Matter of Penrod
| Decision Date | 03 March 1994 |
| Docket Number | Bankruptcy No. 87-30501. |
| Citation | 169 BR 910 |
| Parties | In the Matter of John Lee PENROD, Alyce Jean Penrod, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
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Daniel J. Skekloff, Fort Wayne, IN, for debtors.
Mark R. Wenzel, Indianapolis, IN, for Financial Institutions Liquidation Corp. f/k/a Mut. Guar. Corp., Successor in Interest to the Clinton County Farm Bureau Co-op. Ass'n Credit Union.
DECISION and ORDER
This matter is before the court on CITATION FOR CONTEMPT ("Motion"), which was filed on September 14, 1992, by John Lee Penrod and Alyce Jean Penrod against Financial Institutions Liquidation Corporation f/k/a Mutual Guaranty Corporation, Successor in Interest to the Clinton County Farm Bureau Cooperative Association Credit Union. The parties filed a Stipulation of Facts on May 28, 1993. Each party then submitted memoranda in support of its position, after which the matter was taken under advisement.
This decision and order shall represent findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, made applicable in this proceeding by Federal Rules of Bankruptcy Procedure 7052 and 9014. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(K) and (O), over which the court has jurisdiction pursuant to 28 U.S.C. § 157(b)(1).
In addition, this court expressly stated its intention to retain jurisdiction over this case until the Plan of Reorganization ("Plan") is completed.1 Even without a specific retention provision in the Plan, jurisdiction of the bankruptcy court continues post-confirmation as to fundamental questions of interpretation and administration of the Plan. In re Doty, 129 B.R. 571, 586 (Bankr.N.D.Ind.1991); see also In re Hermitage Bldg. Corp., 100 F.2d 597, 599 (7th Cir.1938); Shores v. Hendy Realization Co., 133 F.2d 738 (9th Cir.1943). Therefore, this dispute is a matter over which the court has jurisdiction.
The Stipulation of Facts is briefly summarized below.
Financial Institutions Liquidation Corporation f/k/a Mutual Guaranty Corporation ("Mutual Guaranty") is the Successor in Interest to the Clinton County Farm Bureau Cooperative Association Credit Union ("Credit Union").2 Mutual Guaranty has succeeded to all of the Credit Union's rights to collect the loan obligations owed to the Credit Union by John Lee and Alyce Jean Penrod (jointly referred to as "Penrods").
On February 13, 1986, the Penrods executed and delivered a Promissory Note payable to the Credit Union in the principal amount of $150,000 plus interest. To secure repayment of the Promissory Note, the Penrods executed and delivered to the Credit Union a Security Agreement and Financing Statement, which granted a security interest in, inter alia, all of the Penrods' hog livestock and the proceeds and products thereof. The Credit Union's security interest was duly perfected on February 16, 1986.
On March 27, 1987, the Penrods filed their voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The Credit Union filed its proof of claim on June 2, 1987, setting out the amount of its secured claim as $154,625.13. The Penrods made no objection to the Credit Union's proof of claim.
On June 8, 1987, the Credit Union filed a Motion for Relief from Automatic Stay and for Adequate Protection, alleging the Penrods' failure to comply with the terms of the Promissory Note and Security Agreement. Thirteen days later, this court entered an order requiring the Penrods to pay to the Credit Union monthly adequate protection payments in the sum of $1,437.13 until further order of the court. The Penrods have duly paid all such adequate protection payments.
On May 6, 1988, the Penrods filed their Chapter 11 Plan. In their Plan, the Penrods proposed to pay the Credit Union in full, with interest at the rate of eleven percent per annum. The Credit Union participated in the Chapter 11 case in addition to submitting a ballot accepting the Plan.3
On June 21, 1990, this court entered an Order Confirming Plan, in which the Penrods' Plan was confirmed, with certain modifications which do not pertain to the Credit Union. The Plan, as confirmed, provided for the restructuring and full payment of the Credit Union's claim. The Penrods are current on all payments required under the confirmed Plan.
Between June 1, 1990, and July 1, 1991, the Penrods sold and/or liquidated their entire hog herd.4 Upon learning of this, Mutual Guaranty began negotiating with the Penrods to obtain replacement collateral. The Penrods, through their counsel, advised Mutual Guaranty, through its counsel, that any action on the part of Mutual Guaranty, under the circumstances of this case, would be in violation of the confirmed Plan.
On February 21, 1992, Mutual Guaranty filed with the Wabash Circuit Court a cause of action entitled Financial Institutions Liquidation Corporation f/k/a Mutual Guaranty Corporation as Successor in Interest to the Clinton County Farm Bureau Cooperative Association Credit Union v. John Lee Penrod and Alyce Jean Penrod, Cause No. 85C01-9202-CP-72 ("State Court Action").5 In the State Court Action, Mutual Guaranty alleged that the Penrods were in default of their obligations to it. Mutual Guaranty sought to recover, inter alia, a judgment for the balance of the Penrods' indebtedness to it, together with attorney fees.
In response, the Penrods filed their motion on September 14, 1992. In their Motion, the Penrods seek an order (1) finding that Mutual Guaranty is in contempt of this court's orders, (2) assessing their attorney fees to Mutual Guaranty, and (3) for all other just and proper relief.
This dispute arose out of a difference of opinion concerning interpretation of the Plan. The Penrods claim that they have complied with all of the terms and conditions of the Plan with respect to Mutual Guaranty, and that, as a result, Mutual Guaranty is in contempt of court because it filed the State Court Action. Mutual Guaranty, on the other hand, alleges that the Penrods did not comply with the terms and conditions of the Plan in that the Penrods sold property upon which the Credit Union had obtained a lien; the sale being a violation of the terms and conditions of its security agreement. Mutual Guaranty asserts that, because it was considered a secured creditor under the Plan, it retained its lien under the Plan. Therefore, argues Mutual Guaranty, the sale of the property, which violated the terms and conditions of its security agreement, violated the terms and conditions of the Plan.
The underlying issue before the court is whether a lien exists after confirmation of a Plan that vacates a pre-petition lien, but does not specifically mention termination of said lien.
The logical starting point for analyzing this issue is § 1141 of the Code. Section 1141 provides in pertinent part:
11 U.S.C. § 1141 (Callaghan 1993-94).
The gravamen of this issue is the language of § 1141(c) which states "except as otherwise provided in the plan or in the order confirming the plan, after confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors. . . ." Although appearing straight-forward, this provision has spawned case law with diverse interpretations of it.
Mutual Guaranty cites Matter of Tarnow, 749 F.2d 464 (7th Cir.1984) as the controlling case law on point in this jurisdiction. However, Tarnow arose solely in the context of proof of claim litigation and extinguishment of a lien for failure to file a timely claim.6 In re Henderberg, 108 B.R. 407, 413 (Bankr. N.D.N.Y.1989). In the case at bar we have an active creditor, represented by competent counsel,7 that filed a written acceptance to a plan that extinguished its lien with the plan being confirmed by the court with no objection or appeal of the court's order.
Mutual Guaranty relies on, inter alia, Relihan v. Exchange Bank, 69 B.R. 122 (S.D.Ga.1985) for the proposition that "pre-bankruptcy liens are unaffected by a debtor's Chapter 11 bankruptcy case unless the debtor takes affirmative steps to challenge the lien."8 The court in Relihan held that § 1141 does not act to extinguish valid pre-petition liens. Relihan, 69 B.R. at 127. The court reasoned:
The language of 1141(c) is "free and clear of any claim or interest." "Claim" is defined in Code § 101(4).9 A "claim" is distinct from a "lien," which is defined in Code § 101(31).10 The term "interest" is not defined in the Code, "but it would be odd if Congress had chosen that undefined term to mean `lien,\' when it could have used the defined term `lien\' and avoided uncertainty."
Id. (footnotes in original).
Confusingly, the court in Relihan concluded that, although "lien means charge against or interest in property to secure payment of a debt or...
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