The Splits from page 23
523 ( a ). Citing to other Bankruptcy Court decisions , the Court in In re 2 Monkey Trading , LLC , 650 B . R . 521 ( Bankr . M . D . Fla . 2023 ), rejected the reasoning of the Fourth Circuit and held that when Section 523 ( a ) was amended to reference Section 1192 , the limitation to “ individual ” debtors remained .
The Bankruptcy Appellate Panel of the Ninth Circuit agreed in In re Off-Spec Solutions , LLC , 651 B . R . 862 ( B . A . P . 9th Cir . 2023 ) concluding that a sexual harassment and discrimination claim against a LLC could not be sustained as a non-dischargeable debt in a Subchapter V case . While the Ninth Circuit BAP initially acknowledged that its ruling created a mystifying result in that it “ leads to a broader discharge for subchapter V debtors under nonconsensual plans than under consensual ones ,” it adopted the Rtech analysis as more consistent with principles of statutory construction . Id . at 865-66 . The Ninth Circuit BAP stated that “ nothing in § 1192 obviates the express limitation in the preamble of § 523 ( a ) or otherwise expands its scope to corporate debtors ,” and concluded that “[ i ] f § 1192 makes the debts specified in § 523 ( a ) nondischargeable to all debtors , the concurrent amendment to § 523 ( a ) has no meaning .” Id . at 867 . The Court disagreed with the Fourth Circuit ’ s application of the “ general / specific canon ” of statutory construction because it believed first , that Section 1192 and Section 523 could be reconciled , and second , that the more specific statute was Section 523 , which should control over the more general statute in Section 1192 . This was the exact opposite reasoning of the Fourth Circuit , which found Section 1192 to be the more specific statute . The Ninth Circuit BAP reasoned : “ Our construction harmonizes
the statutes . Section 1192 incorporates the types of debts that are nondischargeable under a nonconsensual subchapter V plan , and § 523 ( a ) limits the scope of nondischargeability to individual debtors .” Id . at 868 . Citing next to the history of expansive discharges for corporate debtors , and the prolonged process that it took Congress to enact the one exception to corporate discharges in Chapter 11 found in Section 1141 ( d )( 6 ), the court concluded this history supported its statutory construction . As to the interpretation of the identical language in Chapter 12 relied on by the Fourth Circuit , the Ninth Circuit BAP argued that the caselaw in Chapter 12 needed to be reexamined as well , given its origin in Chapter 13 . Finally , addressing the policy arguments raised by the Fourth Circuit , it concludes that “[ c ] onstruing § 1192 to make debts nondischargeable for corporate debtors offers little benefit to unsecured creditors in small business cases and poses serious obstacles to the stated purpose of the SBRA to make reorganization efficient and expeditious for small business debtors .” Id . at 873 .
In April 2024 , the Fifth Circuit weighed in on this debate in In re GFS Industries , LLC , 99 F . 4th 223 ( 5th Cir . 2024 ), following the Fourth Circuit ’ s opinion in Cleary Packaging , and thereby solidifying the split between the Circuit Courts and the Bankruptcy Courts . As in Cleary Packaging , the bankruptcy court certified its dismissal of a non-dischargeability complaint in a Subchapter V case and its confirmation of a nonconsensual plan for a direct appeal to the Circuit Court . In addressing whether a suit based on an alleged material false written statement respecting a debtor ’ s financial condition ( Section 523 ( a )( 2 )) in
continued on page 25
24