In re Bros. Materials, Ltd.

IN RE: BROTHERS MATERIALS, LTD., A TEXAS LIMITED PARTNERSHIP Debtor

CASE NO: 14-50121

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS LAREDO DIVISION

November 28, 2016

CHAPTER 11

MEMORANDUM OPINION GRANTING DEBTOR'S MOTION TO ENFORCE PLAN PROVISIONS

[Resolving ECF Nos. 144, 146]

I. INTRODUCTION

The instant matter before this Court involves a secured creditor's attempt at unwringing the confirmation bell. Confirmation of a chapter 11 plan, which includes provisions for the reorganization, or in this case, the liquidation of a debtor, and dealing with the claims and interest of the various stakeholders is the pinnacle of the chapter 11 process. It is hornbook law that an order confirming a plan is final and inviolable absent very limited grounds invoking the revocation of the confirmation order. This Court is faced with a single issue relating to Debtor's confirmed plan; namely, whether a secured creditor is bound to the terms of a confirmed plan that seeks to use the proceeds from the sale of a non-debtor asset to pay plan administrative expenses ahead of the secured creditor's claim.

Pending before this Court are two self-styled pleadings: first, filed by Debtor, is its "Motion to Enforce Plan Provisions," [Case No. 14-50121, ECF No. 144] (the "Motion"), and second, filed by the Internal Revenue Service ("IRS"), is its "United States of America's Objection to Debtor's Motion to Enforce Plan Provisions (Dkt. No. 144)," [ECF No. 146] (the "Objection"). The Motion seeks enforcement of Debtor's confirmed Plan, which provides for the payment of administrative expenses before payment of the IRS' claim by and through the proceeds of a non-debtor asset sale. [ECF No. 144]; see also [ECF No. 116] (the "Plan"); [ECF No. 126] (confirming the Plan). Conversely, the Objection contends that the IRS is not bound by the terms of the Plan because the proceeds from the non-debtor asset sale cannot be used to pay administrative fees prior to satisfying a lien. See generally [ECF No. 146]. This Court now considers the pleadings on file, the evidence presented, the arguments lodged by Debtor and the IRS, the United States Bankruptcy Code,¹ and relevant case law and determines that Debtor's confirmed Plan is binding and the Motion should be granted.

II. FINDINGS OF FACT

This Court makes the following Findings of Fact and Conclusions of Law pursuant to Fed. R. Bankr. P. 7052, which incorporates Fed. R. Civ. P. 52, and 9014. To the extent that any Finding of Fact constitutes a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law constitutes a Finding of Fact, it is adopted as such. This Court made certain oral findings and conclusions on the record. This Memorandum Opinion supplements those findings and conclusions. If there is an inconsistency, this Memorandum Opinion controls.

On June 3, 2014, Brother's Materials, Ltd. (the "Debtor"), a Texas Limited Partnership, filed its voluntary petition under chapter 11 of title 11 of the United States Code. [ECF No. 1]. On June 24, 2014, the IRS filed its proof of claim in the amount of $2,480,027.23. [Claim No. 1-1] (the "Claim"). Subsequently, the IRS amended its Claim various times, ultimately claiming $2,474,750.09 against the Debtor's estate of which $2,441,452.40 is secured, $20,227.51 is priority and $13,070.18 is classified as a general unsecured claim. [Claim Nos. 1-2, 1-3, 1-4, 1-5, 1-6]. The Claim includes twenty-one separate liens that make up the entirety of the IRS'sClaim. [Claim No. 1-6]. The IRS attributes eight liens to Brothers Paving, LLC, and thirteen liens to Brothers Paving, Inc. Id. The Debtor filed an objection to the IRS's Claim on November 20, 2014, essentially arguing that the taxes claimed by the IRS were actually incurred by Brothers Paving, Inc. or Brothers Paving, LLC, respectively, but not the Debtor. See generally [ECF No. 52]. In the IRS's response, filed December 10, 2014, it countered that, although Debtor did not specifically incur the disputed taxes, federal taxes may be collected from the taxpayer's alter ego. [ECF No. 59 at ¶ 4]. Ultimately, Debtor included, inter alia, provisions in the Plan to partially resolve this issue without withdrawing its objection to the IRS's Claim or litigating the Objection. [ECF No. 116].

On November 13, 2015, this Court conducted a hearing approving Debtor's disclosure statement. [ECF No. 113]. The IRS appeared telephonically at that hearing and did not object. [ECF No. 112]. At this hearing, this Court fixed the deadline for voting and objections as January 8, 2016. [ECF No. 113]. The IRS received notice of this Court's Order fixing deadlines on November 18, 2015. [ECF No. 114]. On November 30, 2015, Debtor filed its First Amended (Corrected) Combined Plan and Disclosure Statement. [ECF No. 116] (the "Plan"). On December 1, 2015, the IRS received a copy of the Plan and notice of the date of the confirmation hearing. [ECF No. 117 at 3]. The IRS did not file an objection to the Plan.

The Plan lists two categories of assets that remain to be sold: (1) Debtor's remaining equipment along with equipment "owned and titled in the name of either Brother's Paving, Inc., or Brothers Paving LLC." listed in Exhibit A to the Plan (the "Equipment"); and (2) a 10.8619-acre tract in Webb County, Texas (the "Property") jointly-owned by the Debtor's principals Rogelio and Ramon Soliz (the "Soliz Brothers"). [ECF No. 116 at 2]. Specifically, the Plan provides that:

Proceeds from the sale of the Debtor's assets, as well as property contributed to the plan by the Debtor's equity shareholders will be paid, after the payment of costs of administration (including professional fees and U.S. Trustee's fees), to the payment of allowed third party claims in the order of their priority until such funds are exhausted.

Id. at 1-2. Referring to the IRS lien, the Plan states that the lien "as settled would attach to all of the Debtor's assets . . . is inferior to the Commerce Bank lien . . . attaches to . . . the 10.8619 acres owned jointly by Rogelio and Ramon Soliz." Id. at 7. Further, in that same section, it states that all assets, including the Property and assets owned by Brother's Paving, Inc. and Brother's Paving, LLC, "will be sold in the liquidation under the Plan." Id. In a section of the Plan titled "The Plan and the I.R.S. Settlement," the Plan states that the Soliz Brothers will sell the Property "with the net proceeds being paid to the I.R.S. pursuant to the Soliz Brothers' settlement with the I.R.S." Id. at 10. Under "Treatment of Classes and Claims," the Plan further discusses the IRS' Claim under Class 2. Id. at 15. Regarding the IRS' Claim, the Plan provides that:

The only amounts the Debtor will pay on the I.R.S. claim, will be any proceeds from the sale of equipment or personal property assets that are in excess of administrative expenses, and any amounts necessary to pay the Bank debt in full. The balance of the I.R.S. debt will be the subject of a settlement between the I.R.S. and the Soliz Brothers. The Soliz Brothers have agreed that the proceeds from the sale of the 10.8619 acres will be paid first to satisfy administrative expenses, then the Debtor's obligation to the bank, and then to pay the I.R.S. settlement.

Id.

On January 15, 2016, the confirmation hearing was held and, after taking testimony from Mr. Ramon Soliz, Debtor's representative, the Plan was confirmed. See generally [ECF Nos. 124, 126]. The IRS did not attend the confirmation hearing. During the hearing, this Court noted that there had been no objections to confirmation of the Plan. [ECF No. 124]. The IRSreceived notice of the Plan's confirmation on January 22, 2015. [ECF No. 127 at 28]. The IRS neither objected to nor appealed this Court's Order confirming the Plan.

On January 19, 2016, Mr. Carl M. Barto ("Debtor's Counsel") filed his Fee Application of Allowance for Compensation, for the period from May 30, 2014 through and including January 15, 2016, in the amount of $84,039.06—consisting of professional fees in the amount of $83,440.00 and costs advanced of $599.06—for the period requested. [ECF No. 125] (the "Application"). Upon filing of the Application, the IRS received timely notice from the Debtor. Id. at 13. The IRS did not file an objection. This Court granted the Application on February 17, 2016. [ECF No. 129]. The IRS received notice of which on February 19, 2016, and did not appeal this Court's Order. [ECF No. 130].

On April 15, 2016, Debtor filed its "Emergency Motion to Sell Equipment and Approve Sale Procedure and Form of Notice" that requested the Court allow Debtor's Equipment to be sold at auction, as well as approve a Notice of Sale to advertise in the Laredo Morning Times. [ECF No. 132] (the "Motion to Sell"). While the IRS did not object to the sale, it did object to the sale proceeds being paid to Debtor's Counsel for his previously Court awarded administrative fees. [ECF No. 133]. This Court entered its Order granting Debtor's Expedited Motion to Sell Equipment free and clear of all liens, on April 29, 2016 wherein the primary lien holder, Commerce Bank, which was owed more than the amount of the sale proceeds, consented to the sale as did the IRS. [ECF No. 139].

Subsequently, on July 18, 2016, Debtor filed the Motion. [ECF No. 144]. After application of funds on deposit in Debtor's Counsel's IOLTA account, and the payment of $5,000.00, there remains a $69,039.06 balance on Debtor's Counsel's Court awarded fees. Id. at 2. Debtor posits that this case remains open because it has yet to pay Debtor's Counsel his courtawarded attorney's fees. Id. As a result, Debtor seeks an order from this Court to have the unpaid balance of Debtor's Counsel's fees paid from the proceeds of the pending sale of the Property, jointly-owned by the Soliz Brothers, per the provisions of the Plan. Id. The Motion posits that the Property is being contributed by the Soliz Brothers, as equity shareholders, to be liquidated per...