Fyler v. Brundage–Bone Concrete Pumping, Inc.
| Decision Date | 22 February 2013 |
| Docket Number | No. 107,763.,107,763. |
| Citation | 48 Kan.App.2d 615,297 P.3d 1180 |
| Parties | Sanford R. FYLER, Appellee, v. BRUNDAGE–BONE CONCRETE PUMPING, INC., Appellant. |
| Court | Kansas Court of Appeals |
OPINION TEXT STARTS HERE
Syllabus by the Court
1. The primary purpose of the United States Bankruptcy Code is the collection and equitable distribution of the debtor's estate to its creditors. Bankruptcy issues are within the exclusive jurisdiction of the federal courts.
2. The Bankruptcy Code provides for an automatic stay of all proceedings against the debtor the moment the bankruptcy petition is filed, irrespective of notice. 11 U.S.C. § 362(a) (2006). The purpose of the automatic stay is to protect the debtor and its creditors by allowing the debtor to organize its affairs and ensuring that the bankruptcy procedure provides an orderly resolution of all claims.
3. In Kansas, acts done in violation of a bankruptcy stay order are void and without effect.
4. An alternative dispute resolution order issued by the United States Bankruptcy Court that permits resolution of tort claims in state court, either by settlement or trial, is a limited grant of authority to the state court to proceed with the determination of the tort claim and not how a settlement or judgment may be satisfied. The state court cannot exceed the authority granted it in the alternative dispute resolution order.
Bruce A. Moothart, Mark T. Benedict, and Ryan J. Watson, of Husch Blackwell LLP, of Kansas City, Missouri, for appellant.
Scott J. Mann, of Mann Law Offices, LLC, of Hutchinson, for appellee.
Before MALONE, C.J., HILL and BRUNS, JJ.
This is an appeal of a district court order directing a debtor involved in a Chapter 11 bankruptcy proceeding, Brundage–Bone Concrete Pumping, Inc., to make a $50,000 cash payment to a creditor, Sanford R. Fyler. Chapter 11 cases seek reorganization of the assets of a debtor rather than a liquidation of assets sought in Chapter 7 filings. All bankruptcy proceedings are within the exclusive jurisdiction of the federal courts. State courts can decide only ancillary matters, such as tort claims against a debtor, as permitted by the appropriate federal court. In this case, the alternative dispute resolution order of the bankruptcy court directed that any settlement or judgment made on a tort claim against Brundage–Bone shall be in the form of an allowed general unsecured claim. Because the order of a cash payment here violates the mandatory alternative dispute resolution procedures adopted by the United States Bankruptcy Court overseeing this debtor-in-possession proceeding, we hold the district court had no jurisdiction to order a cash payment. We reverse and remand.
Brundage–Bone seeks reorganization.
In January 2010, Brundage–Bone Concrete Pumping, Inc., filed a voluntary bankruptcy petition in the United States Bankruptcy Court for the District of Colorado under 11 U.S.C. § 301 (2006). Brundage–Bone's petition estimated the number of its creditors to be between 1,000 and 5,000, and funds would be available to pay unsecured creditors. Then, in March 2010, Sanford R. Fyler asked the bankruptcy court for relief from its stay order so he could proceed with a state court tort claim against Brundage–Bone. In seeking relief under 11 U.S.C. § 362(d)(1) (2006), Fyler sought to pursue litigation in state court to establish the fact and amount of Brundage–Bone's alleged liability arising out of Fyler's tort claim for negligence against Brundage–Bone and a codefendant.
In due course, the bankruptcy court, upon Brundage–Bone's request, entered an alternative dispute resolution (ADR) order under 11 U.S.C. § 105(a) (2006) that established procedures for resolution of any tort claims. This ADR order enjoined all claimants from commencing or continuing any action to establish, liquidate, collect or otherwise enforce any tort claim against Brundage–Bone other than through the ADR procedures described in the ADR order. After that, Brundage–Bone and Fyler jointly submitted a stipulation agreeing to lift the stay order concerning Fyler's claim. The bankruptcycourt approved the stipulation and lifted its stay order concerning Fyler's claim in January 2011.
The dispute moves to Kansas.
After that, Fyler filed a petition in Sedgwick County District Court seeking damages from Brundage–Bone for injuries and damages caused by its negligence in operating a concrete pumping unit at a residential construction site accident in December 2008. The district court later denied Brundage–Bone's motion to dismiss, which argued Fyler's claim was barred by the statute of limitations. The parties participated in mediation where Brundage–Bone agreed to pay Fyler $50,000. The parties acknowledged that Brundage–Bone had to obtain “formal approval” to pay the claim. The settlement notes from the mediator stated Brundage–Bone's counsel had “oral authorization from the [bankruptcy] trustee” and would “take all actions necessary to expedite payment.”
After mediation, Fyler submitted a proposed journal entry of judgment to Brundage–Bone that required Brundage–Bone to make a direct cash payment to Fyler. Brundage–Bone refused to sign and submitted a competing stipulation of release and settlement of claim. In response, Fyler filed a motion to enforce settlement, alleging that Brundage–Bone would not consent to its proposed journal entry or “ ‘take all actions necessary to expedite payment.’ ” Brundage–Bone then filed a motion in opposition of Fyler's motion and a counter-motion to enforce the settlement that claimed Fyler's motion violated the ADR order. Specifically, Brundage–Bone argued the district court lacked jurisdiction to enforce Fyler's motion because the settlement only provided Fyler with a general unsecured claim against the bankruptcy estate for $50,000 subject to the bankruptcy court's approval.
The district court took evidence on the matter. The district court heard testimony from Dennis Gillen, the mediator who negotiated the settlement. The district court granted Fyler's motion, ruling that the settlement terms did not provide for a general unsecured claim against Brundage–Bone's bankruptcy estate. Instead, the district court ordered the settlement required Brundage–Bone to take all the necessary steps with the bankruptcy trustee to expedite a direct $50,000 cash payment to Fyler through the bankruptcy court.
In this appeal, Brundage–Bone argues the district court exceeded its jurisdiction under the terms of the controlling ADR order when it ruled the mediation settlement terms required Brundage–Bone to ask the bankruptcy trustee to make a direct $50,000 cash payment to Fyler instead of liquidating Fyler's tort claim as a general unsecured claim.
We state our standard of review.
Whether jurisdiction exists is a question of law over which an appellate court's scope of review is unlimited. Associated Wholesale Grocers, Inc. v. Americold Corporation, 293 Kan. 633, 637, 270 P.3d 1074 (2011). In addition, the legal effect of a written instrument is a question of law. Because the settlement between the parties here was a written agreement it may be construed and its legal effect determined by this court regardless of the construction made by the district court. See Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011). Finally, to the extent this appeal involves statutory interpretation this court has unlimited review. Unruh v. Purina Mills, 289 Kan. 1185, 1193, 221 P.3d 1130 (2009).
A review of some bankruptcy principles is helpful.
The primary purpose of the United States Bankruptcy Code is the collection and equitable distribution of the debtor's estate to its creditors. Dalton Dev. Project # 1 v. Unsecured Creditors Comm., 948 F.2d 678, 682 (10th Cir.1991). Chapter 11 of the Bankruptcy Code authorizes reorganization of any assets held by the debtor (usually a business) rather than liquidation under Chapter 7.
The Bankruptcy Code provides for an automatic stay of all proceedings against the debtor the moment the bankruptcy petition is filed, irrespective of notice. 11 U.S.C. § 362(a); see United Northwest Fed'l Credit Union v. Arens, 233 Kan. 514, 516, 664 P.2d 811 (1983). The purpose of the automatic stay is to protect the debtor and its creditors by allowing the debtor to organize its affairs and ensuring that the bankruptcy procedure provides an orderly resolutionof all claims. The stay terminates automatically when the bankruptcy case is closed or dismissed. 11 U.S.C. § 362(c)(2). Section 362(d), however, provides relief from the automatic stay upon a showing for cause before the bankruptcy court by terminating, annulling, modifying, or conditioning of the stay. See Pursifull v. Eakin, 814 F.2d 1501, 1504 (10th Cir.1987).
At the end of these proceedings, 11 U.S.C. § 1141(d)(1) (2006) states that confirmation of a reorganization plan discharges the debtor of any debt that arose before the date of confirmation and replaces the automatic stay with a permanent injunction under 11 U.S.C. § 524 (2006). Our Kansas Supreme Court has recognized “the provisions of a confirmed plan [under 11 U.S.C. § 1141(a) ] bind the debtor and any creditor whether or not such creditor has accepted the plan.” Waterview Resolution Corp. v. Allen, 274 Kan. 1016, Syl. ¶ 6, 58 P.3d 1284 (2002). Going further, a discharge injunction under § 524 voids any judgment “to the extent that such judgment is a determination of the personal liability of the debtor with respect to [a discharged] debt” and operates as an injunction against any effort to collect “any such debt as a personal liability of the debtor.” 11 U.S.C. §§ 524(a)(1) and (2).
We note two controlling orders of the bankruptcy court.
Brundage–Bone's Chapter 11 petition operated as an automatic stay of all pending legal actions or those that could be taken against it. Therefore, Fyler was required to seek relief under § 362(d) to proceed with his tort claim before the bankruptcy case was either closed, dismissed, or Brundage–Bone was discharged...
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...assets [and debts of] the debtor (usually a business) rather than liquidation under Chapter 7.” Fyler v. Brundage–Bone Concrete Pumping, Inc., 48 Kan.App.2d 615, 618, 297 P.3d 1180 (2013). Furthermore, as the Kansas Supreme Court has found: “[T]he provisions of a confirmed plan [under 11 U.......