## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it

N o. 12

- 3398 I N RE : P AT R I CK J. R Y AN, D eb tor-A ppell ant. P AT R I CK J. R Y AN, P laint if f-A ppell ant, v. U NI T ED S TATE SOF A MERI CA, D efend a nt-A pp ellee.

On A pp eal from the United S t ates BankruptcyC our tfo r the NorthernDi stricto f Illino is, Eas tern Div isi on. No . 11 B 34346

—A . Benjami n G old gar, Judge
.
A RGUED A PRI L 15, 2013

— D ECI DE D J UL Y 8, 2013

Befo re R IPPLE, R OV NER, a nd W I L L I A MS, Circ uit Ju dg es . R OV NER, Cir cu it Judg e . Patr i ck J am es Ryan f ai l ed to pay hi s federa l i ncom e t ax es f or20 06, 20 07, 20 08, 20 09, an d 2 01 0, r es ul tingi n o ut st an di ngl i ab i l i ti es t o ta l i ng atl e a s t$ 1 3 6 , 8 9 8
. 9 3

. In J a nu a r y 2 0 1 1 , p ur s ua ntt o Int e rnal2 N o. 12

- 3398 Re v e nu e Co de § 2 6 U. S

. C. 6 3 2 3 , the IRS r e c o r de d a no ti ce o ffede r alt ax l i ena g ains t Ry an ’ s po ssessio ns w i th the CookCounty Reco rder o f D eeds with re spect to the l i abi l i ti es f or20 06- 09. On A ugust 2 3, 20 11, Ryan fi l ed a v ol untaryChapter 13 bankr up tcy peti ti on . 11 U.S

. C. §§ 1301 etse q. A t that t i m e, h e h a d p e r s o n a l p o s s e s s i o n s wo r th $ 1 , 6 2 5
. He subsequentlyfi l ed an adver sar y pr oce edi ng ent i tl ed “Com pla i nt to D et er m i ne N atur e a nd Extent o fFe deral Tax Lie n ,” i n w hi ch he a dm i tte d that he o w ed tax l i abi l i ti es f or20 06 thro ugh 201 0 an d that a federa l ta x l i en had bee n r eco rded f orl i abi l i ti es f or20 06 thro ugh 2009

. H e furtheral l ege d that hi s r esi dence had bee n sol d fordel i nquent re ales tat e t axes and that he di d not own a bank acco unt, ve hi cl e, o r re ti re m ent a c c ou n t. Because the t ota l value o fhi s pos ses si ons w as $1, 625, R yana l l eg ed th atpur su an t to Ba nk r upt cyCo de § 50 6( a), the I RS’ s s ecure d c l ai m f orthe 2009 ta x w as l i m i ted to th at am ou n t, an d th at t h e re m ain d er of th e IR S’s cla im w as unsecured. 11 U

. S. C. § 5 06( a). R ya n al so ass er ted th atunder Ban k r upt cyCo de § 50 6( d) , the a m o unto fthe tax l ien th at ex ceed ed $1,625 w as void. 11 U

. S. C

. § 506(d ). S ec ti o n 5 06 ( a) o fthe Ba nk r upt cyCo de se par at es l o an s in to se c u re d an d u n se c u re d p or tio n s. In re Wright, 49 2 F.3 d 82 9, 83 0 (7 th C ir. 20 07 ). A s w e e x p l a i n ed inIn re Howard , 597 F. 3d 852, 85 4 ( 7th Ci r. 20 10) , “[ t] he bank

r upt cyj udg e fi r stde te r m i ne s th e m ar ket va l ue o fthe col l ate ra l

. . . [ and] [t]h e c redito r’ s cl ai m i s t re ate d as a secu red c l ai m t o the e xt en t o ftha t va l ue . ” I fthe v al ue i s l es s th anthe un p aid bal an ce o fthe s ec ur ed l o an, theN o. 12

- 3398 3 di ffer en ce i s co ns i der ed anunse cur ed cl ai m o fthe cred itor. Id. ; 11 U

. S. C. § 5 06( a) ( 1)

. H er e, th e U n i ted S tat es conceded thatpursu an t to § 506( a) , i ts secur ed cl ai m was l i m i te d t o $ 1, 62 5 f o r pur po se s ofpl anc o nfi r m at i o n, b ut m ai ntai ned that § 5 06(d ) d id not a uthor i ze the b ankr upt cyc o ur t to v o i d the fede r alt ax l i ent o the e xt en t that i t e xceeded $1, 625. The bank ruptcy cour t s i ded with the g o v e r nme nt, h o l di ngtha t§ 5 0 6 ( d) a s i nt e r pr e t e d b y th e S upr eme Co urt i n De w s n u p v . Ti mm , 50 2 U.S

. 41 0 ( 19 92 ) , di d no t al l o w Rya n t o v o i d, o r “ str i p do wn” the l i e n, a nd g r a nt e d j ud g men to n the p l e a di ng s u nd e r F e d. R. Ci v. P. 12 ( c ). The s ol e i ssue on a pp eali s whether th e ba nk r upt cyc o ur t er r ed i n tha t det er m i na ti o n. Se cti on 5 06( d) o fthe Code provi des: ( d) To the e xtent that a lie n sec ures a cl ai m ag ai nst the d ebto r that i s no t a n al l owed se cured cl ai m , such l i en i s v oi d, unle ss

— ( 1) such cl ai m w as disa l l owed onl y und er se cti on 502(b) ( 5) o r 502( e) o fthi s t i tl e; o r ( 2) s uchc l ai m i s no t ana l l o wed secu re d c l ai m due onl y t o the fail ure ofany enti ty to fi l e a pro ofo f such cl ai m under s ecti on 5 01 ofthi s t i tl e. 11 U. S

. C. A. § 5 06

. In D e wsn up , the S upr eme C ou r t co nsi der ed the pr o peri nt er pr et at i o n o ftha t l an g ua g e, a nd hel d that § § 5 06( a) and 506 ( d ) d id n ot have to be re ad to ge th er , an d th at th e t er m “a llow ed se c u re d cla im ” in § 5 0 6 ( d) wa s n o tde fi ne d b y r e fe r e nc e t o § 5 0 6 ( a )

. Ins t e a d, the Co ur tde t e r mi ne d tha t, c o ns i s t e ntwi th pr e - Co de r ul es tha t l i en s pas s th r o ug h b an k r upt cy una ffec te d, the4 N o. 12

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te rm “a llow ed se c u re d cla i m ” i n § 50 6(d ) m ea n s a cla im that i s, fi rs t, allow ed under § 502 and, seco nd , se cured by a l i en enf or ceabl e under sta te l aw , witho ut r ega rd to whe the r tha t c l a i m wo ul d ha v e b e e n de e med s e c ured o r u n s e c u re d u n d er § 50 6(a ). Id. at 77 7-7 8; In reWool sey , 696 F.3d 1266, 12 7 3 ( 10th Cir. 2012). U nd er that i nt erpreta ti on, Ryan w oul d no t be enti tl ed to voi d th e lien i n thi s ca se. W i ththe e xc ept i o n o fa c o nc l us o r y a r g um ent without a dequ ate devel opm ent o r cita tion, Ryan d oe s n otd isp u te th at t h e l ien is allo w ed an d se c u re d if the D e wsn up i nter preta ti on i s a pp l i ed to t h i s Chapter13 co nt ex t, a nd tha t ar gu m en t i s th er efo r e wai ve d ( an d is, inan y e v e n t, m er itle ss ). Bank of Am e r i ca, N
. A. v. Vl u e c h a my, 6 4 3 F .3 d 18 5, 18 9-9 0 (7 th C ir. 20 11 ) ; MMG Fi nan ci al Corp. v. M i dwe s tAm us e m e nts Park, LL C, 63 0 F. 3d 651 , 6 59 ( 7th Ci r. 20 11)

. Instea d, Ryan co ntest s th e a pp l i cabi l i ty ofthe D e wsn up i n t e r p r e t a t i o n to t he C h ap te r 13 co n te x t a t a ll. Ryan m ai ntai ns that§ 506( d) s houl d be inter prete d di ffer en tly i n h i s ca se tha n in D e wsn up b ec au se h i s p et iti on was fi l ed und er C hapter 13 w here as D e wsn up i nv o l ve d Cha pte r 7
. Ry anpo i nt s o uttha t inde fi ni ng th e te r m s i n § 5 06 ( d) , the c ou rt f o cus ed o n the c o nc erns u n d er lyin g C h a p t er 7 b an kr u p tc y a n d int er p re te d it i n a m anner consi ste nt with thos e co ncer n s. U nl i ke Cha pte r 7, Cha pte r 1 3 involv es a di ffer en t se t o fc o ncer ns, with i ts goa l o freorga ni zati on a nd r epaym en t w i thout necess i tat i ng the l i quidati on o fas set s. S ee Thom ps on v. Ge ne r al M ot ors Acc ept anc eCorp. , LLC, 56 6 F.3d 699 , 705 (7th C ir. 2009).N o. 12

- 3398 5 The obvi ous probl em w i th that argum ent i s that § 10 3( a) ofthe Code stat es that: “Except as pro vi ded i n sec tio n 11 61 of th is t itle , ch a p t e r s 1, 3, an d 5 of th is t itle ap p ly in a c as e u n d er ch ap te r 7, 1 1 , 1 2 , or 13 of th is titl e . . . . ” 11 U

. S. C. § 103. The excepti on in § 11 61 is in ap p lica b le h er e, as it m er ely p r o vid es th at ce rt ain se ct i o ns o fthe Co de do no t appl y “ ina c as e co nc erni ng a r ai l ro ad. ” Accordi ngl y, § 506( d), wh i ch is p art o f Cha pte r 5 , a ppl ies equal l y t o c as es unde r Cha pte r 7a nd Ch apter13

. In f act, Ryan doe s no t co ntestthatunder § 103( a) , § 5 06 ( d) a ppl i es t o b o thCha pte r 1 3 an d Cha pte r 7pe ti ti o ns , a nd he do es no t se ek to car ve o ut ane xc ept i o n t o tha t r ul e f o r § 5 06( d ). Inst ea d, hi s ar g um en t is th at th e langu age in § 5 0 6 (d ) sh ou ld be interpr e t e d di ffe r e nt l y i n Ch a pt e r 1 3 tha n i n Ch a pt e r 7 case s be ca us e to ho ld o th er wi se woul d b e co nt r ar y t o the p u rp os es of th os e s ta tu to ry ve h icle s. T h is a rg u m en t is not base d on any l angu age i n § 5 06( d) that would s i gnal di ffe r e nt i a l t r e a t men t
. In f a c t, the l a ngua g e o f§ 5 0 6 ( d) i s s tr ai ghtf or w ar d, an d d oe s no t ind i cate any i ntent f or th e term s t o ha ve mean i ng s th atdi fferb as ed upo n the ci rcum sta nces. To the co ntra ry, § 103( a) pro vi des cl ear evi dence that§ 506( d) was to ap p ly equal l y t o Ch apter s 7 and 13. I n a tran sp aren t attem p t to avoid th at s t r aightforw ard ap p lica tio n, Ry an as se rt s t h at th e S u p r e m e C ou rtin D e wsn up w as not re al l y inter preting th e te rm “a l l owed se cur ed cl ai m ” di ffer en tlyi n § 5 06 ( d) tha n § 5 06 ( a) , b ut ra th er w as sim p ly a d d in g a n an ti-m od ifica tio n p r o v isi on in § 5 06( d) fo r Ch apter7 case s. That a rgum ent i s s o at od d s w ith th e plain l a n g u a ge of D e wsn up as to be6 N o. 12

- 3398

cr ea te d fr o m who l e cl o th

. N oth i ngi n D e wsn up i nd i cate d th at th e C ou rtw as ad d in g a n an ti-m od ifica tio n p ro visi on t o § 5 06( d) that w oul d app l y t o Ch apter7 case s al one, and i n f act, i t would be bey ond rem ar ka b l e for th e Sup rem e C ou rt to si m p ly fabricate its ow n sta tu t o ry pr o vision. The r e i s no b as i s i n l aw o r f ac t f o r thi s ar g um ent. R ya n is left, th en , w i t h a rg u in g t h at w e s h ou ld i nter pr e t§ 5 0 6 ( d) di ffe r e nt l y i n Ch a pt e r 1 3 i n o r de r to fulfi ll th e p urp oses of C ha p ter 13, an d bec au se a c o n trary in te rp re ta tio n w ou ld lea ve h im w ith ou t a r e m e d y. In supp or t o fthatargum ent, Ryan s ets f or th atl ength the del ete ri ous i m pact that su c h an inter preta ti on w oul d have o n the bankr up tcy code in gene ra l and on i nd i vi du al d ebto rs . There ar e m ult i ple pro bl em s with th is argum en t. First, m an y cou rts an d com m en tators ha ve no te d tha t Chap ter1 3 pr o vi des a l te r na ti ve mean s ofvo i ding l i ens, and ther ef or e the a b sence ofthato pti on und er§ 506( d) doe s no t necess ar i l y l eave a peti ti oner w i thout any m eans ofachi evi ng tha t g oal

. S ee Wo o l s ey, 696 F. 3d at 1278

- 79 and c ase s ci ted ther ei n; 4 Col l i ero n B an kr u p tc y ¶ 50 6.0 6 [1 ][c ] (16 th e d . 201 3) (“ C ollier ”). In fa c t, R yan ’s int erp retation d oes not ach ieve statu tory ha rm ony as he su ggests , beca us e it cou ld ren d er m ore spe ci fi c l an g ua g e i n Cha pte r 13 i r r el ev an t. As a lead i ng bankr up tc y tre ati se disc ussed, § 506( d) a pp l i ed as Ryan su g g e s t s wo ul d p r o v i de l i e n s t r i pp i ngwi tho uta nyo f the safe g ua r ds s e tf o r th i n § § 1 1 2 9 ( b ) , 1 2 2 5 , a nd 1 325 gov er ni ng the tr eat m ent of secur ed cl ai m s and lie n righ ts . C ol l i erat¶ 5 06. 06 [ 1] [ c]

. Fo r i nstance , § 1123 ( b) ( 5) perm i ts the pr oponent ofa pla n to m odi fy the r i ghts ofN o. 12

- 3398 7 hol ders ofse cured cl ai m s “ othe r than a cl ai m se cured o nl y b y a s e c u r i t y i n t e r e s t i n r e a l p r o p e r t y th a t i s th e debtor ’ s pri n c i pal r esi dence .

. . , ” but that provi si on w oul d be e nti re l y s ubsum ed w i thi n an i nter preta ti on o f § 5 06( d) that a l l owed the adj ustm ent o fthe l i en rights w ith ou t a n y s u c h ex c ep tio n s o r lim ita tio n s. Id. Ryan ar gues that the a l ternati ve re m edi es i denti fi ed by thos e cour ts and c om m entat or s ar e n ot in fa ct avai l abl e her e a nd thatev en i fge nera l l y a va il abl e, they ar e no t o pti ons for h im bec ause the Unite d Sta tes has not w ai ved i ts sov er ei gn i m m unity with re spect to th ose p rovisi ons . T he re is no sup p ort for ba s in g statu tory i nter preta ti on o n the go ver nm ent’s deci si on t o w ai ve, o r n ot w ai ve , s o ve r ei g n i m m uni ty
. In f ac t, tha t ar g um en t reveals the un d erlyi ng pro blem w ith Ry an ’s po si ti o n h er e. H e e nc o ur ag es us t o r ea d the t er m s i n a ma n n e r th a tma x i mi z e s th e C o n g r e s s i o n a l i n t e n t, b ut f o r Ry antha t i s depe ndent h er e o n the Cha pte r i nvol ved and the gov er nm en t’s d eci si on notto waive so ver ei gn i m m unity. Our r ol e in i nter preting a sta tute does n ot exte nd to r ew ri ti ng tha t s tatute ba sed upon th e ind ivi d ua l circum stan ces of each l iti gan t to ensu re th atCo ng r es si o na l pur po se s ar e at ta i ne d. I t i s th e p ro vin c e o f th e le gis lat u re to ch oo se lan gu ag e t h at m ax im i zes i ts own purposes , and f orthe cour ts to gi ve that l anguage i ts p l ai n m eani ng o r, wh er e i t i s a m bi guous, to i nt er pr eti t i n the manne r m ost co ns i st en t wi ththe st atut o r y l an g ua g e as a w hol e, i ts pur po se , a nd i n a m an n er th at w ill ren d er it co n st itu tio n al. T h e S u p r e me C o u r ti n C la rk v . M a rtinez , 54 3 U.S

. 37 1 ( 2005 ) , address ed a si m i l arar gum ent that a st atute8 N o. 12

- 3398 sh o ul d b e g i ve n di ffer ing m ea ni ng s ba se d o n di ve r g en t ap p li cation s, an d the cou rt held that the lang ua g e of a st atut e sh o ul d b e rea d c o ns i st en tly . In C la rk, the C ou rt consi dered a sta tute that provi ded th at a li ens “ m ay be d etaine d beyon d the rem oval perio d ” ifthey w ere (1) in ad m iss ible u n d er 8 U .S.C . § 1 18 2, (2) re m ov ab le und er8 U

. S. C. §§ 1227 ( a) ( 1) ( C), ( a) ( 2) , o r ( a) ( 4) , o r (3) d et er m in ed to be atrisk to th e c o m m u n i t y or u n like ly t o c o m p l y w ith an ord er of re m ov al. Id. a t3 7 7
. In an ea r l i ero pi ni o n in Z adv yda s v. D avis , 53 3 U. S

. 6 78 ( 20 01 ) , the Court had hel d that foralien s in the seco nd cat ego ry, the pr ovi si on a uthor i zed d etenti on o nl y a s l ong as re aso nabl y ne ce ss ar y t o r emov e th e al i en s from the c o untry . The que sti o n in Clark w as w hether th at co nstr ucti on ap p li ed to al iens in the first ca t e g o r y as w ell

. 543 U

. S. at 377- 78. The Cl a rk Cou r t no te d tha t i n Z a dv yd a s i t had sta ted that“[ a] l i ens who have not yetga i ned i ni ti al ad mi s s i o n t o th i s c o u n t r y wo u l d p r e s e n ta v e r y d i ffe r en t qu e s t i o n. ” Id. at3 78
. In f ac t, the Co ur t i n Clark did not cont e s ttha tthe s t a t ut o r y p ur po s e a nd the c o ns t i t ut i o nal c on c er n s t h at influ en c ed th e s ta tu to ry co n st ru c tio n in Z a dv yd a s wer e no t pr es en t f o r al i en s i n th e fi r stcategory su cha s th e o ne s be f o r e i t i n C la rk

. Id. at 38 0. The Court never thel ess hel d that s uch dispar i ty cannot j usti fy g i vi ng the st atute a differ ent m eani ng f or one s e t o f a l i e ns tha n a no the r, no t i ng tha t “ [ i ] t i s no t a t al l unusual to gi ve a s tatute’ s a m bi guous l anguage a lim iti ng cons tru ction ca ll ed f or by one of the stat ut e’s ap p lica tio n s, ev en th o u gh oth er of th e s ta tu te ’s a p p lic a t i o n s , s t a n d i n ga l o n e , w o u l d n o ts u p p o r tth e s a me l i m i tat i on. ” Id. Be ca us e th e o per at i ve l an g ua g e o ftheN o. 12

- 3398 9
sta tute appli ed w i thout differ enti ati on t o al l thr ee cate
g o r i e s o f a l i e ns , the Co ur t he l d tha t the mea ni ng m ust be c onsi ste nt be cause “[ t] o gi ve these sa m e words a di ffer en t m ea ni ngf o r e ac h c at eg o ry woul d b e to i nv en t a s tatute r atherthan i nter pret one. ” Id. at 378. S e c t i o n 5 0 6 ( d ) s i mi l a r l y d o e s n o td i s t i n g u i s h c l a i ms un d er Cha pte r 7fr o m tho se unde r Cha pte r 1 3. The l an g ua g e i s uni f o r m a nd do es no t l en d i tsel f to a ny d iffer en tia l t r e a t m en t, an d § 10 3(a ) ren d er s t h e p ro visi o n a ppl i cabl e to Cha pte r 7a nd Cha pte r 1 3 wi th o ut di st i nc ti o n. S i m i l art o the s i tu at i o n in C la rk, bec au se th e st atut e appl ies t o Cha pte r 7a nd Cha pte r 1 3 wi th o ut dist i ncti on, to gi ve thos e words a di ffer ent m eani ng f or Ch apter13 than Ch apter7 w ou ld be to i nvent a st atute ra therthan i nter pret i t. Ryan r el i es on co urt dec isions thathave r efused to extend the i nter preta ti on o f“s ecure d” i n § 5 06( d) t o othe r p ro vi si ons w i thi n § 5 06, but the tw o ar gum ents ar e no t c o n g r uo us . I ti s r a r e e n o u g h t o i n t e r p r e tth e s a me lan gu ag e d iffer en tly in d ist in c t s ta tu to ry se c tio n s, b u t is a n e n t i r e l y d i ffe r e n tma t t e rf o r a c o u r tt o g i v e a t e r m a differ ent m eani ng i n the sam e s tatutor y pr ovi si on. S ee Wo o lsey, 69 6 F .3d at12 77an d ca se s c ite d th er ein . I t is th e l at te r a r g um en t th atthe Co ur t r ej ec te d i n C la rk

. Id. The Te nth Ci r cui t i n Wo o lsey, 696 F. 3d 126 6, ad dress ed th e pr eci se i ss ue b efo r e us t o dayi n a tho r o ug h de ci si o n, concl ud i ng tha t the D e wsn up i nt er pr e t a t i o n o f§ 5 0 6 ( d) appli ed equal l y t o a Chapter 13 peti ti on a nd i n f act ou r an al y s i s a b ov e p ar alle ls t h at co u rt ’s d ec isio n . A lth o ug h n o tingthe s ubs ta nt ial c r i ti ci sm di r ec te d a t th e10 N o. 12

- 3398 D e wsn up opi ni on, and the rej ecti on o fthati n ter preta ti on in o therbank ruptcy sect i ons, the Wool s ey c ou rth eld th at u nd er C la rk, the lan gu age s ho ul d b e g i ve n a c o nsi s t e n t in te rp re ta tio n . Id. at 1272 -78. In li gh t of § 103(a), w hi ch app lies the provi si ons of§ 506( d) t o Ch apter13 a s we l l a s Ch a pt e r 7, a nd C la rk, the Wool s ey c ou rth eld th atthe r e w as no reas o ne d b as i s to g i ve § 5 06 ( d) o ne m e a n i n gi n th e C h a p t e r 7c o n t e x ta n d a d i ffer en t m ea n in g in th e C h ap te r 13 sit u at ion
. Id. at 1277

. In f act, the Wo o ls ey cour t e m phasi zed the danger ofsuch differ i ng i nter preta ti ons, st ati ng: N o t o nl y i s th e r ul e agains t m ul ti pl e i nt er pr et at i o ns of th e sam e s tatute wel l entr enched, i t i s o fspeci al i m port ance. W i thout i t, ev en a sta tutory te rm used but a si ngl e t i m e in a s i ngl e s tatute r i sks neve r se tt lin g on a fix ed m ea n in g. A n d th is s u re ly w o u ld l eave ci ti zens at sea, o n ly an d al w ays gues si ng at whatthe l aw mi g htbe h el d t o meani n the uni que “f act sit u atio n” o fthe next ca se

— a r es ul t i n n o li ttle tension w ith th e rule of law i tself. Id. at1 27 7- 78
. W e ag r ee wi th Wo o lsey, an d j oin it in h old in g t h at th e C ou rt ’s in te rp re ta tio n of§ 50 6(d ) in D ew snu p appli es i n Chap ter13 cas es as w el l

. Ryan f ai l s to r ai se o r pr o per l y dev el o p an y oth er m er i to r i o us ar g ume nt s . Ac c o r di ng l y, the de c i s i o n o fthe b a nk r up t cy cour t i s A FFI RMED .

7- 8- 13