In re Fakhari, Case No. 15–20635

554 B.R. 250

In re: Abolfazl Fakhari, Debtor.

Case No. 15–20635

United States Bankruptcy Court, D. Kansas.

Signed July 12, 2016

Colin N. Gotham, Evans & Mullinix, P.A., Shawnee, KS, for Debtor.

MEMORANDUM OPINION AND ORDER DENYING RAYNE–STORM'S MOTION TO RECONSIDER, TO ALTER OR AMEND, TO SET ASIDE, TO VACATE, TO MAKE ADDITIONAL FINDINGS, FOR EVIDENTIARY HEARING WITH WITNESS TESTIMONY AND OTHER EVIDENCE, AND FOR A TRIAL

Robert D. Berger, United States Bankruptcy Judge

Creditor, Rayne–Storm Co., LLC (Rayne), moves the Court to reconsider, to alter or amend, to set aside, and to vacate its memorandum opinion and order denying Rayne stay relief, to make additional findings, for an evidentiary hearing, and for a trial.¹ The Court has considered Rayne's motion and supporting memorandum and the Debtor Abolfazl Fakhari's response thereto.² The parties appear by counsel.³ The Court reviewed the pleadings and denies Rayne's motion because there is: (a) no change in the controlling law; (b) no new evidence; and (c) no need to correct clear error or manifest injustice.⁴

VENUE AND JURISDICTION

This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C. §§ 157(a) and 1334(a) and (b) and the Amended Standing Order of Reference of the United States District Court for the District of Kansas that exercised authority conferred by 28 U.S.C. § 157(a) to refer to the District's bankruptcy judges all matters under the Bankruptcy Code and all proceedings arising under the Code or arising in or related to a case under the Code, effective June 24, 2013.⁵ Furthermore, this Court may hear and finally adjudicate this matter because it is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). The parties do not object to venue or jurisdiction.

BACKGROUND

Debtor hired Rayne to repair damage to the roof of his residence following a storm. In 2012, Rayne sued Debtor for nonpayment and costs. Rayne did not file a mechanic's lien against Debtor's residence, but elected to proceed with litigation against Debtor. In 2014, a jury returned a verdict in favor of Rayne in the amount of $19,129.44, less $5,000 that had been paid by Debtor to Rayne, and against Debtor for a net judgment (prior to the assessment of costs) of $14,129.44 as damages for the Debtor's nonpayment and breach of contract. Subsequent to the jury verdict, the state court awarded Rayne $72,000 in attorney's fees and $350.50 in costs, for a total judgment of $86,479.94 with post-judgment interest accruing thereon. Judgment was entered in Johnson County, Kansas—the same county in which Debtor's Residence is located.

On April 2, 2015, Debtor filed for Chapter 13 relief. Debtor listed Rayne on Schedule F as a general unsecured creditor in the amount of $86,479.44. On April 2, 2015, Debtor's counsel filed a notice of bankruptcy filing in the state court proceeding, and a copy thereof was served on Rayne's counsel.⁶ Debtor's original Chapter 13 plan was confirmed by this Court on June 26, 2015. Rayne did not file an objection to confirmation of the plan and does not assert inadequate notice. Rayne did not timely file a proof of claim, but did file a motion to file a proof of claim out of time,⁷ which this Court denied.⁸ Since Rayne tardily filed its proof of claim, the Debtor objected to the proof of claim as untimely,⁹ which objection this Court sustained.¹⁰

On September 8, 2015, Rayne filed a motion for relief from the automatic stay

to pursue relief in state court to execute and foreclose upon its judgment lien as a secured and perfected interest in Debtor's real property, to seek an upward modification of its judgment ... and for all other reasonably related acts to secure satisfaction of the judgment through the foreclosure and sale of Debtor's real property.¹¹

On September 15, 2015, Debtor filed an objection to Rayne's motion for relief from the automatic stay, arguing that:

Rayne–Storm ... is not a secured creditor. Debtor has successfully claimed and is entitled to exempt his homestead.

Rayne has not objected to this claim of exemption and the deadline for objecting to exemptions has passed.... Rayne has not filed a timely proof of claim and has not objected to Debtor's Chapter 13 Plan, which has been confirmed.... Although Rayne's judgment lien will attach to real property, it does not attach to Debtor's homestead.¹²

On October 20, 2015, the Court heard oral arguments on the Debtor's motion for contempt, Rayne's motion for relief from stay, and Debtor's motion to avoid Rayne's lien.¹³

On February 22, 2016, the Court entered a memorandum opinion and order denying Rayne relief from the automatic stay.¹⁴ This Court instructed that:

Confirmation of a Chapter 13 plan is binding upon the debtor and his creditors, regardless of whether the claim of a creditor is provided for by the plan and regardless of whether the creditor has objected to, accepted, or rejected the plan. Upon becoming final, the order confirming a Chapter 13 plan represents a binding determination of the rights and liabilities of the parties as ordained in the plan. Even improper provisions in a confirmed plan are binding. Silence or the failure to object, is acceptance of the debtor's plan as to procedural and legal challenges to the content of the plan, otherwise known as the snooze, you lose rule. Recognizing that Rayne–Storm does not have an allowed proof of claim, either general unsecured or secured, it is nevertheless bound by the treatment afforded general unsecured creditors in the Debtor's confirmed plan....¹⁵

Next, the Court decided whether any homestead exceptions in K.S.A. § 60–2301 or the Kansas Constitution applied. Rayne argued that a homestead is not exempt from sale for the repayment of obligations contracted for the erection of improvements thereon and that the repairs it conducted to the Debtor's residence constituted improvements to the residence. This Court found that Rayne “did not erect improvements on the Debtor's Residence and Homestead, but repaired it, the latter of which is not an obligation that is as an exception to the homestead exception.”¹⁶ Rayne also requested relief under 11 U.S.C. § 362(d)(1)¹⁷ through this Court's equitable powers. This Court found that:

Rayne–Storm's arguments in this venue should have been raised prior to confirmation of the Debtor's plan; having failed to object to the Debtor's confirmed plan, it is improper to raise the issue of good faith or lack thereof in the filing of the Debtor's bankruptcy case or in the proposed Chapter 13 plan. Confirmation of the plan operates as res judicata as to all issues and arguments that should have been raised prior to confirmation. It is inappropriate for this Court to exercise its equitable discretionary powers to grant relief from the automatic stay so late in the game.... Rayne–Storm does not have a timely filed and allowed claim in this case or a lien on the Residence; Rayne–Storm did not object to confirmation of the Debtor's plan; Rayne–Storm violated the automatic stay by not turning over funds of the estate to the Debtor or to the Trustee; Rayne–Storm did not object to the dischargeability of its debt; and Rayne–Storm only held a general unsecured claim when this case was filed. Rayne–Storm has unsuccessfully attempted, without argument as to the distinction, to convert a state court judgment for damages arising from repair of the Residence to a judgment for the erection of improvements on the Debtor's Residence. However, as clearly established, by virtue of the homestead exemption a judgment lien never attached to the Residence.¹⁸

By virtue of Rayne's prepetition garnishment of the Debtor's wages, Rayne attached and retained $379.83 of the Debtor's post-petition wages after this case was filed. Debtor's counsel made demand upon Rayne for delivery of these funds as they constituted property of the bankruptcy estate, and retention thereof was in violation of §§ 362(a) and 542. Rayne refused to turn over this estate property, and on August 5, 2015, the Debtor filed a motion for contempt against Rayne,¹⁹ which this Court heard on September 15, 2015. This Court directed that Rayne pay the post-petition wages to the Debtor and found that Rayne's actions were contemptuous and violated §§ 362(a) and 542.²⁰

On March 7, 2016, Rayne moved pursuant to Fed. R. Bankr. P. 3008, 7052, 9014, 9023 and 9024, and Fed. R. Civ. P. 52, 59(a), (d), and (e), and 60, for the Court to reconsider, to alter or amend, to set aside, and to vacate its memorandum opinion and order denying Rayne stay relief, to make additional findings, for an evidentiary hearing, and for a trial (the Motion to Reconsider).²¹ Rayne states that: (1) the Court's order denying stay relief contains manifest errors of law and fact upon which the Order is based; (2) the Court did not provide Rayne a final hearing under § 362(e) ; (3) Rayne has been denied its due process rights under the Fifth Amendment; (4) the Court's order ignores Debtor's § 522(f) motion; (5) the Code contains a general rule that proceedings to determine the validity, priority, or extent of a lien are to be brought as adversary proceedings, but Fed. R. Bankr. P. 4003(d) creates an exception to that rule; (6) Debtor's plan is not entitled to res judicata effect on Rayne's lien because Debtor opened the door to contesting his attempt to discharge Rayne's secured judgment lien through a § 522(f) motion; (7) Debtor has the burden of proof on all issues except the issue of Debtor's equity in the property; (8) the submitted exhibits overwhelmingly illustrate that Rayne's work on the real property was the “erection of improvements” within the meaning of the Kansas homestead exemption; (9) the Court failed to consider that the roofing system and other items that were repaired were of an aged and depreciated state and that materials Rayne installed were new, which sui generis, constitutes an “improvement” in every sense of the word; (10) the Court analogized “improvements” under the...