JAMES P. SMITH, Bankruptcy Judge.
Before the Court is Acorn Financial, Inc.'s ("Acorn") motion for summary judgment in which Acorn contends that Trustee's avoidance action is barred by res judicata because the action was commenced after the confirmation of Debtor's Chapter 13 plan. The Court, having considered the motion, the response and the record, now publishes this memorandum opinion.
The undisputed facts and the Court's record show that on June 10, 2010, Debtor Rickey Fluellen granted Acorn a security interest on his vehicle. On July 21 Debtor filed a Chapter 13 petition. On July 27 Acorn perfected its security interest by delivering an application for a certificate of title to the applicable official.
Debtor's confirmed Chapter 13 plan provided, in part:
Creditor Monthly Name Value Int. Description Payment TCL AUTO 2004 Chrysler SALES Debt 6.00 Sebring $146.00
Although the record is not clear, Debtor apparently purchased his vehicle from TCL Auto Sales and Acorn either financed the purchase or received an assignment from TCL Auto Sales. Despite the fact that the confirmed plan listed TCL Auto Sales rather than Acorn as the "creditor", neither Acorn nor Trustee contend that this error is of any consequence.
"A motion for summary judgment should be granted when `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.' F.R.Civ.P. 56(c)." . . . Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Morisky v. Broward County, 80 F.3d 445, 447 (11th Cir.1996). On a summary judgment motion, the record and all reasonable inferences that can be drawn from it must be viewed in the light most favorable to the non-moving party. See Cast Steel, 348 F.3d at 1301. Midrash Sephardi, Inc. v. Town of Surfside, 366 F.3d 1214, 1223 (11th Cir.2004),
In general terms, when a debtor files a Chapter 13 petition, he or she also files within 14 days a plan proposing the treatment (priority, secured or unsecured) to be afforded to creditors. Fed. R. Bank. P. 3015(b). A meeting of creditors is scheduled to be held no earlier than 21 and no more than 50 days after the bankruptcy filing. 11 U.S.C. § 341(a), Fed. R. Bank. P.2003(a). The deadline or "bar date" for most creditors to file a proof of claim is 90 days after the first date set for the meeting of creditors and the court may not reduce that time. Fed. R. Bankr.P. 3002(c), 9006(c)(2).
A duly filed proof of claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a). A duly filed proof of claim constitutes prima facie evidence of the validity and amount of the claim. Fed. R. Bank. P. 3001(f). A proof of claim asserting a security interest in property must be accompanied by evidence that the security interest has been perfected. Fed. R. Bank. P. 3001(d). A claim that has been allowed or disallowed may be reconsidered for cause. 11 U.S.C. § 502(j).
A hearing on confirmation of the proposed Chapter 13 plan must be held, with certain exceptions, no earlier than 20 and no more than 45 days after the date of the meeting of creditors. 11 U.S.C. § 1324(b). Normally, in the Middle District of Georgia, several hundred Chapter 13 plans will be scheduled for confirmation hearings on the same day.
The bar date for a trustee to commence certain avoidance actions, including an action to avoid a preferential transfer, is, in general, 2 years after the bankruptcy filing. 11 U.S.C. § 546(a)(1)(A). However, the Bankruptcy Code and Rules do not provide a time limit for filing an objection to a claim or a request to reconsider a claim. 11 U.S.C. § 502(a), (j). Thus, the Bankruptcy Code and Rules contemplate that, in a routine case, confirmation of a Chapter 13 plan will occur several weeks before the proof of claims bar date (and thus prior to the subsequent filing of claim objections) and some twenty-one months before the bar date to commence avoidance actions.
In the case at bar, Acorn filed a proof of claim accompanied by a copy of the certificate of title evidencing perfection of its security interest some 42 days prior to the confirmation hearing. From the Tax Commissioner's e-mail, Trustee was aware of the postpetition perfection, and thus the avoidability, of Acorn's lien 30 days prior to the confirmation hearing. Debtor's confirmed Chapter 13 plan provided for "payments to secured creditors whose claims are duly proven and allowed. . . ." No objection to the claim was made prior to the confirmation hearing. Thus, at confirmation, Acorn's secured claim was deemed allowed. 11 U.S.C. § 502(a).
In its motion for summary judgment, Acorn does not dispute that the perfection of its security interest is otherwise avoidable
In Russo v. Seidler (In re Seidler), 44 F.3d 945 (11th Cir.1995), the Eleventh Circuit Court of Appeals stated:
44 F.3d at 948. In Wallis v. Justice Oaks II, Ltd., (In re Justice Oaks II, Ltd.), 898 F.2d 1544 (11th Cir.) cert. denied 498 U.S. 959, 111 S.Ct. 387, 112 L.Ed.2d 398 (1990), the Eleventh Circuit held that the claim preclusion aspect of res judicata was the proper doctrine under which to analyze an order confirming a plan as it related to the subsequent challenge to the characterization of a secured creditor's claim.
Justice Oaks involved a Chapter 11 case in which the debtor proposed a plan pursuant to which one of its creditors, Allegheny, was treated as a secured creditor to receive a portion of the proceeds from the sale of property in which Allegheny held a second lien. The Wallises were treated as unsecured creditors to receive nothing under the plan. The Wallises objected to confirmation of the plan. They contended that Allegheny and other creditors had acted fraudulently in connection with the transactions by which Allegheny obtained its secured claim and the Wallises incurred their unsecured claim. The Wallises argued that the plan was not fair or equitable because Allegheny and others would receive payment while the Wallises received nothing. While the Wallises did not challenge the plan's characterization of Allegheny as a secured creditor in their plan objection, they nevertheless simultaneously filed an adversary proceeding making the same factual allegations and asked the court to equitably subordinate, under 11 U.S.C. § 510, Allegheny's claim to their own claim.
The bankruptcy court overruled the plan objection and confirmed the plan. Subsequently, the court dismissed the adversary proceeding, holding that the nature of Allegheny's claim had been finally determined in the court's order confirming the plan.
On appeal, the Eleventh Circuit agreed. In analyzing the claim preclusive effect of the confirmation order where no prior objection to the status of the claim had been made, the court held:
898 F.2d at 1553. (emphasis added).
In the case of Universal American Mortgage Co. v. Bateman (In re Bateman), 331 F.3d 821 (11th Cir.2003), the Eleventh Circuit applied this principle of the preclusive effect of plan confirmation on the status of allowed claims to Chapter 13 plan confirmation orders. In Bateman the secured creditor held a claim secured solely by the debtor's principal residence. Prior to plan confirmation, the secured creditor filed a claim in which it asserted a prepetition arrearage claim of $49,178.80. The debtor's plan set the arrearage claim at $21,600. The secured creditor did not object to the plan, and the plan was confirmed. Subsequently, the debtor learned of the larger arrearage claim asserted in the proof of claim and filed an objection to the allowance of the claim. Finding that the plan had a res judicata effect on the amount of the secured creditor's claim, the bankruptcy court sustained the objection and found that the secured creditor was bound by the $21,600 arrearage amount in the plan. On appeal, the Eleventh Circuit reversed the bankruptcy court and held that, because an objection to the claim was not filed prior to plan confirmation, the claim was "deemed allowed" in its filed amount at the time of confirmation and could not be subsequently challenged. Id. at 827-29.
Other courts have applied the res judicata effect of a Chapter 13 confirmation order
The case at bar is distinguishable from Hope v. First Family Financial Services of Georgia, Inc. (In re Harrison), 259 B.R. 794 (Bankr.M.D.Ga.2000) (Walker, J.). In that case, the Chapter 13 plan, which treated the creditor's claim as secured, was confirmed almost six months after the bankruptcy case was filed. First Family asserted a lien in the debtor's mobile home. Prior to confirmation, First Family filed a proof of claim with a copy of the certificate of title listing its lien attached. Five months after confirmation, the trustee filed an adversary proceeding to avoid as preferential the creditor's perfection of its lien on the debtor's mobile home. The trustee did not discover the untimely perfection until after confirmation. Judge Walker held that the trustee's avoidance action was not barred by confirmation, stating:
259 B.R. at 797-98. In the case at bar, Trustee knew about the defect in the perfection of Acorn's security interest 30 days prior to the confirmation hearing. Trustee also knew that Debtor's plan treated Acorn's claim as a secured claim.
Turning to the case at bar, prior to the confirmation hearing, Acorn filed a proof of claim accompanied by the certificate of title listing its security interest on Debtor's vehicle. Trustee inquired and was informed of the date that Acorn had applied for the certificate of title. Thus, 30 days prior to the confirmation hearing, Trustee knew that the perfection of Acorn's lien was avoidable since it had occurred postpetition. Trustee also knew that Debtor's proposed plan treated Acorn's claim as secured. Trustee did not object to the secured classification offered to Acorn's claim. Trustee, through this adversary proceeding, now seeks to avoid perfection of Acorn's security interest, which will have the effect of changing the classification of the claim from secured to unsecured. Justice Oaks prohibits a postconfirmation objection to the misclassification of claims.
Trustee argues that confirmation does not bar her avoidance action. First, Trustee argues that although section 1327(a) provides that confirmation binds the debtor and all creditors, section 1327(a) is silent as to any binding effect on a trustee. Although Trustee cites no case law to support this argument, at least two cases have ruled otherwise. In re Layo 460 F.3d at 295-96 (Chapter 13 confirmation is res judicata as to debtor and trustee); Meyer v. Pagano, 2002 WL 31159110 (N.D.Cal., Sept.25, 2002) (confirmation binds trustee).
Second, Trustee argues that the only time limitations applicable to a trustee's avoidance action are those prescribed in 11 U.S.C. § 546(a) which allowed her two years after the bankruptcy filing to bring this avoidance action. Trustee argues that each section of the Bankruptcy Code should be interpreted in light of the remaining sections and that if confirmation bars postconfirmation avoidance actions, then section § 546(a) is negated. Although Trustee's argument has merit, this Court is bound by Justice Oaks which held that an objection to misclassification of claim must occur prior to confirmation.
Third, Trustee contends that confirmation does not bar issues that must be raised through an adversary proceeding because the confirmation process concerns the treatment, classification and value of claims and generally does not resolve substantive disputes which must be adjudicated in an adversary proceeding. See Educational Credit Management Corp. v. Mersmann (In re Mersmann), 505 F.3d 1033, 1050 (10th Cir.2007); Whelton v. Educational Credit Management Corp., 432 F.3d 150, 154 (2nd Cir.2005); Cen-Pen Corp. v. Hanson, 58 F.3d 89, 93 (4th Cir.
Finally, Trustee contends that Acorn was not harmed by the delay in filing this adversary proceeding. However, a creditor who is treated as fully secured is not likely to object to confirmation or file an objection to the dischargeability of its debt. If the secured treatment of the claim is challenged postconfirmation, the creditor has probably lost the opportunity to challenge confirmation or dischargeability.
The Court wishes to emphasize that its ruling is limited to the facts of this case in which the Trustee was fully aware of the avoidable nature of the creditor's lien before confirmation. As the Court has recognized above, the Bankruptcy Code and Rules contemplate that, in routine cases, confirmation of Chapter 13 plans will occur before the bar dates for proofs of claim and avoidance actions. In light of the fact that claims can be electronically filed up to and after the confirmation hearing, there will be many incidences where the trustee will not have had a chance to adequately review and object to claims prior to confirmation. In those incidences, res judicata may not preclude the subsequent challenge to the characterization of the claim. Indeed, as previously noted, this was precisely the reason the court in In re Harrison allowed the postconfirmation adversary proceeding by the trustee even though the creditor had filed a proof of claim before confirmation. See also In re Layo, 460 F.3d at 292-93 (the application of res judicata may be avoided in the case of newly discovered evidence when the evidence could not have been discovered with due diligence). There can be no bright line rule. Each case must be considered on its own merits.
For the reasons stated above, there are no genuine disputes as to any material fact. As a matter of law, Trustee's avoidance action is barred by confirmation of Debtor's Chapter 13 plan. Accordingly, Acorn Financial, Inc.'s motion for summary judgment is granted. Pursuant to Bankruptcy Rule 7058 an order consistent with this opinion shall be entered by the Court.