In re Seatco, Inc.

• Decision Date: 21 February 2001
• Docket Number: No. 00-37332-BJH-11.,00-37332-BJH-11.
• Citation: 259 BR 279
• Parties: In re SEATCO, INC., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Texas

259 B.R. 279 (2001)

In re SEATCO, INC., Debtor.

No. 00-37332-BJH-11.

United States Bankruptcy Court, N.D. Texas, Dallas Division.

February 21, 2001.

Paul B. Geilich, John K. Turner, Bell & Nunnally & Martin, L.L.P., Dallas, TX, for debtor.

Gregory G. Hesse, Leslie R. Masterson, Jenkens & Gilchrist, A.P.C., Dallas, TX, for creditor CIT Group/Business Credit, Inc.

Mark MacDonald, MacDonald & Schuble, Dallas, TX, for creditor CIT Group/Business Credit, Inc.

MEMORANDUM OPINION

BARBARA J. HOUSER, Bankruptcy Judge.

Before the Court is the Motion for Approval of Third Modification of Plan and for Reconsideration of Order Denying Confirmation and Request for Expedited Hearing (the "Second Motion to Modify and Reconsider"). The Court heard the Second Motion to Modify and Reconsider on February 12, 2001.¹ The Court has jurisdiction over this dispute pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding. 28 U.S.C. § 157(b). This Memorandum Opinion contains the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, made applicable to this action by Federal Rule of Bankruptcy Procedure 7052.²

I. PROCEDURAL BACKGROUND

This contested confirmation hearing concluded on January 8, 2001. On January 19, 2001, the Court issued its Memorandum Opinion and Order Denying Confirmation of the Second Amended Plan of Reorganization, as modified on January 3, 2001 (the "First Modification") (hereinafter the Second Amended Plan and the First Modification will be collectively referred to as the "Plan"), of Seatco, Inc. ("Seatco" or the "Debtor") (the "Original Memorandum Opinion" and the "Original Order").

On January 23, 2001, the Debtor filed its Motion for Approval of Second Modification of Plan and for Reconsideration of Order Denying Confirmation and Request for Expedited Hearing (the "First Motion to Modify and Reconsider") and sought an order from this Court confirming the Plan as further modified (the "Modified Plan"). On January 30, 2001, CIT Group/Business Credit, Inc. ("CIT") filed its Objection to the First Motion to Modify and Reconsider (the "January 30 Objection"). The Court heard the First Motion to Modify and Reconsider on January 31, 2001.

In the Original Memorandum Opinion and the Original Order, the Court denied confirmation of the Plan due to certain inconsistencies between the permanent injunction section of the Plan, section 11.03, and the temporary injunction section of the Plan, section 11.04. In the First Motion to Modify and Reconsider, the Debtor proposed to modify the Plan to delete the inconsistent language in section 11.03 identified by the Court in the Original Memorandum Opinion. CIT objected to confirmation of the Modified Plan for a variety of reasons in the January 30 Objection and contended, as relevant here, that the permanent injunction provision of the Modified Plan, section 11.03, still violated § 524(e) of the Bankruptcy Code. Specifically, CIT contended that the Modified Plan improperly released or discharged attorneys and financial advisors of the Debtor from claims that CIT may have against such third parties (and that no record was made to support such an injunction) and because it may release or discharge tort claims that CIT had recently filed against Earl Kester ("Kester"), the Debtor's President and sole shareholder.³

After considering the January 30 Objection and the newly filed Kester Lawsuit, the Court agreed with CIT that the provisions of the Modified Plan providing permanent injunctive relief, section 11.03, and temporary injunctive relief, section 11.04, must be clarified further and must specifically address the effect of confirmation on the tort claims now asserted in the Kester Lawsuit. Thus, on February 2, 2001, the Court issued its Memorandum Opinion and Order denying, without prejudice, the First Motion to Modify and Reconsider.

The Debtor filed the Second Motion to Modify and Reconsider on February 7, 2001, and now seeks an order from this Court confirming the Modified Plan as further modified by the Fourth Modification to Debtor's Second Amended Plan of Reorganization (the "Further Modified Plan"). CIT objects to confirmation of the Further Modified Plan.

II. CIT'S OBJECTIONS

A. Injunctive Relief

CIT objects to the injunction provisions of the Further Modified Plan on three grounds. First, CIT objects to this Court entering any final order or judgment imposing the injunctions contained in sections 11.03 and 11.04 of the Further Modified Plan. CIT now contends that this is a non-core proceeding and that the Court can only issue proposed findings and conclusions for submission to the District Court pursuant to 28 U.S.C. § 157(c)(1). Second, CIT contends that the proposed injunction violates "the spirit, if not the express language," of § 524(e) of the Bankruptcy Code. See January 30 Objection at ¶ 13. Finally, CIT objects to the proposed injunction because, inter alia, Kester has not been required to post a bond or disclose his assets and liabilities under oath; he is not being restrained from converting non-exempt assets to exempt assets; he is not limited by a budget on personal expenses; he is not enjoined from depleting or converting CIT's collateral; he is not required to turnover any part of his non-exempt assets; he is not subject to any salary, shareholder advance or dividend limits; and he is not required to pay a portion of his salary to CIT. Each continuing objection will be separately addressed.

1. Core vs. Non-Core

The Court found that this contested confirmation hearing is a core proceeding under 28 U.S.C. § 157(b) in the Original Memorandum Opinion. In at least four (4) prior pleadings, CIT admitted that this is a core proceeding over which this Court has jurisdiction to enter a final judgment. For example, in its Objection to Disclosure Statement Pertaining to Debtor's Plan of Reorganization filed on November 9, 2000, CIT stated that "this Court has jurisdiction to consider this Objection pursuant to 28 U.S.C. § 1334 and this is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A) and (O)." CIT filed its Objection to the Debtor's First Amended Plan of Reorganization on November 27, 2000 and again admitted that "this Court has jurisdiction to consider confirmation of the Plan pursuant to 28 U.S.C. § 1334, and this is a core proceeding within the meaning of 28 U.S.C. § 157(b)." CIT made the same admissions in its Supplemental Objection to the Debtor's Second Amended Plan of Reorganization filed on December 1, 2000 and its Second Supplemental Objection to the Debtor's Second Amended Plan of Reorganization filed on December 4, 2000.

CIT contended that this was a non-core proceeding for the first time in the January 30 Objection, after the Court had spent days hearing all of the evidence and CIT's objections to confirmation, and after the Court had issued the Original Memorandum Opinion in which it found that it had jurisdiction to enter a final judgment in connection with this contested confirmation hearing.⁴

As it did in the Original Memorandum Opinion, the Court finds again that this is a core proceeding over which it has jurisdiction to enter a final order. Alternatively, even if this is a non-core proceeding, as a result of its repeated prior admissions, CIT has consented to this Court's jurisdiction to enter a final order. See 28 U.S.C. § 157(c)(2); Hiser v. Neumann Medical Center, Inc. (In re St. Mary Hospital), 117 B.R. 125, 131 (Bankr. E.D.Pa.1990) ("An admission that a proceeding is core accords irrevocable consent to a bankruptcy court to determine the proceedings, even if it is non-core"); see also Gravel and Shea v. Vermont Nat'l Bank, 162 B.R. 961, 966 (D.Vt.1993) (finding that in the context of an adversary proceeding, "in its answer to VNB's Complaint, Gravel and Shea admitted that the proceeding was core. The Bankruptcy Judge below found that Gravel and Shea's admission that the proceeding was core amounted to explicit consent . . . Such an admission has been deemed express consent to the bankruptcy court's final determination of the matter") (citations omitted); cf. McFarland v. Leyh (In re Texas General Petroleum Corp.), 52 F.3d 1330, 1337 (5th Cir.1995).

2. § 524(e)

CIT reargues its earlier objection to confirmation and contends that the Further Modified Plan does not comply with § 1129(a)(1) of the Code because the permanent injunction and temporary injunction provisions of the Further Modified Plan improperly discharge non-debtor third parties in violation of § 524(e) of the Bankruptcy Code. For the reasons stated in the Original Memorandum Opinion and as further clarified below, CIT's objections are overruled.

It is important to understand what the Further Modified Plan does, and perhaps more importantly, does not do. The permanent injunction provision of the Further Modified Plan, section 11.03, has no effect on CIT at all. CIT's requested language from paragraph 19 of the January 30 Objection was placed in section 11.03 of the Further Modified Plan. Section 11.03 of the Further Modified Plan now provides that

Nothing in this paragraph 11.03 shall constitute a permanent injunction against CIT from commencing or continuing any suits, attachments or judgments against Earl Kester or any other party on guarantees or tort claims, nor shall it prohibit CIT from setoff or recoupment, nor shall it prohibit CIT from perfecting or enforcing its claims, liens or security interests under the Plan.

Moreover, any reference to attorneys or financial advisors has been deleted. The permanent injunction provision of the Further Modified Plan simply restates in injunction terms the effect of confirmation of the Further Modified Plan in accordance with § 1141 of the Bankruptcy Code.⁵

Turning to the temporary injunction provision of the Further Modified Plan, section 11.04, that provision only restrains CIT from its efforts to collect from Kester pursuant to the Guaranty...