Court Opinion

ID: 2963631
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:13:16.778457+00
Date Added: 2024-06-11T15:01:29.744660
License: Public Domain

USCA1 Opinion

	

                            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

                              _________________________
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          *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
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          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
                              
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               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).

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          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

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          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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