aving used Christie's auction house to sell assets some time ago in a bankruptcy case was enough to have put me on its mailing list ever since to receive its catalogs. Occasionally, I'll glance at one for a moment while going through my mail before sending it into my recycling bin. While on my way to recycling another catalog recently, I stopped when an offering of "art" caught my eye—not because it was magnificent, but because it was banal and unexceptional. It consisted of nothing but light blue wax crayon lines swirled over white latex house paint on a rectangular canvas. I became intrigued when I saw that there was a lengthy narrative accompanying it. What of substance, I wondered, could one write about such a prosaic piece. I suspect that even the artist himself wasn't sure what to make of it, as he called it (appropriately) "Untitled."

The narrator, showing no such diffidence, however, offered that "each scrawling loop is a unique and distinctive mark that is a cyclical graphic record of its own precise moment of creation," and that "Untitled" was an expression of the artist's "highly sophisticated ideas about time," which were "inspired by both the directness and spontaneity of the rectangular blackboard format." Those swirls that any four-year-old could have drawn "evoke a powerful sense of both unity and diversity," the reader was assured. By the end of the narrative, it had become clear that virtually any interpretation of "Untitled" would be found to be valid and legitimate. Plunk!

It is sometimes this way too with the Bankruptcy Code. Most judges, heeding what has become a drumbeat from the Supreme Court, appropriately see their role as limited to making a genuine, intellectually honest effort to fairly find, interpret and objectively apply the "plain meaning" of the Code in a consistent fashion, both where the result that ensues comports with their view of what is good and right and where it may not. However, experience teaches that there are a few judges who pay lip service to "plain meaning." For them there exists a greater good of achieving a result they think desirable, and thus solaced by that good intention, if the words of a statute stand in the way of that, they believe justified in working around and through them. Judges, who know this temptation better than practitioners, well recognize this process at work when it surfaces among their brethren, evident in a federal district judge's recent barbed observation in ruling on a bankruptcy matter that a line of Ninth Circuit cases "was federal judicial legislation at its worst."¹

Such cases of ad hoc adjudicating fall into an established pattern; a textual or contextual ambiguity is proclaimed, despite that a more concerted effort to find the essence of a statute would dissipate the supposed "fog." Then, after reaching into the trumpeted ambiguity for their own favored rule, they predictably proceed to "backfill" their pronouncement of it with incantations of "policy," excerpts from a law review article and select references to legislative history of varying quality. The problems these ad hoc adjudications engender are particularly troublesome when made by a circuit court of appeals panel on a recurring consumer bankruptcy issue where, short of an infrequent en banc reconsideration, Supreme Court ruling or act of Congress, such a ruling will thereafter govern the tens of thousands of cases within its bankruptcy courts. A regrettable example of this is the Second Circuit's Boodrow decision.2

At issue in Boodrow was Bankruptcy Code §521(2), which provides, in pertinent part, that an individual chapter 7 debtor with a consumer debt secured by property of the estate

(A)...shall file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property;
(B) within 45 days after the filing of a notice of intent under this section...the debtor shall perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph.

These provisions of §521(2), along with §521(2)(C)—a reconciling provision that preserves a trustee's rights, including his avoidance and sale³ rights in such property—became part of the Code in 1984. Included in the same bill was an amendment to §704 adding §704(3), which, as an obvious corollary to the §521(2) additions, provides that among the chapter 7 trustee's duties are that he "shall ensure that the debtor shall perform his intention as specified in §521(2)(B)..." The statute provides that a chapter 7 debtor with a loan to a bank consensually secured by a vehicle, for example, has three⁴ options: If he wishes to retain the vehicle, he is either to reaffirm the debt secured by it, or redeem it; and if he doesn't perform either of those specified retention options, he is to surrender the vehicle to the creditor.

Certainly, it would be a better "deal" for a chapter 7 debtor to have no duty in this regard and be able to discharge his debt to the bank and still retain its collateral simply by continuing to make payments. There are plenty of compelling reasons why Congress provided no such "fourth option" (that it would impose a new, unfavorable non-recourse relationship upon a creditor in a chapter 7 case is but one), and why it crafted §521(2) as it did to provide laudable certainty and finality in the dealings between individual chapter 7 debtors and their secured creditors.

How then, in the face of the apparent plain meaning of §521(2), did two judges on the Second Circuit panel in Boodrow, like our narrator, get to the point of §521(2) not meaning what its words say, and permitting a chapter 7 debtor to retain a secured vehicle without either reaffirming or redeeming? Presaging its ruling with its comment that the words of a statute are only a starting point, the Boodrow majority, like our narrator, wished to persuade its readers that if one looked hard enough, the words of §521(2), including its "if applicable" phrase, may legitimately be found to mean different things. It offered that "if applicable" introduced an element of debtor discretion to this imperatively worded statute, and could be read to mean that if the debtor unilaterally decided that not any one of the three enumerated options was "applicable" to him, he was free to choose some other option not specifically listed in §521(2) but more to his liking. Under that strained construction, the phrase "if applicable" is transformed into "if the debtor feels like it."

Giving it a natural reading, however, "if applicable," juxtaposed to the almost immediately preceding words, "retention or surrender," simply refers to the general threshold determination of whether there will be a "retention or surrender" of the property with, thereafter, the more specific requirement of specifying the method of retention—redemption or reaffirmation—logically: only "applicable" if there is to be a retention of the property, and obviously not "applicable" if there will be a surrender of it. The phrase further serves the equally sensible purpose of acknowledging that certain retention options are not always "applicable." The option of redemption, for instance, would not be "applicable" where the property in question is real estate, since only tangible personal property may be redeemed.

Next (following an established pattern), in resorting to legislative history to sort through this supposed ambiguity in §521(2), the Boodrow majority, without so noting, looked not to the legislative history that produced §521(2) in 1984 (also ignoring altogether its illuminating corollary in §704(3)), but to the "legislative history" to a 1981 bill before a different Congress that never became law and that, in any event, dealt principally with providing notice, having no §521(2)(B) "performance" component. From this, the Boodrow majority denuded §521(2) down to merely a "procedural" statute, its function merely being to assure notice to a secured creditor of the debtor's intentions, and thereby unwittingly relegated it to being entirely redundant of Bankruptcy Rule 1007(b)(2) (requiring that a §521(2) statement of intention be served upon the creditor), to which it never referred. Aside from the troubling internal inconsistency in its holding—that "shall" really means "shall" in §521(2)'s first subparagraph where specifying one's intention is required, but "shall" doesn't mean "shall" in the very next and identically phrased subparagraph where performance of it is commanded—the Boodrow majority never stepped back far enough from its holding to see the irreconcilable contradiction in what it said was merely a "notice" or procedural statute giving rise to a new substantive right, its newly minted "fourth-option right of reinstatement" for debtors. Such a right, concocted out of the whole cloth of a law review article (completing the pattern), ignores the fact that it hardly produces a "reinstatement" from the creditor's perspective.

District Judge Milton Shadur from the Northern District of Illinois, invited by the Second Circuit to sit by designation on the Boodrow panel, was so moved by the flimsiness of the majority's rationales that he wrote a lengthy and pointed dissenting opinion. Shadowed by Judge Shadur's compelling dissent, the Boodrow majority at the end sounded a partial retreat from its full frontal assault on §521(2)'s plain meaning by deciding (with no support in the Code for doing so) to condition its judicially created right of reinstatement on a debtor being "current" in his payments to the creditor on the petition date: A debtor current in his payments to the creditor on that date would be excused from the literal performance mandate of §521(2), while one who was not would have to perform one of its three options. A noted commentator has pointed out the illogical results produced by this judge-made rule, which is predicated on the legally irrelevant happenstance of a debtor being current or not on the petition date.⁵

Combined, Congress used the word "shall" four times in §§521(2) and 704(3) in setting out a debtor's duties, and yet remarkably the Boodrow majority, with a near-defiant determination to create a right for debtors that simply does not exist, held that a debtor who is "current" need not do anything. If a court may do this to the words of a statute, then what point of law may not be said to be "up for grabs?" Shortly after Boodrow, in another consumer bankruptcy matter, the Second Circuit held that "shall" means "shall," and when used, it leaves a court no discretion.⁶ A cynic would seize upon this as evidence of the worst type of judicial inconstancy, while an apologist would simply note that it was a different panel. Regardless, what is clear is that the Boodrow majority, having paid little heed to "plain meaning," has left parties, practitioners and lower courts to wade through the legal muck that is inevitably produced "when courts create and propagate ambiguity even where there is absolutely none in the original statute."⁷

Footnotes

¹ Zahn v. Yucaipa Capital Fund, et al. 218 B.R. 656, 672 (D. R.I. 1998). Return to article

² In re Boodrow, 126 F.3d 43 (2nd Cir. 1997). Return to article

³ The Boodrow majority missed this point entirely, and implied that §521(2) was flawed because it did not provide for the option of a trustee's sale of the property at issue. Such a right, however, is clearly reserved in §521(2)(C). Return to article

⁴ The other retention option in §521(2) (exemption) refers to the debtor's right to retain property under §522(f) by, for example, avoiding a judicial lien that impairs one's exemption therein. For the sake of simplicity, this article will presume that only the two retention options of reaffirmation or redemption are applicable here. Return to article

⁵ See Waxman, Ned W., "Redemption or Reaffirmation: The Debtor's Exclusive Means of Retaining Possession of Collateral in Chapter 7," U. Pitt. L.R., Vol 56, No. 1, at 202 (Fall 1994). Return to article

⁶ In re Barbieri, 199 F.3d 616 (2nd Cir. 1999). Return to article

⁷ In re Chacon, 202 F.3d. 725, 726 (5th Cir. 1999). Return to article