Bank of America, N. A. v. Caulkett , 135 S. Ct. 1995 ( 2015 )

(Slip Opinion) OCTOBER TERM, 2014 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
BANK OF AMERICA, N. A. v. CAULKETT
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE ELEVENTH CIRCUIT
No. 13–1421. Argued March 24, 2015—Decided June 1, 2015*
Respondent debtors each filed for Chapter 7 bankruptcy, and each
owned a house encumbered with a senior mortgage lien and a junior
mortgage lien, the latter held by petitioner bank. Because the
amount owed on each senior mortgage is greater than each house’s
current market value, the bank would receive nothing if the proper-
ties were sold today. The junior mortgage liens were thus wholly un-
derwater. The debtors sought to void their junior mortgage liens un-
der §506 of the Bankruptcy Code, which provides, “To the extent that
a lien secures a claim against the debtor that is not an allowed se-
cured claim, such lien is void.” 11 U. S. C. §506(d). In each case, the
Bankruptcy Court granted the motion, and both the District Court
and the Eleventh Circuit affirmed.
Held: A debtor in a Chapter 7 bankruptcy proceeding may not void a
junior mortgage lien under §506(d) when the debt owed on a senior
mortgage lien exceeds the current value of the collateral if the credi-
tor’s claim is both secured by a lien and allowed under §502 of the
Bankruptcy Code. Pp. 2–7.
(a) The debtors here prevail only if the bank’s claims are “not . . .
allowed secured claim[s].” The parties do not dispute that the bank’s
claims are “allowed” under the Code. Instead, the debtors argue that
the bank’s claims are not “secured” because §506(a)(1) provides that
“[a]n allowed claim . . . is a secured claim to the extent of the value of
such creditor’s interest in . . . such property” and “an unsecured claim
to the extent that the value of such creditor’s interest . . . is less than
the amount of such allowed claim.” Because the value of the bank’s
——————
* Together with No. 14–163, Bank of America, N. A. v. Toledo-
Cardona, also on certiorari to the same court.
2 BANK OF AMERICA, N. A. v. CAULKETT
Syllabus
interest here is zero, a straightforward reading of the statute would
seem to favor the debtors. This Court’s construction of §506(d)’s term
“secured claim” in Dewsnup v. Timm, 502 U. S. 410, however, fore-
closes that reading and resolves the question presented here. In de-
clining to permit a Chapter 7 debtor to “strip down” a partially un-
derwater lien under §506(d) to the value of the collateral, the Court
in Dewsnup concluded that an allowed claim “secured by a lien with
recourse to the underlying collateral . . . does not come within the
scope of §506(d).” Id., at 415. Thus, under Dewsnup, a “secured
claim” is a claim supported by a security interest in property, regard-
less of whether the value of that property would be sufficient to cover
the claim. Pp. 2–4.
(b) This Court declines to limit Dewsnup to partially underwater
liens. Dewsnup’s definition did not depend on such a distinction. Nor
is this distinction supported by Nobelman v. American Savings Bank,
508 U. S. 324, which addressed the interaction between the meaning
of the term “secured claim” in §506(a)—a definition that Dewsnup de-
clined to use for purposes of §506(d)—and an entirely separate provi-
sion, §1322(b)(2). See 508 U. S., at 327–332. Finally, the debtors’
suggestion that the historical and policy concerns that motivated the
Court in Dewsnup do not apply in the context of wholly underwater
liens is an insufficient justification for giving the term “secured
claim” a different definition depending on the value of the collateral.
Ultimately, the debtors’ proposed distinction would do nothing to
vindicate §506(d)’s original meaning and would leave an odd statuto-
ry framework in its place. Pp. 5–7.
No. 13–1421, 566 Fed. Appx. 879, and No. 14–163, 556 Fed. Appx. 911,
reversed and remanded.
THOMAS, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and SCALIA, GINSBURG, ALITO, and KAGAN, JJ., joined, and in
which KENNEDY, BREYER, and SOTOMAYOR, JJ., joined except as to the
footnote.
Cite as: 575 U. S. ____ (2015) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
Nos. 13–1421 and 14–163
_________________
BANK OF AMERICA, N. A., PETITIONER
13–1421 v.
DAVID B. CAULKETT
BANK OF AMERICA, N. A., PETITIONER
14–163 v.
EDELMIRO TOLEDO-CARDONA
ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE ELEVENTH CIRCUIT
[June 1, 2015]
JUSTICE THOMAS delivered the opinion of the Court.*
Section 506(d) of the Bankruptcy Code allows a debtor
to void a lien on his property “[t]o the extent that [the] lien
secures a claim against the debtor that is not an allowed
secured claim.” 11 U. S. C. §506(d). These consolidated
cases present the question whether a debtor in a Chapter
7 bankruptcy proceeding may void a junior mortgage
under §506(d) when the debt owed on a senior mortgage
exceeds the present value of the property. We hold that a
debtor may not, and we therefore reverse the judgments of
the Court of Appeals.
I
The facts in these consolidated cases are largely the
——————
* JUSTICE KENNEDY, JUSTICE BREYER, and JUSTICE SOTOMAYOR join
this opinion, except as to the footnote.
2 BANK OF AMERICA, N. A. v. CAULKETT
Opinion of the Court
same. The debtors, respondents David Caulkett and
Edelmiro Toledo-Cardona, each have two mortgage liens
on their respective houses. Petitioner Bank of America
(Bank) holds the junior mortgage lien—i.e., the mortgage
lien subordinate to the other mortgage lien—on each
home. The amount owed on each debtor’s senior mortgage
lien is greater than each home’s current market value.
The Bank’s junior mortgage liens are thus wholly under-
water: because each home is worth less than the amount
the debtor owes on the senior mortgage, the Bank would
receive nothing if the properties were sold today.
In 2013, the debtors each filed for Chapter 7 bank-
ruptcy. In their respective bankruptcy proceedings, they
moved to “strip off ”—or void—the junior mortgage liens
under §506(d) of the Bankruptcy Code. In each case, the
Bankruptcy Court granted the motion, and both the Dis-
trict Court and the Court of Appeals for the Eleventh
Circuit affirmed. In re Caulkett, 566 Fed. Appx. 879(2014) (per curiam); In re Toledo-Cardona, 556 Fed. Appx.
911 (2014) (per curiam). The Eleventh Circuit explained
that it was bound by Circuit precedent holding that
§506(d) allows debtors to void a wholly underwater mort-
gage lien.
We granted certiorari, 574 U. S. ___ (2014), and now
reverse the judgments of the Eleventh Circuit.
II
Section 506(d) provides, “To the extent that a lien se-
cures a claim against the debtor that is not an allowed
secured claim, such lien is void.” (Emphasis added.)
Accordingly, §506(d) permits the debtors here to strip off
the Bank’s junior mortgages only if the Bank’s “claim”—
generally, its right to repayment from the debtors,
§101(5)—is “not an allowed secured claim.” Subject to
some exceptions not relevant here, a claim filed by a credi-
tor is deemed “allowed” under §502 if no interested party
Cite as: 575 U. S. ____ (2015) 3
Opinion of the Court
objects or if, in the case of an objection, the Bankruptcy
Court determines that the claim should be allowed under
the Code. §§502(a)–(b). The parties agree that the Bank’s
claims meet this requirement. They disagree, however,
over whether the Bank’s claims are “secured” within the
meaning of §506(d).
The Code suggests that the Bank’s claims are not se-
cured. Section 506(a)(1) provides that “[a]n allowed claim
of a creditor secured by a lien on property . . . is a secured
claim to the extent of the value of such creditor’s interest
in . . . such property,” and “an unsecured claim to the
extent that the value of such creditor’s interest . . . is less
than the amount of such allowed claim.” (Emphasis added.)
In other words, if the value of a creditor’s interest in
the property is zero—as is the case here—his claim cannot
be a “secured claim” within the meaning of §506(a). And
given that these identical words are later used in the same
section of the same Act—§506(d)—one would think this
“presents a classic case for application of the normal rule
of statutory construction that identical words used in
different parts of the same act are intended to have the
same meaning.” Desert Palace, Inc. v. Costa, 539 U. S. 90,
101 (2003) (internal quotation marks omitted). Under
that straightforward reading of the statute, the debtors
would be able to void the Bank’s claims.
Unfortunately for the debtors, this Court has already
adopted a construction of the term “secured claim” in
§506(d) that forecloses this textual analysis. See Dewsnup
v. Timm, 502 U. S. 410 (1992). In Dewsnup, the Court
confronted a situation in which a Chapter 7 debtor wanted
to “ ‘strip down’ ”—or reduce—a partially underwater lien
under §506(d) to the value of the collateral. Id., at 412–
413. Specifically, she sought, under §506(d), to reduce her
debt of approximately $120,000 to the value of the collat-
eral securing her debt at that time ($39,000). Id., at 413.
Relying on the statutory definition of “ ‘allowed secured
4 BANK OF AMERICA, N. A. v. CAULKETT
Opinion of the Court
claim’ ” in §506(a), she contended that her creditors’ claim
was “secured only to the extent of the judicially deter-
mined value of the real property on which the lien [wa]s
fixed.” Id., at 414.
The Court rejected her argument. Rather than apply
the statutory definition of “secured claim” in §506(a), the
Court reasoned that the term “secured” in §506(d) con-
tained an ambiguity because the self-interested parties
before it disagreed over the term’s meaning. Id., at 416,
420. Relying on policy considerations and its understand-
ing of pre-Code practice, the Court concluded that if a
claim “has been ‘allowed’ pursuant to §502 of the Code and
is secured by a lien with recourse to the underlying collat-
eral, it does not come within the scope of §506(d).” Id., at
415; see id., at 417–420. It therefore held that the debtor
could not strip down the creditors’ lien to the value of the
property under §506(d) “because [the creditors’] claim
[wa]s secured by a lien and ha[d] been fully allowed pur-
suant to §502.” Id., at 417. In other words, Dewsnup
defined the term “secured claim” in §506(d) to mean a
claim supported by a security interest in property, regard-
less of whether the value of that property would be suffi-
cient to cover the claim. Under this definition, §506(d)’s
function is reduced to “voiding a lien whenever a claim
secured by the lien itself has not been allowed.” Id., at
416.
Dewsnup’s construction of “secured claim” resolves the
question presented here. Dewsnup construed the term
“secured claim” in §506(d) to include any claim “secured by
a lien and . . . fully allowed pursuant to §502.” Id., at 417.
Because the Bank’s claims here are both secured by liens
and allowed under §502, they cannot be voided under the
definition given to the term “allowed secured claim” by
Dewsnup.
Cite as: 575 U. S. ____ (2015) 5
Opinion of the Court
III
The debtors do not ask us to overrule Dewsnup,† but
instead request that we limit that decision to partially—as
opposed to wholly—underwater liens. We decline to adopt
this distinction. The debtors offer several reasons why we
should cabin Dewsnup in this manner, but none of them is
compelling.
To start, the debtors rely on language in Dewsnup stat-
ing that the Court was not addressing “all possible fact
situations,” but was instead “allow[ing] other facts to
await their legal resolution on another day.” Id., at 416–
417. But this disclaimer provides an insufficient founda-
tion for the debtors’ proposed distinction. Dewsnup con-
sidered several possible definitions of the term “secured
claim” in §506(d). See id., at 414–416. The definition it
settled on—that a claim is “secured” if it is “secured by a
lien” and “has been fully allowed pursuant to §502,” id., at
417—does not depend on whether a lien is partially or
wholly underwater. Whatever the Court’s hedging lan-
guage meant, it does not provide a reason to limit
Dewsnup in the manner the debtors propose.
The debtors next contend that the term “secured claim”
——————
† From its inception, Dewsnup v. Timm, 502 U. S. 410 (1992), has
been the target of criticism. See, e.g., id., at 420–436 (SCALIA, J.,
dissenting); In re Woolsey, 696 F. 3d 1266, 1273–1274, 1278 (CA10
2012); In re Dever, 164 B. R. 132, 138, 145 (Bkrtcy. Ct. CD Cal. 1994);
Carlson, Bifurcation of Undersecured Claims in Bankruptcy, 70 Am.
Bankr. L. J. 1, 12–20 (1996); Ponoroff & Knippenberg, The Immovable
Object Versus the Irresistible Force: Rethinking the Relationship
Between Secured Credit and Bankruptcy Policy, 95 Mich. L. Rev. 2234,
2305–2307 (1997); see also Bank of America Nat. Trust and Sav. Assn.
v. 203 North LaSalle Street Partnership, 526 U. S. 434, 463, and n. 3
(1999) (THOMAS, J., concurring in judgment) (collecting cases and
observing that “[t]he methodological confusion created by Dewsnup has
enshrouded both the Courts of Appeals and . . . Bankruptcy Courts”).
Despite this criticism, the debtors have repeatedly insisted that they
are not asking us to overrule Dewsnup.
6 BANK OF AMERICA, N. A. v. CAULKETT
Opinion of the Court
in §506(d) could be redefined as any claim that is backed
by collateral with some value. Embracing this reading of
§506(d), however, would give the term “allowed secured
claim” in §506(d) a different meaning than its statutory
definition in §506(a). We refuse to adopt this artificial
definition.
Nor do we think Nobelman v. American Savings Bank,
508 U. S. 324 (1993), supports the debtors’ proposed dis-
tinction. Nobelman said nothing about the meaning of the
term “secured claim” in §506(d). Instead, it addressed the
interaction between the meaning of the term “secured
claim” in §506(a) and an entirely separate provision,
§1322(b)(2). See 508 U. S., at 327–332. Nobelman offers
no guidance on the question presented in these cases
because the Court in Dewsnup already declined to apply
the definition in §506(a) to the phrase “secured claim” in
§506(d).
The debtors alternatively urge us to limit Dewsnup’s
definition to the facts of that case because the historical
and policy concerns that motivated the Court do not apply
in the context of wholly underwater liens. Whether or not
that proposition is true, it is an insufficient justification
for giving the term “secured claim” in §506(d) a different
definition depending on the value of the collateral. We are
generally reluctant to give the “same words a different
meaning” when construing statutes, Pasquantino v.
United States, 544 U. S. 349, 358 (2005) (internal quota-
tion marks omitted), and we decline to do so here based on
policy arguments.
Ultimately, embracing the debtors’ distinction would not
vindicate §506(d)’s original meaning, and it would leave
an odd statutory framework in its place. Under the debt-
ors’ approach, if a court valued the collateral at one dollar
more than the amount of a senior lien, the debtor could
not strip down a junior lien under Dewsnup, but if it val-
ued the property at one dollar less, the debtor could strip
Cite as: 575 U. S. ____ (2015) 7
Opinion of the Court
off the entire junior lien. Given the constantly shifting
value of real property, this reading could lead to arbitrary
results. To be sure, the Code engages in line-drawing
elsewhere, and sometimes a dollar’s difference will have a
significant impact on bankruptcy proceedings. See, e.g.,
§707(b)(2)(A)(i) (presumption of abuse of provisions of
Chapter 7 triggered if debtor’s projected disposable income
over the next five years is $12,475). But these lines were
set by Congress, not this Court. There is scant support for
the view that §506(d) applies differently depending on
whether a lien was partially or wholly underwater. Even
if Dewsnup were deemed not to reflect the correct meaning
of §506(d), the debtors’ solution would not either.
* * *
The reasoning of Dewsnup dictates that a debtor in a
Chapter 7 bankruptcy proceeding may not void a junior
mortgage lien under §506(d) when the debt owed on a
senior mortgage lien exceeds the current value of the
collateral. The debtors here have not asked us to overrule
Dewsnup, and we decline to adopt the artificial distinction
they propose instead. We therefore reverse the judgments
of the Court of Appeals and remand the cases for further
proceedings consistent with this opinion.
It is so ordered.