General Macarthur Sheppard

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United States Bankruptcy Court
Northern District of California
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
OAKLAND DIVISION
In re General Macarthur Sheppard, 	)
) 	Case No. 11-41693
) 	Chapter 13
Debtor. 	)
___________________________________)
MEMORANDUM OF DECISION RE: MOTION FOR RELIEF FROM STAY
This matter came for a continued hearing on October 19, 2011 on the
motion of Deutsche Bank National Trust Company (“Deutsche”) for relief
from stay. 	Joseph Chun appeared for Deutsche and Anne Nguyen appeared
for General MacArthur Sheppard, the debtor (”Debtor”). 	During the
hearing, the parties requested the opportunity to brief an issue
concerning the effect of the confirmation of Debtor’s chapter 13 plan on
the entitlement of the creditor to receive payments under the promissory
note upon which its claim is based. 	For the reasons set forth below, the
Motion is granted in part as explained below.
Debtor filed this case on February 16, 2011. 	Deutsche holds a claim
in the approximate amount of $255,000, evidenced by a promissory note
(the “Note”) secured by a first priority lien on Debtor’s residence.
The following constitutes
the order of the court. Signed December 22, 2011
________________________________________
William J. Lafferty, III
U.S. Bankruptcy Judge
Entered on Docket
December 22, 2011
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 11-41693 Doc# 39 Filed: 12/22/11 Entered: 12/22/11 13:32:56 Page 1 of 6

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Debtor confirmed his Chapter 13 Plan (the “Plan”) on May 2, 2011.
Deutsche did not object to confirmation of the Plan.
As of the date of confirmation of the Plan, the minimum monthly
payment amount due under the Note was $2409.58. 	The Note includes an
adjustable interest rate, and therefore a variable monthly amount due.
Paragraph 4 of the Plan calls for Deutsche to receive payments of
$1000 per month “outside the plan”. 	Neither paragraph 4, nor any other
provision of the Plan, purport to modify Deutsche’s claim, or modify or
restrict its rights under the Code to retain its lien. 	The Plan is also
silent about the adjustable interest rate of the Note.
Deutsche filed its Motion for Relief from Stay on August 8, 2011,
based on Debtor’s alleged default in paying amounts due post-petition
under the Note. 	Debtor opposed the Motion based upon its assertion that
confirmation of the Plan, to which Deutsche had the opportunity to, but
did not, object, was res judicata (a) as to the amounts due Deutsche
during the pendency of the Plan, and (b) as to the total amount of
Deutsche’s claim (i.e., barring the accretion of any deficiency), citing
United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010).
Deutsche made a number of arguments in response. 	First, Deutsche
asserted that this matter is not governed by Espinosa, because, unlike
the situation in Espinosa, the Plan in this case did not supply Deutsche
with express, conspicuous notice of Debtor’s intention to modify
Deutsche’s rights. 	While that argument is partly correct in the sense
that the Plan did not expressly state in a narrative that it was
modifying the monthly payment (nor that it was modifying any of
Deutsche’s other rights), the Plan did provide express notification of
the Debtor’s intention to pay only $1000 per month on the obligation to
Deutsche during the course of the Plan, rather than the amount called for
Case: 11-41693 Doc# 39 Filed: 12/22/11 Entered: 12/22/11 13:32:56 Page 2 of 6

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under the Note. This Court finds that the marked difference in the amount
proposed to be paid on a secured note in the Plan from the amount called
for under the Note is adequate “notice” of the Debtor’s intent to modify
Deutsche’s present payment rights, requiring Deutsche to take action in
opposing confirmation of such a plan under Espinosa in order to preserve
its rights with respect to that issue.
Deutsche also urges this Court to follow the holding of In re
Ventura, 2010 Bankr. Lexis 594 (Bankr. N.D. Cal. 2010), a case decided by
another Bankruptcy Court in this district, which stands for the
proposition that a chapter 13 plan must set forth its intended effect
clearly, and that any “ambiguity” in a confirmed plan must be construed
against the debtor as the drafter of the plan. 	In re Ventura, 2010
Bankr. Lexis 594, at *3. 	As so construed, a plan therefore has a res
judicata/collateral estoppel effect only with respect to those provisions
which are unambiguous. 	Id.
While this Court has no doubt that Ventura was correctly decided,
this Court also finds that the facts in Ventura are different from the
facts in this matter in at least one critical aspect, which makes Ventura
at least partly inapposite. 	In Ventura, the plan set forth a minimum
amount payable to the holder of an adjustable note (secured by real
property) that was identical to the monthly payment then due under the
then-pertaining interest rate; the plan was silent as to whether the
payment would vary according to the Note. 	The creditor, apparently
relying on the correct minimum amount due under the plan, did not object
to confirmation. 	When the interest rate adjusted, and the minimum
monthly payment increased, the debtor argued that the plan, which
specified only a flat rate, governed, and barred any recourse by the
creditor. 	The Bankruptcy Court found the plan ambiguous in light of the
Case: 11-41693 Doc# 39 Filed: 12/22/11 Entered: 12/22/11 13:32:56 Page 3 of 6

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plan’s inclusion of a minimum monthly payment in accord with the amount
then-currently due under the note, without any hint of an intent to
modify the note from an adjustable rate to a fixed rate. 	Accordingly,
the Bankruptcy Court construed the plan as not modifying the note.
The facts in this case are different in that the Plan evidenced an
unambiguous attempt to modify the monthly payment due under the Note
during the course of the Plan. 	This Court acknowledges that the Plan’s
failure to address any modification of the remaining rights under the
Note, or the claim amount, arguably make this Plan ambiguous. 	But the
Plan in this case is not misleading in the same way as the plan in
Ventura.
Rather, the Court believes that this case is more closely governed
by the opinion in In re Riedel, 2010 Bankr. Lexis 4569 (Bankr. N.D. Cal.
2010), also decided by a Bankruptcy Court in this district. 	In Riedel,
the debtor also confirmed a plan with a proposed monthly payment to a
lender with a claim secured by the debtor’s residence. 	Like this case,
the plan in Riedel did not explicitly purport to modify the secured
creditor’s lien rights, or the right to be paid the full amount of its
claim under section 1322 of the Code. 	Accordingly, while the Bankruptcy
Court in Riedel agreed that confirmation of the plan was res judicata
under Espinosa as to the amount of the monthly payment during the course
of the chapter 13 case, the plan did not modify the secured creditor’s
rights to be paid, eventually, the full amount due under the note. 	Since
the monthly minimum amounts under the plan were less than the note
required, the debtor was accumulating a deficiency via the plan that
would all be due prior to the debtor receiving a discharge. The Court
accordingly denied debtor’s objection to the creditor’s claim, which
included amounts due based upon a variable interest rate.
Case: 11-41693 Doc# 39 Filed: 12/22/11 Entered: 12/22/11 13:32:56 Page 4 of 6

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The facts in this case are similar. 	Even if Deutsche is bound by
the res judicata effect of confirmation of the Plan, that effect cannot
extend beyond the provisions of the Plan that purport to modify
Deutsche’s rights, i.e., the provision that modifies the amount presently
payable on a monthly basis. 	Nothing in the Plan purported to modify
Deutsche’s rights as a creditor with a claim secured by the Debtor’s
residence; in that capacity, pursuant to Section 1322(b)(2) of the Code,
Deutsche’s claim cannot be “crammed down”, and it will retain its lien
until its claim is paid in full.
In light of these facts, there is little purpose in continuing to
allow the Debtor to accrue an unpaid deficiency claim through
“performance” under his Plan. 	Accordingly, the Court hereby sets a
continued hearing on Deutsche’s motion for relief from stay for January
11, 2012 at 9:30 a.m., to discuss the continuing arrears under Debtor’s
Plan, and an appropriate resolution of this matter, which may include a
form of adequate protection order in favor of Deutsche.
**END OF DOCUMENT**
Case: 11-41693 Doc# 39 Filed: 12/22/11 Entered: 12/22/11 13:32:56 Page 5 of 6

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COURT SERVICE LIST
Ann Nhieu Nguyen
Phan, Nguyen, and Associates LLP
1999 Harrison St. #660
Oakland, CA 94612
Joseph Chun, Esq.
McCarthy & Holthus, LLP
1770 Fourth Avenue
San Diego, CA 92101
Case: 11-41693 Doc# 39 Filed: 12/22/11 Entered: 12/22/11 13:32:56 Page 6 of 6