In re FRG, Inc.
| Decision Date | 30 November 1990 |
| Docket Number | Bankruptcy No. 89-12766S,89-12768S and 89-12769S. |
| Parties | In re FRG, INC., a Pennsylvania Corporation, Debtor. In re FRP LIMITED PARTNERSHIP, a Pennsylvania Limited Partnership, Debtor. In re FMI LIMITED PARTNERSHIP, a Pennsylvania Limited Partnership, Debtor. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Joseph A. Vogel, Mark S. Indelicato, Hahn & Hessen, New York City, Max L. Lieberman, Bonnie Golub, Pelino & Lentz, P.C., Philadelphia, Pa., for debtor.
Steven R. Fischer, Hangley Connolly Epstein Chicco Foxman & Ewing, Philadelphia, Pa., for Frederick Blumberg.
Nicholas J. LePore, III, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for Creditors' Committee.
James J. O'Connell, Asst. U.S. Trustee, Philadelphia, Pa.
This Memorandum addresses a Motion by the three above-named Debtors, proponents of a joint Plan of Reorganization, who sought to have us temporarily disallow seven of eight proofs of claims filed in these various cases by Frederick Blumberg, Esquire ("Blumberg"). Because Blumberg chose to present virtually no evidence to support his claims against the Debtors' short but straightforward attack, we concluded in an Order of November 26, 1990, that we should grant the Debtors' request. We therefore proceeded to disallow, for voting purposes only, all but an unopposed claim of $20,025 (No. 28) filed by him in the case of FRP LIMITED PARTNERSHIP ("FRP"), and $31,500 of a claim (No. 6) filed by him in the case of FMI LIMITED PARTNERSHIP ("FMI"). In our Order of November 26, 1990, we promised that we would submit the instant Memorandum explaining that decision shortly thereafter.
FRG, Inc. ("FRG"), the third of the above-captioned Debtors, is the general partner of FRP and FMI. FRP is the managing general partner of about 60 limited partnerships owning discrete apartment complexes, office buildings, or other realty, mostly in various states in the southern part of the United States. FMI was formed to hold certain notes relevant to the operations of these partnerships.
The cases of FRG, FRP, and several of the limited partnerships arrived in this court as the result of a successful motion by Blumberg to transfer the venue of the pending cases from the Southern District of New York, where they had been filed on May 17, 1989, to this court, as reflected in a decision of July 28, 1989, by the Honorable Howard C. Buschman, III, reported at 107 B.R. 461. See, e.g., In re Boca Raton Sanctuary Associates, 105 B.R. 273, 273 (Bankr.E.D.Pa.1989). Subsequent to the transfer of venue, several more of the limited partnerships have filed cases in this court.
On September 26, 1990, this court approved the Disclosure Statement accompanying the Debtors' Second Amended and Restated Joint Plan of Reorganization ("the Plan"). In that Order, we set November 13, 1990, as the last date for submission of ballots or objections to confirmation of the Plan; November 20, 1990, as the date for the Debtors' filing a report of plan voting; and November 28, 1990, as the date for the Confirmation hearing. On that date, we proceeded to confirm the Debtors' Plan.
Perceiving that votes rejecting their Plan by several parties holding claims filed in very large amounts would jeopardize confirmation, the Debtors filed not only certain Objections to proofs of claim filed in one or each of their cases, but also, in the case of about a half dozen claims in very large amounts, the hearings on the Objections to which were not listed until December, 1990, filed motions to temporarily disallow or estimate these claims on an expedited basis prior to November 28, 1990.
These motions were procedurally based upon Bankruptcy Rule ("B.Rule") 3018(a), the mechanics of which we discussed in In re Goldstein, 114 B.R. 430 (Bankr.E.D.Pa. 1990). In Goldstein, we rejected the Debtor's contention that the filing of an objection to a proof of claim, without more, disenfranchises a claimant unless the claimant himself successfully files a motion pursuant to B.Rule 3018(a). Id. at 434. However, we did find that B.Rule 3018(a) was "a tool which the court or any party can invoke to expedite confirmation when numerous objections to claims cloud the issue of creditors' rights to vote" (emphasis added). Id. Here, the Debtors utilized this tool. We might add that they apparently used the tool properly because, except for Blumberg, all of the claimants targeted with B. Rule 3018(a) motions settled with the Debtors, in many cases agreeing to vote claims drastically reduced in amount from the proofs filed.
Blumberg filed the following constellation of unsecured claims:
1. FRG case
a. No. 67 - $ 49,970
b. No. 68 - $2,000,000
2. FRP case
a. No. 27 - $2,000,000
b. No. 28 - $ 20,025
c. No. 29 - $ 34,721
3. FMI case
a. No. 5 - $2,000,000
b. No. 6 - $ 35,314
c. No. 7 - $ 13,249
On November 21, 1990, the Debtors filed a Report of Plan Voting. The votes for classes 7, 8, and 9, the unsecured creditors of FRG, FRP, and FMI, respectively, voted as follows:
Number Amount Number Amount
Class Accepting Accepting Rejecting Rejecting
7 101 $10,706,575.83 3 $2,148,170
8 46 7,956,980.81 4 2,171,746
9 13 1,215,865.00 2 2,048,563
All impaired classes of creditors accepted the Plan except Class 9. If the $2,000,000 claim of Blumberg is discounted, the Plan would be confirmed by a landslide.
The bases for Blumberg's $2,000,000 proofs of claim are set forth in a Complaint attached thereto which was filed by him in this federal district court, at C.A. No. 88-5761 (E.D.Pa.) ("the Federal Action"). Named as defendants in the Federal Action are the three Debtors, FRANKLIN REALTY DEVELOPMENT CORP. ("FRDC"), and four individuals who are apparently principals of the Debtors and of FRDC. The Complaint alleges that the following substantive claims arose out of the settlement of an earlier state-court lawsuit ("the State Action") previously brought by him against basically the same parties: violations of federal securities laws, fraud and misrepresentation, breaches of fiduciary duties, breaches of contract, tortious interference with a business relationship, and conspiracy. The gravamen of the Complaint is that the settlement, in which FRG, FRP, and FMI paid Blumberg $400,000, $250,000, and $150,000, respectively, to settle the 1986 State Action and redeem most of his stock, was inadequate due to the omission of certain properties from the Debtors' list of holdings and the addition of these properties to the portfolio of FRDC in evaluating the worth of the Debtors.
The $2,000,000 figure, not referenced in the Complaint, was apparently intended to be Blumberg's estimate of his likely total recovery in the Federal Action from all of the Defendants. Hence, Blumberg's counsel agreed, at the hearing, to apportion this sum in thirds among the three Debtors.
Similarly, Blumberg's counsel agreed that Claim No. 67 in the FRG case was a duplicate and a composite of Claim No. 29 in the FRP case and claim No. 7 in the FMI case. All of these claims arose from alleged unpaid distributions from the Debtors' transfer of a limited partnership named Franklin Winding Brook Associates ("FWBA"). The final contested claim, No. 6 in the FMI case, represented payments allegedly due under the $150,000 note received from FMI in settlement of the 1986 State Action.
At the hearing, the sole witness was Aurin Primack ("Primack"), the Debtors' President. Primack testified that, by coincidence, he had seen Blumberg at lunch that day. However, instead of appearing to testify, Blumberg, appearing solely by his counsel, chose mainly to protest the instant proceeding as an unfair attempt to disenfranchise him.
As our discussion of the Goldstein decision at page 453 supra makes clear, this criticism is misplaced. The Debtors, providing Blumberg the right to defend which the Goldstein debtor sought to deny his creditor merely because he objected to a claim, properly and temperately utilized B.Rule 3018(a) in this case.
Primack testified that Blumberg had been chief legal counsel and a director and officer of the Debtors and their predecessors from their inception in 1981 until his resignation in May, 1986, upon the resolution of the State Action. Per an Affidavit filed in opposition to Blumberg's successful motion to change venue in these cases in New York, admitted into the record here, Primack alleged that the differences between the parties were sparked by Blumberg's desire to retain the Debtors' lucrative legal business after he changed law firms. The State Action was characterized as a strike suit, in which Blumberg, himself perhaps the single person most knowledgeable of the Debtors' affairs, claimed to have been defrauded by a transfer of certain assets from the Debtors to FRDC of which he was unaware. Primack alleged that these claims were a sham.
Contrary to Blumberg's contentions, Primack testified that the 1986 settlement terms were exorbitantly favorable to Blumberg, and were agreed to by the Debtors mostly in consideration for a General Release ("the Release"), executed by Blumberg on May 29, 1986, which would eliminate any more of such claims in the future. The Release contains the following recitations:
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