JPMorgan Chase Bank, Nat'l Ass'n v. Galaske

• Decision Date: 13 June 2012
• Docket Number: No. 5:12–cv–9.,5:12–cv–9.
• Citation: 476 B.R. 405
• Parties: JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, Appellant, v. John Thomas GALASKE, Sr., Debtor, and Jan M. Sensenich, Chapter 13 Trustee, Appellees.
• Court: U.S. District Court — District of Vermont

476 B.R. 405

JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, Appellant,

v.John Thomas GALASKE, Sr., Debtor, and Jan M. Sensenich, Chapter 13 Trustee, Appellees.

No. 5:12–cv–9.

United States District Court, D. Vermont.

June 13, 2012.

Norman C. Williams, Gravel and Shea, Burlington, VT, for Appellant.

Rebecca A. Rice, Cohen & Rice, P.C., Rutland, VT, for Appellees.

OPINION AND ORDER REVERSING AND REMANDING BANKRUPTCY COURT'S CHAPTER 13 CONFIRMATION ORDER (Docs. 1, 4, 5)

CHRISTINA REISS, Chief Judge.

This matter came before the court on the appeal of Appellant JPMorgan Chase Bank, National Association (“Chase”), of the Bankruptcy Court's Order confirming the reorganization plan (Doc. 1–3) (the “Plan”) of Debtor John Thomas Galaske, Sr. (Doc. 4). At issue is the Bankruptcy Court's confirmation of a Plan that purports to modify the terms of a mortgage Mr. Galaske executed and delivered to Chase (the “Chase Mortgage”). Chase claims that the Bankruptcy Court impermissibly modified Chase's secured claim over a period of more than five years in violation of 11 U.S.C. § 1322.

Chase is represented by Norman C. Williams, Esq. Mr. Galaske is represented by Rebecca A. Rice, Esq. The Chapter 13 Trustee is Jan M. Sensenich, Esq. The parties waived oral argument.

I. Factual and Procedural Background.

Mr. Galaske is a partner in “Bad Boys Auto,” an automotive repair shop that occupies the same real property as his principal residence in Whitingham, Vermont. On September 19, 2007, Mr. Galaske executed and delivered to Chase a note in the original principal amount of $100,000, with an interest rate of 9.175%,¹ and a monthly payment of $817.25 over a thirty year term (the “Chase Note”). The Chase Note is secured by the Chase Mortgage.²

On October 6, 2011, Mr. Galaske filed a voluntary Chapter 13 petition after failing to make payments when due under the Chase Note. In his petition, Mr. Galaske states that he owes $98,268 to Chase based on its claim secured by a “[h]ouse and [s]hop on 1.7 acres” located at 279 Poverty Row in Whitingham, Vermont. (Doc. 4–1 at 8.) He identifies the current value of his interest in the property, without deducting the secured claim to Chase, as $217,000.

On the same date as his Chapter 13 petition, Mr. Galaske filed his proposed Plan. The Plan identifies the Chase Mortgage as the sole secured claim and states; “THE CLAIM OF CHASE MORTGAGE IS BEING MODIFIED AS IT IS SECURED BY BOTH A RESIDENCE AND AN AUTOMOTIVE SHOP. THE MONTHLY PAYMENT IS BASED ON A 30 YEAR AMORTIZATION AT 4.25% INTEREST ON $100,000.00. PAYMENTS SHALL BE MADE OUTSIDE THE PLAN ONCE THE PLAN IS COMPLETED.” (Doc. 4–1 at 51.)

On November 9, 2011, Chase filed its objection to the Plan, presenting five grounds for rejecting it: (1) the Plan “impermissibly seeks to modify the Creditor's secured claim, in violation of 11 USC § 1322(b)(2). The mortgage on the property is a residential mortgage. The fact that there is an automotive shop on the property is irrelevant”; (2) “The Chapter 13 Plan understates the total balance of the Creditor's claim, and no evidence of the valuation of the subject real property has been provided”; (3) “the Chapter 13 Plan term exceeds five years, in violation of 11 USC § 1322(d)”; (4) “The Plan is ambiguous as to how and when payment will be made to the Creditor once the Plan is completed”; and (5) “The Plan does not account for pre-petition arrearages due [Chase] in the approximate amount of $30,000.00” (Doc. 4–1 at 55–56.)

On November 15, 2011, the Bankruptcy Court held a hearing to address confirmation of Mr. Galaske's proposed Plan as well as to address a motion pertaining to mortgage mediation. The following day, the Bankruptcy Court issued an Order Overruling Objection to Plan under § 1322(b)(2) (the “11/16/11 Order”). In the 11/16/11 Order, the court addressed only Chase's claim that its secured claim could not be modified pursuant to 11 U.S.C. § 1322(b)(2) which provides that a Chapter 13 plan may “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence[.]” Noting that Mr. Galaske executed and delivered the Chase Mortgage in 2007 at a time when he was using the property as both a principal residence and as an automotive shop, the Bankruptcy Court held that “[i]f the real property is not being used solely as the debtor's principal residence at the time of the mortgage transaction, the anti-modification provision of § 1332(b)(2) is inapplicable.” (Doc. 4–1 at 59.) ³

On November 17, 2011, the Bankruptcy Court issued its Findings and Order Confirming Chapter 13 Plan (the “Confirmation Order”). The Confirmation Order approved the Plan as filed and stated that any objections to the Plan not specifically addressed in the Order were overruled. The Bankruptcy Court further found that “[t]he Plan complies with the provisions of Chapter 13 of the Bankruptcy Code and all other applicable provisions of the Bankruptcy Code.” (Doc. 4–1 at 60.)

On November 29, 2011, Chase filed a Notice of Appeal.

II. Conclusions of Law and Analysis.

On appeal, Chase's challenge to the Plan is twofold: (1) whether the Plan violates 11 U.S.C. § 1322 by permitting repayment of Chase's modified secured claim over a period longer than five years; and (2) whether the Plan violates 11 U.S.C. § 1325 because the present value of the payments to be made under the Plan on account of Chase's modified secured claim is less than the amount of such claim.⁴

In opposing Chase's appeal, Mr. Galaske and the Chapter 13 Trustee first argue that Chase has waived its challenges on appeal by failing to adequately present them to the Bankruptcy Court. Second, they argue that provided the Plan itself lasts only five years, § 1322(d) is not violated because “many Chapter 13 Plans have been confirmed which provide for the amortization of secured loans beyond the actual term of the Plan.” (Doc. 5 at 2.) Although they concede that such plans generally involve creditor consent, they argue that here “consent must be assumed.” Id.

In reply, Chase contends that its written objections to the Plan were sufficient to put both Appellees and the Bankruptcy Court on notice of its challenges and that, in any event, the Bankruptcy's conclusion that the Plan meets all the requirements of Chapter 13 places the accuracy of that legal conclusion squarely before the court.

A. Standard of Review.

This court has jurisdiction over this appeal pursuant to 28 U.S.C. § 158(a)(1). Federal Rule of Bankruptcy Procedure 8013 establishes the standard governing a district court's review of a bankruptcy court's order, and states that a district court functions as an appellate court and may affirm, modify, reverse, or remand an order with instructions for further proceedings.

Findings of fact “shall not be set aside unless clearly erroneous.” Fed. R. Bankr.P. 8013. A finding is “clearly erroneous when ‘although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.’ ” In re 139–141 Owners Corp., 313 B.R. 364, 367 (S.D.N.Y.2004) (quoting United States v. Mitchell, 966 F.2d 92, 98 (2d Cir.1992)).

A bankruptcy court's conclusions of law are reviewed de novo. In re 139–141 Owners Corp., 313 B.R. at 367 (citing In re Maxwell Newspapers, Inc., 981 F.2d 85, 89 (2d Cir.1992)).

B. Whether Chase Waived Its Challenges to the Plan.

As a general rule, a court may refuse to consider an argument in a bankruptcy appeal not raise in the court below. In re Lionel Corp., 29 F.3d 88, 91 (2d Cir.1994); see also In re Ozark Restaurant Equip. Co. Inc., 850 F.2d 342, 346 (8th Cir.1988) (“As a reviewing court the district court is not empowered to consider an issue not raised in the bankruptcy court.”); First Brandon Nat'l Bank v. Kerwin–White, 109 B.R. 626, 629 (D.Vt.1990) ( “This court, however, need not address the issue because [appellant] neglected to raise it before the bankruptcy court; hence, it is considered waived.”). The appellate court nonetheless retains “the authority to decide issues that were argued before but not reached by the [lower] court.” The Hartford Courant Co. v. Pellegrino, 380 F.3d 83, 90 (2d Cir.2004).

In a written objection filed with the Bankruptcy Court, Chase objected to the confirmation of the Plan, stating, among other things, that “[t]he Chapter 13 Plan term exceeds five years, in violation of 11 USC § 1322(d).” (Doc. 4–1 at 55.) This objection was clearly sufficient to preserve the argument Chase now makes on appeal that the Plan violates the five year limit set forth in § 1322(d). The Bankruptcy Court's decision to overrule this objection without further analysis does not alter that conclusion. See Pellegrino, 380 F.3d at 90;see also United States v. Williams, 504 U.S. 36, 41, 112 S.Ct. 1735, 118 L.Ed.2d 352 (1992) (an issue is subject to review on appeal if “pressed or passed on below.”).

Albeit less clearly, Chase also objected before the Bankruptcy Court to the terms of the modification of its secured claim, pointing to the Plan's ambiguity as to “how and when payments will be made once the Plan is completed” as well as to how pre-petition arrearages in the amount of $30,000 would be paid. This, too, was sufficient to preserve those arguments for appeal. See Higgins v. New York Stock Exch., Inc., 942 F.2d 829, 832 (2d Cir.1991) (finding argument not waived on appeal where the argument before the district court “although different in emphasis from the point pressed on appeal, at least introduced the [same] notion” relied upon on appeal).

Having found Chase has preserved the arguments it now makes on appeal, the court determines de novo whether the Bankruptcy Court committed error as a matter of law in confirming Mr. Galaske's Plan.

C. Whether the Modification of Chase's Secured Claim Exceeds the Plan's Five Year Limit.

Section 1332(a) of the Bankruptcy Code sets forth...