In re Johns-Manville Corp.

• Decision Date: 05 May 1986
• Docket Number: Bankruptcy No. 82 B 11656-82 B 11662 and 82 B 11665-82 B 11676,Adv. No. 84-5356A.
• Citation: 60 BR 612
• Parties: In re JOHNS-MANVILLE CORP., et al., Debtors. The COMMITTEE OF ASBESTOS-RELATED LITIGANTS AND/OR CREDITORS, Plaintiff, v. JOHNS-MANVILLE CORP., et al., Wexler, Reynolds, Harrison & Schule Martin Rogol, Chambers Associates, Leon Billings, Inc., Kendall & Associates, Steven Stockmeyer, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

60 B.R. 612 (1986)

In re JOHNS-MANVILLE CORP., et al., Debtors.

The COMMITTEE OF ASBESTOS-RELATED LITIGANTS AND/OR CREDITORS, Plaintiff, v. JOHNS-MANVILLE CORP., et al., Wexler, Reynolds, Harrison & Schule Martin Rogol, Chambers Associates, Leon Billings, Inc., Kendall & Associates, Steven Stockmeyer, Defendants.

Bankruptcy Nos. 82 B 11656-82 B 11662 and 82 B 11665-82 B 11676, Adv. No. 84-5356A.

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

May 5, 1986.

Levin & Weintraub & Crames by Edmund M. Emrich, Davis, Polk & Wardwell, by Lowell Gordon Harriss, New York City, for debtors.

Moses & Singer by Shelley Rothschild, New York City, for Asbestos plaintiffs.

Verner, Liipfert, Bernhard, McPherson & Hand by Roger Whelan, Washington, D.C., for defendants.

Williams & Connolly by Phillip J. Ward, Washington, D.C., for Wexler, Reynolds, Harrison & Schole, Washington, D.C.

DECISION AND ORDER ON MOTION FOR SUMMARY JUDGMENT

BURTON R. LIFLAND, Bankruptcy Judge.

The present motion for summary judgment raises two issues of first impression: 1) whether a debtor corporation's retention of certain lobbyists was in the ordinary course of business under § 363 of the Bankruptcy Reform Act of 1978 ("Code"); and 2) whether such lobbyists are professional persons within the meaning of § 327(a), whose retention requires prior court approval. The Committee of Asbestos-Related Litigants and/or Creditors ("Asbestos Committee" or "Committee"), an official creditor's committee in this bankruptcy proceeding, seeks the turnover of funds which the debtor, Johns-Manville Corporation ("Manville"), paid to certain lobbyists subsequent to August 26, 1982, the date of the filing of its bankruptcy petition. The Asbestos Committee also seeks a permanent injunction preventing Manville from making any further payments to these lobbyists without first obtaining court approval.

The following individuals and companies, who provided Manville with lobbying and related services, have been named as defendants in the present action: Wexler, Reynolds, Harrison & Schule, Inc.; Martin Rogol; Chambers Associates; Leon Billings, Inc.; Kendall & Associates; and Steven Stockmeyer (collectively referred to as "lobbyists").

I. FACTS

Manville, a "Fortune 500" company, is a large and diversified mining, manufacturing and production enterprise. The record shows that for a number of years prior to the filing of its petition under Chapter 11, Manville, as is typical of such enterprises, made it a regular practice to monitor pending or proposed legislation or regulations potentially affecting it, and to express its views, with the advice and assistance of both in-house and outside lobbyists and consultants, to Congress and to various administrative agencies. Manville's prepetition lobbying and consulting activities extended to all legislative and regulatory matters of concern to Manville, including, but not limited to, asbestos compensation legislation. Manville has monitored asbestos legislation since 1973, and has engaged in lobbying and consulting activities in that area since 1975, and in other areas long prior to that date.

Subsequent to the filing of its bankruptcy petition in August of 1982, Manville retained several law firms, pursuant to orders of this court and after notice and hearing as required by § 327(a) of the Code, to provide legal-oriented lobbying services in connection with pending legislation in both the bankruptcy and the asbestos compensation arenas. The Asbestos Committee appealed from these orders arguing, inter alia, that "by electing the remedy of a Chapter 11 proceeding, Manville became committed to utilizing the procedures mandated by Chapter 11 and surrendered its right to lobby for proposed legislation, which is manifestly inconsistent therewith." Committee of Asbestos-Related Litigants and/or Creditors v. Johns-Manville Corp., 32 B.R. 728, 732-33 (S.D.N.Y.1983). The district court rejected this argument and affirmed this court's retention orders, holding that "resort to Chapter 11 does not impose a per se rule against lobbying activity." Id. at 733. In addition, the district court rejected as meritless the Asbestos Committee's argument that lobbying consists of non-legal services and that a debtor may not retain a law firm to perform non-legal work at legal rates of compensation. Id. n. 6.

Subsequent to the affirmance of this court's order authorizing Manville's retention of professional persons as lobbyists, the Asbestos Committee commenced the present action targeting other non-attorney non-retained lobbyists.¹ The Asbestos Committee contends that Manville violated the Code by making payments from the estate to these non-lawyer lobbyists, and seeks the turnover of all funds so paid.² The Committee argues that the services rendered by these lobbyists fall outside the ordinary course of business as that term is used in § 363 of the Code, and that therefore notice and a hearing are required. In support of this contention the Asbestos Committee argues that both the quality and the quantity of Manville's lobbying efforts increased postpetition because after that time Manville broadened its lobbying efforts to encompass bankruptcy legislation. The Committee emphasizes that Manville substantially increased the number of lobbyists retained and the dollar amounts expended for lobbying postpetition.³

Alternatively, the Asbestos Committee argues that the lobbyists named as defendants in the present action are "professional persons" within the meaning of § 327(a) of the Code, who may be retained only with the court's approval, after notice and a hearing. The Asbestos Committee has moved for summary judgment on these issues pursuant to Federal Rule of Civil Procedure 56 and Bankruptcy Rule 7056.⁴

Manville has cross-moved for summary judgment, maintaining that lobbying for legislation to further its business ends is in the ordinary course of business for a "Fortune 500" corporation. It further points out that it had been lobbying in Congress for many years prior to its bankruptcy filing. Manville argues that the concept of "ordinary course of business" enables a corporation to take steps to protect itself from actual or potential liability, and that lobbying is an acceptable method of obtaining such protection.

Furthermore, Manville argues that the lobbyists are not "professional persons" within the meaning of § 327(a), because the lobbyists do not perform a central role in the reorganization proceedings. Thus, according to Manville, court approval was not a prerequisite to their retention. Finally, Manville argues that a prohibition against lobbying without prior court approval would infringe upon its First Amendment right to lobby.

For the following reasons, this court finds that the retention of the lobbyists was in the ordinary course of business pursuant to § 363, and that such lobbyists are not professional persons for the purposes of the notice and hearing requirements of § 327(a).

II. DISCUSSION OF LAW

A. Manville Retained the Lobbyists in the Ordinary Course of Its Business.

A debtor-in-possession ("debtor"), in the absence of a Chapter 11 trustee, has the rights and powers of a trustee and is empowered by the Code to continue operating its business and managing the property of its estate. See Code §§ 1107 and 1108.⁵See also H.R.Rep. No. 595, 95th Cong., 1st Sess. 404 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 116 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5902, 6360. Indeed, the Code favors the continued operation of a business by a debtor and a presumption of reasonableness attaches to a debtor's management decisions. See In re Columbia Motor Express, Inc., 33 B.R. 389, 393 (M.D.Tenn.1983). See also In re La Sherene, Inc., 3 B.R. 169, 174 (Bankr.N. D.Ga.1980) (presumption arises from belief that debtor and current management are best suited to orchestrate debtor's rehabilitation). Where the debtor articulates a reasonable basis for its business decisions (as distinct from a decision made arbitrarily or capriciously), courts will generally not entertain objections to the debtor's conduct. See In re Curlew Valley Associates, 14 B.R. 506, 513 (Bankr.D.Utah 1981).

To facilitate the debtor's reorganization and to avoid excessive judicial involvement in the debtor's affairs, § 363(b) of the Code authorizes a debtor to "use . . . other than in the ordinary course of business, property of the estate" after notice and a hearing. Thus ordinary course uses of estate property do not require a prior hearing. See Code § 363(c)(1). The § 363 mandate necessarily includes the concomitant discretion to exercise reasonable judgment in ordinary business matters. See, e.g., In re Deluca Distributing Co., 38 B.R. 588, 591 (Bankr.N.D.Ohio 1984); In re Thrifty Liquors, Inc., 26 B.R. 26, 28 (Bankr.Mass. 1982); In re Allied Technology, Inc., 25 B.R. 484, 495 (Bankr.S.D.Ohio 1982). Thus, "where the debtor in possession is merely exercising the privileges of its chapter 11 status, . . . there is no general right to notice and hearing concerning particular transactions." In re James A. Phillips, Inc., 29 B.R. 391, 394 (S.D.N.Y.1983). Only extraordinary transactions which are "different from those that might be expected to take place," need be brought to the attention of creditors and other interested parties to allow them to voice any objections to the debtor's proposals. Id.

In determining whether notice and a hearing are required, the scope and meaning of the phrase "ordinary course of business" becomes crucial. In re Waterfront Companies, Inc., 56 B.R. 31, 35 (Bankr.D. Minn.1985). However, neither the Code nor the legislative history of § 363 provide any test or guidelines for identifying an ordinary course transaction. Likewise, other Code sections employing the phrase "ordinary course of business," such as §§ 364(a) and 547(c)(2)(B) and (C), fail to provide direction. Nevertheless, a synthesis of existing caselaw reveals a...