906 F.2d 1468 (10th Cir. 1990), 89-3090, Paul v. Monts

Docket Nº89-3090.
Citation906 F.2d 1468
Party NameLewis A. PAUL, Plaintiff, v. T. Conrad MONTS, Defendant, Donald W. BOSTWICK, Trustee of International Plastics, Inc., Plaintiff-Appellant, v. TRAVENCA DEVELOPMENT CORPORATION, also known as Transnational Venture-Capital Development Corporation; Titan Energy Co., Ltd.; T. Conrad Monts; the Southwest National Bank; Southern Investors Management Co.,
Case DateJune 28, 1990
CourtUnited States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 1468

906 F.2d 1468 (10th Cir. 1990)

Lewis A. PAUL, Plaintiff,


T. Conrad MONTS, Defendant,

Donald W. BOSTWICK, Trustee of International Plastics, Inc.,




Transnational Venture-Capital Development Corporation;

Titan Energy Co., Ltd.; T. Conrad Monts; the Southwest

National Bank; Southern Investors Management Co., Inc.;

Farmers Home Administration, Defendants-Appellees.

No. 89-3090.

United States Court of Appeals, Tenth Circuit

June 28, 1990

Rehearing Denied Aug. 21, 1990.

Page 1469

Donald W. Bostwick of Adams, Jones, Robinson and Malone, Wichita, Kan., for plaintiff-appellant.

Robin B. Moore, Asst. U.S. Atty., D. Kan., Thomas V. Murray of Barber, Emerson, Springer, Zinn & Murray, Lawrence, Kansas, Warren G. Jones of Malone, Dwire and Jones, Wichita, Kan., (Benjamin L. Burgess, Jr., U.S. Atty., D. of Kan., Wichita, Kan., with them on the brief), for defendants-appellees.

Before BRORBY and EBEL, Circuit Judges, and JOHNSON, [*] District Judge.


This case presents the issue of whether a failed Chapter 11 reorganization plan gives rise to a cause of action which the Chapter 7 trustee can enforce against proposed participants to the plan who were not themselves creditors and who did not acquire property under the plan. The United States District Court for the District of Kansas granted summary judgment for the defendants, holding that the defendants had not contractually committed to the plan and that, even if they had, the debtor-in-possession (and the Chapter 7 trustee as successor in interest) was estopped to assert the claim against the defendants. Finally, the district court held that it would not employ a separate cause of action for the trustee and that the exclusive remedies for any breach of the plan were contained in the enforcement and modification provisions governing Chapter 11 plans of reorganization. Because we hold (1) that there is a genuine dispute over material facts concerning whether the defendants had entered into a binding contract with the debtor-in-possession, (2) that the defendants did not establish the absence of a genuine dispute of material facts concerning its estoppel defense, and (3) that the enforcement and modification provisions of the Bankruptcy

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Code pertaining to Chapter 11 plans of reorganization do not preempt a claim for breach of contract premised on the plan of reorganization, we reverse and remand for further proceedings.

The material facts are largely undisputed. The debtor corporation, International Plastics, Inc. (IPI), was in the business of packaging fluorocarbon products and refrigerant gases. IPI had obtained two loans totalling $6,000,000.00 from Southwest National Bank (Bank), secured by IPI property. Ninety percent of this indebtedness was guaranteed by the Farmers Home Administration (FmHA). All or substantially all of the loans had been purchased by Southern Investors Management Company, Inc. (SIMCO).

On March 18, 1980, IPI filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On July 21, 1980, after two previous versions had been filed, IPI filed its second amended plan of reorganization, which provided that Titan Energy Co., Ltd. (Titan), a wholly owned subsidiary to be formed by defendant Travenca Development Corporation (Travenca), would assume IPI's entire obligation to the FmHA and would provide $2,500,000.00 of new capital. In return for this assumption of indebtedness and infusion of capital, Travenca (or Titan) would obtain fifty-one percent of IPI common stock, 175,000 shares of preferred stock, title to IPI's packaging plant, and a ninety-nine year lease of a ten-acre portion of IPI's real property. It was intended that IPI have $1,360,000.00 as working capital for operation of its fluorocarbon packaging facility. The proposed plan further provided that when Titan assumed IPI's $6,000,000.00 indebtedness, the Bank would transfer its mortgage for these loans to assets to be thereafter acquired by Titan, which would thus free all of IPI's assets under the proposed plan. On August 19, 1980, the day before the confirmation hearing, the FmHA set forth thirteen conditions to be satisfied prior to the Bank's transferring its security in IPI property to assets subsequently to be acquired and developed by Titan.

On August 20, 1980, a hearing on confirmation of the second amended plan of reorganization was held. In deposition testimony, both the attorney for IPI and the attorney for the Bank indicated that, before the hearing, Travenca's representatives knew of the new FmHA conditions and acquiesced to their inclusion in the overall plan. During the confirmation hearing, itself, T. Conrad Monts, president of Travenca, stated that under any condition, either Travenca or he, personally, would pay the $2,500,000.00 to IPI in exchange for stock. The FmHA requirements were neither introduced into evidence nor mentioned at the hearing. Mr. Monts indicated that he understood one of Travenca's contractual obligations under the confirmed plan to be assumption of IPI's debt, but no mention was made of FmHA's new conditions. On September 2, 1980, the bankruptcy court entered an order confirming the second amended plan of reorganization. 1 On September 3, 1980, SIMCO informed Mr. Monts of thirteen additional conditions it would require before the loan agreement envisioned by the plan could be approved.

After the plan was confirmed, the parties began to disagree regarding obligations under the plan and responsibility for implementation. The parties made several proposals to modify the plan but no confirmed plan was ever implemented. In January of 1981, the Bank moved to implement the plan pursuant to 11 U.S.C. Sec. 1142(b). IPI opposed this motion, apparently believing that a modified version of the plan which was then being considered by the parties might have a greater chance of success. Finally, on April 17, 1981, the Bank filed a motion to convert the IPI Chapter 11 proceeding to a Chapter 7 liquidation bankruptcy, which the bankruptcy court approved on April 27, 1981. IPI did not oppose

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the Bank's motion. In its order, the bankruptcy court found that IPI did not implement the plan due to the failure of Travenca and Monts to satisfy their obligations under the plan. A Chapter 7 trustee was then appointed, and IPI's assets were substantially liquidated without objection from IPI or the bankruptcy court.

In December 1981, the Chapter 7 trustee, plaintiff here, filed a declaratory judgment action in bankruptcy court to determine if any of the defendants had breached their respective obligations under the failed plan. 2 The trustee's amended complaint also sought damages from defendants. 3

Subsequent to a rather complex procedural history, the details of which are not relevant to this appeal, the district court granted Travenca's motion for summary judgment. Paul v. Monts, 99 B.R. 59 (D.Kan.1989). "We will affirm a grant of summary judgment if it is clear from the record that there are no genuine issues of material fact and the [moving party is] entitled to judgment as a matter of law." Willner v. Budig, 848 F.2d 1032, 1033-34 (10th Cir.1988), cert. denied, --- U.S. ----, 109 S.Ct. 840, 102 L.Ed.2d 972 (1989). This court "must read the record in the light most favorable to the nonmoving party." Burnette v. Dresser Indus., Inc., 849 F.2d 1277, 1284 (10th Cir.1988); Lindley v. Amoco Prod. Co., 639 F.2d 671, 672 (10th Cir.1981). Conclusions of law by the district court are reviewable by this court de novo. In re Heape (Heape v. Citadel Bank), 886 F.2d 280, 282 (10th Cir.1989).

We address first whether Travenca is bound by the terms of the confirmed reorganization plan. Section 1141 of the Bankruptcy Code details the effect of confirmation of a reorganization plan. 11 U.S.C. Sec. 1141(a) provides in pertinent part:

[T]he 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.

While it is clear that the debtor and its creditors are bound by the plan, it is less certain that Travenca, as a third party investor in the potential reorganization, was bound by the plan. 4 "The general rule is that a confirmed plan of reorganization is binding on the debtor and other proponents of the plan." In re Garsal Realty, Inc. (Garsal Realty, Inc. v. Troy Sav. Bank), 39 B.R. 991, 994 (N.D.N.Y.1984). In fact, confirmation of a plan also binds creditors and other parties in interest even if such entities have not accepted the plan. In re St. Louis Freight Lines, Inc., 45 B.R. 546, 551 (Bankr.E.D.Mich.1984). "[A] party in interest ... is bound by the terms of the plan when confirmed, even if the plan ultimately provides it with less than that to which it is otherwise legally entitled." Id. at 552. A review of the case law and the bankruptcy provisions, however, has failed to provide a definition of "proponents of the plan," or "parties in interest." "Interest"

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is not defined by the Code but, as used, the term includes the ownership interest of the individual debtor in his property, the interest of equity security holders, and the interest of general partners in a debtor partnership. 5 Collier on Bankruptcy p 1141.01 n. 12 (15th ed. 1989). We found no authority to support the proposition advanced here by the trustee that Travenca was bound by the terms of the plan. While the plan envisioned that Travenca would ultimately "acquire property under the plan," that vision was never...

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