In re Walker
| Decision Date | 06 June 1996 |
| Docket Number | Bankruptcy No. 92-22733. |
| Citation | 198 BR 476 |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re Robert H. WALKER. |
Frank J. Santoro, Portsmouth, VA, for Debtor.
Patrick L. Hayden, Norfolk, VA, for Nations Bank, N.A.
This matter is before the Court on the motion of NationsBank to reopen the bankruptcy case of Robert H. Walker pursuant to 11 U.S.C. § 350(b). After the parties presented oral arguments at a hearing held on April 23, 1996, the Court took the matter under advisement. For the reasons expressed herein, the Motion to Reopen is denied.
Robert H. Walker ("debtor") filed a voluntary petition under Chapter 11 on May 5, 1992. An Amended Plan of Reorganization was confirmed by this Court and the Order was entered on April 21, 1993. The Plan was substantially consummated and the case was closed pursuant to an Order entered on October 3, 1995.
A Motion for Judgement was filed in the Norfolk Circuit Court on June 2, 1995 by Walker and Walker, a Virginia general partnership (the "Walker Partnership"), Walker and Laberge, Inc., Robert K. Walker, Robert H. Walker, and Melissa A. Walker.1 This suit seeks damages in the amount of $10,000,000.00 against NationsBank, N.A. (formerly known as Sovran Bank, N.A.) based on what is essentially a lender liability theory. The events underlying the suit took place in 1989 and 1990 and involved a commitment letter issued by Sovran Bank to the Walker Partnership. The loan was never consummated and it is on that basis that the state court plaintiffs seek damages.2 NationsBank was not served with this suit until February 22, 1996, well after the bankruptcy case of Robert H. Walker was closed. It has been represented to the Court that steps have been taken by counsel for the state court plaintiffs to dismiss with prejudice Robert H. Walker as a party to the suit.3 NationsBank wishes the Bankruptcy Court to hear the lender liability action as it filed a Notice of Removal simultaneously with the filing of its Motion to Reopen.
This case has come to the Court in an unusual procedural posture and the Court has been able to locate only sparse authority that is on point. The only matter before the Court is the Motion to Reopen. Whether or not removal jurisdiction exists is not technically before the Court. Likewise, the Court does not feel that it is appropriate to render an opinion on the theories of res judicata, waiver, and estoppel that NationsBank asserts are applicable to this case. Nonetheless, all of these issues have been asserted in one fashion or another and impact to a certain degree upon the decision whether or not to reopen this bankruptcy proceeding and the Court will therefore take up these issues to the extent necessary.
The decision whether or not to reopen a case is within the discretion of the Court which must look at the circumstances of the individual case.4 Thompson v. Virginia (In re Thompson), 16 F.3d 576, 581-582 (4th Cir.1994), cert. denied, ___ U.S. ___, 114 S.Ct. 2709, 129 L.Ed.2d 836 (1994); Hawkins v. Landmark Finance Co. (In re Hawkins), 727 F.2d 324, 326 (4th Cir.1984). NationsBank argues that the case must be reopened in order to administer an asset of the estate, i.e. the cause of action. It is also argued that cause exists to reopen the case because this asset was not disclosed either on the debtor's bankruptcy schedules or in the plan of reorganization and that the bankruptcy court retains jurisdiction over this matter by virtue of language in the confirmation order.
In a recent case from this district, Judge Tice stated that "the court should not reopen a bankruptcy case where it appears that to do so would be futile and a waste of judicial resources". In re Carberry, 186 B.R. 401, 402 (Bankr.E.D.Va.1995) (). In this case, the chance of substantial recovery to the estate is remote and no clear benefit to creditors has been shown. In re Borer, 73 B.R. 29, 31 (Bankr.N.D.Ohio 1987). It has been represented to the Court by counsel for the debtor that the partnership is subject to judgements totaling approximately $2,800,000.00.5 Therefore, the Court assumes for purposes of this decision that in the state court litigation the partnership would have to recover in excess of $2,800,000.00 in order for the debtor to be entitled to any funds by virtue of his partnership interest.
Citizens Bank & Trust Co. v. Case (In re Case), 937 F.2d 1014 (5th Cir.1991) is instructive on when a Motion to Reopen would be appropriate in order to address post-confirmation lender liability litigation. In Case, the debtor settled a claim with Citizen's Bank by executing a promissory note in its favor. The bankruptcy court approved the execution of the note which was provided for in the plan of reorganization. After the plan was consummated and the case closed, the debtor defaulted on the note and the bank brought suit in state court. The debtor answered that the bank had fraudulently induced him to make the settlement by oral promises that he could satisfy the note by providing services to the bank and he also made a counterclaim alleging breach of contract. Id. at 1017. The bank then sought to reopen the bankruptcy case and also moved for a declaratory judgement seeking an injunction against the counterclaim in state court. Id. at 1017. The Fifth Circuit found that the bankruptcy court did not abuse its discretion in reopening the case. Id. at 1018-1019. Reopening the case was found to be proper because the state court suit challenged an integral part of the plan of reorganization and it was necessary to reopen the case in order to determine if the provisions of the promissory note and plan needed to be altered. Id. at 1018.
Our review of the plan indicates that the state court cause of action does not challenge a portion of the confirmed plan. This is not a situation where the cause of action involves an obligation to the bank that was dealt with in the plan. Therefore, the plan is not being collaterally attacked and the integrity of the confirmation process is not being compromised. Not only does the lawsuit deal with a proposed loan to the Walker Partnership, not the debtor, but it is also a loan that was never actually made. Some of the unsecured debt to NationsBank that is dealt with in the plan appears to have been obligations incurred by the debtor as a result of his guaranteeing loans made to the Walker Partnership. Because the state court litigation does not relate to an obligation to NationsBank that was actually incurred, the lawsuit certainly does not affect the terms of the plan. The only conceivable way in which the terms of the plan could be affected would be if the state court suit results in a sufficiently large judgement against NationsBank with the result that Robert H. Walker personally realized a sum of money which then in turn might increase the distribution to his unsecured creditors.
Much of NationsBank argument focused on the fact that the cause of action was not disclosed by the debtor. The failure of the debtor to disclose the potential cause of action in his bankruptcy schedules, disclosure statement or plan of reorganization does not carry dispositive weight under the facts of this particular case. Adequate information for purposes of 11 U.S.C. § 1125 is to be determined by the facts and circumstances of each case. Oneida Motor Freight, Inc. v. United Jersey Bank (In re Oneida Motor Freight, Inc.), 848 F.2d 414, 417 (3rd Cir. 1988) cert. denied 488 U.S. 967, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988) (citing H.R.Rep. No. 595, 95th Cong., 2nd Sess. 266 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 6225). A debtor cannot be expected to unerringly predict the future, but rather must provide information on all factors known to him at the time that bear upon the success or failure of the proposals set forth in the plan. In re Ligon, 50 B.R. 127, 130 (Bankr.M.D.Tenn. 1985) (citation omitted). The facts before the Court are that the cause of action was not the debtor's, rather it was that of the Walker Partnership. The debtor was to have been a guarantor on the proposed loan and was a general partner of the Walker Partnership, but that still does not make it his cause of action to assert. It is also important to note that the debtor is being dismissed as a party to the state court action. In reviewing the relevant pleadings, financial loss to Robert H. Walker is alleged but there is no allegation that the failure of the bank to make the loan to the Walker Partnership somehow drove the debtor into bankruptcy.6 The debtor's interest in the partnership was fully disclosed in the schedules and plan of reorganization and we hold that the debtor was under no duty in the case sub judice to disclose this potential cause of action against NationsBank.7
The practical effect of a recovery by the Walker Partnership against NationsBank would not be restitution by the bank of the amount realized on its bankruptcy claim and the present lawsuit does not call into question the validity the bank's right to collect any amounts owed to it and dealt with in Robert H. Walker's confirmed plan. See In re Oneida Motor Freight, Inc., 848 F.2d at 418. Therefore, no facts relied upon by the creditors in confirming the plan are undercut.
Counsel for NationsBank relies heavily on Eastover Bank For Savings v. Smith (In re Little), 126 B.R. 861 (Bankr.N.D.Miss.1991). In Little, Eastover Bank sought a declaratory judgement concerning the preclusive effect of certain court orders entered during the pendency of the debtors' bankruptcy cases and also sought to enjoin a state court suit commenced by the debtors against the bank after a final decree had been entered closing the bankruptcy...
To continue reading
Request your trial