Halper v. Halper

Decision Date06 January 1999
Docket NumberNo. 98-5093,98-5093
Citation164 F.3d 830
Parties, Bankr. L. Rep. P 77,909 Irwin HALPER, Appellant, v. Barry HALPER.
CourtU.S. Court of Appeals — Third Circuit

Colin M. Danzis, Dennis J. Drasco (Argued), Donald B. Fraser, Jr., Lum, Danzis, Drasco, Positan & Kleinberg, LLC, Roseland, NJ, for Appellant.

William S. Katchen (Argued), Tina Niehold Moss, Amy R. Bitterman, Lowenstein Sandler PC, Roseland, NJ, for Appellee.

Before: STAPLETON, LEWIS and MAGILL, * Circuit Judges


STAPLETON, Circuit Judge:

Irwin Halper appeals the District Court's order affirming the Bankruptcy Court's order determining that a Guaranty in favor of Irwin was void as against public policy because it was part of an illegal stock redemption and a fraudulent conveyance under New Jersey and federal bankruptcy law. We conclude that the District Court erroneously applied New Jersey's contract principles in the course of finding this to be a stock redemption. We further conclude that the Bankruptcy Court lacked core proceeding jurisdiction to enter a final judgment regarding the Guaranty's enforceability.


Irwin Halper and his three cousins, Barry, Jeffrey and Robert, were the sole owners of Halper Bros. Inc. ("HBI"), a New Jersey corporation that distributed wholesale paper and janitorial supplies. Each cousin owned 25% of HBI's stock and participated in HBI's management and operation. In the spring of 1990, each shareholder contributed $300,000 to HBI's Employee Stock Ownership Plan ("ESOP"). In 1989 and into 1990, HBI began to suffer financial difficulty. Barry, interested in restructuring to continue running HBI on his own, began negotiating a buyout of his cousins' stock. On February 13, 1991, the cousins entered an agreement ("February Agreement") whereby Barry agreed to purchase personally each of his cousins' 25% HBI stock holdings for $300,000 apiece with $25,000 down. Barry paid Irwin's $25,000 down payment by personal check. The February Agreement was not consummated, however, because Citibank, a creditor of HBI's, refused to approve the buyout.

Further buyout negotiations ensued in which Barry suggested that the transaction be structured as a stock redemption by HBI. The three selling cousins, however, rejected the redemption format because they were concerned that HBI's insolvency would render it an illegal redemption and a fraudulent transfer under New Jersey law. Instead, Irwin and the other selling cousins insisted that the buyout take place either (i) through a personal purchase by Barry, or (ii) by an entity formed by Barry. 1 Barry's accountants and lawyers, on the other hand, advised Barry that if the transaction included an employment agreement for each of the cousins giving up his stock, the compensation provided for his services would provide HBI with a significant tax deduction. This raised further concerns for the selling cousins who feared that HBI's financial condition might prevent it from honoring an employment arrangement.

The parties reached a compromise, which they memorialized in four agreements on September 5, 1991 ("September Transaction"): (i) Letter Agreement, (ii) Employment Agreement, (iii) Guaranty and Indemnity Agreement, and (iv) Voting Trust Agreement. (Pa.527-89). There were three parties to each set of documents: (i) the selling cousin involved, (ii) Barry Halper, and (iii) HBI represented by Barry Halper as President. This appeal involves only the rights of the parties to the agreements executed by Irwin Halper.

The Agreements are integrated. This is evident from (i) the Letter Agreement's summary of the transaction and description of the other three documents' significance, and (ii) the other three documents' numerous cross references to one another. The Employment Agreement provides, inter alia, that HBI would pay Irwin a $300,000 signing bonus less the $25,000 he received in connection with the failed February Agreement, with the remaining $275,000 to be paid in 12 equal monthly installments commencing January 31, 1992. 2 The Guaranty and Indemnity Agreement ("Guaranty") provided that Barry personally guaranteed HBI's payment of Irwin's signing bonus; Barry and Irwin signed it in their individual capacities. The Guaranty accommodated the selling cousins' concerns that HBI's financial troubles might prevent it from honoring its signing bonus obligation. The Voting Trust Agreement provided that Irwin's HBI shares would be immediately transferred to a voting trust with Barry as trustee, giving Barry the irrevocable right to vote Irwin's shares. Finally, Paragraph 9 of the Letter Agreement provided that Irwin granted a three year irrevocable option to purchase his HBI stock for $1.00 consideration to (i) Barry personally, (ii) an entity created by Barry for the purchase, or (iii) HBI.

The parties agree that the September Transaction's objective was to vest Barry with total ownership and control of HBI. Indeed, the September Transaction gave Barry absolute control over HBI on September 5, 1991, as trustee under the Voting Trust. The only thing left to complete the buyout was for Barry to decide how to exercise the option to transfer beneficial ownership of the shares.

That decision was made in January, 1992, when Barry's attorney, Mr. Gladstone, advised him that he should exercise the Paragraph 9 option. On January 15, 1992, Gladstone's firm drafted a letter which Barry signed ("Purchase Letter") stating:

Pursuant to paragraph 9 of the Letter Agreement you are hereby notified that I elect to exercise my option to acquire all of the shares of stock in [HBI] which are held by the Voting Trustee pursuant to the Voting Trust Agreement.

I hereby request that the Voting Trustee take immediate steps in order to effectuate the transfer of said shares of stock to me.

(Pa.526). Barry signed the letter in his personal capacity, not as HBI's President.

On January 17, 1992, two days after Barry exercised the option, HBI's creditors filed an involuntary bankruptcy petition. Not surprisingly, HBI did not honor its signing bonus obligations under the Employment Agreement, and Irwin resorted to his rights under the Guaranty. After several unsuccessful demands for payment from Barry, Irwin instituted an action in New Jersey Superior Court to enforce the Guaranty on January 24, 1993. Two days earlier, on January 22, 1993, Barry had filed a complaint in Bankruptcy Court. Barry's complaint provides in pertinent part:

Barry seeks a declaration from this Court (1) that the underlying obligation from HBI to Irwin is void as a redemption by a corporation while insolvent, and a further declaration that Barry's personal guaranty does not extend to this void agreement and (2) that the obligation arising out of the "signing bonus" is void as a fraudulent transfer.

* * * * * *

WHEREFORE, plaintiff Barry Halper demands judgment against Irwin Halper as follows:

(a) declaring that the signing bonus to be paid by [HBI] to Irwin Halper is void as (1) a redemption made by an insolvent corporation; and (2) that the obligation is a fraudulent transfer under Bankruptcy Code § 548(a)(2)

(b) declaring that Barry Halper's obligation to Irwin Halper does not include the void redemption or fraudulent transfer by [HBI]....

(Pa.1243-44). Alternatively, Barry sought a declaratory judgment that (i) if the signing bonus is a valid obligation of HBI, then HBI's obligation thereunder is limited to $75,000 under Bankruptcy Code § 502(b)(7); and (ii) that Barry's liability under the Guaranty should similarly be limited to $75,000. 3

Barry successfully removed Irwin's state court action to the Bankruptcy Court, and the actions were consolidated for trial over Irwin's objection that the Bankruptcy Court lacked jurisdiction over his suit. Four years later, on February 21, 1997, the Bankruptcy Court rendered judgment in favor of Barry declaring the Guaranty unenforceable as against New Jersey's public policy because it was part of an illegal stock redemption under New Jersey law and constituted a fraudulent transfer under New Jersey and federal bankruptcy law. Irwin appealed the Bankruptcy Court's order to the District Court, which affirmed. 4 Irwin now appeals the District Court's order affirming the Bankruptcy Court's judgment.

We exercise plenary review over the decision of a District Court sitting as an appellate court in a bankruptcy proceeding. See In re Swedeland Dev. Group, Inc., 16 F.3d 552, 559 (3d Cir.1994). In turn, this court reviews the Bankruptcy Court's findings of fact under the clearly erroneous standard and conclusions of law under a de novo standard. See In re Sharon Steel Corp., 871 F.2d 1217, 1222-23 (3d Cir.1989).


The Bankruptcy and District Courts determined that the Bankruptcy Court had core proceeding jurisdiction under 28 U.S.C. § 157(b) giving it the power to issue final judgment on all claims in this action. Irwin challenges this determination, claiming that the Bankruptcy Court entirely lacked jurisdiction to entertain the claims between Barry and himself. He objects on the grounds that HBI was not a party and that, in his view, the adjudication of their disputes could not affect HBI's creditors. He concludes that this entire proceeding is therefore not "related to" the bankruptcy as required to support non-core jurisdiction under 28 U.S.C. § 157(c).

We conclude that the Bankruptcy Court had jurisdiction over all claims asserted in the Bankruptcy Court, but that the character of its jurisdiction varied among the claims. We find that the Bankruptcy Court had only non-core jurisdiction over the Guaranty claims and that, as a result, it lacked the power to issue a final judgment on that matter. Accordingly, we will reverse the District Court's judgment affirming the exercise of core jurisdiction over the Guaranty claims.

Bankruptcy Court jurisdiction has been the subject...

To continue reading

Request your trial
285 cases
  • Denunzio v. Ivy Holdings, Inc. (In re E. Orange Gen. Hosp., Inc.), Civ. No. 17–1595
    • United States
    • U.S. District Court — District of New Jersey
    • June 28, 2018
    ...of the Bankruptcy Court's jurisdiction, and the standard by which the District Court reviews its factual findings." Halper v. Halper , 164 F.3d 830, 836 (3d Cir. 1999). See also In re Allegheny Health , 383 F.3d at 175. As explained by the Third Circuit in Halper ,[u]pon referral, ‘[s]ectio......
  • In re Baseline Sports, Inc.
    • United States
    • United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
    • August 1, 2008
    ...could only arise in the context of a bankruptcy." Stoe v. Flaherty, 436 F.3d 209, 218 (3d Cir.2006) (citing Halper v. Halper, 164 F.3d 830, 836 (3d Cir.1999); 1 Collier on Bankruptcy § 3.01[4][c][iv] at 3-31). In this sense, the "but for" test stands for the proposition that "but for" the b......
  • In re Thorpe
    • United States
    • United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania
    • February 17, 2017
    ...unless all parties agree that a final judgment may be entered by the bankruptcy court. See 28 U.S.C. §157(c); see also Halper v. Halper, 164 F.3d 830, 836 (3d Cir. 1999). Only after a bankruptcy court is satisfied that it has subject matter jurisdiction is it necessary to determine whether ......
  • LTL Mgmt., LLC v. State ex rel. Balderas (In re LTL Mgmt., LLC)
    • United States
    • U.S. Bankruptcy Court — District of New Jersey
    • October 4, 2022
    ...the focus for jurisdictional purposes is on the adversary proceeding itself and the relief sought therein. See, e.g. , Halper v. Halper , 164 F.3d 830, 837 (3d Cir. 1999) (instructing courts to conduct a claim-by-claim analysis of the action presented to the bankruptcy court to determine th......
  • Request a trial to view additional results
2 books & journal articles
  • Judicial independence, autonomy, and the bankruptcy courts.
    • United States
    • Stanford Law Review Vol. 62 No. 3, March 2010
    • March 1, 2010
    ...L.L.C., 130 S. Ct. 1015 (2009). (170.) See supra note 96. (171.) 28 U.S.C. [section] 157(b)(2)(H), (L) (2006); see Halper v. Halper, 164 F.3d 830, 836 (3d Cir. 1999) (defining core proceeding as "a proceeding that, by its nature, could arise only in the context of a bankruptcy (172.) See su......
  • Chapter 4, B. Core: Arising In and/or Arising Under
    • United States
    • American Bankruptcy Institute Bankruptcy and Insurance Law Manual title Chapter 4 Jurisdiction
    • Invalid date
    ...Wood, 825 F.2d 90, 96 (5th Cir. 1987).[26] Id.[27] 28 U.S.C. § 157(b)(2).[28] 564 U.S. 462 (2011).[29] Id. at 503.[30] Halper v. Halper, 164 F.3d 830 (3d Cir. 1999).[31] In the Matter of United States Brass Corp., 110 F.3d 1261 (7th Cir. 1997).[32] Stern, 564 U.S. at 499.[33] In re U.S. Lin......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT