In re Pws Holding Corp.
| Decision Date | 12 September 2002 |
| Docket Number | No. 01-1462.,01-1462. |
| Citation | 303 F.3d 308 |
| Parties | In re: PWS HOLDING CORPORATION; Bruno's, Inc.; Food Max of Mississippi, Inc.; A.F. Stores, Inc.; BR Air, Inc.; Food Max of Georgia, Inc.; Food Max of Tennessee, Inc.; Foodmax, Inc.; Lakeshore Foods, Inc.; Bruno's Food Stores, Inc.; Georgia Sales Company; SSS Enterprise, Inc., Debtors, Wyatt R. Haskell, individually and on behalf of others similarly situated, Appellant |
| Court | U.S. Court of Appeals — Third Circuit |
J. Vernon Patrick (Argued), Jeffrey V. Havercroft, Haskell Slaughter Young & Rediker, L.L.C., Birmingham, AL, for Appellant Haskell.
Harvey R. Miller (Argued), Lori R. Fife, Weil, Gotshal & Manges LLP, New York, NY, Daniel J. DeFranceschi, Richards, Layton & Finger, P.A., Wilmington, DE, for Appellees PWS Holding Corp., Bruno's, Inc., et al.
Amy R. Wolf (Argued), Harold S. Novikoff, Wachtell, Lipton, Rosen & Katz, New York, NY, Edward G. Biester, III, Duane, Morris & Heckscher, LLP, Philadelphia, PA, for Appellee Chase Manhattan Bank.
Before SLOVITER, FUENTES, and MICHEL,* Circuit Judges.
Wyatt R. Haskell appeals from the order of the District Court enforcing its previous confirmation order ("Confirmation Order") of a bankruptcy reorganization plan ("Reorganization Plan") for Bruno's, Inc., an Alabama-based company that operates a chain of supermarkets in the southeastern United States. The order specifically enjoins the prosecution of certain fraudulent transfer claims asserted by Haskell in Alabama state court. The District Court further ordered that, as a result of Haskell's violation of the Confirmation Order, he is to pay the costs associated with obtaining the enforcement order. As a holder of $2.45 million in Bruno's subordinated notes, Haskell argues that the Reorganization Plan and the Confirmation Order do not bar him from pursuing direct fraudulent transfer claims under the Alabama Uniform Fraudulent Transfer Act ("AUFTA"), Ala.Code, § 8-9A-1, et. seq.
Because the fraudulent transfer claims asserted by Haskell in Alabama state court were extinguished by the Reorganization Plan and Confirmation Order, and because Haskell continued to prosecute the Alabama action in violation of the Confirmation Order, we will affirm the District Court's enforcement order in all respects.
Bruno's operates a chain of about 200 supermarkets in the southeastern United States. In 1995, affiliates of Kohlberg, Kravis, Roberts & Co., LP ("KKR") acquired an 83.33% interest in Bruno's in a leveraged recapitalization, which was financed by an equity contribution of $250 million by KKR, a revolving credit and term loan facility provided by a group of banks (the "Banks"), and the issuance by Bruno's of $400 million in notes due in 2005 pursuant to an indenture. The indenture provides that the noteholders' claims are fully subordinated to the payment in full of the claims of the senior lenders. The total financing of the leveraged recapitalization was approximately $1.25 billion.
From November 1997 through March 1999, Haskell purchased $2.45 million in principal amount of subordinated notes, at an average cost of 20 to 22 cents on the dollar, or $490,000 to $539,000 in the aggregate.
On February 2, 1997, facing difficulty meeting payment obligations from the recapitalization and in paying its suppliers and other creditors, Bruno's and its affiliates1 (collectively "Debtors") filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. As of that filing date, Bruno's owed approximately $462 million to the Banks, $135 million to trade vendors, suppliers, and other secured creditors, and $421 million on the subordinated notes. In February 1998, the Bankruptcy Trustee appointed a nine-member "Official Unsecured Creditor's Committee" (the "Committee"), which comprised four representatives of the Banks, three representatives of the trade vendors, and two representatives of the subordinated noteholders. During the spring of 1999, the Committee and subgroups of the Committee convened several times to develop the Reorganization Plan for the Debtors.
In March 1999, the Debtors' attorneys determined that legal claims arising from the leveraged recapitalization, primarily fraudulent transfer claims, were not viable against any of its participants. Although the Committee initially voted to preserve these causes of action in the plan, it reversed its position in May 1999 and, with the support of the trade vendor representatives and the Banks, voted to support the plan releasing the claims. Haskell, W.R. Huff Asset Management Co., L.L.C. ("Huff"), a holder of $290 million in Bruno's subordinated notes, and HSBC Bank USA ("HSBC"), the indenture trustee for the subordinated notes, objected to these releases and successfully moved for the appointment of an independent examiner to evaluate the claims. The examiner found, however, that the claims were "not promising," were "limited and speculative," and that "significant defenses" were available to each of the principal participants, the former shareholders, the Banks, the subordinated noteholders, and KKR in the recapitalization. The examiner thus concluded that the fraudulent transfer claims were "extremely difficult to justify" in the face of "the multiple legal and factual obstacles to any substantial fraudulent transfer or illegal distribution recovery by the Debtors." Accordingly, under the Reorganization Plan, these legal claims were extinguished and the potential targets of any prosecution of these claims were, in effect, released.
On August 5, 1999, Haskell commenced an action in Alabama state court ("Haskell Alabama Action") on behalf of himself and similarly situated noteholders, asserting claims under the AUFTA, alter-ego claims, conspiracy claims, and breach of fiduciary duty claims. The defendants in the Haskell Alabama Action consist primarily of participants in the leveraged recapitalization, including co-appellee The Chase Manhattan Bank ("Chase"), which served as administrative agent for the senior lenders to Bruno's in the leveraged recapitalization. In response, Bruno's invoked the automatic stay under 11 U.S.C. § 362 of the Bankruptcy Code, and the prosecution of the Haskell Alabama Action was suspended.
The final Reorganization Plan explicitly makes reference to the Haskell Alabama Action, providing:
9.3 Claims Extinguished.
(a) As of the Effective Date, any and all avoidance claims accruing to the Debtors and Debtors in Possession under sections 502(d), 544, 545, 547, 548, 549, 550, and 551 of the Bankruptcy Code, including, without limitation, all of the claims that are asserted in the Haskell Alabama Action and the Huff Alabama Action, shall be extinguished whether or not then pending.
(b) As of the Effective Date, any and all alter-ego or derivative claims accruing to the Debtors and Debtors in Possession, including, without limitation, all of the claims that are asserted or could be asserted in the Haskell Alabama Action and the Huff Alabama Action, shall be extinguished whether or not then pending.
App. IV, at 773 (emphasis added). Haskell, together with Huff and HSBC, objected to the confirmation of the plan, specifically opposing the plan's release and extinguishment provisions. However, after a three-day hearing, the District Court approved the Debtors' Reorganization Plan and issued the Confirmation Order on December 30, 1999. Making specific reference to the Haskell Alabama Action and creditors' claims against nondebtor third parties, Paragraphs 50, 51, and 52 of the District Court's Confirmation Order provide:
50. As of the Effective Date, any and all avoidance claims owned by or vested in the Debtors and Debtors in Possession under sections 502(d), 544, 545, 547, 548, 549, 550 and 551 of the Bankruptcy Code, including, without limitation, all of the avoidance claims that are owned by or vested in the Debtors and Debtors in Possession pursuant to the Bankruptcy Code and applicable provisions of law and that are asserted or could be asserted in the Haskell Alabama Action and the Huff Alabama Action, shall be extinguished whether or not then pending.
51. As of the Effective Date, any and all alter-ego or derivative claims owned by or vested in the Debtors and Debtors in Possession, including, without limitation, all of the alter-ego or derivative claims that are owned or vested in the Debtors and Debtors in Possession pursuant to the Bankruptcy Code and applicable provisions of law and that are asserted or could be asserted in the Haskell Alabama Action and the Huff Alabama Action, shall be extinguished whether or not then pending.
52. Nothing contained in paragraphs 50 or 51 of this Confirmation Order or in Sections 9.3(a) and 9.3(b) of the Plan shall be construed to extinguish, limit or bar any direct, personal and non-derivative claim which may be asserted against nondebtor third parties by creditors in their individual capacity or for the benefit of other similarly situated creditors; provided, however, that, notwithstanding the foregoing, creditors may not assert against nondebtor third parties any claims that are owned by or vested in the Debtors and Debtors in Possession and extinguished pursuant to Sections 9.3(a) and 9.3(b) of the Plan (as such Section is incorporated in paragraphs 50 and 51 of this Confirmation Order).
App. VIII, at 2027-28 (emphasis added). The clear language of the Confirmation Order specifically provides that the fraudulent transfer claims asserted in the Haskell Alabama Action are extinguished pursuant to Section 9.3 of the Reorganization Plan and cannot be asserted by creditors against third parties. Further, Paragraph 54 of the Confirmation Order permanently enjoins:
all entities who have held, hold or may hold Claims against or Equity Interests in any or all of the Debtors from ... commencing or continuing in any manner any action or other proceeding of any...
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