United States Court of Appeals
For the First Circuit
No. 02-9005
IN RE: LYNN A. HART AND DAVID J. HART,
Debtors.
BANKNORTH, N.A., f/k/a PEOPLES HERITAGE BANK, N.A.,
Appellant,
v.
LYNN A. HART AND DAVID J. HART, DEBTORS,
Appellees.
ON APPEAL FROM THE UNITED STATES BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT
Before
Torruella, Circuit Judge,
Stahl, Senior Circuit Judge,
and Lipez, Circuit Judge.
Fred W. Bopp III, with whom Randy J. Creswell and Perkins,
Thompson, Hinckley & Keddy, P.A. were on brief, for appellant.
Jeffrey M. Frankel, for appellees.
May 8, 2003
TORRUELLA, Circuit Judge. Banknorth, N.A. (the "Bank")
appeals a judgment from the Bankruptcy Appellate Panel (the
"Appellate Panel") affirming an order of the United States
Bankruptcy Court of the District of Massachusetts ("Bankruptcy
Court"), which granted the Debtors-Appellees' Motion To Avoid
Judicial Liens Pursuant to 11 U.S.C. § 522(f). The Appellate Panel
concluded that § 522(f)(2)(C) clarifies that judgments authorizing
the sale of mortgaged premises are not judicial liens subject to
avoidance under § 522(f)(1). We concur in the Appellate Panel's
interpretation and, thus, affirm the judgment below.
I. Background
The facts of this case are undisputed. On May 23, 1996,
a Maine superior court granted People's Heritage Bank1 a
foreclosure and sale judgment on the Bridgton, Maine property of
David and Lynn Hart (collectively, the "Debtors"). After sale of
the property, the Bank obtained a deficiency judgment in the amount
of $11,718.54 plus interest and costs.
Though the underlying suit involved a default on a home
in Maine, the Debtors were property owners in, and residents of,
Woburn, Massachusetts. Accordingly, the Bank brought an action to
enforce its deficiency judgment against debtors and their property
in a Woburn district court, and on July 3, 1997, judgment was
1
Effective January 1, 2002, People's Heritage Bank, N.A. changed
its name to Banknorth, N.A.
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entered against the Debtors in the amount of $12,921.48 plus
interest.2 On July 29, 1997, the Bank recorded the Massachusetts
Writ of Execution with the Registry of Deeds for the Southern
District of Middlesex County, thereby creating, in accordance with
Massachusetts law, a lien on the Woburn property (the "Lien"). See
Mass. Gen. Laws ch. 236, § 4.
On January 5, 1997, while these state court proceedings
were progressing, David J. Hart filed for Chapter 7 relief; then,
on January 5, 1998, his spouse, Lynn A. Hart, filed for Chapter 7
relief.3 On March 23, 2001, the Debtors filed a Lien Avoidance
Motion in the Bankruptcy Court (the "Motion"), claiming that the
Bank's judicial Lien impaired an exemption that they were entitled
to under 11 U.S.C. § 522(d)(1) and (5). The Bank argued that
because the Lien arose from a deficiency judgment after foreclosure
of a mortgage in Maine, the nature of the Lien made it unavoidable
under § 522(f)(2)(C), which does not allow a debtor to avoid a
"judgment arising out of a mortgage foreclosure."
On August 14, 2001, the Bankruptcy Court granted the
Debtors' Motion, concluding that the Lien did not derive from a
"judgment arising out of a mortgage foreclosure" within the meaning
2
The Debtors defaulted in the district court proceedings.
3
In December of 2000, the Bankruptcy Court granted the Debtors'
motion for joint administration, and the cases were consolidated.
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of § 522(f)(2)(C). The Appellate Panel affirmed the determination,
and this appeal followed.
II. Statutory Interpretation
This appeal forces us to determine whether mortgage
deficiency judgments are excluded from avoidance under § 522(f) by
virtue of § 522(f)(2)(C). To resolve this issue, we must construe
the statute. "A question of the interpretation of the Bankruptcy
Code, like any other question of statutory interpretation, is a
question of law that we review de novo." In re Weinstein, 272 F.
3d 39, 42 (1st Cir. 2001).
A debtor's ability to avoid the fixing of a judicial lien
derives from § 522(f) of the Bankruptcy Code, which provides, in
relevant part, that:
(f)(1) Notwithstanding any waiver of
exemptions but subject to paragraph (3), the
debtor may avoid the fixing of a lien on an
interest of the debtor in property to the
extent that such lien impairs an exemption to
which the debtor would have been entitled
under subsection (b) of this section, if such
lien is--
(A) a judicial lien, other than a judicial
lien that secures a debt--
(i) to a spouse, former spouse, or child of
the debtor, for alimony to, maintenance for,
or support of such spouse or child, in
connection with a separation agreement,
divorce decree or other order of a court of
record, determination made in accordance with
State or territorial law by a governmental
unit, or property settlement agreement; and
. . .
(2)(A) For the purposes of this subsection, a
lien shall be considered to impair an
exemption to the extent that the sum of--
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(i) the lien,
(ii) all other liens on the property; and
(iii) the amount of the exemption that the
debtor could claim if there were no liens on
the property; exceeds the value that the
debtor's interest in the property would have
in the absence of any liens.
. . . .
(C) This paragraph shall not apply with
respect to a judgment arising out of a
mortgage foreclosure.
11 U.S.C. § 522(f).
Courts that have considered whether § 522(f)(2)(C) allows
debtors to avoid mortgage deficiency liens have come to conflicting
conclusions because most have assumed that the provision is
ambiguous and have put state foreclosure law into the calculus.
See, e.g., In re Smith, 270 B.R. 557, 561 (Bankr. W.D.N.Y. 2001)
(using New York law distinctions between equitable and legal forms
of relief to find that "a deficiency judgment is not subject to the
exclusion of 11 U.S.C. § 522(f)(2)(C)"); In re Vincent, 260 B.R.
617, 621-22 (Bankr. D. Conn. 2000) ("[A]lthough they are ambiguous
in the present context, the words, 'judgment arising out of . . .
a mortgage foreclosure,' more naturally suggest the mechanics of a
Connecticut deficiency judgment rather than that of a mortgage
transmutation . . . . [A]ccordingly, that lien is not avoidable
under Section 522(f) of the Bankruptcy Code."). But see In re
Pascucci, 225 B.R. 25, 28 (Bankr. D. Mass. 1998) ("While
Massachusetts has articulated protection of the family as the goal
of its homestead statute, that statement does not override the
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plain provisions of § 522(f). Federal law determines whether
property is exempted and immunized against seizure and sale of
prebankruptcy debts.") (quotation marks and citation omitted).
However, we find that application of state law is
inappropriate because the statute is not ambiguous. In re
Weinstein, 272 F.3d 39, 43 (1st Cir. 2001) (stating that when we
interpret the Bankruptcy Code, we first consider the text of the
statute, and "[i]f sufficiently clear, that text assumes overriding
importance"). When we closely examine the structure of § 522(f),
the meaning of the terms used in § 522(f)(2)(C) become
"sufficiently clear" for us to conclude that Congress did not
intend § 522(f)(2)(C) as an exception to otherwise avoidable liens.
We begin our inquiry with the language of the statute.
United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989).
Crucial to our interpretation is our need to determine to what
Congress was referring when it used the phrase "this paragraph" in
§ 522(f)(2)(C) ("This paragraph shall not apply with respect to a
judgment arising out of a mortgage foreclosure"). Because Congress
failed to designate the meaning of "this paragraph," we determine
its meaning by "examin[ing] the statute as a whole, giving due
weight to design, structure, and purpose as well as to aggregate
language." Cablevision of Boston, Inc. v. Pub. Improvement Comm'n,
184 F.3d 88, 101 (1st Cir. 1999).
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Like the Appellate Panel, when we examine the structure
of § 522 and analyze the placement of § 522(f)(2)(C) within this
structure, we find that the meaning of "this paragraph" is not
ambiguous and that 522(f)(2)(C) does not create any exception to
otherwise avoidable judicial liens. Congress uses "paragraph" to
refer to the numbered sections of the statute, and specifically,
uses "this paragraph" to refer to § 522(f)(2). This structural
analysis also makes it clear that Congress uses "this subsection"
in § 522(f)(2)(A) to refer to all of § 522(f). Consequently, we
are to utilize § 522(f)(2)(A)'s impairment formula for all judicial
liens.
Section 522(f)(2)(C) does not create different treatment
for "a judgment arising out of a mortgage foreclosure." Instead,
Congress used § 522(f)(2)(C) to contrast mortgage foreclosure
judgments from liens which are avoidable under § 522(f), clarifying
that the entry of a foreclosure judgment does not convert the
underlying consensual mortgage into a judicial lien which may be
avoided. Mortgage foreclosure judgments do not become judicial
liens subject to avoidance under § 522. "Rather, a deficiency
judgment -- whether it arises in a foreclosure action as in Maine
or in a separate action as in Massachusetts -- is a non-consensual
judicial lien like any other which is subject to avoidance under
§ 522(f)." In re Linane, No. 02 B 42557, 2003 Bankr. LEXIS 230, at
*9 (N.D. Ill. Mar. 17, 2003).
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Our interpretation provides a logical and coherent
reading of Congress' organization of § 522. If Congress intended
to except mortgage foreclosure judgments, then § 522(f)(1) was the
natural, and trouble-free, place to insert such an exception.
Congress' chosen language supports our interpretation. Congress
uses the word "lien" throughout § 522(f) and only uses "judgment"
in § 522(f)(2)(C). As the Appellate Panel pointed out, Congress
would have used the word "lien" if it intended to exclude
deficiency judgment liens. "[I]t is a general principle of
statutory construction that when Congress includes particular
language in one section of a statute but omits it in another
section of the same Act, it is generally presumed that Congress
acts intentionally and purposely in the disparate inclusion or
exclusion." Barnhart v. Sigmon Coal Co., 534 U.S. 438, 452 (2002)
(quotation marks and citation omitted).
Subsection 522(f)(2)(C) lacks legislative history, and as
we discussed in In re Silveira, 141 F.3d 34, 33-39 (1st Cir. 1998),
the legislative history of the amendments to § 522(f) is
unreliable, making the intention of the drafters tenebrous. See In
re Pascucci, 225 B.R. 25, 28 (Bankr. D. Mass. 1998) (stating that
"the First Circuit has demonstrated that the legislative history of
the amendments to § 522(f) is unreliable and therefore the exact
purpose cannot be deciphered"). Consequently, our inquiry is
complete because "[t]he plain meaning of legislation should be
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conclusive, except in the rare cases in which the literal
application of a statute will produce a result demonstrably at odds
with the intentions of its drafters."4 Ron Pair Enters., Inc., 489
U.S. at 242 (quotation marks and citation omitted). And as the
Supreme Court has directed us, "courts must presume that a
legislature says in a statute what it means and means in a statute
what it says there. When the words of a statute are unambiguous,
then, this first canon is also the last: judicial inquiry is
complete." Barnhart, 534 U.S. at 461-62 (quotation marks and
citation omitted).
III. Conclusion
For the reasons stated above, we affirm the determination
of the Appellate Panel.
Affirmed.
4
The Bank does not challenge on appeal the Appellate Panel's
determination that, insofar as the Bank placed the lien upon the
Massachusetts property after David Hart had filed his bankruptcy
petition, the lien was a violation of the automatic stay and,
therefore, void as to David Hart's interest in the property. We
agree that the violation of the stay only voided the Bank's lien on
the Debtor David Hart's interest in the Massachusetts property.
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