Alpex Computer Corp., In re

Decision Date04 December 1995
Docket Number94-1417,Nos. 94-1384,s. 94-1384
Parties, 28 Bankr.Ct.Dec. 297, Bankr. L. Rep. P 76,724, 37 U.S.P.Q.2d 1200 In re ALPEX COMPUTER CORPORATION, Debtor. NINTENDO COMPANY, LTD.; Nintendo of America, Inc., Appellants/Cross-Appellees, v. Leslie A. PATTEN, Liquidating Trustee of Alpex Computer Corporation, Appellee/Cross-Appellant.
CourtU.S. Court of Appeals — Tenth Circuit

Thomas G. Gallatin, Jr. (John J. Kirby, Jr. and John T. Brennan, Mudge Rose Guthrie Alexander & Ferdon, New York City; and Jack L. Smith and Risa Wolf-Smith, Holland & Hart, Denver, Colorado, with him on the briefs), Mudge Rose Guthrie Alexander & Ferdon, New York City, for Appellants/Cross-Appellees.

Brent R. Cohen (Thomas H. Young and JoAnn L. Vogt, with him on the briefs), Rothgerber, Appel, Powers & Johnson, Denver, Colorado, for Appellee/Cross Appellant.

Before MOORE, Circuit Judge; McKAY, Senior Circuit Judge; and BRETT, Chief District Judge. *

JOHN P. MOORE, Circuit Judge.

On our checklist assuring the justiciability of claims, the question of standing is often dwarfed by the substantive issue we are urged to resolve. Nevertheless, this threshold question, St. Francis Regional Med. Ctr. v. Blue Cross & Blue Shield of Kan., Inc., 49 F.3d 1460, 1465 (10th Cir.1995), requires we ask, as Alpex Computer Corporation urges, whether Nintendo Company, Ltd. is the proper party to reopen a confirmed plan of reorganization under Chapter 11 of the Bankruptcy Code. Nintendo was neither a party in the confirmation proceedings nor was it dealt with in the plan. In this case, Nintendo nonetheless attempts to press its interpretation of that plan. Because its interest in another lawsuit cannot metamorphose Nintendo into a party in interest here, we hold Nintendo lacks standing under 11 U.S.C. Sec. 350(b) and dismiss.

I. Background

Alpex was a publicly held corporation which invested in and developed various patents for computer-related technologies. Among those patents was U.S.Patent No 4,026,555 (the 555 patent), which Alpex alleged several companies including Nintendo Company Ltd. and Nintendo of America Inc. infringed. In 1983, however, before defending the 555 patent, Alpex filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. In 1988, the Liquidating Trustee and the Official Committee of Unsecured Creditors filed an Amended Joint Plan of Reorganization (the Plan) and a revised Disclosure Statement. The bankruptcy court subsequently confirmed the Plan after an appropriate hearing.

Under the Plan, all of Alpex's assets were to be transferred to the Trustee for distribution to Alpex's creditors and stockholders according to the claims and interests of the five classes created. 1 It also authorized the Trustee to litigate the Alpex patent claims, specifically the patent infringement lawsuit filed in the Southern District of New York against Nintendo. Indeed, when the Plan was confirmed, the estate's only assets were potential recoveries in Alpex's 555 patent infringement suits against Coleco, Parker Brothers, and Nintendo. None of these companies had agreed to settle their alleged liabilities at that time.

In 1993, however, five years after confirmation of the Plan, Sega Enterprises purchased a worldwide, nonexclusive license from the Alpex estate in settlement of a similar patent infringement claim. The Trustee informed Nintendo of the settlement. Calculating the impact of that capital infusion into the estate, Nintendo filed a motion in the bankruptcy court which had confirmed the Plan to "Compel Liquidating Trustee to Comply with Chapter 11 Plan of Reorganization" and "to discontinue, with prejudice, litigation pending against Nintendo." In the motion, Nintendo offered $3.9 million in settlement of the patent infringement suit based on information in the Disclosure Statement 2 that the claims of stockholders totalled approximately $2.2 million. Added to Sega's settlement, Nintendo's $3.9 million offer would then fully satisfy shareholders and meet the Trustee's obligation "to comply with the Plan," Nintendo argued. Under this interpretation, the bankruptcy court should integrate the plain language of the Plan with that of the Disclosure Statement and compel the Trustee to place a cap on the recovery of Class 5 shareholders. Thus, Nintendo requested the bankruptcy court reopen the Plan for the single purpose of enforcing this interpretation. Further, Nintendo argued the Trustee's pursuing the patent litigation, given the cap on recovery, would either afford shareholders a windfall they never anticipated when the Plan was confirmed or necessitate abandonment.

The bankruptcy court denied the motion on November 4, 1993, after a hearing. It concluded neither the integration of the Disclosure Statement with the Plan nor the plain meaning of those provisions Nintendo challenged supported the theory the Plan's drafters intended to cap shareholder recovery at $2.2 million. Although the Trustee disputed Nintendo's standing to reopen the Plan, the bankruptcy court presumed jurisdiction, believing the issue was conceded once the court allowed Nintendo to appear and argue the motion.

On June 2, 1994, a New York jury found the Alpex 555 patent valid and Nintendo wilfully infringed the patent. The jury awarded Alpex $208.27 million in damages to which the United States District Court for the Southern District of New York later added $40 million in prejudgment interest and $4 million in damages for royalties from December 1, 1992, to May 31, 1994, the date the patent expired. Nintendo has appealed the judgment.

In July 1994, the United States District Court in Colorado affirmed the bankruptcy court on the merits while supplying jurisprudential support for Nintendo's standing to reopen. Under the authority of In re Kaiser Steel Corp., 998 F.2d 783, 788 (10th Cir.1993), the district court characterized Nintendo as "a debtor of a debtor" with "sufficient stake in the proceeding to qualify as a party in interest." Reasoning that a debtor is "anyone who may be compelled to pay a claim or demand; anyone liable on a claim, whether due or to become due," Black's Law Dictionary 364 (5th ed. 1979), the district court theorized Nintendo fits the definition because it "may be compelled to pay to the debtor (Alpex) whatever damages are determined with regard to the patent infringement claim."

The Trustee now appeals Nintendo's standing to reopen the Plan to compel him to cap shareholders' recovery, contending Nintendo is not a party in interest as circumscribed by Bankruptcy Rule 5010. In its cross-appeal, Nintendo asserts the Plan mandates a cap on shareholder recovery necessitating the Trustee's abandonment of the Nintendo lawsuit. Although the question of standing thwarts the bankruptcy court's jurisdiction and ends the inquiry, Nintendo's notion of capping shareholder recovery defies its straightforward language and plays havoc with the underlying structure of the confirmed Plan.

II. Standing

Under 11 U.S.C. Sec. 350(b), "a case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." Federal Rule of Bankruptcy Procedure 5010 specifies the parties who may invoke Sec. 350(b). It states: "A case may be reopened on motion of the debtor or other party in interest pursuant to Sec. 350(b) of the Code."

While the decision to reopen remains within the broad discretion of the bankruptcy court, 2 Collier on Bankruptcy p 350.03 (15th ed. 1995), it must be tethered to the parameters of Sec. 350(b), or it is an abuse of discretion. Because standing is "a prudential requirement," Travelers Ins. Co. v. H.K. Porter Co., 45 F.3d 737, 741 (3d Cir.1995) (citation omitted), our review is de novo. Kaiser, 998 F.2d at 788.

Although 11 U.S.C. Sec. 1109(b) broadly defines a "party in interest," 3 the phrase invites interpretation and "is generally understood to include all persons whose pecuniary interests are, directly affected by the bankruptcy proceedings." Yadkin Valley Bank & Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750, 756 (4th Cir.1993) (citations omitted). Indeed capitalizing on this concept, Nintendo urges, "Here, the Plan by its terms significantly impacts the prosecution of the Nintendo Lawsuit, which was pending at the time of confirmation and described in the Disclosure Statement.... Nintendo plainly has a significant economic interest in ensuring that the substituted plaintiff abides by the Plan and it only seeks an order requiring compliance with the Plan."

This expansive view notwithstanding, when we peruse the case law on standing under these circumstances, we find that concept implicitly confined to debtors, creditors, or trustees, each with a particular and direct stake in reopening cognizable under the Bankruptcy Code. For the debtor, that stake may be listing additional creditors, In re Scism, 41 B.R. 384 (Bankr.W.D.Okla.1984); avoiding a lien creditor, In re Ricks, 89 B.R. 73 (9th Cir. BAP 1988); or determining the dischargeability of a pre-petition debt, In re Hicks, 184 B.R. 954 (Bankr.C.D.Cal.1995). A creditor may seek to reopen to ask the bankruptcy court to administer discovered assets or determine nondischargeability. In re Banks-Davis, 148 B.R. 810 (Bankr.E.D.Va.1992). A trustee may seek to enforce the administration of a plan of reorganization or realize assets for the estate. In re Winebrenner, 170 B.R. 878 (Bankr.E.D.Va.1994).

In fact, while these three entities--debtor, creditor, trustee--are the only designated players under Sec. 350(b), there is disagreement in the case law over whether even a trustee is an appropriate party in interest to reopen. See In re Ayoub, 72 B.R. 808 (Bankr.M.D.Fla.1987); contra In re Stanke, 41 B.R. 379 (Bankr.W.D.Mo.1984). Otherwise, aside from peculiar facts that may align a case with these parameters, for example, In re Young, 70 B.R. 968 (Bankr.E.D.Pa.1987), 4 upon which...

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