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SUPREME COURT OF THE UNITED STATES
_________________
No. 12–5196
_________________
STEPHEN LAW, PETITIONER v. ALFRED H.
SIEGEL,chapter 7 trustee
on writ of certiorari to the united states
court of appeals for the ninth circuit
[March 4, 2014]
Justice Scalia
delivered the opinion of the Court.
The Bankruptcy Code
provides that a debtor may exempt certain assets from the
bankruptcy estate. It further provides that exempt assets generally
are not liable for any expenses associated with administering the
estate. In this case, we consider whether a bankruptcy court
nonetheless may order that a debtor’s exempt assets be used to pay
administrative expenses incurred as a result of the debtor’s
misconduct.
I. Background
A
Chapter 7 of the
Bankruptcy Code gives an insolvent debtor the opportunity to
discharge his debts by liquidating his assets to pay his creditors.
11 U. S. C. §§704(a)(1), 726, 727. The filing of a
bankruptcy petition under Chapter 7 creates a bankruptcy “estate”
generally comprising all of the debtor’s property. §541(a)(1). The
estate is placed under the control of a trustee, who is responsible
for managing liquidation of the estate’s assets and distribution of
the proceeds. §704(a)(1). The Code authorizes the debtor to
“exempt,” however, certain kinds of property from the estate,
enabling him to retain those assets postbankruptcy. §522(b)(1).
Except in particular situations specified in the Code, exempt
property “is not liable” for the payment of “any [prepetition]
debt” or “any administrative expense.” §522(c), (k).
Section 522(d) of the
Code provides a number of exemptions unless they are specifically
prohibited by state law. §522(b)(2), (d). One, commonly known as
the “homestead exemption,” protects up to $22,975 in equity in the
debtor’s residence. §522(d)(1) and note following §522; see Owen v.
Owen, 500 U. S. 305, 310 (1991) . The debtor may elect,
however, to forgo the §522(d) exemptions and instead claim whatever
exemptions are available under applicable state or local law.
§522(b)(3)(A). Some States provide homestead exemptions that are
more generous than the federal exemption; some provide less
generous versions; but nearly every State provides some type of
homestead exemption. See López, State Homestead Exemptions and
Bankruptcy Law: Is It Time for Congress To Close the Loophole? 7
Rutgers Bus. L. J. 143, 149–165 (2010) (listing state
exemptions).
B
Petitioner, Stephen
Law, filed for Chapter 7 bankruptcy in 2004, and respondent, Alfred
H. Siegel, was appointed to serve as trustee. The estate’s only
significant asset was Law’s house in Hacienda Heights, California.
On a schedule filed with the Bankruptcy Court, Law valued the house
at $363,348 and claimed that $75,000 of its value was covered by
California’s homestead exemption. See Cal. Civ. Proc. Code Ann.
§704.730(a)(1) (West Supp. 2014). He also reported that the house
was subject to two voluntary liens: a note and deed of trust for
$147,156.52 in favor of Washington Mutual Bank, and a second note
and deed of trust for $156,929.04 in favor of “Lin’s Mortgage &
Associates.” Law thus represented that there was no equity in the
house that could be recovered for his other creditors, because the
sum of the two liens exceeded the house’s nonexempt value.
If Law’s
representations had been accurate, he presumably would have been
able to retain the house, since Siegel would have had no reason to
pursue its sale. Instead, a few months after Law’s petition was
filed, Siegel initiated an adversary proceeding alleging that the
lien in favor of “Lin’s Mortgage & Associates” was fraudulent.
The deed of trust supporting that lien had been recorded by Law in
1999 and reflected a debt to someone named “Lili Lin.” Not one but
two individuals claiming to be Lili Lin ultimately responded to
Siegel’s complaint. One, Lili Lin of Artesia, California, was a
former acquaintance of Law’s who denied ever having loaned him
money and described his repeated efforts to involve her in various
sham transactions relating to the disputed deed of trust. That Lili
Lin promptly entered into a stipulated judgment disclaiming any
interest in the house. But that was not the end of the matter,
because the second “Lili Lin” claimed to be the true beneficiary of
the disputed deed of trust. Over the next five years, this “Lili
Lin” managed—despite supposedly living in China and speaking no
English—to engage in extensive and costly litigation, including
several appeals, contesting the avoidance of the deed of trust and
Siegel’s subsequent sale of the house.
Finally, in 2009, the
Bankruptcy Court entered an order concluding that “no person named
Lili Lin ever made a loan to [Law] in exchange for the disputed
deed of trust.” In re Law, 401 B. R. 447, 453 (Bkrtcy.
Ct. CD Cal.). The court found that “the loan was a fiction, meant
to preserve [Law’s] equity in his residence beyond what he was
entitled to exempt” by perpetrating “a fraud on his creditors and
the court.” Ibid. With regard to the second “Lili Lin,” the court
declared itself “unpersuaded that Lili Lin of China signed or
approved any declaration or pleading purporting to come from her.”
Ibid. Rather, it said, the “most plausible conclusion” was that Law
himself had “authored, signed, and filed some or all of these
papers.” Ibid. It also found that Law had submitted false evidence
“in an effort to persuade the court that Lili Lin of China—rather
than Lili Lin of Artesia—was the true holder of the lien on his
residence.” Id., at 452. The court determined that Siegel had
incurred more than $500,000 in attorney’s fees overcoming Law’s
fraudulent misrepresentations. It therefore granted Siegel’s motion
to “surcharge” the entirety of Law’s $75,000 homestead exemption,
making those funds available to defray Siegel’s attorney’s
fees.
The Ninth Circuit
Bankruptcy Appellate Panel affirmed. BAP No. CC–09–1077–PaMkH, 2009
WL 7751415 (Oct. 22, 2009) ( per curiam). It held that the
Bankruptcy Court’s factual findings regarding Law’s fraud were not
clearly erroneous and that the court had not abused its discretion
by surcharging Law’s exempt assets. It explained that in Latman v.
Burdette, 366 F. 3d 774 (2004), the Ninth Circuit had recognized a
bankruptcy court’s power to “equitably surcharge a debtor’s
statutory ex-emptions” in exceptional circumstances, such as “when
a debtor engages in inequitable or fraudulent conduct.” 2009 WL
7751415, *5, *7. The Bankruptcy Appellate Panel acknowledged that
the Tenth Circuit had disagreed with Latman, see In re
Scrivner, 535 F. 3d 1258, 1263–1265 (2008), but the panel
affirmed that Latman was correct. 2009 WL 7751415, *7, n. 10.
Judge Markell filed a concurring opinion agreeing with the panel’s
application of Latman but questioning “whether Latman remains good
policy.” 2009 WL 7751415, *10.
The Ninth Circuit
affirmed. In re Law, 435 Fed. Appx. 697 (2011) ( per
curiam). It held that the surcharge was proper because it was
“calculated to compensate the estate for the actual monetary costs
imposed by the debtor’s misconduct, and was warranted to protect
the integrity of the bankruptcy process.” Id., at 698. We granted
certiorari. 570 U. S. ___ (2013).
II. Analysis
A
A bankruptcy court
has statutory authority to “issue any order, process, or judgment
that is necessary or appropriate to carry out the provisions of”
the Bankruptcy Code. 11 U. S. C. §105(a). And it may also
possess “inherent power . . . to sanction ‘abusive
litigation practices.’ ” Marrama v. Citizens Bank of Mass.,
549 U. S. 365 –376 (2007). But in exercising those statutory
and inherent powers, a bankruptcy court may not contravene specific
statutory provisions.
It is hornbook law that
§105(a) “does not allow the bankruptcy court to override explicit
mandates of other sections of the Bankruptcy Code.” 2 Collier on
Bankruptcy ¶105.01[2], p. 105–6 (16th ed. 2013). Section 105(a)
confers authority to “carry out” the provisions of the Code, but it
is quite impossible to do that by taking action that the Code
prohibits. That is simply an application of the axiom that a
statute’s general permission to take actions of a certain type must
yield to a specific prohibition found elsewhere. See Morton v.
Mancari, 417 U. S. 535 –551 (1974); D. Ginsberg & Sons,
Inc. v. Popkin, 285 U. S. 204 –208 (1932).[
1] Courts’ inherent sanctioning powers are
likewise subordinate to valid statutory directives and
prohibitions. Degen v. United States, 517 U. S. 820, 823
(1996) ; Chambers v. NASCO, Inc., 501 U. S. 32, 47 (1991) . We
have long held that “whatever equitable powers remain in the
bankruptcy courts must and can only be exercised within the
confines of” the Bankruptcy Code. Norwest Bank Worthington v.
Ahlers, 485 U. S. 197, 206 (1988) ; see, e.g., Raleigh v.
Illinois Dept. of Revenue, 530 U. S. 15 –25 (2000); United
States v. Noland, 517 U. S. 535, 543 (1996) ; SEC v. United
States Realty & Improvement Co., 310 U. S. 434, 455 (1940)
.
Thus, the Bankruptcy
Court’s “surcharge” was unauthorized if it contravened a specific
provision of the Code. We conclude that it did. Section 522 (by
reference to California law) entitled Law to exempt $75,000 of
equity in his home from the bankruptcy estate. §522(b)(3)(A). And
it made that $75,000 “not liable for payment of any administrative
expense.” §522(k).[
2] The
reasonable attorney’s fees Siegel incurred defeating the “Lili Lin”
lien were indubitably an administrative expense, as a short march
through a few statutory cross-references makes plain: Section
503(b)(2) provides that administrative expenses include
“compensation . . . awarded under” §330(a); §330(a)(1)
authorizes “reasonable compensation for actual, necessary services
rendered” by a “professional person employed under” §327; and
§327(a) authorizes the trustee to “employ one or more attorneys
. . . to represent or assist the trustee in carrying out
the trustee’s duties under this title.” Siegel argues that even
though attorney’s fees incurred responding to a debtor’s fraud
qualify as “administrative expenses” for purposes of determining
the trustee’s right to reimbursement under §503(b), they do not so
qualify for purposes of §522(k); but he gives us no reason to
depart from the “ ‘normal rule of statutory
construction’ ” that words repeated in different parts of the
same statute generally have the same meaning. See Department of
Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332, 342
(1994) (quoting Sorenson v. Secretary of Treasury, 475 U. S.
851, 860 (1986) ).
The Bankruptcy Court
thus violated §522’s express terms when it ordered that the $75,000
protected by Law’s homestead exemption be made available to pay
Siegel’s attorney’s fees, an administrative expense. In doing so,
the court exceeded the limits of its authority under §105(a) and
its inherent powers.
B
Siegel does not
dispute the premise that a bankruptcy court’s §105(a) and inherent
powers may not be exercised in contravention of the Code. Instead,
his main argument is that the Bankruptcy Court’s surcharge did not
contravene §522. That statute, Siegel contends, “establish[es] the
procedure by which a debtor may seek to claim exemptions” but
“contains no directive requiring [courts] to allow [an exemption]
regardless of the circumstances.” Brief for Respondent 35. Thus, he
says, recognition of an equitable power in the Bankruptcy Court to
deny an exemption by “surcharging” the exempt property in response
to the debtor’s misconduct can coexist comfortably with §522. The
United States, appearing in support of Siegel, agrees, arguing that
§522 “neither gives debtors an absolute right to retain exempt
property nor limits a court’s authority to impose an equitable
surcharge on such property.” Brief for United States as Amicus
Curiae 23.
Insofar as Siegel and
the United States equate the Bankruptcy Court’s surcharge with an
outright denial of Law’s homestead exemption, their arguments
founder upon this case’s procedural history. The Bankruptcy
Appellate Panel stated that because no one “timely oppose[d]
[Law]’s homestead exemption claim,” the exemption “became final”
before the Bankruptcy Court imposed the surcharge. 2009 WL 7751415,
at *2. We have held that a trustee’s failure to make a timely
objection prevents him from challenging an exemption. Taylor v.
Freeland & Kronz, 503 U. S. 638 –644 (1992).
But even assuming the
Bankruptcy Court could have revisited Law’s entitlement to the
exemption, §522 does not give courts discretion to grant or
withhold exemptions based on whatever considerations they deem
appropriate. Rather, the statute exhaustively specifies the
criteria that will render property exempt. See §522(b), (d). Siegel
insists that because §522(b) says that the debtor “may exempt”
certain property, rather than that he “shall be entitled” to do so,
the court retains discretion to grant or deny exemptions even when
the statutory criteria are met. But the subject of “may exempt” in
§522(b) is the debtor, not the court, so it is the debtor in whom
the statute vests discretion. A debtor need not invoke an exemption
to which the statute entitles him; but if he does, the court may
not refuse to honor the exemption absent a valid statutory basis
for doing so.
Moreover, §522 sets
forth a number of carefully calibrated exceptions and limitations,
some of which relate to the debtor’s misconduct. For example,
§522(c) makes exempt property liable for certain kinds of
prepetition debts, including debts arising from tax fraud, fraud in
connection with student loans, and other specified types of
wrongdoing. Section 522(o) prevents a debtor from claiming a
homestead exemption to the extent he acquired the homestead with
nonexempt property in the previous 10 years “with the intent to
hinder, delay, or defraud a creditor.” And §522(q) caps a debtor’s
homestead exemption at approximately $150,000 (but does not
eliminate it en-tirely) where the debtor has been convicted of a
felony that shows “that the filing of the case was an abuse of the
provisions of” the Code, or where the debtor owes a debt arising
from specified wrongful acts—such as securities fraud, civil
violations of the Racketeer Influenced and Corrupt Organizations
Act, or “any criminal act, intentional tort, or willful or reckless
misconduct that caused serious physical injury or death to another
individualin the preceding 5 years.” §522(q) and note
following§522. The Code’s meticulous—not to say mind-numbingly
detailed—enumeration of exemptions and exceptions to those
exemptions confirms that courts are not authorized to create
additional exceptions. See Hillman v. Maretta, 569 U. S. ___,
___ (2013) (slip op., at 12); TRW Inc. v. Andrews, 534 U. S.
19 –29 (2001).
Siegel points out that
a handful of courts have claimed authority to disallow an exemption
(or to bar a debtor from amending his schedules to claim an
exemption, which is much the same thing) based on the debtor’s
fraudulent concealment of the asset alleged to be exempt. See,
e.g., In re Yonikus, 996 F. 2d 866, 872–873 (CA7 1993);
In re Doan, 672 F. 2d 831, 833 (CA11 1982) ( per
curiam); Stewart v. Ganey, 116 F. 2d 1010, 1011 (CA5 1940). He
suggests that those decisions reflect a general, equitable power in
bankruptcy courts to deny exemptions based on a debtor’s bad-faith
conduct. For the reasons we have given, the Bankruptcy Code admits
no such power. It is of course true that when a debtor claims a
state-created exemption, the exemption’s scope is determined by
state law, which may provide that certain types of debtor
misconduct warrant denial of the exemption. E.g., In re
Sholdan, 217 F. 3d 1006, 1008 (CA8 2000); see 4 Collier on
Bankruptcy ¶522.08[1]–[2], at 522–45 to 522–47. Some of the early
decisions on which Siegel relies, and which the Fifth Circuit cited
in Stewart, are instances in which federal courts applied state law
to disallow state-created exemptions. See In re Denson, 195 F.
857, 858 (ND Ala. 1912); Cowan v. Burchfield, 180 F. 614, 619 (ND
Ala. 1910); In re Ansley Bros., 153 F. 983, 984 (EDNC 1907).
But federal law provides no authority for bankruptcy courts to deny
an exemption on a ground not specified in the Code.
C
Our decision in
Marrama v. Citizens Bank, on which Siegel and the United States
heavily rely, does not point toward a different result. The
question there was whether a debtor’s bad-faith conduct was a valid
basis for a bankruptcy court to refuse to convert the debtor’s
bankruptcy from a liquidation under Chapter 7 to a reorganization
under Chapter 13. Although §706(a) of the Code gave the debtor a
right to convert the case, §706(d) “expressly conditioned” that
right on the debtor’s “ability to qualify as a ‘debtor’ under
Chapter 13.” 549 U. S., at 372. And §1307(c) provided that a
proceeding under Chapter 13 could be dismissed or converted to a
Chapter 7 proceeding “for cause,” which the Court interpreted to
authorize dismissal or conversion for bad-faith conduct. In light
of §1307(c), the Court held that the debtor’s bad faith could stop
him from qualifying as a debtor under Chapter 13, thus preventing
him from satisfying §706(d)’s express condition on conversion. Id.,
at 372–373. That holding has no relevance here, since no one
suggests that Law failed to satisfy any express statutory condition
on his claiming of the homestead exemption.
True, the Court in
Marrama also opined that the Bankruptcy Court’s refusal to convert
the case was authorized under §105(a) and might have been
authorized under the court’s inherent powers. Id., at 375–376. But
even that dictum does not support Siegel’s position. In Marrama,
the Court reasoned that if the case had been converted to Chapter
13, §1307(c) would have required it to be either dismissed or
reconverted to Chapter 7 in light of the debtor’s bad faith.
Therefore, the Court suggested, even if the Bankruptcy Court’s
refusal to convert the case had not been expressly authorized by
§706(d), that action could have been justified as a way of
providing a “prompt, rather than a delayed, ruling on [the
debtor’s] unmeritorious at-tempt to qualify” under §1307(c). Id.,
at 376. At most, Marrama’s dictum suggests that in some
circumstances a bankruptcy court may be authorized to dispense with
futile procedural niceties in order to reach more expeditiously an
end result required by the Code. Marrama most certainly did not
endorse, even in dictum, the view that equitable considerations
permit a bankruptcy court to contravene express provisions of the
Code.
D
We acknowledge that
our ruling forces Siegel to shoulder a heavy financial burden
resulting from Law’s egregious misconduct, and that it may produce
inequitable results for trustees and creditors in other cases. We
have recognized, however, that in crafting the provisions of §522,
“Congress balanced the difficult choices that exemption limits
impose on debtors with the economic harm that exemptions visit on
creditors.” Schwab v. Reilly, 560 U. S. 770, 791 (2010) . The
same can be said of the limits imposed on recovery of
administrative expenses by trustees. For the reasons we have
explained, it is not for courts to alter the balance struck by the
statute. Cf. Guidry v. Sheet Metal Workers Nat. Pension Fund, 493
U. S. 365 –377 (1990).
* * *
Our decision today
does not denude bankruptcy courts of the essential “authority to
respond to debtor misconduct with meaningful sanctions.” Brief for
United States as Amicus Curiae 17. There is ample authority to deny
the dishonest debtor a discharge. See §727(a)(2)–(6). (That
sanction lacks bite here, since by reason of a postpetition
settlement between Siegel and Law’s major creditor, Law has no
debts left to discharge; but that will not often be the case.) In
addition, Federal Rule of Bankruptcy Pro-cedure 9011—bankruptcy’s
analogue to Civil Rule 11—authorizes the court to impose sanctions
for bad-faith litigation conduct, which may include “an order
directing payment. . . of some or all of the reasonable
attorneys’ fees and other expenses incurred as a direct result of
the violation.” Fed. Rule Bkrtcy. Proc. 9011(c)(2). The court may
also possess further sanctioning authority under either §105(a) or
its inherent powers. Cf. Chambers, 501 U. S., at 45–49. And
because it arises postpetition, a bankruptcy court’s monetary
sanction survives the bankruptcy case and is thereafter enforceable
through the normal procedures for collecting money judgments. See
§727(b). Fraudulent conduct in a bankruptcy case may also subject a
debtor to criminal prosecution under 18 U. S. C. §152,
which carries a maximum penalty of five years’ imprisonment.
But whatever other
sanctions a bankruptcy court may impose on a dishonest debtor, it
may not contravene express provisions of the Bankruptcy Code by
ordering that the debtor’s exempt property be used to pay debts and
expenses for which that property is not liable under the Code.
The judgment of the
Court of Appeals is reversed, and the case is remanded for further
proceedings consistent with this opinion.
It is so ordered.
