Opinion ID: 669071
Heading Depth: 1
Heading Rank: 5

Heading: does marin extend to adversary proceedings related to a

Text: 35 BANKRUPTCY CASE? 36 Phar-Mor and Coopers argue that, even assuming that their lawsuit is an adversary proceeding, Marin interpreted Sec. 1109(b) to apply only to adversary proceedings under Chapter 11 (core proceedings), and not to adversary proceedings related to a case under Chapter 11 (non-core proceedings). Since their lawsuit is merely a non-core, related to proceeding, they submit that, even after Marin, Sec. 1109(b) still does not apply. We disagree. 37 First, Phar-Mor and Coopers can point to nothing in Marin itself indicating that the decision was limited to adversary proceedings under (i.e., arising under) Chapter 11. 16 This is understandable because, when Marin was decided, there was no relevant difference between adversary proceedings that were under Chapter 11 and those that were related to Chapter 11. At the time of the decision, bankruptcy judges had jurisdiction under the 1978 Act to issue final decisions on proceedings under and related to title 11. See 28 U.S.C. Sec. 1471(b) (repealed 1984). To be sure, the importance of the under and related to distinction was known at the time Marin was decided: Marin was filed on September 29, 1982; Marathon had been decided on June 28, 1982, 458 U.S. at 88, 102 S.Ct. at 2880; and the model Emergency Rule which made a related to and under distinction had been promulgated on September 23, 1982. See Cooper-Jarrett, 726 F.2d at 95. 38 The Marathon judgment, however, was stayed until October 4, 1982. 458 U.S. at 50, 102 S.Ct. at 2858. And the Emergency Rule did not take effect until December 25, 1982. Emergency Rule subsection (h), cited in 1 Collier p 3.01[b][vi]. Thus, at the time Marin was decided, the term adversary proceeding covered proceedings under, arising in, and related to Chapter 11. Marin 's complete silence about the scope of the decision in light of the imminent changes in bankruptcy jurisdiction indicates that the Marin panel saw no need to limit the reach of Sec. 1109(b) to cases arising under Chapter 11. 39 Second, the facts in Marin would seem to foreclose the argument Phar-Mor and Coopers press here, because Marin itself may have extended the right to intervene to an adversary proceeding that was merely related to a Chapter 11 case. As we mentioned supra, there were two adversary proceedings at issue in Marin. Marin, 689 F.2d at 446-447. One of the adversary proceedings sought to extend the pending Chapter 11 case to include the Marins individually and also to include various other Marin companies besides Marin Motor Oil. Id. at 447. 17 The complaint alleged that the various companies had been operated as a single economic unit, without observance of the requisite formalities; that the Marins had 'complete control' over the various companies; that the Marins' personal assets were inextricably intertwined with those of the companies; that Marin Motor Oil financed the other companies; and that the purpose and effect of forming the other companies was to delay and defraud creditors. Id. 40 This adversary proceeding, in short, appears to have been a complaint filed by the debtor corporation to pierce its own corporate veil to reach the assets of the Marins. 18 Yet actions by a creditor to pierce the corporate veil, or alter ego actions against the debtor corporation, are often considered non-core, related to proceedings. See Davis v. Merv Griffin Co., 128 B.R. 78, 96 (D.N.J.1991) (this court finds that the so called alter ego action of Davis is not a core proceeding under 28 U.S.C. Sec. 157). Likewise, a proceeding by a debtor corporation to pierce the corporate veil of an entity against which it holds a judgment is also non-core. See, e.g., In re Baranello & Sons, Inc., 149 B.R. 19, 26 (Bankr.E.D.N.Y.1992). 19 41 Moreover, although the proceeding in Marin differed from typical alter ego actions because it involved a claim in which the debtor corporation was piercing its own veil, some courts have stated that such actions are also non-core, related to proceedings. See In re Julien Company, 120 B.R. at 936 (It is troublesome for the debtor to pierce its own veil and deny its corporate existence and conclude that, as a result [, the third party's] assets belong to the debtor.... Piercing the veil is a state law remedy ... [and hence] an action based upon a veil piercing or alter ego theory could not be a core proceeding.); In re Lee Way Holding Co., 105 B.R. 404, 411 (Bankr.S.D.Ohio 1989) (a claim brought by a trustee against a non-debtor defendant based on Ohio alter ego law was an action related to a bankruptcy case). 20 Thus, because Marin itself allowed the creditors' committee to intervene in a veil piercing or alter ego action, it seems to have interpreted the Sec. 1109(b) right to intervene broadly enough to extend to adversary proceedings related to a Chapter 11 case. 42 Third, even assuming that both adversary proceedings in Marin would today be considered core proceedings, the principles embodied in Sec. 1109(b), as interpreted by Marin, suggest that Sec. 1109(b) reaches related to proceedings. Marin recognized that Sec. 1109(b) was an important counterweight to the power of the debtor-in-possession during reorganization. When the debtor-in-possession is a corporation, it normally retains possession of the corporation and acts through its officers and directors or management. See 11 U.S.C. Sec. 1107(a). Under the 1978 Act, the courts have been relieved of most administrative matters, and the responsibility for monitoring the operations of the debtor and its compliance with appropriate bankruptcy procedures has fallen largely to the creditors' committee (although the United States Trustee has some role). See George M. Treister et al., Fundamentals of Bankruptcy Law 397 (ALI/ABA 1993). 43 Section 1109(b) is an important monitoring tool at the disposal of the creditors' committee. Intervention under that section appears to be appropriate to the extent it will: (1) minimize the need for extensive judicial oversight, (2) speed the debtor's successful reorganization, and (3) allow the creditors' committee to exert enough leverage on the debtor-in-possession so that the debtor-in-possession does not use its extensive flexibility and discretion in a Chapter 11 reorganization to compromise the creditors' interests. In short, interests of efficiency and fair play underlie Sec. 1109(b), and the driving force behind the Marin decision was the belief that allowing intervention into adversary proceedings would best serve those interests. See Marin, 689 F.2d at 457. 44 There is no reason to think that the interests underlying Sec. 1109(b) are limited or should be limited by the jurisdictional limitations imposed on the bankruptcy courts as a result of the Marathon decision. The basic problem with the position taken by Phar-Mor and Coopers is that they are trying to use a jurisdictional distinction of under and related to, a distinction shaped by concerns over federalism and separation of powers, to create a limitation on a right to intervene which is defined by concerns over efficiency and fair play. To deny a creditors' committee the right to intervene for no other reason than the jurisdictional changes since Marin would be unwise. It would allow Phar-Mor and Coopers to take advantage of fortuitous changes in the allocation of responsibility between the district and bankruptcy courts to create a limitation on a creditors' committee's right to be heard wholly without regard to a creditors' committee's interest in counterbalancing a debtor-in-possession's power in a reorganization. 45 For the foregoing reasons, we hold that Sec. 1109(b) as interpreted by Marin allows creditors' committees to intervene in non-core, related to proceedings pending in a federal district court. 21 This conclusion is consistent with other courts' interpretations of the reach of Marin. See In re Allegheny International, Inc., 107 B.R. 518, 523 (W.D.Pa.1989) (The Marin court construed the term 'case' in Sec. 1109(b) as encompassing not only the general administrative proceeding in a Chapter 11 case, but also adversary proceedings associated with a Chapter 11 case. (emphasis supplied)); In re Lee Way Holding Co., 105 B.R. 404, 411 (Bankr.S.D.Ohio 1989) (allowing intervention under Sec. 1109(b) in a non-core proceeding and stating that [a] creditor's committee has a statutory right to intervene in adversary proceedings related to a bankruptcy case. (citing Marin ) (emphasis supplied)); cf. 995 Fifth Ave. Assocs., L.P. v. New York State Dep't of Taxation & Fin. (In re 995 Fifth Ave. Assocs., L.P.), 157 B.R. 942, 951 (S.D.N.Y.1993) (If the right to intervene in an adversary proceeding [connected with the case] is absolute, such a right would not be limited to matters before the bankruptcy court; it is difficult to see how the same right would not extend to any non-bankruptcy fora in which the adversary proceeding is litigated. (discussing Marin )). 22