KSB

Judge Somers

10-20713 Howley (Doc. # 57) - Document Text

SO ORDERED.
SIGNED this 23 day of February, 2011.


________________________________________
Dale L. Somers
UNITED STATES BANKRUPTCY JUDGE
Opinion designated for print publication

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
DENYING DEBTOR’S MOTION TO ALTER OR AMEND
MEMORANDUM OPINION AND ORDER
SUSTAINING TRUSTEE'S OBJECTION TO DEBTOR'S EXEMPTION CLAIM


The matter before the Court is Debtor Jeannie Marie Howley’s (hereafter
“Debtor”) Motion to Alter or Amend Judgment Sustaining Trustee’s Objection to
Exemption (hereafter “Motion to Amend”).1 Debtor asks the Court to amend its

1 Doc. 41.


Claim, filed on October 26, 2010, as Document 38 (hereafter “Memorandum”).2 In that
Memorandum, the Court denied Debtor’s claim of exemption of her interest in per capita
payments from the Prairie Band of Potawatomi Indians. Debtor now requests the Court to
amend the Memorandum to include a finding that Debtor’s interest, as of the date of filing
of her petition, in per capita payments anticipated to be received postpetition is not
property of the estate. For the reasons stated below, the Court denies the Motion to
Amend and holds that Debtor’s interest on the date of filing in future per capita payments
is property of the estate.

FINDINGS OF FACT.

The following Findings of Fact stated in the Memorandum are applicable to the
Motion to Amend. Debtors Alen and Jeannie Howley filed for relief under Chapter 7 on
March 14, 2010. On Schedule C of Debtors’ voluntary petition they claimed Debtor
Jeannie Howley’s 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 located near Mayetta, Kansas.

2 The Memorandum is published at 439 B.R. 535.
2



The Motion to Amend does not attempt to supplement these facts.

PROCEDURAL CONSIDERATIONS.

As a preliminary matter, the Court finds the Motion to Amend could be denied
based solely upon procedural grounds. The Motion to Amend does not assert grounds
permitted under the applicable rule. Local Rule 7.3, Motions to Reconsider, provides that
a motion to reconsider non-dispositive orders must be based on: “(1) an intervening
change in controlling law; (2) the availability of new evidence; or (3) the need to correct
clear error or prevent manifest injustice.” Debtor’s Motion is not based upon any of these
permitted grounds.

In addition, when responding to the Trustee’s objection to exemption of Per Capita
Payments, Debtor did not present the argument that her right to the payments is not
property of the estate. In fact, the Debtor conceded that her right to the payments is
property of the estate. In note 13 of the Memorandum, the Court stated:

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.

As acknowledged by Debtor in her brief, the purpose of the Motion to Amend is to

oppose the Trustee’s claim to postpetition Per Capita Payments on the basis that the


words, the Motion to Amend is unrelated to Debtor’s claim that the Per Capita Payments
are exempt, which was the argument addressed by the Memorandum. A motion to alter
or amend is not a vehicle to raise new issues which were not previously presented for
consideration in the first instance.3

Nevertheless, the Court finds that judicial economy supports considering the
merits of the Motion to Amend and elects to do so. Undoubtedly, if the Court were to
deny the Motion to Amend on procedural grounds, either Debtor or the Trustee would
present the same issue in a different procedural context. Debtor and the Trustee have
briefed the issue, and there is no just reason to require resubmission. In addition, the
issue of an estate’s interest in a debtor’s interest in postpetition per capita distributions
from Indian gaming revenues is likely to arise in other cases in this jurisdiction.
DEBTOR’S FUTURE RIGHT TO PER CAPITA DISTRIBUTIONS IS
PROPERTY OF THE ESTATE.

The Court therefore addresses the issue, as framed by the Debtor, of “whether or
not per capita payments not due to joint debtor Jeannie Marie Howley on the petition date
are property of the estate per 11 U.S.C. §541.”4 This issue arises because, after the
Memorandum was issued, the Trustee made demand for Per Capita Payments Debtor “has

3 See Comeau v. Rupp, 810 F Supp. 1172, 1175 (D. Kan. 1992).

4 Doc. 47, p. 2.


the petition was filed.”5

When answering the question of whether Debtor’s interest in Per Capita Payments
is property of the estate, the Court first examines the attributes of the Debtor’s interest.
What are Debtor’s legal and equitable rights in the tribal distributions? This question is
answered by examination of the federal law governing tribal gaming and the Potawatomi
Per Capita Ordinance (hereafter “Ordinance”) governing Per Capita Payments.6 The
Indian Gaming Regulatory Act (“IGRA”)7 authorizes tribes to negotiate and obtain
gaming compacts with the states, which are authorized to permit and regulate casino style
(Class III) gaming. The IGRA requires, in addition to a compact with the appropriate
state, that the tribe adopt an ordinance regarding the disposition of gaming revenues. The
ordinance must provide that the revenues from casino style gaming will be used for the
following purposes: Tribal government operation; the general welfare of the tribe and its
members; economic development; charitable donations; and operations of local
government.8 The IGRA permits, but does not require, making per capita distributions to
tribal members, if the tribe has prepared a plan to allocate revenues which plan is
approved by federal authorities as adequate, the interests of minors and incompetents

5 Doc. 41, p. 2.

6 Doc. 28-2.

7 25 U.S.C. § 2701 et. seq.

8 25 U.S.C. §§ 2710(b)(2), made applicable to class III gaming by 25 U.S.C. § 2710(d)(2)(A).


The Potawatomi Indians have elected to allocate a portion of net gaming revenues
to per capita payments and have adopted the Ordinance, which apparently was approved
by federal authorities. The Ordinance adopts an allocation plan under which net gaming
revenues shall be distributed 30% to fund or supplement tribal government operations and
programs; 30% for distributions to all eligible enrolled tribal members; 37% to fund tribal
economic development; 1% for charitable purposes; and 2% for the general welfare of the
tribe and its members. Although the allocation of revenues devoted to per capita
distributions and the other categories may be amended by the Tribal Council, if funds for
other categories are insufficient, or by majority vote of the General Council even if such
insufficiency has not occurred, there is no evidence in this case that the payment
percentage has ever been amended. The Ordinance provides that “[e]very living person
who is an enrolled member of the Prairie Band of Potawatomi Indians on the eligibility
determination date is eligible to receive a Per Capita Payment.” Membership in the
Prairie Band is defined in the tribal constitution as follows: All persons born prior to
February 19, 1976 who qualified under previous membership standards; as to persons
born after February 19, 1976, who possess at least 1/4 degree Indian blood who are
descendants by blood of Prairie Band Potawatomi allottees of Prairie Bank Potawatomi
Indian blood and whose applications were received prior to May 13, 2000; and all persons

9 25 U.S.C. § 2710(b)(3)(A), made applicable to class III gaming by 28 U.S.C. §2710(d)(2)(A).
6


eligible Potawatomi tribal member receives an equal share of the funds distributed.11

The foregoing describes a life-time right to distribution of gaming proceeds based
upon membership status. Tribal membership status, once established based upon
ancestry, is fixed and is not dependent upon future events. Although the amount of each
distribution is obviously based upon the amount of net gaming revenues and the number
of enrolled members on the allocation date, the right to share in each distribution is based
upon status as an enrolled member, nothing else. There is no provision allowing the tribe
to withhold distribution to any enrolled member. The readily apparent contingencies
which could terminate Debtor’s right of participation are death, the tribe’s termination of
Class III gaming, or the tribe’s decision to revoke its election to use gaming revenues in
part to fund per capita payments, none of which, in the Court’s estimate, appear likely.

When defining property for purposes of § 541, courts are directed to analyze
interests under state law, since “Congress has generally left the determination of property
rights in assets of a bankrupt’s estate to state law.”12 Kansas law recognizes contingent
interests as property.13 The Court has no doubt that the Kansas courts would recognize

10 Constitution of the Prairie Band Potawatomi Nation, Art. III, available at
www.pbpindiantribe.com/our-constitution.aspx
11 Ordinance, Article V.
12 Butner v. U.S., 440 U.S. 48, 55 (1979).
13 See Parks v. Dittmar (In re Dittmar), 618 F.3d 1199, 1205 (10th Cir. 2010); In re Allen Bros.
Truck Lines, Inc., 329 F.2d 735, 737 (10th Cir. 1964).
7


then whether that interest is property of the estate, as defined by federal law. Section
541(a) defines property of the estate as including all legal and equitable interests of the
debtor in property as of the commencement of the case. “[T]he scope of § 541 is broad
and should be generously construed.”14 “[A]n interest may be property of the estate even
if it is ‘novel or contingent.’”15 “Every conceivable interest of the debtor, future,
nonpossessory, contingent, speculative, and derivative, is within the reach of 11 U.S.C. §
541.”16

The Court finds that the Debtor’s interest in Per Capita Payments is similar to
other property interests which have been recognized as being property of the estate. For
example, a debtor’s right to lottery proceeds to be paid postpetition as proceeds of an
annuity owned by the state is property of the estate.17 Insurance renewal commissions
received postpetition are property of the estate, if all of the actions required to earn the
commissions were completed prepetition.18 A Chapter 7 debtor’s Earned Income Tax
Credits (EICs) for a tax year, as prorated to date of the petition filing, are estate property

14 Dittmar, 618 F.3d at 1207.
15 Williamson v. Jones (In re Montgomery), 224 F.3d 1193, 1194 (10th Cir. 2000), quoting


Barowsky v. Serelson, 946 F.2d 1516, 1518-19 (10th Cir. 1991) (emphasis added).

16 Dittmar, 618 F.3d at 1207, quoting In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993).

17 In re Neto, 215 B.R. 939 (Bankr. D.N.J. 1997).

18 In re Wicheff, 215 B.R. 839 (6th Cir BAP 1998).


debtor’s interest in EIC was not finalized until the end of the tax year.19

Several courts have ruled that per capita payments payable to debtors from Indian
gaming revenues are property of the estate. Two of the decisions, Hutchinson20 and
McDonald,21 are from this district and, like this case, concern payments from the Prairie
Band of the Potawatomi Tribe. In both cases, under facts undistinguishable from this
case, Bankruptcy Judge Karlin held that the postpetition right of debtors, members of the
Prairie Band of Potawatomi Indians, to receive payments was property of the estate.
Judge Karlin relied upon the two reported cases, Johnson22 and Kedrowski23 which found
such distributions to be property of the estate. In McDonald, the court stated, debtors
“did not deny that the property in question is property of the estate, and the Court finds
that it clearly is.”24 In Hutchinson, even though debtors did not “appear to contest”
whether the per capita distributions, “including the right to receive them in the future,
constitute property of the estate,” Judge Karlin held they were property of the estate.25

19 Montgomery, 224 F.3d at 1193.

20 In re Hutchinson, 354 B.R. 523 (Bankr. D. Kan. 2006).

21 In re McDonald, 353 B.R. 287 (Bankr. D. Kan. 2006).

22 Johnson v. Cottonport Bank, 259 B.R. 125 (D.W.D. La. 2000).

23 In re Kedrowski, 284 B.R. 439 (Bankr. W.D. Wis. 2002).

24 McDonald, 353 B.R. at 291.

25 Hutchinson, 354 B.R. at 527-28.


secured by an interest in the Chapter 7 debtor-tribal member’s monthly per capita
distributions, and the Trustee moved that additional distributions be turned over to the
Trustee as property of the estate. The bankruptcy court granted both requests, and the
district court affirmed. On appeal of the second ruling, the debtor contended that the
payments were not property of the estate because they “are not property at all.”27 The
court found that the debtor’s right to receive the distributions was a property right when
the petition was filed. “Louisiana law recognizes intangible property, including an
interest in the future income from a trust, a right to receive an annuity, and a share of
ownership or the right to receive payments from an entity such as the Tribe.”28 In
addition the court noted that the debtor’s right to receive the payments was freely
transferable and debtors had not demonstrated that any exemption or exclusion under
state or federal law prevented the payments from being considered as property of the
estate.

Kedrowski29 is a bankruptcy court decision from the Western District of Wisconsin
holding the property of the estate included debtor’s “right” to receive per capita
distributions from the Ho-Chunk Nation. After an extensive examination of Indian

26 Johnson, 259 B.R. at 125.

27 Id. at 130.

28 Id.

29 Kedrowski, 284 B.R. at 439.


that the per capita payments are not property because tribal members do not have an
entitlement to gaming distributions, since the tribe is not obligated by federal law to make
the distributions and various circumstances beyond the debtor’s control, such as her death
or a change in the tribe policy, could affect her ability to receive future distributions.30
The court noted that it was undisputed that the debtor was an enrolled member of the tribe
and if the tribe does make a distribution, debtor has a “right” to participate. The “right”
was found similar to that of one who owns stock in a company or a limited partnership
interest; if the company prospers and decides to make distributions the owner of the
interest holds some sort of intangible property interest under Wisconsin law. Precedent
from the HO-Chunk Nation’s court evidenced that enrolled members were regarded as
having a right to per capita distributions which raised them above the status of a license or
a gift. The court concluded its analysis as follows:

In conclusion, the Court finds that the debtor's “right”
to receive a per capita distribution from the gaming revenues
of the Ho-Chunk Nation does constitute property of her
bankruptcy estate. No provision of federal law, the gaming
compact between the tribe and the state of Wisconsin, or the
tribe's per capita distribution ordinance suggests a contrary
result. In fact, when taken together, these sources compel the
result reached by the Court. Quite simply, the debtor holds an
“absolute right” to receive net revenues from the operation of
a tribal business. The mere possibility that the tribe might not
choose to make a distribution may mean that the debtor's right

30 The Kedrowski court also considered the specific provisions of the Ho-Chunk Nation Code in
conjunction with its rejection of the debtor’s position that if the right to payment was property of the
estate, it was excluded from the estate by § 541(c)(2). Id., 284 B.R. at 449-451.


does not have any intrinsic or marketable value, but it does

not alter the fact that it is “representative” of value.31

Debtor relies primarily upon Fess,32 which, contrary to Kedrowski and Johnson,

holds that per capita distributions are not property of the estate. Like Kedrowski, Fess

concerns payments from the Ho-Chunk Nation. Unlike Kedrowski, Fess finds the Ho-

Chunk Nation Code requires that the payments be excluded from the estate. The code

provisions relied upon were the following:

Per Capita Distributions shall be made, when and as
determined or declared in accordance with Per Capita
Distribution Ordinance and any and all other applicable laws
of the Nation, out of assets and earnings of the Nation, and
such assets and earnings shall retain their character as
property of the Nation until Payment of Per Capita Shares is
actually made therefrom.

No Tribal Member, nor any person claiming any right derived
from a Tribal Member, including creditors of a Tribal
Member, shall be entitled to compel the making of any Per
Capita Distribution prior to the time of Payment thereof, and
making each Per Capita Distribution, and the amount and
timing thereof, shall at all times prior to Payment be subject to
elimination or modification pursuant to any amendment to the
then effective Per Capita Distribution Ordinance adopted in
accordance with the Constitution and laws of the Nation.

No Tribal Member, nor any person claiming any right derived
from a Tribal Member, including creditors of a Tribal
Member, shall have any right, title, interest or entitlements in

31 Id. at 451-52.

32 In re Fess, 408 B. R. 793 (Bankr. W.D. Wis. 2009).
12


The Fess court held that federal law and tribal law, not state law, applied to define
property interests, and under that law debtors merely had “an expectancy to which no
legal rights attach.”34

The Court declines to follow Fess. The difference in the outcomes of Kedrowski
and Fess clearly rests upon differing interpretations of the Ho-Chunk Nation Code.
While Kedrowski rejected the debtor’s argument that per capita payments were not
property because under the tribal law members had no right or entitlement to gaming
distributions, the Fess court found this position determinative.

Since the Potawatomi Tribal Ordinance does not have provisions similar to those
of the Ho-Chunk Nation Code which controlled the outcome in Fess, this Court is not
faced with the same issues of construction. The Ordinance has no provision stating that
the funds to be used for payments retain their character as property of the tribe until
actually disbursed, there is no provision limiting rights to compel payments, and there is
no provision stating that a tribal member has no right, title, or interest until disbursements
are made. Rather, the Ordinance provides that “[a]ny dispute regarding this ordinance,
implementation thereof, or action taken thereunder shall be first presented to the Tribal
Council whose decision may then be appealed to the Potawatomi Tribal Court, whose

33 Id. at 797, quoting Ho-Chunk Nation Code § 8, 4.

34 Id. at 799.


date by tribal check, except in the case of incompetents or minors. The Ordinance sets
30% as to percentage of net gaming revenues to be used for per capita distributions.
Although the percentage of revenues devoted to per capita distributions may be amended
by the Tribal Council, if funds for other categories are insufficient, or by majority vote of
the General Council, there is no evidence in this case that the payment percentage has
ever been amended. The Ordinance states, “Every living person who is an enrolled
member of the Prairie Band of Potawatomi Indians on the eligibility determination date is
eligible to receive a Per Capita Payment.” Entitlement to distribution is based upon status
as an enrolled member, nothing else.

The Court therefore concludes that on the date of filing, Debtor’s estate included
her contingent right to receive future Per Capita Payments. Inclusion of the property right
in the estate, of course, does not determine its value. The Chapter 7 Trustee is entitled to
the value of the future payments as of the petition date, which, because of the
contingencies involved, may not be equal to the present value of all anticipated future
payments. Valuation is a matter left for future determination.
CONCLUSION.

Debtor’s Motion to Amend is denied. As of the petition date, Debtor’s interest in
future Per Capita Payments from the gaming revenues of the Potawatomi Nation was


property of the estate.

IT IS SO ORDERED.
###

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