HOPE v. ACORN FINANCIAL INC
Filing
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ORDER affirming decision of U.S. Bankruptcy Court. Ordered by Judge Marc Thomas Treadwell on 1/10/2012. (tlh)
IN THE UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF GEORGIA
MACON DIVISION
CAMILLE HOPE, Trustee, for Rickey
Fluellen,
Appellant,
v.
ACORN FINANCIAL, INC.,
Appellee,
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CIVIL ACTION NO. 5:11-CV-276(MTT)
ORDER
Before the Court is an appeal from an order of the United States Bankruptcy
Court for the Middle District of Georgia, granting Appellee Acorn Financial, Inc.’s Motion
for Summary Judgment. (Doc. 1). Appellant Camille Hope, the Chapter 13 Trustee,
contends that the Bankruptcy Court erred as a matter of law when it concluded that
confirmation of the Debtor’s Chapter 13 plan barred the Trustee’s post-confirmation
adversary proceeding. For the reasons set forth below, the decision of the Bankruptcy
Court is affirmed.
I. Standard of Review
In reviewing a decision of a bankruptcy court, a district court functions as an
appellate court. See Williams v. EMC Mortg. Corp. (In re Williams), 216 F.3d 1295,
1296 (11th Cir. 2000) (per curiam). In that capacity, district courts “may affirm, modify,
or reverse a bankruptcy judge’s judgment, order, or decree or remand with instructions
for further proceedings.” Fed. R. Bankr. P. 8013. The Court must accept the
Bankruptcy Court’s findings of fact unless those facts are clearly erroneous. Id. The
Court may not make independent factual findings of its own. Equitable Life Assurance
Soc’y v. Sublett (In re Sublett), 895 F.2d 1381, 1384 (11th Cir. 1990). Conclusions of
law, however, including a bankruptcy court’s interpretation and application of the
Bankruptcy Code, are reviewed de novo. See Nordberg v. Arab Banking Corp. (In re
Chase & Sanborn Corp.), 904 F.2d 588, 593 (11th Cir. 1990). This Court, therefore,
owes no deference to the Bankruptcy Court’s interpretation of the law or its application
of the law to the facts. Goerg v. Parungao (In re Goerg), 930 F.2d 1563, 1566 (11th Cir.
1991).
II. Factual and Procedural Background
The facts of the case, as found by the Bankruptcy Court in its Memorandum
Opinion, are as follows:
On June 10, 2010, Debtor Ricky Fluellen granted Acorn Financial, Inc. a security
interest in his vehicle. On July 21, 2010, the Debtor filed a Chapter 13 bankruptcy
petition. On July 27, 2010, Acorn perfected its security interest by delivering an
application for a certificate of title to the applicable official. See O.C.G.A. §§ 40-3-50 to
40-3-51. Acorn filed a proof of claim on August 12, 2010, accompanied by a copy of the
certificate of title which listed Acorn’s security interest in the vehicle. In response to an
inquiry by the Trustee, the Bibb County Tax Commissioner informed the Trustee by
email dated August 24, 2010, that Acorn had applied for a certificate of title on July 27,
2010.
The confirmation hearing on the Debtor’s Chapter 13 plan was held on
September 23, 2010, and the Bankruptcy Court entered an order confirming the plan on
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September 30, 2010. The Debtor’s confirmed Chapter 13 plan listed Acorn as a
secured creditor and provided for payments of $146.00 per month. (R. at 137). On
October 8, 2010, the Trustee filed an adversary proceeding seeking an order from the
Bankruptcy Court avoiding as a preferential transfer the perfection of Acorn’s security
interest in the Debtor’s vehicle and designating Acorn’s claim as an unsecured debt.
See 11 U.S.C. § 547(e)(2)(C).
After the Bankruptcy Court entered its order granting Acorn’s motion for summary
judgment and dismissing the Trustee’s adversary proceeding, the Trustee filed a motion
to reconsider, or in the alternative, to make additional findings of fact to ensure that the
issue was clear on appeal. (R. at 76-80). The Bankruptcy Court convened a hearing
and ultimately entered an order (R. at 91-92) denying the Trustee’s request that the
court reconsider or amend its prior order, but allowing the record to be supplemented by
additional findings of fact, which were set forth in an amended joint stipulation of facts
(R. at 88-89). The additional facts, which this Court has read and considered in making
its ruling, detail the inner workings of the Chapter 13 Trustee’s office, including its
apparently congested caseload, and provide some explanation as to the potential
hardship the Trustee may encounter as a result of the Bankruptcy Court’s ruling in this
matter.
III. Discussion
The Trustee frames the issues on appeal as follows: (1) whether the Bankruptcy
Court erred in dismissing the Chapter 13 Trustee’s avoidance action on the grounds
that it was barred by confirmation of the Debtor’s Chapter 13 Plan despite the fact that
the Trustee is not included in 11 U.S.C. § 1327(a), “Effect of Confirmation of the Plan;”
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and (2) whether the Bankruptcy Court erred when it ruled that the Chapter 13 Trustee is
barred from bringing an avoidance action against a creditor designated as a secured
creditor in a confirmed Chapter 13 plan. The two issues are really one: whether a
trustee is barred by the res judicata effect of 11 U.S.C. § 1327(a), which expressly
provides that confirmation binds the debtor and all creditors (but is silent as to the effect
on the trustee), from bringing a post-confirmation avoidance action seeking to designate
as unsecured a claim classified as secured in the Chapter 13 plan.
Under section 1327(a) of the Bankruptcy Code, “[t]he provisions of a confirmed
plan bind the debtor and each creditor, whether or not the claim of such creditor is
provided for by the plan, and whether or not such creditor has objected to, has
accepted, or has rejected the plan.” 11 U.S.C. § 1327(a). Neither party disputes that,
pursuant to section 1327(a), confirmation of a Chapter 13 plan may satisfy the
requirements for claim preclusion and therefore prevent relitigation of matters that either
were raised or could have been raised prior to confirmation. See Russo v. Seidler (In re
Seidler), 44 F.3d 945, 948 (11th Cir. 1995). Instead, at issue here is whether the
binding effect of confirmation applicable to debtors and creditors applies with equal
force to trustees.
Both parties contend that the issue presented in this case, under the specific
facts of this case, is one of first impression in this circuit. The Trustee argues, however,
that principles of statutory construction should lead the Court to resolve that issue in her
favor. Specifically, the Trustee urges the Court to apply the canon of construction,
“expressio unius est exclusio alterius,”1 and conclude that the omission of any express
1
“A canon of construction holding that to express or include one thing implies the exclusion of
the other, or of the alternative.” Black’s Law Dictionary (9th ed. 2009).
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reference to the trustee in section 1327(a) implies that Congress intended for the
binding effect of confirmation to apply only to debtors and creditors. To reach any other
conclusion, the Trustee contends, would be to impermissibly interpolate words into the
statute which do not appear in the language enacted by the Legislature.
Although the Trustee’s argument has some merit, the Court finds more
persuasive the reasoning of other courts interpreting section 1327(a). First, in Wallis v.
Justice Oaks II, Ltd. (In re Justice Oaks II, Ltd.), 898 F.2d 1544 (11th Cir. 1990), the
Eleventh Circuit held that a bankruptcy court’s order confirming a Chapter 11 plan
satisfied the requirements of claim preclusion and therefore the Wallises, designated in
the plan as unsecured creditors, waived their right to object to the plan by failing to
object prior to confirmation of the plan. 898 F.2d at 1553. The Eleventh Circuit
explained its decision as follows:
Under the Bankruptcy Code, “[a] claim … is deemed allowed, unless a
party in interest …objects.” 11 U.S.C. § 502(a). Allegheny [a secured
creditor] filed a proper proof of claim, and the Wallises [unsecured
creditors], as parties in interest had the right to object to that claim….
Bankruptcy Rule 3007 sets forth the procedure for filing an objection to a
claim, but that rule does not provide any time limits for filing an objection.
The Fifth Circuit, however, has found such a deadline implicit in several
provision of the Code. In Simmons v. Savell (In re Simmons), 765 F.2d
547 (5th Cir. 1985), the court considered an objection, filed after
confirmation of a plan, to a secured claim. Although the plan was a
chapter 13 plan, most of the courts’ reasoning is applicable to chapter 11
plans. The court held that “under section[ ] 506(a) [which applies in
chapter 11 proceedings], a proof of secured claim must be acted upon—
that is, allowed or disallowed—before confirmation of the plan or the claim
must be deemed allowed for purposes of the plan. See 11 U.S.C.
§ 502(a).” Simmons, 765 F.2d at 553. The court went on to hold that
“because no objection was filed before confirmation of [the] plan, [the]
claim should have been deemed an allowed secured claim for purposes of
confirmation.” Id. at 554.
While there is some dispute over the breadth of the Simmons court’s
holding, we think it at least stands for the proposition that, when the
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objection is based on an argument that the plan misclassified the
objectionable claim, the objection must be made prior to confirmation of
the plan…. Furthermore, we hold that the Simmons rule applies in this
case to bar the Wallises’ objection to Allegheny’s claim…. [T]he Wallises
argued that the plan, which classified Allegheny’s claim as secured,
misclassified the claim. Under the rule of Simmons, which we adopt today
as characterized above, the Wallises lost their right to object to
Allegheny’s claim when the bankruptcy court confirmed the plan.
In re Justice Oaks II, 898 F.3d at 1553 (emphasis added).
Although the decision in Justice Oaks involved a post-confirmation dispute
between creditors, and not the trustee, its holding—that an objection to classification of
a claim must be raised prior to confirmation, which in effect is the precise issue facing
this Court—is compelling.
Moreover, the Court has found additional support for the proposition that section
1327(a) applies with equal force to trustees. In Celli v. First Nat’l Bank of N. New York
(In re Layo), 460 F.3d 289 (2d Cir. 2006), the Second Circuit held that a Chapter 13
confirmation order was res judicata with respect to the debtor’s and the trustee’s postconfirmation attempt to avoid a confirmed, recorded lien on the debtor’s property. 460
F.3d at 295-96. The confirmed plan in Layo stated, “[o]nce confirmed, the plan,
pursuant to the provisions of 11 U.S.C. § 1327, shall be binding upon all parties and
questions that could have been raised with respect to the plan shall be res judicata.” Id.
at 293 (emphasis added). The Trustee correctly points out that the plan in Layo
contained a statement that all parties would be bound by the confirmation order, while
the plan in this case contains no such language. However, the language of the
confirmed plan was not critical to the holding in Layo. Instead, the court found that
because the facts supporting the trustee’s post-confirmation challenge were
discoverable pre-confirmation, the trustee had notice and an opportunity to challenge
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the lien prior to confirmation. Id. at 295. In light of the policy embodied in section
1327(a) that confirmation provides finality to the terms of a confirmed plan, the court
held that the trustee’s after-the-fact attack was barred by res judicata. Id. at 294.
The facts in this case, other than the terms of the confirmed plan, are nearly
identical to the facts in Layo. The Trustee was aware that Acorn’s lien was potentially
avoidable approximately thirty days prior to the confirmation hearing. The Trustee also
knew that the Debtor’s proposed plan treated Acorn’s claim as secured. Indeed, the
Bankruptcy Court emphasized that “its ruling [was] limited to the specific facts of this
case in which the Trustee was fully aware of the avoidable nature of the creditor’s lien
before confirmation.” Hope v. Acorn Financial, Inc. (In re Fluellen), 446 B.R. at 619
(Bankr. M.D. Ga. 2011)
In another case in the Bankruptcy Court for the Middle District of Georgia, Judge
Walker presiding, the court allowed a trustee’s post-confirmation avoidance action.
Hope v. First Family Financial Services of Georgia, Inc. (In re Harrison), 259 B.R. 794
(Bankr. M.D. Ga. 2000). However, in Harrison, the court emphasized that its holding
was at least in part due to the trustee not having discovered the potential lien avoidance
issue until well after confirmation. Id. at 797-98. The court noted that “[i]f Trustee had
been given sufficient notice to alert her to the untimely perfection of the lien prior to
confirmation, the res judicata effect of confirmation might bar Trustee’s action to avoid
the lien….” Id. at 798. As Acorn points out, the facts of this case precisely match those
hypothesized by the court in Harrison.
Other courts have also concluded that confirmation binds the Chapter 13 trustee
in addition to debtors and creditors. In Evabank v. Baxter, 278 B.R. 867 (N.D. Ala.
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2002), the District Court for the Northern District of Alabama held that “the time by which
[the Debtor], the chapter 13 trustee, or any other party in interest had to object to [a
creditor’s] proof of claim was no later than just prior to entry of the confirmation order.”
278 B.R. at 887. Although Evabank involved a debtor who failed to object to a timely,
pre-confirmation filed proof of claim, thereby rendering its statement regarding the effect
of confirmation on the chapter 13 trustee dictum, it is persuasive nonetheless.
In In re Castevens, 2000 WL 33673796 (Bankr. M.D.N.C. May 1, 2000), the court
faced a factual scenario identical to that facing the Court here. The trustee filed a postconfirmation motion to avoid a lien on a vehicle as a preferential transfer. The court
held that confirmation of the chapter 13 plan fixed the rights of all parties and bound
them to the terms of the plan:
the confirmation order deals very specifically and clearly with the [claim].
In unambiguous language, the confirmation order provides that the [claim]
will be allowed as a secured claim and describes the manner in which the
secured claim is to be paid. There was no appeal of the confirmation
order by the Debtors or the Trustee, which is not surprising since it
confirmed the very plan which was proposed by the Debtors with the
approval of the Trustee. Nor has the confirmation order been altered or
modified in any manner, and hence remains in full force and effect. The
result is that the Debtors and the Trustee remain bound by the plan and
confirmation order, including the provisions which allowed the [claim] as a
secured claim.... A confirmation order in a Chapter 13 case which allows
a claim bars relitigation of that claim. See In re Duke, 153 B.R. 913, 918
(Bankr. N.D. Ala. 1996). The assertion that the lien is preferential is a
matter which could have been raised prior to the confirmation hearing, and
the Trustee’s effort to now raise the issue involves an effort to relitigate the
claim and treat it differently than it is treated under the confirmation order.
Id. at *1-2.
In In re Smith, 2004 WL 41401 (W.D. Mo. Jan. 6, 2004), the court
“acknowledge[d] that the plain language of § 1327(a) only states that [a] ‘confirmed plan
binds the debtor and each creditor,’ and no mention is made of the trustee.” 2004 WL
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41401 at *5. Nevertheless, the court concluded this was “a distinction without a
difference and [that] once a confirmed plan is given res judicata effect—in the absence
of a specific statutory exception—that effect also binds the trustee, who was a party to
the confirmation proceeding.” Id. (citing Ledford v. Brown (In re Brown), 219 B.R. 191,
194 (B.A.P. 6th Cir. 1998) (“A trustee is considered a party to a confirmation
proceeding, and, as such, is bound by the proceedings.”); In re Mitchell, 281 B.R. 90, 94
(Bankr. S.D. Ala. 2001) (“Plan confirmation orders bind debtors, creditors, trustees and
other parties in interest.”); In re Hudson, 260 B.R. 421, 435 (Bankr. W.D. Mich. 2001)
(same); In re Hallmark, 225 B.R. 192, 195-96 (Bankr. C.D. Cal. 1998) (stating that the
trustee is bound by confirmation of the plan and the only way to change that is to seek
modification)).
In In re Euler, 251 B.R. 740 (Bankr. M.D. Fla. 2000), the court, in dealing with a
trustee’s post-confirmation objection and attempt to modify a Chapter 13 plan, held that
“[a]ll participants in the bankruptcy case are barred by the doctrine of res judicata from
asserting matters they could have raised in the bankruptcy proceedings.” 251 B.R. at
746 (citation omitted). The court elaborated: “A trustee is considered a party to a
confirmation hearing, and, as such, is bound by the proceeding…. Accordingly,
principles of claim preclusion or res judicata bar a trustee from raising as grounds for
modification facts that were known and could have been raised prior to confirmation of
the debtor’s plan.” Id.
These decisions, while not binding, along with the Eleventh Circuit’s clear
instruction in Justice Oaks that an objection to misclassification of a claim must occur
prior to confirmation, lead this Court to conclude that, pursuant to section 1327(a), and
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under the specific facts of this case, the binding effect of confirmation applied to the
Trustees. Accordingly, the Trustee’s avoidance action is barred by confirmation of the
Debtor’s Chapter 13 plan.
IV. Conclusion
This Court does not deem any of the facts found by the Bankruptcy Court to be
clearly erroneous and therefore does not disturb its findings of fact. This Court, having
reviewed the applicable law and the arguments of the parties, agrees with the lower
court’s conclusions of law and the application thereof. It is hereby ordered that the
decision of the Bankruptcy Court is affirmed.
SO ORDERED, this 10th day of January, 2012.
S/ Marc T. Treadwell
MARC T. TREADWELL, JUDGE
UNITED STATES DISTRICT COURT
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