In re Public Service Co. of New Hampshire, Bankruptcy No. 88-00043

• Citation: 148 BR 702
• Decision Date: 19 October 1992
• Docket Number: Bankruptcy No. 88-00043,Adv. No. 92-1046.
• Parties: In re PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, Debtor. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE and the Official Committee of Equity Security Holders, Plaintiffs, and The State of New Hampshire, Plaintiff-Intervenor, v. Robert C. RICHARDS, Edward Kaufman and Martin Rochman, Defendants.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire

148 B.R. 702 (1992)

In re PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, Debtor.

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE and the Official Committee of Equity Security Holders, Plaintiffs, and The State of New Hampshire, Plaintiff-Intervenor, v. Robert C. RICHARDS, Edward Kaufman and Martin Rochman, Defendants.

Bankruptcy No. 88-00043, Adv. No. 92-1046.

United States Bankruptcy Court, D. New Hampshire.

October 19, 1992.

John B. Nolan, Day, Berry & Howard, Hartford, CT, for PSNH Plaintiff.

Howard J. Berman, Whitman & Ransom, New York City, for the Official Committee of Equity Security Holders Plaintiff.

Mark Vaughn, Devine, Millimet & Branch, Manchester, NH, for the State of N.H.

Gerri Karonis, Manchester, NH, for the U.S. Trustee.

AMENDED MEMORANDUM OPINION

JAMES E. YACOS, Bankruptcy Judge.

I. INTRODUCTION

The plaintiffs in this adversary proceeding seek declaratory and injunctive relief pursuant to 11 U.S.C. § 105(a) and 28 U.S.C. §§ 1651, 2201 and 2202 and Rule 7001(7) and (9) of the Federal Rules of Bankruptcy Procedure. The plaintiff, Public Service Company of New Hampshire ("PSNH") is a reorganized debtor under a confirming order entered April 20, 1990. The plaintiff Committee of Equity Security Holders ("Committee") is one of the official committees that took part in the reorganization proceeding. The plaintiff, State of New Hampshire, was granted intervenor status by prior order in this adversary proceeding.

The plaintiffs seek to enjoin the defendants Robert C. Richards, Edward Kaufman and Martin Rochman (collectively "RKR" or the "RKR common stockholders") from filing a complaint in the U.S. District Court for the Southern District of New York, as they have threatened to do, alleging various violations of the Securities and Exchange Act of 1934 and other claims against various parties that participated in the solicitation process which lead to the confirmation of the plan of reorganization.

The defendants have not actually filed suit as yet but on March 6, 1992 by a letter from Robert C. Richards, one of the defendants and an attorney for all, sent a draft copy of the intended class action complaint to the attorneys for the plaintiffs with a short and succinct cover letter reading: "Dear Fellas: Here is a draft of a complaint that I intend to file in a month or so." Notwithstanding the somewhat flippant tone of the aforesaid cover letter the hearings before this Court have established that there is an actual and present dispute between the parties constituting a sufficient case and controversy that would support jurisdiction in a federal court.

In addition to the present plaintiffs in this adversary proceeding, the defendants' class action complaint names as additional representative defendants and classes Northeast Utilities ("NU"), a major Connecticut Utility Company, that was a successful "bidder" in the plan auction procedures that lead to an acquisition and merger plan of reorganization of the debtor with Northeast Utilities, the State of New Hampshire, which was granted intervenor status in the reorganization proceedings, in view of the regulatory context involving the debtor public utility company, the members of the Equity Committee, the financial advisor to the Equity Committee, and the attorneys for Northeast Utilities and the Equity Committee. The plaintiff class in the proposed litigation is asserted as all persons who held common stock of PSNH on January 3, 1990 when this Court approved the disclosure statement with reference to the plan of reorganization that was ultimately confirmed.

The confirmed plan had an effective date tied to the obtaining of various regulatory approvals, including primarily the requirement under § 1129(a)(6) of the Bankruptcy Code requiring approval of the rates of a reorganized utility under a confirmed plan by the applicable regulatory agency. The New Hampshire Public Utilities Commission did approve the rate agreement embodied in the plan and the plan became effective on May 16, 1991. At this stage the debtor was reorganized pursuant to the plan and the confirmation order. The plan itself provided for a second contingent stage after reorganization to effectuate a merger of the reorganized debtor with Northeast Utilities after the Federal Energy Regulatory Commission ("FERC") and other involved regulatory agencies approved the proposed merger. At that stage NU through a subsidiary would purchase all of the newly issued and outstanding common stock of the reorganized PSNH at $20 per share. The FERC finally approved the merger on January 29, 1992, with various conditions which have been worked out acceptable to NU and the merger was actually implemented on June 5, 1992.

The gravamen of the proposed complaint¹ by the defendants here is to the effect that the solicitations for acceptances of the plan of reorganization by the defendants here during the reorganization proceedings involved false representations which should be actionable for damages under various theories and which are not protected by the "safe harbor" provisions of § 1125(e) of the Bankruptcy Code inasmuch as such false representations deny a "good faith" status to the plan proponents essential to the protection of § 1125(e) of the Code. The falsities alleged revolve around the following basic contentions: (1) That the disclosure statement misrepresented the powers of the NHPUC in acting upon appropriate rates for PSNH with regard to its Seabrook Nuclear Power Plant costs implying that the NHPUC had essentially unlimited discretion to set rates regardless of the impact on PSNH and its stockholders; (2) That the disclosure statement misrepresented the value that the common stockholders would receive if the merger were not implemented since the disclosure statement implied that the unsecured creditors would receive essentially the same value ($20 per share) even if the merger did not occur; and (3) The disclosure statement misrepresented the value of the merger to the ratepayers of PSNH and the stockholders and ratepayers of NU.

The plaintiffs in the present adversary proceeding seek a declaration from this Court that its findings in the confirmation order that the plan proponents "complied with the applicable provisions of chapter 11 of the Bankruptcy Code" and that the plan was proposed and solicited in "good faith" absolves any party involved in the solicitation of acceptance of the plan from liability for violation of any otherwise applicable law. Plaintiffs note that the confirmation order has now become final notwithstanding various appeals by the RKR parties. See In re Public Service Company of New Hampshire, 963 F.2d 469 (1st Cir.1992), cert. denied sub nom., Rochman v. N.E. Utilities Service Co., ___ U.S. ___, 113 S.Ct. 304, 121 L.Ed.2d 226 (1992). Plaintiffs also note that RKR appeals in the NHPUC Regulatory proceeding that approved the rate agreement have also failed and that NHPUC approval is now final. See Appeal of Richards, et al, 134 N.H. 148, 590 A.2d 586, cert. denied, ___ U.S. ___, 112 S.Ct. 275, 116 L.Ed.2d 227 (1991). Finally, plaintiffs note that the RKR parties had an opportunity to raise their present misrepresentation contentions not only at the disclosure statement stage and plan confirmation stage of the reorganization proceedings but also by a motion to revoke confirming order for fraud pursuant to § 1144 of the Bankruptcy Code.²

The present defendants respond that they are not attempting to revoke the confirming order but are simply seeking damages against the named defendants for plan solicitations not undertaken in good faith by those parties and that § 1125(e) of the Bankruptcy Code necessarily implies litigation outside the bankruptcy forum may ensue against plan proponents not acting in good faith. They further assert that there is no preclusive effect in that regard by the findings made in the confirming order; and that in any event this Court has no subject matter jurisdiction to consider enjoining their proposed lawsuit.

With regard to the last point, concerning subject matter jurisdiction, I ruled from the bench at the conclusion of the hearings in this matter that this Court does in fact have jurisdiction to enforce its own orders when that relief is warranted. Local Loan Co. v. Hunt, 292 U.S. 234, 239, 54 S.Ct. 695, 697, 78 L.Ed. 1230 (1934); In re Franklin, 802 F.2d 324, 326 (9th Cir.1986); Lee v. Hunt, 631 F.2d 1171 (5th Cir.1980), cert. denied, 454 U.S. 834, 102 S.Ct. 133, 70 L.Ed.2d 112 (1981); In re Paris Indus. Corp., 132 B.R. 504, 508 (D.Me.1991); In re Johns Manville Corp., 91 B.R. 225, 228 (Bankr.S.D.N.Y.1988); In re White Motor Credit Corp., 75 B.R. 944, 947 (Bankr.N.D. Ohio 1987); In re Coral Air, Inc., 40 B.R. 979, 982 (D.V.I.1984). That jurisdiction includes the power to declare and determine the scope and effect of orders entered in the bankruptcy proceeding in certain circumstances. The pertinent orders involved were the orders entered during the reorganization of PSNH approving the disclosure statement as containing "adequate information" for those called upon to vote upon the plan pursuant to § 1125 of the Bankruptcy Code, and the Order Confirming the Plan of Reorganization under § 1129 of the Code which contained determinations, inter alia, that the proponent of the plan complied with all applicable provisions of the Bankruptcy Code and that the plan had been proposed in good faith and not by any means forbidden by law. Interrelated is the impact of § 1144 of the Code regarding a remedy for fraud and the procurement of a confirming order as it may throw light upon the proper construction of the other statutory provisions. In this context it is my judgment that this adversary proceeding clearly arises under Title 11 and arises in a case under Title 11, United States Code, and therefore comes within the subject matter jurisdiction provided under 28 U.S.C. § 1334(b), and moreover constitutes a core proceeding pursuant to 28 U.S.C....