Benjamin Coal Co., In re, 92-3176

• Decision Date: 03 November 1992
• Docket Number: No. 92-3176,92-3176
• Citation: 978 F.2d 823
• Parties: , Bankr. L. Rep. P 74,972 In re BENJAMIN COAL COMPANY, et al. David J. Benjamin, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 823

978 F.2d 823

23 Bankr.Ct.Dec. 1063, Bankr. L. Rep. P 74,972

In re BENJAMIN COAL COMPANY, et al. David J. Benjamin, Appellant.

No. 92-3176.

United States Court of Appeals Third Circuit.

Argued Oct. 5, 1992.

Decided Nov. 3, 1992.

Carl A. Belin, Jr. (argued), Belin & Kubista, Clearfield, Pa., for appellant.

James R. Walsh (argued), Spence, Custer, Saylor, Wolfe & Rose, Johnstown, Pa., for appellee James R. Walsh, Trustee of the Bankruptcy Estate of Benjamin Coal Co.

Before: GREENBERG, COWEN, and WEIS, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. BACKGROUND

This is an appeal from an order of the district court affirming a bankruptcy court BCC was a family-owned surface mining company that had operated in eastern and central Pennsylvania for over 70 years. Apparently due to what BCC's Chapter 11 reorganization plan Disclosure Statement termed "the emphasis placed by [BCC] on production rather than reclamation during the period 1974-1980," in 1983 it was necessary for BCC to enter into a consent decree with the Pennsylvania Department of Environmental Resources calling for substantial reclamation expenditures over the next several years. Because of those obligations and a general economic downturn in the coal industry in the early 1980s, BCC filed a Chapter 11 petition on October 1, 1984.

                order denying as untimely David Benjamin's claim against the Chapter 7 estate of Benjamin Coal Company (BCC).   This court has jurisdiction pursuant to the bankruptcy appeal provisions of 28 U.S.C. § 158(d).   BCC originally filed a Chapter 11 petition in October 1984 and converted that reorganization case to a Chapter 7 liquidation in June 1989.   After the conversion to Chapter 7, an initial meeting of creditors was held on August 9, 1989, thus establishing a bar date of November 9, 1989, pursuant to Bankruptcy Rule 3002(c), for the filing of claims against the debtor's estate.   The claim of David Benjamin at issue on this appeal arose from Benjamin's assignment of several surface mining leases to BCC during its Chapter 11 proceeding and from Benjamin's subsequent loans to BCC, pursuant to order of the bankruptcy court, of funds that had been paid to Benjamin by BCC as compensation for the lease assignments
                

Appellant, David Benjamin, was the majority shareholder and president of BCC. BCC typically acquired resources for its mining operations by purchasing mining rights from the fee owners of coal-rich lands. In the early 1980s, David Benjamin personally acquired several such surface mining leases, paying the fee owners advance royalties and also paying finder's fees and certain costs of preparing the lands for mining. Benjamin expended over $340,000 for these leases.

By the fall of 1984, BCC was already mining the leased lands and those operations were among its most profitable. Thus, in November 1984, BCC moved before the bankruptcy court for approval of an assignment of the leases by Benjamin to BCC. However, the proposed transaction was modified considerably before it was accepted by the bankruptcy court. Ultimately, by order dated December 17, 1984, the bankruptcy court accepted an agreement of assignment whereby BCC would reimburse Benjamin for prepaid royalties out of the normal royalty flow from mining operations on the leased lands; in addition, BCC would pay to Benjamin a royalty override of two percent to reimburse him for finder's fees and costs of preparation for mining. To make sure BCC had sufficient funds for its operations and for the acquisition of more leases, Benjamin was required to loan back to BCC all amounts that he was paid for the assignments. The bankruptcy court gave Benjamin an administrative claim with super-priority under Section 364(c)(1) of the Bankruptcy Code for amounts he loaned back to BCC under the lease assignment agreement. The payments to and from Benjamin were to pass through a "Loan Repayment Account" to be maintained at Equibank, although that account was never established and BCC and Benjamin apparently made the required payments directly to one another. Benjamin was to have a security interest in that account, but his security interest would be subordinate to the security interests of Equibank and Citibank, BCC's largest secured creditors. For his contemplated loans to BCC, Benjamin was to receive interest at one percent above Equibank's prime rate. The order establishing Benjamin's obligation to make the loans and allowing his administrative claim provided for full repayment to Benjamin by one of several contingent dates; in the event, repayment would have been due to Benjamin under the terms of the order no later than June 30, 1985.

The bankruptcy court confirmed a reorganization plan for BCC on October 4, 1985. BCC completed its mining on the leased lands sometime after the confirmation BCC could not fulfill the terms of its confirmed plan. BCC operated under the plan for several years but by 1989 the company suffered adverse effects from a coal-industry labor strike and from the resulting loss of a key supply contract. On June 30, 1989, BCC moved before the bankruptcy court to convert its Chapter 11 case into a Chapter 7 liquidation. Benjamin's claim was listed on BCC's Chapter 7 schedules, and Benjamin therefore would have received notice, pursuant to Bankruptcy Rule 2002(a), of the claims bar date of November 9, 1989, established in the Chapter 7 proceeding. On December 18, 1989, Benjamin filed a "Proof of Claim" seeking over $340,000 for loans to BCC, plus over $135,000 in interest. The Chapter 7 trustee objected to Benjamin's claim as untimely.

                of the reorganization plan, but before BCC's voluntary conversion to a Chapter 7 liquidation proceeding.   By the completion of mining, Benjamin received in royalties, and reloaned to BCC, over $340,000.   Under BCC's Chapter 11 plan, Benjamin had been given a Class XI claim for amounts due him under the assignment agreement and subsequent loan transactions.   The plan specified that Class XI claims were to receive payment of one-eighth of their full value on the 15th day after the confirmation of the plan.   The plan further assured that all Class XI claims were to be paid in full by the effective date of the plan, i.e., by June 30, 1986
                

The bankruptcy court found that Benjamin's claim was an untimely filed general unsecured claim, not entitled to any priority under 11 U.S.C. § 507 or 11 U.S.C. § 364(c)(1). The bankruptcy court reasoned that, because of the confirmation of BCC's Chapter 11 plan, Benjamin's claim lost its priority administrative status and, relative to BCC's subsequent Chapter 7 proceedings, became a general unsecured, post-confirmation, pre-conversion claim.

The district court affirmed, holding that the effect of BCC's reorganization plan was to convert Benjamin's claim into an unsecured general debt for the balance owed by the reorganized BCC as of the effective date of the confirmed plan. The district court concluded that the preservation of administrative claims in a converted case provided by Section 348(d) of the Bankruptcy Code does not apply if there has been a confirmation of a Chapter 11 plan and a consequent discharge of prior claims under 11 U.S.C. § 1141(d). Both the bankruptcy court and the district court also made several additional rulings on subsidiary issues, e.g., whether the bankruptcy court's allowance of Benjamin's former administrative claim in the Chapter 11 case was sufficient to constitute an "actually filed" proof of claim under Bankruptcy Rule 1019(3).

II. DISCUSSION

This court will affirm the district court on the grounds that the confirmation of the Chapter 11 plan discharged the administrative claim previously granted to Benjamin by order of the bankruptcy court. Thereafter, Benjamin had only an unsecured non-priority contractual claim based on the terms of the plan and, inasmuch as those terms were not fulfilled, Benjamin was obligated to file his proof of claim in timely fashion after the conversion to a Chapter 7 case. Because the discharge provision of 11 U.S.C. § 1141(d) completely resolves the issue presented here, we will not address any of the additional rulings of the bankruptcy court or the district court.

Benjamin's central argument in support of the validity of his claim in the Chapter 7 case is that Section 348(d) of the Bankruptcy Code resurrects his administrative priority claim, despite the intervening confirmation of BCC's Chapter 11 plan. Section 348(d) provides:

A claim against the estate or the debtor that arises after the order for relief but before conversion in a case that is converted under section 1112, 1307, or 1208 of this title, other than a claim specified in section 503(b) of this title, shall be treated for all purposes as if such claim had arisen immediately before the date of the filing of the petition. (Emphasis added.)

Thus, Section 348(d) relegates all claims in a converted case to pre-petition status, except Section 503(b) administrative expense claims. Benjamin therefore argues that administrative claims, such as his own claim in BCC's Chapter 11 case, are granted a special continuing administrative priority by Section 348(d); and that despite the confirmation of BCC's Chapter 11 plan, he still should have an administrative priority claim in the converted Chapter 7 case. In addition, Benjamin argues that the bankruptcy court's allowance of the lease assignments in the Chapter 11 case constituted an informal proof of claim. Therefore, pursuant to Bankruptcy Rule 1019(3), Benjamin's claim was "actually filed" in the Chapter 11 case, and "deemed filed" in...