In re Envirodyne Industries, Inc.
| Decision Date | 20 January 1995 |
| Docket Number | Bankruptcy No. 93 B 310,93 B 312 to 93 B 316,93 B 318 and 93 B 319. Adv. No. 93 A 01227. |
| Citation | 176 BR 825 |
| Parties | In re ENVIRODYNE INDUSTRIES, INC., Sandusky Plastics, Inc., Sandusky Plastics of Delaware, Inc., Viskase Corporation, Viskase Holding Corporation, Viskase Sales Corporation, Clear Shield National, Inc., Envirodyne Finance Company, Debtors. ENVIRODYNE INDUSTRIES, INC., Plaintiff, v. AMERICAN EXPRESS, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Allan S. Brilliant, Holleb & Coff, Chicago, IL, for debtor/plaintiff.
Daniel E. Lugren, San Francisco, CA, and David Epstein, Boston, MA, for defendants American Exp., et al.
CROSS MOTIONS FOR SUMMARY JUDGMENT
The matters before the court are the cross motions for summary judgment of Defendant State of California and Plaintiff Envirodyne Industries, Inc. ("Envirodyne" or "Debtor" or "Plaintiff"). In this adversary proceeding, Envirodyne seeks to equitably subordinate those shareholders of pre-merger Envirodyne who have not tendered or otherwise redeemed their stock after pre-merger Envirodyne merged with Emerald Sub in 1989 or anytime subsequent thereto. The Defendants, the State of California, along with Defendants Seymour J. Ryckman; David B. Bloom; Jerry M. Friedman, as custodian for Jennifer Friedman; Jerry M. Friedman, as custodian for Julie Friedman; Jerry M. Friedman, as custodian for Mark Friedman; Anton J. Matijevic; H. Matijevic Industries; Joseph Matijevic; James A. Null; Bernie R. Prusak; Harvey M. Schmidt; and Illinois Department of Financial Institutions, all of whom have joined the State of California's motion (the defendants shall hereinafter be collectively referred to as "Defendants"), assert, as unsecured creditors of the Debtor, that since they did not engage in fraudulent, or any other wrongful, conduct, then Envirodyne may not equitably subordinate them to its general unsecured creditors. The Defendants therefore should be entitled to the same distribution that the other general unsecured creditors received in the Envirodyne bankruptcy proceeding. Envirodyne maintains that fraudulent conduct is not necessary to subordinate the Defendants pursuant to § 510(c).1 Further, it would be inequitable to its general unsecured creditors not to subordinate the claims of the Defendants, as the origin of each of the Defendants' claims was equity, not debt. For the reasons stated below, the court shall deny the Defendants' motion for summary judgment and grant Envirodyne's cross motion for summary judgment.
Local Rule 12(m)2 of the Bankruptcy Rules of the United States District Court for the Northern District of Illinois require the moving party to file a detailed statement of material facts as to which there are no genuine issue. The party opposing the motion is required by Rule 12(n) to file a response to the movant's statement and set forth any facts which require denial of summary judgment. Both parties have made filings in conformance with the above standards and agree upon the following statement of facts:
The undisputed facts to this proceeding have been previously set forth by this court. See In re Envirodyne Indus., Inc., 1993 WL 566565 at *7-13 (Bankr.N.D.Ill.1993) () and In re Emerald Acquisition Corp., 170 B.R. 632, 637-38 (Bankr.N.D.Ill.1994). Accordingly, the court shall only recite those facts germane to this proceeding.
In 1989, Emerald Acquisition Corporation ("Emerald") was created for the purpose of acquiring Envirodyne Industries, Inc. ("Former Envirodyne"). Emerald Sub One, Inc. ("Emerald Sub"), a wholly owned subsidiary of Emerald, was organized for the purpose of making an offer to purchase the outstanding shares of common stock of Former Envirodyne. In conjunction with a leveraged buy-out ("LBO Transaction"), Emerald Sub purchased the tendering shares of Former Envirodyne at $40 per share and Former Envirodyne was merged into Emerald Sub, with current Envirodyne being the surviving entity.
The merger of these entities, both Delaware corporations, was made in accordance with Sections 253 and 262 of the Delaware General Corporation Law ("DGCL"). As of the effective date of the merger, June 1, 1989, the stock of Former Envirodyne was canceled. The shareholders of Former Envirodyne had the right to redeem their shares at $40 per share or to dissent from the merger and obtain an appraisal in accordance with Delaware General Corporation Law. (Agreement of Merger, § 2.02). Former Envirodyne shareholders who failed to respond to the tender offer ceased to be equity holders and became creditors of Envirodyne, entitled to receive $40 per share, without interest, upon demand. (Agreement of Merger, § 2.02). Each of the Defendants is a nontendering shareholder, a representative thereof, or a successor in interest thereof. None of the Defendants dissented from the merger and therefore the right of appraisal is not available.
On January 6, 1993, an involuntary bankruptcy petition was filed against Envirodyne. The next day, Envirodyne's subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code and Envirodyne consented to the entry of an order of relief in the involuntary case. During the period prior to the commencement of this case, Envirodyne's consolidated balance sheet showed an accrued current liability of $2,176,000 due to cashed out former shareholders. On September 23, 1993, the Debtor's commenced this adversary proceeding, seeking to equitably subordinate the Defendants' claims to those held by Envirodyne's other general unsecured creditors, pursuant to § 510(c). Under the Debtors' First Amended Joint Plan of Reorganization as Twice Modified ("Plan"), the general unsecured creditors have received 32.28 shares of common stock in reorganized Envirodyne for each $500 amount of allowed claim. The Defendants have not received a distribution. At the time of the Disclosure Statement, Envirodyne estimated that this distribution would allow each general unsecured claimant to recover approximately two-thirds of the allowed amount of its respective claim. See Second Supplement to Debtors' First Amended Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code dated as of October 25, 1993 at 10. Since confirmation of the Plan, the trading price of Envirodyne's stock is lower then what was estimated at the time the Plan was confirmed. See Affidavit of Gordan S. Donovan, ¶ 15 (). Accordingly, the general unsecured creditors were not, and have not, been paid in full. Therefore, the Defendants have not received a distribution under the Plan.
These motions are before the court pursuant to 28 U.S.C. § 157, and are referred here under Local District Rule 2.33. This court has subject matter jurisdiction under 28 U.S.C. § 1334, and this is a core proceeding under 28 U.S.C. § 157(b)(1).
Summary judgment is appropriate only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c) (adopted by Fed.R.Bankr.Pro. 7056). The primary purpose for granting a summary judgment motion is to avoid unnecessary trials when there is no genuine issue of material fact in dispute. Trautvetter v. Quick, 916 F.2d 1140, 1147 (7th Cir.1990); Farries v. Stanadyne/Chicago Div., 832 F.2d 374, 378 (7th Cir.1987) (quoting Wainwright Bank & Trust Co. v. Railroadmen's Federal Sav. & Loan Ass'n of Indianapolis, 806 F.2d 146, 149 (7th Cir.1986)).
The burden is on the moving party to show that no genuine issue of material fact is in dispute. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motion, and must identify those portions of the "pleadings, depositions, answers to interrogatories, and affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. However, once the motion for summary judgment is made and supported as described above, Rule 56(e) provides that a party opposing the motion may not rest upon the mere allegations or denials in his pleading; the response of that party must set forth specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553; Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356; Randle v. LaSalle Telecommunications, Inc., 876 F.2d 563, 567 (7th Cir.1989); Patrick v. Jasper County, 901 F.2d 561, 564-66 (7th Cir.1990).
On a summary judgment motion, the inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513-14; Matsushita, 475 U.S. at 586, 106 S.Ct. at 1355-56; Billups v. Methodist Hosp. of Chicago, 922 F.2d 1300, 1302 (7th Cir.1991); Karazanos v. Navistar Int'l Transp. Corp., 948 F.2d 332, 335 (7th Cir.1991). However, the existence of a material factual dispute is sufficient only if the disputed fact is determinative of the outcome under applicable law. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; Howland v. Kilquist, 833 F.2d 639, 642 (7th Cir.1987).
The Court should not "weigh the evidence." Anderson, 477 U.S. at 249, 106 S.Ct. at 2510-11; Illinois Bell...
To continue reading
Request your trial