In re Malden Mills Industries, Inc.
| Citation | 361 B.R. 1 |
| Decision Date | 22 January 2007 |
| Docket Number | No. 01-47215 JBR.,No. 01-47217 JBR.,No. 01-47214 JBR.,No. 01-47216 JBR.,01-47214 JBR.,01-47215 JBR.,01-47216 JBR.,01-47217 JBR. |
| Parties | In re MALDEN MILLS INDUSTRIES, INC., et al, Debtors. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts |
Christian T. Haugsby, Douglas B. Rosner, James F. Wallack, Rafael Klotz, Richard Langerman, Goulston And Storrs, PC, David J. Byer, Testa, Hurwitz & Thibeault, LLP, Guy B. Moss, Jennifer L. Stewart, Melissa G Liazos, Bingham Mccutchen, John T. Morrier, Richard E. Mikels, Ruth M Bayley, Stephen E. Cooper, Mintz Levin Cohn Ferris Golvsky & Popeo, Joshua Pemstein, Kenneth S. Leonetti, Foley Hoag LLP, Timothy A. French, Boston, MA, for Debtors.
This matter came before the Court for a hearing on January 12, 2007 upon the Motions of the Malden Mills Creditor Trust (1) to vacate the Court's Order of December 28, 2006 granting the "Assented-to Motion of Reorganized Debtors for Entry of Final Decree Closing All Cases" under Fed. R. Bankr.P. 9024 and Fed.R.Civ.P. 60 [Docket # 2398]; (2) to reopen the above captioned bankruptcy cases under 11 U.S.C. § 350 and Fed. R. Bankr.P. 5010 [Docket # 2399]; and (3) to transfer venue of the recently filed Delaware bankruptcy cases (# 07-10048 through # 07-10052) to Massachusetts under Fed. R. Bankr.P. 1014 [Docket # 2400]. At the conclusion of the hearing, the Court granted the Motions, gave an oral summary of its reasons, and reserved the right to issue a memorandum of decision at a later date [Docket # 2410; 2411; 2412].
BACKGROUND FACTS:
Malden Mills Industries, Inc. (hereinafter "Debtor") and its affiliates filed a Chapter 11 bankruptcy petition on November 29, 2001 in the United States Bankruptcy Court for the District of Massachusetts (hereinafter "Court" and collectively "Massachusetts Cases").1 The Debtor's plan of reorganization was substantially consummated, the Final Decree was entered on December 28, 2006, and the Massachusetts Cases were closed on January 9, 2007. Only fourteen hours after the Massachusetts Cases were closed, the Debtor and its affiliates filed a new Chapter 11 bankruptcy petition on January 10, 2007 in the United States Bankruptcy Court for the District of Delaware (hereinafter "Delaware Court" and collectively "Delaware Cases"). The Malden Mills Creditor Trust2 (hereinafter "Creditor Trust"), which owns 26% of the common stock of the Debtor and is its largest shareholder as well as a creditor, filed the instant motions seeking to vacate the Final Decree, reopen the Massachusetts Cases, and transfer venue of the Delaware Cases from the Delaware Court to this one. In summary, the Creditor Trust alleged that it was mislead into assenting to the Motion for Final Decree [Docket # 2394] not knowing that the Debtor planned to refile bankruptcy in Delaware upon the closing of the Massachusetts Cases, a plan which was known to the Debtor and its Agent, GE Capital Commerce Finance, at least as early as October/November 2006 and which was well under way by the time the Motion was filed on December 13, 2006.
In its written submissions and at the hearing, lead counsel for the Creditor Trust argued that it would not have assented to the Motion for a Final Decree had it known of the Debtor's plans to immediately refile in Delaware. At the hearing, the parties focused much discussion on the circumstances surrounding the Motion. According to the Creditor Trust, the process of closing the Massachusetts Cases was moving slowly over the course of three years, from October 2003 to October 2006. 1/12/07 Transcript, p. 26. At that time, in late 2006, the Debtor's efforts intensified, as did the involvement of the Agent in the process. On a conference call in mid-to-late November 2006, a conversation which all relevant parties admit took place, co-counsel to the Creditor Trust specifically asked counsel to the Debtor in the Massachusetts Cases4 and counsel to the Agent in a direct question whether there was any particular reason for the aggressive push to close the cases, since it was such a significant change from the previous three years. 1/12/07 Transcript, p. 48, 50, 62. In response, Agent's counsel, by her own admission, gave an answer to the effect that "the year was coming up, everything was done, the case needed to be closed, and that people worked better with deadlines." 1/12/07 Transcript, p. 48.. With that representation, the Creditor Trust gave its assent to the Motion, which was filed with the Court on December 13, 2006. As of the November conversation, Agent's counsel knew of the Debtor's plans to refile bankruptcy, but Debtor's counsel in the Massachusetts Cases did not. However, by the time the Motion was filed, Debtor's Massachusetts counsel had been informed of the plans. 1/12/07 Transcript, p. 62, 69. He was unsure whether Creditor Trust's counsel had also been made aware of the plans. 1/12/07 Transcript, p. 70
At the hearing, lead counsel for the Debtor in the Delaware Cases argued that confidentiality was the reason why the Creditor Trust was not informed of the Debtor's plans to refile. He stated that the Debtor couldn't "bandy this about that the business is on its last legs, that the business is in jeopardy of not being able to continue to operate, and realistically hope to retain employees, realistically hope to have vendors, some of whom were on the Creditor Trust, continue to ship in the ordinary course, continue to have third parties ... potentially make bids for anything more than liquidation value." 1/12/07 Transcript, p. 30. Also focusing on confidentiality, Agent's counsel stated "admittedly [her answer] was incomplete, but we were not at liberty to provide any information other than what we did." 1/12/07 Transcript, p. 69. She argued that "[like the Debtor], the Agent was aware of the business risks of disclosing a potential sale or bankruptcy" and that the "Agent would have been precluded from providing that information [to the Creditor Trust] under the confidentiality provisions of [its] creditor agreement." 1/12/07 Transcript, p. 47. Agent's counsel stated that it "couldn't have happened any other way." Id. Creditor Trust's counsel countered by pointing out that the Creditor Trust had, in the past, been "led to believe... that it would be kept in the loop with respect to major corporate transactional events" and assured that "nothing this significant would go on without the Creditor Trust's knowledge." 1/12/07 Transcript, p. 53. He argued that the Debtor and Agent's arguments were "squarely contradicted by previous transactions," focusing on one in particular in early 2006 in which the Creditor Trust actively participated in the sale discussions. 1/2/07 Transcript, p. 54. He stated "If [the Debtor and Agent] made a determination... that for this transaction...they needed to keep the Creditor Trust in the dark under some false sense of fiduciary duty, it was incumbent upon them to proceed with that motion for final decree without trying to elicit our assent on false pretenses." Id. If they determined that they couldn't share the information with the Creditor Trust, "they never should have drawn us into the process... and have us assent." 1/12/07 Transcript, p. 55. The Court agrees.
As to the Motion to Transfer Venue, Creditor Trust's counsel argued that venue was more appropriate in Massachusetts than in Delaware in the interests of justice and for the convenience of the parties.
The. Debtors are Malden Mills and certain affiliates. They have been based in Massachusetts for 101 years, established in New England in 1906, and to quote just one phrase from the disclosure statement ... "the company has throughout its history been committed to its New England base"... The Debtor ... has never had any meaningful operations in Delaware. Then there are other constituencies...including the Debtor's current and former employees, the vast majority of which reside in Massachusetts or perhaps southern New Hampshire ... These ... workers whose fate may be significantly impacted by this bankruptcy have a right to have the case heard in ... their home jurisdiction, where it's visible to them, covered by the local press, monitored by their elected representatives, and where the proceedings are accessible to them....The same result follows if you look at the Debtor's management, obviously all based in the New England area, what's the value of having them fly back and forth...The Debtor's corporate counsel, Bingham McCutchen, based out of Boston .... The proposed stalking horse bidder...Gordon Brothers, well known in this neck of-the woods, another prominent local institution.... Let's look at the creditor body ... it's many of the same players who were active in the cases here. The largest creditor is the Gurltiz entity ... the next largest creditor ... Aaron Feuerstein ... lives in Brookline, Massachusetts ... the next listed creditor is ... the City of Methuen ... Massachusetts Caterpillar, Inc, care of Holland & Knight in Boston, ... National Grid ... Woburn, Massachusetts, ... The Crosby Group, Ipswich, Massachusetts; AV Sportswear, Inc., Lynn, Massachusetts ... Advanced Computer Services Inc., Westford Massachusetts, ....I didn't see any creditors...based in ... Delaware or nearby ... none of these players — the Debtor its lead counsel, its creditors, and the other major parties in interest have ... any meaningful connection ... to Delaware, other than the Debtor having been incorporated there after the plan was confirmed here ... that is dwarfed in significance by all the other factors ... 1/12/07 Transcript, p. 13-16.
Debtor's Delaware counsel did not specifically deal with the factors, but argued that venue...
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