BORGENICHT v. CREDITORS’ COMMITTEE, 479 F.2d 150 (2nd Cir. 1973)

IN THE MATTER OF JACK BORGENICHT, DEBTOR. JACK BORGENICHT, APPELLANT, v. CREDITORS’ COMMITTEE, APPELLEE.

No. 820, Docket 73-1027.United States Court of Appeals, Second Circuit.Argued May 29, 1973.
Decided May 31, 1973.

Elliot L. Krause, New York City (Leinwand, Maron, Hendler
Krause, New York City), for appellant.

Julius J. Abeson, New York City (Hahn, Hessen, Margolis Ryan, New York City), for appellee.

Appeal from the United States District Court for the Southern District of New York.

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Before MOORE, FRIENDLY and FEINBERG, Circuit Judges.

PER CURIAM:

[1] This appeal from an order of the District Court for the Southern District of New York denying a petition to review an order of Referee Babitt raises the question whether a debtor who has been party to a confirmed arrangement under Chapter XI of the Bankruptcy Act may apply for leave to file an application for an extension of time to make payments under § 363 although the court did not retain jurisdiction pursuant to § 368. Although expressing sympathy with the debtor, the referee thought that the statute clearly precluded the relief sought. We agree and can add nothing useful to his excellent opinion. For the convenience of the bench and bar, we annex a copy of the relevant portions of this as an appendix.

[2] Affirmed.

APPENDIX

Roy Babitt, Referee:

This debtor filed his voluntary petition for an arrangement
under the statutory scheme of Chapter XI of the Bankruptcy Act,
Section 302 et seq., 11 U.S.C. § 702 et seq., and in particular
under Section 322, 11 U.S.C. § 722.[1] That petition was filed
on May 7, 1969 and was referred to Referee Loewenthal. It has
since been re-referred to me.

On October 9, 1969 the debtor filed his proposed arrangement
(or as it has come to be called — his plan) with his creditors.

For purposes of the instant controversy, paragraph 4a of the
proposed arrangement provided that the claims of all general
unsecured creditors were to be paid in full without interest with
12% in cash to be paid on confirmation and the balance of 88% to
be paid over sixteen “quarter annual installments of 5 1/2% each
commencing from the date of confirmation.” Paragraph 5 of the
proposed arrangement secured the creditors by execution by the
debtor of mortgages on certain parcels of real property he owned.
That paragraph also provided that in the event of default by the
debtor or in the event of the debtor’s failure to perform any
other conditions of the proposal the creditors, in their sole
discretion, were to realize upon the security in such manner as
they deemed advisable.

That proposed arrangement was ultimately accepted by the
debtor’s creditors in accordance with the statutory scheme and
after the debtor had satisfied the statutory conditions precedent
to confirmation, Referee Loewenthal entered an order on July 27,
1970 confirming the debtor’s arrangement. Between the entry of
Referee Loewenthal’s order and now the debtor has paid the 12% in
cash and seven of the 5 1/2% installments called for by paragraph
4a of the arrangement. For purposes of the instant dispute it is
important to note here that the debtor’s arrangement did not
contain the provision contemplated by Section 357(7) of the Act,
11 U.S.C. § 757(7), whereby this court would have retained
jurisdiction “until provisions of the arrangement, after its
confirmation, have been performed . . .”

While it might well have been desirable from the debtor’s
standpoint for this court to have been given the retained
jurisdiction of Section 357(7), the fact is that the creditors
did not require it of the debtor in his proposal. Indeed in light
of the motion which is the subject of this opinion, it is
altogether likely that the creditors chose to block efforts by
the debtor to include such a provision, for it seems to the court
that the creditors are of a mind to pursue whatever remedy they
might have without interference

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by this court.[2] In any event, for want of the specific
conferral of continued jurisdiction in the arrangement, it is
plain that Section 368 of the Act, 11 U.S.C. § 768, is of
no moment in this controversy. That section states clearly and
unequivocally that the court shall retain jurisdiction “if so
provided in the arrangement.”

The debtor brought this motion for an order granting the debtor
leave to file a modification of his arrangement to provide for an
extension of the time within which he might make the balance of
the deferred payments. Simply stated, the debtor asked the
opportunity to propose a deferral of the July, 1972 5 1/2%
installment until October, 1972 and the balance of such payments
to be paid semi-annually thereafter until the remaining balance
of some 30% called for by the original proposal shall have been
paid. As a legal basis for the motion, the debtor apparently
invokes Section 387 of the Act, 11 U.S.C. § 787, and claims
support for such invocation by the retention of jurisdiction
which Congress did give to this court but limitedly by Section
369 of the Act, 11 U.S.C. § 769.

The creditors’ committee answered and raised two defenses
alleging that this court is bereft of power to grant the motion
and that accordingly the motion fails to state a claim upon which
any relief can be granted.

It is with the utmost reluctance that I must conclude that the
creditors’ committee’s defenses to the motion must be sustained
and the motion denied.

Section 387 of the Act, the linchpin of the debtor’s motion,
speaks to the point. It does confer post-confirmation power in
this court to authorize a debtor to alter or modify the confirmed
arrangement by asking his creditors for more time to pay what he
has promised them. The difficulty facing the debtor is that when
Congress gave the court this power it did not do so
unqualifiedly. The power was given only if the court had already
had the retained jurisdiction contemplated by Section 368. And
Section 368 swiftly and surely states that this court is to
retain jurisdiction if it is provided for in the arrangement as
authorized by Section 357(7) of the Act.

Sections 368 and 387 must be read together. Their plain
unambiguous language defies their being construed in such way as
to give the debtor the opportunity he seeks of asking his
creditors to accept his new offer deferring the payments of the
30% or so still due them and to stay their hand from foreclosing
the mortgages he gave them to secure compliance with his original
proposal.

A problem in statutory construction seriously bothers a court
only where there is a contest between probabilities of the
meaning of the words of a statute. See Reflections on Reading
Statutes, Felix Frankfurter, The Benjamin N. Cardozo Lecture
before the Association of the Bar of the City of New York (March
18, 1947).

Section 387 is a relatively recent enactment, it was enacted by
Public Law 85-732 at the Second Session of the 85th Congress in
1958. While the legislative history, Senate Report 2094, 85th
Cong., 2d Sess. (1958), U.S.Code Cong. Admin.News 1958, p.
3804, does not indicate that Congress was specifically aware of
the precise problem raised by this debtor who has faithfully
discharged more than 2/3 of his original commitment, there is
enough in the testimony

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before the committee to indicate that Congress knowingly pitched
the jurisdiction to permit post-confirmation modification only to
the instance where the court was specifically given jurisdiction
by the original arrangement. After all, Congress might have
supposed, the creditors, once having accepted a debtor’s offer,
should be free to fashion their own recourse after a debtor has
left the court. Be that as it may, the legislative history
discloses that the main impulse for the legislation was to
provide a judicial alternative to bankruptcy liquidation in the
event a debtor has not squarely complied with the terms of his
offer. But that alternative is available only where the power was
specifically reserved to the court in the plan.

By specifically referring to the retained jurisdiction of
Section 368, Congress expressed the limits to which it was
willing to sanction further judicial control over the continuing
dialogue between a debtor and his creditors. Had Congress wished
to confer this post-confirmation power on this court in any event
it could easily have done so. Congress could easily have
conferred the power whether it was the kind specifically granted
by Section 368 or generally granted by Section 369. Congress did
not see fit to do so and this court cannot rewrite the statute by
extending it beyond the thought conveyed by the unambiguous
words. The short of it is that the sharply limiting language of
Section 387 does not admit of any reading other than that which
the words spontaneously yield.

It cannot be denied that this debtor has faithfully complied
with the terms of this arrangement in the period since it was
confirmed by Referee Loewenthal. The argument on the motion
discloses that a piece of the debtor’s property in New York City
has lately yielded less income than the debtor thought two years
ago it would have yielded in order for him to make the necessary
installment payments to his creditors. It seems to the court that
the creditors could eschew foreclosing on the property to realize
the 30% of their payments still due. To foreclose now would be to
deny to the debtor the future enhancement of that property where
it could serve to continue the rehabilitation process begun when
the debtor first invoked the provisions of Chapter XI.

But such equitable restraint must come from the debtor’s
creditors, for, while we have been reminded again and again that
this court applies equitable principles in the exercise of its
bankruptcy jurisdiction, Bank of Marin v. England, 385 U.S. 99,
103, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966), Pepper v. Litton,
308 U.S. 295, 305, 60 S.Ct. 238, 84 L.Ed. 281 (1939), there is simply
no play in the case at bar for the exercise of such judicial
equity power. This serves to emphasize that in this contest I
have been called upon, not to determine equities, but to construe
a Congressional enactment, processes which unfortunately do not
necessarily lead to the same result. Haller v. Esperdy, 397 F.2d 211
(2d Cir. 1968). In short, this court’s equitable jurisdiction
is not robust enough to amplify a jurisdiction severely limited
by the plain language of recent enactment.

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