Argument analysis: Justices frustrated by indeterminacy of Bankruptcy Code
on Apr 2, 2015 at 5:20 pm
The Court started its bankruptcy day with Harris v. Viegelahn, a case involving the seemingly minor question of what happens to funds that a bankruptcy trustee is holding at the moment that a debtor converts from a Chapter 13 proceeding (in which the debtor makes payments to creditors out of current wages) to a Chapter 7 proceeding (in which the debtor retains its current wages but liquidates any nonexempt assets and distributes the proceeds to creditors).
The argument revolved around a single theme, repeatedly emphasized by several active questioners. The mood of the Court was apparent when Justice Antonin Scalia interrupted Matthew Madden (arguing that the debtor Harris should receive the funds) early in his attempt to present his “plain language” reading of the statute: “It really doesn’t say what happens to it does it? It just says what becomes the estate of the Chapter 7 bankruptcy. It leaves up in the air what happens to the material that is not described in that provision. So why would it go back to the debtor automatically?”
Understandably, Madden persisted doggedly with his effort to persuade the Justices that the statute compelled the return of the funds to Harris. But that only led Justice Stephen Breyer to a more specific explication of the statute’s ambiguity:
It describes the property of the 13 estate “that remains in the possession or is under the control of the debtor.” Is this money which is with the trustee “in the possession” of the debtor? No. Is it “under the control” of the debtor? … I really read th[ose words] several times in the statute. I couldn’t say that you’re favored or they’re favored, because I don’t know the answer to that word, “control,” and I couldn’t find anything that really helped.
suggested that their answer to the case would turn on their assessment of more general policies that the statute implements. Justice Elena Kagan pressed that perspective most specifically. Thus, following on Justice Breyer’s emphatic assertion of the statute’s ambiguity, she asked Madden to address the policy consequences of returning the funds to Harris, referring to an oft-cited Fifth Circuit decision:
Mr. Madden, there’s a policy argument that cuts against you [discussed by the Fifth Circuit]. And of course it’s only relevant if the statute doesn’t say much of anything about this. But let’s assume for this purpose that the statute doesn’t say much of anything about this. What the Fifth Circuit said was that Chapter 13 is essentially a quid pro quo, that the debtor gives up a certain amount of his wages, but in exchange, the debtor gets to keep his assets. And here what the debtor is essentially asking for is to get back the wages, but he’s gotten the benefit of having kept his assets. So he’s kind of asking for the quid without the quo or the quo without the quid, or whatever it is.
Her evenhandedness was apparent during the argument of Craig Goldblatt, arguing that the funds should be returned to Viegelahn (the bankruptcy trustee). Her policy question to him was equally pointedness, though perhaps not worded with such verve:
But there’s also a policy argument, Mr. Goldblatt, that works against you, which is that one of the things we know is that Congress didn’t want to disincentivize debtors from using Chapter 13. And essentially, if you win, under your argument, the debtor is worse off for having tried Chapter 13 than if he had gone into Chapter 7 initially, because he’s now being put to paying down debt that would have been discharged under Chapter 7, and why should we give him that kind of double whammy, given Congress’s view that we should want people to try Chapter first.
Justice Scalia, Chief Justice John Roberts, and Justice Anthony Kennedy all emphasized a different policy concern, which seemed to them to weigh heavily in favor of the trustee: the oddity that the trustee’s selection of a schedule for distributing funds would have such a direct effect on the amount the debtor had to pay to its creditors. Justice Scalia raised the point first, asking Madden:
Why would Congress adopt a rule that depends so much on happenstance? I mean, if the trustee distributes the money promptly, there’s nothing there. If he waits three months, the debtor gets it all back. It’s random, just utterly – why would anybody adopt a rule like that? … So you’re saying that Congress is forcing the debtor, and the creditors, I suppose, to roll the dice, right? He doesn’t know what he’s going to get back; it depends on whether the trustee is lazy or not.
Pursuing the same point, Justice Kennedy seemed incredulous:
I don’t understand. The three month’s wages have accumulated in the estate. In the ordinary course, if there’s no change, they’re going to go out to the creditors. And you just said that the creditors can’t get them? I didn’t quite get that. They can’t get them only because, as the questions have indicated, that the trustee is doing something else for a week?
Once so many of the Justices admit that they are “dealing with an absolute void” (Justice Scalia’s phrase), it is difficult to draw firm conclusions from their discussion of policy concerns at the argument. To the extent that discussion seemed to lean one way or the other, my sense is that the balance of the discussion supported the trustee – the acerbic tone of Justices Scalia and Kennedy suggests a settling in of perspective less likely to be outweighed by later deliberations than Justice Kagan’s more contemplative tone.
In the end, the most interesting thing about the case will be how the Court explains the result. I look forward with anticipation to see whether the opinion that appears in a few months describes a result compelled by a “plain-language” interpretation of an “unambiguous” statute. Any close reader of Supreme Court opinions has their favorite cases in which statutes seem a lot clearer after the Justices decide how they wish to read them than they did before the Court turned to them. It would be refreshing to see an opinion that acknowledges the statute’s weaknesses with the same directness as the argument. But I wouldn’t count on it.
