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. 333 13 (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. 444 12 (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. at 13 357; 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. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28