569 B.R. 693
Bankr. W.D. Mich.2017Background
- Debtors Great Lakes Comnet, Inc. and Comlink LLC filed Chapter 11; CoBank held prepetition secured liens and made postpetition DIP loans. Debtors faced potential administrative insolvency during sale process.
- Court approved DIP financing (Final DIP Order) giving CoBank replacement liens and certain superpriority protections; Debtors sought to sell substantially all assets to a stalking-horse bidder.
- At court-ordered mediation immediately before the sale hearing, the Debtors, CoBank, the Committee, and the U.S. Trustee executed a Settlement Agreement incorporated into the Sale Order (§39) to resolve administrative-insolvency concerns and enable a wind-down.
- Settlement §39(v) set a formula for payment of net sale proceeds to CoBank; §39(ix) stated that "After Prepetition Senior Lender receives the net Sale Proceeds... Prepetition Senior Lender will hold an allowed unsecured deficiency claim" and agreed to waive the first $80,000 of distributions on that claim.
- Sale closed; CoBank received net proceeds. CoBank filed proofs of claim asserting a secured claim (and an unsecured claim separately) and moved for a determination that it holds a secured claim or, alternatively, a superpriority administrative expense. Trustee and UST objected, arguing the Sale Order unambiguously left CoBank only an allowed general unsecured deficiency claim.
- The court interpreted the Settlement Agreement as an unambiguous contract under Michigan law and held that §39(ix) reclassed CoBank’s remaining prepetition claim as an allowed general unsecured deficiency claim; CoBank’s motion was denied.
Issues
| Issue | CoBank's Argument | Liquidation Trustee / UST Argument | Held |
|---|---|---|---|
| Whether the Sale Order unambiguously fixed CoBank’s remaining claim as an allowed general unsecured deficiency claim | Sale Order does not preclude CoBank from also holding a secured claim (or superpriority administrative expense) against non‑acquired assets; Settlement only affected liens on acquired assets | Condition precedent in §39(ix) was satisfied (net proceeds paid) and §39(ix) plainly states CoBank shall hold an allowed unsecured deficiency claim for Prepetition Debt | Held for Trustee/UST: §39(ix) is unambiguous — CoBank’s remaining claim is an allowed general unsecured deficiency claim |
| Whether the Settlement released CoBank’s liens on non‑acquired assets or otherwise preserved secured rights | Lack of explicit language releasing liens on non‑acquired assets means liens and secured claims survive | Settlement language does not distinguish acquired vs non‑acquired assets; reclassification to an unsecured deficiency claim applies to Prepetition Debt generally; otherwise consideration (waiver of $80k, releases, cash to estates) would be nugatory | Held for Trustee/UST: Settlement was global and reclassified prepetition claim as unsecured; no carveout for non‑acquired assets |
| Whether the Sale Order’s use of the term "allowed" is ineffective because exact deficiency amount was not fixed at entry | Because the precise dollar amount was not fixed, CoBank cannot be deemed to hold an "allowed" unsecured claim for all prepetition debt | §39(v) provides formula for calculating deficiency and §39(ix) requires CoBank to file a proof of claim; parties preserved ability to object to amount | Held for Trustee/UST: "Allowed" is effective — formula and claims process suffice to determine amount; allowance is not defeated by lack of immediate numerical fixation |
| Admissibility of extrinsic evidence regarding parties' intent (e.g., CoBank’s amended secured claim, release letter) | Extrinsic documents show parties intended to preserve secured claim on non‑acquired assets and therefore should be considered | Settlement is unambiguous; extrinsic evidence is inadmissible to vary plain meaning of contract/agreed order | Held for Trustee/UST: Settlement unambiguous; extrinsic evidence inadmissible; court construes the Sale Order itself |
Key Cases Cited
- Sault Ste. Marie Tribe of Chippewa Indians v. Granholm, 475 F.3d 805 (6th Cir. 2007) (agreed orders/consent decrees treated as contracts; apply state contract law)
- Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535 (6th Cir. 2007) (contract ambiguous only if susceptible to more than one reasonable interpretation; extrinsic evidence admissible only then)
- In re Conco, Inc., 855 F.3d 703 (6th Cir. 2017) (bankruptcy courts apply applicable state law to interpret agreed orders and retain jurisdiction over related post‑confirmation disputes)
- Travelers Indemnity Co. v. Bailey, 557 U.S. 137 (Sup. Ct. 2009) (bankruptcy courts have inherent authority to interpret their own orders)
- Ohio Farmers Insurance Co. v. Hughes-Bechtol, Inc., 225 F.3d 659 (6th Cir. 2000) (interpreting agreed orders in light of case history and parties’ intentions)