In re Apex Oil Co.
| Decision Date | 16 February 1990 |
| Docket Number | No. 87-03804-BSS.,87-03804-BSS. |
| Citation | 111 BR 245 |
| Parties | In re APEX OIL COMPANY, et al., Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Missouri |
Bernard Shapiro, Robert Jay Moore, Howard J. Weg, Gendel, Raskoff, Shapiro & Quittner, Clayton, Mo., Bernard Shapiro, Robert Jay Moore, Howard J. Weg, Gendel, Raskoff, Shapiro & Quittner, Los Angeles, Cal., Dennis A. Ferrazzano, Barack, Ferrazzano and Kirschbaum, Chicago, Ill., for debtors.
Michael A. Kahn, Gallop, Johnson and Neuman, Steven N. Cousins, Armstrong, Teasdale, Kramer, Vaughan & Schlafly, St. Louis, Mo., for unsecured Creditors Committee.
Robert H. Brownlee, Thompson & Mitchell, St. Louis, Mo., for Chemical Bank.
Kenneth Mallin, Coburn, Croft & Putzell, St. Louis, Mo.
This case involves the solicitation of confirmation votes by a creditor, an Indenture Trustee, in an effort to reject the debtors' proposed plan of reorganization. The Indenture Trustee has asked this Court to determine whether the Court must approve all materials used in such solicitation prior to their dissemination.
This court has jurisdiction over the subject matter of the proceeding pursuant to 28 U.S.C. §§ 151, 157, 1334 and Local Rule 29 of the United States District Court for the Eastern District of Missouri. This is a "core proceeding" which the Court may hear and determine pursuant to 28 U.S.C. § 157(b)(2)(A) and (L).
On February 12, 1990, the Debtors' Second Amended Disclosure Statement (hereinafter "Disclosure Statement") received approval from this Court. Chemical Bank (hereinafter "Chemical"), an Indenture Trustee, has expressed an intent to solicit creditors in an effort to obtain a sufficient number of votes to reject and defeat the Debtors' proposed plan of reorganization (hereinafter "Plan"). On February 9, 1990, counsel for the Debtor made an oral motion requesting that Chemical Bank and all other parties in interest should be required to seek and obtain court approval of any solicitation materials prior to distribution to creditors.
The Debtor concedes that very little established case law exists in support of its position. In fact, other than a law review article and a case note,1 the only authority which the Debtor cited was In re Century Glove, Inc, whose pertinent holdings were overruled by the district court and the Third Circuit. 74 B.R. 952 (Bankr.D.Del. 1987), aff'd in part and rev'd in part sub nom. First American Bank of New York v. Century Glove, Inc., 81 B.R. 274 (D.Del. 1988), aff'd in part, 860 F.2d 94 (3rd Cir. 1988).
The Debtor offers several reasons why this Court should require its approval of all additional materials sent to creditors. First, the Debtor contends that court approval is absolutely necessary to ensure that creditors do not receive false, misleading, or inaccurate information. Second, such a requirement would serve to obviate possible "irreversible and irreparable damage" which may result from such information. Finally, the Debtor argues that court approval is necessary to maintain the integrity of the voting process.
Chemical, on the other hand, relies solely on Century Glove, Inc. v. First American Bank of New York, 860 F.2d 94, 100 (3d Cir.1988), in which the Second Circuit held that once a court has approved a disclosure statement for distribution to creditors, the court need not approve solicitations. Thus, based on the Century Glove holding, Chemical requests that after Disclosure Statement approval, this Court should not require its prior approval of any third party solicitation relating to the Debtors' Joint Plan.
Section 1125(b) of the Bankruptcy Code provides, in pertinent part:
An acceptance or rejection of a plan may not be solicited after the commencement of the case under this title from a holder of a claim or interest with respect to such claim or interest, unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information....
Thus, the claim holder's receipt of the debtor's proposed plan of reorganization and disclosure statement approval are both pre-requisites to a solicitation of creditors to accept or reject the plan. Few cases address the issue of whether, after disclosure statement approval, a party must seek approval of all materials which will be sent in solicitation of the claim holder's acceptance or rejection of the plan. However, review of the existing case law of this area of the law is instructive.
Undoubtedly the seminal case in the area of post-disclosure statement solicitation is In re Century Glove, Inc., supra. In Century Glove, a creditor, soliciting rejections of the debtor's plan, sent certain creditors draft copies of an alternative plan after the court had approved the debtor's disclosure statement. The United States Bankruptcy Court for the District of Delaware held that a party in interest may solicit acceptances or rejections of a proposed plan of reorganization after the commencement of the case only after the transmittee has received a copy of the plan or summary thereof and a copy of the court-approved disclosure statement. 74 B.R. at 955. The court, invalidating certain creditors' rejection votes, further held that such solicitations "must be limited by the contents of the plan, the disclosure statement, and any other court-approved material". Id. at 955. Thus, the bankruptcy court assumed, and the Debtor herein urges, that after court approval of the debtor's disclosure statement, a party may only solicit a claim holder's acceptance or rejection of a plan with materials which have received prior court approval. Unfortunately, the court went no further in expounding upon its rationale for such a restriction.
In In re Temple Retirement Community, Inc., 80 B.R. 367 (Bankr.W.D.Tex.1987), a case decided just five months after the bankruptcy court handed down its Century Glove decision, dissenting bondholders asked the indenture trustee to inform other bondholders of their objections to the debtor's proposed plan. Ruling on the indenture trustee's motion for guidance on this request, the United States Bankruptcy Court for the Western District of Texas held that the indenture trustee was not required to forward the dissenting bondholders' solicitations to other bondholders. 80 B.R. at 369. The court reasoned that although the dissenting bondholders did not put forth an alternative plan, as was the case in Century Glove, the proposed solicitation letter would imply that another proposed plan of reorganization awaited bondholders if they rejected the current plan before them. Id. Such an implication, the court ruled, could not be made during the exclusive six month period which the debtor enjoyed as this would undermine the advantage which the Bankruptcy Code sought to afford the debtor. Id.
The Temple Retirement court, however, qualified its ruling, stating that while the suggestion of an alternative plan through an indenture trustee may be impermissible, this should not be construed as a blanket prohibition of dissenting creditors' soliciting rejections of a proposed plan. Id. The court stated that the solicited objections might have been approved had the dissenting bondholders "moved for early approval of solicitation materials or for inclusion of the alternative in the disclosure statement prior to its approval". Id. Thus, the court, essentially following the ruling enunciated by the bankruptcy court in Century Glove, concluded that the dissenting bondholders could independently solicit rejections and point out the shortcomings of the debtor's plan, but could not furnish information which fell outside the scope of the disclosure statement, which the court had approved.
Affirming the district court's reversal of the bankruptcy court ruling in Century Glove, supra, the United States Court of Appeals for the Third Circuit held that § 1125(b) does not empower a bankruptcy court to require its approval of all materials used to solicit a claim holder's acceptance or rejection of a proposed plan of reorganization. 860 F.2d at 100. Citing the provision's legislative history, the Third Circuit stated:
The court further stated that Congress enacted this section with the intent of providing the claim holder with the "adequate information" necessary to aid them in their negotiations. Thus, the requirement that solicitation materials receive prior court approval hampers and indeed undercuts this statutory purpose. Id. at 100-01. Finally, the court observed that such a rule would force a prudent creditor to gain court approval of every...
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