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Germeraad v. Powers

United States Court of Appeals, Seventh Circuit

June 23, 2016

John Germeraad, Trustee-Appellant,
v.
Myrick Powers and Elvie Owens-Powers, Debtors-Appellees.

          Argued April 11, 2016

         Appeal from the United States District Court for the Central District of Illinois. No. 14-CV-03128 - Sue E. Myerscough, Judge.

          Before Bauer and Williams, Circuit Judges, and Adelman, District Judge. [*]

          Adelman, District Judge.

         Myrick Powers and Elvie OwensPowers filed a petition under Chapter 13 of the Bankruptcy Code. After the bankruptcy court confirmed their plan, the Chapter 13 trustee filed a motion to modify the plan to increase the debtors' payments to the general unsecured creditors. The trustee's motion was based on an increase in the debtors' income, which, the trustee argued, resulted in their ability to pay more to their creditors under the plan. The bankruptcy court denied the motion. The trustee appealed to the district court, which affirmed. The trustee then filed this appeal. We vacate the judgment of the district court and remand for further proceedings.

         I.

         The debtors filed their Chapter 13 petition on May 24, 2010.The bankruptcy court confirmed their plan on March 1, 2011.Under the plan, the debtors were to pay $660 per month to the Chapter 13 trustee for seven months, and then $758 per month for fifty-three months. The latter payment was later reduced to $670 per month. From these payments, the trustee would pay the claims of secured creditors and distribute approximately $22, 000 to the general unsecured creditors.

         In 2013, the trustee received the debtors' income tax return for 2012. According to the trustee, the return showed that the debtors' income had increased by $50, 000 since 2011. Based on this increase in income, the trustee concluded that the debtors could afford a higher monthly payment for the remaining months of their plan. The trustee filed a motion to modify the debtors' plan under 11 U.S.C. § 1329, which permits postconfirmation modification of a Chapter 13 plan. The trustee proposed to increase the debtors' monthly payments from $670 per month to $1, 416 per month for the twenty-three months that remained under the plan at the time the motion was filed. If the debtors made these increased payments, the trustee could (after a reduction for the trustee's commission) distribute an additional $15, 000 to the unsecured creditors.

         The debtors filed an objection to the trustee's motion to modify. They argued that the Bankruptcy Code did not permit modification of a Chapter 13 plan based on a postconfirmation increase in a debtor's income. They also argued that, even if the Code did permit modification on this ground, the facts of the case did not warrant modification because, although their income had increased, so had their expenses. After the debtors filed their objection, the trustee took discovery relating to the debtors' finances. Once this discovery was completed, the parties stipulated to certain facts.

         The bankruptcy court decided the trustee's motion to modify based on the parties' briefs and their stipulation of facts. See In re Powers, 507 B.R. 262 (Bankr. C.D. Ill. 2014). The court denied the motion for two independent reasons. First, the court held that, as a matter of law, the Bankruptcy Code did not contain a provision that would allow modification of a Chapter 13 plan for the reasons cited by the trustee. Id. at 267–74. Second, the court found that, even if the court had the power to modify the plan for the reasons cited by the trustee, the facts of the case did not support the trustee's request. Id. at 274–75.

         The trustee appealed the bankruptcy court's decision to the district court. The district court exercised jurisdiction over the appeal under 28 U.S.C. § 158(a)(1). On appeal, the trustee challenged both of the bankruptcy court's reasons for denying the motion to modify. First, the trustee argued that the bankruptcy court had erred as a matter of law when it concluded that the Bankruptcy Code did not permit modification based on a postconfirmation increase in a debtor's income. Second, the trustee argued that the bankruptcy court's alternative reason for denying the motion was based on clearly erroneous factual findings and also involved an abuse of discretion. The district court addressed only the first argument. It concluded that the bankruptcy court did not err as a matter of law when it found that it lacked authority to grant the trustee's motion. Noting that this conclusion was sufficient to resolve the appeal, the district court declined to consider whether the bankruptcy court clearly erred or abused its discretion in finding that the facts of the case did not support the trustee's motion.

         In his appeal to this court, the trustee argues that both the district court and the bankruptcy court erred in concluding that the Bankruptcy Code does not permit a trustee to request modification of a plan based on a postconfirmation increase in a debtor's income. The trustee asks that, if we accept his argument, we remand the case to the district court so that it may consider his arguments relating to the bankruptcy court's alternative ground for denying the motion.

         Elvie Owens-Powers, who is the only debtor participating in this appeal, [1] contends that we lack jurisdiction to decide the appeal. She argues that the bankruptcy court's order denying the trustee's motion to modify the plan is not a final order for purposes of 28 U.S.C. § 158, and also that the case is moot. On the merits, she argues that the trustee has mischaracterized the bankruptcy court's reasons for denying his motion and that, under the proper characterization, the court's order must be affirmed.

         II.

         We begin by addressing the debtor's arguments concerning our jurisdiction.

         A.

         First, the debtor contends that a bankruptcy court's order denying a motion to modify a Chapter 13 plan is not "final" within the meaning of 28 U.S.C. § 158. Under that statute, we generally have jurisdiction over a bankruptcy appeal only if both the bankruptcy court's order and the district court's order are final. See 28 U.S.C. § 158(d)(1); Schaumburg Bank & Trust Co., N.A. v. Alsterda, 815 F.3d 306, 312 (7th Cir. 2016). In the bankruptcy context, "finality" is understood somewhat differently than it is in the context of ordinary civil litigation. See, e.g., Bullard v. Blue Hills Bank__, U.S. __, __, 135 S.Ct. 1686, 1692 (2015). A bankruptcy case involves an aggregation of individual controversies, many of which would exist as standalone lawsuits but for the bankrupt status of the debtor. Id. An order in a bankruptcy case is considered final when it resolves one of the individual controversies that might exist as a standalone suit outside of bankruptcy. See Schaumberg Bank & Tru st , 815 F.3d at 312–13. One way of assessing whether this standard has been met is to identify whether the order at issue brought to an end a single "proceeding" that exists within the larger bankruptcy case. See Bullard, 135 S.Ct. at 1692 (emphasizing that 28 U.S.C. § 158(a) allows appeals as of right from final orders in "cases and proceedings").

         In the present case, Owens-Powers argues that a bankruptcy court's denial of a trustee's motion to modify a Chapter 13 plan does not resolve a "proceeding" within the larger bankruptcy case. She relies on the Supreme Court's decision in Bullard, in which the Court held that an order denying confirmation of a Chapter 13 plan is not final unless the bankruptcy court also dismisses the underlying bankruptcy case. Id. at 1692–93. The Court reasoned that, in the context of the consideration of Chapter 13 plans, the relevant "proceeding, " for purposes of § 158(a), is the entire process of considering plans, which terminates only when a plan is confirmed or-if the debtor fails to offer any confirmable plan-when the case is dismissed. Id. at 1692.

         Owens-Powers contends that, in the context of a trustee's motion to modify a confirmed plan, the relevant "proceeding" encompasses more than simply the bankruptcy court's denial of the motion. She notes that a ruling on one motion to modify does not preclude the trustee from filing another motion to modify. Thus, argues the debtor, just like an order denying plan confirmation is not final, an order denying a trustee's motion to modify a confirmed plan is not final.

         We do not find the debtor's analogy to Bullard persuasive. The denial of a trustee's motion to modify is generally not part of a larger "proceeding" that will conclude only when some event other than the denial of the motion occurs. Rather, the denial of the motion will generally resolve a discrete dispute within the larger bankruptcy case, i.e., whether the debtor's plan may be modified for the reasons the trustee cites. If the trustee loses the motion on the merits, rather than because the motion contained a technical defect that could be cured, the bankruptcy court will not invite the trustee to bring a subsequent motion seeking plan modification on the same grounds. In contrast, when a bankruptcy court refuses to confirm a plan but does not also dismiss the case, the debtor is usually given an opportunity to submit a revised plan. Bullard, 135 S.Ct. at 1690. This is why the Court found that the relevant "proceeding" for purposes of plan confirmation encompasses more than the denial of any single proposed plan. That proceeding concludes only when either a plan is confirmed or the bankruptcy case is dismissed.

         Of course, if the bankruptcy court does deny a trustee's motion to modify a plan based on a technical defect or on some other basis that could be cured by an amended motion, then the bankruptcy court's order will not be final. In this situation, the bankruptcy court's order will not have resolved a discrete dispute but will have been merely one step in a larger proceeding that will conclude when the bankruptcy court decides the amended motion. However, from the fact that some orders denying motions to modify plans are not final, it does not follow that none of them are final. In this regard, an order denying a motion to modify is analogous to an order granting a motion to dismiss a complaint under Federal Rule of Civil Procedure 12(b)(6). If the district court grants the motion but does so based on a defect in the complaint that cannot be cured, then the order is final. See Strong v. David, 297 F.3d 646, 648 (7th Cir. 2002). However, if the district court grants the motion based on a technical defect that the plaintiff could cure by filing an amended complaint, then the order generally will not be final. Id. In the present case, the ...


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