In re NCC, Inc.

Citations: 213 B.R. 484; 1997 U.S. Dist. LEXIS 19266; 1997 WL 615600Docket: Civ. A. No. 97-01243

Court: District Court, E.D. Louisiana; October 2, 1997; Federal District Court

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The federal court affirms the U.S. Bankruptcy Court's ruling denying Byron Montz's Motion to Clarify and/or Modify a provision of NCC, Inc.'s Chapter 11 plan. Montz, a general unsecured creditor, contested a plan provision that releases Ocean Marine Indemnity Co. from claims after asset distribution. He argued that the Bankruptcy Court lacked jurisdiction to release a non-debtor surety and sought relief from judgment under Bankruptcy Rule 9024, which incorporates Rule 60 of the Federal Rules of Civil Procedure. The facts reveal that NCC owed Montz $28,351.11, which led to Montz filing a lien under the Public Works Act. After NCC filed for Chapter 11 bankruptcy and confirmed a liquidation plan, Montz's claim was categorized under a class that only allows pro-rata payments, meaning he would not recover the full amount owed. Montz's motion to modify the plan was denied by the Bankruptcy Court. The federal court notes that Montz proceeded with his appeal without a stay, raising concerns about mootness, particularly regarding the reliance interests of non-adverse third parties. A three-part test for mootness is referenced, emphasizing the protection of those parties who acted based on the implemented plan.

The Manges Court assessed whether it is appropriate to disrupt a reorganization plan at this stage, referencing the criteria for determining if an appeal is moot. Three factors were evaluated: (I) absence of a stay from the bankruptcy court, as the appellant Montz did not follow the required procedure for seeking relief; (II) substantial consummation of the plan, confirmed by the completion of property transfers and initiation of distributions to creditors; and (III) potential impact on the rights of non-parties, as the requested relief could affect Ocean Marine, which is not part of the appeal.

Even if the plan were not deemed moot, the Court would still affirm the Bankruptcy Court's decision against modifying the plan, citing a lack of jurisdictional issues or misrepresentation. Montz had the opportunity to propose changes to the plan but failed to object during the confirmation hearing, which he did not attend. Subsequent to confirmation, the Bankruptcy Code mandates that the confirmed plan's provisions are binding on the debtor, regardless of any claims or interests of affected parties.

Montz references **Matter of Sandy Ridge Development Corp.** to argue that a debtor's discharge in bankruptcy does not impact a guarantor's liability. In **Sandy Ridge**, the issue of a third-party release was raised during the confirmation hearing. Additionally, Montz cites **Republic Supply Co. v. Shoaf**, which establishes that bankruptcy courts lack the authority to discharge non-debtors. However, the Fifth Circuit in **Shoaf** concluded that res judicata prevents creditors from enforcing guarantees released under a confirmed reorganization plan. The court emphasized that a confirmed plan constitutes a final judgment, regardless of jurisdictional concerns.

Montz distinguishes his case by contending that the matter in **Shoaf** involved a collateral attack against the guarantor and not a direct challenge to the plan. He suggests that if the release of the guarantor had been contested during the appeal, it would not have been upheld. Montz asserts he is not contesting the plan's release of Ocean Marine but is instead seeking relief from the Bankruptcy Court's judgment under Bankruptcy Rule 9024, which incorporates Rule 60 of the FRCP. He alleges fraud or misconduct related to the release provision. The relevant provision in the Confirmed Plan (Art. XI) states that claims against NCC and associated parties are fully released, satisfied, and discharged, except as specified within the plan.

Upon full payment of claims against NCC and any co-debtors or sureties, all such claims will be released, satisfying and discharging them completely. Claimants are barred from asserting any claims against NCC or its assets based on prior actions or transactions. The court aligns with the Bankruptcy Judge's assertion that the plan's language is clear regarding the release of all sureties, including Ocean Marine, despite Montz's claims of misrepresentation. Only one objection was raised prior to confirmation, which was later withdrawn; thus, no confusion existed regarding the plan. Montz’s appeal for equitable relief, seeking to prevent Ocean Marine's release from its statutory bond, is deemed misplaced as the modifications are not lightly undertaken after confirmation. The court notes that modifications should only occur in extreme circumstances, and in this case, substantial consummation of the plan had already occurred by the time Montz sought action. His appeal is considered moot, and even if it were not, the plan's progress is too advanced for modification. The court affirms the Bankruptcy Court's ruling denying Montz's motion to clarify or modify the confirmed plan regarding Ocean Marine.