Making Ends Meet: Chicago v. Fulton

The Supreme Court held that if a creditor holds on to property that the creditor seized from a debtor before the debtor declared bankruptcy, the creditor does not violate the Bankruptcy Code’s “automatic stay” provision (11 U.S.C. §362(a)(3)).

Robbin Fulton, a Chicago resident, owned a car. But after Ms. Fulton was cited for driving on a suspended license, the City of Chicago impounded her car. Ms. Fulton then declared bankruptcy. She asked Chicago for her car back. Chicago refused. So, Ms. Fulton sued.

She argued that Chicago must return her car under a provision of the Bankruptcy Code: the “automatic stay” provision. That provision (11 U.S.C. §362(a)(3)) says, as relevant, that Ms. Fulton’s bankruptcy declaration stays “any act to . . . exercise control over property of [Ms. Fulton’s] estate.” She contended that Chicago’s retention of her car was “an act” to “exercise control” over part of her estate. Chicago argued otherwise.

The question for the Supreme Court is whether Chicago’s retention of the car is “an act” to
“exercise control over property of [Ms. Fulton’s] estate.” The answer is no, concluded a unanimous Court in an opinion written by Justice Alito. (Justice Barrett was recused since she wasn’t yet on the bench when the case was argued.)

For Alito, the case turns on whether Chicago took an “affirmative act[ion]” that changed the “status quo” of the estate as of Ms. Fulton’s declaration of bankruptcy. Let’s unpack this. The first important element is whether Chicago made an “affirmative act” by not returning Ms. Fulton’s car. While Alito doesn’t say much expressly on this point, his argument is implicit. Merely holding on to an object in one’s possession is, at best, a passive act. It’s a refusal to commit what would be an affirmative act, such as returning the object or giving it away. Chicago would’ve acted affirmatively had it, say, returned the car, destroyed the car, or transferred it to another jurisdiction. But it didn’t; it merely retained the car.

The second element is whether Chicago “alter[ed] the status quo” as of the time of Ms. Fulton’s filing of her bankruptcy petition. Alito’s argument here is clearer. Chicago clearly did not change the status quo. It seized Ms. Fulton’s car before she declared bankruptcy, and thus wholly apart from Ms. Fulton’s bankruptcy proceedings. By retaining possession of the car, Chicago actually maintained the existing set of circumstances.

Two other facts support Alito’s conclusion. First, to read the Automatic Stay provision oppositely would violate a fundamental tenet of statutory construction: the “Surplusage Canon.” Courts should not interpret a statute in a manner that causes the statute to duplicate another statute or to become meaningless. See United States v. Butler, 297 U.S. 1, 65 (1936) (“These words cannot be meaningless, else they would not have been used”); Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts, Thomson/West (2012), 174-79.

Suppose Alito concluded differently. Suppose the Automatic Stay provision (§362(a)(3)) requires Chicago to return Ms. Fulton’s car. §362(a)(3) would therefore operate as a “turnover” provision, a statute regulating the exchange of property between a debtor and a creditor during bankruptcy proceedings. Here’s the problem: §542(a) already is the Bankruptcy Code’s turnover provision. It’s helpfully entitled, “Turnover of property to the estate,” and it governs the kinds of estate property that actors in a bankruptcy forum may exchange and the manners in which they may do so. Thus, §542(a) would be redundant were Alito to read §362(a)(3) oppositely. Alito listened to the wisdom of Mark Twain: “eschew surplusage.”

Second, consider the legislative history of the Bankruptcy Code. Both §§ 362(a)(3) and 542(a) were in the original 1978 Code, but the language of §362(a)(3) was different: it did not include the clause at issue in this case (“exercise control over property of the estate”). Congress added that clause in 1984.

Ms. Fulton agreed on the record that §362(a)(3) was not a “turnover” provision prior to 1984. So, assuming arguendo that §362(a)(3) now acts as a “turnover” provision, why would Congress in 1984 change the nature of the statute by adding nothing more than the phrase “exercise control,” a phrase that, in Alito’s mind, “does not naturally comprehend the mere retention of property”? More importantly, why would Congress convert §362(a)(3) into a turnover provision when a turnover provision already existed in the Bankruptcy Code? It’s a reductio ad absurdum. Further, whenever Congress amends a statute with the intention to supersede an existing statute, it usually expresses its intent clearly in the language of the amendment. But it didn’t do that here. “Had Congress wanted to make §362(a)(3) an enforcement arm of sorts for §542(a),” Alito argues, “the least one would expect would be a cross-reference to the latter provision.” Congress made no such cross-reference. The more logical reading of Congress’ intention is that the 1984 amendment extended §362(a)(3)’s coverage to include intangible parts of a debtor’s estate, things that cannot be in one’s physical “possession.”

Justice Sonia Sotomayor wrote a solo concurrence. She agrees with Alito that §362(a)(3) does not cover a creditor’s “passive retention of property seized prebankruptcy.” But she points out a fundamental problem with a creditor seizing a “Chapter 13 debtor’s” car. Chapter 13 bankruptcy requires the debtor to earn an income such that he can pay his creditors. But suppose—as in Ms. Fulton’s case—that the debtor relies on his car to earn that income. If the debtor’s car is seized, he loses his ability to get to work (in the short run at least), he loses his means of paying his creditors, and he falls even deeper into debt’s dark abyss. Sotomayor suggests there may be hope. §542(a)—the turnover provision—may empower courts to “facilitate the return of debtors’ vehicles to their owners,” and she praises the Court for “leav[ing] open” that possibility. She urges Congress to study this problem and provide clearer means of relief for debtors in Ms. Fulton’s shoes.

Chicago v. Fulton was not a win for the little guy. But under the current language of the Bankruptcy Code, it was the correct decision. The most logical reading of §362(a)(3)—as it currently stands—does not cover the passive act of a creditor’s refusal to return property to a debtor in a bankruptcy forum that the creditor seized prior to, and thus wholly unrelated to, the creation of that very forum. Chicago v. Fulton is another notch on the belt of the Court’s “automatic stay” jurisprudence. The Court has interpreted the Bankruptcy Code’s Automatic Stay provision fourteen times in the past two decades and five times since 2015. For more on this area of jurisprudence, see Ritzen Group v. Jackson Masonry (2020), Taggart v. Lorenzen (2019), Bullard v. Blue Hills Bank (2015), Citizens Bank v. Strumpf (1995), and United Sav. Assn. of Texas v. Timbers of Inwood Forests Assocs. (1988).

Photo Credits: Wetherington Hamilton Tampa Law Firm

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