Post-confirmation Jurisdiction and Plan Modifications

In In
re U.S. Brass Corp., 301 F.3d 296 (5th Cir.
2002), the Fifth Circuit considered the
post-confirmation jurisdiction of bankruptcy courts and the modification of
chapter 11 plans. In U.S. Brass, the confirmed
chapter 11 plan provided for a mechanism to resolve certain creditors'
claims by either settlement or litigation. Following confirmation, various
parties including the debtor filed a motion with the bankruptcy court to
approve a settlement, providing that the claims would be liquidated by binding
arbitration. Various insurers objected to the motion, contending that the
bankruptcy court did not have jurisdiction to approve the settlement and that
arbitration of the claims without the consent of the insurers would alter the
insurers' rights under the confirmed and substantially consummated plan.
The Fifth Circuit held that bankruptcy courts have post-confirmation
jurisdiction over matters that pertain to the implementation or execution of
the confirmed plan, as previously stated in In
re Craig's Stores of Texas Inc., 266 F.3d
388 (5th Cir. 2001). Here, the Fifth Circuit found that the motion to approve the settlement
pertained to the implementation or execution of the confirmed plan. The Fifth
Circuit next addressed whether the relief sought in the settlement motion
violated the provisions of §1127(b), forbidding modification of a plan
that has been substantially consummated. The court held that the relief sought
by the motion would substitute arbitration for litigation and, therefore, would
alter the plan provision obtained by the insurers in exchange for the
withdrawal of the insurers' objections to the plan.

Chapter 11 Rent Claims

In In
re LPM Corp., 300 F.3d 1134 (9th Cir. 2002), the Ninth Circuit addressed for the first time the issue of
whether chapter 11 rent claims, which have administrative priority pursuant to
§365(d)(3), also have super priority over chapter 7 administrative claims.
In addition, the Ninth Circuit also addressed whether a creditor's
request for a writ of execution in support of a previous court order
authorizing payment to such creditor violated the automatic stay provisions
under §362. The court held that the bankruptcy court order directing the
debtor to "immediately pay" the back rent in a specified amount by
a date certain was not sufficient authority for the creditor to obtain a writ
of execution without first complying with the provisions of 11
U.S.C. §362 by obtaining an order from the
bankruptcy court explicitly lifting the automatic stay to commence collection
proceedings. The Ninth Circuit also affirmed the bankruptcy court's
ruling that chapter 11 post-petition pre-conversion rent claims did not have
super priority over the chapter 7 administrative creditors. The court noted
that although Congress gave post-chapter 11 rent administrative priority in
chapter 11 cases, it did not authorize super priority over other administrative
expenses in the event the case is converted to a chapter 7.

10th Cir. BAP Adopts Proration Rule for Expense Claims

In In
re Furr's Supermarkets Inc., 283 B.R. 60
(B.A.P. 10th Cir. 2002), the Tenth
Circuit Bankruptcy Appellate Panel (BAP) adopted the proration rule for
post-conversion administrative expense claims owed to a lessor under 11
U.S.C. §365(d)(3). The BAP discussed the split
among the three circuit courts that had addressed the issue of when a claim
arises under §365(d)(3). The proration rule, which was adopted by the
Seventh Circuit in In
re Handy Andy Home Improvement Centers Inc.,

144 F.3d 1125 (7th Cir. 1998), requires
that a court prorate the amounts due under a lease between the pre-conversion
period and the post-conversion period. The performance date rule, which was
adopted by the Third Circuit in In
re Montgomery Ward Holding Corp., 268 F.3d 205
(3rd Cir. 2001), entitles the lessor to
any lease payments that become due under the lease post-conversion, even if the
lease payments due are attributable to periods prior to the conversion date.
The BAP, in adopting the proration rule, stated that the performance rule
unraveled the priority scheme of the Bankruptcy Code by requiring payment of
pre-conversion claims under §365(d)(3), which would be subordinated to
other administrative expense claims pursuant to the priority scheme established
under §726(b).

Mandatory Arbitration Denied by Bankruptcy Court

In In
re Gandy, 299 F.3d 489 (5th Cir. 2002), the Fifth Circuit upheld a bankruptcy court's refusal to
compel arbitration of disputes between the debtor and certain parties. The
Fifth Circuit considered the mandate set out in the Federal Arbitration Act
that directs courts to rigorously enforce agreements to arbitrate. The Fifth
Circuit generally agreed that bankruptcy courts do not have discretion to
decline staying, pending arbitration, proceedings involving non-core matters
that are arbitral issues under a relevant agreement. Where a cause of action at
issue is not derivative from the debtor's pre-petition legal or equitable
rights, but is derived entirely from federal rights conferred by the Bankruptcy
Code, the bankruptcy court retains significant discretion to refuse to compel
arbitration of the matter. The Fifth Circuit stated that the bankruptcy court
has discretion to deny enforcement of the arbitration clause only when
enforcement would conflict with the purpose or provisions of the Code. The
Fifth Circuit found that the resolution of the bankruptcy claims predominated
in this case and that the bankruptcy court had not abused its discretion in
refusing to stay the adversary proceeding pending arbitration under the
agreement. Furthermore, the Fifth Circuit found that the bankruptcy court had
properly exercised its discretion in not severing the non-core matters for
arbitration.

Abstention on Personal Injury Claims

In In
re Federal-Mogul Global Inc., 282 B.R. 301
(Bankr. D. Del. 2002), District Judge
Alfred M. Wolin considered motions pursuant to 28
U.S.C. §157 to transfer the venue of certain
personal-injury claims against third-party non-debtors based on the
non-debtor's potential indemnification claims against the debtor. Under
§1334(b) of the Bankruptcy Code, bankruptcy courts may have subject-matter
jurisdiction over civil proceedings arising in or related to cases under Title
11, including litigation between third parties that has an effect on the
estate. The court found that the leading case concerning "related
to" jurisdiction was Pacor
Inc. v. Higgins, 743 F.2d 984 (3rd Cir. 1984), where the Third Circuit held that a bare claim of common-law
indemnity was not enough to establish "related to" jurisdiction.
The court, after finding that the bankruptcy court did not have "related
to" jurisdiction over the matter, discussed the doctrines of mandatory
and permissive abstention under 28
U.S.C. §1334. The court set out the factors
considered when deciding to abstain under §1334(c)(1) that were listed in In
re Donington, Karcher, Salmond, Ronan & Rainone P.A., 194 B.R. 750 (D. N.J. 1996), and found that, under such factors, it was appropriate to abstain
from hearing the matter and to order the remand of all the personal injury
claims directly to the several state courts from which they were removed.

Miscellaneous

• In
  re Teligent Inc., 282 B.R. 765 (Bankr. S.D.N.Y.
  2002) (under 11
  U.S.C. §1129(a)(9), which requires
  administrative and priority creditors to be paid in full unless they agree to
  different treatment of their claims, express consent to such treatment is not
  required, but can be implied by the administrative creditors' failure to
  respond to the treatment proposed by the debtors);
• In
  re Henry Mayo Newhall Memorial Hospital, 282
  B.R. 444 (B.A.P. 9th Cir. 2002) (a
  bankruptcy court's decision to extend the exclusivity period "for
  cause" is a mixed question of fact and law, and therefore reviewable de
  novo by the BAP);
• In
  re Bradley, 282 B.R. 430 (Bankr. W.D. Ark.
  2002) (where the size of the homestead
  exceeded the acreage limited under the state homestead exemption and the land
  could not be subdivided, it was appropriate to sell the entire tract with the
  sales proceeds being apportioned between the homestead and non-homestead
  portions of the land); and
• In
  re Pacific Gas & Electric Co., 283 B.R. 41
  (N.D. Cal. 2002) (language in
  §1123(a) of the Bankruptcy Code, providing that "notwithstanding
  any otherwise applicable non-bankruptcy law," a plan shall provide means
  for the plan's implementation, preempts state regulation of a public
  utility concerning approval by state agency of the restructuring of the public
  utility).