Court Opinion

ID: 4113525
Source: CourtListenerOpinion
Date Created: 2017-01-05 20:00:57.546207+00
Date Added: 2024-06-11T07:46:13.288832
License: Public Domain

PUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                              No. 16-1358

MARJORIE K. LYNCH, Bankruptcy Administrator for the Eastern
District of North Carolina,

                 Appellant,

           v.

GABRIEL LEVAR JACKSON; MONTE NICOLE JACKSON,

                 Debtors – Appellees,

           and

A. SCOTT MCKELLAR,

                 Trustee.

-----------------------------------------

NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS,

                 Amicus Supporting Appellees.

Appeal from the United States Bankruptcy Court for the Eastern
District   of  North   Carolina,   at Raleigh.     Stephani W.
Humrickhouse, Chief Bankruptcy Judge. (15-01915-5-SWH)

Argued:   December 6, 2016                   Decided:   January 4, 2017

                      Amended:    January 5, 2017

Before MOTZ, KEENAN, and THACKER, Circuit Judges.
Affirmed by published opinion. Judge Thacker wrote the opinion,
in which Judge Motz and Judge Keenan joined.

ARGUED:   Brian   Charles   Behr, OFFICE   OF  THE   BANKRUPTCY
ADMINISTRATOR, Raleigh, North Carolina, for Appellant.   Robert
Lee Roland, IV, LAW OFFICES OF JOHN T. ORCUTT, P.C., Raleigh,
North Carolina, for Appellees. ON BRIEF: Tara Twomey, J. Erik
Heath, NATIONAL CONSUMER BANKRUPTCY RIGHTS CENTER, San Jose,
California, for Amicus Curiae.

                               2
THACKER, Circuit Judge:

             Gabriel and Monte Jackson filed a petition for Chapter

7     bankruptcy   relief.          Marjorie   Lynch,        the   Bankruptcy

Administrator for the Eastern District of North Carolina, 1 moved

to dismiss the case as an abuse because the Jacksons used the

National and Local Standard amounts 2 for certain categories of

expenses rather than the actual amount of their expenses, which

were less than the standardized amounts.              The Bankruptcy Court

for the Eastern District of North Carolina denied the Bankruptcy

Administrator’s motion to dismiss.          The Bankruptcy Administrator

and    the   Jacksons   filed   a   joint   request    for    permission   to

directly appeal to this Court.

             We granted the appeal as to the following question:

whether 11 U.S.C. § 707(b)(2) permits a debtor to take the full

National and Local Standard amounts for expenses even though the

       1
       The Bankruptcy Administrator “may raise and may appear and
be heard on any issue in any case under title 11, United States
Code, but may not file a plan pursuant to section 1121(c) of
such title.”   Judicial Improvements Act of 1990 § 317(b), Pub.
L. No. 101-650, 104 Stat. 5089 (1990).            The Bankruptcy
Administrator acts to prevent fraud and abuse in bankruptcy
proceedings.   See 11 U.S.C. § 704(b); H.R. Rep. No. 95-595, at
88, reprinted in 1978 U.S.C.C.A.N. 5963, 6049.
       2
       The National and Local Standards are uniform amounts
determined by the Internal Revenue Service that reflect typical
spending for certain household expenses. The National and Local
Standards are used to determine whether a debtor has sufficient
income to repay their creditors or if the debtor is entitled to
bankruptcy relief.

                                      3
debtor incurs actual expenses that are less than the standard

amounts.     We conclude that debtors are entitled to the full

National and Local Standard amount for a category of expenses if

they incur an expense in that category.

                                          I.

            On     April   6,    2015,    the   Jacksons    filed    a   Chapter   7

bankruptcy petition in the United States Bankruptcy Court for

the Eastern District of North Carolina.                    Because the Jacksons

earn more than the median income for a family of four in North

Carolina, they had to complete a means test.                        See 11 U.S.C.

§ 707(b).    The means test is a standardized mathematical formula

used to determine the amount of a debtor’s disposable income.

If   the   means    test   reveals    disposable     income    above     a   certain

level, then the Chapter 7 petition will be presumed to be an

abuse of the bankruptcy code and a debtor will not be allowed to

proceed in Chapter 7.           See id.

            The Jacksons submitted their means test on July 2,

2015, using Official Form 22A-1 and 22A-2. 3               Form 22-A-2 states:

            The Internal Revenue Service (IRS) issues
            National and Local Standards for certain
            expense amounts.     Use these amounts to
            answer the questions in line 6-15 . . . .
            Deduct the expense amounts set out in lines
            6-15 regardless of your actual expenses. In

      3The official forms are promulgated by the United States
Judicial Conference pursuant to 28 U.S.C. § 2075.

                                          4
              later parts of the form, you will use some
              of your actual expenses if they are higher
              than the standards.

J.A. 120 (emphasis supplied). 4

              Based on the instructions, the Jacksons included the

Local Standard mortgage expense of $1,548.00.                      The Jacksons’

actual mortgage expense was $878.00.                   Likewise, the Jacksons

included the Local Standard expense of $488.00 for each of their

two cars -- a 2003 Chevrolet Tahoe (“Chevy”) and a 2008 Dodge

Magnum (“Dodge”).           The Jacksons’ actual payments were $111.00

for    the    Chevy   and    $90.50    for    the     Dodge.    The     Bankruptcy

Administrator does not challenge whether the Jacksons actually

followed the instructions provided in the official forms.

              Nevertheless,      on    June     3,     2015,    the     Bankruptcy

Administrator moved to dismiss the Jacksons’ Chapter 7 petition

as    abusive.        The   Bankruptcy       Administrator     argued    that   the

instructions on the official forms were incorrect and that a

Chapter 7 debtor was “limited to deducting their actual expenses

or    the    applicable     National   or     Local    Standard,   whichever    is

less.”       J.A. 132.       The Jacksons argued that the statute was

“unambiguous” and specifically directed debtors to use the full

National and Local Standard expense amounts.               Id. at 137.

       4
       Citations to the “J.A.” refer to the Joint Appendix filed
by the parties in this appeal.

                                         5
             On September 10, 2015, the bankruptcy court denied the

Bankruptcy Administrator’s motion to dismiss.                                    The bankruptcy

court    “conclude[d]        that      the    debtors’              use     of   the   IRS    Local

Standard allowances for their housing and vehicle exemptions on

Form    22A-2     comports      with    .    .       .    the       plain    language”       of   the

statute.     In re Jackson, 537 B.R. 238, 239-40 (Bankr. E.D.N.C.

2015).

             On    September      23,       2015,         the    Bankruptcy       Administrator

filed a notice of appeal, and, then, on October 21, 2015, the

parties jointly filed a request with the bankruptcy court for a

certification       to   appeal     directly              to    the    Fourth     Circuit.         On

October 24, 2015, the matter was transferred from the bankruptcy

court to the district court.                 See Fed. R. Bankr. P. 8006(b).

             No action was taken by either party or the bankruptcy

or district courts for over two months.                             On January 5, 2016, the

Bankruptcy        Administrator        moved             for    a     status     conference        to

“determine what steps [were] remaining in order to complete the

certification.”          J.A. 323.           On February 12, 2016, despite not

having     authority       to     directly               certify          the    question,        the

bankruptcy court issued a recommendation that a direct appeal

from this case be granted regardless of the parties’ failure to

file “a request for permission to take direct appeal with the

circuit clerk as called for by Fed. R. Bankr. P. 8006(g).”                                        Id.

at 329.

                                                 6
            The    parties   filed   their   petition   for   permission   to

appeal with this court, and we granted the petition on March 31,

2016, and ordered the parties to address timeliness pursuant to

28 U.S.C. § 158(d)(2)(A).

                                     II.

            We conclude that 28 U.S.C. § 158(d)(2)(A) does not

create a jurisdictional time bar, and, therefore, the parties’

delay in filing did not deprive this court of its jurisdiction. 5

A   time   bar    is   jurisdictional   “only   if   Congress   has   clearly

      5However, jurisdictional timeliness is a separate issue
from procedural timeliness, and this case is procedurally
untimely.   To appeal directly to the court of appeals, a party
must first obtain a certification.      The certification occurs
when the party has filed a notice of appeal, the notice of
appeal   has   become  effective,   and   the  parties   file   a
certification with the court where the matter is pending.     See
Fed. R. Bankr. P. 8006(a)(1)-(3).    Here, the notice of appeal
was filed and became effective on September 23, 2015. See Fed.
R. Bankr. P. 8002(a)(1). The parties filed their certification
on October 21, 2015.     Pursuant to Federal Rule of Bankruptcy
Procedure 8006(g), the parties had 30 days from October 21,
2015, to file a petition with this court and failed to do so
rendering this matter procedurally untimely.

     Given that this is a joint appeal, it is unsurprising that
neither party has raised timeliness as an affirmative defense.
This court retains the authority to raise a procedural bar sua
sponte “where a defense substantially implicates important
nonjurisdictional concerns that transcend the interests of the
parties to an action.”    Hines v. United States, 971 F.2d 506,
508 (10th Cir. 1992); see Day v. McDonough, 547 U.S. 198, 202
(2006) (holding a court could sua sponte raise timeliness and
dismiss a habeas petition).    Because the delay in proceedings
resulted from the complexity and confusing nature of the
bankruptcy code and not an act of bad faith by the parties, we
choose not to raise the time-bar sua sponte.

                                        7
stated that it is.”            Mussachio v. United States, 136 S. Ct. 709,

717    (2016)    (citation         and    internal         quotation     marks     omitted).

Section 158(d)(2)(A) gives this court jurisdiction to hear a

direct appeal from a bankruptcy court, and it “has no time limit

provided that all the parties have jointly certified that the

case    satisfies       one    of       [the]    specified         conditions.”         In   re

Schwartz, 799 F.3d 760, 765 (7th Cir. 2015).                                The “specified

conditions” in § 158(d)(2)(A) are:

               (i) the judgment, order, or decree involves
               a question of law as to which there is no
               controlling decision of the court of appeals
               for the circuit or of the Supreme Court of
               the United States, or involves a matter of
               public importance;

               (ii) the judgment, order, or decree involves
               a question of law requiring resolution of
               conflicting decisions; or

               (iii) an immediate appeal from the judgment,
               order, or decree may materially advance the
               progress of the case or proceeding in which
               the appeal is taken.

Here,    the    parties       certified         that       there   is   a     split   between

bankruptcy courts within the Eastern District of North Carolina

over the proper interpretation of 11 U.S.C. § 707(b)(2), which

satisfies § 158(d)(2)(A)(ii).                    Therefore, we have jurisdiction

to hear the appeal.

                                              III.

               Pursuant       to    11    U.S.C.       §    707(b)(1),      a   court    “may

dismiss    a     case     .    .    .    if     it   finds     that     the     granting     of

                                                 8
[bankruptcy]   relief    would   be       an   abuse”   of   the    bankruptcy

process.   Section 707(b)(2)(A)(i) provides:

           the court shall presume abuse exists if the
           debtor’s current monthly income reduced by
           the amounts determined under clauses (ii),
           (iii), and (iv), and multiplied by 60 is not
           less than the lesser of: (I) 25 percent of
           the debtor’s nonpriority unsecured claims in
           the case, or $7,700, whichever is greater;
           or (II) $12,850. 6

In turn, clause (ii), § 707(b)(2)(A)(ii)(I), states:

           the debtor’s monthly expenses shall be the
           debtor’s applicable monthly expense amounts
           specified under the National Standards and
           Local Standards, and the debtor’s actual
           monthly    expenses   for    the    categories
           specified as Other Necessary Expenses issued
           by the Internal Revenue Service for the area
           in which the debtor resides . . . .

           In Ransom v. FIA Card Servs., 562 U.S. 61 (2011), the

Supreme    Court   was    tasked      with      interpreting       11   U.S.C.

§ 707(b)(2)(A)(ii)(I).    It held that an expense is “applicable,”

as used in § 707(b)(2)(A)(ii)(I), “only if the debtor will incur

that kind of expense during the life of the plan.”                 Ransom, 562

U.S. at 70.    However, the Court expressly declined to reach the

issue of “the proper deduction for a debtor who has expenses

that are lower than the amounts listed in the Local Standards.”

Id. at 75 n.8 (emphasis in original).

     6 The Judicial Conference of the United States adjusts the
actual dollar amounts every three years to account for
inflation. See 11 U.S.C. § 104.

                                      9
            This court must now address the issue that the Supreme

Court declined to reach in Ransom.                  Based on the plain language

of the statute, we hold that a debtor is entitled to deduct the

full    National    and    Local    Standard       amounts    even    if      they   have

actual expenses below the standard amounts.

            We start as we must with the plain language of the

statute because “when the statute’s language is plain, the sole

function     of    the    courts    --       at   least    where   the     disposition

required by the text is not absurd -- is to enforce it according

to its terms.”       Hartford Underwriters Ins. Co. v. Union Planters

Bank,     N.A.,    530    U.S.     1,    6    (2000)      (citation   and        internal

quotation marks omitted).                Moreover, language is not read in

isolation,    rather      “[i]t    is    a    fundamental     canon      of     statutory

construction that the words of a statute must be read in their

context and with a view to their place in the overall statutory

scheme.”     Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 809

(1989).

            Here, the language is quite clear.                 Once an expense is

incurred, then “[t]he debtor’s monthly expenses shall be the

debtor’s applicable monthly expense amounts specified under the

National      Standards      and        Local      Standards.”             11     U.S.C.

§ 707(b)(2)(A)(ii)(I) (emphases supplied).                   A debtor is entitled

to take the full amount of the National and Local Standards if

they incur an expense in that category.

                                             10
           This     interpretation        gives   full       effect    to       Congress’s

decision   to     use    different     words      in    the    statute.           Section

707(b)(2)(A)(ii)(I) uses both “applicable” and “actual” in the

same sentence, and “[d]ifferent words used in the same . . .

statute    are    assigned       different     meanings.”             2A    N.    Singer,

Sutherland on Statutes and Statutory Construction § 46:6 (7th

ed.   2007).       The     first     clause    of      the     first       sentence      of

§ 707(b)(2)(A)(ii)(I) provides that a debtor’s monthly expenses

are the “applicable monthly expense amounts specified under the

National   Standards       and    Local    Standards,”        as   opposed         to   the

second clause of that sentence, which specifies expenses are

“the debtor’s actual monthly expenses.”                  Because Congress chose

to use two different words in the same sentence, the words must

mean something different.             As used in § 707(b)(2)(A)(ii)(I),

“applicable      monthly   expenses”      entitles       a    debtor       to    the    full

National    and    Local      Standard     amounts,          and   “actual        monthly

expenses” only entitles a debtor to expenses incurred.

           Moreover, interpreting “applicable” to mean “actual,”

as the Bankruptcy Administrator urges, would create an absurd

result:           punishing           frugal            debtors.                         If

§   707(b)(2)(A)(ii)(I)       only    allows      for    deductions         up     to   the

amount of actual expenses, then a debtor would be incentivized

to spend up to the amount of the National and Local Standards.

A frugal debtor, who spent less than the National and Local

                                          11
Standard amounts, would be punished and receive less protection

than   a   prolific   debtor   who    spent   up   to   or    beyond    the   cap.

Readings of a statute that “produce absurd results are to be

avoided.”     Griffin v. Oceanic Contractors, Inc., 458 U.S. 564,

575 (1982).       Therefore, we hold a debtor is entitled to the full

National and Local Standard amounts for any category of expense

in which they incur a cost.

                                      IV.

            For     the   foregoing    reasons,     the      judgment    of   the

bankruptcy court is

                                                                        AFFIRMED.

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