Today, in Bank of America v. Caulkett (and Bank of America v. Toledo-Cardona), the Supreme Court reversed the Eleventh Circuit and held that a debtor may not strip off a wholly underwater mortgage in a Chapter 7 case. The Court noted that the respondents had not asked it to overrule Dewsnup. The meaning given by Dewsnup to the term “allowed secured claim” in section 506(d) is controlling; that meaning does not involve the existence of any value backing up the claim. The opinion is here: http://www.supremecourt.gov/opinions/14pdf/13-1421_p8k0.pdf.
A few of us (maybe only a very few) think Dewsnup was correctly decided. I think it was. It’s particularly difficult to understand how section 722 would retain meaning (and how its limits would be respected) if the Court had decided Dewsnup the other way. Justice Scalia’s attempted response to this point in his Dewsnup dissent is unpersuasive.
Justice Thomas’s opinion for the Court includes several rather obvious digs at the Court’s Dewsnup decision. (Note that Justice Thomas didn’t participate in Dewsnup; I think he would have joined Justice Scalia’s dissent if he had participated.)
First, the Court unnecessarily argues that “[e]mbracing [respondents’] reading of §506(d) … would give the term ‘allowed secured claim’ in §506(d) a different meaning than its statutory definition in §506(a).” Slip op. at 6. That proposition would seem to be equally applicable as a criticism of Dewsnup. It is an argument against, not in favor of, following Dewsnup. And note that the exact phrase “allowed secured claim” is nowhere to be found in section 506(a).
Second, the opinion includes a footnote (slip op. at 5) that cites the strong criticisms that have been made of Dewsnup. Three Justices (Kennedy, Breyer, and Sotomayor) joined the entire majority opinion except for that footnote. They seemingly thought it was unnecessary or counterproductive for the Court to recount that criticism in the course of unanimously following Dewsnup. The only other point made in the footnote (that “the debtors have repeatedly insisted that they are not asking us to overrule Dewsnup”) is also found in the next to last sentence of the opinion – except for the reference to “repeatedly” – and thus was accepted by those three.
Third, the opinion says that Dewsnup rejected a “straightforward reading of the statute.”
Fourth, the opinion says that the Court in Dewsnup “reasoned that the term ‘secured’ in section 506(d) contained an ambiguity because the self-interested parties before it disagreed over the term’s meaning.” Slip op. at 4. This is not an accurate description (or at least not a full description) of the reasoning in Dewsnup, and would, if accurate, be the least supportable part of the Dewsnup opinion. It reflects Justice Scalia’s description of the Court’s reasoning and was the subject of pointed criticism in his dissent. It doesn’t capture the full reasoning from Dewsnup that supported a finding of ambiguity. The reference to the parties in Dewsnup as being “self-interested” (as described in Justice Scalia’s dissent in Dewsnup) makes Dewsnup’s reliance on the parties’ disagreement seem even more ridiculous.
Fifth, the opinion says that “embracing the debtors’ distinction [between partially secured and wholly underwater claims] would not vindicate §506(d)’s original meaning.” Slip op. at 6. Doesn’t this suggest rather strongly that Dewsnup departed from the section’s “original meaning”?
Mark
Mark S. Scarberry
Professor of Law
Pepperdine Univ. School of Law