                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-6-2004

In Re: US Mineral
Precedential or Non-Precedential: Non-Precedential

Docket No. 04-1363




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                                                  NOT PRECEDENTIAL

         UNITED STATES COURT OF APPEALS
              FOR THE THIRD CIRCUIT
                     ________

                 NO. 04-1363 and 04-1433
                       _________

 IN RE: UNITED STATES MINERAL PRODUCTS COMPANY,
                 a Delaware Corporation
                           d/b/a
                  Isolatek International,
                                 Debtor

    UNITED STATES MINERAL PRODUCTS COMPANY,
                a Delaware Corporation
                         d/b/a
                 Isolatek International

                             v.

 OFFICIAL COMMITTEE OF ASBESTOS BODILY INJURY AND
PROPERTY DAMAGE CLAIMANTS; LEGAL REPRESENTATIVE

        *ROBERTA A. DEANGELIS, Acting Trustee
          (*Amended - Per Clerk's Order 3/18/04)

          United States Mineral Products Company
                    Appellant No. 04-1363

                     James P. Verhalen,
                     Appellant No. 04-1433


        Appeals from the United States District Court
                  for the District of Delaware
                (D.C. Civil No. 03-cv-00956)
         District Judge: Honorable Sue L. Robinson


                   Argued May 27, 2004
                    Before: RENDELL and COWEN, Circuit Judges,
                           and SCHW ARZER*, District Judge

                                    (Filed August 6, 2004 )


J. Gregg Miller    [ARGUED]
Pepper Hamilton
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103
Counsel for Appellant No. 04-1363
   United States Mineral Products Company

Ian C. Bifferato
Bifferato, Bifferato & Gentilotti
1308 Delaware Avenue
P. O. Box 2165
Wilmington, DE 19899

James N. Lawlor    [ARGUED]
Wollmuth, Maher & Deutsch
One Gateway Center, 9th Floor
Newark, NJ 07102
Counsel for Appellant No. 04-1433
  James P. Verhalen, LLC

John J. Preefer [ARGUED]
60 East 42nd Street
New York, NY 10165

Frederick B. Rosner
Jaspan Schlesinger Hoffman
1201 North Orange Street, Suite 1001
Wilmington, DE 19801
Counsel for Appellee
   Official Committee of Asbestos Bodily Injury and
   Property Damage Claimants
____________________

  *    The Honorable William W Schwarzer, Judge of the United States District Court
       for the Northern District of California, sitting by designation.


                                              2
Michael L. Temin [ARGUED]
Wolf, Block, Schorr & Solis-Cohen
1650 Arch Street, 22nd Floor
Philadelphia, PA 19103
Counsel for Appellee,
    Legal Representative

Richard L. Schepacarter
U. S. Department of Justice
Office of the Trustee
844 King Street
Suite 2207, Lockbox 35
Wilmington, DE 19801

Robert M. Loeb
Tara Leigh Grove [ARGUED]
U.S. Department of Justice
Civil Division, Appellate Staff
Room 9149
601 D Street, N.W.
Washington, DC 20530

Frank J. Perch, III
U.S. Department of Justice
Office of the Trustee
844 King Street
Suite 2207, Lockbox 35
Wilmington, DE 19801
Counsel for Appellee
  Roberta A. Deangelis, Acting Trustee

                                      ____________

                               OPINION OF THE COURT
                                    ____________

PER CURIAM.

       In this appeal, the debtor and its principal challenge the Bankruptcy Court’s “sua

sponte” appointment of a trustee, based upon statutory, constitutional, and evidentiary



                                             3
grounds. We have jurisdiction pursuant to 29 U.S.C. §§ 158(d) and 1291, and we review

the Bankruptcy Court’s decision to appoint a trustee for abuse of discretion. In re Marvel

Entm’t Group, Inc., 140 F.3d 463, 470 (3d Cir. 1998). The Bankruptcy Court’s legal

determinations are reviewable de novo, and findings of fact are reviewed for clear error.

In re Trans World Airlines, Inc., 145 F.3d 124, 130 (3d Cir. 1998). We find no abuse of

discretion, and no legal or factual error here. Therefore, we will affirm.

                                              I.

       Specifically, the debtor and Verhalen raise the following interrelated issues: 1)

whether the Bankruptcy Court lacked the authority to “sua sponte” appoint a trustee under

the provisions of 11 U.S.C. § 1104(a)(2); 2) whether the Bankruptcy Court violated due

process principles by appointing a Chapter 11 trustee without providing the parties with

notice and an opportunity to be heard; and 3) whether there was insufficient evidence in

the record to support the Bankruptcy Court’s resort to the extraordinary remedy of

appointing a trustee. We answer each of these questions in the negative.

                                             II.

       While legal principles no doubt animate our decision making, our conclusion in

this case is uniquely fact-based. The parties are familiar with the circumstances

surrounding these proceedings, so we will recite only those facts that we find to be

particularly relevant to our determination. The debtor filed for Chapter 11 relief on July

23, 2001, in order to alleviate present and future asbestos liability. The debtor retained



                                              4
exclusivity and submitted several plans to the Asbestos Committee beginning in March

2002; the Asbestos Committee also proposed plans to the debtor. At a July 31, 2003

hearing to consider the debtor’s request to extend exclusivity, the debtor suggested “that it

be put up for sale at an auction to break a deadlock among constituents.” At that hearing

the Bankruptcy Court stated:

       Here’s what I’m going to do. If you can’t come up with a consensual plan
       by the end of August, I’m going to appoint a Chapter 11 Trustee in this case
       who can sell the company and prepare a plan and file and go forward with
       it. That’s what I’m going to do.

       So, exclusivity remains in place, but it won’t matter at the end of August if
       you don’t have a consensual plan because I’m going to appoint a trustee if
       you don’t get one. That won’t help anybody.

       The debtor never challenged the Bankruptcy Court’s authority for appointing a

trustee or the factual basis for doing so. However, it did contend that a trustee was not

needed and, if appointed, the trustee should have limited powers. The statement filed by

the United States Trustee indicated:

               The UST has observed with dismay that this case has been highly
       contentious and that the parties have engaged in a great deal of bickering on
       the record that has likely generated professional fees far disproportionate to
       the value of the assets at stake. The observation of the Asbestos Claimants’
       Committee that significant unsecured credits were not originally scheduled,
       while it is cause for concern as to the Debtor’s diligence and care in
       preparing its Schedules and noticing interested parties of the case, also
       serves to emphasize further that the anticipated return to creditors, asbestos
       as well as non-asbestos, declines with each dollar expended on further
       litigation of the type that has occurred all too frequently to date in this case.
       The UST believes that in the absence of reason to believe that this pattern
       will change, it may be in the best interests of creditors and the estate to
       appoint a disinterested trustee with full plenary power to manage the estate

                                              5
       and move the case forward.
              ....
              The UST is concerned about the conflict that will result if the
       Debtor’s president and principal shareholder, James Verhalen, intends in
       any sale process to make an offer to buy the company (as the Asbestos
       Committee alleges), and Mr. Verhalen will simultaneously be the client
       directing the Debtor’s relationship with the investment bankers marketing
       the company. This could result in Mr. Verhalen being on both sides of the
       transaction.

       The Bankruptcy Court held another hearing on August 27, 2003, during which the

Court announced that it would order the appointment of a Chapter 11 trustee based on the

length of time the proceedings had been pending, the size of the case, the contentious and

acrimonious nature of the relationships among the parties, the lack of trust, the lack of

progress, and the need for a neutral party to “maximize value and construct a plan . . .

acceptable to creditors.” The United States Trustee appointed a Chapter 11 trustee on

September 16, 2003.

                                              III.

       The debtor and its principal call on pristine legal principles in a fact pattern that is

anything but pristine. Their objection to the Bankruptcy Court’s appointment of a trustee

“sua sponte” is based on their allegation that the Bankruptcy Code requires a party in

interest to first request such appointment. But we simply are not required to invalidate

the Bankruptcy Court’s conduct here when no party ever challenged its authority to raise

the issue the way it did, and where the United States Trustee essentially filed a suggestion

– a statement that could easily be viewed in this context as a “request” – that a trustee be



                                               6
appointed. Furthermore, the requirement that actions under § 1104(a) are only taken at

the request of parties in interest has been severely diluted by the passage of the

amendment to § 105 of the Bankruptcy Code in 1984, whereby the sua sponte raising of

various issues by the Bankruptcy Court is permissible. See In re Bibo, Inc., 76 F.3d 256,

258 (9th Cir. 1996); 7 Collier on Bankruptcy ¶ 1104.02[2][b] (15th rev. ed. 2004). Under

these circumstances, we cannot find that the Bankruptcy Court erred as a matter of law.

       The constitutional challenge based on lack of notice and hearing is similarly

lacking in merit, as the Bankruptcy Court did give notice nearly one month prior to the

August 27, 2003 hearing, and there was ample opportunity for the parties to be heard.

And lastly, we think that the evidentiary basis for the appointment was sufficient. The

Bankruptcy Code provides that the court shall order the appointment of a trustee “if such

appointment is in the interests of creditors, any equity security holders, and other interests

of the estate.” 11 U.S.C. § 1104(a)(2). In considering what is in the interests of creditors

in connection with such a motion, “a bankruptcy judge has broad discretion to take

judicial notice of the entire file as to what has or has not been filed and the outcome of

previous proceedings brought before the court.” Barry Russell, Bankruptcy Evidence

Manual § 201.6 (2004).

       Here, the facts outlined above, considered in light of our case law, provide ample

support for the Bankruptcy Court’s actions. See, e.g., Marvel, 140 F.3d at 473 (upholding

the appointment of a trustee where there was “deep-seeded conflict and animosity”



                                              7
between the parties). Appellants have not challenged the Bankruptcy Court’s, or the

appellees’, characterizations of the status of the proceedings or the relationships among

the parties; rather, they only question whether the conditions described were sufficient, as

a matter of law, to warrant the appointment of a trustee. We conclude that they were.

Accordingly, we find that there was no abuse of discretion.

                                            IV.

       For the reasons stated above, we will affirm the Order of the District Court

upholding the Bankruptcy Court’s decision to appoint a trustee.




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