In re Berkley, 041720 FED09BC, NC-19-1197-FBTa
| Judge | Before: FARIS, BRAND, and TAYLOR, Bankruptcy Judges. |
| Court | 9th Circuit |
| Date | 17 April 2020 |
| Parties | In re: STEPHEN WILLIAM BERKLEY, Debtor. v. DAVID BURCHARD, Chapter 13 Trustee, Appellee. STEPHEN WILLIAM BERKLEY, Appellant, |
| Docket Number | Bk. 14-30941,BAP NC-19-1197-FBTa |
Argued and Submitted on March 26, 2020
Appeal from the United States Bankruptcy Court for the Northern District of California Honorable Dennis Montali, Bankruptcy Judge, Presiding
Thomas P. Kelly III argued on behalf of appellant;
Brisa C. Ramirez on the brief for appellee.
Before: FARIS, BRAND, and TAYLOR, Bankruptcy Judges.
OPINION
FARIS, Bankruptcy Judge
INTRODUCTION
As chapter 131 debtor Stephen William Berkley neared the successful completion of his chapter 13 plan, he received an unexpected windfall: stock options he had earned for postconfirmation services became worth about $3.8 million. His chapter 13 trustee, appellee David Burchard ("Trustee"), thought that Mr. Berkley should use about $202, 000 of his windfall to pay his creditors in full. The bankruptcy court agreed and modified the plan accordingly.
On appeal, Mr. Berkley argues that the court could not force him to commit any of the stock proceeds to the plan because the estate terminated at confirmation and the proceeds were not property of the estate.
The bankruptcy court was correct, so we AFFIRM. We publish to clarify that a revesting provision in a confirmed chapter 13 plan does not prevent modification of the plan to capture increases in the debtor's postconfirmation compensation.
FACTUAL BACKGROUND
A. Mr. Berkley's chapter 13 petition and plan
Mr. Berkley commenced his chapter 13 case in June 2014. His proposed second amended plan ("the Plan") provided that he would pay $1, 233.02 per month for sixty months. The nonpriority unsecured creditors would receive one percent of their allowed claims. The Plan provided that "[p]roperty of the estate will revest in Debtor upon confirmation."
The bankruptcy court confirmed the Plan in April 2015. Mr. Berkley faithfully made his monthly payments for over four years.
B. The Trustee's motion to modify the Plan
When Mr. Berkley filed his petition, he was a self-employed software developer earning $5, 000 per month. In 2016, after the court confirmed the Plan, Mr. Berkley was hired as CEO of Antares Audio Technologies ("Antares"). In 2018, he began receiving stock options from Antares as part of his compensation package. In late 2018 or early 2019, Antares received a buyout offer, under which Mr. Berkley would receive about $3.8 million for his stock.
In March 2019, the fifty-seventh month of the Plan, Mr. Berkley disclosed to the Trustee the pending sale and the potential receipt of $3.8 million. However, he asserted that the money was not property of the bankruptcy estate, so the Trustee could not force him to devote it to his creditors. The Trustee disagreed. He asserted that, under § 1329(a), "Mr. Berkley's post-petition acquired stock and increased income are changed circumstances" warranting modification of the Plan.
The Trustee filed a motion to modify the Plan ("Motion to Modify"). He argued that Mr. Berkley's receipt of $3.8 million from the stock sale necessitated an increase in payments to general unsecured creditors. He proposed that Mr. Berkley make a lump-sum payment of $202, 603.80 before the end of the plan term so that unsecured creditors would receive 100% payment on their allowed claims.
Mr. Berkley opposed the Motion to Modify and argued that, because all estate property revested in him upon confirmation, the Trustee could not require him to increase his Plan payments due to his receipt of the stock proceeds.
In a supplemental brief, Mr. Berkley added the argument that the Motion to Modify was untimely because it sought past income (that he began accumulating between 2017 and 2018, when the stock options were issued), not "future income" under § 1322(a).
The bankruptcy court agreed with the Trustee. The court observed that Mr. Berkley's argument would effectively nullify §§ 1306 and 1329: "You're trying to say we can ignore 1306 and . . . if a Plan gets confirmed with revesting, you can't file a modification - ever - and 1329 is meaningless, and that's just not the law." The court further noted that, if Mr. Berkley did not want to contribute the extra $202, 000 to the Plan, then he was free to dismiss his case.
The bankruptcy court issued an order granting the Motion to Modify. Mr. Berkley timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(A), (L). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court abused its discretion in granting the Motion to Modify.
STANDARDS OF REVIEW
"The confirmation of a modified plan is reviewed for an abuse of discretion." Profit v. Savage (In re Profit), 283 B.R. 567, 572 (9th Cir. BAP 2002) (citing Max Recovery, Inc. v. Than (In re Than), 215 B.R. 430, 433 (9th Cir. BAP 1997)). To determine whether the bankruptcy court has abused its discretion, we conduct a two-step inquiry: (1) we review de novo whether the bankruptcy court "identified the correct legal rule to apply to the relief requested" and (2) if it did, we consider whether the bankruptcy court's application of the legal standard was illogical, implausible, or without support in inferences that may be drawn from the facts in the record. United States v. Hinkson, 585 F.3d 1247, 1261-62 & n.21 (9th Cir. 2009) (en banc). We review de novo the bankruptcy court's interpretation of the applicable Code provisions. Dernham-Burk v. Mrdutt (In re Mrdutt), 600 B.R. 72, 76 (9th Cir. BAP 2019) (citing Mattson v. Howe (In re Mattson), 468 B.R. 361, 367 (9th Cir. BAP 2012)). "De novo review requires that we consider a matter anew, as if no decision had been made previously." Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014) (citations omitted).
DISCUSSION
A.
The bankruptcy court did not abuse its discretion in modifying the Plan to increase Mr. Berkley's plan payments.
The bankruptcy court granted the Motion to Modify to take into account Mr. Berkley's unexpected receipt of $3.8 million from the sale of stock that he obtained as part of his postconfirmation compensation package. It correctly held that § 1329 allows the Trustee to modify a confirmed plan to increase payments to unsecured creditors in these circumstances.
Section 1329(a) provides that, "[a]t any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified" to "increase or reduce the amount of payments on claims of a particular class provided for by the plan[.]" § 1329(a).
Section 1329 specifies the ways in which confirmed chapter 13 plans may be modified, but it does not state the circumstances in which a modification is proper. We have repeatedly held that "the bankruptcy court may consider a change in circumstances in the exercise of its discretion." In re Mattson, 468 B.R. at 369 (citing Powers v. Savage (In re Powers), 202 B.R. 618, 623 (9th Cir. BAP 1996)). An unexpected increase in income is one such change that could warrant a plan modification to increase payments. See Fridley v. Forsythe (In re Fridley), 380 B.R. 538, 543 (9th Cir. BAP 2007) ("Subsequent increases in actual income can be captured for creditors by way of a § 1329 plan modification, which motion the debtors are entitled to oppose." (citing Anderson v. Satterlee (In re Anderson), 21 F.3d 355, 358 (9th Cir. 1994))); In re Powers, 202 B.R. at 623 (affirming the bankruptcy court's modification of plan to take into account the debtor's nearly fifty percent salary increase).
The Ninth Circuit has held that creditors can seek increased payments from debtors whose income increases during the term of the plan. In Danielson v. Flores (In re Flores), 735 F.3d 855 (9th Cir. 2013) (en banc), the Ninth Circuit considered whether above-median income debtors with no projected disposable income could confirm a plan for...
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