From the Sixth Circuit with Love (for Creditors)

Last Friday, the U.S. Court of Appeals for the Sixth Circuit released an opinion in a case called Carroll v. Baud. The decision, which generally ended badly for the consumer bankruptcy filers involved in the case, involved technical interpretive issues caused by the drafting mess that was the 2005 bankruptcy law. What caught my eye were not the holdings themselves, but the way the court got there.

After an extensive analysis finding that the plain language of the statute could support a result either for the debtor or the creditor, the court came up with its own statutory tie-breaker: in doubtful cases, rule for the creditor. The Sixth Circuit explained, "Where each competing interpretation of a Code provision amended by BAPCPA is consistent with the plain language of the statute, we must, as the Supreme Court did in Lanning and Ransom, apply the interpretation that has the best chance of fulfilling BAPCPA’s purpose of maximizing creditor recoveries." This statement is hardly a passing fancy of the court. It repeats the point in several places, including an extensive analysis of the idea in several pages in the middle of the opinion.

The court puts its thumb on the scale for haves instead of have-notes. Its reasoning is simply outrageous, not least of all because the Supreme Court cases it cited do not support its result.

On the Supreme Court cases, Lanning was actually a ruling in favor of the debtor although the rule it pronounces is neither pro-debtor or pro-creditor. Lanning requires a court, in setting the amount of payment, to consider future adjustments to the debtor's income that are certain or virtually certain to occur. Whose ox gets gored by the rule will depend in an individual case whether the debtor's income is expected to increase or decrease. On the other hand, in ruling that a debtor could not deduct "ownership" expenses for an automobile he already owned, Ransom is decidedly a pro-creditor decision. The Supreme Court does observe that the 2005 bankruptcy law was meant to correct perceived abuses in the bankruptcy system and maximize the disposable income a debtor must pay, but these observations were hardly the basis for its opinion. The Court's comments were not important to its decisions--were dictum in lawyer's language--and hardly binding on lower courts.

Even if the Sixth Circuit was not bound by a higher court on this point, would it make sense to have a pro-creditor rule of decision for bankruptcy law? Not hardly.

As a matter of interpretive theory, the Sixth Circuit seems to be trying to find the purpose or what some might call the "meta-intent" of the enacting Congress. There are a lot of problems with such an inquiry. First, there is the logical impossibility of trying to aggregate the individual intents of the 535 members of the enacting Congress into one intent of the group. Second, individual members might be willing to go along with a statute with a given level of "harshness" toward debtors, and there is no reason to think there is a meta-level agreement on what this level of harshness should be. Third, because it is logically impossible to find this meta-intent, the interpreter will come up with a meta-intent that the interpreter finds reasonable, which in turn will tend to be the interpreter's meta-intent (rather than the enacting legislator) because the interpreter will believe itself to be reasonable. And . . . well, I'll stop there. Whole books, academic articles, and law-school courses try to unpack the artificial reasoning about author's intent that this court's opinion typifies.

In fact, if we need a tie-breaker in the statute, a strong argument can be made that the tie-breaker should be in favor of debtors, especially consumer debtors. Generally speaking, when a statute has a special-interest bargain, courts should (and often do) construe drafting ambiguities against the special interest. The reason is not because we do not like special interests -- one person's special interest is another person's just cause. Rather, by definition special interests have a better ability to get the legislature to undo a court's interpretation against the special interest. The idea is the analogue of construing drafting ambiguities in a contract against the drafter -- the drafter can change the contract language in future dealings. In the bankruptcy setting, the consumer finance industry has proven itself capable of getting legislative change on Capitol Hill. If we need a statutory tie-breaker, perhaps it should be a tie-breaker that puts the burden of statutory change on the side most likely to be able to get it.

As to practicing attorneys and courts who have to deal with the Sixth Circuit's opinion, I would suggest that the language about how to interpret the 2005 bankruptcy law is not binding law. The only parts of the court's opinion that are binding are its precise holdings on the outcomes in the cases. The interpretative points the court makes to get to its result is not an essential part of its holding.

A few weeks ago, I pointed to Underbelly's post on the Ransom decision. A friend then wrote me and said that there were two schools of thoughts among courts about the incredibly confused language Congress wrote into the 2005 bankruptcy law: fix it or follow it. This court seems to say that it will fix it, but fix it only for creditors. When it comes to bankruptcy law, is Lady Justice supposed to peek from under her blindfold?