1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-1-1999

Copelin v. Spirco Inc

Precedential or Non-Precedential:

Docket 98-3309

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Recommended Citation

"Copelin v. Spirco Inc" (1999). 1999 Decisions. Paper 187.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/187
Filed July 1, 1999 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 98-3309 

WAYNE COPELIN 

v. 

SPIRCO, INC., f/k/a Nasco Inc. 

STEPHEN I. GOLDRING, Trustee 

 INNOVO GROUP, INC.,* 

 Appellant 

 (Pursuant to Rule 12(a), F.R.A.P.) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF PENNSYLVANIA 

(D.C. No. 96-cv-00342J) 

District Judge: Honorable D. Brooks Smith 

ARGUED MARCH 9, 1999 

BEFORE: MANSMANN, SCIRICA, and NYGAARD, 

Circuit Judges. 

(Filed: July 1, 1999) 

 James R. Walsh (Argued) 

 Spence, Custer, Saylor, Wolfe 

 & Rose 

 400 United States National Bank 

 Building 

 P.O. Box 280 

 Johnstown, PA 15907 

 Attorney for Appellant 
 Thomas E. Reilly (Argued) 

 Davis & Reilly 

 437 Grant Street 

 1124 Frick Building 

 Pittsburgh, PA 15219 

 Attorney for Appellee 

OPINION OF THE COURT 

NYGAARD, Circuit Judge. 

Innovo Group, Inc., the parent corporation of debtor 

Spirco, Inc., f/k/a Nasco, Inc.,1 appeals a District Court 

Order disallowing Innovo from using Innovo stock to satisfy 

a Tennessee state court judgment against it. The District 

Court concluded that the judgment does not fall within 

the terms of Spirco's approved Bankruptcy Plan of 

Reorganization, and that Wayne Copelin, who holds the 

judgment against Innovo, is merely seeking to collect on a 

judgment he holds against a non-debtor. We agree and will 

affirm. 

I. 

Spirco and Innovo hired Wayne Copelin to serve as 

Spirco's president. Copelin, Spirco and Innovo executed a 

written employment agreement that included a clause

entitling Copelin to compensation in the amount of 

$100,000 if his employment was terminated for any reason 

other than for cause. Appellants' App. at 99. The 

Employment Agreement did not make Innovo's liability 

contingent upon Spirco's failure to pay. Approximately five 

months later, Spirco terminated Copelin without cause, but 

_________________________________________________________________ 

1. Spirco and Innovo merged under the terms of Spirco's Plan of 

Reorganization filed with the Bankruptcy Court, with Innovo as the 

surviving corporation. During the course of relevant litigations, Nasco 

changed its name to Spirco. As such, the documents in the record refer 

to both Spirco and Nasco to reflect the name of the company at the 

various stages of the Tennessee State Court and bankruptcy litigation. 

However, for ease of understanding, we will only use the company name 

Spirco to refer to both Spirco and Nasco. 

 2 
did not pay the $100,000 compensation due under the

contract. 

Copelin sued Spirco and Innovo jointly and severally in 

Tennessee state court alleging breach of contract, 

misrepresentation, breach of covenant of good faith and fair 

dealing, and promissory estoppel. Spirco filed a voluntary 

petition for relief with the Bankruptcy Court for the 

Western District of Pennsylvania under Chapter 11 of the 

Bankruptcy Code, 11 U.S.C. S 101 et seq., which identified 

Copelin as a creditor holding a disputed claim for $250,000 

under the Employment Agreement. Copelin then filed in 

state court a notice of intention to non-suit Spirco without 

prejudice. The state court dismissed Spirco, but Innovo 

remained a party. Innovo then sought to remove the state 

court action to the Bankruptcy Court for the United States 

District Court for the Middle District of Tennessee under 28 

U.S.C. S 1452(a) claiming that the matter was related to 

Spirco's bankruptcy proceeding then pending in the 

Bankruptcy Court for the Western District of Pennsylvania. 

Copelin objected and requested that the case be remanded 

to the Tennessee State Chancery Court. 

The Tennessee Bankruptcy Court conducted a hearing to 

determine the proper forum and concluded that: (1) 

Copelin's suit had no significant impact on the Spirco 

bankruptcy action; (2) Innovo's only relation to the Spirco 

bankruptcy case was as a non-debtor co-defendant in the 

Copelin action; and (3) no objective of the bankruptcy code 

would be furthered by removing the case to the Bankruptcy 

Court for the Middle District of Tennessee. Innovo did not 

appeal, and the case remained in state court. 

Spirco filed an Amended Plan of Reorganization with the 

Bankruptcy Court in the Western District of Pennsylvania. 

A copy of the scheduling order and Amended Plan was

forwarded to Wayne Copelin c/o his attorney in the 

Tennessee state court action. 

The Plan stated that Spirco would receive a discharge 

and the "discharge of the Debtor shall also effect a 

discharge of [Innovo with] respect to all claims against 

Spirco, Inc." Appellee's App. at 23. Further, the Plan 

commanded that "at no time shall [Innovo] be deemed a 

 3 
debtor." Id. The Bankruptcy Court for the Western District 

of Pennsylvania confirmed the Amended Plan which stated 

in relevant part: 

 Article II-Specifications of Claims and Interests 

 Pursuant to Sections 1122 and 1123(a)(1) of the 

 Bankruptcy Code, the following classes of Claims are 

 designated: 

 (H) Class 8 - Class 8 consists of holders of Allowed 

 General Unsecured Claims upon which [Innovo] is 

 liable, by guaranty or otherwise, as established by (a) 

 the entry of a final Order upon motion filed by[Spirco] 

 or Class 8 Claimant, or (b) written acknowledgment of 

 [Innov]. Appellants' App. at 65. 

 Article III-Plan of Reorganization 

 On the Effective Date of the Plan, [Spirco] shall be 

 deemed merged into its parent corporation, [Innovo], 

 with [Innovo] being the surviving corporation. 

 Therefore, on the Effective Date, [Spirco] will cease to 

 exist as a separate corporate entity and [Innovo] shall 

 incur liability of [Spirco] only as provided for in this 

 Plan. Appellants' App. at 66. 

 Article X - Effect of Confirmation; Issuance of Group 

 Common Stock; Vesting of Property; Discharge

 . . . At no time shall [Innovo] be deemed a debtor. 

 [Innovo] shall incur no obligations as a result of such 

 merger except as specifically provided in the Plan. 

 D. Upon the Effective Date, [Spirco] shall receive a 

 discharge pursuant to Section 1141 of the Bankruptcy 

 Code. The discharge of [Spirco] shall also effect a 

 discharge of [Innovo] will [sic] respect to all claims and 

 interest against Spirco, Inc. 

Appellee's App. at 23. 

While confirmation of the Reorganization Plan was 

pending, Innovo filed an Amended Answer to Copelin's state 

court complaint claiming that Spirco was an indispensable 

party to the suit and that the suit should be dismissed 

until Spirco could be properly joined. The state court did 

 4 
not find that Spirco was an indispensable party and Spirco 

did not join the action. Appellants' App. at 129. 

Spirco filed a Motion to Classify Claims in the 

Bankruptcy Court for the Western District of Pennsylvania 

alleging that Copelin filed non-bankruptcy litigation against 

Innovo to establish Innovo's liability for Spirco's obligation 

by guarantee or otherwise and that Innovo "denies any 

responsibility to [Copelin] for obligations due and owing by 

the Debtor [Spirco]." Spirco requested that this claim be 

classified as a Class 8 claim if Copelin successfully 

established Innovo's liability for Debtor's obligations. 

Appellants' App. at 77. The Bankruptcy Court for the 

Western District of Pennsylvania ordered that in the event 

Copelin obtained a final order in state court establishing 

Innovo liable for Spirco's obligations, then Copelin would be 

deemed to have an Allowed Class 8 claim. Under the terms 

of the confirmed Amended Plan of Reorganization, Innovo 

could satisfy any Allowed Class 8 claim with payment of 

Innovo stock. 

The Tennessee State Chancery Court granted summary 

judgment in favor of Copelin against Innovo for $100,000 

plus costs. The Order stated in pertinent part: 

 ORDERED, ADJUDGED and DECREED that Summary 

 Judgment is hereby granted in favor of the Plaintiff, 

 Wayne Copelin, against the Defendant, Innovo Group, 

 Inc., as to the issue of severance benefits described in 

 Paragraph 9, of that Employment Agreement, dated 

 January 2, 1992, and identified as Exhibit B, to this 

 Complaint filed in this cause, and that the Plaintiff, 

 Wayne Copelin, have and recover of the Defendant, 

 Innovo Group, Inc., the sum of $100,000. 

Appellants' App. at 149. 

Copelin was given a certificate for 352,113 shares of 

Innovo stock to satisfy the judgment. Copelin's attorney 

returned the stock stating that the judgment against Innovo 

was "for a sum certain of money, not stock." Spirco, as 

merged with and into Innovo, then filed a Motion for 

Enforcement of Discharge Injunction and Terms of 

Confirmed Plan, Together with Request for Finding of 

Contempt and Imposition of Sanctions with the Bankruptcy 

 5 
Court for the Western District of Pennsylvania. Spirco 

contended that under the terms of the Amended Plan,

Copelin's judgment against Innovo in state court could be 

satisfied with Innovo stock. Copelin contested the motion. 

The Bankruptcy Court for the Western District of 

Pennsylvania enjoined Copelin from "pursuing Innovo

Group in any other forum to collect on the debt Innovo 

jointly owes along with [Spirco]." The court found that: (1) 

Innovo was a guarantor or otherwise liable to Copelin based 

on Spirco's obligation to Copelin; (2) the dispute was a core 

proceeding, and therefore the bankruptcy court had 

jurisdiction to enter a final judgment; (3) Copelin had a 

Class 8 claim payable in Innovo stock; (4) the debt owed to 

Copelin "by Debtor" was discharged; (5) Copelin was barred 

from challenging the classification of the judgment against 

Innovo as a Class 8 claim; and (6) the denial of removal by 

the Bankruptcy Court for the Middle District of Tennessee 

regarding Copelin's state court action s against Spirco and 

Innovo did not bar the reorganized debtor from enjoining 

Copelin's collection efforts. See In re Spirco, Inc., 201 B.R. 

744 (Bankr. W.D. Pa. 1996). 

Copelin appealed the Bankruptcy Court's decision to the 

United States District Court for the Western District of 

Pennsylvania. The District Court concluded that: (1) 

whether Copelin could execute on the state court judgment 

was a non-core matter related to a case arising under title 

11; (2) Copelin's state court lawsuit was against Innovo, not 

Spirco; (3) Copelin's collection efforts did not involve rights 

created by bankruptcy law; (4) the discharge of Innovo 

under the Amended Plan was limited to "those claims and 

interest against Spirco" and that Class 8 claims included 

only those "upon which [Innovo] is liable, by guaranty or 

otherwise"; (5) there was no evidence that Innovo was a 

guarantor of Spirco; and (6) the preclusive effect accorded 

the orders confirming the Amended Plan and classifying the 

claims by the bankruptcy court was too broad. See In re 

Spirco, Inc., 221 B.R. 361 (W.D. Pa. 1998). 

The District Court ordered the Bankruptcy Court to 

recognize the state court judgment against Innovo for 

$100,000 plus costs. 

 6 
II. 

A. Jurisdiction 

28 U.S.C. S 157 sets forth the jurisdiction of the 

bankruptcy courts. It states in pertinent part: 

 (b)(1) Bankruptcy judges may hear and determine all 

 cases under title 11 and all core proceedings arising 

 under title 11, or arising in a case under title 11, 

 referred under subsection (a) of this section, and may 

 enter appropriate orders and judgments, subject to 

 review under section 158 of this title. 

 (2) Core proceedings include, but are not limited to- 

 (A) matters concerning the administration of the 

 estate; 

 . . . 

 (I) determinations as to the dischargability of 

 particular debts; 

 (J) objections to discharges; 

 (K) determinations of the validity, extent, or priority 

 of liens; 

 (L) confirmation of plans 

 . . . 

 (c)(1) A bankruptcy judge may hear a proceeding that 

 is not a core proceeding but that is otherwise related to 

 a case under title 11. In such proceeding, the 

 bankruptcy judge shall submit proposed findings of 

 fact and conclusions of law to the district court, and 

 any final order or judgment shall be entered by the 

 district judge after considering the bankruptcy judge's 

 proposed findings and conclusions after reviewing de 

 novo those matters to which any party has timely and 

 specifically objected. 

In sum, as the Bankruptcy Court for the Western District 

of Pennsylvania correctly observed, its jurisdiction extends 

over four types of matters: (1) title 11 cases, (2) proceedings 

that arise under title 11, (3) proceedings that arise in a case 

 7 
under title 11, and (4) proceedings related to a case under 

title 11. See Spirco, 201 B.R. at 748; 28 U.S.C. SS 1334(a), 

(b). We conclude that the Bankruptcy Court had 

jurisdiction because this matter is a "proceeding related to 

a case under title 11." 

A proceeding is related to a case under title 11 if it "could 

conceivably have any effect on the estate being 

administered in bankruptcy" such that " `it is possible that 

[the] proceeding may impact on the debtor's rights,

liabilities, options, or freedom of action or the handling and 

administration of the bankrupt estate.' " Halper v. Halper, 

164 F.3d 830, 837 (3d Cir. 1999) (quoting In re Guild & 

Gallery Plus, Inc., 72 F.3d 1171, 1181 (3d Cir. 1996) (other 

citations and quotations omitted)); see also United States 

Trustee v. Gryphon at the Stone Mansion, Inc., 166 F.3d 

552, 556 (3d Cir. 1999) (noting that test to determine if 

matter is "related to" a bankruptcy is whether the outcome 

of the proceeding could conceivably have any effect on the 

estate being administered in bankruptcy). As we reaffirmed 

in Halper, the key word "is `conceivable.' Certainty, or even 

likelihood [of effect on the estate being administered in 

bankruptcy] is not a requirement." 164 F.3d at 837 

(quoting In re Guild, 72 F.3d at 1181) (other quotations 

omitted). Thus, jurisdiction is a threshold issue determined 

by speculating whether the ultimate outcome of the 

litigation could conceivably affect the bankrupt estate. 

Here, the Bankruptcy Court had jurisdiction to hear

Spirco's, as merged into Innovo, motion to enforce the 

terms of the Bankruptcy Plan of Reorganization because 

resolution of that motion may arguably have had an impact 

on Spirco's bankruptcy. That the underlying issue is 

enforcement of a state court judgment is irrelevant to our 

analysis of the Bankruptcy Court's jurisdiction. 

B. Standard of Review 

The scope of our review critically depends on the nature 

of the Bankruptcy Court's and the District Court's 

jurisdiction. In a core case, a bankruptcy court can enter a 

final judgment over which a District Court can exercise only 

appellate review. See 28 U.S.C. SS 157(b)(1), 158(a). During 

a non-core proceeding, however, a bankruptcy court can 

 8 
only issue proposed findings and conclusions; the district 

court alone can enter final judgment, and exercise de novo 

review of the bankruptcy court's proposals. See 28 U.S.C. 

S 157(c)(1). In either case, we have appellate jurisdiction 

over the district court's final decision. See 28 U.S.C. 

SS 158(d), 1291. The nature of the bankruptcy and the 

district court's jurisdictions, however, determines whether 

we are reviewing the final decision of the bankruptcy court 

or the district court, i.e., to whose fact-finding we owe 

clear-error deference. See Halper, 164 F.3d at 836 ("[A] 

proceeding's core or non-core nature is crucial in 

bankruptcy cases because it defines both the extent of the 

Bankruptcy Court's jurisdiction, and the standard by which 

the District Court reviews its factual findings.").

A core proceeding, " `invokes a substantive right provided 

by title 11 or . . . by its nature, could arise only in the 

context of a bankruptcy case.' " Id. (quoting In re Guild, 72 

F.3d at 1178). When reviewing a core proceeding, we accept 

the Bankruptcy Court's findings of fact unless clearly 

erroneous. See id. at 835. 

In contrast, a non-core proceeding belongs to "the 

broader universe of all proceedings that are not core 

proceedings but are nevertheless `related to' a bankruptcy 

case." Id. at 837. Thus, a "non-core" matter may include a 

proceeding that is not against the debtor or the debtor's 

property. See id. When reviewing a non-core proceeding, we 

treat the district court as the trial court, accepting its 

findings of fact unless clearly erroneous. See 28 U.S.C. 

S 157. Of course, conclusions of law are reviewed de novo 

in both core and non-core proceedings. See id. 

The Bankruptcy Court for the Western District of 

Pennsylvania opined that Spirco's motion to enforce the 

terms of the Reorganized Plan and enjoin enforcement of 

the state court judgment against Innovo was a core 

proceeding because "[s]uch a request would arise only in 

the context of a bankruptcy case wherein a plan of 

reorganization was confirmed and debtor had received a 

discharge." Spirco, 201 B.R. at 748. Innovo claims that 

" `[b]ut for' the filing of the Chapter 11 case by `Spirco' and 

the terms of its Plan, `Copelin' would have been free to 

 9 
pursue collection from `Spirco' or `Innovo' or both, until his 

claim was satisfied." Appellants' Br. at 26-27. We disagree. 

At issue here is whether Copelin has the right to collect 

his judgment from Innovo, a non-debtor who became 

involved in a bankruptcy court proceeding through the 

confirmation of an Amended Plan. This, we conclude, is a 

non-core proceeding. See Northern Pipeline Construction Co. 

v. Marathon Pipe Line Co., 458 U.S. 50, 102 S. Ct. 2858 

(1982) (criticizing the exercise of jurisdiction by a nonArticle III judge over a state law claim that was connected 

to a bankruptcy solely because the plaintiff filed a petition 

for bankruptcy). Indeed, it would be inconsistent with 

Northern Pipeline to require Copelin to have his rights 

determined by a non-Article III court simply because Innovo 

invoked the protection of the bankruptcy court through a 

bankruptcy court procedure. It is clear from the record that 

Copelin sued and won a state court judgment against

Innovo, not Spirco. Innovo remained a party to the action 

after Copelin filed a notice of non-suit against Spirco 

because Innovo was originally a party to the Employment 

Agreement.2 Additionally, by the very terms of the 

_________________________________________________________________ 

2. The Tennessee state court concluded that Spirco was not an 

indispensable party. Tennessee's Rules of Civil Procedure state: 

 Rule 19. Joinder of Persons Needed for Just Adjudication. 

 19.01 Persons to Be Joined if Feasible. A person subject to the 

 jurisdiction of the court shall be joined as a party if (1) in the 

 person's absence complete relief cannot be accorded among those 

 already parties, or (2) the person claims an interest relating to 

the 

 subject of the action and is so situated that the disposition of 

the 

 action in the person's absence may (i) as a practical matter impair 

 or impede the person's ability to protect that interest, or (ii) 

leave 

 any of the persons already parties subject to a substantial risk of 

 incurring double, multiple, or otherwise inconsistent obligations 

by 

 reasons of the claimed interest. If the person has not been so 

joined, 

 the court shall order that the person be made a party. If the 

person 

 properly should join as a plaintiff but refuses to do so, he or she 

 may be made a defendant, or in a proper case, an involuntary 

 plaintiff. This rule shall be construed to allow joint tort-feasors 

and 

 obligors on obligations that are joint and several to be sued 

either 
 jointly or severally. 

Tenn. R. Civ. P. 19.01. 

 10 
Reorganization Plan, Innovo is not the debtor. Copelin's 

judgment resulted from a "garden variety contract claim 

[against Innovo,] and is not against the bankrupt estate." 

Beard v. Braunstein, 914 F.2d 434, 444 (3d Cir. 1990) 

(holding that RICO and state law alter ego and common law 

fraud claims brought against shareholders, officers, 

directors and managing agents of a corporation thatfiled 

bankruptcy were not barred by the bankruptcy court's 

order confirming the Reorganization Plan, in part, because 

"the bankruptcy court would not have had jurisdiction to 

hear [the plaintiff 's] claims against the defendants"). 

Copelin's judgment did not result from a claim filed against 

a debtor that invoked bankruptcy law. Thus, the District 

Court properly concluded, 

 the efforts to execute on the judgment are not against 

 the debtor . . . [because] they do not seek to satisfy the 

 state court judgment by obtaining any property of the 

 bankruptcy estate. . . . Copelin's efforts to collect on 

 the judgment do not involve rights created by 

 bankruptcy law, [therefore], the issue before[this 

 court] is not of the type which arises only in the 

 context of a bankruptcy case. 

Spirco, 221 B.R. at 367 (citing Beard, 914 F.2d at 444). 

We reject Innovo's assertions urging us to hold that a 

non-debtor party who is independently liable on a state 

court judgment may subvert that judgment and invoke core 

treatment from a bankruptcy court simply by assuming 

obligations of a debtor who is also obligated to the same 

creditor. Both the Bankruptcy Court and Innovo 

characterize the issue as "debtor['s] request[ ][of] 

enforcement of the injunction arising from plan 

confirmation against efforts by a pre-petition creditor to 

collect a debt owed to that creditor by debtor and a third 

party." Spirco, 201 B.R. at 749. However, the debt is owed 

only by Innovo, the third party. The fact that Spirco merged 

into Innovo with Innovo as the surviving corporation does 

not does not change our analysis. 

The proceeding was non-core, therefore, the Bankruptcy 

Court's jurisdiction arose under 28 U.S.C. S 157(c)(1), and 

we exercise jurisdiction under 28 U.S.C. S 1291. As such, 

 11 
the Bankruptcy Court's findings and conclusions are mere 

recommendations entitled to no deference, and the District 

Court's findings of fact are subject to review for clear error. 

C. Is Copelin's Claim Against Innovo a 

 Class 8 Claim Under the Terms of the Plan and 

 the Bankruptcy Court Order? 

We also reject Innovo's assertion that the language and 

terms of the Reorganization Plan included Copelin's state 

court judgment against Innovo. First, the terms of the 

Reorganization Plan and the Bankruptcy Court Order dated 

November 18, 1994, expressly limits the discharge of 

Innovo's liability. See, e.g., Art. II(H) ("Class 8 consists of 

holders of Allowed General Unsecured Claims upon which 

[Innovo] is liable, by guaranty or otherwise, as established 

by (a) the entry of a Final Order upon motion filed by 

Debtor or Class 8 Claimant, or (b) written acknowledgment 

of [Innovo]."); Art. III ("Innovo shall acquire all assets and 

powers belonging to the Debtor but shall incur liability of 

[Spirco] only as provided for in this Plan."); Art. X(C) ("At no 

time shall [Innovo] be deemed a debtor. [Innovo] shall incur 

no obligations as a result of such merger except as

specifically provided in the Plan."); Art. X(D)("Upon the 

Effective Date, [Spirco] shall receive a discharge pursuant 

to Section 1141 of the Bankruptcy Code. The discharge of 

[Spirco] shall also effect a discharge of[Innovo with] respect 

to all claims and interests against Spirco, Inc.").

Importantly, although the Bankruptcy Court classified 

Copelin's claim as a Class 8 claim, the express terms of the 

Order do not encompass Innovo's independent liability to 

Copelin. The Order of the Court dated November 8, 1994, 

states in relevant part: 

 1. Each of the named Respondents herein have

 initiated Litigation against Innovo Group, Inc. in an 

 effort to establish Innovo Group, Inc. liability[sic] for 

 [Spirco's] obligations to such Respondents; 

 2. Each of the named Respondents herein shall be 

 and are deemed to be holders of Disputed Class 8 

 claims against [Spirco] as provided in the confirmed 

 Plan of Reorganization; 

 12 
 3. In the event that Respondents, or any one of them, 

 obtain a final Order of Court in the aforesaid Litigation 

 establishing Innovo group, Inc. liability [sic] for the 

 Debtors obligations, then such Respondent shall be 

 deemed to have an Allowed Class 8 claim payable 

 pursuant to the terms of the confirmed Plan of 

 Reorganization. 

Appellants' App. at 193-94. The plain language in the 

Reorganization Plan and the Order classifying claims 

reveals that judgments entered against Innovo individually, 

without reference to Spirco's liability, do not fall within any 

of these provisions. 

Second, the Tennessee state judgment does not indicate 

that Innovo's liability was contingent on Spirco's liability. 

The Bankruptcy Court's faulty analysis is evident in its 

characterization of Spirco's motion to enforce the terms of 

the Reorganization Plan. The Bankruptcy Court premised 

its decision on the statement that "debtor Spirco, Inc. has 

moved for an order enforcing the provision of its confirmed 

plan of reorganization which prohibits respondent Wayne 

Copelin from continuing his efforts in another forum to 

collect from Innovo Group, Inc. on a pre-petition debt owed 

by debtor and guaranteed by Innovo." Spirco, 201 B.R. at 

746. The Tennessee state court, however, found that Innovo 

was independently liable, not liable as a guarantor.3 

Because Spirco's Reorganization Plan and the 

classification of claims by their terms do not apply to 

Copelin's state court judgment against Innovo, Stoll v. 

Gottlieb, 305 U.S. 165, 59 S. Ct. 83 (1938), Chicot County 

Drainage District v. Baxter State Bank, 308 U.S. 371, 60 S. 

Ct. 317 (1940), and In re Szostek, 886 F.2d 1405, 1408-10 

(3d Cir. 1989), are not controlling. As explained, the 

Reorganization Plan expressly limits the discharge of 

Innovo's obligations to those "claims and interest against 

Spirco" "upon which [Innovo] is liable by guaranty or 

otherwise, as established by (a) the entry of afinal Order 

upon motion filed by Debtor or Class 8 Claimant, or (b) 

written acknowledgment of [Innovo]." Appellants' App. at 

_________________________________________________________________ 

3. Innovo concedes that the Tennessee state court found Innovo 

separately liable to Copelin. 

 13 
65, Article II(H); Appellee's App. at 23, Article X(D). There is 

no indication that Innovo's liability on the Tennessee state 

court judgment arises from either of these two situations. 

Moreover, the Reorganization Plan makes it clear that 

despite the merger of Spirco and Innovo, Innovo is not the 

debtor; therefore, Innovo's protections under Spirco's 

Reorganization Plan are limited. Appellee's App. at 23, 

Article X(C); Article X(D). 

Finally, reading the plan to allow a general discharge of 

Innovo is incorrect. Generally, independent obligations of a 

parent corporation are not discharged by its subsidiary's 

bankruptcy absent a general discharge provision. To the 

contrary, the general rule of First Fidelity Bank v. McAteer, 

985 F.2d 114 (3d Cir. 1993), controls. In McAteer, we said: 

 While it is true that the bankruptcy court's

 confirmation of the amended plan binds the debtor and 

 all creditors vis-a-vis the debtor, it does not follow that 

 a discharge in bankruptcy alters the right of the 

 creditor to collect from third parties. Section 524(e) 

 specifically limits the effect of a discharge. It provides 

 that ". . . discharge of a debt of the debtor does not 

 affect the liability of any other entity on, or the 

 property of any other entity for, such debt." This 

 section assures creditors that the discharge of a debtor 

 will not preclude them from collecting the full amount 

 of a debt from co-debtors or other liable parties. 

Id. at 118 (quoting 11 U.S.C. S 524(e)) (emphasis added). 

In sum, the District Court did not err by determining that 

Copelin's claim against Innovo does not qualify as a Class 

8 claim. There is no evidence that Innovo's liability on the 

Employment Agreement is contingent on Spirco's liability. 

Further, the release provision is limited in scope. When 

read in context with other provisions of the plan, it is clear 

that this discharge provision is limited to those claims and 

obligations upon which Innovo's liability results from 

"claims and interest against Spirco" or Innovo's status as 

"guaranty or otherwise, as established by (a) the entry of a 

final Order upon motion filed by Debtor or Class 8 

Claimant, or (b) written acknowledgment of [Innovo]." 

Appellants' App. at 65; Appellee's App. at 23. We hold that 

 14 
the state court judgment rendered against Innovo does not 

fall within the plain terms of Spirco's Plan of 

Reorganization. We will affirm the District Court's denial of 

Spirco's motion to enjoin Copelin's enforcement of the state 

court judgment.4 

III. 

In conclusion, Copelin holds a judgment against Innovo 

for breach of contract, breach of the covenants of good faith 

and fair dealing, and promissory estoppel. The District 

Court correctly decided that Copelin's judgment against 

Innovo does not fall within the terms of either the

Reorganization Plan or the Bankruptcy Court's order that 

any final order establishing Innovo's liability for Spirco's 

obligations be classified as an Allowed Class 8 claim. 

Therefore, we affirm. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

_________________________________________________________________ 

4. Because we affirm the District Court, we need not address Copelin's 

other arguments. 

 15