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P.O. Box 251551
Woodbury, Minnesota 55125-6551

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State of Minnesota v. Sullivan: US District Court : BANKRUPTCY | CREDITOR'S REMEDY - Questions regarding validity of excemption for disability payments as limited or not

Civil Nos. 08-923(DSD); 08-924(DSD)
Mary Reiland,
Interested Party/
Patti J. Sullivan,
This matter is before the court following its April 21, 2008,
order granting appellant State of Minnesotas unopposed motion for
certification of a legal question to the Supreme Court of the State
of Minnesota. Pursuant to the States motion and Minnesota
Statutes 480.065, the court certifies to the Minnesota Supreme
Court the following question of law:
Is Minnesota Statutes 550.39 valid under the
Minnesota Constitution where the amount of
disability payments exempted by the statute is
limited by the common law and the nature of a
disability insurance contract to an amount
less than or equal to the insureds predisability
The court acknowledges that the Minnesota Supreme Court,
acting as the receiving court, may reformulate this question. See
Minn. Stat. 480.065, subdiv. 6(a)(3).
1 The State also filed a letter with the court asking it to
consider additional facts not stipulated to by the Bankruptcy
Trustee Patti J. Sullivan (Trustee). These facts describe the
calculation of benefits under debtor Mary Reilands (Debtor)
insurance policy as well as the insurers general method for
calculating benefits. The Trustee responded in opposition by
letter on May 9, 2008. The State sought to include the
unstipulated facts to enable an as applied challenge to the
constitutionality of 550.39. The additional facts, however, are
unnecessary for resolution of the certified question and are not
included herein. See Minn. Stat. 480.065, subdiv. 6(b) (If the
parties cannot agree upon a statement of facts, the certifying
court shall determine the relevant facts.) If appropriate, the
court will consider an as applied argument after the Minnesota
Supreme Court decides the certified question.
2 The Policy was assigned to Debtor individually in April
3 This income included a ,500 monthly salary and her
proportionate share of profit from a company in which she had
approximately a forty-percent ownership interest.
I. Statement of Facts
Pursuant to the courts April 21 order, the parties agreed to
the following facts in their May 5, 2008, stipulation.1 Debtor was
the President of Four D Incorporated (Four D), a Minnesota
corporation. In 1994, Four D obtained a Disability Income Policy
(Policy) issued by Massachusetts Mutual Life Insurance Company as
a benefit for Debtor.2 In her application for the Policy, Debtor
disclosed that for January and February 1994, her two-month net
earned income was ,001.3 Extrapolating from this two-month
period, Debtors stated yearly net income was approximately
4,006. The Policy provided for ,000 of disability benefits
per month, or twenty-nine percent of Debtors disclosed net
4 Disability insurance contracts limit the amount of
disability payments to an amount less than or equal to the
insureds pre-disability salary.
income.4 Based on additional insurance purchased by Debtor as
permitted by the Policy, the maximum amount of disability benefits
was increased to ,509 per month, or thirty-five percent of
Debtors disclosed net income.
To receive benefits under disability income policies,
including the Policy, an insured must establish a disability. The
Policy defines disability as incapacity of the insured that:
a. Begins while th[e] Policy is in effect; and
b. Is due to injury or sickness; and
c. Begins when, and continues while, the Insured is
receiving timely and appropriate care by or at the
direction of a legally qualified physician, unless
[the insurer is] furnished with proof, satisfactory
to [the insurer], that future care would be of no
use; and
d. Reduced the Insureds ability to work; and
e. Causes a Loss of Earned Income.
The amount of a benefit to be paid under the Policy is measured by
and based upon Debtors loss of earned income. Debtors disability
must also continue for her to receive the monthly benefit.
Debtor filed a claim for disability benefits under the Policy
in May 2003, indicating that she had been unable to work and earn
5 Debtors current monthly benefit is ,509, which is less
than her pre-disability income as disclosed in her Policy
6 As a result, Debtors benefits under the Policy were
transferred to Trustee.
wages since April 2003. Debtor began receiving monthly disability
benefits in July 2003.5
On October 4, 2005, Debtor filed a voluntary petition for
relief under Chapter 7 of the United States Bankruptcy Code in the
District of Minnesota. The schedules filed with the bankruptcy
court listed Debtors expenses as ,891.31 per month. Debtor
received a discharge on January 18, 2006, pursuant to 11 U.S.C.
727. In Schedule B of her petition, Debtor disclosed that she is
the beneficiary of the Policy, and in Schedule C she claimed her
income from the Policy as exempt under Minnesota Statutes 550.39.
Trustee objected to Debtors claimed exemption asserting that
550.39 violates the Minnesota Constitution. On July 27, 2006,
the bankruptcy court issued a Notice and Certification of Challenge
to Constitutionality of State Exemption allowing the State to
intervene in the objection to exemption and granted the State
intervention on August 18, 2006.
On November 1, 2007, the bankruptcy court sustained Trustees
objection, holding that 550.39 violated article I, section 12 of
the Minnesota Constitution.6 On February 28, 2008, the bankruptcy
court denied the State and Debtors motion for relief from the
November 1 order. Debtor appealed the bankruptcy courts orders to
this court on March 3, 2008, and the State moved to certify a legal
question to the Minnesota Supreme Court on April 7, 2008. This
court stayed briefing on the bankruptcy appeal on April 9, 2008,
and granted the States motion on April 21, 2008.
II. Names and Addresses of Counsel of Record
No party has appeared without counsel, and pursuant to
Minnesota Statutes 480.065, subdivision 6(a)(4), the names and
addresses of counsel of record are as follow:
A. Debtor/Appellant Mary Reiland
Alan E. Brown (Bar No. 319545)
Kenneth Corey-Edstrom (Bar No. 148696)
7900 Xerxes Ave. S, Ste. 1500
Minneapolis, MN 55431-1194
B. Intervenor/Appellant State of Minnesota
Daniel L. Abelson (Bar No. 0327554)
445 Minnesota St., Ste. 1100
St. Paul, MN 55101-2128
C. Trustee/Appellee Patti L. Sullivan
Chad A. Kelsch (Bar No. 0300974)
100 South 5th St., Ste. 2500
Minneapolis, MN 55402
III. Order of Certification
The Clerk of Court is directed to forward this Order of
Certification to the Supreme Court of the State of Minnesota under
the official seal of this court.
Dated: May 14, 2008
s/David S. Doty
David S. Doty, Judge
United States District Court


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        a Police Report

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        Not File a Police Report



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