725 F.3d 494
5th Cir.2013Background
- Acceptance perfected a lien on SWT’s main asset, a Saucier, Mississippi office building, in 2004.
- SWT filed Chapter 11 in 2010; SWT disclosed Acceptance’s lien as disputed but did not list it as a filed claim.
- After plan submission, the bankruptcy court confirmed SWT’s plan on December 21, 2010; plan provided no recovery for Acceptance.
- Acceptance moved for declaratory relief in 2011 to show its lien survived or to modify the confirmation; motion denied by the bankruptcy court, which voided Acceptance’s lien under § 1141(c).
- The district court reversed, concluding that mere notice does not constitute participation under In re Ahern Enterprises.
- The Fifth Circuit affirmed, holding that passive notice alone does not satisfy the participation requirement to void a lien under § 1141(c).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does notice alone constitute participation under § 1141(c)? | SWT contends participation can be satisfied by notice. | Acceptance contends mere notice is insufficient for participation. | Not sufficient; participation requires more than passive notice. |
| What level of participation is required to void a lien under § 1141(c)? | SWT argues higher involvement is needed to extinguish the lien. | Acceptance argues the established test allows notice or filing as participation. | Participation requires more than mere notice; active involvement is needed. |
Key Cases Cited
- In re Ahern Enterprises, Inc., 507 F.3d 817 (5th Cir. 2007) (four conditions for lien voiding under § 1141(c))
- In re Be-Mac Transportation Co., 83 F.3d 1020 (8th Cir. 1996) (extensive involvement can prevent lien voiding despite notice)
- In re Penrod, 50 F.3d 459 (7th Cir. 1995) (creditor may file a claim to participate in bankruptcy)
- Universal Suppliers v. Reg’l Bldg. Sys., Inc. (In re Reg’l Bldg. Sys., Inc.), 254 F.3d 528 (4th Cir. 2001) (participation grounded in active involvement; given as contrast to notice)
- Sun Fin. Co. v. Howard (In re Howard), 972 F.2d 639 (5th Cir. 1992) (lienholder may pursue lien outside bankruptcy unless code voids it)