Smith v. ME Bureau of Revenue ServicesSmith v. ME Bureau of Revenue Services
Christopher J. Keach, with whom James F. Molleur and Molleur Law Office were on brief, for appellant.
David Yen and Tara Twomey on brief for National Consumer Bankruptcy Rights Center and National Association of Consumer Bankruptcy Attorneys, amici curiae.
Kevin J. Crosman, Assistant Attorney General, with whom Thomas F. Knowlton, Assistant Attorney General, was on brief, for appellee.
December 12,
LYNCH, Circuit Judge. Maine‘s Bureau of Revenue Services (MRS) has a claim for a tax debt owed by Leland Smith, a repeat Chapter 13 bankruptcy filer. In this appeal, MRS and Smith dispute the scope of the termination of the Bankruptcy Code‘s automatic stay for repeat filers like Smith who file a second petition for bankruptcy within a year of the dismissal of a prior bankruptcy case. See
The filing of a petition for bankruptcy stays collection actions against the debtor, the debtor‘s property, and property of the bankruptcy estate. See
This case presents an important question, one of first impression in the courts of appeals: Does
On this close question, we hold that
Our holding that
We affirm the decision of the bankruptcy court, In re Smith, 573 B.R. 298 (Bankr. D. Me. 2017), which was also affirmed by the district court, Smith v. Me. Bureau of Revenue Servs., 590 B.R. 1 (D. Me. 2018).
Leland Smith‘s first Chapter 13 case, filed in August 2011, was dismissed in October 2014 when Smith failed to make the payments required under his Chapter 13 bankruptcy plan.1 Two months later, in December 2014, Smith filed another Chapter 13 petition. This was also dismissed, in November 2016, because Smith failed to make required payments. A month later, on December 28, 2016, Smith filed the Chapter 13 bankruptcy petition underlying this appeal. Smith‘s last two cases, which were both pending in the same one-year period, cause
Smith‘s December 2016 petition identified two priority creditors -- the Internal Revenue Servicе and MRS. MRS has proven that Smith owed $51,596.53 in state taxes, interest, and penalties. Smith also identified numerous general unsecured creditors with claims, including for unpaid credit card and medical bills. In total, Smith said he owed almost $200,000.
The bankruptcy court eventually confirmed a plan in Smith‘s December 2016 Chapter 13 case, under which Smith must pay the trustee $800 per month for 60 months.
While this Chapter 13 plan was being considered, Smith and MRS disputed the scope of the automatic stay. Under
At a hearing in the bankruptcy court in February 2017, MRS moved for an order under
At the hearing, MRS explained that it had not yet taken any action to collect estate property and that it sought clarification because it “d[id]n‘t want to take the position that the automatic stay is not applicable, then only to hаve a lawsuit slapped on” if it later chose to do so. See
The bankruptcy court ruled that the automatic stay had terminated in full, including as to property of the estate. Smith, 573 B.R. at 299. As mentioned, the district court affirmed. Smith, 590 B.R. at 19.
II.
We begin with a close look at the provision‘s text and the parties’ textual arguments.
A. Statutory Background
The filing of a petition to begin a bankruptcy case under Chapters 7, 11, or 13 “operates as a stay” of certain actions in three categories: against the debtor, the debtor‘s property, and property of the bankruptcy estate.
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estаte or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
(7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and
(8) the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor that is a corporation for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title.
The automatic stay is a “fundamental . . . protection[] provided by the bankruptcy laws.” Midlantic Nat‘l Bank v. New Jersey Dep‘t of Envtl. Prot., 474 U.S. 494, 503 (1986) (quoting S. Rep. No. 95-989, at 54 (1978); H.R. Rep. No. 95-595, at 340 (1977)). It serves several goals of bankruptcy. It offers debtors “breathing room” during the period of financial reshuffling. Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969, 975 (1st Cir. 1997). The stay also protects the debtor‘s assets from “disorderly, piecemeal dismemberment . . . outside the bankruptcy proceedings.” Mann v. Chase Manhattan Mortg. Corp., 316 F.3d 1, 3 (1st Cir. 2003). And it “enabl[es] ‘the bankruptcy court to centralizе all disputes concerning property of the debtor‘s estate so that reorganization can proceed efficiently, unimpeded by uncoordinated proceedings.‘” SEC v. Miller, 808 F.3d 623, 630 (2d Cir. 2015) (quoting U.S. Lines v. Am. S.S. Owners Mut. Prot. & Indem. Ass‘n (In re U.S. Lines, Inc.), 197 F.3d 631, 640 (2d Cir. 1999)); see also Sunshine Dev., Inc. v. F.D.I.C., 33 F.3d 106, 114 (1st Cir. 1994) (same).
Congress, concerned about abuses of the automatic stay, altered the stay‘s applicability to repeat-filing debtors like Smith in BAPCPA. Before BAPCPA, the automatic stay “remain[ed] in force” for all filers until specific judicial action lifted or modified it, or until the end of the bankruptcy case. Soares, 107 F.3d at 975. BAPCPA added
(3) if a single or joint case is filed by or against a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed --
(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case.
Since then, two competing interpretations of
B. The Parties’ Textual Arguments
After a thorough evaluation of the parties’ textual arguments, we conclude that the text of
First, we address Smith‘s plain meaning argument that the phrase “with respect to the debtor” unambiguously limits the scope of the stay‘s termination. Finding flaws in Smith‘s reasoning, we decide that this meaning is not plain. In the process, we also identify oddities, including redundancy, in
Having concluded that, second, we entertain MRS‘s arguments. We doubt that the phrase “with respect to the debtor” clarifies that the provision does not apply to the debtor‘s spouse in a joint case. We are more sympathetic to MRS‘s argument that the phrase “with respect to the debtor” is superfluous, and that the operative language of
Finding neither party‘s reading clear, in later sections, we proceed to evaluate the two possible readings in light of the statutory context and congressional intent.
1. Smith‘s Textual Argument
Smith argues that it is plain and unambiguous that “with respect to the debtor” signals that the stay terminates for actions against the debtor and the debtor‘s property but not for actions against the bankruptcy estate.3 There is a flaw in Smith‘s reading. Further, as we discuss anon, the interpretive canons do not support his argument, nor do indicia of congressional intent.
a. “With Respect to the Debtor”
A primary obstacle to Smith‘s reading is that the phrase “with respect to the debtor” would most naturally be read to terminate the stay only for actions against the debtor, and not, as he reads it, for actions against both the debtor and the debtor‘s property. See, e.g., In re Daniel, 404 B.R. 318, 323 (Bankr. N.D. Ill. 2009) (noting this anomaly); In re Bender, 562 B.R. 578, 583 (Bankr. E.D.N.Y. 2016) (same). Yet no court has read the provision that way. See Reswick v. Reswick (In re Reswick), 446 B.R. 362, 367-68 (B.A.P. 9th Cir. 2011) (observing this). Nor does Smith ask us to do so.
Recognizing that obstacle, Smith says that the phrase “property securing such debt” earlier in
The location of the phrase “property securing such debt” after “the stay under subsection (a)” and the combination of the phrase with “with respect to a debt” and “with respect to any lease” indicate that the clause summarizes the actions stayed in “subsection (a).” That subsection stays actions against both property of the debtor and property of the estate, so the phrase cannot establish that
Smith‘s two other attempts to find this distinction between debtor and estate property in
Second, Smith asserts that “with respect to,” like the term “‘respecting’ . . . generally has a broadening effect, ensuring that the scope of a provision covers not only its
Finally, Smith also searches unsuccessfully for his distinction in other provisions of the Bankruptcy Code. He emphasizes that
b. Interpretive Canons
As we have just explained, the text does not render Smith‘s reading the most likely. Smith argues that even if his reading is not perfect, we should prefer it over MRS‘s because his is consistent with several canons of interpretation. We think not, and we conclude that strict application of the interpretive canons would be unhelpful here.
Smith refers to a handful of canons. First, he appeals to the plain meaning rule, which provides that courts must enforce a statute‘s language, however awkward, “at least where the dispоsition required by the text is not absurd.” Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000)). As we have said, the language at issue could have different meanings.
To support his argument that estate property would be mentioned were it affected by the termination in
He next relies on the maxim that “Congress generally acts intentionally when it uses particular language in one section of a statute but omits it in another.”
The Supreme Court, most notably in King v. Burwell, has warned courts to be careful about “rigorous application of the canon[s]” where a provision may be “inartful[ly] drafted.” King v. Burwell, 135 S. Ct. 2480, 2492 (2015) (discussing the rule against superfluities). This is because canons likе those Smith cites assume that Congress has been able to choose each word and to craft each phrase with precision, and with technical rules like the canons in mind. So where it is apparent that a provision deviates from those assumptions about artful drafting, strict application of the canons “does not seem a particularly useful guide to a fair construction.”
Section
Smith‘s reliance on the rule against superfluities is, not only for this reason, but also for another, misplaced. At oral argument, Smith conceded that his reading gives no force to the first three “with respect to” clauses. Similarly, MRS‘s reading does not give those clauses independent meaning. Given this, we think the preference against superfluities is of limited help in choosing between the parties’ interpretations of
2. MRS‘s Textual Arguments
a. “With Respect to the Debtor” in a Joint Case
We do not accept MRS‘s primary reading of the phrase “with respect to the debtor.” That reading depends on the need to differentiate the debtor from the debtor‘s spouse. MRS argues that “with respect to the debtor” clarifies that the stay expires for a repeat-filing debtor but not for a debtor‘s non-repeat- filing spouse in a joint case. See, e.g., Daniel, 404 B.R. at 326-27 (adopting this reading). This argument is based on the provision‘s terms;
We disagree that this introductory phrase requires clarification. Joint bankruptcy petitions are jointly administered
Congress‘s failure to include similar clarifying language at
if a single or joint case is filed by or against a debtor who is an individual under this title, and if 2 or more single or joint cases of the debtor werе pending within the previous year but were dismissed, . . . the stay under subsection (a) shall not go into effect upon the filing of the later case.
b. Superfluity Argument
MRS next, and more plausibly, argues that the phrase “with respect to the debtor” in
Smith contends, the key to reading
Our consideration is limited to the section of the Bankruptcy Code at issue here, and we do not construe the other provisions of BAPCPA cited in the survey. Suffice it to say, however, that the examples discussed there indicate that Congress may have used the phrase “with respect to a” or “the debtor” in BAPCPA to reemphasize that a provision applied to the debtor rather than to add new information about the meaning or scope of a provision. In light of this pattern across BAPCPA, we agree with MRS that it would be odd for Congress to have chosen “with respect to the debtor” to articulate an important reform, one placing a highly consequential limit on termination of the automatic stay.
On the other hand, like Smith‘s reading, MRS‘s reading of
III.
For the reasons discussed, the text of
A. Context
MRS says that its reading is a better fit than Smith‘s with related sections of the automatic stay provision, while Smith argues
1. The Automatic Stay‘s Operation for Other Filers
The automatic stay operates differently for first-time, second-time, and subsequent filers. For first-time filers, the stay is automatic and permanent, at least until the bankruptcy case closes or a court acts to modify the stay. See
We conclude that the most sensible middle ground, and the one most likely intended by Congress, is found under MRS‘s reading, under which second-time filers get the benefit of the stay, but only temporarily (albeit with a procedure to seek the stay‘s continuation). To be sure, protections for second-time filers under Smith‘s construction also fall somewhere in the middle. However, after a careful еvaluation of Smith‘s and amici‘s arguments about results, we deem the middle ground under Smith‘s reading to be the less plausible.
First, we turn to amici‘s argument that termination of the stay as to actions against the debtor alone does have an intangible benefit to creditors and detriment to debtors in that it allows creditors to make collection calls. Although frequent or aggressive calls from collectors may be exasperating for debtors, cf. Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1416 (2017) (Sotomayor, J., dissenting) (documenting an aggressive collection strategy), even amici ultimately acknowledge that creditor contact is not a “tangible detriment” to debtors.
Second, Smith and amici argue that, under their reading, tangible consequences flow from the termination of the stay as to actions against debtor property. Creditors, they emphasize, would be free to pursue a category of the debtor‘s property called exempt property.5 A look at the purpose of exempt property and at the law governing it shows why we think Congress, in reforming the automatic stay, would not have been moved by this consequence. The bankruptcy law, apart from the automatic stay, already provides significant protection to exempt property.
The vast majority of the debtor‘s property becomes estate property on the filing of a bankruptcy petition. See
The Bankruptcy Code does allow debtors to claim certain types of propеrty as exempt from the bankruptcy estate. See
Significantly, in part because exempt property is designed to help the debtor with basic expenses, bankruptcy law strictly limits creditors’ ability to pursue this property. Under
Smith and amici do not address this general rule, focusing instead on specific exceptions. They ultimately identify four consequences of lifting the automatic stay as to actions against debtors and their property: (1) certain governmental creditors can collect tax refunds for non-tax debts, (2) certain governmental creditors can pursue exempt property to satisfy non-dischargeable tax debts, (3) certain governmental creditors can suspend a debtor‘s driver‘s license, and (4) creditors can make collеction calls.
Smith‘s and amici‘s proposed result makes less sense to us than does MRS‘s. Had Congress wanted
MRS next argues that its reading fits better with the provisions governing extensions of the automatic stay for second-time filers. As stated,
Under Smith‘s reading, this scheme makes less sense than it does under MRS‘s, for at least two reasons. First, it is hard to imagine that Congress would develop a process for extensions, and lay it out in such detail, if extensions would be needed only in the event that one of the four consequencеs Smith and amici identify were threatened. Second, rather than allowing only a debtor to move for an extension, Congress allowed any “party in interest,” including a creditor, to move to extend the stay.
Smith and amici do acknowledge that Congress was concerned with creditor actions against estate property outside of the bankruptcy process. They argue that
When read alongside
3. Smith‘s Conflict Argument
Finally, Smith argues that MRS‘s reading of
Smith misreads the provision. As he sees it, this is a mandate that the automatic stay remain in effect indefinitely for
B. Congressional Intent
Having concluded that MRS‘s reading is a better fit with the statutory context, we turn to congressional intent. Smith argues that looking at legislative purpose and history is inappropriate because the language of the statute is plain. As explained, we disagree that the statute‘s words are so clear. And we do not think that legislative purpose and history should be disregarded in interpreting
BAPCPA aimed “to correct perceived abuses of the bankruptcy system.” Milavetz, 559 U.S. at 231-32. Milavetz, for example, interpreted BAPCPA‘s bar on debt relief agencies “advis[ing]” clients “to incur more debt in contemplation of such person filing a” bankruptcy case.
At “[t]he heart of [BAPCPA‘s] consumer bankruptcy reforms,” the House Judiciary Committee report accompanying BAPCPA said, were “provisions intended to deter serial and abusive bankruptcy filings.” H.R. Rep. No. 109-31(I), at 2 (2005);8 see also Sara Sternberg Greene, The Failed Reform: Congressional Crackdown on Repeat Chapter 13 Bankruptcy Filers, 89 Am. Bankr. L.J. 241, 242 (2015). Among these reforms was
The provision was designed to “Discourag[e] Bankruptcy Abuse,” and in particular, to “Discourag[e] Bad Faith Repeat Filings“—that is, filing for the benefit of triggering the automatic stay, rather than for some valid reason. Id. This purpose is best achieved by interpreting
Further evidence for the conclusion that the legislative purpose and history support MRS‘s reading comes from BAPCPA‘s precursor legislation. In 1998, Congress attempted reform of the Bankruptcy Code, including an amendment that was “essentially identical” to
Congress drafted the earlier legislation based in part on a report by the National Bankruptcy Review Commission that highlighted the problem of debtors
fil[ing] for chapter 13 . . . on the eve of a foreclosure or eviction for the sole purpose of delaying the state legal process. When the threat passes, they dismiss their cases, only to file again when the mortgagee or landlord brings another legal action to seize control of the property.
Nat‘l Bankr. Review Comm‘n, Report of the National Bankruptcy Review Commission, § 1.5.5, 278-79 (Oct. 20, 1997) (footnote omitted).
This concern—abuse of the automatic stay, especially in Chapter 13 cases—animated the precursor to
Significantly for present purposes, the proposed 1998 amendment was substantially identical to
First, it added
IV.
Based on the provision‘s text, the statutory context, and Congress‘s intent in enacting BAPCPA, we hold that
We affirm the order of the bankruptcy court. Costs are awarded to MRS.