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In re Tender Loving Care Health Care Services

September 26, 2007

IN RE: TENDER LOVING CARE HEALTH CARE SERVICES, INC., N/K/A DSMP HOLDINGS, INC., ET AL., DEBTORS.
ROGER JACKSON PLEASANT, APPELLANT,
v.
TLC LIQUIDATION TRUST, APPELLEE.



The opinion of the court was delivered by: Joseph F. Bianco, District Judge

MEMORANDUM AND ORDER

The instant case is an appeal from the voluntary bankruptcy proceeding of Debtor Tender Loving Care Health Care Services ("TLC") and certain subsidiaries (collectively, the "Debtors"), pursuant to Chapter 11 of the Bankruptcy Code, in the United States Bankruptcy Court for the Eastern District of New York ("Bankruptcy Court").

Creditor Roger Jackson Pleasant ("Pleasant") appeals from the August 31, 2006 Memorandum of Decision and Order ("August 31 Memorandum and Order") of the Honorable Stan Bernstein, United States Bankruptcy Judge, denying Pleasant's motion to compel further payment on Claim No. 1015 (the "Claim") and granting TLC Liquidation Trust's motion for reconsideration of the mistaken allowance of the Claim. The Bankruptcy Court had originally entered an order approving the Claim based on a stipulated amount reached after settlement negotiations between Pleasant and the Debtors, before the Debtors' objections to the claim were heard on the merits. However, the Bankruptcy Court denied further payment and granted the motion for reconsideration because the Bankruptcy Court found that "the allowance of the Claim was based on a glaring error of fact and law" by the Court (August 31 Memorandum and Order at 1) in that "the calculation [of the Claim] indisputably contravenes the express language of section 502 of the Bankruptcy Code, which disallows the inclusion in a claim in an insolvent bankruptcy estate of unmatured interest (Id. at 3)."

Pleasant appeals from the August 31 Memorandum and Order on the following grounds: (1) the Bankruptcy Court erred in ruling that the Trustee's implied motion for reconsideration was not time-barred under Fed. R. Bankr. P. 9024; (2) the Bankruptcy Court erred in ruling that "cause" existed under Section 502(j) of the Bankruptcy Code and Fed. R. Civ. P. 60(b) to reconsider Pleasant's allowed claim; and (3) by granting this reconsideration, the Bankruptcy Court erred in failing to conclude that TLC should be compelled to act in accordance with the Claims Allowance Order, Confirmation Order, and the Plan.

As set forth below, the Court finds Pleasant's arguments on appeal to be unpersuasive and affirms the Bankruptcy Court's August 31 Memorandum and Order reducing the Claim to $1,435,791.18. Specifically, the Bankruptcy Court correctly reconsidered its Order, dated December 1, 2004 (the "Claims Allowance Order"), approving settlement of the Claim because it included post-petition interest on a prepetition unsecured claim, which is a clear violation of Section 502(b)(2) of the Bankruptcy Code. Contrary to Pleasant's suggestion that the Claim Allowance Order should have been allowed to stand despite this undisputed error, reconsideration was not time-barred and the Bankruptcy Court clearly had "cause" under the law to correct this obvious error.

I. BACKGROUND

A. Debtors' Claims

On November 8, 2002, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in Bankruptcy Court. (Ninth Omnibus Objection ¶ 3.) Unsecured creditor Roger Jackson Pleasant filed a number of proof of claims, including a Proof of a General Unsecured Claim No. 1015 in the amount of $1,975,000 (the "Claim").*fn1 (August 31 Memorandum and Order at 2.)

The Debtors filed the an objection with the Bankruptcy Court, dated September 29, 2004 ("Ninth Omnibus Objection"), where they objected to various pre-petition "notes payable" claims, including the Claim. In their Ninth Omnibus Objection, the Debtors specifically sought to reduce, among other claims, the amount of the Claim from $1,975,000 to $1,435,791.18 based upon Pleasant's request for allegedly unmatured interest. (Ninth Omnibus Objection ¶¶ 14-18.)

B. The Settlement

Prior to the hearing on the Ninth Omnibus Objection, Pleasant and Debtors informally agreed to settle all of Pleasant's claims, including the Claim. (Hr'g Tr. 15:19-17:3.) In the Claims Allowance Order, dated December 1, 2004, the Bankruptcy Court approved, among other things, the settlement of the Claim in the reduced amount of $1,788,400. (Supp. Claims Allowance Order Ex. B at 2.) The Claims Allowance Order became a "Final Order" under the express terms of the Plan. (Order Confirming Third Am. Joint Plan Ex. A, § § 1.3(3), 1.46.*fn2)

C. Trustee's Analysis

On December 20, 2004, the Bankruptcy Court entered an order confirming the Chapter 11 plan of liquidation of the Debtors. (See Order Confirming Third Am. Joint Plan.) Upon the effective date of the Plan (February 15, 2005), the TLC Liquidation Trust (the "Trust") came into existence to, among other things, fully liquidate the Debtors' estates, resolve claims, and calculate and make distributions to holders of allowed claims. See id. at 2-3. FTI Consulting Inc. (the "Trustee") is the trustee of the Trust.

The Trustee determined that Debtors made all pre-petition payments of principal and interest due under the Promissory Note through September 1, 2002 and that, as a result of a calculation error, the $1,788,400 wrongfully included post-petition interest. The Trustee concluded that, after remedying the calculation error, Debtors owed Pleasant ...


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