In re Geneva Steel Co.
| Citation | 260 BR 517 |
| Decision Date | 04 April 2001 |
| Docket Number | BAP No. UT-00-070. Bankruptcy No. 99-21130. |
| Parties | In re GENEVA STEEL COMPANY, Debtor. Richard M. Allen, Appellant, v. Geneva Steel Company, Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit |
Richard M. Allen, pro se.
Steven J. McCardell of LeBoeuf, Lamb, Greene & MacRae, LLP, Salt Lake City, UT (Ralph R. Mabey and Joseph M.R. Covey of LeBoeuf, Lamb, Greene & MacRae, LLP, Salt Lake City, UT, and Bruce R. Zirinsky and Mark C. Ellenberg of Cadwalader, Wickersham & Taft, Washington, DC and New York, New York, with him on the brief), for Appellee Geneva Steel Company.
Before PUSATERI, CORNISH, and MICHAEL, Bankruptcy Judges.
Richard M. Allen ("Allen") appeals from an order of the Bankruptcy Court for the District of Utah ("bankruptcy court") disallowing in part and subordinating in part his claim against Geneva Steel Company, Debtor herein ("Debtor" or "Geneva Steel"). For the reasons set forth below, we affirm.
On February 1, 1999, Geneva Steel filed for protection under Chapter 11 of the Bankruptcy Code (the "Code"). At the time, Geneva Steel had two public bond issues outstanding. One consisted of senior notes paying 11.125% interest and coming due in March 2001. The second bond issue consisted of senior notes paying 9.5% interest with a due date in 2004.
The trustee under the indenture for each of the bond issues timely filed proofs of claim on behalf of all note holders for the amounts owing. In July 1999, Allen filed a proof of claim in the amount of $500,000 based on fraud arising at an unknown date between 1997 and 1999 (the "Claim"). The only documentation accompanying the Claim was a letter dated January 25, 1999, from Allen to the chief executive officer of Geneva Steel. In the letter, Allen stated that he held more than $500,000 in the bond debentures (the "Notes") scheduled to become due in March 2001. See Appendix to Appellant's Brief at 40. Allen stated that he had retained the Notes due to the absence of public announcements by Geneva Steel concerning its financial difficulties. See id.
Geneva Steel filed its proposed Chapter 11 plan of reorganization (the "Plan") on July 20, 2000. Under the terms of the Plan, claimants holding bond debentures were grouped together in one class. Each member of the class was to receive, as sole distribution, common stock of the reorganized Debtor. All such distributions were to be made through the indenture trustee. Classes of claimants subordinate to the note holders were not to receive any distributions under the Plan.
On the same day it filed the Plan, Geneva Steel filed a Motion to Approve Certain Voting Procedures for Claims Based Upon the 11.125% Senior Notes Due in 2001 and 9.5% Senior Notes Due in 2004 and to Disallow Certain Duplicative Claims Relating to Such Notes (the "Motion"). Allen's Claim was among those Geneva Steel sought to disallow as duplicative of the claims filed by the indenture trustee. In response, Allen filed his Objection to Debtor's Motion to Approve Certain Voting Procedures for Claims Based Upon Senior Notes and to Disallow Certain Duplicative Claims Relating to Such Notes (the "Voting Procedures Objection"), asserting that his claim was based on principles of fraud rather than upon his ownership of the Notes.
Geneva Steel removed Allen's claim from the list of those it was seeking to disallow as duplicative, and on September 8, 2000, filed its Debtor's Objection to Claim of Richard M. Allen (Claim No. 755) and Motion to Determine Priority of Claim (the "Objection to Claim"). The bankruptcy court scheduled a hearing on the Objection to Claim for October 11, 2000. On September 25, 2000, Allen filed his Response to Debtor's Objection to Claim of Richard M. Allen (Claim No. 755) and Motion to Determine Priority of Claim (the "Response"). Attached to the Response were several pages showing a decline in the trading price of the Geneva Steel notes during the period preceding the filing of the Chapter 11 petition.
On October 3, 2000, Allen filed a Motion to Adjourn Hearing on Debtor's Objection to Claim of Richard M. Allen (Claim No. 755) and Request for Telephone Conference (the "Motion to Adjourn"), seeking a continuance for the purpose of conducting discovery. On October 4, 2000, Geneva Steel filed its Debtor's Objection to "Motion of Richard M. Allen to Adjourn Hearing on Debtor's Objection to Claim of Richard M. Allen (Claim No. 755) and Request for Telephone Conference." The bankruptcy court conducted the hearing as scheduled on October 11, 2000. Allen appeared by telephone. The bankruptcy court denied the Motion to Adjourn without hearing argument from the parties and proceeded to hear Geneva Steel's Objection to Claim. Following a non-evidentiary hearing, the bankruptcy court ruled that (1) to the extent the Claim was based on the Notes, it was duplicative of the indenture trustee's claim and was therefore disallowed as a separate claim, and (2) to the extent the Claim was based on fraud, it was subordinated under § 510(b) as a claim for damages arising from the purchase or sale of a security. The bankruptcy court memorialized its ruling with a written order entered October 30, 2000 (the "October 30 Order").
Geneva Steel proposed additional plans for confirmation. On November 22, 2000, the bankruptcy court entered an order (the "Confirmation Order") confirming Geneva Steel's Third Amended Plan, as Modified (the "Third Amended Plan"). Under the terms of the Third Amended Plan, Allen's Claim was placed in a class created specifically for those claims subordinated under § 510(b) or (c) of the Code. Claims within the class were to receive no distributions.
Allen timely appealed the October 30 Order to this Court. In addition, Allen has filed two motions in the bankruptcy court: one seeking reconsideration of the Confirmation Order and the other seeking to stay the Confirmation Order pending the outcome of this appeal. Both motions are pending before the bankruptcy court.
The Bankruptcy Appellate Panel, with the parties' consent, has jurisdiction to hear appeals from "final judgments, orders and decrees" issued by bankruptcy courts within the Tenth Circuit. 28 U.S.C. § 158(a)(1), (b)(1), (c)(1)1. A decision is considered final if it "`ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996) (quoting Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 89 L.Ed. 911 (1945)). An order on an objection to a claim is a final order for purposes of 28 U.S.C. § 158(a)(1). See In re Garner, 246 B.R. 617, 619 (9th Cir. BAP 2000). Similarly, an order fixing the priority of a creditor's claim is a final order for appeal purposes. See In re Kids Creek Partners, L.P., 200 F.3d 1070, 1074 (7th Cir.2000). Neither party elected to have this appeal heard by the United States District Court for the District of Utah; thus, they have consented to this Court's jurisdiction. 28 U.S.C. § 158(c)(1); Fed.R.Bankr.P. 8001; 10th Cir. BAP L.R. 8001-1(a), (d).
The central thrust of Allen's appeal is twofold. He contends the bankruptcy court misinterpreted § 510(b) in applying it to his Claim and erred when it denied his Motion to Adjourn. The bankruptcy court's interpretation of a statute is a question of law that we review de novo. See In re Gledhill, 164 F.3d 1338, 1340 (10th Cir.1999). When reviewing questions of law de novo, the appellate court is not constrained by the trial court's conclusions and may affirm the trial court on any legal ground supported by the record. See Wolfgang v. Mid-America Motorsports, Inc., 111 F.3d 1515, 1524 (10th Cir.1997). We review the bankruptcy court's denial of a motion for adjournment, or continuance, for an abuse of discretion. See Gust v. Jones, 162 F.3d 587, 598 (10th Cir.1998) (citing United States v. Gutierrez, 48 F.3d 1134, 1138 (10th Cir.), cert. denied, 515 U.S. 1151, 115 S.Ct. 2598, 132 L.Ed.2d 844 (1995)). "Under the abuse of discretion standard, `a trial court's decision will not be disturbed unless the appellate court has a definite and firm conviction that the lower court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances.'" Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir.1994) (quoting McEwen v. City of Norman, 926 F.2d 1539, 1553-54 (10th Cir.1991)).
Allen presents four arguments to this Court for consideration. First, Allen asserts the bankruptcy court erred when it subordinated Allen's fraud Claim pursuant to § 510(b) of the Bankruptcy Code. Second, Allen argues that his Claim should be allowed pursuant to § 502(b) because Geneva Steel presented no evidence supporting its Objection to Claim. Third, Allen contends the bankruptcy court erred by not taking into account § 510(c) of the Bankruptcy Code when it made its ruling. Lastly, Allen argues the bankruptcy court erred in denying his Motion to Adjourn the October 11 hearing.2
We read the bankruptcy court's October 30 Order as a determination that, as a matter of law, Allen's Claim for fraud falls within the confines of § 510(b)3. Allen asserts that the law does not support such a determination and that the bankruptcy court erred in concluding his Claim involves damages arising from the purchase or sale of securities. The pivotal point of Allen's argument is that § 510(b) does not apply here because the Claim is predicated upon his retention of the notes in the face of Geneva Steel's failure to disclose its financial difficulties. In Allen's view, under § 510(b), "the subordinated claim must be causally connected to a purchase or sale of the security." See Brief of Appellant at 7.
To say that there is limited case law dealing with the application of § 510(b) to claims...
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...U.S.C. § 502(a). "The objecting party has the burden of going forward with evidence supporting the objection." In re Geneva Steel Co. , 260 B.R. 517, 524 (10th Cir. BAP 2001), aff'd , 281 F.3d 1173 (10th Cir. 2002) (citation omitted). The "evidence must be of probative force equal to that o......