In re Johns-Manville Corp.

• Decision Date: 28 October 1986
• Docket Number: Adv. No. 85-6657A.,Bankruptcy No. 82 B 11656 — 82 B 11676
• Citation: 66 BR 517
• Parties: In re JOHNS-MANVILLE CORPORATION, et al., Debtors. MANVILLE CORPORATION, Plaintiff, v. The EQUITY SECURITY HOLDERS COMMITTEE, et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

66 B.R. 517 (1986)

In re JOHNS-MANVILLE CORPORATION, et al., Debtors MANVILLE CORPORATION, Plaintiff, v. The EQUITY SECURITY HOLDERS COMMITTEE, et al., Defendants.

Bankruptcy Nos. 82 B 11656 — 82 B 11676, Adv. No. 85-6657A.

United States Bankruptcy Court, S.D. New York.

October 28, 1986.

Levin & Weintraub & Crames, (Herbert S. Edelman and Andrew Kress, New York City, of counsel), Davis, Polk & Wardwell, (Lowell Gordon Harriss and Laureen Bedell, New York City, of counsel), for debtors.

Milbank, Tweed, Hadley & McCloy, (John J. Jerome and John Gellene, New York City, of counsel), for Creditors Committee.

Fried, Frank, Harris, Shriver & Jacobson, (Matthew Gluck, New York City, of counsel), for Leon Silverman, Legal Representative.

Caplin & Drysdale, Chartered, (Elihu Inselbuch, New York City, of counsel), for Asbestos Health Committee.

Hahn & Hessen, (George Hahn, Steven J. Mandelsberg and Thomas D. Gettler, New York City, of counsel), for Equity Sec. Holders Committee.

Kronish, Lieb, Weiner & Hellman, (Laurence J. Kaiser and Karen Klein, New York City, of counsel), for Certain Holders of Common Stock.

BURTON R. LIFLAND, Bankruptcy Judge.

I Background:

A. The Posture of the Instant Proceeding

The instant adversary proceeding is before this court pursuant to the remand of the Second Circuit. In re Johns-Manville, 801 F.2d 60 (2d Cir.1986). On August 19, 1985 Leon B. Dubin, a Manville common stockholder and a member of the Equity Security Holders Committee ("Equity" or the "Equity Committee") brought an action individually and on behalf of the Committee in the Delaware Chancery Court (the "First Delaware Action"), seeking an order to require the Johns-Manville Corporation ("Manville" or the "Debtor") to call an annual shareholders meeting. No such meeting had been called since the Debtor filed its petition for reorganization in August of 1982. The stated purpose of the Delaware action was to elect a new Board of Directors who would withdraw from consideration the Principle Elements Agreement between Manville and various of its creditor constituencies, which the Manville Board of Directors had approved on August 2, 1985.

Manville responded to the First Delaware Action on August 27, 1985 by filing a complaint against the Equity Committee and its members seeking to enjoin the Delaware action or in the alternative to prevent any elected official from taking office until this court's approval was obtained. This court granted summary judgment in favor of Manville on September 11, 1985, enjoining the Equity Committee collectively and Dubin from pursuing the First Delaware Action on the grounds that a shareholders meeting would have "devastating" consequences to the Debtor's reorganization. In re Johns-Manville Corporation, 52 B.R. 879, 887 (Bankr.S.D.N.Y.1985). The District Court affirmed that decision, finding that the actions of the Equity Committee constituted a clear abuse which threatened "this extraordinary and fragile reorganization", thus justifying the injunction. In re Johns-Manville Corporation, 60 B.R. 842, 854 (Bankr.S.D.N.Y.1986). On September 10, 1986, the United States Court of Appeals for the Second Circuit reversed and remanded the summary judgment decision, directing this court to hold an evidentiary hearing to "undertake a more elaborate inquiry into clear abuse and irreparable harm." slip opinion at 21.

On September 16, 1986 a second group of common shareholders (the "Wright Group") commenced an action seeking identical relief to that sought in the First Delaware Action by the Equity Committee (the "Second Delaware Action"). Manville amended its complaint to include the Wright Group on October 1, 1986 and an intervening complaint was served by the Committee of Asbestos Health Claimants (the "AH Committee"), the Official Committee of Unsecured Creditors (the "Creditors Committee") and the Legal Representative for Future Claimants (the "Legal Representative").

In accordance with the Second Circuit's mandate, one week ago this court concluded an extensive trial pursuant to the remand.

B. The Turbulent Proximal Overture to the Trial

At a scheduling conference, October 17 was specifically set as the date for the remand hearing. This was done in order to have time to conduct a trial here, but not necessarily to interfere with the trial schedule which had been established on short notice by the Delaware Court of Chancery, at the request of the Wright Group. Transcript of Proceedings dated October 10, 1986.

On October 1, 1986, the court granted Manville's motion to amend its complaint, and the members of the Wright Group were added as named defendants for the purposes of trial in this court. (Hereinafter, the Equity Committee and the Wright Group will be referred to collectively as the "Equity Interests".) On October 8, 1986, however, Delaware counsel for the Wright Group (which is also Delaware counsel for the Equity Committee) requested that the Delaware Vice-Chancellor move up the trial on the merits of the Wright action in Delaware to October 14. That litigation tactic by the Wright Group created the spectre of needless conflicts among courts in the state/federal system, with the potential for undermining the principles of comity and accord explicit in this court's original trial scheduling directive.

On October 9, counsel for Manville informed the court of the action of the counsel for the Wright Group in Delaware. The parties were informed that Manville would present to this court for signature an order restraining the Wright Group from further prosecution of its action in the Delaware court until this court could try the matter on October 17 and decide the issue. Transcript of Proceedings dated October 9, 1986.

On October 10, after all parties were heard, the order was entered. Transcript of Proceedings dated October 10, 1986. (On October 20, during the trial, the court extended the restraint. Transcript of Remand Hearing 789). The Wright Group sought an immediate appeal to and summary reversal by Judge Goettel, who denied their action to hear and summarily reverse the grant of the restraining order. The Wright Group then proceeded to seek mandamus and prohibition against Judge Goettel and this court in the Second Circuit with respect to the grant of the limited, temporary relief.

One of the grounds the Wright Group raised was that this court lacked jurisdiction to try the action and to grant the temporary relief because the mandate of the Second Circuit had not yet issued. However, on October 11, 1986 the mandate of the Second Circuit did issue, and on October 14, 1986, Judge Goettel (apparently in reaction to the activity of the Wright Group before him) issued an order specifically remanding the matter to this court for resolution.

Therefore, in view of the explicit decision of the Second Circuit that this court has jurisdiction to entertain these matters, and the specific order of Judge Goettel, there is no question that this court had jurisdiction to proceed with the trial and determination of these issues.

The trial of this action commenced on October 17, 1986. The Equity Committee immediately moved to disqualify the undersigned from hearing this matter on the asserted ground that the court was a material witness and could not therefore preside over the trial. After hearing all the parties, this court issued a ruling denying that motion. Transcript of Remand Hearing ("Tr.") at 46 et seq. During the trial, the Equity Committee sought immediate mandamus and a stay which was denied by the Part I judge of the District Court. The trial was conducted on October 17, 20 and 21.

At the trial, the plaintiffs presented the testimony of five witnesses (Messrs. Parker, Stevens, Henderson, Young and Silverman), offered various exhibits, and referred the court to various proceedings and events during the four years of this reorganization case that are matters of record in this court. The only witness testimony presented by the Equity Committee was the testimony of an investment banker as a fact witness. The Equity Committee also proferred testimony by the same witness as a supposed expert in an area where his qualifications were shown to be dubious. The court determined that, for the purposes offered, such testimony would not aid the court in resolving the issues presented. Tr. 644-646, 682-701. See, e.g. Liona Corporation, N.V. v. PCH Associates (In re PCH Associates), 804 F.2d 193, 197-198 (2d Cir.1986) (There is "wide discretion afforded a trial court whether expert testimony should be admitted or excluded.") citing Salem v. United States Lines Co., 370 U.S. 31, 35, 82 S.Ct. 1119, 1122, 8 L.Ed.2d 313 (1962) ("The trial judge has broad discretion in the matter of the admission or exclusion of expert evidence and his action is to be sustained unless manifestly erroneous.") (citation omitted). The Equity Committee also offered various exhibits and portions of deposition testimony. However, none of the members of the Equity Committee testified. The Wright Group offered the testimony of two witnesses (Mr. Charles Wright and Mr. Calvert Crary), various documents, and portions of one deposition.

Having considered all the evidence, the testimony and arguments presented at the trial as well as the materials in the record of these proceedings set forth in the annexed appendix (the "Appendix"), this court today holds that the efforts of the Equity Committee and the Wright Group to compel a shareholders meeting amounts to a clear abuse which puts Manville's ability to reorganize in real jeopardy and that Manville, the intervening plaintiffs and others not named as parties, will suffer irreparable harm if the shareholders meeting is not enjoined.

II A Short History of the Manville Reorganization

A. Introduction

Ordinarily the court would presume the reader's familiarity with the manifold proceedings in this well known reorganization or direct the reader's attention to: G.A.F. Corp., ...