Countrywide Home Loans v. Davis (In Re Davis)

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
June 21, 2006
TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court

IN RE: CA RL G. DAVIS,

Debtor.
_______________________________ No. 05-6214

CO UNTRYW IDE H OM E LO ANS, (Bankruptcy Appellate Panel)

Plaintiff - Appellant, (BAP N o. W O-04-057)
v. (Bankruptcy No. 00-19757 N LJ)
CA RL G. DAVIS,

Defendant - Appellee.

OR D ER AND JUDGM ENT *

Before M U RPH Y, A ND ER SO N, and O’BRIEN, Circuit Judges.

Countrywide Home Loans (“CHL”) appeals a decision of the Bankruptcy

Appellate Panel (“BAP”) reversing a decision of the United States Bankruptcy

Court for the W estern District of Oklahoma. The bankruptcy court had entered

judgm ent in favor of C HL, holding that its mortgage lien on debtor Carl G.

*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Davis’s principal residence was not avoided by the order of confirmation in

Davis’s Chapter 13 bankruptcy case. The BAP reversed that judgment,

concluding that prior orders of the bankruptcy court had preclusive effect and

barred CHL from asserting that its mortgage lien survived confirmation of the

plan. W e have jurisdiction pursuant to 28 U.S.C. § 158(d) and we affirm.

BACKGROUND

On November 30, 1999, CHL and Davis entered into a loan transaction.

Davis executed a promissory note secured by a mortgage on his primary

residence. CHL recorded the note and mortgage w ith the O klahoma County Clerk

on December 15, 1999. Davis subsequently defaulted on the loan.

On August 24, 2000, CHL filed a foreclosure petition against D avis in

Oklahoma state court. After experiencing difficulty serving Davis with notice of

the foreclosure petition, CHL ultimately filed proof of publication in the Journal

Record on December 22, 2000.

M eanwhile, on December 1, 2000, Davis filed a petition for relief under

Chapter 13 of the Bankruptcy Code, along with a proposed Plan. Davis included

the following sentence in the paragraph of the Plan entitled “Secured Claims”:

“Countrywide Home Loans is secured by an unperfected mortgage that will be

avoided upon plan completion.” Appellant’s App. at 22. Immediately below that

appeared the following:

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 Total Allowed Int. M onthly
Name of Creditor: Collateral: Claim: Secured: Rate: Payment:
C OU N TR YWID E unperfected $61,565.58 0.00 0.00% 0.00
HOM E mortgage

Id.

On December 12, 2000, the clerk of the bankruptcy court mailed a “Notice

of Commencement of Case Under Chapter 13 of the Bankruptcy Code,” along

with a copy of Davis’s Chapter 13 Plan, to all creditors. These included CH L,

with its address listed as P.O. Box 8239, Van Nuys, CA 91409. The notice

informed CHL of the date for the meeting of creditors, the date for the hearing on

the confirmation of the Plan, and the deadline for filing a proof of claim.

CHL did not appear at the meeting of creditors on January 11, 2001, and

did not file an objection to confirmation of Davis’s Plan. CHL did file a proof of

claim on February 9, 2001, asserting CHL was the holder of a secured claim in

the amount of $68,233.41. CHL attached to its proof of claim copies of the note

and the mortgage, both dated November 30, 1999, initialed and signed by Davis.

Neither the note nor the mortgage bore any indication that either had been filed of

record with the Oklahoma County Clerk, nor did CHL file any other document

which supported its assertion that it had a perfected security interest in Davis’s

residence. Davis did not file an objection to CHL’s proof of claim.

On February 27, 2001, the bankruptcy court confirmed Davis’s Plan,

without objection from CHL, and entered an order confirming the Chapter 13 Plan

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on February 28, 2001. CHL did not appeal that order, with the result that it

became final on M arch 12, 2001. Neither CHL nor any other party filed a motion

to revoke the confirmation order on grounds of fraud within the succeeding 180-

day period permitted under 11 U.S.C. § 1330. 1

On December 10, 2001, more than one year after Davis filed for bankruptcy

with a Plan alleging that CHL did not have a perfected mortgage, and more than

nine m onths after the bankruptcy court’s order confirming Davis’s Plan, CHL

filed a motion for relief from the automatic stay, requesting authority to proceed

with the pending state court foreclosure. CHL attached to that motion copies of

the note and mortgage bearing the file stamp of the Oklahoma County Clerk,

indicating they had been recorded on December 15, 1999. On M arch 26, 2002,

the bankruptcy court conducted a hearing on CHL’s motion, during which C HL’s

counsel apparently abandoned the specific remedy sought in CHL’s written

motion (relief from the automatic stay and authority to proceed with its

foreclosure petition under state law) and instead sought three “alternative”

remedies: First, he sought modification of the Plan “based on a misrepresentation

1
Section 1330 provides in pertinent part:

(a) On request of a party in interest at any time
within 180 days after the date of the entry of an order of
confirmation under section 1325 of this title, and after
notice and a hearing, the court may revoke such order if
such order was procured by fraud.

11 U.S.C. § 1330(a).

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for equitable reasons,” Tr. of Proceedings at 4, Appellant’s App. at 31; second, he

asked the court “to require an adversary proceeding [under Fed. R. Bankr. P.

7001] 2 before [CHL’s] lien can be avoided,” id. at 5, Appellant’s App. at 32; or,

third, he asked the court to refuse to discharge the debt. CHL’s counsel

concluded by stating, “[w]e are asking for anything to help here.” Id. at 6,

Appellant’s App. at 33.

At the conclusion of the hearing, the court denied CHL’s motion, stating, “I

think the order confirming this plan was over a year ago. And for that reason the

Court denies the relief asked by Countrywide.” Id. at 14, Appellant’s App. at 41.

The bankruptcy judge who had presided over the matter up to and including the

hearing retired shortly after the hearing was concluded. Accordingly, a different

judge signed the two written orders, dated October 10, 2002, and December 19,

2002, memorializing the court’s oral ruling at the end of the hearing.

The October 10, 2002, order states that “the motions filed by [CHL] in this

case are denied for the reasons as stated by this Court on the record.” O rder,

Appellant’s App. at 43. The December 19, 2002, order states the following:

2
Rule 7001 provides in pertinent part:

The follow ing are adversary proceedings:
....
(2) a proceeding to determine the validity, priority, or
extent of a lien or other interest in property . . . .

Fed. R. Bankr. P. 7001(2).

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 All parties being present by counsel, announced ready, and the
Court proceeded to receive evidence and argument of Counsel,
including an oral modification to the M otion for Relief, wherein
[CHL] alleged that Rule 7001 requires an adversary proceeding to
accomplish the lien avoidance by debtor. Upon full consideration
thereof, [the Court] finds and orders that the motions filed by [CH L]
in this case are denied for reasons as stated by this Court on the
record, specifically that Rule 7001 is not applicable and an adversary
proceeding is not required in this case.

IT IS THEREFO RE ORDERED that the M otion for Order of
Abandonment and M otion for Relief From Automatic Stay, as orally
modified, filed by Countrywide H ome Loans, d/b/a America’s
W holesale Lender are denied.

Order at 1, Appellant’s App. at 44.

CHL did not appeal either of those orders, and they became final orders in

the case. Additionally, CH L did not file a motion under either Fed. R. Bankr. P.

9023 or 9024, incorporating, respectively, Fed. R. Civ. P. 59 and 60. 3 Instead,

more than two months later, on February 27, 2003, CHL comm enced the instant

new adversarial proceeding. CHL asked the bankruptcy court to determine that

its claim for $68,233.41, plus interest, costs and fees, is a secured claim, with

Davis’s residence as collateral. CHL further asked the court to determine that

CHL has a valid lien against that residence that, even if unenforceable for the

duration of the Plan, shall become enforceable upon discharge of the Plan in the

full amount, plus interest from April 1, 2000, costs and fees.

3
Fed. R. Civ. P. 59 permits motions for a new trial or for amendment of the
judgment. Rule 60 permits relief from a judgment or order on various grounds,
including mistake, inadvertence, and fraud.

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 Citing Andersen v. UNIPA C-NEBHELP (In re Andersen), 179 F.3d 1253,

1257 (10th Cir. 1999) and Plotner v. AT& T Corp., 224 F.3d 1161, 1168-73 (10th

Cir. 2000), Davis argued that CHL’s claim was precluded by res judicata, because

it had been resolved against CHL in the confirmation process or by the

bankruptcy court’s rulings on CHL’s motion for relief, and that CHL failed to

object to confirmation of the Plan, nor did it appeal the confirmation order or any

other order. CHL responded that the Plan provision purporting to avoid CHL’s

lien on Davis’s residence upon completion of the Plan violates 11 U.S.C.

§ 1322(b)(2), which provides that a debtor’s plan may “modify the rights of

holders of secured claims, other than a claim secured only by a security interest in

real property that is the debtor’s principal residence.” Id. CHL further argued

that nothing in the confirmation order avoids its lien; that, pursuant to Fed. R.

Bankr. P. 7001(2), Davis was obligated to file an adversary proceeding if he

questioned the validity and secured status of CHL’s lien; and that CHL timely

filed its proof of claim, to which Davis never objected, which constitutes “prima

facie evidence of the validity and amount of the claim.” Id. 3001(f). Finally,

CHL argued In re Andersen is distinguishable and/or unavailing given other

decisions by the Bankruptcy Court in Oklahoma.

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 A s indicated, the bankruptcy court, in a lengthy opinion, agreed with CHL

and reinstated its lien on the D avis property. 4 It was that opinion which the BAP

reversed and which is the subject of this appeal. The parties largely reiterate the

arguments they made before the bankruptcy court.

D ISC USSIO N

“Although this appeal is from a decision by the BAP, we review only the

Bankruptcy Court’s decision. W e accept the Bankruptcy Court’s factual findings

unless they are clearly erroneous.” A lderete v. Educ. Credit M gmt. Corp. (In re

Alderete), 412 F.3d 1200, 1204 (10th Cir. 2005) (citation omitted). “W e review

the grant of summary judgment by the bankruptcy court de novo, applying the

same legal standards as those applied by the bankruptcy [court] and [the BAP].”

Am. Bank & Trust Co. v. Jardine Ins. Servs. Tex., Inc. (In re B arton Indus., Inc.),

104 F.3d 1241, 1245 (10th Cir. 1997). Summary judgment is proper w here “there

is no genuine issue of material fact and the moving party is entitled to judgment

as a matter of law .” Stat-Tech Int’l Corp. v. Delutes ( In re Stat-Tech Int’l

Corp.), 47 F.3d 1054, 1057 (10th Cir. 1995).

W e agree with the BAP that the bankruptcy court failed to accord the

proper preclusive effect to the court’s prior orders on CHL’s motion for a stay or

4
The bankruptcy judge who ruled in CHL’s favor in the decision under
review was the same judge who signed the two orders denying CHL’s earlier
motion for a stay.

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for other relief. 5 “Under Tenth Circuit law, claim preclusion applies when three

elem ents exist: (1) a final judgment on the merits in an earlier action; (2) identity

of the parties in the two suits; and (3) identity of the cause of action in both

suits.” M ACTEC, Inc. v. Gorelick, 427 F.3d 821, 831 (10th Cir. 2005). If those

requirements are met, “res judicata is appropriate unless the party seeking to

avoid preclusion did not have a ‘full and fair opportunity’ to litigate the claim in

the prior suit.” Id. (quoting Yapp v. Excel Corp., 186 F.3d 1222, 1226 n.4 (10th

Cir. 1999)); see also Plotner, 224 F.3d at 1168. The doctrine of claim preclusion

serves the “fundamental policies” of “finality, judicial economy, preventing

repetitive litigation and forum-shopping.” Id.

There can be little doubt that the first two elements of claim preclusion are

satisfied in this case. The parties are identical and the bankruptcy court’s prior

orders w ere final judgments on the merits. W ith respect to the third element—

same cause of action— our circuit has “adopted the ‘transactional approach’ of

Restatement (Second) of Judgments § 24.” Id. at 1169. Accordingly, “‘a cause of

5
For the first time at oral argument, CHL argued that, in entering summary
judgment in favor of CHL, the bankruptcy court was properly exercising its
authority under Fed. R. Bankr. P. 9024, which incorporates Fed. R. Civ. P. 60
permitting relief from a judgment or order on various grounds. CHL made no such
argument in its opening brief. “[W]e have held that ‘[t]he failure to raise an issue
in an opening brief waives that issue.’” Silverton Snowmobile Club v. U.S.
Forest Serv., 473 F.3d 772, 783 (10th Cir. 2006) (quoting Anderson v. U.S. Dep’t
of Labor, 422 F.3d 1155, 1174 (10th Cir. 2005)); see also State Farm Fire & Cas.
Co. v. M hoon, 31 F.3d 979, 984 n.7 (10th Cir. 1994). CHL has accordingly
waived that argument.

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action includes all claims or legal theories of recovery that arise from the same

transaction, event, or occurrence. All claims arising out of the transaction must

therefore be presented in one suit or be barred from subsequent litigation.’” Id.

(quoting Nwosun v. Gen. M ills Rests., Inc., 124 F.3d 1255, 1257 (10th Cir.

1997)). It is clear that CHL asserts the same cause of action in the instant

proceeding as it did in its motion for relief from the automatic stay before the

bankruptcy court. It seeks to have its lien recognized as surviving Davis’s

Chapter 13 proceeding. CHL struggled to articulate the precise legal theory by

which it could accomplish that goal before the bankruptcy court, so it admitted

before the bankruptcy court it was

really here kind of with our hat in our hands asking for some type of
equity and remedy . . . It just is not fair for a mistake in the plan like
this to go forward. . . . If there’s any room in the code or case law to
allow the Court to do something to make this fair, it’s asked for . . . .
W e are asking for anything to help here.

Tr. of Proceedings at 5-6, Appellant’s App. at 32-33. That broad request for any

remedy to salvage its lien constitutes the same cause of action before the

bankruptcy court and, on appeal, before us, wherein CHL again seeks to have its

lien salvaged.

Finally, we must consider whether CHL had a full and fair opportunity to

litigate this matter before the bankruptcy court. W e conclude that it did. Not

only did it present every conceivable theory on which it might prevail in

connection with its motion for a stay, it clearly had multiple opportunities to

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protect its lien rights during the Chapter 13 proceeding itself. In December 2000

CHL received Davis’s proposed Plan, which clearly indicated that CHL’s claim

was to be treated as unsecured because of an unperfected mortgage, which,

accordingly, would be “avoided upon plan completion.” Appellant’s App. at 22. 6

CHL failed to attend the meeting of creditors or the hearing on confirmation of

the Plan, nor did it challenge the Plan once it was confirmed, including during the

six-month period following confirmation in w hich challenges for fraud are

permitted. And while it filed a proof of claim, the actual documents filed only

appeared to verify Davis’s assertion that CHL did not have a perfected security

interest. Further, it failed to appeal the bankruptcy court’s orders denying its

motion to stay. Despite these multiple opportunities to pursue the claim it now

pursues, CHL simply failed to utilize them, or, having used them, failed to prevail

on them or to mount an appeal. It may not now have yet another attempt to

prevail on a claim already resolved adversely to it by the bankruptcy court. 7

6
W hile CHL now suggests in its brief to us that it did not receive notice of
the Plan, it is clear that CHL did not argue in the bankruptcy court that it failed to
receive notice. Indeed, in the hearing on CHL’s motion for a stay, its counsel
conceded he was “not raising any notice issues at all.” Tr. of Proceedings at 3,
Appellant’s App. at 30. CHL may not raise a due process argument for the first
time on appeal. W alker v. M ather (In re W alker), 959 F.2d 894, 896 (10th Cir.
1992).
7
Because of the unusual procedural posture, and unique fact pattern, of this
case, we need not delve into the issue of whether and/or how liens securing a
mortgage on the debtor’s residence survive in the myriad scenarios presented by
Chapter 13 proceedings. Needless to say, the courts are not in agreement. See,
(continued...)

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 For the foregoing reasons, in the very unique and unusual circumstances of

this case, the decision of the B AP is AFFIRMED.

ENTERED FOR THE COURT

Stephen H. Anderson
Circuit Judge

7
(...continued)
e.g., Shook v. CBIC (In re Shook), 278 B.R. 815, 824 (B.A.P. 9th Cir. 2002)
(noting the various approaches taken by bankruptcy courts); see also Cen-Pen
Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995) (majority and dissenting opinions).
Given this uncertainty, it would behoove creditors to be vigilant about protecting
their interests in their secured claims and fully utilizing the bankruptcy provisions
available to them until Congress or the Supreme Court brings greater clarity to the
matter.

W e accordingly emphasize that this case is confined to its facts. Our
holding is very narrow, given the unusual circumstances of this case, including
the mistakes and/or failures of CHL and others.

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05-6214 In re Davis; Countrywide Home Loans v. Davis
O’BRIEN, J., dissenting

The noble Brutus
Hath told you Caesar was ambitious:
If it were so, it was a grievous fault,
And grievously hath Caesar answered it . . . .

* * *

And Brutus is an honourable man . . . .

W illiam Shakespeare, Julius Caesar, Act III, scene ii.

Procrastination, like ambition, is apparently a grievous fault. And, like Caesar,

grievously hath Countrywide answered it. Not only grievously, but unnecessarily.

At a gut level this case pits a cozener against a dawdler. M ore to our

purpose it pits the finality provision of the Bankruptcy Code, 11 U.S.C. § 1327, 1

against code provisions protecting mortgages on a principal residence from

modification (in this case cancellation). 11 U.S.C. §§ 1322(b)(2) & (5), 2

1
11 U.S.C. § 1327 (Effect of confirmation) provides:

(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.

(b) Except as otherwise provided in the plan or the order confirming
the plan, the confirmation of a plan vests all of the property of the
estate in the debtor.

(c) Except as otherwise provided in the plan or in the order confirming
the plan, the property vesting in the debtor under subsection (b) of this
section is free and clear of any claim or interest of any creditor
provided for by the plan.
2
11 U.S.C. §§ 1322(b)(2) and (5) (Contents of plan) provide:
(continued...)
1328(a)(1). 3 The confirmed bankruptcy protection plan in this case derived from,

at best, Davis’ careless and convenient error; at worst, a cold and calculated

fraud. At bottom, the debtor misrepresented the amount, status and character of a

secured debt — the mortgage lien securing a purchase money loan on his

principal residence. His acts of deceit have netted him a nearly $70,000.00

windfall at the expense of Countrywide. The bankruptcy court would have no part

of it. Nor should we. W e should ignore the Bankruptcy Appellate Panel and

affirm the bankruptcy court’s carefully considered and well reasoned opinion

2
(...continued)

(b) Subject to subsections (a) and (c) of this section, the plan may–
....

(2) modify the rights of holders of secured claims, other than a claim
secured only by a security interest in real property that is the debtor's
principal residence, or of holders of unsecured claims, or leave
unaffected the rights of holders of any class of claims;
....

(5) notwithstanding paragraph (2) of this subsection, provide for the
curing of any default within a reasonable time and maintenance of
payments while the case is pending on any unsecured claim or secured
claim on which the last payment is due after the date on which the final
payment under the plan is due[.]
3
11 U.S.C. § 1328 (Discharge) provides in relevant part:

(a) A s soon as practicable after completion by the debtor of all
payments under the plan, unless the court approves a written waiver of
discharge executed by the debtor after the order for relief under this
chapter, the court shall grant the debtor a discharge of all debts
provided for by the plan or disallowed under section 502 of this title,
except any debt—
(1) provided for under section 1322 (b)(5) of this title . . . .

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concluding that Countrywide’s mortgage lien survives this bankruptcy. 4 Since the

majority goes another way, I respectfully dissent.

In consideration of a purchase money loan, Davis executed a note and

mortgage to Countrywide on November 30, 1999. The mortgage was properly

recorded on December 15, 1999, in Oklahoma County, Oklahoma. Davis made

only four payments on the note, all in early 2000. Countrywide initiated a

foreclosure action in state court in August 2000. Davis avoided service of

process, requiring Countrywide to serve him by posting notice of the foreclosure

suit on the door of the residence.

After Countrywide began the foreclosure action Davis filed a petition for

relief under Chapter 13 of the Bankruptcy Code. He filed a plan with his petition

listing the Countrywide’s secured debt not as a home mortgage but as a secured

claim, further described as an “unperfected mortgage that will be avoided upon

4
W e look past the BAP and independently review the bankruptcy court's
decision. Lam pe v. Williamson (In re Lampe), 331 F.3d 750, 753 (10th Cir.
2003); In re Albrecht, 233 F.3d 1259, 1260 (10th Cir. 2000). W e review a grant
of summary judgment by the bankruptcy court de novo, applying “the same legal
standards as those applied by the bankruptcy and district courts, i.e. those set
forth in F ED . R. C IV . P. 56(c).” Hollytex Carpet M ills, Inc. v. Okla. Employment
Sec. Comm’n (In re Hollytex Carpet M ills Inc.), 73 F.3d 1516, 1518 (10th Cir.
1996).

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plan completion.” 5 Given Davis’ history with Countrywide, that statement was at

best disingenuous. In any event it was untrue.

At the outset of his Chapter 13 case D avis had an obligation to “file a list

of creditors, and . . . a schedule of assets and liabilities, a schedule of current

income and current expenditures, and a statement of the debtor's financial affairs .

. . .” 11 U.S.C. § 521(1). Since the plan was signed with a declaration “that the

foregoing statements in this Chapter Plan [are] true & correct under penalty of

perjury,” (Appellant’s App., Doc. 4 at 23), Davis’ obligation was to accurately

represent the information contained therein.

Countrywide timely filed its proof of claim for $68,233.41 on February 9,

2001. That filing triggered a second obligation for D avis if he thought the claim

was incorrect — he was required to object to the proof of claim, F ED . R. B ANKR .

P. 3007, and file an adversary proceeding to determine validity and proper amount

of the claim. F ED . R. B ANKR . P. 7001(2).

5
According to Davis’ “Combined Response to M otion to Dismiss . . .,”
filed in response to Countrywide’s motion for sanctions, “[a]t the direction of
[D avis’] Counsel, [D avis] made three (3) separate trips to the county court house
to obtain all mortgages filed against his real estate. On each occasion, [D avis]
was unable to locate [Countrywide’s] mortgage.” (Combined Response to M otion
to Dismiss at 1, In re Carl G . Davis, Bankr. W .D. Okla. 00-19757 (Aug. 11,
2005)). See San Juan County, Utah v. United States, 420 F.3d 1197, 1202 n.2
(10 th Cir. 2005) (under Rule 201, F ED . R. E VID ., an appellate court can take
judicial notice of documents not appearing in the record). Davis was, at the very
least, on inquiry notice with respect to a mortgage he signed. A proper check of
the land records would have revealed the mortgage to have been properly and
timely recorded, and therefore perfected. Such record checking was the
responsibility of Davis’ attorney and could not be fulfilled by sending a client
with no apparent experience (and a self-serving interest) to do title research.
Davis is represented by different counsel on appeal.

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 Davis failed on both scores, but his failings are rewarded. Davis has been

permitted to “morph the status of a secured lien into an unsecured lien by simply

stating it is so in [his] plan.” Altegra C redit Co. v. Dennis (In re Dennis), 286

B.R. 793, 795 (Bankr. W .D. Okla. 2002); see Simmons v. Savell (In re Simmons),

765 F.2d 547, 555-56 (5th Cir. 1985) (“It would be anomalous indeed were we to

permit [the debtor] a windfall for his mischaracterization of [the creditor’s] claim

in the plan as unsecured.”). The purpose of bankruptcy proceedings is to protect

a debtor, not reward him for his manipulation of the process. Gamesmanship and

unethical conduct are subject to sanction by bankruptcy courts under Rule 9011,

Federal Rules of Bankruptcy Procedure. 6 See In re Lemons, 285 B.R. 327, 332-33

(Bankr., W.D. Okla. 2002). 7 Nothing in the bankruptcy code or rules permits

giving preclusive effect to fraud.

It is true Countrywide failed to file a perfected copy of the note and

mortgage with its initial proof of claim. Particularly after seeing its mortgage

listed in the plan as “unperfected,” Countrywide should have been more diligent

in filing a proper proof of claim. However, the point of perfection is to protect

innocent third parties — strangers, not parties, to the original transaction. Davis

clearly knew he executed a note and mortgage with Countrywide only one year

6
The bankruptcy court in this case ordered Davis and his counsel to appear
before it at a later time “prepared to show cause why sanctions should not be
imposed in this matter.” (Appellant’s App., Doc. 16 at 125.) The bankruptcy
court’s comments about sanctions, and discussion in this opinion about counsel’s
conduct, must be read to refer only to Davis’ original counsel, not appellate
counsel.
7
The opinion in Lemons was by The Honorable Niles L. Jackson, the same
bankruptcy judge who granted judgment in favor of Countrywide.

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prior to filing the bankruptcy petition; his signature appears on both documents,

and his initials are on each page.

The bankruptcy judge’s thorough analysis is persuasive and reaches the

correct result. He acknowledged the tension between the procedural and

substantive requirements of the code, and its finality provisions. He properly

resolved the tension by making the plan binding, thus allowing Countrywide no

distribution on its claim under the plan, but permitting Countrywide’s lien to

survive the bankruptcy as a secured lien.

In reaching its decision, the bankruptcy court relied in part on Universal

American M ortgage Company v. Bateman (In re Bateman), 331 F.3d 821 (11th

Cir. 2003). The factual background in Bateman is similar to the case at hand. In

Bateman, the mortgage company failed to object to the amount provided for its

claim in the plan, and did not appeal the subsequent confirmation order. 331 F.3d

at 823. It later sought relief from the bankruptcy court, filing a motion to dismiss

the plan due to its failure to comply with the bankruptcy code. Id.

The Eleventh Circuit noted the case “pit[] the procedural requirements and

substantive provisions of 11 U.S.C. §§ 502(a), 1322, and 1325 of the bankruptcy

code, against the res judicata effect of a confirmed plan under 11 U.S.C. § 1327.”

Id. at 825. The court reviewed the respective responsibilities of the debtor and

creditor. It noted the debtor’s responsibility to list claim amounts and their

proposed treatment under the plan, the creditor’s duty to file a proof of claim, and

finally the debtor’s correlative obligation to file an objection if he wished to

contest the amount or validity of the claim. Id. at 827.

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 The court then focused on the nature of a secured creditor’s claim. W hile a

secured creditor “need not do anything during the course of the bankruptcy

proceeding because it will always be able to look to the underlying collateral to

satisfy its lien,” id., it must file a timely proof of claim if it wishes to receive

payments under the confirmed plan. Id.; see In re Tarnow, 749 F.2d 464, 465

(7th Cir. 1984) (Acknowledging the “long line of cases . . . [w hich] allow[] a

creditor with a loan secured by a lien on the assets of a debtor who becomes

bankrupt before the loan is repaid to ignore the bankruptcy proceeding and look

to the lien for the satisfaction of the debt.”). The court held § 1322(b)(2)

“specifically prohibits any modification of a homestead mortgagee’s rights in the

Chapter 13 plan . . . . [T]he plan is prohibited from reducing the mortgagee’s

secured claim.” Bateman, 331 F.3d at 826 (internal citations omitted). Thus, the

court concluded, “a secured creditor’s lien survives a contrary plan confirmation.”

Id. at 830. The secured creditor retains its rights pursuant to the terms of the

mortgage, despite the terms of the plan. Id. at 834.

At the same time, the Eleventh Circuit acknowledged the preclusive effect

afforded to confirmed plans under § 1327, and held a creditor could not

collaterally attack a plan to which it had not earlier objected. Id. at 822, 829-30.

The creditor remains bound by the plan during its operation, including the number

and amount of any payments it w ill or w ill not receive during the plan. Id. at

829-30. The creditor’s secured claim, however, remains unaffected by the plan

“and survives the bankruptcy unimpaired.” Id. at 832. The secured creditor

retains its rights and after the automatic stay provided for in the plan is lifted, is

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“entitled to act in accordance with the rights as provided in the mortgage to

satisfy its claim.” Id. at 834.

The bankruptcy court here followed the same analytical process, reviewing

the nature of Countrywide’s claim, and the respective duties of creditor and

debtor in a bankruptcy proceeding. It gave appropriate effect to the substantive

provisions of the code and the procedural requirements of the rules. The court

relied on the language of § 1322(b)(2) in finding Davis was prohibited from

modifying Countrywide’s rights simply by inserting a contrary phrase in his plan.

The mortgage obligation was not dischargeable in bankruptcy, because the last

payment was due after the conclusion of the term of the plan. See 11 U.S.C. §

1328(a)(1).

The court also focused on Davis’ obligation to object to Countrywide’s

proof of claim. Countrywide filed a timely proof of claim under Rule 3001(f),

Federal Rules of Bankruptcy Procedure. 8 Countrywide’s amended claim was

“deemed allowed,” 11 U.S.C. § 502(a), triggering Davis’ obligation to object

under § 502(a) and Rules 3007 and 7001(2), Federal Rules of Bankruptcy

8
Rule 3001(f) provides, “A proof of claim executed and filed in accordance
with these rules shall constitute prima facie evidence of the validity and amount
of the claim.” Subsection (d) states: “If a security interest in property of the
debtor is claimed, the proof of claim shall be accompanied by evidence that the
security interest has been perfected.” F ED . R. B ANKR . P. 3001(d). Here, the
original proof of claim was not accompanied by a properly perfected copy of the
mortgage and note. The bankruptcy court allowed Countrywide to amend its
claim, and ruled that once the claim was properly amended, it would be “deemed
allowed.” Countrywide timely filed its amended proof of claim.

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Procedure. See Simmons, 765 F.2d at 554 (when debtor does not object, a claim

is deemed allowed under a plan).

Finally, the bankruptcy court acknowledged the finality provisions of §

1327 and gave preclusive effect of the plan — to the extent it bound Countrywide

to the terms of the plan and ruled Countrywide would not receive payments on its

claim during the plan’s operation. Consistent with the analysis in Bateman, it

held that Countrywide’s mortgage was unaffected by the plan and survived the

bankruptcy.

Because w e can affirm the court “on any grounds for which there is a

record sufficient to permit conclusions of law, . . .” Garcia v. Lemaster, 439 F.3d

1215, 1220 (10th Cir. 2006), I would affirm the bankruptcy court’s holding that

§ 1322 prohibits any modification of a homestead mortgagee’s rights through a

Chapter 13 plan, particularly a plan which contains a substantial

misrepresentation as to the nature of a secured claim. I would further affirm its

holding that Countrywide’s lien survives the bankruptcy unimpaired, and at the

conclusion of the plan Countrywide retains its rights to pursue appropriate action

on its mortgage (foreclosure). Finally, I would affirm the court’s holding that the

plan has binding effect during its term.

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