In Re: US Mineral ( 2004 )

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
8-6-2004
In Re: US Mineral
Precedential or Non-Precedential: Non-Precedential
Docket No. 04-1363
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________
NO. 04-1363 and 04-1433
_________
IN RE: UNITED STATES MINERAL PRODUCTS COMPANY,
a Delaware Corporation
d/b/a
Isolatek International,
Debtor
UNITED STATES MINERAL PRODUCTS COMPANY,
a Delaware Corporation
d/b/a
Isolatek International
v.
OFFICIAL COMMITTEE OF ASBESTOS BODILY INJURY AND
PROPERTY DAMAGE CLAIMANTS; LEGAL REPRESENTATIVE
*ROBERTA A. DEANGELIS, Acting Trustee
(*Amended - Per Clerk's Order 3/18/04)
United States Mineral Products Company
Appellant No. 04-1363
James P. Verhalen,
Appellant No. 04-1433
Appeals from the United States District Court
for the District of Delaware
(D.C. Civil No. 03-cv-00956)
District Judge: Honorable Sue L. Robinson
Argued May 27, 2004
Before: RENDELL and COWEN, Circuit Judges,
and SCHW ARZER*, District Judge
(Filed August 6, 2004 )
J. Gregg Miller [ARGUED]
Pepper Hamilton
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103
Counsel for Appellant No. 04-1363
United States Mineral Products Company
Ian C. Bifferato
Bifferato, Bifferato & Gentilotti
1308 Delaware Avenue
P. O. Box 2165
Wilmington, DE 19899
James N. Lawlor [ARGUED]
Wollmuth, Maher & Deutsch
One Gateway Center, 9th Floor
Newark, NJ 07102
Counsel for Appellant No. 04-1433
James P. Verhalen, LLC
John J. Preefer [ARGUED]
60 East 42nd Street
New York, NY 10165
Frederick B. Rosner
Jaspan Schlesinger Hoffman
1201 North Orange Street, Suite 1001
Wilmington, DE 19801
Counsel for Appellee
Official Committee of Asbestos Bodily Injury and
Property Damage Claimants
____________________
* The Honorable William W Schwarzer, Judge of the United States District Court
for the Northern District of California, sitting by designation.
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Michael L. Temin [ARGUED]
Wolf, Block, Schorr & Solis-Cohen
1650 Arch Street, 22nd Floor
Philadelphia, PA 19103
Counsel for Appellee,
Legal Representative
Richard L. Schepacarter
U. S. Department of Justice
Office of the Trustee
844 King Street
Suite 2207, Lockbox 35
Wilmington, DE 19801
Robert M. Loeb
Tara Leigh Grove [ARGUED]
U.S. Department of Justice
Civil Division, Appellate Staff
Room 9149
601 D Street, N.W.
Washington, DC 20530
Frank J. Perch, III
U.S. Department of Justice
Office of the Trustee
844 King Street
Suite 2207, Lockbox 35
Wilmington, DE 19801
Counsel for Appellee
Roberta A. Deangelis, Acting Trustee
____________
OPINION OF THE COURT
____________
PER CURIAM.
In this appeal, the debtor and its principal challenge the Bankruptcy Court’s “sua
sponte” appointment of a trustee, based upon statutory, constitutional, and evidentiary
3
grounds. We have jurisdiction pursuant to 29 U.S.C. §§ 158(d) and 1291, and we review
the Bankruptcy Court’s decision to appoint a trustee for abuse of discretion. In re Marvel
Entm’t Group, Inc., 140 F.3d 463, 470 (3d Cir. 1998). The Bankruptcy Court’s legal
determinations are reviewable de novo, and findings of fact are reviewed for clear error.
In re Trans World Airlines, Inc., 145 F.3d 124, 130 (3d Cir. 1998). We find no abuse of
discretion, and no legal or factual error here. Therefore, we will affirm.
I.
Specifically, the debtor and Verhalen raise the following interrelated issues: 1)
whether the Bankruptcy Court lacked the authority to “sua sponte” appoint a trustee under
the provisions of 11 U.S.C. § 1104(a)(2); 2) whether the Bankruptcy Court violated due
process principles by appointing a Chapter 11 trustee without providing the parties with
notice and an opportunity to be heard; and 3) whether there was insufficient evidence in
the record to support the Bankruptcy Court’s resort to the extraordinary remedy of
appointing a trustee. We answer each of these questions in the negative.
II.
While legal principles no doubt animate our decision making, our conclusion in
this case is uniquely fact-based. The parties are familiar with the circumstances
surrounding these proceedings, so we will recite only those facts that we find to be
particularly relevant to our determination. The debtor filed for Chapter 11 relief on July
23, 2001, in order to alleviate present and future asbestos liability. The debtor retained
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exclusivity and submitted several plans to the Asbestos Committee beginning in March
2002; the Asbestos Committee also proposed plans to the debtor. At a July 31, 2003
hearing to consider the debtor’s request to extend exclusivity, the debtor suggested “that it
be put up for sale at an auction to break a deadlock among constituents.” At that hearing
the Bankruptcy Court stated:
Here’s what I’m going to do. If you can’t come up with a consensual plan
by the end of August, I’m going to appoint a Chapter 11 Trustee in this case
who can sell the company and prepare a plan and file and go forward with
it. That’s what I’m going to do.
So, exclusivity remains in place, but it won’t matter at the end of August if
you don’t have a consensual plan because I’m going to appoint a trustee if
you don’t get one. That won’t help anybody.
The debtor never challenged the Bankruptcy Court’s authority for appointing a
trustee or the factual basis for doing so. However, it did contend that a trustee was not
needed and, if appointed, the trustee should have limited powers. The statement filed by
the United States Trustee indicated:
The UST has observed with dismay that this case has been highly
contentious and that the parties have engaged in a great deal of bickering on
the record that has likely generated professional fees far disproportionate to
the value of the assets at stake. The observation of the Asbestos Claimants’
Committee that significant unsecured credits were not originally scheduled,
while it is cause for concern as to the Debtor’s diligence and care in
preparing its Schedules and noticing interested parties of the case, also
serves to emphasize further that the anticipated return to creditors, asbestos
as well as non-asbestos, declines with each dollar expended on further
litigation of the type that has occurred all too frequently to date in this case.
The UST believes that in the absence of reason to believe that this pattern
will change, it may be in the best interests of creditors and the estate to
appoint a disinterested trustee with full plenary power to manage the estate
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and move the case forward.
....
The UST is concerned about the conflict that will result if the
Debtor’s president and principal shareholder, James Verhalen, intends in
any sale process to make an offer to buy the company (as the Asbestos
Committee alleges), and Mr. Verhalen will simultaneously be the client
directing the Debtor’s relationship with the investment bankers marketing
the company. This could result in Mr. Verhalen being on both sides of the
transaction.
The Bankruptcy Court held another hearing on August 27, 2003, during which the
Court announced that it would order the appointment of a Chapter 11 trustee based on the
length of time the proceedings had been pending, the size of the case, the contentious and
acrimonious nature of the relationships among the parties, the lack of trust, the lack of
progress, and the need for a neutral party to “maximize value and construct a plan . . .
acceptable to creditors.” The United States Trustee appointed a Chapter 11 trustee on
September 16, 2003.
III.
The debtor and its principal call on pristine legal principles in a fact pattern that is
anything but pristine. Their objection to the Bankruptcy Court’s appointment of a trustee
“sua sponte” is based on their allegation that the Bankruptcy Code requires a party in
interest to first request such appointment. But we simply are not required to invalidate
the Bankruptcy Court’s conduct here when no party ever challenged its authority to raise
the issue the way it did, and where the United States Trustee essentially filed a suggestion
– a statement that could easily be viewed in this context as a “request” – that a trustee be
6
appointed. Furthermore, the requirement that actions under § 1104(a) are only taken at
the request of parties in interest has been severely diluted by the passage of the
amendment to § 105 of the Bankruptcy Code in 1984, whereby the sua sponte raising of
various issues by the Bankruptcy Court is permissible. See In re Bibo, Inc., 76 F.3d 256,
258 (9th Cir. 1996); 7 Collier on Bankruptcy ¶ 1104.02[2][b] (15th rev. ed. 2004). Under
these circumstances, we cannot find that the Bankruptcy Court erred as a matter of law.
The constitutional challenge based on lack of notice and hearing is similarly
lacking in merit, as the Bankruptcy Court did give notice nearly one month prior to the
August 27, 2003 hearing, and there was ample opportunity for the parties to be heard.
And lastly, we think that the evidentiary basis for the appointment was sufficient. The
Bankruptcy Code provides that the court shall order the appointment of a trustee “if such
appointment is in the interests of creditors, any equity security holders, and other interests
of the estate.” 11 U.S.C. § 1104(a)(2). In considering what is in the interests of creditors
in connection with such a motion, “a bankruptcy judge has broad discretion to take
judicial notice of the entire file as to what has or has not been filed and the outcome of
previous proceedings brought before the court.” Barry Russell, Bankruptcy Evidence
Manual § 201.6 (2004).
Here, the facts outlined above, considered in light of our case law, provide ample
support for the Bankruptcy Court’s actions. See, e.g., Marvel, 140 F.3d at 473 (upholding
the appointment of a trustee where there was “deep-seeded conflict and animosity”
7
between the parties). Appellants have not challenged the Bankruptcy Court’s, or the
appellees’, characterizations of the status of the proceedings or the relationships among
the parties; rather, they only question whether the conditions described were sufficient, as
a matter of law, to warrant the appointment of a trustee. We conclude that they were.
Accordingly, we find that there was no abuse of discretion.
IV.
For the reasons stated above, we will affirm the Order of the District Court
upholding the Bankruptcy Court’s decision to appoint a trustee.
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