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In re McGough

United States Court of Appeals, Tenth Circuit

December 16, 2013

In re Scott McGOUGH; Lisa McGough, Debtors.
v.
The Word of Life Christian Center, Defendant-Appellee. David V. Wadsworth, Plaintiff-Appellant, Alliance Defending Freedom, Amicus Curiae.

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[Copyrighted Material Omitted]

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David V. Wadsworth, Denver, CO, pro se.

Lee Katherine Goldstein, (Scott T. Rodgers appearing with her on the brief), of Fairfield and Woods, P.C., Denver, CO, for Defendant-Appellee.

Before O'BRIEN, HOLMES, and MATHESON, Circuit Judges.

O'BRIEN, Circuit Judge.

Section 548(a)(1)(B) of the United States Bankruptcy Code (11 U.S.C. § 548(a)(1)(B)) allows a trustee to avoid any transfer of property by a debtor made within two years before the date of the filing of bankruptcy (the " reach-back period" ) if the debtor (1) received less than a reasonably equivalent value in exchange for the transfer and (2) was insolvent on the date the transfer was made or became insolvent as a result of the transfer. Section 550, in turn, allows the trustee to recover transfers of property avoided under § 548 for the benefit of the bankruptcy estate.

In 1998, Congress passed the Religious Liberty and Charitable Donation Protection Act (RLCDPA), Pub.L. No. 105-183, § 3, 112 Stat. 517 (1998). The Act amended § 548 by adding a " safe harbor"

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provision[1] exempting transfers of charitable contributions to qualified religious or charitable organizations from § 548(a)(1)(B) so long as (1) " the amount of that contribution does not exceed 15 percent of the gross annual income [GAI] of the debtor for the year in which the transfer of the contribution is made" or (2) even if the contribution exceeds 15% of GAI, " the transfer was consistent with the practices of the debtor in making charitable contributions." 11 U.S.C. § 548(a)(2).

The sole question in this appeal is a narrow one: If a restricted debtor transfers more than 15% of his GAI to a qualified religious or charitable organization, may the trustee avoid the entire annual transfer or only the portion exceeding 15%? The bankruptcy court and Bankruptcy Appellate Panel (BAP) said circumstances here only permit the trustee to avoid the portion of the transfer exceeding 15%. Because that result is contrary to the plain language of the statute, we reverse.

I. FACTUAL BACKGROUND

The relevant facts are not in dispute. Debtors Lisa and Scott McGough filed for bankruptcy relief under Chapter 7 of the United States Bankruptcy Code on December 31, 2009. David Wadsworth was appointed Trustee. During 2008, the McGoughs made twenty-five contributions to the Word of Life Christian Center (the Center), totaling $3,478.[2] During 2009, they made seven contributions to the Center totaling $1,280. Their taxable income for 2008 and 2009 was $6,800 and $7,487, respectively. They also received social security benefits in 2008 and 2009 totaling $22,036 and $23,164, respectively.

The Trustee filed an adversary proceeding against the Center seeking to recover the contributions made to it by the McGoughs in 2008 and 2009 under 11 U.S.C. §§ 548(a)(1)(B) and 550. Both parties filed motions for summary judgment. According to the Center, because the individual amounts of each contribution made by the McGoughs to it in 2008 and 2009 did not exceed 15% of their GAI, none were avoidable under the safe harbor provision of § 548(a)(2).[3] While recognizing that if the contributions were considered in their annual aggregate, they would exceed 15% of the McGoughs' GAI, it nevertheless claimed the Trustee could only avoid the amount of the contributions exceeding 15% of GAI, entitling it to retain the remainder. [4] The Trustee took the opposite view: the contributions must be considered in the aggregate and because the total contributions

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made by the McGoughs to the Center in 2008 and 2009 exceeded 15% of their GAI in those years, he could recover them in their entirety.

The bankruptcy court agreed with the Trustee in part: for purposes of applying the safe harbor provision of § 548(a)(2), a debtor's contributions must be considered in their annual aggregate. However, it sided with the Center on the avoidance issue— if the contributions exceed 15% of a debtor's GAI, only the amount exceeding 15% is subject to avoidance. Thus, the Trustee's ...


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