in Re Donald Hugh Nichols ; Jane Ann Nichols v. Marana Stockyard & Livestock Market, Inc .

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE D ONALD HUGH NICHOLS ; J ANE
ANN NICHOLS ,
Debtors,
DONALD HUGH NICHOLS ; J ANE ANN
NICHOLS ,
Appellants,
v.
M ARANA S TOCKYARD & LIVESTOCK
M ARKET, INC .; THE P ARSONS
C OMPANY ; C LAY P ARSONS ; KAREN
P ARSONS ; ARIZONA DEPARTMENT OF
R EVENUE; J ILL H. F ORD , Chapter 7
Trustee,
Appellees.
No. 20-60043
BAP No.
20-1032
OPINION
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Taylor, Lafferty III, and Brand, Bankruptcy Judges,
Presiding
Argued and Submitted July 9, 2021
Portland, Oregon
Filed September 1, 2021

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2 IN RE N ICHOLS
Before: Diarmuid F. O’Scannlain, Richard A. Paez, and
Mark J. Bennett, Circuit Judges.
Opinion by Judge O’Scannlain
SUMMARY*
Bankruptcy
The panel reversed the bankruptcy court’s decision
denying Chapter 13 debtors’ motion to voluntarily dismiss
their bankruptcy case pursuant to 11 U.S.C. § 1307(b), and
remanded to the bankruptcy court for further proceedings.
Although § 1307(b) confers upon a Chapter 13 debtor the
right to request dismissal “at any time,” the bankruptcy court
concluded that under In re Rosson, 545 F.3d 764 (9th Cir.
2008), there was an implied exception to § 1307(b) where
the debtor had engaged in bad faith or abuse of the
bankruptcy process. The bankruptcy court concluded that
this exception applied, justifying denial of the motion to
dismiss, and it then converted the case to a liquidation under
Chapter 7.
The panel held that Rosson was effectively overruled by
Law v. Siegel, 571 U.S. 415 (2014), which held that a
bankruptcy court may not use its equitable powers under
11 U.S.C. § 105 to contravene express provisions of the
Bankruptcy Code. The panel held that Rosson therefore is
* This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.

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IN RE N ICHOLS 3
no longer binding precedent. Considering the question
anew, and agreeing with the Second and Sixth Circuits, the
panel held that a bankruptcy court is prohibited from
invoking equitable considerations to contravene § 1307(b)’s
express language conferring upon Chapter 13 debtors an
absolute right to dismiss their case.
COUNSEL
German Yusufov (argued), Yusufov Law Firm PLLC,
Tucson, Arizona, for Appellants.
D. Alexander Winkelman (argued) and Frederick J.
Petersen, Mesch Clark Rothschild, Tucson, Arizona, for
Appellees.
OPINION
O’SCANNLAIN, Circuit Judge:
We must decide whether debtors in a Chapter 13
bankruptcy have the right to dismiss their case, regardless of
the bankruptcy court’s determination that they engaged in an
abuse of the bankruptcy process.
I
A
Appellants Donald Hugh Nichols and his wife, Jane Ann
Nichols (collectively, “the Nicholses”), filed a Chapter 13
bankruptcy petition seeking to restructure their debts. After
filing the petition, the Nicholses were indicted on federal
criminal charges for their alleged participation in a scheme

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4 IN RE N ICHOLS
to defraud Appellee Marana Stockyard and Livestock
Market, Inc. (“Marana”).
To avoid disclosure of information that might
compromise their position in the criminal proceedings, the
Nicholses declined to complete any of the steps required by
the Bankruptcy Code to advance their case. They refused,
inter alia, to hold a meeting with creditors, cf. 11 U.S.C.
§ 341; to file outstanding tax returns, cf. id. § 1308; or to
propose an appropriate repayment plan, cf. id. § 1322. Their
bankruptcy case thus languished for months without
resolution.
Marana, which had filed a claim in the Nicholses’
bankruptcy case seeking to recover losses from the alleged
fraud, moved pursuant to 11 U.S.C. § 1307(c) for the case to
be converted to a liquidation under Chapter 7 of the
Bankruptcy Code.1 In response, the Nicholses requested a
stay of the bankruptcy case during the pendency of the
criminal proceedings.
The bankruptcy court denied the motion to stay. At the
same time, the bankruptcy court determined that conversion
1 Section 1307(c) provides, in relevant part:
[O]n request of a party in interest or the United States
trustee and after notice and a hearing, the court may
convert a case under this chapter to a case under
chapter 7 of this title, or may dismiss a case under this
chapter, whichever is in the best interests of creditors
and the estate, for cause, including—
(1) unreasonable delay by the debtor that is prejudicial
to creditors;
. . .

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IN RE N ICHOLS 5
of the case to a Chapter 7 liquidation was justified “for
cause” under § 1307(c) due to the Nicholses’ delays, which
the court deemed to be unwarranted. The bankruptcy court
also determined that conversion to Chapter 7 would have
been proper, in the alternative, under § 1307(e), insofar as
the Nicholses had failed to file tax returns for several years.2
B
The Nicholses requested another opportunity to remain
in Chapter 13, however. The bankruptcy court acceded to
their request and postponed by 30 days the entry of an order
converting the case to Chapter 7. The bankruptcy court
required the Nicholses to file outstanding tax returns and to
submit a confirmable repayment plan to the Chapter 13
trustee before expiration of the 30-day period.
The Nicholses did not comply with the bankruptcy
court’s requirements. Before the expiration of the 30-day
period, the Nicholses moved to dismiss voluntarily their
bankruptcy case pursuant to § 1307(b).3
2 Section 1307(e) provides:
Upon the failure of the debtor to file a tax return under
section 1308, on request of a party in interest or the
United States trustee and after notice and a hearing, the
court shall dismiss a case or convert a case under this
chapter to a case under chapter 7 of this title,
whichever is in the best interest of the creditors and the
estate.
3 Section 1307(b) provides:
On request of the debtor at any time, if the case has not
been converted under section 706, 1112, or 1208 of

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6 IN RE N ICHOLS
C
Although § 1307(b) confers upon a Chapter 13 debtor
the right to request dismissal of his case “at any time,” the
bankruptcy court denied the Nicholses’ motion to dismiss.
Relying upon our decision in In re Rosson, 545 F.3d 764 (9th
Cir. 2008), the bankruptcy court understood there to be an
implied exception to § 1307(b) where the debtor has
engaged in bad faith or abuse of the bankruptcy process. The
bankruptcy court concluded that the Nicholses had “used
Chapter 13 to hide from creditors during the pendency of the
criminal proceedings” and that “[s]uch conduct constitutes
an abuse of the bankruptcy process, justifying denial of the
. . . Motion to Dismiss.” The bankruptcy court thereupon
converted the case to a liquidation under Chapter 7.
The Nicholses timely appealed the bankruptcy court’s
order to the Ninth Circuit’s Bankruptcy Appellate Panel
(“BAP”). The BAP affirmed the bankruptcy court’s order.
The Nicholses then timely appealed the BAP’s decision to
this court.
II
The Nicholses now argue that the bankruptcy court erred
by relying upon Rosson’s implied “bad faith or abuse of
process” exception to § 1307(b) to deny their request for
voluntary dismissal. According to the Nicholses, Rosson has
been effectively overruled by the Supreme Court’s
subsequent decision in Law v. Siegel, 571 U.S. 415 (2014),
which, they contend, must be understood to prohibit a
this title, the court shall dismiss a case under this
chapter. Any waiver of the right to dismiss under this
subsection is unenforceable.

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IN RE N ICHOLS 7
bankruptcy court from invoking equitable considerations to
contravene § 1307(b)’s express language conferring upon a
Chapter 13 debtor an absolute right to dismiss his case. The
narrow question before us is whether Rosson has been
implicitly abrogated by Law.
A
1
Rosson concerned a Chapter 13 debtor who was ordered
by the bankruptcy court to deposit the proceeds of an
expected arbitration award with the Chapter 13 trustee.
545 F.3d at 768. When the bankruptcy court was informed
that the debtor had received the anticipated payment, but had
not deposited it as instructed, the bankruptcy court
determined sua sponte to convert the case to Chapter 7. Id.
Before the conversion order could be entered, however, the
debtor moved to dismiss under § 1307(b). Id. The
bankruptcy court denied the motion to dismiss and converted
the case, stating that it would be a “gross miscarriage of
justice” to allow the debtor to “abscond” with assets of the
estate. Id. at 769. The debtor appealed to the district court,
which affirmed. Id.
2
On subsequent appeal to this court in Rosson, we
acknowledged the existence of a circuit split regarding a
debtor’s right to dismiss under § 1307(b) while a motion to
convert under § 1307(c) remains pending. Id. at 771–72
(comparing In re Barbieri, 199 F.3d 616 (2d Cir. 1999); with
In re Molitor, 76 F.3d 218 (8th Cir. 1996)). We further
recognized that the Ninth Circuit’s BAP had previously
concluded that § 1307(b) confers upon a Chapter 13 debtor
an absolute right to voluntary dismissal of his case. Id.

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8 IN RE N ICHOLS
at 772 (discussing In re Croston, 313 B.R. 447 (9th Cir. BAP
2004); and In re Beatty, 162 B.R. 853 (9th Cir. BAP 1994)).
We determined, however, that the BAP’s interpretation of
§ 1307(b) was no longer tenable after the Supreme Court’s
decision in Marrama v. Citizens Bank of Massachusetts,
549 U.S. 365 (2007), which concerned the scope of a
debtor’s right to convert from Chapter 7 to Chapter 13
pursuant to 11 U.S.C. § 706(a).4 Id. We understood
Marrama to stand for the broad proposition that “even
otherwise unqualified rights in the debtor are subject to
limitation by the bankruptcy court’s power under § 105(a) to
police bad faith and abuse of process.” Id. at 773 n.12.
Based on such interpretation of Marrama, we held that
“the debtor’s right of voluntary dismissal under § 1307(b) is
not absolute, but is qualified by the authority of a bankruptcy
court to deny dismissal on grounds of bad-faith conduct or
to prevent an abuse of process.” Id. at 774 (quotation marks
and citation omitted). Accordingly, we affirmed the
bankruptcy court’s order denying the debtor’s motion to
dismiss and converting the case to Chapter 7 because of the
debtor’s bad faith conduct. Id. at 774–75.
4 Section 706(a) provides:
The debtor may convert a case under this chapter to a
case under chapter 11, 12, or 13 of this title at any time,
if the case has not been converted under section 1112,
1208, or 1307 of this title. Any waiver of the right to
convert a case under this subsection is unenforceable.

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IN RE N ICHOLS 9
B
1
Law, which was decided six years later, concerned a
Chapter 7 debtor who perpetrated a fraud on the bankruptcy
court by falsely reporting that a lien existed on his primary
residence. 571 U.S. at 418–19. The trustee later determined
that the alleged lien was a sham filed by the debtor to protect
his interest in the home. Id. at 419. Accordingly, the trustee
initiated an adversary proceeding to have the lien removed,
and, after he prevailed, he sought to have his attorney’s fees
paid from the debtor’s exempt property. Id. at 419–20.
Despite 11 U.S.C. § 522(k)’s express prohibition on the
use of a debtor’s exempt property to cover expenses
associated with administering the estate, the bankruptcy
court granted the trustee’s request.5 Id. at 420. On appeal,
the BAP affirmed the order as a permissible exercise of the
bankruptcy court’s equitable powers. Id. Upon subsequent
appeal to this court, we also affirmed. Id. In an unpublished
memorandum disposition, we concluded that the surcharge
was proper because it was “calculated to compensate the
estate for the actual monetary costs imposed by the debtor’s
misconduct, and was warranted to protect the integrity of the
bankruptcy process.” Id. (quoting In re Law, 435 F. App’x.
697, 698 (9th Cir. 2011)).
2
The Supreme Court reversed. In so doing, the Court
made clear that a bankruptcy court may not use its equitable
5 Section 522(k) provides, in relevant part: “Property that the debtor
exempts under this section is not liable for payment of any administrative
expense . . . .”

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10 IN RE N ICHOLS
powers under § 105(a) to contravene express provisions of
the Bankruptcy Code. 571 U.S. at 422–23. On behalf of a
unanimous Court, Justice Scalia wrote that § 105(a) does not
“allow the bankruptcy court to override explicit mandates of
other sections of the Bankruptcy Code,” including
§ 522(k)’s express prohibition on charging a debtor’s
exempt property to pay the trustee’s administrative
expenses. Id. at 421 (quoting 2 Collier on Bankruptcy
¶ 105.01[2] (16th ed. 2013)).
In doing so, the Supreme Court firmly rejected the
argument—advanced by the Solicitor General in an amicus
brief—that Marrama must be understood to establish that a
bankruptcy court’s § 105(a) powers to punish bad faith
conduct implicitly qualify language contained elsewhere in
the Bankruptcy Code. Id. at 425–26. On the contrary, Law
concluded that “Marrama most certainly did not endorse,
even in dictum, the view that equitable considerations permit
a bankruptcy court to contravene express provisions of the
Code.” Id. at 426.
C
1
Although we are typically bound by the prior decision of
another three-judge panel, we may depart from such
precedent if a subsequent Supreme Court opinion
“undercut[s] the theory or reasoning underlying the prior
circuit precedent in such a way that the cases are clearly
irreconcilable.” Miller v. Gammie, 335 F.3d 889, 900 (9th
Cir. 2003) (en banc). Here, we have no doubt that Law
undercuts the reasoning of Rosson.
The holding of Rosson cannot stand absent the premise,
ostensibly articulated in Marrama, that a bankruptcy court’s

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IN RE N ICHOLS 11
equitable powers under § 105(a) can limit express language
contained elsewhere in the Bankruptcy Code. See 545 F.3d
at 773 n.12. Law, however, clearly rejected such reasoning.
See 571 U.S. at 426. In fact, Law explicitly rejected the
sweeping interpretation of Marrama that we embraced in
Rosson. See id. Rosson and Law are thus irreconcilable,
such that Rosson has been effectively overruled.
Marana argues, however, that Rosson is consistent with
Law because Rosson did not limit the Chapter 13 debtor’s
right to dismiss based on § 105(a), but rather based on a
“holistic interpretation” of § 1307. According to Marana,
Rosson stands for the proposition that, when faced with a
bad-faith debtor’s motion for voluntary dismissal under
§ 1307(b), a bankruptcy court may nevertheless heed its
competing statutory mandate under § 1307(c) to convert the
case to Chapter 7 to promote the best interest of creditors.
Moreover, Marana contends that Law’s treatment of
Marrama does not undermine Rosson. Marana argues that
Rosson should be understood to rely on Marrama not for the
sweeping proposition that express provisions of the
Bankruptcy Code are limited by the bankruptcy court’s
§ 105(a) powers to punish bad faith, but rather for the far
narrower principle that a debtor’s bad faith is a “cause”
justifying conversion to Chapter 7 under § 1307(c).
Because, on Marana’s view, Law rejected only the broad
reading of Marrama, but otherwise left that precedent intact,
Marana argues that Rosson remains similarly undisturbed.
Marana’s arguments fail to persuade, however, because
they mischaracterize the reasoning that we actually
employed in Rosson. We did not rely on § 1307(c), nor did
we discern in such statutory subsection any import for
interpreting the mandate of § 1307(b). Rather, we primarily
relied on the premise that Marrama had established “the

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12 IN RE N ICHOLS
important point” that “even otherwise unqualified rights in
the debtor are subject to limitation by the bankruptcy court’s
power under § 105(a) to police bad faith and abuse of
process.” 545 F.3d at 773 n.12.
Our expansive reading of Marrama was a defensible one
at the time. Indeed, in Law, the Solicitor General advanced
the very same reading of Marrama that we adopted in
Rosson. See, e.g., Brief for the United States at 25, Law v.
Siegel, 571 U.S. 415 (2014) (No. 12-5196) (citing Marrama
for the principle that § 105(a) empowers a bankruptcy court
to disregard the express language of § 522(k) in order to
punish fraud, misrepresentation, or other misconduct by the
debtor). We must recognize, however, that such a position
was unanimously and unambiguously rejected in Law.
2
Consequently, we now hold that Rosson has been
effectively overruled by Law and is no longer binding
precedent in this Circuit. Ever since our en banc opinion in
Miller v. Gammie, 335 F.3d 889 (9th Cir. 2003), in which we
clarified the standard in this Circuit for departure from a
prior three-judge panel’s decision based on intervening
Supreme Court precedent, we have not hesitated to overrule
our own precedents when their underlying reasoning could
not be squared with the Supreme Court’s more recent
pronouncements.6 We follow the same course here.
6 See, e.g., Langere v. Verizon Wireless Servs., LLC, 983 F.3d 1115,
1122 (9th Cir. 2020); United States v. Baldon, 956 F.3d 1115, 1121 (9th
Cir. 2020) ; Dorman v. Charles Schwab Corp., 934 F.3d 1107, 1112 (9th
Cir. 2019) ; Murray v. Mayo Clinic, 934 F.3d 1101, 1105 (9th Cir. 2019);
United States v. Valencia-Mendoza, 912 F.3d 1215, 1222 (9th Cir.

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IN RE N ICHOLS 13
III
Because we are no longer bound by Rosson, we must
consider anew whether a Chapter 13 debtor’s right to
voluntary dismissal of his case under § 1307(b) admits of an
exception in the event of the debtor’s bad faith or abuse of
process. If not, the Nicholses were entitled to dismiss their
case, regardless of the bankruptcy court’s determination that
conversion to Chapter 7 was warranted.
A
1
On this point, section 1307(b)’s text is unambiguous.
The statute provides, in relevant part: “On request of the
debtor at any time . . . the court shall dismiss a case under
this chapter.” The term “shall” “normally creates an
obligation impervious to judicial discretion.” Lexecon Inc.
v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35
(1998); see also Barbieri, 199 F.3d at 619 (“The term ‘shall,’
as the Supreme Court has reminded us, generally is
mandatory and leaves no room for the exercise of discretion
by the trial court.”). Section 1307(b)’s text plainly requires
the bankruptcy court to dismiss the case upon the debtor’s
request. There is no textual indication that the bankruptcy
court has any discretion whatsoever.
Although our sister circuits have disagreed with respect
to the existence of a “bad faith” exception to a debtor’s right
to dismiss under § 1307(b), there is no dispute that the
statute’s text, by its own terms, confers an absolute right to
2019) ; Rodriguez v. AT & T Mobility Servs. LLC, 728 F.3d 975, 981 (9th
Cir. 2013); Phelps v. Alameida, 569 F.3d 1120, 1133 (9th Cir. 2009).

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14 IN RE N ICHOLS
dismiss. For example, the Fifth Circuit, which concluded,
similarly to our holding in Rosson, that a debtor’s right to
dismiss is subject to an implied exception in the event of the
debtor’s bad faith conduct, nonetheless confirmed that “the
plain language of . . . § 1307(b) can be read to confer an
absolute right to dismiss.” In re Jacobsen, 609 F.3d 647,
649 (5th Cir. 2010).
Indeed, the Fifth and Eighth Circuits’ view—that the
debtor’s right under § 1307(b) is subject to an implied
exception—is grounded, not on an alternative reading of the
statutory text, but rather on the same, now-discredited theory
of equitable powers that we had previously embraced in
Rosson. See Jacobsen, 609 F.3d at 661 (“Proceeding from
the propositions in Marrama that an apparently unqualified
right is subject to an exception for bad faith and that bad faith
justifies a bankruptcy court’s exercise of its powers under
§ 105(a), we conclude that § 1307(b) is subject to a similar
exception . . . .”); In re Molitor, 76 F.3d 218, 220 (8th Cir.
1996) (relying on the “broad purpose” of the Bankruptcy
Code to arrive at an interpretation that protects bankruptcy
courts from “a myriad of potential abuses”).
As we have already discussed, the Supreme Court’s
decision in Law clearly rejected such reasoning. And, ever
since Law was decided, no other Circuit has taken the
position that there is an implied equitable exception to
§ 1307(b)’s right to dismiss. Cf. Smith v. U.S. Bank N.A.,
999 F.3d 452, 456 (6th Cir. 2021) (“The command of
1307(b) is no mere procedural nicety, which is likely why no
circuit court has accepted [the implied bad faith exception]
argument since Law . . . .”). Accordingly, for the same
reason that we dispensed with Rosson, we must also reject
the approach previously adopted by the Fifth and Eighth
Circuits, and instead hew to the “absolute right” approach

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IN RE N ICHOLS 15
articulated by the Second Circuit in Barbieri and followed,
most recently, by the Sixth Circuit in Smith.
2
Furthermore, the statutory text does not provide any
support for the view that any other subsection in § 1307,
such as § 1307(c), limits the debtor’s right to dismiss under
§ 1307(b). Had it wished to provide for such an exception,
Congress easily could have indicated the existence of one
expressly. Indeed, § 1307(b) does contain a single express
exception to the debtor’s right to dismiss, which bars
dismissal where the debtor has already exercised his right to
convert the case to Chapter 13 from Chapters 7, 11, or 12.
That Congress codified an express exception to § 1307(b)’s
right to dismiss demonstrates that Congress considered the
issue of exceptions and chose not to prescribe additional
ones. See United States v. Johnson, 529 U.S. 53, 58 (2000)
(“The proper inference . . . is that Congress considered the
issue of exceptions and, in the end, limited the statute to the
ones set forth.”).
Marana argues that an “absolute right” reading of
§ 1307(b) would effectively render § 1307(c) a nullity by
depriving the bankruptcy court of discretion to convert a
case to Chapter 7 for cause. But “that is no more significant
than the fact that an order granting a creditor’s motion to
convert under § 1307(c) would foreclose dismissal under
§ 1307(b).” Barbieri, 199 F.3d at 620. “In the event of
competing motions filed under subsections (b) and (c), one
subsection will inevitably prevail at the expense of the
other.” Id. (brackets omitted) (quoting In re Patton,
209 B.R. 98, 100 (Bankr. E.D. Tenn. 1997)). “Accordingly,
the assertion that an absolute right under § 1307(b) would
nullify § 1307(c) ‘carries no weight since either party could

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16 IN RE N ICHOLS
make the same argument.’” Id. (quoting Patton, 209 B.R. at
104).
Far from conflicting with other sections of the
Bankruptcy Code, the “absolute right” reading of § 1307(b)
is entirely consistent with the text and policy of § 303(a),
which is designed to ensure that Chapter 13 remains a
“wholly voluntary alternative to Chapter 7.” Smith, 999 F.3d
at 455 (quoting Harris v. Viegelahn, 575 U.S. 510, 514
(2015)); see also Barbieri, 199 F.3d at 620 (reasoning that
the reading of § 1307(b) as conferring an absolute right to
dismiss best reflects “the intention of Congress to create an
entirely voluntary chapter of the Bankruptcy Code”).
B
We conclude that § 1307(b)’s text confers upon the
debtor an absolute right to dismiss a Chapter 13 bankruptcy
case, subject to the single exception noted expressly in the
statute itself. Consequently, the bankruptcy court here erred
in denying the Nicholses’ motion to dismiss based solely on
its finding of abuse of the bankruptcy process.
We are confident that the Bankruptcy Code provides
ample alternative tools for bankruptcy courts to address
debtor misconduct. Even if such tools were lacking,
however, it would be up to Congress to remedy the omission
by way of appropriate legislation. We must adhere to the
statute’s clear mandate, regardless of practical difficulties
that may ensue.
IV
Accordingly, we REVERSE the decision of the
bankruptcy court, and we REMAND this matter to the

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IN RE N ICHOLS 17
bankruptcy court for further proceedings in accord with this
opinion.7
REVERSED and REMANDED.
7 Appellants’ motion to strike portions of the Supplemental Excerpts
of Record is denied as moot as our opinion does not rely on the contested
portions of the record. Appellants’ Mot. to Strike from Excerpts of
Record Documents, Nichols v. Marana Stockyard and Livestock Mkt.,
No. 20-60043 (9th Cir. Jan. 4, 2021), ECF No. 27.

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