Laurel M. Isicoff, Judge United States Bankruptcy Court.
This matter came before me on June 7, 2016, on Motion of Jose Losada and Caridad Losada (the "Debtors") to Reopen to Value and Determine Secured Status of Lien on Real Property
The Debtors filed a chapter 13 bankruptcy case on July 30, 2010 (the "Petition Date"). The Debtors filed their initial chapter 13 plan on August 12, 2010. The Debtors amended the initial plan at least twice. Finally, the Debtors' Second Amended Plan (ECF #71) (the "Plan") was confirmed on June 2, 2011 (ECF #87) (the Confirmation Order").
The confirmed Plan provided that Space Coast would be treated as follows:
Secured Creditor Description of Interest Plan Payments Months of Total Plan Collateral and Rate Payment Payments Value of Collateral Bank of America Homestead 0% N/A N/A N/A (2nd mortgage on Property homestead) $279,395.00 Loan No. xxxx5699 Prop Add: 15482 SW 11th Terr Miami, FL 33194 Eastern Financial Homestead 0% N/A N/A N/A (3rd mortgage on Property homestead) $279,395.00 Loan No. xxxx1703 Prop Add: 15482 SW 11th Terr Miami, FL 33194
The Confirmation Order provides in its final paragraph —
Under the Local Rules of the Bankruptcy Court, in order to value collateral, a debtor must file a motion to value served in accordance with Federal Rule of Bankruptcy Procedure 7004
The Debtors received their discharge in December of 2015 and shortly thereafter reached out to Space Coast for a release of its mortgage.
In the Motion to Reopen at issue the Debtors argue that the bankruptcy case should be reopened so that I may consider the Motion to Value (ECF #153) filed simultaneous with the Motion to Reopen, which Motion to Value seeks nunc pro tunc valuation (to the Petition Date) of the Residence. The Debtors argue that, since the Plan sought to value the Residence, the Confirmation Order should bind Space Coast, and the lien can be stripped based on the Plan and Confirmation Order. The Debtors further argue that case law supports their request to reopen the case and seek valuation after discharge.
Space Coast counters that the Debtors' Motion to Reopen is barred by laches — Space Coast would be prejudiced if required to value the Residence as of the Petition Date six years after the fact. Moreover, Space Coast argues that case law does not recognize the Debtor's right to rely on a confirmed plan that neither actually valued the Residence, nor that provided actual notice to Space Coast of the intent to value the Residence.
11 U.S.C. § 350(b) allows a court to reopen a closed bankruptcy case "to administer assets, to accord relief to the debtor, or for other cause." "A decision to reopen a case under section 350(b) is based on `the particular circumstances and equities of each case'.... When deciding whether to reopen a closed case, courts generally consider the benefit to creditors, the benefit to the debtor, the prejudice to the affected party and other equitable factors." In re Rodriguez, 2015 WL 4872343, at *2 (Bankr.S.D.Fla. Aug. 12, 2015).
The Debtors seek to reopen the case for three purposes — first, to determine whether and to what extent Space Coast is bound by the valuation of the Residence in the Plan; second, to determine the Motion to Value; and third, to modify the original Order Granting Motion to Value. As I have already discarded the third argument as being meritless, I will turn first to the Plan and its provisions, and then to the requested Motion to Value.
Space Coast argues that the provisions of the Plan are not binding on it because (a) the Plan specifically provided that a separate motion to value would be filed; (b) nothing in the Plan or the Confirmation Order states anything with respect to the status of Space Coast's lien or the lien being stripped; and (c) neither the Plan nor the Confirmation Order were served on Space Coast in accordance with Fed. R.Bankr.P. 7004 and, besides, Space Coast has no record of having received the Plan
In Calvert, the secured lender received notice that the Court might value its collateral at the debtors' first confirmation hearing; however, the secured creditor failed to send a representative. At the first hearing, the bankruptcy court made a finding that the secured creditor's interest had never been perfected. Subsequently the debtors filed an amended proof of claim, to which the secured creditor did not object. After filing the amended proof of claim, the debtors filed an amended plan. The bankruptcy court held a second confirmation hearing, however the notice that was sent to the parties indicated that the hearing was a motion to reconsider the first bankruptcy plan; the notice made no mention of the valuation issue. The secured lender attended the second hearing and the bankruptcy court held that the security interest had been perfected. Since the security interest was perfected, the bankruptcy court again considered the original plan and valued the property at issue. The Eleventh Circuit held that the valuation process did not satisfy the requirements of Rule 3012 because the bankruptcy court's notice did not include "notice specifically directed at the security valuation process."
The Debtors counter, citing United Student Aid Funds, Inc., v. Espinosa, 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010), that notwithstanding that the Debtors did not, successfully, file a motion to value as contemplated by the Plan, Space Coast is nonetheless bound by the Plan and Confirmation Order. The Debtors point out that the Supreme Court in Espinosa held that United Student Aid Funds Inc. ("United") was bound by the terms of a chapter 13 plan that would allow Espinosa to discharge the interest on his student loan without a determination of undue hardship, even though (a) a student loan debt can only be discharged through an adversary proceeding and (b) United was not served in accordance with Rule 7004. The Supreme Court held that United's due process rights were not deprived because United had actual notice of the chapter 13 plan, and because the plan specifically stated "WARNING IF YOU ARE A CREDITOR YOUR RIGHTS MAY BE IMPAIRED BY THIS PLAN". United was bound by the provisions of the plan notwithstanding that the procedural requirements were not met. "Due process requires notice `reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Id. at 1378. According to the Supreme Court, "actual notice of the filing and contents of Espinosa's plan ... more than satisfied United's due process rights." Id.
In order to resolve this particular issue I do not need to decide whether Espinosa overruled Calvert in some way. Nor do I need to decide whether Space Coast was properly served with the Debtors' original plan or the Confirmation Order. Even if Space Coast did receive service of the Debtors' originally filed plan, and is therefore bound by its terms notwithstanding that the Debtors failed to comply with the procedural requirements of Local Rule 3012-1, this dispute is not resolved.
As I already observed, there is nothing on the docket to suggest that Space Coast ever received notice of any version of the Plan other than the Debtor's originally filed plan. There is no certificate of service, either from the Debtors, or the Chapter 13 Trustee or the Bankruptcy Noticing Center. So I must look at what the Debtors' originally filed plan stated with respect to
Space Coast never having been served with any plan that purported to value its collateral, then, Espinosa notwithstanding, Space Coast is not bound by the valuation amount of the Residence included in the Plan. Moreover, even if Space Coast were bound by the valuation in the Plan, that is all that Space Coast would be bound to, and, according to the Confirmation Order, only with respect to treatment of its allowed claim in the chapter 13 case.
There is nothing in the Plan that addresses Space Coast's lien at all. The request to strip a lien based on a particular valuation is only included in the Court's form motion to value
Because reopening the case to enforce the Plan and Confirmation Order against Space Coast would not have any impact on the Debtors or on Space Coast, there is no point to reopening this bankruptcy case for that purpose. Thus I now turn to resolution of the real dispute before me — and that is whether, in a fully administered chapter 13 case, in which the Debtors have received their discharge, may the Debtors reopen the case to prosecute a motion that seeks to value a secured creditor's property for the purpose of stripping off the secured creditor's lien.
Space Coast argues that I do not have jurisdiction to adjudicate the new Motion to Value since Space Coast never filed a proof of claim, and therefore never submitted itself to the jurisdiction of the bankruptcy court. While it is true that Space Coast may not have submitted itself to the jurisdiction of the court, the Debtors' property — the Residence — was subject to the jurisdiction of the Court, as well as any asserted interest of Space Coast in the Residence.
A bankruptcy court has jurisdiction of "any or all cases under title 11 and any or all proceedings arising under title 11, or arising in or related to a case under title 11." 28 U.S.C. § 157; see also 28 U.S.C. § 1334. A proceeding "arising in" a case under title 11 is one that "can take place only in the context in a case under title 11." In re Gladstone, 513 B.R. 149, 153 (Bankr.S.D.Fla.2014). A proceeding "arising under" title 11 is one where the matter deals with "invoking a substantive right created by the Bankruptcy Code." In re Toledo, 170 F.3d 1340, 1345 (11th Cir. 1999). A "related to" matter does not have to be created by the Bankruptcy Code, so long as it bears on the outcome of the title 11 case. Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788 (11th Cir.1990). However, once property leaves the estate, the bankruptcy court's jurisdiction is limited, and, in most cases, lost.
Both the Debtors and Space Coast rely on Cole v. Fifth Third Bank, Inc. (In re Cole), 521 B.R. 410, 414 (Bankr.N.D.Ga. 2014). In Cole, the chapter 7 debtor moved to reopen her case to value a condominium a few months after receiving her discharge. The court noted that it lost its related-to jurisdiction because the property was technically abandoned under 11 U.S.C. § 544(c) when the case was closed. However, the court found that the technical abandonment was not irrevocable and therefore jurisdiction might exist if the court determined that revocation of the technical abandonment was appropriate.
The Debtors rely heavily on Chagolla v. JP Morgan Chase Bank, N.A. (In re Chagolla),
The issues before me in this case clearly deal with the language of the Plan and enforcement of the Confirmation Order. As many other courts have noted, I have continuing jurisdiction to interpret and enforce a bankruptcy plan. Travelers Indemnity Co. v. Bailey, 557 U.S. 137, 146, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009) (agreeing with Second Circuit's statement that "[i]t is undisputed that the bankruptcy court[has] continuing jurisdiction to interpret and enforce its own 1986 [settlement agreement and reorganization] orders.")). Moreover, the Debtors have asked me to value the Residence, and I have jurisdiction over the Residence. Therefore, I find that I have jurisdiction to consider the relief sought.
Space Coast also argues that laches bars the Debtors' attempt to reopen the case to value Space Coasts' collateral and strip its lien. Space Coast argues that it would be extremely prejudicial to Space Coast to try to appraise property that could have changed in condition or otherwise during that six year period since the Petition Date
While there is no time limit on filing a motion to reopen, courts have universally recognized that laches may be a bar to reopening a bankruptcy case. Cole, 521 B.R. at 410; In re Delfino, 351 B.R. 786 (Bankr.S.D.Fla.2006). In order to determine whether laches should be a bar to reopening a bankruptcy case, a court must consider "whether the Debtor was diligent in seeking to reopen the case, and whether there has been prejudice to the creditor." In re Delfino, 351 B.R. at 788. In making this determination, "`time delay alone ... is not sufficient'.... Rather, time delay is relevant to the extent it bears on the `diligence of the debtor in seeking to reopen the case and any prejudice to the opposing creditor if the case were not reopened.'" Cole, 521 B.R. at 413 (citations omitted).
Since the Debtors moved to reopen the case only five months after it was closed, I will focus on the prejudice to Space Coast if the case is reopened so that the Debtors may prosecute the Motion to Value. The determination of whether to reopen a case or not is always left to the discretion of the court, is fact intensive and is based on equitable considerations. In re Apex Oil Co., Inc., 406 F.3d 538, 542 (8th Cir.2005) ("[I]t is within the bankruptcy court's discretion to base its decision to reopen on the particular circumstances and equities of each particular case.").
There are several courts that have addressed a debtor's request to reopen a bankruptcy case to value property for the purpose of stripping a lien
Similar to the Plan confirmed in this case, the confirmed Chagolla plan advised the lender that the debtors intended to file an adversary proceeding to avoid the lender's lien. However, the debtors never filed the adversary proceeding. In overruling the bankruptcy court's dismissal of the motion to value, the BAP held
Chagolla, 544 B.R. at 681. Although the Chagolla court did not address the issue of laches,
Space Coast relies primarily on three cases
Conversely, in In re Rauseo, another chapter 7 case, the debtor waited four years after the chapter 7 case had been closed (six years after the petition date) to file a motion to reopen for the purpose of filing a motion to value and to strip a lien. 2015 WL 1956230 at *1. In denying the motion on the basis of laches the court made two primary observations — first, that the debtors could file a chapter 13 case and seek to value the property, albeit using the value as of the new petition date, and second, that Bank of America could have shared in the distribution to unsecured creditors had the lien been stripped during the chapter 7 case. The court noted it was "not adopting a bright line rule" regarding timing, but that the time periods presented were too long. Id. at *2.
In In re Delfino, the former chapter 7 debtor sought to reopen his bankruptcy case seven years after he received his discharge, not to file a strip off motion, but rather to file an adversary proceeding to add an omitted creditor. The court denied the motion to reopen on the basis of laches, and inequitable conduct by the debtor's attorney. During the two years prior to the motion to reopen the debtor had actively litigated in state court with the "omitted creditor" and it was only after the debtor received an unfavorable ruling in the state court action that the debtor returned to bankruptcy court seeking to get that litigated claim included in his discharge. The bankruptcy court denied the motion to reopen noting the attorney fees incurred by the creditor in the litigation over the prior two years and the debtor's failure to reopen the case as soon as the omitted creditor filed the state court action. The court also found that reopening a case is subject to the court's equitable discretion and that equity barred the relief because of the inequitable conduct of the former debtor and his lawyer, who, the court found, deliberately litigated in state court for the purpose of running up legal fees. In re Delfino, 351 B.R. at 790.
Thus, these courts all considered a variety of factors including a creditor's general knowledge or notice that it might be treated a certain way in a bankruptcy case as opposed to being completely surprised several years later, a creditor's ability to address the challenges of a delayed valuation, and a debtor's deliberate delay to cause prejudice. And, of course, these are only some of the many factors that courts consider on a case by case basis.
I now turn to the facts of the case before me. The prejudice to the Debtors is clear. If I do not grant the motion then the Debtors will either have to file a new chapter 13 case, which would have a negative impact on their fragile rebuilding credit, or pay the lien, which lien they would have probably been entitled to
In its Objection to Debtor's Motion to Value
Space Coast's valid concerns regarding changes in the condition of the Residence can be dealt with two ways. First, as a condition of allowing the Debtors to proceed to a valuation hearing, I will require that the appraisers assume that the Residence was in at least better than average condition on the Petition Date
I do not find the equities are in favor of Space Coast with respect to its inability to participate in the distributions to unsecured creditors. Space Coast chose not to file a proof of claim. Whether or not Space Coast received a copy of any version of the Plan or the Confirmation Order,
A motion to reopen is subject to the court's discretion. Whether to grant such a motion depends primarily on the equities of the situation and the prejudice to any objecting party. Having considered the written submissions of the parties, arguments of counsel, and all matters of relevant law, and for the reasons more fully outlined above, it is ordered as follows:
a. The Motion to Reopen is Granted in part and Denied in part.
b. Space Coast will have 21 days from the date of this Order to submit any additional memoranda regarding the Motion to Value, not including those issues that have been resolved by this order
c. The parties will meet and confer and then submit my form scheduling order with all the blanks filled in, including the deadline to conclude discovery on the Motion to Value.