In Re: Cervantes, Debtor

• Decision Date: 13 March 2000
• Docket Number: No. 99-15441,99-15441
• Citation: 219 F.3d 955
• Parties: (9th Cir. 2000) In re: RAYMOND CERVANTES, Debtor. COUNTY OF SANTA CRUZ, Appellant, v. RAYMOND CERVANTES, Appellee. Office of the Circuit Executive
• Court: U.S. Court of Appeals — Ninth Circuit

Page 955

219 F.3d 955 (9th Cir. 2000)

In re: RAYMOND CERVANTES, Debtor.

COUNTY OF SANTA CRUZ, Appellant, v. RAYMOND CERVANTES, Appellee.

No. 99-15441

Office of the Circuit Executive

U.S. Court of Appeals for the Ninth Circuit

Argued and Submitted March 13, 2000--San Francisco, California

Filed July 18, 2000

Philip L. Strauss (argued) and Mary A. Roth, Office of the State Attorney General, San Francisco, California, for the appellant.

Andrew Lauderdale, Lauderdale Law Offices, Monterey, California, for the appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Ryan, Klein, and Meyers, Judges, Presiding; BAP No. NC-97-1822RyKMe

Before: Henry A. Politz,¹ Stephen Reinhardt, and Michael Daly Hawkins, Circuit Judges.

HAWKINS, Circuit Judge:

May an absent parent who owes money to the County for child support payments made by the County prior to the entry of a child support order have that debt discharged in a Chapter 13 bankruptcy proceeding? We recently held, in the context of a Chapter 7 bankruptcy, that an absent parent is not entitled to discharge such a debt. See In re Leibowitz , 217 F.3d 799 (9th Cir. July 6, 2000). This conclusion was based on recent changes to the bankruptcy and welfare laws. The absent parent in this case claims those changes only apply to bankruptcy filings under Chapter 7, not Chapter 13. We disagree and hold that the new discharge provisions apply to any bankruptcy filing under Title 11.

I. FACTS AND PROCEDURAL BACKGROUND

Ray Cervantes fathered a child with his girlfriend, Monica Samudio. On March 18, 1993, shortly after the child was born, Samudio applied to the County of Santa Cruz for Aid to Families with Dependent Children ("AFDC"). As a condition for receiving AFDC, she was required under state and federal law to assign to the County any "accrued " rights to support from the child's father. See 42 U.S.C. S 602(a) (26)(A); Cal. Welf. & Inst. Code S 11477(a). ²

In October 1994, the County obtained a judgment against Cervantes in state court pursuant to California Welfare and Institutions Code S 11350.³ The judgment ordered Cervantes to pay $219 per month in child support and to reimburse the County $4,161 for AFDC payments made to Samudio from March 1993 to October 1994. Cervantes never paid the monthly amounts or the reimbursement, and in September 1996 he filed a Chapter 13 bankruptcy petition.

While his bankruptcy petition was pending, Cervantes filed a complaint to determine whether the debts he owed to the County were dischargeable. Under 11 U.S.C. S 1328(a), a Chapter 13 debtor who has completed all payments under the bankruptcy plan is entitled to a discharge of prior debts, with certain exceptions. For instance, a debtor is not entitled to discharge any debt to a spouse or child for support in connection with a court order. See 11 U.S.C. S 523(a)(5) (incorporated by reference into 11 U.S.C. S 1328(a)). But such a debt can be discharged if it was assigned to another entity, unless the assignment was pursuant to 42 U.S.C. S 602(a)(26), which is the provision under which Samudio was required to assign her support rights to the County in exchange for AFDC.

In this case, Cervantes owed a debt to Samudio for child support that was in connection with a court order. The debt had been assigned to another entity -the County -but that assignment had been made pursuant to 42 U.S.C. S 602(a)(26), so it would have seemed that his debt was not dischargeable under 11 U.S.C. S 523(a)(5).

The issue was more complicated, however. In Ramirez v. County of Santa Clara, 795 F.2d 1494, 1497 (9th Cir. 1986), we parsed the language of section 602(a)(26) and noted that it requires an applicant for AFDC to assign support rights "which have accrued at the time such assignment is executed." (emphasis added). We then noted that under California law, a custodial parent does not have a right to support absent a court judgment. See id. Putting these two pieces together, we concluded that prior to the entry of a court judgment, a custodial parent has no accrued rights that can be assigned pursuant to section 602(a)(26). See id. And because a child support debt assigned to the county was only excepted from discharge if assigned pursuant to section 602(a)(26), we held that an absent parent was entitled to discharge debts owed to the county for pre-judgment AFDC payments. See id. We reaffirmed this holding nine years later in Visness v. Contra Costa County, 57 F.3d 775 (9th Cir. 1995).

Relying on these two cases, Cervantes moved for summary judgment in the bankruptcy court. He argued that the $4,161 owed to the County for pre-judgment AFDC payments was dischargeable.⁴ The County cross-moved for summary judgment. Although it acknowledged that Ramirez and Visness allowed the discharge of pre-judgment debts, it maintained that subsequent legislation had circumvented the effect of those cases.

The County pointed to two provisions contained in the Welfare Reform Act of 1996⁵. The first provision was added to the Bankruptcy Code at 11 U.S.C. S 523(a)(18) and states that a debtor is not entitled to discharge any debt "owed under State law to a State or municipality that is (A) in the nature of support, and (B) enforceable under part D of title IV of the Social Security Act." The second provision was added to the Social Security Act at 42 U.S.C. S 656(b) and is nearly identical to the first provision. It states that "[a ] debt . . . owed under State law to a State . . . or municipality . .. that is in the nature of support and that is enforceable under this part is not released by a discharge in bankruptcy under Title 11."

The County argued that because these two provisions did not refer to an assignment pursuant to section 602(a)(26), they created a new exception to the general discharge rule that was not affected by this court's decisions in Ramirez and Visness. The County conceded that the first provision, section 523(a)(18), did not apply to discharges under 11 U.S.C S 1328(a) -which is the provision under which Cervantes had sought a discharge -because section 523(a)(18) is part of a larger provision that does not relate to section 1328(a) proceedings. See 11 U.S.C. S 523(a). ⁶ The County also conceded that Congress had not changed section 1328(a) to specifically incorporate the discharge exception of section 523(a)(18), the way section 1328(a) incorporates the discharge exception of section 523(a)(5).⁷ But the County maintained that the second provision, at 42 U.S.C. S 656(b), applied to Cervantes' case because it refers to discharges generally under Title 11, and section 1328(a) is part of Title 11.

The bankruptcy court rejected the County's argument. Because the two new provisions contained such similar language, the bankruptcy court reasoned that the first provision had been added to the bankruptcy code to effectuate the second provision, which had been added to the codified version of the Social Security Act. Although the bankruptcy court did not elaborate, it apparently concluded that an amendment to the Social Security Act could not by itself change the bankruptcy law and that Congress had only inserted the second provision to reflect the change made by the first provision.

The County appealed, arguing that section 656(b) provides an independent basis upon which to find a child-support debt non-dischargeable. The Bankruptcy Appellate Panel ("BAP") ruled that the County had not made this argument to the bankruptcy court and that the argument was therefore waived. The BAP then affirmed the bankruptcy court's decision, and the County filed this timely appeal. We have jurisdiction under 28 U.S.C. S 158(d).

II. STANDARD OF REVIEW

When a decision of the bankruptcy court is on appeal from the BAP, we independently review the bankruptcy court's decision. See In re Michael, 163 F.3d 526, 529 (9th Cir. 1998). The bankruptcy court's interpretation of the Bankruptcy Code is reviewed de novo. See In re Been , 153 F.3d 1034, 1036 (9th Cir. 1998).

III. ANALYSIS

A. Waiver

We must first address the BAP's finding that the County waived its argument concerning section 656(b). In making this determination, the BAP acknowledged that the County cited section 656(b) along with 11 U.S.C. S 523(a)(18) to the bankruptcy court. But, the BAP concluded, the County did not assert that section 656(b) alone could support its claim that Cervantes' debt for child support was non-dischargeable. As a result, it held, the County waived this argument.

We disagree. In its motion for summary judgment before the bankruptcy court, the County cited both sections 656(b) and 523(a)(18) for the proposition that Congress had altered the law of dischargeability. That the County did not go one step further and assert that each provision, by itself, was sufficient to change the law is unimportant. The bankruptcy court was advised of the changes to section 656(b) and had sufficient information to assess the independent effect of that provision.

In fact, the bankruptcy court appears to have done just that. In its grant of summary judgment to Cervantes, the court stated that "[b]y adding S 523(a)(18) to the Bankruptcy Code, Congress effectuated in bankruptcy cases the dischargeability provision found at 42 U.S.C. S 656(b)." It then stated that if Congress had intended for that change to apply to section 1328(a) cases, "it would have added S 523(a)(18) as an exception . . . under S 1328(a), as it did, for example, with S 523(a)(5)." Thus, the bankruptcy court apparently considered whether section 656(b) provided an independent basis for non-dischargeability. And based on Congress' failure to amend section 1328(a), the court concluded that section 656(b) had no independent effect; it simply reflected the change in law made by section 523(a)(18).

Under these circumstances, we cannot conclude that the County waived its argument concerning section 656(b). We therefore proceed to the merits of the County's claim.

B. ...