In re Push & Pull Enterprises, Inc.

• Decision Date: 17 March 1988
• Docket Number: Adv. No. 87-6077.,Bankruptcy No. 85-60013
• Citation: 84 BR 546
• Parties: In re PUSH & PULL ENTERPRISES, INC., Debtor. Edward KRUEGER, Plaintiff, v. PUSH & PULL ENTERPRISES, INC., Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

84 B.R. 546 (1988)

In re PUSH & PULL ENTERPRISES, INC., Debtor Edward KRUEGER, Plaintiff, v. PUSH & PULL ENTERPRISES, INC., Defendant.

Bankruptcy No. 85-60013, Adv. No. 87-6077.

United States Bankruptcy Court, N.D. Indiana, Hammond Division at Gary.

March 17, 1988.

D. Freeland, Komyathe & Freeland, P.C., Highland, Ind., for debtor/defendant Push & Pull Enterprises, Inc.

M. Roscoe, Portage, Ind., for plaintiff Edward Krueger.

MEMORANDUM DECISION ON MOTION TO DISMISS NONDIS-CHARGEABILITY ADVERSARY PROCEEDING AGAINST CHAPTER 11 DEBTOR

FRANCIS G. CONRAD, Bankruptcy Judge^*.

The issue to be decided by us is whether a corporate debtor that seeks reorganization under Chapter 11 of Title 11, United States Bankruptcy Code, 11 U.S.C. §§ 101, et seq. is subject to the nondischargeability provisions of 11 U.S.C. § 523.¹ Because we hold that a Chapter 11 corporate debtor is not subject to the dischargeability provisions of 11 U.S.C. § 523, the debtor's motion to dismiss Krueger's § 523(a)(6) complaint will be granted.

Debtor, a corporation, filed its Chapter 11 petition in bankruptcy on January 3, 1985. It did not list Krueger, the plaintiff herein, as a creditor on any of its bankruptcy schedules. As of the date of the hearing² on this motion to dismiss no disclosure statement or plan has been filed.

Sometime during May of 1987, Krueger filed suit against the debtor in State Court for conversion of industrial coils. Krueger claims he first received actual notice of the bankruptcy after he had filed the State Court action.

On June 23, 1987, Krueger filed an 11 U.S.C. § 523 complaint for willful and malicious conversion of the industrial coils with this Court, and objected to the dischargeability of the debt owed to him by Debtor.

As additional background, Krueger states in his memorandum that he filed a proof of claim with this Court in June of 1987, and that once Debtor received notice of it, Debtor should have amended its schedules to reflect his claim.

Although Krueger acknowledges that a corporate debtor is not entitled to a discharge under 11 U.S.C. § 727(a)(1),³ he points out that a corporation, absent a liquidation plan pursuant to 11 U.S.C. § 1141(d)(3),⁴ is entitled to a discharge under § 1141(d)(1)(A).⁵ Thus, he argues that as a matter of law and public policy a Chapter 11 corporate debtor is subject to the nondischargeability provisions of 11 U.S.C. § 523.

Krueger bases his conclusion on several grounds. First, 11 U.S.C. § 1141(d)(2)⁶ does not on its face exonerate a corporate debtor from the nondischargeability provisions of § 523(a). Second, he argues that a corporation can be an individual if it has the strictures of an individual, and thus can have a debt barred from discharge. Third, the debtor's failure to list him as a creditor is an abuse of process during the bankruptcy which allows the Bankruptcy Court, under 11 U.S.C. § 105,⁷ to impose the nondischargeability provisions of § 523. Fourth, Krueger appeals to our equitable powers and states the doctrine of "Unclean Hands" requires us to deny equity to those who act in bad faith, and that since Debtor has acted in bad faith, the doctrine of "Unclean Hands" is applicable to this adversary proceeding.

Debtor argues very simply that a corporation cannot be an individual under the Bankruptcy Code and that § 523 does not apply to corporate debtors. It did not address Krueger's arguments on § 105 and the "Unclean Hands" doctrine.

A bankrupt corporation, unlike a natural person, has virtually no prospect of future property accumulation, Captain Jerry's, Inc. v. Gulfstream Marina, Restaurant & Motel, Inc. (In the Matter of Gulfstream Marina, Restaurant & Motel, Inc.), 2 B.R. 26 (Bkrtcy.S.D.Fla.1979), unless it is able to reorganize. It is for these reasons that the Bankruptcy Reform Act of 1978, P.L. 95-598, Title I, § 101, 92 Stat. 2549, provides a discharge only for individual, 11 U.S.C. § 727(a), and allows the discharge of a Chapter 11 non-individual debtor only if it receives Court approval of a non-liquidating post-confirmation operational plan. 11 U.S.C. § 1141.

It is almost undebatable and universally held that a corporate Chapter 11 debtor is not subject to the dischargeability provisions of 11 U.S.C. § 523. Yamaha Motor Corporation v. Shadco, Inc., 762 F.2d 668, 13 BCD 315, CCH Bk.Law.Rpt., paragraph 70557 (8th Cir.1985) (The language of 11 U.S.C. § 523 militates against applying the exemptions to discharge to corporate debtors.); Tri R. Builders, Inc. v. Wm. Brodew & Collette Brodew (In re Tri R. Builders, Inc.), 86 B.R. 138 (Bkrtcy.N.D.Ind.1986) (11 U.S.C. § 523 not applicable to corporations); Official Creditors' Committee of James B. Downing & Company v. Agri Dairy Products, Inc. (In re James B. Downing & Company), 74 B.R. 906 (Bkrtcy.N.D.Ill.1987) (questions of dischargeability have no application whatsoever in bankruptcy cases involving corporations). To the same effect, Century Motor Coach v. Hurst Lincoln-Mercury, Inc. (In re Hurst Lincoln-Mercury, Inc.), 73 B.R. 825 (Bkrtcy.S.D.Ohio 1987); In re Higgins, 43 B.R. 391 (Bkrtcy.N.D.Ala.1984); C.I.T. Financial Services v. Novelty & Toy Co., Inc., 22 B.R. 77 (Bkrtcy.M.D.Ala.1982); International Association of Machinists and Aerospace Workers v. Airlift International, Inc. (In re Airlift International, Inc.), 16 B.R. 639 (Bkrtcy.S.D.Fla.1981); Delco Development Company of Harrison Road, Ltd. v. Kuempel Company (In re Kuempel Company), 14 B.R. 324, 7 BCD 1206 (Bkrtcy.S.D.Ohio 1981).⁸

Whenever a concept is universally accepted there always arrives on the scene an imaginative lawyer to test that understanding. Such is the posture of the matter before us.

Krueger, relying on In the Matter of C & P Gray Farms, Inc., 70 B.R. 704 (Bkrtcy.W.D.Mo.1987), points to the specific language in 11 U.S.C. § 1141(d)(1) that provides:

Except as otherwise provided in this subsection, in the plan, or in the order confirming the plan, the confirmation of a plan—. (Emphasis ours).

and argues that we have the authority to apply the nondischargeability provisions of 11 U.S.C. § 523 against a corporate debtor in reorganization under Chapter 11 of the Bankruptcy Code. As further authority for his proposition, Krueger relies on the legislative history to § 1141(d)(1) which states:

Subsection (d) contains the discharge for a reorganized debtor. Paragraph 1 specifies that the confirmation of a plan discharges the debtor from any debt that arose before the date of the order for relief unless the plan or the order confirming the plan provides otherwise. . . . The paragraph permits the plan or the order confirming the plan to provide otherwise, and excepts certain debts from discharge as provided in paragraphs (2) and (3). . . . (emphasis by Krueger in his memorandum). S.Rep. No. 95-989, 95th Cong., 2d Sess. 129-30 (1978); H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 418-19 (1977), U.S.Code Cong. & Admin. News 1978, p. 5787.

Krueger states: ". . . The word `and' in the legislative history denotes Congress' intention to grant the (bankruptcy) court authority to provide exceptions to discharge in addition to the other nondischargeability provisions in § 1141 . . ." Krueger's memorandum, pp. 6-7; parentheticals supplied. He concludes that Congress did not intend § 1141(d)(2) as a limitation on the Bankruptcy Court's authority to confirm a plan of reorganization. He buttresses his argument citing Gray Farms, supra, and asserts that Gray Farms holds that if a corporate debtor "has the same `strictures' as an individual debtor," then § 523 applies. (Krueger's memorandum, p. 7).

We think Krueger misconstrues the holding of Gray Farms, supra, § 1141, and the applicable legislative history. We do, however, agree with his perception that the Bankruptcy Court may condition a corporate debtor's discharge within a confirmation order.

Gray Farms, supra, involved a Chapter 11 corporate debtor farmer managed by an officer who was "relatively young and in good health." Gray Farms, at 708. Although not specifically recited in Chief Judge Steward's Findings of Fact, we assume with some certainty that Gray Farms was a closely held corporate farm debtor. The Decision concerned itself with Gray Farms' attempt to have its plan of reorganization confirmed. Within the "Findings of Fact and Conclusions of Law Supporting Order Conditionally Confirming Debtor's Plan of Reorganization," Chief Judge Steward says:

. . . Section 1141(d)(1) of the Bankruptcy Code provides that, "except as already provided in this subsection, in the plan, or in the order confirming the plan, the confirmation of a plan . . . discharges the debtor from any debt that arose before the date of confirmation . . ." The debtor corporation, in the case at bar, does not come within any of the statutory exceptions to that subsection. This court, therefore, will follow its usual practice of withholding discharge until full consummation of the plan by the debtor . . . This court refuses, as a matter of course, to allow such a compromise or extension to be effected without performance . . .

. . . The debtor in this case, albeit a corporate debtor, has the same material characteristics as an individual chapter 11 debtor. But, under the provisions of § 1141(d)(2) of the Bankruptcy Code, only an individual debtor appears to be subjected to the nondischargeability provisions of § 523. "The confirmation of a plan does not discharge an individual debtor from any debt excepted from discharge under § 523 of this title." (Emphasis added in original). In accordance with the foregoing considerations, this court has uniformly provided against such discharge upon confirmation in a corporate chapter 11 case . . . while looking ahead to the entry of such an order of conditional confirmation as being entered in this case.

Gray Farms, id., at 711 (footnotes omitted).

Although we find Chief Judge Steward's conclusion somewhat reticent, and not dissimilar to Congress' drafting of subsect...