In re Sisk

• Decision Date: 22 June 2020
• Docket Number: No. 18-17448,No. 18-17445, No. 18-17446, No. 18-17447,18-17445
• Citation: 962 F.3d 1133
• Parties: IN RE Nanette Marie SISK, Debtor, Nanette Marie Sisk, Appellant. In re Mark Irvin Candalla, Debtor, Mark Irvin Candalla, Appellant. In re Jeri Lyle Saldua Mercado, Debtor, Jeri Lyle Saldua Mercado, Appellant. In re Dennis Michael Escarcega, Debtor, Dennis Michael Escarcega, Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

962 F.3d 1133

IN RE Nanette Marie SISK, Debtor, Nanette Marie Sisk, Appellant. In re Mark Irvin Candalla, Debtor, Mark Irvin Candalla, Appellant. In re Jeri Lyle Saldua Mercado, Debtor, Jeri Lyle Saldua Mercado, Appellant. In re Dennis Michael Escarcega, Debtor, Dennis Michael Escarcega, Appellant.

No. 18-17445

No. 18-17446

No. 18-17447

No. 18-17448

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 6, 2020 San Francisco, California

Filed June 22, 2020

Norma L. Hammes (argued), James J. Gold, and Lucinda L.H. Gold, Gold and Hammes, San Jose, California, for Debtor-Appellants Nanette Marie Sisk, Mark Irvin Candalla, and Dennis Michael Escarcega.

James S.K. Shulman (argued), Shulman Law Offices, San Jose, California, for Debtor-Appellant Jeri Lyle Saldua Mercado.

Jane Z. Bohrer (argued), Los Gatos, California, for Amicus Curiae Devin Derham-Burk.

Before: Kim McLane Wardlaw, Milan D. Smith, Jr. and Patrick J. Bumatay, Circuit Judges.

OPINION

BUMATAY, Circuit Judge:

Absent an objection, Chapter 13 of the Bankruptcy Code establishes no minimum duration for a bankruptcy plan. Debtors are thus free to propose a bankruptcy plan lasting any amount of time up to the statutory maximum period of three or five years. See 11 U.S.C. § 1322(d).¹ In this case, we consider whether the Code allows debtors to confirm a plan with an estimated duration. The Bankruptcy Appellate Panel ("BAP") held that it does not. We disagree.

BACKGROUND

To file for Chapter 13 bankruptcy, a debtor must propose a plan to use future income to repay a portion of debts within the Code's maximum duration. Bullard v. Blue Hills Bank , 575 U.S. 496, 135 S. Ct. 1686, 1690, 191 L.Ed.2d 621 (2015). If the plan is confirmed and the debtor succeeds in carrying it out, the debtor is entitled to a discharge of the debts according to the plan. Id.

Between February and March of 2016, Dennis Michael Escarcega, Nanette Marie Sisk, and Mark Irvin Candalla ("Debtors") filed petitions for Chapter 13 bankruptcy.²

Before 2016, the San Jose Division of the Northern District of California Bankruptcy Court used a preprinted model Chapter 13 plan that expressly permitted a debtor to propose a plan with an estimated term of months. In February of 2016, bankruptcy judges of the San Jose Division began requiring debtors to use the Northern District of California's new Model Chapter 13 Plan ("Model Plan"). Unlike the previous plan, the new Model Plan omitted any reference to an estimated plan duration and instead allowed only a fixed number of months to be proposed for plan length.

Under § 1.01 of the Model Plan, a debtor commits to make set payments to the trustee for a certain number of months, as shown below:

Plan payments. To complete this plan, Debtor shall:

a. Pay to Trustee $555 per month for 60 months from the following sources: (describe, such as wages, rental income, etc.):As shown on Schedule I. Debtor shell after _____ months, increase the monthly payment to $_____ for _______________ months.

c. The monthly plan payments will continue for 60 months unless all allowed unsecured claims are fully paid within a shorter period of time. This plan cannot propose monthly payments beyond 60 months.

Candalla Plan 1, § 1.01(a) and (c).

Under § 2.12 of the Model Plan, a debtor must specify the amount he will pay unsecured creditors on a pro-rata basis after satisfying all other claims, as shown below:

2.12.Class 7: All other unsecured claims. These claims, including the unsecured portion of secured recourse claims not entitled to priority, total approximately $60,348. The funds remaining after disbursements have been made to pay all administrative expense claims and other creditors provided for in this plan are to be distributed on a pro-rata basis to Class 7 claimants.

[select one of the following options: ]

___ Percent Plan. Class 7 claimants will receive no less than __% of their allowed claims through this plan.

___ Pot Plan. Class 7 claimants are expected to receive __% of their allowed claims through this plan.

Candalla Plan 4, § 2.12.

The Model Plan expressly authorizes a debtor to propose additional provisions that modify the preprinted text so long as those provisions are consistent with the Code.

Debtors' bankruptcy plans largely conformed to the Model Plan, but deviated from it in two significant ways. First, Debtors added provisions replacing § 1.01's fixed durational language with estimated time periods. In their amendments, Debtors changed this provision with the following language:

Section 1 of the plan is modified as follows:

a. The length of the plan as reflected in the cumulative terms of the monthly payments provided in Section 1.01(a) is the estimated length of the plan.

b. The first sentence of Section 1.01(c) is deleted.

Candalla Plan 6, § 5.02.

Second, Debtors sought to amend § 2.12's default dividend provision. Instead of choosing between the options presented in the Model Plan, Debtors added an alternative provision:

Section 2 of the plan is modified as follows:

a. Section 2.08 is deleted.

b. Section 2.12 is modified to add the following, if checked here

[?] Class 7 claimants shall receive an aggregate dividend of $0, which amount can be increased by up to $1.00 to an amount sufficient for the trustee to administer payments on these claims, which shall be shared pro-rata based on the amounts of their respective allowed nonpriority unsecured claims.

Candalla Plan 6, § 5.03.

Neither the trustee nor any unsecured creditor objected to Debtors' plans. The bankruptcy court then held an initial confirmation hearing for each of the Debtors within 45 days of their meetings of creditors. See 11 U.S.C. § 1324(a) – (b). Ordinarily, if a plan draws no objections and complies with the Code, the court confirms it at an initial confirmation hearing. Due to the amendments in Debtors' plans, however, the bankruptcy court transferred their cases to the Trustee's Pending List. Cases placed on this list are monitored by the trustee, then returned to a normal confirmation timeline once any outstanding issues are resolved.

Debtors then filed motions requesting confirmation of their plans and set hearings on the bankruptcy court's contested confirmation calendar. The court scheduled several additional hearings to determine the confirmability of Debtors' plans. First, the court held individual hearings with each of the Debtors on May 19, 2016. At these hearings, the court discussed Debtors' amendments. Next, the court scheduled additional evidentiary hearings on confirmation for late July 2016, citing the "complexity of the issues, the absence of a Trustee objection, and the need for certain factual findings."

Before the bankruptcy court, several of the Debtors raised procedural objections to the length of the court's confirmation process. They protested that the additional hearings fell outside the 45-day window for confirmation hearings. See 11 U.S.C. § 1324(b). Additionally, Debtors argued that transferring their cases to the Trustee's Pending List constituted a de facto local rule that violated federal law.

In a consolidated joint memorandum decision, two judges of the bankruptcy court for the Northern District refused to confirm Debtors' plans because of the additional provisions. First, the court rejected Debtors' procedural objections. The court ruled that moving cases to the Trustee's Pending List did not violate federal law, and enabled the court to carry out its duty to review plans submitted under the Code. In re Escarcega , 557 B.R. 755, 763 (Bankr. N.D. Cal. 2016). The court also ruled that 11 U.S.C. § 1324(b) only required a hearing, not a "substantive or conclusive" hearing, within the prescribed timeframe. Id. at 762–63.

The bankruptcy court also rejected the amendments to Debtors' plans, despite recognizing that they were consistent with the way "certain plans in the San Jose Division have been administered in the recent past." Id. at 764. The court ruled that Debtors' amendments calling for estimated plan durations violated the Code, which "read fairly, provides that a debtor will specify a length for their plan and will carry that plan out." Id. at 775. The bankruptcy court reasoned that plans with no specific duration were impermissibly "self-modifying," in violation of §§ 1328(a) and 1329(b), because such provisions "construct a plan that authorizes modifications without notice to parties in interest eliminates creditor's rights to object to the modification." Id. at 771.

Finally, the bankruptcy court held that Debtors' proposed plans made "the careful structure and protections of the Bankruptcy Code ephemeral" and rendered creditors' modification rights under 11 U.S.C. § 1329 "illusory." Id. at 775. Additionally, the court accused Debtors of "obtain[ing] the Trustee's agreement to the additional provisions so as to avoid an objection" to the application of 11 U.S.C. § 1325(b)'s specific commitment period. Id. at 775–76. On this basis, the court ruled that Debtors' plans were not proposed in good faith. Id. at 776.

On appeal, the BAP affirmed the bankruptcy court, ruling that Debtors' plans violated the Code and were not proposed in good faith. The BAP sharply criticized the trustee's decision not to object to Debtors' additional terms. In re Escarcega , 573 B.R. 219, 233–235 (9th Cir. BAP 2017).

Debtors filed certifications to appeal directly to this court, which we denied as interlocutory. Now back in the bankruptcy court, Debtors removed the offending estimated duration provisions, re-filed their plans, and had them confirmed with a fixed duration.

Debtors elected to appeal the confirmations of their bankruptcy plans in the district court rather than the BAP, and simultaneously filed certifications for direct appeal in this court. See 28 U.S.C. § 158(d)(2)(A). We granted Debtors' certifications for direct appeal, and later consolidated Debtors' cases into the current proceeding. Debtors' appeals were dismissed in the district court without prejudice to their...