Matter Of Steenes, s. 17-3630

• Decision Date: 14 March 2019
• Docket Number: 17-3663 & 17-3664,Nos. 17-3630,s. 17-3630
• Citation: 918 F.3d 554
• Parties: In the MATTER OF: Chester B. STEENES, et al., Debtors-Appellees. Appeals of: City of Chicago, Illinois
• Court: U.S. Court of Appeals — Seventh Circuit

918 F.3d 554

In the MATTER OF: Chester B. STEENES, et al., Debtors-Appellees.

Appeals of: City of Chicago, Illinois

Nos. 17-3630

17-3663 & 17-3664

United States Court of Appeals, Seventh Circuit.

Argued September 12, 2018

Decided March 14, 2019

Craig Goldblatt, Attorney, Jonathan M. Seymour, Attorney, Danielle M. Spinelli, Attorney, Wilmer Cutler Pickering Hale & Dorr LLP, Washington, DC, David Paul Holtkamp, Attorney, City of Chicago Law Department, Myriam Z. Kasper, Attorney, Office of the Corporation Counsel, Appeals Division, Chicago, IL, for Appellant.

Onofrio A. Olivadoti, Attorney, Office of the Chapter 13 Trustee, Chicago, IL, for Appellee Marilyn O. Marshall, not individually but solely as the Chapter 13 trustee of the bankruptcy estates of Chester B. Steenes, et al (Case No. 17-3630).

Eugene Wedoff, Attorney, Oak Park, IL, for Appellees Dorian Dudley, Chester B. Steenes (Case No. 17-3630).

George M. Vogl, IV, Ledford, Wu & Borges, LLC, Chicago, IL, for Appellees Glenn A. Haynes, Catherine M. Haynes (Case No. 17-3630).

Nathan E. Curtis, Attorney, Briana Marie Czajka, Attorney, Peter F. Geraci, Attorney, Geraci Law L.L.C., Chicago, IL, for Debtor-Appellee (Case Nos. 17-3663, 17-3664).

Tara A. Twomey, Attorney, National Consumer Law Center, Boston, MA, David S. Yen, Attorney, Chicago, IL, for Amicus Curiae National Consumer Bankruptcy Rights Center (Case Nos. 17-3663, 17-3664).

Glenn B. Stearns, Pro Se (Case No. 17-3664).

Patrick S. Layng, Pro Se (Case No. 17-3664).

Before Easterbrook, Rovner, and Hamilton, Circuit Judges.

Easterbrook, Circuit Judge.

An application for relief under Chapter 13 of the Bankruptcy Code transfers most of a debtor’s assets to the newly formed bankruptcy estate. 11 U.S.C. §§ 541, 1306. Property stays in the estate until the bankruptcy court confirms a plan of payment. Then, "[e]xcept as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor." 11 U.S.C. § 1327(b). This means that the debtor becomes personally responsible for the expenses of maintaining that property.

Although the statute presumptively returns the estate’s property to the debtor, the Bankruptcy Court for the Northern District of Illinois has adopted a form order reversing this presumption and maintaining the property in the estate for the duration of the plan, which can be for as long as five years. Some debtors treat this as permission to violate traffic laws. The City of Chicago makes a car’s owner, rather than its driver, liable for many fines, including those for speeding, running a red light, and illegal parking. See, e.g., Chicago Municipal Code § 9-101-020(a). Chicago tells us that, after their payment plans were confirmed, the seven debtors in these consolidated appeals incurred, and failed to pay, at least 72 fines aggregating almost $12,000. The debtors assert that the estates can ignore their tickets because a Chapter 13 plan does not provide for the payment of post-petition fines and that the automatic stay of 11 U.S.C. § 362 prevents the cars from being towed or booted. The upshot appears to be that these fines will never be paid.

Chicago asked the court to vacate the orders keeping the vehicles in the estate. After stating on the record that she had not read the City’s motions, Chief Bankruptcy Judge Hollis summarily denied them. She did not mention § 1327(b), and the only reason she gave is that the court as an institution routinely keeps all assets in all Chapter 13 estates. She did not say why she and her colleagues do this—and, as far as the parties are aware, or we could ascertain, the court has never explained why it made this decision.

As a fallback, the City asked the bankruptcy court to treat the fines as administrative expenses, necessary for the preservation of each estate’s property. See 11 U.S.C. § 503(b)(1) ; Reading Co. v. Brown , 391 U.S. 471, 88 S.Ct. 1759, 20 L.Ed.2d 751 (1968). Chief Bankruptcy Judge Hollis denied that motion too, this time with an opinion, In re Haynes , 569 B.R. 733 (Bankr. N.D. Ill. 2017), and a district judge affirmed. City of Chicago v. Marshall , 281 F.Supp.3d 702 (N.D. Ill. 2017).

Immunity from traffic laws for the duration of a Chapter 13 plan does not seem to us an outcome plausibly attributed to the Bankruptcy Code. Nothing in the text of the Code so much as hints at such an objective, and one point of returning property to the debtors’ ownership under § 1327(b) is to ensure that debtors pay the ordinary and necessary expenses of maintaining that property.

Section 1327(b) gives bankruptcy judges discretion to hold assets in the estate in particular cases, but the exercise of this discretion—like the exercise of all judicial discretion—requires a good reason. "[A] motion to [a court’s] discretion is a motion, not to its inclination, but to its judgment; and its judgment is to be guided by sound legal principles." United States v. Burr , 25 F. Cas. 30, 35 (No. 14692d) (C.C. Va. 1807) (Marshall, C.J.). See also, e.g., United States v. Corner , 598 F.3d 411, 415 (7th Cir. 2010) (en banc). The bankruptcy court has not given a reason—not for flipping the statutory presumption as a norm, not for denying the City’s motions in these debtors’ cases.

It is hard to see how the court could justify routinely doing the opposite of what the statute provides. Cf. Law v. Siegel , 571 U.S. 415, 424–25, 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014) (a bankruptcy court’s equitable power cannot be used to contradict rules in the Bankruptcy Code). Section 1327(b) tells us what the norm must be. And the absence of a reason for departing from the statutory norm in any particular case makes it impossible for us to sustain the bankruptcy court’s decisions.

Lawyers representing these debtors, the bankruptcy trustee, and three amici curiae have attempted to supply reasons, but silence from the bankruptcy court makes that futile. The...