In re Loewen Group Intern., Inc.

• Decision Date: 19 February 2002
• Docket Number: No. 99-1244(PJW).,99-1244(PJW).
• Citation: 274 B.R. 427
• Parties: In re LOEWEN GROUP INTERNATIONAL, INC., a Delaware corporation, et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

274 B.R. 427

In re LOEWEN GROUP INTERNATIONAL, INC., a Delaware corporation, et al., Debtors.

No. 99-1244(PJW).

United States Bankruptcy Court, D. Delaware.

February 19, 2002.

William H. Sudell, Jr., Robert J. Dehney, Eric D. Schwartz, Michael G. Busenkell, Morris, Nichols, Arsht & Tunnell, Wilmington, DE, Richard M. Cieri, Charles M. Oellermann, Jones, Day, Reavis & Pogue, Cleveland, OH, Gregory M. Gordon, Jones, Day, Reavis & Pogue, Dallas, TX, for Debtors and Debtors in Possession.

William D. Sullivan, Elzufon, Austin, Reardon, Tarlov & Mondell, P.A., Wilmington, DE, for Thomas and Leslie Harney and O. Wendell Burroughs.

Maureen D. Luke, Young, Conaway, Stargatt & Taylor, LLP, Wilmington, DE, Evan D. Flaschen, Patrick J. Trostle, Bingham Dana LLP, Hartford, CT, for the Official Committee of Unsecured Creditors.

Brian A. Sullivan, Werb & Sullivan, Wilmington, DE, for Craig D. Johnson.

Elizabeth J. Austin, Holly G. Gydus, Pullman & Comley, LLC, Bridgeport, CT, for Creditor Roy Martin.

Michael P. Morton, Michael P. Morton, P.A., Wilmington, DE, Daniel J. Carrigan, Piper, Marbury, Rudnick & Wolfe, LLP, Washington, D.C., Kathleen A. Ellis, Tashina Gauhar, Piper, Marbury, Rudnick & Wolfe, LLP, Baltimore, MD, for The People's Bank.

Laurie Selber Silverstein, Elihu Ezekiel Allinson, III, Potter, Anderson & Corroon LLP, Wilmington, DE, Barbara L. Ward, Virginia Whitehill Guldi, Zuckerman, Spaeder, Goldstein, Taylor & Kolker, L.L.P., Washington, D.C., for Michael L. Bigler Steven E. Wooddell, Robert E. Evans, James E. DeVol and John F. DeVol.

Michael P. Morton, Michael P. Morton, P.A., Wilmington, DE, Toby L. Gerber, Mark C. Alfieri, Jenkens & Gilchrist, Dallas, TX, for Tecon Corporation and Trousdale Northwest, Inc.

OPINION

PETER J. WALSH, Chief Judge.

Before the Court are two motions of Loewen Group International, Inc., et al. ("Debtors"). The first is the Verified Motion of Debtors and Debtors-In-Possession for an Order Reducing Certain Claims Asserted or Scheduled in Respect of Promissory Note or other Long-Term Obligations ("Promissory Note Motion") (Doc. # 6006).¹ The second is the Verified Motion of Debtors and Debtors-In-Possession for an Order (A) Reducing Certain Claims that Assert Liabilities in Excess of the Amounts Owed and (B) Fixing the Amounts of Certain Claims that Assert Unliquidated Liabilities (Omnibus Objection No. 19) ("Excess Amounts Motion") (Doc. # 5139).² These motions constitute Debtors objections to certain proofs of claim and scheduled claims ("Claims") that have been asserted or scheduled in respect to Debtors' obligations under either long-term, non-interest bearing, unsecured promissory notes or agreements evidencing long-term, non-interest bearing, unsecured debt obligations (in either case, "Promissory Notes").³ Each Claim has been asserted or scheduled in an amount equal to the aggregate nominal amount of all outstanding payments due under the applicable Promissory Note as of the date Debtors filed for bankruptcy ("Petition Date"). Some of the Claims also include amounts for post-petition interest, late fees, attorneys' fees and other charges ("Post-Petition Interest, Fees and Charges").⁴ Debtors seek entry of an order pursuant to 11 U.S.C. § 502(b)⁵ (a) reducing the Claims to present value as of the Petition Date by application of a 9% per annum discount rate; and (b) reducing certain Claims by the amount of any Post-Petition Interest, Fees and/or Charges included therein. For the reasons discussed below, I will grant both motions. However, in light of the fact that Claimants reserved their right to object to the application of a 9% discount factor at the February 5, 2001 hearing on this matter (Tr. of Hr'g (Doc. # 6496) at 36-37), the proper discount factor to be applied to calculate the present values of the Claims will be reserved for later determination, absent an agreed upon figure.

BACKGROUND

Loewen Group International, Inc. ("LGII"), a Delaware corporation, is a wholly-owned subsidiary of The Loewen Group Inc. ("TLGI"), a corporation formed under the laws of British Columbia. LGII is the holding company for TLGI's United States operations. On June 1, 1999, LGII, TLGI and 829 of their direct and indirect subsidiaries and affiliates (collectively, "Debtors") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code.⁶ That same date, TLGI and certain of Debtors' Canadian affiliates also commenced insolvency proceedings under the Canadian Companies' Creditors Arrangement Act. Debtors' chapter 11 cases were consolidated for procedural purposes and administered jointly. On December 5, 2001, Debtors' Fourth Amended Joint Plan of Reorganization ("Plan")was confirmed (Doc. # 8671).⁷

Debtors' business operations primarily consist of funeral homes, cemeteries and insurance companies. From the time of their incorporation in 1985 until late 1998, LGII and TLGI developed and maintained a business growth strategy centered on the acquisition and consolidation of independently owned and operated funeral homes, cemeteries and related businesses. Many of Debtors' acquisitions were funded by debt that was either issued to the seller of a business, borrowed from financial institutions, or raised on public debt markets. Most of the Claims to which Debtors object have been asserted or scheduled in respect to Promissory Notes arising out of such acquisitions. These are as follows:

• Craig D. Johnson asserts a Claim in the amount of $125,000 in respect to LGII's obligation under a Promissory Note executed on March 20, 1997 in connection to LGII's purchase of a cemetery from Mr. Johnson and his mother. (Johnson Objection (Doc. # 6313) ¶ 1.) The Promissory Note requires LGII to pay the amount of $125,000, without interest, in five equal annual installments of $25,000 commencing on March 20, 2002. (Id., Ex. A at 2, 5.)

• O. Wendell Burroughs asserts a Claim in the amount of $206,666.46 in respect to a Promissory Note executed by LGII subsidiary Huff-Cook Funeral Home, Inc. on or about January 4, 1993 in connection with its purchase of Mr. Burroughs' business. (Burroughs' Objection (Doc. # 6311) ¶¶ 1-2.) The Promissory Note requires Huff-Cook to pay Mr. Burroughs $463,332.87 in 139 equal monthly installments of $3,333.33, without interest, to be completed by July 4, 2004. (Id., Ex. A.)

• Thomas and Leslie Harney assert a Claim in the amount of $540,000 in respect of a Promissory Note executed by LGII in connection with its purchase of Parks Development Company, Inc. ("Parks"). (Harney Objection (Doc. # 6312) ¶¶ 1, 3.) Pursuant to a share purchase agreement, the Harneys sold all of the stock in Parks to LGII in exchange for a Promissory Note in the principal amount of $810,000.00, payable, without interest, in nine annual installments of $90,000.00. (Id., Ex. A at 1.) LGII made three such payments prior to the Petition Date. (Id. at ¶ 3.)

• The Takoma Claimants assert Claims in the amount of $160,000 in respect to a Promissory Note executed by LGII in connection with its August 13, 1996 purchase of Takoma Funeral Home, Inc. ("Takoma"). (Takoma Opposition (Doc. # 6655) ¶¶ 2, 4.) In connection with the purchase, LGII paid $975,000 of which $750,000 was paid in cash at closing, a portion was set aside as a hold back, and the remaining $200,000 remained payable in accordance with a Promissory Note executed in favor of the Takoma Claimants, to be paid in ten equal annual installments of $20,000 without interest. (Id. at ¶¶ 3-4) As of the Petition Date, $160,000 remained outstanding on the note. (Id. at ¶ 4.)

• Tecon and Trousdale each assert two Claims in the amount of $1,650,000.00. (Tecon/Trousdale Resp. (Doc. # 6314) ¶¶ 5-6.) Two of the Claims are in respect to Promissory Notes executed by LGII on June 20, 1996 in connection with its purchase of Associated Memorial Group, Ltd. The other two are asserted in respect to guaranty agreements executed by TLGI in connection with the same purchase. (Id.) Under the terms of the Promissory Notes, LGII was required to pay Tecon and Trousdale five equal consecutive annual installments of $550,000.00 each, without interest, beginning on June 20, 1997. (Id. at ¶ 4.) Two such payments were made prior to the Petition Date.⁸

The Claims asserted by People's Bank have been asserted in respect to a Promissory Note executed by certain Debtors in connection with the settlement of a $500 million judgment entered against them in 1995. (Bank's Br. (Doc. # 6647) at 1.) This judgment resulted from a lawsuit brought against Debtors LGII, Riemann Holdings, Inc. ("Riemann"), Wright & Ferguson Funeral Home ("W & F"), and TLGI (collectively, "Debtor Defendants") by Jeremiah O'Keefe Sr. and others ("Plaintiffs") for fraud, breach of contract, violations of antitrust laws and other wrongful conduct in connection with the purchase and sale of certain businesses. (Id.) While the judgment was on appeal, Debtor Defendants entered into an agreement ("Settlement Agreement") with Plaintiffs to settle the lawsuit for $50 million in cash, $45 million worth of stock, and the execution of a non-interest bearing promissory note ("Note") in Plaintiffs' favor in the principal amount of $80 million. (Id. at 2; Settlement Agreement at ¶¶ 5, 12.) In addition, Debtor TLGI executed a guaranty ("Guaranty") of the Note. (Settlement Agreement at ¶ 12.) In 1997, Plaintiffs successfully brought an action to partition the Note and Guaranty with respect to the amounts due between themselves and their counsel. (Bank's Br. (Doc. # 6647) at 2.) Subsequently, on June 24, 1997, Debtor Defendants executed a second Promissory Note ("Replacement Note") and guaranty ("Replacement Guaranty") in the amount of $34,200,000 in favor of Plaintiffs' counsel and/or their successors in interest (collectively, "Payees").⁹ (Id.) The Replacement Note and Replacement Guaranty provide the basis for the Claims asserted by People's Bank. (Id.) The Replacement Note requires Debtor Defendants to...