Mayer v. Nguyen

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: QUY VAN NGUYEN,
Debtor.
ROBERT G. MAYER,
No. 99-1563
Trustee-Appellant,
v.
QUY VAN NGUYEN,
Debtor-Appellee.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Albert V. Bryan, Jr., Senior District Judge.
(CA-98-1814-A, BK-97-16435-AB)
Argued: December 1, 1999
Decided: April 28, 2000
Before WILLIAMS, MICHAEL, and KING, Circuit Judges.
_________________________________________________________________
Affirmed by published opinion. Judge Michael wrote the opinion, in
which Judge Williams and Judge King joined.
_________________________________________________________________
COUNSEL
ARGUED: Tina Maria McMillan, MAYER & SCANLAN, P.C.,
Fairfax, Virginia, for Appellant. Mark Christian Orndorff, M. CHRIS-
TIAN ORNDORFF, P.C., Falls Church, Virginia, for Appellee. ON
BRIEF: Robert G. Mayer, ROBERT G. MAYER, P.C., Fairfax, Vir-
ginia, for Appellant.
_________________________________________________________________
OPINION
MICHAEL, Circuit Judge:
Quy Van Nguyen, a Chapter 7 debtor domiciled in the Common-
wealth of Virginia, was required to adhere to Virginia's bankruptcy
exemption scheme. The trustee in the bankruptcy proceeding
objected, on grounds of untimeliness, to Nguyen's claim for a home-
stead exemption. The bankruptcy court denied the objection, and the
district court affirmed. We also affirm, holding (1) that Virginia law,
not the Federal Rules of Bankruptcy Procedure, controls the computa-
tion of the time allowed a Virginia debtor to claim a homestead
exemption and (2) that under Virginia law a debtor has "set apart"
property claimed as exempt once he has delivered a properly executed
homestead deed, with fees paid, to the appropriate clerk.
I.
The facts are undisputed. Quy Van Nguyen filed for Chapter 7
bankruptcy in the Eastern District of Virginia on August 29, 1997. In
his Schedule C, Nguyen claimed the following property as exempt
from the bankruptcy estate: his clothing valued at $500, his watch at
$20, and his 1992 Acura automobile at $6,000. The first meeting of
creditors was held on the date initially set, October 1, 1997. During
the meeting the trustee reviewed Nguyen's petition and schedules,
including his Schedule C. That same day (October 1, 1997) Nguyen
took steps to perfect his exemption on the automobile by executing
a homestead deed and mailing it with a check for recording fees to
the Clerk of the Fairfax County, Virginia, Circuit Court by certified
mail, return receipt requested. Although the deed was received by the
clerk on Friday, October 3, 1997, it was not date-stamped as admitted
to record until Tuesday, October 7, 1997. The trustee objected to the
homestead exemption, arguing that the failure to admit the deed to
record within five days of the date initially set for the first meeting
of creditors made the exemption claim untimely under the Virginia
2
law governing exemptions in bankruptcy. See Va. Code Ann. § 34-17.
The bankruptcy court denied the objection, the district court affirmed,
and the trustee now appeals.
Upon the filing of a petition for bankruptcy, all of the debtor's
legal and equitable interests in property become part of the bank-
ruptcy estate. See 11 U.S.C. § 541. The debtor may, however, claim
certain real and personal property as exempt from the estate. See id.§ 522(b). If a state chooses to opt out of the federal exemption scheme
detailed in 11 U.S.C. § 522(d), "any property that is exempt under
. . . State or local law" is excluded from the estate. Id. § 522(b)(2)(A).
See also Zimmerman v. Morgan, 689 F.2d 471, 472 (4th Cir. 1982).
Because the Commonwealth of Virginia has opted out of the federal
exemption scheme, see Va. Code Ann. § 34-3.1,1 Nguyen had to
claim his exemptions in compliance with Virginia law. See Morgan,
689 F.2d at 472. Nguyen was able to claim $2,000 of the value of his
automobile as exempt from creditor process under the poor debtor's
exemption, Va. Code Ann. § 34-26(8), and the balance of its value,
$4,000, under the homestead exemption, Va. Code Ann.§ 34-4. Prop-
erty claimed under the homestead exemption (but not under the poor
debtor's exemption) must be "set apart" in a signed writing that desig-
nates and describes the property with reasonable certainty and states
its value. See Va. Code Ann. § 34-14. That writing "shall be admitted
to record, to be recorded as deeds are recorded in the county or city
where the [debtor] resides." Id. To claim a homestead exemption in
bankruptcy, a Virginia debtor must set the property apart no later than
the fifth day after the date initially set for the first meeting of creditors
held pursuant to 11 U.S.C. § 341. See Va. Code Ann. § 34-17.
We are presented with two issues in this appeal. First, we decide
whether Virginia law or the Bankruptcy Rules should govern the
computation of the five-day period allowed in Va. Code Ann. § 34-17_________________________________________________________________
1 Virginia's opt-out provision reads:
No individual may exempt from the property of the estate in
any bankruptcy proceeding the property specified in subsection
(d) of the Bankruptcy Reform Act (Public Law 95-598) except
as may otherwise be expressly permitted under this title.
Va. Code Ann. § 34-3.1.
3
for setting apart exempt property in bankruptcy. We conclude that
Virginia law governs for reasons we explain later. Second, we decide
what a debtor must do to "set apart" property claimed under the
homestead exemption allowed by Va. Code Ann. § 34-14. The trustee
has maintained throughout (1) that property is not set apart until the
writing that describes the property (the homestead deed) has been
admitted to record and (2) that the deed is not admitted to record until
the clerk has determined that all prerequisites have been satisfied and
he has stamped on the deed itself the date and time of his decision to
admit the document to record. Under this argument Nguyen's interest
in $4,000 of his automobile was not set apart until October 7, 1997,
and his homestead exemption would be untimely. After conducting a
thorough review of the Virginia cases concerning the recording of
deeds, the bankruptcy court disagreed with the second half of the
trustee's argument. It held that "if no deficiencies exist as to a deed's
form or in the fees tendered, a homestead deed is admitted to record
when properly received by the clerk's office." In re Nguyen, 226 B.R.
547, 551 (Bankr. E.D. Va. 1998). The district court affirmed, though
it noted that it would be unreasonable "to assume that a busy court
can guarantee `same day service' to eleventh-hour filers." Mayer v.
Nguyen, Civ. Action No. 98-1814-A, order at 4-5 (E.D. Va. Apr. 16,
1999). We affirm the decisions of the bankruptcy and district courts,
but on slightly different reasoning. We hold that the writing required
by Va. Code Ann. § 34-14 need not actually be admitted to record for
property to be "set apart" in bankruptcy. 2 Rather, under Virginia law
a debtor has "set apart" property claimed as exempt once he has deliv-
ered a properly executed homestead deed, with fees paid, to the
appropriate clerk. We go now to the details.
II.
The computation of time issue is first. Because Virginia law
includes Saturday and Sunday in the five-day count, see Va. Code
Ann. §§ 1-13.3, 1-13.3:1, the trustee argues that Nguyen set apart the
_________________________________________________________________
2 For purposes of this appeal we assume, but do not decide, that
Nguyen's homestead deed was not "admitted to record" until the clerk
time- and date-stamped the deed. We express no opinion as to what con-
ditions must be satisfied before a deed should be deemed admitted to
record under Virginia law.
4
property claimed as exempt one day too late. The trustee concedes,
however, that if the Federal Bankruptcy Rules, rather than Virginia
law, determine the computation of the five days, Nguyen's exemption
was timely claimed. See Fed. R. Bankr. P. 9006(a) (excluding Satur-
days, Sundays, and legal holidays from computation of time when
period prescribed or allowed is shorter than eight days). Thus, the
threshold question is one of choice of law. Normally, of course, the
federal courts apply federal procedural law whether they are deciding
state or federal questions. That has not always been the case. From
1789 until 1938 federal courts in actions at law applied the procedural
rules of the states where they were seated. See Process Act of 1789,
c. 21, § 2, 1 Stat. 93 (Sept. 29, 1789); Act Aug. 23, 1842, c. 188, § 6,
5 Stat. 516, 518; Act June 1, 1872, c. 255, § 5, 17 Stat. 197; 4 Charles
Alan Wright & Arthur R. Miller, Federal Practice and Procedure
§ 1002 (2d ed. 1987).3 Not until the adoption of the Federal Rules of
Civil Procedure in 1938 was the federal practice of conformity with
relevant state procedure replaced by a system of uniform federal pro-
cedure. Still, in the few instances where it sees fit, Congress may
bypass the federal rules and require the federal courts to apply state
procedure. See, e.g., Fed. R. Evid. 601 (competence of witnesses in
certain civil proceedings determined by state law). As we will
explain, Congress has opted for conformity with state procedure when
bankruptcy exemptions are claimed under state law. The Virginia rule
for computing time therefore governs.
By its own terms Bankruptcy Rule 9006 determines the computa-
tion of "any period of time prescribed by . . . any applicable statute."
Fed. R. Bankr. P. 9006(a). In addition, Rule 1001 states that the Bank-
ruptcy Rules "govern procedure in cases under Title 11 of the United
States Code." Fed. R. Bankr. P. 1001. Standing alone, this language
would seem to resolve the controversy. However, Section 522(b) of
the Bankruptcy Code permits a state to opt out of the federal scheme
of exemptions provided in section 522(d), in which case the exemp-
tions available to a debtor are specified by state law. The longstanding
consensus in this circuit is that when Congress allowed the states to
_________________________________________________________________
3 Uniform rules of procedure for federal equity cases were not promul-
gated until 1822. See Process Act of 1792, c. 36, § 2, 1 Stat. 275, 276
(May 8, 1792); 4 Charles Alan Wright & Arthur R. Miller, Federal Prac-
tice and Procedure § 1002 (2d ed. 1987).
5
specify bankruptcy exemptions, it permitted the states to determine
both the substance of those exemptions and the procedure by which
they are claimed. See, e.g., Morgan 689 F.2d at 472; Dominion Bank
of the Cumberlands, NA v. Nuckolls, 780 F.2d 408, 417 (4th Cir.
1985) (Hoffman, D.J., concurring specially); In re Pinner, 146 B.R.
659, 660 (Bankr. E.D.N.C. 1992); In re Edwards , 105 B.R. 10, 12
(Bankr. W.D. Va. 1989); In re Lamm, 47 B.R. 364, 366 n.1 (E.D. Va.
1984); In re Swift, 96 F. Supp. 44, 46 (W.D. Va. 1950); In re Robi-
nette, 34 F. Supp. 518, 521 (W.D. Va. 1932). For example, in Morgan
the Virginia debtor claimed an exemption for personal property but
recorded his homestead deed in the wrong county. When the trustee
challenged the exemption, the debtor argued that state law determined
only the nature and amount of property that may be exempted, while
federal law provided the procedure for claiming the exemption. See
11 U.S.C. § 522(l) (requiring debtor to file list of property claimed as
exempt). We disagreed. We recognized, of course, that under the clear
language of the Bankruptcy Code a debtor (in an opt-out state) is enti-
tled to exclude from the bankruptcy estate "any property that is
exempt under . . . State or local law." Id. § (b)(2)(A). But "[f]or prop-
erty to be exempt under state or local law, it must be claimed in the
manner prescribed by those laws." Morgan, 689 F.2d at 472. See also
White v. Stump, 266 U.S. 310, 314 (1924). By failing to record his
homestead deed in the place required by state law, the debtor in Mor-
gan forfeited the right to claim the exemption in the federal bank-
ruptcy proceeding.
The "manner prescribed" for claiming a homestead exemption is
set out in Va. Code Ann. §§ 34-6, 34-14, 34-17. These sections estab-
lish the time allowed for setting apart the property, the place where
the debtor must file the writing describing the property, and the form
and content of that writing. Morgan makes clear that a debtor must
satisfy these state procedural requirements in order to perfect a home-
stead exemption in bankruptcy. In other words, Morgan establishes
that when a state opts out of the federal exemption scheme, the debt-
or's right to an exemption is subject to state rules of procedure. See
Morgan, 689 F.2d at 472; see also Dominion Bank, 780 F.2d at 417(Hoffman, D.J., concurring specially) ("[Morgan] rested on Virginia's
having opted out because, by so doing, bankruptcy exemptions
depend on Virginia law both for substance and for procedure."); In re
Pinner, 146 B.R. at 660 (noting that exemptions of bankruptcy debt-
6
ors in North Carolina depend on state law for both substance and pro-
cedure); In re Swift, 96 F. Supp. at 46 (holding that Virginia statute
limiting time to set apart homestead exemption permissibly regulated
procedure in bankruptcy). But cf. Matter of Crowell, 138 F.3d 1031,
1035 (5th Cir. 1998) (holding that the Bankruptcy Code "should not
be understood to force bankruptcy courts to use state-law procedures
and state-law actors" to determine what portion of a debtor's real
property is an exempt homestead). Moreover, the meaning of the pro-
cedural rules for claiming an exemption must be determined by refer-
ence to state law. See Morgan, 389 F.2d at 472; LaFortune v. Naval
Weapons Ctr. Fed. Credit Union, 652 F.2d 842, 846 (9th Cir. 1981).
We therefore look to Virginia law to decide how to count the days
in applying the term "set . . . apart on or before the fifth day" in Va.
Code Ann. § 34-17. The answer is clear. Virginia law provides that
in computing a prescribed period of five days, intervening Saturdays,
Sundays, and legal holidays are included. See Va. Code Ann. §§ 1-
13.3, 1-13.3:1; In re Bernstein, 189 B.R. 113, 114-15 (Bankr. W.D.
Va. 1995); In re Haynesworth, 145 B.R. 222, 226 (Bankr. E.D. Va.
1992). This means that the debtor in this case had five days from
Wednesday, October 1, 1997, to "set apart" his automobile. Because
the intervening Saturday and Sunday must be counted, his time
expired on Monday, October 6, 1997. We must therefore decide
whether the debtor met the October 6, 1997, deadline.
III.
As we have already said, a debtor must set apart any property
claimed under the homestead exemption no later than the fifth day
after the date initially set for the creditors meeting required by § 341
of the Bankruptcy Code. See Va. Code Ann.§ 34-17. In addition to
establishing this time limit for setting apart personal property claimed
as exempt, Virginia law also provides the process for claiming the
exemption. The personal property selected for exemption by the
debtor
shall be set apart in a writing signed by him. He shall, in the
writing, designate and describe with reasonable certainty the
personal estate so selected and set apart each parcel or arti-
cle, affixing to each his cash valuation thereof. Such writing
7
shall be admitted to record, to be recorded as deeds are
recorded in the county or city wherein such [debtor] resides.
Va. Code Ann. § 34-14. (The writing is usually called a homestead
deed. See id.) The trustee argues (1) that property claimed under a
homestead deed is not "set apart" until it has been admitted to record
and (2) that such a deed is not admitted to record until the clerk has
actually time- and date-stamped it. Because Nguyen's homestead
deed was not clocked in until October 7, 1997, the trustee maintains
that Nguyen failed to set apart his Acura within five days of the Octo-
ber 1 creditors meeting. Nguyen counters that his automobile was set
apart when he did all that was required of him before the statutory
time expired and that he should not be forced to bear the conse-
quences of the clerk's delay in recording the deed. We agree with
Nguyen. As we will spell out, his automobile was set apart under
§§ 34-14 and 34-17 when the clerk received the homestead deed in
proper form with fees paid on October 3, 1997, well before the fifth
day after the creditors meeting. The exemption was therefore claimed
in a timely manner.
Generally, statutes creating debtors' exemptions must be construed
liberally in favor of the debtor and the exemption. See Shirkey v.
Leake, 715 F.2d 859, 862 (4th Cir. 1983); Cheeseman v. Nachman,
656 F.2d 60, 63 (4th Cir. 1981). Nevertheless, the debtor must comply
with procedural requirements, in this case those of§ 34-17. See e.g.,
Morgan, 689 F.2d at 472 (disallowing exemption when debtor timely
filed in wrong place); In re Tate, 41 B.R. 946 (Bankr. W.D. Va. 1984)
(same). But see In re Davies, 96 F. Supp. 416, 419-20 (W.D. Va.
1949) (holding that bankruptcy court had equitable discretion to allow
exemption even though homestead deed was recorded one day late).
It is not enough to comply with the filing provisions of the Bank-
ruptcy Code; the deed must be filed in the manner prescribed by state
statute. See Morgan, 689 F.2d at 472; In re Garner, 115 F. 200, 202
(W.D. Va. 1902).
In reading §§ 34-14 and 34-17 of the Virginia Code, we cannot
agree with the trustee's contention that property claimed as exempt is
not "set apart" until the deed has actually been admitted to record.
Section 34-17 says nothing about admission to record. Instead, it
requires the debtor to "set apart" his property no later than the fifth
8
day after the date initially set for the § 341 creditors meeting. See Va.
Code Ann. § 34-17. Although neither the statute nor Virginia case law
provides any direct guidance on the meaning of "set apart," we find
some direction in the language of § 34-14. That section, captioned
"How set apart in personal estate; form to claim exemption of per-
sonal property," requires that the property claimed as exempt "be set
apart in a writing signed by [the debtor]." Va. Code Ann. § 34-14.
After prescribing the form and content of the writing, § 34-14 states
that it "shall be admitted to record, to be recorded as deeds are
recorded." Thus, § 34-14 imposes two distinct requirements: (1) the
debtor must describe the property in a particular writing and (2) the
writing must be admitted to record.
Because § 34-14 uses the passive voice ("shall be admitted to
record"), it does not say who ultimately bears the obligation to see
that the homestead deed is in fact admitted to record. The trustee has
argued that this obligation falls exclusively on the debtor. We dis-
agree. Of course, the deed cannot be admitted to record, and the stat-
ute cannot be complied with, unless the debtor files the deed in the
proper form with the proper clerk. Once the debtor has done that,
however, the duty to "admit[ ] [the writing] to record, to be recorded
as deeds are recorded" is exclusively the duty of the clerk. As the Vir-
ginia Supreme Court observed in a case where the buyer had deliv-
ered his deed (for 500 acres) to the clerk for recording and the clerk
misplaced the deed:
The words in [the 1819 act regulating conveyances], "and
recorded according to the directions of this act," . . .
impose[ ] no farther duty on the vendee in order to protect
and secure his title. Nor would that construction be toler-
ated, which would make it depend on the acts or omissions
of the clerk over whom he has no control, and with whom
the law compels him to deposit his deed. A different con-
struction would be attended with great mischief. The act
having prescribed no time to the clerk to record a deed by
spreading it on the record, its validity would be fluctuating
and uncertain, and the object of the act defeated.
Beverly v. Ellis, 22 Va. 46, 48, 1 Rand. 102, 106-10 (1822). Cf. also
Virginia Bldg. & Loan Ass'n v. Glenn, 39 S.E. 136, 140 (Va. 1901)
9
("[Grantee] had done all the law required when its deed was left with
the clerk for recordation and in a condition to be recorded."); Thomas
v. Stuart's Ex'r, 22 S.E. 511 (Va. 1895) (holding that grantee who
"delivered the deed in proper form, duly and legally acknowledged,
to clerk of proper office for recordation" had done "all he could do,
and all the law required him to do," and deed would not be voided by
clerk's mistake in transcription).
Identical concerns are present in this case, where Nguyen filed his
homestead deed with the proper clerk three days before the statutory
deadline. Because the homestead exemption statute also "prescribes
no time to the clerk to record a deed," allowing the validity of the
exemption to depend on the diligence and speed of the clerk would
impose unfair burdens on debtors. Indeed, it would undermine the
homestead exemption's beneficent goal of insuring"an unfortunate
debtor and his equally unfortunate, but more helpless, family a means
of shelter and a measure of existence." Goldburg Co. v. Salyer, 50
S.E.2d 272, 274 (Va. 1948). Furthermore, once a properly filed deed
has been submitted to the clerk, admission to record is a purely minis-
terial task. The clerk has no discretion to refuse to admit a properly
filed deed to record. See Va. Code Ann.§ 17.1-223 (describing duty
of clerk to record writings that satisfy certain formalities); Fooshee v.
Snavely, 58 F.2d 774, 777 (4th Cir. 1932) ("Had the deed been prop-
erly presented for recordation, it would have been the duty of the
clerk at once to admit it to the record, and no act of the clerk would,
in any way, have affected that fact.") (dictum).
In construing § 34-14, we are especially mindful that the purposes
of the recording requirement for homestead exemptions are quite dif-
ferent from the purposes of recording requirements in conveyancing.4
The significance of the recording requirement for homestead deeds
_________________________________________________________________
4 We note that an entirely different provision, Va. Code Ann. § 55-96,
governs the recording of instruments that convey an interest in real prop-
erty. The language of that provision differs significantly from the lan-
guage of § 34-14. Section 55-96 states that any deed or contract
conveying real property "shall be void as to all purchasers for valuable
consideration without notice not parties thereto and lien creditors, until
and except from the time it is duly admitted to record." Va. Code Ann.
§ 55-96.
10
rests not on concerns about notice or priority of interest, but rather on
the fact that the homestead exemption has a lifetime aggregate limit
of $5,000. See Va. Code Ann. § 34-21. The recording requirement
gives creditors a simple means of determining whether the limit has
been exceeded. See, e.g., In re Emerson , 129 B.R. 82, 83-84 (Bankr.
W.D. Va. 1991). Unlike the recording of a deed in conveyancing, the
recording of a homestead deed neither establishes priority of interest
nor provides lien notice to third parties. Indeed, in the case of the
homestead exemption, creditors and other interested parties have no
reason to race the debtor to the courthouse because the exemption
may be claimed after a debt has been incurred, or even after it has
been reduced to judgment and execution issued. See Va. Code Ann.
§ 34-17; Wilson v. Virginia Nat'l Bank, 196 S.E.2d 920, 921 (Va.
1973); Shirkey, 715 F.2d at 862; In re Franklin, 214 B.R. at 833.
Thus, the clerk's delay in recording a properly filed homestead deed
has no effect on its priority over other interests, regardless of when
they are recorded. For identical reasons, potential creditors cannot
rely on the homestead deed recording process to determine whether
the debtor's assets are unencumbered. Concerns about notice are fur-
ther mitigated in the bankruptcy context, where the debtor is required
to file his list of claimed exemptions in the bankruptcy court, as was
done here. See 11 U.S.C. § 522(l ).
Of course, the delay or omissions of the clerk may not be attributed
to the trustee, who is as blameless as the debtor. In this case, however,
the trustee had actual notice of the debtor's intent to claim a home-
stead exemption, and the debtor filed his homestead deed within the
time allowed by § 34-17. Under such circumstances, imputing the
clerk's recording delay to the debtor imposes an arbitrary forfeiture
on the debtor and grants a windfall to the trustee. There is no indica-
tion that the Virginia General Assembly intended such an inequitable
result. In light of the remedial purposes of the homestead exemption
and the rule that the exemption statutes should be construed liberally
in favor of the debtor, we do not interpret §§ 34-14 and 34-17 to
require that a homestead deed be actually admitted to record before
the exemption may be claimed in bankruptcy. Thus, when a debtor
has filed a homestead deed in proper form with the right clerk, with
fees paid, all prior to the deadline established by§ 34-17, the debtor
has "set apart" his property for purposes of §§ 34-14 and 34-17. In
11
this case, Nguyen did all of this, and the bankruptcy and district
courts were correct in allowing his homestead exemption.
The district court's order is
AFFIRMED.
12