In re Wedblad
| Decision Date | 26 January 2012 |
| Docket Number | Bankruptcy Case No. 10-65055-fra7 |
| Parties | IN RE LLOYD E. WEDBLAD, JR. and MELISSA A. WEDBLAD, Debtors. |
| Court | U.S. Bankruptcy Court — District of Oregon |
AMENDED1
Debtors Lloyd and Melissa Wedblad filed their Chapter 7 case on August 19, 2010. The instant matter comes before the Court on the United States Trustee's (UST) motion to dismiss under 11 USC § 707(b).2 The Court conducted an evidentiary hearing on October 20, 2011, and thereafter took the motion under advisement. The dispositive issue in this matter revolves around the expense component of the so-called "means test" used in § 707(b)(2).
Under § 707(b)(1), the court may dismiss a Chapter 7 case on the motion of the UST, among other parties, if the debtors have primarily consumer debts and the court finds that granting relief would be an "abuse" of the provisions of Chapter 7. Section 707(b)(2), enacted under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005), dictatesapplication of a formula, commonly known as the "means test" to determine if a rebuttable presumption of abuse has arisen. In applying the means test, first, the debtor's current monthly income (CMI) is calculated. CMI, generally speaking, is a debtor's averaged gross monthly income in the 6 full months prior to filing. See, § 101(10A). If CMI times 12 is above the median family income in the state where the debtor resides, §§ 101(39A) and 707(b)(7)(A), then certain standardized and actual expenses are deducted therefrom. § 707(b)(2)(A)(ii). If the difference multiplied by 60 is at least $11,725 (or at least $7,025 and at least 25% of the debtors' total nonpriority unsecured debt), the presumption arises. § 707(b)(2)(A)(i). A debtor may only rebut the presumption by a showing of "special circumstances" which justify additional expenses or adjustment to CMI "for which there is no reasonable alternative." § 707(b)(2)(B). Here, Debtors concede the presumption arose. They further concede they failed to rebut it. Nevertheless, they challenge the presumption's validity as a matter of law.3
The applicable statute provides in pertinent part:
The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service [IRS] for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent.
§ 707(b)(2)(A)(ii)(I) (emphasis added). As the emphasized language indicates, the statute dictates that the IRS's National and Local Standards (the Standards) be used in computing the means test. Debtors challenge the use of the Standards.
The Standards are:
tables that the IRS prepares listing standardized expense amounts for basic necessities. The IRS uses the Standards to help calculate taxpayers' ability to pay overdue taxes. See 26 U.S.C. § 7122(d)(2). The IRS also prepares supplemental guidelines known as the Collection Financial Standards, which describe how to use the tables and what the amounts listed in them mean.
Ransom v. FIA Card Services, N.A., ____ U.S. ____, 131 S. Ct. 716, 722 (2011).
The National Standards designate allowances for six categories of expenses: (1) food; (2) housekeeping supplies; (3) apparel and services; (4) personal care products and services; (5) out-of-pocket health care costs; and (6) miscellaneous expenses. The Local Standards authorize deductions for two kinds of expenses: (1) housing and utilities; and (2) transportation.
Id. at 722, n.2 (internal citations omitted).
At least originally, the Standards had everything to do with tax law and nothing to do with bankruptcy law. They were first developed and issued informally in 1997 "to encourage uniformity in evaluating offers in compromise and installment agreement proposals." Matthew Stephenson & Kristin Hickman, The Administrative Law of Borrowed Regulations: Legal Questions Regarding the Bankruptcy Law's Incorporation of IRS Standards, 1 Norton Bankr. L. Adviser 1, 5 (2008). In 1998, Congress enacted legislation requiring their publication and use.4 Under 26 USC § 7122(d)(1), the Secretary of the Treasury was directed to "prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute." Under 26 USC § 7122(d)(2)(A) (the enabling statute), the Secretary was required to "develop and publish schedules of national and local allowances [the Standards] designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses." The guidelines were then to direct that "officers and employees of the Internal Revenue Service" use the Standards on a case-by-case basis, and were not to use them "to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses." 26 USC § 7122(d)(2)(B). Since being developed and published,including since BAPCPA's enactment in 2005, the IRS has modified the Standards multiple times. See, Means Testing, Census Bureau, IRS Data and Administrative Expenses Multipliers, http://www.justice.gov/ust/eo/bapcpa/meanstesting.htm.5
Debtors argue § 707(b)(2)(A)(ii)(I) delegates legislative power to the IRS in violation of Article 1; § 1 of the U.S. Constitution, which vests all legislative powers in the Congress.6 It appears the constitutionality of § 707(b)(2)(A)(ii)(I) is a matter of first impression. The non-delegation doctrine has been summarized as follows:
Article I, §1, of the Constitution vests "all legislative powers herein granted ... in a Congress of the United States." U.S. Const. art. I, § 1. Accordingly, Congress "is not permitted to abdicate, or to transfer to others, the essential legislative functions with which it is vested." Panama Refining Co. v. Ryan, 293 U.S. 388, 421, 55 S.Ct. 241, 79 L.Ed. 446 (1935); see also Whitman v. Am. Trucking Ass'ns, 531 U.S. 457, 472, 121 S.Ct. 903, 149 L.Ed.2d 1 (2001); Mistretta v. United States, 488 U.S. 361, 371, 109 S.Ct. 647, 102 L.Ed.2d 714 (1989) ().
New York v. Salazar, 2009 WL 3165591 *4 (N.D.N.Y.,2009). The threshold question in a "delegation" challenge is whether "the statute has delegated legislative power to the agency." Whitman v. Am. TruckingAss'ns., 531 U.S. 457, 472, 121 S. Ct. 903, 912 (2001). The Court agrees with the UST that § 707(b)(2)(A)(ii)(I) does not.
In construing the statute, the Court must first look to its language. Ransom, 131 S. Ct. at 723-24. "[W]hen the . . . 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." Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S. Ct. 1023, 1030 (2004) (internal quotation omitted). By its terms, § 707(b)(2)(A)(ii)(I) does not delegate, direct or authorize the IRS to do anything. Rather, it merely incorporates the Standards.7 "Incorporation" must be distinguished from "delegation." The former borrows from an extra-statutory source and makes that source part of the statute's text as if set out therein. The latter directs an agency to do something in furtherance of the statute's policy.
Debtors, however, argue that incorporation is an implied delegation to the IRS to establish expense amounts to be applied in the means test. Even assuming arguendo this is a plausible interpretation, under the doctrine of constitutional avoidance, it should be rejected. The avoidance doctrine is a tool for choosing between competing plausible interpretations of a statutory text. Clark v. Martinez, 543 U.S. 371, 381, 125 S. Ct. 716, 724 (2005). The doctrine provides that "where an otherwise acceptable construction of a statute would raise serious constitutional problems, the court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress." Edward J. DeBartolo Corp. v. Fla. Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575, 108 S. Ct. 1392, 1397 (1988). Debtors point to, and the Court could find, no case-law, legislative history or other authority demonstrating it was plainly Congress' intent in passing § 707(b)(2)(A)(ii)(I) to delegate means test authority to the IRS. The statute is thus constitutional.
With the passage of § 707(b)(2)(A)(ii)(I), Congress turned the Standards into bankruptcy statutes. However, it did not incorporate just any set of tax tables/allowances but rather only those "in effect" on the date of the order for relief, which in a voluntary case, is the date the debtor files his or her petition. §§ 301 and 302. If possible, the Court must give effect to every word of a statute, so as not to render any verbiage surplusage. TRW Inc. v. Andrews, 534 U.S. 19, 31, 122 S. Ct. 441, 449 (2001). It must therefore determine what "in effect" means. Because the Code does not define the term, the Court looks to its ordinary meaning. Ransom, 131 S. Ct. at 724. The ordinary meaning of "effect" in this context is: "the quality or state of being operative." Webster's Third New Int'l Dictionary 724 (unabridged. 1993). In turn, "operative" in context means: "having the power of acting: exerting force or influence." Webster's Third New Int'l Dictionary 1581 (unabridged ed. 1993). At minimum, to be able "to exert force or influence" the Standards must have been developed in accordance with law. See, The Pantry, Inc....
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