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Briggs v. Johns

United States District Court, W.D. Louisiana, Shreveport Division

September 28, 2018





         Before the Court is an appeal filed by Debtor Marlea Adley Briggs ("Briggs") from the Bankruptcy Court's May 15, 2017 order denying confirmation of her first proposed plan and the Bankruptcy Court's August 17, 2017 order overruling her objection and confirming a plan that she opposed. [Record Document 1]. The Trustee, Todd S. Johns ("Trustee"), opposes the appeal and asks this Court to affirm the Bankruptcy Court's orders. [Record Document 9]. For the reasons assigned herein, the orders of the Bankruptcy Court [Bankr. Documents 29 and 49][1] are hereby REVERSED, and this matter is REMANDED for further proceedings consistent with this Memorandum Ruling.


         On December 31, 2016, Briggs filed for Chapter 13 bankruptcy. [Bankr. Document 1]. Briggs lives with her husband, and her income is above the median income for a two-person household in Louisiana. [Bankr. Document 29 at 3, 6]. Briggs's first plan proposed to pay $9, 500 to her unsecured creditors. [Id. at 19]. After Briggs resolved several objections to the Trustee's satisfaction, he submitted her plan to the Bankruptcy Court for confirmation. [Record Document 1-2 at 3]. Rather than approve the plan in light of the absence of objections, the Bankruptcy Court set a confirmation hearing. [Bankr. Document 18]. The Bankruptcy Court then denied confirmation on the basis of its sua sponte objection to Briggs's calculation of her disposable income. [Bankr. Document 29]. When calculating her disposable income on Form 122C-2, Briggs deducted $913.00 for mortgage or rent expenses. [Bankr. Document 1 at 56]. This amount is the IRS Local Standard for rent for a two-person household in Bossier Parish, Louisiana. [Bankr. Document 29 at 15]. Reasoning that Briggs could not deduct a rental expense that she did not incur, the Bankruptcy Court held that she was entitled to deduct $438.20 only-the actual amount of her monthly mortgage payments. [Id. at 15-19].

         To comply with the Bankruptcy Court's ruling, Briggs filed an amended plan that limited her mortgage deduction to the value of her mortgage payments, thereby increasing the amount that she would pay her unsecured creditors. [Bankr. Documents 37 at 2 and 43]. She then objected to confirmation of this plan. [Bankr. Document 46]. The Bankruptcy Court overruled the objection and confirmed the plan. [Bankr. Document 49]. This appeal followed. [Record Document 1].


         District courts have appellate jurisdiction over final judgments, orders, and decrees issued by bankruptcy courts. 28 U.S.C. § 158(a)(1) (2012). A confirmation order is a final judgment for purposes of these appeals. Bullard v. Blue Hills Bank, 135 S.Ct. 1686, 1692 (2015). Because the Bankruptcy Court confirmed the plan to which Briggs objected, [Record Document 49], this Court has jurisdiction over her appeal.


         In reviewing a decision by a bankruptcy court, a district court functions as an appellate court, applying the same standards of review applied by federal appellate courts. In re Webb (Webb v. Reserve Life Ins. Co.), 954 F.2d 1102, 1103-04 (5th Or. 1992). Thus, a bankruptcy court's discretionary decisions are reviewed under an abuse of discretion standard, findings of fact are reviewed for clear error, and legal conclusions are reviewed de novo. In re ASARCO, L.L.C (ASARCO v. Barclays Capital, Inc.), 702 F.3d 250, 257 (5th Cir. 2012).


         A central issue in this case is whether a bankruptcy court has the authority to object sua sponte to a proposed plan's calculation of a Chapter 13 debtor's disposable income. The Supreme Court has noted that the purpose of the disposable income calculation is to "help ensure that debtors who can pay creditors do pay them." Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 64 (2011) (citing H.R. Rep. No. 109-31, pt. 1, at 2 (2005)). On the basis of this policy and a bankruptcy court's independent duty to assure itself of debtors' good faith, the Bankruptcy Court concluded not only that it could refuse to confirm a plan relying on an incorrect disposable income calculation, but that it must do so. [Bankr. Document 29 at 23-24]. The Bankruptcy Court gave three reasons for reaching this result. [Id. at 23-28]. First, the Bankruptcy Court held that the Supreme Court's decision in United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), stands for the proposition that a bankruptcy court has an "independent duty to review all budgets and Chapter 13 plans." [Bankr. Document 29 at 24]. Second, because confirmed plans bind both debtors and creditors, the Bankruptcy Court asserted that it had a duty to correct errors before confirmation. [Id. at 25]. Relatedly, the Bankruptcy Court pointed out that when it disagrees with the Trustee over the interpretation of the Bankruptcy Code (the "Code"), there is no practical means to resolve this dispute other than sua sponte objections, particularly in light of the tendency of Chapter 13 creditors in this district to limit their involvement to filing proofs of claim. [Id. at 26-27]. The result is to make trustees the "final arbiter[s]" of Chapter 13 plans-a result that in the Bankruptcy Court's view is undesirable because the current trustee in the Western District of Louisiana is relatively inexperienced as a trustee. [Id.]. Finally, the Bankruptcy Court rejected a limited view of its power that would relegate it to being "simply a confirmation order signing machine." [Id. at 27].

         Briggs raises four claims of error on appeal, two of which relate to a threshold issue of the Bankruptcy Court's inherent authority. [Record Document 8 at 3]. First, Briggs asks this Court to review whether Espinosa authorized the Bankruptcy Court's sua sponte objection to her disposable income calculation. [Id.]. Second, she asks this Court to determine whether the Code prevents anyone other than a Chapter 13 trustee and unsecured creditors from objecting to a debtor's disposable income calculation. [Id.]. Briggs believes both questions should be answered in the negative. Specifically, she contends that the portion oiEspinosa on which the Bankruptcy Court relied is dicta and, in any event, applies only to a particular subset of Code provisions-those that are "self-executing." [Id. at 23-25]. Because the provisions related to the disposable income calculation are not self-executing, she argues that a bankruptcy court cannot independentiy object to plans that improperly calculate a debtor's disposable income. [Id. at 26-27]. She then disputes the Bankruptcy Court's characterization of its objection as an exercise of its authority to police debtors' good faith because "[g]ood faith is not an economic test" and because the Bankruptcy Court did not make the findings required to reject a plan for a lack of good faith. [Id. at 28]. Briggs's remaining two issues concern the correctness of her preferred disposable income calculation. [Id. at 3].[2]

         In his brief, the Trustee argues that the Bankruptcy Court's reading of Espinosa is correct and points to several ptt-Espmosa cases that he interprets as holding that a bankruptcy court has independent authority to object to any provision of a proposed Chapter 13 plan. [Record Document 10 at 22-23]. In particular, he argues that despite the presence of the "self-executing" modifier in Espinosa, the holding of that case applies to every requirement that the Code imposes on a debtor's plan. [Id. at 24]. Briggs's reply brief distinguishes the cases cited by the Trustee by pointing out that none of them expressly hold that the disposable income calculation is subject to sua sponte objections. [Record Document 13 at 9-10].


         This Court's analysis begins with the language of the Code. The filing of a bankruptcy petition creates a bankruptcy estate comprising all of a debtor's legal and equitable interests in property unless specifically excluded by statute. 11 U.S.C. § 541(a) (2012). In a Chapter 13 proceeding the estate also includes property and earnings acquired by the debtor "after the commencement of the case but before the case is closed, dismissed, or converted." Id. ยง 1306(a)(1)-(2). Once a ...

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