Law v. Siegel

Opinion

Summary

No. 12-5196

January 13, 2014, Argued. March 4, 2014, Decided

Petitioner Law filed for Chapter 7 bankruptcy. He valued his California home at $363,348, claiming that $75,000 of that value was covered by California's homestead exemption and thus was exempt from the bankruptcy estate. See 11 U. S. C. § 522(b)(3)(A). He also claimed that the sum of two voluntary liens--one of which was in favor of “Lin's Mortgage & Associates”--exceeded the home's nonexempt value, leaving no equity recoverable for his other creditors. Respondent Siegel, the bankruptcy estate trustee, challenged the “Lin” lien in an adversary proceeding, but protracted and expensive litigation ensued when a supposed “Lili Lin” in China claimed to be the beneficiary of Law's deed of trust. Ultimately, the Bankruptcy Court concluded that the loan was a fiction created by Law to preserve his equity in the house. It thus granted Siegel's motion to “surcharge” Law's $75,000 homestead exemption, making those funds available to defray attorney's fees incurred by Siegel in overcoming Law's fraudulent misrepresentations. The Ninth Circuit Bankruptcy Appellate Panel and the Ninth Circuit affirmed.

Held: The Bankruptcy Court exceeded the limits of its authority when it ordered that the $75,000 protected by Law's homestead exemption be made available to pay Siegel's attorney's fees. Pp. ___ - ___, 188 L. Ed. 2d, at 152-157.

(a) A bankruptcy court may not exercise its authority to “carry out” the provisions of the Code, 11 U. S. C. § 105(a), or its “inherent power . . . to sanction 'abusive litigation practices,' ” Marrama v. Citizens Bank of Mass., 549 U. S. 365, 375-376, 127 S. Ct. 1105, 166 L. Ed. 2d 956, by taking action prohibited elsewhere in the Code. Here, the Bankruptcy Court's “surcharge” contravened § 522, which (by reference to California law) entitled Law to exempt $75,000 of equity in his home from the bankruptcy estate, § 522(b)(3)(A), and which made that $75,000 “not liable for payment of any administrative expense,” §522(k), including attorney's fees, see § 503(b)(2). The surcharge thus exceeded the limits of both the court's authority under § 105(a) and its inherent powers. Pp. ___ - ___, 188 L. Ed. 2d, at 152-154.

Matthew S. Hellman argued the cause for petitioner.

Neal Katyal argued the cause for respondent.

Neal Katyal argued the cause for respondent.

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