In re Hazlewood, Case No. 13–41109–MXM

• Decision Date: 12 May 2017
• Docket Number: Case No. 13–41109–MXM
• Citation: 570 B.R. 557
• Parties: IN RE: Travis Wilbanks HAZLEWOOD, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Texas

570 B.R. 557

IN RE: Travis Wilbanks HAZLEWOOD, Debtor.

Case No. 13–41109–MXM

United States Bankruptcy Court, N.D. Texas, Fort Worth Division.

Signed May 12, 2017

Stephen Michael Stasio, Stasio & Stasio, Fort Worth, TX, for Debtor.

Angela D. Allen, Staff Attorney, N. Richland Hills, TX, Shayla L. Friesen, Porter Hedges LLP, Houston, TX, Robert A. Simon, Whitaker Chalk Swindle & Schwartz, PLLC, Fort Worth, TX, for Trustee.

MEMORANDUM OPINION AND ORDER DENYING TRUSTEE'S MOTION TO MODIFY CHAPTER 13 PLAN

Relates to ECF No. 393

Mark X. Mullin, United States Bankruptcy Judge

Before the Court is Trustee's Motion to Modify Chapter 13 Plan¹ (the "Plan Modification ") filed on December 16, 2016 by Tim Truman, the Standing Chapter 13 Trustee ("Trustee "). In response, Debtor filed his Debtors (sic) Response to Trustee's Motion to Modify Chapter 13 Plan² ("Debtor's Objection "). The Court held a hearing on the Plan Modification and Debtor's Objection on February 27, 2017, at which time the parties requested the opportunity to brief the disputed issues. Thereafter, on March 9, 2017, Trustee filed his Chapter 13 Trustee's Brief in Support of Trustee's Modification of Chapter 13 Plan ;³ on March 16, 2017, Debtor filed his Debtors (sic) Brief in Support of Response to Trustee's Motion to Modify Chapter 13 Plan ;⁴ and on March 24, 2017, Trustee filed his Chapter 13 Trustee's Reply Brief to Debtor's Brief .⁵

After considering the Plan Modification, Debtor's Objection, arguments of counsel during the hearing, and all subsequent briefing of the parties, the Court finds that the Plan Modification should be denied for the reasons set forth below.

I. BACKGROUND FACTS

The following facts are undisputed. Debtor filed his Chapter 13 bankruptcy case on March 7, 2013 (the "Petition Date "). Thereafter, on April 2, 2013, Debtor filed, among other pleadings, (i) Debtor's(s') Chapter 13 Plan and Motion for Valuation⁶ (the "Original Chapter 13 Plan "), and (ii) Debtor's Schedules .⁷

Debtor's Schedule B–Personal Property disclosed, among other assets, contingent and unliquidated claims including Debtor's interest in a lawsuit described as "Travis Hazlewood, Sealy Four Company d/b/a Sweetwater Well Service v. Brad White, Trace Robbins and Richard Evans" with an "unknown" value (the "White Lawsuit" ). Debtor subsequently amended Schedule B four times prior to confirmation.⁸ With each pre-confirmation amendment of his Schedules, Debtor continued to represent the value of Debtor's unliquidated White Lawsuit as "unknown."

Debtor's Original Chapter 13 Plan made no mention of and contained no provision regarding Debtor's interest in the unliquidated White Lawsuit or its proceeds. Debtor subsequently amended his Original Chapter 13 Plan three times prior to confirmation.⁹ In his proposed first amended plan filed on May 8, 2015,¹⁰ Debtor added the following provision which incorporated the White Lawsuit: "[I]f Debtor is successful on his civl (sic) lawsuits Debtor shall pay increase (sic) his plan base by the dollar amount awarded on each suit." Following further negotiations between Debtor, Trustee, and other creditors and parties in interest, however, the above provision was deleted and removed from all subsequently filed proposed amended plans, and such a provision was not included in the final version of Debtor's amended plan filed on December 16, 2015¹¹ (the "Confirmed Plan "),¹² which was confirmed on January 26, 2016 (the "Confirmation Date "). Consequently, upon confirmation of the Confirmed Plan, the White Lawsuit and its proceeds vested in Debtor free and clear of any claims or interest of any creditor provided for in the Confirmed Plan.¹³ Accordingly, after the Confirmation Date, the White Lawsuit was no longer property of the estate.

On August 18, 2016, Debtor's interest in the White Lawsuit was liquidated to a judgment in favor of Debtor and Debtor's co-plaintiffs. The value of Debtor's share in the White Lawsuit judgment was estimated to be approximately $44,000. Accordingly, Debtor amended his Schedule B on October 4, 2016, to disclose that Debtor's share of the White Lawsuit had been liquidated to a judgment in the approximate amount of $44,000, although Debtor asserted his ability to collect on the White Lawsuit judgment remained "unknown."¹⁴

Because Debtor's interest in the White Lawsuit was liquidated to a judgment after confirmation, Trustee filed his Plan Modification seeking to modify the Confirmed Plan to increase the plan base by the amount of the White Lawsuit judgment proceeds, if any, that may ultimately be collected by Debtor. Should Trustee's Plan Modification be granted, any proceeds collected on the White Lawsuit judgment would be turned over to Trustee for distribution to creditors pursuant to the terms of the modified plan.

In support of his Plan Modification, Trustee asserts, in part, that:

i. §§ 1329(a)(1) and 1322(b)(8) allow Trustee to file a plan modification that is funded by property of Debtor, including property that had revested in Debtor upon confirmation of the Confirmed Plan pursuant to § 1327 ; and

ii. the doctrine of res judicata does not apply to preclude Trustee's Plan Modification.

Debtor, on the other hand, asserts, in part, that Trustee's Plan Modification should be denied because:

i. the Plan Modification constitutes an improper attempt to usurp Debtor's right to possession and control of the White Lawsuit and its proceeds, which vested in Debtor free and clear of any claims or interests of creditors pursuant to the Confirmed Plan, the Plan Confirmation Order, and §§ 1327(b) and (c) ;

ii. the doctrine of res judicata bars Trustee's Plan Modification; and

iii. based on the facts of this case, Trustee's Plan Modification should be denied on equitable grounds pursuant to the Court's discretion and good judgment.

II. LAW AND ANALYSIS

A. The White Lawsuit judgment constitutes property of Debtor and not property of the estate.

The initial determination to be made in this dispute is whether the White Lawsuit judgment constitutes property of the Chapter 13 bankruptcy estate or property of Debtor at the time Trustee filed his Plan Modification. This determination is critical because a trustee or creditor cannot employ § 1329 to take property from a debtor unless the court concludes that the subject property constitutes property of the bankruptcy estate rather than property of the debtor.¹⁵ To determine whether the White Lawsuit judgment constitutes property of the estate or property of Debtor, three sections of the Bankruptcy Code must be considered.¹⁶

First, § 541 provides that on the date a bankruptcy case is filed, the bankruptcy estate includes, among other property, "all legal or equitable interests of the debtor in property."¹⁷ Included within such property are causes of action belonging to the debtor at the time the case is filed.¹⁸ In this case, Debtor's interest in the White Lawsuit arose prior to the Petition Date. Therefore, when Debtor filed his bankruptcy case, any and all interest he had in the White Lawsuit became property of the estate on the Petition Date.¹⁹

Second, § 1306(a) provides that property of the bankruptcy estate includes not only all property specified in § 541, but also "all property ... that the debtor acquires after the commencement of the case but before the case is closed, dismissed or converted ... whichever occurs first."²⁰ Therefore, for example, a cause of action acquired by a debtor after a bankruptcy case is filed, but before the case is closed, dismissed or converted, also constitutes property of the estate and may be subject to administration in the Chapter 13 case.²¹ In this case, however, it is undisputed that the White Lawsuit was property of Debtor prior to his filing bankruptcy and such property became property of the estate on the Petition Date pursuant to § 541(a).

Which brings us to the third section of the Bankruptcy Code, § 1327, which provides that "[e]xcept as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor ... free and clear of any claim or interest of any creditor provided for by the plan."²² In this case, neither the Confirmed Plan nor the Order Confirming Plan included a provision excepting the White Lawsuit or its proceeds from vesting in Debtor upon confirmation. Therefore, pursuant to §§ 1327(b) and (c), upon confirmation of the Confirmed Plan, the White Lawsuit vested in Debtor "free and clear of any claim or interest of any creditor provided for by the plan."²³

Trustee argues that after the Confirmation Date, "Debtor's circumstances regarding the [White Lawsuit] and the nature and character of the [White Lawsuit] changed substantially."²⁴ Contrary to Trustee's contention, however, just because the White Lawsuit was not reduced to a judgment until after the Confirmation Date does not change or transform the White Lawsuit, or its proceeds, from property of Debtor back into property of the estate. In fact, in his reply brief, Trustee seems to concede this point when he admitted that the White Lawsuit was "property of the Debtor " and that the property had "re-vested in the debtor upon confirmation."²⁵

There is no dispute that the White Lawsuit, and any proceeds from that lawsuit, vested in Debtor on the Confirmation Date, and such property was no longer property of this Chapter 13 estate.²⁶

B. Trustee cannot rely on §§ 1329 and 1322(b)(8) as authorization to file a Plan Modification concerning property of Debtor.

Section 1329(a)(1) allows a trustee, debtor, or unsecured creditor to request that a previously confirmed Chapter 13 plan be modified to "increase ... the amount of payments on claims of a particular class provided for by the plan."²⁷ In this case, Trustee seeks to modify the Confirmed Plan to require Debtor to turn over to Trustee for distribution under the plan any proceeds realized or collected from his interest in the White Lawsuit judgment.

In support of...