Renasant Bank v. Envtl. Wood Prods., Inc. (In re Envtl. Wood Prods., Inc.)

609 B.R. 901

IN RE: ENVIRONMENTAL WOOD PRODUCTS, INC., Debtor.

Renasant Bank, successor-in-interest to Heritage Bank of the South, and Hall & Navarro, LLC, Movants,

v.Environmental Wood Products, Inc., Respondent.

Number 10-60477-EJC

United States Bankruptcy Court, S.D. Georgia, Statesboro Division.

Signed November 21, 2019

Robert Bartley Turner, Savage, Turner & Pinckney, James L. Drake, Jr., Savannah, GA, J. Michael Hall, Hall & Navarro, LLC, Statesboro, GA, for Debtor.

OPINION ON MOTION TO REOPEN CHAPTER 11 CASE

Edward J. Coleman, III, Chief Judge

I. Introduction

This Chapter 11 case was closed eight years ago, on September 21, 2011, after the Court confirmed the plan of reorganization filed by the Debtor, Environmental Wood Products, Inc. Since that time, the Debtor has made all of its scheduled plan payments to both secured and unsecured creditors. To all appearances, the plan seems to have succeeded. But at some point, the Debtor's principal, Donald R. Warren, came to believe that the Debtor's largest creditor, Renasant Bank, was misapplying the Debtor's payments. Further, Mr. Warren alleges that the Debtor's former counsel, J. Michael Hall of Hall & Navarro, LLC ("Hall & Navarro"), somehow agreed to this misapplication of payments. On May 13, 2019, the Debtor sued both Renasant Bank and Hall & Navarro in the Superior Court of Tattnall County, Georgia. The Debtor asserted a claim of professional malpractice against Hall & Navarro, as well as a claim of conversion against Renasant Bank based on its alleged scheme to defraud the Debtor.

Not long after the state court action was filed, each defendant removed that action to the United States District Court for the Southern District of Georgia. Confusingly, this procedure resulted in two separate cases in the District Court. Both of those cases have now been assigned to a single District Court judge. For their part, both Renasant Bank and Mr. Hall asserted in the District Court that removal was proper pursuant to 28 U.S.C. § 1452(a) because the underlying civil action involved the court's bankruptcy jurisdiction. Both defendants have now jointly moved this Bankruptcy Court to reopen this long-closed bankruptcy case so that the Court "may hear and determine the causes of action asserted in the Complaint." (Dckt. 137, p. 7). To that end, they contend that the Bankruptcy Court is in the best position to "interpret" the confirmation order entered in the bankruptcy case. The Debtor, which is the plaintiff in the civil action, opposes the reopening of the bankruptcy case. A hearing was held in this matter on August 21, 2019. For the reasons set forth below, the Court will deny, without prejudice, the joint motion to reopen.

II. The Underlying Chapter 11 Case

The Debtor, a wood manufacturing company, filed a Chapter 11 petition on May 28, 2010. (Dckt. 1). On June 8, 2010, the Court entered an Order appointing Mr. Hall as counsel for the Debtor. (Dckt. 21). On September 23, 2010, the Debtor's principal creditor, HeritageBank of the South ("HeritageBank"), filed a proof of claim (Claim No. 11) in the amount of $1,361,318.50.¹ According to the proof of claim, the value of HeritageBank's collateral was $842,180.00. (Claim 11-2, p. 1). Thus, in accordance with the bifurcation provision of 11 U.S.C. § 506(a)(1),² HeritageBank held a secured claim in the amount of $842,180.00 and an unsecured claim in the amount of $519,138.50. (Claim 11-2, p. 1).³

On November 19, 2010, the Debtor filed its Plan of Reorganization. (Dckt. 57). The Debtor amended its plan on December 22, 2010 (the "Second Plan of Reorganization"). (Dckt. 63). HeritageBank filed an objection (dckt. 76) to the Second Plan of Reorganization on January 25, 2011, asserting, among other things, that the Debtor's plan failed to properly value HeritageBank's collateral. (Dckt. 76, p. 2).

On March 21, 2011, the Court entered its Consent Order Resolving HeritageBank of the South's Objection to Confirmation of the Debtor's Second Plan of Reorganization (the "Consent Order"). (Dckt. 102). Under the terms of the Consent Order, it was established that HeritageBank had an allowed secured claim in the amount of $757,000.00 and an allowed unsecured claim in the amount of $604,318.50. (Dckt. 102, p. 1). The Consent Order required the Debtor to pay HeritageBank's secured claim "in 147 payments of $6,522.36 with interest accruing at the rate of four percent (4%) per annum with the first payment beginning on March 1, 2011 and continuing on the first day of each month thereafter until HeritageBank's Secured Claim is paid in full[.]" (Dckt. 102, p. 2). HeritageBank's unsecured claim, on the other hand, was to be paid as a Class 9 general unsecured creditor claim under the Debtor's Second Plan of Reorganization, which provided for a 15% dividend to be paid to Class 9 creditors at an interest rate of 4 percent amortized over a five-year period. (Dckt. 63, p. 2; dckt. 102, p. 3). The terms of the Consent Order were incorporated into the order confirming the Debtor's Second Plan of Reorganization, and, to the extent conflicting with the plan, were ordered to take precedence over the terms of the plan. (Dckt. 102, p. 4).

The Court entered an Order confirming the Debtor's Second Plan of Reorganization ("Confirmation Order") (dckt. 124) on May 13, 2011. Under the terms of that Order, the only reference to the Court's continued jurisdiction was the statement that "[n]otwithstanding any contrary provision of the plan, this Court does not retain jurisdiction to adjudicate claims against the Debtor arising out of a breach of the terms of the confirmed plan. (Dckt. 124). Following the entry of the Debtor's Chapter 11 Final Report (dckt. 132) on July 28, 2011, the Court entered its Chapter 11 Final Order (dckt. 133) on September 21, 2011, and closed the case on that same date.

III. The Debtor's Post-Confirmation Payments Under the Plan

Subsequently, HeritageBank merged with Renasant Bank. As the surviving entity, Renasant Bank acquired the rights and interests of HeritageBank, including the right to payment by the Debtor. (Tr. at p. 66).⁴ Regarding the unsecured debt, consistent with the requirements of the Second Plan of Reorganization (dckt. 63) as modified by the Consent Order (dckt. 102), the Debtor made five consecutive annual payments to Renasant Bank in the amount of $20,362.00; those payments were made on June 13, 2012; June 13, 2013; June 13, 2014; June 13, 2015; and June 13, 2016. (Ex. "Ren-5," p. 34).⁵ Thus, the Debtor's unsecured debt to Renasant Bank was paid in full, a fact that is not in dispute. (Tr. at pp. 105-111).

As for the secured debt, which the Consent Order required to be paid in the amount of $6,522.36 per month for 147 months, a payment history prepared by Renasant Bank indicates that the Debtor has made every scheduled monthly payment from March 3, 2011 through August 7, 2019.⁶ (Ex. "Ren-4"; Tr. at pp. 73-79; Dckt. 137 at pp. 10-13). In addition to these monthly payments, the Debtor sold certain collateral, consisting of 2.11 acres of real property, and the $69,666.17 in proceeds were applied to the principal balance of the secured claim on July 19, 2018. (Ex. "Ren-4," p. 4; Tr. at pp. 81-82, 98). As a result, the secured claim will actually be paid out slightly ahead of schedule. (Tr. at pp. 102-03).

The secured claim payments enumerated on the payment history prepared by Renasant Bank are identical to those listed in a separate payment history prepared by the Debtor's accountant and attached to a letter dated August 30, 2018. (Ex. "Ren-5," pp. 42-45; Tr. at pp. 79-82). There are only two differences between these two documents. First, the Debtor's accountant included seven monthly "adequate protection" payments,⁷ each in the amount of $6,000.00, made from July of 2010 through February of 2011 pursuant to two cash collateral orders entered in the bankruptcy case. (Dckt. 31 & 62, Tr. at pp. 82-84). These seven payments predated the agreed amount of HeritageBank's secured claim for which payments began in March of 2011. (Dckt. 31, p. 4; dckt. 62, p. 4). Second, the Debtor's accountant did not include the $69,666.17 in proceeds from the sale of the real estate. (Tr. at p. 81).

IV. The Allocation of Payments Between the SBA and Non-SBA Loans

All of the foregoing facts are both straightforward and undisputed. The problem, however, arose because the claim filed by HeritageBank, and now held by Renasant Bank, was comprised of two different loans, one of which was guaranteed by the Small Business Administration (the "SBA Loan") and one of which was not (the "Non-SBA Loan"). Specifically, the SBA Loan originated on February 9, 2000, when Ronald P. Warren (now deceased)⁸ and Donald R. Warren executed a Small Business Administration Note in the original principal amount of $790,000.00. (Ex. "Ren-1," pp. 35-40). In connection with the note, the Warrens further executed a Deed to Secure Debt conveying to The Tattnall Bank⁹ approximately ten acres of real property as security for the SBA Loan as well as for "any and all other indebtedness" then or thereafter owing by Donald or Ronald Warren. (Ex. "Ren-1," pp. 41-44). Also on February 9, 2000, the Debtor executed an Unconditional Guarantee of the SBA Loan in favor of the SB A. (Ex. "Ren-1," pp. 30-34). At the time HeritageBank filed its amended proof of claim on September 24, 2010, the amount owing on this SBA Loan was $490,575.98.¹⁰ (Claim 11-2, pp. 3-4; Tr. at pp. 67-70).

The Non-SBA Loan, on the other hand, originated on August 28, 2008, when the Debtor, acting through its principals, the Warrens, executed in favor of The Tattnall Bank a promissory note in the original principal amount of $874,455.12. (Ex. "Ren-1," p. 5; Tr. at p. 72). As collateral for the Non-SBA Loan, the Debtor granted The Tattnall Bank a security interest in accounts and other rights to payment, inventory, equipment, and deposit accounts. (Ex. "Ren-1," p. 6). The Debtor also executed a Deed to Secure Debt conveying...