Source: https://law.justia.com/cases/federal/appellate-courts/F2/938/1099/294215/
Timestamp: 2020-02-16 19:51:11
Document Index: 663865155

Matched Legal Cases: ['§ 362', '§ 1125', '§ 1112', '§ 1125', '§ 349', '§ 109', '§ 349', '§ 109', '§ 506', '§ 506', '§ 109', '§ 105']

In Re Randy Arden Frieouf, Debtor.randy Arden Frieouf, Plaintiff-appellant, v. United States of America; Farm Credit Bank of Wichita,defendants-appellees, 938 F.2d 1099 (10th Cir. 1991) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Tenth Circuit › 1991 › In Re Randy Arden Frieouf, Debtor.randy Arden Frieouf, Plaintiff-appellant, v. United States of Amer...
In Re Randy Arden Frieouf, Debtor.randy Arden Frieouf, Plaintiff-appellant, v. United States of America; Farm Credit Bank of Wichita,defendants-appellees, 938 F.2d 1099 (10th Cir. 1991)
U.S. Court of Appeals for the Tenth Circuit - 938 F.2d 1099 (10th Cir. 1991) July 10, 1991
Debtor filed the underlying petition on September 20, 1985. In its initial stages, litigation in this case consisted almost entirely of motions by various creditors seeking relief from the automatic stay of 11 U.S.C. § 362(a). Debtor's exclusive 120-day period to file a plan of reorganization expired without any action being taken by debtor.
Debtor eventually submitted a plan on June 10, 1986. However, the plan was not accompanied by a disclosure statement as required under 11 U.S.C. § 1125(b). The bankruptcy court, on August 4, 1986, ordered debtor to file a disclosure statement by August 20, 1986, but debtor did not comply.
On June 30, 1987, the Federal Land Bank of Wichita (FLB) filed a motion to dismiss citing 11 U.S.C. § 1112(b) (2) and (3). Among the alleged grounds for dismissal were debtor's failure to effectuate a plan of reorganization or file a disclosure statement as ordered by the bankruptcy court, and debtor's overall unwillingness to prosecute this case in an expeditious manner. The bankruptcy court on September 4, 1987, set a hearing for October 6, 1987, to consider FLB's motion to dismiss. In response, debtor filed an amended plan of reorganization and a disclosure statement on September 15, 1987.
"It appears that the only plans which have been filed have been filed solely to create an argument in opposition to various motions seeking to terminate the proceeding. The first plan was not even accompanied by a disclosure statement, and an approved disclosure statement is a necessary prerequisite to the solicitation of acceptances. 11 U.S.C. § 1125(b). The failure to file a disclosure statement continued, even after the court had ordered the filing of the same.
Section 1112(b) provides a nonexhaustive list of grounds upon which a bankruptcy court may dismiss a Chapter 11 case for "cause." On appeal, debtor does not argue that dismissal of his case was not justified under section 1112(b). Instead, the focus of debtor's argument is on whether the bankruptcy court's decision to prevent him from filing any bankruptcy case for three years goes beyond the mandates of 11 U.S.C. § 349(a) and 11 U.S.C. § 109(g).
"Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109 [g] of this title."
11 U.S.C. § 349(a).3 Section 109(g) provides in pertinent part as follows:
11 U.S.C. § 109(g). Debtor's position is that pursuant to section 349(a), bankruptcy dismissals are ordinarily without prejudice, and the bankruptcy court's power to deny him future access to bankruptcy court was constrained under section 349(a) by the 180-day limitation set forth in section 109(g).
We agree, in part, with debtor's argument. The task of interpreting section 349(a) "begins where all such inquiries must begin: with the language of the statute itself." United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S. Ct. 1026, 1030, 103 L. Ed. 2d 290 (1989) (interpreting 11 U.S.C. § 506(b)). In this case, it is also where the inquiry ends, "for where, as here, the statute's language is plain, the sole function of the courts is to enforce it according to its terms." Id. (quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S. Ct. 192, 194, 61 L. Ed. 442 (1917)).
The bankruptcy and district courts relied primarily on Lerch v. Federal Land Bank, 94 B.R. 998 (N.D. Ill. 1989), as authority for looking beyond section 109(g) and prohibiting all access to bankruptcy court for more than 180 days. In Lerch, the bankruptcy court ordered that the debtor was prohibited from filing a petition under Chapters 11, 12, or 13 for a period of two years. The district court affirmed, holding that the phrase " [u]nless the court, for cause, orders otherwise" at the beginning of section 349(a) modifies not only the discharge language preceding the semicolon in section 349(a), but also the filing provision which appears after the semicolon. Therefore, according to the district court, section 349(a) permitted the bankruptcy court, in its discretion, to prohibit the filing of any bankruptcy case beyond the limits of section 109(g).
Similar to Lerch, some bankruptcy courts have also enjoined bankruptcy filings for some limited period beyond 180 days rather than deny a debtor a discharge of the debts dischargeable in that particular case. See In re Dilley, 125 B.R. 189, 197 (Bankr.N.D. Ohio 1991) (one year); In re McKissie, 103 B.R. 189, 193 (Bankr.N.D. Ill. 1989) (one year); In re Hundley, 103 B.R. 768, 771 (Bankr.E.D. Va. 1989) (one year). Like the court in Lerch, these bankruptcy courts concluded that section 349(a) affords a bankruptcy court discretion to control future bankruptcy filings for over 180 days. Dilley, 125 B.R. at 197-98 (citing Lerch) ; McKissie, 103 B.R. at 193 (citing Lerch) ; Hundley, 103 B.R. at 771.
The Supreme Court has instructed that a statute must be read as "mandated by [its] grammatical structure." Ron Pair Enterprises, Inc., 489 U.S. at 241, 109 S. Ct. at 1030 (relying on location of commas in 11 U.S.C. § 506(b) to provide interpretation of statute). Accordingly, section 349(a), by its plain language, must be read as allowing a bankruptcy court, "for cause," to permanently disqualify a class of debts from discharge, but a bankruptcy court may not deny future access to bankruptcy court, except under the circumstances of section 109(g). Any other reading of section 349(a) is contrary to the language and punctuation used by Congress.4
Moreover, we agree with debtor that the statutory construction in Lerch raises serious constitutional concerns. Depriving a debtor of access to the courts for 180 days is in itself a harsh remedy which may be questionable. See In re Surace, 52 B.R. 868, 871 (Bankr.C.D.Ca.1985) ("The effect of 11 U.S.C. § 109(f) [now 109(g) ] is to deprive the debtor the right to relief under the Bankruptcy Code for 180 days, an extraordinary statutory remedy for perceived abuses of the Code.") (emphasis added). Interpreting section 349(a) and section 109(g) to allow bankruptcy courts to prohibit future filings for a period greater than 180 days, not only contradicts the statute's plain meaning, but encroaches on the fifth amendment's due process and equal protection guarantees. Carried to its extreme, nothing would prevent a bankruptcy court from barring a debtor from relief under the Code indefinitely.
When alternative interpretations of a statute exist, the fact that one interpretation presents serious constitutional difficulties, is in itself reason to reject such an approach. See Edward J. DeBartolo Corp. v. Florida Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 572, 108 S. Ct. 1392, 1395, 99 L. Ed. 2d 645 (1988). We do not minimize the problem of a debtor who abuses the court process and disobeys court orders. However, remedies other than prohibiting a party from using a statutory remedy in an unrelated matter are available to bankruptcy courts to meet the problem.
To implement our interpretation of section 349(a) under the circumstances of this case, we must break down the preclusive effect of the bankruptcy court's dismissal order into three components: (1) denial of all access to bankruptcy court for 180 days; (2) denial of such access for beyond 180 days; and (3) temporary denial of discharge of scheduled debts. In light of our limiting construction of section 349(a), the first two components may be dealt with briefly. The bankruptcy court's denial of all access to bankruptcy relief for 180 days is not reviewable inasmuch as 180 days have passed. See Travelers Ins. Co. v. Don-Lin Farms, 90 B.R. 48 (W.D.N.Y. 1988). The bankruptcy court's denial of all access to bankruptcy court for more than 180 days was beyond the authority conferred under section 349(a) and, consequently, cannot stand. Therefore, the only aspect of this case left for our substantive review is the question whether there was sufficient "cause" within the meaning of section 349(a) to justify temporarily denying debtor a discharge of the debts scheduled in this case for three years.
After the bankruptcy court's dismissal order was entered, this court, in Hall v. Vance, 887 F.2d 1041 (10th Cir. 1989), indicated that a prejudicial dismissal under section 349(a) must be premised on bad faith conduct that is prejudicial to a creditor. Id. at 1045 (vacating dismissal with prejudice because " [t]he [debtors]' tardiness ... does not support a finding of bad faith [and] ... neither party moving for dismissal made a showing [that debtors' conduct] ... prejudiced them"). Although the bankruptcy court did not have benefit of our decision in Hall when this case was dismissed, the bankruptcy court nonetheless made determinations that amounted to findings of bad faith, see Bankruptcy Court Order of March 8, 1989, at 3 ("debtor has established a clear record of delay and contumacious conduct") and prejudice, see Bankruptcy Court Order of February 14, 1989, at 6 ("To date, there appears to be virtually universal rejection of debtor's proposed plan. This, after more than three years during which debtor's creditors have been prevented from exercising their rights with regard to claims against the debtor and his property by reason of the automatic stay."). Such determinations by the bankruptcy court are factual findings, see In re N.R. Guaranteed Retirement, Inc., 119 B.R. 149, 153 (N.D. Ill. 1990) (bankruptcy court's finding that conduct is prejudicial to a creditor "essentially involves a factual determination"); In re Can-Alta Properties, Ltd., 87 B.R. 89, 91 (9th Cir. BAP 1988) (" [a] finding of bad faith is a factual determination"), which we review under the clearly erroneous standard, see Hall, 887 F.2d at 1043.
As presently drafted, section 349(a) references section 109(f). However, this is the result of an oversight. Section 109(f) was redesignated section 109(g) by the Bankruptcy Judges, United States Trustees and Family Farmer Act of 1986, Pub. L. No. 99-554. A conforming amendment to section 349(a) was inadvertently not enacted
The bankruptcy and district courts also cited 11 U.S.C. § 105(a) ("The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code].") as additional authority for denying debtor all access to bankruptcy court for three years. Such reliance was misplaced. The broad equitable powers that bankruptcy courts have under section 105(a) "may not be exercised in a manner that is inconsistent with the other, more specific provisions of the Code." In re Western Real Estate Fund, Inc., 922 F.2d 592, 601 (10th Cir. 1990). Consequently, the bankruptcy court's three-year prohibition against filing a bankruptcy case, which plainly contradicts the 180-day limitation under section 109(g), cannot be sustained under section 105(a)