United States District Court, D. Maine
LELAND S. SMITH, JR., Plaintiff-Appellant,
STATE OF MAINE BUREAU OF REVENUE SERVICES, Defendant-Appellee.
ORDER ON BANKRUPTCY APPEAL
A. WOODCOCK, JR., UNITED STATES DISTRICT JUDGE
Chapter 13 debtor appeals the Bankruptcy Judge's order
confirming that the automatic stay has terminated pursuant to
11 U.S.C. § 362(c)(3)(A) and, therefore, does not
prohibit creditors from taking actions against property of
the estate. This appeal raises a question that has divided
courts concerning the proper statutory interpretation of the
inelegant language of that provision. Under the majority
view, subsection (c)(3)(A) terminates the automatic stay
provisions blocking actions against the debtor or property of
the debtor, but property of the estate remains protected by
the automatic stay; under the minority view, subsection
(c)(3)(A) terminates the automatic stay in its entirety.
Although neither interpretation is entirely satisfactory, the
Court affirms the decision of the Bankruptcy Court because
the minority view is more convincing.
are no factual disputes. In December 2014, the Debtor, Leland
S. Smith, Jr., filed a petition under Chapter 13, but that
petition was dismissed in November 2016 because he failed to
make payments required by the confirmed Chapter 13 plan. On
December 28, 2016, Mr. Smith filed a second Chapter 13
voluntary petition and a proposed plan. Voluntary Pet.
for Individuals Filing for Bankr. (Bankr. ECF No. 1);
Chapter 13 Plan (Bankr. ECF No. 3). On February 15,
2017, the state of Maine Bureau of Revenue Services (MRS)
filed a claim for roughly $52, 000. Proof of Claim
(Bankr. Claim No. 3-1). On March 22, 2017, the Bankruptcy
Court confirmed Mr. Smith's Chapter 13 Plan. Order
Confirming Chapter 13 Plan and Setting Deadlines for Certain
Actions (Bankr. ECF No. 35).
at a hearing on February 16, 2017, MRS sought clarification
under 11 U.S.C. § 362(j) of the extent to which the
automatic stay had terminated. Min. Order (Bankr.
ECF No. 19). In cases under Chapters 7, 11, and 13, §
362(c)(3)(A) terminates the automatic stay “with
respect to the debtor” after thirty days if that debtor
had a prior case pending within the preceding one-year
period, which was then dismissed. Under § 362(c)(3)(B),
any party in interest may move for a continuation of the
automatic stay before the expiration of the thirty-day
window, but no one did so here.
briefing and oral arguments, the Bankruptcy Court ruled in a
thoughtful and thorough opinion on August 18, 2017, that the
automatic stay had terminated and the phrase “with
respect to the debtor” in 11 U.S.C. § 362(c)(3)(A)
does not limit the scope of the termination by preserving the
automatic stay for actions against property of the estate.
Order Regarding Stay Termination Under 11 U.S.C. §
362(c) (Bankr. ECF No. 48); Notice of Appeal
Attach. 2 (ECF No. 1) (Bankr. Ct. Order). This
appeal followed on August 31, 2017. Notice of Appeal
(Bankr. ECF No. 55); Notice of Appeal Attach. 4
Appellee Statement of Election to Proceed in District
Court (ECF No. 1).
Smith filed a brief on November 15, 2017. Br. for
Appellant (ECF No. 6) (Smith Br.). On December
15, 2017, MRS filed its response. Br. for Appellee
(ECF No. 8) (MRS Br.). On December 29, 2017, Mr.
Smith filed his reply. Reply Br. for Appellant (ECF
No. 9) (Smith Reply).
intermediate appeal to a district court, a final order of the
bankruptcy court is subject to the same familiar standards of
review normally employed in direct appeals to the courts of
appeals in civil cases generally.” In re
LaRoche, 969 F.2d 1299, 1301 (1st Cir. 1992). “The
district court accepts all bankruptcy court findings of fact
unless ‘clearly erroneous, ' . . . but reviews
rulings of law de novo.” Id. (citing
Fed.R.Bankr.P. 8013, Bartmann v. Maverick Tube
Corp., 853 F.2d 1540, 1543 (10th Cir.1988)); see
also In re DN Assocs., 3 F.3d 512, 515 (1st Cir. 1993).
THE PARTIES' POSITIONS
Leland S. Smith, Jr.'s Brief
Smith advocates for the interpretation adopted by the
majority of courts to consider the scope of §
362(c)(3)(A)'s termination of the automatic stay,
including the First Circuit Bankruptcy Appellate Panel (BAP).
Smith Br. at 3 (citing In re Jumpp, 356
B.R. 789 (B.A.P. 1st Cir. 2006), In re Witkowski,
523 B.R. 291 (B.A.P. 1st Cir. 2014) (reaffirming
Jumpp)). The majority view is that the words
“with respect to the debtor” distinguish between
the debtor and the debtor's non-estate property on the
one hand, and the property of the estate on the other, such
that the automatic stay only terminates with respect to the
former, not the latter. Id. at 6. Mr. Smith argues
against the minority view, which is that the words
“with respect to the debtor” do not create a
distinction between the debtor and the debtor's property
on the one hand, and the property of the estate on the other,
such that the automatic stay terminates with respect to all
three categories. Id. at 7. Rather, many minority
view courts interpret the phrase “with respect to the
debtor” as drawing a distinction between the
repeat-filing debtor and any non-repeat-filing spouse in a
joint case. Id. Mr. Smith argues that the meaning of
§ 362(c)(3)(A) is plain, and thus any resort to
legislative history is improper. Id. at 8-10. He
points out that the numerous automatic stay provisions of
§ 362(a) draw distinctions between actions or acts
against the debtor, property of the debtor, and property of
the debtor's estate, invoking the principle that Congress
knew how to refer to these different categories. Id.
at 11-12. Mr. Smith contends that the minority view
improperly adds the words “property of the
estate” into the provision when they do not appear
there, id. at 12, or else improperly reads the
phrase “with respect to the debtor” out of the
statute. Id. at 15-16. He also claims that the words
“with respect to the debtor” only have meaning in
joint cases under the minority view, but § 362(c)(3)(A)
is written to apply to “a single or joint case.”
Id. at 19.
advocates for the minority view, which does not except
actions against “property of the estate” from the
termination of the automatic stay. MRS Br. at 6-7
(citing St. Anne's Credit Union v. Ackell, 490
B.R. 141 (D. Mass. 2013); In re Reswick, 446 B.R.
362 (9th Cir. BAP 2011)). The minority view does not
interpret the text as drawing a distinction between the
debtor and the debtor's property on the one hand and
property of the estate on the other, rather MRS interprets
the words “with respect to the debtor” as drawing
a distinction between the serial-filer debtor and the
non-serial-filer spouse. Id. MRS suggests that
textual distinctions between jointly-filing spouses are
common in the Bankruptcy Code. Id. at 16.
argues that it is the majority view, and not the minority,
that reads extra words into the statute because it reads the
phrase “with respect to the debtor” to also
include the “debtor's non-estate property.”
Id. at 8. MRS suggests that the majority view's
conclusion that the phrase “with respect to the
debtor” is meant to exclude certain property cannot be
reconciled with § 362(c)(3)(A)'s reference to
actions against “property securing [a] debt.”
Id. at 11. MRS criticizes attempts by some majority
view courts to use the definition of a “claim”
under § 102(2) to import a property distinction to words
only referring to the “debtor.” Id. at
13-14. MRS suggests that any textual differences between
§ 362(c)(3) and § 362(c)(4) are insignificant.
Id. at 24-26.
places considerable weight on § 362(c)(3)(B) and §
362(c)(3)(C), which discuss the standard for establishing
that a second petition is in good faith and thus eligible for
an extension of the stay. Id. at 9-10. MRS argues
that the majority view renders these lengthy provisions
meaningless, because there will rarely be any need to file
for an extension of the stay if property of the estate is
exempted from termination, as most, if not all, of the
important assets are property of the estate in most, if not
all, cases Id. at 9-10, 15. MRS emphasizes that the
majority view renders § 362(c)(3)(A) “devoid of
practical effect” because everything of value to
creditors constitutes property of the estate, and thus would
remain protected after the thirty-day window. Id. at
17-18. MRS argues that the majority view's
“toothless” interpretation violates the purpose
of the statute, which is to curb abuse of the automatic stay
by repeat-filers, and MRS presents a legislative history it
believes supports its view of the statutory purposes.
Id. at 18-22.
Leland S. Smith, Jr.'s Reply Brief
Smith highlights the facts that the phrase “with
respect to the debtor” appears in § 362(c)(3)(A)
but not in §362(c)(4)(A)(i), which negates the automatic
stay entirely for debtors who had two prior pending cases in
the preceding year. Smith Reply at 1-3. Mr. Smith
also asserts that the minority view renders the phrase
“with respect to the debtor” meaningless in cases
like this one, where the debtor is a single filer in both the
instant and prior case, because there is no
non-repeat-filer-spouse for the phrase to distinguish.
Id. at 4.
Smith claims the minority view's interpretation is
inconsistent with other provisions in the Bankruptcy Code
which refer to the debtor's spouse because they show that
Congress knew how to draw that distinction by using the word
“spouse” and it chose not to do so in §
362(c)(3)(A). Id. at 8. Mr. Smith also chides the
minority view for frequently relying on legislative history,
because it is inappropriate to rely on legislative history
when the plain meaning of the text is clear. Id. at
THE DECISION OF THE BANKRUPTCY JUDGE
Bankruptcy Judge framed the question of statutory
Section 362(c)(3) sits between two ends of a spectrum. At one
end of this spectrum, the stay is automatic. The stay springs
into effect upon the filing of a petition, and the Court has
no role in its creation. See 11 U.S.C. §
362(a). This occurs when an individual files her first
petition under title 11. At the other end of the spectrum,
the stay is not created automatically and does not go into
effect on the filing of a petition. This occurs when an
individual becomes a debtor in any type of title 11 case if
that individual had two or more “single or joint
cases” dismissed within the previous year. See
11 U.S.C. § 362(c)(4)(A). When section 362(c)(4) is
triggered, the Court can impose a stay, see 11 U.S.C. §
362(c)(4)(B), but the stay does not arise automatically. The
dispute in this contested matter arises out of the need to
determine exactly where, on this spectrum, section 362(c)(3)
Bankr. Ct. Order at 9. The Bankruptcy Judge reviewed
the competing interpretations of §362(c)(3)(A),
id. at 4-5, and concluded that, after the thirty-day
window, the automatic stay “ceases to protect the
repeat-filing debtor and all of that debtor's property,
including property of the debtor's estate.”
Id. at 1.
Bankruptcy Judge thought that the words “the stay under
subsection (a)” indicated that the stay extended to all
of the types of acts covered by the stay, meaning that
termination of the stay “would seem to leave no part of
the stay in place.” Id. at 6. The Bankruptcy
Judge also said the minority view, which creates a
distinction between the debtor and the debtor's spouse,
was consistent with the opening phrase of §
362(c)(3)(A), which refers to single or joint cases.
Id. at 6-7.
Bankruptcy Judge also looked to the legislative history.
Id. at 7-8. The disputed language traces back to the
National Bankruptcy Review Commission in the mid-1990's.
Id. The Bankruptcy Judge concluded that the
legislative history showed that Congress was concerned about
the problem of successive bankruptcy filings interfering with
foreclosures and sought to remedy that problem by terminating
the stay after thirty days for repeat-filers. Id.
The Bankruptcy Judge critiqued the majority view for ignoring
“the statute's manifest purpose.”
Id. According to the Bankruptcy Judge, it is
unlikely that Congress intended to insulate the property of
the estate after thirty days “given that the practical
effect of terminating the stay on day thirty only as to the
debtor and the debtor's property would be negligible at
best.” Id. at 10-11.
Bankruptcy Judge also cited the statutory presumption that a
repeat-petition was not filed in good faith but gives parties
in interest the opportunity to rebut that presumption by
clear and convincing evidence. Id. at 12-13. Under
the majority view, the automatic stay would continue to
insulate property of the estate after thirty days, even in
those cases where the debtor moved to extend the stay and a
bankruptcy court determined that the debtor failed to rebut
the presumption that the filing was in bad faith.
Id. “It makes little sense to conclude that
Congress meant to protect most, if not all, of a debtor's
property - by virtue of its status as property of the estate
- in a case that was, at least presumptively, not filed in
good faith.” Id. at 13-14.
those reasons, the Bankruptcy Judge concluded that the
automatic stay terminated in its entirety, meaning that MRS
was “no longer stayed, under section 362(a), from
continuing the exercise of its rights and remedies against
Mr. Smith or his property, even if such property is part of
his bankruptcy estate.” Id. at 14.
The Automatic Stay Provisions
362 of the Bankruptcy Code contains what is known as the
automatic stay. 11 U.S.C. § 362(a). However, the
automatic stay is affected in cases where a debtor has filed
one or more cases within the year of the latest filing that
Except as provided in subsections (d), (e), (f) and (h) of
. . .
(3) if a single or joint case is filed by or against a debtor
who is an individual in a case under chapter 7, 11, or 13,
and if a single or joint case of the debtor was pending
within the preceding 1-year period but was dismissed, other
than a case refiled under a chapter other than chapter 7
after dismissal under section 707(b)-
(A) the stay under subsection (a) with respect to any action
taken with respect to a debt or property securing such debt
or with respect to any lease shall terminate with respect to
the debtor on the ...