In re Polysat, Inc.
| Decision Date | 15 April 1993 |
| Docket Number | Bankruptcy No. 89-12256F,Adv. No. 92-1094. |
| Citation | 152 BR 886 |
| Parties | In re POLYSAT, INC., Debtor. POLYSAT, INC., Plaintiff, v. UNION TANK CAR COMPANY, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Edmond M. George, Joel R. Spivack, Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, PA, for debtor, Polysat, Inc.
Lee Applebaum, Fineman & Bach, Philadelphia, PA, Richard H. Chapman, Michael J. Keaton, Fagel & Haber, Chicago, IL, for defendant, Union Tank Car Co.
The chapter 11 debtor, Polysat, Inc., has filed an adversary proceeding seeking injunctive relief against the defendant, Union Tank Car Company (hereinafter "UTCC"). The debtor contends that the discharge injunction found in 11 U.S.C. § 524, which arose by confirmation of the debtor's plan under section 1141(d), bars UTCC from proceeding with litigation it commenced against the debtor in the Pennsylvania Court of Common Pleas. UTCC opposes the relief sought and argues that its claim against the debtor was not discharged.
The debtor initially sought preliminary injunctive relief. At a conference, both parties acknowledged that the relevant facts were not in dispute, and that the legal issue concerning the scope of the debtor's bankruptcy discharge required an analysis of the Bankruptcy Code provisions found in sections 365 and 1141. Further, they agreed that this court (rather than the state court) should interpret these statutory provisions.
Accordingly, and with the agreement of both parties, I entered an order enjoining the defendant from prosecuting its state court litigation against the debtor, pending further order of this court. The parties also agreed that, in lieu of requiring the defendant to file an answer to the debtor's complaint, cross-motions for summary judgment under Fed.R.Bankr.P. 7056 would instead be filed. Those two summary judgment motions are presently before me.
As just noted, both parties concur that there are no material facts in dispute. They differ, however, on the scope of this court's jurisdiction. While defendant UTCC suggests that this proceeding is noncore (UTCC Memorandum at 1-2), I agree with the debtor's jurisdictional assertion. As the instant proceeding concerns the scope of the discharge injunction arising from sections 524 and 1141 of the Code, it is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (I) or (O). Accord, e.g., In re Jacobs, 149 B.R. 983, 989 (Bankr. N.D.Okla.1993); see Beard v. Braunstein, 914 F.2d 434, 444 (3d Cir.1990) () (quoting Matter of Wood, 825 F.2d 90, 97 (5th Cir. 1987)); In re Mankin, 823 F.2d 1296, 1308 (9th Cir.1987), cert. denied, 485 U.S. 1006, 108 S.Ct. 1468, 99 L.Ed.2d 698 (1988) (). Accordingly, I shall enter a final judgment in this proceeding.
On April 25, 1986, the debtor's predecessor— Saturn Chemical, Inc.—entered into a lease agreement with UTCC for the rental of various railroad tank cars which were to be used to transport raw material or finished goods. Under the terms of that agreement, the lessee could obtain the use of specific tank cars from UTCC by entering into riders to the lease: one rider per tank car. The parties ultimately entered into three such riders: two by Saturn Chemical, Inc. and one by Polysat, Inc. (Ex. G, UTCC Cross-Motion for Summary Judgment.)
On June 20, 1989, the debtor filed a voluntary petition in bankruptcy under chapter 11. Among the claims listed on the debtor's schedules was a prepetition lease claim of UTCC, which was not disclosed as disputed, unliquidated or contingent.1 The debtor did not assume or reject the lease agreement at any time during its chapter 11 case. See generally 11 U.S.C. § 365. Nor did UTCC seek a court order compelling the debtor to assume or reject the lease agreement. See generally 11 U.S.C 365(d)(2). Furthermore, it is agreed that the debtor tendered no payments to UTCC after the bankruptcy filing in connection with its use or possession of the three tank cars.
There is no question that UTCC knew of the debtor's bankruptcy filing prior to confirmation. Not only did it receive such notice along with other creditors, but it was a defendant in a preconfirmation adversary proceeding, Adv. No. 89-0976F, brought in this court by the debtor, concerning a chemical spill from one of the leased tank cars.
On July 26, 1991, an order was entered confirming the debtor's chapter 11 plan of reorganization. The debtor's plan did not provide for the assumption or rejection of the lease. See generally 11 U.S.C. § 1123(b)(2). By virtue of the debtor's disclosure of UTCC's uncontroverted prepetition claim in its bankruptcy schedules, UTCC holds an allowed unsecured claim. 11 U.S.C. § 1111(a). Pursuant to the debtor's confirmed plan, UTCC has already received (or will receive) a distribution of fifteen percent on its unsecured claim of $3,974.95, as reported in the debtor's schedules.
Although UTCC had actual notice of, and received all formal notices mailed in, the debtor's bankruptcy case, UTCC has never filed a request for payment of an administrative expense claim in the debtor's bankruptcy case. See generally 11 U.S.C. § 503(a). Rather, UTCC made several postconfirmation demands of the debtor for the return of the three tank cars.
On February 4, 1992, after the debtor failed to return the cars, UTCC filed, in Philadelphia Common Pleas Court, an action in replevin and breach of contract against the debtor seeking damages and the return of the tank cars. Court of Common Pleas, Philadelphia County, February Term 1992, No. 0343. On or about June 12, 1992, UTCC filed a motion for a writ of seizure. On June 19, 1992, the state court entered a consent order for the issuance of a writ of seizure pursuant to Pa.R.Civ.P. 1075.1. Thereafter, the debtor returned the tank cars.
On August 4, 1992, UTCC filed in state court an amended complaint seeking monetary damages (and fees and costs) from the debtor in excess of $30,000.00 for nonpayment of the three tank car leases, based upon theories of contract, conversion, quasi-contract and quantum meruit. UTCC asserted that damages began to accrue as of July 1989. The debtor responded in state court with counterclaims, seeking damages for storing the tank cars and as a result of a chemical spill from one of the cars.
On November 3, 1992, the debtor filed the instant adversary proceeding, see generally Fed.R.Bankr.P. 7001, seeking an order under 11 U.S.C. § 105(a) enjoining UTCC from proceeding for damages against the debtor in the state court. The debtor asserts that confirmation of its plan resulted in a rejection (within the meaning of section 365(a)) of any lease agreements with UTCC; moreover, it contends that confirmation resulted in a discharge of its obligations to UTCC by virtue of sections 365(g)(1) and 1141(d). Finally, it asserts that this discharge serves to enjoin the state court damage litigation pursuant to section 524, which is enforceable by section 105(a). See generally Matter of Rosteck, 899 F.2d 694 (7th Cir.1990); Matter of Askew, 61 B.R. 87 (Bankr.S.D.Ohio 1986).
At the hearing held on the summary judgment motions, the debtor modified its position. It conceded that 11 U.S.C. § 1141(d) could not discharge UTCC's claim arising from the debtor's postconfirmation use or possession of the tank cars. UTCC, in turn, acknowledged that section 1141(d) discharged its claim arising from the debtor's prepetition use or possession of the tank cars. Indeed, it was receiving a distribution under the plan for that prepetition claim. Thus, the heart of the present dispute is whether the debtor's liability (if any exists under nonbankruptcy law) arising from its postpetition/preconfirmation use or possession of the tank cars was discharged by confirmation.
At the outset, it is important to note that the only issue before me is whether the damage claims asserted by UTCC in the state court civil action have been discharged and thus enjoined by the effect of the order of confirmation. As no party has sought to remove that state court civil action to this court, whether UTCC has any valid claims and, if so, the amount of such claims is irrelevant to the issue posed in the instant proceeding. See, e.g., In re McLaren, 983 F.2d 56, 59 (6th Cir.1993) (). Similarly, the validity of the debtor's two counterclaims are outside the scope of this proceeding. Therefore, unless I conclude that all liability the debtor may have to UTCC was discharged, UTCC will be free to resume at least part of the state court litigation, and the debtor will be free to raise all state law defenses to which it is entitled.
A debtor may, subject to court approval, assume or reject a prepetition lease agreement pursuant to § 365(a) of the Bankruptcy Code. 11 U.S.C. § 365(a). See, e.g., In re University Medical Center, 973 F.2d 1065, 1075 (3d Cir.1992); In re Marple Pub. Co., 20 B.R. 933, 935 (Bankr.E.D.Pa. 1982) (). A debtor may even provide for the assumption or rejection of a lease or an executory contract in its plan of reorganization. 11 U.S.C. § 1123(b)(2). (Indeed, debtors commonly provide in their plans for the rejection of all leases and executory contracts that were not previously assumed.)
In a chapter 11 case, where a debtor has failed to expressly assume or reject a prepetition lease agreement or executory contract, that lease or contract will be unaffected by the bankruptcy filing. In re BSL Operating Corp., 57...
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