petition, unless, as is the

12 Id. at 4.

13 The first argument made by the Trustee is that the Per Capita Payments are property of the
estate and not subject to the 11 U.S.C. § 541(c)(2) exclusion for beneficial interests of the debtor held in a
trust. Doc. 28, pp. 3-5. He cites numerous cases, including In re McDonald, 353 B.R. 287, 293-94
(Bankr. D. Kan. 2006), from this district. Debtor does not refute this position. Doc. 30. Indeed, by
taking the position that the payments are exempt, Debtor is conceding that they are property of the estate,
since it is only property of the estate which can be exempted from the estate.

14 Debtors did not deny that the payments were property of the estate, and the court found that this
was “clearly” correct. In re McDonald, 353 B.R. at 291.

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case in Kansas, the state in which the debtor has been
domiciled prohibits the election of the federal exemptions.
There is nothing in the Bankruptcy Code that allows a debtor
to claim the exemptions of another governmental entity, such
as when the debtor is not domiciled within the boundaries of
that entity’s territory. Secondly, the parties’ stipulations
clearly show that Debtors are not domiciled within the
Potawatomi Reservation, but instead live in Topeka, Kansas.
Therefore, pursuant to § 522(b) and K.S.A. 60-2312, their
exemptions are limited to those allowed under Kansas law.
Because Kansas law does not allow Debtors to claim the
exemption found in the Potawatomi Tribal Code, Debtors
cannot rely on that provision to exempt the per capita
distributions.15

McDonald fully supports the Trustee’s objection to Debtor’s claim of exemption of the

Per Capita Payments in this case. Although it is likely the Prairie Band did not agree with

the outcome of McDonald, which was decided in 2006, there is nothing in the record

indicating that the Prairie Band in the intervening four years after McDonald was decided

and before Debtor filed for relief made any amendments to its Per Capita Ordinance or

the Tribal Code exemptions.

Debtor agrees that there is no relevant factual distinction between McDonald and

this case. Both Ms. McDonald and Debtor had Kansas domiciles, but not on the Prairie

Band reservation. As found by Judge Karlin, pursuant to § 522 and the Kansas opt-out

statute, K.S.A. 60-2312, Debtor is entitled to the exemptions permitted by Kansas law,

which include § 522(d)(10) of the Bankruptcy Code, but not to the tribal exemptions.

15 Id. at 292 (footnotes omitted). A substantial part of the opinion on McDonald addresses and

rejects debtors’ contention that the per capita payments were removed from the estate under § 541(c)(2),

the trust exception to property of the estate. That defense is not raised in this case.

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The Kansas opt-out statute states:

(a) Except as provided in subsection (b), no person, as
an individual debtor under the federal bankruptcy reform act
of 1978 (11 U.S.C. § 101 et seq.), may elect exemptions
pursuant to subsection (b)(1) of section 522 of such federal
act.
(b) An individual debtor under the federal bankruptcy
reform act of 1978 may exempt, in addition to any other
exemptions allowed under state law, any property listed in
subsection (d)(10) of section 522 of such federal act. The
provisions of this subsection shall apply to any bankruptcy
action which: (1) Is filed on or after July 1, 1986; or (2) was
filed on or after April 26, 1980, and is pending or on appeal
on July 1, 1986.
Thus, the Kansas legislature, as authorized by Congress in § 522(b)(2), has provided that

the exemptions of § 522(b)(1) are not available, and that the “exemptions allowed under

state law” and § 522(d)(10) are available. Although it could clearly do so, the Kansas

legislature has not incorporated the tribal exemptions into state law.16

Whether a tribal exemption code is a “local law” within the meaning of

§ 522(b)(3)(A) is a difficult question. The parties have provided no direct authority, and

this Court’s own research has found none. There is only one case in the annotations to

§ 522 construing the phrase “local law” as used in § 522(b)(3)(A). The case is Enfield,17

from the Western District of Missouri. In that case, the Chapter 7 trustee objected to a

16 See K.S.A. 2009 Supp. 8-135(c)(16) which incorporates tribal law as to perfection of security
interests in motor vehicles. It provides:

(16) A security interest in a vehicle registered by a federally recognized Indian
tribe shall be deemed valid under Kansas law if validly perfected under the applicable
tribal law and the lien is noted on the face of the tribal certificate of title.
17 In re Enfield, 133 B.R. at 515.

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debtor’s claimed exemption of his interests arising from the Kansas City, Missouri
employees’ retirement plan. Missouri, like Kansas, is an opt-out state, so exemptions
were determined by the “State or local law that is applicable at the place in which the
debtor’s domicile” had been located for the requisite period of time before filing. The
Kansas City, Missouri charter ordinance which created the retirement plan provided:

[t]he right of any person to a benefit accruing under the
provisions of this division and to the moneys in the various
funds created under this division shall not be subject to
execution, garnishment, attachment, or to any other process
whatsoever, and the same shall be unassignable except as in
this division specifically provided.18

The court found the pension plan interest to be exempt under the charter ordinance, which
was identified, without discussion, to be the “local law [which] was in effect on the date
of filing of the petition.19 For the reasons discussed below, the Court finds Enfield
insufficient to sustain Debtor’s claimed exemption.

 “Local law” is a phrase which has traditionally been used to refer to the laws of
territories of the United States.20 Territories, generally comprised of “lands acquired by
the United States by treaty or purchase that have not become an integral part of the United
States,”21 are “inchoate states and temporary sovereign governments, organized under the

18 Id. at 521.

19 Id.
20 See, e.g., 48 U.S.C. § 1392 (as to the Virgin Islands, certain laws regulating elections and the
electoral franchise “and the other local laws” in effect on January 17, 1917, shall remain in effect).
21 72 Am. Jur. 2d, States, Territories, and Dependencies § 122 (2010).
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laws of Congress.”22 Territorial governments, like states, generally have three branches
of government, an executive, legislative, and judicial.23 As to unincorporated territories,
such as pre-Commonwealth Puerto Rico, the Virgin Islands, and Guam, the legislative
power is directed to “subjects of ‘local application,’ or not ‘locally inapplicable.’”24 They
therefore have authority to enact exemption laws. For example, a debtor domiciled in the
Virgin Islands may claim exemptions stated in the Virgin Islands Code.25 If
§ 522(b)(3)(A) did not provide for exemptions under local law, residents of territories
would be required to use federal exemptions, since no state exemption laws apply to
them.26

 Native American tribes are not considered territories of the United States. They
are subordinate and dependent nations.27 Indian tribes are “distinct political entities” and
“have the right to make all laws and regulations for the government and protection of
their persons and property, consistent with the Federal Constitution and laws of the

22 Id. at § 123.

23 Id.

24 Granville-Smith v. Granville-Smith, 349 U.S. 1, 6 (1955) (citing 48 U.S.C. §§ 821, 1574, and
1423a).

25 In re Prosser, 2008 WL 2677863 (D. Virgin Islands 2008).

26 The definition of “state” in 11 U.S.C. § 101(52) includes the District of Columbia, so the
operation of the right to elect local law in the district is not similar to that for those domiciled in
territories.

27 41 Am. Jur. 2d, Indians; Native Americans § 8 (2010).

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United States.”28 As illustrated by this case, tribes enact exemption laws. However,
unlike territories, tribes exist within states that have enacted exemption laws. All debtors
residing in a state may elect between federal and state exemptions, if the state has not
opted out, or utilize state exemptions, if the state has opted out. Consideration of tribal
law as local law is therefore not necessary to give such debtors an alternative to the
federal exemptions. Nevertheless, the Court observes, without deciding, that by analogy
with the law applicable to territories, it is possible that for purposes of exemptions under
§ 522(b)(3(A), tribal law could be considered “local law.”

However, even assuming that tribal exemption laws could be considered “local
law” under § 522(b)(3)(A), which the Court expressly does not decide, the Court finds
that the Tribal Code exemption of gaming per capita distributions would not apply in this
case. Section 522(b)(3)(A) expressly requires use of state or local law “applicable . . . at
the place in which the debtor’s domicile has been located” for a specified period.
Therefore, under the Bankruptcy Code, the fact that Debtor is domiciled in Kansas, not
the fact that she is a member of the Prairie Band, determines the applicable law.
Assuming that the Tribal Code is local law, the tribal exemptions would apply to Debtor
only if she were domiciled where that local law is applicable. Applying the exemption in
this case would require the Tribal Code exemption to have extraterritorial effect, since
Debtor does not reside on the Prairie Band reservation.

28 Id. at § 11.
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“Generally the law of the forum is controlling as to the exemption of property from
execution. This rule is often based on the reasoning that exemption laws have no
extraterritorial effect and pertain only to the remedy.”29 The Kansas Supreme Court in
1884 held that the laws of the state, including its exemption laws, have no extraterritorial
effect.30 Much more recently, the Missouri bankruptcy court has held the Kansas
personal property exemptions are available only to residents, based upon the statute
which reads, “every person residing in this state shall have exempt . . . the following
articles of personal property.”31 The majority view of bankruptcy courts is that
homestead exemptions have no extraterritorial effect, even if this result is not dictated by
the language of the exemption.32 This rule has been followed in Kansas where neither the
Kansas constitutional nor statutory homestead exemptions explicitly limit their
applicability to Kansas homesteads.33

Debtor provides no authority in support of her argument for the extraterritorial
effect of the exemption of Per Capita Payments. The Court knows of no reason why the
general rule that exemptions have no extraterritorial effect should not control. There is

29 31 Am. Jur. 2d, Exemptions § 22 (2010).

30 Burlington & M.R.R. v. Thompson, 31 Kan. 180, 1 P. 622 (1884).

31 In re Nickerson, 375 B.R. 869, 871 (Bankr. D. Mo. 2007) (quoting K.S.A. 60- 2304 (emphasis

added)). Nickerson was cited with approval by this Court in In re Fabert, 2008 WL 104104 (Bankr. D.
Kan. 2008).
32 See William Houston Brown, The Extraterritorial Effect of Homestead Exemption Statutes: An
Emerging Issue, 2006 No. 1 Norton Bankr. L. Adviser 2 (2006).
33 In re Ginter, 282 B.R.16 (Bankr. D. Kan. 2002).
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nothing in the Tribal Code exemption for the Per Capita Payments suggesting
extraterritorial effect. Rather, the tribal exemptions are expressly applicable only to the
satisfaction of judgments of the tribal court,34 which imposes a geographic limitation.
The Court therefore rejects Debtor’s contention that “local law” should be construed to
mean “all exempt property law other than Federal bankruptcy exemptions that applies to
Joint Debtor.” Further, the Bankruptcy Code clearly provides that the applicable
exemption law is determined by the domicile of the debtor, not by “the geographical
location of the gaming revenues and is thus ‘applicable law,’ as provided in
§ 522(b)(3),”35 as claimed by Debtor.

There is an additional reason why, even if the Court were to hold that the Tribal
Code exemptions are local law for purposes of § 522(b)(3)(A), the exemption would not
apply to the estate’s interest in Debtor’s Per Capita Payments. Under the Tribal Code, the
Per Capita Payments are exempt from “garnishment, execution, sale and other process for
the payment of principal and interest, costs, and attorney fees upon any judgment of the
Tribal Court.” This is a very limited exemption which is not applicable here. The
Trustee is not seeking to recover the funds in satisfaction of a judgment of the tribal court.
The Trustee is contending that the payments, after receipt by the Debtor, are nonexempt
property of the estate. Judge Karlin in McDonald, noting the limited scope of the

34 The Potawatomi Law and Order Code § 4-10-16 provides the Per Capita Payments are exempt
from “garnishment, execution, sale and other process for the payment of principal and interest, costs, and
attorney fees upon any judgment of the Tribal Court.”

35 Doc. 30, p. 4.

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exemption, held that even if the debtors were entitled to rely upon the tribal exemption,
“it would be inapplicable under the facts of this case.”36 As noted above, those facts are
indistinguishable from the facts in this case.

The Court recognizes that the foregoing analysis appears in some respects to be
contrary to the Enfield37 case, discussed above. Although Debtor does not rely upon
Enfield, the Court finds that an explanation is appropriate. One reason for the
discrepancies is the difference in the “local law” at issue in Enfield and this case. In
Enfield, the issue was whether a debtor’s interest in a municipal pension plan was exempt
under a charter ordinance of the City of Kansas City, Missouri. In Missouri, an
incorporated city may adopt a charter for its own government.38 “If consistent with and
subject to the constitution and law of [Missouri], charter provisions have the force and
effect of enactments of the state legislature.”39 Therefore, in effect, the Kansas City
charter ordinance was a state exemption which supplemented those adopted by the state
legislature. This Court suggests that because of this aspect of Missouri law, there is a
question whether the charter ordinance should be characterized as a “local law” or an
aspect of state law for purposes of § 522(b)(3)(A). In this case, the purported local law is
a tribal law, which has not been adopted by the State of Kansas. It is a statute of a Native

36 In re McDonald, 353 B.R. at 292.

37 In re Enfield, 133 B.R. at 515.

38 Mo. Const. Art. 6, § 19.

39 State ex rel. Childress v. Anderson, 865 S.W.2d 384, 387 (Mo. App. 1993).

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American tribe, which in some respects is a sovereign nation. There is no basis for
considering the Tribal Code to be an aspect of state law. In addition, apparently because
of the nature of the charter ordinance, the issue of extraterritorial effect, which is
important in this case, did not arise in Enfield. Further, the tribal exemption relied on by
Debtor applies only in the tribal court, whereas the charter ordinance applied in Enfield
had no such limitation.

For the foregoing reasons,40 the Court sustains the Trustee’s objection to Debtor’s
claimed exemption of her interest in the Prairie Band Per Capita Payments pursuant to the
Tribal Code. Judgment is hereby granted sustaining the Trustee’s objection to Debtor’s
claim that her interest in the Per Capita Payments from the Prairie Band of Potawatomi
Indians is exempt under the Potawatomi Tribal Code.

IT IS SO ORDERED.
# # #


40 The foregoing constitutes Findings of Fact and Conclusions of Law under Rules 7052 and
9014(c) of the Federal Rules of Bankruptcy Procedure which make Rule 52(a) of the Federal Rules of
Civil Procedure applicable to this matter.

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