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. e du/thir dc ir c uit_1999/332Filed December 29, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 99-5319 & 99-5382

IN RE: SGL CARBON CORPORATION, Debtor

OFFICIAL COMMITTEE OF UNSECURED CREDITORS, Appellant at No. 99-5319

v.

NUCOR CORPORATION; NUCOR-YAMATO STEEL COMPANY, Appellants at No. 99-5382

On Appeal from the United States District Court

for the District of Delaware

D.C. Civil Action No. 98-cv-02779 (Honorable Joseph J. Farnan, Jr.)

Argued July 29, 1999

Before: SCIRICA and McKEE, Circuit Judges, and BROTMAN, District Judge*

(Filed: December 29, 1999)

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* The Honorable Stanley S. Brotman, United States D istrict Judge for the District of New Jersey, sitting by designation.PHILIP BENTLEY, ESQUIRE

(ARGUED)

KENNETH H. ECKSTEIN, ESQUIRE Kramer, Levin, Naftalis & Frankel

919 Third Avenue New York, New York 10022

TERESA K.D. CURRIER, ESQUIRE Duane, Morris & Heckscher 1201 Market Street, Suite 1500

P.O. Box 195 Wilmington, Delaware 19899

Attorneys for Appellant/Cross- Appellee, Official Committee of

Unsecured Creditors

JAMES J. RODGERS, ESQUIRE (ARGUED) Dilworth, Paxson, Kalish

& Kauffman

1735 Market Street

3200 The Mellon Bank Center Philadelphia, Pennsylvania 19103

MICHAEL D. RIDBERG, ESQUIRE Ridberg, Press & Sherbill Three Bethesda Metro Center,

Suite 650 Bethesda, Maryland 20814

Attorneys for Appellants, Nucor Corporation; Nucor-Yamato Steel Company

2GEORGE J. WADE, ESQUIRE

(ARGUED) Shearman & Sterling 599 Lexington Avenue New York, New York 10022

LAURA D. JONES, ESQUIRE Young, Conaway, Stargatt & Taylor

P.O. Box 391 Rodney Square North, 11th Floor Wilmington, Delaware 19899-0391

Attorneys for Appellee, SGL Carbon Corporation

OPINION OF THE COURT

SCIRICA, Circuit Judge.

The issue on appeal is whether, on the facts of thi s case, a Chapter 11 bankruptcy petition filed by a financi ally healthy company in the face of potentially signific ant civil antitrust liability complies with the requirements of the Bankruptcy Code. In this case, the Official Committ ee of Unsecured Creditors of SGL Carbon Corporation appea ls the District Court's order denying its motion to di smiss SGL Carbon's Chapter 11 bankruptcy petition on bad fait h grounds.

This case also presents the threshold issue whether we will adopt a "good faith" requirement for Chapter 1 1 petitions. We will. After undertaking the fact inte nsive analysis inherent in the good faith determination, we conclude that SGL Carbon's Chapter 11 petition lack s a valid reorganizational purpose and, therefore, lack s the requisite good faith. We will reverse.

I.

SGL Carbon is a Delaware corporation that manufactu res and sells graphite electrodes used in steel product ion.1 In

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1. SGL Carbon Corp. is a wholly-owned subsidiary of SGL Aktiengesellschaft (SGL AG), a German corporation. SGL Carbon Corp. is

31997, the United States Department of Justice comme nced

an investigation of alleged price-fixing by graphit e electrode manufacturers, including the SGL Carbon Group.2 Soo n thereafter, various steel producers filed class act ion

antitrust lawsuits in the United States District Co urt for the Eastern District of Pennsylvania against SGL Ca rbon and other graphite electrode manufacturers. The Dis trict Court consolidated the cases into a single class ac tion and certified a class under Fed. R. Civ. P. 23(b)(3) co nsisting of all United States purchasers of graphite electrodes between 1992 and 1997. Many class members opted out of the class before the November 28, 1998 opt-out deadline and subsequently filed or threatened to file separate a ntitrust lawsuits. Since the class certification, six compla ints have been filed in federal district court and one compla int has

been filed in a Canadian court.

In June 1998, SGL Carbon's German parent SGL AG recorded a charge in Deutschmarks of approximately $240

million as its "best estimate" of the SGL Carbon Gr oup's3 potential liability in the criminal and civil antit rust litigation.4

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comprised of two "business units"--the North Americ an Carbon/ Graphite unit, which is of primary interest here, a nd the specialty

carbon unit.

2. In May 1999, SGL AG (SGL Carbon's parent) and it s chairman Robert Koehler each pled guilty to several criminal antitr ust charges and agreed to pay fines of $135 million and $10 million respec tively. It is important to note that the guilty pleas and the payment of th e criminal fines by the parent company occurred after the filing of the Cha pter 11 petition and

the District Court's denial of the motion to dismis s.

3. According to the stipulated facts, "[t]he SGL CA RBON Group has more than 28 manufacturing facilities in 10 countries an d has sales in more than 90 countries. The SGL CARBON Group is the larg est manufacturer of carbon and graphite products in the world and th e second largest manufacturer of graphite electrodes. The North Amer ican Carbon/Graphite Business Unit is one of two busines s units of the Debtor. The North American Carbon/Graphite Business Unit operates only in the United States and Canada." Stipulation of Facts, No. 98B2779, at *1. It is important to note, therefore, th at SGL Carbon Corp. is only one part of the SGL Carbon Group.

4. Although the record does not reflect the amount by which the $240 million reserve was increased by SGL AG subsequent to its guilty plea and accompanying fine, the parties have indicated t hat the reserve was increased. It is significant that, at the time of S GL Carbon's Chapter 11 petition, the $240 million reserve was in place and untouched.

4On December 16, 1998, at the direction of SGL AG, S GL

Carbon filed a voluntary Chapter 11 bankruptcy peti tion in

the United States District Court for Delaware. In S GL Carbon's Disclosure Statement, in a section address ing "Factors Leading to [the] Chapter 11 Filing," SGL C arbon only discussed the antitrust litigation. The bankru ptcy filing contained a proposed reorganization plan und er which only one type of creditor would be required t o accept less than full cash payment for its account, namely the antitrust plaintiffs who obtained judgments against SGL Carbon. Under the plan, potential antitrust judgmen t creditors would receive credits against future purc hases of SGL Carbon's product valid for 30 months following the plan's confirmation. The proposed plan also bars an y claimant from bringing an action against SGL Carbon 's affiliates, including its parent SGL AG, "based on, relating to, arising out of, or in any way connected with" t heir claims against SGL Carbon.

The next day, on December 17, in a press release, S GL Carbon explained it had filed for bankruptcy "to pr otect itself against excessive demands made by plaintiffs in civil antitrust litigation and in order to achieve an exp editious resolution of the claims against it." The press rel ease also

stated:

SGL CARBON Corporation believes that in its case Chapter 11 protection provides the most effe ctive and efficient means for resolving the civil anti trust claims.

. . .

. . . .

"SGL CARBON Corporation is financially heal thy," said Wayne T. Burgess, SGL CARBON Corporatio n's president. "If we did not face [antitrust] c laims for such excessive amounts, we would not have had to file for Chapter 11. We expect to continue our normal business operations."

. . . .

However, because certain plaintiffs continu e to make excessive and unreasonable demands, SGL CARB ON Corporation believes the prospects of ever r eaching a

5commercially practicable settlement with the m are

remote. After much consideration, SGL CARBON Corporation determined that the most appropr iate

course of action to address the situation wi thout harming its business was to voluntarily file for chapter 11 protection.

. . . .

Contemporaneous with the press release, SGL AG Chairman Robert Koehler conducted a telephone confe rence call with securities analysts, stating that SGL Car bon was "financially healthier" than before and denying the antitrust litigation was "starting to have a material impact on [SGL Carbon's] ongoing operations in the sense that . . . [it was] starting to lose market share." He also stated that SGL Carbon's Chapter 11 petition was "fairly innovative [and] creative" because "usually Chapter 11 is used as pr otection against serious insolvency or credit problems, whic h is not the case [with SGL Carbon's petition]."

Two weeks after SGL Carbon filed its petition and i ssued the press release, the United States Trustee formed a nine

member Official Committee of Unsecured Creditors. E ight of the committee members are antitrust plaintiffs; two of the eight serve as class representatives and the other six have opted out of the class.5 In January 1999, the Commi ttee filed a motion to dismiss SGL Carbon's bankruptcy p etition on the grounds that it was a "litigation tactic des igned to frustrate the prosecution of the civil antitrust cl aims pending against [SGL Carbon] and preserve[SGL Carbo n's] equity from these claims." In re SGL Carbon Corp., 233 B.R. 285, 287 (D. Del. 1999).

The District Court held a hearing on the motion on February 17, 1999.6 Neither side presented witnesse s. The evidence was entirely documentary or deposition tes timony, including the deposition of SGL Carbon's Vice Presi dent Theodore Breyer, who directs the company's graphite electrode business in the United States. In his dep osition, Breyer testified that SGL Carbon was financially he althy,

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5. The ninth Committee member is a trade creditor-- Conoco, Inc.

6. SGL Carbon's case was not referred to a bankrupt cy court.

6having no overdue debts when it filed its Chapter 1 1

petition. Breyer stated that he recommended filing for bankruptcy because he believed SGL Carbon "could no t expeditiously settle with the [antitrust] plaintiff s" absent Chapter 11 protection. Acknowledging that bankruptc y protection was the "sole reason" SGL AG's Executive Committee had authorized the Chapter 11 petition, B reyer testified that he believed filing for Chapter 11 wo uld "change the negotiating platform" with plaintiffs a nd "increase the pressure on . . . plaintiffs to settl e."

The District Court denied the Committee's motion to dismiss on April 23, 1999 assuming, without decidin g, that 11 U.S.C. S 1112(b) imposes a duty of good faith up on bankruptcy petitioners. It further assumed this dut y requires the proposed reorganization to further wha t it characterized as Chapter 11's purpose: " `to restru cture a business's finances so that it may continue to oper ate, provide its employees with jobs, pay its creditors and produce a return for its stockholders.' " SGL Carbo n Corp., 233 B.R. at 288 (quoting H.R. Rep. No. 595 (1977) r eprinted in 1978 U.S.C.C.A.N. 6179). The court made nofindin gs that SGL Carbon filed for bankruptcy for reasons ot her than to improve its negotiating position with plain tiffs. But the court concluded the petition furthered the purp ose of Chapter 11 because plaintiffs' litigation was imper iling SGL Carbon's operation by distracting its management, w as potentially ruinous and could eventually force the company out of business. The court explained that

[t]he distractions of the litigation pose a serious threat to the continued successful operations of [S GL Carbon]. Further, the potential liability fa ced by [SGL Carbon] could very well force it out of busi ness. Consistent with the policies and purposes of Chapter 11 which encourage early filing so as to inc rease the possibility of successful reorganization, th e Court will not allow [SGL Carbon] to wait idly by for i mpending financial and operational ruin, when [SGL Ca rbon] can take action now to avoid such a consequence.

SGL Carbon Corp., 233 B.R. at 291.

The Committee has appealed.

7II.

The District Court had jurisdiction over this bankr uptcy case under 28 U.S.C. S 1334(a). We have jurisdictio n under 28 U.S.C. S 1291. See In re Brown, 916 F.2d 120, 12 4 (3d Cir. 1990) (holding that order denying motion to di smiss a bankruptcy petition is "final" under 28 U.S.C.S 129 1).

We have not yet had occasion to decide what standar d of review to apply to a dismissal of a Chapter 11 peti tion. Consistent with the other courts of appeals to cons ider the issue, we believe this decision is committed to the sound discretion of the bankruptcy or district court and will review for abuse of discretion. See, e.g., Leavitt v. Soto (In re Leavitt), 171 F.3d 1219 (9th Cir. 1999) (reviewi ng for abuse of discretion);7 In re Abijoe Realty Corp., 9 43 F.2d 121, 128 (1st Cir. 1991) (same). Mindful that "an a buse of

discretion exists where the district court's decisi on rests upon a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of la w to fact," ACLU v. Black Horse Pike Reg'l Bd. of Ed., 8 4 F.3d 1471, 1476 (3d Cir. 1996) (internal quotations omit ted), we review the findings of fact leading to the decision for clear error and exercise plenary review over the court's conclusions of law. See First Jersey Nat'l Bank v. Brown (In re Brown), 951 F.2d 564, 567 (3d Cir. 1991). See al so Leavitt, 171 F.3d at 1222 (applying differing stand ards of review to different components of good faith/bad fa ith determination); Abijoe Realty Corp., 943 F.2d at 12 8 (same).

III.

11 U.S.C. S 1112(b) governs the dismissal or conver sion of Chapter 11 petitions. It provides in part:

[T]he court may convert a case under [Chapte r 11] to a case under Chapter 7 . . . or may dismiss a case under this chapter, whichever is in the best interest of creditors and the estate, for cause . . . .

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7. Although In re Leavitt addressed a good faith de termination regarding a Chapter 13 bankruptcy petition, there is no signi ficant distinction between Chapter 11 and Chapter 13 petitions with re spect to the appropriate standard of review.

811 U.S.C. S 1112(b).

The statute provides for dismissal for cause, if it is in the

best interest of the creditors and the estate. Conv ersion is not an option here.8 We will determine whether ther e is

cause for dismissal.

A.

The threshold issue is whether Chapter 11 petitions may be dismissed for "cause" under 11 U.S.C. S 1112(b) if not filed in good faith. Although we have not squarely addressed this issue, we implied in First Jersey Na t'l Bank v. Brown (In re Brown), 951 F.2d 564 (3d Cir. 1991) , that Chapter 11 imposes a good-faith obligation. In Brow n, we considered evidence of bad faith in reviewing the d ismissal of a Chapter 11 petition, but concluded "the eviden ce . . . of bad faith . . . was not strong enough for us to say that

it was established as a matter of law." Id. at 572. Because Brown focused on the adequacy of the record for mak ing a good faith/bad faith determination, we did not expr essly

address whether "bad faith" constituted cause for dismissal. In this case, we make clear what we impl ied in

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8. In other circumstances, deciding a motion to dis miss under 11 U.S.C. S 1112(b), may involve a two-step process offirst d eciding whether there is cause and then deciding whether to dismiss or co nvert. See Rollex v. Associated Materials, Inc. (In re Superior Siding & Window, Inc.), 14 F.3d 240, 242 (4th Cir. 1994). That procedure is underst andable when applied to the statutory bases for finding cause th at turn on the impossibility of Chapter 11 relief. See 11 U.S.C. S 1112(b). The same is not necessarily true in all bad faith cases. Two fo rms of bad faith can make a Chapter 11 petition objectionable. One invol ves either pre- or post-petition misconduct by the debtor. In such cas es, where the debtor otherwise properly belongs in bankruptcy, dismissal need not always follow from a finding of bad faith stemming from su ch misconduct. See 7 Collier on Bankruptcy 1112-70 (15th ed. 1996) ("[ I]n many circumstances, the court might be better advised to address the bad conduct of the debtor (or some other party) in a ma nner other than through dismissal of the proceedings."). In bad fai th cases involving the filing of a petition that is an abuse of the bankru ptcy process, however, S 1112(b)'s conversion/dismissal choice is inapprop riate. The proponent of an abusive petition does not belong in bankruptc y so it is unnecessary

to ask whether dismissal or conversion is in the in terest of the

creditors.

9Brown--Chapter 11 bankruptcy petitions are subject to

dismissal under 11 U.S.C. S 1112(b) unlessfiled in good

faith.

Four factors guide our adoption of a good faith sta ndard --the permissive language of S 1112(b), viewed in l ight of its legislative history; the decisions of our sister co urts of appeals; the equitable nature of bankruptcy; and th e purposes underpinning Chapter 11.

We begin with 11 U.S.C. S 1112(b), which allows the court to dismiss or convert a Chapter 11 petition f or cause

including--

(1) continuing loss to or diminution of the es tate

and absence of a reasonable likelihood of rehabilitation;

(2) inability to effectuate a plan;

(3) unreasonable delay by the debtor that i s prejudicial to the creditors;

(4) failure to propose a plan [of reorganiz ation] within any time fixed by the court;

(5) denial of confirmation of every propose d plan and denial of a request made for additional time for filing another plan or a modification of a p lan;

(6) revocation of an order of confirmation u nder section 1144 of this title, and denial of co nfirmation of another plan or a modified plan under sec tion 1129 of this title;

(7) inability to effectuate substantial consummation of a confirmed plan;

(8) material default by the debtor with res pec t to a confirmed plan;

(9) termination of a plan by reason of the occurrence of a condition specified in the p lan; or

(10) nonpayment of any fees or charges requ ire d under chapter 123 of title 28.

11 U.S.C. S1112(b). As many courts and commentators have noted, this language neither requires nor proh ibits

10imposition of a "good faith" requirement on Chapter 11

petitions. But we have noted the provision that"cau se" "includ[es]" the ten enumerated factors strongly su ggests

those factors are not exhaustive and that a court m ay consider whether other facts and circumstances qual ify as "cause." See Brown, 951 F.2d at 572; 7 Collier on Bankruptcy at 1112-20. That interpretation of S 111 2(b) is strengthened by the statute's legislative history, which provides in part:

[The] list [contained in S 1112(b)] is not e xhaustive. The

court will be able to consider other factors as they arise, and to use its equitable powers to re ach an appropriate result in individual cases.

H.R.Rep. No. 595, at 405, reprinted in 1978 U.S.S.C .A.N. 5963, 6362. The Bankruptcy Code's rules of construc tion, which provide that "include" and "including" are no t limiting terms, also support an expansive reading o f S 1112(b). See 11 U.S.C. S 102(3). Section 1112(b), by its terms, therefore, does not preclude consideration o f unenumerated factors in determining "cause."

We also note the courts of appeals that have consid ered the issue have held that the absence of good faith constitutes "cause" to dismiss a Chapter 11 petitio n under S 1112(b). See, e.g., Trident Assocs. Ltd. Partners hip v. Metropolitan Life Ins. Co. (In re Trident Assocs. L td. Partnership), 52 F.3d 127, 130 (6th Cir. 1995); Mar sch v. Marsch (In re Marsch), 36 F.3d 825, 828 (9th Cir. 1 994); Humble Place Joint Ventures v. Foray (In re Humble Place Joint Venture), 936 F.2d 814, 816 (5th Cir. 1991); First Nat'l Bank of Sioux City v. Kerr (In re Kerr), 908 F.2d 4 00, 404 (8th Cir. 1990); Phoenix Piccadilly, Ltd. v. Life I ns. Co. (In re Phoenix Piccadilly, Ltd.), 849 F.2d 1393, 1394 (11t h Cir. 1988). In addition, several other courts of appeals have concluded that Chapter 11 imposes a general good fa ith requirement under which petitions can be dismissed for bad faith. See, e.g., C-TC 9th Ave. Partnership v. Norton Co. (In re C-TC 9th Ave. Partnership), 113 F.3d 1304 (2 d Cir. 1997); Carolin Corp. v. Miller, 886 F.2d 693, 698 ( 4th Cir. 1989); Connell v. Coastal Cable T.V., Inc. (In re C oastal Cable T.V., Inc.), 709 F.2d 762, 764 (1st Cir. 1983 ) (Breyer, J.). Numerous district and bankruptcy courts have r eached

11the same conclusion under either or both approaches . See

Carlos J. Cuevas, Good Faith and Chapter 11: Standa rd that Should Be Employed to Dismiss Bad Faith Chapte r 11 Cases, 60 Tenn. L. Rev. 525 (1993).9

The "good faith" requirement for Chapter 11 petitio ners has strong roots in equity. The court in In re Vict ory Construction Co., Inc., in first articulating the g ood faith requirement under the current Bankruptcy Code, highlighted the equitable nature of the doctrine wh en it explained:

Review and analysis of [the bankruptcy laws and relevant cases] disclose a common theme and objective [underlying the reorganization provisions]: avoidance of the consequences of economic dismemberment a nd liquidation, and the preservation of ongoing values in a manner which does equity and is fair to righ ts and interests of the parties affected. But the p erimeters of this potential mark the borderline between f ulfillment and perversion; between accomplishing the ob jectives of rehabilitation and reorganization, and th e use of these statutory provisions to destroy and un dermine the legitimate rights and interests of those intended to benefit by this statutory policy. That borde rline is patrolled by courts of equity, armed with th e doctrine of "good faith" . . . .

9 B.R. 549, 558 (Bankr. C.D. Calif. 1981) order sta yed Hadley v. Victory Construction Co., Inc. (In re Vic tory Construction Co., Inc.), 9 B.R. 570 (Bankr. C.D. Ca lif. 1981). A debtor who attempts to garner shelter under the Bankruptcy Code, therefore, must act in conformity with the Code's underlying principles. See Little Creek Dev. Co. v. Commonwealth Mortgage Corp. (In re Little Creek Dev. Co.), 779 F.2d 1068, 1076 (5th Cir. 1986) ("[A] goo d faith standard protects the jurisdictional integrity of t he bankruptcy courts by rendering their equitable weap ons

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9. We need not dwell on the fine distinctions betwe en the two closely related approaches. See 7 Collier on Bankruptcy at 1112-62-1112-64. Despite analytic differences, the conclusion of eve ry court of appeals to address the issue is clear--Chapter 11 petitions mu st be filed in good faith or they are subject to dismissal.

12. . . available only to those debtors and creditors with `clean

hands.' "); see also 7 Collier on Bankruptcy at 111 2-68 ("Another basic underpinning of the good faith doct rine is the equitable concept of `clean hands.' As a genera l matter, bankruptcy relief is equitable in nature, and, as a general rule, equitable remedies are not available to any p arty who fails to act in an equitable fashion.").

Finally, we believe a good faith requirement is sup ported by the purposes underlying Chapter 11. As the Court of Appeals for the Fifth Circuit noted,

[A good faith standard] furthers the balanci ng process between the interests of debtors and credito rs which characterizes so many provisions of the bank ruptcy laws and is necessary to legitimize the dela y and costs imposed upon parties to a bankruptcy. Requir ement of good faith prevents abuse of the bankruptcy process by debtors whose overriding motive is to delay creditors without benefitting them in any way . . . .

In re Little Creek, 779 F.2d at 1072; see also Caro lin, 886 F.2d at 698 (stating that court's ability to impose good faith requirement is "indispensable to proper accomplishm ent of the basic purposes of Chapter 11 protection").

After considering the language of S 1112(b), its le gislative history, the decisions of other courts of appeals, the equitable nature of bankruptcy proceedings, and the purposes behind Chapter 11, we conclude a Chapter 1 1 petition is subject to dismissal for "cause" under 11 U.S.C. S 1112(b) unless it is filed in good faith.

B.

Having determined that S 1112(b) imposes a good-fai th requirement on Chapter 11 petitions, we consider wh ether SGL Carbon's Chapter 11 petition was filed in good faith.10

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10. Once at issue, the burden falls upon the bankru ptcy petitioner to establish that the petition has been filed in"good faith." See, e.g., In

re Fox, 232 B.R. 229, 233 (Bankr. D. Kan. 1999); Stage I Land Co. v. United States, 71 B.R. 225, 229 (D. Minn. 1986). See also 7 Collier on Bankruptcy at 1112-53 ("[I]f the issue is whether t he petition was filed in good faith, the burden rests on the petitioner." ).

13The requisite fact intensive inquiry requires deter mining

where SGL Carbon's petition falls along the spectru m ranging from the clearly acceptable to the patently abusive. We first review the District Court's findings of fa ct and then examine the totality of facts and circumstances to determine whether they support a finding of good fa ith. See In re Trident, 52 F.3d at 131; In re Marsch, 36 F.3 d at 829; In re Laguna, 30 F.3d at 738.

i.

As discussed in part I, the District Court found SG L Carbon's Chapter 11 petition was filed in good fait h for two reasons: first, because the distractions caused by the antitrust litigation "posed a serious threat to[SGL Carbon's] continued successful operations," and sec ond, because the litigation might result in a judgment t hat could cause the company "financial and operational ruin," SGL was required to file when it did. SGL Carbon, 233 B .R. at 291. Although mindful of the careful consideration given by the able District Court, we believe each of thesefi ndings of fact was clearly erroneous.11

Although there is some evidence that defending agai nst the antitrust litigation occupied some officers' ti me, there is no evidence this "distraction" posed a "serious thr eat" to the company's operational well being. At his deposi tion, Theodore Breyer12 testified the antitrust litigatio n consumed a significant portion of his time. But Breyer also noted the Carbon/Graphite Business Unit had met all of itsfin ancial targets during the nine months preceding filing. Additionally, Breyer testified that only his busine ss unit was heavily involved in the antitrust litigation, r ecognizing that any management distraction effecting the rest of SGL Carbon resulted from the bankruptcy filing and not the antitrust litigation. As noted, SGL AG and SGL Carb on

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11. Although we conclude these findings were clearl y erroneous, we do not hold that under the proper circumstances manage rial distraction and other litigation harms may not constitute facto rs contributing to good faith.

12. As noted, Breyer is the Vice President in charg e of SGL Carbon's North American Carbon/Graphite Business Unit.

14officers insisted the company was financially healt hy

despite the litigation. In addition, SGL AG's Chair man denied that the litigation was having a "material n egative impact on [SGL Carbon's] operations." In light of a ll the evidence, we believe the District Court's finding t o the contrary is mistaken. See United States v. U.S. Gyp sum Co., 333 U.S. 364, 395 (1948).

We also find clearly erroneous that SGL Carbon's Chapter 11 petition was filed at the appropriate ti me to avoid the possibility of a significant judgment tha t "could very well force [SGL Carbon] out of business." Ther e is no evidence that the possible antitrust judgments migh t force SGL Carbon out of business. To the contrary, the re cord is replete with evidence of SGL Carbon's economic stre ngth. At the time of filing, SGL Carbon's assets had a st ipulated book value of $400 million, only $100,000 of which was encumbered. On the date of the petition, SGL Carbon had $276 million in fixed and non-disputed liabilities. Of those liabilities, only $26 million were held by outsider s as the remaining liabilities were either owed to or guaran teed by SGL AG. Although SGL Carbon's parent, SGL AG, recor ded a $240 million charge on its books as "its best est imate of the potential liability and expenses of the SGL Car bon Group in connection with all civil and criminal ant itrust matters," SGL Carbon is only one part of the SGL Ca rbon Group covered by the reserve. Furthermore, at the t ime SGL Carbon filed its petition, that is, before SGL AG paid its $135 million criminal fine, the $240 million re serve was untouched. In documents accompanying its petition, SGL Carbon estimated the liquidation value of the antit rust claims at $54 million. In contrast, no evidence was presented with respect to the amount sought by the antitrust plaintiffs beyond SGL Carbon's repeated characterization of their being "unreasonable."

Whether or not SGL Carbon faces a potentially cripp ling antitrust judgment, it is incorrect to conclude it had to file when it did. As noted, SGL Carbon faces no immediat e financial difficulty. All the evidence shows that m anagement repeatedly asserted the company was financially hea lthy at the time of the filing. Although the District Court believed the litigation might result in a judgment causing " financial

15and operational ruin" we believe that on the facts here, that

assessment was premature. A Chapter 11 petition wou ld impose an automatic stay on all efforts to collect the judgment and would allow the company the exclusive right to formulate a reorganization plan under which the amount of the judgment could be adjusted to allow the comp any to reorganize. SGL Carbon has offered no evidence it c ould not effectively use those protections as the prospect o f such a judgment became imminent.13 The District Court's fi nding that the petition had to be filed at that particula r time to avoid financial ruin and therefore was made in good faith is clearly contradicted by the evidence.

The District Court was correct in noting that the Bankruptcy Code encourages early filing. See SGL Ca rbon,

233 B.R. at 291. It is well established that a debt or need not be insolvent before filing for bankruptcy prote ction. See, e.g., In re The Bible Speaks, 65 B.R. 415, 424 (Ban kr. D. Mass. 1986); In re Talladega Steaks, Inc., 50 B.R. 42, 44 (Bankr. N.D. Ala. 1985). See also Daniel R. Cowans, Bankruptcy Law and Practice (7th ed. 1998) 232. It also is clear that the drafters of the Bankruptcy Code unde rstood the need for early access to bankruptcy relief to a llow a

debtor to rehabilitate its business before it is fa ced with a hopeless situation.14 Such encouragement, however, does not open the door to premature filing, nor does it allow for the filing of a bankruptcy petition that lacks a va lid reorganizational purpose. See, e.g., In re Marsch, 36 F.3d at 838; In re Coastal Cable, 709 F.2d at 764; In re Ra vick Corp., 106 B.R. 834, 843 (Bankr. D.N.J. 1989).

SGL Carbon, therefore, is correct that the Bankrupt cy Code does not require specific evidence of insolven cy for a

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13. The Texaco Corporation's use of the bankruptcy protections is instructive. See In re Texaco, Inc., 84 B.R. 893 (B ank. S.D.N.Y. 1988). Texaco resorted to bankruptcy only after suffering an $11 billion judgment. Even saddled with such a large judgment, bankruptcy provided Texaco a means of reorganizing and continu ing as a going

concern.

14. See, e.g., Alan N. Resnick, Bankruptcy As A Veh icle for Resolving Enterprise-Threatening Mass Tort Liability, 148 U. Pa. L. Rev. ____ (forthcoming 2000) M12.

16voluntary Chapter 11 filing. But SGL Carbon cites n o case

holding that petitions filed by financially healthy companies cannot be subject to dismissal for cause. At any ra te, as we explain more fully, SGL Carbon's ability to meet it s debts is but one of many factors compelling the conclusion i t did not enter Chapter 11 with a valid reorganizational purpose.

We do not hold that a company cannot file a valid Chapter 11 petition until after a massive judgment has been entered against it. Courts have allowed compan ies to seek the protections of bankruptcy when faced with pending litigation that posed a serious threat to t he companies' long term viability. See, e.g., Baker v. Latham Sparrowbush Assocs. (In re Cohoes Indus. Terminal I nc.), 931 F.2d 222 (2d Cir. 1991); In re The Bible Speaks , 65 B.R. 415 (Bankr. D. Mass. 1986); In re Johns-Manvil le, 36 B.R. 727 (Bankr. S.D.N.Y. 1984). In those cases, ho wever, debtors experienced serious financial and/or manage rial difficulties at the time of filing. In Cohoes, the Court of Appeals for the Second Circuit found a good faithfi ling, in part, because "it [was] clear that Cohoes[the debto r] was encountering financial stress at the time it filed its petition . . . ." 931 F.2d at 228. In Bible Speaks, pending litigation had already had an adverse effect on the debtor'sfi nancial well being as it was experiencing "a cash flow prob lem which prevent[ed] it from meeting its current oblig ations," compounded by an inability to obtain financing. 65 B.R. at 426. In Johns-Manville, the debtor was facing signi ficant financial difficulties. A growing wave of asbestos- related claims forced the debtor to either book a $1.9 bill ion reserve thereby triggering potential default on a $ 450 million debt which, in turn, could have forced part ial liquidation, or file a Chapter 11 petition. See In re JohnsManville, 36 B.R. at 730. Large judgments had alrea dy been entered against Johns-Manville and the prospect loo med of

tens of thousands of asbestos health-related suits over the course of 20-30 years.15 See id. at 729. See also S andrea

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15. A large number of pending or potential claims a lso contributed to two other mass tort related bankruptcy petitions. The 1 985 bankruptcy petition of the A.H. Robins Company came only after "the Company had settled 9,238 claims for approximately $530,000,000 " and "still faced

17Friedman, Note, Manville: Good Faith Reorganization or

"Insulated" Bankruptcy, 12 Hofstra L. Rev. 121 (198 3).

For these reasons, SGL Carbon's reliance on those c ases is misplaced. The mere possibility of a future need to file, without more, does not establish that a petition wa sfiled in "good faith." See, e.g., In re Cohoes Indus. Termin al Inc., 931 F.2d at 228 ("Although a debtor need not be in extremis in order to file [a Chapter 11] petition, it must, at least, face such financial difficulty that, if it d id not file at that time, it could anticipate the need to file in the future."). SGL Carbon, by its own account, and by all objectiv e indicia, experienced no financial difficulty at the time of filing nor any significant managerial distraction. Although SGL Carbon may have to file for bankruptcy in the f uture, such an attenuated possibility standing alone is no t sufficient to establish the good faith of its prese nt petition.

ii.

We also consider whether other evidence establishes the good faith of SGL Carbon's petition, that is, wheth er the totality of facts and circumstances support a findi ng of good faith. Courts have not been unanimous about wh at constitutes "good faith" in the Chapter 11filing co ntext. See, e.g., In re Trident, 52 F.3d at 131 (setting f orth eight factors for courts to consider); In re Marsch, 36 F .3d at 828-29 (describing different approaches); In re Ker r, 908 F.2d at 404 (defining "bad faith" as "a pattern of concealment, evasion, and direct violations of the Code or court order which clearly establishes an improper m otive . . . ."); Carolin, 886 F.2d at 700-02 (examining a pproaches of other courts and holding a petition lacks good f aith if

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over five thousand pending cases in state and feder al court." In re A.H. Robins, 89 B.R. 555, 557 (Bankr. E.D. Va. 1988). Si milarly, at the time it filed for bankruptcy Dow Corning Corporation fac ed 440,000 potential claimants which had resulted in the filing of more than "19,000 individual silicone-gel breast implant lawsuits and at least 45 putative silicone-gel breast implant class actions." In re D ow Corning Corp., 211 B.R. 545, 553 (Bankr. E.D. Mich. 1997). See also Ri chard L. Marcus & Edward F. Sherman, Complex Litigation (3d ed. 1998) 205-07.

18reorganization is objectively futile and if petitio ner displays

subjective bad faith); In re Phoenix Piccadilly , 8 49 F.2d at 1394 (noting that courts may consider "any factors which evidence `an intent to abuse the judicial process a nd the purposes of the reorganization provisions' or . . . factors which evidence that the petition was filed `to dela y or frustrate the legitimate efforts of secured credito rs to enforce their rights' " (citations omitted)); In re Little Creek Dev. Co., 779 F.2d at 1072-73 (5th Cir. 1986) (inst ructing bankruptcy courts to consider "the debtor's financi al condition, motives, and the local financial realiti es"). See also Cuevas, supra, at 529 (noting different approa ches).

Despite those differing approaches, several cases h old that a Chapter 11 petition is not filed in good fai th unless it serves a valid reorganizational purpose. See, e. g., In re Marsch, 36 F.3d at 828; In re Coastal Cable, 709 F. 2d at 764 (stating that there must be "some relation" bet ween filing and the "reorganization-related purposes tha t [Chapter 11] was designed to serve"); In re Ravick Corp., 106 B.R. 834, 843 (Bankr. D.N.J. 1989). Similarly, because filing a Chapter 11 petition merely to obtain tacti cal litigation advantages is not within "the legitimate scope of the bankruptcy laws," In re Marsch, 36 F.3d at 828, courts have typically dismissed Chapter 11 petitions under these circumstances as well. See id.; In re Argus Group 1 700, Inc., 206 B.R. 757, 765-66 (E.D. Pa. 1997); Furness v. Li lienfield, 35 B.R. 1006, 1013 (D. Md. 1983) ("The Bankruptcy provisions are intended to benefit those in genuine financial distress. They are not intended to be used as a mec hanism to orchestrate pending litigation."); In re HBA Eas t, Inc., 87 B.R. 248, 259-60 (Bankr. E.D.N.Y. 1988) ("As a gene ral rule where, as here, the timing of the filing of a Chapt er 11 petition is such that there can be no doubt that th e primary, if not sole, purpose of the filing was a l itigation tactic, the petition may be dismissed as not beingf iled in good faith."); In re Martin, 51 B.R. 490, 495 (Bank r. M.D. Fla. 1985). The In re Marsch Court articulated the relationship between the good faith determination a nd the dismissal of petitions filed merely for tactical ad vantage:

The term "good faith" is somewhat misleading . Though it suggests that the debtor's subjective int ent is

19determinative, this is not the case. Instead , the"good

faith" filing requirement encompasses severa l, distinct equitable limitations that courts have place d on Chapter 11 filings. Courts have implied such limitations to deter filings that seek to ac hieve objectives outside the legitimate scope of t he bankruptcy laws. Pursuant to 11 U.S.C. S 111 2(b),

courts have dismissed cases filed for a vari ety of tactical reasons unrelated to reorganization

.

In re Marsch, 36 F.3d at 828 (citations omitted).

It is easy to see why courts have required Chapter 11 petitioners to act within the scope of the bankrupt cy laws to further a valid reorganizational purpose. Chapte r 11 vests petitioners with considerable powers--the aut omatic stay, the exclusive right to propose a reorganizati on plan, the discharge of debts, etc.--that can impose signi ficant hardship on particular creditors. When financially troubled petitioners seek a chance to remain in business, th e exercise of those powers is justified. But this is not so when a petitioner's aims lie outside those of the Bankru ptcy

Code. See United Sav. Ass'n v. Timbers of Inwood Fo rest Assocs., Ltd. (In re Timbers of Inwood Forest Assoc s., Ltd.), 808 F.2d 363, 373 (5th Cir. 1987) (en banc), aff'd, 484 U.S. 365 (1988) (stating that if Chapter 11 plan do es not have a rehabilitative purpose, the "statutory provi sions designed to accomplish the reorganizational objecti ves become destructive of the legitimate rights and int erests of creditors"); In re Little Creek, 779 F.2d at 1072 ( explaining that Chapter 11 powers should be given only to debt ors with "clean hands"); Furness, 35 B.R. at 1009 ("Cha pter 11 was designed to give those teetering on the verge o f a fatal financial plummet an opportunity to reorganize on s olid ground and try again, not to give profitable enterp rises an opportunity to evade contractual or other liabiliti es."); see also 7 Collier on Bankruptcy at 1112-22 (stating th at dismissal is appropriate when costs of Chapter 11 a re not justified).

Courts, therefore, have consistently dismissed Chap ter 11 petitions filed by financially healthy companies with no need to reorganize under the protection of Chapter 11. See In re Marsch, 36 F.3d at 828-29; In re Argus Group 1700,

20206 B.R. at 765-66; Furness, 35 B.R. at 1011-13; In re

Talladega Steaks, Inc., 50 B.R. 42, 44 (Bankr. N.D. Ala. 1985). Those courts have recognized that if a petit ioner has no need to rehabilitate or reorganize, its petition cannot serve the rehabilititative purpose for which Chapte r 11 was designed. See In re Winshall Settlor's Trust, 758 F .2d 1136, 1137 (6th Cir. 1985) ("The purpose of Chapter 11 reorganization is to assist financially distressed business enterprises by providing them with breathing space in which to return to a viable state."); see also S. R ep. No. 95- 989, at 9 reprinted in 1978 U.S.C.C.A.N. 5787, 5795 (noting that "Chapter 11 deals with the reorganization of a financially distressed enterprise . . . ").

The absence of a valid reorganizational purpose 16 and the consequent lack of good faith by SGL Carbon is evid ent here. SGL Carbon's financial disclosure documents g ive no indication the company needed to reorganize under C hapter 11 protection. Prior to filing, SGL Carbon had asse ts of $400 million and liabilities of only $276 million, or a net worth of $124 million. In addition, there is no evi dence that SGL Carbon had difficulty meeting its debts as they came due, that it had any overdue debts, or that it had defaulted on any debts. Nor is there any evidence that SGL ha d any difficulty raising or borrowing money, or otherwise had impaired access to the capital markets.

Statements by SGL Carbon and its officials confirm the company did not need to reorganize under Chapter 11 . As discussed, in a press release issued when SGL Carbo nfiled its petition, the company's president insisted SGL Carbon was "financially healthy" and that its "normal busi ness operations" would continue despite bankruptcy. In addition, SGL AG's Chairman Robert Koehler stated i n a conference call with securities analysts that SGL C arbon was experiencing "healthy and growing success" and denied that the class action antitrust litigation was mate rially interfering with SGL Carbon's operations or its cus tomer

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16. By focusing on whether there is a valid reorgan ization purpose, we do not hold that a lack of good faith is limited to this situation. Indeed,

"no list is exhaustive of all the factors which cou ld be relevant when analyzing a particular debtor's good faith." In re Laguna, 30 F.3d at 738.

21relationships. Koehler added that unlike most Chapt er 11

cases, SGL Carbon's petition did not involve "serio us insolvency or credit problems." SGL Carbon Vice Pre sident Theodore Breyer acknowledged in his deposition that SGL Carbon had no defaults nor any financial distress w hen it filed for Chapter 11.

An examination of the reorganization plan SGL Carbo n filed simultaneously with its Chapter 11 petition a lso suggests the petition was not motivated by a desire to reorganize or rehabilitate SGL Carbon's business. 1 7 Under the proposed plan, all creditors--including SGL Car bon's parent SGL AG--other than civil antitrust judgment creditors are to be paid in full in cash. Antitrust judgment creditors, by contrast, would be required to accept limitedtime credits to purchase SGL Carbon's products. 18 The plan's differing treatment of creditors suggests SG L Carbon's petition was not filed to reorganize the c ompany but rather to put pressure on antitrust plaintiffs to accept the company's settlement terms.19

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17. Although the "good faith" of the reorganization plan is not before

this court, the features of the proposed plan help illum inate the lack of good faith in the filing. Using the plan to reason backw ards concerning SGL Carbon's motivations is consistent with the practic es of bankruptcy courts. As one bankruptcy court has noted:

Much of the case law on good faith draws hea vily upon the time- honored method of analyzing and establishing a nexus between cause and effect. Long a modus habilis not o nly in bankruptcy but in criminal and tort law and in virtually an y legal inquiry where intent is an issue, this sort of posteriori inquiry permits courts

to

work backwards from effect to cause--to reas on, that is, that if

the probable effect of a reorganization plan is to treat unfairly of creditors, then the probable cause of the fi ling was bad faith.

In re Kahn, 34 B.R. 574, 575 (Bankr. W.D. Ky. 1983)

.

18. Although the plan is not at issue, we note that an analogous arrangement was held inappropriate as a means of re solving an action in a nonbankruptcy context. See In re General Motor s Corp. Pick-up Truck Fuel Tank Products Liability, 55 F.3d 768 (3d Cir. 1995).

19. Although it is true the proposed plan would be subject to a separate "good faith" determination by the bankruptcy court before it could implemented, see 11 U.S.C. S 1129(a)(3), that is on ly appropriate if the

22Comments made by SGL Carbon and SGL AG officers

support that view of SGL Carbon's motives for filin g for Chapter 11. Those officers expressly and repeatedly acknowledged Chapter 11 petition was filed solely t o gain tactical litigation advantages. See, e.g., December 17, 1998 Press Release; Koehler Conference Call of December 17, 1998 ("We are [filing] merely . . . because of the excessive demands [of litigants]."); Breyer Deposition (filin g for Chapter 11 would "change the negotiating platform" and "increase the pressure on . . . plaintiffs to settl e"). In addition, under the heading "Factors Leading to the Chapter 11 Filing," SGL Carbon's bankruptcy Disclos ure Statement discusses only the civil antitrust litiga tion and the difficulties it was having in reaching a settle ment with the remaining plaintiffs.

On appeal, SGL Carbon plays down the litigation tac tics behind its Chapter 11 petition and instead claims i t was forced into Chapter 11 by serious economic difficul ty stemming from the litigation. The company alleges t his difficulty came in three forms: harmful distraction of its management, the possibility that the litigation wou ld result in a judgment that "could very well force [SGL Carb on] out of business," and harm to its customer relationship s with plaintiffs. Because we have already concluded thefi rst two arguments are not supported by the facts, we will a ddress only the third.

We are not convinced by SGL Carbon's claim that a Chapter 11 filing was necessary because we see no evidence the antitrust litigation was significantly harming its business relationships with the antitrust plain tiffs. For example, none of SGL Carbon's officers stated that any customer terminated its purchases from the company

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bankruptcy petition properly belongs before the ban kruptcy court. In a case, such as this one, where a debtor attempts to abuse the bankruptcy process, proceedings should end well before formal consideration of the plan. Cf. In re Metropolitan Realty Corp., 433 F.2d 676, 679 (5th Cir. 1970) ("As soon as the lack of good faith affirmati vely appeared, the district court acted properly in dismissing the pet ition even though the plan stage had not been reached.").

23because of the litigation.20 As noted, SGL AG Chair man

Koehler denied the litigation was having a material impact on SGL Carbon's customer relationships. We note tha t SGL Carbon offered no evidence (testamentary or otherwi se) from any customer on this issue. It is also signifi cant that SGL Carbon's Disclosure Statement, which accompanie d its petition, does not mention harm to customer relatio nships. Nor did SGL Carbon attempt to explain how filing fo r Chapter 11 would improve its customer relationships . As noted, many of those customers are plaintiffs in th e antitrust litigation. Moreover, the evidence before the

District Court indicated SGL Carbon's customers eli minated their orders only after the Chapter 11 petition was filed, suggesting it was the petition, rather than the lit igation, that caused the harm of which the company now complains. After sifting through the evidence, the only support for SGL Carbon's argument are its conclusor y allegations. We do not believe those suffice.

SGL Carbon places great emphasis on In re The Bible Speaks, 65 B.R. 415 (Bankr. D. Mass. 1986), and In re Johns-Manville, 36 B.R. 727 (Bankr. S.D.N.Y. 1984), two bankruptcy court cases relied on by the District Co urt.21 After considering those cases, we conclude they are not dispositive.

SGL Carbon cites In re The Bible Speaks to support its argument that the prospect of a significant litigat ion judgment by itself establishes the good faith of a Chapter 11 petition. But the litigation in Bible Speaks pos ed substantially different problems than does the anti trust litigation here. In Bible Speaks, the bankruptcy co urt found

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20. In fact, SGL Carbon Vice President Breyer testi fied that he could only be certain that one customer had even reduced its p urchases from SGL Carbon prior to its Chapter 11 petition. Maintainin g that a second customer may also have reduced its purchases, Breye r could not say why either customer had reduced its purchases. Sign ificantly, Breyer

testified that no customer had terminated its relat ionship with SGL Carbon until after the filing.

21. We note that SGL Carbon has not supported its a rgument that pending litigation establishes the good faith of a Chapter 11 filing with any cases from this circuit, or, indeed, any cases other than the distinguishable Bible Speaks and Johns-Manville.

24the litigation had "already produced a significant effect" on

the debtor; because of the uncertainty surrounding the litigation, the debtor was "unable to obtainfinanci ng." 65 B.R. at 426. SGL Carbon has not alleged the antitru st litigation has had a similar effect and such eviden ce is absent from the record. In addition, the court in B ible Speaks found that a significant judgment in the lit igation would "probably terminate [the debtor's] existence. " Id.

There is no evidence SGL Carbon could not effective ly use Chapter 11 following a judgment in the antitrust li tigation. Also, the court found the litigation prevented the debtor in Bible Speaks from making "financing [arrangements] or any type of long range plans." Id. at 427. SGL Carbon h as not alleged the antitrust litigation has impeded itsfin ancing or planning activities; instead, the petitioner has re peatedly insisted the litigation has had no material effect on its operations. Finally, the court in Bible Speaks foun d that dismissal was not warranted because Chapter 11 was in

the best interests of the debtor and its creditor. See id. at 429. There is no such finding in this case.

We also believe reliance on In re Johns-Mansville i s misplaced. As an initial matter, the Johns-Manville Court had a narrow view of what constitutes "good faith." After expressing doubt that S 1112(b) imposes a good-fait h requirement in all Chapter 11 cases, see 36 B.R. at 737, the court suggested that a Chapter 11 petition lack s good faith only if filed by a creditor-less company form ed as a sham solely for the purpose of filing a bankruptcy petition, by a company that never operated legitimately, or b y a company wishing to forestall tax liability or deed of trust powers. See id. at 737-38. As noted, most of the co urts of appeals believe other facts and circumstances may e vidence lack of good faith.

Johns-Mansville is also factually distinguishable. In Johns-Manville, the bankruptcy court found the comp any had a "compelling" and "pressing" need to reorganiz e. Id. at 730. As we have explained, SGL Carbon has no such n eed.22

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22. For example, the Johns-Manville Court noted tha t the company would have had to book a $1.9 billion tort liabilit y reserve had it not

filed for Chapter 11. See id. at 730. This booking would in turn have accelerated $450 million in outstanding debt and co uld have forced liquidation. SGL Carbon has not shown the failure t ofile for Chapter 11

would cause it such harm.

25Prior to the Chapter 11 filing, the Johns Manville plaintiffs

had recovered nearly $4 million in punitive damages against the company. See In re Johns-Manville, 36 B .R. 743, 746 (Bankr. S.D. N.Y. 1984). The litigation ef fected by SGL's Chapter 11 petition, in contrast, is in its n ascent stages. Johns-Manville faced "approximately 16,000 lawsuits pending as of the filing date" with the pr ospect of the "filing of an even more staggering number of su its" over the course of 20-30 years. Johns-Manville, 36 B.R. at 729. By contrast, SGL Carbon faces a known and finite nu mber of suits. In addition, the Johns-Manville Court mad e clear

that its decision was based on factors other than t he debtor's financial health. Unlike this case, the Jo hnsManville creditors pursued their motion only after sixteen months of bargaining over an acceptable reorganizat ion plan resulted in a deadlock. In denying the credito rs' motion to dismiss, the court stated it would "bear in mind the strategical motivations underlying [creditors'] pursuit of these motions at this time" and would recognize"the progress toward a successful, perhaps consensual, reorganization that has already taken place." Id. a t 731.

The Official Committee of Unsecured Creditors here did not delay in filing the motion to dismiss SGL Carbon's Chapter 11 petition; nor does SGL Carbon allege the credito rs' motion was spurred by an intent to extract concessi ons in stalled negotiations. This case, therefore, involve s neither the creditors' "strategical motivations" nor the "p rogress towards a successful . . . reorganization" that col ored the Johns-Manville Court's opinion. Id.

Based on the facts and circumstances of this case, we conclude SGL Carbon's Chapter 11 petition lacks a v alid reorganizational purpose and consequently lacks goo d faith making it subject to dismissal "for cause" under 11 U.S.C. S 1112(b).23

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23. Because we conclude SGL Carbon's petition shoul d be dismissed, we need not address the creditors' argument that the f ailure to dismiss would deprive it of its Seventh Amendment right to try its antitrust claims before a jury.

26C.

In reaching our conclusion, we are cognizant that i t is growing increasingly difficult to settle large scal e litigation. See, e.g., Ortiz v. Fibreboard Corp., 119 S.Ct. 229 5 (1999); Amchem Products, Inc. v. Windsor, 521 U.S. 591 (199 7). We recognize that companies that face massive potentia l liability and litigation costs continue to seek way s to rapidly conclude litigation to enable a continuation of the ir business and to maintain access to the capital mark ets. As evidenced by SGL Carbon's actions in this case, the Bankruptcy Code presents an inviting safe harbor fo r such companies. But this lure creates the possibility of abuse which must be guarded against to protect the integr ity of the bankruptcy system and the rights of all involve d in such proceedings. Allowing SGL Carbon's bankruptcy under these circumstances seems to us a significant departure from the use of Chapter 11 to validly reo rganize financially troubled businesses.

IV.

For the reasons stated, we will reverse the judgmen t of

the District Court and remand to the District Court so that it may dismiss SGL Carbon's Chapter 11 petition.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

27