Court Opinion

ID: 9407396
Source: CourtListenerOpinion
Date Created: 2023-07-06 20:02:31.539222+00
Date Added: 2024-06-11T17:20:37.543303
License: Public Domain

FILED
                                                                  JUL 6 2023
                     ORDERED PUBLISHED
                                                             SUSAN M. SPRAUL, CLERK
                                                               U.S. BKCY. APP. PANEL
        UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
                  OF THE NINTH CIRCUIT

In re:                                   BAP No. ID-23-1020-GCB
OFF-SPEC SOLUTIONS, LLC,
             Debtor.                     Bk. No. 22-00346-NGH

KRISTINA JAYN LAFFERTY,                  Adv. No. 22-06020-NGH
             Appellant,
v.                                       OPINION
OFF-SPEC SOLUTIONS, LLC; CVF
CAPITAL PARTNERS, INC.; KEVIN
CHOATE; COOL MOUNTAIN
TRANSPORT; CVF CAPITAL
PARTNERS, INC.,
             Appellees.

            Appeal from the United States Bankruptcy Court
                       for the District of Idaho
             Noah G. Hillen, Bankruptcy Judge, Presiding

                             APPEARANCES:
Ronald Walter Brilliant argued for appellant; Matthew T. Christensen of
Johnson May, PLLC argued for appellees Off-Spec Solutions, LLC and Cool
Mountain Transport.

Before: GAN, CORBIT, and BRAND, Bankruptcy Judges.

GAN, Bankruptcy Judge:
                                INTRODUCTION

      This appeal requires us to decide, as a matter of first impression,

whether the nondischargeability provisions of § 523(a)1 are applicable to

corporate debtors who confirm nonconsensual plans under subchapter V of

chapter 11.

      Appellant Kristina Jayn Lafferty (“Appellant”) filed a § 523(a)(6)

complaint against debtor Off-Spec Solutions, LLC (“Debtor”), and cited the

Fourth Circuit’s holding in Cantwell-Cleary Co. v. Cleary Packaging, LLC (In

re Cleary Packaging, LLC), 36 F.4th 509 (4th Cir. 2022), for the proposition

that debts specified in § 523(a) are not dischargeable by any debtor,

corporate or individual, in a subchapter V case confirmed under § 1191(b).

      The bankruptcy court was not persuaded by Cleary, and relied on its

prior decision, Catt v. Rtech Fabrications, LLC (In re Rtech Fabrications, LLC),

635 B.R. 559 (Bankr. D. Idaho 2021), and Avion Funding, LLC v. GFS

Industries, LLC (In re GFS Industries, LLC), 647 B.R. 337 (Bankr. W.D. Tex.

2022), to hold that § 1192 does not make the debts specified in § 523(a)

nondischargeable for corporate debtors.

      Although the bankruptcy court’s construction leads to discordance

between a discharge under § 1192 and a discharge under a consensual

confirmation, its reasoning is sound and more persuasive than that offered

      1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
                                           2
by Appellant and Cleary. We agree that the language and context of the

relevant statutes indicate Congress’s intent to make § 523(a) applicable in

subchapter V only to individual debtors. Accordingly, we AFFIRM.

                                          FACTS 2

       In August 2022, Debtor filed a chapter 11 petition as a corporate

debtor. 3 Debtor indicated it was eligible to be a debtor under § 1182(a), and

it elected to proceed under subchapter V.

       In December 2022, Appellant filed a proof of claim and an adversary

complaint against Debtor, its owners, and its parent company, asserting a

nondischargeable claim under § 523(a)(6). Appellant alleged that, while

employed by Debtor, she was sexually harassed and discriminated against

by her manager. According to Appellant, despite notifying Debtor and its

owners, they took no corrective action, and instead, retaliated by firing her.

Appellant made a claim of discrimination to the Idaho Human Rights

Commission (“IHRC”) and the Equal Employment Opportunity

Commission. The IHRC found probable cause that Appellant suffered

       2
          We exercise our discretion to take judicial notice of documents electronically
filed in the main case and adversary proceeding. See Atwood v. Chase Manhattan Mortg.
Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
        3 The definition of “corporation” in § 101(9) includes unincorporated limited

liability companies. See Vill. at Lakeridge, LLC v. U.S. Bank N.A. (In re Vill. at Lakeridge,
LLC), BAP Nos. NV-12-1456-PaKiTa, NV-12-1474-PaKiTa, 2013 WL 1397447, at *4 n.8
(9th Cir. BAP Apr. 5, 2013) (citation omitted), aff’d sub nom. U.S. Bank N.A. v. Vill. at
Lakeridge, LLC (In re Vill. at Lakeridge, LLC), 814 F.3d 993 (9th Cir. 2016), aff’d sub nom.
U.S. Bank N.A. ex rel. CW Cap. Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, 138 S. Ct. 960
(2018).
                                               3
sexual harassment, discharge based on retaliation, and discharge based on

sex. After Debtor filed its bankruptcy petition, the IHRC administratively

dismissed the case and gave Appellant notice of her right to bring a private

action against the defendants.

      In response to Appellant’s complaint, Debtor filed a motion to

dismiss pursuant to Civil Rule 12(b)(6), made applicable by Rule 7012.

Debtor argued that Appellant failed to state a cognizable claim for relief

because, as the court previously held in Rtech Fabrications, § 523(a) applies

in subchapter V only to individual debtors. Debtor acknowledged the

Fourth Circuit’s subsequent decision in Cleary but maintained that the

reasoning and analysis in GFS Industries demonstrated that Cleary was

incorrectly decided.

      Appellant opposed the motion and argued that § 1192 applies to both

corporate and individual debtors and excepts the types of debts specified

in § 523(a) without regard to the type of debtor. 4

      The bankruptcy court rendered an oral ruling granting Debtor’s

motion to dismiss, holding that § 523(a) does not apply to corporate

debtors in subchapter V. The court reasoned that the interpretation offered

by Cleary fails to give effect to the plain language of § 523(a), which

      4
        Appellant also argued that, because Title VII of the Civil Rights Act of 1964
imposes strict liability on an employer for its supervisory employee’s sexual
harassment, and the individual who perpetrates the harassment cannot be held liable,
the bankruptcy court should consider Debtor to be an “individual” for purposes of the
claim. Appellant does not make this argument on appeal, and we do not consider it.
                                          4
specifically states that its provisions are applicable to individual debtors

who receive a discharge under § 1192. The bankruptcy court entered an

order dismissing the complaint, and Appellant timely appealed.5

                                  JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

                                        ISSUE

      Did the bankruptcy court err by interpreting § 1192 to except debts

specified in § 523(a) from discharge for only individual debtors?

                           STANDARDS OF REVIEW

      We review de novo a bankruptcy court’s order granting a motion to

dismiss under Civil Rule 12(b)(6). Movsesian v. Victoria Versicherung AG, 670

F.3d 1067, 1071 (9th Cir. 2012) (en banc). We also review de novo a

bankruptcy court’s interpretation of the Bankruptcy Code. Reswick v.

Reswick (In re Reswick), 446 B.R. 362, 365 (9th Cir. BAP 2011). De novo

means review is independent, with no deference given to the bankruptcy

court’s conclusion. See First Ave. W. Bldg., LLC v. James (In re Onecast Media,

Inc.), 439 F.3d 558, 561 (9th Cir. 2006).

      5
         The bankruptcy court dismissed the complaint as to all defendants after
determining that the claims against non-debtors were not related to the bankruptcy
case. The dismissal of claims against non-debtors is not at issue in this appeal. However,
we note that, to the extent Appellant asserts claims against non-debtors, such claims
will not be affected by Debtor’s discharge.
                                            5
                                 DISCUSSION

      The bankruptcy court’s dismissal of the adversary complaint turns

purely on the legal question whether a corporate debtor under subchapter

V can be liable for debts specified in § 523(a). Neither this Panel nor the

Ninth Circuit Court of Appeals has addressed the question.

      Bankruptcy courts that have confronted the issue have uniformly

concluded, as the court did here, that § 1192 does not make § 523(a)

applicable to corporate debtors. See, e.g., BenShot, LLC v. 2 Monkey Trading,

LLC (In re 2 Monkey Trading, LLC), 650 B.R. 521 (Bankr. M.D. Fla. 2023);

Nutrien Ag Sols., Inc. v. Hall (In re Hall), 651 B.R. 62 (Bankr. M.D. Fla. 2023);

In re GFS Indus., 647 B.R. 337; Jennings v. Lapeer Aviation, Inc. (In re Lapeer

Aviation, Inc.), Case No. 21-31500-jda, 2022 WL 1110072 (Bankr. E.D. Mich.

Apr. 13, 2022); In re Rtech Fabrications, LLC, 635 B.R. 559; Cantwell-Cleary Co.

v. Cleary Packaging LLC (In re Cleary Packaging LLC), 630 B.R. 466 (Bankr. D.

Md. 2021), rev’d, 36 F.4th 509 (4th Cir. 2022); Gaske v. Satellite Rests. Inc. (In

re Satellite Rests. Inc.), 626 B.R. 871 (Bankr. D. Md. 2021).

      Appellant urges us to reverse the bankruptcy court’s decision based

on the reasoning articulated in Cleary. Although the bankruptcy court’s

construction inevitably leads to a broader discharge for subchapter V

debtors under nonconsensual plans than under consensual ones, we find

its interpretation more reasonable and more harmonious with other

bankruptcy statutes than the interpretation offered by Appellant.

                                         6
A.    Statutory construction of §§ 1192 and 523

      To resolve a question of statutory construction, we begin “where all

such inquiries must begin: with the language of the statute itself.” United

States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989); see also Lamie v.

United States Tr., 540 U.S. 526, 534 (2004) (“[W]hen the statute’s language is

plain, the sole function of the courts—at least where the disposition

required by the texts is not absurd—is to enforce it according to its terms.”

(quoting Hartford Underwriters Ins. Co. v. Union Planters Bank., N.A., 530 U.S.

1, 6 (2000)). We construe a statute to give effect “to all its provisions, so that

no part will be inoperative or superfluous, void or insignificant.” Hibbs v.

Winn, 542 U.S. 88, 101 (2004).

      If the language is ambiguous, we “may look to other sources to

determine congressional intent, such as the canons of construction or the

statute’s legislative history.” United States v. Nader, 542 F.3d 713, 717 (9th

Cir. 2008) (citing Jonah R. v. Carmona, 446 F.3d 1000, 1005 (9th Cir. 2006)).

Statutory language is ambiguous only if it “gives rise to more than one

reasonable interpretation.” Woods v. Carey, 722 F.3d 1177, 1181 (9th Cir.

2013) (quoting DeGeorge v. U.S. Dist. Ct. for Cent. Dist. of Cal., 219 F.3d 930,

939 (9th Cir. 2000)); see also United Sav. Ass’n of Tex. v. Timbers of Inwood

Forest Assocs., Ltd., 484 U.S. 365, 371 (1988) (“A provision that may seem

ambiguous in isolation is often clarified by the remainder of the statutory

scheme . . . because only one of the permissible meanings produces a

substantive effect that is compatible with the rest of the law.”).

                                         7
      The statutes governing discharge in a nonconsensual subchapter V

are §§ 1192 and 523(a).6 Section 1192 provides in pertinent part:

             If the plan of the debtor is confirmed under section
      1191(b) of this title, as soon as practicable after completion by
      the debtor of all [plan] payments . . . the court shall grant the
      debtor a discharge of all debts provided in section 1141(d)(1)(A)
      of this title, and all other debts allowed under section 503 of this
      title and provided for in the plan, except any debt . . . (2) of the
      kind specified in section 523(a) of this title.

Section 523(a) provides that “[a] discharge under section 727, 1141, 1192,

1228(a), 1228(b), or 1328(b) of this title does not discharge an individual

debtor from any debt” defined in the subsequent subparagraphs of

§ 523(a).

      Facially, these sections appear to conflict because § 523(a) refers to

individual debtors, while § 1192 provides for discharge of both individual

and corporate debtors and does not distinguish between them when

excepting debts “of the kind specified in section 523(a).” In Cleary, the

Fourth Circuit held that § 1192 refers to the types of debts, not the types of

debtors, and consequently, makes those types of debts nondischargeable to

all debtors under § 1192. 36 F.4th at 515.

      6 If all creditor classes accept a subchapter V plan, the bankruptcy court confirms
the case under § 1191(a), and the discharge provisions of § 1141 apply. Section 1181(a)
makes § 1141 generally applicable under subchapter V (except for § 1141(d)(5)). Section
1181(c) clarifies that if a plan is confirmed under § 1191(b), the discharge provisions of
§ 1141(d) do not apply, except as provided in § 1192. Thus, under a nonconsensual
confirmation, discharge is governed exclusively by § 1192.

                                            8
      Based on the language and context of the statutes, we believe that the

better interpretation is that § 1192 reiterates § 523(a)’s application to

debtors under subchapter V, and § 523(a) limits its applicability to

individuals.

      Section 523(a) unambiguously applies only to individual debtors. The

reference in § 1192 to debts “of the kind specified in section 523(a)” can

reasonably be construed to mean the list of debts, but nothing in § 1192

obviates the express limitation in the preamble of § 523(a) or otherwise

expands its scope to corporate debtors. 7 See In re GFS Indus., Inc., 647 B.R. at

341-42; see also Pac. Gas & Elec. Co. v. California, 350 F.3d 932, 943 (9th Cir.

2003) (“[W]e presume, absent clear indications to the contrary, that

Congress did not intend to change preexisting bankruptcy law or practice

in adopting [or amending] the Bankruptcy Code . . . .“); Cohen v. de la Cruz,

523 U.S. 213, 221 (1998) (refusing to read the Bankruptcy Code as departing

      7
        Though our analysis does not require us to resort to legislative history, we note
that bankruptcy courts and commenters who have consulted the history find no
indication of congressional intent to expand the application of § 523(a) to corporate
debtors. See In re Satellite Rests. Inc., 626 B.R. at 878 (discussing the Report of the
Judiciary Committee of the House of Representatives, 290 H.R. Rep. No. 116-171, at p.8
(2019), which states that the new § 1192 discharge excepts “any debt that is otherwise
nondischargeable” and reasoning that this phrase logically refers to the existing form of
§ 523(a)); In re GFS Indus., 647 B.R. at 344 n.6 (citing Hon. Paul W. Bonapfel, GUIDE TO
THE SMALL BUSINESS REORGANIZATION ACT of 2019, (Rev. June 2022),
https://www.ganb.uscourts.gov/sites/default/files/sbra_guide_pwb.pdf, at 204-05, and
noting that if Congress “intended to make a seismic change to existing Chapter 11 law,
one would expect the House Judiciary Committee Report to have pointed out this
change.”).
                                            9
from past bankruptcy practice without a clear indication that Congress

intended to do so).

      Moreover, as part of the Small Business Reorganization Act of 2019

(“SBRA”), Congress amended § 523(a) to add § 1192 to the list of discharge

provisions to which it applies. Interpreting § 1192 to extract from § 523(a)

only the list of nondischargeable debts, without its limitation to

individuals, would render the amendment surplusage. See Marx v. Gen.

Revenue Corp., 568 U.S. 371, 386 (2013) (“[T]he canon against surplusage is

strongest when an interpretation would render superfluous another part of

the same statutory scheme.”); Mackey v. Lanier Collection Agency & Serv.,

Inc., 486 U.S. 825, 837 (1988) (“[W]e are hesitant to adopt an interpretation

of a congressional enactment which renders superfluous another portion of

that same law.”).

      If § 1192 makes the debts specified in § 523(a) nondischargeable to all

debtors, the concurrent amendment to § 523(a) has no meaning. Appellant

offers no explanation why her interpretation does not render the

amendment surplusage.

      In Cleary, the Fourth Circuit suggested that “to the extent that one

might find tension between the language of § 523(a) addressing individual

debtors and the language of § 1192(2) addressing both individual and

corporate debtors,” the more specific provision of § 1192 should govern

over the more general provision of § 523(a). 36 F.4th at 515.

                                      10
      We disagree with the Fourth Circuit’s application of the

general/specific canon for two reasons. First, while “it is a commonplace of

statutory construction that the specific governs the general,” Morales v.

Trans World Airlines, Inc., 504 U.S. 374, 384 (1992), this canon is valid only

where the statutes cannot be reconciled, see Adirondack Med. Ctr. v. Sebelius,

740 F.3d 692, 698 (D.C. Cir. 2014). “Absent clearly expressed congressional

intent to the contrary, it is our duty to harmonize the provisions and render

each effective.” Adirondack Med. Ctr., 740 F.3d at 698-99 (citing Morton v.

Mancari, 417 U.S. 535, 551 (1974)).

      Our construction harmonizes the statutes. Section 1192 incorporates

the types of debts that are nondischargeable under a nonconsensual

subchapter V plan, and § 523(a) limits the scope of nondischargeability to

individual debtors.

      Second, the Fourth Circuit reasoned that § 1192 is more specific

because it applies only to subchapter V debtors under nonconsensual

confirmations, while § 523(a) applies to several discharge provisions. But

“[w]hat counts for application of the general/specific canon is not the nature

of the provisions’ prescriptions but their scope.” RadLAX Gateway Hotel, LLC

v. Amalgamated Bank, 566 U.S. 639, 648 (2012). Section 523(a) limits the scope

of discharge under § 1192 by specifically excepting from discharge certain

debts for individuals. If we were unable to reconcile these statues, the

general/specific canon would countenance an interpretation that § 523(a)

controls § 1192.

                                       11
B.     Context supports our interpretation that the debts in § 523(a) are
       nondischargeable under subchapter V for only individual debtors.

       Subchapter V of chapter 11 was created with the passage of the SBRA

to create an expedited process for small business debtors to efficiently

reorganize. Consistent with this policy goal, debtors under subchapter V

enjoy certain benefits: they do not pay United States Trustee fees; they are

not required to file a disclosure statement; and competing creditors’ plans

are not permitted. Subchapter V also permits a debtor to confirm a

nonconsensual plan without satisfying the “absolute priority rule” of

§ 1129(b)(2)(B). 8

       But subchapter V remains a part of chapter 11, and its discharge

provisions should be interpreted consistent with the overall statutory

scheme in chapter 11. See Rtech Fabrications, LLC, 635 B.R. at 565-66.

       In establishing chapter 11 under the Bankruptcy Code in 1978,

Congress made an intentional decision to depart from pre-Code practice

and eliminate exceptions to discharge for corporate debtors. See In re Cleary

Packaging LLC, 630 B.R. at 474 (citing Ralph Brubaker, Taking Exception to

the New Corporate Discharge Exceptions, 13 Am. Bankr. Inst. L. Rev. 757, 764-

65 & n.46-49 (2005)); see also In re Exide Techs., 601 B.R. 271, 280-81 (Bankr.

       8
         Section 1129(b)(2)(B) requires that, under a nonconsensual confirmation in
chapter 11, a holder of a claim or interest junior to a class of unsecured claims cannot
receive or retain any property under the plan on account of such claim or interest. See
also, Case v. L.A. Lumber Prods. Co., 308 U.S. 106 (1939) (discussing the new value
corollary to the absolute priority rule); Norwest Bank Worthington v. Ahlers, 485 U.S. 197
(1988) (same).
                                            12
D. Del. 2019), aff’d, 613 B.R. 79 (D. Del. 2020) (“Congress initially intended

that all nineteen of the § 523(a) discharge exceptions for individual

debtors . . . should also apply to corporate debtors. However, based on

public policy considerations, Congress ultimately limited the scope of the

discharge exceptions for corporate debtors.” (citations omitted)). Since

then, the corporate discharge has been “strenuously protected.” In re Rtech

Fabrications, LLC, 635 B.R. at 565 (citing In re Cleary Packaging LLC, 630 B.R.

at 474).

      Congress has limited the corporate discharge in chapter 11 once, by

enacting § 1141(d)(6), 9 and it did so by expressly stating that certain debts

are excepted from discharge for corporate debtors. As noted by the

bankruptcy court in Rtech Fabrications, this narrow limitation to the

corporate discharge took eight years to become law. Id. at 565, n.5. We

agree that “the suggestion that Congress incorporated 19 new exceptions to

discharge for small corporations in a bill that was introduced in April 2019,

and signed into law by the President in April 2019, seems not only

      9
       Section 1141(d)(6) provides:
              Notwithstanding paragraph (1), the confirmation of a plan does not
      discharge a debtor that is a corporation from any debt—
              (A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a)
      that is owed to a domestic governmental unit, or owed to a person as the
      result of an action filed under subchapter III of chapter 37 of title 31 or any
      similar State statute or;
              (B) for a tax or customs duty with respect to which the debtor—(i)
      made a fraudulent return; or (ii) willfully attempted in any manner to
      evade or to defeat such tax or such customs duty.
                                            13
improbable but also contradicts years of bankruptcy law and policy.” Id. at

566 (quoting In re Cleary Packaging LLC, 630 B.R. at 475).

      The Fourth Circuit found the reference in § 1141(d)(6) to debts “of a

kind specified in . . . 523(a)” supportive of its interpretation. In re Cleary

Packaging LLC, 36 F.4th at 516-17. It reasoned that the bankruptcy court’s

construction would create difficulty in reconciling § 523(a) with

§ 1141(d)(6) because § 523(a) also expressly applies to discharges under

§ 1141, and thus, it would seem to conflict with the language of § 1141(d)(6)

making debts “of a kind specified” in § 523(a) nondischargeable for

corporate debtors. Id. at 516.

      We have no difficulty reconciling our interpretation with the

language of § 1141(d)(6). Section 1141(d)(6) is clear that it makes certain

debts nondischargeable for corporate debtors. This express statement is

necessary because § 523(a) is plainly limited to individual debtors.

      Unlike § 1141(d)(6), § 1192 does not purport to change the application

of § 523(a). Section 1192 does not refer to specific subparagraphs of § 523(a)

and it does not expressly make those types of debts applicable to corporate

debtors. Instead, it echoes what § 523(a) already says: a discharge under

§ 1192 does not discharge an individual debtor from the debts listed in

§ 523(a).

      The context of other discharge provisions within the overall statutory

scheme of the Bankruptcy Code confirms that § 1192 restates § 523(a)’s

applicability without changing it. Section 523(a) applies to discharges

                                        14
granted under §§ 727, 1141, 1192, 1228(a), 1228(b), and 1328(b), yet each of

these discharge provisions contains a similar reference to § 523. See 11

U.S.C. § 727(b) (“Except as provided in section 523 of this title, a discharge

under subsection (a) of this section discharges the debtor . . . .”); 11 U.S.C.

§ 1141(d)(2) (“A discharge under this chapter does not discharge a debtor

who is an individual from any debt excepted from discharge under section

523 of this title.”); 11 U.S.C. § 1228(a) (“the court shall grant the debtor a

discharge of all debts . . . except any debt . . . (2) of a kind specified in

section 523(a) of this title . . . .”); 11 U.S.C. § 1228(c) (“A discharge granted

under subsection (b) of this section discharges the debtor from all

unsecured debts . . . except any debt . . . (2) of a kind specified in section

523(a) of this title . . . .” ); 11 U.S.C. § 1328(c) (“A discharge granted under

subsection (b) of this section discharges the debtor from all unsecured

debts . . . except any debt . . . (2) of a kind specified in section 523(a) of this

title.”).

       Because § 103(a) makes the provisions of chapter 5 applicable to

chapters 7, 11, 12, and 13, and § 523(a) specifically excepts debts from

discharge under the referenced discharge statutes, it is not strictly

necessary for any of the discharge provisions to refer to § 523 to render the

debts nondischargeable. Each of the references to § 523(a) in these

discharge provisions merely reiterates that the debts listed in § 523(a) are

not dischargeable for individual debtors under the specified discharge

provision.

                                         15
      We recognize that the references to § 523(a) are redundant, but

“redundancies are common in statutory drafting—sometimes in a

congressional effort to be doubly sure, sometimes because of congressional

inadvertence or lack of foresight, or sometimes simply because of the

shortcomings of human communication.” Barton v. Barr, 140 S. Ct. 1442,

1453 (2020); see also Rimini St., Inc. v. Oracle USA, Inc., 139 S. Ct. 873, 881

(2019) (“Redundancy is not a silver bullet . . . . Sometimes the better overall

reading of the statute contains some redundancy.”). And, “[r]edundancy in

one portion of a statute is not a license to rewrite or eviscerate another

portion of the statute contrary to its text.” Barton, 140 S. Ct. at 1453.

      Rather than resulting in a mere redundancy, the Cleary interpretation

creates a “positive repugnancy” between the statutes and results in § 523(a)

having no effect under § 1192 despite its express applicability to that

section. See Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253 (1992)

(“Redundancies across statutes are not unusual events in drafting, and so

long as there is no ‘positive repugnancy’ between two laws, a court must

give effect to both” (internal citation omitted)).

      We are also unpersuaded that “Congress’s importation of language

into Subchapter V from the conceptually similar Chapter 12 proceedings”

reflects an intent to make nondischargeable debts applicable to corporate

debtors. In re Cleary Packaging, LLC, 36 F.4th at 516. The Fourth Circuit

suggested that the language of § 1228(a), which excepts from discharge

debts “of a kind specified in section 523(a),” should be interpreted the same

                                        16
as the virtually identical language in § 1192(2). Id. at 516-17. We agree the

phrases should be interpreted similarly, but neither provision expands the

scope of § 523(a) to apply to corporate debtors.

      Cleary cites two cases for the proposition that § 523(a) applies to

corporate debtors under chapter 12: Southwest Georgia Farm Credit, Aca v.

Breezy Ridge Farms, Inc. (In re Breezy Ridge Farms Inc.), Case No. 08-12038-

JDW, 2009 WL 1514671 (Bankr. M.D. Ga. May 29, 2009) and New Venture

Partnership v. JRB Consolidated, Inc. (In re JRB Consolidated, Inc.), 188 B.R. 373

(Bankr. W.D. Tex. 1995). Like Cleary, both cases rely on the general/specific

canon of construction, which we find inapposite for the reasons stated

above, and neither case offers an explanation why this interpretation does

not render surplusage § 523(a)’s specific application to § 1228(a).

      More importantly, the phrase “of a kind specified in section 523(a)”

appears to have been taken directly from § 1328(c). See Foulston v. BDT

Farms, Inc. (In re BDT Farms, Inc.), 21 F.3d 1019, 1021 n.3 (10th Cir. 1994)

(“Chapter 12 was closely modeled after Chapter 13.”). Section 1328(b)

provides for a “hardship discharge” under chapter 13. In contrast to the

typical discharge under § 1328(a)—which incorporates some but not all the

provisions of § 523(a)—the entirety of § 523(a) is made applicable to

chapter 13 debtors receiving a hardship discharge under § 1328(b).

      Notwithstanding the fact that § 523(a) expressly applies to § 1328(b),

Congress provided in § 1328(c): “A discharge granted under subsection (b)

of this section discharges the debtor from all unsecured debts . . . except

                                        17
any debt— (2) of a kind specified in section 523(a) of this title.” Section

109(e) states that only individuals can be debtors under chapter 13, thus,

§ 1328(c)’s reference to debts “of a kind specified in section 523(a)” must be

a reiteration of § 523(a)’s applicability.

      Absent some indication to the contrary, we see no reason why

Congress’s replication of § 1328(c)’s language in § 1228(a), and later in

§ 1192, would carry a different meaning or serve a different purpose. The

language in each of these sections clarifies that each discharge provision is

limited by § 523(a), which makes debts nondischargeable for individual

debtors.

      The context of other discharge provisions, including those with

substantially similar language, confirm that Congress included the

reference in § 1192 to debts “of the kind specified in section 523(a)” to

reiterate § 523(a)’s application to individual debtors under subchapter V.

C.    Policy considerations

      In a consensual confirmation under subchapter V, discharge is

governed by § 1141. Section 1141(d)(6) also provides that a corporate

debtor cannot discharge any debt: (1) of a kind specified in § 523(a)(2)(A) or

(a)(2)(B) owed to a domestic governmental unit, or owed to a person as a

result of an action under the False Claims Act, 31 U.S.C. § 3729, or similar

state statute; or (2) for a tax or customs duty with respect to which the

debtor made a fraudulent return or willfully attempted to evade or defeat

such tax or customs duty. Because § 1141 does not apply to discharges

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under § 1192, the limitations to corporate discharge found in §1141(d)(6)

are not applicable under nonconsensual plans in subchapter V.

      Appellant argues that our construction leads to an absurd result

because a debtor with False Claims Act liability or tax fraud liability could

discharge such debt under a nonconsensual plan, but not under a

consensual plan. We too are puzzled by this result, 10 but “[w]e must

presume that Congress says in a statute what it means and means in a

statute what it says there.” Rotkiske v. Klemm, 140 S. Ct. 355, 360 (2019)

(cleaned up).

      The apparent difference between the discharge provisions does not

entice us to reject the language and context of the statutes in favor of an

interpretation that alters the long-standing operation of § 523(a) without an

express indication by Congress—in the statute or otherwise—that it

intended to do so.

      The Fourth Circuit presumed that “[g]iven the elimination of the

absolute priority rule, Congress understandably applied limitations on the

discharge of debts to provide an additional layer of fairness and equity to

      10 We note that § 1141(d)(6) claims rarely arise in reported bankruptcy cases.
Additionally, most liability under the False Claims Act does not require the specific
intent to deceive necessary to render such debts nondischargeable under § 523(a)(2).
Compare, § 523(a)(2)(A) and (B) (each requiring intent to deceive), with 31 U.S.C.
§ 3731(a), (c) (describing liability for any person who “knowingly presents, or causes to
be presented, a false or fraudulent claim for payment and approval” and defining
“knowingly” to “require no proof of specific intent to defraud”). Despite the relative
paucity of these claims, we would expect them to be nondischargeable for corporate
debtors regardless of whether confirmation is consensual or nonconsensual.
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creditors to balance against the altered order of priority that favors the

debtor.” In re Cleary Packaging, LLC, 36 F.4th at 517. We appreciate the

plausibility of this idea, but we question whether elimination of the

absolute priority rule is really in “balance” with making the full

complement of nondischargeable debts applicable to corporate debtors,

and we question whether doing so would comport with the purpose of

facilitating reorganization of small businesses.

      Small business cases where confirmation is not likely to be

consensual are precisely the types of cases where the provisions of the

SBRA serve their intended purpose. The absolute priority rule and the

threat of competing plans have little bearing on consensual confirmations.

Debtors with consenting creditors can achieve quick and efficient

reorganizations without need of subchapter V and without the added

administrative expense of a subchapter V trustee.

      In nonconsensual confirmations, elimination of the absolute priority

rule permits more small businesses reorganizations largely because equity

owners are often active managers and successful reorganization depends

on their continued service. See Bonapfel, supra note 7, at 231. Equity

interests in insolvent small businesses typically have little value and

contribution of equivalent “new value” likely provides only a marginal

benefit to unsecured creditors.

      While elimination of the absolute priority rule may slightly reduce

the benefit to unsecured creditors, making debts nondischargeable for

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corporate debtors does not provide a commensurate benefit. Rendering

certain debts nondischargeable is more likely to harm most general

unsecured creditors by steering small businesses with nondischargeable

debts toward liquidation. See In re GFS Indus., LLC, 647 B.R. at 349-50.

      Because § 1192 applies only to nonconsensual plans, and acceptance

of a plan is determined by classes of creditors, see 11 U.S.C. §§ 1191; 1126, a

creditor who asserts a claim that would be nondischargeable under § 523(a)

may nevertheless have its claim discharged if all classes accept the plan.

Thus, even the benefit to a creditor with a potentially nondischargeable

claim is diminished unless that creditor is sufficiently situated to assure a

nonconsensual confirmation.

      Finally, even if a creditor could prove a nondischargeable claim, and

cause its class to reject the plan, its claim will be nondischargeable only if

the debtor obtains a nonconsensual confirmation. Pursuant to Rule 1020(a),

a small business debtor elects whether to proceed under subchapter V by

making the designation in its petition. Rule 1009(a) provides that “[a]

voluntary petition, list, schedule, or statement may be amended by the

debtor as a matter of course at any time before the case is closed.” See also

Rule 1020(b) (providing for a deadline to object to a debtor’s designation no

later than 30 days after the meeting of creditors “or within 30 days after

any amendment to the statement, whichever is later.”).

      Under the Cleary interpretation, a small business debtor with

potentially nondischargeable debts is incentivized to elect subchapter V

                                       21
and force creditors to spend resources to prove their claims, only to then

amend its election and proceed under chapter 11 where those claims will

be discharged upon confirmation.

      The policy rationales suggested by Appellant and Cleary to support

their interpretation are unavailing. Construing § 1192 to make debts

nondischargeable for corporate debtors offers little benefit to unsecured

creditors in small business cases and poses serious obstacles to the stated

purpose of the SBRA to make reorganization efficient and expeditious for

small business debtors.

      It is vexing that our interpretation means that a corporate debtor gets

a slightly broader discharge under § 1192 than under a consensual plan,

but it is more difficult to believe that Congress intended to make § 523(a)

applicable to corporate debtors through an opaque reference rather than an

express statement. We agree with Judge Bonapfel that:

            [I]t is difficult to conclude that, in enacting a statute
      universally proclaimed to have the purpose of facilitating
      reorganization of small businesses, by among other things
      eliminating the absolute priority rule in a cramdown situation,
      Congress in 2019 intended to re-introduce all the problems with
      exceptions to the discharge of a corporation that it eliminated
      over 50 years earlier.

Bonapfel, supra note 7, at 237.

                                  CONCLUSION

      We hold that § 1192 does not make debts specified in § 523(a)

applicable to corporate debtors in subchapter V. Based on the foregoing,
                                     22
we AFFIRM the bankruptcy court’s order dismissing Appellant’s

complaint.

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