In re Blue Coal Corp.
| Decision Date | 10 June 1994 |
| Docket Number | 78-604.,Bankruptcy No. 76-1311 |
| Citation | 168 BR 553 |
| Parties | In re BLUE COAL CORPORATION, Bankrupt. In re GLEN NAN, INC., Bankrupt. |
| Court | U.S. Bankruptcy Court — Middle District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
William H. Schorling, Pittsburgh, PA, for Frank J. McDonnell.
Michael Martineau, U.S. Dept. of Justice, Tax Div., Washington, DC, for I.R.S.
Charles A. Shea, III, Wilkes-Barre, PA, for Anthracite Health and Welfare Fund.
D. Alan Harris, Chicago, IL, for Com. of Pennsylvania.
Paul M. Pugliese, Kingston, PA, for Luzerne County.
William G. Tressler, State College, PA, for Resource Technologies Corp.
Richard W. Cross, New York State Dept. of Law, Albany, NY, for State of New York.
Bradford Dorrance, Harrisburg, PA, for Shipping and Coal Co.
Ronald J. Wydo, Wilkes-Barre, PA, for Hanover Tp.
John H. Doran, Wilkes-Barre, PA, for Doran & Nowalis.
For the third time in the past seven (7) years, this court has been asked to approve a bulk sale of all of the assets of Blue Coal Corporation and Glen Nan, Inc. ("Blue Coal"). Both of those prior motions met with court approval. See In re Blue Coal Corp., 67 B.R. 798 (Bkrtcy.M.D.Pa.1986) and In re Blue Coal Corp., No. 76-1311, No. 78-604 (Bkrtcy.M.D.Pa. April 17, 1989) (Order approving sale). Despite that, the sales did not close because of the inability of the buyer to secure financing.
One would think that after two (2) Motions to Sell Property were successfully approved by the court, the Trustee would have little difficulty in obtaining approval of the pending motion. Notwithstanding that previous success, however, Murphy's Law (the proposition that if things can go wrong, they will go wrong) seems to have had more of an impact in this specific proceeding than even the bankruptcy law.
In January, 1992, a non-profit entity known as Earth Conservancy was created at the request of United States Congressman Paul E. Kanjorski, a member of the House of Representatives from the Eleventh Congressional District of Pennsylvania.
The board of directors of Earth Conservancy includes a cross section of business and educational representatives including Attorney Peter Kanjorski, brother of the Congressman, and Joseph Yudichak, whose membership on the board will be discussed later in this opinion. Transcript, January 24, 1994, page 124.
The purpose of this entity was to establish an applied research center for the application of technology to clean up environmentally damaged lands and to create commercially successful ventures in the process. Transcript, January 24, 1994, page 127.
To implement its stated goals, the Earth Conservancy made no secret of its desire to acquire the seventeen thousand (17,000) acres of Blue Coal with funds appropriated by the United States Government.
With that purpose in mind, the Earth Conservancy began negotiations with the Trustee in bankruptcy, Frank McDonnell, to acquire the bankrupts' assets. These negotiations initially culminated in an agreement being executed in April of 1992 by the Trustee and by Earth Conservancy. Transcript, August 5, 1993, page 147.
When it became apparent to the Trustee that the agreement did not, in fact, agree with the terms of the purchase as understood by the Trustee, Mr. McDonnell disclaimed the agreement and instructed his then counsel Attorney John Doran to renegotiate its terms. Transcript, August 8, 1993, page 137.
During this hiatus, a difference in liquidation policy occurred between the Trustee and certain active unsecured creditors as to the methodology for asset disposition. The Trustee wished only to consider the liquidation of the Blue Coal assets in bulk to one buyer. On the other hand, certain unsecured creditors were convinced that a piecemeal liquidation effort was in their best interest and would have resulted in a more significant distribution. That concern became so great that the United States of America through the tax division of the Department of Justice actually applied to the bankruptcy court for an order compelling the bankruptcy Trustee to liquidate on a piecemeal basis.
Hearings commenced thereon and resulted in this court issuing an Order on January 12, 1993, which, inter alia, compelled the Trustee to liquidate on a piecemeal basis without foreclosing the possibility that a bulk sale could be negotiated should those circumstances arise.
Pursuant to that Order of January 12, 1993 (Liquidation Order), the Trustee initiated liquidation and, in fact, executed eight (8) sales agreements which were noticed to creditors on March 31, 1993.
During this notice period, serious negotiations with Earth Conservancy began anew at which time the Trustee instructed his counsel not to pursue any further piecemeal sales efforts pending the conclusion of these negotiations with Earth Conservancy. The Trustee set his own deadline of May 15, 1993 when either a contract would be negotiated with Earth Conservancy or piecemeal liquidation efforts would again be implemented. Transcript, August 9, 1993, page 72. An agreement was, in fact, reached with the Earth Conservancy. That agreement was filed of record and a Motion to sell this property free and clear of liens was filed on June 16, 1993.
Thereafter, the United States of America, objecting to the delay caused by this negotiation, filed a motion to compel liquidation or remove the trustee on August 9, 1993.
The contract with Earth Conservancy provides for the liquidation of virtually all of the property of the estate to Earth Conservancy pursuant to either of the following options at the Trustee's discretion: (1) 12.6 million dollars and either a waiver of all tax claims by the state and federal governments or, 2 million dollars with some figure adjusted in between should only partial waivers be obtained or, alternatively, (2) 10.6 million dollars plus either various waivers of state and federal claims including, but not limited to, tax claims or 4 million dollars.
Prior to initiating testimony, the Trustee withdrew his request for the court to consider the second alternative and focused his efforts on approval of the 12.6 million dollar offer together with either waivers or 2 million dollar supplement.
By Stipulation for the purposes of this hearing, the tax claim of the Commonwealth is Four Hundred Sixteen Thousand Eight Hundred Twenty-Two and 53/100 Dollars ($416,822.53) and the priority tax claim of the federal government is Three Million Three Hundred Four Thousand Eight Hundred Thirteen and 27/100 Dollars ($3,304,813.27). Transcript, January 26, 1994, pages 6 and 7. Since there was no evidence offered as to the likelihood of securing "waivers" from the taxing authorities, this court will presume that the offer by Earth Conservancy is equivalent to an established offer of 14.6 million dollars with any greater value to be speculative.
Supporting approval of the agreement of sale, despite a provisional objection1, is the principal secured creditor, The Anthracite Health and Welfare Fund ("Fund"), who holds a disputed judgment claim in the approximate amount of 2.4 million dollars together with possible interest.
Opposing the agreement of sale are the United States of America, the Commonwealth of Pennsylvania, the Luzerne County Tax Claim Bureau, the State of New York, and Shipping and Coal Company, all of whom are pre-petition creditors of the estate.
No unsecured creditor of the estate actively supported the Trustee's agreement of sale with the Earth Conservancy.
Hearings on the Motion for free and clear sale began August 4, 1993, and continued for six (6) days during which time the Trustee testified with regard to the general history of this case as well as the specific negotiations with Earth Conservancy.
During the testimony of the Trustee, this court held that the attorney-client privilege had been waived with regard to certain topics including negotiations with the Earth Conservancy and concerning the occupation of a part of the Blue Coal lands by an entity known as the Eleventh Congressional Regional Equipment Center ("REC"). Transcript, August 6, 1994, page 76, et seq. By reason of that waiver, various and sundry items of correspondence between the Trustee and his counsel were made a part of the record. With that release of information, it became obvious that a significant disagreement existed between the Trustee and his lawyer as to the efficacy of negotiations with the Earth Conservancy and the adequacy of the consideration offered by that entity.
Tension between the Trustee and his counsel was apparent. At the beginning of the sixth day of testimony, John Doran approached this court and notified it that he would not sponsor the appraisal testimony of expert, Arnold Tesh, because Doran apparently did not believe the proffered testimony was well grounded in fact. Transcript, August 11, 1993, page 16.
The court's reaction to that disclosure was that unless counsel believed the appraiser would perjure himself, he had an obligation to put on those experts requested by the Trustee or he could withdraw as counsel to the Trustee or the Trustee could consider relieving Attorney Doran from his duties and retain new counsel. Since none of those events occurred, the court was in a position to hear the testimony of appraiser Tesh.
After this dialogue with the court and a break from the proceedings so that all parties could consider their positions, the Trustee returned to the court and orally made a Motion to discharge his counsel and for the court to recuse itself by reason of the court's alleged "long time friendship with Mr. Doran". Transcript, August 11, 1993, page 33.
The court denied recusal after consideration since it considered his relationship with Attorney John Doran to be no different than his relationship with many other lawyers during the time of the court's private practice of bankruptcy law until his appointment to the...
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