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In Re Fcx, Inc., Employer's Identification No. 560220040, Debtor. Universal Cooperatives, Inc., Creditor-Appellant v. Fcx, Inc., Debtor-Appellee, the National Council of Farmer Cooperatives ("National Council"), Amicus Curiae

Citations: 853 F.2d 1149; 1988 U.S. App. LEXIS 11021; 18 Bankr. Ct. Dec. (CRR) 342Docket: 88-1525

Court: Court of Appeals for the Fourth Circuit; August 11, 1988; Federal Appellate Court

Narrative Opinion Summary

Universal Cooperatives, Inc. challenged a bankruptcy court order, affirmed by the district court, allowing FCX, Inc. to modify its Chapter 11 reorganization plan by surrendering patronage certificates as collateral to satisfy a secured claim held by Universal. The legal contention centered around whether FCX was entitled to such a modification under bankruptcy law, the valuation of the certificates at face value, and procedural adherence to modification requirements. The court held that the Bankruptcy Code preempted state law and cooperative by-laws, thus permitting the modification. Despite some procedural irregularities, the court upheld the modification, finding it aligned with bankruptcy law and adequately communicated to Universal. The ruling emphasized that federal bankruptcy statutes, particularly 11 U.S.C. § 1123(a)(5)(D), authorized the release of collateral to satisfy claims, superseding nonbankruptcy restrictions. The case underscored the importance of federal preemption in bankruptcy proceedings and the valuation of secured claims, ultimately affirming that Universal's claim was satisfied through the transfer of certificates valued at face value.

Legal Issues Addressed

Authority of Bankruptcy Court over Cooperative By-Laws

Application: The court determined that it had the authority to permit the transfer of patronage certificates despite cooperative by-laws, based on bankruptcy code provisions.

Reasoning: Universal acknowledges that 11 U.S.C. § 1123(a)(5)(D) allows a debtor to satisfy secured claims by surrendering collateral as part of a confirmed plan.

Bankruptcy Plan Modification under Chapter 11

Application: The case involved the modification of a confirmed Chapter 11 plan to release collateral to satisfy a creditor's claim, which was upheld despite procedural non-compliance.

Reasoning: Universal Cooperatives, Inc. appeals a bankruptcy court order, upheld by the district court, that permitted FCX, Inc. to modify its confirmed Chapter 11 plan by releasing collateral securing its debt to Universal in satisfaction of Universal's claim.

Preemption of State Law by Federal Bankruptcy Law

Application: The court ruled that federal bankruptcy law overrode discretionary powers granted by state law regarding the redemption of patronage certificates.

Reasoning: Section 1123(a)(5)(D) mandates the distribution of estate property to a secured party, overriding nonbankruptcy law restrictions.

Procedural Requirements for Plan Modification

Application: The bankruptcy court's decision was upheld despite potential non-compliance with procedural requirements for plan modification, as the essential nature of the modification was communicated.

Reasoning: Despite potential non-compliance with these requirements, the court found no basis for reversal. FCX's notice informed Universal of the essential nature of the modification and the proposed valuation.

Valuation of Collateral in Bankruptcy Proceedings

Application: The court affirmed that patronage certificates should be valued at face value for satisfying a secured claim, despite disputes over the present value.

Reasoning: Universal also argues that the bankruptcy court failed to enforce formal plan modification requirements, citing inadequate notice and evaluation of FCX's proposed modification against Sec. 1129 standards.