Publication by notice does not extinguish the claim of a creditor with an executory contract that either rode through chapter 11 or was assumed by the plan, for reasons explained by Bankruptcy Judge Stacey G. C. Jernigan of Dallas.
The debtor, an oil and gas producer, filed a chapter 11 petition in 1986 and confirmed a plan in 1988. Years before bankruptcy, the debtor leased 20 acres of real property in Louisiana from the owner. The lease was for the surface only and did not convey mineral rights.
Also before bankruptcy, the debtor built a natural gas treatment plant on the leased property. In bankruptcy papers, the debtor did not schedule the unexpired lease.
The owner-lessor never received any notices about the bankruptcy. The plan provided that any unexpired leases and executory contracts that were not rejected would be assumed. The owner did not receive any notice about confirmation or filing a claim for “cure.”
The debtor continued operations on the property until selling the property several years after confirmation.
Claiming to have discovered environmental impairment on the property in 2019, the owner sued the debtor and other defendants in Louisiana state court in 2020.
The 1986 bankruptcy case had already been opened to deal with allegations from other creditors that later arising claims had not been discharged on confirmation in 1988. So, the debtor began an adversary proceeding where the debtor and the owner filed cross motions for summary judgment.
The debtor claimed that the owner was an unknown creditor whose claims were discharged by publication of the bar date in the 1986 case. In her June 3 opinion, Judge Jernigan took sides with the owner and held that the claims were not discharged because the lease was either assumed or rode through the chapter 11 case.
The debtor had won similar but not identical disputes, as Judge Jernigan explained. Most of the similar disputes were with creditors whose claims of environmental impairment were “unknown” to the debtor during the 1986 bankruptcy. Those creditors had not received actual notice and contended that they had “future” claims that were not discharged because they had not received “actual” notice.
In those cases, Judge Jernigan said that she and appellate courts have ruled that the claims were prepetition claims because they were based on prepetition relationships or prepetition conduct. As “unknown” creditors, she said they were not entitled to “actual” notice. Rather, constructive notice, or notice by publication, was sufficient for creditors with unknown claims.
In the prior cases, Judge Jernigan said the claims were discharged because notice by publication was sufficient to satisfy due process when the claims were based on prepetition conduct or relationships and the claims were unknown to the debtor.
Judge Jernigan said that the status of the owner as a known or unknown creditor “misses the point.” She said that the landowner’s claim was “different” because it involved a lease.
Judge Jernigan explained that the owner only had a claim if the lease had been rejected, but there was no rejection. Furthermore, the owner would have been entitled to actual notice were there either assumption or rejection, but the owner had no notice whatsoever.
“The only other possibility,” Judge Jernigan said, was that the lease rode through (or passed through) the chapter 11 case, “in which case no claim associated with the lease will be discharged.” Furthermore, the plan called for assuming leases that were not rejected.
Judge Jernigan held that the claim was not discharged, because neither assumption nor “‘ride through’ results in discharged claims.”
N.B.: Much of Judge Jernigan’s opinion deals with whether the lease had been an assignment or a sublease. Deciding that the lease had been assigned, she explored what she called Louisiana’s “rich yet murky jurisprudence distinguishing assignments from subleases.”
Publication by notice does not extinguish the claim of a creditor with an executory contract that either rode through chapter 11 or was assumed by the plan, for reasons explained by Bankruptcy Judge Stacey G. C. Jernigan of Dallas.
The debtor, an oil and gas producer, filed a chapter 11 petition in 1986 and confirmed a plan in 1988. Years before bankruptcy, the debtor leased 20 acres of real property in Louisiana from the owner. The lease was for the surface only and did not convey mineral rights.
Also before bankruptcy, the debtor built a natural gas treatment plant on the leased property. In bankruptcy papers, the debtor did not schedule the unexpired lease.
The owner-lessor never received any notices about the bankruptcy. The plan provided that any unexpired leases and executory contracts that were not rejected would be assumed. The owner did not receive any notice about confirmation or filing a claim for “cure.”
The debtor continued operations on the property until selling the property several years after confirmation.