In re: Amanda Kay Renteria

FILED
MAY 04 2012
1
SUSAN M SPRAUL, CLERK
2 ORDERED PUBLISHED U.S. BKCY. APP. PANEL
O F TH E N IN TH C IR C U IT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5
6 In re: ) BAP No. EC-11-1502-MkPaD
)
7 AMANDA KAY RENTERIA, ) Bk. No. 11-10636
)
8 Debtor. )
______________________________)
9 )
MICHAEL HUGH MEYER, )
10 )
Appellant, )
11 )
v. ) OPINION
12 )
AMANDA KAY RENTERIA, )
13 )
Appellee. )
14 ______________________________)
15
16 Argued and Submitted on March 22, 2012
at Sacramento, California
17
Filed - May 4, 2012
18
Appeal from the United States Bankruptcy Court
19 for the Eastern District of California
20 Honorable W. Richard Lee, Bankruptcy Judge, Presiding
21
22 Appearances: Appellant Michael Hugh Meyer argued on his own
behalf; Geoffrey Michael Adalian of the Adalian Law Office argued
23 on behalf of Appellee Amanda Kay Renteria.
24
25
26 Before: MARKELL, PAPPAS and DUNN, Bankruptcy Judges.
27
28
1 MARKELL, Bankruptcy Judge:
2
3 INTRODUCTION
4 Michael H. Meyer, chapter 131 trustee (“Trustee”), appeals
5 the bankruptcy court’s order confirming the plan of debtor Amanda
6 K. Renteria (“Renteria”). The Trustee objected to the plan
7 because the plan separately classified and proposed to pay in
8 full, with 10% interest, one unsecured claim. That claim was a
9 consumer debt guaranteed by Renteria’s mother.
10 Renteria was less generous with her other debts; her plan
11 proposed to pay little or nothing on account of any other
12 unsecured claims. The court overruled the Trustee’s objection,
13 and confirmed the plan in an opinion appearing at In re Renteria,
14 456 B.R. 444 (Bankr. E.D. Cal. 2011). We AFFIRM.
15 FACTS
16 The facts are not disputed. Renteria commenced her chapter
17 13 bankruptcy case on January 20, 2011. According to her
18 bankruptcy schedules, she owed in aggregate roughly $100,000 in
19 unsecured claims, which included approximately $20,000 she owed
20 to her former attorney James Preston (“Preston”). In her
21 proposed chapter 13 plan, she classified Preston’s unsecured
22 claim separately from all of her other unsecured claims.
23 Renteria’s plan used this separate classification to pay
24 Preston’s claim in full, with 10% interest. Other unsecured
25 creditors, however, were to get nothing; the plan proposed to pay
26 a 0% dividend.
27
28 1
Unless specified otherwise, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2
1 In supporting her plan, Renteria explained that she
2 preferred Preston over all other unsecured creditors because her
3 mother, Nellie Reser (“Reser”), was a codebtor on the debt owed
4 to Preston. The plan stated:
5 The claim of James Preston is for services provided to
Debtor. Her mother is jointly liable for this debt.
6 Mr. Preston filed suit against Debtor and her mother in
the Superior Court of California, Tulare County.
7 According to the case management statement filed
December 23, 2010 by plaintiff, default was entered
8 against Debtor’s mother.
9 Chapter 13 Plan (Jan. 20, 2011) at p. 7.
10 The Trustee objected to Renteria’s plan. The Trustee argued
11 that the preferential treatment of Preston’s claim was
12 impermissible and constituted unfair discrimination. The
13 Trustee’s argument tracked the unfair discrimination test this
14 panel first adopted in Amfac Distrib. Corp. v. Wolff (In re
15 Wolff), 22 B.R. 510, 512 (9th Cir. BAP 1982).2 According to the
16 Trustee, any personal obligation that Renteria felt she owed to
17 protect Reser from Preston’s collection activities was an
18 insufficient basis for the proposed separate classification and
19 resulting discrimination. The Trustee further asserted that
20 Renteria was financially capable of carrying out a plan without
21
22 2
The Wolff test is:
23
(1) whether the discrimination has a reasonable basis;
24 (2) whether the debtor can carry out a plan without the
discrimination; (3) whether the discrimination is
25 proposed in good faith; and (4) whether the degree of
26 discrimination is directly related to the basis or
rationale for the discrimination. Restating the last
27 element, does the basis for the discrimination demand
that this degree of differential treatment be imposed?
28
Id.3
1 preferring Preston and that the degree of discrimination in favor
2 of Preston exceeded the asserted basis for the discrimination,
3 because Preston would be paid in full, with interest, whereas all
4 other unsecured creditors would receive nothing. On the other
5 hand, the Trustee conceded that Renteria’s preferential treatment
6 of Preston (and indeed her entire plan) was proposed in good
7 faith consistent with § 1325(a)(3).3
8 In response to the Trustee’s objection, Renteria argued that
9 her preferential treatment of Preston’s claim was not subject to
10 the good faith portion of Wolff’s test. According to Renteria,
11 Wolff was decided in 1982, before the Bankruptcy Amendments and
12 Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 33313 (1984) (BAFJA), amended the Bankruptcy Code to exempt the
14 preferential treatment of codebtor consumer claims from the
15 unfair discrimination test. In the alternative, Renteria argued
16 that, even if codebtor consumer claims were not wholly exempt
17 from the unfair discrimination test, her proposed plan satisfied
18 that test.
19 Renteria filed a declaration in support of her response
20 elaborating on the nature of the debt she owed to Preston and
21 Reser’s status as a guarantor of that debt. Renteria explained
22 that she retained Preston to prosecute family law litigation on
23 her behalf for domestic violence and paternity. According to
24 Renteria, she enlisted the help of her mother, Reser, who
25 guaranteed in writing Renteria’s payment of attorneys’ fees and
26
3
27 As stated in the Trustee’s Opening Brief to this panel,
“The Trustee objected to confirmation of Debtor’s proposed
28 Chapter 13 plan on one ground; Debtor’s plan did not comply with
11 U.S.C. § 1322(b)(1).”
4
1 expenses in order to induce Preston to represent Renteria. As
2 Renteria put it, she would not have been able to prosecute her
3 family law litigation in a competent manner without her mother’s
4 help in retaining Preston.
5 Renteria further represented that she could not afford to
6 both pay off Preston in full, with interest, and pay more to her
7 other unsecured creditors.4 She also pointed out that she had no
8 non-exempt assets, so her other unsecured creditors were no worse
9 off under her chapter 13 plan than they would have been if she
10 had filed a chapter 7 bankruptcy case.
11 In its opinion on confirmation, In re Renteria, 456 B.R. 44412 (Bankr. E.D. Cal. 2011), the bankruptcy court overruled the
13 Trustee’s objection and confirmed Renteria’s plan. The
14 bankruptcy court held that a plan provision calling for the
15 separate classification and preferential treatment of a codebtor
16 consumer claim is not subject to § 1322(b)(1)’s prohibition
17 against unfair discrimination. According to the bankruptcy
18 court, the plain language of that section, as amended by BAFJA,
19 unambiguously exempted codebtor consumer claims from the unfair
20 discrimination rule. Id. at 448-49.
21 The bankruptcy court thereafter entered an order confirming
22
23
4
Renteria’s declaration also indicated that she had agreed
24 at her § 341(a) meeting of creditors to increase her plan
payments by an additional $7,196.06 over the three-year life of
25 her plan. At oral argument, we were informed that the source of
26 this increase was Renteria’s scheduled pay off of an installment
loan during the plan; the funds that had been committed to the
27 loan would now be committed to the plan. These increased plan
payments ultimately might cause the general unsecured creditors
28 to receive a small dividend from this case, but nothing in the
record enables this panel to quantify that dividend.
5
1 Renteria’s plan, and the Trustee timely appealed.5
2 DISCUSSION
3 This appeal requires us to interpret § 1322(b)(1) of the
4 Bankruptcy Code. Review of a bankruptcy court’s interpretation
5 of the Bankruptcy Code is de novo. Consol. Freightways Corp. of
6 Del. v. Aetna, Inc. (In re Consol. Freightways Corp. of Del.),
7 564 F.3d 1161, 1164 (9th Cir. 2009).
8 Section 1322 addresses the permissible and required contents
9 of a chapter 13 plan. In pertinent part, § 1322(b)(1) permits a
10 debtor’s plan to designate more than one class of unsecured
11 claims, provided that the separate classification (and differing
12 treatment) of claims meets certain criteria:
13 (b) Subject to subsections (a) and (c) of this section,
the plan may--
14
(1) designate a class or classes of unsecured
15 claims, as provided in section 1122 of this title,
but may not discriminate unfairly against any
16 class so designated; however, such plan may treat
claims for a consumer debt of the debtor if an
17 individual is liable on such consumer debt with
the debtor differently than other unsecured claims
18 . . . .
19 Prior to 1984, § 1322(b)(1) ended with the words “so
20 designated.” But BAFJA, enacted in 1984, amended § 1322(b)(1) to
21 add the clause beginning with “however,” which frequently is
22 referred to as the “however clause.” Pub. L. 98-353, § 316, 98
23 Stat. 333; see, e.g., Meyer v. Hill (In re Hill), 268 B.R. 548,
24 550 (9th Cir. BAP 2001) (referring to this clause as the “however
25 clause”).
26
27
5
The bankruptcy court had jurisdiction under 28 U.S.C.
28 §§ 1334 and 157(b)(2)(L), and we have jurisdiction under 28
U.S.C. § 158.
6
1 The “however clause” has been the subject of a significant
2 amount of debate. Neither courts nor commentators have agreed on
3 precisely what Congress intended to accomplish by adding the
4 “however clause” to § 1322(b)(1). As this panel explained in
5 Hill, the “however clause”
6 has perplexed and divided courts as to whether it
obviates, or merely qualifies, the fairness
7 requirement. Most courts hold that separately
classified co-obligor debts must still clear the
8 § 1322(b)(1) unfair discrimination hurdle. The
consequence is that the “however” clause permitting
9 co-obligor debts to be treated “differently” is more in
the nature of a qualification to the application of the
10 unfair discrimination analysis than an exemption from
it. A minority of courts . . . conclude that the
11 “however” clause excuses compliance with the
§ 1322(b)(1) ban on unfair discrimination.
12
13 Id. at 551 (citations and paragraph structure omitted).
14 The minority courts, like the bankruptcy court here, have
15 held that the “however clause” is plain and unambiguous; that is,
16 it clearly carves out codebtor consumer claims from the
17 requirements of the unfair discrimination rule. See, e.g., In re
18 Hill, 255 B.R. 579, 580 (Bankr. N.D. Cal. 2000), rev’d on other
19 grounds, In re Hill, 268 B.R. at 550; In re Dornon, 103 B.R. 61,
20 64 (Bankr. N.D.N.Y. 1989). These cases emphasize the placement
21 of the “however clause” immediately following the unfair
22 discrimination rule. In essence, these cases apply the “rule of
23 the last antecedent.” According to that rule, “[r]eferential and
24 qualifying words and phrases, where no contrary intention
25 appears, refer solely to the last antecedent.” See 2A Norman J.
26 Singer, SUTHERLAND ON STATUTORY CONSTRUCTION § 47.33 (7th ed. 2011).
27 But the rule of the last antecedent is flexible and not
28 universally binding. See id. As the Supreme Court recently
7
1 explained, “this rule is not absolute and can assuredly be
2 overcome by other indicia of meaning . . . .” Barnhart v.
3 Thomas, 540 U.S. 20, 26 (2003).
4 More importantly, the plain meaning adherents tend to ignore
5 or discount the distinctive language used in the unfair
6 discrimination rule and in the “however clause.” Specifically,
7 the former refers to “unfair discrimination” whereas the latter
8 refers to “different treatment.” This difference in language
9 arguably suggests that Congress intended something other than to
10 completely exempt codebtor consumer claims from the unfair
11 discrimination rule. A majority of courts examining the meaning
12 of the “however clause” have emphasized this language difference,
13 See, e.g., In re Battista, 180 B.R. 355, 357 (Bankr. D.N.H.
14 1995); Nelson v. Easley (In re Easley), 72 B.R. 948, 955-56
15 (Bankr. M.D. Tenn. 1987). In doing so, these majority courts,
16 like Battista and Easley, have either explicitly or implicitly
17 invoked a different rule of statutory construction: “when
18 [Congress] uses certain language in one part of the statute and
19 different language in another, the court assumes different
20 meanings were intended.” 2A SUTHERLAND ON STATUTORY CONSTRUCTION ,
21 supra, § 46.6.
22 But this rule of construction is no more absolute than the
23 last antecedent rule. See Sosa v. Alvarez-Machain, 542 U.S. 692,
24 712 n.9 (2004) (referring to rule giving different words used in
25 a statute different meanings as the “usual rule”); see generally
26 Chickasaw Nation v. United States, 534 U.S. 84, 94 (2001)
27 (stating that canons of construction are non-binding aids to
28 statutory interpretation).
8
1 Courts emphasizing the language difference between the
2 unfair discrimination rule and the “however clause” tend to
3 conclude that the “however clause” was not meant to wholly exempt
4 codebtor consumer claims from the unfair discrimination rule.
5 See Keith M. Lundin & William H. Brown, CHAPTER 13 BANKRUPTCY , 4TH
6 EDITION, www.ch13online.com, § 150.1, at ¶ [3] & n.3 (Rev. Apr.
7 14, 2009)(collecting cases).(collecting cases). Many of these
8 cases further point out that, if Congress intended to wholly
9 exempt codebtor consumer claims from the unfair discrimination
10 requirement, they easily could have done so by using more
11 straightforward language. See, e.g., In re Applegarth, 221 B.R.
12 914, 916 (Bankr. M.D. Fla. 1998); In re Battista, 180 B.R. at13 357; see also CHAPTER 13 BANKRUPTCY , supra, 150.1, at ¶ [26] (“The
14 Code could have said that all separate classifications of co-
15 signed claims are permitted if Congress intended that the
16 existence of a cosigner justified all different treatments.
17 Because the statute does not say that, it is fair to infer that
18 some justification is required.”).
19 Some of these courts have taken this argument too far, to
20 the point of rendering the “however clause” meaningless, by
21 giving the clause no effect whatsoever. See, e.g., In re
22 Strausser, 206 B.R. 58, 59–60 (Bankr. W.D.N.Y. 1997); In re
23 Easley, 72 B.R. at 955-56. These cases, however, are
24 inconsistent with one of the most basic and venerable canons of
25 statutory construction: “[a] statute should be construed so that
26 effect is given to all its provisions, so that no part will be
27 inoperative or superfluous, void or insignificant. . . .” Corley
28 v. United States, 556 U.S. 303, 314 (2009) (citations and
9
1 internal quotation marks omitted); see also 2A SUTHERLAND ON
2 STATUTORY CONSTRUCTION , supra, § 46.6 (“It is an elementary rule of
3 construction that effect must be given, if possible, to every
4 word, clause and sentence of a statute.”). The violation of this
5 canon is particularly odd here, because Congress separately added
6 the “however clause” to § 1322(b)(1) by amendment; we must
7 presume that Congress would not have added language to the
8 statute unless it intended the language to serve some purpose.
9 Other courts have taken a middle ground, essentially
10 concluding that the “however clause” was meant to limit the
11 unfair discrimination rule’s application to codebtor consumer
12 claims. See, e.g., Ramirez v. Bracher (In re Ramirez), 204 F.3d
13 595, 596 (5th Cir. 2000) (per curiam); Chacon v. Bracher (In re
14 Chacon), 202 F.3d 725, 726 (5th Cir. 1999); Spokane Ry. Credit
15 Union v. Gonzales (In re Gonzales), 172 B.R. 320, 328–30 (E.D.
16 Wash. 1994). But these “middle-ground” courts generally have
17 struggled to apply the unfair discrimination rule in a limited or
18 qualified manner. As one leading treatise put it, once these
19 courts have determined that codebtor consumer claims are not
20 wholly exempt from the unfair discrimination rule, they almost
21 always conclude that the proposed preferential treatment of the
22 codebtor consumer claim unfairly discriminates against the
23 debtor’s other unsecured creditors. CHAPTER 13 BANKRUPTCY , supra,
24 § 150.1, at ¶ [5]. In other words, even though the middle-ground
25 courts give lip service to the notion that the “however clause”
26 somehow limits or restricts the unfair discrimination rule’s
27 application to codebtor consumer claims, in practice the result
28 is virtually always the same as if Congress never had added the
10
1 “however clause” to the statute.6
2 At least one thing is clear to us from the above-referenced
3 differing interpretations and battling canons of construction:
4 courts have been unable to derive from the text of the statute a
5 plain and unambiguous meaning for the “however clause.”7
6 Accordingly, we turn to the legislative history to facilitate our
7 analysis.
8 By all accounts, the legislative history accompanying the
9 BAFJA amendments had nothing to say about § 1322(b)(1), the
10
6
11 One case, In re Thompson, 191 B.R. 967, 971-72 (Bankr.
S.D. Ga. 1996), attempts to fashion a new test designed to apply
12 the unfair discrimination rule in a limited manner. In light of
Congress’s addition of the “however clause” to § 1322(b)(1),
13 Thompson did not apply this panel’s Wolff test for ascertaining
unfair discrimination when considering the preferential treatment
14 of a codebtor consumer claim and instead adopted its own test
15 consisting of three questions: (1) whether the claim truly is a
codebtor consumer claim (see also In re Hill, 268 B.R. at 554
16 (holding that “however clause” did not apply to a claim when the
third party liable on that claim was not really the debtor’s
17 codebtor)); (2) whether the codebtor undertook the underlying
liability for the debtor’s benefit or vice-versa (see also In re
18
Gonzales, 172 B.R. at 329-30 (holding that preferential treatment
19 of co-signed claim was unfair when debtor co-signed debt for the
benefit of the codebtor)); and (3) whether the plan satisfies the
20 other requirements for plan confirmation, particularly the good
faith requirement under § 1325(a)(3). In re Thompson, 191 B.R.
21 at 971-72. We express no opinion as to whether we agree with
22 Thompson’s application of its own test, but we note that its test
may be of some future benefit to other courts struggling to apply
23 the unfair discrimination rule in a limited or qualified manner.
7
24 Indeed, two of the leading bankruptcy treatises, CHAPTER
13 BANKRUPTCY and COLLIER ON BANKRUPTCY , appear to favor differing
25 interpretations of the “however clause.” Compare CHAPTER 13
26 BANKRUPTCY, supra, § 150.1 (appearing to favor interpretation that
unfair discrimination rule still applies to codebtor consumer
27 claims), with 8 COLLIER ON BANKRUPTCY ¶ 1322.05[1] (Alan N. Resnick
and Henry J. Sommer eds., 16th ed. 2011) (appearing to favor
28 interpretation that “however clause” exempts codebtor consumer
claims from the unfair discrimination rule).
11
1 “however clause” or codebtor consumer claims. See, e.g., In re
2 Ramirez, 204 F.3d at 600 & n.10 (Benavides, J., concurring); In
3 re McKown, 227 B.R. 487, 491 (Bankr. N.D. Ohio 1998); In re
4 Dornon, 103 B.R. at 64. Nonetheless, these cases and many others
5 have turned to committee reports accompanying the Bankruptcy
6 Improvements Act of 1981 (“BIA”) and the Omnibus Bankruptcy
7 Improvements Act of 1983 (“OBIA”) – predecessor bills leading up
8 to the passage of the BAFJA amendments. These predecessor bills
9 contained proposed amendments to § 1322(b)(1) that were
10 sufficiently similar to the BAFJA amendments to shed light on
11 Congress’s motivation for adding the “however clause” to the
12 statute.8 Indeed, many of the cases we have cited above, as well
13 as COLLIER ON BANKRUPTCY , cite to and rely upon the Senate Report
14 accompanying the OBIA in interpreting the “however clause.” See
15 COLLIER ON BANKRUPTCY , supra, at ¶ 1322.05[1].
16 In short, while the courts have not always agreed on what
17 this legislative history demonstrates, most of them agree that
18 the legislative history is relevant to the task of interpreting
19 the “however clause.” Because of its importance to our analysis,
20
21 8
The OBIA proposed that § 1322(b)(1) should be amended to
read as follows:
22
23 (1) designate a class or classes of unsecured claims,
as provided in section 1122 of this title, but may not
24 discriminate unfairly against any class so designated;
however, such plan may treat claims which are specified
25 in section 523(a) or involve a codebtor differently
26 than other unsecured claims . . . .”
27 S. 445, 98th Cong. § 219 (1983) (emphasis added). The
corresponding proposed amendment in the BIA was virtually
28 identical. See S. 2000, 97th Cong. § 17 (1981); 127 Cong. Rec.
32,197 (1981).
12
1 we quote in full the relevant language from the Senate Report
2 accompanying the OBIA:
3 A number of cases have considered whether claims
involving codebtors may be classified separately from
4 other claims. Thus far, the majority of cases have
refused to permit such classification on the ground
5 that codebtor claims are not different than other
claims. See, for example, In re Utter, 3 B.R. 369 (Bk.
6 W.D.N.Y. 1980); In re Montano, 4 B.R. 535 (Bk. D.D.C.
1980).
7
Although there may be no theoretical differences
8 between codebtor claims and others, there are important
practical differences. Often, the codebtor will be a
9 relative or friend, and the debtor feels compelled to
pay the claim. If the debtor is going to pay the debt
10 anyway, it is important that this fact be considered in
determining the feasibility of the plan. Sometimes,
11 the codebtor will have posted collateral, and the
debtor will feel obligated to make the payment to avoid
12 repossession of the collateral. In still other cases,
the codebtor cannot make the payment, and the effect of
13 nonpayment will be to trigger a chapter 7 or chapter 13
petition by the codebtor, which may have a ripple
14 effect on other parties as well. For these reasons,
separate classification is often practically necessary.
15
Courts under both the present Act and the former
16 law have emphasized that plans must be realistic. For
example, courts have refused to confirm plans which the
17 debtor could not possibly perform; have insisted on
realistic estimates of expenditures; and have
18 considered debts which the debtor proposes to pay
outside the plan in determining feasibility. In re
19 Washington, 6 BCD 1094 (Bk. E.D. Va. 1980). This
approach is eminently sensible. No purpose is served
20 by confirming a plan which the debtor cannot perform.
If, as a practical matter, the debtor is going to pay
21 the codebtor claim, he should be permitted to
separately classify it in a chapter 13. A result which
22 emphasizes purity in classifying claims does so at the
price of a realistic plan. Neither debtors nor
23 creditors benefit from such a rigid approach, and the
Committee has determined that statutory authority to
24 separately schedule such debts will contribute to the
success of plans contemplating repayment of same.
25 Accordingly, this authority is provided for in the
proposed bill by amendment to section 1322(b)(1).
26
27
28
13
1 S. Rep. No. 98-65 (1983).9
2 Those courts holding that the unfair discrimination rule
3 still applies to codebtor consumer claims point out that the
4 above-quoted text focuses on separate classification and does not
5 even mention unfair discrimination. See, e.g., In re Strausser,
6 206 B.R. at 59. But these courts ignore the fact that there is
7 no point in separately classifying one or more unsecured debts
8 unless the debtor also proposes to treat the separate classes
9 differently.
10 None of the courts interpreting the “however clause” have,
11 as yet, examined the two bankruptcy cases, Utter and Montano,
12 which the committee report cited as exemplifying the case law
13 Congress intended to address by amending the statute. In Utter,
14 the joint debtors filed a chapter 13 plan separately classifying
15 one unsecured claim, and proposing to pay that claim a 100%
16 dividend, whereas all other unsecured creditors would receive
17 little or nothing. In re Utter, 3 B.R. at 369. There was only
18 one distinction between the preferred claim and the other
19 unsecured claims: the sister of one of the joint debtors also was
20 liable on that debt. Id. Utter denied confirmation of the
21 debtors’ plan for two reasons. First of all, according to the
22 court, § 1122(a) (which § 1322(b)(1) incorporates by reference)
23 did not permit the separate classification of substantially
24 similar claims, and there was no legal distinction from the
25 estate’s perspective between the preferred claim and the other
26
27
9
The committee report accompanying the BIA, S. Rep. No.
28 97-446, at 28 (1982), has virtually identical language explaining
the purpose of its version of the “however clause.”
14
1 unsecured claims.10 Id. at 369-70. But the Utter court’s second
2 ground for denying confirmation is more important for our
3 purposes; the Utter court held that the proposed preferential
4 treatment of the codebtor claim “discriminates unfairly against
5 the unsecured creditors who are classified in the class that does
6 not contain co-signed debts.” Id.
7 Montano is quite similar to Utter. In Montano, the debtor
8 had unsecured debt in the aggregate amount of roughly $30,000.
9 In re Montano, 4 B.R. at 536. Of that $30,000, roughly $7,000
10 was owed on “claims guaranteed by co-signors.” Id. The debtor’s
11 chapter 13 plan proposed a 100% dividend on the codebtor claims,
12 and a 1% dividend on all other unsecured claims. Id. In denying
13 confirmation of the debtor’s plan, the Montano court articulated
14 virtually identical grounds for denial as those articulated in
15
16
10
Section 1122(a) provides: “Except as provided in
17 subsection (b) of this section, a plan may place a claim or an
interest in a particular class only if such claim or interest is
18 substantially similar to the other claims or interests of such
19 class.” This panel (and a number of other courts) have rejected
the notion that § 1122(a) prohibits a chapter 13 plan from
20 separately classifying unsecured claims. See In re Wolff, 22
B.R. at 512; see also Barnes v. Whelan, 689 F.2d 193, 201 (D.C.
21 Cir. 1982) (collecting cases and stating “[s]ection 1122(a)
specifies that only claims which are ‘substantially similar’ may
22
be placed in the same class. It does not require that similar
23 claims must be grouped together, but merely that any group
created must be homogenous.”). In the context of a chapter 11
24 case, this panel recently upheld a bankruptcy court’s
determination that, for purposes of § 1122(a), a separately-
25 classified claim guaranteed by a third party was not
26 substantially similar to other unsecured claims, by virtue of the
third-party source of repayment. Wells Fargo Bank, N.A. v. Loop
27 76, LLC (In re Loop 76, LLC), 465 B.R. 525, 540 (9th Cir. BAP
2012). While not directly apposite to the chapter 13
28 confirmation appeal currently before us, we note that Loop 76 is
consistent with this panel’s resolution of this appeal.
15
1 Utter. Id. at 537. In relevant part, Montano held that “such
2 classification, where cosigned debts are to be paid in full and
3 other general unsecured debts are to be paid much less, unfairly
4 discriminates against the latter class, and thus is
5 [impermissible] under § 1322(b)(1).” Id.
6 In light of the facts and holdings of Utter and Montano, and
7 in light of Congress’s citation of these two cases as
8 exemplifying the case law it sought to address by amending
9 § 1322(b)(1), we hold that Congress sought to permit a chapter 13
10 debtor to separately classify and to prefer a codebtor consumer
11 claim when the facts are similar to those presented in Utter and
12 Montano.
13 On that basis, we conclude that the Trustee’s appeal here
14 must fail. The record reflects that the Trustee only objected to
15 Renteria’s plan because she proposed to pay a 100% dividend to
16 Preston and little or no money to her other unsecured creditors.
17 There were no disputed facts, and Renteria’s explanation for why
18 she needed to prefer Preston – to prevent Preston from collecting
19 from Reser as the guarantor of Renteria’s debt – was uncontested.
20 Renteria also represented that she had no additional net income
21 to pay any greater dividend to her general unsecured creditors,
22 and the Trustee did not challenge that representation.
23 Furthermore, the Trustee waived or conceded all other
24 confirmation issues.11 Whatever else the “however clause” may or
25
26
11
The Trustee thus framed the issue on appeal as an issue
27 of law as simply “whether the bankruptcy court erred in finding
that 11 U.S.C. Section 1322(b)(1) permits the separate
28
classification of a consumer codebtor claim without proving that
the differential treatment of the cosigned debt does not unfairly
discriminate against the other general unsecured creditors.”
16
1 may not do, a court may not deny confirmation of a plan under
2 § 1322(b)(1) solely because the plan prefers a codebtor consumer
3 claim over all other unsecured claims.
4 As a result, the bankruptcy court did not commit reversible
5 error when it overruled the Trustee’s plan objection and
6 confirmed Renteria’s chapter 13 plan.12
7 We acknowledge that our decision leaves open the issue of
8 the precise relationship between the “however clause” and the
9 unfair discrimination rule. We intentionally have left
10 unanswered the question of when (if ever) does the preferential
11 treatment of a codebtor consumer claim violate the unfair
12 discrimination rule. We decline to answer that question until we
13 receive an appeal with a record and issues squarely presenting
14 that question for decision.
15 CONCLUSION
16 For the reasons set forth above, we AFFIRM the bankruptcy
17 court’s order confirming Renteria’s chapter 13 plan.
18
19 DUNN, Bankruptcy Judge, concurring:
20
21 I agree entirely with the disposition in the majority
22 Opinion with respect to the issue presented in this appeal. I
23 write separately to stake out some turf based on further
24 interpretation of § 1322(b)(1) in light of information from the
25 factual record on which the Trustee did not focus.
26
27 12
While this panel’s reasoning is significantly different
than the bankruptcy court’s, we may affirm on any ground fairly
28
supported by the record. See Wirum v. Warren (In re Warren), 568
F.3d 1113, 1116 (9th Cir. 2009) (citing Leavitt v. Soto (In re
Leavitt), 171 F.3d 1219, 1223 (9th Cir. 1999)).
17
1 The Trustee insisted on a “zero-sum game” in this case. It
2 did not have to be that way. Although the plan that originally
3 was proposed projected a 0% dividend to the general unsecured
4 creditors, at the § 341(a) meeting, Renteria stipulated to
5 increase her plan payments by an additional $7,196.06 over the
6 36-month life of the plan in light of a loan payoff during the
7 plan term. See note 4 in the majority Opinion, supra. There is
8 no evidence in the record before us that the Trustee attempted to
9 negotiate any further increase in the distribution to general
10 unsecured creditors in Renteria’s plan. The Trustee further
11 admitted that Renteria’s plan was filed in good faith. The
12 stipulated increase in plan payments was not offset by any
13 projected increases in expenses. Renteria’s Schedules I and J
14 reflected net disposable income of Renteria and her nonfiling
15 spouse of $709.60 per month.13 Accordingly, the stipulated
16 increase in plan payments represented more than ten months of the
17 disposable income of Renteria’s household, as calculated at the
18 outset of her chapter 13 case. That increase in plan payments
19 was incorporated in the order confirming Renteria’s plan. In a
20 chapter 7 case, Renteria’s general unsecured creditors would
21 receive nothing.
22 Based on the language of § 1322(b)(1), its interpretation by
23
13
To the extent that a nonfiling spouse regularly
24 contributes to the family’s actual household expenses, such
25 contributions are included in the definition of “current monthly
income.” § 101(10A)(B). See also § 1325(b)(4); In re Vollen, 426
26 B.R. 359, 366 (Bankr. D. Kan. 2010) (“The Court concludes that
the ‘CMI of the debtor and the debtor’s spouse combined’ language
27 in § 1325(b)(4), when applied in the case of a married debtor
with a non-filing spouse, must refer to the debtor’s CMI which,
28
by definition, contains not only what her income may be, but also
the contributions the non-debtor spouse makes to the
household.”).
18
1 federal courts at all levels, and the sparse legislative history,
2 so ably analyzed in the majority Opinion, to me, the most
3 plausible interpretation of the “however clause” is that Congress
4 wanted to make crystal clear, in light of Utter and Montano, that
5 a chapter 13 debtor has the right to classify separately
6 unsecured claims with co-obligors from other unsecured claims
7 without eliminating the prohibition on unfair discrimination.
8 That interpretation, again to me, appears most consistent with
9 the objective of the Bankruptcy Code to treat like obligations as
10 consistently as possible, recognizing the “practical” and
11 “realistic” considerations reflected in the Senate Report
12 accompanying the OBIA. As expressed in the legislative history
13 of the Bankruptcy Code, “Though the general policy of the
14 bankruptcy laws is equality of distribution among all creditors,
15 current law makes certain exceptions based on a showing of
16 special circumstances or special need.” H.R. Rep. 95-595, 95th
17 Cong., 1st Sess. 186 (1977), reprinted in 1978 U.S.C.C.A.N. 5693.
18 Section 1322(b)(1) clearly allows unsecured claims with co-
19 obligors to be treated “differently” than other unsecured claims.
20 In my view, “differently” means that some separately classified
21 claims can be treated “better” or “worse” than others. As noted
22 in the CHAPTER 13 BANKRUPTCY treatise,
23 The 1984 amendments to § 1322(b)(1) complement or work
contrary to the codebtor stay in § 1301, depending on
24 your perspective. Debtors are protected by the
codebtor stay from indirect collection actions, to the
25 extent the plan proposes to pay the cosigned claim;
creditors with cosigners typically [but not always] get
26 more favorable treatment through the plan because of
§ 1322(b)(1). The 1984 amendments reward the creditor
27 that demanded a cosigner at the time of the original
loan and somewhat balance the extraordinary injunction
28
19
1 in § 1301.
2 CHAPTER 13 BANKRUPTCY , supra, § 150.1[9]. The “however clause”
3 recognizes that reality, while allowing for a fact-based
4 determination in each case as to whether such different treatment
5 crosses the “unfair discrimination” line.
6 The 1984 amendment is awkwardly worded. To give
meaning to all words in the amended section
7 [1322(b)(1)], it must be true that a debtor’s power to
treat cosigned consumer debts “differently” has content
8 separate from the proscription against unfair
discrimination. The awkward language is resolved by
9 holding that all different treatments are not
necessarily fair discriminations.
10
11 Nelson v. Easley (In re Easley), 72 B.R. 948, 956 (Bankr. M.D.
12 Tenn. 1987). See also CHAPTER 13 BANKRUPTCY , supra, § 150.1[26]
13 (“The Code could have said that all separate classifications of
14 co-signed claims are permitted if Congress intended that the
15 existence of a cosigner justified all different treatments.
16 Because the statute does not say that, it is fair to infer that
17 some justification is required.”).
18 In this case, Renteria separately classified Preston’s
19 claim, providing for payment in full with interest to Preston in
20 order to protect her mother as co-obligor. As confirmed,
21 Renteria’s plan further provided for additional plan payments in
22 excess of $7,000 that would allow for a significant distribution
23 to the other unsecured creditors. Renteria’s plan provided for
24 different treatment of Preston’s claim from other unsecured
25 claims, as expressly allowed by § 1322(b)(1), but did not leave
26 the general unsecured creditors with no potential for a
27 meaningful distribution. The Trustee conceded that Renteria’s
28 plan was proposed in good faith. Based on the factual record
20
1 before us, that does not look like unfair discrimination to me.
2
3 PAPPAS, Bankruptcy Judge, Concurring:
4
5 In this appeal, the Panel wrestles with a common task:
6 interpreting a provision of the Bankruptcy Code containing what
7 some consider to be “awkward” language, § 1322(b)(1). The issue:
8 whether, after the 1984 addition of the “however clause” to
9 § 1322(b)(1), the “different” treatment proposed in a debtor’s
10 chapter 13 plan for a consumer debt on which another individual
11 is liable must be “fair.” What is unusual here, however, is that
12 the challenge of achieving consensus about the meaning of this
13 statute has proved to be too much for the Panel. While all
14 members of the Panel agree about the result of this appeal, we
15 propose three different approaches for disposing of the issue.
16 The majority Opinion prefers to affirm the bankruptcy
17 court’s decision based on the facts. While providing a
18 comprehensive justification for a possible interpretation of
19 § 1322(b)(1), this Opinion stops short of adopting its solution
20 to the underlying statutory mystery for now, suggesting that the
21 Panel must wait for better facts before taking a firm stand.
22 My concurring colleague would also affirm, but in contrast
23 to the majority, does so by confidently concluding that, in
24 adopting the however clause, “Congress wanted to make crystal
25 clear . . . that a chapter 13 debtor has the right to classify
26 separately unsecured claims with co-obligors from other unsecured
27 claims without eliminating the prohibition [in the pre-1984
28 language of § 1322(b)(1)] on unfair discrimination.” While this
21
1 opinion is certainly definitive, in my view, I respectfully
2 disagree with the conclusion it reaches.
3 As for me, I also think we should announce a clear rule in
4 our ruling today disposing of this issue. However, in my
5 opinion, we should hold that since the addition of the however
6 clause to § 1322(b)(1), different chapter 13 debtor plan
7 treatments accorded consumer debts co-signed by another
8 individual are no longer subject to the unfair discrimination
9 rule. In arriving at my conclusion, I am tempted to join those
10 bankruptcy courts, including the bankruptcy court in this case,
11 that hold that in adding the however clause to § 1322(b)(1),
12 Congress plainly created an unambiguous exception to the
13 prohibition against unfair discrimination in plan claim treatment
14 for a limited, defined class of creditors: those individual
15 creditors that were liable with the debtor on consumer debt.
16 See, e.g., In re Hill, 255 B.R. at 581 (Bankr. N.D.Cal. 2000)
17 (describing 1984 amendment as “simple and unambiguous” and
18 holding that the however clause “does not mean that in all cases
19 a plan which separately classifies co-signed [consumer] debt must
20 be confirmed, but only that the basis of denial of confirmation
21 may not be unfairness to the other unsecured debt.”); and In re
22 Dornon, 103 B.R. at 64. If that is the case, then our task here
23 is to apply the exception as written. United States v. Ron Pair
24 Enters. Inc., 489 U.S. 235, 241 (1989) (instructing that when the
25 language of the Bankruptcy Code is plain, the sole function of
26 the courts is to enforce it according to its terms.).
27 However, I acknowledge that more than a few courts have,
28 like my two colleagues, considered the amended language of
22
1 § 1322(b)(1) to be ambiguous, requiring application of statutory
2 construction techniques to unravel. But see Lamie v. U.S.
3 Trustee, 540 U.S. 526, 534 (2004) (cautioning that, in construing
4 the Bankruptcy Code, that the statute’s language may be awkward,
5 does not make it ambiguous). While I agree a case can be made
6 that the meaning of the statute is not clear, when I look outside
7 its language, I nonetheless reach the same conclusion as the
8 “plain language” courts do. In my view, given the context in
9 which the 1984 amendment was enacted, Congress intended to exempt
10 co-signed consumer debts from the unfair discrimination
11 restrictions in § 1322(b)(1) applicable to other kinds of debt.
12 I will not attempt an extended justification for my
13 construction of § 1322(b)(1). Instead, an excellent defense of
14 this interpretation is found in the Judge Benevides’ concurring
15 opinion in Ramirez v. Bracher (In re Ramirez), 204 F.3d 595, 596-
16 601 (5th Cir. 2000). In that opinion, the author notes that, to
17 give appropriate effect to the however clause, it must refer to
18 claim treatment that constitutes something other than unfair
19 discrimination, as referenced in the prior clause of
20 § 1322(b)(1). In other words, “there was no need for Congress to
21 separately address the manner in which co-signed [consumer] debts
22 are treated (‘differently’) if it intended such debts to receive
23 the same treatment as other unsecured debts, i.e., subject to the
24 unfair discrimination test.” Id. at 599. Therefore, the judge
25 explains, “[t]o give meaning to all words in the amended section,
26 it must be true that a debtor’s power to treat co-signed consumer
27 debts ‘differently’ has content separate from the proscription
28 against unfair discrimination. The awkward language is resolved
23
1 by holding that all different treatments are not necessarily fair
2 discrimination.” Id. (quoting Nelson v. Easley (In re Easley),
3 72 B.R. 948, 956 (Bankr. M.D. Tenn. 1987)). In reconciling the
4 legislative history cited in the majority Opinion, above, with
5 his view of the meaning of the Code, Judge Benevides opines:
6 Congress recognized that, as a practical matter, many
debtors will attempt to pay a co-signed debt regardless
7 of whether the plan that is confirmed allows for such a
preferred distribution. After acknowledging that many
8 debtors are “going to pay the [co-signed] debt anyway,”
it would be a meaningless exercise to continue to
9 impose a burden of demonstrating that the
classification did not unfairly discriminate. By
10 expressly accepting this reality, it appears that
Congress effectively relieved debtors of the burden of
11 proving that such classifications did not result in
unfair discrimination against other unsecured
12 creditors. Congress expressed no intent to better
police the debtors’ behavior but instead indicated an
13 intent to allow for explicit acknowledgment of such
practical considerations within the context of the
14 plan. Indeed, Congress made clear that the overriding
policy was to determine that the proposed plan was
15 feasible so it could be successfully completed.
16 I am mindful that some courts have expressed a concern
that exempting co-signed debt from the unfair
17 discrimination test would be an invitation to abuse.
Nevertheless, I believe that the good faith requirement
18 under section 1325(a)(3) remains a safeguard against
abuse.
19
20 Id. at 600 (citations omitted).
21 I would hold that, because Congress authorized it, a chapter
22 13 plan may treat co-signed consumer claims differently, even
23 though that treatment may, in some cases, be unfair when compared
24 to that given the claims of other creditors.14 This is so
25
26 14
Like beauty, the “fairness” of plan treatment is in the
eye of the creditor. In addition to conferring beneficial
27
treatment, § 1322(b)(1) also plainly authorizes a debtor to
28 separately classify and treat a co-signed consumer claim less
(continued...)
24
1 because, it was apparently the opinion of Congress that it is
2 more likely that debtors will propose realistic, feasible chapter
3 13 plans if they can prefer claims on which, in many cases, a
4 family member is also liable. While other creditors may think
5 this approach is unfair, receipt of even a modest distribution on
6 their claims (as will result in the case on appeal) will exceed
7 what they would receive were the debtor to seek chapter 7 relief.
8 Moreover, allowing different treatment of co-signed consumer
9 debts may prevent the codebtor from also having to seek
10 bankruptcy relief. And while different treatment of co-signed
11 consumer debts is allowed, every chapter 13 debtor must prove the
12 proposed plan has been filed in good faith under § 1325(a)(3), a
13 Code provision that is adequate to the task of policing any
14 debtor mischief.
15 I acknowledge that my interpretation of § 1322(b)(1)
16 potentially sanctions the unfairness inherent in unequal
17 treatment of creditors. But even if the solution to the problem
18 it perceived is an overly broad one, any criticisms must be
19 directed to Congress to remedy, not to the courts. Simply put,
20 I would therefore affirm the decision of the bankruptcy court
21
22 14
(...continued)
favorably than other unsecured creditors. Such plan treatment
23 may be necessary and appropriate, for example, when the codebtor
24 received the consideration for the original debt (e.g., the
debtor co-signed a relative’s car loan), or where there may have
25 been a change in the relationship of the debtor and codebtor
since the debt was incurred (e.g., claim was co-signed by a
26 former spouse who was later ordered to pay the debt in a divorce
decree). Presumably, in such cases, the general body of
27
unsecured creditors would consider the “different” treatment of
28 the co-signed claim “fair,” though the impacted creditor may
disagree.
25
1 because the unfair discrimination restriction in § 1322(b)(1)
2 does not apply to plan provisions treating co-signed consumer
3 debts.
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