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summarizing remand order that directed bankruptcy court to evaluate whether approved settlement, although found to be fair, reasonable, and in best interest of estate under Rule 9019, nevertheless constituted improper post-confirmation modification of confirmed plan
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CASE NO. 03-60071, CASE NO. 03-60072, CASE NO. 03-60073, CASE NO. 03-60074, CASE NO. 03-60075, CASE NO. 03-60076, CASE NO. 03-60077, CASE NO. 03-60078.
July 6, 2007
PAUL A. LEVINE, ESQ., Lemery Greisler, LLC, Albany, New York.
CRAIG R. FRITZSCH, ESQ., Attorney for Jointly Administered Debtors, James W. and Lori Jo Hawkins, Individually, Binghamton, New York.
THE TOWNE LAW OFFICE, Attorneys for Asolare II, LLC, Albany, New York.
MICHAEL RHODES-DEVEY, ESQ., JAMES TOWNE, ESQ., Of Counsel.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
This matter is before the Court pursuant to a Decision and Order of the United States District Court for the Northern District of New York (Hon. Lawrence Kahn, United States District Judge), dated January 30, 2007 ( In re Reserve Capital Corporation, 2007 U.S. Dist. Lexis 6908 (N.D.N.Y. 2007) or "District Court Decision"). The District Court Decision Affirmed in Part and Remanded in Part the Memorandum-Decision and Order, entered on March 7, 2005 ("March 2005 Decision"), by the United States Bankruptcy Court for the Northern District of New York (Hon. Stephen D. Gerling, Chief United States Bankruptcy Judge).
On February 20, 2007 the trustee appointed by the Court in these cases ("Trustee") filed a Memorandum of Law ("Trustee's February 2007 Memorandum") relating to the issue remanded by the District Court Decision. On March 22, 2007, counsel for Debtors submitted a "[Debtors'] Response" ("Debtors' March 2007 Memorandum") to the Trustee's February 2007 Memorandum of Law. Oral argument on the issue remanded was heard by the Court at its regular motion term in Utica, New York on March 27, 2007. Upon conclusion of the March 27th hearing, the Court indicated that it would take the matter under submission without the need for further briefing.
Debtors in these Jointly Administered cases are Reserve Capital Corp., Hawkins Development LLC, James W. and Lori Jo Hawkins, Hawkins Family LLC, Hawkins Manufactured Housing, Inc., Forest View, Inc., Wooded Estates, LLC and Tioga Park, LLC (collectively, "Debtors").
JURISDICTIONAL STATEMENT
The Court has jurisdiction over the parties and subject matter of this contested matter pursuant to 28 U.S.C. §§ 1334, 157(a), (b)(1) and (b)(2)(A) and (O).
FACTS
The Court will assume familiarity with the facts as set forth in this Court's March 2005 Decision, the District Court Decision, as well as In re Reserve Capital Corp., 2007 Bankr. Lexis 983 (Bankr. N.D.N.Y. 2007).
By way of a limited introduction to the background of this matter, the Court notes the following.
On January 7, 2003, Debtors filed voluntary chapter 11 petitions. In March 2004, Debtors, Debtors' post-petition lender Southern Tier Acquisitions, LLC and creditor Asolare II, LLC (collectively, "Plan Proponents") reached an agreement whereby Plan Proponents would present a Joint Plan of Reorganization for Tioga Park LLC, and separate, liquidating plans for the remainder of the Debtors.
The Trustee's motion to substantively consolidate the jointly administered cases of all Debtors, except Tioga Park, was denied in In re Reserve Capital Corp., 2007 Bankr. Lexis 983 (Bankr. N.D.N.Y. 2007)
As is noted infra, the Tioga Park plan was confirmed on June 1, 2004. The liquidating plans for the remaining Debtors have not yet been confirmed.
The Court's March 2005 Decision addressed the Chapter 11 Trustee's November 19, 2004 motion, pursuant to Federal Rule of Bankruptcy Procedure 9019 ("Trustee's Rule 9019 Motion"), which sought to compromise certain claims of the Trustee in the Reserve Capital Jointly Administered bankruptcy cases. The March 2005 Decision also addressed certain related motions such as 1) the Debtors' motion to remove the Chapter 11 Trustee ("Removal Motion"), 2) a motion to compel the Plan Proponents to comply with the terms of a certain consulting agreement inuring to the benefit of individual debtor James Hawkins ("Compliance Motion"), as well as 3) a motion seeking to disallow the claims of creditors Asolare II, LLC and BSB Bank and Trust ("Disallowance Motion").
The compromises at issue were the Court's approval of the Trustee's request to accept $60,000.00 for the right of the estate of James W. and Lori Jo Hawkins to a 2% equity interest in Tioga Downs race track, and to accept a lump sum payment of $250,000.00 in return for that same estate's 55% interest in a five year annual $100,000.00 consultant's fee.
The March 2005 Decision authorized the Trustee to enter into the settlement outlined in the Trustee's Rule 9019 Motion, and denied the Debtors' three Removal, Compliance and Disallowance Motions.
Debtors appealed the March 2005 Decision to the United States District Court for the Northern District of New York (Kahn, D.J.). On January 30, 2007, Judge Kahn issued the District Court Decision, which affirmed this Court's March 2005 Decision denying Debtors' Removal, Compliance and Disallowance motions. Judge Kahn ruled that this Court did not abuse its discretion in finding that the proposed compromises contained in the Trustee's Rule 9019 Motion were fair, reasonable and in the best interest of the estates. Judge Kahn did, however, remand on the issue of whether the Court's March 2005 Decision approving the Trustee's Rule 9019 Motion constituted an improper post-confirmation modification of the confirmed Tioga Park plan. Judge Kahn remanded on this issue based on his belief that
Debtors raised the issue that the proposed relief was contrary to the previously confirmed plan of Tioga Park. The Bankruptcy court never addressed this claim. The Trustee's compromise appears to alter the rights of James Hawkins and the other estates from what was expected under the confirmed Tioga Park plan.
Although Debtors' argument (that the proposed relief was contrary to the confirmed plan) is contained in the Debtors' July 1, 2005 Appellant's Brief to the U.S. District Court (pgs. 34-36), it was not made in any of the papers submitted by Debtors to this Court. Nor was it made, as a careful review of the audio record of oral arguments made before this Court reveals, at any hearing at which Debtors argued sundry other issues.
In re Reserve Capital Corp., 2007 U.S. Dist Lexis 6908 * 18 (N.D.N.Y. 2007) (emphasis added).
Thus, the purpose of this Memorandum-Decision is to consider "whether the March 7, 2005 [Memorandum-Decision and] Order constitutes an impermissible post-confirmation modification of the Tioga Park plan." Id. at 19.
ARGUMENT
The Trustee's February 2007 Memorandum makes two arguments regarding whether the Court's March 2005 Decision constituted an "impermissible post-confirmation modification of the Tioga Park plan."
First, the Trustee argues that his Rule 9019 Motion did nothing but seek approval of "negotiated payouts of monies due under the plan in the precise manner the plan authorized and had left unresolved as to the exact dollar amounts . . ." Trustee's February 2007 Memorandum, p. 3. The Trustee notes that the Tioga Park Plan, as amended on consent by the Court's May 17, 2004 Order ("Amending Order"), specifically requires that the 55% of the five year $100,000 annual consulting fee, which is to be paid into the bankruptcy estate of James and Lori Hawkins, "shall be discounted in accordance with present value and paid or escrowed for distribution on confirmation in such estate." Amending Order, ¶ (D)(1). The Trustee contends that the compromise contained in his Rule 9019 Motion, and the Court's approval of same, did exactly what the plan called for: it discounted the estate's share of the payments in accordance with present value. In doing so it did not modify the plan, but "simply carried through on [the Amended Tioga Park Plan's] express terms as amended by the Confirmation Order." Trustee's February 2007 Memorandum, p. 4.
The original Plan was submitted on March 10, 2004, entitled the Joint Chapter 11 Plan of Reorganization of Tioga Park, LLC. As mentioned, supra, that plan was amended by the Court's May 17, 2004 Amending Order. The entire plan was confirmed by the Court in its June 1, 2004 Order Approving Disclosure Statement and Confirming Joint Chapter 11 Plan of Reorganization ("Confirmation Order"). Hereinafter, this Plan, as amended by the Amending Order, will be referred to as the "Amended Tioga Park Plan." Where reference needs to made to that part of the Amended Tioga Park Plan contained only in the Court's May 17, 2004 Amending Order, the reference will read "Amending Order, ¶ ___."
The Amended Tioga Park Plan also requires that the 2% equity interest in Tioga Downs "shall be purchased by the post-confirmation transferee at its fair market value . . ." Amending Order, ¶ (D)(2). The Trustee contends that the compromise contained in his Rule 9019 Motion, and the Court's approval of same, did exactly what the plan called for: it set down a negotiated fair market value ($60,000.00) at which the 2% equity interest "shall be purchased by the post-confirmation transferee." In doing so, the Trustee contends that he did not modify the plan, but "simply carried through on [the Amended Tioga Park Plan's] express terms as amended by the Confirmation Order." Trustee's February 2007 Memorandum, p. 4.
The second argument made by the Trustee is that even if the Court's approval of the Trustee's Rule 9019 Motion did constitute a modification of the plan, it was not an impermissible modification. The Trustee contends that § 1127(b) of the U.S. Bankruptcy Code, 11 U.S.C. §§ 101- 1330 ("Code") allows modification of a plan after confirmation but before substantial consummation, and that the Amended Tioga Park Plan had not been substantially consummated at the time of the March 2005 Decision. As support for its contention that the Amended Tioga Park Plan had not been substantially consummated, the Trustee notes that no Final Decree had yet been issued by the Court, and that the United States Trustee continued to issue invoices for quarterly operating fees due in the Tioga Park case.
In fact, although not noted by the Trustee, the Amended Tioga Park Plan requires that "Debtor shall file an Application for Final Decree and Report of Substantial Consummation upon completion of all conveyances provided under the . . . plan and payment of all allowed claims in accordance with the distributions provided herein . . ." Amended Tioga Park Plan, Section VII. These conditions have not yet been met.
The Trustee also notes that Code § 1101(2)'s definition of substantial consummation requires: (A) transfer of all or substantially all of the property proposed by the plan to be transferred; (B) assumption by the debtor or by the successor to the debtor under the plan of the business or of the management of all or substantially all of the property dealt with by the plan; and (C) commencement of distribution under the plan. The Trustee argues that by these criteria the Amended Tioga Park Plan has not been substantially consummated.
Debtors' March 2007 Memorandum makes two arguments regarding the modification issue.
The first is that the Trustee's Rule 9019 Motion, and the Court's approval thereof, "gave away $100,000 of agreed upon money [ sic] to the estate of James and Lori Jo Hawkins, all of which would [otherwise] have gone to unsecured creditors." Debtors' March 2007 Memorandum, p. 2. This is also referred to in Debtors' papers as "the disappearance of $100,000.00 from the approved plan . . ." Id. at 1.
The second argument is a hodge-podge of allegations including the Trustee's ignoring a voidable foreclosure judgment, as well as the Trustee's arguing "against the interests of unsecured creditors in the determination of what was secured and what was not." Id. at 2. In perhaps the Debtors' only cogent argument on the modification issue, they make reference to the Amended Tioga Park Plan "call[ing] for the secured creditors to be paid pursuant to the security documents, not the foreclosure judgment or proof of claim. To the extent that the Trustee's compromise disregarded that specific provision of the plan, it was not a compromise but a modification." Id.
Lastly, the Debtors maintain that the Amended Tioga Park Plan had been substantially consummated at the time of the Trustee's Rule 9019 Motion because "the debtor had signed the deed to the new entity after confirmation of the plan, which was the transfer of substantially all of the property in Tioga Park. The new entity took over the operation of the real estate. The parties to the plan [then] commenced paying the individual debtor pursuant to the consulting agreement." Id. at 3.
In keeping with Debtors' unconventional litigation strategy, this is an argument Debtors not only neglected to make before this Court prior to appealing the March 2005 Decision, but even failed to include in their Appellants' Brief to the District Court (where the previously noted impermissible modification argument had its maiden appearance).
DISCUSSION
The remand from the District Court regarding the Court's March 2005 Decision was very specific. Because Debtors raised the issue "that the proposed relief [in the Trustee's Rule 9019 Motion] was contrary to the previously confirmed plan of Tioga Park . . ." ( In re Reserve Capital Corp., 2007 U.S. Dist Lexis 6908 * 19) this Court is to consider "whether the March 7, 2005 Order constituted an impermissible post-confirmation modification of the Tioga Park plan." Id.
As such, the Court will confine its analysis to the Amended Tioga Park Plan and the relief sought in the Trustee's Rule 9019 Motion in order to determine whether that relief constituted, first, any modification of the Amended Tioga Park Plan, and second, an impermissible modification of that Plan.
But first, it is worth quoting the District Court's decision in some detail in order to determine that court's concerns:
The Trustee's [Rule 9019 Motion] compromise appears to alter the rights of James Hawkins and the other estates from what was expected under the confirmed Tioga Park plan. For example, rather than receiving a 2% equity interest in Tioga Downs, under the compromise, Hawkins would receive $60,000. Irrespective of whether the $60,000 was a reasonable compromise of the claims, $60,000 may well be different than the 2% equity interest in Tioga Downs. Accordingly, the Bankruptcy Court's Order approving the [Trustee's Rule 9019] motion to compromise may be seen as an improper post-confirmation modification of the Tioga Park plan.
In re Reserve Capital Corp., 2007 U.S. Dist Lexis 6908 *18.
As this is the District Court's most detailed treatment of the purported differences between the Amended Tioga Park Plan and the relief requested in the Trustee's Rule 9019 Motion, the Court will commence its discussion with this provision.
The 2% Equity Interest
The Amended Tioga Park Plan states that:
The 2% equity interest to be conveyed by the post-confirmation transferee as an inducement for enhanced performance by the Consultant shall be purchased by the post-confirmation transferee at its fair market value as of the confirmation of the plan herein, and shall be paid to the Estate of James W. and Lori Jo Hawkins for distribution on confirmation in such Estate.
Amending Order, ¶ (D)(2) (emphasis added).
It seems to this Court that a plain reading of this provision requires that the estate's 2% equity interest be sold to the post-confirmation transferee for its fair market value.
Now, to examine the relief sought in the Trustee's Rule 9019 Motion on this matter:
With respect to the 2% equity interest in Tioga Downs Racetrack, LLC, the Trustee proposes to accept $60,000.00 for all of the estates' [ sic] right, title and interest in and to such equity.
Later, in the same motion, the Trustee noted that in arriving at the $60,000 figure he considered the fact that at that point in time the race track was not operating, and was not licensed for harness racing or OTB and VLT wagering. (According to an April 27, 2007 article in the CNY Business Journal, Tioga Downs opened its Video Gaming Parlor in July 2006, one month after opening for harness racing. This was well after the Trustee's November 2004 Rule 9019 Motion). The Trustee went on to note that the $60,000 figure is 2% of the approximately $3,000,000 reported to have been invested in the facility by its new owners by way of debt forgiveness.
Trustee's Rule 9019 Motion, ¶ 49.
Given that the Amended Tioga Park Plan explicitly calls for the estate's 2% equity interest in the track to be sold at fair market value, the reasoning behind the District Court's observation that "[i]rrespective of whether the $60,000 was a reasonable compromise of the claims, $60,000 may well be different than the 2% equity interest in Tioga Downs" is somewhat unclear. The $60,000 figure certainly is different from the 2% equity interest, but the Amended Tioga Park Plan's terms assume that the interest is fungible and quantifiable, and, specifically, require that the interest be sold at its fair market value, not that the estate retain the 2% interest.
The Trustee's Rule 9019 Motion in no way constitutes a modification of the Amended Tioga Park Plan with respect to the 2% equity interest. Rather, it actually fulfills the terms of that plan by seeking approval of the negotiated fair market value purchase of that interest specifically and explicitly called for in the Amended Tioga Park Plan itself.
The Estates' Share of the $100,000 Consulting Fee
The Amended Tioga Park Plan states that:
The amount payable to the Estate [55% of the annual consulting fee to James Hawkins] shall be discounted in accordance with present value and paid or escrowed for distribution . . .
Amending Order, ¶ (D)(1) (emphasis added).
As for the relief sought in the Trustee's Rule 9019 Motion on this matter:
With respect to the 55% interest of the estates in the $100,000.00 annual consultant's fee, the Trustee proposes to accept a lump sum of $250,000.00 in full satisfaction of such amounts.
Later in the same motion the Trustee noted that $250,000 is reasonable because BSB Bank Trust's own "in house review of the present value issue" (attached as Exhibit `10' to the Trustee's Motion) showed that the present value ("PV") of $275,000 over five years at a 2% discount rate came to approximately $250,000. The Court notes, however, that because this scenario involves a stream of five annual payments of $55,000, the present value of an annuity (five annual payments of $55,000, rather than a lump sum of $275,000 at the end of five years) would be a more appropriate measure of these payments' PV. Using BSB's 2% discount rate, that PV comes to $259,240.27. This difference becomes immaterial, however, because when a more realistic discount rate of 5% is used a PV of $238,121.22 results. And if even a small amount of uncertainty regarding the post-confirmation transferee's ability to successfully make each of those five payments in a timely manner were to be taken into account, that $238,121.22 figure would decrease even further. Thus the Court believes the $250,000 figure to be a reasonable one.
Trustee's Rule 9019 Motion, ¶ 48.
Here again it seems that a plain reading of the two documents reveals that the Trustee has proposed to discount a stream of annual payments into one lump sum amount of $250,000, precisely fulfilling the Amended Tioga Park Plan's express requirement that the annual payments "shall be discounted in accordance with present value and paid . . ." The relief sought in the Trustee's Rule 9019 Motion can in no way be construed as a modification of the Amended Tioga Park Plan with respect to the estates' interest in the annual $100,000 consulting fee payments. As with the 2% equity interest provision, the Trustee's Rule 9019 Motion seeks approval of actions specifically and explicitly called for in, and required by, the Amended Tioga Park Plan itself, even though those actions may not meet with the approval of James W. and Lori Jo Hawkins.
The Debtors argue that the Trustee's Rule 9019 Motion, and the Court's March 2005 Decision, "gave away $100,000 of agreed upon money [ sic] to the estate of James and Lori Jo Hawkins, all of which would [otherwise] have gone to unsecured creditors." Debtors' March 2007 Memorandum, p. 2. This is not the case. The Trustee's Rule 9019 Motion and the March 2005 Decision both leave the $100,000 provision in the Disclosure Statement/Memorandum Agreement completely unaltered.
Debtors are referring to provisions in Sections III and IV of a Memorandum Agreement executed on March 5, 2004 which was appended to the Disclosure Statement and which provides for the obligations of each party under the Amended Tioga Park Plan. Sections III and IV of the Memorandum Agreement call for Asolare to sell the Hawkins' personal residence (conveyed to Asolare in partial satisfaction of its secured claim) back to the Hawkins for $100,000.00. This sum was to be loaned to the Hawkins by the post-confirmation transferees and secured by a mortgage on the personal residence.
The Debtors also argue that because the Trustee's Rule 9019 Motion disregarded that provision of the Amended Tioga Park Plan "call[ing] for the secured creditors to be paid pursuant to the security documents, not the foreclosure judgment or proof of claim," it was a modification of the Amended Tioga Park Plan. Debtors' March 2007 Memorandum, p. 2.
This contention fails on several fronts, but only two will be addressed here. First, from a logical perspective, the Trustee's Rule 9019 Motion left unaltered many provisions of the Amended Tioga Park Plan. It addressed only those provisions of the Amended Tioga Park Plan that concerned the compromises for which the Motion sought approval. It did not violate any provisions of the Amended Tioga Park Plan, but it left many unaltered. Second, any discussion of a purported conflict between the security documents and a foreclosure judgment or proof of claim simply fails to address the District Court's instruction to this Court to consider "whether the March 7, 2005 Order constituted an impermissible post-confirmation modification of the [Amended Tioga Park Plan]." District Court Decision, p. 19. However, the Trustee's Rule 9019 Motion does not mention this conflict. The Court is unable to see any connection between the Trustee's Rule 9019 Motion and this conflict. Most importantly, Debtors have not made even a weak argument that such a conflict, if in fact it exists, has anything to do with the Trustee's Rule 9019 Motion or the March 2005 Decision as constituting an impermissible modification to the Amended Tioga Park Plan.
The Debtors have at least advanced a viable argument when they allege that the Amended Tioga Park Plan has been substantially consummated. The merits of this argument are addressed infra.
Confirmation Order
Although not addressed by the parties in their papers or at oral argument, the Court's June 1, 2004 Confirmation Order expressly found that
any of the agreements entered into by the Debtor as expressly referenced and incorporated in the Disclosure Statement and Joint Plan, and any agreement contemplated pursuant to the terms of the confirmed Joint Plan are hereby deemed authorized and approved . . .
Confirmation Order, p. 4 (emphasis added).
The discounting of the estates' interest in the annual $100,000 Consulting Fee as well as the liquidation of the 2% equity interest in Tioga Downs, are clearly "agreement[s] contemplated pursuant to the terms of the [Amended Tioga Park Plan]" which were, as a result, "deemed authorized and approved" by this Court's Confirmation Order. In light of this explicit approval of these obviously contemplated agreements, the Court is unable to envision any scenario under which the compromises contained in the Trustee's Rule 9019 Motion could constitute modifications of any sort to the Amended Tioga Park Plan.
Case Law
Judge Kahn correctly observed that a settlement agreement cannot modify a confirmed plan that has been substantially consummated, and that only a plan proponent or the debtor can modify a confirmed plan. Code § 1127(b) reads, in relevant part: "The proponent of a plan or the reorganized debtor may modify such plan at any time after confirmation of such plan and before substantial consummation of such plan . . . "
Therefore, if the compromise constitutes a modification to the Amended Tioga Park Plan, it is still permissible unless it either comes after the plan has been substantially consummated, or if it is proposed by a person other than the plan proponent or the reorganized debtor. By the same logic, if the compromise does not constitute a modification to the Amended Tioga Park Plan, the issues of whether or not the Trustee is a plan proponent, or whether the Plan was substantially consummated at the time, will be moot.
In In re Ionosphere Clubs, Inc. 208 B.R. 812 (S.D.N.Y. 1997), the plan called for the debtor to relinquish its right of first refusal to purchase certain leased real property. In a later settlement agreement with the landlord, the parties agreed that under certain circumstances, the debtor's right of first refusal would be reinstated. The court found, however, that to "modify a provision that explicitly was incorporated into a reorganization plan as occurred here would permit circumvention of the bankruptcy process." Id. at 816. The court held both that the proposal was a modification, and that the plan had been substantially consummated.
In In re Northwestern Corporation, 2005 Bankr. Lexis 367 (Bankr. D. Del. 2005), the court examined a settlement agreement reached by the debtor, an indenture trustee administering subordinated notes, and the holders of those notes. The court held that in addition to coming after the plan had been substantially consummated, the settlement directly violated the terms of the plan because the plan prohibited such a settlement where two classes of creditors objected, as they did in that case.
In In re Joint Eastern and Southern District Asbestos Litigation, 982 F.2d 721 (2d Cir. 1992), the lower court, which had restructured a settlement trust out of which asbestos claimants were to be paid, found that the restructuring was not a modification of the plan. The Second Circuit Court of Appeals held, however, that because the plan required payment in full of all of one class's allowed claims, while the restructuring effectively altered that payment right, the restructuring was a modification; and because the plan had been substantially consummated, the modification was impermissible.
Each of these cases stands for the proposition that no settlement or court order that constitutes a modification can alter a confirmed plan of reorganization post substantial consummation.
What distinguishes each of these cases, however, is that each proposed action involved a specific contravention of a confirmed plan; in In re Ionosphere Clubs, Inc. it was the reinstatement of a right of first refusal which the plan had specifically done away with; in In re Northwestern Corporation it was a settlement which directly violated the plan by ignoring the objections of two classes of creditors; in In re Joint Eastern and Southern District Asbestos Litigation it was a settlement which altered a class's payment rights as set out in the plan.
There are other cases, however, which address actions the parties or the bankruptcy court can take with respect to a plan which do not rise to the level of a plan modification.
In In re Mirant Corporation, 348 B.R. 725 (N.D. Tex. 2006) a complex settlement between the debtor Mirant Corp. and the Potomac Electric Power Co. was objected to because, inter alia, it purportedly represented an impermissible modification of the plan. The objectors contended that this was so because the treatment of Potomac Electric's claims under the settlement differed from that set out in the plan. The Mirant court disagreed, noting that "the plan specifically allows for settlement among Mirant and [Potomac Electric]" Mirant, 348 B.R. at 735. "No term of the plan will be changed [by the settlement]." Id. "The settlement requires no change to any provision of the plan." Id. The court also noted that the only requirement for a settlement under the relevant section of the plan was that it be "negotiated." Id. at 737. Most relevant to the instant case, however, was the court's opining that
[i]t is logical that the plan be read to allow flexibility in settling with Potomac Electric. . . . To have created in the plan rigid limitations on the form of settlement would surely have frustrated any negotiations between the parties to resolve their differences by agreement. Settlement of disputes such as those addressed in the motions should be encouraged.
Id.
The Mirant court held that the proposed settlement did not constitute a modification to the plan because it did not change any provision of the plan.
"Section 1127 does not define the term `modification,' nor does the definitional section of chapter eleven." In re Johns-Manville Corporation, 920 F.2d 121, 128 (2d Cir. 1990). See also In re Ampace Corporation, 279 B.R. 145, 152-53 (Bankr. Del. 2002) (opining that "although `modification' is not defined in the Bankruptcy Code, courts that have analyzed the issue of whether a subsequent change to a confirmed plan of reorganization constitutes a `modification' distinguish between the courts' inability to `modify' a plan and their ability to `clarify a plan where it is silent or ambiguous,' and/or `interpret' plan provisions to further equitable concerns.")
In fact, in at least one case, even where a plan provision was altered, it was held that the action did not constitute an improper modification. In In re Beal Bank, S.S.B., 201 B.R. 376 (E.D. Pa. 1996) the bankruptcy court approved a settlement and entered a post-confirmation order which 1) extended the deadline in which the debtor could make a $100,000 payment to Beal Bank pursuant to the plan, 2) ordered the debtor to make the payment, and 3) required Beal Bank to assign its mortgage and note to creditor Bombardier Capital once the payment had been made. Despite objections that these actions modified the plan in violation of Code § 1127, the district court held that the bankruptcy court acted "not to modify the plan, but to protect it and to aid in its implementation." Id. at 379. The court noted that "a bankruptcy court may clarify a plan where it is silent or ambiguous [and] can also use this authority to `interpret' plan provisions to further equitable concerns . . ." Id. at 380.
But most relevant to the instant case is the Second Circuit Court of Appeals' decision in In re Johns-Manville Corporation. In that case the trustees of a property damage settlement trust ("PD Trust" and "PD Trustees") applied for and received from the bankruptcy court an order suspending payments to claimants from the PD Trust during times when there would be insufficient income from the trust to make those payments and still maintain authorized reserves. Various claimants objected, arguing, inter alia, that this amounted to a modification of a substantially consummated plan, violating Code § 1127(b) because it would irreparably harm holders of unfiled property damage claims. The Second Circuit Court of Appeals (not reaching the issue of substantial consummation) found, however, that this suspension of claims payments was merely "a variation . . . with respect to the timing and intensity of claims processing [in which] [t]he substantive rights of the claimants remain unchanged . . ." In re Johns-Manville Corporation, 920 F.2d at 128-29.
Moreover, and similar to the facts in the instant case, the Second Circuit Court of Appeals found that the debtor's plan "expressly grants the PD Trustees discretion to suspend operation of the PD [Trust], provided that such suspension constitutes a procedural, rather than substantive, change." Id. at 128.
Just so in the Amended Tioga Park Plan. As stated supra, the Plan expressly calls for the liquidation of the 2% equity interest at fair market value, and for the estate's share of the annual $100,000 Consulting Fee to be discounted using present value methods. The relief requested in the Trustee's Rule 9019 Motion accomplishes exactly these objectives. Thus, the compromise proposed by the Trustee does not rise to the level of a plan modification.
Because this Court finds that the compromise set out in Trustee's Rule 9019 Motion and in the March 2005 Decision does not constitute a modification to the Amended Tioga Park Plan, it does not matter whether the Plan had been substantially consummated or not. See In re Johns-Manville Corporation, 920 F.2d at 128 (finding that "we need not address the question of consummation, because we agree with the district court that `the proposed lowering of the voltage in the processing of claims is not a modification pursuant to the terms of the . . . bankruptcy statute'").
For the same reasons, the issue as to whether the Trustee has standing as debtor or a plan proponent to propose a plan modification is similarly moot.
For the reasons set out above, and upon remand from the District Court, it is hereby
ORDERED that the settlement set out in the Trustee's Rule 9019 Motion and this Court's March 2005 Decision does not constitute a post-confirmation modification, impermissible or otherwise, of the Amended Tioga Park Plan.