In re Goldenberg Case Analysis

In In re Goldenberg, 218 F.3d 1264 (11th Cir. 2000), the Eleventh Circuit upheld a surgeon’s IRA exemption over a creditor’s unfairness objection and certified to the Florida Supreme Court whether the cash surrender values of his seven annuities were exempt. The answer was yes, in Goldenberg v. Sawczak, 791 So. 2d 1078 (Fla. 2001), and the Eleventh Circuit then held the annuities exempt, 253 F.3d 1271 (11th Cir. 2001).

Neither court decided what happens when a debtor converts assets into exempt form to defeat a creditor. The creditor conceded that the IRAs were neither bought with fraud proceeds nor converted from nonexempt assets on the eve of bankruptcy. The annuities dated from 1989, years before the 1992 surgery. A conversion made with intent to defeat a creditor falls under Florida’s fraudulent-conversion statute, which the Goldenberg courts never reached.

The Malpractice Verdict and the Bankruptcy Filing

Alan Goldenberg, a surgeon, performed gall bladder surgery on Shirley Sawczak in April 1992 and cut through her common bile duct, leaving her with lifelong injuries. She sued him for malpractice in Broward County. Goldenberg carried no malpractice insurance.

On May 1, 1996, the day the jury was to begin deliberating, Goldenberg filed a chapter 7 petition. Sawczak moved that same day for relief from the automatic stay so the trial could finish. The bankruptcy court granted the motion, and the jury returned a verdict against Goldenberg for $4,000,629.

Goldenberg’s schedules, filed May 31, 1996, listed $3,791,119 in assets and claimed $3,751,678 as exempt. The claimed exemptions included $2,546,319 in IRAs and seven annuity contracts he valued at $355,894, along with a $4,460 salary account and a $3,259 office management account. Sawczak objected to every one of those exemptions, and the bankruptcy court overruled her on each.

The annuities were single premium deferred annuities that Goldenberg had bought in 1989, each with one premium payment. Each contract promised monthly payments beginning at a maturity date, the earliest in 2009, and each let him surrender the contract earlier for its cash surrender value, less a penalty that grew larger the earlier he surrendered. He was the owner and the annuitant of every contract.

The IRA Exemption and the Unfairness Argument

Both lower courts upheld Goldenberg’s exemption of $2,546,319 in IRAs, and Sawczak cross-appealed that ruling to the Eleventh Circuit. She conceded three things. Goldenberg had not acquired the IRAs with the proceeds of any fraud on her. The IRAs were not nonexempt assets converted into exempt assets on the eve of bankruptcy. On their face, the IRAs fit Florida’s retirement-account exemption in section 222.21.

Sawczak argued that the exemption should still be denied because allowing it would be an imposition upon creditors, a phrase drawn from Florida homestead decisions. In Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 2d 201 (Fla. 1962), the Florida Supreme Court said the homestead exemption may not become an instrument of fraud or imposition upon creditors.

The Eleventh Circuit rejected the argument as meritless in one paragraph and affirmed the district court on the IRAs. It did not analyze section 222.21 further. Sawczak had conceded that the accounts satisfied it and that nothing about their funding was fraudulent or a last-minute conversion. Filing bankruptcy while the malpractice jury waited to deliberate did not, by itself, cost Goldenberg the exemption.

The Certified Question on Annuity Surrender Value

Sawczak objected to the annuity exemption only to the extent of each contract’s surrender value. Florida’s annuity exemption, section 222.14, covers the proceeds of annuity contracts, and she argued that money received by surrendering a contract early is not proceeds. The bankruptcy court overruled her. It read neither the statute’s title nor its text as distinguishing surrender proceeds from the payments received after a contract is annuitized. It also declined to treat an annuity’s surrender value differently from a life insurance policy’s.

The district court reversed. It held that Goldenberg did not have annuity contracts until the funds matured. Until then, it reasoned, he held only revocable options to buy annuities later, so the $355,894 was not protected proceeds and Sawczak could reach it.

On Goldenberg’s appeal, Sawczak defended the ruling on two alternative grounds. She argued that he held only options to buy annuities when he filed, and that section 222.14 exempts only the proceeds of annuity contracts, which do not include cash surrender value. Neither side cited a Florida case deciding the question, and the Eleventh Circuit found none.

A certified question lets a federal appeals court ask a state supreme court to decide an unsettled question of state law that controls the federal case. The Eleventh Circuit certified whether the cash surrender values of Goldenberg’s annuity contracts are exempt from legal process under section 222.14. It sent the record and the briefs along, said the phrasing was not meant to limit the Florida court, and deferred the parties’ dispute over whether Sawczak could reach the contracts’ post-petition growth if they turned out not to be exempt.

What the Florida Supreme Court Answered

The Florida Supreme Court, in a unanimous opinion by Chief Justice Wells, answered the certified question yes. It held that the statute’s “proceeds of annuity contracts” cover what an owner gets by surrendering a contract before it matures, so an annuity’s proceeds are exempt even where a surrender penalty applies.

Section 222.14 protects two assets “upon whatever form.” One is a life insurance policy’s cash surrender value, when a Florida citizen or resident is the insured. The other, provided the contract was issued to a Florida citizen or resident, is the annuity’s proceeds. A creditor of the insured, and a creditor of the annuity’s beneficiary, cannot attach, garnish, or otherwise reach either one, unless the policy or contract was effected for that creditor’s benefit. The life insurance exemption dates from 1925, and the Legislature added annuity proceeds in 1978.

Goldenberg argued that Florida construes exemption statutes broadly, that “upon whatever form” makes the form of payment immaterial, and that the Legislature in 1977 and 1978 meant to give annuities the same protection as life insurance. Sawczak answered that the statute is clear and uses different words for the two assets, “cash surrender values” for life insurance and “proceeds” for annuities, so the express mention of one excludes the other.

The court began with Florida’s long-standing policy of construing exemption statutes liberally so that debtors do not become public charges, citing Killian v. Lawson (1980) and Sneed v. Davis (1938). It had construed section 222.14 both before and after the 1978 amendment, and the Legislature had never responded, which the court treated as acceptance of its reading.

Two of its own decisions carried the answer. Bank of Greenwood v. Rawls, 158 So. 173 (Fla. 1934), involved an insolvent husband who surrendered his life policy under a disability provision and endorsed the settlement check to his wife. The court held that “cash surrender value” includes any cash obtained by negotiating or agreeing to surrender the policy, because the statute says “upon whatever form, shall not in any case.”

As the court later explained in Zuckerman v. Hofrichter & Quiat, P.A., 646 So. 2d 187 (Fla. 1994), a disability-benefits case construing the same kind of language, those words make the form of payment irrelevant.

In In re McCollam, 612 So. 2d 572 (Fla. 1993), the court held that a structured settlement paying monthly sums for a term of years was an annuity contract. It said the statute “clearly exempts all annuity contracts” and that the Legislature would have added restrictive language had it meant to limit the exemption. The Legislature never has.

The court read the statute’s terms as clear and saw no need for legislative history. The 1978 amendment simply added annuity contracts to the existing exemption. Sawczak wanted “proceeds” limited to the payments that begin at maturity. The court saw no basis for that narrow reading in the statute or in the ordinary meaning of the word. A dictionary defines proceeds as the net amount received after any discount or charges are deducted, and the only difference between a payment stream after maturity and a settlement payment before it is the surrender charge.

Sawczak had conceded at oral argument that the seven contracts were garden-variety annuities. There was no finding that Goldenberg bought them to hide assets from her, presumably, the court said, because he bought them years before the malpractice. The bankruptcy court had noted that he paid the premiums with exempt pension funds, and the Florida Supreme Court held the source of the funds irrelevant to section 222.14.

Sawczak had also argued that if the surrender value was not exempt, the right to surrender the contracts would pass to the bankruptcy trustee to exercise for creditors. The court noted that argument in a footnote and did not discuss it further.

The Eleventh Circuit’s Decision on Return

With the answer in hand, the Eleventh Circuit revisited its 2000 decision on June 12, 2001. It quoted the Florida Supreme Court’s holding, concluded that Goldenberg’s annuity contracts are exempt under Florida law, and held that the district court had erred. It reversed as to the $355,894 in annuity contracts and remanded for further proceedings.

The court added in a footnote that its earlier affirmance of the $2,546,319 IRA exemption stood and was unaffected by the reversal on the annuities. As the Florida Supreme Court had described the appeals, the Eleventh Circuit had already affirmed the district court on every other exemption, so after the remand every exemption Sawczak had contested stood.

What Goldenberg Means for Exemption Timing

A Florida debtor’s exempt IRAs stay exempt even when the bankruptcy is filed the day a malpractice jury is to begin deliberating. The condition is that the accounts were not funded with fraud proceeds or converted from nonexempt assets at the last minute. Sawczak’s concessions took both questions out of the case, and the Eleventh Circuit refused to add an unfairness exception to section 222.21’s own terms.

The decision says nothing about a debtor who moves nonexempt money into an IRA or an annuity after a claim arises. Florida’s fraudulent-conversion statute, section 222.30, applies when a debtor turns nonexempt property into an exempt asset with the intent to hinder, delay, or defraud a creditor. A conversion standing alone does not prove that intent. The constitutional homestead exemption sits outside that statute’s reach, as the Florida Supreme Court held the same year in Havoco v. Hill.

In Florida the cash surrender value of an unmatured annuity is exempt, which leaves a bankruptcy trustee no surrender value to collect. Florida’s annuity exemption has no dollar cap, and Goldenberg confirms that a surrender penalty does not change the character of the proceeds. Goldenberg was both owner and annuitant of every contract, so the case did not test what happens when the debtor owns a contract that names someone else as beneficiary.

Florida’s IRA exemption likewise has no dollar limit, and Goldenberg is the Eleventh Circuit decision rejecting a creditor’s attempt to import the homestead cases’ fraud-or-imposition language into section 222.21. Among the Florida exemption decisions, Goldenberg is the Florida Supreme Court’s word on annuity surrender value and the Eleventh Circuit’s on a mid-trial bankruptcy filing. All three decisions belong to the Florida asset protection case law that decides what a Florida debtor keeps in bankruptcy.