Maya Const. Co., In re

• Decision Date: 05 March 1996
• Docket Number: No. 93-17195,93-17195
• Parties: , Bankr. L. Rep. P 76,835, 96 Cal. Daily Op. Serv. 1468, 96 Daily Journal D.A.R. 2513 In re: MAYA CONSTRUCTION COMPANY, ID # 86-0352941, Debtor. Alan L. LEVIN, Appellant, v. MAYA CONSTRUCTION, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1395

78 F.3d 1395

28 Bankr.Ct.Dec. 926, Bankr. L. Rep. P 76,835,

96 Cal. Daily Op. Serv. 1468,

96 Daily Journal D.A.R. 2513

In re: MAYA CONSTRUCTION COMPANY, ID # 86-0352941, Debtor.

Alan L. LEVIN, Appellant, v. MAYA CONSTRUCTION, Appellee.

No. 93-17195.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 12, 1995.

Decided March 5, 1996.

Joseph H. Watson, Law Office of Joseph H. Watson, Tucson, Arizona, for appellant.

Ralph E. Seefeldt, Seefeldt, Sparks & Neal, Tucson, Arizona, for appellee.

Appeal from the United States District Court for the District of Arizona; John M. Roll, District Judge, Presiding.

Before GOODWIN, POOLE and KLEINFELD, Circuit Judges.

KLEINFELD, Circuit Judge:

This is a chapter 11 bankruptcy case. The debtor did not timely list a creditor known to him, and the reorganization plan was confirmed before the creditor attacked it. The question is whether the creditor is bound by the confirmation of the plan.

FACTS

Mr. Levin and Maya Construction agreed that Maya would place fill dirt excavated elsewhere on Levin's land. The soil, excavated at a local bridge project Maya was working on, turned out to be contaminated with diesel fuel. Mr. Levin's lawyer wrote to Maya in November of 1990 demanding that, pursuant to its contract, Maya defend, indemnify and hold harmless Mr. Levin from all consequences of the contaminated soil, and proceed with an environmental assessment by a qualified person on Mr. Levin's behalf.

Subsequent to the contamination, there were conversations between Mr. Levin and Mr. Ruiz, the president of Maya. There is some ambiguity about exactly what they said to each other concerning the possibility of Mr. Levin suing Maya. Mr. Ruiz said in his affidavit that Mr. Levin told him either that Mr. Levin recognized that he had no claim, or that he preferred to sue a third party and have Maya as an ally instead of an adversary:

In the discussions between [Ruiz] and Levin, Levin indicated to [Ruiz] he had no claim, or was proposing to file no claim against Maya Construction Company but that he did want to obtain from the undersigned its cooperation and assistance in pursuing his claim against the Arizona Department of Transportation.

In Mr. Levin's recollection, he intended not to sue Maya when he thought Maya had been ignorant of the diesel fuel contamination, but changed his mind when he discovered that Maya had known about the contamination:

[Alan Levin says] [t]hat Roberto Ruiz and/or Maya Construction at no time were informed that a claim would not be made, as I discussed the contamination with Roberto Ruiz but at that time had no facts which indicated that Maya Construction Company knew that the soil being placed on my property was contaminated.

. . . . .

That I, Alan Levin, was not aware of any potential liability of Maya Construction with regard to the contaminated soil on my property until after the hearing on confirmation of the Maya Construction Plan of Organization.

Affidavit of Alan Levin, February 8, 1993, at 1, 5.

Although Mr. Levin's and Mr. Ruiz's recollections differ, they agree on what is material to this bankruptcy case: Mr. Ruiz knew that (1) Mr. Levin believed that Mr. Ruiz had put contaminated soil on Mr. Levin's land; (2) Mr. Levin had sent a formal written notice that he had a claim against Maya; (3) Mr. Levin stated orally that he did not intend to pursue the claim against Maya. The possibility that Mr. Levin might sue Maya concerned Mr. Ruiz enough that he hired an attorney to prepare an evaluation of the potential claim. The record does not establish whether Mr. Ruiz retained counsel regarding Mr. Levin's potential claim before or after the conversations in which Mr. Levin, as Mr. Ruiz recollected them, said that Mr. Levin had no claim or was not proposing to file a claim against Maya.

On February 22, 1991, Maya Construction filed for reorganization under Chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 101, et seq. This filing date was about three and one half months after Maya had received Mr. Levin's lawyer's written demand. It was after Maya asked its own attorneys to evaluate Mr. Levin's possible claim against Maya. Mr. Ruiz's declaration does not claim that Mr. Levin had made his statements about not filing a claim prior to the bankruptcy filing. All Mr. Ruiz says is that these conversations were "prior to August 23, 1991, the claim bar date." (emphasis in original).

Maya did not list Mr. Levin as a creditor. In March 1991, Maya filed the "Master Mailing List" required by the bankruptcy court of all creditors. Mr. Levin was not on the list. Maya also left Mr. Levin off the statement of financial affairs and schedule of liabilities it filed in March. The bankruptcy case proceeded without Mr. Levin. In June, Maya filed a plan of reorganization and disclosure statement. In July, Maya sent all creditors, but not Mr. Levin, notice of the hearing on its reorganization plan and bar date for filing claims. The only evidence on the record that Mr. Levin knew Maya was engaged in a bankruptcy proceeding before December is Mr. Ruiz's statement in his affidavit that "prior to August 23, 1991, the claim bar date in the above captioned matter, the undersigned had discussions with Alan L. Levin ("Levin") in which discussions it was evident that Maya Construction Company was a Debtor in a Chapter 11 proceeding." (emphasis in original).

On December 3, 1991, the bankruptcy court approved a final reorganization plan, "subject to everyone signing off on form of order." Mr. Levin still was not in the case, never having been served with any notice.

Mr. Levin's name first appears in the bankruptcy court file December 20, 1991. Maya filed a "Request for Addition to Debtor's Master Mailing Matrix," attaching 70 names in mailing label form. Maya filed an amended schedule of creditors the same day, listing Mr. Levin as having a contingent claim for contaminated soil. On December 26, Maya filed an "Objection To Contingent Claim of Alan L. Levin" and notice of hearing in January, and served the objection and notice on Mr. Levin. Mr. Levin filed a response on January 23, 1992, giving notice of his claim estimated at $500,000 for damage to his property on account of the contaminated soil. At the hearing, the court directed that the claim be designated an adversary proceeding and set it for trial in October. Subsequently it was rescheduled for January of 1993.

Meanwhile, on February 24, 1992, the bankruptcy court entered an order confirming the reorganization plan as anticipated at the December 3 hearing. Mr. Levin's name and address are in the matrix of mailing labels attached to an affidavit signed by Maya's attorney, in which he swears that he sent a notice of the February 24 order to all persons on that list. Mr. Levin and his wife submitted affidavits that they had not received this notice, but the bankruptcy court found that the notice had been mailed to them. Mr. Levin had not, during the approximately two months between his first notice and the court's confirmation of the plan, filed any paper to prevent the confirmation.

A little less than a year later, on January 12, 1993, Mr. Levin filed a motion to obtain a judicial determination of whether he was bound by the confirmation of the reorganization plan. He argued that he had been entitled to notice of the plan and an opportunity to object, and had been denied those rights. The bankruptcy court made findings of fact, evidently based on the written submissions described above:

The court finds that the debtor was hired by Levin to place soil on [Levin's] property; that such soil was contaminated; that Levin discovered the contamination pre-petition; that the debtor filed its petition under Chapter 11 on February 2, 1991; that Levin had actual notice of the debtor's bankruptcy; that Levin did not file a claim in this matter prior to the bar date; that Levin did not ask the court to extend the bar date; and that the debtor did not file a claim in Levin's behalf.

The court also finds that Levin was not placed on the master mailing list by debtor, nor did Levin request to be added The court further finds that Levin did not know of its claim against the debtor until after the debtor's plan was confirmed; and that during the pendency of the case, Levin indicated that he would not file a claim in this bankruptcy.

that the debtor's disclosure statement was approved on October 24, 1991; that the debtor's plan was initially confirmed on February 24, 1992; that Levin did not receive notice of the hearings concerning the debtor's disclosure statement and plan; that Levin was added to the master mailing list and that his claim was added to the debtor's schedules on December 20, 1991; that the notice of the order of confirmation was mailed to Levin and that Levin did not file an objection to or appeal the confirmation order.

The bankruptcy court decided that Levin was bound by the plan, despite his lack of proper notice, on two grounds: first, since Levin had indicated that he would not file a claim, Maya "had knowledge that a claim would not be filed," and Levin could not be a known creditor; second, based on Levin's statement that he did not learn of the existence of his claim until after the plan was confirmed, Maya should not be held responsible for not acknowledging a claim Levin himself did not know of. As the court saw it, Mr. Levin knew of the contamination and, because of the financial significance of such an event, had good reason to investigate his possible claim fully between 1989, when Maya put the contaminated soil on his land, and 1992, when the plan was confirmed, yet told Maya he did not intend to make a claim against Maya. The court also noted that Levin did not object to discharge of his claim until ten months after the plan was confirmed.

Mr. Levin appealed to the district court, which affirmed. The district court concluded that the bankruptcy court had erred in...