Woolsey v. Citibank, N.A., 10th Cir. (2012)
Woolsey v. Citibank, N.A., 10th Cir. (2012)
Woolsey v. Citibank, N.A., 10th Cir. (2012)
September 4, 2012
PUBLISH
Elisabeth A. Shumaker
Clerk of Court
No. 11-4014
Appellee,
KEVIN R. ANDERSON, Chapter 13
Trustee,
Trustee - Appellee,
NATIONAL ASSOCIATION OF
CONSUMER BANKRUPTCY
ATTORNEYS,
Amicus Curiae.
Like so many these days, Stephanie and Kenneth Woolsey owe more money
on their home than its worth. In fact, the value of their home doesnt come close
to covering the balance due on their first mortgage, much less the amount they
owe on a second. And its that second mortgage, held by Citibank, at the center
of our case. After the Woolseys sought shelter in bankruptcy, they prepared a
Chapter 13 repayment plan. In their plan, they took the position that the
bankruptcy code voids Citibanks lien because it is unsupported by any current
value in the home. Naturally, Citibank didnt take well to the Woolseys
intentions. The bank objected to the Woolseys plan and eventually persuaded the
bankruptcy court to reject it. Later the district court, too, sided with Citibank and
now the question has found its way to us.
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Before us, though, the Woolseys dont just shrink from, they repudiate the
only possible winning argument they may have had. They choose to pursue
instead and exclusively a line of attack long foreclosed by Supreme Court
precedent. To be sure, the Woolseys argue vigorously and with some support that
the Supreme Court has it wrong. But, as Justice Jackson reminds us, whether or
not the Supreme Court is infallible, it is final. See Brown v. Allen, 344 U.S. 443,
540 (1953) (Jackson, J., concurring in the result). And it belongs to that Court,
not this one, to decide whether to revisit its precedent. For now, and like the
other judges to have passed on this case so far, we are obliged to apply the
Courts current case law and that leads us, inexorably, to affirm.
***
But before we can get to all that, theres a jurisdictional snarl we have to
untangle first. After Citibank successfully objected to the Woolseys initial
repayment plan, the bankruptcy court issued an order rejecting it. That order, of
course, was hardly an appealable final decision spelling the end to things in
bankruptcy court: it promised only more litigation until an amended repayment
plan could win the bankruptcy courts approval. See Simons v. FDIC (In re
Simons), 908 F.2d 643, 645 (10th Cir. 1990). All the same, the Woolseys
appealed the bankruptcy courts order to the district court. And this they could do
because 28 U.S.C. 158(a)(3) permits interlocutory appeals in these particular
circumstances. For its part, however, the district court soon issued a summary
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order affirming the bankruptcy courts rejection of the Woolseys initial plan, and
it is that decision the Woolseys now seek to appeal to our court.
And that raises this question: Do we have the power to hear an
interlocutory appeal of an interlocutory appeal? By what authority might we
entertain an appeal from the district court of an interlocutory order regarding a
matter pending in bankruptcy court? To be sure, the Woolseys could have sought
permission to proceed to this court under the general interlocutory appeal statute,
28 U.S.C. 1292(b). See Conn. Natl Bank v. Germain, 503 U.S. 249, 254
(1992). But they didnt. Instead and at their behest, the district court purported
to certify its interlocutory appeal for a further interlocutory appeal to this court
under 28 U.S.C. 158(d)(2)(A). Can a district court do that?
When a case is properly certified by the bankruptcy court, district court or
bankruptcy appellate panel, Congress through 158(d)(2)(A) has clearly given
this court the power to hear appeals described in the first sentence of [
158(a)]. The difficulty is that the appeals described in the first sentence of
158(a) are not appeals from the district court, but appeals directly from the
bankruptcy court. So its evident enough that 158(d)(2)(A) gives us the
authority to hear appeals straight from the bankruptcy court, leapfrogging over
the district court or bankruptcy appellate panel in order to speed up the resolution
of dispositive legal questions. See Weber v. U.S. Tr., 484 F.3d 154, 157-58 (2d
Cir. 2007). Whats less certain is whether the statute also permits us to hear
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involving a bankruptcy matter, even one (like this one) with an interstitial stop in
the district court, ripens and becomes effective once a final order approving [a]
plan[] of reorganization is entered. Interwest, 23 F.3d at 315; see also Adelman
v. Fourth Natl Bank & Tr. Co. (In re Durability, Inc.), 893 F.2d 264, 265-66
(10th Cir. 1990). This courts precedent, moreover, finds analogies of various
sorts in most other circuits. See, e.g., Community Bank, N.A. v. Riffle, 617 F.3d
171, 173-74 (2d Cir. 2010) (per curiam); Rains v. Flinn (In re Rains), 428 F.3d
893, 900-01 (9th Cir. 2005); Watson v. Boyajian (In re Watson), 403 F.3d 1, 5
(1st Cir. 2005); Official Comm. of Unsecured Creditors v. Farmland Indus., Inc.
(In re Farmland Indus., Inc.), 397 F.3d 647, 649-50 (8th Cir. 2005); In re Rimsat,
Ltd., 212 F.3d 1039, 1044 (7th Cir. 2000); In re Emerson Radio Corp., 52 F.3d
50, 53 (3d Cir. 1995); 16 Charles Alan Wright, Arthur R. Miller & Edward H.
Cooper, Federal Practice and Procedure 3926.2 at 290 (2d ed. 1996). After all,
the bankruptcy courts refusal to confirm the Woolseys initial plan has now
become a final and irrevocable decision, no longer subject to reconsideration
there: the bankruptcy proceeding is closed. The district court has likewise
finished its work and cant revise any decision we render. Neither have the
parties identified any prejudice anyone would suffer by taking up the appeal now.
Cumulatively, its clear everything that could be done below has been done.
But even this analysis, we must acknowledge, isnt without its wrinkles.
The notion that proceedings in a district court cumulatively might give rise to a
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final judgment was touched upon in FirsTier Mortgage Co. v. Investors Mortgage
Insurance Co., 498 U.S. 269 (1991). There, the Court interpreted Fed. R. App. P.
4(a)(2)s instruction that a notice of appeal filed after the announcement of a
decision or order but before the entry of the judgment or order shall be treated as
filed after such entry and on the day thereof. 498 U.S. at 272-73. While holding
that the Rule allowed the appeal at issue, the Court proceeded, in a statement that
may or may not have been essential to its holding, to say the Rule does not permit
a premature notice of appeal from a clearly interlocutory decision such as a
discovery ruling or a sanction order under Rule 11 because a belief that such a
decision is a final judgment would not be reasonable. Id. at 276 (emphasis in
original); see Gonzales v. Texaco Inc., 344 F. Appx 304, 307 (9th Cir. 2009)
(unpublished) (suggesting all this language is dicta). Instead, the Court said, the
Rule permits a premature notice of appeal only from decisions that themselves
would be appealable if immediately followed by the entry of judgment because
[i]n these instances, a litigants confusion about the finality of the case is
understandable, and permitting the notice of appeal to become effective when
judgment is entered does not catch the appellee by surprise. FirsTier Mortg.
Co., 498 U.S. at 276 (emphasis in original).
Whether and to what degree this discussion, even if controlling, pertains to
bankruptcy practice is an open question. In the first place, it is a matter of some
debate whether Rule 4(a)(2) and so FirsTiers gloss on it supplies the sole
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other circuits make no mention of the Rule (one way or the other) when
discussing appeals involving premature notices of appeal in the bankruptcy
context. And, perhaps like litigants in those cases, the litigants in ours have not
suggested the Rule or FirsTier imposes any impediment to entertaining this
appeal.
Beyond even all this, however, FirsTiers relevance in bankruptcy practice
is an open question for still a different reason: it isnt clear whether a circuit
entertaining an appeal from a district court even needs to resort to the cumulative
finality doctrine or for that matter 1292 or 158(d)(2)(A), two other
possibilities weve already discussed. When it comes to bankruptcy matters,
Congress in 158(d)(1) gives circuit courts jurisdiction to hear final decisions
as well as final judgments, orders and decrees entered under subsection[] (a).
Turning to 158(a), Congress there gives district courts authority to entertain
appeals from final judgments, orders and decrees, and certain interlocutory orders
and decrees from the bankruptcy court. Meanwhile, though, no mention is made
of final decisions. Given this arrangement, one might wonder whether this
court possesses jurisdiction under 158(d)(1) to review a final decision of the
district court entered under subsection[] (a), with respect to a bankruptcy
courts interlocutory order all without the necessity of any final bankruptcy
court order. On this theory, the phrase decision . . . entered under subsection[]
(a) as it appears in 158(d)(1) permits us to review a district courts decision on
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a purely interlocutory issue. As applied to this case, the district courts final
decision rejecting the Woolseys initial plan is enough to afford us jurisdiction:
the finality of the bankruptcy courts proceedings is immaterial. See Wright,
Miller, & Cooper, supra, 3926.2 at 279-80 (discussing merits and demerits of
this interpretation).
The layering of appeal on appeal in the bankruptcy context, where our
usual ideas of finality are already put to the test, surely invites many and
interesting questions. But while we cannot ignore them, neither must we decide
them today. We dont have to do so because, even assuming a final bankruptcy
proceeding is required to trigger our own jurisdiction under 158(d)(1), and even
assuming that Rule 4(a)(2) is the only means by which we may entertain cases
involving a prematurely filed notice of appeal, this case satisfies the test this
court has set forth for satisfying the Rule.
Though FirsTiers cryptic and arguably tangential discussion about the
limits of Rule 4(a)(2) is open to many different understandings, in Hinton v. City
of Elwood, 997 F.2d 774 (10th Cir. 1993), this court explained its understanding
that, under the Rule, a premature notice of appeal retains its validity only when
the order appealed from is likely to remain unchanged in both its form and its
content. Id. at 778. Admittedly, Hinton did not discuss FirsTier but it does
post-date FirsTier and so controls our analysis of the Rule. While a panel of this
court may sometimes recognize that a prior panel decision has been clearly
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506(a) applies only to claims that are already allowed, making abundantly
clear it doesnt disallow anything.
Even accepting that Citibanks claim is allowed, though, there remains
the question whether it is secured. And on that question 506(a)(1) turns out
to have quite a lot to say:
An allowed claim of a creditor secured by a lien on property in which the
estate has an interest . . . is a secured claim to the extent of the value of
such creditors interest in the estates interest in such property . . . and is an
unsecured claim to the extent that the value of such creditors interest . . .
is less than the amount of such allowed claim.
The thrust of 506(a) is to classify allowed claims (or portions of allowed
claims) as either secured or unsecured, which in turn affects how the bankruptcy
code treats them. The statute explains that for purposes of federal bankruptcy law
a secured claim requires something more than a security interest recognized by
state law. A claim, even if secured by a valid state law lien on property, qualifies
as secured for purposes 506(a) and federal bankruptcy law only to the extent
it is supported by value in the collateral. United States v. Ron Pair Enters., Inc.,
489 U.S. 235, 239 (1989). To the extent that the lien is supported by some but
not enough value to cover the whole debt, 506(a) splits the claim in two,
creating a secured claim and an unsecured claim. Id. at 239 n.3. So even if a lien
qualifies as a valid security interest under state law, it gives rise to a secured
claim for purposes of federal bankruptcy law only if and to the extent it is
supported by value in the underlying property.
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All this would seem to bring us within a simple syllogism from the end of
this case. The code allows debtors to void liens that arent allowed and
secured claims. See 11 U.S.C. 506(d). The code defines allowed claims.
See id. 502. It also defines secured claims. See id. 506(a). And so one
might be forgiven for thinking any lien either disallowed under 502 or
unsecured under 506(a) would be void under 506(d). Because Citibanks
junior lien isnt backed by any value in the home, Citibank holds only an allowed
unsecured claim and so its lien would appear to be voidable, just as the Woolseys
argue.
But the law in this corner of bankruptcy practice doesnt follow such a
straight path. It doesnt because of Dewsnup. See Dewsnup v. Timm, 502 U.S.
410 (1992). There, the Supreme Court considered 506(d) in the context of a
Chapter 7 bankruptcy proceeding and concluded that the term allowed secured
claim means a claim allowed under 502 and secured by a lien enforceable
under state law. So it is, the Court held, value in the collateral has no bearing on
the lien-voiding language of 506(d): any lien secured under state law must be
respected and protected from removal. Id. at 417. And it is precisely because of
Dewsnups holding that the bankruptcy court and district court refused the
Woolseys effort to remove Citibanks lien using 506(d).
Now, one might well ask: How can it be that to qualify as secured claim
in 506(a) some value is needed but a mere three subsections later in 506(d),
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legislative history that Congress intended to alter this practice, the Court decided
to interpret 506(d) the same way in order to avoid effect[ing] a major change
in pre-[c]ode practice. Id. at 418. The Court also worried that any other result
would bestow upon the debtor the windfall of any increase in value during the
pendency of the bankruptcy, value more appropriately belonging to the lienholder.
Id. at 417.
Even on their own terms these rationales are open to question. Whatever
pre-code practice looked like, it would seem to have (at best) limited interpretive
significance today, given that Chapter 7 indubitably permits liens to be removed
in many situations. See Harmon v. United States, 101 F.3d 574, 581 (8th Cir.
1996) (collecting examples); In re Penrod, 50 F.3d 459, 461-62 (7th Cir. 1995).
And its far from clear how much we have to worry about the debtor winning a
windfall: in most Chapter 7 cases it will be the remaining unsecured creditors
rather than the debtor who will reap any appreciation in the propertys value. See
Dewsnup, 502 U.S. at 422 n.1 (Scalia, J., dissenting); see also David Gray
Carlson, Bifurcation of Undersecured Claims in Bankruptcy, 70 Am. Bankr. L.J.
1, 10-11 (1996). Even more fundamentally still, when it comes to interpreting
statutes the Court itself has repeatedly instructed that pre-enactment practice is
relevant only to the interpretation of an ambiguous text and holds no sway
when the statutory language is clear. RadLAX Gateway Hotel, LLC v.
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Amalgamated Bank, 132 S. Ct. 2065, 2073 (2012). And the language of 506(a)
and (d) does seem pretty plain.
All this has led Justice Thomas to observe that Dewsnup has created more
than a little methodological confusion, confusion enshroud[ing] both the
Courts of Appeals and, even more tellingly, Bankruptcy Courts, which must
interpret the Code on a daily basis. Bank of Am. Natl Trust & Sav. Assn v. 203
North LaSalle Street Pship, 526 U.S. 434, 463 (1999) (Thomas, J., concurring in
the judgment). In fact, both Dewsnups decision to depart from the plain
language of 506(a) and the rationales it supplied for doing so have engendered
many critics. 1
But this much still is clear. Right or wrong, the Dewsnuppian departure
from the statutes plain language is the law. It may have warped the bankruptcy
codes seemingly straight path into a crooked one. It may not be infallible. But
until and unless the Court chooses to revisit it, it is final.
1
That doesnt stop the Woolseys from trying to argue otherwise. In their
view, Dewsnup controls the meaning of the term secured under 506(d) only in
Chapter 7 cases. The very same term in 506(d), they contend, should be given
an entirely different meaning when it comes to handling Chapter 13 cases
requiring proof of value to avoid lien removal, just as the plain language of
506(a) suggests. And we must admit their argument isnt entirely without
appeal.
Take Dewsnups reasoning first. When interpreting 506(d), Dewsnup
relied heavily on perceptions about Chapter 7 practice. But, of course, 506(d)
applies equally to bankruptcies like the Woolseys proceeding under Chapter 13.
And as the Woolseys point out, very different considerations are at work in
Chapter 7 liquidation bankruptcies than in reorganization bankruptcies under
Chapter 13. In a Chapter 7 bankruptcy, the debtor liquidates his non-exempt
assets to provide for immediate repayment of as much of his debt as possible, and
in exchange receives immediate relief from dischargeable debt. See Marrama v.
Citizens Bank of Mass., 549 U.S. 365, 367 (2007). The satisfaction of secured
creditors comes primarily from a foreclosure sale of the collateral, and for this
reason under pre-code practice there wasnt usually much reason to allow the
debtor to void a lien on property he will be forced to surrender in any event. By
contrast, in a Chapter 13 case the debtors obligations are not met primarily
through liquidation. Instead of selling his assets to meet his debts, the debtor has
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to commit a portion of his future income for a period up to five years as part of
the bankruptcy repayment plan. In exchange, [t]he benefit to the debtor of
developing a plan of repayment under Chapter 13, rather than opting for
liquidation under Chapter 7, is that it permits the debtor to protect his assets.
H.R. Rep. No. 95-595, at 118 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6079.
All this suggests that lien stripping has a very different role to play in
Chapter 13 than in Chapter 7. While voiding a lien may afford few benefits in a
Chapter 7 proceeding, it may be more integral to achieving Chapter 13s goals.
After all, if the law always precluded lien stripping in the Chapter 13 context, a
debtor hoping to keep his property would have to provide for full repayment of a
lien no matter how large, even if his debt is secured by worthless collateral.
Faced with the prospect of paying much more than the property is worth under a
Chapter 13 plan, many more debtors would likely throw up their hands and simply
opt for liquidation. And this result would run contrary to Congresss preference
for individual debtors to use Chapter 13 instead of Chapter 7. See id. at 118. It
would undercut Congresss aim to allow individual debtors to retain the pride
attendant on satisfying a repayment plan rather than face the stigma of
liquidation. Id. It would thwart Congresss stated purpose to change the
treatment of secured creditors in Chapter 13 to focus on the true value of the
goods secured as collateral rather than simply the liens value as leverage
against the debtor. Id. at 124. And it would not even obviously help creditors as
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See also Haberman v. St. John Natl Bank (In re Haberman), 516 F.3d
1207, 1213 (10th Cir. 2008); Enewally v. Wash. Mut. Bank (In re Enewally), 368
F.3d 1165, 1170 (9th Cir. 2004) (The rationales advanced in the Dewsnup
opinion for prohibiting lien stripping in Chapter 7 bankruptcies . . . have little
relevance in the context of rehabilitative bankruptcy proceedings under Chapter
11, 12, and 13, where lien stripping is expressly and broadly permitted)
(quotation omitted); Wade v. Bradford, 39 F.3d 1126, 1128 (10th Cir. 1994);
Harmon, 101 F.3d at 581-82 & n.4; Margaret Howard, Secured Claims in
Bankruptcy: An Essay on Missing the Point, 23 Cap. U. L. Rev. 313, 314-16
(1994).
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See, e.g., Haberman, 516 F.3d at 1213; Enewally, 368 F.3d at 1169-70;
Bartee v. Tara Colony Homeowners Assoc. (In re Bartee), 212 F.3d 277, 291 n.21
(5th Cir. 2000).
4
Chapter 11: Wade v. Bradford, 39 F.3d 1126, 1128-30 (10th Cir. 1994);
In re Heritage Highgate, Inc., 679 F.3d 132, 144 (3d Cir. 2012). Chapter 12:
Okla. ex rel. Commrs of the Land Office v. Crook (In re Crook), 966 F.2d 539,
539 n.1 (10th Cir. 1992); Harmon, 101 F.3d at 582.
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(repeatedly) held as much. All that, of course, is curious enough in light of the
normal rule that identical words bear identical meaning throughout a statutory
structure. Sullivan, 496 U.S. at 484. But, the Woolseys say, we should go now a
step further and read the term secured claim to mean two different things even
within 506(d) itself. When a Chapter 7 case comes along, they say, the term
should mean what Dewsnup says it means: any claim secured under state
property law is protected from removal, even if backed by no value. But when a
court is faced with a Chapter 13 case, they argue, the term should be read to
require proof of value before a lien is protected from removal in accord with
506(a). They stress that Dewsnups rationales are limited to Chapter 7 cases
and that Dewsnup itself seems to suggest the term secured claims may be
interpreted to mean different things in different fact situations. 502 U.S. at
416.
Though we must admit the Woolseys invitation to undo Dewsnup in this
way has its attractions, its an especially odd invitation to issue, let alone for this
court to accept. After all, it violates yet another and even more elementary rule
of statutory interpretation: the rule against [a]scribing various meanings to a
single iteration of a statutory term in different applications. Ratzlaf v. United
States, 510 U.S. 135, 143 (1994) (emphasis added) (internal quotation marks
omitted). Though giving a term different meanings in different but related
statutes is one thing and disfavored enough, in recent years the Supreme Court
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has suggested that giving a single use of a term different meanings is another
thing altogether, a ploy not just frowned upon but methodologically incoherent
and categorically prohibited: To give these same words a different meaning for
each category [of cases to which they apply] would be to invent a statute rather
than interpret one. Clark v. Martinez, 543 U.S. 371, 378 (2005); see also id. at
386 (rejecting the dangerous principle that judges can give the same statutory
text different meanings in different cases); United States v. Santos, 553 U.S.
507, 522-23 (2008) (opinion of Scalia, J.) (Clark forcefully rejected the notion
that courts could giv[e] the same word, in the same statutory provision, different
meanings in different factual contexts (emphasis omitted)).
Applying this rule, the Supreme Court has refused to give different
meanings to a single statutory term even when the case for doing so is far
stronger than the case the Woolseys are able to muster here. In Clark, for
example, the Supreme Court held that when a statutory provision is given a
limiting construction to avoid a serious constitutional question arising from one
of its potential applications, that interpretation governs all applications of the
provision even those that do not raise the same constitutional concerns. Clark,
543 U.S. at 377-78. While noting that the statutory purpose and the
constitutional concerns motivating the prior limiting construction were not
present in the case before it, the Court held this still cannot justify giving the
same . . . provision a different meaning in different factual circumstances. Id. at
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directly as the Woolseys urge. As weve already alluded to, many courts seeking
to avoid Dewsnups pinch have invoked provisions specific to the reorganization
chapters to permit the removal or stripping down of liens unsupported by value.
And when it comes to Chapter 13, many courts have already identified one
apparently promising candidate in 1322(b)(2).
Section 1322 sets forth the provisions a Chapter 13 reorganization plan may
contain (as well as some that it must). Relevant for our purposes is 1322(b)(2),
which provides that the plan may
modify the rights of holders of secured claims, other than a claim secured
only by a security interest in real property that is the debtors principal
residence, or of holders of unsecured claims, or leave unaffected the rights
of holders of any class of claims[.]
In broad strokes, this provision permits a debtors plan to modify the rights
of secured or unsecured creditors all as part of Chapter 13s general effort to
find a realistically achievable repayment plan. Of course, the power to modify
creditors claims is qualified qualified both by other parts of 1322 not at
issue here, and by 1322(b)(2)s own internal limitation on the modification of
secured claims in real property. But those exceptions aside, the first and third
clauses of 1322(b)(2) arm the debtor with considerable power to modify the
rights of secured and unsecured creditors alike.
At first we wondered whether this modification power might include the
ability to strip off a lien unsupported by value in its collateral. To be sure,
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so long as Dewsnup remains the law. For that reason (and that reason alone) we
affirm. 5