In re Puchi Props. Inc.

601 B.R. 677

IN RE: PUCHI PROPERTIES INC., Debtor.

Case No. 4:14-bk-01372-BMW

United States Bankruptcy Court, D. Arizona.

Signed May 9, 2019

Albert H. Hartwell, Jr., Law Offices of Albert H Hartwell, Jr., Gerald K. Smith, Gerald K. Smith and John C. Smith Law Office, John C. Smith, c/o Smith and Smith PLLC, Tucson, AZ, for Debtor.

Adam B. Nach, Lane & Nach, P.C., Phoenix, AZ, for Trustee.

PARTIAL RULING AND ORDER REGARDING: MOTION TO ENFORCE ORDER CONFIRMING PLAN OF REORGANIZATION AND FOR ORDER COMPELLING UETA OF ARIZONA, INC. TO COMPLY WITH THE TERMS OF TRUSTEE'S PLAN OF REORGANIZATION

Brenda Moody Whinery, Chief Bankruptcy Judge

This matter came before the Court pursuant to the Motion to Enforce Order Confirming Plan of Reorganization and for Order Compelling UETA of Arizona, Inc. to Comply with the Terms of Trustee's Plan of Reorganization (the "Motion") filed by John C. Smith, the Plan Trustee (the "Plan Trustee") for Puchi Properties Inc. (the "Debtor") on January 12, 2018 (Dkt. 795); UETA of Arizona, Inc.'s Response (the "Response") (Dkt. 803); the Plan Trustee's Reply (the "Reply") (Dkt. 808); UETA of Arizona, Inc.'s Sur-Reply (the "Sur-Reply") (Dkt. 817); and the Notice of Limited Joinder in the Motion (the "Limited Joinder") (Dkt. 819) filed by Robert F. Kuhn, Esq., the Law Office of Robert F. Kuhn, PLLC, and Donald E. Gabriel, Esq. (the "Kuhn/Gabriel Creditors").

In the Motion, the Plan Trustee asks the Court to: (1) determine that the Debtor validly assumed an unexpired lease (the "Lease") with UETA of Arizona, Inc. ("UETA") through the Chapter 11 Trustee's Plan of Reorganization for Puchi Properties, Inc. Dated May 11, 2015 (the "Plan") (Dkt. 545 at Ex. A), which was confirmed by the Court on March 11, 2016 (Dkt. 545); (2) determine that there are no uncured defaults based on events or conditions that existed or occurred prior to this Court's entry of the Stipulated Order Confirming Plan of Reorganization (the "Confirmation Order") (Dkt. 545); (3) determine that the Lease has not been and may not be terminated based on events that existed or occurred prior to entry of the Confirmation Order; (4) determine that UETA is barred by the doctrine of res judicata from asserting claims raised in a state court complaint pertaining to the Lease; (5) enter orders enforcing the Confirmation Order and compelling UETA to pay $ 24,000 in arrears on account of the Lease, pay $ 8,000 per month pursuant to the Lease, otherwise conform its conduct to the Lease, and comply with the injunction provisions in the Debtor's Plan; and (6) award the Debtor its reasonable attorneys' fees incurred in connection with the Motion. The Motion does not seek any relief pursuant to Federal Rule of Civil Procedure 60,¹ as incorporated by Federal Rule of Bankruptcy Procedure 9024,² or seek any modification of the Plan.

UETA asserts that it was not provided with notice of the Debtor's Plan or any of the proceedings related thereto and asks the Court to deny the Motion.

On April 4, 2018, the Court held an initial hearing on the Motion and determined that the threshold issue is whether the Plan Trustee validly assumed the Lease between UETA and the Debtor through the Plan. The Court instructed the parties to brief the issue of whether the Lease was validly assumed and set the matter for oral argument.

On June 12, 2018, the Plan Trustee and UETA filed supplemental briefs (Dkts. 829 & 830), and on June 26, 2018, the Court held oral arguments. The Court then took this matter under advisement. Based on the pleadings, oral arguments, and entire record before the Court, the Court now issues its ruling.

This decision constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52, as incorporated by Fed. R. Bankr. P. 7052, and as made applicable to contested matters by Fed. R. Bankr. P. 9014(c).

I. Jurisdiction

A bankruptcy court's post-confirmation jurisdiction is relatively limited. See In re Pegasus Gold Corp. , 394 F.3d 1189, 1193-94 (9th Cir. 2005). The Ninth Circuit has adopted the Third Circuit's test for post-confirmation jurisdiction, under which there must be "a close nexus to the bankruptcy plan or proceeding sufficient to uphold bankruptcy court jurisdiction ...." Id. at 1194 (quoting In re Resorts Int'l Inc. , 372 F.3d 154, 166-67 (3rd Cir. 2004) ). "[M]atters affecting ‘the interpretation, implementation, consummation, execution, or administration of [a] confirmed plan will typically have the requisite close nexus.’ " Id. (quoting In re Resorts Int'l Inc. , 372 F.3d at 167 ).

Where a court has post-confirmation jurisdiction, retention of jurisdiction provisions will generally be given effect. In re 350 Encinitas Invs., LLC , No. CIV 06CV2085 WQH (POR), 2007 WL 2669546, at *6 (S.D. Cal. Sept. 6, 2007), aff'd , 313 F. App'x 70 (9th Cir. 2009) (quoting In re Resorts Int'l Inc. , 372 F.3d at 161 ).

In this case, there is a sufficiently close nexus between the issues raised by the parties and the confirmed Plan such that the Court retains post-confirmation jurisdiction over this matter, especially given that the central issue is whether or not UETA is bound by the Plan and this Court's Confirmation Order. Furthermore, the Plan provides for this Court's retention of jurisdiction to, among other things: (1) construe, implement, enforce, execute, or consummate the Plan, the Confirmation Order or any other Court order; (2) issue injunctions or take other such actions "as may be necessary or appropriate to restrain interference with the Debtor by any party with the Plan or its execution or implementation by any person;" and (3) issue "such orders in aid of consummation of the Plan and the [C]onfirmation [O]rder ... to the full extent authorized by the Bankruptcy Code[.]" (Dkt. 545, Ex. A at 39-40).

II. Issue

The threshold issue before the Court is whether the Debtor validly assumed the UETA Lease through the Plan.

III. Factual and Procedural Background

1. On October 31, 2013, UETA, as tenant, entered into the Lease with the Debtor and third-party Sherman Montgomery ("Montgomery"), as co-landlords, for certain real property located at 361 N. Mariposa Rd., Nogales, Arizona (the "Property"), commencing November 1, 2013, and expiring on October 31, 2033. (Dkt. 795 at Ex. A;³ see also Dkts. 795 at 2 & 803 at 2).

2. Under the Lease, UETA agreed to pay the Debtor and Montgomery $ 8,000 per month in rent, with one-half of such rent to go directly to each co-owner for the first five years of the Lease, and with rent to be adjusted thereafter subject to the terms of the Lease. (Dkt. 795, Ex. A at 3-4).

3. On February 4, 2014, the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.

4. On March 19, 2014, the Court ordered the appointment of a Chapter 11 Trustee and ultimately approved the appointment of Gerald K. Smith (the "Trustee) (Dkts. 89, 93, 159).

5. Pursuant to a letter dated May 28, 2014, which was sent to the Debtor's principal, UETA attempted to terminate the Lease. (Dkt. 803 at Ex. B).

6. On June 4, 2014, the Debtor filed Schedule G, listed the Lease therein, and listed "UETA c/o Nedda Gales, Esq. Greenberg Traurig LLP" at address "2375 E. Camelback #700, Phoenix, AZ 85016" as the lessee to the Lease. (Dkt. 182 at 10).

7. Despite being listed on Schedule G, neither UETA nor its counsel were contemporaneously added to the Debtor's Master Mailing List.

8. On or around July 8, 2014, the Trustee notified counsel for UETA that he was at the plan formulation stage and needed copies of UETA's leases with the Debtor. (Dkt. 808, Ex. B at 1).

9. By letter dated July 14, 2014, UETA, through counsel, informed the Trustee that it did not believe the Property was an asset of the bankruptcy estate, and believed that the Debtor may have materially breached the Lease, rendering the Lease no longer effective. (Dkt. 808, Ex. B at 2-4).

10. By letter dated July 30, 2014, the Trustee informed UETA that he was in the process of attempting to determine the ownership of the Property, would initiate a fraudulent transfer suit in order to bring the scheduled 50% ownership interest of the Property into the estate if required, and asserted that there had not been any breach of the Lease. (Dkt. 808, Ex. B at 5).

11. On July 29, 2014, the Trustee filed a Stipulated Motion for Order Authorizing Certain Payments to Trustee (the "Stipulated Motion") (Dkt. 222), which was joined by UETA, and which, after notice and a hearing, the Court approved. (Dkts. 255 & 270). UETA was not given notice of the hearing, and counsel for UETA did not appear at the hearing. (Dkts. 229, 255, 270). The order approving the Stipulated Motion authorized UETA to pay the Trustee certain amounts it was withholding pursuant to writs of garnishment against the Debtor and authorized UETA to make future rent payments directly to the Trustee. (Dkt. 270).

12. On May 11, 2015, the Debtor amended Schedule G, but did not make any changes to the description of the Lease or to the name or mailing address of the lessee to the Lease. (Dkt. 405 at 14).

13. On May 11, 2015, the Trustee filed the Plan, which provides in relevant part:

No ... unexpired leases will be rejected.

Any individual or entity that is a party to an ... unexpired lease assumed pursuant to the Plan who objects to such assumption must file with the Court a written statement stating the basis for the objection. This statement must be filed and served within the deadline for objecting to the confirmation of the Plan .... Any individual or entity that fails to file timely and serve such a statement will be deemed to have waived any objection to the proposed assumption.

(Dkt. 403, Ex. A at 24).

14. The Trustee conceded that he did not serve UETA with the solicitation package. (See Dkt. 830; 6/26/2018 Hearing Tr. 5:3-6; see also Dkt. 468). The Trustee likewise did not serve UETA with formal notice of the confirmation hearing or of the deadline to object to confirmation of the Plan. (See Dkt. 467).

15. UETA did...