In re Caesars Entm't Operating Co.

• Decision Date: 09 March 2015
• Docket Number: No. 15 B 1145 Jointly administered,15 B 1145 Jointly administered
• Citation: 526 B.R. 265
• Parties: In re: Caesars Entertainment Operating Co., Inc., et al., Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

526 B.R. 265

In re: Caesars Entertainment Operating Co., Inc., et al., Debtors.

No. 15 B 1145 Jointly administered

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed March 9, 2015

Attorneys for debtors Caesars Entertainment Operating Co., Inc., et al.: James H.M. Sprayregen, P.C., David R. Seligman, P.C., Kirkland & Ellis LLP, Chicago, IL; Paul M. Basta, Nicole L. Greenblatt, Kirkland & Ellis LLP, New York, NY

Attorney for Patrick Layng, U.S. Trustee: Cameron M. Gulden, Office of the United States Trustee, Chicago, IL

Attorneys for Official Committee of Second Priority Noteholders: Brad B. Erens, Timothy W. Hoffmann, Jones Day, Chicago, IL; Bruce Bennett, James O. Johnston, Sidney P. Levinson, Joshua M. Mester, Jones Day, Los Angeles, CA

Attorneys for Statutory Unsecured Claimholders' Committee: Martin J. Bienenstock, Judy G.Z. Liu, Philip M. Abelson,

Vincent Indelicato, Proskauer Rose LLP, New York, NY; Jeff J. Marwil, Mark K. Thomas, Paul V. Possinger, Brandon W. Levitan, Proskauer Rose LLP, Chicago, IL

Attorneys for Ad Hoc Committee of First Lien Bank Lenders: Brian L. Shaw, Shaw Fishman Glantz & Towbin LLC, Chicago, IL; Kristopher M. Hansen, Kenneth Pasquale, Erez E. Gilad, Jonathan D. Canfield, Stroock & Stroock & Lavan LLP, New York, NY

Attorneys for Ad Hoc Committee of First Lien Noteholders: Mark A. Berkoff, William Choslovsky, Nicholas M. Miller, Neal, Gerber & Eisenberg LLP, Chicago, IL; Kenneth H. Eckstein, Douglas H. Mannal, Daniel M. Eggermann, David E. Blabey, Jr., Kramer Levin Naftalis & Frankel LLP, New York, NY

Attorneys for Ad Hoc Committee of Holders of the 12.75% Second Priority Senior Secured Notes due 2018: Jeffrey E. Altshul, Kurt M. Carlson, Carlson Dash, LLC, Chicago, IL; John H. Bae, Kaitlin R. Walsh, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., New York, NY; William W. Kannel, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA

Attorneys for UMB Bank, N.A., as successor indenture Trustee under the First Lien Indentures: Peter A. Siddiqui, Katten Muchin Rosenman LLP, Chicago, IL; Craig A. Barbarosh, David A. Chrichlow, Karen B. Dine, Katten Muchin Rosenman LLP, New York, NY

Attorneys for Wilmington Trust, N.A., as successor indenture Trustee for the 10.75% Senior Secured Notes: Eric N. Macey, Stephen J. Siegel, Julie Johnston–Ahlen, Novack & Macey LLP; J. Christopher Shore, White & Case LLP, New York, NY; Thomas E. Lauria, Jason Zakia, White & Case LLP, Miami, FL; Seth H. Lieberman, Patrick Sibley, Pryor Cashman LLP, New York, NY

Attorneys for BOKF, N.A., successor trustee for the 12.75% Second–Priority Senior Secured Notes Due 2018: Mark F. Hebbeln, Harold L. Kaplan, Foley & Lardner LLP, Chicago, IL; Andrew I. Silfen, Arent Fox LLP, New York, NY; Mark B. Joachim, Arent Fox LLP, Washington, DC

MEMORANDUM OPINION

A. Benjamin Goldgar, United States Bankruptcy Judge

This matter is before the court for ruling on the motion of debtors Caesars Entertainment Operating Company, Inc., and certain subsidiaries (collectively “Caesars”) to disband the Official Committee of Second Priority Noteholders (the “Noteholders Committee”). (Dkt. No. 384). The Noteholders Committee is one of two committees that the United States trustee (“U.S.Trustee”) appointed under section 1102(a)(1) of the Bankruptcy Code, 11 U.S.C. § 1102(a)(1), at the beginning of these cases. Because a bankruptcy court has no power to disband a committee that the U.S. Trustee has appointed under section 1102(a)(1), the motion will be denied.

1. Jurisdiction

The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1334(a) and the district court's Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).

2. Background

The few relevant facts are drawn from the motion and responses, from other papers in the bankruptcy cases, and from the court's docket. No facts are in dispute.

The debtors in these cases describe themselves as the primary operating units of the “Caesars gaming enterprise.” The debtor named in the caption, Caesars Entertainment Operating Company, Inc. (“CEOC”), is a subsidiary of non-debtor Caesars Entertainment Corporation. The rest of the debtors are subsidiaries of CEOC.

On January 12, 2015, three creditors filed an involuntary bankruptcy petition against CEOC in the District of Delaware. Three days later, on January 15, 2015, CEOC and the other debtors filed voluntary chapter 11 petitions in this district. After initially staying the voluntary cases, the bankruptcy court in Delaware determined under Rule 1014(b), Fed. R. Bankr.P. 1014(b), that all of the cases should proceed in this district. The Delaware court lifted the stay and transferred the involuntary case here. The cases are pending.¹

On January 28, 2015, the U.S. Trustee issued a notice that on February 4, 2015, he would hold a meeting to form a committee of unsecured creditors. Before the February 4 meeting, counsel for Caesars sent the U.S. Trustee a letter arguing at length that holders and trustees of Caesars' second lien notes and subsidiary guaranteed notes were not suitable to serve on an official unsecured creditors committee. Among the holders of second lien notes are the petitioning creditors in the involuntary case.

The February 4 meeting must have taken place, because the next day the U.S. Trustee filed not one but two notices with the court. The first was a notice of the appointment of an unsecured creditors committee (the “Unsecured Creditors' Committee”). The second was a notice of the appointment of an “official committee of second priority noteholders.”

Nothing in the record explains why the U.S. Trustee chose to appoint the Noteholders Committee in addition to the Unsecured Creditors' Committee. The U.S. Trustee gave no reasons for doing so. He did not have to give reasons. See In re ShoreBank Corp., 467 B.R. 156, 162 (Bankr.N.D.Ill.2012) (“The U.S. Trustee did not provide a rationale or make a record [in appointing a committee] for the simple reason that the Code did not require him to.”).

Unhappy with this state of affairs, Caesars now moves for an order disbanding the Noteholders Committee. Caesars argues that (1) an intercreditor agreement to which each Committee member is a party would prevent the Committee from performing many of its statutory functions, see 11 U.S.C. § 1103(c) ; (2) the noteholders are sophisticated business entities who do not need a committee to represent their interests; and (3) a second committee in the case will dramatically increase administrative costs with no corresponding benefit to the estates. Alternatively, if the Committee is not disbanded, Caesars asks to have the two committees merged (“reconstituted” is Caesars' term) or at a minimum to limit the Noteholders Committee's activities so as not to duplicate the work of the Unsecured Creditors' Committee.

Other parties have weighed in. UMB Bank, the first lien notes indenture trustee, joins Caesars' motion, as do the Ad Hoc Committee of First Lien Noteholders and the Ad Hoc Committee of First Lien Bank Lenders. The Noteholders Committee not surprisingly objects to the motion, as do the U.S. Trustee and the Unsecured Creditors' Committee. BOKF, N.A., a member of the Noteholders Committee, joins that Committee's objection. So does the Ad Hoc Committee of Holders of 12.75% Second Priority Senior Secured Notes due 2018. Wilmington Trust, N.A., an indenture trustee for certain senior unsecured notes, joins the Unsecured Creditors' Committee's objection.

3. Discussion

When the Bankruptcy Code was enacted in 1978, bankruptcy courts had authority to appoint creditors committees in chapter 11 cases. Kenneth N. Klee & K. John Shaffer, Creditors' Committees under Chapter 11 of the Bankruptcy Code, 44 S.C. L.Rev. 995, 1001–02 (1993). With the expansion of the U.S. Trustee program in 1986, however, Congress transferred that authority to the U.S. Trustee. Id. at 1002 ; In re Mercury Fin. Co., 240 B.R. 270, 275 (N.D.Ill.1999). The U.S. Trustee's role is now described in section 1102(a)(1). That section provides that the U.S. Trustee “shall appoint a committee of creditors holding unsecured claims and may appoint additional committees of creditors or of equity security holders as the United States trustee deems appropriate.” 11 U.S.C. § 1102(a)(1).

The rest of section 1102(a) spells out the powers left to the bankruptcy court. Section 1102(a)(2) says the court “may order the appointment of additional committees of creditors or of equity security holders if necessary to assure adequate representation....” 11 U.S.C. § 1102(a)(2). Section 1102(a)(3) says that in a small business case the court “may order that a committee of creditors not be appointed.” 11 U.S.C. § 1102(a)(3). And section 1102(a)(4) says the court can order the U.S. Trustee “to change the membership of a committee” if a change is “necessary to ensure adequate representation of creditors or equity security holders.” 11 U.S.C. § 1102(a)(4).

Those are the only powers over committees the Code gives the court. There are no others. In particular, nothing in section 1102(a) confers on the court the power to disband a committee the U.S. Trustee has appointed under section 1102(a)(1). See In re Dewey & Le b oeuf LLP, No. 12–12321 MG, 2012 WL 5985325, at *3 (Bankr.S.D.N.Y. Nov. 29, 2012) ; In re Pacific Ave., LLC, 467 B.R. 868, 870 (Bankr.W.D.N.C.2012) (“There is no specific statutory provision for disbanding a creditors' committee.”); In re JNL Funding Corp., 438 B.R. 356, 361 (Bankr.E.D.N.Y.2010) (“Section 1102 is silent as to this Court having power to order a committee to be disbanded....”); In re Texaco, Inc., 79 B.R. 560, 565 (Bankr.S.D.N.Y.1987) ; see also 1 Robert E. Ginsberg & Robert D. Martin, Ginsberg & Martin on Bankruptcy § 4.02[B][1] at 4–46 to 47 (Susan V. Kelley, ed. 2013–1 Supp.) (“There is no statutory authority to disband a committee....”).²

Because section 1102(a) grants specific powers, and because the power to disband a...