In re Petters Co., Inc.
| Decision Date | 26 February 2009 |
| Docket Number | No. 08-45392(GFK).,No. 08-45371(GFK).,No. 08-45258(GFK).,No. 08-45257.,No. 08-45326(GFK).,No. 08-45327(GFK).,No. 08-45329(GFK).,No. 08-45328(GFK).,No. 08-45330(GFK).,No. 08-45331(GFK).,08-45257.,08-45258(GFK).,08-45326(GFK).,08-45327(GFK).,08-45328(GFK).,08-45329(GFK).,08-45330(GFK).,08-45331(GFK).,08-45371(GFK).,08-45392(GFK). |
| Citation | 401 B.R. 391 |
| Parties | In re PETTERS COMPANY, INC., et al, Debtors. (includes: Petters Group Worldwide, LLC; PC Funding, LLC; Thousand Lakes, LLC; SPF Funding, LLC; PL Ltd., Inc. Edge One LLC; MGC Finance, Inc.; PAC Funding, LLC; Palm Beach Finance Holdings, Inc.). |
| Court | U.S. Bankruptcy Court — District of Minnesota |
James A. Lodoen, Lindquist & Vennum P.L.L.P, Minneapolis, MN, for Debtors.
Michael Fadlovich, Michael E. Ridgway, Robert Raschke, US Trustee Office, Minneapolis, MN, for U.S. Trustee.
ORDER OVERRULING OBJECTION OF RITCHIE SPECIAL CREDIT INVESTMENTS, LTD., ET AL, TO APPOINTMENT OF TRUSTEE IN CHAPTER 11 CASES, AND APPROVING APPOINTMENT
These jointly-administered Chapter 11 cases came on before the Court on January 27, 2009, for hearing on an objection to the United States Trustee's appointment of Douglas A. Kelley, Esq., as Trustee for all of the Debtors in these cases. The objectors, Ritchie Special Credit Investments, Ltd. and other creditor-parties related to it (collectively, "the Ritchie Parties") appeared by their attorneys, James M. Jorissen, Leonard, O'Brien, Spencer, Gale & Sayre, Ltd., Minneapolis, and Bryan Krakauer, Sidley Austin LLP Chicago. The United States Trustee appeared by his attorneys, Michael E. Ridgway and Robert B. Raschke. The Unsecured Creditors' Committee for these cases ("the Petters Committee") appeared by its attorney, David E. Runck, Fafinski Mark & Johnson, P.A., Eden Prairie. Douglas A. Kelley, the Trustee-appointee, appeared personally and by James A. Lodoen and George H. Singer, Lindquist & Vennum, P.L.L.P., Minneapolis. Ronald R. Peterson, Esq., Chicago, trustee for the bankruptcy estates of Lancelot Investors Fund, L.P., et al, participated in the hearing in that capacity. Dennis M. Ryan, Faegre & Benson, Minneapolis, and Richard A. Chesley, Paul, Hastings, Janofsky & Walker LLP, Chicago, appeared as prospective counsel for the Unsecured Creditors' Committee in In re Polaroid Corporation, et al., BKY 08-46617 ("the Polaroid Committee"). The following order is based on the record made for the hearing.
These Chapter 11 cases were commenced by voluntary petitions filed during October, 2008. Petters Company, Inc. ("PCI") and Petters Group Worldwide, LLC ("PGW") are the debtors in the two lead cases of the group. PCI and PGW were established by one Thomas J. Petters in 1987-1988, as "holding companies" for other entities through which he was to own and conduct various business enterprises and transactions. In his individual capacity, Petters is the sole shareholder of both PCI and PGW.1 Except for Palm Beach Finance Holdings, Inc., all of the other debtors in this group of cases are subsidiaries of PCI, i.e., business entities as to which PCI is the shareholder or equity holder. Tom Petters is the sole shareholder in Palm Beach Finance Holdings, Inc.
Polaroid Corporation, a subsidiary of PGW, has been in Chapter 11 in this Court since mid-December, 2008. Its case is being jointly administered with those of nine other business entities related to it, in a case-grouping separate from the one at bar.2 A number of other entity-subsidiaries of PCI or PGW are not in bankruptcy at this time.
When the PCI/PGW cases were commenced, Tom Petters was not the individual who authorized the filings. Nor did he sign the petitions to commence the cases. At that time, Tom Petters lacked the legal authority to do these acts; and, in a way, he was hampered physically from signing. Tom Petters was in the custody of the United States, incarcerated and charged with several felony offenses including mail and wire fraud. His personal assets and the bulk of his business enterprises were under the control of a receiver appointed by the United States District Court for this District. Under express authorization from the District Court, the Receiver, Douglas A. Kelley, Esq., signed the bankruptcy petitions and put the Debtors into bankruptcy. Tom Petters has had no involvement with these cases since their commencement. All decision-making and action on behalf of the bankruptcy estates has been considered, undertaken, and effected by Kelley, with the advice and representation of bankruptcy counsel.
On motion of the United States Trustee, this Court directed the U.S. Trustee to appoint a trustee or trustees for these cases, pursuant to 11 U.S.C. § 1104(a).3 On December 24, 2008, the U.S. Trustee appointed Kelley as trustee for all of the cases, and applied for an order approving the appointment pursuant to FED. R. BANKR. P.2007.1(c).4
The Ritchie Parties timely filed an objection5 to the U.S. Trustee's appointment.
The U.S. Trustee's appointment, and the Ritchie Parties' objection, are the matter at bar. The theory of the objection is summarized by the very first sentence of the Ritchie Parties' written submission: "Inherent, intractable and immediate conflicts of interest preclude Kelley from serving as Trustee for all the Debtors [in these jointly-administered cases]."
These bankruptcy cases are the product of a swirl of events that began on Wednesday September 24, 2008. On that date, agents of the Federal Bureau of Investigation, the Criminal Investigation Division of the Internal Revenue Service, and the United States Postal Inspection Service executed a search warrant at the Minnetonka, Minnesota headquarters of Tom Petters's business entities. They seized and removed records of the Debtors, Tom Petters, and other individuals.
Within a day after the execution of the search warrant, a criminal defense attorney retained by Tom Petters asked Douglas A. Kelley, Esq., to represent the various entities of Tom Petters's business enterprise.7 Two days after that, Kelley was contacted by an Assistant United States Attorney for the District of Minnesota. On behalf of the Department of Justice, the AUSA wanted to discuss Kelley's prospective role as counsel for the Petters entities and the intentions of the United States toward the assets and operations of Petters's business enterprises.
In the wake of that conversation, the U.S. Attorney did not take action on behalf of the United States to seize the assets of Petters or the Petters businesses under color of civil or criminal forfeiture. This meant that Sun Country Airlines and Polaroid Corporation were able to continue their business operations in the marketplace.
On Kelley's advisory in relation to the government's forbearance, Tom Petters resigned his offices and positions with PCI, PGW, and all related entities on Monday, September 29, 2008. He physically vacated his office at the corporate headquarters on that date.
During the following several days, Kelley conducted a factual investigation of the surroundings into which he had placed himself. He started the task of determining the scope of the assets and operations of the Petters business entities; he interviewed various of their employees; he interviewed potential counsel to assist him; and he fielded inquiries from creditors and other persons. He also had numerous and frequent contacts with employees of the office of the United States Attorney, discussing options to preserve the values of the Petters enterprises for the benefit of those who would be entitled to that value.
During this week, the office of the United States Attorney took no action toward a government seizure of any part of the Petters enterprise.
In the meantime, the Ritchie Parties had commenced a civil action in the Circuit Court of Cook County, Illinois, by a filing made on September 29, 2008. The Ritchie Parties are a Chicago-based group of hedge funds and other investment vehicles. In their lawsuit, they asserted rights to payment under a series of promissory notes executed by Tom Petters and PGW or PCI. They also claimed to have been defrauded by the makers of the notes. The Ritchie Parties obtained an ex parte temporary restraining order from that court against Tom Petters, PCI, and PGW. That order restricted the disposition of those parties' assets other than transfers made in the ordinary course of business.
Kelley learned of the Ritchie Parties' lawsuit during the week of September 29. On Thursday, October 2, 2008, he advised the United States Attorney's office of it. The United States Attorney then filed a complaint in the United States District Court for this District, under the caption United States of America v. Thomas Joseph Petters, et al. In it, the government sought various forms of legal relief toward the containment and assemblage of the assets of Tom Petters and the entities in his business enterprise, and protection against the further use of those assets in connection with an "elaborate scheme to defraud individual and group investors." The government also sought to prevent the dissipation of assets or their value by Tom Petters or anyone in consort with him. The government "estimated that the Defendants [had] to date profited in excess of $3 billion from their illegal activities."
The named defendants in this proceeding were Tom Petters, PCI, PGW, and other individual persons alleged to have participated in a pattern of fraudulent activity ultimately attributed to Tom Petters. The remedies invoked in the complaint were equitable in nature: interim injunctive relief to prevent the defendants or those in consort with them from taking any further action affecting the assets, and an accounting for the whereabouts of liquid assets. The government also prayed for "such other additional relief as the Court determines to be just and proper." In an early-filed first amended version of the complaint, this catch-all request specifically included "the...
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