In re Sharon Steel Corp.

Citation100 BR 767
Decision Date07 June 1989
Docket NumberBankruptcy No. 87-207E.
CourtUnited States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania



M. Bruce McCullough, and Thomas VanKirk, of Buchanan Ingersoll, P.C., Pittsburgh, Pa., and Jeffrey Sabin, of Schulte, Roth and Zabel, New York City, for Debenture Group.

Stephen Goldring, Asst. U.S. Trustee and for U.S. Trustee, Hugh Leonard, Pittsburgh, Pa.

Herbert Minkel, of Fried, Frank, Harris, Schriver and Jacobson of New York City and Philip Beard, of Stonecipher, Cunningham, Beard and Schmitt of Pittsburgh, Pa., for the Official Committee of Unsecured Creditors.

Bernhard Schaffler, of Schaffler and Bohm, Pittsburgh, Pa., and T. Lawrence Palmer, of Rose, Schmidt, Hasley and DiSalle, Pittsburgh, Pa., for Trustee, Franklin Agnew.

Melvin Sander, Gen. Counsel, for debtor, Sharon Steel Corp., Sharon, Pa.

Richard Cierri, of Jones, Day, Reavis and Pogue, Cleveland, Ohio, for Cleveland Cliffs Iron Co. and Tilden Iron Ore Partnership.

Robert Sable, of Lampl, Sable, Makoroff and Libenson, Pittsburgh, Pa. and Paul Bindler, of Rosenman and Colin, New York City, for IBJ Schroder Bank and Trust Co.

David Murdoch, of Kirkpatrick and Lockhart, Pittsburgh, Pa., for Mellon Bank.

Michael Blumenthal, of Haythe and Curley, New York City, former Atty. for Victor Posner, DWG and MVF.


WARREN W. BENTZ, Bankruptcy Judge.


In question is the validity of the NOTICE OF APPOINTMENT OF INTERIM COMMITTEE OF DEBENTURE HOLDERS issued by the U.S. Trustee dated January 27, 1989, which appears to have the effect of an order and which creates an interim committee of debenture holders from part of the membership of the Official Committee of Unsecured Creditors, thereby effectively vacating the order of this court dated May 5, 1987 made after notice and hearing.

Background and Procedure

On April 17, 1987, the same day the case was filed, the court had appointed the Official Committee (under § 1102 as it then existed), whose original membership was comprised of: Mellon Bank, as indenture trustee, Manufacturers Hanover Bank, Blue Cross, Tilden Iron Ore Partnership, Atlas, Hilty, Inc., IBM, Bearings, Inc. and B.M.I.

A Motion for Reconstitution was filed by Alfred Tyll ("Tyll") and Anthony Ben Walsh ("Walsh") on April 23, 1987 seeking to alter the composition of the Official Committee of Unsecured Creditors ("Official Committee" or "Committee") on the ground that the trade creditors were overrepresented relative to the aggregate amount of their claims, which concomitantly resulted in the under-representation of holders of the Sharon Steel 13½% and 14¼% Subordinated Debentures.

The Motion for Reconstitution proposed an Official Committee membership that "more closely reflected the composition of the creditor body and more fairly represented those creditors which have the largest stake in this case." The proposal suggested an eleven member Official Committee, with holders of Debentures occupying six of the seats, which assured them a "slim and well-balanced majority." Objections to the Motion were filed by various parties, and this court conducted a hearing thereon on May 1, 1987, with respect to the issue of the adequacy of the representation provided by the Official Committee.

At the May 1 hearing, the notion of a separate committee for debenture holders was advanced, but met with general disfavor in view of the obvious complexities it would create, complicating negotiations of the then Debtor in Possession1 with the EPA, the PBGC, the IRS, the union, and current lenders by a geometric progression; the "one-stop shopping" expression of the preferability of one committee, seemed to be the prevailing and unopposed sentiment. Peter D. Wolfson, Esq., counsel for Walsh and Tyll indicated support for a reconstitution of the Official Committee that would provide for a committee composed of six holders of debentures, six trade creditors, plus the United Steel Workers of America. No proposal had general approval, but that suggestion seemed to arouse very little hostility; the court concurred, so this court entered the May 5th Order, reconstituting the Official Committee and appointed as members: Quantum Overseas N.V. ("Quantum"), Neuberger & Berman ("Neuberger"), Anthony Ben Walsh, Alfred Tyll, Raymond E. Shea, Sr., Mellon Bank,2 appointed as indenture trustee, Cleveland Cliffs Iron Company/Tilden Iron Ore Partnership ("Cleveland Cliffs"), Atlas Energy Group, Inc. ("Atlas"), International Business Machines ("IBM"), Pennsylvania Power Company ("Penn Power"), Nick Strimbu, Inc. ("Strimbu"), Blue Cross of Western Pennsylvania ("Blue Cross"), and the United Steel Workers of America ("USWA"). In addition, U.V. Industries Liquidating Trust and Mercer County, Pennsylvania were designated as non-voting members.

The instant dispute arises from a request for a separate committee of debenture holders made to the U.S. Trustee by letter dated January 13, 1989 (the "Debenture Group's January 13 Request") by Quantum, Schroder and Messrs. Walsh, Tyll and Shea. The U.S. Trustee, under date of January 27, 1989, issued a NOTICE OF APPOINTMENT OF INTERIM COMMITTEE OF DEBENTURE HOLDERS (the "Notice"). The Notice appointed the five signatories to the Debenture Group's January 13 Request as an INTERIM COMMITTEE OF DEBENTURE HOLDERS (the "Debenture Group"). On February 9, 1989, two members of the Debenture Group, Quantum's representative, Raymond H. Wechsler ("Wechsler"), and Walsh filed, on behalf of the Debenture Group, an application for an order authorizing employment of counsel (Schulte, Roth & Zabel of New York and Buchanan Ingersoll, P.C. of Pittsburgh) nunc pro tunc as of January 30, 1989.

The debentures are unsecured obligations of Sharon Steel Corporation.

Neuberger & Berman, represented by Stewart E. Tabin, is a substantial debenture holder and a member of the Official Committee; it opposed the formation of a new and separate committee and declined to serve thereon. The U.S. Trustee then, by letter of February 13, 1989, removed Tabin from the Official Committee over his objection.

Mellon Bank, which remained a party in interest, also opposed the formation of a second committee. The United Steelworkers of America and the remaining members of the Official Committee opposed the formation of a separate committee.

By notice of February 22, 1989, the U.S. Trustee purported to appoint a full permanent committee of debenture holders.

This court's order of February 10, 1989 fixed a hearing to determine the validity of the "Notice" issued by the U.S. Trustee dated January 27, 1989; the order also denied without prejudice, pending hearing, the application of the Debenture Group to retain separate counsel.

The hearing scheduled by the February 10, 1989 Order for March 3, 1989 was rescheduled to March 13, 1989.

Prior to the hearing, the Debenture Group filed affidavits and a pre-hearing brief. The Committee immediately filed responsive affidavits and a memorandum. Voluminous affidavits, statements and briefs were filed by both sides. While these had not been requested by the court, they were valuable as analyses of the law and as factual assertions of the activity of the Committee over a period of twenty months and interactions of the parties as members of the Committee. The affidavits were enlightening, both for what they said and what they did not say.

Counsel for the Debenture Group, at one point prior to the hearing, requested a delay for the purpose of engaging in discovery and was advised by the court that if it appeared that additional time was necessary, it could be considered. No further request was made.

No evidentiary hearing is necessary. For purposes of disposition of the within matter, the affidavits of the Debenture Group will be assumed to be true, whereas the affidavits and statements of the Official Committee will be considered as mere unproved allegations, thus eliminating any issue of fact. (However, only facts asserted by the Debenture Group are assumed to be true whereas conclusory statements are received only as argument.)

The U.S. Trustee's report indicates that he acted on telephonic communication from the Debenture Group and correspondence. The U.S. Trustee did not conduct a hearing. There is no indication that the U.S. Trustee examined the then existing record, conferred with opposing parties, or conferred with the case trustee.

For the reasons set forth below, we find:

I. Section 1102 of the Bankruptcy Code does not vest in the U.S. Trustee the power to negate orders of the Bankruptcy Court.
II. The doctrine of separation of powers under the United States Constitution prohibits a construction of § 1102 which would authorize the U.S. Trustee to vacate or modify an order of the Bankruptcy Court.
III. The appointment of a separate committee of debenture holders is not necessary to assure adequate representation where, as here, they share pari passu with other general unsecured creditors.
IV. The principles of former adjudication operate as a bar to the January 13, 1989 Request to reconstitute the Committee of Unsecured Creditors, which had been resolved after notice and hearing, in the Order of May 5, 1987, in the absence of changed circumstances.

Page 783

V. The Administrative Procedures Act is inapplicable to the U.S. Trustee\'s action, and such action is subject to review de novo by the court.

Page 785

I. Section 1102 of the Bankruptcy Code does not vest in the U.S. Trustee the power to negate orders of the Bankruptcy Court.

Section 1102 of the Code was amended on October 27, 1986 by the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, P.L. 99-554 (the "1986 Act"). The 1986 Act implemented the U.S. Trustee program on a nationwide basis and became effective in the Western District of Pennsylvania on August 21, 1987. The 1986 Act repealed former § 151102 of the...

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