In re NorthEast Gas Generation, LLC

• Decision Date: 18 March 2022
• Docket Number: Case No. 20-11597 (MFW) Jointly Administered
• Citation: 639 B.R. 914
• Parties: IN RE: NORTHEAST GAS GENERATION, LLC, et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

639 B.R. 914

IN RE: NORTHEAST GAS GENERATION, LLC, et al., Debtors.

Case No. 20-11597 (MFW) Jointly Administered

United States Bankruptcy Court, D. Delaware.

Signed March 18, 2022

Brandon Batzel, Mark Franke, White & Case LLP, New York, NY, Mark D. Collins, Jason M. Madron, Michael Joseph Merchant, David T. Queroli, Brendan Joseph Schlauch, Richards, Layton & Finger, P.A., Wilmington, DE, Thomas E. Lauria, White & Case, Miami, FL, for Debtors.

Linda Richenderfer, Office of the US Trustee, Wilmington, DE, for U.S. Trustee.

MEMORANDUM OPINION ¹

Mary F. Walrath, United States Bankruptcy Judge

Before the Court is the motion of NorthEast Gas Generation, LLC ("NEG") to reopen the case and to reconsider the amount of the allowed First Lien Claims, bifurcate those claims into secured and deficiency claims, and adjust the amount of the Reinstated First Lien Debt as defined in the Debtors’ confirmed and consummated plan of reorganization (the "Motion"). Because the Court concludes that it cannot grant the relief requested, the Court will deny the Motion.

I. BACKGROUND

On June 18, 2020, NEG and its affiliates (collectively, the "Debtors") filed voluntary petitions under chapter 11 of the Bankruptcy Code. On December 18, 2020, the Court confirmed the Debtors’ Second Amended Joint Chapter 11 Plan (the "Plan"). (D.I. 354.) On December 22, 2020, the Plan became effective and was substantially consummated. (D.I. 354 ¶ 54 & 360.) The bankruptcy cases were closed on April 20, 2021. (D.I. 412.)

Under the Plan, the First Lien Secured Parties² received their pro rata share of 100% of (i) the equity in the reorganized lead debtor, NEG, and (ii) the Reinstated First Lien Debt, defined in the Plan as a total of $200 million. (D.I. 354 Ex. A, at Arts. I.A.110, III.B.3, & V.C.) The First Lien Secured Parties were impaired and their class voted to accept the Plan. (Id. at Art. III.A; D.I. 326.)³

On October 7, 2021, NEG⁴ filed the Motion seeking (i) to reopen the bankruptcy case, (ii) to reconsider the allowed amount of the First Lien Claims, (iii) to bifurcate those claims into secured claims of $475 million and deficiency claims for the balance, and (iv) to increase the amount of Reinstated First Lien Debt issued under the Plan to the amount of the secured claims. Thus, the Motion in essence asks the Court to increase the amount of the Reinstated First Lien Debt from $200 million to $475 million. NEG argues that "the only impact of the relief ... would be to reallocate how the proceeds from a disposition of the assets are allocated as between the bank's reinstated secured debt and its 100 percent equity stake." (D.I. 437 at *6.)

NEG served the Motion on the top twenty unsecured creditors as well as secured creditors and government agencies. (D.I. 429 & 430.) No objection was filed. A hearing was held on November 3, 2021, at which time the Court raised concerns about its ability to grant the relief requested and asked for additional briefing. NEG filed a supplemental brief in support of its Motion on November 17, 2021. (D.I. 438.) The matter is ripe for decision.

II. JURISDICTION

The Court raised concerns at the hearing about the extent of its jurisdiction post-confirmation in light of the Third Circuit's holding that post-confirmation "retention of bankruptcy jurisdiction may be problematic." Binder v. Price Waterhouse & Co., LLP (In re Resorts Int'l, Inc.), 372 F.3d 154, 164-65 (3d Cir. 2004). Specifically, the Third Circuit held that for the bankruptcy court to retain jurisdiction after confirmation over disputes "related to" a bankruptcy case there must be a "close nexus to the bankruptcy plan or proceeding sufficient to uphold bankruptcy court jurisdiction over the matter." Id. at 166-67. Thus, the fact that the Court retained jurisdiction under the Confirmation Order and the order closing the case may not be dispositive. (D.I. 354 ¶ 45 & Ex. A, at Art. XIII.J; D.I. 412 ¶ 10.)

As framed by NEG, however, this matter is "core" because it involves the allowance of claims and the interpretation of the Plan. (D.I. 423 ¶ 7.) 28 U.S.C. §§ 157(b) & 1334. Therefore, it argues that Resorts is not a bar to the exercise of jurisdiction by the Court. The Court agrees and concludes that it has jurisdiction to consider NEG's Motion.

Furthermore, NEG consents to this Court's power to enter a final order on this matter, even if the Constitution would otherwise preclude it from doing so. (D.I. 423 ¶ 7.) Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665, 679, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015).

III. DISCUSSION

A. Reconsideration of Claim Under § 502(j)

NEG argues that by its Motion, it is only asking the Court to reconsider the allowed amount of the First Lien Claims under section 502(j) of the Bankruptcy Code, by determining that $475 million of that claim is secured based on the correct value of the collateral as of the time of confirmation. After doing so, NEG asks the Court to conform the Plan to the allowed amount of the Claims, pursuant to section 105, by modifying the definition of Reinstated First Lien Debt that the First Lien Secured Parties receive under the Plan from $200 million to $475 million. NEG argues that by simply reconsidering the allowance of the First Lien Claims the Court is not bound by the requirements of section 1127 for modification of a plan. See United States Dep't of the Treasury – Internal Revenue Serv. v. EB Holdings II, Inc., No. 2:20-cv-01311-GMN, 2021 WL 535467, at *4 (D. Nev. Feb. 11, 2021) (affirming bankruptcy court's conclusion that adjusting a claim under § 502(j) is distinct from modifying a plan under § 1127); In re Disney, 386 B.R. 292, 303 (Bankr. D. Colo. 2008) (allowing post-confirmation reclassification of claim and corresponding modification of treatment of that claim under chapter 13 plan); In re Davis, 404 B.R. 183, 188 (Bankr. S.D. Tex. 2009) (same); In re Van Dyke, 286 B.R. 858, 861 (Bankr. C.D. Ill. 2001) (granting reconsideration of order disallowing claim – after consummation of a chapter 11 plan – because creditor never received notice of objection to its claim).

The Court finds the cases cited by NEG to be distinguishable. The Disney and Davis cases both concerned the post-confirmation reclassification of claims and corresponding modification of chapter 13 plans, not chapter 11 plans. Those cases relied on section 1329 which, unlike section 1127, allows modification of a confirmed plan "before the completion of payments under such plan" rather than before substantial consummation.

While Van Dyke was a chapter 11 case, the issue which the court decided was that it could reconsider the disallowance of a secured creditor's claim under section 502(j) despite years of delay because the creditor had not received notice of the objection to its claim. Id. at 860-62. There was no request in Van Dyke to modify the treatment of that claim under the confirmed plan, which provided that it was to be paid in full from the liquidation of its collateral. 286 B.R. at 859-60.

Similarly, in EB Holdings, the court found that reconsideration of the claims did not constitute a modification of the plan because the treatment of the claims would not change: they would still receive 86.11% of the reorganized debtor's stock even though the allowed amount of their claims would increase. 2021 WL 535467, at *4.⁵ Unlike the creditors in EB Holdings, the First Lien Secured Parties in this case do not simply seek to change the amount of debt that they are exchanging for equity; they seek to increase the amount of their distribution under the Plan by increasing the amount of Reinstated First Lien Debt they receive.

Further, NEG is not really asking for reconsideration of the allowance of the First Lien Claims. Those claims were deemed allowed pursuant to the Plan in the total amount of approximately $539 million. (D.I. 354 Ex. A, at Art. III.B.3.) Rather, as noted, NEG is seeking to modify the Plan by changing the treatment of those claims under the Plan to give them 100% of the equity of NEG plus 100% of Reinstated First Lien Debt which it asks the Court to increase from $200 million to $475 million. (Id. at Art. I.A.110.) Thus, the Court concludes that NEG does not seek relief under section 502(j) alone; it also seeks to modify the Plan to change the treatment of the First Lien Claims.

Simply calling its Motion one to reconsider a claim does not change that fact. Cf. In re Rickel & Assocs., 260 B.R. 673, 677 (Bankr. S.D.N.Y. 2001) ("It is true that the debtor has not technically proposed to disturb the Plan or modify it. Instead, it has moved to modify the Confirmation Order. The distinction, however, is irrelevant, and the result is the same. A debtor cannot circumvent § 1127(b) and change the plan simply by calling its request a motion to modify the confirmation order."). Therefore, the Court must determine whether the proposed change is permissible under section 1127.

B. Modification of Plan Under § 1127

Section 1127(a) provides that the proponent of a plan may modify a proposed plan at any time before confirmation; section 1127(b) provides that, under certain circumstances, the proponent of a plan may modify a plan "after confirmation of such plan and before substantial consummation of such plan." 11 U.S.C. § 1127. There is no provision allowing modification of a plan after substantial consummation.

NEG concedes that substantial consummation has occurred in this case. NEG does not dispute that the caselaw construes section 1127(b) to prohibit modification of a confirmed plan after it has been substantially consummated. See In re UNR Indus., Inc., 20 F.3d 766, 769 (7th Cir. 1994) ("Another section of the Code, 11 U.S.C. § 1127(b), dramatically curtails the power of a bankruptcy court to modify a plan of reorganization after its confirmation and ‘substantial consummation.’ "); Rickel, 260 B.R. at 677 (holding that "the literal terms of § 1127(b) bar any effort to modify the Plan" after it has been consummated). Instead,...