Teltronics Services, Inc., In re

Decision Date22 March 1985
Docket NumberD,600,Nos. 432,ANACONDA-ERICSSON,s. 432
Citation762 F.2d 185
Parties12 Collier Bankr.Cas.2d 899, Bankr. L. Rep. P 70,345 In re TELTRONICS SERVICES, INC., Debtor.INC., as successor by merger to LM Ericsson Telecommunications, Inc., Plaintiff-Appellee, v. Jules J. HESSEN, as Trustee in Bankruptcy of Teltronics Services, Inc., Defendant-Appellee, Michael M. Rand and Gregory T. Frese, Appellants. TELTRONICS SERVICES, INC., and Edward M. Beagan, Plaintiffs-Appellants, v.INC., LM Ericsson Telephone Company, and Ericsson TeleComm, Inc., Defendants-Appellees. ockets 84-5028, 84-7522.
CourtU.S. Court of Appeals — Second Circuit

Robinson B. Lacy, New York City (Robert M. Osgood, Maria Foscarinis, Sullivan & Cromwell, New York City, of counsel), for plaintiff-appellee Anaconda-Ericsson Inc. and defendants-appellees Anaconda-Ericsson Inc., LM Ericsson Telephone Co., and Ericsson TeleComm, Inc.

Gabriel B. Schwartz, New York City (Hahn & Hessen, New York City, of counsel), for defendant-appellee Trustee in Bankruptcy of Teltronics Services, Inc.

Walter C. Reid, New York City (Carl E. Person, New York City, of counsel), for appellants Michael M. Rand and Gregory T. Frese, and for plaintiffs-appellants Teltronics Services, Inc. and Edward M. Beagan.

Before TIMBERS, VAN GRAAFEILAND, and PIERCE, Circuit Judges.

PIERCE, Circuit Judge:

This case presents two consolidated appeals. They arise out of the relationship We affirm as to each of the judgments.

between Teltronics Services, Inc. ("Teltronics"), a now-bankrupt communications corporation, and its principal creditor and supplier, LM Ericsson Telecommunications, Inc. ("Ericsson"), 1 which, according to Teltronics, engaged in an attempt to take it over by arranging a fictitious default on Ericsson-guaranteed loans and thereby forced Teltronics into bankruptcy. In No. 84-5028, appellants Rand and Frese, creditors of the bankrupt Teltronics, challenge the propriety of a settlement in an adversary proceeding between Teltronics' trustee in bankruptcy ("Trustee") and Ericsson. The settlement was approved by the bankruptcy court (Goetz, Bankruptcy Judge ), and that approval was affirmed by the United States District Court for the Eastern District of New York (Neaher, Judge ). 46 B.R. 426. In No. 84-7522, plaintiffs Beagan and Teltronics appeal Judge Neaher's grant of summary judgment in favor of the defendants in a separate action.

BACKGROUND

The facts underlying these consolidated appeals are set forth in the numerous prior determinations in this matter. See LM Ericsson Telecommunications, Inc. v. Teltronics Services, Inc. (In re Teltronics Services, Inc. ), 18 B.R. 705 (E.D.N.Y.1982); Teltronics Services, Inc. v. LM Ericsson Telecommunications, Inc., 486 F.Supp. 836 (S.D.N.Y.), on reargument, 491 F.Supp. 538 (S.D.N.Y.1980), aff'd, 642 F.2d 31 (2d Cir.), cert. denied, 452 U.S. 960, 101 S.Ct. 3108, 69 L.Ed.2d 971 (1981); Teltronics Services, Inc. v. LM Ericsson Telephone Co., No. 79 Civ. 1233, slip op. (S.D.N.Y. May 9, 1979). They will be summarized only briefly here. Ericsson, which was the chief supplier of equipment to Teltronics and became the principal creditor of the bankrupt corporation, allegedly misled the latter into believing that an interest payment due at the end of February, 1979, need not be made. When Teltronics failed to make the payment, a default was declared and Ericsson, guarantor of various bank loans to Teltronics, paid the loans and promptly began an action against Teltronics in the New York State courts to recover its payments.

Teltronics, alleging that the default was fictitious and engineered by Ericsson in order to take over its business, commenced an action in the United States District Court for the Southern District of New York. This action was dismissed by Judge Knapp when he granted a Fed.R.Civ.P. 12(b)(6) motion made by the defendants. Teltronics Services, Inc. v. LM Ericsson Telephone Co., No. 79 Civ. 1233, slip op. (S.D.N.Y. May 9, 1979). No appeal was taken from this dismissal.

Three months after this judgment was entered, when the time to appeal therefrom had lapsed, Teltronics filed a second action in the District Court for the Southern District of New York, based on the same course of conduct alleged in the first action. This second action was assigned to Judge Lasker, who recognized that the action presented res judicata difficulties because of the earlier Southern District disposition. Nevertheless, Judge Lasker initially determined that, under the circumstances, equitable considerations weighed in favor of reaching the merits. 486 F.Supp. 836.

While this second Southern District action was pending before Judge Lasker, on September 18, 1979, a bankruptcy proceeding was initiated by the creditors of Teltronics. Subsequent events in that proceeding, including Bankruptcy Judge Goetz's adjudication of Teltronics as a bankrupt and her determination that assets of the bankrupt estate were improperly being used to finance the Southern District litigation, caused Bankruptcy Judge Goetz to appoint a trustee for the bankrupt estate and prompted Judge Lasker to hear reargument of his earlier decision not to apply res judicata to bar the action. On reargument, the district court dismissed the action Based on the same facts alleged in the two prior Southern District actions, the Trustee sought to assert a claim in the bankruptcy court for equitable subordination of Ericsson's claims against the bankrupt. On Ericsson's motion for summary judgment, however, Bankruptcy Judge Goetz ruled that the claim was barred by the earlier adverse determinations in the Southern District actions. The Trustee appealed to the district court. Judge Neaher reversed, 81 CV 2126, holding that the Trustee was barred from litigating only what was actually litigated in the earlier actions; that the Trustee was not in privity with Teltronics; and that Ericsson, as the moving party, had failed to show the absence of genuine issues of fact. Accordingly, the decision of the bankruptcy court was reversed and the claim was remanded to that court for determination on the merits. LM Ericsson Telecommunications, Inc. v. Teltronics Services, Inc. (In re Teltronics Services, Inc.), 18 B.R. 705 (E.D.N.Y.1982). 3

                on res judicata grounds.  The Trustee, now handling the affairs of the bankrupt, appealed.  This Court affirmed, 2 and certiorari was denied by the United States Supreme Court.   Teltronics Services, Inc. v. LM Ericsson Telecommunications, Inc., 491 F.Supp. 538 (S.D.N.Y.1980), aff'd, 642 F.2d 31 (2d Cir.), cert. denied, 452 U.S. 960, 101 S.Ct. 3108, 69 L.Ed.2d 971 (1981)
                

On remand, Bankruptcy Judge Goetz recused herself, and the matter was reassigned to Chief Bankruptcy Judge Parente. There followed a twenty-day trial of the action. Judge Parente, in an exhaustive opinion, ruled in favor of Ericsson, finding that no misconduct had taken place, and therefore that equitable subordination was not warranted. Anaconda-Ericsson, Inc. v. Hessen (In re Teltronics Services, Inc.), 29 B.R. 139 (Bankr.E.D.N.Y.1983). The Trustee appealed to the District Court for the Eastern District of New York. Before the appeal was argued, however, the Trustee on behalf of the bankrupt Teltronics, and Ericsson, its adversary and principal creditor, reached a settlement.

This settlement was challenged by other creditors of the bankrupt, appellants Rand and Frese. However, Bankruptcy Judge Goetz, who accepted reassignment of the case, approved it. Rand and Frese appealed to the district court, and Judge Neaher ruled, 83 CV 4209, 83 CV 4210, that the settlement was reasonable and acceptable. This ruling is on appeal before us in No. 84-5028.

The other appeal before us, No. 84-7522, is brought by Beagan, in his individual capacity, and purportedly by Teltronics as well. They appeal from Judge Neaher's grant of summary judgment in favor of the defendants in an action filed in the District Court for the Eastern District of New York, 83 CV 1401, alleging essentially the same facts as were alleged in the two previous Southern District actions, but adding allegations of ongoing interference with the business affairs of Beagan. Judge Neaher's decision is reported at 587 F.Supp. 724 (E.D.N.Y.1984). Also alleged is the existence of "new evidence" warranting a re-opening of the two prior Southern District actions.

Against this background, and somewhat convoluted procedural history, we consider the arguments raised on appeal.

DISCUSSION
A. No. 84-5028--The Rand and Frese Appeal

Teltronics' bankruptcy proceeding was commenced in September 1979, before the October 1, 1979 effective date of the new Bankruptcy Code, and therefore is governed by the old Bankruptcy Act, 11 U.S.C. Secs. 1-1255 (1976). See Act of Nov. 6, 1978, Pub.L. No. 95-598, Secs. 402(a), 403(a), 92 Stat. 2682. Rand and Frese, creditors of the bankrupt, argue in No. 84-5028 that the district court erred by failing to review de novo the findings made by the bankruptcy court in approving the settlement. This argument is without merit when urged under the old Bankruptcy Act. Furthermore, it overlooks the distinction between a judgment rendered by the bankruptcy court in an adversary proceeding, and an approval by that court of a settlement that the parties have reached themselves. This Court held in 1939 that under the old Act, the approval of a settlement in a bankruptcy proceeding is committed to the sound discretion of the bankruptcy court, and may not be set aside except upon a showing of plain error or abuse of discretion. In re Prudence Co., 98 F.2d 559 (2d Cir.1938), cert. denied, 306 U.S. 636, 59 S.Ct. 485, 83 L.Ed. 1037 (1939). As recently as two years ago, we reaffirmed that position. We held that under the old Act, the "responsibility of the bankruptcy judge, and ours upon review, is not to decide the numerous questions of law and fact raised by appellants but rather...

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