Opinion ID: 3013802
Heading Depth: 1
Heading Rank: 1

Heading: vacated by Official Committee of

Text: Unsecured Creditors of Cybergenics Corp. In January 2001, G-I Holdings, Inc. v. Chinery, 310 F.3d 785 (3d Cir. 2002), (“G-I”) filed a voluntary petition for precluded the Committee from suing to reorganization under Chapter 11 of the recover property on behalf of a bankruptcy 2 implicated in this appeal was that strong presumption” against appointing a excessive conflict between G-I and the trustee. JA30. The Court recognized that asbestos claimants warranted appointment the appointment of a trustee may be called of a trustee under both 11 U.S.C. § for when there is extreme acrimony 1104(a )(1), w hich au thorizes the between a debtor in possession and appointment of a trustee “for cause,” and creditors, but the Court found it 11 U.S.C. § 1104(a)(2), which authorizes “app ropria te to apply the usual the appointment of an outside trustee when presumption” in this case both because the appointment is “in the interests of “management of G-I ha[d] been in place creditors.” In simple terms, it is the for years and [was] familiar with the Committee’s position that G-I's current company’s operations” and because there management is subordinating the interests was insufficient evidence to show that of asbestos claimants to those of Heyman appointment of a trustee would be helpful. and favored creditors. Among other JA30. “[T]he evidence presented by the things, the Committee complains that Committee,” the Bankruptcy Court current management refused to bring concluded, did not meet the clear and fraudulent conveyance actions against convincing standard. Id. at 31. While Heyman and others, joined with a acknowledging that there was some subsidiary in litigation designed to shield “strident disagreement and litigation on the former assets of GAF’s building and critical aspects of this case,” the Court roofing products business from asbestos noted that the debtor in possession had claimants, and lavishly funded a lawsuit “shown at least a degree of willingness to charging three law firms that represent cooperate with the Committee” by asbestos claimants with racketeering, obtaining tolling agreements from Heyman fraud, and other torts. G-I, in turn, insists and other targets of avoidance actions. Id. that Heyman revived a troubled business at 32. Apparently referring to G-I’s and that current management is simply lawsuit against the law firms and the attempting to defend itself against largely Committee’s fraudulent conveyance action spurious asbestos claims. against Heyman, both of which were pending in the Southern District of New After the hearing, the Bankruptcy York, the Bankruptcy Court also pointed Court denied the Committee’s motion. out that critical disputed issues, such as the The Court noted that the party seeking legitimacy of corporate restructurings and appointment of a trustee must prove the the litigation against the plaintiffs’ need for the appointment by clear and asbestos firm, “would be tested and convincing evidence and that there is a ultimately resolved in other proceedings.” Id. at 33. The Committee then took an appeal to the District Court. The Committee argued that “the usual estate – is not implicated in this appeal. presumption in favor of current 3 management” is inapplicable in this case and convincing evidence presented in for three reasons: “(1) G-I is a holding cases in which bankruptcy trustees had company – a mere shell that operates no been appointed. Dist Ct. Op. at 18, JA 23. ‘business’ at all – and hence its existing The District Court wrote: managers’ familiarity with the business is irrelevant to the decision of whether or not [The Bankruptcy Judge] to appoint a trustee . . .; (2) because a clearly is not convinced that trustee would simply need to manage Heyman is fraudulently asbestos claims, the trustee would not need attempting to avoid asbestos to incur the usual substantial costs liability or that his control of associated with learning how to manage an G-1 renders G-1 unfit to active service company . . .; and (3) G-I serve as fiduciary for the has shown no presumptive ability to estate. She correctly notes discharge its fiduciary duties to creditors that the parties will have the given its actions and the ‘structural opportunity to test and problem’ of Heyman’s control as the ultimately resolve such dominant shareholder.” Dist Ct. Op. at 13, allegations in the other JA18. Because the usual presumption was proceedings. inapplicable, the Committee argued, the Bankruptcy Judge’s “‘reliance upon that Dist. Ct. Op. at 17, JA 22. The presumption as the basis for [her] ruling District Court also observed that “neither was an abuse of discretion per se . . .,’” Marvel nor any other case cited by the and “the Committee only had to show that parties suggests that if a court deems the a truste e w as ‘w ar ra nt ed by a presumption in favor of current preponderance of the evidence,’ rather management inapplicable, the movant than by clear and convincing evidence.” need no longer present clear and Dist. Ct. Op. at 12, JA17 (quoting convincing evidence that a trustee is Committee’s Dist. Ct. Reply Br. at 5, 21). necessary.” The District Court affirmed the Dist. Ct. Op. at 15, JA 20. In the order of the Bankruptcy Court and issued present appeal, the Committee could have a detailed opinion explaining the basis for argued that the evidence before the its decision. The District Court held that Bankruptcy Court proved by clear and the Bankruptcy Judge “did not abuse her convincing evidence that the standard for discretion in finding that the Committee the appointment of a trustee was met and had failed to produce clear and convincing that the Bankruptcy Court erred in finding evidence of the need for a trustee under otherwise. But the Committee has elected either subsection of 1104(a)” and that not to advance this factual argument. “[t]he Committee ha[d] not proved the Instead, the Committee argues that the need for a trustee by the same type of clear Bankruptcy Court and the District Court 4 committed two errors of law. First, the affairs of the debtor by Committee contends that “the ususal current management, either presumption in favor of existin g before or afte r the management” should not have been commencement of the case, applied in this case because G-I's or similar cause, but not “managers have no significant experience including the number of operating the debtor’s business . . . and holders of securities of the cannot be relied upon to discharge debtor or the amount of faithfully their fiduciary obligations to the assets or liabilities of the estate and its creditors.” Appellant’s Br. at debtor; or 20. Second, the Committee maintains that, with the presumption in favor of current (2) if such appointment is management out of the way, “[t]he in the interests of creditors, standard of proof to which the committee any equity security holders, should have been held was the normal and other interests of the ‘preponderance of the evidence’ standard.” estate, without regard to the Id. at 20. number of holders of securities of the debtor or