In re Wrenn Ins. Agency of Missouri, Inc., Bankruptcy No. 92-40633-2-11.
| Decision Date | 07 March 1995 |
| Docket Number | Bankruptcy No. 92-40633-2-11. |
| Parties | In re WRENN INSURANCE AGENCY OF MISSOURI, INC., Debtor. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri |
Michael Flanigan, for debtor.
Philip Rouse, for Liquidating Agent.
ORDER DENYING MOTION TO AMEND PROOF OF CLAIM FILED BY THE WRENN INSURANCE AGENCY, INC.
This matter is before the Court on the motion filed by The Wrenn Insurance Agency, Inc., d/b/a The Wrenn Insurance Group (Wrenn Agency) to amend its proof of claim and the objection thereto filed by Polsinelli, White, Vardeman & Shalton, P.C., (Polsinelli), bankruptcy counsel for the debtor The Wrenn Insurance Agency of Missouri, Inc., d/b/a John F. O'Reilly Agency (Wrenn of Missouri). For the following reasons, the Court denies the motion to amend.
Wrenn Agency is the sole shareholder of Wrenn of Missouri. On June 27, 1990, Oak Park Bank (Oak Park) loaned Wrenn of Missouri $500,000. Wrenn of Missouri executed a promissory note in favor of Oak Park for $500,000. To secure the loan, Wrenn of Missouri executed a security agreement granting Oak Park a security interest in "all present and future Accounts Receivable, proceeds arising therefrom, contract rights (not to include book of business), however evidenced or acquired, now owned, purchased with loan proceeds and hereafter acquired, and all additions and accessions thereto." Oak Park properly perfected its security interest pursuant to Mo.Rev.Stat. § 400.9-401(1)(c) (1994) by filing a UCC-1 with the Missouri secretary of state on July 26, 1990, and by filing a UCC-1 in the office of the recorder of Jackson County, Missouri on July 24, 1990. On June 27, 1990, Wrenn Agency executed a Continuing Contract of Guaranty in which it guaranteed payment of this $500,000 loan.
On February 21, 1992, Globe Indemnity Company (Globe) delivered a written notice to Wrenn of Missouri in which it stated that it was terminating its agency agreement. After learning of the termination of the agency agreement, on or about February 21, 1992, Oak Park setoff all of Wrenn of Missouri's bank accounts and the bank accounts of Wrenn Agency in satisfaction of the outstanding indebtedness owing by both companies to Oak Park. This included funds setoff from Wrenn Agency's bank accounts that were used to satisfy the $500,000 loan that Oak Park had made to Wrenn of Missouri which Wrenn Agency had guaranteed.
On February 26, 1992, Wrenn of Missouri filed a voluntary petition under Chapter 11 of the Bankruptcy Code. The Court ordered creditors to file proofs of claim by June 5, 1992. Wrenn Agency properly filed a notice of extension of time in which to file a claim against Wrenn of Missouri pursuant to Local Bankruptcy Rule 3.002, then subsequently filed its proof of claim on July 17, 1992. Wrenn Agency asserted an unsecured nonpriority claim in the amount of $696,196.94 based partly upon services performed and partly upon Oak Park's offset of an estimated amount of $437,669 from its bank accounts to satisfy the obligations of Wrenn of Missouri. Wrenn Agency stated that the calculations were only estimates and that it was reserving the right to amend its claim.
On July 20, 1992, Wrenn of Missouri filed its First Amended Disclosure Statement (Statement) and First Amended Plan of Liquidation (Plan). The Plan established eight classes of creditors to receive distributions under the Plan in the following priority: administrative expense claimants, employee wage claimants, employee benefit claimants, security deposit claimants, tax claimants, unsecured claims of creditors in an amount less than or equal to $500, unsecured claims of creditors in an amount over $500, and interest holders. The Plan made no provision for distribution to secured creditors. The Plan stated that:
The Confirmation Order shall constitute an injunction against the pursuit of any Claim or Interest except as otherwise provided in the Plan, and Holders of Claims and Interests shall be precluded from asserting against the Debtor or the Debtor\'s assets any Claim or Interest based upon any act or omission, transaction or other activity that occurred prior to the Confirmation Date, except as otherwise provided in the Plan.
Under the Plan, Wrenn Agency was treated as an unsecured creditor with a claim over $500. The Plan made no provision for the potential treatment of Wrenn Agency as a secured creditor at any time and specifically did not provide for a distribution to Wrenn Agency as a secured creditor based upon Oak Park's offset of funds from Wrenn Agency's bank accounts pursuant to the loan guaranty. In short, the Plan provided that Wrenn Agency would be treated only as an unsecured creditor and reserved no other rights to Wrenn Agency.
Wrenn Agency voted to accept the Plan. On October 2, 1992, the Court confirmed Wrenn of Missouri's Plan. Wrenn Agency attended the confirmation hearing and did not object to treatment of its claim as unsecured. Wrenn Agency did not appeal the confirmation order.
On March 17, 1994, the Court authorized Wrenn of Missouri to enter into a Mutual Settlement and Release Agreement (Settlement Agreement) with Globe, Oak Park, and Wrenn Agency, among others, to settle pending litigation between the parties. Paragraph 4.02 of the Settlement Agreement states:
Oak Park acknowledges that about $92,000 in funds of Wrenn Agency were used to pay the Wrenn of Missouri Term Note owed by Wrenn of Missouri to Oak Park and guaranteed by Wrenn Agency. Oak Park agrees to execute the documents needed, if any, to allow Wrenn Agency to exercise its subrogation and other rights against the primary obligor of that note including any secured interests. Nothing in this Agreement releases or affects these rights of Wrenn Agency against the primary obligor of that note.
Paragraph 8.09 of the Settlement Agreement provides that "The Wrenns R. Michael Wrenn and Norma Wrenn and Wrenn Agency specifically reserve any and all claims and causes of action they may have against Wrenn of Missouri, including any claims they have as a creditor, shareholder, parent, employee or otherwise, and nothing in this Agreement shall prevent the Wrenns or Wrenn Agency from pursuing such claims." Apparently, the parties did execute the Settlement Agreement, but the exact date is unknown.
On January 10, 1995, Wrenn Agency filed a motion to amend its claim requesting that the Court allow it to reclassify $92,000 of the proof of claim that it filed on July 17, 1992, from an unsecured nonpriority claim to a secured priority claim. The proposed proof of claim further provides that the unsecured nonpriority claim would be reduced to $258,627.94 for a total claim of $350,627.94.
In support of its motion, Wrenn Agency contends that the $437,669 figure in the original proof of claim was only an estimate of the funds used by Oak Park to satisfy the obligations of Wrenn of Missouri and that the $92,000 figure "can now be identified specifically and supported as a secured claim due to the provisions of the Settlement Agreement." Wrenn Agency argues that when Oak Park used its funds to pay Wrenn of Missouri's obligations pursuant to the guaranty it became subrogated to the collection rights of Oak Park, but that right of subrogation was not fully liquidated and determined until the Settlement Agreement was reached between the parties and approved by the Court in March of 1994. Wrenn Agency asserts that the Court has already approved the Settlement Agreement, which included the provision in which Oak Park acknowledged that it used about $92,000 of Wrenn Agency's funds to satisfy Wrenn of Missouri's obligations, therefore, the Court should readily approve the amended proof of claim and reclassify $92,000 as secured in accordance with the Settlement Agreement.
Polsinelli objects to Wrenn Agency's request to amend its proof of claim. As the holder of an allowed administrative expense claim, Polsinelli objects to the request if granting Wrenn Agency a secured claim would entitle it to priority in payment over Polsinelli's allowed administrative expense. Polsinelli further requests that the Court require Wrenn Agency, an insider pursuant to 11 U.S.C. § 101(31), to provide strict proof of its alleged secured claim and also consider whether the insider claim should be subordinated under 11 U.S.C. § 510. Additionally, Polsinelli contends that Wrenn Agency's request for relief is barred by the doctrine of res judicata as the confirmed Plan is binding upon Wrenn Agency pursuant to 11 U.S.C. § 1141(a).
According to a report filed by Wrenn of Missouri's liquidating agent on December 30, 1994, the employee wage claims and the employee benefit claims have been paid in full. Approximately $47,460 in administrative expense claims remain to be paid. No distributions have been made to the tax claimants or to the small claims unsecured creditors. Tax claims in the approximate amount of $154,740 and unsecured small claims in the approximate amount of $4355 remain to be paid. No distributions have been made to the remaining class of unsecured claimants or to the interest holder.
At the hearing held on January 30, 1995, Wrenn Agency consented to the subordination of its secured claim to the claims of the administrative expense claimants if the Court allows it to amend its claim. Pursuant to the Court's instructions, after the hearing Wrenn Agency submitted supplemental exhibits which establish that Oak Park had a perfected security interest in collateral of Wrenn of Missouri that secured the $500,000 loan guaranteed by Wrenn Agency.
The Court denies Wrenn Agency's motion to amend its proof of claim for three reasons. First, the terms of the confirmed Plan bind Wrenn Agency to distribution under the Plan as an unsecured nonpriority creditor. Second, the amendment improperly sets forth a new claim. Finally, the amendment would not be equitable under the circumstances of this case.
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