California Franchise Tax Board v. Kendall (In Re Jones) , 657 F.3d 921 ( 2011 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: BRENDA MARIE JONES, 
Debtor,
CALIFORNIA FRANCHISE TAX BOARD, No. 10-60000
Appellant,
v.  BAP No.
09-1145
JOHN T. KENDALL, Trustee; UNITED OPINION
STATES TRUSTEE, Oakland,
Appellees,
BRENDA MARIE JONES,
Debtor-Appellee.

Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Baum, Dunn, and Jury, Bankruptcy Judges, Presiding
Argued and Submitted
December 7, 2010—San Francisco, California
Filed July 12, 2011
Before: Dorothy W. Nelson, M. Margaret McKeown, and
Ronald M. Gould,1 Circuit Judges.
Opinion by Judge McKeown
1
Judge Gould was drawn to replace Judge Thompson on this panel after
Judge Thompson’s death.
9379
9382 IN RE: JONES
COUNSEL
Edmund G. Brown, Joyce E. Hee, David Lew (argued), Office
of the Attorney General, Oakland, California, for the appel-
lant.
Max Cline, Melanie Tavare (argued), Oakland, California, for
the debtors-appellees.
OPINION
McKEOWN, Circuit Judge:
At issue in this bankruptcy appeal is a tax debt owed by
Brenda Marie Jones (“Jones”) to the California Franchise Tax
IN RE: JONES 9383
Board (“FTB”). The bankruptcy court and the Bankruptcy
Appellate Panel (“BAP”) found that the debt was not
excepted from discharge in Jones’s Chapter 7 bankruptcy pro-
ceeding. Although debts arising before a discharge order in a
Chapter 7 proceeding are generally discharged, certain tax
debts are excepted. See 11 U.S.C. § 727(b); see also id.§§ 523(a)(1)(A), 507(a)(8). A statute of limitations, known as
the “three-year lookback period,” carves out tax debts arising
from a taxable year ending on or before the bankruptcy peti-
tion is filed and for which the return was last due no more
than three years before the petition is filed. Id. § 507(a)(8)(A);
see Young v. United States, 535 U.S. 43, 46 (2002).
Because Jones’s tax debt arose more than three years
before she filed her Chapter 7 bankruptcy petition, it would
be discharged unless the lookback period was suspended by
statute. The lookback period is suspended by an unnumbered
paragraph in § 507(a)(8)2 (“the suspension provision”) when,
as relevant here, an automatic stay precludes the creditor from
collecting on the debt. The only automatic stay provisions
potentially at issue in this appeal are those that preclude credi-
tors from pursuing collection actions against the property of
a bankruptcy estate. See 11 U.S.C. §§ 362(a)(3), 362(a)(4).3
The FTB argues that, as a consequence of Jones’s prior Chap-
ter 13 bankruptcy case, the lookback period was suspended
and the tax debt not discharged. We are not persuaded.
When the bankruptcy court confirmed the Joneses’ Chapter
13 plan, the estate property revested in Jones and became
Jones’s property, thus lifting the applicable stay provisions.
See id. §§ 362(a)(3), 362(a)(4). Since this revesting occurred
before the tax debt came due, no stay precluded the FTB from
collecting on the debt under § 362. Consequently, the tax debt
2
Unless otherwise noted, statutory citations are to the Bankruptcy Code
and are located in Title 11 of the United States Code.
3
The parties do not argue that the other elements of the suspension pro-
vision or other subsections of § 362(a) are at issue here.
9384 IN RE: JONES
was not excepted from the Chapter 7 discharge, and the prin-
ciples of equitable tolling do not apply to extend the lookback
period as the FTB was neither precluded from collecting on
the tax debt nor did it actively try to protect its claim. We hold
the debt was discharged and affirm the BAP.
I. BACKGROUND
Jones and her husband filed a joint voluntary Chapter 13
bankruptcy petition in July 2002. The act of filing the petition
created a bankruptcy estate and imposed an automatic stay on
creditor collection activities against property of the estate. See
11 U.S.C. §§ 541, 362(a). The bankruptcy court confirmed the
Joneses’ plan in September 2002. The Joneses filed their joint
income tax return for the year 2002 in October 2003, pursuant
to an extension, but they did not pay the approximately
$6,000 they owed in reported taxes. The bankruptcy court dis-
missed the Joneses’ Chapter 13 proceeding in September
2006.
Thirteen months later, in October 2007, Jones, but not her
husband, filed a voluntary Chapter 7 bankruptcy petition. She
received a discharge of her existing debts, which would
include the tax debt unless it was otherwise excepted, in Janu-
ary 2008. See id. § 727(b). Because the Joneses’ tax return
was due more than three years before Jones filed her Chapter
7 petition, the debt is discharged unless the statutory suspen-
sion provision or equitable tolling apply to extend the look-
back period. See id. § 507(a)(8)(A).
In 2009, the FTB successfully moved to reopen Jones’s
Chapter 7 case before the bankruptcy court and requested a
determination that the tax debt was excepted from discharge.
The bankruptcy court ruled in favor of Jones, holding that nei-
ther the Joneses’ confirmed Chapter 13 plan nor the automatic
stay in place during the Chapter 13 proceeding prevented the
FTB from collecting the debt from Jones when the tax came
due. The BAP affirmed, holding that the three-year lookback
IN RE: JONES 9385
period was not suspended because the suspension provision,
the unnumbered paragraph in § 507(a)(8), applied only to the
lookback period of Jones’s prior Chapter 13 case, and equita-
ble tolling did not apply.
We review de novo both the decision of the BAP and the
legal conclusions of the bankruptcy court. Brawders v. Cnty.
of Ventura (In re Brawders), 503 F.3d 856, 859 n.1 (9th Cir.
2007); Miller v. United States, 363 F.3d 999, 1004 (9th Cir.
2004) (“The issue of dischargeability of a debt is a mixed
question of fact and law that is reviewed de novo.” (citation
omitted)). Although we affirm the BAP’s result, we rely on
different grounds. See Leavitt v. Soto (In re Leavitt), 171 F.3d
1219, 1223 (9th Cir. 1999) (stating that we may affirm on any
ground supported by the record).
II. ANALYSIS
A. THE THREE-YEAR LOOKBACK PERIOD IS DEFINED WITH
RESPECT TO JONES’S CHAPTER 7 PETITION.
[1] We begin with the basic proposition that the debt is dis-
charged unless excepted, because the debt came due before
the bankruptcy court ordered Jones’s debts discharged. See 11
U.S.C. § 727(b). Importantly, however, one exception to a
§ 727 discharge is a tax debt as defined in § 507(a)(8).4 Id.
§ 523(a)(1)(A). Subsection 507(a)(8)(A)(i) in turn excepts a
tax debt from discharge
only to the extent that such claims are for—
4
The FTB also claims that the penalty associated with the Joneses’ non-
payment of the 2002 income tax should not be discharged. The penalties
associated with the tax debt are addressed under § 507(a)(8)(G). The anal-
ysis as to their discharge parallels that for the debt, such that if the tax is
discharged, the penalties are as well. For simplicity, we discuss only the
tax debt.
9386 IN RE: JONES
(A) a tax on or measured by income or gross
receipts for a taxable year ending on or before the
date of the filing of the petition—
(i) for which a return, if required, is last due,
including extensions, after three years before the
date of the filing of the petition[.]
Emphasis added.
[2] This latter requirement, the three-year lookback period,
functions as a statute of limitations. Young, 535 U.S. at 46-47.
Section 507(a)(8)(A)(i) defines the three-year lookback period
with respect to “the petition” (emphasis added). The statute
does not refer simply to “a” or “any” petition under the title,
as the FTB would have us read the statute. Instead, the plain
language refers to “the petition” (emphasis added), meaning,
in this case, the Chapter 7 petition. See Maney v. Kagenveama
(In re Kagenveama), 541 F.3d 868, 872 (9th Cir. 2008)
(“Where statutory 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.’ ” (quoting
Lamie v. United States Tr., 540 U.S. 526, 534 (2004)), abro-
gated on other grounds by Hamilton v. Lanning, 130 S. Ct.
2464, 2478 (2010); see also United States v. Ron Pair Enters.,
Inc., 489 U.S. 235, 240-41 (1989) (“[A]s long as the statutory
scheme is coherent and consistent, there generally is no need
for a court to inquire beyond the plain language of the stat-
ute.”). Thus, the three-year lookback period defined in
§ 507(a)(8)(A)(i) must be the period preceding Jones’s Chap-
ter 7 petition—that is, October 2004 through October 2007.
[3] As the debt came due in 2003, outside the three-year
lookback period in Jones’s Chapter 7 case, it is discharged
unless we determine that statutory suspension or equitable
tolling apply to extend the lookback period to encompass the
2003 due date.
IN RE: JONES 9387
B. THE STATUTORY SUSPENSION PROVISION DOES NOT APPLY
TOJONES’S TAX DEBT.
1. Section 507(a)(8) suspends the lookback period
only where the creditor was specifically precluded
from collection.
Ultimately, this appeal turns on our interpretation of the
suspension provision, which provides that the three-year look-
back period
shall be suspended for any period during which a
governmental unit is prohibited under applicable
nonbankruptcy law from collecting a tax as a result
of a request by the debtor for a hearing and an appeal
of any collection action taken or proposed against
the debtor, plus 90 days; plus any time during which
the stay of proceedings was in effect in a prior case
under this title or during which collection was pre-
cluded by the existence of 1 or more confirmed plans
under this title, plus 90 days.
11 U.S.C. § 507(a)(8).
[4] The suspension provision contemplates three scenarios
in which the lookback period is suspended. By the plain lan-
guage of the statute, the first and third scenarios are limited
to periods in which the government was “prohibited . . . from
collecting a tax” and in which “collection was precluded by”
a confirmed bankruptcy plan. Id. Neither circumstance is
applicable. Instead, the second scenario is relevant here—
“any time during which the stay of proceedings was in effect
in a prior [bankruptcy] case.” Id. (emphasis added). The FTB
would have us read the statute to suspend the lookback period
when a stay is in place against any creditor; Jones reads the
statute narrowly to suspend the lookback period only where
a stay precluding collection of this debt is in place. “Because
neither party’s reading of [the statute] is obviously correct, the
9388 IN RE: JONES
statute is ambiguous,” and we look to the legislative history
in deciphering its meaning. Barstow v. IRS (In re Bankr.
Estate of MarkAir, Inc.), 308 F.3d 1038, 1043 (9th Cir. 2002).
[5] In enacting the unnumbered paragraph of § 507(a)(8),
Congress intended to codify the rule established in Young.
H.R. REP. NO. 109-31, at 101 (2005), reprinted in 2005
U.S.C.C.A.N. 88, 165. In Young, the Supreme Court
addressed a situation in which the debtor’s pre-petition tax
debt came due more than three years before the filing of a
Chapter 7 petition. 535 U.S. at 45. The debtor had also filed
a Chapter 13 petition ten months before the Chapter 7 peti-
tion, which was dismissed one day before the debtor filed the
Chapter 7 petition. Id. The Court held that because the “auto-
matic stay under § 362 [during the Chapter 13 petition] . . .
prevented the [Internal Revenue Service (“IRS”)] from taking
steps to protect its claim,” the three-year lookback period was
equitably tolled for the length of the bankruptcy proceeding—
the time during which the IRS was precluded from collecting
the debt. Id. at 50. In so holding, the Court relied heavily on
the principles of equitable tolling and the fact that the IRS
was prohibited from collecting on the tax debt during a por-
tion of the three-year lookback period of the Chapter 7 peti-
tion. Id. at 50-51 (“[T]he IRS was disabled from protecting its
claim during the pendency of the Chapter 13 petition, and this
period of disability tolled the three-year lookback period
when the Youngs filed their Chapter 7 petition.”).
[6] Because Congress made clear its intent to codify Young
in enacting the suspension provision, we must give effect to
that intent in interpreting the statute. Further, as the Court
noted in Young, “Congress must be presumed to draft limita-
tions periods in light of” equitable tolling principles which
generally apply to statutes of limitations. Id. at 49-50. Those
equitable tolling principles are, in turn, applied “only sparing-
ly” and generally in situations in which a party was precluded
by some obstacle from acting within the limitations period.
See Irwin v. Dep’t of Veterans Affairs, 498 U.S. 89, 96
IN RE: JONES 9389
(1990). We conclude that the suspension provision applies
here only if the FTB was precluded from collecting the debt
by a stay of proceedings in Jones’s prior case.
2. The FTB was not precluded from collecting on
the debt during the three-year lookback period
and therefore does not benefit from the statutory
suspension provision.
The next question is whether the FTB was precluded from
collecting on Jones’s debt by an automatic stay provision
under § 362(a) such that the lookback period was statutorily
suspended. Two automatic stay provisions are potentially rel-
evant, and both preclude creditors from collecting post-
petition debts from the bankruptcy estate. See 11 U.S.C.
§§ 362(a)(3), 362(a)(4); see also id. § 541(a). For post-
petition creditors, the stay of collection from property of the
estate remains in effect “until such property is no longer prop-
erty of the estate.” Id. § 362(c)(1). Section 362(a) does not
stay collection activities by post-petition creditors against
property of the debtor. See Severo v. Comm’r, 586 F.3d 1213,
1216 (9th Cir. 2009) (“An act against the property of the
bankruptcy estate is stayed until it is no longer part of the
estate[.]”). To decide whether the FTB was precluded from
collecting on the debt during the Chapter 13 bankruptcy pro-
ceeding, we must determine whether Jones had property out-
side of the bankruptcy estate from which the FTB could
collect the tax debt.
[7] Property of the bankruptcy estate is defined by
§ 1306(a)(1), which provides, in relevant part:
(a) Property of the estate includes, in addition to the
property specified in section 541 of this title—
(1) all property of the kind specified in such sec-
tion that the debtor acquires after the commencement
of the case but before the case is closed, dismissed,
9390 IN RE: JONES
or converted to a case under Chapter 7, or 11, or 12
of this title, whichever occurs first[.]
Read in conjunction with § 541, § 1306 implies that all prop-
erty held before the filing of the petition—as well as all prop-
erty acquired between the Chapter 13 petition filing date and
the date the case is closed, dismissed, or converted—is prop-
erty of the estate.
[8] Our inquiry would end there, and we would conclude
that there was an automatic stay in place which precluded the
FTB from collecting on the debt until the Joneses’ Chapter 13
case closed, if not for § 1327(b), which provides:
Except as otherwise provided in the plan or the order
confirming the plan, the confirmation of a plan vests
all of the property of the estate in the debtor.
Under § 1327(b), property of the estate revests in the debtor
upon confirmation of a Chapter 13 plan, but § 1306(a)(1) does
not include confirmation of the plan as one of the events
defining the time period in which property acquired by the
debtor becomes estate property. We have not had occasion to
address the interplay between §§ 1306(a) and 1327(b). As the
First Circuit has noted in harmonizing the two sections, “the
status of the property of the estate after the confirmation of a
Chapter 13 plan is a controversial issue.” Barbosa v. Solomon,
235 F.3d 31, 36 (1st Cir. 2000). It is our task, however, to
give meaning to each of these sections. See Dumont v. Ford
Motor Credit Co. (In re Dumont), 581 F.3d 1104, 1111 (9th
Cir. 2009) (“[A] statute ought, upon the whole, to be so con-
strued that, if it can be prevented, no clause, sentence, or word
shall be superfluous[.]” (internal quotation marks and citation
omitted)).
The bankruptcy courts and other circuits have developed
four approaches to harmonizing these sections and determin-
ing whether and to what extent property of the estate revests
IN RE: JONES 9391
in the debtor at plan confirmation. Three of the approaches
are based on the principle that property of the estate revests
in the debtor upon plan confirmation, unless the plan provides
otherwise. These approaches are known as the modified estate
preservation, estate transformation, and estate termination
approaches. Under the modified estate preservation approach,
estate property vests in the debtor upon plan confirmation, but
property acquired after confirmation becomes property of the
estate pursuant to § 1306(a). See Barbosa, 235 F.3d at 36-37.
The estate transformation approach holds that § 1327(b) vests
estate property in the debtor upon confirmation, retaining
estate property only to the extent necessary to carry out the
plan. See Telfair v. First Union Mortg. Corp., 216 F.3d 1333,
1339-40 (11th Cir. 2000); Black v. U.S. Postal Serv. (In re
Heath), 115 F.3d 521, 524 (7th Cir. 1997). Finally, the estate
termination approach, adopted by the bankruptcy court and
the BAP in this case, holds that § 1327(b) revests all property
of the estate in the debtor upon plan confirmation, and any
property acquired after confirmation likewise vests in the
debtor unless the plan or confirmation provides otherwise. See
In re Petruccelli, 113 B.R. 5, 15 (Bankr. S.D. Cal. 1990).
Under any one of these approaches, estate property would
have vested in Jones at plan confirmation, and that property
would not have been subject to an automatic stay. See 11
U.S.C. §§ 362(a)(3), 362(a)(4).
The fourth approach, known as the estate preservation
approach, holds that although property of the estate “vests” in
the debtor upon plan confirmation under § 1327(b), the prop-
erty does not become property of the debtor. Instead, the
estate remains fully intact and protected by the automatic stay
until the case is closed, dismissed, or converted. See In re
Aneiro, 72 B.R. 424, 429 (Bankr. S.D. Cal. 1987). No circuit
has adopted the estate preservation approach, and we affirma-
tively decline to do so here. Although the BAP in this case
read the Eighth Circuit’s decision in Sec. Bank of Marshall-
town, Iowa v. Neiman, 1 F.3d 687 (8th Cir. 1993), as adopting
the estate preservation approach, we read it to provide only
9392 IN RE: JONES
that the Chapter 13 estate continues to exist post-
confirmation. Id. at 689 (“The only issue before this court is
whether the Chapter 13 estate existed after confirmation of
the Chapter 13 plan[.]”). Significantly, Neiman explicitly
noted that “[t]he estate can continue to exist as a legal entity
after confirmation even if it holds no property.” Id. at 690(emphasis added).
[9] Resolution of this case does not require us to adopt one
of the other specific approaches. Regardless of whether and
to what extent the estate continues as a legal entity post-
confirmation, we hold that, at the very least, some estate prop-
erty revests in the debtor at confirmation. This interpretation
gives meaning to § 1327(b), which provides that the estate
property vests in the debtor upon confirmation unless pro-
vided otherwise in the plan. 11 U.S.C. § 1327(b). The statute
does not define the term “vests,” but “[w]hen terms used in
a statute are undefined, we give them their ordinary mean-
ing.” Hamilton, 130 S. Ct. at 2471 (internal quotation marks
and citation omitted). The common definition of vest is “[t]o
confer ownership (of property) upon a person” and “[t]o
invest (a person) with the full title to property.” BLACK’S LAW
DICTIONARY (9th ed. 2009).5
[10] In sum, we hold that under the plain language of
§ 1327(b), the property of the estate revests in the debtor upon
plan confirmation, unless the debtor elects otherwise in the
plan. Because Jones did not elect otherwise, she once again
became the owner of her property at confirmation, except as
to those sums specifically dedicated to fulfillment of the plan.
Accordingly, the FTB was not precluded from collecting the
post-petition tax debt from property that revested in Jones
5
This is consistent with our prior holding that “revesting” in § 349(b)(3)
means “ ‘to restore all property rights to the position in which they were
found at the commencement of the case.’ ” In re Nash, 765 F.2d 1410,
1414 (9th Cir. 1985) (quoting S. REP. NO. 95-989 (1978), reprinted in
1978 U.S.C.C.A.N. 5787, 5835).
IN RE: JONES 9393
upon plan confirmation. See 11 U.S.C. § 362(c)(1). Since the
tax debt arose after plan confirmation, the FTB could have
collected on the debt during the gap period between the due
date of the debt and the second bankruptcy filing, and the
lookback period is not statutorily suspended. See id.§ 507(a)(8).
C. EQUITABLE TOLLING DOES NOT APPLY.
[11] Because the FTB could have collected on the debt at
any time after the tax came due, the principles of Young do
not apply in this case, and we will not equitably toll the look-
back period. The debt is accordingly discharged. Cf. Young,
535 U.S. at 50 (tolling the lookback period where “the IRS
was disabled from protecting its claim during the pendency of
the Chapter 13 petition”).
The FTB argues that the unresolved issue of how to inter-
pret §§ 1306(a) and 1327(b) effectively precluded it from
attempting collection and therefore weighs in favor of equita-
ble tolling. Any uncertainty in the statutes did not impede the
FTB’s other options. For example, the FTB could have sought
relief from the stay under § 362 or moved to dismiss the
Joneses’ case for failure to pay post-petition taxes. As the
bankruptcy court noted here, no court has imposed sanctions
on a party attempting to determine the viability of its claim
using either of these means.
[12] It also bears noting that the FTB had more than one
year after the dismissal of the Joneses’ Chapter 13 case during
which it could have collected on the debt without any fear
whatsoever of sanctions.6 Instead, the FTB did not take any
action to protect its claim until 2009, six years after the debt
arose. This inaction creates the appearance that, rather than
exercising caution in light of uncertainty, the FTB simply did
6
The bankruptcy court dismissed the Chapter 13 case in September
2006, and Jones did not file her Chapter 7 petition until October 2007.
9394 IN RE: JONES
not pursue its claim until the opportunity to do so had passed.
Equitable tolling is not appropriate where a party takes no
timely step to preserve its claim and, in fact, faces no prohibi-
tion on asserting its claim during the limitations period. See
Young, 535 U.S. at 47 (noting that the policies underlying
statutes of limitations include the elimination of stale claims
and a guarantee of certainty for both parties regarding their
rights and potential liabilities).
AFFIRMED.