Morgenstein v. Motors Liquidation Co. (In re Motors Liquidation Co.)
Morgenstein v. Motors Liquidation Co. (In re Motors Liquidation Co.)
Opinion of the Court
DECISION AND ORDER ON MOTION TO DISMISS
In the chapter 11 case of reorganized Debtor Motors Liquidation Company, (formerly known as General Motors Corp.) (“Old GM”) and its affiliates (collectively, the “Debtors”), John Morgenstein, Michael Jacob and Alante Carpenter (the “Morgenstein Plaintiffs”), on their own behalf and on behalf of a class they would like to represent, seek — after the deadline for filing claims in Old GM’s chapter 11 case and after Old GM’s reorganization plan became effective — to file and recover on a class proof of claim, whose assertion now would now be barred under the Debt- or’s reorganization plan (the “Plan”)
In this adversary proceeding,
The Plaintiffs bring this action for limited, carefully crafted plan revocation based upon the Debtors’ fraud in the chapter 11 Schedules and in the procurement of a bankruptcy confirmation order.6
Similarly, as stated in paragraph 53 of their Complaint:
Based on the facts laid out above, the Plaintiffs request that the Court revoke the Debtor’s confirmation order on the grounds that it was procured by fraud provided, however, that the revocation shall go only to the denial of discharge as to Known Creditors’ class claim, i.e., leaving any and all events, transfers and transactions wholly unaffected by the Order of Revocation of Discharge as to the Claims of Consumer Impala Owners.
Old GM and the Motors Liquidation Company GUC Trust (the “GUC Trust,”
The Court now agrees with the first two of those contentions (concluding that the third would better be addressed on summary judgment), and especially the first— upon which the Complaint fails as a threshold matter. The Complaint will be dismissed.
Facts
Under familiar principles, the Court takes the well-pleaded
The Morgenstein Plaintiffs
Defendant Old GM filed for chapter 11 protection on June 1, 2009.
The Morgenstein Plaintiffs allege that 2007 and 2008 Impalas have defective rear wheel spindle rods that cause “excessive, abnormal, and premature”
The Morgenstein Plaintiffs allege that Old GM issued two notices in 2008 relating to the defect in the Police Package Impalas. First, they allege, Old GM issued “Technical Service Bulletin 09082, National Highway Transportation Safety Administration (‘NHTSA’) Item Numbers 10026504 and 10026484,”
The Program Bulletin referenced by the Morgenstein Plaintiffs is dated July 2008. The Program Bulletin first describes the “Condition”:
On certain 2007-2008 model year Chevrolet Impala vehicles equipped with a police package (RPO 9C1/9C3), the rear wheel spindle rods may cause rear wheel misalignment, resulting in lower tread depth on the inboard side of the rear tire.23
The Program Bulletin then outlines the steps dealers should take to remedy the defect and the payment procedures for the program. Under a section labeled “Customer Notification — For U.S. and Canada,”
The Morgenstein Plaintiffs allege that once Old GM entered bankruptcy, they
The Complaint seeks revocation of the Confirmation Order to the extent that it “precludes Plaintiffs ... from filing their claims, pursuing their rights, and otherwise taking appropriate action before this Court....”
Discussion
While the GUC Trust makes what in substance are five points in its papers, two address issues that can and should be heard at a later time, if they still matter then.
(1) Partial Revocation of a Confirmation Order
The GUC Trust’s first, and most fundamental, point is that a bankruptcy court has the power only to fully — and not partially — revoke a confirmation order entered under section 1144. The Court agrees.
As usual,
On request of a party in interest at any time before 180 days after the date of the entry of the order of confirmation, and after notice and a hearing, the court may revoke such order if and only if such order was procured by fraud. An
*501 order under this section revoking an order of confirmation shall—
(1) contain such provisions as are necessary to protect any entity acquiring rights in good faith reliance on the order of confirmation; and
(2) revoke the discharge of the debtor.
Textual analysis strongly favors the GUC Trust. Section 1144 authorizes the Court to “revoke such order,” but it does not also say, in words or substance, that the revocation may be “in part.” The word “revoke,” by its nature, is total, and absolute, a construction that is borne out by its definition, as derived from both legal
Rather, section 1144 speaks to the order itself, which is understandable, since it would be the order as a whole that would be “procured by fraud.”
Nor is there anything ambiguous, in this Court’s view (or, so far as the Court can tell in the view of any other court considering the matter), in section 1144’s text or effect in this regard. As Judge Shannon observed in one of the very few cases wherein it was even argued that a partial revocation of a confirmation order was permissible:
The plain language of section 1144, however, only provides for revocation of an entire confirmation order.39
The language upon which the Morgen-stein Plaintiffs rely, which begins with a second sentence in section 1144, and then continues, provides:
An order under this section revoking an order of confirmation shall—
(1) contain such provisions as are necessary to protect any entity acquiring rights in good faith reliance on the order of confirmation.
Without a doubt, the quoted language evidences recognition by Congress of the very major consequences of the revocation of a confirmation order on anyone who might have acquired rights in good faith reliance upon it, and directs bankruptcy courts to take measures to address such concerns. But the quoted language neither authorizes, mentions, or even contemplates partial revocation of a confirmation order.
Moving beyond textual analysis, the caselaw, to the extent it exists, once more supports the GUC Trust’s view. As the GUC Trust observes, “only a handful of courts have considered the issue.”
The clearest rejection of the notion that a confirmation order may be revoked in part appears in In re East Shoshone Hospital District,
§ 901 incorporates by reference § 1144 which provides for revocation of an order of confirmation. The Debtor argues that it should be allowed to “partially” revoke confirmation in order to strike the plan provisions dealing with the Trust.
There is nothing in the statute, nor has there been authority provided by the Debtor, which recognizes or validates a theory of selective or partial revocation of a chapter 9 plan. Either an order of confirmation is revoked or it is not.44
The Morgenstein Plaintiffs, while acknowledging what East Shoshone Hospital
Similarly, the Morgenstein Plaintiffs call into issue the GUC Trust’s reliance on Judge Shannon’s analysis of the topic in Northfield Labs, discussed above. The Morgenstein Plaintiffs are right in their point that the GUC Trust did not quote the entirety of Judge Shannon’s observations, and that on full reading, it should be determined that he did not definitively decide the issue presented here. But that is as far as the distinction takes them.
The entirety of Judge Shannon’s observations on the subject was:
Plaintiffs appear to request partial revocation of the Plan limited to “such portion of the Plan to reflect such subordination.” (Compl. 65). The plain language of section 1144, however, only provides for revocation of an entire confirmation order. It is unclear whether partial revocation is permissible pursuant to section 1144 and Plaintiffs have cited no case law in this regard. Most importantly, however, Plaintiffs have failed to allege any facts showing that the Confirmation Order was procured by fraud.46
When that language is read in its totality and in context, it is best read, in this Court’s view, to say that Judge Shannon thought it was doubtful that partial revocation was permissible, but that he didn’t need to decide the issue. Nevertheless, the Court finds his thinking helpful and instructive, as tending to reinforce (or at the very least not contradict) the conclusions that would flow from textual analysis and East Shoshone Hospital District.
Against all of this, the Morgenstein Plaintiffs offer up no case that has ever held that a bankruptcy court can partially revoke an order of confirmation. The relevant authority, even if dictum, tips dramatically to the contrary.
The Morgenstein Plaintiffs further respond to the foregoing by saying that none of the cases discussed above are binding on this Court, even if not dictum. That of
The Morgenstein Plaintiffs further contend, or at least imply, that they are not seeking “partial revocation,” but instead are seeking “limited revocation,” or “carefully crafted” revocation.
Finally, the Morgenstein Plaintiffs have offered no persuasive reason to reject the views of the Court’s colleagues in other districts, or to depart from the Court’s inclination after textual analysis. “A confirmed plan takes on the attributes of a contract.”
(2) Fraud Upon the Court
Then, noting that fraud (which must be on the Court)
Rule 9(b) provides:
In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.
Here the substance of the claim of fraud is that Old GM knew that the design defect was in all of Old GM’s 2007 and 2008 Impalas (and not just those that had the Police Package), and that Old GM intended to defraud the Court by failing to disclose that deficiency and make allowance for the resulting liability when Old GM confirmed a plan of liquidation. A variant is that Old GM had a duty to list the Morgenstein Plaintiffs as scheduled creditors. But the allegations underlying these claims fail to meet the requirements of Fed.R.Civ.P. 8, much less the more stringent requirements of Fed.R.Civ.P. 9(b).
To secure relief under section 1144 of the Code,' a movant must point to specific acts of the debtor evidencing actual fraudulent intent.
Initially, the Court must observe that the allegations that Old GM knew of the design defect with respect to 2007 and 2008 Impalas generally are conclusory statements, supported by no evidentiary facts. Of course, the Morgenstein Plaintiffs ask the Court to draw an inference that Old GM knew, because of an alleged lack of material difference in the design of Impalas’ rear wheel spindle rods between those with the Police Package and those without, but without more this is in substance a claim that Old GM should have knoum that the alleged design defect was
Though under Rule 9(b), intent may be alleged generally, it still is necessary “to allege facts that give rise to a strong inference of fraudulent intent.”
The requisite “strong inference” of fraud may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.
With respect to the first alternative basis, Old GM’s “motive and opportunity,” the Court does not need to decide whether a company continuing in business would be defrauding its consumers if it knew of, but failed to address, the alleged design defect. Here, where a company was liquidating and the necessary fraud must be shown to have been upon the Court, motive and opportunity (and especially the former) were lacking. We here had a plan of liquidation; Old GM would not survive. It would simply be taking whatever assets it had and distributing them, pari passu, to its creditors. If Old GM had known of, and disclosed, the design defect that is alleged, it would have (or at least could have) put up for confirmation the exact same liquidation plan, and the plan would have been just as feasible. If a class claim had been disclosed and ultimately allowed (or reserved for), individual creditors’ pari passu shares of the available pot would
Though technically speaking, any plan proponent putting forward a plan for confirmation has an “opportunity” to defraud the Court, in this context “opportunity” must mean something more. It should mean a juncture in the case where the plan proponent reaches the decision point (or “opportunity”) to present a plan that would not defraud the Court, and elects not to do it. Here that too is lacking.
With respect to the second alternative basis, “strong circumstantial evidence of conscious misbehavior or recklessness,” the necessary allegations likewise are lacking. There are no facts alleged that give rise to the inference that Old GM had an intent to keep facts from the Court of which Old GM was aware.
There are no facts alleged suggesting that Old GM creditors, who overwhelmingly voted to support the Plan,
Thus this case has marked similarity to Spiegel>
Thus the Complaint must also be dismissed for its deficiencies in pleading a fraud upon the Court.
(S) Equitable Mootness
The GUC Trust also moves to dismiss on a third ground, equitable mootness, in light of the Debtors’ earlier distribution, under the confirmed Plan (which went effective in March 2011, many months ago),
The equitable mootness prong of the GUC Trust’s dismissal motion is not the slam dunk it once was
It is very possible that — even if those who already received stock and warrants under the Plan weren’t required to give back what they already received — all of the trading that took place after entry of the Confirmation Order (in what probably was in reliance on the Plan and Confirmation Order as then entered, and the related Disclosure Statement as then approved) by itself would support a finding of equitable mootness. But the evidence of the nature and extent of the trading after the Plan’s Effective Date, the understandings on which it took place, and remaining resources to satisfy late filed claims if allowed is thin on this motion, and goes beyond what courts normally consider on motions under 12(b)(6).
Conclusion
For the foregoing reasons, the motion to dismiss is granted.
SO ORDERED.
. More technically, the Plan was a plan of liquidation, which is of some significance for several reasons, discussed at page 506 and n. 5 below. See this Court's March 2011 deci
. That figure is the product of the estimated 400,000 class members, and an estimated $450 per car to make the allegedly necessary corrections. The claims are for the cost of repair and replacement only; they do not involve claims of personal injury. The Mor-genstein Plaintiffs have not, to the Court's knowledge, waived the right to seek additional or different types of damages, but for the purposes of this analysis the Court uses the $180 million figure as the best available estimate of the size of the prospective claim and the stakes of the motion for Old GM's unsecured creditor community.
. The separate adversary proceeding here was required under Fed.R.Bankr.P. 7001, laying out the matters for which an adversary proceeding must be commenced, which include "a proceeding to revoke an order of confirmation of a chapter 11, chapter 12, or chapter 13 plan.” Fed.R.Bankr.P. 7001(5).
. Cmplt. at 1.
. Their complaint is captioned "Complaint for Revocation of Discharge.” But while it was named as such, it is not really that, nor could it be. There is no discharge upon confirmation of a corporation's liquidating plan of reorganization, see Code section 1141(d)(3), and there was no discharge here.
. They continue:
In their schedules and disclosure statement (the "Chapter 11 Documents”), the Debtors falsely omitted disclosure of its obligations to an entire class Impala Owners/Lessees (hereinafter "Impala Owners”) Debtors knew of this class of creditors ("Known Creditors”). Known Creditors knew nothing of Debtors’ obligation to address their claims because the design defect in their respective vehicles was a latent defect of which GM gave no notice.
Id. (errors in original).
. "GUC” is an acronym for "General Unsecured Creditors,” who were and will be the principal recipients of consideration under the Plan, and who would be most affected by granting the relief that the Morgenstein Plaintiffs seek. To avoid the need to use the unhelpful term "Defendants,” or to say both Old GM and the GUC Trust each time, the Court will normally speak as if the GUC Trust is the only defendant.
. However, the Court is "not bound to accept as true a legal conclusion couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009) (“Iqbal") (internal citations and quotation marks omitted). Similarly, the Court is not bound to accept as true conclusory factual allegations that are devoid of evidentiary support. "[Ljegal conclusions, deductions, or opinions couched as factual allegations are not given a presumption of truthfulness.” Mason v. American Tobacco Co., 346 F.3d 36, 39 (2d Cir. 2003) (internal quotation marks omitted); In re Spiegel, Inc., 354 B.R. 51, 56 (Bankr.S.D.N.Y. 2006) (Lifland, C.J.) ("Spiegel”), aff'd and appeal dismissed, 2007 WL 656902 (S.D.N.Y. 2007) (Buchwald, J.), aff'd by summary order, 269 Fed.Appx. 56 (2d Cir. 2008), cert. denied, 555 U.S. 825, 129 S.Ct. 146, 172 L.Ed.2d 40 (2008).
. The Court does not need to, nor does it, burden the discussion with the factual allegations relevant only to the Morgenstein Plaintiffs' request for class certification under Fed. R.Civ.P. 23. Though the propriety of class certification is hotly debated, the Court assumes, for the purposes of this analysis only, that the Morgenstein Plaintiffs could successfully achieve class certification and establish the very major liability that would result from the allowance of a class proof of claim.
. Cmplt. ¶ 25.
. For example, Mr. Morgenstein’s rear-wheel tires allegedly had to be replaced “after only approximately 28,000 to 30,000 miles and will again require replacement after only another 15,000 miles.” Id.
. See docket in underlying chapter 11 case, # 09-50026 ("Umbrella Case”), ECF # 1.
. See In re General Motors Corp., 407 B.R. 463 (Bankr.S.D.N.Y. 2009) (the “363 Sale Decision "), stay pending appeal denied, 2009 WL 2033079 (S.D.N.Y. 2009) (Kaplan, J.), appeal dismissed and aff'd, 428 B.R. 43 (S.D.N.Y. 2010) (Buchwald, J.) and 430 B.R. 65 (S.D.N.Y. 2010) (Sweet, J.), appeal dismissed, No. 10-4882-bk (2d Cir. Jul. 28, 2011). See also Umbrella Case ECF # 2968 (363 Sale Order).
. Umbrella Case ECF # 4079.
. See Confirmation Decision, n. 1 supra.
. Umbrella Case ECF# 9941.
. Cmplt. ¶ 3.
. Cmplt. ¶ 4.
. Cmplt. ¶ 10.
. Cmplt. ¶ 5.
. Id.
. Cmplt. ¶ 4.
. Exhibit A, "Condition” (emphasis in bold in original).
. Exhibit A, "Customer Notification.”
. Id.
. Exhibit A, Letter to Customer.
. Cmplt. ¶ 44.
. Cmplt. ¶¶ 46-47.
. Cmplt. ¶ 48.
. Id.
. Cmplt. ¶ 53.
. The others are (1) whether the Morgen-stein Plaintiffs’ claims may be heard, as late-filed claims, after the bar date has passed, and (2) whether they are amenable to class action treatment, under Fed.R.Civ.P. 23. As resolved in a conference call before oral argument on the matters addressed in this decision, it is unnecessary to decide Rule 23 issues to decide the matters addressed here.
If the Confirmation Order can be revoked in part, on the one hand, or only in its entirety, on the other, either way that necessarily affects the entirety of Old GM’s creditor community, and not just the affected class. Either way, class certification is immaterial to whether such relief is available. Many determinations made by a bankruptcy court in a chapter 11 case — even in contested matters, in the normal exercise of the bankruptcy court’s in rem adjudication authority — affect the future of the chapter 11 case as a whole. And many of those determinations thus have an inevitable effect on the parties as a whole. But the fact that one party-in-interest or group of such parties can seek and obtain such relief does not mean that the party needs to seek or obtain class certification. Under Fed.R.Bankr.P. 9014, Fed.R.Civ.P. 23 is not applicable in contested matters unless the Court otherwise directs. Bankruptcy courts sometimes otherwise direct when certification of a purported class proof of claim is desired, but rarely if ever do so simply on the basis that a party-in-interest’s request for a particular kind of relief impacts the estate as a whole, or affects many other people.
.See, e.g., 363 Sale Decision, 407 B.R. at 486.
. See Black’s Law Dictionary, “Revoke” (6th Ed. 1990) ("To annul or make void by taking back. To cancel, rescind, repeal or reverse, as to revoke a license or will.”); accord id. "Revocation” ("The withdrawal or recall of some power, authority, or thing granted, or a destroying or making void of some will, deed, or offer that had been valid until revoked.").
. See Webster’s Third Int’l Dictionary Unabridged, "Revoke” (2000) ("to bring or call back”; "to annual by recalling or taking back (as something granted by a special act)”); Merriam-Webster’s Collegiate Dictionary, “Revoke” (11th Ed. 2008) ("to annul by recalling or taking back, rescind”).
. See Bankruptcy Code section 1127(b) ("The proponent of a plan or the reorganized debtor may modify such plan at any time after confirmation of such plan and before substantial consummation of such plan, but may not modify such plan so that such plan as modified fails to meet the requirements of sections 1122 and 1123 of this title.”). Here the Mor-genstein Plaintiffs could not obtain modification of the Plan for at least the reasons that they are neither proponents of the plan nor the reorganized debtor, and that the Plan already has been substantially consummated.
. Also, of course, the confirmation order blesses the implementation of an underlying plan, which is presented to (and voted upon by) creditors as a whole, and which frequently, if not also usually, involves compromises amongst creditors as to their respective entitlements.
. Paul H. Shield, MD, Inc. Profit Sharing Plan v. Northfield Laboratories Inc. (In re Northfield Laboratories Inc.), - B.R. - (Bankr.D.Del. 2010) (Shannon, J.) ("Northfield Labs
. - B.R. at -. The Morgenstein Plaintiffs point out, properly, that in Northfield Labs Judge Shannon continued with a lengthier discussion of the subject, and that he ultimately did not need to, nor did he, rest his determination on the quoted language or the conclusion that partial revocation of a confirmation order was impermissible. (Further discussion of Northfield Labs appears at page
.Contrast, for example, this Court's analysis of section 1129(a)(4) of the Code, where, in In re Adelphia Communications Corp., 441 B.R. 6, 13 (Bankr.S.D.N.Y. 2010), this Court held that while section 1129(a)(4) didn't provide authorization for the payment of fees sought by parties in that case, it contemplated such a possibility. In section 1144, there is neither.
. GUC Trust Br. at 9 (Adversary Proceeding ECF # 20).
. 2000 WL 33712301 (Bankr.D.Idaho Apr.27, 2000) (Myers, C.J.).
. That distinction is not, however, meaningful. Section 901 of the Code (which lays out other provisions of the Code that are applicable in cases under chapter 9) includes among them section 1144. After noting that, Judge Myers went on to analyze section 1144. Id. at *4.
. Id. (internal citations omitted).
. See id. at *4 & n. 10.
. -B.R. at-.
. Other cases, dealing with the question presented here less expressly, likewise do not embody holdings that would compel the conclusion for which the GUC Trust argues here, but nevertheless tend to support the GUC Trust’s view. See Almeroth v. Innovative Clinical Solutions, Ltd. (In re Innovative Clinical Solutions, Ltd.), 302 B.R. 136, 143 (Bankr. D.Del. 2003) (Walsh, C.J.) ("Innovative Clinical Solutions ”) (denying motion to revoke confirmation order, principally on grounds of equitable mootness, discussed below, but also rejecting notion that court could revoke confirmation order, then ratify certain described transactions that had taken place under that order’s authority); S.N. Phelps & Co. v. Circle K Corp. (In re Circle K Corp.), 171 B.R. 666, 670 (Bankr.D.Ariz. 1994) (Nielsen, C.J.) ("Circle K ”) (likewise denying motion to revoke confirmation order, principally on mootness grounds, rejecting notion that there could be a scenario with quick revocation of discharge, amendment of the plan to the plaintiffs’ satisfaction, and reconfirmation of a new amended plan, observing that "[mjissing in this analysis is the fact such procedure requires new disclosures and findings [that] the new or amended plan meets all section 1129 elements.”).
.In that connection, the Morgenstein Plaintiffs argue that the Court is bound by decisions of the Second Circuit, and that this Court’s decision on this motion should be informed by a Second Circuit decision under the now-repealed Bankruptcy Act, Seedman v. Friedman, 132 F.2d 290 (2d Cir. 1942). See Morgenstein Plaintiffs’ Br. (Adversary Proceeding ECF # 26) at 22-23. Of course Second Circuit decisions are binding on the lower courts in this Circuit, whenever they are on point, and it is also true that cases decided under the old Act are not necessarily irrelevant, since the 1978 Bankruptcy Code in many respects carried over pre-Code law when it didn’t reflect a contrary intent. But Seedman simply isn’t on point. First, of course, we here must start with the words of the statute, and the Code specifies what the bankruptcy court can properly do and what it can’t. Second, Seedman, which dealt with debts incurred after confirmation of Chapter XI arrangement, is properly read simply as an implementation of an approach that the second sentence of section 1144, and section 1144(1), codified — protecting those who might have relied in good faith on the thereafter revoked confirmation order. It says nothing about a court's right to partially revoke an arrangement even under the 1898 Bankruptcy Act, much less to partially revoke a plan under section 1144 of the Bankruptcy Code, enacted more than 35 years after Seedman came down.
. See Morgenstein Plaintiffs’ Br. at 23 ("As to Old GM’s discussion of 'partial revocation,' the word ‘partial’ does not appear in the Complaint. The word limited’ appears there; so does the verbiage ‘carefully crafted’ appear there, in ¶ 1.”).
. Charter Asset Corp. v. Victory Markets, Inc. (In re Victory Markets, Inc.), 221 B.R. 298, 303 (B.A.P. 2d Cir. 1998); In re Journal Register Co., 407 B.R. 520, 535-36 (Bankr.S.D.N.Y. 2009) (Gropper, J.) (quoting Victory Markets).
. See Bankruptcy Code sections 1126(c), 1129(a)(7), 1129(a)(8), 1129(b)(1).
.The Court does not understand the Mor-genstein Plaintiffs to disagree that the fraud must be on the Court (as contrasted, e.g., to fraud upon any other person or entity, such as consumers). See e.g., In re Longardner & Assoc., Inc., 855 F.2d 455, 460 (7th Cir. 1988) ("Longardner”) (early in discussion affirming refusal to revoke chapter 11 plan, stating that "section 1144 expressly allowed the bankruptcy court to revoke its March 7 order confirming the reorganization plan, if the creditor had met the prerequisite of showing that the court was defrauded.”) (emphasis added); accord id. at 461 (considering whether debtor was "engaging in a fraud upon the court”) (internal quotation marks omitted); Skulsky v. Nyack Autopartstores Holding Co., Inc. (In re Nyack Autopartstores Holding Co., Inc.), 98 B.R. 659, 661 (Bankr.S.D.N.Y. 1989) (Schwartzberg, J.) ("Nyack Holding Co.”) (dismissing complaint seeking revocation of confirmation order because facts pleaded "[did] not reflect the debtors' intent to defraud the court or particularize any fraudulent intent on the part of the debtors.”); id. at 662 ("The creditor does not, however, offer any evidence of the debtor’s intent to defraud the court.”).
. Even under Rule 8, factual allegations must be plausible. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007) ("Twombly”)-, Iqbal, 556 U.S. at -, 129 S.Ct. at 1949. They also "must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955; Buchwald v. Renco Group, Inc. (In re Magnesium Corp. of America), 399 B.R. 722, 741 (Bankr.S.D.N.Y. 2009) (Gerber, J.) (quoting Twombly).
. Longardner, 855 F.2d at 461 (Section 1144 does not define “fraud,” but "[i]t is fair to say, however, that the courts require a showing of actual fraudulent intent.”) (emphasis added).
. Of course, the Debtors did provide notice by publication.
. See Nyack Holding Co., 98 B.R. at 662 ("Indeed, if fraud must be inferred from the language in the complaint in order to support a claim for revocation, the complaint must be regarded as legally insufficient because it fails to particularize the fraudulent conduct committed by the proponent of the plan. Fraud should not be inferred; the circumstances constituting the alleged fraud must be stated with particularity.”).
. Shields v. Citytrust Bancorp., Inc., 25 F.3d 1124, 1128 (2d Cir. 1994) ("Citytrust Bancorp ”).
. Id., quoting O’Brien v. National Property Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991), and Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990). To this can be added, in the chapter 11 context when revocation of a plan is sought on grounds of fraud, the protection of innocent creditors, who have a strong interest in the binding effect of reorganization plans.
. Id.
. Id.
. Id.
. Nor, in fact, can the Court, after Twombly and Iqbal (each of which was decided after Citytrust Bancorp), even find the allegations of fraud plausible, under Rule 8 doctrine. It simply is not plausible that a debtor would seek to defraud the Court under these circumstances (even putting aside the fact that this chapter 11 case was in a goldfish bowl), when doing so would make no difference to Old GM whatever. Old GM was liquidating, not continuing in business. Claims of fraud against even the consumer community are not plausible, not to mention a fraud against the Court. There would be no motivation to conceal the design defect even if Old GM knew about it, as Old GM would be giving everything it had to its creditor community, with or without the Morgenstein Plaintiffs’ additional claim.
. At various points in their papers, the Mor-genstein Plaintiffs seem to suggest that the fact that Old GM acted through attorneys helps elevate their contentions to fraud on the Court. The Court manifestly disagrees. Attorneys serve clients in the overwhelming majority of chapter 11 cases, and that fact, without much more, does not rise to the level of fraud on the Court.
. See n. 52 supra.
. As the Court noted in the Confirmation Decision, see n. 1 supra, 447 B.R. at 201 & n. 3, the Plan was "very popular with Old GM’s creditors, having secured the approval of 97% of them in number, and 85% in dollar amount,” and was approved by 97.8%, in each of number and amount, of the class of asbestos injury claimants, the Debtors’ other major unsecured creditor class. None of them joined in the Morgenstein Plaintiffs' motion to revoke the confirmation order, or otherwise indicated that they considered the confirmation order to have been procured by fraud.
.See Varde Investment Partners, L.P. v. Comair, Inc. (In re Delta Air Lines, Inc.), 386 B.R. 518 (Bankr.S.D.N.Y. 2008) (Hardin, J.) ("Delta Air Lines ”). As Judge Hardin there stated:
Because the court is bound by the votes of creditors when issuing its confirmation order, in order to demonstrate that the confirmation order was procured by fraud it should be shown that at least some of the creditors would have voted differently absent the alleged fraud. While there is no way to know for certain whether the required majority of creditors would have voted in favor of the plan absent the fraud, it is instructive to consider which parties have seen fit to join the suit for plan revocation. If a substantial number of the creditors who voted in favor of a plan bring suit to revoke the plan on the grounds that they were defrauded into voting for it, this should influence a court to exercise its discretion*508 to revoke the plan if it finds that the plan was fraudulently procured.
Conversely, in cases like this one, where none of the plaintiffs seeking to revoke the plan appear to have had the right to vote on confirmation, and none of the voting creditors who were allegedly defrauded into voting for confirmation have joined in or supported the suit to revoke the plan, the court should be cautious in exercising its discretion to revoke the confirmation order.
. See n. 8 supra.
. See 354 B.R. at 55-57 (also noting that the debtors "[were] not required to employ a crystal ball when one complaint [was] filed to determine whether any other similar claims exist”; that "[e]veryone who may conceivably have a claim is not entitled to actual notice, rather publication notice is sufficient for creditors who are not reasonably ascertainable”; and that “[e]fforts beyond a careful examination of the Debtors books and records are generally not required.”).
See also In re D.F.D. Inc., 43 B.R. 393, 395 (Bankr.E.D.Pa. 1984) (Goldhaber, C.J.) (denying motion to revoke confirmation order based on alleged fraud predicated on an allegation that the debtor knowingly failed to list a creditor on its schedules, where evidence was lacking that the debtor had fraudulently done so, and claimant could have obviated the issue by the expedient of filing a proof of claim or a request for notices).
. On April 6, 2011, Wilmington Trust Company, the Administrator of the GUC Trust, filed notice that the Plan became effective on March 31, 2011 (the "Effective Date”). See Umbrella Case ECF # 10,056.
. See Delta Air Lines, 386 B.R. at 535 (dismissing an action to revoke a plan where thousands of transactions, involving billions of dollars, had been negotiated and executed based upon the debtors’ joint plan, describing these transactions as a "vast omelette which cannot be unscrambled”).
As Judge Hardin also noted in Delta Air Lines, whether to revoke a confirmation order under section 1144 rests in the sound discretion of the court. 386 B.R. at 532. "[T]he court may decline to revoke an order of confirmation even if it finds that the order was procured by fraud.” Id. (emphasis in original). Thus this Court might well conclude that the underlying unfairness to other creditors; serious, but not definitively established, equitable mootness concerns; and/or concerns on the part of the movants that are very different from those of the overwhelming majority of creditors who voted to support the Plan, see id. at 529, might warrant a determination declining to revoke the Confirmation Order here, even partially, even if this Court denied the motion to dismiss the Morgenstein Plain
. Instead, the Morgenstein Plaintiffs would presumably hold up the future distributions to Old GM’s other creditors (who, the Court was informed, have received approximately 80% of the New GM securities that the GUC Trust would have to distribute to unsecured creditors) until the Court could determine that the Morgenstein Plaintiffs’ claim should be allowed, and in what amount — with the Mor-genstein Plaintiffs getting the sole distributions from the remaining New GM stock until they could catch up — with the Debtors' other creditors suffering both the delay and the dilution that would result from such an approach.
. Many of the facts giving rise to the equitable mootness concerns do not appear from the face of the Morgenstein Plaintiffs’ Complaint, or documents the plaintiffs incorporated in the Complaint or as to which they can be charged with notice — raising issues as to whether these concerns could be heard under Fed.RXiv.P. 12(b)(6) or must be considered in a summary judgment motion, under Rule 56. Fed.R.Civ.P. 12(d) provides:
If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.
The Morgenstein Plaintiffs raised no objection to the GUC Trust’s presentation of facts outside the pleadings that were relevant to mootness, and did not request the opportunity to present any facts they might adduce that would be outside the pleadings, as authorized under Fed.R.Civ.P. 12(d). Nevertheless, the Court considers it preferable, whether or not such is required, to defer consideration of the evidentiary facts suggesting equitable mootness until a later time, if it ever becomes necessary.
.In their brief, the Morgenstein Plaintiffs make a belated request to replead. See Mor-genstein Plaintiffs’ Br. at 53, n. 74. The Court denies that relief because of the legal deficiency underlying the first ground for dismissal, and because the need to put forward facts was apparent long ago.
. The Court elects, pursuant to Fed. R.Bankr.P. 7058(b)(1), to prepare and sign the judgment itself, rather than to have the clerk do so under Fed.R.Civ.P. 58(b)(1)(C). The time to appeal from the judgment will run from the date of its entry.
Reference
- Full Case Name
- In re MOTORS LIQUIDATION COMPANY, f/k/a General Motors Corp., Debtors. John Morgenstein, Michael Jacob, as of the Estate of Doris Jacob, and Alante Carpenter individually and on behalf of all others similarly situated v. Motors Liquidation Company, f/k/a General Motors Corp.
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- 8 cases
- Status
- Published