Opinion ID: 766991
Heading Depth: 3
Heading Rank: 2

Heading: The Effect of the Order

Text: 38 Whether the bankruptcy court's July 16, 1997 order dismissing the Casses' third Chapter 11 case with prejudice could have its intended effect of barring filings under other chapters presents a question of law which we consider de novo. 39 This case illustrates the serious problems that bad faith litigants can pose for the proper, timely and just administration of the Bankruptcy Code. The challenge courts have faced is what forms of relief can be entered to bring to an end abusive practices by debtors, especially to deal with abuses caused by so-called serial filers. Felberman, 196 B.R. at 681. It is clear enough that the Casses were serial filers. Judge Feller concluded that their abusive practices could be ended, and the long-suffering Key Bank furnished foreclosure relief, by dismissing the then pending Chapter 11 case in such a way as to stop further abuse. That is the intended function of the phrase with prejudice, which the bankruptcy judge viewed as barring the debtor's subsequent Chapter 13 filing. Judge Feller explained his reasoning in these words: 40 The relevant portion of the Order reads that pursuant to 11 U.S.C. Section 1112(b), this case commenced under Chapter 11 of the Bankruptcy Code be, and hereby is, dismissed with prejudice. Like other courts that have dismissed cases with prejudice, barring debtors from refiling so that creditors may complete foreclosure actions, this Court relied on 105(a) and 349(a) of the Bankruptcy Code, . . . . which is made applicable to Chapter 11 cases by 103(a) of the Bankruptcy Code. 41 219 B.R. at 661-62 (footnote omitted), 664. 42 We must consider those other sections of the Bankruptcy Code which Judge Feller concludes govern the effect of his 1112(b) order of dismissal. But we begin with 1112(b). 43 11 U.S.C. 1112(b) forms a part of Chapter 11, whose object is to permit a potentially viable debtor to restructure and emerge from bankruptcy protection. Kings Terrace Nursing Home and Health Related Facility v. New York State Dep't of Social Servs. (In re Kings Terrace Nursing Home and Health Related Facility), 184 B.R. 200, 203 (S.D.N.Y. 1995). Section 1112 is captioned conversion or dismissal. Section 1112(b) provides in pertinent part that on request of a party in interest or the United States trustee the bankruptcy court may dismiss a case under this chapter . . . for cause, a concept the statute illustrates by a list of specified occurrences. As the Historical and Statutory Notes appearing after 11 U.S.C.A. 1112 (West 1993) at 473-74 observe, [t]his list is not exhaustive. The court will be able to consider other factors as they arise, and to use its equitable powers to reach an appropriate result in individual cases. 11 U.S.C. 105(a) provides: 44 The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. 11 U.S.C. 349(a) provides: 45 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. 46 Section 349(a) forms a part of Chapter 3 of the Bankruptcy Code. It is made applicable to Chapter 11 cases by 11 U.S.C. 103(a), which provides: 47 Except as provided in section 1161 of this title, chapters 1, 3, and 5 of this title apply in a case under chapter 7, 11, 12, or 13 of this title. 5 48 11 U.S.C. 109(g), referred to in 349(a), provides: 49 Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if - 50 (1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or 51 (2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title. 52 The debtor at bar argues principally that 1112(b) is the only provision in this statutory scheme applicable to his case, so that the bankruptcy court was not entitled to avail itself of 105(a) and 349(a) in determining the effect of its order of dismissal. We disagree. 53 First, the debtor contends that because the July 16, 1997 Order of dismissal referred only to 1112(b) of the Code, and did not cite 105(a) or 349(a), the Order can only be read to apply to subsequent Chapter 11 petitions. There is no substance to this contention. Of course this Order dismissing a Chapter 11 case cited 1112(b), the section of the Code providing for dismissal of Chapter 11 cases; one would hardly expect the bankruptcy judge to cite the comparable provisions for dismissing Chapter 7 or Chapter 13 cases. As we have previously observed, the distinctive and decisive aspect of the Order lies not in the dismissal of the Casses' third Chapter 11 petition for cause, but in its dismissal of that case with prejudice. The bankruptcy court's opinion made that clear: The instant Chapter 13 case was filed in violation of the Order dismissing the Debtor's third Chapter 11 case 'with prejudice.' 219 B.R. at 665. 54 The bankruptcy court's inclusion of the phrase with prejudice necessarily implicated 105(a) and 349(a) as possible sources of authority. The dismissal of a Chapter 11 case for cause does not ipso facto bar future filings. To bar future filings, an order of dismissal must be with prejudice; and bankruptcy courts look to 105(a) and 349(a) for their authority to impose that sanction. The distinction between dismissals for cause and with prejudice is noted in In re Martin-Trigona, 35 B.R. 596, 601 (Bankr. S.D.N.Y. 1983): Where there exists a multiplicity of factors which would be sufficient to meet the cause requirement of 1307, the cumulative effect will be considered in determining whether there exists sufficient cause for a dismissal with prejudice pursuant to 349(a). 6 . 55 We will consider 105(a) and 349(a) in turn, beginning with 105(a), because that is the first provision Bankruptcy Judge Feller specified as authority for his order. 56 11 U.S.C. 105 is an omnibus provision phrased in such general terms as to be the basis for a broad exercise of power in the administration of a bankruptcy case. The basic purpose of section 105 is to assure the bankruptcy courts power to take whatever action is appropriate or necessary in aid of the exercise of their jurisdiction. . . . Bankruptcy courts, both through their inherent powers as courts, and through the general grant of power in section 105, are able to police their dockets and afford appropriate relief. 2 Collier on Bankruptcy (15th ed. 1999) at 105-5 to -7 (footnote omitted). As one bankruptcy court has noted, the legislative history of 105 reflects congressional intent that the section be similar in effect to the All Writs Statute, 28 U.S.C. 1651, and was included in the Bankruptcy Code to cover any powers traditionally exercised by a bankruptcy court that are not encompassed by the All Writs Statute. In re Earl, 140 B.R. 728, 741 n.4 (Bankr. N.D. Ind. 1992) (citing H.R. Rep. No. 595, 95th Cong., 1st Sess. 316-317 (1977)). Earl is one of the many bankruptcy cases holding that  105 empowers this Court to enjoin future filings to prevent abuse of the bankruptcy process. Id. at 741. 57 Section 349(a) also empowers bankruptcy courts to enjoin future filings, although there is a conflict among the circuits as to the scope of that empowerment, and whether the provisions of 349(a) contradict those of 105. The distinctly minority view on these questions is that of the Tenth Circuit, which held in Frieouf v. United States (In re Frieouf), 938 F.2d 1099, 1103 (10th Cir. 1991), that while 349(a) gives bankruptcy courts discretion to determine whether there is 'cause' to dismiss a case with prejudice, the section does not deny a debtor all future access to bankruptcy court, except as provided in 109(g), which in turn contains a 180-day temporal limit. (Emphasis in original). The Tenth Circuit also concluded in Frieouf that its construction of 349(a) precluded the application of 105(a) to justify a longer prohibition against future filings. The bankruptcy court and the district court had relied upon 105(a) in dismissing a Chapter 11 case with prejudice to the filing of any bankruptcy petition by debtor for a period of three years, id. at 1102; however, the Tenth Circuit stated: 58 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. 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). 59 Id. at 1103 n.4 (citation and internal quotation marks omitted). 60 While lower courts in the Tenth Circuit have perforce followed Frieouf with a reluctant obedience, 7 no other circuit has adopted its reading of the Bankruptcy Code, and the Fourth Circuit rejects it, and so do all the lower courts which sit outside the Tenth Circuit. 61 In In re Tomlin, 105 F.3d 933, the Fourth Circuit considered whether a bankruptcy court intended by its order dismissing a case with prejudice to do no more than limit subsequent filings to the 180 days proscribed by 109(g); or, instead, to imbue that order with the res judicata effect of precluding the subsequent discharge of debts existing at the filing of the dismissed case (as a creditor contended). The order was ambiguous, the Fourth Circuit noted, because it contains no specific reference to the 109(g) bar to filing successive petitions. Nor does it state the period of time that it would be in effect, e.g., the 180-day period provided in 109(g) or a longer period. 105 F.3d at 939 (emphasis added) (citation omitted). 62 After analyzing the full record in the bankruptcy court, including that court's subsequent opinion clarifying the order at issue, the Fourth Circuit concluded that the court intended by its order to do no more than impose 109(g)'s 180-day prohibition against further filings. But the larger analytical significance of Tomlin lies in the fact that if the Fourth Circuit had agreed with Frieouf's holding that a 349(a) order of dismissal with prejudice could not validly bar filings for more than 180 days, there could not have been a meaningful ambiguity in the bankruptcy court's opinion for the court of appeals to resolve, since only one interpretation would have been permissible. 63 The Fourth Circuit's analysis of the statutory scheme makes manifest its view that the Code permits longer prohibitions against future filings than does 109(g). The Tomlin court pointed out that 109(g) was added to the Bankruptcy Code in 1984 to address the precise abuse of the bankruptcy system at issue here -- the filing of meritless petitions in rapid succession to improperly obtain the benefit of the Bankruptcy Code's automatic stay provisions as a means of avoiding foreclosure under a mortgage or other security interest. 105 F.3d at 937. And, the Tomlin court goes on to observe, [i]n addition to the adoption of 109(g), codifying the court's power to temporarily bar refiling, the 1984 amendments also revised the language of 349, adding the language that appears after the semi-colon in the present text of 349(a), namely, 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. Id. at 938. 64 While, as the Fourth Circuit continued in Tomlin, some commentators suggested that the language of 349(a) limits the prejudicial impact of a dismissal to that provided in new 109(g), id. (citations and internal brackets omitted), and indeed this is what the Tenth Circuit held in Frieouf, the Fourth Circuit would have none of that restrictive interpretation: 65 Our analysis of the plain language and statutory scheme of the statute leads us to conclude that 349 was never intended to limit the bankruptcy court's ability to impose a permanent bar to discharge that would have res judicata effect. Rather, the language of 349, as amended, seems to make clear that the court has the power to order such a sanction in circumstances other than those dealt with by new 109(g). 66 Tomlin, 105 F.3d at 938 (citations and internal quotation marks omitted). Subsequent lower court decisions in the Fourth Circuit read Tomlin to permit prohibition of future bankruptcy filings for a longer period than the 180 days specified in 109(g). See, e.g., In re Weaver, 222 B.R. 521 (Bankr. E.D.Va. 1998), quoted infra. 67 Indeed, in all circuits but the Tenth, bankruptcy courts and district courts invariably derive from 105(a) or 349(a) of the Code, or from both sections in some cases, the power to sanction bad-faith serial filers such as the Casses by prohibiting further bankruptcy filings for longer periods of time than the 180 days specified by 109(g). The following cases are illustrative:In re Weaver, 222 B.R. at 522, 523 and n.1 (dismissal of Chapter 7 case with prejudice and precluding debtor from filing another bankruptcy case for a period of 12 months; Our court of appeals has recognized that the underscored language in 349(a) gives a bankruptcy judge discretion to 'order otherwise' for cause and to dismiss a petition with prejudice . . . . The bankruptcy court's discretion under 349(a) to bar a debtor's bankruptcy filing within a set time is not limited to the 180 day period of Code 109(g) (citing Tomlin)); In re Robertson, 206 B.R. at 830-31 (this Circuit has already dealt with the issue of whether a debtor can be enjoined from filing a bankruptcy petition beyond 180 days . . . . It is ultimately up to the court's discretion to decide if the length of time requested by the movant is appropriate . . . . We believe there is strong evidence of bad faith on the part of the [Chapter 13] debtor and find this behavior deserving of a dismissal with prejudice under 1307(c), 105(a), 109(g) and 349(a). Based on the debtor's conduct, a dismissal with prejudice . . . for a period of 417 days, the actual time that he has unreasonably delayed the IRS and his other creditors, is warranted.) (expressly declining to follow Frieouf); Norwalk v. Sav. Soc'y v. Peia (In re Peia), 204 B.R. 310, 311, 315 (Bankr. D. Conn. 1996) (granting creditor's Emergency Motion under 11 U.S.C. 105(a), concluding that serial Chapter 13 filing was not bona fide, and directing that any further petitions filed by Peia under any chapter of the bankruptcy code in any bankruptcy court in the United States of America shall not affect or interfere with creditor's eviction action); In re Robinson, 198 B.R. 1017, 1022-23 (Bankr. N.D. Ga. 1996) (The usual remedy for a bad faith filing is a dismissal pursuant to 109(g), which works to prohibit the filing by a debtor of any case under Title 11 for a period of 180 days. . . . Further authority for such a dismissal arises under 105(a), which empowers this court to issue any order, process or judgment which is necessary or appropriate to prevent abuse of the bankruptcy system.) (emphasis added); In re Herrera, 194 B.R. 178, 189-90 (Bankr. N.D. Ill.1996) ([T]he Court hereby dismisses the instant serial Chapter 13 case under 109(g)(1). . . . In addition, pursuant to 11 U.S.C. 349(a), the Court has the discretion to dismiss the case with prejudice. . . . Hence, the instant case is dismissed with prejudice and the Debtors are prohibited from filing another bankruptcy case in any chapter for a period of one year from the date this Opinion and Order are docketed.); Mother African Union Methodist Church v. Conference of AUFCMP Church (In re The Conference of African Union First Colored Methodist Protestant Church), 184 B.R. 207, 223 (Bankr. D. Del. 1995) (1986 amendment to 105(a) made it plain that the fact that section 1112(b) requires a party or trustee to request dismissal or conversion does not preclude bankruptcy courts from evaluating a Chapter 11 petition and, on its own initiative, dismissing or converting that petition for cause. . . . For purposes of exercising the power authorized by Code 105(a), it makes no difference whether it is a Chapter 11 case or a Chapter 7 case; serial Chapter 7 case dismissed under 105(a)); In re Gros, 173 B.R. 774, 777 (Bankr. M.D. Fla. 1994) (as the debtor's multiple bankruptcy filings, coupled with involuntary dismissals [was] cause to dismiss this case with prejudice, the court barred the debtor from filing another petition for two years without court permission); Stathatos v. United States Trustee (In re Stathatos), 163 B.R. 83, 87-88 (N.D. Tex. 1993) (where debtors' successive Chapter 13 cases were obviously filed to hinder eviction proceedings, district court affirmed bankruptcy court's order dismissing latest case with prejudice to filing a further Chapter 13 petition for two years; district court stated: Pursuant to 11 U.S.C. 1307(c), a bankruptcy court may dismiss a Chapter 13 case for cause. . . . Moreover, the bankruptcy court has discretion to dismiss with prejudice to the refiling of a subsequent Chapter 13 case. 11 U.S.C. 349(a). . . . The bankruptcy court acted within its discretion to enjoin further filings to prevent abuse of the bankruptcy process. 11 U.S.C. 105(a).) (citations omitted); Jolly v. Great Western Bank (In re Jolly), 143 B.R. 383, 385-87 (E.D. Va. 1992) (on proper reading of 349(a), a debtor may be prejudiced from filing subsequent bankruptcy petitions under two circumstances: (1) if the court, for cause, so orders, or (2) if the terms of 109(g) apply to the debtors' case. Thus, this court finds that, so long as the dismissing court finds cause, a bankruptcy action may be dismissed with prejudice for 180 days, or more, without violating the terms of 349(a) or, for that matter, 109(g).) (emphasis added) (citing supporting cases and declining to follow Frieouf principle), aff'd without published opinion, 45 F.3d 426 (4th Cir. 1994); In re Earl, 140 B.R. at 741 (invoking 105 to bar serial Chapter 13 filer from further petition under any chapter of the Bankruptcy Code for a stated period; even assuming arguendo, (without so concluding), that the Frieouf Court is correct and that 349(a) does not permit a dismissal that prohibits the filing of a new case, except as expressly provided in 109(g), the Court nevertheless concludes that 105 empowers this Court to enjoin future filings to prevent abuse of the bankruptcy process.); In re Dilley, 125 B.R. 189, 197-98 (Bankr. N.D. Ohio 1991) (serial filer prohibited from filing any case under Chapter 11 or Chapter 13 for twelve months; court reasoned that unless clause in 349(a) empowered bankruptcy court to prohibit filings for cause without regard to temporal limitations found in 109(g); alternatively, even if the Debtor's efforts to extend his fourteen month enjoyment of bankruptcy protections free of Court control without evidence of feasibility or good faith were immune from constraint under section 349(a), it appears that the Court has authority under section 105 of the Bankruptcy Code to impose appropriate restraints. . . . The fact that the Code expressly provides refiling prohibitions in section 109(g) also lends support to the Court's fashioning similar prohibitions under sections 349(a) or 105(a) where appropriate.); Lerch, 94 B.R. at 1001 (affirming bankruptcy court's order dismissing with prejudice serial filer's Chapter 12 case and barring further filings for two years; Section 349(a) is not modified or limited by Section 109(g) so long as the bankruptcy court 'for cause, rules otherwise' and the bankruptcy court's dismissal of the case with prejudice for the two-year period falls under the 'for cause' exception of Section 349(a).). 8 68 This circuit does not appear to have considered previously the Bankruptcy Code's statutory scheme for dealing with serial filers and their bad faith abuse of the bankruptcy process. We take this opportunity to ally ourselves with the Fourth Circuit and the great majority of lower courts which derive from 105(a) and 349(a) of the Code a bankruptcy court's power, in an appropriate case, to prohibit a serial filer from filing petitions for periods of time exceeding 180 days. We join those courts in concluding that 109(g) does not impose a temporal limitation upon those other sections. 69 On the issue of statutory construction, we find persuasive the district courts' analyses in Jolly, 143 B.R. 383, and Lerch, 94 B.R. 998. In Jolly, a decision presaging the Fourth Circuit's conclusions in Tomlin, the Eastern District of Virginia construed 349(a) and reasoned at 143 B.R. 387: 70 If, according to Debtors, the qualifying phrase, Unless the court, for cause, orders otherwise, does not modify the clause following the semi-colon, then the only way a debtor may be prejudiced regarding the filing of a subsequent petition is pursuant to the terms of 109(g) (formerly 109(f)), whose terms, Debtors argue, do not apply to their case. 71 This court, however, finds that the qualifying phrase in 349(a) applies both to the clause preceding the semi-colon and the clause following the semi-colon. The semi-colon does not create two completely separate clauses. Indeed, use of the word nor implies conjunction between the two clauses. Furthermore, Congress used the same syntax in constructing both clauses, and both clearly refer to the same dismissal. One clause simply states that the dismissal does not usually bar a later discharge of debts; the other states that the dismissal does not prejudice a debtor with respect to later filings. The semi-colon, as it is used in this statutory provision, is merely a means of punctuating a long sentence. This reading of 349(a) means that a debtor may be prejudiced from filing subsequent bankruptcy petitions under two circumstances: (1) if the court, for cause, so orders, or (2) if the terms of 109(g) apply to debtors' case.Thus, this court finds that, so long as the dismissing court finds cause, a bankruptcy action may be dismissed with prejudice for 180 days, or more, without violating the terms of 349(a) or, for that matter, 109(g). 72 (footnotes omitted). In Lerch, the Northern District of Illinois said at 94 B.R. 1001: 73 Section 349(a) of the Code does not allow the bankruptcy court to bar discharging in a later case debts that were dischargeable in the dismissed action, and does not allow for dismissal with prejudice except as provided under Section 109(g) unless the court for cause, orders otherwise.... 11 U.S.C. 349(a) (Supp. III 1985) (emphasis added). The clear meaning of this statutory reference under the Code is that unless the court for cause, orders otherwise, the court may not dismiss a case with prejudice for a period beyond the explicit 180-day limitation found in Section 109(g). In this case, however, that court appears to have based its dismissal with prejudice on a finding of cause. When the court has found cause for a dismissal with prejudice, the mandate of Section 109(g) is not applicable-at least to the extent that it merely provides a minimum amount of time before a case may be refiled, not a maximum period of time for which the bankruptcy court may dismiss a case with prejudice when there is a dismissal for cause. 74 Therefore, based on the foregoing, this Court holds that Section 349(a) is not modified or limited by Section 109(g) so long as the bankruptcy court for cause, rules otherwise and the bankruptcy court's dismissal of the case with prejudice for the two-year period falls under the for cause exception of Section 349(a). 75 We find these constructions preferable to that of the Tenth Circuit in rieouf, which derives from 349(a)'s reference to 109(g) the temporal limitation of 180 days upon the bankruptcy courts' equitable power to preclude future filings for cause under 105(a) and 349(a). When one considers that Congress intended 109(g) to give bankruptcy courts an additional weapon for use against serial filers, it is perverse to construe the section as striking from the courts' hands other sections of the Code which may remedy the same problem. Of course, we agree with the principle articulated in Frieouf that a statute's general provisions may be eclipsed by a provision specifically addressing a particular issue, and have applied that principle in bankruptcy; see Guerin v. Weil, Gotshal & Manges, 205 F.2d 302, 304 (2d Cir. 1953) (reversing allowance to petitioning creditors for certain fees because the Bankruptcy Act did not authorize their payment; [a]lthough it has been broadly stated that a bankruptcy court is a court of equity, the exercise of its equitable powers must be strictly confined within the prescribed limits of the Bankruptcy Act. (citation omitted)). However, in company with most courts that have considered the question, we find nothing in 109(g) of the present Bankruptcy Code that prescribes limits upon the bankruptcy courts' power to dismiss bad faith filings for cause under 349(a), or their power to protect against abuses of the bankruptcy process by resort to 105(a), the Code's counterpart to the All Writ Statute. On the contrary: these several provisions complement each other in arming the bankruptcy courts with a variety of weapons for use in controlling serial filers, a species not likely to become endangered in the foreseeable future. 76 Accordingly we hold that the intended effect of Bankruptcy Judge Feller's order of dismissal with prejudice, namely, to preclude future filings by the debtor, was authorized by the Code provisions upon which the judge subsequently said he relied. 77 While the bankruptcy court's July 16, 1997 order did not specify the Code sections upon which it was based, or the scope and duration of the bar on future filings implicit in the phrase with prejudice, these omissions avail the debtor nothing. Their only effect was to make the order ambiguous; and the ambiguities were resolved by the bankruptcy court's April 21, 1998 opinion, to which we may refer, as did the Fourth Circuit in Tomlin's comparable circumstances. 78 Neither the debtor nor his counsel asked the bankruptcy court for clarification of the July 16, 1997 order's effect, either when the order was issued or before filing the Chapter 13 petition. A bankruptcy practitioner might have considered at least the possibility that the order of dismissal with prejudice implicated one or both of 105(a) and 349(a). Had the court's clarification been sought at those earlier times, Bankruptcy Judge Feller undoubtedly would have responded in the same terms he used subsequently in his April 21, 1998 opinion. Of course, such a prudent inquiry would have been against the nature of a serial filer determined to hold off a foreclosure; but the debtor's failure to inquire serves to mute the tones of outrage in which the present appeal is cast. 9