In re Centennial Industries, Inc.

• Decision Date: 24 June 1981
• Docket Number: Bankruptcy No. 78 B 1658.
• Citation: 12 BR 99
• Parties: In re CENTENNIAL INDUSTRIES, INC., Debtor. CENTENNIAL INDUSTRIES, INC., Plaintiff, v. NCR CORPORATION, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

12 B.R. 99 (1981)

In re CENTENNIAL INDUSTRIES, INC., Debtor CENTENNIAL INDUSTRIES, INC., Plaintiff, v. NCR CORPORATION, Defendant.

Bankruptcy No. 78 B 1658.

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

June 24, 1981.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for debtor.

Booth, Lipton & Lipton, New York City, for defendant.

MEMORANDUM & ORDER

JOHN J. GALGAY, Bankruptcy Judge.

Defendant's motion to dismiss the complaint asks this Court to determine whether an adversary proceeding seeking recovery of preferential payments and improper transfers of debtor's property can be brought after a plan of arrangement in a Chapter XI proceeding is confirmed. After review of the argument presented on July 30, 1980, the papers submitted by counsel, the statutes, and the interpretive case law, this Court denies defendant's motion to dismiss.

Centennial Industries, Inc., (Centennial) filed a petition under Chapter XI of the Bankruptcy Act on September 13, 1978. Centennial listed NCR's claim as $910,501.83 on its schedule of claims, and defendant filed a proof of claim for $1,024,850.01.

On March 13, 1980 this Court entered an order confirming a plan of arrangement providing for a 20% payment to unsecured creditors this year, and an additional 15% payable over the next five years at 3% per annum, and for objections to claims to be made within 60 days.

On April 24, 1980 plaintiff filed a complaint objecting to defendant's claim, seeking recovery of preferential payments under 57(g) of the Act, and recovery of commissions belonging to plaintiff which it claimed were wrongfully appropriated by defendant and are voidable transfers under section 70(a)(6), and recoverable under section 57(g). Section 57(g) states,

"The claims of creditors who have received or acquired preferences, liens, conveyances, transfers, assignments, or encumbrances, void or voidable under this Act, shall not be allowed unless such creditors shall surrender such preferences, liens, conveyances, transfers, assignments or encumbrances."

NCR raises three arguments in its motion to dismiss. NCR contends that the Bankruptcy Court lacks jurisdiction, recovery of preferential transfer will give Centennial a windfall, and that plaintiff lacks standing to bring this adversary proceeding. For the reasons to be stated below, this Court finds that none of these objections bar the bringing of this adversary proceeding to recover a preference post-confirmation.

Defendant contends that after confirmation of a plan this Court does not retain jurisdiction to determine an adversary proceeding to recover preferential payments. Defendant states that absent specific retention of jurisdiction, this Court cannot adjudicate an adversary proceeding such as this Section 367(4) of the Act specifically provides that on "confirmation of an arrangement . . . except as otherwise provided in sections 369 and 370 of this Act, the case shall be dismissed." Neither section 369 or section 370 deals with adversary proceedings to recover preferential transfers. While section 368 allows the court to retain jurisdiction, if so provided in the arrangement, NCR declares that no jurisdiction was retained to recover preferential transfers.

It is the opinion of this Court that jurisdiction was specifically retained in the plan to determine this adversary proceeding. The order confirming the plan allowed objections to claims to be made within sixty days. From this the court finds that it retained jurisdiction to hear all claims objecting to the allowability of a claim. Defendant argues that there is a distinction between a mere "objection" to claim and an adversary proceeding seeking recovery of alleged preferential transfers. This court finds it a distinction without a difference.

The Supreme Court in Katchen v. Landy, 382 U.S. 323, 330, 86 S.Ct. 467, 473, 15 L.Ed.2d 391 (1965) when considering whether an action under section 57(g) is subject to summary adjudication by a bankruptcy court, the Supreme Court stated, "The objection under 57g is, like other objections, part and parcel of the allowance process and is subject to summary adjudication." This court holds that a retention of jurisdiction to hear objections to claims is a retention of jurisdiction to hear all controversies affecting the allowance process including a 57(g) objection.

Furthermore, a close reading of the objection to claims clause, in the order confirming the plan, seems to indicate a retention of powers broader than those merely to hear objections to claims. The clause states, "Objection to claims may be made . . . and upon the failure to do so, any objection to the allowance of any claim shall be deemed waived." The clause doesn't state that "any objection to claim shall be deemed waived" but it states "any objection to the allowance of any claim" meaning that the court retains specific jurisdiction to hear any objection affecting the allowance of the claim, and 57(g) affects the allowance of the claim by requiring the creditor to repay the preference before his claim will be allowed.

Defendant's citation to In re Oceana International, Inc., 376 F.Supp. 956 (S.D.N.Y. 1974) and to Law Research Service, Inc., v. Hemba, 384 F.Supp. 729 (S.D.N.Y.1974) where the court found no jurisdiction after confirmation, does not advance its position. In those cases the court found that the plan did not provide for retention of jurisdiction, while in this case the confirmation did retain specific jurisdiction for objections under 57(g). This case is more in line with Texas Consumer Finance Corp. v. First National City Bank, 365 F.Supp. 427 (S.D.N.Y. 1973) in which post confirmation jurisdiction to recover a preferential payment was upheld, because the plan provided for retention of jurisdiction. As the court stated, "If the debtor-in-possession has the powers of a trustee and if jurisdiction is specifically retained in the plan, the order of confirmation should not be the occasion for a windfall to the preferential transferee." Id. at 432.

NCR next argues that the purpose of section 57(g) of the Act is to increase the amount of recovery of unsecured creditors by the amount recovered from the...