In re Energy Co-op., Inc.
| Decision Date | 04 February 1985 |
| Docket Number | 81 A 3286.,No. 81-B-5811,81-B-5811 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | In re ENERGY COOPERATIVE, INC., Debtor. ENERGY COOPERATIVE, INC., Plaintiff, and Getty Trading and Transportation Company, Houston Oil & Refining, Inc., Bountiful Corporation, Listo Petroleum, Inc., Catalytic, Inc., Topco Shareholders and Intercontinental Oil Company, Intervening Plaintiffs, v. FARMERS UNION CENTRAL EXCHANGE, INC., Farmers Petroleum Cooperative, Inc., FCX, Inc., Landmark, Inc., Land O'Lakes, Inc., Midland Cooperatives, Incorporated, MFA Oil Company and Tennessee Farmers Cooperative, Defendants. |
This matter comes before the court on two separate motions: the plaintiff and intervening plaintiffs' Joint Motion for an Expedited Ruling on the Application for Determination as to Proper Party and the Motion of Certain Parties to Withdraw as Intervening Plaintiffs and Putative Class Representatives.
The parties are familiar with the facts. In May, 1981, Energy Cooperative, Inc. (ECI) filed a Chapter 11 petition under the Bankruptcy Code. On May 31, 1984, the matter was converted to Chapter 7 proceedings, and a trustee was appointed.
In October, 1981, ECI commenced this action against its Member-Owners, a group of agricultural cooperatives which owned all of ECI's stock. The original complaint, which presently constitutes Count I of the pending complaint, seeks to enforce against the Member-Owners certain agreements to fund ECI in amounts sufficient to pay all debts.
In April, 1983, ECI filed an amendment to the complaint, which presently constitutes Count II of the pending complaint. Count II seeks to impose joint and several liability on the Member-Owners in such amounts as may be necessary to pay all obligations of ECI. It contends that ECI should be viewed as the alter-ego and agent of the Member-Owners and that the Member-Owners should be held jointly and severally liable to ECI by virtue of facts that warrant "piercing the corporate veil."
In December, 1983, the intervening plaintiffs, seven unsecured creditors of ECI, sought to intervene with respect to Count II, and permission was granted in April, 1984. The intervenors' complaint adopts Count II of the complaint and seeks the same relief.
The intervening plaintiffs seek to bring the intervenors' complaint as a class action, and thus to "pierce the corporate veil" on behalf of all unsecured creditors of ECI. They and the trustee now ask the court to determine whether the unsecured creditors or the trustee are the proper parties to bring the action. Additionally, certain of the intervening plaintiffs request leave to withdraw, alleging changed circumstances.
Intervening plaintiffs, jointly with the trustee in bankruptcy for ECI, ask the court to determine whether Count II of the pending complaint is properly prosecuted by the trustee, by the intervening plaintiffs, or by both. The movants maintain that ECI has limited resources with which to conduct a wide range of legal proceedings in connection with the bankruptcy, and thus in order to determine how best to allocate resources, the trustee needs a judicial determination of who owns the claim. The defendants urge the court to deny the motion on four separate grounds.
First, the defendants maintain that nothing has changed since this court's ruling on April 6, 1984, when the court stated it was "not prepared to say at this time that it appears to a certainty that ECI's unsecured creditors can establish no facts showing that they have standing." Transcript of Proceedings, April 6, 1984, pp. 7-8. The defendants fail to note, however, the significance of the fact that the court was ruling as to the appropriateness of allowing intervention; the court stated that "at least for present purposes, this disposes of the Member-Owners' objection that ECI's creditors lack standing to assert claims against the Member-Owners." Id; (emphasis added). In that ruling, the court was complying with the Federal Rules' liberal pleading requirements and the Seventh Circuit's instruction that a motion to intervene should not be dismissed unless "it appears to a certainty that the intervenor is not entitled to relief under any set of facts which could be proved under the complaint." Lake Investors v. Egidi Development, 715 F.2d 1256, 1258 (1983).
The present motion, on the other hand, presents quite different considerations from those of the liberal pleading rules. As the plaintiffs point out, the Chapter 11 reorganization proceeding has been converted to a Chapter 7 liquidation proceeding. The trustee has indicated that he believes litigation should be prosecuted on behalf of the estate, but before committing ECI's limited resources to such litigation, ownership of the cause of action needs to be determined. Whether the active involvement of the unsecured creditors was previously necessary, as alleged, is unclear. That consideration is irrelevant in the present context, however, since a trustee of a bankrupt corporation represents creditors and is the proper party to bring suit against directors and stockholders for mismanagement, misappropriation of assets, or breach of fiduciary duty. Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939); Bayliss v. Rood, 424 F.2d 142 (4th Cir.1970). Moreover, since the defendants allege no issues of fact material to the standing question, the Court fails to see how resolution of the issue at this stage of the proceedings could be prejudicial to the defendants as alleged.
Second, defendants argue that class certification should be determined before resolution of the standing issue to prevent having parties not presently before the court escape being bound by the court's determination. As the plaintiffs point out, however, courts regularly dismiss claims of putative class representatives because they fail to state a claim, without certifying the whole class. Moreover, a decision that the seven intervening creditors lacked standing would certainly be strongly persuasive in the event another creditor attempted to bring the suit. The court finds much more compelling the plaintiff's immediate dilemma of determining what amount of ECI's limited resources to devote to litigation which could possibly belong solely to other parties.
The court is similarly unpersuaded by the defendants' third argument against granting the present motion, i.e. the possibility of being reversed by the Seventh Circuit. Such a contingency is hardly an appropriate reason for a district court's failing to exercise its duty to act in the interest of fairness and justice when such action is needed.
Finally, the court disagrees with the defendants' characterization as an advisory opinion of a determination by this court as to which pa...
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