In re High Voltage Engineering Corp.

• Decision Date: 19 January 2007
• Docket Number: No. 04-11586 JNF.,04-11586 JNF.
• Citation: 363 B.R. 8
• Parties: In re HIGH VOLTAGE ENGINEERING CORPORATION, et al., Reorganized Debtors.
• Court: U.S. Bankruptcy Court — District of Massachusetts

363 B.R. 8

In re HIGH VOLTAGE ENGINEERING CORPORATION, et al., Reorganized Debtors.

No. 04-11586 JNF.

United States Bankruptcy Court, D. Massachusetts.

January 19, 2007.

COPYRIGHT MATERIAL OMITTED

Peter D. Bilowz, Christian T. Haugsby, Christine D. Lynch, Douglas B. Rosner, Goulston & Storrs, P.C., Boston, MA, William B. Forbush, III, Piper Rudnick LLP, Vivek Melwani, Fried, Frank, Harris, Shriver & Jacobson, New York City, for debtors.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The contested matter before the Court presents the issue of whether this Court should grant a motion to vacate final, nonappealable orders it entered allowing compensation to certain professionals employed in the Debtors' prior Chapter 11 cases. The professionals whose fee awards have been challenged have raised a number of defenses which, if accepted, will compel denial of the motion and termination of the contested matter.

On November 9, 2005, prior to the entry of the order confirming his First Amended Plan of Liquidation under Chapter 11 of the Bankruptcy Code, as modified, the Chapter 11 Trustee of High Voltage Engineering Corporation and its affiliated debtors (collectively, the "Debtor" or the "Debtors") filed a Motion to (I) Vacate Orders of Court and (II) Reconsider Administrative Expense Claims of Professionals (the "Motion to Vacate"). The Chapter 11 Trustee filed an identical pleading on the same day in High Voltage Engineering Corporation, et. al., Case No. 04-11586-JNF (Jointly Administered), the previous jointly administered and substantively consolidated Chapter 11 cases filed by the Debtors. The prior cases, which were filed on March 1, 2004, were pending when the above captioned cases were filed on February 8, 2005.

The Chapter 11 Trustee's Motion to Vacate precipitated the filing of numerous oppositions, memoranda, affidavits, exhibits, and other pleadings. The Court has conducted several hearings to address the issues raised by the parties in the resulting contested matter.

Although the Chapter 11 Trustee filed the Motion to Vacate, his successor, the Liquidating Trustee of the High Voltage Engineering Trust, which was established by and for the benefit of the equity interest holders of High Voltage Engineering. Corporation and its affiliated debtor corporations pursuant to the Chapter 11 Trustee's confirmed First Amended Plan, filed Supplements to the Motion to Vacate on August 15, 2006 and on September 15, 2006. The Liquidating Trustee's pleadings were filed shortly after the August 1, 2006 Effective. Date of the. First Amended Plan, which this Court confirmed on July 10, 2006.

The Court heard the Motion to Vacate, as supplemented, and oppositions to the Motion to Vacate filed by Fried, Frank, Harris, Shriver and Jacobson ELT ("Fried Frank"), Stroock & Stroock & Lavan LLP ("Stroock"), Evercore Restructuring L.L.C. ("Evercore"), and Jefferies & Company, Inc. ("Jefferies") (collectively, the "2004 Professionals") on November 15, 2005 and took the Motion to Vacate under advisement. The specific issues presented include 1) whether the Liquidating Trustee has satisfied his burden under. Fed. R.Civ.P. 60(b), made applicable to this contested matter by Fed. R. Bankr.P. 9024, to obtain from this Court an order vacating the orders entered on November 9, 2004 in the Debtors' prior cased awarding compensation to Fried Frank, as counsel to the 2004 Debtors, to Stroock, as counsel to the Official Committee of Unsecured Creditors in the 2004 cases, to Evercore, as Financial Advisor to the 2004 Debtors, and to Jefferies, as Financial Advisor to the Official Committee of Unsecured Creditors in the 2004 cases;¹ and 2) whether the affirmative defenses to the Motion to Vacate raised by the 2004 Professionals bar the relief requested by the Liquidating Trustee. For the reasons set forth, below, the Court concludes that the Liquidating Trustee failed to satisfy his burden under Rule 60(b) and is barred from seeking the relief requested in the Motion to Vacate.

II. BACKGROUND

On March 1, 2004, High Voltage Engineering Corporation and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Less than six months later, on July 21, 2004, the Court confirmed the 2004 Debtors' Third Amended Joint Chapter 11 Plan of Reorganization which became effective on August 10, 2004.

The Chapter 11 Trustee outlined the circumstances which precipitated the filing of the 2004 cases in his First Amended Disclosure Statement filed on May 17, 2005. He stated:

In 1997, pursuant to an indenture between HVE [High Voltage Engineering Corporation] and State Street Bank and Trust Company (the "Indenture"), HVE issued $155 million of 10½% senior notes (the "Senior Notes"). Subsequently, the Indenture was amended to increase the interest on the Senior Notes to 10¾%. Interest on the Senior Notes was payable semiannually, on February 15 and August 15 of each year.

On November 30, 2000, HVE and certain of its subsidiaries and affiliates, including certain other entities that have since been sold, dissolved or merged into HVE, and Ableco Finance LLC ("Ableco") entered into a Financing Agreement (the "Ableco Financing Agreement"). The Ableco Financing Agreement provided HVE with a $25 million revolving credit facility, which was to mature on October 31, 2003. Between 2000 and 2003, HVE's financial health declined. HVE did not make the interest payments due on account of the Senior Notes in August 2003 or February 2004. The maturity date was extended to March 1, 2004 by agreement between Ableco and HVE.

In August 2003, HVE began discussion with the ad hoc committee of holders of the Senior Notes (the "Unofficial Committee of Noteholders"). The Unofficial Committee of Noteholders retained Jefferies and Company, Inc. ("Jefferies") as its financial advisor and Ropes & Gray LLP ("Ropes") as its counsel to assist it with respect to discussions with the Debtors concerning the restructure of the Senior Notes. HVE retained Evercore Restructuring L.P. ("Evercore") as its financial advisor and Fried, Frank, Harris, Shriver & Jacobson LLP ("Fried Frank") along with Goulston & Storrs PC ("Goulston") as its counsel in connection with their restructuring efforts.

HVE's negotiations with the Unofficial Committee of Noteholders resulted in a restructuring agreement (the "Restructuring Agreement") dated as of February 18, 2004, by and among (1) Clifford Press, the owner of all or substantially all of the issued and outstanding shares of Letitia Corporation (which at that time owned substantially all of the issued and outstanding shares of HVE) and, at the time, HVE's President and Chairman, (2) holders of in excess of 53% of the Senior Notes and (3) HVE. Pursuant to the Restructuring Agreement, HVE agreed that it and certain of its subsidiaries would file petitions for relief under Chapter 11 of the Bankruptcy Code, then propose a plan of reorganization pursuant to which holders of Senior Notes (collectively, the "Senior Noteholders") would receive substantially all of the new equity in the reorganized HVE in exchange for the Senior Notes and the Debtors' trade creditors would be paid in full.

Shortly after filing their voluntary petitions on March 1, 2004, the Debtors, with this Court's authority, employed Fried Frank and Evercore, and the Official Committee of Unsecured Creditors employed Stroock and Jefferies. The Court authorized the employment of several other professionals, and an Ad Hoc Committee of Noteholders was active in the 2004 cases.

During the 2004 cases, the Debtors satisfied their obligations under the Ableco Financing Agreement through a senior secured term loan obtained from certain holders of the Senior Notes. See March 29, 2004 Final Order (I) Authorizing. Secured and Super-Priority Post-Petition Financing and Use of Cash Collateral pursuant to 11 U.S.C. §§ 363, 364, and 507(b), (II) Modifying Automatic Stay under 11 U.S.C. § 362, and (III) Granting Other Related Relief. Moreover, the 2004 Debtors proceeded expeditiously to implement the Restructuring Agreement. On May 13, 2004, the Debtors' filed a Third Amended Joint Chapter 11 Plan of Reorganization, accompanied by an Amended Disclosure Statement in which they outlined the terms of their proposed plan. They represented the following:

On the Effective Date, title to all property of the Debtors' estates will pass to and vest in the applicable Reorganized Debtor, free and clear of all Claims, Interests, Liens, security interests, charges and other encumbrances (except as otherwise provided in the Plan). Confirmation of the Plan (subject to the occurrence of the Effective Date) will be binding, and the Debtors' debts will, without in any way limiting Section 12.01 of the Plan, be discharged as provided in Section 1141 of the Bankruptcy Code.

The order of confirmation reiterated this provision. Both the Plan and the order of confirmation provided that the 2004 Reorganized Debtors, as representatives of the Chapter 11 estates of the Debtors, would retain the exclusive right to enforce any and all causes of action of the Debtors. Nevertheless, the Debtors in their Amended Disclosure Statement indicated that they or the Reorganized Debtors would release any and all causes of action arising under 11 U.S.C. §§ 510, 542, 544-550, and 553, as well as all other causes of action of a trustee and debtor in possession except with respect to disputed claims.

With respect to the claims of the Senior Noteholders, the 2004 Debtors represented:

On the Effective Date, the Pre-Petition Senior Note Claims will be extinguished and each holder of an Allowed Pre-Petition Senior Note Claim will receive its pro rata share of 97% of the common stock of the Reorganized Debtors, subject to dilution by the issuance of options pursuant to the Management Incentive Plan and the warrants issued under the Plan. Each holder of an Allowed Pre-Petition Senior...