In re Thickstun Bros. Equipment Co., Inc., BAP No. 05-8054.

• Decision Date: 02 June 2006
• Docket Number: BAP No. 05-8054.
• Parties: In re THICKSTUN BROTHERS EQUIPMENT CO., INC., Debtor. Thickstun Brothers Equipment Co., Inc., Appellant, v. Encompass Services Corporation, Appellee.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit

344 B.R. 515

In re THICKSTUN BROTHERS EQUIPMENT CO., INC., Debtor Thickstun Brothers Equipment Co., Inc., Appellant, v. Encompass Services Corporation, Appellee.

BAP No. 05-8054.

United States Bankruptcy Appellate Panel for the Sixth Circuit.

Argued: February 1, 2006.

Decided and Filed: June 2, 2006.

COPYRIGHT MATERIAL OMITTED

ARGUED AND ON BRIEF: Michael D. Bornstein, Ricketts Co., L.P.A., Pickerington, Ohio, for Appellant.

ARGUED AND ON BRIEF: Charles F. Merz, Charles F. Merz & Associates, Louisville, Kentucky, for Appellee.

Before: GREGG, SCOTT, and WHIPPLE, Bankruptcy Appellate Panel Judges.

OPINION

GREGG, Bankruptcy Judge.

Thickstun Brothers Equipment Co., Inc. (the "Debtor") appeals a bankruptcy court order denying its motion for interpretation and clarification of its confirmed chapter 11 plan (the "Motion for Interpretation") for lack of jurisdiction. For the following reasons, the court's jurisdictional determination is AFFIRMED in part, REVERSED in part, and REMANDED.

I. ISSUES ON APPEAL

The issues on appeal are whether the bankruptcy court erred in holding: (1) that it lacked subject matter jurisdiction to determine whether the Debtor's failure to object to a creditor's claim was entitled to preclusive effect in pending state court litigation, and (2) that it lacked subject matter jurisdiction to interpret the Debtor's confirmed chapter 11 plan as preserving the Debtor's right to object to the creditor's claim in the bankruptcy proceeding.

II. JURISDICTION AND STANDARD OF REVIEW

For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989). Thus, the bankruptcy court's order denying the Debtor's motion for lack of jurisdiction constitutes a "final" order, see, e.g., IBM Credit Corp. v. Compuhouse Sys., Inc., 179 B.R. 474, 475 (W.D.Pa. 1995), aff'd, 85 F.3d 612 (3d Cir.1996) (Table), and may be appealed as of right. 28 U.S.C. § 158(a)(1). The United States District Court for the Southern District of Ohio has authorized appeals to the Bankruptcy Appellate Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). Accordingly, the Panel has jurisdiction to decide this appeal.

The bankruptcy court's determination that it lacked subject matter jurisdiction over the Debtor's Motion for Interpretation is reviewed de novo. See Gordon Sel-Way, Inc. v. United States (In re Gordon Sel-Way, Inc.), 270 F.3d 280, 284 (6th Cir.2001). "De novo means that the appellate court determines the law independently of the trial court's determination." Treinish v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (6th Cir. BAP 2001).

III. FACTS

The Debtor and Encompass Services Corporation, f/k/a Reliable Mechanical, Inc. ("Encompass") hold claims against each other stemming from alleged breaches of a construction contract at the Rickenbacker Air National Guard Base near Columbus, Ohio. In December 1997, Encompass initiated litigation of its claims against the Debtor and the Debtor's surety in the Circuit Court of Jefferson County, Kentucky. The Debtor filed a counterclaim against Encompass in the Kentucky litigation. In January 2000, the Debtor also filed an action against Encompass's surety in the United States District Court for the Southern District of Ohio (the "Miller Act Case").

On August 8, 2003, the Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtor's schedules listed Encompass's claim as disputed, contingent, and unliquidated. On September 30, 2003, Encompass filed an $860,000 proof of claim, representing the amount of its breach of contract claims against the Debtor.

The Debtor filed its first amended plan of reorganization (the "Plan") on April 8, 2004, and the bankruptcy court entered an order confirming the Plan on June 17, 2004. The Plan requires the Debtor to object to claims within sixty days after its effective date. The Debtor concedes that it did not file an objection to Encompass's claim by the deadline specified in the Plan (or at any time thereafter). However, the Debtor asserts that language in its Plan and Disclosure Statement indicates that Encompass's claim is disputed and will be litigated in proceedings outside of the bankruptcy court. Specifically, the Plan provides that "[a] party whose Claim was listed as disputed, contingent and/or unliquidated in Debtor's schedules before the proof of Claim bar date shall not have an Allowed Claim unless agreed to by the Debtor ...." (Plan art. 1.3.; J.A. at 3.) The Plan also defines the terms "Miller Act Case" and "Miller Act Recovery" and establishes a distribution scheme for the potential Miller Act Recovery. (Plan art 1.16-17, IV.3-.4; J.A. at 4-5, 9-11.) The Debtor's Disclosure Statement contains a slightly more detailed description of the Debtor's claim in the Miller Act Case. The Disclosure Statement also identifies potential counterclaims against the Debtor and states the Debtor's belief that any such claims are without merit.

The Plan further provides that the bankruptcy court will retain post-confirmation jurisdiction for certain purposes, including to "determine the classification, validity and amount of, or to allow or disallow, any and all Claims herein to which any party to these proceedings, including the Debtor, objects," to "hear and determine controversies concerning and to adjudicate interests in the property of or transferred by the Debtor," and to "secure execution of the provisions of this Plan." (Plan art. XILE; J.A. at 16.) Paragraph 13 of the confirmation order also states: "This Court retains jurisdiction over post confirmation matters as set forth in 11 U.S.C. §§ 1141 to 1146, as required by the Federal Rules of Bankruptcy Procedure, Local Bankruptcy Rules, or as set forth in the confirmed Plan." (J.A. at 127.)

On September 27, 2004, Encompass filed a motion for summary judgment in the Kentucky state court litigation. Encompass's motion asserted that the res judicata effect of the Debtor's failure to object to Encompass's claim barred the Debtor from defending against Encompass's alleged cause of action in the Kentucky litigation. In response to the state court motion for summary judgment, the Debtor filed its Motion for Interpretation in the bankruptcy court. The Debtor's motion states:

Debtor is hereby requesting that the Court interpret the provisions of the Plan and Disclosure Statement and determine that the Plan and Disclosure Statement provided sufficient notice to Encompass that the Debtor objected to its claim and that its claim was not conclusively allowed in this Bankruptcy Proceeding in the amount of $860,000.00. Specifically, Debtor would request that the Court find under the circumstances, that Debtor's objection to Encompass' claim as noted in the Plan and Disclosure Statement sufficiently established that Debtor did not intend to waive its rights to challenge Encompass' claims in The Miller Act Case or in any other litigation.

(J.A. at 138-39.)

The bankruptcy court held hearings on the Debtor's motion on June 22 and 30, 2005. At the hearings, the bankruptcy court asked the Debtor's attorneys to articulate the precise relief the Debtor was seeking through its motion. The Debtor's special counsel replied: "I think the Court in Kentucky is looking for a statement by the Bankruptcy Court that the [Debtor's] failure ... to object to Encompass's claim, either is or is not res judicata in his Court." (J.A. at 310.)

On July 1, 2005, the bankruptcy court entered an order denying the Motion for Interpretation for lack of subject matter jurisdiction. The court described the relief sought by the Debtor as follows:

In the instant Motion, the Debtor seeks a declaration pursuant to sections 105 and 1142 of the United States Bankruptcy Code ("Code") that its failure to file a timely objection to the Encompass claim, under the terms of its confirmed plan, is not entitled to preclusive effect in the cause of action pending in Kentucky.

(J.A. at 194.) The court noted that, under the terms of the Plan, it only retained jurisdiction over disputes involving claims "to which any party to these proceedings, including the Debtor, objects ...." (J.A. at 193) (emphasis in original). Because the Debtor had not objected to Encompass's claim within the time period specified in the Plan, the court found that resolution of the issue presented in the Debtor's motion "exceed[ed] the post confirmation jurisdiction retained under the terms of the confirmed plan." (J.A. at 194.) Accordingly, the court concluded that it had no jurisdiction to provide the relief requested in the Motion for Interpretation. This timely appeal followed.¹

IV. DISCUSSION

A. Subject Matter Jurisdiction.

The jurisdictional framework that applies in bankruptcy cases is frequently confusing and difficult to apply. See Harstad v. First Am. Bank (In re Harstad), 155 B.R. 500, 505 (Bankr.D.Minn.1993) (bankruptcy jurisdiction is "among the most misunderstood and misapplied concepts in the law"). In the present appeal, the difficulty of the jurisdictional analysis is compounded by the fact that the Debtor's Motion for Interpretation sought two distinct types of relief. First, the Debtor requested that the bankruptcy court determine that its failure to object to Encompass's claim was not entitled to preclusive effect in the Kentucky state court litigation. This is the aspect of the Motion for Interpretation that was emphasized by Debtor's counsel at the hearing, and it was understandably the focus of the bankruptcy court's order denying the Debtor's motion. Without question, the court's conclusion that it lacked jurisdiction to enter such an order was correct. See Midway Motor Lodge of Elk Grove v. Innkeepers' Telemanagement & Equip. Corp., 54...