In re White Motor Credit Corp., Bankruptcy No. B80-03360

• Decision Date: 22 July 1987
• Docket Number: B80-03362,Adv. No. B87-0081.,B80-03361,B80-03364,B80-03365,Bankruptcy No. B80-03360
• Citation: 75 BR 944
• Parties: In re the WHITE MOTOR CREDIT CORP., et al., Debtors. VOLVO WHITE TRUCK CORPORATION, Plaintiff, v. CHAMBERSBURG BEVERAGE, INC., et al., Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

75 B.R. 944 (1987)

In re the WHITE MOTOR CREDIT CORP., et al., DebtorsVOLVO WHITE TRUCK CORPORATION, Plaintiff, v.CHAMBERSBURG BEVERAGE, INC., et al., Defendants.

Bankruptcy Nos. B80-03360, B80-03361, B80-03362, B80-03364, B80-03365, Adv. No. B87-0081.

United States Bankruptcy Court, N.D. Ohio, E.D.

July 22, 1987.

COPYRIGHT MATERIAL OMITTED

Edward R. Brown, Arter & Hadden, Cleveland, Ohio, for plaintiff.

G. Christopher Meyer, John C. Parks, E. Thomas Moroney, Jr., Squire, Sanders & Dempsey, Cleveland, Ohio, for Grigsby.

Brian A. Bash, Kahn, Kleinman, Yanowitz & Arnson, Co., L.P.A., Cleveland, Ohio, for Chambersburg, Gillespies & C. Earl Brown.

John T. Grigsby, Jr., Boca Raton, Fla., Disposition Assets Trustee.

James Thomas, II, Thomas & Thomas, James Nealon, II, James Goldsmith, Caldwell, Clouser & Krearns, Harrisburg, Pa., for defendants.

MEMORANDUM OF DECISION

WILLIAM J. O'NEILL, Bankruptcy Judge.

Before the court is the complaint of Volvo White Truck Corporation for declaratory and injunctive relief.DefendantsChambersburg Beverage, Inc., Steven M. and Bobbie H. Gillespie, and C. Earl Brown, Inc. filed motions to dismiss.John T. Grigsby, Jr., Disposition Assets Trustee of the White Motor Reorganization Trust, intervened as a party-defendant.Due to prompt scheduling of this matter, the parties agreed that Volvo's motion for preliminary relief is unnecessary.

On August 20, 1981, this Court entered an order authorizing sale of White Motor assets to Volvo.Defendants subsequently filed actions in state court alleging Volvo's successor liability.At issue, therefore, is the intent of the order of sale and its effect on the state court actions.Relevant facts are as follows:

The two cases in question were filed on August 22, 1983, and are currently pending in Pennsylvania State Court.They allege that Volvo is successor in liability to the reorganized debtor, White Motor Corp.These suits arise from an accident on September 3, 1981, in which Steven Gillespie, a Chambersburg employee, was injured while driving a truck manufactured by White Motor.Gillespies seek judgment of $15,671.50 in special damages and in excess of $10,000.00 in other damages and costs against White Motor, Volvo and Brown.Chambersburg sued White Motor, Volvo and Brown to recover $26,000.00 for property loss, $236,431.34 in indemnity and contribution, plus punitive damages in excess of $10,000.00.Brown, a White Motor distributor, filed cross-claims against Volvo for indemnity in both actions.

On September 4, 1980, White Motor filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code.On June 9, 1981, during the reorganization proceedings, A.B. Volvo, Volvo's parent corporation, agreed to purchase substantially all of White Motor's remaining truck business assets.By memorandum order of August 13, 1981, the Court determined the sale was appropriate outside the context of a plan of reorganization.The August 20, 1981 order approved the purchase agreement "in all respects".

Orders were entered giving notice of the hearing to approve the purchase agreement.By order of July 27, 1981, known claimants, shareholders, debenture holders and persons requesting notice were mailed notice of the hearing.Additionally, copies of the notice were published in "The Wall Street Journal"(national edition) and in "The New York Times".Defendants received no actual notice of the hearing since the accident from which their actions arose had not yet occurred and Defendants were unknown.

The purchase agreement involved the sale of truck assets, and by its terms, Volvo assumed specific obligations.The agreement provided, however, that "Volvo will not under any circumstances assume any liabilities of White (i) for personal injury or property damage because of alleged negligence or breach of warranty or under any other theory of product liability or (ii) to pay damages (other than the purchase price of goods or services provided to White) by reason of any breach of any obligations or any other acts or omissions of White."Purchase Agreement, Article II, Section 2.02.Despite this provision, thirty-five lawsuits were filed against Volvo in nineteen states, twenty of which are still pending.These suits allege successor liability resulting from Volvo's purchase of the White Motor truck assets.

The purchase price of the truck assets was based on book value to be reflected in a closing date statement, less adjustments for assumed liabilities and start-up costs.The closing statement was never prepared, however, and a supplemental agreement of June 15, 1983 was negotiated instead.This agreement provides, inter alia, for Volvo's delivering a Product Liability Indemnification Agreement whereby Volvo assumed White's product liability for accidents occurring May 1, 1983 through December 31, 1992, involving vehicles assembled prior to September 1, 1981.The supplemental agreement was approved by court order of June 29, 1983.

White Motor's modified plan of reorganization was confirmed on November 18, 1983.Through its terms, the Disposition Assets Trust was created to effect plan distributions.By order of August 1, 1983, this Court scheduled hearing for approval of the disclosure statement and fixed August 30, 1983 as the last day to file any and all claims against White Motor which had not been previously barred.Having received this notice, on August 25, 1983 Chambersburg and Gillespie filed claims for amounts requested in their state court actions.If liability is established in the state proceedings, these claims will be paid under the plan.On confirmation, White Motor was discharged "from any debt that arose before the confirmation date . . ."Plan of Reorganization, Article VI, Section 6.1.

I.JURISDICTION

Volvo seeks determination that the order approving the purchase agreement transferred assets free and clear of Defendants' claims asserted in state court.Injunctive relief is also sought.Defendants seek dismissal of Volvo's complaint based on lack of subject matter jurisdiction.Alternatively, abstention is requested.

This Court is empowered to "issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title".11 U.S.C. § 105(a).Included, is authority to interpret and clarify prior orders."That a federal court of equity has jurisdiction of a bill ancillary to an original case or proceeding in the same court, whether at law or in equity, to secure or preserve the fruits and advantages of a judgment or decree rendered therein, is well settled."Local Loan Co. v. Hunt,292 U.S. 234, 239, 54 S.Ct. 695, 697, 78 L.Ed. 1230(1934).This ancillary jurisdiction to interpret and enforce prior orders includes purchasers' actions for declaratory and injunctive relief to enforce orders of sale.Whitehead and Kales Co. v. Dempster,(In re Wiltse Bros. Corp.), 361 F.2d 295(6th Cir.1966).This Court's jurisdiction to approve the purchase agreement is undisputed.Therefore, the Court has jurisdiction over this ancillary adversary proceeding seeking effectuation of that order.Moreover, jurisdiction may be exercised irrespective of an independent jurisdictional basis.Local Loan.As a proceeding ancillary to an order of sale, defined as a core proceeding under Section 157(b)(2)(N) of Title 28, the proceeding at bar is within the court's core jurisdiction.Canadian Shield Financial Corp. v. Estate of Deutscher,(In re Vincent), 68 B.R. 865(Bankr.M.D. Tenn.1987).

The interests of justice and comity favor resolution of the within cause by this Court.This determination, hopefully, will avoid duplicative litigation in various forums and should avoid inconsistent rulings.Abstention under Section 1334(c)(1) of Title 28 is, therefore, inappropriate.Citibank, N.A. v. White Motor Corp.,761 F.2d 270(6th Cir.1985).

II.SALES FREE AND CLEAR

The court's authority to sell free and clear of Defendants' claims, and the effect of the White Motor sale are in dispute.A summary of the respective arguments may be helpful at this juncture.

Volvo maintains the sale of White's assets was free and clear of Defendants' state court claims because federal bankruptcy law precludes imposition of successor liability on purchasers in bankruptcy sales.Under this theory, the non-existence of Defendants' claims on the date of sale is immaterial.Alternatively, it is argued that as a matter of federal law the claims did in fact exist on the sale date irrespective of their status under state tort law.Although the Trustee is a party-defendant, his arguments interpreting the sale and applicable law support Volvo's.Defendants argue that the court had no authority to sell free and clear of their claims which were not in existence on the sale date.Further, they argue the sale by its terms was not free and clear of their claims for successor liability.

A.LEGAL BASIS

Section 363(f) provides for sales "free and clear of any interest in such property of an entity other than the estate . . ."11 U.S.C. § 363(f).This section authorizes sales free and clear of specific interests in the property being sold; liens, for example.SeeH.Rep. No. 595, 95th Cong., 1st Sess. 345(1977), U.S.CodeCong & Admin.News 1978, p. 5787.General unsecured claimants including tort claimants, have no specific interest in a debtor's property.Therefore, section 363 is inapplicable for sales free and clear of such claims.SeeRubinstein v. Alaska Pacific Consortium(In re New England Fish Co.), 19 B.R. 323(Bankr.W.D.Wash.1982).But seeAmerican Living Systems v. Bonapfel(In re All American of Ashburn Inc.), 56 B.R. 186(Bankr.N.D.Ga.1986).

Absence of specific statutory authority to sell free and clear poses no impediment.This authority is implicit in the court's general equitable powers and in its duty to distribute debtor's assets and determine controversies thereto.Van Huffel v. Harkelrode,284 U.S. 225, 52 S.Ct. 115, 76...