Eagle-Picher Industries, Inc., In re

• Citation: 963 F.2d 855
• Decision Date: 07 May 1992
• Docket Number: EAGLE-PICHER,No. 91-4108,91-4108
• Parties: Bankr. L. Rep. P 74,574 In reINDUSTRIES, INC., Debtor. AMERICAN IMAGING SERVICES, INC. and William A. Opincar, Plaintiffs-Appellants, v. INDUSTRIES, INC., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 855

963 F.2d 855

Bankr. L. Rep. P 74,574

In re EAGLE-PICHER INDUSTRIES, INC., Debtor.

AMERICAN IMAGING SERVICES, INC. and William A. Opincar, Plaintiffs-Appellants, v. EAGLE-PICHER INDUSTRIES, INC., Defendant-Appellee.

No. 91-4108.

United States Court of Appeals,

Sixth Circuit.

Argued April 10, 1992.

Decided May 7, 1992.

Robert A. Goering, Cincinnati, Ohio, (argued and briefed), Pieter J. Tredoux, Ralph Perry Miller, Perry-Miller, Beasley & Hume, Dallas, Tex., for plaintiffs-appellants.

Edmund John Adams, Frost & Jacobs, Cincinnati, Ohio, Stephen Karotkin (argued and briefed), Debra Dandeneau, Weil, Gotshal & Manges, New York City, for defendant-appellee.

Before: KEITH and MILBURN, Circuit Judges; and CELEBREZZE, Senior Circuit Judge.

MILBURN, Circuit Judge.

Defendants American Imaging Services, Inc., and William A. Opincar (collectively "AISI") appeal the district court's order granting a preliminary injunction to plaintiff Eagle-Picher Industries, Inc. enjoining AISI from proceeding in a separate civil action against David N. Hall and James A. Ralston, officers of Eagle-Picher Industries, Inc. ("Eagle-Picher").

On appeal, the issues raised by defendants are (1) whether the district court erred in affirming the bankruptcy court's order granting Eagle-Picher's motion for a preliminary injunction, (2) whether the district court erred in affirming the bankruptcy court's order granting a preliminary injunction which is subject to reconsideration after the expiration of one year, and (3) whether the district court erred in determining that the bankruptcy judge should not have recused himself from presiding over the adversary proceeding commenced by Eagle-Picher to enjoin AISI from proceeding in its civil action. For the reasons that follow, we affirm.

I.

In 1986, William A. Opincar founded and incorporated American Imaging Services, Inc. ("American Imaging") to design and develop software and programs which enable manually generated engineering drawings to be converted to computer-readable form for use in computer-aided design systems. In 1987, Eagle-Picher became the majority shareholder in American Imaging in order to provide necessary funding. David N. Hall, Senior Vice President and Chief Financial Officer of Eagle-Picher, and James A. Ralston, Eagle-Picher's Vice President and General Counsel, became directors of American Imaging.

On August 27, 1990, AISI filed a complaint in the United States District Court for the Northern District of Texas, Dallas Division, against Eagle-Picher, David N. Hall, and James A. Ralston. In that complaint, AISI asserts causes of action for breach of fiduciary duty to minority stockholders, breach of proprietary information and voting rights agreements, conspiracy to divert corporate assets and usurp corporate opportunities, conspiracy to oust Mr. Opincar from corporate office, and tortious interference with the relationships American Imaging has with its customers.

On January 7, 1991, Eagle-Picher and certain of its subsidiaries (collectively "the Debtors") each filed a voluntary petition with the bankruptcy court for relief under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code"). Since filing, each of the Debtors has continued to operate its business and manage its properties as a debtor in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

Pursuant to section 362 of the Bankruptcy Code, all actions against Eagle-Picher were automatically stayed. On January 22, 1991, AISI filed a motion for relief from the automatic stay of the proceedings against Eagle-Picher. On January 25, 1991, Eagle-Picher commenced an adversary proceeding styled Eagle-Picher Industries, Inc. v. American Imaging Services, Inc. and William A. Opincar, Adversary Proceeding No. 1-91-0025, by filing a complaint requesting entry of an order and a preliminary injunction staying the Texas action as against Mr. Hall and Mr. Ralston, the non-debtor co-defendants.

On February 12, 1991, a hearing was held before the bankruptcy court with respect to AISI's motion to lift the automatic stay and Eagle-Picher's motion for a preliminary injunction. Following opening statements and representations by counsel, the bankruptcy court indicated it intended to deny AISI's automatic stay motion and grant Eagle-Picher's motion for a preliminary injunction enjoining AISI from proceeding with the pending action as to the non-debtor co-defendants. The bankruptcy court refused to allow AISI to present evidence in support of its opposition to Eagle-Picher's motion for a preliminary injunction. However, the bankruptcy court did hear AISI's offers of proof regarding all evidence it intended to present. Subsequently, the bankruptcy court denied AISI's motion to lift the automatic stay and on March 7, 1991, entered an order granting Eagle-Picher's motion for a preliminary injunction. The order further provided that American Imaging or Mr. Opincar may file a motion with the bankruptcy court seeking relief from the injunction one year after the date of the order. By agreement of counsel for Eagle-Picher, the injunction order also enjoins Eagle-Picher and its executives from utilizing or disclosing to any third party any source code in Eagle-Picher's possession with respect to the "Lunaseries" product. The order was subsequently amended by a finding that the adversary proceeding was a core proceeding under the Bankruptcy Code.

On May 15, 1991, AISI filed a notice of appeal from the injunction order with the bankruptcy court. At the same time, AISI filed a motion to stay the injunction pending appeal. Eagle-Picher filed its objections to AISI's motion to stay the injunction pending appeal, and, on June 24, 1991, the bankruptcy court entered an order denying the motion to stay pending appeal.

On July 3, 1991, AISI filed a notice of appeal of the order denying the motion to stay pending appeal. After convening an expedited hearing, the district court denied AISI's appeal of the denial of the motion to stay pending appeal. AISI subsequently petitioned this court for a writ of mandamus to review the district court's decision; we denied the petition on October 3, 1991. On October 25, 1991, after conducting a hearing, the district court affirmed the bankruptcy court's order granting Eagle-Picher's motion for a preliminary injunction.

II.

A.

We review a district court's decision to grant a motion for a preliminary injunction for an abuse of discretion. N.A.A.C.P. v. City of Mansfield, Ohio, 866 F.2d 162, 166 (6th Cir.1989); In re DeLorean Motor Co., Unsecured Creditors' Committee of DeLorean Motor Co. v. DeLorean, 755 F.2d 1223, 1228 (6th Cir.1985). The district court's findings of fact underlying its decision to grant a preliminary injunction are reviewed for clear error and its legal conclusions underpinning its decision are reviewed de novo. N.A.A.C.P., 866 F.2d at 166. A legal or factual error may be sufficient to determine that the district court abused its discretion. However, absent such an error, the district court's weighing and balancing of the equities is overruled "only in the rarest of cases." Id.

11 U.S.C. § 105(a) ("section 105(a)") of the Bankruptcy Code provides that a bankruptcy court may "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." When issuing a preliminary injunction pursuant to its powers set forth in section 105(a), a bankruptcy court must consider the traditional factors governing preliminary injunctions issued pursuant to Federal Rule of Civil Procedure 65. In re DeLorean, 755 F.2d at 1228. The four factors which must be considered are (1) the likelihood of the plaintiff's success on the merits, (2) whether plaintiff will suffer irreparable injury without the injunction, (3) the harm to others which will occur if the injunction is granted, and (4) whether the injunction would serve the public interest.

B.

AISI argues that the bankruptcy court abused its discretion in failing to allow it to present testimony because factual questions exist regarding the four factors which must be considered when determining whether to grant a preliminary injunction. AISI relies on our decision in Sec. and Exch. Comm'n v. G. Weeks Sec., Inc., 678 F.2d 649, 651 (6th Cir.1982), to support its argument. Weeks is distinguishable from this case. In Weeks, we held that a district court abused its discretion by issuing an injunction prohibiting the defendants from violating antifraud provisions of the securities laws where the defendants were not allowed to present testimony on their behalf after the Securities and Exchange Commission had presented the testimony of numerous witnesses in the course of six hearings. Id. at 651. However, in Weeks, we also held that the district court did not abuse its discretion in issuing a second injunction prohibiting the defendants from violating registration provisions of the Securities Act of 1933 because

the District Court had before it adequate documentary evidence upon which to base an informed, albeit preliminary conclusion that the standby with pairoff contracts were securities subject to registration. Where the resolution of the questions to be considered in issuing a preliminary injunction turns on legal rather than factual conclusions, the taking of oral testimony by both sides is not a prerequisite to a fair hearing.

Id. (emphasis in original). See also Federal Sav. and Loan Ins. Corp. v. Dixon, 835 F.2d 554, 558 (5th Cir.1987) (where no factual disputes existed, district court did not abuse its discretion in granting preliminary injunction on the basis of affidavits and depositions only).

In the present case, the district court determined that the bankruptcy court did not err in prohibiting a full evidentiary hearing "in view of the weight accorded the bankruptcy court's factual determinations and the adequate basis supporting those determinations in the...