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rejecting argument bankruptcy court lacked jurisdiction to enforce settlement agreement
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Civ. No. 99-3566, SECTION "G".
January 31, 2000.
MEMORANDUM AND ORDER
The factual and procedural background is taken primarily from the parties' briefs, with any disputed facts noted.
This is an appeal from an Order of the bankruptcy judge, entered on September 29, 1999, granting the motion of Appellee, JLH, L.L.C. ("JLH"), to enforce a June 16, 1999 Agreed Order authorizing Settlement Agreement between JLH and Appellant Credit Agricole Indosuez ("Credit Agricole"), entered in JLH's bankruptcy proceeding, Case No. 99-11535.
JLH filed for Chapter 11 relief in the United States Bankruptcy Court for the Eastern District of Louisiana on March 30, 1999. Among JLH's primary assets were four grocery stores leased to Schwegmann Giant Supermarkets ("SGSM"). SGSM also had filed for Chapter 11 relief on March 26, 1999 in the United States Bankruptcy Court for the District of Delaware. Credit Agricole is a secured creditor of the SGSM bankruptcy estate.
The present dispute between JLH and Credit Agricole had its genesis in SGSM's decision to sell its leasehold interest in certain JLH stores to Super Fresh/Say-A-Center, Inc. ("AP"). The proceeds of the sale were to f-low, in part, to Credit Agricole. JLH, as SGSM's lessor, found the proposed sales objectionable for a number of reasons, and claimed that its approval was necessary for such sales to occur. JLH filed a petition to enjoin the closing of the purchase agreement between SGSM and AP, and also filed a notice of lis pendens against the properties in question.
SGSM sought to have the Delaware Bankruptcy Court approve the purchase agreement over JLH's objections. JLH oppposed approval, moved to transfer the SGSM case to the Bankrupcty Court for the Eastern District of Louisiana, and argued, inter alia, that unless the stay was lifted in JLH's bankruptcy proceeding, the proposed SGSM/AP sale could not be consummated.
On April 29, 1999, prior to the hearing in Delaware of SGSM's motion for approval of the purchase agreement, JLH and SGSM reached an agreement whereby JLH would withdraw its objections in return for receipt of $1 million from the proceeds of the SGSM/AP sale. On June 10, 1999, the Delaware Bankruptcy court signed an order to this effect. The Delaware court refused, however, to order JLH to lift the stay in its bankruptcy for purposes of consummation of the sale, instead leaving that issue for the court handling the JLH bankruptcy. The Delaware court then transferred the SGSM bankruptcy proceeding to the Eastern District of Louisiana.
After the SGSM case was transferred to the Eastern District of Louisiana, JLH and SGSM/Credit Agricole again became embroiled in a disagreement concerning JLH's lifting of the stay on its bankruptcy proceeding for purposes of allowing the SGSM/AP sale. Credit Agricole entered the negotiations out of concern that SGSM would not be able to obtain stay relief from JLH and consummate the sale. On June 16, 1999, JLH and Credit Agricole entered a written agreement whereby JLH agreed not to oppose the lifting of the automatic stay, to withdraw its notices of lis pendens and to waive its right to appeal the Delaware court's order, in return for receipt of $4,050,000 from Credit Agricole at the closing of the SGSM/AP Asset Purchase Agreement ("the APA").
This sum was to be in addition to the previously agreed-to $1 million.
On the same day that JLH and Credit Agricole entered the Agreement, JLH sought approval of the Agreement by Judge Brown in JLH's Chapter 11 proceeding. Judge Brown entered an "Agreed Order" pursuant to Section 363(b) of the Bankruptcy Code and Bankrupcty Rule 9019, lifting the stay and approving the Agreement and JLH's decision to enter into it.
This is the term used by the parties.
Before the scheduled closing date, the purchaser, AP, conducted inventory checks and objected to certain terms of the SGSM/AP sale. AP and SGSM made a third amendment to the APA that, inter alia, reduced the purchase price by approximately $5,100,000.00 and changed the closing date.
In August 1999, Judge Brahney held a hearing in the SGSM bankruptcy proceeding for purposes of approving the APA as amended. JLH filed a pleading in support of approval of the purchase agreement and appeared at the hearing with the understanding that it would still receive the $5.05 million dollars from SGSM and Credit Agricole agreed to previously. There is some dispute over precisely when JLH had notice that Credit Agricole would refuse to remit the $4,050,000.00 in view of the third amendment to the APA, but, in any event, attempts by JLH and Credit Agricole to resolve any differences on this issue proved fruitless. Following approval of the third amended APA and the SGSM/AP closing, Credit Agricole definitively refused to remit payment of the additional $4,050,000.00 to JLH, asserting that due to the third amendment to the APA and approximately $5 million reduction in the purchase price paid to SGSM, Credit Agricole was no longer obligated to pay the additional $4,050,000.00 agreed to pre-amendment.
On September 1, 1999, after the closing occurred and Credit Agricole did not remit the agreed-to sum, JLH filed in its Chapter 11 bankruptcy proceeding an Emergency Motion to Enforce the June 16, 1999 Settlement Agreement and Agreed Order. Credit Agricole opposed the motion, arguing that (1) the bankruptcy court lacked jurisdiction to consider the motion; (2) JLH must proceed on its breach of contract claim in an adversary, not summary, proceeding; (3) the summary motion proceeding denied Credit Agricole due process; and/or (4) Credit Agricole's payment obligation was contingent upon closing pursuant to the APA as it existed on June 16, 1999 which, and due to the third amendment to the APA after that date, Credit Agricole was not obligated under the June 16, 1999 Agreement.
Judge Brown held a hearing on the Motion to Enforce on September 29, 1999 and rendered judgment in favor of JLH for $4,050,000.00, with oral reasons. No written findings of fact were issued. At a subsequent hearing, Judge Brown stayed the judgment pending appeal to this court. Credit Agricole filed a notice of appeal in this court on October 7, 1999.
Credit Agricole sets forth the following arguments on appeal: (1) the bankruptcy court erred in treating the matter as a core proceeding under 28 U.S.C. § 157; (2) the bankruptcy court lacked jurisdiction to enforce the settlement agreement; (3) the bankruptcy court erred in the procedure followed and denied Credit Agricole due process; and (4) the bankruptcy court erred on the substantive issues when it determined that the June 16, 1999 Agreement between JLH and Credit Agricole was clear and unambiguous and that according to the terms of the Agreement, Credit Agricole owed JLH $4,050,000.00.
JLH has responded to and opposed each of Credit Agricole's arguments.
Discussion
A. Core v. Non-Core Proceeding
Credit Agricole first argues that the bankruptcy court erred as a matter of law in treating the matter as a core proceeding under 28 U.S.C. § 157.
Jurisdiction over all civil proceedings arising under Title 11, or arising in or related to cases-under Title 11 is vested in the district court. Section 157 of Title 28 permits the district court to refer to the bankruptcy judges for the district "any or all cases under title 11 and any or all proceedings arising under Title 11 or arising in or related to a case under Title 11." Subsection (b) allows the bankruptcy judge to hear and determine and enter appropriate orders and judgments in all core proceedings arising under Title 11. The section further provides a not-exhaustive list of matters that constitute core proceedings.
28 U.S.C.A. S 1334(a) and (b).
28 u.s.C.A. S 157(a) (West 1993 Supp. 1999).
Id. § 157(b)(1).
Section 157(c)(1) restricts the authority of bankruptcy judges over non-core proceedings. That section provides that:
A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.
28 U.S.C.A. § 157(c)(1) (West 1993).
The Fifth Circuit has defined the scope of the district court's bankruptcy jurisdiction as well as the distinction between core and non-core proceedings. In an action for wrongful appropriation of corporate assets, the Fifth Circuit determined that the scope of the court's bankruptcy jurisdiction is broad and encompasses all matters "related to" the bankruptcy. Rejecting a restrictive interpretation of the statutory grant of jurisdiction under section 1334, the court reasoned that the Bankruptcy Act of 1984 left intact the scope of jurisdiction under the 1978 Act which "vested an expansive bankruptcy jurisdiction in the district court." As the court noted, "Congress was concerned with the inefficiencies of piecemeal adjudication of matters affecting the administration of bankruptcies and intended to give federal courts the power to adjudicate all matters having an effect on the bankruptcy.
See In re Wood, 825 F.2d 90 (5th Cir. 1987).
See id. at 93.
Id. at 92.
Id.
The 1984 Act was concerned with the placement of bankruptcy jurisdiction in non-Article III courts, not with the scope of the bankruptcy jurisdiction defined by Congress in section 1334. Moreover, "[t]he abstention provisions of the Act demonstrate the intent of Congress that concerns of comity and judicial convenience should be met, not by rigid limitations on the jurisdiction of federal courts, but by the discretionary exercise of abstention when appropriate in a particular case." The court concluded that to determine whether a particular matter falls within bankruptcy jurisdiction, "it is necessary only to determine whether a matter is at least `related to' the bankruptcy." The court defined "related to" as "whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."
Id. at 93.
Id.
Id.
Id. (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d cir. 1984)).
Applying that test to this case, the dispute is sufficiently related to JLH's bankruptcy to be within the district court's bankruptcy jurisdiction under 28 U.S.C. § 1334. JLH and Credit Agricole entered into a Settlement Agreement for purposes of eliminating the JLH stay as an impediment to the closing of the purchase agreement between SGSM and AP.
The parties' jurisdictional dispute, however, is focused on the classification of this proceeding as core or non-core. As stated previously, Title 28, section 157 of the United States Code distinguishes between core proceedings, over which bankruptcy judges may exercise full authority, including entry of judgment, and non-core proceedings, over which bankruptcy judges may exercise limited authority but may not enter judgment.
28 U.S.C. § 157 (West 1993)
The statute does not define core proceedings, although it does provide a nonexclusive list of examples, two of which JLH argues are relevant here:
(2) Core proceedings include, but are not limited to —
(A) matters concerning the administration of the estate;
(G) motions to terminate, annul, or modify the automatic stay; . . .
Id.
The Fifth Circuit has cautioned that core proceedings must be narrowly defined to conform to the constitutional proscription ofMarathon v. Northern Pipelines, 458 U.S. 50 (1982) In Wood, the court held that "[a] proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case." Therefore, "[i]f the proceeding does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a core proceeding . . . it is an `otherwise related' or non-core proceeding." "In determining core status, the court must look to both the form and the substance of the proceeding."
In re Wood, 825 F.2d at 95.
Id at 97.
Id.
Id.
I find that the matter before me, though it may be based on state-created (i.e. contract) rights, is sufficiently "core" to JLH's bankruptcy proceeding. First and foremost, it may be said to be a matter "concerning the administration of the estate [of JLH]" and/or to "terminate, annul or modify the automatic stay," within the meaning of 28 U.S.C. § 157 (b)(2)(A) and/or (G). Considering the form and substance of the dispute, it is clear that JLH and Credit Agricole never would have entered the June 16, 1999 written agreement had there not been some question about the necessity for lifting the stay issued in connection with JLH's bankruptcy proceeding so that SGSM and AP could enter their purchase agreement. Had an action been initiated by Credit Agricole or SGSM to determine the applicability of the automatic stay, or by JLH to enjoin or prosecute a violation of the automatic stay, such an action undoubtedly would have been a core proceeding. This result does not change merely because JLH and Credit Agricole attempted to avert such litigation by entering into the June 16, 1999 agreement. This matter is readily distinguishable from contract actions that have been found to be "not based on any right created by the federal bankruptcy law" and therefore only peripheral to a bankruptcy proceeding.
See Carabetta Enterprises, Inc. v. City of Asbury Park, 162 B.R. 399, 404 (D.Connecticut 1993) (citations omitted)
In re Wood, 825 F.2d at 95. In Wood, the court determined that a claim against the debtors for misappropriation of corporate assets was a non-core proceeding because it was "net based on any right created by the federal bankruptcy law . . . [but] is based on state created rights. . . . [and] is not a proceeding that could arise only in the context of a bankruptcy. . . . [but] simply a state contract action that, had there been no bankruptcy, could have proceeded in state court." Id. Further, the court noted that the form of the action did not invoke "the special rules of bankruptcy" since no proof of claim was filed and thus did not invoke "the peculiar powers of the bankruptcy) court." Id. at 97-98.
B. Jurisdiction to Enforce Agreed Order Authorizing Settlement Agreement
Credit Agricole further argues that the bankruptcy court lacked jurisdiction on September 30, 1999 to enforce the Agreed Order because merely granting JLH the authority to enter into the June 16, 1999 agreement did not give the bankruptcy court jurisdiction to enforce the terms of that agreement.
First, Credit Agricole urges that the settlement confected between it and JLH is not the type of settlement contemplated by Bankruptcy Rule 9019(a), which provides for court approval of compromises and settlements entered into by the debtor. I reject this argument, finding nothing to suggest that the agreement at issue here falls outside the contemplation of Rule 9019(a).
Credit Agricole further argues that mere approval by the bankruptcy court of the agreement did not result in ongoing jurisdiction to enforce the terms of the agreement. I reject this argument, as well. A bankruptcy court, like any other court, has inherent power to enforce its own judgments.
See Peacock v. Thomas, 516 U.S. 349, 116 S.Ct. 862 (1996)
Almost as an afterthought, Credit Agricole further argues that absent some specific retention of jurisdiction (which it does not, however, concede would have been valid), the bankruptcy court was without jurisdiction to enforce the agreement.
The Supreme Court has held that federal district courts do not have ancillary jurisdiction to enforce settlement agreements after a case has been dismissed unless there is independent federal subject matter jurisdiction over the settlement agreement and/or the district court specifically retains jurisdiction over the settlement agreement. Counsel does not cite and I have not found a case in which this principle has been applied in a bankruptcy proceeding. In any event, the principle is not applicable on the facts of this case. Here, the settlement did not result in a "dismissal" of the bankruptcy proceeding and the court, therefore, never lost jurisdiction. Because the agreement was authorized pursuant to certain terms considered favorable to the debtor, the interpretation of which were placed in dispute after the agreement was blessed by the bankruptcy court, it was within the bankruptcy court's continuing jurisdiction, prior to dismissal of the bankruptcy proceeding, to assure the integrity of its own orders issued pursuant to Bankrupcty Rule 9019(a).
See Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 381-82, 114 S.Ct. at 1677 (1994).
C. Summary v. Adversary Proceeding; Due Process
Credit Agricole next urges that the bankruptcy court failed to follow the appropriate procedure for deciding this dispute and denied Credit Agricole constitutional due process.
Credit Agricole argues that even assuming this "garden variety contract dispute" is a core proceeding, the proper vehicle for seeking relief was an adversary proceeding, not an emergency motion to enforce settlement, which is handled summarily.
JLH was completely within its rights to proceed via a motion to enforce as opposed to an adversary proceeding. A district court, as well as a bankruptcy court, has inherent or equitable power to enforce summarily an agreement to settle a case pending before it. Here, it actually was a court order authorizing and approving the parties' settlement that JLH sought to enforce, though this makes no real difference in the procedure required. Had JLH and Credit Agricole not reached an agreement before approaching the bankruptcy judge for approval, that dispute might properly have been brought as an adversary proceeding with, e.g., a complaint, answer, discovery, oral testimony, cross examination, etc. However, once the parties agreed to settle their dispute without the necessity of an adversary proceeding, and the bankruptcy judge blessed that agreement, it was not necessary for JLH to institute an adversary proceeding to enforce the agreement and/or court order.
See Mid-south Towing Co. v. Har-Win. Inc., 733 F.2d 386, 389 (5th Cir. 1984); In re City Equities Anaheim., 22 F.3d 954, 958 (9th cir. 1994); Wilson v. Wilson, 46 F.3d 660, 664 (7th Cir. 1995); In re Hillard Development Corp., 185 B.R. 920 (S.D. Fla. 1995).
Credit Agricole further argues that even if a full blown adversary proceeding was not required, the motion should have been treated as a summary judgment motion and the court should have followed the procedures of Fed.R.Civ.P. 56, as incorporated by Bankruptcy Rule 7056. Specifically, Credit Agricole urges that (1) JLH should have waited at least twenty days from institution of the "emergency proceeding" to file the summary judgment motion, and the court should have allowed twenty additional days before the hearing for Credit Agricole to investigate, conduct discovery and respond; (2) the court should have put Credit Agricole on notice ahead of the hearing that it would hold a full hearing on the merits, as opposed to just addressing Credit Agricole's jurisdiction and procedural arguments; and (3) Credit Agricole should have been allowed to present evidence through affidavits, deposition testimony, admissions, etc., as contemplated by Fed.R.Civ.P. 56.
I am not convinced that the manner in which JLH or the bankruptcy court proceeded was procedurally deficient. JLH's motion to enforce might have been akin to a motion for summary judgment. It asked the court to end a dispute based on the lack of disputed material facts. Regardless of how the motion was denominated, however, the court sufficiently complied with the notice and hearing requirements of Rule 56. The motion was filed on September 1, 1999 and a hearing was not held until September 29, 1999. It is clear from a review of the parties' briefs and the transcript of the September 29, 1999 hearing that Credit Agricole understood that the bankruptcy judge would address all of the parties' arguments, not just the jurisdictional and procedural ones. Credit Agricole had an opportunity to take any discovery it required, pursuant to Bankrupcty Rule 9006, but took no steps to do so. In any event, Rule 56 permits, but does not require, affidavits, testimony, and other evidence in support or opposition to a motion for summary judgment. Here, there were no material facts in dispute; Judge Brown found the settlement agreement clear on its face and enforced it according to those terms.
Finally, Credit Agricole urges that the summary proceeding violated due process. Due process "is flexible and calls for such procedural protections as the particular situation demands." For the reasons stated above, and based on my review of the record, I find that the process given here was appropriate to the nature of the case.
Morrissey v. Brewer, 408 U.S. 471, 481, 92 S.Ct. 2593, 2600 (1972)
In connection with its due process argument, Credit Agricole maintains that, among other things, it was denied its right to a jury trial. The jury trial issue was not raised at any time in the bankruptcy court, and Credit Agricole therefore may not argue the issue for the first time on appeal.
D. Bankruptcy Court's Interpretation of Settlement Agreement
Finally, Credit Agricole attacks the bankruptcy judge's ruling on the merits of the case, i.e. his determination that the June 16, 1999 Agreement between the parties was clear and unambiguous and obligated Credit Agricole, upon the closing of the APA between SGSM and AP, to remit to JLH $4,050,000.00.
Settlement agreements are contracts and must therefore be construed according to general principles of contract law. Under these principles, a district court's interpretation of an ambiguity is reviewed under a clearly erroneous standard. A lower court's threshold determination as to whether a contract is ambiguous, however, is subject to de novo review. However, a party cannot create an ambiguity in an otherwise plain agreement merely by "urg[ing] different interpretations in the litigation;" if a contract is clear, courts must take care not to alter or go beyond the express terms of the agreement, or to impose obligations on the parties that are not mandated by the unambiguous terms of the agreement itself.
See Red Ball Interior Demolition Corp. v. Palmadessa, 173 F.3d 481, *484 (2d Cir. 1999) (citing Goldman v. Commissioner, 39 F.3d 402, 405 (2d Cir. 1994); Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525 (2d Cir. 1994)). The parties agree that the law of the second Circuit governs interpretation of the June 16, 1999 Agreement.
Id. (citing Tourangeau v. Uniroyal. Inc., 101 F.3d 300, 306 (2d Cir. 1996))
Id (citations omitted)
See Redball, 173 F.3d at 484 (citing Huertas v. East River Housing Corp., 992 F.2d 1263, 1266 (2d Cir. 1993); Tourangeau, 101 F.3d at 307)).
Judge Brown found that the June 16, 1999 Agreement between JLH and Credit Agricole was not ambiguous and that it obligated Credit Agricole to pay $4,050,000.00 at the closing of the APA. Credit Agricole does not argue that the Settlement Agreement was ambiguous, but that Judge Brown's interpretation of the Agreement was incorrect and that although he said that the contract was unambiguous, he improperly based his decision on extrinsic evidence and "equity" considerations instead of the express terms of the agreement.
See Transcript of September 29, 1999 hearing, at p. 88.
Credit Agricole maintains that it was an express or implied condition of the Agreement that there be a closing pursuant to the APA as it existed on June 16, 1999. Because a third amendment was made to the APA after June 16, 1999, Credit Agricole argues, the condition did not occur, relieving Credit Agricole of its payment obligation under the Agreement. As evidence of this express condition, Credit Agricole points to the requirement in the Agreement that Credit Agricole pay $4,050,000.00 "of the proceeds actually received [by Credit Agricole] pursuant to and in accordance with the Asset Purchase Agreement" and to the definitional section of the Agreement, which defines Asset Purchase Agreement as "that certain Asset Purchase Agreement between Super Fresh/Say-A-Center, Inc. and the Debtor dated as of February 26, 1999, as amended prior to the date hereof and as in effect on the date hereof attached as Exhibit D hereto." Focusing on the highlighted definitional language, Credit Agricole argues that because the definition of APA did not refer to future (post-June 16, 1999) amendments but only to past amendments, it was an express condition of the Agreement that there be no amendments to the APA as it existed on June 16, 1999.
Agreement at § 3.
at § 1 (emphasis added).
Credit Agricole's interpretation overlooks other language in the Agreement, specifically, the language "attached as Exhibit D hereto," which appears directly following the language focused on by Credit Agricole, i.e. the APA "as amended prior to the date hereof (June 16, 1999 and as in effect on the date hereof . . ."
The Asset Purchase Agreement, as it existed on the date of the Settlement Agreement, was physically attached to the Agreement, making it part of the Settlement Agreement. Section 5(d) of the Settlement Agreement provided that "no term or provision hereof or schedule or annex hereto shall be amended, supplemented or otherwise modified, except pursuant to a written instrument signed by the parties hereto." The meaning of this is clear. In order to allow for the possibility that the Asset Purchase Agreement, a contract to which neither JLH nor Credit Agricole were privy, might be amended before closing, while ensuring that neither Credit Agricole nor JLH could escape from its duties under the Settlement Agreement based on some technical amendment to the APA, the Settlement Agreement was confected so as to permit one document to be changed without altering or negating the other. When read as a whole, as it must be, the Settlement Agreement permits the parties to the APA to modify that document as among themselves; however, in order for that modification to alter or affect the separate obligations of JLH and Credit Agricole, they would have to execute a formal amendment substituting a new Exhibit D for the old one. Here, no such amendment was made, and Credit Agricole remained bound by the terms of the Settlement Agreement.
Settlement Agreement at § 5(d).
Even accepting the interpretation urged by Credit Agricole, I am not convinced that what was called a "Third Amendment" to the APA was an amendment that affected Credit Agricole's obligation under the express or implied terms of the Agreement. Labeling a subsequent agreement as an "amendment" does not supersede a prior agreement. Review of the APA pre- and post- "Third Amendment" reveals that the vast majority of the transaction as set forth in the APA as it existed on June 16, 1999 was preserved and left unchanged by the third amendment. The APA following the third amendment was, for all practical purposes, the same APA referred to in the June 16, 1999 Agreement. For this reason, as well as the one stated above, Credit Agricole remained bound to remit to JLH the sum agreed upon in the Agreement once the SGSM/AP closing occurred.
In re Nichols, 120 B.R. 745 (Bkrtcy S.D.N.Y. 1990)
Accordingly,
IT IS ORDERED that the September 29, 1999 ruling of Judge Brown in favor of JLH IS AFFIRMED.