Sheila Trantham v. Steven TateSheila Trantham v. Steven Tate
Argued: May 8, 2024
Decided: August 13, 2024
Before DIAZ, Chief Judge, WILKINSON, Circuit Judge, and MOTZ, Senior Circuit Judge.
Reversed and remanded by published opinion. Chief Judge Diaz wrote the opinion in which Judge Wilkinson and Senior Judge Motz joined. Judge Wilkinson wrote a concurring opinion.
Robert Todd Mosley, MOSLEY LAW FIRM, P.C., Asheville, North Carolina, for Appellant. Bonnie Keith Green, THE GREEN FIRM, PLLC, Charlotte, North Carolina, for Appellee. Richard Preston Cook, RICHARD P. COOK, PLLC, Wilmington, North Carolina, for Amici Curiae.
DIAZ, Chief Judge:
Sheila Ann Trantham filed a Chapter 13 bankruptcy plan proposing that the bankruptcy estate‘s property vest in her at plan confirmation. Although the Bankruptcy Code permits such a provision, the Trustee objected because the local form plan adopted by the bankruptcy court requires that the estate‘s property vest when the court enters a final decree.
The bankruptcy court held that a debtor can‘t propose a plan that contradicts the local form‘s default vesting provision. The district court agreed. We do not. So we reverse the district court‘s order, and remand for further proceedings.
I.
Trantham petitioned for Chapter 13 bankruptcy in the Bankruptcy Court for the Western District of North Carolina. Under that Chapter, the debtor proposes a plan that uses her future income to repay a portion of her debts. See
Trantham proposed a repayment plan using the bankruptcy court‘s required
But the Trustee1 objected to Trantham‘s plan because her changes to the vesting schedule “contradict[ed] the plan form language” in Local Form 4. J.A. 64. The bankruptcy court sustained the objection.
The court acknowledged that debtors can propose nonstandard provisions that deviate from the local form. And it found that Trantham‘s proposed vesting provision was “not contrary to” the Bankruptcy Code. J.A. 71. But the court explained that default provisions are essential for “efficiency and consistency” and that the Form‘s prewritten vesting provision was the court‘s “long-standing policy.” J.A. 72. Because Trantham “provide[d] no explanation supporting her choice to vest property of the estate at confirmation and [did] not demonstrate[] why the Local Form should be changed in this case,” the court held that Trantham‘s changes to the Form were “inappropriate.” J.A. 72.
Trantham amended her plan to conform with Local Form 4, although she expressly reserved her right to appeal the court‘s decision post-confirmation. The bankruptcy court later confirmed the amended plan.
Trantham appealed, and the district court affirmed. The district court explained that many “risks and practical problems would arise” if property vested in the debtor at confirmation, noting that the property would be vulnerable to creditors and the trustee would lack sufficient oversight. Trantham v. Tate, 647 B.R. 139, 145–46 (W.D.N.C. 2022). And the court reasoned that if property vested in the debtor at confirmation, then
So the district court held that any plan that includes a nonstandard provision that contradicts the Form‘s default vesting provision “cannot be confirmed.” Id. at 145. But it also held that Trantham lacked standing to appeal the bankruptcy court‘s ruling because she hadn‘t shown any injury arising from having to conform to the Form‘s default vesting provision.
This appeal followed.
II.
A.
We review the judgment of a district court sitting in review of a bankruptcy court de novo, applying the same standards that the district court applied. Copley v. United States, 959 F.3d 118, 121 (4th Cir. 2020). Thus, “we review the bankruptcy court‘s legal conclusions de novo, its factual findings for clear error, and any discretionary decisions for abuse of discretion.” Id.
B.
Before we consider the merits, some context about vesting is necessary. When a debtor files for Chapter 13 bankruptcy,
The Code permits the debtor to include a vesting provision in her plan. See
The debtor generally remains in possession of all property of the estate. See
On the other hand, when property vests in the debtor, it vests “free and clear of any claim or interest of any creditors provided for by the plan.” See
III.
Trantham raises two issues on appeal. First, she disputes the district court‘s ruling as to standing. Second, she argues that the bankruptcy court violated the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure by holding that Local Form 4‘s vesting provision is mandatory. We address each contention in turn.
A.
Because standing is jurisdictional, we start there. See O‘Leary v. TrustedID, Inc., 60 F.4th 240, 242 (4th Cir. 2023). We review a district court‘s decision on appellate standing de novo. Bestwall LLC v. Off. Comm. of Asbestos Claimants (In re Bestwall LLC), 71 F.4th 168, 177 (4th Cir. 2023).
In the bankruptcy context, this court has historically required that the appellant establish both constitutional standing and prudential standing, the latter of which is satisfied by showing that she is a “person aggrieved” by the bankruptcy court‘s order. Cf. id. We conclude that Trantham satisfies the former and doesn‘t need to satisfy the latter.
1.
Start with constitutional standing. The Constitution limits federal courts to hearing cases in which the plaintiff has “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct and (3) that is likely to be redressed by a favorable judicial decision.” Kenny v. Wilson, 885 F.3d 280, 287 (4th Cir. 2018) (cleaned up) (quoting Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016)). At issue here is whether Trantham suffered an injury in fact. She has.
Trantham alleges that the bankruptcy court ignored her right to file a plan of her choosing under
Under Trantham‘s plan, her property would have vested in her “free and clear” at plan confirmation. See
To obtain such relief, a debtor must schedule a hearing, cf.
Beyond the court‘s order affecting Trantham‘s procedural rights under the Code, Trantham suffered a “separate harm“: the loss of ownership and control over her estate. Cf., e.g., Breland v. United States (In re Breland), 989 F.3d 919, 922 (11th Cir. 2021) (holding that a Chapter 11 debtor‘s loss of authority over his estate, which he suffered when the bankruptcy court removed him as the debtor-in-possession, constituted an injury in fact). And she suffered a “materially increased risk of another harm“: increased procedural and economic burdens.
On this point, we find the Ninth Circuit‘s decision in In re Sisk, 962 F.3d 1133 (9th Cir. 2020), instructive. There, a group of Chapter 13 debtors altered the district‘s form plan, which called for a fixed-duration plan, to propose estimated-duration plans.2 See id. at 1138-40.
The Ninth Circuit held that the debtors had standing to appeal the court‘s order. Id. at 1142-43. It reasoned that under their original plans, the debtors could have exited bankruptcy as soon as they paid off their debts, but under their amended ones, they needed to either continue in bankruptcy for a fixed duration or move to modify their plans. Id. at 1142. The debtors thus faced the risk of making more payments than they would have under their original plans, and of creditors’ seeking plan modifications that increased the amounts owed. Id. These increased procedural burdens and risks of greater costs amounted to an injury in fact. Id.
So too here. Trantham‘s risk of increased burdens and her loss of control over her estate are sufficiently concrete for constitutional standing.
And Trantham also satisfies the requirements for causation and redressability. She alleges that she was directly harmed by the bankruptcy court‘s ruling that she amend her plan to include Local Form 4‘s default vesting provision, and this court can redress this alleged harm, as reversing the court‘s order would allow Trantham‘s original plan to be confirmed. Cf. id. at 1143 n.4.
2.
Constitutional standing doesn‘t end the story, though. The Trustee argues that Trantham must also satisfy this court‘s prudential standing test. Looking again to Sisk, we disagree.
Prudential standing requires that the appellant is a “person aggrieved“—that is, “directly and adversely affected pecuniarily“—by the bankruptcy court‘s order. U.S. Trustee for W.D. Va. v. Clark (In re Clark), 927 F.2d 793, 795 (4th Cir. 1991) (quoting Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442–43 (9th Cir. 1983)). The appellant meets this requirement when the bankruptcy court‘s order “diminishes their property, increases their burdens, or impairs their rights.” Bestwall, 71 F.4th at 177–78 (quoting In re Imerys Talc Am., Inc., 38 F.4th 361, 371 (3d Cir. 2022)).
Trantham contends that the Supreme Court rejected the concept of prudential standing in Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014). But even if that standard applies, Trantham argues that she satisfies it for the same reasons that she satisfies constitutional standing.
In Lexmark, the Court held that lower courts shouldn‘t limit their jurisdiction for prudential reasons and affirmed their “virtually unflagging” duty to exercise the jurisdiction that Congress granted them. 572 U.S. at 126–27 (quoting Sprint Commc‘ns, Inc. v. Jacobs, 571 U.S. 69, 77 (2013)). Still, several of our sister circuits have held that the person-aggrieved test
It‘s an “open question” in this court. Kiviti v. Bhatt, 80 F.4th 520, 534 n.11 (4th Cir. 2023). But see Bestwall, 71 F.4th at 177–78 (applying the person-aggrieved test without considering Lexmark‘s effect). But it‘s one we can leave for another day.
Again, the Ninth Circuit‘s decision in Sisk guides our analysis. There, the court recognized that the purpose of the prudential standing test was to “limit[] the appeals of remote non-parties.” 962 F.3d at 1143. But that purpose, the court found, “is not implicated when the appellant is the party below and remains integrally connected to the issues on appeal.” Id. Since the debtors were “the only parties below” and “brought the filings—their own Chapter 13 plans—at issue [on] appeal,” the court held that they didn‘t need to establish prudential standing. Id.
We agree with the Ninth Circuit‘s carve out. And because Trantham, like the debtors in Sisk, proposed the plan at issue and was a party below, we too hold that she doesn‘t need to satisfy the person-aggrieved test.
In any event, Trantham is a person aggrieved. The bankruptcy court‘s order resulted in Trantham‘s loss of control over her estate and risk of increased burdens, in addition to contravening her rights under the Code. See supra Part III.A.1; Bestwall, 71 F.4th at 177–78; see also, e.g., Westwood Cmty. Two Ass‘n v. Barbee (In re Westwood Cmty. Two Ass‘n), 293 F.3d 1332, 1335 (11th Cir. 2002) (explaining that a person aggrieved is someone who has a “financial stake” in the order being appealed).
B.
We turn now to the merits. Trantham argues that the bankruptcy court violated the Code and Federal Rules by holding that Local Form 4‘s vesting provision is mandatory. Although we find that the bankruptcy court‘s use of a default vesting provision is permissible, we agree with Trantham that requiring that default provision in her case was not.
1.
We first consider whether the bankruptcy court‘s use of a default vesting provision is per se invalid.
Congress delegated to the Supreme Court the power to make rules of practice and procedure that govern bankruptcy proceedings.
The Court issued the Federal Rules of Bankruptcy Procedure, and there permitted district courts to enable bankruptcy judges to make local rules to govern proceedings within their jurisdictions.
Form plans in Chapter 13 cases exist to promote efficiency and aid creditors and courts in assessing and enforcing plans. Cf. Comm. on Rules of Prac. & Proc., Report of the Judicial Conference 4–5 (2017). To further this intent, local rules can require that debtors use a local form for Chapter 13 plans in lieu of the one required by the Official Forms.
The Code doesn‘t require that the debtor include a vesting provision in her plan. Compare
Local Form 4‘s default provision calls for vesting at final decree, which is “at a later time” than plan confirmation. The Form also allows the debtor to propose a nonstandard provision that “deviat[es]” from the default one. J.A. 61; see In re Shay, 553 B.R. 412, 415-16 (Bankr. W.D. Wash. 2016) (holding that a local form‘s vesting provision was permissible because the debtor could propose a different one in the form‘s nonstandard provision section).
But as we explain, by making the Form‘s default vesting provision mandatory, the bankruptcy court abridged Trantham‘s right to propose a plan with her preferred vesting provision.
2.
We start from the premise that it‘s the debtor‘s “exclusive right to propose plans.” Bullard v. Blue Hills Bank, 575 U.S. 496, 505 (2015). While the Code makes a handful of provisions mandatory, most are elective.
As we‘ve stated, this flexibility includes the debtor‘s ability to include a vesting provision in her plan that vests property of the estate “on confirmation of the plan or at a later time, in the debtor or in any other entity.”
Outside of
Trantham proposed a plan that provided for vesting at confirmation. The bankruptcy court found that this provision was expressly permitted by
This was error. In so doing, the court stripped Trantham of her right to propose a plan of her choosing with a tailored vesting provision and to have her plan confirmed.
The same is true of the bankruptcy court‘s decision to reject Trantham‘s proposed vesting provision because she didn‘t explain why she diverged from Local Form 4.
The Code doesn‘t require that the debtor justify her plan‘s permissive provisions when she files. See
Critically, only a substantive objection to the proposed plan can trigger the debtor‘s need to defend her choice. The objecting party must contend that the plan provision doesn‘t comply with the requirements of confirmation under
In short, the debtor is the principal architect of her plan. Cf. Bullard, 575 U.S. at 505. “[O]ther than the right to object on certain specified bases in the Bankruptcy Code, a Chapter 13 plan is a rather one-sided affair.” In re Turner, 558 B.R. 269, 280 (Bankr. N.D. Ill. 2016). If the trustee objects, it is she who bears the initial burden of “going forward with evidence as to [her] objection.” E.g., In re Moore, 635 B.R. 451, 453 (Bankr. D.S.C. 2021); accord Shortridge v. Ruskin (In re Shortridge), 65 F.3d 169 (6th Cir. 1995) (per curiam) (unpublished table decision) (explaining that “a party objecting to confirmation bears the burden of proof” and “vague and unsupported allegations cannot impede confirmation of the plan“).
The Trustee‘s objection here wasn‘t substantive. The Trustee contended that Trantham‘s proposed vesting provision was contrary to the bankruptcy court‘s longstanding practice of requiring a different provision—not that it violated the requirements of confirmation. So requiring that Trantham justify her proposed vesting
The bankruptcy court determined that Trantham‘s attempt to diverge from the Form‘s vesting provision “without explanation [was] inappropriate.” J.A 72. The district court, though, held that any divergence from the default provision “is inappropriate” and “cannot be confirmed.” Trantham, 647 B.R. at 145. The district court explained that the Code and policy considerations “all support the conclusion that property should not be vested back to the debtor at confirmation, but rather, at a later time.” Id. at 144–47.
Of course, our review on appeal is of the bankruptcy court‘s decision—not the district court‘s. See, e.g., Cypher Chiropractic Ctr. v. Runski (In re Runski), 102 F.3d 744, 745 (4th Cir. 1996). Still, we reject the district court‘s analysis.
For one, the Code‘s default vesting provision calls for vesting at confirmation.
3.
A sister circuit holds otherwise, but we‘re not persuaded.
Beginning in In re Steenes, the Seventh Circuit examined whether the bankruptcy court‘s use of a form confirmation order for Chapter 13 cases that retained property in the estate for the plan‘s duration violated the Code. 918 F.3d 554, 556 (7th Cir. 2019). Over a creditor‘s objections, the bankruptcy court imposed the form order‘s vesting provision on the ground that it was the court‘s routine practice. Id. at 557. The Seventh Circuit, though, held that such an approach conflicts with
The court explained that
The bankruptcy court soon after eliminated the inverted-norm provision from its form order. In re Cherry, 963 F.3d 717, 718 (7th Cir. 2020). But on its form plan, it added that same provision as a checkbox option that debtors could elect to include. Id. Relying on Steenes, creditors objected to plans with that box checked. Id. But the bankruptcy court determined that Steenes‘s holding applied only to the judiciary, and that debtors, in contrast, “need
The Seventh Circuit in Cherry disagreed. Id. at 719–20. It explained that
We can‘t agree. Section 1327(b), when read in isolation, may not distinguish between vesting provisions proposed by the debtor versus the court. But we don‘t interpret statutory text in a vacuum. And Chapter 13, when read in its entirety, affords priority to the debtor‘s proposed provisions.
We emphasize that it‘s the debtor‘s right alone to file for bankruptcy and propose a plan. See
That said, when the debtor foregoes that right,
We hold that the bankruptcy court can‘t reject a plan‘s vesting provision other than for the reasons allowed by the Code. And the Code doesn‘t permit the bankruptcy court to reject a plan‘s vesting provision just because the court‘s practice is to require a different provision. Rather,
IV.
Form plans for Chapter 13 cases no doubt increase efficiency and facilitate enforcement. Even so, such plans can‘t “abridge, modify, or enlarge” the debtor‘s substantive rights under the Code.
court can assess whether Trantham‘s proposed vesting provision should be confirmed, or whether the court should reject it for a reason permitted by the Code.
REVERSED AND REMANDED
I concur in the remand of this case for further proceedings. I agree with the majority that courts may only reject a debtor‘s preference for nonstandard plan provisions for “reasons allowed by the Code.” Maj. Op. at 21; see
Both Trantham and the district court present control over Chapter 13 plan provisions in contradictory terms. The debtor suggests that the broad choice of plan provisions allowed her under
The specific provision at the heart of this case involved the time of vesting. In Trantham‘s world, courts play only the most minimal role in reviewing debtors’ plan provisions, absent the most explicit congressional mandate for intervention. See Appellant‘s Opening Br. 11. This, to my mind, carries matters too far. It leaves little or no meaningful role for bankruptcy courts, trustees, and creditors to play. They might as well not even be there.
Where Congress has drafted broad criteria for bankruptcy plans, courts must have some discretion in assessing whether those requirements are met. To take but one example, bankruptcy courts may determine what constitutes a “good faith” proposal under
But just as Trantham‘s position swings too far in one direction, the district court‘s swung too far in the other. The district court took the view that bankruptcy courts not only retain discretion to review Chapter 13 plans, but can reject any plan that alters the local-form plan simply because it includes “a contradicting nonstandard provision.” Trantham, 647 B.R. at 145. That view is incorrect. If the debtor assigns too limited a role to the other players in the bankruptcy process, the district court assigned to itself a plenary and arbitrary one. The Bankruptcy Code provides that debtors possess “the valuable exclusive right to propose plans, which [they] can modify freely.” Bullard v. Blue Hills Bank, 575 U.S. 496, 505 (2015) (citing
We should not make ourselves a party to rigidity. Intractability is a vice in bankruptcy proceedings, and collaboration a virtue. The Supreme Court has rightly encouraged debtors “to work with creditors and [] trustee[s] to develop a confirmable plan as promptly as possible.” Bullard, 575 U.S. at 505. Courts should likewise embrace this spirit of collaboration when overseeing the creation and approval of Chapter 13 plans.
The word of Congress on this matter is definitive. Of that there is no doubt. But Congress flies at a height of 30,000 feet up. There remains a role for soldiers on the ground. There must be some medium of transmission from air to earth. As, for example, the role envisioned for district courts in ruling on summary judgment and other FRCP motions in the typical civil suit. The medium of transmission in bankruptcy is one of negotiation and collaboration between the various parties which collectively give meaning to the congressional decree. Those values represent a balance between the various interests at play in the bankruptcy process which the participants would be well-advised to respect.