Hawker Beechcraft, Inc. v. Hawker Beechcraft Corp.

• Decision Date: 27 March 2014
• Docket Number: No. 12–11873 (SMB).,No. 13 Misc. 373 (PKC).,Adversary No. 12–01890 (SMB).,13 Misc. 373 (PKC).,12–11873 (SMB).
• Citation: 515 B.R. 416
• Court: U.S. District Court — Southern District of New York
• Parties: In re HAWKER BEECHCRAFT, INC., et al. United State of America ex rel. Donald Minge and David Kiehl and Donald Minge and David Kiehl Individually, Plaintiffs, v. Hawker Beechcraft Corporation, Defendant.

515 B.R. 416

In re HAWKER BEECHCRAFT, INC., et al.United State of America ex rel. Donald Minge and David Kiehl and Donald Minge and David Kiehl Individually, Plaintiffs,

v.Hawker Beechcraft Corporation, Defendant.

No. 13 Misc. 373 (PKC).

No. 12–11873 (SMB).

Adversary No. 12–01890 (SMB).

United States District Court, S.D. New York.

Signed March 27, 2014.

Douglas W. Baruch, Jennifer M. Wollenberg, Fried, Frank, Harris, Shriver & Jacobson LLP, Washington, DC, Ross M. Kwasteniet, Kirkland & Ellis LLP, Chicago, IL, for Defendant.

Tammy P. Bieber, Wayne H. Davis, Ralph A. Siciliano, Richard W. Trotter, Tannenbaum Helpern Syracuse & Hirschtritt LLP, New York, NY, Forrest James Robinson, Jr., Gaye B. Tibbets, Hite, Fanning & Honeyman LLP, Wichita, KS, for Plaintiff.

MEMORANDUM AND ORDER

CASTEL, District Judge.

This interlocutory bankruptcy appeal turns in substantial part on the statutory construction of a provision of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). 11 U.S.C. § 1141(d)(6)(A). The principal issue presented is whether the claims of certain plaintiffs in a qui tam action brought under the False Claims Act (“FCA”) may be excepted from discharge under the provision of BAPCPA. Id. There is a confirmed plan of reorganization for debtor-defendant Hawker Beechcraft Corporation (“HBC”) in this Chapter 11 proceeding, and the bankruptcy court held as a matter of law that the FCA claims for damages did not qualify for exception from discharge under section 1141(d)(6)(A). For reasons to be explained, this Court does not agree and remands for consideration of the exception based on the facts presented.

Plaintiffs Donald Minge and David Kiehl are relators in a qui tam action brought against the debtor under the FCA. The provision at issue states in relevant part that “the confirmation of a plan does not discharge a debtor that is a corporation from any debt—(A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit, or owed to a person as the result of an action filed under” specified statutes, including the FCA. Id. Plaintiffs argue that under section 1141(d)(6)(A), the debtor's potential liability in the qui tam action is excepted from discharge.

The bankruptcy court held otherwise, concluding that section 1141(d)(6)(A) incorporated procedural requirements set forth in 11 U.S.C. § 523(c)(1) and corresponding Bankruptcy Rule 4007(c), which require a creditor seeking to except its claim from discharge to commence an adversary proceeding prior to a set deadline. Because plaintiffs failed to commence their adversary proceeding prior to that deadline, the bankruptcy court held that they were time-barred from availing themselves of the discharge exception.

This Court concludes that the reference in the statute to debt “of a kind specified in paragraph 2(A) or 2(B) of section 523(a)” is merely an incorporation of the description of a type of debt set forth in those sections. Here, only paragraph 2(A) is relevant and it describes a debt “for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition....” The plaintiffs' claims in the False Claims Act case may be such a debt because they plainly allege fraud by the debtor and associated entities in government contracting. Thus, the FCA claims might not be discharged by reason of the confirmation of HBC's plan of reorganization.

This Court holds that the bankruptcy court erred when it held that the reference in section 1141(d)(6) to section 523(a)(2)(A) and (B) was more than the incorporation of a definition and incorporated procedural requirements under section 523(c)(1). The bankruptcy court further erred by holding that section 523(c)(1) applies to all debtors in a Chapter 11 case, rather than only to individual debtors as the text of section 523 indicates. Accordingly, this Court reverses and vacates so much of the bankruptcy court's ruling as held that section 523(c)(1) and corresponding Bankruptcy Rule 4007(c) apply to an adversary proceeding seeking a discharge exception under 11 U.S.C. § 1141(d) (6)(A).

I. BACKGROUNDA. The FCA Action & Adversary Proceeding

The material facts relevant to this appeal are not in dispute. Plaintiffs Donald Minge and David Kiehl are former employees of TECT Aerospace, Inc. or TECT Aerospace Wellington, Inc. (together, “TECT”), manufacturers of aerospace components and subcontractors of defendant HBC. HBC is the reorganized debtor in the underlying Chapter 11 case and a manufacturer of military aircraft. On July 27, 2007, plaintiffs filed a qui tam suit under the FCA against, inter alia, HBC and TECT in the District Court of Kansas (the “Kansas Action”).¹Minge v. TECT Corp., No. 07–1212–MLB (D. Kan.). There, plaintiffs alleged that defendants made misrepresentations in their certifications to the government regarding certain components manufactured by TECT and incorporated into military aircraft sold to the government. Pursuant to the remedial provisions of the FCA, plaintiffs sought to recover triple the damages sustained by the government (totaling approximately $2.3 billion), a civil penalty of $11,000 for each of the 347 violations alleged (totaling approximately $3.8 million), and attorneys' fees and costs.

On May 3, 2012, HBC and certain affiliates filed a petition for relief under Chapter 11 of the Bankruptcy Code, staying the Kansas Action as to HBC. See Minge v. TECT Corp., No. 07–1212–MLB, Dkt. No. 354 (D.Kan. May 14, 2012). The bankruptcy court appointed Epiq Bankruptcy Solutions, Inc. (“Epiq”) as “claims agent” at the debtors' request, pursuant to 28 U.S.C. § 156(c). On June 5, 2012, Epiq mailed a “Notice of Chapter 11 Bankruptcy Cases, Meeting of Creditors, & Deadlines,” dated June 5, 2012 (the “Notice”), to creditors and other parties in interest. (Dkt. No. 27–2) The Notice was a completed version of Official Form 9F, a duly promulgated model form intended for use in Chapter 11 cases in which the debtor is a corporation or partnership. The Notice stated that the creditors' meeting required under 11 U.S.C. § 341 would take place on June 26, 2012, In language unaltered from Official Form 9F, a section on the second page of the Notice entitled “Discharge of Debts” provided information regarding the discharge of debts upon confirmation of a Chapter 11 plan. This section notified recipients that in order to avoid the discharge of a debt pursuant to 11 U.S.C. § 1141(d)(6)(A), they were required to file a complaint with the bankruptcy clerk by a deadline specified under the heading “Deadline to File a Complaint to Determine Dischargeability of Certain Debts” on the first page of the Notice. That section of the Notice did not provide a date, but instead stated that “Notice of deadline will be sent at a later time.”

Plaintiffs commenced an adversary proceeding on September 27, 2012, seeking a dischargeability determination with respect to their FCA claims against HBC in the Kansas Action. Their complaint alleged that the FCA claims in the Kansas Action were exempt from discharge under 11 U.S.C. § 1141(d)(6)(A). Specifically, plaintiffs sought a determination of nondischargeability based on each of the two grounds set forth in section 1141(d)(6)(A), alleging that their debt was both “of a kind specified in section 523(a)(2)(A) owed to a domestic governmental unit” and “debt owed to plaintiffs as a result of the action they had filed under Subchapter III of chapter 37 of title 31 of the United States Code.” (Compl., Adv. Proc. 12–1890 (SMB), Dkt. No. 1, at ¶ 39 (Bankr. S.D.N.Y. Sep. 27, 2012)) HBC moved to dismiss plaintiffs' adversary proceeding on several grounds, asserting that the complaint was time-barred under Bankruptcy Rule 4007(c), that plaintiffs lacked standing to assert the nondischargeability of their qui tam claims on behalf of the government, that the complaint failed to plead fraud with the required element of heightened scienter, and that plaintiffs had not asserted any claims constituting “debts owed to a person” within the meaning of 11 U.S.C. § 1141(d)(6)(A). 493 B.R. at 700.

B. Proceedings in the Bankruptcy Court

1. Overview

On August 2, 2013, the bankruptcy court issued a memorandum decision dismissing plaintiffs' adversary complaint as to their qui tam claims for damages and penalties under the FCA. In re Hawker Beechcraft, Inc., 493 B.R. 696 (Bankr.S.D.N.Y.2013). Because HBC's plan of reorganization was confirmed in February 2013, the decision had the effect of confirming the discharge of these claims. Id. at 713. The bankruptcy court, however, did not rule on “whether or to what extent the Plaintiffs have personal claims against” HBC, and thus permitted plaintiffs' adversary proceeding to survive with respect to potential claims for attorneys' fees and expenses arising from the FCA action; the bankruptcy court viewed these claims as potentially recoverable under 31 U.S.C. §§ 3730(d)(3) and (4). Id. at 712–13.

The bankruptcy court's analysis focused on the interpretation of 11 U.S.C. § 1141(d)(6), a provision enacted as part of BAPCPA. This provision added limited exemptions to the otherwise generally comprehensive discharge provided for debtors under 11 U.S.C. § 1141(d)(1). Section 1141(d)(6) provides:

Notwithstanding paragraph (1), the confirmation of a plan does not discharge a debtor that is a corporation from any debt—

(A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit, or owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State statute....

11 U.S.C. § 1141(d)(6)(A). The bankruptcy court parsed subparagraph (A) into two independent clauses separated by the comma following “domestic...