IN RE: STEVEN M. SCHAFER, Debtor. THOMAS C. RICHARDSON, Trustee-Appellee, v. STEVEN M. SCHAFER, Debtor-Appellant (11-1340 & 11-1387), STATE OF MICHIGAN, Intervenor-Appellant (11-1340).
Nos. 11-1340/1387
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
August 20, 2012
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206. File Name: 12a0274p.06. Argued: June 1, 2012. Appeal from the Bankruptcy Appellate Panel of the United States Court of Appeals for the Sixth Circuit. Nos. 09-03268; 09-09415—Scott W. Dales, Bankruptcy Judge.
Before: COLE and CLAY, Circuit Judges; MATTICE, District Judge.*
COUNSEL
ARGUED:
OPINION
COLE, Circuit Judge. The Constitution‘s Bankruptcy Clause grants Congress the power to establish “uniform Laws on the subject of Bankruptcies throughout the United States[,]”
None of the underlying facts are in dispute. In March 2009, Steven Schafer, the debtor-appellant, filed a voluntary petition under Chapter 7 of the Bankruptcy Code. Richardson v. Schafer (In re Schafer), 455 B.R. 590, 592 (B.A.P. 6th Cir. 2011). Michigan law permits debtors in bankruptcy to choose their exemptions from those set forth in
Schafer elected to claim a homestead exemption under the last of these, which permits bankruptcy debtors—and only bankruptcy debtors—to exempt up to $30,000 of the value of the home, or up to $45,000 if the debtor is over the age of 65 or disabled.
Thomas Richardson, the trustee-appellee (“Trustee“), subsequently filed an objection to Schafer‘s use of
The Bankruptcy Court for the Western District of Michigan held the bankruptcy-specific exemption scheme constitutional. In re Jones, 428 B.R. 720, 721 (Bankr. W.D. Mich. 2010). In so doing, the bankruptcy court relied on Supremе Court and Sixth Circuit precedent, including our decision in Rhodes v. Stewart, 705 F.2d 159 (6th Cir. 1983), for the proposition that states have concurrent authority to promulgate laws governing exemptions applicable in bankruptcy cases. Jones, at 428 B.R. The bankruptcy court suggested that Rhodes was at odds with another of our decisions, Hood v. Tennessee Student Assistance Corp., 319 F.3d 755 (6th Cir. 2003), aff‘d on other grounds, 541 U.S. 440 (2004), over whether Congress retained exclusive authority to implement bankruptcy laws. Jones, 428 B.R. at 727. After conducting a lengthy inquiry into the history of the “uniform Laws” language of the Constitution‘s Bankruptcy Clause, and taking into account the binding effect of Rhodes on our later decision in Hood, the bankruptcy court adopted the reasoning set forth in Rhodes to hold that Michigan‘s concurrent authority appropriately permitted
The Trustee appealed to the United States Bankruptcy Appellate Panel of the Sixth Circuit (“BAP“), at which point the State of Michigan moved to intervene in support of Schafer‘s position. The BAP granted the motion, but nonetheless reversed the bankruptcy court and found the bankruptcy-specific exemption statute unconstitutional, Schafer, 455 B.R. at 591.
The BAP relied in part on our decision in Hood to hold that, in general, Congress has exclusive authority to promulgate bankruptcy laws. Rhodes, the BAP held, stood for the proposition that states have concurrent jurisdiction in the area of bankruptcy exemptions, but only because Congress affirmatively delegated that power; the power to create a bankruptcy-specific exemption statute was, according to the BAP, outside the scope of that delegation. Id. at 603. The BAP further held that even if such a power were within the scope оf the delegation, the Constitution‘s Bankruptcy Clause requires “geographic uniformity” between the exemptions available to a debtor in bankruptcy and a debtor outside of bankruptcy. Id. at 606. Finding that
II. ANALYSIS
In reviewing cases appealed from the BAP, we focus our review on the bankruptcy court‘s decision. Nardei v. Maughan (In re Maughan), 340 F.3d 337, 341 (6th Cir. 2003). In doing so, findings of facts are reviewed for clear error, whereas conclusions of law are reviewed de novo. Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629, 631 (6th Cir. 1994). Where, as here, a statute is challenged as unconstitutional, we construe the statute to avoid constitutional infirmity when “fairly pоssible.” Eubanks v. Wilkinson, 937 F.2d 1118, 1122 (6th Cir. 1991) (quoting Crowell v. Benson, 285 U.S. 22, 62 (1932)).
A. The Power to Pass Bankruptcy Legislation
As an initial matter, the parties disagree on which entities are vested with the power to pass laws directly affecting the bankruptcy process. The Trustee argues that by virtue of its application solely to debtors in bankruptcy, Michigan‘s bankruptcy-specific exemption statute is a “bankruptcy law.” A general exemption statute, on the other hand, is a “non-bankruptcy law” because all debtors, regardless of bankruptcy status, may take advantage of it to shield assets from creditors. The “uniform Laws” language of the Bankruptcy Clause, the Trustee contends, endows Congress with the exclusive authority to pass bankruptcy laws, and Michigan overstepped its bounds when it passed
The bankruptcy court, as well as the debtor in this case, calls our attention to our earlier pronouncements in Rhodes, in which we stated that “[i]t is fundamental that the state and federal legislatures share concurrent authority to promulgate bankruptcy laws. . . .” Rhodes, 705 F.2d at 163. Unlike the bankruptcy court, we do not read Rhodes to conflict with Hood, which had nothing to do with the issue of exemptions and, therefore, did not discuss Rhodes. Under those precedents, the states retain the power to act where the federal government has declined to do so (Hood) or where, as in the area of exemptions, it has decided to permit the states to act (Rhodes). And perhaps presciently, for our purposes anyway, the Rhodes Court noted that “the Supremacy Clause and the doctrine of preemption will serve to invalidate state promulgations to the extent that they are inconsistent with or contrary to federal laws.” Id.
Rhodes emphasizes the importance of
The Trustee‘s arguments would be better received had Congress decided to require all bankruptcy debtors to use the federal exemptions, but such a scheme was specifically considered and rejected with the enactment of the Bankruptcy Code. Sensing a need for reform of the exemption scheme in place under the Bankruptcy Act, Congress tasked a legislative commission with modernizing bankruptcy laws to address a “[l]ack of uniformity in the treatment
Some have divined from such legislative tea leaves—or more accurately, from the lack of any such tea leaves—a congressional intent to prohibit states from enacting bankruptcy-specific exemption statutes. For example, in a decision relied on by the Trustee, one bankruptcy court held that “in adopting
The argument regarding congressional intent is not well taken. “In such a substantial overhaul of the system [as that made by the Bankruptcy Code], it is not appropriate or realistic to expect Congress to have explained with particularity each step it took.” United States v. Ron Pair Enters., Inc., 489 U.S. 235, 240 (1989). “Rather, as long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute.” Id. at 240–41. The plain language of
The BAP contended that reliance on Rhodes and Storer is not enough to legitimate
In reaching its conclusion, the BAP analyzed a number of arguments set forth by other courts that had concluded that because
That
Throughout the Bankruptcy Code, Congress has referred to “state or local law” without the phrase “non-bankruptcy” and, by doing so, has not implicitly “permitted states to pass their own bankruptcy laws on the subject.” See, e.g.,
11 U.S.C. § 346(b) which requires a trustee to withhold amounts from the payment of wage claims “under applicable state or local tax law.” Does this mean that a state or locality could promulgate a tax law applicable only to trustees in bankruptcy imposing a higher withholding level for bankruptcy claimants or more onerous withholding duties on trustees? Also, consider11 U.S.C. § 506(b) which allows a secured creditor to collect “fees, costs, or charges provided for under . . . State statute.” Does this authorize a state to grant or deny to a secured creditor the right to collect such fees only in federal bankruptcy cases?
In re Pontius, 421 B.R. at 818 n.9. The distinction between the statutes discussed in Pontius and
Our understanding of Rhodes,
B. The Requirement of Uniformity
The Bankruptcy Clause of the Constitution grants Congress the authority to establish “uniform Laws on the subject of Bankruptcies throughout the United States[.]”
The only decision by a federal court of appeals that has addressed the uniformity requirement of the Bankruptcy Clause in the context of a state‘s bankruptcy-specific exemption statute concluded that the statute did not violate the uniformity requirement. See Kulp v. Zeman (In re Kulp), 949 F.2d 1106, 1109 n.3 (10th Cir. 1991) (“Defendants argue in the alternative that Colo. Rev. Stat. § 13-54-104 violates the constitution‘s uniformity requirement for bankruptcy laws because it creates a bankruptcy exemption which is not available to other Colorado debtors. This argument is meritless. [It] confuse[s] the geographical uniformity doctrine with the well-established principle that states may pass laws which do not conflict with the federal scheme. . . . In this case, we have no conflict because
The bankruptcy court determined that the uniformity requirement applied only to federal enactments, and was thus not relevant to the instant inquiry. Jones, 428 B.R. at 729 n.9. The BAP disagreed, holding that “[a] state law which applies only to debtors in bankruptcy must be analyzed under the uniformity requirement of the Bankruptcy Clause.” Schafer, 455 B.R. at 601. Implicit in this argument is the notion that
1. Development of uniformity jurisprudence
Prior to Congress‘s decision to adopt a uniform national framework for bankruptcy,
First, the portion of Moyses that the BAP and the Trusteе latch onto focuses on whether federal bankruptcy law may recognize exemptions permitted by the various states even though the states’ exemptions schemes are not uniform with one another. Two sentences prior to the passage on which the Trustee relies, the Supreme Court stated that “[i]t is quite proper to confine [federal bankruptcy law‘s] operation to such property as other legal process could reach.” Moyses, 186 U.S. at 190. The Moyses Court was not addressing whether bankruptcy and non-bankruptcy debtors must be treated alike, but rather whether a scheme whereby bankruptcy debtors in different states enjoy different exemptions is ultimately proper.
Second, in Moyses the Supreme Court did not hold that a bankruptcy exemption scheme is uniform in the constitutional sense only if the trustee takes in each state whatever wоuld have been available if the bankruptcy law had not been passed. Rather, the Supreme Court held that “[t]he laws passed on the subject [of bankruptcy] must . . . be uniform throughout the United States, but that uniformity is geographical, and not personal,” and further stated that “we do not think that the provision of the [Bankruptcy Act] as to exemptions is incompatible with the rule.” Id. at 188. In other words, the general rule of law laid down by the Supreme Court in Moyses was that the uniformity requirement is geographical and that variations resulting from differences in state law are not unconstitutional. See Schultz, 529 F.3d at 353. Indeed, this Court has previously recognized that Moyses‘s interpretation of the uniformity requirement mandates geographical, as opposed to personal, uniformity, Schultz, 529 F.3d at 350–51, and that “[o]ver the last century, the Supreme Court has wrestled with the notion of geographic uniformity, ultimately concluding that it allows different effects in various states due to dissimilarities in state law, so long as the federal law applies uniformly among classes of debtors.” Id. at 351. As explained below, taken together,
Third, as the amici point out, full adherence to the language in Moyses on which the Trustee relies would call into doubt the constitutionality of the federal exemptions
As one court recently noted in its discussion of Moyses, states and the federal government “have concurrent jurisdiction in bankruptcy, although only Congress has the power to establish a uniform system of bankruptcy. And once Congress passes one uniform act, if that system has differing effects on citizens of different states based on a particular state‘s laws, that result is acceptable.” In re Westby, No. 11-40986, 2012 WL 1144412, at *5 (Bankr. D. Kan. Apr. 4, 2012).
2. Section 522 and Section 600.5451 Operate Uniformly
This Court has previously held that the Bankruptcy Clause shall act as “no limitation upon congress as to the classification of persons who are to be affected by such laws, provided only the laws shall have uniform operation throughout the United States.” Leidigh Carriage Co. v. Stengеl, 95 F. 637, 646 (6th Cir. 1899) (Taft, J.). And indeed, the uniformity provision has served as the basis for statutory invalidation by the Supreme Court only once—in upholding a challenge to a federal statute that, by its terms, applied to only one entity. See Gibbons, 455 U.S. at 472–73.
Our recent decision in Schultz provides additional insight into the contours of our uniformity jurisprudence. Schultz, which upheld the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) against a uniformity clause challenge, reiterated that a federal bankruptcy statute‘s incorporation of state laws may, without presenting any constitutional issue, “lead to different results in different states.” 529 F.3d at 351 (quoting Stellwagen v. Clum, 245 U.S. 605, 613 (1918)), a view that is consistent with the interpretation of Moyses provided above. See Schultz, 529 F.3d at 353 (”Moyses, Stellwagen, and Blanchette cannot be read as standing for anything more than their precise holding: that Congress does not exceed its constitutional powers in enacting a bankruptcy law that permits variations based on state law or to solve geographically isolated problems.“). Schultz clarified that it is not the outcome that determines the uniformity, but the uniform process by which creditors and debtors in a certain place are treated.
In Schultz, the debtors contended that the BAPCPA‘s means test—which applies only if a debtor‘s annualized current monthly income is above the median for the applicable state—violated the uniformity requirement because (1) the relief available to debtors under the Bankruptcy Code depends in part on the results of the means test and (2) the calculations required under the means test are based in part on the state and county in which the debtor resides. 529 F.3d at 353. We disagreed with the debtors’ position, finding that the law apрlied uniformly to those debtors who were part of a “defined class” (i.e., those whose annualized current monthly income is above the family median income for the applicable state“). Id. at 352. “Congress is allowed to distinguish among classes of debtors, and to treat categories of debtors differently . . . .” Id. Such distinctions need not be subject to “heightened scrutiny,” id. at 356, and it is not this Court‘s place “to pass judgment on the wisdom of congressional legislation,” id. at 353. For our purposes, it is worth noting that, with limited exceptions, all bankruptcy debtors under
Quite simply, the Bankruptcy Clause does not require geographic uniformity between the exemptions available to debtors in bankruptcy and debtors outside of bankruptcy. Moreover, Michigan‘s decision to distinguish between debtors in bankruрtcy and those outside of bankruptcy makes sense. As the amici point out, debtors in bankruptcy are often in more dire straits than those whose property is subject to levy by a specific creditor. And, as the State of Michigan points out,
Ultimately, the Trustee‘s arguments rely on a strained reading of the “uniform Laws” language of the Bankruptcy Clause—one that neither the Supreme Court, nor this Court, has adopted. It would be anomalous for us to hold that a federal statute under which the relief available to debtors depends in part on their state‘s median income is more compliant with the “uniform Laws” language than a federal statute and a state statute that, working together, treat all debtors in bankruptcy the same way. Given that the Bankruptcy Clause‘s “uniformity requirement was drafted in order to prohibit Congress from enacting private bankruptcy laws,” Schultz, 529 F.3d at 352 (quoting Gibbons, 455 U.S. at 472), adoption of the Trustee‘s arguments would read into the Constitution‘s text requirements that simply have no basis in the precedent of the Supreme Court, our precedent, or the common law.
C. Section 600.5451 and the Supremacy Clause
The BAP declined to reach the issue of whether the bankruptcy court erred
“Deciding whether a state statute is in conflict with a federal statute and hence invalid under the Supremacy Clause is essentially a two-step process of first ascertaining the construction of the two statutes and then determining the constitutional question whether they are in conflict.” Perez v. Campbell, 402 U.S. 637, 644 (1971). As all parties recognize, the purpose of
A state statute may conflict with federal law in one of three ways. Under “express preemption,” the intent of
This Court has previously held that Congress‘s regulation in the bankruptcy field is “pervasive,” but did not indicate which type of preemption applied in that case. Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 425 (6th Cir. 2000); see also MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 913 (9th Cir. 1996) (“[T]he lengthy Bankruptcy Code,
In light of the Supreme Court‘s statement that “state laws are thus suspended only to the extent of actual conflict with the system provided by the Bankruptcy Act of Congress,” Stellwagen, 245 U.S. at 613 (emphasis added), and our explanation in Rhodes that “Congress expressly authorize[d] the states to ‘preempt’ the federal legislation,” 705 F.2d at 163, we question whether field preemptiоn is applicable. See also In re Sullivan, 680 F.2d 1131, 1137 (7th Cir. 1982) (criticizing the use of preemption analysis when assessing state bankruptcy exemption law); Applebaum, 422 B.R. at 689 (“[F]ederal bankruptcy law is not so pervasive, nor is the federal interest so dominant, as to wholly preclude state legislation in the area.“). And, given that bankruptcy exemptions were a creature of state law prior to the Bankruptcy Code‘s enactment in 1978, the case for field preemption is even more tenuous. See Wyeth v. Levine, 555 U.S. 555, 575 (2009) (“The case for federal pre-emption is particularly weak where Congress has indicated its awareness of the operation of state law in a field of federal interest, and has nonetheless decided to stand by both concepts and to tolerate whatever tension there is between them.“) (alterations omitted) (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 166–67 (1989)). Regardless, we need not answer whether Congress has occupied the field of bankruptcy law as a whole, because, given our reasoning in Rhodes, field preemption is inapplicable in the area of bankruptcy exemptions. As such,
The Trustee contends that in enacting
Recognizing otherwise applicable state exemptions in bankruptcy proceedings is not the same as allowing states to create exemptions just for those proceedings. The first situation simply recognizes non-bankruptcy entitlements. It allows debtors to protect the same property in bankruptcy that they could keep from creditors outside of bankruptcy. The second directly controls the distribution of assets between debtors and creditors and, thus, how the consequences of bankruptcy are allocated between them.
Cross, 255 B.R. at 34. While this is an arguably valid distinction, it is immaterial for purposes of determining whether
Were we to invalidate
Perceiving a conflict between
Indeed, on an as-applied basis, the Michigan statute actually furthers, rather than frustrates, national bankruptcy policy. As the Supreme Court has repeatedly noted, the goal of the Bankruptcy Code is to provide debtors in bankruptcy with a fresh start. Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (“The principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor.“) (internal quotation marks omitted). By permitting debtors in bankruptcy a higher homestead exemption than either the general state exemption statute or the federal exemption statute allow, bankruptcy debtors in Michigan are better able to achieve a fresh start and to obtain “a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Grogan v. Garner, 498 U.S. 279, 286 (1991) (quotation marks omitted). Accordingly, Michigan‘s bankruptcy-specific exemption statute frustrates the full effectiveness of national bankruptcy policy no more than other statutory frameworks that have survived our scrutiny. See Storer, 58 F.3d at 1125; Rhodes, 705 F.2d at 159.
III. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the bankruptcy court and conclude that Michigan‘s bankruptcy-specific exemption statute,