In re First Interregional Equity Corp.
| Decision Date | 10 November 1997 |
| Docket Number | Adversary No. 97-2165. |
| Citation | 218 BR 731 |
| Parties | In re FIRST INTERREGIONAL EQUITY CORPORATION, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
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McCarter & English by Hayden Smith, Jr., Newark, NJ, for Richard W. Hill, SIPA Trustee for First Interregional Equity Corp.
Securities Investor Protection Corporation by Stephen P. Harbeck, Washington, DC, for Securities Investor Protection Corporation ("SIPC").
Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A. by Jack M. Zackin, Andrew H. Sherman, Newark, NJ, for Harrison J. Goldin, Chapter 11 Trustee of First Interregional Advisors Corp.
Cole, Schotz, Meisel, Forman & Leonard, P.C. by Stuart Komrower, Hackensack, NJ, for Official Committee of Unsecured Creditors of First Interregional Advisors Corporation.
Rabinowitz, Trenk, Lubetkin & Tully, P.C. by Jonathan I. Rabinowitz, West Orange, NJ, for Thomas Hessert, Marilyn Hessert, TJH Investment Corporation and TJ Hessert Construction Salaried Employees Trust.
Presently before this Court are the Motions of both the Chapter 11 Trustee of First Interregional Advisors Corporation ("FIAC") and FIAC's Unsecured Creditors' Committee to intervene in the Security Investors Protection Act of 1970 ("SIPA") proceedings of First Interregional Equity Corporation ("FIEC") with respect to all matters pertaining to the status, allowability, or validity of the claims of investors who invested in leases through representatives of FIEC and who have, or may have, claims under SIPA and particularly in a pending motion by certain investors in leases seeking approval of a class proof of claim on behalf of all investors.1 A hearing was conducted on October 27, 1997. The following constitutes this Court's findings of fact and conclusions of law.
FIEC was a registered broker-dealer engaged primarily in the sale of fixed-income investment products, including municipal bonds. FIEC later became involved in the sale of personal property in which municipal governmental entities were the lessees. Initially, FIEC purchased leases from "brokers" and sold assignments to those leases to the public. The leasing companies which acted as brokers to FIEC would service the leases and collect payments on behalf of FIEC which, in turn, would forward the income stream from the leases to its investors.
FIAC was originally a subsidiary of FIEC created in 1992 to handle the leasing aspects of FIEC's business. Eventually, based upon regulatory concerns and the growth of the leasing operations, FIAC was spun off into a separate corporation.
On March 5, 1997, FIAC filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (the "Code") in the United States Bankruptcy Court for the District Of New Jersey.
As of the date FIAC filed its Chapter 11 petition, there were thousands of investors who purchased what they believed to be interest in leases. The SEC has alleged, and the Trustee has confirmed, that FIAC's principals engineered a massive fraudulent scheme whereby numerous interest in the same leases were sold to multiple investors. These investors comprise the majority of the creditor body of FIAC's estate.
On March 6, 1997, the Securities and Exchange Commission (the "SEC") filed a complaint in the United States District Court for the District of New Jersey against FIAC, FIEC, and Richard Goettlich alleging, inter alia, that the defendants participated in a massive fraudulent scheme.
On March 10, 1997, following the filing by the Securities Investor Protection Corporation ("SIPC") of an Order to Show Cause, the Honorable Maryanne Trump Barry, U.S.D.J., entered an Order adjudicating that the customers of FIEC are in need of the protection afforded by the SIPA. On the same day, Richard W. Hill was appointed Trustee (the "SIPA Trustee") for the liquidation of FIEC's business.
On March 11, 1997, a meeting of FIAC's twenty (20) largest unsecured creditors was held at the office of the U.S. Trustee. At that time, the committee was constituted and appointed by the U.S. Trustee pursuant to Section 1102 of the Code. The Committee selected and retained Cole, Schotz, Meisel Forman & Leonard, P.A. as its counsel.
On March 13, 1997, this Court entered an Order directing the appointment of a Chapter 11 operating trustee for FIAC pursuant to Section 1104 of the Code. Thereafter, Harrison J. Goldin was appointed Chapter 11 Trustee (the Chapter 11 Trustee) and duly qualified.
By Notice dated May 19, 1997, the SIPA Trustee advised customers and creditors of FIEC that July 18, 1997 was fixed as the final date for filing "customer claims" under SIPA, and that November 19, 1997 was fixed as the final day for filing any claims (including customer claims) under SIPA.
Among the claims filed in the FIEC case by lease investors are those filed by Thomas Hessert, Marilyn Hessert, TJH Investment Corporation, and TJ Hessert Construction Salaried Employees Trust, who have indicated their willingness to serve as named plaintiffs (the "Class Plaintiffs") in a class action contested matter to determine the class members' rights and interest.2
There are three possible methods by which a movant seeking intervention may properly do so:
A. Intervention as of Right:
Section § 1109(b) of the Bankruptcy Code provides as follows:
A party in interest, including the debtor, trustee, creditors\' committee, an equity security holders\' committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.
11 U.S.C. § 1109(b)(emphasis added). "The general theory behind this section is that anyone holding a direct financial stake in the outcome of the case should have an opportunity . . . to participate in the adjudication of any issue that ultimately shape the disposition of his or her interest." 7 Collier on Bankruptcy ¶ 1109.01 (Lawrence P. King, 15th ed. rev.1996). The Third Circuit has interpreted the language of § 1109(b) to confer upon a creditor's committee the absolute right to intervene in an adversary proceeding. Official Unsecured Creditors' Committee v. Michaels (In re Marin Motor Oil, Inc.), 689 F.2d 445 (3d Cir.1982) cert. denied, 459 U.S. 1206, 103 S.Ct. 1196, 75 L.Ed.2d 440 (1983); see also In re Neuman, 124 B.R. 155, 159-60 (S.D.N.Y.1991) ").
B. Rule 7024 — Intervention:
Rule 7024 of the Bankruptcy Code provides that Rule 24 of the Federal Rules of Civil Procedure applies in adversary proceedings.
Rule 24 provides in pertinent part:
F.R.Civ.P. 24 (emphasis added). To satisfy Rule 24(a)(2), the putative intervenor must show (1) its application is timely; (2) it has a direct interest in the subject matter of the litigation; (3) its interest would be impaired by disposition of the action without its involvement; and (4) its interest is not adequately represented by any existing party. See Riley v. Simmons, 839 F.Supp. 1113, 1118 (D.N.J.1993), rev'd on other grounds, 45 F.3d 764 (3d Cir.1995). Under Rule 24(b), "intervention is proper where there is a showing that the applicant's claim has a question of law or fact in common with the main claim." Id. at 1121. Where permissive intervention is sought, "the Court must consider `whether the intervention will unduly delay or prejudice that adjudication of rights of the original parties.'" Brody By and Through Sugzdinis v. Spang, 957 F.2d 1108 (3d Cir.1992).
C. Rule 2018 — Intervention: Right to be Heard:
Rule 2018 permits "intervention of an entity . . . not otherwise entitled to do so under the Code or this Rule." See Fed. R.Bankr.P. 2018 Advisory Committee Notes (1983). In pertinent part, Rule 2018 provides:
(a) Permissive Intervention — In a case under the Code, after hearing on such notice as the court directs and for cause shown, the court may permit any interested entity to intervene generally or with respect to any specified manner.
Fed.R.Bankr.P. 2018 (emphasis added). The court may exercise its discretion when granting permissive intervention to the moving party. In re Addison Comm. Hosp. Auth., 175 B.R. 646, 651 (Bankr.E.D.Mich.1994); see also In re Benny, 791 F.2d 712 (9th Cir.1986); In re Charter Co., 50 B.R. 57 (Bankr.W.D.Tex.1985). The test to determine whether a party is a "party in interest" is "whether the prospective party in interest has sufficient stake in the outcome of the proceeding so as to require representation." In re Amatex Corp., 755 F.2d 1034, 1042 (3d Cir.1985). As with F.R.Civ.P. 24, determining whether undue delay to the original parties will result is a primary consideration. Se...
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