In re Davenport

• Decision Date: 31 December 2015
• Docket Number: Case No. 09–00772
• Citation: 544 B.R. 245
• Parties: In re Stuart Mills Davenport, Debtor.
• Court: United States Bankruptcy Courts – District of Columbia Circuit

544 B.R. 245

In re Stuart Mills Davenport, Debtor.

Case No. 09–00772

United States Bankruptcy Court, District of Columbia.

Signed December 31, 2015

Jeffrey M. Orenstein, Goren, Wolff & Orenstein, LLC, Rockville, MD, for Debtor.

MEMORANDUM DECISION RE DEBTOR'S REVISED MOTION TO DETERMINE FINAL CURE AND PAYMENT

S. Martin Teel, Jr., United States Bankruptcy Judge

This addresses the Debtor's Revised Motion to Determine Final Cure and Payment (Dkt. No. 318), which deals with the claim of Babak Djourabchi and Monica Welt based on an $80,000 promissory note.

I

The $80,000 promissory note, secured by a security interest in real property of the debtor, called for interest payments only. Had interest payments been kept current until September 2, 2009, the date on which the debtor filed his petition commencing this bankruptcy case, only the principal of $80,000 would have been owing on the petition date. The proof of claim asserted a claim for only $80,000 being owed as of the petition date pursuant to the $80,000 promissory note, and did not list any arrears as being owed.¹ The debtor's payments to the chapter 13 trustee under his confirmed plan have been completed, and only after those plan payments were completed did Djourabchi and Welt make a filing in this case asserting that prepetition arrears were owed under the $80,000 promissory note.

The debtor contends that no arrears are owed. However, with plan payments having been completed and distributed, there is no reason, for purposes of administering the chapter 13 plan, to determine the amount of any arrears.

The debtor contends that if arrears do exist, the court ought to bar Djourabchi and Welt from collecting those arrears based on their failure to include the arrears on their proof of claim, and award him attorney's fees. Specifically, the debtor seeks relief based on Fed. R. Bankr.P. 3001(c)(2)(B) and 3001(c)(2)(D), and the doctrine of judicial estoppel.

II

The debtor asserts that if Djourabchi and Welt had included any prepetition arrears owed regarding the $80,000 promissory note on their proof of claim, he would have filed a plan that called for the arrears to be paid by the chapter 13 trustee from the plan payments.² Instead, paragraph C of the debtor's confirmed plan (Dkt. No. 132) provided in relevant part:

DIRECT PAYMENTS: THE DEBTOR SHALL PAY DIRECTLY THE FOLLOWING CLAIMS, TO THE EXTENT THEY ARE 11 U.S.C. § 1322(b)(5) CLAIMS (THE FINAL PAYMENT UNDER THE PLAN BEING TREATED AS DUE IN 60 MONTHS) ...:

SunTrust Bank, Babak Djourabchi and Monica Welt, and LEDC [Emphasis added.] Pursuant to that provision, the claim of Djourabchi and Welt (including any prepetition arrears claim) was to be paid directly.³ The confirmed plan provided for full payment of the chapter 13 trustee's commission, unsecured claims entitled to priority under 11 U.S.C. § 507(a), and certain secured claims. The plan did not provide for full payment of unsecured claims not entitled to priority under 11 U.S.C. § 507(a). Instead, holders of those claims were to receive whatever was left over after payment of those claims that were required to be paid in full. Plan payments that could have been used to pay prepetition arrears owed under the $80,000 promissory note (had: (1) the plan provided for payment of the arrears, (2) the proof of claim listed the arrears, and (3) the total plan payments by the debtor to the trustee remained the same) went instead to the holders of those non-priority unsecured claims. It is not clear whether the debtor could have obtained confirmation of a plan calling for a cure of the arrears owed under the $80,000 promissory note and calling for the same amount of payments to the chapter 13 trustee.⁴ But if such a plan could have been confirmed, the plan that was confirmed was a lucky break for the holders of non-priority unsecured claims (as they received more than they would have had the trustee paid the prepetition arrears claims under the $80,000 promissory note pursuant to a plan calling for a curing of those arrears), but has hurt the debtor (who would have paid no more to the trustee and would have no prepetition arrears owed under the $80,000 promissory note, if the arrears had been included on a proof of claim and had the trustee paid off those arrears pursuant to a plan calling for a cure of those arrears).

III

The Motion seeks relief based on Fed. R. Bankr. P. 3001(c)(2)(B) and 3001(c)(2)(D), and the doctrine of judicial estoppel.⁵ The proof of claim violated Rule 3001(c)(2)(B), which provides:

(B) If a security interest is claimed in the debtor's property, a statement of the amount necessary to cure any default as of the date of the petition shall be filed with the proof of claim.

The proof of claim violated Rule 3001(c)(2)(B) because it failed to include "a statement of the amount necessary to cure any default as of the date of the petition." The issues presented by that violation are whether the debtor is entitled to any relief based on that violation under Rule 3001(c)(2)(D), and whether the doctrine of judicial estoppel bars assertion of the arrears claim.

IV

With respect to the consequences of a violation of Rule 3001(c)(2)(B), the Motion relies on Rule 3001(c)(2)(D), which provides:

(D) If the holder of a claim fails to provide any information required by this subdivision (c), the court may, after notice and hearing, take either or both of the following actions:

(i) preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or

(ii) award other appropriate relief, including reasonable expenses and attorney's fees caused by the failure.

[Emphasis added.] The debtor asserts that "Creditors are barred by the provisions of Bankruptcy Rule 3001(c)(2)(D)(i) from asserting a Pre–Petition arrerage [sic] at this time." Motion ¶ 50. For the reasons that follow, I conclude that Rule 3001(c)(2)(D)(i) is not authority to bar the assertion of any arrears owed under the $80,000 promissory note.

A.

The debtor's view of Rule 3001(c)(2)(D)(i) as permitting disallowance of a claim based on a violation of Rule 3001(c)(2)(B) is an erroneous view. As stated in In re Reynolds, 470 B.R. 138, 144–45 (Bankr.D.Colo.2012) :

Neither Rule 3001(c)(2)(D)(i) nor (ii) include disallowance of the claim as a permissible remedy.... [T]he revised Rule 3001 makes it clear that a creditor who fails to fully comply with the ... requirements of Rule 3001(c), primarily faces the evidentiary sanction of being precluded from introducing [the omitted information] at a subsequent hearing on a substantive objection to its proof of claim under § 502(b). Conversely, Rule 3001(c) does not provide authority for this Court to deny a creditor's claim based solely on its failure [to comply with] Rule 3001(c). Because claim disallowance falls outside of the remedies enumerated under Rule 3001(c)(2)(D), the rule precludes such a remedy. Since the Motions stated no substantive objection under § 502(b) to the creditor claims, they have failed to state any ground upon which the Court may grant the requested relief....

[Second emphasis added.] Accord In re Khatibi, 2014 WL 2617280, at *5 (M.D.Ga. June 12, 2014).

B.

Moreover, as explained in part C below, no proceeding can be brought in this court now to determine the amounts owed under the $80,000 promissory note because the chapter 13 plan has been fully administered. Thus, there can be no proceeding in which the evidentiary penalty of Rule 3001(c)(2)(D) could come into play. As stated by the Reynolds court on reconsideration, "[a]t a hearing where the merits of a claim are not at issue, the penalty set out in Rule 3001(c)(2)(D) is meaningless because it only comes in to play at a hearing on the merits of a claim where a court would otherwise entertain the type of evidence required by Rule 3001(c)(1)." In re Reynolds, No. 11–30984 HRT, 2012 WL 3133489, at *3 (Bankr.D.Colo. July 31, 2012). Stated differently, "when the merits of a claim are never called into question there is no occasion to exact the evidentiary penalty called for by application of Rule 3001(c)(2)(D)." Id. at *4.

To elaborate on why it is only in the context of a contested matter pertinent to the administration of the estate that Rule 3001(c)(2)(D) comes into play, it is worth noting these observations from In re Brunson, 486 B.R. 759, 771–72 (Bankr.N.D.Tex.2013) :

[T]he 2011 amendment added subdivisions (c)(2)(A)-(D). Those subdivisions did two things: first, subdivisions (c)(2)(A)-(C) set forth additional documentation requirements for a creditor filing a proof of claim in an individual debtor case. Second, subdivision (c)(2)(D) explicitly provided remedies for a creditor's failure to comply with the rule's documentation requirements, new or old.

The court concludes, on closer examination, that none of these "new" provisions are really new at all. Rather, a debtor always had available to it the ability to obtain the information required by subdivisions (c)(2)(A)-(C). And the court always had the ability to provide appropriate remedies for the creditor's failure to provide the information. Further explanation is required.

The filing of an objection to claim creates a "contested matter" under Bankruptcy Rule 9014. In re Taylor, 132 F.3d 256, 260 (5th Cir.1998). The provisions for formal litigation discovery apply in a contested matter, unless the court directs otherwise. See Bankruptcy Rule 9014(c). Therefore, a debtor seeking more information from a creditor respecting its proof of claim may take depositions orally or by written questions, serve interrogatories, requests for production, and requests for admission. A debtor clearly has, and has always had, the ability to get all of the information now required by subdivisions (c)(2)(A)-(C). If the creditor refuses to respond, the debtor has, and has always had, the ability to file a motion to

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