Creditors' Committee for Jermoo's Inc. v. Jermoo's Inc. (In Re Jermoo's Inc.)

38 B.R. 197, 1984 Bankr. LEXIS 6090
CourtUnited States Bankruptcy Court, W.D. Wisconsin
DecidedMarch 15, 1984
Docket3-19-10203
StatusPublished
Cited by31 cases

This text of 38 B.R. 197 (Creditors' Committee for Jermoo's Inc. v. Jermoo's Inc. (In Re Jermoo's Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Creditors' Committee for Jermoo's Inc. v. Jermoo's Inc. (In Re Jermoo's Inc.), 38 B.R. 197, 1984 Bankr. LEXIS 6090 (Wis. 1984).

Opinion

OPINION AND ORDER FOR SUMMARY JUDGMENT

ROBERT D. MARTIN, Bankruptcy Judge.

Jermoo’s, Inc. operates three retail gasoline stations in Wisconsin under franchise-dealership contracts with Amoco Oil Company, and is also party to a wholesale “job-bership” contract with Amoco. A provision of each of the dealership contracts provides that Amoco, the franchisor, could terminate Jermoo’s, Inc. as franchisee if Jermoo’s failed to cure dishonored checks within five days of notice. Checks relating to operations of the dealerships were dishonored in January 1983, and on January 27 and 28, 1983, Amoco gave notice of the dishonor to Jermoo’s. When Jermoo’s failed to cure, Amoco terminated two of the dealerships by letter of February 3, 1983. The terminations were to take effect at the end of ninety days.

The debtor has been in arrears on the jobbership account since September 1981. Although the parties informally agreed that Amoco would not terminate the job-bership in return for Jermoo’s selling one of its stations and giving Amoco additional security, the debtor failed to take either action. On February 1,1983, Amoco terminated the jobbership, but gave Jermoo’s fifteen days to cure, as required by the jobbership contract. Debtor has not cured this arrearage.

Jermoo’s, Inc. filed its chapter 11 petition on February 4, 1983. In an earlier adversary proceeding 1 this court denied Jer-moo’s request to assume the two terminated dealership contracts on the principal ground that they were no longer “executo-ry” as of the time the debtor filed its petition on February 4, 1983. Rather, they had been terminated before the filing, with only the passage of time remaining for the termination to become effective. Moody v. Amoco Oil Company, 31 B.R. at 218-219. The jobbership contract was also no longer executory as of the time the complaint in the adversary proceeding was filed, because even if the limited extension provisions of 11 U.S.C. § 108(b) were applied, the time for effecting a cure of the default expired sixty days after the filing of the petition. 31 B.R. at 219-220. This court’s order in Moody was stayed by the district court, Moody’s appeal to the district court was dismissed, and an appeal from the district court’s order is now pending before the Seventh Circuit. See, n. 1 supra.

The Creditors’ Committee for Jermoo’s Inc. (“Committee”) was appointed February 14, 1983, and took an informal role in the Moody v. Amoco Oil Company proceeding until it formally intervened in support of the debtor-plaintiff on May 18, 1983. Although the Committee’s motion to intervene was granted, the record discloses no pleading filed by the Committee. See former Bankruptcy Rule 724, incorporating Fed.R.Civ.P. 24.

On July 19, 1983, after this court had decided the prior adversary proceeding, and while the district court’s stay was in effect, the Committee filed the present adversary proceeding, seeking to avoid the termination of the contracts as a fraudulent transfer under 11 U.S.C. § 548(a)(2). 2 The debt- *199 or, joined as a defendant, filed an answer in which it admits the Committee’s principal allegations and understandably “does not dispute” the Committee’s entitlement to the relief it seeks. Amoco, the principal defendant, has filed a motion to dismiss or for summary judgment, arguing (1) that the Committee lacks standing to institute an action to avoid an alleged fraudulent transfer, (2) that the Committee’s claim is barred by res judicata, and, (3)(a) that a prepetition termination of contract rights is not subject to the terms of § 548, and (b) that such a termination is not a “transfer” for purposes of the Bankruptcy Code. The issues stated by Amoco will be considered serially below.

1. Standing of the Committee. Under the Code, a creditors’ committee in a chapter 11 case, as a “party in interest” “may raise and may appear and be heard on any issue in a case under this chapter.” 11 U.S.C. § 1109(b). Unless “raise” excludes the usual means of bringing an issue to the attention of the court by motion or complaint, the plain language of the statute grants “standing” to the Committee to bring this action. It is true that § 1103(c), which sets out the powers and duties of the creditors’ and equity security holders’ committees, does not expressly authorize the bringing of an action by such a committee, 3 but subparagraph (5) provides general authority to a committee to “perform such other services as are in the interest of those represented.” Section 1109, granting “party in interest” status to various entities, including a creditors’ committee, is in pari materia and clearly consistent with § 1103(c)(5).

In In re Monsour Medical Center, 5 B.R. 715 (Bkrtcy.W.D.Pa.1980), a creditors’ committee, relying on § 1109(b), sought to avoid certain transfers as preferences or fraudulent transfers. The debtor-defendant argued that the committee lacked standing because it was not a real party in interest as required by former Bankruptcy Rule 717, which incorporated Fed.R.Civ.P. 17. Other defendants cited the lack of express authority in the Code for a committee to maintain a cause of action in place of the trustee or debtor in possession. The court held that the committee’s power to sue had been recognized under the prior Act, and that such power continued under the Code. Id. at 718. But, significantly, the Monsour court expressly left unresolved the question whether § 1109 “contemplates the initiation of an adversary proceeding by a creditors’ committee.” Id. at 719. Instead, the court grounded its decision on an “implied power to sue” and on the authority of the bankruptcy court to permit such an action when the trustee or debtor in possession breaches its statutory duties. In Monsour, the committee was only authorized to bring suit on the debt- or’s behalf. Under Monsour, then, and apart from § 1109(b), an action by the committee must begin with a motion to the court for approval to sue on the debtor’s behalf. An objection that the instant case was not brought in the name of the debtor in possession could be easily corrected under Fed.R.Civ.P. 17 incorporated in former *200 Bankruptcy Rule 717 (and present Rule 7017), which provides for a reasonable time for ratification by the debtor or substitution of the real party in interest. Jermoo’s answer strongly suggests ratification of the complaint by the debtor in possession, and its pretrial statement expressly seeks an opportunity to ratify.

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Cite This Page — Counsel Stack

Bluebook (online)
38 B.R. 197, 1984 Bankr. LEXIS 6090, Counsel Stack Legal Research, https://law.counselstack.com/opinion/creditors-committee-for-jermoos-inc-v-jermoos-inc-in-re-jermoos-wiwb-1984.