CASE NO.: 03-10308.United States Bankruptcy Court, E.D. Louisiana.
September 28, 2007
MEMORANDUM OPINION
DOUGLAS DODD, Bankruptcy Judge
Debtor Barnett Marine, Inc. (“BMI”) resolved its pre-bankruptcy debt though a plan confirmed in 2004. It continues to do business, mainly the operation of barges used by companies engaged in oil and gas drilling in the Gulf of Mexico, under the management of Ecton Terrebonne, its Executive Vice-President.
BMI seeks permission to sell the corporation’s remaining assets: three barges and a parcel of immovable property. At the same time, shareholder William Barnett, Jr., moves for a final decree, to which other shareholders object. The issue is whether this court has post-confirmation jurisdiction to authorize the asset sales and resolve shareholder disputes when the plan has been substantially, if not completely, consummated.
Facts and Procedural History
The debtor, a closely held corporation, filed chapter 11 in January 2003. In lieu of appointing a chapter 11 trustee, the court in July 2003 appointed Moon Landrieu as President of the debtor. Mr. Landrieu was authorized to “exercise on behalf of the Debtor . . . all the powers relating to the Debtor and its affairs of a Trustee appointed pursuant to
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the provisions of 11 USC 1106.”[1] The court confirmed BMI’s plan on April 16, 2004.[2] The confirmed plan provided in relevant part that “(a) the Debtor will commence, on or before the Confirmation Date, the downsizing of the Debtor’s operations as assets are liquidated to become more economically viable and (b) subject to the provisions of the Plan, market and sell any or all of the Debtor’s assets so as to allow for the payment of all creditors as expeditiously as possible.” Landrieu continued to serve as BMI’s President after confirmation.[3] The plan required that he market estate assets during the Asset Liquidation Period, which was the nine-month period following the confirmation date, or until January 2005.[4]
On March 16, 2006, upon motion of BMI and the post-confirmation committee set up by the plan, this court released and discharged Landrieu and appointed Mr. Terrebonne BMI’s Executive Vice-President, with the powers of a chapter 11 trustee. The applicable language in the March 16, 2006 order (“Combined Order”) recites: “IT IS FURTHER ORDERED that Ecton `Terry’ Terrebonne is temporarily appointed as Executive Vice-President in control of Barnett Marine’s operations, with the same powers and authority afforded Moon Landrieu pursuant to the Retention Order. . . . “[5] The Combined Order directed Terrebonne to make an “Interim Distribution” to certain
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creditors.[6] It also provided that after payment of the Interim Distribution, “the Reorganized Debtor will have satisfied all of its obligations under the Plan, including but not limited to the obligations owed to holders of allowed claims in classes 1 through 7. . . . “[7] (Emphasis added.)
Landrieu and Terrebonne liquidated many of BMI’s assets and used the proceeds to pay most of the claims of the debtor’s creditors. By June 2007, according to Terrebonne, BMI had paid or provided for the claims of all classes of creditors included in the plan and the Combined Order.[8] For all practical purposes then, the debtor has finished dealing with its prepetition unsecured creditors. The status of its equity is another matter.
The interests of BMI’s equity holders comprised class 8 in the confirmed plan. The members of class 8 retained their equity interests and were unimpaired by the plan.[9] The plan provided that the class 8 interests were to receive no distributions until allowed claims in classes 1 through 7 were paid.[10] However, neither the plan nor the Combined Order required Landrieu or Terrebonne to transfer any assets or make any payments to
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class 8 interests, even after all other classes had been paid. Thus, determining the interests of members of class 8, the shareholder class, would have no effect on the rights of any secured or unsecured creditor.
In May 2006, two of BMI’s four shareholders sued the other two shareholders in a Louisiana state court to determine ownership of BMI’s stock, among other things.[11] Pursuant to the Combined Order, Terrebonne will retain his powers and authority in connection with BMI “until such time as the interests of the holders of class 8 [shareholder] interests have been judicially determined and a new President has been properly elected or appointed.”[12] Accordingly, Mr. Terrebonne’s employment at BMI will continue until the civil suit is concluded.
Analysis
The Fifth Circuit has held that “bankruptcy court jurisdiction does not last forever.” In re Craig’s Stores of Texas, Inc., 266 F.3d 388, 389 (5th Cir. 2001). The court adopted a narrow interpretation of post-confirmation jurisdiction based on its conviction that “after a debtor’s reorganization plan has been confirmed, the debtor’s estate, and thus bankruptcy jurisdiction, ceases to exist, other than for matters pertaining to th implementation or execution of the plan.” Id. at 390, citing In re Fairfield Communities, Inc., 142 F.3d 1093, 1095 (8th Cir. 1998) (emphasis added). See also In re U.S. Brass Corp., 301 F.3d 296, 304-5 (5th Cir. 2002) (reaffirming Fifth Circuit’s “exacting theory”
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of post-confirmation jurisdiction set out in Craig’s Stores).
The court’s view of the limitations of post-confirmation jurisdiction is predicated on the principle that the reorganized entity should be able to hold its own in the “cold, cruel business world” without the bankruptcy court’s protection Craig’s Stores, F.3d at 390-1, citing In re Seminole Park and Fairgrounds, Inc., 502 F.2d 1011, 1014 (5th Cir. 1974).
This notion must be foremost in bankruptcy courts’ analysis of reorganized debtors’ post-confirmation requests for relief.
I. The Court Lacks Post-Confirmation Jurisdiction to Approvethe Asset Sales
The cornerstone of the Fifth Circuit’s holding in Craig’s Stores is examination of the plan in order determine the scope of post-confirmation jurisdiction. The BMI plan provides for the reorganized debtor to continue operating, while liquidating assets necessary to become economically viable and pay all creditors expeditiously. The plan established a fixed period for asset liquidation, which has long since ended. The plan contains no requirement for liquidation of all assets, nor does it require any payment to the class 8 creditors.
The Combined Order merely effectuated, post-confirmation, the performance of obligations established in the plan. It added no new obligations. In fact, it recited that payment of certain outstanding claims, the “Interim Distribution,” would constitute satisfaction of all of the plan’s obligations. The evidence at the June 7, 2007 hearing on the reorganized debtor’s Motion to Sell Property Free and Clear of Liens and William Barnett Jr.’s Motion for Final Decree established that by the date of the hearing, BMI had paid, or provided for, the claims of all its creditors, in addition to making the Interim Distribution. In fact, Terrebonne testified BMI had enough funds on hand to pay any and
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all disputed claims and attorneys’ fees claims, and even potentially make a distribution to the shareholders for tax liability they may have incurred.
Approval of the proposed asset sale would not impact the parties’ post-confirmation rights and responsibilities, nor would it impact the implementation or execution of the debtor’s plan, because the reorganized debtor already has met its plan obligations. Neither the confirmed plan nor the post-confirmation Combined Order required the liquidation of all BMI’s assets once creditors’ claims were paid or provided for.
Nor did the evidence support a finding that the plan necessarily contemplated BMI’s liquidation. The Combined Order authorized Terrebonne to continue operating BMI until a court resolved the shareholders’ dispute concerning the future of the company. Mr. Terrebonne testified on June 7, 2007 that BMI currently is operating on a “break-even” basis. According to Terrebonne, the proposed asset sale would effectively liquidate all remaining assets of BMI. The long-run implications of the sale are obvious: it would reduce or eliminate any chance of continuing the business.
BMI has fulfilled all its plan obligations to creditors. The shareholder dispute, which is based on alleged pre-petition misconduct, is pending in an appropriate forum. Under Craig’s Stores, the court lacks jurisdiction over the asset sale proposed by BMI.
II. The Courts Lacks Jurisdiction to Resolve Disputes Among theEquity Holders
Neither the plan nor the Combined Order provided that this
court was to judicially determine the various interests of the class 8 equity holders. The Combined Order only reiterated that Terrebonne, as successor to Landrieu, would retain authority to manage BMI until the ownership interests in BMI were judicially determined. Some of the
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shareholders have initiated a state court lawsuit for that purpose. Therefore, this court need not resolve any shareholder dispute. On the record of this case, this shareholder dispute lies outside this court’s jurisdiction. Craig’s Stores, 266 F.3d at 390.
Conclusion
The court lacks jurisdiction to consider the proposed post-confirmation asset sales and the dispute among BMI’s shareholders. According, by separate Order the court will dismiss the Motion to Sell Property Free and Clear of Liens. The court will reset the Motion for Final Decree for hearing.
Baton Rouge, Louisiana.