In re Yahweh Ctr., Inc., CASE NO. 16-04306-5-JNC

Decision Date04 May 2018
Docket NumberCASE NO. 16-04306-5-JNC
CourtU.S. Bankruptcy Court — Eastern District of North Carolina
PartiesIN RE: YAHWEH CENTER, INC. DEBTOR

CHAPTER 11

MEMORANDUM OPINION

Pending before the court is the Amended Motion to Modify Confirmed Chapter 11 Plan, or in the Alternative Motion to Interpret Confirmed Plan filed by the Plan Trustee on March 9, 2018 (D.E. 422; the "Motion"), and the objection thereto filed by Carla J. Roberts on April 6, 2018 (D.E. 431; the "Objection"). A hearing on the Motion and Objection was held in Greenville, North Carolina on April 11, 2018. Based on the facts in the record, the positions taken by the parties in their papers, and the arguments presented at the hearing, the court makes the findings of fact and conclusions of law appearing below.

JURISDICTION

This court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157 and 1334, and the General Order of Reference entered August 3, 1984 by the United States District Court for the Eastern District of North Carolina. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A) and (O), which this court has the jurisdiction to hear and determine. See also In re Circuit City Stores, Inc., 557 B.R. 443, 448 (Bankr. E.D. Va. 2016) (quoting In re Lyondell Chem. Co., 445 B.R. 277, 287 (Bankr. S.D.N.Y. 2011)) ("A bankruptcy court retains core jurisdiction to interpret and enforce its own prior orders, including and especially confirmation orders.").

BACKGROUND

Yahweh Center, Inc. (the "Debtor") filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on August 17, 2016 (the "Petition Date"). The Debtor is a charitable non-profit corporation formed and existing under the laws of the State of North Carolina that until shortly before the Petition Date was engaged in "residential treatment and placement services for at-risk, traumatized, suicidal, behaviorally explosive, abused, and/or neglected children ranging in age from five (5) to twelve (12) years old and younger, across eastern North Carolina." Disclosure Statement, D.E. 250 at 5. Ms. Roberts was the Executive Director of the Debtor on the Petition Date. The Debtor filed a chapter 11 plan that was confirmed by order dated May 26, 2017. Order Confirming Plan of Reorganization (D.E. 303; the "Confirmation Order"). The chapter 11 plan confirmed as amended was attached to the Confirmation Order as Exhibit A at pages 4-39 (the "Plan").

The Plan provided for the liquidation of all assets of the Debtor and the appointment of a Plan Trustee, Mr. Richard P. Cook. Among the Plan Trustee's tasked duties was the investigation of actions taken by the Debtor's management prior to the filing of the Debtor's petition, and if warranted the filing of any existing causes of action on behalf of the bankruptcy estate. D.E. 303 at 22-23. These causes of action were divided under the Plan between "Bankruptcy Causes of Action," which were defined as causes of action brought pursuant to chapter 5 of the Bankruptcy Code, and the more general "Causes of Action," which were defined in the broader sense as anyviable cause of action arising under any body of law. Thus, the Plan designated Bankruptcy Causes of Action as a specific and narrow subset of Causes of Action. See D.E. 303 at 6-7.

The Plan contemplated the Plan Trustee bringing Causes of Action on behalf of the estate after confirmation, on a contingent-fee basis. Any recovered proceeds would be applied first to the Plan Trustee contingency fee, next to unpaid approved Class 1 administrative claims, and then to the Class 3 wage priority claims of former employees of the Debtor other than Mrs. Roberts for unpaid prepetition wages entitled to priority under 11 U.S.C. § 507(a)(4). If the priority wage Class 3 claims were paid in full, any remaining proceeds would be split evenly between priority tax claimants in Class 4 and any remaining nonpriority wage claims in Class 3. In the event proceeds still remained, the balance would be distributed pro-rata to the general unsecured creditors in Class 9. In the event that all claims in Classes 1, 3, 4, and 9 were paid in full, any excess proceeds would be distributed to the claims of Ms. Roberts, whose voluntarily-subordinated claims were designated Class 10 in the Plan. At issue in the present dispute is the interpretation of language contained in decretal paragraph 3 of the Confirmation Order,1 which provides as follows:

3. Any party with standing wishing to assert an objection to claim, file an adversary proceeding to assert a Bankruptcy Cause of Action, or assert any other adversary proceeding or claim against or on behalf of the Estate shall have 180 days from the Effective Date to file such objection, adversary proceeding, or assert such claim. The Plan Trustee or other party in interest may move to extend this deadline for good cause shown. Notwithstanding the foregoing, any party with standing wishing to assert an adversary proceeding or objection to claim against any Class 3 Claimants included in the Class Wage Claim shall have 30 days from the Effective Date to file such objection or adversary proceeding. Confirmation of the Plan does not preclude the filing of any objection to claim, or adversary proceeding by a party with standing, provided that such objection and/or adversary proceeding is timely filed.

D.E. 303 at 2, ¶ 3 (emphases added).

PROCEDURAL HISTORY

The Plan Trustee filed a Motion to Extend Time to File Adversary Proceedings on December 14, 2017 (D.E. 399), asserting that the deadline to file Causes of Action set forth in Paragraph 3 (the "AP Deadline") had not yet then expired, and thus his motion to extend time could be considered under Rule 9006 as being made "before the expiration of the period originally prescribed . . . ." Fed. R. Bankr. P. 9006(b)(1). Ms. Roberts filed an objection to that motion on December 19, 2017 (D.E. 401) contending that it was filed after the AP Deadline had expired and was only allowable if, in addition to good cause shown, the Plan Trustee could demonstrate that his "failure to act was the result of excusable neglect." Fed. R. Bankr. P. 9006(b)(1).

In an Order dated January 11, 2018 (D.E. 407; the "Prior Order"), the court denied the motion to extend time, finding that the Effective Date of the Plan was at the latest June 12, 2017, thereby making December 11, 2017 the date "180 days from the Effective Date." See D.E. 303 at 2 & 25; D.E. 407 at 4 ("[T]he last possible date on which to file adversary proceedings was December 11, 2017.") Because the Plan Trustee's motion to extend the AP Deadline was filed outside of this time period, the court determined that the Plan Trustee was required to demonstrate excusable neglect to warrant an extension. Fed. R. Bankr. P. 9006(a)(1). The Plan Trustee was not able to demonstrate excusable neglect, and the court accordingly denied the motion to extend.

POSITIONS OF THE PARTIES

After denial of the motion to extend time, the Plan Trustee filed a motion to modify the confirmed Plan,2 seeking to establish a new AP Deadline by modifying Paragraph 3 as follows:

Any party with standing, including the Plan Trustee, wishing to: assert an objection to claim, file an adversary proceeding to assert a 'Cause of Action' (asdefined by the Plan) that accrued prior to the Petition Date, or file an action before any tribunal to assert a 'Cause of Action' (as defined by the Plan) that accrued prior to the Petition Date, shall have two years from the Petition Date, or August 17, 2018, to file such objection, adversary proceeding, or action. The deadline for filing a 'Cause of Action' (as defined by the Plan) that accrued after the Petition Date shall be governed by its respective statute of limitations and is not subject to the August 17, 2018 deadline. These deadlines are intended to more closely reflect the language of 11 U.S.C. §§ 108(a), and 546(a)(1)(A) and create a two-year deadline from the Petition Date for filing pre-petition Causes of Action, and also causes of action arising under Chapter 5 of the Bankruptcy Code. Pursuant to Fed. R. Bankr. P. 6009, the Plan Trustee may prosecute any and all Causes of Action held by the Bankruptcy Estate before any tribunal.

D.E. 422, at 4, ¶ 8 (the "Proposed Modification"). Alternatively, the Motion seeks to have the court further interpret and construe the existing Paragraph 3 language "to permit the Plan Trustee to prosecute causes of action arising under non-bankruptcy federal or state law in non-bankruptcy court until such time as the applicable statute of limitations expires because the 180 day provision in the Plan does not apply to such actions." Id. at 8, ¶ 21.

Ms. Roberts objected to the relief sought by the Plan Trustee, advancing six discrete arguments in support of her position:

(1) The Plan Trustee lacks standing to pursue modification of the plan;
(2) The doctrine of res judicata bars the relief requested in the Motion because it was adjudicated in the Prior Order;
(3) Circumstances do not warrant modification of the plan;
(4) The plan has already been substantially consummated, thereby precluding modification;
(5) The plan would not be confirmable with the Proposed Modification under § 1129(b); and
(6) There has been an inadequate disclosure of information about the Proposed Modification, thereby failing to satisfy § 1125.

D.E. 431 at 3-4. In addition to presenting arguments on these points at the hearing on the Motion and Objection, counsel for both parties, as well as the Bankruptcy Administrator (the "BA"), proposed various interpretations of the language in the AP Deadline in response to the Plan Trustee's request for judicial construction of that provision.

DISCUSSION

Two discrete legal issues are presented: first, the court must determine whether the Plan Trustee may bring Causes of Action after the expiration of the AP Deadline, and if not, whether modification of the plan is possible and appropriate...

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