Martin Sheehan v. Keith Ash
889 F.3d 171
4th Cir.2018Background
- Debtors Keith and Phyllis Ash moved from Louisiana to West Virginia in March 2015 and filed Chapter 7 bankruptcy in Northern District of West Virginia in July 2015.
- For exemption purposes the Ashes relied on Louisiana law because their prior domicile (Louisiana) fell within 11 U.S.C. § 522(b)(3)(A) timing rules.
- The contested West Virginia–located assets (checking account, two TVs, clothing, wedding band, two firearms, used vehicle) had a total claimed-exempt value of about $3,450.
- Louisiana has opted out of the federal exemption scheme but its statutes do not expressly limit exemptions to in-state residents or in-state property.
- Trustee Martin Sheehan objected, arguing state exemption laws may not be applied extraterritorially to property located in another state; bankruptcy court overruled the objection and district court affirmed.
- Fourth Circuit affirmed, adopting the “state-specific” approach: apply the chosen prior-domicile state’s exemption law as written (including any extraterritorial effect the state law permits).
Issues
| Issue | Plaintiff's Argument (Sheehan) | Defendant's Argument (Ash) | Held |
|---|---|---|---|
| Whether § 522(b)(3)(A) permits a debtor to use prior-domicile state exemptions to exempt property located in a different state | Federal courts should not give extraterritorial effect to state exemption laws; bankruptcy law should apply forum (debtor-court) limits | Congress intended § 522(b)(3)(A) as a choice-of-law rule; apply the prior-domicile state’s law as written | Held for Ash: prior-domicile state law applies as a choice-of-law; if state law permits extraterritorial exemptions, debtor may claim them |
| Whether the presumption against extraterritoriality (Kiobel) applies to interstate, domestic bankruptcy choice-of-law questions | Presumption against extraterritoriality should apply analogously to protect state sovereignty and avoid extraterritorial effect | Presumption is a canon for international context and does not apply to wholly domestic affairs; bankruptcy statute may incorporate state law | Held for Ash: presumption against extraterritoriality is confined to international context and does not govern this domestic statute construction |
| Whether Congress preempted state limits on extraterritorial application (i.e., federal law overrides state-law restrictions) | Congress should be read not to have allowed states to reach outside their borders; federal policy should prevent state-limited exemptions from being applied out-of-state | Congress did not manifest intent to preempt state limits; the hanging paragraph and statutory structure show Congress contemplated state law scope matters | Held for Ash: no broad federal preemption; statutory structure supports applying each state’s own rules about whether its exemptions reach out of state |
Key Cases Cited
- In re Arrol, 170 F.3d 934 (9th Cir. 1999) (California homestead exemption applied to out-of-state property under choice-of-law approach)
- In re Drenttel, 403 F.3d 611 (8th Cir. 2005) (Minnesota exemption applied to Arizona property where state law did not restrict extraterritorial use)
- Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108 (2013) (presumption against extraterritoriality applies to statutes regulating conduct abroad; international-context canon)
- United States v. Sharpnack, 355 U.S. 286 (1958) (Congress may adopt state law as federal law by reference)
- In re Nguyen, 211 F.3d 105 (4th Cir. 2000) (bankruptcy exemptions construed liberally in favor of the debtor)
- In re French, 440 F.3d 145 (4th Cir. 2006) (presumption against extraterritoriality not applicable where conduct regulated occurs within the United States)