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In re Adinolfi

United States Bankruptcy Appellate Panel of the Ninth Circuit

January 19, 2016

In re: NANCY ADINOLFI, Debtor. NANCY ADINOLFI, Appellant,
v.
MICHAEL MEYER, Chapter 13 Trustee, Appellee

Argued and Submitted, Sacramento, California November 19, 2015

Appeal from the United States Bankruptcy Court for the Eastern District of California. Bk. No. 14-12645. Honorable Fredrick E. Clement, Bankruptcy Judge, Presiding.

David R. Jenkins argued for Appellant Nancy Adinolfi.

Deanna K. Hazelton argued for Appellee Michael H. Meyer, chapter 13 trustee.

Before: FARIS, DUNN, and JURY, Bankruptcy Judges.

OPINION

Page 613

FARIS, Bankruptcy Judge:

INTRODUCTION

Debtor Nancy Adinolfi appeals from the bankruptcy court's order denying the confirmation of her chapter 13[1] plan. A chapter 13 debtor whose income exceeds the applicable median must devote all of her " projected disposable income" to the payment of her unsecured creditors. The statute excludes " benefits received under the Social Security Act" from " disposable income." The Debtor argues that Adoption Assistance payments she receives are " benefits received under the Social Security Act," but the bankruptcy court ruled to the contrary. We hold that the bankruptcy court erred, and therefore we REVERSE.

FACTUAL BACKGROUND

The parties stipulated to most of the facts. The Debtor receives $1,422[2] per month in Adoption Assistance payments under the Adoption Assistance and Child Welfare Act of 1980. That act established a program of federal payments to participating states to provide funds for financial assistance to families adopting special needs children from foster care. 42 U.S.C. § § 670-76. Pursuant to this Act, California receives funds from the federal government under Title IV-E of the Social Security Act (" SSA" ). Each year, the U.S. Department of Health and Human Services calculates the Federal Medical Assistance Percentage (" FMAP" ). The FMAP is used to determine the amount of federal matching funds provided to various subsidy programs, including the Adoption Assistance program. The Adoption Assistance payments are then paid from a pool of federal funds allocated to California to pay individuals who qualify under the California Welfare and Institutions Code § § 16115 through 16125. Specifically, the money allocated to fund the Debtor's Adoption Assistance payments, as well as all other individuals receiving the same benefits, were comprised of 50% federal funding, 37.5% state funding, and 12.5% county funding. The Debtor's payments under the Adoption Assistance program are paid directly by Merced County Human Services Agency, not the federal government.

The Debtor filed a chapter 13 petition. She disclosed the Adoption Assistance payments but took the position that those payments were not included in her disposable income.[3] She proposed a chapter 13

Page 614

plan with a monthly payment of $935, which would have paid 0% to unsecured non-priority creditors.

Appellee Michael Meyers, chapter 13 trustee, objected to confirmation of the plan, contending that it was improper to exclude the Adoption Assistance payments from her income when calculating her plan payments.

The Bankruptcy Court sustained the objection of the Trustee, concluding that the Adoption Assistance payments should have been included in the Debtor's current monthly income. This timely appeal followed.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § § 1334 and 157(b)(2)(A). Denial of confirmation of a chapter 13 plan is an interlocutory order and therefore not ripe for appeal without leave. Bullard v. Blue Hills Bank, 135 S.Ct. 1686, 1695, 191 L.Ed.2d 621 (2015). On May 20, 2015, a motions panel granted leave to appeal. Therefore, we have jurisdiction under 28 U.S.C. § 158(a)(3).

ISSUE

Whether the bankruptcy court erred when it held that Adoption Assistance payments are not " benefits received under the Social Security Act" within the meaning of § 101(10A)(B).

STANDARD OF REVIEW

" We review the bankruptcy court's findings of fact for clear error; we review its conclusions of law de novo." Quintana v. Comm'r of Internal Revenue Serv. (In re Quintana), 915 F.2d 513, 515 (9th Cir. 1990) (citing Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir. 1986)).

We apply the de novo standard when reviewing chapter 13 plan confirmation issues requiring the interpretation of a statute. Moen v. Hull (In re Hull), 251 B.R. 726, 730 (9th Cir. BAP 2000) (citing United Cal. Sav. Bank v. Martin (In re Martin), 156 B.R. 47, 49 (9th Cir. BAP 1993)); see In re Quintana, 915 F.2d at 515 (" The interpretation of a federal statute is a question of law reviewed de novo." (citation omitted)).

DISCUSSION

A. Adoption Assistance payments are " benefits received under the Social Security Act" and covered by the SSA exclusion.

A bankruptcy court can confirm a chapter 13 plan only if the plan meets numerous requirements. One of these is § 1325(b)(1), which provides that the court may not confirm a plan over the objection of the trustee (or an unsecured creditor) unless the plan provides for full payment of all unsecured claims or " the plan provides that all of the debtor's projected disposable income . . . will be applied to make payments to unsecured creditors under the plan."

This section contains a nested set of defined terms. Under § 1325(b)(2), " the term 'disposable income' means current monthly income received by the debtor," subject to an exclusion which we discuss below, less certain expenses. Section 101(10A)(B) defines " current monthly income." Under that definition, a debtor's " current monthly income" " excludes benefits received under the Social Security Act."

This appeal requires us to construe that exclusion from current monthly income, which we will call the " SSA exclusion."

Page 615

In doing so, we follow well-established rules of statutory construction. We focus on the language of the statute. Lamie v. U.S. Tr., 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004); Friedman v. P, LLC (In re Friedman), 466 B.R. 471, 479 (9th Cir. BAP 2012). We give each word its ordinary meaning unless the statute or the context requires otherwise. United States v. Neal, 776 F.3d 645, 652 (9th Cir. 2015); Foxgord v. Hischemoeller, 820 F.2d 1030, 1032 (9th Cir. 1987). We may refer to dictionary definitions. United States v. Banks, 556 F.3d 967, 978 (9th Cir. 2009) (In interpreting statutory words, " dictionary definitions are cognizable." ). We must interpret not only the individual words, but also the provision as a whole along with related provisions. United Sav. Ass'n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988) (" Statutory construction, however, is a holistic endeavor. A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme -- because the same terminology is used elsewhere in a context that makes its meaning clear, or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law . . . ." (internal citations omitted)); United States v. 144,774 pounds of Blue King Crab, 410 F.3d 1131, 1134 (9th Cir. 2005) (" It is an accepted canon of statutory interpretation that we must interpret the statutory phrase as a whole, giving effect to each word and not interpreting the provision so as to make other provisions meaningless or superfluous." ).

If the statutory language is ambiguous, we may consult additional guides to interpretation, such as legislative history and the statute's context. Searcy v. Ada Cty. Prosecuting Attorney's Office (In re Searcy), 463 B.R. 888, 892 (9th Cir. BAP 2012), aff'd, 561 Fed.Appx. 644 (9th Cir. 2014) (" where statutory language is ambiguous, courts need to look beyond the specific language of the subject statute to the context in which that language is used and to relevant legislative history" ). A term is ambiguous if it is fairly susceptible to different reasonable interpretations. Woods v. Carey, 722 F.3d 1177, 1181 (9th Cir. 2013) (stating that a statute is ambiguous if it gives rise to more than one reasonable interpretation); A-Z Int'l v. Phillips, 179 F.3d 1187, 1192 (9th Cir. 1999) (same).

Courts have construed the SSA exclusion in different ways. Compare In re Munger, 370 B.R. 21, 23-26 (Bankr. D. Mass. 2007) (holding that unemployment compensation is excluded from current monthly income as defined because unemployment compensation is a benefit received under the Social Security Act), and In re Sorrell, 359 B.R. 167, 180-81 (Bankr. S.D. Ohio 2007) (holding that unemployment compensation is excluded from current monthly income and noting that § 101(10A) " does not speak of 'payments,' direct, indirect, or otherwise, but instead contains the unambiguously broader term 'benefits'" ), with DeHart v. Baden (In re Baden), 396 B.R. 617, 621-23 (Bankr. M.D. Pa. 2008) (holding that unemployment compensation is not excluded from current monthly income because unemployment compensation is not a " benefit" - an ambiguous word - received under the Social Security Act, but received under a state-run program), and In re Kucharz, 418 B.R. 635, 640-43 (Bankr. C.D. Ill. 2009) (holding that unemployment compensation is not excluded from current monthly income, and noting that § 101(10A)(B) " is ambiguous on its face, as it is amenable to two conflicting interpretations" ). We therefore conclude that the SSA exclusion is ambiguous.

Page 616

Judicial decisions, even those that are not binding on this Panel, are an excellent source of interpretive guidance. There are no decisions addressing whether the SSA exclusion covers Adoption Assistance payments. Several courts have considered a related issue: whether unemployment insurance payments are " benefits received under the Social Security Act." Most of those courts have held that unemployment compensation is not excluded. See, e.g., In re Gentry, 463 B.R. 526 (Bankr. D. Colo. 2011). A minority of courts have held that the exclusion applies. See, e.g., In re Munger, 370 B.R. at 23-26.

1. Construction of the individual words

We begin with the individual words in the phrase, and then turn to the phrase as a whole.

The word " benefits" does not present a problem in this case. No one denies that the Adoption Assistance payments which the Debtor receives are " benefits."

The word " received," at least in isolation, also presents no difficulty. There is no question that the Debtor " receives" the Adoption Assistance payments.

The word " under" has many meanings, but we can reject most of them because they do not make sense in this context. The meanings that make sense here are " subject to the authority, control, guidance, or instruction of," Merriam-Webster's Collegiate Dictionary 1283 (10th ed. 2002), or " in accordance with (some regulative power or principle)," Oxford English Dictionary, www.oed.org. Significantly for this case, the dictionary definitions do not support the proposition that " under" means that the subject is under the exclusive control of something.

The " Social Security Act" is codified at 42 U.S.C.A. § § 301-1397mm.[4] The SSA was first enacted in 1935 and has been amended hundreds of times since then. See generally Historical Background and Development of Social Security, https://www.ssa.gov/history/briefhistory3.html (last accessed Dec. 3, 2015). It has become a sprawling statute, filling twelve volumes of the United States Code Annotated and providing for many benefit programs, some of which are familiar and others obscure. These programs have a bewildering variety of funding formulae and administrative mechanisms. The federal government funds and administers some of the programs itself, but most of the programs contemplate some degree of state involvement, and many are jointly funded and operated by the federal and state governments. The following summary does not include all such programs and dramatically simplifies the program requirements for almost all of them. Our purpose is to emphasize the wide variation in the programs authorized by the SSA and the futility of picking and choosing which programs are " under" the SSA.

a. Federally-administered programs

Some SSA programs are almost entirely operated and funded by the federal government. But even these programs often contemplate some state involvement. These include:

o The program that most people simply call " Social Security," which provides " old age," survivors, and disability insurance benefits. 42 U.S.C.A. § § 401-434. (Benefits are also available to the survivors of certain railroad retirees. Id. ยง 402(l). The federal ...

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