In re Navillus Tile, Inc.

634 B.R. 847

IN RE: NAVILLUS TILE, INC., d/b/a Navillus Contracting, Debtor.

Case No. 17-13162 (SHL)

United States Bankruptcy Court, S.D. New York.

Signed December 16, 2021

FARRELL FRITZ, P.C., Attorneys for Debtor, 622 Third Avenue, 37^th Floor, New York, NY 10017, By: Martin G. Bunin, Veronique A. Urban

NEW YORK CITY HOUSING AUTHORITY, Lisa Bova-Hiatt, Executive Vice President for Legal Affairs & General Counsel, 90 Church Street, 11^th Floor, New York, NY 10007, By: Karen R. Cross, of Counsel

MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the Reorganized Debtor's Motion for an Order (I) Reopening [the] Bankruptcy Case for the Limited Purpose of Enforcing the Chapter 11 Discharge and Plan Injunction and (II) Enforcing the Chapter 11 Discharge and Plan Injunction (the "Motion") [ECF No. 821].¹ In this confirmed Chapter 11 case, the Debtor seeks to reopen this case so as to invoke the bankruptcy discharge to bar pending litigation against it. More specifically, the Debtor contends that an action commenced against it by the New York City Housing Authority ("NYCHA") in the Supreme Court of New York is barred by the discharge and permanent injunction contained in the Consensual Amended Chapter 11 Plan of Reorganization of Navillus Tile, Inc. d/b/a Navillus Contracting under Chapter 11 of the Bankruptcy Code (the "Plan") [ECF No. 686 at 29 of 84] and in the Plan's confirmation order (the "Confirmation Order") [ECF No. 686]. For the reasons discussed below, the Motion is granted in all respects.

BACKGROUND

The relevant facts are taken from the parties' submissions and are not in dispute. The Debtor filed for Chapter 11 relief on November 8, 2017. ECF No. 1. In January 2018, the Court entered the Bar Date Order establishing, among other things, a May 7, 2018 bar date for governmental units to file proofs of claim (the "Gov't Bar Date"). ECF No. 170. The Confirmation Order was entered in October 2018. See Confirmation Order. In relevant part, the Plan and Confirmation Order (1) discharge all claims and causes of action arising before the Plan's effective date² (the "Discharge") and (2) permanently enjoin, after the Plan's effective date, "all Persons who have held, hold or may hold Claims [or] Causes of Action ... and all other parties in interest" from, among other things, "commencing or continuing in any manner any action or proceeding of any kind with respect to any such Claims [or] Causes of Action against [the Debtor] ... and prosecuting or otherwise asserting any Claim [or] Cause of Action ... that has been ... discharged ... pursuant to the Plan or the Confirmation Order" (the "Plan Injunction"). See Confirmation Order ¶¶ 19–20; Plan at 76–77 of 84.

The Plan defines "Claim" and "Causes of Action" broadly. A "Claim" covers "any ‘claim’ against Navillus, whether or not asserted, known or unknown, as such term is defined in section 101(5) of the Bankruptcy Code." Plan at 36 of 84. "Causes of Action" include

any and all actions, causes of action, ... claims, ... or any other claims whatsoever, whether known or unknown, reduced to judgment or not reduced to judgment, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, secured or unsecured, choate or inchoate, existing or hereafter arising, suspected or unsuspected, foreseen or unforeseen, and whether asserted or assertable directly, indirectly or derivatively, at law, in equity or otherwise, based in whole or in part upon any act or omission or other event occurring prior to the Petition Date or during the course of the Chapter 11 Case, including through the Effective Date ....

Id.

More than two years before the Debtor filed its Chapter 11 petition, the Debtor entered into a contract with NYCHA for "exterior restoration and roofing replacement and related work" at NYCHA's Parkside Houses in the Bronx, New York (the "Contract"). See generally ECF No. 835; see also Motion at 7–8; New York City Housing Authority's [Amended] Opposition to Reorganized Debtor's Motion ("NYCHA's Opposition") at 7–8 of 24 [ECF No. 830]. Toward the end of the project in April 2017, NYCHA began receiving water damage complaints from residents of the Parkside Houses and, in July 2017, issued a change order directing the Debtor to perform additional work to address the water infiltration issues. See Motion at 9; NYCHA's Opposition at 8–9 of 24; Reply of Reorganized Debtor to Opposition of New York City Housing Authority to Motion at 19 of 24 (the "Debtor's Reply") [ECF No. 831]. The Debtor completed all the work under this change order by the end of July 2017 and substantially completed all its work under the Contract in September 2017. See NYCHA's Opposition at 9 of 24; Motion at 8; Debtor's Reply at 19 of 24. The Contract was closed out after the completion of the work requested in the change order, and NYCHA is unaware of any further communication between the Debtor and NYCHA after the Contract was closed out. See Hr'g Tr. 30:3–31:14, Aug. 12, 2021 [ECF No. 834].

After filing its Chapter 11 petition, the Debtor served NYCHA with notice on three different occasions of events in this bankruptcy case: (1) the commencement of the Chapter 11 case in late November 2017; (2) the Gov't Bar Date, which included a proof of claim form, in January 2018; and (3) the confirmation hearing in August 2018. See Motion at 7; NYCHA's Opposition at 9–10 of 24; Affidavit of Service for Commencement of Chapter 11 Case at 1–2 of 43, 29 of 43 [ECF No. 94]; Affidavit of Service for Proof of Claim Form and Bar Date Notice at 1–2 of 67, 28 of 67 [ECF No. 195]; Affidavit of Service for Confirmation Hearing at 1–4 of 65, 22 of 65 [ECF No. 623]. Each of these notices were sent by first class mail to NYCHA at two addresses: 250 Broadway, New York, NY 10007 and 90 Church Street, New York, NY 10007. Id. NYCHA's Law Department was located at 250 Broadway at the time the Chapter 11 case was commenced; it is now located at 90 Church Street. See NYCHA's Opposition at 10 of 24 n.1.

Additionally, the Debtor served the Bar Date Notice and proof of claim form on Thomas Catalano, Esq., of Lester, Schwab, Katz & Dwyer, LLP, who was outside counsel for NYCHA in a personal injury action—unrelated to the Contract—in which NYCHA sought indemnification and defense from the Debtor's insurer. See NYCHA's Opposition at 10–11 of 24, 15 of 24; Debtor's Reply at 13 of 24. After receiving service, Mr. Catalano's firm filed Proof of Claim No. 115 asserting that the Debtor was obligated to provide defense and indemnification in that personal injury matter. See NYCHA's Opposition at 11 of 24. The Debtor and NYCHA entered a stipulation of settlement in which that personal injury claim was to be resolved in state court. See Stipulation and Order Resolving Claim No. 115 [ECF No. 742].

In August 2020—over two years after the Gov't Bar Date and nearly two years after confirmation—NYCHA commenced a state court action in New York against the Debtor for breach of the Contract and negligence related to the Debtor's performance under the Contract. NYCHA's Opposition at 13–14 of 24; Motion at 8–9. This state court action appears to stem from a November 2019 report issued by Superstructures Engineers and Architects ("Superstructures"). That report concluded that an architectural and engineering company, Cowi Consulting, Inc., recommended the wrong type of mortar to be used during the Contract on the building facades of the Parkside Houses and that the Debtor's poor workmanship exacerbated the mortar deficiencies. See NYCHA's Opposition at 12–13 of 24; Motion at 10. The Debtor denies having any knowledge of the Superstructures report until after the state court action was initiated, a fact that NYCHA does not dispute. See Motion at 10; NYCHA's Opposition at 19 of 24.

The Debtor now seeks the entry of an order (1) reopening its Chapter 11 case for the limited purpose of enforcing the Discharge and Plan Injunction, and (2) enforcing the Discharge and Plan Injunction by requiring NYCHA to discontinue its state court action against the Debtor with prejudice. See Motion at 12.

DISCUSSION

I. Alleged Lack of Notice of the Bar Date

Before discussing whether there is cause to reopen the Debtor's bankruptcy case and whether NYCHA's state court claims are subject to the Discharge and Plan Injunction, the Court must first determine the threshold issue of whether the Debtor provided NYCHA with appropriate notice of the Debtor's bankruptcy filing and the Gov't Bar Date. If NYCHA did not receive such notice, then NYCHA could not be bound by the Debtor's Plan Injunction or subject to the Discharge and reopening the case would serve no purpose.

The constitutional standard for due process requires that known creditors in a bankruptcy case receive actual notice of a debtor's bankruptcy filing and the bar date.³ See In re AMR Corp. , 2016 WL 1068955, at *2 (Bankr. S.D.N.Y. Mar. 17, 2016) (citing City of New York v. N.Y., N.H. & H.R. Co. , 344 U.S. 293, 296–97, 73 S.Ct. 299, 97 L.Ed. 333 (1953) ); In re Motors Liquidation Co. , 576 B.R. at 773. "Known creditors ... must be afforded notice ‘reasonably calculated, under all the circumstances, to apprise’ them of the pendency of the bar date." In re R.H. Macy & Co. , 161 B.R. 355, 359 (Bankr. S.D.N.Y. 1993) (citing Mullane v. Central Hanover Bank & Trust Co. , 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950) ). "[I]f a creditor is not given reasonable notice of the bankruptcy proceeding and the relevant bar dates, its claim cannot be constitutionally discharged." In re U.S.H. Corp. , 223 B.R. 654, 658 (Bankr. S.D.N.Y. 1998). In Chapter 11, therefore, a known creditor must receive proper, adequate notice before its claim is barred forever. See In re Best Prod. Co., Inc. , 140 B.R. 353, 357 (Bankr. S.D.N.Y. 1992). But the bar date is strictly enforced if a known creditor receives notice of the bar date. Id. at 358.

It is well-settled that proof that a properly...