Toibb v. Radloff
1991 U.S. LEXIS 3484, 115 L. Ed. 2d 145, 111 S. Ct. 2197 (1991)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An individual debtor not engaged in an ongoing business is eligible to reorganize under Chapter 11 of the Bankruptcy Code. The plain language of the statute does not impose an 'ongoing business' requirement for eligibility.
Facts:
- Sheldon Baruch Toibb, a former consultant, co-founded and owned 24% of the shares in Independence Electric Corporation (IEC).
- After IEC terminated his employment, Toibb was unable to find new work and was supported by family and friends.
- Toibb accumulated unsecured debts totaling $170,605.
- Initially, Toibb believed his IEC shares had an unknown market value.
- Toibb later discovered that the IEC Board of Directors had offered to purchase his shares for $25,000.
- Upon learning the stock had significant value, Toibb sought to reorganize his finances to avoid liquidation of the asset.
Procedural Posture:
- Sheldon Baruch Toibb filed a voluntary petition for relief under Chapter 7 in the U.S. Bankruptcy Court for the Eastern District of Missouri.
- Toibb moved to convert his case from Chapter 7 to Chapter 11, which the Bankruptcy Court granted.
- The Bankruptcy Court, on its own motion, ordered Toibb to show cause why the petition should not be dismissed because he was not engaged in business.
- Following a hearing, the Bankruptcy Court dismissed petitioner's Chapter 11 case, relying on circuit precedent.
- Toibb appealed to the U.S. District Court for the Eastern District of Missouri, which affirmed the Bankruptcy Court's dismissal.
- Toibb, as appellant, appealed to the U.S. Court of Appeals for the Eighth Circuit, which affirmed the lower courts' decisions.
- The U.S. Supreme Court granted Toibb's petition for a writ of certiorari to resolve a circuit split on the issue.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Is an individual debtor not engaged in an ongoing business eligible to reorganize under Chapter 11 of the Bankruptcy Code?
Opinions:
Majority - Justice Blackmun
Yes, an individual debtor not engaged in an ongoing business is eligible to reorganize under Chapter 11. The plain language of the Bankruptcy Code disposes of the question. Section 109(d) states that any 'person' who may be a debtor under Chapter 7 is eligible for Chapter 11, and § 101(35) defines 'person' to include an 'individual.' The Code contains no 'ongoing business' requirement, and courts should not infer one, especially since Congress explicitly listed other exclusions from Chapter 11 but not this one. While legislative history contains conflicting statements, it is not sufficiently clear to override the unambiguous statutory text. Furthermore, allowing nonbusiness debtors to use Chapter 11 serves the Code's broader policy of maximizing the value of the bankruptcy estate, which is sometimes better achieved through reorganization than liquidation.
Dissenting - Justice Stevens
No, an individual consumer debtor should not be eligible for Chapter 11 reorganization. The statute, read as a whole, indicates Congress did not intend this result. The word 'Only' in § 109(d) introduces ambiguity, justifying an examination of the Code's overall structure and legislative history. Chapter 11 is replete with references to 'business,' its title is 'Reorganization,' and legislative reports describe it as a tool for business rehabilitation. Allowing individuals into Chapter 11 creates inconsistencies with Chapter 13, which has specific debt limits for individuals and protects them from involuntary proceedings, protections that would be undermined if creditors could force an individual into an involuntary Chapter 11 case.
Analysis:
This decision significantly broadened the accessibility of Chapter 11 bankruptcy, confirming it is not exclusively for business entities. By prioritizing the plain text of the Bankruptcy Code over arguments based on legislative history and structural inferences, the Court affirmed a textualist approach to statutory interpretation. The ruling provides a crucial avenue for high-debt individuals, who may not qualify for Chapter 13, to reorganize their finances and preserve assets that would otherwise be liquidated in Chapter 7. It established that the primary qualifications for Chapter 11 are found explicitly in § 109, not in the perceived purpose of the chapter.
