In re Allegheny Intern., Inc.
| Decision Date | 02 August 1990 |
| Docket Number | Adv. No. 90-260.,Motion No. 90-2458M,Bankruptcy No. 88-00448,90-2529M,90-2789M and 90-4219M |
| Citation | 118 BR 282 |
| Parties | In re ALLEGHENY INTERNATIONAL, INC., Sunbeam Corporation, Sunbeam Holdings, Inc., Almet/Lawnlite, Inc., Chemetron Corporation, Integrated Specialties, Inc., Allegheny International (USA), Inc., Al-Industrial Products, Inc., Allegheny International Exercise Co., Woodshaft, Inc., Chemetron Investments, Inc., Infoswitch, Inc., and Eliskim, Inc., Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
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Stephen I. Goldring, Asst. U.S. Trustee, W.D. Pa., Pittsburgh, Pa., for U.S. Trustee.
Douglas A. Campbell, Campbell & Levine, Pittsburgh, Pa., for The Official Committee of Unsecured Creditors for Sunbeam.
Robert G. Sable, Sable, Makoroff & Libenson, Pittsburgh, Pa., for The Official Committee of Unsecured Creditors for Allegheny International, Inc.
David A. Murdock, Kirkpatrick & Lockhart, Pittsburgh, Pa., for the Mellon Bank Group.
Denis F. Cronin, Wachtell, Lipton, Rosen & Katz, New York City, for Marine Midland Bank, N.A.
M. Bruce McCullough, Buchanan Ingersoll, P.C., Pittsburgh, Pa., for Allegheny Intern., Inc.
Richard S. Toder, Zalkin, Rodin & Goodman, New York City, for Chemical Bank.
Joseph A. Katarincic, Katarincic & Salmon, Pittsburgh, Pa., James W. Giddens, Hughes Hubbard & Reed, Herbert P. Minkel, Jr., Fried Frank Harris Shriver & Johnson, Andrew Levander, Shereff, Friedman, Hoffman & Goodman, New York City, for Japonica Partners, L.P.
Richard A. Gitlin, Hebb & Gitlin, P.C., Hartford, Conn., for Ins. Co. Lenders.
David T. Sykes, Duane, Morris & Heckscher, Philadelphia, Pa., for AI Investments, L.P.
Joel M. Walker, Pollard, Walker & Vollmer, Pittsburgh, Pa., for Prudential
Capital Investments and Prudential Ins. Co. of America.
John M. Elwood, Director of Reorganization, Allegheny International, Inc., Pittsburgh, Pa., for Allegheny Intern., Inc.
Securities & Exchange Com'n, New York City, for Securities & Exchange Com'n.
Larry D. Henin, Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, for Official Committee of Equity Security Holders.
Timothy T. Brock, Gordon Hurwitz Butowsky Weitzen Shalov & Wein, New York City, for Fidata Trust Co. New York.
Rhoda J. Freeman, Cowen & Co., New York City, for Cowen & Co.
The matter presently before the court is the debtor's1 motion to confirm its plan of reorganization and the objections of various parties to confirmation. The court confirms the plan of reorganization, subject to the conditions and limitations set forth below. Intertwined with the motion to confirm is the Debtor's Motion Under Bankruptcy Code Section 1126(e) to Designate and Disqualify Votes of Claims and Interests Directed by Japonica Partners and Others Acting in Concert (the "debtor's motion to designate"). Also pending are Japonica's Motion Under Bankruptcy Code Section 1126(e) to Designate and Disqualify Votes of Claims and Interests Not Solicited or Procured in Good Faith ("Japonica's motion to designate") and the Motion of the Official Committee of Equity Security Holders of Allegheny International, Inc. to Disqualify All Votes on the Debtor's Stock Plan Pursuant to Bankruptcy Code Section 1126(e) ().
In addition, the group of 16 banks who were prepetition secured lenders to the debtor have brought an adversary action at Adversary No. 90-260 seeking equitable relief against Japonica Partners, L.P. ("Japonica") and its affiliates.
The debtor's motion to designate is granted; the votes of which are the subject of that motion are disqualified. Japonica's motion to designate and the Equity Committee's motion to designate are denied, but based on those facts certain limitations, discussed below, are imposed on certain of the secured lenders and the debtor's insiders, as well as Donaldson, Lufkin and Jenrette ("DLJ") and its affiliates. With respect to the action against Japonica by the bank group, Japonica and its affiliates are enjoined, as set forth below.
The instant matters are core proceedings, involving confirmation of a plan of reorganization, 28 U.S.C. § 157(b)(2)(L), and "other proceedings affecting . . . the adjustment of the debtor-creditor or the equity security holder relationship. . . ." 28 U.S.C. § 157(b)(2)(0). This court has jurisdiction over the parties and subject matter pursuant to 28 U.S.C. § 1334.
This opinion shall constitute findings of fact and conclusions of law, pursuant to Bankruptcy Rule 7052.
In preparation for trial on the instant matters, intense discovery occurred. The discovery took the form of multitudinous depositions, including multiple depositions of the same person — compressed into a short time. The discovery activity included allegedly "cloak and dagger" activities to serve deposition notices on certain parties and equally clever methods to avoid depositions. Especially of note for reasons we will discuss infra, Japonica was unable to serve a deposition notice on Daniel Lufkin, the secured lenders' designated member of the board of directors of the reorganized debtor.
Unless it is necessary to repeat certain facts in the interest of clarity, the court will not burden readers with the history of the first 22 months of this case. The parties to these matters are painfully aware of those facts. For the uninitiated, those facts are available in numerous memorandum opinions by this court, both published and unpublished. For the motions to designate, we take up the saga, beginning on December 29, 1989, when the debtor filed the instant plan of reorganization. The court conducted several days of hearings on the disclosure statement in January 1990.2 The court approved the debtor's disclosure statement on February 5, 1990, setting the last day to ballot on the debtor's plan as March 30, 1990, at 5:00 P.M.
However, on January 24, 1990, near the conclusion of the hearings on the debtor's disclosure statement, Japonica filed its plan of reorganization (the "Japonica plan") and disclosure statement which mirrored and utilized in large part the debtor's material and organization. The court was urged by Japonica not to approve the debtor's disclosure statement until Japonica's disclosure statement could be approved and a joint ballot distributed. Japonica requested an extraordinary reduction in the time the rules provided for confirmation. The court feared additional delay and denied the request. The court set separate schedules for confirmation of the plans and promised Japonica an opportunity for creditors to vote on the Japonica plan before any order of confirmation would be issued.
The Japonica plan offered cash equivalent to $6.42 per share with holdbacks, as compared to the debtor's proposed stock plan which offered $7.00 per share. Under the Japonica plan, Japonica would acquire control of the debtor. Deposition of Michael G. Lederman, Esq., 4/20/90, 290; 5/3/90, 66. Although Japonica had indicated its interest in acquiring control of the debtor as early as July 1989, Japonica held no interest as a creditor or equity holder of the debtor until immediately prior to the filing of its proposed plan and disclosure statement. To qualify as a party in interest authorized to file a plan, Japonica purchased public subordinated debentures of the debtor with a face value of $10,000 for $2,712. At that time, the court was unaware that the purchase of claims would be the tactic used by Japonica to gain control.
On February 23, 1990, Japonica began purchasing claims of the secured bank lenders, Class 2.AI.2. This occurred after the debtor's disclosure statement was approved and the debtor's plan balloting had commenced. This was also after Japonica had proposed a plan and disclosure statement and had become a proponent of a plan. The purchase of the following claims gave Japonica control of approximately 27% of the claims in Class 2.AI.2:
% OF
DATE FACE
NAME OF BANK SOLD FACE AMOUNT PRICE PAID AMOUNT
Canadian Imperial 2/23/90 $12,614,800 $10,121,543.25 80.24%
Bank of Commerce
("CIBC")
Israel Discount 2/23/90 2,803,289 2,247,005.25 80.16%
Bank of New York
The Northern 2/26/90 5,606,578 4,498,462.50 80.24%
Trust Company
Harris Trust and 2/26/90 11,213,154 8,966,925.00 79.97%
Savings Bank
NCNB National 3/13/90 8,409,868 6,747,237.00 80.23%
Bank of North
Carolina
First National 3/23/90 9,811,511 8,339,784.35 85%
Bank of Boston
Debtor's Exhibit D-1. On or about March 26, 1990, Japonica purchased the claim of Continental Bank, N.A. ("Continental"), with a face amount of $12,614,800, for $11,984,060, or 95% of the face amount. Following the purchase of the claim of Continental, Japonica held 33.87% of the claims in Class 2.AI.2, enabling Japonica to block an affirmative vote by that class on the debtor's plan of reorganization. 11 U.S.C. § 1126(c).3 After achieving its blocking position, Japonica purchased the claim of Bank of Hawaii, with a face amount of $2,242,630, for $1,838,956.60, or 82% of the face amount. Under the terms of the assignments by the aforementioned banks, Japonica caused the votes of the claims it purchased to be voted against the debtor's plan.4
In addition to purchasing the claims for cash, Japonica agreed to indemnify the assigning banks for all expenses and liability arising from certain lawsuits against the members of Class 2.AI.2. At least some of the assigning banks would not sell their claims unless Japonica agreed to assume such liability. For...
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