Bankr. Case No. 06-62262-6-sdg
MEMORANDUM-DECISION AND ORDER
On January 8, 2007, Appellant CFCU Community Credit Union ("CFCU") filed with this Court a Notice of Appeal from an Order of the United States Bankruptcy Court for the Northern District of New York (Gerling, Chief B.J.) (the "Bankruptcy Court"), entered on December 1, 2006, directing Appellees Walter and Barbara Jones ("Debtors") to comply with the Bankruptcy Court's Administrative Order 05-03 and make adequate protection payments on their car loan to the Chapter 13 Trustee (the "Trustee") rather than directly to CFCU. CFCU appealed the decision. The Court has jurisdiction on appeal pursuant to 28 U.S.C. § 158(a). For the following reasons, the December 1, 2006 order of the Bankruptcy Court is affirmed.
There is no dispute regarding the facts of the case, which the Court will only briefly review. CFCU financed Debtors' purchase of a 2002 Isuzu Trooper; CFCU was granted a security interest in the Isuzu and was listed as a lienholder on the title. Debtors filed a bankruptcy petition pursuant to Chapter 13 with the Bankruptcy Court on September 19, 2006 and CFCU was listed as a secured creditor. Debtors also filed a Chapter 13 plan on September 19, 2006 that provided they would retain possession of the Isuzu, while, after plan confirmation, the Trustee would make periodic payments to CFCU to satisfy its secured claim. On October 24, 2006, CFCU moved for an order requiring Debtors to make the required adequate protection payments, and that such payments be made directly to it. Debtors agreed to make the payments, but to the Trustee and not CFCU. The Trustee asserted that the Bankruptcy Court's Administrative Order 05-03 (the "Administrative Order") required Debtors to make the payments to the Trustee. Chief Judge Gerling ruled for the Trustee and stated that though the Bankruptcy Code requires adequate protection payments be made directly to the creditor, the Administrative Order was enacted pursuant to the language appearing at the beginning of 11 U.S.C. § 1326(a)(1), which allows bankruptcy courts the authority to "order otherwise."
In reviewing the rulings of a bankruptcy court, a district court applies the clearly erroneous standard to a bankruptcy court's conclusions of fact, and reviews de novo conclusions of law. Yarinsky v. Saratoga Springs Plastic Surgery, 310 B.R. 493, 498 (N.D.N.Y. 2004) (Hurd, D.J.) (citing to In re Manville Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir. 2000)); In re Petition of Bd. of Dirs. of Hopewell Int'l Inst. Ltd., 275 B.R. 699, 703 (Bankr. S.D.N.Y. 2002); FED. R. BANKR. P. 8013. Mixed questions of law and fact are reviewed de novo. Ernst & Young v. Bankr. Servs. (In re CBI Holding Co.), 311 B.R. 350, 360 (S.D.N.Y. 2004) (citing to In re Vebeliunas, 332 F.3d 85, 90 (2d Cir. 2003); In re AroChem Corp., 176 F.3d 610, 620 (2d Cir. 1999)).
A. Is the Appeal Before the Court Moot?
CFCU notes that debtors are only required to make adequate protection payments mandated by 11 U.S.C. § 1326(a)(1)(C) until their Chapter 13 plan is confirmed. Appellant's Brief (Dkt. No. 4) at 1. CFCU explains that Debtors' Chapter 13 plan was confirmed on February 15, 2007, and, therefore, Debtors are no longer required to make payments, which makes this appeal moot. Id. However, CFCU argues that an exception to the mootness doctrine applies in this case because the issue presented is "capable of repetition, yet evading review." Id. CFCU asserts that this exception applies because: (1) the challenged action, the requirement that adequate payments be made to the Trustee, is of too short a duration to be fully litigated prior to the time when the requirement terminates on plan confirmation; and (2) there is a reasonable expectation that CFCU, as a lender with an extensive portfolio of purchase money car loans, will be subject to the same action again. Id. at 1-2. The Trustee does not challenge CFCU's appeal as moot. The Court agrees with CFCU that this appeal falls within an exception to the mootness doctrine and the Court has jurisdiction to hear it.
B. Can the Bankruptcy Court Issue an Order Pursuant to the "Unless the Court Orders Otherwise" language in Section 1326 to Direct Adequate Protection Payments to the Trustee?
Section 1326(a)(1) of the Bankruptcy Code states in relevant part: Unless the court orders otherwise, the debtor shall commence making payments not later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier, in the amount-
(C) that provides adequate protection directly to a creditor holding an allowed claim secured by personal property to the extent the claim is attributable to the purchase of such property by the debtor for that portion of the obligation that becomes due after the order for relief . . .
11 U.S.C. § 1326(a)(1) (emphasis added). This provision means that, without intervention from a bankruptcy court, a creditor with an allowed claim secured by a purchase money security interest is entitled to adequate protection for the period of time between the filing of the case and the confirmation or dismissal of the case. See id.; Drive Fin. Servs. v. Brown (In re Brown), 348 B.R. 583, 587 (Bankr. N.D. Ga. 2006).
The Bankruptcy Court issued the Administrative Order in order to clarify and simplify the manner in which section 1326 pre-confirmation adequate protection payments are made. The Administrative Order mandates, among other things, that: (1) debtors made adequate protection payments to the Trustee; and (2) that the Trustee disburse the payments to the secured creditor. See Administrative Order (Dkt. No. 4, Attach. 2) at 3-4. Courts have held that the "unless the court orders otherwise" language of section 1326(a)(1) allows a court to order a debtor to make pre-confirmation adequate protection payments to the Chapter 13 Trustee instead of to the secured creditor. Brown, 348 B.R. at 590; In re Beaver, 337 B.R. 281, 284 (Bankr. E.D.N.C. 2006). The Court agrees that the language in question precedes all of section 1326(a)(1), including subsection 1326(a)(1)(C), and the plain meaning of the statute allows a court to revise the requirement that the debtor make pre-confirmation payments directly to a secured creditor. Moreover, this interpretation is in keeping with the scheme created by other subsections of section 1326 that similarly contemplate courts altering other payments required under section 1326(a) and ordering debtors to make payments to the Trustee. See 11 U.S.C. § 1326(a)(3) (court may, upon notice and a hearing, ...