Malley v. Agin
693 F.3d 28
1st Cir.2012Background
- Malley filed Chapter 7; trustee sought to address concealment of non-exempt assets.
- Sale of Malley's former marital home netted over $250,000; Malley claimed he received nothing.
- Trustee believed about $27,000 of funds to ex-wife would be used to pay Malley’s credit card debt.
- Malley concealed receipt of $25,000 and misrepresented his use of assets/effects in disclosures.
- Disclosures and fraud led to denial of discharge under §727 and a surcharge against exempt property; question is whether §105(a) permits such surcharge.
- Court held that §105(a) authorizes the surcharge to offset fraud against exempt assets to comply with the Code.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §105(a) authorizes a surcharge against exempt assets for debtor fraud. | Malley argues against broad §105(a) power. | Agin contends §105(a) carries limited, enumerated remedies. | Yes; §105(a) authorizes surcharge against exempt assets. |
| Is the surcharge necessary to prevent abuse of process and carry out the Code provisions? | Malley claims it exceeds statutory authority and undermines exemption. | Agin asserts surcharge enforces §§521 and 522 and prevents abuse. | Yes; surcharge necessary to prevent abuse and enforce provisions. |
| Does imposing a surcharge on exempt property align with exemptions under §522 when fraud occurred? | Exemption remains intact; fraud cannot be offset against exempt assets. | Fraudulent concealment justifies offsetting exemptions to protect creditors. | Yes; offset aligns with enforcing honest disclosure and appropriate exemptions. |
| Should Scrivner’s view limiting §105(a) apply here? | Scrivner suggests no broadened remedy beyond enumerated ones. | No; §105(a) broad power extends to prevent abuse and carry out provisions. | No; §105(a) power broad enough to authorize surcharge. |
| Is Latman and Marrama consistent with the Court’s approach to §105(a) power? | Argues against expansive use of §105(a) citing Latman/Marrama limitation. | Cites Latman and Marrama as supporting broad power to prevent abuse of process. | Yes; Latman and Marrama support broad §105(a) authority. |
Key Cases Cited
- Latman v. Burdette, 366 F.3d 774 (9th Cir. 2004) (debtors' fraudulent concealment warrants offsetting exempt interests)
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (Supreme Court 2007) (bankruptcy judges may take actions to prevent abuse of process under §105(a))
- In re Hannigan, 409 F.3d 480 (1st Cir. 2005) (prior bad faith limits amendment of asset values)
- In re Scrivner, 535 F.3d 1258 (10th Cir. 2008) (enumerated remedies do not foreclose additional §105(a) powers)
- Perez v. Campbell, 402 U.S. 637 (U.S. 1971) (expresses bankruptcy policy objectives of honest debtor and creditor protection)