Matthew J. Menden and Lai P. Menden

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re:
Matthew J. Menden and
Lai P. Menden,
Debtors.
) 	Case No. 07-33707
)
) 	Chapter 13
)
)
) 	JUDGE MARY ANN WHIPPLE
MEMORANDUM OF DECISION
REGARDING OBJECTION TO CLAIM
This matter is before the court on Debtors’ Objection to Claim No. 1-2 filed by National Auto
Finance Company (“Objection”) [Doc. # 59], and National Auto Finance Company’s response [Doc. # 62].
Debtors object to the amended claim filed by National Auto Finance (“National Auto”) and seek repayment
of all monies received by National Auto from the Chapter 13 Trustee.
The court held a hearing that Debtors’ counsel, counsel for National Auto, and the Chapter 13
Trustee attended in person. Having considered the briefs and arguments of counsel, for the reasons that
follow, the court will sustain Debtors’ Objection but will deny their request for an order requiring National
Auto to refund all monies received by it from the Trustee.
BACKGROUND
Debtors filed their Chapter 13 bankruptcy petition on August 25, 2007. Notices of their bankruptcy
case [Doc. # 8] and their Chapter 13 plan filed with their petition [Doc. # 9] were mailed to National Auto
Dated: September 21 2011
The court incorporates by reference in this paragraph and adopts as the findings and
orders of this court the document set forth below. This document has been entered
electronically in the record of the United States Bankruptcy Court for the Northern
District of Ohio.
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at both the address of its payment processing center in Memphis, Tennessee (“Tennessee address”) and the
address of its account servicing center in Little Rock, Arkansas (“Arkansas address”). The notice of
Debtors’ bankruptcy petition also included notice that a hearing on confirmation of their Chapter 13 plan
would be held on November 20, 2007. [Doc. # 8]. Debtors’ original Chapter 13 plan provides that general
unsecured debts be paid ratably by the Trustee 100 cents on the dollar and further provides that Debtors
would make regular monthly payments outside the plan to National Auto. [Doc. # 4].
On August 28, 2007, National Auto filed a proof of claim, asserting a claim in the amount of
$24,863.07, secured by a 2006 Dodge Stratus owned by Debtor Matthew Menden. [Claim No. 1-1]. The
proof of claim states that notices should be sent to the Arkansas address. [See id.].
On October 5, 2007, an attorney representing National Auto filed a general Entry of Appearance,
which he docketed as “Notice of Appearance and Request for Notice.” [Doc. # 14]. Also on that date,
National Auto’s attorney filed a motion for relief from stay and abandonment regarding the 2006 Dodge
Stratus. [Doc. #15]. Debtors did not oppose the motion. They instead filed a proposed Amended Chapter
13 Plan on October 25, 2007. [Doc. # 24]. Debtors’ proposed amended plan changed only the treatment of
National Auto’s secured claim. [Id., p. 3/5, ¶ 9]. 	The proposed Amended Plan provides that the Dodge
Stratus will be surrendered in full satisfaction of the obligation owing to National Auto. [Id.]. Debtors
served the Amended Plan on National Auto at its Tennessee address but not its Arkansas address. 	In
addition, National Auto’s attorney received electronic notice of the Amended Plan. [Doc. #24, Electronic
Receipt]. National Auto did not file an objection to or otherwise contest the Amended Plan. The court
granted National Auto’s motion for relief from the automatic stay on November 5, 2007. [Doc. # 30]. And
after the confirmation hearing was held as noticed on November 20, 2007, [see Doc. ## 7,8], Debtors’
proposed Amended Plan was confirmed by order of the court entered on December 12, 2007. [Doc. # 36].
On February 2, 2008, National Auto electronically filed an amended proof of claim, asserting an
unsecured claim in the amount of $16,920.57, which amount represents the deficiency balance remaining
after the Dodge Stratus was surrendered and sold. [Claim No. 1-2]. 	The amended proof of claim also
specified a new address in Minnesota where notices should be sent.
In the meantime, the Trustee has paid $9,278.34 to National Auto on its unsecured claim. Before
making any payments to unsecured creditors, the Trustee filed a Notice of Claims Filed and Intent to Pay
Claims on March 14, 2008. [Doc. # 40]. The notice reported that National Auto Fiance [sic] Company
would be paid as an unsecured creditor in the amount of $16,920.57 “[u]nless a party in interest files an
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objection and request for hearing within 30 days of the date of the service of this Notice. . . .” [Id.]. 	The
Chapter 13 Trustee’s Notice of Claims Filed and Intent to Pay Claims was served by regular U.S. Mail
postage prepaid on Debtors and by both regular U.S. mail and electronically on Debtors’ attorney on March
14, 2008. [Id.]. No objection to the National Auto amended proof of claim was filed until Debtors filed
the instant Objection through substitute counsel on February 16, 2011. According to the Chapter 13 Trustee,
since he began making payments to unsecured creditors, including National Auto, he has sent notices every
six months to Debtors and their attorney informing them of the payments he has made.
LAW AND ANALYSIS
Debtors object to National Auto’s amended proof of claim in that it asserts a deficiency balance
owed on the Dodge Stratus and also request an order requiring it to refund all monies that it has received
from the Chapter 13 Trustee. In support of their Objection, Debtors rely on the provision in their Amended
Plan that the Dodge Stratus would be surrendered in full satisfaction of National Auto’s claim. In response,
National Auto raises due process issues, arguing that it was not properly served with Debtors’ Amended
Plan and that Debtors’ change in treatment of its claim affected the validity and priority of its lien such that
Debtors were required to commence an adversary proceeding. National Auto further argues that even if it
had received proper notice of the Amended Plan, Debtors’ lack of diligence in objecting to National Auto’s
amended proof of claim, which it contends should have been filed several years ago, precludes recovery of
any funds already disbursed to it by the Trustee.
The issues raised by the parties’ arguments to be decided by the court are (1) whether National Auto
received constitutionally sufficient notice of Debtors’ Amended Plan and, (2) if adequate notice was
provided, whether Debtors are entitled to retrospective relief on their Objection filed three years after
National Auto filed its amended proof of claim. 	For the reasons that follow, the court concludes that
National Auto did receive constitutionally sufficient notice of the Amended Plan and the treatment of its
claim but that Debtors’ relief is limited to prospective relief.
I. National Auto Was Not Denied Due Process
The Bankruptcy Code provides that “[t]he 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.” 11 U.S.C. § 1327(a). Thus, absent a timely
appeal, a confirmation order is res judicata of all issues that could or should have been litigated at the
confirmation hearing. 	United Student Aid Funds, Inc. v. Espinosa, – U.S. –,130 S.Ct. 1367, 1376 (2010)
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(stating confirmation of proposed Chapter 13 plan was a final judgment); Ruskin v. DaimlerChrysler Servs.
N. Am., L.L.C. (In re Adkins), 425 F.3d 296, 302 (6th Cir. 2005); Storey v. Pees (In re Storey), 392 B.R. 266,
270 (B.A.P. 6 th Cir. 2008). 	“Underlying this principle is the need for finality that parties have after
confirmation of a plan so that they may rely upon the terms of the plan and confirmation order ‘without
concern that actions which they may thereafter take could be upset because of a later change or revocation
of that order.’” In re McLemore, 426 B.R. 728, 734 (Bankr. S.D. Ohio 2010) (quoting 8 Collier on
Bankruptcy, 1327.02 (16th ed. 2009)).
An exception to the res judicata effect of a confirmed Chapter 13 plan exists where there is a lack
of due process caused by failure to provide notice of the proposed plan to creditors. Id. (“the need for
finality does not trump a creditor’s due process rights”); Piedmont Trust Bank v. Linkous (In re Linkous),
990 F.2d 160, 162 (4th Cir. 1993); In re Harris, 293 B.R. 438, 441 (Bankr. N.D. Ohio 2003). Thus, for a
plan to be binding on a creditor, due process requires that notice be given to the creditor that is reasonably
calculated, under all of the circumstances, to apprise the creditor that its rights may be altered and affords
it the opportunity to present any objection.1 In re McLemore, 426 B.R. at 735 (citing Mullane v. Central
Hanover Bank & Trust, 339 U.S. 306, 314 (1950)); In re Thaxton, 335 B.R. 372, 374 (Bankr. N.D. Ohio
2005).
In 2007, Federal Rule of Bankruptcy Procedure 2002(b) required that creditors be given not less than
twenty-five days notice by mail of the time fixed for filing objections to, and the hearing to consider,
confirmation of a Chapter 13 plan.2 Rule 2002(g)(1) provides that notices required to be mailed under Rule
2002 to a creditor “shall be addressed as such entity or an authorized agent has directed in its last request
filed in the particular case.” “[A] proof of claim filed by a creditor . . . that designates a mailing address
constitutes a filed request to mail notices to that address. . . .” Fed. R. Bankr. P. 2002(g)(1)(A). 	The
Bankruptcy Rules further provide that “[t]he plan or a summary of the plan shall be included with each
notice of the hearing on confirmation mailed pursuant to Rule 2002.” Fed. R. Bankr. P. 3015(d).
There is no dispute that National Auto was properly served with notice of the confirmation hearing
1 This exception to finality is provided under Federal Rule of Civil Procedure 60(b), which, “on motion and just terms,”
permits the court to relieve a party from a final judgment, and, more specifically, Rule 60(b)(4), which authorizes the court to
relieve a party from a final judgment if “the judgment is void.” See Espinosa, 130 S.Ct. at 1376. National Auto has not sought
relief from the court’s plan confirmation order under Rule 60(b), which applies in this case under Rule 9024 of the Federal Rules
of Bankruptcy Procedure. Notwithstanding National Auto’s failure to present its argument in a procedurally proper manner, the
court nevertheless addresses its due process arguments.
2 Rule 2002 has since been amended to require that creditors be given not less than twenty-eight days notice by mail.
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date and Debtors’ originally filed Chapter 13 plan. Both notices were sent by the court on September 2,
2007, by first class mail to National Auto’s Tennessee and Arkansas addresses and were not returned to the
clerk’s office. Rather National Auto contends that Debtors’ failure to serve the proposed Amended Plan
at the Arkansas address that is provided in its original proof of claim deprived it of due process.
It is clear that Debtors were required to provide National Auto adequate notice of their proposed
Amended Plan in order to apprise it that its rights may be altered and to afford it the opportunity to present
any objection to the treatment of its claim in the Amended Plan. Although Debtors mailed the Amended
Plan to National Auto at its Tennessee address rather than its Arkansas address, National Auto’s attorney
also received electronic service of the Amended Plan on October 25, 2007, twenty-five days before the
confirmation hearing. The entry of appearance docketed as “Notice of Appearance and Request for Notice”
filed by National Auto’s attorney and served on Debtors and their attorney was the “last request filed” for
notices in this case. Counsel did not limit his entry of appearance on behalf of National Auto to any specific
matter. An attorney representing a creditor in a bankruptcy case is the creditor’s agent. See Ford Motor
Credit Co. v. Weaver, 680 F.2d 451, 457 (6th Cir. 1982) (“The general rule for imputing an agent's notice
or knowledge is applicable in bankruptcy cases. In most of the cases where an agent’s knowledge of
bankruptcy proceedings is imputed to a creditor, the agent is an attorney who has been authorized either to
collect the balance due on a defaulted debt or represent the creditor in bankruptcy proceedings.”). As an
Electronic Case Filing system registered user, National Auto’s attorney consented to receiving electronic
service of papers in lieu of mail service. See United States Bankruptcy Court for the Northern District of
Ohio Electronic Case Filing Administrative Procedures Manual, Part II, ¶ D(1); Fed. R. Bankr. P. 9036.
Thus, under Rule 2002(g)(1), notice of the proposed Amended Plan was properly sent as directed by an
authorized agent of National Auto.
In any event, the failure to serve the proposed Amended Plan in accordance with a procedural rule
such as Rule 2002(g) does not necessarily amount to a violation of the creditor’s constitutional right to due
process. See Espinosa, 130 S.Ct. at 1378. Here, National Auto’s attorney was provided notice of the filing
of the Amended Plan during his representation of it in this bankruptcy case. 	This constitutes notice
reasonably calculated, under all the circumstances, to apprise National Auto that its rights may be altered
and afford it the opportunity to present any objection. See Standard Indus., Inc. v. Aquila, Inc. (In re C.W.
Mining Co.), 625 F.3d 1240, 1245 (10 th Cir. 2010) (finding that creditors held in civil contempt were not
denied due process as their attorney was served with the contempt motion and notice of hearing); Curtis v.
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LasSalle Nat’l Bank (In re Curtis), 322 B.R. 470, 483 (Bankr. D. Mass. 2005) (finding “[a]ll of the
Defendants’ due process rights to service and notice were fully satisfied by service upon [their attorney]”);
Linder v. Trump’s Castle Assoc., 155 B.R. 102, 104 (D.N.J. 1993) (agreeing that notice served on an
attorney already representing the claimant in the bankruptcy case satisfies any requirement to notice to the
claimant); In re Glow, 111 B.R. 209, 219 (Bankr. N.D. Ind. 1990) (finding creditor was given reasonable
actual notice of bankruptcy case when creditor’s attorney was notified of the debtor’s bankruptcy).
Nor were Debtors required to commence an adversary proceeding to afford National Auto due
process. National Auto incorrectly argues that Debtors’ proposed Amended Plan effected a change in the
priority and validity of its lien on the Dodge Stratus. Cf. Fed. R. Bankr P. 7001(2). To the contrary, the plan
provision that Debtors would surrender the vehicle in full satisfaction of the debt owed to National Auto
did not effect any change in the status of its lien. National Auto received the full proceeds of the sale of
its collateral after it was surrendered by Debtors. Its lien on the Dodge Stratus entitled it to nothing more
than that.
For all of the foregoing reasons, the court concludes that National Auto received constitutionally
sufficient notice of Debtors’ Amended Plan and of the treatment of its claim in that plan. The Amended
Plan is res judicata with respect to National Auto’s entitlement to an unsecured deficiency claim upon
disposition of its collateral and Debtors’ objection to National Auto’s amended claim is therefore well-taken.
II. Debtors Are Only Entitled to Prospective Relief On Their Objection
Debtors request an order disallowing National Auto’s claim in its entirety and requiring National
Auto to repay all monies that it has received from the Chapter 13 Trustee before they filed their Objection
to its proof of claim.3 National Auto, for its part, argues that Debtors’ lack of diligence in objecting to its
claim precludes the relief requested.
None of the Bankruptcy Code, the Bankruptcy Rules or the Local Bankruptcy Rules specify a
limitation period for objecting to the allowance of proofs of claim and for seeking the relief requested by
Debtors. See 11 U.S.C. § 502; Fed. R. Bankr. P. 3007; cf. In re Euliano, 442 B.R. 177, 180 n.5 (Bankr. D.
3 Under Rule 7001 of the Federal Rules of Bankruptcy Procedure, “a proceeding to recover money or property, other
than a proceeding to compel the debtor to deliver property to the trustee, or a proceeding under § 554(b) or § 725 of the Code,
Rule 2017, or Rule 6002” requires the commencement of an adversary proceeding. Fed. Rule Bankr. P. 7001(1). Debtors’ request
for an order requiring National Auto to repay monies received by it from the Chapter 13 Trustee falls under none of the exceptions
to this requirement. Under Rule 3007(b), a party may not include a demand for relief of a kind specified in Rule 7001 in an
objection to a proof of claim. However, because National Auto has not raised this procedural issue, the court addresses only the
arguments presented by the parties.
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Mass. 2010)(by local rule, the deadline for objecting to claims is 30 days after the claims bar date).
However, the equitable defense of laches may limit the time within which a party must file any objection
to proofs of claim.
“Laches is the ‘negligent and unintentional failure to protect one’s rights.’” Nartron Corp. v.
STMicroelectronics, Inc., 305 F.3d 397, 408 (6th Cir. 2002). It is an equitable doctrine used to determine
the timeliness of claims when there is no specific statute of limitations that is applicable. Int’l Tel. & Tel.
Corp. v. Gen. Tel. & Elec. Corp., 518 F.2d 913, 926 (9th Cir. 1975). In such cases, “[e]quity . . . fashions
its own time limitations through laches, the doctrine embodying the principle that equity will not aid a party
whose unexcused delay would, if his suit were allowed, prejudice his adversary.” Id. “A party asserting
laches must show: (1) lack of diligence by the party against whom the defense is asserted, and (2) prejudice
to the party asserting it.” Nartron Corp., 305 F.3d at 408.
In applying this doctrine to the circumstances in this case, the court finds instructive the Sixth
Circuit’s approach in Nartron Corporation. In that case, the plaintiff brought a trademark infringement
action against a competitor. There being no specific limitation period for such actions, the court applied
an analogous state statute of limitation. Nartron Corp., 305 F.3d at 408; see Wilson v. Garcia, 471 U.S.
261, 266-67 (1985) (“When Congress has not established a time limitation for a federal cause of action, the
settled practice has been to adopt a local time limitation as federal law if it is not inconsistent with federal
law or policy to do so.”). 	The court explained that in evaluating whether a party has been diligent in
protecting its trademark, a delay beyond the analogous limitation period is presumptively prejudicial and
unreasonable. Id.; see PBM Prod., LLC v. Mead Johnson & Co., 639 F.3d 111, 121 (4th Cir. 2011); Wanlass
v. Fedders Corp., 145 F.3d 1461, 1464 (Fed. Cir. 1998). 	The party against whom laches is asserted may
overcome the presumption by “(1) rebut[ting] the presumption of prejudice; (2) establish[ing] that there was
a good excuse for its delay; or (3) show[ing] that the defendant engaged in ‘particularly egregious conduct
which would change the equities significantly in plaintiff’s favor.’ ” 	Nartron Corp, 305 F.3d at 409
(citation omitted).
In determining an appropriate limitation period in this case, the court considers the progression of
a Chapter 13 case, the tension that exists between two processes during the case – the confirmation process
and the claims allowance process, see In re Euliano, 442 B.R. at 184 n. 15 (Citing large sample of cases,
court notes that “variations on these themes are rampant...producing a mixed bag of jurisprudence on the
res judicata effect of confirmed Chapter 13 plans, deemed allowance of proofs of claim, conflicts between
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plans and proofs of claim, and parties’ failure to timely raise pertinent issues and protect their rights.”), and
the necessity to resolve this tension in a timely manner for purposes of determining distribution under a
Chapter 13 plan, which determination impacts all creditors entitled to payment. On one hand, the
confirmation process in this case resulted in a confirmed Chapter 13 plan that unambiguously provided that
Debtors’ Dodge Stratus would be surrendered in full satisfaction of the debt owed to National Auto and for
payment in full of Debtors’ unsecured debt. On the other hand, under the claims allowance process, a claim
properly filed in accordance with § 501 is deemed allowed unless a party in interest objects. 11 U.S.C.
§ 502(a). 	To the extent that these processes conflict, it was 	incumbent upon Debtors under the
circumstances of this case to resolve it.
To that end, and because there is no specific time within which an amended claim must be filed, the
procedure employed by the Chapter 13 Trustee in this court is to file a Notice of Claims Filed and Intent
to Pay Claims before payments to creditors are made. This procedure comports with the fact that debtors
generally have superior knowledge of facts relating to claims filed in their cases. It is the thus a debtor’s
burden to file an objection to an unsecured claim that is otherwise deemed allowed by the statute and that
is, therefore, noticed to be paid in accordance with the Chapter 13 plan’s treatment of unsecured debt where
there is a basis for such an objection.
In this case, such notice was served by regular mail on Debtors and both electronically and by
regular mail on Debtors’ attorney on March 14, 2008. The notice reported that National Auto would be paid
as an unsecured creditor with a claim in the amount of $16,920.57 “[u]nless a party in interest files an
objection and request for hearing within 30 days of the date of the service of this Notice.” [Doc. # 40]. The
court finds this time period – thirty days from the date of service of the Chapter 13 Trustee’s Notice of
Claims Filed and Intent to Pay Claims – is the appropriate limitation period for filing objections to proofs
of claim in this court. See In re Windom, 284 B.R. 644, 648-49 (Bankr. E.D. Tenn. 2002) (refusing to direct
creditor to disgorge dividends it received from the Chapter 13 trustee where the trustee had served a notice
of intent to pay the creditor, requesting objections to claims be filed within thirty days, and no objection was
filed by the debtors for over three years); Shook v. CBIC (In re Shook), 278 B.R. 815, 830-31 (B.A.P. 9 th
Cir. 2002) (same where debtors delayed filing an objection for four years and noting that “the integrity of
the chapter 13 process itself was brought into issue”).
Debtors did not object to National Auto’s amended proof of claim asserting the unsecured deficiency
until February 16, 2011, nearly three years after being served with the Trustee’s notice. 	Applying the
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principles of Nartron Corporation, Debtors’ delay is presumptively unreasonable and prejudicial. The
unreasonableness of the delay is underscored by the fact that, according to the Trustee, similar notices
regarding payment of National Auto’s amended claim were sent to Debtors and their attorney every six
months during that three year period. Debtors produced no evidence to rebut the presumption of prejudice.
A successful laches defense, however, only bars damages that occurred before the filing date of a
lawsuit or, in this case, of the Objection. Nartron Corp., 305 F.3d at 412. Thus, Debtors are not entitled
to an order requiring National Auto to refund monies it received from the Chapter 13 Trustee before
February 15, 2011. However, Debtors having now raised their Objection, albeit three years after National
Auto’s amended proof of claim was filed, the court agrees that the Amended Plan provides a valid basis for
disallowing National Auto’s unsecured deficiency claim going forward from that date.
In summary, the Amended Plan is res judicata as to all issues that were or could have been raised
during the confirmation process. 	National Auto could have, but did not, object to the Amended Plan
provision that Debtors would surrender the vehicle securing the debt owed to it in full satisfaction of the
debt. National Auto, having received adequate notice of the Amended Plan, the proposed treatment of its
claim and the confirmation hearing, cannot now collaterally attack the confirmation order. Thus, National
Auto’s amended claim for an unsecured deficiency after disposition of the collateral will be disallowed,
but only in the amount of the balance of the claim that remained unpaid as of February 15, 2011.
The court will enter a separate order in accordance with this Memorandum of Decision.
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