In re USH Corp. of New York
| Decision Date | 12 August 1998 |
| Docket Number | Adversary No. 98-8552A.,Bankruptcy No. 91 B 11625(BRL) |
| Citation | 223 BR 654 |
| Parties | In re U.S.H. CORPORATION OF NEW YORK, et al., Debtors. Philip and Helen GRANT, et al., Plaintiffs, v. U.S. HOME CORPORATION, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
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Kaye, Scholer, Fierman, Hays & Handler, New York City, for Brigadier Homes, Inc.
Andrew A. Kress, Kaye, Scholer, Fierman, Hays & Handler, New York City, for Meadowbrook Development Corporation.
Bruce Freeman, Westfield, NJ, for U.S.H. Corporation of New York.
U.S. Home Corporation ("US Home"), moves to dismiss the complaint filed by a group of homeowners (the "Plaintiffs") which seeks an order (a) determining that the Plaintiffs are not bound by this Court's order confirming U.S. Home's plan of reorganization and (b) permitting Plaintiffs to pursue prepetition claims against U.S. Home.
On April 15, 1991, U.S. Home, together with certain affiliated entities (collectively, the "Debtors"), filed petitions under chapter 11. In the course of the Debtors' chapter 11 proceedings, by order dated October 22, 1991 (the "Bar Order"), this court fixed December 23, 1991 (the "Bar Date") as the last date by which all claims (with certain exceptions not relevant here) against the Debtors were to be filed. By order dated May 24, 1993 (the "Confirmation Order") the Debtors' reorganization plan was confirmed.
The Debtors are primarily builders of single family homes doing business in eleven states. From 1989 through 1991, U.S. Home developed and built, among other things, numerous townhomes in Country Place subdivision ("Country Place") in Brazoria County, Texas which is in proximity to the Gulf of Mexico. The Plaintiffs are homeowners who reside in Country Place.
In June of 1995, the Country Place townhome owners association (the "Association") attempted to buy windstorm insurance to cover their homes in Country Place because the insurance company which had previously provided its insurance policy had withdrawn from the Texas market. In the course of seeking to purchase such insurance with another company, the Association allegedly was required to produce certificates verifying that the buildings were in compliance with the building code requirements of the Texas Catastrophe Property Insurance Association ("CAT-POOL"). CAT-POOL was formed by a group of insurance companies along with the Texas State Board of Insurance because of the catastrophic, hurricane-related losses which have occurred along the Texas Gulf Coast. According to the Plaintiffs, the purpose of CAT-POOL was to insure that homes built in counties immediately bordering the Gulf of Mexico would be built in such a manner as to reasonably withstand hurricane-force winds and thus, be insurable, at a reasonable rate, against the risk of hurricanes and windstorms.
The Association hired a structural engineer, Howard Pieper, to conduct an inspection of the property in order to obtain the required certification. He subsequently determined that the homes were not built to CAT-POOL standards. According to an affidavit of Mr. Pieper, he had previously been hired by U.S. Home in March of 1991 to assure and certify that a home being built in the Country Place subdivision met the CAT-POOL standards. Mr. Pieper states that he did not find the construction met those standards and in April 1991, informed U.S. Home of the requirements necessary to meet such standards. In May 1991, Mr. Pieper also "prepared a simplified document for use by U.S. Home and its subcontractors." See Pieper Aff.
On August 1996, Plaintiffs sent demand letters to U.S. Home apparently in accordance with the Texas Deceptive Trade Practices Act. U.S. Home responded that the Confirmation Order permanently enjoined litigation against U.S. Home based on prepetition claims. Plaintiffs then commenced this action seeking an order determining that they are not bound by the Confirmation Order because they were not given formal notice of the bankruptcy proceeding.
In moving to dismiss the complaint, U.S. Home argues, first, that the CAT-POOL guidelines are voluntary and, therefore, the Plaintiffs have failed to state a claim upon which relief may be granted. Second, U.S. Home argues, as unknown creditors who received constructive notice by publication of the bankruptcy proceeding, the Plaintiffs' claims are barred by the discharge provisions contained in the Confirmation Order, Plan and section 1141(d) of the Bankruptcy Code. It is undisputed that the claims at issue arose prior to confirmation of the Plan. All of the homes were built and sold by U.S. Home prior to the effective date of the Plan.
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure (), all factual allegations must be taken as true and construed favorably to the plaintiff. See Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996). A motion to dismiss for failure to state a claim can be granted only where it appears certain that no set of facts could be proven at trial which could entitle plaintiff to relief. See Conley, 355 U.S. at 45-46, 78 S.Ct. 99; see also Northrop v. Hoffman of Simsbury, Inc., 134 F.3d 41, 44 (2d Cir.1997).
The court's function on a Rule 12(b)(6) motion is "not to weigh the evidence that might be presented at a trial, but merely to determine whether the complaint itself is legally sufficient." Goldman, 754 F.2d at 1067. In light of this standard, the court "should not be swayed into granting the motion because the possibility of ultimate recovery is remote." Kopec v. Coughlin, 922 F.2d 152, 155 (2d Cir.1991) (quoting Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, 748 F.2d 774, 779 (2d Cir.1984)); see also Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir.1995).
Ordinarily, an order confirming a reorganization plan operates to discharge all unsecured debts and liabilities, even those of tort victims who were unaware of the debtor's bankruptcy. See 11 U.S.C. §§ 1141 and 524 (1998); Brown v. Seaman Furniture Co., Inc., 171 B.R. 26, 27 (E.D.Pa.1994). Section 524(a) of the Bankruptcy Code provides that:
A discharge in a case under this title operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.
11 U.S.C. § 524(a)(2) (1994). In order to enforce the discharge injunction, a debtor must show that the debt was discharged under section 1141 of the Bankruptcy Code, which states:
Except as otherwise provided in this subsection, in the plan, or in the order confirming the plan, the confirmation of a plan discharges the debtor from any debt that arose before the date of such confirmation, . . . whether or not (i) a proof of the claim based on such debt is filed or deemed filed under 501 of this title; (ii) such claim allowed under section 502 of this title; (iii) or the holder of such claim has accepted the plan.
11 U.S.C. § 1141(d)(1). Once confirmed, the plan binds the debtor and all creditors, whether or not a creditor has accepted the plan. See 11 U.S.C. § 1141(a).
Discharge under the Bankruptcy Code, however, presumes that all creditors bound by the plan have been given notice sufficient to satisfy due process. See In re First Am. Health Care of Georgia, 220 B.R. 720, 723 (Bankr.S.D.Ga.1998). Whether a creditor received adequate notice depends on the facts and circumstances of each case. See In re Eagle Bus Mfg., Inc., 62 F.3d 730, 735 (5th Cir.1995). Due process is met if notice is "reasonably calculated to reach all interested parties, reasonably conveys all of the required information, and permits a reasonable amount of time for response." Mullane v. Central Hanover Bank, 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950); First Am. Health Care of Georgia, 220 B.R. at 724. In Mullane, the Supreme Court held that "an elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane, 339 U.S. at 313-14, 70 S.Ct. 652. Thus, if a creditor is not given reasonable notice of the bankruptcy proceeding and the relevant bar dates, its claim cannot be constitutionally discharged. See In re Longardner and Assocs., Inc., 855 F.2d 455, 465 (7th Cir.1988). What constitutes "reasonable notice," however, varies according to the knowledge of the parties.
When a creditor is unknown to the debtor, publication notice of the claims bar date may satisfy the requirements of due process. See Mullane, 339 U.S. at 317-18, 70 S.Ct. 652. However, if a creditor is known to the debtor, notice by publication is not constitutionally reasonable, and actual notice of the relevant bar dates must be afforded to the creditor. See City of New York v. New York N.H. & H.R. Co., 344 U.S. 293, 296, 73 S.Ct. 299, 97 L.Ed. 333 (1953). The term "creditor" in bankruptcy law is sufficiently broad to include a potential creditor. See In re Chicago, Rock Island & Pacific Railroad Co., 788 F.2d 1280, 1283 (7th Cir. 1986); In re S.N.A. Nut Co., 198 B.R. 541, 543 (Bankr.N.D.Ill.1996). Here, the central issue is whether the Plaintiffs were "known" or "unknown" claimants at the time of the Bar Order. As noted above, actual notice is necessary only as to known creditors while constructive notice is sufficient for unknown creditors. See New York, ...
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