131 Nev., Advance Opinion 85
IN THE SUPREME COURT OF THE STATE OF NEVADA
ERNEST A. BECKER, IV, No. 65335
INDIVIDUALLY; ERNEST A. BECKER,
IV, AND KATHLEEN BECKER, AS
TRUSTEES OF THE ERNEST A.
BECKER, IV, AND KATHLEEN C.
BECKER FAMILY TRUST; EB FAMILY
OCT 29 2015
HOLDINGS, LLC; KIMBERLY RIGGS;
SALLIE BECKER; BRIAN BECKER;
AND WILLIAM A. LEONARD,
TRUSTEE,
Appellants,
vs.
ERNEST AUGUST BECKER, V,
Respondent.
Certified question under NRAP 5 concerning the extent to
which stocks in a closely held corporation are exempt property in
bankruptcy proceedings under NRS 21.090(1)(bb) and NRS 78.746.
United States Bankruptcy Court, District of Nevada; Bruce T. Beesley,
Bankruptcy Court Judge.
Question answered.
Nitz Walton & Heaton, Ltd., and James H. Walton, Las Vegas,
for Appellants Ernest A. Becker, IV, individually; Ernest A. Becker, IV,
and Kathleen Becker, as Trustees of the Ernest A. Becker, IV, and
Kathleen C. Becker Family Trust; EB Family Holdings, LLC; Kimberly
Riggs; Sallie Becker; and Brian Becker.
Schwartzer & McPherson Law Firm and Jason A. Imes and Lenard E.
Schwartzer, Las Vegas, for Appellant William A. Leonard.
Mh evrreosi--ezi pe-r
o;
Mark Segal, Chartered, and Mark Bruce Segal, Las Vegas; The Law Office
of Monica T. Centeno, a Professional Corporation, and Monica T. Centeno
for Respondent.
BEFORE THE COURT EN BANC.
OPINION
By the Court, GIBBONS, J.:
In response to a certified question submitted by the United
States Bankruptcy Court for the District of Nevada, we consider whether
NRS 21.090(1)(bb) allows a debtor to exempt his entire interest in a closely
held corporation, or whether the exemption is limited to the debtor's
noneconomic interest in the corporation. We conclude that under NRS
21.090(1)(bb), a debtor can exempt his stock in the corporations described
in NRS 78.746(2), but his economic interest in that stock can still be
subject to the charging order remedy in NRS 78.746(1).
FACTUAL AND PROCEDURAL BACKGROUND
Appellant Ernest A. Becker (debtor) filed a voluntary Chapter
7 bankruptcy petition. On his personal property schedule, debtor listed
"Ensworth Corporate Stock" with a value of $1,362,000, and "Eagle Rock
Gaming, Inc.," stock with a value of $219,000. On his claimed exemption
schedule, debtor asserted that, pursuant to NRS 21.090(1)(bb), his entire
interest in both corporations' stock was exempt from the bankruptcy
estate.
Several creditors, interested parties, and the bankruptcy
trustee (collectively, the objecting parties) filed objections. The objecting
parties argued that under NRS 21.090(1)(bb), debtor can only exempt his
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noneconomic interest in the corporate stock and that debtor's economic
interests, including all distributions and dividends, are part of the
bankruptcy estate. The bankruptcy court held a hearing on the matter
and decided to certify a question to this court.
In its certified question, the bankruptcy court asks whether
NRS 21.090(1)(bb) allows a debtor to exempt his entire interest in a closely
held corporation' or whether the exemption is limited to the debtor's
noneconomic interest in the corporation.
DISCUSSION
"Under NRAP 5(a), this court may answer questions of law
certified to it by federal courts when the 'answers may "be determinative"
of part of the federal case, there is no controlling [Nevada] precedent, and
the answer will help settle important questions of law." Savage v.
Pierson, 123 Nev. 86, 89,
157 P.3d 697, 699 (2007) (quoting Volvo Cars of
N. Am. v. Ricci, 122 Nev. 746, 751,
137 P.3d 1161, 1164 (2006)). In the
present case, (1) answering the question presented by the bankruptcy
court will determine part of an ongoing bankruptcy case, (2) it appears
'Although the bankruptcy court described the corporations as
"closely held" corporations, it did not specify how many persons are
stockholders of record of the corporations, whether the corporations are
publicly traded, or whether the corporations were incorporated under NRS
Chapter 78 (private corporations) or 78A (close corporations) or another
NRS chapter. The parties have not addressed these questions or raised
them as issues and thus, for purposes of this opinion, we assume that the
corporations are not publicly traded and interpret "closely held" to mean
that the corporations have less than 100 shareholders. See NRS
78.746(2)(c)(1)-(2). Because NRS 78.746 is applicable to close corporations
under NRS 78A.010, we also assume that the corporations are
incorporated under either NRS Chapter 78 or 78A.
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that there is no Nevada precedent on the question presented in this case,
and (3) the answer will settle an important question of law regarding the
scope of NRS 21.090(1)(bb). Accordingly, we will address the question
presented to this court.
Standard of review
This case raises issues of statutory interpretation that this
court reviews de novo. MGM Mirage v. Nev. Ins. Guar. Ass'n, 125 Nev.
223, 226-27,
209 P.3d 766, 768 (2009). "This court has established that
when it is presented with an issue of statutory interpretation, it should
give effect to the statute's plain meaning." Id. at 228,
209 P.3d at 769.
"Thus, when the language of a statute is plain and unambiguous, such
that it is capable of only one meaning, this court should not construe that
statute otherwise." Id. at 228-29,
209 P.3d at 769.
NRS 21.090(1)(bb) does not provide for a complete exemption of corporate
stock
"When a debtor files a Chapter 7 bankruptcy petition, all of
the debtor's assets become property of the bankruptcy estate. . . subject to
the debtor's right to reclaim certain property as 'exempt." , Schwab v.
CZN3)
Reilly, 560 U.S. 770, 774 (2010). Under
11 U.S.C. § 522(bA debtors may
choose the exemptions afforded by state law. Thus, bankruptcy debtors in
Nevada may claim the exemptions listed in NRS Chapter 21.
In the present case, debtor seeks to exempt his stock in two
closely held corporations pursuant to NRS 21.090(1)(bb). Debtor argues
that NRS 21.090(1)(bb) allows him to exempt both his economic and
noneconomic interests in the closely held corporations. In contrast, the
objecting parties argue that NRS 21.090(1)(bb) only allows debtor to
exempt his noneconomic interests in the closely held corporations.
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NRS 21.090(1)(bb) states:
1. The following property is exempt from
execution, except as otherwise specifically
provided in this section or required by federal law:
(bb) Stock of a corporation described in
subsection 2 of NRS 78.746 except as set forth in
that section.
(Emphasis added.) Thus, understanding what NRS 21.090(1)(bb) exempts
requires examining NRS 78.746.
Background and effect of NRS 78.746
NRS 78.746 allows creditors to obtain charging orders against
a debtor's interest in small, nonpublic corporations. NRS 78.746(1). NRS
78.746 states:
1. On application to a court of competent
jurisdiction by any judgment creditor of a
stockholder, the court may charge the
stockholder's stock with payment of the
unsatisfied amount of the judgment with interest.
To the extent so charged, the judgment creditor
has only the rights of an assignee of the
stockholder's stock.
2. Subject to the provisions of NRS 78.747,
this section:
(a) Provides the exclusive remedy by which
a judgment creditor of a stockholder or an
assignee of a stockholder may satisfy a judgment
out of the stock of the judgment debtor. No other
remedy, including, without limitation, foreclosure
on the stockholder's stock or a court order for
directions, accounts and inquiries that the debtor
or stockholder might have made, is available to
the judgment creditor attempting to satisfy the
judgment out of the judgment debtor's interest in
the corporation, and no other remedy may be
ordered by a court.
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(b) Does not deprive any stockholder of the
benefit of any exemption applicable to the
stockholder's stock.
(c) Applies only to a corporation that:
(1) Has fewer than 100 stockholders
of record at any time.
(2) Is not a publicly traded
corporation or a subsidiary of a publicly traded
corporation, either in whole or in part.
(3) Is not a professional corporation as
defined in NRS 89.020.
(d) Does not apply to any liability of a
stockholder that exists as the result of an action
filed before July 1, 2007.
(e) Does not supersede any written
agreement between a stockholder and a creditor if
the written agreement does not conflict with the
corporation's articles of incorporation, by laws or
any shareholder agreement to which the
stockholder is a party.
3. As used in this section, "rights of an
assignee" means the rights to receive the share of
the distributions or dividends paid by the
corporation to which the judgment debtor would
otherwise be entitled. The term does not include
the rights to participate in the management of the
business or affairs of the corporation or to become
a director of the corporation.
(Emphases added.)
A charging order is "[a] statutory procedure whereby an
individual [shareholder's] creditor can satisfy its claim from the
•
[shareholder's] interest in the [corporation]. Black's Law Dictionary 283
(10th ed. 2014). NRS 78.746 limits the creditor's attachment, however, to
the debtor's economic interest in the corporations. NRS 78.746(1), (3). In
other words, a creditor can get a charging order to attach a debtor's
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stream of income from the corporation, such as distributions and
dividends, but the creditor cannot foreclose on the shares or take over
management of the corporation. Id. NRS 78.746 prohibits creditors from
attaching debtors' noneconomic interests in small corporations because
"most . . . closely-held corporations are family-owned and they
would . . . be disrupted" if creditors could take over management. Hearing
on S.B. 317 Before the Assembly Comm. on Judiciary, 74th Leg. (Nev.,
May 7, 2007). Accordingly, NRS 78.746 strikes a balance by allowing
creditors to satisfy their judgments from the debtor's economic interest in
the corporation, without disturbing the corporation's management. See id.
Thus, creditors can obtain a charging order to charge a debtor
shareholder's interest in a corporation, but creditors only have the rights
of an assignee, NRS 78.746(1), who only has a right to the shareholder's
economic interest in the corporation. NRS 78.746(3). And, the charging
order remedy in NRS 78.746(1) only applies to small, nonpublic
corporations. NRS 78.746(2)(c); see also NRS 86.401; Weddell v. H20, Inc.,
128 Nev., Adv. Op. 9, 271 P.3d 743 (2012) (limiting a charging order to a
debtor's economic interest in a limited liability company); but see NRS
87.280; Tupper v. Kroc, 88 Nev. 146,
494 P.2d 1275 (1972) (permitting
foreclosure of a charging order against a partnership interest).
Stock that is exempt under NRS 21.090(1)(bb) can still be subject to a
charging order pursuant to NRS 78.746(1)
Although NRS 78.746 permits a creditor to charge a debtor's
stock, debtor argues that NRS 21.090(1)(bb)'s language exempting "[s]tock
of a corporation described in subsection 2 of NRS 78.746 except as set forth
in that section" (emphasis added) means that he gets a complete
exemption of his corporate stock—both his economic and noneconomic
interests—as long as his corporations meet the criteria for closely held
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corporations in NRS 78.746(2)(c). Debtor contends that the only reason
NRS 78.746 is referenced in NRS 21.090(1)(bb) is to explain what type of
stock is completely exempt—i.e., stock in closely held corporations.
In contrast, the objecting parties argue that NRS
21.090(1)(bb)'s language permits debtors to exempt stock in corporations—
as described in NRS 78.746(2)—but only to the extent allowed by the rest
of NRS 78.746. In other words, a debtor may exempt his noneconomic
interest in small corporations, but creditors may still obtain a charging
order against his economic interests pursuant to NRS 78.746(1).
We hold that NRS 21.090(1)(bb) does not provide for a
complete exemption of stock in small corporations. We conclude that use
of the word "section" in "except as set forth in that section" in NRS
21.090(1)(bb) shows that the exemption is limited by all of NRS 78.746,
including NRS 78.746(1)'s charging order remedy. See Perry v. First Nat'l
Bank, 459 F.3d 816, 820 (7th Cir. 2006) ("[T]he phrase 'this section' [in a
statute] unambiguously refers to [the] section. . . as a whole."). Thus,
based on a plain reading of NRS 21.090(1)(bb), debtors can exempt stock
in corporations that meet the criteria in NRS 78.746(2), but the stock can
still be subject to a charging order pursuant to NRS 78.746(1). If a
charging order is issued, the creditors charge the debtor's economic
interest in the corporation, but the debtor retains his noneconomic interest
in the corporation. NRS 78.746(3).
NRS 78.746(2)(b) does not prohibit charging orders on shares of stock
Debtor argues, however, that NRS 78.746(2)(b)'s provision
that "this section[ d]oes not deprive any stockholder of the benefit of any
exemption applicable to the stockholder's stock" means that his corporate
stock exemption cannot be limited in any way, such as limiting it to his
noneconomic interest in the stock. We disagree.
We conclude that NRS 78.746(2)(b) simply clarifies that NRS
78.746(1)'s charging order remedy does not prohibit debtors from claiming
other exemptions that apply to their economic interest in the corporation.
For example, NRS 21.090(1)(z)—the so-called wildcard exemption—allows
a debtor to exempt up to $1,000 in any personal property, including stock.
Thus, NRS 78.746(2)(b) simply clarifies that even though a creditor can
charge a debtor's economic interest in a corporation, the debtor can still
apply the wildcard exemption to retain up to $1,000 in distributions from
the corporation. 2 See In re Foos, 405 B.R. 604, 609 (Bankr. N.D. Ohio
2009) (concluding that a statute similar to NRS 78.746(2)(b) simply
clarifies that although creditors can attach a debtor's economic interest in
a partnership, the debtor can still claim other exemptions that apply to his
economic interest).
Further, debtor's interpretation of NRS 21.090(1)(bb) and NRS
78.746(2)(b)—that they provide for a complete exemption of stock in small
corporations—would render NRS 78.746(1) meaningless. See Carson-Tahoe Hosp. v. Bldg. & Constr. Trades Council of N. Nev., 122 Nev. 218,
220,
128 P.3d 1065, 1067 (2006) (stating that "[n]o part of a statute should
be rendered meaningless"). NRS 78.746(1) allows for charging orders so
that judgment creditors can attach shareholders' economic interest in
small corporations. If NRS 21.090(1)(bb) and NRS 78.746(2)(b) then
allowed for a complete exemption of stock, judgment creditors could never
2 There are several other exemptions that could possib
ly apply to a
debtor's economic interest in a closely held corporation, for example, if the
debtor received the stock as payment for criminal restitution, NRS
21.090(1)(x), or as compensation for a personal injury, NRS 21.090(1)(u).
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get the charging order remedy in NRS 78.746(1). Such an interpretation
is impermissible.
CONCLUSION
We conclude that based on a plain reading, NRS
21.090(1)(bb)'s language exempting "[shock of a corporation described in
subsection 2 of NRS 78.746 except as set forth in that section" (emphasis
added) means that a debtor can exempt stock in the corporations described
in NRS 78.746(2), but his economic interest in that stock can still be
subject to the charging order remedy in NRS 78.746(1). 3
ibbons
We concur:
Cr-A. , C.J.
Hardesty Parraguirre
J.
Saitta
3 We have considered the parties' remaining arguments and conclud
e
that they are without merit.
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