In re Stoltz
| Citation | 315 F.3d 80 |
| Decision Date | 20 December 2002 |
| Docket Number | Docket No. 01-5048. |
| Parties | In re Laura STOLTZ, Debtor. Laura Stoltz, Debtor-Appellee, v. Brattleboro Housing Authority, Creditor-Appellant, United States Trustee and Raymond J. Obuchowski, Chapter 7 Trustee, Trustees. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Geoffry Walsh, Vermont Legal Aid, Springfield, VT, for Appellee.
Rebecca A. Rice, Cohen & Rice, Rutland, VT, for Appellant.
Jonathan H. Levy, Department of Justice, Washington, DC, for Amicus Curiae, United States of America.
Before: WALKER, Chief Judge, NEWMAN and F.I. PARKER, Circuit Judges.
Creditor-appellant Brattleboro Housing Authority appeals from the judgment of the United States District Court for the District of Vermont (J. Garvan Murtha, Chief Judge) entered February 14, 2001, reversing the judgment of the United States Bankruptcy Court for the District of Vermont (Colleen A. Brown, Judge) entered September 18, 2000, which had granted creditor-appellant Brattleboro Housing Authority's motion for relief from automatic stay. Granting the motion for relief from automatic stay permitted Brattleboro Housing Authority to proceed with the eviction of debtor-appellee Laura Stoltz. The bankruptcy court narrowly construed 11 U.S.C. § 525(a), the antidiscrimination provision of the Bankruptcy Code that protects debtors from discrimination by governmental units with regard to certain grants, concluding that section 525(a) does not protect debtor-tenants from eviction by public housing authorities for nonpayment of prepetition rent. By narrowly construing section 525(a), the bankruptcy court sidestepped a potential conflict between section 525(a) and 11 U.S.C. § 365, the executory contracts provision of the Bankruptcy Code that equates rejection of an unexpired lease with prepetition breach of the lease, thus enabling creditors to pursue state law remedies, including eviction, for prepetition breach of rejected leases. The district court reversed and reinstated the automatic stay, thereby preventing the eviction, on the ground that the antidiscrimination provision precludes a public housing authority from evicting a debtor-tenant from public housing based on nonpayment of discharged, prepetition rent. We agree that the bankruptcy court construed section 525(a) too narrowly. We are therefore faced with a conflict between Bankruptcy Code sections 525(a) and 365 reminiscent of Dr. Seuss's intractable North Going and South-Going Zax.
And it happened that both of them came to a place. Where they bumped. There they stood. Foot to foot. Face to face.
Dr. Seuss, The Sneetches and Other Stories 26 (1961, renewed 1989). For the reasons set forth herein, we conclude that section 525(a) controls over section 365 and precludes the Brattleboro Housing Authority from evicting debtor-appellee Laura Stoltz. We therefore affirm the judgment of the district court.
Debtor-appellee Laura Stoltz ("Stoltz") and her three dependents have resided since 1993 in a Brattleboro, Vermont apartment that is part of a government subsidized housing development owned and managed by the Brattleboro Housing Authority ("BHA"). The most recent lease agreement between Stoltz and BHA was executed on August 1, 1996. The month-to-month lease stipulated a rent of $560.00 per month, payment of which on the first of each month would trigger automatic renewal of the lease, so long as Stoltz also complied with the enumerated tenant duties.
The tenant-landlord relationship between Stoltz and BHA was subsequently strained due to Stoltz's occasional failure to make monthly rent payments during times of financial hardship. In 1997, Stoltz failed to pay rent for July and August. As a result, BHA notified Stoltz on August 1, 1997, that it would terminate the lease on September 1, 1997, if she failed to redeem and reinstate the lease by then.
BHA commenced an eviction proceeding against Stoltz in Windham County Superior Court in October 1997. On December 18, 1997, the superior court granted judgment to BHA in the amount of $4,838.73 and awarded BHA possession of the apartment. The superior court's judgment was entered on December 23, 1997, by order indicating that a writ of possession would issue on December 31, 1997. Stoltz filed a Chapter 13 bankruptcy petition and reorganization plan on December 26, 1997. Stoltz's bankruptcy filing triggered an automatic stay under 11 U.S.C. § 362(a), staying the issuance of the writ of possession.
In her reorganization plan, Stoltz proposed to cure her default by paying all backrent and to assume the lease. BHA opposed Stoltz's motion to assume the lease and moved for relief from the automatic stay. The bankruptcy court issued an order on June 3, 1998, denying Stoltz's motion to assume the lease and granting BHA's motion for relief from stay. The bankruptcy court concluded that Stoltz's lease had expired according to its own terms upon Stoltz's failure to make the 1997 rent payments, a conclusion that required the denial of Stoltz's motion to assume the lease, as only unexpired leases may be assumed by Chapter 13 debtors. 11 U.S.C. § 365(a) (2001). The bankruptcy court lifted the automatic stay on the grounds that Stoltz had no equity in the apartment and the apartment was not necessary to an effective reorganization. The bankruptcy court also denied confirmation of the reorganization plan, as its sole purpose was the assumption of the lease.
On appeal by Stoltz, the district court concluded that Stoltz's lease had not expired under Vermont state law because the writ of possession had not issued. Because Stoltz therefore retained a possessory interest in the lease, the district court reversed the bankruptcy court's denial of Stoltz's motion to assume the lease, to the extent it was based on the erroneous conclusion that the lease had expired prepetition. The district court remanded the case to the bankruptcy court for determination of whether Stoltz's motion to assume the lease should nonetheless be denied on alternative grounds. The district court's judgment implicitly reversed the bankruptcy court's decision to lift the automatic stay.
BHA appealed to this Court, and the bankruptcy court postponed its hearing regarding Stoltz's Chapter 13 reorganization plan pending the appeal. By judgment entered on November 29, 1999, this Court affirmed the district court's decision, similarly concluding that Stoltz's lease had not expired under Vermont law. Brattleboro Hous. Auth. v. Stoltz, (In re Stoltz), 197 F.3d 625, 631 (2d Cir.1999) () This Court did not reach the central issue in this opinion, i.e., the interplay of section 525(a), the antidiscrimination provision of the Bankruptcy Code which may, under certain circumstances, prohibit eviction of a debtor-tenant for nonpayment of prepetition rent, and section 365, the executory contract provision of the Bankruptcy Code which may, under certain circumstances, permit eviction of a debtor-tenant for nonpayment of prepetition rent.
In light of this Court's decision, the bankruptcy court subsequently accepted Stoltz's Chapter 13 reorganization plan. Stoltz thereafter made payments of $1,433.63 toward her past due rent of approximately $3,400.00.
Stoltz remained current on her rent for the majority of the two-year period following her Chapter 13 bankruptcy filing, but she again faltered while experiencing financial difficulties at the end of 1999. Stoltz did not pay rent in October, November, and December 1999, or in January 2000. As a result of this nonpayment of rent, BHA filed a new motion for relief from stay on January 20, 2000, in order to commence eviction proceedings.
The bankruptcy court granted Stoltz's request to convert her Chapter 13 case to a Chapter 7 case in February 2000. By order dated February 11, 2000, Stoltz's prepetition debts were discharged with an effective conversion date of February 7, 2000. The conversion to Chapter 7 mooted Stoltz's motion to assume the lease.1 In September 2000, the bankruptcy court granted BHA's motion to modify the automatic stay, thereby permitting BHA to proceed with the eviction proceeding against Stoltz, on the ground that "11 U.S.C. § 525(a) does not protect the debtor from eviction where there is a payment default which would otherwise entitle a non-government landlord to relief from stay." In re Stoltz, No. 97-11879, 2000 WL 33667824, at *7 (Bankr.D.Vt. Sept.18, 2000).
On appeal by Stoltz, the district court reversed the bankruptcy court's decision and reinstated the automatic stay, concluding that section 525 prohibits a public housing authority from evicting a tenant, even though section 365 requires a debtor or bankruptcy trustee to cure defaults in order to assume an unexpired lease. This appeal followed.
This appeal presents an internal Bankruptcy Code conflict that has divided the bankruptcy courts and district courts that have considered it. Section 525(a), also known as the antidiscrimination provision of the Code,2 provides that a governmental unit may not discriminate against a person with respect to certain grants solely because that person, inter alia, has had a debt discharged under the Bankruptcy Act. Section 365(b) of the executory contracts section of the Code requires a debt or to cure prepetition defaults as a precondition of assuming an executory contract. If a Chapter 7 trustee does not assume or reject an unexpired lease within sixty days of the order for relief, then the lease is deemed rejected under section 365(d)(1) Upon rejection, the lease is no longer part of the bankruptcy estate, and the non-debtor party to the contract may...
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