IN RE: MITCHELL E. GREEN (2024)

CHAPTER 7

RE: ECF No. 32

ORDER SUSTAINING IN PART OBJECTION TO DEBTOR'S CLAIM OF EXEMPTIONS

I. BACKGROUND

Before the Court is an Objection to the Debtor's Claim of Exemptions (the “Objection,” ECF No. 32) filed by the creditor Sire Spirits, LLC (“Sire Spirits”). Sire Spirits obtained a judgment against Mitchell E. Green (the “Debtor”) in the United States District Court for the Southern District of New York in Sire Spirits, LLC v. Green, Case No. 1:21-cv-7343-JPC, confirming an arbitration award which found the Debtor liable for breach of contract, breach of fiduciary duty, fraud, and unjust enrichment (the “Judgment”)  ¹ . Sire Spirits also obtained a default judgment against the Debtor in this Court which found the debt owed by the Debtor to Sire Spirits is nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), (a)(4) and (a)(6) in the adversary proceeding Sire Spirits, LLC v. Mitchell E. Green, Case No. 23-05011, ECF No. 14 (Bankr. D. Conn. 2023).

On June 20, 2023, Sire Spirits filed the Objection which asserts that the exemptions listed in the Debtor's Amended Schedule C (the “Amended Schedule C,” ECF No. 21) should not be allowed. In the Amended Schedule C, the Debtor claims his principal residence, real property commonly known as 299 Main Street, Westport, Connecticut (the “Property”) as exempt property, as well as certain personal property, including household goods and a watch.

Hearings on the Objection were held on July 25, 2023 (ECF No. 49) and January 30, 2024 (ECF No. 88). During the January 30th hearing, Sire Spirits asserted the Objection should be sustained because: (i) the Debtor's claimed homestead exemption of $250,000.00 is limited to $75,000.00 under Conn. Gen. Stat. § 52-352b (21); and (ii) under 11 U.S.C. § 522(o), the value of the Property and the personal property exemptions may be reduced if the value of the Property and personal property were improved through the use of proceeds obtained by fraud.

On March 27, 2024, the Court entered an Order Setting Briefing Schedule on the Objection to Debtor's Claim of Exemptions requiring Sire Spirits and the Debtor to submit briefs regarding Conn. Gen. Stat. § 52-352b (21) and 11 U.S.C. § 522(o). On April 26, 2024, Sire Spirits filed its brief (the “Support Brief,” ECF No. 106), and on May 17, 2024, the Debtor filed his brief (the “Reply Brief,” ECF No. 107).

II. DISCUSSION

A. Sire Spirits’ argument regarding the homestead exemption limitation

Conn. Gen. Stat. § 52-352b (21) was amended in 2021. In addition to increasing the homestead exemption from $75,000.00 to $250,000.00, the amendment created a limitation to the homestead exemption under certain circumstances. Specifically, the homestead exemption limitation language provides:

․ The homestead of the exemptioner to the value of two hundred fifty thousand dollars ․ except that, in the case of a money judgment arising out of a claim of sexual abuse or exploitation of a minor, sexual assault or other wilful [sic], wanton or reckless misconduct committed by a natural person, to the value of seventy-five thousand dollars[.]

Conn. Gen. Stat. § 52-352b (21) (emphasis added). Sire Spirits and the Debtor disagree as to what the limitation language means, and if and how it applies in the Debtor's case. Furthermore, the parties have not cited, and the Court has not located, any authority that has interpreted or applied the limitation.

Sire Spirits argues the language “other wilful [sic], wanton, or reckless misconduct” includes the Judgment, which determined that the Debtor intentionally defrauded Sire Spirits. In support of this argument, Sire Spirits asserts the homestead exemption limitation provision is unambiguous and the statute must be interpreted according to its plain language, citing to Ahuja v. Fleming (In re Fleming), 637 B.R. 390, 394 (Bankr. D. Conn. 2021).

Sire Spirits argues the homestead exemption limitation does not only apply in the case of “sexual abuse, sexual assault or similar misconduct” but also in the case of willful, wanton, or reckless misconduct, because the statute does not use the term “similar,” but instead uses the term “other.” To support this contention, Sire Spirits cites to another subsection of the Connecticut exemption statute—Conn. Gen. Stat. § 52-352b (4)—which creates an exemption for payments and wages earned “under an incentive earnings or similar program.” Conn. Gen. Stat. § 52-352b (4) (emphasis added). In comparing the language in § 52-352b (4) and § 52-352b (21), Sire Spirits argues the Connecticut legislature could not have intended the homestead exemption limitation to apply only to sexual assault, sexual abuse or “similar” conduct. Sire Spirits also cites to the legislative history of the homestead exemption limitation, including questions about the inclusion of the words “willful, wanton, or reckless misconduct” in the provision. See An Act Concerning Property That Is Exempt From a Judgment Creditor: Hearing on H.B. 6646 Before the Conn. Judiciary Comm., 2021 Reg. Sess. (Conn. March 3, 2021).

In response, the Debtor argues the inclusion of the words “a claim of sexual abuse, or exploitation of a minor, sexual assault,” implicates the doctrine of ejusdem generis (“of the same kind or class”).² Under ejusdem generis, “when a particular enumeration is followed by general descriptive words, the latter will be understood as limited in their scope to ․ things of the same general kind or character as those specified in the particular enumeration, unless there is something to show a contrary intent.” Wind Colebrook S., LLC v. Town of Colebrook, 344 Conn. 150, 184 (2022). According to the Debtor, there is nothing in the homestead exemption limitation to show “contrary intent,” and therefore the words “willful, wanton, or reckless misconduct” should be interpreted to be limited to specific acts relating to sexual assault. The Debtor therefore argues that because the Judgment is not based on any specific acts relating to sexual assault, the Debtor's homestead exemption cannot be limited to $75,000.00.

The Court agrees with Sire Spirits. Under the plain meaning rule set forth in Conn. Gen. Stat. § 1-2z, courts are instructed “․ first to consider the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered ․” State v. Acordia, Inc. 310 Conn. 151, 157 (2013); PPC Realty, LLC v. City of Hartford, ---A.3d---, 2024 WL 3762776 at *3 (Conn. Aug. 12, 2024); NEMS, PLLC v. Harvard Pilgrim Health Care of Connecticut, Inc. --- A.3d ---, 2024 WL 3892879, at *3 (Conn. Aug. 21, 2024). Furthermore, the Connecticut Supreme Court has interpreted Conn. Gen. Stat. § 1-2z to instruct “․ Connecticut's courts, when construing statutory language, to eschew those interpretations that, although not literally impossible to effectuate, would be so bizarre, impracticable, or contrary to common sense that one cannot reasonably assume that they reflect the considered intent of the legislature.” NEMS, PLLC, 2024 WL 3892879, at *9 (collecting cases). Applying common-sense meaning in the context of the homestead exemption limitation, the term “or” is “used in logic as a sentential connective that forms a complex sentence which is true when at least one of its constituent sentences is true”³ and following “or,” the term “other” means “different”⁴ Accordingly, the words “or other wilful [sic], wanton, or reckless conduct” mean conduct different from “sexual abuse or exploitation of a minor, sexual assault ․” Thus, while the Debtor's interpretation is “not literally impossible to effectuate,” the Court concludes it is contrary to common sense. Id. Extratextual evidence of the meaning of the statute, including the legislative history, is therefore not necessary to interpret Conn. Gen. Stat. § 52-352b (21), and Connecticut law provides such evidence shall not be considered in this case. Conn. Gen. Stat. § 1-2z.

Furthermore, if the Connecticut legislature intended the limitation in Conn. Gen. Stat. § 52-352b (21) to apply only to misconduct related to sexual abuse or sexual assault, they could have done so. “[W]here a statute, with reference to one subject contains a given provision, the omission of such provision from a similar statute concerning a related subject ․ is significant to show that a different intention existed. ․ That tenet of statutory construction is well grounded because the General Assembly is always presumed to know all the existing statutes and the effect that its action or non-action will have upon any one of them.” Asylum Hill Problem Solving Revitalization Ass'n v. King, 277 Conn. 238, 256–57 (2006); see also In re Cole, 642 B.R. 208, 220 (Bankr. D. Conn. 2022); State v. Cody M., 337 Conn. 92, 103, 259 A.3d 576, 585 (Conn. 2020).

In this instance, the inclusion of the words “or similar” elsewhere in the Connecticut exemption statute, see Conn. Gen. Stat. § 52-352b (4), establishes the Connecticut legislature intended to have the homestead exemption limitation apply to willful, wanton, or reckless misconduct in addition to sexual abuse or sexual assault conduct. Otherwise, it would have included the term “or similar” rather than the term “or other” at the end of the subsection. Thus, the Court concludes that the homestead exemption limitation in Conn. Gen. Stat. § 52-352b (21) is not only applicable to judgments arising out of misconduct related to sexual assault, but also applies to judgments arising out of any other willful, wanton, or reckless misconduct. Accordingly, under Conn. Gen. Stat. § 52-352b (21), the Judgment finding the Debtor liable for breach of fiduciary duty, fraud, and unjust enrichment, is a “money judgment arising out of a claim for ․ wilful [sic], wanton, or reckless misconduct,” which results in the application of the limitation of the Debtor's homestead exemption to $75,000.00.

B. Sire Spirits’ argument regarding 11 U.S.C. § 522(o) and the existence of a constructive trust

During the January 30th hearing, Sire Spirits initially argued that under section 522(o), the Property is not exempt to the extent that proceeds from the Debtor's fraudulent conduct were converted to equity in the Property through improvements. Sire Spirits also requested the Court conduct an evidentiary hearing to trace the funds using a “fruit of the poisonous tree” analysis of the Property and the Debtor's personal property in which he claimed an exemption.

Sire Spirits does not address the arguments made during the January 30th hearing in the Support Brief. Instead, Sire Spirits asserts that the Property is subject to a constructive trust for its benefit. According to Sire Spirits, the Debtor used the funds obtained through the fraud to improve his equity position and renovate the Property. Sire Spirits argues if “the existence of a prepetition constructive trust is established, the assets subject to the trust will typically be found ․ not to be property of the estate.” 5 COLLIER ON BANKRUPTCY 541.28[2][a]; 11 U.S.C. § 541(d). However, whether a prepetition constructive trust exists for the benefit of Sire Spirits has not been established. If Sire Spirits intends to pursue its claim of a constructive trust, it must support and establish its claim with evidence.

III. CONCLUSION

The Court concludes the homestead exemption limitation language “other wilful [sic], wanton, or reckless misconduct” contained in Conn. Gen. Stat. § 52-352b (21) includes such conduct for which the Debtor was found liable in the Judgment. Therefore, the Debtor's homestead exemption is limited to $75,000.00 under Conn. Gen. Stat. § 52-352b (21).

If Sire Spirits intends to pursue its claim of a constructive trust, an evidentiary hearing is necessary to determine that issue. Accordingly, it is hereby

ORDERED: The Objection is SUSTAINED IN PART and the Debtor's claimed homestead exemption is limited to $75,000; and it is further

ORDERED: On October 1, 2024, at 11:30 a.m., a Status Conference will be held in the United States Bankruptcy Court, 915 Lafayette Boulevard, Bridgeport, Connecticut, with regard to whether Sire Spirits intends to pursue its claim of a constructive trust and whether and when an evidentiary hearing shall held.

Dated at Bridgeport, Connecticut this 28th day of August, 2024.

FOOTNOTES

1.   See AAA Case No. 01-20-0003-7852.

2.   Ejusdem Generis, Black's Law Dictionary, (10th ed. 2014).

3.   Or, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/or (last visited August 2, 2024).

4.   Other, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/other (last visited August 2, 2024).

Julie A. Manning United States Bankruptcy Judge District of Connecticut