In re Servico, Inc.

• Decision Date: 29 July 1992
• Docket Number: Bankruptcy No. 90-36655-BKC-AJC,Adv. No. 92-0687-BKC-AJC-A.
• Citation: 144 BR 557
• Parties: In re SERVICO, INC., et al., Debtors. Fernando CHANG, Plaintiff, v. SERVICO, INC., et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Florida

144 B.R. 557 (1992)

In re SERVICO, INC., et al., Debtors Fernando CHANG, Plaintiff, v. SERVICO, INC., et al., Defendants.

Bankruptcy No. 90-36655-BKC-AJC, Adv. No. 92-0687-BKC-AJC-A.

United States Bankruptcy Court, S.D. Florida.

July 29, 1992.

Harold D. Moorefield, Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A., Miami, Fla., for debtor.

Alan R. Gordon, Saul, Ewing, Remick & Saul, Philadelphia, Pa., Patricia A. Redmond, Miami, Fla., for Official Unsecured Cred. Comm.

L. Louis Mrachek, Gunster, Yoakley & Stewart, P.A., West Palm Beach, Fla., for plaintiff Chang.

Gordon Robinson, Chief, Office of Reorganizations, S.E.C., Atlanta, Ga.

MEMORANDUM OPINION

A. JAY CRISTOL, Bankruptcy Judge.

This matter is before the Court on Servico, Inc.'s ("Servico"), on its own and on behalf of its subsidiary debtors and debtors-in-possession (collectively the "Servico Debtors"), Motion to Dismiss Fernando Chang's ("Chang") Verified Complaint to Revoke Order Confirming Chapter 11 Plan (the "Motion"). Having considered Chang's Complaint, the Servico Debtors' Motion and for the reasons set forth below, this Court has determined that the Motion should be denied.

On May 7, 1992, this Court entered an Order Confirming the Servico Debtors' Consolidated Third Restated Amended Plan of Reorganization (the "Plan"). On July 13, 1992, well within the 180 days allocated by 11 U.S.C. § 1144, Chang filed a four-count complaint seeking to revoke the order confirming the Chapter 11 Plan. Chang alleges: in Count I that the order of confirmation should be revoked because of a fraudulent understatement of the liquidation value of the Servico Debtors, in the Disclosure Statement; in Count II that the order of confirmation should be revoked because of the Servico Debtors' failure to propose a plan in good faith; in Count III that the order of confirmation should be revoked because the Servico Debtors engaged in fraud on the bankruptcy court and the creditors by failing to disclose that there was a dispute between Servico's purported officers and directors and Chang as to the authority to operate Servico's business; and finally in Count IV that the order of confirmation should be revoked because the Servico Debtors committed fraud on the bankruptcy court and the creditors by their settlement of a dispute with Bisby Corporation ("Bisby") whereby Bisby will receive stock valued at $1.4 million for a claim valued in the Disclosure Statement at no more than $315,000.

The Servico Debtors' assert that the Complaint should be dismissed due to Chang's failure to allege the elements of fraud with particularity and to allege actual fraud. The Servico Debtors further assert that all counts should be dismissed due to Chang's waiver of his right to object to the actions of which he complains and that Chang should be estopped from pursuing his Complaint.

Bankruptcy Code Section 1144 provides that:

On request of a party in interest at any time before 180 days after the date of the entry of order of confirmation, and after notice and hearing, the court may revoke such order if and only if such an order was procured by fraud.

11 U.S.C. § 1144. Therefore, to sustain a complaint to revoke an order of confirmation, it is necessary that the complaining party allege that the order was procured by fraud. Federal Rule of Civil Procedure 9(b) as promulgated by Bankruptcy Rule 7009 states that:

In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.

Fed.R.Civ.P. 9(b). When considering a motion to dismiss on the ground for failure to state a cause of action, the court may only consider matters on the face of the complaint. Marine Coatings of Alabama, Inc. v. United States, 792 F.2d 1565 (11th Cir. 1986). Further, the facts of the complaint must be accepted as true and the allegations should be construed favorably to the pleader. Franklin v. Gwinnet County Public Schools, 911 F.2d 617 (11th Cir. 1990); Quality Foods de Centro America, S.A. v. Latin American Agribusiness Development Corp., 711 F.2d 989 (11th Cir. 1983). "A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. . . . The Federal Rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper decision on the merits." Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

A pleading satisfies the particularity requirement if the "person charged with fraud will have a reasonable opportunity to answer the complaint and adequate information to frame a response," Zuckerman v. Franz, 573 F.Supp. 351 (S.D.Fla.1983), "or if it identifies the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations." Deutsch v. Flannery, 823 F.2d 1361, 1365 (9th Cir.1987), quoting, Gottreich v. San Francisco Investment Corp., 552 F.2d 866 (9th Cir.1977).

In all four counts of the complaint, the Servico Debtors assert that Chang has either waived his right to object to any of the actions taken by Servico, or is now estopped from asserting any objection to those rights by his previous inaction. Estoppel and waiver are affirmative defenses to be pleaded and proven by a defendant. They are not issues that should be considered in ruling on a motion to dismiss. See, Twigg v. Hospital District of Hardee County, 731 F.Supp. 469 (M.D.Fla.1990). Further, these are factual issues which cannot be raised in a motion to dismiss. See, Bank of America Nat'l Trust & Savings Ass'n v. Touche Ross & Co., 782 F.2d 966 (11th Cir.1986).

The Servico Debtors cite to numerous cases which purportedly stand for the proposition that a creditor may be estopped from attempting to revoke an order of confirmation. In re D.F.D., Inc., 43 B.R. 393 (Bankr.E.D.Pa.1984); In re Nyack Autoparts Stores Holding Company, Inc., 98 B.R. 659 (Bankr.S.D.N.Y.1989); In re Hertz, 38 B.R. 215 (Bankr.S.D.N.Y.1984). None of these cases, however, are cases where estoppel is raised in a motion to dismiss.

By filing their Motion, the Servico Debtors raise the issue of whether the Complaint gives them a reasonable opportunity to answer and adequate information to frame a response. Chang alleges in Count I that the Servico Debtors in the Disclosure Statement grossly and fraudulently understated the liquidation value of the Servico Debtors' assets. Chang alleges that the appraisals used by the Servico Debtors to determine liquidation value did not take into consideration substantial improvements in the net operating income of the hotels. Chang alleges that this improvement in the operating income was known by Servico's officers and directors and was not revealed to the creditors in the Disclosure Statement....