Central California Judges Give Lesson in Constitutional Law, Find that Legally Married Same Sex Couple Can File a Joint Petition

A decision by twenty Central California Bankruptcy Judges is likely to generate more heat than light[i] with its ruling that the Defense of Marriage Act is unconstitutional when applied to prevent a legally married same sex couple from filing a joint bankruptcy petition under 11 U.S.C. §302. In re Balas, No. 2:11-bk-17831 TD (Bankr. C.D. Cal. 6/13/11). You can find the opinion here. (PACER registration required).

A Gay Couple Walks Into a Courtroom

G. Balas and C. Morales were legally married in California. After experiencing numerous periods of illness, hospitalization and extended periods of unemployment, they filed for chapter 13 bankruptcy to attempt to restructure and repay their debts. Had they been named Jean and Carlos, there would have been no question that the legally married couple could file a joint petition. However, their names were actually Gene and Carlos, both males, married during a brief period when same sex marriage was legal in California.[ii] The U.S. Trustee filed a Motion to Dismiss unless they consented to severing their cases.

However, the debtors were up to the challenge. They were represented by well-respected California bankruptcy attorney Peter Lively. They were also represented by pro bono special counsel Robert Pfister with Ken Klee’s firm, Klee, Tuchin, Bogdanoff & Stern, LLP, who brought some star power to the case.

Joint Administration and DOMA

The general rule in bankruptcy is one debtor one case.[iii] However, under 11 U.S.C. §302(a), a single petition may be filed by “an individual that may be a debtor under such chapter and such individual’s spouse.” In 1996, the Defense of Marriage Act (DOMA) dictated that under federal law, the word spouse “refers only to a person of the opposite sex who is a husband or wife.” 1 U.S.C. §7. Reading the two statutory sections together, a joint petition could only be filed by a man and a woman who were husband and wife.[iv]

Filing a joint petition offers several advantages. For one thing, the couple pays one filing fee instead of two. In a chapter 13 case, that means a savings of $274. It also means paying one attorney’s fee instead of two. Filing a joint petition avoids difficult community property issues posed by separate filings. Under 11 U.S.C. §541(a)(2)(A), the bankruptcy estate of a debtor includes all community property under the sole, equal or joint management and control of the debtor.” That means that the first to file includes all joint community property. Additionally, a joint filing may influence the ability to confirm a chapter 13 plan. Assume two individuals, one with positive disposable income and one with negative disposable income. Together, they could confirm a plan based on their combined disposable income. Separately, one could not confirm a plan and the other would have to pay more. These are not huge differences, but they could be important in specific cases.

Prior to 2011, joint cases which did not involve a legally married man and a woman did not fare well. Courts had denied joint petition status to a man and his corporation,[v] In re Jephunneh Lawrence & Assoc. Chartered, 63 B.R. 318 (Bankr. D.C. 1986), a co-habiting but unmarried heterosexual couple, In re Malone, 50 B.R. 2 (Bankr. E. D. Mich. 1985), an unmarried same sex couple, In re Favre, 186 B.R. 769 (Bankr. N.D. Ga. 1995) and a same sex couple married in Canada, In re Kandu, 315 B.R. 123 (Bankr. W.D. Wash. 2004).

However, in 2011, two other courts held that legally married same sex couples could file joint petitions notwithstanding DOMA. In re Ziviello-Howell, No. 11-22706 (Bankr. E.D. Cal. 5/31/11); In re Somers, 2011 WL 1709839 (Bankr. S.D. N.Y. 5/4/11).

The Ninth Circuit and Constitutional Law

The Bankruptcy Court considered DOMA in the context of the equal protection clause of the Fifth Amendment and prior Ninth Circuit precedent. Under Equal Protection analysis, a distinction based on sexual orientation must survive heightened scrutiny, a standard greater than rational relationship. Under heightened scrutiny, a statute must be justified based on the reasons stated when it was passed rather than post hoc reasoning.

The Ninth Circuit had previously held that the military’s “Don’t Ask, Don’t Tell” policy violated the Constitution. Witt v. Department of Air Force, 527 F.3d 806 (9^th Cir. 2008). This ruling gave the bankruptcy court considerable support for its ruling.

The Bankruptcy Court’s Ruling

Given the court and the context, there was little suspense as to how the issue would be decided. The Court began its opinion with the following statement:

This case is about equality, regardless of gender or sexual orientation, for two people who filed for protection under Title 11 of the United States Code (Bankruptcy Code). Like many struggling families during these difficult economic times, Gene Balas and Carlos Morales (Debtors), filed a joint chapter 13 petition on February 24, 2011. Although the Debtors were legally married to each other in California on August 20, 2008, and remain married today, the United States Trustee (sometimes referred to simply as “trustee”) moved to dismiss this case pursuant to Bankruptcy Code § 1307(c) (Motion to Dismiss), asserting that the Debtors are ineligible to file a joint petition based on Bankruptcy Code § 302(a) because the Debtors are two males. The issue presented to this court is whether the Debtors, who are legally married and were living in California at the time of the filing of their joint petition, are eligible to file a “joint petition” as defined by § 302(a). As the Debtors state, “[T]he only issue in this Bankruptcy Case is whether some legally married couples are entitled to fewer rights than other legally married couples, based solely on a factor (the gender and/or sexual orientation of the parties in the union) that finds no support in the Bankruptcy Code or Rules and should be a constitutional irrelevancy.” Debtors’ Opp. 5:24–28. In this court’s judgment, no legally married couple should be entitled to fewer bankruptcy rights than any other legally married couple.

Opinion, p. 1-2.

The Bankruptcy Court did not have any difficulty finding that, in the specific context, DOMA would not survive rational relationship analysis, let alone heightened scrutiny.

The Court advanced the following analysis of the reasons advanced to support DOMA in Congress as applied to the specific case:

*Encouraging responsible procreating and child bearing. The couple did not have children and their ability to file a joint bankruptcy would not affect children in other relationships.

*Defending or nurturing the institution of traditional heterosexual marriage. Since the debtors were already married, allowing them to proceed with a joint bankruptcy would not affect anyone else’s marriage.

*Defending traditional notions of morality. The joint bankruptcy filing “is in no sense discernible to the Court to be a validly challengeable to morality, traditional, or otherwise, under the Fifth Amendment”.

*Preserving scant resources. “No governmental resources are implicated by the Debtors’ bankruptcy case different from the resources brought to bear routinely in thousands upon thousands of joint bankruptcy cases filed over the years[vi]”.

Opinion, pp. 12-13.

The Bottom Line

While the Balas case has attracted a lot of publicity, it is unlikely to have a lot of practical effect. First, it is limited to couples who are legally married. The Court did not allow unmarried same sex couples to file joint petitions. Therefore, the case is not a step toward requiring same sex marriage. Second, it is not clear whether courts outside of the Ninth Circuit would reach the same conclusion. The Ninth Circuit is the most liberal circuit. A more difficult test would be if a couple married in California were to move to Texas and file a joint petition. Third, allowing a joint bankruptcy petition, while desirable in some cases, is not a huge victory. What it means in this specific case is that two guys will have a little easier time proposing a plan to pay their creditors.

The case does have two interesting sidelights to it. First, it is unusual for bankruptcy courts to deal with the constitutionality of federal statutes. The Debtors’ counsel apparently provided a lot of very helpful briefing as shown by the many references to the Debtors’ Response in Opposition throughout the opinion. This shows that good briefing and research can be invaluable when the court is faced with a novel question. Second, it is unusual that twenty judges out of twenty-four in the district signed off on the opinion. This was Bankruptcy Judge Thomas Donovan’s case. There was no explanation given for why the other nineteen judges joined in. Sometimes, the judges of a district will sit en banc when considering an important issue. However, that does not appear to be what happened in this case. It seems to be highly unprecedented for other judges to sign on to a colleague’s decision on an ad hoc basis. Perhaps some of the judicial readers of this blog can shed some light on the issue.

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[i] The phrase originates from Hamlet, Act I, Scene 3 where Polonius gives his daughter Ophelia the following advice:

When the blood burns, how prodigal the soul

Lends the tongue vows. These blazes, daughter,

Giving more light than heat, extinct in both

Even in their promise as it is a-making,

You must not take for fire.

In judicial parlance, the phrase has come to refer to an argument with more passion than persuasiveness. See Sather, “Shakespeare for Lawyers: More Heat Than Light,” Am. Bankr. Inst. J. (March 1998). I am using the phrase in this context to refer to a decision which generates more controversy than practical effect.

[ii] According to the Opinion, there were 18,000 same sex marriages in California before the law was overturned by Proposition 8.

[iii] Not to be confused with the Texas Rangers maxim “one riot, one Ranger.” If you are confused over whether the phrase refers to the baseball team or the legendary law enforcement organization, you are not from Texas.

[iv] Theoretically, the man could be the wife and the woman could be the husband and still pass scrutiny under DOMA.

[v] While the man’s wife could have claimed that he was married to his job, this argument apparently was not raised.

[vi] This is actually not correct, since the clerk’s office is foregoing a filing fee of $274. However, if it is assumed that the filing fee is an accurate reflection of the cost of administering a case, then it would be a break even proposition.