Marjorie Lynch v. Gabriel Jackson , 853 F.3d 116 ( 2017 )

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.
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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.
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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
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[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.
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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.
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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
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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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