Parks v. Drummond (In re Parks), BAP No. MT–11–1366–JuMkH.

• Decision Date: 06 August 2012
• Docket Number: Bankruptcy No. 11–60050,BAP No. MT–11–1366–JuMkH.
• Citation: 2012 Daily Journal D.A.R. 10873,475 B.R. 703
• Parties: In re Barron D. PARKS and Linda R. Parks, Debtors. Barron D. Parks; Linda R. Parks, Appellants, v. Robert G. Drummond, Chapter 13 Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

475 B.R. 703

2012 Daily Journal D.A.R. 10,873

In re Barron D. PARKS and Linda R. Parks, Debtors.Barron D. Parks; Linda R. Parks, Appellants,

v.Robert G. Drummond, Chapter 13 Trustee, Appellee.

BAP No. MT–11–1366–JuMkH.

Bankruptcy No. 11–60050

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted June 14, 2012.

Decided Aug. 6, 2012.

Craig D. Martinson, Esq., of Patten, Peterman, Bekkedahl & Green, PLLC, argued for Appellants; Appellee Robert G. Drummond, Esq., chapter 13 trustee, argued pro se; William A. McNeal, Esq., of Becket & Lee LP on brief for eCast Settlement Corp. as amicus curiae supporting appellee.

Before: JURY, MARKELL, and HOLLOWELL, Bankruptcy Judges.

OPINION

JURY, Bankruptcy Judge.

Relying on § 541(b)(7)(A)¹, above-median chapter 13 debtors, Barron and Linda Parks, calculated their disposable income by deducting voluntary postpetition 401(k) contributions in the amount of $318 per month from their monthly income. They then sought confirmation of their first amended plan.

The chapter 13 trustee, Robert G. Drummond, objected to confirmation of debtors' proposed plan on the ground that deductions for voluntary postpetition 401(k) contributions were not authorized for purposes of calculating disposable income under § 1325(b)(2) based on the holding in In re Prigge, 441 B.R. 667 (Bankr.D.Mont.2010).² Following its own decision in Prigge, the bankruptcy court sustained the trustee's objection and debtors appealed. For the reasons stated below, we AFFIRM.

I. FACTS

The relevant facts are few and undisputed. On January 14, 2011, the Parks filed their chapter 13 petition. At that time, both Barron and Linda were employed and had been contributing approximately $318 per month to their respective 401(k) plans prior to filing. In calculating their disposable income on Official Form 22C, the above-median debtors claimed a deduction of $318 per month for their voluntary 401(k) contributions on Line 55. Debtors showed monthly disposable income listed on Line 59 of -$40.04. Debtors' Schedules I and J, which set out anticipated income and actual expenses, showed monthly income of $5,559.57 and expenses of $4,672.60, for a monthly net income of $886.97.

Debtors filed their initial plan on January 28, 2011 and filed their first amended plan on February 28, 2011. Their first amended plan proposed monthly payments of $475.03 for a term of 60 months.

On March 2, 2011, the trustee objected to the confirmation of debtors' first amended plan contending that their 401(k) contributions should not be allowed as an ongoing deduction in computing their disposable income. Following an evidentiary hearing and post-hearing briefing by the parties, the bankruptcy court issued a Memorandum of Decision sustaining the trustee's objection based on Prigge. The court entered an order denying confirmation of debtors' first amended plan on June 22, 2011. This appeal followed.

II. JURISDICTION

The bankruptcy court had jurisdiction over this proceeding under 28 U.S.C. §§ 1334 and 157(b)(2)(L). We have jurisdiction under 28 U.S.C. § 158, subject to the resolution of a possible mootness issue that we discuss below.

The order denying confirmation of debtors' first amended chapter 13 plan is an interlocutory order. Giesbrecht v. Fitzgerald (In re Giesbrecht), 429 B.R. 682, 687 (9th Cir. BAP 2010). We may hear an appeal from an interlocutory order only if we grant leave to appeal. Id. However, if prior to our addressing the finality issue, another order is entered fully and finally disposing of the matter, the finality defect associated with the prior interlocutory order can be deemed “cured.” Cato v. Fresno City, 220 F.3d 1073, 1074–75 (9th Cir.2000). Here, the interlocutory order appealed became final when debtors' third amended plan dated July 12, 2011, was confirmed by order entered on July 14, 2011. Debtors did not appeal this final order. Therefore, we must consider whether debtors' appeal of the order denying confirmation of their first amended plan has been rendered moot.

We sua sponte raise the issue of mootness. Omoto v. Ruggera (In re Omoto), 85 B.R. 98, 99–100 (9th Cir. BAP 1988). “A claim is moot if it has lost its character as a present, live controversy.” United States v. Geophysical Corp. of Alaska, 732 F.2d 693, 698 (9th Cir.1984). We do not have jurisdiction over a claim for which no effective relief can be granted. Id. In this case, all potential relief is not foreclosed because if we were to reverse on the merits, debtors could file a motion to modify their plan under § 1329 or seek to obtain relief under Rule 9024. With these possible avenues of relief still available, the appeal is not moot. We thus consider the merits.

III. ISSUE

Whether a chapter 13 debtor's voluntary postpetition retirement contributions are excluded from his or her disposable income under § 541(b)(7).

IV. STANDARDS OF REVIEW

We review de novo a bankruptcy court's conclusions of law, including statutory interpretations. Simpson v. Burkart (In re Simpson), 557 F.3d 1010, 1014 (9th Cir.2009).

V. DISCUSSION

Our resolution of this case turns on the interpretation of § 541(b)(7)(A), which was added to the list of exclusions from property of the estate in 2005 with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), Pub. L. No. 109–8, 119 Stat. 23.Section 541(b)(7)(A) provides that property of the estate does not include any amount

(A) withheld by an employer from the wages of employees for payment as contributions—

(i) to—

(I) an employee benefit plan that is subject to title I of the Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a governmental plan under section 414(d) of the Internal Revenue Code of 1986;

(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or (III) a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986;

except that such amount under this subparagraph shall not constitute disposable income as defined in section 1325(b)(2).... ³

Questions of statutory interpretation begin with the plain language of the statute. Lamie v. U.S. Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004). If the statute is clear, the inquiry is at its end, and we enforce the statute on its terms. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). If the plain meaning of the statutory language is not clear, the statute's context within the overall statutory framework should be examined. Davis v. Mich. Dept. of Treasury, 489 U.S. 803, 809, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989) (“[S]tatutory language cannot be construed in a vacuum. It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.”).

As with other provisions contained in BAPCPA, applying statutory interpretation rules to discern Congress's intent in adding § 541(b)(7) is easier said than done. In this case, the statute's placement within § 541 instead of chapter 13 and its reference to disposable income under § 1325(b)(2) in the hanging paragraph reflects its ambiguity. These contextual conundrums have split the courts nationwide. Compare Baxter v. Johnson (In re Johnson), 346 B.R. 256, 263 (Bankr.S.D.Ga.2006) (holding that § 541(b)(7) excludes all voluntary retirement contributions, both pre and postpetition, from disposable income) and the cases following Johnson with In re Prigge, 441 B.R. 667 (holding § 541(b)(7) does not permit exclusion of postpetition voluntary retirement contributions in any amount when determining disposable income); In re McCullers, 451 B.R. 498, 503–05 (Bankr.N.D.Cal.2011) (same); Seafort v. Burden (In re Seafort), 669 F.3d 662, 673–74 (6th Cir.2012) (same). Although none of these decisions are binding on us, we find the Prigge line of cases persuasive. To avoid repetition, we borrow heavily from these decisions.

We begin by looking at the language and structure of § 541, which defines property of the estate generally, as well as its relationship to § 1306, which completes the definition of property of the estate for purposes of chapter 13.

Section 541(a)(1) defines property of the estate as including “all legal or equitable interests of the debtor in property as of the commencement of the case” and § 541(a)(6) states that “earnings from services performed by an individual debtor after the commencement of the case” are not brought into the estate. Under the plain reading, “as of the commencement of the case”, a debtor's postpetition earnings are not included in property of the estate. However, because this is a chapter 13 case, we cannot ignore the relationship between § 541 and § 1306. Section 1306(a) states:

Property of the estate includes, in addition to the property specified in section 541 of this title—

....

(2) earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first.

“Section 1306(a) expressly incorporates § 541. Read together, § 541 fixes propertyof the estate as of the date of filing, while § 1306 adds to the ‘property of the estate’ property interests which arise post-petition.” In re Seafort, 669 F.3d at 667. It is § 1306(a)(2) which operates to bring the debtor's earnings from postpetition services into his or her estate.

Given this statutory framework, the question then becomes what is “excluded” from property of the estate under § 541(b)(7)(A) which also does not constitute disposable income? In answering this question, we keep in mind that statutory provisions are to be read in harmony in the context of the whole statute. Hougland v. Lomas & Nettleton Co. (In re Hougland), 886 F.2d 1182, 1184 (9th Cir.1989) (citing Davis v. Mich. Dept. of Treasury, 489...