In re Hunt

Decision Date08 December 1988
Docket NumberBankruptcy No. 388-35726-HCA-11,388-35725-HCA-11,Adv. No. 388-3744,388-3745.
Citation93 BR 484
PartiesIn re Nelson Bunker HUNT and Caroline Lewis Hunt, Debtors. Nelson Bunker HUNT, Plaintiff, v. COMMODITY FUTURES TRADING COMMISSION, Defendant. In re William Herbert HUNT and Nancy Jane Broaddus Hunt, Debtors. William Herbert HUNT, Plaintiff, v. COMMODITY FUTURES TRADING COMMISSION, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Texas

Russell L. Munsch, Michael F. Wurst, Decker, Hardt, Kopf, Harr, Munsch & Dinan, P.C., Dallas, Tex., for Nelson Bunker Hunt and Caroline Lewis Hunt, debtor/plaintiff.

Steven A. McCartin, Dean W. Ferguson, Gardere & Wynne, Dallas, Tex., for William Herbert Hunt and Nancy Jane Broaddus Hunt, debtor/plaintiff.

Steven H. Meyer, Edward Gelderman, Commodities Futures Trading Com'n, Washington, D.C., for Commodities Futures Trading Com'n, defendant.

Hugh M. Ray, Jeffrey E. Spiers, Andrews & Kurth, Dallas, Tex., for Manufacturers Hanover Trust Co.

MEMORANDUM OPINION ON DEBTORS' VERIFIED COMPLAINTS FOR INJUNCTIVE RELIEF PURSUANT TO 11 U.S.C. § 105(a)

HAROLD C. ABRAMSON, Bankruptcy Judge.

I. Procedural Background

On October 25, 1988, Messrs. Nelson Bunker Hunt ("NBH") and William Herbert Hunt ("WHH") (the "Debtors") filed their Verified Complaints for Injunctive Relief Pursuant to 11 U.S.C. § 105(a) ("Complaints"), seeking temporary injunctions against the Commodity Futures Trading Commission's ("CFTC" and "Defendant") Enforcement Action ("CFTC Action") during the pendency of their Chapter 11 proceedings.

On October 27, 1988, this Court commenced a hearing on the Complaints, and considered the opening arguments of counsel for the Debtors, counsel for Manufacturers Hanover Trust Company ("MHTC") and counsel for the CFTC as to the general background of the Complaints. After a brief recess, the parties announced to the Court that they would agree to certain extensions of time in the CFTC Action, and the hearing was recessed until November 7, 1988.

On November 7, 1988, the Court continued the hearing on the Complaints. At the close of the hearing, the Court instructed counsel to present an analysis of the record in light of the evidence presented, briefs and memoranda previously filed, and the Court's discussion with counsel. Also before the Court is CFTC's Motion for Dismissal of Debtors' Complaints filed on November 30, 1988.

II. Factual Background

On February 28, 1985, the CFTC initiated an administrative proceeding against Messrs. NBH, WHH, Norton Waltuch, and others including International Metals Investment Company, LTD. ("IMIC") styled: In the matter of Nelson Bunker Hunt et al., CFTC Docket No. 85-12 (the "CFTC Action"). The CFTC Action arises out of events in the market for silver and silver futures contracts during the period from September 1979 through mid-March 1980. At that time, the price of silver and silver futures contracts rose to unprecedented levels. The CFTC Action alleges that the Debtors were members of a conspiracy, acting alone and in concert with others, to manipulate the price of silver and silver futures contracts in violation of the Commodities Exchange Act ("CEA"). The CFTC Action seeks a finding that the Debtors and the other respondents violated the CEA, an Order requiring the Debtors and the other respondents to cease and desist from the alleged CEA violations and seeks to permanently enjoin the Debtors and the other respondents from all future trading in commodity futures markets. The CFTC Action also seeks to assess civil penalties against each respondent of not more than $100,000 for each alleged violation. The Debtors have filed answers in the CFTC Action denying all alleged liability.

The CFTC Action is related to a series of civil damage actions against the Debtors and others, all of which are pending in the United States District Court for the Southern District of New York. Among those civil actions is a case styled: Minpeco, S.A. v. Nelson Bunker Hunt et al., S.D.N.Y. 81 Civ. 7619 (MEL), in which a six month jury trial was recently concluded. Like the CFTC, the plaintiff in Minpeco alleged that the Debtors and others engaged in a conspiracy to increase the price of silver and silver futures contracts in violation of the CEA, as well as violations of the Sherman Act, the Federal Racketeer Influenced and Corrupt Organizations Act ("RICO") and New York common law fraud (the "Minpeco Action"). The Minpeco trial lasted for more than six months and produced more than 17,000 pages of transcript. Thousands of pages of documents were introduced into evidence. The Minpeco jury returned a verdict for the plaintiff in the amount of $132.45 million (after trebling under the antitrust laws and RICO and after the deduction of settlements which the plaintiff had received from others whom it had named as defendants). On September 1, 1988 judgment was entered in the amount of $132.45 million. The Debtors have filed post-trial motions to set aside all and parts of the jury verdict, or in the alternative, for a new trial. If the post-trial motions are unsuccessful, the Debtors intend to pursue an appeal to the United States Court of Appeals for the Second Circuit.

During the Minpeco trial, the CFTC Action was abated so that the Debtors and their attorneys could turn their undivided attention to the Minpeco trial. On September 9, 1988, the Administrative Law Judge ("ALJ") presiding over the CFTC Action ordered the resumption of the Enforcement Proceeding on October 17, 1988. On September 21, 1988 the Debtors filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code. The Debtors apprised counsel for the CFTC and the ALJ of the Debtors' bankruptcy cases by correspondence from special counsel dated September 23, 1988. On September 29, 1988, the ALJ entered an Order postponing the hearing pending further Order.1 On October 13, 1988 the CFTC filed a Motion for Summary Disposition before the ALJ seeking to apply the doctrine of collateral estoppel against the Debtors based on the jury verdict and judgment in the Minpeco Action to preclude the presentation of certain defenses in the trial of certain issues in the CFTC Action. In response to the CFTC's Motion for Summary Disposition, the Debtors filed their Verified Complaints for Injunctive Relief in this Court.

III. Contentions of Parties
A. General Overview of Hunts' Contentions

While the Debtors' Complaints do not formally request the Court to find that the CFTC Action is automatically stayed by 11 U.S.C. § 362(a), the Debtors readily concede that the CFTC Action is exempt from the automatic stay to the extent that the CFTC, as a governmental unit, seeks to exercise its police and regulatory functions. In particular, the Debtors do not dispute the CFTC's efforts to prevent the Debtors from engaging in violations of the CEA and injunctive Orders prohibiting the Debtors from all future trading in the commodity futures markets.2 The Debtors strenuously argue, however, that the governmental regulatory exemption of 11 U.S.C. § 362(b)(4) does not apply to the extent the CFTC Action devolves into an effort by the CFTC to satisfy its own pecuniary function.

Debtors' Complaints for injunctive relief are premised on the contention that continued prosecution of the CFTC Action before the ALJ at this time will result in irreparable injury to the Debtors and the estates, and will effectively usurp this Court's obligation to administer the estates consistent with the requirements of the Bankruptcy Code.

The Debtors contend that injunctive relief is necessary and appropriate to stay the CFTC Action because the CFTC's Motion for Summary Disposition, which seeks the application of the offensive use of collateral estoppel, is at best premature during the pendency of the Minpeco post-trial motions. The Debtors also assert that the offensive use of collateral estoppel by the CFTC is potentially unfair and unjust. The Debtors note that the probability of inconsistent or conflicting judgments, as well as the probability of wasteful and duplicative effort, would result from the premature use of offensive collateral estoppel.

The Debtors submit that if the CFTC Action is allowed to proceed during the pendency of the post-trial motions, and if those motions are ultimately granted whereby the Minpeco judgment is modified or set aside altogether, the dollars and time spent combatting the CFTC's Motion for Summary Disposition will have been wasted. Permitting the CFTC Action to proceed at this time, the Debtors contend, will produce the very result that use of collateral estoppel is intended to prevent, i.e., unnecessary duplication of expense and effort.

B. General Overview of MHTC's Contention

MHTC as a creditor and party-in-interest through its Memoranda in Partial Support of Debtor's Verified Complaints submits that the CFTC Action is partially stayed by the Debtors pending bankruptcy cases. Like the Debtors, MHTC concedes that the CFTC's efforts to enforce its police and regulatory power by requiring the Debtors to cease and desist from violations of the CEA and to enjoin the Debtors from all future trading on commodity futures markets is exempt from the automatic stay. MHTC suggests, however, that the CFTC's request for civil penalties against the Debtors is an attempt to protect a pecuniary interest "under the guise of an injunctive proceeding of the CFTC" and is subject to the automatic stay by virtue of 11 U.S.C. § 362(b)(4), thus obviating the need to impose a stay under 11 U.S.C. § 105(a).

C. General Overview of CFTC's Contention

The CFTC contends that in its role as overseer of commodity futures market activities, continued prosecution of the administrative action is a matter of grave concern to the CFTC and the American public. CFTC views the Debtors' requests for injunctive relief as attempts "to hide behind a bankruptcy court as a vehicle to avoid...

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