The Seventh Circuit Interprets Wisconsin Exemption Law on College Savings Accounts and Retirement Annuities, but Did It Have Jurisdiction? (Part 1 of 2)

In re Bronk (Cirilli v. Bronk), No. 13-1123 (7th Cir. Jan. 5, 2015), resolved a couple of “questions of first impression,” slip op. at 1, under Wisconsin’s exemption statute in a case where a bankruptcy trustee sought to upset a debtor’s pre-filing “exemption planning.” The debtor shifted the equity in his previously unmortgaged home into Edvest college savings accounts for his grandchildren and $42,000 from a certificate of deposit into an annuity.

The first question: who may claim the exemption, Wis. Stat. § 815.18(3)(p), for an Edvest account – the debtor-owner who set it up (and retained significant control over it, including the right to receive distributions from the account and even to remove funds from it), or only the beneficiaries? The court said the debtor-owner could claim the exemption, disagreeing with both the Western District’s bankruptcy court (Utschig, B.J.) and district court (Conley, D.J.).

Second: which exemption applies to the annuity – the unlimited one for retirement benefits, § 815.18(3)(j), or the annuities benefit under sub. (3)(f), limited to $4,000 for contracts (like this one) issued within two years of the bankruptcy filing? The court said the debtor could claim the broader exemption because this annuity included a death benefit, one of the triggers in the definition of a retirement benefit under sub. (3)(j)1. This holding for the debtor upheld the holdings in the lower courts, though on different reasoning than either of them had followed.

But the far more interesting issue in the case (to us) is how the Seventh Circuit got jurisdiction over the trustee’s appeal of the adverse decision on the annuity. It is axiomatic that the court of appeals has no jurisdiction to decide the merits if the district court lacked jurisdiction. This case had gone from the bankruptcy court to the district court on initial appeals by both debtor (on the Edvest issue) and trustee (annuity). The district court had affirmed the ruling for the trustee on Edvest but modified the bankruptcy court’s pro-debtor ruling on the annuity and vacated its judgment and remanded for further proceedings on that issue. At that point, neither party could have appealed to the Seventh Circuit (and neither tried), because the remand deprived the district court’s decision of finality. See In re Holland, 539 F.3d 563, 565 (7th Cir. 2008).

When the bankruptcy court finished dealing with the annuity issue (on which the debtor had prevailed), the debtor again appealed the Edvest issue, as the statute, 28 U.S.C. § 158(a), requires. But the trustee didn’t again appeal the annuity issue, which had been “resolved” against him by the district court on the prior appeal. Both parties appeared in the district court and told Judge Conley that they needed no further proceedings there. He “issued a summary order denying the [debtor’s] appeal while ‘preserving to the full extent possible the parties’ previous challenges before’” both lower courts. Both debtor and trustee appealed to the court of appeals, and the debtor moved to dismiss the trustee’s cross-appeal. The Seventh Circuit denied the motion in a footnote, slip op. at 7 n.2, citing only Luevano v. Wal-Mart Stores, Inc., 722 F.3d 1014 (7th Cir. 2013), a decision that seems wholly inapt and unsatisfying as an explanation for this quite different case. In a post tomorrow, we’ll explain why the court should have dismissed the trustee’s cross-appeal.