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Breen v. Portfolio Recovery Associates, LLC

United States District Court, E.D. Virginia, Richmond Division

July 3, 2019

ROBERT R. BREEN, JR., et al., Appellants,
v.
PORTFOLIO RECOVERY ASSOCIATES, LLC, Appellee.

          MEMORANDUM OPINION

          M. HANNAH LAUCK, UNITED STATES DITSTRCT JUDGE

         This matter comes before the Court on Robert R. Breen and Tammy L. Breen's appeal from the October 19, 2018 Order of the Honorable Kevin R. Huennekens, U.S. Bankruptcy Court Judge, overruling their claim objection. (Bankr. No. 14-34916, ECF No. 1.) Appellee Portfolio Recovery Associates, LLC, ("PRA") did not respond to Appellant's Brief and the time to do so has expired.[1] The Breens also filed a "Motion Under Federal Rules of Appellate Procedure 8018(e) to Dispense with the Appendix and Permit Appeal to Proceed on Original Record." (ECF No. 7.) PRA did not respond to that motion and the time to do so has expired. The Court exercises jurisdiction pursuant to 28 U.S.C. § 158(a)(1).[2] For the reasons that follow, the Court will affirm the Bankruptcy Court and deny as moot the pending motion.

         I. Background

         This appeal turns on whether the Bankruptcy Court correctly held that a modified Chapter 13 bankruptcy plan did not bind PRA until the Breens served PRA, a known creditor, with the plan. On September 11, 2014, Robert R. Breen and Tammy L. Breen filed a voluntary bankruptcy petition and plan pursuant to Chapter 13, Title 11 of the United States Code. (Appellant's Designation of Record "R." 6, 43, 58, 115-16, ECF No. 4-1.) The petition identified Ally Financial as a secured creditor based on an automobile loan the Breens obtained for a 2013 Ford Explorer. (R. 23.) Schedule D to the petition, addressing creditors holding secured claims, listed Ally Financial's "amount of claim without deducting value of [the] collateral" as $37, 864.00. (Id.) Ally Financial timely filed a proof of claim in the amount of $37, 331.18 for the Ford Explorer before the Bankruptcy Court confirmed the plan on November 24, 2014. (R. 70-71, 87.)

         On July 11, 2017, Ally Financial transferred its claim to PRA Receivables Management, LLC, as agent of Portfolio Recovery Associates, LLC. (R. 71.) The transfer of claim stated that notices to the transferee should be sent to "Portfolio Recovery Associates, LLC, POB 41067, Norfolk, VA 23541." (R. 71.)

         On February 5, 2018, the Breens filed a modified Chapter 13 plan (the "Modified Plan"), which provided for surrender of the 2013 Ford Explorer. (R. 3, 79.) The Modified Plan contained the following nonstandard provision:

DEBTORS ARE SURRENDERING THEIR FORD EXPLORER SECURING A LOAN WITH ALLY BANK, WHICH CLAIM HAS BEEN TRANSFERRED TO PORTFOLIO RECOVERY ASSOCS, LLC ("PRA"). PRA SHALL HAVE 60 DAYS FROM THE CONFIRMATION OF THIS PLAN TO LIQUIDATE ITS CLAIM AND FILE A PROOF OF CLAIM. PRA'S FAILURE TO FILE A PROOF OF CLAIM FOR AN UNSECURED DEBT PRIOR SUCH DATE SHALL PROHIBIT IT FROM RECEIVING A DISTRIBUTION AS AN UNSECURED CREDITOR.

(R. 79, 88.) The fifth page of the Modified Plan stated that on "12/12/2017 true copies of the forgoing Chapter 13 Plan and Related Motions were served upon the following creditor(s): Portfolio Recovery Associates, LLC" (R. 79), by "first class mail in conformity with the requirements of Rule 7004(b)." (R. 80.) The Modified Plan did not specify the mailing address used for PRA. (R. 85.) The Modified Plan also listed addresses for creditors and interested parties, presumably to receive copies of the Modified Plan, but that list did not include PRA. (R. 85.)

         On April 5, 2018, the Bankruptcy Court confirmed the Modified Plan, including the nonstandard provision concerning liquidation of the Ford Explorer and the 60-day deadline to file a proof of claim. (R. 86.) In the order confirming plan, the Bankruptcy Court stated that the Modified Plan met each of the requirements in 11 U.S.C. § 1325(a). (R. 86.) The order further specified that Standing Order No. 15-4 governed the "deadline to file objections to claims."[3] (R. 86.)

         On July 9, 2018, PRA filed their proof of claim concerning the Ford Explorer, roughly 90 days after the Bankruptcy Court entered its order confirming the Modified Plan. (R. 88, 105.) On August 15, 2018, the Breens filed an objection to the proof of claim, arguing that the Bankruptcy Court should disallow it because PRA did not timely file its proof of claim in accordance with the 60-day deadline that the Modified Plan established. (R. 87-89.)

         After a hearing, the Bankruptcy Court overruled the Breen's objection to PRA's proof of claim. (R. 4, 106.) The Bankruptcy Court recognized that the terms of a confirmed Chapter 13 plan are "binding upon all creditors that received proper notice of the Chapter 13 Plan but failed to object." (R. 105 (quoting Denke v. PNC Bank, N.A., 524 B.R. 644, 648 (Bankr. E.D. Va. 2015)). Therefore, the Bankruptcy Court first considered whether the Modified Plan, which included the nonstandard provision with the 60-day proof of claim deadline, bound PRA. (R. 105.)

         To resolve that issue, the Bankruptcy Court recognized that the Modified Plan constituted "a contested matter not otherwise governed by the [Federal Rules of Bankruptcy Procedure]." (R. 105.) As a contested matter, Federal Rules of Bankruptcy Procedure 9014 and 7004 applied. (R. 105.)

         The Bankruptcy Court next found that the Breens "failed to properly serve a copy of the Modified Plan on the Claimant under Bankruptcy Rule 7004(b)" because the Breens did not mail it to "an officer, managing or general agent, or other agent authorized to receive service of process" in accordance with the Rules of Bankruptcy Procedure. (R. 106.) Rather, the Breens mailed the Modified Plan to a post office box.[4] (R. 106.) The Bankruptcy Court therefore concluded that PRA "lacked proper notice of the Modified Plan and its terms," so the nonstandard provision with the 60-day deadline did not bind PRA. (R. 106.) Because PRA filed its proof of claim on July 9, 2018, before the Breens properly served on PRA the Modified Plan in accordance with Rule 7004(b), the Bankruptcy Court overruled the Breen's objection to the timeliness of PRA's claim. (R.106.) The Breens timely appealed. (R. 108.)

         II. Standard of Review

         Final orders of a bankruptcy court are appealable to a district court pursuant to 28 U.S.C. § 158(a). "When reviewing a decision of the bankruptcy court, a district court functions as an appellate court and applies the standards of review generally applied in federal courts of appeal." Paramount Home Entm 't Inc. v. Circuit City Stores, Inc., 445 B.R. 521, 526-27 (E.D. Va. 2010) (citing Webb v. Reserve Life Ins. (In re Webb), 954 F.2d 1102, 1103-04 (5th Cir. 1992)). The district court reviews the bankruptcy court's legal conclusions de novo and its factual findings for clear error. Stancill v. Harford Sands, Inc. (In re Harford Sands Inc.), 372 F.3d 637, 639 (4th Cir. 2004). A finding of fact is clearly erroneous if a court reviewing it, considering all of the evidence, "is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)); accord Educ. Credit Mgmt. Corp. v. Mosko (In re Mosko), 515 F.3d 319, 324 (4th Cir. 2008) (quoting United Stales Gypsum Co., 333 U.S. at 395). In cases where the issues present mixed questions of law and fact, the Court will apply the clearly erroneous standard to the factual portion of the inquiry and de novo review to the legal conclusions derived from those facts. Gilbane Bldg. Co. v. Fed. Reserve Bank of Richmond, 80 F.3d 895, 905 (4th Cir. 1996). "Decisions committed to the discretion of the bankruptcy court are reviewed for abuse of discretion." In re Mitrano, 409 B.R. 812, 815 (E.D. Va. 2009).

         III. Analysis

         On appeal, the Breens assert that the Bankruptcy Court erred in overruling their objection to PRA's proof of claim because the Modified Plan, once confirmed, bound PRA in accordance with 11 U.S.C. § 1327 and established a 60-day claim deadline. (Appellant's Br. 6, ECF No. 6.) As the Bankruptcy Court recognized, whether PRA received proper notice of the Modified Plan, and the nonstandard provision contained therein, forms the pivotal issue.[5] If PRA received proper notice of the Modified Plan as required under law, then the nonstandard provision binds PRA to the 60-day proof of claim deadline. Because the record shows that the Breens did not properly notify and serve PRA with the Modified Plan, the Bankruptcy Court did not err when it concluded that the 60-day proof of claim deadline did not bind PRA.

         A. The Bankruptcy Court Did Not Err When it Concluded That The Breens Failed to Serve The Modified Plan on PRA in Accordance With The Rules

         1. Modifying a Confirmed Plan

         At the beginning of their cases, Chapter 13 debtors propose plans to repay all or a portion of their debts to their pre-petition creditors. 11 U.S.C. § 1321. If a debtor's plan conforms to the requirements of the Bankruptcy Code, the court confirms the plan. 11 U.S.C. §§ 1322, 1325. "The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a). Courts have compared a confirmed Chapter 13 plan to "a new and binding contract, sanctioned by the court, between the debtors and their pre-confirmation creditors," Murphy v. O'Donnell,474 F.3d 143, 148 (4th Cir. 2007) (internal quotation marks and citation ...


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