In re AgriBioTech, Inc.

• Decision Date: 08 December 2004
• Docket Number: Adversary No. 02-1023-LBR.,Bankruptcy No. BK-S-00-10533-LBR.
• Citation: 319 B.R. 207
• Parties: In re AGRIBIOTECH, INC. Debtor. Anthony H.N. Schnelling, as Trustee of the AgriBioTech Creditors' Trust, the Duly Appointed and Authorized Representative of the Chapter 11 Estates of AgriBiotech, Inc., Las Vegas Fertilizer Co., Inc., Garden West Distributors, Inc., and Geo. W. Hill & Co., Inc., Plaintiff, v. Johnny R. Thomas; John C. Francis; Scott J. Loomis; James W. Hopkins; Kent Schultze; Richard P. Budd; Randy Ingram; Thomas B. Rice; Drew Kinder; James W. Johnston; L. Glenn Orr; Harrison M. Baines, Jr.; Kathleen L. Gillespie; Henry Ingalls; Doug Fisher; Kenneth Budd; KPMG Peat Marwick LLP, a limited liability partnership; KPMG Consulting, Inc., a Delaware corporation; Snow Becker Krauss, P.C., a professional corporation; Elliot Lutzker; Womble Carlyle Sandridge & Rice, PLLC, a professional limited liability company, Defendants.
• Court: U.S. District Court — District of Nevada

319 B.R. 207

In re AGRIBIOTECH, INC. Debtor.

Anthony H.N. Schnelling, as Trustee of the AgriBioTech Creditors' Trust, the Duly Appointed and Authorized Representative of the Chapter 11 Estates of AgriBiotech, Inc., Las Vegas Fertilizer Co., Inc., Garden West Distributors, Inc., and Geo. W. Hill & Co., Inc., Plaintiff, v. Johnny R. Thomas; John C. Francis; Scott J. Loomis; James W. Hopkins; Kent Schultze; Richard P. Budd; Randy Ingram; Thomas B. Rice; Drew Kinder; James W. Johnston; L. Glenn Orr; Harrison M. Baines, Jr.; Kathleen L. Gillespie; Henry Ingalls; Doug Fisher; Kenneth Budd; KPMG Peat Marwick LLP, a limited liability partnership; KPMG Consulting, Inc., a Delaware corporation; Snow Becker Krauss, P.C., a professional corporation; Elliot Lutzker; Womble Carlyle Sandridge & Rice, PLLC, a professional limited liability company, Defendants.

Civ. No. CV-S-0537-PMP (LRL). Bankruptcy No. BK-S-00-10533-LBR. Adversary No. 02-1023-LBR.

United States District Court, D. Nevada.

December 8, 2004.

Candace C. Carlyon, Shea & Carlyon, Las Vegas, NV, David Bryant, Scott M. DeWolf, Diamond, McCarthy, Taylor, Finley, Bryant & Lee, LLP, Jay Madrid, Winstead, Sechrest & Minick, Dallas, TX, for Anthony H.N. Schnelling, trustee.

Richard F. Holley, Victoria L. Nelson, Santoro, Driggs, Walch, Kearney, Johnson & Thompson, Las Vegas, NV, William K. Davis, Alan M. Ruley, Bell, Davis & Pitt, Winston-Salem, NC, for Defendant Richard P. Budd.

ORDER

PRO, Chief Judge.

Presently before the Court is Defendant Richard P. Budd's Motion for Reconsideration and Memorandum of Points and Authorities in Support CV-S-02-0885 (Doc. #685) filed on July 20, 2004. Plaintiff Anthony H.N. Schnelling filed Plaintiffs Response to Richard P. Budd's Motion for Reconsideration (Doc. # 724) on August 30, 2004. Defendant Richard P. Budd ("Budd") filed his Reply (Doc. # 749) on September 30, 2004.

I. BACKGROUND

AgriBioTech, Inc. ("AgriBioTech" or "ABT") originally was founded in 1983. (Third Amended Compl. (Doc. #328) ¶ 51.) As of 1998, AgriBioTech was the largest forage and turfgrass seed producer in the United States. (Id. ¶ 1.) "On January 25, 2000, ABT and three of its subsidiaries, Las Vegas Fertilizer Co., Garden West Distributors, and Geo. W. Hill & Co., Inc. (collectively, the 'Debtors') commenced jointly administered Chapter 11 cases by filing voluntary petitions under Chapter 11 of the United States Bankruptcy Code ...." (Id. ¶ 12.) The Debtors created a Creditors' Trust pursuant to the First Amended Joint Plan of Reorganization ("Reorganization Plan" or "Plan"), which United States Bankruptcy Judge Linda B. Riegle confirmed. (Id.; Trustee's Resp. to KPMG LLP's Mot. for Summ. J. on All Claims Purportedly Brought by Trustee on Behalf of Non-Debtor Third Parties, Ex. B.)

Plaintiff Anthony H.N. Schnelling ("Trustee"), as Trustee of the AgriBioTech Creditors' Trust, brought this lawsuit against former AgriBioTech officers and directors based on the rights allegedly assigned him pursuant to the Plan. (First Am. Compl. (Doc. #438) ¶ 1, 7.) The Trustee brought claims for fraud and negligent misrepresentation against, among other defendants, Defendant Budd.¹ (Id. ¶¶ 2, 8, 34-58.) The Trustee brought these claims as "assignee of the claims of forage and turfgrass seed farmers (the 'Growers')." (Id. at 2.) According to the Complaint, the Reorganization Plan assigned to the Trustee the Growers' claims that Budd knowingly misrepresented to the Growers ABT's financial state in the summer and fall of 1999 to induce the Growers to deliver to ABT their seed crop. (Id, ¶ 7, 34-48.)

On July 31, 2002, Defendant Budd filed a Motion to Dismiss the Complaint Pursuant to Rule 12(b)(6) (Doc. # 18 in CV-02-0885). Budd argued the Trustee lacked standing to assert the fraud claims on behalf of the Growers because section 2.3 of the Plan states that the Plan is to be construed pursuant to Nevada law, and Nevada prohibits the assignment of fraud claims. This Court denied Budd's motion and ruled the Trustee had standing to pursue the Growers' fraud claims. Budd now moves the Court to reconsider this prior ruling.

Additionally, Budd argues that even if the Trustee has standing under the Plan, as a matter of law the Trustee has no standing to pursue third party or creditor claims not belonging to the Debtor at the commencement of the bankruptcy proceedings. The Trustee argues that the Trustee has standing to pursue the Growers' fraud claims because the claims upon assignment belong to the Debtors' estates and any recovery will be distributed according to the priorities set forth in the Reorganization Plan.

II. STANDING UNDER THE PLAN

Reconsideration of a prior ruling is appropriate only in limited circumstances, such as the discovery of new evidence, an intervening change in controlling law, or where the initial decision was clearly erroneous or manifestly unjust. Nunes v. Ashcroft, 375 F.3d 805, 807-08 (9th Cir. 2004). A motion for reconsideration is not an avenue to re-litigate the same issues and arguments upon which the court already has ruled. Brogdon v. Nat'l Healthcare Corp., 103 F.Supp.2d 1322, 1338 (N.D.Ga.2000).

Section 2.3 of the Reorganization Plan contains a choice of law provision which provides that the Plan is to be construed according to Nevada law in the same way and to the same extent as a written contract would be construed according to Nevada law.²(See Order (Doc. # 326) dated Dec. 24, 2002 at 7-8.) Nevada law prohibits the assignment of fraud and negligent misrepresentation claims. (Id. at 8 (citing Prosky v. Clark, 32 Nev. 441, 109 P. 793, 794 (1910))). Consequently, based on section 2.3 alone, the assignment of the Growers' fraud claims to the Trustee would appear to be void under Nevada law.

However, as this Court previously ruled, other language in the Plan reserves to the Trustee the right to pursue fraud claims. Section 10.4 states that "unless Litigation is expressly waived, relinquished, released, compromised or settled in this Plan or in a Final Order, all rights with respect to such Litigation are reserved and assigned to the Creditor Trust and the Creditor Trustee may pursue such Litigation." (Reorganization Plan § 10.4.) The Plan defines "Litigation" to mean:

any and all claims, debts, demands, rights, defenses, actions, causes of action, suits, contracts, agreements, obligations, accounts, defenses, offsets, powers, privileges, licenses and franchises of any kind or character whatsoever ... of the Debtors or their Estates, including but not limited to ... such claims and defenses as fraud, mistake, duress and usury ....

(Reorganization Plan § 1.71 (emphasis added).) The Court previously resolved this internal inconsistency in the Plan by ruling that the specific provisions in sections 1.71 and 10.4 authorizing the Trustee to pursue a suit for fraud should govern over section 2.3's general choice of law provision. (Id. at 8-9.) The Court therefore concluded the Trustee had standing under the Plan to pursue the Growers' fraud claims.

Budd now contends the Court erroneously concluded that 1.71 and 10.4 were the specific provisions governing the Growers' fraud claims. Budd's argument centers on section 1.72 of the Plan, which defines "Litigation Claims" in part as "any claims against the Debtors, or its former professionals, officers, or directors." (Reorganization Plan § 1.72.) Budd contends that because section 1.72 specifically refers to claims against ABT's former officers and directors, it is the specific provision governing the Growers' fraud claims against Budd rather than sections 1.71 or 10.4 as this Court previously ruled. Budd further argues that section 1.72 makes claims against ABT's former officers and directors "subject to the terms of this Plan," including section 2.3's choice of law provision. Budd contends that section 1.71's definition of "Litigation" refers to claims "of the Debtors or their Estates," and the fraud claims are the Growers' claims, not claims of ABT or its estate. Budd therefore argues that section 1.72 is the specific governing provision, and under that provision claims against ABT's former officers or directors are subject to section 2.3's choice of law provision requiring the application of Nevada law, which prohibits the assignment of fraud claims. Even accepting Budd's argument that section 1.72 is the specific provision governing the fraud claims in this action, nothing in section 1.72 alters the Court's conclusion that the Plan's specific terms reserve to the Trustee all claims, including fraud claims, unless expressly waived and that these specific provisions override section 2.3's general invocation of Nevada law. Section 1.72 defines Litigation Claims as follows:

1.72 "Litigation Claims." Litigation Claims are: (a) any claims against the Bank Group; (b) subject to the terms of this Plan, any claims against the Debtors, or its former professionals, officers, or directors; or (c) any other Litigation which belongs in whole or in part to the Debtors.

(Reorganization Plan § 1.72.) Section 1.72(c)'s reference to any "other" Litigation suggests subsections (a) and (b) also are types of Litigation. Under the Plan's structure, all Growers' Litigation Claims against ABT's former officers and directors are assigned to the Creditor Trust for the Trustee to pursue and prosecute, with the proceeds of any recovery being distributed pro rata according to the distribution priorities set forth in the Plan. (Reorganization Plan §§ 1.7, 1.48, 5.7, 5.17, 6.1, 6.5, 10.4.) Upon assignment, the Growers' fraud claims belonged to the Creditor's Trust, and thus became Litigation Claims, a subset of Litigation "of the Debtors or their Estates" under section 1.71. All Litigation, including a suit for fraud, is reserved and assigned to the Trustee unless expressly waived pursuant to section 10.4.

The Court does not find clear error in its prior ruling. Accordingly, the Court will deny Defendant Budd's ...