Author: Stephen Doyle, Associate Member, University of Cincinnati Law Review
Because of the Great Recession beginning around 2008, the number of bankruptcy filings increased by nearly 150% between 2008 and 2010, before leveling off in recent years.[1] With the increased caseload on bankruptcy courts came increased confusion about some of the Bankruptcy Code’s provisions. Recently, courts have split over the requisite level of intent when a debtor “refuses” to comply with an aspect of the case as the term applies to revocation of a discharge of debt.[2] The Fourth, Ninth, Tenth, and Eleventh Circuit Courts of Appeal have held that the party seeking revocation of a discharge must demonstrate willful or intentional misconduct on behalf of the debtor,[3] while all but one of the bankruptcy courts in the Sixth Circuit have held that the standard mirrors that of civil contempt.[4] The former application—the willfulness standard—is more appropriate to such refusals given the purpose of the Bankruptcy Code and the meaning of the word “refuse.”
History and Development of the Standards
Section 727 of the Bankruptcy Code permits a court to grant a debtor a discharge of one of his or her debts unless an exception applies, like subsection (a)(6).[5] Subsection (a)(6) prohibits discharge when a debtor has refused to comply with a court order or to testify.[6] For example, if a bankruptcy court discharges a debtor’s debt and later issues an order requiring the debtor to turn over a tax refund as part of the estate, but the debtor refuses to do so, then the debt is not discharged.[7] The issue courts have grappled with in the past decade is the level of intent required for a refusal.
On March 3, 2015, the U.S. Bankruptcy Court for the Northern District of Ohio held in Helbling v. Payne that the standard in § 727(a)(6) is similar to a charge of civil contempt.[8] The court emphasized that if Congress intended for a willful or intentional standard to apply, it would have expressly included the language in the section, as it did with § 727(a)(2).[9] In so holding, the court reaffirmed the precedent of its jurisdiction.[10]
On the other hand, every circuit court that has decided the issue has found that willful or intentional misconduct is required. The Tenth Circuit first held this in 2005, finding that the Bankruptcy Code should be liberally construed in favor of the debtor, given the severity of the penalty associated with a discharge.[11] Similarly, the Ninth Circuit applied the same standard, but interpreted the Merriam-Webster Dictionary’s definition of “refuse” to reach its decision.[12] Because the definition required the refuser “to show or express unwillingness,” the court interpreted this to mean a willful expression is necessary.[13]
The Eleventh Circuit reached the same conclusion two years later, albeit without providing an explanation for reaching its conclusion.[14] Most recently, the Fourth Circuit held in Smith v. Jordan that the willfulness standard applied by combining the previous federal circuit court opinions into one cogent argument.[15] It reasoned that because (1) the subsection is an exception to the general rule, (2) the goal of Chapter 7 bankruptcy is to provide a “fresh start” for the debtor, and (3) “refused” is used in the Code instead of “failed,” the debtor must demonstrate willful or intentional misconduct in its refusal in order to prevent a discharge.[16]
Is the Civil Contempt or Willfulness Standard Appropriate?
Neither the Supreme Court nor the Sixth Circuit has ruled on the appropriate standard in determining whether a debtor has “refused” compliance under § 727(a)(6). Therefore, the U.S. Bankruptcy Court for the Northern District of Ohio is not stepping out of line in repeatedly applying the civil contempt standard because it does not have any binding authority guiding it. However, the Northern District of Ohio should adopt the willfulness standard applied by the abovementioned four federal circuit courts for three reasons. First, in construing statutes, courts usually look to the wording surrounding the ambiguous language in question, but a comparison of the language of the other exceptions in § 727(a) with § 727(a)(6) provides no guidance. Second, the purpose of Chapter 7 bankruptcies, combined with the liberal construction of the Bankruptcy Code, supports the willfulness standard. Finally, the definition of “refuse” implies an element of willfulness.
Language of the Other Exceptions
In deciding the meaning of a statute, it must first “be sought in the language in which the act is framed, and if that is plain, . . . the sole function of the courts is to enforce it according to its terms.”[17] As applied here, § 727(a) lists twelve exceptions to the presumption of discharge of a debt, six of which are arguably within the debtor’s control.[18] Of these six, only subsection (6) states the word “refuse.”[19] The other five use different requisite levels of intent, including “failed,”[20] “knowingly,”[21] and “with intent to.”[22] Thus, subsection (6) is the only active exception that fails to include a level of intent in its language.
In Hunter, the Northern District of Ohio concluded that “refuse” must be similar to civil contempt because if Congress intended for a willfulness or intentional standard to apply, it would have used language indicating intent or willfulness like it did in subsection (a)(2).[23] On the contrary, the Smith court noted that “refuse” is used instead of “failed,” as in subsections (a)(3), (a)(5), and (a)(11).[24] This implies that Congress must have wanted something more than just a “failure” standard to apply to refusals, which a willfulness standard addresses.
Because Congress used both “failed” and “intent” in other exception subsections, the plain meaning of the statute is anything but “plain.” Therefore, the particular reasoning applied in Hunter and Smith is unpersuasive and does not support courts applying either standard to § 727(a)(6). Instead, courts should look elsewhere to determine the more appropriate standard.
Purpose of Chapter 7 Bankruptcies and Construction of the Bankruptcy Code
In 1913, the Supreme Court held the purpose of the Bankruptcy Act, a current equivalent to Chapter 7 bankruptcies, is “to give the bankrupt a fresh start. . . .”[25] Because a revocation of a discharge would preserve additional debts for the debtor and hinder the ability to obtain a fresh start, revocation contradicts this general policy. On the same accord, courts have historically held that the Bankruptcy Code should be liberally construed in favor of the debtor because of this “fresh start” purpose.[26] Thus, discharge is the general rule, with enumerated exceptions provided in § 727(a) that must be proven by the party seeking to revoke the discharge.[27]
Given the purpose and liberal construction of the Bankruptcy Code, the interpretation of the exception favoring the debtor should control. Requiring proof of the debtor’s willful or intentional misconduct is a significantly higher burden than showing the elements of civil contempt because the latter requires only knowledge and failure without any intent to violate the order of the court. At a lower threshold, the party seeking revocation of the discharge can more easily meet the exception, which leaves the debtor saddled with existing debt. Therefore, the purpose and construction of the Bankruptcy would favor the federal circuit courts’ application of the willfulness standard to a debtor’s “refusal.”
Definition of “Refusal”
Finally, one can rely on the definition of “refuse” to reach the conclusion that the federal circuit courts are applying the appropriate standard. The Merriam-Webster definition of refuse is “to express oneself as unwilling to accept.”[28] The court in Hicks relied on this definition in finding the willfulness standard to be appropriate, because the definition demonstrates that a refusal “requires a willful expression of noncompliance.”[29]
Black’s Law Dictionary, on the other hand, defines a “refusal” as “the act of one who has, by law, a right and power of having or doing something of advantage, and declines it,” and “the positive denial of an application or command, or at least a mental determination not to comply.”[30] When these two definitions are combined, the argument can be made that action, declination, positive denial, and mental determination all favor the standard of willful and intentional misconduct because the language in the definition requires something beyond just knowledge and failure.
Although only Hicks relied on the Merriam-Webster definition, and although a court has yet to rely on the Black’s Law definition, this definitional argument clearly favors the willfulness standard because the two definitions require more than just a simple omission. Instead, the two require some sort an action or expression coupled with mental determination or unwillingness. Thus, the willfulness standard is appropriate based on the meaning of “refuse.”
Refuse the Civil Contempt Standard
Based on the foregoing statutory arguments, courts should refrain from applying the civil contempt standard to a debtor’s refusal under § 727(a)(6) of the Bankruptcy Code. Although the plain meaning of the statute is fairly ambiguous in light of the surrounding language, courts may use other approaches to reach the conclusion that the willfulness standard should apply. For instance, the purpose of Chapter 7 bankruptcies is to provide the debtor with a “fresh start,” so the language in the Bankruptcy Code should be liberally construed in favor of the debtor. Likewise, the meaning of the word “refuse” as found in Merriam-Webster Dictionary and Black’s Law Dictionary lead to the conclusion that something more than a mere omission is required in a refusal. Therefore, the willful or intentional misconduct standard, as applied by the Fourth, Ninth, Tenth, and Eleventh Circuit Courts of Appeals, is the appropriate standard to apply in determining whether a debtor has “refused” to comply or testify.
[1] See generally Bankruptcy Statistics: 12-Month Period Ending December, United States Courts, available at http://www.uscourts.gov/Statistics/BankruptcyStatistics/12-month-period-ending-december.aspx (last visited Mar. 23, 2015).
[2] 11 U.S.C.S. § 727(a)(6) (2014).
[3] See e.g., Martinez v. Los Alamos Nat’l Bank (In re Martinez), 04-2040, 2005 U.S. App. LEXIS 4709 (B.A.P. 10th Cir. 2005); Hicks v. Decker (In re Hicks), 2006 Bankr. LEXIS 4897 (B.A.P. 9th Cir. 2006); Cadle Co. v. Parks-Matos, 2008 U.S. App. LEXIS 5043 (11th Cir. 2008); Smith v. Jordan, 521 F.3d 430 (4th Cir. 2008).
[4] See e.g., Adamovic v. Lazarevic, 2012 Bankr. LEXIS 4508 (Bankr. E.D. Tenn. 2012); Helbling v. Payne, 2015 Bankr. LEXIS 655 (Bankr. N.D. Ohio 2015). Only in Jahn v. Clayton, 2012 Bankr. LEXIS 152 (Bankr. E.D. Tenn. 2012), did a Sixth Circuit bankruptcy court hold that the intentional or willfulness standard applied. For the others the civil contempt standard requires the alleged debtor to have knowledge and violation of a specific and definite order.
[5] 11 U.S.C.S. § 727.
[6] 11 U.S.C.S. § 727(a)(6) (emphasis added).
[7] See generally Hunter v. Magack, 247 B.R. 406 (N.D. Ohio 1999).
[8] 2015 Bankr. LEXIS 655 at *5.
[9] Id.
[10] See Hunter, 247 B.R. 406 (N.D. Ohio 1999) (marking first instance of the Bankruptcy Court of the Northern District of Ohio applying the civil contempt standard to discharge revocation).
[11] Martinez v. Los Alamos Nat’l Bank, 2005 U.S. App. LEXIS 4709, *15-16 (10th Cir. 2005).
[12] Hicks v. Decker, 2006 Bankr. LEXIS 4897, *25 (9th Cir. 2006).
[13] Id.
[14] See generally Cadle Co. v. Parks-Matos, 2008 U.S. App. LEXIS 5043 (11th Cir. 2008).
[15] 521 F.3d 430, 433 (4th Cir. 2008).
[16] Id.
[17] Caminetti v. U.S., 242 U.S. 470, 485 (1917).
[18] 11 U.S.C.S § 727(a) (2014).
[19] Id. § 727(a)(6).
[20] Id. § 727(a)(3); § 727(a)(5); § 727(a)(11).
[21] Id. § 727(a)(4).
[22] Id. § 727(a)(2).
[23] Hunter v. Magack, 247 B.R. 406, 410 (N.D. Ohio 1999).
[24] Smith, 521 F.3d 430 at 433.
[25] Burlingham v. Crouse, 228 U.S. 459, 473 (1913).
[26] See e.g., In re Jacobs, 241 F. 620 (6th Cir. 1917); In re Rosenfeld, 262 F. 876 (2nd Cir. 1919); International Shoe Co. v. Kahn, 22 F.2d 131 (4th Cir. 1927).
[27] Smith v. Jordan, 521 F.3d 430, 433-34 (4th Cir. 2008).
[28] Merriam-Webster Online Dictionary, available at http://www.merriam-webster.com/dictionary/refuse (last visited Mar. 26, 2015).
[29] Hicks v. Decker (In re Hicks), 2006 Bankr. LEXIS 4897, *25 (9th Cir. 2006).
[30] Black’s Law Dictionary (10th ed. 2014).
