A hearing was held on May 16, 1994, regarding the Debtor's Motion to Confirm that Plan is Binding on Creditor and Kathryn Link's Motion for Relief From Confirmation Order. William Artus appeared for the debtor. Erik LeRoy appeared for Kathryn Link. The court heard the arguments of counsel and reviewed the evidence, exhibits, and memoranda of counsel. Additionally, the court has taken judicial notice of the contents of the file and the tapes of the confirmation hearings. The court has jurisdiction over the controversy in accordance with 28 U.S.C. § 157(b)(2)(L). I find for the debtor.

Factual Backaround

       Hawkins Enterprises was a partnership consisting of Van and Zo Hawkins. Van and Zo Hawkins were married. Van died from cancer after the filing of the petition. Hawkins owns several trailer parks in the Anchorage area. One of the parks was known as the Sunset Mobile Home Park. It is a 91-space park located in East Anchorage. Hawkins purchased Sunset from Vern Brooks in 1985 and assumed a first trust deed to Bert Kellog as part of the purchase. Brooks took a second note and trust deed on the park. Brooks later transferred the Hawkins note and deed of trust to his sister, Kathryn Link. Due to a number of factors, including a major recession in the late 1980s, Hawkins filed for reorganization under chapter 11 on March 29, 1991. Hawkin's schedules reflected an undisputed secured debt of $100,000.00 due Kellog, as well       3 ABR 433  as an undisputed secured debt of $970,000.00 due Kathryn Link regarding Sunset. The value of Sunset was listed at $1,200,000.00.

       Erik LeRoy made an immediate appearance in the chapter 11 proceeding on Link's behalf. LeRoy is an Anchorage attorney with extensive bankruptcy experience. On April 4, 1991, he filed a notice indicating Link had a perfected security interest in the Sunset rents. On April 16, 1991, the debtor filed an application for the use of cash collateral generated from the operation of Sunset. After a hearing on April 19, 1991, the debtor's motion for use of cash collateral was granted. On July 30, 1991, LeRoy filed an application to enforce the order approving the use of cash collateral. An August 28, 1991, hearing on the application was vacated after LeRoy advised that the matter had been settled. LeRoy also filed objections to the Hawkin's proposed compensation. The debtor subsequently filed a motion for the approval of adequate protection payments to certain secured creditors, including $7,000.00 per month to Kellog. An order was entered on December 9, 1991, which allowed the payments.

Near this time Brooks started visiting the Hawkins office to see an employee he was dating. Brooks talked with Zo Hawkins about his sister's bankruptcy claim. They orally agreed to compromise the claim for $700,000.00. They further agreed to the deferral of payments pending the payoff of the underlying Kellog claim at the rate of $7,000.00 a month. Zo Hawkins contacted her attorney, William Artus, who prepared a draft of a proposed compromise of the claim in March of 1992. Artus sent the proposal directly to LeRoy. The agreement was never signed. Payments continued to be made on the underlying Kellog claim, however, along with some of the continuing taxes and assessments due the Municipality of Anchorage.

       Hawkins filed a chapter 11 plan of reorganization in late 1992. A second amended chapter 11 plan was filed in early 1993 and noticed for confirmation. The plan was complex and contained 18 separate classes of claims. Under the plan, income from the debtors mobile home parks was pooled to pay secured creditors and repay substantial tax and assessment delinquencies due the Municipality of Anchorage. The Kellog and Link claims were listed as classes 7 and 8, respectively. LeRoy, attorney for Link, received notice of the confirmation hearing set for

February 25, 1993, along with the Second Amended Disclosure Statement and Plan. The plan provided for substantial impairments of the Link claim. It also provided a means for remedying tax delinquencies on Sunset Park and other properties. It mirrored the provisions of the compromise agreement drafted earlier by Artus. The Second Amended Disclosure Statement provided the following treatment of the Kellog and Link claims:

       Class 7. Kellog is owed approximately $37,000 as of December 31, 1992. The claim is secured by a first position deed of trust lien against Sunset. Hawkins Enterprises has been paying $7,000 per month to Kellog during the past year. Hawkins Enterprises will continue to pay $7,000 per month to Kellog until Confirmation. After Confirmation the monthly payment to Kellog will be reduced to $6,000. The payment will be due on the 25th of each month. The monthly payment will remain at $6,000 until Kellog has been paid in full. Kellog will retain his lien against Sunset until he has been paid in full. If Hawkins Enterprises fails to (1) make the payments to Kellog required by this Plan; (2) pay the Class 1 and Class 3 claims of the Municipality of Anchorage; or (3) pay current taxes or assessments against Sunset, Kellog will have the right to pursue his remedies as a secured creditor under his deed of trust and applicable state law. The claim of Kellog is impaired under the Plan.

       Class 8. The claim Link will be fixed as of Confirmation at the principal amount of $700,000. All amounts due Link in excess of $700,000 will be waived. The claim is secured by a second position deed of trust lien against Sunset. The obligation to Link will not earn or accrue interest until the Kellog claim has been paid in full provided timely payments are made by Hawkins Enterprises. If Hawkins Enterprises fails to timely make the monthly payments of $7,000 to Kellog up to Confirmation and $6,000 after Confirmation until Kellog is fully paid, interest will begin to accrue on the obligation to Link at the rate of 9% per annum on the date any payment to Kellog is more than 30 days past due. If Hawkins Enterprises timely makes the payments to Kellog as required by the Plan interest will begin to accrue on the $700,000 obligation to Link on the date that Kellog is paid in full. Beginning thirty days after the date Kellog is paid in full Hawkins Enterprises will make monthly payments of $6,000 to Link. The first payment will be due on the 25th day of the month after Keflog has been paid. The payments to
      3 ABR 435  Link will be due on the 25th of each month and will continue until the claim is paid in full. The payment to Link will be $6,000 per month for the first 18 months that payments are required. Beginning with the 19th payment the monthly payment to Link will increase to $7,000 and remain at that level until the claim is paid in full. Link will retain her lien against Sunset until she has been paid in full. At Confirmation Link will cause to be released to Hawkins Enterprises the approximate amount of $5,650 in a joint signature account at National Bank of Alaska. If Hawkins Enterprises fails to (1) timely make the payments to Kellog and Link as required by the Plan; (2) pay the Class 1 and/or Class 3 claims of the Municipality of Anchorage; or (3) pay the current taxes or assessments against Sunset, Link will have the right to pursue her remedies as a secured creditor under her deed of trust and applicable state law. The claim of Link is impaired under the Plan.

February 22, 1993, is fixed as the last day for filing and serving pursuant to Fed. R. Bankr. P. 3020(b) (1) written objections to confirmation of the plan.

       William Artus, attorney for the debtor, contacted LeRoy regarding the confirmation hearing. LeRoy told Artus that his client would accept the plan. LeRoy did not agree with his client. Brooks controlled the claim which was formally in the name of his sister, Kathryn Link. Brooks had been charged with attempted murder in a plot to kill his ex-wife and state Superior Court Judge Victor Carlson. Brooks was in prison. He was depressed and mentally impaired, according to LeRoy. LeRoy felt the debtor was attempting to take advantage of Brooks' situation. Rather than formally accept the plan by filing a ballot, LeRoy stated he would simply not oppose confirmation.

       At the February 25, 1993, confirmation hearing, I inquired as to the voting status of classes 7 and 8, Kellog and Link, respectively. The following exchange took place:

THE COURT: And then seven and eight?

MR. ARTUS: That's Mr. Kellog. Actually, he'll be paid, probably within the next month or two anyway by the payments he's going to receive under the plan. No ballot. Mr. LeRoy represents Ms. Link. I spoke to him, he said he will just pass. Not object.

THE COURT: Okay. Well, I can go through these things later, but the ---- when theres no ---I assume that in each case where there's been no ballot received or a rejection, you feel that the claims are subject to cramdown, is that correct?

MR. ARTUS: Yes.

THE COURT: Okay. And you're going to offer testimony this afternoon as to what is appropriate for cramdown in those instances?

MR. ARTUS: Yes.

       Despite Mr. Artus's statements, no cramdown testimony was offered. Rather, the hearing centered around the feasibility objections of the FDIC to confirmation of the plan. Following the hearing, I issued an order requiring the debtor to address the feasibility of the plan relative to both municipal and federal taxes and assessments, as well as feasibility relative to the sale of certain real property parcels and payment of a $450,000.00 balloon payment to the FDIC. I did not require further evidence with regard to a cramdown of the Kellog-Link claims. Neither LeRoy, Link, Brooks, nor Kellog appeared at the original confirmation hearing or any subsequent hearings.

       Two continued confirmation hearings were held, one on March 19, 1993, and one on April 2, 1993. Extensive expert testimony was presented with regard to feasibility. No cramdown testimony was presented at either hearing, however, relative to the Kellog-Link claims. An Order Confirming the Second Amended Plan of Reorganization was entered on April 2, 1993. Link received notice of confirmation of the second amended plan shortly thereafter. Link did not appeal the confirmation order. In accordance with the plan, Link received a payment of $6,000.00
      3 ABR 437  by check dated May 25, 1993, from the debtor. Link cashed the check. Link has not accepted further payments from the debtor.

       On January 5, 1994, Hawkins filed a "Motion to Confirm That Plan is Binding on Creditor" with regard to Link. Link has responded with a memorandum in opposition to the motion along with a separate motion for relief from the chapter 11 confirmation order.

Analysis

       The effect of the pending motions is to put at issue a number of different problems with regard to the confirmed plan. Based upon the partie's briefs, the court is implicitly asked to look beyond the motions and issue a declaratory judgment as to the effect of the confirmed plan on the Link claim.

       The starting point for my analysis is 11 U.S.C. § 1141. It provides in part:

       (a) Except as provided in subsections (d) (2) and (d) (3) of this section, the provisions of a confirmed plan bind the debtor, any entity issuing securities under the plan, any entity acquiring property under the plan, and any creditor, equity security holder, or general partner in the debtor, whether or not the claim or interest of such creditor, equity security holder, or general partner is impaired under the plan and whether or not such creditor, equity security holder, or general partner has accepted the plan.

       (b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.

       (c) Except as provided in subsections (d)(2) and (d)(3) of this section and except as otherwise provided in the plan or in the order confirming the plan, after confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors, equity security holders, and of general partners in the debtor.

(d) (1) Except as otherwise provided in this subsection, in the plan, or in the order confirming the plan, the confirmation of a plan--

(A) discharges the debtor from any debt that arose before the date of such       3 ABR 438  confirmation, and any debt of a kind specified in section 502(g), 502(h), or 502(i) of this title, whether or not-

(i) a proof of claim based on such debt is filed or deemed filed under section 501 of this title;

(ii) such claim is allowed under section 502 of this title; or

(iii) the holder of such claim has accepted the plan; and

(B) terminates all rights and interests of equity security holders and general partners provided for by the plan.

       On request of a party in interest at any time before 180 days after the date of the entry of the order of confirmation, and after notice and a hearing, the court may revoke such order if and only if such order was procured by fraud. An order under this section revoking an order of confirmation shall--

(1) contain such provisions as are necessary to protect any entity acquiring rights in good faith reliance on the order of confirmation; and

(2) revoke the discharge of the debtor.

Rule 9024, Federal Rules of Bankruptcy Procedure, states that Rule 60 of the Federal Rules of Civil Procedure applies to bankruptcy proceedings except that "[a] complaint to revoke an order confirming a plan may be filed only within the time allowed by § 1144 . . ." [180 days]. Link's motion for relief from the judgment was filed on March 15, 1994. The plan was confirmed on April 2, 1993. Link's motion was filed too late to obtain relief, regardless of errors in the confirmation process. ¹

       Link then argues that relief from the order confirming plan is really unnecessary as Link's lien cannot be modified by the plan. As authority for this proposition, Link cites Matter of Tarnow, 749 F.2d 464, 465 (7th Cir. 1984); In re Simmons, 765 F.2d 547 (5th Cir. 1985); Relihan v. Exchange Bank, 69 B.R. 122, 127 (S.D. Ga. 1985); and Matter of Howard, 972 F.2d 639
(5th Cir. 1992).

       Tarnow and its progeny, Simmons and Relihan, are not directly on point. Each of these cases dealt with the possible loss of a lien due to a creditor's failure to file a timely proof of claim. In each instance, the courts found that the creditor's lien was not forfeited due to its failure to file a timely claim. Moreover, Tarnow relied on a series of cases originating with Long v. Bullard, 117 U.S. 617, 6 S. Ct. 917, 29 L.Ed. 1004 (1886) for the proposition that a creditor can ignore a bankruptcy proceeding and look to its lien for satisfaction of the debt. Again, the precedent is not precisely on point. Long filed the equivalent of a chapter 7 bankruptcy in May of 1873. He received a discharge. He sought to utilize the discharge as a defense to a mortgage foreclosure action initiated by Bullard. The Supreme Court recognized that the bankruptcy statutes allowed a discharge of personal liability, but did not affect his creditor's lien rights even against exempt property. With the exception of lien invalidation under 11 U.S.C. § 522(f), this rule remains valid in chapter 7 proceedings today. 11 U.S.C. § 727(b) simply discharges debts against debtors, not liens. Nor does Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935), also cited in Tarnow, precisely aid Link's position. Louisville simply determined that the remedies provided by the Frazier-Lemke Act, which included a five-year stay of farm foreclosures with reduced payments, were unconstitutional as applied to a mortgagee.       3 ABR 440  While Louisville cited Long, it was simply dicta. Louisville did provide that a mortgagee's rights could not be curtailed without just compensation. There was no indication that the creditor in Louisville failed to assert its rights in the proceedings, however.

       The second ground for the court's decision in Tarnow is the language of 11 U.S.C. § 506(d). It provides:

       To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless----

(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or

(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.

       Here no lien was lost: the plan provides that the lien is to be retained. Secondly, Link did not have to file a proof of claim as her claim was not listed as disputed, and her lien was not lost due to her failure to file a claim. 11 U.S.C. § 1111(a). Rather, the timing and amount of the payments she received were modified by the confirmed plan. The provisions of 11 U.S.C. § 506(d) do not aid Link. I view Tarnow and its progeny, Simmons and Relihan, to be clearly distinguishable from the case at bar.

       Link further argues that there can be no modification of her secured claim due to the failure of Hawkins to object to her claim, citing Matter of Howard, 972 F.2d 639 (5th Cir. 1992). In Howard, the Fifth Circuit found that a confirmed chapter 13 plan that reduced or eliminated a secured claim was not res judicata as to the creditor's lien rights. The creditor did not receive a copy of the plan or actual notice that its claim had been compromised in the plan for $500.00 of its total claim of $4,590.47. The debtor did not file an objection to claim. Instead, the creditor received a notice that stated: "The plan proposes payments of $64.00 monthly to the Trustee with unsecured claims to be paid 100.00% over approximately 36 months." Under these circumstances,       3 ABR 441  the court found that confirmation of the plan did not bar the creditor from seeking enforcement of its lien.

       Howard represents one approach to the problem faced here. In Re Hobdy, 130 B.R. 318 (9th Cir. B.A.P. 1991) is consistent with that approach. Hobdy found that a secured creditor's chapter 13 claim could not be reduced without utilizing an objection to claim. Otherwise, the secured creditor's due process rights were violated. Other courts, including In re Wolf, 162 B.R. 98 (Bankr. D. N.J. 1993) have rejected that approach. Wolf found that a chapter 13 debtor could modify a secured creditor's claim through the plan confirmation process and cancel its lien without an adversary proceeding, objection to claim, or motion. Similarly, in Matter of Pence, 905 F.2d 1107 (7th Cir. 1990), the Seventh Circuit held that a secured creditor was bound by the provisions of a confirmed plan which modified its lien rights. The court found that notice of the filing of the petition was sufficient notice that its rights may be altered.

       A third approach has been outlined by the court in In re Basham, ___ B. R. ___, 1994 WL 201787 (Bankr. W.D. Mo. 1994). There the court stated:

       The third approach, the middle-of-the-road approach, does not attach per se sufficiency to the notice of the filing of a petition, nor does it preclude the possibility that notice of plan confirmation is sufficient notice. The approach looks to the contents of the notice to determine if it is: "reasonably calculated, under all the circumstances to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Hanover Bank & Trust , 339 U.S. 306, 314 (1950) (citations omitted).

* * * *

       The common theme through all three approaches is that of notice. Did the creditor receive adequate notice that its rights were to be modified under the plan? Each approach answers the question differently, but expresses a common concern for a creditor's due process right.

       The Court is troubled by the Fifth Circuit's conclusion in In re Howard that a confirmed plan is only binding on creditors who participate in the confirmation process. See 972 F.2d at 641. This
      3 ABR 442  conclusion seems contrary to the language of § 1327(a) which states that a confirmed plan is binding on all creditors whether or not they file claims or plan objections. In addition, a rule requiring a claim objection as a prerequisite to a modification of secured creditor rights may, as a practical matter, be unworkable when a creditor does not file a proof of claim before a plan confirmation. There would be nothing, for a debtor to object to, and it would not be possible to determine whether the creditor will place a different value on its collateral than the debtors value. Compare In re Linkous, 990 F.2d at 165 (J. Chapman, dissenting). Therefore, the Court cannot conclude that a claim objection is the exclusive means of notice to a secured creditor that its rights are to be modified.

       Nor does the Court adopt the approach found in In re Pence, 905 F.2d at 1108. A per se rule that notice of the filing of the petition is sufficient to apprise a creditor that its rights are to be modified may be a workable approach when the creditors are sophisticated lenders who are familiar with the bankruptcy process, but such a rule would be unduly harsh to unsophisticated creditors and may not accord such creditors due process.

       The Court find that the third approach is the best approach. Looking to the contents of the notice to determine if the notice is reasonably calculated, under the circumstances, to apprise interested parties that their rights may be modified, is a flexible approach that encompasses the totality of circumstances presented in each case. Such approach allows the court to consider a creditors sophistication, the amount of their involvement in the bankruptcy proceeding, as well as, that creditors reliance on the claims allowance procedures as demonstrated by a proof of claim filed before plan confirmation.

       I approve of the enlightened and flexible approach adopted by Judge Koger in Basham. This court will look to the contents of the notice to determine if it is reasonably calculated, under all       3 ABR 443  the circumstances, to apprise Link of the pendency of the action and afford her an opportunity to present her objections. Link was advised of the pendency of the chapter 11 proceeding immediately after the filing in late March of 1991. Link actively participated in the chapter 11 process and sought enforcement of a cash collateral order through her attorney, LeRoy. Link's brother, Brooks, negotiated a workout agreement with Zo Hawkins in early 1992, and that agreement was reduced to writing but never signed. Link received notice of the adequate protection payments to be made to Kellog. These payments were consistent with the proposed work-out. Link did not object to the payments, and the payments materially improved her position. Link received a copy of the Second Amended Plan and Disclosure Statement. These documents set forth two thorough and detailed statements of precisely how Link's claim was to be treated under the plan. Both stated clearly and unequivocally that the claim would be capped at $700,000.00 and repaid only after the Kellog first lien had been satisfied. Interest was to accrue at the rate of 9% per annum after Kellog was paid. Payments were to be made in the amount of $6,000.00 per month for a period of 18 months and $7,000.00 per month thereafter. Concurrent with receipt of the Second Amended Disclosure Statement and Plan was a notice that clearly set forth when objections to confirmation of the plan were to be filed and when the confirmation hearing was to occur.

       Link was represented by sophisticated bankruptcy counsel throughout the proceeding. She failed to introduce any evidence regarding her sophistication in commercial matters. She apparently allowed her brother to control the property. She offered the testimony of Dr. James Harper, a clinical psychologist, at the hearing. Harper had been retained to offer an evaluation of Brooks for purposes of mitigating his sentence under AS 12.55.155(d)(5), following his conviction on charges of attempted murder. Harper stated that Brooks had been depressed for a ten-year period following his divorce. His depression affected his judgment. Harper had no opinion, however, as to whether Brooks had the ability to competently handle his business affairs. Link has failed to establish that either she or her brother were unable to understand the plan, disclosure statement, and notice of the confirmation hearing. Moreover, Link has never offered any testimony as to the nature of her       3 ABR 444  business relationship with her brother at any time. Such a connection is essential for a proper determination of her business sophistication.

       After reviewing the entire circumstances of this case, I am convinced that the notices received by Link were reasonably calculated to apprise her that her rights may be modified. Link was heavily involved in the bankruptcy proceeding from the inception of the case and did not rely on the claims allowance procedures by filing a proof of claim. The requirements of due process have been met. The plan is binding.

       There are additional defenses that have been raised by Hawkins that deserve to be mentioned. Hawkins contends that the doctrines of estoppel and waiver should apply to Link in this case. I agree. Link's on-again off-again participation in the bankruptcy process could cause substantial hardship to the debtor, as well as other creditors, if the plan were scuttled at this point. The plan went through extended confirmation hearings based upon the assumption that Link did not actively oppose confirmation. The court, the FDIC, the Municipality of Anchorage, and others participated in those hearings and made decisions regarding the plan based upon a stream of income that included Sunset Park. For Link to now allege that she is outside the process and immune from the confirmation order is grossly unfair and prejudicial not only to the debtor but to other creditors as well. Moreover, Link received substantial benefits from the bankruptcy. Both Kellog and the Municipality of Anchorage were stayed and Link enjoyed the benefit of the stay. Kellog's $100,000.00 lien has been paid off and substantial reductions of the Municipality's claim have occurred. Link received a $6,000.00 check, in accordance with the confirmed plan and cashed it. Link did not make a timely appeal from the confirmation order or seek § 1144 relief in a timely fashion. Under these circumstances, Link has either waived her right to object to the confirmed plan or is equitably estopped from doing so.

Conclusion and Order

The plan is binding on Link.

IT IS ORDERED:

1. The debtors Second Amended Plan of Reorganization, as
      3 ABR 445  confirmed by this court on April 2, 1993, is valid and fully binding on Kathryn Link;

2. The debtors Motion to Confirm That Plan is Binding on Creditor is granted;

3. Kathryn Links motion for relief from this court's April 2, 1993, confirmation order is denied.

4. In accordance with 11 U.S.C. § 1142, Kathryn Link shall execute and deliver to the debtor all instruments required to effectuate the plan, including escrow instructions and an appropriate instrument of reconveyance.

Judgment shall be entered and docketed accordingly.

DATED: June 23, 1994.

BY THE COURT
DONALD MacDONALD IV
United States Bankruptcy Judge

N O T E S:

      3 ABR 438  1. In re Townco Realty. Inc., 81 B.R. 707 (Bankr. S.D. Fla. 1987) was cited by Link. There a chapter 11 plan provided for impairment of five unsecured creditors constituting class 4 under the plan. As no unsecured creditors voted for the plan and the plan was not feasible, confirmation was denied. The court found that failure to vote did not constitute acceptance of the plan. Townco did not involve an untimely appeal from an order confirming a chapter 11 plan, however. Rather, it dealt strictly with confirmation requirements arising out of a confirmation hearing. 11 U.S.C. § 1144 was not at issue. Therefore, Townco does not aid Link.