
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                              _________________________          No. 95-1369                      IN RE:  DERALD E. YOUNG AND MARY P. YOUNG,                                       Debtors.                              _________________________                          DERALD E. YOUNG AND MARY P. YOUNG,                                     Appellants,                                          v.                              KEY BANK OF MAINE, ET AL.,                                      Appellees.                              _________________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                              FOR THE DISTRICT OF MAINE                       [Hon. Gene Carter, U.S. District Judge]                                          ___________________                              _________________________                                        Before                          Selya and Boudin, Circuit Judges,                                            ______________                             and Saris,* District Judge.                                         ______________                               _______________________               Ralph W. Brown for appellants.               ______________               Jana  S. Stabile, with whom  Michael S. Haenn  was on brief,               ________________             ________________          for appellees.                              _________________________                                  September 29, 1995                              _________________________          _____________          *Of the District of Massachusetts, sitting by designation.                    SELYA,  Circuit Judge.    This appeal  raises an  issue                    SELYA,  Circuit Judge.                            _____________          which, but for its  effect on the parties  before us, might  well          deserve  a  place  among  the inhabitants  of  Madame  Tussauds's          Waxworks.  The tale follows.                    We begin with basic bankruptcy bromides.  Chapter 13 of          the Bankruptcy  Code, 11 U.S.C.     1301-1330, enables individual          debtors to reorganize  their financial affairs,  so to speak,  by          extending due  dates  and servicing  their  debts out  of  future          income pursuant to  a payment plan crafted  under the supervision          of the bankruptcy court.  In contrast, Chapter 7 of  the Code, 11          U.S.C.    701-766, provides for what is commonly termed "straight          bankruptcy."    It contemplates  the  liquidation  of a  debtor's          estate, the  distribution  of  available assets  to  his  or  her          creditors,   and   ultimate   relief  from   liability   for  all          dischargeable  debts.   Because the  two chapters mark  a natural          progression   from  difficult  financial  straits  to  unpassable          financial straits, a proceeding under Chapter 13 may be converted          into  a proceeding under Chapter  7 if the  reorganization of the          debtor's affairs founders.  See 11 U.S.C.   1307.                                      ___                    When such a conversion occurs, the Chapter 7 proceeding          "relates back" in the sense that the Chapter 7 petition is deemed          to have been filed on the filing date of the  original Chapter 13          petition.  See 11  U.S.C.   348(a).   An enigma arises,  however,                     ___          where  a  debtor has  earned income  during  the pendency  of the          Chapter  13 petition,  because the  statutory mosaic  makes clear          that  a Chapter 13 estate includes post-petition earnings, see 11                                                                     ___                                          2          U.S.C.    1306(a)(2), and  a Chapter 7  estate does  not, see  11                                                                    ___          U.S.C.   541(a).  Therein  lies the rub.  For many  years, courts          could  not agree on  an answer to  the question  of whether post-          petition income paid to  a Chapter 13 trustee became  property of          the  Chapter 7 estate  on conversion of  an insolvency proceeding          from  a workout to a straight bankruptcy, even though such income          would  not be  property of  the estate  had the  debtor initially          filed his  or her petition  under Chapter  7.  In  this case  the          lower courts ruled  that such post-petition income  inures to the          benefit of the Chapter 7 trustee.  This appeal ensued.                    The material facts are undisputed.  The debtors, Derald          and  Mary Young, owned and operated  a conglomeration of business          enterprises  including Damn  Yankee Gifts, Damn  Yankee Balloons,          Damn  Yankee Pewter, and Damn  Yankee Sheepskin.   On October 22,          1992, the Youngs petitioned for relief from their creditors under          Chapter  13.   A  payment plan  emerged.   The  bankruptcy  court          approved it, and the debtors agreed to abide by it.                    While attempting to satisfy the  terms of the plan, Mr.          and Mrs. Young tendered a total of $24,498 in interim earnings to          the  Chapter 13 trustee.   But, to paraphrase  the Scottish poet,          the best-laid plans  of creditors and debtors often go awry.  Cf.                                                                        ___          Robert Burns, To a Mouse (1785).  The payment plan collapsed when                        __________          the Youngs found themselves  unable to sell off certain  assets.           Key Bank of Maine,  a secured creditor, took steps to protect its          interests and,  over the debtors' objection,  forced a conversion          of the  Chapter 13  proceeding into a  straight bankruptcy  under                                          3          Chapter 7.                    The Youngs subsequently moved to determine the property          of the  Chapter 7 estate in  order to settle the  status of their          post-petition  contribution.   Initially,  the  bankruptcy  court          accepted the debtors' position  and held that the funds  were the          property of  the Chapter  13 trustee.    On reconsideration,  the          court revoked its  earlier order  and decided,  favorably to  Key          Bank, that the  funds were the property of the  Chapter 7 estate.          On July 20,  1994, the bankruptcy  judge entered a  new order  to          that effect.  The  debtors appealed to the district  court, which          upheld the July 20 order.  We now reverse.                    At  the  time  the  events leading  to  this  conundrum          occurred, the authorities were divided.  Many courts held, as did          the courts  below, that post-petition earnings  comprised part of          the Chapter 7 estate  when a Chapter 13 proceeding  was converted          to a straight bankruptcy.  See, e.g., In re Calder, 973 F.2d 862,                                     ___  ____  ____________          866 (10th  Cir. 1992); In re Lybrook, 951 F.2d 136, 137 (7th Cir.                                 _____________          1991); In re Tracy, 28 B.R.  189, 190 (Bankr. D.Me. 1983).  Other                 ___________          courts espoused the opposite view.  See, e.g., In re Bobroff, 766                                              ___  ____  _____________          F.2d  797, 803 (3d  Cir. 1985); In  re Borrero, 75  B.R. 141, 142                                          ______________          (Bankr. D.P.R. 1987);  In re  Peters, 44 B.R.  68, 70-72  (Bankr.                                 _____________          M.D.Tenn.   1984).1     The  division   in  the   authorities  is                                        ____________________               1In yet  a third variation on  the theme, a  few courts held          that  if  post-petition  earnings  were  accumulated  before  the          confirmation of a  Chapter 13  payment plan, such  funds did  not          become property of the  Chapter 7 estate upon conversion;  but if          the funds were earned  subsequent to the confirmation of  a plan,          they  would then  become property  of the  Chapter 7  estate upon          conversion.   See,  e.g., In  re Schmeltz,  114 B.R.  607, 610-13                        ___   ____  _______________                                          4          understandable.  The question  is excruciatingly close, respected          jurists disagree  as to how it can best be answered, and as Judge          Posner acknowledged,  the arguments on  either side  of the  line          offer  "equally good alternative[s]."   Lybrook, 951 F.2d at 137.                                                  _______          Thus, for all intents and purposes the law was indeterminate when          this question  came before  the courts  below,  and those  courts          resolved the indeterminacy in a plausible way.                    Nevertheless,  judges  sometimes   view  issues   quite          differently,  and our  responsibility  to the  parties before  us          requires  that, on  a  matter of  law  committed to  our  plenary          review, see In  re G.S.F. Corp.,  938 F.2d  1467, 1474 (1st  Cir.                  ___ ___________________          1991), we must interpret the applicable statutes as we read them,          consistent  with our exposition of discerned congressional intent          and  without  paying  special  deference  to  the  courts  below.          Fulfilling  our  proper  function  here, we  reach  a  conclusion          contrary to that reached by the bankruptcy judge and the district          judge.  Consequently, we hold that post-petition income earned by          and contributed  to a Chapter 13  estate (prior to  the change in          the  law discussed  infra) did  not, upon  the conversion  of the                              _____          proceeding  to  a straight  bankruptcy,  become  property of  the          Chapter 7 estate.                    At this point, the plot thickens.  Ordinarily, we would          now proceed to present an analysis of the bases for our decision,          explicating  our   reasoning  in   suitable  detail.     But  the                                        ____________________          (Bankr.  N.D.Ind. 1990); In re  Holly, 109 B.R.  524, 526 (Bankr.                                   ____________          S.D.Ga. 1989);  In  re  Richardson,  20  B.R.  490,  492  (Bankr.                          __________________          W.D.N.Y. 1982).                                          5          circumstances of this case are well out of the ordinary, and they          counsel a different, more muted course.  We explain briefly.                    Perhaps  because of  the split  in authority  about how          best  to synchronize  Chapter 13  and Chapter  7,  Congress acted          within  the past year to demystify the situation.  The Bankruptcy          Reform  Act of 1994 answered the very question that confronts us.          It essentially  codified the  Bobroff rule, enacting  a statutory                                        _______          provision designed to  ensure that, on conversion from  a Chapter          13 proceeding,                    property of the estate in  the converted case                    shall consist of property  of the estate,  as                    of the  date of filing of  the petition, that                    remains in the possession  of or is under the                    control  of   the  debtor  on   the  date  of                    conversion.          11 U.S.C.   348(f)(1)(A) (1994).   In all future cases, this rule          (subject to  a statutory  "bad  faith" exception  not of  concern          here) will govern.   But the newly crafted statute does not apply          in  this  case:    the  Bankruptcy  Reform  Act  explicitly  bars          retroactive  application of  the statutory  solution  to accruals          antedating the Act's effective date (October 22, 1994).  See Pub.                                                                   ___          L. No.  103-394,   702, 108  Stat. 4106, 4150.   The Youngs filed          their  Chapter  13 petition  exactly two  years earlier,  and the          Chapter 13 trustee had the disputed funds in hand well before the          amendment's effective date.   As a result, section 348(f)  is not          controlling in this case.                    Be  that as  it may,  it ill  behooves us  to play  the          ostrich, struthiously pretending that the neoteric statute is not          now in force.  Though the  amendment does not affect the  outcome                                          6          of  this appeal,  it  punctuates our  opinion  and strips  it  of          virtually  all precedential  value.   Where, as  here, we  face a          lingering question of law that is defunct except  as to a handful          of ongoing cases, we see no point in writing at  length either to          elucidate our  rationale  or to  justify our  construction of  an          ambiguous  statute  that  Congress  has  lately  taken  pains  to          clarify.  Cf. In re San Juan Dupont Plaza Hotel  Fire Litig., 989                    ___ ______________________________________________          F.2d 36, 38 (1st  Cir. 1993) (suggesting that an  appellate court          should  not  write  opinions  "simply   to  hear  its  own  words          resonate").  This is  especially true in the instant  case, since          other  courts  have  spelled   out  the  reasons  supporting  our          conclusion.  See Bobroff, 766 F.2d at 803; Peters, 44 B.R. at 70-                       ___ _______                   ______          72.   Given this peculiar  concatenation of circumstances, we are          confident  that going further  would merely add  another floor to          the Tower of Babel.                    The judgment of the district court is reversed, and the                    The judgment of the district court is reversed, and the                    _______________________________________________________          cause  is remanded  to the  district court  with instructions  to          cause  is remanded  to the  district court  with instructions  to          _________________________________________________________________          vacate the  order of the bankruptcy  court and to remit  the case          vacate the  order of the bankruptcy  court and to remit  the case          _________________________________________________________________          for the entry of a decree consistent herewith.  All  parties will          for the entry of a decree consistent herewith.  All  parties will          _________________________________________________________________          bear their own costs.          bear their own costs.          ____________________                                          7
