Phar-Mor, Inc. v. Coopers & Lybrand
| Decision Date | 06 June 1994 |
| Docket Number | INC,No. 2,PHAR-MO,D,No. 93-3368,2,93-3368 |
| Citation | 22 F.3d 1228 |
| Parties | , 28 Fed.R.Serv.3d 610, 25 Bankr.Ct.Dec. 779, Bankr. L. Rep. P 75,828 , Plaintiff, v. COOPERS & LYBRAND, Defendant. The Official Unsecured Creditor's Committee of Phar-Mor, Inc., Appellants, * Ivan Bowen, II, Robert J. Carr, Vernon L. Carson, Merle T. Carson, Robert M. Chase, Stephen M. Ehrlichman, Robert J. Frisby, Ronald Goldberg, Cecile Guthman, Howard D. Hirsh Revocable Trust, Walter Jacobson, Diane Dybsky Jacobson, Robert A. Judelson, Edward L. Lembitz Profit Sharing Plan, Marc Levenstein, Angela Levenstein, Maurice Sporting Goods, Inc., Protective Insurance Company, Robert A. Riesman, Jr., Philip E. Rollhaus, Jr., Jeanette M. Shea Trust, Spiegel, Inc. Supplemental Employee Retirement Plan for the Benefit of John J. Shea, Helen Shire, Jack Shire, Bernard M. Susman Revocable Trust, Glen R. Traylor, Union League Boys & Girls Clubs, Richard E. Weiss, John B. Whitted, Jr., Stein Roe Investment Trust, Olympus Private Placement Fund, L.P., Vencap Hold PTE Ltd., Odyssey Partners, L.P., Kemper Total Return Fund, Kemper Growth Fund, Kemper Retirement Fund--Series I, Kemper Retirement Fund--Series II, Kemper Small Capitalization Equity Fund, Kemper Investment Portfolios--Growth Portfolios, Kemper Investment Portfolios--Total Return Portfolio, Lumbermens Mutual Casualty Company, Kemper Financial Services, Inc., New Economy Fund, Anchor Pathway Fund Growth Series, America Variable Insurance Series Growth Fund, Albert H. Bitzer, Jr. Revocable Trust, The Bowen Family Partnership, Inc., Select Equity Fund of the Collective Trust Funds of the Northern Trust Company, Growth Equity Fund-A of the Common Trust Funds of the Northern Trust Company, Steinroe Prime Equities, Andrew K. Block Trustavid A. Breskin, Burton B. Kaplan, Arthur Charles Nielsen, Jr., Ralph M. Segall Trust, Mitchell Gold-Smith, Allan C. Lichtenberg Trust, Eva F. Lichtenberg, James D. Winship, M.S. Block 1985 Family Trust, Pagtip, Sheet Metal Workers Pension Fund, Intervenors. ** |
| Court | U.S. Court of Appeals — Third Circuit |
Bernard D. Marcus, Scott D. Livingston, Marcus & Shapira, Pittsburgh, PA, for amicus curiae, Giant Eagle, Inc. and Giant Eagle of Delaware, Inc.
R. Eric Kennedy, Weisman, Goldberg & Weisman Co., L.P.A., Cleveland, OH, for amicus curiae, Brentwood Originals, Inc., et al.
Before: BECKER and STAPLETON, Circuit Judges, and RESTANI, Judge, U.S. Court of International Trade. d
This appeal presents the interesting and important question whether Sec. 1109(b) of the Bankruptcy Code, 11 U.S.C. Sec. 1109(b), which provides that a creditors' committee "may raise and may appear and be heard on any issue in a case [under Chapter 11]," gives a creditors' committee the unconditional right to intervene in a proceeding in federal district court which is "related to" a bankruptcy case. This question arises in the context of a lawsuit filed by Phar-Mor, Inc. against its auditors, the accounting firm of Coopers and Lybrand ("Coopers"), alleging that Coopers failed to detect and/or was itself involved in a massive scheme to defraud Phar-Mor, a scheme so large that it forced Phar-Mor into bankruptcy once it came to light.
The lawsuit between Phar-Mor and Coopers had originally been filed in state court but was later removed to federal court, and the Unsecured Creditors' Committee of Phar-Mor (the "Committee") sought to intervene pursuant to Federal Rule of Civil Procedure 24. Both Phar-Mor and Coopers opposed the Committee's motion. The central issue before the district court on the motion was whether Sec. 1109(b) gave the Committee an absolute right to intervene in the lawsuit under Federal Rule of Civil Procedure 24(a)(1), which provides that a party shall be permitted to intervene when a statute of the United States confers an unconditional right to intervene. The Committee argued that Sec. 1109(b) gave it such a right, relying on this court's decision in In re Marin Motor Oil, Inc., 689 F.2d 445 (3d Cir.1982), cert. denied, 459 U.S. 1207, 103 S.Ct. 1196, 75 L.Ed.2d 440 (1983), which held that Sec. 1109(b) gives a creditors' committee an unconditional right to intervene in an adversary proceeding initiated by a trustee.
Phar-Mor and Coopers responded that Sec. 1109(b) gave the Committee no right to intervene, and distinguished Marin. Section 1109(b), they contended, only applies to cases "under" Chapter 11, not those merely "related to" a Chapter 11 case; the Phar-Mor/Coopers lawsuit, which had been filed as a state common law civil action and then removed to federal court pursuant to 28 U.S.C. Sec. 1452, was in federal court only because it was "related to" a bankruptcy case. Phar-Mor and Coopers focussed on what they thought were two related, but distinct, limitations of Marin. First, they submitted, Marin held only that Sec. 1109(b) gave creditors' committees a right to intervene in "adversary proceedings," yet the lawsuit was not an adversary proceeding but a common law civil action in federal district court. Second, Phar-Mor and Coopers argued that Marin held only that the right to intervene extended to adversary proceedings brought by a trustee "under" Chapter 11, and since the Phar-Mor/Coopers lawsuit did not arise "under" Chapter 11, but was merely "related to" a Chapter 11 case, Marin did not apply.
The district court agreed with Phar-Mor and Coopers, and denied the Committee's motion to intervene. We reverse. We conclude that the Phar-Mor/Coopers lawsuit is an adversary proceeding, and that, in light of Marin, Sec. 1109(b) gives a creditors' committee the right to intervene in an adversary proceeding, like the Phar-Mor/Coopers lawsuit, which is "related to" a bankruptcy case.
In July, 1992, Phar-Mor, one of the country's largest "deep-discount" drugstore chains, discovered that two of its executives, Michael Monus and Patrick Finn, had bilked it out of hundreds of millions of dollars. Believing that its auditors, Coopers, should have known what was going on, Phar-Mor sued Coopers in the Court of Common Pleas of Allegheny County (Pennsylvania) for fraud and malpractice, seeking in the neighborhood of $1 billion in damages. 1 Later that day, Phar-Mor filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Ohio. 2 About two months later, Coopers removed the state fraud and malpractice action to the United States District Court for the Western District of Pennsylvania pursuant to 28 U.S.C. Sec. 1452(a), which allows a party to remove a cause of action "related to" a bankruptcy case from state court to federal district court. 3 The case is currently pending in that court.
The Committee moved to intervene in the now-federal lawsuit claiming, among other things, that it had an unconditional right to intervene under Sec. 1109(b), which gives parties in interest an unconditional right to be heard on "any issue in a case under [Chapter 11]." The Committee argued that Sec. 1109(b) gives it such a right because this court had held in Marin that Sec. 1109(b) gives a creditors' committee an unconditional right to intervene in an adversary proceeding brought by a trustee in a Chapter 11 case. See 689 F.2d at 445. The district court denied the motion, holding that Sec. 1109(b), as interpreted by Marin, does not give the Committee a right to intervene in a proceeding pending in federal district court, like the Phar-Mor/Coopers lawsuit, which is merely "related to" a bankruptcy case. 4
The Committee has timely appealed the district court's order denying the motion. We have jurisdiction because an order denying intervention of right is an appealable order. See Marin, 689 F.2d at 448-49. Because application of Rule 24(a)(1) requires the district court to construe the language of a statute, a purely legal question, our review of the district court's ruling on the Rule 24(a)(1) motion to intervene is plenary. See Air Courier Conference/Int'l Comm. v. U.S. Postal Serv., 959 F.2d 1213, 1217 (3d Cir.1992).
Federal Rule of Civil Procedure 24(a)(1) provides that upon timely application anyone shall be permitted to intervene in an action "when a statute of the United States confers an unconditional right to intervene." Fed.R.Civ.P. 24(a)(1). Whether Sec. 1109(b) gives the Committee such an unconditional right to intervene in this litigation turns on our reading of Marin. As has been mentioned, this court held in Marin that Sec. 1109(b) gives a creditors' committee an unconditional right to intervene in an adversary proceeding initiated by a trustee in a case under Chapter 11. In Marin, the debtor, Marin Motor Oil, Inc., filed a voluntary Chapter 11 petition and the trustee initiated two adversary proceedings--one to impose a constructive trust on a home bought with money borrowed from the debtor corporation by its owner, and another to pierce the debtor corporation's veil so as to extend the Chapter 11 proceedings to the Marins' other businesses and the Marins personally and bring the non-debtors' assets into the debtor's estate. 689 F.2d at 446-447. The creditors' committee, unhappy with the trustee's performance, moved to...
To continue reading
Request your trial
-
Lentz v. Trinchard, Civil Action No. 02-1235
...apply to an action in federal district court based on "related to" jurisdiction under 28 U.S.C. § 1334(b)); Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1236-37 (3d Cir.1994) (same); Diamond Mortgage Corp. of Illinois v. Sugar, 913 F.2d 1233, 1240-41 (7th Cir.1990) (same). ii. Analysi......
-
U.S. v. Union Elec. Co.
...sort of "unqualified" right to intervene held to be "unconditional" under Fed.R.Civ.P. 24(a)(1). See, e.g., Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1230-31 (3d Cir.1994) (Sec. 1109(b) of the Bankruptcy Code, 11 U.S.C. Sec. 1109(b), provides creditors with an unconditional right t......
-
Rdm Holdings v. Continental Plastics
...liability and veil piercing issues confirms that this action is not a core proceeding." Id.; see also Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1239 (C.A.3, 1994); In re Julien Co., 120 B.R. 930, 937 (W.D.Tenn., 1990) ("veil piercing or alter ego theory could not be a core proceedi......
-
In re Smart World Technologies, LLC
...Corp., 762 F.2d 1283, 1286-87 (5th Cir.1985); see also Caldor, 303 F.3d at 167 (discussing contrary cases); Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1232 (3d Cir.1994) (same); 6 Moore's Fed. Prac. § 24.12[2][a] (3d ed.2005) (noting that § 1109(b) provides for permissive interventi......
-
Florida Bankruptcy Court: Chapter 11 Creditors' Committee Has No Unconditional Right To Intervene In Adversary Proceeding
...v. Fin. Oversight & Mgmt. Bd. for Puerto Rico, 872 F.3d 57 (1st Cir. 2017); Caldor, 303 F.3d at 176; Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1240 (3d Cir. 1994); see also Smart World Techs., LLC v. Juno Online Servs., Inc. (In re Smart World Techs., LLC), 423 F.3d 166, 180-81 (2d......