Summary
This Ninth Circuit Bankruptcy Appellate Panel opinion addresses whether a confirmed Chapter 11 subchapter V plan precluded a creditor from filing a proof of claim after the debtor had falsely represented prepetition-terminated contracts as executory. The panel affirmed the bankruptcy court's ruling, holding that applying claim preclusion under these circumstances would violate the creditor's due process rights because the plan lacked clear and unambiguous notice regarding its impact on the creditor's rights. The decision emphasizes that debtors-in-possession must provide explicit disclosure when attempting to assume or revive contracts that were already terminated before the bankruptcy filing.
Topics
Practice areas
Questions Presented
- Whether confirmation of Solimano's plan precluded Pier from filing and pursuing its proof of claim under the doctrine of claim preclusion.
- Whether the plan and confirmation procedures provided Pier constitutionally adequate notice that the plan purported to revive terminated contracts and dispose of Pier's claim rights.
- Whether the plan's claims procedures and the confirmation-objection deadline barred Pier's proof of claim filed by the claims bar date.
- Whether plan confirmation eliminated or otherwise precluded Pier's rights of setoff and recoupment.
Holdings
- Claim preclusion did not bar Pier from asserting its timely filed claim because applying the doctrine under these circumstances would violate Pier's due process rights.
- Even apart from due process, the plan did not preclude Pier's claim because the claim's validity and amount were not identical to the plan's proposed cure amount, and the plan expressly reserved claims-allowance litigation for adjudication after confirmation.
- Pier's proof of claim was timely because it was filed by the bankruptcy court's claims bar date; the earlier deadline for objections to confirmation did not replace or shorten the claims bar date.
- The plan did not preclude Pier's setoff and recoupment theories, and the bankruptcy court properly allowed Pier's claim as reduced by those calculations.
Key quotations
“We publish to explain that, even in an expedited proceeding under subchapter V, bedrock principles of due process require adequate, comprehensible, and consistent notice of plan provisions that affect creditors’ rights.” (2)
“[A] plan should clearly state its intended effect on a given issue.” (13-14)
“Neither the statute nor the rules say, “oh, by the way, we can also sandbag you by sneaking an objection into a reorganization plan and hoping you do not realize that we can use this device to circumvent the claim objection procedure mandated by the rules.”” (14-15)
“The basic gist of the authorities above can be distilled to the following: a confirmed plan will not preclude parties from subsequently asserting their rights unless specific language in the plan clearly and unambiguously disposed of those rights.” (15)
Factual background
Before filing bankruptcy, Solimano entered into eight subcontracting agreements with Pier and Pier terminated six of them for cause in December 2023. Solimano filed its chapter 11 subchapter V petition on January 9, 2024, but listed all eight subcontracts as executory and unexpired and did not disclose the six prepetition terminations. Its plan likewise purported to assume all of the contracts and stated that the cure amount was zero without disclosing the terminations. Pier timely filed a nearly $500,000 claim after confirmation and later reduced it to zero based on recoupment and setoff.
Procedural history
Solimano filed a chapter 11 subchapter V petition and proposed a plan purporting to assume all of its subcontracts with Pier, including six contracts Pier had terminated before the petition date. The bankruptcy court confirmed the plan before the claims bar date. Pier timely filed a proof of claim one day after confirmation and later amended it to zero based on setoff and recoupment. The bankruptcy court allowed the amended claim, concluding that claim preclusion did not apply, that the claim was timely, and that Pier was entitled to the asserted setoff and recoupment. The Bankruptcy Appellate Panel affirmed.