2009 Chapter 11 Recent Developments (Part I)

will continue after confirmation."

(2)

In Missouri, punitive damages are available for trespass and conversion but a plaintiff must show with clear and convincing evidence that the defendant's acts were outrageous because of evil motive or reckless indifference. And, a jury's verdict is not overturned "unless there is a complete absence of probative facts and no proof beyond speculation to support the verdict."

(3)

The constitutionality of punitive damage awards is a three factor test: (i) the degree of reprehensibility of the misconduct; (ii) the disparity between the potential harm and the punitive damages award; and (iii) the difference between the punitive damages and the civil damages awarded.

Holding: Affirm the judgment of the district court except for the punitive damage award for the trespass tort, which is reduced to 10% of the original amount on due process grounds.

Reasoning:

(1)

The Debtor's plan expressly retained JCB's lien, and, therefore, the subsequently acquired property clause in JCB's financing and security agreements survived confirmation. Additionally, the plan specifically subordinated the Bank's lien to purchase money security interests, which JCB held in the equipment in provided to the Debtor under their prepetition agreements.

(2)

The court first held that, based on the record of the district court's trial, the submission of punitive damages to the jury was not an abuse of the district court's discretion. Moreover, also based on the trial record, the imposition of punitive damages is reasonable as to the tort of conversion. However, the punitive damage award was unconstitutionally high and the court reduced the award to $108,750.

Notes: Judge Colloton disagrees that the punitive damage award for trespass was unconstitutionally high.

Browning v. MCI, Inc. (In re Worldcom, Inc.), 2008 WL 4554713 (2d Cir. Oct. 14, 2008)

Facts: In the late 1980s, prepetition, a subsidiary or predecessor of MCI, Inc. (the "Debtor") installed fiber optic cables along land owned by Victor Browning ("Browning") in Kansas. Browning sued in Kansas state court (the lawsuit ended up in Oklahoma federal court) alleging trespass and unjust enrichment. Shortly thereafter, the Debtor filed for chapter 11 bankruptcy. Browning did not file a proof of claim in the Debtor's bankruptcy even though he had gotten notice of the bankruptcy and had an opportunity to file a proof of claim. In October 2003, the Debtor's plan of reorganization (the "Plan") was confirmed. After the Plan was confirmed, Browning moved to reopen his case and the Debtor moved to bar Browning from proceeding with his lawsuit on the basis that it had been discharged by the confirmation of the Plan. The bankruptcy court agreed and held that Browning's claim was discharged because he was unable to state a claim for continuing trespass under Kansas law. The district court affirmed.

Issues: Whether Browning's claim - which he alleged continued post-confirmation because (i) the Debtor continues to trespass on his property every time a light pulse is sent through the fiber optic cables, and (ii) the cables are still on Browning's property - was discharged by the Plan and therefore whether the bankruptcy court correctly barred Browning from continuing with his lawsuit. Rules: Under § 1141(d)(1)(A), confirmation of a plan of reorganization "discharges the debtor from any debt that arose before the date of such confirmation." Some states, including Kansas, recognize both tangible (the traditional view) and intangible (the modern view) trespass; however, to claim an intangible trespass, the Second Circuit believes that Kansas requires that the plaintiff prove physical damage to the property or res.