First Natl. Bank v. Herbert Warren Allen ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 96-2484
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First National Bank; Eureka State Bank, *
*
Appellants, *
* Appeal from the United States
v. * District Court for the
* District of South Dakota.
Herbert Warren Allen, III; Donna Mae *
Allen, *
*
Appellees. *
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Submitted: February 14, 1997
Filed: July 10, 1997
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Before MAGILL,1 BEAM, and LOKEN, Circuit Judges.
___________
MAGILL, Circuit Judge.
First National Bank of Eden (Eden Bank) and Eureka
State Bank (Eureka Bank) (collectively the Banks) brought
a motion before the bankruptcy court2 to determine their
1
The Honorable Frank J. Magill as an active judge at the time this case was
submitted and assumed senior status on April 1, 1997, after the opinion was filed.
2
The Honorable Irvin N. Hoyt, Chief Judge, United States Bankruptcy Court for the
District of South Dakota.
status as unsecured creditors. The bankruptcy court
found that the Banks had
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waived their unsecured claims. The district court3
affirmed the decision of the bankruptcy court, and the
Banks now appeal to us. We affirm.
I.
The Banks made substantial agricultural loans to
Herbert Warren Allen III and Donna Allen. The Allens
subsequently defaulted on the loans. On December 18,
1986, the Banks brought foreclosure actions against the
Allens. Eden Bank obtained a judgment in state court for
$79,376.29. Eureka Bank obtained a judgment in state
court for $325,611.23.
On February 19, 1987, the Allens filed for bankruptcy
under Chapter 12 of the Bankruptcy Code. In their
petition, the Allens listed their obligation to Eden Bank
as $66,247.87, plus interest, and their obligation to
Eureka Bank as $285,022.64, plus interest. Both of these
obligations were secured by approximately 1129 acres of
farmland owned by the Allens. On April 6, 1987, Eden
Bank filed its proof of claim with the bankruptcy court
for $77,554.41. On April 15, 1987, Eureka Bank filed its
proof of claim with the bankruptcy court in the amount of
$321,567.81.
The Allens filed their first Chapter 12 plan of reorganization on May 19, 1987
(May 1987 plan). The May 1987 plan listed the Banks as secured creditors in the
combined amount of $285,027.64, plus interest. Because the value of the 1129 acres
3
The Honorable Richard H. Battey, Chief Judge, United States District Court for the
District of South Dakota.
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of farmland was far less than the total amount that the Allens owed to the Banks, the
May 1987 plan proposed to pay the Banks only a total of $99,140.00 on their combined
secured claims. The rest of the Banks’ combined claims, $185,887.64, was listed as
an undersecured claim. The May 1987 plan listed only two unsecured creditors,
Richard Bjerk and Hoysler Associates. Their unsecured claims totaled $61,400.00.
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Under the terms of the May 1987 plan, however, none of the undersecured nor the
unsecured creditors were to receive any payments for their claims.
The Banks objected to the May 1987 plan. The Banks argued that the
reorganization plan should require the Allens to apply their projected disposable
income towards the amounts owed to both undersecured and unsecured creditors. In
response to the Banks’ objections, the Allens filed an amended Chapter 12 plan on
October 20, 1987 (October 1987 amended plan).
Under the “Designation of Classes of Claims” section of the October 1987
amended plan, Richard Bjerk and Hoysler Associates were listed as having unsecured
claims totaling $61,637.84, and the Banks were listed as having an undersecured claim
in the amount of $154,612.00. However, the “Treatment of Claims” section of the
October 1987 amended plan--the section that set out how all of the creditors’ claims
would be handled under the plan--provided that Eden Bank would receive only
$31,270.00 on its secured claim. The treatment of claims section of this plan listed
unsecured creditors Richard Bjerk and Hoysler Associates, but no mention was made
of Eden Bank’s undersecured claim. The October 1987 amended plan still provided
that no unsecured or undersecured creditors would receive anything on their claims.
Finally, the treatment of claims section noted that Eureka Bank’s secured claim was to
be negotiated later, that Eureka Bank was also a possible undersecured creditor whose
undersecured claim would be negotiated at a later time, and that the results of any
negotiations were to be included as part of the October 1987 amended plan.
On November 20, 1987, the bankruptcy court entered an order confirming the
October 1987 amended plan (November 1987 confirmation order). The November
1987 confirmation order noted that all secured claim holders, except Eureka Bank, had
accepted the amended plan. The October 1987 amended plan provided that it would
apply to Eureka Bank if the Allens and Eureka Bank reached an agreement as to the
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value of Eureka Bank’s claims. Neither bank appealed the November 1987
confirmation order.
Eureka Bank and the Allens negotiated the value of Eureka Bank’s claims, and
on October 25, 1988, Eureka Bank and the Allens agreed to a stipulate to the value of
Eureka Bank's secured claim (October 1988 stipulation). In the October 1988
stipulation, the parties agreed that the value of Eureka Bank's secured claim was
$125,000. This stipulation, however, did not indicate that Eureka Bank was still
pursuing an undersecured claim.
On December 27, 1988, the bankruptcy court modified
the confirmed October 1987 amended plan to make the
October 1988 stipulation a part of the plan. At the same
time, the bankruptcy court confirmed the October 1987
amended plan with respect to Eureka Bank. Eureka Bank
did not appeal this order. Thus, once the stipulation
was added, the October 1987 amended plan provided for a
combined total of $156,270.00 in secured claims for the
Banks. Relative to the May 1987 plan, the Banks’
negotiations had increased their secured claims by
approximately $57,000. However, although the October
1987 amended plan still treated the unsecured claims of
Richard Bjerk and Hoysler Associate in the treatment of
claims section, the October 1987 amended plan did not
treat the Banks’ undersecured claims.
On February 17, 1990, debtor Herbert Warren Allen III
inherited approximately 3156 acres of land from his
deceased mother. On November 15, 1991, in preparation
for discharge, the Allens filed their final report and
accounting with the bankruptcy court. This report did
not include the inheritance that Herbert Warren Allen III
had received from his deceased mother on February 17,
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1990. The trustee of the Allen bankruptcy estate,
trustee A. Thomas Pokela, filed an objection to the
discharge on the ground that the inheritance could be
used to pay unsecured creditors. On September 18, 1993,
trustee Pokela filed a motion with the bankruptcy court
for an order removing the Allens as debtors-in-possession
because, even though Herbert Warren Allen III’s
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mother had died in February 1990, Herbert Warren Allen
III had not yet probated his mother’s estate. Because of
this delay in probating the estate, trustee Pokela was
unable to calculate how much disposable income existed
that could be used to pay creditors of the Allen
bankruptcy estate.
An evidentiary hearing on trustee Pokela's motion was
held on August 23, 1994 (August 1994 disposable income
hearing). Insofar as this hearing was to determine the
disposable income available to pay the unsecured claims,
the hearing was held for the benefit of all the unsecured
creditors. Nevertheless, despite receiving notice of the
August 1994 disposable income hearing, the Banks did not
attend.
On January 13, 1995, the bankruptcy court ordered
that the real property inherited by Herbert Warren Allen
III would be used to pay the unsecured creditors of the
Allen bankruptcy estate (January 1995 order). Bankr.
Mem. Op. (Jan. 13, 1995) at 6-8. In the order, the
bankruptcy court specifically recognized that:
[I]n a stipulation approved after confirmation
of Debtors’ plan, Eureka State Bank was not
given any under or unsecured claim. Instead,
the stipulation and testimony of Debtors’
bankruptcy counsel, Philip Morgan, indicates the
Bank received a higher secured claim in exchange
for not being included in the class of unsecured
claim holders. Thus, the only unsecured plan
creditors are Richard Bjerk and Hoysler
Associates, whose claims total $61,637.84.
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Id. at 5-6. Also in its January 1995 order, the bankruptcy court ordered the
Allens to file an amended property schedule to reflect the inheritance that Herbert
Warren Allen III had received from his mother. Id. at 8. Finally, the bankruptcy court
set a deadline for the trustee or any unsecured creditor to file a motion to modify the
confirmed October 1987 amended plan. Id. This deadline was twenty days after the
debtors filed their amended property schedule. Id.
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The Banks received notice of the January 1995 order even though the Banks had
failed to participate in the August 1994 disposable income hearing. The Banks did not
file objections to the January 1995 order, nor did the Banks file a motion to modify the
debtor’s confirmed October 1987 amended plan of reorganization in their alleged
capacity as undersecured creditors.
On January 27, 1995, debtor Herbert Warren Allen III died, leaving his wife,
Donna Allen, as the sole remaining debtor. On January 31, 1995, Donna Allen, filed
an amended property schedule that reflected the inheritance that her late husband,
Herbert Warren Allen III, had received upon the death of his mother. Despite having
just filed a new amended schedule that showed that the Allen bankruptcy estate now
had money it could use to pay unsecured creditor claims, Donna Allen did not file a
motion to amend the terms of the October 1987 plan to reflect the Allen bankruptcy
estate’s ability to pay the unsecured creditors’ claims.
On April 5, 1995, John S. Lovald replaced trustee Pokela as the Allen
bankruptcy estate trustee. Trustee Lovald notified the bankruptcy court that he would
file the needed motion to modify the confirmed October 1987 amended plan so that the
claims of the unsecured creditors could be paid. Trustee Lovald ultimately filed this
motion on June 2, 1995 (June 1995 motion). In the June 1995 motion, the property
inherited by Herbert Warren Allen III upon the death of his mother was valued at
$143,071.00. Like all of the other papers filed concerning the Allen bankruptcy estate,
this motion identified Richard Bjerk and Hoysler Associates as the only unsecured
creditors in the proposed payment schedule.
On June 27, 1995, the Banks filed a joint objection to trustee Lovald's June 1995
motion. Eureka Bank claimed that it still had an unsecured claim of $125,000.00, and
Eden Bank claimed that it still had an unsecured claim of $32,002.95.
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On July 3, 1995, Donna Allen responded to the Banks' objections. Donna Allen
pointed out that, although the Banks had notice of the August 1994 disposable income
hearing, the Banks neither attended the August 1994 disposable income hearing nor
objected to the January 1995 order of the bankruptcy court that resulted. Donna Allen
argued that the Banks are consequently bound by the bankruptcy court's January 1995
order that listed Richard Bjerk and Hoysler Associates as the only unsecured creditors
that would be treated under the plan.
The Banks filed a motion to determine their unsecured status on July 24, 1995.
On that same day, trustee Lovald sent a letter to the bankruptcy court informing the
bankruptcy court that the Banks’ motion had to be decided before the plan could be
modified to show how the inherited property would be distributed. Trustee Lovald also
informed the bankruptcy court that if Eureka Bank's unsecured claim were paid the
other unsecured claims could not be paid.
The bankruptcy court held a hearing on the status of the Banks' unsecured claims
on August 28, 1995. At the hearing, the Banks acknowledged that the October 1987
amended plan’s treatment of claims section did not include an unsecured claim for Eden
Bank, and that the November 1988 order confirming the plan with respect to Eureka
Bank did not state that Eureka Bank retained an unsecured claim. Nevertheless, the
Banks argued that the Banks retained their unsecured claims notwithstanding that the
bankruptcy court’s January 1995 order directing the trustee to distribute the inherited
assets to Richard Bjerk and Hoysler Associates, the only unsecured creditors addressed
in the treatment of claims section of the October 1987 amended plan. The Banks
argued that the bankruptcy court's January 1995 order could not be used to invalidate
the Banks' unsecured claims because the status of the Banks' unsecured claims was not
the issue before the bankruptcy court at that time, and because the Banks had not
participated in the matter that was before the bankruptcy court.
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On October 30, 1995, the bankruptcy court held that, even if the Banks were not
bound by the January 1995 bankruptcy order and findings, the Banks had waived their
unsecured claims. Bankr. Mem. Op. (Oct. 30, 1995) at 7. The bankruptcy court
reached this conclusion because: (1) the October 1987 amended plan’s treatment of
claims section did not treat either of the Banks as holders of unsecured claims, id. at
2, 7; (2) the Banks had failed to assert their unsecured claims at the November 1987
confirmation hearing, id. at 7; (3) the October 1988 stipulation entered into between
Eureka Bank and the Allens did not mention Eureka Bank’s undersecured claims even
though the October 1987 amended plan recognized that Eureka
Bank might hold both secured and unsecured claims, id.;
(4) “[n]either bank appealed the [confirmation order or
the subsequent order approving the October 1988
stipulation] on the grounds that their unsecured claims
had been omitted,” id.; (5) the bankruptcy court
specifically stated in the January 1995 order entered
after the August 1994 disposable income hearing that
there were only two unsecured creditors left, Richard
Bjerk and Hoysler Associates, id. at 3; and, (6)
although "[b]oth [Banks] argued that they had not
relinquished their unsecured claim during negotiations
for plan treatment[,] . . . . they acknowledged [that]
they had not specifically negotiated and stated the
treatment of their respective unsecured claims in the
plan or subsequent stipulation.” Id. at 5. In light of
these facts, the bankruptcy court concluded that a
finding that the Banks had retained their undersecured
claims would be contrary to the confirmed October 1987
amended plan and that such a finding would prejudice
Donna Allen and the unsecured claimholders, Richard Bjerk
and Hoysler Associates, who had relied on the stated
terms of the confirmed October 1987 amended plan. Id. at
7.
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The Banks appealed the bankruptcy court’s decision to
the district court. In its Memorandum Opinion of April
30, 1996, the district court affirmed the bankruptcy
court’s decision and held that the Banks had waived their
unsecured claims. Mem. Op. (Apr. 30, 1996) at 7-8. The
Banks now appeal to this Court.
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II.
As a preliminary matter, we must determine whether we
have jurisdiction to hear this appeal. Both parties have
argued that this Court has jurisdiction to hear this
appeal pursuant to 28 U.S.C. § 158(d) (1994), and we
agree.
Although a bankruptcy court order need not resolve
all issues raised by the bankruptcy for that order to be
final and reviewable under § 158(d), the order must
resolve all of the issues pertaining to the discrete
claim for which review is sought. See In re Woods
Farmers Coop. Elevator Co., 983 F.2d 125, 127 (8th Cir.
1993). This Circuit has adopted a three-factor test to
determine whether a bankruptcy court order is final for
purposes of § 158(d). See In re Broken Bow Ranch, Inc.,
33 F.3d 1005, 1007 (8th Cir. 1994). To determine whether
a bankruptcy court order is final and reviewable for
purposes of § 158(d), this Court considers "the extent to
which (1) the order leaves the bankruptcy court nothing
to do but execute the order; (2) delay in obtaining
review would prevent the aggrieved party from obtaining
effective relief; and (3) a later reversal on that issue
would require recommencement of the entire proceeding."
Broken Bow Ranch, 33 F.3d at 1007 (quotations and
citation omitted).
We conclude that all three of the Broken Bow Ranch
factors favor our exercise of jurisdiction in this
matter. First, regardless of whether this Court decides
to recognize or deny the Banks' unsecured claims, the
bankruptcy court is left with only the computational
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tasks of distributing the assets of the Allen bankruptcy
estate. Second, because the bankruptcy proceeding is on
the verge of being completed pending the resolution of
the dispute before this Court, a delay in review of the
Banks’ unsecured claims would serve no purpose. Finally,
because the bankruptcy court would merely distribute the
Allen bankruptcy estate’s assets in accordance with the
confirmed October 1987 amended plan if we were to deny
jurisdiction, a later reversal of the bankruptcy court's
order would force the bankruptcy court to redistribute
the
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assets of the bankruptcy estate. Accordingly, we
conclude that we have jurisdiction to hear the appeal now
before us.
III.
The Banks argue the bankruptcy court erred when it
held that the Banks had waived their unsecured claims.
We disagree.
In reviewing the bankruptcy court’s decision, we
apply the same standard of review as did the district
court. In re Miller, 16 F.3d 240, 242 (8th Cir. 1994).
We review the bankruptcy court’s legal conclusions de
novo and its findings of fact under the clearly erroneous
standard. Id. at 242-43.
To address the Banks’ claim, we must start with the October 1987 amended
plan. Even if we do not consider the fact that the Banks helped to negotiate the
October 1987 amended plan and the fact that the Banks expressly agreed to the
confirmation of the October 1987 amended plan, it is beyond dispute that the Banks are
bound by the terms of that amended plan. See 11 U.S.C. § 1227(a) (1994) (“Except
as provided in section 1228(a) of this title [relating to discharge from bankruptcy], the
provisions of a confirmed plan bind . . . 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.”); see also Harmon v. United States,
101 F.3d 574, 582 n.5 (8th Cir. 1996); Rowley v. Yarnall, 22 F.3d 190, 194 (8th Cir.
1994); In re Plata, 958 F.2d 918, 920 (9th Cir. 1992); cf. In re Varat Enters., Inc., 81
F.3d 1310, 1317 (4th Cir. 1996) (“[A] confirmed plan of reorganization acts like a
contract that is binding on all parties, debtor and creditors alike . . . . [A] party in
interest’s failure to object to a claim made on a debtor’s assets prior to confirmation of
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the debtor’s reorganization plan may operate as a waiver, barring the party from
asserting the objection later.”).
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Turning to the terms of the October 1987 amended plan, we note that the
treatment of the Banks’ alleged unsecured claims is conspicuously absent. The
October 1987 amended plan expressly provides only for the treatment of the Banks’
secured claims. Moreover, by its express terms the October 1987 amended plan only
treats the claims of two unsecured creditors: Richard Bjerk and Hoysler Associates.
Although this silence with respect to the Banks’ alleged unsecured claims may not in
and of itself compel the conclusion that the Banks waived their unsecured claims, this
silence combined with the express treatment of only Richard Bjerk and Hoysler
Associates as unsecured creditors strongly supports the conclusion that the Banks
waived their unsecured claims when they negotiated and then agreed to the
confirmation of the October 1987 amended plan. Cf. U.S. Term Limits, Inc. v.
Thornton, 115 S. Ct. 1842, 1850 n.9 (1995) (favorably discussing the well-known
maxim of documentary interpretation “expressio unius exclusio alterius.”).
Furthermore, we recognize that waiver is ordinarily a matter of intent. See In re
Benedict, 90 F.3d 50, 55 (2nd Cir. 1996) (“Waiver is generally defined as an
intentional relinquishment of a known right.” (quotations and citation omitted)); In re
Christopher, 28 F.3d 512, 521 (5th Cir. 1994) (“Waiver may be established by showing
that a party actually intended to relinquish a known right or privilege.”); In re Garfinkle,
672 F.2d 1340 (11th Cir. 1982) (“Waiver is usually a question of fact since it concerns
the intent of the parties.”). The bankruptcy court concluded that the Banks intended
to waive their unsecured claims, and we do not find this factual finding to be clearly
erroneous.
According to the Banks, in negotiating the October 1987 amended plan, the
Banks sought to maximize their secured claims because, at the time, the Allens did not
have any assets that could be used to pay unsecured claims. The Banks have conceded
that they recognized that “there would be nothing, absolutely nothing, left for unsecured
and undersecured claims” and that “the [B]anks attempted to negotiate the best value
for their secured claims they could obtain.” Appellant’s Br. at 19. Indeed, the Banks’
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negotiations were extremely effective in bettering the Banks’ secured claims positions:
while the May 1987 plan proposed to pay the Banks a combined secured claim of
$99,140, the October 1987 amended plan proposed to pay the Banks a combined
secured claim of more than $156,000. In striking this deal, the Banks effectively gave
away their speculative, unlikely chance of collecting on their large, unsecured claim in
exchange for collecting a smaller claim with certainty. Thus, when the Banks
concluded their negotiations, the Banks had effectively bargained for the certainty of
receiving an extra $57,000 dollars on their secured claim by trading away the
speculative possibility that enough money might one day enter the Allen bankruptcy
estate to pay the Banks’ unsecured claims. This $57,000 increase in the Banks’
combined secured claim supports the bankruptcy court’s conclusion that the Banks
intended to waive their unsecured claims in order to increase their secured claims.
In addition, the Banks had every opportunity to insure that their unsecured claims
were treated in the October 1987 amended plan. See In re Varat Enters., 81 F.3d at
1318 (“[B]ankrupcty creditors generally bear the burden of policing the plan’s
treatment of claims.”). However, the Banks failed to pursue their unsecured claims in
a timely manner or even make a timely effort to correct what they now allege to be the
erroneous conclusion expressed by the bankruptcy court in its January 1995 order, that
Richard Bjerk and Hoysler Associates were the only remaining unsecured creditors.
We thus conclude that the Banks waived their unsecured claims. The terms of
the October 1987 amended plan, which the Banks helped to negotiate, do not treat the
Banks’ unsecured claims. Moreover, the record indicates that the Banks intended to
waive their unsecured claims. For these reasons, we agree with the bankruptcy court
that the Banks no longer have any unsecured claims.
Finally, we reject the Banks’ argument that because the bankruptcy court is a
court of equity, the Banks alleged unsecured claims should be allowed. The equities
of this case are squarely against the Banks. The Banks waited a full five years after
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Herbert Warren Allen III came into his inheritance before they first asserted that they
had unsecured claims that needed to be addressed. The Banks did not object even after
receiving a copy of the bankruptcy court’s January 1995 order in which the bankruptcy
court found that, under the October 1987 amended plan, the only remaining unsecured
creditors were Richard Bjerk and Hoysler Associates. In light of all of these events,
it is clear that the Banks sat on any unsecured claims that they might have had. Under
color of an equitable claim, the Banks will not now be allowed to delay further the
discharge of the Allen bankruptcy by asserting claims that the Banks could have easily
preserved and protected if they had chosen to do so by negotiating for them to be
treated in the October 1987 amended plan.
IV.
For the foregoing reasons, we affirm.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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