In re Revels

• Decision Date: 20 March 2020
• Docket Number: CASE NO. 19-01583-5-SWH
• Citation: 616 B.R. 675
• Court: U.S. Bankruptcy Court — Eastern District of North Carolina
• Parties: IN RE: Brandon Carr REVELS, Teresa S. Revels, Debtors

616 B.R. 675

IN RE: Brandon Carr REVELS, Teresa S. Revels, Debtors

CASE NO. 19-01583-5-SWH

United States Bankruptcy Court, E.D. North Carolina, Raleigh Division.

Signed March 20, 2020

Travis Sasser, Cary, NC, for Debtors.

ORDER DENYING CONFIRMATION OF PLAN

Stephani W. Humrickhouse, United States Bankruptcy Judge

The matter before the court is the chapter 13 trustee's Third Objection to Confirmation of Plan filed on September 25, 2019, Dkt. 31. A hearing was held on October 8, 2019 in Raleigh, North Carolina. At the conclusion of the hearing, the court took the matter under advisement. The court allowed the parties to file post-hearing briefs, which the debtors did on October 22, 2019, Dkt. 35. This matter is now ripe for determination.

PROCEDURAL BACKGROUND

Brandon Carr Revels and Teresa S. Revels (collectively, the "debtors") filed a voluntary petition under chapter 13 of the Bankruptcy Code on April 8, 2019. The debtors filed a Chapter 13 Plan on April 24, 2019, Dkt. 16. On June 3, 2019, the chapter 13 trustee filed an Objection to Confirmation of Chapter 13 Plan, Dkt. 20 ("First Objection to Confirmation"). The hearing on the First Objection to Confirmation was continued several times.

On September 9, 2019, the debtors filed an Amended Chapter 13 Plan, Dkt. 26 ("First Amended Plan"). The chapter 13 trustee filed another Objection to Confirmation of Chapter 13 Plan on September 10, 2019, Dkt. 27 ("Second Objection to Confirmation"). The trustee objected to confirmation on the bases that the debtors had failed to file all applicable tax returns and that the plan was infeasible.

A hearing on the Second Objection to Confirmation was held on September 24, 2019. At that hearing, the debtors and the chapter 13 trustee informed the court that another amended plan would be filed later that day resolving the trustee's objection. The parties represented to the court that because the plan modification would not be detrimental to creditors, there was no reason to notice the creditors again or to have another confirmation hearing. Instead, the parties recommended to the court that once the amended plan was filed, the trustee would make an entry on the docket recommending confirmation of the plan. Then, the amended plan could be confirmed without another hearing. At the conclusion of the hearing, the court confirmed the plan only subject to an amended plan being filed later that day and a recommendation of confirmation being made by trustee.

After the hearing, the debtors filed an Amended Chapter 13 Plan, Dkt. 30 ("Second Amended Plan"), but instead of filing a recommendation of confirmation, the trustee filed a new Objection to Confirmation of Chapter 13 Plan, Dkt. 31 ("Third Objection to Confirmation"). In the Third Objection to Confirmation, the trustee objected to certain non-standard language included in the Second Amended Plan. A hearing was held on the Third Objection to Confirmation on October 8, 2019.

At the hearing on October 8, 2019, two issues were raised: whether the trustee's Third Objection to Confirmation was timely; and, whether the Second Amended Plan could be confirmed with the inclusion of the nonstandard language.

DISCUSSION

A. Timeliness of the Chapter 13 Trustee's Third Objection to Confirmation

The court will first address the procedural issue. The debtors assert that the Third Objection to Confirmation is untimely. The Second Amended Plan contained the same nonstandard provisions as were included in the First Amended Plan. The chapter 13 trustee did not object to the nonstandard language in the First Amended Plan. Yet, when the Second Amended Plan was filed, instead of the trustee making a docket entry recommending confirmation as discussed at the hearing on September 24, 2019, the trustee filed the Third Objection to Confirmation. The Third Objection to Confirmation was the first time that the trustee objected to the identical nonstandard plan provisions. The debtors argue that the trustee missed his opportunity to object to the Second Amended Plan on the basis that the nonstandard language was included.

Under Bankruptcy Rule 3015(f), an objection to confirmation must be filed at least seven days before the date set for the hearing on confirmation, unless the court orders otherwise. Fed. R. Bankr. P. 3015(f). "If no objection is timely filed, the court may determine that the plan has been proposed in good faith and not by any means forbidden by law without receiving evidence on such issues." Id. A court shall confirm a plan if the plan complies with the provisions of chapter 13 and the Bankruptcy Code. 11 U.S.C. § 1325(a)(1) (2018). A bankruptcy court has an independent duty to ensure that a plan complies with the Bankruptcy Code, even if no objections are filed. United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 277, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) ; see also In re Madera , 445 B.R. 509, 513 (Bankr. D.S.C. 2011).

In this instance, the confirmation procedure was expediated only in an attempt to efficiently confirm the debtors' plan. The court conditioned confirmation upon the filing of a docket entry by the trustee recommending confirmation. When the trustee failed to make a docket entry endorsing the Second Amended Plan, the hearing on confirmation was essentially continued. The plan has not yet been confirmed, and the Third Objection to Confirmation was filed after the Second Amended Plan was filed and more than seven days before the confirmation hearing on October 8, 2019.

Notwithstanding the fact that the trustee should have objected to the nonstandard provisions in the trustee's Second Objection to Confirmation, the newly raised objections in the Third Objection to Confirmation must be considered by the court. The court has a duty to make an independent determination that the Second Amended Plan complies with the Bankruptcy Code, regardless of whether any objections were filed. Therefore, the court finds that it is not only appropriate to address the basis of the trustee's Third Objection to Confirmation, but that it is in fact required to do so to ensure that the Second Amended Plan complies with the confirmation standards set out in the Bankruptcy Code.

B. The Nonstandard Plan Provisions

The issue underlying the trustee's Third Objection to Confirmation is whether the Second Amended Plan should be confirmed when the plan includes a nonstandard provision providing that Bankruptcy Rule 9019¹ does not require the debtors to file a motion to effectuate the settlement of a claim and that the debtors have no disclosure requirement regarding the settlement.

The female debtor, Mrs. Revels, holds a cause of action against Medical Mutual Insurance for, among other things, lost wages, emotional distress, and wrongful termination. Mrs. Revels seeks to settle this cause of action. The debtors represented to the court that as a result of the negotiated settlement, Mrs. Revels will be able to pay 102.5% of the claims in her case.² The debtors maintain that Mrs. Revels has exclusive authority to prosecute the cause of action against Medical Mutual Insurance and that that they are not required to file a motion to approve settlement or disclose any terms relating to the settlement.

The chapter 13 trustee objects to confirmation of the Second Amended Plan on the basis that inclusion of certain nonstandard language in the plan is inconsistent with the good faith requirement of 11 U.S.C. § 1325(a)(3). Specifically, the trustee objects to the last two paragraphs included in Part 8.1 of the Second Amended Plan which state the following:

The female Debtor has exclusive authority to prosecute the cause of action against Medical Mutual Insurance for lost wages, emotional distress, wrongful termination, etc. The Debtors will not file a Bankruptcy Rule 9019 Motion as it relates to any compromise of this cause of action. The Debtors shall have no obligation to disclose to the court or trustee the terms of any compromise of the cause of action or the outcome of any trial. The trustee lacks any role, capacity and/or authority as it relates to the female Debtor's cause of action against Medical Mutual Insurance. The trustee is prohibited from filing a Motion pursuant to Bankruptcy Rule 9019 as it relates to any compromise of the cause of action.

The trustee shall affirmatively communicate to the attorneys and other participants in the cause of action with Medical Mutual Insurance that he lacks any role, capacity and/or authority with regards to this cause of action and he should not be consulted to with regards to this matter. The trustee will explicitly inform the attorneys representing the female Debtor and Medical Mutual Insurance that he was completely incorrect when he opined on September 3, 2019 that he was to be apprised of an participate in the negotiation of any proposed settlement and that the female Debtor was not permitted to enter into any agreement or compromise any claim until the bankruptcy court had approved such a compromise.

Second Amended Plan, Part 8.1.³

The debtors argue that the nonstandard provision contained in the Second Amended Plan is consistent with applicable law. Under the debtors' view, the role of the chapter 13 trustee does not include filing motions to approve settlements on causes of actions controlled by the debtors. Thus, the debtors take the position that they proposed the Second Amended Plan in good faith and request that the court confirm the plan.

Section 1325 of the Bankruptcy Code sets out the requirements for confirmation of a chapter 13 plan. 11 U.S.C. § 1325 (2018). A court shall confirm a plan if it meets the requirements of section 1325 and complies with the provisions of chapter 13 and with other applicable provisions of the Bankruptcy Code. 11 U.S.C. § 1325(a)(1) ; LVNV Funding, LLC v. Harling , 852 F.3d 367, 371 (4th Cir. 2017). Among other requirements, a chapter 13 plan must be proposed in good faith and must comply with the plan content requirements as set forth...