In re: SGL Carbon Corporation
| Decision Date | 29 December 1999 |
| Docket Number | NUCOR-YAMATO,Nos. 99-5319,s. 99-5319 |
| Citation | 200 F.3d 154 |
| Parties | (3rd Cir. 1999) IN RE: SGL CARBON CORPORATION, DEBTOR OFFICIAL COMMITTEE OF UNSECURED CREDITORS, APPELLANT AT NO. 99-5319 V. NUCOR CORPORATION;STEEL COMPANY, APPELLANTS AT NO. 99-5382 & 99-5382 |
| Court | U.S. Court of Appeals — Third Circuit |
On Appeal from the United States District Court for the District of Delaware (D.C. Civil Action No. 98-cv-02779) (Honorable Joseph J. Farnan, Jr.) [Copyrighted Material Omitted]
Philip Bentley, Esquire (argued) Kenneth H. Eckstein, Esquire Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022
Teresa K.D. Currier, Esquire Duane, Morris & Heckscher 1201 Market Street, Suite 1500 P.O. Box 195 Wilmington, Delaware 19899, Attorneys for Appellant/Cross-Appellee, Official Committee of Unsecured Creditors
James J. Rodgers, Esquire (argued) Dilworth, Paxson, Kalish & Kauffman 1735 Market Street 3200 The Mellon Bank Center Philadelphia, Pennsylvania 19103
Michael D. Ridberg, Esquire Ridberg, Press & Sherbill Three Bethesda Metro Center, Suite 650 Bethesda, Maryland 20814, Attorneys for Appellants, Nucor Corporation; Nucor-Yamato Steel Company
George J. Wade, Esquire (argued) Shearman & Sterling 599 Lexington Avenue New York, New York 10022
Laura D. Jones, Esquire Young, Conaway, Stargatt & Taylor P.O. Box 391 Rodney Square North, 11th Floor Wilmington, Delaware 19899-0391, Attorneys for Appellee, SGL Carbon Corporation.
Before: Scirica and McKEE, Circuit Judges, and Brotman, District Judge*
OPINION FOR THE COURT
The issue on appeal is whether, on the facts of this case, a Chapter 11 bankruptcy petition filed by a financially healthy company in the face of potentially significant civil antitrust liability complies with the requirements of the Bankruptcy Code. In this case, the Official Committee of Unsecured Creditors of SGL Carbon Corporation appeals the District Court's order denying its motion to dismiss SGL Carbon's Chapter 11 bankruptcy petition on bad faith grounds.
This case also presents the threshold issue whether we will adopt a "good faith" requirement for Chapter 11 petitions. We will. After undertaking the fact intensive analysis inherent in the good faith determination, we conclude that SGL Carbon's Chapter 11 petition lacks a valid reorganizational purpose and, therefore, lacks the requisite good faith. We will reverse.
SGL Carbon is a Delaware corporation that manufactures and sells graphite electrodes used in steel production.1 In 1997, the United States Department of Justice commenced an investigation of alleged price-fixing by graphite electrode manufacturers, including the SGL Carbon Group.2 Soon thereafter, various steel producers filed class action antitrust lawsuits in the United States District Court for the Eastern District of Pennsylvania against SGL Carbon and other graphite electrode manufacturers. The District Court consolidated the cases into a single class action and certified a class under Fed. R. Civ. P. 23(b)(3) consisting of all United States purchasers of graphite electrodes between 1992 and 1997. Many class members opted out of the class before the November 28, 1998 opt-out deadline and subsequently filed or threatened to file separate antitrust lawsuits. Since the class certification, six complaints have been filed in federal district court and one complaint has been filed in a Canadian court.
In June 1998, SGL Carbon's German parent SGL AG recorded a charge in Deutschmarks of approximately $240 million as its "best estimate" of the SGL Carbon Group's3 potential liability in the criminal and civil antitrust litigation.4 On December 16, 1998, at the direction of SGL AG, SGL Carbon filed a voluntary Chapter 11 bankruptcy petition in the United States District Court for Delaware. In SGL Carbon's Disclosure Statement, in a section addressing "Factors Leading to [the] Chapter 11 Filing," SGL Carbon only discussed the antitrust litigation. The bankruptcy filing contained a proposed reorganization plan under which only one type of creditor would be required to accept less than full cash payment for its account, namely the antitrust plaintiffs who obtained judgments against SGL Carbon. Under the plan, potential antitrust judgment creditors would receive credits against future purchases of SGL Carbon's product valid for 30 months following the plan's confirmation. The proposed plan also bars any claimant from bringing an action against SGL Carbon's affiliates, including its parent SGL AG, "based on, relating to, arising out of, or in any way connected with" their claims against SGL Carbon.
The next day, on December 17, in a press release, SGL Carbon explained it had filed for bankruptcy "to protect itself against excessive demands made by plaintiffs in civil antitrust litigation and in order to achieve an expeditious resolution of the claims against it." The press release also stated:
SGL CARBON Corporation believes that in its case Chapter 11 protection provides the most effective and efficient means for resolving the civil antitrust claims.
.....
"SGL CARBON Corporation is financially healthy," said Wayne T. Burgess, SGL CARBON Corporation's president.
.....
However, because certain plaintiffs continue to make excessive and unreasonable demands, SGL CARBON Corporation believes the prospects of ever reaching a commercially practicable settlement with them are remote. After much consideration, SGL CARBON Corporation determined that the most appropriate course of action to address the situation without harming its business was to voluntarily file for chapter 11 protection.
.....
Contemporaneous with the press release, SGL AG Chairman Robert Koehler conducted a telephone conference call with securities analysts, stating that SGL Carbon was "financially healthier" than before and denying the antitrust litigation was He also stated that SGL Carbon's Chapter 11 petition was "fairly innovative [and] creative" because "usually Chapter 11 is used as protection against serious insolvency or credit problems, which is not the case [with SGL Carbon's petition]."
Two weeks after SGL Carbon filed its petition and issued the press release, the United States Trustee formed a nine member Official Committee of Unsecured Creditors. Eight of the committee members are antitrust plaintiffs; two of the eight serve as class representatives and the other six have opted out of the class.5 In January 1999, the Committee filed a motion to dismiss SGL Carbon's bankruptcy petition on the grounds that it was a "litigation tactic designed to frustrate the prosecution of the civil antitrust claims pending against [SGL Carbon] and preserve [SGL Carbon's] equity from these claims." In re SGL Carbon Corp., 233 B.R. 285, 287 (D. Del. 1999).
The District Court held a hearing on the motion on February 17, 1999.6 Neither side presented witnesses. The evidence was entirely documentary or deposition testimony, including the deposition of SGL Carbon's Vice President Theodore Breyer, who directs the company's graphite electrode business in the United States. In his deposition, Breyer testified that SGL Carbon was financially healthy, having no overdue debts when it filed its Chapter 11 petition. Breyer stated that he recommended filing for bankruptcy because he believed SGL Carbon "could not expeditiously settle with the [antitrust] plaintiffs" absent Chapter 11 protection. Acknowledging that bankruptcy protection was the "sole reason" SGL AG's Executive Committee had authorized the Chapter 11 petition, Breyer testified that he believed filing for Chapter 11 would "change the negotiating platform" with plaintiffs and "increase the pressure on... plaintiffs to settle."
The District Court denied the Committee's motion to dismiss on April 23, 1999 assuming, without deciding, that 11 U.S.C. S 1112(b) imposes a duty of good faith upon bankruptcy petitioners. It further assumed this duty requires the proposed reorganization to further what it characterized as Chapter 11's purpose: " `to restructure a business's finances so that it may continue to operate, provide its employees with jobs, pay its creditors and produce a return for its stockholders.' " SGL Carbon Corp., 233 B.R. at 288 (quoting H.R. Rep. No. 595 (1977) reprinted in 1978 U.S.C.C.A.N. 6179). The court made no findings that SGL Carbon filed for bankruptcy for reasons other than to improve its negotiating position with plaintiffs. But the court concluded the petition furthered the purpose of Chapter 11 because plaintiffs' litigation was imperiling SGL Carbon's operation by distracting its management, was potentially ruinous and could eventually force the company out of business. The court explained that
[t]he distractions of the litigation pose a serious threat to the continued successful operations of [SGL Carbon]. Further, the potential liability faced by [SGL Carbon] could very well force it out of business. Consistent with the policies and purposes of Chapter 11 which encourage early filing so as to increase the possibility of successful reorganization, the Court will not allow [SGL Carbon] to wait idly by for impending financial and operational ruin, when [SGL Carbon] can take action now to avoid such a consequence.
SGL Carbon Corp., 233 B.R. at 291.
The Committee has appealed.
The District Court had jurisdiction over this bankruptcy case under 28 U.S.C. S 1334(a). We have jurisdiction under 28 U.S.C. S 1291. See In re Brown, 916 F.2d 120, 124 (3d Cir. 1990) (...
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