In re Mako, Inc.

• Decision Date: 05 September 1990
• Docket Number: Adv. No. 90-7011.,Bankruptcy No. 88-70475
• Citation: 120 BR 203
• Parties: In re MAKO, INC., Debtor. RETAIL MARKETING COMPANY, Plaintiff, v. NORTHWEST NATIONAL BANK and Jim Treat, Defendants. NORTHWEST NATIONAL BANK, Counter-Claimant, v. RETAIL MARKETING COMPANY, Counter-Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Oklahoma

120 B.R. 203 (1990)

In re MAKO, INC., Debtor.

RETAIL MARKETING COMPANY, Plaintiff, v. NORTHWEST NATIONAL BANK and Jim Treat, Defendants.

NORTHWEST NATIONAL BANK, Counter-Claimant, v. RETAIL MARKETING COMPANY, Counter-Defendant.

Bankruptcy No. 88-70475, Adv. No. 90-7011.

United States Bankruptcy Court, E.D. Oklahoma.

September 5, 1990.

Thomas A. Creekmore, III, Tulsa, Okl., for plaintiff.

E. Lamar Pettus, Fayetteville, Ark., for Northwest Nat. Bank.

ORDER

JAMES E. RYAN, Chief Judge.

On this 4th day of September, 1990, the Motion for Summary Judgment and Brief in Support filed by the Defendant, Northwest National Bank, (Docket Entries No. 26 and 27 respectively), Defendant's Amendment to Brief in Support of Motion for Summary Judgment (Docket Entry No. 32) and the Response and Objection of the Plaintiff, Retail Marketing Company, to Defendant Northwest National Bank's Motion for Summary Judgment and Retail Marketing Company's Motion for Partial Summary Judgment and Brief in Support Thereof (Docket Entry No. 34) with a Supplement to Retail Marketing Company's Motion for Summary Judgment (Docket Entry No. 37), as well as the Response and Objection of the Defendant, Northwest National Bank of Fayetteville, Arkansas, to the Plaintiff, Retail Marketing Company, Inc.'s, Motion for Partial Summary with Brief in Support (Docket Entries No. 40 and 41 respectively) came before this Court for consideration.

After an extensive review of the Briefs filed in this matter, the Chapter 11 Plan confirmed in the bankruptcy case to which this adversary proceeding is associated, and the applicable law, this Court does hereby enter the following Findings of Fact and Conclusions of Law in conformity with B.R. 7052 in this core proceeding:

ISSUES

The Motion and Response address various issues with regard to the merits of the Complaint. However, we find that a more fundamental question exists as to whether RMC is a proper party in interest in this adversary proceeding. As a result, the crucial issues to be resolved by this Order may be summarized as follows:

(a) whether the confirmed Chapter 11 Plan in this case is ambiguous on its face;

(b) whether the terms of the confirmed Chapter 11 Plan in this case are sufficiently certain to have retained avoidance actions;

(c) whether the Plan properly appoints RMC as a representative of the estate;

(d) whether the Plan properly appoints the Litigation Trustee as a representative of the estate.

FINDINGS OF FACT

1. On June 2, 1989, this Court confirmed the Plan proposed by Delaware County Bank, a creditor of the former bankruptcy estate, on behalf of RMC. RMC was neither affiliated with the Debtor nor a creditor of the estate, but rather under the Chapter 11 Plan ("Plan") purchased the assets of the Debtor corporation, assumed the priority and secured debt of the Debtor and utilized the long term payout provisions of the United States Bankruptcy Code to satisfy these creditors.

2. Upon Court inquiry at the hearing to consider confirmation of RMC's Plan, the Debtor was unable to provide the precise amount owed to administrative claimants. Although this Court had, without recognized authority, established an administrative claims bar date, additional administrative expenses were incurred by the Debtor and thus uncertainty as to the amount owed to these claimants resulted. Aware of the requirement of 11 U.S.C. § 1129(a)(9)(A) that all administrative claims be satisfied prior to a Plan becoming effective, this Court solicited an averment from RMC that all administrative claims would be paid, regardless of the final tally. RMC specifically stated that the administrative claims would be paid, whatever the amount. As stated by RMC, it was willing to do "whatever it takes" to obtain confirmation. Based upon this averment by RMC, as well as a finding of compliance with 11 U.S.C. § 1123(a) and § 1129(a), (b) and (c), less subsection (a)(8), RMC's Plan was confirmed.

The Plan created two offices to effectuate its terms. The Liquidating Trustee was established to accept all assets of the estate and transfer these assets to RMC. The Liquidating Trustee also received from RMC the proceeds necessary to satisfy the Debtor's administrative claims and distributed said proceeds to these claimants. The Liquidating Trustee filed his Final Report and Account and Motion for Determination that all Class 1 Claims (i.e., administrative claims) Had Been Paid and Application for Final Decree and Discharge on September 21, 1989. This Final Report was approved by the Court on October 20, 1989. Subsequently, on February 5, 1990, the Liquidating Trustee filed a Supplement to the Final Report and Accounting and Application for Final Decree. This Supplement was approved on March 8, 1990. As a result, the Liquidating Trustee was discharged and his bond exonerated on this date. By that time, all assets had been transferred and the payments under the Plan had commenced. As a result, the Plan has been "substantially consummated," as that term is defined under 11 U.S.C. § 1101(2), realized in fact if not in formal pleadings in the file.

The Plan also created the office of the Litigation Trustee. This office was established to pursue certain limited adversarial actions. Specifically, the Plan states, in pertinent part, at paragraph 6.04:

On the effective date, the Liquidating Trustee shall be deemed to have conveyed the assets described on the attached Exhibit "G" to Jack H. Santee, who shall act as the "Litigation Trustee" on behalf of all unsecured creditors, under such terms (including terms regarding his compensation and the compensation of any professionals employed by him) as may be approved by the Court. Under no circumstances shall the Litigation Trustee be required to investigate, or prosecute any of the causes of actions described on Exhibit "G," or seek to satisfy any judgments obtained in any such actions, unless and until one or more unsecured creditors shall have provided funding to the Litigation Trustee for such purposes. With Court approval, the Litigation Trustee may agree to return any such advance funding by an unsecured creditor to the party or parties so advancing from the proceeds of any judgments obtained or settlements reached in any of the subject litigation. The Court shall retain jurisdiction to provide instructions, if necessary, to the Litigation Trustee with regard to the discharge of his duties hereunder. All sums recovered by the Litigation Trustee on behalf of the unsecured creditors, after paying the reasonable expenses of the Litigation Trustee and his professionals, and compensating any unsecured creditor(s) who provide advance funding of the costs of such litigation, shall be distributed by the Litigation Trustee, upon direction of the Court, in accordance with the distribution priority established in Article V, provided that Litigation Trustee shall not be obligated to make a pro rata distribution to the holders of Class 23 claims (unsecured claims) if the Litigation Trustee determines that the cost to make such distribution exceeds the amount held by the Litigation Trustee to be distributed. In such case, the Litigation Trustee shall seek instruction from the Court as to the proper disposition of such proceeds. Any litigation thus pursued by the Litigation Trustee shall be at the sole cost and expense of the holders of Class 23 claims (unsecured claims), and no further administrative claims shall be assessed against the assets to be acquired by RMC hereunder as a result hereof. (bracketed information added by Court)

The specific causes of action which the Litigation Trustee is empowered to pursue are found at Exhibit G of the Plan. These actions are limited to:

The following claims and/or causes of actions . . . to be assigned to the Litigation Trustee, excluding any potential preference avoidance actions against Marvin Morse and/or the firm of Morse & Sexton.

(a) Adversary Case No. 88-0054, against Gerald and Phyllis Bivens.

(b) Adversary Case No. 88-0079, against Michael Treat, for turnover of property.

(c) Adversary Case No. 88-0074, against Jim Treat, for turnover of property.

(d) Any and all claims against insiders or affiliates of the Debtor (as defined by the Code), including without limitation Debtor\'s management, to the extent, but only to the extent, such claims arose on or before March 23, 1989.

None of the actions set forth in paragraphs (a), (b) or (c) found in Exhibit G are currently pending in this Court.

3. The Plan also sets forth RMC's rights regarding further litigation. In particular, the Plan provides at Paragraph 6.01, subparagraph .05 that:

6.01. Upon satisfaction of the conditions precedent set forth in Article XI, confirmation will result in: . . .

6.01.05. The assumption by RMC of all of the debtor\'s rights in pending litigation constituting contested matters or adversary proceedings in this case, and all pending appeals to which debtor or the liquidating trustee is or was a party on the effective date (other than the litigation described on Exhibit "G" hereto) together with the right to prosecute or defend any other such litigation which the debtor or liquidating trustee may have brought on or before the effective date. Without limiting the generality of the foregoing, RMC shall be entitled to prosecute all objections to claims which may exist on the effective date, or any others to which RMC may object in accordance with the plan, and may appear as the real party in interest in any pending or later instituted contested matter or adversary proceeding filed herein.

Further, the Plan provides that:

6.05. . . . All claims, rights and causes of action against the insiders, shareholders, officers, directors, management and other personnel of the Debtor arising from and after March 24, 1989 revealed by such audit as a result of any failure of the Debtor to meet its obligations hereunder and under the Code, or otherwise, shall be deemed distributed to

...