Michael R. Keenan and Ramona L. Keenan

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
MICHAEL KEENAN and
RAMONA KEENAN,
Debtors. 	No. 13-05-21229 SA
MEMORANDUM OPINION ON OBJECTION TO CLAIM #1
BY SUZANNE MALLON (Doc 56) AND SUPPLEMENTAL
OBJECTION TO CLAIM #1 (Doc 143) BY DEBTORS
This matter is before the Court on Debtors’ Objection and
Supplemental Objection to Claim #1 filed by Suzanne Mallon (docs
56 and 143). 	Debtors appear through their attorney Christopher
L. Trammell, P.A. (Michael Lash). 	Suzanne Mallon appears through
her attorney Fefferman & Warren (Rob Treinen). 	The Trustee
Kelley Skehen is self-represented. 	This is a core proceeding.
28 U.S.C. § 157(b)(2)(A) and (B).
FACTS
Debtors filed a voluntary Chapter 13 case on October 15,
2005. 	On their schedule of secured debts they listed Suzanne
Mallon (“Mallon”) as a secured creditor with a claim of
$145,289.10 and having security of a value of $0.00. 	The Mallon
claim is for a judgment for fraud and unfair trade practices
rendered in the state district court on September 9, 2005. 	The
plan came on for confirmation on August 25, 2006 and the Court
entered a Memorandum Opinion (doc 51) and Order denying
confirmation on March 27, 2007.
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1A copy of the Judgment is attached to the proof of claim
filed on November 18, 2005. 	A copy also appears as Exhibit A to
Mallon’s response (doc 146). 	The judgment awards Mallon $16,500
in compensatory damages against Michael Keenan, Sr., Ramona
Keenan and Michael Keenan, Jr.; $38,000 in punitive damages
against Michael Keenan, Sr.; $38,000 in punitive damages against
Ramona Keenan; and attorney fees and costs of $52,789.10 pursuant
to the New Mexico Unfair Practices Act, NMSA § 57-12-10(B)
against Michael Keenan, Sr. and Ramona Keenan jointly and
severally. 	The Judgment also provides for interest.
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On April 23, 2007 the Debtors filed an objection to the
Mallon claim (doc 56) to the extent she claimed that it was a
secured claim. 	On October 11, 2007 the Trustee filed an
adversary proceeding against Mallon that resulted in a stipulated
judgment on October 22, 2007 that avoided Mallon’s judgment lien
as a preference. 	Therefore, Debtor’s objection to the claim (doc
56) should be denied as moot.
On October 29, 2008, the Court entered an Order (doc 124)
Amending and Confirming an Amended Chapter 13 Plan (doc 73).
Under the terms of the Amended Plan, payments are made as
follows: first, to trustee’s fees and expenses and administrative
expenses including attorney’s fees; second, to priority claims
(of which Debtors claim there were none); third, pro-rata to
timely filed unsecured claims.
On February 8, 2009, Debtors filed a Supplemental Objection
to Mallon’s claim (doc 143). 	In this objection Debtors allege
that Mallon’s claim consists of a general damages claim, punitive
damages and associated attorney fees 1. 	They also allege that
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2Section 726 does not apply to chapter 13 cases. 	11 U.S.C.
§ 103(b). 	See also In re Lang, 196 B.R. 528, 530 (Bankr. D.
Ariz. 1996).
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their son, who was also liable on the compensatory damages
portion of the judgment, has paid that claim. 	Debtors seek to 1)
reduce the claim by the amount paid by their son, and 2)
subordinate the balance of the Mallon claim to the claims of all
other general unsecured creditors pursuant to 11 U.S.C. §§
510(c), 726 2 and 1325(a).
Mallon responded to the objection (doc 146). 	First, she
argues that although 11 U.S.C. § 502(a) does not provide for a
time limit to file an objection to a claim, it must be filed
prior to plan confirmation, citing Wallis v. Justice Oaks II, LTD
(In re Justice Oaks II, Ltd.), 898 F.2d 1544, 1553 (11 th Cir.),
cert. denied, 498 U.S. 959 (1990) and In re Starling, 251 B.R.
908, 909-10 (Bankr. S.D. Fla. 2000). 	Second, she argues that
under New Mexico law attorney fees are compensatory, not
punitive, citing Seipert v. Johnson, 134 N.M. 394, 398, 77 P.3d
298, 302 (Ct. App.), cert. denied, 134 N.M. 374, 77 P.3d 278
(2003).
The Court held a hearing on the Supplemental Objection and
response and entered a Scheduling Order (doc 157) requesting
briefing. 	Mallon filed a brief (doc 159) as did the Debtors (doc
160), and Mallon filed a reply brief (doc 163). 	The Court has
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reviewed the arguments of the parties and consulted applicable
authorities and now issues this ruling.
1. 	Mallon agrees that the actual damages portion of the
judgment has been paid and no longer should be paid from the
bankruptcy estate. 	See Doc. 159, p.2. 	And, while Mallon
consented to subordination of her punitive damage claim, id., the
Court finds below that this change to the plan (i.e., creating a
new class of creditors) is not warranted at this time. 	If the
Debtors, Mallon and the Trustee agree that this change should be
made they should submit an order that accomplishes this result.
2. 	The Court disagrees with Mallon that all objections to
claims must be filed before a Chapter 13 case is confirmed.
First, the Court does not read Justice Oaks as broadly as Mallon
suggests. 	In Justice Oaks the Debtor entered into a global
settlement agreement with several secured creditors that involved
sale of assets to a third party and payment of the proceeds to
two secured creditors, except for certain carve-outs for tax
liabilities, administrative expenses, and $100,000 for unsecured
creditors. 	898 F.2d at 1546-47. 	The Wallises (unsecured
creditors by virtue of a guarantee to a third secured creditor)
did not object to the settlement. 	Id. at 1547. 	The settlement
was then incorporated into a plan to which the Wallises objected
claiming that it was not fair and equitable. 	Id. 	The bankruptcy
court then confirmed the Chapter 11 plan. 	Id. at 1548. 	The
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Wallises then objected to a senior creditor’s claim on the
grounds that it had been improperly classified as a secured
claim. 	Id. 	The bankruptcy court overruled the objection,
holding that the allowance of the claim had been finally
determined in the court’s orders authorizing settlement and
confirming the plan. 	Id. 	The District Court affirmed. 	Id. 	On
further appeal the United States Court of Appeals for the Seventh
Circuit cited to Simmons v. Savell (In re Simmons), 765 F.2d 547
(5 th Cir. 1985) for the proposition that when an objection is
based on an argument that a plan misclassifies an objectionable
claim, the objection must be made prior to confirmation of the
plan. 	Id. at 1553. 	“Under the rule of Simmons, which we adopt
today as characterized above, the Wallises lost their right to
object to Allegheny’s claim when the bankruptcy court confirmed
the plan.” 	Id. 	Therefore, Justice Oaks does not stand for the
broad proposition that all objections to claims must be filed
before confirmation; rather, objections to classification must be
filed before confirmation.
Similarly, Starling should not be read as broadly as Mallon
suggests. 	In Starling the debtor filed a chapter 13 plan that
listed mortgage arrearages at $11,000. 	251 B.R. at 909. 	The
mortgagee filed a proof of claim for $18,000 and objected to
confirmation. 	Id. 	The debtor then amended the plan to pay the
$18,000. 	Id. 	The plan was confirmed and then debtor objected to
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3Other cases hold that objections to claims are permissible
after confirmation. 	See, e.g., In re Shank, 315 B.R. 799 (Bankr.
N.D. Ga. 2004); Morton v. Morton (In re Morton), 298 B.R. 301
(6 th Cir. BAP 2003).
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the claim. 	Id. at 910. 	The bankruptcy court, citing Justice
Oaks, overruled the objection, finding that the debtor waived the
right to object to the claim by failing to obtain an adjudication
on the amount of the claim prior to confirmation. 	Id. 	Starling
should probably be restricted to its facts; that is, when a claim
is resolved before confirmation and the resolution is
incorporated into the plan, it will be binding after confirmation
under 11 U.S.C. § 1327. 	Alternatively, it could be argued that
Starling may stand for the proposition that secured claims must
be resolved before confirmation.
Therefore, although the Court disagrees with Mallon’s broad
statement that all objections to claims must be filed prior to
confirmation 3, the Debtors’ objection in this case fits squarely
within the rule of Justice Oaks. 	Debtors’ objection is
challenging the classification of Mallon’s claim by attempting to
subordinate it. 	This had to be done prior to confirmation. 	The
Debtors’ objection should be overruled. 	Although this conclusion
resolves the objection fully, the Court will briefly address
other aspects of the objection.
2. 	The Court agrees with Mallon that the attorney fees portion
of the judgment represents compensatory damages that should be
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allowed in full. 	First, the relevant statute states: “The court
shall award attorney fees and costs to the party complaining of
an unfair or deceptive trade practice or unconscionable trade
practice if the party prevails.” 	N.M.S.A. 1978 § 57-12-10(C).
It provides for attorney fees when a party prevails and does not
depend on the degree of culpability of the defendant. 	Second,
this interpretation is supported by Jones v. General Motors
Corp., 124 N.M. 606, 611, 953 P.2d 1104, 1109 (Ct. App. 1998):
We note with approval the opinion of the Washington
Court of Appeals which described the twofold purpose of
awarding damages and attorneys' fees to successful
plaintiffs under that state's Consumer Protection Act:
“ ‘(1) on the individual level, to enable the injured
plaintiff to pursue his own claim; and, (2) on the
public level, to reimburse the individual plaintiff and
his counsel for enforcing the Act on behalf of the
general citizenry.’ ” 	Brian J. Linn & Gretchen Newman,
Comment, Reasonable Attorneys' Fees and Treble
Damages-Balancing the Scales of Consumer Justice, 10
Gonz. L.Rev. 593, 598 (1975). 	It has observed that the
purpose of awarding attorneys' fees and costs under
similar statutes is “to encourage the maintenance of
private actions, and perhaps in recognition of the fact
that attorneys are unwilling to handle most consumer
claims because the amounts recoverable are often too
small.” 	Debra E. Wax, Annotation, Award of Attorneys'
Fees in Actions Under State Deceptive Trade Practice
and Consumer Protection Acts, 35 A.L.R.4th 12, 17
(1985). 	Therefore, the attorneys' fees to be awarded
in this case are not nominal; they should reflect the
full amount of fees fairly and reasonably incurred by
Plaintiff in securing an award under the UPA.
3. 	Finally, the Court finds that the punitive damage award in
this case should not be subordinated for three reasons.
A. 	Debtors lack standing to raise subordination. 	In re
Blumenberg, 263 B.R. 704, 717 (Bankr. E.D. N.Y. 2001); Weeks
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v. Kinslow (In re Weeks), 28 B.R. 958, 960 (Bankr. W.D.
Okla. 1983).
B. 	Even if Debtors had standing, subordination requires an
adversary proceeding. 	USA Capital Realty Advisors, LLC v.
USA Capital Diversified Trust Deed Fund, LLC (In re USA
Commercial Mortgage Co.), 377 B.R. 608, 620 (9 th Cir. BAP
2007); In re Danbury Square Assoc., Ltd. Partnership, 153
B.R. 657, 661 (Bankr. S.D. N.Y. 1993).
C. 	Subordination of a part of the claim would require a
modification of the plan to add an additional class below
the unsecured creditors. 	Addition of a class is not one of
the permissible reasons to modify a plan. 	See 11 U.S.C. §
1329(a). 	See also In re Plummer, 378 B.R. 569, 574 (Bankr.
C.D. Ill. 2007)(“[M]odifications under § 1329(a) are not
limitless; rather, modifications are only allowed in the
three limited circumstances set forth in § 1329(a)(1),
(a)(2), and (a)(3).”)(Citations omitted.)(Pre-BAPCPA case;
BAPCPA added a fourth circumstance not relevant here.)
CONCLUSION
Debtors first objection to the Mallon claim is denied as
moot. 	The Mallon claim should be reduced by $16,500.00. 	The
rest of Debtors’ Supplemental Objection should be overruled. 	A
separate Order will enter.
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Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	March 2, 2010
Copies to:
Rob Treinen
Ste 2000 E
300 Central Ave SW
Albuquerque, NM 87102
Christopher L Trammell
3900 Juan Tabo NE
Albuquerque, NM 87111-3984
Kelley L. Skehen
625 Silver Avenue SW
Suite 350
Albuquerque, NM 87102-3111
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