This is a contest between Universal Suppliers, Inc. (“Universal”) and the Plan Committee which is administering the property of the bankruptcy estate of the debtor, Regional Building Systems, Inc. (“RBS”), pursuant to a confirmed chapter 11 plan (“the Plan”). Universal has moved for amendment of the judgment sustaining an objection of the Plan Committee to the classification of Universal’s claim as a secured claim pursuant to RBS’s schedules. For the following reasons, the motion will be denied and Universal’s lien will be treated as extinguished by 11 U.S.C. § 1141(c) and the claim-preclusive effect of the Plan under 11 U.S.C. § 1141(a).
Universal says it neglected through oversight to assert its lien prior to confirmation of the Plan. But the order confirming the Plan cannot be vacated under the liberal provisions of Fed.R.Civ.P. 60 to permit belated assertion of Universal’s lien. The order confirming the Plan could be revoked only if the order “was procured by fraud.” 11 U.S.C. § 1144. Universal has not elected to commence the adversary proceeding required to pursue such revocation. See Fed.R.Bankr.P. 7001.
Instead, Universal argues that the Plan should not be held to have extinguished its lien under 11 U.S.C. § 1141(c) unless the Plan specifically mentioned the lien, and, alternatively, that the Plan does not bind Universal, based on due process grounds. The court rejects both arguments.
I
The court will accept Universal’s factual assertions as true for purposes of deciding the objection without actually deciding whether the assertions are accurate.
In 1992, Universal and RBS entered into a consignment agreement whereby RBS granted Universal a security interest in certain materials used in the construction of homes (the “Collateral”). The security interest included the proceeds realized from the utilization of the Collateral by RBS. Subsequently, Universal filed financing statements to perfect its security interest in the Collateral pursuant to Maryland’s version of the Uniform Commercial Code.
In November 1993, RBS filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code (11 U.S.C.). RBS’s Schedule D, filed in December 1993, listed Universal as the holder of a $358,871.71 claim, secured by collateral with a value of zero. 1 Accordingly, under 11 U.S.C. § 1111(a), the claim was deemed one for which a proof of claim had been filed. However, under 11 U.S.C. § 506(a), 2 the claim, as scheduled, was only entitled to allowance as an unsecured claim even though RBS acknowledged that a lien existed and even though Schedule D is entitled “Creditors Holding Secured Claims.” 3
Nevertheless, Universal failed to assert its lien until after the court had confirmed the Plan, which made no provision for Universal’s lien. Universal points to upheaval in its own affairs as leading to this failure. In December 1995, Universal itself became a debtor under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Pennsylvania. Neither the former management of Universal nor its general corporate counsel informed Universal’s bankruptcy counsel about the consignment agreement or the financing statements. In August 1996, Universal filed two separate proofs of claim in RBS’s bankruptcy case asserting an unsecured nonpriority claim in the aggregate amount of $358,871.71 (the same amount as RBS had scheduled), thus implicitly acquiescing in RBS’s view (see n. 3, supra) that Universal’s claim, though supported by a hen, was not entitled to be treated as an allowed secured claim. 5
In May 1997, almost nine full months after Universal filed its proofs of claim, the court entered an order confirming the Plan. The Plan did not provide for Universal to retain any hen.
The Plan, however, did specifically address the property upon which Universal might assert a hen. Universal was granted limited rights to share in that property, albeit not hen rights: in short, Universal became entitled (with other general unsecured creditors) to receive, after payment of certain other claims, a pro rata distribution from the estate’s funds and the proceeds of the liquidation of the estate’s other property. 6
In December 1997, more than 7 months after confirmation of the Plan, Universal filed an amended proof of claim asserting a secured claim of over $740,000. The amended claim attempts to reclassify Universal’s claim as secured and seeks as part of the claim more than $380,000 in interest, fees, and other charges, in addition to the $358,871.71 originally claimed.
As noted previously, although the Plan Committee’s objection was to the classification of the claim as secured on RBS’s schedules, both parties are in agreement that the issue here is whether Universal should be permitted to assert its lien claim against the proceeds held by the Plan Committee.
II
At the outset, it is important to clarify what this dispute does
not
involve. The court never determined that Universal’s lien was worthless. Accordingly, the issue is not whether the court proceeded in a procedurally improper fashion to determine that Universal’s lien was worthless. That thus distinguishes this case from cases in which the debtor, failing to bring an adversary proceeding to determine the validity, priority, or extent of the creditor’s lien as required by F.R.Bankr.P. 7001, proceeded instead to have the plan declare the lien to be worthless.
Deutchman v. Internal Revenue Service (In re Deutchman),
Ill
Instead, the issue is whether, regardless of the validity, priority, or extent of Universal’s lien, § 1141(c) and the doctrine of claim preclusion bar Universal from asserting that lien against the proceeds of estate property being administered pursuant to the confirmed Plan. The court considers first § 1141(c).
Section 1141(c) is an exception to the general rule, noted in
Cen-Pen,
(c) Except as provided in subsections (d)(2) and (d)(3) of this section and 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 ....
Chapter 11 is the chapter primarily employed to reorganize businesses. Chapter 11 plans may (and as a matter of practical experience almost always do) deal with property of the estate.
See
11 U.S.C. § 1123(a)(5)(A) (plan may authorize “retention by the debtor of all or any part of the property of the estate”), (B) (“transfer of all or any part of the property of the estate”), and (D) (“sale of all or any part of
But when a property is dealt with by a plan, the effect of § 1141(c) is plain: after confirmation of the plan, the creditor’s liens on that property are extinguished if not expressly preserved.
See, e.g., In re Penrod,
Section 1141(c) applies here. First, there has been an order confirming the Plan. Second, the proceeds 7 to which Universal looks for satisfaction of its claim were dealt with by the Plan: Universal wants those funds distributed to it pursuant to its lien instead of being distributed in the manner provided by the Plan. Third, § 1141(c) plainly renders the property free of Universal’s claims and interests (except for its right under the Plan to receive payment pro rata without any lien securing that right). This includes Universal’s lien: a lien falls within the embrace of “interests” because a lien is defined to mean “charge against or interest in property to secure payment of a debt or performance of an obligation.” 11 U.S.C. § 101(37). 8 Fourth, the Plan itself and the order of confirmation made no exception to the general effect of § 1141(c) in order to preserve Universal’s lien.
But Universal contends that § 1141(c) must be interpreted as requiring that the lien itself have been dealt with by the Plan for § 1141(c) to apply. The court addresses that argument next.
A.
The court begins its analysis by examining the statutory language.
See United States v. Ron Pair Enters., Inc.,
Universal’s argument fails first to demonstrate any ambiguity in § 1141(c) under the three-part test of
Robinson v. Shell Oil Co.,
The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole.
Robinson,
First, the language “the property dealt with by the plan is free and clear of all claims and interests of creditors” is insusceptible, standing by itself, of being interpreted as meaning that the lien is discharged only if the lien was provided for by the plan (meaning, as held in Cenr-Pen and Deutchman, that the plan expressly acknowledged and specifically dealt with the lien). Under that interpretation, § 1141(c) would be rewritten as providing that “a lien provided for by the plan is free and clear of the lien” if not expressly preserved — plainly an absurd way of speaking that Congress could not have intended.
Second, the specific context in which the language is used does not suggest an ambiguity. As already observed, chapter 11 plans deal with property (including the possible transfer of the property) as well as claims. Section 1141(c) focuses on the property being dealt with by the plan as the first criterion for lien extinguishment, not on provision for the claim.
Third, the broader context of the Bankruptcy Code as a whole, with chapter 11 being the chapter employed for business reorganizations in which it may be necessary to transfer properties of the estate, suggests that the intention was to focus on the property being dealt with as the criterion for lien extinguishment under chapter 11, not whether a lien was specifically provided for by the plan.
The plain language of § 1141(c) ends the dispute, unless Universal shows that an exception to the plain meaning rule applies to permit disregarding the statute’s plain meaning.
See Maryland State Dep’t of Educ.,
B.
Universal attempts to meet this burden by arguing that § 1141(c) ought to be interpreted in a manner avoiding an inconsistency in lien extinguishment in chapter 11 versus chapter 13, citing Cen-Pen and Deutchman. But those decisions did not interpret § 1141(c). Instead, they applied 11 U.S.C. § 1327(c), a provision differing in critical respects from § 1141(c). Section 1327(c) provides:
(c) Except as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.
As
Cen-Pen,
It is not sufficient for Universal to con-' tend that § 1141(c) and § 1327(c) ought to work in the same fashion. By using plainly different language, Congress clearly intended different approaches to lien extin-guishment in chapter 11 versus chapter 13. Universal would have to show that taking different approaches yields an absurd result. This it has not done.
Indeed, there are obvious reasons why Congress would have treated lien extin-guishment in chapter 11 differently from chapter 13.
First, chapter 13 is generally a consumer bankruptcy chapter, there being relatively few chapter 13 debtors who are operating a business. Moreover, the debt limitations of 11 U.S.C. § 109(e) for chapter 13 eligibility assure that any chapter 13 case is unlikely to present complex business reorganization issues. In chapter 13, a debtor often elects not to deal with certain secured claims in the plan. 9 This is affirmatively contemplated by 11 U.S.C. § 1325(a)(5). 10 When a secured claim is not addressed by the plan, § 1327(c) states what is made obvious by the provisions allowing the claim not to be addressed by the plan: the secured claim passes through the case unaffected.
In contrast, chapter 11 is a more complex reorganization scheme, used principally by debtors operating businesses, and frequently used for large business reorganizations with various competing creditor constituencies. Chapter 11 has no provision comparable to the default rule of § 1325(a)(5) that secured claims may simply not be addressed by the plan.
Instead, chapter 11 contemplates that there will be voting on the plan by the classes whose rights are impaired by the plan. Chapter 11 requires that all claims (other than certain unsecured priority claims) be placed in classes, whether those claims are impaired by the plan or left unimpaired by the plan. § 1123(a)(l, 2, 3). In the case of a class of impaired claims, the plan must specify the treatment of the class of claims. § 1123(a)(3). In the case of a class of claims designated as unimpaired, the nonbankruptcy rights to which the claim entitles its holder remain unaltered (with exceptions of no relevance to this analysis). 11 U.S.C. § 1124(i). But treatment of a claim as unimpaired requires an affirmative statement in the plan that the claim is left unimpaired. In the absence of express treatment of the claim as unimpaired, the treatment (including any preservation of a lien securing the claim) is limited to that treatment of the claim specified by the plan.
So if a lien is to be dealt with outside the plan in chapter 11, the method for accomplishing that is to specify that the secured claim, including the lien securing the claim, is left unimpaired (or to abandon the collateral to the debtor prior to or as part of confirmation). With chapter 11 not containing a provision similar to § 1325(a)(5), Congress elected for § 1141(c) to speak in terms of property dealt with by the plan as effecting lien extinguishment unless the plan expressly provides otherwise. Congress could readily have addressed chapter 11 lien extinguishment in terms of whether
Second, chapter 11 contemplates more active involvement by creditors. 11 In chapter 13, creditors do not vote on a plan. In contrast, voting on a plan is central to chapter 11. 11 U.S.C. § 1126. To make an informed voting decision, creditors— particularly holders of unsecured claims— must know what property is being devoted to the plan and what liens on that property are being preserved by the plan and, if so, how they are being treated.
Looking from the viewpoint of the holders of secured claims leads to the corollary observation that a chapter 11 case is similar to an interpleader proceeding: creditors who may have a lien on property dealt with by the plan are required to assert those liens if they wish to have the lien preserved and must be vigilant that the plan is according the treatment to which they think they are entitled. If they do not, then other creditors who have relied upon there being no lien asserted, are entitled to have the confirmed plan carried out without any effect being given to assertion of the lien.
Finally, chapter 11 often entails refinancing or a transfer of the debtor’s business. In contrast to 11 U.S.C. § 1322 (“Contents of plan”), § 1123(a)(5)(B) and 1123(c) expressly contemplate that the plan may transfer property of the estate and (with the debtor’s consent) exempt property. It is important for the financier or the purchaser of such property to know that the property will be subject only to those liens expressly preserved by the plan. 12 Such property is dealt with by the plan just as much as is estate property vesting in the debtor by reason of 11 U.S.C. § 1141(b) 13 and being retained by the debtor instead of being transferred. Section 1141(c) is written in terms of “the property dealt with by the plan,” whereas § 1327(c) is limited to “the property vesting in the debtor under subsection (b) of this section.” 14 This difference can be attributed to Congress’s awareness that chapter 11 plans sometimes transfer property. Congress further adopted a rule in § 1141(c) that liens are extinguished in chapter 11 (unless the plan or confirmation order says differently), a matter of considerable importance to entities purchasing the property under the plan.
It is entirely sensible that Congress would have focused lien extinguishment in chapter 11 on whether the property subject to the lien has been dealt with by the plan, not on whether the lien was specifically provided for by the plan. As long as creditors have been given notice of the case, they ought to be in a position to assert any lien rights they have. Despite the complexity of the debtor’s property affairs, a purchaser can gain some assurance that it will not have to contend with lien disputes (other than those preserved by the plan or the order confirming the plan) by satisfying itself that creditors
Universal’s argument thus neither raises an ambiguity in § 1141(c) nor demonstrates any reason why § 1141(c) ought not be applied as plainly 'written.
C.
Even if the statute were ambiguous, the legislative history to § 1141(c) would support applying it as written. The Bankruptcy Act provisions that were forerunners to § 1141(c) are Bankruptcy Act §§ 226 and 474 (11 U.S.C. §§ 626 and 874 (1976 ed.)), applicable, respectively, to chapter X corporate reorganization cases and chapter XII real estate arrangement cases. These Bankruptcy Act provisions plainly operated as the provisions of § 1141(c) are written. No evidence exists that in enacting § 1141(c), Congress intended to change how this aspect of bankruptcy cases had been handled under the Bankruptcy Act. For example, § 226 provided:
The property dealt with by the plan, when transferred by the trustee to the debtor or other corporation or corporations provided for by the plan, or when transferred by the debtor in possession to such other corporation or corporations, or when retained by the debtor in possession, as the case may be, shall be free and dear of all claims and interests of the debtor, creditors, and stockholders, except such claims and interests as may otherwise be provided for in the plan or in the order confirming the plan or in the order directing or authorizing the transfer or retention of such property.
(Emphases added.) Thus, § 226 addressed “the property dealt with by the plan” as distinct from the question of “claims and interests ... provided for in the plan.” 15 Sections 226 and 474 included specific mention of property transferred or retained upon confirmation, thus clarifying that this is what is addressed by the phrase “the property dealt with” by the plan or arrangement. 16 These statutory forerunners, accordingly, are evidence that under § 1141(c), “the property dealt with by the plan” addresses the property being transferred or retained pursuant to the plan — not the matter of providing for claims or the hens securing such claims.
In contrast, chapter XIII of the Bankruptcy Act included no similar provision. A plan under chapter XIII could deal with
Congress, it must be assumed, intended to carry forward this differing treatment when it enacted the Bankruptcy Code.
See Cohen v. De La Cruz,
D.
This brings the court to the Seventh Circuit’s
Penrod
decision which in dicta placed a questionable judicial gloss on § 1141(c).
Penrod
made § 1141(c) effective to extinguish the creditor’s lien only if “the holder of the lien participated in the reorganization,”
In any event, the gloss has been satisfied here. Universal not only filed a proof of claim but additionally affirmatively participated in the case by serving on the unsecured creditors’ committee and by discussing its possible secured claim with counsel for that committee.
Further, the one factual distinction between Penrod and this case makes no difference. In Penrod, the creditor filed a proof of claim asserting secured status and the plan addressed the claim as an allowed secured claim, but it failed to preserve the lien securing the claim. Here, Universal filed proofs of claim asserting only unsecured status, and the plan failed to mention that Universal had a lien or that RBS had scheduled Universal’s claim as secured (albeit by collateral of no value). But Pen-rod does not turn on that distinction.
By filing a claim and asserting only unsecured status, Universal elected to treat its lien as having no value. That Universal did this by reason of its failure to advise its bankruptcy counsel of its lien makes no difference. As in Penrod, it brought the full amount of its claim into active participation in the case and acquiesced, by failing to object, in no lien being preserved by the Plan to protect its claim. Placing the claim into play places all features of the claim into play, including any possible protection of that claim by way of liens. 17
E.
But even if
Penrod
could be read as requiring that the creditor must have a
The court declines to view § 1141(c) as requiring anything other than that the holder of the lien was a participant in the case by reason of having been given notice of the proposed plan’s terms and the opportunity to object to confirmation of the plan. Penrod gave the following explanation for stating that the holder of the lien must have participated in the reorganization by filing a proof of claim:
If he did not, his lien would not be “property dealt with by the plan,” and so the section would not apply. One could argue that the quoted phrase should [not include the creditor’s lien because the phrase should] be equated to “property of the estate,” defined in section 541 to include “all legal or equitable interests of the debtor in property as of the commencement of the case” (emphasis added), and that at the start of the bankruptcy the liens of the secured creditors are not the debtor’s property — which indeed they are not. Moody v. Amoco Oil Co.,734 F.2d 1200 , 1213 (7th Cir.1984); In re Interstate Motor Freight System,86 B.R. 500 , 505 (Bankr.W.D.Mich.1988). But the suggested equation is not especially plausible. Property dealt with by the plan is property dealt with by the plan, whether it was part of the debtor’s estate when bankruptcy was first declared or was tossed into the pot later.
As to the first premise, neither of the cited cases supports a view that property of the estate does not include the portion of the property subject to a lien. Moody simply did not address whether a creditor’s lien, defined by the Code as an interest in property, § 101(37), removes the property that is subject to the lien from the estate to the extent of that interest. And Interstate Motor expressly reached a result contrary to Penrod’s first premise, stating, after careful analysis:
Liened property is property of the estate at the inception of the case under 11 U.S.C. § 541(a), and remains property of the estate until that lien is foreclosed upon or the property is abandoned.
A security interest is — a security interest. It is not a fee simple. United States v. Security Industrial Bank, supra,459 U.S. at 76 ,103 S.Ct. 407 . Metropolitan does not own a $6 million building or the rents that that building throws off month after month, year after year. It is just a creditor with a claim currently worth about $3.2 million that it has secured with liens against the building, and against the rents, to assure repayment.
The court referred to this as “the fundamental principle that a creditor obtains only a security interest and not a fee simple no matter how the parties denominate his interest.”
James Wilson
Assocs.,
Indeed, the very provisions at issue here, §§ 1141(c) and 1327(c), in conjunction with their companion provisions,
No different approach should apply in the case of property vesting in the debtor under § 1141(b), a provision using language identical to § 1327(b). Accordingly, the property of the estate vesting in the debtor under § 1141(b) includes property of the estate even to the extent subject to a lien. When such property has vested in the debtor by virtue of plan confirmation, it necessarily is “dealt with by the plan” within the meaning of § 1141(c) and includes the portion subject to liens.
See Northeast Office & Commercial Properties, Inc. v. Smith Valve Corp. (In re Northeast Office & Commercial Properties, Inc.),
A lien arguably constitutes a species of property for purposes of the due process and takings clauses of the Fifth Amendment of the Constitution.
See United States v. Security Industr. Bank,
The Penrod dicta’s second premise — that a proof of claim must have been filed for the lien to be affected by the plan — makes no sense. A plan calling for the retention or transfer of specified property deals with that property, including the part encumbered by a lien, even if the lienholder did not file a proof of claim. 20 As will be seen later, nothing in the Bankruptcy Code requires that a proof of claim have been filed as a precondition to permitting the plan to deal with the property encumbered by the lien securing the claim.
Penrod made clear that it advanced the second premise of its dicta in an effort to harmonize § 1141(c) with the principle that generally liens pass through bankruptcy unaffected. The court observed:
Our suggested interpretation reconciles the language of section 1141(c) with the principle, which we have pointed out cannot be maintained without careful qualification, that liens pass through bankruptcy unaffected. They do — unless they are brought into the bankruptcy proceeding and dealt with there.
Penrod,
Congress gave no sign that it intended to require that the creditor have participated in the ease by way of filing a proof of claim. As already observed, Congress intended that the debtor in chapter 11 could transfer property free and clear of all liens. If the purchaser faces the prospect of a contest over whether a lien encumbers the property purchased (because the creditor, despite full notice of the case, neglected to file a proof of claim and the debtor filed no proof of a secured claim for the creditor), the desirable goal of maximizing the amount realized by chapter 11 estates would be frustrated.
Penrod’s view that liens bypass the bankruptcy or are brought into the bankruptcy via the filing of a proof of claim is based on the following passage:
A secured creditor can bypass his debtor’s bankruptcy proceeding and enforce his lien in the usual way, which would normally be by bringing a foreclosure action in a state court. This is the principle that liens pass through bankruptcy unaffected. Long v. Bullard,117 U.S. 617 , 620-21,6 S.Ct. 917 ,29 L.Ed. 1004 (1886); Dewsnup v. Timm,502 U.S. 410 ,112 S.Ct. 773 ,116 L.Ed.2d 903 (1992); In re James Wilson Assocs.,965 F.2d 160 , 167 (7th Cir.1992). .If the creditor follows this route, the discharge in bankruptcy will not impair his lien. Dewsnup v. Timm, supra,502 U.S. at 416-17 ,112 S.Ct. 773 ; In re Tarnow,749 F.2d 464 (7th Cir.1984). Alternatively, he may decide to collect his debt in the bankruptcy proceeding, and to this end may file a proof of claim in that proceeding. 11 U.S.C. § 501(a)_
A secured creditor may be dragged into the bankruptcy involuntarily, because the trustee or debtor (if there is no trustee), or someone who might be liable to the secured creditor and therefore has an interest in maximizing the creditor’s recovery, may file a claim on the creditor’s behalf. 11 U.S.C. § 501(b), (c); In re Lindsey,823 F.2d 189 , 191 (7th Cir.1987)....
The secured creditor does not, by participating in the bankruptcy proceeding through filing a claim, surrender his lien. But this is not to say that the lien is sure to escape unscathed from the bankruptcy.
Penrod,
In
Long v. Bullard,
The second decision cited,
Dewsnup,
involved the interpretation of 11 U.S.C. § 506(d), which specifies that certain liens are void.
23
Specifically, the issue in
Dewsnup
was whether a debtor in chapter 7, a non-reorganization chapter, could employ § 506(d) to reduce a lien claim to the value of the collateral that would be retained by the debtor after conclusion of the case — something that would have been contrary to prior bankruptcy practice. But § 506(d) does not purport to affect § 1141(e) or to be the exclusive means for avoiding liens.
24
Dewsnup
itself recognized that although impairment of a lien via judicial valuation had usually been barred by the general rule that bankruptcy left liens unaffected, reorganization was an exception.
Dewsnup,
The third decision cited,
James Wilson Associates,
simply illustrates that secured creditors’ liens are not always unaffected by the bankruptcy case,
25
and in dicta recognizes that a secured creditor becomes a participant in the bankruptcy process whether it files a proof of claim or not.
The fourth decision cited,
Tamow,
actually strengthens the view that § 1141(c) does not turn on whether a proof of claim was filed.
Tamow
involved a secured creditor who filed a late proof of claim. The bankruptcy court disallowed the claim as late, thereby preventing the creditor from receiving any payment to the extent that its claim was unsecured, but went even further and declared the lien void under an earlier version of § 506(d). No plan had been confirmed. Rather, the bankruptcy court apparently felt it important to use the bar date as a vehicle for determining what liens had to be addressed in the case. The court of appeals held that § 506(d) did not result in a voiding of the lien.
Tarnow,
So the upshot in Tamow was that the creditor still retained a lien and could insist on fair treatment of that lien under any proposed chapter 11 plan: its still-extant lien could not properly be extinguished, over its objection to confirmation of the plan, by failure of the plan to mention the lien. But Tamow did not address what would happen under § 1141(c) if such a plan were confirmed and the creditor took no appeal. If the plan specifically addressed the lien, the failure of anyone to file a proof of claim regarding the secured claim and the failure of the creditor actively to participate in the plan confirmation process would surely not have precluded § 1141(c) from, being effective. Logically, the lack of any proof of claim should not alter the effectiveness of § 1141(c) when the plan makes no mention of the lien.
The final decision cited,
Lindsey,
involved the application of § 506(d) in a chapter 7 case, similar to
Dewsnup,
and contrasted the restricted ability of a chapter 7 debtor “to reduce the amount due on a mortgage” once the chapter 7 liquidation process was concluded with the liberal ability of a debtor to alter liens on property retained by the debtor under a plan in reorganization chapters.
Lindsey,
In addition to Penrod’s dicta being based on unsound premises, that dicta would defeat the intended operation of other Code provisions. For example, Penrod is inconsistent with § 1111(a) in the case of claims the debtor has reason to dispute. Under the Penrod dicta, if a secured creditor, despite notice of the case, failed to file a proof of claim, the debtor would have to schedule the claim as undisputed or file a proof of claim on behalf of the creditor to permit extinguishment of the lien pursuant to § 1141(c).
IV
The court turns now to the issue of claim preclusion. Technically, it could be argued, the Plan here was required to address Universal’s lien. Had Universal raised that objection, the Plan perhaps could not have been confirmed. But it did not raise that objection at the appropriate time. It is too late for Universal to raise that objection now and belatedly to assert its lien. Under § 1141(a), with exceptions of no applicability here, “the provisions of a confirmed plan bind ... any creditor .. 1 whether or not the claim or interest of such creditor ... is impaired under the plan and whether or not such creditor ... has accepted the plan.” As observed in
First Union Commercial Corp. v. Nelson, Mullins, Riley and Scarborough (In re Varat Enterprises, Inc.),
parties may be precluded from raising claims or issues that they could have or should have raised before confirmation of a bankruptcy plan, but failed to do so. More specifically, federal courts have consistently applied res judicata principles to bar a party from asserting a legal position after failing, without reason, to object to the relevant proposed plan of reorganization or to appeal the confirmation order.
When all of the requirements for claim preclusion are satisfied, the judgment in the first case acts as an absolute bar to the subsequent action with regard to every claim which was actually made ... and those which might have been presented... .Once a plan is confirmed, neither a debtor nor a creditor can assert rights that are inconsistent with its provisions.
Varat Enters.,
Nothing in
Cen-Pen
alters this conclusion. The holding in
Cem-Pen,
In any event, the Fourth Circuit appears to have retreated from any reading of
Cen-Pen
as restricting the res judicata effect of a chapter 11 order that extinguishes a hen. In
Spartan Mills v. Bank of America Illinois,
cannot allow a final order that deprives it of a lien position to stand and then hope to attack it collaterally at another time... .The lien of a creditor is void if the unappealed, final order of a bankruptcy court vested with proper jurisdiction so declares regardless of the bankruptcy court’s failure to adhere to normal bankruptcy procedures.
Spartan Mills,
V
Universal additionally challenges the extinguishment of its lien on due process grounds. As long as RBS did not fraudulently hide from Universal its potential lien claim, the Plan here was not required to give Universal notice that it might assert a lien on some property of RBS, but only notice sufficient to alert Universal that it needed to protect whatever rights it might have against RBS’s estate.
See In re Penn Central Transp. Co.,
the purpose of the notice requirement is to advise individuals who will be affected by the outcome of any proceeding of the impending hearing so that they can take steps to safeguard their interests. The notice requirement is not necessarily intended to advise them of the nature of those interests.
But Universal contends:
Clearly the Fourth Circuit has adopted a position that minimum procedural due process requires at least that an adversary proceeding be commenced to extinguish a lien. See In re Keene,222 B.R. 511 , 513 (E.D.Va.1998). See further, Eric S. Richards, Due Process Limitations on the Modification of Liens through Bankruptcy Reorganization, 71 Am.Bankr.L.J. 43, 83, 84 (1997) [ (“Richards”) ].
Universal’s Supplemental Mem. at 4. Although
Keene,
Even if Cen-Pen were a due process case, it would not apply on the facts of this case. The Plan here did not attempt to declare Universal’s lien invalid. So no adversary proceeding was required. Instead, the Plan simply made no provision for the lien. And in chapter 11, in contrast to chapter 18, property dealt with by the plan is, by reason of § 1141(c), free of a lien if the plan does not provide otherwise.
The second decision Keene discussed, Linkous, dealt with a plan summary that was inadequate to notify the creditor that valuation of its collateral was addressed by the plan and that the creditor’s claims would be treated as only partially secured. 27 Here, in contrast, the entire Plan was made available to Universal, and it had clear notice that no provision was made for a lien to secure its claim, which carried with it the consequence that the lien would be extinguished under § 1141(c).
Similarly, the due process, holding in
Deutchman,
The Plan thus passed constitutional due process muster.
VI
Universal’s reliance on
Tarnow,
The court will enter an order denying Universal’s motion and clarifying that none of the property being administered under the Plan is subject to Universal’s lien.
Notes
.Pursuant to the Official Forms, Schedule D is entitled "CREDITORS HOLDING SECURED CLAIMS.” In one column, Schedule D of the Official Forms requires the debtor to state "DATE CLAIM WAS INCURRED, NATURE OF LIEN, AND DESCRIPTION AND MARKET VALUE OF PROPERTY SUBJECT TO LIEN.” Then the debtor must list "AMOUNT OF CLAIM WITHOUT DEDUCTING VALUE OF COLLATERAL.” Finally, the debtor must list "UNSECURED PORTION, IF ANY.” Claims scheduled on Schedule D are simply those for which a lien is claimed.
. Section 506(a) provides that a claim of a creditor secured by a lien on estate property
is a secured claim to the extent of the value of such creditor’s interest in the ... property, ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowed claim.
. As is evident from Schedule D itself
(see
n. 1,
supra),
scheduling a claim on Schedule D does not necessarily mean that the claim is entitled to allowance as a secured claim. Under § 506(a), if the collateral is worthless, the claim is not allowed as a secured claim at all.
Accordingly, the objection to Schedule D's treatment of the claim as secured is somewhat off the mark because Schedule D is entirely consistent with the Plan Committee’s view of matters. But both parties have viewed the objection as seeking resolution of the dispute of whether Universal should be treated as holding claims entitled to allowance only as unsecured claims based on § 1141(c) having extinguished any lien Universal might have. Therefore, the court will decide that dispute.
.In April 1997, the court approved a settlement of various claims of RBS against Aspen Knolls Corporation ("the Aspen Knolls Receivable"). This settlement resulted in a payment to RBS that month of approximately $5,000,000. Universal has not pointed to any other property upon which it asserts its lien attached, but if Universal's lien extended to other property, the Plan eventually confirmed in the case dealt with all such property as well as the Aspen Knolls Receivable. See n. 6, infra.
. The court had established March 15, 1994, as the last date on which to file claims in RBS’s chapter 11 case. But Universal’s claim was already deemed filed by virtue of RBS having scheduled it. So RBS has an allowed unsecured claim in the case despite filing its proof of claim late. As will be seen, missing the claims-filing deadline was not enough to extinguish Universal’s lien. Instead, failure of the confirmed Plan to address the lien led to its extinguishment.
. The proceeds of the Aspen Knolls Receivable
(see
n. 4, supra) were first to constitute the Aspen Knolls New York Lienholder Distribution Fund, a separately segregated account. Plan ¶¶ 1.5 and 4.3. Only upon payment in full (or reservation of funds sufficient for payment in full) of each Allowed New York Lien-holder Claim (defined in Plan ¶ 1.3 as a valid claim under Article 3A of the New York Lien
. The Plan spelt out the disposition of all of the estate’s monies and deposits, as well as the disposition of the proceeds of the liquidation of all other estate assets. They were to be distributed to pay administrative claims, expenses of liquidation and plan administration, and claims of creditors, either through the Aspen Knolls New York Lienholder Distribution Fund (Plan ¶¶ 1.5 and 4.3) or through the Creditor Distribution Fund (Plan ¶¶ 1.10, 1.25, 4.5, and 4.6). See n. 6, supra. So the property upon which Universal might assert a lien is part of "the property treated under the plan” within the meaning of § 1141(c).
. Sometimes what Congress has in mind in referring to interests is the equity interests of the debtor’s shareholders.
See
11 U.S.C. § 1129(b)(2)(B)(ii) (treating "interests” as opposed to unsecured claims and secured claims dealt with by § 1129(b)(2)(B) and (C));
Citicorp Real Estate, Inc. v. PWA, Inc. (In re Georgetown Bldg. Assocs., L.P.),
. A common example is that the debtor addresses the home mortgage under the plan but elects not to provide for the secured car note obligation under the plan.
. Section 1325(a)(5) requires that “with respect to each allowed secured claim provided for by the plan” certain conditions be met for the plan to be confirmed. It should be contrasted with § 1325(a)(2), which requires the plan to provide for full payment of unsecured claims entitled to priority.
. The court assumes that Congress was sensitive to the comparatively greater volume of chapter 13 bankruptcy cases and the comparatively smaller amounts at stake in chapter 13 cases. Congress could well have intended to protect secured creditors in chapter 13 cases from having to expend unwarranted resources protecting their liens when a plan does not clearly acknowledge and specifically treat the creditor's lien. That observation may underlie the approach taken by the Fourth Circuit in Cen-Pen and Deutchman.
. Section 1141(c) does not vary in operation depending upon whether the plan continued the debtor's business or, instead, was a liquidation plan. So it is irrelevant that the Plan here was a liquidation plan instead of a reorganization plan continuing or transferring RBS’s business.
. Section 1141(b) provides that "[e]xcept as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.”
. As does § 1141(b), section 1327(b) provides that "[ejxcept as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.”
. Similarly, § 474 provided:
Upon confirmation of an arrangement, the property dealt with by the arrangement, when transferred by the trustee appointed under this chapter to the debtor, or to a trustee or corporation provided for by the arrangement, or, if no trustee has been appointed under this chapter, when transferred by the debtor to a trustee or corporation provided for by the arrangement, or when retained by the debtor, as the case may be, shall be free and clear of all debts affected by the arrangement, except such debts as may otherwise be provided for in the arrangement or in the order confirming the arrangement or in the order directing or authorizing the transfer or retention of such property.
(Emphases added.)
. Indeed, the principal purpose of arrangements under chapter XII of the Bankruptcy Act was “the alteration or modification of the rights of creditors ... holding debts secured by real property.” Bankruptcy Act § 406 (11 U.S.C. § 806(1) (1976 ed.)). And the term “debt” included secured claims. Bankruptcy Act § 406(2) (11 U.S.C. § 806(2) (1976 ed.)). So there can be no doubt that secured claims could be extinguished by a chapter XII plan.
. The court in Penrod observed:
As we have said, secured creditors commonly give up their preexisting liens for other interests in the reorganized firm. A plan of reorganization that does this “deal[s] with” the liens. Or does it? For it could be argued that the plan in this case dealt with the secured creditor’s claim, but not with its lien. But this interpretation would be inconsistent with the rest of section 1141(c) — that the property dealt with by the plan is, after confirmation of the plan, to be "free and clear of all claims and interests of creditors” (and others). On the view pressed by Mutual Guaranty, the assets of the reorganized entity would continue to be burdened by secured creditors' claims by virtue of their liens even if the plan made provision for those claims.
. The language in brackets has been added to clarify that the statement that "one could argue” appears to refer to what a lien claimant could argue to attempt to avoid the effect of § 1141(c).
. Sections 1141(b) and 1327(b), identical in language, are quoted in nn. 13 and 14, supra.
. This is true even in the extreme case of a lienholder who was given no notice of the case: the plan may be ineffective as to that lienholder as a matter of due process, but that is an issue distinct from the interpretation of the plain language of § 1141(c). As a matter of due process, that lienholder's claim and lien are not among those "claims and interests” to which § 1141(c) applies.
. The creditor in Long v. Bullard elected not to assert a claim in the bankruptcy case by failing to prove up the debt (the equivalent of failing to file a proof of claim under current bankruptcy practice). The Court stated:
By section 5119 of the Revised Statutes the discharge releases the bankrupt only from debts which were or might have been proved, and by section 5075 debts secured by mortgage or pledge can only be proved for the balance remaining due after deducting the value of the security, unless all claim upon the security is released. Here the creditor neither proved his debt in bankruptcy nor released his lien. Consequently his security was preserved notwithstanding the bankruptcy of his debt- or... .The setting apart of the homestead tothe bankrupt under section 5045 of the Revised Statutes did not relieve the property from the operation of liens created by contract before the bankruptcy.
Long v. Bullard,
Moreover, the question of a discharge is wholly distinct from the impact of confirmation of a plan on liens. The issue of discharge is addressed in our case by 11 U.S.C. § 1141(d), not § 1141(c). It appears that RBS is not entitled to a discharge by reason of § 1141(d)(3). But even if confirmation of the plan did effect a discharge, § 524(a) ("Effect of discharge”), not § 1141(c), addresses that issue and the discharge has no effect on liens. Instead, a discharge impacts only the collection of the debt "as a personal liability of the debtor,” not the collection of the debt via enforcement of a lien.
See Johnson v. Home State Bank,
.See Bankruptcy Act § 114 (11 U.S.C. § 514 (1976 ed.)) (jurisdiction of court in reorganization proceeding "shall be the same as in a bankruptcy proceeding upon adjudication”). Such cases could be converted into a bankruptcy case only by entry of "an order directing that bankruptcy be proceeded with.” Bankruptcy Act § 236(1) and (2) and § 238(a) (11 U.S.C. § 636(1) and (2) and § 638 (1976 ed.)). And when the petition had been an original petition, the court was additionally required to enter an order "adjudging the debtor a bankrupt.” Bankruptcy Act § 236(2).
. Section 506(d) provides:
(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless—
(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or (2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.
. Instead, as
Penrod
itself notes, § 506(d) has the effect that "[i]f the secured creditor's claim is challenged in the bankruptcy proceeding and the court denies the claim, the creditor will lose the lien by operation of the doctrine of collateral estoppel. 11 U.S.C. § 506(d);
In re Tarnow, supra,
. The court affirmed orders permitting the use of the creditor’s cash collateral thereby effecting an extinguishment of the lien in the cash allowed to be used.
See James Wilson Assocs.,
.
Spartan Mills,
.In Linkous, the notice of the chapter 13 plan — a mere summary — was totally inadequate to give the creditor notice that valuation of its liens on a mobile home and a car was at stake. The plan summary did not mention the car loan — so the car loan was not described as provided for by the plan such as to be affected by § 1327(c) — and described the plan's proposals as:
1) 36 months of $170 payments;
2) payment of 10% of unsecured debts;
3) $ 100/month payment by the Trustee to Piedmont for the mobile home; [and]
4) name, phone number, and address of person to contact with any questions regarding [the] plan.
Linkous,
. The plan in Deutchman contained conflicting directions as to how the IRS’s claim would be handled. On the one hand, the plan recited that the liens of certain creditors (including the IRS) "shall be considered released and of no effect" upon the payment of all "Allowed Claims” due them. On the other hand, the plan — after initially seeming to require payment "in full” of the IRS’s claim— apparently mandated by later provisions that the IRS receive only a discounted amount.
. Universal additionally raises a red herring, contending that the Plan can be modified. If the Plan did not extinguish Universal’s lien, no plan modification is necessary to protect Universal which could enforce its lien despite the Plan. If the Plan extinguished Universal’s lien, Universal is not one of the entities enti-