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unsecured priority creditor, but the court sustained a claim objection and allowed the claim only as a general unsecured claim. The court then confirmed a chapter 11 plan, which provided that the bank would retain its lien on the property, but made no references to the judgment creditor's lien with respect to that property. Before the debtor could consummate the plan, however, it abandoned the plan and converted the case to chapter 7. In the declaratory judgment action, the bankruptcy court held that the confirmation order, despite the debtor's abandonment of the plan, effectively extinguished the judgment lien under section 1141(c).64 The district court affirmed.
The Fifth Circuit affirmed as well, but not before laying out the four-part test for determining whether a confirmation order effectively strips a lien under section 1141(c). Said the court of appeals, all of the elements were met in this case: (1) the plan was confirmed, despite the debtor's failure to perform under the terms of the plan; (2) the plan "dealt with" the property at issue by providing that the bank's lien would remain; (3) the judgment creditor participated in the confirmation process by filing a proof of claim; and (4) the plan did not "provide otherwise." The court emphasized that post-confirmation events, such as conversion to chapter 7, were not relevant to the effects of confirmation under section 1141(c).
* Wright v. Centennial Healthcare Corp., 383 B.R. 355 (D.D.C. Mar. 2008) (Hogan, J.)
Plaintiff's causes of action, which arose both pre- and post-petition, were discharged by the defendants' confirmed plan. The plaintiff commenced a lawsuit in the district court months after the defendants' chapter 11 plan was confirmed. In her complaint, she alleged causes of action stemming from the defendants' pre- and post-petition conduct.65 The defendants moved to dismiss or, in the alternative, for summary judgment. In granting summary judgment in the defendants' favor, the court noted that the confirmed chapter 11 plan allowed holders of certain administrative claims (as they were defined by the plan) to liquidate their claims in a court of competent jurisdiction post-confirmation as the claim holders desired. The court held, however, that the plaintiff did not have this right because not all of her claims were administrative (some were ordinary pre-petition claims). The plan contained express language indicating that claimants, such as the plaintiff, who hold both ordinary and administrative claims were not free to liquidate their claims through post-confirmation litigation. For this reason, the court granted summary judgment in favor of the defendants.
64 The bankruptcy court also held that the order disallowing the judgment creditor's claim as a priority claim had the effect of extinguishing the lien. However, the Fifth Circuit questioned the soundness of that holding in light of Dewsnup v. Timm, 502 U.S. 410, 415-16, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992) (noting that section 506(d) "only serves to strip liens in cases where a claim secured by the lien itself has not been allowed") (internal quotations omitted).
65 Several allegation of the defendants' retaliation and discrimination occurred pre-petition, but the plaintiff's actual termination occurred post-petition.
