In re Newport Offshore Ltd.

• Decision Date: 09 February 1998
• Docket Number: Bankruptcy No. 85-00723.
• Citation: 219 BR 341
• Parties: In re NEWPORT OFFSHORE LTD., Debtor.
• Court: U.S. Bankruptcy Court — District of Rhode Island

219 B.R. 341 (1998)

In re NEWPORT OFFSHORE LTD., Debtor.

Bankruptcy No. 85-00723.

United States Bankruptcy Court, D. Rhode Island.

February 9, 1998.

Robert Cataldo, trustee, Ashaway, RI.

Memorandum of Decision

JAMES B. HAINES, Jr., Bankruptcy Judge.

Submitted on a stipulated record is the U.S. Trustee's objection to the plan disbursing agent's motion seeking authority to release unclaimed funds to co-receivers of the reorganized debtor. The objection raises questions concerning the permissibility of Rhode Island's statutory scheme providing for receivership, involuntary liquidation, and dissolution of state-created corporations in light of the asserted preemptive effect of the Bankruptcy Code.¹

For the reasons set forth below, I conclude that the Rhode Island receivership laws are not preempted as the U.S. Trustee asserts.

Background

1. The Newport Offshore Bankruptcy and Plan.

Newport Offshore filed a voluntary Chapter 11 petition on November 13, 1985. Its plan of reorganization, under which 85% of its stock was sold to Allied Marine, Inc., was confirmed on April 3, 1987. Matthew J. McGowan, Esq., was appointed disbursing agent. Utilizing funds obtained from, inter alia, the proceeds of the stock sale, McGowan made dividend distributions to Newport Offshore's unsecured creditors. Out of McGowan's final distribution, $30,927.84 was returned to him as undeliverable. Checks amounting to an additional $15,827.96 were never cashed.

After making all reasonable efforts to effect the distributions called for by the plan, McGowan moved for authority to remit the unclaimed funds² he holds to the "debtor," pursuant to 11 U.S.C. § 347(b).³ Although such a motion would be unlikely to create controversy in the usual circumstance, post-confirmation developments have taken this case out of the mill run, making the task of returning funds to the "debtor" highly controversial.

2. Non-Bankruptcy Developments.

On September 18, 1990, the reorganized Newport Offshore (substantially owned by Allied Marine) was placed under state court receivership at the behest of Benedetto A. Cerilli, a post-confirmation creditor. The Rhode Island court appointed Allan M. Shine and Milton Stanzler as Newport Offshore's temporary and, later, permanent co-receivers. As required by the order appointing them, the co-receivers published receivership notices in the Providence Journal and mailed such notices to each of Newport Offshore's known creditors.

On October 24, 1990, the state court appointed Messrs. Shine and Stanzler to be Allied Marine's temporary and, later, permanent co-receivers. Again the receivers published appropriate notices and served them by mail on the entity's known creditors.

In the interim, on October 19, 1990, the state court authorized the co-receivers to sell substantially all of Newport Offshore's operating assets to P.C. & J. Contracting Co., Inc., free and clear of liens. Subsequently, American Shipyard, Inc., succeeded to P.C. & J.'s interests.

3. Back to Bankruptcy.

a. American Shipyard's Bankruptcy.

The circle of insolvency was completed when American Shipyard filed its own Chapter 11 petition on May 31, 1996. Its reorganization efforts are ongoing.

b. Newport Offshore's Plan: Final Throes.

The foregoing developments have rendered the disbursing agent's proposal to return unclaimed funds to the debtor something other than a straightforward exercise. McGowan proposed that the remaining undistributed funds be turned over to Shine and Stanzler who succeeded to Newport Offshore's interests when they became its co-receivers. His motion drew the U.S. Trustee's immediate objection, asserting that Newport Offshore's receivership proceedings amounted to a state law procedure "tantamount to bankruptcy" and, therefore, that the receivership was a "nullity" as a consequence of the Bankruptcy Code's preemptive power.

As the U.S. Trustee's argument goes, Newport Offshore's unclaimed funds may not go to the co-receivers, but, rather, must be paid into court and, presumably, eventually escheat to the federal government. See 28 U.S.C. § 2042 (directing that unclaimed money deposited with the court for at least five years be deposited with the U.S. Treasury under title of the United States); 11 U.S.C. § 347(a) (directing that all remaining property of the estate be paid to the court, pursuant to title 28, sections 2041 and 2042, ninety days after final distribution in a bankruptcy case).

Although the issues were joined some time ago, months passed while numerous amici curiae weighed in, while the original bankruptcy judge recused himself, and while the parties assembled and filed a comprehensive stipulated record at the court's insistence.⁴ In the interim, a partial compromise was achieved: the parties agreed that the disbursing agent may distribute $35,000.00 to American Shipyard's Chapter 11 trustee, to be used in aid of its reorganization.⁵ Disposition of the balance of funds (over $10,000 plus accruing interest) remains disputed.

Discussion

My analysis proceeds in stages. First, I shall address this court's jurisdiction to hear and decide this controversy. Next I shall briefly describe corporate receiverships under state law, proceeding to a treatment of Rhode Island's corporate receivership statutes and procedures. I shall then turn to general preemption principles, followed by examination of how those principles operate in the bankruptcy arena. Finally, I shall apply pertinent principles to determine whether the Rhode Island corporate receivership laws pursuant to which Newport Offshore was placed under the control of its coreceivers are preempted by the Bankruptcy Code.

1. Jurisdiction.

This court has jurisdiction over the pending controversy pursuant to 28 U.S.C. § 157 and 28 U.S.C. § 1334. See Gray v. Polar Molecular Corp. (In re Polar Molecular Corp.), 195 B.R. 548, 552 (Bankr.D.Mass. 1996) (describing the interaction of sections 157 and 1334 in the context of a challenge to a bankruptcy courts' jurisdiction over a trustee's post-confirmation complaint to recover estate funds).⁶

This dispute fits comfortably within the tightened girth of this court's post-confirmation, post-substantial consummation,⁷ but pre-final decree, jurisdiction. While jurisdiction over disputes within a bankruptcy case constricts after confirmation, see In re DN Associates, 165 B.R. at 347; but see In re Almac's, Inc., 202 B.R. at 655 (adopting a view that the scope of jurisdiction analysis is unchanged after confirmation, noting "markedly different conclusion concerning the scope of post-confirmation jurisdiction"), both stirrups of post-confirmation jurisdiction are present here.

First, this court has statutory jurisdiction over the unclaimed funds pursuant to §§ 1142 and 347 of the Bankruptcy Code. See 11 U.S.C. § 1142 (implementation of the plan); 11 U.S.C. § 347 (unclaimed property); cf. In re DN Associates, 165 B.R. at 347 (basing post-confirmation jurisdiction over attorney fee applications on Code provisions addressing fees); generally 4 William L. Norton, Norton Bankruptcy Law and Practices § 95:6 (2d.1993) hereinafter Norton (noting that a party's invocation of the bankruptcy court's post-confirmation remedial powers in the Code "activates" title 28 jurisdiction). The pending dispute implicates Code provisions that contemplate post-confirmation activity, see 4 Norton, supra, at § 95:7, and this court exercises its § 1142(b) jurisdiction accordingly. See In re Polar Molecular Corp., 195 B.R. at 552-53 (finding bankruptcy court jurisdiction over a post-confirmation recovery action by trustee pursuant to 11 U.S.C. § 1142 and 28 U.S.C. § 1334).

Second, the plan and its confirmation order provide for continuing jurisdiction over administration of the assets of the estate. Article VII of the plan provides for ongoing jurisdiction over the ownership and disposition of property under the plan until distributions are complete.⁸ The confirmation order contains complementary provisions.⁹

Thus, because both the Code and the confirmed reorganization plan provide for jurisdiction, I may properly exercise it. See In re BankEast Corp., 132 B.R. 665 (Bankr.D.N.H. 1991) (thoroughly discussing the landscape of post-confirmation retained jurisdiction under the Code in the context of a pre-confirmation challenge to the plan's jurisdiction provisions); see also In re Polar Molecular Corp., 195 B.R. at 555 (observing that plan provisions for post-confirmation jurisdiction "influence" jurisdiction); In re DN Associates, 165 B.R. at 347 (observing that the jurisdictional provisions of the plan and confirmation order are "significant").

2. Corporate Receiverships Under State Law

States exercise extensive powers over the life and death of corporations organized and existing under their laws. The state court corporate receivership, one manifestation of such powers, is a creature of the equity courts' historical jurisdiction as modified or augmented by modern statute. See generally 16 William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations §§ 7664, 7665 (perm. ed. rev. vol. 1989 & Supp.1997) hereinafter "Fletcher"; see also 3 Ralph Ewing Clark, A Treatise on the Law and Practice of Receivers § 700 (3d ed.1959 & Supp.1968-69) hereinafter "Clark" ("The policy of the law of this country does not permit persons to incorporate and thereby withdraw their property from the legal or equitable remedies applicable against the property of individuals."); 3 id. at § 706 (describing statutory extension of courts of equity jurisdiction over corporations in Nineteenth Century). The purposes for which a receiver might be appointed, and the grounds supporting an order for his or her appointment, vary. See 16 Fletcher, supra, §§ 7666, 7708 (grounds for appointment); 1 Clark, supra, §§ 59, 178-79 (equitable and statutory grounds for appointment). In some cases a so-called "special" receiver might be appointed to take charge of a...