Summary:
Mr. Smith filed Chapter 11 bankruptcy after Wells Fargo commenced foreclosure on real property. The amended proposed plan provided for the cram-down of the secured claim held by Wells Fargo to $60,000.00. The Confirmation Order provided “that confirmation is expressly conditioned upon [Mr. Smith] providing for the payment of all claims assertable against [Mr. Smith’s] estate as specified in the Plan and in this Order.” The Chapter 11 case was, however, dismissed at Mr. Smith’s request two years later, after which Wells Fargo recommenced foreclosure. The Superior Court, hearing the foreclosure on appeal, held that the pursuant to 11 U.S.C. § 1141(c), the Deed of Trust was void upon confirmation of the Chapter 11 plan.
After the Superior Court decision and while this case was pending appeal, Wells Fargo also re-opened the bankruptcy case and obtained opinions first from the bankruptcy court (albeit a different judge than had originally been involved with the case) and later from the district court holding that the plan would only have been confirmed upon payment of claims. Those courts rejected Mr. Smith’s argument that the payments of the claims was a condition of obtaining a discharge, not of obtaining confirmation. The failure to make such payments and the ultimate dismissal of the Chapter 11 case, meant that the confirmation order did not truly confirm the plan.
Relying on these opinions, the North Carolina Court of Appeals held that the Chapter 11 case had never fully been confirmed as the payment of the claims was a condition precedent to confirmation and accordingly, the lien had not become void by operation of 11 U.S.C. § 1141(c).
Commentary:
Firstly, it seems a bit strange and potentially troubling that the bankruptcy court and then district court, while this issue was pending on appeal in the state courts, waded back into the matter and issued what come very close to being an advisory opinions, as the actual “case or controversy” rested with the North Carolina Court of Appeals. Just as bankruptcy courts often interpret and apply the decisions of other courts, including state courts, it would perhaps been better to leave the question of interpreting the Confirmation Order to the state courts where the foreclosure was pending.
Additionally, as this opinion, when joined with the bankruptcy court opinion, seems to make clear, a Chapter 11 “Confirmation Order” with conditional language similar to this is not truly a final confirmation until the Debtor has complied with those conditions. Read in light of Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (U.S. 2015), only final orders are appealable. While Bullard considered whether the denial of confirmation was a final appealable order, here the courts have held that the “Confirmation Order” was not even finally confirmed until the Debtor had complied with the conditions. This would mean that even a confirmed plan is not appealable until all conditions had been met.
Lastly, it is worth noting that in a Ch. 13, following enactment of BAPCPA, 11 U.S.C. § 1325(a)(5)(B)(i)(I) requires that the confirmation is contingent on the plan providing that “the holder of [each allowed secured claim] retain the lien securing such claim until the earlier of ... the payment of the underlying debt determined under nonbankruptcy law ... or discharge under section 1328...” with the lien specifically being retain in the event of dismissal or conversion. This seems to be the complete opposite of 11 U.S.C. § 1141(c) and would indicate that as Congress knew how to protect liens pending discharge in Chapter 13 but did not provide the same protections in Chapter 11, such a result is intentional.
For a copy of these opinions, please see:
State Court Opinion: Smith- Conditions Precedent to Confirmation of Plan
Bankruptcy Court Opinion: Smith- Conditions Precedent to Confirmation of Plan
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