Scott A Olson and Teresa Olson

MEMORANDUM OF DECISION - 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
______________________________________________________
In Re:
Bankruptcy Case
SCOTT A. OLSON and TERESA 	No. 05-40733
OLSON,
Debtors.
______________________________________________________
MEMORANDUM OF DECISION
______________________________________________________
Appearances:
Paula Brown Sinclair, Twin Falls, Idaho, Attorney for Debtors.
Richard J. Hayden, Spokane, Washington, Attorney for Creditor U.S.
Bank.
L. D. Fitzgerald, Pocatello, Idaho, Chapter 13 Trustee.
The Chapter 13 Debtors’ contend their confirmed plan stripped the
lien U.S. Bank held against their home. When the Chapter 13 Trustee objected to
payment of the bank’s secured claim under the plan, U.S. Bank filed a motion to
set aside the confirmation order. Because service of the debtors’ plan on U.S.
Bank was defective, the Court concludes U.S. Bank’s motion to set aside
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MEMORANDUM OF DECISION - 2
confirmation should be granted, thereby rendering the Trustee’s objection to the
bank’s claim moot. The following constitutes the Court’s findings of fact and
conclusions of law. Fed. R. Bankr. P. 7052; 9014.
Procedural History
Debtors Scott and Teresa Olson filed for Chapter 13 relief on April
15, 2005. Docket No. 1. Their proposed plan contained the following language
regarding the treatment of the debt owed to U.S. Bank:
*4.2.3 Other Treatment of Long Term Secured
Claims. The claims of U.S. Bank and Household
Finance Account No. 400011-29-205855-8 may be
secured by an interest in Debtors’ residence, which
interests are junior to Household Finance Account No.
400011-06-221832-2 described in Paragraph 5.1
below. The balance due on the note secured by the
first deed of trust exceeds the value of the real property
Debtors propose to strip the lien claims of U.S. Bank
and Household Finance Account No. 400011-26-
205855-8, and render those claims unsecured upon
confirmation of the Plan.
Chapter 13 Plan, Docket No. 6. A copy of the Plan and the Notice of Hearing
concerning the confirmation hearing was served upon U.S. Bank by “depositing
copies of the same in the United States Mail, postage prepaid, and addressed to the
following: . . . Jerry A. Grundhoffer, CEO, U.S. Bank, 800 Nicollet Mall,
Minneapolis, MN 55402.” Certificate of Service, Docket No. 22. When U.S.
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Bank did not object to confirmation, the plan was confirmed by the Court’s order
entered on June 14, 2005. Docket No. 24.
On June 20, 2005, U.S. Bank filed a secured proof of claim. On
August 4, 2005, L. D. Fitzgerald, the Chapter 13 Trustee, filed an Objection to
U.S. Bank’s claim contending that the confirmed plan had “stripped” U.S. Bank’s
lien, and therefore the claim should not be paid. Docket No. 27. On August 16,
2005, U.S. Bank responded to Trustee’s objection. Docket Nos. 29, 30. U.S.
Bank then filed its motion to set aside the order confirming the plan. Docket No.
37.
U.S. Bank filed a declaration of a bank officer representing that the
bank is a “federal depository institution per FRBP 7004(h).” Decl. of Roger
Brummett at 1, Docket No. 38. U.S. Bank argues the plan was not properly served
pursuant to Fed. R. Bankr. P. 7004(h), and as a result, the order confirming the
plan should be set aside. The Court agrees.
Disposition
“To meet the requirements of the Rules and comply with
considerations of due process, a Rule 3012 motion [to value a lien] (either within
or without a plan) must be served on the affected creditors in accord with Rule
7004.” In re Millspaugh, 302 B.R. 90, 102 (Bankr. D. Idaho 2003). “The litigant
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MEMORANDUM OF DECISION - 4
attempting to effect service is responsible for proper service and bears the burden
of proof.” In re Christman, 04.4 I.B.C.R. 165, 166 n. 31 (Bankr. D. Idaho 2004)
(quoting Beneficial Cal. Inc. v. Villar (In re Villar), 317 B.R. 88, 94 (9th Cir. BAP
2004)).
Debtors’ plan, read liberally, purports to strip U.S. Bank’s lien on
Debtors’ home because the value of the house is less than the amount owed on
debts with liens having priority to that of the bank. See 11 U.S.C. § 506(d);
§ 1322(b)(2). Debtors attempted to serve U.S. Bank in accordance with Fed. R.
Bankr. P. 7004(b)(3) by sending a copy of the plan and notice of the confirmation
hearing via first class mail addressed to U.S. Bank’s chief executive officer.
Debtors argue that, regardless of whether U.S. Bank is an insured depository
institution, Millspaugh condones service on the bank in accordance with Rule
7004(b).
The Court concludes Millspaugh can not be read as narrowly as
Debtors suggest because Rule 7004(b) itself requires compliance with Rule
7004(h). The language of Rule 7004(b) begins with “[e]xcept as provided in
subdivision (h) . . . .” Therefore, by its express terms, Rule 7004(b) only applies if
Rule 7004(h) does not apply. Rule 7004(h), which establishes special notice
provisions for federally insured banks, provides:
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Service on an insured depository institution (as defined
in section 3 of the Federal Deposit Insurance Act) in a
contested matter or adversary proceeding shall be
made by certified mail addressed to an officer of the
institution unless—
(1) the institution has appeared by its attorney,
in which case the attorney shall be served by first-class
mail;
(2) the court orders otherwise after service upon
the institution by certified mail of notice of an
application to permit service on the institution by first-
class mail sent to an officer of the institution
designated by the institution; or
(3) the institution has waived in writing its
entitlement to service by certified mail by designating
an officer to receive service.
The uncontradicted declaration of its officer indicates U.S. Bank is an insured
depository institution entitled to service by certified mail under Rule 7004(h).
The creditor involved in Millspaugh was not an insured depository
institution. Because of this, service on that creditor under Rule 7004(b) was
appropriate. Millspaugh, 320 B.R. at 102. But the Millspaugh court notes that “if
an ‘insured depository institution’ is involved, Rule 7004(h) requires service in the
contested matter to be by certified mail addressed to an officer of the institution
unless one of the three exceptions in Rule 7004(h) applies.” Id. at 102 n. 25.
Reading the Court’s decision fairly, in order for confirmation of a plan to
withstand collateral attack, Millspaugh requires service to be proper under Rule
7004. In this case, no argument or evidence is presented to show that U.S. Bank is
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1 The Court expresses no opinion concerning U.S. Bank’s other various
arguments in opposition to Debtors’ plan. These arguments may be addressed at the
confirmation hearing. In addition, Debtors may, if they choose, amend their plan
provided proper notice thereof is given to interested parties, including U.S. Bank.
MEMORANDUM OF DECISION - 6
not an insured depository institution or that any of the exceptions listed in Rule
7004(h) apply to make service under Rule 7004(b) proper.
Conclusion
Because Debtors’ plan was not properly served on U.S. Bank in
accordance with Rule 7004(h), it did not receive proper notice of Debtors’ attempt
to strip its lien on their home. Therefore, the order confirming the Chapter 13 Plan
must be set aside. Debtors shall schedule their Plan for a new confirmation
hearing. A separate order will be entered.1
Dated: November 9, 2005
Honorable Jim D. Pappas
United States Bankruptcy Judge
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