United States ex rel. Minge v. Hawker Beechcraft Corp. (In re Hawker Beechcraft, Inc.)

• Citation: 493 B.R. 696
• Decision Date: 24 July 2013
• Docket Number: Adv. Proc. No.: 12–01890,Case No.: 12–11873 (SMB)
• Parties: In re: Hawker Beechcraft, Inc., et al., Debtors. United States of America ex rel. Donald Minge and David Kiehl and Donald Minge and David Kiehl, Individually, Plaintiffs, v. Hawker Beechcraft Corporation, Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

493 B.R. 696

In re: Hawker Beechcraft, Inc., et al., Debtors.United States of America ex rel. Donald Minge and David Kiehl and Donald Minge and David Kiehl, Individually, Plaintiffs,

v.Hawker Beechcraft Corporation, Defendant.

Case No.: 12–11873 (SMB)

Adv. Proc. No.: 12–01890

United States Bankruptcy Court, S.D. New York

July 24, 2013

Hite, Fanning & Honeyman L.L.P., Wichita, KS, F. James Robinson, Jr., Esq., Gaye B. Tibbets, Esq., Of Counsel, and Tannenbaum Helpern Syracuse & Hirschtritt LLP, New York, NY, Tammy P. Bieber, Esq., Wayne H. Davis, Esq., Of Counsel, Attorneys for Plaintiffs.

Fried, Frank, Harris, Shriver & Jacobson LLP, Washington, DC, Douglas W. Baruch, Esq., Jennifer M. Wollenberg, Esq., Of Counsel, and Kirkland & Ellis LLP, New York, NY, James H. M. Sprayregen, P.C., Esq. Paul M. Basta, Esq., Patrick J. Nash, Jr., Esq., Ross M. Kwasteniet, Esq., Of Counsel, Attorneys for Defendant.

Chapter 11

MEMORANDUM DECISION DISMISSING COMPLAINT AS TO PLAINTIFFS' QUI TAM CLAIM

STUART M. BERNSTEIN United States Bankruptcy Judge:

Section 1141(d)(6)(A), added to the Bankruptcy Code in 2005, provides that the confirmation of a plan does not discharge a corporate debtor from any debt “of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit, or owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State statute.” The Plaintiffs commenced this adversary proceeding to obtain a determination that their claims against Hawker under the False Claims Act (the “FCA”), 31 U.S.C. §§ 3729 et seq., pending in Kansas, are not dischargeable under both clauses of the statute. The defendant moved to dismiss the complaint on several grounds. For the reasons that follow, the Court concludes that Plaintiffs' qui tam claim is dischargeable, and the complaint is dismissed as to that claim.

BACKGROUND

The material facts relevant to the motion are not in dispute. The plaintiffs Donald Minge and David Kiehl (the “Plaintiffs”) are former employees of TECT Aerospace, Inc. or TECT Aerospace Wellington, Inc. (collectively, “TECT”), subcontractors of the defendant Hawker Beechcraft Corporation (“Hawker”), a reorganized debtor in this case and a manufacturer of military aircraft. In 2007, the Plaintiffs filed a qui tam lawsuit under the FCA against, inter alia, Hawker and TECT in the United States District Court for the District of Kansas (the “Kansas Action”). The Plaintiffs alleged that Hawker made misrepresentations to the Government regarding certain components manufactured by TECT and incorporated into military aircraft sold to the Government. The alleged misrepresentations were contained in certifications relating to 347 planes. The Plaintiffs sought three times the amount of damages the Government sustained (aggregating nearly $2.3 billion), in addition to a civil penalty of $11,000 for each violation (aggregating $3.8 million) plus costs and attorneys' fees in the Kansas Action. ( See Complaint, dated Sept. 27, 2012, Ex. A (ECF Doc. # 1).) ¹

Hawker and certain affiliates filed these chapter 11 cases on May 3, 2012, staying the Kansas Action as to Hawker. At the Debtors' request, the Court appointed Epiq Bankruptcy Solutions, LLC (“Epiq”) pursuant to 28 U.S.C. § 156(c) to serve as the “claims agent” in the case. ( See Order Authorizing the Employment and Retention of Epiq Bankruptcy Solutions, LLC as Notice and Claims Agent for Debtors, dated May 4, 2012 (ECF Main Case Doc. # 45).) On June 5, 2012, Epiq mailed the “Notice of Chapter 11 Bankruptcy Cases, Meeting of Creditors, & Deadlines,” dated June 5, 2012 (the “Notice”) to creditors and other parties in interest. ( See ECF Main Case Doc. # 221.) The Notice stated that the section 341 meeting of creditors would take place at the office of the United States Trustee on June 26, 2012. The Notice, which was based on Official Form 9F, included a space entitled “Deadline to File a Complaint to Determine Dischargeability of Certain Debts.” The space did not contain a date, and instead, stated that “Notice of deadline will be sent at a later time.” Consistent with Official Form 9F, the second page of the Notice included the following statement in the box entitled “Discharge of Debts”:

Confirmation of a chapter 11 plan may result in a discharge of debts, which may include all or part of your debt. See Bankruptcy Code § 1141(d). A discharge means that you may never try to collect the debt from the debtors, except as provided in the plan. If you believe that a debt owed to you is not dischargeable under Bankruptcy Code § 1141(d)(6)(A), you must start a lawsuit by filing a complaint in the bankruptcy clerk's office by the “Deadline to File a Complaint to Determine Dischargeability of Certain Debts” listed on the front side. The bankruptcy clerk's office must receive the complaint and any required filing fee by that deadline.

(Emphasis added.)

The Plaintiffs commenced this adversary proceeding on September 27, 2012, to determine the dischargeability of their claims against Hawker in the Kansas Action. Conscious of the requirements for the exception to discharge under § 1141(d)(6)(A), the Complaint alleged that the “Plaintiffs/Relators' allegations that money was obtained by false pretenses and false representations are allegations of debts that are ‘of a kind specified in section 523(a)(2)(A),’ ” ( Complaint ¶ 38), “[b]ecause Plaintiffs are prosecuting the Kansas false claims action on behalf of the Government, the debt is also ‘owed to a domestic governmental unit,’ ” ( id.), and Hawker's “liability in the Kansas false claims action is both a debt of the kind specified in 523(a)(2)(A) which is owed to a domestic governmental unit and is a debt owed to Plaintiffs as a result of the action they have filed under Subchapter III of chapter 37 of title 31 of the United States Code.” ( Id. ¶ 39 (emphasis in original).)

Hawker moved to dismiss the adversary proceeding on several grounds. It raised the threshold argument that the Complaint was time-barred because the Plaintiffs had failed to file the adversary proceeding within 60 days of the date first set for the meeting of creditors pursuant to 11 U.S.C. § 341(a). Hawker also argued that the Plaintiff's lacked standing to seek nondischargeability of their qui tam claim on behalf of the Government, but even if they had standing, the Complaint did not sufficiently plead the heightened level of scienter applicable to fraud claims under 11 U.S.C. § 523(a)(2). Finally, Hawker maintained that the Plaintiffs had not asserted any claims against it that constituted debts “owed to a person” within the meaning of § 1141(d)(6)(A).

The Plaintiffs responded that the 60–day deadline did not apply to their claim, but even if it did, the 60–day deadline was never triggered because the clerk failed to send a notice of the deadline as required by Rule 4007(c) of the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”). Furthermore, the Plaintiffs reasonably relied in good faith on the statement in the Notice that the notice of the deadline would be sent at a future date. The Court should, therefore, use its equitable powers to allow the Complaint as timely.

The Court denied the Rule 12(b)(6) aspect of the motion to dismiss without prejudice from the bench, and reserved decision on the balance of the motion.

DISCUSSION

A. Introduction

Prior to the 2005 Bankruptcy Code amendments, the confirmation of a corporate debtor's plan discharged all of its pre-confirmation debts, see11 U.S.C. § 1141(d)(1), unless the plan provided for the liquidation of all or substantially all of the property of the estate and the debtor did not engage in business after the consummation of the plan. 11 U.S.C. § 1141(d)(3). Hawker confirmed a non-liquidating plan, ( see Findings of Fact, Conclusions of Law, and Order Confirming the Debtors' Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code, dated Feb. 1, 2013 (ECF Main Case Doc. # 1277)), and under the law as it existed prior to the 2005 amendments, the Plaintiffs' claims would have been discharged.²

In 2005, Congress promulgated the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). As part of BAPCPA, Congress enacted § 1141(d)(6) to provide certain limited exceptions to the otherwise comprehensive chapter 11 corporate discharge. Section 1141(d)(6) states:

Notwithstanding paragraph (1), the confirmation of a plan does not discharge a debtor that is a corporation from any debt—

(A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit, or owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State statute; or

(B) for a tax or customs duty with respect to which the debtor—

(i) made a fraudulent return; or

(ii) willfully attempted in any manner to evade or to defeat such tax or such customs duty.

This adversary proceeding concerns the interpretation of subparagraph (A). Subparagraph (A) is comprised of two clauses separated by the comma that follows “domestic governmental unit.” The first clause excepts from a corporation's discharge any debt “of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit,” and the second clause excepts any debt “owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State statute.” The remainder of this decision will refer to the first clause as “Clause 1” and the second as “Clause 2.”

Generally speaking, there are two types of exceptions to discharge: (1) those that are self-executing and (2) those that require the creditor to seek a determination of dischargeability in the bankruptcy court by a fixed deadline, failing which the exception does not apply and the debt is discharged. See § 11 U.S.C. §...