Acceptance Loan Co. v. S. White Transp., Inc. (In re S. White Transp., Inc.), Civil Action No. 1:11–cv–368–HSO–RHW.

• Decision Date: 14 June 2012
• Docket Number: Civil Action No. 1:11–cv–368–HSO–RHW.
• Citation: 473 B.R. 695
• Parties: In re S. WHITE TRANSPORTATION, INC., Debtor. Acceptance Loan Company, Inc., Appellant v. S. White Transportation, Inc., Appellee.
• Court: U.S. District Court — Southern District of Mississippi

473 B.R. 695

In re S. WHITE TRANSPORTATION, INC., Debtor.Acceptance Loan Company, Inc., Appellant

v.S. White Transportation, Inc., Appellee.

Civil Action No. 1:11–cv–368–HSO–RHW.

United States District Court,

S.D. Mississippi,

Southern Division.

June 14, 2012.

Richard A. Montague, Jr., Wells, Moore, Simmons, Edwards & Wilbanks, PLLC, Jackson, MS, for Appellant.

Blewett W. Thomas, William H. Pettey, Jr., Gulfport, MS, for Appellee.

MEMORANDUM OPINION AND ORDER REVERSING THE JUNE 7, 2011, MEMORANDUM OPINION AND ORDER OF THE UNITED STATES BANKRUPTCY COURT, AND REMANDING FOR FURTHER PROCEEDINGS

HALIL SULEYMAN OZERDEN, District Judge.

THIS MATTER COMES BEFORE THE COURT as an appeal taken by Acceptance Loan Company, Inc., a creditor below, of the June 7, 2011, Memorandum Opinion and Order, R. [1–1] at 325, of the United States Bankruptcy Court for the Southern District of Mississippi. See In re S. White Transp., Inc., 455 B.R. 509 (Bankr.S.D.Miss.2011). The appeal has been fully briefed in accordance with Fed. R. Bankr.P. 8009(a). After consideration of the submissions of the parties, the record in this case, and the relevant legal authorities, and for the reasons discussed below, the Court finds that any lien Acceptance may have had on the Debtor S. White Transportation, Inc.'s, real property survived the Debtor's Chapter 11 Plan confirmation. The June 7, 2011, Memorandum Opinion and Order, R. [1–1] at 325, of the United States Bankruptcy Court should be reversed, and this matter should be remanded to the Bankruptcy Court for further proceedings.

I. BACKGROUND

A. The Underlying Indebtedness

On July 30, 2002, a Rebecca Sanders, purportedly acting on behalf of Debtor S. White Transportation, Inc. [“SWT”], executed a Promissory Note in the amount of $96,678.56 in favor of Acceptance Loan Company, Inc. [“Acceptance”], along with a First Deed of Trust to secure the indebtedness. R. [1–1], at 123–134. Acceptance claims that it was granted a lien on SWT's real property, which consisted of an office building located in Saucier, Mississippi. On April 23, 2004, Ruby and Jesse Pope, purportedly acting in their respective corporate capacities as President and Secretary/Treasurer of SWT, refinanced the loan with Acceptance in the total amount of $98,152.35, and executed a Second Deed of Trust secured by the same property. Id. at 135–154, 304–305. Shortly thereafter, the parties became embroiled in state court litigation over the validity of the lien. Specifically, on November 12, 2004, SWT filed suit against Acceptance in the Chancery Court of Harrison County, Mississippi, First Judicial District, seeking to quiet title or cancel the lien on its property. Id. at 23, 46–47, 117; Tr. [6], at p. 4. Acceptance countersued for judicial foreclosure. Tr. [6], at p. 4.

Three other entities apparently have claims against SWT, all of which are secured by the same office building. Whitney National Bank has a claim valued at approximately $100,000.00; Sumrall Recycling, Inc., has one valued at approximately $11,500.00; and the Thomas Law Firm has another, valued at approximately $35,000.00. Att. [9–2], at pp. 1–2. Each of these appear to be secured claims, all based upon documents which were executed in 2007. In other words, these claims arose after, and therefore would presumably be inferior to, the April 2004 Second Deed of Trust in favor of Acceptance. Id.

B. SWT's Bankruptcy

SWT filed a Voluntary Petition for Chapter 11 bankruptcy on or about May 17, 2010. R. [1–1], at 17–20. In its Schedule D of Creditors Holding Secured Claims, SWT identified Acceptance's claim, but designated it as “disputed.” Att. [9–2], at p. 1. SWT eventually submitted a Plan of Reorganization [the “Plan”], dated September 14, 2010. In the Disputed Claim section, the Plan provided that

[t]he Debtor disputes the claim by Acceptance Loan Company, Inc. There has been no proof of claim filed by Acceptance Loan Company and the time to file such proof of claim has expired.

R. [1–1], at 62. The Bankruptcy Court confirmed SWT's Chapter 11 Plan on or about December 21, 2010. Id. at 111. It is uncontested that Acceptance received notice of SWT's bankruptcy, and that it did not file a proof of claim.

On or about January 4, 2011, Acceptance filed a Complaint for Declaratory Judgment, id. at 113, asking the Bankruptcy Court to determine that its lien was not affected by the Plan confirmation, and that it retained a first priority lien on the property in question, id. at 120. Alternatively, Acceptance sought to have the Bankruptcy Court amend its Confirmation Order “to provide for resolution of the lien claim of Acceptance and further that the Court modify the automatic stay to allow the Chancery Court to determine the lien issues.” Id.

Acceptance simultaneously filed a Motion to Amend Confirmation Order and for Relief from the Automatic Stay. Id. at 197. Acceptance's Motion requested that

in the event that the Court determines that Acceptance is not entitled to a judgment that its lien claim is not affected by the plan confirmation order, Acceptance prays for amendment of the confirmation order to provide for resolution of the lien claim of Acceptance and further that the Court modify the automatic stay to allow the Chancery Court to determine the lien issues.

Id. at 198. In short, Acceptance sought to amend the Plan to provide that its lien passed through the bankruptcy unaffected. Id. at 309.

The Bankruptcy Court denied Acceptance's Motion in its Order dated June 7, 2011. Id. at 325. It determined that Acceptance's lien was voided by virtue of the Chapter 11 Plan confirmation process. Id. at 344. Acceptance now appeals.

II. JURISDICTION AND STANDARD OF REVIEW

This Court has jurisdiction to hear bankruptcy appeals as provided by 28 U.S.C. § 158. “When reviewing a bankruptcy court's decision in a ‘core proceeding,’ a district court functions as an appellate court and applies the standard of review generally applied in federal court [sic] appeals.” Webb v. Reserve Life Ins. Co., 954 F.2d 1102, 1103–04 (5th Cir.1992). A “core proceeding is one that ‘invokes a substantive right provided by Title 11 [the Bankruptcy Code] or [ ] is a proceeding that by its nature could arise only in the context of a bankruptcy case.’ ” Id. at n. 1 (quoting In the Matter of Wood, 825 F.2d 90, 97 (5th Cir.1987)). The Court concludes that this appeal implicates matters which constitute core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A), (G), (K), and (L). The Court must therefore review the Bankruptcy Court's findings of fact for clear error, and its conclusions of law de novo. Century Indem. Co. v. Nat'l Gypsum Co. Settlement Trust (In re Nat'l Gypsum Co.), 208 F.3d 498, 504 (5th Cir.2000). Mixed questions of fact and law are reviewed de novo. Id.

III. DISCUSSION

A. Standing

Among other things, the Bankruptcy Court's Order determined that Acceptance did not have standing to seek modification of the Plan. In re S. White Transp., Inc., 455 B.R. at 521–22. Acceptance requested modification of the Confirmation Order pursuant to Federal Rules of Bankruptcy Procedure 9023 or 9024, which incorporate Federal Rules of Civil Procedure 59 and 60, respectively. The Bankruptcy Court concluded that Acceptance was essentially seeking to modify the confirmed Chapter 11 Plan, such that its request was governed by 11 U.S.C. § 1127(b). Id. at 520. According to this statute,

[t]he proponent of a plan or the reorganized debtor may modify such plan at any time after confirmation of such plan and before substantial consummation of such plan, but may not modify such plan so that such plan as modified fails to meet the requirements of sections 1122 and 1123 of this title. Such plan as modified under this subsection becomes the plan only if circumstances warrant such modification and the court, after notice and a hearing, confirms such plan as modified, under section 1129 of this title.

11 U.S.C. § 1127(b). Based on the foregoing language, the Bankruptcy Court found that Acceptance lacked standing. In re S. White Transp., Inc., 455 B.R. at 521–22.

This case presents to this Court in a different procedural posture, however. In order to determine whether a party has standing to appeal a bankruptcy order, the Fifth Circuit employs the “person aggrieved” test. In re Coho Energy, Inc., 395 F.3d 198, 202 (5th Cir.2004). This test is a “more exacting standard than traditional constitutional standing.” Id. An appellant must show that “he was ‘directly and adversely affected pecuniarily by the order of the bankruptcy court’ in order to have standing to appeal.” Id. at 203 (quoting In re Fondiller, 707 F.2d 441, 443 (9th Cir.1983)).

Acceptance is directly and adversely affected pecuniarily by the Confirmation Order. Its property interest, the asserted lien on SWT's building, was purportedly extinguished by the Bankruptcy Court's June 7, 2011, Memorandum Opinion and Order, R. [1–1] at 325. Acceptance therefore has standing to pursue this appeal.

B. Acceptance's Lien

At issue in this appeal is whether Acceptance's lien was voided by virtue of the Chapter 11 Plan confirmation process, pursuant to 11 U.S.C. § 1141(c). The Bankruptcy Court concluded that it was. In re S. White Transp., Inc., 455 B.R. at 520 (citing 11 U.S.C. § 1141(c)). As the Fifth Circuit has observed, the general rule has been that liens pass through bankruptcy unaffected. Elixir Indus., Inc. v. City Bank & Trust Co. (In re Ahern Enters., Inc.), 507 F.3d 817, 821 (5th Cir.2007). The United States Supreme Court has explained that, generally, “bankruptcy discharge extinguishes only one mode of enforcing a claim—namely, an action against the debtor in personam—while leaving intact another—namely, an action against the debtor in rem.” Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991). As such, the general rule has been that only a debtor's personal liability is discharged under the auspices of the Bankruptcy Code. Id.

The ...