Matter of Christopher ( 1994 )

United States Court of Appeals,
Fifth Circuit.
No. 93-1894.
In the Matter of Charles Simpson CHRISTOPHER, Debtor.
SEQUA CORPORATION, et al., Appellants,
v.
Charles Simpson CHRISTOPHER, Appellee.
Aug. 15, 1994.
Appeal from the United States District Court for the Northern
District of Texas.
Before KING and SMITH, Circuit Judges, and KAZEN,* District Judge.
KING, Circuit Judge:
Charles Simpson Christopher was sued by Sequa Corporation and
Chromalloy American Corporation in New York state court in early
1989. At the time the suit was filed, the plaintiffs had actual
knowledge that Christopher had earlier filed for Chapter 11
bankruptcy. His plan of reorganization was confirmed in August
1989. Christopher later brought an adversary proceeding against
Sequa Corporation and Chromalloy American Corporation, and the
bankruptcy court held that those parties' claims against
Christopher had been discharged upon confirmation of Christopher's
plan of reorganization. Sequa Corporation and Chromalloy American
Corporation now appeal, arguing principally that their claims
against Christopher, which accrued postpetition, cannot be
discharged consistently with the requirements of the Due Process
*
District Judge of the Southern District of Texas, sitting
by designation.
1
Clause because they received inadequate notice of Christopher's
bankruptcy proceedings.
I. BACKGROUND
A. FACTS
Charles Simpson Christopher filed for reorganization under
Chapter 11 of the United States Bankruptcy Code in September 1987.
After Christopher filed his petition, but prior to confirmation of
his plan of reorganization, he joined a group of investors known as
Resolute Holdings, Inc. ("RHI"). This investment group was in the
business of acquiring insurance companies. Among the companies
that RHI was interested in acquiring were Chromalloy American
Insurance Group, Inc. and its insurance subsidiaries (collectively
"CAIGI").1 It appears that CAIGI was owned by Sequa Corporation
("Sequa"). The acquisition of CAIGI by RHI was effectuated on May
15, 1988. Sequa concedes that, during the course of the
negotiations concerning CAIGI, Sequa was "made aware" that
Christopher had at some prior date petitioned for bankruptcy relief
under Chapter 11.
RHI's dealings quickly spawned litigation, including a lawsuit
filed by Sequa in New York state court against RHI, Christopher,
and other entities in 1989. According to Sequa's pleadings in that
lawsuit, the following sequence of events took place. The
Commissioner of the Rhode Island Department of Business Regulation
and Insurance ("the Commissioner") issued a Conditional Order on
1
According to Sequa, CAIGI later changed its name to
American Universal Insurance Group.
2
May 27, 1988, approving RHI's acquisition of CAIGI on certain
conditions. Sequa received $7,000,000 from RHI on July 15, 1988;
unbeknownst to Sequa, however, RHI had violated the Commissioner's
Conditional Order by extracting the $7,000,000 from certain of the
subsidiary insurance companies within CAIGI. In September 1988,
the Commissioner was appointed temporary receiver of those same
CAIGI companies, and in a series of meetings soon thereafter the
Commissioner threatened to void the transaction and force the
parties to unwind the deal unless Sequa immediately restored the
$7,000,000 to the source companies. Sequa complied and returned
the money. Sequa and its wholly-owned subsidiary Chromalloy
American Corporation (collectively, the "Sequa Group" or the
"Group") then filed the lawsuit in New York against RHI,
Christopher, and related entities and persons; the record contains
an amended complaint from that lawsuit dated January 18, 1989,
which includes counts for breach of contract, unjust enrichment,
tortious interference with contractual relations, and fraudulent
misrepresentation.
Christopher's reorganization plan was confirmed on August 24,
1989, in the midst of the New York litigation instigated by the
Sequa Group. Because the claims of Sequa and Chromalloy American
Corporation arose after commencement of Christopher's bankruptcy
case, neither entity was listed or required to be listed as a
creditor in Christopher's bankruptcy proceedings, and they never
filed any papers or otherwise participated in those proceedings.
B. PROCEDURAL HISTORY
3
On July 24, 1991, Christopher filed an adversary proceeding in
the United States Bankruptcy Court for the Northern District of
Texas seeking a declaratory judgment that certain claims against
him had been discharged by the confirmation of his plan of
reorganization. Those claims included the claims that the Sequa
Group was pursuing in its New York litigation, as well as numerous
other claims against Christopher by other parties not now before
this court. On September 23, 1992, the bankruptcy court presided
over trial on the merits of Christopher's complaint and the Group's
defenses. The bankruptcy court held that the Group's claims had
been discharged. Christopher v. American Universal Ins. Group,
Inc. (In re Christopher), 148 B.R. 832 (Bankr.N.D.Tex.1992). The
Group appealed to the district court, which affirmed the bankruptcy
court's judgment without additional findings of fact or conclusions
of law. This appeal ensued.
C. ISSUES
The Sequa Group raises several arguments for reversal. It
contends that the discharge of its claims against Christopher was
erroneous because (1) the discharge of its claims would violate due
process as a result of the insufficient notice it received, (2)
Christopher suffers from "unclean hands," (3) Christopher should
have been equitably estopped from claiming discharge, and (4)
Christopher waived his right to claim discharge.
II. STANDARD OF REVIEW
This court reviews findings of facts by the bankruptcy court
under the clearly erroneous standard and decides issues of law de
4
novo. Henderson v. Belknap (In re Henderson), 18 F.3d 1305, 1307
(5th Cir.1994); Haber Oil Co. v. Swinehart (In re Haber Oil Co.),
12 F.3d 426, 434 (5th Cir.1994). A finding of fact is clearly
erroneous when, although there is enough evidence to support it,
the reviewing court is left with a firm and definite conviction
that a mistake has been committed. United States v. United States
Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 541-42, 92 L. Ed. 746
(1948); In re Henderson, 18 F.3d at 1307. If the lower court's
account of the evidence is plausible in light of the record viewed
in its entirety, the court of appeals may not reverse it even
though convinced that, had it been sitting as the trier of fact, it
would have weighed the evidence differently. Anderson v. City of
Bessemer City, 470 U.S. 564, 573-74, 105 S. Ct. 1504, 1511-12, 84
L. Ed. 2d 518 (1985).
III. ANALYSIS
A. DUE PROCESS
The Sequa Group's first due process argument is that the
bankruptcy court erred in discharging its postpetition claims
against Christopher because the Group was not given formal notice
of the bankruptcy proceedings involving Christopher. In the
alternative, the Sequa Group argues that, even if it was not
entitled to formal notice, the actual notice of the bankruptcy
proceedings received by the Group was insufficient to satisfy due
process and so the confirmed plan cannot be res judicata as to the
Group. We address the Group's second argument first, after a brief
review of the law of bankruptcy applicable to the instant case.
5
1. Legal Background
Christopher received a discharge of indebtedness under
Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1141(d). This
discharge is broader than that obtained in a Chapter 7 bankruptcy;
while a Chapter 7 discharge deals only with debts incurred prior to
the filing of the petition, § 1141(d) discharges the debtor from
any debt (with certain exceptions) that arose before the date of
confirmation. 3 DAVID G. EPSTEIN ET AL., BANKRUPTCY § 10-30 (1992).
Under § 1141(d)(2), confirmation of a plan of reorganization
does not discharge an individual debtor from any debt excepted from
discharge under § 523 of the Code. The provision of § 523 that has
been the focus of all attention in the instant case is § 523(a)(3),
which excepts from the discharge of an individual debtor any debt
(3) neither listed nor scheduled under section 521(1) of
this title, with the name, if known to the debtor, of the
creditor to whom such debt is owed, in time to permit—
(A) if such debt is not of a kind specified in
paragraph (2), (4) or (6) of this subsection, timely
filing of a proof of claim, unless such creditor had
notice or actual knowledge of the case in time for such
timely filing; or
(B) if such debt is of a kind specified in paragraph
(2), (4) or (6) of this subsection, timely filing of a
proof of claim and timely request for a determination of
dischargeability of such debt under one of such
paragraphs, unless such creditor had notice or actual
knowledge of the case in time for such timely filing and
request[.]
The bankruptcy court relied on § 523(a)(3) in concluding that the
Sequa Group's claims were discharged despite the Group's omission
from the schedule of creditors because the Group had actual
knowledge of Christopher's bankruptcy. It is not, however,
6
entirely clear that this is a correct reading of § 523; as the
Group points out, § 523(a)(3) appears to be limited to debts owed
to "creditors," which is a defined term including only prepetition
claimants. 11 U.S.C. § 101(10). This is not critical to our
decision in the instant case; even if § 523(a)(3) is wholly
inapplicable to the Group's claims, § 1141(d) continues to mandate
that those claims are discharged if they existed prior to the date
of confirmation of the plan unless some other provision of § 523
applies to except those claims from discharge. The Group makes no
argument based on § 523, premising its entire argument on due
process.
The focus of the Group's due process argument is the Code's
failure to require any specific form of notice of bankruptcy
proceedings to persons holding claims that arise postpetition. All
parties agree with the bankruptcy court's holding that nothing in
the Bankruptcy Code or Bankruptcy Rules requires a Chapter 11
petitioner to serve notice of the Chapter 11 proceedings on parties
with whom the petitioner deals postpetition. 148 B.R. at 835.
Contrary to the Group's suggestion at oral argument, we concur with
the bankruptcy judge's view that the lack of such a notice
requirement in the Code was probably not the result of
congressional oversight. The simple fact is that parties who deal
with a bankrupt postpetition are frequently entitled to priority
under §§ 503 and 507 of the Code, giving them an added level of
protection as compared to the prepetition claimants. Additionally,
the plan of reorganization cannot be confirmed under §
7
1129(a)(9)(A) unless the plan provides for the payment in cash and
in full of persons holding "claims" for administrative expenses
under §§ 503 and 507. Thus, persons holding claims against the
debtor that arise postpetition are in some respects better able to
protect their interests than are prepetition claimants. Although
the Group makes some attempt to characterize itself as an
administrative "creditor," it does not make any argument based on
the plan's failure to treat it as such, nor does it seek to unravel
the plan almost five years after confirmation. The Group seeks
only to be allowed to proceed with its lawsuit against
Christopher's postconfirmation assets—in other words, to avoid the
discharge of its claims against Christopher arising between
petition and confirmation.
2. Actual Notice
The Sequa Group argues that the bankruptcy court erred in
determining that it received sufficient notice of Christopher's
Chapter 11 bankruptcy proceeding to satisfy the requirements of due
process. The general rule is that due process requires
notice reasonably calculated, under all the circumstances, to
apprise interested parties of the pendency of the action and
afford them an opportunity to present their objections. The
notice must be of such nature as reasonably to convey the
required information, and it must afford a reasonable time for
those interested to make their appearance.
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70
S. Ct. 652, 657, 94 L. Ed. 865 (1950) (citations omitted). The Court
applied Mullane in the bankruptcy context in Bank of Marin v.
England, 385 U.S. 99, 87 S. Ct. 274, 17 L. Ed. 2d 197 (1966), and we
recently did so in the case of Grossie v. Sam (In re Sam), 894 F.2d
8
778, 781 (5th Cir.1990). See generally 5 COLLIER ON BANKRUPTCY ¶
1141.01[4][b] (Lawrence P. King ed., 15th ed. 1994); Nicholas A.
Franke, The Code and the Constitution: Fifth Amendment Limits on
the Debtor's Discharge in Bankruptcy, 17 PEPP.L.REV. 853 (1990).
We briefly recount the bankruptcy court's findings of fact
indicating that the Sequa Group had actual notice of Christopher's
ongoing bankruptcy proceedings when its claims arose. First,
Christopher's bankruptcy was discussed at a meeting during early
RHI-Sequa negotiations regarding the purchase of CAIGI by RHI, and
the court found that the parties specifically discussed the
propriety of Christopher's participation in RHI because of his
bankruptcy. 148 B.R. at 834. The vice-president of Chromalloy
American Insurance Group, Inc. also wrote a letter to RHI
concerning the prospective purchase; the letter referred to the
fact that Christopher's bankruptcy had been discussed with the
Rhode Island Insurance Commissioner and requested RHI to amend its
filings regarding its purchase offer to include formal disclosure
of Christopher's bankruptcy. Id. In addition to the facts
regarding notice cited by the bankruptcy court, Christopher directs
our attention to a document in the record which is a letter from
the Group's attorneys to the judge presiding over the New York
lawsuit dated April 1989 in which Christopher's Chapter 11
bankruptcy is specifically referred to.
The Sequa Group does not challenge the bankruptcy court's
factual findings, but contends only that the court erred in holding
that the notice given to the Group was constitutionally adequate
9
under Mullane. The Group highlights the facts that it had no
claims against Christopher at the time it received notice of
Christopher's bankruptcy and that once the Group's claims arose,
Christopher never notified the Group of important dates such as the
deadline for filing objections to the plan of reorganization or the
date of the hearing on confirmation of the plan.
The Group cites a number of cases in support of its position,
beginning with City of New York v. New York, New Haven & Hartford
R.R., 344 U.S. 293, 73 S. Ct. 299, 97 L. Ed. 333 (1953), which was
decided under the Bankruptcy Act of 1898. In that case, the City
of New York owned liens on real estate owned by the railroad, and
the railroad subsequently went through reorganization under § 77 of
the Bankruptcy Act. Id. at 294, 73 S.Ct. at 300. The court set a
deadline for the filing of claims, but only the railroad's mortgage
trustees and creditors who had already appeared in court received
notice of this order by mail. Id. Other creditors, such as the
City of New York, were served by newspaper publication. Id. The
Court considered whether the City's liens were discharged by the
final decree in the reorganization and concluded that they were not
because the judge who presided over the bankruptcy did not comply
with § 77(c)(8) of the Bankruptcy Act, which required the judge to
"cause reasonable notice of the period in which claims may be
filed, ... by publication or otherwise." Id. at 296, 73 S.Ct. at
301. The Court held that publication was not "reasonable notice"
to the City of New York under the circumstances of the case and
that the City's knowledge of the reorganization did not impose a
10
duty of inquiry on the City in order to protect its rights. Id. at
296-97, 73 S.Ct. at 301. As the Court remarked, "even creditors
who have knowledge of a reorganization have a right to assume that
the statutory "reasonable notice' will be given them before their
claims are forever barred." Id. at 297, 73 S.Ct. at 301.
Although City of New York is plainly similar to the instant
case, it may be distinguished by the fact, which we observed in In
re Sam, 894 F.2d at 781, that the Court apparently decided the case
on statutory rather than constitutional grounds. See In re Intaco
Puerto Rico, 494 F.2d 94 (1st Cir.1974) (applying City of New York
to a similar case arising under Chapter X of the Bankruptcy Act as
a matter of statutory interpretation); In re Harbor Tank Storage
Co., 385 F.2d 111 (3d Cir.1967) (same). The Tenth Circuit,
however, has relied in part on City of New York in holding that a
due process violation had occurred on facts similar to the instant
case. In Reliable Elec. Co. v. Olson Constr. Co., 726 F.2d 620,
621 (10th Cir.1984), a construction subcontractor ("Reliable")
withdrew from a project and filed a petition under Chapter 11
shortly thereafter. The general contractor ("Olson") was told in
a telephone conversation with Reliable's attorney that the
reorganization proceedings had been instituted, but he received no
further information about the bankruptcy proceedings. Id.
Reliable then sued Olson in state court, and Olson removed to
federal bankruptcy court and counterclaimed against Reliable. Id.
Olson ultimately prevailed on both Reliable's claim and its own
claim, but not until after Reliable's plan was confirmed. The
11
bankruptcy court denied Reliable's motion requesting the court to
find that Olson's claim had been discharged when the plan was
confirmed. Id. at 621-22. The Tenth Circuit affirmed, holding
that "the discharge of a [prepetition] claim without reasonable
notice of the confirmation hearing is violative of the fifth
amendment to the United States Constitution." Id. at 623.
The Tenth Circuit extended its holding in Reliable Elec. Co.
to cases involving creditors whose claims arise postpetition in
Dalton Dev. Project #1 v. Unsecured Creditors Comm. (In re Unioil),
948 F.2d 678 (10th Cir.1991). In that case, the debtor engaged in
unauthorized postpetition transfers of interests in some oil and
gas properties to several partnerships, including Dalton
Development Project # 1 ("Dalton"). Id. at 679-80. The transfers
were not discovered until two years after the plan of
reorganization was confirmed, and the bankruptcy court granted the
motion of the creditors committee to set aside the transfers. Id.
at 680. The court also held that any claim against the debtor held
by Dalton was barred by the confirmation of the reorganization
plan. Id. at 681. The Tenth Circuit reversed this holding,
concluding that Reliable Elec. Co. places the burden on the debtor
to provide formal notice of the confirmation hearing to a known
creditor if that creditor's claims are to be discharged in
bankruptcy. Id. at 683.
We have 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.
12
In In re Sam, we considered a case in which the claimant filed a §
1983 lawsuit against a police officer several months after the
officer had filed for bankruptcy. In re Sam, 894 F.2d at 778. The
claimant was not listed as a creditor, and the first time he heard
of the debtor's bankruptcy was eighteen days before the deadline
for filing claims in the bankruptcy court, when the claimant's
attorney received a notice of the automatic stay identifying the
bankruptcy court, case number, and the names of the debtor and his
attorney. Id. at 778-79. Although the claimant did not receive
notice of the actual bar date until after it had passed, we
affirmed the lower courts' holdings that the claim was time-barred.
Id. Rejecting the claimant's due process argument, we stated that
when the claimant received the notice of the automatic stay "he was
on notice that his section 1983 claim against Sam was affected by
Sam's bankruptcy, and he had eighteen days to inquire as to the bar
date and file his complaint or a motion to extend the bar date."
Id. at 781. "[B]ecause that notice apprised him of the pendency of
the action and was timely enough to afford him an opportunity to
present his objections, it satisfies constitutional procedural due
process requirements." Id. at 782.
The Sequa Group argues that In re Sam is distinguishable from
the instant case and that dicta in In re Sam actually supports the
Group's position. As we have already noted, the In re Sam court
did not find City of New York controlling because that case
"apparently was decided on statutory rather than constitutional
grounds." Id. at 781. The In re Sam court went on, as the Group
13
points out, to distinguish City of New York on the facts; the In
re Sam court opined that the Court in City of New York required
that creditors receive actual notice of the specific bar date
because under the Bankruptcy Act the setting of this date was
discretionary with the judge. Under modern Bankruptcy Rule
4007(c), the In re Sam court observed, the bar date is established
as sixty days from the first date set for a meeting of creditors
under § 341(a). Id. at 781. The Sequa Group argues that the In re
Sam court thus implicitly recognized that actual notice of
bankruptcy proceedings in general is not constitutionally
sufficient if the pertinent date is one that is set at the
discretion of the debtor or the court, such as the date of the
hearing on confirmation of the plan of reorganization.
Although the court's opinion in In re Sam does contain dicta
that arguably support the Sequa Group's position, it is the holding
of the case upon which we must focus our attention. The precise
question in that case was whether the notice received by the
claimant—a notice of automatic stay, received eighteen days before
the bar date, that did not even recite the bar date—was sufficient
to satisfy due process. We concluded that it was constitutionally
sufficient for two reasons: (1) the notice apprised the claimant
of the pendency of the action, and (2) it was sufficiently timely
to permit the claimant to present his objections. Id. at 782.
This seems to us to be consistent with language in Bank of Marin,
in which the Court considered whether a trustee in bankruptcy could
hold a bank liable for honoring checks drawn by a depositor before
14
the depositor filed for bankruptcy but presented for payment after
the filing for bankruptcy if the bank had no notice of the filing.
Bank of Marin, 385 U.S. at 100, 87 S.Ct. at 275-76. The Court
concluded that the bank could not be held liable consistently with
due process, and stated that "[t]he kind of notice required is one
"reasonably calculated, under all the circumstances, to apprise the
interested parties of the pendency of the action.' " Id. at 102,
87 S.Ct. at 277 (quoting Mullane, 339 U.S. at 314, 70 S.Ct. at
657).
The In re Sam analysis is also consistent with that used by
the Eleventh Circuit in Alton v. Byrd (In re Alton), 837 F.2d 457
(11th Cir.1988) (per curiam). In that case, Alton filed under
Chapter 11 after Byrd had filed suit against Alton in federal
court. Id. at 458. Although Byrd was never listed as a creditor
in the bankruptcy proceedings, Byrd's counsel did promptly receive
a copy of the notice of Alton's Chapter 11 proceeding and automatic
stay. Id. The notice did not indicate the date of the Chapter 11
filing or the date set for the creditors' meeting, id.;
nevertheless, the court held that due process was not offended by
the bankruptcy court's denial of Byrd's late-filed application to
extend time to file a complaint with the bankruptcy court, id. at
460. As the court succinctly stated, "[a]t a time when he could
have protected himself, creditor Byrd received actual written
notice of the bankruptcy proceeding, a notice adequate "to apprise
[him] of the pendency of the action and afford [him] an opportunity
to present [his] objections.' " Id. at 460-61 (quoting Mullane,
15
399 U.S. at 314, 70 S.Ct. at 2142-43).
From the foregoing, we conclude that the first prong of the
due process analysis from In re Sam—notice apprising the claimant
of the pendency of the action affecting his rights—has been
satisfied in the instant case. Proceeding to the second prong of
the analysis, which is whether the notice was sufficiently timely,
we conclude that this question must also be answered in the
affirmative. As we have seen, the Group had notice of
Christopher's bankruptcy even before its claims against Christopher
arose. As we have already explained in part III.A.1, supra,
claimants whose claims arise postpetition are amply protected by
several features of the Bankruptcy Code. As even the Group
recognizes, a strict requirement of formal notice to all
postpetition claimants could be extremely onerous, especially for
large debtors. Thus, given the actual notice of Christopher's
bankruptcy proceeding possessed by the Group, we conclude that due
process is not offended in this case by requiring postpetition
claimants in the Group's position to come forward and protect their
enhanced rights under the Code or else lose their rights through
the sweeping discharge of Chapter 11. This is not a case like
Pettibone Corp. v. Payne (In re Pettibone Corp.), 151 B.R. 166
(Bankr.N.D.Ill.1993), in which a Chapter 11 petitioner tortiously
injures someone just prior to plan confirmation and the tort victim
does not learn of the bankruptcy until after confirmation, and we
accordingly express no opinion regarding the requirements of due
process in such a case.
16
In sum, we conclude that the actual notice of Christopher's
bankruptcy possessed by the Sequa Group was sufficient to satisfy
the dictates of due process and Mullane. We decline the Group's
invitation to use the Due Process Clause to fill what appears to us
to be an intentional and generally unproblematic gap in the Code's
notice provisions.
3. Formal Notice
This argument need not detain us in light of the foregoing.
The Sequa Group contends that due process entitled it to formal
notice of the date of the hearing on confirmation of Christopher's
plan of reorganization. We have already seen that 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. In re Sam, 894 F.2d at
782. In In re Sam we held that notice of an automatic stay
eighteen days before a deadline for filing claims was sufficient
notice to satisfy due process even though the notice of the stay
did not indicate the deadline date. Id. at 781-82. Formal notice
of the deadline was not required in In re Sam; neither was formal
notice of Christopher's confirmation hearing required by the Due
Process Clause in the instant case.
B. EQUITABLE ARGUMENTS
The Sequa Group next presents three arguments premised on the
equitable concepts of unclean hands, equitable estoppel, and
waiver.
1. Unclean Hands
17
In the Group's view, "[t]here is scarcely a debtor less
worthy of the equitable discharge than Christopher." The Group
contends that Christopher cannot take advantage of the equitable
remedy of discharge because he suffers from unclean hands for the
following reasons: (1) Christopher failed to serve the Group with
notice of any proceedings in his bankruptcy case; (2) Christopher
deliberately concealed the Group's claims against him from the
bankruptcy court and his creditors; (3) Christopher failed to
mention in the New York litigation with the Sequa Group that the
confirmation of his plan of reorganization would discharge the
Group's claims against him; (4) Christopher actively defended the
New York litigation while secretly seeking discharge of the Group's
claims; and (5) Christopher retained counsel in the New York
litigation without prior bankruptcy court approval. The bankruptcy
court rejected this argument, observing that nothing in the
Bankruptcy Code or Rules requires a debtor-in-possession to serve
notice of Chapter 11 proceedings upon parties with whom it deals
postpetition and that the Sequa Group had actual knowledge of
Christopher's bankruptcy and was on notice of the ramifications of
nonparticipation. 148 B.R. at 836.
The Group relies in part on dicta in Doucette v. Pannell (In
re Pannell), 136 B.R. 430 (N.D.Tex.), aff'd, 974 F.2d 172 (5th
Cir.1992) (unpublished opinion). In that case, Doucette was
pursuing fraud claims in state court against the debtor, Pannell,
at the same time Pannell was going through Chapter 11 bankruptcy.
Id. at 432-33. Although Doucette somehow had notice of the Chapter
18
11 proceedings, id. at 432 n. 2, Doucette did not receive notice
when Pannell's case was converted to a Chapter 7 bankruptcy, nor
did Doucette receive notice of the new bar dates for filing claims
and dischargeability complaints then established, id. at 433.
Doucette obtained a judgment against Pannell in the state court
after the bar dates had passed and filed a late proof of claim and
complaint for exception to discharge in the bankruptcy court, both
of which the bankruptcy court dismissed for lateness. Id. The
district court reversed the bankruptcy court on statutory grounds,
holding that Doucette did not have "notice or actual knowledge," 11
U.S.C. § 523(a)(3)(B), of the relevant case—the Chapter 7 case—in
time to take appropriate action. In re Pannell, 136 B.R. at 436.
The Sequa Group places great stock on the court's remark that
"[t]here could hardly be a more blatant case of a debtor abusing
the judicial system in an attempt to defraud a creditor," id. at
437, but this dictum does not warrant reversal in the instant case,
in which the Group had actual knowledge of the debtor's Chapter 11
bankruptcy long before the Group's claim even arose.
The Sequa Group also attempts to rely on cases from various
bankruptcy courts discussing the fiduciary duties of a
debtor-in-possession towards his creditors. E.g., Whyte v.
Williams (In re Williams), 152 B.R. 123, 127 (Bankr.N.D.Tex.1992).
None of the cases cited by the Group persuades us that the
bankruptcy court erred in concluding on these facts that
Christopher did not have unclean hands. The Group had knowledge of
Christopher's bankruptcy, and Christopher apparently violated no
19
statute or rule in failing to provide more information to the Group
than he did. We find no error in the bankruptcy court's
conclusion.
2. Equitable Estoppel
The Sequa Group next relies on the doctrine of equitable
estoppel to prevent Christopher from asserting his Chapter 11
discharge against the Group's claims. Equitable estoppel requires
(1) a material misrepresentation or concealment (2) made with
actual or constructive knowledge of the true facts (3) with the
intent that the misrepresentation or concealment be acted upon (4)
by a third party without knowledge or means of knowledge of the
true facts (5) who detrimentally relies or acts on the
misrepresentation or concealment. Neiman-Marcus Group, Inc. v.
Dworkin, 919 F.2d 368, 371 n. 4 (5th Cir.1990). The bankruptcy
court rejected this argument because Christopher made no material
misrepresentation or concealment regarding his bankruptcy
proceeding. 148 B.R. at 837.
We reject the argument that Christopher "misrepresented" or
"concealed" his bankruptcy case from the Group based on a theory
that he had a duty to notify the group of such matters as the bar
date for filing proofs of claims, the time for filing acceptances
or rejections of the plan, or the hearing on confirmation of the
plan. As the parties have agreed, the Bankruptcy Code and Rules
impose no such duty on debtors with respect to parties dealt with
postpetition. The Due Process Clause does impose certain notice
obligations on debtors who file for bankruptcy, but we have already
20
concluded that those obligations were met in the instant case. The
bankruptcy court did not clearly err in determining that
Christopher was not guilty of any misrepresentation or concealment.
We thus conclude that the Group is not entitled to relief
under the equitable estoppel doctrine.
3. Waiver
Finally the Sequa Group asserts that Christopher waived his
right to claim discharge from any debt owed the Group on its
claims. Waiver may be established by showing that a party actually
intended to relinquish a known right or privilege. HECI
Exploration Co., Employees' Profit Sharing Plan v. Holloway (In re
HECI Exploration Co.), 862 F.2d 513, 523 (5th Cir.1988). The Group
contends that Christopher's conduct in defending the New York state
lawsuit for almost two years after confirmation of his plan of
reorganization manifests his intent to relinquish his right to rely
on his discharge in bankruptcy. The bankruptcy court concluded
that Christopher's "litigation of the state court claims against
him did not evidence an actual intent to relinquish [his] right to
discharge of the state court claims." 148 B.R. at 837.
We do not agree with the Group's contention that the
bankruptcy court clearly erred in finding that Christopher did not
actually intend to relinquish his right to assert against the Group
the discharge he received in his Chapter 11 proceedings.
Christopher testified at trial that he actively defended the New
York lawsuit even after receiving his discharge because his counsel
advised him that the litigation of the Group's postpetition claims
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was not affected by his Chapter 11 proceedings. This testimony
negates the inference that could be drawn from Christopher's
conduct that he intended not to rely on his discharge in the
Group's New York lawsuit. Indeed, Christopher's testimony supports
another inference that could be drawn from his conduct—that he
simply did not know he could use his discharge as a defense in the
New York lawsuit. The bankruptcy court's finding that Christopher
did not intend to relinquish a known right is plausible in light of
the record viewed in its entirety and so is not reversible.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court.
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