Source: https://www.monkey-factory.com/wac/collection/bankruptcy/20011015-brief.html
Timestamp: 2020-04-05 02:57:47
Document Index: 127402285

Matched Legal Cases: ['arto 98', '§ 101', '§ 1101', '§ 101', '§ 1107', '§ 1101', '§ 1142', '§ 362', '§ 1127', '§ 363', '§ 1142', '§ 1112', '§ 1127', '§ 1127', '§ 28', '§ 1127', '§ 544', '§ 361', '§ 28', '§ 28', '§ 28', '§ 28', '§ 1127', '§1112', '§ 1112', '§ 102', '§ 1127', '§ 1127', '§ 1127']

Liberty Lobby Bankruptcy — Appellee’s Brief (10/15/2001)
Appellee’s Brief (10/15/2001)
District Court Case No. 01cv1505-GK and
District Court Case No. 01cv1506-GK
Bankruptcy Case No. 01-01234
LEGION FOR THE SURVIVAL OF FREEDOM, INC.,
On Appeal from the U.S. Bankruptcy Court for the District of Columbia
CERTIFICATION OF COUNSEL AS TO PARTIES, RULINGS AND RELATED CASES
The Legion for the Survival of Freedom, Inc. ("LSF") hereby certifies that the following information is true and correct to the best of Counsel’s knowledge:
The following parties appeared in the proceeding before the United States Bankruptcy Court involving the orders under review:
There are no intervenors in this case.
Appellee LSF is a not for profit corporation organized under the laws of Texas. There are no holders of shares in LSF.
Liberty Lobby, Inc. ("Liberty"), filed its Notice of Appeal with respect to two decisions of the United States Bankruptcy Court for the District of Columbia as follows:
Order Denying Motion for Order Authorizing Payment of Pre-Petition Payroll, Dated June 20, 2001, Bankruptcy Case No. 01-01234, A.R. No. 34.
Order Dismissing Case, Dated July 2, 2001, Bankruptcy Case No. 01-01234, A.R. No. 39.
This particular bankruptcy proceeding has not previously been before this Court except on the Motion for Stay Pending Appeal. Liberty filed a Motion for Reconsideration of this Court’s decision on the Motion for Stay, but styled the case caption for the bankruptcy court. To the best of LSF’s knowledge, Liberty’s Motion for Reconsideration was filed in the bankruptcy court. There are numerous other cases involving the Appellant and Appellee. A detailed list of thirty one different proceedings is attached to the document styled Appellee’s Record No. 3, four of the most relevant proceedings appear as numbers 1, 6, 7, and 8 below. Numbers 2, 3, 4, and 5, do not appear on the list.
1 In re Liberty Lobby 98-1046 U.S. Bankruptcy Court District of Columbia
2 Liberty Lobby v. LSF 00-10052 (Adversary Proceeding in 1998 Bankruptcy Case) U.S. Bankruptcy Court District of Columbia
3 Liberty Lobby v. LSF 01-10019 (Adversary Proceeding in 1998 Bankruptcy Case) U.S. Bankruptcy Court District of Columbia
4 In re Liberty Lobby 01-01234 U.S. Bankruptcy Court District of Columbia
5 Liberty Lobby v. Kirk Lyons et al. 00-2411 (GK) U.S. District Court District of Columbia
6 Liberty Lobby v. Weber et al. 98-0236 (HHK) U.S. District Court District of Columbia
7 LSF v. Willis Carto, Liberty Lobby et al. 64584 Superior Court for State of California, County of San Diego, North County District
8 In re Willis and Elizabeth Carto 98-08050 U.S. Bankruptcy Court for the Southern District of California
Darrell W. Clark 450273
Washington, DC 20036-3816
Attorneys for LSF, Inc.
Below is a list of defining abbreviations and acronyms used in this Brief.
1998 Bankruptcy — In re Liberty Lobby, Inc., Chapter 11 Bankruptcy Case No. 98-1046.
2001 Bankruptcy — In re Liberty Lobby, Inc., Chapter 11 Bankruptcy Case No. 01-01234.
A.R. — Appellee’s Record, submitted with this Brief.
Bankruptcy Code — 11 U.S.C. §§ 101-1330.
California Judgment — Judgment in favor of LSF and against Liberty Lobby, Inc., and others in the Superior Court for State of California, County of San Diego, North County District, Case No. 64584.
Disclosure Statement — Liberty Lobby’s Chapter 11 Disclosure Statement, A.R. No. 5.
Forbearance Agreement - Forbearance and Settlement Agreement and Mutual General Release, a copy of which is attached to A.R. No. 7.
Liberty — Liberty Lobby, Inc., the Appellant herein.
LSF — Legion for the Survival of Freedom, the Appellee herein.
Plan — Liberty Lobby’s Chapter 11 Plan of Reorganization in the 1998 Bankruptcy, A.R. No. 6.
Substantial Consummation — Defined in 11 U.S.C. § 1101(2). A pre-requisite to a final decree and closing of any Chapter 11 case.
COMES NOW Legion for the Survival of Freedom, Inc. ("LSF"), the Appellee herein, by and through its undersigned attorneys, Morrison & Hecker L.L.P., and respectfully submits its Brief in this case.
This case involves the review of two bankruptcy court orders issued in Chapter 11 Bankruptcy Case No. 01-01234.
Title 28, Section 1334(a) creates original and exclusive jurisdiction in the United States District Court over all proceedings under Title 11 of the United States Code. Title 28, Section 157(a) permits a United States District Court to refer proceedings under Title 11 to bankruptcy judges. Local Rule 5011-1 of this District automatically refers all cases under Title 11 to a bankruptcy judge. Title 28, Section 158(a) provides that the United States District Court shall have jurisdiction to hear appeals from orders of bankruptcy judges entered in cases referred to a bankruptcy judge under Section 157.
The July 2, 2001, Order Dismissing Case is a final order of the bankruptcy court. The June 20, 2001, Order Denying Motion is an interlocutory order. No leave of court was sought to appeal that Order.
Liberty Lobby ("Liberty") has stated its issues on appeal. From the two orders of the bankruptcy court (three pages total), Liberty has attempted to craft eleven separate issues for consideration. LSF had previously filed a Motion to Strike five of the eleven issues. LSF will address all of Liberty’s issues as set forth in Liberty’s brief.
STATEMENT OF THE CASE AND STATEMENT OF FACT
The lengthy history of disputes between these parties and the eleven separate issues for appeal identified by Liberty make it difficult to briefly set out the facts. The most important facts involved in these appeals are as follows:
In 1996, a California court found Liberty and others responsible for the fraudulent transfer of assets away from LSF to Liberty and to others. The California court entered judgment in favor of LSF in an amount in excess of $6.0 million. Liberty’s share of the judgment was in excess of $4.0 million (the “California Judgment").
By 1998, LSF’s collection efforts brought it to the District of Columbia, Liberty’s place of incorporation and principal place of business. LSF’s court appointed receiver began seizing Liberty’s mail in order to apply subscription revenue toward LSF’s debt.
A. The 1998 Bankruptcy.
The appointment of the receiver and the seizure of mail first resulted in a civil action before Judge Kennedy. When Judge Kennedy refused to remove or restrain the receiver, Liberty sought protection under the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330. Liberty filed Case No. 98-1046 in the United States Bankruptcy Court for the District of Columbia (the “1998 Bankruptcy"). Liberty filed a Chapter 11 bankruptcy proceeding. In Chapter 11, a debtor remains in possession of its assets, acting in a fashion similar to a bankruptcy court appointed trustee as a fiduciary for its creditors. 11 U.S.C. § 1107(a). A Chapter 11 plan is filed and the creditors and the debtor are bound by the terms of the Chapter 11 plan.
Liberty’s Chapter 11 filing in the 1998 Bankruptcy coincided with the Chapter 7 (i.e., liquidation) bankruptcy filings of the four named individuals also responsible for the California Judgment. The four named individual defendants, two married couples, filed joint bankruptcy petitions in two other jurisdictions. Mr. and Mrs. Carto filed in California and Mr. and Mrs. Furr filed in Arkansas.
In each of the three separate bankruptcy cases in the three jurisdictions, LSF fought to prevent the discharge of the California Judgment. In the cases of the Cartos and the Furrs, LSF filed an Adversary Proceeding (i.e., a separate lawsuit within the bankruptcy court) to determine that the debts were not dischargeable. Each bankruptcy judge agreed that the individual debtors could not discharge the California Judgment. A similar complaint could not be brought against Liberty because it is a corporation, not an individual.
1. Forbearance Agreement and Plan.
In Liberty’s bankruptcy case, after taking discovery, LSF asked that the Court remove Liberty’s management from the financial fiduciary position and appoint a Chapter 11 Trustee. Appellee’s Record no. 2 (hereinafter “A.R."). The Office of the United States Trustee, a division of the United States Department of Justice charged with overseeing the administration of the bankruptcy system, also filed its own motion to appoint a Chapter 11 Trustee. A.R. no. 4. After one day of trial, the bankruptcy court recessed for a period of several days and during this period Liberty, the Cartos, the Furrs and LSF reached a comprehensive agreement called Forbearance and Settlement Agreement and Mutual General Release ("Forbearance Agreement").
There were three separate Forbearance Agreements, one between the Cartos and LSF, another between the Furrs and LSF, and a final agreement between Liberty and LSF. A copy of each of the three agreements is attached to A.R. no. 7. The agreements called for the dismissal of lawsuits, a release of claims, payments of principal, interest, and further provided that a judgment for the full amount owed would be available to LSF to secure performance, thus preventing the discharge of the California Judgment through the pending bankruptcy proceedings. Also, importantly, the Forbearance Agreements provided for venue in San Diego, California.
Federal Rules of Bankruptcy Procedure 9019 and 2002 provide that a bankruptcy estate may not compromise a claim except upon motion and notice to all creditors. Liberty duly filed its motion for approval of the Forbearance Agreement. A.R. no. 7. LSF supported the motion, A.R. no. 8, and the bankruptcy court granted the motion, but ordered that any implementation of the Forbearance Agreement must be part of a Chapter 11 plan. A.R. no. 9.
Liberty incorporated and recited the terms of the Forbearance Agreement in its disclosure statement (hereinafter “Disclosure Statement"), A.R. no. 5, made the Forbearance Agreement a defined term in its Chapter 11 Plan (hereinafter “Plan"), A.R. no. 6, p. 7, and recited its payment terms in the body of the Plan, A.R. no. 6, pp. 3-14. Liberty attached a copy of the entire agreement to the Disclosure Statement and mailed a copy to all of its creditors.1 The bankruptcy court approved the Disclosure Statement and confirmed the Plan. A.R. nos. 10 and 11.
The Forbearance Agreement was not the only promise made to LSF as part of Liberty’s Chapter 11 proceeding. The Chapter 11 Plan provided that the Debtor would secure all its obligations under the Plan by a lien in favor of all creditors. It stated:
¶ 7.02 Lien Created. As security for performance under this Plan, the full indebtedness of the Legion and to all other creditors, who do not receive all payments due them under the Plan on the Effective Date, shall be secured by a lien and security interest, which shall be perfected by filing and recording of a mortgage or deed of trust with respect to any real property and the filing of a financing statement (UCC-1) with respect to all other property of the Debtor …A.R. no. 11, p. 17.
Equality of treatment of similarly situated creditors is an important bankruptcy concept. Unless a creditor agrees to a different treatment, all similarly situated creditors must be treated the same. Any blanket lien on Liberty’s assets in favor of one creditor and to the exclusion of other creditors would have certainly caused concern. It is for this reason, LSF believes, that the lien provision was added to the Plan and was promised to all creditors.
2. Disputes in the Bankruptcy Court over the Forbearance Agreement and Plan.
When a Chapter 11 debtor confirms its plan, the bankruptcy case remains open until “substantial consummation” of the plan. Substantial consummation is defined in 11 U.S.C. § 1101(2) and requires that the Debtor begin the transfers promised under the plan. The transfers promised in a plan are not mere choices, § 1142(a) of Title 11 requires that the Debtor “shall” perform the promises made in the plan.
Even while the bankruptcy case remained open, Liberty and LSF had several disputes in the bankruptcy court over the Plan and Forbearance Agreement. LSF successfully moved to compel compliance with an assignment provision in the Forbearance Agreement and Plan. A.R. nos. 12 through 14. Liberty filed its own motion to compel which was denied. A.R. nos. 15, 17 and 18. Liberty even brought suit against LSF in the bankruptcy court seeking an injunction and temporary restraining order. A.R. nos. 24 and 25. The motion for temporary restraining order was denied and the complaint was thereafter dismissed. A.R. nos. 26 and 27.
Each of these post Chapter 11 Plan confirmation battles highlights the apparent inability or unwillingness of Liberty to comply with the Forbearance Agreement and Plan. They serve as examples of Judge Teel’s later comment that, on the date of Plan confirmation, default was an obvious known risk contemplated by the parties in their agreements.
After dismissal of the complaint seeking injunctive relief, Liberty filed a motion for final decree representing that the plan was substantially consummated. Judge Teel entered his Final Decree on August 8, 2000. A.R. no. 19. The 1998 Bankruptcy case was thus closed.
Shortly after the final decree, Liberty filed Liberty Lobby v. Kirk Lyons et al., in this Court and named LSF as a defendant. LSF sought to bring this apparent breach of the release provision of the Forbearance Agreement as well as Liberty’s July 2000 monetary defaults to the attention of a court. The bankruptcy court was not an option because the 1998 Bankruptcy was closed, but the Forbearance Agreement contained a venue provision for resolving disputes under the agreement in San Diego, California.
LSF brought its action in the Superior Court for the State of California, County of San Diego, North County District seeking to reinstate the California Judgment. Liberty participated in the San Diego action. Liberty filed papers through counsel and, after the trial court reinstated the judgment, Liberty appealed the decision through counsel. Copies of Liberty’s filings and the trial court’s order in the California proceeding are attached to A.R. no. 29. Liberty obtained a brief stay in the California state appellate court. That stay expired and its appeal was eventually dismissed on May 30, 2001 for failing to file an appellate brief.
C. 1998 Bankruptcy Re-opened.
Having no success in California, Liberty reopened the 1998 Bankruptcy and filed a pleading styled “Motion for Relief to Fully Implement Plan". A.R. no 20. Belatedly, realizing that the “Motion” was really a request for an injunction, Liberty then filed a complaint, Adversary Proceeding Number 01-10019, seeking an injunction. A.R. no. 28.
Judge Teel denied the “Motion” and refused to enjoin LSF from proceeding on the reinstated judgment finding that the California court’s ruling was res judicata and must be given full faith and credit. A.R. nos. 22 and 23. The bankruptcy court commented that San Diego was an appropriate forum under the Forbearance Agreement and that the same issue would not be re-litigated in the bankruptcy court. A.R. no. 23, pp. 39-41. Liberty never appealed Judge Teel’s decision as to the res judicata effect of the California court’s ruling reinstating the California Judgment.
Important in Judge Teel’s decision on the “Motion” are his comments about a Chapter 11 plan and the ability of a debtor to modify that plan. A.R. no. 23, pp. 40-41. A plan and its surrounding documents, such as the Forbearance Agreement, are simply contracts between a debtor and its creditors confirmed by a federal court. There is nothing unique about the interpretation of that contract that requires that the dispute be resolved exclusively in the bankruptcy court. This is important to understanding the Debtor’s misguided argument that a Chapter 11 debtor and its creditors can create exclusive jurisdiction in the bankruptcy court (an Article 1 court of limited jurisdiction) simply by adding language to a Chapter 11 plan.
Judge Teel also discussed why Liberty could not simply modify its plan and reinstate the judgment after the latest default. Section 1127(b) of Title 11 prohibits a Chapter 11 debtor from modifying its plan after substantial consummation. A.R. no. 23, p. 43. After substantial consummation, the contracting parties can rely on their default provisions under the plan and the accompanying agreements.
Judge Teel’s ruling left Liberty with few options. Liberty clearly wanted to somehow enjoin the reinstated California Judgment. However, Liberty had abandoned its appeal in California and it lost its “Motion” to reinstate the Plan from the 1998 Bankruptcy and the companion complaint seeking injunctive relief was dismissed. Seemingly the only other option available to Liberty was the automatic bankruptcy stay of 11 U.S.C. § 362(a). Thus on June 8, 2001, Liberty filed its second Chapter 11 bankruptcy case, Case No. 01-01234 (the “2001 Bankruptcy"). A.R. no. 32.
D. 2001 Bankruptcy.
The 2001 bankruptcy proceeding was an attempt to do in a new case on June 8, 2001, what Judge Teel had prevented Liberty from doing on June 6, 2001, in the 1998 Bankruptcy, namely revise the terms of the Plan by attempting an end run around the prohibition against modification set forth in 11 U.S.C. § 1127(b). Liberty’s first act in the 2001 Bankruptcy was to seek the emergency relief of paying its employees for their pre-bankruptcy wages ("Emergency Motion). A.R. no. 33.
1. Emergency Motion to pay employee payroll.
The Bankruptcy Code, 11 U.S.C. § 363(c)(2), prohibits a Chapter 11 debtor from using collateral to pay other creditors without providing some protection to the lienholder. Generally a debtor will provide a replacement lien or interest. LSF appeared at the hearing on the Emergency Motion and opposed the Motion on the grounds that the Plan in the 1998 Bankruptcy provided that LSF and all other creditors had a lien on Liberty’s property and that no protection was offered to LSF for the use of its collateral.
Liberty argued that no lien existed because it never prepared, signed or filed the deeds of trust and financing statements promised in the Plan in the 1998 Bankruptcy. Liberty wanted the bankruptcy court to ignore the fact that the Bankruptcy Code required Liberty to perfect the liens, 11 U.S.C. § 1142(a), and Liberty’s failure to do so was the only reason why the liens were not perfected. A.R. no. 35, pp. 3-7.
Judge Teel was not persuaded by Liberty’s argument and ruled that Liberty could not “shirk that lien by the filing of [a new bankruptcy case].” A.R. no. 34. Judge Teel also commented that the lien granted as part of the Plan in the 1998 Bankruptcy had the effect of a floating lien on all of Liberty’s assets, even new subscription revenue. A.R. no. 35, p. 23. “It just stands to logic that [LSF] was looking to the debtor’s asset base on a going-forward basis, not simply frozen in time as of the date of confirmation of the plan.” A.R. no. 35, p. 24. Thus, the lien would cover all of Liberty’s assets as of the date of the filing of the 2001 Bankruptcy.
Judge Teel denied the Emergency Motion in his order dated June 20, 2001. A.R. no. 34.
2. Dismissal of the 2001 Bankruptcy case.
One week later, the bankruptcy court held a hearing on LSF’s motion to dismiss the 2001 Bankruptcy. The Bankruptcy Code, 11 U.S.C. § 1112(b) provides for dismissal of Chapter 11 cases. LSF brought its motion under this section arguing that the serial filing was not in good faith and should be dismissed. The bankruptcy court ruled in LSF’s favor finding that, while there is no specific statutory provision prohibiting serial Chapter 11 filings, except in rare circumstances § 1127(b) of the Bankruptcy Code prohibits a serial Chapter 11 case when it would have the effect of modifying obligations created under a previously confirmed and substantially consummated Chapter 11 plan. A.R. no. 40, p. 26. Judge Teel discussed the exceptions to the general rule prohibiting re-filing and found that Liberty’s 2001 Bankruptcy met none of those exceptions. A.R. no. 40, pp. 27-35.
Judge Teel also found that the filing of the 2001 Bankruptcy would effectively destroy the lien rights provided to LSF and other creditors from the 1998 Bankruptcy. A.R. no. 40, p. 33. With Liberty neglecting to file the lien documents promised in the 1998 Bankruptcy case, it would be inappropriate to permit Liberty to use the 2001 Bankruptcy to disavow that lien. Id. A.R. no. 40, p. 33. The bankruptcy court dismissed the 2001 Bankruptcy in its order dated July 2, 2001. A.R. no. 39.
3. Stay pending appeal.
Efforts by Liberty to obtain a stay pending appeal in the bankruptcy court and in this Court failed, with both courts ruling that there was no likelihood of success on the merits. In ruling, Judge Teel commented: “I frankly cannot think of a stronger case for barring the debtor from using a successive bankruptcy case to try to undo the terms of a confirmed plan in the earlier case.” A.R. no. 44, p. 15.
Liberty has raised eleven different issues on appeal stemming from two orders of the bankruptcy court that were a total of three pages long. Liberty mixes issues, raises arguments about the validity of the California court’s ruling that were decided in the 1998 Bankruptcy and even seeks review of an argument that never appears in the hearing transcripts. One issue is really dispositive of both appeals: “Did the Bankruptcy Court err in finding that the 2001 Bankruptcy was a serial filing prohibited by applicable bankruptcy law?” Appellant’s Issue on Appeal Letter H.
In Judge Teel’s decision on the motion for stay pending appeal he comments that the issue is not one of the Debtor’s ability to reorganize in the 2001 Bankruptcy, but instead is an issue of abuse of the bankruptcy system. Thus the presence of a lien and extent of that lien on the new bankruptcy (Appellant’s Issues A through C) and the classification of new subscribers (Appellant’s Issue J) or the treatment of LSF in a new plan (Appellant’s Issue K) are all irrelevant to the underpinning of Judge Teel’s ruling. What is relevant are the facts that a two party dispute was resolved in the 1998 Bankruptcy by means of the Forbearance Agreement and Plan. The Forbearance Agreement contained a venue provision for determining disputes and contained a remedy for default. A court in that venue made a ruling under the Forbearance Agreement. The parties were represented by counsel and appeared in that proceeding. The 2001 Bankruptcy would result in a circumvention of those negotiated rights contrary to the language of 11 U.S.C. § 1127(b) prohibiting modifications of a plan after substantial consummation. A.R. no. 44, p. 19.
The 2001 Bankruptcy was an abuse of the bankruptcy system because the parties had previously resolved their differences and the court placed its imprimatur on that resolution. They obtained a court order approving the agreement and incorporated portions of the agreement into the Plan. Upon confirmation of the Plan, the rights of the parties were set. To permit the 2001 Bankruptcy to move forward would be to undo the assurances made in the judicially supervised confirmation of the prior Plan. This reason alone justified the bankruptcy court’s decision and merits a ruling in this Court affirming that decision.
When a district court reviews bankruptcy court decisions, it applies the “clearly erroneous” standard to findings of fact and the “de novo” standard of review to conclusions of law. In re Excalibur Automobile Corporation, 859 F. 2d 454 (7th Cir. 1988). In reviewing an appeal from a bad faith dismissal, this Court must review “the bankruptcy court’s ultimate finding that the filing was not in good faith as one of fact subject to the clearly erroneous standard.” Carolin Corp. v . Miller, 886 F.2d 693, 702 (4th Cir. 1989). Whether a bankruptcy case has been filed in bad faith is a question of fact, and a dismissal will only be reversed if the court abused its broad discretion. In re Cedar Shore Resort, Inc., 235 F.3d 375, 379 (8th Cir. 2000)(citations omitted).
A. The Bankruptcy Court Correctly Recognized LSF’s Lien. (Appellant’s Issue A).
In this issue on appeal, Liberty questions both the existence of the lien and its breadth. The existence of the lien is set forth in the Plan and quoted in Liberty’s brief.
Initially, it should be noted that the lien was granted as part of the Plan in the 1998 Bankruptcy. The lien existed as between the debtor and its creditors even if a financing statement was never filed. D.C. Code §§ 28:9-301 and 28:9-203 make clear that as between a debtor and its creditor, all that is required is a security agreement describing the collateral, here - the Plan. Recordation insulates the lien position as against third parties, not the parties to the contract. Thus, Liberty erroneously asserts in its statement of the issue that the bankruptcy court “retroactively” imposed the liens. The liens existed as between Liberty and all of its creditors from the date of Plan confirmation onward.
Liberty then ignores the prohibition on plan modification and its impact on the liens. The lien was promised to all creditors in the 1998 Bankruptcy Plan. The Bankruptcy Code prohibits modification of the Plan, § 1127(b). Because the 1998 Bankruptcy Plan gave this lien to creditors and that Plan cannot be modified, Liberty cannot attempt an end run around that prohibition by filing the 2001 Bankruptcy Case. For this reason alone, the bankruptcy court’s decision on the issue should be affirmed.
Other factors also militate in favor of finding that the bankruptcy court’s decision should be affirmed. Liberty argues that § 544 of the Bankruptcy Code was fully effective upon the filing of the petition in the 2001 Bankruptcy. This provision states that the trustee may “avoid” an unrecorded lien. However it requires some affirmative act on the part of the trustee/Chapter 11 debtor. Federal Rule of Bankruptcy Procedure 7001 is a list of actions that must be brought by Adversary Proceeding i.e., by separate lawsuit. Included on that list is a proceeding to determine validity of liens. Until Liberty filed that lawsuit in the bankruptcy court and obtained a ruling in its favor, it was proper for the bankruptcy court to consider the liens valid.
Case law has also established the proposition that, when the debtor’s conduct played a role in failing to properly record the liens, the debtor cannot obtain the benefit of its own negligence by filing bankruptcy and seeking to avoid the lien. In In re A.J. Rackers, Inc., 167 B.R. 168, 173-175 (Bankr. W.D. Mo. 1994), the bankruptcy court ruled that the debtor was estopped from avoiding the liens when it was the debtor’s own negligence that cause the liens to be invalid. Rackers involved a situation where a company had pledged collateral while its corporate charter had expired and the corporation was technically forfeited. Id., 173. The bankruptcy court ruled that both the debtor and the trustee were estopped from seeking avoidance of that lien. Id.
Here, Liberty was the entity responsible for recording the liens. The financing statements and deeds of trust had to be signed by Liberty and no one else. Also, Liberty made this promise to its creditors in the Plan. Section 1142(a) of the Bankruptcy Code required Liberty to perform this duty. Having failed to do so, Liberty should not be permitted to benefit from the consequences of its negligence.
Another case on point is Dunes Hotel Associates v. Hyatt Corp., 245 B.R. 492 (D.S.C. 2000) in which the case was also dismissed as a bad faith filing. In Dunes Hotel, the bankruptcy court refused to permit a Chapter 11 debtor from bringing an action to avoid a lien on equitable grounds. Id., at 506. The U.S. District Court affirmed. Id., at 512. While the facts as to the specific equitable grounds in Dunes Hotel are not analogous to the grounds here, Dunes Hotel does stand for the proposition that the bankruptcy court can consider the equities involved in the action in ruling on the avoidance of the lien.
Judge Teel’s decision not to permit Liberty to pay its employees from the collateral of LSF could be supported on these equitable grounds alone. Judge Teel’s order stated: “It would not be good faith for the debtor to shirk that lien by the filing of this case.” A.R. no. 34. Further, as Judge Teel’s order notes, Liberty offered no protection for LSF’s lien as required by §§ 361 and 363 of the Bankruptcy Code. A.R. no. 34.
The second prong of this issue on appeal involves the extent of the lien. However Liberty never addresses the extent of the lien in its discussion of this particular issue on appeal.
B. The Bankruptcy Court Correctly Determined That LSF’s Lien Extended To Liberty’s Cash. (Appellant’s Issue B).
This second issue is strictly a matter of contract interpretation. The Plan states that the lien applies to “any real property” and “all other property of the Debtor, with the exception of the Debtor’s interest in the Kefer Estate". A.R. no. 11, p. 17, ¶ 7.02. Judge Teel interpreted this promise to mean Liberty’s after acquired cash and subscription revenue. A.R. no. 35, pp. 23-24. Specifically Judge Teel stated:
It seems to me the debtor was in a position of operating a newspaper and getting distributions - of getting income for the operation of the newspaper from which it intended to make distributions in the future, and that it was within the contemplation of the parties that there would be a lien in favor of the Legion upon the debtor’s assets on an ongoing basis. It would be a floating lien. As the old subscriptions were filled, publications of the newspaper were sent to them, and as new subscriptions came in, the old monies that were on hand from the old subscriptions, of course, would have rolled over into the new funds that were not on hand at the time the plan was confirmed.It just stands to logic that the Legion was looking to the debtor’s asset base on a going-forward basis, not simply frozen in time as of the date of confirmation of the plan.A.R. no. 35, pp. 23-24.
Liberty’s argues that this factual finding is clearly erroneous because (i) the property was not described in the Plan in sufficient detail and (ii) District of Columbia law prohibits a security interest from attaching to after-acquired collateral unless it is specifically stated in the security agreement.
The Plan clearly stated that the lien attached to “any real property and … all other property of the Debtor” and specifically excepted Liberty’s interest in the Kefer Estate which was assigned directly to LSF under another agreement. A.R. no. 11, p. 17. In another paragraph, the Plan, ¶ 5.04, it states “[a]ll payments due to claimants which are unpaid after the Effective Date shall be secured by a lien on all of the Debtor’s assets.” (emphasis added). A.R. no. 11, p. 14. Having used such broad language with specific limiting language as to the Kefer Estate, it is reasonable for the bankruptcy court to conclude that the lien should be as broad as the language clearly states.
As Judge Teel noted (quoted above), in a reorganization bankruptcy case, creditors agree to accept payment from the debtor over time based upon its post-bankruptcy operations. LSF certainly looked towards Liberty’s “going concern” value in its decision to vote for the Plan. Liberty even pointed out in its Disclosure Statement in support of its Plan, that the liquidation value of its assets was $203,222 on the date of Plan confirmation, but the going concern value was in excess of $1.5 million. A.R. no. 5 pp. 19-20. Judge Teel’s finding that “[i]t just stands to logic that the Legion was looking to the debtor’s asset base on a going-forward basis, not simply frozen in time as of the date of confirmation of the plan” is consistent not only with the language of the Plan, but also with Liberty’s owns representations in its Disclosure Statement.
The contention that District of Columbia law requires after-acquired property clauses to be specified in a security agreement is an inaccurate reading of the District of Columbia Code. Liberty cites to the wrong section of the statute in its brief. The appropriate provision of the District of Columbia’s version of Article 9 of the Uniform Commercial Code is § 28:9-110, not § 28:9-204 as cited by Liberty. Section 28:9-110 titled “Sufficiency of Description” provides that “any description of personal property or real estate is sufficient whether or not it is specific if it reasonably identifies what is described.” When the lien language in the Plan is viewed in context, it is clear, as Judge Teel found, the lien applies to all of Liberty’s property even after-acquired property such as subscription receipts, advertising revenue, and book sale receipts.
Having provided no evidence at the hearing in the bankruptcy court and no argument in its brief that the words “any real property and … all other property of the Debtor” mean or were intended to mean, something different that as how they were interpreted by the bankruptcy court, Liberty’s challenge to the bankruptcy court’s findings on this issue must fail.
C. The Bankruptcy Court Correctly Determined That LSF’s Lien Extended To Subscription Receipts. (Appellant’s Issue C).
Liberty further attempts to limit the lien by arguing that the lien could not extend to subscription payments because no financing statement was recorded. Liberty cites to D.C. Code § 28:9-306 as authority for this proposition.
Liberty again ignores the purpose of Article 9 of the Uniform Commercial Code which is to provide notice to third persons of a security interest. Perfection of a security interest plays no role in determining the relative rights in property as between the debtor and its creditor. See e.g. D.C. Code § 28:9-201. If Liberty had another secured creditor which loaned money to Liberty and took an security interest in its subscription revenue and recorded that security interest, that third party creditor could use the failure to perfect the Plan lien as means of obtaining a priority interest in the subscription receipts. This is hardly the factual scenario in this appeal.
Judge Teel noted that the subscribers were not the type of creditor that would be loaning money to Liberty in reliance on a title search. A.R. no. 35, p. 25. Liberty’s argument that it somehow stands in the shoes of its subscribers and can therefore invalidate the lien promised in the Plan is without merit. Liberty was responsible for filing the very lien which it now seeks to invalidate.
Liberty again attempts to assert that the bankruptcy court’s decision caused a “retroactive” imposition of a lien. This assertion ignores the language of the Plan which granted the lien effective from the date of confirmation forward. The bankruptcy court did not retroactively impose the lien, Liberty retroactively ignored the lien.
D. The California Court’s Order Is Res Judicata. The Bankruptcy Court’s Ruling Did Not Abolish All of Liberty’s Rights Under The Plan and The Exercise of The Default Remedy Does Not Give Liberty Another Chance At Chapter 11. (Appellant’s Issue D).
Liberty devotes a substantial portion of its discussion on this issue to re-arguing its case as to the decision by the court in California. This Court should know that Judge Teel’s decision that the California court’s ruling was res judicata was made in the 1998 Bankruptcy not the 2001 Bankruptcy in an order dated June 7, 2001. That decision, A.R. no. 23, was never appealed by Liberty and the time to appeal has expired. It is not appropriate in this appeal to move down that slippery slope into re-investigating the decision already made in California and appealed in California or to now consider Liberty’s contentions with a decision made by Judge Teel in an earlier case, and never appealed. Liberty’s strategy in bringing this issue to the Court is consistent with Judge Kennedy’s comment that Liberty’s court filings are: “suffused with factual allegations that have previously been litigated and adjudged in California state courts” and that it is not appropriate to “permit [Liberty] to use this court to relitigate these issues in merely recycled form” Liberty Lobby, Inc. v. Weber et al., Civil Action No. 98-0236 (HHK), Memorandum Opinion and Order, p. 4-5, United States District Court for the District of Columbia, Docket Entry No. 78, April, 1999 (citations omitted).
Aside from its attempts to re-examine the res judicata ruling, Liberty seems to be arguing that the 2001 Bankruptcy cannot be treated as a serial filing, since the California court’s ruling eliminated any benefit to Liberty from the 1998 Bankruptcy Plan. The flaw in Liberty’s argument is that the reinstatement of the California Judgment was a known default remedy in the confirmed 1998 Bankruptcy Plan.
2. The Bankruptcy Court’s ruling did not abolish Liberty’s rights under the 1998 Bankruptcy Plan.
Liberty’s assertion is wrong, as the1998 Bankruptcy Plan provided substantial benefit to Liberty notwithstanding the reinstated California Judgment. The Plan in the 1998 Bankruptcy divided unsecured creditors into three classes: (i) all unsecured creditors owed less than $5,000; (ii) all unsecured creditors owed more than $5,000 except LSF; and (iii) LSF. With respect to classes (i) and (ii) Liberty’s Plan provided that these creditors would receive 30 cents on the dollar with interest. A.R. no. 11 pp. 12-13. Liberty made all of those payments and the class (i) and class (ii) creditors are forever barred from collecting the remaining amounts owed. Thus it is false for Liberty to assert that Judge Teel’s ruling abolished all relief sought by Liberty in its first bankruptcy, as the claims of two of the three classes in the Plan have had their claims resolved as a substantial discount.
3. LSF’s exercising of its default remedy does not give Liberty another chance at Chapter 11.
LSF bargained for and received a remedy if Liberty defaulted on its Plan payments or on the terms of the Forbearance Agreement. Paragraph 5 of the Forbearance Agreement clearly indicates that, if the bankruptcy was not dismissed (it was not), Liberty would enter into a stipulated judgment for the full amount owed. A.R. no. 7, exhibit A, ¶ 5. This is entirely consistent with the relief provided by the California court. Liberty clearly knew that this was the remedy for default and when it filed a subsequent lawsuit and failed to make certain payments, it did so at its peril.
Although Liberty did not fulfill all of its promised under the 1998 Bankruptcy Plan, this does not permit Liberty to file another Chapter 11 case. To do so would be to allow Liberty to ignore its promises to LSF in the Forbearance Agreement and the default remedy therein. As Judge Teel noted: “Section 1127(b) [of Title 11] prohibits a serial Chapter 11 case that would have the effect of modifying obligations created under a previously confirmed substantially consummated Chapter 11 plan.” A.R. no. 40, p. 26. Since the 2001 Bankruptcy would have the effect of denying LSF its negotiated remedy of reinstating the California Judgment, it was proper to dismiss the 2001 Bankruptcy. Liberty argues that the Plan became a nullity once LSF exercised its default remedy, but this argument ignores the undisputed fact that the remedy was a negotiated term of the Forbearance Agreement. For this reason, the second bankruptcy filing acts as an unauthorized and unlawful modification of that agreement of the type prohibited by the Bankruptcy Code. § 1127(b).
E. LSF Had Rights In Both The Plan And The Forbearance Agreement. Reinstating The California Judgment Does Not Destroy Those Other Rights. (Appellant’s Issue E ).2
Liberty hangs its hat on a one line statutory provision in the California Code in making an argument that LSF somehow elected a remedy and therefore is estopped from asserting its rights under the 1998 Bankruptcy Plan.
To understand the flaw in Liberty’s argument, it is important to remember what promises were made to LSF in the 1998 Bankruptcy. LSF obtained (i) a Forbearance Agreement, which included a default remedy reinstating the entire California Judgment; and (ii) together with all of Liberty’s other creditors, a lien as part of the Plan. The failure of one promise does not necessarily impact the rights under the other promise.
Liberty seems to be arguing that because the collection forbearance was lifted (i.e., Liberty’s right to avoid collection of the full amount if it made scheduled payments), LSF forfeits all of its other rights both in the Plan and in the Forbearance Agreement. Liberty’s understanding of this issue similarly perplexed Judge Teel:
I don't see how the [sic] recision of that part of the settlement agreement [the setting aside the payment schedule under the settlement agreement by way of rescission] clears a provision in the plan that gave additional protection to this Creditor that its claim, whether it was paid as part of a judgment or whether it was paid in accordance with a payment schedule in a settlement agreement, I don't see how that provision for a lien has been somehow rescinded.A.R. no. 40, p. 11.
Liberty offers no case or statutory authority to support its contention that the bankruptcy court erred in finding that the promises in the Forbearance Agreement and the additional provisions of the Plan should be treated together with respect to the California court’s ruling reinstating the California Judgment. Having provided no support to demonstrate that this finding was clearly erroneous, this Court should affirm the bankruptcy court’s ruling.
F. The California Court’s Ruling Did Not Set Aside A Final Federal Court Order Of Confirmation. (Appellant’s Issue F).
Liberty again misunderstands the rulings made in the bankruptcy court. Judge Teel stated: “I don't think that the judgment in California had the effect of setting aside a confirmed order of a U.S. Bankruptcy Court. I don't think that court could do that.” A.R. no. 40, at p. 12.
If Liberty is arguing that the bankruptcy court ruled that the order confirming the Plan in the 1998 Bankruptcy was set aside by the California court, it has clearly misunderstood Judge Teel’s ruling. Judge Teel did rule that the California court had jurisdiction to hear disputes related to the Forbearance Agreement and that the California’s court’s ruling on the default under that agreement was res judicata. A.R. no. 23, p. 40 ("It seems to me that the Superior Court had concurrent jurisdiction to address the issue of a default under the forbearance agreement.").
Liberty seems to have misunderstood Judge Teel’s ruling on appeal herein. Furthermore, the res judicata order is a final order in the 1998 Bankruptcy. See A.R. no. 23. For these reason, no further argument is necessary.
G. LSF Had Rights in Both The Plan and The Forbearance Agreement and Reinstating The California Judgment Does Not Destroy Those Other Rights. (Appellant’s Issue E).
This issue on appeal is virtually identical to Issue E discussed above, only this issue was actually listed in the Statement of Issue on Appeal. Having fully responded to Issue E above, LSF incorporates its prior response by reference herein.
H. The 2001 Bankruptcy Case Was an Impermissible Serial Filing and Dismissal Was Appropriate. (Appellant’s Issue H).
This issue is truly the heart of this appeal. All of Liberty’s other issues on appeal are merely collateral to this central issue. The serial filing issue is a two part analysis: (i) the appropriate legal standard; and (ii) application of that legal standard to the facts. The bankruptcy court’s decision on the legal standard supports affirmance even if the minority legal standard is applied because the court made a determination on the facts even if that standard were to apply. Liberty argues that the bankruptcy court should have considered other facts in its analysis that merit an exception to an established general rule.
There is emerging case law as to how courts should review the good faith of a debtor seeking to reorganize under Chapter 11. While “good faith” is not an explicit statutory requirement, every Circuit Court to address the issue holds that the Bankruptcy Code contains an implicit good faith requirement. In re Cedar Shore Resort, Inc., 235 F.3d 375, 379 (8th Cir. 2000); In re SGL Carbon Corporation, 200 F.3d 154, 162 (3rd Cir. 1999); In re Trident Assoc., Ltd. Partnership, 52 F.3d 127, 130-1 (6th Cir. 1995); In re Marsch, 36 F.3d 825, 826 (9th Cir. 1994); Carolin Corp. v. Miller, 886 F.2d 693, 700 (4th Cir. 1989); In re Phoenix Piccadilly, Ltd., 849 F.2d 1393, 1394 (11th Cir. 1988); In re Little Creek Development Company, 779 F.2d 1068, 1071-1 (5th Cir. 1986).
Consequently case law has determined that one of the grounds for dismissal in §1112(b) of the Bankruptcy Code is “bad faith". Section 1112(b) sets forth a set of some factors for dismissal and the word “including” as used in § 1112(b) is not a word of limitation. 11 U.S.C. § 102(3).
There is no one established test to determine if a serial bankruptcy filing should be dismissed as a bad faith bankruptcy filing. The general rule is that § 1127(b) prohibits a serial Chapter 11 case that would have the effect of modifying obligations created under a previously confirmed substantially consummated Chapter 11 plan. Elmwood Development Co., 974 F.2d 1337 (5th Cir. 1992); In re Jartran, 886 F.2d 859 (7th Cir. 1989); In re Delray Associates Ltd. Partnership, 212 B.R. 511 (Bankr. D. Md. 1997). In examining whether a new filing merits dismissal under the general rule, courts have considered whether filing is merely an attempt to gain advantage in two party dispute, In re HBA East, Inc., 87 B.R. 248 (Bankr. E.D.N.Y. 1988); and whether the filing is merely an attempt to forestall a state court action or avoiding a day of reckoning in another forum, In re Indian Rocks Landscaping, 77 B.R. 909 Bankr. M.D. Fla. 1987).
There are exceptions to the general rule: (i) whether there were changed circumstances between the two bankruptcy filings based upon events unforeseen and unanticipated at the time of confirmation of the first case Elmwood Development Co., 974 F.2d 1337 (5th Cir. 1992), In re Woodson, 213 B.R. 404 (Bankr. M.D. Fla. 1997), In re Roxy Real Estate Company, Inc., 170 B.R. 571 (Bankr. E.D. Pa. 1993 and (ii) whether the new filing is a liquidation filing rather than a reorganization filing. In re Jartran, 886 F.2d 859, 868-69 (7th Cir. 1989).
There is some debate whether the standard applied in Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989) should apply in analyzing a bad faith dismissal. Carolin held that the court should look at both the subjective bad faith of the debtor and also the objective futility of reorganizing. Id., at 700-1. Although the Carolin decision was criticized by Judge Teel in his decision on Liberty’s motion for stay pending appeal, A.R. no. 44, pp. 16-18, Liberty’s case still should be dismissed even if the Carolin standard applied.3 Judge Teel found that “the Debtor has not proffered how it could reorganize in the face of a lien on substantially all of its assets.” A.R. no. 40, p. 33. Thus even if the criticized standard of Carolin were used, the 2001 Bankruptcy should still be dismissed.
Examining the established factors against the facts of this case, Judge Teel found that, based upon the totality of the circumstances, Liberty’s 2001 Bankruptcy met none of the exceptions to the general rule. Here, the settled expectations of the parties in the 1998 Bankruptcy were that Liberty would be given an opportunity to make payments on the California Judgment consistent with the Plan and Forbearance Agreement and that, if the payments or other obligations failed, the California Judgment would be reinstated. To modify those settled expectations through another bankruptcy proceeding would be to attempt an end run around § 1127(b). A.R. no. 40, pp. 25-26. The other badges of bad faith dismissal under the general rule were also present. The court indicated that it appeared that Liberty was attempting to merely forestall a day of reckoning in another forum and that the dispute was essentially a two party dispute. A.R. no. 40, pp. 30-31.
As to the exceptions to the general rule, Liberty met none. There was no unforeseen or unanticipated change in circumstance. The bankruptcy court noted by way of example that some acceptable unexpected events include a fire destroying the debtor’s property, an unanticipated change in the law regulating the debtor’s operations, or the relocation of an airport terminal thereby affecting a debtor’s ability to attract customers has been held to be an acceptable unforeseen change. A.R. no. 40, pp. 27-28. Judge Teel noted that risks that were inherent on the date of confirmation that later come into being and prevent performance do not qualify under this exception. A.R. no. 40, p. 28; In re Savannah Ltd., 162 B.R. 912, 916-17 (Bankr. S.D. Ga. 1993).
In this case, Liberty’s claim that the California court’s reinstatement was an unexpected event runs contrary with the very language in the Forbearance Agreement and Plan documents. The court noted that Liberty’s own Disclosure Statement in support of its plan stated: “[t]here can be no assurance that the Debtor will receive sufficient funds from operations or other sources, including the Kefer Estate, to make its payments according to the accelerated schedule projected above.” A.R. no. 40, p. 29 quoting A.R. no. 5, p. 13. As the risk of default and reinstatement of the California Judgment existed on the date of confirmation in the 1998 Bankruptcy, these factors do not qualify as an unforeseen/unanticipated event.
Judge Teel then noted that the liquidation exception did not apply since Liberty had filed a Chapter 11 reorganization case, not a Chapter 7 proceeding, and indicated to the court that it wanted to reorganize its operations. A.R. no. 40, p. 30.
3. Liberty’s other factors are factually wrong and do not qualify as an exception.
Liberty argues that the Court should have examined the good faith/bad faith of Liberty and LSF. Judge Teel considered and denied Liberty’s argument in his decision on page 34. A.R. no. 40, p. 34. Liberty simply restates those issues anew without explaining how the bankruptcy court erred in evaluating those issues. Moreover, Liberty is incorrect on the facts.
Liberty first claims that the reinstatement was a surprise because it was not in monetary default. This is a matter already decided by another court. The California court found, in its order, that Liberty was in monetary default of the Forbearance Agreement by failing to pay interest and by failing to make the July 2000 payment. A.R. no. 29, attachment.
Liberty then indicates that LSF’s good faith should be examined because it failed to notify a Swiss criminal authority of the Forbearance Agreement. This is a matter already addressed in the Bankruptcy Court. As the record clearly demonstrates, these very challenges were brought to Judge Teel’s attention in June 2000, and Judge Teel denied Liberty’s motion to compel and request for attorneys fees. A.R. no. 17 and 18.
Finally Liberty points to the recently dismissed civil action styled: Liberty Lobby v. Kirk Lyons et al, Civil Case No. 00-2411 as an example of LSF’s bad faith. It is perplexing that Liberty would cite this lawsuit, the very lawsuit that violated the Forbearance Agreement, as an example of LSF’s alleged bad conduct. Further, it is a matter of court record that no finding was ever made as to LSF’s allegedly tortious conduct.
Even if this Court were to view LSF’s actions as a consideration in permitting a serial filing, the filing must still be dismissed. LSF is a bona fide creditor of Liberty. It holds a valid judgment that it is entitled to enforce. None of the alleged actions, even if true, impact LSF’s valid judgment. As Judge Teel noted: “[t]here may be some emnity between the parties but the Legion is a bona fide creditor; it has a judgment and it is entitled to enforce that judgment.” A.R. 40, p. 34.
I. The Reinstatement Of The California Judgment Was A Known Risk At Confirmation. (Appellant’s Issue I).
As discussed above, Liberty has stated several times in pleading that its payments were current with LSF. This is a factual matter decided by the California court. Its ruling is attached to the motion that is A.R. no. 29. Two factual findings made by the California court were that (i) Liberty failed to pay interest payments and (ii) Liberty failed to pay a penalty that became due in July 2000. Payment of the interest and the penalty are part of the Forbearance Agreement and appear in page 14 of the Plan. A.R. no. 11, p. 14. Liberty’s insistence to this Court that its payments were: “fully current” is inconsistent with a factual finding of another court.
Liberty seems to misunderstand Judge Teel’s ruling related to “known risk.” Judge Teel’s comment on the “obvious known risk” of default appear in his discussion on serial filings. A.R. no. 40, p. 49. Judge Teel was applying the “unforeseen change in circumstance” exception to the serial filing rule set forth in Elmwood Development Company, 974 F.2d 1337 (5th Cir. 1992), and he determined that this exception did not apply because the default remedy was a known risk on confirmation. Certain changes after confirmation of the first bankruptcy case can justify a second bankruptcy filing. Judge Teel stated that risks inherent in the performance of the debtor under its plan are not changed circumstances. A.R. no. 40, p. 28. Similarly, there was no change in circumstance in Liberty’s case because the risk of default and acceleration was a negotiated term of the Forbearance Agreement and a risk that Liberty undertook on the date of its Chapter 11 plan confirmation.
J. The Bankruptcy Court Correctly Determined That The New Subscribers Were Not An Unforeseen And Unanticipated Change In Circumstance From The 1998 Bankruptcy. (Appellant’s Issue J).
Liberty argues that the existence of new subscribers, replacing the subscribers from the 1998 Bankruptcy create a class of new creditors. These new creditors are an alleged unanticipated and unforeseen change in circumstance from the 1998 Bankruptcy such that the 2001 Bankruptcy should fall within one of the exceptions to the general rule prohibiting serial filings.
Judge Teel rejected this argument holding that the new subscribers do not qualify as the type of change in circumstance that merits an exception to the general rule. A.R. no. 40, p. 31. He stated:
Everyone knew when the prior plan was confirmed that how the Debtor operated was through principally publishing a newspaper and that this involved getting subscriptions from subscribers but that was the whole context in which the prior plan was confirmed, that the Debtor would continue its operations and necessarily that would involve new subscriptions as time went on, renewed subscriptions as time went on, and the plan was confirmed in the context that there was a risk that the Debtor would default … I simply don't believe that this injection of new subscribers is a sufficient changed circumstances to warrant allowing the Debtor to avoid the prohibition against modifying the earlier plan.A.R. no. 40, pp. 31-32.
The revolving debt of subscription revenue certainly was contemplated in the prior Plan. Liberty’s Disclosure Statement states: “it is expected that under the Plan the Debtor will remain solvent despite the inconsistent nature of the solicitation receivables". A.R. no. 5, p. 12. As the bankruptcy court noted, risks that were inherent on the date of confirmation that later come into being and prevent performance do not qualify under this exception. A.R. no. 40, p. 28; In re Savannah Ltd., 162 B.R. 912, 916-17 (Bankr. S.D. Ga. 1993). For this reason, Liberty’s challenge to the bankruptcy court’s factual finding should be denied.
K. LSF’s Lien Status Is Not an Unforeseen and Unanticipated Change In Circumstance From The 1998 Bankruptcy. (Appellant’s Issue K).
LSF has reviewed the transcript from the hearing on the motion to dismiss and the emergency motion and cannot find where this argument was ever made to Judge Teel. Nevertheless, the flaw in this argument is obvious and merits denial.
Liberty seems to ignore the language in its own Plan that states that LSF is secured by a lien on all of its property from the date of the confirmation of the 1998 Bankruptcy forward. To state that the existence of lien creditor status is a material change in circumstance is to ignore that the lien existed as a result of the confirmation of the 1998 Bankruptcy Plan. A material change must be something unforeseen and unanticipated in the prior bankruptcy case. Here, the lien was an established element of the Plan.
Further Liberty admits that it is simply trying to get another bite at the apple in the 2001 Bankruptcy. Liberty states in its brief: “all Liberty Lobby was seeking by this second filing was the reinstatement of the written terms of its former plan". That former plan included a default provision as set forth in paragraph 5 of the Forbearance Agreement. Having defaulted and LSF having exercised its bargained-for remedy, Liberty cannot obtain another chance at forbearance. This is exactly the reasoning behind § 1127(b).
For the reasons set forth herein, LSF respectfully requests that this Court find that the bankruptcy court did not clearly err in finding that the 2001 Bankruptcy was filed in bad faith and did not clearly err in denying the Emergency Motion. This Court should also find that the bankruptcy court did not abuse its discretion in dismissing Liberty’s bankruptcy petition and should also find that the bankruptcy court did not abuse its discretion in denying the Emergency Motion. The judgment of the bankruptcy court as to both appealed orders should be affirmed.
Dated: October 15, 2001 Respectfully submitted,
I hereby certify that a copy of the foregoing was served by first class mail this 15th day of October, 2001 to:
Tom Stanton, Esq.
STANTON & ASSOCIATES, P.C.
221 South Fayette Street
In Chapter 11 cases, creditors receive a disclosure statement with all attachments, a plan and a ballot in the mail and then vote on the plan.
LSF notes that this issue on appeal is not the issue “E” stated on page 3 of Liberty’s brief nor does it correspond with any stated issue set forth in the Statement of Issues on Appeal. It appears that issue “E” is a re-worded statement of issue “G” appearing later in Liberty’s brief.
Carolin was also criticized by the Eighth Circuit in its recent opinion in Cedar Shores, 235 F.3d at 381 and by a leading commentator on bankruptcy as misperceiving “the purpose of the good faith standard.” L. King, 7 Collier on Bankruptcy, ¶ 1112.07[6][a-b].