DocketNumber: Case No: 8:16-cv-51-T-17MAP
Citation Numbers: 597 B.R. 663
Judges: Kovachevich
Filed Date: 10/17/2018
Status: Precedential
Modified Date: 10/17/2022
THIS CAUSE comes before the Court for consideration on remand by the Eleventh Circuit. (Dkt. 69). Petitioner, First National Bank of Onieda, N.A. ("FNBO "), originally brought this action against Defendant, Donald Brandt ("Brandt "), to collect the remaining amounts due on several loans after the real estate securing those loans was sold and the proceeds of those sales did not cover the outstanding balances. Brandt, who had earlier filed a chapter 11 bankruptcy petition, moved to dismiss FNBO's claims on the grounds that FNBO could not state a claim for a deficiency because it had not complied with certain provisions of Brandt's previously confirmed chapter 11 plan. This Court agreed with Brandt and dismissed FNBO's deficiency claims that related to loans made before Brandt filed his chapter 11 petition. FNBO appealed this dismissal and, after the parties had filed their briefs, Brandt moved the bankruptcy court to dismiss his chapter 11 case. The bankruptcy court granted Brandt's motion to dismiss. Given the dismissal of his underlying bankruptcy petition, none of Brandt's debts or liabilities were discharged and the automatic stay was terminated. The Eleventh Circuit, in light of what it considers a potentially significant case development, vacated this Court's dismissal of FNBO's deficiency claims and remanded for this Court to consider, in the first instance, whether the dismissal of Brandt's chapter 11 case without a discharge has any effect of FBNO's ability to pursue its deficiency claims in this case. First National Bank of Oneida, N.A. v. Brandt,
I. Background
A. Brandt's Bankruptcy Proceedings
In July 2009, Brandt filed a voluntary chapter 11 bankruptcy petition.
*665He was also in the business of selling and developing raw land in Tennessee.
FNBO was one of Brandt's creditors and Brandt owed FNBO more than $ 1.3 million on real-estate loans.
The plan further provided that Brandt would issue a promissory note to FNBO secured by $ 150,000 worth of real estate.
The plan also established Class 45-a single class of all unsecured claims allowed under
The bankruptcy court confirmed Brandt's chapter 11 plan on December 31, 2011. Id.; (Dkt. 33-6). Believing itself oversecured at that time as to its claims, FNBO did not amend its proofs of claim within 30 days after the plan's confirmation to claim an entitlement to an unsecured claim.
By February 2013, which was a tittle over a year later, Brandt had defaulted on his obligations to FNBO: both on the pre-petition real-estate loans and on the post-petition promissory note.
FNBO subsequently sold the real estate securing its loans.
At a hearing on November 3, 2015, FNBO moved the bankruptcy court to lift the automatic stay to allow it to pursue in personam relief against Brandt.
*666Brandt did not oppose the motion.
B. Procedural History of this Case
FNBO filed its original complaint in January 2016. (Dkt. 1). Brandt moved to dismiss that complaint arguing, among other things, that FNBO could not seek an unsecured deficiency judgment related to its pre-petition real estate loans because FNBO "did not take the steps delineated in Class 45 [of the chapter 11 plan] to assert an unsecured deficiency claim." (Dkt. 9). Specifically, FNBO did not file an amended claim seeking entitlement to an unsecured claim within 30 days after the confirmation hearing. Brandt further argued that allowing FNBO to obtain a deficiency judgment would "disrupt [the plan's] distribution scheme" and cause Brandt to default on his payments to other creditor classes.
In an order entered on May 13, 2016, this Court concluded that FNBO's original complaint stated a plausible claim for deficiency only with respect to the post-petition promissory note. (Dkt. 21). The Court ruled that any deficiency claims related to the pre-petition real-estate loans "necessarily would have been classified in Class 45." Id. at 7. Because FNBO had not alleged "compl[iance] with the Plan's requirements pertaining to Class 45 deficiency claims," this Court dismissed FNBO's deficiency claims related to the pre-petition real-estate loans and instructed FNBO that if it wished to file an amended complaint, it "must attach copies of the Plan, Confirmation Order, and Proofs of Claim, and allege compliance with the provisions relating to Class 45 deficiency claims." Id.
FNBO then filed an amended complain that, like the original complaint, sought the remaining amounts due on both the pre-petition real-estate loans and the post-petition promissory note. (Dkt. 22). FNBO attached copies of the plan, the confirmation order, and the relevant proofs of claim. Id. It did not, however, allege compliance with the provisions relating to Class 45 deficiency claims. Instead, FNBO argued that it was not required to comply with those provisions because, by all accounts, it was oversecured during the relevant time period and because Brandt's chapter 11 plan brought Brandt current on his obligations to FNBO through August 2010. Id. Thus, FNBO claims it "was not required to file a contingent unsecured claim in a speculative unknown amount to preserve its right to receive the full payment promised by the Plan, in the event that Brandt should perhaps default at some later date on his Plan obligations."Id. ¶ 43.
This Court again dismissed FNBO's deficiency claims related to the pre-petition real-estate loans, reiterating that dismissal was warranted because FNBO failed to allege compliance with provisions of Brandt's chapter 11 plan relating to Class 45 deficiency claims, as the Court had directed it must do to state a viable claim. (Dkt. 33). This Court granted FNBO leave to file a second amended complaint to pursue only its claim under the post-petition promissory note. Id.
FNBO filed a second amended complaint in compliance with this Court's Order. (Dkt. 33). Brandt failed to answer the second amended complaint and the clerk entered a default against him. (Dkt. 41). After this Court denied Brandt's motion to set aside that entry of default, Brandt and *667FNBO stipulated to the entry of a judgment against Brandt for $ 180,000 related to the post-petition promissory note. (Dkt. 60). Judgment was entered on March 28, 2017. (Dkt. 62). FNBO then brought this appeal.
However, on December 14, 2017, after both parties had fully briefed the appeal, Brandt moved the bankruptcy court to dismiss his bankruptcy case.
II. Discussion
According to the pertinent statute, once a chapter 11 plan is confirmed, it is binding on both the debtor and the creditor. See
Before 2005, it was clear that the same result occurred when a chapter 11 debtor was an individual: that is, confirmation of the chapter 11 plan also discharged any debts that arose before the date of confirmation. See
The Eleventh Circuit suggests that the 2005 amendment to section 1141 may deem opinions discussing the dismissal of chapter 13 cases without a discharge relevant to a determination of whether and *668how the dismissal of Brandt's chapter 11 case without a discharge affects the enforceability of his confirmed chapter 11 plan.
A. Chapter 12 and Chapter 13 Caselaw
FNBO argues that the 2005 amendment means that Brandt's confirmed chapter 11 plan does not survive dismissal because it now functions as a chapter 12 or chapter 13 confirmed plan, in which discharge is not granted to the debtor upon plan confirmation. (Dkt. 74 at 5-8). Caselaw cited by the Eleventh Circuit demonstrates that a confirmed chapter 13 plan is no longer binding upon dismissal of the chapter 13 case. Nash v. Kester (In re Nash),
FNBO argues that the chapter 12 result should control in the post-BAPCPA chapter 11 context. (Dkt. 74 at 6) (citing Christie, Trustee v. First State Bank of Stratford B.A. (In re Keener),
Citing In re Oakhurst Lodge, Inc. and In re T & A Holdings, LLC, Brandt counters that recent case law demonstrates that chapter 11 plans continue to bind after dismissal and creditors are left with their remedies under the confirmed plan.
Given the 2005 amendment, which directs that confirmation of a chapter 11 plan no longer confers discharge upon an individual debtor, caselaw interpreting chapter 12 and chapter 13 plans support a finding that FNBO may seek to enforce its pre-petition rights against Brandt.
B. Section 349(b): Restoration to Pre-Petition Status Quo
Section 349(b) negates, as it was intended to, the consequences of the filing of the petition in bankruptcy where the case is dismissed without discharge. See generally In re Nash,
FNBO argues that the dismissal of Brandt's bankruptcy case reinstates the *670underlying debts owed to FNBO, including any deficiency rights because, "insofar as the dismissal of a bankruptcy case is concerned, the aim of § 349(b) is to return the parties, as far as practicable, to the financial positions they occupied before the case was filed." (Dkt. 74 at 9). FNBO contends that a recent Supreme Court case addressing a pre-confirmation chapter 11 dismissal supports is position because "[a] dismissal typically 'revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case'-in other words, it aims to return to the pre[-]petition financial status quo." (Dkt. 74 at 9) (citing Czyzewski v. Jevic Holding Corp., --- U.S. ----,
On the other hand, Brand argues that section 349(b) supports his claim that FNBO's pre-petition claims are not enforceable. Brandt states that such finding comports with the Eleventh Circuit's order and recent Seventh Circuit caselaw which states that section "349(b) does not provide that dismissal of a bankruptcy case without a discharge vacates a previously confirmed Chapter 11 plan or otherwise renders that plan unenforceable by the debtor." (Dkt. 76 ¶¶ 19-20) (citing --- U.S. ----,
Accordingly, the Court finds that section 349(b)'s aim to restore the parties to the pre-petition status quo supports a finding that FNBO may seek to enforce its pre-petition claims against Brandt.
C. Public Policy
Legislative history illustrates that BAPCPA was a "comprehensive package of reform measures," enacted in response to the increase in consumer bankruptcy filings and to protect the interests of creditors. H.R. Rep. No. 109-31, pt. 1 at 2 (2005). Specifically, Congress noted the following reasons for the 2005 bankruptcy reforms: rapid escalation of bankruptcy filings; significant losses associated with bankruptcy filings due to creditors' inability to collect; and loopholes and incentives in the present bankruptcy system that allow and even sometimes encourage personal filings and abuse. Id. at 10-18. These reasons indicate that the public policy reason driving the 2005 bankruptcy reforms was, at least in part, to protect and empower creditors.
However, Brandt argues that public policy necessitates that the confirmed chapter 11 plan survives the dismissal without discharge of his bankruptcy case. Specifically, Brandt contends that FNBO conflates the definition of "fresh start" and "discharge," and claims the two are separate terms with separate meanings in law and history. (Dkt. 76 ¶ 16). According to Brandt, Congress "breath[es] effectiveness into chapter 11 for debtors" by allowing a fresh start even in the absence of discharge.
*671Id. ¶ 15. Brandt asserts that he received a limited fresh start upon the confirmation of his chapter 11 plan because he did not receive a discharge, which prevents him from avoiding his obligations despite the survival of his plan beyond dismissal. Id. ¶ 22. Brandt outlines various potentially negative consequences of dismissal, including the possibility of "phantom income" arising from the dismissal or interest that accrued on unsecured claims during the pendency of a plan in a dismissed case, to argue that a confirmed plan that survives dismissal of a bankruptcy case without discharge will continue to incentivize debtors toward plan completion and debt discharge. Id. ¶ 22. Alternatively, according to Brandt, the concept of a fresh start goes to the debtor's ability for a financial rebirth, which does not require a discharge if a debtor is able to reorganize and restructure his debts pursuant to a chapter 11 plan. Id. ¶ 17. Yet, Brandt's arguments do not address the need for Congress to amend the statute to change the requisite conditions for a grant of discharge to an individual debtor. Furthermore, as noted by FNBO, Brandt cites only cases involving either a corporate debtor or a pre-2005 individual debtor: all cases in which discharge was granted upon plan confirmation. (Dkt. 77 at 6-11). Thus, Brandt's arguments are unpersuasive, and the Court finds that public policy supports a finding that FNBO may seek to enforce its pre-petition rights.
Accordingly, the Court finds that under the facts of this case, Brandt's confirmation plan no longer precludes FNBO from pursuing its pre-petition claims.
III. Conclusion
Upon consideration of the foregoing, the Court GRANTS Plaintiff leave of thirty (30) days to file a third amended complaint to pursue its pre-petition claims in accordance with this Amended Order. This will be the operative complaint in this matter. Defendant is directed to file an answer or otherwise respond to the third amended complaint within the normal course.
In light of this Amended Order, the Court ORDERS that Defendant's Motion to Dismiss the Amended Complaint or in the Alternative to Strike Amended Complaint (Dkt. 27) is DENIED AS MOOT .
DONE and ORDERED in Tampa, Florida, this 17th day of October, 2018.
FNBO asserts that the promissory note was for post-petition interest, and its assertion is supported both by the fact that the note brought Brandt current on his obligations to FNBO through August 2010 and by statements that FNBO's attorney made at the confirmation hearing of Brandt's chapter 11 plan. At the confirmation hearing, FNBO's attorney explained to the bankruptcy court that Brandt had granted FNBO a lien on approximately nine previously unencumbered properties worth $ 150,000 to cover interest that had accrued on six of FNBO's real-estate loans. Brandt had already issued a promissory note-for $ 142,353.65-and a deed of trust for the relevant real estate to FNBO in May 2010. The bankruptcy court approved and ratified that transaction.
Notably, the standard for revoking a chapter 11 plan is the same as the standard for revoking a chapter 12 or chapter 13 plan. See
Neither party argues that they relied to their detriment upon the bankruptcy order. Brandt asserts that because of the plan's confirmation, he "was able to refinance and restructure his indebtedness to FNBO." (Dkt. 76 ¶ 18). However, Brandt does not articulate facts sufficient to demonstrate that he relied to his detriment on the plan.