                                                                                                                           Opinions of the United
2003 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-25-2003

In Re Optel Inc
Precedential or Non-Precedential: Non-Precedential

Docket 02-2121




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Recommended Citation
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                                                                    NOT PRECEDENTIAL

                            UNITED STATES COURT OF APPEALS
                                 FOR THE THIRD CIRCUIT
                                      ___________


                                           No. 02-2121
                                           ___________


                                  IN RE: OPTEL, INC., ET AL.


                     NATIONWIDE MUTUAL INSURANCE COMPANY
                                          Appellant
                                                 v.

                                       OPTEL, INC., ET AL.
                                                         Appellees
                                            ___________
                          On Appeal from the United States District Court
                                     for the District of Delaware
                                            (99-CV-3951)
                          District Judge: The Honorable Sue L. Robinson
                                            ___________


                                      Argued: January 14, 2003


                    Before: ROTH, FUENTES and ALDISERT, Circuit Judges
                               (Opinion Filed: March 25, 2003)
                                       ___________

C. Paul Scheuritzel (Argued)
Marvin, Larsson, Henkin & Scheuritzel
Centre Square West, Suite 3510
Philadelphia, PA 191902

             Attorney for Appellant
James A. Beldner
Richard S. Kanowitz (Argued)
Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036-7798

Brendan Linehan Shannon
Young Conaway Stargatt & Taylor, LLP
The Brandywine Building
1000 West Street, 17th Floor
Wilmington, Delaware 19899

               Attorneys for Appellees




                                     ________________________

                                      OPINION OF THE COURT
                                     ________________________

FUENTES, Circuit Judge:

        Appellant Nationwide Mutual Insurance Company appeals the District Court’s order

granting Debtors’ objection to its proof of claim.      Nationwide contends that the Agreement of

Sale underlying its proof of claim includes a deferred payment that may be paid at once in a

lump sum of $6 million or deferred and paid over time in which case it becomes $10 million.

Nationwide argues that inasmuch as it has not received a lump sum cash payment, it is entitled

to the larger sum.    Because we agree with the District Court that appellant’s claim should be

valued at $6 million, we affirm.

                                   I. Facts and Procedural Background

        The factual allegations underlying this case are well known to the parties, and therefore,

                                                  -2-
they are not detailed here, except to the extent that they directly bear upon the analysis. By

Agreement of Sale dated July 6, 1994, Nationwide Communications, Inc., the predecessor to

appellant Nationwide Mutual Insurance Company, sold certain satellite and cable television

assets to Vanguard Communications, L.P. and TVMAX Communications (Texas), Inc. At or

about the time of closing, Vanguard assigned all of its rights and delegated its obligations to

OpTel, Inc., the parent of TVMAX. The Agreement of Sale provides for a purchase price in the

amount of $15 million to be paid to Nationwide on the closing date and for a deferred payment,

which is a function of operating revenues generated by the assets, to be paid later (the

“Deferred Payment”). The Deferred Payment was to be no less than $6 million and no more

than $10 million, depending on the Debtors’ financial performance.             Agreement of Sale §

2(a)(ii), App. at 480. The parties agree that, based on the Debtors’ financial performance, the

Deferred Payment came to $6 million. The Agreement of Sale further provides:

               The Deferred Payment shall be the joint and several obligation of
               both [TVMAX] and [OpTel] and shall become due and payable at
               [Nationwide’s] request, which request may be made only
               following either (i) the conclusion of [TVMAX’s] fifth or sixth
               full fiscal year following the Closing Date [January 11, 1995]
               (each a “Scheduled Triggering Date”) or (ii) the date of sale or
               other disposition of a majority of the Assets or a majority of the
               outstanding voting capital stock of [TVMAX] to a third party who
               is not an affiliate of [TVMAX] (an “Asset Disposition”).

Agreement of Sale § 2(b)(i), App. at 481. The Agreement of Sale also provides that

               Nationwide may exercise its right to receive the Deferred
               Payment by delivering written notice to [TVMAX] and [OpTel]
               within ninety (90) calendar days after (x) [TXMAX’s] issuance of
               its financial statements for the fiscal year ending on the
               applicable Scheduled Triggering Date (and [TVMAX] hereby

                                                -3-
               agrees to issue such statements not later than one hundred twenty
               (120) calendar days after the end of each fiscal year) or (y) the
               Asset Disposition date (in either event, the “Notice Period”).
               [TVMAX] or [OpTel] shall make the Deferred Payment within
               forty-five (45) calendar days of receiving the foregoing notice
               from [Nationwide].

Agreement of Sale § 2(b)(i), App. at 481-82.

       On October 28, 1999, before the Deferred Payment was due, OpTel, Inc. and its

subsidiaries and affiliates, including TXMAX Communications (Texas), Inc. [collectively the

“Debtors”], filed voluntary petitions for reorganization pursuant to Chapter 11 of the

Bankruptcy Code. On July 13, 2000, Nationwide filed two identical proofs of claim for $6

million - $10 million, based on the Agreement of Sale, one against TVMAX and one against

OpTel, its parent.   On May 3, 2001, Nationwide filed a motion for relief from stay.   In its

motion, Nationwide asserted that TVMAX had failed to provide the required financial

statements to Nationwide for fiscal year 1999 and fiscal year 2000 and that neither TVMAX

nor OpTel had paid the Deferred Payment. Nationwide directed the District Court’s attention

to the provision of the Agreement of Sale which provides its remedy in the event that the

Deferred Payment was not made when due. The Agreement of Sale provides, in pertinent part:

               If [TVMAX] or [Optel] fails to make the Deferred Payment when
               it is payable pursuant to Sections 2(b)(i) and (ii) [which provide,
               respectively, when and how much payment is due] above, then
               [Nationwide] shall have the right, in lieu of any other remedy that
               would otherwise exist as a result of such failure, to demand that
               [TVMAX] execute and deliver to [Nationwide] a promissory note
               in the form of Exhibit “E” hereto (the “Note”) in an amount equal
               to the greater of (X) $10 million or (Y) the sum of the Deferred
               Payment calculated in accordance with Section 2(b)(ii) above
               plus $3 million.    The Note shall be guaranteed by [OpTel]

                                               -4-
                pursuant to a guaranty in the form of Exhibit “F” hereto (the
                “Guaranty”).

Agreement of Sale § 2(b)(iii), App. at 484-85.          In its motion, Nationwide asked the Court to

modify the automatic stay and treat its motion for relief from stay as a request that the Debtors

make the Deferred Payment.        The Debtors opposed the motion.         Ultimately, Nationwide and

the Debtors agreed to defer the Motion.

          On December 4, 2001, the Court confirmed the Debtors’ plan of reorganization.

Among other things, the plan substantively consolidated the Debtors’ estates.              The Court

reserved certain issues, including the treatment of Nationwide’s claim, for a hearing conducted

on March 28, 2002.        Prior to the hearing, the Debtors filed an objection to Nationwide’s

claims.    In their objection, Debtors    asked the court to expunge Claim number 1783, which

Nationwide had filed against OpTel, on the basis that it was duplicative of Claim number 1797,

which Nationwide had filed against TVMAX, in light of the substantive consolidation of the

estates of OpTel and TVMAX.           Additionally, the Debtors asserted that      Nationwide’s claim

arose pre-petition and that its value must be based on the amount of the claim as of the petition

date. The Debtors argued:

                Notwithstanding Nationwide’s contentions, Nationwide’s Claim
                number 1797 arose pre-petition, and its value must be based on
                the amount of the claim as of the Petition Date. Pursuant to 11
                U.S.C. § 362, the filing of a voluntary bankruptcy petition
                “operates as a stay, applicable to all entities, of . . . [an] action or
                proceeding . . . to recover a claim against the debtor that arose
                before the commencement of the case”. Thus, Debtors’ filing of
                a voluntary petition froze the claim at its amount as of the
                petition date, i.e. $6,000,000, based on the fact that the requisite
                amount of time had not passed since the closing date of January

                                                  -5-
               11, 1995.     That events triggering the $10,000,000 provision
               might have occurred absent the stay is irrelevant, as the claim
               amount is frozen at the amount as of the Debtors’ filing of the
               petition.

Debtors’ Objection to Claims of Nationwide, App. at 562.               In response, Nationwide

acknowledged that it was only entitled to one recovery.       Nationwide asserted that it was,

however, entitled to a claim in the amount of $10 million because the Agreement of Sale

provided that, in the event that the Debtors did not choose to make a lump sum payment, they

were obligated to pay Nationwide $10 million over time in accordance with the terms of the

note.

        Nationwide further asserted that the Agreement of Sale provided that Texas law governs

the interpretation of their contract and that, under Texas law, the provision requiring a larger

payment if the Debtors failed to make a lump sum payment was enforceable, and should be

enforced by the Court.       Finally, Nationwide asserted that the Debtors’ reliance on the

automatic stay provisions of 11 U.S.C. § 362 was misplaced because events giving rise to an

enforceable obligation could occur while the automatic stay is in effect and “the automatic stay

is no impediment to a mere calculation of Nationwide’s claim in this matter.”       Response of

Nationwide to Debtors’ Objection to Claims, App. at 752.

        The District Court concluded, after hearing arguments of counsel, that Nationwide was

entitled to a claim in the amount of $6 million. The court reasoned that, as of the petition date,

there was an obligation to pay $6 million and the fact that a bankruptcy intervened, which made

the Debtors unable to make a lump sum payment timely, should not affect the amount of the



                                               -6-
claim.   As a result, Nationwide’s received, pursuant to the Debtors’ plan of reorganization, a

distribution equal to one share of stock in the reorganized entity for each $100 of its $6

million claim. Nationwide timely filed a Notice of Appeal.

                                 II. Jurisdiction and Standard of Review

         The District Court exercised jurisdiction over this matter under 28 U.S.C. § 1334. We

have appellate jurisdiction under 28 U.S.C. § 1291.

         We accept the District Court’s finding of historical facts unless they are clearly

erroneous, but we exercise “plenary review of the trial court's choice and interpretation of

legal precepts and its application of those precepts to the historical facts.” Mellon Bank, N.A.

v. Metro Communications, Inc., 945 F.2d 635, 642 (quoting Universal Minerals, Inc. v. C.A.

Hughes & Co., 669 F.2d 98, 101-02 (3d Cir. 1981)). In this case, the facts are not in dispute.

Therefore, we exercise plenary review of how to construe the Agreement of Sale which

underlies appellant’s claim, in light of the Debtors’ bankruptcy.

                                                III. Discussion

         Nationwide asserts that the District Court erred by allowing its claim in the amount of

$6 million rather than $10 million. Nationwide argues that, because the Debtors chose to give

it stock in the reorganized entity on account of its claim under the plan of reorganization rather

than making a $6 million lump sum cash payment, it is entitled to a claim in the amount of $10

million. Nationwide argues that this is so because, upon the failure of the Debtors to make a

lump sum payment, the unambiguous terms of the Agreement of Sale became self-operative,

requiring the issuance of a $10 million note.

                                                     -7-
       The Debtors assert in response that Nationwide’s claim was fixed at the amount of $

6 million upon the filing of their bankruptcy petitions because the automatic stay then went

into effect. Once the automatic stay was operative, its effect was to prohibit Nationwide from

seeking to collect on its claim.   The Debtors pointed out at oral argument that Nationwide did

not obtain relief from the automatic stay and was therefore unable to make a request for the

Deferred Payment, which is the contractual trigger for the Debtors’ obligation to make the

Deferred Payment.         In essence, the Debtors argue that the commencement of bankruptcy

proceedings resulted in Nationwide being unable to seek to collect its claim and the Debtors

being unable to choose to make a $6 million lump sum payment. Therefore, the Debtors argue,

the District Court correctly allowed Nationwide’s claim in the amount of $6 million.           We

agree with the Debtors.

       According to the Agreement of Sale, the Deferred Payment was not due until either the

conclusion of TVMAX’s fifth or sixth full fiscal year following the closing date (January 11,

1995), or upon the disposition of a majority of the transferred assets or a majority of the

outstanding voting capital stock of TVMAX to a third party who was not its affiliate.          The

parties agree that none of these events occurred prior to the Debtors’ October 28, 1999

bankruptcy filing.   It is also undisputed that Nationwide did not provide notice, as required

pursuant to section § 2(b)(i) of the Agreement of Sale, that it was exercising its right to receive

the Deferred Payment.

       Although, pursuant to the provisions of the Agreement of Sale, the Deferred Payment

was not due at the time that the Debtors sought Chapter 11 relief, the debt owed to Nationwide

                                               -8-
by the Debtors was accelerated by operation of law by the filing of the Debtors’ bankruptcy

petitions.   See In re Auto International Refrigeration, 275 B.R. 789, 813 (Bankr. N.D. Tex.

2002); In re Payless Cashways, Inc., 287 B.R. 482, 488 (Bankr. W.D. Mo. 2002);              In re

Manville Forest Products Corp., 43 B.R. 293, 297 (Bankr. S.D.N.Y. 1984). As the Bankruptcy

Court explained in Manville,

                 It is a basic tenet of the Bankruptcy Code that “[b]ankruptcy
                 operates as the acceleration of the principal amount of all claims
                 against the debtor.” In re Tonyan Construction Company, Inc., 28
                 B.R. 714, 727 (Bankr. N.D. Ill. 1983); In re Princess Baking
                 Corporation, 5 B.R. 587, 590 (Bankr. S.D. Ca. 1980). See also
                 In re Johns-Manville Corp., 36 B.R. 727, 740 (Bankr. S.D.N.Y.
                 1984), Guarantee Trust Co. of New York v. Henwood, 86 F.2d
                 347, 351 (8th Cir. 1936). This tenet follows logically from the
                 expansive Code definition of “claim”, which allows any claim to
                 be asserted against the debtor, regardless of whether such claim
                 is “reduced to judgment, liquidated, unliquidated, fixed,
                 contingent, matured, unmatured, disputed [or] undisputed . . . .” 11
                 U.S.C. § 101(4)(A), and from the Code’s provision in Section
                 502 that a claim will be allowed in bankruptcy regardless of its
                 contingent or unmatured status. Such contingent or unmatured
                 claims may be asserted against the debtor despite the provisions
                 of section 362(a)(6), which stays “any act to collect, assess, or
                 recover a claim against the debtor that arose before the filing of
                 the Chapter 11 petition.” 11 U.S.C. § 362(a)(6).

                 Construing these code provisions together allows a creditor to
                 file a claim for the full amount of an unmatured debt owed by the
                 debtor despite the fact that the creditor is prevented, under
                 Section 362 of the Code, from taking any steps to enforce that
                 claim.

Id. at 297-98.      Accordingly, Nationwide was acting within its rights when it filed a claim for

$6 million - $10 million.      While Nationwide was able to assert a claim for the Deferred

Payment although its right to payment had not matured by the petition date, due to the

                                                 -9-
operation of the automatic stay it was not able to take any steps to increase its recovery under

the Agreement of Sale. See In re PCH Associates, 122 B.R. 181, 198 (Bankr. S.D.N.Y. 1990)

(citing In re Texaco, 73 B.R. 960, 966 and Manville, 43 B.R. at 297-98) (there is a distinction

between “acceleration of a debt upon the filing of the bankruptcy petition for the purpose of

the filing of a proof of claim . . . and acceleration for the purpose of taking actions against a

debtor in violation of the automatic stay.”); see also In re Metro Square, No. 4-88-2117, 1988

WL 86679, at *2 (Bankr. D. Minn. Aug. 10, 1988) (“A creditor is allowed to file a claim for

the full amount of an unmatured debt owed by the debtor however, under 11 U.S.C. § 362, the

creditor is prevented from taking overt steps to accelerate the debt, including sending notices

of default.”).

        The Debtors correctly assert that, by virtue of the automatic stay, Nationwide’s claim

was “frozen” in the amount of $6 million. Because Nationwide did not obtain relief from the

automatic stay, it was unable to give notice, as required pursuant to section § 2(b)(i) of the

Agreement of Sale, that it was exercising its right to receive the Deferred Payment.         We

therefore affirm the District Court’s determination that Nationwide is to receive a distribution

on account of its claim in the amount of $6 million.

                                              IV. Conclusion

        After carefully considering the arguments discussed above and all other arguments

advanced by the appellant in support of its assertion that the District Court erred by not

allowing it a claim in the amount of $10 million, we affirm the District Court’s decision.




                                                   -10-
_____________________________

TO THE CLERK OF THE COURT:




Kindly file the foregoing Opinion.

                                            By the Court,

                                            /s/ Julio M. Fuentes

                                            Circuit Judge




                                     -11-
