Suan L. Kulakowski v. United States Trustee - TPA7 , 735 F.3d 1296 ( 2013 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-15294
________________________
D.C. Docket Nos. 8:11-cv-02323-MSS, 8:10-bk-07286-CED
In Re: KULAKOWSKI,
Debtor,
SUSAN L. KULAKOWSKI,
Plaintiff-Appellant,
versus
DONALD F. WALTON,
UNITED STATES TRUSTEE,
Defendant-Appellee.
___________________________
Appeal from the United States District Court
for the Middle District of Florida
____________________________
(November 15, 2013)
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Before JORDAN, DUBINA, and BALDOCK, * Circuit Judges.
JORDAN, Circuit Judge:
In 2010, Susan Kulakowski filed a voluntary petition for bankruptcy under
Chapter 7 of the Bankruptcy Code. At the time, her obligations consisted primarily
of consumer debt and included $136,470.75 of unsecured non-priority debt, which
she sought to discharge. The bankruptcy court granted the motion of the United
States Trustee for summary judgment and dismissed the case under the abuse
provisions in 11 U.S.C. §§ 707(b)(1) and 707(b)(3)(B). In so doing, the
bankruptcy court ruled that all of the income and expenses of Mrs. Kulakowski’s
husband should be considered in determining the ability of Mrs. Kulakowski to pay
her debts. The district court affirmed the bankruptcy court’s order.
Under § 707(b)(1), a bankruptcy court “may dismiss a case filed by an
individual debtor under [Chapter 7] whose debts are primarily consumer debts . . .
if it finds that the granting of relief would be an abuse.” 11 U.S.C. § 707(b)(1). In
making this determination, the bankruptcy court considers whether “the totality of
the circumstances . . . of the debtor’s financial situation demonstrates abuse.” 11
U.S.C. § 707(b)(3)(B). Mrs. Kulakowski argues on appeal that the bankruptcy
court erred when it considered the entirety of her non-filing spouse’s income in its
“totality of the circumstances” analysis. For the reasons that follow, we disagree
*
Honorable Bobby R. Baldock, Senior United States Circuit Judge for the Tenth Circuit, sitting
by designation.
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and affirm the judgment of the bankruptcy court.
I
Mr. and Mrs. Kulakowski have been married for over 20 years. During the
course of their marriage, they have operated as a financial unit, maintaining a joint
checking account, filing joint tax returns, and pooling their income and expenses.
Mrs. Kulakowski does not currently earn any income, but Mr. Kulakowski deposits
all of his income into the couple’s joint account. Mr. Kulakowski’s monthly take-
home pay is $5,491.20, about $1,100 more than the monthly household expenses
of $4,338.33, which are paid through the joint account funded by Mr. Kulakowski.1
The Kulakowskis did not, however, operate as a financial unit for purposes
of the Chapter 7 bankruptcy petition, which Mrs. Kulakowski filed individually.
Although the bankruptcy court did not detail the circumstances that led to Mrs.
Kulakowski’s precarious financial condition, the record indicates that most of her
unsecured debt was credit card debt. See D.E. 69 at 2. Significantly, a “substantial
portion” of this debt was incurred for the benefit of the household and, in some
instances, solely for the benefit of Mr. Kulakowski. See id.
II
1
Mr. Kulakowski’s net monthly pay reflects $8,497.69 in income minus $3,006.49 in
payroll deductions. The monthly expense figure includes $364.00 per month for Mr.
Kulakowski’s car payment.
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Mrs. Kulakowski does not dispute any findings of fact. Instead, she challenges
the bankruptcy court’s statutory interpretation, which is generally subject to de
novo review. See, e.g., In re Meehan, 102 F.3d 1209, 1210 (11th Cir. 1997).
The statute at issue here, § 707(b)(3)(B), does not define “totality of the
circumstances,” and bankruptcy courts have considerable discretion in determining
whether dismissal for abuse is appropriate under this provision. When such
discretion is challenged, we review only for abuse of discretion. See In re Piazza,
719 F.3d 1253, 1271 (11th Cir. 2013) (“Having concluded that prepetition bad
faith constitutes ‘cause’ for dismissal under § 707(a), we must next determine
whether the bankruptcy court abused its discretion in dismissing Piazza’s case
based upon the court’s finding of prepetition bad faith.”); Bankr. Adm’r v.
Gregory, 471 B.R. 823, 826 (E.D.N.C. 2012) (“The totality of the circumstances
test used to determine whether discharging a debtor’s debt would constitute abuse
is reviewed for abuse of discretion.”). A bankruptcy court abuses its discretion
when it “applies the wrong principle of law or makes clearly erroneous findings of
fact.” In re Piazza, 719 F.3d at 1271.
III
At issue here is the bankruptcy court’s interpretation of the abuse provisions
of Chapter 7 of the Bankruptcy Code. “The principal purpose of the Bankruptcy
Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor.’” Marrama v.
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Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (quotation marks omitted). As
we have explained, § 707 “sets forth the circumstances under which a court may
dismiss a Chapter 7 case or, with the debtor’s consent, convert it into a Chapter 11
or a Chapter 13 case.” In re Witcher, 702 F.3d 619, 621 (11th Cir. 2012). In
keeping with the underlying aim of the Bankruptcy Code, Ҥ 707(b) focuses on the
purpose of Chapter 7 relief under the . . . Code, primarily the issue of whether the
petitioner is the honest and needy consumer debtor the Code was intended to
protect.” In re Mottilla, 306 B.R. 782, 788 (Bankr. M.D. Pa. 2004).
As noted earlier, the bankruptcy court considered all of Mr. Kulakowski’s
income and expenses in analyzing Mrs. Kulakowski’s ability to pay her debts. The
linchpin of Mrs. Kulakowski’s argument is that the bankruptcy court’s totality of
the circumstances analysis was “flawed” because the bankruptcy court
“misconstrued” another provision of the Bankruptcy Code. Specifically, Mrs.
Kulakowski cites to 11 U.S.C. § 101(10A), which defines the “current monthly
income” of the debtor to include “any amount paid by any entity other than the
debtor . . . on a regular basis for the household expenses of the debtor.” She notes
that her husband’s entire monthly income far exceeds her share of the household
expenses, and asserts that this income can only be considered to the extent that it is
used “for the household expenses of the debtor,” as stated in § 101(10A) of the
Code.
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We recently clarified that bankruptcy courts may consider the debtor’s
“ability to pay his or her debts” when determining whether the totality of the
circumstances implicates abuse. See In re Witcher, 702 F.3d at 623 (observing that
the phrasing of § 707(b)(3)(B) “surely intended to include the debtor’s ability to
pay his or her debts”). A number of bankruptcy courts have applied this principle
to encompass the income of a non-debtor spouse. See, e.g., In re Harter, 397 B.R.
860, 865 (Bankr. N.D. Ohio 2008) (“[B]ankruptcy courts take into account the
income of a debtor’s non-filing spouse or co-habitant because it is necessary to
evaluate a debtor’s ability to repay her financial obligations.”) (quotation marks
omitted); In re Engskow, 247 B.R. 314, 317 (Bankr. M.D. Fla. 2000) (“In
determining the totality of circumstances, it is appropriate to consider the spouse’s
income.”). Mrs. Kulakowski notably does not contest the consideration of her
husband’s income as part of the totality of the circumstances inquiry. She instead
argues that the bankruptcy court should have limited its consideration to the
amount of her husband’s income contributed for her household expenses.
In analyzing the Bankruptcy Code, we begin with the text of the relevant
provision: “We analyze the language of the provision at issue, the specific context
in which that language is used, and the broader context of the statute as a whole.”
United States v. Zuniga-Arteaga, 681 F.3d 1220, 1223 (11th Cir. 2012) (citation
omitted). Where the provision “has a plain and unambiguous meaning with regard
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to the particular dispute in the case and the statutory scheme is coherent and
consistent,” we need go no further and confine our analysis to the plain language of
the statute. Id.
The threshold problem with Mrs. Kulakowski’s argument is that the term
“current monthly income” does not appear anywhere in the Chapter 7 abuse
provisions—§§ 707(b)(1) & 707(b)(3)(B)—that govern this case. Nor is the term
made a part of the totality of the circumstances test.
The term “current monthly income” figures largely in the so-called means
test set forth in a neighboring provision of § 707. See 11 U.S.C. § 707(b)(2)(A)(i).
Congress’ decision to include “current monthly income” as an explicit
consideration under § 707(b)(2) but not to list it under § 707(b)(3) raises a
rebuttable presumption that the omission from § 707(b)(3) was intentional. See
United States v. Slaughter, 708 F.3d 1208, 1216 (11th Cir. 2013) (“Where
Congress includes particular language in one section of a statute but omits it in
another section of the same Act, it is generally presumed that Congress acts
intentionally and purposely in the disparate inclusion or exclusion.”) (quoting
Russello v. United States, 464 U.S. 16, 23 (1983)). Unlike the situation we
encountered in Hope v. Acorn Financial, Inc., 731 F.3d 1189, ____ (11th Cir.
2013) (page citations unavailable), the presumption here is persuasive. Indeed, we
have concluded that the totality of the circumstances test and the means test are not
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completely co-extensive. See In re Witcher, 702 F.3d at 623 (explaining that one’s
ability to pay debts is a factor under the means test does not preclude a bankruptcy
court from also considering it under the totality of the circumstances analysis).
We are not persuaded by Mrs. Kulakowski’s argument that the “specific and
detailed” provisions of § 707(b)(2) pertaining to “current monthly income”
overcome and subsume the broad and general language of § 707(b)(3)(b).
“Although specific statutory provisions often trump more general ones, this
presumption is not an absolute rule. Rather, the general/specific canon is simply
an indication of statutory meaning that can be overcome by textual indications that
point in the other direction.” In re Piazza, 719 F.3d at 1267 (quotation marks
omitted). Few if any tests are as open-ended as the totality of the circumstances.
The inherent flexibility and wide breadth of the totality of the circumstances
inquiry, coupled with Congress’ decision not to include “current monthly income”
as an explicit limiting factor under § 707(b)(3)(b), constitute sufficient textual
evidence to overcome the general/specific canon. See Owusu-Ansah v. Coca-Cola
Co., 715 F.3d 1306, 1312 (11th Cir. 2013) (“[C]ommon sense is not irrelevant in
construing statutes[.]”). We cannot gainsay the language of § 707(b)(3)(B) and
add words that Congress chose to omit such that the totality of the circumstances
inquiry would be limited to consideration of a debtor’s “current monthly income.”
See Harris v. Garner, 216 F.3d 970, 976 (11th Cir. 2000) (“We will not do to the
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statutory language what Congress did not do with it, because the role of the judicial
branch is to apply statutory language, not to rewrite it.”).
IV
Having rejected Mrs. Kulakowski’s statutory-interpretation arguments, we
turn to factual and equitable considerations. As we and other circuits have long
observed, “[t]he cornerstone of the bankruptcy courts has always been the doing of
equity.” In re Waldron, 785 F.2d 936, 941 (11th Cir. 1986). Accord In re Am.
Capital Equip., LLC, 688 F.3d 145, 157 (3d Cir. 2012) (underscoring the
Bankruptcy Code’s objective of “achieving fundamental fairness and justice”); In
re Marrama, 430 F.3d 474, 477 (1st Cir. 2005) (“[A] bankruptcy court sitting in
equity is duty bound to take all reasonable steps to prevent a debtor from abusing
or manipulating the bankruptcy process to undermine the essential purposes of the
Bankruptcy Code, including the principle that all the debtor’s assets are to be
gathered and deployed in a bona fide effort to satisfy valid claims.”); In re Beck
Indus., Inc., 605 F.2d 624, 634 (2d Cir. 1979) (Friendly, J.) (“We need not belabor
the point that a bankruptcy court sits as a court of equity[.]”). It follows that both
Chapter 7 of the Code and § 707(b) should be applied with the aim of effectuating
justness and equity. See In re Mottilla, 306 B.R. at 788.
The Kulakowskis have been married for 21 years, share a joint checking
account, file joint tax returns, jointly own their homestead, and pool their income
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and expenses. And, significantly, Mrs. Kulakowski incurred credit card debt
during her marriage stemming in large part from charges that benefited the
household generally and her husband specifically. Viewing this set of facts in the
aggregate, we cannot say that the bankruptcy court, which analyzed the record
under the broad framework of the totality of the circumstances test, abused its
discretion in dismissing Mrs. Kulakowski’s Chapter 7 petition. See In re Piazza,
719 F.3d at 1271 (underscoring the “inherently discretionary nature” of the totality
of the circumstances test for determining bad faith under 11 U.S.C. § 707(a)). See
also In re Rasbury, 24 F.3d 159, 168 (11th Cir. 1994) (“the abuse of discretion
standard allows ‘a range of choice for the . . . court, so long as that choice does not
constitute a clear error of judgment’”).
Although we sympathize with Mrs. Kulakowski’s perception that the
bankruptcy court paternalistically penalized her for having a wealthy husband, we
also recognize the bankruptcy court’s overriding mandate to effectuate fairness and
justice in applying the Bankruptcy Code. See In re Waldron, 785 F.2d at 941. The
bankruptcy court did not abuse its discretion in finding that it would be inequitable
to disregard the income of Mr. Kulakowski, income which traditionally directly
benefited Mrs. Kulakowski or indirectly benefited her by enriching her household,
and which might instead just as readily serve to repay her creditors. Nor would
fairness have been served by ignoring the fact that a substantial part of Mrs.
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Kulakowski’s debt benefitted her husband or her household at large. The
bankruptcy court could reasonably conclude that allowing a bankruptcy to proceed
under these facts could have created a de facto windfall for Mrs. Kulakowski at the
expense of her creditors, a result that would run counter to the principles of equity
and justness that underlie the Bankruptcy Code.
V
We conclude by emphasizing that our ruling is limited to the particular set of
facts before us and our review of the bankruptcy court’s ruling through the prism
of the highly deferential abuse of discretion standard. We do not opine on how
much weight, if any, a non-debtor’s spouse’s income should generally carry in a
bankruptcy court’s § 707(b)(3)(B) analysis, nor do we suggest that a bankruptcy
court’s discretion in applying this provision is unlimited.
Given the nature of Mrs. Kulakowski’s debt and the financial relationship
between the Kulakowskis, however, we hold that the bankruptcy court did not
abuse its discretion in applying the totality of the circumstances test. The
bankruptcy court’s dismissal of Mrs. Kulakowski’s Chapter 7 bankruptcy petition
is affirmed.
AFFIRMED.
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