In re Exide Technologies, Inc.
| Decision Date | 21 August 2003 |
| Docket Number | Adversary No. 03-50134.,Bankruptcy No. 02-11125 (KJC). |
| Citation | 299 B.R. 732 |
| Parties | In re EXIDE TECHNOLOGIES, INC. et al., Debtors. Official Committee of Unsecured Creditors and R2 Investments, LDC, Plaintiffs, v. Credit Suisse First Boston, Individually as Lender and as Administrative Agent, Joint Lead Arranger, Sole Book Manager and Class Representative for a syndicate of banks and other institutions identified herein as the Pre-Petition Banks, and Salomon Smith Barney, Inc., as Syndication Agent, Joint Lead Arranger and Class Representative for the Pre-Petition Banks, Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Christopher James Lhulier, James E. O'Neill, Kathleen Marshall DePhillips, Laura Davis Jones, Pachulski, Stang, Ziehl Young & Jones, Wilmington, DE, Matthew N. Kleiman, Kirkland & Ellis, Chicago, IL, for Exide Technologies, Debtor.
Itai David Tsur, Dechert LLP, New York City, for Bank of New York as Indenture Trustee, Trustee.
Aaron A. Garber, David M. Fournier, David B. Stratton, Pepper Hamilton LLP, Adam Hiller, Pepper Hamilton, Anthony M. Saccullo, Eric Michael Sutty, The Bayard Firm, Wilmington, DE, for Official Committee of Unsecured Creditors, Creditor Committee.
William Anthony Hazeltine, Potter, Anderson & Corroon, LLP, Wilmington, DE, for Official Committee of Equity Holders, Creditor Committee.
On April 15, 2002 ("Petition Date"), the Debtors filed for relief under chapter 11 of the Bankruptcy Code.1 The Official Committee of Unsecured Creditors and R2 Investments, LDC ("Plaintiffs") filed the "Complaint and Objection to Claim" [Doc. No. 1] on January 16, 2003, commencing this adversary proceeding. Defendant Credit Suisse First Boston ("CSFB") served and continues to serve as the Administrative Agent, Joint Lead Arranger, Sole Book Manager and Lender under the Pre-Petition Credit Facility for the benefit of the Pre-Petition Banks [Complaint ¶ 13]. Defendant Solomon Smith Barney ("SSB") served and continues to serve as the Syndication Agent and Joint Lead Arranger under the Pre-Petition Credit Facility for the benefit of the Pre-Petition Banks [Complaint ¶ 14]. The Defendants CSFB and SSB are collectively referred to as the Lenders. The Pre-Petition Banks consist of approximately eighty-one banks and other lenders which loaned money and/or extended credit to certain of the Debtors and others [Complaint ¶ 15].
In 1997, the Pre-Petition Banks established a $650 million credit facility for Exide Technologies, Inc. and its borrowing subsidiaries (collectively the "Exide Group") [Complaint ¶ 2]. In 2000, a further loan of $250 million was used to finance the acquisition of a competitor — GNB Dunlop [Complaint at ¶ 2]. In exchange for the financing, members of the Exide Group granted significant additional collateral and guarantees. The effect of the transaction, the Plaintiffs allege, was to increase significantly the Pre-Petition Banks' control over the Exide Group [Complaint ¶ 2]. After the GNB Dunlop transaction closed, Exide's financial condition deteriorated rapidly. On or about October 26, 2001, at the direction of the Pre-Petition banks, Exide replaced its chief financial officer with a principal of J.A. & A Services, LLC, an affiliate of Alix Partners, LLC ("J.Alix") [Complaint ¶ 5]. Shortly thereafter, the parties amended the loan documents to suspend, temporarily, compliance with certain financial covenants [Complaint ¶ 5] in return for liens on all of the Exide foreign subsidiaries' assets and capital stock [Complaint ¶ 5].
On December 28, 2001, the parties entered into a third amendment to the loan agreement pursuant to which the Pre-Petition Banks agreed to forbear for a period just days longer than the 90-day preference period [Complaint ¶ 6]. Additional collateral and guarantees were given by Exide and certain subsidiaries just outside of the 90-day non-insider preference period [Complaint ¶ 6].
During the period in which these amendments were being negotiated and executed, the Debtors suffered massive losses and became, it is alleged, more insolvent [Complaint ¶ 8]. The Plaintiffs assert that, at this time, the Debtors' directors and management determined that the easiest route was to ally with the Pre-Petition Banks.
On February 27, 2003, the Lenders filed a motion to dismiss the various counts in the Complaint [Doc. No. 16]. After the parties completed briefing, argument was heard by the Court on April 22, 2003.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a), since this adversary proceeding is related to the jointly administered Exide Technologies, Inc. bankruptcy cases.2 The Plaintiffs allege in their Complaint that this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (E), and (O). The Third Circuit Court of Appeals has instructed how to determine whether a matter is a core proceeding as follows:
To determine whether a proceeding is a "core" proceeding, courts of this Circuit must consult two sources. First, a court must consult [28 U.S.C.] § 157(b). Although § 157(b) does not precisely define "core" proceedings, it nonetheless provides an illustrative list of proceedings that may be considered "core." ... § 157(b)(2)(A)-(O). Second, the court must apply this court's test for a "core" proceeding. Under that test, "a proceeding is core [1] if it invokes a substantive right provided by title 11 or [2] if it is a proceeding, that by its nature, could arise only in the context of a bankruptcy case."
Halper v. Halper, 164 F.3d 830, 836 (3d Cir.1999) (citations omitted). "If the action is core, the bankruptcy court can enter a final order; if non-core, the bankruptcy court is limited to submitting proposed findings of fact and conclusions of law to the District Court." Continental Airlines, Inc. v. First Security Bank of Utah, N.A. (In re Continental Airlines, Inc.), 146 B.R. 534, 535 (Bankr.D.Del.1992); 28 U.S.C. §§ 157(b)(1) and (c)(1).
The parties did not argue or brief the issue of whether or which of the counts of the Complaint are core. I am required to analyze each count separately and have authority to enter a final order only with respect to core matters (Halper, 164 F.3d at 839-840), unless the parties consent to the entry of a final order by this court on non-core matters. 28 U.S.C. § 157(c)(2). At the Court's request, the Defendants submitted a letter on August 20, 2003 [Doc. No. 64], expressing their views on this subject; the letter evidences their § 157(c)(2) consent.
The Pre-Petition Lenders first assert that Plaintiff R2 Investments lacks standing to bring the claims asserted in the Complaint, and therefore should be dismissed as a party to the lawsuit. The Lenders advance two arguments in support of this contention. First, a single creditor may not be authorized to maintain the same action as a committee when an "official committee of creditors `is willing, able, and unhampered by an real or logically-perceived conflicts' from maintaining an action on the debtors' behalf" [Support Memorandum at 42]. In re Labrum & Doak, Nos. Civ. A. 98-4780, Civ. A. 98-4913, 2000 WL 1204646, at *1 (E.D.Pa. Aug 23, 2000). Second, R2 Investments is "a particularly bad candidate" to represent creditor interests [Support Memorandum at 43].
The Plaintiffs respond that the DIP Order entered on May 10, 2002 [Doc. No. 218 (02-11125)], and subsequent stipulations and orders provide that any party in interest, expressly including R2, has standing to assert the claims set forth in the Complaint [Opposition Memorandum at 37]. Specifically, the Plaintiffs rely on the Stipulation and Consent Order Extending Deadline to Commence Actions to Challenge Prepetition Obligations and Resolving Related Matters entered into between the Debtors, the Pre-Petition Agent on behalf of the Pre-Petition Lenders, the Committee and R2 approved and entered by this Court on November 27, 2002 [Doc. No. 1174 (02-11125)]. The Order provides, in pertinent part:
The Committee and R2, either individually or jointly, shall have the right and standing to commence and prosecute an action asserting Claims and Defenses against the Pre-Petition Agent [CSFB] and/or the Pre-Petition Lenders ... and no further order of Court shall be required for the Committee, R2 or any other party to commence and prosecute such action ... [Consent Order ¶ 1].
However, although the Consent Order expressly grants R2 the right to pursue the claims against the lenders, and for reasons which follow, the Consent Order ought not to insulate R2 from this challenge to its standing. There are additional circumstances that are relevant to the Court's analysis of whether R2 is a proper plaintiff. R2 Investments claims that it is the Debtors' largest unsecured creditor:
R2, in addition to being the Debtors' largest unsecured creditor, has an economic interest in approximately $15,500,000 of the Deutsche Mark denominated 9.125% bonds issued by certain of Exide Technologies European subsidiaries, and has been appointed an ex officio member of the Committee in these cases.
At the same time, it is alleged that
an affiliate of R2, R2 Top Hat, Ltd. also holds or has entered into purchase commitments for approximately $81,254,000 of the approximately $700,000,000 under the Pre-Petition Credit Facility. R2 Top Hat. Ltd. does not sit on the Pre-Petition Bank Steering Committee and limits its participation in bank group meetings.
Furthermore, the Defendants state in their supporting memorandum that "another R2 affiliate, Amalgamated Gadget, LP (`Amalgamated'), sits on the Equity Committee that has been appointed in this case" [Support Memorandum at 43].
The Complaint describes who the Defendants in this adversary proceeding are:
The relief sought in this action is...
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