Williams v. M. Bruenger & Co. (In re Brannan)
| Decision Date | 25 June 2015 |
| Docket Number | Adv. No. 14–5068,Case No. 13–12834 |
| Citation | 532 B.R. 834 |
| Parties | In re: Laura B. Brannan, Debtor. Laurie B. Williams, Chapter 13 Trustee, Plaintiff, v. M. Bruenger & Co., Inc., Defendant. |
| Court | U.S. Bankruptcy Court — District of Kansas |
Karin N. Amyx, Laurie B. Williams Chapter 13 Trustee, Wichita, KS, for Plaintiff.
Eric W. Lomas, Klenda Austerman LLC, Wichita, KS, for Defendant.
Is the chapter 13 Trustee barred from avoiding a secured creditor's liens post-confirmation when she did not object to confirmation? Does it matter whether the Trustee signed an Agreed Order providing for the creditor's claims to be treated as secured or that she did so before the claims bar date and didn't have an opportunity to see, far less object to, the creditor's claim before confirmation? And if the orders bar her efforts, does § 502(j) reconsideration of the claims leave the trustee another source of relief?
Section 1327(a) binds the debtor and each creditor to a confirmed plan's provisions whether the plan treats the claim or not and whether the creditor objects, accepts, or rejects it.1 Section 502(j) provides for the reconsideration of a claim that has been allowed or disallowed, upon a showing of cause and based upon the equities of the case.2 Even though the plan was confirmed before the claims bar date, the Trustee signed an agreed order providing for the secured creditor's treatment and recommended that the debtor's plan be confirmed. That treatment binds her under § 1327(a) and effectively bars the Trustee's adversary proceeding to avoid the creditor's lien under § 544(b).3 Even § 502(j) does not save the Trustee because she did not show cause why the secured creditor's claims should be reconsidered.
Finally, even if confirmation did not bar the complaint or if she had demonstrated cause to reconsider, her cause of action fails on the merits. Although the debtor did not execute a form security agreement that contained words of grant, reading all of the documents between the debtor and the creditor as a composite transaction makes it clear that the parties intended that the creditor would sell the debtor the trucks while retaining a purchase money security interest in them. The creditor's liens attached to the collateral under Kan. Stat. Ann. § 84–9–203 (2014 Supp.).4
This adversary proceeding is a core proceeding over which the Court may exercise subject matter jurisdiction under 28 U.S.C. § 1334 and § 157(a) and (b)(1).5
The debtor Laura Brannan is an over-the-road trucker who was formerly employed by M. Bruenger & Co. (MBC), a Wichita trucking concern. For a long time, MBC has made a practice of locating and selling semi-tractors (trucks) to its drivers. The drivers purchase the trucks and drive loads provided by MBC. MBC deducts the drivers' weekly installment payment from their pay or fees and purportedly retains a security interest in the trucks until the sale price is paid in full. The idea is to incentivize the drivers by giving them ownership of their unit while making them independent contractors of MBC as opposed to its employees. MBC sold two semi-tractors to Ms. Brannan utilizing this financing program.
In Ms. Brannan's case, MBC documented its two transactions by the parties executing a series of documents, beginning with a Weekly Installment Agreement.6 That agreement described the truck being sold, the purchase price, the date of sale, and the weekly installment payment. Both Brannan and a representative of MBC signed it. MBC then made a Bill of Sale over to the buyer, again describing the truck by vehicle identification number, make, and year, and showing the purchase price.7 MBC next assigned to the buyer its certificate of title for the truck, its representative executing the assignment section on the title's reverse side, assigning the truck and title to Brannan.8 In this assignment section, Brannan checked a box indicating that the truck is subject to MBC's lien and signed a statement affirming that lien as the title form requires. As the new owner of the truck, Brannan then obtained a Title and Registration Receipt from the Kansas Division of Vehicles indicating MBC's liens on the trucks.9 MBC followed this process for both of the trucks Brannan purchased—a 2007 Kenworth purchased in October of 2012 and a 2009 Cascadia Freightliner purchased two months later in December.
Ms. Brannan filed her chapter 13 case on November 1, 2013.10 The nongovernmental creditor bar date was set for March 4, 2014. She filed an amended chapter 13 plan in December in which she proposed to make 60 monthly payments of $1,437.00.11 Because she had purchased the trucks within a year of filing, her plan provided for treating MBC under the two truck purchase agreements as “one year loan creditors” under § 1325(a)(5)'s hanging paragraph.12 She proposed minimum monthly payments on both trucks and to pay them in full. On December 27, the trustee objected to Brannan's plan for several reasons, but did not question whether MBC's claims were secured claims.13 On January 2, 2014, MBC objected to confirmation, too, noting that the plan did not provide for a third truck, but specifically not objecting to the proposed treatment of the two trucks described above.14
On February 3, the parties presented an Agreed Order that resolved MBC's confirmation objection by providing for the surrender of the unmentioned truck and setting forth an agreement about the values and payment terms concerning the two trucks Brannan sought to retain.15 The Trustee approved this Agreed Order along with counsel for debtor and MBC. The Agreed Order specifies that “Bruenger shall have a general secured claim” as to both vehicle transactions, that “it shall be allowed a general unsecured claim for any deficiency balance,” and that “Bruenger shall retain its liens with respect to its secured claims....”16 The amended plan was confirmed and a confirmation order entered on February 19.17 MBC filed its proofs of claim on March 4, 2014.18 After the Trustee reviewed the proofs of claim, she filed this adversary proceeding under § 544 to avoid and preserve what she alleges to be an unattached security interest in each of the trucks. The parties provided pre- and post-trial briefs and the Court held a trial on March 17, 2015.
The Trustee claims that MBC's purported security interests in the two trucks never attached because Laura Brannan never “authenticated” a security agreement as is required by Kan. Stat. Ann. § 84–9–203(b), Kansas' version of revised Article 9 of the Uniform Commercial Code. MBC responds that while no form security agreement was made, a reading of all the transaction documents makes clear that the parties intended to and did create security interests that attached to the Freightliner and Kenworth to secure MBC's claims. But MBC also claims that the Trustee's execution of the Agreed Order resolving MBC's objection to confirmation and the Confirmation Order itself bar the Trustee's lien avoidance action.
Section 1327(a) provides that confirmation of the debtors plan is binding on the debtor and every creditor (whose interests the Trustee represents) whether or not the plan treats their claims or they have objected to or accepted the plan.19 In this case, the confirmed plan plainly provides that MBC's claims are secured by the trucks and for those claims to be paid as specified in the Agreed Order. MBC argues that § 1327(a) effectively codifies the doctrine of res judicata as to the allowance and treatment of claims once a plan is confirmed and that, as the United States Supreme Court has held in Espinosa, parties to a plan are stuck with its contents once it's confirmed, even if the applicable plan provisions are contrary to bankruptcy or other law.20 The Trustee responds that § 502(j) carves out an exception to § 1327(a)'s preclusive effect by permitting her to seek reconsideration of MBC's allowed claims for cause.
The Trustee notes that her approval of the Agreed Order and confirmation recommendation both occurred before MBC filed its proofs of claim. She says that without the proofs of claim being filed, there wasn't any way for her to know that MBC's liens were flawed and that she signed the Agreed Order because this Judge requires that she be made privy to and sign off on all orders in chapter 13 cases that affect her duties.21 She also argues that when plans are confirmed in this District, confirmation does not finally allow or disallow claims and that any claim treated in the plan can be disallowed even after confirmation.22
The courts are somewhat divided on whether confirmed plans preclude revisiting the validity of liens or claims. Some hold that they do not. In In re Johnson, when the trustee objected to a creditor's secured claim after plan confirmation, that creditor raised § 1327(a) as a bar to the objection.23 Noting that the district's form plan neither allows nor disallows claims, and that meaningful claim review by the trustee is impossible in a district where plans are routinely confirmed on the date of the debtor's first meeting of creditors, well before the claims bar date, the court sustained the trustee's claim objection. The court explained that the plan in question is a “pot” plan, meaning that the debtor is obligated for a series of fixed payments that will fund a liquidated amount to be distributed to the creditors treated in the plan. Implicit in that sort of plan is the idea that if the trustee successfully objects to a claim (or avoids a secured creditor's lien), part or all of that pot will be distributed differently. In other words, what § 1327(a) makes “final” about a confirmation order is not what a particular creditor will get, but what the debtor will pay.24 According to the Johnson court, holding otherwise would greatly damage the speedy confirmation process by slowing it down while the trustee examined...
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