Plant Materials, LLC v. Alliance Consulting Grp., LLC (In re Alliance Consulting Grp. LLC)

Citation: 596 B.R. 851Docket: CAUSE NO. 1:18CV105-LG-RHW; CASE NO. 13-51937-KMS

Court: District Court, S.D. Mississippi; February 12, 2019; Federal District Court

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Plant Materials, LLC appeals the March 19, 2018 Order of the U.S. Bankruptcy Court for the Southern District of Mississippi regarding Alliance Consulting Group, LLC. The appellees include Alliance, property purchaser Drying Facility Assets Holding, LLC (DFAH), and former Chapter 11 Trustee Richard W. Cryar. The appeal falls under the jurisdiction of 28 U.S.C. § 158.

Prior to bankruptcy, Alliance produced frac sand and operated a drying facility financed by a loan from Spectrum Origination, LLC, later acquired by Elle Investments LLC and Stonehill Institutional Partners LP. Financial difficulties led to an involuntary Chapter 11 petition filed against Alliance, resulting in Cryar's appointment as Trustee.

In May 2014, Shale Support Services LLC (S3) was allowed to manage the facility and entered into a contract with Cryar to operate and enhance the facility, which included hiring Plant Materials for installation of a sand screen. Plant Materials was to receive approximately $162,535.00 weekly for three weeks of work but ultimately worked for three months, billing significantly more than initially estimated.

The Bankruptcy Court confirmed the sale of the drying facility to the lenders' administrative agent, who later assigned the purchase rights to DFAH. Plant Materials’ screen installation was not included in the sale but was acquired by DFAH afterward. 

Plant Materials sought to reopen the bankruptcy case, claiming the sale hindered its ability to file a lien for unpaid invoices. The Bankruptcy Court denied the motion due to a lack of standing and determined that Plant Materials did not meet the burden to show cause for reopening the case. 

The standard of review for reopening a bankruptcy case is based on the discretion of the bankruptcy judge, which will only be overturned for abuse of discretion, defined as an erroneous legal review or a clearly erroneous assessment of evidence. The Court affirms the Bankruptcy Court’s decision and dismisses the appeal.

The Bankruptcy Court determined that Plant Materials lacks standing to file a motion to reopen a bankruptcy case, as it is not classified as a debtor, creditor, or trustee. The relevant legal framework allows a bankruptcy case to be reopened by a debtor or "other party in interest," as defined in the Bankruptcy Code to include various stakeholders such as creditors and indenture trustees. Plant Materials argues it has a legally protected interest under Mississippi law, specifically a lien on a drying facility, which it claims was affected by a Bankruptcy Court order permitting a free and clear sale of the facility.

However, the Bankruptcy Court cited precedent, notably from the Tenth Circuit's decision in Alpex Computer Corp., asserting that "party in interest" is typically restricted to those with a direct pecuniary interest in the bankruptcy proceedings, implicating that standing to reopen is limited to debtors, creditors, or trustees. Plant Materials contends that this interpretation conflicts with the Fifth Circuit’s broader definition of "party in interest," which includes anyone with a legally protected interest in the bankruptcy case. The Fifth Circuit has not yet clarified this aspect regarding motions to reopen. Lastly, the Second Circuit's caution against granting overly lenient standing reflects the need to maintain an efficient reorganization process, especially in cases where a bankruptcy plan has already been confirmed.

Permitting a creditor of a creditor to reopen a bankruptcy case could undermine the Bankruptcy Code's objectives. Even if Plant Materials were considered a "party in interest," it lacks standing as it does not possess a "legally protected interest" affected by the bankruptcy case. At the time of the sale approval for the drying facility, Plant Materials could not file a lien because it failed to do so within the statutory period and thus had no protected interest. Consequently, it could not file a motion to reopen the case. 

The Bankruptcy Court determined that, even if Plant Materials had standing, there was no cause to reopen the case. The trustee indicated no funds available for distribution, rendering reopening futile. Additionally, the court noted that Plant Materials could pursue its nonpayment claim through litigation rather than reopening the bankruptcy case, especially since the dispute did not pertain to the plan's execution. 

The court emphasized that once a debtor's reorganization plan is confirmed, bankruptcy jurisdiction is limited to matters related to the plan. Plant Materials' claim did not fall under this category, meaning the court would lack jurisdiction to address it. The court also highlighted the preference for finality in bankruptcy proceedings, suggesting that reopening would prejudice the debtor. 

Plant Materials argued the court erred in not considering a potential relief from the sale order under Fed. R. Civ. P. 60(b) and claimed due process violations due to a lack of notice before the sale order. While a bankruptcy case may be reopened for administering assets or other causes, such discretionary decisions depend on specific circumstances, including delays, potential prejudice to adversaries, and equitable considerations.

Reopening a bankruptcy case hinges on several factors, including the futility of the request and the presence of other courts to handle the claims. In Redmond v. Fifth Third Bank, Apex Oil Co. v. Sparks, and Chase Auto Fin. Inc. v. Kinion, courts have considered these factors. Plant Materials filed its Motion to Reopen nearly three years post-plan effective date and one year after case closure. Reopening would prejudice DFAH, the purchaser of the facility, and alternative courts are available; Plant Materials has initiated a lawsuit in Texas addressing similar issues.

The core remaining issues are whether Plant Materials' Rule 60(b) request would be futile and if due process was denied. Rule 60(b), applicable to bankruptcy cases via Rule 9024, allows relief from judgments for specific reasons, including mistake, newly discovered evidence, fraud, void judgments, or other justifiable reasons. Plant Materials indicated its intent to seek relief under Rule 60(b)(4), claiming the Confirmation Order's effects on its lien rights are void due to lack of due process.

Due process necessitates that notice be "reasonably calculated" to inform interested parties of the action and allow for objections. The required notice level varies for "known" versus "unknown" creditors. Known creditors must receive actual notice, while unknown creditors need only receive constructive notice. A creditor is deemed "known" if their identity is ascertainable through diligent efforts, necessitating specific information about the claim and the entity owed.

Publication in a national newspaper, such as the Wall Street Journal, is deemed sufficient notice under legal standards. A creditor does not need to serve a formal complaint to be considered "reasonably ascertainable"; however, the debtor must have specific knowledge of an injury for a claim to be actionable beyond mere foreseeability. "Unknown creditors" are categorized as those whose interests are speculative, future, or not reasonably discoverable in the course of business. In this case, the Trustee was aware that Plant Materials was working at a drying facility for a third party but lacked knowledge of any payment disputes or intentions to file a lien. Consequently, Plant Materials was classified as an unknown claimant entitled only to notice by publication, which was duly provided, thus not violating its due process rights. Plant Materials' request to reopen the bankruptcy case was deemed futile; it lacked standing because it was neither a creditor, debtor, nor trustee and had no legally protected interest. Even if standing existed, Plant Materials failed to show sufficient cause to reopen the case. Therefore, the Bankruptcy Court's denial of the Motion to Reopen was upheld, affirming the court's March 19, 2018 order. Additionally, Plant Materials forfeited its right to file a lien on a screen installed at the drying facility, which was excluded from the bankruptcy court's approved sale.