In re National Gypsum Co.
On Appeal from the United States District Court For the Northern District of Texas.
Before EMILIO M. GARZA and PARKER, Circuit Judges; and FITZWATER, District Judge.1
ROBERT M. PARKER, Circuit Judge:
1. Appellants,
I. FACTS AND PROCEDURAL HISTORY
A. Background
1. The Wellington Agreement
2. National Gypsum Company (“National Gypsum“) was a manufacturer of asbestos-containing
3. A large part of this industry-wide litigation was ended when a number of parties reached a negotiated settlement, commonly referred to as the Wellington Agreement. This accord, signed in 1985 by numerous manufacturers and their insurers -- including National Gypsum and INA -- resolved persistent contribution and indemnity issues, thereby allowing for joint representation in thousands of pending asbestos-related lawsuits. The Wellington Agreement provided for the creation of the Asbestos Claims Facility to analyze, defend, and settle pending and future asbestos-related bodily injury claims referred to it by participating former asbestos producers. Under the agreement, funding for the payment of settlements, judgments, and legal expenses incurred in the defense of asbestos-related bodily injury claims against the party-producers was provided by the party-insurers.
4. But not all insurers signed the agreement, causing gaps in coverage to arise where non-signatory insurer payments were called for. Under the Wellington Agreement, party-insurers agreed to make gap-filling payments to cover the non-signatory insurers’ share of defense and indemnity costs. It was recognized that this would cause the insurers to pay out their policy limits more quickly than they would if the non-signatory insurers were participating. In response, Section XX of the Wellington Agreement was designed to compensate signatory insurers for these interim payments. Under Section XX, producers are required to use their best efforts to obtain coverage from non-signatory insurers. To encourage producers to pursue non-signatory insurers, interest on gap-filler payments begins to accrue two years after payment is made. The producer must thereafter pay interest quarterly until the earlier of (a) a settlement with or final judicial determination against the non-signatory insurer, or (b) the date on which the signatory insurer would have exhausted its policy limits if the non-signatory insurer had been a participating party to the Wellington Agreement.
5. Some of National Gypsum‘s insurers did not sign the Wellington Agreement, thus INA‘s successor in interest, Century Indemnity Company (“Century“), allegedly made gap-filling payments on behalf of National Gypsum for amounts owed by non-signatory insurers from October 1987 through May 1990. According to Century, Section XX interest accrued on the amount due to Century through March 1994, and prejudgment interest continues to accrue. Century claims that National Gypsum has never paid any portion of the now more than five million dollars owed to Century.
2. The Reorganization of National Gypsum
6. National Gypsum filed a Chapter 11 bankruptcy petition October 28, 1990. As a part of its reorganization plan, National Gypsum sought to assume the Wellington Agreement, one of approximately 250 executory contracts or unexpired leases to which National Gypsum was a party. In accordance with Bankruptcy Code requirements, the National Gypsum plan detailed the cost to “cure” any existing defaults on these executory contracts or unexpired leases. National Gypsum‘s plan represented that the company was not in default on any payments under the Wellington Agreement, and therefore, the cost to cure all defaults was $ 0.
7. On March 9, 1993, the bankruptcy court entered its “Order Confirming the First
B. Procedural History
8. In October 1995, following attempts by Century to recover the amounts allegedly due, National Gypsum brought suit in the Bankruptcy Court for the Northern District of Texas seeking a declaration that its contract obligations to Century were discharged in the earlier Chapter 11 reorganization. Following discovery, National Gypsum moved for summary judgment claiming that any amounts previously due were discharged, pursuant to
9. Century then moved the court to set aside the judgment and re-examine both issues. Ultimately, the bankruptcy court determined that confirmation of the plan did not discharge Century‘s right to payment under the Wellington Agreement, but that Century was precluded by res judicata from asserting that any amount other than $ 0 was due. The court reached this conclusion despite having found that there was a factual dispute as to whether Century had received the court-ordered notices that would have alerted it to the fact that the Wellington Agreement was being assumed with a $ 0 cure amount. In essence, the bankruptcy court determined that this factual question was immaterial, because mere knowledge of the pendency of the bankruptcy action was sufficient in and of itself to bind Century.
10. Both parties appealed to the District Court for the Northern District of Texas. The district court ruled in Century‘s favor on all three issues -- discharge of the claim, sufficiency of the notice, and res judicata effect of the confirmation. The district court affirmed the bankruptcy court‘s holding that Century‘s right to payment was not discharged, reasoning that the discharge provision of
11. The district court reversed the bankruptcy court on the notice issue, holding instead that the debtor had a responsibility to assure that the non-debtor party was on notice of the debtor‘s specific intent to assume the contract. The court then demonstrated that National Gypsum was unable to meet this standard based on the summary judgment record for two reasons. First, there existed a fact question whether Century was sent copies of crucial notices and mailings that the bankruptcy court had ordered to be sent to all affected parties. Specifically, did Century receive either the plan or the notice enumerating which executory contracts National Gypsum intended to assume, either one of which would have alerted Century that the Wellington Agreement was being assumed with a $ 0 cure amount? Second, the summary judgment proof demonstrated only that a representative of Century knew of the commencement of National Gypsum‘s Chapter 11 reorganization, not of the specific intent to assume. Consequently, the district court found that Century‘s due process rights had been violated.
12. Finally, the district court held that the confirmation order was not res judicata as to the cure amount, because the bankruptcy court “unambiguously anticipated disputes regarding cure amounts and retained jurisdiction to hear them.” National Gypsum took an appeal from the
II. DISCUSSION
A. Standard of Review
13. Bankruptcy court rulings and decisions are reviewed by a court of appeals under the same standards employed by the district court hearing the appeal from bankruptcy court; conclusions of law are reviewed de novo, findings of fact are reviewed for clear error, and mixed questions of fact and law are reviewed de novo. See Traina v. Whitney National Bank, 109 F.3d 244, 246 (5th Cir. 1997). We review a grant of summary judgment de novo. See Exxon Corp v. Baton Rouge Oil, 77 F.3d 850, 853 (5th Cir. 1996).
B. Century‘s Claims Were Not Discharged
1. Contentions of the Parties
14. National Gypsum argues that Century is barred from recovery because Century failed to take the necessary steps to protect its claim prior to confirmation of National Gypsum‘s reorganization plan. Purportedly, Century possessed a provable claim, because it was owed Section XX reimbursement payments prior to the reorganization. Under this theory, Century erred by failing to file a proof of its claim prior to the bar date, as a result, the claim was discharged along with all other unproven pre-confirmation debts by operation of the general discharge provision of Bankruptcy Code
2. Bankruptcy Code Sections 1141(d) and 365
15. Section
16. The Bankruptcy Code provides special rules for the treatment of executory contracts and unexpired leases during a Chapter 11 reorganization. See
17. “The authority to reject an executory contract is vital to the basic purpose of a Chapter 11 reorganization, because rejection can release the debtor‘s estate from burdensome obligations that can impede a successful reorganization.” NLRB v. Bildisco & Bildisco, 465 U.S. 513, 528, 79 L. Ed. 2d 482, 104 S. Ct. 1188 (1984). The Bankruptcy Code provides that the effect of a rejection of an executory contract is a breach, see
18. Rather than reject the contract or lease, the debtor may choose to assume it. An assumed lease or contract will remain in effect through and then after the completion of the reorganization. The non-debtor party to the agreement is not released from its duties and must continue to perform; likewise, the debtor must continue to perform or pay for the services or other costs that are not discharged. “The act of assumption must be grounded, at least in part, in the conclusion that maintenance of the contract is more beneficial to the estate than doing without the other party‘s services.” MMR Holding Corp. v. C&C Consultants, Inc. (In re MMR Holding Corp.), 203 B.R. 605, 612 (Bankr. M.D. La. 1996); see In re Eagle Bus Mfg., Inc., 148 B.R. 481, 483 (Bankr. S.D. Tex. 1992). Since not all contracts are zero-sum bargains, the contract will not necessarily be a detriment to the other party. Nevertheless, it is the debtor who decides whether to maintain the contract, and this authority vests the debtor with a considerable amount of power:
19. Section 365 is intended to provide a means whereby a debtor can force another
party to an executory contract to continue to perform under the contract if (1) the debtor can provide adequate assurance that it, too, will continue to perform, and if (2) the debtor can cure any defaults in its past performance. The provision provides a means whereby a debtor can force others to continue to do business with it when the bankruptcy filing might otherwise make them reluctant to do so. The section thus serves the purpose of making the debtor‘s rehabilitation more likely.
20. Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1310 (5th Cir. 1985); see RICHARD I. AARON, BANKRUPTCY LAW FUNDAMENTALS, 9.04[3] (1999) (“The power to reject unfavorable contracts is a potent weapon in the arsenal of unique bankruptcy powers.“).
21. Not surprisingly, the Bankruptcy Code affords the non-debtor a measure of protection, since it is possible that the contract is not beneficial to the non-debtor, and the non-debtor lacks any decision-making authority in the assumption process.7 Section
22. If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee-
23. (A) cures, or provides adequate assurance that the trustee will promptly cure, such default;
24. (B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and
25. (C) provides adequate assurance of future performance under such contract or lease.
26.
27. Thus, the debtor party must take full account of the cost to cure all existing defaults owed to the non-debtor party when assessing whether the contract is beneficial to the estate. See Three Sisters Partners, L.L.C. v. Harden (In re Shangra La, Inc.), 167 F.3d 843, 849 (4th Cir. 1999); MMR Holding, 203 B.R. at 613 (“Assumption presumes curing all prepetition default . . . .“).
28. A non-debtor is further protected by the requirement that an executory contract may not be assumed in part and rejected in part. See COLLIER ON BANKRUPTCY 365.03[1]. Where the debtor assumes an executory contract, it must assume the entire contract, cum onere - the debtor accepts both the obligations and the benefits of the executory contract. See Bildisco, 465 U.S. at 531. Although this rule can have broader application, in the instant case this condition serves only to reinforce the cure requirement of
29. National Gypsum asks us to find that
3. The Wainer Decision
30. In Wainer, the lessor consented to release an existing tenant and allow the assumption and assignment of the lease to a new tenant. Subsequently, the lessor filed suit against the debtor‘s guarantor after the lease assignee filed bankruptcy and rejected the lease. We ruled that the lessor had novated the lease by consenting to the assumption and assignment, thereby waiving its right to require a guarantee of the assignee‘s obligations. 984 F.2d at 685. Thus, a landlord, who would otherwise be free to pursue a guarantor if the lease is rejected, cannot pursue a guarantor if the lease is assumed. This stems from the fact that, in accordance with
31. Although our analysis in Wainer continued on from this point to determine the validity of the novation, it is only the Court‘s treatment of
32. A claim arising from the rejection, under section 365 of this title ... of an executory contract or unexpired lease of the debtor that has not been assumed shall be determined, and shall be allowed under subsection (a), (b) or (c) of this section or disallowed under subsection (d) or (e) of this section . . . .
33. Wainer, 984 F.2d at 684 (quoting
34. In light of the absence of any reference to a claim arising from the assumption of a contract and the express cure provisions for dealing with existing defaults, we concluded that “under the Bankruptcy Code, a lease that has been assumed under a plan or pursuant to section 365 does not give rise to a claim.” Wainer, 984 F.2d at 684 (emphasis in original). The fact that the lease in question was both assumed and assigned was not dispositive to our conclusion on the discharge issue. See id. at 684-85 (“[the debtor] did not reject the Lease and, thus, no claim arose in its bankruptcy proceedings to bring about a debt which may have been discharged.“).
35. Despite these plain statements, National Gypsum points to a single sentence in which we stated “when a lease is assumed and assigned to a third party pursuant to section 365 . . . it does not discharge a debt.” Id. at 684. This is a correct statement of our conclusion in that case in which the lease at issue was assumed and assigned. There was no emphasis placed on “assigned” in this lone sentence from which to conclude that the assignment was critical to the “no discharge” conclusion. In sum, the court affirmed that a claim arises only from the rejection of an unexpired lease or executory contract, not from the assumption of such a lease or contract.8
36.
37. [There are] two specific events that may give rise to a provable claim under the lease, even though the lease was not rejected. These events are an automatic termination of the lease or an actual breach and subsequent termination by the landlord, occurring either contemporaneously with or prior to the commencement of the proceedings. Neither of those events occurred in the present case. Thus, the default of the assignee alone did not give Edmonton a provable claim against Federal‘s, and such default failed to alter the character of the executory contract between Edmonton and Federal‘s.
38. 555 F.2d at 581 (emphasis added)(footnote omitted).
39. Similarly in In re Marple Publ‘g Co., 20 B.R. 933, 935 (Bankr. E.D. Pa. 1982), the bankruptcy court denied a complaint seeking an order compelling the debtor to cure an existing default on a lease by payment of pre-petition rent. In explaining the effects of assumption under
40. . . . if an unexpired lease is assumed by a debtor in possession under the Code, and such action is approved by the court, such assumption creates a new administrative obligation of the estate which is payable as a first priority . . . . Equally important is the fact that such assumed obligation is a postpetition debt that is not discharged by a confirmation of a chapter 11 case, and it therefore continues to be an obligation of the reorganized debtor.
41. Marple Publ‘g, 20 B.R. at 934 (emphasis added)(footnote omitted).
42. National Gypsum‘s argument that the “no discharge” conclusion in Wainer hinged upon the assignment of the lease is unpersuasive; it is unsupported by the plain language of the Bankruptcy Code and circuit precedent. In addition, National Gypsum‘s position is contrary to other supporting authority not cited in our earlier opinion. Specifically, our conclusion today is in accord with that reached by the Fourth Circuit. In the seminal case Consolidated Gas Elec. Light & Power Co. v. United Ry. & Elec. Co., 85 F.2d 799 (4th Cir. 1936), our sister court addressed the issue of whether an executory contract, neither assumed nor rejected, remains enforceable. The Fourth Circuit rebuffed the argument that a party to an un-rejected executory contract had a definite interest and, consequently, had a claim against the debtor, occupying the role of a creditor with all its attendant duties. See Consolidated Gas, 85 F.2d at 804. Instead, the court held that a claim under an executory contract does not arise within the meaning of the Bankruptcy Act until the contract has been rejected. See id. The court reasoned:
43. The party to an executory contract would find it difficult to state a claim under the contract before it had been broken; and certainly neither the debtor nor the trustee could set out the amount of such a claim as required by an order of court directing the filing of schedules ... and the holder of a contract would have a like difficulty in complying with the customary order of the judge with reference to the filing of claims by creditors[.]
44. Consolidated Gas, 85 F.2d at 805; see also Hotz v. Fed. Reserve Bank of Kansas City, 108 F.2d 216, 219 (8th Cir. 1939); In re DeVlieg, Inc., No. 93-C-20104, 1993 WL 248205, at *2 (N.D. Ill. July 6, 1993).
45. Finally, it should be noted that implementation of National Gypsum‘s theory would strip
46. The powers of the debtor in the assumption of contract arena should not be so needlessly aggrandized. Accordingly, we hold that
C. Notice
1. The Contentions of the Parties
47. Our “no discharge” conclusion necessitates consideration of the lower courts’ split on the issue of notice. The question remains whether, due to inadequate notice, Century was deprived of its ability to take reasonable measures to protect itself from having the executory contract to which it was a party assumed with a $ 0 cure amount.
48. The bankruptcy court recognized that there was a fact question as to the formal notice received by Century. The court reasoned that the same standard of notice applicable to unsecured creditors -- mere knowledge of the pendency of the reorganization -- applied with equal force to non-debtor parties to executory contracts. Accordingly, the insufficiency of formal (or sufficiently particularized actual) notice
49. National Gypsum contends that the bankruptcy court was correct to dispose of this issue on constitutional due process grounds pursuant to Sequa Corp. v. Christopher (Matter of Christopher), 28 F.3d 512 (5th Cir. 1994), rather than on statutory grounds pursuant to
2. The Governing Statutory and Rule Provisions
51. “As a general matter, a party seeking relief in bankruptcy court is not entitled to achieve a fait accompli with respect to the protectable interests of parties who did not receive notice prior to any loss with respect to their interest.” 7 COLLIER ON BANKRUPTCY 1109.06[2]. In furtherance of this end, the Bankruptcy Code is replete with provisions requiring proper notice to all parties affected by the proceedings. See, e.g., BANKR. RULE 6006. The notice question presented by this case arises, in part, because of the peculiar wording of Rule 6006.
53. Assumption, Rejection or Assignment of an Executory Contract or Unexpired Lease
54. (a) Proceeding to assume, reject, or assign A proceeding to assume, reject, or assign an executory contract or unexpired lease, other than as part of a plan, is governed by Rule 9014.
55. * * * (c) Notice Notice of a motion made pursuant to subdivision (a) or (b) of this rule shall be given to the other party to the contract or lease, to other parties in interest as the court may direct, and, . . . to the United States trustee.
56. BANKR. RULE 6006.
57. As other courts have noted, the setting of cure amounts is “not otherwise governed by” the Bankruptcy Rules, and thus falls under the auspices of Rule 9014. See, e.g., O‘Brien Envtl. Energy, Inc. v. NRG, 188 F.3d 116, 123 (3rd Cir. 1999). Bankruptcy Rule 9014 states, in pertinent part:
58. In a contested matter in a case under the Code not otherwise governed by these rules, relief shall be requested by motion, and reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought.
59. BANKR. RULE 9014.
60. National Gypsum takes the position that the “other than as part of a plan” language absolves the reorganizing debtor of responsibility to provide notice of its intent to either reject or assume the contract or lease. Once the non-debtor party to the contract or lease can be deemed aware that the reorganization has been filed, the onus is on the non-debtor contractual partner to follow the progress of the bankruptcy proceedings. The REPH court determined that Congress in fact adopted the contrary approach.
61. Rule 6006(a) excuses the procedure that applies in contested matters when a proceeding to assume an unexpired lease is “part of a plan.” Fairly interpreted, Rule 6006(a) does not eliminate the notice requirements applicable to a contested matter. Rule 9014, which governs contested matters not otherwise covered by the Bankruptcy Rules, requires that relief be requested on reasonable notice to the party against whom the relief is sought. The court holds that Rule 6006(a) implies a similar obligation upon a debtor who seeks to assume an unexpired nonresidential lease by means of its proposed reorganization plan. This means that although the plan itself constitutes the act of assumption contemplated by 365(d)(4), the lessor, as the party against whom the relief is sought, must be given reasonable notice of the debtor‘s intent. Even if Rule 6006(a) cannot be read to incorporate the notice requirement of Rule 9014, 1125(b) of the Code plainly requires that the contents of a proposed reorganization plan be adequately disclosed
62. REPH, 134 B.R. at 199 (emphasis added)(footnote omitted). In sum, the phrase
63. The vast majority of the cases addressing the level of notice required involve situations in which the debtor expressed its intent to assume by motion to the court. There is a paucity of cases in which sufficiency of notice is considered when the debtor expressed its intent to assume only in its proposed plan of reorganization. In cases where intent to assume is revealed by motion, courts require strict adherence to the requirements of
64. Strict adherence to the Code provisions governing assumption of contracts “might appear overly simplistic, [but] it is important in that it allows a debtor in possession the flexibility intended by the Bankruptcy Code in deciding whether or not to assume or reject contracts or leases.” Walat Farms, Inc. v. United States (In re Walat Farms, Inc.), 69 B.R. 529, 534 (Bankr. E.D. Mich. 1987). Also, the requirements of court approval and a hearing after notice to interested parties provide necessary safeguards to parties forced to maintain contractual relations with a reorganizing debtor. See id. “It is extremely important that interested parties be notified and have an opportunity to appear with regard to whether or not a debtor is going to assume. . . .” Typocraft, 229 B.R. at 689 (dealing with the assumption of a collective bargaining agreement); see Sea Harvest Corp. v. Riviera Land Co., 868 F.2d 1077, 1079 (9th Cir. 1989)(“Thus, these rules plainly specify that a debtor in possession must file a formal motion and provide reasonable notice and an opportunity for a hearing to the opposing party.“).
65. The theoretical underpinnings of these cases cannot logically be restricted to those instances involving assumption by motion. Notice as a procedural safeguard cannot expand or contract based solely upon the procedural choice of the debtor when the ramifications to the non-debtor party are no less severe. Not surprisingly, the limited number of courts that have explicitly addressed this issue adopt the same approach taken by the district court in REPH.
66. In In re Flugel, 197 B.R. 92 (Bankr. S.D. Cal. 1996), chapter 13 debtors provided for the assumption of a non-residential real estate lease in a special provision attached to their plan. See 197 B.R. at 94. Under this provision, debtors sought to assume the unexpired lease, cure the existing pre-petition default, and provide adequate assurance of future performance. See id. The Flugel court faced the question of whether the special assumption provision in the plan was adequate to satisfy the Bankruptcy Code‘s notice requirements. Discussing favorably the analysis of
67. The Flugel court noted that the same analysis had also been applied in Riddle v. Aneiro (In re Aneiro), 72 B.R. 424 (Bankr. S.D. Cal. 1987). In that case, the court arrived at the same conclusion as the REPH and Flugel courts -- the debtor had a responsibility to assure that the non-debtor party to the contract or lease was on notice of the debtor‘s specific intent to assume the lease so as to be able to evaluate whether the assumption criteria were satisfactory. See Aneiro, 72 B.R. at 427. In Aneiro, the non-debtor received a copy of the chapter 13 debtor‘s plan which contained a provision explaining the assumption. In both Aneiro and Flugel, the courts were in part attempting to decide whether an assumption under a plan still required the filing of a motion. Clearly neither court would have been satisfied with mere “pendency of the action” notice since both contemplated that at a minimum the non-debtor would receive either the proposed plan or some form of notice setting forth the debtor‘s intent to assume. Ultimately, the Aneiro court held that the motion to assume was “made” when the non-debtor party to the lease was served notice of the plan‘s filing. See 72 B.R. at 428. The identical approach has been applied by other courts. See, e.g., In re Hall, 202 B.R. 929, 932-33 (Bankr. W.D. Tenn. 1996)(notice requirements satisfied by delivery of notice with plan attached).
68. This result is the only course that is consistent with the notice analysis in cases involving rejection of a contract, in which a claim arises stemming from the rejection and the non-debtor is then allowed to assert an unsecured claim for damages. See, e.g., In re Parkwood Realty Corp., 157 B.R. 687 (W.D. Wash. 1993). In Parkwood, the court explained:
69. These provisions read together clearly contemplate that a party to an executory contract will receive notice of rejection when it receives a copy of the Disclosure Statement and Plan, giving it a window in which to file a proof of claim for damages. A party which has not even had notice of the plan, let alone the debtor‘s intention to reject, is given no opportunity to file a claim. To hold that a claim has been discharged under these circumstances would clearly violate due process.
70. In re Parkwood, 157 B.R. at 690.
71. Accordingly, we hold that the debtor had responsibility to assure that the non-debtor party was on notice of the debtor‘s specific intent to assume the contract. Unless there is a showing that the non-debtor possessed actual knowledge of a sufficiently refined degree, the debtor must demonstrate delivery of the proposed plan of reorganization or some other court-ordered notice that set forth National Gypsum‘s intent to assume the Wellington Agreement with a $ 0 cure amount. With the proper standard now in mind, we turn to the facts of this case.
3. A Fact Question Exists as to Formal Notice
73. National Gypsum asserts that Century received adequate formal notice because, as the summary judgement record shows, a number of notices were sent over the course of almost a year to attorney Lynn Bregman. Mr. Bregman, who represented Century in a separate insurance case involving National Gypsum that took place in the Southern District of New York and was settled by June 1989, asserts that neither he nor any other attorney at Wilmer, Cutler & Pickering was ever retained to represent Century in the National Gypsum bankruptcy proceedings. Bregman further states that a search of the firm‘s files failed to uncover any of the following notices or documents: (1) the Notice of Assumption and Assignment of Certain Executory Contracts and Unexpired Leases and Amount of Cure Payment, If Any, (2) the solicitation package (consisting of the solicitation letter, the Court‘s Order Approving Debtor‘s Disclosure
74. National Gypsum also argues that Century had sufficient actual knowledge. The summary judgment proof does establish that Joseph Proko, Century‘s vice-president in charge of special asbestos matters, was aware that the National Gypsum reorganization had commenced in 1990. Through his work as Century‘s representative to the Asbestos Claims Facility, Proko received status reports on the Facility‘s activities which often reference ongoing developments in asbestos litigation. National Gypsum‘s summary judgment proof contains a group of status reports dated throughout 1991 that made brief mention of a dispute over whether the bankruptcy court would approve National Gypsum‘s continued participation in the Facility. The reports do not discuss any other aspect of the National Gypsum reorganization; specifically, there was no mention of bar dates, assumption of the Wellington Agreement, default status on interest, deadlines for objections, discussion of the solicitation package, or the plan. Accordingly, the summary judgment record does not reflect that Century was sufficiently aware of National Gypsum‘s intent to assume with a $ 0 cure.
75. In conclusion, the bankruptcy court ordered National Gypsum to provide notice, pursuant to the requirements of the Bankruptcy Code and Bankruptcy Rules, of its specific intent to assume the Wellington Agreement. If such notice was not given, then the bankruptcy court erred in permitting National Gypsum to assume the Wellington Agreement with a $ 0 cure amount.
76. Our holding on the notice issue obviates the need to resolve the disagreement below concerning the proper interpretation of the bankruptcy court‘s retention of jurisdiction language. Since res judicata can not operate to bar Century‘s claim if notice was inadequate, summary judgment in favor of National Gypsum was inappropriate.
III. CONCLUSION
77. For the reasons set forth above, We AFFIRM the district court‘s decision.
Notes
In the context of assumption of executory contracts, there is far less to fear in the way of non-debtors waiting out the process, than there is of creditors waiting out the discharge of unsecured debts. Non-debtor parties to executory contracts must be made whole as part of the assumption; there is no point in waiting because there will be no “cents-on-the-dollar” distribution. Actually, the risk runs in the opposite direction: it is far more likely that a reduced standard of notice would encourage debtors to be careless in determining, or to intentionally understate, cure amounts, then fail to provide ordered adequate formal notice in order to avoid payment on contractual sums owed. According to Century, this is exactly what occurred in this case, where little internal scrutiny was given to the setting of the cure amount by National Gypsum.
The bankruptcy court concluded that the creditors were deprived of due process with respect to their unsecured claims, and therefore, they were not bound by the terms of the confirmed reorganization plan. On appeal, we determined first that the matter was not controlled by the statutory provisions of the Code. Second, we addressed the constitutional requirements of due process, in the context of unsecured creditors’ claims, expanding on our earlier holding in Grossie v. Sam (Matter of Sam), 894 F.2d 778 (5th Cir. 1990). In Sam, we held that “all constitutional due process requires ... is that [the creditor] have ‘notice reasonably calculated, under all the circumstances, to apprise [him] of the pendency of the action and afford [him] an opportunity to present [his] objections.‘” Id. at 781 (quoting Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 94 L. Ed. 865, 70 S. Ct. 652 (1950)). Applying the standard from Sam, the Christopher panel concluded that “it does not offend due process to view actual notice of a debtor‘s bankruptcy to a [prepetition] creditor as placing a burden on the creditor to come forward with his claim.” Matter of Christopher, 28 F.3d at 517 (stating that as to claims “due process requires only notice that is both adequate to apprise a party of the pendency of an action affecting its rights and timely enough to allow the party to present its objections.“). No Fifth Circuit case subsequent to Christopher and Sam has extended the due process standard from the discharge of debts to cure amounts of assumed contracts.