Bronitsky v. Bea (In re Bea), BAP Nos. NC–14–1376–DKiTa.

• Decision Date: 29 May 2015
• Docket Number: BAP Nos. NC–14–1376–DKiTa.,Bankruptcy No. 14–41272–MEH13.
• Citation: 533 B.R. 283
• Parties: In re Lionel BEA, Debtor. Martha G. Bronitsky, Chapter 13 Trustee, Appellant, v. Lionel Bea, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

533 B.R. 283

In re Lionel BEA, Debtor.Martha G. Bronitsky, Chapter 13 Trustee, Appellant

v.Lionel Bea, Appellee.

BAP Nos. NC–14–1376–DKiTa.

Bankruptcy No. 14–41272–MEH13.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on May 14, 2015.

Filed May 29, 2015.

Leo G. Spanos, argued for appellant, Martha G. Bronitsky, Chapter 13 Trustee; Andrew Christensen of The Cline Law Group LLP, Oakland, CA, argued for appellee Lionel Bea.

Before: DUNN, KIRSCHER and TAYLOR, Bankruptcy Judges.

OPINION

DUNN, Bankruptcy Judge.

Martha G. Bronitsky, the chapter 13¹ trustee (“Trustee”), appeals the bankruptcy court's orders overruling her objection to confirmation of the Debtor's First Amended Chapter 13 Plan (“Plan”) and confirming the Plan. We AFFIRM as to both orders.

I. FACTS

The facts underlying this appeal are not in dispute. The Debtor, Lionel Bea, filed his chapter 13 petition on March 25, 2014. He filed the Plan on May 13, 2014. The Plan proposed payments of $584 for 60 months. The Plan pays $3,000 in attorneys fees, a total of $7,020 to claimants holding claims secured by the Debtor's personal property, $4,380 in domestic support arrears, and $15,190 in priority tax claims. Unsecured creditors are projected to receive 0% on their claims under the Plan.

Under Section 2.05 of the Plan, the three nonpurchase money secured creditors (collectively, “Secured Creditors”) are treated as follows: The City of Oakland is to receive a total of $995, payable $83 per month at 0% interest. The California Franchise Tax Board (“FTB”) is to receive a total of $325, payable $28 per month at 0% interest. The Internal Revenue Service (“IRS”) is to receive payments of $382 per month to pay its allowed secured claim of $5,700 at 3% interest. The Secured Creditors will retain their liens until their allowed secured claims are paid in full. The Debtor anticipates that the fixed equal monthly payments provided for in Section 2.05 of the Plan will pay the IRS in full in about 15 months and the City of Oakland and the FTB in full in about 12 months each. However, under Section 5.01 of the Plan, the fixed monthly payments to the Secured Creditors do not begin until month seven of the Plan, in order to allow the Debtor's $3,000 in outstanding attorneys fees to be paid first. None of the three Secured Creditors objected to the Plan.

The Trustee objected to the Plan on the ground that it was contrary to requirements of the Bankruptcy Code in that the deferred payments to the Secured Creditors under the Plan did not provide them with adequate protection during the first six months of the Plan as required by § 1325(a)(5)(B)(iii)(II). The Debtor responded that § 1325(a)(5) was satisfied in that the Secured Creditors in effect accepted the Plan by not filing objections.

The bankruptcy court heard argument on the Trustee's Plan objection on June 24, 2014, and ruled orally. The bankruptcy court held that Ninth Circuit authority supported its conclusion that a secured creditor's failure to object to its treatment in a chapter 13 plan generally “translates into acceptance of the plan by the secured creditor.” It further concluded that the Supreme Court's decision in United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010), did not require a different result in this case. Accordingly, the bankruptcy court overruled the Trustee's objection to the Plan.

On June 27, 2014, the bankruptcy court entered its order overruling the Trustee's objection and setting forth its findings and conclusions. It entered its order confirming the Plan on July 1, 2014. The Trustee timely appealed both orders. At oral argument, Debtor's counsel confirmed that Debtor's outstanding attorneys fees provided for in the Plan were paid in full, and payments to the three Secured Creditors have commenced.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(L). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUES

While the parties have stated the issues before us in a number of ways, we characterize the issues before us in this appeal as follows:

1) Does a chapter 13 plan necessarily violate the Bankruptcy Code if it provides that equal payments to secured creditors start later than the first plan payment?

2) If a secured creditor does not object to a delay in the start of equal payments to it under a chapter 13 plan, does such failure to object constitute acceptance of its treatment under the plan for purposes of § 1325(a)(5)(A) ?

IV. STANDARDS FOR REVIEW

We review the bankruptcy court's legal conclusions, including its interpretation of provisions of the Bankruptcy Code, de novo and its findings of fact for clear error. Arnold v. Gill (In re Arnold), 252 B.R. 778, 784 (9th Cir. BAP 2000).

V. DISCUSSION

The Trustee argues that it was error for the bankruptcy court to confirm the Plan where the Plan did not provide adequate protection to the Secured Creditors through equal payments commencing with the first Plan payment due, as required under § 1325(a)(5)(B)(iii)(II), in light of the Supreme Court's decision in United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010). The Debtor argued, and the bankruptcy court agreed, that the allowed claims of secured creditors can be satisfied in three alternative ways in a chapter 13 plan: a) by secured creditor acceptance of its treatment under the plan (§ 1325(a)(5)(A) ); b) by surrender of the secured creditor's collateral (§ 1325(a)(5)(C) ); or c) by the secured creditor retaining its lien on its collateral until its allowed secured claim is paid in full during the term of the plan (§ 1325(a)(5)(B) ). Since none of the Secured Creditors objected to their treatment in the Plan, the bankruptcy court concluded, under Ninth Circuit and other authority, that the Secured Creditors had accepted the Plan, and the alternative provided by § 1325(a)(5)(A) was satisfied. We agree for the following reasons.

In Espinosa, the Supreme Court was confronted with the following situation: The debtor, Francisco Espinosa, had student loan debt. Mr. Espinosa filed for protection under chapter 13 and in his chapter 13 plan, proposed to pay the principal of his student loan debt over the life of the plan but further provided that once the principal had been paid, any accrued interest would be discharged. Notice and a copy of Mr. Espinosa's plan were provided to the student loan creditor, United Student Aid Funds, Inc. (“United”). In bold typeface immediately beneath the caption of the plan was stated: “WARNING IF YOU ARE A CREDITOR YOUR RIGHTS MAY BE IMPAIRED BY THIS PLAN.” The plan further noted the deadlines for filing proofs of claim and objections to confirmation of the plan. Id. at 265, 130 S.Ct. 1367.

United received the notice and filed a proof of claim in an amount representing both unpaid principal and accrued interest on Mr. Espinosa's student loan debt. However, United did not object either to confirmation of Mr. Espinosa's chapter 13 plan or to his failure to initiate an adversary proceeding to seek a determination that his student loan debt was dischargeable, imposing an undue hardship on him, as required under § 523(a)(8).

The bankruptcy court confirmed Mr. Espinosa's plan. One month later, the chapter 13 trustee sent United a form notice stating that “[t]he amount of the claim differs from the amount listed for payment in the plan,” and “[y]our claim will be paid as listed in the plan.” Id. United did not appeal the confirmation order and did not respond to the trustee's notice. Thereafter, Mr. Espinosa made all payments required under his plan and received a discharge.

Three years later, the United States Department of Education commenced efforts to collect the unpaid interest on Mr. Espinosa's student loan debt. Mr. Espinosa filed a motion in the bankruptcy court to enforce the discharge order “by directing the Department and United to cease all efforts to collect the unpaid interest on his student loan debt.” Id. at 266, 130 S.Ct. 1367. United opposed and filed a cross-motion to vacate the confirmation order under Civil Rule 60(b)(4), applicable in bankruptcy under Rule 9024, as void. It argued that Mr. Espinosa's chapter 13 plan was inconsistent with the Bankruptcy Code requirement to make undue hardship findings before discharging student loan debt, citing §§ 523(a)(8) and 1328(a)(2). It further argued that confirmation of the plan violated requirements of the Rules, in that undue hardship findings must be made in the context of an adversary proceeding (Rule 7001(6)), and that United was not properly served with a summons and complaint (see Rules 7003 and 7004). Id. at 266, 130 S.Ct. 1367.

The bankruptcy court ruled in favor of Mr. Espinosa and against United. On appeal, the district court reversed, holding that United was denied due process because the confirmation order was entered without service of a summons and complaint as the Rules required. On further appeal, the Ninth Circuit reversed. It concluded that United had adequate notice of the plan. Even if United had a meritorious objection and basis for appeal, it was bound by the plan when it neither objected nor appealed. Id. at 266–67, 130 S.Ct. 1367.

The Supreme Court granted certiorari and affirmed the Ninth Circuit in a unanimous decision, noting that Civil Rule 60(b)(4) “does not provide a license for litigants to sleep on their rights.” Id. at 275, 130 S.Ct. 1367. United had notice of Mr. Espinosa's plan and its contents but did not object or file a timely appeal of the confirmation order, in spite of submitting to the jurisdiction of the bankruptcy court by filing a proof of claim. In these circumstances, United “forfeited its arguments regarding the validity of service or the adequacy of the Bankruptcy Court's procedures by failing to raise a timely objection in that court,” and its Civil Rule 60(b)(4) motion did not work. Id.

Of particular significance in this...