In re Gentry

621 B.R. 863

IN RE: Andre GENTRY, Debtor.

Case No. 15-20990-beh

United States Bankruptcy Court, E.D. Wisconsin.

Signed September 24, 2020

Michael J. Watton, Milwaukee, WI, for Debtor.

Rebecca R. Garcia, Chapter 13 Trustee, Oshkosh, WI, for Trustee.

DECISION AND ORDER DENYING (1) STATE OF WISCONSIN'S MOTION TO ALTER OR AMEND THE COURT'S MAY 13, 2020 ORDER AND (2) DEBTOR'S MOTION TO MODIFY HIS CONFIRMED PLAN

Beth E. Hanan, United States Bankruptcy Judge

The rules used to promote, and occasionally except from, finality and preclusion in civil cases sometimes don't yield such a snug fit in bankruptcy cases, where serial discrete contests can be resolved all within the framework of a single debtor's case, yet they are workable. At a next juncture, however, Code provisions may set a roadblock. This case is an illustration.

BACKGROUND

Andre Gentry filed his case on February 5, 2015 and filed his Chapter 13 plan the same day. ECF Doc. Nos. 1, 2. His plan did not provide for the payment of any domestic support obligations. ECF Doc. No. 2, at 2. On April 7, 2015, the State of Wisconsin, Department of Children and Families, filed a proof of claim, Claim No. 5, and also objected to confirmation of Gentry's plan, asserting that the State's claim, for public assistance overpayment for child care, was a DSO priority claim under 11 U.S.C. section 507(a)(1)(B). ECF Doc. No. 24. After a hearing, the debtor filed an amended plan to pay the State's claim and resolve the objection. ECF Doc. No. 39. The amended plan specifically provided:

Any Domestic Support Obligation under § 507(a)(1)(B) shall be paid with all remaining funds. Any § 507(a)(1)(B) claim might not be paid in full, as allowed by § 1322(a)(4).... Upon completion of the payment under the Plan, if there remains any balance on any § 507(a)(1)(B) claim, it will be paid by the Debtor after the case is over. The debtor acknowledges that, as a Domestic Support Obligation, any § 507(a)(1)(B) claim that remains is nondischargeable....

Debtors [sic] owe a Domestic Support Obligation to the State of Wisconsin – Department of Children and Families in the amount of $5,382.13.

Id. , at 3. After another unrelated amendment, the court confirmed the debtor's plan on August 4, 2015. ECF Doc. No. 49.

On January 16, 2020, the debtor filed an objection to the State's Claim No. 5, based on intervening Seventh Circuit law, In re Dennis , 927 F.3d 1015 (7th Cir. 2019). ECF Doc. No. 185. The debtor urged that that the public assistance overpayment for child care was not in the nature of support, because the debtor received money that he was not statutorily entitled to receive, and so the State's claim, following Dennis , should be reclassified from priority to non-priority general unsecured. Id. The State responded, arguing that the debtor was barred from relitigating the priority status of the State's claim, "because the confirmed plan is a final, binding judgment entitled to preclusive effect." ECF Doc. No. 187, at 2. The State cited Bullard v. Blue Hills Bank , 575 U.S. 496, 135 S.Ct. 1686, 191 L.Ed.2d 621 (2015) ; United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) ; Adair v. Sherman , 230 F.3d 890 (7th Cir. 2000) ; and In re Howe , 913 F.2d 1138 (5th Cir. 1990). The State also pointed to Alvear-Velez v. Mukasey , 540 F.3d 672 (7th Cir. 2008), to assert that "changes in case law almost never provide a justification for instituting a new action arising from the same dispute that already has been litigated to a final judgment." Id. , at 4–5 (emphasis added).

In reply, the debtor argued, in part, that while a confirmation order may be final for purposes of appeal, it cannot preclude post-confirmation claim objections while the Chapter 13 case is open, generally citing Bullard and Espinosa . ECF Doc. No. 190. The debtor pointed to various provisions of the Code and Bankruptcy Rules that govern claim objections, without prescribing deadlines for the same, and distinguished the facts and analysis of Adair in part by citing to In re Hovis , 356 F.3d 820 (7th Cir. 2004). Id.

In the course of pursuing his claim objection, the debtor did not seek permission to modify his confirmed plan, nor did the State expressly argue against an opportunity for modification, and so that issue was never before the Court.

On May 13, 2020, the Court issued a decision and order, finding the Seventh Circuit's intervening decision of In re Dennis to be a sufficient reason to depart from the law of the case and to sustain the debtor's objection to the State's claim. ECF Doc. No. 195.

On May 27, 2020, the State filed a motion to alter or amend the judgment due to errors of fact and law. ECF Doc. No. 199. The debtor filed a response after an initial hearing at which the Court allowed supplemental briefing. ECF Doc. No. 200. Also, on August 4, 2020, the debtor filed a motion to modify his plan, directing that, as of May 13, 2020, the trustee make no further payments on Claim No. 5 as a priority claim, and that the balance of the State's claim "shall be treated as a general unsecured claim and shall share in any distribution that allowed general unsecured claims are entitled to receive on a pro rata basis." ECF Doc. No. 212. The State objected to the proposed modification, asserting that 11 U.S.C. § 1329 does not authorize a debtor to modify a confirmed plan to reclassify a claim. See ECF Doc. Nos. 211 and 215.

The Court held a combined hearing on the State's motion to amend the judgment and the debtor's motion to modify the plan, and now issues this decision resolving both matters.

DISCUSSION

A. The State's Motion to Alter or Amend the May 13, 2020 Order

1. Applicable law

The State's motion to alter or amend the Court's prior order was brought under Federal Rule of Civil Procedure 59(e), incorporated by Bankruptcy Rule 9023. "A Rule 59 motion will be successful only where the movant clearly establishes ‘(1) that the court committed a manifest error of law or fact, or (2) that newly discovered evidence precluded entry of judgment.’ " Cincinnati Life Ins. Co v. Beyrer , 722 F.3d 939, 954 (7th Cir. 2013) (quoting Blue v. Hartford Life & Accident Ins. Co. , 698 F.3d 587, 598 (7th Cir. 2012) ). Rule 59(e) provides a narrow avenue for reconsideration: " ‘Rule 59(e) allows the movant to bring to the [ ] court's attention a manifest error of law or fact, or newly discovered evidence. It does not provide a vehicle for a party to undo its own procedural failures, and it certainly does not allow a party to introduce new evidence or advance arguments that could and should have been presented to the [ ] court prior to the judgment.’ " Cincinnati Life Ins. Co. , 722 F.3d at 954 (quoting Bordelon v. Chi. Sch. Reform Bd. of Trs. , 233 F.3d 524, 529 (7th Cir. 2000) (internal citation and quotation marks omitted)).

2. Analysis

While the State captions its motion as one to amend the judgment "due to errors of fact and law," the body of the motion focuses solely on argument as to legal error. Specifically, the State asserts that the Court committed a manifest error of law by disregarding Espinosa , Bullard , and the Seventh Circuit's decision in Germeraad v. Powers , 826 F.3d 962 (7th Cir. 2016), and by relying instead on contrary authority in Hovis , to reach two conclusions: (1) that the confirmation order was not a final judgment entitled to preclusive effect; and (2) that a bankruptcy case is a single, unitary case. The Court will address each of these allegedly erroneous conclusions in turn.

a. The preclusive effect of the confirmation order

In framing its argument, the State describes the Court's May 13, 2020 decision as holding that (1) a confirmation order is not a final appealable order, and (2) a confirmation order is not preclusive. See, e.g. , ECF Doc. No. 199, at 2 ("Rather than being a final and binding order entitled to preclusive effect, the Court held that the confirmed plan was merely the law of the case, which accorded the order a non-final status that is subject to revisiting at the Court's discretion.");¹ id. at 2–3 (describing the Court as holding that "[t]he confirmed plan was accordingly not a final judgment entitled to preclusive effect"); id. at 4–5 ("[I]t is incontrovertible that an order confirming a plan is a final, appealable order.... It is not merely the law of the case.").

The State misapprehends the Court's ruling. Nowhere in its decision did the Court conclude that the confirmation order was not a final order, or that it was not entitled to preclusive effect. Rather, the Court decided that the final confirmation order ordinarily would be entitled to preclusive effect—as the law of the case, in accord with Hovis —but that intervening case law provided a basis to revisit the priority status of the State's claim.

On this point, Hovis is not inconsistent with either Bullard or Espinosa . In Bullard , the Supreme Court examined whether a particular order (an order denying confirmation of a proposed Chapter 13 plan) was "final" and appealable for purposes of 28 U.S.C. § 158(a). And Espinosa concerned a creditor's challenge to a confirmed plan—brought years after the plan had been confirmed, fully performed and the debtor discharged—on the basis that the confirmation order was void under Federal Rule of Civil Procedure Rule 60(b)(4). Neither Bullard nor Espinosa dealt with the type of alleged "collateral attack" at issue here and in Hovis : a claim objection filed after plan confirmation, in an open and active case. While Bullard and Espinosa speak to the preclusive effect of a confirmation order, neither case dictates which preclusion doctrine a court should apply in an ongoing bankruptcy case like this one—in other words, they do not instruct that the "law of the case" is inapplicable, and that, for instance, only traditional principles of issue/claim preclusion instead should apply. They are not, as the State claims, "squarely at odds" with Hovis.

On the applicability of Espinosa in...