In re Shepherd Oil, Inc.

• Decision Date: 11 July 1990
• Docket Number: Bankruptcy No. B-84-2015-PHX-SSC,B-88-1378-PHX-SSC,Adv. No. 88-621,88-622.
• Citation: 118 BR 741
• Parties: In re SHEPHERD OIL, INC., an Arizona corporation, Debtor. UNITED STATES of America and United States Department of Energy, Plaintiffs, v. SHEPHERD OIL, INCORPORATED, Defendant. In re SHEPHERD OIL, INCORPORATED, an Arizona corporation, Debtor. UNITED STATES of America and United States Department of Energy, Plaintiffs, v. SHEPHERD OIL, INCORPORATED and Scott H. Phillips, Trustee of Shepherd Oil, Incorporated, Defendants.
• Court: U.S. Bankruptcy Court — District of Arizona

118 B.R. 741 (1990)

In re SHEPHERD OIL, INC., an Arizona corporation, Debtor.

UNITED STATES of America and United States Department of Energy, Plaintiffs, v. SHEPHERD OIL, INCORPORATED, Defendant.

In re SHEPHERD OIL, INCORPORATED, an Arizona corporation, Debtor.

UNITED STATES of America and United States Department of Energy, Plaintiffs, v. SHEPHERD OIL, INCORPORATED and Scott H. Phillips, Trustee of Shepherd Oil, Incorporated, Defendants.

Bankruptcy Nos. B-84-2015-PHX-SSC, B-88-1378-PHX-SSC, Adv. Nos. 88-621, 88-622.

United States Bankruptcy Court, D. Arizona.

July 11, 1990.

Richard G. Patrick, Asst. U.S. Atty., Phoenix, Ariz. and Diane Polinger, U.S. Dept. of Energy, Washington, D.C., for the U.S. Dept. of Energy.

Brian W. Hendrickson, Tempe, Ariz., for trustee Scott H. Phillips.

Scott H. Phillips, Houston, Tex., trustee.

P. Wyman Shepherd, Lafayette, La., William Novotny, Mariscal, Weeks, McIntyre & Friedlander, and Richard M. Lorenzen, O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, Phoenix, Ariz., for Niro Atomizer, Inc.

Elizabeth Magner, Lemle & Keleher, New Orleans, La., and Thomas J. Salerno, Streich, Lang, Weeks & Cardon, Phoenix, Ariz., for Citibank, N.A.

Stanford E. Lerch, Kennedy, Wilson & Lerch, Phoenix, Ariz., for petitioning creditors.

MEMORANDUM DECISION AND ORDER

SARAH SHARER CURLEY, Bankruptcy Judge.

PRELIMINARY STATEMENT

This matter comes before the Court on the request of the Trustee, as Defendant, that he be granted summary judgment on the remaining claims in this adversary proceeding.

The United States of America and the United States Department of Energy ("D.O.E.") commenced these adversary proceedings on September 22, 1988.

The Trustee previously agreed that a judgment could be entered against him on Claim V, which alleged a claim for breach of contract damages as a result of the admitted default of Shepherd Oil, Incorporated, the Debtor herein, pursuant to the Confirmed Plan of Reorganization and/or the Amended Compromise Agreement entered into between the Debtor and the D.O.E.

In Claim VI of the Complaint, the D.O.E. requested that the priority of its lien on the assets of the Debtor's bankruptcy estate be determined by this Court. However, since a separate adversary proceeding had already been commenced by the Trustee to determine the priority of all liens against the Debtor's assets, and hence there was a serious question of law as to whether the D.O.E. had joined all necessary parties in its adversary proceeding, the D.O.E. withdrew Claim VI, without prejudice to asserting such a lien claim, if any, in the lien-ranking adversary proceeding only. An Order was entered by this Court dismissing said Claim VI without prejudice on November 8, 1989.

The Trustee filed his Motion for Summary Judgment on April 20, 1989. The Trustee also simultaneously filed his Statement of Facts.

On September 3, 1989, the Trustee and the D.O.E. stipulated to certain facts for purposes of the Trustee's Motion for Summary Judgment.

On October 10, 1989, the D.O.E. filed a Response to the Motion for Summary Judgment addressing substantively the issues raised by the Trustee, and a separate Statement of Facts.¹

On October 13, 1989, the Trustee filed his Reply and a pleading entitled "Trustee's Rule 11 Response to Plaintiffs' Statement of Facts and Defendants' Supplemental Statement of Facts."

The aforesaid documents were followed in quick succession by:

1. Trustee\'s Revision to Defendants\' Supplemental Statement of Facts, filed October 24, 1989;

2. D.O.E.\'s Motion to file its Opposition to the Trustee\'s Response under Local Rule 11 to Plaintiffs\' Statement of Facts and Defendants\' Supplemental Statement of Facts, filed October 25, 1989; and

3. Defendants\' Opposition to Plaintiffs\' Motion to File Opposition to Trustee\'s Response under Rule 11 to Plaintiffs\' Statement of Facts and Defendants\' Supplemental Statement of Facts and Motion to Strike, filed October 25, 1989.

On October 13, 1989, the Trustee filed a Motion to Strike the D.O.E.'s Affidavit of Innokenty Tolmachoff. This Motion was granted by the Court on December 6, 1989 at oral argument on the Trustee's Motion for Summary Judgment.

On October 20, 1989, the Trustee filed a Motion to Strike the Affidavit of Richard D. Dodd. This Motion was denied at oral argument on the Trustee's Motion for Summary Judgment.

At the oral argument on October 26, 1989, on the Trustee's Motion for Summary Judgment, it became clear to this Court that the material issues of fact for this Court to determine the Motion for Summary Judgment were not in dispute. There remained factual disputes between the parties, but these disputes were not relevant to the current issues before this Court.

The D.O.E. filed its pleadings on behalf of itself and the United States of America. The Trustee filed its pleadings on behalf of himself and the Debtor. Although the Trustee stipulated to certain facts for the purposes of his Motion, counsel for the Trustee stated at oral argument that the Debtor might wish to contest all or a portion of the facts in another proceeding.

This Court has jurisdiction over this matter, and this is a core proceeding. 28 U.S.C. §§ 1334 and 157(b)(2)(A), (E), (K), and (O). This Memorandum Decision and Order shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.

FACTS

On August 6, 1984, Shepherd Oil Incorporated, an Arizona corporation, filed a petition under Chapter 11 of the United States Bankruptcy Code. This Chapter 11 proceeding was assigned Case No. B-84-2015-PHX-LO (now Case No. B-84-2015-PHX-SSC). This Chapter 11 proceeding shall be referred to as S.O.I.-I.

The Debtor proceeded toward confirmation. On October 3, 1985, in S.O.I.-I, the Judge executed an Order confirming the Debtor's "Second Amended Plan of Reorganization Dated January 31, 1985, As Modified on May 17 and 28 and October 3, 1985" ("S.O.I.-I Plan").

The S.O.I.-I Order of Confirmation provided, in pertinent part:

A. The Modified Plan is confirmed and is made a part of this Order.

The D.O.E. was a claimant in Class 19 under the S.O.I.-I Plan. Members of Class 19 were to be paid, on the effective date of the Plan, the pro rata portion of their respective claims. (Article VII, Paragraph A. of the S.O.I.-I Plan, Page 15.)

The provisions regarding the distributions to Class 19 Claimants and the relevant provisions of the S.O.I.-I Plan granting the Class 19 Claimants a lien on the Debtor's assets are set forth in the following pertinent portions of the S.O.I.-I Plan:

The allowed claims in Classes 19, 20, and 22 shall be combined and treated on a pro rata basis as follows, except as otherwise specifically provided:

1. The claims shall bear interest at the Unsecured Creditor Rate from January 1, 1985, until paid in full.

2. The holders of the claims shall receive pro rata payments of the following percentages of the Net Cash Flow of Shepherd Oil (as defined below), which payments shall be determined semi-annually on December 31 and June 30 of each year, beginning December 31, 1985; the payments shall be made on or before March 31 and September 30 of each year, respectively; the calculation of Net Cash Flow as of December 31, 1985, shall be based on the period from January 1, 1985 through December 31, 1985,² while all subsequent calculations of Net Cash Flow shall be based on each succeeding six-month period;

(a) Forty Percent (40%), from January 1, 1985 through June 30, 1986;

(b) Forty-Five Percent (45%), from July 1, 1986 through June 30, 1987; and,

(c) Fifty Percent (50%), from July 1, 1987 until paid in full.

3. The Net Cash Flow payments shall first be applied to accrued interest and then to the allowed claim as of May 1, 1985.

4. "Net Cash Flow" for Shepherd Oil for each period shall be calculated as follows and shall equal:

(a) Gross cash receipts received by Shepherd Oil (not including capital contributions or proceeds of loans); less (except for those items set forth in Paragraph 5 below),

(b) Ordinary operating and administrative expenses, including, but not limited to, purchases of molasses, chemicals, gasoline, and other raw materials, utility costs, transportation expenses, taxes, and compensation for employees other than officers; and,

(c) Officers\' salaries not to exceed, for any fiscal year, $120,000 for President, $70,000 for Vice-President, and $45,000 for Secretary; and,³

(d) Repair, maintenance, and capital improvements not to exceed $1,500,000 for any fiscal year; and,

(e) Payments for debt service and to all classes of creditors and to priority creditors pursuant to the Plan or Order of the Bankruptcy Court; and,

(f) Payments for all administrative expenses incurred during or in relation to the Chapter 11 proceedings of Shepherd Oil, including those paid to professional persons such as attorneys, accountants, and appraisers.⁴

....

9. At a minimum, and whether or not there is positive Net Cash Flow, Shepherd Oil shall make payments to the claimants equalling the allowed claims as if they were being paid in equal semi-annual installments, including interest on the allowed amount of the claims at the Unsecured Creditor Rate (amortized), the first semi-annual payment being deemed due on June 30, 1986 and all subsequent payments thereafter being deemed due on each succeeding December 31st and June 30th until and including June 30, 1993 ("Minimum Payments"); payments from Net Cash Flow and the Initial Payment shall be credited and applied toward compliance with the Minimum Payments, and such payments in excess of the Minimum Payments in any period shall accumulate and be applied toward subsequently-required Minimum Payments.

10. The amount due the claimants shall be secured by a pro rata blanket lien in all of the Debtor\'s property wherever located, both real and personal; the blanket lien shall be evidenced by a formal separate order of the Court in recordable form, which shall be recorded in

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