Failla v. Citibank, N.A. (In re Failla)

• Decision Date: 04 October 2016
• Docket Number: No. 15-15626,15-15626
• Citation: 838 F.3d 1170
• Parties: In re: David A. Failla, Donna N. Failla, Debtors. David A. Failla and Donna N. Failla, Plaintiffs–Appellants, v. Citibank, N.A., Defendant–Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

838 F.3d 1170

In re: David A. Failla, Donna N. Failla, Debtors.David A. Failla and Donna N. Failla, Plaintiffs–Appellants,

v.Citibank, N.A., Defendant–Appellee.

No. 15-15626

United States Court of Appeals, Eleventh Circuit.

Date Filed: October 4, 2016

Peter David Ticktin, Ticktin Law Group, PA, DEERFIELD BEACH, FL, Michael E. Zapin, Law Offices of Michael E. Zapin, BOCA RATON, FL, for Plaintiffs–Appellants.

John Robert Chiles, Burr & Forman, LLP, FORT LAUDERDALE, FL, Jonathan Michael Sykes, Burr & Forman, LLP, ORLANDO, FL, for Defendant–Appellee.

Before MARCUS and WILLIAM PRYOR, Circuit Judges, and LAWSON,^* District Judge.

WILLIAM PRYOR

, Circuit Judge:

This appeal requires us to decide whether a person who agrees to “surrender” his house in bankruptcy may oppose a foreclosure action in state court. David and Donna Failla filed for bankruptcy in 2011 and agreed that they would surrender their house to discharge their mortgage debt. But the Faillas continued to oppose a foreclosure proceeding in state court. Citibank then filed a motion to compel surrender in the bankruptcy court and argued that the Faillas had breached their duty to surrender the property. The bankruptcy court granted the motion, and the district court affirmed. Because the word “surrender” in the bankruptcy code, 11 U.S.C. § 521(a)(2)

, requires that debtors relinquish their right to possess the property, we affirm.

I. BACKGROUND

David and Donna Failla own a house in Boca Raton, Florida. They financed their purchase with a $500,000 mortgage. The Faillas defaulted on that mortgage in 2009. Citibank, the owner of the mortgage and the promissory note, filed a foreclosure action in a Florida court. The Faillas are opposing that foreclosure action.

The Faillas filed for bankruptcy in 2011. During the bankruptcy proceedings, the Faillas admitted that they own the house, that the house is collateral for the mortgage, that the mortgage is valid, and that the balance of the mortgage exceeds the value of the house. They also filed a statement of intention, 11 U.S.C. § 521(a)(2)

, to surrender the house. Because the house had a negative value, the trustee “abandoned” it back to the Faillas, 11 U.S.C. § 554. The Faillas continue to live in the house while they contest the foreclosure action.

Citibank filed a motion to compel surrender in the bankruptcy court. Citibank argued that the Faillas' opposition to the foreclosure action contradicted their statement of intention to surrender the house. The Faillas argued that their opposition to the foreclosure action is not inconsistent with surrendering the house.

The bankruptcy court granted Citibank's motion to compel surrender and ordered the Faillas to stop opposing the foreclosure action. See In re Failla , 529 B.R. 786, 793 (Bankr. S.D. Fla. 2014)

. The bankruptcy court explained that if the Faillas do not comply with its order, it may “enter an order vacating [their] discharge.” Id . The district court affirmed on appeal. See

Failla v. Citibank, N.A. , 542 B.R. 606, 612 (S.D. Fla. 2015).

The Faillas now appeal to this Court. After the parties filed their briefs, Citibank filed a motion to strike portions of the Faillas' briefing that were raised for the first time on appeal. The disputed sections argue that the only remedy available to the bankruptcy court was lifting the automatic stay for Citibank, which would allow Citibank to foreclose on the house in the ordinary course. This Court ruled that the motion to strike should be carried with the case.

II. STANDARD OF REVIEW

“Because the district court functions as an appellate court in reviewing bankruptcy court decisions, this court is the second appellate court to review bankruptcy court cases.” In re Glados, Inc. , 83 F.3d 1360, 1362 (11th Cir. 1996)

. We “assess the bankruptcy court's judgment anew, employing the same standard of review the district court itself used.” In re Globe Mfg. Corp. , 567 F.3d 1291, 1296 (11th Cir. 2009). “Thus, we review the bankruptcy court's factual findings for clear error, and its legal conclusions de novo .” Id.

III. DISCUSSION

We divide our discussion in two parts. First, we explain that section 521(a)(2)

prevents debtors who surrender their property from opposing a foreclosure action in state court. Second, we explain that the bankruptcy court had the authority to order the Faillas to stop opposing their foreclosure action.

A. Debtors Who Surrender Their Property in Bankruptcy May Not Oppose a Foreclosure Action in State Court.

Section 521(a)(2)

states a bankruptcy debtor's responsibilities when his schedule of assets and liabilities includes mortgaged property:

(a) The debtor shall ...

(2) if an individual debtor's schedule of assets and liabilities includes debts which are secured by property of the estate—

(A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property; and

(B) within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day period fixes, perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph;

except that nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h).

11 U.S.C. § 521(a)(2)

. Subsection (A) requires the debtor to file a statement of intention about what he plans to do with the collateral for his debts. See Fed. R. Bankr. P. 1007(b)(2). The statement of intention must declare one of four things: the collateral is exempt, the debtor will surrender the collateral, the debtor will redeem the collateral, or the debtor will reaffirm the debt. See

In re Taylor , 3 F.3d 1512, 1516 (11th Cir. 1993). After the debtor issues his statement of intention, subsection (B) requires him to perform the option he declared. Id .

The question here is whether the Faillas satisfied their declared intention to surrender their house under section 521(a)(2)(B)

. To answer that question, we must decide to whom debtors must surrender their property and whether surrender requires debtors to acquiesce to a creditor's foreclosure action. The district court and the bankruptcy court correctly concluded that the Faillas violated section 521(a)(2) by opposing Citibank's foreclosure action after filing a statement of intention to surrender their house.

We agree with both the district court and the bankruptcy court that section 521(a)(2)

requires debtors who file a statement of intent to surrender to surrender the property both to the trustee and to the creditor. Even if the trustee abandons the property, the debtors' duty to surrender the property to the creditor remains. The text and the context of the statute compel this interpretation.

Reading “surrender” to refer only to the trustee of the bankruptcy estate renders section 521(a)(2)

superfluous with section 521(a)(4). Under the surplusage canon, no provision “should needlessly be given an interpretation that causes it to duplicate another provision.” Antonin Scalia & Bryan A. Garner, Reading Law 174 (2012). See also

Inhabitants of Montclair Twp. v. Ramsdell , 107 U.S. 147, 152, 2 S.Ct. 391, 27 L.Ed. 431 (1883) (“It is the duty of the court to give effect, if possible, to every clause and word of a statute....”). Section 521(a)(4) states that “[t]he debtor shall ... surrender to the trustee all property of the estate.” 11 U.S.C. § 521(a)(4). Because section 521(a)(4) already requires the debtor to surrender all of his property to the trustee so the trustee can decide, for example, whether to liquidate it or abandon it, section 521(a)(2) must refer to some other kind of surrender.

When the bankruptcy code means a debtor must surrender his property either to the creditor or the trustee, it says so. On the one hand, section 1325(a)(5)(C) states that “the debtor surrenders the property securing such claim to such holder ,” which clearly contemplates surrender to a creditor. 11 U.S.C. § 1325(a)(5)(C)

(emphasis added). Congress did not use that language here. On the other hand, section 521(a)(4) states that “[t]he debtor shall ... surrender to the trustee all property of the estate,” which clearly contemplates surrender to the trustee. Id. § 521(a)(4) (emphasis added). Congress did not use that language either.

What Congress did say in section 521(a)(2)

is “surrender,” without specifying to whom the surrender is made. But the lack of an object makes sense because a debtor who decides to surrender his collateral must surrender it to both the trustee and the creditor. The debtor first surrenders it to the trustee, id. § 521(a)(4)

, who decides whether to liquidate it, id. § 704(a)(1), or abandon it, id. § 554. If the trustee abandons it, then the debtor surrenders it to the creditor, id. § 521(a)(2).

The word “surrender” in section 521(a)(2)

is used with reference to the words “redeem” and “reaffirm,” and those words plainly refer to creditors. A debtor “redeems” property by paying the creditor a particular amount, and he “reaffirms” a debt by renegotiating it with the creditor. See

Taylor , 3 F.3d at 1514 n.2 ; see also 11 U.S.C. §§ 524(c), 722. Because “[c]ontext is a primary determinant of meaning,” Scalia & Garner, supra , at 167, the word “surrender” likely refers to a relationship with a creditor as well. We said as much in dicta in Taylor. See 3 F.3d at 1514 n.2 (“Surrender provides that a debtor surrender the collateral to the...