Toibb v. Radloff

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Toibb v. Radloff
Seal of the United States Supreme Court.svg
Argued April 22, 1991
Decided June 13, 1991
Full case name Sheldon Baruch Toibb v. Stuart J. Radloff
Citations 501 U.S. 157 (more)
501 U.S. 157
Prior history In re Toibb, 902 F.2d 14 (8th Cir. 1990), reversed.
Holding
Individuals may petition for reorganization under chapter 11 of the United States Bankruptcy Code.
Court membership
Case opinions
Majority Blackmun, joined by Rehnquist, White, Marshall, O'Connor, Scalia, Kennedy, Souter
Dissent Stevens
Laws applied
11 U.S.C. § 109(b), (d)

Toibb v. Radloff, 501 U.S. 157 (1991), was a case in which the United States Supreme Court resolved that individuals are eligible to file for relief under chapter 11 of the United States Bankruptcy Code (which is more typically used by businesses).

Background[edit]

Bankruptcy allows those who are unable to pay their debts to arrange for partial repayment under the supervision of a bankruptcy court, after which any remaining debt is discharged.[1][2] Debtors are thus allowed a "fresh start."[3] Bankruptcy is governed by Title 11 of the United States Code, which was passed by Congress[4] pursuant to article I, section 8 of the United States Constitution.[5]

The United States Code is organized into titles, under which there are smaller subdivisions known as chapters. Within Title 11 (the entirety of which is known as the Bankruptcy Code), there are a number of chapters that define different types of bankruptcy cases:[6]

Because Title 11, chapter 11 of the U.S. Code governs "reorganization," it is popularly assumed to pertain to businesses only. However, nothing in the Bankruptcy Code explicitly says that chapter 11 pertains to businesses only, and for this reason, the Supreme Court in Toibb v. Radloff held that individuals can also file for protection under chapter 11.

Facts and procedural history[edit]

Toibb, the petitioner, filed for Chapter 7 bankruptcy. Among his assets, Toibb held stock in a power company. After Toibb filed a petition under Chapter 7, the board of the power company offered to purchase the stock for $25,000. Upon discovering the value, Toibb moved to convert his Chapter 7 case into a Chapter 11 case to prevent his assets from being liquidated.

The Bankruptcy Court initially granted the motion, but later ordered Toibb "to show cause why his petition should not be dismissed because petitioner was not engaged in business and, therefore, did not qualify as a chapter 11 debtor."[13] Toibb argued that he was engaged in a business, or in the alternative, that individuals who do not own businesses are also eligible for relief under Chapter 11.[13] The bankruptcy court rejected these arguments and, based on Wamsganz v. Boatmen's Bank of De Soto,[14] held that the petitioner "failed to qualify for relief under Chapter 11."[13]

Toibb appealed to the United States District Court for the Eastern District of Missouri, which affirmed the decision of the bankruptcy judge. On further appeal, the United States Court of Appeals for the Eighth Circuit adhered to the precedent that it had earlier set in Wamsganz[14] and affirmed the decisions of the lower courts.

Toibb petitioned the United States Supreme Court for a writ of certiorari, which was granted because of a conflict of circuits: the United States Court of Appeals for the Eighth Circuit had held that only businesses and business owners can file for chapter 11, but in a different case, the United States Court of Appeals for the Eleventh Circuit had held that individuals can file for Chapter 11 even if they do not own a business.[13][15]

The opinion of the Court[edit]

Justice Blackmun, writing for an 8-1 majority, held that nothing in the Bankruptcy Code prevents individuals from filing for Chapter 11 Bankruptcy.

In interpreting a statute, courts "look first to the statutory language and then to the legislative history if the statutory language is unclear";[16] thus, "the plain language of . . . . Section 109" of the Bankruptcy Code governs who can or cannot file for protection under each chapter.[17] Quoting from the Bankruptcy Code, Justice Blackmun wrote that "Section 109(d) provides: 'Only a person that may be a debtor under chapter 7 of this title, except a stockbroker or a commodity broker, and a railroad may be a debtor under chapter 11 of this title.' Section 109(b) states: 'A person may be a debtor under chapter 7 of this title only if such person is not - (1) a railroad; (2) a domestic insurance company, bank, . . .; or (3) a foreign insurance company, bank, . . . engaged in such business in the United States.'"[18] Nothing in the text of the Code itself imposes a requirement that only businesses can file for protection under chapter 11, and given the great care with which Congress enumerated[19] those who can and cannot receive protection under each of the various chapters the Court was "loath to infer the exclusion of certain classes of debtors from the protections of Chapter 11."[20]

Turning to the legislative history of the then-current version of the Bankruptcy Code, the Court determined that a Senate report showed that Congress anticipated that only businesses would ever file for bankruptcy under chapter 11, but did not show that Congress intended that only businesses would be able to file under chapter 11.[21] Likewise, the Court considered the ultimate purposes of the various chapters of the bankruptcy code, one of which is "maximizing the value of the bankruptcy estate";[22] because a chapter 11 reorganization plan must be approved by creditors or must provide that creditors "will receive not less than they would receive under a Chapter 7 liquidation,"[23] denying chapter 11 protection to individuals would not advance Congress' overall purpose.

Finally, the Court considered the possibility that if chapter 11 were held to apply to individuals, somebody might be involuntarily forced to file for chapter 11 (thus resulting in "debt peonage," a form of involuntary servitude); although chapter 13 bankruptcy petitions are always voluntary, chapter 11 contains no such provision. The Court held that if a debtor were to choose not to cooperate in a chapter 11 case, a bankruptcy court would simply be able to convert it to a chapter 7 case, and thus the danger of an involuntary chapter 11 filing would be minimal; furthermore, because only chapter 13 bankruptcy includes "future wages" in the "bankruptcy estate,"[24] there is no danger of forcing anybody into debt peonage.

In summary, the Court held that individuals, even if they are not the owner of a business, can file for chapter 11 bankruptcy because the plain language of Title 11 (which contains chapter 11) does not expressly prohibit them from doing so, because Congress did not specifically intend to deny them the ability to do so (even if it assumed that they would not), because allowing them to do so would not likely violate the rights of creditors, and because allowing them to do so would not result in anybody being forced to do so against their will.

Dissenting opinion[edit]

Justice Stevens wrote a dissent stating that chapter 11 of the Bankruptcy Code in fact is intended to apply to businesses only.

In his dissent, he noted that chapter 11 is entitled "Reorganization," and noted that the various provisions of chapter 11 refer repeatedly to a "business." Thus, he argued, the plain language of the statute strongly suggests that it applies to businesses. Additionally, 11 U.S.C. § 109(d) (1988), the section relied on by the majority to support the assertion that individuals are not excluded, says "only a person that may [be] a debtor under Chapter 7 … may be a debtor under Chapter 11.…" (emphasis added).[25] It does not say that "all" who may be debtors under chapter 7 may be debtors under chapter 11.

Stevens noted that, to resolve this ambiguity, it is necessary to consider the legislative history of this case. The Senate report quoted by the majority assumes that only businesses will ever file for chapter 11, but it does not exclude the possibility that individuals may make use of that chapter as well; rather, it notes that the cost of filing for chapter 11 would likely prevent individuals from using it. However, the House report "unambiguously states that a Chapter 7 liquidation is 'the only remedy' for 'consumer debtors [who] are unable to avail themselves of the relief provided under chapter 13.' H.R.Rep. No. 95-595, p. 125 (1977). See also 124 Cong.Rec., at 32392, 32405 (Chapter 11 is 'a consolidated approach to business rehabilitation' and a 'new commercial reorganization chapter') (statement of Rep. Edwards)."[26]

Finally, the Bankruptcy Code specifically allows for involuntary chapter 7 and chapter 11 filings, and in Justice Stevens' view (contrary to the majority opinion) there were not adequate protections to prevent this from actually happening.[27] Thus, according to Stevens, chapter 11 of the bankruptcy law is intended to apply to businesses (and business owners) only, and he would have voted to affirm the decision of the Eighth Circuit.

Discussion[edit]

Toibb stands for the counterintuitive proposition that individuals can file for chapter 11 "reorganization" under the Bankruptcy Code. The complexity and cost of chapter 11 bankruptcy is rather high (the case-filing fee alone is $1000).[28] However, a New York Times article reports that chapter 11 may be "an attractive alternative for individuals who have relatively large debts and relatively large income, or at least the expectation of future income, with which to finance a repayment plan."[29]

Toibb has not been overruled by any subsequent decision of the Supreme Court,[30] and although the Bankruptcy Code has since been amended, individuals remain eligible to file for bankruptcy under Chapter 11.[31]

See also[edit]

Notes[edit]

  1. ^ Sarah Cochran et al. "Bankruptcy". Wex (legal encyclopedia). Cornell University Legal Information Institute. 
  2. ^ "The Discharge in Bankruptcy". Bankruptcy Basics. U.S. Courts. 
  3. ^ Igor Livshits; James MacGee; Michèle Tertilt (March 2007). "Consumer Bankruptcy: A Fresh Start". The American Economic Review 97 (1): 402–418. doi:10.1257/aer.97.1.402. 
  4. ^ See Pub. L. 95–598, 92 Stat. 2549 (1978).
  5. ^ U.S. Const. art. I, § 8
  6. ^ a b c d e f g "The Process". Bankruptcy Basics. U.S. Courts. 
  7. ^ 11 U.S.C. ch. 7 (2006)
  8. ^ 11 U.S.C. ch. 9 (2006)
  9. ^ 11 U.S.C. ch. 11 (2006)
  10. ^ 11 U.S.C. ch. 12 (2006)
  11. ^ 11 U.S.C. ch. 13 (2006)
  12. ^ 11 U.S.C. ch. 15 (2006)
  13. ^ a b c d Toibb v. Radloff, 501 U.S. 157, 159 (1991).
  14. ^ a b Wamsganz v. Boatmen's Bank of De Soto, 804 F.2d 503 (8th Cir. 1986)
  15. ^ See In re Moog, 774 F.2d 1073 (1985)
  16. ^ 501 U.S. at 162 (quoting Blum v. Stenson, 465 U.S. 886, 896 (1984)).
  17. ^ See 501 U.S. at 160.
  18. ^ 501 U.S. at 160 (quoting 11 U.S.C. § 109 (1988)).
  19. ^ 11 U.S.C. § 109 (1988) [See Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2557, as amended by Pub. L. 97–320, title VII, § 703(d), Oct. 15, 1982, 96 Stat. 1539; Pub. L. 98–353, title III, §§ 301, 425, July 10, 1984, 98 Stat. 352, 369; and Pub. L. 99–554, title II, § 253, Oct. 27, 1986, 100 Stat. 3105; and subsequently amended (after petitioner filed for bankruptcy) by Pub. L. 100–597, § 2, Nov. 3, 1988, 102 Stat. 3028; Pub. L. 103–394, title I, § 108(a), title II, § 220, title IV, § 402, title V, § 501(d)(2), Oct. 22, 1994, 108 Stat. 4111, 4129, 4141, 4143; Pub. L. 106–554, § 1(a)(5) [title I, § 112(c)(1), (2)], § 1(a)(8) [§ 1(e)], Dec. 21, 2000, 114 Stat. 2763, 2763A–393, 2763A–665; Pub. L. 109–8, title I, § 106(a), title VIII, § 802(d)(1), title X, § 1007(b), title XII, § 1204(1), Apr. 20, 2005, 119 Stat. 37, 146, 188, 193.]
  20. ^ 501 U.S. at 161
  21. ^ Id. at 162 (quoting S.Rep. No. 95-989, p. 3 (1978)).
  22. ^ Id. at 163.
  23. ^ 501 U.S. at 164 (quoting 11 U.S.C. § 1129(a)(7) (1988)).
  24. ^ 501 U.S. at 164
  25. ^ 501 U.S. at 167
  26. ^ 501 U.S. at 168
  27. ^ See id. at 169.
  28. ^ "Chapter 11". Bankruptcy Basics. U.S. Courts. 
  29. ^ Linda Greenhouse (June 14, 1991). "Court Expands Use of Chapter 11". The New York Times. 
  30. ^ See "Lexis-Nexis". 
  31. ^ See, e.g., Pub. L. No. 109-8, 119 Stat. 23 (2005); Pub. L. No. 106-554, app. E, 114 Stat. 2763, 2763A-365 to 2763A-462 (2000).

External links[edit]