OPINION
JERRY L. SMITH, JUDGE.
Petitioner, Javonte Demontez Terrell, was indicted for first degree murder. He entered a best interest plea to second degree murder in exchange for a twenty-year sentence. Petitioner then filed a pro se petition for post-conviction relief. After an amended petition was filed, the post-conviction court held a hearing. The petition was dismissed by the post-conviction court. Petitioner filed an untimely notice of appeal. This Court waived the timely filing of the notice of appeal. Petitioner challenges the dismissal of the petition. After a review of the record on appeal, we conclude that Petitioner has failed to prove that his guilty plea was involuntary or that he received ineffective assistance of counsel. Accordingly, we affirm the judgment of the post-conviction court.
The indictment reads "Javonta Demontez Terrell." The remainder of the record, including the judgment forms, refers to Petitioner as "Javonte Demontez Terrell."
Factual Background
On November 22, 2005, the Davidson County Grand Jury indicted Petitioner for the first degree murder of Evelyn D. Wells. At the time of the indictment, Petitioner was fourteen years old.
On May 24, 2007, Petitioner entered a best interest plea to the lesser included offense of second degree murder in exchange for a twenty-year sentence. At the guilty plea hearing, counsel for the State explained that, had the case gone to trial the facts would have shown that:
[O]n February the 5
th, 2005, the body of Evelyn Diane Wells was found in, actually, an abandoned apartment located at 1412-B Twenty-Third Avenue North, which is here in Davidson County, Tennessee.
Examination determined that it was as a result of homicide. Police conducted an investigation which developed [Petitioner] as a person of interest and ultimately a suspect. He was taken into custody, advised of his constitutional rights, and gave a recorded statement admitting his involvement in, basically, an altercation that resulted in Ms. Wells death at that occasion. The statement was given March the 29
th, 2005.
On April 24, 2008, Petitioner filed a pro se petition for post-conviction relief. In the petition, Petitioner claimed that: (1) his conviction was "based on an unlawfully induced guilty plea or guilty plea involuntarily entered without understanding the nature and consequences of the plea;" (2) his conviction was based on a coerced confession; (3) his conviction was a violation of the privilege against self-incrimination; and (4) that he received ineffective assistance of counsel. The post-conviction court deemed that Petitioner had presented a colorable claim, so counsel was appointed. An amended petition for post-conviction relief was filed. In the amended petition, Petitioner argued that he received ineffective assistance of counsel and entered an unknowing and involuntary guilty plea. Specifically, Petitioner complained that trial counsel failed to: (1) develop a trial defense; (2) file pretrial motions; (3) inform Petitioner of the consequences of a guilty plea; (4) advise Petitioner of his rights; (5) render advice to Petitioner in making the plea; and (6) adequately consult with Petitioner prior to proceedings.
At the hearing on the post-conviction petition, Petitioner testified that trial counsel had previously been appointed to represent him in juvenile court on another matter. Trial counsel met with Petitioner the day after he was incarcerated. Trial counsel explained to Petitioner that he might be transferred to be tried as an adult. Petitioner remembered talking to trial counsel two or three times prior to the transfer hearing.
Petitioner was eventually transferred to criminal court to be tried as an adult. According to Petitioner, he first learned of a potential plea offer in May of 2007. Petitioner admitted that he "had conversations" with trial counsel between his 2005 charge date and May of 2007. Petitioner and trial counsel discussed the offer approximately three times prior to the guilty plea and for about ten minutes on the day of the plea. Trial counsel talked to Petitioner about the possibility of a trial but trial counsel assured Petitioner that he would not "win" because of the evidence against him. Petitioner admitted that trial counsel told him that it was his decision as to whether to plead guilty.
Petitioner explained that he thought his "age" would help to have some of the evidence "thrown out." Petitioner remembered discussing this with trial counsel. Additionally, they discussed the "good points" in Petitioner's favor as well as the fact that the State's position was that Petitioner had confessed to the murder during a videotaped interview.
Petitioner admitted that trial counsel discussed his potential sentence if he were to face a jury. Despite his conversations with trial counsel, Petitioner claimed that he believed if he went to trial he would be tried for second degree murder, rather than first degree murder. Petitioner did not tell this to trial counsel. Further, they did not discuss the possibility of self-defense as a trial strategy. Petitioner felt that he could present an argument that he was not "strong [enough] to overpower" the victim because of his age.
Petitioner explained that he understood what was meant by a "best interest" plea. He also recalled signing the petition and going over parts of the petition with trial counsel. Petitioner admitted that he and trial counsel read the petition together. Additionally, Petitioner admitted that trial counsel explained that he could receive some good time credit but would probably "still be doing seventeen years."
Petitioner explained that he was happy but "wasn't, at the same time" with his plea agreement. Petitioner thought that trial counsel could have gotten a better offer even though he received four offers from the State at thirty-five years, twenty-eight years, twenty-five years, and twenty years. Petitioner stated that he pled guilty because twenty years was "better than fifty" and because he was told he did not have a good chance of "winning."
Petitioner testified that he did not remember the portion of the petition regarding his rights and that he could not remember if trial counsel mentioned his rights when reviewing the petition. Petitioner also claimed that he did not remember in the plea colloquy that the trial court asked him if he understood the plea. Petitioner claimed not to remember the majority of the guilty plea proceedings but admitted that it was the "best" he could get and was "scared" that he would lose if he had gone to trial. Finally, Petitioner admitted that he knew a twenty-year sentence would result in about seventeen years in prison if he had good behavior.
Petitioner told the post-conviction court that if the petition was granted, he could possibly get "voluntary manslaughter" even though the medical examiner's report indicated that Petitioner stabbed the victim over forty times. Petitioner claimed that he had an alibi but could not provide the names of the persons who could corroborate his claim.
Trial counsel also testified at the hearing. Trial counsel explained that she knew Petitioner's family and had previously represented him in juvenile court. She was appointed to represent Petitioner only a few days after he was charged with the offense.
Trial counsel explained that she had several meetings with Petitioner prior to the transfer hearing. Trial counsel recalled that Petitioner provided her with the names of several people who might be potential witnesses at trial but she did not recall any alibi witnesses. Trial counsel stated that there was both fingerprint and DNA evidence linking Petitioner to the crime scene in addition to his confession.
Prior to trial, trial counsel asked the nurse at the detention facility to weigh and measure Petitioner. Trial counsel thought that it was important to do so because Petitioner was continuing to grow and, at the time of the offense, the victim outweighed Petitioner.
Trial counsel recalled that she had Petitioner evaluated for competency as well as diminished capacity. Experts performed psycho-sexual and other tests on Petitioner. Trial counsel explained that the results of the tests would have probably been helpful in sentencing had the plea bargain not been reached.
Trial counsel explained that she was in constant communication with the State about plea offers. The negotiations started six or seven months before trial was scheduled to begin. Trial counsel attempted to get the State to allow Petitioner to plead out of the range even after the offer of twenty years. According to trial counsel, twenty years was the "magic number" and was the best offer that Petitioner was going to get from the State. Trial counsel testified that she went over the plea agreement with Petitioner at least twice, explaining the components to him and reading the agreement with him.
At the conclusion of the hearing, the post-conviction court took the matter under advisement. In an order, the post-conviction court dismissed the petition. The court determined that Petitioner did not establish "any of his allegations." In fact, the post-conviction court found that the "transcript belies Petitioner's claims" because it shows that the trial court questioned Petitioner about the plea. Further, the post-conviction court determined that Petitioner, a person of "above average intelligence," not only understood the charges but "pled guilty after numerous conversations with his attorney regarding possible consequences of going to trial." The post-conviction court concluded that Petitioner failed to demonstrate that he received ineffective assistance of counsel or that his plea was unknowing or involuntary.
Petitioner filed an untimely notice of appeal, challenging the dismissal of the petition for post-conviction relief. However, this Court waived the timely filing of the notice of appeal.
Analysis Post-Conviction Standard of Review
The post-conviction court's findings of fact are conclusive on appeal unless the evidence preponderates otherwise. See State v. Burns, 6 S.W.3d 453, 461 (Tenn. 1999). During our review of the issues raised, we will afford those findings of fact the weight of a jury verdict, and this Court is bound by the post-conviction court's findings unless the evidence in the record preponderates against those findings. See Henley v. State, 960 S.W.2d 572, 578 (Tenn. 1997); Alley v. State, 958 S.W.2d 138, 147 (Tenn. Crim. App. 1997). This Court may not reweigh or re-evaluate the evidence, nor substitute its inferences for those drawn by the post-conviction court. See State v. Honeycutt, 54 S.W.3d 762, 766 (Tenn. 2001). However, the post-conviction court's conclusions of law are reviewed under a purely de novo standard with no presumption of correctness. See Shields v. State, 40 S.W.3d 450, 458 (Tenn. 2001).
Ineffective Assistance of Counsel
When a petitioner seeks post-conviction relief on the basis of ineffective assistance of counsel, the petitioner bears the burden of showing that (a) the services rendered by trial counsel were deficient and (b) that the deficient performance was prejudicial. See Powers v. State, 942 S.W.2d 551, 558 (Tenn. Crim. App. 1996). In order to demonstrate deficient performance, the petitioner must show that the services rendered or the advice given was below "the range of competence demanded of attorneys in criminal cases." Baxter v. Rose, 523 S.W.2d 930, 936 (Tenn. 1975). In order to demonstrate prejudice, the petitioner must show that there is a reasonable probability that, but for counsel's deficient performance, the result of the proceeding would have been different. See Strickland v. Washington, 466 U.S. 668, 694 (1984). "Because a petitioner must establish both prongs of the test to prevail on a claim of ineffective assistance of counsel, failure to prove either deficient performance or resulting prejudice provides a sufficient basis to deny relief on the claim." Henley v. State, 960 S.W.2d 572, 580 (Tenn. 1997).
As noted above, this Court will afford the post-conviction court's factual findings a presumption of correctness, rendering them conclusive on appeal unless the record preponderates against the court's findings. See id. at 578. However, our supreme court has "determined that issues of deficient performance by counsel and possible prejudice to the defense are mixed questions of law and fact . . .; thus, [appellate] review of [these issues] is de novo" with no presumption of correctness. Burns, 6 S.W.3d at 461.
Furthermore, on claims of ineffective assistance of counsel, the petitioner is not entitled to the benefit of hindsight. See Adkins v. State, 911 S.W.2d 334, 347 (Tenn. 1994). This Court may not second-guess a reasonably-based trial strategy, and we cannot grant relief based on a sound, but unsuccessful, tactical decision made during the course of the proceedings. See id. However, such deference to the tactical decisions of counsel applies only if counsel makes those decisions after adequate preparation for the case. See Cooper v. State, 847 S.W.2d 521, 528 (Tenn. Crim. App. 1992).
Once a guilty plea has been entered, effectiveness of counsel is relevant only to the extent that it affects the voluntariness of the plea. In this respect, such claims of ineffective assistance necessarily implicate the principle that guilty pleas be voluntarily and intelligently made. See Hill v. Lockhart, 474 U.S. 52, 56 (1985) (citing North Carolina v. Alford, 400 U.S. 25, 31 (1970)). As stated above, in order to successfully challenge the effectiveness of counsel, Petitioner must demonstrate that counsel's representation fell below the range of competence demanded of attorneys in criminal cases. See Baxter, 523 S.W.2d at 936. Under Strickland v. Washington, 466 U.S. 668 (1984), Petitioner must establish: (1) deficient representation; and (2) prejudice resulting from the deficiency. 466 U.S. at 694. However, in the context of a guilty plea, to satisfy the second prong of Strickland, Petitioner must show that "there is a reasonable probability that, but for counsel's errors, he would not have pleaded guilty and would have insisted on going to trial." Hill, 474 U.S. at 59; see also Walton v. State, 966 S.W.2d 54, 55 (Tenn. Crim. App. 1997).
When analyzing a guilty plea, we look to the federal standard announced in Boykin v. Alabama, 395 U.S. 238 (1969), and the State standard set out in State v. Mackey, 553 S.W.2d 337 (Tenn. 1977). State v. Pettus, 986 S.W.2d 540, 542 (Tenn. 1999). In Boykin, the United States Supreme Court held that there must be an affirmative showing in the trial court that a guilty plea was voluntarily and knowingly given before it can be accepted. 395 U.S. at 242. Similarly, our Tennessee Supreme Court in Mackey required an affirmative showing of a voluntary and knowing guilty plea, namely, that the defendant has been made aware of the significant consequences of such a plea. Pettus, 986 S.W.2d at 542.
A plea is not "voluntary" if it results from ignorance, misunderstanding, coercion, inducements, or threats. Blankenship v. State, 858 S.W.2d 897, 904 (Tenn. 1993). The trial court must determine if the guilty plea is "knowing" by questioning the defendant to make sure he fully understands the plea and its consequences. Pettus, 986 S.W.2d at 542; Blankenship, 858 S .W.2d at 904.
On appeal, Petitioner complains that he "did not receive effective assistance of counsel because counsel failed to adequately meet with him, develop a defensive strategy or and discuss the guilty plea and its consequences prior to the date [of the plea]." Petitioner also complains that he was "pressured to accept the plea bargain" due to counsel's inefficiencies.
Petitioner has not shown that trial counsel failed to develop a "defensive strategy" prior to the plea. Trial counsel testified at the hearing that numerous tests were conducted on Petitioner prior to the entry of the plea. Further, trial counsel testified that Petitioner was weighed and measured by a nurse at the detention facility. Trial counsel explained that she expected Petitioner to grow significantly during the proceedings due to his age and that, at the time of the crime, the victim was larger than Petitioner. If they went to trial, she thought this information would help in her defense of Petitioner. Trial counsel also discussed an alibi with Petitioner, but he was unable to provide names or information for potential witnesses.
In other words, Petitioner has failed to show that but for trial counsel's alleged deficiencies, he would have refused to plead guilty and insisted on going to trial. The transcript of the guilty plea hearing reflects that the trial court discussed the ramifications of the guilty plea with Petitioner. Petitioner was thoroughly questioned by the trial court to ascertain whether he understood the effects of the plea.
The plea hearing indicates that Petitioner knew what he was doing, understood the plea, and agreed that it was what he wanted to do to resolve the case. Petitioner has failed to show by clear and convincing evidence that he received ineffective assistance of counsel or that his guilty plea was involuntary. Petitioner himself admitted to the post-conviction court that he chose to plead guilty. Petitioner has failed to show by clear and convincing evidence that trial counsel was unprepared or pressured him into pleading guilty.
Moreover, Petitioner has failed to prove he did not understand the consequences of his plea. Petitioner admitted that he knew the consequences of the plea. Trial counsel also recalled several conversations prior to the entry of the plea, even explaining the "pros and cons" of accepting the offer from the State. "[Q]uestions of credibility of the witnesses, the weight and value of the evidence, and resolution of conflicts in the evidence are matters entrusted to the trial judge as the trier of fact," and the post-conviction court's credibility determinations are conclusive on appeal unless the evidence preponderates against them. State v. Odom, 928 S.W.2d 18, 23 (Tenn. 1996). We find no evidence to preponderate against the findings of the trial court. Further, Petitioner has failed to show that there is a reasonable probability that the proceedings would have concluded differently had counsel performed as Petitioner now claims she should have. Vaughn v. State, 202 S.W.3d 106, 120 (Tenn. 2006) (citing Strickland, 466 U.S. at 687). The evidence does not preponderate against the determination of the post-conviction court.
Conclusion
For the foregoing reasons, the judgment of the post-conviction court is affirmed.
dividend paid before the disallowance in such event would be recoverable by the trustee. . . .").
Within thirty (30) days of a chapter 13 filing, debtors begin making payments to Trustee based on the amounts proposed by their plans. Because the proposed plan has not been confirmed, the payments are escrowed pending confirmation. Once confirmation has been granted, Trustee begins the distribution process. Since no claimant is paid pending confirmation, significant pressure to confirm a plan as quickly as possible exists.
11 U.S.C. § 1326.
If a debtor includes for payment in his plan the "deemed allowed" secured claim, the plan can be confirmed while simultaneously reserving right to review and object to the claim at a later date if warranted. Otherwise, confirmation, and distributions to all claimants, would be delayed until litigation over the claim was completed. Because the Code allows for confirmation of a plan while reserving the right to object to claims, all claimants, including secured creditors, begin receiving payments within a reasonable period of time.
In re Morton, 298 B.R. 301, 309 (6th Cir. BAP Ohio 2003); In re Barton, 249 B.R. 561 (Bankr.E.D.Wash. 2000).
As a leading commentator notes, "The practical consequence of this provision is that neither the trustee nor the court should be burdened by the making and considering of objections to claims when the disposition of the objection can have no consequence in the administration of the estate such as when no distribution is contemplated." 4 Collier on Bankruptcy ¶ 502.02[3][e] (Alan N. Resnick Henry J. Sommer eds., 16th ed.).
Since distributions are based on filed proofs of claim, in the absence of a secured creditor's proof, distributions will "waterfall" to the next class in priority, often the unsecured claimants. Because plans cannot extend beyond sixty (60) months, it is critical to a debtor's fresh start that the correct prepetition amount owed to a secured claimant be established early lest distributions intended for the secured class be diverted to the unsecured. Thus, the timely filing of a major secured claim is paramount to the overall success of the case.
While FRBP 3004 allows a debtor to file a proof of claim for a creditor that does not file, in this case, debtor's failure to do so would not have avoided the situation at hand. Presumably if Debtor had filed a proof of claim for Countrywide, it would have been for the amount provided in the Plan, $5,622.41. Since a proof of claim may be amended, presumably Countrywide would have claimed its additional arrearages later in the case. Thus, the issue of whether or not Countrywide should be bound to the terms of the Plan as confirmed would not have been avoided.
Countrywide filed a late claim but maintains that this benefitted Debtor by reducing, if not satisfying, prepepition debt. It objects to discharge of the unpaid remainder on the basis that its claim is an allowed secured claim that remains unpaid. Since an allowed secured claim must be paid in order for a plan to be confirmed, and this Plan did not so provide, the confirmation should be revoked for unfeasibility or at a minimum, Debtor should be denied a discharge of its debt.
A. Debtor's Confirmed Plan Is Res Judicata
Under long standing Fifth Circuit precedent, plans could not affect a creditor's right to the amount claimed or security held. The Fifth Circuit routinely and consistently has interpreted a secured claimant's right to receive the full value of its allowed secured claim as sacrosanct. The seminal case on the subject is In re Simmons.
In re Simmons, 765 F.2d 547 (5th Cir. 1985).
In Simmons, the debtor, Simmons, contracted for plumbing repairs prepetition. Following completion of the repairs, the plumber, Savell, filed a lien against Simmons' home and later a suit to enforce. Simmons filed bankruptcy before the suit was tried. Savell responded by filing a secured proof of claim for the amount owed.
In his chapter 13 plan, Simmons treated the Savell claim as an unsecured debt despite Savell's assertion of secured status. Although Savell voted in favor of the plan, he objected to treatment as an unsecured claimant. The Bankruptcy Court failed to take notice of Savell's objection, and the plan was confirmed.
Despite Savell's treatment under the plan as unsecured, the chapter 13 trustee refused to ignore Savell's secured status without objection to the claim. As a result, Simmons filed an adversary proceeding against Savell to enforce the plan's terms. Specifically, Simmons sought cancellation of the notice of lien based on the confirmation order. The Bankruptcy Court refused to order cancellation of the lien and an appeal followed. At issue was the primacy of a confirmed plan or filed proof of claim.
Section 1325 requires that all allowed secured claims be paid in full under a plan or confirmation cannot be obtained. Despite Savell's secured proof of claim on file with the Court, the Bankruptcy Court confirmed Simmons' plan, in error, and Savell did not appeal the confirmation order.
On appeal, Simmons argued that the confirmation order was res judicata as to Savell's claim. Specifically, Simmons cited 11 U.S.C. § 1327 which provides:
Effect of Confirmation
(a) 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 object to, has accepted, or has rejected the plan.
(b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all the property of the estate in the debtor.
(c) Except as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.
A plain reading of the above provision leads one to the conclusion that confirmed plans are binding on the parties and that property of the estate revests in the debtor free and clear of all claims or interests except as provided for by the plan.
The problem for the Simmons Court was the plan's failure to challenge Savell's claim by a means procedurally sanctioned in the Code. Thus, Simmons turned on whether or not the confirmation process could substitute for a formal claim objection and, through confirmation, alter a claim's treatment. The Simmons Court began by analyzing the objection process and whether or not the confirmation process satisfied its due process concerns.
All claims objections must be filed as either contested matters or adversary proceedings. In either instance, the Simmons Court reasoned that notice of the objection or service of the complaint would be required on the claimant. Because the plan confirmation process did not specifically require service of the plan itself, or necessarily highlight the proponent's intention to reduce or object to a filed claim, the Simmons Court concluded that notice of confirmation was procedurally insufficient to substitute for an objection to the claim. Without proper notice, the claimant had not been afforded due process. As a result, the confirmation order was not res judicata on the issue. Simmons spawned a lengthy list of cases that adopted its rationale. This led secured lenders to conclude that nothing in a plan could substitute for a formal objection to a secured claim or alter its treatment. A recent United States Supreme Court decision challenges this conclusion and requires this Court to revisit the principles espoused in Simmons.
See also, In re Howard, 972 F.2d 639 (5th Cir. 1992); In re Cook, 25 F.3d 1043, 1994 WL 261083 (5th Cir. 1994); In re Chesnut, 356 Fed.Appx. 732, 2009 WL 4885018 (5th Cir. 2009).
In United Student Aid Funds, Inc. v. Espinosa, a debtor proposed a plan that fully paid a student loan without interest. Although the creditor received notice of the plan and the provisions regarding treatment of its claim, it did not object to confirmation. The plan was confirmed, the debtor satisfied the plan's required payments and received a discharge. After the case was complete, the student loan claimant filed suit to recover accrued and unpaid interest on its claim. The debtor resisted based on his prior discharge.
United Student Aid Funds, Inc. v. Espinosa, 130 S.Ct. 1367, 176 L.Ed.2d 158, 78 USLW 4207 (2010)
Generally, student loan obligations are nondischargeable and, if not fully paid, survive bankruptcy without the necessity of objection by the claimant. However, in limited situations, a student loan debt can be discharged if the debtor proves that repayment would constitute an undue hardship. In order to be granted a discharge based on hardship, the debtor must file an adversary proceeding before the bankruptcy court. In Espinosa, the debtor had not requested a hardship discharge but merely provided, through the plan's terms, that no interest would be paid on the debt postpetition.
11 U.S.C. §§ 1328(a)(2) and 523(a)(8).
11 U.S.C. § 523(a)(8).
FRBP 7001.
The Espinosa Court held that a confirmed plan was binding on the parties and a claimant's failure to object to its treatment in a plan bound it to the plan's provisions even if those provisions violated the Code or accomplished discharge or disallowance of a claim through a procedurally defective method.
In discussing its rationale, the Supreme Court acknowledged that the discharge of a student loan obligation, including the interest which accrued postpetition, was normally prohibited. It also acknowledged that under both the Code and existing precedent, a student loan claimant was not required to take any action to protect its interest from discharge unless the debtor filed a formal complaint for discharge with the bankruptcy court. The Supreme Court also admitted that the Espinosa plan accomplished by its terms a partial discharge of the student loan debt not otherwise allowed substantively or procedurally.
Nevertheless, the Court held that the principle of res judicata was paramount. Finding that the claimant in Espinosa had received a copy of the plan and the notice of confirmation hearing, the Supreme Court concluded that the claimant's failure to object to confirmation or appeal the confirmation order resulted in a final judgment discharging any claim to interest on the debt. Due process requires, "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." In the Espinosa Court's opinion, a creditor could not wait until the plan's conclusion, years later, to assert its rights. To do so would amount to a collateral attack on a final order.
Mullane v. Central Hanover Bank Trust Co., 339 U.S. 306, 314, 70 S.Ct 652, 657 (1950).
Espinosa cannot be distinguished from Simmons or its progeny. In both Simmons and Espinosa, the claimants were noticed of the bankruptcy case and the confirmation hearing, objection deadline and plan. Both claims were entitled to treatment not provided for by the plans but both plans were confirmed, and the orders became final. While Simmons reasoned that a debtor's failure to follow the procedural requirements for challenging a claim constituted a failure of due process, Espinosa squarely rejected this argument.
A recent Fifth Circuit decision, In the Matter of Chesnut, 356 Fed.Appx. 732, 2009 WL 4885018 (5th Cir. 2009), appears to recognize this result. Although not completely analogous to the facts of this case or Espinosa, the Chesnut Court held that res judicata applies to confirmed Chapter 13 plans citing Travelers Indemnity Co. v. Bailey, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009); 11 U.S.C. § 1327(a) (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); and somewhat inconsistently, In re Howard, 972 F.2d at 641 and Simmons.
Under the precedent set by Espinosa, Countrywide's failure to object to its treatment under the Plan after notice, results in a reduction of the amount owed regardless of the amount set forth in its proof of claim. That amount forms the maximum amount Countrywide may receive for its claim.
In re Kolstad, 928 F.2d 171, 174 (5th Cir. 1991); In re Morton, 298 B.R. 301, 309 (6th Cir.BAP 2003); In re Chapter 13 Proceedings of Herrera, 369 B.R. 395, 400-401 (E.D.Wis. 2007).
B. Review of Countrywide's Claim is Proper
As previously explained, the filing of a proof of claim is only the first step in the allowance process. At filing, proofs of claim are provisionally allowed so that a case's administration may proceed; although, a proof of claim is always subject to review and objection at any time during a case. To overcome this legal hurdle, Countrywide asserts that the Court's prior Order permitting Countrywide to file an untimely claim also substantively allowed the claim itself. From this position, Countrywide argues that Trustee's Objection is a collateral attack on the prior Order. It also asserts that the Order is res judicata and cannot be disturbed. Alternatively, Countrywide asserts that the principle of laches applies to the Objection.
See supra nn. 32 and 34.
1. Bankruptcy Rule 9024 And The Court's Inherent Authority Allow Correction
Assuming for the sake of argument that the Order in question substantively allowed Countrywide's claim, it would be in error. In a chapter 13, all claims must be filed by the bar date. Failure to file a claim timely subjects it to disallowance. The existence of a bar date forces claimants to present their debts within a few months of filing. This assists everyone involved in the process by defining the universe of claims to be administered and, in turn, the provisions of a plan that must be proposed. In addition, since distributions are made based on the claims on file, the entry of a late claim will change future distributions to every other creditor and potentially require disgorgement of past distributions in order to properly equalize payments to claimants in the same class. The potential for administrative disruption of a case is so great, that rarely does this Court grant a creditor permission to file a late claim. For this reason, Countrywide's Motion was both unusual and stands out in the Court's memory.
11 U.S.C. § 502(b)(9).
When Countrywide requested permission to file a late claim, the relief was granted because Countrywide represented that Debtor would not be prejudiced. The Court also believed that once Countrywide filed its claim, Trustee and Debtor would have the opportunity to review and object to the claim if warranted. At the hearing on the Motion, the Court questioned counsel for Countrywide regarding the amounts claimed and expressed reservations based on a facial review of the itemized amounts. Approval of the Motion was supposed to allow the filing of the claim but not bar its further, substantive review. To the extent the Order can be read to waive this right, it is in error.
Under Federal Rule of Civil Procedure 60(a), which is made applicable to this proceeding by Bankruptcy Rule 9024, a Court may on its own, with or without notice, correct a clerical mistake or mistake arising from oversight or omission whenever one is found in an order. In addition, Bankruptcy Courts have general authority to change the terms of their own orders when equity so requires. The power is "ancient and elementary." The bankruptcy judge has the power to reexamine and revise an order entered during the pendency of bankruptcy proceedings.
In re Olsen, 861 F.2d 188, 189 (8th Cir. 1988); In re Twenver, 149 B.R. 950, 952 (Bankr. D.Colo. 1993); UNR Industries, Inc. v. Bloomington Factory Workers, 173 B.R. 149, n. 10 (Bankr.N.D.Ill. 1994); In re Radco Merchandising Services, Inc., 111 B.R. 684, 689 (Bankr.N.D. Ill. 1990).
In re Pottasch Brothers, Co., 79 F.2d 613, 616 (2d Cir. 1935).
In re Meter Maid Industries, Inc., 462 F.2d 436, 439 (5th Cir. 1972).
For these reasons the Court will amend its prior Order to remove any doubt as to the relief ordered.
2. Section 502(j) Also Allows Reconsideration
Further, section 502(j) provides that the allowance or disallowance of a claim may be reconsidered for cause at any time according to the equities of the case. Thus, in addition to the Court's inherent authority to correct or reexamine its prior Order, Trustee's Objection may be heard under section 502(j) and is not a collateral attack on the Court's prior ruling. For the same reason, the prior Order is not res judicata but remains subject to reconsideration.
Nevertheless, even when cause exists, reconsideration of a final order also requires an examination of the effect on the opponent. Final judgments, those that dispose of substantive rights, are subject to reconsideration if a party has not substantively changed its position in reliance of the court's order. The decision to reconsider an order hinges on the ability of the court to return the opposing party to the position it occupied prior to entry.
Wayne United Gas Co. v. Owens-Illinois Glass Co., 300 U.S. 131, 137, 57 S.Ct. 382, 385, 81 L.Ed. 557 (1937).
Otte v. Manufacturers Hanover Commercial Corp. (In re Texlon Corp.), 596 F.2d 1092, 1101 (2d. Cir. 1979).
Countrywide can be returned to the position it occupied prior to the execution of the Order and the position the Court intended to convey. Although Countrywide asserts that to do so would prejudice its position in the case, it has not proven its assertion. Countrywide has not varied its position as a result of the Order, nor did the Order irretrievably eliminate any substantive rights. The only change in Countrywide's status is that it must now establish its claim. It has shown no prejudice at being so required.
According to Countrywide, the prior Order granted two separate requests. First, Countrywide was permitted to file an untimely claim. The Court sees no reason to disturb this ruling. The second benefit allegedly conveyed was substantive allowance of the claim. It is this portion of the Order, and only this portion, that will be reconsidered.
3. Application of A Laches Defense Is Inappropriate
Countrywide maintains that review of its proof of claim is prohibited under the doctrine of laches. Laches is an equitable doctrine. It requires dismissal of an otherwise meritorious claim when an inexcusable delay has unreasonably prejudiced the defendant. As previously set forth, Countrywide has shown no prejudice as a result of the delays which have occurred in the examination of its claim. The Code authorizes objections to claims at any time during the pendency of a case. Therefore, even now, hearing on an objection to claim would be timely. Laches is an inappropriate bar to the assertion of a claim when analogous statutes of limitation have not expired.
Steel, Inc. v. Windstein, 55 B.R. 426, 430 (Bankr. E.D.La. 1985).
In re Kolstad, 928 F.2d 171, 174 (5th Cir. 1991).
Tandy Corp. v. Malone Hyde, Inc., 769 F.2d 362, 365 (6th Cir. 1985).
For the reasons set forth above, the Court concludes that it is free to correct or reconsider its prior Order authorizing Countrywide to file a late claim and arguably substantively allow that claim. Because a portion of the relief contained in the Order does not reflect the relief actually granted, the Court will correct this error. To do otherwise would result in an injustice to Debtor and is not prejudicial to Countrywide.
C. Countrywide's Claim Is Unsupported By The Record.
An analysis of Countrywide's claim begins with the burden of proof. Attached to Countrywide's proof of claim is a copy of its mortgage. The proof of claim fails to provide a copy of the note upon which the claim is based or any documentation to support the charges and fees claimed. As a result, the proof of claim fails to comply with the requirements of Bankruptcy Rule 3001 and is not prima facie evidence of Countrywide's debt.
The Objection to the proof of claim requires Countrywide to establish its claim. Countrywide was directed to provide all supporting documentation for its claim including a full loan history and escrow analysis. Countrywide offered a copy of its mortgage, a loan history, and invoices to support its claim for attorneys fees and costs. Countrywide's proof provided documentation to support some of its claim but failed in material respects to establish its entire debt. Notably, Countrywide failed to provide the Court with a copy of its note. A review of the invoices submitted from Countrywide's legal counsel provides a clue as to why this critical piece of evidence was omitted.
Proof of the note has been entirely absent throughout this case as Countrywide did not provide a copy of its note when it filed its Motion for Relief, early in this case, nor when it filed its Motion to File a Late Claim.
In January 2002, Countrywide's counsel billed Countrywide for costs incurred in connection with the advertisement of a lost note. Under Louisiana law, this practice allows holders of missing notes to publicly advertise for their return. Presumably the note was not found.
La.R.S. 13:3741.
When a note is missing, the lender must offer proof of its existence through other means. Typically a copy of the note, certified by the closing notary to be true and correct, is offered. In this case, no copy was produced.
La.C.C. Art. 1840.
Under Louisiana law, the interest rate chargeable on debt secured in whole or in part by a mortgage on immoveable property must be in writing. Testimonial proof of the interest rate is not admissible. With regard to the other provisions of repayment, if the debt exceeds five hundred dollars, the repayment terms must be proven by at least one witness and other corroborating circumstances.
La. RS. 9:3503.
Id.
La.C.C. Art. 1846.
In the absence of a note, the Court begins its analysis by examining what portions of Countrywide's claim have been proven by the evidence offered.
1. Missed Installment Payments
Countrywide's mortgage, dated August 8, 2000, provides security for a debt of $77,010.00, payable monthly with interest. The mortgage also provides, "the full debt, if not paid earlier, [is] due and payable on September 1, 2030." No rate of interest is specified in the mortgage, nor is it determinable from the mortgage.
Exhibit to POC-7, p. 1.
Debtor's Schedules and Plan constitute admissions by Debtor, under oath, as to the existence of the debt. Under prevailing state law, the Court accepts Debtor's Schedules as independent testimony supporting the existence of the debt. The mortgage corroborates this testimony. The mortgage also establishes the amortization rate of the debt, thirty (30) years. However, neither the mortgage nor Debtor's Schedules specify the amount of principal and interest that must be paid each month.
Schedule J does identify a monthly payment for this debt, but it includes sums for property taxes and insurance. Therefore, nothing in Debtor's Schedules evidences or admits to the applicable rate of interest owed on the debt.
Countrywide has failed to offer the note or a certified copy of the note into evidence. As a result, it has presented no independent writing to establish the applicable interest rate on the debt. Because there is no independent written proof or admission by Debtor of the applicable interest rate for this obligation, the rate of interest has not been established. As a result, Countrywide's claim for past due interest on the debt must be disallowed.
In order to calculate the portion of Countrywide's claim attributable to interest, the loan history must be revised to eliminate application by Countrywide of payments to accruing interest. According to Countrywide's loan history, Debtor paid $11,585.41 over the life of the loan. Assuming a thirty (30) year amortization of the principal balance, $213.92 per month would be required to amortize the loan. The loan was thirty-eight (38) months old on the petition date. Thus, $8,128.96 of Debtor's payments should be applied to reduce the loan's principal balance. Since the amounts paid are sufficient to satisfy Debtor's installment obligations through filing, Debtor's installments are current as of the filing date.
$77,010.00/360 = $231.92
2. Late charges
Countrywide claims $737.89 in past due late charges. The mortgage provides that a late charge equal to four percent (4%) of the principal and interest due on any monthly installment may be assessed if payment is not received within fifteen (15) days of maturity. Because Countrywide's late charges vary in amount throughout the loan's history, the Court can only conclude that the monthly installment payments also fluctuated. However, Countrywide failed to provide proof of the amount due for any particular installment. As set forth above, at a minimum, principal payments of $213.92 were required to amortize the loan resulting in a potential late charge of $8.56 for each late payment.
The record established that Debtor failed to make a payment within the time constraints set forth in the mortgage in each of twenty-seven (27) months. As a result, the Court will allow twenty-seven (27) late charges of $8.56 each or $231.12.
3. Inspection Charges
Countrywide claims $143.25 is owed in inspection charges. It also claims $30.30 in appraisal charges. According to Countrywide's loan history, it charged various amounts ranging from $7.85 to $7.25 per inspection. During the period of September 2001 to December 2001, Countrywide's loan history also itemized four (4) monthly charges of $7.85 which it described as "BPO" or Broker's Price Opinion charges. Based on the amounts charged and frequency, the Court finds that these charges are actually additional property inspection fees.
According to Countrywide's loan history, Debtor's first missed payment was in July 2001. A property inspection was allegedly made following that event. Twenty-three (23) property inspections allegedly followed, with the latest occurring in November 2003. None of the inspection reports or invoices were provided as proof that the inspections were made or charges incurred. In addition, Countrywide did not establish why monthly inspections were warranted or advisable.
Because Countrywide failed to provide proof of the inspection charges incurred or paid, they are disallowed. The Court also finds that Countrywide failed to establish that twenty-four (24) inspections performed over twenty-eight (28) months was reasonable. During this same period, Debtor made payments. Evidently, the payments were insufficient to cure Debtor's alleged and burgeoning prepetition debt, but the frequency and amount of payments over the period indicated an attempt by Debtor to retain his home and prevent foreclosure. As a result, the Court cannot conclude that the property was at risk without additional evidence to the contrary. Countrywide offered no explanation as to its position. Therefore, the inspection charges are disallowed.
4. Attorneys' Fees and Costs Of Foreclosure
Under its proof of claim, Countrywide alleges it is owed attorneys' fees and costs of foreclosure equal to $2,112.79. It also alleges attorneys' fees and costs in connection with a prior bankruptcy proceeding of $750.00. In support of its claim, Countrywide produced itemized statements from its foreclosure counsel. The statements total $3,493.84 not the $2,862.79 claimed. They also contain amounts previously paid, not due or not approved for payment.
For example, the statements itemize $173.25 in fees and costs associated with Countrywide's attempt to locate its lost note. As this Court has previously concluded, fees and costs incurred in connection with a lender's failure to maintain its own notes are not properly chargeable to a borrower. The statements include a $150.00 fee for the filing of the proof of claim, a charge not previously approved by this Court and not authorized by existing precedent in this district. The statements also include $825.00 in fees and costs associated with the filing of a motion for relief in a prior case that were not approved by that court. Based on the foregoing, the Court will allow outstanding fees and charges in the amount of$2,345.59.
Jones v Wells Fargo (In re Jones), 366 B.R. 584 (Bankr. E.D.La. 2007).
Id. and In re Stewart, 391 B.R. 327, 351 (Bankr. E.D.La. 2008).
To summarize, Countrywide has proven the following prepetition charges: 1. Late fees $213.12 2. Attorney's fees and costs 2,345.59 3. NSF charge 25.00 Total $2,583.71 These amounts must be deducted from payments made by Debtor on the loan and after satisfaction of the principal amortization and escrow charges Countrywide established. The calculation is: Total prepetition payments $11,585.41 Less: Amounts applied to principal $8,128.96 Payments for insurance 790.65 798.00 Subtotal $1,867.80 Less: Other fees and charges $2,583.71 Total allowed claim [$ 715.91] D. Trustee's Disbursement History
Trustee's Disbursement History itemizes payments to claimants: Claimed Claimed Claimed Claimed Claimant Priority Secured Unsecured Adm Paid 1. La Dept of Revenue $520.27 $483.27 2. La Dept of Revenue $131.25 $101.93 3. Southern Finance $405.76 $166.53 4. Sherman Acquisitions $5028.91 $3,905.86 5. Magee Financial $3976.34 $3,088.03 6. Countrywide $16,404.23 $4,982.43 7. Edward Thompson $750.00 $750.00 8. Trustee $958.76 $958.76 Debtor paid $14,436.75 into his Plan. The Plan proposed distributions in accordance with the Bankruptcy Code. Under the Code, administrative and priority claims must be paid prior to the payment of secured and unsecured claims. While administrative claims have been paid, Trustee failed to fully pay priority debt owed to the Louisiana Department of Revenue. As a result, $37.00 is still owed on that claim.
P-89.
After fully satisfying administrative and priority claims, $12,207.72 remains available for distribution to secured and unsecured claimants. The total amount due both classes is $10,258.17. While Countrywide has been over paid, amounts are still owed to Southern Finance ($239.23), Sherman Acquisitions ($1,123.05), Magee Financial ($888.31) and the Louisiana Department of Revenue's unsecured claim ($29.32). These sums and the remaining priority claim shall be paid from the amounts returned by Countrywide.
III. Conclusion
Because Countrywide has already received $4,982.43, Debtor's obligations to Countrywide under the Plan have been fully satisfied, and Debtor is entitled to a discharge. Countrywide's proof of claim will be disallowed to the extent it exceeds $715.91. Countrywide will be ordered to reimburse Trustee $2,316.91 from which Trustee will satisfy the remaining debt owed to other claimants. Countrywide will also be ordered to credit Debtor's account $1,949.61 for the residual overpayment by Debtor. Debtor will be granted a discharge. Trustee's Motion to Dismiss for Failure to Make Plan Payments will be denied. An order in accord with these Reasons will be separately rendered.
New Orleans, Louisiana, August 23, 2010.