In re Gillingham, Civ. A. No. 92-2222.
| Decision Date | 26 February 1993 |
| Docket Number | Civ. A. No. 92-2222. |
| Parties | In re Thomas GILLINGHAM and Joann Gillingham, Debtors. GORDON INVESTMENTS, INC., d/b/a Orr's Jewelers, Appellant, v. Thomas GILLINGHAM and Joann Gillingham, Appellees. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Dennis J. Kusturiss, Pittsburgh, PA, for appellant.
Dennis J. Spyra, Pittsburgh, PA, for appellees.
Stephen I. Goldring, U.S. Bankruptcy Trustee, Pittsburgh, PA.
Carlota M. Bohm, Trustee, Pittsburgh, PA.
Presently before the Court is an appeal from a bankruptcy order filed by appellant, Gordon Investments, Inc., doing business as Orr's Jewelers (Gordon).
The instant appeal stems from a series of sales that occurred between Gordon and debtors Thomas and Joann Gillingham. On November 19, 1988, debtors purchased from Gordon a woman's Rolex watch for $23,500. Later in the day, debtors gave Gordon Joann Gillingham's old Rolex watch for Gordon to sell on consignment. Gordon eventually did so, for a selling price of $7,500. On December 1, 1988, debtor Thomas Gillingham purchased a Rolex watch for himself for a purchase price of $41,500. Again, debtors requested that Gordon accept Thomas Gillingham's watch to be sold on consignment, which Gordon did, but has been unable to sell that watch.
Debtors made no payments towards either of the new watches, instead agreeing with Gordon to pay the full amount due by the end of December, 1988.
On December 23, 1988, debtors' son picked up from Gordon a diamond which Thomas Gillingham had ordered, valued at $35,000. Gordon delivered the diamond to debtors' son.
No payments were ever made on either of the two watches or the diamond. On May 18, 1989, after repeated requests for payment, Gordon instituted a civil action against debtors in the Court of Common Pleas of Allegheny County. On June 26, 1989, default judgment was entered against debtors in the amount of $108,926.03. Debtors filed a petition to open the default judgment on July 21, 1989.
On October 20, 1989, debtors filed a voluntary Chapter 11 petition. On May 27, 1992, debtors' Chapter 11 proceeding was converted to a Chapter 7 proceeding. By agreement of the parties, the state court default judgment was opened and an adversarial action was brought in bankruptcy court. A trial was held before Bankruptcy Judge Bernard Markovitz on June 24-25, 1992. By memorandum opinion and order dated July 24, 1992, 143 B.R. 55, Judge Markovitz found that debtors breached their contract with Gordon and, therefore, judgment was entered against debtor Thomas Gillingham in the amount of $100,000 and judgment was entered against debtor Joann Gillingham in the amount of $65,000. Further, Judge Markovitz ordered that the unsold consigned watch and the proceeds from the sale of the other watch be delivered to the Chapter 7 trustee as property of the estate.
Gordon filed a motion to amend judgment and make additional findings on August 3, 1992, asserting that the consigned watches were collateral for the new watch purchases and Gordon was, therefore, entitled to setoff their value from the debt owed by the Gillinghams. By order dated September 15, 1992, Judge Markovitz denied Gordon's motion and the instant appeal followed.
Gordon asserts the following as its issues on appeal: (1) the debts between Gordon and the debtors were mutual and the disclosure statement and plan filed by debtors in Chapter 11, which were approved and confirmed, recognized that Gordon had a security interest in the consignment watches; therefore, Gordon is entitled to a setoff and should not be required to return the consignment watch and the proceeds from the sale of the other; and (2) the bankruptcy court exceeded its authority when it declared that "the disclosure statement and plan do not provide that a determination that debtors had not paid for the watches and jewelry meant that Gordon was secured."
This Court will apply a clearly erroneous standard to the findings of fact and will conduct plenary review of the legal conclusions. In re Sharon Steel Corp., 871 F.2d 1217, 1223 (3d Cir.1989). The bankruptcy court's determination that Gordon is not entitled to a setoff is reviewed for abuse of discretion. 11 U.S.C. § 553; Bohack Corp. v. Borden, Inc., 599 F.2d 1160, 1165 (2d Cir.1979).
In the revised modified first amended plan of reorganization, ultimately confirmed by Bankruptcy Judge Cosetti on November 12, 1991, Gordon's claim was addressed as follows:
(Record document No. 118, pp. 3-4).
Gordon asserts that 11 U.S.C. § 1141 mandates that this provision has a res judicata effect and, therefore, Gordon has a security interest in the consignment watch and the proceeds from the sale of the other.
Section 1141 provides that:
The provisions of a confirmed plan bind the debtor, any entity in issuing securities under the plan, any entity acquiring property under the plan, and any creditor, equity security holder, or general partner in, the debtor, whether or not the claim or interest of such creditor, equity security holder, or general partner is impaired under the plan and whether or not such creditor, equity security holder, or general partner has accepted the plan.
11 U.S.C. § 1141(a).
"The effect of confirmation under the plain language of § 1141(a) is to bind all parties to the terms of a plan of reorganization." In re Chattanooga Wholesale Antiques, Inc., 930 F.2d 458, 463 (6th Cir. 1991). Id. at 463. See also United States on behalf of IRS v. Norton, 717 F.2d 767, 774 (3d Cir.1983) ().
This Court will not disturb this well settled rule of law: once a bankruptcy plan is confirmed, the parties are bound by its resolution of the issues presented in it. However, the section of the confirmed plan at issue in this case did not resolve the issue of Gordon's claim. Instead, the plan provided that "the validity of Gordon's claim will be finally resolved in the pending state court action." Procedurally, the state court never did resolve the "validity of Gordon's claim," instead, the state court case was ultimately tried before the bankruptcy court as an adversary proceeding. The bankruptcy court's "resolution" of the case included a finding that debtors did not make any payments towards the watches and were, therefore, liable to Gordon for the price of the watches. Additionally, the court made the factual finding that, subsequent to the purchase of the two watches:
(Memorandum opinion (7/24/92) at pp. 4-5).
These findings of fact substantiate Bankruptcy Judge Markovitz' denial of Gordon's motion to amend judgment based upon the fact that, (Order of court (9/15/92) at p. 4).
These findings, just outlined, represent the "final resolution" of Gordon's claims as contemplated in the confirmed reorganization plan. As such, these findings did not serve to effectuate the provision of the plan of reorganization which provided that "should the state court action be finally resolved in Gordon's favor, it will be left as a fully secured creditor and paid in full. . . ." In fact, the state court action (as ultimately an adversarial action in bankruptcy court) was not "finally resolved in Gordon's favor," in that the two watches were found not to serve as a component of a mutual debt, but, rather, were found to be an "afterthought" unrelated to the purchase of the new watches.
This Court can find nothing in the record that shows that these findings of fact are clearly erroneous, and, therefore, they will be affirmed.
This Court will also affirm Bankruptcy Judge Markovitz' decision to deny Gordon the right to a setoff. Judge Markovitz' decision was not an abuse of discretion, was not clearly erroneous and was consistent with the law.
"To be mutual and, therefore, entitled to setoff, the debts must be in the same right and between the same parties, standing in the same capacity." Matter of Bevill, Bresler & Schulman Asset Management, 896 F.2d 54, 59 (3d Cir.1990)....
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