Case Name: In re FAIRWOOD CORPORATION, Debtor, AD HOC Committee on Bondholders, Appellant, v. Citicorp Venture Capital Ltd., Citicorp, Citibank, N.A., Citicorp North America, Inc., Court Square Capital Ltd. and Bankers Trust Company, Appellees, Fairwood Corporation, Debtor
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 2001-01-04
Citations: 1 F. App'x 12
Docket Number: No. 00-5032
Parties: In re FAIRWOOD CORPORATION, Debtor, AD HOC Committee on Bondholders, Appellant, v. Citicorp Venture Capital Ltd., Citicorp, Citibank, N.A., Citicorp North America, Inc., Court Square Capital Ltd. and Bankers Trust Company, Appel-lees, Fairwood Corporation, Debtor.
Judges: 
Reporter: West's Federal Appendix
Volume: 1
Pages: 12–13

Head Matter:
In re FAIRWOOD CORPORATION, Debtor, AD HOC Committee on Bondholders, Appellant, v. Citicorp Venture Capital Ltd., Citicorp, Citibank, N.A., Citicorp North America, Inc., Court Square Capital Ltd. and Bankers Trust Company, Appel-lees, Fairwood Corporation, Debtor.
No. 00-5032.
United States Court of Appeals, Second Circuit.
Jan. 4, 2001.
Roy Babbitt, New York, NY, Anderson, Kill & Olick, P.C.; Mark D. Silverschotz, Thomas L. Kent and Robert Y. Chung, on the brief, for appellant.
R. Paul Wickes, New York, NY, Shearman & Sterling; Kathryn L. Tabner and Simon R. Malko, on the brief, for appellee.
Present JACOBS, LEVAD and KATZMANN, Circuit Judges.

Opinion:
SUMMARY ORDER
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the judgment of the district court be, and it hereby is, AFFIRMED.
Appellant is a group of subordinated bondholders of the debtor, Fairwood Corporation. Fairwood was formed in a leveraged buyout of entities owned and controlled by Citicorp Venture Capital Fund, Ltd. ("Citicorp"). To reduce the debt from the leveraged buyout that it arranged, Citicorp caused the acquired subsidiary (Consolidated Furniture ("Consolidated")) to sell certain of its operating subsidiaries, and to apply the proceeds from those sales to the indebtedness. Fairwood, the corporate parent, was unable to make payments on interest from contractually subordinated bonds it had issued in connection with the leveraged buyout, and accordingly filed for bankruptcy under chapter 11 of the Bankruptcy Code. However, neither its subsidiary holding company (Consolidated) nor that subsidiary's only operating company (Fu-torian Furniture Company ("Futorian")), has filed for bankruptcy.
Appellant moved in the United States Bankruptcy Court for the Southern District of New York (Garrity, J.) to remove the debtor from possession either by converting this case to one under chapter 7, or by appointing a chapter 11 trustee, and in so doing, to permit either the chapter 7 or chapter 11 trustee to cause Consolidated and Futorian to file for protection under the Bankruptcy Code. In that event (appellant argues), Consolidated and Futorian could assert claims against Citicorp that do not belong to Fairwood, but that if successful would leave those entities free of debt and would enhance Fairwood's value (and, in turn, the value for their presently worthless bonds).
The bankruptcy court oversaw 15 months of discovery aimed at determining whether Fairwood's refusal to put its subsidiaries into bankruptcy (so that they could sue Citibank) constituted grounds for appointing a trustee. After discovery, and the filing by bondholders of a Statement of Claims against Citicorp, the bankruptcy court denied the relief. The bankruptcy court held that while it was "theoretically possible" that some of the claims against Citicorp, if proved, could create some value for the Fairwood estate, there were too many contingencies standing between the possible cause of action and the actual benefit to the estate: "[t]he alleged assets (i.e., the lawsuits) do not belong to the debtor; their value is in sharp dispute and cannot benefit Fair-wood's estate (if at all) without putting two subsidiaries that do not otherwise require bankruptcy relief into chapter 11, and successfully litigating two lawsuits involving complex legal and factual issues."
The United States District Court for the Southern District of New York (Baer, J.) affirmed for essentially the same reasons. The district court held that the bankruptcy court did not abuse its discretion in denying the requested relief because: (i) the Fairwood subsidiaries, not Fairwood itself, hold any claims against Citicorp, a point of distinction between this case and cases in which the debtor directly possessed a claim and failed to bring it or failed to properly administer an estate, and (ii) the bankruptcy court's ruling that some of the claims by the subsidiaries against Citicorp were "colorable" is not inconsistent with its ruling to deny relief, because the real issue is "whether the debtor's refusal to bring those claims — even if they were col-orable — was reason enough to convert the case or appoint a trustee, despite the strong presumption that a debtor will remain in possession and control of its assets." It was not an abuse of discretion for the bankruptcy court to find that appellant did not overcome this "strong presumption."
We affirm substantially for the reasons stated in Bankruptcy Judge Garrity's Memorandum, Decision on Fairwood Bondholders' Motion for Appointment of a Chapter 11 Trustee, dated February 22, 1999, and Judge Baer's Order Denying Motion for Conversion of the Case to One Under Chapter 7 or, in the Alternative, for the Appointment of a Chapter 11 Trustee, dated March 8, 2000.
We have considered all of appellant's contentions on this appeal and have found in them no basis for reversal. The judgment of the district court is affirmed.