Including information about his associates
A. The Bankruptcy Court erred in its order of June 20, 2001 in imposing retroactively, or at all, liens on the Debtor when such liens were not recorded, and determining that these liens extended not only to assets held at the time the Debtor’s prior Second Amended Plan was confirmed but also to replacements including cash and proceeds, when such language nowhere appeared in the Debtor’s confirmed Plan.
B. The Bankruptcy Court erred in its ruling of June 20, 2001 determining such liens extended to the debtor’s cash and determining that the Debtor could not use its cash to pay payroll or other operational costs in the Chapter 11.
C. The Bankruptcy Court erred in its ruling of June 20, 2001, in determining that such liens extended to subscription receipts paid post confirmation in good faith by subscribers not involved in the prior bankruptcy filing and without record notice
D. The Bankruptcy Court erred in determining that the December 15, 2000 order of the California Court was valid and res judicata, despite the fact that it effectively abnegated the rights of the Debtor under the confirmed Second Amended Plan, while at the same time preventing the Debtor from proceeding with this second Chapter 11 case on the grounds that it constitutes a serial filing.
E. The December 15, 2000 order of the Superior Court of California for the County of San Diego was controlled by sections 1688 et seq. of the California Civil Code, the provisions of which preclude the Legion for the Survival of Freedom, Inc., after having elected the remedy of recission, from thereafter asserting any rights it obtained by or through the rescinded Forbearance and Settlement Agreement, including the right to enforce any obligations of the Debtor under the confirmed Second Amended Plan which were predicated upon the Settlement Agreement.
F. The California Court’s ruling could not have a res judicata effect, because it did not have proper jurisdiction to set aside a final Federal court order of confirmatione
G. The Bankruptcy Court erred in its ruling of July 2, 2000 in determining that the December 15, 2000 order of the California Court was not controlled by the provisions of Sections 1688 et seq. of the California Civil Code, which laws prohibited the Legion for the Survival of Freedom, Inc., after electing the remedy of recission, to assert any rights obtained by or through the rescinded Forbearance and Settlement Agreement, including the enforcement of obligations of the Debtor that arose by virtue of such Agreement, including rights under the Debtor’s confirmed Plan.
H. The Bankruptcy Court erred in its July 2, 2000 ruling in determining that this was a serial filing and a serial filing prohibited under applicable bankruptcy law.
I. The Bankruptcy Court erred in its ruling of July 2, 2000 in determining that the possibility, while the Debtor’s plan payments were fully current, that a state court would set aside the Forbearance Agreement was an obvious known risk
of default.
J. The Bankruptcy Court erred in its July 2, 2000 ruling when it determined the Debtor’s present subscribers who were not creditors in the former case, but who had replaced those subscriber creditors over the intervening two years, and whose collective debt exceeded $2 million on the date of filing, were not new creditors and new debt such that this case involves a material change of circumstances.
K.Should the Legion for the Survival of Freedom, Inc., be determined to be a secured creditor under the retroactively court imposed liens (discussed above), the status of the debt to the Legion itself both in amount and priority as a secured creditor in this case is so different as to constitute a material change in circumstances, moreover the Debtors new plan would not alter materially the terms of the former plan.
6.CONCLUSION
TABLE OF CASES AND STATUTORY CITATIONS
CONSOLIDATED BRIEF OF APPELLANT
Cases:
Statutes:
Bankruptcy Rules:
Treatises:
| In re:
LIBERTY LOBBY, INC.,: Debtor |
Civil Action No. 01-1505(GK) :Civil Action No. 01-1506(GK) :Bankruptcy Case No. 01-1234:(Chapter 11) |
|
LIBERTY LOBBY, INC. Appellant v.
LEGION FOR THE SURVIVAL : Appellee |
CONSOLIDATED BRIEF OF APPELLANT |
COMES NOW Liberty Lobby, Inc., the Appellant-Debtor and in support of its Appeals of the Decisions of the United States Bankruptcy Court for the District of Columbia in Bankruptcy Case No. No. 01-1234 (Chapter 11), states as follows:
1.STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION
a.JURISDICTION IN THE BANKRUPTCY COURT
Jurisdiction in the Bankruptcy Court is based on 11 U.S.C. § 105(a) and (c) and 28 U.S.C. §§ 157(a) and (b) and 1334.
b.JURISDICTION IN THE DISTRICT COURT
Jurisdiction in the District Court is based on 28 U.S.C. § 158(a).
2.STATEMENT OF THE ISSUES
This brief is a consolidated brief with regard to two appeals Nos. 01-1505 and 01-1506 taken from orders entered in the above bankruptcy case on June 20 and July 2, 2001 with common facts and related and in part overlapping arguments. The issues to be presented on appeal are:
A. Whether the Bankruptcy Court erred in its order of June 20, 2001 in imposing retroactively, or at all, liens on the Debtor when such liens were not recorded, and determining that these liens extended not only to assets held at the time the Debtor’s prior Second Amended Plan was confirmed but also to replacements including cash and proceeds, when such language nowhere appeared in the Debtor’s confirmed Second Amended Plan.
B.Whether the Bankruptcy Court erred in its order of June 20, 2001 in determining such liens extended to the Debtor’s cash and determining that the Debtor could not use its cash to pay payroll or other operational costs in the Chapter 11.
C.Whether the Bankruptcy Court erred in its order of June 20, 2001 in determining that such liens extended to subscription receipts paid post confirmation in good faith by subscribers not involved in the prior bankruptcy filing without record notice.
D.Whether the Bankruptcy Court erred in its order of July 2, 2001 in determining the December 15, 2000 decision of the Superior Court of California for the County of San Diego vacating the Forbearance and Settlement Agreement and Mutual General Release, was valid and was res judicata such that it terminated the rights of the Debtor under its confirmed Second Amended Plan but nevertheless prevented the Debtor from prosecuting this second Chapter 11 case as a serial filing.
E.Whether the Bankruptcy Court erred in its order of July 2, 2001 in determining the December 15, 2000 decision of the Superior Court of California setting aside the aforesaid Forbearance and Settlement Agreement constituted res judicata as to the issue of whether the Debtor was in default under the Debtor’s Second Amended Plan, when a default in the Plan was not at issue in the California court.
F.Whether, if the California Court’s ruling could have a res judicata effect, the Bankruptcy Court was correct in its ruling of July 2, 2001 that the California court had proper jurisdiction to set aside a final Federal court order of confirmation.
G.Whether the Bankruptcy Court erred in its order of July 2, 2001 in determining that the December 15, 2000 order of the California Court was not controlled by the provisions of Sections 1688 et seq. of the California Civil Code, which laws prohibited the Legion for the Survival of Freedom, Inc. after electing the remedy of recision, to assert any rights obtained by or through the rescinded Forbearance and Settlement Agreement, including the enforcement of obligations of the Debtor that arose by virtue of such Agreement, including any of the Legion’s rights under the Debtor’s confirmed Second Amended Plan.
H.Whether the Bankruptcy Court erred in its order of July 2, 2001 in determining that this was a serial filing prohibited under applicable bankruptcy law.
I.Whether the Bankruptcy Court erred in its order of July 2, 2001 in determining that the possibility, while the Debtor’s plan payments were fully current, that a state court would set aside the Forbearance Agreement was an obvious known risk
of default.
J.Whether the Bankruptcy Court erred in its order of July 2, 2001 when it determined the Debtor’s present subscribers who were not creditors in the former case, but who had replaced those subscriber creditors over the intervening two years, and whose collective debt exceeded $2 million on the date of filing, were not new creditors owed new debt such that this case involves a material change of circumstances.
K.Whether, similarly, that the Legion for the Survival of Freedom, Inc., if now a secured creditor under the retroactively court imposed liens, was itself not in a position or priority in this case so different from the former case as to constitute a material change in circumstances.
3.STATEMENT OF APPLICABLE STANDARDS FOR REVIEW
The facts in this case are not in dispute and were largely stipulated at the hearings. As to findings of facts, the standard for review is clearly erroneous,
(Fed.R.Bankr. P. 8013), U.S. v. INSLAW, Inc., 113 B.R. 802 (D.D.C. 1989) but as to review of the Bankruptcy Court’s conclusions of law, the standard is de novo.
In re Montgomery, 37 F.3rd 413 (6th Cir. 1988).
4.STATEMENT OF FACTS and PROCEDURAL HISTORY
The Debtor-Appellant (Debtor
) is a District of Columbia nonprofit corporation founded in 1962 employing 23 full time employees and 6 consultants. Liberty Lobby, Inc. attempts to influence governmental action and public opinion. These activities are conducted through the publication and circulation of its weekly newspaper, The Spotlight, the sale of books, and by direct lobbying.
Debtor receives funds primarily from subscriptions to The Spotlight weekly newspaper, advertising, rental of mailing list, contributions, and the Board of Policy membership dues.
Debtor had been financially sound throughout its existence until November 26, 1996. At that time, as a result of a law suit (Case No. N64584 in Superior Court for California, County of San Diego, North County District) a judgment was entered against the Debtor in the amount of $2,650,000 plus 10% interest from June 1, 1993 in favor of the Plaintiff, The Legion for the Survival of Freedom, Inc. (the Legion
).
On November 21, 1996, the Superior Court of California for San Diego County in the matter of Legion for the Survival of Freedom, Inc, a Texas Corporation v. Willis Carto et al., Civil No. N 64584, entered a judgment against the Debtor in the amount of $2,650,000 plus interest from 1/1/91 ($1,030,958.90) or a total of $3,680,958.90, which, up to the date of filing the first Chapter 11 petition, totaled a liquidated indebtedness of approximately $4,072287.70.
In the same litigation a judgment in the amount of $6,430,000.00 plus interest from 1/1/91 ($2,501,534.30), or a total of $8,931,534.30, was entered by the San Diego court against Willis Carto, the Treasurer and Chief Executive Officer of the Debtor; his wife, Elisabeth Carto; Lewis Furr; and his wife, LaVonne Furr.
In an attempt to execute upon the judgment, a California Receiver was appointed by the California trial court. The Receiver came to the District of Columbia and seized all of Debtor’s mail from the U.S. Postal Service. After unsuccessfully attempting to stop the mail seizure, the Debtor’s first Chapter 11 bankruptcy was filed to stop the mail seizure and to seek the protection of the Bankruptcy Court.
After lengthy negotiations during the pendency of the Chapter 11, Liberty entered into a comprehensive settlement agreement with the Legion entitled Forbearance and Settlement Agreement and Mutual General Release
(the Settlement Agreement
).
The Settlement Agreement was noticed to all creditors and approved by the Bankruptcy Court by order entered August 31, 1999. The approved Agreement became the basis of the Second Amended Plan of Reorganization which was confirmed by this Court on October 26, 1999. The Legion supported the Plan and voted its two claims for the Plan’s approval. It should be noted that the Plan confirmed by this Court did not fully incorporate the Settlement Agreement, but did incorporate its payment provisions, and its confirmation was fully supported by the Legion.
The Debtor has made all payments specified in the Plan through June 1, 2001. The Debtor paid all other allowed claims of all other impaired creditors and, to date, the Debtor has paid $520,000.00 to the Legion.
In addition, the Debtor has assigned its interest in the Estate of William G. Kefer, now pending in the Superior Court for Essex County, New Jersey. The estate is currently valued at $1.8 million, with a minimum due to the Debtor, after all taxes, costs and expenses, of more than $800,000 dollars. Distribution is expected within the year. The payments made by the Debtor to the Legion under the Second Amended Plan are more than double the $203,222 liquidation value of all Debtor’s assets, provided in the Debtor’s Second Disclosure Statement for the prior Plan. Therefore, it is clear that something other than protection of its economic interest has been the focus of Legion’s activities since confirmation.
Perhaps because it was now close to payment in full, the Legion, ignoring the effect and existence of confirmation of the Debtor’s Plan by the Bankruptcy Court, sought the rescission of the settlement rather than its enforcement. And instead of taking any issue it may have with the Debtor before the Bankruptcy Court, the Legion filed an action in the California Superior Court for San Diego County and obtained an order finding the Debtor in breach of the Settlement Agreement, setting it aside, and permitting the Legion to immediately collect the full amount of the original judgment.
Upon the Debtor’s request, the Bankruptcy Court reopened the case which had been closed by order of August 8, 2000, as substantially consummated. In the reopened case, the Debtor sought relief from the effect of the California order and authority from the Bankruptcy Court to complete its plan on an expedited basis. That relief was denied on the basis that Debtor’s case had been substantially consummated. Upon the Debtor’s request, the order reopening the case was set aside.
The present or second case was then filed by the Debtor on June 8, 2001 to seek the relief that had been barred by the substantial completion of the former plan.
By order entered on the 20th day of June, 2001, the Bankruptcy Court denied the Debtor’s motion to pay pre-petition payroll and granted the Legion retroactive liens in all the assets of the Debtor.
Although the Debtor’s Second Amended Plan provided that UCC-1’s would be filed to secure the debt of the Legion, no filing had been requested by the Legion post- confirmation and no financing statement was filed prior to the filing of this case. At the hearing on the Debtor’s motion for authority to pay pre-petition payroll, the Bankruptcy Court denied the motion and ruled that even though the Legion did not have a filed UCC-1, it had a lien on all Liberty Lobby’s assets and their replacements post- confirmation including all of the Debtor’s cash, and directed that the Debtor could not expend any of its cash for operating costs postpetition.
By order entered on the 2nd day of July, 2001, the Bankruptcy Court dismissed this case. At the hearing (June 27, 2001), the Bankruptcy Court ruled from the bench that the decision of the California state court was res judicata and had the effect of taking the issue of the validity of the action of that court out of the hands of the Bankruptcy Court, and dismissed this case as a serial filing and an abuse of the bankruptcy law. Appeals were taken from both orders.
5.ARGUMENT
A. The Bankruptcy Court erred in its order of June 20, 2001 in imposing retroactively, or at all, liens on the Debtor when such liens were not recorded, and determining that these liens extended not only to assets held at the time the Debtor’s prior Second Amended Plan was confirmed but also to replacements including cash and proceeds, when such language nowhere appeared in the Debtor’s confirmed Plan.
The Debtor’s confirmed plan contained the following language:
7.02 Lien Created. As security for performance under this Plan, the full indebtedness to the Legion and to all other creditors, who do not receive all payments due them under the Plan on the Effective Date, shall be secured by lien and security interest, which shall be perfected by filing and recording of a mortgage or deed of trust with respect to any real property and the filing of a financing statement (UCC-1) with respect to all other property of the Debtor, with the exception of the Debtor’s interest in the Kefer Estate, and the execution of documents which might otherwise be required under non-bankruptcy laws for the perfection of said interest. The amount of the lien shall be the full amount of the original indebtedness less any payments made, which lien or security interest shall be deemed to be immediately released upon full pay out of Pro Rata payments due to the Creditor under the Plan. The Debtor’s interest in the Kefer Estate is dedicated to payment of the allowed claim of the Legion and may be assigned to the Legion, at the Legion’s request. It shall not be available as security for the payments due to the Class 2 claimants.
No such lien or liens were ever filed or perfected during the pendency of the original case, nor had any such recording been requested of the Debtor prior to filing of this second case. The provision of the United States Code, 11 U.S.C. § 544(a) was then fully effective. Under that section, Liberty Lobby, as debtor in possession, had all the rights of a trustee (11 U.S.C.§ 1107) without regard to any knowledge of the trustee or of any creditor
just as a subsequent purchaser for value or judgment creditor would to avoid the contract obligation under the former Plan which was not perfected. The Court had no authority by statute or under case law to retroactively, post filing, to impose liens that were never perfected by filing and recording of a mortgage or deed of trust with respect to any real property and the filing of a financing statement (UCC-1)
as required by the former Plan. See D.C. Code § 28:9-301.
B.The Bankruptcy Court erred in its ruling of June 20, 2001 determining such liens extended to the Debtor’s cash and determining that the Debtor could not use its cash to pay payroll or other operational costs in the Chapter 11.
The Bankruptcy Court has no authority under the Bankruptcy Code or under District of Columbia law to rewrite the plan provisions to impose such a retroactive lien on after-acquired cash obtained by the sale post-confirmation of subscriptions and after acquired property, when no such provision was provided for in the Plan and where there is no mention of a lien on general intangibles, cash, after acquired property, replacements or additions. D.C. Code § 28:9-203 requires that for a security interest to arise, the security agreement must contains a description of the collateral. No such description appears in the Plan. The plan language is clear. There is no express or implied intent to create a lien on after acquired property, general intangibles or additions or replacements to the Debtor’s cash. D.C. Code § 28:9-204 requires that a lien on after acquired collateral be specified in the security agreement.
The Bankruptcy Court, as a unit of the District Court, is also a court of limited jurisdiction, see generally Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375, 128 L.Ed2d 391, 114 S.Ct. 1673 (1994) and does not have jurisdiction to to override statutes and create for the Debtor a bargain it did not make.
C. The Bankruptcy Court erred in its ruling of June 20, 2001, in determining such liens extended to subscription receipts paid post confirmation in good faith by subscribers not involved in the prior bankruptcy filing and without record notice.
Subscription payments and sales fall within the meaning of proceeds
as defined in D.C. Code § 28:9-306. Proceeds must be specified in the security agreement, but if a financing statement so providing is not recorded, any lien on proceeds ceases after 10 days. Therefore, the retroactive imposition of a lien on all the Debtor’s after acquired cash subscription receipts could not be legally effective. Subscribers had the right to expect that their annual subscription payments would be free of any lien that was not properly perfected as required by law.
D.The Bankruptcy Court erred in determining that the December 15, 2000 order of the California Court was valid and res judicata, despite the fact that it effectively abnegated the rights of the Debtor under the confirmed Second Amended Plan, while at the same time preventing the Debtor from proceeding with this second Chapter 11 case on the grounds that it constitutes a serial filing.
The Bankruptcy Court erred in accepting the validity of, and according res judicata treatment to, the California Order. The effect of the California action brought by the Legion, and of the resulting California Order, was to eviscerate the confirmed Second Amended Plan. That being so, the California Order was invalid and certainly not entitled to be afforded to res judicata treatment by the Bankruptcy Court. Indeed, the California action could have been enjoined by the Bankruptcy Court.
As noted earlier, the Debtor’s 1998 Chapter 11 filing was entirely the result of the financial difficulties it incurred by reason of the $2.65 million California state court judgment obtained against it by the Legion. The Legion judgment debt was the overriding focus of the Chapter 11 proceeding, and the Settlement Agreement addressing the judgment debt was at the core of the Second Amended Plan. While the Settlement Agreement was not expressly incorporated into the Second Amended Plan, its provisions with respect to payment of the judgment were.
The Settlement Agreement and the Second Amended Plan cannot be viewed separately. When the California court issued the Order rescinding the Agreement, it effectively rescinded the Plan as well, which it was manifestly without power to do. The California Order was thus entirely invalid.
A bankruptcy court has jurisdiction to enforce a settlement agreement which was executed under its auspices, and was approved by the court, and subsequently became the basis for an order confirming the plan of reorganization. In re Stokes, 198 B.R. 168 (E.D. Va. 1996). This power arises both as an aspect of the court’s inherent jurisdiction and pursuant to its statutory powers under § 105(a) of the Bankruptcy Code to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.
Stokes. Cf. In re Apollo Molded Products, Inc., 83 B.R. 189 (Bankr. D. Mass. 1988) (bankruptcy court’s power under § 105 includes authority to enjoin litigants from pursuing actions in other courts that threaten integrity of debtor’s estate). Accord Matter of Management Technology Corp., 56 B.R. 337 (Bankr. D.N.J. 1985). Such a power vested within a bankruptcy court would be rendered meaningless were a state court able, post-confirmation, not only to block enforcement of a settlement agreement, but to rescind it entirely.
The California Order would also appear to be invalid under § 1141(a) of the Bankruptcy Code, which provides in pertinent part that the provisions of a confirmed plan bind the debtor … and any creditor …
A creditor whose claim is provided for in a reorganization plan cannot attempt, post-confirmation, to enhance its position vis-a-vis the debtor by availing itself of state laws or state courts. Cf. Virginia Dept. of Medical Assistance Services v. Shenandoah Realty Partners, L.P., 248 B.R. 505 (W.D. Va. 2000) (bankruptcy court may enjoin state medical agency from collecting certain Medicaid monies from assets of reorganized debtor pursuant to state law, since Bankruptcy Code § 1141 preempts state law).
Lacking validity, the California Order was manifestly not entitled to res judicata treatment. It is axiomatic that a court ruling may be afforded res judicata treatment in a later proceeding only if the earlier proceeding was properly within the court’s jurisdiction. In re Convertible Rowing Exerciser Patent Litigation, 814 F. Supp. 1197 (D.Del. 1993). [R]es judicata will not preclude a second suit between the same parties if the forum in which the first action was brought did not have jurisdiction to adjudicate the action; stated another way, judgments entered by a court without subject matter jurisdiction are void and subject to collateral attack.
Ryan v. Ryan, 600 N.W.2d 739, 744 (Neb. 1999).
Indeed, the Bankruptcy Court’s affording the California Order res judicata treatment stands the matter on its head. The confirmed Second Amended Plan should have been afforded res judicata treatment in the California action, precluding the California court from ordering the rescission of the Settlement Agreement.
The confirmation of a plan operates as a final judgment, which is entitled to res judicata treatment. In re Varat Enterprises, 81 F.3d 1310 (4th Cir. 1996); In re Holly’s, Inc., 178 B.R. 711 (W.D. Mich. 1995). Cf. Celotex Corp. v. Edwards, 514 U.S. 300, 115 S.Ct. 1493 (1995) (validity of bankruptcy court injunction may not be collaterally attacked in another court). Although the Settlement Agreement was not expressly incorporated into the confirmed Second Amended Plan, its payment provisions were. Given the overarching centrality of the Legion judgment and the Settlement Agreement in the original Chapter 11 proceeding, the judicial rescission of the Settlement Agreement by the California court was clearly tantamount to a collateral attack on the Second Amended Plan.
But even if the Bankruptcy Court was correct in deeming the California Order valid, it nonetheless cannot, consistently therewith, treat the instant Chapter 11 proceeding as an impermissible serial filing.
By acquiescing in the purported validity of the California Order and affording it res judicata treatment, the Bankruptcy Court has entirely abnegated the relief sought and obtained by the Debtor in its original Chapter 11 proceeding. It is beyond cavil that the Debtor sought Chapter 11 relief in the first instance in 1998 only because of the financial burdens created by the Legion’s $2.65 million California state court judgment. Obtaining Bankruptcy Court approval of the Settlement Agreement and having the payment provisions thereof incorporated into the confirmed Second Amended Plan represented, in substance, the entire point of the Debtor’s first Chapter 11 filing. With the rescission of the Settlement Agreement, the Second Amended Plan became an empty shell.
By deeming itself bound by the California Order, the Bankruptcy Court has placed the Debtor in as bad — or arguably a worse — position than it was prior to the 1998 filing. Debtor believes that the Bankruptcy Court erred in so doing. But the Bankruptcy Court has gone beyond this to greatly compound the error. Having effectively rendered the confirmed Second Amended Plan nugatory - and having allowed the Debtor to be entirely stripped of the relief afforded by the first Chapter 11 proceeding - the Court also, incomprehensibly, dismisses the instant Chapter 11 proceeding as a serial filing.
The point is so manifestly clear as to require no citation to authority. It is a matter of logic and fundamental fairness. If, as a result of the California Order, the original Chapter 11 proceeding has been effectively rendered a nullity, the instant Chapter 11 cannot be deemed a serial filing.
While the Bankruptcy Court ruled that …[T]he judgment in the Court in California has to be given full faith and credit.
6/6/01 Hearing, T-42. The judgment given such credit may extend only to the specific terms of that judgment. The language of that judgment order is short and specific:
The Court, having reviewed all the documents submitted and having reviewed the files makes the following order:
This Court has never relinquished jurisdiction over the parties.
The agreement of May 1999 between the parties is a Forbearance Agreement. The defendants are in breach of the Forbearance Agreement by: filing a new lawsuit against the Legion for the Survival of Freedom in Washington, D.C., after the date of the Forbearance Agreement, failing to pay interest payments, failing to pay the penalties which became due when the defendants failed to dismiss all lawsuits by June 1, 2000.
In review of the substantial breaches of the Forbearance Agreement the Court makes no determination whether or not the defendants are in substantial breach of other portions of the Forbearance Agreement.
The Forbearance Agreement is hereby set aside and plaintiff may proceed to collect on the judgment.
Nowhere is there to be found in the order of the California Superior Court any mention of its effect on the Debtor’s Confirmed Plan. Nor did the Bankruptcy Court make such a determination at the June 6, 2001, hearing, in which it found generally that it was too late for the Debtor to seek to modify its Plan (6/6/01 T-43) since its plan had been substantially consummated as defined under 11 U.S.C. § 1101.
The Bankruptcy Court, however at the hearing of June 27, 2001, which is the subject of this appeal, read far too much into this California Court Order, way beyond its legal and binding effect on the Bankruptcy Court or this filing.
There may be some enmity between the parties but the Legion is a bona fide Creditor; it has a judgment and it is entitled to enforce that judgment.
***
If the Legion decides that it wants simply to liquidate all the assets and to bring finality to its collection efforts rather than take the risk of what would happen if it attempted to allow future operations, that’s a decision that the Legion is free to make as a Creditor.
(June 27 Hearing, T-34).
Effectively the Bankruptcy Court ignored the discharge granted in the Debtor’s Plan and ruled that the California Court’s ruling with respect to the Settlement Agreement had stripped the Debtor of those protections of the confirmed plan even though the California Court did not rule on the binding effect of the plan. Without logic, the Bankruptcy Court then ruled that the Debtor was fully bound under the Plan such that it could not file this second Petition:
That brings the Court to the second issue, which is whether the prior plan has effectively been rescinded by virtue of the recession by the Superior Court in California of the settlement agreement. This Court’s plan has not been rescinded by the California court’s judgment. What was rescinded was the settlement agreement which placed limitations on the collection rights of the Legion for the Survival of Freedom. It is now free to collect its judgment. The Court’s plan which incorporated the settlement agreement implicitly incorporated nonbankruptcy law with respect to the settlement agreement and with respect to the judgment that was being regulated by the settlement agreement.
And, as I previously indicated, the judgment rescinding the settlement agreement and leaving the Legion free to collect its monetary judgment is res judicata and this is not an appropriate case to allow the Debtor to come in and try to modify a plan that left the Legion free to seek state law remedies when the Debtor defaulted under the settlement agreement that was incorporated in the plan.
So for all those reasons the Court will grant the motion to dismiss.
(June 27 Hearing, T-34-35)
This finding reaches far beyond either logic or the law.
[T]he purpose of bankruptcy law and the provisions for reorganization could not be realized if the discharge of debtors were not complete and absolute; that if courts should relax provisions of the law and facilitate the assertion of old claims against discharged and reorganized debtors, the policy of the law would be defeated; that creditors would not participate in reorganization if they could not feel that the plan was final, and that it would be unjust and unfair to those who had accepted and acted upon a reorganization plan if the court were thereafter to reopen the plan and change the conditions which constituted the basis of its earlier acceptance.
In re Penn Central, 771 F.2d at 767, citing Duryee v. Erie R.R. Co., 175 F.2d 58, 61?63 (6th Cir.), cert. denied, 338 U.S. 861, 70 S.Ct. 103, 94 L.Ed. 527 (1949).
First, the Forbearance and Settlement Agreement could easily have been, but was not, incorporated in the Debtor’s Plan. Instead, by agreement, only its payment provisions were incorporated. Legally and technically, the recession of the Settlement Agreement by the California Court then should not have been given the legal effect of terminating Debtor’s rights under its confirmed plan.
E.The December 15, 2000 order of the Superior Court of California for the County of San Diego was controlled by sections 1688 et seq. of the California Civil Code, the provisions of which preclude the Legion for the Survival of Freedom, Inc., after having elected the remedy of recession, from thereafter asserting any rights it obtained by or through the rescinded Forbearance and Settlement Agreement, including the right to enforce any obligations of the Debtor under the confirmed Second Amended Plan which were predicated upon the Settlement Agreement.
By an order dated December 15, 2000 (the California Order
), the Superior Court for the County of San Diego, in an action brought by the Legion, set aside the Settlement Agreement between, inter alia, the Debtor and the Legion. The Settlement Agreement had been approved by the Bankruptcy Court in November 1999, in the Debtor’s first Chapter 11 proceeding, and its payment provisions were incorporated into (and, indeed, constituted the basis of) the confirmed Second Amended Plan.
In bringing the California action, the Legion made an election of remedies. It could have sought recovery under the Second Amended Plan, which has the full force of a Federal court judgment. It could have sought to obtain damages for any alleged breaches by the Debtor, or sought a determination from the Bankruptcy Court or the California court that there was a breach going to the essence of the Settlement Agreement, such that no further performance would be required of the Legion.
Instead, the remedy the Legion sought, and which it obtained via the California Order, was a judicial rescission of the Settlement Agreement. The effect of such a rescission is provided by statute in California, and it is clear and unequivocal. Cal. Civ. Code § 1688, captioned Extinguishment,
provides that A contract is extinguished by its rescission.
Thus, [i]f a party to a contract elects to rescind it, he cannot then continue to claim benefits of it; he cannot go on and perform it, nor can he claim compensation for loss of profits.
McCready v. Bullis, 210 P. 638, 640 (Cal. App. 2d Dist. 1922) (quoting Sedgwick on Damages (9th Ed.) § 655a). This is so because an action for damages is based upon affirmance of the underlying contract, while an action for rescission is based upon disaffirmance thereof, and such remedies are mutually inconsistent. Davis v. Rite-Lite Sales Co., 67 P.2d 1039 (Cal. 1937). One induced by false representations to execute a contract need not disaffirm, but has the option of rescinding or affirming and recovering damages for fraud. DeCampos v. State Compensation Insurance Fund., 265 P.2d 617 (Cal. App. 1st Dist. 1954).
Pursuant to Cal. Civ. Code § 1691(b), a party rescinding a contract must restore to the other party everything of value which he has received from him under the contract or offer to restore the same upon condition that the other party do likewise, unless the latter is unable or positively refuses to do so.
When notice of rescission has not otherwise been given or an offer to restore the benefits received under the contract has not otherwise been made, the service of a pleading in an action or proceeding that seeks relief based upon rescission shall be deemed to be such notice or offer or both.
By virtue of §§ 1688 and 1691, the consequence of rescission is not only the termination of further liability, but also the restoration of the parties to their former positions by requiring each to return whatever consideration has been received.
Imperial Casualty & Indemnity Co. v. Sogomonian, 243 Cal. Rptr. 639, 646 (Cal. App. 2d Dist. 1988). Accord Tippett v. Terich, 44 Cal. Rptr. 2d 862 (Cal. App. 4th Dist. 1995) (further holding that § 1691 does not distinguish between executory and executed contracts).
It is manifestly clear that compromise and settlement agreements, such as the instant Settlement Agreement, are subject to the provisions of Civ. Code §§ 1688 et seq. Settlements are contracts. To set them aside, one must present contractual grounds for rescission - fraud, mistake, coercion, etc.
Huens v. Tatum, 60 Cal. Rptr. 2d 438, 442 (Cal. App. 3d Dist. 1997).
Yet despite such unambiguous and unequivocal authority, the Bankruptcy Court is effectively allowing the Legion to have it both ways — rescission of the Settlement Agreement and retention of benefits thereunder. This is impermissible. Once it elected to rescind the Settlement Agreement by obtaining the California Order, the Legion was bound by California law. Under California law, it was obligated to give up all its rights under the Settlement Agreement.
The rights which the Legion gave up most assuredly included its ability to enforce any rights under the confirmed Second Amended Plan, since it is clear from an examination of the Plan that it arose out of and was predicated and structured upon the Settlement Agreement. The Settlement Agreement and the Legion’s rights under the Plan were in lockstep, and the extinguishment of the former also extinguished the latter. By seeking and obtaining rescission of the Settlement Agreement, the Legion effectively created an estoppel precluding itself from pursuing any rights it might otherwise claim to have under the Second Amended Plan.
It is an obvious corollary to this that the Legion cannot now interpose the Second Amended Plan as a defense to or a basis for objecting to the filing of the instant Chapter 11 proceeding, since the Legion no longer has any rights under the Plan. Were it otherwise, the rescission of the Settlement Agreement would be only partial, which was clearly not the case pursuant to the California Order.
Moreover, the Legion now seeks, via the Bankruptcy Court, to establish liens under Article 9 of the Uniform Commercial Code on property of the Debtor. Ironically, the Legion apparently did not consider the creation of such liens important enough to have established and recorded them before commencing its rescission action in California. Nonetheless, the Legion’s right to such liens was indisputably among the consideration given by the Debtor as part of the Settlement Agreement. Since the Settlement Agreement has been rescinded, that consideration must now be returned to the Debtor. See Cal. Civ. Code § 1691(b) and discussion supra. The Legion’s right to the UCC liens was extinguished with the Settlement Agreement.
F.The California Court’s ruling could not have a res judicata effect, because it did not have proper jurisdiction to set aside a final Federal court order of confirmation.
In Chapter 11, confirmation of a plan is the penultimate event, the reason for which the proceedings were begun. It is the final judgment. In re Seminole Park and Fairgrounds, Inc., 502 F.2d 1011, 1014 (5th Cir.1974).
Under the terms of Article X of the Liberty Lobby plan:
Except as otherwise provided in this Plan, upon payments by the Debtor of all amounts due to be paid on the Effective Date pursuant to the provision of this Plan, the Debtor, its agents and representatives (including attorneys and accountants), shall be discharged from any debt that arose before the Confirmation Date, and any claim of a kind specified in Code Sections 502(e), 502(g), 502(h), or 502(i) insofar as the same pertain to the Debtor and its business and the Property, to the full extent permitted by Code Section 1141(d)(1)(A).
This provision was considered in open court on the day of confirmation and the language extending the discharge to attorneys and accountants was struck by Judge Teel in open court prior to signing of the order. The effect of this provision is that of final Federal Court order.
It is confirmation of a Chapter 11 plan that discharges the debtor from its obligations. 11 U.S.C. § 1141(d). For this reason revocation of the order of confirmation also requires revocation of the discharge. 11 U.S.C. § 1144. Confirmation and discharge are inseparable events. Congress specifically recognized that dismissal would not vitiate a debtor’s discharge. In view of the identity between the discharge and confirmation, Congress could not have intended for dismissal to vacate the order of confirmation which created a discharge that continues to be effective.
Matter of Depew, 115 B.R. 965,970 (Bkrtcy.N.D.Ind. 1989)
It then follows that if the dismissal of the case by a federal court of competent jurisdiction does not revoke the debtor’s discharge, certainly the California State Court does not have jurisdiction, by its order, to vacate the Settlement Agreement and effectively revoke the Liberty Lobby’s discharge such that the Legion would be now free to collect its debt in spite of the terms of the confirmation order. Such an order itself should be bound by res judicata effect of the confirmation order and should have been found by the Bankruptcy Court not to be binding upon it, but rather to have been without jurisdiction and a nullity.
By operation of the discharge provision of the confirmed plan, irrespective of the provisions of the Settlement Agreement, since these provisions were not incorporated in the plan, as a result the Legion had only the right to enforce their claim under provisions of the plan. The terms of the confirmation order are clear. Liberty Lobby was discharged from any debt that arose before the Confirmation Date.
Upon confirmation, the Debtor’s only debt to the Legion is its plan debt set forth in the confirmed plan, which by many courts has been likened to a contract debt.
G.The Bankruptcy Court erred in its ruling of July 2, 2000 in determining that the December 15, 2000 order of the California Court was not controlled by the provisions of Sections 1688 et seq. of the California Civil Code, which laws prohibited the Legion for the Survival of Freedom, Inc., after electing the remedy of recession, to assert any rights obtained by or through the rescinded Forbearance and Settlement Agreement, including the enforcement of obligations of the Debtor that arose by virtue of such Agreement, including rights under the Debtor’s confirmed Plan.
By having the California court set aside the Settlement Agreement, the Legion elected to forfeit its rights under the Debtor’s Second Amended Plan and their rights to liens under the plan. The Agreement, by its terms, is to be interpreted under California Law. California is a Code state, largely without the benefit of the Common Law. Like any creditor in a contract dispute, the Legion elected its remedy. It could have sought recovery under the Debtor’s confirmed Plan, a contract enforceable under the Bankruptcy Code, which has the full force of a Federal court judgment. It could have sought damages for any alleged breaches by the Debtor, or to have requested the Bankruptcy Court or the California court to determine that there was a breach to the essence of the Settlement Agreement such that no further performance would be required of the Legion.
Instead, the Legion sought and obtained a judgment from the Superior Court for San Diego County setting aside the Agreement — not the Debtor’s plan. The relief chosen by the Legion is ancient equity relief — court ordered recision of a contract. The rules of recision in California are statutory and they are very clear.
Section 1688 of the California Civil Code provides: A contract is extinguished by its recision.
This as stated above provision has been interpreted by the California Courts to mean that if party elects to rescind a contract, he cannot then continue to claim benefits of it. McCready v. Bullis, supra.
This rule is ancient and familiar to the Bankruptcy Courts and courts of appeal. See generally, A & A Sign Company v. Maughan, 419 F.2d 1152 (9th Cir. 1969), a Chapter X case under the former Bankruptcy Act, where the court held that a Bankruptcy Court in exercise of its equitable powers can set aside a settlement stipulation in its entirety if the interests of justice require and the parties can be restored to the positions they occupied before they entered into the stipulation. (Extensive citations omitted) But it cannot remove a material part of the stipulation over the objection of one of the parties to it and enforce the rest of the agreement.
419 F2d at 1155. This is the effect of the ruling of the Bankruptcy Court granting res judicata effect to the California court ruling and enforcing the former plan against the Debtor such that this second filing is not to be permitted, yet denying the Debtor the right to the discharge provided in the former plan or the other rights therein provided.
The Legion may not have it both ways. Once the Legion elected to abandon the settlement by obtaining an order from the San Diego state court, it was bound by California law. It was obligated to give up all its rights under that Agreement and the benefits that flowed from it. These included, among other things, the Legion’s rights to seek and enforce rights that arose by way of the confirmation order of the Bankruptcy Court, which arose after and as a result of the Agreement, and the rights were based upon and structured upon that Agreement.
To comply with the California statute, the Legion elected to forfeit its rights under the settlement, including rights that arose therefrom under the Debtor’s confirmed Plan, and the Legion was obligated under California law, as much as possible, to return the Debtor to its condition ante. Having elected to set aside the settlement under state law, the Legion cannot now proceed to enforce any rights under the confirmed Plan, including its right to interpose the Plan as a defense to the filing of this case.
To rule otherwise is to allow a partial recession of the settlement, and that clearly is not permitted by California law. Under California law a party to a contract has grounds to rescind the contract if the consent of the party seeking recession was obtained by fraud [Citations omitted]. However, ‘in order to escape from its obligation the aggrieved party must rescind by prompt notice and offer to restore the consideration received if any.
CitiCorp Real Estate v. Smith, 155 F.3d 1097 (9th Cir. 1998). Certainly, the Legion may not now seek in this Court to establish UCC-1 liens it never considered important enough to have established prior to requesting the California court set aside the settlement and to enforce those liens never recorded. The establishment of those liens after recession is among the rights that were given the Legion by the Debtor in consideration of the Settlement Agreement in the Debtor’s Plan and are rights that the Legion may not now seek to assert. The Legion must be found to have forfeited them by virtue of its election not to proceed in this Court or under the Debtor’s Plan, but rather to proceed instead to rescind the underlying Settlement Agreement under California state law.
H.The Bankruptcy Court erred in its July 2, 2000 ruling in determining that this was a serial filing and a serial filing prohibited under applicable bankruptcy law.
Bankruptcy courts have ruled that serial filings are permissible. In re Jartran, Inc., 71 B.R. 938 (Bankr.N.D.Ill.1987). And those rulings have been affirmed, In re Jartran, Inc., 87 B.R. 525 (N.D.Ill. 1988), In re Jartran, Inc.,, 886 F.2d 859 (7th Cir. Ill. 1989).
Early cases under the new Bankruptcy Code, first thougth modifications of confirmed Chapter 11 plans by second filings are not permissible after the plans have been substantially consummated. In re AT of Maine, Inc. 56 B.R. 55, 56?57 (Bankr.D.Me.1986) (citing 11 U.S.C. § 1127(b))
However, the Bankruptcy Code does not bar multiple filings, thus the filing of a second case or serial case is not per se bad faith. See In re Ligon, 97 B.R. 398 (Bankr.N.D.Ill.1989); In re Metz, 67 B.R. 462 (BAP 9th Cir.1986) aff’d 820 F.2d 1495 (9th Cir.1987); In re Johnson, 708 F.2d 865 (2d Cir.1983).
The Seventh Circuit has stated that the question of good faith must be determined on a case?by?case basis under the totality of the circumstances. In re Rimgale, 669 F.2d 426 (7th Cir. 1982). In re Madison Hotel Associates, 749 F.2d 410 (7th Cir.1984); In re Smith, 848 F.2d 813, 817 (7th Cir.1988). Under the totality of circumstances test, the Court determines whether or not there has been an abuse of the bankruptcy provisions. See In re Todd, 65 B.R. 249, 253?255 (Bankr.N.D.Ill.1986). A bona fide change in circumstances may justify a finding that the successive filing was proper. Metz, supra.
The Legion argued in its motion for dismissal that the Debtor had shown subjective bad faith and objective futility, standards used to judge multiple filings that were set forth in the decision of Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989). In the case before the Court, the Bankruptcy Court should have looked to the Debtor’s unblemished payment history and what had transpired since confirmation to evaluate the issue of good faith.
Clearly, there was no default in the regular Plan payments. Moreover, the payments made by the Debtor to the Legion under the Plan were substantially more than double the $203,222 liquidation value of all Debtor’s assets, provided in the Debtor’s Second Disclosure Statement for its Plan. Therefore, something other than protection of its economic interest has been the focus of Legion’s activities since confirmation. It clearly made no economic sense for the Legion to have sought to derail this Debtor’s plan.
One need not look far for bad faith from the Legion. This can be seen by the efforts of the Legion since confirmation. The Legion agreed under paragraph 10 of the Settlement Agreement to notify the Swiss authorities of the settlement within thirty days of final Bankruptcy Court approval of this agreement.
Not until April 2000 did the Debtor learn that the Legion — after signing of the Settlement Agreement — intentionally withheld the required promised notification of the settlement to the California bankruptcy court, so there would not be final bankruptcy court approval,
and during the delay engaged in a secret and an aggressive post-settlement and post-confirmation effort to seek the indictment of Willis Carto in Switzerland, requesting the Swiss investigating Judge to ignore the settlement and to seek an international arrest warrant
for Mr. Carto.
Similarly it should be pointed out that in the related case Liberty Lobby, Inc. v. Legion for the Survival of Freedom, Inc., Case No. 1:00CV02411, now pending before this District Court, the Legion acted in secret though a third party to violate the Lanham Act and engaged in tortious conduct against the Debtor after the Settlement Agreement was negotiated. It is also important to note that the Legion may well have acted to circumvent any decision from this Court on that matter in order to escape the validity of the Lanham Act claim, by asking to have the Settlement Agreement set aside.
When discussing subjective or objective good faith one usually looks to the conduct of the Debtor. Here it is different. The Legion has far from clean hands and this Court should not assist this creditor in its effort to harm and silence the 46 year old voice of Liberty Lobby and The Spotlight, when there is no economic reason for doing so.
Nor should the Court assist the Legion in what can only be described as a legal fraud on the 87,000 subscribers of the Spotlight, who through their small subscriptions and contributions have paid all other plan creditors and $520,000 to the Legion. If the Legion’s motion is sustained, it is these subscribers will lose.
The Fourth Circuit decision in Carolin Corp. v. Miller urges caution. [W]e hold that a bankruptcy court may dismiss such a petition for want of good faith in its filing, but only with great caution and upon supportable findings both of the objective futility of any possible reorganization and the subjective bad faith of the petitioner in invoking this form of bankruptcy protection.
Here the Debtor, by virtue of the decision of the California state court setting aside the Settlement Agreement, has the right under California law to be restored to its condition prior to the settlement. However, Liberty Lobby is unable now, due to the passage of time and the substantial confirmation of its former Plan, to propose a modification to its former Plan which would return it to is position prior to the Settlement Agreement and it has been denied recourse to propose an second Plan. This Debtor stands before this court worse than before, and as such neither the issues of subjective bad faith or objective futility are applicable to the facts before this court.
Nevertheless the Debtor wishes to indicate, that it was able to pay $520,000 over a 19 month period under the former confirmed Plan and to make its payments on a timely basis. Certainly, it has the capacity to pay substantial funds over time and objective futility
of its new effort to reorganize is not an issue in this matter. In addition, this Court must look to the fact that the Debtor as required under the Settlement Agreement assigned its rights to an additional $800,000 under the Kefer Estate to secure full payment the Legion.
Likewise, the facts of this case are substantially different from those found In re Delray Associates, L.P., 212 B.R. 511 (Bankr. Md. 1997). Here by virtue of the recession of the settlement, there no longer is any way to enforce the provisions of the original plan. Having elected not to enforce the Debtor’s confirmed Plan, but rather to rescind the underlying settlement, the Legion must not now be allowed in violation of California law have its cake and eat it too. The Legion elected not to proceed under the Plan. It must be bound by its election. Therefore, a new plan under a new case is not the improper modification
of the original plan discussed by Judge Keir in Delray.
When examined in the light of the history of this case, it cannot be fairly found that this Debtor acted in bad faith in filing this case. It paid all its financial obligations under the former Plan and assigned it rights under the Kefer estate to the Legion. It also paid all its other creditors on a timely basis, in full, under the former Plan and has only sought to protect its ongoing operations from termination.
This Debtor did not rescind the Settlement Agreement, and has done no act in this case nor in the former case that would raise to the level of subjective bad faith. It has sought only by filing this case and filing the former case to continue its otherwise healthy operations and to deal in a court approved way with the judgment entered against it by the California Court. The Legion on the other hand seeks not its bargained Plan payments but rather to close the Debtor down, to silence it, to force it to cease operations, and to do so, the Legion is clearly willing to accept substantially less than the Debtor would have paid under its Plan.
What is before this court is the Legion’s to continuing vendetta against the Debtor and against the free voice of The Spotlight. This effort has been, and is, political. It is not economic.
For the Bankruptcy Court to deny relief to the Debtor at the Courthouse door, is a denial of due process. It cannot be seen to have been done with great caution and upon supportable findings.
Carolin, supra. A decision on good faith is better reserved until the consideration of the plan.
In re Robinson, 18 B.R. 891, 894 (Bankr. D. Conn. 1982).
I.The Bankruptcy Court erred in its ruling of July 2, 2000 in determining that the possibility, while the Debtor’s plan payments were fully current, that a state court would set aside the Forbearance Agreement was an obvious known risk
of default.
In its ruling the Bankruptcy Court found that the possible rescission of the of the Settlement Agreement by the California Court, at such time that the Debtors Plan payments were current, was an obvious known risk.
Such a finding meets the factual standard of review. This is borne out by the fact that not one factually similar case could be found in all the reported bankruptcy cases. Who could have anticipated that while being paid each month as required under the Plan, that the Legion would first elect to rescind the settlement agreement and bring an action in a California Court to have it set aside, that the Bankruptcy Court would not defend its confirmation order, but rather would give the California Court’s ruling the effect of rescinding the confirmation order. There is no way the risk of this happening could have been anticipated by the Debtor.
J.The Bankruptcy Court erred in its July 2, 2000 ruling when it determined the Debtor’s present subscribers who were not creditors in the former case, but who had replaced those subscriber creditors over the intervening two years, and whose collective debt exceeded $2 million on the date of filing, were not new creditors and new debt such that this case involves a material change of circumstances.
A bona fide change in circumstances may justify a finding that the successive filing was proper. Metz, supra, 820 F.2d at 1498. The Debtor has more than 87,000 paid subscribers. Like any publication this is a floating group. After two years most long time subscribers have renewed and many subscribers have left and have been replaced by others. The result is that two years after confirmation, new subscribers have funded a large portion of the funds paid to the Legion under the former plan, and they have sustained the operations of the Debtor. These subscribers are new creditors of the Debtor and the existence of their new debt in excess of $2 million dollars exceeds any debt due to the Legion under the confirmed plan and constitutes a substantial change in circumstances since confirmation.
K.Should the Legion for the Survival of Freedom, Inc., be determined to be a secured creditor under the retroactively court imposed liens (discussed above), the status of the debt to the Legion itself both in amount and priority as a secured creditor in this case is so different as to constitute a material change in circumstances; moreover the Debtors new plan would not alter materially the terms of the former plan.
Should this court sustain the finding of the Bankruptcy Court that the Legion is a secured creditor of the Debtor, the new secured status of this debt then itself is a substantial material change over the Legion’s former unsecured status as to constitute a bona fide material change in circumstances that would justify that this successive filing was proper. In re Chisum, 847 F.2d 597 (9th Cir.1988) cert. denied, sub nom Mortgage Mart, Inc. v. Rechnitzer, 488 U.S. 893, 109 S.Ct. 228, 102 L.Ed.2d 218 (1988) (bona fide change in circumstances justified the debtor’s multiple filings).
By filing its second Chapter 11 case, the Debtor did not suggest that the terms of the former plan would be altered or modified in any substantial way by this new case. Since the dismissal was entered literally at the courthouse door
before the Debtor could propose a new plan, the record contains no facts that conflict with the Debtor’s stated intent to have the terms of the former confirmed plan incorporated in its new plan. Any differences would of necessity have related to the rescission of the Settlement Agreement by the California Court and the addition of the Debtor’s new post-confirmation subscribers as a voting class.
Since the new plan could not depend or rely on the settlement agreement rescinded by the California state court, the plan also would have sought to have the bankruptcy court impose those terms by cramdown. In other words, all Liberty Lobby was seeking by this second filing was the reinstatement of the written terms of its former plan, a plan the bankruptcy court and the parties had previously agreed was fair and equitable, but which the bankruptcy court had ruled could not be so restructured after the California court ruling, because the old case had been substantially consummated.
6.CONCLUSION
The Legion elected to rescind the Settlement Agreement under California law and before a California Court, it is bound by that election. Under California law a recession for a settlement agreement requires that both parties be restored to their position prior to the settlement. In this case that means that the Debtor is entitled to file a second Chapter 11 case and to seek reorganization under the Bankruptcy Code.
Dated:September 28, 2001
Respectfully submitted,
/s/ Thomas J. Stanton
Thomas J. Stanton, # 455201
221 South Fayette Street
Alexandria, VA 22314
(703) 299-4445
Counsel for Appellant
/s/ Mark Lane
Mark Lane, Dis. Ct. #445988
105 Second Street, N.E.
Washington, D.C. 20002
(202) 547-6700
Co-counsel for Appellant
CERTIFICATE OF SERVICE
I, Thomas J. Stanton, do hereby certify that on this 28th day of September, 2001, a true and correct copy of the foregoing Consolidate Brief of Appellant was mailed to:
Darrell Clark, Esq.
Morrison & Hecker, L.L.P.
Washington, D.C. 20036Dennis Early, AUST
Office of the United States Trustee
115 South Union Street
Second Floor,
Alexandria, Virginia 22314
/s/ Thomas J. Stanton
Thomas J. Stanton