Opinion ID: 174079
Heading Depth: 2
Heading Rank: 3

Heading: Whether a Case is Commenced

Text: The question before us arises primarily from the interplay of two statutory sections of the Bankruptcy Code: 11 U.S.C. § 301 and 11 U.S.C. § 109(h). Section 301(a), part of the subchapter entitled Commencement of a Case, reads as follows: A voluntary case under a chapter of this title is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter. Section 109, titled Who may be a debtor, contains a list of requirements that must be satisfied before an entity or individual, as the case may be, is eligible for bankruptcy. As part of BAPCPA, Congress amended § 109 to add subsection (h). Pub.L. No. 109-8, § 106, 119 Stat. 23, 37 (2005). Subsection (h) begins as follows: Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under [the Bankruptcy Code] unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received [credit counseling]. 11 U.S.C. § 109(h)(1). The remaining paragraphs provide exceptions for debtors who reside in areas where there is no such available credit counseling, for debtors who can certify that they have exigent circumstances and have made appropriate efforts to obtain counseling, and for those incapacitated, disabled, or on active military duty in a combat zone. Id. § 109(h)(2)-(4). As the bankruptcy court's decision noted, these two provisions may be read to suggest that, since an individual may not be a debtor unless he has received credit counseling congruent with the requirements of § 109(h) and under § 301 he may not commence a case unless he may be a debtor, a debtor who fails to obtain pre-petition credit counseling and yet files a bankruptcy petition has not actually commenced a case. In re Elmendorf, 345 B.R. at 497. Informed by this conclusion, the bankruptcy court reasoned further that striking the petition was the appropriate procedural method to dispose of the filing, rather than dismiss[ing] the case as provided for in 11 U.S.C. § 707. [4] Amicus argues for this interpretation on appeal; the Trustee contends instead that a case is commenced when an ineligible individual files for bankruptcy, and that the case must be dismissed. An additional twist arises from the automatic stay provision. Section 362(a) of the Code states that a petition filed under section 301, 302, or 303 of [the Bankruptcy Code] ... operates as a stay. Section 362(c)(3)-(4), in turn, sets forth limitations on the automatic stay applicable to subsequent cases by the same petitioner. Under § 362(c)(3), where a case of the debtor was pending within the preceding 1-year period but was dismissed, the automatic stay is limited to 30 days unless the debtor is able by clear and convincing evidence to rebut a presumption that the later case was not filed in good faith. Moreover, § 362(c)(4) states that if 2 or more ... cases of the debtor were pending within the previous year but were dismissed,... the stay ... shall not go into effect upon the filing of the later case, and the debtor may obtain a stay only if he is able to demonstrate that the filing of the later case is in good faith. The bankruptcy court, interpreting the interplay among §§ 109(h), 301, and 362(a), concluded that the automatic stay comes into existence only when a case is filed in accordance with §§ 301, 302, or 303 of the [Code]. In re Elmendorf, 345 B.R. at 498. Under this reading, when a petition is filed but no case is commenced, the automatic stay does not come into effect. Amicus urges us to reject this interpretation and instead find that the filing of the petition, not the commencing of a case, is sufficient to institute the automatic stay. Of the bankruptcy and district courts to consider this statutory tangle so far, a majority have sided with the Trustee and found that debtors such as the ones in the case at bar should have their cases dismissed. See, e.g., In re Crawford, 420 B.R. 833, 838 & n. 7 (Bankr.D.N.M.2009) (collecting cases); In re Jones, 352 B.R. 813, 821 (Bankr.S.D.Tex.2006) (same); In re Seaman, 340 B.R. 698, 703, 706 n. 3 (Bankr.E.D.N.Y.2006). Of the minority of courts that recognize the option of striking the petition of a debtor ineligible under § 109(h), some agree with the bankruptcy court in this case that such a petition does not trigger the protections of the automatic stay under § 362(a), In re Elmendorf, 345 B.R. at 498-502. See, e.g., In re Salazar, 339 B.R. 622, 632-33 (Bankr.S.D.Tex. 2006). Finally, some courts have ruled in line with Amicus's conclusion that the petition's filing does trigger an automatic stay but does not commence a dismissible case when the petitioner is ineligible under § 109(h). See In re Thompson, 344 B.R. 899, 905-08 (Bankr.S.D.Ind.2006), vacated as moot by 249 Fed.Appx. 475 (7th Cir. 2007). In constructing its argument, Amicus places emphasis on the language of § 301, which provides that a voluntary case under a chapter of [the Bankruptcy Code] is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter. 11 U.S.C. § 301(a) (emphasis added). Amicus suggests that the phrase may be a debtor should be interpreted as barring a debtor ineligible for bankruptcy under § 109(h) from commencing a case. The Trustee, citing authority rejecting this position, counters that the word `may' as used in the § 301 of the Bankruptcy Code means `might' or is meant to express a `possibility.' In re Tomco, 339 B.R. 145, 159 (Bankr.W.D.Pa. 2006). We conclude that § 301, as well as §§ 302 and 303 (Voluntary cases, Joint cases, and Involuntary cases, respectively), define the prerequisites for relief under particular chapters of the Bankruptcy Code, rather than the existence in a jurisdictional sense of a voluntary, joint, or involuntary case. We thus reject the position of Amicus that a debtor ineligible for bankruptcy pursuant to § 109(h) does not commence a case by filing a petition pursuant to § 301. Each of the three parallel sections implicated here contains limiting language indicating that it is referencing a particular type of case, whether voluntary, joint, or involuntary, that in turn is treated in a separate chapter of the Bankruptcy Code. Sections 301, 302 and 303 thus each provide that a case under a given chapter is commenced by the filing of a petition by a petitioner that may be a debtor under such chapter.  See 11 U.S.C. §§ 301-03 (emphasis added). This limiting language in all three sections suggests that the sections are not concerned with determining the existence of a case in the broader sense i.e., [a] civil or criminal proceeding, action, suit, or controversy at law or in equity. BLACK'S LAW DICTIONARY 243 (9th ed.2009) (defining case). Rather, they clarify that, when a debtor commences a case, the debtor is not eligible for relief under a particular chapter of the Bankruptcy Code unless it meets the requirements to be a debtor under that chapter. Other provisions in the Code place similar emphasis on the existence of chapter-specific requirements for debtors. See, e.g., 11 U.S.C. §§ 706(d), 1112(f), 1307(g) ([A] case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter.); see also H.R. Rep. 95-595, at 380, 406, 428 (Sept. 8, 1977), 1978 U.S.C.C.A.N. 5963, 6336, 6362, 6384 (providing that the limitations on conversion are meant to reinforce § 109). The reading of § 301 proposed by Amicus, moreover, is inconsistent with other provisions of the Bankruptcy Code. While claiming that the interpretation of § 301 permitting dismissal ignores the distinction between `case' and `petition,' Amicus itself ignores the Bankruptcy Code's definition of petition: The term `petition' means petition filed under section 301, 302, 303, or 304 of this title, as the case may be, commencing a case under this title.  11 U.S.C. § 101(42) (emphasis added). Thus, a petition filed under §§ 301, 302, or 303 both operates as a stay, id. § 362(a), and commences a bankruptcy case, id. § 101(42). See, e.g., Michael Newman, Comment, BAPCPA's New Section 109(h) Credit Counseling Requirement: Is It Having the Effect Congress Intended?, 2007 UTAH L.REV. 489, 511. And while Amicus's theory that the automatic stay may come into effect upon the filing of a petition, even though a case is not commenced, is superficially plausible pursuant to the language of § 362(a) (providing that a petition filed under section 301, 302, or 303 ... operates as a stay), this theory falls apart when one attempts to determine the date that such a stay terminates. Under § 362(c)(2), most actions remain stayed under § 362(a) until the earliest of (A) the time the case is closed; (B) the time the case is dismissed; or (C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied. 11 U.S.C. § 362(c)(2) (emphasis added). We determine, therefore, that although an individual may be ineligible to be a debtor under the Bankruptcy Code for failure to satisfy the strictures of § 109(h), the language of § 301 does not bar that debtor from commencing a case by filing a petition; it only bars the case from being maintained as a proper voluntary case under the chapter specified in the petition. Although our conclusion in this respect comes into conflict with the reasoning in this Court's decision in In re BDC 56 LLC, 330 F.3d 111 (2d Cir.2003), which held that the eligibility requirements of § 303 were jurisdictional in nature, we conclude that as a result of recent Supreme Court precedent, that case is no longer good law. Section 303 provides, in relevant part, as follows: (a) An involuntary case may be commenced... only against a person, except a farmer ... that may be a debtor under the chapter under which such case is commenced. (b) An involuntary case against a person is commenced by the filing with the bankruptcy court of a petition ... by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount.... (c) After the filing of a petition under this section but before the case is dismissed or relief is ordered, a creditor... may join in the petition with the same effect as if such joining creditor were a petitioning creditor under subsection (b) of this section. ... (h) If the petition is not timely controverted, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed.... 18 ... (j) Only after notice to all creditors and a hearing may the court dismiss a petition filed under this section(1) on the motion of a petitioner; (2) on consent of all petitioners and the debtor; or (3) for want of prosecution. 11 U.S.C. § 303. As discussed above, under the interpretation we grant to the language may be a debtor under the chapter under which such case is commenced, a case is commenced under § 303 even if the debtor is ineligible by virtue of, for example, being a farmer. Similarly, the ineligibility of creditors under the restrictions in § 303(b) does not prevent the case from being commenced. This reading is supported, moreover, by the provisions of § 303(c), (h), and (j). Under § 303(c), a creditor may join in the petition after it is filedbefore the case is dismissedwith the effect being as if the creditor had been part of the initial filing. Were there no case in existence because of an insufficiency of eligible creditors at the outset, it would be impossible for new creditors to join it by joining the petition. Moreover, § 303(h) and (j) provide for the bankruptcy court to order relief or dismiss a case based on whether debtors and creditors take given actions. Surely relief cannot be so granted, or the matter not dismissed in the absence of a motion to do so, if a case did not exist in the first place. Subject matter jurisdiction under title 11 proceedings in the bankruptcy courts is provided by 28 U.S.C. § 1334(a), which states that, with some given exceptions, the district courts shall have original and exclusive jurisdiction of all cases under title 11. District courts may, under 28 U.S.C. § 157(a), provide that any or all cases under title 11 ... shall be referred to the bankruptcy judges for the district. The most straightforward reading of these provisions is that if a case exists under title 11, the district court (and the bankruptcy court, if so invoked by § 157(a)) has jurisdiction over it. The contrapositive of this statement, then, is also true: if the court has no jurisdiction, then there is no case under the Bankruptcy Code. In In re BDC 56 LLC, we stated: At least one circuit ... has held that the requirement that a petitioning creditor's claim not be subject to a bona fide dispute[, found in § 303(b),] is not jurisdictional, but is an element that must be established to sustain an involuntary proceeding. We believe the more sound view is that the requirement is subject matter jurisdictional, and now so hold. Whether an alleged debtor is properly before the bankruptcy court in an involuntary case is a threshold determination that should be made at the earliest possible stage of the proceedings. One of the requirements to bringing such a petition is that the petitioning creditors' claims are free from bona fide dispute. Any creditor wishing to invoke the bankruptcy court's jurisdiction in an involuntary case should be required to demonstrate at the earliest practicable point that its petition satisfies this requirement. Otherwise, creditors could, on the basis of relatively untested claims, haul a solvent debtor with whom they have legitimate disputes into bankruptcy court and force it to defend an involuntary proceeding while the bankruptcy court leaves for a later merits determination whether the debtor is even properly before it. 330 F.3d at 118-19 (quoting In re Rubin, 769 F.2d 611, 615 (9th Cir.1985)) (internal citations and footnote omitted). This holding, then, necessarily indicates that if the requirements of § 303 are not met, no case existsnor, presumably, was commencedunder title 11. This panel is bound by the decisions of prior panels until such time as they are overruled either by an en banc panel of our Court or by the Supreme Court. United States v. Wilkerson, 361 F.3d 717, 732 (2d Cir.2004). However, if there has been an intervening Supreme Court decision that casts doubt on our controlling precedent, one panel of this Court may overrule a prior decision of another panel. Gelman v. Ashcroft, 372 F.3d 495, 499 (2d Cir.2004) (quoting Union of Needletrades, Indus. & Textile Employees v. U.S. I.N.S., 336 F.3d 200, 210 (2d Cir.2003)) (internal quotation marks omitted). The intervening decision need not address the precise issue decided by the panel for this exception to apply. Wojchowski v. Daines, 498 F.3d 99, 106 (2d Cir.2007). [5] Since our holding in In re BDC 56 LLC, the Supreme Court has clarified the distinction between two sometimes confused or conflated concepts: federal-court `subject-matter' jurisdiction over a controversy; and the essential ingredients of a federal claim for relief. Arbaugh v. Y & H Corp., 546 U.S. 500, 503, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). In a unanimous decision, the Court held that a clear statement by Congress was required to construe a threshold limitation on the scope of a statute as jurisdictional. Id. at 515-16, 126 S.Ct. 1235. But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character. Id. at 516, 126 S.Ct. 1235. Therefore, a limitation on Title VII claims based on whether the defendant-employer had a particular number of employees was nonjurisdictional because the limitation does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts, the statute contains an express jurisdictional provision in a different portion from the limitation, there was no evidence in the statutory text that Congress intended the requirement to be sua sponte monitored by the courts, and consideration of the limitation after a judgment on the merits would be unfair and wasteful. Id. at 514-16, 126 S.Ct. 1235; see also In re Trusted Net Media Holdings, LLC, 550 F.3d 1035, 1043 (11th Cir.2008). This readily administrable bright line, Arbaugh, 546 U.S. at 516, 126 S.Ct. 1235, now guides our consideration of whether § 303 contains restrictions on the bankruptcy court's jurisdiction. We find that, in light of Arbaugh, In re BDC 56 LLC can no longer be considered good law on this point. As the Eleventh Circuit noted in evaluating the same question, § 303 contains no explicit reference to its requirements being jurisdictional in nature and never uses the word `jurisdiction.' In re Trusted Net Media Holdings, LLC, 550 F.3d at 1043. [6] Nor does the text of the statute suggest that the bankruptcy court should sua sponte raise the issue of whether the requirements of § 303 are satisfied; in fact, § 303(h) provides the opposite, since the bankruptcy court should order relief if the petition is not timely controverted. Moreover, the Bankruptcy Code is governed by a separate jurisdictional provision, 28 U.S.C. § 1344, which contains other restrictions and exclusions. In sum, the restrictions of § 303 fall decisively on the nonjurisdictional side of Arbaugh 's bright line. Similarly, we find that the restrictions of § 301 and § 109(h) are not jurisdictional, but rather elements that must be established to sustain a voluntary bankruptcy proceeding. Restricting whether an individual may be a debtor either under the Bankruptcy Code in general or under a given chapter does not speak in jurisdictional terms or invoke the jurisdiction of the district court, delineated in 28 U.S.C. § 1344 as discussed above. Certainly, consideration of these limitations after other decisions on the merits have taken place would be wasteful and unfair; because bankruptcy is a swift-moving process involving multiple parties, creditors and other parties in interest have a considerable interest in being able to rely on the existence of a case, the bankruptcy court's jurisdiction, and the validity of actions taken in the case in order to facilitate asset-preserving transactions. In re Ross, 338 B.R. 134, 140 (Bankr.N.D.Ga.2006). This decision, moreover, is in line with pre-BAPCPA decisions from our sister circuits and in this circuit finding that other provisions of § 109 are not jurisdictional. See, e.g., Rudd v. Laughlin, 866 F.2d 1040, 1042 (8th Cir.1989) (Nor do we believe that 11 U.S.C. § 109 is meant to restrict the jurisdiction granted under [28 U.S.C. §§ 1334, 157].); In re Phillips, 844 F.2d 230, 235 n. 2 (5th Cir.1988) (finding § 109(g) nonjurisdictional); In re Flores, 291 B.R. 44, 52-53 (Bankr.S.D.N.Y.2003) (same), superseded by BAPCPA, Pub.L. No. 109-8, § 303(b), 119 Stat. at 78. Some additional support for our conclusion that a case has been commenced when debtors ineligible for relief under § 109(h) file a bankruptcy petition may be gleaned from cases interpreting 11 U.S.C. § 342(b), which provides that [b]efore the commencement of a case under this title by an individual whose debts are primarily consumer debts, the clerk shall give to such individual written notice containing ... a brief description of bankruptcy proceedings, credit counseling services, and legal consequences from fraudulent findings. If we were to interpret the language regarding commencement of a case in this section as the bankruptcy court did the language of § 301 and § 109(h), the provision would suggest that a case is not commenced if the would-be debtor is not given the statutorily required notice. Courts considering the question have not so held. See, e.g., In re Guth, No. 02-02121, 2002 WL 31941460, at  (Bankr.D.Idaho Nov.8, 2002); In re Bryant, 51 B.R. 729, 731-32 (Bankr. N.D.Miss.1985).