Fesq, In re

• Decision Date: 18 August 1998
• Docket Number: No. 97-5140,97-5140
• Citation: 153 F.3d 113
• Parties: 40 Collier Bankr.Cas.2d 768, Bankr. L. Rep. P 77,778 In re William FESQ, Debtor. BRANCHBURG PLAZA ASSOCIATES, L.P., Appellant, v. William FESQ.
• Court: U.S. Court of Appeals — Third Circuit

Page 113

153 F.3d 113

40 Collier Bankr.Cas.2d 768, Bankr. L. Rep. P 77,778

In re William FESQ, Debtor.

BRANCHBURG PLAZA ASSOCIATES, L.P., Appellant, v. William FESQ.

No. 97-5140.

United States Court of Appeals, Third Circuit.

Argued March 10, 1998.

Decided Aug. 18, 1998.

Eric H. Berger (Argued), Berger & Bornstein, P.A., Morristown, NJ, for Appellant.

John F. Bracaglia, Jr. (Argued), Somerville, NJ, for Appellee.

Before: STAPLETON and ALITO, Circuit Judges, and SHADUR, ^* District Judge.

OPINION OF THE COURT

SHADUR, Senior District Judge:

This is an appeal by Branchburg Plaza Associates, L.P. ("Branchburg"), a creditor of bankrupt debtor William Fesq ("Fesq"). Branchburg claims that both the bankruptcy court and then the district court erred in denying Branchburg's motion to vacate the bankruptcy court's earlier order confirming Fesq's Chapter 13 plan. We have jurisdiction over the appeal under 28 U.S.C. § 158(d), and we affirm the district court's decision.

Background

This long-running dispute between Branchburg and Fesq goes back to April 16, 1993, when Branchburg recovered a $69,166.59 judgment against Fesq in New Jersey Superior Court. On December 17, 1993 Branchburg obtained a writ of execution against Fesq's house to enforce that judgment.

Fesq then avoided a foreclosure sale of the house by filing a Chapter 7 petition on July 14, 1995. That respite proved short-lived, however, for Branchburg's lien on the real property survived the Chapter 7 proceeding. Branchburg again sought to foreclose on its lien shortly after the Chapter 7 proceeding closed.

Branchburg's persistence led Fesq to file a Chapter 13 proceeding on March 6, 1996 ¹ that addressed only Branchburg's lien on the house. Fesq's proposed plan provided for a single lump-sum payment of $7,050 in full satisfaction of Branchburg's secured claim. Branchburg's attorney Friedman Siegelbaum ("Siegelbaum")filed a notice of appearance in the Chapter 13 case, but he then failed to attend the Section 341(a) first meeting of creditors or to schedule a Rule 2004 examination of Fesq. ² More importantly, Siegelbaum did not file any objections to Fesq's proposed plan by the August 5 deadline date for such objections. There were consequently no objections to Fesq's proposal, and an order of confirmation was entered on August 15.

Fesq filed a motion to vacate Branchburg's lien immediately upon entry of the confirmation order. On August 30 Branchburg filed a cross-motion to vacate the confirmation order, asserting that its failure to make a timely objection was the result of a computer glitch at Siegelbaum's firm, which had led him to believe that the deadline for the filing of objections to the proposed plan would not arrive until October 5, rather than the actual August 5 date. ³ Branchburg argued that it would have objected to several substantive aspects of Fesq's plan but for the computer error.

On October 28 the bankruptcy court's oral ruling granted Fesq's motion and denied Branchburg's cross-motion. That ruling was affirmed on appeal by the district court in an unpublished memorandum opinion. Branchburg then brought a timely appeal to this Court.

Standard of Review

This appeal raises only a question of law, not one of fact. We therefore exercise plenary review over the decision of the district court (In re Fegeley, 118 F.3d 979, 982 (3d Cir.1997)).

Revocation of the Confirmation Order

Branchburg's appeal poses the fundamental question whether a final order confirming a debtor's Chapter 13 plan can be vacated without a showing of fraud, an issue that the parties have contested in terms of what grounds are available under law for revocation of such confirmation orders. While fraud is the only predicate that is specifically mentioned in the Code for the revocation of a confirmation order, Branchburg insists that courts may also revoke such orders that have been the consequence of mistake, inadvertence or excusable neglect. This appeal hinges on that point, because Branchburg admits that its failure to object to the confirmation order was the result of a combination of human and computer error, not fraud. So if Branchburg is wrong and if fraud is indeed the only basis upon which we may revoke a Chapter 13 confirmation order, we must affirm the district court irrespective of the potential merit of Branchburg's substantive allegations.

Our analysis must begin with the language of Section 1330(a), the Code provision that deals with the revocation of a Chapter 13 confirmation order:

On request of a party in interest at any time within 180 days after the date of the entry of an order of confirmation under section 1325 of this title, and after notice and a hearing, the court may revoke such order if such order was procured by fraud.

It is of course conventional wisdom that the statute should be read to give some effect to the final phrase "if such order was procured by fraud," for as a general rule of statutory construction "[w]e strive to avoid a result that would render statutory language superfluous, meaningless, or irrelevant" (Cushman v. Trans Union Corp., 115 F.3d 220, 225 (3d Cir.1997)). And here it is particularly unlikely that the final phrase is mere surplusage, because it would have been so easy not to include the phrase if it were really superfluous. Simply excising the phrase from the statute would have left a perfectly sensible sentence that would accomplish every purpose of the current statute--except, that is, for limiting the grounds for relief, the subject that we address hereafter.

Ordinary English usage tells us that Section 1330(a) is subject to only two interpretations if we are to avoid rendering meaningless the qualification "if such order was procured by fraud." First, the section can be read to say that a confirmation order can be revoked only upon a showing of fraud, and to set a 180-day time frame within which a motion for such relief may be tendered. Second, the section can be read as only prescribing a 180-day time limit on motions to revoke orders that were procured by fraud, without speaking at all to the subject of other potential grounds for revocation. For the reasons discussed in this opinion, we conclude that the first construction is the more reasonable interpretation of Congress' intent.

Nonetheless Branchburg insists that the second interpretation should be favored and that Section 1330(a) should be read to permit judicial revocation of confirmation orders for reasons other than fraud. Branchburg advances that contention by pointing to Rule 9024, which makes Rule 60(b) generally applicable to bankruptcy cases. In relevant part Rule 60(b), in contrast to Section 1330(a), allows for relief from final orders in the generic sense on a number of bases:

[T]he court may relieve a party ... from a final judgment, order or proceeding for the following reasons: (1) mistake, inadvertence surprise or excusable neglect; ... (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; ... or (6) any other reason justifying relief from the operation of the judgment.

Branchburg argues (1) that its counsel's computer mishap qualifies as "mistake, inadvertence ... or excusable neglect" under Rule 60(b) and (2) that because Rule 9024 makes Rule 60(b) generally applicable in bankruptcy, the revocation of Fesq's Chapter 13 confirmation order is called for. That position requires an examination of the relationship between Section 1330(a) and Rule 9024 to see whether Branchburg can properly take advantage of Rule 60(b)'s more expansive grounds for relief.

Branchburg wisely does not attempt to argue that Rule 9024 simply trumps Section 1330(a), for when Congress accorded the Supreme Court authority to promulgate the Bankruptcy Rules, it stated "[s]uch rules shall not abridge, enlarge, or modify any substantive right" (28 U.S.C. § 2075). Thus, "[a]s a general matter, the Code defines the creation, alteration or elimination of substantive rights but the Bankruptcy Rules define the process by which these privileges may be effected" (In re Hanover Indus. Mach. Co., 61 B.R. 551, 552 (Bankr.E.D.Pa.1986)). So Rule 9024 cannot validly provide Branchburg with a substantive remedy that would be foreclosed by Section 1330(a).

Branchburg tries to avoid that problem by interpreting Section 1330(a) so that it complements, rather than conflicts with, Rule 9024. Branchburg contends that Rule 9024 (via Rule 60(b)) sets out all of the potential grounds for revoking Chapter 13 confirmation orders and that Section 1330(a) simply shortens the deadline for challenging confirmation orders to 180 days for fraud alone (Rule 60(b) allows parties one year to file motions for relief based on mistake, inadvertence, excusable neglect or fraud). And Branchburg attempts to support that interpretation by pointing to the text of Rule 9024: ⁴

Rule 60 F.R. Civ. P. applies to cases under the code except that ... (3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by § 1144, § 1230, or § 1330.

Branchburg obviously prefers to ignore just how strongly counterintuitive--indeed, logically absurd--its position really is. It posits a scenario in which the drafters of Rule 9024 came onto a scene already occupied by a congressional 180-day limitation on the ability of the victims of fraud to be relieved of the consequences of that fraud, ⁵ and saying something along these lines:

We recognize that Congress has provided a remedy for the victims of fraud. But we also believe that others, though perhaps less deserving (people who wish to be relieved from an order of confirmation that was entered in consequence of their own negligence or mistake), are also entitled to solicitude. So even though Congress has chosen to say nothing about people in that latter category (as it could easily have done by simply omitting the language "if such order was procured by fraud"...