Larson v. Melvin Eugene Sharp & U.S. Tr. (In re Sharp)

508 B.R. 457

In re Melvin Eugene SHARP, also known as Mel Sharp, doing business as Aspen Place Outfitters, LLC, Debtor.Douglas E. Larson, Chapter 7 Trustee, Appellant,

v.Melvin Eugene Sharp and United States Trustee, Appellees.

BAP No. CO–13–053.

Bankruptcy No. 12–21611.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

Filed April 11, 2014.

John C. Smiley (Harold G. Morris, Jr., with him on the brief), of Lindquist & Vennum LLP, Denver, CO, for Appellant.

Michael Jude of JudeLaw, LLC, Denver, CO, for Appellee Melvin Eugene Sharp.

Before KARLIN, JACOBVITZ, and HALL,¹Bankruptcy Judges.

OPINION

HALL, Bankruptcy Judge.

The bankruptcy trustee seeks reversal by this Court of a bankruptcy court decision allowing the debtor to exempt certain personal property under Colorado's “tools of trade” exemption. The trustee objected to the claimed exemption on the ground that the debtor's business was not a “gainful occupation,” as required by the exemption statute, because it was not “profitable” as of the date of the petition. We affirm the bankruptcy court's decision allowing the exemption.

I. BACKGROUND

Appellee Melvin Sharp (“Debtor”) filed a Chapter 7 bankruptcy petition on June 1, 2012, and Appellant Douglas Larson (“Trustee”) was appointed as trustee of his estate. In his schedules, Debtor claimed certain personal property used in his outdoor guide business as exempt under Colorado's “tools of trade” exemption. Debtor's primary occupation is customer relations manager at a Kroger-owned City Market store in Cortez, Colorado. Debtor moved from Arizona to Colorado in June 2010 to take a position as assistant store manager of a City Market in Pagosa, Colorado. That store was closed a few months later, and Debtor worked on an hourly basis for the remaining Pagosa City Market until 2012, when he obtained the Cortez job.

Even before his move to Colorado, Debtor began the process of creating his guide business, Aspen Place Outfitters (“Aspen”),² with the intention of growing it to the point that he could retire from his primary occupation within five years and devote himself full-time to outfitting. While he remains employed at City Market, Debtor's ability to work as a hunting and fishing outfitter is limited to times when he can use vacation time from the store, which he typically does during the fall hunting season. In January 2010, while still living in Arizona, Debtor attended an Outfitters Association meeting in Grand Junction, Colorado in order to learn as much as he could about the outfitting business. As a result of that experience, Debtor joined the Association, set up a website for his business, and designed business brochures. He attended another Association meeting in May 2010, in Glenwood Springs, Colorado, to gain even more insight into the business. Also in 2010, Debtor obtained an outfitter's license from the State of Colorado, which has been renewed annually since that time, and set up bank accounts for Aspen at the Dolores State Bank in Colorado. Since February 2010, Debtor has attended some “guide expositions” in Phoenix, Arizona, which he described as “meeting areas for potential clients.” Debtor advertises his business both through his own website and with newsletters that his website designer sends out to an email client base.

As an outfitter, Debtor provides clients with as much or as little of the expertise, tools, food, transportation, and lodging ³ as they need or want for hunting or fishing trips. Aspen charges for those services. Debtor can provide clients with appropriate areas in which to hunt or fish, information about dates and restrictions, as well as transport to hunting and fishing areas, appropriate gear, and food and shelter. He also has the ability to pack out clients' kills on horseback. In the future, once he can devote his efforts to Aspen full-time, Debtor plans to become licensed as a firearms safety instructor and to offer horseback rides and pack trips in the summers. Since 2010, Debtor has both attempted to increase his knowledge of the outfitting business and to build up a client base, hoping both for repeat business and for “word of mouth” advertising. Although Aspen had not achieved a net profit by the petition date, it appeared to be gaining momentum, and Debtor expected it to produce a small profit in 2012. However, as of the May 2013 trial date, Debtor was not yet ready to “give up his day job,” because he did not feel that Aspen was to the point it needed to be to allow him to do so.

When Debtor filed his bankruptcy schedules, he claimed several firearms, two boats, a camper, an ATV, a utility trailer, a two-horse trailer, and some fishing poles as exempt property used in the operation of Aspen. Trustee objected to the exemption on the ground that it applied only to “gainful occupations,” which he asserted means a business that was “profitable” as of the petition date.⁴ The bankruptcy court held a non-evidentiary hearing on Trustee's objection in November 2012, ruling thereafter, as a matter of law, that “an occupation need not be profitable at the time of filing.” ⁵ Rather, the bankruptcy court determined that the proper inquiry is whether a debtor's non-principal activity is a valid occupation, as opposed to merely a hobby or a pastime.⁶ Following that ruling, the bankruptcy court held an evidentiary hearing at which only Debtor testified, and from which it concluded that Trustee had failed to establish that Debtor's claimed exemption was improper. Trustee timely appealed.⁷

II. APPELLATE JURISDICTION

This Court has jurisdiction to hear timely-filed appeals from “final judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit, unless one of the parties elects to have the district court hear the appeal. ⁸ A judgment that either grants or denies a debtor's claimed exemption is final for purposes of appeal.⁹ Trustee's notice of appeal was timely filed from entry of the bankruptcy court's amended judgment ¹⁰ and, as neither of the parties to this appeal elected to have the appeal heard by the United States District Court for the District of Colorado, they have consented to appellate review by this Court.

III. ISSUE AND STANDARD OF REVIEW

What is required for a business endeavor to satisfy the “gainful occupation” requirement of Colorado's tools of trade exemption statute?

An appellate court reviews a trial court's determination of state law de novo.¹¹ De novo review requires an independent determination of the issue, giving no special weight to the bankruptcy court's decision.¹² Fact findings underpinning a bankruptcy court's legal determinations are reviewed for clear error.¹³ A finding of fact is clearly erroneous only if it is “unsupported in the record, or if after our review of the record we have the definite and firm conviction that a mistake has been made.” ¹⁴

IV. DISCUSSION

Colorado has “opted out” of the federal bankruptcy exemptions pursuant to Bankruptcy Code § 522(b)(2)¹⁵ and provides its own exemptions for use by Colorado residentsin bankruptcy cases.¹⁶ As have many other jurisdictions, Colorado has enacted a “tools of trade” exemption to allow its debtors to remove tools that are needed for their work from attachment by creditors, both in bankruptcy and in non-bankruptcy attachment proceedings. ¹⁷ The Colorado statute provides:

The following property is exempt from levy and sale under writ of attachment or writ of execution:

(i) The stock in trade, supplies, fixtures, maps, machines, tools, electronics, equipment, books, and business materials of any debtor used and kept for the purpose of carrying on any gainful occupation in the aggregate value of twenty thousand dollars.¹⁸

Debtor asserts that the tools and equipment he needs for his outfitting business, specifically, firearms, boats, a camper, an ATV, a utility trailer, a horse trailer, and fishing poles, are exempt from his bankruptcy estate under § 13–54–102(1)(i) as tools of his trade. The total value of the tools and equipment Debtor claimed to be exempt is $5,415.50.¹⁹

A debtor's claim of an exemption will be allowed unless an objection to it is timely made.²⁰ In addition, where an objection is made, the party asserting that objection bears the burden of proving the exemption was improperly claimed.²¹ In this case, the burden was on Trustee to prove that Debtor's claimed tools of trade exemption was improper. Trustee chose to do so primarily on the basis that Aspen had never produced a net profit, which he claimed was necessary to any finding that an occupation is “gainful” under the Colorado statute.

The Constitution of Colorado specifically requires that its exemption laws be liberally construed:

Colorado's policy with respect to exemption laws is required by Colorado Constitution article XVIII, section 1. The purpose of the exemptions is to preserve the debtor's means of support, and to preserve a home for the family. Courts must liberally construe the statutory exemptions and must favor the intent and purposes of the statute.²²This appeal largely depends upon the interpretation of Colorado's tools of trade exemption statute. Such statutory interpretation is subject to well-established rules:

When interpreting a statute, the language of the statute is examined with the objective of giving effect to the intent of the legislature. Language is given its commonly accepted and understood meaning if the unambiguous statutory language is not defined and the result is not absurd or contrary to the legislative purpose. If the statute is unambiguous, we do not resort to further rules of statutory construction to determine the statute's meaning. If the language is ambiguous, however, we look to legislative history, prior law, the consequences of a given construction, and the goal of the statutory scheme to ascertain the correct meaning of a statute.²³

The term “gainful occupation” as used in the Colorado tools of trade exemption is not defined by either the...