On an issue long dividing the lower courts, the First Circuit became the first court of appeals to decide whether the automatic termination of the stay 30 days after a repeat filing only ends the stay as to the property of the debtor.

Adopting the position taken by a minority of lower courts regarding Section 362(c)(3)(A), the First Circuit held on December 12 that the stay automatically terminates as to debtor, property of the debtor, and property of the estate. The First Circuit concluded that Congress so poorly drafted subsection (c)(3)(A) that the canons of statutory construction provide little utility in divining the answer.

The Facts and the Statute

The debtor had filed chapter 13 three times. The third filing occurred a month after the second case was dismissed. The debtor confirmed a five-year chapter 13 plan in his third case.

The debtor was not a total deadbeat. He had made payments three years before the first case was dismissed and two years after filing the second petition.

In the third case, the state taxing authority filed a motion under Section 362(j) for a declaration about the extent of the automatic termination of the stay under Section 362(c)(3)(A).

In terms of drafting, subsection (c)(3)(A) is a hash. It uses the phrase “with respect to” three times. If an individual’s case under chapters 7, 11 or 13 has been dismissed within a year, the subsection provides that the automatic stay in Section 362(a) terminates 30 days after the most recent filing “with respect to any action taken with respect to a debt or property securing such debt . . . with respect to the debtor . . . .” [Emphasis added.]

Much of the confusion arises from the italicized language. Does it mean the stay only terminates with respect to property of the debtor? In 2006, retired Bankruptcy Judge A. Thomas Small of Raleigh, N.C., said that Section 362(c)(3)(A) “stands out” among the “head-scratching opportunities” found in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or BAPCPA. In re Paschal, 337 B.R. 274, 277 (Bankr. E.D.N.C. 2006).

The Decision by Bankruptcy Judge Fagone

Ruling on the taxing authority’s motion, Bankruptcy Judge Michael A. Fagone of Bangor, Maine, declined to follow two decisions by the First Circuit Bankruptcy Appellate Panel.

Instead, Judge Fagone adopted the approach taken by the minority of courts. He saw the 2005 amendments as designed “‘to correct perceived abuses of the bankruptcy system,’” including “the problem of successive bankruptcy filings interfering with foreclosures.” In re Smith, 573 B.R. 298, 303 (Bankr. D. Maine Aug. 18, 2017).

Judge Fagone said that Congress intended “to remedy that problem” by terminating the automatic stay even as to property of the estate. Id. The majority approach, he said, “turns myopically upon the meaning of five words in a lengthy and complex statute, while failing to promote the statute’s manifest purpose.” Id.

Judge Fagone was upheld in district court, prompting the debtor to appeal.

The First Circuit Opinion

The question was well presented to the circuit court by the debtor, supported by an amicus brief from the National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys. Still, the debtor lost in the 34-page opinion on December 12 by Circuit Judge Sandra L. Lynch.

The appeal presented a “close question,” Judge Lynch said. Lacking authority from the courts of appeals, she conceded that a majority of courts around the country believe the stay does not terminate automatically as to property of the estate. The First Circuit BAP twice ruled that the stay does not terminate as to estate property, while two district courts in the First Circuit held that the stay terminates both as to property of the debtor and the estate.

Judge Lynch said that “textual arguments . . . do not resolve the issue.” She therefore based her opinion on “the provision’s text, its statutory context, and Congress’s intent.” The broader termination of the stay, she said, “is the only one compatible with the text, seen in light of its context and purpose.”

Arguing for a plain-meaning interpretation of the statute, the debtor contended that “with respect to the debtor” limits the termination of the stay to property of the debtor (of which there is almost none in chapter 13). Reading the subsection more broadly, Judge Lynch’s opinion is a tour de force on the plain meaning doctrine and canons of statutory construction.

Judge Lynch said that the subsection “does not lend itself to one clear reading.” Given its “oddities, including redundancy,” the “meaning is not plain,” she said, because the “language at issue could have different meanings.”

For reasons she explained in copious detail, Judge Lynch concluded that “with respect to the debtor” is “superfluous.”

Judge Lynch relied on King v. Burwell, 135 S. Ct. 2480, 2492 (2015), where the Supreme Court warned against “rigorous application of the canon[s of construction]” when a statute may have been “inartful[ly] drafted.”

Judge Lynch followed King because, she said, the subsection “deviates” from “assumptions about artful drafting.” The statute, she said, “is a collection of ‘with respect to’ phrases, and it is not obvious how the phrases relate to each other, or how the phrases connect with other related provisions.”

The phrase “with respect to the debtor,” Judge Lynch said, “does not on its own obviously support or obviously foreclose either party’s reading.” So, she turned to “statutory context and congressional purpose for further evidence.”

Viewing BAPCPA as an attempt by Congress to address abuses of the Bankruptcy Code, Judge Lynch took “the most sensible middle ground.” Congress “most likely intended,” she said, for “second time filers [to] get the benefit of the stay, but only temporarily.”

According to Judge Lynch, the “purpose” of Congress “is best achieved by interpreting Section 362(c)(3)(A) to terminate the entire stay, including estate property.” Unless the debtor or a creditor obtains an extension of the automatic stay under Section 362(c)(3)(B), she held that “the entire automatic stay” terminates 30 days after filing “as to actions against the debtor, the debtor’s property and property of the bankruptcy estate.”