Angelo v. Gee ( 1999 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 99-50693
Summary Calendar
____________________
In The Matter Of: NOLA FAYE GEE,
Debtor.
______________________________
ANGELA ANGELO, Personal Representative of
the Estate of Nola Faye Gee, Debtor,
Appellant,
v.
DEBORAH GEE,
Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Western District of Texas
Docket No. A-99-CA-074-SS
_________________________________________________________________
December 9, 1999
Before KING, Chief Judge, and SMITH and EMILIO M. GARZA, Circuit
Judges.
PER CURIAM:*
Appellant Angela Angelo seeks reversal of the district
court’s affirmance of the bankruptcy court’s dismissal, under 11
U.S.C. § 707(a), of debtor’s Chapter 7 case. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
Nola Gee (“Debtor”) filed a Chapter 13 bankruptcy case on
March 17, 1998. Debtor’s largest asset was her homestead, a
ranch that was valued at $380,300. Debtor elected that Texas
state law be used to define her exempt property, and under that
law, her ranch was exempt at the time of her filing. Her largest
creditor was the estate of her ex-husband, the Honorable Thomas
Gee, to which she claimed she owed $207,000 as a result of a
lawsuit to enforce a divorce decree. That estate was
administered by Deborah Gee, Judge Gee’s widow. Debtor’s Chapter
13 case was converted to a Chapter 7 case on May 1, 1998.
Debtor died May 12, 1998. Deborah Gee filed a motion to
dismiss the bankruptcy case under 11 U.S.C. § 707(a) on August
28, 1998 to allow the distribution of assets to be handled
entirely by the state probate court. Dismissal was sought
because under Texas law, there is no homestead exemption when the
sole homesteader dies without dependents or a spouse. See TEX.
CONST. art. XVI, §§ 50, 51 (West 1998); TEX. PROP. CODE ANN.
§ 41.002(b)(1) (West 1998); Grey v. Longview Nat’l Bank, 161
S.W.2d 166, 166 (Tex. Civ. App. 1942, no writ) (holding that
where no family member survives, the decedent’s homestead is
available to satisfy the claims of creditors). As a result,
dismissal would make the homestead available to satisfy the
Debtor’s creditors. Continuation of the case, on the other hand,
would cause the homestead to be included in the probate estate as
a result of it being an exempt asset at the time the bankruptcy
petition was filed. This would leave only other non-exempt
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assets available to satisfy creditors.
A hearing on the matter was held October 6, 1998, and on
December 14, the bankruptcy court granted Deborah Gee’s motion.
Weighing the equities of dismissal against retention of the case,
the bankruptcy court determined that continuation of the case
would cause Debtor’s heirs to be placed ahead of creditors, and
would not give the Debtor the benefit of a “fresh start” inasmuch
as she had died. Dismissal, on the other hand, would benefit the
creditors, and would result in Debtor’s heirs receiving the
assets that remained after creditors had been paid. The district
court affirmed, holding that the bankruptcy court had not abused
its discretion in dismissing the case. Angelo timely appeals.
II. DISCUSSION
Angelo argues that the district court erred in affirming the
bankruptcy court’s dismissal because the clear language of
Bankruptcy Rule 1016 prohibits dismissal when a Chapter 7 debtor
dies after filing a bankruptcy petition. Rule 1016 provides that
“[d]eath or insanity of the debtor shall not abate a liquidation
case under chapter 7 of the Code. In such event the estate shall
be administered and the case concluded in the same manner, so far
as possible, as though the death or insanity had not occurred.”
Angelo points to the use of the word “shall” in the above, and
argues that the provision is mandatory, i.e., the court shall not
abate the case. The bankruptcy court’s reliance on the notion
that a dead person does not need a “fresh start,” Angelo urges,
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reads Rule 1016 out of existence.
We review the bankruptcy court’s dismissal under 11 U.S.C.
§ 707(a) for abuse of discretion. See Peterson v. Atlas Supply
Corp. (In re Atlas Supply Corp.), 857 F.2d 1061, 1063 (5th Cir.
1988). In order to find that the court abused its discretion, we
must determine that its factual findings were clearly erroneous,
or that it applied incorrect legal standards. See Latvian
Shipping Co. v. Baltic Shipping Co., 99 F.3d 690, 692 (5th Cir.
1996).
We agree with Angelo that in enacting the Bankruptcy Code of
1978, Congress contemplated that a Chapter 7 debtor’s exempt
assets would be transferred to her probate estate upon her death.
See In re Gridley, 131 B.R. 447, 450 (Bankr. S.D. 1991) (quoting
a portion of the legislative history to 11 U.S.C. § 541). Rule
1016, promulgated by the Supreme Court under 28 U.S.C. § 2075,
allows that result. At issue here, however, is whether Rule 1016
restricts creditors’ use of provisions within the Bankruptcy Code
to seek, and obtain, dismissal of a Chapter 7 case.
“As a general matter, the [Bankruptcy] Code defines the
creation, alteration or elimination of substantive rights but the
Bankruptcy Rules define the process by which these privileges may
be effected.” Hanover Indus. Mach. Co. v. American Can Co. (In
re Hanover Indus. Mach. Co.), 61 B.R. 551, 552 (Bankr. E.D. Pa.
1986). Under 28 U.S.C. § 2075, the rules the Supreme Court was
given the power to promulgate are not to “abridge, enlarge, or
modify any substantive right.” This would suggest that as a
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general matter, Rule 1016 cannot restrict the operation of the
Code’s provisions. Gridley, a case cited by Angelo in support of
her argument, also suggests that Rule 1016 does not restrict the
application of other sections of the Bankruptcy Code. See 131
B.R. at 451-52 (considering whether a Chapter 7 case should be
dismissed under 11 U.S.C. § 305 and finding that the facts of the
case did not support dismissal). Nothing in § 707(a) indicates
that the death of the debtor has the effect of restricting the
provision’s availability as a means of seeking and obtaining
dismissal of a Chapter 7 case.
The language of Rule 1016 supports this interpretation. The
Rule provides that the court administer and conclude the Chapter
7 case “in the same manner, so far as possible” as though the
debtor’s death had not occurred. This language suggests that the
Code’s provisions, including § 707(a), are to be applied as they
otherwise would be. Rule 1016 also specifically contemplates
courts considering the fact that the debtor has died after filing
a petition. To suggest that courts must ignore the debtor’s
death entirely makes the Rule’s phrase “so far as possible”
meaningless. See In re Moss, 239 B.R. 537, 542 (Bankr. W.D. Mo.
1999).
For the above reasons, we do not find that the bankruptcy
court misapplied the law. A review of the bankruptcy court’s
thorough opinion and of the facts of this case leads us to
conclude that the bankruptcy court did not abuse its discretion
in granting Deborah Gee’s motion to dismiss the Debtor’s Chapter
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7 case under § 707(a). As a result, we AFFIRM.
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