Jacobo v. BAC Home Loans Servicing, LP

• Decision Date: 21 June 2012
• Docket Number: Civil No. 11–5134 (NLH).
• Citation: 477 B.R. 533
• Parties: In re William and Carmen JACOBO, Appellants, v. BAC HOME LOANS SERVICING, LP, Appellee.
• Court: U.S. District Court — District of New Jersey

477 B.R. 533

In re William and Carmen JACOBO, Appellants,

v.BAC HOME LOANS SERVICING, LP, Appellee.

Civil No. 11–5134 (NLH).

United States District Court, D. New Jersey.

June 21, 2012.

Nicholas S. Herron, Law Offices of Seymour Wasserstrum, Vineland, NJ, for Appellants.

George M. Pangis, Stern, Lavinthal, Frankenberg & Norgaard, LLC, Englewood, NJ, for Appellee.

OPINION

HILLMAN, District Judge.

I. INTRODUCTION

Before the Court is a bankruptcy appeal from an Order “Declaring Attempted Cram Down Ineffective, Granting Access to Property for Purposes of Conducting an Appraisal, Compelling Turnover of Documents from the Debtors and for Establishment of a Plenary Hearing to Determine Proper Valuation of Property Including Interest” (“Bankruptcy Order”) entered on August 5, 2011, by the United States Bankruptcy Court for the District of New Jersey (“Bankruptcy Court”). For the reasons expressed below, the Order entered by the Bankruptcy Court will be affirmed.

II. BACKGROUND

On February 23, 2006, Bank of America (“BOA”) issued an adjustable rate, interest only loan to William and Carmen Jacobo (“appellants”) on a condominium located in Mays Landing, New Jersey (Mays Landing condominium), in the amount of $106,200. On November 23, 2010, the appellants filed a petition for Chapter 13 bankruptcy and plan of reorganization. One of the listed secured creditors was BOA, and the appellants' schedule A listed the condominium valued at $63,000, with a secured lien in the amount of $103,085.

On November 24, 2010, the Bankruptcy Court issued a notice to creditors of the appointment of a trustee, along with notice of hearing on the confirmation plan, as well as deadlines to file a complaint to determine dischargeability of certain debts set for March 15, 2011, and proof of claims set for April 14, 2011. On November 26, 2010, the Bankruptcy Court issued a certification of notice serving BOA at two different addresses, as well as electronic notice. The two addresses listed with the Court were: BAC Home Loans/Countrywide 450 American Street, # SV416 Simi Valley, CA 93065, and Bank of America, 4161 Piedmont Pkwy NC4–105–01–34, Greensboro, NC 27410–8119.

On December 17, 2010, appellants sent BOA, by regular mail, a copy of the Chapter 13 plan and motion, and the required Chapter 13 transmittal letter to the two listed addresses for BOA stating the caption of the bankruptcy proceeding and notice that they should consult an attorney as their rights were subject to being modified. The letter also specified the date, time and location of the confirmation hearing.

On February 23, 2011, a confirmation hearing was held. The proposed Chapter 13 reorganization called for the secured portion of BOA's mortgage to be “crammed down” to the appellants' valuation of the property, $63,000, with the remaining $40,085 to be reclassified as unsecured. The appellants also proposed to pay zero percent (0%) interest on the secured portion of the claim. No creditors appeared and the case was marked as confirmed. The next day, an order confirming the plan was filed on the bankruptcy docket.

On March 29, 2011, a notice of appearance and request for service was filed on behalf of counsel for BOA in connection with a lien held on appellants' primary residence (for which BOA also held the mortgage).¹ On May 10, 2011, attorney for BOA filed a notice of appearance and request for service in connection with the Mays Landing condominium. On July 12, 2011, with regard to the condominium, BOA filed a Motion to Declare Attempted Cram Down Ineffective, Granting Access to Property for Purposes of Conducting an Appraisal, Compelling Turnover of Documents from the Debtors and for Establishment of a Plenary Hearing to Determine Proper Valuation of Property Including Interest (“motion”).

A hearing on the motion was held on August 2, 2011 before the Bankruptcy Court. The Bankruptcy Court found that although BOA had actual notice, appellants failed to properly serve BOA in violation of BOA's due process rights. The Bankruptcy Court granted BOA's motion on August 5, 2011. Appellants filed a timely notice of appeal.

III. DISCUSSIONA. Final Orders and Interlocutory Appeals

Appellants argue that the Bankruptcy Order entered on August 5, 2011 is a final, appealable order and that this Court exercises mandatory jurisdiction to hear appeals from final orders of bankruptcy judges pursuant to 28 U.S.C. § 158(a)(1). Appellee argues that the Bankruptcy Order is interlocutory and, therefore, not appealable.

The Supreme Court defined a “final decision” for purposes of appeal “generally [as] one which ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 633, 89 L.Ed. 911 (1945). The finality of a bankruptcy order, however, is viewed in more practical terms. An appeal from a bankruptcy order under § 158(d)(1)² is viewed “in a more pragmatic and less technical way” than it would under 28 U.S.C. § 1291.³In re Marcal Paper Mills, Inc., 650 F.3d 311, 314 (3d Cir.2011) (citing F/S Airlease II, Inc. v. Simon (In re F/S Airlease II, Inc.), 844 F.2d 99, 103 (3d Cir.1988)); In re Meyertech Corp., 831 F.2d 410, 414 (3d Cir.1987) (“Analysis of finality in [bankruptcy] proceedings differs from litigation in an ordinary civil matter. In bankruptcy matters we have consistently considered finality in a more pragmatic and less technical sense than in other matters and the concept, for purposes of appellate jurisdiction, should be viewed functionally.”).

The Third Circuit outlined three factors to determine whether a bankruptcy order is final: (1) “the impact of the matter on the assets of the bankruptcy estate,” (2) “the preclusive effect of a decision on the merits,” and (3) “whether the interests of judicial economy will be furthered.” Marcal Paper Mills, 650 F.3d at 314. “The ‘most important’ of these factors is the impact upon the assets of the bankrupt estate.” In re Market Square Inn, Inc., 978 F.2d 116, 120 (3d Cir.1992) (citations omitted).

By deeming the “cram down” ineffective and ordering a valuation hearing of the property, the order entered by the Bankruptcy Court impacts the assets in the bankruptcy estate.⁴ Also, the appeal would require this Court to address a discrete question of law concerning due process that could have a preclusive effect as to confirmation of the plan. See In re Armstrong World Industries, Inc., 432 F.3d 507, 511 (3d Cir.2005). Finally, the interests of judicial economy will be furthered by deciding this issue now. See Marcal Paper Mills, 650 F.3d at 314.

However, even if the order is not considered final because the valuation of the property is pending,⁵ the order is appealable under the collateral order doctrine. There is no standard under section 158(a) for determining whether to exercise discretion in granting leave to appeal interlocutory bankruptcy orders. In re Marvel Entm't Group, Inc., 209 B.R. 832, 837 (D.Del.1997). Based upon the decision of the Third Circuit in Bertoli v. D'Avella (In re Bertoli), 812 F.2d 136, 139 (3d Cir.1987), courts within this Circuit confronted with the decision whether to grant leave to allow an interlocutory appeal are informed by the criteria in 28 U.S.C. § 1292(b), which governs interlocutory appeals from the district courts to the courts of appeal. Id. (rejecting certification requirement for interlocutory appeals from bankruptcy court to district court); see In re SemCrude, L.P., 407 B.R. 553, 556 (D.Del.2009) (citing In Re Magic Restaurants, Inc., 202 B.R. 24, 25 (D.Del.1996)). Leave to file an interlocutory appeal may be granted when the order at issue: (1) involves a controlling question of law; (2) upon which there is substantial grounds for difference of opinion as to its correctness; and (3) if appealed immediately, may materially advance the ultimate termination of the litigation. SemCrude, 407 B.R. at 556–57 (citing Katz v. Carte Blanche Corporation, 496 F.2d 747, 754 (3d Cir.1974)).

A court's discretion to grant or deny an interlocutory appeal is not limited by this test, however. “Leave to file an interlocutory appeal may be denied for reasons apart from this specified criteria, including such matters as the appellate docket or the desire to have a full record before considering the disputed legal issue.” Id. (citation omitted). Moreover, because an interlocutory appeal “represents a deviation from the basic judicial policy of deferring review until the entry of a final judgement, the party seeking leave to appeal an interlocutory order must also demonstrate that exceptional circumstances exist.” Id. (finding decision classifying the post-petition portion of withdrawal liability as an administrative expense was final) (citation omitted).

This Court concludes that if the Order of the Bankruptcy Court is not final, we would grant leave to file an interlocutory appeal in this matter because the issue—whether due process requires conformance with the bankruptcy rules regarding service even when the party has actual notice—involves a controlling question of law. As set forth below, there exists substantial grounds for difference of opinion over this issue, and a decision will materially advance the ultimate termination of the litigation. See In re SemCrude, 407 B.R. at 556–57.

B. Due Process

Appellants argue that due process was satisfied because BOA had “actual notice” of the Chapter 13 plan and confirmation hearing. BOA argues that its due process rights were violated because appellants failed to follow proper procedure resulting in defective service which was the cause of BOA's failure to timely file an opposition to the appellants' property valuation.

Since the Supreme Court decided Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950), it has been relied upon when “confronted with questions regarding the adequacy of the method used to give notice.” See Rago...