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* In re Meridian Auto. Sys.-Composites Operations, Inc., 372 B.R. 710 (Bankr. D. Del.
Aug. 2007) (Walrath, J.) Debtor was not barred from compelling critical vendor to disgorge $1.25 million. Pursuant to a post-petition agreement between the chapter 11 debtor and a vendor which was approved by the court's critical vendor order, the debtor made payments to certain critical vendors for all or part of the vendors' pre-petition claims. However, during the administration of the case and before the confirmation of a plan, one of the vendors failed to satisfy its obligations under the agreement and order, giving the debtor a cause of action against the vendor for the payments made under the agreement. Weeks after the effective date of the confirmed plan, the debtor moved to compel the vendor to disgorge the special critical vendor payment it had received. The vendor asserted, inter alia, that the debtor was barred by res judicata because the debtor could have asserted the cause of action for breach of contract and disgorgement before confirmation. The court, however, disagreed and found that the debtor had explicitly reserved the cause of action by the terms of the confirmed plan. The court further awarded pre-judgment interest as of the post-confirmation date on which the debtor first moved to compel the disgorgement.
* In re Shenango Group Inc., 501 F.3d 338 (3d Cir. Sept. 2007) (Smith, J.)
The bankruptcy court's construction of disputed provisions of a confirmed plan may be overturned only for abuse of discretion. The bankruptcy court was called upon to interpret provisions of a 1994 order confirming the debtor's plan of reorganization. After reviewing the history of the case and the negotiations that went into the confirmed plan, the bankruptcy court found the disputed provisions to be clear and unambiguous and held that the reorganized debtor was liable to the creditors. The district court affirmed. On appeal, the Third Circuit recognized that the issue was not merely a straightforward appeal of the lower court's contract interpretation. Instead, the Third Circuit noted that the issue on appeal was whether the bankruptcy court erred in interpreting its own orders -- that is, whether it erred in interpreting the confirmed plan and all plan documents. To the extent that the issues before the bankruptcy court were questions of law, the court found the standard of review to be de novo. However, as a matter of first impression, the Third Circuit found standard for reviewing a bankruptcy court's construction of a confirmed plan was for abuse of discretion. As a threshold matter, the court of appeals disagreed with the bankruptcy court's finding that the disputed provisions were free of ambiguity. Instead, the court of appeals found the disputed plan provisions to be capable of at least two reasonable constructions. Notwithstanding these ambiguities, however, the Third Circuit found the construction adopted by the bankruptcy court to be supported by the record and thus not clearly erroneous. The court of appeals therefore affirmed the bankruptcy court's decision.
