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Doing the Splits:
Circuit Splits Under the Bankruptcy Code
Annette W. Jarvis, Greenberg Traurig, LLP
Secretary, American College of Bankruptcy
Plain Language and Section 502(d) - Assertion of Claims in the fictional case of Dr. Seuss v. Justice Holmes?
“A word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in colour and content according to the circumstances and time in which it is used.” Towne v. Eisner, 245 U.S. 418, 425 (1919) (Justice Oliver Wendell Holmes famously said that “it is not necessarily true that income means the same thing in the Constitution and the Act [at issue]”).
“[W]e begin with the understanding that Congress ‘says in a statute what it means and means in a statute what it says . . .’” Hartford Underwriters Ins. Co. v. Union Planters Bank N.A., 530 U.S. 1, 5 (2000) (Justice Antonin Scalia’s statement being reminiscent of the works of Dr. Seuss) (internal citations omitted). More modern-day Justices seem to disagree with the characterization of viewing statutory language as “the skin of a living thought" and side with plain language. In United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 240-41 (1989), Justice Harry Blackmun stated: “[A]s long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute.”
When it comes to Section 502(d) of the Bankruptcy Code, what do the words “recoverable,” “avoidable,” “unless,” and “liable” mean? Does this statute say “what it means” and does it “mean[] . . . what it says”? Or are the words “the skin of a living thought,” requiring a much more contextual, and even a policy-driven, interpretation? The problem is that, when it comes to Section 502(d), circuit courts have disagreed not only as to the plain meaning of these key words, but also as to the policy behind this mandatory disallowance directive.
Section 502(d) requires a bankruptcy court to:
[D]isallow any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 . . .or that is a transferee of a transfer avoidable under section