Opinion
Civil Action No. 2:22-CV-00309
2023-08-28
OVATION SERVICES, LLC, Appellant, v. Maria Christina MORGAN, Appellee.
Mary Elizabeth Heard, M.E. Heard, Attorney, PLLC, San Antonio, TX, for Appellant. Joel Gonzalez, Law Office of Joel Gonzalez, PLLC, Corpus Christi, TX, for Appellee.
Mary Elizabeth Heard, M.E. Heard, Attorney, PLLC, San Antonio, TX, for Appellant. Joel Gonzalez, Law Office of Joel Gonzalez, PLLC, Corpus Christi, TX, for Appellee. ORDER NELVA GONZALES RAMOS, UNITED STATES DISTRICT JUDGE
This appeal arises out of the Chapter 13 bankruptcy case of Maria Christina Morgan (Morgan), In re Morgan, No. 22-20168 (Bankr. S.D. Tex). D.E. 2-1. She presented to the bankruptcy court a plan of reorganization that treated her creditor, Ovation Services, LLC as Agent for FGMS Holdings, LLC (Ovation), as a secured creditor with a tax lien on Morgan's principal residence to be paid in full under the plan. D.E. 2-3, pp. 106-25. Ovation argues that the plan effectively deprives Ovation of a portion of the tax lien it holds—that which secures post-confirmation fees, expenses, and other charges—in violation of bankruptcy and nonbankruptcy law. Id., pp. 126-46.
The bankruptcy court held that Ovation's lien interest was not impaired in violation of any law and confirmed the plan. D.E. 2-3, pp 154-205. Ovation appealed the plan confirmation to this Court and filed its appellant's brief. D.E. 1, 3. Neither Debtor Morgan nor the Chapter 13 Trustee responded with an appellee's brief. For the reasons set out below, the Court AFFIRMS the bankruptcy court's "Order Confirming Chapter 13 Plan and Valuing Collateral Pursuant to 11 U.S.C. § 506." D.E. 2-3, p. 154.
JURISDICTION AND STANDARD OF REVIEW
Jurisdiction is proper in this Court pursuant to 28 U.S.C. §§ 157(b)(2)(K) & (L) and 158(a)(1) in that it is an appeal from a bankruptcy court order involving the determination of the validity, extent, or priority of a lien and the confirmation of a plan of reorganization. The bankruptcy court's findings of fact are reviewed for "clear error." Highland Cap. Mgmt. LP v. Chesapeake Energy Corp., 522 F.3d 575, 583 (5th Cir. 2008); Century Indem. Co. v. Nat'l Gypsum Co. Settlement Trust (In re Nat'l Gypsum Co.), 208 F.3d 498, 504 (5th Cir. 2000). The standard of review regarding questions of law or mixed questions of fact and law is de novo. Highland Cap., supra; Century Indem., supra. Ovation asserts that its appeal involves only pure questions of law.
FACTS
Morgan owns and resides in a condominium unit in Lakewood Village in Corpus Christi, Texas, valued at $89,034.00. See D.E. 2-2, p. 9. On May 27, 2020, after incurring property taxes in the amount of $17,852.66, Morgan entered into a Texas Property Tax Repayment Agreement. Id., pp. 119-22. The agreement recites that the debt is secured by a transfer of tax liens to Ovation. A separate Tax Lien Transfer Contract, contemplated by the repayment agreement, transfers to Ovation all tax liens held by the original taxing authorities. Id., pp. 123-26. And Morgan authorized the transfer of liens. Id., p. 127.
On June 29, 2022, after Morgan's default on the repayment agreement, Ovation obtained a "Final Judgment for Delinquent Taxes, Foreclosure of Tax Liens, and Order of Sale" in the 319th Judicial District Court of Nueces County, Texas, against Morgan in the total amount of $24,641.64. Id. at 134-40. Morgan then filed for Chapter 13 relief on July 19, 2022. D.E. 2-2, p. 112. At the time Morgan filed her bankruptcy petition she included Ovation on her schedule of creditors as owning a judgment lien for unpaid taxes in the amount of $24,641.64. D.E. 2-2, p. 25. Ovation filed its proof of claim in the amount of $24,935.07, which included interest and other charges, as "money loaned" secured by a "statutory lien." D.E. 2-2, p. 116. Ovation further reserved its right to seek amounts accruing post-petition. Id., p. 118.
Morgan's "Uniform Plan and Motion for Valuation of Collateral, Amended 10/20/2022" provides for the payment of Ovation's claim under paragraph 8(A) as a "Claim Secured by Real Property that will be Retained and Paid in Full with Interest in Accordance with Applicable Non-Bankruptcy Law." D.E. 2-3, pp. 106, 109. The claim
will be paid in accordance with the pre-petition contract. The claim includes all amounts that arise post-petition and that are authorized pursuant to Fed . R. Bankr. P. 3002.1. During the term of this Plan, these payments will be made through the Trustee in accordance with the Chapter 13 Trustee Procedures for Administration of Claims Secured by Real Property.Id., p. 109 (¶ 8(A)(ii) (emphasis added)); see also p. 112 (¶ 8(D)(ii)). "Except as otherwise ordered by the Court, any amounts due under a Fed. R. Bankr. P. 3002.1(c) Notice shall be paid after payment of all other secured and priority claims, but before payment of general unsecured claims." Id., p. 109 (¶ 8(A)(iii)); see also p. 112 (¶ 8(D)(iii)).
Paragraph 8(D) further addresses the claim as a tax lien, restating many of the same rules as apply to other creditors who have debt secured by a real estate lien and adding other explanatory provisions. D.E. 2-3, p. 112.
The procedures set forth in Fed. R. Bankr. P. 3002.1 and in the Chapter 13 Trustee Procedures for Administration of Claims Secured by Real Property [Trustee Procedures] apply to all claims of a Transferee , regardless of:
D.E. 2-3, p. 112 (¶ 8(D)(ii) (emphasis added)).a. Whether the Transferee holds a security interest, lien or other encumbrance to secure payment of its claim; or
b. The terms of repayment set forth in this Plan.
Any amounts sought in a Transferee's Fed. R. Bankr. P. 3002.1 notice must be paid in accordance with the Chapter 13 Trustee Procedures for Administration of Claims Secured by Real Property. No post-petition attorney's fees , expenses or other reimbursements incurred before the completion of all payments under this Plan may be enforced by any Transferee unless the attorney's fees , expenses or other reimbursements are authorized by a Court order or the Chapter 13 Trustee Procedures for Administration of Claims Secured by Real Property.D.E. 2-3, p. 112 (¶ 8(D)(iv), (v), (vi) (emphasis added)). The plan further modifies the automatic stay to permit Ovation to send Morgan certain post-petition notices, including any notice of additional fees, expenses, or charges added to the indebtedness and states that the creditor's lien is retained to secure those additional amounts. Id., p. 114 (¶ 12).
Paragraphs 12 and 25 of this Plan apply to claims secured by a Tax Lien; provided, after the completion of all payments under this Plan, the Transferee will retain its lien, but only if the Tax Lien was treated by a "Cure" under this Plan pursuant to 11 U.S.C. § 1322(b)(3) or § 1322(b)(5). In that event, the Tax Lien will secure only (i) payments first payable after the completion of all payments under this Plan; and (ii) charges, fees and advances first accruing after the completion of all payments under this Plan. Attorney's fees, inspection fees and other charges accrue on the date that the services were rendered. The obligation to pay taxes accrues on the date that the taxes were last due without penalty under applicable non-bankruptcy law. Insurance premiums accrue on the date on which the premium was due under applicable non-bankruptcy law.
In short, the Chapter 13 plan recognizes Ovation's statutory tax lien, both with respect to its pre-petition claim and any post-petition charges. It requires both the disclosure of post-petition charges and payment of all approved post-petition charges before the plan is completed, whether or not that payment requires a modification to the plan. As a result, Morgan will have paid all contract amounts to Ovation by virtue of her plan payments or otherwise and will be entitled to: (a) a discharge of in personam liability on Ovation's claim; and (b) release of the in rem liability represented by the statutory tax lien. No more is needed because, according to the plan terms, nothing more will be owed and unpaid at the successful conclusion of the plan.
While there are a number of requirements within the Rule 3002.1 procedure for post-confirmation charges, Ovation's objection appears to be primarily directed at the notice requirement, which triggers the claim adjudication and reads:
The holder of the claim shall file and serve on the debtor, debtor's counsel, and the trustee a notice itemizing all fees, expenses, or charges (1) that were incurred in connection with the claim after the bankruptcy case was filed, and (2) that the holder asserts are recoverable against the debtor or against the debtor's principal residence. The notice shall be served within 180 days after the date on which the fees, expenses, or charges are incurred.Rule 3002.1(c). The Trustee Procedures, a part of the Local Rules for the United States Bankruptcy Court for the Southern District of Texas, incorporate the Rule 3002.1 procedures and state the corresponding method for payment of secured claims.
Ovation timely filed its objections to the plan, complaining that its provisions unlawfully alter or eliminate a portion of its statutory tax lien. D.E. 2-3, pp. 126-45. It further offered alternative language that, if included in the plan, would eliminate its concerns. Id., p. 134. On December 14, 2022, the bankruptcy court heard Ovation's objections and overruled them from the bench. Id., pp. 155-205. On the same date, Bankruptcy Judge Isgur issued his written order confirming the Chapter 13 plan. Id., p. 154. This appeal followed, with Morgan and the trustee not participating.
DISCUSSION
A. The Issue
Ovation's argument—stated in the form of sixteen issues—is that it is an oversecured statutory tax lien creditor and that the plan alters its rights in violation of its statutory tax lien and numerous authorities. It contends that the plan places unreasonable burdens on it to preserve its post-petition claims and threatens to require it to release its lien before all debt is paid. Because its pre-petition claim is to be paid in full under the plan, Ovation's concern stems from post-confirmation amounts it may incur for such things as attorney's fees, late fees, and force-placed insurance premiums.
The problem is not that those post-confirmation claims are precluded by the Chapter 13 plan. It is that: (a) Ovation is required to give notice to the trustee every 180 days of incurring such amounts, (b) the trustee may challenge specific charges as unreasonable, and (c) the bankruptcy court adjudicates the propriety of the charges. The purpose of this procedure is to ensure that the plan extinguishes Ovation's secured claim in full (including post-confirmation amounts) through the plan (with modified payments, if necessary), providing Morgan with her fresh start.
Ovation essentially argues that the bankruptcy court does not have the power to allow or disallow these post-confirmation charges because the statutory lien and the tax debt it secures are sacrosanct. It claims the unfettered right to assess post-confirmation charges as secured by its lien after the plan has been completed and after Morgan receives a discharge of any in personam liability on any pre-petition claims against her.
This is certainly not the first case Ovation has brought in its effort to defeat bankruptcy court oversight of its post-confirmation charges. And the courts are aware of practices in the mortgage and tax lending industries that surprise debtors with previously undisclosed post-confirmation charges after the bankruptcy proceeding is closed. Bankruptcy Judge Jeffrey Norman recently rejected Ovations arguments, writing:
What Ovation wants is the keys to the candy store, the authority to charge what it wants, when it wants, for these claims to survive a Chapter 13 Discharge, and for debtors to be forced to pay them after their Chapter 13 cases are complete. This is an abhorrent result and one this Court would never endorse.In re Martin, No. 22-30148, 2022 WL 16937609 at *4 (Bankr. S.D. Tex. November 14, 2022). It is a clear threat to the Chapter 13 goal of a fresh start. And there is no legitimate interest to be served by allowing it.
B. The Plan Provides for Full Payment of the Tax Lien and Preservation of All Contract Rights
Ovation claims that, by requiring it to comply with procedures for prosecuting its post-confirmation claims, the plan violates its rights as a statutory tax lien holder. As set out above, all creditors whose claims are addressed in paragraph 8 of the plan, including Ovation, enjoy terms that (a) pay the principal and contract rate of interest in full and (b) preserve all pre-petition contract rights. D.E. 2-3, pp 109, 112. Therefore, to understand and apply Ovation's sixteen arguments, the Court investigates whether any of Ovation's substantive rights are impaired by the procedures.
Timing of Notice of Post-Confirmation Charges. As recognized by the Chapter 13 plan, Ovation's contract permits it to assess additional charges, including post-confirmation attorney's fees, late fees, and the expense of preserving its collateral property. However, nothing in the contract addresses when notice of those charges must be given to Morgan or protecting Ovation from such inquiries. See D.E. 2-2, p. 119-22. There is no contractual or nonbankruptcy statutory provision precluding debtors from learning of charges as they accrue.
Rather, Ovation's counsel specifically assured the bankruptcy court that such information could be obtained at any time:
We talked about Mr. Peake had asserted his concerns about and debtor's counsel about not knowing the fees, at any time debtors may ask for fees. I ask that they go through counsel, if they're represented, but they're welcome to reach out to me, they're welcome to reach out to my client and find out the status of the loan. We don't hide the ball so to speak. And like I said, my typical procedure is for debtor's counsel reached [sic] out to me, once it looks like the debtor's going to survive in the case and asks whether or not -- ask where we are with the fees, I go back to my client, I get the fee statement out for them.D.E. 2-3, pp. 175-76 (emphasis added). The structure of the Chapter 13 plan requirements simply call on Ovation to disclose the fees once every six (6) months—and only if there are new charges it wishes to collect. D.E. 2-3, p. 112 (applying Rule 3002.1).
. . .
We're not trying to hide fees. That is just not appropriate. The Debtors of course, you know, I don't think they need to ask this every single day, but if they wanted to ask us once a month , every two weeks , you know , I'm happy to do that.
Nothing prohibits the bankruptcy court from requiring reasonably contemporary notice of the charges being assessed against a debtor during the course of the bankruptcy proceeding so that they may be timely paid. The Chapter 13 plan's requirements in this regard are appropriate to safeguard the integrity of the plan to extinguish the debts according to the plan terms and within the time allotted by the plan for monthly plan payments, as modifications may be necessary. Padilla v. Wells Fargo Home Mortg., Inc. (In re Padilla), 379 B.R. 643, 661 (Bankr. S.D. Tex. 2007) (citing 11 U.S.C. § 1329(a)). And it is important to preserving the debtor's right to a fresh start after successful completion of the plan. See generally, In re Martin, 2022 WL 16937609 at *1.
Ovation's counsel suggests that some debtors prefer to pay post-confirmation charges after completion of the plan so that the plan may proceed unmodified to its intended conclusion. While that may be the case, it is not a basis for refusing to provide debtors and trustees the notice necessary to make an informed choice to exercise the option of addressing the charges through the plan or after discharge and seeking a bankruptcy court order accordingly. The Chapter 13 plan's notice requirement does not violate any of Ovation's contractual or statutory rights.
Amount. The contract provides that the charges that Ovation is permitted to assess may be made: (a) in a specified amount; (b) as governed by statute; or (c) in an amount that is reasonable. If incurred to collect on the loan, Ovation may recover "attorney's fees and court costs performed after the property owner files a voluntary bankruptcy petition as permitted by the U.S. Bankruptcy Code." D.E. 2-2, p. 121 (¶ 13) (emphasis added). The contract remedies are cumulative of both parties' rights and remedies "provided by law or in equity." Id. (¶ 18). And all remedies must be "appropriate." Id., pp. 121-22 (¶ 18).
Late fees are 5% of the monthly amount; insufficient check fees are $30. D.E. 2-2, p. 1120 (¶ 6). Expenses incurred to preserve the property are reimbursed in the amount charged to Ovation. Id., (¶ 9). Collateral protection insurance is recoverable "in accordance with applicable laws." Id., p. 121 (¶ 10). Professional title fees must be "reasonable." Id., (¶ 13).
The same is true for statutory charges. By statute, any claim for attorney's fees, costs, and other permitted charges must be reasonable. Tex. Tax. Code § 32.06. Every fee permitted by Texas Finance Code § 351.0021(a) must be reasonable. And "attorney's fees and court costs for services performed after the property owner files a voluntary bankruptcy petition" are allowed "to the extent permitted by the United States Bankruptcy Code." Tex. Fin. Code § 351.002(a)(5).
For instance, fees for a payoff accounting must be "reasonable." Tex. Tax Code § 32.06(f-3). Likewise, a request for a balance statement may trigger a "reasonable" charge. § 32.06(g).
Because state law does not allow the imposition of unreasonable fees or expenses, "To the extent that the Court denied unauthorized or unreasonable fees, the court would be enforcing the contract rights, not modifying or ignoring those rights." Padilla, 379 B.R. at 658 (applying Rule 2016(a) before Rule 3002.1 was added). Nothing in the contract or statutes authorizing transferred tax liens prohibits the court from assessing whether the amounts Ovation seeks to charge Morgan are consistent with her contract, applicable statutes, and other state law—whether they are reasonable. And it is within the scope of the bankruptcy court's duties to preside over the curing of defaults during the pendency of a Chapter 13 case. In re Martin, 2022 WL 16937609 at *4 & nn.15, 16.
The Chapter 13 plan does not eliminate Ovations' right to assess post-confirmation charges. Nor does it violate any of Ovation's contractual or statutory rights with respect to the amount of those charges.
Oversight. Both the contract and relevant statutes, by requiring charges to be reasonable, anticipate some oversight. The contract states that its remedies are cumulative and the parties are entitled to all rights and remedies provided by law or equity. D.E. 2-2, pp. 121-22 (¶ 18). That expressly includes "judicial proceedings." Id. Morgan's bankruptcy case is such a judicial proceeding. And the bankruptcy court has jurisdiction over all property of the estate, which includes a Chapter 13 debtor's post-confirmation earnings, as well as jurisdiction over post-petition claims. 11 U.S.C. §§ 1305, 1306.
Property of the estate in a Chapter 13 case includes all of the property defined by 11 U.S.C. § 541 at the time the petition is filed, along with such property accumulated "after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first," including the debtor's earnings. 11 U.S.C. § 1306(a); see also In re Rodriguez, 432 B.R. 671, 680 (Bankr. S.D. Tex. 2010), aff'd, 695 F.3d 360 (5th Cir. 2012).
The bankruptcy court further has specific jurisdiction over all defaults on debts occurring during the plan period and modifications of the plan to cure such defaults. 11 U.S.C. §§ 1322(b)(2), (5), 1329. In this respect, Ovation's proof of claim, submitted to the bankruptcy court in order to obtain payment, includes a reservation of the right to make and recover post-petition charges.
The Proof of Claim submitted by Creditor does not include amounts accruing after the filing of the bankruptcy case for interest on the claim, or any reasonable fees, costs or charges provided for under the agreement between the Creditor and the Debtor or State statute under which Creditor's claim arose. Creditor hereby reserves the right to submit such amounts to the Debtor or the Bankruptcy Court and to augment the amounts claimed on the Proof of Claim , consistent with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.D.E. 2-2, p. 118 (emphasis added).
Nothing in the contract between Morgan and Ovation or the statutes that govern tax liens precludes the bankruptcy court from exercising its oversight powers regarding Ovation's post-confirmation charges, which Ovation reserved the right to submit to the bankruptcy court.
Procedure. Where there is a right, remedy, and adjudicative body, there must be a procedure for prosecuting the claim and obtaining the remedy. Nothing in the contract or relevant statutes prescribes the procedure for assessing the propriety of Ovation's additional charges other than referencing "judicial proceedings." See D.E. 2-2, p. 121 (¶ 18). In bankruptcy cases, adjudication of an issue may be accomplished by notice, along with objections, motions, contested matters, and adversary proceedings. Fed. Bankr. Rule 3007 (claim objection), 3012 (objection or motion), 7001, et seq. (adversary proceedings), 9014 (contested matters, catch-all provision).
The Federal Bankruptcy Rules of Procedure do not have any rules that apply exclusively to post-confirmation oversecured statutory tax lien claimants. However, they do have Rule 2016(a), a rule that has not been invoked here, which applies to any creditor's claim for post-confirmation attorney's fees sought from the debtor's estate. And the rules include 3002.1, which applies on its face to claims secured by a security interest in the debtor's principal residence.
See Padilla, 379 B.R. at 656, 659 (Rule 2016(a) applies to a creditor's post-confirmation fees claimed against the debtor's post-confirmation earnings). This rule, while instructive of the scope of the bankruptcy court's power, is not necessary here, as Rule 3002.1 was later added to more closely address this issue, arguably making Rule 2016 superfluous here. Ovation does not address Rule 2016(a) in its brief.
Ovation argues that Rule 3002.1 cannot apply because its initial paragraph reads: "This rule applies in a chapter 13 case to claims (1) that are secured by a security interest in the debtor's principal residence, and (2) for which the plan provides that either the trustee or the debtor will make contractual installment payments." (emphasis added). It claims that its statutory tax lien is not a "security interest" as defined by the Bankruptcy Code. Therefore, the rule does not apply to its lien claim.
The Bankruptcy Code definition states: "The term 'security interest' means lien created by an agreement." 11 U.S.C. § 101(51). In contrast, "The term 'statutory lien' means lien arising solely by force of a statute on specified circumstances or conditions, or lien of distress for rent, whether or not statutory, but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute." 11 U.S.C. § 101(53). A strict reading supports only the argument that the rule does not apply by its own terms.
But whether Rule 3002.1 applies by its own terms is not the question here. The Chapter 13 plan, together with the bankruptcy court's confirmation, constitutes a court order applying the rule of procedure to Ovation's claim. Ovation has failed to identify any authority that precludes the bankruptcy court from using the procedures of Rule 3002.1 and associated Trustee Procedures with respect to statutory liens as a method for affording due process to the adjudication of those claims and payment thereof.
For this reason, the line of cases on which Ovation relies to exempt itself from Rule 3002.1 is inapposite. See Propel Fin. Servs. v. Woodruff, No. 3:21-CV-15, 2022 WL 1556418 (S.D. Tex. May 17, 2022) (holding that a tax lien transferee's lien was not subject to Rule 3002.1 on its face); In re Reed, No. 17-52875-rbk, 2021 WL 4395821 (Bankr. W.D. Tex. September 24, 2021) (holding that Ovation's statutory tax lien was not subject to Rule 3002.1 on its face); In re Flores, No. 17-50063 (S.D. Tex. Aug. 16, 2017) (instructing oversecured tax lien creditor to submit its request for post-petition charges via 11 U.S.C. § 506(b) instead of 3002.1—but still requiring a submission for approval of the charges); In re Jimenez, No. 18-30884 (S.D. Tex. Dec. 3, 2018) (creditor was not entitled to attorney's fees and other charges as a secured creditor, but instead had to file an administrative expense claim); Fernandez v. FGMS Holdings, L.L.C., No. 1:17-cv-00018, 2017 WL 6888530 (S.D. Tex. July 25, 2017) (a transferred tax lien remains a statutory tax lien); In re De Hoyos, No. 17-50197 (Bankr. S.D. Tex. Jan. 14, 2021) (D.E. 134-1, 140) (no specific plan term or order cited to apply Rule 3002.1 to statutory tax lien creditor, but ¶ 25(g) of the plan provides, "No creditor, before or after completion of the Plan, shall be allowed to collect any payments, costs, fees, or expenses, from the Debtor(s), the estate, or their property, that are not provided for in this Plan.").
Indeed, the bankruptcy court has broad authority in this regard.
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement
court orders or rules, or to prevent an abuse of process.11 U.S.C. § 105(a). See generally, Perez v. Peake, 373 B.R. 468, 488 (S.D. Tex. 2007) (citing Marrama v. Citizens Bank of Mass., 549 U.S. 365, 375, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007), for the proposition that § 105(a), along with the inherent powers of the court permit the bankruptcy court to take action (that is neither expressly authorized nor prohibited) to effectuate the purposes of the Bankruptcy Code).
This Court sees no violation of Ovation's statutory or contract rights in imposing this procedure. Nor is there any other reason that the bankruptcy court cannot use the designated procedures to adjudicate Ovation's post-petition claims in a just, efficient, and expeditious manner.
Propriety of Release of Lien. Ovation complains that the end result could be a requirement that it release its lien before all amounts are paid. This assertion is not founded on any term of the Chapter 13 plan, bankruptcy law, or Rule 3002.1 procedure. And it is contrary to the terms of the Chapter 13 plan. After Morgan successfully completes her plan payments, there should be no remaining amounts due to Ovation. She will be entitled to a release of the lien because the debt and all charges will have been paid. See In re Martin, 2022 WL 16937609 at *4-5. And if she does not successfully complete the plan and the case is dismissed or converted to Chapter 7, Ovation's lien will remain intact. Id., at *5. There is no merit to this complaint.
Indeed, the only scenario that comes close to (but does not reach) the result Ovation anticipates is if it is permitted to accumulate charges during the plan period without disclosing them, thereby preventing them from being timely adjudicated (if disputed) and paid—either independent of the plan or through a plan modification. And its only remedy at that time could be foreclosure of the lien. There is no wisdom in allowing Ovation to ambush Morgan in this fashion. And, as more fully discussed below, there is no violation of Ovation's rights in requiring timely disclosure and bankruptcy court oversight of charges it assesses against Morgan if they are disputed. The plan does not cause—but is designed to prevent—the doomsday Ovation predicts.
Conclusion. The bankruptcy court has the power and responsibility to adjudicate Ovation's post-petition charges against Morgan's account in a timely manner. This is conducive to both Ovation and Morgan's interest in satisfying the debt in full during the Chapter 13 proceeding. It is further essential to Morgan's successful completion of the plan, discharge, and fresh start. Ovation has failed to demonstrate that any of the procedures anticipated by the Chapter 13 plan, including the use of Rule 3002.1 and Trustee Procedures, violate any of its contractual or statutory rights.
C. Ovation's Objections Are Meritless
Given the analysis set out above, Ovation's briefing, preceded by a list of 16 issues, offers no basis for reversal of the bankruptcy court's order confirming Morgan's Chapter 13 plan. Further extended analysis is not necessary. Therefore, the Court sets out the following shorthand analysis of each of the 16 issues:
1. The objection on the basis of the application of Rule 3002.1 (with respect to Morgan's principal residence) to require Ovation to file notices every 180 days is OVERRULED. The language that Rule 3002.1 applies to security interests does not preclude its application to Ovation's statutory tax lien claim, given the bankruptcy court's broad power to adjudicate claims within its jurisdiction and to issue orders or rules consistent with the Bankruptcy Code to provide for the fair and efficient administration of justice. 11 U.S.C. § 105(a).
2. The objection on the basis of the application of Rule 3002.1, Local Bankruptcy Rule 3015-1, and the Trustee Procedures (with respect to Morgan's principal residence and any other real property) to require Ovation to file notices is OVERRULED. The language of the rules and Trustee Procedures does not preclude their application to Ovation's statutory tax lien claim, given the bankruptcy court's broad power to adjudicate claims within its jurisdiction and to issue orders or rules consistent with the Bankruptcy Code to provide for the fair and efficient administration of justice. 11 U.S.C. § 105(a).
3. The objection on the basis of an alleged violation of Rule 9009 is OVERRULED, as Ovation has not complained of the nature or content of any prescribed form, which is the purpose of Rule 9009. Moreover, Ovation did not adequately brief this issue. "The forms shall be construed to be consistent with these rules and the Code." Rule 9009(c). Neither has Ovation demonstrated that the requirement of the use of any form caused any injury to its claim.
4. The objection on the basis of Rule 9009, claiming that the Southern District of Texas Bankruptcy Rule 9009(c) impermissibly abridges and modifies Ovation's rights is OVERRULED as set out above because its rights have not been modified or abridged. Ovation does not have any "right" to practices that obscure its post-confirmation charges from Morgan or the trustee until after the discharge is granted, thereby avoiding bankruptcy court jurisdiction.
5. The objection that the plan violates 11 U.S.C. § 1325(a)(5)(B)(i)(I), which requires that a secured creditor retain its lien until the debt is paid, is OVERRULED because nothing in the plan requires Ovation to release its lien before all contract- or statutorily-approved post-confirmation charges are paid. Rather, the plan is designed to ensure that all such charges are paid during the Chapter 13 case.
6. The objection that the plan violates 11 U.S.C. § 1325(a)(5)(B)(i)(I), which requires that a secured creditor retain its lien until the debt is paid, is OVERRULED because nothing in the plan modifies Ovation's contractual or statutory rights.
7. The objection that the plan violates 28 U.S.C. § 2075 regarding the establishment of bankruptcy rules is OVERRULED because the plan does not involve any rules that abridge, enlarge, or modify any of Ovation's substantive rights. The plan merely applies rules that govern the procedure for enforcing those rights. Neither does Rule 3002.1, or the way it is applied here, conflict with any substantive provision of the Bankruptcy Code.
8. The objection that the plan violates 28 U.S.C. § 2071 regarding the power to establish rules is OVERRULED because neither the Bankruptcy Court of the Southern District of Texas nor the plan establishes any rules that abridge, enlarge, or modify any substantive rights. Also, Ovation has failed to adequately brief this issue. As demonstrated above, the bankruptcy court had the power under 11 U.S.C. § 105(a) to impose procedures by which Ovation's claims are presented so that they may be properly adjudicated. Ovation's substantive rights have not been affected.
9. The objection that the Chapter 13 plan violates Rule 9029 is OVERRULED because nothing in the local rules or their application affects Ovation's substantive rights or is inconsistent with other laws, rules, or procedures. "A judge may regulate practice in any manner consistent with federal law, these rules, Official Forms, and local rules of the district." Rule 9029(b); see also 11 U.S.C. § 105(a).
10. The objection that the plan violates 11 U.S.C. § 505(a)(1) is OVERRULED because it fully complies with the authority of that section:
the court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.11 U.S.C. § 505(a)(1). None of the exceptions (for previously adjudicated claims, tax refunds, or claims barred by limitations) apply. Ovation's assertion—that the "proper route" for determining tax liability is for the debtor to initiate proceedings—is not a requirement imposed by this statute or by any other law on which Ovation relies. And, indeed, any objection to Ovation's charges under Rule 3002.1 and the Trustee Procedures must be initiated by the trustee or the debtor. The procedure applied by the plan terms does not affect any substantive right. See Padilla, 379 B.R. at 657-58 (procedural rules are necessary for the administration of bankruptcy cases and merely determine how substantive rights are implemented; they do not change substantive rights).
11. The objection that the plan violates 11 U.S.C. § 1322(a)(3) by singling out ad valorem tax lien transferees for disparate treatment by discriminating against them and stripping their liens is OVERRULED. Ovation has not articulated any violation of its contractual or statutory rights or the manner in which it is discriminated against, given that the charges at issue are either expressly referred to the bankruptcy court for adjudication or are in addition to charges that comparison taxing authorities may make. D.E. 2-3, pp. 155-205. And the bottom line is that Ovation is not stripped of its lien for any amount of the tax lien transferred to it or for any other lawful charges.
As the bankruptcy court pointed out, some of the charges for which Ovation seeks tax lien coverage are consensual, arising out of its repayment agreement and not from statute or the assessment of any taxing authority. Nonetheless, the lien remains applicable to those charges under the Chapter 13 plan. And Ovation is treated the same as similar creditors (mortgagees) whose debt is oversecured by a lien on Morgan's principal residence.
12. The objection that the plan violates 11 U.S.C. § 1305 is OVERRULED because nothing in the Chapter 13 plan precludes Ovation from filing a permissive proof of claim for charges arising during the course of the bankruptcy case. Allowing creditors to file post-confirmation proofs of claim does not conflict with requiring the Rule 3002.1 notice in order to obtain authority to collect on such a claim. The plan is consistent with, and can work in tandem with, § 1305.
Moreover, this argument undercuts Ovation's assertion that the onus is on the debtor to initiate inquiries about, and adjudication of, post-confirmation charges. The bankruptcy court's treatment of Ovation's claims is not inconsistent with the letter or spirit of § 1305. Adjudication of Morgan's liability for post-confirmation charges pursuant to her Chapter 13 plan is further consistent with 11 U.S.C. § 1322(a)(1, 2), (b)(3).
13. The objection that the plan violates 11 U.S.C. § 1322(b)(11) as imposing a term inconsistent with the Bankruptcy Code is OVERRULED. Nothing in Rule 3002.1 or the Advisory Committee notes expressly applying the procedure to mortgagees indicates that the rule should not be applied to facilitate the charges secured by a transferred tax lien. As demonstrated above, nothing in the procedure applied here is inconsistent with the provisions or purposes of the Bankruptcy Code. Rather, the procedure is imposed to pay Ovation in full and provide Morgan with a fresh start after successful completion of the plan. See also, 11 U.S.C. § 105(a).
14. The objection that the plan violates the holdings of Long v. Bullard, 117 U.S. 617, 620-21, 6 S.Ct. 917, 29 L.Ed. 1004 (1886) and Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) is OVERRULED because Morgan's in rem liability is not extinguished by Morgan's anticipated in personam bankruptcy discharge. Rather, it is expected to be extinguished by payment of Ovation in full through the plan terms.
Long and Johnson stand for the proposition that an in personam discharge does not defeat an in rem claim for secured amounts still owed.
Ovation will not be required under any plan term to release its lien before all of its claims are adjudicated and, if appropriate, paid.
Again, the Court stresses that Ovation and lenders like it will not be releasing liens due to the discharge order entered in any Chapter 13 case. Instead, they will be releasing their liens due to full payment. This is a result that is beneficial to Ovation, lenders like it, and to the debtor.In re Martin, 2022 WL 16937609 at *5. And the plan terms—including the use of Rule 3002.1 and the Trustee Procedures—are designed to ensure that the charges are fully and timely paid, before completion of the plan and discharge.
15. The objection that the plan violates the holding in In re Simmons, 765 F. 2d 547, 551 (5th Cir. 1985) is OVERRULED. That holding is: "confirmation of the Chapter 13 plan cannot have the effect of lifting liens on property of the estate." Id. Likewise, "It is clear under the Code that any statutory lien that is valid under state law remains valid through bankruptcy unless invalidated by some provision of the Code." Id. at 553. Here, release of the lien is not automatic upon the completion of plan payments but is only required once the debt is fully paid. In re Martin, 2022 WL 16937609 at *5.
16. The objection that the plan violates Rule 7001 is OVERRULED because the claim for post-confirmation charges is not "a proceeding to determine the validity, priority, or extent of a lien or other interest in property" as Ovation asserts. See Rule 7001(a)(2). Instead, it is a proceeding to determine the amount of the secured claim, which falls under Rule 3012(a). Such an issue is expressly excepted from Rule 7001 because it is a matter determined by objection, motion, or terms of a Chapter 13 plan. Rule 3012(c), 7001(a)(2).
CONCLUSION
For the reasons set out above, the Court OVERRULES Ovation's issues on appeal and AFFIRMS the "Order Confirming Chapter 13 Plan and Valuing Collateral Pursuant to 11 U.S.C. § 506" (D.E. 2-3, p. 154).
ORDERED on August 28, 2023.