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filed a motion for contempt in the bankruptcy court. The bankruptcy court denied the motion on
the basis that Nationwide was not an unknown creditor in the bankruptcy and should have been
afforded notice as prescribed by chapter 11 rules. The district court affirmed.
Issues: Whether the Debtor's failure to list Nationwide as a creditor in its bankruptcy schedules, and
the Debtor's failure to provide Nationwide with notice of the bar date, the plan of reorganization,
notice of the confirmation
hearing and the confirmation order violated Nationwide's due process and prevents the Debtor from
enforcing the discharge injunction against Nationwide's claims against Arch (the reorganized debtor)
in state court.
Rules: "The fact that a creditor may... be generally aware of the pending reorganization, does not of itself impose upon him any affirmative burden to intervene in that matter and present his claim...
[T]he creditor has a right to assume that proper and adequate notice will be provided before his
claims are forever barred." Thus, actual notice of a chapter 11 bankruptcy does not afford an
unlisted known creditor due process so that the creditor is barred by a discharge injunction in a
chapter 11 plan.
Holding: the bankruptcy court's ruling is affirmed.
Reasoning: The bankruptcy court's finding that, based on a series of emails and letters that went
between the prepetition Debtor and Nationwide, Nationwide was a known creditor that should have
been scheduled is not a clear error of law. Moreover, Nationwide did not have the burden to
investigate the Debtor's bankruptcy proceedings to determine things like the bar date and the
confirmation hearing. The court also distinguished a chapter 11 case from chapter 7 and 13 cases
based on the language of the Bankruptcy Code in each statutory section.
Facts: JCB, Inc. ("JCB") sued Union Planters Bank, N.A. (the "Bank") for a declaratory judgment seeking damages for trespass and conversion relating to the Bank's foreclosure and sale of machines in the Debtor's possession to satisfy the Bank's security interest in the Debtor's inventory. JCB's equipment was held on a lot leased by JCB adjacent to the Debtor's lot. The JCB lot was fenced and locked. JCB provided equipment to the Debtor based on a prepetition contract and continued to provide machines to the Debtor on the same contract post-petition and post-confirmation. Despite the fact that JCB informed the Bank of its interest prior to the sale of the machines, the Bank sold the machines and placed the proceeds in a noninterest bearing account but later withdrew some of the funds to pay for certain costs. The bankruptcy court, on partial referral from the district court, held that JCB's lien was ahead of the Bank's since the plan of reorganization preserved JCB's lien. The district court affirmed and determined that the Bank was liable for trespass and conversion. A jury awarded compensatory and punitive damages for both trespass and conversion: a compensatory award of $1 and a punitive award of $1,087,500 was entered against the Bank for the trespass; a compensatory award of $1.4 million and a punitive award of $1.15 million was entered against the Bank for conversion.
(1) "Once confirmed, a Chapter 11 plan acts as both a contract which binds the parties and as an order of the bankruptcy court... Confirmation of the reorganization plan replaces prior obligations, ... and a lien not preserved by the plan is extinguished... a security interest preserved by the plan
