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Steelstone Industries v. McCrum
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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:	2001 ME 171
Docket:	Aro-01-433
Submitted 
on briefs:	November 7, 2001	
Decided:	December 17, 2001

Panel:SAUFLEY, C.J., and CLIFFORD, RUDMAN, DANA, ALEXANDER, and CALKINS, JJ.

								
								

STEELSTONE INDUSTRIES, INC.

v.

RODNEY E. McCRUM

ALEXANDER, J.

	[¶1]  Rodney E. McCrum appeals from the judgment of the Superior
Court (Aroostook, Pierson, J.) affirming the orders of the District Court
(Houlton, Griffiths, J.) finding that McCrum's individual retirement account
(IRA) is not exempt from collections of a money judgment because he had
not established that it was reasonably necessary for the support of himself
and his dependents.  McCrum asserts that the District Court erred as a
matter of law in allocating to him the burden of proof to establish the
exempt status of his IRA funds.  Because McCrum failed to make a prima
facie showing that the IRA was reasonably necessary for the support of
himself and his dependents, we affirm.

I. CASE HISTORY

	[¶2]  Steelstone Industries, Inc. purchased a $100,000 corporate
bond from Fresh Way, Inc., a Maine corporation d/b/a "Naturally Potatoes." 
McCrum and Francis Fitzpatrick{1} signed a personal guarantee to Steelstone
that they would repurchase the bond at face value, plus interest, if the bond
was not repaid within one year.  Naturally Potatoes failed to repay Steelstone
within the year.  After demand of payment, Steelstone obtained a judgment
in the Superior Court against McCrum and Fitzpatrick as individuals.{2}   The
Superior Court issued a writ of execution against them for the judgment
amount of $100,000, plus interest and costs of the action for a total of
$147,032.62. 
	[¶3]  Steelstone subpoenaed McCrum and Fitzpatrick to appear at
the District Court for a disclosure hearing.  14 M.R.S.A. § 3125 (1980 &
Supp. 2001). At the disclosure hearing, McCrum was questioned by
Steelstone regarding his income and assets.  McCrum's assets included an
annual salary of $67,000, a home valued at $110,000 with a $80,000
mortgage, a farm valued at $55,000, a 50% interest in a number of
corporations, an outstanding note valued at $15,000, a vehicle valued at
$2,000, and an IRA valued at $75,000.
	[¶4]  Upon hearing Steelstone's request for a turnover of the IRA,
McCrum sought a continuance of the hearing on the request for a turnover
because he was "not really prepared to answer the IRA question."  The
District Court denied McCrum's request for a continuance and ordered
McCrum to pay Steelstone $500 per month in partial satisfaction of the
judgment.  In addition, the court determined that McCrum's IRA did not
qualify as exempt property because it was not reasonably necessary to
support McCrum and his dependents.  14 M.R.S.A. § 4422(13)(E) (Supp.
2000).{3}  The District Court ordered McCrum to turn over the IRA to
Steelstone in partial satisfaction of the judgment. 
	[¶5]  McCrum filed a motion to amend the judgment, M.R. Civ. P.
59(e), on the grounds that the District Court failed to consider pertinent
factors necessary to conclude that the IRA was not exempt.  The District
Court denied McCrum's motion to amend.  McCrum appealed both District
Court orders to the Superior Court.  Finding no error of law and that the
facts were supported by the record, the Superior Court affirmed the District
Court's orders.  From this action, McCrum filed this appeal.

II. DISCUSSION

	[¶6]  "When the Superior Court acts as an intermediate appellate
court, we review the decisions of the District Court directly."  Dargie v.
Dargie, 2001 ME 127, ¶ 4, 778 A.2d 353, 355 (citing Kapler v. Kapler,
2000 ME 131, ¶ 6, 755 A.2d 502, 506).  What party has the burden of proof
in a disclosure hearing is a legal question.  Legal questions are subject to de
novo review.  Bissias v. Koulovatos, 2000 ME 189, ¶ 6, 761 A.2d 47, 49.  
	[¶7]  McCrum asserts that his IRA is exempt from collection
proceedings pursuant to 14 M.R.S.A. § 4422(13)(E) (Supp. 2000).  Section
4422 provides a list of exempt property that is applicable to state collection
proceedings and federal bankruptcy proceedings.  14 M.R.S.A. § 4422
(Supp. 2001).  As applicable to this case, section 4422(13)(E) exempted an
"individual retirement account . . . to the extent reasonably necessary for the
support of the debtor and any dependent of the debtor."  14 M.R.S.A.
§ 4422(13)(E) (Supp. 2000).  
	[¶8]  Relying on In re Bates, 176 B.R. 104, 106 (Bankr. D. Me. 1994)
McCrum contends that Steelstone bears the burden of proving that the IRA
funds were not reasonably necessary to support McCrum and his
dependents.  The Bates court noted that bankruptcy law provides that the
"objecting party has "the burden of 'proving that the exemptions are not
properly claimed.'"  Id. at 106 (quoting Fed. R. Bankr. P. 4003(c) and citing
In re Maylin, 155 B.R. 605, 614 (Bankr. D. Me. 1993)).  In Maylin, however,
the bankruptcy court explained that the debtor bears the initial burden of
presenting evidence on elements essential to claiming an exemption.  In re
Maylin, 155 B.R. at 614.  It is only after the debtor has established a prima
facie entitlement to an exemption that the burden shifts to the creditor. Id. 
	[¶9]  This is in accord with Daniels v. Daniels, 593 A.2d 658 (Me.
1991), where we stated that the homestead [residence] exemption required
"the debtor asserting an exemption [to] bear[] the burden of establishing
that he is entitled to a homestead [residence] exemption."  Id. at 660.  Prior
to being able to claim the exemption, we required the debtor to
demonstrate that he met the prerequisites outlined in the statute.  Only
after the debtor established a prima facie right to entitlement did the
creditor have the burden of presenting evidence to the contrary.  Id.  
	[¶10] Based on Maylin and Daniels, McCrum had the burden to at
least produce evidence indicating that the IRA was exempt because it was
necessary for the support of himself and his dependents.  McCrum failed to
meet this burden.  During the disclosure hearing McCrum referenced the
IRA in this way:

As far as the IRA, I said to them I'm not really
prepared to answer that IRA question.  I would like
to speak to my attorney on that.  I didn't dream that
they would go that deep, and I know under Maine
statute law it says that, you know, you have certain
things sometimes that can be done with your IRA,
but I know the minute I do pledge that it becomes
taxable, and that puts all that in jeopardy. 

At no point during the disclosure hearing did McCrum make a prima facie
showing that the IRA qualified for exemption pursuant to section
4422(13)(E) (Supp. 2000), nor did he present evidence regarding what
percentage of the IRA was necessary to support himself and his
dependents.{4}  Accordingly, the District Court did not err in its ruling that
McCrum had failed to make a prima facie showing that the IRA was exempt
pursuant to section 4422(13)(E) (Supp. 2000).  Because McCrum failed to
make a prima facie showing that the IRA was reasonably necessary for the
support of himself and his dependents, we need not reach the issue of who
bears the ultimate burden of proving that certain property is exempt from
attachment and execution pursuant to section 4422(13)(E) (Supp. 2000),
once evidence of qualification for the exemption has been presented. 
	The entry is:
			Judgment affirmed.
                                                        
Attorney for plaintiff:

Richard N. Solman, Esq.
P O Box 665
Caribou, ME 04736

Atorneys for defendant:

Barbara G. Shaw, Esq.
George J. Marcus, Esq.
Marcus, Clegg & Mistretta, P.A.
100 Middle Street, East Tower
Portland, ME 04101-4102