Bill Roderick Distributing, Inc. v. A.J. Mackay Co. (In re A.J. Mackay Co.)

50 B.R. 756, 13 Collier Bankr. Cas. 2d 95, 1985 U.S. Dist. LEXIS 18478, 13 Bankr. Ct. Dec. (CRR) 557
CourtDistrict Court, D. Utah
DecidedJune 27, 1985
DocketCiv. No. C-84-1236W
StatusPublished
Cited by35 cases

This text of 50 B.R. 756 (Bill Roderick Distributing, Inc. v. A.J. Mackay Co. (In re A.J. Mackay Co.)) is published on Counsel Stack Legal Research, covering District Court, D. Utah primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bill Roderick Distributing, Inc. v. A.J. Mackay Co. (In re A.J. Mackay Co.), 50 B.R. 756, 13 Collier Bankr. Cas. 2d 95, 1985 U.S. Dist. LEXIS 18478, 13 Bankr. Ct. Dec. (CRR) 557 (D. Utah 1985).

Opinion

MEMORANDUM DECISION AND ORDER

WINDER, District Judge.

This case is an appeal from the bankruptcy court. Appellant Bill Roderick Distributing, Inc., (“Roderick”) claims that the bankruptcy court erred in staying Roderick’s debt collection proceedings against Clayton Mackay, a non-bankrupt codebtor with appellee A.J. Mackay Co. (“Mackay Co.”) on the debt to Roderick. Appellant Roderick is represented by Everett E. Dahl and Ronald E. Kunz. Appellee Mackay Co. is represented by William Thomas Thurman and Joel T. Marker. Both sides have briefed the issues on appeal, and neither side requested oral argument. The court has carefully considered the briefs submitted by counsel and various relevant authorities. The court now renders the following decision.

The Facts

Clayton Mackay was previously a principal of Mackay Co., and currently works as a consultant to the company. In July, 1982, Mr. Mackay signed as a personal guarantor for a line of credit extended to Mackay Co. by Roderick. Mackay Co. subsequently drew on this line of credit.

On January 21, 1983, Mackay Co. filed for bankruptcy under Chapter 11. Clayton Mackay did not file for bankruptcy. Subsequent to Mackay Co.’s filing, Roderick obtained a state court default judgment against Clayton Mackay on the debt Mack-ay Co. had incurred by drawing on the line [758]*758of credit. Rather than execute on the entire judgment immediately, Roderick agreed to allow Clayton Mackay to pay the judgment in monthly installments of $500.

On June 5, 1984, the bankruptcy court confirmed Mackay Co.’s amended plan of reorganization. Roderick had received notice of the plan and had not objected to it. Under the plan, Clayton Mackay was personally protected from creditors in addition to the statutory protection given the debt- or, Mackay Co. Paragraph 4.21 of the confirmed plan provides, in part, that

As long as Debtor is current under the Plan, no claims may be maintained against Clayton Mackay. Nothing shall be construed herein to grant CLayton [sic] Mackay a discharge of his debts.

Amended Plan ¶ 4.21, at R. 76 (this is the first of two paragraphs labeled 4.21), as amended by the Order Confirming Plan of Reorganization, at R. 115 (June 4, 1984). The plan later gives this same protection to all codebtors of Mackay Co.

As long as Debtor is current on its payments under this Plan, no creditor shall have any rights to proceed against third parties who may be obligated on a debt provided for under this Plan.

Amended Plan ¶ 5.4, at R. 79.

Relying on the terms of the confirmed plan, Clayton Mackay ceased making payments to Roderick. In August, 1984, Roderick resumed state court action against Mr. Mackay by requesting an Order in Supplemental Proceedings in state court. On August 15, 1984, Mackay Co. filed a motion in federal bankruptcy court requesting an Order Staying Creditor. Mackay Co. asked the bankruptcy court to prevent Roderick from pursuing its claim against Clayton Mackay by forcing Roderick to abide by the terms of the confirmed plan.

The bankruptcy court granted Mackay Co.’s motion, staying Roderick from pursuing its claim against Clayton Mackay. The bankruptcy court found that both the proposed plan and the disclosure statement clearly stated that Mr. Mackay would be protected under the plan. Transcript of Sept. 25, 1984, Proceedings, at 13 [hereinafter cited as “Trans.”] The court further found that Roderick had notice of the plan and did not object to it. Id. Finally, the court found that Roderick had effectively accepted the plan and was therefore bound by its terms, since a confirmed plan has the force of a judgment. Id.

The issue on appeal is whether the bankruptcy court properly stayed Roderick from pursuing its claim against Clayton Mackay. Appellant Roderick argues that the bankruptcy court had no jurisdiction to stay Roderick’s pursuit of Mr. Mackay. Appel-lee Mackay Co. counters by arguing that Roderick should have argued the jurisdictional issue at the confirmation hearing, and that it is barred by res judicata from raising the issue now. This court agrees with appellant Roderick, and therefore reverses the bankruptcy court’s order staying Roderick from pursuing its judgment against Clayton Mackay. The court also holds that the contested provisions of the confirmed plan must be deleted, since they go beyond the bankruptcy court’s jurisdiction.

Res Judicata

Although the issue of res judicata is discussed by both parties, it is not an issue in this case. Res judicata acts as a bar only when a court is asked to take an action which would effectively modify or reverse the judgment of another court in a case the first court is not reviewing on appeal. That is not the case here. The bankruptcy court is not barred by res judi-cata from modifying its own prior decision in the same case. Nor is this court barred by res judicata when reviewing a case on appeal.

It is true that there are limits on a bankruptcy court's power to revoke a plan it has previously confirmed. See, e.g., 11 U.S.C. § 1144.1 This court is also limit[759]*759ed in what issues and orders it can review on appeal from bankruptcy court. See, e.g., 28 U.S.C. § 1334(b); Bankr. R. 8002. Although these limitations are similar to res judicata, they are independent of it. Res judicata itself is simply not an issue in this case.

The case appellee Mackay Co. most heavily relies on, Levy v. Cohen, 19 Cal.3d 165, 137 Cal.Rptr. 162, 561 P.2d 252, cert. denied, 434 U.S. 833, 98 S.Ct. 119, 54 L.Ed.2d 94 (1977), is a proper application of res judicata. In that case, a state court was faced with an issue that had already been finally decided by a federal bankruptcy court. The Levy court held that none of the issues that were decided, or could have been decided, in the bankruptcy court could be relitigated in state court. That classic example of res judicata is not repeated in this case. No court has been asked in this case to decide an issue that has been finally decided by a different court. Consequently, Levy is inapplicable. There is no bar of res judicata in this case.

Modification of Confirmed Plans

The first issue that must be addressed is whether a Chapter 11 plan can be modified after it has been confirmed. The circumstances under which a confirmed plan can be revoked are extremely limited.

On request of a party in interest at any time before 180 days after the date of the entry of the order of confirmation, and after notice and a hearing, the court may revoke such order if and only if such order was procured by fraud. An order under this section revoking an order of confirmation shall—
(1) contain such provisions as are necessary to protect any entity acquiring rights in good faith reliance on the order of confirmation; and

(2) revoke the discharge of the debtor. 11 U.S.C. § 1144. Moreover, Fed.R.Civ.P.

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Bluebook (online)
50 B.R. 756, 13 Collier Bankr. Cas. 2d 95, 1985 U.S. Dist. LEXIS 18478, 13 Bankr. Ct. Dec. (CRR) 557, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bill-roderick-distributing-inc-v-aj-mackay-co-in-re-aj-mackay-co-utd-1985.