IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

CAPITAL CROSSING BANK, 

 Appellant,

 v.

CEDA MILLS, INC.

 Appellee.

)

)

)

)

)

)

)

)

 2:05-cv-01065

MEMORANDUM OPINION AND ORDER OF COURT

August 16, 2006

Presently before the Court for disposition is the NOTICE OF APPEAL OF ORDER OF

COURT CONFIRMING DEBTOR’S AMENDED PLAN OF REORGANIZATION ON JUNE

23, 2005 (Document No. 1), with appendix, the brief in support filed by appellant, Capital

Crossing Bank (“Capital Crossing” or “Appellant”) (Document No. 7), the brief in opposition

filed by debtor/appellee, Ceda Mills, Inc. (“Ceda Mills” or “Appellee”) (Document No. 15), and

the reply brief filed by Capital Crossing Bank (Document No. 16). After due consideration of the

filings of the parties and the applicable case law, the order will be affirmed.

Background

Ceda Mills is a company engaged in processing metals at a plant in New Castle,

Pennsylvania. In July 2003, severe storms damaged the plant and forced the cessation of

operations. On April 2, 2004, Ceda Mills commenced a Chapter 11 case in the United States

Bankruptcy Court, Case No. 04-24452-BM.

The most significant asset possessed by Ceda Mills is a lawsuit it is pursuing (also in the

Bankruptcy Court) against its insurance carrier. The lawsuit asserts claims for property damage,

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business interruption, and bad faith denial of coverage. On June 4, 2004, Ceda Mills petitioned

the bankruptcy court to appoint special counsel to pursue this action. Special counsel was to be

compensated by a contingency fee of forty percent (40%). The Bankruptcy Court approved the

appointment of Special Counsel on July 1, 2004 and this order was not appealed.

In November 2004, Ceda Mills filed a Disclosure Statement and a Chapter 11 Plan of

Reorganization. Capital Crossing Bank filed objections and the Bankruptcy Court scheduled a

confirmation hearing, which was then postponed. On April 20, 2005, Ceda Mills filed an

Amended Disclosure Statement and an Amended Chapter 11 Plan of Reorganization. The

Bankruptcy Court conditionally approved the Amended Disclosure Statement and again set a

confirmation hearing. Capital Crossing Bank filed objections to the Amended Plan and voted to

reject the Amended Plan.

Capital Crossing, as assignee of FirstMerit Bank, N.A., is a secured creditor holding a

claim valued at $3,286,800.33. Capital Crossing’s interest is based on a series of four

promissory notes executed by Ceda Mills on April 12, 2001, as well as collateral for those notes

in the form of a security interest in all of the debtors equipment and a mortgage on its premises.

On June 23, 2005, the Honorable Bernard Markovitz conducted a confirmation hearing. 

Counsel for Capital Crossing Bank and Ceda Mills attended and participated. The record at the

hearing consisted of the Amended Disclosure Statement, the Amended Plan of Reorganization,

and the objections filed by Capital Crossing Bank. In addition, the Bankruptcy Court entertained

legal argument from counsel for both sides. After the hearing, the Bankruptcy Court entered an

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1The Order modified the Amended Plan in one respect, providing that the allowed secured

claim held by Capital Crossing would be paid over 72 months plus interest with no balloon

payment.

3

order confirming the debtor’s Amended Plan of Reorganization.1

Standard of Review

The Bankruptcy Court’s rulings of law are subject to plenary review. The Bankruptcy

Court’s factual findings are subject to a “clearly erroneous” standard. American Flint Glass

Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999).

Discussion

As set forth in the Reply Brief filed by Capital Crossing Bank, its “principal argument”

on appeal is that the confirmation order must be reversed due to the failure of Ceda Mills to

introduce sufficient evidence at the hearing that all the elements of 11 U.S.C. § 1129 had been

met. Capital Crossing also raises numerous other allegations of error that will be addressed in

less detail.

A. The Evidentiary Support for the Bankruptcy Court’s Decision

As Capital Crossing Bank correctly points out, the burden of proof is on the debtor to

demonstrate that all the factors set forth in 11 U.S.C. § 1129(a) or (b) have been satisfied. 

Further, the Court assumes, without deciding, that even in the absence of any objections, the

Bankruptcy Court has an independent duty to confirm that all the statutory requirements are met. 

See In re Union Meeting Partners, 165 B.R. 553, 574 (Bankr. E.D. Pa. 1994), aff’d, 52 F.3d 317

(3d Cir. 1995); In re Williams, 850 F.2d 250, 253 (5th Cir. 1988).

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Capital Crossing Bank contends that Ceda Mills provided “not a scintilla of evidence” at

the confirmation hearing, and thus, could not meet its burden. The Court disagrees. The

evidence submitted by Ceda Mills consisted of the disclosure statements and reorganization plans

it filed with the Bankruptcy Court and served on the other interested parties.

The parties have not cited to any authority that directly addresses the quantum of

evidence that must be presented in a confirmation hearing. However, in the case of In re

Gulfstar Indus., Inc., 236 B.R. 75, 77-78 (M.D. Fla. 1999), the District Court concluded that the

Bankruptcy Court could properly base its confirmation decision solely upon the court file without

taking additional evidence in the hearing. The Court explained:

If the Bankruptcy Court were to be prevented from using the record when

deciding whether a proposed reorganization plan meets the requirements of 11

U.S.C. § 1129, it would, in essence, be “grind[ing] the same corn a second time.”

In re Acequia, 787 F.2d at 1358, quoting Aloe Creme Labs., Inc. v. Francine Co.,

425 F.2d 1295, 1296 (5th Cir.1970). In the interests of judicial economy, this

Court finds that it is not only permissible, but entirely appropriate for the

Bankruptcy Court to review, if necessary, a case's record when deciding if a

proposed reorganization plan meets the requirements of 11 U.S.C. § 1129. 

Pursuant to established law, the lower court was not under any obligation to take

evidence during the Confirmation Hearing. 

Id. at 78. The Court finds the reasoning of the Gulfstar Court to be sound. It is particularly

persuasive under the facts of this case. A review of the briefs and of the transcript of the

confirmation hearing demonstrates that Capital Crossing Bank was aware of all the relevant facts

and made primarily legal arguments in its effort to defeat confirmation. In summary, the Court

rejects Capital Crossing’s argument that confirmation of the plan was not supported by sufficient

evidence.

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B. Appellant’s Other Arguments

Having rejected Capital Crossing’s principal argument, the Court now addresses the other

contentions in a more summary fashion. None of these subsidiary arguments are meritorious.

Capital Crossing Bank contends that the reorganization plan failed to satisfy all the

requirements of § 1129(a). In particular, Capital Crossing cites subsections (a)(11), (a)(7)(A)(ii),

and (a)(1). Subsection (a)(11) tests whether confirmation of the plan is likely to be followed by

liquidation or further reorganization. This is a quintessentially factual issue that is subject to

clear error review. At the confirmation hearing, appellant’s counsel stated his basis for

challenging the feasibility of the plan. A.250-252. The Court’s rejection of these challenges to

feasibility was not clearly erroneous. The Amended Disclosure Statement contained evidence of

debtor’s business prospects based on its past financial performance and general steel industry

trends. In addition, the Court examined the litigation prospects of Ceda Mills’ claims against its

insurer. A. 259-60. Subsection (a)(7)(A)(ii) examines whether a creditor’s best interests would

be served by proceeding to liquidation. The Bankruptcy Court conducted this analysis in the

confirmation hearing. A. 253-255. The Court determined that the Plan, which proposed to pay

Capital Crossing Bank 100 percent of its allowed claim, with interest, was superior to

liquidation. This determination was not clearly erroneous. The analysis of subsection (a)(7) is

interwoven with appellant’s argument regarding subsection (a)(1). Appellant contends that its

secured interest was subordinated to the contingent fee owed to the lawyer pursuing the insurance

litigation. This argument is easily rebutted, on several alternative grounds. First, appellant does

not have a secured interest in the entire litigation recovery, and particularly if Ceda Mills

recovers for bad faith. See A. 262. Second, the value of the insurance claim is diminished

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substantially if there is no lawyer willing to prosecute the case. See A. 256 (appellant’s counsel

acknowledging that counsel should be compensated, although objecting to 40% contingency). 

Third, appellant waived the right to challenge the contingent fee. The Bankruptcy Court had

approved appointment of special counsel almost a year earlier. Appellant failed to contest the

appointment and that decision was not appealed. Appellant cannot allow litigation counsel to

invest significant time and expense in pursuing the case, only to swoop in after the result with its

claim of priority to the recovery. In sum, whatever superior right appellant may have had to the

proceeds of the insurance case compared to litigation counsel was waived, and therefore, the

Amended Plan provided a superior recovery to appellant than liquidation. Thus, the Bankruptcy

Court properly found that all of the section 1129(a) factors were met.

Capital Crossing Bank contends that Ceda Mills never requested confirmation under 11

U.S.C. § 1129(b). This argument is without merit. Although the Amended Plan of

Reorganization listed Capital Crossing Bank’s claim as “unimpaired”, the Bankruptcy Court

stated explicitly that it was “treating you as impaired.” A.243. Appellant filed objections to the

reorganization plan, voted against it, and was given a full opportunity to oppose it. Moreover,

the hearing transcript is replete with references to the debtor’s need to fulfill the elements of a

“cram-down” pursuant to § 1129(b). Counsel for Ceda Mills clearly stated, in response to

questions from the Court, that it had satisfied the elements necessary for a cram-down. A.236. 

See also Amended Plan of Reorganization, Miscellaneous Section f (disclosing that debtor would

be seeking a cram-down if any creditor objected to the plan). A.149.

Finally, appellant contends that section 1129(b) is not satisfied because the plan is not fair

and equitable. The reorganization plan explicitly states that Capital Crossing Bank would retain

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its liens. A. 144. For the reasons discussed above, litigation counsel’s contingency fee is

appropriate and does not create any inequity to appellant. The Bankruptcy Court’s determination

that Capital Crossing Bank would receive the “indubitable equivalent” of its allowed secured

claim was not clearly erroneous. This issue was thoroughly explored during the confirmation

hearing. A.258-271. Thus, the Bankruptcy Court properly determined that the requirements of

section 1129(b) were met. In summary, the Bankruptcy Court’s Confirmation Order was

justified under the law and facts of this case.

Conclusion

For the foregoing reasons, the Bankruptcy Court’s order dated June 23, 2005, which

confirmed Ceda Mills’ Amended Plan of Reorganization, will be AFFIRMED.

An appropriate Order follows.

McVerry, J.

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IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

CAPITAL CROSSING BANK, 

 Appellant,

 v.

CEDA MILLS, INC.

 Appellee.

)

)

)

)

)

)

)

)

 2:05-cv-01065

ORDER OF COURT

AND NOW, this 16th day of August, 2006, in accordance with the foregoing

Memorandum Opinion, it is hereby ORDERED, ADJUDGED and DECREED that the

APPEAL OF ORDER OF COURT CONFIRMING DEBTOR’S AMENDED PLAN OF

REORGANIZATION ON JUNE 23, 2005 (Document No. 1), is DENIED and the Bankruptcy

Court’s order dated June 23, 2005, which confirmed Ceda Mills’ Amended Plan of

Reorganization, is AFFIRMED. The clerk is ordered to mark this case closed.

BY THE COURT:

s/ Terrence F. McVerry 

United States District Court Judge

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cc: Brian A. Lawton, Esquire

Email: blawton@metzlewis.com

John R. O'Keefe, Jr., Esquire

Email: jokeefe@metzlewis.com

Craig J Ziady, Esquire

Kevin J Simard, Esquire

Riemer & Braunstein LLP

Three Center Plaza, 6th Floor

Boston, MA 02108

617-523-9000

APPELLEE:

John P. Lacher, Esquire

Email: rol@lampllaw.com

Robert O. Lampl, Esquire

Email: rol@lampllaw.com

Timothy P. Palmer, Esquire

Buchanan Ingersoll

301 Grant Street

One Oxford Centre, 20th Floor

Pittsburgh, PA 15219

(412) 562-8800

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