TIMOTHY D. BARTLETT and KIM K. BARTLETT v. Fifth Third Bank

United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued December 3, 2014
Decided July 15, 2015
Before
DANIEL A. MANION, Circuit Judge
ILANA DIAMOND ROVNER, Circuit Judge
DAVID F. HAMILTON, Circuit Judge
No. 14‐2508
TIMOTHY D. BARTLETT and KIM K.
BARTLETT,
Debtors‐Appellants,
v.
FIFTH THIRD BANK,
Creditor‐Appellee.
Appeal from the United States District
Court for the Southern District of
Indiana, Terre Haute Division.
No. 13‐cv‐00432
William T. Lawrence,
Judge.
O R D E R
Fifth Third Bank held a mortgage on property owned by the Bartletts’
wholly‐owned corporation, High‐Q Farms, Inc. Although the Bartletts owned no interest
in the property, they claimed they did when they personally filed for bankruptcy. The
bankruptcy court allowed Fifth Third to collaterally attack the Bartletts’ confirmed
bankruptcy plan based on a lack of subject matter jurisdiction, even though Fifth Third
did not appear in the bankruptcy proceeding to object or appeal the confirmation. The
district court affirmed. We hold that Fifth Third was not barred from collaterally
attacking the bankruptcy court’s lack of jurisdiction because Fifth Third did not receive
adequate notice of the proceeding. Therefore, we also affirm.
NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1

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I. Background
The Bartletts owned High‐Q Farms, Inc., an Indiana corporation which owned a
small farm where the Bartletts lived and Tim Bartlett practiced equine veterinary
medicine (“the property”). In 2005, High‐Q Farms borrowed $142,000 from Fifth Third
Bank and gave the bank a promissory note and a mortgage on the property. The Bartletts
personally guaranteed the loan. In 2009, after defaulting on the loan, High‐Q Farms filed
for Chapter 7 bankruptcy for the purpose of dissolving the corporation. The bankruptcy
was dismissed after a few months. After the dismissal of High‐Q Farms’ bankruptcy, the
Bartletts assumed High‐Q Farms’ obligations under the loan and endeavored to pay the
property taxes. High‐Q Farms never transferred title to the Bartletts; ownership of the
property remained with High‐Q Farms.
In November 2010, the Bartletts filed for Chapter 13 bankruptcy. For reasons
unknown, they claimed that they owned the property in joint tenancy and claimed that
Fifth Third’s interest was limited to “[p]ortions of real estate including bar[n] and
outbuildings used for vet practice.” The plan proposed to cram down the loan to the
market value of the property, estimated to be $40,000. Fifth Third received notice of the
bankruptcy, but did not participate in the proceedings. The bankruptcy court confirmed
the plan in April 2011. Fifth Third did not appeal from this final judgment of the
bankruptcy court. The Indiana Secretary of State administratively dissolved High‐Q
Farms sometime later in March 2013.
In July 2013, over two years after confirmation of the Bartletts’ bankruptcy plan,
Fifth Third moved for relief from the automatic stay for cause under 11 U.S.C. § 362(d).
The claim was that the property was not property of the Bartletts’ bankruptcy estate on
the petition date because at that time High‐Q Farms, not the Bartletts, owned the
property. Since the property was not the property of the Bartletts’ bankruptcy estate, the
bankruptcy court lacked subject matter jurisdiction over it. The bankruptcy court
granted the motion, lifted the automatic stay from Fifth Third, and ordered the trustee to
abandon the property.
The Bartletts appealed to the district court, claiming that they had acquired an
equitable interest in the property by assuming High‐Q Farms’ obligations. Alternatively,
they argued that Fifth Third had waived its subject matter jurisdiction argument by
failing to object to the plan’s confirmation and could not now collaterally attack it. The
district court found that the Bartletts did not have an interest in the property and that the
bankruptcy court lacked jurisdiction over the property. Relying on the principle that
questions of subject matter jurisdiction cannot be waived, the district court affirmed. The

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No. 14‐2508 Page 3
district court noted that had Fifth Third’s motion been premised on anything but subject
matter jurisdiction, it would have agreed with the Bartletts that Fifth Third’s motion
should have been denied. The Bartletts appeal.
II. Analysis
We review legal issues de novo and findings of fact for clear error. In re Salem, 465
F.3d 767, 773 (7th Cir. 2006). We review the granting of relief from the automatic stay for
an abuse of discretion. Colon v. Option One Mortg. Corp., 319 F.3d 912, 916 (7th Cir. 2003).
On appeal, the Bartletts raise the same arguments brought before the district
court. First, the bankruptcy court had subject matter jurisdiction because they had an
equitable interest in the property. Second, even if they did not have an interest in the
property, Fifth Third is barred by res judicata from collaterally attacking the confirmation
order. Fifth Third had a full and fair opportunity to litigate the lack of subject matter
jurisdiction but failed to do so before the time for appealing the confirmation plan had
expired. Therefore, the confirmation order is res judicata to all issues that could have been
raised concerning it. As the district court held, neither argument prevails.
The Bartletts did not have an equitable interest in the property. The property was
owned by High‐Q Farms. High‐Q Farms neither transferred, nor could it transfer,
ownership of the property to the Bartletts. Indiana law prohibited High‐Q Farms from
transferring its assets to the Bartletts until it satisfied its liabilities to Fifth Third. I.C.
23‐1‐45‐5(a)(3) & (b)(1). Whatever payments made by the Bartletts on the loan did not
gain them an equitable interest because they were obligated to make those payments as
guarantors. The Bartletts rely unsuccessfully on In re Linderman, 20 B.R. 826 (Bankr. W.D.
Wash. 1982), to support their claim. In Linderman, the corporation gained an equitable
interest in part of the shareholders’ property by paying part of the mortgage. Id. at 829.
But as the district court observed, the Bartletts are shareholders who are seeking an
equitable interest in the whole of the corporation’s property based on paying an
unspecified part of the mortgage. Indiana law does not restrict the transfer of a property
interest from an individual to a corporation as found in Linderman, but, as we said above,
it restricts the type of transfer sought by the Bartletts. Furthermore, the Bartletts
presented no evidence to the district court of the amount of payments made toward the
loan or property taxes.
Fifth Third was not barred by res judicata from challenging the bankruptcy court’s
lack of subject matter jurisdiction. Fifth Third’s motion for relief from the automatic stay
was, in effect, a collateral attack on the final judgment of the bankruptcy court that

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confirmed the Bartletts’ plan. Subject matter jurisdiction may be raised at any point up to
last direct appeal, but once the judgment is final it may not be attacked collaterally by a
party who had a full and fair opportunity to litigate the issue:
On direct appeal ..., anyone who objected was free to argue that the
Bankruptcy Court had exceeded its jurisdiction, and the District Court or
Court of Appeals could have raised such concerns sua sponte. In fact, one
objector argued just that … . But once the [ ]Orders became final on direct
review (whether or not proper exercises of bankruptcy court jurisdiction
and power), they became res judicata to the “‘parties and those in privity
with them, not only as to every matter which was offered and received to
sustain or defeat the claim or demand, but as to any other admissible
matter which might have been offered for that purpose.’”
Travelers Indem. Co. v. Bailey, 557 U.S. 137, 152 (2009) (citations omitted). This is true for a
confirmed bankruptcy plan: “The reason for this is simple and mirrors the general
justification for res judicata principles—after the affected parties have an opportunity to
present their arguments and claims, it is cumbersome and inefficient to allow those same
parties to revisit or recharacterize the identical problems in a subsequent proceeding.” In
re Harvey, 213 F.3d 318, 321 (7th Cir. 2000).
Normally, a party must make an appearance to have a full and fair opportunity to
litigate. See Philos Technologies, Inc. v. Philos & D, Inc., 645 F.3d 851, 853 (7th Cir. 2011)
(collateral attack for lack of personal jurisdiction allowed “[b]ecause the defendants did
not appear in the district court before entry of judgment, and because they are entitled to
one full opportunity to litigate the jurisdictional issue”). In bankruptcy court, however,
“a party with adequate notice of a bankruptcy proceeding cannot ordinarily attack a
confirmed plan.” In re Harvey, 213 F.3d at 321. Adequate notice of a bankruptcy
proceeding, then, supplies the opportunity to litigate sufficient to preclude collateral
attack:
Where, as here, a party is notified of a plan’s contents and fails to object to
confirmation of the plan before the time for appeal expires, that party has
been afforded a full and fair opportunity to litigate, and the party’s failure
to avail itself of that opportunity will not justify … relief.
United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 276 (2010).

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This rule, however, does not apply to Fifth Third because it did not receive
adequate notice of the Bartletts’ bankruptcy proceeding. Fifth Third received notice of
the Bartletts’ bankruptcy proceeding concerning the Bartletts’ supposed property. But
Fifth Third did not possess collateral in the Bartletts’ name; it had a mortgage on a
property owned by High‐Q Farms, a corporation that was not a party to the bankruptcy
proceeding. Fifth Third did not receive adequate notice and is therefore not barred from
collaterally attacking the judgment of the bankruptcy court for lack of subject matter
jurisdiction. Although Fifth Third is “a sophisticated and organized creditor” that “must
follow the administration of the bankruptcy estate to determine what aspects of the
proceeding they may want to challenge,” the erroneous notice provided in this case did
not rise to the level of the “informal actual notice” that would bind a creditor such as
Fifth Third. In re Pence, 905 F.2d 1107, 1109 (7th Cir. 1990).
The Bartletts argue that Fifth Third’s motion for relief from the automatic stay
should be construed as a motion under Rule 60(b)(4), which is reviewed de novo. United
States v. Tittjung, 235 F.3d 330, 335 (7th Cir. 2000). We disagree. Fifth Third does not
argue that the final order of the bankruptcy court was void. Instead, Fifth Third seeks to
have the automatic stay lifted from itself. The remainder of the judgment of the
bankruptcy court would not be affected. Nevertheless, if we were to construe the motion
under Rule 60(b)(4) we still would hold that Fifth Third is not barred from collaterally
attacking the confirmation order because it did not receive adequate notice for res
judicata to apply.
Consequently, the judgement of the district court is AFFIRMED.

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