Opinion ID: 502764
Heading Depth: 2
Heading Rank: 3

Heading: Constitutionality of Section 707(b)

Text: 28 The Kellys raise various constitutional challenges to section 707(b). Although the BAP found it unnecessary to address these claims, it nonetheless opined that [the Kellys'] due process arguments are troublesome. 70 B.R. at 110. We do not find them so.
29 The Kellys first raise a volley of arguments to the effect that section 707(b) is void for vagueness. But laws that regulate economic activity not involving constitutionally protected conduct are subject to a quite lenient test for constitutional sufficiency. See Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 497, 102 S.Ct. 1186, 1192, 71 L.Ed.2d 362 (1982); Papachristou v. City of Jacksonville, 405 U.S. 156, 162, 92 S.Ct. 839, 843, 31 L.Ed.2d 110 (1972). The Bankruptcy Code is such a law. In re Talmadge, 832 F.2d 1120, 1125 (9th Cir.1987). Considering the Kellys' contentions in this light, we find them to be lacking in merit. 30 1. The Kellys first argue that section 707(b) is constitutionally inadequate because it fails to require notice to the debtors that fully informs them of all the matters to be considered at the hearing and of the facts on which the court will rely in resolving them. This contention is frivolous. The due process clause requires only such notice as is reasonably calculated ... to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950). Section 707(b) provides that the court may dismiss a petition under its provisions [a]fter notice and a hearing, a phrase defined as such notice ... and such opportunity for a hearing as is appropriate in the particular circumstances. 11 U.S.C. Sec. 102(1)(A) (1982). In conformity with these statutory and constitutional strictures, the bankruptcy judge gave the Kellys more than a month's notice, informing them of the hearing and the nature of the issue to be considered, and instructing them to appear ... to show cause, if any they have, why such proceedings should not be dismissed. ER at 39. The Code provides for, and the Kellys received, constitutionally adequate notice. 31 The Kellys argue, however, that they were unable to ascertain what facts would be considered at the hearing. This contention is untenable. Section 707(b) permits dismissal only after the court finds that the debtor had primarily consumer debts and engaged in substantial abuse. Both of these terms are defined by the Code, legislative history and case law; debtors are therefore on reasonable notice of the facts relevant to these determinations. Even if the Kellys had for some reason been unaware of the relevant considerations at their first hearing, they could not have remained in the dark by the time of the second hearing, held by the court in response to their motion for reconsideration. The Kellys had by then read the judge's original order dismissing their petition and therefore knew exactly the facts and law the court deemed relevant. The bankruptcy judge generously allowed them to present additional evidence at this hearing, but they chose to rely solely on previously submitted evidence and Kelly's affidavit. 10 Their argument that they were placed ... in the untenable position of not knowing what evidence to present at the hearing ordered by the Court, Appellees' Answering Brief at 12, is quite simply disingenuous. 32 2. The Kellys also claim that section 707(b) is unconstitutionally vague because it fails to specify the procedures for the presentation of evidence and rebuttal of the statutory presumption in favor of granting relief. With respect to the presentation of evidence, the Bankruptcy Rules incorporate the Federal Rules of Evidence, as well as Federal Rules of Civil Procedure 43 and 44 governing precisely this issue. Bankr.R. 9017. As for the presumption, we are unable to discern any constitutional infirmity in leaving its application to the discretion of the trial court. The Kellys' claim to the contrary is entirely without merit. 33 3. The Kellys' final vagueness objection to section 707(b) is that the terms primarily consumer debt and substantial abuse are not adequately defined. Although they admit that consumer debt is defined in 11 U.S.C. Sec. 101(7), they argue that the definition is ambiguous because it fails to indicate whether mortgage debts are consumer debts. As discussed above, however, the statute addresses this point directly. See pp. 911-13 supra. 34 The term primarily consumer debts is not separately defined in the Code. But the Code does define consumer debt, and the modifier primarily is not a word that is ambiguous or difficult to understand. The Constitution does not require the legislature to incorporate Webster's into each statute in order to insulate it from vagueness challenges. 35 The Code also contains no definition of substantial abuse. As the United States points out in its brief as intervenor, however, the Supreme Court has upheld statutes that contain equally undefined standards of decision. See, e.g., Nash v. United States, 229 U.S. 373, 376-78, 33 S.Ct. 780, 781, 57 L.Ed. 1232 (1913) (unreasonable restraints of trade). The legislative history of the statute clearly indicates that ability to repay debts is the primary factor to be considered in applying this phrase, and the bankruptcy courts have had no difficulty in fashioning a relatively uniform approach to resolving this question. See Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 593, 105 S.Ct. 3325, 3339, 87 L.Ed.2d 409 (1985) (statutory term that appears vague on its face 'may derive much meaningful content from the purpose of the Act, its factual background, and the statutory context' ) (quoting American Power & Light Co. v. SEC, 329 U.S. 90, 104, 67 S.Ct. 133, 142, 91 L.Ed. 103 (1946)). As Kelly, an experienced lawyer, should well have known, section 707(b) is simply not void for vagueness.
36 The Kellys also object to the fact that, at the time their petition was filed, section 707(b) granted the bankruptcy judge sole discretion to institute dismissal proceedings. 11 They claim that this placed the court in an adversarial position, particularly because the presumption in favor of granting relief supposedly requires the court to come forward with evidence justifying dismissal. They rely on In re Murchison, 349 U.S. 133, 75 S.Ct. 623, 99 L.Ed. 942 (1955), which held that a judge could not try witnesses, who had appeared before him while he sat as a one-man grand jury, for criminal contempt based on the judge's own investigations, because [h]aving been part of [the accusatory] process a judge cannot be, in the very nature of things, wholly disinterested in the conviction or acquittal of those accused. Id. at 137, 75 S.Ct. at 625-26. 37 The result in Murchison was based in part on the criminal nature of the proceedings, id., and in part on the fear that the extensive and often one-sided evidence presented in the secret grand jury proceedings could weigh far more heavily with [the judge] than any testimony given in the open hearings, id. at 138, 75 S.Ct. at 626. Neither of these considerations is present in the bankruptcy context. Indeed, the authority granted the bankruptcy judge under section 707(b) is no different from that granted federal judges in a number of similar situations, none of which raises any due process concerns. See, e.g., Sacher v. United States, 343 U.S. 1, 9, 72 S.Ct. 451, 455, 96 L.Ed. 717 (1952) (upholding district court's imposition of criminal contempt sanctions, without hearing, on parties who committed disruptive conduct during trial before sanctioning judge); Clark v. Paul Gray, Inc., 306 U.S. 583, 588, 59 S.Ct. 744, 748, 83 L.Ed. 1001 (1939) (issue of subject matter jurisdiction raised sua sponte); Fed.R.Civ.P. 11 (court on its own motion may impose sanctions for frivolous pleadings); Fed.R.Civ.P. 12(h)(3) (court must sua sponte dismiss actions whenever it appears that subject matter jurisdiction is lacking); Fed.R.Civ.P. 16(f) (court on its own motion may impose sanctions for failure to comply with discovery orders); Fed.R.Crim.P. 42 (criminal contempt may be punished summarily at instance of judge; judge may preside at contempt hearing unless contempt charged involves disrespect to or criticism of that judge). 38 There is simply no basis for the Kellys' novel contention that a judge's power to order a hearing on the issue of dismissal denies debtors a neutral and impartial arbiter. As with sua sponte orders concerning jurisdiction, contempt and sanctions, the court acquires no stake in the litigation merely by ordering a hearing. 39 Our conclusion is not affected by the fact that the statute gives debtors the benefit of a presumption in favor of granting relief. This presumption does not place on the judge the burden of producing evidence. Rather, when the issue of section 707(b) dismissal is raised, the debtor and, if appropriate, other parties as well are free to present evidence on the relevant issues. The court remains at all times above the level of advocacy. Seen in this light, the presumption is in reality a caution and a reminder to the bankruptcy court that the Code and Congress favor the granting of bankruptcy relief, and that accordingly the court should give the benefit of any doubt to the debtor and dismiss a case only when a substantial abuse is clearly present. 4 Collier Sec. 707.08, at 707-19. 40 It is ironic that the Kellys should be raising a constitutional objection to this provision. Congress carefully reserved to the court the power to institute such proceedings precisely to protect debtors from possible harassment by creditors. See 4 Collier p 707.05. Congress violated no constitutional protections in adopting this approach. Section 707(b) is constitutional on its face and as applied to the Kellys in this case.