Opinion
Civil Action No. 3:98-CV-0869-P.
October 3, 2000.
AMENDED MEMORANDUM OPINION AND ORDER
The Court's previous Memorandum Opinion and Order filed on August 29, 2000 is withdrawn and is substituted with this Amended Memorandum Opinion and Order, which reflects this Court's dismissal of DLJ's Points of Error 5 and 6 as moot.
Now before the Court are:
1. Jeff P. Prostok's Motion to Strike Certain Issues on Appeal and Brief in Support, filed September 4, 1998;
2. Opening Brief of Appellant National Gypsum Company, filed September 14, 1998;
3. Opening Brief of the Officers and Directors on Appeal, filed September 14, 1998;
4. Initial Brief of Appellant Donaldson, Lufkin Jenrette Securities Corporation, filed September 14, 1998;
5. Memorandum of Donaldson, Lufkin Jenrette Securities Corporation in Opposition to Jeff P. Prostok's Motion to Strike Certain Issues on Appeal, filed September 24, 1998;
6. The Trust's Reply to DLJ's Opposition to Prostok's Motion to Strike Certain Issues on Appeal, filed October 9, 1998;
7. Appellee Jeff P. Prostok's Answering Brief, filed October 14, 1998;
8. The Opening Brief of Appellee NGC Asbestos Disease and Property Damage Settlement Trust, filed October 16, 1998;
9. Consolidated Reply Brief of Appellant National Gypsum Company, filed November 12, 1998;
10. Joint Motion of National Gypsum Company and the Officers and Directors to Strike Opening Brief of Appellee NGC Asbestos Disease and Property Damage Settlement Trust Combined with Brief in Support Thereof, filed November 12, 1998;
11. Reply Brief of Appellant Donaldson, Lufkin Jenrette Securities Corporation, filed November 12, 1998;
12. Officers' and Directors' Reply Brief, filed November 12, 1998;
13. Response to Joint Motion of Appellants to Strike the Trust's Opening Brief, filed November 20, 1998;
14. Joint Reply of National Gypsum Company and the Officers and Directors to Response to Joint Motion of Appellants to Strike the Trust's Opening Brief; filed December 17, 1998;
15. Motion of Donaldson, Lufkin Jenrette Securities Corporation to Supplement the Record, filed February 2, 1999;
16. Jeff P. Prostok's Brief in Opposition to Motion to Supplement the Record, filed February 24, 1999;
17 Motion of NGC Settlement Trust to Supplement the Record, filed February 26, 1999;
18. Motion of Donaldson, Lufkin Jenrette Securities Corporation for Partial Withdrawal of Opposition to Appellees' Request to Strike Certain Issues on Appeal, filed March 5, 1999; and
19. Response to Donaldson, Lufkin Jenrette Securities Corporation's Motion for Partial Withdrawal of Opposition to Appellees' Request to Strike Certain Issues on Appeal, filed March 9, 1999.
Defendant-Appellant National Gypsum Company ("New NGC") appeals from the January 26, 1998 Memorandum Opinion and Order entered by the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, the Honorable Steven A. Felsenthal presiding (the "Bankruptcy Court"), in the chapter 11 reorganization cases of National Gypsum Company ("Old NGC") and Aancor Holdings, Inc. ("Aancor"), granting the trust relief under its Expedited Motion Seeking Clarification That The Fee Shifting Provision of the Reorganization Plan and Confirmation Order Do Not Apply to the Trust (the NGC Asbestos and Property Damage Settlement Trust, hereinafter referred to as the "Trust"). New NGC also appeals from the January 1998 Order granting Plaintiff Jeff P. Prostok ("Prostok") relief under the adversary proceedings styled as Jeff P. Prostok, et al. v. Peter Browning et al.
Defendant-Appellant Donaldson, Lutkin Jenrette Securities Corporation ("DLJ") appeals from the Bankruptcy Court's Order entered on February 3, 1998 (the "February 1998 Order") denying DLJ's motion to hold Jeff P. Prostok in civil contempt. DLJ also appeals from the January 1998 Order denying DLJ's motion for preliminary injunction and adjudicating the applicability of the enforceability of the injunctions, release and bond provisions contained in the Confirmation Order. Finally, DLJ appeals from the May 8, 1998 Judgment concluding the adversary proceeding in which the January 1998 Opinion was rendered.
Defendants-Appellants Peter C. Browning, et al., the officer and director appellants (the "ODs") appeal from the January 1998 Order construing the plan of reorganization as not requiring a bond to cover the ODs costs and attorneys fees.
STATEMENT OF JURISDICTION
This Court has jurisdiction to determine these appeals under 28 U.S.C. § 158(a).
BACKGROUND
The parties' disputes originate from the Chapter 11 reorganization cases of Old NGC, a wallboard manufacturing producer, and Aancor Holdings, Inc., Old NGC's parent corporation (the "Debtors"). The reorganization process began in the fall of 1990. During this process, creditor representatives disputed the good faith of the Debtors' officers, directors, and professionals, accusing them, inter alia, of intentionally undervaluing the Debtors for the benefit of corporate insiders. These disputes were litigated during the spring and summer of 1992 and, when they could not be resolved, the Debtors and the Statutory Committee of Bond and Trade Creditors (the "BT Committee") proposed competing plans of reorganization. After extensive hearings, the Bankruptcy Court confirmed the Debtors' plan of reorganization (the "Plan") over the competing BT Committee plan. On March 9, 1993 the Bankruptcy Court entered the Confirmation Order, confirming the reorganization plan. Among the terms of the Confirmation Order were express provisions finding, inter alia, that the Debtors, their respective directors, officers, and professionals had acted in good faith during the reorganization proceedings. Another provision of the Confirmation Order was Paragraph 50, which incorporated, verbatim, § 5.22 of the Joint Plan submitted by the Debtors. Paragraph 50 included a Release and Bond Provision at issue in this case. Neither Prostok, the BT Committee, nor any other creditor or creditor representative appealed from the Confirmation Order. The Plan was substantially consummated on July 1, 1993, the "Effective Date" of the Joint Plan.
On July 1, 1993 Old NGC's wallboard manufacturing operations and other assets and properties were transferred to New NGC, which was formed pursuant to the Joint Plan. Also on the Effective Date, Old NGC executed the NGC Asbestos Disease and Property Damage Settlement Trust Agreement (the "Trust Agreement"), creating the Trust. The Trust's powers included a limited right to sue and be sued in two situations: 1) actions involving the Trust's purpose of liquidating and resolving asbestos claims and 2) actions to collect, compromise or settle the Asbestos Insurance Debtor Actions or the Retained Actions.
The Joint Plan had dedicated specific assets of Old NGC to the resolution and payment of asbestos claims. These Trust assets were then transferred to the Trust.
On October 5, 1995 Prostok filed suit against the "ODs" and DLJ, the Debtors' financial advisors, in the 160th Judicial District Court of Dallas County, Texas (the "State-Court Litigation"). According to the Appellants, this litigation, which requests damages for alleged breaches of fiduciary duty by the ODs and DLJ in the context of valuing the Debtors for purposes of confirmation, substantially mirrors the valuation and good faith disputes examined by the Bankruptcy Court at confirmation and in the earlier hearings.
As previously stated, the Bankruptcy Court resolved these disputes in favor of Appellants through the exoneration provisions and findings of good faith found in the Confirmation Order.
On October 17, 1995 Prostok filed the present action, the Declaratory Judgment Action, with the Bankruptcy Court, seeking a declaration that the Fee-Shifting Provision in the Plan and Confirmation Order did not apply to the State-Court Litigation or, in the alternative, that the Fee Shifting Provision was void and unenforceable because it is contrary to law.
On November 15, 1995 DLJ removed the Prostok State-Court Litigation to federal district court. The other defendants joined in the removal on November 16, 1995. The district court referred the action to the Bankruptcy Court, which remanded it to State Court on March 27, 1996. The ODs and DLJ filed counterclaims for declaratory relief seeking rulings that, among other things, the State-Court Litigation was barred by res judicata and collateral estoppel and that the state action should be dismissed or alternatively that Prostok should be enjoined from prosecuting the State-Court Litigation.
This Court affirmed the Bankruptcy Court's remand order on February 21, 1997.
On November 20, 1995 Prostok filed a motion for summary judgment on his Declaratory Judgment Action. Soon thereafter, all parties to the Declaratory Judgment Action filed cross motions for summary judgment on their respective claims in that proceeding. On February 7. 1996 the Bankruptcy Court allowed New NGC to intervene as an additional party defendant. New NGC appeared and requested declaratory and injunctive relief barring the State-Court Litigation.
On April 10, 1996, the Bankruptcy Court entered an order and found that the Confirmation Order was final and not subject to relief through modification, revocation or amendment absent fraud on the Court. See April 10, 1996 Order at 6. The Bankruptcy Court declined to rule on all other issues and dismissed the remaining claims without prejudice. See id. at 4. DLJ and the ODs appealed the Bankruptcy Court's refusal to pass on the merits of their preclusion counterclaims. Prostok cross appealed, challenging the Bankruptcy Court's ruling on the finality of the fee-shifting provision.
On September 12, 1996 DLJ filed a motion asking the Bankruptcy Court to hold Prostok in civil contempt for filing the State-Court Litigation, which it claims violated the permanent injunctions contained in the Confirmation Order. On November 13, 1996 the Bankruptcy Court dismissed the Motion for Contempt without prejudice. DLJ appealed the Bankruptcy Court's dismissal of that motion. This Court denied that appeal as moot.
On February 24, 1997 this Court affirmed the Bankruptcy Court's decision that the Fee-Shifting Provision was final and, absent fraud on the court, was not subject to modification. This Court reversed the dismissal of DLJ's and the ODs' counterclaims for declaratory relief and remanded the case for consideration and analysis of the factors relevant to the dismissal of a declaratory judgment action as established by the Fifth Circuit in St. Paul Ins. Co. v. Trejo, 39 F.3d 585 (5th Cir. 1994). This Court instructed the Bankruptcy Court to weigh, on the record, the purposes of the Declaratory Judgment Act with all the Trejo factors.
On remand to the Bankruptcy Court, Prostok, DLJ, and the ODs asked the Bankruptcy Court to address the issues raised by the summary judgment motions, which included the applicability of the Release and Bond Provisions to the State-Court Litigation and Defendants' claims that the State-Court Litigation is barred by res judicata and collateral estoppel. The Bankruptcy Court set a briefing schedule. And that point, the Trust joined the disputes by filing a motion (the "Trust Motion") seeking an expedited decision on the Fee-Shifting Provision's applicability to a lawsuit it was contemplating. The Bankruptcy Court denied the request and set the Trust on the same briefing schedule as the other parties. On or about October 6, 1997, the Trust filed suit in the Bankruptcy Court against DLJ, the ODs, and other third parties, alleging claims similar to Prostok's. Both Plaintiffs claim the same willful misconduct, but the Trust also alleges that the Defendants were grossly negligent in failing to ascertain that certain cost savings were available to New NGC.
On January 26, 1998, the Bankruptcy Court entered the January 1998 Memorandum Opinion and Order. It found that it could, under the Trejo factors, decide the applicability of the Release and Bond Provisions to Prostok's and the Trust's claims. The Bankruptcy Court concluded the Legal Costs Provision, although applicable to and binding on both Prostok and the Trust, may have been included in error and needed to be narrowly applied. It also held the Legal Costs Provision violated public policy and that the Fee Shifting Provision did not apply to good faith attacks on actions taken during the plan confirmation process. See January 26, 1998 Memorandum Opinion and Order at 10-16. The Bankruptcy Court also denied the Defendants' motions for summary judgment seeking to bar Prostok's action on res judicata and collateral estoppel grounds and denied DLJ's request for a preliminary injunction. On February 3, 1998 the Bankruptcy Court denied DLJ's motion for civil contempt based on its decision that the injunction provision in the Confirmation Order did not apply to Prostok.
On February 5, 1998 New NGC and DLJ filed notices of appeal from the January 1998 Order with respect to the Declaratory Judgment Action and the underlying bankruptcy case. New NGC and DLJ also filed motions for leave to appeal and the ODs cross-appealed. DLJ also filed a notice of appeal from the order denying DLJ's motion for civil contempt. The motions for leave to appeal were assigned to Judge Robert Maloney, while the appeals from the Trust Motion and the Contempt Motion were assigned to Chief Judge Jerry Buchmeyer.
On May 1, 1998 Judge Maloney denied Defendants' motion for leave to appeal the opinion as it pertained to the Declaratory Judgment Action. He also denied the motion for stay on the grounds that it was moot.
On March 6, 1998 Prostok filed a motion for entry of final judgment in the Declaratory Judgment Action, including entry of final judgment against the Defendants on their counterclaims. Appellants opposed the motion, arguing that fact issues remained on their counterclaims. New NGC and the ODs moved the Bankruptcy Court to abstain from ruling further on their counterclaims.
On March 30, 1998 the Bankruptcy Court held a hearing on Prostok's motion for entry of final judgment. At the hearing, the Bankruptcy Court concluded that certain of Defendants' preclusion claims would require an evidentiary hearing but determined that this hearing should take place in the State-Court Litigation. The Bankruptcy Court asked all the parties to submit letters suggesting ways to administratively close the case for appeal purposes.
On May 8, 1998 the Bankruptcy Court entered its final judgment pursuant to Rule 54(b), ruling that the release and bond provisions do not apply to the State-Court Litigation and granting Prostok relief from the injunction. The Bankruptcy Court abstained from deciding any of Appellants' counterclaims and administratively closed the case. Appellants appealed.
DISCUSSION
I. STANDARD OF REVIEW
The Bankruptcy Court's conclusions of law are reviewed de novo and its findings of fact are reviewed on a clearly erroneous basis. Whether a contract is clear or ambiguous is a question of law. See In re Foster Mortgage Corp., 68 F.3d 914, 917 (5th Cir. 1995); McFarland v. Leyh (In re Texas General Petroleum Corp.), 52 F.3d 1330, 1335 (5th Cir. 1995). This Court will apply the rules of contract interpretation to the interpretation of a reorganization plan. If a bankruptcy court fails to apply the proper legal standards or bases its decision on clearly erroneous findings of fact, then that decision is reviewed on an abuse of discretion basis. In Re Continental Airlines, Inc., 150 B.R. 334, 338 (D. Del. 1993).
II. MOTION TO STRIKE THE TRUST'S OPENING BRIEF
As a preliminary matter, the Court must consider the joint motion of New NGC and the ODs to strike the Trust's opening brief New NGC and the ODs ask the Court to strike the Trust's brief; or in the alternative, to strike the Trust's Statement of Facts and Statement of the Case, on the grounds that it violates Bankruptcy Rule of Procedure 8010(a)(1)(D) by materially misrepresenting unsupported allegations in the State-Court Litigation as facts, failing to provide appropriate citations to the record, and making inappropriate references to matters outside the record. See Joint Motion to Strike Opening Brief at 5-6.
Federal Bankruptcy Rule 8010 requires that a statement "shall indicate briefly the nature of the case, the course of the proceedings, and the disposition in the court below. There shall follow a statement of the facts relevant to the issues presented for review, with appropriate references to the record." Fed.R.Bank.P. 8010(a)(1)(D).
The appellate court accepts as true the appellant's statement of the facts unless the appellee controverts those facts. Investment Funds Corp. v. Bomar, 306 F.2d 32, 32-33 (5th Cir. 1962). The court will search the record only where a controversy exists as to appellant's statement, which controversy was created by appellee's contrary statement. Id.
One thing an appellate court need never do is to "sift fact from fiction in the brief" Markowitz v. Toledo Metro. Hous. Auth.y, 608 F.2d 699, 704 (6th Cir. 1979). The court will tolerate some amount of laxness and loose writing in the briefs before it, "but a misleading or inaccurate statement of fact is quite another matter." Id. The attorneys have the duty to provide the court with extreme accuracy when referring to the record. This Court "should not be required to pore over an extensive record as an alternative to relying on counsel's representations." Id. Although a statement of facts may be persuasive in favor of the parties' position, it may not be a vehicle for argument. The parties may not use the factual recitation without making a distinction between facts found by the lower court and "facts" as urged by the party in question. Id. "It is crucial that this Court be able to rely upon representations of counsel as accurate and honest." Id.
The Trust brief fails to follow the above admonitions. The Trust's recitation of facts and statement of the case present factual allegations in the State-Court Litigation as having been adjudicated as true. See Trust Brief at 3, 5-7. "The facts are commingled with arguments in such manner as to render the one indistinguishable from the other. Any clear understanding of the facts and of the contentions of the appellants in relation to them is rendered virtually impossible." Thys Co. v. Anglo California Nat'l Bank, 219 F.2d 131, 132 (9th Cir. 1955), cert. denied, 349 U.S. 946 (1955).
"Appellate rules governing the forms of briefs do not exist merely to serve the whimsy of appellate judges. Some of the requirements, such as what should be included in the statement of the case, are essential for the proper disposition of an appeal." Slack v. St. Louis County Gov't, 919 F.2d 98, 99 (8th Cir. 1990).
The Trust's Statement of Facts and Statement of the Case lack any record citations. See Trust Brief at 5-7. These omissions are unacceptable and can result in dire consequences to the appellee. United States v. Partin, 552 F.2d 621, 633 (5th Cir. 1977), cert. denied, 434 U.S. 903 (1977); see also Moore v. FDIC, 993 F.2d 106, 107 (5th Cir. 1993) (dismissing appeal for failure to specify, to the record). The statement also fails to limit itself to the facts of the record, but rather injects its own "facts" against Appellants. The Trust's Statement of the Case and Statement of Facts violate Bankruptcy Rule 8010. Accordingly, the Trust's Statement of the Case and Statement of Facts are hereby stricken.
III. MOTION TO STRIKE CERTAIN ISSUES ON APPEAL
A brief procedural background regarding the Motion to Strike might be useful at this juncture. On September 4, 1998, Prostok filed a Motion to Strike Certain Issues on Appeal and Brief in Support. In this motion, Prostok challenged Appellant DLJ's Statement of Issues and Designation of Record on Appeal filed on May 26, 1998. Prostok sought to strike the following issues that DLJ had designated on appeal relating to its declaratory judgment counterclaims filed in the bankruptcy proceeding. They are:
The Trust later joined in this motion. See The Trust's Reply to DLJ's Opposition to Protok's Motion to Strike Certain Issues on Appeal at 1.
1. Whether the Bankruptcy Court erred as a matter of law in denying DLJ's motion for a preliminary injunction, notwithstanding paragraphs 10(A) and 15 of the Confirmation Order, which specifically enjoin the commencement and prosecution of actions of the kind initiated by Prostok;
2. Whether the Bankruptcy Court erred as a matter of law in denying DLJ's preliminary injunction motion without consideration of the language of the injunction provisions of paragraphs 10(a) and 15 of the Confirmation Order or their applicability to Prostok's lawsuit and without addressing the factors required to be examined in connection with a preliminary injunction;
3. **************************************************
4. Whether the Bankruptcy Court erred as a matter of law in not properly recognizing the res judicata and collateral estoppel effect of the good faith finding contained in paragraph 55 of the Confirmation Order, pursuant to which the Court had previously found that NGC, its professional employees and all persons who participated in the formulation, approval and confirmation of the plan acted in good faith;
5. Whether the Bankruptcy Court erred as a matter of law in concluding that neither res judicata nor collateral estoppel applied to DLJ, despite the prior litigation of Prostok's claim in connection with DLJ's final fee application;
6. Whether the Bankruptcy Court's conclusion that the doctrines of res judicata and collateral estoppel did not bar Prostok's adversary proceeding against DLJ should be reversed as a matter of law given the subsequent final fee order entered by the United States District Court in accordance with the mandate issued by the United States Court of Appeals for the Fifth Circuit in connection with DLJ's final fee application.
A. DLJ's Motion to Partially Withdraw
Essentially, Prostok's Motion to Strike consisted of the argument that DLJ was attempting to appeal rulings that were not yet final. See Prostok's Motion to Strike at 6. DLJ opposed the Motion to Strike and filed a Memorandum in Opposition to the Motion to Strike. On March 5, 1999, however, DLJ filed a Partial Withdrawal of its Opposition to Prostok's Request to Strike Certain Issues on Appeal. In its Partial Withdrawal Motion, DLJ averred that the State Court's recent rulings on summary judgment motions, preclusion motions, and other motions rendered issues 5 and 6, listed above, moot. See DLJ's Partial Withdrawal Motion at 4.
Prostok maintains that this Court must dismiss issues 5 and 6 as moot, rather than allow DLJ to partially withdraw them. The Court agrees with Prostok and dismisses issues 5 and 6 as moot.
B. Prostok's and the Trust's Motions to Strike Certain Issues on Appeal
Prostok argues that issues 1-4 must also be stricken because they are not final and consequently not appealable. See Prostok's Motion to Strike at 6-10. Prostok claims that if a judgment on certain claims has been rendered final while other claims still remain, orders that are not certified under 54(b) are not final and appealable. Id. at 7. Prostok asserts that because the court did not certify DLJ's denial of summary judgment or motion for preliminary injunction as final for appeal purposes under 54(b), then those claims remain pending. Id. at 7-8. Prostok's argument is that only the judgment certified under Rule 54(b) is appealable, i.e., the final judgment entered in Prostok's Declaratory Judgment action. Id. at 8. Prostok also maintains that DLJ cannot appeal from a voluntary dismissal of its own counterclaims and has no standing to appeal from rulings that do not have a preclusive effect. Id. at 8-10.
DLJ argues, on the other hand, that because the Bankruptcy Court abstained from ruling on these issues, no claims or counterclaims are pending, thereby rendering the rulings final and appealable. See Memorandum of DLJ in Opposition to the Trust's Request to Strike Certain Issues on Appeal at 3-6. DLJ maintains that because the Bankruptcy Court abstained from any further rulings, there are no pending claims before it. Id.
In Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., the Supreme Court held that where the underlying court predicates its stay order on the grounds that the federal and state actions involve identical issues, then a stay of the federal suit pending the outcome of the state suit means the litigation effectively ends in federal court. The litigant is "effectively out of court" on his federal claim and the state court's judgment would be res judicata. Moses H. Cone, 460 U.S. 1, 10 (1983). Such a stay is tantamount to a dismissal of the suit. Id.
The Bankruptcy Court's May 8, 1998 Judgment states as follows: "Efficient use of judicial resources coupled with due deference to the state court proceeding involving state law causes of action compel this court to now abstain from further considering the defendants preclusion counterclaims. . . ." See May 8, 1998 Judgment at 2. "It is further ordered that this court shall . . . abstain from further deciding any other matters raised by the defendants on their counterclaims, and that this adversary proceeding is administratively closed without prejudice." Id. at 3.
The Bankruptcy Court's statements show that the court clearly intended "to effect a final dismissal of a claim." Picco v. Global Marine Drilling Co., 900 F.2d 846, 849 (5th Cir. 1990). Even if the adversary proceedings were closed without prejudice, "the bare possibility that the district court might ultimately reassume jurisdiction over the case in the event of some unspecified future contingency does not prevent the order from becoming appealable." Id.
"[A] stay order is appealable when it is the practical equivalent of a denial of a motion for a preliminary injunction." Hines v. D'Artois, 531 F.2d 726, 730 (5th Cir. 1976). "Where a stay order effectively dismisses the federal suit, . . . it is treated as a final order under 28 U.S.C. § 1292. " Id. The Bankruptcy Court abstained from considering Defendants' preclusion counterclaims and deferred such decision to the state court. This decision to abstain is the practical equivalent to a dismissal of the counterclaims and is considered final and appealable. The Court therefore denies Prostok's and the Trust's Motions to Strike Certain Issues 1-4 on Appeal.
IV. MOTIONS TO SUPPLEMENT THE RECORD
A. DLJ's Motion to Supplement the Record
DLJ moves this Court to supplement the record with an order entered on January 11, 1999 by Chief Judge Buchmeyer awarding DLJ attorneys fees. On May 10, 1998 Judge Buchmeyer entered an order awarding DLJ a final fee. Thereafter, Prostok and the Trust filed motions to intervene in the fee litigation and motions to vacate the final fee order on the grounds that the final fee award might preclude them from litigating their state court claims against DLJ. Prostok and the Trust asked Judge Buchmeyer to set aside the fee order and remand the matter to the Bankruptcy Court in light of their claims in state court. Judge Buchmeyer concluded that intervention would permit plaintiffs to assert their claims and thus "would be contrary to the Fifth Circuit's mandate" to simply award a fee that complies with section 328 of the Bankruptcy Code and "would be reexamining issues previously addressed at length by DLJ before three courts." See Memorandum Opinion and Order of the District Court, Entered January 11, 1999. Judge Buchmeyer denied Prostok's and the Trust's motions.
See Donaldson, Lufkin Jenrette Sec. Corp. v. National Gypsum Co. (In re National Gypsum Co.), 123 F.3d 861, 862 (5th Cir. 1997).
DLJ seeks to supplement the record with a copy of this memorandum opinion and order because, DLJ maintains, this opinion confirms that all necessary requisites for res judicata and collateral estoppel are present. See Motion of DLJ Securities to Supplement the Record at 2. Also, DLJ asserts the memorandum opinion establishes the fee award's finality, the only element of the res judicata and collateral estoppel doctrines the bankruptcy judge found lacking. See id.
Prostok maintains that to enlarge the record is inappropriate, DLJ never presented the January 11, 1999 Order to the Bankruptcy Court and did not seek a ruling from the Bankruptcy Court on its preclusion counterclaim after the January 1998 denial of summary judgment. See Prostok's Brief in Opposition to Motion to Supplement the Record at 5.
A decision to allow a party to supplement the record is within the court's discretion. See Rollins v. Fort Bend Index. School Dist., 89 F.3d 1205, 1222 (5th Cir. 1996); Weiner v. Perry, Settles Lawson, Inc. (In re Weiner), 161 F.3d 1216, 1217 (9th Cir. 1998). This Court finds the January 11, 1999 Memorandum Opinion and Order useful in this appeal and exercises that discretion to allow DLJ to supplement the record with a copy of Judge Buchmeyer's Order.
B. The Trust's Motion to Supplement the Record
The Trust seeks to supplement the record with its Notice of Appeal of the January 1999 Buchmeyer Order, referenced above. The Trust requests that, in the event the Court grants DLJ's motion to supplement the record, that it, too, be given the opportunity to supplement the record with the Notice of Appeal of the Buchmeyer Order. See Trust's Motion to Supplement the Record at 2. Because it is within the Court's discretion to grant a motion to supplement, the Court likewise exercises its discretion to allow the Trust to supplement the record with its notice of appeal.
V. NATIONAL GYPSUM COMPANY'S CLAIMS
A. Point of Error I
New NGC claims that the Bankruptcy Court lacked subject-matter jurisdiction to consider the Trust Motion or Prostok's Declaratory Judgment action for several reasons.
First, New NGC asserts that neither the Trust Motion nor the Declaratory Judgment Action present a justiciable case or controversy but rather request an impermissible "advisory opinion" or "comfort order." See Opening Brief of Appellant National Gypsum at 26.
1. The Trust Motion and the Declaratory Judgment Action Present a Justiciable Case or Controversy
Article III, section 2 of the Constitution limits the jurisdiction of the federal courts to the resolution of actual cases and controversies. Allen v. Wright, 468 U.S. 737, 750 (1984). "In its constitutional dimension, standing imports justiciability: whether the plaintiff has made out a `case or controversy' between himself and the defendant within the meaning of Art. III. . . . As an aspect of justiciability, the standing question is whether the plaintiff has `alleged such a personal stake in the outcome of the controversy' as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf." Warth v. Seldin, 422 U.S. 490, 498-99 (1975).
To have standing, the party invoking federal jurisdiction must prove three elements. First, the plaintiff must have suffered an injury in fact — a legally protected interest that is concrete and actual or imminent, not conjectural or hypothetical. Second, a causal connection must exist between the injury and the alleged conduct. Third, there must be a likelihood, and not mere speculation, that a favorable decision will redress the injury. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61.
Establishing standing "depends considerably upon whether the plaintiff is himself an object of the action (or foregone action) at issue. If he is, there is ordinarily little question that the action or inaction has caused him injury, and that a judgment preventing or requiring the action will redress it." Pelican Chapter, Associated Builders Contractors, Inc. v. Edwards, 128 F.3d 910, 916 (5th Cir. 1997).
In the Declaratory Judgment Action, Plaintiffs challenged the Fee Shifting Provision. If this Provision indeed applies to them, they may be faced with the possibility of posting a bond and the risk of fee shifting, both of which constitute an injury in fact. A causal connection exists between the challenged fee shifting provision and possibly having to pay Defendants' attorneys fees and posting a bond. Finally, it is not merely speculative that Plaintiffs' challenge of the Fee Shifting Provision will be redressed by a favorable decision. The Court concludes that the Appellees have standing.
2. The Trust's Capacity May Not Be Raised for the First Time on Appeal
New NGC claims that the Trust lacks capacity to pursue its claims, which belong to the asbestos beneficiaries. See Opening Brief of New NGC at 28-30. New NGC claims the Trust has no injury in fact because only creditors whose claims are not paid could have been injured. Furthermore, New NGC maintains, the Trust lacks authority under the Trust Agreement to assert causes of action on behalf of the individual beneficiaries. See id.
The Trust, however, counters that New NGC did not present the capacity question to the Bankruptcy Court. Therefore, this court cannot hear the issue for the first time on appeal. An appellate court will not consider a new issue raised for the first time on appeal. City of Waco v. Bridges, 710 F.2d 220, 227 (5th Cir. 1983). A court will not consider issues on appeal that were not argued before the Bankruptcy Court. In re Lile, 161 B.R. 788, 793-94 (S.D.Tex. 1993), aff'd in part, 43 F.3d 668 (5th Cir. 1994).
New NGC failed to present this issue to the Bankruptcy Court and obtain a final and appealable decision with respect to the Trust's capacity. This Court will not hear it for the first time on appeal. New NGC claims that the Trust's capacity was presented to the Bankruptcy Court; yet even if it was not, NGC maintains, standing goes to the subject matter jurisdiction of the court to decide a matter and may be raised for the first time on appeal. See Meadowbriar Home for Children v. Gunn, 81 F.3d 521, 529 (5th Cir. 1996).
Standing is a jurisdictional question under Article III and thus a threshold question in all cases. Id At the pleading stage, however, a plaintiff's complaint need only allege a redressable injury in fact that is causally connected to the alleged conduct. Id. "'At the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we presum[e] that general allegations embrace those specific facts that are necessary to support the claim.'" Id. (quoting Defenders of Wildlife, 504 U.S. at 561). The absence of a valid cause of action does not implicate subject matter jurisdiction. Steel Co. v. Citizens for Better Env't, 523 U.S. 83, 89 (1998). Jurisdiction is not defeated by the possibility that the allegations fail to state a cause of action on which plaintiffs may prevail. Id.
"Dismissal for lack of subject matter jurisdiction because of the inadequacy of the federal claim is proper only when the claim is "so insubstantial, implausible, foreclosed by prior decisions of this Court, or otherwise completely devoid of merit as not to involve a federal controversy." Id. (internal citations omitted).
The Trust's complaint makes general factual allegations of injury resulting from Defendants' alleged conduct. Whether, in the end, the Trust indeed has a valid cause of action will not presently implicate the subject matter jurisdiction vis-a-vis the standing issue. The Trust's claim is not so devoid of merit as to not involve a federal controversy. Therefore, this Court holds the Trust has standing to sue and whether it has capacity pursuant to the Trust agreement is not a question to be decided by this Court.
3. Appellees Did Not Seek an Advisory Opinion
Next, New NGC claims that both Appellees lack standing because they sought an advisory opinion regarding the hypothetical liability of the Trust and Prostok under the Legal Costs Provision. See Opening Brief of NGC at 30. New NGC maintains that advisory opinions are not permitted because they represent judicial comments on the possible outcome of matters not ready for determination. See id.
The Declaratory Judgment Act permits federal courts to "declare the rights and other legal relations of any interested party seeking such declaration. . . ." 28 U.S.C. § 2201(a) (1994). The Declaratory Judgment Act confers on federal courts substantial discretion in deciding to grant a declaratory judgment. Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). The basic question is whether the facts alleged show that a substantial controversy, of sufficient immediacy and reality, exists between parties having adverse legal interests to warrant the declaratory judgment issuance. Harris Trust Sav. Bank v. E-II Holdings, Inc., 926 F.2d 636, 639 n. 10 (7th Cir. 1991), cert. denied, 502 U.S. 866 (1991).
A substantial controversy does exist between Prostok, the Trust and Appellants regarding the application of the Fee Shifting Provision. Prostok, the Trust and Appellants have adverse legal interests and opposing positions. The controversy is immediate and real because it relates to an actual, filed, ongoing lawsuit in the Texas State Court. Prostok and the Trust have taken very clear positions in this action — New NGC opposes these positions.
The Fifth Circuit has enunciated seven factors that a court should consider in determining whether to dismiss a declaratory judgment. See St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590-91 (5th Cir, 1994). The Bankruptcy Court balanced these Trejo factors as follows: 1) duplicative or conflicting adjudication was likely; 2) Prostok did not file the suit in anticipation of a lawsuit filed by defendants; 3) Prostok did not engage in forum shopping but rather brought the declaratory judgment action in the court that entered the fee shifting provision; 4) the parties did not identify any inequities in favor of Prostok by the Declaratory Judgment Action but rather encouraged the court to hear it; 5) the court is as convenient as the State Court; 6) judicial economy is best served by the court deciding the Declaratory Judgment action; and 7) the court is being asked to construe its own decree and not one of the state court. See January 26, 1998 Memorandum Opinion and Order at 4-5. Upon balancing all of the Trejo factors, the Bankruptcy Court decided to hear the Declaratory Judgment Action. This decision was within the Bankruptcy Court's discretion and that discretion was not abused. This Court is satisfied that the Bankruptcy Court, on remand, performed the proper analysis. Therefore, the Court concludes that the Appellees have standing and that their Declaratory Judgment Action does not amount to an advisory opinion.
4. The Trust and Prostok's Actions Are Not Moot
New NGC claims that the filing of the Trust Adversary Action rendered the Trust Motion moot and that Prostok's Complaint has also been rendered moot, because it is strictly limited by the Bankruptcy Court to the appellee's original petition, which has now been amended three times. "A controversy becomes moot where, as a result of intervening circumstances, there are no longer adverse parties with sufficient legal interests to maintain the litigation." Resident Council v. United States Dep't. of Hous. Urban_Dev., 980 F.2d 1043, 1048 (5th Cir. 1993), cert. denied, 510 U.S. 820 (1993). This can happen in one of two ways. A case can become moot "when the issues presented are no longer live" or "when the parties lack a legally cognizable interest in the outcome." Id. It is clear in this case that the issues are still very much alive and that all of the parties have a legally cognizable interest in the outcome and the amendments to the petitions do not render it moot.
B. Point of Error II.
1. The Trust's Motion Need Not Have Been Brought as an Adversary Proceeding
New NGC asserts that the Trust Motion should have been dismissed for procedural irregularities. The first procedural irregularity, according to New NGC, is that the relief sought by the Trust Motion constituted a request for declaratory relief that should have been brought under Rule 7001 as an adversary proceeding under the Adversary Rules, rather than through motion practice. Rule 7001(9) requires that declaratory judgment actions be initiated by adversary proceedings as to any of eight specific declarations. See Fed.R.Bankr.P. 7001(9). However, the Trust action did not request declaration as to any of the 8 specified issues in the rule. Therefore, we turn to Rule 9014 of the Bankruptcy Code, which provides, "in a contested matter in a case under the Code not otherwise governed by these rules, relief shall be requested by motion, and reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought." Fed.R.Bankr.P. 9014. This rule applies and the Trust's motion was procedurally proper.
The Court does not agree with NGC's interpretation of the bankruptcy rule that the relief sought in the Trust motion is both equitable and declaratory in nature and as such must be presented under the adversary rules. See Appellant's Brief at 34. Such an interpretation reads out the language that expressly limits this rule to declaratory judgments involving eight specific categories.
Even assuming that Rule 7001 did apply to the relief the Trust seeks, this Court may nonetheless consider the motion and the opinion with respect to it. An illustrative case is In Re Friedman, 184 B.R. 883 (Bankr. N.D.N.Y. 1994), aff'd, 184 B.R. 890 (N.D.N.Y. 1994). The debtor in Friedman sought a declaratory judgment regarding the validity of a lien and the court found the proceeding was more properly brought pursuant to an adversary proceeding under Fed.R.Bankr.P. 7001(9). In Re Friedman, 184 B.R. at 887. The court held, however, that "where the rights of the affected parties have been adequately protected and the parties have had an opportunity to be heard, form will not be elevated over substance, and the matter will be allowed to proceed on the merits as originally filed." Id. Here, the Trust filed a corresponding adversary action, the Trust gave sufficient notice to the affected parties, the matter was fully briefed, and two of the three appellants did not object to the motion procedure. Moreover, the Motion was briefed and decided in conjunction with the Prostok adversary action. See In re American Dev. Int'l Corp., 188 B.R. 925, 935 (N.D. Tex 1995) (court refusing reversal based on failure to file as an adversary proceeding under 7001 based on parties having had a full and fair opportunity to be heard as if in the context of an adversary proceeding).
2. All parties were present and had the opportunity to be heard
The second procedural irregularity New NGC complains about is that the Trust failed to serve all the parties affected by the Trust Motion, including without limitation, the Trust Defendants. New NGC argues that parties whose rights may be adversely affected by a ruling on the Trust Motion must receive reasonable and adequate notice of its pendency. See Appellant NGC's Brief at 36.
New NGC fails, however, to indicate who the "other parties" may be. It refers to Trust Defendants who did not have the opportunity to participate in the Trust Motion proceedings. See id. It is not clear to whom New NGC refers when it says the Trust Defendants. If it is, as the Trust alleges, the senior bondholder, then New NGC's argument fails. First, the senior bondholders are not covered by § 5.22 and ¶ 50 because § 5.22 and ¶ 50 do not apply to creditors. See January 26, 1998 Memorandum Opinion and Order at 18. Second, the senior bondholders were aware of the Trust's motion. On October 6, 1997, the Trust filed its adversary actions against the senior bondholders, among other defendants. The Trust later agreed to allow the senior bondholders to abate their answers to the adversary proceeding pending resolution of the Trust's motion and other motions pending in the Prostok action. See November 7, 1997 Agreed Order Regarding Extension of Time to Answer or Otherwise Respond at 4.
As the Trust points out, it is quite interesting that "many of these parties . . . have vigorously voiced their opposition to the use of a motion to grant a declaratory judgment." How can a party be absent and denied an opportunity to speak yet vigorously oppose a motion?
C. Point of Error III
On September 4, 1992, the Debtors filed and served their amended Joint Plan of reorganization and their joint disclosure statement regarding the Plan. On March 9, 1993, the Bankruptcy Court confirmed the Plan. The Confirmation Order contained the Release and Bond Provision, which was included verbatim in the Plan, at Section 5.22.
In its third point of error, New NGC complains that the Bankruptcy Court erred in its interpretation of this Release and Bond Provision. This provision has two distinct parts. The first part is set out in the First Sentence and grants a release of all claims against covered parties for covered activities if the parties acted in good faith. Claims for willful misconduct or gross negligence are not released, however. Specifically, the Release Provision states:
Pursuant to Section 5.22 of the Plan and provided that the respective affiliates, officers, directors, shareholders, members, representatives (including the Legal Representative), attorneys, financial advisors, and agents of the Debtors, Reorganized NGC, New NGC, the Legal Representative, and the Official Committees act in good faith, they shall not be liable to any Claimant or other party with respect to any action, forbearance from action, decision, or exercise of discretion taken during the period with respect to any action, forbearance from action, decision, or exercise of discretion taken during the period from the Petition Date to the Effective Date in connection with: (a) the operation of the Debtors, the Debtors' Subsidiaries, New NGC, or Reorganized NGC, (b) the implementation of any of the transactions provided for, or contemplated in, the Plan or the Plan Documents, including the Assets Sale pursuant to the Assets Purchase Agreement, the NGC Asbestos Settlement Fund pursuant to the NGC Asbestos Settlement Fund Documents; or (c), the administration of the Plan or the assets and property (including any Cash distributed to the Claimants holding Claims which are classified in NGC Class 3) to be distributed pursuant to the Plan and the Plan documents other than for willful misconduct or gross negligence.
Order Confirming the First Amended and Restated Joint Plan of Reorganization of National Gypsum Company and Aancor Holdings, Inc. ¶ 50 (hereinafter "Confirmation Order").
The second part is the Fee Shifting Provision set forth in the Third Sentence of the Release and Bond Provision. This sentence provides that any party challenging an action as not being in good faith must post a bond of reasonable attorneys' fees and costs as a precondition to proceeding with its claims. The Fee Shifting Provision contains no limitations. Specifically, the Fee Shifting Provision states:
In any action, suit or proceeding by any Claimant, Interestholder or other party in interest contesting any action by, or non-action of; Debtors, Reorganized NGC, New NGC, the Official Committees, the Legal Representative, or their respective affiliates, officers, directors, shareholders, members, representatives, attorneys, financial advisors, and agents as not being in good faith, the reasonable attorneys' fees and costs of the prevailing party shall be paid to the losing party and as a condition to going forward with such action, suit, or proceeding at the outset thereof; all parties thereto shall be required to provide appropriate proof and assurances of their capacity to make such payments of reasonable attorneys' fees and costs in the event they fail to prevail.
Confirmation Order ¶ 50.
In its January 26, 1998 order, the Bankruptcy Court correctly concluded that Prostok and the Trust are a "party in interest" and subject to the Fee Shifting Provision. The Bankruptcy Court also concluded, however, that both Prostok's and the Trust's State Court Litigation claims fell outside the scope of the fee shifting provision:
The fee-shifting [requirement] of the third sentence only applies to attacks on good faith in actions protected by the first sentence; namely, debtor operations, plan implementation and plan, asset and property administrations. But . . . the defendants enjoy no protection from § 5.22 and Paragraph 50 for claims of gross negligence and willful misconduct for actions taken to confirm the plan.See January 26, 1998 Memorandum Opinion and Order at 14.
Appellants challenge the Bankruptcy Court's conclusion on the basis that this interpretation is contrary to the provisions' plain meaning and common sense. See Opening Brief of NGC at 35; Opening Brief of the ODs at 17-22; Initial Brief of DLJ at 19-23. A question of contract interpretation is a question of law and will be reviewed by this Court de novo. McFarland v. Leyh (In re Texas General Petroleum Corp., 52 F.3d 1330, 1335-36 (5th Cir. 1995); see also In re Stratford of Texas, Inc., 63 F.2d 365, 368 (5th Cir. 1981); Dais-Naid, Inc. v. Phoenix Resource Cos, Inc. (In re Texas Int'l Corp.), 974 F.2d 1246, 1247 (10th Cir. 1992).
1. The Joint Plan is a Binding Contract
The Joint Plan is a binding and enforceable contract. In re Page, 118 B.R. 456, 460 (Bankr. N.D. Tex. 1990). "In essence, the plan becomes a binding contract between the debtor and the creditors and controls their rights and obligations." Id. "[T]he provisions of a confirmed plan bind the debtor . . . and any creditor . . . whether or not the claim or interest of such creditor . . . is impaired under the plan and whether or not such creditor . . . has accepted the plan." 11 U.S.C. § 1141. The fee shifting provisions of the plan and confirmation order are likewise final and binding. See DLJ v. Prostok; Civil Action No: 3:96-CV-1933-T, U.S.D.C. (N.D.Tex.), Memorandum Opinion and Order entered February 25, 1997. The Plan and Confirmation order, therefore, are binding on Prostok and the Trust. See id. "Unless the Confirmation Order is successfully appealed, revoked or otherwise attacked, the provisions of the plan — whether consistent with the Bankruptcy Code or not — bind the debtor." In re Sullivan, 153 B.R. 746, 750 (Bankr. N.D. Tex. 1993). No party in interest appealed the Confirmation Order at issue. See January 26, 1998 Memorandum Opinion and Order at 12.
Courts apply the rules of contract interpretation to the interpretation of a reorganization plan. McFarland, 52 F.3d at 1335. A key principle of contract interpretation requires a court to review the entire contract to determine its meaning. The court may not consider any single contractual provision in isolation. "To the contrary, the goal of contract interpretation is to determine the parties' intentions by harmonizing and giving effect to each provision within the contract such that none is rendered meaningless." Tenn. Gas Pipeline Co. v. F.E.R.C., 17 F.3d 98, 102 (5th Cir. 1994). Courts must give meaning to each contractual provision and, if possible, must also give meaning, effect, and purpose to every word in the contract. Id. The rules of contract interpretation require a court to presume that the parties intended every word of the contract to have some meaning, effect and purpose. Masterson v. Gulf Oil Corp., 301 S.W.2d 486, 489 (Tex.Civ.App.-Galveston 1957, writ ref'd n.r.e.). A contract should be read as a consistent whole and "an interpretation that gives effect to all parts of an instrument and a reasonable meaning to all its provisions will be preferred to one that leaves a part of a writing useless." ABS Sherman Properties, Ltd. v. Sarris, 626 S.W.2d 538, 540 (Tex.App.-Texarkana 1981, writ ref'd n.r.e.).
2. The Bankruptcy Court's Interpretation of the Release and Bond Provisions
Although the Bankruptcy Court agreed that the Order was final and binding, it concluded that it must narrowly apply the fee shifting provision of § 5.22 of the Plan and ¶ 50 of the Confirmation Order. See January 26, 1998 Memorandum Opinion and Order at 10.
The reason for the Bankruptcy Court's narrow application was its concern with public policy:
Thus, although the order is final and binding, the court must narrowly apply the fee shifting provision of § 5.22 of the plan and paragraph 50 of the confirmation order to recognize the public policy that fee shifting provisions in federal court be authorized by Congress unless related to sanctions for bad faith conduct or willful disobedience of a court order. . . . Since Congress has not expressly authorized the fee shifting provision in the Bankruptcy Code, the court must construe and apply it narrowly.Id. Essentially, the Bankruptcy Court reasoned that because Congress had not expressly authorized fee shifting in the Bankruptcy Code, then the court's duty was to construe the fee shifting in the Joint Plan narrowly.
The Bond Provision, however, does not adopt a general substantive policy or a rule of law regarding fee shifting. See Official Creditors Comm'n v. Statford of Texas, Inc. (In re Stratford of Texas, Inc.), 635 F.2d 365, 368 (5th Cir. 1981). It is merely a contract between two parties that shifts the payment of attorneys fees between these two specific parties. It is not similar to the issue in Ashland Chemical, as appellees suggest. In Ashland Chemical, the Eastern District had implemented a rule that substantively changed the law regarding attorneys fees for all litigants in that district. Ashland Chem., Inc. v. Barco, Inc., 23 F.3d 261, 263-65 (5th Cir. 1997). The provision at issue here is a contractual provision agreed to by the parties that does not affect anyone else other than the parties to the contract. It does not affect these parties other than in this particular scenario, to which they contracted. The provision does not affect a substantive change in any law.
3. Parties May Contractually Agree to a Fee Shifting Provision
The Bankruptcy Code does not grant a general right to attorneys fees. The prevailing party, however, may be entitled to attorneys fees pursuant to applicable state laws if the state law governs the substantive issues in question. In re Baroff, 105 F.3d 439, 441 (9th Cir. 1997). If state law governs the rule of decision in a contested matter, state law, and not federal bankruptcy law, will govern the attorney fee award. In re Bybee, 945 F.2d 309, 315 (9th Cir. 1991). If the state court would award fees in a particular action, the court must award the attorney fees. Id. at 316. "Because state law necessarily controls an action on a contract, a party to such an action is entitled to an award of fees if the contract provides for an award and state law authorizes fee shifting agreements." In re Baroff, 105 F.3d at 441.
In Texas, a party may be liable for attorneys' fees not otherwise recoverable if agreed to pursuant to a contract. The Legal Costs Provision at issue here is consistent with Texas law, which provides for attorney fee recovery if expressly provided for by contract. Port City State Bank v. Leyco Constr. Co., 561 S.W.2d 546, 547 (Tex.Civ.App.-Beaumont 1977, no writ); Turner v. Turner, 385 S.W.2d 230, 233 (Tex. 1964) (attorneys fees incurred by a party to litigation recoverable if provided for by statute or by contract); see also Van Zandt v. Fort Worth Press, 359 S.W.2d 893, 896 (Tex. 1962) (every litigant will compensate his own counsel unless there is a contract to the contrary); Wm. Cameron Co. v. American Surety Co., 55 S.W.2d 1032, 1035 (Tex. 1932) (same). In this case, Texas law governs the Joint Plan. "Except to the extent that federal law is applicable, the rights and obligations arising under this plan shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas, without giving effect to the principles of conflicts of law thereof" See First Amended and Restated Joint Plan of Reorganization Under Chapter 11 of the United States Bankruptcy Code for National Gypsum Company and Aancor Holdings, Inc., § 11.12 at 39.
Fee shifting and bond provisions such as this have been previously utilized and approved. See In Re First City Bancorportion, 1995 W.L. 710917 (Bankr. ND. Tex. 1995). The provision in First City provides: "Each prevailing party shall be entitled to be reimbursed jointly and severally by the non-prevailing parties for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) in its successful prosecution or defense of any provision of this Agreement." Id. at 146. The bond provision in First City states: "[i]n any action . . . by any holder of a claim . . . contesting any action . . . as not being in good faith, the reasonable attorneys' fees and costs of the prevailing party shall be paid by the losing party and as a condition to going forward with such action, . . . all parties thereto shall be required to provide appropriate proof and assurances of their capacity to make such payments of reasonable attorneys' fees and costs in the event they fail to prevail." Id. at pages 49.
The attorneys' fees question at issue is similar to claims brought by the FDIC against note guarantors for attorneys' fees. Federal statutory law did not provide for attorneys' fees recovery to the FDIC in collection actions. However, guarantors were liable for reasonable attorneys' fees when the guaranty agreement so provided. First City, Texas-Beaumont, N.A. v. Treece, 848 F. Supp. 727, 742 (E.D. Tex. 1994). Even if the guarantee itself does not provide for attorneys fee recovery, the FDIC may be entitled to attorneys' fees if the underlying note so provided. Id.; see also FDIC v. Fagan, 674 F.2d 302 (4th Cir. 1982) (attorneys' fees allowed under provision of underlying note); FDIC v. Arcadia Marine, Inc., 642 F. Supp. 1157 (S.D.N.Y. 1986).
Moreover, the Bankruptcy Code permits a reorganization plan to "include any other appropriate provision not inconsistent with the applicable provisions of this title." 11 U.S.C. § 1123 (b)(6). These provisions may be releases, injunctions or creation of a trust to administer and pay claims. See, e.g., Xonics, Inc. v. EF King Co. (In re Xonics, Inc.), 63 B.R. 785, 788 (Bankr. N.D. Ill. 1986). None of these provisions is expressly authorized by the Bankruptcy Court nor need they be. They are not expressly prohibited and "bankruptcy courts, as courts of equity, have broad authority to modify creditor-debtor relationships." United States v. Energy Resources Co., 495 U.S. 545, 549 (1990).
Even if the provision is not authorized by the Bankruptcy Code, the Bankruptcy Court may nevertheless enter it into the Plan. A case that is illustrative of this point is Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir. 1987). The Republic case involved a claim where the bankruptcy court entered a confirmation plan that exceeded its authority under the Code. The district court ruled that the confirmation plan did not release the debtor from his guaranty because the bankruptcy court had exceeded its authority under the Bankruptcy Code by relieving a third party from his obligation, which was not authorized under the Bankruptcy Code. Republic, 815 F.2d at 1049. The creditor claimed that the provision releasing the guarantors was without effect because it exceeded the authority of the Bankruptcy Code and that the Plan should be read without the objectionable provision. Once the Plan was read without the objectionable provision, the creditor maintained, it would be consistent with bankruptcy law.
The Fifth Circuit held, however, that:
Regardless of whether that provision is inconsistent with the bankruptcy laws or within the authority of the bankruptcy court, it is nonetheless included in the Plan, which was confirmed by the bankruptcy court without objection and was not appealed. Republic [the creditor], in effect, is now seeking to appeal the confirmed Plan and asking us to review it on its merits. Questions of the propriety or legality of the bankruptcy court confirmation order are indeed properly addressable on direct appeal. Republic, however, is now foreclosed from that avenue of review because it chose not to pursue it.Id. at 1050 (emphasis added).
"[I]n the case of a bankruptcy court's exceeding its statutory authority . . . the interest in finality surpasses any threat that courts will engage in drastic overreaching." Id. at 1054. Furthermore, "a creditor's interest is not a sufficient policy concern to outweigh the application of res judicata." Id.
When the Bankruptcy Court confirmed the Joint Plan, that order was final and appealable. See id. at 1053. The provisions in question were confirmed by the Bankruptcy Court and were not appealed. See id. at 1050; See Memorandum Opinion and Order at 12-13; see also Memorandum Opinion and Order of the District Court, entered February 25, 1997 at 4. The only remaining question, then, is whether the Bankruptcy Court's interpretation of the release provisions and fee shifting provisions was consistent with the rules of contract construction.
This Court understands the Bankruptcy Court's desire to narrowly interpret the Fee Shifting Provision in light of its belief that fee shifting should be authorized by Congress and that fee shifting is against public policy. What the Bankruptcy Court misses, however, is that fee shifting can be contracted to by the parties and such contract will not affect a substantive change in the law. See discussion supra.
4. The Bankruptcy Court Erred in its Interpretation of the Release and Fee Shifting Provision
Contracts such as the Joint Plan are interpreted by looking at the parties' intent. Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 529 (Tex. 1987). The contract's language must be given its plain grammatical meaning unless such an action defeats the parties' intentions. Id. The primary rule of contract interpretation requires courts to review the entire contract to determine its meaning without considering any single provision in isolation. "T]he goal of contract interpretation is to determine the parties' intentions by harmonizing and giving effect to each provision within the contract such that none is rendered meaningless." Tenn. Gas Pipeline Co. v. Federal Energy Reg. Comm'n, 17 F.3d 98, 102-03 (5th Cir. 1994) (internal citations omitted).
a. The Fee Shifting Provision
The Fee Shifting provision states in pertinent part:
In any action, suit or proceeding by any Claimant, Interestholder or other party in interest contesting any action by, or non-action of; Debtors, Reorganized NGC, New NGC, the Official Committees, the Legal Representative, or their respective affiliates, officers, directors, shareholders, members, representatives, attorneys, financial advisors, and agents as not being in good faith, the reasonable attorneys' fees and costs of the prevailing party shall be paid by the losing party and as a condition to going forward with such action, suit, or proceeding at the outset thereof, all parties thereto shall be required to provide appropriate proof and assurances of their capacity to make such payments of reasonable attorneys' fees and costs in the event they fail to prevail.
Confirmation Order at ¶ 50 (emphasis added).
The Bankruptcy Court's interpretation of ¶ 50 is as follows: actions and decisions "taken during the period from the Petition Date to the Effective Date in connection with . . . the operation of the Debtors . . . or Reorganized NOC [or] the implementation of any of the transactions provided for, or contemplated in, the Plan or the Plan documents" do not include the Plan confirmation process. See January 26, 1998 Memorandum Opinion and Order at 14.
The Bankruptcy Court further stated that the Fee Shifting Provision pertained to the good faith exoneration of the First Sentence, which includes protections for operating the debtor and implementing and administering plan and estate assets, but not the confirmation process. Id. The Bankruptcy Court also held the exoneration does not apply to gross negligence or willful misconduct claims regarding the act of confirming the plan. Id. It further held that the Fee Shifting Provision (the Third Sentence) only applies to attacks on good faith in actions, protected by the Release Provision (the First Sentence) (i.e., debtor operations, plan implementation and plan, asset and property administration). Id.
The Bankruptcy Court's interpretation of the Fee Shifting Provision, however, violates the cardinal rule of contract interpretation. To reiterate that rule, "the goal of contract interpretation is to determine the parties' intentions by harmonizing and giving effect to each provision within the contract such that none is rendered meaningless." Tenn. Gas Pipeline Co., 17 F.3d at 103. "Not only must courts give meaning to each provision, courts must also give meaning, effect, and purpose to every word in the contract. . . ." Id.
The Release Provision and the Fee Shifting Provision are separate, distinct components. If a claim is released by the First Sentence, there is no need to address the bond posting requirement since the claim has been released and no suit can be brought. If, however, a claim is not released because it involves allegations of willful misconduct, gross negligence or other bad faith actions (i.e., actions challenging good faith), then the challenging party must post a bond and be subject to fee shifting to pursue that claim. This is the only reading that enables the entire Release and Bond Provision to be construed as a whole with "meaning, effect, and purpose" being given to every word. Id.; see also ABS Sherman Properties, Ltd. v. Sarris, 626 S.W.2d 538, 540 (Tex.App.-Texarkana 1981, writ ref'd n.r.e.). The Bankruptcy Court deviated from this accepted rule of contract construction by failing to give the word "any" its plain, grammatical meaning.
The word "any" is a broad word. "A more comprehensive word than `any' could hardly be employed, it means indiscriminate, or without limitation or restriction." Commonwealth v. One 1939 Cadillac Sedan, 45 A.2d 406, 409 (Pa.Super. 1946). "Read naturally, the word `any' has an expansive meaning that is `one or some indiscriminately of whatever kind.'" Berlanga v. Reno, 56 F. Supp.2d 751, 760 (S.D. Tex. 1999) (internal quotations omitted).
Under the Fee Shifting Provision, a bond is required whenever a party challenges actions taken during the Debtors' bankruptcy as not being in good faith. As previously stated, the Trust and Prostok allege gross negligence and intentional acts which necessarily translate into lack of good faith.
The following exercise might be of some utility: The First Sentence (the Release Provision) of the paragraph reads: "[P]rovided that the respective . . . officers, directors, shareholders . . . act in good faith, they shall not be liable . . . with respect to any action . . . in connection with: (a) the operation of the Debtors (b) the implementation of any of the transactions . . . in the Plan (c) the administration of the Plan or the assets and property. . . ." Confirmation Order at ¶ 50.
This Release Provision is very specific, tailored and narrow regarding the conduct that will release the officers and directors, et al. Specifically, they will be released from the conduct enumerated in (a), (b), and (c) described above. The conduct is listed in an itemized manner, in detail and with specificity. See id. In sharp contrast to the Release Provision is the Third Sentence (the Fee Shifting Provision), which states: "In any action, . . . by any claimant . . . contesting any action by, or non-action of, Debtors . . . as not being in good faith, the reasonable attorneys fees and costs of the prevailing party shall be paid by the losing party and as a condition to going forward with such action, . . . all parties thereto shall be required to provide appropriate proof and assurance of their capacity to make such payments of reasonable attorneys fees and costs in the event they fail to prevail." See id. (emphasis added).
The Third Sentence could not be more broad, especially as compared to the First Sentence. It is not made more narrow by language similar or identical to that in the First Sentence. The Third Sentence does not say, for example, "with respect to conduct listed in (a), (b), or (c)" as does the First Sentence. The Third Sentence does not say, for example, "fee shifting applies to conduct operating the debtor and implementing and administering the Plan and assets but not to the confirmation process," as the Bankruptcy Court suggests. The Third Sentence does not say, for example, fee shifting will apply unless a party alleges gross negligence or willful misconduct. The Third Sentence says "in any action . . ., by any claimant . . ., contesting any action. . . ." See id. Plainer, broader, more comprehensive words could not be used. "[T]o determine the meaning of a written contract the court must look to the whole instrument, having resort to the natural signification of the words used, in the order of the grammatical arrangement in which the framers of the instrument have placed them." Johnson v. O-Kay Turkeys, Inc., 392 P.2d 741, 743 (Okla. 1964).
The Bankruptcy Court's contract interpretation was too narrow given the prior use of specific, concise and narrowly tailored words where intended (i.e., the Release Provision). "[T]he expression of one is the exclusion of others." United States v. Wells Fargo Bank, 485 U.S. 351, 357 (1988). The word "any" would have no meaning if this Court were to construe the Third Sentence as the Bankruptcy Court has construed it. See, e.g., Union Labor Life Ins. v. Rudd, 502 S.W.2d 892, 893 (Tex.Civ.App.-Dallas 1973, no writ) (The word "all" is aptly chosen and would have no meaning at all if the proviso were construed as qualifying the particular subdivision). As a result of its interpretation of the Third Sentence, i.e., by judicially inserting the restrictions of the First Sentence into the Third Sentence, which the parties had not seen fit to insert, the Bankruptcy Court effectively wrote out the word "any" from the Third Sentence and rendered it without its clear, unambiguous, contractual meaning. If the parties' intent with respect to the Fee Shifting Provision had been to narrow it to specific conduct, the parties would have used more specific words as they did just two sentences prior. "The meaning of a contract is to be ascertained from the writing alone, if possible; the duty of the court being to declare the meaning of what is written in the instrument, not what was intended to be written." Johnson, 392 P.2d at 743.
An interpretation of the Fee Shifting Provision that excludes willful misconduct and gross negligence effectively deletes the Fee Shifting Provision from the Release and Bond Provision. This is an impermissible result under the rules of contract interpretation. See ABS Sherman Properties, Ltd, 626 S.W.2d at 540. The proper reading of the Fee Shifting Provision is to apply the good faith protections when a party alleges certain actions constitute gross negligence or willful misconduct. If Prostok and the Trust fail to show Defendants were not in good faith, they would be barred under the Release Provision, to which they contracted. If; however, Prostok and the Trust prevailed and proved willful misconduct or gross negligence, (thereby refuting any presumption of good faith), they may then circumvent the Release Provision. When this attempt to circumvent the Release Provision is made, Prostok and the Trust are then subject to the Fee Shifting Provision, to which they also contracted. This interpretation of the Release and Bond Provision gives force and effect to all the plan's parts as well as preserves its integrity. The Bankruptcy Court's reading does not.
b. "Operation of the Debtors" Includes the Plan Confirmation Process
Even if the Fee Shifting Provision is interpreted narrowly, as the Bankruptcy Court interprets it, it nevertheless applies to the Prostok litigation. Clause (a) of the Release Provision exonerates the Protected Parties for their conduct involving the operations of the Debtors, their subsidiaries, New NGC or Reorganized NGC. The conduct Prostok and the Trust complain about involves New NGC's work force reduction and DLJ's and the ODs' failure to ascertain available cost savings. See Prostok's Third Amended Petition at ¶ 80; see also The Trust's Original Petition at ¶ 25.
Allegations against the ODs, for example, include failing to ascertain available cost savings, their preparation of a business plan, the dissemination of information to the public. The Trust and Prostok further allege that the fiduciary defendants breached their fiduciary duties by providing false, misleading or incomplete information to understate the value of Old NGC and in concealing and failing to disclose that Defendants planned a significant work force reduction. See Trust's Answer, Counterclaims and Original Petition at ¶ 25, 49; see also Prostok's Motion for Summary Judgment at 4-5; see also Prostok's Third Amended Original Petition at ¶ 80.
The Bankruptcy Court concluded that actions and decisions "taken during the period from the Petition Date to the Effective Date in connection with . . . the operation of the Debtors or Reorganized NGC [or] the implementation of any of the transactions provided for, or contemplated in, the Plan or the Plan Documents" do not include the proposal of the plan or the prerequisites to developing the Plan, such as asset valuation. See January 26, 1998 Memorandum Opinion and Order at 14. The Release Provision, according to the Bankruptcy Court, does not provide protection for actions taken regarding confirmation of a plan. Id.
An organized reduction in the work force of a company, conducted by management, approved by the board, must logically fall under the meaning of "operation." The alleged work force reduction falls squarely within the meaning of clause (b) of paragraph 50: "the implementation of any of the transactions provided for, or contemplated in, the Plan. . . ." It appears to this Court that ascertaining available cost savings of the Debtors is also an "operation of the Debtors." Assuming the work force reduction was in good faith, it is protected by provision (a) of the First Sentence.
Assuming, arguendo, that confirmation-related claims did not implicate operation of the debtors, Prostok's and the Trust's claims allege conduct that exceeded the scope of the confirmation process. One of the allegations made by plaintiffs is that "defendants wholly failed to discharge their fiduciary duty to the [plaintiffs] by failing to ascertain $30 million in available cost savings during the 32 month pendency of the Chapter 11 case." See Prostok's Brief in Support of Summary Judgment at 5. Determining the proper levels of staffing or developing a business plan is indeed "operation of the Debtors." As the officers and directors suggest, "these activities would have occurred irrespective of the plan process." See Brief of Officers and Directors at 13. The conduct alleged by the Trust and Prostok is that the Officers and Directors failed to ascertain cost savings and failed to disclose them at any point prior to July 1993 — four months after the Plan was confirmed by the Bankruptcy Court in March of 1993. The conduct alleged is conduct independent of the Plan and Confirmation Process.
"Operation of the debtors" must necessarily include plan and confirmation-related activities. These activities are at the heart of what the debtor does in a chapter 11 proceeding. Mutual Life Ins. Co. v. Patrician St. Joseph Partners, Ltd. (In re Patrician St. Joseph Partners, Ltd.), 169 B.R. 669, 683 (D. Ariz. 1994) (primary purpose of chapter 11 is successful debtor reorganization); Crestar Bank v. Walker (In re Walker), 165 B.R. 994, 1001 (E.D.Va. 1994) (prompt payment of creditors is the primary objective of a debtor in a chapter 11 case).
The Bankruptcy Court's interpretation would provide no protection for actions taken with respect to the development and confirmation of the Plan itself. These are precisely the activities the Bankruptcy Court found had been taken in good faith in paragraph 55.
The Bankruptcy Court's construction of the Release Provision was too narrow. Section 1106(a)(5) of the Bankruptcy Code provides that a trustee shall file a plan of reorganization as soon as practicable. 11 U.S.C. § 1106(A)(5). Section 1107(a) provides that a debtor in possession shall perform the duties and functions of the trustee. 11 U.S.C. § 1107(a). The operation of Old NGC during the bankruptcy case and the implementation of Old NGC's plan must necessarily include the proposal of a plan. Both these actions are mandated by §§ 1106(A)(5) and 1107. Implementation of a plan necessarily requires completion to developing a plan, including preparation of a disclosure statement, asset valuation, acceptance of solicitations and compliance with § 1129 of the Bankruptcy Code.
The claims alleged by Prostok and the Trust relate directly to the operation of New NGC. Their claims challenge an action, forbearance from action, decision or exercise of discretion (the failure to implement work force reductions at an earlier stage, be it negligently or intentionally; the failure to ascertain work force reductions, be it negligently or intentionally), in connection with the operation of New NGC. A debtor's function is to reorganize, while continuing to have general management responsibilities, as well as to negotiate and obtain plan of reorganization confirmation. Prostok and the Trust's claims challenge the actions, inaction or decision with respect to New NGC's operation; they are decisions that every company must make and thereby fall within the Release Provision.
D. Point of Error IV.
New NGC claims in its fourth point of error that the Bankruptcy Court erred in granting Prostok relief from the application of the injunctions in the Joint Plan. New NGC adopts DLJ's argument regarding this Point of Error, which is discussed under DLJ's claims, Point of Error III, infra.
VI. DLJ's CLAIMS
A. Point of Error I.
DLJ's first point of error is that the Bankruptcy Court erred in determining the Fee Shifting Provision violates public policy and requires narrow construction. See Initial Brief of Appellant DLJ at 19. Additionally, DLJ asserts that the Bankruptcy Court erred in determining that the Release and Bond Provisions do not apply to lawsuits alleging bad faith conduct during the confirmation process. See id. at 21-23. This point of error overlaps New NGC's Point of Error III and is discussed supra.
B. Point of Error II.
DLJ also asks this Court to determine that the Bankruptcy Court erred by failing to give any res judicata or collateral estoppel effect to its prior finding in ¶ 55 of the Confirmation Order that Old NGC, its professional employees, and all persons who participated in the formulation, approval and confirmation of the Plan acted in good faith. See Initial Brief of Appellant DLJ at 26.
The Confirmation Order contains a specific finding that Old NGC, et al, acted in good faith. The paragraph at issue in the Confirmation Order states as follows:
55. Antifraud Safe Harbor
The Debtors, New NOC, Reorganized NGC, and each of their respective employees, agents, and professionals, and all other Persons who participated in the formulation, negotiation, solicitation, approval and confirmation of the Plan to [sic] have acted in good faith and in compliance with applicable provisions of the Bankruptcy Code, and are entitled to the rights, benefits and protections of sections 1125(d) and 1125(e) of the Bankruptcy Code.
Confirmation Order ¶ 55.
As previously stated, no party in interest appealed the order or sought relief therefrom pursuant to Fed.R.Bankr.P. 9023 or 9024. See Memorandum Opinion and Order at 12-13; see also Memorandum Opinion and Order of the District Court, entered February 25, 1997 at 4. DLJ maintains that Appellee' s intentional misconduct and gross negligence allegations are contrary to paragraph 55's good faith finding and therefore barred by this finding. SeeIntial Brief of DLJ at 26-27.
The Trust, however, maintains that the Bankruptcy Court's good faith finding cannot have a preclusive effect against fraud causes of action because, otherwise, all confirmed plans would prohibit fraud actions by such a finding. See Trust's Response at 38-40. Moreover, the Trust states, the good faith finding is nothing more than a fulfillment of the requirement under section 1129(a)(3) of the Bankruptcy Code that "the plan has been proposed in good faith and not by any means forbidden by law." 11 U.S.C. § 1129(a)(3). Paragraph 55 cannot preclude all good faith challenges, the Trust continues; otherwise, it renders paragraph 50 superfluous. See Trust's Response at 41.
The problem this Court is faced with is how to interpret the paragraph 55 good faith finding and giving it its full meaning without, as the Trust suggests, rendering paragraph 50 of no use. To reiterate the goal of contract interpretation, the court must "determine the parties' intentions by harmonizing and giving effect to each provision within the contract such that none is rendered meaningless." Tenn. Gas Pipeline Co., 17 F.3d at 102.
In paragraph 20 of the Bankruptcy Court's Findings of Fact and Conclusions of Law on Confirmation, the Bankruptcy Court found:
Compliance with Section 1129(a)(3). The Debtors proposed the Plan in good faith and not by any means forbidden by law. Consistent with the overriding purpose of chapter 11, the Plan is designed to allow the Debtors to reorganize by providing them with the means that will allow them to satisfy their prepetition obligations with sufficient liquidity and capital resources to conduct their businesses. Moreover, the Plan itself; and the process leading to its formulation, provide independent evidence of the Debtor's good faith.
Findings of Fact and Conclusions of Law on Confirmation of the First Amended and Restated Joint Plan of Reorganization of National Gypsum Company and Aancor Holdings, Inc. at 14.
The Bankruptcy Court made the 1129(a)(3) good faith finding. The paragraph 55 good faith finding is a broader (and different) finding than the 1129(a)(3) requirement that the Plan be in good faith and not forbidden by law. As this Court previously found, "given the bitter history between the creditors and the debtors, the Bankruptcy Court had to have been aware of the heightened significance of the release provisions." See Memorandum Opinion and Order of the District Court, Entered February 25, 1987 at 20. Similarly, given the bitter history between the creditor and debtors, the Bankruptcy Court had to have been aware of the heightened significance of its good faith findings.
The conundrum is to reconcile the paragraph 55 good faith finding with paragraph 50, which permits challenges to actions lacking good faith. The only interpretation that gives meaning to both paragraphs is that the Fee Shifting Provision is an exception to the good faith finding in paragraph 55. The Fee Shifting Provision allows challenges to actions not taken in good faith but only after posting a bond and being subject to fee shifting. If a party is not challenging an action as not being in good faith, then the broad good faith finding of paragraph 55 applies and the claim is barred. The fee shifting provision allows claims to be brought for actions not to have been taken in good faith but only after providing appropriate proof of the challenger's ability to pay the reasonable attorneys fees and costs in the event they challenging party fails to prevail.
C. Point of Error III.
DLJ's third point of error overlaps New NGC's fourth point of error. The Court will discuss both NGC's fourth point of error and DLJ's third point of error at this juncture. DLJ asserts that the Bankruptcy Court erred by granting Prostok relief from the two permanent injunctions contained in the Confirmation Order without any analysis and without any request for such relief and by denying DLJ's motion for a preliminary injunction, notwithstanding these permanent injunctions, which specifically enjoin lawsuits.
DLJ maintains that the Bankruptcy Court made no effort to construe the language in the injunctions in the Confirmation Order but simply refused to enjoin Prostok from pursuing the State Court Litigation on the grounds that Prostok was entitled to relief from the injunctions. See Initial Brief of Appellant DLJ at 28. DLJ further complains that the Bankruptcy Court did not provide an analysis for this relief from the injunctions and made no attempt to square its ruling with the requirements of the Bankruptcy Code 11 U.S.C. § 1144 and Federal Rule of Civil Procedure 60(b), "the only means for providing "relief from the terms of a final and binding confirmation order." Id.
1. The Permanent Injunctions
Paragraph 10 of the Confirmation Order decrees the following: "All Persons who have held . . . claims . . ., are permanently enjoined . . ., from: (A) commencing . . . any action or other proceeding of any kind with respect to any Claim against the Debtors, New NGC, Reorganized NGC, . . . or any of their respective officers, directors, employees, representatives . . . or any other Person or the property of the Debtors . . . with respect to any such Claim or Interest." See Confirmation Order at 22-23. Paragraph 15 of the Confirmation Order enjoins the following: "Any claimant . . . to assert a claim for relief in respect of: (a) any actions taken during the course of the Reorganization Cases; (b) the Plan or any Plan Document; (c) the approval for, or the formulation, negotiation, confirmation, or consummation of; the Plan or any Plan Document." See Confirmation Order at 30-31.
A "person" is defined in the Plan as "any individual, firm, corporation, association, partnership, joint venture, trust or other entity." See First Amended and Restated Joint Plan of Reorganization Under Chapter 11 of the United States Bankruptcy Code for National Gypsum Company and Aancor Holdings, Inc. at § 1.162. DLJ was a representative of Old NGC in the reorganization process and a Person as defined in the Plan. Prostok's State Court Litigation was filed "with respect to" Prostok's bankruptcy claim. See Memorandum in Support of Plaintiff's Motion for Summary Judgment at 4-5 (the state court claims are based on the premise "that if the true information had been disclosed, the true equity of the Debtors would have been fairly distributed to creditors of the Debtors, including the members of the Class").
Prostok argues that a court has jurisdiction to amend its injunction based on subsequent developments or changed circumstances. See Prostok's Response at 25. A trial court has statutory and equitable authority to modify its order or injunctions to ensure that the injunctive relief upholds the rights given in the underlying judgment. Transportation, Inc. v. Mayflower Services, Inc., 769 F.2d 952, 954 (4th Cir. 1985).
The Bankruptcy Court, however, need not amend the injunctions in the confirmation order. These injunctions must be read in conjunction with the entirety of the confirmation order. Although paragraph 10 and paragraph 15 do enjoin actions against the Debtors, et al, Paragraph 50 specifically allows claims to be brought against the Debtors, et al, if certain conditions are met (e.g., the claims must be those challenging a party's good faith, must be subject to the fee shifting requirement, must comply with the legal costs provision). Although the injunctions exist in the confirmation order, Paragraph 50 provides an exception to these injunctions. The decision to grant relief from a final order is reviewed on an abuse of discretion basis. Id. The Court holds that the Bankruptcy Court did not abuse its discretion in granting Prostok relief from the two injunctions.
D. Point of Error IV.
DLJ in its fourth point of error asks this Court to reverse the Bankruptcy Court's decision to deny DLJ's motion to hold Prostok in civil contempt for violating the permanent injunctions. DLJ maintains that the Bankruptcy Court had the authority to enforce the injunction provisions through civil contempt and should enter an order holding Prostok in civil contempt. See DLJ's brief at 41.
Because this Court holds that the injunctions did not bar Prostok from bringing claims challenging the Debtor et al's good faith, see discussion, supra, it hereby overrules DLJ's fourth point of error.
E. Point of Error V.
Point of Error V is dismissed as moot
VII. THE OFFICERS' AND DIRECTORS' CLAIMS
A. Point of Error I.
The ODs claim that the Bankruptcy Court misread the true nature of Prostok's and the Trust's claims. See Opening Brief of OD at 12. The ODs maintain that the Bankruptcy Court viewed the relief Prostok requested as too narrowly being about confirmation fraud and therefore incorrectly concluded that the fee shifting provisions did not apply because "the fee shifting provision does not apply to claims . . . against the debtor's former officers and directors for gross negligence or wilful misconduct in the confirmation process." See id.
The ODs maintain that even if the Bankruptcy Court was correct that the confirmation-related claims do not implicate "operation of the Debtors," the Bankruptcy Court overlooked the fact that neither Prostok's nor the Trust's claims on their face purport to limit themselves to acts or omissions in the plan and confirmation process. Id at 12-13.
These claims have been previously discussed by the Court, see discussion supra, and therefore will not be addressed here.
B. Point of Error II.
The Officers and Directors maintain that the Bankruptcy Court failed to give proper application to the good faith protections given in the Release and Fee Shifting Provision. See Opening Brief of the ODs at 16. This Point of Error is also discussed supra and therefore will not be addressed here.
CONCLUSION
For the foregoing reasons, the Court holds the following:
1) National Gypsum Company's Point of Error I is OVERRULED; Point of Error II is OVERRULED; Point of Error III is SUSTAINED; Point of Error IV is OVERRULED;
2) DLJ's Point of Error I is SUSTAINED; Point of Error II is OVERRULED; Pointof Error III is OVERRULED; Point of Error IV is OVERRULED; Point of Error V is DISMISSED as moot;
4) The ODs Point of Error 1 is SUSTAINED; Point of Error II is SUSTAINED.
5) DLJ's Partial Withdrawal Motion is hereby DENTED (issues 5 and 6 are hereby DISMISSED as moot);
6) Prostok's and the Trust's Motion to Strike Certain Issues on Appeal is hereby DENIED;
6) DLJ'S Motion to Supplement the Record is hereby GRANTED;
7) The Trust's Motion to Supplement the Record is hereby GRANTED;
8) Joint Motion of NGC and the ODs to Strike the Statement of the Case and Statement of Facts of the Trust is hereby GRANTED; and
9) Appellants request for oral argument is hereby DENIED.