JACQUELINE P. COX, Bankruptcy Judge.
This matter is before the Court for ruling on the Motion of the Reorganized Debtor to Enforce Confirmation Order and For the Imposition of Sanctions ("Motion"). The Reorganized Debtor complains that notwithstanding modified mortgage terms set forth in the Confirmed Plans, Everhome Mortgage ("Everhome") continues to bill for a prepetition mortgage on property located at 109 W. Jones Street, Savanna, Georgia ("Jones Property"). For the reasons noted below, the request for Sanctions is Granted in part and Denied in part.
This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334(a) which provides that federal district courts have original and exclusive jurisdiction of all cases under the Bankruptcy Code, Title 11 of the United States Code. 28 U.S.C. § 157(a) allows the district courts to refer title 11 cases to the bankruptcy judges for their districts. The District Court for the Northern District of Illinois has promulgated Internal Operating Procedure 15(a), which refers its bankruptcy cases to this Court.
Chapter 11 cases generally involve the restructuring of debt through the proposal and confirmation of a plan of reorganization.
The Reorganized Debtor filed the Motion herein pursuant to 11 U.S.C. § 1142(b), "which empowers the court to direct the debtor and any other necessary party to perform acts `necessary for the consummation of the plan.'" Kmart, at 195. Section 1142(b) states:
11 U.S.C. § 1142(b). See also In re Emerald Casino, Inc., 334 B.R. 378, 386-87 (N.D.Ill.2005) (recognizing a bankruptcy court's broad authority to order parties to comply with terms of a confirmed plan of reorganization).
A court's exercise of authority under § 1142(b) is limited to ensuring that reorganization plans are implemented and protecting estate assets devoted to implementation of the confirmed plan. Kmart, at 196-97.
To determine whether a bankruptcy court has post-confirmation jurisdiction over a dispute, "the court must first determine that `the matter [has] a close nexus to the bankruptcy plan or proceeding. . . [and] second, the plan must provide for the retention of jurisdiction over the dispute.'" In re Ventilex USA, Inc., 509 B.R. 140, 143 (Bankr.S.D.Ohio 2014) (internal citations omitted). "In determining whether a close nexus exists courts look to whether adjudication will require interpretation of the chapter 11 plan, whether it will affect the estate or the reorganized debtor and whether adjudication will interfere with the implementation of the chapter 11 plan." Ventilex, 509 B.R. at 143.
The relief requested herein has a close nexus to the Debtors' Plans ("Plans").
As to the second requirement, each Plan expressly provides for the retention of jurisdiction to enforce and interpret its terms and conditions.
Section 12.1 of the Confirmation Order states, in part:
See Order Confirming Plans of Reorganization, Case No. 11-19428, dkt. no. 360, pp. 62-63.
The Court determines that it has jurisdiction to enter a final order herein.
On May 6, 2011, Debtors Castle Home Builders, Inc. and Tammy Jo Long filed petitions for relief under Chapter 11 of the Bankruptcy Code. See Bankruptcy Case Nos. 11-19428 & 11-19484. On May 25, 2011, the Court entered an order authorizing joint administration of the cases. See Order at dkt. no. 38.
The Debtors' prepetition business operations involved the purchasing, renovation and operation of multiple historic houses in Savannah, Georgia. The homes were rented to wealthy travelers and tourists as short to mid-term luxury accommodations. See Second Amended and Restated Chapter 11 Disclosure Statement of Tammy Jo Long, Case # 11-19428, dkt. no. 302, p. 5 of 46. The Debtors' stated goal in these bankruptcy proceedings was to modify the mortgages that existed on various business properties and to bring serviceable debt back in line with post-recession appraised value. See Motion, dkt. no. 372, p. 2. After spending nearly two years negotiating with mortgage lenders, in May and June, 2013, the Debtors proposed separate plans of reorganization; all voting classes voted in favor of the Plans. See First Amended Ballot Report, dkt. no. 345.
The Plans contemplated the retitling of Debtors' business properties to the name of the newly formed entity, Luxury Properties, LLC, which entity would be primarily responsible for making all required plan payments, including payments for the mortgage on the Jones Property.
In particular, the Second Amended Chapter 11 Disclosure Statement of Castle Home Builders provides, in relevant part:
See Second Amended Chapter 11 Disclosure Statement of Castle Home Builders, p. 6 of 44, dkt. no. 300.
The Second Amended Chapter 11 Disclosure Statement of Tammy Jo Long similarly provides:
See Second Amended Chapter 11 Disclosure Statement of Tammy Jo Long, pg. 6 of 46, dkt. no. 302.
The Jones Property is among the seven "Business Properties" provided for under the Plans.
The Plans also provide that 100% of the equity interests in Luxury Properties, LLC would be held by Luxury Living Properties Holding LLC (together with Luxury Properties, LLC, the "Reorganized Debtor"). See Second Amended Disclosure Statement of Tammy Jo Long, dkt. no. 302, p. 8 of 46.
On June 27, 2013 ("Confirmation Date"), the Court entered an Order Confirming Debtors' Plans of Reorganization ("Confirmation Order"). On August 8, 2013, the Court restated the Confirmation Order nunc pro tunc to the Confirmation Date. See Order, dkt. no. 360.
The portion of the Confirmation Order pertaining to the Jones Property states as follows:
See Confirmation Order, dkt. no. 360, pp. 50-51 of 65.
Bank of America, Holder of a Class 2 claim, voted to accept the Debtors' Plans of Reorganization. See Ballots of Bank of America, dkt. nos. 321, 322.
In the Motion, the Reorganized Debtor complains that notwithstanding the modified mortgage terms set forth in the Confirmed Plans, Everhome, servicer for the Bank of America loan, continues to bill the Reorganized Debtor for the prepetition mortgage without making changes to the principal amount, new interest rate, new amortization period or new borrower name in blatant disregard of Debtors' Confirmed Chapter 11 Plans. See Motion, dkt. no. 372, p. 2. Fifteen months after confirmation, the Jones Property is still listed in Tammy Jo Long's name on loan documents generated by Bank of America, rather than in the name of the newly formed entity, Luxury Properties, LLC.
The Reorganized Debtor requests three forms of relief:
See Motion, dkt. no. 372, p. 6.
On June 3, 2014, the Court held an evidentiary hearing on the issue of liability. The Court also considered the Reorganized Debtor's Motion in Limine 2 to bar Everhome from presenting evidence in connection with the Motion to Enforce and for the Imposition of Sanctions. See Motion in Limine No. 2, dkt. no. 438. At the hearing, the Reorganized Debtor presented evidence proving that Everhome's corporate representative, Mr. Bradley Lee, made no attempt to produce documents in response to the Reorganized Debtor's production request. See Debtors' Trial Exhibit 45, May 28, 2014 Deposition Transcript of Mr. Bradley Lee, 20-24. At his deposition,
As a result, the Court barred Everhome from presenting any evidence in connection with the Motion. See Order On Reorganized Debtor's Motion in Limine Number 2, dkt. no. 443. At the conclusion of the evidentiary hearing, the Court granted the Reorganized Debtor's Motion to Enforce and continued the request for sanctions to a future hearing date.
In accordance with the Court's authority under 11 U.S.C. § 1142(b), it entered a June 23, 2014 Order that required Everhome to immediately come into compliance
The Court further ordered Everhome to pay the Reorganized Debtor (Luxury Properties, LLC) $35,839.38 in attorneys' fees and costs incurred by the Reorganized Debtor for its efforts to get Everhome to comply with the terms of the Confirmation Order ("Fee Order"). See Order with Respect to Reorganized Debtor's Fees & Costs, dkt. no. 449. Payment of those fees was due forty-five days after the entry of the July 10 Fee Order, on August 25, 2014.
To date, Everhome has not complied with the Fee Order, nor has it conformed the loan documents to the economic terms of the Reorganized Debtor's Confirmed Plans or otherwise fully complied with the Court's June 23, 2014 Order. As a result, the Reorganized Debtor filed a Motion for Rule to Show Cause against Everhome Mortgage which the Court will rule on by separate order. See Motion for Rule to Show Cause, dkt. no. 453.
The Court now considers the Reorganized Debtor's request for actual and punitive damages. A confirmed chapter 11 plan of reorganization "binds the debtor, any entity issuing securities under the plan, any entity acquiring property under the plan, and any creditor, equity security holder, or general partner in the debtor. . . ." See 11 U.S.C. § 1141(a). "Provided that adequate notice and due process are afford to affected parties . . . such orders bind the parties so affected until such time as the orders are altered or amended by the issuing court, overturned on appeal or otherwise abrogated." In re Morrow, 495 B.R. 378, 388 (Bankr.N.D.Ill. 2013). A creditor that fails to object to plan provisions during the confirmation process cannot later challenge its terms. In re UAL, Corp., 635 F.3d 312, 321 (7th Cir.2011) (citing First Union Commercial Corp. v. Nelson, Mullins, Riley and Scarborough (In re Varat Enterprises, Inc.), 81 F.3d 1310, 1317 (4th Cir.1996)).
"The confirmation order and discharge injunction are critical elements of the fresh start that is afforded to debtors in the Bankruptcy Code. It is essential that creditors respect these court orders and permit debtors to benefit from the rights and protections which they are entitled." Turner v. Mellon Mortgage Co. (In re Turner), 221 B.R. 920, 924 (Bankr. M.D.Fla.1998) (quoting In re Thomas, 184 B.R. 237 (Bankr.M.D.N.C.1995)).
"Courts have inherent and statutory powers to punish a party that fails to comply with the terms of their orders, and to coerce compliance with such orders." Baldwin Piano, Inc. v. Deutsche Wurlitzer, GmbH, No. 03 C 2105, 2004 WL 1323940, at *1 (N.D.Ill. June 15, 2004) (citing United States v. Dowell, 257 F.3d 694, 698 (7th Cir.2001)). The Court is empowered by 11 U.S.C. § 105 to ensure compliance with the terms of its orders.
An injured party seeking damages must establish the amount of damages with reasonable certainty. Doe v. United States, 976 F.2d 1071, 1085 (7th Cir.1992). "A party seeking damages must prove them using methodologies that need not be intellectually sophisticated." In re Vazquez, 221 B.R. 222, 228 (Bankr. N.D.Ill.1998) (citing Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410, 415 (7th Cir.1992)). However, the amount requested must be based on evidence rather than mere speculation or guesswork. Vazquez, at 228 (internal citation omitted).
In defense, Everhome makes much ado about the fact that the Plans imposed "no affirmative duty" on Everhome to change loan documents or payment coupons to list the Reorganized Debtor rather than Tammy Jo Long as the borrower on the loan.
Consistent with what the parties' apparent intentions were when negotiating the terms of the Plans, the Court has the authority to order the execution of documents to further the Plans' implementation, which includes changing the name reflected on loan files and repayment coupons to reflect the Reorganized Debtor's obligation to repay the loan. This is precisely what the Court contemplated in its June 23, 2014 Order, of which Everhome remains in noncompliance.
The Court determines that an award of actual damages is aptly supported by the record.
The evidence shows that for the months following entry of the Order Confirming the Debtors' Plans of Reorganization, the Reorganized Debtor experienced continual delays and resistence when requests were made to conform loan documents for the Jones Property to the terms of the Confirmation Order. See Debtors' Exhibit 17, December 9, 2013 Correspondence; Exhibit 7, October 28, 2013 Correspondence. For example, in March of 2014, nine months after entry of the Confirmation Order, the Reorganized Debtor was told by counsel for Everhome "As I have said before, the name is not going to change." Counsel's remark and Everhome's inaction has deprived the Reorganized Debtor of the benefits provided for in the confirmed Plans. See Debtors' Exhibit 31, dkt. No. 386, p. 12 of 25, March 10, 2014 Email.
Everhome counters that the Reorganized Debtor has not tendered payments and is in violation of the Plans. See Everhome's Response at p. 3, dkt. no. 394. The Court finds this argument to be disingenuous
At the June 3, 2014 hearing on the Motion, the Court heard the testimony of Tammy Jo Long, manager of the Reorganized Debtor. Ms. Long testified credibly that as a result of her year-long dispute with Everhome, she has been unable to focus on her business and has incurred at least $60,000 in attorney's fees, $10,400 in United States Trustee quarterly fees (representing $2,600 paid per quarter for four quarters), and has suffered a reduction in her personal credit rating. Transcript, 62-64. In addition to suffering a financial loss, Ms. Long testified that the ongoing dispute has adversely affected her health, resulting in stress and weight loss. Transcript, 64-65. Because of the direct harm suffered due to Everhome's failure to comply with the terms of the Plans, Everhome is hereby ordered to pay actual damages in the amount of $100,000.
The Reorganized Debtor also asserts that Everhome's conduct warrants the imposition of a punitive damages award in the amount of $1,000,000.
In support of its request, the Reorganized Debtor relies principally on Vazquez v. Sears, Roebuck & Co. (In re Vazquez), 221 B.R. 222, 231 (Bankr. N.D.Ill.1998), a case involving a suit brought by a chapter 7 debtor to enforce the discharge injunction under 11 U.S.C. § 524. Section 524 of the Bankruptcy Code provides that in the case of a debtor entity, the entry of a discharge operates as an injunction against the collection or enforcement of pre-petition debts discharged upon entry of a confirmation order. See 11 U.S.C. §§ 524(a) and 1141(d)(5).
However, the § 524 injunction is applicable only in cases where a discharge has been entered. Generally, in the case of an individual chapter 11 debtor, no discharge may be entered until completion of all plan payments. Section 1141(d)(5)(A) provides, in part, that "unless after notice and a hearing the court orders otherwise for cause, confirmation of the plan does not discharge any debt provided for in the plan until the court grants a discharge on completion of all payments under the plan." 11 U.S.C. § 1141(d)(5)(A). The Reorganized Debtor has not completed all payments under the Plans, nor has a request been made for entry of an earlier discharge as permitted by Bankruptcy Code § 1141(d)(5)(B). Because this Motion involves an individual debtor, Tammy Jo Long, the discharge injunction does not apply. For that reason, the request for punitive damages will be denied.
To further aid in the implementation of the Plans, and in accordance with the Court's authority under § 1142(b) of the Bankruptcy Code, the Court hereby orders the Reorganized Debtor to transfer title of the Jones Property from the name of Tammy Jo Long to Luxury Properties, LLC as contemplated by the Plans. See dkt. no. 303, pp. 12, 22 of 32; dkt. no. 333. That transfer shall occur on or before November 17, 2014.
For the reasons noted herein, Everhome Mortgage is hereby ordered to pay actual damages in the amount of $100,000 (in addition to the $35,839.38 fee award) to the Reorganized Debtor on or before November 17, 2014. The request for punitive damages is denied. The Court will hold a status hearing on compliance with the terms of this Order on Thursday, November 20, 2014 at 10:00 a.m.
The Orders entered herein on October 21, 2014 stand.
