Trantham v. Tate

112 F.4th 223

Sheila Ann TRANTHAM, Debtor-Appellant, v. Steven G. TATE, Trustee-Appellee National Association of Consumer Bankruptcy Attorneys; National Consumer Bankruptcy Rights Center, Amici Supporting Appellant.

No. 22-2263

United States Court of Appeals, Fourth Circuit

Argued: May 8, 2024

Decided: August 13, 2024

Appeal from the United States District Court for the Western District of North Carolina, at Asheville. Max O. Cogburn, Jr., District Judge. (1:22-cv-00076-MOC)

Robert Todd Mosley, MOSLEY LAW FIRM, P.C., Asheville, North Carolina, for Appellant. Bonnie Keith Green, THE GREEN FIRM, PLLC, Charlotte, North Carolina, for Appellee. Richard Preston Cook, RICHARD P. COOK, PLLC, Wilmington, North Carolina, for Amici Curiae.

Before DIAZ, Chief Judge, WILKINSON, Circuit Judge, and MOTZ, Senior Circuit Judge.

Reversed and remanded by published opinion. Chief Judge Diaz wrote the opinion in which Judge Wilkinson and Senior Judge Motz joined. Judge Wilkinson wrote a concurring opinion.

DIAZ, Chief Judge:

Sheila Ann Trantham filed a Chapter 13 bankruptcy plan proposing that the bankruptcy estate's property vest in her at plan confirmation. Although the Bankruptcy Code permits such a provision, the Trustee objected because the local form plan adopted by the bankruptcy court requires that the estate's property vest when the court enters a final decree.

The bankruptcy court held that a debtor can't propose a plan that contradicts the local form's default vesting provision. The district court agreed. We do not. So we reverse the district court's order, and remand for further proceedings.

I.

Trantham petitioned for Chapter 13 bankruptcy in the Bankruptcy Court for the Western District of North Carolina. Under that Chapter, the debtor proposes a plan that uses her future income to repay a portion of her debts. See 11 U.S.C. §§ 1321-1322(a). If the bankruptcy court confirms the plan, and the debtor completes all payments, then the court discharges any debt provided for by the plan (unless otherwise exempt). See id. § 1328. After discharge, the court enters its final decree, which closes the debtor's case. Cf., e.g., Wells Fargo Bank, N.A. v. AMH Roman Two NC, LLC, 859 F.3d 295, 298 (4th Cir. 2017).

Trantham proposed a repayment plan using the bankruptcy court's required form plan, Local Form 4. The Form's vesting provision says that "[a]ll property of the Debtor remains vested in the estate and will vest in the Debtor upon entry of the final decree." J.A. 61. Trantham struck through that provision and instead proposed that the property of the estate vest at confirmation.

But the Trustee¹ objected to Trantham's plan because her changes to the vesting schedule "contradict[ed] the plan form language" in Local Form 4. J.A. 64. The bankruptcy court sustained the objection.

The court acknowledged that debtors can propose nonstandard provisions that deviate from the local form. And it found that Trantham's proposed vesting provision was "not contrary to" the Bankruptcy Code. J.A. 71. But the court explained that default provisions are essential for "efficiency and consistency" and that the Form's prewritten vesting provision was the court's "long-standing policy." J.A. 72. Because Trantham "provide[d] no explanation supporting her choice to vest property of the estate at confirmation and [did] not demonstrate[] why the Local Form should be changed in this case," the court held that Trantham's changes to the Form were "inappropriate." J.A. 72.

Trantham amended her plan to conform with Local Form 4, although she expressly reserved her right to appeal the court's decision post-confirmation. The bankruptcy court later confirmed the amended plan.

Trantham appealed, and the district court affirmed. The district court explained that many "risks and practical problems would arise" if property vested in the debtor at confirmation, noting that the property would be vulnerable to creditors and the trustee would lack sufficient oversight. Trantham v. Tate, 647 B.R. 139, 145-46 (W.D.N.C. 2022). And the court reasoned that if property vested in the debtor at confirmation, then 11 U.S.C. § 1306(a)'s mandate that the property of the estate include the debtor's earnings and properties acquired between petition and final decree would be "rendered meaningless." Id. at 146-47.

So the district court held that any plan that includes a nonstandard provision that contradicts the Form's default vesting provision "cannot be confirmed." Id. at 145. But it also held that Trantham lacked standing to appeal the bankruptcy court's ruling because she hadn't shown any injury arising from having to conform to the Form's default vesting provision.

This appeal followed.

II.

A.

We review the judgment of a district court sitting in review of a bankruptcy court de novo, applying the same standards that the district court applied. Copley v. United States, 959 F.3d 118, 121 (4th Cir. 2020). Thus, "we review the bankruptcy court's legal conclusions de novo, its factual findings for clear error, and any discretionary decisions for abuse of discretion." Id.

B.

Before we consider the merits, some context about vesting is necessary. When a debtor files for Chapter 13 bankruptcy, an estate is created that consists of any property (with few exceptions) in which she holds a legal or equitable interest. See 11 U.S.C. §§ 541(a), 1306(a). The estate also includes certain property and earnings that the debtor acquires between filing and entry of a final decree. Id. § 1306(a). Creditors can't pursue collection actions against any property of the estate. See id. § 362.

The Code permits the debtor to include a vesting provision in her plan. See id. § 1322(b)(9). The debtor can provide for vesting "on confirmation of the plan or at a later time, in the debtor or in any other entity." Id. But if the debtor says nothing about vesting, and the order confirming the plan is silent, then the Code's default rule is that property vests in the debtor at confirmation. Id. § 1327(b).

The debtor generally remains in possession of all property of the estate. See id. § 1306(b). But the debtor can't "use, sell, or lease" that property outside of "the ordinary course of business" unless she receives permission from the court after "notice and a hearing." See id. §§ 363(b), 1303.

On the other hand, when property vests in the debtor, it vests "free and clear of any claim or interest of any creditors provided for by the plan." See id. § 1327(b)-(c). While the property is no longer protected from creditors, the debtor is free to use, sell, or lease that property as she sees fit. That said, we've held that when a debtor experiences a "substantial and unanticipated" change of income from selling property that vested in him at plan confirmation, the trustee maintains the ability to seek to modify the debtor's plan so that unsecured creditors can recoup such income. See Murphy v. O'Donnell (In re Murphy), 474 F.3d 143, 154 (4th Cir. 2007).

III.

Trantham raises two issues on appeal. First, she disputes the district court's ruling as to standing. Second, she argues that the bankruptcy court violated the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure by holding that Local Form 4's vesting provision is mandatory. We address each contention in turn.

A.

Because standing is jurisdictional, we start there. See O'Leary v. TrustedID, Inc., 60 F.4th 240, 242 (4th Cir. 2023). We review a district court's decision on appellate standing de novo. Bestwall LLC v. Off. Comm. of Asbestos Claimants (In re Bestwall LLC), 71 F.4th 168, 177 (4th Cir. 2023).

In the bankruptcy context, this court has historically required that the appellant establish both constitutional standing and prudential standing, the latter of which is satisfied by showing that she is a "person aggrieved" by the bankruptcy court's order. Cf. id. We conclude that Trantham satisfies the former and doesn't need to satisfy the latter.

1.

Start with constitutional standing. The Constitution limits federal courts to hearing cases in which the plaintiff has "(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct and (3) that is likely to be redressed by a favorable judicial decision." Kenny v. Wilson, 885 F.3d 280, 287 (4th Cir. 2018) (cleaned up) (quoting Spokeo, Inc. v. Robins, 578 U.S. 330, 338, 136 S.Ct. 1540, 194 L.Ed.2d 635 (2016)). At issue here is whether Trantham suffered an injury in fact. She has.

An injury in fact must be "concrete and particularized" and "actual or imminent, not conjectural or hypothetical." Spokeo, 578 U.S. at 339, 136 S.Ct. 1540 (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)). A "bare procedural violation" can't satisfy constitutional standing. Id. at 341, 136 S.Ct. 1540. But a statutory violation coupled with a "separate harm" or a "materially increased risk of another harm" can. See O'Leary, 60 F.4th at 243; accord Spokeo, 578 U.S. at 342, 136 S.Ct. 1540 ("[T]he violation of a procedural right granted by statute can be sufficient in some circumstances to constitute injury in fact."). When standing depends on a risk of injury, that risk must be "certainly impending" or "substantial." Kenny, 885 F.3d at 287 (quoting Susan B. Anthony List v. Driehaus, 573 U.S. 149, 158, 184 S.Ct. 2334, 189 L.Ed.2d 246 (2014)).

Trantham alleges that the bankruptcy court ignored her right to file a plan of her choosing under 11 U.S.C. § 1321 and 1322 and to have her plan confirmed so long as it satisfies all Code requirements. And as a result, she claims that her property has been diminished and her procedural burdens have increased.

Under Trantham's plan, her property would have vested in her "free and clear" at plan confirmation. See 11 U.S.C. § 1327; supra Part II.B. But the bankruptcy court required that vesting occur at final decree, which has yet to happen. So Trantham's property remains encumbered by the interests and claims of her...