In re Miller

• Decision Date: 25 November 2019
• Docket Number: CASE NO. 19-11253-JCO
• Citation: 610 B.R. 678
• Parties: IN RE: Lucinda MILLER, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Alabama

610 B.R. 678

IN RE: Lucinda MILLER, Debtor.

CASE NO. 19-11253-JCO

United States Bankruptcy Court, S.D. Alabama.

Signed November 25, 2019

Herman D. Padgett, Lacy Robertson, Padgett & Robertson, Mobile, AL, for Debtor.

MEMORANDUM OPINION AND ORDER SUSTAINING OBJECTION TO CLAIM

JERRY C. OLDSHUE, JR., U.S. BANKRUPTCY JUDGE

This matter came before the Court on the Debtor's Objection (Doc. 43) to Proof of Claim Number 15 filed by Steven and Krista Goguen, (the "Goguens") and the Response thereto. (Doc. 54). Proper notice of hearing was given and appearances were noted by Attorney Lacy Robertson as counsel for the Debtor and Attorney Jennifer Holifield as counsel for the Goguens. Having considered the record, the Objection, the Response, the Joint Stipulation of Facts and the arguments of counsel, the Court finds that the Debtor's Objection to Claim is due to be SUSTAINED.

JURISDICTION

This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 1334 and 157, and the Order of Reference of the District Court dated August 25, 2015. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2) (A) and (B).

FINDINGS OF FACT

The parties submitted a Joint Stipulation of Undisputed Facts (hereinafter "Stipulation") in lieu of testimony, which this Court adopts and cites as set out herein. (Doc. 71). On February 4, 2018, Lucinda Miller (the "Debtor") and the Goguens entered into a purchase agreement (the "Agreement") for property located at 3258 Newcastle Drive, Mobile, Al 36695 (the "Property"). (Id. at ¶1). The Agreement also provided for the Debtor to pay a $2,500.00 security deposit to lease the property from the Goguens until the purchase could be consummated. (Id. ). The Debtor tendered a check (the "Check") to the Goguens for the first month's rent and security deposit and moved into the Property on February 7, 2018. (Id. at ¶2). After the Debtor took possession of the Property, the Check was dishonored due to insufficient funds. (Id. at ¶3). The terms of the Agreement required the Debtor to pay monthly rent and transfer utilities into her name. (Id. at ¶4). The Debtor never paid rent, transferred the utilities or rectified the dishonored check. (Id. at ¶5). On April 27, 2018, the Goguens obtained an eviction order. (Id. at ¶9). On May 23, 2018, the Goguen's evicted the Debtor from the Property. (Id. at ¶12). The Debtor commenced this bankruptcy case on April 16, 2019. (Doc. 1). The Goguens filed proof of claim 15 (the "Claim") in the amount of $14,849.62, for unpaid rent, late fees, utilities, security deposit and eviction expenses. The Goguens assert that $2,500.00 of the Claim is entitled to priority under 11 U.S.C. 507(a)(7) based upon the failure of the Debtor to pay the security deposit. The Debtor contends that the entire Claim should be treated as general unsecured.

ISSUE

Whether 11 U.S.C. § 507 (a)(7) entitles a former landlord of a chapter 13 debtor to a priority claim for an unpaid security deposit due from the debtor under a residential lease.

CONCLUSIONS OF LAW

Allowance of Priority Claims in Bankruptcy

Proof of claims filed in accordance with the Bankruptcy Rules constitute prima facie evidence of the validity and amount of the claim. Fed.R.Bankr.P. 3001(f) ; Green Tree Acceptance Inc. v. Calvert (In re Calvert), 907 F.2d 1069, 1071 (11th Cir.1990) ; In re Britt , 199 B.R. 1000 (Bank. N.D. Ala. 1996) (citing In re Fullmer, 962 F.2d 1463 (10th Cir.1992) ; Matter of Fidelity Holding Co., Ltd., 837 F.2d 696, 698 (5th Cir.1988). A proof of claim is deemed allowed, unless a party in interest objects. 11 U.S.C. § 502(a). The general goal of bankruptcy law is to effectuate an equitable distribution of the debtor's estate among claimants. Trustees of Amalgamated Ins. Fund v. McFarlin's, Inc., 789 F.2d 98, 100 (2d Cir.1986). Priority should not be afforded to a claimant unless it is founded on a clear statutory purpose.

In re City Sports Inc. , 554 B.R. 329 (Bankr. D.Del 2016). The Bankruptcy Code delineates ten categories of claims that are allowed priority treatment. 11 U.S.C. § 507(a). These exceptions are based upon a showing of special circumstances or special need. City Sports at 333. The burden is on the party seeking priority status to prove its claim qualifies. In re FBI Distrib. Corp. , 330 F.3d 36, 42 (1st Cir.2003) ; In re Nat'l Steel Corp. , 321 B.R. 901, 905 (Bankr.N.D.Ill.2005) ; In re Heritage Village Church and Missionary Fellowship, Inc. , 137 B.R. 888, 892 (Bankr.D.S.C.1991) ); In re Terra Distrib., Inc. , 148 B.R. 598, 599–600 (Bankr.D.Idaho 1992). The priority statutes should be construed strictly and narrowly. Id.; See also, Boston Reg'l Med. Ctr. Inc. v. Mass. Div. of Health Care Fin. and Policy, 365 F.3d 51, 57 (1st Cir.2004) ; Amalgamated Ins. Fund, 789 F.2d at 100 ; WW Warehouse , 313 B.R. at 592 ; In re Olga Coal Co. , 194 B.R. 741 (Bankr.S.D.N.Y. 1996) ; In re Pittston Stevedoring Corp. , 40 B.R. 424, 428–29 (Bankr.S.D.N.Y.1984).

The Goguens' Claim does not meet the standard for priority treatment. In this case, the Goguens filed a timely unsecured claim in the amount of $14,849.62 and designated $2,500.00 as entitled to priority pursuant to 11 U.S.C. § 507(a)(7). There is no dispute that the Debtor owes the Goguens $2,500.00 for an unpaid security deposit pursuant to terms of a lease. However, the Debtor contends that priority treatment is not appropriate. This Court agrees with the above cited authorities that the priority statutes should be construed narrowly to promote the equality of distribution among creditors and the burden is on the claimants to prove their claim qualifies for priority treatment. As hereinafter discussed, in light of the forgoing and upon consideration of the plain language, statutory intent and legislative history of 11 U.S.C. § 507(a)(7) the Goguen's cannot meet that burden.

Plain Language of 507(a)(7)

To resolve a dispute concerning statutory interpretation, this Court must begin by examining the plain language of the statute. See Guarracino v. Hoffman, 246 B.R. 130, 132 (D.Mass.2000) (citing United States v. Ron Pair Enters. Inc. , 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) ). The first rule in statutory construction is to determine whether the language at issue has a plain and unambiguous meaning with regard to the particular dispute. United States v. Fisher, 289 F.3d 1329, 1337–38 (11th Cir.2002), cert. denied, 537 U.S. 1112, 123 S.Ct. 903, 154 L.Ed.2d 786 (2003). A presumption exists that Congress said what it meant and meant what it said. United States v. Steele, 147 F.3d 1316, 1318 (11th Cir.1998) (en banc).

When the import of the words Congress has used is clear, there is no need to resort to legislative history. United States v. Weaver, 275 F.3d 1320, 1331 (11th Cir.2001), (quoting Harris v. Garner, 216 F.3d 970, 976 (11th Cir.2000) (en banc)), cert. denied, 536 U.S. 961, 122 S.Ct. 2666, 153 L.Ed.2d 840 (2002). Hence, if the language is clear and unambiguous, the inquiry ends. Id. ; see also, In re Salazar, 430 F.3d 992, 995 (9th Cir.2005) (citing Or. Natural Res. Council, Inc. v. Kantor, 99 F.3d 334, 339 (9th Cir.1996) ). Additionally, if the statutory language is not entirely transparent, traditional canons of construction should be employed before reverting to legislative history. CBS Inc. v. PrimeTime 24 Joint Venture, 245 F.3d 1217, 1225 (11th Cir.2001). In such endeavor, the meaning of a particular statutory provision may be gleaned from "the broader, statutory context.". Id. Section 507(a)(7) of the Bankruptcy Code provides in pertinent part:

(a) The following expenses and claims have priority in the following order:

* * *

(7) Seventh, allowed unsecured claims of individuals, to the extent of $2,850*¹ for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided.

11 U.S.C.§ 507(a)(7) (the "Statute").

A plain language reading of the Statute provides a priority claim to individuals who deposit funds prior to the debtor's bankruptcy filing in connection with the purchase, lease or rental of property or purchase of services, for their personal family or household use which are not delivered or provided. Id. The terminology "arising from the deposit before the commencement of the case" contemplates delivery of a deposit to the Debtor prior to the bankruptcy filing. A full reading § 507(a)(7), supports such interpretation as it also limits the availability of priority claims to instances in which the benefits sought to be obtained from the deposit "were not delivered or provided.". Id. It is generally recognized that the priority afforded by 11 U.S.C. § 507(a)(7)² arises in the context of deposits made to bankrupt debtors. Guarracino v. Hoffman , 246 B.R. 130 (D. Mass 2000) (holding bankruptcy priority statute allowing priority to unsecured claims for the recovery of sums deposited with the debtor in connection with the purchase, lease or rental of property is not limited solely to purchase money deposits); In re River Village Associates , 161 B.R. 127 (Bankr. E.D. Pa. 1993) (holding each tenant's claim against debtor-landlord for security deposits is a § 507(a)(6) priority claim); In re Continental Country Club , 64 B.R. 177, (Bankr. M.D. Fla. 1986) (holding husband and wife were entitled to priority claim for deposit made to the bankrupt debtor under a contract to purchase a mobile home); In re WW Warehouse, Inc. , 313 B.R. 588 (Bankr. D. Del. 2004) (unsecured claims by consumers for sums paid to the bankrupt debtor for unredeemed gift certificates were in the nature of claims entitled to be paid on a priority basis). Additionally, the term "deposit" is generally understood to mean the act of giving money to another who promises to preserve it or use it and return it in kind; the act of placing...