In re Troutman Enterprises, Inc.
| Decision Date | 26 September 2000 |
| Docket Number | No. 00-8014,00-8014 |
| Parties | In re TROUTMAN ENTERPRISES, INC., Debtor. Donald F. Harker, III, Plaintiff-Appellee, v. Rufus Troutman, et al., Defendants-Appellants. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit |
Tim J. Robinson, Dinsmore & Shohl, Cincinnati, OH, for Appellants.
Ira Rubin, Goldman, Rubin & Shapior, Dayton, OH, for Appellee.
Before MORGENSTERN-CLARREN, RHODES, and STOSBERG, Bankruptcy Appellate Panel Judges.
This case presents complex issues involving the property of a bankruptcy estate that has been converted postconfirmation from Chapter 11 to Chapter 7.1 In its Chapter 11 bankruptcy, the Debtor failed to disclose its ownership interest in a life insurance policy. After its plan was confirmed, the Debtor's case was converted to Chapter 7. In a turnover proceeding filed by the Trustee seeking the proceeds of the policy, the bankruptcy court granted summary judgment to the Trustee. This appeal from that order was filed by individuals who call themselves "the Surviving Shareholders," asserting that they are the sole remaining shareholders of the Debtor. The Chapter 7 trustee challenges the Surviving Shareholders' standing to bring this appeal.
The Panel holds that the Surviving Shareholders do have standing because as shareholders of the reorganized debtor they may have some interest in the proceeds of the policy. The Panel also holds that all of the property of the original Chapter 11 bankruptcy estate, including the undisclosed policy, vested with the reorganized debtor upon confirmation of the Chapter 11 plan. The Bankruptcy Code does not provide that property that has vested with the reorganized debtor is recaptured into the bankruptcy estate upon a postconfirmation conversion to Chapter 7. Finally, the Panel concludes that the doctrine of judicial estoppel does not apply in the circumstances of this case. For these reasons, the bankruptcy court order requiring turnover of the proceeds to the Chapter 7 trustee is reversed.
The first issue on appeal is whether the proceeds of a life insurance policy that the Debtor purchased before filing a Chapter 11 case, but did not disclose, are property of the bankruptcy estate that was converted to Chapter 7 after plan confirmation. The second issue is whether the doctrine of judicial estoppel precludes the Surviving Shareholders from asserting any right to the policy.
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Southern District of Ohio has authorized appeals to the BAP and a "final order" of the bankruptcy court may be appealed by right under 28 U.S.C. § 158(a)(1). A bankruptcy court's order granting summary judgment is a final appealable order which is reviewed de novo. Turoczy Bonding Co. v. Strbac (In re Strbac), 235 B.R. 880 (6th Cir. BAP 1999). "De novo review requires the Panel to review questions of law independent of the bankruptcy court's determination." First Union Mortgage Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 469 (6th Cir. BAP 1998) (citation omitted).
On July 11, 1986, Troutman Enterprises, Inc. ("TEI") purchased a $500,000 life insurance policy insuring the life of Larry Troutman, a shareholder and officer of TEI. The policy was issued by Nationwide Life Insurance Co. TEI filed a Chapter 11 petition on April 23, 1992. TEI was both the owner and the beneficiary of the policy at the time of the filing. TEI's did not disclose its interest in the policy in its initial bankruptcy papers or at any time before the confirmation of its plan.
TEI's amended plan of reorganization was confirmed on September 1, 1993. Article V of the plan provides for the effect of confirmation and for execution of the plan:
Confirmation of the Plan of Reorganization shall be in accordance with 11 U.S.C. § 1141, except to the extent as otherwise provided for in the confirmed Plan. All property of the estate shall revert to the Debtor at confirmation including adversarial proceedings and the Debtor shall continue its operation and make payments provided for in the confirmed Plan.
On January 4, 1996, the case was converted to a Chapter 7 case. Donald F. Harker, III, was appointed as the Chapter 7 trustee. On April 22, 1996, while the Chapter 7 case was pending and without the Trustee's consent, TEI executed documents which purported to transfer ownership of the policy to Roger Tee Enterprises, Inc., a related corporation. After this transfer, TEI remained the named beneficiary under the policy.
On April 25, 1999, Larry Troutman died and the death benefits became payable to TEI. On May 14, 1999, TEI filed an amendment to schedule B which for the first time disclosed its interest in the policy. Following this disclosure, the Trustee commenced the adversary proceeding that is the subject of this appeal.
The Trustee filed a complaint against Nationwide for turnover of the policy death benefits. Turnover was requested on the premise that the policy was an asset of the estate under 11 U.S.C. § 541(a)(1) and the death benefits were an asset of the estate under 11 U.S.C. § 541(a)(6).
The Surviving Shareholders filed a motion to intervene as third-party defendants in the turnover proceeding, which was granted by agreement. Nationwide interpleaded the death benefits and was dismissed from the adversary proceeding.
The Surviving Shareholders filed a motion to dismiss the adversary proceeding under Fed.R.Civ.P. 12(b)(6) or for a summary judgment dismissing the complaint. The Trustee opposed the motion. The bankruptcy court entered an order that the motion would be treated as a request for summary judgment. (December 13, 1999 Order.) The court also entered an order notifying the parties that "it would also consider the filings that exist in the Chapter 11 Estate Case . . ., particularly the schedules filed by TEI and the various disclosure statements and plan confirmation documents, by taking judicial notice of those filings as they exist in the Chapter 11 Case." (September 3, 1999 Order.)
The Surviving Shareholders argued that the policy revested in TEI, as the reorganized debtor, on confirmation of the plan and did not become an asset of the Chapter 7 estate upon conversion of the case.
The Trustee argued that the Surviving Shareholders lacked standing to participate in the adversary proceeding or to recover the death benefits. He also argued that the policy was property of the Chapter 7 estate because it was not scheduled or administered and therefore did not revest in the reorganized debtor upon confirmation. Finally, he argued that TEI and the Surviving Shareholders were judicially estopped from asserting any claim to the policy based on Debtor's failure to disclose it during the Chapter 11 case.
The bankruptcy court held that all property of the estate revested in the reorganized debtor on confirmation of the plan and that the subsequent conversion did not bring the property back into the estate. The Trustee does not challenge this conclusion. The court ruled, however, that the default provision of 11 U.S.C. § 1141(b), under which estate property vests in the reorganized debtor, did not apply with respect to the policy because the Debtor had failed to disclose it in accordance with the requirements of the Bankruptcy Code. In support of this conclusion the court relied on the doctrine of judicial estoppel as well as case law discussing 11 U.S.C. § 554, which deals with the abandonment of property. The bankruptcy court then concluded:
pursuant to the above authority, TEI\'s failure to comply with the Code\'s requirements to disclose the existence of the policy during the Chapter 11 proceeding prevented that asset from being administered in the Chapter 11 case. Thus, the policy remained property of the Chapter 11 estate and did not revest in the Reorganized Debtor. As discussed previously, property which does not revest in a reorganized debtor upon confirmation becomes property of the Chapter 7 estate upon conversion.
The bankruptcy court entered an order authorizing the distribution of the interpleaded funds in accordance with the decision.
The general rule is that all property of a Chapter 11 bankruptcy estate vests with the reorganized debtor upon confirmation of the Chapter 11 plan. Section 1141(b) & (c) provide:
11 U.S.C. § 1141(b) & (c). In the present case, neither the plan nor the order confirming the plan contains any provisions altering the effect of § 1141(b) & (c).
Nothing in the Code provides that the postconfirmation conversion of a Chapter 11 case to Chapter 7 alters the effect of § 1141(b) & (c). Section 348(a) states, "Conversion of a case . . . constitutes an order for relief under the chapter to which the case is converted, but . . . does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief." 11 U.S.C. § 348(a). Section 348 provides that the date of the original Chapter 11 filing serves as the commencement date for the Chapter 7 case. Under § 541 all of a debtor's legal and equitable interests are property of the estate. However, under § 1141(b) all property of the estate vests with the debtor upon confirmation of the plan. Accordingly, no provision of the Bankruptcy Code provides for the...
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