618 F.2d 76 (9th Cir. 1980), 77-2642, In re Moralez

Docket Nº:77-2642.
Citation:618 F.2d 76
Party Name:In re Bankruptcy matter, Herman MORALEZ and Josephine Pearl Moralez, Debtors. Paul DeBruce WOLFF, as Chapter XIII Trustee, Appellant, v. WELLS FARGO BANK, a National Association, Appellee.
Case Date:May 01, 1980
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 76

618 F.2d 76 (9th Cir. 1980)

In re Bankruptcy matter, Herman MORALEZ and Josephine Pearl

Moralez, Debtors.

Paul DeBruce WOLFF, as Chapter XIII Trustee, Appellant,


WELLS FARGO BANK, a National Association, Appellee.

No. 77-2642.

United States Court of Appeals, Ninth Circuit

May 1, 1980

Page 77

Lynn Anderson Koller, Kornfield & Koller, Oakland, Cal., for appellant.

David J. Brown, Brobeck, Phleger & Harrison, San Francisco, Cal., for appellee.

Appeal from the United States District Court for the Northern District of California.

Before TRASK, KENNEDY and TANG, Circuit Judges.

TANG, Circuit Judge:

This appeal presents the single issue whether Rule 13-307(d) of the Rules of Bankruptcy Procedure is invalid as exceeding the rule-making authority of the United States Supreme Court. We find that Rule 13-307(d) does not effect a change in substantive bankruptcy law and reverse the district court's judgment that the rule was invalid.

In August 1974, Herman and Josephine Moralez filed a petition for a Wage Earner Plan under Chapter XIII of the Bankruptcy Act, 11 U.S.C. §§ 1001-1086. The plan required monthly payments of $302.30 to the Chapter XIII trustee for disbursement to creditors. At the time they filed their petition, the debtors owed Wells Fargo Bank $5,266.94 under an automobile purchase contract. The contract was secured

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by the automobile, which the trustee, pursuant to Rule 13-307(d), valued at $3912.50. The trustee informed the bank that the contractual debt would be paid in full only up to the value of the car. The debt that exceeded the value of the collateral would be considered unsecured, and would be paid pro rata along with the claims of all other general creditors. Wells Fargo challenged the trustee's action on the ground that Rule 13-307(d), which authorized the trustee's treatment of the partially-secured debt, was invalid because it exceeded the rule-making authority of the Supreme Court. The district court affirmed the bankruptcy court's order, In re Moralez, 400 F.Supp. 1352 (N.D.Cal.1975), and the trustee appealed.

Rule 13-307(d) provides:

If a secured creditor files a claim, the value of the security interest held by him as collateral for his claim shall be determined by the court. The claim shall be allowed as a secured claim to the extent of the value so determined and as an unsecured claim to the extent it is enforceable for any excess of the claim over such value. For the purposes of this subdivision the court may appoint an appraiser in the manner specified by and subject to the limitations of Bankruptcy Rule 606.

Rule 13-307(d) was promulgated pursuant to 28 U.S.C. § 2075, by which Congress vested in the Supreme Court the authority to promulgate procedural rules for the implementation of the Bankruptcy Act. This Enabling Act specifically provided, however, that "(s)uch rules shall not abridge, enlarge, or modify any substantive right." 28 U.S.C. § 2075. Wells Fargo contends, and the bankruptcy and district courts agreed, that Rule 13-307(d) is invalid because it substantively altered the rights previously enjoyed by secured creditors. According to Wells Fargo, the law prior to the promulgation of Rule 13-307(d) provided that a partially-secured creditor in a Chapter XIII proceeding must be allowed either to retain his security or be paid in full under the specific terms of his contract. See Hallenbeck v. Pennsylvania Mutual Life Insurance Co., 323 F.2d 566 (4th Cir. 1963). Arguing that Rule 13-307(d) allows the trustee to retain the collateral and to repay the creditor at something less than the contract rate, Wells Fargo contends that Rule 13-307(d) has effected a change in existing substantive law. Alternatively, it contends that even if valid, Rule 13-307(d) violates its right to due process.



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