In re Behlke

• Decision Date: 20 February 2004
• Docket Number: No. 02-4306.,02-4306.
• Citation: 358 F.3d 429
• Parties: In re William M. BEHLKE and Dina E. Behlke, Debtors, William M. Behlke and Dina E. Behlke, Appellants, v. Saul Eisen, United States Trustee, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

358 F.3d 429

In re William M. BEHLKE and Dina E. Behlke, Debtors William M. Behlke and Dina E. Behlke, Appellants, v. Saul Eisen, United States Trustee, Appellee.

No. 02-4306.

United States Court of Appeals, Sixth Circuit.

Argued: January 28, 2004.

Decided and Filed: February 20, 2004.

Petition for Rehearing Denied En Banc: May 20, 2004. Pursuant to Sixth Circuit Rule 206.

ARGUED: Stephen D. Hobt, Cleveland, OH, for Appellants.

P. Matthew Sutko, DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

ON BRIEF: Stephen D. Hobt, Cleveland, Ohio, for Appellants.

P. Matthew Sutko, DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

Before BOGGS, Chief Circuit Judge; GUY, Circuit Judge; HOOD, District Judge.^*

OPINION

RALPH B. GUY, JR., Circuit Judge.

Debtors, William M. and Dina E. Behlke, appeal from the decision of the Bankruptcy Appellate Panel (BAP) affirming the bankruptcy court's order granting the Trustee's motion to dismiss this voluntary Chapter 7 bankruptcy petition for "substantial abuse" under 11 U.S.C. § 707(b). Section 707(b) provides that the bankruptcy court, on its own motion or the motion of the United States Trustee, "may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts if it finds that the granting of relief would be a substantial abuse of the provisions of this chapter. There shall be a presumption in favor of granting the relief requested by the debtor."

The debtors argue that the bankruptcy court erred in deciding to include 401K contributions as "disposable income" for purposes of determining the debtors' ability to pay and in concluding that there was substantial abuse warranting dismissal under § 707(b). The debtors also argue that the BAP incorrectly applied an abuse of discretion standard in reviewing the bankruptcy court's decision. After a review of the record and the applicable law, we affirm the bankruptcy court's decision.

I.

Debtors filed a voluntary petition in bankruptcy under Chapter 7. The Trustee filed a motion to dismiss the case under § 707(b), arguing that to grant the debtors a Chapter 7 discharge in this "no asset" case would constitute a substantial abuse because the debtors have disposable income with which to pay their creditors. The parties stipulated to the underlying facts at the time of the hearing on the motion. On April 4, 2002, the bankruptcy court issued its decision setting forth the stipulated facts, the applicable law, and the reasons for finding that the Trustee met its burden of demonstrating that "these debtors are not `needy' and that granting them a Chapter 7 discharge would be a `substantial abuse' of the bankruptcy system."

There is no dispute concerning the stipulated facts, which the bankruptcy court set forth as follows:

1. In December 1995, William Behlke was about to become a partner in a large law firm in California at which he had been practicing for six years.

2. Mr. Behlke left California and followed his then wife (now his ex-wife), Karen, to Ohio in an effort to save his marriage.

3. Because he moved to Ohio, Mr. Behlke lost his position in California. Mr. Behlke spent the next 13½ months out of work, first working to obtain a license to practice law in Ohio and then searching for employment.

4. In February 1997, Mr. Behlke obtained employment with Rubbermaid in its Office of Corporate Counsel.

5. The dissolution of the marriage between William and Karen Behlke became final on April 8, 1998. William and Karen Behlke had one child from their marriage whose custody they now share. William Behlke pays child support of $653.00 per month.

6. In March 1999, Rubbermaid merged with Newell Corporation to form Newell Rubbermaid, Inc. Seven attorney's jobs at Rubbermaid were eliminated leaving William Behlke as the only attorney in Rubbermaid's Office of Corporate Counsel. Newell retained its staff of four in-house attorneys in its offices in Freeport, Illinois, including the general counsel for Newell Rubbermaid, Inc. Mr. Behlke's employment at Newell Rubbermaid appears currently steady, though the possible early retirement of general counsel for Newell could signal an attempt to consolidate the office of general counsel at Newell.

7. In January 1999, Dina Behlke (then Dina Christopher) left her employment as a paralegal and began Mobile P.I. Mobile P.I. is a business which is employed (now exclusively) by the law firm of Friedman, Domiano & Smith to go to the homes of their various potential personal injury clients throughout northern Ohio and obtain the client's medical releases and signatures upon retainer agreements. If Mrs. Behlke obtains the requested signatures, Mobile P.I. is paid a flat fee for Mrs. Behlke's services. If not, Mobile P.I. receives no compensation. Mobile P.I. is not reimbursed for Mrs. Behlke's mileage or expenses. During the years 2000 and 2001, Ms. Behlke traveled throughout Medina, Cuyahoga, Summit, Stark, Trumbull, Portage, Mahoning, Wayne, Carroll, Holmes, Geauga, Columbiana, Tuscarawas, Ashland and Richland counties for work on behalf of Mobile P.I.

8. William and Dina Behlke were married on December 21, 1999.

9. On September 12, 2001, Mr. and Mrs. Behlke initiated this joint, voluntary chapter 7 bankruptcy. At the time of filing, the Behlkes owed a total of $163,944.00 in unsecured nonpriority debt which is "consumer" in nature. Of that amount, $30,140.00 is for a student loan debt owed by William Behlke.

10. The remaining $133,804.00 of unsecured nonpriority debt that was owed at the time of the bankruptcy filing is from various credit card accounts of both William and Dina Behlke.

11. According to the debtors' records, on December 31, 1998, debtors owed between them a total of $60,211.80 in credit card debt, which debt was mostly incurred between 1996 and early 1998 and primarily owed by William Behlke. On December 31, 1999, debtors' credit card debt totaled $100,353.00. On December 31, 2000, debtors owed a total of $124,437.72 in credit card debt.

12. Debtors' net monthly income totals $4,923.00 and their net monthly expenses total $4,749.00.

13. Debtors' Schedule I — Current Income of Individual Debtor(s) shows a voluntary monthly contribution of $460.00 to William Behlke's employer sponsored 401K plan.

14. Debtors' gross income for 1999 was $93,116.00 and their gross income for 2000 was $93,036.00.

15. For tax year 2000, debtors received an income tax refund of $2,313.00.

16. Debtors are eligible for relief under chapter 13 of the Bankruptcy Code.

There was no dispute that the debts in this case were primarily unsecured consumer debts.

As the bankruptcy court observed, this court has determined that substantial abuse can be predicated on a showing of either a lack of honesty or a want of need. In re Krohn, 886 F.2d 123, 126 (6th Cir.1989). The Trustee did not rely on a lack of honesty, but maintained that the debtors were not "needy." Examining this question, the bankruptcy court found that the voluntary 401K contributions should be included in disposable income; that, including those contributions, debtors had an ability to pay out of future income; and that, taken with the other Krohn factors, discharge in this case would be a substantial abuse of the bankruptcy system. The BAP affirmed on October 10, 2002, and this appeal followed.

II.

A. Standard of Review

"We independently review the decision of the bankruptcy court that comes to us by way of appeal from a Bankruptcy Appellate Panel." Nardei v. Maughan (In re Maughan), 340 F.3d 337, 341 (6th Cir.2003). The bankruptcy court's findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo. Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629, 631 (6th Cir.1994); Rembert v. AT & T Universal Card Servs. (In re Rembert), 141 F.3d 277, 280 (6th Cir.1998). Mixed questions are to be separated into their component parts and reviewed under the appropriate standard. Mayor of Baltimore v. W. Va. (In re Eagle-Picher Indus., Inc.), 285 F.3d 522, 527 (6th Cir.), cert. denied, 537 U.S. 880, 123 S.Ct. 90, 154 L.Ed.2d 137 (2002). "Finally, the bankruptcy court's equitable determinations are reviewed for an abuse of discretion." Id. (citations omitted).

Debtors contend that the BAP erred in applying an abuse of discretion standard to the ultimate question of whether there was substantial abuse warranting dismissal, without resolving the question of whether the issue should be reviewed de novo or for an abuse of discretion. While it appears that the BAP actually concluded that it would affirm under either standard, ours is an independent review of the bankruptcy court's decision.

Several circuits have stated, albeit without discussion or analysis, that whether the facts as found by the bankruptcy court constitute substantial abuse is a question of law that is to be reviewed de novo. See Stewart v. United States Trustee (In re Stewart), 175 F.3d 796, 803 (10th Cir.1999); Kornfield v. Schwartz (In re Kornfield), 164 F.3d 778, 783 (2d Cir.1999); First USA v. Lamanna (In re Lamanna), 153 F.3d 1, 3 (1st Cir.1998); Green v. Staples (In re Green), 934 F.2d 568, 570 (4th Cir.1991). On the other hand, the Eighth Circuit BAP has held that dismissals for substantial abuse are to be reviewed for abuse of discretion. In re Nelson, 223 B.R. 349, 352 (8th Cir.BAP 1998).

While this court has not specifically considered the question of the appropriate standard for reviewing dismissals under § 707(b), we have concluded that a decision to dismiss "for cause" under § 707(a) will be reversed only for an abuse of discretion because it is an equitable determination. Indus. Ins. Servs., Inc. v. Zick (In re Zick), 931 F.2d 1124, 1126 (6th Cir.1991). In discussing the purposes of § 707(b), the court in Krohn indicated that dismissal for substantial abuse is also an equitable determination. Krohn, 886 F.2d at 126 (§ 707(b) gives discretion to dismiss for abusive filing and...