In re CF Smith & Associates, Inc.
| Decision Date | 24 June 1999 |
| Docket Number | Bankruptcy No. 98-45574 JFQ. |
| Citation | 235 BR 153 |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
| Parties | In re C.F. SMITH & ASSOCIATES, INC., Debtor. |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Andre D. Summers, Summers Law Office, Franklin, MA, for Debtor.
DECISION
Before the court is the sexual harassment claim of M. Kellie Beaupre McDonough (the "Claimant") against C.F. Smith & Associates, Inc. (the "Company"), a chapter 11 debtor seeking reorganization in this court. This is an unusual sexual harassment case in that it is the product of a broken affair between the Claimant and Clifford F. Smith ("Smith"), the Company's founder and president. The present procedural posture is also out of the ordinary. To promote an expeditious reorganization under competing plans, I have decided to adjudicate the claim even though a state court judgment favoring the Claimant is on appeal blessed with relief from the automatic stay.
On January 29, 1993, the Claimant filed a complaint against the Company and Smith with the Massachusetts Commission Against Discrimination ("M.C.A.D."). Pursuant to Massachusetts General Laws chapter 151B, section 9, she thereafter dismissed her M.C.A.D. complaint and filed a more detailed complaint with the Superior Court Department of the Massachusetts Trial Court, Middlesex County (the "Superior Court"). Count I and III of that complaint, which allege sexual harassment as defined in Massachusetts General Laws chapter 151B, are the only counts that survived trial.1
On April 26, 1997, following a jury verdict for the Claimant and post-trial motions, the Superior Court entered judgment against the Company in the sum of $197,500 in compensatory damages, plus (i) interest from April 16, 1993 in the sum of $95,655.17, and (ii) costs and attorney fees in the sum of $175,383.61. Judgment was also entered against Smith in the same amount plus punitive damages of $87,000. The defendants immediately appealed both judgments (and a later order denying their motion to correct the record) to the Massachusetts Appeals Court.
Burdened with this claim, the Company filed its chapter 11 petition on July 24, 1998.2 It listed the Claimant's debt in the sum of $293,155.17 (including $95,655.17 of prejudgment interest but no postjudgment interest) and described the debt as "contingent unliquidated," apparently because of the pending appeal. It listed the Claimant's law firm as a creditor in the sum of $175,383.61. The Company's total scheduled unsecured debt, including amounts owed to its own lawyers for services in litigation with the Claimant, comes to $553,181.53. Its total scheduled secured debt is $191,270.3
On August 6, 1998, I denied the Claimant's motion for the appointment of a chapter 11 trustee.4 At the same time, I modified the automatic stay to permit both the Company and the Claimant to proceed further in the appeal to the Massachusetts Appeals Court.
Skirmishing on plan filing rights soon began. On November 13, 1998, on the Company's motion and over the Claimant's objection, I extended the Company's exclusive plan filing rights to January 15, 1999. On that date the Company filed its plan of reorganization and disclosure statement. The plan proposes paying unsecured creditors a total of $75,000, in installments over 60 months, with funds to come from operations and a capital infusion of $7,500. At the hearing on approval of the disclosure statement, held on February 25, 1999, I required that various amendments be made to the disclosure statement and continued the hearing to April 9, 1999.
On February 25th the Claimant filed a motion for authority to propose her own plan. This motion was also set down for hearing on April 9th. On that date I allowed the Claimant's motion to file her plan5 and set May 10th as the date for the hearing on approval of her disclosure statement. The Claimant's plan proposes to pay, in nine quarterly payments, 100% to all unsecured creditors except the Claimant and Smith, both of whom are to receive 50% of their claims in quarterly installments.6 It also proposes to change the present outstanding voting shares to nonvoting shares and to issue voting shares to the Claimant for $10,000. The Claimant's plan is thus quite different from the typical creditor nonliquidating plan which simply cancels all outstanding capital stock and converts unsecured debt to stock. On April 9th I also approved the Company's amended disclosure statement but prohibited it from soliciting creditor acceptance of its plan pending approval of the Claimant's disclosure statement.
At the May 10th hearing on the Claimant's disclosure statement it became apparent that no meaningful plan could be proposed by either party until resolution of the Company's appeal of the Claimant's judgment. Counsel estimated that the Massachusetts Appeals Court would not be able to render a decision for perhaps a year or more. Any chapter 11 reorganization, much less one with competing plans, poses a threat to the continued loyalty of a debtor's customers and employees. To prolong that uncertainty is to invite disaster. At the May 10th hearing I therefore rejected the approach of waiting for a result from the Massachusetts Appeals Court. I ruled, without objection from the parties, that I would establish the amount of the claim by means of adjudicating the merits of the Company's appeal.
The appendix and briefs that had previously been filed with the Appeals Court were thereafter filed here and I have since heard arguments on the appeal.7 At the argument I informed counsel I would estimate the claim without further trial if I concluded that under Massachusetts law the judgment should be reversed and a new trial ordered. I said I would make the estimation based upon a thorough examination of the appendix, which includes a transcript of the entire trial. I take that tack because this court's docket is sufficiently full to prohibit the holding of even a "mini-trial" until 2000. This is a delay which would obviously frustrate the very purpose of estimating the claim pursuant to section 502(c) of the Code — to facilitate an early reorganization.8
As shall be seen, I conclude that the Superior Court committed no prejudicial error. But the issues raised in the appeal are not without complexity. If the decision here is appealed, an appellate court may take a different view, reversing and remanding for me to fix and liquidate the claim under an appropriate estimation procedure. That entire process would consume so much time as to be the likely death knell for this reorganization. A decision on the merits of the appeal has required this court to review virtually the entire trial transcript. I may as well review what little of the appendix is left for review and make a decision now on the facts and law de novo. A decision based on this approach would then presumably be entitled to the discretion, discussed below, which is afforded a bankruptcy court's allowance of a claim based upon an estimation procedure. Part IX of this decision contains that approach.
In establishing the merits of the Company's appeal, by in effect sitting as the Appeals Court, I am adjudicating the claim through usual legal process rather than by estimating its value through an abbreviated process. And yet this is obviously not normal appellate procedure because no appeal is pending here. My authority to adjudicate the appeal rests in section 502(c), which grants bankruptcy courts broad discretion. See, e.g., Bittner v. Borne Chem. Co., Inc., 691 F.2d 134 (3d Cir.1982) (). A section 502(c) estimation is often employed for purposes other than adjudicating the merits of claim, such as to establish voting rights or determine a plan's feasibility. See, e.g., Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.), 843 F.2d 636, 646-48 (2d Cir.1988); In re Farley, Inc., 146 B.R. 748 (Bankr.N.D.Ill.1992); In re MacDonald, 128 B.R. 161 (Bankr. W.D.Tex.1991). In some cases courts have estimated the value of a claim for all purposes, including distribution, but have done so only on a temporary basis while expressing a willingness to reconsider the claim for "cause" under section 502(j)9 when its merits are finally adjudicated by the nonbankruptcy forum before which it is pending. See, e.g., In re Lane, 68 B.R. 609 (Bankr.D.Hawai'i 1986). That strikes me as an unnecessary duplication of effort and an unwise prolonging of uncertainty. The merits of a claim may be finally adjudicated under an estimation procedure. See, e.g., Midway Motor Lodge v. Innkeepers' Telemanagement & Equip. Corp., 54 F.3d 406 (7th Cir.1995). Here too the bankruptcy court is afforded a measure of discretion. See, e.g., Addison v. Langston (In re Brints Cotton Mktg., Inc.), 737 F.2d 1338 (5th Cir.1984) ().10
I now turn to the first task at hand — to estimate, for all purposes, including distribution and voting, the Claimant's claim against the Company by means of adjudicating the merits of the Company's appeal.
One of the Company's grounds for appeal is alleged error by the Superior Court in its denial of the Company's motions for a directed verdict and for judgment notwithstanding the verdict. I therefore summarize the evidence in the light most favorable to the Claimant. See Chase v. Roy, 363 Mass. 402, 294 N.E.2d 336, 337 (1973).
It was a May and December affair. When it began, in February of 1989, the Claimant was 27 and recently...
To continue reading
Request your trial