Placid Refining Co. v. Terrebonne Fuel & Lube, Inc.

United States Court of Appeals,
Fifth Circuit.
No. 96-30508.
In the Matter of TERREBONNE FUEL AND LUBE, INCORPORATED, Debtor.
PLACID REFINING COMPANY, Appellant-Cross-Appellee,
v.
TERREBONNE FUEL AND LUBE, INC., Appellee-Cross-Appellant.
March 27, 1997.
Appeals from the United States District Court for the Eastern
District of Louisiana.
Before REYNALDO G. GARZA, SMITH and EMILIO M. GARZA, Circuit
Judges.
PER CURIAM:
Placid Refining Company and Terrebonne Fuel and Lube have been
engaged in an eleven-year battle originating from a fuel purchase
agreement between them. Although a number of legal issues have
been presented to both state and federal courts over the years,
presently before this court is an appeal from a bankruptcy court's
order finding Placid Refining Company in contempt for violating a
post-confirmation injunction against bringing actions stemming from
pre-confirmation debts.
Background
As previously recognized by the many courts which have
addressed various issues in this action, the procedural history of
this case is a tangled one. It all started on April 28, 1985, when
Terrebonne Fuel and Lube, Inc. ("Terrebonne"), a wholesale fuel
distributor, entered into a diesel fuel purchase agreement with
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Placid Refining Company ("Placid"), whereby Placid agreed to sell
Terrebonne up to 50,000 barrels of diesel fuel per month on credit
with payments be made within 65 days of shipment. This agreement
was for a term of one year. Placid secured Terrebonne's commitment
with three separate security agreements consisting of: 1) a
chattel mortgage on Terrebonne's inventory; 2) assignment of
Terrebonne's accounts receivable; and 3) signatory rights on
Terrebonne's bank account. These three agreements, collectively,
acted as collateral. In order for Terrebonne to purchase the
diesel it had to maintain and certify that 85% of the total
certified value of this combined collateral exceeded the sum of its
existing debt to Placid plus the price of the diesel to be
purchased. Terrebonne made such certifications through borrowing
base reports that were submitted weekly to Placid.
According to Placid, at the expiration of the agreement,
Terrebonne owed it over $1 million of which $500,000 was past due.
Placid contends that when it tried to exercise the lien against
Terrebonne's bank account, Terrebonne sought protection under
Chapter 11. Terrebonne did, in fact, file for Chapter 11 on May 1,
1986. On April 16, 1987, the bankruptcy court, over Placid's
objections, confirmed Terrebonne's proposed reorganization plan
which provided for payment of Placid's debt over five (5) years.
On April 24, 1987, three days before the order of confirmation
became final, Terrebonne filed an equitable subordination complaint
against Placid alleging that Placid had forced it into bankruptcy
by not delivering the quantities of fuel provided for in the
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agreement. Placid moved to dismiss this complaint on the grounds
of res judicata.
On June 29, 1989, the bankruptcy court dismissed Terrebonne's
complaint holding that it failed to state a claim for equitable
subordination and because the matters raised therein were not
"core" proceedings. Thus, the bankruptcy court declined to
exercise jurisdiction over the claim. No appeal was taken from
this ruling.1
Following the refusal of the bankruptcy court to exercise
jurisdiction over what it viewed as a breach of contract claim
arising under state law, Terrebonne brought its action in Louisiana
state court. Placid reasserted its res judicata claim arguing that
the reorganization plan was final and therefore barred Terrebonne's
state claim. Placid then sought leave to file a reconventional
demand, a pleading identical to a counter claim, alleging that
Terrebonne had over-inflated its excess positive collateral in the
weekly base borrowing reports. Placid sought damages for, inter
alia, fees and expenses incurred in the bankruptcy proceeding.
Terrebonne objected to Placid's request to file this reconventional
demand on numerous grounds, but the state court granted Placid's
request.
In response to the filing of this reconventional demand,
1
We subsequently noted that the bankruptcy court erred in
determining that Terrebonne's claims against Placid were not "core"
proceedings. See In re Terrebonne Fuel and Lube, Inc., No. 93-3553
at p. 6, 29 F.3d 626 (5th Cir. April 4, 1994). However, we refused
to re-visit that holding then and we refuse to re-visit that
holding now since neither party appealed from that ruling.
3
Terrebonne went to bankruptcy court on February 16, 1993, seeking
to hold Placid in contempt for seeking damages from
pre-confirmation actions in state court. Placid, in response,
asked the court to order Terrebonne to dismiss its state court
claims, again, on res judicata grounds. On March 22, 1993, the
bankruptcy court signed its order holding Placid in contempt and
ordered Terrebonne to submit evidence of the cost and expense it
incurred in the matter, stating that it would designate the amount
of sanctions after submission of this information. In the
meantime, Placid, believing to be in compliance with the contempt
order, moved the state court for leave to strike all references to
pre-confirmation damages from its reconventional demand and
informed the state court that the only damages it was seeking were
those that arose post-confirmation. In addressing Placid's
response requesting a dismissal on a res judicata basis, the
bankruptcy court refused to entertain Placid's request on the
grounds that the matter was neither a "core" proceeding nor
"related to" the bankruptcy case. Although Placid appealed this
ruling on March 24, 1993, it did not obtain a stay of the
bankruptcy court's order pending appeal.
The state court matter went to trial and on March 29, 1993.
At the conclusion of this trial, a judgment in favor of Terrebonne
was returned in the amount of $500,000. Placid filed a suspensive
appeal to the state court proceeding on May 5, 1993. Cognizant of
the state court's final judgment on the merits, the district court
dismissed as moot (on res judicata grounds) Placid's appeal of the
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bankruptcy court decision. We subsequently affirmed the district
court. See In re Terrebonne Fuel and Lube, Inc., 29 F.3d 626, No.
93-3553 at p. 6 (5th Cir. April 4, 1994).
In response to Placid's pursuit of a suspensive appeal in
state court2, Terrebonne filed a second motion in bankruptcy court
to hold Placid in contempt for continuing to prosecute a claim of
damages arising out of pre-confirmation conduct. After extensive
discovery and a hearing on the merits held on January 7, 1994, the
bankruptcy court entered an order holding Placid in contempt and
awarded Terrebonne $18,357.48 for costs and fees associated with
the defense of the reconventional demand. The district court
affirmed this decision, Placid timely filed its notice of appeal,
and Terrebonne filed its notice of cross appeal requesting the
court to increase the sanction imposed on Placid for having to
defend itself against Placid's appeal.
Analysis
The thrust of Placid's argument is that, notwithstanding the
fact that the bankruptcy court committed error in 1989 by
dismissing Terrebonne's adversary complaint as a "non-core"
proceeding, its actions were not violative of any order, standing
2
It appears as though the state court appeals are complete.
The intermediate court reversed the trial court, holding that
Terrebonne's claim was barred by res judicata, but it was in turn
reversed by the Louisiana Supreme Court. See Terrebonne Fuel &
Lube, Inc. v. Placid Refining Co., 666 So. 2d 624 (La.1996). On
remand to address the merits, the intermediate court rendered
judgment in favor of Placid on its reconventional demand. See
Terrebonne Fuel & Lube, Inc. v. Placid Refining Co., 681 So. 2d 1292
(La.App. 4 Cir.1996), writ denied, --- So.2d ---- (La., December
13, 1996).
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or specific, of the bankruptcy court. However, before we reach the
"core" of Placid's argument we must first address one very
important issue. We must determine whether the bankruptcy court
had the authority to conduct contempt proceedings in this case. If
we conclude that the court did have authority then we can review
the substantive issues addressing the exercise of that authority
raised by both Placid and Terrebonne.
I. Contempt proceedings
Contempt proceedings are classified as either civil or
criminal, depending on their primary purpose. Lamar Financial
Corp. v. Adams, 918 F.2d 564, 566 (5th Cir.1990). If the purpose
of the order is to punish the party whose conduct is in question or
to vindicate the authority of the court, the order is viewed as
criminal. Id. If, on the other hand, the purpose of the contempt
order is to coerce compliance with a court order or to compensate
another party for the contemnor's violation, the order is
considered to be civil. Id. We are convinced that the contempt
proceedings in this case were civil in nature, as the clear purpose
of the sanction imposed upon Placid was to compensate Terrebonne
for the costs and expenses in defending Placid's reconventional
demand.
While we have not yet specifically addressed the issue of
whether the bankruptcy courts have the statutory authority to
conduct civil contempt proceedings, many other Circuits have. In
Re Walters, 868 F.2d 665, 669 (4th Cir.1989) ("A court of
bankruptcy has authority [under § 105] to issue any order necessary
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or appropriate to carry out the provisions of the bankruptcy
code."); In Re Rainbow Magazine, Inc., 77 F.3d 278, 284 (9th
Cir.1996) ("There can be little doubt that bankruptcy courts have
the inherent power to sanction vexatious conduct [under § 105].");
In Re Skinner, 917 F.2d 444, 447 (10th Cir.1990) (holding that
Congress granted bankruptcy courts civil contempt power under 11
U.S.C. § 105.); In Re Hardy, 97 F.3d 1384, 1389 (11th Cir.1996)
("Section 105 grants statutory contempt powers in the bankruptcy
context."); See also In Re Power Recovery Systems, Inc., 950 F.2d
798, 802 (1st Cir.1991) ("Bankruptcy Rule 9020(b) specifically
provides that a bankruptcy court may issue an order of contempt if
proper notice of procedures are given.").
We agree with our brethren in their ultimate determination.
Moreover, we assent with the majority of the circuits which have
addressed this issue and find that a bankruptcy court's power to
conduct civil contempt proceedings and issue orders in accordance
with the outcome of those proceedings lies in 11 U.S.C. § 105.
This section provides in pertinent part:
(a) The court may issue any order, process, or judgment that
is necessary or appropriate to carry out the provisions of
this title. No provision of this title providing for the
raising of an issue by a party in interest shall be construed
to preclude the court from, sua sponte, taking any action or
making any determination necessary or appropriate to enforce
or implement court orders or rules, or prevent an abuse of
process.
The language of this provision is unambiguous. Reading it under
its plain meaning, we conclude that a bankruptcy court can issue
any order, including a civil contempt order, necessary or
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appropriate to carry out the provisions of the bankruptcy code.3
We find that an order, such as the one entered by the bankruptcy
court, which compensates a debtor for damages suffered as a result
of a creditor's violation of a post-confirmation injunction under
11 U.S.C. § 1141, was both necessary and appropriate to carry out
the provisions of the bankruptcy code.
II. Issues raised by the parties
In light of this finding, we now summarily address the
substantive issues in the case. Although the bankruptcy appellate
process makes this court the second level of review, we perform the
identical function as the district court. We review a bankruptcy
court's finding of fact for clear error, see Matter of Haber Oil
Co., 12 F.3d 426, 434 (5th Cir.1994), and decide issues of law de
novo. Matter of Oxford Management, Inc., 4 F.3d 1329, 1333 (5th
Cir.1993). Where the district court has affirmed the bankruptcy
court's factual findings, we will only reverse if left with a firm
conviction that error has been committed. See Id. The bankruptcy
court's decision to impose sanctions is discretionary, therefore we
review the exercise of this power for abuse of discretion. See
Shipes v. Trinity Indus., 987 F.2d 311, 323 (5th Cir.), cert.
denied, 510 U.S. 991, 114 S. Ct. 548, 126 L. Ed. 2d 450 (1993).
Given the facts briefed on appeal, the facts in the record,
oral arguments, and an adequately prepared opinion by the district
3
Although we find that bankruptcy judge's can find a party in
civil contempt, we must point out that bankruptcy courts lack the
power to hold persons in criminal contempt. See Matter of Hipp,
Inc., 895 F.2d 1503, 1509 (5th Cir.1990).
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court, we find that the issues raised by both Placid and Terrebonne
do not merit prolonged discussion.
We find that appellant's contention that the bankruptcy court
erred in imposing sanctions under 11 U.S.C. § 362(h) is
inapplicable to the case at hand. The automatic stay under § 362
terminated upon confirmation of the 1987 plan of reorganization.
Since Placid did not file its state reconventional demand until
1993, its claim was governed under 11 U.S.C. § 1141, the
post-confirmation discharge injunction. Hence, § 362 is inapposite
and the bankruptcy court correctly sanctioned Placid under § 1141.
We find that the lower court was correct in finding that
Placid was not denied due process under Bankruptcy Rule 9020.
Although the bankruptcy court did not strictly follow this rule,
Placid was given the constitutionally required notice and an
opportunity to be heard before being sanctioned. See International
Union, United Mine Workers of America v. Bagwell, 512 U.S. 821, ---
- - ----, 114 S. Ct. 2552, 2557-2558, 129 L. Ed. 2d 642 (1994).
We find that the lower court did not abuse its discretion in
actually holding Placid in contempt.
Finally, we deny Terrebonne's request for an increase in the
sanctions for having to pursue this matter on appeal.
Conclusion
Based on the foregoing reasons, the order of the bankruptcy
court holding Placid in contempt is hereby AFFIRMED. Furthermore,
Terrebonne's request in its cross-appeal that the amount of
sanctions be increased is DENIED.
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