STEPHEN V. WILSON, District Judge.
Appellant Daewoo Motor America, Inc. ("DMA" or "Appellant") appeals the bankruptcy court's order denying as untimely its motion to extend the term of the Creditor Trust in connection with its Chapter 11 plan of reorganization.
On May 16, 2002, Appellant filed a voluntary petition for bankruptcy under Chapter 11 the United States Code. (See 3 ER 393). On October 8, 2003, the bankruptcy court confirmed Appellant's Sixth Amended Chapter 11 Plan of Reorganization (the "Plan"), with an effective date of October 16, 2003. (1 ER 18; 3 ER 402). The Plan was implemented, in part, through the creation of a Creditor Trust. (1 ER 447). Pursuant to the Plan, the "primary role" of the Creditor Trust and the Trustee was "to distribute the assets of the Creditor Trust to the holders of Allowed Claims in accordance with the terms of the Plan and the Creditor Trust Agreement." (3 ER 449).
Appellant was a wholly-owned subsidiary of Appellee Daewoo Motor Company, Ltd. ("Appellee"). In connection with Appellant's bankruptcy proceedings, Appellee filed a Proof of Claim for $158,956,488.79, which led to an adversary proceeding entitled Daewoo Motor Am., Inc. v. Daewoo Motor Co., Ltd., No. 2:03-2155-BB (the "Adversary Proceeding"). In this Adversary Proceeding, the bankruptcy court ultimately entered judgment for Appellee against Appellant in the amount of approximately $118 million, and concluded that Appellee had an allowed general unsecured claim in Appellant's bankruptcy case in that amount. As a result of this judgement, Appellee is Appellant's largest unsecured creditor. (See ER 167-68). Appellant appealed the bankruptcy court's judgment in the Adversary Proceeding to this Court. See Daewoo Motor America, Inc. v. Daewoo Motor Co., Ltd., No. 2:10-CV-5445 (SVW). The judgement in the Adversary Proceeding is not, however, the subject of this appeal.
According to the Plan, "[t]he Creditor Trust shall not have a term greater than five years from its date of creation, unless extended from time to time pursuant to the terms of the Creditor Trust Agreement." (3 ER 450). The Creditor Trust Agreement provides, in turn, that "the
Until the Creditor Trust terminates, the cash in the Trust can be used to pay Appellant's bankruptcy-related litigation expenses, (see 3 ER 449-50), including, in particular, the appeal of the bankruptcy court's judgment in favor of Appellee in the Adversary Proceeding. Appellant contends that its creditors, who number in the thousands, "depend on the trust" to fund the appeal of the Adversary Proceeding, which "has the potential to recover tens of millions of dollars for the beneficiaries." (Opening Br., at 2). Once the Creditor Trust terminates, however, the remaining funds (minus the Trust's expenses) are to be distributed "to the holders of Allowed Claims in accordance with the terms of the Plan and the Creditor Trust Agreement." (Id.) As of March 31, 2011, the Creditor Trust had a total of approximately $1.8 million in cash on hand. (3 ER 549).
The Creditor Trust was initially scheduled to end on October 16, 2008, five years from its original effective date. (1 SER 12). On March 2, 2007, Appellant moved to extend the term of the Creditor Trust to June 30, 2011. (1 SER 1). On May 4, 2007, the bankruptcy court granted the motion, extending the term of the Creditor Trust to June 30, 2011. (4 ER 617).
On April 8, 2011, Appellant filed a subsequent motion to extend the term of the Creditor Trust. In its motion, Appellant sought both to extend the term of the Creditor Trust by three years and concurrently to modify the Plan such that Appellant's request for the extension would be timely under the Plan's terms. Specifically, Appellant requested that the bankruptcy court: (1) "extend the current term of the Creditor Trust by an additional three (3) years, from June 30, 2011 to June 30, 2014;" and (2) "approve the following modification to paragraph 2.8(ii)(A) of the DMA Creditor Trust Agreement ...: [The term of the Creditor Trust may be extended if] `(A) not later than prior to the
The Trustee joined the motion. Appellee opposed it. At a May 17, 2011 hearing, the bankruptcy court denied the motion. (2 ER 134 et seq.). The bankruptcy court concluded that the motion to extend the term of the Creditor Trust was untimely under the unambiguous provisions of the Creditor Agreement, which were expressly incorporated into the Plan and required that the extension be approved "not later than six (6) months prior to the beginning of the extended term of the Trust." The bankruptcy court held that the modification requested by Appellant, under which the request would have been timely, was barred by 11 U.S.C. § 1127(b), because the Plan had been substantially consummated. The bankruptcy court further held that the modification requested by Appellant was not warranted based on an alleged "mutual mistake" by the drafters of the Plan. On May 17, 2011, the bankruptcy court entered an order denying Appellant's motion for the reasons set forth on the record at the hearing. (1 ER 3-4).
Appellant timely filed its notice of appeal to this Court on May 26, 2011.
This Court "reviews a bankruptcy court's conclusions of law de novo and its findings of fact under the clearly erroneous standard." Dolven v. Bartleson (In
"[S]tate law ... governs ... interpretation of [the] plan." Hillis Motors, Inc. v. Haw. Auto. Dealers' Ass'n, 997 F.2d 581, 588 (9th Cir.1993). Here, both the Plan and the Creditor Trust Agreement specify that they are governed by California law. (See 3 ER 483-84 (Plan); 4 ER 611 (Creditor Trust Agreement)). Under California law, the determination of whether a mutual mistake occurred is a question of law only where "the extrinsic evidence is not in conflict[.]" Hess v. Ford Motor Co., 27 Cal.4th 516, 527, 117 Cal.Rptr.2d 220, 41 P.3d 46 (2002). Otherwise, it is a question of fact. See id.
Appellant contends that the Plan incorporates the requirements of Internal Revenue Service Revenue Procedure 94-45. One such requirement is that "[t]he trust instrument must require that each extension [of the term of the Creditor Trust] be approved by the court within 6 months of the beginning of the extended term." Rev. Proc. 94-45 § 3.06 (emphasis added). Section 2.8 of the Creditor Trust Agreement, however, provides that the trust can be extended if, "not later than six (6) months prior to the beginning of the extended term of the Trust, the Court approves such extension...." (4 ER 604) (emphasis added). Because the Creditor Trust Agreement is in "conflict" with the Plan, Appellant contends that the Plan provisions must prevail. (See 3 ER 419, Plan § 1(C) ("In the event of a conflict between the terms of any of the documents contained in the Plan Documents Supplement [including the Creditor Trust Agreement] and the Plan, the terms of the Plan shall govern...."); 4 ER 603 (Creditor Trust Agreement § 1.2.d) ("Whenever there is an inconsistency between this Agreement and the Plan, the Plan shall control....")).
Appellant misreads the applicable Plan documents. The Plan does not incorporate the requirements of Revenue Procedure 94-45. To the contrary, Revenue Procedure 94-45 is referenced only once in the entire Plan, in a provision that is unrelated to the disputed provision. Specifically, the Plan provides:
In contrast, the Plan expressly and unambiguously incorporates the disputed provision of the Creditor Trust Agreement. "The Creditor Trust shall not have a term greater than five years from its date of creation, unless extended from time to time pursuant to the terms of the Creditor Trust Agreement." (ER 450); see also 3 ER 419-20 ("all documents contained in the Plan Documents Supplement [including the Creditor Trust Agreement] are incorporated into and are a part of the Plan as if set forth in full herein.").
Accordingly, there is no conflict in the relevant Plan provisions. Instead, the Plan (through its express incorporation of the Creditor Trust Agreement) unambiguously provides that the Creditor Trust can be extended only if, "not later than six (6) months prior to the beginning of the extended term of the Trust, the Court approves such extension...." (4 ER 604). The bankruptcy court correctly concluded that Debtor's request for an extension, which was made approximately three months prior to the beginning of the extended term, was untimely.
Appellant further contends that the bankruptcy court erred in failing to reform the disputed provision to conform with Revenue Procedure 94-45. 11 U.S.C. § 1127(b) provides: "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...." (emphases added). Accordingly, "pursuant to 11 U.S.C. § 1127(b), a plan can only be modified before it is substantially consummated." In re Stevenson, 148 B.R. 592, 595 (D.Idaho 1992). Here, the parties do not dispute that the Plan was substantially consummated as of the filing of Appellant's motion. Thus, a critical question with respect to this appeal is whether the change requested by Appellant constitutes a "modification" of the Plan (which is prohibited under Section 1127(b))
Section 1127 does not define "modification," nor does the corresponding definitional section of Chapter 11. See 11 U.S.C. §§ 1101, 1127. Courts consistently have held, however, 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." Beal Bank, S.S.B. v. Jack's Marine, 201 B.R. 376, 380 (E.D.Pa.1996). Section 1127(b), however, prohibits material changes to the express provisions of a plan after substantial consummation. See Enterprise Fin. Group v. Curtis Mathes Corp., 197 B.R. 40, 45 (E.D.Tex.1996) ("Even if the proposed change does more accurately reflect the intent of the Plan, the proposed change modifies a material term of the Plan.... The Plan is not silent on this issue. The language of the Plan is clear and unambiguous.... The court concludes that the proposed amendment to the Plan was a [prohibited] modification.").
Here, the Plan is neither silent nor ambiguous with respect to the deadline for extending the term of the Creditor Trust. The Plan expressly provides that "the term of the Trust may be extended for a finite term beyond the fifth (5th) anniversary of the Effective Date if ... not later than six (6) months prior to the beginning of the extended term of the Trust, the Court approves such extension...." (4 ER 604) (emphasis added). Appellant seeks to "reform" this provision of the Plan to require just the opposite; i.e., that any extension of the term of the Trust be approved within six (6) months of the extended term of the Trust. This is precisely the type of modification that is prohibited by Section 1127(b).
None of the authorities cited by Appellant support a finding that the requested change — which is directly contrary to the express provisions of the Plan — constitutes a mere "interpretation" and not a "modification" of the Plan. To the contrary, these cases uniformly hold that a "clarification"/"interpretation" is appropriate only where the requested change does not contradict the express provisions of the Plan. See Beal Bank, 201 B.R. at 380 (allowing clarification that "did not alter any provision of the Plan. Instead, the Court clarified the Plan on a matter on which it was silent."); In re Airadigm Commn's, Inc., 547 F.3d 763, 770 (7th Cir.2008) (allowing award of interest under confirmed plan where nothing in the plan specifically precluded a retrospective award of interest, and the court concluded that such interest was implied in the plan's provisions); In re
Moreover, the bankruptcy court correctly concluded that the proposed change to the Plan is a material change and not merely "ministerial." The term and termination of the Creditor Trust is significant. Once the Trust is terminated, the remaining funds (minus expenses) will be distributed to Appellant's unsecured creditors. Thus, the disputed provision directly impacts the timing of the disbursement of these funds, which totaled over $1.8 million as of March 31, 2011.
Accordingly, the bankruptcy court correctly concluded that the change requested by Appellant would constitute a "modification" after substantial consummation of the Plan, and is therefore barred by 11 U.S.C. § 1127(b).
Appellant appears to argue that so long as the requested change to the Plan constitutes a "reformation" of language that was the result of a "mutual mistake" in drafting the Plan, then the change cannot qualify as a prohibited "modification" under Section 1127(b), regardless of the significance of the change. The minimal case law addressing this issue does not support Appellant's argument. In In re Logan Place Props., Ltd., the Trust argued that it could seek to amend a previously-approved Chapter 11 Plan of Reorganization under Federal Rule of Civil Procedure 60(b) (made applicable to adversary proceedings through Bankruptcy Rule 9024), which provides for relief from a final judgment or order based on, inter alia, "mistake, inadvertence, surprise, or excusable neglect." In re Logan Place Props., Ltd., 327 B.R. 811, 812 (Bankr. S.D.Tex.2005). The court disagreed, holding "[a]s explained below, § 1127 provides the exclusive means by which to modify a plan, and § 1144 provides the exclusive means by which to vacate a plan. The Trust cannot satisfy either provision, and therefore cannot change the plan as it stands, regardless of whether mutual mistake [by the debtor and the trust in drafting the plan] existed." In re Logan Place Props., Ltd., 327 B.R. 811, 812, 814 (Bankr. S.D.Tex.2005).
While the Ninth Circuit has not addressed this issue, the Court agrees with the analysis in Logan. Section 1127 is the exclusive means by which to modify a plan. Thus, regardless whether a proposed modification is based on a "mutual mistake," such modification must comply with Rule 1127(b). This conclusion not only comports with a plain-text reading of Section 1127(b) (and the case law interpreting this provision), it also furthers the important policy of finality underlying the Bankruptcy
Moreover, as discussed below, the bankruptcy court did not clearly err in finding that Appellant failed to meet its burden of demonstrating that a mutual mistake occurred. The Court affirms the bankruptcy court's order on this alternative basis as well.
Inamed Corp. v. Medmarc Cas. Ins. Co., 258 F.Supp.2d 1117, 1123 (C.D.Cal.2002) (internal citations and quotation marks omitted). "In determining whether a mutual mistake has occurred, a court may consider parol evidence. Such evidence is admissible to show mutual mistake even if the contracting parties intended the writing to be a complete statement of their agreement.... Extrinsic evidence is necessary because the court must divine the true intentions of the contracting parties and determine whether the written agreement accurately represents those intentions." Hess, 27 Cal.4th at 525, 117 Cal.Rptr.2d 220, 41 P.3d 46 (citations omitted).
As discussed below, the extrinsic evidence in this case includes representations by two attorneys that it was their intent to draft the Plan in conformance with Revenue Procedure 94-45. In light of other conflicting evidence, the bankruptcy court did not find these statements persuasive. (See 2 ER 159). Accordingly, the relevant extrinsic evidence is in conflict, and the determination of whether a mutual mistake occurred is a question of fact under California law. See Hess, 27 Cal.4th at 527, 117 Cal.Rptr.2d 220, 41 P.3d 46. Therefore, this Court reviews the bankruptcy court's determination for clear error. See Miller v. Safeco Title Ins. Co., 758 F.2d at 367; Ankeny v. Meyer (In re Ankeny), 184 B.R. 64, 68 (9th Cir. BAP 1995) ("Where the interpretation of a contract involves review of extrinsic evidence, we review findings of fact for clear error while reviewing de novo the principles of law applied to those facts.").
Here, Appellant argues that the obvious intent of the drafters of the Plan was to comply with the requirements of I.R.S. Revenue Procedure 94-45. Revenue Procedure 94-45 provides guidelines to assist taxpayers in determining the circumstances under which an organization will be classified as a liquidating trust for federal income tax purposes. In particular, it states: "A ruling generally will be issued that an entity is classified as a liquidating trust if the following conditions are met: [list of 12 conditions.]" Appellant notes that the language of the Plan tracks very closely with eleven of these twelve conditions, with the notable exception of Section 3.06, which provides that "[t]he trust instrument must require that each extension be approved by the court within 6 months of the beginning of the extended term."
As discussed above, however, Revenue Procedure 94-45 is referenced only once in the entire Plan, in a provision that is unrelated to the disputed deadline for extending the term of the Creditor Trust. (See 3 ER 450). Moreover, Revenue Procedure 94-45 is not a binding pronouncement of the applicable law.
Rev. Proc. 94-45 §§ 2, 3 (emphasis added); see also United States v. Toyota of Visalia, 772 F.Supp. 481, 486 (E.D.Cal.1991) ("[A Revenue Procedure] does not have the force and effect of law and thus is not binding on the I.R.S."), aff'd, 988 F.2d 126 (9th Cir.1993). Indeed, it is unclear to the Court whether the Plan's failure to require notice of an extension of the term of the Creditor Trust within six months of the beginning of the extended term would, on its own, preclude the Creditor Trust from acquiring status as a "liquidating trust" as contemplated by Revenue Procedure 94-45.
Moreover, this is not the first time that Appellant has attempted to extend the term of the Creditor Trust. The Creditor Trust was originally scheduled to end on October 16, 2008. On March 2, 2007, Appellant moved to extend the term of the Creditor Trust to June 30, 2011. On May 4, 2007 — seventeen months before the end of the term — the bankruptcy court granted the motion, extending the term of the
At the hearing before the bankruptcy court, the lead counsel for Appellant and counsel for the creditors committee, who "were the principal parties that negotiated the terms of the plan," both stated that it was their intent to comply with Revenue Procedure 94-45. (2 ER 144-45; 169).
Instead, the creditors voted on the terms of the Plan as written. As noted by the Bankruptcy Court, to the extent that any of these creditors were interested in the duration of the Creditor Trust, the unambiguous terms of the Plan on which they voted stated that the term of the trust could be extended only with notice of six months or more. There is no evidence that any of these creditors were "mistaken" with respect to the notice required for an extension.
The distinction made by the bankruptcy court between a "typical" two-party contract and a confirmed plan of reorganization plan appears to have merit. While the creditors committee was authorized to negotiate a proposed plan on the creditors' behalf, it did not have the authority to bind them to the Plan. "Although committees are charged with negotiating the plan on behalf of their constituencies, the committees are not authorized or empowered to
Appellant cites no case directly addressing the bankruptcy court's ability to reform a confirmed (and substantially consummated) Chapter 11 plan of reorganization on the basis of an alleged "mutual mistake," over the objection of a creditor. Nor has the Court found any such case. Nevertheless, the Court need not address the apparently uncharted legal territory of whether, and to what extent, individual creditors must agree to the reformation of a confirmed plan of reorganization based on an alleged "mutual mistake" by the drafters of the Plan.
Accordingly, the bankruptcy court's finding that Appellant failed to demonstrate by clear and convincing evidence that there was a "mutual mistake" in the drafting of the Plan was not clearly erroneous. Cf. Hess, 27 Cal.4th at 527, 117 Cal.Rptr.2d 220, 41 P.3d 46 (finding mutual mistake where the extrinsic evidence was "uncontroverted").
Appellant contends that Appellee lacks prudential standing under the Ninth Circuit's "person aggrieved" test to defend the bankruptcy court's order on appeal and, therefore, Appellee's brief should not be considered, and Appellee should not be allowed to participate in oral argument. (Opening Br., at 26-29). Even assuming, arguendo, that the "person aggrieved" test may properly be applied to an appellee in a bankruptcy appeal (but see Opposition, at 24-27), this doctrine is inapplicable here.
Appellee would satisfy the "person aggrieved" test in any event. The bankruptcy order on appeal effectively determined the date upon which the Creditor Trust will terminate, at which point the remaining proceeds of the trust will be paid out to Appellant's creditors. As the largest creditor of Appellant, Appellee undoubtedly was "directly affected" by this order.
For the foregoing reasons, the bankruptcy court's order denying Appellant's motion to extend the term of the Creditor Trust is AFFIRMED.
Appellant also argues for the first time in its reply brief that the modification of "plan-related documents" should not be treated the same as modifying "core aspects" of the plan. (Reply, at 17-18). As Appellant conceded in its Opening Brief, however, the Creditor Trust Agreement was expressly incorporated into, and is part of, the Plan. (Opening Br., at 21). Moreover, the sole case cited by Appellant undermines its own argument: "The question remains whether a change that would contravene section 1127(b) if made in the provisions of a plan can be accomplished by modifying the provisions of a plan-related document. The answer must be no. The rights of creditors, bargained for during the negotiations that preceded the presentation and confirmation of the Plan cannot depend on whether those rights were spelled out in a document labeled `plan' or in an attached document labeled `exhibit' or `annex.'" In re Joint Eastern & Southern Dist. Asbestos Litig., 982 F.2d 721, 748 (2d Cir. 1992); accord 7 Collier on Bankruptcy ¶ 1127.03 (2011) ("A plan proponent or debtor cannot circumvent section 1127(b) and change the plan simply by calling its request a motion to modify the confirmation order, or to modify a plan-related document, or any application that none-theless affects rights under the plan...."). As discussed below, the bankruptcy court correctly concluded that the requested modification to the Plan was material and, because the Plan had been substantially consummated, was precluded by 11 U.S.C. § 1127(b).
Accordingly, these arguments fail both on the merits and based on Appellant's failure to raise them in its opening brief. See Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir.2007) ("The district court need not consider arguments raised for the first time in a reply brief.") (citing Koerner v. Grigas, 328 F.3d 1039, 1048 (9th Cir.2003)).
