In re Fibermark, Inc.

• Citation: 369 B.R. 761
• Decision Date: 14 June 2007
• Docket Number: No. 04-10463.,04-10463.
• Parties: In re FIBERMARK, INC., Fibermark North America, Inc. and Fibermark International Holdings, LLC, Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court —District of Vermont

369 B.R. 761

In re FIBERMARK, INC., Fibermark North America, Inc. and Fibermark International Holdings, LLC, Debtors.

No. 04-10463.

United States Bankruptcy Court, D. Vermont.

June 14, 2007.

COPYRIGHT MATERIAL OMITTED

Gwendolyn W. Harris, McCarty, Buehler & Bixby, P.C., Brattleboro, VT, for the Key Employee.

Jennifer Emens-Butler, Obuchowski & Emens-Butler, Bethel, VT, for the Reorganized Debtors.

MEMORANDUM OF DECISION

GRANTING KEY EMPLOYEE'S MOTION To REOPEN CHAPTER 11 CASE

COLLEEN A. BROWN, Bankruptcy Judge.

In this matter, the Court is presented with an issue of first impression in this District: Does this Court have jurisdiction to adjudicate a dispute that arose after a chapter 11 case was closed, where the dispute relates to an agreement approved by the Court, and that agreement, the plan, and the confirmation order all contained specific jurisdiction-retention language? And, if so, should the Court, in the exercise of its discretion, reopen the case to adjudicate the dispute? Having analyzed relevant case law, the Court concludes that it has ancillary subject matter jurisdiction to adjudicate the post-closing dispute and there is cause to grant the motion to reopen the case.

Procedural History

On September 27, 2006, the Court issued a Final Decree (doc. # 2253) and shortly thereafter the Clerk's Office closed this chapter 11 case. Approximately six months after entry of the Final Decree, A. Michael Wilson ("Wilson" or "Employee") moved to reopen the case (doc. # 2256). Wilson is a "key employee" of the Debtors, as that term is defined in the Key Employee Severance Plan ("KESP"), and as set forth in the "Order Under 11 U.S.C. §§ 105(a) and 363(b)(1) Authorizing Implementation of Key Employee Retention and Severance Plans," entered on August 6, 2004 (doc. # 486). Wilson seeks to reopen the case in order to have this Court resolve a dispute regarding whether he was terminated from his employment for "Good Reason" as that phrase is defined in the KESP. He asserts that the retention of jurisdiction language in the Chapter 11 Plan (doc. # 1996), incorporated into the Confirmation Order (doc. # 2057), serves as the subject matter jurisdictional basis for this Court to resolve the employment dispute even though the case is now closed, and was closed at the time the dispute arose. The Reorganized Debtors object to the reopening of the case (doc. # 2258), arguing that: (1) this Court's retention of jurisdiction does not extend beyond the entry of the Final Decree; (2) Wilson's situation presents a "two-party dispute" which can be resolved in any court of law and does not require the reopening of a chapter 11 case which has no assets left; (3) the motion to reopen is premature; because the KESP requires a 30-day negotiation process between the parties; and (4) on the merits, Wilson was terminated "For Cause" and has no right to relief.

On May 8, 2007, the Court heard oral argument on the motion to reopen. It took a recess to review the KESP, a confidential document, to determine whether the parties were prohibited from seeking judicial resolution prior to the expiration of a mandatory 30-day negotiation period. The Court concluded that, although the document is ambiguous, the equities favored requiring the parties to negotiate for 30 days before allowing them to proceed in court. The Court continued the hearing until June 6, 2007, and granted the Reorganized Debtors and Employee an opportunity to supplement their briefs to address the jurisdictional question. The Court stated that it would rule on the motion to reopen on June 6th if the parties had not settled the issue during the mandated negotiation phase.

On June 6, 2007, the parties appeared and reported that they had not settled. The Court then entered an oral ruling declaring that it had jurisdiction to adjudicate the employment dispute, granting the motion to reopen the case, and stating that it would issue a written order articulating the full rationale for its determination. This memorandum of decision constitutes that written decision.

Discussion

Resolving this issue requires the Court to wade into the Murky waters of post-closing subject matter jurisdiction. The Court looks first to the retention of jurisdiction language contained in the record of the chapter 11 case.

The text of the confirmed Amended Chapter 11 Plan, dated November 1, 2005, is essential to the Court's analysis. Article XI of the Plan, entitled "Retention of Jurisdiction," provides as follows:

11.1 Scope of Retention of Jurisdiction

Under Sections 105(a) and 1142 of the Bankruptcy Code, and notwithstanding entry of the Confirmation Order and occurrence of the Effective Date, and except as otherwise ordered by the Bankruptcy Court, the Bankruptcy Court shall retain exclusive jurisdiction over all matters arising out of; and related to, the Chapter 11 Case and the Plan to the fullest extent permitted by law, including, among other things, jurisdiction to:

* * *

(q) hear and determine any matters arising under the Key Employee Protection Order, the Key Employee Retention Plan, the Key Employee Severance Plan, and the Discretionary Recognition Plan, including, without limitation, any dispute relating to the existence of "Good Reason" under such plans ...

11.2 Failure of the Bankruptcy Court to Exercise Jurisdiction

If the Bankruptcy Court abstains from exercising, or declines to exercise, jurisdiction or is otherwise without jurisdiction over any matter arising in, arising under, or related to the Chapter 11 Case, including the matters set forth in Section 11.1 of the Plan, the provisions of this Article XI shall have no effect upon and shall not control, prohibit, or limit the exercise of jurisdiction by any other court having jurisdiction with respect to such matter.

(doc. # 1996, pp. 33-34) (emphasis added). The Order Confirming the Joint Plan of Reorganization provides that "[t]he terms and provisions of the Plan are incorporated by reference into and are an integral part of this Confirmation Order." (doc. # 2057, p. 14). That Order also provides that the Plan and its provisions "shall be binding upon the Debtors, the Reorganized Debtors, ... and any holder of a Claim against or Interest in the Debtors." (doc. # 2057, p. 15).

I. Whether the Court Has Subject Matter Jurisdiction

Bankruptcy courts, as courts of limited jurisdiction, may exercise subject matter jurisdiction on two grounds: ancillary (sometimes called inherent) jurisdiction, and statutory jurisdiction under 28 U.S.C. § 1334. See In re Chateaugay Corp., 201 B.R. 48, 62 (Bankr.S.D.N.Y. 1996), aff'd 213 B.R. 633 (S.D.N.Y.1997).

The Supreme Court has held that federal courts may assert ancillary jurisdiction

for two separate, though sometimes related purposes: (1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent, and (2) to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees[.]

Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 380-81, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) (citations omitted). The second of the two purposes is implicated here.

In In re Chateaugay Corp., the district court held that "Bankruptcy courts have inherent or ancillary jurisdiction to interpret and enforce their own orders wholly independent of the statutory grant under 28 U.S.C. § 1334.", 201 B.R. at 62. Cf. Local Loan Co. v. Hunt, 292 U.S. 234, 239, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) ("That a federal court of equity has jurisdiction of a bill ancillary to an original case or proceeding in the same court, whether at law or in equity, to secure or preserve the fruits and advantages of a judgment or decree rendered therein, is well settled.").

The law is well-settled that bankruptcy courts retain post-confirmation jurisdiction if the chapter 11 plan provides for it. The Second Circuit has ruled that "[a] bankruptcy court retains post-confirmation jurisdiction to interpret and enforce its own orders." In re Petrie Retail, Inc., 304 F.3d 223, 230 (2d Cir.2002). It has also ruled that "[a] bankruptcy court retains post-confirmation jurisdiction in a chapter 11 proceeding only to the extent provided in the plan of reorganization.... The bankruptcy court's post-confirmation jurisdiction therefore is defined by reference to the Plan." In re Johns-Manville Corp., 7 F.3d 32, 34 (2d Cir.1993): In the instant case, the Plan clearly provides a broad grant of post-confirmation jurisdiction. However, the question raised here extends beyond the post-confirmation period to the post-closing period. Court rulings on this question are few, and the post-closing decisions that the Court has found address cases that were closed by a dismissal order entered following entry of a stipulation or settlement agreement; they are not bankruptcy cases closed after the entry of a confirmation order and final decree. Nevertheless, the Court finds those dismissal cases instructive and, by analogy, finds them applicable to this case even though the order that signaled the legal conclusion of this case was a confirmation order.

That federal courts may assert ancillary jurisdiction over cases that have been dismissed is clear from the Kokkonen case. There, the Supreme Court was asked to determine whether a district court had the inherent power to enforce the terms of a settlement agreement (entered into pursuant to Fed.R.Civ.P. 41) under the doctrine of ancillary jurisdiction. A unanimous Court held that the district court did not have subject matter jurisdiction because the stipulation and final order under review "did not reserve jurisdiction in the District Court to enforce the settlement agreement," 511 U.S. at 377, 114 S.Ct. 1673, and the dismissal order the movant sought to enforce under ancillary jurisdiction was not imperiled by the alleged breach of the settlement agreement claimed by one of ...