Opinion ID: 2196679
Heading Depth: 2
Heading Rank: 1

Heading: Preservation of Bankruptcy Authorized Lien.

Text: In its ruling denying FTI's initial motion to expand the dismissal order the court noted that [h]ad the appeal not been filed, section 349 of Title 11 of the United States Bankruptcy Code would have applied. The bankruptcy code addresses the effect of dismissal of a bankruptcy case under section 349. See 11 U.S.C. § 349. Section 349(b) provides: Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title (1) reinstates (A) any proceeding or custodianship superseded under section 543 of this title; (B) any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or preserved under section 510(c)(2), 522(i)(2), or 551 of this title; and (C) any lien voided under section 506(d) of this title; (2) vacates any order, judgment, or transfer ordered, under section 522(i)(1), 542, 550, or 553 of this title; and (3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title. Id. PCA and FTI disagree over the interpretation to be given to this section. Thus, the first question we must answer is whether, under section 349(b) and section 364, the dismissal of the bankruptcy case reinstated PCA's prior security interest in the 1992 crop and vacated FTI's priority lien. The issue of the interaction of sections 349 and 364 appears to be one of first impression. See generally 2 Lawrence P. King, Collier on Bankruptcy ¶ 349.03, at 349-10 to 349-14 (15th ed. 1994) [hereinafter Collier ]. During the course of our analysis we must keep in mind that the theme underlying the federal bankruptcy code is the equitable treatment of creditors and financial relief for over-burdened debtors. In re Depew, 115 B.R. 965, 969 (Bankr.N.D.Ind.1989). To this end we interpret the various provisions of the bankruptcy code as a whole and not in isolation. The legislative history to section 349(b) states that [t]he basic purpose of the subsection is to undo the bankruptcy case, as far as practicable, and to restore all property rights to the position in which they were found at the commencement of the case. This does not necessarily encompass undoing sales of property from the estate to a good faith purchaser. Where there is a question over the scope of the subsection, the court will make the appropriate orders to protect rights acquired in reliance on the bankruptcy case. H.R.Rep. No. 595, 95th Cong., 1st Sess. 338 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 48-49 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 6294, 5834-35; see also App. 2 Collier Part II, at 338; App. 3 Collier Part V, at 48-49. FTI contends the dismissal of the bankruptcy case did not vacate its authorized lien on McGraw's 1992 crop. In advancing its position FTI relies on subsections 349(b)(1) and (2) and interpretive case law. FTI argues that a majority of courts have held that only the enumerated code provisions are affected by a section 349(b) dismissal. See Florida Peach Corp. v. Commissioner of Internal Revenue, 90 T.C. 678, 683-84, 1988 WL 31439 (1988); Depew, 115 B.R. at 971-72; United States v. Standard State Bank, 91 B.R. 874, 878-79 (Bankr.W.D.Mo.1988), aff'd, 905 F.2d 185, 187 (8th Cir.1990); In re Newton, 64 B.R. 790, 793 (Bankr.C.D.Ill. 1986); Norton v. Hoxie State Bank, 61 B.R. 258, 260 (Bankr.D.Kan.1986); In re BSL Operating Corp., 57 B.R. 945, 952 (Bankr. S.D.N.Y.1986). While PCA concedes court orders to obtain credit or to incur debt under section 364 of the bankruptcy code are not referenced under subsection 349(b)(1) or (2), it argues that subsection 349(b)(3) specifically provides for the reinstatement of prebankruptcy property rights. See In re Lawson, 156 B.R. 43, 45 (9th Cir. B.A.P.1993); In re Ethington, 150 B.R. 48, 49 (Bankr.D. Idaho 1993); In re Kucera, 123 B.R. 852, 854-55 (Bankr.D.Neb. 1990); In re Groves, 27 B.R. 866, 868 (Bankr. D.Kan.1983). We note in passing that security interests are property rights protected by the Fifth Amendment of the federal Constitution. See United States v. Security Indus. Bank, 459 U.S. 70, 75-78, 103 S.Ct. 407, 411-12, 74 L.Ed.2d 235, 240-42 (1982). PCA asserts that unless the bankruptcy court exercises its broad authority to protect the rights of the parties, the complete undoing of the bankruptcy case is appropriate here because this case was dismissed prior to the confirmation of a reorganization plan. Compare Kucera, 123 B.R. at 854-55 (dismissal without a confirmed plan returns the parties to their prebankruptcy positions) with Depew, 115 B.R. at 972-74 (postconfirmation dismissal does not revoke the obligations as set forth in the confirmed plan). Upon reviewing the purposes behind the applicable code provisions and the significance of a confirmed reorganization plan, the court in Depew concluded that [t]o construe an order of dismissal as also vacating the order of confirmation would severely undermine the effect that Congress gave to confirmation of a plan and the need to give finality to the act of confirmation. 115 B.R. at 971. The court also noted that upon confirmation of a plan the bankruptcy estate ceases to exist and all remaining property is vested in the debtor. See 11 U.S.C. § 1141(b). Once a plan is confirmed there is no longer any property of the estate as to which section 349(b)(3) could operate. See Depew, 115 B.R. at 972; Standard State Bank, 91 B.R. at 878-79. Additionally, PCA points out that section 364 of the bankruptcy code does not preserve a subsection 364(d) lien upon dismissal of a case. Instead, subsection 364(e) provides that [t]he reversal or modification on appeal of an authorization under this section to obtain credit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and the incurring of such debt or the granting of such priority or lien, were stayed pending appeal. 11 U.S.C. § 364(e); see, e.g., Kham & Nate's Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1355 (7th Cir.1990). Express mention of one thing in a statute generally implies the exclusion of others. State ex rel. Miller v. Santa Rosa Sales & Mktg., Inc., 475 N.W.2d 210, 218 (Iowa 1991); Barnes v. Iowa Dep't of Transp., 385 N.W.2d 260, 263 (Iowa 1986). We agree with PCA that absent a confirmed chapter 12 plan at the time of dismissal or a court order protecting any rights acquired in reliance on the bankruptcy case, subsection 349(b)(3) basically restores parties to the position they would have had if the bankruptcy case had not been filed. Kucera, 123 B.R. at 854. Several considerations support this result. Significantly, section 364(e) does not preserve a section 364(d) order upon dismissal of a case. Our interpretation of the statutes is also consistent with the stated legislative purpose behind section 349 that the bankruptcy case is to be undone as far as practicable. See Kucera, 123 B.R. at 854-55. Moreover, we can identify no federal interest that would preclude application of subsection 349(b)(3) to reinstate suspended property rights following a preconfirmation dismissal of a chapter 12 case. See, e.g., Kucera, 123 B.R. at 855; Depew, 115 B.R. at 972-73. We hold that upon dismissal of McGraw's case subsection 349(b)(3) effectively reinstated PCA's prior security interest in the 1992 crop. Because the bankruptcy court failed to order otherwise, we also hold that the priority status of FTI's lien under bankruptcy law was not preserved. This conclusion, however, does not resolve the question of the validity of FTI's security interest under state law.