GUY R. HUMPHREY, Bankruptcy Judge.
This decision concerns whether the value of the debtor's residence set forth in
On May 25, 2011 the debtor, Jackie A. Bennett ("Bennett"), filed a voluntary petition for relief under Chapter 13 of Title 11 of the United States Code (the "Bankruptcy Code" or the "Code");
The meeting of creditors required by § 341 was held on June 28, 2011. See est. doc. 9 and July 1, 2011 docket entry. On that same date, Springleaf filed a proof of claim in the amount of $9,898.37 and secured by an open-end mortgage on the Property (Proof of Claim 7-1) ("Proof of Claim"). The Proof of Claim provides a value of $140,000 for the Property. On July 21, 2011, the day following the court's entry of an order confirming Bennett's Plan, she filed an objection to the Proof of Claim, seeking to have it reclassified as a nonpriority unsecured claim on the basis of there being no value in the Property to which Springleaf's claim attaches (est. doc. 17). Springleaf responded to Bennett's objection to its claim, stating that the value of the Property exceeded the amount owed on the first mortgage on the Property and, therefore, Springleaf's claim should be determined to be an allowed secured claim (est. doc. 23).
No objection to the Plan or to the value set forth in the Appraisal was filed, and the court entered an order confirming the Plan on July 20, 2011 (est. doc. 16). Five days later, Bennett commenced this adversary proceeding seeking to strip Springleaf's lien as being wholly unsecured. The court has subsequently entered orders in the both the estate case and this adversary proceeding consolidating this adversary proceeding and the contested matter arising out of Bennett's objection to the Proof of Claim (adv. doc. 12 and est. doc.
This is the second time recently that the court has addressed under what circumstances a value placed on a residence during the Chapter 13 confirmation process may be binding on the holder of a junior mortgage in a subsequently filed adversary proceeding.
In Bivens the debtors stated in their Chapter 13 plan that the value of their residence was $42,000. However, they also provided in their plan that they would be filing an adversary proceeding to avoid the second mortgage as being wholly unsecured. Specifically, the Amended Plan stated as follows:
Bivens at *3 (bold in original). The debtors in Bivens also included similar language in their objection to the second mortgagee's proof of claim. In an agreed order addressing the claim objection, the parties agreed that "the pending Proof of Claim Objection shall be resolved through the adversary proceeding." As will be discussed, the Dayton Chapter 13 Trustee's form plan also was different than the form plan used in this case.
Within that due process framework, this court first concluded that an adversary proceeding was not required to establish the value of property for lien avoidance purposes. The court concluded that § 506(a) and Federal Rule of Bankruptcy Procedure 3012 and precedent of this court provide for value determinations to be made through contested matters, specifically stating that:
Bivens at *10. The court noted that Bankruptcy Rule 3012 allows the value of property to be determined by motion:
Fed. R. Bankr.P. 3012. The court further noted that:
Bivens at *10.
However, while the court found that the value of property could be established through the confirmation process, the court found that the value placed by Bivens in their plan did not bind the junior mortgagee with respect to the adversary proceeding filed to avoid the mortgage lien, specifically finding that the Bivens' Chapter 13 plan "did not provide sufficient
The court rejected the Bivens' argument that the binding effect of the confirmation order under § 1327(a) precluded M & I Bank from litigating the value of their residence listed in the plan. This court noted that "a provision of a Chapter 13 plan only has preclusive effect if: a) the notice of the plan is satisfactory under the circumstances and does not deny due process (Calvert, 907 F.2d at 1072; Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160, 162 (4th Cir.1993) and Flynn, 402 B.R. at 445) and b) the pertinent plan provision is clear and unambiguous (County of Ventura Tax Collector v. Brawders (In re Brawders), 325 B.R. 405, 411 (9th Cir. BAP 2005); In re Mershon, 2005 WL 4030035 (Bankr.S.D.Ohio 2005); Turek v. Dehart (In re Turek), 346 B.R. 350, 355 (Bankr.M.D.Pa.2006))." Bivens at *13. The court found that the Bivens' plan failed on both of these accounts. In so finding, the court noted that:
Bivens at *14-15.
First, the court found "that the Bank did not receive specific notice that the confirmation hearing would serve as a valuation hearing under § 506(a) or BR 3012 and, therefore, under the due process standards enunciated in Calvert and Linkous, the confirmation order did not bind the Bank to the value placed in the Plan for the Property. The notice of the confirmation hearing ... did not advise the Bank that the confirmation hearing would include a valuation hearing under § 506(a) or BR 3012 relating to the Property." Bivens at *15. At that time, the Chapter 13 Trustee's form plan contained the following conspicuous warning on the first page of the form plan (the "preamble"):
The court concluded that this prefatory warning language was in the vein of the "mere possibility" language that the Calvert court held was not sufficient and not specific enough to provide adequate notice to M & I Bank that the confirmation hearing would serve as a valuation hearing under § 506(a) or Rule 3012. See Bivens at *15-16, citing Calvert, 907 F.2d at 1072, n. 3.
Second, the court found that the Bank did not receive sufficient due process notice that its failure to object to the value placed in the Bivens' plan amendment would constitute a valuation of their residence under § 506(a) and Rule 3012. While the amended plan stated that the residence "is valued at $42,000," this provision did not specifically state that the confirmation hearing would include a § 506(a) or Rule 3012 valuation hearing if M & I Bank disputed that value or that the value stated in the plan would be binding absent an objection and, rather, stated that an objection to any claim filed by M & I Bank as a secured claim would be filed and that an adversary proceeding would be filed to strip the mortgage lien. See Bivens at *16.
Finally, the court found that the value placed in the Bivens' plan did not have preclusive effect because the plan was ambiguous as to whether the confirmation hearing was serving as a valuation hearing and whether the plan was setting the value of the residence for lien stripping purposes, noting that a plan is a contract between a debtor and his creditors and, as such, any ambiguity in the terms of the plan must be construed against the debtor, citing In re Brawders, 325 B.R. 405, 411 (9th Cir. BAP 2005); Mershon, 2005 WL 4030035 at *2; Turek, 346 B.R. at 355; and In re Fawcett, 758 F.2d 588, 591 (11th Cir.1985). The court found the Bivens' plan ambiguous in this regard for three reasons: a) the reference to the value of the residence in the plan constituted a simple, bare statement that the residence "is valued at $42,000"; b) the provision of the plan addressing the treatment of M & I Bank's claim specifically indicated that the Bivens were going to file an adversary proceeding to strip the mortgage lien and would file an objection to any proof of claim filed by the Bank as a "secured" claim, noting that this language would reasonably lead M & I Bank and its counsel to believe that the issues pertaining to whether it was secured would be litigated through a subsequent proceeding;
Subsequent to the court's issuance of its decision in Bivens, Jeffery M. Kellner, the
There are several provisions of the Dayton form plan (the "Form Plan") which are pertinent to whether the value of the Property contained in the Appraisal is binding on Springleaf. The first such provision is the preamble to the Plan, being the conspicuous colored box at the beginning of the Plan containing text in bold. By coloring that box and enclosing the two paragraphs in the box in bold text, the clear intention is to place special emphasis on that language and to try to alert the reader to it. The language in that box reads as follows:
See estate doc. 5, p. 1. (emphasis in original).
The second significant section of the Form Plan is § 18, which provides the treatment for claims secured by real estate owned by the debtor. That section, as completed by Bennett in this case with her particular elections added, provides as follows:
Monthly Payment $1,017.15 Months in Default 5 Total Arrearage (including month petition $5,085.75 filed)*
Lien Holder # 2 (Must match Schedule D) Springleaf Financial, 2628 Colonel Glenn Hwy., Fairborn, OH 45324-5612
See estate doc. 5, pp. 9-11. (emphasis in original).
The last material section of the Form Plan is § 19 which contains the "Special Plan Provisions." This is the section in which the debtor is to place any provisions that are not otherwise provided by the terms of the Form Plan, including special treatment of a claim, such as the avoidance of a lien on an otherwise secured claim. Inclusion of this section in the Form Plan assists the court, the Chapter 13 Trustee, and creditors in reviewing and analyzing debtors' plans because special treatment of creditor claims is to be set forth in that section—providing the parties in interest with one place to look to determine if there is any objectionable provision in the plan which might give reason to deny confirmation of any such plan. Section 19 of the Form Plan, as completed by Bennett in this case, provides as follows:
* * * *
See estate doc. 5, pp. 11-12.
The court will now analyze the facts of this case, including the provisions contained in the Form Plan as completed by Bennett, to determine whether the value placed on the Property by the Appraisal is binding on Springleaf in the adversary proceeding. This discussion will include an analysis of differences between the Bivens plan and the Plan.
This court has jurisdiction pursuant to 28 U.S.C. § 1334 and the standing order of reference in this District. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K).
Federal Rule of Civil Procedure 56(a), made applicable to adversary proceedings through Bankruptcy Rule 7056, sets forth the standard to address the parties' filings. It states, in part, that a court must grant summary judgment to the moving party if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.
In order to prevail, the movant, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the burden is on the nonmovant at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmovant's claim or 2) demonstrate to the court that the nonmovant's evidence is insufficient to establish an essential element of the nonmovant's claim. Id. at 331-32, 106 S.Ct. 2548. Thereafter, the nonmovant "must come forward with `specific
Bennett's motion for summary judgment arises out of the Sixth Circuit's adoption of the majority position that mortgages granted on primary residences to which no value can be attributed pursuant to 11 U.S.C. § 506(a) can be stripped off through a Chapter 13 bankruptcy case upon successful completion of the payments under the Chapter 13 plan. Lane v. Western Interstate Bancorp (In re Lane), 280 F.3d 663 (6th Cir.2002). Thus, the issue presented is whether the changes made to the Form Plan are sufficient to render the uncontested property value in the Appraisal binding on Springleaf.
Bennett asserts that the new language of the Form Plan sufficiently apprises creditors, such as Springleaf, that absent a timely objection being filed to a debtor's plan, the value contained in the debtor's appraisal, filed with the court in accordance with the local bankruptcy rules for this District, fixes the value of a debtor's property for lien stripping purposes and precludes the creditor's from re-litigating that issue, including in a later adversary proceeding to strip a junior mortgage.
Springleaf argues that the terms of the plan do not meet the due process standards of the Ohio or United States Constitution. Springleaf asserts that since the time that the Bankruptcy Code was enacted in 1978, the Dayton location has required that the value of real estate for avoidance purposes must be established either through an adversary proceeding or a motion and, therefore, since this "has been the established procedure in this court for 33 years, . . . creditors rely on this." Memorandum in Opposition, p. 1. Springleaf further notes that this court's order (adv. doc. 9) "presumes that an appraisal will be performed by the creditor and gives a deadline of December 5, 2011 to have it completed." Id. at p. 2. Springleaf concludes by asserting that the plan provisions have "not afforded Springleaf adequate notice to alert it as to the change in the procedure." Id.
Springleaf claims that it has not been provided due process—specifically that the terms of the Form Plan did not provide Springleaf with sufficient notice of the change in procedure with respect to the valuation of real property for lien stripping purposes in light of the thirty-three year history of valuing property through a motion or adversary proceeding. In making this argument, Springleaf has neither provided the court with an affidavit or other Rule 56 evidence to support its statements, nor has it provided the court with any citations of legal authority supporting its position.
The United States Supreme Court has recently opined on due process relating to a Chapter 13 plan.
In finding that the creditor's due process rights were not violated, the Supreme Court cited the landmark Mullane decision
In In re McLemore, this court noted that a confirmation order approving a Chapter 13 plan is res judicata and not subject to collateral attack by a creditor who has received adequate notice of the plan. 426 B.R. 728, 735 (Bankr.S.D.Ohio 2010). The court further noted that whether the notice provided by the plan is sufficient is a due process issue framed by the Mullane standard. Thus, "[d]ue process is the linchpin to determining the rights of secured creditors in chapter 13, and if a creditor receives clear notice, but chooses to ignore the bankruptcy proceedings, it does so at its peril." Id at 735, citing In re Shook, 278 B.R. 815, 825 (9th Cir. BAP 2002) and Lawrence Tractor v. Gregory (In re Gregory), 705 F.2d 1118,-1122-23 (9th Cir.1983).
This court drew a distinction between notice that is "quantitatively defective" and notice that is "qualitatively defective." Notice which is quantitatively defective results when a party has not been properly
Springleaf's argument is that the notice provided by the Plan was qualitatively defective. Without citing to any specific provisions or omissions in the Plan, Springleaf argues that the information in the Plan was insufficient to apprise it that the value of the Property would be determined through the confirmation process and that the Plan's provisions were insufficient to overcome the thirty-three year precedent in Dayton of determining value for strip-off purposes through a separate hearing or adversary proceeding. Springleaf is incorrect on both points.
The Plan has significant differences from the Bivens plan which should have put Springleaf on notice that the confirmation hearing and confirmation process would result in the valuation of the Property for lien stripping purposes.
First, while both plans contained a conspicuous preamble with text in bold in a box at the beginning of the plan which cautioned creditors and parties in interest to read the plan carefully and that the plan "may modify your rights by providing for payment of less than the full amount of your claim, by setting the value of the collateral securing your claim, by providing for a treatment of your claim contrary to your current status, and/or by setting the interest rate on your claim;" Bennett added the following statement in that preamble to the Plan:
See estate doc. 5, p. 1. (bold in original). Both preambles include the statement that "[t]he Court may confirm this case if no objection to confirmation is filed within ten (10) days after the § 341 Meeting of Creditors is concluded (L.B.R.3015-3(a))." Thus, the Plan added a specific clear statement to the preamble that the confirmation hearing would serve as a valuation hearing pursuant to § 506(a) and Bankruptcy 3012. It is also significant to note that § 506(a) explicitly provides for the valuation of collateral "in conjunction with any hearing . . . on a plan affecting such creditor's interest" and Rule 3012 allows the court to make such a value determination "after a hearing on notice to the holder of the secured claim. . . ."
Second, § 18 of the Plan contained the following provision which the Bivens plan did not:
See estate doc. 5, p. 10. (bold in original). This provision again advises secured creditors, such as Springleaf, that the confirmation hearing will include a valuation hearing if the creditor objects to the value set forth in the plan or in the debtor's appraisal report if the appraisal report is timely filed in accordance with Local Bankruptcy Rule 3015-3(e)(3). The court also notes
Finally, the Plan, like the Bivens plan, contained a specific provision in § 19 of the Plan, the Special Plan Provisions, which explicitly identified the Springleaf mortgage as being the subject of a mortgage strip-off adversary proceeding. See est. doc. 5, p. 12, § 19(C). While in Bivens this language, in addition to the other particular facts in Bivens, was availing to the mortgagee, it is not so in this case. In Bivens the plan did not contain the explicit language advising the mortgagee that the confirmation hearing would serve as the real estate valuation hearing. Thus, the mortgagee could reasonably assume that the valuation hearing would be subsumed within the trial of the adversary proceeding. The language added to the Form Plan used by Bennett should have dispelled any belief that valuation of the Property would be determined through the adversary proceeding.
The language advising creditors that the confirmation hearing would serve as a valuation hearing may be difficult for a lay person to comprehend. However, individual circumstances may be taken into account when determining whether the notice provided the creditor with due process. McLemore, 426 B.R. at 736-37, citing In re Hudson, 260 B.R. 421, 442 (Bankr.W.D.Mich.2001). Thus, it may be appropriate to consider a "creditor's sophistication, the amount of their involvement in the bankruptcy proceeding, as well as that creditor's reliance on the claims allowance procedures as demonstrated by a proof of claim filed before plan confirmation." Hudson, at 443, citing In re Basham, 167 B.R. 903, 908 (Bankr.W.D.Mo.1994).
If a representative of Springleaf did not understand the provisions of the Plan addressing valuation of the real estate, it was incumbent upon that representative to inquire of its legal counsel. The Form Plan is a legal document requiring some degree
Accordingly, the court finds that the provisions added to the Form Plan used by Bennett were sufficient to put Springleaf on notice that the confirmation hearing would serve as a valuation hearing pursuant to § 506(a) and Rule 3012 for lien-stripping purposes. Unlike in Bivens, the Plan contained clear, explicit provisions advising Springleaf and other creditors that the confirmation hearing would serve as a valuation hearing for real property securing creditors' claims which were being treated under the Plan. The court will now address whether the Dayton location's history of determining value for lien-stripping purposes through a separately filed motion or adversary proceeding deprived Springleaf of due process.
The thrust of Springleaf's argument is that application of the subject plan sections would result in a violation of due process because those provisions are not sufficient to overcome the historical precedent of real property being valued for lien stripping purposes in Dayton through a separate motion or adversary proceeding. The court rejects this argument for three reasons.
First, Springleaf failed to support this argument with any evidence. Springleaf's Memorandum in Opposition was not supported with an affidavit or other evidence submitted in conformance with Bankruptcy Rule 7056, which incorporates Federal Rule of Civil Procedure 56. Springleaf's argument is premised upon unsupported assertions that:
See Memorandum in Opposition, pp. 1-2. However, Springleaf did not submit an affidavit or other evidence that: a) it was familiar with this purported thirty-three year history; b) that it relied on this thirty-three year history; c) that a representative of Springleaf actually read the Plan; and d) that after reading the Plan, the representative did not understand that the procedure regarding when real estate would be valued for lien-stripping procedures
Second, Springleaf's argument regarding the thirty-three year history in Dayton of lien-stripping by motion or adversary proceeding is incomplete. Specifically, Springleaf's argument ignores the Bivens decision. The history of avoiding wholly unsecured mortgages in Dayton includes Bivens. As noted, in Bivens this court held that value could be determined through the plan confirmation process if the plan adequately apprised creditors that the confirmation hearing would determine the value of the real property. While not published in one of the nationally recognized bankruptcy reporters, Bivens was placed in the court's indexed decisions on the court's website which is available to the bar and the general public. Thus, the possibility of valuing real property through a Chapter 13 plan in Dayton was made known on September 30, 2009 and is part of the history of mortgage avoidance in Dayton. The Form Plan used by Bennett was adopted following Bivens and presumably takes Bivens into consideration. In short, any ruling by this court that the value of real property can be determined through a Chapter 13 plan for lien-stripping purposes cannot be considered a shot out of the dark.
Furthermore, as Springleaf acknowledges, value has been determined by motion in Dayton. See Ernst v. Bank One, N.A. (In re Ernst), 270 B.R. 707, 710 (Bankr.S.D.Ohio 2001) and Bankruptcy Rule 3012. Springleaf does not explain how determining value through a plan materially differs from determining value through a motion. It has also been held that a bankruptcy court is not required to hold a separate hearing when value is determined through confirmation of a plan—the confirmation hearing is sufficient. Green Tree Acceptance, Inc. v. Calvert (In re Calvert), 907 F.2d 1069, 1072 (11th Cir. 1990) (Valuation of property may be conducted in conjunction with confirmation of plan; there is no requirement of a separate hearing); In re Holmes, 225 B.R. 789, 793 (Bankr.D.Colo.1998) (Value of property may be determined as part of the Chapter 13 confirmation hearing). Of course it has long been black letter law that an actual hearing need not take place if the affected party has received notice of the proposed action and fails to object. In such cases the affected party has been provided with an opportunity to have a hearing, but by failing to object to the proposed action, waives its right to a hearing. See 11 U.S.C. § 102(1) ("`after notice and a hearing' . . . authorizes an act without an actual hearing if such notice is given properly . . ."); and Bankruptcy Rule 3015(f) ("If no objection is timely filed, the court may determine that the plan has been proposed in good faith and not by any means forbidden by law without receiving evidence on such issues"). See also Local Bankruptcy Rules 3015-3(c) ("Plans that appear to the court to meet all statutory tests for confirmation and to which no objections to confirmation have been filed may be confirmed on the consent docket without actual presentation. . . .
Third, the perceived long history of determining the value of real property through an adversary proceeding or through a separately filed motion with a separate hearing on that motion does not rise to the level of a due process violation in light of the clear and specific language of the Plan and the fact that Bivens foreshadowed this possibility. An argument similar to that made by Springleaf in this case was made and rejected in Nissan Motor Acceptance Corp. v. Smith, 2010 WL 4005056, 2010 U.S. Dist. LEXIS 112700 (E.D.Wis. Oct. 12, 2010). In that case the debtor filed a Chapter 13 plan which bifurcated a motor vehicle financing loan into secured and unsecured claims on the basis that the provision known as the "hanging paragraph" of § 1325(a) prohibiting motor vehicle loans from being bifurcated into secured and unsecured portions did not apply because the debtor did not purchase the vehicle for his own personal use, but rather, for use by a third person. No objection to this plan treatment was filed and the plan was confirmed by the bankruptcy court. The creditor later argued that it did not need to object to this provision of the plan because the local bankruptcy rules and practice in the district eliminated any need to file and prosecute such an objection—asserting that its proof of claim filed as secured properly addressed that issue without a need to file an objection to the plan. The bankruptcy court rejected this argument and upon appeal to the district court, the district court affirmed the bankruptcy court, stating:
Id. at *4.
Similarly, the court finds that Springleaf's historical practice argument is not sufficiently compelling to overcome: a) the clear and conspicuous language of the Plan; b) the binding nature of the Plan as provided by § 1327(a) (see McLemore, 426 B.R. at 734-35 and In re Thaxton, 335 B.R. 372, 374-75 (Bankr.N.D.Ohio 2005); c) § 506(a)(1) which anticipates value will be determined "in conjunction with any hearing . . . on a plan affecting such creditor's interest;" and d) Bivens' foreshadowing of the determination of the value of real property for lien-stripping purposes through the Chapter 13 plan confirmation process.
Accordingly, Debtor Jackie Bennett's motion for summary judgment is
Copies to:
Andrew Zeigler, Thompson & Deveny Co. LPA, 1340 Woodman Dr., Dayton, OH 45432
Stephen D. Miles, 18 West Monument Ave., Dayton, OH 45402
Jeffrey M. Kellner (Chapter 13 Trustee), Scott G. Stout (Staff Attorney), 131 North Ludlow St., Ste. 900, Dayton, OH 45402
Office of the United States Trustee, 170 North High Street, Suite 200, Columbus, Ohio 43215
