Paul v. Monts
| Decision Date | 05 April 1989 |
| Docket Number | 82-6023.,Civ. A. No. 83-1864 |
| Citation | 99 BR 59 |
| Parties | Lewis A. PAUL, Plaintiff, v. T. Conrad MONTS, Defendant. Donald W. BOSTWICK, Trustee of International Plastics, Inc., Plaintiff, v. TRAVENCA DEVELOPMENT CORPORATION, a/k/a Transnational Venture-Capital Development Corporation; Titan Energy Co., Ltd.; T. Conrad Monts; Southwest National Bank; Southern Investors Management Company, Inc., a/k/a Simco; and Farmers Home Administration, Defendants. |
| Court | U.S. District Court — District of Kansas |
C. Robert Bell, Wichita, Kan., for plaintiff Lewis A. Paul.
Warren G. Jones, Malone, Dwire and Jones, Wichita, Kan., for defendant Southwest Nat. Bank.
Thomas V. Murray, Barber, Emerson, Six, Springer & Zinn, Lawrence, Kan., for defendants T. Conrad Monts, Travenca Development Corp. and Titan Energy Co., Ltd.
Benjamin Burgess, U.S. Atty., Robin B. Moore, Asst. U.S. Atty., Wichita, Kan., for defendant Farmers Home Admin.
Donald W. Bostwick, Adams, Jones, Robinson & Malone, Wichita, Kan., and plaintiff in second case, No. 82-6023.
This matter comes before the court on motions by all defendants for summary judgment in these consolidated cases. The two cases involve the failure to consummate the Chapter 11 reorganization plan of International Plastics, Inc. (IPI) in 1980-81. Plaintiff Paul alleges a breach of an employment contract contained in the Chapter 11 plan (the Plan). Plaintiff trustee alleges the Plan gave IPI contractual rights which all defendants breached by not fulfilling the Plan. The court consolidated the two cases in 1986. The court has reviewed the briefs, the deposition extracts and exhibits and is prepared to rule. The court will initially set out a short history of IPI and then treat each motion separately.
In 1978, IPI received a 5 million dollar loan from Southwest National Bank (Bank) with a 90% guarantee by the Farmers Home Administration (FmHA) to construct a plastics manufacturing and packaging facility. Less than two years later, IPI filed a voluntary Chapter 11 petition. On August 20, 1980, the parties appeared before Judge Robert Morton of the Bankruptcy Court of the District of Kansas for a hearing on the second amended plan of reorganization (the Plan). Judge Morton confirmed the Plan two weeks later. The parties never consummated the Plan. In May 1981, the bankruptcy court granted Bank's motion to convert the Chapter 11 proceeding to a Chapter 7 proceeding. Plaintiff trustee subsequently liquidated the property of IPI.
This suit has a complex procedural history. Plaintiff filed a declaratory judgment action in bankruptcy court in December 1981 against defendants, all parties to the failed Plan, to determine if any of them had breached their respective duties under the Plan. Defendants' moved to dismiss the claim. Judge Morton granted the motions on procedural grounds but expressed general approval of plaintiffs' claim in dicta (1982 Order). On appeal, the district court by Judge Patrick Kelly reversed the bankruptcy court's ruling on jurisdiction. Plaintiff amended his complaint to assert contractual claims to damages against defendants. In essence, plaintiff asserted the Plan gave it contractual rights which it could enforce in a separate suit outside of the Chapter 11 & 7 bankruptcy proceeding. Defendants again moved to dismiss; Judge Morton denied the motions and upheld plaintiff's cause of action (1984 Order). Subsequently, the parties conducted substantial discovery and defendants now move for summary judgment.
The facts in this case are not seriously in dispute. To almost all facts alleged by defendants, Dkt. No. 32 at 3-17, plaintiff stated the allegation was "undisputed", Dkt. No. 36 at 4-14. After reviewing the depositions in depth, the court finds that the few objections made by plaintiff to defendants' statement of facts are either inconsequential or concern facts not material to the resolution of this motion. The court finds the facts as follows.
Lewis Paul was the president and founder of IPI. IPI owned two adjoining parcels: a 70 acre and a 10 acre tract. The smaller tract included the plastics facility. Bank, Southern Investors Mortgage Co. (SIMCO) and FmHA had several mortgages and liens on the land and the plastics plant. Paul was unable to locate sufficient, additional funding for IPI after the Chapter 11 filing until he met Monts, the president of Travenca. The Plan presented at the August 20 hearing proposed that Travenca, or Monts if necessary, would start Titan Energy, Co. and provide 2.5 million dollars of new capital. The key transaction was Titan's assumption of IPI's 5 million dollar indebtedness to Bank and FmHA in return for title to the plant and a lease of the 10 acre tract. The plan would discharge all of Bank's mortgages and liens against IPI, except for a $370,000 first mortgage on the 70 acre tract.
The negotiations leading to the Plan and its presentation to the bankruptcy court on August 20 were apparently difficult. Martin Bauer represented IPI in the bankruptcy proceedings. Bank represented the interests of SIMCO and FmHA; its attorney was Ed Dwire. Dwire gave Bauer a letter on August 19 stating numerous conditions precedent to FmHA's approval of Titan's assumption of IPI's debt. Neither Dwire nor Bauer raised these conditions at the August 20 confirmation hearing on the Plan.
After the hearing and the bankruptcy court's confirmation of the Plan, the lenders' difficulties with Titan's assumption of IPI's 5 million dollar debt prevented quick implementation of the Plan. SIMCO sent a letter in early September to Monts detailing a dozen conditions precedent to the Travenca/Monts-Titan-IPI deal. FmHA also altered its position after the hearing; it would not release its lien from the ten acre tract. The parties offered several proposals to modify the Plan throughout the remainder of 1980 without making any progress toward implementation of any reorganization plan.
On January 21, 1981, Bank moved to compel implementation of the Plan pursuant to 11 U.S.C. § 1142(b). IPI opposed the motion because it thought an alternative circulating among the parties that month would better accomplish its objectives. IPI moved to extend the Chapter 11 proceedings another 60 days. The bankruptcy court granted IPI's motion. Until mid-February, the parties still considered a successful modification to the Plan the likely outcome of the proceeding. In mid-March, Bank filed a complaint to lift the bankruptcy court stay. IPI contemplated filing a counterclaim to compel implementation of the Plan but ultimately filed only an answer which reserved its right to compel implementation of the Plan.
A month later Bank filed its motion to convert the case to a Chapter 7 proceeding. IPI did not contest the conversion motion, and the court granted the motion on April 27. The bankruptcy court appointed plaintiff trustee for the debtor. Plaintiff sold IPI's two tracts with the plant the next month to the Bank for the price of its liens and mortgages. Neither the bankruptcy court nor Bauer challenged plaintiff's actions regarding IPI's main assets which directly contradicted the Plan's elimination of all liens and mortgages except one.
The court is familiar with the standards governing the consideration of a motion for summary judgment. The Federal Rules of Civil Procedure provide that summary judgment is appropriate when the documentary evidence filed with the motion "shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A principal purpose "of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses,. . . ." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The court's inquiry is to determine "whether there is the need for a trial—whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).
The burden of proof at the summary judgment stage is similar to that at trial. The court must enter summary judgment "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 106 S.Ct. at 2552-53. The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact on its claim(s). Rule 56, however, imposes no requirement on the moving party to "support its motion with affidavits or other similar materials negating the opponent's claim." Id. at 2553 (emphasis in original). Each party must demonstrate to the court the existence of contested facts on each claim it will have to prove at trial. Id. The court reviews the evidence on summary judgment under the substantive law and based on the evidentiary burden the party will face at trial on the particular claim. Anderson, 106 S.Ct. at 2513.
At the outset, the court must state that this is a case of first impression. The cases cited by the parties provided little assistance in understanding this legal problem. All were distinguishable on their facts or the procedural setting or both. The court's additional research has not revealed any helpful analysis.
The court has three reasons to grant defendants' motion for summary judgment. The first reason assumes the correctness of Judge Morton's 1984 Order while the later two directly reject his prior rulings. Judge Morton's 1984 Order approved of plaintiff's theory that the Plan gave him contractual rights outside of the bankruptcy context. Assuming for the moment the correctness of this theory, this court cannot find that the Plan...
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