UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-60347
Summary Calendar
IN THE MATTER OF: APPLEWOOD CHAIR COMPANY,
Debtor.
APPLEWOOD CHAIR CO.,
Appellant,
VERSUS
THREE RIVERS PLANNING AND DEVELOPMENT DISTRICT,
Appellee.
Appeal from the United States District Court
for the Northern District of Mississippi
February 28, 2000
Before SMITH, BARKSDALE and PARKER, Circuit Judges.
PER CURIAM:
Applewood Chair Co. appeals the district court's order
affirming the bankruptcy court's order clarifying a confirmed
plan of reorganization. Because we find that res judicata does
not bar the bankruptcy court's clarification, we affirm.
FACTS AND PROCEEDINGS BELOW
In this bankruptcy appeal, the debtor-appellant, Applewood
Chair Co. (“Applewood Chair”), filed a petition seeking relief
under Chapter 11 on March 30, 1994. Prior to this filing,
creditor-appellee, Three Rivers Planning and Development District
(“Three Rivers”) loaned $100,000 to Applewood Chair and to Ronnie
and Margaret Spivey (“the Spiveys”), as evidenced by a promissory
note dated November 22, 1993. As security for this note,
Applewood Chair executed a security agreement, through its
president, Ronnie Spivey, granting Three Rivers interest in all
equipment parts and inventory of Applewood Chair. In addition,
as guaranty for the note, the Spiveys, individually executed a
Mortgage Agreement, granting Three Rivers a mortgage lien on real
property they owned.
On May 2, 1994, Applewood filed a motion to approve the sale
of its assets that was subsequently granted by the bankruptcy
court on May 31, 1994 (“Sale Order”). As part of the relief
granted by the Sale Order, Applewood sold substantially all of
its assets to another entity or an entity to be formed, which was
identified as “NewCo.” A portion of the assets to be sold
consisted of the equipment used as collateral for the Three
Rivers loan which was now to be transferred NewCo. NewCo was to
assume the Three Rivers indebtedness due and owing by Applewood
Chair. Regarding Three Rivers's secured interest, the motion
(approved by the Sale Order) stated the following:
Movant's equipment currently serves as collateral to
secure an indebtedness of movant to Three Rivers. The
balance of that indebtedness is approximately
$97,000.00, and the equipment, when valued at a going
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concern value, has a value of approximately that same
amount. It is unclear as to whether the liquidation
value of the equipment is equal to or greater than the
amount of the Three Rivers' [1] indebtedness. In any
event, the equipment will be sold to NewCo, in exchange
for NewCo's agreement to assume all of the movant's
obligations and indebtedness to Three Rivers under the
existing loan documents. Three Rivers' first lien upon
the equipment shall remain unaltered. Upon assumption,
all claims of Three Rivers, with respect to the
equipment, will be discharged and forgiven, as to all
existing obligors, and NewCo will assume all of the
existing obligors' obligations in connection with Three
Rivers' claims and debts . . . . (emphasis added).
Based on the language of this Motion, Three Rivers asserts
that it understood that NewCo would assume all obligations and
indebtedness of the debtor to Three Rivers “with respect to the
equipment” only, pursuant to the above-referenced promissory note
and security agreement. The individual obligations of the
Spiveys remained intact pursuant to the terms of the promissory
note and the security agreement. Applewood Chair, on the other
hand, argues that the Sale Order, and the bankruptcy court's
order approving of the reorganization plan, discharged not only
1
With a few limited exceptions, possessive singular nouns
are formed by adding an apostrophe and an s, whatever the final
consonant. See William Strunk and E.B. White, THE ELEMENTS OF STYLE
1 (3d ed. 1979); see also Bryan A. Garner, THE ELEMENTS OF LEGAL
STYLE 23 (1991). The University of Chicago Press recognizes the
general rule with a few exceptions, but also notes a distinction
employed by certain writers and editors. See THE CHICAGO MANUAL OF
STYLE 201 (14th rev. ed. 1993) (“If it ends with a z sound, treat
it like a plural; if it ends with an s sound, treat it like a
singular.”). But see id. (“[University of Chicago Press] is
willing, however, to accept other ways of handling these
situations if they are consistently followed throughout a
manuscript.”). This opinion will consistently follow the
traditional rule of adding 's to form the possessive of singular
nouns regardless of the final consonant.
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the debts of Applewood Chair, but also discharged all officers,
directors and shareholders from any debt due and owing from those
claims that arose prior to the confirmation of the reorganization
plan--including the Spiveys' individual guaranty of the debt owed
Three Rivers.
On June 13, 1994, pursuant to the above-referenced motion
and Sale Order, Three Rivers entered into an Assumption Agreement
with the purchaser of the Applewood Chair's assets, Allcreek
Holdings, Inc., (“Allcreek”), which entity was described in the
above motion and Sale Order as NewCo. Regarding the Spiveys'
individual indebtedness, the Assumption Agreement stated the
following:
That this assumption agreement shall in no way be
considered a novation nor shall it be construed in any
way to impair any of the current existing collateral
taken by Three Rivers at the time of the initial
execution of the Promissory Note. The parties further
agree that the individual guarantees shall not be
impaired and that this shall not be considered to be a
novation with regard to the individual guarantees of
said note.
Accordingly, pursuant to the terms of the Assumption Agreement,
only the indebtedness of Applewood Chair to Three Rivers was
assumed by Allcreek (NewCo). The individual indebtedness of the
Spiveys (as per the promissory note and mortgage agreement) to
Three Rivers, was not assumed by Allcreek, nor was such
indebtedness released by Three Rivers.
On September 1, 1994, Allcreek changed its corporate name to
Applewood Furniture Industries, Inc. (“Applewood Furniture”). In
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approximately February of 1995, Applewood Furniture was in
default and the Spiveys, individually, were in default as well
for failure to make payments pursuant to the terms of the note.
When Three Rivers called upon Applewood Furniture to pay the
remaining indebtedness, it learned that Applewood Furniture was
no longer in business. In addition, when Three Rivers attempted
to enforce its property lien on the equipment (collateral), it
learned that the equipment was missing and could not be found.
In January of 1996, Three Rivers began efforts to foreclose
on the referenced mortgage agreement with respect to the real
property put up as collateral by the Spiveys. During the course
of these foreclosure efforts, counsel for Three Rivers received a
letter from counsel for Ronnie Spivey indicating that, with
respect to the foreclosure on the property, the district court's
confirmation of the reorganization plan not only discharged the
debts owed by the Applewood Chair, but that it would also
discharge Applewood Chair's officers, directors and principals
from any debt owed by those individuals to third parties. At
this time, Three Rivers temporarily suspended efforts to
foreclose and filed a motion for clarification of the Sale Order,
which resulted in the entry of the bankruptcy court's July 31,
1997 order and subsequent supplemental order of October 3, 1997.
In its motion for clarification, Three Rivers argued that
Applewood Chair's Chapter 11 bankruptcy proceedings did not
affect the Spivey's individual liability, nor did those
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proceedings affect Three Rivers' right to foreclose on the
mortgage agreement after the default. The bankruptcy court
agreed and stated the following in its July 31 order:
(1) This Court has continuing jurisdiction to
clarify and/or interpret the intent and effect of its
orders rendered in this Bankruptcy proceeding; and
(2) This Court's Order Approving The Sale of
Substantially All Of The Assets Of The Debtor-in-
Possession, etc., dated May 31, 1994, and subsequent
Order Confirming Plan of Reorganization, dated July 25,
1995, contain insufficient language and were not
intended to have the effect of releasing the individual
indebtedness of Ronnie C. Spivey and Margaret Spivey to
Three Rivers Planning and Development District, Inc.,
as evidenced and created by that certain promissory
note dated November 22, 1993, and that certain mortgage
agreement dated November 22, 1993. (emphasis added).
On May 3, 1999, the district court affirmed the bankruptcy
court's orders. Applewood Chair filed its notice of appeal on
May 13, 1999.
ISSUES ON APPEAL
Applewood raises the following issues on appeal:
1. Whether Three Rivers's motion for clarification of
the Sale Order should have been filed as an
adversary proceeding, as opposed to a motion,
pursuant to Bankruptcy Rule 7001.
2. Whether Three Rivers is barred from pursuing its
claim against the Spiveys by the doctrine of res
judicata.
STANDARD OF REVIEW
We review the bankruptcy court's ruling on these issues as
if they were on direct appeal to us. In re Charrier, 167 F.3d
229, 232 (5th Cir. 1999). We review the bankruptcy court's fact
findings under the clearly erroneous standard and its conclusions
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of law de novo. See id.
THREE RIVERS'S MOTION FOR CLARIFICATION
Applewood Chair argues that Three Rivers's motion for
clarification should have been filed as an adversary proceeding.
Applewood Chair categorizes Three Rivers's motion as a prayer for
declaratory relief and for a determination of the validity of
Three Rivers's claim against the Spiveys. Three Rivers argues
that its motion sought to clarify the “intent and effect” of the
bankruptcy court's Sale Order and order confirming the
reorganization plan as to the individual indebtedness of the
Spiveys pursuant to the promissory note and mortgage agreement.
We agree with the latter argument.
The relief requested by Three Rivers does not qualify as a
type of proceeding required by Rule 7001 to be brought as an
adversary proceeding.2 The validity of Three Rivers's lien
against the equipment which belonged to Applewood Chair was never
in question. This equipment was part of the bankruptcy estate
until it was sold to Allcreek who then assumed Three Rivers's
lien against the equipment. Three Rivers's motion for
clarification was properly filed as a motion rather than an
adversary proceeding.
RES JUDICATA EFFECT OF BANKRUPTCY COURT'S ORDERS
2
Bankruptcy Rule 7001 lists 10 types of proceedings (e.g.,
to determine whether a debt can be discharged, to obtain
equitable relief) that qualify as “adversary proceedings” and
require the filing of a complaint, as opposed to a motion, to
resolve.
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Applewood Chair argues that Three Rivers was barred from
seeking clarification of the Sale Order under the theory of res
judicata. In Republic Supply v. Shoaf, 815 F.2d 1046 (5th Cir.
1987), we held that the confirmation of a clear and “unambiguous
plan” of reorganization that “expressly released” a third-party
guarantor has a res judicata effect on a subsequent action
against the guarantor who is also a creditor. See Shoaf, 815
F.2d at 1049-50. Because we find Shoaf distinguishable from the
facts of this case, we reject Applewood Chair's argument.
The general rule is that a discharge in bankruptcy does not
affect a guarantor's liability. See 11 U.S.C. § 524(e) (1994)
(“[D]ischarge of a debt of the debtor does not affect the
liability of any other entity on, or the property of any other
entity for, such debt.”); see also N.C.N.B. Texas Nat'l Bank v.
Johnson, 11 F.3d 1260, 1266 (5th Cir. 1994) (holding that to
allow a confirmed reorganization plan to effect an accord and
satisfaction on a loan guaranty “would defeat the purpose of loan
guaranties; after all, a lender obtains guaranties specifically
to provide an alternative source of repayment in the event that
the primary obligor's debt is discharged in bankruptcy”); Matter
of Sandy Ridge Dev. Corp., 881 F.2d 1346, 1351 (5th Cir. 1989)
(“A discharge in bankruptcy will simply not affect the liability
of a guarantor.”). The Spiveys did not file for individual
bankruptcy protection, Applewood Chair was the debtor in this
bankruptcy proceeding. Thus, our analysis of this issue should
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bear in mind the general rule codified in § 524. See, e.g.,
United States v. Stribling Flying Serv., Inc., 734 F.2d 221, 223
(5th Cir. 1984) (noting that the obligations of individual third-
party guarantors were not affected by a corporate debtor's
Chapter 11 proceeding).
In Shoaf, this Court recognized the res judicata effect of
an approved reorganization plan which expressly provided for the
release of a third party guarantor who was also a creditor. See
815 F.2d at 1051-55. The issue stated in Shoaf illustrates the
limited nature of its holding: “In this appeal we address the
question whether the bankruptcy court's confirmation order which,
beyond the statutory grant of the Code, expressly released a
third-party guarantor, is to be given res judicata effect.” 815
F.2d at 1047. The approved final reorganization plan contained a
specific paragraph for the release of Shoaf's guaranty. See id.
at 1049. Importantly, the final reorganization plan confirmed by
the bankruptcy court in Shoaf omitted a paragraph that provided
for a general release,3 leaving the paragraph specifically
releasing the Shoaf guaranty in the plan. See id.
The reorganization plan approved by the bankruptcy court in
3
Appellant's brief highlights this omitted language from
Shoaf and compares the language to the release language in this
case. See Shoaf, 815 F.2d at 1050 (“Neither this motion, nor the
bankruptcy court's order granting the relief, addressed the
provision of the Plan relating to the release of Shoaf's
guaranty, but dealt only with provisions of former paragraph 7
relating to general releases, a paragraph which had been
eliminated before the Plan was confirmed.”).
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the case sub judice contained no provision specifically releasing
the personal guaranties of the Spiveys. The plan did contain a
general release that stated the following:
The provisions of the confirmed plan shall bind
all creditors and parties in interest, whether or
not they accept the plan and shall discharge the
Debtor, its officers, shareholders and directors
from all claims that arose prior to Confirmation.
Applewood Chair argues that because Mr. Spivey was an officer,
director and shareholder, and because Mrs. Spivey was a
shareholder of the debtor company that this cases falls under the
rationale of Shoaf. This argument invites this Court to extend
that holding to an inapposite factual situation. We decline the
invitation.
As Three Rivers points out in its brief, the circumstances
which would justify abrogation of the general rule codified in §
524--i.e., application of Shoaf--are not present in this case.
No specific discharge or release of the Spiveys' individual
guaranties to Three Rivers was enumerated or approved by the
bankruptcy court in this matter. The bankruptcy court recognized
this and stated as much in its July 31, 1997, order when it noted
that the Sale Order and reorganization plan “contain[ed]
insufficient language and were not intended to have the effect of
releasing the individual guaranties of Ronnie C. Spivey and
Margaret Spivey to Three Rivers.” The lack of a specific
discharge distinguishes this situation from that in Shoaf and
thus, does not warrant the application of its holding as
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appellants assert. See In re Taylor, 132 F.3d 256, 260 (5th Cir.
1998) (noting that the bankruptcy court's order of confirmation
in Shoaf “included express language noting the release of the
guarantor”); Enterprise Financial Grp. v. Curtis Mathes Corp.,
197 B.R. 40, 46 (E.D. Tex. 1996) (refusing to apply the res
judicata principle of Shoaf “to a retention-of-jurisdiction
provision contrary to the Code but nonetheless placed in a plan
which was confirmed and never appealed”); Austin Hardwoods, Inc.
v. Vanden Berghe, 917 S.W.2d 320, 325 (Tex. App.--El Paso 1995,
writ denied) (distinguishing Shoaf because the “issue in Shoaf
was the res judicata effect of a confirmed reorganization plan on
a guarantor where the confirmed plan expressly provided for the
release of the guarantor who was a party to the bankruptcy
proceedings”).
The Sale Order only discharged those claims of Three Rivers
“with respect to the equipment.” The individual guaranties of
the Spiveys--unlike the specific releases of the individual
guaranty in Shoaf--were not discussed in the bankruptcy
proceedings. The assumption agreement entered into, pursuant to
the Sale Order, between Three Rivers and the purchaser of the
debtor's assets (Allcreek) supports appellee's argument.
Thus, the individual guaranties of the Spiveys were not assumed
by Allcreek, nor were the guaranties released by Three Rivers.
CONCLUSION
Because we decline to extend the holding of Shoaf to
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situations where a plan of reorganization does not contain a
specific discharge of the indebtedness of a third-party, we
affirm the decision of the district court.
AFFIRMED
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