LVNV Funding, LLC v. Harling, v. Simmons-Beasley

Res judicata does not apply to ‘deemed allowed’ claims.

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Case Type:
Case Status:
No. 16-1346 and 16-1347 (consolidated for appeal) (4th Circuit, Mar 30,2017) Published
Held that the Debtors’ objections to LVNV’s proofs of claim as an unsecured creditor are not barred by the doctrine of res judicata. There was no adjudication of the claim of any individual unsecured creditor as part of plan confirmation. Determining the validity of individual unsecured claims is a distinctly separate process under § 502 both in procedure and timing. Therefore, an essential element for application of res judicata—that the later proceeding is the same cause of action as in the prior case—is simply absent from the Chapter 13 plan confirmation as to unsecured creditors.
Procedural context:
Creditor LVNV asserted that its time-barred debt in two consumer Chapter 13 plans was valid notwithstanding the Debtors' objections post-confirmation, but made within the allowable procedural time limits for objection. LVNV appeals the rulings of the Bankruptcy Court for the District of South Carolina with respect to the debtors' time-barred debt (under controlling state law) sought to be payable through the confirmed plans on the basis of res judicata. In Rhodes’ case ($761.44) , the parties jointly moved the bankruptcy court for leave to bypass the district court and appeal directly to this Court under 28 U.S.C. § 158(d)(2)(A), representing the case presented a question of law as to which there was no controlling decision and that resolution of the issue presented would materially advance the progress of Rhodes’ individual case. Harlings’ case ($3,878.86) was appealed to the United States District Court for the District of South Carolina under 28 U.S.C. § 158(a). Shortly after filing its notice of appeal in the district court, however, LVNV and the Harlings filed a joint motion for leave to appeal directly to the Court of Appeals under 28 U.S.C. § 158(d)(2)(A). The district court granted the motion, and again accepted jurisdiction. The National Association of Consumer Bankruptcy Attorneys (NACBA) joined as Amici Supporting Appellees.
LVNV filed proofs of claims in each case before entry of the Confirmation Orders. Claim and bar dates were set according to procedure. The bar date for unsecured creditors usually occurs after plan confirmation. The Debtors objected to both claims as time-barred under state authority. LVNV agreed that ordinarily the claims would be barred, but asserted that the Debtor's objections were invalid and of no effect under the doctrine of res judicata. LVNV argued that the Confirmation Orders were in fact "final orders" of the Court that precluded the later objections. The bankruptcy courts disagreed with LVNV and sustained the Debtors’ objections to LVNV’s claims in reliance on the reservation of rights clauses in the respective Chapter 13 plans. As a consequence, LVNV’s claims were barred by the applicable state statute of limitations, and it will not receive any distribution from the Debtors’ Chapter 13 estates. The instant appeal followed.
Before Circuit Judges Agee, Keenan and Thacker. Affirmed by published opinion authored by Judge Agee, in which Judge Keenan and Judge Thacker joined.

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