In re Irwin

558 B.R. 743

In re: John N. Irwin, Debtor.

Bky. No. 10-14407 ELF

United States Bankruptcy Court, E.D. Pennsylvania.

Signed September 30, 2016

Griffin E. Howell, III, Griffin, GA, for Debtor.

MEMORANDUM

ERIC L. FRANK, CHIEF U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

In this individual chapter 11 case, the debtor's confirmed chapter 11 plan provided, inter alia, that a liquidating agent would liquidate the debtor's ownership interest in several entities and distribute the proceeds to creditors in accordance with the plan. After commencement of the bankruptcy case, but prior to confirmation of the plan, two (2) of those entities made income distributions to the debtor.

The liquidating agent has filed a motion seeking entry of an order compelling the debtor to pay over those pre-confirmation distributions. The debtor resists making the payment on the ground that the confirmed plan required only the surrender of the debtor's ownership interest in the entities and not the prior, pre-confirmation distributions.

Resolution of this dispute requires interpretation of the confirmed plan.¹

As explained below, I conclude that the confirmed plan in this case requires the debtor to pay pre-confirmation distributions to the liquidating agent that he retained as of the effective date, but that the liquidating agent failed to prove that any such distributions exist. Therefore, the liquidating agent's motion will be denied.

II. BACKGROUND

A. Procedural History of the Case

On May 27, 2010, John N. Irwin (“the Debtor”) filed a voluntary chapter 11 bankruptcy petition. The same day, the Debtor filed his bankruptcy schedules and statement of financial affairs.²

The Debtor filed his individual chapter 11 plan of reorganization and disclosure statement on May 24, 2011. (Doc. #'s 209, 210). The Debtor filed a second amended Plan and Disclosure Statement on November 18, 2011. (Doc. #'s 282, 283).

The Second Amended Plan (“the Plan”) was confirmed by order dated January 12, 2012. (Doc. # 296).

B. The Plan

The Plan is a liquidating plan. The Plan is to be implemented by a liquidating agent who is to collect the assets to be made available for distribution and to distribute the proceeds of those assets according to the Plan. (See Plan Art. 2 & Art. 7).

The Plan contemplates that the funding for distribution to creditors will derive from four (4) primary sources:

• “Assets” (a defined term, the meaning of which gives rise to the parties' dispute);

• avoidance actions;³

• accounts receivable;⁴ and

• contribution of personal services income.⁵

The term “Assets” is defined in the Plan as:

all of the right title and interest of the Debtor in and to the non-exempt property reflected in Schedules A and B of the Debtor's schedules of assets and liabilities, subject in all respects to the Debtor's exemptions as reflected in Schedule C, as amended, of whatever type or nature (real, personal, mixed, tangible or intangible) and the proceeds of Avoidance Actions.

(Plan ¶ 1.8).

Article 7 specifies that the Plan will be implemented “[u]pon and after the Effective Date.” The “Effective Date” is a defined term: in the absence of an appeal of the confirmation order, the Plan was to become effective “fifteen (15) days after the Confirmation Date.” (Plan Article 1.27). The Effective Date occurred on January 27, 2012.

The liquidating agent is authorized to pay administrative claims in full on or after the Effective Date, (Plan, Art. 5.1 & Art. 6.1), and the holders of Allowed Unsecured Claims pro rata from the proceeds resulting from the Sale of the Assets and any recovery resulting from the prosecution of Avoidance Actions on or as soon as is reasonably practicable after the Effective Date. (Id. at Art. 6.5).

C. Procedural History of the Motion

On March 19, 2012, George L. Miller was appointed as the liquidating agent (“the Liquidating Agent”) under the Plan. (Doc. # 303).

On January 20, 2016, the Liquidating Agent filed a Motion to Compel Turnover of Property to the Estate Pursuant to 11 U.S.C. § 542 (“the Motion”) (Doc. # 458). The Debtor objected to the Motion. (Doc. # 460).⁶ An evidentiary hearing was held and concluded on February 24, 2016. After several agreed upon extensions of the briefing schedule, the Liquidating Agent filed his Brief in support of the Motion on May 31, 2016, (doc. # 471), and the Debtor filed his brief in opposition on May 31, 2016, (doc. # 472).

D. The Issue

The Debtor's Amended Schedule B included the Debtor's ownership interest in two (2) entities, Diversified Private Equity Investors, L.P. (“DPEI”) and Diversified Private Equity Investors II, L.P. (“DPEI II,” together with DPEI, “the Entities”). The Debtor did not claim his interest in the Entities as exempt. Therefore, it is indisputable that the Debtor's interests in the Entities are “Assets” within the meaning of the Plan.

The Entities paid distributions to their equity owners, including the Debtor. DPEI paid the Debtor $4,139.00 in 2011 and $2,919.00 in 2012, for a total distribution of $7,058.00. DPEI II paid the Debtor $18,059.00 in 2011 and $2,789.00 in 2012, for a total distribution of $20,848.00. The Debtor does not dispute that he received these distributions from the Entities.

The 2011 distributions were made prior to confirmation of the Plan, while the 2012 distributions were made after confirmation of the Plan. Prior to the filing of the Motion, the Debtor turned over those funds derived from the Entities for 2012; the Debtor concedes that the post-confirmation distributions were collectible by the Liquidating Agent for distribution under the Plan. Thus, the sole issue is whether pre-confirmation distributions the Debtor received in 2011 (“the Distributions”) totaling $22,198.00 are Assets under the Plan that must be delivered to the Liquidating Agent.⁷

III. DISCUSSION

A. Legal Principles of Plan Interpretation

Interpretation of a confirmed chapter 11 plan is governed by the rules for interpretation of contracts. In re Shenango Group, Inc., 501 F.3d 338, 344 (3d Cir.2007) (citing Hillis Motors, Inc. v. Hawaii Auto. Dealers' Ass'n, 997 F.2d 581, 588 (9th Cir.1993) and In re Stratford of Texas, Inc., 635 F.2d 365, 368 (5th Cir.1981) ); In re Dow Corning Corp., 456 F.3d 668, 676 (6th Cir.2006) ; In re Heartland Steel, Inc., 389 F.3d 741, 744–45 (7th Cir.2004). In doing so, the court should apply the law of the state in which the plan was confirmed. E.g., In re Thorpe, 540 B.R. 552, 562 (E.D.Pa.2015) (citing In re Turek, 346 B.R. 350, 354–55 (Bankr.M.D.Pa.2006) ); In re Miller, 253 B.R. 455, 458 (Bankr.N.D.Cal.2000).

The principles of contract interpretation under Pennsylvania law are well-settled:

[T]he intent of the parties to a written contract is contained in the writing itself. Where the intention of the parties is clear, there is no need to resort to extrinsic aids or evidence, instead, the meaning of a clear and unequivocal written contract must be determined by its contents alone. Where language is clear and unambiguous, the focus of interpretation is upon the terms of the agreement as manifestly expressed, rather than as, perhaps, silently intended. Clear contractual terms that are capable of one reasonable interpretation must be given effect without reference to matters outside the contract.

Bohler – Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 92–93 (3d Cir.2001) (internal quotations and citations omitted); accord Hullett v. Towers, Perrin, Forster & Crosby, 38 F.3d 107, 111 (3d Cir.1994) ; accord Travelers Indem. Co. v. Bailey, 557 U.S. 137, 150, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009) (“where the plain terms of a court order unambiguously apply ... they are entitled to their effect”).

A term or phrase of a contract is ambiguous if it is reasonably susceptible to different meanings. See USX Corp. v. Penn Cent. Corp., 130 F.3d 562, 566 (3d Cir.1997) ; see also McDowell v. Phila. Hous. Auth., 423 F.3d 233, 238 (3d Cir.2005) (determination whether contract is ambiguous is question of law that court decides by considering whether, from objective standpoint, it is reasonably susceptible to at least two different interpretations). In determining whether an ambiguity exists, the court may examine “the words of the contract, the alternative meaning suggested by counsel, and the nature of the objective evidence to be offered in support of that meaning.” Bohler – Uddeholm, 247 F.3d at 93 ; accord Kroblin Refrig. Xpress, Inc. v. Pitterich, 805 F.2d 96, 101 (3d Cir.1986). A contract is not ambiguous merely because the parties disagree on its interpretation. MBIA Ins. Corp. v. Royal Indem. Co., 426 F.3d 204, 210 (3d Cir.2005).

If an ambiguity is found, the parties may offer extrinsic evidence to clarify the meaning of the ambiguity. See, e.g., Einhorn v. Fleming Foods of Penna., Inc., 258 F.3d 192, 194–95 (3d Cir.2001) ; Kripp v. Kripp, 578 Pa. 82, 849 A.2d 1159, 1163–64 (2004) ; Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385, 390 (1986).

B. The Plan is Ambiguous

The Debtor and the Liquidating Agent agree that the term “Assets” as defined in ¶ 1.8 of the Plan includes the Debtor's ownership interest in the two (2) Entities involved. The parties further agree that the definition of Assets encompasses distributions from those Entities, at least post-confirmation. The question is whether the Plan mandates that the Liquidating Agent collect and distribute the post-petition, pre-confirmation distributions (hereafter, “the Distributions”).

The Liquidating Agent's position is that “[t]he temporal frame for what constitutes an Asset for distribution by the Liquidating Agent is that property owned by the Debtor on the Petition Date as reflected on his schedules.” (Liq. Agent Brief at ¶ 19). In response, the Debtor's position is that the Assets subject to collection by the Liquidating Agent are those Assets in existence as of the Effective Date of the Plan and the pre-confirmation distributions constitute “income,” not Assets within the meaning of the Plan.

I conclude that the Plan is...