U.S. Supreme Court Will Not Hear Bankruptcy Lien Case Brought by Bank of America

U.S. Supreme Court Will Not Hear Bankruptcy Lien Case Brought by Bank of America

 WASHINGTON, D.C. — (Mealey’s) The U.S. Supreme Court today said it would not hear a case in which Bank of America had argued that the high court needed to resolve a split at the federal appellate level dealing with whether a Chapter 7 debtor may “strip off,” or void, a valid junior lien on his house when the debt owed to a senior lienholder exceeds the house’s current value (Bank of America v. David L. Sinkfield, No. 13-700, U.S. Sup.) (lexis.com subscribers may access Supreme Court briefs for this case).

Bankruptcy

David L. Sinkfield filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Georgia in 2012.

The Bankruptcy Court granted Sinkfield’s motion to “strip off” Bank of America’s second lien on his house.

The bank appealed to the U.S. District Court for the Northern District of Georgia, which affirmed the Bankruptcy Court’s ruling.  The bank appealed to the 11th Circuit U.S. Court of Appeals, which affirmed the District Court’s decision.

Rehearing Denied

The bank petitioned the 11th Circuit for a rehearing en banc, which was denied.

Bank of America then petitioned the U.S. Supreme Court, arguing that it should hear the case because it presented a “square circuit split on an important and frequently recurring question of bankruptcy law.”  Moreover, the bank contended that in its ruling, the 11th Circuit “disregarded” the Supreme Court’s ruling in Dewsnup v. Timm, 502 U.S. 410 (1992) [an enhanced version of this opinion is available to lexis.com subscribers], which “should have dictated the opposite conclusion” from the one reached by the 11th Circuit.

Furthermore, the bank said the 11th Circuit “expressly rejected” the contrary holdings of the Fourth, Sixth, and Seventh Circuits.

Dewsnup

Sinkfield had argued that the 11th Circuit’s decision is “not irreconcilable” with Dewsnup, and he contended that the reasoning in Dewsnup “contravenes established rules of statutory construction  and should not be perpetuated here.”

Sinkfield had contended that in his case, Bank of America’s lien was “completely underwater.”  The full value of the collateral had been pledged to another creditor, he said.

Sinkfield had maintained that one of the Bankruptcy Code’s central policy concerns is the “fresh start.” Fresh start policy draws a clear separation between a debtor’s pre-bankruptcy past and post-bankruptcy future, he said.

“Thus, it is not absurd that the secured creditor should receive the present value of its collateral with any subsequent increase benefitting the debtor,” Sinkfield argued.

Sinkfield is represented by Lynne F. Riley of Casner & Edwards in Boston and Allen Hammond of Hammond & Hammond in Jonesboro, Ga.  The bank is represented by Craig Goldblatt, Danielle Spinelli and Isley Markman of Wilmer Cutler Pickering Hale & Dorr in Washington.

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