Matter of Baldwin-United Corp., Bankruptcy No. 1-83-02495
| Decision Date | 10 April 1985 |
| Docket Number | Adv. No. 1-85-0155.,Bankruptcy No. 1-83-02495 |
| Citation | 48 BR 901 |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
| Parties | In the Matter of BALDWIN-UNITED CORPORATION, D.H. Baldwin Company, et al., Debtors. BALDWIN-UNITED CORPORATION and D.H. Baldwin Company, Plaintiffs, v. NAMED DEFENDANTS, Defendants. |
Richard Parker, Robert White, Mark Plevin, O'Melveny & Myers, Washington, D.C., for plaintiffs.
These Chapter 11 cases are before the Court pursuant to Debtors' filing of a complaint for declaratory and injunctive relief, combined with a motion for a preliminary injunction and an application for a temporary restraining order. The 129 named defendants are creditors of the Debtors. Each of the defendants has filed a proof of claim in one or more of these cases. The complaints seek an order prohibiting the named defendants from filing third-party claims against the Debtors. Relief is sought alternatively under 11 U.S.C. § 362, 11 U.S.C. § 105, and Rule 65 of the Federal Rules of Civil Procedure as incorporated in Bankruptcy Rule 7065.
This adversary proceeding was filed in response to the following circumstances: On February 19, 1985 Paine Webber Group, Inc., which filed a proof of claim in these cases on July 24, 1984, filed a third-party complaint for contribution and indemnity against Baldwin-United Corporation and D.H. Baldwin in Erti, et al. v. Paine Webber Jackson and Curtis, Inc., et al., 83 Civ. 9085, M.D.L. No. 581, a multidistrict securities class action pending in the United States District Court for the Southern District of New York. A document captioned "Advice" was subsequently filed in this Court, in which Paine Webber asserted that it was not required to seek relief from the automatic stay prior to filing its action against the Debtors, citing In re M. Frenville Co., Inc., 744 F.2d 332 (3d Cir.1984), cert. denied, ___ U.S. ___, 105 S.Ct. 911, 83 L.Ed.2d 925 (1985).
On March 6, 1985, Paine Webber sought and obtained an ex parte temporary restraining order from the Erti Court prohibiting the Debtors from applying to this Court "for declaratory and injunctive relief which would purport to determine, affect or interfere, directly or indirectly, with the jurisdiction of the third-party complaint against Baldwin pending a hearing on and determination of the subject application for injunctive relief." After a brief hearing this temporary restraining order was converted to a preliminary injunction.
On March 14, 1985 the Debtors filed this adversary proceeding. On the same day this Court issued a 10-day temporary restraining order prohibiting the named defendants from instituting actions similar to Paine Webber's. The order did not extend to actions filed in the Erti litigation. That temporary restraining order was subsequently extended to March 28, the date of the hearing on Debtors' motion for a preliminary injunction.
Having heard the arguments of counsel and the evidence presented at the March 28 hearing, we must first determine whether the Debtors are entitled to injunctive relief under either § 105 or Rule 65. The standard for granting such relief is the same under either provision. See, e.g., In re Trails End Lodge, Inc., 45 B.R. 597, 12 B.C.D. 805, 808 (Bankr.D.Vt.1984). The four factors to be considered are as follows:
Friendship Materials, Inc. v. Michigan Brick, Inc., 679 F.2d 100, 102 (6th Cir. 1982); see also, Christian Schmidt Brewing Co. v. G. Heileman Brewing Co., 753 F.2d 1354, 1356 (6th Cir.1985). The Debtors cannot prevail under this standard, since they have failed to establish that any of the defendants have threatened to take actions which would cause them irreparable harm. Indeed, the defendants that have responded to the Debtors' complaint have uniformly represented that they have no present intention of filing third-party actions for contribution or indemnity against the Debtors. In the absence of "a clear showing of the threat of irreparable harm," an injunction may not issue under § 105 or Rule 65. Friendship Materials, Inc., 679 F.2d at 104.
The request for an order enforcing the stay imposed by 11 U.S.C. § 362 presents an entirely different question. The relief provided by the automatic stay is one of the most critical features of the Bankruptcy Code, particularly for debtors in reorganization proceedings under Chapter 11. It provides the essential breathing room for a Chapter 11 debtor to restructure its affairs with its creditors and reorganize into a viable entity. Its importance increases exponentially in cases of the magnitude of these Chapter 11s. As has been amply documented in other decisions of this Court and the United States District Court for the Southern District of Ohio, the intensity and complexity of activity among these Debtors and their creditors has been next to none. Not only have the creditors taken an active interest in dismembering the Debtors, they have on occasion taken an interest in pursuing claims against one another.
A seemingly endless stream of controversies has attended this proceeding. The most threatening conflict involved the Indiana and Arkansas insurance rehabilitators, who asserted claims to the Debtors' assets amounting to some $4 billion in the aggregate. In turn, the Debtors asserted preferences and fraudulent conveyance claims against the rehabilitators amounting to nearly $1 billion dollars. Litigating these claims would have been little more than a death march, since the Debtors' assets would almost surely have been consumed long before a final decision on liability.
After nearly a year of negotiations, the parties reached a compromise which will further the best interests of both. However, their settlement agreement requires that the Debtors have in hand a confirmed plan of reorganization by no later than January 15, 1986. Reaching this goal will require heroic efforts by both the Debtors and their creditors. Some 8200 claims totalling at least $15 billion and perhaps as much as $32 billion have been filed, and the Debtors intend to dispute most of these claims. In the meantime, disclosure statements must be written, plans of reorganization must be negotiated, and hearings on confirmation must be conducted.
While the tasks at hand are staggering in proportion, they would surely be doomed to failure if creditors were free to file third-party suits against the Debtors in the state and federal forums in which they themselves have been sued. The distractions and additional costs of defending these suits, as well as the protracted nature of those proceedings, would make it nearly impossible for the Debtors to meet their January 15 deadline with their largest and most ominous creditors. In short, if the lead of Paine Webber were followed by other creditors, the Debtors effectively would be deprived of the order and breathing room provided by the automatic stay. Such a result could not have been contemplated by the drafters of § 362, as is evident from the legislative history of that provision. See, House Report No. 95-595, 95th Cong., 1st Sess. 340-2 (1977); Senate Report No. 95-989, 95th Cong., 2nd Sess. 49-51 (1978), U.S.Code Cong. & Admin. News 1978, p. 5787.
To the extent that In re M. Frenville Co., Inc., 744 F.2d 332 (3rd Cir.1984) cert. denied, ___ U.S. ___, 105 S.Ct. 911, 83 L.Ed.2d 925 (1985), holds to the contrary, we find that decision fundamentally at odds with applicable precedents from the Sixth Circuit, and respectfully decline to follow it. Our disagreement with that decision flows from the Court's failure to distinguish between "claim" as defined in 11 U.S.C. § 101(4) and a cause of action for indemnity or contribution under state law. While the Third Circuit acknowledges the all-encompassing definition of "claim" under § 101(4), it nonetheless holds that the claim for indemnity or contribution arose at the same time that a cause of action arose.
While the third-party cause of action of the accounting firm in Frenville may not have arisen under New York state law until after the petition was filed, its claim for bankruptcy purposes arose before the petition was filed. This is so because a "right to payment" under the definition of "claim" includes obligations which are neither matured, nor liquidated, nor fixed.1 11 U.S.C. § 101(4)(A).
The legislative history of § 101(4) confirms the correctness of this result, and the error of Frenville:
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