In re Keniston
| Decision Date | 31 March 1988 |
| Docket Number | Bankruptcy No. 85-0075. |
| Citation | 85 BR 202 |
| Parties | In re Wallace E. KENISTON, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Hampshire |
Frederic Cox, Wolfeboro, N.H., for Deborah Keniston.
Erland McLetchie, Ossipee, N.H., for debtor.
Diane Puckhaber, Concord, N.H., trustee.
Elizabeth T. Luster, Daniel Sklar, Manchester, N.H., Frank Salinger, Washington, D.C., amicus counsel.
Gregory A. Harrison, Dept. of Justice, Washington, D.C., for U.S. Atty.
This case is before the court upon a sua sponte motion by the court under ? 707(b) of the Bankruptcy Code questioning whether this case should not be dismissed as a "substantial abuse" of chapter 7 of the Code. The court previously took evidence on the question but before rendering a decision noted the possibility of the constitutional invalidity of the statute in question and directed further briefing and hearing on the constitutional question. See In re Keniston, 60 B.R. 742 (Bankr.D.N.H.1986).
The United States, acting through the attorney general, moved to intervene to defend the validity of the statute. This motion was granted and the attorney general has filed a brief on the constitutional questions and appeared at oral argument on the same. The American Financial Services Association ("AFSA") also filed a Motion For Leave To File An Amicus Curiae brief in support of the constitutionality of the statute and that motion was granted and the brief was filed. AFSA was heard in oral argument as well. AFSA is the nation's largest trade association serving the consumer credit industry.
In addition, the court ordered appointment of amicus counsel for the debtor on the constitutional issues at the debtor's request. The attorneys appointed, Sheehan, Phinney, Bass & Green, Esquires of Manchester, New Hampshire, also filed a brief and were heard in oral argument on the constitutional questions.
The court is indebted to all parties who have filed briefs on the constitutional questions for the responsiveness and completeness of the research displayed in the briefs. The briefs have been of great aid to the court in gaining a fair understanding of the constitutional questions posed by ? 707(b) of the Code. As it happens, while the court concludes that a substantial constitutional question of equal protection of the laws is presented, by certain readings of the statutory provision, the court finds as indicated below that a permissible statutory construction, in view of the ambiguous language of the statute and its legislative history, avoids the necessity of reaching that constitutional question in the present case.
The statutory provision in question was added to the Code by the Bankruptcy Amendments and Federal Judgeship Act of 1984, Public Law No. 98-353, 98 Stat. 333 (). Subtitle A of Title III of Public Law No. 98-353 is entitled the "Consumer Credit Amendments" and includes among a number of other statutory changes the new provisions of ? 707(b) added to the Code. As enacted in 1984 ? 707(b) provided:
After notice and a hearing, the court, on its own motion and not at the request or suggestion of any party in interest, 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.1
The reference to "this chapter in the section refers to chapter 7 of the Bankruptcy Code, which deals with what is commonly referred to as "straight bankruptcy" as opposed to a reorganization under chapter 11 of the Code or a voluntary repayment plan under chapter 13 of the Code.
The court posed a number of constitutional questions raised by this statutory provision in its 1986 Opinion. From the briefing and oral argument, I am satisfied that except for the equal protection question discussed below the other constitutional issues raised are not substantial in nature and raise no serious question of constitutional invalidity. The questions as to the vagueness of the statute, and the possible denial of due process by having the bankruptcy judge institute the dismissal proceeding, have been considered recently by the Court of Appeals for the Ninth Circuit and have been answered in favor of constitutional validity. In re Kelly, 841 F.2d 908 (9th Cir.1988). The discussion in Kelly on these questions is persuasive and I adopt the same here.
The United States' brief and the AFSA brief in the present case also persuasively argue that the dismissal of the case on the Judge's own motion pursuant to ? 707(b) is not an uncommon exercise of judicial authority, and note the well-established exercise of such power in dismissing bankruptcy petitions sua sponte for lack of good faith. See, e.g., In re Coastal Cable T.V., Inc., 709 F.2d 762, 43 B.R. 770 (1st Cir. 1983); Brockton Savings Bank v. Peat, Marwick, Mitchell & Co., 771 F.2d 5, (1st Cir.1985), cert. denied, 475 U.S. 1018, 106 S.Ct. 1204, 89 L.Ed.2d 317 (1986); In re Harvey Probber, Inc., 44 B.R. 647 (Bankr. Mass.1984); Furness v. Lilienfield, 35 B.R. 1006 (D.Md.1983).
Likewise, I agree that no "case or controversy" lack of federal jurisdiction, pursuant to Article III, Section 2, Clause I of the Constitution, is presented by ? 707(b) simply because it authorizes a bankruptcy judge to initiate the substantial abuse question. The ? 707(b) issue is raised within the basic bankruptcy case which itself constitutes the necessary case or controversy under Article III of the Constitution. Cf. In re Penn Central Transportation Co., 384 F.Supp. 895, 911 (Special App.Ct.1974). As is noted in the United States and AFSA briefs, bankruptcy judges have often used the device of an analgous "order to show cause" to police questions relating to the administration of estates under their jurisdiction. Such power is necessary to the exercise of that jurisdiction and has not been constitutionally questioned.2
The only constitutional question remaining regarding ? 707(b) which bears discussion is the question of whether that statute violates equal protection guarantees through its alleged unjustified discriminatory treatment by Congress in dealing with persons and classes affected by its legislative enactment. While the equal protection guarantee appears only in the Fourteenth Amendment dealing with state action, it is now well settled that equal protection guarantees apply to Congressional action as well through the due process clause of the Fifth Amendment. See, e.g., Mathews v. DeCastro, 429 U.S. 181, 182 n. 1, 97 S.Ct. 431, 432 n. 1, 50 L.Ed.2d 389 (1976); Buckley v. Valeo, 424 U.S. 1, 93, 96 S.Ct. 612, 670, 46 L.Ed.2d 659 (1976); Weinberger v. Salfi, 422 U.S. 749, 768-770, 95 S.Ct. 2457, 2468-69, 45 L.Ed.2d 522 (1975).
The equal protection question with regard to ? 707(b) is raised primarily because almost all of the case decisions construing this statute have read the provision to require dismissal as a substantial abuse of chapter 7 if the individual debtor involved has the ability to repay from future income the debts for which a chapter 7 discharge is sought. See, e.g., In re Walton, 69 B.R. 150, 154 (E.D.Mo.1986); Matter of Cord, 68 B.R. 5, 7 (Bankr.W.D.Mo.1986); In re Gaukler, 63 B.R. 224, 225 (Bankr.N.D. 1986); In re Kress, 57 B.R. 874, 878 (Bankr.D.N.D.1985); In re Hudson, 56 B.R. 415, 419 (Bankr.N.D.Ohio 1985); In re Bell, 56 B.R. 637, 641, vacated, 65 B.R. 575 (Bankr.E.D.Mich.1986); In re Kelly, 57 B.R. 536 (Bankr.Ariz.1986), aff'd in effect, 841 F.2d. 908 (9th Cir.1988); In re Grant, 51 B.R. 385, 391 (Bankr.N.D.Ohio 1985); In re Edwards, 50 B.R. 933, 936-37 (Bankr.S. D.N.Y.1985); In re White, 49 B.R. 869, 874 (Bankr.W.D.N.C.1985). See also 4 Collier on Bankruptcy ? 707.07 at 707-19 (15th ed. 1988).
There is no question that Congress could have conditioned entitlement to chapter 7 discharge relief for all debtors who have a demonstrable ability to repay some or all of their debts within a reasonable time. It is established that there is no constitutional right to a bankruptcy discharge. United States v. Kras, 409 U.S. 434, 446, 93 S.Ct. 631, 638, 34 L.Ed.2d 626 (1973). The constitutional question is raised here only because ? 707(b) singles out for this restriction upon the right to a chapter 7 discharge only those individual debtors "whose debts are primarily consumer debts. . . ." More specifically, the possible denial of equal protection stems from the fact that under the reported decisions construing the statute only debtors having such debts are required to show that they are not "abusing" the chapter because they need chapter 7 relief, i.e., that they do not have the ability to repay their debts out of future income.
No logical reason appears evident, if ? 707(b) is truly designed to deal with "abuse" of chapter 7 in terms of the debtors seeking a chapter 7 discharge when they have the ability to repay their debts, as to why such dismissal for "abuse" defined in those terms should not apply to all individual debtors seeking chapter 7 relief. Even when pressed at oral argument neither the United States nor AFSA could give this court any logical reason as to why only consumer debtors should be singled out for the disqualification. It cannot be that Congress wanted to avoid logistical, staffing, or enforcement problems by only attacking a small portion of the bankruptcy court's caseload in this area, inasmuch as consumer cases are by far the great majority of the cases filed in the bankruptcy courts.3
Congress provided no definition of "substantial abuse" when adding ? 707(b) to the Bankruptcy Code. Resorting to a dictionary definition therefore we find that the term "abuse" has been defined as follows:
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