Summary
noting that a “claim does not arise post-petition simply because the time for payment is triggered by an event that happens after the filing of the petition”
Summary of this case from Ohio Attorney Gen. v. Suwinski (In re Suwinski)Opinion
Case No. 96-15177. Chapter 11, Jointly Administered.
September 29, 2000.
Dean D. Gamin, Esq., Thompson, Hine Flory, P.L.L., Cleveland, OH, Attorney for Maytag Corporation.
Lawrence A. Lichtman, Esq., Carson Fischer, P.L.C., Birmingham, AL, Attorney for Unsecured Creditors Committee.
MEMORANDUM OF OPINION REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT ON MAYTAG CORPORATION CLAIM
Maytag Corporation filed a claim in this Chapter 11 case for merchandise it delivered pre-petition to Fretter, Inc. The Official Committee of Unsecured Creditors objected to the claim based on: (1) a Settlement and Release Agreement Fretter entered into with Maytag pre-petition ("the Agreement"); and (2) other defenses. (Docket 1997). In an earlier Memorandum of Opinion and Order, the Court addressed the issue of whether Maytag had released its debt under the Agreement and concluded that the Agreement permitted Maytag to file a claim in this case (the "Order"). (Docket 2185). The Committee and Maytag are now before the Court on Cross Motions for Summary Judgment in which each requests judgment on the "other defenses" issue. (Docket 2225, 2226, 2229). Maytag supported its Motion with the Affidavit of Don Deemer on the subjects of the claim itself and the claim amount. (Docket 2231).
Each party has also responded in opposition to the other's motion. (Docket 2230, 2232, 2234, 2235).
The Court initially declined to consider this second issue in the summary judgment context due to the existence of a genuine issue of material fact on the claim amount and the uncertainty as to whether the Committee had advanced all of its arguments. (Docket 2238). The parties then entered into a Stipulation resolving those concerns. (Docket 2240). For the reasons discussed below, Maytag is entitled to judgment allowing its claim in the stipulated amount.
JURISDICTION
The Court has jurisdiction to determine this matter under 28 U.S.C. § 1334 and General Order No. 84 entered on July 16, 1984 by the United States District Court for the Northern District of Ohio. This is a core proceeding under 28 U.S.C. § 157 (b)(2)(B).
SUMMARY JUDGMENT
Summary judgment is appropriate only where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c), made applicable by Fed.R.Bankr.P. 7056; Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). The parties chose not to present evidence other than the Stipulation and the Deemer Affidavit. Instead, they agree here, as they did on the release issue, that there are no disputed facts, that it is not appropriate to consider evidence as to what the drafters intended by the language used in the Agreement, and that the Agreement should be interpreted as a matter of law.
FACTS
Pre-petition, Maytag sought payment from Fretter on invoices totaling approximately $2.5 million. (Deemer Aff. ¶ 2). There is little, if anything, in the record to show why Fretter had not paid these invoices. In any event, the parties resolved the problem by entering into the Agreement. The Agreement, which is governed by Michigan law, contains these provisions:
1. Mutual Releases. Excluding the rights of Creditor [i.e. Maytag] and the obligations of Fretter as set forth in Paragraph 2 below and Paragraph 3 below, which rights of Creditor and obligations of Fretter are NOT hereby released by Creditor's execution of this Agreement, Creditor hereby irrevocably releases, acquits, holds harmless and forever discharges Fretter and its respective shareholders, officers, directors, employees, affiliates, subsidiaries, agents, representatives, successors and assigns of and from any and all manner of costs, expenses, liabilities, causes, rights, claims, debts, causes of action, demands and the payment of any sum of money whatsoever for any thing or matter whatsoever, whether known or unknown, contingent or liquidated, at law or in equity, which has or may have ever arisen through the date hereof relating in any way to any products and/or services hereinbefore sold, leased or otherwise provided to Fretter.
Excluding the rights of Fretter set forth in Paragraph 3 below, which rights of Fretter are NOT hereby released, Fretter hereby irrevocably releases, acquits, holds harmless and forever discharges Creditor and its respective shareholders, officers, directors, employees, affiliates, subsidiaries, agents, representatives, successors and assigns of and from any and all manner of costs, expenses, liabilities, causes, rights, claims, debts, causes of action, demands and the payment of any sum of money whatsoever for any thing or matter whatsoever, whether known or unknown, contingent or liquidated, at law or in equity, which has or may have ever arisen through the date hereof relating in any way for the debt owed by Fretter to Creditor for any products and/or services hereinbefore sold, leased or otherwise provided to Fretter. Excluded from this Release, however, shall be any claims arising out of or related to personal injuries and property damages attributable to Creditor's products.
2. Payment. In exchange for Creditor's release provided in Paragraph 1 above, Fretter agrees to pay to Creditor the sum of money upon the terms written below Creditor's signature on this agreement.
3. Miscellaneous. Creditor and Fretter hereby agree that in the event Fretter becomes a debtor under the protection of a Bankruptcy Court or similar state statute, (A) Creditor shall have the right to file in the court proceeding a claim for the full amount of the debt owing as of the date of the execution of this Agreement subject to all defenses, claims, counterclaims and offsets which Fretter reserves the right to assert in defense of Creditor's asserted claim; and (B) for mutual consideration herein, Fretter agrees that it will not pursue against the Creditor any claim, other than as set forth in subsection (A) of this Paragraph and the last sentence of Paragraph 1 above, arising under any Federal or State bankruptcy, insolvency or other similar statute.
Maytag received the $1.3 million payment referenced in paragraph 2 of the Agreement. (Deemer Aff. ¶ 3).
Fretter filed its Chapter 11 case on September 24, 1996. Maytag timely filed a general unsecured claim in the principal amount of $1,219,527 plus interest, costs, fees, and expenses, subject to a set-off. The parties have now stipulated that if Maytag's claim is allowed, the allowed amount is $1,142,433 and the Committee does not have any additional defenses or legal arguments beyond those asserted to date. (Stipulation ¶¶ 1, 2).
At a status conference held on August 2, 2000, the parties advised the Court that they were not able to reach a settlement and that this is the last major dispute in this case, with the final payment to unsecured creditors awaiting its final resolution. They then entered into the Stipulation filed August 8, 2000.
THE POSITION OF THE PARTIES
In the Order, this Court rejected the Committee's argument that the Agreement provided Fretter with a full release from the Maytag debt and found that the Agreement gave Maytag two rights with respect to its original claim for approximately $2.5 million: (a) the right to receive $1.3 million shortly after the Agreement was signed; and (b) the right to file a claim in any federal bankruptcy or similar state proceeding for the amount that would otherwise have been due at the time that it entered into the Agreement, subject to Fretter's defenses, claims, counterclaims, and offsets. Maytag acknowledges that Fretter is entitled to credit for the payment made; the stipulated claim amount reflects that payment, as well as certain other minor adjustments.
The Committee responded to the Order with a Motion for Summary Judgment in which it makes additional legal arguments. The Committee's position is that the claim should not be allowed because the Agreement does not give Maytag either a pre-petition claim or an allowable claim. Maytag disagrees, contending that it has a pre-petition claim based on its contingent, contractual right to payment under the Agreement, which Agreement was entered into pre-petition. Moreover, it argues that one of the contingencies — a federal bankruptcy filing — has occurred and so its claim should be allowed.
DISCUSSION 11 U.S.C. § 101(5)
The Committee contends that Maytag's claim should not be allowed because it does not have a pre-petition claim and does not meet the test for a post-petition, administrative expense claim. This argument starts from the correct premise that the definition of a claim in bankruptcy is not without limits; it does not, however, address Bankruptcy Code § 101(5) and applicable case law which determine when a claim exists and when a claim arises in the bankruptcy context.
As Maytag has never asserted an administrative claim, the second prong of this argument is moot.
Under § 101(5)(A), a claim includes the:
. . . right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured[.]
11 U.S.C. § 101(5)(A). As the Sixth Circuit has noted:
[t]his definition "reflects Congress' broad rather than restrictive view of the class of obligations that qualify as a `claim, giving rise to a debt'." Penn. Dept. of Public Welfare v. Davenport, 495 U.S. 522, 558, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990). Congress described the definition as the "broadest possible," and added that the Code "contemplates that all legal obligations of the debtor will be able to be dealt with in the bankruptcy case. . . It permits the broadest possible relief in the bankruptcy court." U.S. Code Cong. Admin. News 1978, p. 6266.
CPT Holdings, Inc. v. Industrial Allied Employees Union Pension Plan, 162 F.3d 405, 407-408 (6th Cir. 1998). "[R]elevant non-bankruptcy law must be examined to see whether a right to payment, even a contingent right, exists." Id. at 409. "The validity of a creditor's claim is determined by rules of state law." Grogan v. Garner, 498 U.S. 279, 283 (1991) ("[T]he term `state law' [is used] expansively . . . to refer to all non-bankruptcy law that creates substantive claims. We thus mean to include in this term claims that have their source in substantive federal law[.]"). Id. at 284 n. 9.
The Committee argues that any right to payment must necessarily arise post-petition because it could never be enforced against Fretter outside of bankruptcy. The determination of when a claim arises is governed by bankruptcy law. Pension Benefit Guar. Corp. v. Sunarhauserman, Inc. In re Sunarhauserman, Inc.), 126 F.3d 811 (6th Cir. 1997). A claim does not arise post-petition simply because the time for payment is triggered by an event that happens after the filing of the petition. As a result, "it is possible that a right to payment that is not yet enforceable at the time of filing of the petition under non-bankruptcy law, may be defined as a claim within Section 101(5)(A) of the Bankruptcy Code." Federated Dept. Stores, Inc. v. Wongco (In re R.H. Macy Co.), 236 B.R. 583, 589 (Bankr. S.D.N.Y. 1999). In the context of a debtor's pre-petition contracts, courts generally agree that a creditor's contingent right to payment under such contracts arises pre-petition. See, for example, Stewart Foods, Inc. v. Broecker (In re Stewart Foods, Inc.), 64 F.3d 141, 145 (4th Cir. 1995) ("[R]egardless of the nature of the contract, if at the time of the bankruptcy filing the debtor has an obligation under the contract to pay money to the non-debtor party' that obligation is handled as a pre-petition claim in the bankruptcy proceedings."); Woburn Assocs. v. Kahn (In re Hemingway Transport, Inc.), 954 F.2d 1, 9 (1st Cir. 1992) ("[W]e conclude Woburn held a prepetition claim against [the debtor] at the time of the filing of the chapter 11 petition in 1982, albeit a right to payment contingent on a future occurrence reasonably within the contemplation of the parties as evidenced by the terms of the indemnification agreement."); Employees' Retirement Sys. of Hawaii v. Osborne (In re THC Fin. Corp.), 686 F.2d 799, 804 (9th Cir. 1982) ("We conclude that the bankruptcy court did not err in finding ERS's [contractual] indemnification claim an allowable contingent claim against the bankrupt."). See also, Beneke Co. v. Economy Lodging Sys., Inc. (In re Economy Lodging Sys., Inc.), 234 B.R. 691 (B.A.P. 6th Cir. 1999) (discussing the limited circumstances in which obligations under a pre-petition contract may be entitled to administrative expense priority).
The Committee argues that Maytag does not have a pre-petition claim solely because its right to payment required a bankruptcy filing. A similar argument was rejected by the bankruptcy court in In re Symes, 174 B.R. 114 (Bankr. D. Ariz. 1994). In Symes, the court concluded that a pre-petition agreement under which a lawyer's right to payment for services required a bankruptcy filing was a contingent, pre-petition claim. This Court concurs.
Fretter and Maytag entered into the Agreement before Fretter filed its Chapter 11 case and provided that, in the event of a bankruptcy filing, Maytag could file a claim for the full amount of its debt subject to available defenses. This Agreement establishes Maytag's contingent, contractual right to payment, which right arose pre-petition under bankruptcy law. Maytag's claim is, therefore, a pre-petition claim in this case.
11 U.S.C. § 502The Committee next argues that Maytag's right to payment under the Agreement is not an allowable claim based on 11 U.S.C. § 502 (b). That section provides for the allowance of a claim to which an objection is filed:
(b) Except as provided in subsections (e)(2), (f), (g), (h), and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim . . . as of the date of the filing of the petition, and shall allow such claim in such amount except to the extent that —
(1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured[.]
The Committee's argument has two parts. First, the Committee cites the language in § 502(b) that a court "shall determine the amount of [a] claim . . . as of the date of the filing of the petition" and argues that because Maytag had no right to payment before the Chapter 11 was filed, it does not now have an allowable claim. This argument is faulty. The statute cited does not define when a claim arises, but merely states that the claim amount shall be determined as of the petition date. "This requirement coincides with other Code sections which make it clear that section 502 applies to a proof of claim only if it reflects a prepetition claim." 4 Collier on Bankruptcy, 15th Rev. Ed. at ¶ 502.03[1][b]. As previously discussed, Maytag does have a prepetition claim.
See also Bankruptcy Code § 502(c)(1) which provides that contingent or unliquidated claims can be estimated for purposes of allowance. 11 U.S.C. § 502(c)(1).
The second part of the Committee's argument relies on § 502(b)(1). The Committee posits that Maytag's claim must be disallowed because it could never be enforced against the debtor outside of bankruptcy and cites United States v. Sanford (In re Sanford), 979 F.2d 1511, 1513 (11th Cir. 1992) in support. Maytag responds that the Committee is requesting disallowance of its claim based solely on it being contingent, a result not permitted by this Code section. Maytag also argues that the Agreement permits it to file a claim in a state insolvency proceeding.
Under § 502(b)(1), a claim may be disallowed if it is unenforceable against the debtor based on any agreement or applicable law, other than for the reason that the claim is unmatured or contingent. The Agreement in this case states that Maytag may file a claim "in the event Fretter becomes a debtor under the protection of a Bankruptcy Court or similar state statute." The Committee's unenforceability argument is based solely on this bankruptcy filing contingency. The Committee does not cite any law or any agreement which renders this contingency or the Agreement unenforceable. The Sanford decision on which the Committee relies does not involve a contingent claim and does not shed light on this matter. In that case, the appellate court reviewed a lower court decision which partially disallowed a tax penalty claim despite the fact that applicable tax law required either total allowance or complete disallowance of the claim. In that context, the court stated that "a claim against the bankruptcy estate will not be allowed in a bankruptcy proceeding if the same claim would not be enforceable against the debtor outside of bankruptcy." In re Sanford, 979 F.2d at 1513. This case does not support the Committee's argument that Maytag's claim is not allowable under § 502(b)(1).
Equity
The Committee returns in its response brief to an argument made in the first round of briefs on the release issue: that it is inequitable to allow the Maytag claim. (Docket 2232 at 4). As noted in the Order that resolved that issue, the Committee does not explain why this result is inequitable, nor does it cite any law that would permit or require equitable considerations to override the legal analysis made by both parties. In fact, Sixth Circuit law suggests otherwise. See Unsecured Creditors Comm. of Highland Superstores, Inc. v. Strobeck Real Estate, Inc. (In re Highland Superstores, Inc.), 154 F.3d 573 (6th Cir. 1998).
Moreover, even if equity is the appropriate test, the Court does not perceive inequities in this result. Pre-petition, Maytag delivered certain goods to Fretter which Fretter did not pay for. Fretter and Maytag, both represented by counsel, decided to resolve their differences by entering into a written contract that gave Maytag an immediate, greatly reduced payment and a contingent right to additional payment, with Fretter retaining its defenses against the additional payment. The Committee has not challenged the amount of the claim, despite multiple opportunities to do so. The Committee also elected to treat the Agreement as unambiguous and not argue that the parties should present evidence as to what they intended to achieve through the Agreement. Allowance of this claim in the stipulated amount will still result in Maytag receiving significantly less than it originally claimed to be owed more than five years ago, even if unsecured creditors receive the 30-40% dividend projected in the approved disclosure statement that supported the confirmed plan. (Docket 1623, 1624). Under these facts, the Committee has not shown inequitable circumstances that would support denying this claim, even if equity is the appropriate standard to use, which the Court does not believe to be the case.
The Court's understanding from counsel at the August 2, 2000 status conference is that the projected dividend to unsecured creditors will fall short of this mark, regardless of the disposition of this dispute.
CONCLUSION
For the reasons stated, Maytag's Motion for Summary Judgment on the Committee's Objection to its claim is granted and the Committee's Motion for Summary Judgment is denied. Based on the Stipulation, the Maytag claim is allowed in the amount of $1,142,433.
A separate judgment reflecting this decision will be entered.
JUDGMENT
For the reasons stated in the Memorandum of Opinion filed this same date,
IT IS, THEREFORE, ORDERED that the Motion of Maytag Corporation for Summary Judgment on the Objection of the Official Committee of Unsecured Creditors (the "Committee") to its claim is granted. (Docket 2229).
IT IS FURTHER ORDERED that the Committee's Motion for Summary Judgment on its Objection to the Maytag claim is denied. (Docket 2225).
IT IS FURTHER ORDERED based on the Stipulation filed by Maytag and the Committee that the Maytag claim is allowed in the amount of $1,142,433.