In re: William Fesq ( 1998 )

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
8-18-1998
In re: William Fesq
Precedential or Non-Precedential:
Docket 97-5140
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"In re: William Fesq" (1998). 1998 Decisions. Paper 196.
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Filed August 18, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 97-5140
IN RE: WILLIAM FESQ,
Debtor
BRANCHBURG PLAZA ASSOCIATES, L.P.,
Appellant
v.
WILLIAM FESQ
On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civil Action No. 96-cv-05555)
Argued March 10, 1998
BEFORE: STAPLETON and ALITO, Circuit Judges,
and SHADUR,* District Judge
(Opinion Filed August 18, 1998)
Eric H. Berger (Argued)
Berger & Bornstein, P.A.
237 South Street
Morristown, NJ 07962
Attorney for Appellant
_________________________________________________________________
* Honorable Milton I. Shadur, Senior United States District Judge for the
Northern District of Illinois, sitting by designation.
John F. Bracaglia, Jr. (Argued)
362 East Main Stret
P. O. Box 1094
Somerville, NJ 08876
Attorney for Appellee
OPINION OF THE COURT
SHADUR, Senior District Judge:
This is an appeal by Branchburg Plaza Associates, L.P.
("Branchburg"), a creditor of bankrupt debtor William Fesq
("Fesq"). Branchburg claims that both the bankruptcy court
and then the district court erred in denying Branchburg's
motion to vacate the bankruptcy court's earlier order
confirming Fesq's Chapter 13 plan. We have jurisdiction
over the appeal under 28 U.S.C. S158(d), and we affirm the
district court's decision.
Background
This long-running dispute between Branchburg and Fesq
goes back to April 16, 1993, when Branchburg recovered a
$69,166.59 judgment against Fesq in New Jersey Superior
Court. On December 17, 1993 Branchburg obtained a writ
of execution against Fesq's house to enforce that judgment.
Fesq then avoided a foreclosure sale of the house byfiling
a Chapter 7 petition on July 14, 1995. That respite proved
short-lived, however, for Branchburg's lien on the real
property survived the Chapter 7 proceeding. Branchburg
again sought to foreclose on its lien shortly after the
Chapter 7 proceeding closed.
Branchburg's persistence led Fesq to file a Chapter 13
proceeding on March 6, 19961 that addressed only
Branchburg's lien on the house. Fesq's proposed plan
provided for a single lump-sum payment of $7,050 in full
satisfaction of Branchburg's secured claim. Branchburg's
_________________________________________________________________
1. All of the remaining dates referred to here were also during 1996, so
we omit the year designations from here on out.
2
attorney Friedman Siegelbaum ("Siegelbaum")filed a notice
of appearance in the Chapter 13 case, but he then failed to
attend the Section 341(a) first meeting of creditors or to
schedule a Rule 2004 examination of Fesq.2 More
importantly, Siegelbaum did not file any objections to
Fesq's proposed plan by the August 5 deadline date for
such objections. There were consequently no objections to
Fesq's proposal, and an order of confirmation was entered
on August 15.
Fesq filed a motion to vacate Branchburg's lien
immediately upon entry of the confirmation order. On
August 30 Branchburg filed a cross-motion to vacate the
confirmation order, asserting that its failure to make a
timely objection was the result of a computer glitch at
Siegelbaum's firm, which had led him to believe that the
deadline for the filing of objections to the proposed plan
would not arrive until October 5, rather than the actual
August 5 date.3 Branchburg argued that it would have
objected to several substantive aspects of Fesq's plan but
for the computer error.
On October 28 the bankruptcy court's oral ruling granted
Fesq's motion and denied Branchburg's cross-motion. That
ruling was affirmed on appeal by the district court in an
unpublished memorandum opinion. Branchburg then
brought a timely appeal to this Court.
Standard of Review
This appeal raises only a question of law, not one of fact.
We therefore exercise plenary review over the decision of
the district court (In re Fegeley, 118 F.3d 979, 982 (3d Cir.
1997)).
_________________________________________________________________
2. All "Section --" references in this opinion are to the Title 11
provisions
of the Bankruptcy Code ("Code"). Both the Bankruptcy Rules and the
Federal Rules of Civil Procedure are cited "Rule --," a usage that should
not generate any confusion because the former set uses four-digit
numbers, while the latter employs two-digit numbers.
3. Branchburg claims that it could not appeal the confirmation order
because the 10-day period for filing an appeal had passed before it
realized that the confirmation order had been entered.
3
Revocation of the Confirmation Order
Branchburg's appeal poses the fundamental question
whether a final order confirming a debtor's Chapter 13 plan
can be vacated without a showing of fraud, an issue that
the parties have contested in terms of what grounds are
available under law for revocation of such confirmation
orders. While fraud is the only predicate that is specifically
mentioned in the Code for the revocation of a confirmation
order, Branchburg insists that courts may also revoke such
orders that have been the consequence of mistake,
inadvertence or excusable neglect. This appeal hinges on
that point, because Branchburg admits that its failure to
object to the confirmation order was the result of a
combination of human and computer error, not fraud. So if
Branchburg is wrong and if fraud is indeed the only basis
upon which we may revoke a Chapter 13 confirmation
order, we must affirm the district court irrespective of the
potential merit of Branchburg's substantive allegations.
Our analysis must begin with the language of Section
1330(a), the Code provision that deals with the revocation
of a Chapter 13 confirmation order:
On request of a party in interest at any time within 180
days after the date of the entry of an order of
confirmation under section 1325 of this title, and after
notice and a hearing, the court may revoke such order
if such order was procured by fraud.
It is of course conventional wisdom that the statute should
be read to give some effect to the final phrase"if such order
was procured by fraud," for as a general rule of statutory
construction "[w]e strive to avoid a result that would render
statutory language superfluous, meaningless, or irrelevant"
(Cushman v. Trans Union Corp., 115 F.3d 220, 225 (3d Cir.
1997)). And here it is particularly unlikely that the final
phrase is mere surplusage, because it would have been so
easy not to include the phrase if it were really superfluous.
Simply excising the phrase from the statute would have left
a perfectly sensible sentence that would accomplish every
purpose of the current statute--except, that is, for limiting
the grounds for relief, the subject that we address
hereafter.
4
Ordinary English usage tells us that Section 1330(a) is
subject to only two interpretations if we are to avoid
rendering meaningless the qualification "if such order was
procured by fraud." First, the section can be read to say
that a confirmation order can be revoked only upon a
showing of fraud, and to set a 180-day time frame within
which a motion for such relief may be tendered. Second,
the section can be read as only prescribing a 180-day time
limit on motions to revoke orders that were procured by
fraud, without speaking at all to the subject of other
potential grounds for revocation. For the reasons discussed
in this opinion, we conclude that the first construction is
the more reasonable interpretation of Congress' intent.
Nonetheless Branchburg insists that the second
interpretation should be favored and that Section 1330(a)
should be read to permit judicial revocation of confirmation
orders for reasons other than fraud. Branchburg advances
that contention by pointing to Rule 9024, which makes
Rule 60(b) generally applicable to bankruptcy cases. In
relevant part Rule 60(b), in contrast to Section 1330(a),
allows for relief from final orders in the generic sense on a
number of bases:
[T]he court may relieve a party ...from afinal judgment,
order or proceeding for the following reasons: (1)
mistake, inadvertence, surprise or excusable neglect;
...(3) fraud (whether heretofore denominated intrinsic
or extrinsic), misrepresentation, or other misconduct of
an adverse party; ...or (6) any other reason justifying
relief from the operation of the judgment.
Branchburg argues (1) that its counsel's computer
mishap qualifies as "mistake, inadvertence...or excusable
neglect" under Rule 60(b) and (2) that because Rule 9024
makes Rule 60(b) generally applicable in bankruptcy, the
revocation of Fesq's Chapter 13 confirmation order is called
for. That position requires an examination of the
relationship between Section 1330(a) and Rule 9024 to see
whether Branchburg can properly take advantage of Rule
60(b)'s more expansive grounds for relief.
Branchburg wisely does not attempt to argue that Rule
9024 simply trumps Section 1330(a), for when Congress
5
accorded the Supreme Court authority to promulgate the
Bankruptcy Rules, it stated "[s]uch rules shall not abridge,
enlarge, or modify any substantive right" (28 U.S.C. S2075).
Thus, "[a]s a general matter, the Code defines the creation,
alteration or elimination of substantive rights but the
Bankruptcy Rules define the process by which these
privileges may be effected" (In re Hanover Indus. Mach. Co.,
61 B.R. 551, 552 (Bankr. E.D. Pa. 1986)). So Rule 9024
cannot validly provide Branchburg with a substantive
remedy that would be foreclosed by Section 1330(a).
Branchburg tries to avoid that problem by interpreting
Section 1330(a) so that it complements, rather than
conflicts with, Rule 9024. Branchburg contends that Rule
9024 (via Rule 60(b)) sets out all of the potential grounds
for revoking Chapter 13 confirmation orders and that
Section 1330(a) simply shortens the deadline for
challenging confirmation orders to 180 days for fraud alone
(Rule 60(b) allows parties one year to file motions for relief
based on mistake, inadvertence, excusable neglect or
fraud). And Branchburg attempts to support that
interpretation by pointing to the text of Rule 9024:4
Rule 60 F.R. Civ. P. applies to cases under the code
except that...(3) a complaint to revoke an order
confirming a plan may be filed only within the time
allowed by S 1144, S 1230, or S 1330.
Branchburg obviously prefers to ignore just how strongly
counterintuitive--indeed, logically absurd--its position
really is. It posits a scenario in which the drafters of Rule
9024 came onto a scene already occupied by a
congressional 180-day limitation on the ability of the
victims of fraud to be relieved of the consequences of that
fraud,5 and saying something along these lines:
_________________________________________________________________
4. Sections 1144 and 1230(a) are companion statutes to Section 1330(a),
with the first of those addressing revocation of Chapter 11 confirmation
orders and the second dealing with revocation of Chapter 12
confirmation orders.
5. Not even Branchburg has suggested that the use of "may" in Section
1330(a) is permissive in the sense that a fraud victim "may" seek relief
within 180 days, and "may" also seek relief more than 180 days, after
entry of a confirmation order. Any such reading would plainly render the
statute totally meaningless--accomplishing nothing at all.
6
We recognize that Congress has provided a remedy for
the victims of fraud. But we also believe that others,
though perhaps less deserving (people who wish to be
relieved from an order of confirmation that was entered
in consequence of their own negligence or mistake), are
also entitled to solicitude. So even though Congress
has chosen to say nothing about people in that latter
category (as it could easily have done by simply
omitting the language "if such order was procured by
fraud" from its Section 1330(a) statute dealing with
judicial relief via revocation), we'll give those people
exactly the same opportunity as victims of fraud to ask
for such relief.
That reading has nothing to commend it, for it is the
equivalent of permitting the drafters of Rule 9024(3) to
deprive the final phrase of Section 1330(a) of any
substantive effect--something that Congress did not choose
to do and that neither such drafters nor we judicial readers
of congressional legislation are authorized to do. By
contrast, if Section 1330(a) is read as stating that an order
confirming a plan cannot be revoked except upon a
showing of fraud, a complaint to revoke a confirmed plan
may still be filed under Rule 60 (as contemplated in Rule
9024(3)) because fraud is one of the bases for relief under
that rule.6 Thus our decision today gives effect to both
Section 1330(a)(which would of course trump anyway in the
event of a conflict between that statute and a rule) and
Rule 9024(3).
Heedless of the illogic of its contention, Branchburg
would have it that Rule 9024 leaves undisturbed the
Section 1330(a) time limit for seeking revocation on fraud
grounds, but that the Rule does not treat the statute as
having limited the grounds for relief. To that end
Branchburg stresses Rule 9024's use of "time allowed" as
_________________________________________________________________
6. In addition, although Rule 60(b) cannot be used as a vehicle for
revoking such orders for reasons other than fraud, it may still be used
to correct some other problems that arise with such orders. So, for
example, courts could still redress clerical mistakes via Rule 60(b)
without fear of violating Section 1330(a) (cf. 8 Collier on Bankruptcy
("Collier") P1144.07[1] (Lawrence W. King ed. in chief, 15th revised ed.
1997)).
7
somehow demonstrating that Section 1330(a)'s sole
function is to specify an abbreviated time period for
challenging confirmation orders because the challenger was
defrauded. As a necessary corollary to that conclusion,
Branchburg would have it that the phrase "if such order
was procured by fraud" in Section 1330(a) is simply
permissive rather than exclusive in nature.7 In other words,
according to Branchburg Section 1330(a) does not inhibit a
court's ability to revoke a confirmation order due to a
party's mistake or excusable neglect (for example)--rather
the statute merely reinforces that fraud is one of the
acceptable reasons to revoke a confirmation order.
Even apart from Branchburg's having glossed over the
already-discussed unacceptability of its view that
rulemakers can essentially override or eliminate
distinctions that Congress has chosen to include in its
enactments, Branchburg offers no reason why Congress
would find it necessary to reassure courts that fraud--
among all of the grounds for relief enumerated in Rule 60(b)
--is a permissible reason to revoke a confirmation order.
Surely if any confirmation of the circumstances entitling a
litigant to relief were needed, actual fraud on the litigant
would be the least likely candidate for such a statutory
confirmation. Thus on its face the Section 1330(a) language
makes far more sense as a substantive limitation than as a
needless permissive reminder. It is hardly surprising, then,
that further scrutiny of Branchburg's reasoning (or lack of
it) exposes several other fatal flaws.
First, Branchburg's argument relies exclusively on the
language of Rule 9024 to extract a strained meaning from
Section 1330(a). But we have already confirmed that
bankruptcy rules cannot "abridge, enlarge, or modify" the
substantive rights afforded by the Bankruptcy Code. Hence
Branchburg's attempt to negate the substantive impact of
the restriction contained in Section 1330(a) solely on the
basis of Rule 9024's language also runs afoul of separation
of power principles.
_________________________________________________________________
7. Here Branchburg must argue the statute's nonexclusivity in the
subject-matter sense explained next in the text, not in the obviously
impermissible temporal sense that has been scotched here in n.5.
8
Furthermore, Branchburg's reasoning collapses if applied
to related parts of the Code. Rule 9024 also adverts in
identical terms to "the time allowed by S1144" for revoking
Chapter 11 confirmation orders. If then Branchburg's
proposed approach were valid, the Section 1144 ground for
relief should be merely permissive as well. But Section
1144 could not be more explicit: It states that a court may
revoke a Chapter 11 confirmation order "if and only if such
order was procured by fraud." It surely cannot be said that
the single Section 1144 ground for relief is merely
permissive, and that correspondingly undercuts any
legitimacy of Branchburg's parallel argument as to Section
1330(a).
Because there is a difference in locution between the "if
and only if" language in Section 1144 and the simple "if"
usage in Sections 1330(a) and 1230(a), it is worth a few
moments to explain that no intended difference in meaning
flows from that distinction. Originally Section 1144
mirrored the language of Sections 1330(a) and 1230(a) by
allowing revocation "if such order was procured by fraud,"
but in 1984 Congress amended Section 1144 to say"if and
only if." That amendment was part of the Bankruptcy
Amendments and Federal Judgeship Act of 1984 (Pub.L.
98-353, Title III S515, 98 Stat. 387), which was intended
primarily to cure the constitutional problems in the 1978
Bankruptcy Act identified by Northern Pipeline v. Marathon
Pipeline Co., 458 U.S. 50 (1982). Hence most of the Act was
devoted to restoring the jurisdiction, procedure and
judgeships of the bankruptcy court system, but Subtitle H,
aptly named "Miscellaneous Amendments to Title 11," also
contained a slew of technical changes to the Code,
including the amendment to Section 1144 (Pub.L. 98-353,
Title III S515, 98 Stat. 387).
Nothing in the sparse legislative history suggests, nor is
there any logical reason to believe, that the 1984
amendment sought to alter Section 1144 to give it a
meaning different from the meaning of Sections 1330(a) and
1230(a). Quite to the contrary, there would be no rational
purpose for Congress to prescribe a different standard for
the revocation of Chapter 11 confirmation orders than for
those under Chapters 12 or 13. Why should the ability or
9
inability of a creditor to revoke a confirmation order due to
mistake or inadvertence depend on the debtor's status as
an individual, a farmer or a corporation?
Reading the 1984 amendment as simply clarifying the
original intent of Congress, on the other hand, preserves
the uniformity between the three sections. That approach
has consistently been taken by commentators and courts
that have had occasion to compare the amended version of
Section 1144 with Sections 1230(a) and 1330(a). Thus 8
Collier P1144.02 n.1 refers to the "minor textual difference"
between the three statutes and says that the difference "is
not substantive and the standards for revocation should be
the same under all three chapters." And see In re Hicks, 79
B.R. 45, 47 (Bankr. N.D. Ala. 1987) and In re Edwards, 67
B.R. 1008, 1009 (Bankr. D. Conn. 1986), agreeing that
Section 1144 and Section 1330 are "essentially identical."
That treatment also comports with the context and
background of the 1984 Act. Subtitle H's name,
organization and content provide no support for the idea
that Congress sought to make any kind of systemic
overhaul of the relationship between Chapter 11 and
Chapter 13. On the contrary, Subtitle H's veritable
kaleidoscope of minor amendments on a wide array of
subjects creates a strong sense that Congress was merely
tinkering with the language of the Code to clarify its
original meaning.
Though the absence of any legislative history precludes a
definitive determination on that score, a bit of detective
work has suggested a possible explanation. It seems
entirely plausible that such a change found its way to
someone's checklist at the time the miscellaneous package
of amendments that ended up in the 1984 legislation was
being put together because a bankruptcy court opinion had
treated fraud as a nonexclusive basis for revoking Chapter
11 confirmation orders. Solon Automated Servs., Inc. v.
Georgetown of Kettering, Ltd., 22 B.R. 312, 317 (Bankr.
S.D. Ohio 1982), which was issued during the gestation
period that produced the miscellaneous 1984 amendments
(a period that began in 1982), had suggested that
"compelling circumstances," such as when a creditor with
a sufficiently large claim to affect the outcome of the
10
confirmation process failed to receive notice, could also
constitute grounds for revoking a Chapter 11 confirmed
plan. There were no comparable decisions in the Chapter
12 or Chapter 13 contexts, and it is entirely
understandable that the sprawling set of 1984 amendments
did not create a seamless web by including conforming
changes in Sections 1230(a) and 1330(a). There is no
warrant for drawing a negative inference from the difference
in statutory language.
Enough then for logic--we turn to precedent. Not
surprisingly, Branchburg's argument also runs counter to
the strong current of the case law. Thus our In re Szostek,
886 F.2d 1405 (3d Cir. 1989) decision has treated fraud as
the only predicate that could justify revoking a confirmation
order under Section 1330. Szostek, id. at 1413 refused to
revoke a Chapter 13 confirmation order even though a
creditor alleged that the confirmed plan violated the
substantive requirements of Section 1325:
We conclude that once the [debtor's] plan was
confirmed, it became final under S 1327 and, absent a
showing of fraud under S 1330(a), it could not be
challenged under S 1325(a)(5)(B)(ii) for failure to pay
[the creditor] the present value of its claim.
That same reading has commended itself to the Eleventh
Circuit as so clearly correct that In re Hochman, 853 F.2d
1547 (11th Cir. 1988) simply affirmed per curiam the
reasoning of the district court that had so held, sub nom.
United States v. Lee, 89 B.R. 250 (N.D. Ga. 1987). And cf.
In re Pence, 905 F.2d 1107, 1110 (7th Cir. 1990), relying for
parallel Section 1330(a) purposes on In re Longardner &
Assocs., Inc., 855 F.2d 455, 461 (7th Cir. 1988) and its
statement that "section 1144 requires a showing of fraud."
Even though succinct, Pence's reference to Section 1330(a)
as "listing fraud as the only basis for revocation of
confirmation" surely further confirms that as the common-
sense reading of the statutory language.
Finally, it is not only bankruptcy courts in this Circuit
(which are of course bound to follow Szostek) that have
agreed that Section 1330(a) establishes fraud as the only
permitted ground for obtaining relief from an order of
11
confirmation. District and bankruptcy courts from
numerous other Circuits have also echoed that view
(examples, listed in order of the Circuits where the lower
courts are located, are In re Klus, 173 B.R. 51, 57 (Bankr.
D. Conn. 1994); In re Walker, 114 B.R. 847, 851 (Bankr.
N.D. N.Y. 1990); In re Woods, 130 B.R. 204, 205 (W.D. Va.
1990); In re Scott, 77 B.R. 636, 637 (Bankr. N.D. Ohio
1987); In re Young, 132 B.R. 395, 397 (S.D. Ind. 1990); In
re Trembath, 205 B.R. 909, 915 (Bankr. N.D. Ill. 1997); In
re Puckett, 193 B.R. 842, 845-46 (Bankr. N.D. Ill. 1996); In
re Hood, 211 B.R. 334, 335 (Bankr. W.D. Ark. 1997); United
States v. Edmonston, 99 B.R. 995, 997 (E.D. Cal. 1989); In
re Hoppel, 203 B.R. 730, 732 (Bankr. D. Mont. 1997); In re
Duke, 153 B.R. 913, 919 (Bankr. N.D. Ala. 1993)).8
Over and above the plain thrust of the statutory
language, we conclude that Congress intended that reading
of Section 1330(a) because it protects the finality of Chapter
13 confirmation orders. As we have previously recognized,
Congress established finality as an important goal of
bankruptcy law. On that score Szostek, id. at 1409
repeated the language of In re Penn Central Transp. Co.,
771 F.2d 762, 767 (3rd Cir. 1985) that:
the purpose of bankruptcy law and the provisions of
_________________________________________________________________
8. Branchburg cites two cases as purported support for the notion that
Rule 60(b) and Rule 9024 empower courts to revoke confirmation orders
on grounds other than fraud, but neither case does the job for
Branchburg. While In re Burgess, 138 B.R. 56 (Bankr. W.D. Wis. 1991)
did rely on Rule 60(b) to revoke a Chapter 13 confirmation order, it is an
extraordinarily weak reed on which to lean--the court did not even
mention Section 1330(a), let alone attempt to explain why its express
limitation should not apply. Indeed, the substantive ground for
revocation relied on in Burgess, id. at 59 was directly at odds with our
decision in Szostek. Branchburg's second proffer, Southmark Properties v.
Charles House Corp., 742 F.2d 862, 872 n. 15 (5th Cir. 1984), is
inapposite because the appellants explicitly acknowledged that they were
not trying to revoke the confirmation order at issue. Thus, while
Southmark, id. at 872-77 did discuss at some length (and ultimately
rejected on the merits) a challenge on equitable grounds to the res
judicata effect of a confirmation order, the court had no occasion to
address whether those equitable grounds (if they had instead been found
valid) might have served as a basis to revoke the order.
12
reorganization could not be realized if the discharge of
debtors were not complete and absolute; that if courts
should relax provisions of the law and facilitate the
assertion of old claims against discharged and
reorganized debtors, the policy of the law would be
defeated; that creditors would not participate in
reorganization if they could not feel that the plan was
final, and that it would be unjust and unfair to those
who had accepted and acted upon a reorganization
plan if the court were thereafter to reopen the plan and
change the conditions which constituted the basis of
its earlier acceptance.
Those considerations, in concert with the dictates of
Section 1327,9 have led courts to impose sharp limits on
efforts to attack Chapter 13 confirmation orders (see our
ruling in Szostek, id. at 1408-13 that the protection of the
finality of Chapter 13 confirmation orders was more
important than the obligation of the bankruptcy court and
the trustee to ensure that a plan complied with the Code).
Szostek's policy rationale applies with equal force to the
issue before us. Revoking a confirmation order is a measure
that upsets the legitimate expectations of both debtors and
creditors.10 Interpreting Section 1330(a) as a limiting
provision permits such disruption in only a very narrow
category of egregious cases. Branchburg's approach, on the
other hand, would open the courtroom doors to a large
number of post-confirmation attacks. Those added
challenges could seriously undermine the integrity of the
_________________________________________________________________
9. Section 1327(a) states:
The provisions of a confirmed plan bind the debtor and each
creditor, whether or not the claim of such creditor is provided for
by
the plan, and whether or not such creditor has objected to, has
accepted or has rejected the plan.
10. Congress' reluctance to undermine the finality of Chapter 13
confirmation orders is further evidenced by the fact that Section 1330(a)
permits, but does not require, courts to revoke confirmation orders
procured by fraud. Thus, for example, a court might uphold such an
order if the debtor had not been responsible for the fraud and if it would
be either unnecessary or inequitable to dismiss or convert the case (see
8 Collier P1330.01).
13
Chapter 13 proceedings, as dissatisfied creditors could seek
to drag out the litigation by bringing themselves under Rule
60(b)'s broader rubric in an attempt to extract concessions.
In sum, Branchburg's argument that Section 1330(a)'s
terms are merely permissive is both logically and
structurally flawed and unsupported by either case law or
public policy. Branchburg has provided no persuasive
reason for ignoring the plain meaning of the text of Section
1330(a).
We adhere to all the relevant considerations--plain
meaning, logic, case law and the policies underlying the
Code--to hold that fraud is the only ground for relief
available for revocation of a Chapter 13 confirmation order.
And as Branchburg admittedly does not assert that Fesq's
confirmation order was procured by fraud (only a blunder
in the office of Branchburg's lawyer is offered as an excuse),
we will look no further into its allegations and will hence
affirm the judgment below.
Conclusion
Branchburg's motion to revoke fails to allege a ground for
relief recognized by Section 1330(a). We must therefore
uphold the district court's judgment affirming the
bankruptcy court's denial of Branchburg's motion. We too
AFFIRM.
14
STAPLETON, Circuit Judge, dissenting:
The parties, the court, and the public have a compelling
interest in the finality of a judgment. See, e.g., Oneida
Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414,
417 (3d Cir. 1988); Fox v. United States Dep't of Hous. &
Human Dev., 680 F.2d 315, 322 (3d Cir. 1982). For that
reason, a judgment should never be overturned without a
showing of a more compelling countervailing interest.
Nevertheless, mistakes are made, and justice miscarries.
Accordingly, every jurisdiction of which I am aware makes
some provision for relief from a judgment. In the federal
system generally, the rule is found in Fed. R. Civ. P. 60. In
bankruptcy, the rule is found in Fed. R. Bankr. P. 9024,
which expressly applies to "an order confirming a plan" as
well as to other forms of judgment entered by a bankruptcy
court.
Rule 60(b) provides that "the court may relieve a party
. . . from a final judgment [because of, inter alia,] mistake,
inadvertence, surprise, or excusable neglect" so long as
application is made in accordance with a stipulated time
schedule. Rule 9024 provides:
Rule 60 F.R.Civ.P. applies in cases under the Code
except that (1) a motion to reopen a case under the
Code or for the reconsideration of an order allowing or
disallowing a claim against the estate entered without
a contest is not subject to the one year limitation
prescribed in Rule 60(b), (2) a complaint to revoke a
discharge in a chapter 7 liquidation case may befiled
only within the time allowed by S 727(e) of the Code,
and (3) a complaint to revoke an order confirming a
plan may be filed only within the time allowed by
S 1144, S 1230, or S 1330.
Rule 9024 thus incorporates the grounds of relief provided
in Rule 60 and then provides a different time schedule with
respect to three separate categories of orders. The time limit
for application for relief from an order confirming a plan of
reorganization is the 180 days specified in the three cited
statutory sections.
The court today finds that Congress intended to single
out one particular type of judgment--a confirmation order--
15
for special treatment and to sharply limit the availability of
relief from such a judgment to a single ground--fraud. It
finds this intent in a single statutory provision that appears
to me to reflect nothing more than an intent to provide a
limitations period for applications for relief from a
confirmation order on grounds of fraud. Section 1330(a) of
the Code says no more than that "the court may revoke [a
confirmation] order . . . procured by fraud" if "request[ed
by] a party in interest at any time within 180 days after the
date of the entry of [the] order." As I read it, and as the
drafters of Rule 9024 must have read it, section 1330(a)
says nothing about limiting the grounds on which relief
from a confirmation order may be granted. The same may
be said for the legislative history of that section.11
Rule 9024 supplements the non-restrictive provisions of
section 1330(a), but as a concession to the strong policy of
finality, it preserves the time limits imposed by that section.
It is not so logically absurd to conclude that the drafters of
Rule 9024 thought it prudent to recognize the bankruptcy
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11. If any confirmation were needed of the Congressional intent
evidenced by a literal reading of section 1330(a), I believe it came with
the passage of the Bankruptcy Amendments and Federal Judgeship Act
of 1984. Prior to that Act, each of the sections of the Code dealing with
revocation of orders confirming reorganization plans originally contained
the clause "if such order was procured by fraud." In the Act, however,
Congress singled out one of those sections -- section 1144 -- for
amendment and explicitly limited the court's power to revoke
confirmation orders in Chapter 11 proceedings"if and only if such order
was procured by fraud." (emphasis added). The fact that Congress chose
not to insert a conforming amendment in sections 1330(a) and 1230(a)
strongly suggests that the Congressional intent to restrict the grounds
for revoking confirmation orders was confined to section 1144. This
makes untenable in my view the negative inferences drawn by the court
from the text of section 1330(a). If, as the court suggests, Congress
amended section 1144 solely to clarify the original intent of the language
previously found in all three sections, I would have expected it to have
clarified all three. Rather than assume an inadvertent slip on its part, I
deem it more prudent to take Congress at its word. There are any
number of reasons why Congress may have regarded it advisable to
provide somewhat greater finality for confirmation orders in corporate
reorganizations than for confirmation orders in other types of
reorganizations.
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court's power to consider other compelling bases for
revoking a plan confirmation order, and the Rule clearly
limits the time for filing such challenges to the same period
as that originally imposed by Congress in section 1330(a).
The court logically observes that any court would know
that it had the power to revoke a confirmation order
procured by fraud without statutory confirmation, and that
section 1330(a) must therefore be read as a substantive
limitation on the available grounds for relief. But the
function of section 1330 is not to reassure courts that they
have the power to revoke confirmation plans for fraud.
Rather, its function is to provide a check by Congress on a
court's natural inclination to entertain charges of actual
fraud at any time--such challenges may only be brought
within 180 days. This time limitation is the essence of
section 1330(a), and Rule 9024 incorporates this essential
element. Section 1330(a) contains no restriction on the
court's ability to consider any number of bases for revisiting
a confirmed plan, and Rule 9024 incorporates the only true
restriction in that section. Rule 9024 in no way runs afoul
of section 1330(a).
Nor is Branchburg's argument inconsistent with existing
precedent. While our opinion in In re Szostek, 886 F.2d
1405 (3d Cir. 1989), contains some broad statements about
the concerns of finality in confirmed bankruptcy plans,
those statements must be understood in the context of the
case to which that opinion is addressed. In July 1987, Fred
and Denise Szostek filed a Chapter 13 bankruptcy petition.
One of the Szosteks' creditors, the Kissell Company
("Kissell"), filed a proof of its secured claim, and the
Szosteks objected to the amount of the claim. A hearing on
the objection was scheduled for the same day as the
hearing on confirmation of the Szosteks' Chapter 13 plan,
but Kissell and the Szosteks agreed to a continuance of the
hearing on the objection. Consequently, mistakenly
thinking that the Szosteks had also agreed to postpone the
confirmation hearing as well, Kissell failed to appear at the
confirmation hearing, and the plan was confirmed without
objection.
Three days later, Kissell filed an objection to the plan on
the basis that it did not provide for present value on
17
Kissell's secured claim.12 Kissell eventually learned that the
plan had been confirmed in its absence and without
considering its objection. It therefore sought revocation of
confirmation under 11 U.S.C. S 1330. Kissell contended
that the Szosteks had obtained confirmation of their plan
through fraud, and that the plan should never have been
confirmed because it failed to conform to the Code's
requirement of present value payment on Kissell's' secured
claim.
The bankruptcy court found no evidence of fraud, so it
denied revocation of the plan under 11 U.S.C. S 1330. The
district court reversed. Although it found no fraud, it ruled
that the bankruptcy court and the trustee had failed to
fulfill their independent obligations to ensure that the plan
complied with 11 U.S.C. S 1325(a)(5), which requires
payment of present value on secured claims.
We reinstated the bankruptcy court's order because 1)
the bankruptcy court's failure to apply section 1325(a)(5) to
the plan was not grounds for revoking a confirmed plan in
the absence of timely objection by the creditor, and 2) after
confirmation of a plan, the policy of finality of bankruptcy
plans overrides the court's and the trustee's responsibility
to ensure that plans conform to section 1325(a)(5) of the
Bankruptcy Code.
Our ultimate--and quite narrow--conclusion in Szostek
was simply that "once the Szosteks' plan was confirmed, it
became final under S 1327 and, absent a showing of fraud
under S 1330(a), it could not be challenged under
S 1325(a)(5)(B)(ii) for failure to pay Kissell the present value
of its claim." 886 F.2d at 1413. Our holding in Szostek in
no way restricted the grounds for revoking confirmation of
a plan to fraud. We simply rejected the argument advanced
by Kissell--that failure to comply with section
1325(a)(5)(b)(ii) could serve as one of those grounds. Kissell
never attempted to rely on Rules 9024 and 60(b) to revoke
confirmation of the plan on the basis of mistake or
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12. Present value is the amount of the secured claim repaid with interest
to account for the time value of money. The Szosteks' plan provided only
for payment of the face value of Kissell's claim.
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excusable neglect, and we were consequently not called
upon to evaluate such an argument in Szostek.
The reasoning underlying Szostek is not applicable in this
case. The creditor in Szostek sought to excuse its failure to
object by relying on a legal argument that it neglected to
make at the confirmation hearing. In such a situation, the
policy of finality and constructive assent should apply to
foreclose the creditor from returning to present an
argument that should have been presented at another time.
Branchburg's argument, however, is not that the plan
should be revoked because Branchburg has a meritorious
challenge, but because it was prevented from presenting
that challenge before for a reason that is recognized in the
procedural rules as a valid basis for revocation.
Branchburg's absence should not be viewed as constructive
assent because it might be excused and remedied pursuant
to statutory authority. Szostek does not control our
decision in this case.13
The majority also points to a number of bankruptcy and
district court decisions in support of its reading of section
1330(a). I find more persuasive the approach taken by the
Ninth Circuit in an opinion addressing a section analogous
to section 1330(a) that strongly suggests its disagreement
with the premise of these other courts. In In re Cisneros,
994 F.2d 1462 (9th Cir. 1993), the trustee never received
notice that the IRS had filed a proof of claim, so the
debtor's Chapter 13 plan was confirmed and a full
discharge entered after payment in full to all creditors but
the IRS. After it discovered the mistake, the IRS moved to
reopen the case. The bankruptcy court sua sponte raised
the issue of whether it could vacate the discharge on the
basis of Fed. R. Civ. P. 60(b), and it concluded that it could
in fact grant the government's motion on that basis.
On appeal, the debtor argued that the court lacked the
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13. The same can be said for the limited statements on the scope of
section 1330(a) in United States v. Lee, 89 B.R. 250, 256 (N.D. Ga.
1987); and In re Pence, 905 F.2d 1107, 1110 (7th Cir. 1990). Neither of
these cases considered the issue presented in this case, and the
reasoning of these cases does not constrain our analysis here.
19
power to vacate the discharge order in light of section
1328(e), which provides as follows:
On request of a party in interest before one year after
discharge under this section is granted, and after
notice and a hearing, the court may revoke such
discharge only if--
(1) such discharge was obtained by the debtor through
fraud; and
(2) the requesting party did not know of such fraud
until after such discharge was granted.14
The debtors argued that, to the extent that section 9024
provided any grounds other than fraud for revoking a
discharge, it conflicted with section 1328(e) and was thus
invalid.
Although the Ninth Circuit agreed that the statute would
have to take precedence in the event of a conflict, it found
that no conflict existed and that the bankruptcy court
could properly revoke the discharge pursuant to Rule 60(b),
as incorporated by Rule 9024.15 Id. at 1466. While Cisneros
is also not directly applicable here, it concluded that Rules
60(b) and 9024 apply under a clearly analogous set of
circumstances.
Based on the text and legislative history, I am convinced
that Congress did not intend to give confirmation orders
_________________________________________________________________
14. This statute is thus apparently even more restrictive that section
1330(a); therefore, the Ninth Circuit's reasoning applies a fortiori to
this
case.
15. The court also revealed that the bankruptcy court in this case
wrongly relied on the holding of In re Gregory, 705 F.2d 1118 (9th Cir.
1983), in support of its conclusion that confirmed plans may only be
revoked for fraud. The Cisneros court pointed out that it held in Gregory
only that a creditor who had not objected at the confirmation hearing
could not mount "a collateral attack" on a plan after it became final. 994
F.2d at 1466-67. But it emphasized that "[w]e had no occasion to
consider whether the bankruptcy court had confirmed the plan under
the influence of a mistaken view of the facts, and, if so, whether this
mistake could have been corrected under Rule 60(b) and Bankruptcy
Rule 9024. Gregory is inapposite, and thus unhelpful to the Debtors
here." Id. at 1467.
20
special treatment by making them impervious to challenge
save on grounds of fraud. Even if I perceived some
ambiguity and were less than convinced about this
proposition, however, I would decline to reach the
conclusion reached by the court today. Why should we, in
the absence of an unambiguous directive of Congress, tie
the hands of bankruptcy judges in situations where justice
cries out for review of a previously entered judgment. Why,
for example, should we render a bankruptcy court
powerless to grant relief when an objecting creditor's
attorney has a heart attack on his way to a confirmation
hearing at which a final order is entered? Moreover, not
only would such a holding fail to serve justice, little, if
anything, would be gained from it in the way offinality.
Under the court's reading of the Code and the Rules,
litigants cannot count on the finality of a confirmation
order until 180 days after the order is entered. Up until
that time, a claim of fraud can be asserted and litigated.
While my reading of the Code and Rules would permit
claims of a limited variety, other than fraud, to befiled
during that period, it would not extend the date upon
which a confirmation order becomes unchallengeable.
I respectfully dissent. I would reverse and remand to
allow the bankruptcy court to consider Branchburg's
request to reopen the plan. I would intimate no opinion on
the merits of Branchburg's claim because I believe the
bankruptcy court is best situated to make that decision.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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