Court Opinion

ID: 196326
Source: CourtListenerOpinion
Date Created: 2011-02-07 03:03:28+00
Date Added: 2024-06-11T13:14:29.778825
License: Public Domain

UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                      FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT

                                             

No. 95-1369

            IN RE:  DERALD E. YOUNG AND MARY P. YOUNG,

                             Debtors.

                                             

                DERALD E. YOUNG AND MARY P. YOUNG,

                           Appellants,

                                v.

                    KEY BANK OF MAINE, ET AL.,

                            Appellees.

                                             

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                    FOR THE DISTRICT OF MAINE

             [Hon. Gene Carter, U.S. District Judge]
                                                             

                                             

                              Before

                Selya and Boudin, Circuit Judges,
                                                          

                   and Saris,* District Judge.
                                                       

                                            

     Ralph W. Brown for appellants.
                             
     Jana  S. Stabile, with whom  Michael S. Haenn  was on brief,
                                                            
for appellees.

                                             

                        September 29, 1995

                                             
             
*Of the District of Massachusetts, sitting by designation.

          SELYA,  Circuit Judge.    This appeal  raises an  issue
                    SELYA,  Circuit Judge.
                                         

which, but for its  effect on the parties  before us, might  well

deserve  a  place  among  the inhabitants  of  Madame  Tussauds's

Waxworks.  The tale follows.

          We begin with basic bankruptcy bromides.  Chapter 13 of

the Bankruptcy  Code, 11 U.S.C.     1301-1330, enables individual

debtors to reorganize  their financial affairs,  so to speak,  by

extending due  dates  and servicing  their  debts out  of  future

income pursuant to  a payment plan crafted  under the supervision

of the bankruptcy court.  In contrast, Chapter 7 of  the Code, 11

U.S.C.    701-766, provides for what is commonly termed "straight

bankruptcy."    It contemplates  the  liquidation  of a  debtor's

estate, the  distribution  of  available assets  to  his  or  her

creditors,   and   ultimate   relief  from   liability   for  all

dischargeable  debts.   Because the  two chapters mark  a natural

progression   from  difficult  financial  straits  to  unpassable

financial straits, a proceeding under Chapter 13 may be converted

into  a proceeding under Chapter  7 if the  reorganization of the

debtor's affairs founders.  See 11 U.S.C.   1307.
                                         

          When such a conversion occurs, the Chapter 7 proceeding

"relates back" in the sense that the Chapter 7 petition is deemed

to have been filed on the filing date of the  original Chapter 13

petition.  See 11  U.S.C.   348(a).   An enigma arises,  however,
                        

where  a  debtor has  earned income  during  the pendency  of the

Chapter  13 petition,  because the  statutory mosaic  makes clear

that  a Chapter 13 estate includes post-petition earnings, see 11
                                                                        

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U.S.C.    1306(a)(2), and  a Chapter 7  estate does  not, see  11
                                                                       

U.S.C.   541(a).  Therein  lies the rub.  For many  years, courts

could  not agree on  an answer to  the question  of whether post-

petition income paid to  a Chapter 13 trustee became  property of

the  Chapter 7 estate  on conversion of  an insolvency proceeding

from  a workout to a straight bankruptcy, even though such income

would  not be  property of  the estate  had the  debtor initially

filed his  or her petition  under Chapter  7.  In  this case  the

lower courts ruled  that such post-petition income  inures to the

benefit of the Chapter 7 trustee.  This appeal ensued.

          The material facts are undisputed.  The debtors, Derald

and  Mary Young, owned and operated  a conglomeration of business

enterprises  including Damn  Yankee Gifts, Damn  Yankee Balloons,

Damn  Yankee Pewter, and Damn  Yankee Sheepskin.   On October 22,

1992, the Youngs petitioned for relief from their creditors under

Chapter  13.   A  payment plan  emerged.   The  bankruptcy  court

approved it, and the debtors agreed to abide by it.

          While attempting to satisfy the  terms of the plan, Mr.

and Mrs. Young tendered a total of $24,498 in interim earnings to

the  Chapter 13 trustee.   But, to paraphrase  the Scottish poet,

the best-laid plans  of creditors and debtors often go awry.  Cf.
                                                                           

Robert Burns, To a Mouse (1785).  The payment plan collapsed when
                                  

the Youngs found themselves  unable to sell off certain  assets. 

Key Bank of Maine,  a secured creditor, took steps to protect its

interests and,  over the debtors' objection,  forced a conversion

of the  Chapter 13  proceeding into a  straight bankruptcy  under

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Chapter 7.

          The Youngs subsequently moved to determine the property

of the  Chapter 7 estate in  order to settle the  status of their

post-petition  contribution.   Initially,  the  bankruptcy  court

accepted the debtors' position  and held that the funds  were the

property of  the Chapter  13 trustee.    On reconsideration,  the

court revoked its  earlier order  and decided,  favorably to  Key

Bank, that the  funds were the property of the  Chapter 7 estate.

On July 20,  1994, the bankruptcy  judge entered a  new order  to

that effect.  The  debtors appealed to the district  court, which

upheld the July 20 order.  We now reverse.

          At  the  time  the  events leading  to  this  conundrum

occurred, the authorities were divided.  Many courts held, as did

the courts  below, that post-petition earnings  comprised part of

the Chapter 7 estate  when a Chapter 13 proceeding  was converted

to a straight bankruptcy.  See, e.g., In re Calder, 973 F.2d 862,
                                                            

866 (10th  Cir. 1992); In re Lybrook, 951 F.2d 136, 137 (7th Cir.
                                              

1991); In re Tracy, 28 B.R.  189, 190 (Bankr. D.Me. 1983).  Other
                            

courts espoused the opposite view.  See, e.g., In re Bobroff, 766
                                                                      

F.2d  797, 803 (3d  Cir. 1985); In  re Borrero, 75  B.R. 141, 142
                                                        

(Bankr. D.P.R. 1987);  In re  Peters, 44 B.R.  68, 70-72  (Bankr.
                                              

M.D.Tenn.   1984).1     The  division   in  the   authorities  is
                    
                              

     1In yet  a third variation on  the theme, a  few courts held
that  if  post-petition  earnings  were  accumulated  before  the
confirmation of a  Chapter 13  payment plan, such  funds did  not
become property of the  Chapter 7 estate upon conversion;  but if
the funds were earned  subsequent to the confirmation of  a plan,
they  would then  become property  of the  Chapter 7  estate upon
conversion.   See,  e.g., In  re Schmeltz,  114 B.R.  607, 610-13
                                                   

                                4

understandable.  The question  is excruciatingly close, respected

jurists disagree  as to how it can best be answered, and as Judge

Posner acknowledged,  the arguments on  either side  of the  line

offer  "equally good alternative[s]."   Lybrook, 951 F.2d at 137.
                                                         

Thus, for all intents and purposes the law was indeterminate when

this question  came before  the courts  below,  and those  courts

resolved the indeterminacy in a plausible way.

          Nevertheless,  judges  sometimes   view  issues   quite

differently,  and our  responsibility  to the  parties before  us

requires  that, on  a  matter of  law  committed to  our  plenary

review, see In  re G.S.F. Corp.,  938 F.2d  1467, 1474 (1st  Cir.
                                         

1991), we must interpret the applicable statutes as we read them,

consistent  with our exposition of discerned congressional intent

and  without  paying  special  deference  to  the  courts  below.

Fulfilling  our  proper  function  here, we  reach  a  conclusion

contrary to that reached by the bankruptcy judge and the district

judge.  Consequently, we hold that post-petition income earned by

and contributed  to a Chapter 13  estate (prior to  the change in

the  law discussed  infra) did  not, upon  the conversion  of the
                                   

proceeding  to  a straight  bankruptcy,  become  property of  the

Chapter 7 estate.

          At this point, the plot thickens.  Ordinarily, we would

now proceed to present an analysis of the bases for our decision,

explicating  our   reasoning  in   suitable  detail.     But  the
                    
                              

(Bankr.  N.D.Ind. 1990); In re  Holly, 109 B.R.  524, 526 (Bankr.
                                               
S.D.Ga. 1989);  In  re  Richardson,  20  B.R.  490,  492  (Bankr.
                                            
W.D.N.Y. 1982).

                                5

circumstances of this case are well out of the ordinary, and they

counsel a different, more muted course.  We explain briefly.

          Perhaps  because of  the split  in authority  about how

best  to synchronize  Chapter 13  and Chapter  7,  Congress acted

within  the past year to demystify the situation.  The Bankruptcy

Reform  Act of 1994 answered the very question that confronts us.

It essentially  codified the  Bobroff rule, enacting  a statutory
                                               

provision designed to  ensure that, on conversion from  a Chapter

13 proceeding,

          property of the estate in  the converted case
          shall consist of property  of the estate,  as
          of the  date of filing of  the petition, that
          remains in the possession  of or is under the
          control  of   the  debtor  on   the  date  of
          conversion.

11 U.S.C.   348(f)(1)(A) (1994).   In all future cases, this rule

(subject to  a statutory  "bad  faith" exception  not of  concern

here) will govern.   But the newly crafted statute does not apply

in  this  case:    the  Bankruptcy  Reform  Act  explicitly  bars

retroactive  application of  the statutory  solution  to accruals

antedating the Act's effective date (October 22, 1994).  See Pub.
                                                                      

L. No.  103-394,   702, 108  Stat. 4106, 4150.   The Youngs filed

their  Chapter  13 petition  exactly two  years earlier,  and the

Chapter 13 trustee had the disputed funds in hand well before the

amendment's effective date.   As a result, section 348(f)  is not

controlling in this case.

          Be  that as  it may,  it ill  behooves us  to play  the

ostrich, struthiously pretending that the neoteric statute is not

now in force.  Though the  amendment does not affect the  outcome

                                6

of  this appeal,  it  punctuates our  opinion  and strips  it  of

virtually  all precedential  value.   Where, as  here, we  face a

lingering question of law that is defunct except  as to a handful

of ongoing cases, we see no point in writing at  length either to

elucidate our  rationale  or to  justify our  construction of  an

ambiguous  statute  that  Congress  has  lately  taken  pains  to

clarify.  Cf. In re San Juan Dupont Plaza Hotel  Fire Litig., 989
                                                                      

F.2d 36, 38 (1st  Cir. 1993) (suggesting that an  appellate court

should  not  write  opinions  "simply   to  hear  its  own  words

resonate").  This is  especially true in the instant  case, since

other  courts  have  spelled   out  the  reasons  supporting  our

conclusion.  See Bobroff, 766 F.2d at 803; Peters, 44 B.R. at 70-
                                                           

72.   Given this peculiar  concatenation of circumstances, we are

confident  that going further  would merely add  another floor to

the Tower of Babel.

          The judgment of the district court is reversed, and the
                    The judgment of the district court is reversed, and the
                                                                           

cause  is remanded  to the  district court  with instructions  to
          cause  is remanded  to the  district court  with instructions  to
                                                                           

vacate the  order of the bankruptcy  court and to remit  the case
          vacate the  order of the bankruptcy  court and to remit  the case
                                                                           

for the entry of a decree consistent herewith.  All  parties will
          for the entry of a decree consistent herewith.  All  parties will
                                                                           

bear their own costs.
          bear their own costs.
                              

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