Judge Lamoutte: Bankruptcy Court Lacks Jurisdiction Over Breach of Contract Claim Based on Interest Owed on “Pass-Through” Claim
Judge Lamoutte: Bankruptcy Court Lacks Jurisdiction Over Breach of Contract Claim Based on Interest Owed on “Pass-Through” Claim
A creditor’s action to collect interest owed on a pre-petition pass-through claim from the debtor and the debtor’s shareholders was dismissed for lack of subject-matter jurisdiction.
The pass-through claim arose as a result of a construction project for which the debtor was a contractor, the creditor was a subcontractor, and the Puerto Rico Highway Authority was the owner. The pass-through claim was based on the amounts owed by the PRHA to the subcontractor.
Under the debtor’s confirmed Chapter 11 plan, the pass-through claim was conditioned on the outcome of an adversary proceeding against PRHA. The plan did not provide for any distributions on account of the claim.
After the bankruptcy court entered judgment against PRHA, PRHA consigned with the court the amounts owed to the debtor as well as the amounts owed to the subcontractor/creditor.
The creditor eventually received the principal balance of the pass-through claim. However, litigation ensued concerning the amounts owed based on the interest that the principal accrued before it was distributed to the creditor.
After a final decree was entered and the plan was consummated, the bankruptcy court granted the creditor’s request to re-open the case and ruled that the creditor was owed $1,367,762.07 in net interest.
After the creditor was unsuccessful in collecting such amount from the debtor or the debtor’s shareholders, the creditor initiated an adversary proceeding, based on (i) breach of the confirmed plan; (ii) breach of fiduciary duties, and (iii) collection of monies.
The court held that it lacked post-confirmation “related-to” jurisdiction as to each of the claims. Since the plan did not provide for the payment of the pass-through claim, it found that the allegations did not implicate “the confirmed amended plan’s meaning, implementation, execution, or administration.” For the same reason, it found that the allegations as to breach of fiduciary duties had no basis on the confirmed amended plan, although it noted that its decision on this point did not foreclose the possibility of the creditor pursuing independent causes of action under state law.
Lastly, the court also held that there was no jurisdiction to enforce a prior order, since a motion for contempt was not before the court and there was no money judgment which would allow for a writ of execution against the debtor.
Post-confirmation “related-to” jurisdiction has also been addressed in recent opinions by the Fifth Circuit (In re Chesapeake Energy Corp., No. 21-20323, June 8, 2023) and the Fourth Circuit (In re Bestwall, LLC, No. 22-1127, June 20, 2023).