In re Marvel Entertainment Group, Inc., 98-7001.
| Decision Date | 25 March 1998 |
| Docket Number | No. 98-7001.,No. 98-7040.,No. 98-7041.,98-7001.,98-7040.,98-7041. |
| Citation | 140 F.3d 463 |
| Parties | In re MARVEL ENTERTAINMENT GROUP, INC.; Asher Candy Company; Fleer Corporation; Frank H. Fleer Corporation; Heroes World Distribution, Inc.; Malibu Comics Entertainment Inc.; Marvel Characters, Inc.; Marvel Direct Marketing Inc.; Skybox International, Inc.; Special Counsel to Debtors; Board of Directors of Marvel; High River Limited Partnership and Westgate International, L.P.; In re John J. GIBBONS, Esq., Trustee for the Estate in Bankruptcy of the Debtors; Marvel Entertainment Group, Inc.; Asher Candy Company; Fleer Corporation; Frank H. Fleer Corporation; Malibu Comics Entertainment, Inc.; Marvel Characters, Inc.; Marvel Direct Marketing Inc.; Skybox International, Inc.; High River Limited Partnership and Westgate International, L.P., Appellants in No. 98-7001; John J. Gibbons, Esq., Trustee for the Estate in Bankruptcy of the Debtors, Petitioner in No. 98-7040, Appellant in No. 98-7041; |
| Court | U.S. Court of Appeals — Third Circuit |
Edward S. Weisfelner (argued), John P. Biedermann, Berlack, Israels & Liberman, New York City, Stephen W. Spence, Steven K. Kortanek, Phillips, Goldman & Spence, Wilmington, DE, for Appellants/ Respondents/Appellees High River Limited Partnership, Westgate International, L.P.
Francis J. Menton, Jr., Willkie, Farr & Gallagher, New York City, for Appellee Creditors Committee.
John S. Koppel (argued), William Kanter, United States Department of Justice, Civil Division, Appellate Staff, Washington, DC, Anthony J. Ciccone, Jr., Washington, DC, for Appellee U.S. Trustee.
Douglas S. Liebhafsky (argued), Wachtell, Lipton, Rosen & Katz, New York City, for Appellees Goldman Sachs Credit Partners, Morgan Stanley Emerging Markets, Lazard Freres & Co., Long Term Credit Bank of Japan, Whipporwill Assoc., Van Kampen America, Canadian Imperial Bank of Commerce, Merrill, Lynch, Pierce, Fenner & Smith, Inc., Bankers Trust Co., Dickstein & Co., L.P., Dickstein Int'l Ltd., Lehman Commercial Paper, Inc., Sumitomo Bank, Ltd., Amroc Inv. Inc., M.D. Sass, Bank of Montreal, Chancellor Capital, Ceres Finance Ltd., Captiva, Value Partners, Banko Central Hispanamerico, IBJ Schroder Bank, Instituto Bancario San Paulo, Morgan Guaranty Trust Co. of New York, Scoggin Capital, Foothill Capital Corporation, CPR (USA).
Caroselli, Spagnolli & Beachler, Pittsburgh, PA, for Appellee Merrill, Lynch, Pierce, Fenner & Smith, Inc.
David B. Stratton, Pepper, Hamilton & Scheetz, Wilmington, DE, for Appellee Toy Biz Inc.
Gary Schildhorn, Steven D. Usdin, Leon R. Barson, Adelman, Lavine, Gold & Levin, Philadelphia, PA, for Appellee/ Respondent Official Committee of Equity Security Holders.
John J. Gibbons (argued), Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Newark, NJ, Pro Se Petitioner/Appellant.
Joanne B. Wills (argued), Mindy Friedman KLEHR, Harrison, Harvey, Branzburg & Ellers, Wilmington, DE, James E. Spiotto, Ann E. Acker, Mark D. Rasmussen, Timothy T. Finley, Chapman & Cutler, Chicago, IL, for Respondent/ Appellee LaSalle National Bank.
Roderick R. McKelvie, Honorable, United States District Court, District of Delaware, Wilmington, DE, Nominal Respondent.
Before: GREENBERG, SCIRICA and ALDISERT, Circuit Judges.
These expedited and consolidated appeals require us to decide if the district court properly exercised its discretion by appointing a trustee in the bankruptcy of Marvel Entertainment Group, Inc., because of the extreme acrimony between the debtor-in-possession and the creditors. If we affirm the appointment, we must then decide if the court acted within its proper discretionary power by denying the motion of the trustee, John J. Gibbons, to appoint the law firm of Gibbons, Del Deo, Dolan, Griffinger & Vecchione P.C. ("the Firm") as counsel to the trustee. The district court determined that the Firm's prior unrelated representation of Chase Manhattan Bank, a creditor in the bankruptcy, disqualified it from serving as trustee's counsel. We will affirm the appointment of the trustee and reverse the order denying Gibbons's motion for an order authorizing employment of the Firm as his counsel. Because our legal analysis necessarily involves a review of the district court's factual findings, we must first set out the adjudicative facts in some detail.
Marvel and various corporate affiliates filed chapter 11 petitions on December 27, 1996 and continued to run Marvel as debtor-in-possession. 11 U.S.C. §§ 1107-1108. Approximately 1,700 creditors held $1 billion in claims against the Marvel estate.
Both before and after the filing of the petitions, Westgate International, L.P. and High River Limited Partnership, each controlled by Carl Icahn, (the "Icahn interests"), purchased at a discount a substantial number of pre-petition debt claims and bonds which had been issued by several holding companies owning all or substantially all of Marvel's stock. These holding companies, under the control of Ronald Perelman, had pledged their Marvel stock as security for the bonds. Two groups loomed large in the bankruptcy proceedings: one was an Official Bondholders' Committee and an indenture trustee, LaSalle National Bank, chosen to act primarily on behalf of the Icahn interests; the other, various creditors of Marvel, known as "the Lenders," who held over $600 million in debt claims at the time of the filings, secured by all of Marvel's assets.
From the start of the proceedings, disputes arose among the various parties, especially between the Icahn interests and the Lenders. The Icahn interests opposed an initial bankruptcy financing plan submitted by the Perelman holding companies, under which the holding companies would have infused $100 million into Marvel in return for priority recognition of the Lenders' debt claims. The Icahn interests contended that the Perelman-controlled Marvel debtors were favoring their "lender accomplices" to ensure that "Perelman re-acquires control of Marvel, without competitive bidding, for an obscenely low price." Notwithstanding the Icahn interests' objections, the bankruptcy court approved the financing plan.
From January through June of 1997, tension arose between the Lenders and the Icahn interests. The Icahn interests fought to take control of the Marvel board of directors. Substantial litigation went forward. On January 13, 1997, the Icahn interests moved the bankruptcy court to lift the automatic bankruptcy stay, 11 U.S.C. § 362(a)(3), so they could foreclose on the holding companies' defaulted bonds and vote the pledged stock. Marvel sought a temporary restraining order from the bankruptcy court to enjoin the Icahn interests from voting the stock and replacing Marvel's board of directors. The bankruptcy court issued the order on March 24, 1997. On the same day, the Lenders moved the bankruptcy court for an order appointing a responsible officer to take control of the bankruptcy, or in the alternative a trustee. That same month, the Icahn interests took significant steps toward gaining control of Marvel. They offered to infuse $365 million into Marvel, partially for operation of its business but mostly to repay $300 million of its secured debt, in return for "exclusive" control of Marvel's operations. Through their agent Chase Manhattan Bank, the Lenders vigorously opposed this plan, explaining that the Icahn interests had presented no "concrete turnaround strategy ... or a management team capable of executing one."
On May 14, 1997, the district court vacated the bankruptcy court's temporary restraining order, permitting the Icahn interests to vote the pledged stock. In re Marvel Entertainment Group, Inc., 209 B.R. 832, 840 (D.Del. 1997). With the lifting of the restraining order, the litigation ended and the inevitable took place — on June 20, 1997, the Icahn interests took control of Marvel. Thus, an anomaly arose. The Icahn interests began to wear two hats — one as creditors of the holding companies that controlled Marvel; the other as the debtor-in-possession of Marvel.
Settlement negotiations proceeded throughout the summer of 1997. The new Icahn-controlled debtor-in-possession proposed a settlement in which the Icahn interests would control a newly-organized Marvel company merged with its affiliate Toy Biz, and would purchase the Lenders' claims at a substantial discount. To consummate the settlement, it was necessary to obtain the approval of two-thirds of all creditors as required under the Bankruptcy Code, 11 U.S.C. § 1126(c). The Lenders were not successful in obtaining this approval.
The parties tried again. Another proposed settlement was attempted by the Icahn interests, this time with Chase directly as one of the Lenders. The terms were similar to those contained in the first effort, but this time Chase was required to sell its claims to the Icahn interests for even less than what was offered under the former proposal. Moreover, the settlement proposal required the creditors to support the Icahn interests' control of all Marvel entities and to agree to place High River's and Westgate's debt claims into a priority secured position. The necessary two-thirds approval not forthcoming, the settlement negotiations collapsed in October 1997.
On October 30, 1997, the Icahn-controlled debtor-in-possession commenced adverse litigation in the district court against the Perelman holding companies, the Lenders and other creditors in the Marvel bankruptcy (the "Perelman litigation"). It asserted 19 causes of action alleging breach of fiduciary duty, fraudulent conveyance, preferential transfer and breach of contract. The complaint sought to void the Lenders' claims or to subordinate them to the claims of High River and Westgate. The complaint described an alleged conspiracy between Toy Biz, the former Marvel board and the Lenders to "sabotage" the new Icahn-controlled debtor-in-possession's reorganization...
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