1.  PROCEDURE - A hearing was held on January 6, 1994,

concerning the entry of a final decree in this case under FRBP 3022 and the validity or enforceability of the post-confirmation, out-of-court compromise of the claims of a majority of the creditors in Class 9, the general unsecured class, by the debtor, Martinson Gravel and Crane, Inc. (MGCI).

Three issues were on the agenda for the January 6, 1994, hearing: (a) whether it was appropriate for debtor to make these compromises without proceeding under § 1127 of the Bankruptcy Code regarding modification of a confirmed plan; (b) whether the case was "substantially consummated" under § 1101(2) of the Bankruptcy Code, making modification unavailable in any event; and (c) what effect the Court should give to MGCI's compromise of these various claims if the compromises were made after substantial consummation or without regard to whether or not substantial consummation had been achieved.

I have reviewed the declaration of Judy Martinson for MGCI prepared for the January 6, 1994, hearing, and the prior testimony in a proceeding involving the attorney fees of special counsel. I have also reviewed the briefs of the debtor and U.S. Trustee, and heard argument from those parties and the Small Business Administration. I conclude that: (a) the plan had not been substantially consummated at the time debtor compromised the claims of a majority of Class 9 creditors, but this is not a factor in the result; (b) the information disseminated by MGCI to convince creditors to agree to the compromise proved to be materially inaccurate or misleading; and (c) in the context of this case, the compromises should not be enforceable. Therefore, an order will be entered that the compromises MGCI obtained from various Class 9 creditors are not enforceable, and that the full claims represented by the notes issued under the confirmed plan, less any payments, still remain due and payable.

     2. FACTS -

     2.1.  Events Leading Up To Chapter 11 - MGCI is a heavy construction contractor based in Nome, Alaska. In 1989, it had undertaken a job to provide materials for the Nome airport expansion as a sub-contractor to the general contractor, Wilder Construction. The State of Alaska was owner of the project.

A dispute arose with Wilder and the State about MGCI's performance. MGCI felt it had a substantial claim for damages against Wilder and/or the State of Alaska. The financial strain from the Wilder contract led to MGCI's chapter 11 filing on November 30, 1989.

William Artus succeeded the attorney who filed the petition for MGCI, and was MGCI's bankruptcy attorney from relatively early in the       3 ABR 333  case.

     2.2.  MGCI's Plan And Disclosure Statement - MGCI filed a plan and disclosure statement based on the projection that it would pay it's creditors in full. Creditors in Class 9, the general unsecured creditor class, were to be paid the allowed amount of their claims with interest at 10½% from the proceeds of a successful litigation with Wilder and the State. The plan provided that, if the settlement or litigation proceeds were not sufficient, debtor would pay the balance of creditors' claims by liquidating equipment owned by MGCI. The Second Amended Plan containing these terms was confirmed on August 29, 1991.

     2.3.  Construction Litigation And Settlement With Wilder And The State - In May, 1990, after the chapter 11 petition was filed, Walter Garretson was retained as special counsel for MGCI to prosecute the construction contract dispute with Wilder and the State of Alaska on a one-third contingency fee arrangement. He filed a multi-million dollar lawsuit against Wilder and the State of Alaska in the Superior Court in Nome in the summer of 1990.

The trial of the case against Wilder and the State was set for January, 1992, in the Superior Court at Nome. A settlement conference was scheduled in Anchorage for November 16, 1991, before the Honorable Karen Hunt, Superior Court Judge.

Judy Martinson, one of the debtor's principals, attended the settlement conference. On that day, there developed a breakdown in communications and the attorney-client relationship between her and MGCI's construction attorney, Walter Garretson. Late on November 16, 1991, she reluctantly approved a settlement of the lawsuit.

The case was settled for $689,000 in cash payable to MGCI, plus other consideration in the form of equipment given to MGCI (which it considered of minimal value) and concessions from MGCI's bonding company on the amount of its subrogated claim against Wilder and the State. Garretson also agreed to compromise some of his attorney fees.

     2.4. Problems Caused By The Unexpected Shortfall To Cover All Payments Under The Plan And MGCI's Solicitation Of Compromises - The $689,000.00 in cash from the settlement was insufficient to pay the full amount of the claims of the general unsecured creditors who were grouped in Class 9 under the confirmed plan. There was enough for about a two-       3 ABR 334  thirds prorated payment.

Judy Martinson had misgivings about the settlement even as she approved it on November 16, 1991. She discussed the matter with her bankruptcy attorney, William Artus, on about November 18, 1992, to see if she could back out. Mr. Garretson advised her at about that time that it would be very unlikely that MGCI could back out of the settlement, and that the settlement could be enforced by Wilder and the State.

MGCI discharged Garretson as its construction litigation attorney and retained the firm of Wade & DeYoung which represented MGCI both in its dispute with Garretson and concerning the construction litigation from about the beginning of 1992.

In February, 1992, Jerry Wade (as attorney for MGCI) and Paul Koval (as attorney for Garretson) asked for an in-camera hearing. MGCI was objecting to Garretson's contingent fee claim. One of the problems discussed at the in-camera hearing was that Garretson would not finalize the settlement papers because he was being threatened with a malpractice suit by MGCI. MGCI, through Wade, indicated MGCI intended to go through with the settlement and that there was little chance of avoiding the enforcement of the November 16, 1991, settlement agreement.

I was under the impression that confidentiality was being sought by Wilder and/or the State of Alaska, but it proved that it was MGCI that wanted confidentiality because they thought that, if the news hit the street in Nome that there had been a settlement, the creditors would be at MGCI's door demanding their money. When I learned that it was the debtor's request that the matter be kept confidential, I opened the proceedings and required the debtor to file a declaration as to all the settlement negotiations that it had undertaken.

The paperwork to finalize the settlement of the state court litigation was completed sometime in February, 1992, by Jerry Wade for MGCI and the attorneys for Wilder and the State. The $689,000.00 in funds pursuant to the settlement agreement was paid to or for the benefit of MGCI.

On November 26, 1991 (10 days after the settlement conference in which MGCI agreed to a settlement of the lawsuit which encompassed a $689,000 cash payment), William Artus, bankruptcy attorney for the debtor, wrote a letter to creditors indicating that a settlement had been       3 ABR 335  reached, but that it was contingent upon the creditors, principally Class 9 creditors, the general unsecured class, accepting a compromise of about 65% of their payment. Class 9 was entitled to the full amount of their claim, plus a 10½% accruing interest. A copy of Artus's November 26, 1991, letter is attached as Exhibit "A".

Based on the evidence introduced during the hearings in the last half of 1992, involving Walt Garretson's fee application, and the declaration of Judy Martinson filed on December 28, 1993, (Docket Entry No. 444), I find that the settlement was not contingent upon the creditors in Class 9 accepting a compromise as represented to the creditors by MGCI. That is, the die had already been cast and the creditors in Class 9 would have been entitled to about 65% of the residual cash from the settlement in any event. Therefore, the letter of November 26, 1991, proved to be inaccurate insofar as it indicated that acceptance of the settlement was contingent on the Class 9 creditors accepting about 65% of their allowed claims.

At the January 6, 1994, hearings, Mr. Artus stated that he thought the settlement was still contingent on November 16, 1991, since MGCI's bonding company still had to approve certain compromises. I recall the testimony on that subject at the Garretson fee application hearings to be to the contrary; the bonding company had made concessions on November 16, 1991, which was part of the settlement.

MGCI might have still held on to the unrealistic belief on November 26, 1991 (10 days after the settlement conference), that the settlement of the state court lawsuit could be rescinded. Nonetheless, Mr. Garretson, before November 26, 1991, indicated that it was unlikely, and Jerry Wade later advised MGCI to the same effect in late 1991 or early 1992. Therefore, the letter of November 26, 1991, was at the very least inaccurate in hindsight. The inaccuracy or misleading character of the information was never corrected, and the creditors in Class 9 were paid a total of $171,130.39 when, at that time, they were owed $292,749.66. That is, about 58%. See, Exhibit "B". Thus, Class 9 creditors were shorted $121,619.27.

     3. LEGAL ANALYSIS -

     3.1.  Was The Plan "Substantially Consummated?" - § 1101(2) of the Bankruptcy Code provides:

Section 1101. Definitions for this chapter
In this chapter -
(1) . . . ;

(2) "substantial consummation" means-



(A) transfer of all or substantially all of the property proposed by the plan to be transferred;

(B) assumption by the debtor or by the successor to the debtor under the plan of the business or of the management of all or substantially all of the property dealt with by the plan; and

(C) commencement of distribution under the plan.

One of the main questions discussed at the January 6, 1994, hearing in this case was whether, before MGCI entered the compromise and made the disbursement to Class 9 creditors shown on Exhibit "B", the plan was "substantially consummated". Before substantial consummation, a plan can be modified, § 1127(b) of the Bankruptcy Code. Afterward, it cannot. In re Jorgensen, 66 BR 104 (9th Cir BAP 1986); In re Joint Eastern and Southern Dist. Asbestos Litigation, 982 F2d 721, 745 (2nd Cir 1992); and, In re Stevenson, 148 BR 592, 596 (Bankr D Ida 1992).

The weight of authority is that substantial consummation occurs with respect to distributions when the distributions begin, not when the majority of them are made. See, In re Fansal Shoe Corp., 119 BR 28, 30 (Bankr SDNY 1990). However, the Ninth Circuit appears to be in the minority on this issue. See, In re Jorgensen, 66 BR at 106-7 ("substantial consummation" turns on the facts of each case; "[t]he word 'substantial' suggests more than halfway, more than a mere preponderance.")

Soon after confirmation, MGCI had, according to Judy Martinson's declaration, made $106,498.83 in distributions to various creditors, mostly secured and none in Class 9. However this was much less than 50% of the total of distributions called for under the plan.

Disbursements totalling $171,130.39 were made in February, 1992, to Class 9 creditors. Thus, under Jorgenson, the plan was not substantially consummated and still subject to modification when MGCI entered into the informal compromises.

           3 ABR 337  3.2.  Did Debtor Have To Comply With § 1127 Of The Bankruptcy Code Before Entering Into the Compromises of Class 9 Claims? - MGCI states that it was not seeking to modify the plan, but just seeking to enter a number of separate deals with Class 9 creditors. The creditors could choose to accept or reject the proposed settlement of accepting 65% of their claims in full settlement of MGCI's obligation under the confirmed plan.

Was MGCI required to seek formal modification before disseminating information to convince Class 9 creditors to compromise? Had debtor sought to modify the confirmed plan before substantial consummation, it would have had to comply with the disclosure statement requirements under § 1125 of the Bankruptcy Code. In re Downtown Investment Club III, 89 BR 59, 61-63 (9th Circuit BAP 1988). Thus, had MGCI sought to modify its confirmed plan, it would have had to make disclosure that the settlement was already completed, and that there was no advantage to Class 9 creditors compromising their claim for about 65%.

Should MGCI be allowed to enforce the compromise which was accepted by most of the Class 9 creditors if it was solicited by MGCI based on faulty information given to the creditors? In effect, MGCI accomplished a de facto modification without a disclosure statement by virtue of inaccurate or misleading information.

Notwithstanding, I am reluctant to imply a modification under § 1127 where MGCI did not seek one. See In re Hunt, 124 BR 200, 207-8 (ND Tex 1991) (court declined to find a "constructive" modification). MGCI claims any one of the Class 9 creditors could have refused to accept the proposed compromise and retained their claims under the confirmed plan. Indeed, a small group did. See, Exhibit "B".

Thus, since MGCI has not sought a formal modification of its confirmed plan, it did not violate § 1127 of the Bankruptcy Code, even if it misrepresented the facts to obtain compromises of its confirmed plan.

     3.3.  Does The Court Have Authority Under § 105 Of The Bankruptcy Code To Bar Enforcement Of The Compromises Obtained Through Misrepresentation? - The inquiry is not ended merely because MGCI solicited the Class 9 compromises without seeking to formally modify the confirmed plan. The court has a general equitable authority under § 105       3 ABR 338  of the Bankruptcy Code which provides:

§ 105. Power of court

(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.

The rights of Class 9 creditors were defined by the confirmed plan. The confirmed plan becomes the new contract between the creditor and the reorganized debtor. 11 USC § 1141; In re Orange Tree Associates, Ltd., 961 F2d 1445, 1449 (9th Cir 1992); In re Heritage Hotel Partnership I, 160 BR 374, 377 (9th Cir BAP 1993); In re Grimes, 117 BR 531, 536 (9th Cir BAP 1990). If there is nonpayment under the plan, the creditors rights are to enforce the new contract. In re Curry, 99 BR 409 (Bankr CD Ill 1989).

MGCI argues that the court has no jurisdiction to address this situation, citing In re Pettibone Corp., 935 F2d 120, 121 (7th Cir 1991). I agree that, at some point, the case must be cut loose from the bankruptcy process. In re Callan, 2 ABR 355, 358 (Bankr D AK 1992) (declining to decide a post-confirmation tax issue, even if an adverse ruling would hinder debtors' performance of their confirmed plan).

I also agree that the bankruptcy court has no roving license to "do equity." In re Jacksen, 105 BR 542, 544 (9th Cir BAP 1989).

A bankruptcy court, however, does retain a residual of jurisdiction, even without specific retention by the plan, to interpret the plan and rule on fundamental questions regarding its administration. In re Cinderella Clothing Industries, Inc., 93 BR 373, 377 (Bankr ED Pa 1988); In re Lake Grady Road & Bridge Dist., 119 BR 853, 856 (Bankr MD Fla 1990); In re Johns-Mansville Corp, 97 BR 174, 180 (Bankr SDNY 1989) [even without specific retention provisions in plan, jurisdiction in court continues post-confirmation as to fundamental questions of interpretation and administration of the plan, citing Shores v Hendy Realization Co., 133 F2d 738 (9th Cir 1943)].

The power given a court under § 105 should only be used where       3 ABR 339  substantial justice requires its use. In re Dunckle Associates, Inc., 19 BR 481, 485 (Bankr ED Pa 1982). I believe this is an appropriate occasion to invoke § 105(a).

Like many bankruptcy situations, this is not subject to a black or white distinction. I have to determine what shade of gray is involved. If, for example, a debtor had forged a post-confirmation court order to hoodwink creditors into believing they were required to compromise their confirmed claims, few would doubt a bankruptcy court's jurisdiction to remedy such an abuse. On the other hand, if a post-confirmation event causes an unforeseen problem with consummating the plan, the court might well determine it lacks jurisdiction along the lines set forth in Pettibone and Callan.

In the present case, I feel that MGCI has been less than honest with its creditors. It even convinced the court of a need for in-camera hearings and secrecy when there was not legitimate reason except to keep information out of the hands of creditors. At a time when the creditors were entitled to receive about a 65% dividend even without a compromise, they were misled into believing that payment of the dividend depended on waiver of their remaining claims. Their various agreements to waive the balance is sufficient proof of reliance on the misrepresentation. MGCI should not be allowed to get away with this.

MGCI argues that each Class 9 claimant should be required to seek avoidance of the compromise in a separate proceeding in state court. Almost all of the creditors did agree to reduce their claims. There are 40 claimants in Class 9. See, Exhibit "B". Collectively they accepted $121,619.27 less than the $292,749.66 they were entitled to receive in full payment of their claims. See, Exhibit "B". This is an average of $3,040.48 per claim. I believe it would be burdensome and not cost effective for most of the claimants to pursue the balance in state court after seeking to set aside the compromise. MGCI would prevail in obtaining an advantage through its misrepresentation by default.

Under these facts, it is appropriate for the Bankruptcy Court to determine if the compromises were obtained through misrepresentation and bar the enforcement of the compromises if appropriate.

     4. ENTRY OF FINAL DECREE - At the present time, a majority of the unsecured claims in Class 9 have been paid. After disbursement of       3 ABR 340  $171,130.39 to Class 9, more than 50% of the class was paid. There is now no reason not to enter a final decree. Those parties with claims remaining unpaid as a result of the ruling in ¶ 3.3 of this memorandum, may pursue their claims in state court, or reach an independent settlement with MGCI if they can. The court will enter a final decree, but keep this case open for a period of about 90 days to allow the parties to pursue any further proceedings in the main case that they deem appropriate.

DATED: January 10, 1994

HERBERT A. ROSS
U.S. Bankruptcy Judge

      3 ABR 341  LAW OFFICES OF
ARTUS, CHOQUETTE & WILLIAMS,P. C.

WILLIAM D. ARTUS	ATTORNEYS AND COUNSELLORS AT LAW	TELEPHONE (907) 274-4626
WILLIAM L. CHOQUETTE	629 L STREET, SUITE 101	______
.J. DOUGLAS WILLIAMS II	ANCHORAGE, ALASKA 99501	TELECOPIER (907) 274-9819

November 26, 1991

Re: Martinson Gravel & Crane, Inc.
Bankruptcy No. A-89-01142

Dear Creditor:

Martinson Gravel & Crane, Inc. (MGCI) has reached an agreement to settle its claims against Wilder Construction Company that is subject to certain contingencies. Under the Second Amended Plan of Reorganization (the Plan) money received by MGCI from the Wilder litigation is to be paid to the creditors in accordance with the provisions of the Plan. The settlement that has been reached does not provide enough sufficient funds to make the payments to creditors required by the Plan and still leave sufficient funds available for MGCI to commence operations in 1992. If MGCI is not able to stay in business a settlement makes no sense.

If the contingencies can be removed and satisfied Martinson will have sufficient funds on hand to pay the class of unsecured creditors 65% of the principal amount of their claims. This payment must be in full settlement and satisfaction of the pre-bankruptcy claims against MGCI. It is anticipated that payment of this reduced amount can be made within 60 days of the date you indicate your willingness to accept the reduced amount. If the settlement is not completed MGCI may end up with a lesser amount from Wilder after the trial or an appeal or other action could delay actual receipt of the funds for as long as two years. Therefore, payment of a reduced amount may be in your best interests. Please indicate your

EXHIBIT A
PAGE 1 OF 2

      3 ABR 342 

November 26, 1991


Page 2

acceptance of this proposal by signing and returning the enclosed copy of this letter. While all creditors want to be paid in full a 65% payment is much better than most bankruptcy cases. Thank you for your consideration.

Very truly yours,

ARTUS, CHOQUETTE & WILLIAMS, P.C.




William D. Artus
WDA/th

The undersigned creditor of MGCI agrees to accept 65% of its claim in the MGCI bankruptcy proceeding provided that such payment is made within 60 days of signing this letter agreement.

Dated: ___________________       By _________________________

                                                         Its _________________________





EXHIBIT A
Page 2 of 2

      3 ABR 343 

UNSECURED CREDITORS SUMMARY

Creditor	Principal Amount	Amt Due on Nov. 3, 1992	Compromise Amount
Alaska Airlines	$ 1,644.81	$ 1,990.22	$ 1,644.81
Alaska Drill Supply	2,191.00	2,651.1	1,323.15
Alaska Gold Company	1,617.00	1,956.57	1,051.05
Alaska Explosives	48,681.63	58,904.77	31,643.06
Alaska Rubber Company	928.00	1,122.88	603.20
Alsinco/Rocky McDonald	2,817.00	3,408.57	1,831.05
Auto Electric	910.00	1,101.10	591.50
Automatic Welding & Supply	8,357.79	10,112.93	5,432.56
Balzer Pacific	1,067.00	1,291.07	693.55
Besco, Inc.	5,583.00	6,755.43	3,628.95
Bobs Services	4,599.00	5,564.79	2,989.35
Bowman Distribution	901.00	1,090.21	585.65
Builders Industrial Supply	5,631.75	6,814.42	4,251.97
Cummins Northwest	3,088.00	3,736.48	3,088.00
Drivetrain Distributors	4,402.00	5,326.42	2,861.30
Earthmovers	2,300.00	2,783.00	2,300.00
Gator Glass	559.00	676.39	363.35
Goodyear Tire Company	746.00	902.66	484.90
Halton Corporation	5,070.00	6,134.70	3,295.50
Inlet Petroleum	6,391.00	7,733.11	4,154.15
Larson, Timbers & Van Winkle	887.00	1,073.27	576.55
MarkAir	4,764.00	5,764.44	3,096.60
3 ABR 344
McDonald Industries	3,998.00	4,837.58	2,598.70
N C Machinery	23,968.00	29,001.28	19,174.40
Nome 2000/MCKillion Land	17,130.20	20,727.54	11,134.50
Nome Native Community Ent	5,049.00	6,109.29	3,281.85
Outsider s Construction	2,351.00	2,844.71	1,528.15
Sitnasauk Native Corporation	2,379.00	2,878.59	1,546.47
Dale Smithhilser	10,000.00	12,100.00	6,500.00
Sound Quarry	26,128.00	31,614.88	26,128.00
Stain Supply	552.00	667.92	358.80
Surveyor s Exchange	2,193.57	2,654.22	1,425.82
Trailercraft, Inc.	3,307.00	4,001.47	2,149.55
Van Ooteghem Construction	632.00	764.72	410.80
Washington Belt & Drive	2,156.10	2,608.88	1,401.47
Westate Tractor Company	3,027.00	3,662.67	1,967.55
Westec Industries, Inc.	9,766.00	11,816.88	8, 397.86
Wilkies Heavy Equipment	10,964.00	13,266.44	7,126.60
Drill Systems1	893.00	1,080.53
Windfall Mining Co.1	4,312.00	5,217.52
TOTALS	$193,308.90	$292,749.66	$171,130.39

1. Drill Systems and Windfall Mining Company are apparently out of business. Letters to them are returned with no forwarding address. No payment has been made to those creditors as debtor has not been able to locate them.