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In re Palmaz Scientific, Inc.

United States District Court, W.D. Texas, San Antonio Division

April 18, 2017

IN RE PALMAZ SCIENTIFIC, INC., ET AL., Debtors,
v.
VACTRONIX SCIENTIFIC, INC., ET AL., Appellees. SUSAN E. HARRIMAN, Appellant, Bk. Adv. No. 16-50552-CAG

          ORDER

          XAVIER RODRIGUEZ UNITED STATES DISTRICT JUDGE.

         This civil action is before the Court on appeal from the United States Bankruptcy Court for the Western District of Texas. For the reasons stated below, the judgment of the bankruptcy court is AFFIRMED and the appeal is DISMISSED.

         BACKGROUND

         In a separate lawsuit initiated before any bankruptcy proceedings, Appellant Susan Harriman sued Debtor Palmaz Scientific, Inc. in Dallas state court. Dist. Ct. Docket no. 6 at 3. Before the state court could render judgment in the Dallas lawsuit, Debtor filed for Chapter 11 bankruptcy on March 4, 2016. Id.; Bankr. Docket no. 1.

         Originally, the deadline for filing a proof of claim in the bankruptcy proceeding was July 5, 2016. Bankr. Docket no. 41 at 1. Notice of this deadline was sent to Appellant at a Dallas address. Id. at 7. On May 10, 2016, the bankruptcy court shortened the claims deadline to June 1, 2016. Bankr. Docket no. 208. Notice of this change was sent to Appellant at the same Dallas address. Bankr. Docket no. 214-1 at 8. Appellant did not file a proof of claim by either the original deadline or the shortened deadline.

         On June 10, 2016, Debtor proposed a plan in which a third party, Vactronix Scientific, Inc., agreed to purchase the Dallas lawsuit as a “pass-through, ” such that Vactronix would acquire Debtor's rights to and liability from the Dallas suit: “If Vactronix is the Purchaser and acquires the Debtor's claims in the [Dallas lawsuit], Vactronix shall assume any and all of the Debtor's liability arising out of or relating to the [Dallas lawsuit], without limiting any non-Debtor party's liability for such claims, including applicable insurance policies.” Bankr. Docket no. 282 at 15. That Plan also stated that “nothing in this Plan shall waive, release or limit any claims or liability asserted in the [Dallas lawsuit].” Id. at 28.

         That day, the Bankruptcy court held a sale hearing. See Bankr. Docket no. 423. At that hearing, Mr. Jim Hoffman, an attorney, appeared and made a $10 bid for the rights and liabilities from the Dallas lawsuit. Id. at 19. Mr. Hoffman stated that he represented himself and was making the bid as an individual, though he later represented Appellant before the bankruptcy court and represents her on this appeal. Bankr. Docket no. 423 at 20; Bankr. Docket no. 367 at 5; Dist. Ct. Docket no. 1 at 6. The bankruptcy court found that Mr. Hoffman's $10 offer did not qualify as a competing bid based on a prior order regarding sale procedures, and approved the sale. Bankr. Docket no. 423 at 43-44. The bankruptcy court set a June 24 deadline for objections to the plan and set a confirmation hearing for June 27. Id. at 62; see also Bankr. Docket no. 294. Mr. Hoffman asked for permission to appear telephonically for the June 27 confirmation hearing, which the bankruptcy court granted. Bankr. Docket no. 294 at 58.

         Appellant filed no objections to the plan by the June 24 deadline. At the June 27 confirmation hearing, limited objections were heard, though it does not appear that Mr. Hoffman attended (telephonically or otherwise). Bankr. Docket no. 355. At the hearing, the bankruptcy court discussed a change to the language of the Plan, which purportedly changed the Plan's treatment of the Dallas lawsuit. Id. at 55-57. This language, which Debtor ultimately submitted in its July 14 Second Amended Joint Plan of Reorganization and the bankruptcy court approved in its July 15 Order Confirming the Plan, reads as follows:

Vactronix designates HC Litigation Fund, LLC as the party to be assigned any and all of the Debtors' claims and rights (including any applicable insurance coverage) in the Harriman Case. HC Litigation Fund, LLC shall also assume any and all of the Debtor's liability, if any, remaining after Bankruptcy (see 11.4 herein and the Order confirming the Plan), for claims presently asserted against the Debtor arising out of or relating to in the Harriman Case. Nothing herein shall limit any non-Debtor party's liability, including coverage under any applicable insurance policies. Provided, however, that neither HC Litigation Fund, LLC, nor any other Person, shall have any right to any D & O Insurance Recovery under any D & O Insurance Policy or any proceeds of, or coverage under, any such policy.

Id.; Bankr. Docket no. 351 at 14-15; Bankr. Docket no. 356 at 26-27.

         Appellant maintains that the first time she learned of this change to the Plan was on July 15 when the bankruptcy court entered its order confirming the Plan as amended. Docket no. 6 at 12. On July 29, 2016, Appellant, appearing formally for the first time before the bankruptcy court, filed a motion to reconsider the bankruptcy court's order confirming the Plan. Bankr. Docket no. 367. Appellant argued that changes to the Plan's treatment of the Dallas lawsuit adversely affected her rights in that case. Id. at 3. On August 1, the bankruptcy court held a hearing on this motion, at which Mr. Hoffman argued on Appellant's behalf. Bankr. Docket no. 451. Mr. Hoffman acknowledged that he did not file an objection to the confirmation of the Plan. Id. at 16. He acknowledged that Appellant knew of the bankruptcy case. Id. at 73. Ultimately, the bankruptcy court denied Appellant's motion for reconsideration because, in short, Appellant never filed a proof of claim in the bankruptcy proceeding. Id. at 76-80; Docket no. 374.

         Now before this Court is Appellant's appeal of the Bankruptcy court's denial of her Motion for Reconsideration.

         DISCUSSION

         I. Appellant's Issues on Appeal

         Appellant designates four points on appeal: (1) that the Confirmed Plan should be reconsidered to account for Appellant's interest in the Dallas lawsuit; (2) that the filing of a proof of claim in the bankruptcy court was not required to preserve Appellant's claims in the Dallas lawsuit; (3) Appellant's Due Process rights were violated by the bankruptcy court's approval of the Confirmed Plan; and (4) the preservation of Appellant's claims in the Dallas lawsuit is mandated by equity. Docket no. 6 at 2-3.

         The Court finds that Appellant lacks standing to appeal because she failed to file a proof of claim or otherwise appear or object before the bankruptcy court. Furthermore, contrary to her assertion on the third point, the Court finds that Appellant was not deprived of due process. As a result, Appellant ...


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