Court Opinion

ID: 9491424
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:13:42.847812+00
Date Added: 2024-06-11T17:54:43.753311
License: Public Domain

STAPLETON, Circuit Judge,
dissenting:
The parties, the court, and the public have a compelling interest in the finality of a judgment. See, e.g., Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 417 (3d Cir.1988); Fox v. United States Dept. of Housing & Urban Development, 680 F.2d 315, 322 (3d Cir.1982). For that reason, a judgment should never be overturned without a showing of a more compelling countervailing interest. Nevertheless, mistakes are made, and justice miscarries. Accordingly, every jurisdiction of which I am aware makes some provision for relief from a judgment. In the federal system generally, the rule is found in Fed.R.Civ.P. 60. In bankruptcy, the rule is found in Fed. R. Bankr.P. 9024, which expressly applies to “an order confirming a plan” as well as to other forms of judgment entered by a bankruptcy court.
Rule 60(b) provides that “the court may relieve a party ... from a final judgment [because of, inter alia,] mistake, inadvertence, surprise, or excusable neglect” so long as application is made in accordance with a stipulated time schedule. Rule 9024 provides:
Rule 60 F.R.Civ.P. applies in cases under the Code except that (1) a motion to reopen a case under the Code or for the reconsideration of an order allowing or disallowing a claim against the estate entered without a contest is not subject to the one year limitation prescribed in Rule 60(b), (2) a complaint to revoke a discharge in a chapter 7 liquidation case may be filed *121only within the time allowed by § 727(e) of the Code, and (3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by § 1144, § 1230, or § 1330.
Rule 9024 thus incorporates the grounds of relief provided in Rule 60 and then provides a different time schedule with respect to three separate categories of ■ orders. The time limit for application for relief, from an order confirming a plan of reorganization is the 180 days specified in the three cited statutory sections.
The court today finds that Congress intended to single out one particular type of judgment — a confirmation order — for special treatment and to sharply limit the availability of relief from such a judgment to a single ground — fraud. It finds this intent in a single statutory provision that appears to me to reflect nothing more than an intent to provide a limitations period for applications for relief from a confirmation order on grounds of fraud. Section 1330(a) of the Code says no more than that “the court may revoke [a confirmation] order ... procured by fraud” if “request[ed by] a party in interest at any time within 180 days after the date of the entry of [the] order.” As I read it, and as the drafters of Rule 9024 must have read it, section 1330(a) says nothing about limiting the grounds on which relief from a confirmation order may be granted. The same may be said for the legislative history of that section.11
Rule 9024 supplements the non-restrictive provisions of section 1330(a), but as a concession to the strong policy of finality, it preserves the time limits imposed by that section. It is not so logically absurd to conclude that the drafters of Rule 9024 thought it prudent to recognize the bankruptcy court’s power to consider other compelling bases for revoking a plan confirmation order, and the Rule clearly limits the time for filing such challenges to the same period as that originally imposed by Congress in section 1330(a).
The court logically observes that any court would know that it had the power to revoke a confirmation order procured by fraud without statutory confirmation, and that section 1330(a) must therefore be read as a substantive limitation on the available grounds for relief. But the function of section 1330 is not to reassure courts that they have the power to revoke confirmation plans for fraud. Rather, its function is to provide a check by Congress on a court’s natural inclination to entertain charges of actual fraud- at any time — such challenges may only be brought within 180 days. This time limitation is the essence of section 1330(a), and Rule 9024 incorporates this essential element. .Section 1330(a) contains no restriction on the court’s ability to consider any number of bases for revisiting a confirmed plan, and Rule 9024 incorporates the only true restriction in that section. Rule 9024 in no way runs afoul of section 1330(a).
Nor is Branchburg’s argument inconsistent with existing precedent. While our opinion in In re Szostek, 886 F.2d 1405 (3d Cir.1989), contains some broad statements about the concerns of finality in confirmed bankruptcy plans, those statements must be understood in the context of the case to which that *122opinion is addressed. In July 1987, Fred and Denise Szostek filed a Chapter 13 bankruptcy petition. One of the Szosteks’ creditors, the Kissell Company (“Kissell”), filed a proof of its secured claim, and the Szosteks objected to the amount of the claim. A hearing on the objection was scheduled for the same day as the hearing on confirmation of the Szos-teks’ Chapter 13 plan, but Kissell and the Szosteks agreed to a continuance of the hearing on the objection. Consequently, mistakenly thinking that the Szosteks had also agreed to postpone the confirmation hearing as well, Kissell failed to appear at the confirmation hearing, and the plan was confirmed without objection.
Three days later, Kissell filed an objection to the plan on the basis that it did not provide for present value on Kissell’s secured claim.12 Kissell eventually learned that the plan had been confirmed in its absence and without considering its objection. It therefore sought revocation of confirmation under 11 U.S.C. § 1330. Kissell contended that the Szosteks had obtained confirmation of their plan through fraud, and that the plan should never have been confirmed because it failed to conform to the Code’s requirement of present value payment on Kissell’s’ secured claim.
The bankruptcy court found no evidence of fraud, so it denied revocation of the plan under 11 U.S.C. § 1330. The district court reversed. Although it found no fraud, it ruled that the bankruptcy court and the trustee had failed to fulfill their independent obligations to ensure that the plan complied with 11 U.S.C. § 1325(a)(5), which requires payment of present value on secured claims.
We reinstated the bankruptcy court’s order because 1) the bankruptcy court’s failure to apply section 1325(a)(5) to the plan was not grounds for revoking a confirmed plan in the absence of timely objection by the creditor, and 2) after confirmation of a plan, the policy of finality of bankruptcy plans overrides the court’s and the trustee’s responsibility to ensure that plans conform to section 1325(a)(5) of the Bankruptcy Code.
Our ultimate — and quite narrow — conclusion in Szostek was simply that “once the Szosteks’ plan was confirmed, it became final under § 1327 and, absent a showing of fraud under § 1330(a), it could not be challenged under § 1325(a)(5)(B)(ii) for failure to pay Kissell the present value of its claim.” 886 F.2d at 1413. Our holding in Szostek in no way restricted the grounds for revoking confirmation of a plan to fraud. We simply rejected the argument advanced by Kissell— that failure to comply with section 1325(a)(5)(b)(ii) could serve as one of those grounds. Kissell never attempted to rely on Rules 9024 and 60(b) to revoke confirmation of the plan on the basis of mistake or excusable neglect, and we were consequently not called upon to evaluate such an argument in Szostek.
The reasoning underlying Szostek is not applicable in this case. The creditor in Szos-tek sought to excuse its failure to object by relying on a legal argument that it neglected to make at the confirmation hearing. In such a situation, the policy of finality and constructive assent should apply to foreclose the creditor from returning to present an argument that should have been presented at another time. Branehburg’s argument, however, is not that the plan should be revoked because Branchburg has a meritorious challenge, but because it was prevented from presenting that challenge before for a reason that is recognized in the procedural rules as a valid basis for revocation. Branchburg’s absence should not be viewed as constructive assent because it might be excused and remedied pursuant to statutory authority. Szostek does not control our decision in this ease.13
The majority also points to a number of bankruptcy and district court decisions in *123support of its reading of section 1330(a). I find more persuasive the approach taken by the Ninth Circuit in an opinion addressing a section analogous to section 1330(a) that strongly suggests its disagreement with the premise of these other courts. In In re Cisneros, 994 F.2d 1462 (9th Cir.1993), the trustee never received notice that the IRS had filed a proof of claim, so the debtor’s Chapter 13 plan was confirmed and a full discharge entered after payment in full to all creditors but the IRS. After it discovered the mistake, the IRS moved to reopen the case. The bankruptcy court sua sponte raised the issue of whether it could vacate the discharge on the basis of Fed.R.Civ.P. 60(b), and it concluded that it could in fact grant the government’s motion on that basis.
On appeal, the debtor argued that the court lacked the power to vacate the discharge order in light of section 1328(e), which provides as follows:
On request of a party in interest before one year after discharge under this section is granted, and after notice and a hearing, the court may revoke such discharge only if—
(1) such discharge was obtained by the debtor through fraüd; and '
(2) the requesting party did not know of such fraud until after such discharge was granted.14
The debtors argued that, to the extent that section 9024 provided any grounds other than fraud for revoking a discharge, it conflicted with section 1328(e) and was thus invalid.
Although the Ninth Circuit agreed that the statute would have to take precedence in the event of a conflict, it found that no conflict existed and that the bankruptcy court could properly revoke the discharge pursuant to Rule 60(b), as incorporated by Rule 9024.15 Id. at 1466. While Cisneros is also not directly applicable here, it concluded that Rules 60(b) and 9024 apply under a clearly analogous set of circumstances.
Based on the text and legislative history, I am convinced that Congress did not intend to give confirmation orders special treatment by making them impervious to challenge save on grounds of fraud. Even if I perceived some ambiguity and were less than convinced about this proposition, however, I would decline to reach the conclusion reached by the court today. Why should we, in the absence of an unambiguous directive of -Congress, tie the hands of bankruptcy judges in situations where justice cries out for review of a previously entered judgment. Why, for example, should we render a bankruptcy court powerless to grant relief when an objecting creditor’s attorney has a heart attack on his way to ‘ a confirmation hearing at which a final order is entered? Moreover, not only would such a holding fail to serve justice, little, if anything, would be gained from it in the way of finality. Under the court’s reading of the Code and the Rules, litigants cannot count on thé finality of a confirmation order until 180 days after the order is entered. Up until that time, a claim of fraud can be asserted and litigated. While my reading of the Code and Rules would permit claims of a limited variety, other than fraud, to be filed during that period; it would not extend the date upon which a confirmation order becomes unchallengeable.
I respectfully dissent. I would .reverse and remand to allow the bankruptcy court to consider Branehburg’s request to reopen the plan. I would intimate no opinion on the merits of Branchburg’s claim because I be-*124Heve the bankruptcy court is best situated to make that decision.

. If any confirmation were needed of the Congressional intent evidenced by a literal reading of section 1330(a), I believe it came with the passage of the Bankruptcy Amendments and Federal Judgeship Act of 1984. Prior to that Act, each of the sections of the Code dealing with revocation of orders confirming reorganization plans originally contained the clause "if such order was procured by fraud.” In the Act, however, Congress singled out one of those sections — section 1144 — for amendment and explicitly limited the court's power to revoke confirmation orders in Chapter 11 proceedings “if and only if such order was procured by fraud.” (emphasis added). The fact that Congress chose not to insert a conforming amendment in sections 1330(a) and 1230(a) strongly suggests that the Congressional intent to restrict the grounds for revoking confirmation orders was confined to section 1144. This malees untenable in my view the negative inferences drawn by the court from the text of section 1330(a). If, as the court suggests, Congress amended section 1144 solely to clarify the original intent of the language previously found in all three sections, I would have expected it to have clarified all three. Rather than assume an inadvertent slip on its part, I deem it more prudent to take Congress at its word. There are any number of reasons why Congress may have regarded it advisable to provide somewhat greater finality for confirmation orders in corporate reorganizations than for confirmation orders in other types of reorganizations.

. Present value is the amount of the secured claim repaid with interest to account for the time value of money. The Szosteks plan provided only for payment of the face value of Kissell’s claim.

. The same can be said for the limited statements on the scope of section 1330(a) in United States v. Lee, 89 B.R. 250, 256 (N.D.Ga.1987); and In re Pence, 905 F.2d 1107, 1110 (7th Cir.1990). Neither of these cases considered the issue presented in this case, and the reasoning of these cases does not constrain our analysis here.

. This statute is thus apparently even more restrictive that section 1330(a); therefore, the Ninth Circuit's reasoning applies a fortiori to this case.

. The court also revealed that the bankruptcy court in this case wrongly relied on the holding of In re Gregory, 705 F.2d 1118 (9th Cir.1983), in support of its conclusion that confirmed plans may only be revoked for fraud. The Cisneros court pointed out that it held in Gregory only that a creditor who had not objected at the confirmation hearing could not mount' "a collateral attack” on a plan after it became final. 994 F.2d at 1466-67. But it emphasized that "[w]e had no occasion to consider whether the bankruptcy court had confirmed the plan under the influence of a mistaken view of the facts, and, if so, whether this mistake could have been corrected under Rule 60(b) and Bankruptcy Rule 9024. Gregory is inapposite, and thus unhelpful to the Debtors here.” Id. at 1467.