In re Mirant Corp.
| Decision Date | 27 October 2005 |
| Docket Number | Adversary No. 05-04219.,Adversary No. 05-04221.,Bankruptcy No. 03-465900. |
| Parties | In re MIRANT CORPORATION, et al., Debtors. The Official Committee of Equity Security Holders of Mirant Corporation and William K. Snyder, in his Capacity as court-appointed examiner, and Mirant Corporation, Plaintiffs, v. The Wilson Law Firm, P.C., L. Matt Wilson, individually and in his capacity as counsel for the Ad Hoc Shareholders, Frank Smith, R. Weldon Tigner, Dave Lucas, Nancy Sterk, David Matter, Clark Lewis, Harris Rush, Jim Kellogg, Jr., Kent Koerper, Peter Depavloff, Bart Ingram, and Mary Leight, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
Ian T. Peck, Haynes & Boone, Ft. Worth, TX, for Mirant Corporation.
Eric J. Taube, Mark C. Taylor, Hohmann, Taube & Summers, L.L.P., Austin, TX, for Official Committee of Equity Security Holders.
L. Matt Wilson, Wilson Law Firm, Atlanta, GA, for The Wilson Law Firm, P.C.
Before the court is the application for preliminary injunction filed by William K. Snyder, the examiner appointed in the above-captioned adversary proceeding on April 13, 2004 (the "Examiner"), and Mirant Corporation ("Mirant" and, with the Examiner, "Plaintiffs")1 in their Verified Complaint for Declaratory Judgment and Injunctive Relief, filed on October 17, 2005. Plaintiffs ask the court to issue a preliminary injunction pursuant to Federal Rule of Civil Procedure 65, Federal Rule of Bankruptcy Procedure 7065, and Section 105(a) of the Bankruptcy Code2 prohibiting the defendants, The Wilson Law Firm, P.C. (the "Firm"); L. Matt Wilson ("Wilson"), individually and in his capacity as counsel for the Mirant Ad Hoc Shareholders Committee3; and Frank Smith, R. Weldon Tigner, Dave Lucas, Nancy Sterk, David Matter, Clark Lewis, Harris Rush, Jim Kellogg, Jr., Kent Koerper, Peter DePavloff, Bart Ingram and Mary Leight (collectively, "Ad Hoc Shareholders")4, from distributing, publishing or otherwise soliciting votes to reject the Second Amended Joint Chapter 11 Plan of Reorganization for Mirant Corporation and its Affiliated Debtors (the "Plan").
This court issued a temporary restraining order on October 17, 2005, after conducting a telephonic hearing during which counsel for Plaintiffs and Wilson, on behalf of Defendants, participated. The court set the application for preliminary injunction to be heard the following Tuesday, October 25. On October 21, 2005, Plaintiffs filed a brief in support of injunctive relief, and Defendants filed a brief in opposition.
On October 25, 2005, the court conducted a hearing to consider whether it should grant a preliminary injunction at which hearing counsel for Plaintiffs, counsel for the Equity Committee,5 and Wilson presented evidence and argument. After consideration of the pleadings, evidence, and arguments of the parties, the court continued the TRO until midnight October 27, 2005, in anticipation of the ruling contained in this memorandum opinion.
The court has jurisdiction over this matter pursuant to 28 U.S.C. § § 1334(a) and (b) and 157(b)(1) and (2)(A) and (O). This Memorandum Opinion comprises the court's findings of fact and conclusions of law. FED. R. BANKR. P. 7052.
On July 14, 2003, and certain dates thereafter (collectively the "Petition Date"), Debtors6 filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. During their chapter 11 cases, Debtors have continued to operate their business.
Two official committees of unsecured creditors have been appointed by the United States Trustee (the "U.S. Trustee") pursuant to Code § 1102: one to represent the creditors of Mirant (the "Corp. Committee"); and the other to represent creditors of Mirant's second tier subsidiary, Mirant Americas Generation, LLC (the "MAG Committee"). A committee has also been appointed by the U.S. Trustee to represent Mirant's stockholders (the "Equity Committee" and, together with the Corp. Committee and the MAG Committee, the "Committees").
By order dated April 7, 2004, the court directed appointment of an examiner pursuant to Code § 1104(b), and William Snyder was selected by the U.S. Trustee and approved by the court to perform that role.
On September 22, 2005, Debtors filed the Plan along with their Second Amended Disclosure Statement of the Debtors with Respect to the Second Amended Joint Chapter 11 Plan of Reorganization for Mirant Corporation and its Affiliate Debtors (the "Disclosure Statement"). The court concluded a two day hearing on the Disclosure Statement on September 30, 2005, and on the same day entered its order approving the Disclosure Statement in accordance with Code § 1125 and Rule 3017(b) (the "Disclosure Statement Order").
The Disclosure Statement Order authorizes Debtors to solicit votes to accept or reject the Plan by distributing copies of the Disclosure Statement and certain court-approved letters from each of the Committees. The Disclosure Statement provides that solicitation of votes to accept or reject the Plan may not be made except pursuant to the Disclosure Statement and Code § 1125 (see note 12, below). Solicitation packages, which included copies of the Disclosure Statement, the letters from the Committees and the other court-approved solicitation materials were distributed by Debtors to voting creditors and stockholders on October 5-7, 2005. The deadline for voting on the Plan is November 10, 2005, at 4:00 p.m. CST.
The Firm purports to represent a number of equity security holders of Mirant, collectively identified herein as the Ad Hoc Shareholders. According to the Firm's Second Amended Verified Statement of the Wilson Law Firm, P.C. Pursuant to Bankruptcy Rule 2019, filed October 5, 2005 (the "2019 Statement"), as of October 5, 2005, the Firm represented thirteen stockholders, collectively holding at least 728,470 shares of common stock of Mirant. In the 2019 Statement, the Firm discloses that it has been retained by these shareholders "incrementally since February, 2005 solely under the terms and disclosures posted on the firm website." Wilson is listed as one of these shareholders, having acquired his shares of Mirant (as well as bonds issued by Mirant) after the Petition Date. Thus, Wilson wears at least two hats in this case: 1) as equity shareholder and creditor of Mirant; and 2) as counsel for other individual shareholders of Mirant.
On its website, www.willaw.com (the "Wilson Website"), Wilson and the Firm state that they represent current shareholders of Mirant and an ad hoc committee. The Wilson Website invites other stockholders to be represented by the Firm and to become participants on the ad hoc committee by filling out an online form.
In July 2005, Wilson and the Firm filed in Debtors' chapter 11 cases a motion seeking payment of its attorneys fees and costs as counsel for the Ad Hoc Shareholders pursuant to Code § 503(b)(3) and (4). Wilson and the Firm have participated extensively in Debtors' cases since March of 2005. At that time they filed an objection to the First Amended Disclosure Statement. Wilson and the Firm filed a second objection to the Disclosure Statement, and Wilson participated in the hearing conducted on approval of the Disclosure Statement, urging the positions asserted in the two objections.
Beginning October 12, 2005, Defendants communicated certain information to shareholders of Debtors via email to clients and public postings on the Wilson Website and on two Yahoo message boards. Plaintiffs contend these postings constitute improper solicitations of rejections of the Plan under Code § 1125(e). Specifically, Plaintiffs complain that Defendants made the following communications:
1. On October 12, 2005 at 11:45 a.m. EDT, a message entitled "Smart Shareholders Will Vote No" was posted on a Yahoo Message Board; and,
2. On or before October 12, 2005, three new links were added to the Wilson Website with the following titles:
(a) "Why Smart Mirant Shareholders Will Vote No"
(b) "What Do Shareholders Really Know About Mirant" and
(c) "The Law Favors Shareholders Who Vote No."
Copies of these communications were attached to the parties' pleadings and introduced as evidence at the preliminary injunction hearing. Plaintiffs complain that these communications (collectively the "Solicitation Materials") were published in violation of Code § 1125(e) because they contain materially misleading and inaccurate factual and legal statements concerning the Plan, the Disclosure Statement, and the rights under the Code of voting creditors and stockholders. Plaintiffs consequently commenced this adversary proceeding to prevent further dissemination or use of the Solicitation Materials and seeking other, related relief.
The court must address two issues (in addition to the four-part test for granting injunctive relief) to grant in favor of Plaintiffs a preliminary injunction. First, the court must decide whether enjoining Wilson would be an impermissible restraint on free speech. Second, the court must determine whether the Solicitation Materials contain information so misleading or false as to warrant exercise of the court's equitable powers to prevent its further dissemination.
The court has reviewed applicable case law and concurs generally with Wilson that Code § 1125 does not prohibit solicitation of rejections of a plan once a disclosure statement has been approved. The Court of Appeals for the Third Circuit so held in Century Glove, Inc. v. First American Bank of New York, 860 F.2d 94 (3rd Cir.1988), and cases decided since Century Glove have largely adopted its reasoning. See, e.g., In re California Fidelity, Inc., 198 B.R. 567 (9th Cir. BAP 1996); In re Apex Oil Co., 111 B.R. 245, 249-250 (Bankr.E.D.Mo.1990); In re...
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