Santander Consumer USA Inc. v. Donnadio (In re Donnadio)

608 B.R. 507

IN RE: Anthony Michael DONNADIO; Melissa Marie Donnadio, Debtors.

Santander Consumer USA Inc., Appellant,

v.Anthony Michael Donnadio; Melissa Marie Donnadio; Michael A. Gallo, Chapter 13, Trustee, Appellees.

No. 19-8004

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Decided and Filed: November 25, 2019

Cynthia A. Jeffrey, Edward A. Bailey, REIMER LAW, Solon, Ohio, for Appellant.

Robert Ascenzo Ciotola, Canfield, Ohio, for Debtor Appellees. Michael A. Gallo, Youngstown, Ohio, for Trustee Appellee.

Before: BUCHANAN, HARRISON, and WISE, Bankruptcy Appellate Panel Judges.

TRACEY N. WISE, Chief Bankruptcy Appellate Panel Judge.

Appellant/Creditor Santander Consumer USA Inc. ("Creditor") objected to the confirmation of a chapter 13 plan filed by Appellees/Debtors Anthony Michael Donnadio and Melissa Marie Donnadio ("Debtors") because the plan does not contain specific language stating that Creditor, the holder of a "910 claim," retains its lien on Debtors' vehicle until full payment of its claim under nonbankruptcy law or Debtors' discharge. Debtors and Appellee/Chapter 13 Trustee Michael Gallo ("Trustee") opposed Creditor's objection in the bankruptcy court. Creditor appeals from an order overruling its objection. Because the bankruptcy court erred in its interpretation of § 1325(a)(5)(B)¹ as a matter of law, we REVERSE and REMAND for further proceedings consistent with this opinion.

ISSUE ON APPEAL

Creditor identifies one appellate issue: "Whether an objection to confirmation must be sustained when a chapter 13 plan fails to provide that the holder of a ‘910 claim’ retain[s] the lien securing its claim until the earlier of payment of the underlying debt determined under nonbankruptcy law or discharge under section 1328?" (Brief of Appellant Santander Consumer USA Inc. ("Creditor's Brief") at 3, BAP No. 19-8004, ECF No. 13.)

JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to the Panel, and no party timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6) and (c)(1). A bankruptcy court's order confirming a chapter 13 plan is a final order that may be appealed as of right. 28 U.S.C. § 158(a)(1).

After Creditor objected to the confirmation of Debtors' chapter 13 plan on October 8, 2018, the bankruptcy court entered an order on November 2 confirming the plan subject to the resolution of Creditor's objection. The court overruled Creditor's objection on February 2, 2019, and Creditor timely moved to reconsider on February 12. On March 7, the court denied that motion and Creditor filed a timely appeal. Because the bankruptcy court both overruled the objection to confirmation and confirmed the chapter 13 plan, albeit in separate orders, the order overruling the objection is a final order. Bullard v. Blue Hills Bank , ––– U.S. ––––, 135 S. Ct. 1686, 1694, 191 L.Ed.2d 621 (2015) (stating that an order overruling an objection to the confirmation of a chapter 13 plan, and confirming the plan, is a final order).

FACTS

On March 17, 2017, Mr. Donnadio purchased a 2013 Buick Verano (the "Vehicle") with Creditor-provided financing. On July 20, 2018, less than 910 days after the purchase, Debtors filed a chapter 13 bankruptcy petition and proposed a chapter 13 plan. As required in the Northern District of Ohio, Debtors used Official Form 113, the national Chapter 13 Plan form that became effective on December 1, 2017. Debtors' proposed plan did not treat any claims in Section 3.2 ("Request for valuation of security, payment of fully secured claims, and modification of undersecured claims"), but it treated Creditor's claim (the "910 Claim") in Section 3.3 ("Secured claims excluded from 11 U.S.C. § 506."). The plan listed the 910 Claim as secured by the Vehicle, valued it at $10,000, and provided for monthly plan payments to Creditor.

Unlike Section 3.2, Section 3.3 of Official Form 113 does not discuss lien retention for claims treated thereunder. Therefore, Debtors' proposed plan did not have language addressing Creditor's retention of its lien in Section 3.3. The proposed plan also did not have a nonstandard plan provision in Section 8.1 concerning the retention of Creditor's lien.

Creditor timely filed its 910 Claim ($9,650.50) and listed it as fully secured by the Vehicle. On October 8, 2018, Creditor objected to the confirmation of Debtors' proposed plan, contending that it did not provide that Creditor would retain its lien on the Vehicle until Debtors either paid their debt to Creditor in full under nonbankruptcy law or received their discharge under § 1328 (the "Lien Retention Language").

On November 2, 2018, the bankruptcy court confirmed Debtors' plan subject to the resolution of Creditor's objection. After additional briefing, the court overruled the objection, holding that, while Creditor held a secured claim that was not subject to bifurcation under § 506 owing to the "hanging paragraph" in § 1325(a), the court was "not convinced that this means § 1325(a)(5) applies to a 910-day claim exactly as it would to any other allowed, secured claim." (Feb. 4, 2019 Memorandum of Opinion (the "Opinion") at 3, Case No. 18-41519, ECF No. 35.) The court further held that

a claim that has not been ... bifurcated is not subject to the concerns that necessitated the lien retention requirement of § 1325(a)(5)(B). The § 1325(a)(5) language, as reproduced in the Plan, assures the creditor that its lien will be retained until payment in full of the entire claim, or discharge. A non-bifurcated claim is treated as one undivided amount, and thus this clarification is not needed.

Section 3.3 of the Plan states that the claims listed within "will be paid in full under the plan with interest at the rate stated below." Explicit language assuring the creditor that its lien will be retained is not necessary to effectuate the actual retention of the lien, as there is no reason in the Plan or in the Code why it would be released. The lien is retained by operation of law. To the extent that § 1325(a)(5) must be applied to a 910-day claim, it does not indicate that the only way for a provision to be "provided for by the plan" is if the statutory protections and guarantees within the Code are each spelled out verbatim in the plan itself. The vast majority of the Code operates in the background at any given time; if a plan could not be confirmed unless it contained reference to all of the relevant provisions acting upon each of its sections, one might as well be required to submit a complete copy of Title 11 itself.

(Id. at 4.) After the bankruptcy court later denied Creditor's motion for reconsideration, Creditor appealed the Opinion.

DISCUSSION

Creditor contends that the Panel should reverse because the bankruptcy court failed to give effect to and enforce the plain meaning of the words used in § 1325(a)(5). (Appellant's Brief at 8 (citing, inter alia , In re Corrin , 849 F.3d 653, 657 (6th Cir. 2017), for the proposition that courts construe a statute by "examin[ing] the plain meaning of its words.")). Creditor argues that § 1325(a)(5) is unambiguous and, thus, "the inquiry both begins and ends with the text itself." (Id. at 9 (citing United States v. Ron Pair Ent., Inc. , 489 U.S. 235, 240–41, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) ). We agree.

I. The Code requires chapter 13 plans to satisfy one of three options for the treatment of allowed secured claims in § 1325(a)(5).

The Sixth Circuit has held that "the provisions in 11 U.S.C. § 1325(a) are mandatory requirements for confirmation of a proposed plan under Chapter 13 of the Bankruptcy Code" and "a bankruptcy court has no discretion to confirm a plan which does not comply with those requirements." Shaw v. Aurgroup Fin. Credit Union , 552 F.3d 447, 462 (6th Cir. 2009). Therefore, the bankruptcy court erred in confirming Debtors' plan if the plan failed to satisfy § 1325(a)(5) in treating Creditor's allowed secured claim.

In Shaw , the Sixth Circuit outlined the three mandatory options § 1325(a)(5) contains for treating secured claims:

A debtor's proposed plan must accommodate each allowed, secured creditor in one of three ways under § 1325(a)(5) : (1) by obtaining the creditor's acceptance of the plan; (2) by surrendering the property securing the claim; or (3) by permitting the creditor to both retain the lien securing the claim and a promise of future property distributions (such as deferred cash payments) whose total "value, as of the effective date of the plan, ... is not less than the allowed amount of such claim." § 1325(a)(5) ; Till v. SCS Credit Corp. , 541 U.S. 465, 468, 124 S. Ct. 1951, 158 L. Ed. 2d 787 (2004).

Id. at 450. At issue in Shaw was the debtor's proposal to bifurcate (i.e., "cramdown") a 910 claim and the effect of the so-called "hanging paragraph" on § 1325(a)(5). The paragraph at the end of § 1325(a) provides:

For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day period preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.

11 U.S.C. § 1325(a).

The Sixth Circuit found that the hanging paragraph's function is to establish that 910 claims cannot be bifurcated:

However, "[i]t seems to be undisputed that Congress viewed this use of ‘cramdown’ as abusive and unfair to car lenders and other lienholders," so when it enacted BAPCPA in 2005, it added an unnumbered paragraph -- commonly referred to as the "hanging

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