Grace M. Forbes v. Russell C. ForbesGrace M. Forbes v. Russell C. Forbes
WILLIAM A. HILL, Bankruptcy Judge:
The appellant, Grace M. Forbes (“Grace“) is the former spouse and, by virtue of a divorce decree award, a creditor of the Chapter 13 debtor, Russell C. Forbes (“Robert“), the appellee herein. In these consolidated appeals she appeals from the bankruptcy court‘s approval of post-confirmation modification of Robert‘s confirmed Chapter 13 plan over her objection and from an order denying her motion for reconsideration of its order aрproving the sale of real property in which she claims a lien. Robert moved for dismissal of both appeals on grounds of mootness. Resolution of the motion was reserved pending oral argument.
I. FACTUAL AND PROCEDURAL HISTORY
In December 1992, Robert filed a voluntary petition and repayment plan under
A. The Modified Plan
Robеrt‘s original Chapter 13 plan was a 60-month plan, and provided for monthly contributions to the trustee totaling $60,000.00. It made no specific reference to any particular secured claim, but rather mentioned these claims only generally. Grace‘s claim was not treated as a secured claim; rather, it was listed in Robert‘s schedules as an unsecured nonpriority claim. Robert‘s plan was confirmed on April 5, 1994, without objection.
Shortly thereafter, in June 1994, Robert sought to modify the previously-confirmed original plan by changing the amount of monthly contributions payable to the trustee. His proposed modified plan for the first time identified Grace as a secured creditor, with a claim of $28,000.00 payable without interest over 42 months at $673.00 per month.2 The bankruptcy court approved this postconfirmation modification without objection.
In August 1994, Robert proposed a second postconfirmatiaon modification to the plan, increasing the length of the plan and changing his periodic contributions to the trustee, but leaving unaltered the treatment it accorded Grace. As extended, total plan payments became $67,600.00.
Both Grace and the trustee objeсted to the proposed modification, alleging that the settlement proceeds constituted a “windfall” which enabled Robert to pay all of his creditors in full. The court overruled the objections, and once again approved Robert‘s proposed plan modification.
In her appeal from this order, Grace points to Robert‘s post-confirmation settlement, charging that the proceeds therefrom became property of the estate pursuant to
B. Approval of the Property Sale
The second appeal presented concerns the sale of the Salisbury Street property, upon which Grace claims a lien. The bankruptcy court ordered an independent appraisal of this property in July 1994.4
At various times during the proceedings in the bankruptcy court, Robert moved to convey the Salisbury Street propеrty to Grace by quitclaim deed, thereby attempting to receive an “allowance of secured claim credit of $55,000.00,” presumably in satisfaction of Grace‘s secured claim. For reasons not disclosed in the record, the bankruptcy court refused to allow the conveyance.
Thereafter, Robert entered into a sale contract on the property, which was made subject to the bankruptcy court‘s approval, for the sum of $28,000.00. The sale was set for August 8, 1996, and, after hearing, the court granted Robert‘s motion to sell the property for that amount.
Grace then moved the court to reconsider its order permitting sale of the prоperty. The court held a hearing on the matter, and subsequently denied her motion.
On appeal, Grace makes three challenges to the bankruptcy court‘s sale order. First, she alleges that the order is based upon factual and procedural errors. Next, she argues that the court failed to provide adequate protection for her lien, thereby failing to meet the requirements of
II. STANDARD OF REVIEW
On appeal, the bankruptcy court‘s findings of fact are reviewed for clear error and its legal determinations are reviewed de novo. O‘Neal v. Southwest Missouri Bank of Carthage (In re Broadview Lumber Co.), 118 F.3d 1246, 1250 (8th Cir. 1997); Natkin & Co. v. Myers (In re Rine & Rine Auctioneers, Inc.), 74 F.3d 848, 851 (8th Cir. 1996); Hartford Cas. Ins. v. Food Barn Stores, Inc. (In re Food Barn Stores, Inc.), No. 97-6055, 1997 WL 705577, at *1 (B.A.P. 8th Cir. Nov. 14, 1997); see also
“Whether property is included in the bankruptcy estate is a question of law.” Ramsay v. Dowden (In re Central Arkansas Broad. Co.), 68 F.3d 213, 214 (8th Cir. 1995). “Chapter 13 plan confirmation issues requiring statutory interpretatiоn are subject to de novo review. Jurisdictional issues also are reviewed de novo.” Hagel v. Drummond (In re Hagel), 184 B.R. 793, 795 (B.A.P. 9th Cir. 1995) (citations omitted); see also Leavitt v. Soto (In re Leavitt), 209 B.R. 935, 938 (B.A.P. 9th Cir. 1997) (“Statutory construction involves an issue of law which we review de novo.“). The bankruptcy court‘s denial of a motion for reconsideration is reviewed for an abuse of discretion.6 Bellus v. United States, 125 F.3d 821, 822 (9th Cir. 1997); Employment Sec. Div. v. W.F. Hurley, Inc. (In re W.F. Hurley, Inc.), 612 F.2d 392, 395-96 (8th Cir. 1980).
III. DECISION
A. The Modified Plan
i. Motion to Dismiss as Moot
As a threshold matter, we first address Robert‘s motion to dismiss Grace‘s consolidated appeals as moot. Robert argues that Grace‘s appeal from the bankruptcy court‘s order approving the postconfirmation plan modification became moot when the court granted Robert a discharge in bankruptcy, as required under
“It has long been settled that a federal court has no authority ‘to give opinions upon moot questions or abstract propositions, or to declare principles or rules of law which cannot affect the matter in issue in the case before it.‘” Church of Scientology v. United States, 506 U.S. 9, 12, 113 S. Ct. 447, 449, 121 L.Ed.2d 313 (1992) (quoting Mills v. Green, 159 U.S. 651, 653, 16 S. Ct. 1332, 133, 40 L.Ed. 293 (1895)). Thus, “[t]he ‘existence of a live case or controversy is a constitutional prerequisite to the jurisdiction of the federal courts.‘” In re Grand Jury Subpoenas Duces Tecum, 78 F.3d 1307, 1310 (8th Cir.) (quoting In re Grand Jury Subpoenas Dated December 7 and 8 v. U.S., 40 F.3d 1096, 1099 (10th Cir. 1994)), cert. denied, --- U.S. ---, 117 S. Ct. 432, 136 L.Ed.2d 331 (1996); Arkansas AFL-CIO v. FCC, 11 F.3d 1430, 1435 (8th Cir. 1993) (en banc).
An appeal is moot in this sense “only if events have taken place during the pendency of the appeal that make it ‘impossible for the court to grant any effectual relief whatever.‘” In re Continental Airlines, 91 F.3d 553, 558 (3d Cir. 1996) (en banc) (quoting Church of Scientology, 506 U.S. at 12, 113 S. Ct. at 449 (in turn quoting Mills, 159 U.S. at 653, 16 S. Ct. at 133 (internal quotation
Initially we note that it is true that Grace‘s claim existed in bankruptcy only for so long as Robert‘s plan existed. Once Robert completed making payments under his plan as modified, the bankruptcy court was required, “[a]s soon as practicable,” to grant him a discharge.
However, as Grace‘s counsel remarked during oral argument, the matter concerning the propriety of the bankruptcy court‘s granting the debtor his discharge has been appealed to the United States District Court for the Eastern District of Missouri. It is, then, in every sense, “a live case or controversy.” Accordingly, Grace‘s appeal from the bankruptcy court‘s approval of Robert‘s plan modification, the completion of payments thereunder resulting in his discharge, is not moot.
ii. The Merits of the Appeal
In order to qualify for approval under the Code, Robert‘s third proposed plan modification must satisfy the requirements of
Before beginning our discussion of the arguments Grace has presented us, we pause to comment upon the functional concept of “the plan,” which informs our application of the Code provisions and concepts which follow in our decision below. A debtor‘s plan in bankruptcy is the vehicle by which he or she achieves fiscal rehabilitation. For so long as it exists in bankruptcy, there is, at any given time, only one effective plan; the plan is an unitary constant. Although the Bankruptcy Code speaks of “the plan” and “the modified plan,” it speаks of a solitary construct. This can only be so, and is inherent in the Code, for the Code speaks of postconfirmation plan alterations exclusively in terms of “modification” thereof. See
Consistent with the notion that there is but a single plan in effect at any given time during the pendency of a bankruptcy case, we would additionally note that there is ordinarily but a single plan confirmation made during the entire course of a bankruptcy case. The Bankruptcy Code does not provide for the “confirmation” of a modified plan; rather, the plan as modified becomes the plan if it is not disapproved. Therefore, a plan is effective when confirmed, and a plan modificatiоn is effective when approved.
a. The Best Interests of Creditors Test
In order to be confirmed, a Chapter 13 plan must satisfy the “best interests of creditors” test, which is found at
(a) Except as provided in subsection (b), the court shall confirm a plan if-- (4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such clаim if the estate of the debtor were liquidated under chapter 7 of this title on such date . . . .
The language contained within
The majority of courts within our Circuit which have addressed the application of this language, have determined that it refers to the effective date of the plan as originally confirmed. Zellner, 827 F.2d at 1225; In re Lupfer Bros., 120 B.R. at 1004; In re Hopwood, 124 B.R. at 85; In re Bremer, 104 B.R. at 1002-08. In Hollytex Carpet Mills v. Tedford, 691 F.2d 392, 393 (8th Cir. 1982), however, the Eighth Circuit held that the “effective date of the plan” referred to “the date of the filing on the petition in bankruptcy.” Id. at 393 (quoting In re Statmore, 22 B.R. 37, 38 (Bankr. D. Neb. 1982))7; see In re Nielson, 86 B.R. 177, 178-79 (Bankr. E.D. Mo. 1988) (Chapter 12).
Yet, despite this conflict, these cases support the proposition that the еffective date of the plan is neither determined nor redetermined at the point of postconfirmation modification. Moreover, the courts in Tedford and Statmore, which were faced with application of the best interests of creditors test in the context of postconfirmation modification, expressly rejected the argument that the language of
This is so, for, as wе emphasized in preface to this discussion, there is only one plan to which the Code refers. Regarding the effective date of the plan, there is only one plan. The effective date is not altered by modification of the plan, for the modified plan remains, ever constant, the plan.
What if the debtor acquired no new property but property owned at the [original] petition [date] has appreciated or depreciated with the passage of time? . . . . This [question] leads [ ] to the absurd result that a Chapter 13 debtor could be required by consecutive motions from unsecured claim holders to continuously modify the confirmed plan if the debtor owns an asset that appreciates after confirmation of each modified plan.
Lundin, Keith M., CHAPTER 13 BANKRUPTCY, vol. 2, § 6.44 at 6-131 to 132.
Acknowledging the controversy surrounding this statutory language, we note that it is sufficient for the resolution of the issues before us that the Eighth Circuit in Tedford expressly rejected the suggestion that the “effective date of the plan” constitutes the date of postconfirmation modificаtion. We next turn to the issue of what constitutes property of the hypothetical Chapter 7 estate for purposes of comparative analysis under the best interests of creditors test.
The focus of the best interests of creditors analysis rests upon a hypothetical distribution to unsecured creditors under Chapter 7. The more expansive Chapter 13 definition of property of the estate, found at
This assessment generally includеs property which has been listed in the debtor‘s schedules, but also includes items of property which are not found therein. For instance,
In the instant matter, the cause of action, from which Robert ultimately received settlement proceeds, arose post-petition. Accordingly, it would not be included in property of the estatе for purposes of the liquidation analysis under the best interests of creditors test. Therefore, its existence is irrelevant to the issue of the Chapter 13 plan modification as it was proposed, and to any objection thereto made by Grace.
Thus, in light of the foregoing discussion, it was not error for the bankruptcy court to disregard the settlement in conducting the best interests of creditors test pursuant to
b. The Best Efforts Test
Grace further contends that the bankruptcy court was required to perform the “best efforts” test before apрroving Robert‘s third postconfirmation plan modification. She proposes that Robert‘s settlement proceeds would be distributable to unsecured creditors pursuant to the test‘s requirements.
The “best efforts” test, located at
(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may
not approve the plan unless, as of the effective date of the plan-- (B) the plan provides that all of the debtor‘s projected disposable income to be received in the three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.
However, it is not certain, and is indeed rather doubtful, that this test applies to postconfirmation plan modifications. Case law on this point is unsettled. Some courts omit the section from postconfirmation modification requirements. In re Anderson, 153 B.R. 527, 528 (Bankr. M.D. Tenn. 1993); In re Moss, 91 B.R. 563, 566 (Bankr. C.D. Cal. 1988). Others favor its application as a requirement for postconfirmation modification. In re Guentert, 206 B.R. 958, 963 (Bankr. W.D. Mo. 1997); In re Jackson, 173 B.R. 168, 171 (Bankr. E.D. Mo. 1994); In re Klus, 173 B.R. 51, 58 (Bankr. D. Conn. 1994); and In re Solis, 172 B.R. 530, 532 (Bankr. S.D. N.Y. 1994).
Arguments for exclusion of the test‘s applicability to postconfirmation plan modifications are made largely based upon its facial omission from
Conversely, arguments for inclusion of the test as a requirement do so under
Though they suggest that it must have beеn Congress’ intent to apply the test to the requirements for postconfirmation plan modifications, leading bankruptcy treatises acknowledge a “failure” or “oversight” on Congress’ part to do so by not including
We note that our conclusion is supported by the absurd result which would have obtained had the best efforts test been applied under these facts. Once more, Judge Lundin has presaged the perils opened to debtors in these matters, with the following:
Application of the disposable income test at confirmation of а modified plan is at least confusing and may render many postconfirmation modifications impossible altogether. . . . [C]ounting the three-year period in the disposable income test from the date the first payment is due under the modified plan would preclude approval of modification of a plan that is already more than two years old. Section 1329(c) clearly states that the court may not approve a modified plan that calls for payments after five years after the first payment was due under the original confirmed plan. . . . Mathematically, no proposed modified plan can satisfy both the disposable income test in § 1325(b) and the five-year limitation in § 1329(c) if the proposed modification is filed after two years after the commencement of payments under the original plan.
Lundin, Keith M., CHAPTER 13 BANKRUPTCY, vol. 2, § 6.45 at 6-136 to 137.
We thus conclude that the “best efforts” test is not a factor to be considered by a court in approving postconfirmation modifications. There is only one plan from which the test‘s three years run. Under the facts before us, Robert‘s settlement proceeds, having been received outside these time parameters for the test, are irrelevant to any calculation thereunder. Therefore Robert met the requirements of
B. Approval of the Property Sale
i. Motion to Dismiss as Moot
Robert argues that Grace‘s appeal from the court‘s denial of her motion for reconsideration is moot because she failed to seek and obtain a stay of the sale order pursuant to
At this time, we have before us no definitive information concerning the sale status of Robert‘s property. The record on this point merely indicates that: (1) Robert entered into a contract for sale of the property, contingent upon court approval, with Mrs. Doris Spann in March 1997; (2) Robert moved to permit this sale; (3) a notice of the motion to sell issued (although Grace contends she did not receive such notice); (4) the court granted Robert‘s motion; (5) Grace moved the court to reconsider its sale decree; and (6) the court denied Grace‘s motion. At oral argument, Robert informed the court that as of that date (October 9, 1997), the sale had not occurred and that he was still willing to give the property to Grace.
Robert‘s mootness argument is based largely upon
The finality rule in bankruptcy “applies when an appellant has failed to obtain a stay from an order that permits a sale of the debtor‘s assets[. . . ., and] dictates that the appellant‘s failure to obtain a stay moots the appeal.” Onouli-Kona Land Co. v. Estate of Richards (In re Onouli-Kona Land Co.), 846 F.2d 1170, 1171 (9th Cir. 1988); see 255 Park Plaza Assocs. Ltd. Partnership v. Connecticut Gen. Life Ins. Co. (In re 255 Park Plaza Assocs. Ltd. Partnership), 100 F.3d 1214, 1216 (6th Cir. 1996); In re CGI Indus., Inc., 27 F.3d 296, 299-300 (7th Cir. 1994).
This rule originated as “a judicial doctrine which developed from the general rule that the occurrence of events which prevent an appellate court from granting effective relief renders an appeal moot, and the particular need for finality in orders regarding stays in bankruptcy.” Algeran v. Advance Ross Corp., 759 F.2d 1421, 1423-24 (9th Cir. 1985);
The original codificаtion of the judicial rule, in what was former Bankruptcy Rule 805, was subsequently fragmented, and its application limited, when Congress revised the Bankruptcy Code and Rules. This revision resulted in the enactment of Bankruptcy Rule 8005 and the concomitant incorporation of Bankruptcy Rule 805‘s mootness provision into the Bankruptcy Code,
Section 363(m) is limited in application to trustee sales of debtor property.11
However, the judicial mootness doctrine survives in situations other than those provided for by Section 363(m). Miami Ctr. Ltd. Partnership, 838 F.2d at 1553; Pittsburgh Food & Beverage, Inc. v. Ranallo, 112 F.3d 645, 648 (3d Cir. 1997); In re 255 Park Plaza Associates Ltd. Partnership, 100 F.3d at 1217; Rochman v. Northeast Utils. Serv. Group (In re Public Serv. Co. of New Hampshire), 963 F.2d 469, 472 (1st Cir.), cert. denied, 506 U.S. 908, 113 S. Ct. 304, 121 L.Ed.2d 226 (1992); Anheuser-Busch, Inc. v. Miller (In re Stadium Management Corp.), 895 F.2d 845, 848 (1st Cir. 1989) (citing cases); In re Highway Truck Drivers & Helpers Local Union 107, 888 F.2d 293, 297 (3d Cir. 1989); Algeran, 759 F.2d at 1423-24. “Therefore, . . . unless a stay is obtained, an order approving a sale of property will not be affected on appeal.” Plotner, 172 B.R. at 340-41.
Bankruptcy Rule 800512, although discretionary in nature, is consistent with, and supports, the codal and judicial counterparts of the mootness rule. As the Court of Appeals for the Second Circuit describes,
Bankruptcy Rule 8005 sets forth a procedure by which a party may seek a general stay of a bankruptcy court‘s order pending appeal so that the estate and the status quo may be preserved pending resolution of the appeal. The party who appeals without seeking to avail himself of that protection does so at his own risk.
In re Chateaugay Corp., 988 F.2d at 326; see In re Continental Airlines, 91 F.3d 553, 562 (3d Cir. 1996), cert. denied, --- U.S. ---, 117 S. Ct. 686, 136 L.Ed.2d 610, reh‘g denied, --- U.S. ---, 117 S. Ct. 1098, 137 L.Ed.2d 230 (1997); Allstate Ins. Co. v. Hughes, 174 B.R. 884, 888 (D. S.D. N.Y. 1994) (quoting same); cf. In re Ewell, 958 F.2d at 278-79 (debtor‘s appeals rendered moot pursuant to Bankruptcy Rule 8005 by reason of her failure to obtain a stay pending appeal of bankruptcy court‘s approval of sale of two parcels of real estate).
Case law on this subject as developed by the Court of Appeals for the Eighth Circuit is consistent with the above discussion. In a line of decisions addressing mootness in the context of bankruptcy, the Eighth Circuit has
Therеfore, under the weight of the case law previously discussed, it is clear that if indeed the property has already been sold, Grace‘s appeal in this regard is rendered moot. We cannot say it is so, however, for as noted, we do not have before us evidence to this effect; the question of the sale status of the Salisbury Street property is an open one.
Irrespective of whether mootness might rest on this basis, however, Grace‘s appeal is rendered moot for another reason entirely, to wit, that her lien survived the bankruptcy proceedings in the lower court intact. The bankruptcy court‘s order permitting the sale of Robert‘s property did not provide for a sale free and clear of interests pursuant to
Accordingly, the orders appealed from are affirmed.
A true copy.
Attest.
CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE EIGHTH CIRCUIT.