IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
Nos. 95-10694 & 95-10695
_____________________
In the Matter of: BERRYMAN PRODUCTS, INC.
Debtor
----------------------------------------------
BERRYMAN PRODUCTS, INC.
Appellee
v.
NATIONWIDE MUTUAL INSURANCE COMPANY
Appellant
BERRYMAN PRODUCTS, INC., ex rel. Nationwide
Mutual Insurance Company
Plaintiff-Appellant
v.
ROBERT H BLANKENSHIP; TRUMAN BLANKENSHIP;
MAURICE BLANKENSHIP; ED BLANKENSHIP; PATRICIA
WYATT; GAIL PARMAN
Defendants-Appellees
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
June 13, 1996
Before KING, WIENER, and BENAVIDES, Circuit Judges.
PER CURIAM:*
*
Pursuant to Local Rule 47.5, the court has determined
that this opinion should not be published and is not precedent
Nationwide Mutual Insurance Company appeals the district
court’s reversal of the bankruptcy court’s order authorizing it
to bring certain avoidance actions on behalf of Berryman
Products, Inc., and Berryman Products of Delaware, Inc., and the
district court’s concomitant dismissal of those avoidance
actions. We affirm.
I. BACKGROUND
Berryman Products, Inc. (“BPI”) is a manufacturer of
automotive products located in Arlington, Texas, and is a wholly
owned subsidiary of Berryman Products of Delaware, Inc. (“BPD”).
In 1986, Robert Blankenship accepted an unsecured note (“BPD
note”) in the amount of $2.9 million from BPD to finance the sale
of BPI and BPD to Blankenship’s children. According to BPI, the
BPD note was initially unsecured because First City National Bank
of Arlington (“First City”) held a lien on nearly all of BPI’s
assets pursuant to a concurrently executed loan and security
agreement. BPI states that these loan documents provided that,
once the First City loan was paid, Blankenship would then receive
a security interest in BPI’s assets to collateralize the BPD
loan. In 1991, the First City loan was paid and the BPD note was
refinanced, this time giving Blankenship a lien on BPI’s assets.
In March 1993, Blankenship took an additional security interest
in BPI’s inventory.
except under the limited circumstances set forth in Local Rule
47.5.4.
2
In 1990, Matt Van Hart filed suit in California state court
against several defendants, including BPI and C.P. Hunt Company,
Inc. (“Hunt”),1 alleging that one of BPI’s products was partially
responsible for the automobile accident that rendered him a
quadriplegic. In 1993, after a jury trial, judgment was entered
on the jury’s verdict awarding damages in excess of $7.5 million
against BPI and Hunt, jointly and severally. Nationwide
subsequently settled with Hart for $6 million.2
On March 18, 1993, BPI and BPD (collectively, the “debtors”)
filed a joint petition for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas in Fort Worth. Nationwide filed a
proof of claim for $6 million based on its claim for contribution
from BPI for the amount paid in the Hart settlement. In a letter
to the debtors’ counsel dated May 4, 1994, Nationwide asserted
its belief that the 1991 refinancing of the BPD note and 1993
agreement giving Blankenship a security interest in BPI’s
inventory were fraudulent and preferential transfers, and
therefore, avoidable. Nationwide then stated that, if the
debtors were unwilling or unable to bring actions to avoid these
transfers, Nationwide would seek standing to bring the actions on
the debtors’ behalf. The debtors responded in a letter dated May
13, 1994, declaring their intent not to pursue avoidance actions
1
Hunt is a distributor of BPI’s products in California and
is insured by Nationwide Mutual Insurance Company (“Nationwide”).
2
The judgment was reversed on appeal and remanded for a new
trial, which is still pending. Hart died during the appeal.
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against Blankenship because they believed that such actions would
have no legal merit and would be a waste of the estate’s assets.
The debtors acknowledged that Nationwide could seek standing to
bring the avoidance actions against Blankenship on the debtors’
behalf. These letters were included in the debtors’ Second
Amended Disclosure Statement, which was filed and approved on
June 2, 1994.
On June 7, 1994, Nationwide filed a motion seeking authority
to bring the avoidance actions on the debtors’ behalf. On July
1, 1994, Nationwide filed an amended motion. Specifically,
Nationwide sought authority to bring actions against Blankenship
based on the 1991 refinancing agreement, the 1993 security
interest in the debtors’ inventory, and certain post-petition
transfers to Blankenship in the amount of $500,000. Nationwide
also sought authority to bring actions against the debtors’
officers and directors personally for payments of dividends and
the repurchase of shares.
On July 10, 1994, the bankruptcy court held a confirmation
hearing on the debtors’ First Amended Joint Plan of
Reorganization, which the debtors had filed on May 6, 1994, and
had modified on July 1, 1994. With respect to avoidance actions,
the Plan contained the following provisions:
12.1. Generally. Unless expressly waived or released
by the Debtors, Reorganized BPD or Reorganized BPI
shall retain any cause of action, including but not
limited to avoidance or recovery actions under sections
542, 543, 544, 545, 547, 548, 549, 550, 551, and 553 of
the Bankruptcy Code, or may litigate any other causes
of action, rights to payments, or Claims that may
belong or have belonged to the Debtors. If Reorganized
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BPD or Reorganized BPI is successful in its prosecution
of a cause of action pursuant to this section, the
recovery shall be for the benefit of the Unsecured
Creditors. Persons subject to a successful avoidance
action may file a Claim, as appropriate, within such
time as is established by the Bankruptcy Court.
. . . .
15.1. Retention of Jurisdiction. Pursuant to sections
1334 and 157 of title 28 of the United States Code, the
Bankruptcy Court shall retain exclusive jurisdiction of
all matters arising in, arising under, and related to
the Chapter 11 Cases and the Plan, for the purposes of,
sections 105(a) and 1142 of the Bankruptcy Code, and
for, among other things, the following purposes:
. . . .
(j) To enable Reorganized BPD or Reorganized BPI
to prosecute any and all proceedings which may be
brought to set aside liens or encumbrances and to
recover any transfers, assets, properties or damages to
which the Debtors may be entitled under applicable
provisions of the Bankruptcy Code or any other federal,
state or local laws, including causes of action,
controversies, disputes and conflicts between the
Debtors and any other party, including but not limited
to, any causes of action or objections to claims,
preferences of [sic] fraudulent transfers and
obligations or equitable subordination.
The bankruptcy court entered an order confirming this plan on
July 29, 1994. Nationwide appealed from the confirmation order
to the United States District Court for the Northern District of
Texas. That appeal is pending.
On August 30, 1994, the bankruptcy court held a hearing on
Nationwide’s motion for authority to bring the avoidance actions
on the debtors’ behalf. At the conclusion of this hearing, the
court orally granted Nationwide’s motion. On September 14, 1994,
the court entered a written order to this effect (the
“Authorization Order”).
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On September 23, 1994, the reorganized debtors filed a
motion for rehearing of the Authorization Order. The bankruptcy
court held a hearing on this motion for rehearing on December 5,
1994, and entered an order denying the motion on December 14,
1994. Having been authorized to bring the avoidance actions,
Nationwide filed a complaint asserting those claims in the United
States District Court for the Northern District of Texas on
January 11, 1995.
The reorganized debtors appealed the Authorization Order to
the United States District Court for the Northern District of
Texas. On June 16, 1995, the district court entered a judgment
reversing the Authorization Order. In an accompanying Memorandum
Opinion and Order, the court noted that the confirmed Plan gave
the authority to bring avoidance actions only to the reorganized
debtors and did not give the bankruptcy court the authority to
appoint another entity to bring such actions on behalf of the
debtors. Accordingly, the court reasoned, the rule of res
judicata precluded the bankruptcy court from making such an
appointment in a subsequent collateral proceeding; rather,
Nationwide should have raised the issue at the confirmation
hearing or could raise it in its direct appeal of the
confirmation order. Alternatively, the district court held that
Nationwide did not meet its burden of proof at the hearing on the
Authorization Order because it did not adduce any evidence on the
issues of whether the avoidance actions presented colorable
claims and whether the debtors unjustifiably refused to pursue
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such actions. Having reversed the Authorization Order, the
district court then dismissed the avoidance actions filed by
Nationwide in the same court. Nationwide appeals the district
court’s reversal of the Authorization Order and the dismissal of
its avoidance actions against Blankenship. Those appeals were
consolidated in this court.
II. DISCUSSION
A. Standard of Review
Although the bankruptcy appellate process makes this court
the second level of review, we perform the identical task as the
district court. Heartland Fed. Sav. & Loan Ass’n v. Briscoe
Enters., Ltd., II (In re Briscoe Enters., Ltd., II), 994 F.2d
1160, 1163 (5th Cir.), cert. denied, 114 S. Ct. 550 (1993). We
review findings of fact by the bankruptcy court under the clearly
erroneous standard and decide issues of law de novo. Henderson
v. Belknap (In re Henderson), 18 F.3d 1305, 1307 (5th Cir.),
cert. denied, 115 S. Ct. 573 (1994); Haber Oil Co. v. Swinehart
(In re Haber Oil Co.), 12 F.3d 426, 434 (5th Cir. 1994).
B. Analysis
It is well settled that an order issued by a bankruptcy
court confirming a plan has res judicata effect as to questions
that could have been raised in the confirmation process.
Republic Supply Co. v. Shoaf, 815 F.2d 1046, 1050-54 (5th Cir.
1987); Christopher v. American Universal Ins. Group, Inc. (In re
7
Christopher), 148 B.R. 832, 837 (Bankr. N.D. Tex. 1992), aff’d,
28 F.3d 912 (5th Cir. 1994). At this time, there is a valid,
confirmed plan in this case. The fact that the confirmation
order is being appealed does not defeat its res judicata effect.
See Sage v. United States, 908 F.2d 18, 26 (5th Cir. 1990).
The Plan provides that the reorganized debtors retain any
cause of action, including avoidance actions, and that the
bankruptcy court retains jurisdiction to enable the reorganized
debtors to bring those actions. The debtors filed the Plan on
May 6, 1994, more than two months prior to the July 10
confirmation hearing. Thus, Nationwide had adequate notice that
the Plan gave the authority to bring any avoidance actions only
to the reorganized debtors. Moreover, Nationwide knew prior to
the confirmation hearing that the debtors did not intend to bring
the avoidance actions at any time. The debtors stated this
expressly in a letter to Nationwide dated May 13, and in their
Second Amended Disclosure Statement, which was filed and approved
on June 2.
Nationwide did take some action prior to confirmation with
respect to the avoidance actions by filing a motion on June 7
that sought authorization to bring those actions on behalf of the
debtors. This motion and the subsequent amended motion, however,
did not request expedited disposition of the motion prior to
confirmation. In fact, the hearing on the amended motion for
authorization was not held until one month after the confirmation
order was entered. Nationwide apparently made no attempt to have
8
the confirmation hearing continued or to stay the confirmation
order pending the disposition of its motion. Further, the motion
requests authorization to bring the actions on behalf of the
debtors without acknowledging that, after confirmation, the
debtors would no longer exist and that the Plan grants the
authority to bring avoidance actions in the reorganized debtors.
Given that all creditors had notice via the disclosure statement
that the debtors unequivocally did not intend to bring the
avoidance actions and that Nationwide could have sought
disposition of its motion before the Plan became effective, the
bankruptcy court’s post-confirmation appointment of Nationwide to
bring avoidance actions on the reorganized debtors’ behalf was
foreclosed by the res judicata effect of the Plan. Accordingly,
the bankruptcy court erred in entering the Authorization Order.
We do not hold that a bankruptcy court may never enter an
post-confirmation order respecting the right of non-debtor to
bring avoidance actions. Rather, we limit our ruling to the
facts of this case. Nationwide had notice prior to the
confirmation hearing that the Plan granted the authority to bring
any avoidance actions post-confirmation to the reorganized
debtors and that the debtors had no intent to bring such actions.
Nationwide had the opportunity to object to this aspect of the
Plan at the confirmation hearing, and indeed, it may be raising
this issue in its appeal of the confirmation order; however, that
lawsuit is not before us. Alternatively, Nationwide could have
taken steps to have the bankruptcy court decide its motion for
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authorization to bring the avoidance actions before entry of the
confirmation order. It did not do so. Instead, it chose to
undertake what is, in effect, a post-confirmation collateral
attack on one aspect of the Plan. Under these circumstances, we
believe that the bankruptcy court erred in indulging such an
attack by entering the Authorization Order. The district court
correctly reversed this order and dismissed the avoidance actions
that the bankruptcy court had improperly authorized Nationwide to
bring.
III. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s
reversal of the bankruptcy court’s order authorizing Nationwide
to bring any avoidance actions on the debtors’ behalf and the
dismissal of the avoidance actions filed by Nationwide pursuant
to that order.
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