In the Matter of Jartran, Inc.

Jartran, Inc. (debtor), a company that rented trucks, filed a Chapter 11 bankruptcy petition. Jartran’s reorganization plan (first plan) was confirmed. Fruehauf Corporation (creditor) leased substantial amounts of equipment to the reorganized Jartran. Had the reorganization been converted into a Chapter 7 liquidation proceeding, the priority of Fruehauf’s claims would have been determined partly by United States Bankruptcy Code (code) § 365(g). Section 365(g) provided that reorganizations converted into Chapter 7 liquidations entitled creditors to damages for breach of contract should the debtor reject a lease, because the rejection would be treated as a breach of contract. About a year and a half after the first plan was confirmed, Jartran filed a second Chapter 11 petition and a new reorganization plan (second plan). Under the second plan, Jartran would be liquidated. Fruehauf objected to the second filing because confirmation of the second plan would alter the priority of its claims. The bankruptcy court found that Jartran’s second plan was proposed in good faith because Jartran had discovered it could not continue operating. The court ruled that the code allowed serial Chapter 11 filings. Fruehauf also argued that its claims should be converted to first-priority administrative expenses under the second plan