Marrama v. Citizens Bank of Massachusetts
Encyclopedia
Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365
(2007), was a United States Supreme Court
case about bad faith in bankruptcy
.
, thereby creating an estate consisting of all his property “wherever located and by whomever held.” Respondent Citizens Bank
of Massachusetts was the principal creditor.
In his petition, Marrama made a number of statements about his house in Maine
that were misleading or inaccurate. While he disclosed that he was the sole beneficiary of the trust
that owned the property, he listed its value as zero. He also denied that he had transferred any property other than in the ordinary course of business during the year preceding the filing of his petition. Neither statement was true. In fact, the Maine property had substantial value, and Marrama had transferred it into the newly created trust for no consideration seven months prior to filing his Chapter 13
petition. Marrama later admitted that the purpose of the transfer was to protect the property from his creditors.
’s error” and claimed an absolute right to convert his claim from Chapter 7 to Chapter 13. The Bankruptcy Judge rejected these arguments. Marrama appealed to the Bankruptcy Appellate Panel
for the First Circuit
, which affirmed the lower court's ruling. On appeal from the panel, the full First Circuit Court of Appeals affirmed, rejecting the argument that §706(a) gives a Chapter 7 debtor an absolute right to convert to Chapter 13. Marrama appealed again to the Supreme Court. Because other circuit courts had issued contrary opinions, the Supreme Court granted certiorari
to resolve the difference.
Citizens Bank argued that the statute uses the word “may” rather than “shall,” leaving room for the courts, in their discretion, to construe a "bad faith" exception to the general rule.
wrote the opinion for the Court. Agreeing with the First Circuit's opinion, the Court held that there is a bad faith exception to the right to convert from Chapter 7 to Chapter 11. According to the Court, "a Chapter 13 proceeding may be either dismissed or converted to a Chapter 7 proceeding 'for cause' and includes a nonexclusive list of 10 causes justifying that relief. None of the specified causes mentions prepetition bad-faith conduct.... Bankruptcy courts nevertheless routinely treat dismissal for prepetition bad-faith conduct as implicitly authorized by the words 'for cause.'"
dissented from the opinion of the Court, and was joined by three other Justices. Alito found that the imposition of the bad-faith exception "is inconsistent with the Bankruptcy Code." His opinion follows the plain language
of the statute, specifically the passage that indicates that a "debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title." He finds that to read an implied bad-faith exception would violate the actual wording of the statute, and that the statute functions well without need of such an interpretation.
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(2007), was a United States Supreme Court
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
case about bad faith in bankruptcy
Bankruptcy in the United States
Bankruptcy in the United States is governed under the United States Constitution which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress has exercised this authority several times since 1801, most recently by adopting the Bankruptcy...
.
Facts
On March 11, 2003, Robert Marrama filed a voluntary bankruptcy petition under Chapter 7Chapter 7, Title 11, United States Code
Chapter 7 of the Title 11 of the United States Code governs the process of liquidation under the bankruptcy laws of the United States...
, thereby creating an estate consisting of all his property “wherever located and by whomever held.” Respondent Citizens Bank
Citizens Financial Group
Citizens Financial Group, Inc. is an American bank headquartered in Providence, Rhode Island, which operates in the states of Connecticut, Delaware, Illinois, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Vermont. Citizens is a wholly owned...
of Massachusetts was the principal creditor.
In his petition, Marrama made a number of statements about his house in Maine
Maine
Maine is a state in the New England region of the northeastern United States, bordered by the Atlantic Ocean to the east and south, New Hampshire to the west, and the Canadian provinces of Quebec to the northwest and New Brunswick to the northeast. Maine is both the northernmost and easternmost...
that were misleading or inaccurate. While he disclosed that he was the sole beneficiary of the trust
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
that owned the property, he listed its value as zero. He also denied that he had transferred any property other than in the ordinary course of business during the year preceding the filing of his petition. Neither statement was true. In fact, the Maine property had substantial value, and Marrama had transferred it into the newly created trust for no consideration seven months prior to filing his Chapter 13
Chapter 13, Title 11, United States Code
Chapter 13 of the United States Bankruptcy Code, codified under Title 11 of the United States Code, governs a form of bankruptcy in the United States that allows individuals to undergo a financial reorganization supervised by a federal bankruptcy court. The goal of Chapter 13 is to enable...
petition. Marrama later admitted that the purpose of the transfer was to protect the property from his creditors.
Procedural history
At the hearing, Marrama explained that his misstatements about the Maine property were attributable to a “scrivenerScrivener
A scrivener was traditionally a person who could read and write. This usually indicated secretarial and administrative duties such as dictation and keeping business, judicial, and history records for kings, nobles, temples, and cities...
’s error” and claimed an absolute right to convert his claim from Chapter 7 to Chapter 13. The Bankruptcy Judge rejected these arguments. Marrama appealed to the Bankruptcy Appellate Panel
Bankruptcy Appellate Panel
A Bankruptcy Appellate Panel is a group of judges of the United States bankruptcy courts who are appointed to hear appeals from certain bankruptcy cases under the supervision of the United States courts of appeals....
for the First Circuit
United States Court of Appeals for the First Circuit
The United States Court of Appeals for the First Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* District of Maine* District of Massachusetts...
, which affirmed the lower court's ruling. On appeal from the panel, the full First Circuit Court of Appeals affirmed, rejecting the argument that §706(a) gives a Chapter 7 debtor an absolute right to convert to Chapter 13. Marrama appealed again to the Supreme Court. Because other circuit courts had issued contrary opinions, the Supreme Court granted certiorari
Certiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
to resolve the difference.
Issue
Does a debtor who acts in bad faith before, or in the course of, filing a Chapter 13 petition by, for example, fraudulently concealing significant assets, thereby forfeit his right to obtain Chapter 13 relief?Parties' arguments
Marrama’s argument was that he had an absolute right to convert his case from Chapter 7 to Chapter 13 under the plain language of §706(a) of the Code.Citizens Bank argued that the statute uses the word “may” rather than “shall,” leaving room for the courts, in their discretion, to construe a "bad faith" exception to the general rule.
Opinion of the Court
Justice StevensJohn Paul Stevens
John Paul Stevens served as an Associate Justice of the Supreme Court of the United States from December 19, 1975 until his retirement on June 29, 2010. At the time of his retirement, he was the oldest member of the Court and the third-longest serving justice in the Court's history...
wrote the opinion for the Court. Agreeing with the First Circuit's opinion, the Court held that there is a bad faith exception to the right to convert from Chapter 7 to Chapter 11. According to the Court, "a Chapter 13 proceeding may be either dismissed or converted to a Chapter 7 proceeding 'for cause' and includes a nonexclusive list of 10 causes justifying that relief. None of the specified causes mentions prepetition bad-faith conduct.... Bankruptcy courts nevertheless routinely treat dismissal for prepetition bad-faith conduct as implicitly authorized by the words 'for cause.'"
Dissent
Justice AlitoSamuel Alito
Samuel Anthony Alito, Jr. is an Associate Justice of the U.S. Supreme Court. He was nominated by President George W. Bush and has served on the court since January 31, 2006....
dissented from the opinion of the Court, and was joined by three other Justices. Alito found that the imposition of the bad-faith exception "is inconsistent with the Bankruptcy Code." His opinion follows the plain language
Plain language
Plain language is clear, succinct writing designed to ensure the reader understands as quickly and completely as possible.Plain language strives to be easy to read, understand, and use. It avoids verbose, convoluted language and jargon...
of the statute, specifically the passage that indicates that a "debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title." He finds that to read an implied bad-faith exception would violate the actual wording of the statute, and that the statute functions well without need of such an interpretation.
See also
External links
- Marrama v. Citizens Bank at supremecourt.gov (docket information)
- full text (HTML with links to precedent, statutes, and U.S. Constitution)