Court Opinion

ID: 11556
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:05:44+00
Date Added: 2024-06-11T16:46:26.982706
License: Public Domain

United States Court of Appeals,

                             Fifth Circuit.

                             No. 96-30508.

In the Matter of TERREBONNE FUEL AND LUBE, INCORPORATED, Debtor.

          PLACID REFINING COMPANY, Appellant-Cross-Appellee,

                                     v.

    TERREBONNE FUEL AND LUBE, INC., Appellee-Cross-Appellant.

                            March 27, 1997.

Appeals from the United States District Court for the Eastern
District of Louisiana.

Before REYNALDO G. GARZA, SMITH and EMILIO M. GARZA, Circuit
Judges.

     PER CURIAM:

     Placid Refining Company and Terrebonne Fuel and Lube have been

engaged in an eleven-year battle originating from a fuel purchase

agreement between them.      Although a number of legal issues have

been presented to both state and federal courts over the years,

presently before this court is an appeal from a bankruptcy court's

order finding Placid Refining Company in contempt for violating a

post-confirmation injunction against bringing actions stemming from

pre-confirmation debts.

                               Background

     As    previously   recognized   by   the   many   courts   which   have

addressed various issues in this action, the procedural history of

this case is a tangled one.    It all started on April 28, 1985, when

Terrebonne Fuel and Lube, Inc. ("Terrebonne"), a wholesale fuel

distributor, entered into a diesel fuel purchase agreement with

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Placid Refining Company ("Placid"), whereby Placid agreed to sell

Terrebonne up to 50,000 barrels of diesel fuel per month on credit

with payments be made within 65 days of shipment.          This agreement

was for a term of one year. Placid secured Terrebonne's commitment

with three separate security agreements consisting of:                1) a

chattel mortgage on Terrebonne's inventory;              2) assignment of

Terrebonne's accounts receivable;          and 3) signatory rights on

Terrebonne's bank account.        These three agreements, collectively,

acted as collateral.       In order for Terrebonne to purchase the

diesel it had to maintain and certify that 85% of the total

certified value of this combined collateral exceeded the sum of its

existing debt to Placid plus the price of the diesel to be

purchased.    Terrebonne made such certifications through borrowing

base reports that were submitted weekly to Placid.

     According to Placid, at the expiration of the agreement,

Terrebonne owed it over $1 million of which $500,000 was past due.

Placid contends that when it tried to exercise the lien against

Terrebonne's    bank   account,    Terrebonne   sought   protection   under

Chapter 11.    Terrebonne did, in fact, file for Chapter 11 on May 1,

1986.   On April 16, 1987, the bankruptcy court, over Placid's

objections, confirmed Terrebonne's proposed reorganization plan

which provided for payment of Placid's debt over five (5) years.

On April 24, 1987, three days before the order of confirmation

became final, Terrebonne filed an equitable subordination complaint

against Placid alleging that Placid had forced it into bankruptcy

by not delivering the quantities of fuel provided for in the

                                      2
agreement.       Placid moved to dismiss this complaint on the grounds

of res judicata.

     On June 29, 1989, the bankruptcy court dismissed Terrebonne's

complaint holding that it failed to state a claim for equitable

subordination and because the matters raised therein were not

"core"       proceedings.   Thus,   the   bankruptcy   court   declined   to

exercise jurisdiction over the claim.          No appeal was taken from

this ruling.1

     Following the refusal of the bankruptcy court to exercise

jurisdiction over what it viewed as a breach of contract claim

arising under state law, Terrebonne brought its action in Louisiana

state court. Placid reasserted its res judicata claim arguing that

the reorganization plan was final and therefore barred Terrebonne's

state claim.       Placid then sought leave to file a reconventional

demand, a pleading identical to a counter claim, alleging that

Terrebonne had over-inflated its excess positive collateral in the

weekly base borrowing reports.        Placid sought damages for, inter

alia, fees and expenses incurred in the bankruptcy proceeding.

Terrebonne objected to Placid's request to file this reconventional

demand on numerous grounds, but the state court granted Placid's

request.

     In response to the filing of this reconventional demand,

         1
       We subsequently noted that the bankruptcy court erred in
determining that Terrebonne's claims against Placid were not "core"
proceedings. See In re Terrebonne Fuel and Lube, Inc., No. 93-3553
at p. 6, 29 F.3d 626 (5th Cir. April 4, 1994). However, we refused
to re-visit that holding then and we refuse to re-visit that
holding now since neither party appealed from that ruling.

                                      3
Terrebonne went to bankruptcy court on February 16, 1993, seeking

to   hold      Placid     in     contempt            for       seeking       damages        from

pre-confirmation actions in state court.                            Placid, in response,

asked the court to order Terrebonne to dismiss its state court

claims, again, on res judicata grounds.                         On March 22, 1993, the

bankruptcy court signed its order holding Placid in contempt and

ordered Terrebonne to submit evidence of the cost and expense it

incurred in the matter, stating that it would designate the amount

of   sanctions    after       submission        of    this      information.          In    the

meantime, Placid, believing to be in compliance with the contempt

order, moved the state court for leave to strike all references to

pre-confirmation        damages    from         its    reconventional          demand        and

informed the state court that the only damages it was seeking were

those   that    arose    post-confirmation.                    In   addressing       Placid's

response requesting a dismissal on a res judicata basis, the

bankruptcy court refused to entertain Placid's request on the

grounds that      the    matter    was      neither        a    "core"   proceeding          nor

"related to" the bankruptcy case.                    Although Placid appealed this

ruling on      March    24,    1993,   it       did    not      obtain   a    stay     of    the

bankruptcy court's order pending appeal.

      The state court matter went to trial and on March 29, 1993.

At the conclusion of this trial, a judgment in favor of Terrebonne

was returned in the amount of $500,000.                    Placid filed a suspensive

appeal to the state court proceeding on May 5, 1993.                          Cognizant of

the state court's final judgment on the merits, the district court

dismissed as moot (on res judicata grounds) Placid's appeal of the

                                            4
bankruptcy court decision.       We subsequently affirmed the district

court.     See In re Terrebonne Fuel and Lube, Inc., 29 F.3d 626, No.

93-3553 at p. 6 (5th Cir. April 4, 1994).

       In response to Placid's pursuit of a suspensive appeal in

state court2, Terrebonne filed a second motion in bankruptcy court

to hold Placid in contempt for continuing to prosecute a claim of

damages arising out of pre-confirmation conduct.           After extensive

discovery and a hearing on the merits held on January 7, 1994, the

bankruptcy court entered an order holding Placid in contempt and

awarded Terrebonne $18,357.48 for costs and fees associated with

the defense of the reconventional demand.               The district court

affirmed this decision, Placid timely filed its notice of appeal,

and Terrebonne filed its notice of cross appeal requesting the

court to increase the sanction imposed on Placid for having to

defend itself against Placid's appeal.

                                 Analysis

       The thrust of Placid's argument is that, notwithstanding the

fact   that   the   bankruptcy   court    committed     error       in   1989   by

dismissing     Terrebonne's   adversary     complaint    as     a    "non-core"

proceeding, its actions were not violative of any order, standing

       2
      It appears as though the state court appeals are complete.
The intermediate court reversed the trial court, holding that
Terrebonne's claim was barred by res judicata, but it was in turn
reversed by the Louisiana Supreme Court. See Terrebonne Fuel &
Lube, Inc. v. Placid Refining Co., 666 So. 2d 624 (La.1996). On
remand to address the merits, the intermediate court rendered
judgment in favor of Placid on its reconventional demand.       See
Terrebonne Fuel & Lube, Inc. v. Placid Refining Co., 681 So. 2d 1292
(La.App. 4 Cir.1996), writ denied, --- So.2d ---- (La., December
13, 1996).

                                     5
or specific, of the bankruptcy court. However, before we reach the

"core"    of   Placid's    argument      we   must    first   address    one   very

important issue.       We must determine whether the bankruptcy court

had the authority to conduct contempt proceedings in this case. If

we conclude that the court did have authority then we can review

the substantive issues addressing the exercise of that authority

raised by both Placid and Terrebonne.

I. Contempt proceedings

         Contempt proceedings are classified as either civil or

criminal, depending on their primary purpose.                     Lamar Financial

Corp. v. Adams, 918 F.2d 564, 566 (5th Cir.1990).                  If the purpose

of the order is to punish the party whose conduct is in question or

to vindicate the authority of the court, the order is viewed as

criminal.      Id.   If, on the other hand, the purpose of the contempt

order is to coerce compliance with a court order or to compensate

another    party     for   the    contemnor's        violation,    the   order   is

considered to be civil.           Id.   We are convinced that the contempt

proceedings in this case were civil in nature, as the clear purpose

of the sanction imposed upon Placid was to compensate Terrebonne

for the costs and expenses in defending Placid's reconventional

demand.

         While we have not yet specifically addressed the issue of

whether the bankruptcy courts have the statutory authority to

conduct civil contempt proceedings, many other Circuits have.                    In

Re   Walters,    868 F.2d 665,   669   (4th    Cir.1989)    ("A   court   of

bankruptcy has authority [under § 105] to issue any order necessary

                                          6
or appropriate to carry out the provisions of the bankruptcy

code.");    In Re Rainbow Magazine, Inc., 77 F.3d 278, 284 (9th

Cir.1996) ("There can be little doubt that bankruptcy courts have

the inherent power to sanction vexatious conduct [under § 105].");

In Re Skinner, 917 F.2d 444, 447 (10th Cir.1990) (holding that

Congress granted bankruptcy courts civil contempt power under 11

U.S.C. § 105.);    In Re Hardy, 97 F.3d 1384, 1389 (11th Cir.1996)

("Section 105 grants statutory contempt powers in the bankruptcy

context.");    See also In Re Power Recovery Systems, Inc., 950 F.2d
798, 802 (1st Cir.1991) ("Bankruptcy Rule 9020(b) specifically

provides that a bankruptcy court may issue an order of contempt if

proper notice of procedures are given.").

       We agree with our brethren in their ultimate determination.

Moreover, we assent with the majority of the circuits which have

addressed this issue and find that a bankruptcy court's power to

conduct civil contempt proceedings and issue orders in accordance

with the outcome of those proceedings lies in 11 U.S.C. § 105.

This section provides in pertinent part:

      (a) The court may issue any order, process, or judgment that
      is necessary or appropriate to carry out the provisions of
      this title.   No provision of this title providing for the
      raising of an issue by a party in interest shall be construed
      to preclude the court from, sua sponte, taking any action or
      making any determination necessary or appropriate to enforce
      or implement court orders or rules, or prevent an abuse of
      process.

The language of this provision is unambiguous.            Reading it under

its plain meaning, we conclude that a bankruptcy court can issue

any   order,   including   a   civil       contempt   order,   necessary   or

                                       7
appropriate to carry out the provisions of the bankruptcy code.3

We find that an order, such as the one entered by the bankruptcy

court, which compensates a debtor for damages suffered as a result

of a creditor's violation of a post-confirmation injunction under

11 U.S.C. § 1141, was both necessary and appropriate to carry out

the provisions of the bankruptcy code.

II. Issues raised by the parties

        In light of this finding, we now summarily address the

substantive issues in the case.    Although the bankruptcy appellate

process makes this court the second level of review, we perform the

identical function as the district court.    We review a bankruptcy

court's finding of fact for clear error, see Matter of Haber Oil

Co., 12 F.3d 426, 434 (5th Cir.1994), and decide issues of law de

novo.   Matter of Oxford Management, Inc., 4 F.3d 1329, 1333 (5th

Cir.1993).   Where the district court has affirmed the bankruptcy

court's factual findings, we will only reverse if left with a firm

conviction that error has been committed.    See Id.   The bankruptcy

court's decision to impose sanctions is discretionary, therefore we

review the exercise of this power for abuse of discretion.       See

Shipes v. Trinity Indus., 987 F.2d 311, 323 (5th Cir.), cert.

denied, 510 U.S. 991, 114 S. Ct. 548, 126 L. Ed. 2d 450 (1993).

     Given the facts briefed on appeal, the facts in the record,

oral arguments, and an adequately prepared opinion by the district

    3
     Although we find that bankruptcy judge's can find a party in
civil contempt, we must point out that bankruptcy courts lack the
power to hold persons in criminal contempt. See Matter of Hipp,
Inc., 895 F.2d 1503, 1509 (5th Cir.1990).

                                   8
court, we find that the issues raised by both Placid and Terrebonne

do not merit prolonged discussion.

        We find that appellant's contention that the bankruptcy court

erred    in    imposing    sanctions     under       11   U.S.C.    §    362(h)    is

inapplicable to the case at hand.             The automatic stay under § 362

terminated upon confirmation of the 1987 plan of reorganization.

Since Placid did not file its state reconventional demand until

1993,    its   claim   was    governed       under   11   U.S.C.    §     1141,    the

post-confirmation discharge injunction. Hence, § 362 is inapposite

and the bankruptcy court correctly sanctioned Placid under § 1141.

        We find that the lower court was correct in finding that

Placid was not denied due process under Bankruptcy Rule 9020.

Although the bankruptcy court did not strictly follow this rule,

Placid was given the constitutionally required notice and an

opportunity to be heard before being sanctioned. See International

Union, United Mine Workers of America v. Bagwell, 512 U.S. 821, ---

- - ----, 114 S. Ct. 2552, 2557-2558, 129 L. Ed. 2d 642 (1994).

     We find that the lower court did not abuse its discretion in

actually holding Placid in contempt.

     Finally, we deny Terrebonne's request for an increase in the

sanctions for having to pursue this matter on appeal.

                                   Conclusion

     Based on the foregoing reasons, the order of the bankruptcy

court holding Placid in contempt is hereby AFFIRMED.                    Furthermore,

Terrebonne's     request     in   its   cross-appeal       that    the    amount   of

sanctions be increased is DENIED.

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