In re Wall

• Decision Date: 18 November 1975
• Docket Number: No. PB-74-14 and 15-B.,PB-74-14 and 15-B.
• Citation: 403 F. Supp. 357
• Parties: In re George C. and Marcia Hare WALL, Debtors. FORD MOTOR CREDIT COMPANY, Appellant, v. George C. and Marcia Hare WALL and A. L. Tenney, Trustee, Debtor Estates, Appellees.
• Court: U.S. District Court — Eastern District of Arkansas

403 F. Supp. 357

In re George C. and Marcia Hare WALL, Debtors FORD MOTOR CREDIT COMPANY, Appellant, v. George C. and Marcia Hare WALL and A. L. Tenney, Trustee, Debtor Estates, Appellees.

No. PB-74-14 and 15-B.

United States District Court, E. D. Arkansas, Pine Bluff Division.

November 18, 1975.

Tom Forrest Lovett, Little Rock, Ark., for appellant, Ford Motor Credit Co.

George Howard, Jr., Pine Bluff, Ark., for debtors, appellees.

MEMORANDUM OPINION AND ORDER

OREN HARRIS, District Judge.

This is a proceeding for review of an Order of the Bankruptcy Judge, pursuant to Rules 801 et seq., Bankruptcy Rules. Appellants contend that Rule 13-307(d), Bankruptcy Rules, promulgated pursuant to 28 U.S.C. § 2075, is invalid, in that the rule is "substantive", rather than "procedural", and therefore should not be followed. Appellants contend that the Order of the Bankruptcy Judge herein, admittedly required by the clear terms of Rule 13-307(d), is, accordingly, erroneous.

Debtors filed petitions under Chapter XIII of the Bankruptcy Act, proposing a plan to pay their debts. Their schedule of debts showed an obligation to Ford Motor Credit Company in the amount of $3,432.24, with contract payments of $122.58, which debtors proposed to pay in full.

Ford Motor Credit Company, on the basis of the proposal that the contract monthly payments were to be paid in full, approved the plan and submitted a secured claim for the principal amount of $3,602.10. On the face of the claim, the company acknowledged that the fair market value of the 1973 Mercury automobile which comprised the collateral security for the debt was $2,600.00.

Rule 13-307(d) provides:

"If a secured creditor files a claim, the value of the security interest held by him as collateral for his claim shall be determined by the court. The claim shall be allowed as a secured claim to the extent of the value so determined and as an unsecured claim to the extent it is enforceable for any excess of the claim over such value . . ."

The Bankruptcy Judge made findings of fact and conclusions of law, finding that the amount of the debt at the time of the filing of the petition was $3,228.08, and that the value of the collateral was $2,600.00; that the ratio of the value of the collateral to the debt, applied to the monthly contract payments, would reduce the monthly payments under the plan to $98.73; that such payments, together with payments on the unsecured part of the debt, would keep the payments on a basis which would not affect the creditor's recourse against the selling dealer; and concluded that the creditor would not be affected by the plan, even though it was to receive less than the contract monthly payments.

The Bankruptcy Judge then ordered the Trustee to make monthly payments in the sum of $98.73 on the secured debt of $2,600.00, allowed the balance as an unsecured debt, to be paid as quickly as funds are available in advance of other unsecured indebtedness, and provided that the entire claim, both secured and unsecured, shall bear interest at the contract rate until paid.

Counsel for the creditor, the debtors, and the Trustee have filed briefs, a hearing was held, and the cause submitted for determination by the Court. Decision was withheld for a period of time to permit the parties to furnish the Court copies of decisions by other District Courts on the validity of this new Bankruptcy Rule, in view of the fact that this appears to be a case of first impression within this Circuit.

Appellant creditor urges that Rule 13-307(d) abridges a substantive right, and would materially impair its contract with debtors. Appellant contends that a Chapter XIII plan cannot provide for less than full contract monthly payments to secured creditors, citing In re Terry, 294 F.Supp. 253 (S.D.Ga.1968); Thompson v. Ford Motor Credit Company, 475 F.2d 1217 (5th Cir. 1973); Terry v. Colonial Stores Emp. Credit Union, 411 F.2d 553 (5th Cir. 1969), and In re Townsend, 349 F.Supp. 990 (W.D.Mo.1972).

Appellees point out that such holdings have been far from universal. Judge Miller, in In re Pizzolato, 268 F.Supp. 353 (W.D.Ark.1967), held that, although "it seems to be settled law that a secured creditor who does not consent to the proposed plan of the debtor cannot be adversely `dealt with' by the plan", the Court had authority under 11 U.S.C. § 1014 to enjoin or stay any proceeding by a secured creditor to enforce its lien, even though full contract payment was not provided for under the plan. While this case was criticized by a Fifth Circuit panel in Terry v. Colonial Stores Emp. Credit Union, supra, another panel cited the case with approval and reached the same result in Thompson v. Ford Motor Credit Company, supra.

The Court has carefully considered the opinion of Judge Westover, In re Garcia, 396 F.Supp. 518 (C.D.Cal.1974), and the opinion of Judge Orrick, Wolff v. Wells Fargo Bank, Herman Moralez et ux., Debtors, 400 F.Supp. 1352 (N.D. Cal.1975), in which these distinguished jurists reach opposite conclusions as to the validity of Rule 13-307(d).

Judge Orrick holds that the rule attempts to change substantive law and is, therefore, invalid as being outside the rule-making power granted the Supreme Court under the enabling act, 28 U.S.C. § 2075. Judge Westover affirmed the findings and conclusions of the Bankruptcy Judge upholding the rule, and citing Thompson v. Ford Motor Credit Company, supra, In re Pizzolato, supra, and In re Teegarden, 330 F.Supp. 1113 (E.D.Ky.1971), as pre-rule authority for reaching the result codified by the rule. He also distinguishes Hallenbeck v. Penn Mutual Life, 323 F.2d 566 (6th Cir. 1963), upon which decision the cases denying the authority of the Court to require secured creditors to accept less than the full monthly contract amount under a plan while enjoining lien enforcement rely heavily. An excellent discussion and analysis of both lines of decision is contained in the article by Bankruptcy Judge Poulos in 44 Journal of the National Conference of Referees in Bankruptcy at page 68 (July, 1970).

In view of the split of authority, it appears that there is less than a "well settled" rule of substantive law which is contradicted by the rule. Few cases are found which even discuss the issue. These cases reach opposite and contradictory results, and the Supreme Court has had no occasion to settle the differing results between and within the Circuits.

The Bankruptcy Rules are relatively new, and no cases have reached the appellate courts as yet which would serve to guide this decision. But, the Federal Rules of Civil Procedure were promulgated under almost exactly similar legislation and procedures. There was an enabling act by the Congress, the rules were studied by committees, were adopted by Order of the Supreme Court of the...