795 F.3d 343
2d Cir.2015Background
- NNETO (debtor) filed Chapter 11 in Oct 2009; plan confirmed Jan 13, 2011.
- Concord, NH billed NNETO quarterly 2009 property taxes; Q1 and Q2 bills (pre-petition) were the subject of timely proofs of claim; Q3 and Q4 bills (issued but payment due post-petition) were not filed as proofs of claim.
- New Hampshire law creates an automatic statutory lien on April 1 securing the full tax year; the City perfected that lien in May 2010 to maintain it.
- The confirmed plan declared “all property” of the reorganized debtor free and clear of claims and liens and contained no specific preservations of Concord’s lien.
- Concord moved (post-confirmation, >2 years later) to allow and pay the Q3/Q4 tax claims; bankruptcy and district courts held the plan extinguished the lien.
Issues
| Issue | Plaintiff's Argument (Concord) | Defendant's Argument (NNETO/FairPoint) | Held |
|---|---|---|---|
| Whether a confirmed Chapter 11 plan can extinguish a lien under 11 U.S.C. §1141(c) | §1141(c) does not apply because plan did not specifically “deal with” the particular property tied to the lien | §1141(c) extinguishes liens when plan deals with the property and does not preserve the lien | A plan extinguishes a lien under §1141(c) if it is confirmed, the plan deals with the property, the plan/order does not preserve the lien, and the lienholder participated; here those conditions are met. |
| Whether the plan’s broad “all property” language sufficiently "dealt with" the specific parcels | Broad catch‑all is insufficient; debtor as draftsman should not nullify liens by vague terms | Categorical language covering “all property” does deal with each parcel; listing each parcel is impractical | The court held the “all property” clause dealt with the parcels and thus satisfied the "dealt with" requirement. |
| Whether Concord’s participation in the bankruptcy was sufficient to permit extinguishment | Concord did not file proofs of claim for Q3/Q4 and thus did not participate regarding those specific taxes/liens | Concord filed proofs of claim for Q1/Q2 on the same parcels and litigated related tax claims; that participation related to the same statutory lien and property | Participation requirement satisfied because Concord actively pursued claims tied to the same properties and the same single statutory lien; extinguishment permitted. |
| Whether other doctrines save Concord’s lien (§506(d)(2), equity, excusable neglect) | §506(d)(2) preserves liens when creditor failed to file proof; equitable or excusable‑neglect relief should allow the late claims | §1141(c)’s conditions control; §506(d)(2) is inapplicable once §1141(c) applies; equities and excusable‑neglect do not warrant relief after >2 years post‑confirmation | Rejected: §506(d)(2) does not independently save the lien here; equities and excusable‑neglect do not overcome the §1141(c) result; bankruptcy court did not abuse discretion. |
Key Cases Cited
- Dewsnup v. Timm, 502 U.S. 410 (1992) (background principle that liens generally pass through bankruptcy unaffected)
- Long v. Bullard, 117 U.S. 617 (1886) (historical rule that liens survive bankruptcy)
- Butner v. United States, 440 U.S. 48 (1979) (property interests governed by state law)
- In re Penrod, 50 F.3d 459 (7th Cir.) (recognizing lienholder participation as relevant to extinguishment)
- In re Chrysler LLC, 576 F.3d 108 (2d Cir.) (confirmation can extinguish liens under §1141(c))
- FDIC v. Union Entities (In re Be-Mac Transp. Co.), 83 F.3d 1020 (8th Cir.) (insufficient participation may preclude extinguishment)
- Elixir Indus. v. City Bank & Tr. Co. (In re Ahern Enters., Inc.), 507 F.3d 817 (5th Cir.) (participation requirement satisfied by filing claims)
- In re Enron Corp., 419 F.3d 115 (2d Cir.) (abuse‑of‑discretion standard for late‑filing relief)