In re Bartleson
| Decision Date | 30 August 2000 |
| Docket Number | BAP No. EC-99-1638-MRB. Bankruptcy No. 95-24485-C-11. Adversary No. 97-2230. |
| Parties | In re Bruce BARTLESON, Debtor. Earl Dolven and Evelyn Dolven, Appellants, v. Bruce Bartleson, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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David J. Cook, Cook, Perkiss Professional Law Corp., San Franciso, CA, for Earl and Evelyn Dolven.
Paul Bartleson, Jackson, CA, for Bruce Bartleson.
Before: MONTALI, RUSSELL and BRANDT, Bankruptcy Judges.
Creditors holding a nondischargeable judgment against debtor appeal the decision of the bankruptcy court denying their request to pursue, outside the debtor's confirmed plan of reorganization, certain post-judgment remedies against debtor. We REVERSE.
On March 27, 1997, Appellants Earl and Evelyn Dolven ("Creditors") obtained a stipulated judgment of nondischargeability (the "Judgment") against Appellee Bruce Bartleson ("Debtor"). In the Judgment, the court declared that Creditors hold a nondischargeable debt in the amount of $200,000, and a dischargeable unsecured debt in the amount of $182,000 (collectively, the "Total Debt").
On October 5, 1998, Debtor filed his third amended plan of reorganization (the "Plan"). The Plan treated the Total Debt as a Class VII unsecured claim. Pursuant to paragraph 3.23 of the Plan, Debtor proposed to pay, over time and from certain assets, one hundred percent of all claims of unsecured creditors. The Plan did not provide a starting date for the semi-annual payments, and did not provide a date by which the payments would be completed. Paragraphs 5.1 through 5.6 of the Plan described the assets which would be utilized by Debtor to fund the Plan. The Plan does not contemplate the use of certain post-confirmation non-exempt assets, such as Debtor's income or earnings as a real estate broker (the "Non-Plan Assets").
The Plan did not contain any provision enjoining holders of nondischargeable debts from pursuing collection of such debts outside of the plan. The Plan did, however, initially provide at paragraph 7.1 that "Confirmation of this Plan shall release and discharge all claims of creditors against the Debtor, Bruce Bartleson, prior to the Effective Date, except as provided in the Plan." On November 18, 1998, Creditors objected to the Plan, noting that paragraph 7.1 of the Plan should be revised to reflect that it did not operate to discharge Creditors' nondischargeable debt. Creditors stated, "With this correction and clarification, Creditor DOLVEN will withdraw his objection and vote his $382,000 claim in favor of the Plan." Thereafter, on December 9, 1998, Debtor filed a second amendment to the Plan which provided:
At a hearing on December 9, 1998, the court indicated that it would confirm the Plan and directed Debtor to submit an order confirming the Plan. Debtor submitted the order in September 1999, and the order confirming the Plan was entered on the docket on September 15, 1999.
On June 14, 1999, Creditors initiated collection efforts with respect to the nondischargeable portion of the Total Debt. Creditors filed a motion for assignment of rights, restraining order, and turnover of certain checks, drafts, and money orders (the "Collection Motion").1 The Non-Plan Assets were the subject of the Collection Motion; Creditors did not seek recovery of assets which had been designated to fund the Plan. Debtor opposed the Collection Motion, arguing that his earnings were exempt under California law, but not arguing that confirmation of the Plan precluded Creditors' collection efforts or that the collection efforts would jeopardize performance under the Plan.
The record contains a minute entry dated September 15, 1999, indicating that the matter was submitted, but does not contain any transcript of any hearing on the Collection Motion. On September 15, 1999, the bankruptcy court entered a one-page order denying the Collection Motion. The court stated:
By this order, the bankruptcy court (without evidence that pursuit of the Non-Plan Assets would thwart Debtor's performance of the Plan), either (1) effectively enjoined Creditors from pursuing their remedies against the Non-Plan Assets, or (2) declared that confirmation of the Plan had the same effect. Creditors filed a timely notice of appeal of this final order2 on September 24, 1999.
Whether a confirmed plan of reorganization setting forth a payment plan governing a nondischargeable debt precludes the holder of that nondischargeable debt from exercising collection rights outside the plan, even though the plan does not include any provision specifically restricting or enjoining such collection activity.
The bankruptcy appellate panel reviews a bankruptcy court's conclusions of law de novo and its findings of fact under the clearly erroneous standard. Walsh v. Northwestern Nat'l Ins. Co. (In re Ferrante), 51 F.3d 1473, 1475 (9th Cir. 1995). This appeal involves the interpretation of terms of a chapter 11 plan of reorganization. C.F. Brookside, Ltd. v. Skyview Memorial Lawn Cemetery (In re Affordable Housing Development Corp.), 175 B.R. 324, 329 (9th Cir. BAP 1994), citing Hillis Motors, Inc. v. Hawaii Automobile Dealers' Ass'n, 997 F.2d 581, 588 (9th Cir.1993). Questions of contract enforcement and interpretation are subject to de novo review unless extrinsic evidence was introduced on issues such as intent. Ankeny v. Meyer (In re Ankeny), 184 B.R. 64, 68 (9th Cir. BAP 1995); Estreito v. Citirealty Corp. (In re Estreito), 111 B.R. 294, 295 (9th Cir. BAP 1990).
No question exists as to the nondischargeable nature — pursuant to 11 U.S.C. § 5233 — of the portion of the Total Debt which Creditors sought to recover in the Collection Motion. Instead, the parties dispute how and when Creditors may collect this nondischargeable debt. Creditors contend that they may pursue collection efforts with respect to the nondischargeable portion of the Total Debt outside the Plan, particularly against Non-Plan Assets. Debtor, however, argues that the Plan precludes collection activity by Creditors and that the Creditors' remedies are limited to the payment plan set forth in the Plan. The issue is whether, by including provisions in the Plan purporting to establish a payment plan governing the Total Debt, Debtor can control the timing and payment of the nondischargeable portion of this debt, even though Debtor failed to include any provision in the Plan specifically restricting or enjoining Creditors' collection rights and failed to dedicate the Non-Plan Assets to the funding of the Plan. This issue appears to be one of first impression for the Bankruptcy Appellate Panel.
Section 1141 governs the effect of confirmation on creditors and debtors.4 Subsection (d)(2) states that confirmation of a plan does not discharge an individual debtor from a debt excepted from discharge under section 523. Other provisions of section 1141 govern the effect of confirmation, but carve out specific exceptions for debts that fall within the ambit of subsection (d)(2). For example, "except as provided in subsection (d)(2)", a confirmed plan binds the debtor and any creditor (see section 1141(a)) and a debtor's property remains free and clear of all claims and interests of creditors (see section 1141(c)). Similarly, except as otherwise provided in subsection (d)(2), the confirmation of a plan discharges a debtor from all preconfirmation debts (see section 1141(d)).
At least one court has held that in stating that a plan is binding "except as otherwise provided" in subsection (d)(2), Congress merely intended that the holder of a nondischargeable claim receive full payment on that claim. In re Mercado, 124 B.R. 799, 801-02 (Bankr.C.D.Cal.1991). According to Mercado, a plan could otherwise affect the rights of a creditor holding a nondischargeable claim, as long as the plan did not attempt to impose a discharge absent full payment. If the only exception were contained within the confines of section 1141(d) — but not in subsections (a) and (c) — Mercado's reasoning would be persuasive. Section 1141(d) explicitly provides that a discharge is not available through a confirmed plan with respect to a nondischargeable debt. If Congress' goal was solely to shield nondischargeable debts from a chapter 11 discharge, the exception contained in section 1141(d) would have been sufficient.
Congress, however, also carved an 1141(d)(2) exception to the general precepts contained in sections (a) and (c) regarding the binding effect of a plan and regarding the right of a debtor to retain property free and clear of all claims of...
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