Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-89-03090/USCOURTS-ca10-89-03090-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

LEWIS A. PAUL, ) 

) 

Plaintiff, ) 

) 

FfLijD LJ.ofred Srntet Cmm ef l\i,peals 

Tenth Circuit 

JUN~ 8 rn;o 

ROBERT L. HOECKER 

Clerk 

V • ) No. 89-3090 

) 

) 

T, CONRAD MONTS, ) 

) 

Defendant, ) 

) 

) 

) 

DONALD W. BOSTWICK, Trustee of ) 

International Plastics, Inc,, ) 

) 

Plaintiff-Appellant, ) 

) 

V • ) 

) 

TRAVENCA DEVELOPMENT CORPORATION, also ) 

known as Transnational Venture-Capital ) 

Development Corporation; TITAN ENERGY ) 

CO., LTD.; T. CONRAD MONTS; THE ) 

SOUTHWEST NATIONAL BANK; SOUTHERN ) 

INVESTORS MANAGEMENT CO. , INC. ; ) 

FARMERS HOME ADMINISTRATION, ) 

) 

Defendants-Appellees. ) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF KANSAS 

(D,C. Nos. 83-1864-T & 82-6023-T) 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 1 
Donald w. Bostwick of Adams, Jones, Robinson and Malone, Wichita, 

Kansas, for Plaintiff-Appellant. 

Robin B. Moore, Assistant United States Attorney for the District 

of Kansas, Wichita, Kansas, Thomas V. Murray of Barber, Emerson, 

Springer, Zinn & Murray, Lawrence, Kansas, Warren G. Jones of 

Malone, Dwire and Jones, Wichita, Kansas, (Benjamin L. Burgess, 

Jr., United States Attorney for the District of Kansas, Wichita, 

Kansas, with them on the brief), for Defendants-Appellees. 

Before BRORBY, EBEL, Circuit Judges, and JOHNSON,* District Judge. 

*Honorable Alan B. Johnson, District Judge, United States District 

Court for the District of Wyoming, sitting by designation. 

PER CURIAM. 

This case presents the issue of whether a failed Chapter 11 

reorganization plan gives rise to a cause of action which the 

Chapter 7 trustee can enforce against proposed participants to the 

plan who were not themselves creditors and who did not acquire 

property under the plan. The United States District Court for the 

District of Kansas granted summary judgment for the defendants, 

holding that the defendants had not contractually committed to the 

plan and that, even if they had, the debtor-in-possession (and the 

Chapter 7 trustee as successor in interest) was estopped to assert 

the claim against the defendants. Finally, the district court 

held that it would not employ a separate cause of action for the 

trustee and that the exclusive remedies for any breach of the plan 

were contained in the enforcement and modification provisions 

governing Chapter 11 plans of reorganization. 

2 

Because we hold 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 2 
! 

(1) that there is a genuine dispute over material facts concerning 

whether the defendants had entered into a binding contract with 

the debtor-in-possession, (2) that the defendants did not 

establish the absence of a genuine dispute of material facts 

concerning its estoppel defense, and (3) that the enforcement and 

modification provisions of the Bankruptcy Code pertaining to 

Chapter 11 plans of reorganization do not preempt a claim for 

breach of contract premised on the plan of reorganization, we 

reverse and remand for further proceedings. 

The material facts are largely undisputed. The debtor 

corporation, International Plastics, Inc. (IPI), was in the 

. business of packaging .fluorocarbon-products and refrigerant gases. 

IPI had obtained two loans totalling $6,000,000.00 from Southwest 

National Bank (Bank), secured by IPI property. Ninety percent of 

this indebtedness was guaranteed by the Farmers Home 

Administration (FmHA). All or substantially all of the loans had 

been purchased by Southern Investors Management Company, Inc. 

(SIMCO). 

On March 18, 1980, IPI filed a voluntary petition for relief 

under Chapter 11 of the Bankruptcy Code. On July 21, 1980, after 

two previous versions had been filed, IPI filed its second amended 

plan of reorganization, which provided that Titan Energy Co., Ltd. 

(Titan), a wholly owned subsidiary to be formed by defendant 

Travenca Development Corporation (Travenca), would assume IPI's 

entire obligation to the FmHA and would provide $2,500,000.00 of 

new capital. In return for this assumption of indebtedness and 

infusion of capital, Travenca (or Titan) would obtain fifty-one 

3 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 3 
percent of IPI common stock, 175,000 shares of preferred stock, 

title to IPI's packaging plant, and a ninety-nine year lease of a 

ten-acre portion of IPI's real property. It was intended that IPI 

have $1,360,000.00 as working capital for operation of its 

fluorocarbon packaging facility. The proposed plan further 

provided that when Titan assumed IPI's $6,000,000.00 indebtedness, 

the Bank would transfer its mortgage for these loans to assets to 

be thereafter acquired by Titan, which would thus free all of 

IPI's assets under the proposed plan. On August 19, 1980, the day 

before the confirmation hearing, the FmHA set forth thirteen 

conditions to be satisfied prior to the Bank's transferring its 

security in IPI property to assets subsequently to be acquired and 

developed by Titan. 

On August 20, 1980, a hearing on confirmation of the second 

amended plan of reorganization was held. In deposition testimony, 

both the attorney for IPI and the attorney for the Bank indicated 

that, before the hearing, Travenca's representatives knew of the 

new FmHA conditions and acquiesced to their inclusion in the 

overall plan. During the confirmation hearing, itself, T. Conrad 

Monts, president of Travenca, stated that under any condition, 

either Travenca or he, personally, would pay the $2,500,000.00 to 

IPI in exchange for stock. The FmHA requirements were neither 

introduced into evidence nor mentioned at the hearing. Mr. Monts 

indicated that he understood one of Travenca's contractual 

obligations under 

debt, but no mention 

September 2, 1980, 

the confirmed plan to be assumption of IPI's 

was made of FmHA's new conditions. On 

the bankruptcy court entered an order 

4 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 4 
confirming the second amended plan of reorganization. 1 On 

September 3, 1980, SIMCO informed Mr. Monts of thirteen additional 

conditions it would require before the loan agreement envisioned 

by the plan could be approved. 

After the plan was confirmed, the parties began to disagree 

regarding obligations under the plan and responsibility for 

implementation. The parties made several proposals to modify the 

plan but no confirmed plan was ever implemented. In January of 

1981, the Bank moved to implement the plan pursuant to 11 U.S.C. 

§ 1142(b). IPI opposed this motion, apparently believing that a 

modified version of the plan which was then being considered by 

the parties might have a greater•chance of success. Finally, on 

April 17, 1981, the Ban~ filed a motion to convert the IPI Chapter 

11 proceeding to a Chapter 7 liquidation bankruptcy, which the 

bankruptcy court approved on Apri~ 27, 1981. IPI did not oppose 

the Bank's motion. In its order, the bankruptcy court found that 

IPI did not implement the plan due to the failure of Travenca and 

Monts to satisfy their obligations under the plan. A Chapter 7 

trustee was then appointed, and IPI's assets were substantially 

liquidated without objection from IPI or the bankruptcy court. 

In December 1981, the Chapter 7 trustee, plaintiff here, 

filed a declaratory judgment action in bankruptcy court to 

determine if any of the defendants had breached their respective 

1 The copy of the plan included in the record on appeal 

provides only one signature line, that for debtor's attorney. The 

copy is unsigned. There is nothing in the Bankruptcy Rules or in 

the local rules for the Bankruptcy Court for the District of 

Kansas requiring the signature of a potential participant in the 

Plan and, indeed, no such copy of the plan signed by Mr. Monts or 

by Travenca has been identified for us. 

5 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 5 
obligations under the failed plan. 2 The trustee's amended 

complaint also sought damages from defendants. 3 

Subsequent to a rather complex procedural history, the 

details of which are not relevant to this appeal, the district 

court granted Travenca's motion for summary judgment. Paul v. 

Monts, 99 Bankr. 59 ( D. Kan. 1989). "We will affirm a grant of 

summary judgment if it is clear from the record that there are no 

genuine issues of material fact and the [moving party is] entitled 

to judgment as a matter of law." Willner v. Budig, 848 F.2d 1032, 

1033-34 (10th Cir. 1988), cert. denied, 109 S. Ct. 840,102 

L.Ed.2d 972 (1989). This court "must read the record in the light 

most favorable to the .. nonmoving party." -Burnette v .. Dresser 

Indus., Inc., 849 F .• 2d. 1277, 1284 (10th Cir. 1988); Lindley v. 

Amoco Prod. Co., 639 F.2d 671, 672 (10th Cir. 1981). Conclusions 

of law by the district court are reviewable by this court de novo. 

2 Defendant SIMCO has since filed its own petition in 

bankruptcy and is no longer a party to this action. The FmHA and 

the Bank are still parties but the trustee's arguments on appeal 

are not directed to their actions. Defendants Travenca, Titan, 

and Monts are hereafter collectively referred to as "Travenca". 

3 In his brief the trustee argues that a confirmed plan has 

characteristics of both a contract and a judgment and that, 

therefore, his cause of action is tantamount to an action to 

enforce a judgment of the bankruptcy court. While a confirmed 

plan functions as a judgment with regard to those bound by the 

plan, Bizzell v. Hemingway, 548 F.2d 505, 507 (4th Cir. 1977), we 

think the claim here is more analogous to a contract claim. 

Although the bankruptcy court does approve reorganization plans, 

the essence of that action is to authorize the debtor to enter 

into the plan and to approve the proposed financial restructuring. 

See In re Food City, Inc., 110 Bankr. 808, 810 n.2 (Bankr. W,D. 

Tex. 1990). A third party in the position of Travenca here has 

not submitted to the jurisdiction of the bankruptcy court and is 

simply dealing with the matter on a contractual level. 

6 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 6 
In re Heape (Heape v. Citadel Bank), 886 F.2d 280, 282 (10th Cir. 

1989). 

We address first whether Travenca is bound by the terms of 

the confirmed reorganization plan. Section 1141 of the Bankruptcy 

Code details the effect of confirmation of a reorganization plan. 

11 u.s.c. § 114l(a) provides in pertinent part: 

[T]he provisions of a confirmed plan bind the debtor, 

any entity issuing securities under the plan, any entity 

acquiring property under the plan, and any creditor, 

equity security holder, or general partner in the 

debtor, whether or not the claim or interest of such 

creditor, equity security holder, or general partner is 

impaired under the plan and whether or not such 

creditor, equity security holder, or general partner has 

accepted the plan. 

While it. is.clear.tha~ the- debtor and its creditors are bound by 

the plan, it is less certain that Travenca, as a third party 

investor in the potential reorganization, was bound by the plan. 4 

"The general rule is that a confirmed plan of reorganization is 

binding on the debtor and other proponents of the plan." In re 

Garsal Realty, Inc. (Garsal Realty, Inc. v. Troy Sav. Bank), 39 

Bankr. 991, 994 (Bankr. D.N.Y. 1984). In fact, confirmation of a 

plan also binds creditors and other parties in interest even if 

such entities have not accepted the plan. In re St. Louis Freight 

Lines, Inc., 45 Bankr. 546, 551 (Bankr. E.D. Mich. 1984). "[A] 

party in interest is bound by the terms of the plan when 

confirmed, even if the plan ultimately provides it with less than 

that to which it is otherwise legally entitled." Id. at 552. A 

review of the case law and the bankruptcy provisions, however, has 

4 There is no indication in 

Travenca were creditors of IPI. 

the 

7 

record that Mr. Monts or 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 7 
failed to provide a definition of "proponents of the plan," or 

"parties in interest." "Interest" is not defined by the Code but, 

as used, the term includes the ownership interest of the 

individual debtor in his property, the interest of equity security 

holders, and the interest of general partners in a debtor 

partnership. 5 Collier on Bankruptcy ,1 1141.01 n.12 (15th ed. 

1989). We found no authority to support the proposition advanced 

here by the trustee that Travenca was bound by the terms of the 

plan. While the plan envisioned that Travenca would ultimately 

"acquire property under the plan," that vision was never 

implemented by the parties. Upon confirmation, all property of 

the estate. vested, in the, debtor. 11 u. s .• C. § 1141 ( b). The debtor 

here.had not conveyed any.property to Travenca. A fair reading of 

section 114l(a) provides that Travenca was not bound by the plan 

under section 114l(a) and would not be bound until it acquired 

property thereunder or unless it agreed to be bound. 

In only two cases have we found even a brief reference 

identifying an entity as one which would be "acquiring property 

under the plan," and in both cases the entities so acquiring had 

entered into separate pre-plan agreements with the debtor 

providing for the transfer of the subject property from the estate 

to the acquiring entity. 

In In re William Herbert Hunt Trust Estate, 92 Bankr. 172, 

175 (Bankr. N.D. Tex. 1988), the court, in evaluating a proposed 

plan for compliance with statutory requirements, noted that three 

entities involved in the reorganization were entities acquiring 

property under the plan. At least two, if not all three, of the 

8 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 8 
property-receiving entities were parties to the plan transaction 

documents. Id. at 173-74. Although the court did not elaborate, 

these documents may have bound the entities to acquire the estate 

property. There are no such pre-plan agreements in this case. 

In the only other relevant case construing the language at 

issue, the court construed a confirmation plan which provided that 

title to the debtor's assets would transfer to the plaintiff on 

the distribution date, as defined in the plan. Kal-O-Mine 

Industries, Inc. v. Camp (In re Lumpkin Sand & Gravel, Inc.), 104 

Bankr. 529, 532 (Bankr. M.D. Ga. 1989), aff'd, 111 Bankr. 370 

(M.D.Ga. 1990). The plaintiff, Kal-O-Mine Resources, Inc., 

claimed to. be the .owner of property pursuant to a confirmed 

Chapter 11 plan. The defendant claimed still to be the owner 

because the distribution date recited in the plan had not yet 

occurred. The court~ quoting 11 U.S. C. § 114l(a), noted that all 

parties in the lawsuit were bound by the confirmed plan. Id. at 

540-41. The court did not specifically identify Kal-O-Mine as an 

"entity acquiring property under the plan." It did note, however, 

that eight months before confirmation of the plan, Kal-O-Mine had 

executed an agreement to acquire one hundred percent ownership and 

control of the debtor. Id. at 532, 541. Again, as in Hunt, the 

parties had formally executed documents embodying their intent 

that a specific entity was to acquire property upon 

reorganization, thus leading to the conclusion that those entities 

would be bound by the subsequent plan. Here, there is no such 

clear evidence that Travenca agreed to acquire property pursuant 

to the terms of IPI's plan. 

9 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 9 
While section 1141 does not bind Travenca, this conclusion 

does not mean that, upon the proper evidentiary showing, Travenca 

could not be bound under general contract law. 

Section 367(1) [the predecessor in the Bankruptcy Act to 

section 114l(a)] does not refer to the situation where 

the plan provides for payments to be made to creditors 

in the future by a third person, without any written 

evidence of indebtedness to be given to creditors. In 

that situation, the obligation of the third party to 

make the payments, assuming he had agreed to make them, 

is a valid one by which he is bound under ordinary 

contract principles. 

9 Collier on Bankruptcy fl 9.25[4] (14th ed. 1978). 5 See also In 

re Air Center, Inc., 48 Bankr. 693, 695 (Bankr. w. D. Okla. 1985). 

The district court in the instant case found, upon summary 

judgment, that the plan did not .. represent.a contract. between the 

parties. __ Order. at 7. It. based. this conclusion on .evidence that 

so many outstanding conditions existed to the transfer of IPI's 

major loans and most of its assets to Titan, that no agreement on 

this key term of the transaction existed and that therefore no 

contract existed. 

We find, however, that there is evidence in the record that 

Travenca, either in the person of its attorney, Mr. Berger, or its 

president, Mr. Monts, may have agreed to be bound by the terms of 

the plan despite the eleventh-hour conditions inserted by the FmHA 

and later by SIMCO. Mr. Dwire, attorney for the Bank, testified 

in deposition that he had met with Mr. Berger and the debtor's 

5 This observation in Collier on Bankruptcy (14th ed.) is the 

closest allusion we have found to the issue treated here. No 

cases were cited by Collier to support its opinion but we find it 

to parallel our own. (This opinion is not contained in the 

comments to section 114l(a) in the fifteenth edition of Collier on 

Bankruptcy.) 

10 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 10 
attorney, Mr. Bauer, prior to the confirmation hearing, and that 

both men indicated that they had no problems with the additional 

conditions required by the FmHA. Doc. 36, Vol. II, Dwire 

deposition at 60-64. 

Mr. Bauer, the attorney for IPI, testified in deposition that 

Mr. Monts had assured him that the FmHA conditions would either be 

satisfied or "negotiated out of." Doc. 32, Vol. II, Bauer 

deposition, p. 57. A reasonable jury could conclude that if Mr. 

Monts could not alter the position of the FmHA through 

negotiation, he was prepared to comply with their requirements. 

Mr. Monts testified at the confirmation hearing that he 

understood "absolutely"· that·· Travenca would be obliged, upon 

confirmation, to pay IPI a total of $2,500,000.00 for the 

fifty-one percent of the common stock and 175,000 shares of 

preferred stock. Transcript of proceedings held on August 20, 

1980, United States Bankruptcy Court D. Kan., p. 68. He further 

testified that he was willing to "take good faith efforts to 

resolve or satisfy" the FmHA conditions. Id. at 71. When asked 

whether there were any conditions under which the $2,500,000.00 

would not be received by IPI, Mr. Monts answered in the negative. 

We hold that this evidence raises a genuine issue of material 

fact as to whether Travenca was only agreeing to negotiate toward 

a workable plan to rescue IPI or whether it firmly intended to 

participate, notwithstanding the last minute conditions. Whether 

the conditions made a critical difference to Travenca's ability or 

willingness to participate in the reorganization is an issue of 

11 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 11 
material fact which should not have been disposed of on a motion 

for summary judgment. 

The district court found that, even if an enforceable 

contract did exist, the trustee's claim would be barred by 

estoppel. The trustee, as successor to the debtor in possession, 

is bound by his predecessor's authorized actions. Feldman v. 

Trans-East Air, Inc., 497 F.2d 352, 355 (2d Cir. 1974); In re 

Nashville White Trucks, Inc. (Olsen v. Deutscher), 22 Bankr. 578, 

584 n.7 (Bankr. M.D. Tenn. 1982). When asserting rights of action 

against another, the bankruptcy trustee has no greater rights than 

the debtor has. In re Gebco Inv. Corp., 641 F.2d 143, 146 (3d 

Cir. 1981). "The trustee is •. subject to the same defenses as 

could have been asserted by the defendant had the action been 

instituted by the debtor." 2 Collier on Bankruptcy 11 323.02[4] 

(15th ed. 1989). A litigant is required to be consistent in his 

conduct. He may not maintain a position regarding a transaction 

wholly inconsistent with his previous acts in connection with that 

same transaction. Robertson v. Ludwig, 12 Kan. App. 2d 571, 

752 P.2d 690, 697-98 (1988)(citing Browning v. Lefevre, 191 Kan. 

397, 400, 381 P.2d 524 (1963)), rev'd on other grounds, 244 Kan. 

16, 765 P.2d 1124 (1988). 

In the course of this bankruptcy proceeding, IPI took several 

actions which the district court identified as inconsistent with 

the position the trustee now espouses. First, IPI never moved for 

implementation of the plan under 11 U.S.C. § 1142(b); second, IPI 

opposed the Bank's motion for implementation in the apparent hope 

that an alternate plan would gain approval; third, IPI did not 

12 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 12 
oppose the Bank's motion to convert the case to a liquidation 

under Chapter 7; and fourth, IPI did not contest the liquidation 

of its assets in direct contradiction to the plan. 

In addition to inconsistent conduct, however, Travenca must 

also demonstrate a detrimental change in its position as a result 

of reasonable reliance on that conduct in order to maintain the 

defense of estoppe1. 6 

"One who asserts an estoppel must show some change 

in position in reliance on the adversary's misleading 

statement." In re Morgan, 219 Kan. 136, 137, 546 P.2d 

1394, 1395 (1976). 

"Equitable estoppel is the effect of the voluntary 

conduct of a person whereby he is precluded, both at law 

and in equity, from asserting rights against another 

person relying. on such -conduct. A party- asserting 

equitable estoppel must show that another party, by its 

- acts, representations,-admissions, or silence when it 

had a duty to speak, induced it to believe certain facts 

existed. It must also show it rightfully relied and 

acted upon such belief and would now be prejudiced if 

the other party were permitted to deny the existence of 

such facts." United American State Bank & Trust Co. v. 

Wild West Chrysler Plymouth, Inc., 221 Kan. 523, 527, 

561 P.2d 792, 795 (1977). 

Harvester, Inc. v. Goodyear Tire & Rubber Co., 4 Kan. App. 2d 363, 

606 P.2d 498, 499-500 (1980). See also Walker v. Ireton, 221 Kan. 

314, 559 P.2d 340, 345-46 (1977); R.S. v. R.S., 9 Kan. App. 2d 39, 

670 P.2d 923, 926 (1983). 

Neither the district court, nor either party in its brief, 

nor our review of the record has identified any detrimental change 

6 Under Kansas law the doctrine of judicial estoppel, which 

would preclude the trustee from advocating a position in this 

litigation inconsistent with a position taken by the debtor in the 

earlier confirmation action, would also require evidence that 

Travenca had changed its position in reliance on IPI's earlier 

stance. Mcclintock v. McCall, 214 Kan. 764, 522 P.2d 343, 346 

(1974). 

13 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 13 
in Travenca's position in reasonable reliance upon IPI's conduct. 

We find this lack of evidence of reliance fatal to Travenca's 

motion for summary judgment. "Under Rule 56(c), summary judgment 

is proper 'if 

interrogatories, 

the 

and 

pleadings, 

admissions 

depositions, answers to 

on file, taken with the 

affidavits, if any, show that there is no genuine issue as to any 

material fact and that the moving party is entitled to a judgment 

as a matter of law."' Celotex Corp. v. Catrett, 477 U.S. 317, 

322, 106 S. Ct. 2548, 2552, 91 L.Ed.2d 265, 273 (1986). Estoppel 

is an affirmative defense upon which the defendant has the burden 

of proof. North River Ins. Co. v. Aetna Fin. Co., 186 Kan. 758, 

352 P.2d 1060, 1062 (1960). "[W]here the moving party has the 

burden ---.the plaintiff.on a claim for relief.or the defendant on 

an affirmative defense --- his showing must be sufficient for the 

court to hold that no reasonable trier of fact could find other 

than for the moving party." Calderone v. United States, 799 F.2d 

254, 259 (6th Cir. 1986)(quoting w. Schwarzer, Summary Judgment 

Under the Federal Rules: Defining Genuine Issues of Material 

Fact, 99 F.R.D. 465, 487-88 (1984) (emphasis omitted)). Because 

defendant Travenca's showing here is totally devoid of any 

evidence on an essential element of the proffered affirmative 

defense of estoppel, it was error for the district court to hold 

that the trustee would be estopped as a matter of law. 7 

Finally, we address whether, as a matter of law, a 

debtor-in-possession, or a successor Chapter 11 trustee, has a 

7 Because of our disposition of this case, we express no 

opinion as to whether the conduct identified by the district court 

is sufficient to estop the trustee. 

14 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 14 
cause of action against an anticipated participant who has 

breached obligations under a plan of reorganization. The district 

court's ruling on this issue was couched in terms of whether such 

a cause of action may be implied from the Bankruptcy Code. Paul 

v. Monts, 99 Bankr. at 63-65. However, the rationale for the 

court's ruling that no such cause of action could be implied was 

that the statutory remedies under the Bankruptcy Code should be 

regarded as exclusive. Appellant argues that his claim should not 

be analyzed as an implied cause of action, because he does not 

seek to imply a cause of action from any provision of the 

Bankruptcy Code. Instead, he is seeking to enforce provision of 

the plan of. reorganization under -a contract theory. Thus 1 

although we agree.with.the district. court that there is no private 

cause of action here to be implied from the Bankruptcy Code, the 

focus of our analysis must be whether the remedies provided in the 

Bankruptcy Code for enforcing a Chapter 11 plan of reorganization 

are exclusive, such that the trustee's asserted cause of action, 

however denominated, is preempted. We hold that it is not. 

"State law may be preempted by an express congressional 

statement, by federal occupation of the field, or by direct 

conflict with federal law." Integrity Management Int'l, Inc. v. 

Tombs & Sons, Inc., 836 F.2d 485, 487 (10th Cir. 1987)(citing 

Louisiana Pub. Serv. Comm'n v. Federal Communications Comm'n, 476 

U.S. 355, 106 S. Ct. 1890, 90 L.Ed.2d 369 (1986)). After applying 

the factors identified in Integrity, we find no federal preemption 

of this cause of action. 

15 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 15 
There is no indication from either the Code itself or from 

legislative history of any intent by Congress relative to the 

question of civil remedies for parties disappointed by the failure 

of a reorganization plan. Congressional intent, therefore, will 

not serve as a basis for preempting this common law cause of 

action. 8 

While we acknowledge that the states may not regulate the 

operation of the bankruptcy laws, there has been no congressional 

pronouncement regarding whether the states may rely on conduct 

during the negotiation of a Chapter 11 reorganization plan as a 

basis for a state breach of contract claim. Cf. Integrity, 836 

F.2d at 488 n.5 (no indication .from Congress regarding ''whether 

states may use a violation of the federal - SBA -standards as 

evidence of violations of state created causes of action"). 

It is well established that federal bankruptcy law preempts 

state law but only to the extent that the state law conflicts with 

the federal law. Stellwagen v. Clum, 245 U.S. 605, 613, 615, 38 

s. Ct. 215, 217, 62 L.Ed. 507, 511 (1918); Johnson v. First Nat'l 

Bank, 719 F.2d 270, 273 (8th Cir. 1983), cert. denied, 465 U.S. 

1012, 104 S. Ct. 1015, 79 L.Ed.2d 245 (1984). In fact, the common 

law of the various states provides much of the legal framework for 

the operation of the bankruptcy system. "Where the Bankruptcy 

Code is silent, and no uniform bankruptcy rule is required, the 

8 Congressional silence will not be presumed to mandate 

preemption. On the contrary, "[i]t will not be presumed that a 

federal statute was intended to supersede the exercise of the 

power of the state unless there is a clear manifestation of intent 

to do so." Los Alamos School Bd. v. Wugalter, 557 F.2d 709, 714 

(10th Cir.), cert. denied, 434 U.S. 968, 98 S. Ct. 512, 54 L.Ed.2d 

455 (1977). 

16 

Appellate Case: 89-3090 Document: 01019880564 Date Filed: 06/28/1990 Page: 16 
rights of the parties are governed by the underlying 

non-bankruptcy law." In re Pascucci (Mortgage Guar. Ins. Corp. v. 

Pascucci), 90 Bankr. 438, 442 (Bankr. C.D. Cal. 1988). The 

underlying creditors' rights. asserted in bankruptcy proceedings 

are creatures of state law. In re Elcona Homes Corp., 863 F.2d 

483, 486 (7th Cir. 1988). And while the Bankruptcy Code defines 

what interests of the debtor may become property of the estate, it 

is nonbankruptcy law that defines the scope and existence of those 

interests. In re Farmers Markets, Inc. (California v. Farmers 

Markets, Inc.), 792 F.2d 1400, 1402 (9th Cir. 1986). Thus, 

because preemption is only partial, it cannot be said that 

-congress has intended· to ''occupy the field« leaving nothing to 

state law. 

We turn then to whether allowing a state law based breach of 

contract action in this case "stands as an obstacle to the 

accomplishment and execution of the full objectives of Congress." 

Louisiana Pub. Serv. Comm'n, 476 U.S. at 368-69, 106 S. Ct. at 

1898, 90 L.Ed.2d at 382. We have been unable to find a case, and 

none has been cited in the briefs, in which a Chapter 7 trustee 

has asserted a breach of contract claim against one of the 

anticipated participants in a failed Chapter 11 reorganization 

plan. Other causes of action, however, are routinely recognized 

as property of the Chapter 7 estate as defined in 11 u.s.c. § 541 

(1988). 9 We find that allowing the trustee to bring a breach of 

9 11 u.s.c. § 54l(a) provides in pertinent part: 

The commencement of a case under section 301, 302, or 303 of 

this title creates an estate. Such estate is comprised of 

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contract action in these circumstances would not conflict with the 

"full objectives of Congress." 

We are aware of the alternative Code provisions cited by the 

district court which may provide other avenues of relief to 

persons disappointed by the failure of a reorganization plan. 10 

The availability of alternative remedies within the Code, however, 

does not persuade us that those remedies are exclusive. See 

Bizzell v. Hemingway, 548 F.2d 505, 507 (4th Cir. 1977)(resort to 

section 386 of the Bankruptcy Act, providing for the setting aside 

or modification of an arrangement procured by fraud, is ordinary 

procedure but section does not provide exclusive remedy); In re 

Boissonnault, 415 F.2d 1371, 1373 (1st Cir. 1969)(provision in 

Bankruptcy Act for setting aside discharge in case of fraud is not 

a "limiting provision"); In re Ernst, 45 Bankr. 700, 703 (Bankr. 

D. Minn. 1985)(postconfirmation retention of jurisdiction by the 

bankruptcy court is not exclusive with respect to the default of a 

debtor under a confirmed plan or the remedies available to the 

creditor, thus allowing creditor to proceed with foreclosure); In 

re Paradise Valley Country Club, 31 Bankr. 613, 615 (D. Colo. 

1983)(bankruptcy court jurisdiction not exclusive to determine 

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all the following property, wherever located and by whomever 

held: 

(1) ••• [A]ll legal or equitable interests of the 

debtor in property as of the commencement of the case. 

10 These remedies include filing of a motion to compel 

implementation of a confirmed plan under 11 u.s.c. § 1142(b); 

attempting to modify the plan under 11 u.s.c. § 1127(b); or 

converting the proceeding to one under Chapter 7 pursuant to 11 

u.s.c. § 1112. 

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rights and liabilities under a lease assumed by the debtor 

pursuant to the plan). 

In summary, the provisions in the Bankruptcy Code identified 

by the district court do not preempt the trustee's cause of action 

for breach of contract. The Code itself and legislative history 

are silent on the question. Except where state law would directly 

conflict with the federal bankruptcy provisions, there is no 

legislative history or case law to support a finding that the 

federal law was intended by Congress to "occupy the field,'' nor 

does allowing this cause of action conflict with the purposes and 

objectives of the bankruptcy laws. 

, Because we hold (1) that there is a genuine dispute over 

. material facts concerning whether Travenca had entered into a 

binding contract with the debtor-in-possession, (2) that Travenca 

did not establish the absence of a genuine dispute of material 

facts concerning its estoppel defense, and (3) that the 

enforcement and modification provisions of the Bankruptcy Code 

pertaining to Chapter 11 plans of reorganization do not preempt a 

claim for breach of contract premised on the plan of 

reorganization, we REVERSE the judgment of the United States 

District Court for the District of Kansas and REMAND this case for 

further proceedings consistent with this opinion. 11 

11 We recognize that if the district court on remand finds an 

enforceable contract between these parties, the determination of a 

proper remedy will be difficult at best. We note that most of the 

problems addressed in this protracted and expensive litigation 

could have been avoided if the debtor in possession had moved for 

an order to show cause when he realized that the plan would not be 

consummated. 

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