United States District Court, S.D. New York
In re: LYONDELL CHEMICAL COMPANY, et al., Post-Confirmation Debtors.
LYONDELL CHEMICAL COMPANY, et al., Appellees. C.A. BALDWIN and ANN L. BALDWIN, Appellants,
OPINION AND ORDER
RONNIE ABRAMS, District Judge.
C.A. and Ann Baldwin ("the Baldwins") appeal the judgment of the Bankruptcy Court (Robert E. Gerber, Bankruptcy Judge), awarding them an administrative expense of $46, 874.97 and a general unsecured claim of $131, 157.08 against Lyondell Chemical Company and certain of its affiliated entities, as reorganized debtors (collectively, "Lyondell"). Although the Baldwins are pro se on this appeal as they were in the Bankruptcy Court, Mr. Baldwin is an attorney who served as an associate general counsel for Lyondell until the mid-1990s. In connection with his departure from the firm, in 1994 the Baldwins and Lyondell executed a "Settlement Agreement, Full and Final Release and Covenant Not To Sue" (the "Settlement Agreement"). This appeal centers on whether the Bankruptcy Court properly handled the Baldwins' claims against the Lyondell estate arising from the Settlement Agreement.
For the following reasons, the judgment of the Bankruptcy Court is affirmed.
A brief summary of the case's complex procedural history is necessary to understand the legal issues this appeal presents.
1. The Settlement Agreement
As noted above, in connection with Mr. Baldwin's departure from Lyondell,  the parties executed the Settlement Agreement on December 23, 1994. (Record on Appeal, document number 42 ("R42") ¶ 1.) Three provisions in the Settlement Agreement are relevant to this appeal. First, Lyondell agreed to make monthly payments to the Baldwins in the amount of $5, 208.33, with the final payment to be made on February 1, 2012. (Id. ¶ 5; R49 ¶ 3.) Second, Lyondell agreed to provide Mr. Baldwin with a "letter of reference, " which, as the Bankruptcy Court noted, was somewhat of "a misnomer, " given that the agreed-upon text of that letter simply confirmed Mr. Baldwin's title, duration of employment, and salary, but did not endorse him. (R42 ¶¶ 3, 5; R52 ¶ 8.) Third, the Baldwins were required to keep the terms of the Settlement Agreement confidential. (See id. ¶¶ 15-21.)
All parties performed their obligations under the Settlement Agreement through December 2008. (See, e.g., R36 at 75.) Lyondell did not make the payment due on January 1, 2009, however, and filed its Chapter 11 bankruptcy petition five days later. (R42 ¶ 8; R49 ¶ 3.) Consistent with the general prohibition on debtors paying prepetition obligations outside of a court-approved reorganization plan, Lyondell did not make further payments under the Settlement Agreement. (R42 ¶ 8.)
2. The 2009 Complaint
On February 1, 2009, the Baldwins wrote to Lyondell's general counsel, requesting the letter of reference as described in the Settlement Agreement. (R42 ¶ 10.) Lyondell did not provide the letter until November 30, 2009, well after the Baldwins commenced litigation. (R51 at 11.)
The Baldwins filed their Complaint in Bankruptcy Court on October 1, 2009, alleging that the monthly payments Lyondell owed them under the Settlement Agreement were non-dischargeable and that Lyondell breached the Settlement Agreement by failing to provide the letter of reference. (Id. ¶¶ 16-22.) Attached to the Complaint, and filed on the public docket, was a copy of the Settlement Agreement. (Id. Ex. A.) Lyondell promptly contacted the Baldwins to request that they take steps to remove the Settlement Agreement from the public docket and threatened litigation for breaching the confidentiality provisions of the Settlement Agreement. (R42 ¶¶ 16-17.) The Baldwins did not take any steps to remove the Settlement Agreement as Lyondell requested.
On October 22, 2009, the Baldwins filed an Amended Complaint in Bankruptcy Court, alleging that Lyondell had assumed the Settlement Agreement by seeking to enforce the confidentiality provisions and that Lyondell had breached the terms of the Agreement. (R7.) The Baldwins again attached the Settlement Agreement as an exhibit. (Id.) Lyondell moved to dismiss, and the parties fully briefed the motion. (R9, R10, R13.)
Several events occurred while the motion to dismiss was pending. The Baldwins filed a "Motion To Obtain Court's Approval for Debtor's Assumption of Executory Contract, " ("Assumption Motion"), essentially asserting the same claim as alleged in the Amended Complaint - that Lyondell had assumed the contract. (R14.) Mr. Baldwin acknowledged that this motion was largely duplicative of the Amended Complaint, but explained that he filed the motion "in an abundance of caution to make sure I at least call it the right one." (R25 at 27:3-4.) Lyondell filed an opposition, and the parties fully briefed the motion. (R22, R24.)
Additionally, on April 23, 2010, the Bankruptcy Court confirmed Lyondell's Reorganization Plan. (R15, R20.) The Plan gave claimants until June 30, 2010 to file claims for administrative expenses. (R15 § 2.1(a).) The Baldwins timely filed a claim - Claim 280692 - for an administrative expense of "at least $1, 325, 000.000." (R23.) They based this amount essentially on the value of the remaining payments under the Settlement Agreement plus Mr. Baldwin's alleged loss in earning potential based on Lyondell's delay in providing the letter of reference. (Id.)
After hearing oral argument, the Bankruptcy Court decided the motion to dismiss and Assumption Motion in a bench ruling issued on November 23, 2010, which was memorialized in a written order dated February 1, 2011. (R25-26.) The Bankruptcy Court concluded that the Settlement Agreement was an executory contract - that is, the type of contract that a debtor had the option of assuming or rejecting after filing for bankruptcy - and that Lyondell had neither assumed nor rejected the contract. (R26 at 2.) Accordingly, the Court dismissed the Amended Complaint in its entirety, and dismissed the Assumption Motion, except insofar as the Motion sought a declaration that the Settlement Agreement was an executory contract. (Id.) The Court gave Lyondell thirty days from the date of the order to assume or reject the Settlement Agreement and, in the event that Lyondell rejected the Settlement Agreement, gave the Baldwins thirty days from the date of rejection to file claims arising from that rejection. (Id. at 2-3)
On February 8, 2011, Lyondell formally rejected the Settlement Agreement, and the following day filed an objection to Claim 280692 (the Baldwins' previously-filed request for an administrative expense of "at least" $1.325 million). (See R27, R29.)
3. The Motion To Enforce and the 2012 Complaint
For reasons explained more fully in the next section of this Order, the Baldwins filed a Motion To Enforce the Confirmation Order, relying on a clause in the Reorganization Plan which provided that administrative expenses were "deemed allowed" unless Lyondell filed an objection by December 27, 2010 - a date "subject to extensions from time to time by the Bankruptcy Court." (R32 at 3-4 (quoting Reorganization Plan (R15) § 2.1(a)).) The Baldwins argued that because Lyondell did not file an objection to Claim 280692 until February 9, 2011, they were entitled to at least $1.325 million in administrative expenses. (R32 at 2-3.)
The Bankruptcy Court, referring to the Baldwins' position as "lunacy, " rejected their arguments for two reasons. (R36 at 83:5.) First, the Bankruptcy Court noted that Lyondell argued in its briefing on the motion to dismiss and Assumption Motion that the Baldwins were not entitled to any administrative expenses. (Id. at 83:8-84:10.) Although Lyondell "should have expressly objected again, " the Bankruptcy Court explained, Lyondell made its opposition clear both to the Court and to the Baldwins. (Id. at 83:9-10.) Second, the Bankruptcy Court concluded that it had the ultimate authority to review claims for administrative expenses, regardless of whether Lyondell failed to follow the procedure for objecting under the Reorganization Plan. (Id. at 86:6-10.) The Bankruptcy Court ordered the Baldwins to "flesh out" each of their remaining claims by filing "a complaint that complies with [Federal Rule of Civil Procedure] Rule 8." (R38 8:19-22.)
The Baldwins filed the Complaint, which they amended in March 2012 (the "2012 Amended Complaint"); Lyondell answered and then moved for judgment on the pleadings. (R40, R42-R44.)
The Bankruptcy Court granted the motion in part and, after the parties stipulated to the remaining facts, issued its final opinion. (R48-R52.) It noted that despite its skepticism that Lyondell would be harmed by disclosure of Settlement Agreement, the company treated the Settlement Agreement as if it contained "nuclear launch codes." (R51 at 15:5.) The Bankruptcy Court thus determined that Lyondell received a benefit during the time that the Baldwins kept the Settlement Agreement confidential - a period that ended when the Baldwins publicly docketed the Settlement Agreement as an attachment to their 2009 Complaint on October 1, 2009. (Id. at 15:7-12.) Although the parties would normally proceed to discovery to ascertain the value of that confidentiality, the Court noted, Lyondell had instead chosen to stipulate that the value of any confidentiality was equal to the monthly payments due under the contract. ...