Opinion
Case No. 03-12973.
July 21, 2005
ORDER DENYING MOTION TO SELL AND MOTION FOR RELIEF FROM STAY
This matter is before the Court on a Motion for Authority to Sell Real Estate and Distribute Proceeds ("Motion") (Doc. 77) filed by the Debtor and the objection thereto (Doc. 85) filed by Deutsche Bank National Trust Company ("Bank"). By his Motion, the Debtor seeks to sell two parcels of unimproved real property that form part of the 13.5 acres that serve as his principal residence. Pursuant to 11 U.S.C. § 363(f), the Debtor seeks to sell the parcels free and clear of all liens. The two parcels, identified in the Motion as Applegate and Kennedy, are encumbered by the Bank's mortgage on the entire 13.5 acres. The Motion proposes to distribute all net proceeds to the Bank. Nonetheless, the outstanding debt to the Bank exceeds the projected net proceeds. Accordingly, the Motion provides for the Bank to retain its mortgage against the remainder of the homestead to secure the balance of its claim. The Bank objects on the grounds, among others, that the Motion does not state how much of the acreage will remain encumbered by its mortgage or the current value of the same.
The Motion seeks to sell a third parcel of unimproved land that is adjacent to the Debtor's principal residence. This third parcel serves as collateral for Farm Credit Services of Mid-America, PCA ("Farm Credit"). By separate order (Doc. 98) Farm Credit and the Debtor have agreed to the sale of Farm Credit's collateral.
Section 363(f) permits a sale free and clear of any interest of an entity only if:
(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.
11 U.S.C. § 363(f). The Debtor does not suggest that one or more of the foregoing requirements is applicable in this case. Instead, the Debtor argues that the language of his confirmed plan precludes the Bank from opposing the Motion. Specifically, paragraph XXVI of the confirmed plan provides:
Following confirmation, the Debtor shall, by separate motion, seek to sell, free and clear of encumbrances, specifically the first mortgage of Bankers Trust Co. of California and Chase Manhattan fka Advanta Mortgage, a certain parcel of land consisting of approximately 2 acres for such amount as necessary to have not less than $25,000 paid directly to the first mortgage holder, Bankers Trust Co. of California, N.A., from closing and applied to their existing mortgage arrearage[.]
See Doc. 40 at ¶ XXVI.
LAW ANALYSIS
There is no question that the terms of a confirmed plan may have a preclusive effect on parties. The Bankruptcy Code provides:
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). Applying § 1327(a), the Bankruptcy Appellate Panel of the Sixth Circuit recently noted that "[o]nce a plan is confirmed . . . `a creditor cannot thereafter assert any other interest than that provided for him in the confirmed plan.'" In re Wellman, 322 B.R. 298, 301 (B.A.P. 6th Cir. 2004). Although the Court does not question the preclusive effect of a confirmed plan under § 1327(a), it does question whether the actual language in paragraph XXVI of the Debtor's plan bars the Bank from opposing the Motion.
A confirmed chapter 13 plan is essentially a binding contract between a debtor and each creditor. In re Harvey, 213 F.3d 318, 321 (7th Cir. 2000). As such, the effect of the plan's language is governed by general rules of contract interpretation. Cf. In re Miller, 363 F.3d 999, 1004 (9th Cir. 2004) (confirmed chapter 11 plan serves as binding contract subject to applicable rules of contract interpretation and construction); In re Sergi, 233 B.R. 586, 589 (B.A.P. 1st Cir. 1999) (same). If there is any doubt as to whether the plan language forecloses a creditor's rights on a particular issue, the language is to be construed against the debtor who drafted the same.
[A] plan should clearly state its intended effect on a given issue. Where it fails to do so it may have no res judicata effect for a variety of reasons: any ambiguity is interpreted against the debtor, any ambiguity may also reflect that the court that originally confirmed the plan did not make any final determination of the matter at issue, and claim preclusion does not apply to a "claim" that was not within the parties' expectations of what was being litigated.
In re Brawders, 325 B.R. 405, 411 (B.A.P. 9th Cir. 2005).
In the instant case, the language that the Debtor chose to include in paragraph XXVI must be construed against him and in favor of the Bank. The two terms are contained in the first clause of paragraph XXVI and highlighted as follows:
Following confirmation, the Debtor shall, by separate motion, seek to sell, free and clear of encumbrances, specifically the first mortgage of Bankers Trust Co. of California and Chase Manhattan fka Advanta Mortgage, a certain parcel of land consisting of approximately 2 acres for such amount as necessary to have not less than $25,000 paid directly to the first mortgage holder, Bankers Trust Co. of California, N.A., from closing and applied to their existing mortgage arrearage[.]
(emphasis added.) The plain meaning of the terms "motion" and "seek to" imply, if anything, that the Bank and other interested parties would be given an opportunity to oppose the sale at a later date. If not, then what is the point of filing a "motion"? Similarly, if paragraph XXVI precludes any objections to the proposed sale, then why must the Debtor, by separate motion, "seek to" sell the property? Why didn't the Debtor simply proceed with the sale if paragraph XXVI has already decided the issue?
As explained by counsel for the Trustee at the hearing on the Motion, it is more likely that the Debtor included paragraph XXVI for the sole purpose of establishing feasability under 11 U.S.C. § 1325(a)(6). Without the sale proceeds being applied to the Bank's prepetition arrearage, pursuant to the last clause of paragraph XXVI, the Debtor's monthly payments are insufficient to pay the prepetition arrearage due to the Bank under 11 U.S.C. § 1322(b)(5). This is evident from paragraph I of the plan, which provides:
The future earnings of the debtor(s) are submitted to the supervision of the Trustee and debtor(s) (or the debtor(s)' employer) shall pay to the Trustee the sum of $1050.00 monthly until plan completes; additionally, debtor shall make special lump sum payments described in [paragraph XXVI] below.
Doc. 40 at ¶ 1 (emphasis added.) Therefore, to satisfy § 1322(b)(5) the Debtor had to propose a plan that included a partial liquidation. That being the case, paragraph XXVI served to demonstrate the feasability of such a plan.
CONCLUSION
For the foregoing reasons, the Motion is hereby DENIED. Also set for hearing on the same date as the Motion was a motion for relief from stay ("Motion for Relief") (Doc. 52) filed by the Bank. At the hearing, it was stated that the Debtor was in arrears on the Bank's mortgage from October of 2003. The Debtor did not dispute the assertion and further corroborated the same with his testimony that he was withholding mortgage payments to fund various improvements to his home to prepare it for sale. Accordingly, the Motion for Relief is hereby GRANTED. IT IS SO ORDERED.