Eastern Savings Bank, FSB v. LaFata , 483 F.3d 13 ( 2007 )

United States Court of Appeals
For the First Circuit
No. 05-2510
IN RE: VITO ANTHONY LAFATA,
Debtor.
EASTERN SAVINGS BANK, FSB,
Appellant,
v.
VITO ANTHONY LAFATA,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
No. 06-9009
IN RE: VITO ANTHONY LAFATA,
Debtor.
EASTERN SAVINGS BANK, FSB,
Appellant,
v.
VITO ANTHONY LAFATA; DENISE M. PAPPALARDO, TRUSTEE,
Appellees.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
OF THE FIRST CIRCUIT
Before
Torruella, Circuit Judge,
Stahl, Senior Circuit Judge,
and Lipez, Circuit Judge.
Howard M. Brown, with whom James M. Liston, Thomas M. Looney,
and Bartlett Hackett Feinberg P.C. were on brief, for appellant.
Laurel E. Bretta, with whom Bretta & Grimaldi, P.A., was on
brief, for appellees.
April 3, 2007
STAHL, Senior Circuit Judge. At issue in this case of
first impression is whether the Bankruptcy Code's protection of
mortgage lenders against modification of claims secured by a
principal residence applies when the residence in fact lies mostly
on a lot abutting the mortgaged property. This case arises out of
a bizarre set of facts. The debtor in this case and his then-wife
mistakenly built a house on the property line between two lots
owned by the debtor's ex-wife, a fact which was not discovered
until after a mortgage on the lot believed to include the house had
already been granted. Compounding this problem is the fact that
everyone -- the debtor, the bank, and the bankruptcy court -- was
mistaken as to who owned what property when. Despite this
confusion, the bankruptcy court and the Bankruptcy Appellate Panel
thoroughly addressed the dispositive issues, and we affirm.
I. Background
The issues here center around two contiguous pieces of
property: 26 Jasper St. (the "Jasper Lot")1 and 31 Enfield Ave.
(the "Enfield Lot") in Methuen, Massachusetts. Vito Anthony LaFata
(the "Debtor") resides in a house that straddles the property line
between the Jasper Lot and the Enfield Lot, with the majority of
the house on the Enfield Lot, but with a street address of 26
1
It appears from the record that the Jasper Lot is actually
two separate parcels, one of which is a five-foot-wide strip. For
simplicity, we will refer to them collectively as the "Jasper Lot."
-3-
Jasper St.2 Both properties were originally owned by a realty
trust controlled by Gail Ness,3 formerly the wife of the Debtor.
As part of an earlier divorce settlement, Ness deeded the Jasper
Lot to the Debtor. Importantly, both Ness and the Debtor had the
mistaken belief at the time of the deed that the house lay entirely
on the Jasper Lot. This erroneous belief was the first of two
mistakes that resulted in this case being before us today.
In July 2003, still with the mistaken belief that his
house was entirely on the Jasper Lot, the Debtor mortgaged the
property to Eastern Savings Bank, FSB ("Eastern"), the appellant
here. Eastern's title work did not disclose that the majority of
the Debtor's residence actually lay on the Enfield Lot.4 In
connection with the mortgage, the Debtor executed a note for
$165,000, secured solely by the Jasper Lot. It appears that he
never made any of the payments due on the note.
Following the grant of the mortgage to Eastern, Ness
agreed to transfer the Enfield Lot to the Debtor in exchange for
money owed to Ness by the Debtor under their original divorce
2
The Enfield Lot also contains other structures, which are not
relevant to the issues here.
3
Gail Ness is also referred to in the record as Gail LaFata
and Gail Raulinaitis. We will refer to her as "Ness" for
simplicity.
4
It is unclear what the source of the mistake was. There is
some indication in the record that an erroneous plot plan existed,
a fact which may have been discovered when the Debtor applied for
work permits from the city.
-4-
settlement, apparently unaware of the title issue. Pursuant to
this agreement, Ness executed a deed, dated June 4, 2004,
purporting to transfer the Enfield Lot to the Debtor. However,
because the payments were never made, the deed was never actually
delivered to the Debtor for recording purposes. Instead it was
held in escrow by Ness's attorney pending the payment of the
additional funds owed by the Debtor to Ness. According to the
record, because of nonpayment of the agreed-upon amount, Ness
remains the owner of the Enfield Lot today. Hence the second
mistake: the Debtor seemed to misunderstand this escrow
arrangement, and during his bankruptcy proceedings operated with
the mistaken belief that he was the fee simple owner of the Enfield
Lot.
On August 5, 2004, the Debtor filed for Chapter 13
bankruptcy protection, claiming as assets both the Jasper Lot and
the Enfield Lot. At some point not clear from the record the
Debtor had become aware that his residence was not entirely on the
Jasper Lot, but was instead mostly on the Enfield Lot.5 This
encroachment made the Jasper Lot noncompliant with zoning, which
essentially destroyed its value. An appraisal commissioned by the
Debtor noted that, if compliant, the land would probably be worth
around $100,000, but in its current state the property was worth
5
According to the record, Eastern also became aware of this
fact as early as March 2004, when it first filed a claim with its
title insurance company.
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only "what the neighbor will pay for it" -- a value the appraiser
estimated at $18,500.
Eastern filed a proof of claim for the full value of its
mortgage, which it placed at $195,340, including delinquent
interest and collection fees. On August 18, 2004, the Debtor filed
an objection to this proof of claim, as well as a motion for
determination of secured status under 11 U.S.C. § 506 and a
proposed Chapter 13 plan.
As part of his proposed Chapter 13 plan, the Debtor
sought to bifurcate Eastern Bank's claim into secured and unsecured
portions, with the secured portion worth only $18,500, the
appraised value of the collateral. That left, according to the
Debtor, $131,500 in unsecured debt,6 for which the Debtor proposed
to pay 10 cents on the dollar. Eastern thus stood to receive only
$31,650 on a claim that may have been worth as much as $195,340.
Eastern understandably objected to this. On August 27, 2004, it
filed a response to the objection to the proof of claim, an
objection to the motion for determination of secured status, and an
objection to confirmation of the Chapter 13 plan.
Further complicating matters, the City of Methuen also
filed an objection to the Debtor's motion for determination of
secured status on or around August 20, in which it stated that,
6
This would place the total value of Eastern's claim at
$150,000. It's not clear from the record how the Debtor arrived at
this figure, given that the face value of the note was $165,000.
-6-
according to the registry of deeds, the Enfield Lot was actually
owned by Ness. The Debtor responded on August 27 by providing the
court with a copy of the July 4, 2004, deed of the Enfield Lot from
Ness to the Debtor -- the same deed that was subsequently
discovered to be still in escrow. The bankruptcy court and Eastern
appeared to believe the Debtor's assurances that he owned the
property and did not pursue the issue of ownership further.7
The three objections raised by Eastern each depend on
whether 11 U.S.C. § 1322(b)(2) would allow Eastern's claim to be
bifurcated as proposed by the Debtor. The bankruptcy court ruled
in favor of the Debtor on December 8, 2004, and allowed the
bifurcation of the claim into a secured claim of $18,500 and an
unsecured claim for the balance of the note. Eastern appealed to
the U.S. District Court for the District of Massachusetts, which
affirmed the bankruptcy court on July 7, 2005, without opinion.
Eastern appeals from the district court's decision, and that appeal
is the first of the two appeals before us today.
Following the bankruptcy court orders, Eastern began an
adversarial action against the Debtor in bankruptcy court on
January 19, 2005, seeking to reform the mortgage so as to include
at least that portion of the Enfield Lot that included the Debtor's
7
Eastern justifies its reliance on what it knew to be an
unrecorded deed by pointing out that, even if the deed was not
recorded, it would still be valid as against the Debtor and Ness.
Of course, this assumes that the deed was at least validly
delivered, which it was not.
-7-
residence. During depositions for that proceeding, Ness and the
Debtor both testified that the Enfield Lot was actually still owned
by Ness. At that point Eastern moved for relief from judgment
under Rule 60(b) of the Federal Rules of Civil Procedure.8 Eastern
asked that the bankruptcy court vacate the three orders it had
earlier decided in favor of the Debtor, citing newly discovered
evidence and fraud on the court.
The bankruptcy court held a show cause hearing on October
7, 2005, to confirm whether the deed was in fact in escrow and
whether it could be delivered to the Debtor. The court concluded
that it could not be delivered. On October 21, the bankruptcy
court denied the Rule 60(b) motion, saying only that Eastern
"failed to meet its burden."
Eastern appealed the denial of the Rule 60(b) motion to
the Bankruptcy Appellate Panel ("BAP") for the First Circuit, which
affirmed. Eastern appealed to us, and that appeal makes up the
second of the two appeals before us.
II. Discussion
A. The Bankruptcy Court's Orders
On appeal from a district court's review of a bankruptcy
court decision, we review the bankruptcy court's legal conclusions
de novo and its factual conclusions for clear error. Brandt v.
8
Bankruptcy Rule 9024 makes Rule 60(b) applicable in
bankruptcy.
-8-
Repco Printers & Lithographics, Inc. (In re Healthco Int'l Inc.),
132 F.3d 104, 107 (1st Cir. 1997).
Eastern's appeal from the bankruptcy court's orders
raises three issues: whether the bankruptcy court correctly
interpreted § 1322(b)(2) of the Bankruptcy Code as allowing
bifurcation here; whether Eastern was allowed a reasonable
opportunity to object to the valuation of the Jasper Lot
collateral; and whether the bankruptcy court correctly applied the
burden of proof.9
1. Section 1322(b)(2)
Section 1322(b)(2) of the Bankruptcy Code states that a
Chapter 13 plan may:
modify the rights of holders of secured
claims, other than a claim secured only by a
security interest in real property that is the
debtor's principal residence, or of holders of
unsecured claims, or leave unaffected the
rights of holders of any class of claims.
11 U.S.C. § 1322(b)(2). Prior to Nobelman v. American Savings
Bank, 508 U.S. 324 (1993), there was some disagreement among the
circuits as to whether § 1322(b)(2) allowed for bifurcation of
undersecured homestead mortgages, such as the one at issue here.
See, e.g., Bellamy v. Fed. Home Loan Mortgage Corp. (In re
9
Eastern also raises a fourth issue: whether the bankruptcy
court properly relied on Eastern's failure to attempt to reform the
mortgage when it allowed the bifurcation. That rationale is only
relevant in the case where the Debtor owns the Enfield Lot -- which
he does not. Therefore, we do not consider the issue, nor do we
place any weight on it in our analysis of the bifurcation issue.
-9-
Bellamy), 962 F.2d 176, 179 (2d Cir. 1992) (holding that §
1322(b)(2) only prohibits modification of the secured claim, but
that the existence and size of the secured claim must be determined
according to § 506(a)). In Nobelman, the Supreme Court held that
§ 1322(b)(2) barred modification of the entire claim -- secured and
unsecured portions -- if the claim is secured by the debtor's
principal residence.10 508 U.S. at 332. Therefore, in the instant
case, if Eastern's claim is secured by the Debtor's principal
residence, then the claim cannot be modified by bifurcating it into
secured and unsecured claims, even though the value of the security
is roughly one-tenth the value of the claim.
Despite mistakenly believing that the Debtor owned the
Enfield Lot, the bankruptcy court did still rule on this question
under the correct set of facts. Ironically, this confusing case is
helped somewhat by confusion on a related issue: should a court
make the determination of what is the debtor's "primary residence"
10
Justice Stevens explained the policy behind § 1322(b)(2):
At first blush it seems somewhat strange that
the Bankruptcy Code should provide less
protection to an individual's interest in
retaining possession of his or her home than
of other assets. The anomaly is, however,
explained by the legislative history
indicating that favorable treatment of
residential mortgagees was intended to
encourage the flow of capital into the home
lending market.
Nobelman, 508 U.S. at 332 (Stevens, J., concurring).
-10-
for purposes of § 1322(b)(2) at the time of the mortgage, the time
of the petition for bankruptcy protection, or some other time?
Compare In re Smart, 214 B.R. 63, 68 (Bankr. D. Conn. 1997)
(mortgage date), with In re Wetherbee, 164 B.R. 212, 215 (Bankr.
D.N.H. 1994) (petition date); see also GMAC Mortgage Corp. v.
Marenaro (In re Marenaro), 217 B.R. 358, 360 (B.A.P. 1st Cir. 1998)
(noting the uncertainty). Because the issue is not settled, the
bankruptcy court analyzed the applicability of § 1322(b)(2) from
both the mortgage date and the petition date.11
The un-transferred deed from Ness to the Debtor was dated
after the Debtor mortgaged the property to Eastern. Therefore, at
the time of the mortgage, the Debtor owned the Jasper Lot and did
not claim to own the Enfield Lot. In analyzing the applicability
of § 1322(b)(2) at that point in time, the bankruptcy court said
that:
the Bank had and continues to have a mortgage
on the [Jasper Lot] which is burdened with an
encroachment. Assuming without deciding that
the physical presence of a significant amount
[of] the residence on the [Jasper Lot] would
be sufficient to bring the [Jasper Lot] within
the rubric of "primary residence," [Eastern]
has failed to prove that an eight to ten foot
encroachment is the main part, the principal
part, or even an important part of the
Debtor's residence. Indeed, from the pictures
provided to the Court by the Debtor, it
11
Because in fact the ownership did not change between the time
of the mortgage and the time of the petition, the issue of what
point in time to determine the "principal residence" is not
relevant to this appeal.
-11-
appears that the encroachment may only be an
unenclosed deck. This is not a situation
where a mortgagee has a lien on the primary
residence that is comprised of two separately
deeded parcels and the debtor is attempting to
sell the unimproved lot. This is a case where
the Bank did not take a mortgage on the
improved lot. To hold that the Bank has a
mortgage on the primary residence when
admittedly it does not hold a mortgage on the
[Enfield Lot] is akin to the tail wagging the
dog.
Eastern does not challenge the bankruptcy court's finding that the
encroachment is not "the main part, the principal part, or even an
important part" of the residence. Therefore, the question before
us is whether even some nominal encroachment by a debtor's
principal residence on a mortgaged property will trigger the anti-
modification protections of § 1322(b)(2). We hold that it does
not.
We begin with the language of the statute. See Consumer
Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980)
("the starting point for interpreting a statute is the language of
the statute itself"). The key phrase in the statute is "secured
only by a security interest in real property that is the debtor's
principal residence." 11 U.S.C. § 1322(b)(2). Eastern argues that
the statute is satisfied as long as the debtor resides on the
mortgaged property. But that simply begs the question of what
constitutes "residing" when a party actually resides mostly on the
-12-
adjacent property.12 The text of the statute provides little help
in answering this question. See Lomas Mortgage, Inc. v. Louis, 82
F.3d 1, 4 (1st Cir. 1996) (finding the text of the statute
ambiguous as to whether § 1322(b)(2) bars modification of a
mortgage secured by a multi-family dwelling).
In Lomas, we also reviewed the legislative history of §
1322(b)(2), which we do not repeat here. See id. at 4-6. In that
case, we noted that the most that could be said of the legislative
history was that "Congress wanted to benefit the residential
mortgage market as opposed to the entire real estate mortgage
market." Id. at 5. The concern was that without these
protections, mortgage lenders would be too conservative in their
lending. Id. This dovetails with Justice Stevens's concurrence in
Nobelman, where he notes that § 1322(b)(2) was "intended to
encourage the flow of capital into the home lending market." 508
U.S. at 332 (Stevens, J., concurring).
This policy of preferring mortgage lenders to other
lenders in bankruptcy does not necessarily extend to those cases
where the lender has failed to exercise reasonable due diligence,
12
Eastern's argument here is that the Debtor should be estopped
from denying his "judicial admission" that he resides at, in the
Debtor's words, "26 Jasper St." This is without merit. First, the
record is clear that his residence has a street address of 26
Jasper St., even if the majority of the house actually lies on the
Enfield Lot. Second, there is no dispute that this house is,
indeed, his principal residence. The question is only whether
enough of that principal residence lies on the Jasper Lot to
trigger § 1322(b)(2).
-13-
however. Congress's concern is with a well-functioning home
lending market, and that market depends in part on mortgage lenders
working with due diligence to minimize risk for themselves, and the
mortgage market in general. The problem Eastern faces here is as
a result of its own failure to properly examine the title to the
Jasper Lot before taking the mortgage from the Debtor.13 Had it
done so, it would have found the cloud on the title and dealt with
it accordingly. We see no reason why § 1322(b)(2) should be used
to correct this error.
We and other courts have interpreted § 1322(b)(2)
narrowly, even after the Nobelman decision. See, e.g., Scarborough
v. Chase Manhattan Mortgage Corp. (In re Scarborough), 461 F.3d
406, 411 (3d Cir. 2006) (§ 1322(b)(2) does not bar modification
where claim secured by multifamily dwelling, and noting policy of
reading § 1322(b)(2) "literally and narrowly"); Zimmer v. PSB
Lending Corp. (In re Zimmer), 313 F.3d 1220, 1226-27 (9th Cir.
2002) (§ 1322(b)(2) does not bar modification where claim is wholly
unsecured because of prior lien on primary residence); In re Mann,
13
We understand that the diligence is often delegated to other
parties, and that the risk of situations like this are usually
covered by title insurance policies. For whatever reason, those
systems broke down here. Regardless of whether Eastern may have
claims against other parties, it nonetheless must still bear the
primary loss for that breakdown. Cf. Focus Inv. Assocs., Inc. v.
Am. Title Ins. Co., 992 F.2d 1231, 1236 (1st Cir. 1993) (collecting
cases holding that mortgagees and other title insurance holders
cannot recover their loan losses from title insurance companies on
the basis of a negligent title search by the insurer).
-14-
249 B.R. 831, 835-37 (B.A.P. 1st Cir. 2000) (same, and collecting
cases); Lomas, 82 F.3d at 4. The policy of encouraging mortgage
lending does not require § 1322(b)(2) to be interpreted
expansively. Indeed, if we were to allow Eastern's more expansive
reading of § 1322(b)(2) here, we could face cases in the future of
lenders seeking its protection even when they had never intended to
lend against a debtor's principal residence. For example, suppose
Eastern and the debtor had a different mistaken belief at the time
of the mortgage: that the residence was entirely on the un-
mortgaged Enfield Lot, not the Jasper Lot. Under such
circumstances, where Eastern intended to take a mortgage only on
the undeveloped lot, should it be allowed then to claim the
benefits of § 1322(b)(2) upon discovering that the residence
actually encroached on the mortgaged property? The policy behind
§ 1322(b)(2) would not be served, since Eastern would not have
taken the mortgage as a home lender. But the arguments that
Eastern has presented here would be equally as applicable in that
situation; the mortgaged property would be just as much the
Debtor's "principal residence" as it is in the instant case. The
only difference we can see is that the parties had intended the
loan in this case to be a home mortgage loan when it was granted.
But the statute is silent as to intent and as to type of mortgage;
it asks only the objective question of whether the mortgaged
property "is the debtor's principal residence." Furthermore, we
-15-
are loath to create a rule that would require courts in the future
to have to inquire into the parties' subjective beliefs as to
whether a particular mortgage of real property was intended to be
a home mortgage or not, especially when the costs of an alternative
rule are small and contained.
Our ruling today does no more than say that the anti-
modification provisions of § 1322(b)(2) will not apply if the
debtor's principal residence only encroaches on the mortgaged
property.14 Lenders can easily avoid this if they do what they have
always had the responsibility to do: perform proper due diligence,
title examination, and, if necessary, a land survey. The result of
our holding is, of course, a windfall for the Debtor. If the facts
were as he believed them to be when he took the mortgage loan, he
would not be able to strip the loan down by over $100,000. But if
we held in Eastern's favor, there would instead be a windfall for
the bank. This is not a case where a lender has watched the value
of its collateral go down gradually until it is worth less than the
loan. Here, the property was never worth as much as Eastern's
loan. If it had foreclosed the day after granting the loan, it
would have received roughly the same as it receives now: collateral
worth $18,500 and an unsecured claim for the balance of the loan.
14
We have no view on the question of how much of a residence
must be on the secured property for it to no longer be an
"encroachment," except to say that it is more than appears in this
case.
-16-
Given its lack of due diligence, we see no reason why the result
should be otherwise.15
2. Collateral Valuation
Eastern also claims that it did not receive adequate
notice of an intent to value the collateral. It raises this
argument because it failed to object during the valuation hearing,
and ordinarily that means that the Debtor's valuation is upheld by
default. See Enewally v. Wash. Mut. Bank (In re Enewally), 368
F.3d 1165, 1173 (9th Cir. 2004); In re Brown, 244 B.R. 603, 611
(Bankr. W.D. Va. 2000); see also Campos-Orrego, 175 F.3d at 95
(issues raised for the first time on appeal are deemed waived). It
justifies its lack of objection by saying that it never had the
notice due under Bankruptcy Rule 3012 that an evidentiary hearing
on valuation was going to take place.
Bankruptcy Rule 3012 states:
The court may determine the value of a claim
secured by a lien on property in which the
estate has an interest on motion of any party
in interest and after a hearing on notice to
the holder of the secured claim and any other
entity as the court may direct.
Eastern cites the case of Piedmont Trust Bank v. Linkous (In re
Linkous), 990 F.2d 160 (4th Cir. 1993), for the proposition that,
15
Eastern also argues that the Debtor should be viewed as
holding an easement on so much of the Enfield Lot upon which the
Debtor's house sits. It says that this would essentially bring all
of the house under the mortgage on the Jasper Lot. Because Eastern
raises this argument for the first time on appeal, it is deemed
waived. Campos-Orrego v. Rivera, 175 F.3d 89, 95 (1st Cir. 1999).
-17-
in order to satisfy the rule, the court must provide creditors with
specific notice that a § 506 valuation hearing is to be held. Id.
at 162-63.
However, there is some split of authority, with courts in
this circuit and others holding that the filing of a Chapter 13
plan is sufficient notice of an intent to strip down and revalue
collateral, and no separate motion or hearing is required. See
Curtis v. LaSalle Nat'l Bank (In re Curtis), 322 B.R. 470, 481
(Bankr. D. Mass. 2005); McDonough v. Plaistow Coop. Bank (In re
McDonough), 166 B.R. 9, 14 (Bankr. D. Mass. 1994); Lee Servicing
Co. v. Wolf (In re Wolf), 162 B.R. 98, 107-08 (Bankr. D.N.J. 1993).
However, even assuming that the specific notice that Linkous calls
for is required in this circuit, it was provided.
The hearing that was held on November 23, 2004, covered,
in part, the Debtor's motion for secured status under 11 U.S.C. §
506, and Eastern had notice that that was to be the subject. The
hearing was described as "nonevidentiary," but, Eastern argues,
the hearing implicitly became evidentiary, without notice, because
the court expected Eastern to provide evidence to refute the
Debtor's valuation of the Jasper Lot.
At the hearing in question, the bankruptcy judge made
very clear that, if valuation were in dispute, then an evidentiary
hearing would be necessary. He said that the issue would be
decided as a matter of law, without a separate evidentiary hearing,
-18-
so long as the valuation was unopposed by Eastern. Eastern then
argued the legal issue of the interpretation of § 1322(b)(2), but
did not argue the actual valuation of the Jasper Lot. At the end
of the argument, the bankruptcy judge said, "So that's why you've
not raised and spent a lot of time on the valuation issue because
you say it doesn't matter." Counsel for Eastern responded, "Yes,
Your Honor. We don't think we ever get there. They can't modify
the mortgage."
Eastern was thus given several opportunities to request
an evidentiary hearing to challenge the valuation of the Jasper
Lot, and had sufficient notice that the valuation was likely to
stand if it lost on the § 1322(b)(2) issue. It appears to have
made a strategic decision not to argue valuation, or at least to
focus all of its energy on the legal issue. Under these
circumstances, we see no violation of Rule 3012.
3. Burden of Proof
Eastern's final argument in its appeal from the
bankruptcy court's orders is that the court improperly applied the
burden of proof. The court held that Eastern,
as the party objecting to confirmation, must
prove it is entitled to the protection it
claims under section 1322(b)(2). The mortgage
document as well as the deed conveying the
[Enfield Lot] from Ms. Ness to the Debtor
constitute sufficient evidence to call into
doubt [Eastern's] proof of claim, in which it
asserts a secured claim in the full amount of
the note. Thus the ultimate burden to
establish its claim has been shifted back to
-19-
[Eastern]. The Court must now decide whether
[Eastern] has met its burden.
This holding, the bankruptcy court said, followed from the
principle that,
[a]lthough a properly executed and filed proof
of claim is prima facie evidence of the
validity and amount of the claim (Bankruptcy
Rule 3001(f)), once the objecting party
submits sufficient evidence to place the
claimant's entitlement in issue, the ultimate
burden of proof or persuasion is upon the
creditor to establish its claim.
(quoting Brown, 244 B.R. at 608). Eastern argues that this
principle is applicable only to situations where the issue is the
"value" or "extent" of a claim, but not to where the issue is one
of the applicability of a statute.16 It cites the case of In re
Ziegler, which held that, "in a § 1322(b) context, the initial
burden of production falls on the creditor, with the ultimate
burden of persuasion resting on the debtor." 88 B.R. 67, 69
(Bankr. E.D. Pa. 1988).
Even assuming that Ziegler's burden-shifting approach
applies in this circuit, we do not see a conflict here. The issue
in Ziegler was whether a pledge of proceeds from a contingent,
unliquidated state lawsuit could be sufficient to cure default on
a mortgage secured only by a debtor's residence. The court in that
case held that the debtor had not met his burden to show that the
16
Bankruptcy Rule 3001(f) states: "A proof of claim executed
and filed in accordance with these rules shall constitute prima
facie evidence of the validity and amount of the claim."
-20-
lawsuit proceeds were more than just speculative. In discussing
the burden of proof, the court was referring to proof of the
debtor's ability to satisfy claims from particular income streams.17
This is a subset of the broader principle that the debtor bears the
burden of proving that a Chapter 13 plan is feasible See First
Nat'l Bank of Boston v. Fantasia (In re Fantasia), 211 B.R. 420,
423 (B.A.P. 1st Cir. 1997). This is not in conflict with the point
that a creditor bears the burden of persuasion as to its proofs of
claim. See In re Durastone Co, Inc., 223 B.R. 396, 397-98 (Bankr.
D.R.I. 1998). Furthermore, even if it were error to place the
burden of persuasion on Eastern with respect to the interpretation
of § 1322(b)(2), any error was harmless since the bankruptcy
court's interpretation was the correct one.
B. Rule 60(b) Motions
We review decisions granting or denying Rule 60(b)
motions for abuse of discretion. Roger Edwards, LLC v. Fiddes &
Son, Ltd., 427 F.3d 129, 132 (1st Cir. 2005).
After discovering that the Debtor did not in fact own the
Enfield Lot, Eastern moved for reconsideration of the bankruptcy
court's orders under Rules 60(b)(2) (newly discovered evidence);
(b)(3) (fraud, misrepresentation, or other misconduct); and (b)(6)
17
In Ziegler, the court's principal authority in deciding the
burden of proof was In re Fries, 68 B.R. 676 (Bankr. E.D. Pa.
1986), which also dealt with the issue of whether certain income
streams were adequate to satisfy claims. Ziegler, 88 B.R. at 68-
69.
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(any other reason justifying relief). The bankruptcy court denied
the motions without opinion, and Eastern appealed to the BAP. The
BAP thoroughly addressed the arguments and affirmed the bankruptcy
court. Eastern Sav. Bank, FSB v. Lafata (In re Lafata), 344 B.R.
715, 723-26 (B.A.P. 1st Cir. 2006). We agree with the BAP, and add
the following additional reason for denying the motions.
While Eastern is outraged over what it perceives to be
bad behavior by the Debtor, it has not articulated how it was
prejudiced. The fact remains that the Debtor does not own the
Enfield Lot, and knowing this at the time of the trial would not
change the fact that Eastern has no claim on the property. The
issue of whether § 1322(b)(2) applied to bar modification was fully
before the bankruptcy court, which examined both the case in which
the Debtor owned the Enfield Lot, and the case in which he did not.
The court's analysis, and ours today, would have applied just as
much if the court had known with certainty that the Debtor did not
own the Enfield Lot. Indeed, Eastern would arguably have been
better off in the case where the Debtor owned both. Then it could
-- as it did -- plausibly seek reformation of the mortgage, or
something similar. With that option off the table, we do not see
how Eastern can now claim that it would be more likely to succeed.
Under Rule 60(b)(2), a movant must show, inter alia, that
the newly discovered evidence "is of such a nature that it would
probably change the result were a new trial to be granted." U.S.
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Steel v. M. DeMatteo Const. Co., 315 F.3d 43, 52 (1st Cir. 2002).
Under Rule 60(b)(3), a movant must show, inter alia, that any
misconduct "foreclosed full and fair preparation or presentation of
his case." Karak v. Bursaw Oil Corp., 288 F.3d 15, 21 (1st Cir.
2002) (internal quotation marks, citations, and alterations
omitted). Since Eastern has not presented an argument, nor do we
see one, as to how the bankruptcy court would have reached a
different result, neither of these standards were met. For the
same reason, Eastern has not shown the "exceptional circumstances
justifying extraordinary relief" that must obtain for Rule 60(b)(6)
relief to be granted. Ahmed v. Rosenblatt, 118 F.3d 886, 891 (1st
Cir. 1997). Therefore, the bankruptcy court and the BAP did not
abuse their discretion in denying the motions.
III. Conclusion
For the forgoing reasons, the decision of the district
court affirming the bankruptcy court's orders and the decision of
the Bankruptcy Appellate Panel affirming the bankruptcy court's
denial of Eastern's Rule 60(b) motion are affirmed. Costs to
appellees.
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