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JML Sales, Inc. v. Schils America Acquisition Corp.

January 30, 2007

JML SALES, INC. APPELLANT,
v.
SCHILS AMERICA ACQUISITION CORPORATION, ET AL. APPELLEES,



The opinion of the court was delivered by: Judge Vanaskie

MEMORANDUM

Appellant JML Sales, Inc. ("JML") challenges an Order issued by Bankruptcy Judge John T. Thomas, denying JML's Motion for Interpretation and Clarification of Confirmed First Amended Plan. In its motion, JML asked the bankruptcy court to find that a provision in Schils America Acquisition Corporation's ("Debtor") Amended Plan of Reorganization ("Amended Plan") did not bar JML from collecting against a third party guarantor of the debt. Bankruptcy Judge Thomas determined that JML was precluded from challenging the confirmed Plan under In re Szostek, 886 F.2d 1405 (3d Cir. 1989). This Court agrees with the bankruptcy judge's analysis, and affirms his opinion.

I. BACKGROUND

In 2003, Debtor failed to pay for products it received from JML. Debtor's principal, Art Henderlong, subsequently executed a personal guaranty on the obligation to JML.

On March 22, 2004, JML filed a complaint against Debtor and Mr. Henderlong in Ohio state court. On May 25, 2004, Debtor filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code. Mr. Henderlong did not file for individual bankruptcy protection. The Ohio state court stayed JML's action against Debtor, but awarded JML a judgment against Mr. Henderlong on August 24, 2004.

Debtor filed a Plan of Reorganization in its bankruptcy proceeding on July 27, 2004, which was amended on August 31, 2004. Both plans contained the following provision:

XIII. INJUNCTION

As of the Effective Date, this Plan shall act as an injunction against and shall enjoin the commencement of an action, the employment of process, or an act to collect, recover or offset any pre-confirmation debt as a personal liability of the Debtor or any other person liable therefore [sic] . . . . (Designated R. (Dkt. Entry 2) Docs. 50, 70.) Bankruptcy Judge Thomas fixed September 30, 2004 as the last date for filing objections to the amended plan pursuant to Rule 3020(b)(1) of the Federal Rules of Bankruptcy Procedure.

JML did not object to the Amended Plan of Reorganization.*fn1 A hearing on confirmation of the Amended Plan was conducted on October 21, 2004. On October 27, 2004, the Bankruptcy Court issued an "Order Confirming the First Amended Plan." (Id. Doc. 87.) JML did not appeal the Bankruptcy Court's Order within the ten-day period set forth under Rule 8002(a) of the Federal Rules of Bankruptcy Procedure.

On February 8, 2005, 131 days after the date fixed by the bankruptcy judge for filing objections to the Amended Plan, JML filed a motion for "Interpretation and Clarification of Confirmed First Amended Plan." (Designated R. (Dkt. Entry 2) Doc. 101.) In its motion, JML asked the Bankruptcy Court to find that the Amended Plan's provision, which enjoined the collection of "any pre-confirmation debt as a personal liability of the Debtor or any other person liable therefore, [sic]" (id. Doc. 70 at Art. XIII (emphasis added)) did not bar JML from collecting against Mr. Henderlong. (Id. Doc. 101.)

JML presented three arguments for its position. First, the provision failed to specify that it released Mr. Henderlong from liability as required by case law. (Id. at ¶¶ 12-18.) Second, any provision releasing a non-debtor from his guaranty violated Section 524(e) of the Bankruptcy Code. (Id. ¶ 19.) Lastly, the provision was ambiguous, and should be interpreted against the Debtor as drafter of the plan. (Id. at ¶¶ 20-25.)

In separate objections to JML's motion, Debtor and Mr. Henderlong argued that res judicata barred JML from challenging the provision because the bankruptcy court's confirmation order constituted a final resolution of the matter. (Id. Doc. 109 ¶¶ 19-20; id. Doc. 110 ¶¶ 13-19.) Debtor and Mr. Henderlong also asserted that the provision was not ambiguous. (Id. Doc. 109 ¶¶ 21-28; id. Doc. 110 ¶¶ 20-25.)

The bankruptcy court denied JML's motion on August 5, 2005. (Designated R. (Dkt. Entry 2) Doc. 121.) In an accompanying opinion, the court stressed the preclusive effect of its confirmation order on JML's claim under In re Szostek, 886 F.2d 1405 (3d Cir. 1989). (Id. Doc. 120 at 2.) The court also observed that JML's motion was not the proper procedure for requesting that the confirmation order be revoked or reconsidered. (Id. (stating that Rules 7001, 9023, or 9024 of the Federal Rules of Bankruptcy Procedure provided the appropriate procedures for revoking or reconsidering a confirmation order). The Court, while observing that the Injunction provision was not ambiguous, declined to issue an "advisory opinion" as to whether it precluded JML from seeking to enforce a judgment it had obtained against Mr. Henderlong. (Id.)

On September 21, 2005, JML filed a Notice of Appeal of the Bankruptcy Court's Order. (Dkt. Entry 1.) All parties have briefed JML's appeal, ...


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