Matter of Burstein-Applebee Co.

• Decision Date: 24 June 1986
• Docket Number: Adv. No. 85-0052-3.,No. 80-00968-3,80-00968-3
• Citation: Matter of Burstein-Applebee Co., 63 B.R. 1011 (Bankr. W.D. Mo. 1986)
• Parties: In the Matter of BURSTEIN-APPLEBEE COMPANY, Debtor. POLYGRAM DISTRIBUTION, INC., Columbia Records (CBS), Panasonic Company, Division of Matsushita Electric Corporation of America, Warner-Elektra-Atlantic Corporation, Chicago Branch and GC Electronics, Inc., Plaintiffs, v. B-A SYSTEMS, INC., Pam Sander, Allen E. Fishman, Harold Kopitsky and Barry M. Kash, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Missouri

63 B.R. 1011 (1986)

In the Matter of BURSTEIN-APPLEBEE COMPANY, Debtor POLYGRAM DISTRIBUTION, INC., Columbia Records (CBS), Panasonic Company, Division of Matsushita Electric Corporation of America, Warner-Elektra-Atlantic Corporation, Chicago Branch and GC Electronics, Inc., Plaintiffs, v. B-A SYSTEMS, INC., Pam Sander, Allen E. Fishman, Harold Kopitsky and Barry M. Kash, Defendants.

No. 80-00968-3, Adv. No. 85-0052-3.

United States Bankruptcy Court W.D. Missouri, W.D.

May 15, 1986.

As Amended June 24, 1986.

Hollis H. Hanover, Popham, Conway, Sweeny, Fremont & Bundschu, P.C., Kansas City, Mo., for plaintiff Warner-Elektra-Atlantic.

LeLand M. Shurin, Horwitz & Shurin, P.C., Kansas City, Mo., for B-A Systems and Harold Kopitsky.

Gene E. Voigts, Shook, Hardy & Bacon, Kansas City, Mo., for plaintiff Columbia Records (CBS).

W. Dennis Cross, Morrison, Hecker, Curtis, Kuder & Parrish, Kansas City, Mo., for plaintiff GC Electronics, Inc.

Robert R. Raymond, Shughart, Thomson & Kilroy, P.C., Kansas City, Mo., for plaintiff Polygram Distribution, Inc.

John R. Cleary, Linde, Thomson, Fairchild, Langworthy, Kohn & Van Dyke, P.C., Kansas City, Mo., for plaintiff Panasonic Co., Div. of Matsushita Corp. of America.

G. Spencer Miller, Miller & Dougherty, Kansas City, Mo., for Pam Sander and Allen E. Fishman.

Loren G. Rea, Rea & Russell, Kansas City, Mo., for Barry M. Kash.

Paul E. Berman, Michael R. Roser, Berman, DeLeve, Kuchan & Chapman, Kansas City, Mo., for debtor.

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL DECREE OF PERMANENT INJUNCTION

DENNIS J. STEWART, Chief Judge.

The creditors' committee of the bankruptcy estate in this corporate liquidation proceeding seeks a permanent injunction against the defendants' prosecuting a state court civil action against them sounding in defamation and tortious interference with contractual relations.¹ The injunction is sought on the ground that the defendants' state court suit is based upon actions alleged to have taken place in the course of administering these title 11 proceedings and, if the suit is permitted to continue, it would have a chilling effect on communications between the creditors' committee and the trustee and his counsel — communications which are necessary to the prosecution of a state court action against the defendants based upon allegations that the defendants fraudulently transferred property of the estate to themselves and others prior to the filing of the within involuntary bankruptcy proceeding.² In a prior order rendered after notice and hearing, this court granted a temporary injunction, for the duration of estate administration, based upon a factual showing by the plaintiffs that the state court action would "embarrass" administration of the within estate within the meaning of Diners Club, Inc. v. Bumb, 421 F.2d 396, 398 (9th Cir.1970). But in so doing, the court observed that the jurisdictional strictures currently placed on bankruptcy courts would not appear to permit the imposition of an injunction which would last longer than the period of administration. This appeared to be so even though only a permanent injunction could avoid the chilling effect on communications between the creditors' committee and the trustee and his counsel which the threat of resumption of the state court would have. The pertinent considerations were set out in that order as follows:

"The merits of this adversary action were formerly heard by this court on June 24, 1985, and the court\'s decision has been delayed because the court has been given pause over the potentially momentous character of the issues involved. The evidence which was adduced on the occasion of the former hearing was generally to the effect that the defendants, who are the former principals of and successor to the debtor corporation, have filed a state court action against the defendants, who are members of the creditors\' committee in the within bankruptcy proceeding; that the state court action sounds in alleged antitrust violations in that the creditors\' committee members, who are the former suppliers of the debtor corporation have refused to grant credit to or trade with the successor corporation and in defamation in that, in the course of their activities as creditors\' committee members, the defendants have made statements which are libelous concerning the former principals of the debtor corporation and the defendant corporation; that the filing of this state court action has frustrated and delayed the administration of the within estate because the creditors\' committee members fear to communicate information to the trustee and his attorney which is vital and necessary to the continued prosecution of a state court action against the former principals of the debtor corporation to recover assets of the debtor corporation which are allegedly fraudulently converted by those former principals; and that, therefore, the administration of the within estate has been brought to a standstill by the chilling effect of the state court action brought by the former principals of the debtor corporation. Under precedents having seeming application to the action at bar, the bankruptcy court is authorized to enjoin actions in other courts which are not brought against the debtor or the bankruptcy estate, but which nevertheless `embarrass\' the administration of a bankruptcy estate. In the action at bar, that authority may well be sufficient to warrant the issuance of a temporary injunction which would expire at the conclusion of administration of the estate. But, if the state court action may be resumed after the conclusion of administration of the estate, a temporary injunction may not sufficiently prevent embarrassment to the estate. For the members of the creditors\' committee will still not be protected from lawsuits for actions which they may lawfully undertake in furtherance of estate administration. Their efforts are accordingly apt to be chilled so as wholly to frustrate estate administration.

"For the bankruptcy court to grant the permanent injunction which seems necessary to enable proper and unembarrassed estate administration to take place, however, would appear to affront the decision of the United States Supreme Court in Northern Pipeline Construction Company v. Marathon Pipe Line Company, 458 U.S. 50 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), prohibiting the bankruptcy court from terminating actions which arise under state law. This may be particularly so when any permanent injunction may in part be based on common law principles which accord privileges against suits such as those brought in state courts against these creditors\' committee members.

"But, if the relief sought by the creditors\' committee members is not available in the bankruptcy court, it may not be available elsewhere. If the bankruptcy court were to make a preliminary finding that this is not a `core\' proceeding within the meaning of § 157(b)(2), Title 28, United States Code, and submit the matter for decision of the district court on the basis of recommended findings of fact and conclusions of law, the district court, because of the pendency of the state court action, may be required in its discretion to abstain from adjudicating the matter under § 1334(c)(1), Title 28, United States Code. And it is the expense and risk of defending the state court action which the creditors\' committee must be spared in this case if estate administration in this — or virtually any other — case is to be effective.

"The bankruptcy court, then, is the only forum in which the relief which is necessary to the administration of the estate is available. The rule of necessity seemingly requires that the omnibus subsection of § 157(a)(1), Title 28, United States Code, be interpreted so as to include the bankruptcy court\'s traditional and inherent power to render injunctions in cases such as that at bar within the definition of `core\' proceedings. So interpreted, however, the statute appears to violate the rule of Northern Pipeline Construction Company v. Marathon Pipe Line Company, supra.

"The only conceivable basis for bankruptcy court jurisdiction to issue a permanent injunction, it seems, would be for it to employ the long-standing rule that a bankruptcy court may exercise its jurisdiction to resolve actions otherwise without its jurisdiction `if it is impossible to administer completely the estate of the bankrupt without determining the controversy.\' First State Bank and Trust Company v. Sand Springs State Bank, 528 F.2d 350, 353 (10th Cir.1976); Matter of Paso Del Norte Oil Company, 755 F.2d 421, 425 (5th Cir.1985). Employment of this principle under the circumstances of this action, however, as noted above, runs squarely into the rule of Northern Pipeline Construction Company v. Marathon Pipe Line Company, supra, prohibiting a non-article III court from determining actions which, as this one does, arise purely under state law. "Yet, the `rule of necessity\' above explicated has the greatest possible application to the action at bar, for the only court which can grant adequate relief is the bankruptcy court. If the bankruptcy court refers the action to the district court, abstention under § 1334(c)(1), supra, seems almost necessarily to result. And the state court will try the actions on their merits, including the substantive counts alleging interference with trade relations and libel, so that the administration of the within bankruptcy estate will remain stalled and chilled.

"So it appears to be the case at bar that the bankruptcy court must either rule the issue of permanent injunction or else there can be no prospect of the permanent injunction. Yet it seems clear, after hearing the evidence in that action, that, if a permanent injunction is necessary to ensure the continued beneficial administration of the estate, the bankruptcy court should issue it. The actions of a trustee of a bankruptcy estate or a creditors\' committee

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