Foremost Financial Services Corp. v. White (In re White)

116 B.R. 691
CourtCourt of Appeals for the Eleventh Circuit
DecidedJuly 19, 1990
DocketNo. 89-7678
StatusPublished

This text of 116 B.R. 691 (Foremost Financial Services Corp. v. White (In re White)) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eleventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Foremost Financial Services Corp. v. White (In re White), 116 B.R. 691 (11th Cir. 1990).

Opinion

PER CURIAM:

Appellant Foremost Financial Services Corp. is a creditor of Dennis White who is a debtor in a chapter 13 bankruptcy proceeding. In its appeal to the district court of two orders of the bankruptcy court, Foremost sought review of its status as a secured creditor under the debtor’s chapter 13 plan and a declaration of its rights with respect to its lien on the debtor’s mobile home. Foremost contends that the bankruptcy court erred in denying reconsideration of its status as a secured creditor when there was no objection to its claim by any party. The confirmation order by its omission of Foremost from the list of secured and priority claims in the Findings of Fact was considered an adjudication of Foremost’s claim. The district court found that the appeal was untimely with respect to the -issue of secured status because Foremost’s motion for reconsideration was filed with the bankruptcy court more than two months after the order confirming the plan was entered, rather than ten days1 after confirmation. Foremost argues that procedural errors in the bankruptcy proceeding caused it to be denied adequate notice of the court’s adverse ruling disallowing its timely-filed secured proof of claim. We agree.

The district court’s determination of untimeliness of the appeal is reversed. We remand to allow reconsideration of Foremost’s secured status based on documentation to support its proof of claim.

Foremost also alleges error in the district court’s ruling which approved the disallowance of Foremost’s lien rights. The district court found that Foremost does not have lien rights against White because the Bankruptcy Code does not protect a creditor who chooses to participate in the bankruptcy proceeding by filing a proof of claim and then is dissatisfied with the results. The court reasoned that the lien based on an inadequate proof of secured claim is not protected to the extent of a secured creditor’s untimely claim under 11 U.S.C. § 506(d)(2).2 Because we remand to afford Foremost an opportunity to provide documentation to support its secured status, the district court’s order which is premised on the inadequacy of Foremost’s claim is remanded with instructions to vacate, subject to the proper procedures being followed to consider the proof of claim.

BACKGROUND

Appellant is the assignee of a creditor with a purchase money security interest in a mobile home purchased by Dennis White. A UCC-1 financing statement was filed to perfect the security interest. White filed a chapter 13 bankruptcy petition on February 4, 1988. Appellant timely filed two proofs of claim, one of which set out the principal balance due of $20,289, with a copy of the retail installment contract and security agreement attached. The second proof of claim evidenced the prepetition arrearage which was in the amount of $743.

In White’s amended chapter 13 plan he proposed to pay appellant for the arrearage through the trustee, which differed from his original stated intention to pay Foremost directly. Testimony from the debtor at the confirmation hearing was that the [693]*693value of the mobile home was $10,000. No objection to either one of appellant’s secured claims was filed in the bankruptcy proceeding. The court denied confirmation of the plan, but subsequently the debtor presented a further amendment to the plan which was the subject of a hearing to reconsider confirmation on August 9, 1988. Appellant was designated as a secured creditor having a security interest in the mobile home. On the court’s own initiative, appellant’s status as a secured creditor was reviewed at the hearing to reconsider confirmation, and its secured claim was disallowed by implication. The Order Confirming Chapter 13 Plan entered on August 11, 1988 included Findings of Fact which listed allowed secured and priority claims. Appellant’s claim was not reflected as an allowed secured claim due to the court’s adverse ruling based on illegible documentation.

At a hearing on October 18, 1988 to consider the debtor’s motion to modify the plan with a reduction in the amount of the payments and Foremost’s motion for reconsideration of its secured status, the court reviewed the attachments to the proofs of claim and was advised that the debtor had no objection to appellant’s status as a secured creditor. The creditor’s motion was denied and an appeal was filed. The district court dismissed the appeal on the denial of the motion for reconsideration and denied on the merits the validity of appellant’s lien rights.

SUFFICIENCY OF NOTICE OF CLAIM ADJUDICATION

The error complained of by Foremost, that the district court should not have dismissed the portion of its appeal regarding classification of Foremost under the confirmed plan, is based on the compounding of prejudice arising from procedural errors in the bankruptcy proceeding. The bankruptcy court’s sua sponte ruling on Foremost’s claim in the absence of an objection to the claim by a party in interest ignores Bankr.R. 3007.3 Apparently, the court relied on the language of § 506(a), that the value of a secured creditor’s interest in the estate “shall be determined ... in conjunction with any hearing ... on a plan affecting such creditor’s interest,” as paraphrased and incorporated, in part, in the general notice of the confirmation hearing.4 This procedure fails as a substitute for the claims objection procedure specified in Rule 3007. In re Justice Oaks, II, Ltd,., 898 F.2d 1544, 1553-54 (11th Cir.1990) (citing Simmons v. Saveli (In re Simmons), 765 F.2d 547 (5th Cir.1985)).

TIMELINESS

The dismissal of the appeal which holds Foremost to the strict 10-day time requirements of Bankr.R. 8002(a), overlooks the bankruptcy court’s procedural lapses which trapped Foremost into its present posture. The circumstances involving no objection and no notice to Foremost other than the general notice of the confirmation hearing presents a most compelling case in light of the fact that the plan being considered at that hearing and at a subsequent hearing proposed to treat Foremost’s claim as secured.

Further prejudice was created by the court’s failure to include in its order confirming the amended plan a specific ruling on Foremost’s secured claim. The confirmation order lists claims to be paid as secured and priority claims, and Foremost was merely not included in this list. This order entered August 11, 1988, which the [694]*694district court relied on as the beginning of the time to seek reconsideration or file a notice of appeal, did not make it appear to appellant that its secured claim was the subject of a hearing and deemed unsecured for lack of proof [illegible documentation].

The ruling of the district court on the issue of time to appeal is cast in the shadow of the bankruptcy court’s faulty procedures. Bankr.R. 3007 which requires a 30-day notice of hearing on objections to claims and 11 U.S.C. § 502(a) which provides that:

“[a] claim or interest, proof of which is filed under section 501 of this title is deemed allowed, unless a party in interest ... objects,”

are mandatory and dispositive.

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Bluebook (online)
116 B.R. 691, Counsel Stack Legal Research, https://law.counselstack.com/opinion/foremost-financial-services-corp-v-white-in-re-white-ca11-1990.