Case: 15-11056 Document: 00513625438 Page: 1 Date Filed: 08/05/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-11056 FILED
August 5, 2016
In the Matter of: VITRO ASSET CORPORATION,
Lyle W. Cayce
Clerk
Debtor.
------------------------------
UNITED INDEPENDENT SCHOOL DISTRICT,
Appellant,
v.
VITRO ASSET CORPORATION, And its Affiliated Debtors, Reorganized
Debtors and Appellees,
Appellees.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:15-CV-236
Before STEWART, Chief Judge, PRADO, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
Appellant United Independent School District (“UISD”) failed to timely
object to, or appeal from, the bankruptcy court’s order confirming Appellees
*Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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Vitro Asset Corporation and its affiliated debtors’ (collectively, “Reorganized
Debtors”) Chapter 11 reorganization plan. UISD then failed to file a claim for
postpetition interest, penalties, and fees related to taxes on property owned by
Reorganized Debtors within the period provided by the confirmed plan. UISD
now argues that it should not be subject to the terms of the confirmed plan for
various reasons. Because we agree with the district court that UISD’s
challenges to the plan are barred by res judicata, we affirm.
I. BACKGROUND
In 2010, several creditors filed involuntary bankruptcy petitions under
11 U.S.C. § 303 against Reorganized Debtors. In 2012, the bankruptcy court
granted these petitions and initiated bankruptcy proceedings.
UISD is an entity in Laredo, Texas, that has taxing authority. For the
2012 tax year, Vitro Packaging, L.L.C., an affiliated debtor of Vitro Asset
Corporation, owned personal property within UISD’s jurisdiction. In October
2012, UISD issued two tax bills to Vitro Packaging seeking a total of
$464,709.97 (the “Base Taxes”). Pursuant to Texas law, UISD’s claims were
secured by a statutory lien on Vitro Packaging’s property. See Tex. Tax Code
Ann. § 32.01.
On April 4, 2013, Reorganized Debtors sought permission from the
bankruptcy court to pay the taxes they owed, including those claimed by UISD.
On April 5, UISD filed a proof of claim against Vitro Asset Corporation seeking
a total of $598,360.56, which was comprised of $464,709.97 in Base Taxes,
$51,118.10 in penalties and interest, and $82,532.49 in collection fees. This
proof of claim, however, erred in several respects as it was directed to Vitro
Asset Corporation when the property subject to the claimed taxes was actually
owned by Vitro Packaging and improperly included amounts for postpetition
interest, fees, and penalties. The bankruptcy court granted Reorganized
Debtors’ motion to pay taxes on April 23, and on April 24, Vitro Packaging paid
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UISD $464,709.97—the amount claimed in the tax bills that had been issued
by UISD. On June 19, 2013, UISD filed an amended proof of claim correcting
the errors in its initial proof of claim. This amended proof of claim included
Vitro Packaging as the debtor and no longer sought interest, penalties, or
collection fees. As a result, the amended proof of claim sought only
$464,709.97—the amount of the Base Taxes.
In November 2013, Reorganized Debtors filed their First Amended Joint
Chapter 11 Plan of Reorganization. Several portions of this plan are relevant
on appeal. Section 3.2 is titled “Unimpaired Classes of Claims and Interests”
and provides in relevant part that “Class 2” claims “consist[] of all Allowed
Secured Claims.” It is undisputed that UISD’s claims fall within this category.
Next, Section 3.5 provides deadlines for creditors possessing Class 2
claims such as UISD to seek “payment of either postpetition interest or
reimbursement of attorney’s fees and other costs associated with such
claimant’s Allowed Claim.” Pursuant to this section, these creditors “shall file
with the Bankruptcy Court (and serve on the Debtors and the Office of the
United States Trustee) a request seeking such relief within 30 days after the
Effective Date.”
The bankruptcy court confirmed this plan on November 14, 2013.
Pursuant to Federal Rule of Bankruptcy Procedure 8002, any appeal from the
bankruptcy court’s order confirming the Chapter 11 plan must have been filed
within 14 days after entry of the order. Fed. R. Bankr. P. 8002(a). UISD neither
objected to the plan nor filed a notice of appeal.
The confirmed reorganization plan became effective on December 19,
2013 (the “Effective Date”). Accordingly, pursuant to Section 3.5 of the
confirmed plan, any claim for “payment of either postpetition interest or
reimbursement of attorney’s fees and other costs associated with such
claimant’s Allowed Claim” must have been made by January 18, 2014, which
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was 30 days after the Effective Date. UISD did not file a claim with the
bankruptcy court for postpetition interest, penalties, or collection fees during
this period. On February 21, 2014, the bankruptcy court closed the
proceedings. UISD received notice of each of these relevant documents.
In June 2014, UISD sent a letter to Vitro Packaging asserting that its
earlier payment of the Base Taxes in April 2013 was insufficient due to the
accrual of interest, penalties, and fees. In response, Reorganized Debtors
stated that they had paid in full the amount sought in UISD’s amended proof
of claim and that any further collection efforts by UISD were improper. UISD’s
counsel responded that they would continue collection efforts, including by
seizing inventory.
On October 9, 2014, Reorganized Debtors petitioned the bankruptcy
court to reopen their bankruptcy cases and sought an order enforcing the
confirmed plan. In response to Reorganized Debtors’ motion, UISD presented
the same argument to the bankruptcy court that it advances now on appeal:
that application of Section 3.5 of the confirmed plan to its claims violates 11
U.S.C. §§ 502, 503, and 506, and this Court’s decision in Financial Security
Assurance, Inc. v. T-H New Orleans Ltd. Partnership (In re T-H New Orleans
Ltd. Partnership), 116 F.3d 790 (5th Cir. 1997), by improperly impairing
UISD’s claims. At the hearing on Reorganized Debtors’ motion, however,
UISD’s counsel admitted that UISD had failed to raise this argument within
the deadlines for objecting to, or appealing from, the plan. UISD’s counsel
further conceded that UISD had not filed a petition for interest or fees within
the period provided by the plan.
The bankruptcy court granted Reorganized Debtors’ request to reopen
the bankruptcy cases and their petition to enforce the confirmation order.
According to the bankruptcy court, UISD “failed to preserve any claim to the
Disputed Fees on account of its Allowed Claim by [not] acting in accordance
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with, and within the time frame required by, Section 3.5 of the Confirmed
Plan.” As a result, Reorganized Debtors’ payment in April 2013 fully satisfied
UISD’s claim and UISD was not entitled to payment of any of the disputed
fees. The bankruptcy court further held that any lien UISD may have held
against Reorganized Debtors’ property prior to the reorganization had been
released and terminated upon the expiration of the 30-day claims period
provided by Section 3.5 of the confirmed plan. Finally, the bankruptcy court
issued an injunction prohibiting UISD from pursuing any further collection
efforts related to the disputed fees. UISD sought reconsideration of this ruling,
which the bankruptcy court denied.
On appeal from the bankruptcy court, the district court noted that while
UISD asserted that the issue was whether the bankruptcy court improperly
interpreted the plan such that it impaired UISD’s claims, the actual issue was
whether UISD’s arguments were barred by res judicata. The district court held
that each portion of UISD’s claim—the taxes, interest, penalties, and collection
fees—were covered by Section 3.5 of the confirmed plan and thus must have
been sought within the 30-day period provided by the plan. Next, the district
court held that the bankruptcy court had properly determined that UISD’s lien
had been discharged as part of the bankruptcy. Finally, the district court
concluded that as a result of UISD’s failure to timely object to, or appeal from,
the bankruptcy court’s order confirming the bankruptcy plan, UISD’s
arguments were precluded by res judicata. This appeal follows.
II. STANDARD OF REVIEW
“When a court of appeals reviews the decision of a district court, sitting
as an appellate court, it applies the same standards of review to the bankruptcy
court’s findings of fact and conclusions of law as applied by the district court.”
Sikes v. Crager (In re Crager), 691 F.3d 671, 675 (5th Cir. 2012) (quoting
Kennedy v. Mindprint (In re ProEducation Int’l, Inc.), 587 F.3d 296, 299 (5th
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Cir. 2009)). That is, questions of law are reviewed de novo while factual
findings are reviewed for clear error. United States Dep’t of Educ. v. Gerhardt
(In re Gerhardt), 348 F.3d 89, 91 (5th Cir. 2003).
III. DISCUSSION
At the outset, it is necessary to clarify the issue on appeal. Like it did
before the district court, UISD challenges the plan on the ground that the plan
improperly impairs its claims to interest, penalties, and collection fees. 1
However, as the district court properly observed, the threshold issue is
whether UISD’s arguments are barred by res judicata. Notably, UISD does not
seriously contend that the district court erred in finding that its arguments are
barred by res judicata. In fact, UISD concedes that it has “never claimed that
the Plan has no res judicata effect as to UISD” and that it “does not disagree
with the district court that the Plan has res judicata effect.” Instead, UISD
appears to argue that the district court should not have addressed the issue of
res judicata because UISD did not raise this question as an issue on appeal.
UISD is mistaken. It is well settled that a court sitting on appeal is not
limited to considering only those issues raised by the appellant, but “may
affirm a judgment upon any basis supported by the record.” Templeton v.
O’Cheskey (In re Am. Hous. Found.), 785 F.3d 143, 153 (5th Cir. 2015) (quoting
1 UISD also appears to contend that the confirmed plan terms should not apply to its
claims because Reorganized Debtors did not object to UISD’s original proof of claim that
sought interest, penalties, and fees. In making this argument, however, UISD conspicuously
ignores the fact that it filed an amended proof of claim that did not seek these amounts. As
the district court correctly observed, this amended proof of claim is binding. As we explained
in Simmons v. Savell (In re Simmons), 765 F.2d 547 (5th Cir. 1985), “filing of a proof of claim
is tantamount to the filing of a complaint in a civil action.” Id. at 552. As such, just like an
amended pleading, an amended proof of claim supersedes the original filing and deprives the
earlier filing of legal effect. See Boelens v. Redman Homes, Inc., 759 F.2d 504, 508 (5th Cir.
1985); In re Enron Corp., No. 01 B 16034 (AJG), 2005 WL 3874285, at *1 (Bankr. S.D.N.Y.
Oct. 5, 2005) (“The Amended Claim amended and superceded the Initial Claim.”).
Accordingly, the fact that Reorganized Debtors did not object to UISD’s initial proof of claim
is inconsequential.
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Davis v. Scott, 157 F.3d 1003, 1005 (5th Cir. 1998)). Moreover, UISD’s failure
to substantively contest the district court’s ruling on res judicata waives this
issue on appeal before this Court. See Sanders v. Unum Life Ins. Co. of Am.,
553 F.3d 922, 926 (5th Cir. 2008). Nevertheless, we address this issue below.
A. Application of Section 3.5 to UISD’s Claims
UISD asserts that its claims are not covered by Section 3.5 of the
confirmed plan. As clearly explained by the district court, this argument lacks
merit. Section 3.5 applies to claims seeking “payment of either postpetition
interest or reimbursement of attorney’s fees and other costs associated with
such claimant’s Allowed Claim.” Accordingly, by its unambiguous language,
UISD’s claim to postpetition interest is covered by this provision. The district
court also correctly determined that this language, specifically “other costs
associated with such claimant’s Allowed Claim,” includes UISD’s claim to
collection fees related to the Base Taxes owed by the Reorganized Debtors.
Next, UISD argues that its claim to penalties does not fall within this
section because it is not seeking “reimbursement.” However, as the district
court observed, UISD itself considered these penalties to be a component of the
interest owed as the tax bills it sent to Reorganized Debtors combined these
amounts.
B. Res Judicata
Because each aspect of UISD’s claim is covered by Section 3.5 of the
confirmed plan, UISD was required to file a petition for these amounts within
30 days from the plan’s Effective Date. UISD failed to do so. In an attempt to
overcome this lapse, UISD argues that it should not be bound by this
requirement because impairing its claims in this way would be at odds with
Section 4.2 of the confirmed plan, 11 U.S.C. §§ 502, 503, and 506, and this
Court’s decision in In re T-H New Orleans Ltd. As the district court correctly
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held, however, UISD’s arguments challenging the confirmed plan are barred
by res judicata.
Res judicata “bars the litigation of claims that either have been litigated
or should have been raised in an earlier suit.” Southmark Corp. v. Coopers &
Lybrand (In re Southmark Corp.), 163 F.3d 925, 934 (5th Cir. 1999). This
principle is equally applicable to “bankruptcy plan confirmations.” Sun Fin.
Co. v. Howard (In re Howard), 972 F.2d 639, 641 (5th Cir. 1992). As we
explained in Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir. 1987), where
a creditor fails to object to, or appeal from, the confirmation of a bankruptcy
plan, “[r]egardless of whether [a] provision [of the plan] is inconsistent with
the bankruptcy laws,” a challenge to the “propriety or legality” of the plan is
“foreclosed.” Id. at 1050.
1. UISD’s Lien
Generally, res judicata does not apply to secured creditors who possess a
lien. See id. Res judicata may apply, however, where the lien has been
discharged as part of the reorganization. See In re Simmons, 765 F.2d at 556–
58. A lien may be discharged in bankruptcy under several circumstances,
including invalidation of the lien by a provision of the bankruptcy code.
Acceptance Loan Co. v. S. White Transp., Inc. (In re S. White Transp., Inc.), 725
F.3d 494, 496 (5th Cir. 2013). As we have previously held, 11 U.S.C. § 1141(c),
which provides that “after confirmation of a plan, the property dealt with by
the plan is free and clear of all claims and interests of creditors,” has the effect
of invalidating a lien where four conditions are met. Id. (quoting 11 U.S.C.
§ 1141(c)); see also Elixir Indus., Inc. v. City Bank & Tr. Co. (In re Ahern
Enters., Inc.), 507 F.3d 817, 822 (5th Cir. 2007) (“[T]he confirmation of a
Chapter 11 plan voids liens on property dealt with by the plan unless they are
specifically preserved, if the lien holder participates in the reorganization.”).
These four conditions are as follows: “(1) the plan must be confirmed; (2) the
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property that is subject to the lien must be dealt with by the plan; (3) the lien
holder must participate in the reorganization; and (4) the plan must not
preserve the lien.” In re S. White Transp., Inc., 725 F.3d at 496 (emphasis
omitted) (quoting In re Ahern Enters., Inc., 507 F.3d at 822).
Each factor is met here. The First Amended Joint Chapter 11 Plan of
Reorganization was confirmed by an order of the bankruptcy court on
November 14, 2013. Second, the property subject to UISD’s lien was dealt with
by the plan. As the district court observed, circuit courts have held that a
general reference to the property at issue is sufficient to satisfy this
requirement. See, e.g., City of Concord v. N. New England Tel. Operations LLC
(In re N. New England Tel. Operations LLC), 795 F.3d 343, 349 (2d Cir. 2015);
Airadigm Commc’ns, Inc. v. FCC (In re Airadigm Commc’ns, Inc.), 519 F.3d
640, 649 (7th Cir. 2008). Section 10.2 of the confirmed plan provides that:
On the Effective Date, pursuant to sections 1141(b) and (c) of the
Bankruptcy Code, and except as otherwise provided in this Plan,
the property of each Estate shall vest in the applicable
Reorganized Debtor, free and clear of all Claims, liens,
encumbrances, charges, and other interests, except as provided
herein or in the Confirmation Order.
This general reference, which refers to all property held by Reorganized
Debtors, includes the property to which UISD’s lien was attached.
Third, UISD participated in the reorganization. UISD filed two proofs of
claim: one which sought $598,360.56, and an amended proof of claim for
$464,709.97. This conduct is sufficient to satisfy the participation requirement.
See Baker Hughes Oilfield Operations, Inc. v. Morton (In re R.L. Adkins Corp.),
784 F.3d 978, 981 (5th Cir. 2015) (Jones, J., concurring) (stating that a secured
creditor may participate “by filing a proof of claim and then negotiating with
the debtor or attempting to foreclose its lien”); In re Ahren Enters., Inc., 507
F.3d at 823.
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Finally, there is no dispute that the confirmed plan did not specifically
preserve UISD’s lien. Accordingly, the district court properly held that UISD’s
lien was discharged as part of the reorganization and that res judicata may
therefore apply to UISD’s claims.
2. Application of Res Judicata
Res judicata will bar a claim where the following elements are met: (1)
“the parties must be identical in both suits,” (2) “the prior judgment must have
been rendered by a court of competent jurisdiction,” (3) “there must have been
a final judgment on the merits” and, (4) “the same cause of action must be
involved in both cases.” Nilsen v. City of Moss Point, 701 F.2d 556, 559 (5th
Cir. 1983) (en banc) (quoting Kemp v. Birmingham News Co., 608 F.2d 1049,
1052 (5th Cir. 1979)). These elements are satisfied here.
First, Vitro Asset Corporation and its affiliated debtors were parties to
the bankruptcy proceedings. While UISD was not a formally named party, we
have held that “[t]his element is satisfied not only by identity of ‘formal or
paper’ parties but also of parties in interest, ‘that is, . . . persons whose
interests are properly placed before the court by someone with standing to
represent them.’” Shoaf, 815 F.2d at 1051 (alteration in original) (quoting
Southmark Props. v. Charles House Corp., 742 F.2d 862, 869 (5th Cir. 1984)).
In Shoaf, we held that a party met this requirement where, even though it was
never formally named as a party to the bankruptcy proceedings, it participated
as a creditor. Id. As addressed above, UISD participated in the bankruptcy
proceedings by filing two proofs of claim. Second, the bankruptcy court had
jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. Third, the bankruptcy
court’s order confirming the plan constituted a final judgment. Id. at 1053.
Finally, “[t]o determine whether the same cause of action is involved in
two suits, [this Court] has adopted the transactional test of the Restatement
(Second) of Torts.” Id. Pursuant to this test, we ask whether UISD’s claim
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before the district court “arose out of the same transaction that was the subject
of the bankruptcy court’s order.” Id. at 1054. This is unquestionably the case
here. The bankruptcy court’s order incorporated and confirmed the
reorganization plan that UISD now challenges.
As a result, res judicata bars UISD’s challenge to the terms of the plan
at this late stage. UISD’s complaints about the plan and its potential
impairment of UISD’s claims should have been brought within the period set
for objections to, and appeals from, the confirmation order in 2013.
IV. CONCLUSION
The order of the district court is affirmed.
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