In re Johns-Manville Corp., Bankruptcy No. 82 B 11656-82 B 11676
| Decision Date | 20 September 1985 |
| Docket Number | Bankruptcy No. 82 B 11656-82 B 11676,Adv. No. 85-6557A. |
| Parties | In re JOHNS-MANVILLE CORPORATION, et al., Debtors. MANVILLE CORPORATION, Plaintiff, v. The EQUITY SECURITY HOLDERS COMMITTEE, A.F. Investments as a Member of the Equity Security Holders Committee, Bankers National Life Insurance Company as a Member of the Equity Security Holders Committee, Centerre Trust Company of St. Louis as a Member of the Equity Security Holders Committee, Clayton & Dubilier Inc. as a Member of the Equity Security Holders Committee, Leon B. Dubin as a Member of the Equity Security Holders Committee, the Independent Insurance Group, Inc. as a Member of the Equity Security Holders Committee, Bertrand A. McKittrick as a Member of the Equity Security Holders Committee, Shlomo Nutovic as a Member of the Equity Security Holders Committee, Raytheon Financial Corporation as a Member of the Equity Security Holders Committee, and Leonard Starobin (Starr) as a Member of the Equity Security Holders Committee, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Levin & Weintraub & Crames, Davis, Polk & Wardwell, New York City, for debtors; Michael J. Crames and Andrew Kress, Lowell Gordon Harriss, New York City, of counsel.
Milbank, Tweed, Hadley & McCloy, New York City, for Creditors Committee; John Gellene, New York City, of counsel.
Fried, Frank, Harris, Shriver & Jacobson, New York City, for Leon Silverman, Legal Representative; Matthew Gluck, New York City, of counsel.
Virginia M. Handal, New York City, for U.S. Securities and Exchange Committee.
Latham & Watkins, New York City, for Asbestos plaintiffs; Stephen J. Sturgill, New York City, of counsel.
Hahn & Hessen, New York City, for Equity Sec. Holders Committee; George Hahn, Angela G. Tese, and Steven J. Mandelsberg, New York City, of counsel.
Weil, Gotshal & Manges, New York City, for Owens-Illinois; Ellen Werther, New York City, of counsel.
Whitman & Ransom, New York City, for U.S. Trust Co. of N.Y.; William M. Kahn, New York City, of counsel.
On September 11, 1985, this Court delivered a bench ruling inter alia denying a motion of the Equity Security Holders Committee ("Equity Committee") for authority to retain the Delaware law firm of Allmond, Eastburn and Benge ("the Allmond firm") as special counsel and further denying the application seeking advance reimbursement for expenses incurred by the Committee in holding a shareholders' meeting. The Equity Committee's motion for summary judgment to dismiss a reactive complaint filed by Johns-Manville Corporation ("Manville") was heard at the same time and was also denied. The complaint sought to enjoin a Manville shareholders' meeting. Decision, however, was reserved on the grant of summary judgment in favor of Manville for the injunctive relief sought in its complaint. This opinion incorporates the oral bench ruling and determines the reserved portion of the summary judgment motion.
The present dispute between the parties involving corporate governance of a reorganization debtor commenced on August 16, 1985 when the Equity Committee filed a motion on thirty days notice for the nunc pro tunc retention of and compensation for the Allmond firm as special counsel. The Equity Committee sought the assistance of special counsel to institute an action in the Delaware Chancery Court to compel Manville to hold a shareholders' meeting. The Equity Committee also sought an order permitting reimbursement of all expenses incurred by holding such a meeting including those usually associated with a proxy fight. This motion was opposed by Leon Silverman, the legal representative appointed by this Court to represent future asbestos-health claimants,1 the Co-Defendants Committee, Manville and the Asbestos Health Related Litigants Committee.
On August 19, 1985, Leon B. Dubin ("Dubin"), holder of 1,600 shares of Manville common stock and a member of the Equity Committee, commenced an action in a Delaware state court, individually and on behalf of the Equity Committee, to compel Manville to hold an annual shareholders' meeting. No leave of this Court, which has exclusive jurisdiction over this debtor's reorganization, was sought or obtained. Neither was there any attempt to accelerate a hearing on the related counsel retention motion.
On August 27, 1985, Manville responded by filing a complaint against the Equity Committee and its members, seeking to enjoin the Delaware action, or alternatively, to prevent any elected official from taking office until this Court's approval is obtained. On September 5, 1985, the Equity Committee responded by filing a motion for summary judgment dismissing Manville's complaint.
The following issues were articulated in the bench ruling of September 11, 1985 and are cumulatively dealt with in this opinion:
1) whether § 1103(c) of the Bankruptcy Reform Act of 1978 ("Code") authorizes the Equity Committee to seek the nunc pro tunc retention of the Allmond firm for the agenda set forth in the moving papers;
2) whether the Equity Committee has any authority under the provisions of the Code to have one of its members, in an individual and representative capacity, institute the action in the Delaware courts without first obtaining leave of this Court;
3) whether the Equity Committee collectively and Dubin, one of its members, may be enjoined from proceeding with the Delaware action;
4) whether the Equity Committee is entitled to summary judgment in its favor on the issue of its right to compel a shareholders' meeting; and
5) whether there exist genuine issues of fact which would preclude the granting of summary judgment.
On August 26, 1982, Manville, a Delaware corporation and twenty of its affiliates and subsidiaries filed petitions for relief under Chapter 11 of the Code (the "petitions" or "petition"). Manville has continued to operate its businesses as debtor-in-possession pursuant to §§ 1107 and 1108.
Manville and Committee representatives of all major constituencies, including the Equity Committee, have engaged in negotiations and have attempted to reach agreement on essential elements which would provide the foundation for a plan of reorganization. The period of exclusivity during which only the debtor may file a plan of reorganization has been extended periodically pursuant to § 1121(d). The parties have continued to negotiate in good faith and have attempted to arrive at a mutually agreeable settlement.
Manville filed a Plan of Reorganization on November 21, 1983, which was met with less than universal approbation and which is subject to amendment or modification. The process leading to confirmation, however, is well under way. If it were not for the ongoing willingness of opposing factions to seek a consensual or near consensual plan rather than risk an attempt at an imposed plan, a § 1129 confirmation hearing might already have been held.
Committees of creditors representing Manville's major constituencies and equity holders have been appointed and authorized to represent their members as provided for in § 1102 and its pilot district mate § 151102. The Equity Committee was authorized pursuant to an order of this court to retain the law firm of Hahn & Hessen as its counsel. According to the most recent United States Trustee appointment designation dated August 29, 1985 which implements this Court's 1982 order, the Equity Committee is comprised of the following members: (1) Bankers National Life Insurance Company; (2) Centerre Trust Company of St. Louis; (3) Leon B. Dubin; (4) the Independent Insurance Group, Inc.; (5) Raytheon Financial Corporation; (6) Hopper Soliday & Co., Inc.; and (7) Morton J. Macks. A major distinction between the equity and other committees should be noted. This committee's representation uniquely embraces individuals or shareholders who may have voluntarily acquired their interests after the filing of the petition. The other committees represent completely involuntary creditors whose interests existed prior to the filing of the petition.
The Equity Committee's powers derive from the Code and are contained in § 1103(c).2 This Title 11 reorganization court is the "source court" for the existence and nourishment of the Equity Committee and Dubin as a member of the committee. Dubin's appearance as plaintiff in the Delaware action in a dual capacity cannot help but raise a suggestion of conflict. Dubin may be in breach of his fiduciary obligations in that he owes duties to both the Equity Committee and the debtor. Such a breach is especially egregious to the extent he as an individual receives advice and counsel from professionals paid with estate funds.
On August 2, 1985, Manville announced that its Board of Directors and the Legal Representative had approved an agreement on principal elements of a plan of reorganization ("Principal Elements Agreement"). Many of the elements of this agreement will potentially amend or modify the filed plan of reorganization. Within two weeks of the announcement of the Principal Elements Agreement, the Equity Committee filed its motion for retention of the Allmond firm for the purpose of instituting the Delaware Action. Since the last Manville annual shareholders' meeting in May 1982, no shareholder or director has at any time sought to compel the calling of a shareholder's meeting for the years 1983, 1984 or 1985.
On August 19, 1985 Dubin, utilizing the Allmond firm, commenced Civil Action No. 8119 in the Delaware Chancery Court seeking to compel Manville to hold a shareholders' meeting. The Delaware caption refers to Dubin as Plaintiff individually and on behalf of the Equity Committee, but there is no doubt that the Equity Committee is either the real plaintiff party in interest, or a plaintiff party in interest. The Equity Committee has made no effort to disassociate itself from the suit. Indeed the Equity Committee's present motions for...
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