Sheftelman v. Standard Metals Corp.
| Citation | 839 F.2d 1383 |
| Decision Date | 29 December 1987 |
| Docket Number | No. 85-2783,85-2783 |
| Parties | Fed. Sec. L. Rep. P 93,613, 18 Collier Bankr.Cas.2d 18, Bankr. L. Rep. P 72,157 Dann S. SHEFTELMAN, individually, and on behalf of all others similarly situated, Creditor-Appellant, v. STANDARD METALS CORPORATION, Debtor-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
Nicholas E. Chimicles of Greenfield & Chimicles, Haverford, Pa. (R. Bruce McNew of Greenfield & Chimicles, Haverford, Pa., Robert H. Levin of Adelman, Lavine, Krasny, Gold & Levin, Philadelphia, Pa., Michael E. Romero and Robert L. Connelly of Isaacson, Rosenbaum, Woods, Snow & Levy, Denver, Colo., with him on the briefs), for creditor-appellant.
Glen E. Keller, Jr. of Davis, Graham & Stubbs, Denver, Colo. (Christopher L. Richardson and C. Randel Lewis of Davis, Graham & Stubbs, Denver, Colo., with him on the brief), for debtor-appellee.
Brent T. Johnson of Fairfield and Woods, Denver, Colo. (Stephen W. Seifert of Fairfield and Woods, Denver, Colo., with him on the brief), for appellee Creditors' Committee.
Richard A. Kirby, Asst. General Counsel, S.E.C., Washington, D.C. (Daniel L. Goelzer, General Counsel, Jacob H. Stillman, Associate General Counsel, Paul Gonson, Solicitor, Leslie E. Smith and Martha H. McNeely, Attys., S.E.C., Washington, D.C., with him on the briefs), for S.E.C.
Before TACHA, SETH and BARRETT, Circuit Judges.
This is an appeal from the denial of claims filed in the Chapter 11 proceedings of Standard Metals Corporation in Colorado, taken by Mr. Sheftelman as a creditor on his own behalf and for a class of creditors. The Securities and Exchange Commission (SEC) appeared in the trial courts and does so here pursuant to 11 U.S.C. Sec. 1109(a).
Mr. Sheftelman filed a Proof of Claim on August 30, 1984 on his own behalf and on behalf of other bondholders (as a class) in the Standard Metals Chapter 11 proceedings as purchasers of Industrial Revenue Series 1983 bonds issued on behalf of a subsidiary of Standard (National Smelting of New Jersey). This was a bond issue which apparently raised about 6.6 million dollars. The claims asserted that Standard Metals and the subsidiary conspired to fraudulently divert a portion of the proceeds to Standard's own use rather than for the intended and announced purpose of the issue. The claims were filed before any plan of reorganization had been filed in the Chapter 11 proceedings. Mr. Sheftelman had not received, nor had other bondholders, actual or constructive notice of the bar date. The bondholders were not listed as creditors.
Mr. Sheftelman had filed a civil class action suit in the federal court in New Jersey on behalf of the same bondholders about three weeks before the claims were filed in the Chapter 11 proceedings. Standard Metals was not a party to the class action suit in New Jersey.
Schedules had been filed in the Colorado Chapter 11 proceedings but none of the bondholders here concerned were scheduled. A bar date was fixed as June 10, 1984. The claims in issue were filed August 30--several months after the bar date. A hearing was set for February 5, 1985 for a consideration of the claims. Mr. Sheftelman was to then appear, had been ordered to do so, but did not do so. He filed motions to require that notice be given to the bondholders of the 1983 series of a bar date; that the bar date be extended to permit filing of claims; and that the hearing be continued. These motions were filed about five months after he had filed the claims.
The February 5 hearing was held by the bankruptcy court. Mr. Sheftelman did not appear and his personal claim was stricken as a sanction. The bankruptcy court also held that to provide for notice and to extend the bar date would unduly complicate the proceedings. It also held that the Bankruptcy Act does not permit the filing of claims on behalf of a class; that the bondholders were not scheduled and were thus "unknown creditors"; and that notice need be given only to known creditors. The rulings on the motions by the bankruptcy court were made after a plan of reorganization had been filed, but this plan was never approved and none was approved (confirmed) until some fourteen months after these rulings.
The matter was appealed to the district court which agreed with the bankruptcy court rulings except it declined to pass on the class action claims issue. This appeal was then taken.
A chronology of the basic events looks like this:
March 1984 Standard Metals commences the
Chapter 11 proceedings in Colorado
from which this appeal arises.
June 10, 1984 The bar date for claims in the Chapter
11 proceedings.
August 16, 1984 Civil Class action by bondholders
(about) filed in New Jersey asserting fraud
(Standard not a party).
August 30, 1984 Claims here in issue filed by Mr.
September 1984 First plan of reorganization filed but
never approved.
January 10, 1985 Motions filed by Mr. Sheftelman in
Chapter 11 for change of bar date
and for notice. Debtor files objections
shortly thereafter.
March 21, 1985 Motions of bondholders denied by
bankruptcy court. No plan of
reorganization yet approved.
1986 Plan of reorganization approved.
The bankruptcy court had before it the claims of the bondholders which asserted a fraud on the part of the debtor from August 30, 1984, but more importantly later during its consideration of the motions for extension of the bar date; that notice be given the bondholders, and the objections thereto. This continued until the motions were denied and the claims dismissed on March 21, 1985.
As to the debtor, the assertion of the bondholders and their position as creditors probably was known to the debtor when the class action civil suit was filed in New Jersey (in July), but, in any event, the creditors were made known to the debtor by the filing of their claims (August 10) in the Chapter 11 proceedings and again by the filing of the motions for change of bar date and notice. The debtor reacted to the motions by filing objections which became the subject of the February 5 hearing. The debtor had a duty to correct its schedules to include these bondholders in some category after the claims were filed. Rule 2002(a).
It is significant in our consideration of this appeal that the nature and origin of the fraud claims together with the property interests concerned, the identity of the creditors as the holders of certain bonds with readily ascertainable addresses, the absence of any notice of a bar date, and the possible impact on any reorganization plan was thus put before the bankruptcy court as part of a then ongoing Chapter 11 proceeding. All of this thus took place before any plan of reorganization had been approved as did the bankruptcy court's active consideration of the claims, denial of the motions, and striking the claims. No plan of reorganization was approved until more than a year later.
Mr. Sheftelman had standing to raise initially the notice issue as one of due process and as required under the Act in the bankruptcy and district courts for himself and for the other bondholders. In In re Standard Metals Corp., 817 F.2d 625, 629 (10th Cir.), we said:
The bankruptcy court decided the class action element of the claims but the district court did not decide the question. Mr. Sheftelman also had standing to take this appeal from the district court as to all issues, including the sanctions.
Once this appeal was taken it must be recognized that the SEC had independent authority under Chapter 11 of the Bankruptcy Code to raise issues relating to the procedures and due process. We need to seek no further than this to...
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