In re Kaiser Aluminum Corp.

• Decision Date: 08 March 2006
• Docket Number: Bankruptcy No. 02-10429 JKF.,CIV.A. No. 05-135 JJF.
• Citation: 339 B.R. 91
• Parties: In re KAISER ALUMINUM COPORATION, a Delaware corporation, et al., Debtors: Law Debenture Trust Company, of New York, Appellant, v. Kaiser Aluminum Corporation, et al., Appellees.
• Court: U.S. District Court — District of Delaware

339 B.R. 91

In re KAISER ALUMINUM COPORATION, a Delaware corporation, et al., Debtors:

Law Debenture Trust Company, of New York, Appellant, v. Kaiser Aluminum Corporation, et al., Appellees.

Bankruptcy No. 02-10429 JKF.

CIV.A. No. 05-135 JJF.

United States District Court, D. Delaware.

March 8, 2006.

Francis A. Monaco, Jr., Esquire of Monzack and Monaco, P.A., Wilmington, DE, Of Counsel: Tina Niehold Moss, Esquire and Steven M. Rabinowitz, Esquire of Pryor Cashman Sherman & Flynn, LLP, New York, NY, for Appellant.

Daniel J. DeFranceschi, Esquire; Kimberly D. Newmarch, Esquire and Jason M. Madron, Esquire of Richards, Layton & Finger, Wilmington, DE, Of Counsel: Gregory M. Gordon, Esquire; Richard A. Chesley, Esquire and Daniel P. Winikka, Esquire of Jones Day, Dallas, TX, for Appellee, Kaiser Aluminum Corporation.

Kathleen M. Miller, Esquire of Smith Katzenstein & Furlow LLP, Wilmington, DE, Of Counsel: Jeffrey B. Cohen, Esquire, Chief Counsel; Charles L. Finke, Esquire, Associate Chief Counsel; James L. Eggeman, Esquire and Joel W. Ruderman, Esquire of Pension Benefit Guaranty Corporation, Washington, D.C. for Appellee, Pension Benefit Guaranty Corporation.

William P. Bowden, Esquire and Gregory A. Taylor, Esquire of Ashby & Geddes, Wilmington, DE, Of Counsel: Lisa Beckerman, Esquire and Brian A. Kilmer, Esquire of Akin Gump Strauss Hauer & Feld LLP, New York, NY, for the Official Committee of Unsecured Creditors.

MEMORANDUM OPINION

FARNAN, District Judge.

Presently before the Court is an appeal by Appellant, Law Debenture Trust Company of New York ("LDTC") from two Orders entered by the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on January 25, 2005:(1) the Order approving the settlement agreement between the Debtors and the Pension Benefit Guaranty Corporation (the "Settlement Order"), and (2) the Order Denying Law Debenture Trust Company of New York's Motion For Reconsideration of the Court's Stay of Law Debenture Trust Company of New York's Objection To Certain Proofs Of Claim Filed By The Pension Benefit Guaranty Corporation (the "Reconsideration Order"). For the reasons set forth below, the Court will affirm the Bankruptcy Court's Settlement Order and the Reconsideration Order.

I. PARTIES' CONTENTIONS

LDTC is a creditor of the Debtors and a non-party to the settlement agreement (the "PBGC Settlement") between the Debtors and Pension Benefit Guaranty Corporation ("PBGC"), another creditor of the Debtors. As a threshold matter, LDTC contends that the Bankruptcy Court erred in considering the PBGC Settlement without first resolving LDTC's objection to PBGC's claim. LDTC contends that it had an express statutory right under Section 502(a) of the Bankruptcy Code to object to the claim of another creditor, and that the Bankruptcy Court erroneously applied its authority under Section 105 of the Bankruptcy Code to thwart their right to object by approving the settlement and mooting LDTC's objection. LDTC further contends that the Settlement Order cannot properly resolve its claim objection because LDTC was not a party to the PBGC Settlement Agreement.

In addition, LDTC contends that the Bankruptcy Court abused its discretion in approving the settlement agreement. LDTC contends that the settlement process was unfair and prejudicial to LDTC, and the settlement itself was patently unreasonable because PBGC received a windfall.

In response, the Debtors contend that Section 502(a) does not give LDTC the right to object to the claims of other creditors, unless the trustee charged with ad ministering the estate has failed to address the claims, and the creditor has made a demand upon the trustee to bring an objection. In the alternative, the Debtors contend that even if LDTC has the right to bring such a claim objection under Section 502(a), that right is satisfied through the ability to object to the settlement.

As for LDTC's argument that it is not bound by the PBGC Settlement, the Debtors contend that first, LDTC failed to raise this argument in the Bankruptcy Court, and therefore it is waived. The Debtors also contend that LDTC's argument contradicts the well-established principle in bankruptcy that a debtor or trustee represents the interests of, and binds all general unsecured creditors when entering into settlement agreements.

As for the settlement itself, the Debtors contend that the Bankruptcy Court did not abuse its discretion in approving the PBGC Settlement. The Debtors contend that the Bankruptcy Court properly weighed the factors set forth by the Third Circuit in In re Martin, 91 F.3d 389 (3d Cir.1996) to conclude that the settlement was reasonable and in the best interests of the estates.

PBGC has filed a separate brief in response to LDTC's Opening Brief, which reiterates several of the arguments made by the Debtors. In addition, PBGC contends that LDTC lacked standing to object to PBGC's claims, because the Debtors are operating and managing their business as debtors-in-possession, and therefore, they are performing all the duties of a trustee under Section 704 of the Bankruptcy Code, including the duty to examine proofs of claim and object to those proofs of claim.

The Official Committee of Unsecured Creditors has also filed a brief which reiterates the Debtors' arguments and challenges LDTC's allegations that the settlement negotiations were not conducted in good faith and at arms-length. The Committee also contends that, contrary to LDTC's assertions, LDTC was involved in and apprised of the settlement negotiations.

II. STANDARD OF REVIEW

The Court has jurisdiction to hear an appeal from the Bankruptcy Court pursuant to 28 U.S.C. § 158(a). In undertaking a review of the issues on appeal, the Court applies a clearly erroneous standard to the Bankruptcy Court's findings of fact and a plenary standard to its legal conclusions. See Am. Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir.1999). With mixed questions of law and fact, the Court must accept the Bankruptcy Court's finding of "historical or narrative facts unless clearly erroneous, but exercise[s] `plenary review of the trial court's choice and interpretation of legal precepts and its application of those precepts to the historical facts.'" Mellon Bank, NA v. Metro Communications, Inc., 945 F.2d 635, 642 (3d Cir.1991) (citing Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir.1981)). The appellate responsibilities of the Court are further understood by the jurisdiction exercised by the Third Circuit, which focuses and reviews the Bankruptcy Court decision on a de novo basis in the first instance. In re Telegroup, 281 F.3d 133, 136 (3d Cir.2002).

III. DISCUSSION

A. Whether The Bankruptcy Court Erred In Holding The Settlement Hearing Before Resolving LDTC's Proof Of Claim Objection And Subsequently Mooting LDTC's Claim Objection

LDTC contends that it has the right to bring a claim objection under Section 502(a)¹, and that there is a conflict between Section 502(a) and Bankruptcy Rule 9019 which pertains to the approval of settlement. LDTC contends that this conflict arises because the standard for determining whether to approve a settlement under Rule 9019 is less exacting than that which is required for adjudication of the proof of claim under Section 502. In the face of this alleged conflict, LDTC contends that the Bankruptcy Rule at issue must give way to the applicable Bankruptcy Code section.

While it is true that the Bankruptcy Code trumps related Bankruptcy Rules implementing the Bankruptcy Code, this proposition is typically used when there is a direct conflict or contradiction between the applicable Rule and the Code section it is implementing. In this case, the Court concludes that there is no direct conflict between Section 502(a) and Rule 9019 which would require the Bankruptcy Court to resolve claim objections before approving a settlement. Indeed, LDTC has not identified, and the Court has been unable to locate, any case law requiring such a procedure. Moreover, it is the Court's view that such a procedure would undermine the important policy of promoting settlements in bankruptcy proceedings by requiring the parties to litigate the very issues that the settlement seeks to resolve.

LDTC directs the Court to the Third Circuit's decision in In re Combustion Engineering, 391 F.3d 190 (3d Cir.2004), for the proposition that the Bankruptcy Court should not have used its powers under Section 105 to thwart its rights to bring a claim objection under Section 502(a). However, in the absence of specific guidance from the Third Circuit, the Court declines to read Combustion Engineering as broadly as LDTC advocates. Combustion Engineering dealt with the specific interaction between Section 105 and Section 524(g), and the Third Circuit expressly declined to discuss the manner in which Section 105 operates in other contexts stating that "[w]hatever may be the limits of 105(a) in other contexts, we hold only that 105(a) cannot be used to achieve a result not contemplated by the more specific provision of 524(g), which is the means Congress prescribed for channeling the asbestos liability of a non-debtor." Id. at 237, n. 50 (emphasis added).

LDTC also contends that the PBGC Settlement cannot resolve its claims, because LDTC is not a party to the PBGC Settlement. The Debtors contend, and LDTC does not dispute that it did not make this argument before the Bankruptcy Court, and therefore, it is not properly before this Court on appeal. See e.g., Brown v. Philip Morris, 250 F.3d 789, 799 (3d Cir.2001). However, even if the Court considers this argument, the Court concludes that it does not provide a basis for relief. First, the Court is not persuaded that the cases cited by LDTC support its argument. Second, the Court concludes that LDTC's argument contradicts well-established bankruptcy principles recognizing that the debtor is...