In re SGL Carbon Corp.
| Decision Date | 23 April 1999 |
| Docket Number | No. 98-2779-JJF.,98-2779-JJF. |
| Parties | In re SGL CARBON CORPORATION, Debtor. |
| Court | U.S. District Court — District of Delaware |
Laura Davis Jones, Brendan Linehan Shannon, Edwin J. Harron, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware, Ronald DeKoven and George J. Wade, Shearman & Sterling, New York City, for the debtor.
Teresa K.D. Currier, Duane Morris & Heckscher LLP, Wilmington, Delaware, Kenneth H. Eckstein and Philip Bentley, Kramer Levin Naftalis & Frankel LLP, New York City, for the Official Committee of Unsecured Creditors.
Robert F. Stewart, Jr., James J. Rodgers and Martin J. Weis, Dilworth Paxson LLP, Wilmington, Delaware, Michael D. Ridberg and Stuart A. Schwager, Ridberg, Press & Sherbill, Bethesda, Maryland, for Nucor Corporation and Nucor-Yamato Steel Company.
Mark Minuti, Saul, Ewing, Remick & Saul LLP, Wilmington, Delaware, John B. Wyss and N. Christopher Hardee, Wiley, Rein & Fielding, Washington, D.C., for the Co-Steel Companies.
Charles M. Oberly, III, Oberly & Jennings, P.A., Wilmington, Delaware, Kenneth L. Adams, Paul Bennett Bran and R. Bruce Holcomb, Dickstein Shapiro Morin & Oshinsky LLP, Washington, D.C., for the Ferromin Antitrust Claimants.
Presently before the Court is a Motion For Order Dismissing Chapter 11 Petition Pursuant To Bankruptcy Code § 1112(b) (D.I.86) filed by the Official Committee of Unsecured Creditors (the "Committee") in this Chapter 11 proceeding initiated by SGL Carbon Corporation (the "Debtor"). The Motion has been independently joined by the Debtor's customers, Nucor Corporation and Nucor-Yamato Steel Company (collectively "Nucor") (D.I.117)1 and Co-Steel Inc., Co-Steel Raritan, Inc.; Co-Steel Sayreville, Inc., Co-Steel Sheerness PLC and Gallatin Steel Company (collectively "Co-Steel") (D.I.176). In addition, the Motion is supported by several entities who have filed an antitrust lawsuit against the Debtor, namely Ferromin International Trade Corporation, Ekinciler dis Ticaret A.S., Ekinciler Demir Celik Sanayi A.S., Asil Celik Sanayi ve Ticaret, A.S. Diler Demir Celik Endustrisi ve Ulasim Sanayi A.S. (f/k/a ICDAS Istanbul Celik ve Demir Izabe Sanayii A.S.), Colakoglu Metalurji A.S., Siam Yamato Steel Co., Ltd., Siam Construction Steel Co., Ltd., Siam Iron and Steel Co., Ltd., Smorgon Steel Group, Ltd., Shanghai Pudong Iron & Steel (Group) Co., Ltd. (f/k/a Shanghai No. 3 Steel Works), Shanghai No. 5 Steel (Group) Co., Ltd. (f/k/a Shanghai Huchang Steel Co., Ltd.), Fu Shun Steel Plant Import & Export Company, International Economic & Trading Co. (Wugang Group), China Metallurgical Import & Export Magang Co., Lai Wu Iron & Steel Company, Daye Steel Group Import & Export Co., Zhangjiagang Novel Steel Ltd., Jiangsu Shagang Group Co., Ltd., Zhangjiagang Sheen Faith Steel Co., Ltd. Guangzhou Iron & Steel Co., Ltd., and Guangzhou Iron & Steel Holding Ltd. Corp. (collectively, the "Ferromin Antitrust Claimants") (D.I.232). The Debtor has filed a consolidated response (D.I.180) to the Motion and the supporting memoranda filed by the various entities. A hearing on the Motion was held on February 17, 1999, with all interested parties present. For the reasons set forth below, the Court will deny the Committee's Motion to Dismiss the Debtor's Chapter 11 Petition.
The Debtor, a Delaware Corporation with its principal place of business in Charlotte, North Carolina, is a producer of, among other things, graphite electrodes. Graphite electrodes are used by steel producers to generate heat to melt steel in electric arc furnaces.
In early 1997, the United States Government began an investigation into alleged price-fixing by manufacturers of graphite electrodes. This investigation is currently ongoing. Shortly thereafter, various steel producers filed class action antitrust lawsuits in the United States District Court for the Eastern District of Pennsylvania, against the Debtor and several other graphite electrode manufacturers, alleging violations of Section 1 of the Sherman Act. These cases were consolidated by Judge Charles R. Weiner into a single class action, and Judge Weiner subsequently certified a class consisting of all purchasers of graphite electrodes in the United States between July 1, 1992 and June 30, 1997. A large number of class members opted out of the class prior to the November 27, 1998 opt-out deadline, and many of these purchasers have either filed or threatened to file their own lawsuits.
Since the filing of the initial action, six additional complaints alleging similar antitrust violations were filed in federal court by purchasers of graphite electrodes. Each of these actions was either filed as a related case and assigned to Judge Weiner or was transferred to Judge Weiner by the Judicial Panel on Multidistrict Litigation for purposes of coordinating pretrial discovery. Upon completion of discovery, these latter-filed actions will be transferred to the courts in which they were originally filed for trial.
Additionally, the Debtor has been sued in a separate action for violation of the Canadian antitrust laws. This action is pending in Ontario, Canada.
On December 16, 1998, the Debtor filed its Chapter 11 Petition (the "Petition"). Two weeks later, on December 30, 1998, the United States Trustee formed the Committee. The Committee consists of nine members, eight of which are "minimill" steel companies who are also plaintiffs in the pending antitrust litigation. Of the eight Committee members who are also plaintiffs in the antitrust litigation, two serve as representatives of the certified class and six have opted out of the class. The remaining Committee member, Conoco Inc., is a trade creditor.
By its Motion, the Committee seeks to dismiss the Debtor's Chapter 11 Petition on the grounds that the Petition is a litigation tactic designed to frustrate the prosecution of the civil antitrust claims pending against the Debtor and preserve the Debtor's equity from these claims. The Committee contends that the Debtor is not experiencing financial difficulty and is neither in default, nor overdue on any of its financial obligations. Accordingly, the Committee contends that the Debtor has no need for Chapter 11 protection and therefore, the Debtor's Petition should be dismissed as a "bad faith" filing pursuant to 11 U.S.C. § 1112(b).
Nucor joins the Committee's position that the Debtor is financially sound and is merely using its bankruptcy filing as a litigation tactic. In addition, Nucor raises the specific point that the Debtor's Chapter 11 filing is an attempt to circumvent jurisdiction in the Eastern District of Pennsylvania and thereby, deprive the antitrust claimants of their right to a jury trial.
While the Debtor does not dispute that it is currently a "financially healthy" company, the Debtor contends that the pending antitrust litigation poses a significant threat to its continued business. According to the Debtor, the antitrust plaintiffs seek hundreds of millions of dollars in damages, before trebling, which is an amount well in excess of the Debtor's ability to pay. In addition, the Debtor contends that the pending litigation has caused the Debtor to lose customers, has deteriorated employee morale and confidence, and has significantly distracted the Debtor's management from the Debtor's core business operations. According to the Debtor, its management has been consumed by its defense of the antitrust litigation and its attempts to settle the claims with its customers, many of whom will not do business with the Debtor until the antitrust matters are settled. While the Debtor disputes that the Bankruptcy Code imposes a good faith requirement on the filing of a Chapter 11 petition, the Debtor contends that, even if such a requirement were found to exist, its Chapter 11 Petition was filed in good faith and should not be dismissed.
Section 1112(b) of the Bankruptcy Court permits the dismissal of a Chapter 11 case "for cause." 11 U.S.C. § 1112(b) Elaborating further, Section 1112(b) lists nine circumstances in which "cause" may be found. Although the bad faith filing of a debtor's Chapter 11 petition is not among the circumstances enumerated, several courts interpreting this section have concluded that a debtor's lack of good faith in filing its Chapter 11 petition can constitute sufficient cause for dismissal. See e.g. Trident Assocs. Ltd. Partnership v. Metropolitan Life Ins. Co. (In re Trident Assocs. Ltd. Partnership), 52 F.3d 127, 131 (6th Cir.1995); Phoenix Piccadilly, Ltd. v. Life Ins. Co. (In re Phoenix Piccadilly Ltd.), 849 F.2d 1393, 1394 (11th Cir.1988); Carolin Corp. v. Miller, 886 F.2d 693, 700 (4th Cir.1989). However, the Court of Appeals for the Third Circuit has not yet ruled on this issue2, and courts within the Third Circuit are split on whether a good faith filing requirement is implicit in Section 1112(b). See e.g. In re 1606 New Hampshire Ave. Assoc., 85 B.R. 298, 308 (Bankr. E.D.Pa.1988) (). For purposes of the instant Motion, however, the Court will assume, without deciding, that Section 1112(b) implicitly embraces a good faith requirement.
In determining whether a Chapter 11 petition has been filed in good faith, courts examine whether the filing of the petition is an abuse of the bankruptcy court's jurisdiction. In re Johns-Manville Corp., 36 B.R. 727, 730 (Bankr.S.D.N.Y. 1984) (). Stated another way, a Chapter 11 petition is filed in good faith if there is "an arguable relation between the proposed reorganization and the purposes of ...
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