Opinion
Case No. 00-18921
January 18, 2002
MEMORANDUM OF OPINION AND ORDER
The matter before the Court is the Motion to Value Collateral and Avoid Second Mortgage ("Motion") of Charter One Credit Corporation, fka, Equity One Credit Corporation ("Charter One"), filed by David and Deborah Loehr, ("Debtors"). The Court acquires core matter jurisdiction over the instant matter pursuant to 28 U.S.C. § 157(a) and (b), 28 U.S.C. § 1334, and General Order Number 84 of this District. An objection to the motion was timely filed by Charter One. Following a duly noticed hearing, the Court makes the following findings and conclusions:
The Debtors are the owners of real property located at 1266 Erieview Drive in Cleveland, Ohio. According to the Debtors, the Lake County Recorder's Office has valued their residential property at $97,685.00. On November 22, 2000, the Debtors filed their Chapter 13 bankruptcy petition, along with a proposed Chapter 13 plan. A copy of the Debtors' plan was duly served on Charter One. On February 1, 2001, the Debtors filed a motion to modify their proposed Chapter 13 plan. This Court granted the motion to modify the proposed Chapter 13 plan and a copy of the modified plan was duly served on Charter One.
The Debtors' modified plan provides in pertinent part that:
(4) The following secured creditor(s) shall be paid by the Trustee "inside" the plan. Each claim is secured to the extent of the value of the corresponding collateral as indicated below. The remainder of the claim, if any, is unsecured.
Creditor Value of Security Interest rate, if app. Fixed Payment
Charter One (2nd Mtg.) $0.00 —
(9) The treatment of the claims set forth in this plan shall become absolute upon confirmation, pursuant to 11 U.S.C. § 1327. Therefore, if a creditor or contract party named herein objects to this plan, including specifically the valuation of a security and the treatment of executory contracts and unexpired leases, a formal objection to confirmation must be filed before the date fixed by the Bankruptcy Court.
On April 5, 2001, the Debtors' modified plan was confirmed without objection from Charter One. On May 22, 2001, Charter One filed a motion to vacate the Order confirming the Debtors' modified Chapter 13 plan entered on April 24, 2001, and sought leave to file an objection to the Debtors' confirmed modified Chapter 13 plan. This Court denied both motions based upon the res judicata effect of the Debtors' confirmed Chapter 13 plan, while holding Charter One could not seek to vacate confirmation of the Debtors' plan as the confirmed plan conclusively sets forth the treatment of allowed claimants, including the second mortgage of Charter One.
Notwithstanding the provisions contained in its confirmed plan, Debtors now seek to avoid the second mortgage lien of Charter One and value the collateral contained therein at $0.00 as reflected in the Debtors' confirmed plan, over the objection of Charter One. As determined herein, such effort is duplicative and unwarranted.
The Court must determine whether the Debtors' valuation of Charter One's second mortgage at $0.00, as contained in the Debtors' confirmed plan, is binding upon Charter One pursuant to Section 1327 of the Code. Secondly, the Court must decide whether the Debtors may seek avoidance of the subject second mortgage lien upon the filing of a motion as a contested matter, or whether the Debtors must file an appropriate adversary proceeding in accordance with Bankruptcy Rule 7001.
* * *
Section 1327 of the Bankruptcy Code addresses the effect of confirmation. Therein, § 1327 states in pertinent part:
(a) The provisions of a confirmed plan bind the debtor and 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.
11 U.S.C. § 1327(a). Generally, a confirmed plan is binding upon all creditors, whether or not it provides for their claim, pursuant to § 1327(a) of the Bankruptcy Code. In this regard, section 1327(a) has been consistently interpreted as barring the relitigation of any issue which was decided or which could have been decided at confirmation. Cline v. Welch (In re Welch), 1998 WL 773999, *1 (6th Cir. October 11, 1998),citing, Multnomah County v. Ivory (In re Ivory), 70 F.3d 73, 75 (9th Cir. 1995) (Section 1327(a) has been consistently interpreted as barring the relitigation of any issue which was decided or which could have been decided at confirmation). See also, In re Anderson, 179 F.3d 1253 (10th Cir. 1999) (If a creditor fails to protect its interests by timely objecting to a plan . . . it cannot later complain about a certain provision contained in a confirmed plan. . . .); In re Szostek, 886 F.2d 1405, 1408 (3d Cir. 1989) (A confirmed plan is binding on a creditor that failed to object to confirmation notwithstanding that the plan fails to provide present value under § 1325(a)(5)); Young v. IRS (In re Young), 132 B.R. 395, 396 (S.D.Ind. 1990) ("[T]he terms of a Chapter 13 plan bind both the debtor and the creditor and control any claims of the creditor whether or not he has filed an objection to the plan."); Lester Mobile Home Sales, Inc. v. Woods (In re Woods), 130 B.R. 204, 205 (W.D.Va. 1990) (The res judicata effect of the confirmation order may be avoided only by a revocation of the order pursuant to section 1330 of the Code, which requires a showing of fraud in the procurement of the order); In re Sanders, 243 B.R. 326 (Bankr.N.D.Ohio 2000), citing, Welch, supra.
Furthermore, it is well established that confirmation of the plan is accorded res judicata effect as to the issues that can be resolved at confirmation, such as valuation of a lien. Szostek, at 1408. Similarly, the Sixth Circuit held, "the confirmation of a debtor's plan constitutes a final judgment on the merits in bankruptcy proceedings by a court of competent jurisdiction." Ledford v. Brown (In re Brown), 219 B.R. 191(B.A.P. 6th Cir. 1998), citing, Sanders Confectionery Prods., Inc. v. Heller Financial, Inc., 973 F.2d 474, 480 (6th Cir. 1992), citing, Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104 (1938))((Confirmation of the Debtors' plan constitutes a final judgment on the merits in bankruptcy proceedings by a court of competent jurisdiction). In instances where a creditor does not have notice of the bankruptcy case, however, the Plan will not be given binding effect as to that creditor. In re Walsh, 264 B.R. 482, 483 (Bankr.N.D.Ohio 2001), citing, In re Simpson, 240 B.R. 559 (B.A.P. 8th Cir. 1999) (A confirmed plan did not have binding effect as to transferee, which lacked notice of bankruptcy case until after plan confirmation).
Similarly, courts have held, in the context of bankruptcy matters, that not only formally named parties, but all participants in the bankruptcy proceedings are barred by the doctrine of res judicata from asserting matters they could have raised in the bankruptcy proceedings.In re Brown, at 193, citing, Micro-Time Management Sys., Inc. v. Allard Fish, P.C., 983 F.2d 1067, 1993 WL 7524, at *4 (6th Cir. Jan. 12, 1993).
The Third Circuit in Jones v. Internal Revenue Service, 134 B.R. 274, 278 (3d Cir. 1991) emphasized the importance of res judicata principles in bankruptcy law stating:
[T]he purpose of bankruptcy law and the provisions for reorganization could not be realized if the discharge of debtors were not complete and absolute; that if courts should relax provisions of the law and facilitate the assertion of old claims against discharged and reorganized debtors, the policy of the law would be defeated; that creditors would not participate in reorganizations if they could not feel that the plan was final, and that it would be unjust and unfair to those who had accepted and acted upon a reorganization plan if the court were thereafter to reopen the plan and change the conditions which constituted the basis of its earlier acceptance. Szostek, at 1409, quoting, In re Penn Central, 771 F.2d 762, 767 (3d Cir. 1985)); cf. Montana v. U.S., 440 U.S. 147, 153-54, 99 S.Ct. 970, 973-74, 59 L.Ed.2d 210 (1979) (The purpose of res judicata is to protect litigants from the expense and vexation attending multiple lawsuits, conserve judicial resources, and foster reliance on judicial action by preventing inconsistent decisions). Thus, there is a strong policy favoring finality of decisions inherent in the Code.
Jones, at 278; See also, Anderson at 1253; Great Lakes Higher Education v. Pardee (In re Pardee), 218 B.R. 916 (B.A.P. 9th Cir. 1998), citing, 5 Lawrence P. King et Al., Collier on Bankruptcy p 1327.01[1] (15th ed. 1990)). Similarly, the legislative history to § 1327 describes the effects of confirmation:
Under this section, the provisions of a conformed (sic) plan are binding on the debtor and each creditor, whether or not the claim of the creditor is dealt with by the plan, and whether or not the creditor has objected to, accepted, or rejected the plan. Unless the plan or the order confirming the plan provides otherwise, the order of confirmation vests all of the property of the estate in the debtor, and makes that property fee and clear of any claim or interest of any creditor.
H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 430 (1977), S.R. Rep. No. 95-589, 95th Cong., 2d Sess. 65 (1978), U.S. Code Cong. Admin.News 1978, p. 6386. Here, the record reveals that Charter One was duly served with both the Debtors' proposed Chapter 13 plan and proposed modified Chapter 13 plan prior to the hearing on confirmation. It is undisputed that, despite having received service of such pleadings, as well as the notice of the date of the hearing on plan confirmation, Charter One objected to neither plan proposed by the Debtors. The modified plan provided that Charter One's second mortgage lien would be valued at $0.00. Charter One acknowledged receiving a copy of the Debtors' modified plan, which included the proposed valuation of its second mortgage. Finally, no fraud or other improper conduct was alleged by Charter One, or any party in interest, regarding the procurement of the subject confirmation order. Thusly, its objection is overruled.
Having so determined that the Debtors' confirmed plan operates as res judicata as to the issues that can be resolved at confirmation, it becomes unnecessary to address the remaining issue raised by Charter One. Accordingly, the Debtors' Motion to Value and Avoid, and Charter One's objection thereto are hereby denied and overruled, respectively, as moot.
IT IS SO ORDERED.
JUDGMENT
A Memorandum Of Opinion And Order having been rendered by the Court in this matter,
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the Debtors' Motion to Value and Avoid, and Charter One's objection are hereby denied and overruled, respectively, as moot. Each party is to bear its respective costs.
IT IS SO ORDERED.