Mountain Glacier LLC v. Nestle Waters North America, Inc. (In re Mountain Glacier LLC)

Citation: 564 B.R. 314Docket: Case No: 15-03817; Adv. No 3:16-ap-90113

Court: United States Bankruptcy Court, M.D. Tennessee; January 13, 2017; Us Bankruptcy; United States Bankruptcy Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The court, presided over by Judge Charles M. Walker, is addressing a complaint from Mountain Glacier, LLC (the "Debtor") against Nestle Waters North America, Inc. ("Nestle") for a declaratory judgment under 28 U.S.C. § 220 to determine if the Debtor’s confirmed reorganization plan preserved its right to pursue a prepetition claim against Nestle. The Debtor is seeking summary judgment on this matter. 

Nestle had previously attempted to withdraw the reference to the bankruptcy court, but the District Court for the Middle District of Tennessee denied this motion, classifying the case as a "core proceeding" due to its need for interpreting another court's order, thereby allowing the bankruptcy court to proceed with the case. 

The Debtor filed for Chapter 11 bankruptcy on June 3, 2015, and confirmed its reorganization plan on February 17, 2016. Prior to bankruptcy, the Debtor and Nestle were involved in an arbitration, which was stayed upon the bankruptcy filing. The Debtor disclosed this arbitration claim as a "contingent and unliquidated" claim in its bankruptcy schedules. Following the plan's effective date, the Debtor aimed to continue its claims in arbitration, but Nestle sought to dismiss these claims, arguing that the confirmation order did not adequately preserve them, which could invoke res judicata and bar further pursuit.

The joint pretrial statement outlines key legal issues, including the court's authority to issue a final order, potential jurisdictional barriers, and whether the claims are precluded by waiver, estoppel, laches, ratification, or res judicata resulting from the confirmation order. The determination of these issues necessitates an examination of the relevant provisions within the Disclosure Statement and Plan, which acknowledge pending litigation against Nestle and the unliquidated status of these claims due to the bankruptcy stay.

Unsecured debt for the Debtor totals approximately $1,620,180.32, primarily consisting of trade obligations. Major claims include $207,331.00 owed to Evansville Bottling and a disputed claim of $581,642.26 from Nestle Waters. Additionally, unsecured deficiency claims to Herscher are around $3 million, and to BFS, $508,315. 

For the Plan’s approval, the Court must confirm that creditors will receive at least the value they would obtain if the Debtor's assets were liquidated under Chapter 7. The Debtor, being a service company, has minimal value in real or personal property, primarily holding customer lists, inventory, and accounts receivable valued at roughly $5 million, though liquidation would yield significantly less. Secured debts exceed the liquidation value, leaving no funds for unsecured creditors or equity holders.

Class 5 of the Plan includes all Allowed Unsecured Claims not categorized elsewhere, such as those from Herscher and BFS. These claims will be paid ten percent (10%) of their allowed amount over five years in semi-annual installments beginning June 30, 2016, concluding on December 31, 2020.

Upon confirmation of the Plan, the Reorganized Debtor will maintain all estate property and has the authority to settle claims without court approval. "Allowed Claim" refers to amounts recognized for payment under the Bankruptcy Code, contingent on resolution of any objections. "Causes of Action" encompass all claims the Debtor has against any party as of the Plan’s Effective Date, including those against State Bank and Nestle Waters. "Property" includes all assets in which the Debtor has an interest as of the Effective Date, along with any assets acquired post-filing.

Class 5 consists of all Allowed Unsecured Claims not included in other classes, including unsecured deficiency claims from State Bank of Herscher and Allowed Claims from Business Finance Services. These claims will be paid at ten percent (10%) of the Allowed Unsecured Claim, distributed in ten semiannual installments over five years, starting on June 30, 2016, with subsequent payments on December 31 of each year until the final installment on December 31, 2020.

Upon the Effective Date of the Plan, all property of the Debtor will be transferred to the Reorganized Debtor free of all claims, except as specified in the Plan. The Reorganized Debtor will retain all claims, demands, or causes of action the Debtor had the power to assert before Confirmation, including avoidance actions under various provisions of the Bankruptcy Code. These actions can be pursued in any appropriate court after Confirmation.

The rights and obligations of any entity under the Plan will be binding on their successors or assigns. In terms of summary judgment, the court establishes that there are no disputed material facts, making the case suitable for summary judgment. The interpretation of the Order is deemed a core proceeding, justified by case law, as it relates to the distribution to creditors and has a close nexus to the bankruptcy case, allowing the court to enter a final order.

Nestle's challenge to the court's jurisdiction regarding the "related to" status of the claim from the reorganized Debtor in the Arbitration is addressed under 28 U.S.C. § 1334(b), which grants the district courts original but not exclusive jurisdiction over civil proceedings related to bankruptcy cases. This broad jurisdiction aims to allow bankruptcy courts to handle all matters connected to the bankruptcy estate efficiently. The court affirms its jurisdiction to interpret and enforce its own orders, particularly after a plan of reorganization has been confirmed, clarifying that it is not ruling on the merits of a cause of action but rather interpreting its own order.

The court examines the impact of the doctrines of waiver, estoppel, laches, and ratification on the Debtor’s claims against Nestle. 

1. **Waiver**: The court finds no evidence that the Debtor has voluntarily relinquished its rights concerning the Arbitration Claim, which is explicitly referred to as a transferred asset in the Plan. Therefore, the claim is not barred by waiver.

2. **Estoppel**: The doctrine of estoppel, which prevents re-litigation of issues already determined, does not apply because the Order does not indicate any determination regarding the Arbitration Claim.

3. **Laches**: This doctrine, which addresses unreasonable delay in asserting a claim that prejudices another party, is also inapplicable. The Debtor asserted the Arbitration Claim prior to the Chapter 11 filing and included it in the Plan and Disclosure Statement, indicating its intent to transfer it. Nestle could not demonstrate prejudice, as it did not participate in the Debtor's case or the confirmation of the Plan, thus laches does not apply.

In summary, the court asserts its jurisdiction and finds that the doctrines of waiver, estoppel, and laches do not bar the Debtor's claims against Nestle.

Ratification does not bar the Arbitration Claim, as no prior actions by the Debtor have been alleged to obstruct it, aligning with the definition of ratification as the adoption of an act not initially binding or done by an unauthorized agent. The confirmation of a Chapter 11 reorganization plan invokes res judicata, preventing relitigation of issues that were or could have been raised during confirmation. This confirmation is treated as a judgment by a district court, thus barring any claims unless the plan explicitly preserves the right to those claims. Section 1123(b)(3) of the Bankruptcy Code allows a plan to either settle or retain claims, but it is not automatic; specificity in the plan is required to effectively reserve claims. There is disagreement among circuits regarding the level of specificity needed, ranging from general reservations to precise identifications of claims. The Sixth Circuit, in Browning v. Levy, has indicated that vague reservation language is inadequate, as it fails to inform involved parties or the court about the claims' value, leading to a determination that such reservations do not overcome the res judicata effect.

In In re Penn Holdings, the court addressed the sufficiency of a general reservation of claims to avoid res judicata effects stemming from a confirmed Chapter 11 plan. The court concluded that such a reservation, when considered alongside the plan and disclosure statement, could be adequate to preserve a cause of action. Specifically, it distinguished that while a general reservation of "causes of action" might not be detailed enough in the Sixth Circuit, the context and historical purpose of 11 U.S.C. § 1123(b)(3) support the preservation of potential assets without requiring overly specific language. 

In this case, the Debtor's broad language regarding the retention of preference actions, in conjunction with the accompanying disclosure statement and liquidation analysis, was deemed sufficient to maintain those actions. The court rejected Nestle's argument that the Debtor's failure to capitalize "causes of action" in a specific section of the Plan excluded the Arbitration Claim, asserting that adequate references throughout the documentation clearly indicated the intent to retain and pursue this claim post-confirmation.

The court emphasized that the relevant provisions, when read together, allow creditors to identify and evaluate available assets, affirming that the plan's language sufficiently reserved the Arbitration Claim as an asset. Ultimately, the court ruled that the Plan’s language, aligned with the Disclosure Statement, effectively reserved the Arbitration Claim for the reorganized Debtor, negating the res judicata effect of plan confirmation, and judgment was entered in favor of the Debtor.