In re: Regional Building Systems, Incorporated

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 In Re: REGIONAL BUILDING SYSTEMS,
INCORPORATED,
Debtor.
UNIVERSAL SUPPLIERS, INCORPORATED, No. 01-1072 Creditor-Appellant,
v.
REGIONAL BUILDING SYSTEMS,
INCORPORATED,
Debtor-Appellee. 
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
William M. Nickerson, District Judge.
(CA-00-2555-WMN, BK-93-57521)
Argued: June 5, 2001
Decided: June 29, 2001
Before WILKINSON, Chief Judge, NIEMEYER, Circuit Judge, and
Irene M. KEELEY, Chief United States District Judge for the
Northern District of West Virginia, sitting by designation.
Affirmed by published opinion. Chief Judge Wilkinson wrote the
opinion, in which Judge Niemeyer and Chief Judge Keeley joined.
COUNSEL
ARGUED: Jay G. Ochroch, FOX, ROTHSCHILD, O’BRIEN &
FRANKEL, L.L.P., Philadelphia, Pennsylvania, for Appellant. Linda

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Vojik Donhauser, MILES & STOCKBRIDGE, P.C., Baltimore,
Maryland, for Appellee. ON BRIEF: Prince Altee Thomas, FOX,
ROTHSCHILD, O’BRIEN & FRANKEL, L.L.P., Philadelphia, Penn-
sylvania; Richard Goldberg, SHAPIRO & OLANDER, Baltimore,
Maryland, for Appellant. E. Hutchinson Robbins, Jr., MILES &
STOCKBRIDGE, P.C., Baltimore, Maryland, for Appellee.
OPINION
WILKINSON, Chief Judge:
This case requires us to determine the effect of the confirmation of
a Chapter 11 reorganization plan on a creditor’s liens. Appellant
maintains that since confirmation of a Chapter 13 plan fails to extin-
guish liens not addressed by the plan, see Cen-Pen Corp. v. Hanson,
58 F.3d 89 (4th Cir. 1995), the same must be true with respect to con-
firmation of a Chapter 11 plan. Because the relevant provisions of
Chapter 11 and Chapter 13 use different language and serve different
purposes, we hold that appellant’s lien was extinguished by confirma-
tion of the underlying Chapter 11 plan. Accordingly, we affirm the
judgment of the district court.
I.
In 1992, Universal Suppliers and Regional Building Systems
(RBS) entered into a consignment agreement whereby RBS granted
Universal a security interest in certain home construction materials.
In November 1993, RBS filed a voluntary petition for relief under
Chapter 11 of the bankruptcy code. RBS listed Universal as the holder
of a $358,871.71 claim, secured by collateral with a value of zero.
Thus, the entire claim was only entitled to allowance as an unsecured
claim because a lien is secured only up to the value of the underlying
property. See 11 U.S.C. § 506(a).
It is undisputed that Universal knew of its claim against RBS.
Indeed, Universal participated as a member of the official committee
of unsecured creditors. And in August 1996, Universal filed two sepa-
rate proofs of claim in RBS’s bankruptcy case, asserting an unsecured
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nonpriority claim for $358,871.71. In April 1997, the bankruptcy
court approved a settlement from an unrelated lawsuit which resulted
in the payment of approximately $5 million to RBS. Universal now
claims that its lien attaches to these settlement funds.
In May 1997, the bankruptcy court entered an order confirming
RBS’ Chapter 11 plan. The plan did not provide for retention of Uni-
versal’s lien even though the $5 million settlement was now available
to satisfy the claim. Rather, the plan classified Universal as a general
unsecured creditor. Nevertheless, Universal failed to assert its lien at
that time or otherwise object to confirmation of the plan. With respect
to the $5 million against which Universal now asserts its lien, the plan
stated that after certain other claims had been satisfied, Universal and
the other unsecured creditors would receive a pro rata distribution of
the remainder of the estate (including any remaining settlement
funds).
After confirmation, a Plan Committee was formed to administer the
covered properties. In December 1997, more than seven months after
confirmation of the plan, Universal filed an amended proof of claim
asserting a secured claim of roughly $740,000. The amended claim
attempted to reclassify Universal’s lien as secured and sought approx-
imately $380,000 in interest, fees, and other charges, in addition to
the $358,871.71 originally claimed. The Plan Committee opposed the
reclassification of Universal’s claim.
The bankruptcy court agreed with the Plan Committee, holding that
Universal’s lien rights were extinguished upon confirmation of RBS’
Chapter 11 plan. See In re Regional Building Systems, Inc., 251 B.R.
274 (Bankr. D. Md. 2000). The bankruptcy court explained that any
property of a debtor that is addressed by a Chapter 11 plan becomes
free and clear of any claims not expressly preserved. Since the $5 mil-
lion settlement fund that Universal identified as the target of its lien
had been dealt with by RBS’s confirmed Chapter 11 plan, and since
neither the plan nor the order confirming the plan expressly preserved
Universal’s lien rights, the bankruptcy court held that Universal’s lien
had been extinguished. The district court subsequently affirmed the
bankruptcy court’s judgment, agreeing that Universal’s lien was
extinguished upon confirmation of RBS’ Chapter 11 plan. This appeal
followed.
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II.
A.
We begin, as we must, with the text of the bankruptcy code. In
rejecting Universal’s arguments, the bankruptcy court relied on 11
U.S.C. § 1141(c), which states, in pertinent part, that:
[E]xcept as otherwise provided in the plan or in the order
confirming the plan, after confirmation of a plan, the prop-
erty dealt with by the plan is free and clear of all claims and
interests of creditors, equity security holders, and of general
partners in the debtor.
The bankruptcy court properly determined that all of the elements
needed to invoke § 1141(c)’s "free and clear of all claims" language
had been satisfied in this case. First, RBS submitted a Chapter 11
reorganization plan to the court. Second, the plan was confirmed by
an order of the court, without any objection from Universal. Third, the
property to which Universal now seeks to attach its lien was "dealt
with by the plan." Specifically, the plan stated that after certain other
claims had been paid, Universal and the other unsecured creditors
would receive a pro rata share of the remainder of the estate, includ-
ing any amounts left in the $5 million settlement fund. And fourth,
neither the plan nor the order confirming the plan preserved Univer-
sal’s lien rights. Rather, the plan classified Universal as a general
unsecured creditor.
By the plain terms of § 1141(c), therefore, confirmation of RBS’s
Chapter 11 plan rendered the $5 million settlement fund "free and
clear of all claims" not expressly preserved. Since Universal’s lien
was not preserved, it was extinguished by operation of law upon con-
firmation of RBS’ plan. And we note that every other circuit court of
appeals to have addressed this issue has reached the same conclusion.
See Matter of Penrod, 50 F.3d 459, 463 (7th Cir. 1995) (holding that
under § 1141(c), "unless the plan of reorganization, or the order con-
firming the plan, says that a lien is preserved, it is extinguished by the
confirmation."); In re Be-Mac Transport Co., 83 F.3d 1020 (8th Cir.
1996) (following Penrod); In re Barton Indus., Inc., 104 F.3d 1241
(10th Cir. 1997) (same).
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B.
Universal does not offer a different reading of the statute and cites
no Chapter 11 cases which challenge this interpretation of § 1141(c).
Rather, Universal claims that confirmation of a Chapter 11 plan can-
not extinguish a lien where the plan makes no mention of the lien. In
support, Universal references this court’s decision in Cen-Pen Corp.
v. Hanson, 58 F.3d 89 (4th Cir. 1995), for the proposition that a
debtor must initiate an adversary proceeding in order to extinguish a
lien.* Universal concedes that Cen-Pen involved a confirmed Chapter
13 plan rather than a Chapter 11 plan. It contends, however, that the
provision at issue in Cen-Pen, 11 U.S.C. § 1327(c), is identical to
§ 1141(c).
Section 1327(c) of Title 11 states that:
Except as otherwise provided in the plan or in the order con-
firming 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.
11 U.S.C. § 1327(c) (emphasis supplied).
Section 1141(c), in relevant part, states that:
[E]xcept as otherwise provided in the plan or in the order
confirming the plan, after confirmation of a plan, the prop-
erty dealt with by the plan is free and clear of all claims and
interests of creditors, equity security holders, and of general
partners in the debtor.
11 U.S.C. § 1141(c) (emphasis supplied).
Universal argues that the only difference between these two provi-
sions is that § 1327(c) speaks in terms of property "provided for" by
*Subject to an exception not relevant here, Rule 7001(2) of the Federal
Rules of Bankruptcy Procedure requires a debtor to initiate an adversary
"proceeding to determine the validity, priority, or extent of a lien or other
interest in property."
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the plan while § 1141(c) speaks in terms of property "dealt with" by
the plan. And according to Universal, the phrase "dealt with" and
"provided for" are synonymous. See Rake v. Wade, 508 U.S. 464, 474
(1993). Even if this is the case, however, we think that Universal
overlooks an important difference between these two statutory provi-
sions.
Section 1327(c) states that the property covered by a Chapter 13
plan is free and clear of only those claims of creditors that the plan
addresses. Under the plain terms of the statute, therefore, property of
a Chapter 13 debtor can be subject to the continuing claims of credi-
tors so long as those claims were not "provided for" by the debtor’s
Chapter 13 reorganization plan. Indeed, this was the crux of our Cen-
Pen decision where we held that "[i]f a Chapter 13 plan does not
address a creditor’s lien . . . that lien passes through the bankruptcy
process intact, absent the initiation of an adversary proceeding." 58
F.3d at 94. Thus, had this been a case involving a confirmed Chapter
13 plan, Universal’s lien would have been preserved since RBS’s plan
did not "provide for" the lien. See In re Deutchman, 192 F.3d 457,
461 (4th Cir. 1999) (Chapter 13 plan does not provide for a lien "sim-
ply by failing or refusing to acknowledge it or by calling the creditor
unsecured.") (internal quotation marks omitted).
If under Chapter 13 a lien can be extinguished only if the plan pro-
vides for it, under Chapter 11 a lien can be extinguished so long as
the property to which the lien attaches is dealt with by the plan. In this
case, Universal’s lien was extinguished because the property to which
it seeks to attach its lien was dealt with by a confirmed Chapter 11
plan. And as previously explained, § 1141(c) releases any property
dealt with by a Chapter 11 plan from all claims not expressly pre-
served.
This divergent treatment of liens is quite sensible — not only
because § 1141(c) and § 1327(c) use different language, but also
because Chapter 11 and Chapter 13 serve different purposes. First, as
the bankruptcy court noted, "chapter 13 is generally a consumer bank-
ruptcy chapter" because "relatively few chapter 13 debtors" operate
a business. In re Regional Building Systems, 251 B.R. at 281. Indeed,
the bankruptcy code contains debt limitations on Chapter 13 filings
which necessarily limit the complexity of a Chapter 13 reorganiza-
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tion. See 11 U.S.C. § 109(e). Second, a Chapter 13 debtor can choose
not to deal with certain secured claims. See id. §§ 1325(a)(5),
1322(a). This is why under § 1327(c), unaddressed secured claims
pass through a Chapter 13 reorganization unaffected even if the prop-
erty subject to the claim is addressed by the plan. See Cen-Pen, 58
F.3d at 94. Third, Chapter 13 creditors do not vote on the debtor’s
plan. See In re Fillon, 181 F.3d 859, 862 (7th Cir. 1999) ("Creditors
do not vote on a Chapter 13 plan.").
Chapter 11, by contrast, governs more complicated reorganizations
and has no provision allowing a debtor to ignore secured claims. Fur-
ther, Chapter 11 contemplates that every secured creditor whose
rights will be impaired by the reorganization will be notified, assigned
to a class, and will vote on the plan. See 11 U.S.C. §§ 1123, 1125,
1126, 1129(a)(10). Indeed, in this case Universal was notified of
RBS’ Chapter 11 petition, participated in the reorganization, and had
an opportunity to object to the plan.
In order for Chapter 11 creditors to make an informed judgment
about whether to vote for the plan, they necessarily must know what
property is a part of the plan, whether that property is subject to any
liens, and how those liens are being treated. This is especially true
when a Chapter 11 plan proposes a refinancing of the business or a
transfer of assets. Unlike Chapter 13, Chapter 11 expressly contem-
plates that a reorganization will result in the sale or transfer of parts
of the debtor’s estate. Compare id. § 1322 with id. §§ 1123(a)(5)(B),
1123(c). It is not surprising, therefore, that Congress sought to maxi-
mize the information available to those receiving the debtor’s assets
by requiring all outstanding claims to be identified by the plan or the
order confirming the plan.
Indeed, it would be imprudent for any creditor to accept a debtor’s
property as satisfaction for his claim without knowing whether some
unidentified third party is lying in wait with a lien. Similarly, refi-
nancing could be inestimably more difficult if the lender is unsure
whether property in the debtor’s estate is subject to unidentified liens
lurking in the background. See Matter of Penrod, 50 F.3d at 463
(explaining how § 1141(c)’s extinguishment of liens not expressly
preserved "lowers the costs of transacting with the reorganized firm,
thus boosting the chances that the reorganization will succeed.").
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Given all of these considerations, it was perfectly sensible for Con-
gress to adopt a rule stating that once property comes within the ambit
of a confirmed Chapter 11 plan, it is free and clear of all claims not
expressly preserved. And adopting a different rule for Chapter 13
cases also makes sense given the less complex estates at issue, the
fact that a Chapter 13 plan need not address all secured debts, and the
fact that Chapter 13 creditors do not vote on the debtor’s plan.
III.
As the bankruptcy court noted, "[t]he focus of § 1141(c) is whether
the property that is subject pre-confirmation to the lien is dealt with
by the plan. In contrast, the focus of § 1327(c) is whether the credi-
tor’s interest — its lien — is provided for by the plan." In re Regional
Building Systems, 251 B.R. at 281. This is precisely why our holding
in this case is consistent with our prior decision in Cen-Pen — the
differences between § 1141(c) and § 1327(c), both in text and in pur-
pose, compel different outcomes.
Here, Universal actively participated in RBS’ Chapter 11 reorgani-
zation as a member of the creditors’ committee. Moreover, it knew of
the lien against RBS’ property, knew that the targeted settlement
funds were dealt with by the plan, and knew that neither the plan nor
the order confirming the plan expressly preserved the lien. Neverthe-
less, Universal failed to object to confirmation of RBS’ Chapter 11
reorganization plan. In short, Universal fell asleep at the switch. Hav-
ing done so, it cannot escape the consequences of its inaction by reli-
ance on § 1327(c), which differs both in text and in purpose from
§ 1141(c). Accordingly, the judgment of the district court is
AFFIRMED.
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