USCA1 Opinion
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT
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No. 95-1369
IN RE: DERALD E. YOUNG AND MARY P. YOUNG,
Debtors.
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DERALD E. YOUNG AND MARY P. YOUNG,
Appellants,
v.
KEY BANK OF MAINE, ET AL.,
Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge] ___________________
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Before
Selya and Boudin, Circuit Judges, ______________
and Saris,* District Judge. ______________
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Ralph W. Brown for appellants. ______________
Jana S. Stabile, with whom Michael S. Haenn was on brief, ________________ ________________
for appellees.
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September 29, 1995
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*Of the District of Massachusetts, sitting by designation.
SELYA, Circuit Judge. This appeal raises an issue SELYA, Circuit Judge. _____________
which, but for its effect on the parties before us, might well
deserve a place among the inhabitants of Madame Tussauds's
Waxworks. The tale follows.
We begin with basic bankruptcy bromides. Chapter 13 of
the Bankruptcy Code, 11 U.S.C. 1301-1330, enables individual
debtors to reorganize their financial affairs, so to speak, by
extending due dates and servicing their debts out of future
income pursuant to a payment plan crafted under the supervision
of the bankruptcy court. In contrast, Chapter 7 of the Code, 11
U.S.C. 701-766, provides for what is commonly termed "straight
bankruptcy." It contemplates the liquidation of a debtor's
estate, the distribution of available assets to his or her
creditors, and ultimate relief from liability for all
dischargeable debts. Because the two chapters mark a natural
progression from difficult financial straits to unpassable
financial straits, a proceeding under Chapter 13 may be converted
into a proceeding under Chapter 7 if the reorganization of the
debtor's affairs founders. See 11 U.S.C. 1307. ___
When such a conversion occurs, the Chapter 7 proceeding
"relates back" in the sense that the Chapter 7 petition is deemed
to have been filed on the filing date of the original Chapter 13
petition. See 11 U.S.C. 348(a). An enigma arises, however, ___
where a debtor has earned income during the pendency of the
Chapter 13 petition, because the statutory mosaic makes clear
that a Chapter 13 estate includes post-petition earnings, see 11 ___
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U.S.C. 1306(a)(2), and a Chapter 7 estate does not, see 11 ___
U.S.C. 541(a). Therein lies the rub. For many years, courts
could not agree on an answer to the question of whether post-
petition income paid to a Chapter 13 trustee became property of
the Chapter 7 estate on conversion of an insolvency proceeding
from a workout to a straight bankruptcy, even though such income
would not be property of the estate had the debtor initially
filed his or her petition under Chapter 7. In this case the
lower courts ruled that such post-petition income inures to the
benefit of the Chapter 7 trustee. This appeal ensued.
The material facts are undisputed. The debtors, Derald
and Mary Young, owned and operated a conglomeration of business
enterprises including Damn Yankee Gifts, Damn Yankee Balloons,
Damn Yankee Pewter, and Damn Yankee Sheepskin. On October 22,
1992, the Youngs petitioned for relief from their creditors under
Chapter 13. A payment plan emerged. The bankruptcy court
approved it, and the debtors agreed to abide by it.
While attempting to satisfy the terms of the plan, Mr.
and Mrs. Young tendered a total of $24,498 in interim earnings to
the Chapter 13 trustee. But, to paraphrase the Scottish poet,
the best-laid plans of creditors and debtors often go awry. Cf. ___
Robert Burns, To a Mouse (1785). The payment plan collapsed when __________
the Youngs found themselves unable to sell off certain assets.
Key Bank of Maine, a secured creditor, took steps to protect its
interests and, over the debtors' objection, forced a conversion
of the Chapter 13 proceeding into a straight bankruptcy under
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Chapter 7.
The Youngs subsequently moved to determine the property
of the Chapter 7 estate in order to settle the status of their
post-petition contribution. Initially, the bankruptcy court
accepted the debtors' position and held that the funds were the
property of the Chapter 13 trustee. On reconsideration, the
court revoked its earlier order and decided, favorably to Key
Bank, that the funds were the property of the Chapter 7 estate.
On July 20, 1994, the bankruptcy judge entered a new order to
that effect. The debtors appealed to the district court, which
upheld the July 20 order. We now reverse.
At the time the events leading to this conundrum
occurred, the authorities were divided. Many courts held, as did
the courts below, that post-petition earnings comprised part of
the Chapter 7 estate when a Chapter 13 proceeding was converted
to a straight bankruptcy. See, e.g., In re Calder, 973 F.2d 862, ___ ____ ____________
866 (10th Cir. 1992); In re Lybrook, 951 F.2d 136, 137 (7th Cir. _____________
1991); In re Tracy, 28 B.R. 189, 190 (Bankr. D.Me. 1983). Other ___________
courts espoused the opposite view. See, e.g., In re Bobroff, 766 ___ ____ _____________
F.2d 797, 803 (3d Cir. 1985); In re Borrero, 75 B.R. 141, 142 ______________
(Bankr. D.P.R. 1987); In re Peters, 44 B.R. 68, 70-72 (Bankr. _____________
M.D.Tenn. 1984).1 The division in the authorities is
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1In yet a third variation on the theme, a few courts held
that if post-petition earnings were accumulated before the
confirmation of a Chapter 13 payment plan, such funds did not
become property of the Chapter 7 estate upon conversion; but if
the funds were earned subsequent to the confirmation of a plan,
they would then become property of the Chapter 7 estate upon
conversion. See, e.g., In re Schmeltz, 114 B.R. 607, 610-13 ___ ____ _______________
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understandable. The question is excruciatingly close, respected
jurists disagree as to how it can best be answered, and as Judge
Posner acknowledged, the arguments on either side of the line
offer "equally good alternative[s]." Lybrook, 951 F.2d at 137. _______
Thus, for all intents and purposes the law was indeterminate when
this question came before the courts below, and those courts
resolved the indeterminacy in a plausible way.
Nevertheless, judges sometimes view issues quite
differently, and our responsibility to the parties before us
requires that, on a matter of law committed to our plenary
review, see In re G.S.F. Corp., 938 F.2d 1467, 1474 (1st Cir. ___ ___________________
1991), we must interpret the applicable statutes as we read them,
consistent with our exposition of discerned congressional intent
and without paying special deference to the courts below.
Fulfilling our proper function here, we reach a conclusion
contrary to that reached by the bankruptcy judge and the district
judge. Consequently, we hold that post-petition income earned by
and contributed to a Chapter 13 estate (prior to the change in
the law discussed infra) did not, upon the conversion of the _____
proceeding to a straight bankruptcy, become property of the
Chapter 7 estate.
At this point, the plot thickens. Ordinarily, we would
now proceed to present an analysis of the bases for our decision,
explicating our reasoning in suitable detail. But the
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(Bankr. N.D.Ind. 1990); In re Holly, 109 B.R. 524, 526 (Bankr. ____________
S.D.Ga. 1989); In re Richardson, 20 B.R. 490, 492 (Bankr. __________________
W.D.N.Y. 1982).
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circumstances of this case are well out of the ordinary, and they
counsel a different, more muted course. We explain briefly.
Perhaps because of the split in authority about how
best to synchronize Chapter 13 and Chapter 7, Congress acted
within the past year to demystify the situation. The Bankruptcy
Reform Act of 1994 answered the very question that confronts us.
It essentially codified the Bobroff rule, enacting a statutory _______
provision designed to ensure that, on conversion from a Chapter
13 proceeding,
property of the estate in the converted case
shall consist of property of the estate, as
of the date of filing of the petition, that
remains in the possession of or is under the
control of the debtor on the date of
conversion.
11 U.S.C. 348(f)(1)(A) (1994). In all future cases, this rule
(subject to a statutory "bad faith" exception not of concern
here) will govern. But the newly crafted statute does not apply
in this case: the Bankruptcy Reform Act explicitly bars
retroactive application of the statutory solution to accruals
antedating the Act's effective date (October 22, 1994). See Pub. ___
L. No. 103-394, 702, 108 Stat. 4106, 4150. The Youngs filed
their Chapter 13 petition exactly two years earlier, and the
Chapter 13 trustee had the disputed funds in hand well before the
amendment's effective date. As a result, section 348(f) is not
controlling in this case.
Be that as it may, it ill behooves us to play the
ostrich, struthiously pretending that the neoteric statute is not
now in force. Though the amendment does not affect the outcome
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of this appeal, it punctuates our opinion and strips it of
virtually all precedential value. Where, as here, we face a
lingering question of law that is defunct except as to a handful
of ongoing cases, we see no point in writing at length either to
elucidate our rationale or to justify our construction of an
ambiguous statute that Congress has lately taken pains to
clarify. Cf. In re San Juan Dupont Plaza Hotel Fire Litig., 989 ___ ______________________________________________
F.2d 36, 38 (1st Cir. 1993) (suggesting that an appellate court
should not write opinions "simply to hear its own words
resonate"). This is especially true in the instant case, since
other courts have spelled out the reasons supporting our
conclusion. See Bobroff, 766 F.2d at 803; Peters, 44 B.R. at 70- ___ _______ ______
72. Given this peculiar concatenation of circumstances, we are
confident that going further would merely add another floor to
the Tower of Babel.
The judgment of the district court is reversed, and the The judgment of the district court is reversed, and the _______________________________________________________
cause is remanded to the district court with instructions to cause is remanded to the district court with instructions to _________________________________________________________________
vacate the order of the bankruptcy court and to remit the case vacate the order of the bankruptcy court and to remit the case _________________________________________________________________
for the entry of a decree consistent herewith. All parties will for the entry of a decree consistent herewith. All parties will _________________________________________________________________
bear their own costs. bear their own costs. ____________________
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