Evabank v. Baxter, Civ.A. No. 02-AR-0083-NE.

Decision Date30 May 2002
Docket NumberCiv.A. No. 02-AR-0083-NE.
PartiesEVABANK, Appellant, v. Sunny M. BAXTER, Appellee.
CourtU.S. District Court — Northern District of Alabama

John R. Lavette, Morris & Lavette PC, Birmingham, AL, for appellant.

John C. Larsen, Bond, Botes, Sykstus & Larsen, Huntsville, AL, for appellee.

MEMORANDUM OPINION AND ORDER ON APPEAL BY EVABANK FROM THE BANKRUPTCY COURT

ACKER, District Judge.

I. INTRODUCTION

EvaBank here appeals the decision of the Bankruptcy Court regarding valuation of its secured claim for purposes of payment under Sunny M. Baxter's ["Debtor"] confirmed chapter 13 plan. Despite arising from a bankruptcy case, the appeal essentially turns on fundamental principles of evidence, the burden of proof and the burden of going forward, joined by the question of the preclusive effect of an order, that of a chapter 13 plan confirmation order on a debtor who fails to object to a timely, pre-confirmation filed proof of claim. Although the context from which the issues raised on appeal is the realm of bankruptcy law, the applicable evidentiary and preclusion principles are no different in application here than in another area of law. Understanding this from the start may help the reader when this Court concludes that the Bankruptcy Court committed error.

I. FACTS

The pertinent procedural and actual facts of this case are straight forward and undisputed. On December 30, 1998, Debtor borrowed $9,725.00 from EvaBank to finance the purchase of a 1996 Dodge Stratus automobile [the "Dodge"]. See Note, Security Agreement and Disclosure Statement ["Note"], dated December 30, 1998. (Record at Tab 6). The Note called for fifty-four monthly payments of $239.60 and included interest at 12.9% percent. Id. EvaBank obtained a lien on the Dodge and perfected its security interest as the first lien holder on December 30, 1998. See Dodge Certificate of Title. (R. at Tab 6).

Thereafter, on May 24, 2001, Debtor filed for protection under chapter 13 of the Bankruptcy Code, 11 U.S.C. §§ 1301 et seq. See Debtor's Voluntary Petition [the "Petition"] filed May 24, 2001. (R. at Tab 2). According to Schedule D of the Petition, at the time of filing EvaBank's claim stood at $7,188.00. In addition, Debtor valued the Dodge in the Petition and chapter 13 plan at $5,170.00, leaving the $2,018.00 balance of her EvaBank indebtedness as purportedly unsecured. See Petition at Schedule D. Debtor's chapter 13 plan also called for interest to be paid on all secured claims at the rate of 9% per annum. See Chapter 13 Plan Summary, dated May 22, 2001. (R. at Tab 5).

Despite the fact that the Bankruptcy Court confirmed the case before the non-governmental claims bar date ["Early Confirmation"], EvaBank had its proof of claim filed before the Early Confirmation. In contrast to the Petition and chapter 13 plan, EvaBank's proof of claim listed the total amount outstanding on the Note, as of the filing date, as $6,326.34. Further, EvaBank set forth its valuation of the Dodge at $6,326.34, equal to the amount owed. See Proof of Claim, filed July 5, 2001. (R. at Tab 6). The interest rate indicated on EvaBank's proof of claim was the contract rate of 12.9%. Id.

On July 11, 2001, the plan was confirmed. It included EvaBank's claim as filed. Paragraph five of the Confirmation Order provides that "the following shall be paid when a proof of claim is properly filed: See attached Exhibit `A'". Exhibit A of the Confirmation Order delineates that EvaBank retains its lien on the Dodge under 11 U.S.C. § 1325(a)(5)(B)(i) and that its claim is classified as secured in the amount of $6,326.34, with the collateral valued at $6,326.34, and interest to be paid on the claim at 12.9%. See Ex. A, attached to Confirmation Order entered July 11, 2001. (R. at Tab 7). No objection to EvaBank's claim was asserted by Debtor prior to confirmation. Likewise, there has been no contention that EvaBank's claim was not properly filed, or that it was not executed by EvaBank or did not contain the required information and supporting documentation.

Despite the fact that the Confirmation Order in paragraph five expressly provides that EvaBank's claim is to be paid as fully secured with interest at 12.9%, there is another portion of the order which appears to be inconsistent with the payments delineated in paragraph five. It is the paragraph captioned "Claims May be Modified", and it contains this language:

The Trustee will file a Motion to Allow Claims after the Bar Date, and a copy of the Motion will be mailed to all creditors. All claims will be handled in accordance with the claims classifications, amounts allowed and interest rates, if any, set forth in the Trustee's Motion to Allow Claims unless the Debtor or affected creditors file a timely objection thereto.

The Motion to Allow Claims, as finally adjudicated, and not the proofs of claims, shall govern the handling of claims to be paid through the plan. Creditors be advised that your claim may be paid outside the plan, or paid by a third party, or your collateral may be surrendered, as set forth in the Special Provisions of this Order.1

Based on what occurred in this case, this provision is not designed to apply to payment of claims and interest rates as set forth by the Bankruptcy Court in its confirmation order. Rather, it is intended in an Early Confirmation case such as this one to have application to claims filed after the Early Confirmation and before the claims bar date. Thus, it is not inconsistent with paragraph five by which the Bankruptcy Court set EvaBank's allowed secured claim and interest rate as part of the confirmation.

Subsequently, on August 3, 2001, twenty-three days after entry of the Confirmation Order, Debtor filed a Motion to Determine Value with respect to the Dodge. (R. at Tab 8). According to the Valuation of Collateral Procedures issued by the Bankruptcy Judge for the Northern Division of the Northern District, all who seek valuation of collateral are required to follow an identical procedure: "where the subject collateral is an automobile, the value must be based on the average of the retail and wholesale of the current N.A.D.A. Guide for the geographic area in question." U.S. Bankruptcy Court for the N.D. Ala., Northern Division, Valuation of Collateral Procedure, effective Feb 1, 1997, attached to Appellant's Brief, EvaBank v. Baxter, No. 01-82345, filed Jan. 25, 2002 at p. 27 (emphasis added). In compliance with the Bankruptcy Court's mandated method of valuation, Debtor submitted the motion accompanied by the required affidavit ["Valuation Affidavit"] in the exact form promulgated by and using the method of valuation directed by the Bankruptcy Court with the exception that trade-in value was used by Debtor and allowed by the Bankruptcy Court to be used instead of the wholesale value. The value of the Dodge was, but for a five dollar mathematical error, the midpoint between the N.A.D.A. retail value [$5,950.00] and trade-in value [$4,400.00], or $5,170.00. See Valuation Affidavit and N.A.D.A. Automated Vehicle Valuation, attached as Ex. A to Debtor's Motion to Determine Value. (R. at Tab 8).

More specifically, the Motion to Determine Value did not say that the value was the average of N.A.D.A. retail and trade-in. It simply set forth: "Debtor avers that the value of the creditor's interest in the estate's interest in such property is $5,170.00 as evidenced by the attached affidavit." See Motion To Determine Value. The Valuation Affidavit only sets forth in pertinent part: "My name is Sunny M. Baxter and I am the owner or possessor of one: 1996 Dodge Stratus. EvaBank purportedly has a secured claim in such property, which has a value of: $5,170.00 [sic]". See Valuation Affidavit2 Attached to the Motion and Valuation Affidavit is a N.A.D.A. official Used Car Guide Automated Vehicle Valuation sheet which sets forth the retail, trade-in, and loan values of the Dodge and that a $425.00 reduction in each was made for excess mileage. Nothing else is represented regarding the Dodge, including the condition of the essential mechanical parts, body condition, any extras that it may have and that increase its value, or what items it may lack and that arguably reduce value. Indeed, a stranger to the affidavit procedure innovated by the Bankruptcy Court could not determine how Debtor's valuation was reached. Also contained in Debtor's valuation motion is Debtor's request to reduce the interest rate on EvaBank's claim to 9% from 12.9%. See Motion to Determine Value. In this respect, all the Valuation Affidavit sets forth is: "This value is to be paid at 9% interest." See Valuation Affidavit.

EvaBank objected to Debtor's motion arguing that (1) the valuation procedures used by the Bankruptcy Court were improper; (2) Debtor could not replace the vehicle for less than its N.A.D.A. retail value; (3) a Motion to Determine Value was not the proper filing by which to change the already confirmed interest rate on an allowed secured claim; and (4) absent evidence by Debtor, the contract rate of interest must be paid on EvaBank's claim. See Response to Motion to Determine Value, filed August 10, 2001. (R. at Tab 9).

What is clear to this Court is that had EvaBank not objected, no hearing on the Motion to Determine Value would have been held by the Bankruptcy Court. This is evidenced by the Bankruptcy Court's sanctioned form motion to determine value with supporting affidavit. It sets forth: "No hearing will be conducted on this motion unless a written response is filed with the clerk of the U.S. Bankruptcy Court...If no response is timely served and filed, the motion to value security shall be deemed unopposed and the Court may enter an order granting the relief sought." See Valuation of Collateral Procedure. It also sets forth the date, time and place for a hearing should an objection be timely filed and served. More telling regarding the fact that...

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