DOUGLAS D. DODD, Bankruptcy Judge.
Debtor Dean Bordelon seeks to exempt from his bankruptcy estate $355,130 in life insurance proceeds deposited into a trust from which he benefits. Creditor Royal Alliance Associates, Inc. ("Royal") objects to the exemption claim.
The debtor filed chapter 7 on March 3, 2010. He claimed as exempt $355,130 in life insurance proceeds paid, on account of the June 2004 death of his mother, Mary Lou Reifel, into the "Dean Alexander Bordelon Trust" ("DAT").
Royal's claim against Bordelon stemmed from a failed business named Pooled Pension Management Corporation ("Pooled Pension"). Beginning in 1990 Bordelon joined his mother in running Pooled Pension, an investment company she had formed in 1982. In 1989 and 1998, respectively, Reifel and Bordelon obtained their NASD (National Association of Securities Dealers) licenses through Royal. Pooled Pension ceased operations and filed chapter 11 after Reifel's 2004 death;
Several Pooled Pension investors obtained an arbitration award against Reifel's
Louisiana has "opted out" of the federal exemption scheme. 11 U.S.C. § 522(b)(2); La. R.S. 13:3881(B)(1).
Bordelon contends that the Bankruptcy Code preempts the states' power to define and limit the exemptions even though the Congress through the Code specifically authorized states to require their citizens filing bankruptcy to use the states' own exemption schemes instead of the Code's array of exemptions. He relies principally on In re Weinstein, 164 F.3d 677 (1st Cir.1999), In re Leicht, 222 B.R. 670 (1st Cir. BAP 1998) and other opinions from the First Circuit. However, this case is subject to the law of the Fifth Circuit, which has rejected the contention that Congress has preempted the field of bankruptcy exemptions from state lawmaking:
In re Davis, 170 F.3d 475, 482 (5th Cir. 1999) (footnotes omitted). Thus, the Bankruptcy Code does not preempt the Louisiana Legislature's enactment of La. R.S. 22:912.
No reported decision of a Louisiana court directly addresses the availability of the exemption under La. R.S. § 22:912(A)(1) in a case involving a debt arising from an indemnity contract. Royal maintains that the debtor's debt to it arose after the arbitrator's February 5, 2010 ruling that Bordelon was liable to Royal on his indemnification contract, or at the earliest, when it paid the December 2006 award to Pooled Pension's investors. Thus Royal contends that Bordelon's debt to it arose after the insurance proceeds were made available to Bordelon for his use
In response, the debtor argues that the claims in Royal's third party complaint were based on alleged acts and omissions during the operation of Pooled Pension (which ceased operations before 2006) and therefore well before the proceeds became available. Alternatively, Bordelon contends that Royal's claims against him arose when he agreed to indemnify it in his August 1990 agreement. Thus, the debtor reasons that because Royal's claims arose before the life insurance proceeds were made available to the trust (and to him) on February 15, 2006,
The debtor's reasoning confuses claim as used in 11 U.S.C. § 502 with debt, the term used in La. R.S. § 22:912(A)(1). When a debtor claims a state exemption upon filing a bankruptcy petition, the bankruptcy court must determine the right to that exemption according to state law. In re Norris, 413 F.3d 526, 527 (5th Cir. 2005). Under Louisiana law a right to indemnification does not arise until the party seeking indemnification is cast in judgment. Babin v. Planet Beach Tanning Salons, Inc., 8 So.3d 780 (La.App. 4th Cir.2009); Arrington v. Aucoin & Courcelle, LLC, 832 So.2d 319 (La.App. 5th Cir.2002). Therefore, whether the indemnity obligation itself was a claim for purposes of the Bankruptcy Code is irrelevant to analysis of the debtor's exemption claim under La. R.S. 22:912.
Accordingly, December 2006—when Royal paid the arbitrator's award to the Pooled Pension investors against Bordelon, Reifel and Royal—is the earliest date by which the debtor's indemnification obligation to Royal became enforceable and thus became a debt for purposes of the exemption statute. At the latest, the debt was incurred on February 5, 2010 as a result of the arbitrator's award on Royal's
Any party in interest may object to a debtor's claim of exemption. 11 U.S.C. § 522(l) (making items on debtor's list of exempt property filed in a bankruptcy case exempt "unless a party in interest objects"). See also Fed. R. Bankr.P. 4003(b)(1) (establishing time limits for a party in interest to object to debtor's claimed exemptions). Royal plainly has standing under the Bankruptcy Code and Rules to object to Bordelon's exemption claim. Moreover, a creditor objecting to a debtor's discharge or opposing the debtor's exemptions does so for the benefit of all the creditors. Matter of Krizmanich, 139 B.R. 456, 459 (Bankr.N.D.Ind.1992). See also Corley v. Cozart, 115 F.2d 119, 121 (5th Cir.1940) (recoveries in bankruptcy cases inure to the benefit of all creditors rather than only those who would benefit under applicable state law). Therefore, sustaining Royal's objection to the debtor's exemption of the life insurance proceeds will enable the trustee to administer the asset for the benefit of all creditors, and not merely for Royal.
The court sustains Royal Alliance's objection to the debtor's exemption claim for $355,180 in life insurance proceeds, in which the trustee has joined.