MEMORANDUM OPINION
PETER J. WALSH, Chief Judge.
Before the court is the motion (Doc. # 13) of Comdata Network, Inc. f/k/a TIC Financial Systems ("Comdata" or "Defendant") for summary judgment. I will deny the motion for the reasons discussed below.
BACKGROUND
Ampace Corporation and Ampace Freightlines, Inc. (collectively, "Debtors") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on December 15, 1998 ("Petition Date"). On December 3, 1999 ("Confirmation Date"), Debtors' Fourth Amended Joint Plan of Reorganization ("Plan") was confirmed. (See Confirmation Order (Doc. # 429, Case No. 98-2772).) The "Effective Date" of the Plan, defined therein as "eleven (11) days after the Confirmation Date" (Plan § 1.46), was December 14, 1999.
On the Effective Date, pursuant to the terms of the Plan, the Ampace Liquidating Trust ("Trust") was formed to hold and liquidate Debtors' Non-Operating Assets for the benefit of Debtors' creditors. (Plan § 1.11.)
In addition to providing Plaintiff, as Trustee, with sole responsibility over the liquidation of the Non-Operating Assets, the Plan also provides Plaintiff with both the sole responsibility and discretion over the pursuit of Avoidance Actions (id. at §§ 8.2.4
(Plan § 14.1) (emphasis added). In addition, section 12.1 of the Plan further provides:
(Id. at § 12.1) (emphasis added).
In addition to the inclusion of these provisions in the Plan, similar provisions were included in the Fourth Amended Disclosure Statement ("Disclosure Statement") (Doc. # 382, Case No. 98-2772), approved by Order (Doc. # 395, Case No. 98-2772) of this Court on October 29, 1999. With respect to the Trustee's ability to object to claims, the Disclosure Statement provides:
(Disclosure Statement § 3.11.1.) In addition, with respect to the Trustee's ability to pursue Avoidance Actions, the Disclosure Statement provides:
(Id. at § 3.12.1) (emphasis added). The Disclosure Statement further provides:
(Id. at 16-17) (emphasis added).
Prior to the Confirmation Date, on January 27, 1999, Defendant filed six proofs of claim totaling $472,546.74 ("Claims"). (Def.'s Mem. (Doc. # 13) at 2.) Under the terms of the Plan, Defendant's Claims are deemed "allowed" in the absence of a timely objection by the Trustee.
Prior to objecting to Defendant's Claims, on December 15, 2000, Plaintiff commenced the instant action against Defendant seeking: (i) to avoid allegedly preferential transfers ("Alleged Transfers")
DISCUSSION
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
Defendant argues that the Trustee's Extension Motions were ineffective and therefore, Defendant's Claims have been deemed "allowed" under the terms of the Plan. (Def.'s Mem. (Doc. # 13) at 3-4.) Defendant then contends that the fact that its Claims have been allowed entitles Defendant to judgment as a matter of law because: (1) the doctrine of res judicata bars the relitigation of the allowance and further treatment of Defendant's Claims
Defendant first argues that the Trustee's Extension Motions were improperly brought pursuant to Rule 9006 because the Objections Deadline was established by the Confirmed Plan and not by the Bankruptcy Rules, a notice given thereunder, or an order of this Court. (Def.'s Mem. (Doc. # 13) at 4-5.) As such, Defendant argues, any modifications to the Plan must comply with the notice and hearing requirements of § 1127(b)
Rule 9006(b)(1) provides that a court may, with or without motion or notice, order a specified time period enlarged when an act "is required or allowed to be done at or within [the] specified period by these rules or by a notice given thereunder or by order of the court ." Fed.R.Bankr.P. 9006(b)(1) (emphasis added). Thus, Defendant argues that a motion brought pursuant to Rule 9006 does not and cannot operate to modify the provisions of a confirmed plan. In fact, according to Defendant, unless otherwise provided in the terms thereof, a confirmed plan may only be modified after notice and a hearing pursuant to § 1127(b).
Plaintiff responds that § 1127(b) is inapplicable in this case because the Plan was incorporated by reference into the Confirmation Order and therefore, the initial Objections Deadline could be extended pursuant to Rule 9006. (Pl.'s Br. (Doc. # 15) at 7-8.) In addition, Plaintiff also argues that even if the Objections Deadline had been established by the Plan, extending the deadline "was not of a substantive or material enough nature to" constitute a "modification" under § 1127(b). (Pl.'s Br.
First, the only reference to the Plan made in the Confirmation Order provides that "[a] copy of the confirmed plan is attached hereto as Exhibit `A'." (Confirmation Order (Doc. # 429, Case No. 98-2772) at 1.)
In addition, to the extent Plaintiff argues that the Objections Deadline was not of a substantive or material enough nature to constitute a modification under § 1127(b), I disagree. Neither the Bankruptcy Code nor the Bankruptcy Rules provide for a time limit for filing objections to claims. See Fed.R.Bankr.P. 3007
In addition, although "modification" is not defined in the Bankruptcy Code, courts that have analyzed the issue of whether a subsequent change to a confirmed plan of reorganization constitutes a "modification" distinguish between the courts' inability to "modify" a plan and
In light of the foregoing, I find that because the Objections Deadline was extended via motions filed pursuant to Rule 9006, and without prior notice and a hearing in accordance with § 1127(b), the orders granting such motions ineffective.
Defendant next argues that because the issue of whether its Claim are allowed has already been decided, the instant action, related thereto, is barred by the doctrine of res judicata. (Def.'s Mem. (Doc. # 13) at 5-9.) I disagree.
The doctrine of res judicata (or claim preclusion) precludes a party from relitigating claims that were or could have been asserted in a prior action. For the doctrine of res judicata to apply, three factors must be present: (1) a final judgment on the merits, rendered by a court of competent jurisdiction, in a prior action involving; (2) the same parties or their privies; and (3) a subsequent suit based on the same cause of action. E.g., CoreStates Bank, N.A. v. Huls America, Inc., 176 F.3d 187, 194 (3d Cir.1999); In re Mariner Post-Acute Network, Inc., 267 B.R. 46, 52 (Bankr.D.Del.2001).
In the context of bankruptcy, most courts find that a confirmation order constitutes a final judgment on the merits with respect to the issues addressed in the plan of reorganization. See, e.g., Eastern Minerals & Chemicals Co. v. Mahan, 225 F.3d 330, 336, n. 11 (3d Cir.2000); Donaldson v. Bernstein, 104 F.3d 547, 554 (3d Cir.1997); In re Varat Enter. 81 F.3d at 1315; Heritage Hotel Ltd. P'Ship I v. Valley Bank of Nevada (In re Heritage Hotel P'Ship I), 160 B.R. 374, 377 (9th Cir. BAP 1993). In addition, "[a] party for the purposes of former adjudication includes one who participates in a Chapter 11 plan confirmation proceeding." In re Varat Enter., 81 F.3d at 1315; see also CoreStates, 176 F.3d at 195 ("We believe . . . that claim preclusion should apply regardless of the jurisdictional basis of the present claim and between all parties to a bankruptcy case.") With respect to whether a subsequent action is based on a cause of action that was or could have been addressed in a prior proceeding, relevant case law suggests that courts in the Third Circuit consider whether there is an "essential similarity of the underlying events" giving rise to the claims. Eastern Minerals, 225 F.3d at 337 (citing United States v. Athlone Indus., Inc., 746 F.2d 977, 984 (3d
Id. at 337-38; accord In re Mariner, 267 B.R. at 53-54.
In the instant action, I find that the first two factors needed for application of doctrine of res judicata are present. The Confirmation Order constitutes a final judgment on the merits with respect to all issues addressed in the Plan. See, e.g., Donaldson, 104 F.3d at 554; In re Varat Enter., 81 F.3d at 1315. In addition, both Plaintiff and Defendant and/or their predecessors in interest participated in the Plan confirmation proceeding. See CoreStates, 176 F.3d at 195; see also In re Varat Enter., 81 F.3d at 1315. However, with respect to the third factor, based on the Third Circuit's decision in Eastern Minerals, I find that the instant action and the confirmation proceeding do not involve the same cause of action and therefore, the doctrine of res judicata does not apply. The factual underpinnings, the theory of this action, and the relief sought herein are not "so close" to the issue of the allowance of Defendant's Claims that it is unreasonable that this action was not commenced prior to or in connection with the confirmation proceeding. See Eastern Minerals, 225 F.3d at 337-38. Whereas the prior "action" involved an allowance of Defendant's Claims in Debtors' bankruptcy case, the instant adversary proceeding seeks avoidance of the Alleged Transfers pursuant to §§ 547 and 550. Although both actions may share some facts in common in that they both arose out of Defendant's pre-petition business relationship with Debtors, both the "factual underpinnings" and "theory of" an avoidance action are completely different than a determination on the allowability of a creditor's claim. As such, the instant proceeding involves an entirely different cause of action than the prior confirmation hearing and therefore, res judicata does not apply.
Defendant does not dispute that where a disclosure statement expressly reserves an action for later adjudication, res judicata does not apply. However, Defendant contends that such a reservation must specifically disclose the proposed subsequent action against the particular defendant. (Def.'s Mem. (Doc. # 13) at 11-12.) Defendant argues that because here, the Disclosure Statement contained only a general reservation of avoidance actions and did not specifically disclose the Trustee's instant action against Defendant, the instant action was inadequately preserved. (Id.) I disagree.
11 U.S.C. § 1123(b)(3) (emphasis added). The courts are divided on how specific the language of retention and enforcement must be under § 1123(b)(3)(B) to adequately reserve a cause of action for adjudication at a later date. In re Goodman Bros. Steel Drum Co., Inc., 247 B.R. 604, 607 (Bankr.E.D.N.Y.2000).
In support of its argument that the instant action was not adequately preserved, Defendant cites the "adequate disclosure" requirement of § 1125
Although many courts adopt the rationale of Mickey's Enterprises and hold that res judicata bars a subsequent action unless the debtor's disclosure statement and/or plan specifically reserves the right to litigate that specific claim
First, § 1123 distinguishes between what a plan must include and what a plan may include. See 11 U.S.C. § 1123. While a plan may provide for the retention of certain causes of action by the debtor and/or its representatives, there is no requirement that it do so. See id. § 1123(b)(3)(B). In addition, even if the language in § 1123(b)(3)(B) could be construed as containing such a requirement, there is nothing in the provision to suggest that the plan must specifically identify each and every claim and/or interest belonging to the debtor that may be subject to retention and enforcement. See id.; see also P.A. Bergner & Co. v. Bank One, Milwaukee, N.A. (Matter of P.A. Bergner
Second, the confirmation process is expedited by allowing debtors to include a general reservation of their right to pursue certain causes of action at a later date. In re Weidel, 208 B.R. at 853; see also Amarex, Inc. v. Marathon Oil Co. v. Aztec Specialty Leasing Co. (In re Amarex, Inc.), 74 B.R. 378, 380 (Bankr.W.D.Okla.1987) (addressing issue of whether successor to the reorganized debtor may maintain complaints to recover preferential transfers under § 547). In my opinion, it is both impractical and unnecessary for a Disclosure Statement and/or Plan to list each and every possible defendant against which a debtor or its representative may bring an avoidance action. As the court stated in Amarex, Inc.:
74 B.R. at 380. Indeed, in large chapter 11 cases, the investigation and litigation of all possible avoidance actions to final judgment can take years. To force the debtor to remain in bankruptcy until a final determination of all possible preference actions is made would act as a detriment to both the debtor and its creditors by slowing down the reorganization process. In most of the large chapter 11 cases in this Court, the plan of reorganization and/or liquidation is often confirmed before the debtor and/or a trustee has undertaken a detailed investigation of the potential preference actions. In large Chapter 11 cases there may be hundreds or even thousands of transaction within the 90-day period and considerable time and effort is needed to examine those transactions in light of the numerous defenses provided for in § 547(c). More often than not, it is appropriate to delay that undertaking until after plan confirmation. For example, in In re Ameriserve Food Distribution, Inc., et al., 267 B.R. 668 (D.Del.2001), confirmed on November 28, 2000, 874 preference actions were filed. Each of these actions was filed on or subsequent to March 13, 2001. Similarly, in In re APF, Co. (Case No. 98-01596(PJW)), confirmed on May 27, 1999, a total of 86 preference actions were filed, each subsequent to the confirmation date. Likewise, in In re APS Holding Corp. (Case No. 98-00197(PJW)), confirmed on October 19, 1999, a total of 95 preference actions were filed, all subsequent to the confirmation date. In each of these case, both the plan and disclosure statement contained general reservations similar to those at issue here. They did not specify each and every potential creditor against whom an avoidance action might conceivably be filed. Rather, they preserved the applicable party's general right to pursue "avoidance actions" or "preference actions" post-confirmation, specifying only those particular potential defendants of which they were aware at the time. Similarly, in the instant action, both the Plan and Disclosure Statement expressly provided that "all Avoidance Actions . . . are preserved and retained for enforcement exclusively by Ampace Liquidating Trust subsequent to the Effective Date" (Disclosure Statement § 3.12.1; see also Plan § 14.1.) This statement clearly evinces the plan proponents' intent to preserve the right to pursue and enforce preference actions for the
(Disclosure Statement at 16-17.) Despite Defendant's argument to the contrary, the fact that this paragraph specifically references alleged preferential payments to LaSalle and First Finance does not bar the Trustee from commencing the preference actions against others, including Defendant. Not only does this paragraph specifically provide that "Debtors are currently undertaking an analysis of such payments to determine whether any of such payments may be avoidable," but also, the disclosure of the alleged preferential transfers to LaSalle and First Finance are preceded by the words "Thus far, the Debtors have identified . . ." Thus, the Disclosure Statement provided Defendant with "adequate information" that at the time, Debtors were still in the process investigating potential transfers, that they estimated such transfers to be over $7 million, and that "thus far", they had determined that approximately $950,000 of the estimated $7 million in preferential transfers had been made to LaSalle and First Finance. Having received this information, and knowing that it received a payment from Debtors within the ninety day preference period, Defendant was on notice that an Avoidance Action might subsequently be filed against it.
Third, as discussed above, a confirmed plan acts as a binding contract on all the parties thereto. See 11 U.S.C. § 1141(a); see also In re Varat Enter., 81 F.3d at 1315; Sugarhouse Realty, 192 B.R. at 362. Prior to a plan's confirmation, creditors have the opportunity to examine the terms of the proposed plan and respond accordingly. In the instant action, Defendant received notice of and had the opportunity to object to the both the Plan and Disclosure Statement. In particular, Defendant had multiple opportunities to object to the Plan's reservation of the Trustee's right to pursue Avoidance Actions post-confirmation. However, Defendant did not do so. Accordingly, pursuant to § 1141(a), Defendant is now bound by the terms of the Plan, and as such, is precluded from objecting to those provisions reserving the Trustee's right to pursue Avoidance Actions post-confirmation. See Weidel, 208 B.R. at 852-53. To the extent Defendant argues that it failed to object to the Plan because the information provided with respect to the instant action in the Disclosure Statement was inadequate, I find this argument to be unpersuasive. First, the Court has already entered an Order (Doc. # 395, Case No. 98-2772) approving the Disclosure Statement as containing adequate information in accordance with § 1125. Second, while it is true that some courts view § 1123(b)(3) as, at least in part, a notice provision, see Harstad v. First Am. Bank, 39 F.3d 898, 903 (8th Cir.1994), the Bankruptcy Code contemplates that debtors may seek confirmation of their plans prior to litigating all avoidance actions. Sunrise Energy Co., 216 B.R. at 779. Therefore, in my opinion, a general reservation in a plan of reorganization indicating the type or category of claims to be preserved should be sufficiently specific to provide creditors with notice that their claims may be challenged post-confirmation. See, e.g., Bergner, 140
Therefore, for the reasons discussed above, I reject the rationale of Mickey's Enterprises and like cases and choose to follow those courts which hold that a subsequent action is not barred by a prior confirmation hearing under the doctrine of res judicata where the disclosure statement and plan contain a general reservation of the right to pursue preference actions post-confirmation. See Weidel, 208 B.R. at 853-54 (holding that res judicata did not bar debtors' objection to creditor's claim where the plan expressly reserved the general right to assert post-confirmation objections to claims); see also Envirodyne Indus., Inc. v. Conn. Mutual Life Co. (In re Envirodyne Indus., Inc.), 174 B.R. 986, 991 (Bankr.N.D.Ill.1994) (finding that debtor was not barred from bringing proceedings against petitioning bondholders under the doctrine of res judicata based on debtor's failure to explicitly reveal its potential claims in its disclosure statement); In re Outdoor Sports Headquarters, Inc., 168 B.R. 177, 183 (Bankr.S.D.Ohio 1994) (finding that res judicata did not bar unsecured creditor's objection to larger creditor's claim where neither the debtor's disclosure statement or plan contained any provision pertaining to the allowance or disallowance or suggesting or requiring that the action of any creditor be
Defendant also argues that the instant action is barred by § 502(d). (Def.'s Mem. (Doc. # 13) at 10.) Defendant contends that because § 502(d) requires the disallowance of all claims of an entity which has received preferential transfers, once an entity's claim has been allowed, such entity is deemed to have previously disgorged any avoidable transfers. (Id.) Defendant argues that because its Claims have been allowed under the terms of the Plan, pursuant to § 502(d), Defendant cannot be found to have received any disgorgeable, but not yet disgorged preferences. (Id.) I find this argument to be unpersuasive.
Under § 502(a) "a claim . . . is deemed allowed, unless a party in interest . . . objects." In the instant case, pursuant to the terms of the Plan, Defendant's Claims were deemed "allowed" upon the Trustee's failure to object to such Claims prior to the Objections Deadline. See discussion supra, Part II.A. Although Defendant argues that this fact alone bars the instant action because allowing the Trustee's preference action to proceed would be inconsistent with § 502(d) (Def.'s Mem. (Doc. # 13) at 10), I find this argument to be inconsistent with both the plain language and purpose of the statute.
The claims allowance/disallowance process under § 502 is specific and clear. Section 502(a) provides that a claim is deemed allowed unless a party in interest (obviously including the debtor) objects. Section 502(b) then provides that if such an objection to a claim is made, the Court, on notice and a hearing, will determine the amount of the claim. Subpart (b) then goes on to specify types of claims that are not allowed or that are subject to limitations in amount. Section 502(d) provides that "[n]otwithstanding subsections (a) and (b)," "the court shall disallow any claim of any entity" that has received preferential transfers. 11 U.S.C. § 502(d). Thus, "[n]otwithstanding" the fact that a claim may be deemed allowed pursuant to § 502(a) by the absence of an objection or a hearing on notice pursuant to § 502(b),
The fallacy of Defendant's argument is easily illustrated by the situation where there is no valid basis for objecting to a claim made by a claimant who received a preference. No party in interest would file a § 502(a) objection to such a claim, but, according to Defendant, a preference action could not be brought no matter what its merits. This result is precluded by the provisions of § 502(d) which automatically holds up the allowance of a claim pending the preference determination.
In addition, "§ 502(d) is `intended to have the coercive effect of ensuring compliance with judicial orders.'" In re Odom Antennas, Inc., 258 B.R. 376, 383 (Bankr.E.D.Ark.2001) (citing Campbell v. United States, 889 F.2d 658, 661 (5th Cir.1989)); see also 4 COLLIER ON BANKRUPTCY ¶ 502.05 (15th Ed.2001). However, in the instant action, there is not yet a judicial order requiring the turnover of property. As such, § 502(d) has not yet become operative, see Seta Corp. of Boca, Inc. v. Atl. Computer Sys. (In re Atl. Computer Sys.), 173 B.R. 858, 862 (S.D.N.Y.1994); Odom, 258 B.R. at 383; In re Chase & Sanborn Corp., 124 B.R. 368, 370 (Bankr.S.D.Fla.1991); Mktg Res. Int'l Corp. v. PTC Corp. (In re Mktg. Res. Int'l Corp.), 35 B.R. 353, 356 (Bankr.E.D.Pa.1984), and therefore, it cannot be used by Defendant as a preemptive strike against Plaintiff's avoidance action.
CONCLUSION
For the reasons discussed above, Defendant's motion (Doc. # 13) for summary judgment is denied.
FootNotes
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property —
Id. § 1125(a)(1).
39 B.R. at 570-71. Not only is this discussion not the equivalent of a holding that the disclosure of avoidance actions in a disclosure statement must name each of every potential defendant thereof, but also, I find that in the instant action, the Disclosure Statement did discuss "the amount of preferences in approximate terms" and set forth the steps that have been and would be taken toward investigating and litigating such preferences. (See Disclosure Statement § 3.12.1, at 16-17.)
(Id. at 34) (emphasis added).
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