Opinion
CASE NO. 02-06246-AJM-13
October 7, 2002
Chris Holmes, for the Debtors
D. Eric Hall, Shawn Neal, for Cathy Reismiller
Molly Miller, for Chapter 13 Trustee United States Trustee
ORDER SETTING ASIDE JULY 12, 2002 ORDER CONFIRMING CHAPTER 13 PLAN
Background
The Debtors filed their voluntary chapter 13 bankruptcy petition on April 12, 2002 and on that same day, filed their Chapter 13 plan (the "Plan"). As is standard in all cases where the chapter 13 plan is filed on the date the petition is filed, a computer generated "Notice of Commencement of Case under Chapter 13 of the Bankruptcy Code, Meeting of Creditors and Fixing of Dates" dated April 18, 2002 (the "341 / Confirmation Hearing Notice") was issued. That notice, about a third of the way down on the page, set forth: (1) the deadline to file a proof of claim(August 21, 2002 for nongovernmental units); (2) the date, time, and location of the meeting of creditors (May 23, 2002 at 10:30 a.m. in Room 101 OB, 101 West Ohio Street, Indianapolis) and (3) the filing of plan and date, time and location of hearing on confirmation of the plan (same as the date, time and location of the meeting of creditors). The very last complete paragraph of the notice provided as follows:
OBJECTIONS TO PLAN. If no objections to the plan are filed, the Court will confirm the plan without further notice or hearing after the meeting of creditors. If an objection to confirmation remains unresolved after the meeting, or, if the trustee requests, a confirmation hearing will be set at a later date. Notice of that hearing will be provided to debtor(s), attorney for debtor(s), the trustee, any objecting party, and any other party who request notice.
In addition to the 341/Confirmation Hearing Notice, another notice entitled "Notice of Time Fixed to File Objections to Confirmation of Plan, of Settlement Conference and of Debtor's Right to Modify Plan" (the "Objections Notice") was also issued on April 18, 2002. That notice provided in the second full paragraph:
IF YOU FILE AN OBJECTION TO THE PLAN, YOU ARE REQUIRED TO ATTEND THE MEETING OF CREDITORS WHICH SHALL SERVE AS A SETTLEMENT CONFERENCE IN AN EFFORT TO RESOLVE YOUR OBJECTION. FAILURE TO APPEAR AT THE SETTLEMENT CONFERENCE MAY RESULT IN THE TRUSTEE'S RECOMMENDATION OF CONFIRMATION OF THE PLAN OVER YOUR OBJECTION. If your objection cannot be resolved at the Settlement Conference, the Chapter 13 Trustee will request a hearing on the objection.
Finally, the following language appears two paragraphs below the preceding language:
DEBTOR(S) SHALL HAVE THE RIGHT TO MODIFY THE PLAN OR TO ADJUST THE TREATMENT OF ANY CLAIM, INCLUDING VALUATION OF COLLATERAL, AT THE MEETING OF CREDITORS. Creditors must attend the meeting of creditors to object to any such modifications or adjustments.
If the plan and any modifications thereof are accepted and no objections to confirmation are outstanding by the time the Section 341 meeting is concluded, then the Chapter 13 Trustee may file a Report to Court recommending confirmation of the Plan. If the Chapter 13 Trustee recommends confirmation, then the Court may enter an Order of Confirmation without conducting an actual hearing thereon.
The 341/Confirmation Hearing and the Objections Notices were sent to all creditors listed on the Debtors' schedules, along with a copy of the Chapter 13 Plan. Unfortunately, creditor Cathy Reismiller's ("Cathy") name did not appear on the Debtors' schedules until they were amended to include her name on May 6, 2002; by that time both the 341/Confirmation Hearing and the Objection Notices had been sent out. What Cathy did receive on or about May 15, 2002 (a little over a week before the § 341 meeting/confirmation hearing), however was an "Order and Notice of Amendment" dated May 9, 2002 which notified her that: (1) that the Debtors had filed a chapter 13 bankruptcy; (2) May 23, 2002 was the date set for the § 341 meeting of creditors; (3) the last day for added creditors to file a claim was the earlier of (a) ninety (90) days after the § 341 meeting or 30 days from the date of the order; and (4) objections to exemptions must be filed within 30 days after the conclusion of the § 341 meeting. Nowhere in the order did was Cathy advised that she had to object to the Plan at the § 341 meeting and if no objections were lodged at that time, the plan could be confirmed after the conclusion of the § 341 meeting without further notice or hearing.
Cathy was notified of the time and date of the § 341 meeting (although she was not notified that the confirmation hearing would be held immediately following the conclusion of the § 341 meeting) but did not attend. Nor did she file an objection to the plan before the § 341 meeting. However, the chapter 13 Trustee did object to the confirmation of the Debtors' Plan and a hearing on that objection was set for August 27, 2002. Notice of that hearing was sent only to the Debtors', the Debtors' attorney, the Chapter 13 Trustee and the United States Trustee. To further compound the matter, the Trustee's objection to confirmation was later resolved by the filing of an immaterial modification filed on July 9, 2002, which was not subject to notice to all creditors. Because the only filed objection to confirmation had been resolved, the Court entered its order confirming the Debtors' Plan on July 12, 2002.
More than two weeks later, on July 30, 2002, Cathy objected to the Debtors' Plan. The May 13, 1994 decree dissolving the marriage between Cathy and Debtor Jack Reismiller provided, among other things, that Jack was to pay the balance on a Discover card and to hold Cathy harmless on this debt. Discover was one of the creditors listed in the Debtors' schedules as the holder of an unsecured claim in the amount of $10,844.96. In her objection, Cathy asserted that this claim was in the nature of support and maintenance, which under § 507(a)(7) is a priority claim entitled to full payment under the Plan pursuant to § 1322(a)(2). The Debtors' response was that the objection was untimely and that the terms of the confirmed Plan bound Cathy, whether or not her claim was provided for in the Plan, and whether or not she objected to the Plan. 11 U.S.C. § 1327.
Hearing on Cathy's objection and the Debtors' response was held on September 17, 2002 wherein the Debtors appeared in person and by counsel, Chris Holmes; Cathy appeared in person and by her counsel, D. Eric Hall and Shawn Neal. The Chapter 13 Trustee, Robert Brothers, appeared by counsel Molly Miller. At the conclusion of the hearing, the Court took ruling on the matter under advisement.
This matter is a contested matter under Rule 9014 of the Federal Rules of Bankruptcy Procedure ( F.R.Bankr.P.) and therefore Fed R. Bankr. P. 7052 applies. This entry shall constitute findings and conclusions as required by F.R.Bankr.P. 7052.
Discussion
A confirmed chapter 13 plan operates as res judicata as to all issues that could have been litigated at the confirmation hearing. Meyer v. Pagano (in re Pagano), 2002 WL 31159110 (N.D. Cal. 2002); In re Pardee, 193 F.3d 1083, 1087 (9th Cir. 1999); Young v. I.R.S., 132 B.R. 395, 396-97 (S.D. Ind. 1990). The terms of the confirmed chapter 13 plan bind both the debtor and the creditor, whether or not the creditor has objected to the plan. Id. at 397. However, a confirmed plan has res judicata effect only to the extent that the objecting creditor's due process rights were not violated and that the creditor received "a procedurally proper and plain notice that its interests are in jeopardy". In re Chang, 274 B.R. 295, 302 (Bankr. D. Mass. 2002) quoting Factors Funding Co. v. Fill (In re Fill), 257 B.R. 370, 373 (1st Cir. BAP 2001).
The only notice Cathy received was contained in the "Order and Notice of Amendment" dated May 9, 2002 which notified her that: (1) that the Debtors had filed a chapter 13 bankruptcy; (2) May 23, 2002 was the date set for the § 341 meeting of creditors; (3) the last day for added creditors to file a claim was the earlier of (a) ninety (90) days after the § 341 meeting or 30 days from the date of the order; and (4) objections to exemptions must be filed within 30 days after the conclusion of the § 341 meeting. Unlike all other creditors that were listed in the Debtors' original schedules and who received both the 341 / Confirmation Hearing Notice and the Objections Notice, Cathy was not advised as to a deadline in which to object to confirmation of the Debtors' Plan, nor was she advised that such objection had to be lodged at the § 341 meeting on May 23, 2002. More importantly, she was not advised that if no objections were raised at the § 341 meeting, the Chapter 13 Trustee would be free to recommend confirmation of the Plan and that confirmation could occur without further notice or hearing. Being under the impression that the only thing was would take place on May 23rd was the § 341 meeting, Cathy did not attend, expecting to be notified in the future as to her deadline in which to object to the Plan. Therefore, the notice received by Cathy was inadequate in that it: (1) gave her less than 20 days notice of the § 341 meeting in contravention of Rule 2002(a)(1) of the Federal Rules of Bankruptcy Procedure; and (2) failed completely to notify her of the date and time of hearing on confirmation of the Plan in contravention of F. R. Bankr. P. 2002(b). Accordingly, the Court finds that the notice received by Cathy was inadequate as to advise her as to how to proceed to assert and to protect her claim in this bankruptcy. Although Cathy's counsel appeared to have diligently monitored the electronic docket on this case, such is no substitute for the notice requirements contained in F. R. Bankr. P. 2002(a) and (b) and therefore, the Court concludes that the confirmed plan can have no res judicata effect on her.
Having decided that the confirmed plan is not binding on Cathy, the next inquiry is whether the July 12th confirmation order should be set aside. Normally, a confirmation order can be revoked within 180 days after it is entered only where it was procured by fraud. See, Young, 132 B.R. at 397; 11 U.S.C. § 1330. Although Cathy has alleged bad faith in the proposal of the Debtors' Plan, there is insufficient evidence so far in the record for this Court to conclude that the July 12th Confirmation Order was procured by fraud. However the alternate basis in F. R. Bankr. P. 9024 (which makes applicable to bankruptcy cases the provisions of F.R.Civ.P. 60 — Relief from Judgment or Order) also allows relief from a judgment or an order, and generally provides for a one-year window in which to ask for such relief from an order. ". . . Rule 9024 may be utilized to set aside or relieve a party from the effect of a chapter 13 confirmation order when notice is constitutionally inadequate". In re Hudson, 260 B.R. 421, 443 (Bankr. W. D. Mich. 2002); see also, In re Toth, 61 B.R. 160, 168 (Bankr. N. D. III. 1986) (lack of written notice of amended plan sufficient to vacate a confirmation order and therefore is "reason" enough under Rule 60(b)(6) to set aside.) The Court concludes that the inadequate notice given to Cathy with respect to objections to the Plan and the confirmation hearing require the July 12th Confirmation Order to be set aside, and an evidentiary hearing on Cathy's objection will be held at a later date.
Accordingly, the July 12, 2002 order confirming the Debtors' chapter 13 plan is SET ASIDE.