Citizens National Bank of Evansville v. Foster

1236 SHEPARD, Justice, concurring decline this invitation to intervene Chief

at 19. We dissenting. adjust process, noting legislative grants that the Indiana Constitution to each agree I with Justice Dickson that the stat- Assembly "all house of our General powers adequately justified challenge under as ute legislative for a branch of the de- I, permissible special a statute under Article State," independent partment of a free and Section 28. IV, 16, prohibits Article and that it hand, I On the other conclude that any exercising of the functions of the us county Lafayette general amendment to the III, department, legislative Article Section 1. development economic income tax is a "local special [plroviding .... or law for the assess- judgment finding The trial court Public State, ment and collection of taxes for coun- Law 44-1994 to be unconstitutional is re- ty, township, purposes...." or road Accord- versed, for fur- and this cause is remanded ingly, I hold it would unconstitutional under opinion. proceedings ther consistent with this Section 22. SELBY, J., concurs.

SULLIVAN, J., concurs in result with DeBRULER, J.,

separate opinion in which

joins.

SHEPARD, C.J., concurs and dissents separate opinion. with BANK CITIZENS NATIONAL EVANSVILLE, Appellant OF SULLIVAN, Justice, concurring in result. (Plaintiff Below), I concur in the result of Justice Dickson's v. However, opinion. I would hold that FOSTER, Carolyn B. Roland Jr. and population-based categories contained (Defendants Foster, Appellees J. requirements statute fulfill the for a valid Below). general long law set line of decisions 82S00-9408-CQ-760. No. See, eg., Twp. Advisory this court. North Mamala, (Ind. 725, v. Bd. 490 N.E.2d Supreme Court of Indiana. 1986); Bartolomei, State Election Bd. v. 7, Aug. (Ind.1982); 74, Lugar, N.E.2d Dortch v. 545, 552-53, 25,

255 Ind. 266 N.E.2d 31-32 Muncie, (1971); City v. Graves 255 Ind.

360, 362, 607, (1970); Bailey 264 N.E.2d Evansville-Vanderburgh Airport

v. Auth.

Dist., 408-409, 240 Ind. N.E.2d (1960); Bally Twp.

523-24 v. Sch. Guilford 278, 279-80, Corp., 284 Ind. 126 N.E.2d Comm'rs, (1955), 16-17 v. Board Groves (1936) 371,375-76,

209 Ind. 199N.E. cases).

(citing Lugar, additional Dorich v. upheld

using population-based categories to create

Unigov. good County What's for Marion

ought good Tippecanoe County be

well. J., joins.

DeBRULER, question ap- This

lenders. involves plication re-examination decision. History I. of the Case 30, 1998, Carolyn On November J. Foster, Foster and her husband Roland B. voluntarily petition Jr. for from filed relief Chapter their debts under 11 of the United Bankruptcy States Code. When a debtor reorganizes discharge her assets her debts, Bankruptcy Code allows the debt- exempt bankruptcy or to from the estate Farmer, Terry Marjorie Meeks, G. A. types property. certain and amounts of Foreman, Hahn, Bamberger, Oswald & Ev- 522(b) § U.8.C0. 522. Subsection of the Code ansville, Appellant. for permits also states to substitute their own exemptions exemption set of for the federal Carter, General, Attorney Pamela Arend scheme, and Indiana has so. done Ind.Code Abel, Counsel, Special J. Office the Attor- (West 1983).1 §Ann. 34-2-28-0.5 General, ney Indianapolis, for the State. Among sought the assets the Fosters Nowacki, McKinney Theodore J. Bose & keep thereby exempt for themselves-and Evans, Curiae, Indianapolis, for Amicus by from seizure their creditors-was Companies regard- Indiana Ass'n of Life Ins. poli- cash surrender value of a life insurance ing questions. certified cy purchased less than two weeks before Bodle, Drummond, David Mark A. J. they bankruptcy. They sought filed for also Daily Devoe, Withrow & India- exempt their Individual Retirement Ac- Henderson napolis, Rudolph, E. Mattingly Rudolph Ross (IRAs), counts to which had made annu- Porter, Evansville, Appellee. Fine & for through al contributions from 1981 1989. exemption exempt by Both forms of state Scherer, Mulvaney, L. Karl Thomas C. 34-2-28-1(a)(6) (West §§ Supp. law. Code Welsh, Gary Bingham R. Summers Welsh & 1996) 27-1-12-14(c) (IRAs); (West 1998)(in- Curiae, Spilman, Indianapolis, for Amici Nevertheless, policies). surance the United Community Indiana, Bankers Assn. of Inc. creditor, States Trustee and an unsecured League Savings and the Indiana Institu- ("Citi- Citizens National Bank of Evansville tions, Inc. zens"), objected exempting insur- life Ristine, Thomas H. Iee Miller Donadio & ance, citing object- Zumbrun. Citizens also Curiae, Ryan, Indianapolis, for Amicus -__ ed to for the IRAs on the same Assn., Indiana Bankers Inc. grounds. Bankruptcy exempt The Court refused to SHEPARD, Chief Justice. policy, the life insurance but allowed the Today Foster, exempt we revisit of Fosters to their IRAs. In re (Bankr.S.D.Ind.1994). doing from 168 B.R. 183 In exempting statutes debtor's so, pool bankruptcy judge of assets available to creditors. In said that Zumbrun (Ind. Matter questions Zumbrun 626 N.E.2d 452 had raised about settled law and 1993), possible we held that the Indiana Constitution recommended certification to this requires that the appeal fashion such ex court. Citizens and the Fosters each emptions reasonably tangible ways de ed to the for U.S. District Court the South signed Indiana, to balance the interests of debtors and ern District of Evansville Division. cision, holding exempting 1. Indiana Code 34-2-28-1 contains Indiana's a statute assets in a exemptions list of and their limitations. The life plan retirement unconstitutional under Section exemption appears in Title 27. Garvin, (Bankr.S.D.Ind. In re 129 B.R. 598 1991). course, bankruptcy judge 2. Of a different presaged Southern District had our Zumbrun de- for Kay: Zumbrun filed Judy appeals Zumbrun consolidated Court The District year, they sought following bankruptey the 15(0), Appellate Rule and, Ind. pursuant protect provision to this following this new two to invoke individual retire- in their creditors $8600 Court: bankruptcy trustee's 27-1-12-l14(c) accounts. ment violates LC. 1. Whether unlimited objection to the Consti- the Indiana Section question to this a certified cap prompted on the impose a IRAs failing to tution court, in turn which from the Court Alternatively, if exemptible amount. federal interpretation virtue of Article not unconstitutional led to our in Zumbrun. Indiana Constitution 22 of the maximum forth a failing to set violates amount, such statute whether case, recognized resolving that the extent because Indiana Constitution long struggled democracy has American the unrelated allowed is exemption the being in interest balancing the creditor's with "enjoy the neces- requirements Debtors' leading in interest the debtor's repaid against 1, Article See- under of life" sary comforts self-sufficient, life. American productive a Indiana Constitution. tion 22 of the attempted to typically laws have bankruptey 34-2-28-l(a)(6) 2. IC. Whether rights of creditors property protect both the 1, 22 of Article Section violates amended allowing in a debtor society's interest and im- by failing to Constitution the Indiana as not to become enough property so keep Al- exemptible amount. cap on the pose a English common Though our charge. public is not unconsti- ternatively, statute if such prison, includes debtors' law tradition forth a failing to set by virtue of tutional Republic penal sance- days of our the earliest amount, whether exemptible maximum obligations due satisfy all failing to for tions Indiana Constitu- the statute violates altogeth-e or abolished sharply curtailed were exemption of the the extent tion because policy, the drafters with this r3 Consistent require- Debtor's unrelated to is allowed gave us of 1851 the Indiana Constitution of of necessary comforts "enjoy the ments to 22: Article Section 22 of the Section under life" enjoy the debtor to privilege of the "The Indiana Constitution. recog- life, shall be necessary of comforts requires us to Answering these laws, exempting a rea- by nized wholesome of ex- amount caps on the the ask whether from seizure amount sonable are constitu- statutes in some emption found any debt or payment of the sale for or By relatively easy inquiry. is a This tional. contracted; there and Hability hereafter contrast, of statutes the debt, except for imprisonment be no shall essentially for a re-exami- calls caps without fraud." in case of a more difficult This is of Zumbrun. nation in a certified task, raised especially when 22 affords exemption clause Section The f question. to de nearly discretion total legislature Exemptions II. New property, exemptible amount termine the Decision Zumbrun constraint only to the subject acknowledged As we be reasonable. amount Indiana's legislature amended 22 inten Zumbrun, drafters in "[aln to shield exemption statute bankruptey specifying how language tionally omitted in ... an has judgment debtor interest to allow exempt in order be much should PL. account...." retirement individual (codi- over flexibility to redefine legislators 171-1990, Ind. Acts See. now The State 34-2-28-l(a)(6) reasonable. what is time Ann. Ind.Code fied at ambiguity in Section that this argues Brian Lee (West debtors Supp.1991)). When to submit Though by Court in 1993 4. invited ("The mp. §I, art. eg., const. See, Zumbrun, partici- declined the State in strong a brief not there debtor, where person fraud, by time amended legislature be continued pate. shall not had presumption of estate, form, up appar- for the delivering his current prison, after to its creditors, creditor, such man- or "no benefit of his that it had leading to believe ently the State law."). by prescribed be ner as shall effectively means tax, has carte to federal income then those contribu keeping blanche when it comes to a debtor's any tions interest accrue are simi Yet, assets out of the hands of creditors. larly subject not judgment by creditors. highest even under the level of deference to Citizens maintains the treatment Assembly's the General decision to allow IRAs under the amended statute still fails bankrupt any individuals money to retain under our analysis, Zumbrun linkage to wit: IRA, an the Zumbrun Court could not recon deductibility federal tax any does not set cile an unlimited with the bal upper amount, limit on the nor is approach required by anced Section 22's linkage such a reasonably related to the Fos modest dictate that set enjoyment ters' comforts of legislature be reasonable. life. case, In the instant the Fosters and the Congress promote created IRAs to sav suggest State both balancing that whatever ings. taxpayers For below a certain income of interests between creditors and debtors level, contributions to an IRA reduce dollar may constitution, be found in our state See- for taxpayer's dollar the taxable income tion 22 only addresses one side of that bal- $2,000 up to annually. encourage taxpay To protection ance: Taking excep- for debtors. ers to Zumbrum, retirement, accumulate holding tion to our assets con they observe language that qualifying of the tributions to a imposes clause retirement account positive nothing directive and leg- more: are not withdrawn, taxed until provide islature must at exemp- least some which often taxpayer occurs when the pay is tion for a property debtor's to ensure that ing a marginal lower tax rate. if Even the collection of debt does not turn debtors same, rate taxpayer is the enjoys still into wards of the state. benefits of accumulating interest on the un- income, tazed deferring the tax We remain owed until convinced that Article See money 22 necessarily implicates tion is withdrawn. Congress both sides of relationship. capped debtor-creditor The draft the income level allowable for the tax provision ers of clearly this contemplated deferral that made IRAs an attractive investment cap. By allowing some debtors "to closet veh though icle.7 Even the federal tax 5 virtually every liquid asset" from creditors $2,000, deduction capped however, was at superseded exemption under the statute the there was no limit person on the amount a legislature only had not exceeded scope deposit. could The net effect on Indiana's mandate, of its constitutional but obliterated statute, prior therefore, was not to limit the protection whatever slim enjoyed creditors amount of protect assets one could by virtue of Section 22's reasonableness re by shifting creditors as much as quirement. possible into an IRA. Exemption III. The for IRAs present Indiana Zumbrun, statute does not opinion Even before our legislature cap amended the Indiana Code to contain its own on amount place explicit but it a limit makes on the reference to an amount allowable readily IRAs. certain and § The amended version of 34-2-28- ascertainable the In l(a)(6) exempted links the ternal Revenue reasonably Code. 8Thisis a of the tangible way to describe the amount of the debtor's interest in a plan" "retirement to exemption, complies and therefore federal income tax with Sec law. If the contributions made to the retirement subject Zumbrunm, account is not tion 22. 626 N.E.2d at 454.

present plan interest" in our consideration of the applicable provisions ment under of the challenge. trustee's constitutional Internal Revenue Code of as amended." Zumbrun, 5. 626 N.E.2d at 455. 99-514, 7. Tax Reform Act of Pub.L. No. (1986). § 1101, 100 Stat.2085, 34-2-28-1(e)(3) (West § Supp.1994) Defined in to include an individual retirement account "that good qualify intended in faith as a retire- 8. See id. that the statu not be decided unless such decision is ab- also asserts

Citizens comply necessary tory cap solutely disposition not with Section to a does has not demonstrated because State cause on its merits." reasonably exemption is related the limited 1, 4, Darlington, v. 153 Ind. 53 N.E. State enjoyment necessary "the a debtors' of (1899). 925, 926 As Brandeis Justice ob objective Lacking an defi comforts of life." Valley v. served Ashwander Tennessee necessary, is considered nition what Authority, propriety, "[Clonsiderations high degree of deference both to the accord a long-established practice, well as demand legislature's types of various identification passing upon that we refrain from the consti may keep despite fail property debtors their tutionality Congress of an act of unless debts, limits the pay their and to the ure obliged proper performance to do so type proper legislature selects within each 288, 341, judicial our function...." 297 U.S. ty. long as the articulates So (1986)(Bran 466, 480, 56 S.Ct. 80 L.Ed. 688 limitation, party it some is the burden deis, J., concurring). statutory seeking invalidate a necessity This doctrine of strict flows the limitation does not demonstrate character, unique place from "the in our go enough purposes. far for constitutional scheme, judicial governmental review of 522(c) Bankruptey Code and comment Cf. constitutionality." Army action for Rescue v. Edition, Pamphlet Part to the Collier's 1995 Court, 549, 571, Municipal 381 U.S. 67 S.Ct. Thus, at 459. Citizens must overcome the (1947). 1409,1421, gener 91 L.Ed. 1666 See presumption pegging the amount of the Nowak, ally Ronald D. Rotunda & John E. exemption for IRAs to the limited federal Treatise on Constitutional Law: Substance sufficiently income tax deduction is related (2d 1992); § 2.183(g) and Procedure ed. enjoyment the debtors' of "the § 88. Yet in this case the certified C.J.S. comforts of life." It has failed to meet this question though arises even there exist other burden. grounds on unresolved non-constitutional might which the case be resolved.9 The Problem Certified IV. With Questions and Constitutional problem The second with address Issues ing presented by a constitutional claims certi Answering question concerning exemp- the questions question fied is that such tend to prob- to two tion for life insurance leads us separate the constitutional claim from the questions involving consti- lems with certified specifics of the case. Like the strict necessi claims. tutional rule, ty requirement specu a that courts not

First, questions hypothetical applications of a stat almost inevi late about longstanding policy tably conflictwith the challenged grounds ute on constitutional judicial restraint in constitutional matters. helps ruling court's is based ensure that the traditionally Both state and federal courts fully only on issues which were vetted the deciding question foreswear a constitutional process and accords the defer adversarial grounds present unless no non-constitutional reposito judgment to of other ence due "the resolving the case under con themselves for power concerning the ries of constitutional in As our Court said the last sideration. Army, scope authority." Rescue of their policy century: at at 1421. This is U.S. S.Ct. pass upon a will not constitution "[Clourts in of an institu expressed sometimes terms to question, adjudication al and decide a statute be tional to constitutional aversion invalid, concrete upon very in abstract. "If a record is unless a decision nature, than abstract Court point becomes to the determina- rather repeated- tion of the cause. This court has may way interpreting statute to find a constitutional issue. ly questions character will avoid or minimize the held that of this highly the ultimate outcome of ance is relevant to the tim- 9. For of whether question example, purchase ing the life of the Roland Foster's this case. convey- policy constituted a fraudulent may interpreted The statute be to claring every raise con exemption limitless statute to problems applied stitutional to some is per be unconstitutional deprives se this Nowak, sues and not to others." Rotunda & Court of its longstanding tools for constitu- 2.13(d) added). at (emphasis Treatise adjudication. tional While we stand put just Certified often us in such a principle first enunciated Zumbrun that speculative position questions' because the of Indiana's Constitution limits the typically terms require us examine the ability exempt validity of each statute on its face. This was estate, bankruptcy and statutes particularly problem Zumbrun, a litigating containing upper no limit remain constitu- parties where the to the case filed minimal tionally suspect, we conclude that the identi- briefs. upper fication of an limit or lack thereof standing Though dispositive. alone should not bright-line announced a be rule in Zumbrun, Rather, courts that a must delve into lacking admittedly limit on murkier necessity. waters of reasonable unconstitutional on face, its approach an is not consistent Thus, a minor amount of cash value preference with our for reviewing the consti- (like ) in Zumbrun up $3600 built over validity tutional they statutes as ap- time in a policy life insurance cannot be said plied particular parties in a case before us. to violate Section 22 being as "never capable If this question, were not a federal analy- our application." By contrast, constitutional sis would focus potentially first on dispositive substantial sums closeted in anticipation of non-constitutional issues turning before bankruptcy do not fit with "necessary of the two ap- statutes' purpose comforts of life" of the Indiana Con plication to the Though presented Fosters. stitution and a claimant must demonstrate particular context, factual ques- the two do so in order to claim exemp tions require before us interpretation facial tion. only, which only prevents not our review of issues, otherwise relevant but demands a Conclusion sweeping pronouncement of the statutes' con- statutory exemption on IRAs is consti- stitutionality regardless of the factual set- tutional. The for life insurance is ting. Application of the law case-specific constitutionally suspect may be claimed always facts has been relevant to this Court's only upon proof is re- jurisprudence, constitutional though our quired to afford the "necessities of life." consideration of promotes application accurate of state in law feder- SELBY, JJ., DeBRULER and concur. courts, al we also acknowledgethe shortcom- ings of such proceedings. SULLIVAN, J., concurs separate with opinion. Exemption

V. The for Life Insurance Policies DICKSON, J., part in concurs and dissents in part separate opinion. agree with We bankruptcy with the judge 27-1-12-14(c) on $ its face allows debtors to SULLIVAN, Justice,

shield an concurring. unlimited amount of assets a life policy policies. insurance or po- As such it Although I dissented in Matter Zum of tentially 1, runs afoul of Article Section 22 of brun, 452, (Ind.1993) (Sulli 626 N.E.2d the Indiana Constitution. van, J., dissenting), I consider interpre I, 22, tation of Article of the Indiana 27-1-12-14(c) Indiana Code section Constitution stare decisis for purposes of mandates that life policies naming opinion this and that reason concur. spouse insured's beneficiary "free and clear from all claims of the eredi- DICKSON, Justice, concurring part and of tors person insured person's or of the dissenting part. spouse." limit, The statute contains no and would therefore fail under strict Zumbrun To the extent majority opinion analysis. suggested above, however, As de- concludes that provided by 34-2-28-1(a)(6) does not vi- §§ Indiana Code Supply Indiana Tractor of the and Article Section McKendall POMPEY

olate Constitution, Company, Appellants-Petitioners, Howev- I in the result. concur majority's er, conclusion I from the dissent v. life insurance benefit- exemption for that the PRYNER, "constitutionally Appellee-Respondent, spouse is Vincent ing an insured's only "neces- may to the suspect" and extend and today, the decision life." With its sities of creditors' claims majority exposed has Chauffeurs, Teamsters, Warehousemen most Indiana fami- benefits of life insurance Helpers, Local lies, express language and contrary to the Intervenors. contrary to the legislature and intent of the No. 49A02-9511-CV-656. and insurance policyholders expectations companies alike. Indiana. Appeals Court compelledby the clear is not Such a result 20, 1996. June privi 22: "The language of enjoy the lege the debtor life, recognized whole shall be comforts laws, exempting a reasonable

some or sale for the property from seizure lability any or hereafter

payment of debt these I remain convinced

contracted." of minimum require the enactment

words "im exemption laws but do not

reasonable power upon limitation

pose any maximum Assembly to enact

of the Indiana General Zum exemption laws." Matter

generous (Dick (Ind.1993) brun, 626 N.E.2d

son, J., dissenting). interpret this We should with its clear

provision accordance language as understood

unambiguous

82,564 than to ratified it rather citizens who Zumbrun

superimpose upon it the strained

construction, merely pres on which is based public policy

ent-day speculation about delegates to the 1850-

motives of few Convention.

51 Constitutional questions, I to the certified response neither the life hold that

would exemption violates IRA

exemption nor the 22 of the Indiana Constitu-

tion.

Case Details

Case Name: Citizens National Bank of Evansville v. Foster

Court Name: Indiana Supreme Court

Date Published: Aug 7, 1996

Citation: 668 N.E.2d 1236

Docket Number: 82S00-9408-CQ-760

Court Abbreviation: Ind.