In re Rankin, Bankruptcy No. 87-70439-RBK.

• Decision Date: 28 May 1992
• Docket Number: Bankruptcy No. 87-70439-RBK.
• Citation: 141 BR 315
• Parties: In re Bryan Lee RANKIN, Individually and d/b/a Rankin Oil Company, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Texas

141 B.R. 315 (1992)

In re Bryan Lee RANKIN, Individually and d/b/a Rankin Oil Company, Debtor.

Bankruptcy No. 87-70439-RBK.

United States Bankruptcy Court, W.D. Texas, Midland-Odessa Division.

May 28, 1992.

Neal R. Allen, Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., Midland, Tex., for Hydrogen Energy Corp.

Fay Cliett Gillham, Calame, Linebarger & Graham, Austin, Tex., for the Taxing Authorities.

OPINION

RONALD B. KING, Bankruptcy Judge.

The question in this case is whether certain ad valorem tax claims should be reconsidered as to amount and class treatment under a Chapter 11 plan of reorganization. Finding that the claims are entitled to different treatment under the plan of reorganization than previously ordered, the motion to reconsider will be granted, in part.

Bryan Lee Rankin, d/b/a Rankin Oil Company ("Rankin"), filed a voluntary Chapter 11 bankruptcy case on November 2, 1987. The Second Modified Plan of Liquidation (the "Plan") was confirmed on October 18, 1989. The movants are eleven local ad valorem taxing authorities (the "Taxing Authorities"), who filed a motion to reconsider the eleven orders regarding their claims. The Taxing Authorities initially resisted their treatment under the Plan, which was filed by creditor and Plan proponent, Hydrogen Energy Corporation ("HEC"), by casting ballots on October 12, 1989, rejecting the Plan.¹ One day prior to the rejections, David W. Copeland, attorney for HEC, sent a letter by facsimile to counsel for the Taxing Authorities, Fay Gillham, proposing a "Modification to the Second Modified Plan of Liquidation" (the "Modification"), which purportedly would allay her concerns regarding the treatment of her clients' claims under the Plan.² In the letter, Mr. Copeland stated "the Modification I believe addresses your principal concerns and leaves the claims of your clients unimpaired." The Modification added language to the section of the Plan which dealt with the payment of Class 2 creditors, and provided, in relevant part:

A. Article 5, Treatment of Claims, shall be modified as follows:

1. Section 5.2, Class 2, shall be deleted and amended to read as follows:

5.2 Class 2. Class 2 is unimpaired. Holders of allowed Class 2 Claims will receive on account of such Claims deferred cash payments, over a period not exceeding six years (6) after the date of assessment of said of sic Claims, of a value, as of the Effective Date, equal to the allowed amount of Claims, pursuant to Section 1129(a)(9)(C), together with per annum interest thereon at the statutory rate; the first payment to be made one hundred twenty (120) days after the Effective Date, with subsequent payments made monthly thereafter. All liens held by Class 2 Creditors shall remain in full force and effect until such time as the amount of each respective Claim has been paid in full. Any sale of all or any portion of the Property subsequent to Confirmation will be subject to any applicable lien of the respective Class 2 Creditor.

All taxes incurred by the Debtor subsequent to the Petition Date, together with penalties and interest thereon, shall be treated as Class 1 Claims under the Plan. No Tax Claims are included or includable in Class 7 under the Plan.

(Emphasis added). The italicized language was added by the Modification. The intent of the Modification was apparently to satisfy specific concerns of Class 2 creditors by providing post-petition interest and a guaranty of lien retention. Sections 2.2 and 2.7 of the Plan described Class 2 as "creditors holding allowed Tax Claims," and Class 7 as "creditors holding statutory liens."

The final sentence of the Modification was particularly noteworthy. It appeared to state that "Tax Claims" were not included in Class 7 under the Plan. According to the Taxing Authorities' memorandum in support of their motion to reconsider, under the Plan, "class 7 receives a pro rata portion of a small amount of cash, and stock for the remainder of the claims." Because the Taxing Authorities' claims appear facially to be "Tax Claims," it would seem that they were not included in Class 7, based on the last sentence of the Modification. The Taxing Authorities contend that this additional language placed their claims in Class 2, and the representations contained within Mr. Copeland's letter induced them to withdraw their votes against the Plan. The Plan was confirmed on October 18, 1989, after an attorney for the Taxing Authorities withdrew their rejections.

On January 16, 1990, HEC, as successor to Rankin under the Plan, filed objections to claims of each of the Taxing Authorities and other claimants. Responses were filed thereafter, but the parties sought and obtained a number of continuances, based ostensibly on settlement negotiations, which delayed the hearing until January 14, 1991. At that hearing, an agreed order was submitted concerning the claims of Andrews Independent School District ("AISD"), an entity not represented by counsel for the Taxing Authorities. The order as submitted by the attorneys for the Debtor and AISD provided for payment of AISD's claim over fourteen months.³ With regard to the Taxing Authorities' claims, a hearing was again reset for February 13, 1991. After the February 13, 1991 hearing on each individual claim, HEC's counsel was responsible for submitting eleven orders reflecting the amount allowed by the Court on each claim. After being notified by the Clerk's office in June, 1991 that the orders had not been submitted, HEC's attorney submitted the orders in September, 1991. The orders were entered on September 19 and 20, 1991. Specifically, the orders provided the following disposition with respect to each claim:⁴

                      Claim                      Amount          Treatment
                Andrews County                 $19,855.61         Class 7
                Buena Vista I.S.D.                  57.18         Class 7
                Crane County                        16.98         Class 7
                Crane County I.S.D.                 36.30         Class 7
                Crane County Water District           .76         Class 7
                Ector County                       558.12         Class 7
                Kermit I.S.D.                    5,470.82         Class 7
                Pecos-Barstow-Toyah I.S.D.     Disallowed
                Reeves County                  Disallowed
                Winkler County                   1,892.47         Class 7
                Wink-Loving I.S.D.             Disallowed
                

The orders provided that each allowed claim be accorded Class 7 treatment.

On September 30, 1991, the motion to reconsider was timely filed by the Taxing Authorities. At the hearing, counsel for the Taxing Authorities orally requested the following alterations to the Court's orders:

1. Treatment of the claims in Class 2, instead of Class 7;

2. Provision for post-petition, pre-confirmation interest;

3. Provision for post-confirmation interest; and

4. Recomputation and entry of new amounts attributable to the Taxing Authorities\' claims.

ISSUES

The motion to reconsider and the "Memorandum in Support" cite no statutes, rules or case law as authority. Without any guidance from the Taxing Authorities as to the legal basis for the requested relief, the issues appear to be as follows:

1. Whether the request for relief is allowable under the Federal Rules of Bankruptcy Procedure and the Federal Rules of Civil Procedure.

2. Whether claimants are entitled to relief if a plan which has been confirmed for more than two years treats their claims in an improper manner.

3. Whether HEC is estopped to assert a position contrary to previous representations made to the Taxing Authorities and the Court.

4. Whether a creditor can gain more favorable treatment than the other members of its class through an agreed order.

5. Whether the proper amounts were allowed to the Taxing Authorities based on the evidence at the hearing.

DISCUSSION

I. Procedural Basis for Motion.

In the motion to reconsider, the Taxing Authorities request that they receive the same preferential payout given to AISD or, in the alternative, a change in their treatment under the Plan from Class 7 to Class 2. This Court has the power to reconsider the allowance or disallowance of the Taxing Authorities' claims "for cause" and may readjust the claims "according to the equities of the case." 11 U.S.C. § 502(j) (1988); Fed.R.Bankr.P. 3008.

A. The "Cause" Requirement.

Bankruptcy Rule 9024 incorporates Rule 60 of the Federal Rules of Civil Procedure in all cases under the Bankruptcy Code.⁵ The Fifth Circuit has interpreted Rule 9024 to provide that:

When a proof of claim has in fact been litigated between parties to a bankruptcy proceeding, the litigants must seek reconsideration of the bankruptcy court\'s determination pursuant to the usual Rule 60 standards if they elect not to pursue a timely appeal of the original order allowing or disallowing the claim.

In re Colley, 814 F.2d 1008, 1010 (5th Cir. 1987), cert. denied, 484 U.S. 898, 108 S.Ct. 234, 98 L.Ed.2d 193 (1987). Thus, a party seeking reconsideration of a bankruptcy court's order regarding a claim should explicitly or implicitly assert one of the grounds delineated in Rule 60(b). In other words, pursuant to Bankruptcy Rule 9024, the presence of the grounds set forth in Rule 60(b) "constitute sufficient `cause' or `equities' to render it appropriate for a bankruptcy court to reconsider a decision allowing or disallowing a proof of claim." United States v. Motor Freight Express (In re Motor Freight Express), 91 B.R. 705, 710 (Bankr.E.D.Pa.1988); accord, In re International Yacht & Tennis, Inc., 922 F.2d 659, 662-663 (11th Cir.1991). Such grounds include mistake, inadvertence, fraud and misrepresentation. Fed. R.Civ.P. 60(b).

Although the Taxing Authorities' motion to reconsider does not cite any applicable Bankruptcy Rules, Rule 60(b), or even a general assertion of "cause" for reconsideration, it does implicitly allege mistakes in the orders (Taxing Authorities treated in Class 7 instead of Class 2) and misrepresentations made by the opposing counsel (letter from cou...