DEBTOR CASE NO. 92-21467



This matter is before the Court to resolve the question of whether the remainder of the proceeds of the sale of the debtor=s assets should be paid to the Class 5 claimants under the debtor=s confirmed Chapter 11 Plan, the City of Covington and Kenton County. This Court has previously issued a Memorandum Opinion and Order awarding the trustee a fee and expenses, as well as the payment of an accountant=s fee, from these proceeds as Chapter 7 administrative expenses. (This case converted to a Chapter 7.) The Class 5 claimants and the Class 6 claimants, the Co-Trustees Under Covington Landing Unsecured Creditors= Trust (Athe Co-Trustees@), both claim the remainder of the proceeds in the amount of $21,010.25.

In its prior Memorandum Opinion this Court had set out that the Co-Trustees filed an Application .... for Distribution of Proceeds of Sale of Debtor=s Assets on June 30, 1998. There they contended that the entire $35,000.00 in proceeds should be distributed to them pursuant to the terms of the debtor=s Plan. Under the Plan, unsecured creditors= claims were denominated AClass 6 Claims.@ Paragraph 3.7 of the Plan provided that Class 6 Claims would be satisfied by a cash distribution, and certain notes. To secure those notes, and the interest on them, the Class 6 creditors were granted a valid and perfected security interest in and lien against all the debtor=s assets which is, by the terms of Section 3.7 of the confirmed plan, subordinate to A...all existing security interests in and liens against such assets.@ Further the plan called for payments to the Class 5 claimants to start before the payments to Class 6 and to be completed while the Class 6 claims were still being paid in installments. The Co-Trustees argue their interest in the sale proceeds is prior and superior to any other party=s.

The prior Memorandum Opinion further set out that the First Amended Plan of Reorganization (Athe Plan@) was confirmed in the Chapter 11 case on January 5, 1994. The Confirmation Order has never been set aside or overturned, and pursuant to the great weight of authority is res judicata in this case. In In re Chattanooga Wholesale Antiques, Inc., 930 F.2d 458 (6th Cir. 1991), the court was dealing with a Chapter 11 case that had been converted to a Chapter 7, and in considering whether the Chapter 7 trustee could take certain actions stated:

Confirmation of a plan of reorganization by the bankruptcy court has the effect of a judgment by the district court and res judicata principles bar relitigation of any issues raised or that could have been raised in the confirmation proceedings.

At 463. See also In re Pierce Packing Co., 169 B.R. 421 (Bkrtcy.D.Mont. 1994), and In re Laing, 146 B.R. 482 (Bkrtcy.N.D.Okl. 1992).

It is clear, therefore, that the Class 5 claims should be satisfied before the Class 6 claims, if their claims conform to the terms of the Plan. In that regard, this Court, in its Order of March 17, 1999 required the trustee to file a supplemental memorandum, with accompanying affidavits, which was to set out that the sums claimed by the City of Covington and Kenton County were for pre-petition personal property taxes, and that the sums included neither interest nor penalties. Those affidavits have been filed. They show that the City of Covington is owed $31,310.84 and Kenton County is owed $331,694.97 in unpaid pre-petition personal property taxes without interest or penalties. These unpaid claims are Class 5 claims.

In consideration of all of the foregoing, it is the opinion of this Court that the Co-Trustees= Application .... for Distribution of Proceeds of Sale of Debtor=s Assets should be overruled as to the remaining $21,010.25, and that this amount should be distributed to the City of Covington and Kenton County in accordance with the terms of the confirmed plan. An order in conformity with this opinion will be entered separately.


By the Court -




Copies to:

Charles L.J. Freihofer, Esq., Trustee

Jack J. Defevers, Esq.

Dennis R. Williams, Esq.

Paul J. Vesper, Esq.

U.S. Trustee