In re Sours

• Decision Date: 10 October 2006
• Docket Number: Bankruptcy No. 06 70785 SCS.,Adversary No. 06 07068 SOS.
• Citation: 350 B.R. 261
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: Ire re Archie W. SOURS, III, Heather Michelle Sours, Debtors. W. Clarkson McDow, Sr., United States Trustee, Region Four, Plaintiff, v. Archie W. Sours, III, Heather Michelle Sours, Defendants.

Page 261

350 B.R. 261

Ire re Archie W. SOURS, III, Heather Michelle Sours, Debtors W. Clarkson McDow, Sr., United States Trustee, Region Four, Plaintiff, v. Archie W. Sours, III, Heather Michelle Sours, Defendants.

Bankruptcy No. 06 70785 SCS.

Adversary No. 06 07068 SOS.

United States Bankruptcy Court, E.D. Virginia, Norfolk Division.

October 10, 2006.

Cecelia A. Weschler, for United States Trustee.

Joseph Spence, for debtors.

MEMORANDUM OPINION

STEPHEN C. ST. JOHN, Bankruptcy Judge.

This matter came before the Court upon the Motion for Judgment on the Pleadings filed by W. Clarkson McDow, Jr., United States Trustee for Region Four ("United States Trustee"), in the above-captioned matter. The Court has jurisdiction over these proceedings pursuant to 28 U.S.C. §§ 157(b)(2) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. Upon consideration of the pleadings submitted, the Court makes the following findings of fact and conclusions of law.

I. FINDINGS OF FACT

The underlying facts of this case are uncontroverted.¹ On June 12, 2006, Archie W. Sours, III, and Heather Michelle Sours filed, by counsel, a joint voluntary petition under Chapter 13 of the Bankruptcy Code ("Pending Case"). In the petition, the Debtors represented that they had not filed a prior bankruptcy case in the past eight years. However, the Debtors had previously filed a voluntary petition under Chapter 13 on July 3, 2002, Case No. 02-05513-8-JRL, in the United States Bankruptcy Court for the Eastern District of North Carolina, Wilson Division ("Prior Case"). The Prior Case was converted to a case under Chapter 7 of the Bankruptcy Code on July 11, 2003. The Debtors received their Chapter 7 discharge in the Prior Case on October 24, 2003.

A Complaint Objecting to Discharge ("Complaint") was filed in the Debtors' current case on June 15, 2006, by the United States Trustee. The United States Trustee noted, while the Debtors did not list a prior bankruptcy case on their voluntary petition, the Debtors had actually Med the Prior Case within four years of the Pending Case. The United States Trustee argued that because the Debtors received a Chapter 7 discharge in the Prior Case, and that the Prior Case was filed within four years of the current case, the Debtors are ineligible to receive a discharge in the Pending Case. An Amended Petition was filed by the Debtors, by counsel, on June 25, 2006, which lists the Prior Case. The Debtors timely filed an Answer to the Complaint on July 21, 2006, and admitted to the facts averred by the United States Trustee. The Debtors also noted the filing of their Amended Petition, arguing that because the Prior Case was not originally filed under Chapter 7 of the Bankruptcy Code, the Debtors remain eligible to receive a discharge in the Pending Case.

The Court conducted a pre-trial conference on August 10, 2006, which counsel for both parties attended. The parties agreed that the matter could be decided based upon briefs to be filed by the parties. Therefore, the Court ordered that briefs be submitted by counsel within thirty (30) days, and that rebuttal briefs be filed within fifteen (15) days thereafter. The United States Trustee timely filed the Motion for Judgment on the Pleadings and Supporting Memorandum ("Motion for Judgment") on August 30, 2006. The Debtors filed neither a brief after the pre-trial conference nor a rebuttal brief to the United States Trustee's Motion for Judgment on the Pleadings.

II. ARGUMENTS

The United States Trustee argues that the pleadings in the current matter have been closed, leaving only a question of law, and therefore this matter is ripe for adjudication on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. See Pl.'s Mot. J. ¶ 4 (citing Republic Ins. Co. v. Culbertson, 717 F.Supp. 415, 418 (E.D.Va.1989)). He argues that a motion brought under Rule 12(c) is subject to the same standard as a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), namely, that the Court must accept all of the well-pleaded allegations as true and draw all reasonable inferences in the light most favorable to the non-moving party. See Pl.'s Mot. J. ¶ 4 (citing Old Bridge Estates Cmty. Ass'n v. Lozada (In re Lozada), 214 B.R. 558, 560 (Bankr. E.D.Va.1997)).

The United States Trustee argues that the Debtors are prohibited from receiving a discharge in the Pending Case because their previous Chapter 7 discharge was received in a case filed within the fouryear time restriction set out in subsection (f) of § 1328. The United States Trustee argues that under new provisions of subsection (f) of § 1328, the availability of a discharge for debtors filing multiple cases is restricted based on the type of prior discharge and length of time between the filings. Pl.'s Mot. J. ¶ 5. He further argues that debtors who file multiple cases, like the Debtors in the Pending Case, who receive a prior Chapter 7 discharge in a case filed within four years of a subsequent case, must wait four years to file a Chapter 13 case if the debtors ultimately seek to discharge debts in a new Chapter 13 case. Pl.'s Mot. J. ¶ 5. The United States Trustee submits that the Debtors admitted that they received a Chapter 7 discharge in a case filed during the fouryear period preceding the date of the order of relief in the Pending Case. Pl.'s Mot. J. ¶ 5. Thus, following this analysis of § 1328(f)(1) and the admissions of the Debtors, the United States Trustee argues that the Debtors are not entitled to a Chapter 13 discharge in the Pending Case. Noting the Debtors' argument that they are nonetheless entitled to a Chapter 13 discharge because the Prior Case was initially filed under Chapter 13 and later converted to one under Chapter 7, the United States Trustee argues that the Plain Meaning Rule of statutory construction that would permit such an inference nevertheless does not allow the Debtors to achieve a Chapter 13 discharge. Pl.'s Mot. J. ¶ 5. Instead, the United States Trustee argues that another provision of the Bankruptcy Code, 11 U.S.C. § 348(a), supplies the meaning of the phrase "filed under" as used in § 1328(f). Pl.'s Mot. J. ¶ 5. The United States Trustee interprets § 348(a) to mean that a converted case is deemed to be filed under the chapter to which the case is converted. Pl.'s Mot. J. ¶ 5 (citing Riske v. Lyons (In re Lyons), 162 B.R. 242 (Bankr.E.D.Mo.1993); In re Burrell, 148 B.R. 820 (Bankr.E.D.Va.1992)). Therefore, the United States Trustee argues, even though the case was originally filed under Chapter 13, following the conversion the Debtors are deemed to have filed the Prior Case under Chapter 7, and thus, are not eligible to receive a Chapter 13 discharge. The United States Trustee further asserts that it is appropriate to look to § 348(a) because statutory language must be read in its context within the statutory scheme. Pl.'s Mot. J. ¶ 5 (citing Davis v. Mich. Dep't of Treasury, 489 U.S. 803, 809, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989)).

In support of his argument, the United States Trustee calls attention to a recent opinion within the Fourth Circuit which he asserts contained similar facts to the pending case. PL's Mot. J. ¶ 5 (citing McDow v. Capers (In re Capers), 347 B.R. 169 (Bankr.D.S.C.2006)). The United States Trustee represents that Judge Waites rejected the debtor's contention that the "filed under" language of § 1328(f) was controlling and reasoned that the debtor's argument "ignores the effect of the conversion of the previous case under § 348." Pl.'s Mot. J. ¶ 5 (quoting In re Capers, 347 B.R. at 172).

The United States Trustee also argues that the exceptions to the Plain Meaning Rule are applicable and require that his interpretation of § 1328(f) prevail. Pl.'s Mot. J. ¶ 5. The United States Trustee argues that the Debtors' interpretation is at odds with the intent of the legislature, which sought "`to prohibit the issuance of a discharge in a subsequent chapter 13 case if the debtor received a discharge in a prior chapter 7, 11, or 12 case within four years preceding the filing of the subsequent chapter 13 case.'" Pl.'s Mot. J. ¶ 5 (quoting H.R.Rep. No. 109-31(I), at 76 (2005), as reprinted in 2005 U.S.C.C.A.N. 88, 2005 WL 832198). The United States Trustee also points to language in In re Capers where the court stated that the debtors' interpretation frustrated the policy that Congress sought to implement, which was to lengthen the time between the discharges that debtors receive.

The United States Trustee further argues that literally applying the statutory language yields an absurd result. If interpreted according to the Debtors' argument, the United States Trustee points out that the result would be that debtors who initially file under Chapter 13 but fail, or who file under Chapter 13 but convert to Chapter 7, will have a shorter waiting period between refilings than will debtors who file under Chapter 7 and convert to Chapter 13 and successfully complete a plan. The United States Trustee notes that should the Debtors' interpretation prevail, debtors who are seeking a Chapter 7 discharge would be encouraged to initially file under Chapter 13 in order to reap the benefits of a lesser time bar between filings. Pl.'s Mot. J. ¶ 5 (citing In re Capers, 347 B.R. at 172). Based on the foregoing arguments, the United States Trustee prays that the Debtors' discharge be denied.

As the Debtors chose not to file any briefs or responses to the United States Trustee's Motion for Judgment on the Pleadings, the Court is unable to elaborate on possible arguments beyond those that were asserted in the Debtors' initial Answer to the Complaint. Specifically, the Debtors claim that the "filed under" language controls their right to a discharge, and because they initially filed their Prior Case under Chapter 13, they are not required to wait for four years in order to receive a discharge in their Pending Case. Although it is distressing to ...