## Facts

- Jartran, Inc., a nationwide truck rental and leasing company, filed a Chapter 11 petition in 1981.
- A reorganization plan was confirmed on September 29, 1984 and was substantially consummated.
- After confirmation, Fruehauf Corporation continued leasing equipment to the reorganized Jartran and held claims addressed by the confirmed plan.
- On March 4, 1986, Jartran filed a second Chapter 11 petition intending to liquidate the reorganized business.
- Fruehauf moved to dismiss the second case or convert it to Chapter 7, asserting the second filing improperly altered rights fixed by the confirmed plan.
- Alternatively, Fruehauf sought administrative expense priority in the second case based on obligations and protections arising from the first plan and related leases.
- The bankruptcy court denied dismissal/conversion and rejected automatic administrative priority; the district court affirmed.
- On appeal, the court of appeals determined it had jurisdiction under 28 U.S.C. § 158(d) and reached the merits.

## Issues

1. Whether a debtor whose prior Chapter 11 plan has been confirmed and substantially consummated may file a second Chapter 11 case to liquidate, or whether such a “serial” filing should be dismissed or converted for cause.
2. Whether a creditor’s claims arising from a prior confirmed plan and related post-confirmation dealings are automatically entitled to administrative expense priority in the second Chapter 11 case.
3. Whether claim priority in the second case should be determined by reference to a hypothetical conversion of the first case to Chapter 7 and the operation of 11 U.S.C. § 365(g).

## Decision

- The court affirmed the district court’s order affirming the bankruptcy court.
- The Bankruptcy Code does not impose a per se bar on a second Chapter 11 filing after confirmation and substantial consummation of a prior plan.
- The permissibility of a serial Chapter 11 filing turns on statutory standards (including 11 U.S.C. § 1112) and, in particular, whether the filing is in good faith rather than abusive.
- Fruehauf was not automatically entitled to administrative expense priority in the second case based on protections or obligations contained in the first confirmed plan or related lease arrangements.
- Administrative expense status in the second case required satisfaction of 11 U.S.C. § 503(b) based on benefit to the second estate, not carryover treatment from the first case.
- Priority outcomes based on a counterfactual Chapter 7 conversion of the first case did not control the analysis of the second Chapter 11 case.

## Legal Principles

- A debtor may file a second Chapter 11 petition after a prior plan has been confirmed and substantially consummated; there is no categorical statutory prohibition on serial Chapter 11 cases.
- A serial filing may still be dismissed or converted for cause under 11 U.S.C. § 1112 if it is undertaken in bad faith or constitutes an abuse of the bankruptcy process.
- Administrative expenses under 11 U.S.C. § 503(b) are limited to “actual, necessary” costs of preserving the estate and generally require a direct and substantial benefit to the estate in the case where priority is sought.
- Rights or protections granted under a prior confirmed plan do not, by themselves, confer administrative expense priority in a later bankruptcy case.
- A second Chapter 11 case is a distinct proceeding with its own estate and priority analysis; hypothetical outcomes under different procedural choices in an earlier case do not determine priorities in the later case.

## Conclusion

The Seventh Circuit held that a liquidating Chapter 11 filed after confirmation and substantial consummation of an earlier Chapter 11 plan is permissible absent bad faith or other cause for dismissal or conversion, and that a creditor cannot obtain automatic administrative expense priority in the later case merely from obligations or protections established in the earlier confirmed plan.


In re Jartran, Inc., 886 F.2d 859 (7th Cir. 1989)