In re Travelstead, Civ.A. CCB-98-463.
| Decision Date | 21 August 1998 |
| Docket Number | No. Civ.A. CCB-98-463.,Civ.A. CCB-98-463. |
| Parties | In re G. Ware TRAVELSTEAD, Debtor. Karen L. HOBSON, Appellant, v. G. Ware TRAVELSTEAD, Debtor, and Joel I. Sher, Liquidating Agent, Appellees. |
| Court | U.S. District Court — District of Maine |
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Lewis S. Goodman, Jamie Eisenberg, Rifkin, Livingston, Levitan and Silver, Baltimore, MD and John Leidig, Baltimore, MD, for plaintiff.
Paul M. Nussbaum, Kenneth Oestreicher, John F. Carlton, Whiteford, Taylor and Preston, Baltimore, MD and Joel I. Sher, Kimberly A. Manchester, Shapiro and Olander, Baltimore, MD, for defendants.
This is an appeal from the bankruptcy court's confirmation of a plan of reorganization filed under Chapter 11 of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549, codified as amended at 11 U.S.C. § 101 et seq. (the "Bankruptcy Code" or "Code"). Party-in-interest and creditor Karen L. Hobson appeals from the bankruptcy court's December 31, 1997 Order Approving Debtor's Modified Fifth Amended Disclosure Statement and Confirming Debtor's Third Modified Fourth Amended Plan of Reorganization ("Plan"). She argues that the Plan was not confirmable because her due process rights under 11 U.S.C. § 1109 and Fed. R.Bankr.P.2002(b) were violated; because the prerequisites to confirmation in 11 U.S.C. § 1129 and related sections were not satisfied; and because the bankruptcy court in confirming the Plan violated principles of international comity in regard to certain Dutch court judgments obtained by Ms. Hobson. Both G. Ware Travelstead ("Debtor" or "Mr. Travelstead") and Joel I. Sher ("Liquidating Agent") oppose Ms. Hobson's appeal. Jurisdiction is proper under 28 U.S.C. § 158(a); see also Fed.R.Bankr.P. 8001, 8002; Local Rule 403. No hearing is deemed necessary. See Local Rule 105.6. For the reasons that follow, the bankruptcy court's order confirming the Plan and Disclosure Statement will be affirmed.
In a case commenced under Chapter 11 the debtor may file a plan of reorganization1 with the bankruptcy court. 11 U.S.C. § 1121(a). Section 1123 governs the terms of such a plan and contemplates that creditors' claims will be divided into classes and that each claim in a particular class will be treated the same. 11 U.S.C. § 1123. A plan may alter the rights of creditors and/or shareholders, a concept called "impairment" under the Code. 11 U.S.C. § 1124. The debtor must provide creditors (and shareholders if they exist) with an adequate disclosure statement detailing the debtor's financial predicament, 11 U.S.C. § 1125, along with an opportunity to vote on the plan, 11 U.S.C. § 1126. Congress has explained this statutory framework as follows:
The premise underlying . . . chapter 11 . . . is the same as the premise of the securities law. If adequate disclosure is provided to all creditors and stockholders whose rights are to be affected, then they should be able to make an informed judgment of their own, rather than having the court or the Securities and Exchange Commission inform them in advance whether the proposed plan is a good plan.
H.R.Rep. No. 95-595 at 226 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6185. Accordingly, the bankruptcy court does not review a Chapter 11 plan before it is submitted to creditors and shareholders for vote, but instead reviews the information provided to creditors and shareholders in the disclosure statement to ensure that their judgment is an informed judgment. 11 U.S.C. § 1125(bc). After the votes are in, the bankruptcy court is then required to hold a hearing on confirmation of the plan. 11 U.S.C. § 1128. The bankruptcy court has the power in certain circumstances to confirm a plan that has not received the needed votes over a dissenter's objection. 11 U.S.C. § 1129. Confirmation of a plan by the court operates (with limited exceptions) as a discharge of any pre-confirmation debt, regardless of whether the plan listed the debt, the creditor or shareholder accepted the plan, or the creditor or shareholder filed a proof of claim under 11 U.S.C. § 501; and the debtor's performance obligations are thereafter governed by the confirmed plan. 11 U.S.C. § 1141(d).
Before this bankruptcy proceeding was initiated by Mr. Travelstead's filing of a voluntary Chapter 11 petition, he and Ms. Hobson had acquired a Dutch corporation, Blockless, B.V. ("Blockless"), for the purpose of investing in Australian real property. Mees Pierson Trust, B.V. ("Mees Pierson"), a Dutch trust company, was appointed managing director of Blockless. The Debtor is the majority shareholder with an 80% interest,2 and Ms. Hobson holds the remaining 20%. Ms. Hobson's interest in this case arises, broadly stated, from her position as an allegedly aggrieved minority shareholder in Blockless.
On December 4, 1995, the Debtor in several transactions borrowed a total of approximately AUS$4,900,000 from Blockless pursuant to a Loan Agreement containing a Dutch choice-of-law clause ("Loans"). The Loans were granted with the consent of Ms. Hobson and were secured by the Debtor's stock in Blockless ("Deed of Pledge"). The Debtor failed to pay the Loans when due, and on February 14, 1996 used his majority vote in Blockless to pass a corporate resolution extending the Loans' maturity date, with Mees Pierson's cooperation and over Ms. Hobson's objection. Ms. Hobson then instituted legal proceedings against Blockless and Mees Pierson in the Netherlands, and on May 9, 1996 obtained a Judgment Order from the President of the District Court of Rotterdam requiring Blockless immediately to collect the Loans from the Debtor and if necessary execute upon the Deed of Pledge.3 On May 29, 1996 Blockless sent a demand for immediate repayment of the Loans to the Debtor.
On May 31, 1996 the Debtor filed for Chapter 11 bankruptcy in the District of Maryland.
On June 19, 1996 Ms. Hobson petitioned the Dutch court to prevent Blockless from making any further payments (such as loans or distributions of corporate profits) to the Debtor or entities related to him before the Loans had been repaid.4 On July 16, 1996 the Dutch court granted her petition, ordering Blockless to refrain from granting loans or making other payments to the Debtor (or entities related to him) without prior approval of all shareholders, i.e. without Ms. Hobson's consent. The court conditioned its relief on Ms. Hobson's filing of a buyout proceeding against the Debtor under Article 2:343 of the Dutch Civil Code. This Dutch statute allows an aggrieved minority shareholder to compel a majority shareholder to purchase her shares at a value to be determined by a Dutch court ("buyout proceeding"). On August 5, 1996 Ms. Hobson instituted such a buyout proceeding, alleging that the Debtor's conduct on February 14, 1996 causing Blockless to pass the resolution extending the maturity date of the Loans was prejudicial to her interest as a minority shareholder in Blockless. On November 27, 1997 the District Court of Rotterdam issued a judgment ordering the Debtor to purchase all of Ms. Hobson's shares in Blockless ("buyout claim").
Thus, as a result of Ms. Hobson's efforts, two judgments from the Dutch court now exist: one ordering Blockless immediately to collect the Loans from the Debtor, and the other ordering the Debtor to buy out Ms. Hobson's minority shareholder interest in Blockless.
On October 21, 1997 Blockless at Ms. Hobson's urging demanded that the Debtor repay the Loans within thirty days, and stated that if he failed to do so Blockless would execute upon the Deed of Pledge. On November 12, 1997, the Debtor instituted a separate adversary proceeding against Ms. Hobson (and others, including Blockless), alleging that her post petition attempts to cause Blockless to comply with the (prepetition) May 9, 1996 Dutch court order to Blockless to collect on the Loans violated the automatic stay provision of the United States Bankruptcy Code, 11 U.S.C. § 362(a). The bankruptcy court granted a preliminary injunction on November 26, 1997, and scheduled a final hearing on that injunction for December 18, 1997. Blockless appeared specially to argue that the bankruptcy court could not constitutionally assert personal jurisdiction over Blockless. After some discussion, the Debtor voluntarily and without prejudice dismissed Blockless as a defendant in the adversary proceeding.5 (Tr. Dec. 18, 1997 at 19.) After opening statements by Ms. Hobson's and the Debtor's respective counsel concerning essentially the same issues of international law presented for decision in this appeal, which the bankruptcy court rejected for purposes of the preliminary injunction, (see Tr. Dec. 18, 1997 at 1941) the parties reached an agreement whereby Ms. Hobson agreed to an injunction prohibiting her from taking further action seeking to cause Blockless to collect the Loans or to enforce the Deed of Pledge securing them, subject to further order of the bankruptcy court granting her relief to do so.
Immediately after the parties agreed to the preliminary injunction in the separate adversary proceeding, the bankruptcy court commenced the confirmation hearing on the Debtor's Chapter 11 Plan. Ms. Hobson opposed confirmation. The hearing lasted for the remainder of December 18, and was continued on December 22 and December 29, 1997. The Debtor's Plan consisted of six classes of creditors. The first five classes each contained the secured claim of a single creditor, and the sixth grouped together all unsecured claims and creditors. All classes were deemed "impaired" under 11 U.S.C. § 1124, which means (with limited exceptions) that the legal, equitable or contractual rights of the claimholders would be altered by confirmation of the Plan. Blockless was the sole Class 2 creditor by virtue of its claim for the unpaid Loans, which were secured under the Deed of Pledge by the...
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