In re Midkiff, No. 02-8004.
| Decision Date | 04 September 2003 |
| Docket Number | No. 02-8004. |
| Citation | 342 F.3d 1194 |
| Parties | In re: David Ogle Midkiff and Anita Joyce Midkiff, Debtors. David Ogle Midkiff and Anita Joyce Midkiff, Appellants, v. Mark R. Stewart, Chapter 13 Trustee, Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Georg Jensen, Esq., Cheyenne, WY, for Appellants.
James R. Belcher, Holland and Hart, LLP, Cheyenne, WY, for Appellee.
Before HENRY, HOLLOWAY, and MURPHY, Circuit Judges.
In this case, we face the familiar choice between finality and accuracy. We choose accuracy, and we therefore hold that Rule 9024 of the Federal Rules of Bankruptcy Procedure may be used to provide relief from a bankruptcy discharge order. Exercising jurisdiction under 28 U.S.C. § 158(d), we thus AFFIRM the decisions of the Bankruptcy Court and of the Bankruptcy Appellate Panel vacating a discharge order and allowing a trustee to collect and disburse an income tax refund under the terms of a bankruptcy plan.
The appellants, Dale Ogle Midkiff and Anita Joyce Midkiff (the Midkiffs), filed for relief under Chapter 13 of the Bankruptcy Code on January 8, 1998. The Midkiffs' bankruptcy plan required payments for at least thirty-six months, up to a maximum of forty-one months. The plan included a provision that income tax refunds to which the Midkiffs would be entitled during the first thirty-six months of the plan were to be deemed "disposable income" and submitted to the Trustee.1 Aple's Supp.App. at 7 ¶ 1.C. (Second Amended Chapter 13 Plan, filed Apr. 6, 1998).
On March 6, 2001, thirty-four months into the plan, in response to a request from the Midkiffs to prepay their remaining obligations, the Trustee sent a letter informing them that $285.92 was needed to complete the plan. The Trustee soon received the Midkiffs' final payment, and on April 4, 2001, the Trustee filed her Certificate of Completion. On April 20, 2001, the Trustee filed her "Final Account and Petition for Final Decree." On April 24, 2001 the Bankruptcy Court entered the Debtors' Discharge.
Also on April 24, however, the Trustee filed a "Revocation of Trustee's Certificate of Completion," noting that the Trustee had received the Midkiffs' 2000 federal tax refund "[a]fter filing the [C]ertificate [of Completion] but before the discharge had been granted." Aple's Supp.App. at 1 (). Shortly thereafter, the Trustee filed in the Bankruptcy Court a "Chapter 13 Trustee's Request to Vacate Order Discharging Debtor," Aple's Supp.App. at 2 (filed May 2, 2001). She stated that on April 24, after she had filed her Certificate of Completion, she had received a check from the United States Treasury (dated April 20, 2001) in the amount of $4974.00 for the Midkiffs's 2000 federal tax refund, which was "disposable income" under the plan. Id. at 3-4. The Trustee asserted that the Discharge Order, which the Bankruptcy Court had entered at the request of the Trustee, was entered by mistake, because the Trustee had been "surprised by newly discovered evidence." Id. at 5. This, the Trustee concluded, justified vacating the Discharge Order under Rule 9024 of the Federal Rules of Bankruptcy Procedure, which provides for relief from final orders under conditions including mistake, surprise, and newly discovered evidence.
After a telephonic hearing, the Bankruptcy Court found that the tax refund resulted from the Midkiffs' income during the relevant three-year period and that, according to the plan, the tax refund was disposable income and must be applied to the plan payments. The Bankruptcy Court then granted the Trustee's request to vacate the Discharge Order to allow the Trustee to collect and disburse the income tax refund in accordance with the plan. The Bankruptcy Appellate Panel (BAP) affirmed. In re Midkiff, 271 B.R. 383, 388 (10th Cir. B.A.P. 2002).
The parties agree that there are no factual disputes in this case. In re Tuttle, 291 F.3d 1238, 1240 (10th Cir.2002) (internal quotation marks and citation omitted).
We first consider the threshold question of whether the Bankruptcy Court's decision to vacate the Discharge Order is permitted. We then proceed to determine whether the Midkiffs' plan requires that the funds at issue be turned over to the Trustee for disbursement.
The Federal Rules of Bankruptcy Procedure allow for relief from final orders on the same terms as the Federal Rules of Civil Procedure. "Rule 60 F.R.Civ.P. applies in cases under the [Bankruptcy] Code." Fed. R. Bankr.P. 9024 (). Rule 60 provides relief from final orders under various circumstances. See Fed. R.Civ.P. 60(b) ()
The Bankruptcy Code also, however, specifies that discharges may only be revoked when there has been unknown fraud, and only upon notice and hearing:
On request of a party in interest before one year after a discharge under this section is granted, and after notice and a hearing, the court may revoke such discharge only if — (1) such discharge was obtained by the debtor through fraud; and (2) the requesting party did not know of such fraud until after such discharge was granted.
11 U.S.C. § 1328(e) (emphasis added). The hearing must be an adversary proceeding. Fed. R. Bankr.P. 7001(4) ()
The BAP nevertheless held that Rule 9024 allowed the Bankruptcy Court to vacate the Discharge Order without proof of fraud. Midkiff, 271 B.R. at 386. In reaching that conclusion, the BAP relied substantially on In re Cisneros, 994 F.2d 1462 (9th Cir.1993).
Writing for the Ninth Circuit, Judge O'Scannlain concluded in Cisneros: "A Chapter 13 debtor's right to have his discharge revoked only for fraud (and not on general equitable grounds or for some reason that would justify revocation of a Chapter 7 discharge) is in no way infringed when a court vacates an order of discharge entered by mistake." Id. at 1466. Cisneros involved a debtor who, unlike the Midkiffs, had not yet made all scheduled payments under the plan. Even so, there is "no reason to believe that Congress intended § 1328(e) to prevent the bankruptcy court from correcting its own mistakes." Id. The Cisneros court went on to explain that the word "only" in § 1328(e) could be explained by Congress's intent to exclude certain Chapter 7 proceedings from being imported into the Chapter 13 context. Id.
Following Cisneros, the BAP held that in spite of § 1328(e)'s restrictions on revoking discharges, the Bankruptcy Court retained authority to vacate the Midkiffs' discharge to allow the Trustee to collect and disburse the tax refund. The BAP reasoned that the Trustee's lack of knowledge of the incoming tax refund was "the kind of mistake contemplated by Rule 60(b)" and that "the Bankruptcy Court did not err in vacating the Debtors' discharge pursuant to Fed. R. Bankr.P. 9024." Midkiff, 271 B.R. at 386.
In challenging that conclusion in this appeal, the Midkiffs again argue that the § 1328(e) restrictions limit the Trustee's authority to vacate a discharge under Rule 9024. They also contend that, even if Rule 9024 does authorize the vacating of discharges on grounds other than those specified in § 1328(e), the Trustee's lack of knowledge of the Midkiffs' tax refund is not the kind of "mistake" contemplated by Rule 9024. Neither argument is persuasive.
We are mindful that "[t]he bankruptcy court is, after all, a court of equity, and it strikes us as anomalous in this context to say that the Debtors have a right to retain that which they had no right to receive in the first place." Cisneros, 994 F.2d at 1466.
Moreover, as the Trustee argues on appeal, the statute specifies that "the court may revoke such discharge only" under certain conditions, 11 U.S.C. § 1328(e) (emphasis added), whereas the court here did not "revoke" the discharge at all. Rather, it "ordered that the Court's Discharge Of Debt After Completion of Chapter 13 Plan, dated April 24, 2001 is vacated to the extent, and for the sole purpose, of allowing the Trustee to collect and disburse the tax refund in accordance with the Debtors' Chapter 13 plan." Aplts' App. at 6-7 () (emphasis added).
The Order was not titled a "revocation," and the Bankruptcy Court specifically indicated that the purpose of the order was limited and specific. If the Bankruptcy Court had wanted to "revoke" the discharge, it presumably knew how to use that word, which appears prominently in the Bankruptcy Code. Indeed, revocation involves far more than temporarily setting aside a discharge. In re Hairston, 3 B.R. 436, 438 (Bankr. N.M.1980) (). When a discharge is revoked, ...
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