Opinion
No. 00-3434.
September 28, 2001
Memorandum Order
This is an appeal from a final order of the United States Bankruptcy Court. This court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1).
In November 1990, Pine Grove Ford ("PGF") entered into agreements with Ford Motor Credit Company ("Ford") for the financing of new, used and demonstration automobiles. The debtor was one of two officers and shareholders of PGF. To secure the loan, PGF granted Ford a security interest in PGF's new, used and demonstration automobiles, machinery, furniture, equipment, parts, inventory, accessories, supplies and accounts receivable. Ford perfected its security interest. The debtor individually also executed continuing guarantees, agreeing to act as surety for all of PGF's indebtedness to Ford.
When PGF sold vehicles that were part of Ford's collateral and failed to repay to Ford the financed amount of those vehicles, Ford declared a default by PGF. The parties then entered into a forbearance agreement to allow PGF to repay the money owed to Ford. PGF was unable to pay monies due. On May 30, 1997, PGF filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Pursuant to the terms of the financing and guaranty agreements, Ford then declared its entire indebtedness immediately due and confessed judgment in the Schuylkill County Common Pleas Court against the debtor and the other owner of PGF who had also executed a guaranty. The Court entered judgment in favor of Ford on June 6, 1997 in the claimed amount of $947,466.98.
The debtor voluntarily filed for bankruptcy under Chapter 7 on January 26, 1998. Ford then filed an adversary complaint against the debtor and other guarantor on October 13, 1998 requesting the Bankruptcy Court to declare that the debt be deemed nondischargeable. On November 23, 1999 the Court scheduled a hearing for January 26, 2000.
The other owner and guarantor had done the same on April 16, 1998.
On December 21, 1999, the debtor and fellow debtor filed motions to convert their bankruptcies from Chapter 7 to Chapter 13 which the Bankruptcy Court granted. On April 7, 2000, Ford filed an amended motion to reconvert the bankruptcies to Chapter 7 which the Bankruptcy Court later granted upon finding that these debtors did not qualify under Chapter 13. The Bankruptcy Court concluded that as of the date of the filing of the petitions, the debtor owed a non-contingent, liquidated and unsecured debt in excess of the statutory limit of $250,000. It is this order which the debtor appeals.
The $250,000 limit referenced by the Bankruptcy Court had actually been adjusted to $269,250 effective April 1, 1998. The debtor's motion to convert the bankruptcy from Chapter 7 to Chapter 13 was filed on December 21, 1999. This is of no moment, however, as the amount of the judgment at issue far exceeds $269,250.
The debtor's argument is essentially as follows. Ford's judgment is a confessed judgment and as such is subject to challenge by the debtors. It should thus be viewed as disputed and cannot be categorized as final. Since the judgment cannot be categorized as final, the amount owed is not ascertainable and thus Ford's claim is not liquidated. The Bankruptcy Court thus erred in considering it when calculating the debtor's eligibility for Chapter 13.
The parties agree that Ford's judgment is unsecured. To qualify under Chapter 13, a debtor's unsecured debt must be noncontingent, liquidated and less than $269,250. See 11 U.S.C.A. § 109(e).
A debt is contingent where "the debtor `will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor'". In re Weiss, 251 B.R. 453, 465 (Bankr. E.D. Pa. 2000) (quoting In re Fostvedt, 823 F.2d 305, 306 (9th Cir. 1987)). A noncontingent debt is one where "all events giving rise to the liability for the debt occurred prior to the debtor's filing for bankruptcy." Id. (quoting In re Mazzeo, 131 F.3d 295, 303 (2d Cir. 1997)). A debt is liquidated if "the value of the claim is easily ascertainable." Id.
The debtor failed to include Ford's judgment in the bankruptcy schedules. Rather, the debtor listed the personal guaranty of PGF's debt. The debtor listed this as contingent, unliquidated and for an unknown amount.
The debtor marked the boxes designating the guaranty as "Contingent" and "Unliquidated," but did not check the box labeled "Disputed." Under the column labeled "Amount of Claim," the debtor filled in "Unknown."
The debtor contends that because he never received an accounting from Ford for collateral sold by Ford and because Ford may not have disposed of the collateral in a commercially reasonable manner, the amount of Ford's claim is "unknown." The debtor also contends that since Ford never filed a proof of claim, the only evidence of the amount owed is the judgment which is subject to challenge and thus not a final judgment that can be easily valued.
The debtor has never challenged the confessed judgment. A debtor has thirty days with written notice to seek to strike or open a confessed judgment. See Pa. R. Civ. P. 2959(a)(3). Ford has presented a copy of such notice to the debtor of the entry of judgment and the relief he may seek. In any event, a debtor must move to strike or open the judgment "promptly." See PNC Bank v. Balsamo, 430 Pa. Super. 360, 634 A.2d 645, 649 (Pa.Super. 1993); Haggerty v. Fetner, 332 Pa. Super. 333, 481 A.2d 641, 647 (Pa.Super. 1984).
The possibility that a judgment or obligation may be cancelled upon future legal determinations does not alter the noncontingent or liquidated nature if the obligation. See e.g., In re Douglass, 1994 WL 736423, a [*]3.4 (D.D.C. Oct. 12, 1994); In re Pennypacker, 115 B.R. 504, 506-7 (Bankr. E.D. Pa. 1990); In re Crescenzi, 58 B.R. 141, 143 (S.D.N.Y 1986). "Debts of a contractual nature, even though disputed, are liquidated." In re Pennypacker, 115 B.R. at 505. See also, In re Gordon, 127 B.R. 574, 578 (Bankr. E.D. Pa. 1991); In re Pulliam, 90 B.R. 241, 244 (Bankr. N.D. Tex. 1988); In re Albano, 55 B.R. 363, 368 (N.D. Il. 1985).
As noted by the Court in In re Pennypacker. the minority view that disputed debts are unliquidated gives the debtor "unbridled authority to determine his eligibility for chapter 13 relief." In re Pennypacker, 115 B.R. at 506.
The debt in question is liquidated and noncontingent. Ford obtained a judgment in the amount of $947,466.98, making the value of the claim easily ascertainable. Even if the amount of the judgment, upon a timely petition to strike or open, could have been modified, "all events giving rise to the liability for the debt occurred prior to the debtor's filing for bankruptcy." In re Weiss, 251 B.R. at 465. Liability for the debt occurred when the debtor defaulted on the personal guaranty. The possibility of a challenge to the validity of a confessed judgment is not an occurrence of an extrinsic event which will trigger the liability of the debtor to the creditor, thereby making it contingent.
The debtor's argument that Ford's judgment is not a final judgment is not supported in Pennsylvania law. A confessed judgment does in fact constitute a final judgment. See In re Vitanza, 1998 Bankr. LEX1S 1497, 1998 WL 808629, [*]10 n. 24 (Bankr. E.D. Pa. Nov. 13, 1998) ("a judgment by confession is a final judgment `on the merits' which operates as res judicata"). See also Zhang v. Southeastern Fin. Group, Inc., 980 F. Supp. 787, 792 (E.D. Pa. 1997).
Ford's judgment was entered against the debtor on June 6, 1997. The debtor never contested the judgment in the Court which entered it, in the PGF bankruptcy case or in the debtor's own Chapter 7 proceedings.
The debtor finally argues that recognizing a confessed judgment for purposes of § 109(e) eligibility would be a denial of due process because "at a minimum the debtor is entitled to a hearing on whether he voluntarily and intelligently executed the agreement containing the cognovit clause upon which judgment was entered."
Pa. R. Civ. P. 2959(a)(2) provides:
The ground [for relief from a judgment by confession] that the waiver of due process rights of notice and hearing was not voluntary, intelligent and knowing shall be raised only (i) in support of a further request for a stay of execution where the court has not stayed execution despite the timely filing of a petition for relief from the judgment and the presentation of prima facie evidence of a defense; and (ii) as provided by Rule 2958.3 [when personal property has been levied upon or attached without prior notice and hearing] or Rule 2973.3 [when a defendant in possession of leased residential property has been evicted without prior notice and hearing].
There is no showing that the debtor falls into any of these categories.
More importantly, the debtor received notice of the judgment and an opportunity to challenge it prior to any execution upon the confessed judgment. "When the required notice is given in advance of execution . . . the issue of the waiver of due process rights is eliminated as the defendant is provided with a pre-deprivation notice and an opportunity for a hearing on the merits. The due process issue remains only when the required notice is served with the writ of execution in connection with an execution against personal property." Harold K. Don, Jr., Trends in Pennsylvania Civil Practice and Procedure, 69 Pa. Bar Assn. Quarterly 79, at 87 (1998).
Ford's judgment was properly deemed a final judgment, and the debt was properly determined by the Bankruptcy Court to be noncontingent and liquidated. This debt was properly considered in calculating the debtor's eligibility for status under Chapter 13. As the noncontingent, liquidated debt of the debtor is greater than $269,250, the Bankruptcy Court correctly reconverted the debtor's case to Chapter 7.
ACCORDINGLY, this day of September, 2001, upon consideration of the debtors' appeal from the order of the Bankruptcy Court reconverting the debtor's bankruptcy case from Chapter 13 to Chapter 7, IT IS HEREBY ORDERED that said order of the Bankruptcy Court is AFFIRMED and this action is closed.