In the absence of fraud, court mistake of fact or clerical error, or due process violation, a bankruptcy court cannot revoke a confirmation order under Rule 60(b). Federal National Mortgage Ass’n v. Meeko, No. 15-1200 (D. Or. March 17, 2016).
Joseph and Carmen Meeko owned property subject to a $275,000 mortgage held by Fannie Mae. They also owed $173,562.41 in fees and assessments to the Meritage Homeowners Association. In their chapter 13 plan they provided that the property “shall be vested in Fannie Mae, its successors, transferees, or assigns” pursuant to section 1322(b)(9). Fannie Mae was properly served with notice of the plan to its servicer, Ocwen, but due to computer and human error at Ocwen notice never made it to the attention of its bankruptcy counsel. Fannie Mae did not object to plan confirmation nor did it appeal the confirmation order. Shortly after confirmation the debtors filed an adversary proceeding alleging that Meritage violated the automatic stay and provisions of the confirmation by continuing to seek payment of the HOA fees. Meritage filed a third-party complaint against Fannie Mae as the new owner of the property. Fannie Mae sought to have the confirmation order set aside under Rule 60(b) and section 105(a). The Bankruptcy court denied the motion. Fannie Mae sought reconsideration based on the intervening case of Bank of NY Mellon v. Watt, 2015 WL 1879680 (D. Or. Apr. 22, 2015), which held that plans could not vest property in a creditor absent consent. The bankruptcy court denied the motion.
On appeal, the district court addressed the application of Rule 60(b) in the bankruptcy context. Bankruptcy Rule 9024 provides that Rule 60 applies in bankruptcy except that “a complaint to revoke an order confirming a plan may be filed only within the time allowed by” section 1330. Section 1330(a) provides: “On request of a party in interest at any time within 180 days after the date of the entry of an order of confirmation under section 1325 of this title, and after notice and a hearing, the court may revoke such order if such order was procured by fraud.”
The court rejected Fannie Mae’s argument that the reference to fraud in section 1330 relates to the temporal requirement but does not otherwise limit the bases, including excusable neglect or extraordinary circumstances, upon which revocation may be made. Rather, the court found that the text of section 1330(a) is both temporal and substantive, narrowing revocation to requests brought within 180 days and involving fraud. This, the court said, is in harmony with the need for finality in confirmation orders and gives meaning to all the language of the statute.
The court did note, however, that fraud is not the only circumstance justifying revocation. Courts have revoked confirmation orders where the order was based on a mistake of fact, In re Cisneros, 994 F.2d 1462 (9th Cir. 1993), or where the party seeking revocation has been denied due process. In this case the court found that the Meekos’ shifting of responsibility for the HOA fees did not constitute fraud, and given that such plan provisions have been accepted by other courts, it could not be said even to have been bad faith (though bad faith would not have justified revocation in any case).
The court turned to Fannie Mae’s argument that it had been denied substantive due process. The court found that due process requires only that notice be provided in a way reasonably calculated to alert a creditor that his rights might be affected. Even if Fannie Mae was statutorily entitled to an adversary proceeding with service and summons, the absence of those protections is a procedural issue and does not rise to the level of a constitutional due process violation. Here, Fannie Mae received actual notice of the plan provisions and failed to object solely as a result of its own errors. It was not denied due process.
Fannie Mae’s attempt to convince the court to use its equitable powers under section 105(a) were equally unavailing. That section does not empower a court to do what another provision of the Bankruptcy Code prohibits. Where section 1330(a) delimits the circumstances under which a court may revoke a confirmation order, section 105(a) cannot be used to circumvent those limitations.
With respect to the bankruptcy court’s denial of the motion for reconsideration based on the intervening case of Bank of NY Mellon v. Watt, the court found that the decision in Watt did not address the issue of revoking confirmation based on Rule 60(b) and that “[w]hen Fannie Mae failed to object to or appeal the confirmation order, it forfeited its arguments; the confirmation order remains enforceable and binding.”
Tags: Motion to revoke confirmation, Rule 60(b)
