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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.
