Opinion ID: 610223
Heading Depth: 2
Heading Rank: 2

Heading: Impermissible Modification Claim

Text: 8 Clinton first claims that the second amended note, executed pursuant to the settlement agreement between Acequia and Prudential, constitutes modification of the Plan in contravention of § 1127 of the Bankruptcy Code. 3 The bankruptcy court found that the note constituted a modification, but that it was one which furthered implementation of the Plan. The district court concluded that the amended note and extension of the Plan by five years to allow for repayment did not constitute a modification within the meaning of § 1127. 9 Because our reasoning tracks that of the district court, we quote it at some length here: 10 The Plan anticipated the execution of an Amended Note to Prudential with an eight year maturity date.... What the Plan did not anticipate was a five-year delay in the execution of the Amended Note. This delay was due to the State Court litigation between the parties.... The Settlement Agreement was the culmination of negotiations between the parties to terminate the State Court litigation and continue the consummation of the Plan.... 11 As a result of the delay in execution, the Amended Note extends the Plan five years. This extension of the Plan is the core of Clinton's argument that there was a modification which did not comply with § 1127. The Court finds, however, that the Amended Note is of the same duration as called for in the Plan, and that since its creation was anticipated in the Plan, it does not alter any material terms of the Plan and is not subject to the provisions of § 1127. 12 Order, April 5, 1991 (emphasis added). Essentially, the district court found that the extension of the maturity date for the amended note was the only way to implement the Plan as the parties had initially conceived of it at confirmation. 13 Although the term modification is not defined in § 1127 or elsewhere in the Code, the authors of the Code clearly contemplated changes to plans for reorganization which did not rise to the level of modification. Sections 1123 and 1142 relate directly to the court's power to make such changes outside the parameters of § 1127. Section 1123(a)(5) directs the bankruptcy court to provide adequate means for the plan's implementation, such as ... extension of the maturity date or a change in an interest rate or other term of outstanding securities.... 11 U.S.C. § 1123 (emphasis added). According to § 1142(b), the court may direct the debtor and any other necessary party ... to perform any other act, including the satisfaction of any lien, that is necessary for the consummation of the plan. 11 U.S.C. § 1142 (emphasis added). 14 Although, in the case at bar, the court did not approve of the settlement agreement which resulted in the amended note prior to the parties' signing it, upon Clinton's objection, the court did review the agreement and conclude that the extension of the maturity note was necessary to effectuate the Plan. In cases similar to the one at bar, the courts have distinguished § 1127 modifications from changes which only incidentally affect the reorganization plan or which seek to implement fully its provisions. See In re Water Gap Village, 99 Bankr. 226 (Bankr.N.J.1989) (holding that unanticipated sale of the property was not a modification under § 1127, but was an implementation under § 1142); United States v. APT Industries, 128 Bankr. 145 (W.D.N.C.1991) (holding that a post-confirmation specification of the manner of payment to a creditor did not change any material terms of the plan, but instead clarified the plan where previously it had been silent). 15 There was not a modification under § 1127 in this case. The extension of the Plan by five years is consistent with the Plan and, in fact, necessary to implement fully Acequia's Chapter 11 reorganization. Given the impossibility of anticipating the initiation and the duration of the state court litigation, consummation of the reorganization plan depended on its being extended until 1997. As such, it does not implicate § 1127 and is fully consistent with the Bankruptcy Code as a whole. 4