LVNV Funding, LLC v. Harling
| Decision Date | 30 March 2017 |
| Docket Number | No. 16-1346, No. 16-1347,16-1346 |
| Citation | 852 F.3d 367 |
| Parties | LVNV FUNDING, LLC, its successors and assigns as assignee of CitiFinancial, Inc., Creditor–Appellant, v. Derrick Allen HARLING; Teresa Stevens Harling, Debtors–Appellees, v. Pamela Simmons-Beasley ; Joy S. Goodwin; U. S. Trustee's OFFICE, Trustees. Pamela Simmons-Beasley ; National Association of Consumer Bankruptcy Attorneys, Amici Supporting Appellees. LVNV Funding, LLC, its successors and assigns as assignee of Citibank (South Dakota), N.A., Creditor–Appellant, v. Jeffrey Jerel Rhodes, a/k/a Jeff Rhodes, a/k/a Jeffery Jerel Rhodes, Debtor–Appellee, v. Gretchen D. Holland; U. S. Trustee's Office, Trustees. Pamela Simmons-Beasley ; National Association of Consumer Bankruptcy Attorneys, Amici Supporting Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Adam C. Bach, ELLER TONNSEN BACH, Greenville, South Carolina, for Appellant. Jane H. Downey, MOORE TAYLOR LAW FIRM, P.A., West Columbia, South Carolina, for Appellees. ON BRIEF: Robert H. Cooper, THE COOPER LAW FIRM, Greenville, South Carolina, for Appellee Jeffrey Jerel Rhodes. John B. Butler, III, Columbia, South Carolina, for Amicus Pamela Simmons-Beasley. Tara Twomey, Allan L. Gropper, NATIONAL CONSUMER BANKRUPTCY RIGHTS CENTER, San Jose, California, for Amicus National Association of Consumer Bankruptcy Attorneys.
Before AGEE, KEENAN, and THACKER, Circuit Judges.
Affirmed by published opinion. Judge Agee wrote the opinion, in which Judge Keenan and Judge Thacker joined.
LVNV Funding, LLC ("LVNV") appeals from orders of the United States Bankruptcy Court for the District of South Carolina, which disallowed its claims as an unsecured creditor in two proceedings under Chapter 13 of the United States Bankruptcy Code (the "Bankruptcy Code").See generally 11 U.S.C. ch. 13. On appeal, LVNV contends that the bankruptcy court's Chapter 13 plan confirmation orders (the "Confirmation Orders") barred the objections to LVNV's claims because those objections were filed after entry of the Confirmation Orders. For the reasons set out below, we disagree with LVNV and affirm the judgments of the bankruptcy court.
This appeal arises out of two separate Chapter 13 bankruptcy proceedings that followed a similar pattern. On July 11, 2014, Jeffrey Rhodes ("Rhodes") filed in the United States Bankruptcy Court for the District of South Carolina a voluntary petition for relief under Chapter 13. Rhodes' Chapter 13 plan was confirmed on October 17, 2014. On June 26, 2015, Derrick and Teresa Harling (the "Harlings"; collectively with Rhodes, the "Debtors") filed in that same court their own Chapter 13 bankruptcy petition. The bankruptcy court confirmed the Harlings' Chapter 13 plan on August 20, 2015.
The Debtors used "form" Chapter 13 plans, which are utilized by the bankruptcy courts in the District of South Carolina. In their respective plans, the Debtors scheduled their secured debts individually, naming each of their secured creditors, the value of each secured creditor's claim, the value of the lien each secured creditor held in the collateral securing the Debtors' particular obligation, and the amount of each secured creditor's claim that was unsecured by operation of 11 U.S.C. § 506. In contrast to the specific provisions for secured creditors, each plan provided for treatment of unsecured creditors as a single class, so that: "General unsecured creditors shall be paid allowed claims pro rata by the trustee to the extent that funds are available after payment of all other allowed claims." E.g. , J.A. 158. In addition, the Debtors' plans contained a provision reserving the right to object to claims after plan confirmation: "Confirmation of this plan does not bar a party in interest from objecting to a claim." E.g. , J.A. 157 ().
LVNV filed proofs of claim in each case before entry of the Confirmation Orders. In Rhodes' case, LVNV filed proof of an unsecured claim in the amount of $761.44 on August 1, 2014. In the Harlings' case, LVNV filed proof of an unsecured claim in the amount of $3,878.86 on July 8, 2015. Neither the Debtors, nor their trustees, took any action regarding LVNV's claims before the respective Confirmation Orders were entered.
As is typical in Chapter 13 proceedings, the claim bar date in each case was later than the date of plan confirmation. Under the Bankruptcy Code's timeline in a Chapter 13 bankruptcy proceeding, plan confirmation and the deadline to file proofs of claim are set relative to the § 341 meeting of creditors. 11 U.S.C. § 341 ; Fed. R. Bankr. P. 2003(a). Federal Rule of Bankruptcy Procedure 2003(a) sets the § 341 meeting twenty-one to fifty days after the debtor's petition for relief. Under § 1324, the plan confirmation hearing follows twenty to forty-five days after the § 341 meeting, 11 U.S.C. § 1324(b), while the claim bar date is ninety days after the creditor's meeting, Fed. R. Bankr. P. 3002(c). As a consequence, it is common in a Chapter 13 proceeding that the bar date to file claims by unsecured creditors occurs after plan confirmation. In Rhodes' case, the claim bar date was November 13, 2014, almost a month after his Confirmation Order was entered. In the Harlings' case, the bar date was October 26, 2015, more than two months after the Confirmation Order was entered.
Rhodes filed his objection to LVNV's proof of claim under 11 U.S.C. § 502 on October 9, 2015, contending that claim was barred by the relevant statute of limitations.
Likewise, on August 27, 2015, one week after the Confirmation Order in their case was entered, the Harlings objected to LVNV's proof of claim on the same ground.
LVNV conceded in the bankruptcy court, as it does here, that its claims would ordinarily be barred by the statute of limitations. However, LVNV interposed the defense that the Debtors' objections were invalid and of no effect under the doctrine of res judicata. According to LVNV, the Confirmation Orders were final judgments on the validity of LVNV's claims and, therefore, res judicata precluded the Debtors' later objections. The bankruptcy courts disagreed with LVNV and sustained the Debtors' objections to LVNV's claims in reliance on the reservation of rights clauses in the respective Chapter 13 plans. As a consequence, LVNV's claims were barred by the applicable state statute of limitations, and it will not receive any distribution from the Debtors' Chapter 13 estates.
LVNV now appeals from both decisions. In Rhodes' case, the parties jointly moved the bankruptcy court for leave to bypass the district court and appeal directly to this Court under 28 U.S.C. § 158(d)(2)(A), representing the case presented a question of law as to which there was no controlling decision and that resolution of the issue presented would materially advance the progress of Rhodes' individual case. The bankruptcy court granted the motion, and we accepted jurisdiction.1 See Fed. R. App. P. 5 ; Fed. R. Bankr. P. 8006.
Meanwhile, LVNV appealed the Harlings' case to the United States District Court for the District of South Carolina under 28 U.S.C. § 158(a). Shortly after filing its notice of appeal in the district court, however, LVNV and the Harlings filed a joint motion for leave to appeal directly to this Court under 28 U.S.C. § 158(d)(2)(A). The district court granted the motion, and again we accepted jurisdiction. See Fed. R. App. P. 5 ; Fed. R. Bankr. P. 8006.
We consolidated the Debtors' cases for purposes of this appeal, over which we have jurisdiction pursuant to 28 U.S.C. § 158(d)(2)(A).
On appeal, LVNV contends that the bankruptcy court erred in approving the Debtors' objections to its unsecured claims, thereby disallowing those claims, because the Debtors' objections came after entry of the Confirmation Orders. LVNV maintains that confirmation of a Chapter 13 bankruptcy plan has a res judicata effect on all creditor claims filed prior to issuance of the confirmation order. We find that LVNV's position does not satisfy the requirements for the application of res judicata and contradicts the plain language of the Bankruptcy Code and the plan set out by Congress governing Chapter 13 proceedings.
We review the bankruptcy court's application of res judicata de novo. First Union Commercial Corp. v. Nelson, Mullins, Riley & Scarborough (In re Varat Enters., Inc. ), 81 F.3d 1310, 1314 (4th Cir. 1996).
A debtor's bankruptcy case "involves an aggregation of individual controversies, many of which would exist as stand-alone lawsuits but for the bankrupt status of the debtor." Bullard v. Blue Hills Bank , 575 U.S. ––––, 135 S.Ct. 1686, 1692, 191 L.Ed.2d 621 (2015) (internal quotations omitted). In view of this unique status, a bankruptcy case may contain many "final decisions" that do not necessarily fit squarely into the conventional formulation of res judicata, which is a product of "ordinary civil litigation." See id. at 1691–92. Nonetheless, Chapter 13 confirmation orders have a preclusive effect on those issues litigated by or determined at confirmation, as the plan confirmation order is a "final determination" as to those matters it actually addresses. See 11 U.S.C. § 1327(a) (); In re Varat , 81 F.3d at 1315 ().
In bankruptcy, "[w]e look to res judicata principles developed in our own case law to determine whether an earlier federal judgment, including the judgment of a bankruptcy court, bars a claim asserted in a later action." Grausz v. Englander , 321 F.3d 467, 472 (4th Cir. 2003). Under the doctrine of res judicata, "a prior judgment between the same parties can preclude subsequent...
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