Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azb-2_09-ap-00621/USCOURTS-azb-2_09-ap-00621-0/pdf.json

Parties Involved:
DAVID J. ZOOK
Plaintiff
WELLS FARGO BANK, N.A.
Defendant

Document Text:

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF ARIZONA

In re ) Chapter 11

)

DAVID J. ZOOK, ) CASE NO. 2:09-bk-05415-RJH

)

Debtor. )

____________________________________)

)

DAVID J. ZOOK, Debtor/Debtor-in- ) ADVERSARY NO. 2:09-ap-00621-RJH

Possession, )

)

Plaintiff, )

)

 v. )

) MEMORANDUM DECISION RE

WELLS FARGO BANK, N.A., a national ) EFFECTIVE DATE FOR AVOIDANCE

banking association, ) OF STRIPPED OFF LIENS

)

Defendant. )

____________________________________)

The parties are in agreement that, at least as of the petition date, there was no value

to extend to Wells Fargo’s two second liens, one on the 53rd Street property and the other on the

68th Place property. And they agree that if those values are used, then the second liens may be

“stripped off” by the Chapter 11 plan in this case pursuant to Bankruptcy Code §§ 506(a) & (d)

and 1123(b)(5). They disagree, however, as to what would be the effective date of the

avoidance of those liens if such a plan is confirmed and consummated and, depending on the

appropriate answer to that issue, what is the proper date for a valuation of the property.

The Debtor relies primarily on Code § 1141 in support of his contention that the

lien avoidance would occur either upon the confirmation of the plan or upon its effective date

(which is usually no more than 14 or 30 days after entry of the confirmation order). The Bank

argues from analogy to Code § 1325(a)(5)(B) that the avoidance should not occur until the

SIGNED.

Dated: May 27, 2010

________________________________________

RANDOLPH J. HAINES

U.S. Bankruptcy Judge

________________________________________

Case 2:09-ap-00621-RJH Doc 26 Filed 05/27/10 Entered 05/27/10 12:35:23 Desc

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individual Chapter 11 debtor receives his discharge, which under § 1141(d)(5) is ordinarily not

until the individual debtor completes all payments under the plan. The Bank also argues that the

lien should remain in effect until the discharge in order to protect the Bank’s right to

reinstatement of the lien pursuant to Code § 349(b)(1)(C) in the event this case is dismissed

before entry of a discharge, because otherwise the Debtor could sell or further encumber the

property prior to the reinstatement of the Bank’s lien.

The Bank makes a good point that avoidance of the lien at confirmation creates a

risk that the Bank could not be fully protected by reinstatement of the lien pursuant to §

349(b)(1)(C) in the event of dismissal prior to discharge. But the plain language of the Code §§

1141(a), (b) & (c) makes clear that the modification of a lien pursuant to a Chapter 11 plan

occurs upon confirmation and is not dependent upon the making of all payments under the plan

or the entry of a discharge. Moreover, although BAPCPA changed the rule for Chapter 13 cases

by adding § 1325(a)(5)(B),1 no similar change was made for Chapter 11. This distinction is

particularly significant given that BAPCPA included specific provisions governing those aspects

of Chapter 11 that were intended to be made analogous to Chapter 13 when the Chapter 11

debtor is an individual, most notably in § 1129(a)(15) and in § 1129(b)(2)(B)(ii).

At least in this Circuit, the law is clear that confirmation of a Chapter 11 plan

replaces all prepetition obligations and liens with the terms of a confirmed plan, effective

immediately upon confirmation.2

 And because this modification of prepetition liens occurs

pursuant to confirmation of the plan, the lien avoidance occurs pursuant to § 1141 rather than

pursuant to § 506(d). Although this issue is not ripe for decision on the present facts and

circumstances, this would also seem to imply that § 349 does not reinstate a lien that has been

1

The Court notes there are also arguments as to whether a lien strip pursuant to a plan might

provide a basis for avoidance that is distinct from a purely § 506(d) avoidance, which might therefore

render § 349(b)(1)(C) inapplicable, and whether a Chapter 13 debtor might be entitled to strip off a lien

even if the debtor is not entitled to a discharge. Compare In re Burnett, 2010 W.L. 1507947 (Bankr.

S.D. Cal. April 2, 2010), with In re Picht, 2010 W.L. 1768238 (10th Cir. BAP May 4, 2010). Given the

resolution of this issue based on the language of § 1141, neither of these issues need be

resolved here.

2

Hillis Motors, Inc. v. Hawaii Auto Dealers’ Association, 997 F.2d 581 (9th Cir. 1993).

2

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avoided or modified as a result of confirmation of the plan, as at least one district court has

concluded.3

 

Finally, this determination also resolves what is the appropriate date for

determining the value of the property. It is the date of the confirmation hearing, as the Ninth

Circuit has previously held with respect to Chapter 11 cases involving corporate debtors.4

The Debtor is therefore entitled to partial summary judgment on Counts 1 and 2 of

its complaint, to the extent set forth in this memorandum decision. If this resolves the entirety

of the complaint, Debtor’s counsel may upload an appropriate form of final judgment. If this

does not resolve the entirety of the complaint, this resolution is interlocutory and therefore this

memorandum decision will suffice until final judgment is appropriate.

DATED AND SIGNED ABOVE

Copy of the foregoing e-mailed

this 27th day of May, 2010, to:

Daniel P. Collins, Esq.

Maureen P. Henry, Esq.

Collins, May, Potenza, Baran & Gillespie

dcollins@cmpbglaw.com

mhenry@cmpbglaw.com

Attorneys for Plaintiff

Jonathan P. Ibsen, Esq.

Ronald M. Horwitz, Esq.

Jaburg & Wilk, PC

jpi@jaburgwilk.com

jmc@jaburgwilk.com

Attorneys for Defendant

Jennifer P. Nore, Esq.

Snell & Wilmer, L.L.P.

jnore@swlaw.com

Attorneys for Defendant

/

/

3

United States v. Ramirez, 291 B.R. 386, 392 (N.D. Texas 2002).

4

Liberty Nat’l. Entr. v. Ambanc LaMesa Ltd. Ptshp., 115 F.3d 650 (9th Cir. 1997). Accord, In re

T-H New Orleans Ltd. Ptshp., 116 F.3d 790 (5th Cir. 1997). But see In re Stembridge, 394 F.3d 383 (5th

Cir. 2004) (valuation of a vehicle in a chapter 13 case).

3

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Travis B. Hill, Esq.

Carson, Messinger, Elliott

thill@carsonlawfirm.com

Attorneys for Defendant

 /s/ Pat Denk 

Judicial Assistant

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