In re Johns-Manville Corp.
| Decision Date | 20 November 1986 |
| Docket Number | 86 Civ. 8199 (SWK),No. 86 Civ. 8164 (SWK),86 Civ. 8200 (SWK) and 86 Civ. 8201 (SWK).,86 Civ. 8164 (SWK) |
| Citation | 68 BR 155 |
| Parties | In re JOHNS-MANVILLE CORPORATION, et al., Debtors. Carl M. ALBERO, Morton Macks, et al., Appellants, v. JOHNS-MANVILLE CORPORATION, the Official Committee of Unsecured Creditors, the United States Trustee, the Official Committee of Asbestos Related Litigants and/or Creditors, and the Legal Representative for Future Claimants, Appellees. |
| Court | U.S. District Court — Southern District of New York |
Kronish, Lieb, Weiner and Hellman, New York City by Richard Lieb, Preston Towber, for the Common Shareholders.
Hahn and Hessen, New York City by George A. Hahn, Barry M. Schkolnick, for the Preferred Shareholders.
Caplin and Drysdale, New York City by Elihu Inselbuch, for the Official Committee of Asbestos Related Litigants and/or Creditors.
Milbank, Tweed, Hadley and McCloy, New York City by John J. Jerome, John G. Gellene, David P. Wohabe, for the Committee of Unsecured Creditors.
Levin and Weintraub and Crames by Herbert Edelman, Davis Polk and Wardwell, New York City by L. Gordon Harriss, for Johns-Manville Corp.
Fried, Frank, Harris, Shriver and Jacobson, New York City by Matthew Gluck, for the Legal Representative for Future Claimants.
United States Trustee, New York City by Harold Jones.
Securities and Exchange Com'n, Washington, D.C. by Daniel L. Goelzer, Richard A. Kirby, Batya Roth.
The appellants in these consolidated appeals1 are a group of approximately three hundred holders of common stock (the "common shareholders") of Johns-Manville Corporation ("Manville") and Morton J. Macks, a holder of preferred shares of Manville stock. Macks is representing the interests of preferred shareholders (the "preferred shareholders") of Manville stock in this litigation.2 They appeal from two separate orders of the bankruptcy court, each dated October 9, 1986, which denied their motions to appoint two official committees, pursuant to Section 151102 of the Bankruptcy Code,3 to represent the interests of holders of common and preferred Manville stock.4 Aligned as appellees are the Official Committee of Unsecured Creditors, the United States Trustee, the Legal Representative for Future Claimants, Johns-Manville Corporation, and the Official Committee of Asbestos Related Litigants and/or Creditors.5
According to 28 U.S.C. § 157(b)(1) and 28 U.S.C. § 158(c), a bankruptcy court's decision in a "core proceeding" is subject to review by a district court in the same manner that appeals from district courts are reviewed by courts of appeals. A "core proceeding" includes "matters concerning the administration of the estate". 28 U.S.C. § 157(b)(2)(A). The appointment of a committee to represent the equity stockholders of a bankrupt company falls within this category. This Court's review of the bankruptcy court's decision is thus governed by Bankruptcy Rule 8013, which accords the findings of a bankruptcy judge the same weight given to the findings of a district judge under Fed.R.Civ.P. 52.
Rule 8013 states:
On an appeal the district court . . . may affirm, modify, or reverse a bankruptcy court\'s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
It is well settled that a bankruptcy judge's findings of fact are binding on the reviewing court unless clearly erroneous. In re Emergency Beacon Corp., 52 B.R. 979, 987 (S.D.N.Y.1985), aff'd, 790 F.2d 285 (2d Cir. 1986); In re Tesmetges, 47 B.R. 385, 388 (E.D.N.Y.1984); In re Chin, 47 B.R. 894, 897 (S.D.N.Y.1984). See In re Hygrade Envelope Corp., 366 F.2d 584, 588 (2d Cir. 1966). "A finding is `clearly erroneous' when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). While a reviewing court may search the entire record in assessing whether findings of fact are clearly erroneous, see Anderson v. Bessemer City, 470 U.S. 564, 574, 105 S.Ct. 1504, 1512, 84 L.Ed.2d 518 (1985), a district court cannot set the bankruptcy court's findings of fact aside if the record reveals a reasonable basis for them. In re Mid-Center Redevelopment Corp., 383 F.Supp. 954, 958 (D.N.J.1974).
In this case, a number of other factors affect the scope of review of the bankruptcy court's findings of fact. First, only two documents in the record contain sworn statements of fact: an affidavit by the common shareholders' attorney and a portion of a deposition of a Manville officer. The bankruptcy court did not hold an evidentiary hearing, nor did it cite any documentary evidence in making its ruling. While it may be appropriate for a bankruptcy court to rely on its accumulated knowledge of a case in rendering its decision, the court should indicate the portions of its knowledge upon which it relied. In re Johns-Manville Corp., 801 F.2d 60, 68 (2d Cir.1986) (). In the absence of a factually based record and citations to the sources upon which the bankruptcy court relied, it is difficult for this Court to apply the clearly erroneous standard.
The absence of a fully developed factual record in this case is detrimental to the appellants, because the burden of demonstrating the need for adequate representation under Section 151102 is borne, in the first instance, by the party seeking appointment.6 In re Beker Industries Corp., 55 B.R. 945, 949, (Bankr.S.D.N.Y.1985). See In re Johns-Manville, 38 B.R. 331, 332 (S.D.N.Y.1983) (). The common shareholders did not seek an evidentiary hearing on the motion to appoint official committees.
Second, the bankruptcy court's orders denying the motions to appoint separate common and preferred shareholders committees were prepared and submitted to the court by the prevailing parties. The court adopted the proposed findings and made only minor changes. The findings were in the form of conclusory statements and were not supported by citation to the record. The Supreme Court has "criticized courts for their verbatim adoption of findings of fact prepared by prevailing parties, particularly when those findings have taken the form of conclusory statements unsupported by citation to the record". Anderson, 470 U.S. at 572, 105 S.Ct. at 1511. Nevertheless, "even when the trial judge adopts proposed findings verbatim, the findings are those of the court and may be reversed only if clearly erroneous". Id. Thus, this Court must still apply the clearly erroneous test to the bankruptcy court's findings.
Third, it is clear from the record that the bankruptcy judge's factual findings are incomplete, and exclude relevant facts. A reviewing court may make additional findings when there is no dispute as to the facts, In re Osborne, 42 B.R. 988, 995 (W.D.Wisc.1984), and when those findings do not contradict conclusions of the bankruptcy court which the reviewing court has accepted. In re Neis, 723 F.2d 584, 589 (7th Cir.1983). This Court can thus supplement the bankruptcy court's factual findings when appropriate.
Fourth, none of the bankruptcy judge's findings are based on credibility determinations. Although greater deference is to be paid to findings based on credibility determinations, findings of fact based on credibility determinations are still subject to the clearly erroneous standard. Anderson, 470 U.S. at 574, 105 S.Ct. at 1512.
The bankruptcy court's legal conclusions are "subject to plenary review". In re Missionary Baptist Foundation of America, 712 F.2d 206, 209 (5th Cir.1983); In re Tesmetges, 47 B.R. at 388; In re Levine, 32 B.R. 742, 743 (S.D.N.Y.1983); In re Penn-Dixie Industries, Inc., 9 B.R. 936, 938 (S.D.N.Y.1981). In addition, the clearly erroneous rule does not apply to "mixed questions of fact and law". In re Levine, 32 B.R. at 743. Thus, the clearly erroneous rule does not apply when a finding of fact is premised on an improper legal standard, In re Missionary Baptist Foundation, 712 F.2d at 209, or when the finding is based on the application of law to facts undisputed or reasonably found. In re Hygrade, 366 F.2d at 588; In re Mid-Center Redevelopment, 383 F.Supp. at 958; In re Penn-Dixie, 9 B.R. at 938.
The terms of Section 151102(b) vest the bankruptcy court with discretion to appoint a committee of equity holders:
On request of a party in interest . . . the court may order the appointment of additional committees of creditors of equity security holders if necessary to assure adequate representation of creditors or of equity security holders. . . .
11 U.S.C. 151102(b). "The statute affords no test of adequate representation, leaving the bankruptcy courts with discretion to examine the facts of each case to determine if additional committees are warranted." In re Beker, 55 B.R. at 948. See In re Johns-Manville, 38 B.R. at 331 (); In re Penn-Dixie Industries, Inc., 9 B.R. 941, 943 (S.D.N.Y.1981) ().
The structure of Section 151102 indicates that Congress intended to give a bankruptcy judge the discretion to appoint an equity committee. While Section 151102(b) states that a court may appoint an equity committee, Section 151102(a) requires the court to appoint an official committee to represent unsecured creditors. Thus, when Congress intended to mandate...
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