In re Dudley

• Decision Date: 17 June 2009
• Docket Number: No. 08-71561.,08-71561.
• Citation: 405 B.R. 790
• Parties: In re David V. DUDLEY and Anne M. Dudley, Debtors. W. Clarkson McDow, Jr. United States Trustee for Region IV, Movant. v. David V. Dudley and Anne M. Dudley, Respondents.
• Court: U.S. Bankruptcy Court — Western District of Virginia

405 B.R. 790

In re David V. DUDLEY and Anne M. Dudley, Debtors W. Clarkson McDow, Jr. United States Trustee for Region IV, Movant. v. David V. Dudley and Anne M. Dudley, Respondents.

No. 08-71561.

United States Bankruptcy Court, W.D. Virginia, Roanoke Division.

June 17, 2009.

Garren Robert Laymon, William J. Charboneau, Magee Foster Goldsteing & Sayers PC, Roanoke, VA, for Debtors.

DECISION AND ORDER

ROSS W. KRUMM, Bankruptcy Judge.

The matter before the Court is the Motion for Summary Judgment filed by David V. Dudley and Anne M. Dudley (the "Debtors") in response to the United States Trustee's Motion to Dismiss their Chapter 7 case pursuant to 11 U.S.C. § 707(b)(1). The U.S. Trustee seeks dismissal of the Debtors' Chapter 7 case for abuse and alleges that the presumption of abuse arises under 11 U.S.C. § 707(b)(2). The Debtors argue that 11 U.S.C. § 707(b) does not apply to cases converted to Chapter 7 from another chapter of the Bankruptcy Code and move for summary judgment on that ground.

JURISDICTION

This Court has subject matter jurisdiction to consider this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

BACKGROUND

The facts in this matter are not in dispute. The Debtors filed a voluntary Chapter 13 petition with this Court on August 18, 2008. On Official Form 22C, the Debtors calculated their monthly disposable income to be ($1,862.99). Their net monthly income is $9,715.53, but their deductions from income total $11,578.42. The Debtors included in their deductions the average monthly payment of $5,221.93 for debts secured by their home. To reach this figure, the Debtors added the $1,530.67 payment on a note secured by their residence located at 410 Saddlewood Drive, Wirtz, Virginia and two payments of $2,747.08 and $944.18 for notes secured by the Debtors' second home located at 469 Woods Edge Drive, Rocky Mount, Virginia (the "Woods Edge Secured Debt"). The Debtors filed a Chapter 13 plan on August 18, 2008 (the "Plan"). The Debtors indicated an intent to surrender the Woods Edge Property in paragraph 3(c) of their Plan and did not include their payments on the Woods Edge Secured Debt on their Schedule J expenses.

The Chapter 13 Trustee moved to dismiss or convert the Debtor's case pursuant to 11 U.S.C. § 1307 on September 18, 2008. The Trustee asserted that the Debtors scheduled unreasonably high, unnecessary expenses on their Schedule J and incorrectly deducted payments on the Woods Edge Secured Debt from their net disposable income on Form 22C. In response, the Debtors filed a motion to convert their case to Chapter 7 on October 8, 2008. The 11 U.S.C. § 341(a) meeting of creditors in the Chapter 7 case was held on November 14, 2008.

On December 15, 2008, the U.S. Trustee filed a motion to dismiss the case pursuant to 11 U.S.C. § 707(b)(1) as an abuse of Chapter 7. The U.S. Trustee alleged that the presumption of abuse arises pursuant to § 707(b)(2) because, had the Debtors properly calculated their monthly disposable income, their Form 22A would reflect that they have $2,113.01 in monthly disposable income to pay creditors $126,780.60 over the course of a sixty-month Chapter 13 plan. On January 9, 2009, the Debtors objected to the U.S. Trustee's motion on the grounds that § 707(b) does not apply to cases converted from Chapter 13 to Chapter 7. This Court heard the U.S. Trustee's Motion to Dismiss on March 10, 2009 and took the matter under advisement.

ISSUE

This Court must determine whether 11 U.S.C. § 707(b) applies to cases converted to Chapter 7 from another chapter of the Bankruptcy Code.

DISCUSSION ON APPLICABILITY OF § 707(b)

In general, 11 U.S.C. § 707(b) allows a bankruptcy court to dismiss or convert a Chapter 7 case because the individual debtor has sufficient disposable income to fund a plan of reorganization in either Chapter 11 or 13. Section 707(b)(1) provides that the court may dismiss "a case filed by an individual debtor under this chapter whose debts are primarily consumer debts" for abuse. 11 U.S.C.A § 707(b)(1) (West 2009).¹ The presumption of abuse arises if the debtor's total disposable income, as calculated in § 707(b)(2)(A), is above the minimum threshold set forth in § 707(b)(2)(A)(i) (the "Means Test"). Id. § 707(b)(2)(A).

Resolution of the issue here turns on interpretation of the phrase "a case filed by an individual debtor under this chapter" in § 707(b)(1). Where the meaning of a statute is in dispute, the analysis begins with the language of the statute itself. Lamie v. U.S. Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 1030, 157 L.Ed.2d 1024 (2004). "[W]hen the statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms." Id. (internal quotation marks and citations omitted). There are two narrow exceptions to the Plain Meaning Rule: (1) "when literal application of the statutory language at issue results in an outcome that can truly be characterized as absurd"; and (2) "when literal application of the statutory language at issue produces an outcome that is demonstrably at odds with clearly expressed congressional intent." RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 265 (4th Cir. 2004) (citations omitted).

At the outset, this Court notes that there is no language in § 707(b)(1) that explicitly states that § 707(b) is applicable to cases converted by an individual debtor to Chapter 7. A persuasive argument can be made that the language as written is clearly confined to those cases "filed ... under this chapter," i.e., originally filed in Chapter 7. Adoption of this argument would determine the issue in favor of the Debtors. See In re Fox, 370 B.R. 639, 643 (Bankr.D.N.J.2007). Nevertheless, a greater number of published opinions at the district and bankruptcy court levels (the "majority courts") hold that § 707(b) applies to converted cases.²

I. The Plain Meaning of Section 707(b)(1).

In determining the plain meaning of § 707(b)(1), primary canons of statutory interpretation aid this Court. First, "a limiting clause or phrase ... should ordinarily be read as modifying only the noun or phrase that it immediately follows." Branigan v. Bateman (In re Bateman), 515 F.3d 272, 277 (4th Cir.2008) (internal quotation marks omitted) (quoting Barnhart v. Thomas, 540 U.S. 20, 26, 124 S.Ct. 376, 380, 157 L.Ed.2d 333 (2003)). This is the "last antecedent doctrine."³ Second, "courts should disfavor interpretations of statutes that render language superfluous." Id. at 278 (internal quotation marks omitted) (quoting Witt v. United Cos. Lending Corp. (In re Witt), 113 F.3d 508, 512 (4th Cir.1997) (quoting Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992))). Third, "identical words and phrases within the same statute should normally be given the same meaning." Powerex Corp. v. Reliant Energy Servs., Inc., 551 U.S. 224, 232, 127 S.Ct. 2411, 2417, 168 L.Ed.2d 112 (2007).

The U.S. Trustee argues that proper application of the last antecedent doctrine to the phrase "a case filed by an individual debtor under this chapter" in § 707(b)(1) requires that "under this chapter" modify "debtor." The U.S. Trustee cites Justice v. Advanced Control Solutions, Inc. (In re Justice), No. 07-5231 2008 WL 4368668 (W.D.Ark. Sept.22, 2008), which holds that because "under this chapter" modifies "debtor," any "individual debtor under this chapter" is subject to § 707(b) scrutiny. Id. at *4. The Debtors reply that applying the last antecedent doctrine as advocated by the U.S. Trustee renders the phrase "under this chapter" superfluous. The Debtors argue that proper application of the doctrine dictates that "under this chapter" modify "filed."

This Court agrees that reading "under this chapter" to modify "debtor" would render the phrase "under this chapter" superfluous. If "a case filed by an individual debtor under this chapter" applies to every individual case whether initially filed in or converted to Chapter 7, then "under this chapter" adds nothing as 11 U.S.C. § 103(b) already limits application of § 707(b) to only Chapter 7 cases. See 11 U.S.C.A. § 103(b) (West 2009).⁴ Congress could have excluded the phrase "under this chapter" and achieved the same result.⁵ Further, reading "under this chapter" to modify "filed" is consistent with the Fourth Circuit's reasoning in Branigan v. Bateman (In re Bateman), 515 F.3d 272 (4th Cir.2008). In Bateman, the Fourth Circuit applied the last antecedent doctrine to 11 U.S.C. § 1328(f)(2) and held that "the phrase `during the 2-year period preceding the date of such order' in § 1328(f)(2) modifies the immediately preceding phrase `filed under ...'" Id. at 278. Thus, "under this chapter" modifies "filed."

This Court next considers the meaning of "filed." The majority courts assert that a case is "filed" under the chapter in which the debtor is currently proceeding. The Kerr court illustrated the majority position in finding that "[w]hile ... cases [a]re initially filed under Chapter 13, [after conversion] they are ... filed under Chapter 7." In re Kerr, Nos. 06-12302, 06-12881, 2007 WL 2119291, at *3 (Bankr.W.D.Wash. July 18, 2007).⁶ The minority courts believe that "filed" refers to the initial filing of a petition in bankruptcy. See In re Miller, 381 B.R. 736, 741 (Bankr.W.D.Ark. 2008). The Fox court pointed to the consistent use of "filed" and "filing" in 11 U.S.C. §§ 342(d),⁷ 707(b)(3),⁸ 707(b)(4)(A),⁹ 707(c)(2)¹⁰ and 707(c)(3)¹¹ to refer to the initial filing of a petition as evidence that Congress intended "filed" in § 707(b) to also refer to the initial filing. In re Fox, 370 B.R. 639, 644 (Bankr.D.N.J.2007).

In analyzing the statutory language of § 1328(f)(2), the Fourth Circuit addressed the meaning of "filed under" and found that it means something...