In Re Fiorillo
MEMORANDUM AND ORDER
Facing imminent foreclosure, Appellants Debtor Nicholas Fiorillo filed for Chapter
I. BACKGROUND
A. Factual and Procedural Background
Nicholas Fiorillo filed his pro se petition for Chapter 11 bankruptcy as an individual on August 23, 2010. As part of his bankruptcy petition, Fiorillo included an “Exhibit D” — signed under penalty of perjury- — certifying compliance with the Bankruptcy Code’s credit counseling requirement, 11 U.S.C. § 109(h). The form includes four numbered options with accompanying check boxes: (1) certifying that the debtor has taken such a course within 180 days and attaching a certificate of completion; (2) certifying that the debt- or has taken such a course within 180 days but has yet to obtain certification; (3) certifying that the debtor requested counseling but could not receive said counseling due to exigent circumstances and requesting a temporary waiver; or (4) certifying that the debtor is exempt from the credit counseling requirement.
Fiorillo checked the second box, indicating that he had received approved credit counseling but had yet to obtain certification. However, he also stated, under the third (unchecked) option, that he “had an agreed upon arrangement with [his] main creditor to except [sic ] good funds to pay off existing obligation. At the last minute Creditor did not accept agreed upon payment and now is trying to auction of [sic ] an asset today.” He did not then submit any certification within fifteen days, as required by 11 U.S.C. § 521(b)(1), and did not file the necessary certification and motion required by 11 U.S.C. § 109(h)(3) to obtain the temporary waiver. He did, however, take advantage of the Bankruptcy Code’s automatic-stay provision, 11 U.S.C. § 362(a), to stay the foreclosure sale referred to in his petition.
On September 15, 2010, Fiorillo filed a motion to dismiss his petition, and a hearing on the motion was scheduled for October 21, 2010. And, on October 5, 2010, Fiorillo moved the Bankruptcy Court for leave to amend his Exhibit D filing, stating that “[t]he debtor erred in checking the correct explanation of his credit counseling status.” The motion represented that Fiorillo had mistakenly checked the box for the second option, but that “[t]he debt- or had not taken the course before his filing and as stated below in box 3 of his initial filing, an explanation of his exigent circumstance was provided.” On October 25, 2010, the Bankruptcy Court granted the motion to amend Fiorillo’s Exhibit D to reflect that he had not taken the course but was requesting a temporary waiver due to the stated exigent circumstances.
Meanwhile, Fiorillo’s bankruptcy action proceeded. On September 7 and 21, 2010, Fiorillo moved for additional time to file his schedules; the first motion was granted and the second denied. Fiorillo failed to file the required documents by the date
Accordingly, the Chapter 7 proceeding marched forward. On October 25, 2010, the Bankruptcy Court allowed Fiorillo’s most recent motion (of several) seeking to postpone filing his schedules and financial statements and stated that “no further extensions will be granted.” A court order issued stating that disclosures were due on November 1, 2010, and giving notice of a second Section 341 meeting on November 2, 2010.
Having again failed to postpone filing his financial disclosures, Fiorillo filed an “Emergency Motion to Dismiss Chapter 7 Bankruptcy Case” on October 29, 2010. The motion came just three days after the Bankruptcy Judge allowed Fiorillo’s motion to amend Exhibit D and four days before the schedules were due. In his motion, Fiorillo sought dismissal of his action on the ground that he was ineligible for relief under the Bankruptcy Code because he had not taken the required credit-counseling course prior to filing for bankruptcy. Fiorillo also argued that the exigent circumstances that he (twice) certified as truthful under penalty of perjury were actually insufficient to constitute exigent circumstances under the statute and, therefore, he could not have been granted a temporary waiver of the § 109(h) requirement. Fiorillo maintained that his motion was an “emergency” motion because his schedules were due on November 1, 2010, and “[t]he Debtor should not have to provide schedules to the public and be questioned under oath in an adversarial setting when there is no jurisdictional basis for doing so.”
The Bankruptcy Court promptly denied Fiorillo’s emergency motion. The endorsement read: “Denied. The debtor is estopped from claiming the lack of credit counseling based on his certification under the penalty of perjury that he completed the requisite credit counseling. The debt- or is ordered to file a certificate of credit counseling within 14 days of the date of this order.” Fiorillo now appeals the Bankruptcy Court’s denial of his emergency motion.
Following the initiation of the appellate proceedings in this court, the parties continued to dispute Fiorillo’s credit-counseling compliance in the Bankruptcy Court.
1
Fiorillo did not file a credit-counseling certificate within fourteen days as required by the Bankruptcy Court’s October 28, 2010, order. Consequently, the Trustee filed a motion seeking to compel Fiorillo to file such a certification, and, over objection and following a second court order, Fiorillo filed the certification on January 31, 2011. The certification states that Fiorillo completed the required credit-counseling course on September 7, 2010, prior to filing his motion to amend Exhibit
B. Statutory Background
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPC-PA”), Pub. Law No. 109-8, 119 Stat. 23, ushered in the most extensive reform of the Bankruptcy Code in decades. In enacting BAPCPA, Congress aimed to limit “the recent escalation of consumer bankruptcy filings,” H.R.Rep. No. 109-31, at 3, 2005 U.S.C.C.A.N. at 90. In particular, as the title of the bill indicates, “[t]he purpose of [BAPCPA] is to improve bankruptcy law and practice by restoring personal responsibility and integrity to the bankruptcy system and ensure that the system is fair for both debtors and creditors.”
Id.
at 1. 2005 U.S.C.C.A.N. at 89;
see also Wi-rum v. Warren (In re Warren),
To that end, BAPCPA imposed a number of new eligibility and disclosure obligations on would-be debtors, including § 109(h), which requires debtors to receive credit counseling before filing for bankruptcy.
See
BAPCPA §§ 106, 107. The additional eligibility obligations established by BAPCPA, and § 109(h) in particular, have led to a wave of litigation regarding the effect of BAPCPA on the Bankruptcy Court’s discretion in bankruptcy proceedings.
See, e.g., In re Amir,
Section 109(h) “requires debtors to receive credit counseling before they can be eligible for bankruptcy relief so that they will make an informed choice about bankruptcy, its alternatives, and consequences.” 3 H.R. Rep. NO. 109-31, at 2 (2005), reprinted in 2005 U.S.C.C.A.N. at 89. At the time Fiorillo filed his petition in the Bankruptcy Court, 11 U.S.C. § 109(h)(1) stated:
Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budged and credit counseling agency described in section 111(a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.
11 U.S.C. § 109(h)(1) (emphases added).
4
Certification of compliance with
Unlike the new disclosure requirements added by BARA and listed in 11 U.S.C. § 521(a)(1), failure to comply with the filing requirements under 11 U.S.C. § 521(b)(1) does not lead to automatic dismissal. Compare 11 U.S.C. § 521(i)(l) (“[I]f an individual debtor in a voluntary case under chapter 7 or 13 fails to file all of the information required under subsection (a)(1) within 45 days after the date of the filing of the petition, the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition [unless the deadline is extended by the court].” (emphasis added)), with 11 U.S.C. § 521(b)(1) (“In addition to the requirements under subsection (a), a debtor who is an individual shall file with the court ... a certificate from the approved nonprofit budget and credit counseling agency that provided the debtor services under section 109(h) describing the services provided to the debtor.”).
Section 109(h) provides three exceptions to the requirement established by § 109(h)(1). The only arguably applicable exception available in this case, 5 exigent circumstances under § 109(h)(3), was invoked by the Appellant himself on his Exhibit D form and in his motion to amend that form. This narrow exception, in essence, provides a temporary waiver for up to forty-five days 6 to
a debtor who submits to the court a certification that—
(i) describes exigent circumstances that merit a waiver of the requirements of paragraph (1);
(ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in paragraph (1) during the 7-day period beginning on the date on which the debtor made that request; and
(iii) is satisfactory to the court.
11 U.S.C. § 109(h)(3)(A) (emphasis added). Courts have interpreted this provision to obligate a debtor seeking such an exemption to make a showing of all three requirements in a certificate or motion to the court in order to obtain the temporary waiver.
See, e.g., In re Falcone,
II. STANDARD OF REVIEW
Rule 8013 of the Federal Rules of Bankruptcy Procedure provides that “[o]n an appeal the district court ... may affirm, modify, or reverse a bankruptcy judge’s judgment, order or decree or remand with instructions for further proceedings.”
In conducting this appellate review, the District Court reviews the Bankruptcy Court’s findings of fact for clear error.
Richmond v. N.H. Supreme Court Comm. on Prof'l Conduct,
By contrast, the Bankruptcy Court’s conclusions of law, including statutory construction, are subject to
de novo
review.
Flynn v. Bankowski (In re Flynn),
The Trustee maintains that abuse of discretion is the appropriate standard of review for a bankruptcy court’s determination of a motion to dismiss. This is the applicable standard of review for a bankruptcy court’s decision to grant or deny a motion to dismiss a Chapter 7 bankruptcy proceeding for cause, such as under 11 U.S.C. § 707(a).
7
See In re Abi-joe Realty Corp.,
This standard for motions implicating judicial estoppel in bankruptcy court decisions is consistent with the First Circuit’s case law holding that abuse of discretion is the appropriate standard for appellate review of a District Court’s application of judicial estoppel,
Alt. Sys. Concepts, Inc. v. Synopsys, Inc.,
Accordingly, once it is determined as a matter of law that the equitable doctrine of estoppel is implicated, any application of that doctrine by the Bankruptcy Court is reversible by the reviewing District Court only if it constitutes an abuse of discretion.
See also Jackson v. Novak (In re Jackson),
III. DISCUSSION
Since the enactment of BAPCPA, there has been a continuing flood of cases addressing debtors’ noncompliance with § 109(h). In channeling this flood, courts have addressed inter alia, (A) whether the section removes a bankruptcy case from a Bankruptcy Court’s jurisdiction or requires automatic or mandatory dismissal; (B) whether § 109(h) is subject to discretionary waiver by the court; and (C) whether equitable estoppel may justify denying dismissal. While the overwhelming source of the flood of § 109(h) cases is found in disputes where the debtor is objecting to dismissal, a trickle arises from disputes where the debtor seeks to dismiss the case due to his own failure to comply with § 109(h).
While courts have divided on nearly every question posed by trustees’ and creditors’ motions to dismiss, there is relative consensus among the few courts that have addressed debtors’ motions, especially when the debtor’s motive for seeking dismissal is other than pure. BAPCPA, and § 109(h) in particular, may have cabined the Bankruptcy Court’s discretion in many ways, but courts have consistently held that the Bankruptcy Court retains its core equitable role of “taking any action or making any determination necessary or appropriate ... to prevent an abuse of process.” 11 U.S.C. § 105(a). For this reason, as I will explain more fully herein, I will affirm the bankruptcy court’s denial of the motion to dismiss.
A. Jurisdiction and Automatic Dismissal
Fiorillo’s argument is, superficially, logical: (A) in order to be a debtor under the Bankruptcy Code, a bankruptcy petitioner must comply with § 109(h); (B) if a petitioner is not a “debtor,” he is not entitled to bankruptcy relief; (C) thus, such a petition must be dismissed; therefore, because (D) Fiorillo did not comply with § 109(h); (E) Fiorillo cannot be a debtor, and the Bankruptcy Court cannot grant him any relief under the Bankruptcy Code; consequently (F) his case must be dismissed.
The Trustee, however, argues that § 109(h) is not jurisdictional, and Fiorillo recognizes in his appellate brief that the majority of courts have so decided. Fioril-lo nevertheless maintains — in slightly different language — that dismissal is required here because the Bankruptcy Court has no jurisdiction to grant relief to an ineligible debtor. He argues that the Bankruptcy Court has no discretion to waive the statutory requirements of § 109(h), and, in any case cannot grant relief to an ineligible debtor such as himself.
1. Jurisdiction and § 109(h)
There was initially a division among courts regarding whether § 109(h) is jurisdictional, but there is now an emerging consensus that it is not. The early decisions finding § 109(h) jurisdictional “considered the bankruptcy case a nullity, or at least not a pending case for purposes of 11 U.S.C. § 362(c) and (4).”
See In re Crawford,
However, I conclude that § 109(h) is nonjurisdictional. The Second Circuit and the Bankruptcy Appellate Panels of two other circuits have recently adopted this approach, and I am persuaded that their reasoning is sound.
See Adams v. Zarnel (In re Zarnel),
The
Zamel
court first concluded that
Arbaugh v.Y & H Corp.,
2. Mandatory Dismissal and § 109(h)
Having determined that the § 109(h) requirement is nonjurisdictional, I next face the question whether noncompliance with § 109(h) mandates dismissal of the case. The Bankruptcy Code “does not expressly state whether dismissal of the case, or some other remedy, is required or appropriate” when a debtor does not comply with § 109(h).
In re Crawford,
As courts falling on both sides of this division have acknowledged, “the majority of courts have held that mandatory dismissal is the appropriate remedy, even though it can yield a harsh result.”
9
In re Borges,
A developing approach has held that the Bankruptcy Court retains some discretion after BAPCPA to waive the credit-counseling requirement in limited circumstances or to find “substantial compliance” sufficient to satisfy § 109(h).
10
This approach generally relies on the reasoning of either
In re Manalad,
Bankruptcy Court sessions in this district appear themselves divided on this issue.
In re Duplessis,
No. 06-14747,
Although Fiorillo urges me to hold that strict adherence with § 109(h) is required, I decline to do so here. The Bankruptcy Court denied Fiorillo’s motion on the grounds that he was estopped from altering his previous representations that he had complied with § 109(h). Because courts have consistently held that § 109(h), as a nonjurisdictional requirement, is subject to the equitable doctrine of estoppel, I need not resolve the question whether the bankruptcy court has the discretion to waive strict compliance with the mandates of § 109(h). 14 Instead, I will affirm on the basis of estoppel.
B. Estoppel and § 109(h)
Judicial estoppel “is an equitable doctrine that protects the integrity of the judicial process.”
New Hampshire v. Maine,
Bankruptcy courts have often used es-toppel to prevent prejudice to creditors when a debtor “actively participat[es] in the bankruptcy case, albeit only in ways she deem[s] beneficial to her.”
In re Willis,
While no court in the First Circuit has applied estoppel to § 109(h), I have found no opinion in which a court that has addressed the issue has held the doctrine inapplicable.
15
Even some courts that adopt a mandatory-dismissal approach to § 109(h) have acknowledged that estoppel provides an exception to otherwise strict adherence.
In re Bain,
No. 08-13395,
The courts that have applied es-toppel to § 109(h) have largely relied on the reasoning of
In re Parker,
Finding the doctrine of judicial estoppel applicable to § 109(h) is also consistent with the Supreme Court’s recent decision in
Marrama v. Citizens Bank of Mass.,
In
Marrama,
the Supreme Court held that a debtor who “acts in bad faith prior to, or in the course of, filing” for bankruptcy forfeits his statutory right to convert a Chapter 7 proceeding to a Chapter 13 proceeding under 11 U.S.C. § 706(a). The Court emphasized that, in the Bankruptcy Code, “[a] statutory provision protecting a borrower from waiver is not a shield against forfeiture.”
Id.
at 374,
Nothing in the text of either § 706 or § 1307(c) (or the legislative history of either provision) limits the authority of the court to take appropriate action in response to fraudulent conduct by the atypical litigant who has demonstrated that he is not entitled to the relief available to the typical debtor. On the contrary, the broad authority granted to bankruptcy judges to take any action that is necessary or appropriate “to prevent an abuse of process” described in § 105(a) of the Code, is surely adequate to authorize an immediate denial of a motion to convert filed under § 706 in lieu of a conversion order that merely postpones the allowance of equivalent relief and may provide a debtor with an opportunity to take action prejudicial to creditors.
Id.
at 374-75,
part of an abuse-prevention package. With Congress’s core purpose in mind, we are reluctant to read into the statute by implication a new limit on judicial discretion that would encourage rather than discourage bankruptcy abuse. It is safe to say that Congress, in enacting BAPCPA, was not bent on placing additional weapons in the hands of abusive debtors.
Id. The First Circuit warned that holding otherwise would not “honor the [abuse-prevention] policy behind the Act” “[b]e-cause ... debtors with something to hide are liable to treat dismissal as an escape hatch to be opened as needed.” Id. at 12-13. This holding, in the face of a statutory automatic-dismissal provision, suggests that judicial estoppel survived any limitation on the Bankruptcy Court’s discretion ushered in by BAPCPA.
C. Fiorillo’s Motion to Dismiss
Having found that the Bankruptcy Court had the authority to deny Fiorillo’s motion to dismiss on the ground of estoppel, I must now determine whether the Bankruptcy Court abused its discretion in applying that doctrine. “In deciding whether to apply judicial estoppel, courts should consider whether a party’s later position is inconsistent with an earlier position and whether such an inconsistent position would ‘impose an unfair detriment on the opposing party if not estopped.’ ”
In re Lilliefors,
There is no dispute that Fiorillo filed for bankruptcy on August 23, 2010, in order to avoid foreclosure. In his original — and amended — Exhibit D, Fiorillo stated that he had anticipated avoiding foreclosure by paying the creditor, but the deal had fallen through at the last moment. By filing for bankruptcy, Fiorillo sought to take advantage of the Bankruptcy Code’s automatic stay, 11 U.S.C. § 362(a), which is “one of the principal benefits that a debtor receives from filing a bankruptcy petition.”
In re Parker,
Fiorillo initially attempted to maintain his eligibility as a debtor by taking the credit counseling course on September 7, 2010, and seeking to amend his original petition to seek temporary exemption under § 109(h)(3). However, despite benefit-ting from the stay, Fiorillo was reluctant to adhere to the less attractive obligations of a debtor. He filed several motions for leave to postpone the date for filing disclosures, and he failed to attend the first scheduled Section 341 meeting with creditors.
It was not until after the Trustee successfully moved to convert his Chapter 11 proceeding to a Chapter 7 liquidation proceeding — and the Bankruptcy Court denied a motion to postpone filing deadlines yet again — that Fiorillo sought to excuse himself from the bankruptcy process. In his “Emergency Motion,” filed just four days before disclosures were due and nearly two months after he had actually received proper credit counseling,
see supra
note 2, Fiorillo stated that his motive for seeking “emergency” dismissal was to avoid the November 1, 2010, disclosure deadline. He continued, “The Debtor should not have to provide schedules to the
Like the debtors in
Parker
and
Amir,
Fiorillo participated in the bankruptcy proceedings only to the extent that he thought it convenient for him.
In re Amir,
Fiorillo’s initial representations that he complied with § 109(h) before filing (in his initial Exhibit D) and his purported desire to cure his noncompliance (in his motion to amend Exhibit D) caused the Bankruptcy Court, his creditors, and the Trustee to proceed with the bankruptcy proceedings in reliance upon his contention that he was an eligible debtor. Permitting Fiorillo to assert now that he is ineligible would prejudice the creditors. Accordingly, it was not an abuse of discretion for the Bankruptcy Court to deny his motion on the grounds of estoppel.
IV. CONCLUSION
For the reasons set forth more fully above, I AFFIRM the Bankruptcy Court’s Order denying Fiorillo’s motion to dismiss.
Notes
. Although “the district court is limited to the evidentiary record compiled in the Bankruptcy Court and may not conduct fact-finding of its own,”
In re Fitzhugh,
No. 09-10397,
. The Trustee asks that I take judicial notice of the certification. Because there is no dispute that the certification is authentic, I do so, noting that Fiorillo completed the course shortly after commencing his bankruptcy proceeding.
. Despite Congress’s laudable goals in enacting § 109(h), courts have been critical of the mechanics of the credit-counseling requirement.
See, e.g., In re Enloe,
.In 2010, Congress amended 11 U.S.C. § 109(h)(1) in response to a disagreement among courts regarding whether a petitioner
. The two other exceptions are plainly inapplicable. Section 109(h)(2)(A) exempts debtors who reside in a district in which there are no approved credit-counseling agencies, and § 109(h)(4) exempts any "debtor whom the court determines, after notice and hearing, is unable to complete those requirements because of incapacity, disability, or active military duty in a military combat zone.”
. 11 U.S.C. § 109(h)(3)(B) states:
With respect to a debtor, an exemption under subparagraph (A) shall cease to apply to that debtor on the date on which the debtor meets the requirements of paragraph (1), but in no case may the exemption apply to that debtor after the date that is 30 days after the debtor files a petition, except that the court, for cause, may order an additional 15 days.
. A Chapter 7 debtor does not retain a right to dismiss a Chapter 7 proceeding voluntarily, "but must instead show cause.”
See Segarra-Miranda v. Acosta-Rivera (In re Acosta-Rivera),
. While I need not address whether 11 U.S.C. § 707(a) provides an alternative basis for affirming the Bankruptcy Court's decision in this case, a denial of dismissal under § 707(a) for lack of cause would likely be similarly appropriate here.
See In re Hess,
.
See, e.g., In re Hedquist,
.
See, e.g., In re Meza,
No. 2:06cvl307,
. The
Manalad
inquiry takes a no-harm-no-foul approach and asks whether the debtor (1) has a "reasonable explanation” for not seeking proper prepetition counseling; (2) participated in credit counseling "once [he] learns that it is necessary”; and (3) “[a]t the budget and credit counseling session, it is determined that the individual’s debts could not have been paid outside of bankruptcy.”
. The
Hess
court applied the "totality of the circumstances” test imported from the "cause” analysis used when considering motions to dismiss under 11 U.S.C. § 707(a).
. However, the First Circuit's decision in
Segarra-Miranda v. Acosta-Rivera (In re Acosta-Rivera),
. The fact, of which I have taken judicial notice, see supra note 2 and accompanying text, that Fiorillo completed the credit-counseling course nevertheless suggests substantial compliance justifying a waiver, if the authority to grant a waiver were found within the Bankruptcy Court's discretion.
. For opinions finding judicial estoppel applicable to § 109(h), see
In re Amir,
. Whether an impending foreclosure sale can constitute exigent circumstances under § 109(h)(3) is a context-specific factual question better suited to the Bankruptcy Court's resolution. Fiorillo is mistaken in asserting that case law dictates that an impending foreclosure sale cannot constitute exigent circumstances. While some courts have so held,
see, e.g., In re Mason,