In re White Farm Equipment Co.

• Decision Date: 16 March 1984
• Docket Number: Misc. No. 83-82.
• Parties: In re WHITE FARM EQUIPMENT COMPANY, Debtor.
• Court: U.S. District Court — Northern District of Ohio

38 B.R. 718 (1984)

In re WHITE FARM EQUIPMENT COMPANY, Debtor.

Misc. No. 83-82.

United States District Court, N.D. Ohio, E.D.

March 16, 1984.

Robin Phelan, Robert D. Albergotti, Haynes & Boone, Dallas, Tex., for White Farm Equipment Co.

R. Curtiss Mabbitt, Grand Rapids, Mich., Sam A. Zingale, Cleveland, Ohio, Lancaster Smith, Jr., Dallas, Tex., Richard J. Tonkin, Van de Verr, Gargia, Tonkin, Kerr & Heaphy, P.C., Detroit, Mich., Dennis M. O'Dea, Chicago, Ill., Michael O'Shea, John J. Grech & Assoc., Sterling Hts., Mich., Melvin R. Schwartz, Southfield, Mich., J. Frank Kinsel, Waco, Tex., L. Roland Roegge, Grand Rapids, Mich., T.L. Majoros, Cicinelli, Mossner, Majoros & Alexander, P.C., Saginaw, Mich., Sherwin A. Winniford, Waco, Tex., Glendon B. Adams, Sugarland, Tex., Jon F. Schmoll, Spangler, Jennings, Spangle & Dougherty, Merrillville, Ind., Paul F. Anderson, Houston, Tex., John Cronquist, Cleveland, Ohio, Graham Heikes, Jardin, Logan & O'Brien, St. Paul, Minn., Ralph F. Mitchell, Cincinnati, Ohio, R. Burke McLemore, Thomas & Thomas, Harrisburg, Pa., Andrew Briscoe, Rosenberg, Tex., Tommy Allison, Longview, Tex., Mitchell R. Spector, Minneapolis, Minn., Joseph F. Hutchinson, Jr., Akron, Ohio, G. Thomas Miller, Harrisburg, Pa., Michael L. Johnson, Sacramento, Cal., Carlyle H. Chapman, Jr., Dallas, Tex., J.W. Cragg, Minneapolis, Minn., Ardell W. Skow, Doar, Drill & Skow, Baldwin, Wis., Tom Brenner, Goldberg, Evans & Katzman, Harrisburg, Pa., William A. Wilson, Weintraub, Genshlea, Hardy, Erich & Brown, Sacramento, Cal., John C. Dupee, Goshen, N.Y., Michael M. Platzman, Middletown, N.Y., Mel J. Garofalo, Hedrick, Feerick, Eatman, Gardner & Kincheloe, Charlotte, N.C., Ronald Dilthey, Patterson, Dilthey, Clay, Cranfill, Sumner & Hartzog, Raleigh, N.C., William B. Stapleton, Georgetown, Ohio, Tom Finarelli, Philadelphia, Pa., George Rich, Magavern, Magavern, Lowe, Beilewech, Dopkins & Fadale, Buffalo, N.Y., Keith Sjodin, Waconia, Minn., Morris R. Blane, Berger & Kirschenbaum, Cleveland, Ohio, David Faulkner, Cincinnati, Ohio, Lee Hagen, West Fargo, N.D., James T. Hofelich, Cleveland, Ohio, Arnold Katz, Lester, Schwab, Katz & Dwye, New York City, Martin Rosenblum, Middletown, N.Y., Carlton J. Hunke, Vogel, Brantner, Kelly, Knutson, Weir & Bye, Ltd., Fargo, N.D., Robert M. Osburn, Dallas, Tex., Saul I. Ruman, Hammond, Ind., G. Christopher Meyer, Cleveland, Ohio, for claimants.

MEMORANDUM AND ORDER

ANN ALDRICH, District Judge.

Pursuant to General Order 61(c)(2) of the Northern District of Ohio (effective December 25, 1982)¹, this Court, on April 1, 1983, withdrew the reference to the bankruptcy judge of that portion of the White Farm bankruptcy reorganization dealing with the disposition of the product liability cases and vacated the appointment of the Special Master.

Parties affected by the order were directed to submit briefs and appear for a hearing on June 29, 1983 on the issue of how best to proceed with disposition of the White Farm product liability claims still pending. After consideration of the proposals and the facts in those cases where individual parties had submitted briefs, this Court concludes that the reference should be remanded to the Bankruptcy Court for purposes of estimating, determining, and allowing the product liability claims still pending in accordance with § 502 of the Bankruptcy Code.

FACTS

White Farm Equipment Corporation ("White Farm") is one of several White Motor Corporation ("White Motor") affiliates which were swept under the protective wing of the Bankruptcy Court on September 4, 1980 when White Motor filed for reorganization under Chapter 11 of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549, 2685 (1978), 11 U.S.C. § 1101 et seq. At the time, a number of product liability suits arising from accidents involving White-manufactured farm implements were pending against White Farm in various state and federal courts. All were stayed by operation of the "automatic stay" provision of 11 U.S.C. § 362(a).²

After filing for reorganization, White Farm operated its business as a debtor-in-possession. It ceased to be a wholly owned subsidiary of White Motor on December 19, 1980 when it was sold to White Farm USA, Inc., a subsidiary of TIC Investment Corporation ("TIC"). White Farm's bankruptcy reorganization proceeded separately from White Motor's reorganization after the sale.

A special master was appointed by the Bankruptcy Court on April 11, 1981. On June 30, 1981, White Farm filed its Plan of Reorganization and on August 20, 1981 filed its First Amended Plan of Reorganization (the "Plan"). That same date, the Bankruptcy Court approved for circulation White Farm's Consolidated Disclosure Statement and Summary Disclosure Statement ("Disclosure Statement") regarding the Plan. The Plan and Disclosure Statement were distributed to interested parties along with ballots for accepting or rejecting the Plan. Included in the Disclosure Statement was White Farm's Application for Disposition of Product Liability Claims ("Product Liability Program" or "Program"). Parties were advised that October 19, 1981 would be the last date for filing objections to confirmation of the Plan and that hearings on the Plan would take place October 28-29, 1981. The Bankruptcy Court entered an order confirming the Plan ("Confirmation") on October 30, 1981.³ The Confirmation was not appealed.⁴

On May 3, 1982, the Bankruptcy Court conducted a hearing on the Product Liability Program which had already been incorporated into White Farm's confirmed Plan. The Program provided that the Bankruptcy Court would, under § 502 of the Code, determine and allow the product liability claims for which proofs of claim had been filed. White Farm planned to settle as many claims as possible by agreement of the parties; those claims which could not be settled would be referred to the Special Master. The Disposition Program provided in part:

(b) WFE should evaluate each claim filed by the holder of a Product Liability Claim and offer a fair and reasonable cash settlement to all or substantially all of such claimants in full and complete satisfaction of all liabilities of WFE and its insurance carrier to such claimant. All settlements of Product Liability Claims for cash payments should be approved by this Court as a compromise of controversy in accordance with the provisions of the Bankruptcy Code and Bankruptcy Rules.

(c) All Product Liability Claims not compromised through cash settlement should, alternatively, be compromised by allowing each Product Liability Claim in an amount to be agreed between the holder of such claim and WFE. Such compromises with respect to the amount of the allowed claim in this Chapter 11 reorganization case should be approved by this Court as a compromise of controversy in accordance with the provisions of the Bankruptcy Code and the Bankruptcy Rules.

Parts 7(d) and (e) of the Product Liability Program provided that the Special Master would estimate the value of the product liability claims without benefit of a jury trial; he would, however, apply the applicable law of the state in which the action arose.

(d) All Product Liability Claims which cannot be compromised shall be determined by this Court and the Special Master appointed by this Court on May 11, 1981 to liquidate Product Liability Claims in connection with this Chapter 11 reorganization case. The amount of each Product Liability Claim so determined shall be allowed as a claim in this Chapter 11 reorganization case, in accordance with the provisions of Section 502(c) of the Bankruptcy Code.

(e) Proceedings before the Special Master to estimate the value of Product Liability Claims pursuant to section 502(c) of the Bankruptcy Code shall proceed without a jury: the Bankruptcy Rules and Interim Bankruptcy Rules shall apply to and proceedings shall be conducted in accordance with Bankruptcy Rules 914 and 917; the substantive law of the jurisdiction wherein the cause of action arose shall apply to said proceedings to the extent such law would apply absent the Chapter 11 reorganization case.

Liabilities of White Farm's insurance carriers in connection with product liability claims were also to be determined under the Disposition Program.

A number of the product liability claimants objected to the Disposition Program. On July 26, 1982, the Bankruptcy Court entered an order approving White Farm's Application for Disposition of Product Liability Claims. None of the product liability claimants appealed the Bankruptcy Court's July 26, 1982 order, even though only a month before, the Supreme Court, in Northern Pipeline Company v. Marathon Pipe Line, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), had held that the jurisdiction granted to bankruptcy judges by the Bankruptcy Reform Act of 1978 violated Article III of the Constitution. Notwithstanding Northern Pipeline, not one of the product liability claimants questioned the Bankruptcy Court's authority to exercise jurisdiction over the disposition of their claims.

In the meantime, product liability claimants and creditors in the White Motor bankruptcy reorganization were challenging the Bankruptcy Court's jurisdiction to appoint a Special Master and to approve a product liability disposition program for him to administer. After this Court vacated the appointment of the Special Master in White Motor's reorganization,⁵ the Sixth Circuit Court of Appeals affirmed that portion of the decision stating:

... As a matter of good bankruptcy administration, we believe that the cases involving difficult legal and factual issues should, if practicable, be heard by a judicial officer, the District Court, the Bankruptcy Court or a U.S. Magistrate appointed as a special master.

White Motor Corp. v. Citibank, N.A., 704 F.2d 254, 265 (6th Cir.1983). The Sixth Circuit also considered the constitutionality of an Emergency Rule for Bankruptcy Procedure, "Interim Rule" proposed by the...