Indu Craft Inc.

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1 UN TED STATES BANKRUPTCY COURT
SOUTHERN DI STRICT OF NEW YORK

Chapter 11
I NDU CRAFT INC.,

Case No. 97- 44958- RDD

Debt or.

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MODI FI ED BENCH RULI NG
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APPEARANCES:
15
JOEL LEWTTES, ESQ
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Attorney for TZE Wing Consultants, LID
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18 CH TTUR & ASSOCIATES, PC

19 Attorneys for Trendi
20 BY: KI RSHNAN CH TTUR, ESQ
21

22 HOSHWSKY LAW FI RM
23 BY: SERH| Y HOSHOVSKY, ESQ
24

25 KSL GATES LLP

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Attorneys for Bank of Baroda
BY: RICHARD S. MILLER, ESQ.
and RAJIV KHANNA, ESQ.
HON. ROBERT D. DRAIN
U.S. BANKRUPTCY JUDGE
I have before me two motions, both of which are
opposed by Bank of Baroda. 	The first is a motion that was made
over three years ago by Trendi Sportswear, Inc. under
Bankruptcy Rule 9023, which incorporates Federal Rule of Civil
Procedure 59. 	The second is a motion by Tze Wung Consultants,
Ltd. under Bankruptcy Rule 9024, which incorporates, with
certain modifications regarding the time within which to make
such a motion, Federal Rule of Civil Procedure 60.
Trendi and Tze Wung were both on the losing side of my
Order, dated August 15, 2007, rejecting various motions for an
order either amending the Chapter 11 plan confirmed in this
case by Bankruptcy Judge Gallett in his Confirmation Order
dated March 29, 1999, or granting related relief designed
ultimately to enable the preservation of claims of the debtor
herein against Bank of Baroda. 	The movants had sought such
relief because District Judge Martin had found that the
debtor’s discharge under section 1141 of the Bankruptcy Code
under the debtor’s Chapter 11 plan and as set forth in Judge
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Gallett’s Confirmation Order precluded the pursuit of such
claims against Bank of Baroda. 	See Bank of India v. Trendi
Sportswear, Inc., 2002 U.S. Dist. LEXIS 894, at *10-13
(S.D.N.Y. Jan. 17, 2002), aff’d 64 Fed. Appx. 827 (2d Cir.
2003), cert. denied, 540 U.S. 1074 (2003) (holding that the
debtor’s fourth-party indemnification claim against Bank of
Baroda for amounts the debtor owed but had never paid Trendi on
Trendi’s third-party claim -- which claim was discharged under
the debtor’s Chapter 11 plan -- failed as a matter of law).
For reasons that remain unclear to me, I never ruled
on Trendi’s motion under Bankruptcy Rule 9023 for
reconsideration of my August 15, 2007 Order. It is clear that
Trendi did not schedule a hearing on the motion, and Bank of
Baroda objected to the motion only on February 12, 2009,
approximately 18 months after the motion was filed (which
suggests that Bank of Baroda didn’t know about it, either),
referring in its objection to having received a copy of
correspondence from Trendi to the Court, dated February 6,
2009, in which Trendi asked the Court to rule on the motion.
At the May 12, 2011 hearing on Trendi’s motion, which the Court
scheduled after Tze Wung scheduled a hearing on its Rule 9024
motion (that motion having alerted the Court to Trendi’s
motion), counsel for Trendi gave me his February 6, 2009 letter
to the Court, as well as a letter dated September 25, 2009, in
which he had requested me to rule on the motion.
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It is not clear from the letters (which appear to be
originals), and counsel for Trendi cannot recollect, whether in
fact the letters were actually mailed to chambers in addition
to having been filed on ECF. 	If they were mailed to chambers,
clearly the fault in my not ruling after February 2009 lay with
me. 	If they were merely filed on ECF, given that Trendi had
not scheduled a hearing, the fault lay with Trendi, because it
is impossible for me, and therefore not my practice, to review
every filing on ECF to determine whether a matter is pending
before me. 	(The ECF docket in just one of the thousands of
cases and adversary proceedings pending before the Court has
over 21,000 entries.) 	Instead, it is counsel's responsibility
to schedule a hearing and/or let the Court know directly of the
need for the Court to do so. 	But whether the blame lies with
Trendi or the Court or both of us, Trendi has not waived its
rights under its Rule 9023 motion and is entitled to a ruling
on it.
As noted, I also have before me a motion, dated March
8, 2011, by Tze Wung Consultants, Ltd. for relief under
Bankruptcy Rule 9024 from my August 15, 2007 Order. 	That is,
Tze Wung’s Rule 9024 motion was made over three-and-a-half
years after the issuance of the order from which it seeks
relief. 	(I should note that Tze Wung also appealed from the
August 15, 2007 Order, as did the debtor, but both appeals were
dismissed for lack of prosecution (Doc. ## 203 and 200,
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respectively)). 	As noted below, however, because under
Bankruptcy Rule 8002(b)(3) Trendi’s Rule 9023 motion stayed all
parties’ time to appeal (although Tze Wung apparently did not
inform the District Court presiding over its appeal of Trendi’s
Rule 9023 motion), the dismissal of Tze Wung’s appeal is only
another indication of how Tze Wung has delayed challenging my
August 15, 2007 Order.
Both Trendi’s and Tze Wung’s motions are premised on
the same underlying basis: they contend that my August 15, 2007
Order should be reconsidered or vacated because the Court
erred.
Trendi’s Rule 9023 Motion
Trendi asserts that the Court should not have found
that the debtor’s Chapter 11 plan had been substantially
consummated, and, thus, under section 1127(b) of the Bankruptcy
Code was not capable of being modified, and should, instead,
have granted Trendi’s motion for an order declaring that the
debtor’s debt to Trendi was not discharged under the
Confirmation Order (therefore, in Trendi’s view, enabling the
debtor to pursue its indemnification claim against Bank of
Baroda). 	To support its contention that the Chapter 11 plan
was not substantially consummated, Trendi asserts only that the
Court overlooked that “no assets were transferred to the
creditors or to the reorganized entity as required by the
[p]lan.” See Trendi’s Memorandum of Law at 1 (Doc. # 195),
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although it points to no evidence supporting that assertion,
which, as discussed below, is clearly incorrect. 	(Trendi also
contends that the Court mistakenly found that the debtor’s
Chapter 11 plan was a liquidating plan, id. at 2. 	However,
this contention would have no effect on my August 15, 2007
ruling if, in fact, it were true; its only consequence, if I
agreed with Trendi, would be to eliminate the basis for Tze
Wung’s Rule 9024 motion, which is premised on the Chapter 11
plan being a liquidating plan.)
To prevail on its motion under Bankruptcy Rule 9023,
Trendi must show that the Court overlooked controlling
decisions or factual matters that might materially have
influenced the earlier decision or, alternatively, the need to
correct a clear error or prevent manifest injustice. 	In re
Coudert Bros. LLP, 2009 Bankr. LEXIS 2602, at *7-8 (Bankr.
S.D.N.Y. Sept. 8, 2009), aff’d 2010 U.S. Dist. LEXIS 58467
(S.D.N.Y. June 4, 2010). 	“The rule permitting reargument is
strictly construed to avoid repetitive arguments on issues that
the court has already fully considered. 	In addition, parties
cannot advance new facts or arguments because a motion for
reargument is not a mechanism for presenting the case under new
theories, securing a rehearing on the merits, or otherwise
taking a second bite at the apple.” 	In re Vargas Realty
Enters., Inc., 2009 Bankr. LEXIS 2040, at *7-8 (Bankr. S.D.N.Y.
July 23, 2009) (internal citations omitted). 	See also In re
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Lyondell Chemical Co., 2009 Bankr. LEXIS 724, at *2 (Bankr.
S.D.N.Y. Apr. 10, 2009); In re Adelphia Bus. Solutions, Inc.,
2002 Bankr. LEXIS 1604, at *3-4 (Bankr. S.D.N.Y. Oct. 15, 2002)
(“This rule is intended “to insure the finality of decisions
and to prevent the practice of a losing party examining a
decision and then plugging the gaps of a lost motion with
additional matters.”); 12 Moore’s Federal Practice ¶ 59.30[6]
(3d ed. 2008), at 59-116 (“A Rule 59(e) motion to alter or
amend a judgment may not be used to relitigate the same matters
already determined by the court. Further, a motion to alter or
amend generally may not be used to raise arguments, or to
present evidence, that could reasonably have been raised or
presented before the entry of judgment.”).
The Trendi motion does not set forth a valid basis for
requiring reconsideration of the Court's August 15, 2007 Order.
The Order, I believed, and continue to believe, was not
manifestly in error, and I'm not going to take upon myself the
opportunity that courts have whenever confronted by a timely
motion to reconsider to acknowledge that I made a mistake,
because, for the reasons set forth in my ruling attached to the
Order, I don't believe that I made a mistake. 	(The only
mistake, I believe, is a typo in my ruling, which refers to
sections 1141(a) and 1141(d)(2) of the Bankruptcy Code rather
than what it should have referred to, which is section
1141(d)(3) of the Bankruptcy Code.) The ruling sets forth the
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basis for my conclusion that the motions that I heard in 2007
should not be granted, and therefore, they should properly be
dealt with on appeal and not on a motion for reconsideration
under Rule 9023, that Rule, as noted above, not being a device
for relitigating a matter that was properly considered.
Moreover, Trendi’s original motion, which I denied in
my August 15, 2007 Order, did not assert that the Chapter 11
plan could be modified (and thus did not address the impediment
of Bankruptcy Code section 1127(b)); rather, Trendi contended
that the Court merely had to modify Judge Gallett’s March 29,
1999 Confirmation Order in the interests of equity and the
parties’ alleged intentions at the time, to provide that the
debtor would receive a discharge with the exception of Trendi’s
claim. (This argument was incorrect for three reasons. First,
as stated in the bench ruling attached to the August 15, 2007
Order, the 180-day time limit in Bankruptcy Code section 1144
precluded such a modification of the Confirmation Order;
second, Bankruptcy Code section 1127(b)’s prohibition of the
modification of a plan that has been substantially consummated
cannot be circumvented by modifying the plan confirmation order
or under Bankruptcy Rule 9024. 	See In re Rickel & Assocs., 260
B.R. 673, 677, 678-79 (Bankr. S.D.N.Y. 2001); third, although
Trendi did not address this point, the debtor’s discharge
appears not only in the Confirmation Order but also in ¶ 9.1(a)
of the Chapter 11 plan -- with no exceptions -- therefore,
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modification of the Confirmation Order would have been a
modification of the plan, prohibited by section 1127(b).) Thus,
Trendi never addressed the issue that its Rule 9023 motion
seeks to raise: 	whether the substantial consummation of the
Chapter 11 plan precludes, under section 1127(b) of the
Bankruptcy Code, the modification that Trendi sought. 	Thus,
Trendi’s Rule 9023 motion seeks merely to plug a gap in its
original argument, which, under the authorities discussed
above, is not a valid basis for Rule 9023 relief. 	See also In
re General Vision Servs, Inc., 352 B.R. 25, 28 (Bankr. S.D.N.Y.
2006).
Finally, on the merits, Trendi’s contention that the
debtor’s Chapter 11 plan was not substantially consummated is
clearly wrong. 	“Substantial consummation” under the Bankruptcy
Code is defined as “(A) transfer of all or substantially all of
the property proposed by the plan to be transferred; (B) the
assumption by the debtor or by the successor to the debtor
under the plan of the business or of the management of all or
substantially all of the property dealt with by the plan; and
(C) commencement of distribution under the plan.” 	11 U.S.C. §
1101(2). See also In re Loral Space & Communs. Ltd., 342 B.R.
132, 136-37 (S.D.N.Y. 2006); In re Spiegel Inc., 2006 Bankr.
LEXIS 2158, at *46 (Bankr. S.D.N.Y. Aug. 16, 2006); aff’d 2007
U.S. Dist. LEXIS 19633 (S.D.N.Y. Feb. 26, 2007), 269 Fed. Appx.
56 (2d Cir. 2008), cert. denied sub nom Stupakoff v. Otto, 129
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S. Ct. 146 (2008). 	In the bench ruling attached to the August
15, 2007 Order, the Court set forth the reasons why it found
and concluded that the plan had been substantially consummated.
Trendi’s motion does not cite any evidence in the record or
alledgely newly discovered to the contrary. 	Moreover, the
docket of this case shows that the debtor has acknowledged that
“the Plan has been fully implemented and administered in
accordance with the Plan,” see debtor’s Application for a Final
Decree (Doc. # 160), and that “the Debtor has made the
distribution to holders of Allowed Claims, as required by the
Confirmed Second Amended Plan of Reorganization, as Modified,”
see debtor’s Report in Furtherance of Post-Confirmation Order
and Notice (Doc. # 143). 	In addition, paragraph E. of the
Confirmation Order provides that “Except as otherwise provided
for herein, or in the Modified Plan, on the Effective Date, all
assets and properties of the Estate shall revest in the Debtor
free and clear of all Liens, Claims and encumbrances. . . ,”
and it is clear from the Plan that the Effective Date of the
Plan occurred ten days after the entry of the Confirmation
Order (which, of course, was not stayed and has, since April 8,
1999, been a final order). 	See Second Amended Plan of
Reorganization of Indu Craft, Inc., as Modified at ¶¶ 1.27, 1.17,
1.33, 1.32, 7.9. See In re Spiegel, 2006 Bankr. LEXIS 2158, at *46
(referring to similar provision in confirmation order as
indicating substantial consummation).
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Tze Wung’s Rule 9024 Motion
Because of the one-year time limit applicable under
Federal Rule of Civil Procedure 60(c)(1) to Rule 9024 motions
based on Federal Rule of Civil Procedure 60(b)(1), (2) or (3),
and because the basis for Tze Wung’s Rule 9024 motion cannot
lie in Federal Rule of Civil Procedure 60(b)(4) or (5), Tze
Wung must premise its Rule 9024 motion on the “any other reason
that justifies relief” provision of Federal Rule of Civil
Procedure 60(b)(6). 	That provision, like all of the provisions
of Rule 60(b), is governed by Rule 60(c)(1)’s requirement that
the motion have been made “within a reasonable time.”
Tze Wung asserts that it has carried its burden under
Rule 60(b)(6) based on what it contends is the Court’s alleged
manifest error of law in finding that the debtor’s Chapter 11
plan and Judge Gallett’s March 29, 1999 Confirmation Order
discharged the debtor notwithstanding that such a discharge was
not proper under section 1141(d)(3) of the Bankruptcy Code,
where the plan was a liquidating plan and the debtor did not
engage in business after consummation of the plan.
(Tze Wung also suggests, although the May 12, 2011
hearing record has made it clear that this suggestion is not
meaningful, that even if under normal circumstances I would
deny its Rule 9024 motion, I should not do so here because Tze
Wung is effectively precluded from appeal if I do. That basis
is not meaningful or relevant here because the parties,
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including Bank of Baroda, acknowledge that under Bankruptcy
Rule 8002(b)(3) the pendency of Trendi's Rule 9023 motion has
effectively stayed any appeal from my August 15, 2007 Order,
including Tze Wung’s, so that, in essence, my ruling on
Trendi’s Rule 9023 motion would start the appeal clock
running.)
“Properly applied Rule 60(b) strikes a balance between
serving the ends of justice and preserving the finality of
judgments. 	In other words it should be broadly construed to do
‘substantial justice,’ yet final judgments should not ‘be
lightly reopened.’ 	The Rule may not be used as a substitute
for a timely appeal. 	Since 60(b) allows extraordinary judicial
relief, it is invoked only upon a showing of exceptional
circumstances,” in the discretion of the trial court. 	Nemaizer
v. Baker, 793 F.2d 58, 61 (2d. Cir. 1986) (internal citations
omitted). 	Rule 60(b)(6), in particular, “is properly invoked
only when there are extraordinary circumstances justifying
relief, when the judgment may work an extreme and undue
hardship, and when the asserted grounds for relief are not
recognized in clauses (1)-(5).” 	Id. at 63 (internal citations
omitted). 	See also In re Teligent, Inc., 326 B.R. 219, 227
(S.D.N.Y. 2005); In re Taub, 421 B.R. 37, 42 (Bankr. E.D.N.Y.
2009); In re AMC Realty Corp., 270 B.R. 132, 143-44 (Bankr.
S.D.N.Y. 2001).
Although it has been held that Rule 60(b)(6) (rather
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than Rule 60(b)(1), which, as noted above, is unavailable to
Tze Wung) may be invoked in compelling circumstances to correct
judicial error, see Krautheimer v. Krautheimer, 210 B.R. 37,
42-3 (Bankr. S.D.N.Y. 1997)(applying Rule 60(b)(6); but see
Schildhaus v. Moe, 355 F.2d 526, 530-31 (2d Cir. 1964) (per
curiam) (applying Rule 60(b)(1) to judicial error “in cases
with very special facts”)), it is also well recognized that
“The limitation on the use of Rule 60 motions as a substitute
for appeal is especially true of motions under Rule 60(b)(6).”
In re Teligent, 326 B.R. at 227, quoting Eutectic Corp. v.
Metco, Inc., 597 F.2d 32, 34 (2d Cir. 1979). 	See also 	Leonard
v. Lowe’s Home Ctrs., Inc., 83 Fed. Appx. 402, 304 (2d Cir.
2003). 	Thus the courts’ strong reluctance to use Rule 60 to
correct an error of law, see In re Texlon Corp., 596 F.2d 1092,
1100 (2d Cir. 1979), should be especially great if, as here,
the movant waited over three-and-a-half years to seek such
relief. See Schildhaus v. Moe, 335 at 531 (“nothing in the
Rule, the cases, or the treatises suggest that a motion for
relief from judicial error more than eight months after the
entry of judgment is made ‘within a reasonable time’ as the
Rule requires”).
In light of the foregoing and the record, Tze Wung’s
Rule 9024 motion should be denied, on three alternative
grounds.
First, Tze Wung’s motion was not made within a
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reasonable time under Rule 60(c)(1). 	Although a “reasonable
time” for purposes of Rules 60(c)(1)/9024, is not defined, case
law provides substantial guidance in the light of the
underlying purpose of the Rule, which, as noted above is to do
justice in balance with recognizing the policy in favor of the
finality of judgments. 	The Court needs to consider the
particular circumstances of the case and balance the interest
in finality with the reasons for the movant’s delay, a
consideration that is within the Court's discretion. 	See In re
Spiegel, 269 Fed. Appx. 56, 58 (2d Cir. 2008); Truskowski v.
ESPN, Inc., 60 F.3d 74, 77 (2d Cir. 1995); In re AMC Realty,
207 B.R. 144-45. 	Here, Tze Wung was represented by experienced
counsel (in contrast to the pro se litigant in Krautheimer, 210
B.R. at 37), and it has not alleged any facts suggesting that
it did not control the timing of its filings in this Court.
Moreover, the basis for its motion is an alleged error of law,
which, as discussed above, to the extent that it may ever serve
as a proper basis for relief under Rule 60(b)(6), should be
evoked diligently and only in extremely compelling
circumstances in this context, so that the Rule is not invoked
as a substitute for an appeal.
It is worth noting that Tze Wung’s belief that its
appeal was handcuffed by the delay in my ruling on Trendi’s
Rule 9023 motion (although there is nothing in the record to
suggest that it advised the District Court of the motion,
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either before or after its appeal was dismissed for lack of
prosecution), clearly does not justify Tze Wung’s lengthy delay
in filing its own motion under Rule 9024. 	To the contrary, Tze
Wung should have, if anything, become more proactive in light
of what it says was its being “handcuffed” by the delayed
ruling on Trendi’s motion. In other words, it appears that
whether Tze Wung willingly handcuffed itself, or not, it was
unreasonable for Tze Wung to have waited over three-and-a-half
years to make its own motion. See In re Spiegel, 269 Fed. Appx.
At 58 (seven-month delay unreasonable); Truskowski, 50 F.3d at
77 (18-month delay unreasonable). See also Ackermann v. United
States, 340 U.S. 193, 1975-98 (1950) (extraordinary
circumstances for relief from judgment under Rule 60(b)(6) not
shown by movant who relied on ruling in co-defendant’s appeal
when movant, himself did not appeal).
Second, Tze Wung’s assertion of legal error does not
rise to the level of the “very special facts,” “extraordinary
circumstances” or “extreme and undue hardship” under the
authorities discussed above warranting Rule 60(b)(6) relief.
Finally, Tze Wung’s assertion of legal error is
incorrect. 	The premise of its Rule 9024 motion is that the
Court manifestly erred when it concluded, in the August 15 2007
Order, that the Chapter 11 plan and the March 29, 1999
Confirmation Order discharged the Debtor notwithstanding that
section 1141(d)(3) of the Bankruptcy Code precludes a
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liquidating debtor from receiving a discharge.
Clearly, however, regardless whether Judge Gallett
erred in 1999 in confirming such a plan, the Confirmation Order
is final and no longer subject to appeal and the plan may not
be modified. 	The Confirmation Order clearly was res judicata
when I ruled on August 15, 2007, and that legal proposition has
since been confirmed twice by the Supreme Court. 	United
Student Aid Funds Inc. v. Espinosa, 130 S. Ct. 1367, 1377-80
(2010) (“[T]he Bankruptcy Court’s failure to find undue
hardship before confirming Espinosa’s plan was a legal error. .
. . 	But the order remains enforceable and binding on United
because United had notice of the error and failed to object or
timely appeal”); Travelers Indemnity Company vs. Bailey, 129 S.
Ct. 2195, 2206 (2009) (applying res judicata to collateral
attack on plan confirmation order even where the bankruptcy
court might have erroneously concluded that it had subject
matter jurisdiction).
Given this impediment, Tze Wung’s motion makes a
second argument, which is that, even if the Confirmation Order
is res judicata, the Confirmation Order itself incorporated
section 1141 and, therefore, was limited by section 1141(d)(3)
and, therefore, notwithstanding the Order’s provision that the
debtor is going to receive a discharge, it really didn't mean
it – instead, the real meaning of the Confirmation Order is
that the debtor will receive a discharge except that it won't
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receive a discharge because the discharge is only pursuant to
1141.
This argument is particularly galling in that it is
presented as being manifestly true, yet is contradicted not
only by the clear language of paragraph 9.1(a) of the Plan
(which provides for an unqualified section 1141 discharge “from
all Claims against and Interests in the Debtor that arose prior
to the Effective Date”) and paragraph F(1)(a) of the
Confirmation Order (which says the same thing), but also by Tze
Wung’s underlying motion that I denied in the August 15, 2007
Order. Far from arguing that it is obvious that the Chapter 11
plan and Confirmation Order implicitly incorporate the
limitation in section 1141(d)(3) of the Bankruptcy Code, Tze
Wung’s underlying motion does not even mention section
1141(d)(3). 	Instead, it contends that (a) the plan’s failure
to carve out an exception to the discharge for Trendi’s claim
against the debtor was “an obvious scrivener’s error,” (b) the
Court could still modify the plan under section 1127(b)
because, although distributions had been made, the anticipated
distributions in the event that the debtor prevailed against
Bank of Baroda had been thwarted by District Judge Martin’s
decision, (c) the debtor could waive the discharge as to
Trendi, (d) the Court could use its general equity powers to
revoke the discharge of Trendi’s claim, (e) “the Court should
temporarily suspend or lift the discharge provision of the
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confirmation order,” and (f) the Court could permit the debtor
to file another chapter 11 case to make the necessary changes
to the plan and confirmation order. 	Of course, each of these
arguments is contrary to the proposition, now advanced by Tze
Wung, that the Chapter 11 plan and Confirmation Order obviously
limit the reach of their discharge provisions by the
unexpressed but implicit incorporation of section 1141(d)(3).
In fact, I, myself, raised the section 1141(d)(3)
issue during oral argument, considered it and concluded that,
even if Judge Gallett did not have authority to grant a
discharge, his Confirmation Order was final, not subject to
appeal and res judicata and the plan could not be modified.
There was no suggestion that the parties intended to
incorporate section 1143(d)(3) into the plan or the
Confirmation Order.
Therefore, for each of the foregoing reasons, Trendi’s
motion under Bankruptcy Rule 9023 is denied, and Tze Wung’s
motion under Bankruptcy Rule 9024 is denied. 	Counsel for Bank
of Baroda can submit separate orders on both motions.
Dated: 	White Plains, New York
July 1, 2011
/s/Robert D. Drain
Hon. Robert D. Drain
United States Bankruptcy Judge
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