Opinion ID: 3013802
Heading Depth: 1
Heading Rank: 2

Heading: the amount of assets or

Text: liabilities of the debtor. Section 1104(a) of the Bankruptcy Code, 11 U.S.C. § 1104(a), authorizes the 11 U.S.C. § 1104(a) (emphasis added). appointment of a trustee in a chapter 11 case in two circumstances. Section “The party moving for appointment 1104(a) states: of a trustee . . . must prove the need for a trustee under either subsection by clear and (a) At any time after the convincing evidence.” Marvel, 140 F.3d commencement of the case at 473. See also In re Sharon Steel Corp., but before confirmation of a 871 F.2d 1217, 1226 (3d Cir. 1989). If a plan, on request of a party in court finds that the moving party has interest or the United States discharged this burden, it “shall” appoint a trustee, and after notice and trustee, 11 U.S.C. § 1104(a), but a hearing, the court shall determining whether the moving party has order the appointment of a satisfied its burden under either subsection trustee- is committed to the court’s discretion. Marvel, 140 F.3d at 471; Sharon Steel, 871 (1) for cause, including F.2d at 1225-26. fraud, dishonesty, incompetence, or gross The Committee’s argument in this mismanagement of the appeal is based on our reference in Marvel 5 to “the strong presumption against another provision of the Evidence Rules. appointing an outside trustee.” 140 F.3d at Under Rule 301, “a presumption imposes 471. As noted, the Committee’s position on the party against whom it is directed the is that, once this presumption is out of the burden of going forward with evidence to way, a party seeking the appointment of a rebut or meet the presumption, but does trustee is no longer required to prove its not shift to such party the burden of proof case by clear and convincing evidence, but in the sense of the risk of nonpersuasion, is merely required to satisfy the which remains throughout the trial upon preponderance of the evidence standard. the party on whom it was originally set.” We see no basis for this argument. If the party against whom the presumption is directed offers sufficient evidence “to T h ere are two p l au s i b le rebut or meet the presumption,” that party interpretations of our reference in Marvel discharges its burden of production, but to “the strong presumption against the burden of persuasion remains where it appointing an outside trustee.” The first is was at the start. See, e.g., 1 C HRISTOPHER that we employed the term “presumption” B. M UELLER AND L AIRD C. K IRKPATRICK, in the technical sense expressed in Rule F EDERAL E VIDENCE § 66 at 322 (2d ed. 301 of the Federal Rules of Evidence. The 1994). second is that we simply used that term as another way of referring to the heavy In the present case, as noted, the burden of persuasion, i.e., by clear and Committee contends that “the strong convincing evidence, that the party seeking presumption” against the appointment of a the appointment of an outside trustee must trustee is inapplicable because it is face. Although we now hold that the unwarranted by the facts. The second interpretation is the correct one, the Co mm ittee’s argu men t migh t be choice between the two interpretations has interpreted to mean either (a) that the no bearing on the outcome of this appeal presumption never properly came into play because neither interpretation supports the because the debtor bore the burden of Committee’s position. establishing the basic facts that must be shown to give rise to the presumption and
that the presumption dropped out of the As noted, the first interpretation case because the Committee adequately would read Marvel as using the term rebutted or met it. In neither event, “presumption” in a technical sense. Rule however, would the allocation or the 301 of the Federal Rules of Evidence, nature of the burden of persuasion be which applies in bankruptcy proceedings, altered. see Bankruptcy Rule 9017, governs presumptions in civil cases not otherwise Under Sharon Steel, 871 F.2d at provided for by an Act of Congress or 1226, and Marvel, 140 F.3d at 471, the 6 party moving for the appointment of a Sharon Steel, 871 F.2d at trustee begins with the burden of 1226. “It is settled that persuasion by clear and convincing appointment of a trustee evidence. If the debtor in possession were should be the exception, required to prove certain basic facts in rather than the rule.” Id. at order to invoke the “presumption” at issue, 1225. In the usual chapter the debtor’s failure to do so would have no 11 proceeding, the debtor effect on the burden of persuasion, which remains in possession would “remain[] throughout the trial upon throughout reorganization the party on whom it was originally set.” because “current Fed. R. Evid 301. Similarly, if the management is generally presumption arose but was sufficiently best suited to orchestrate the rebutted by the Committee, the only effect process of rehabilitation for would be to relieve the Committee of its the benefit of creditors and burden of production. Fed. R. Evid 301. other interests of the estate.” It would then be up to the Bankruptcy In re V. Savino Oil & Court to weigh all the evidence and Heating Co., 99 B.R. 518, determine whether the Committee had 524 (Bankr. E.D.N.Y . proved its case by clear and convincing 1989). Thus the basis for evidence. This is precisely what the the strong presumption Bankruptcy Court did. against appointing an outside trustee is that there
“The debtor-in-possession is The other – and, we now hold, a fiduciary of the creditors correct – reading of Marvel is that our and, as a result, has an reference to the heavy “presumption” obligation to refrain from against the appointment of an outside acting in a manner which trustee was simply another way of could damage the estate, or referring to the heavy the burden of hin de r a s u c c e s sf u l persuasion (by clear and convincing reorganization.” party to evidence) that the party moving for the conduct operations during appointment of a trustee must bear. In the reorganization. Petit v. Marvel, we wrote: New England Mort. Servs., 182 B.R. 64, 69 (D.Me. The party moving for 1995) . T h e s t r on g appointment of a trustee . . . presumption also finds its must prove the need for a basis in the debtor-in- trustee . . . by clear and possession’s usual convincing evidence.” See familiarity with the business 7 it had already bee managing Furthermore, in the final sentence of the at the time of the bankruptcy passage, we cited Sharon Steel, 871 F.2d filing, often making it the at 1226, as support for the proposition that best party to conduct “the strong presumption also finds its basis o p erations durin g th e in the debtor-in-possession’s usual reorganization. See Sharon familiarity with the business it had already Steel, 871 F.2d at 1226. 140 F.3d at 471 (emphasis added) (citation c o n v in c i n g e v i d en c e omitted). supporting the motion prior to taking such action. See, When the references to a e.g., In re Sharon Steel, 871 “presumption” are read in the context of f.2d 1217, 1226 (3d Cir. this entire passage, it seems clear that we 1989) . . . . used the term as a synonym for the clear Petit, 182 B.R.at 69 (emphasis added). and convincing burden of persuasion. In the preceding sentence at 182 After expressly mentioning the burden of B.R. at 68, the Petit court wrote: persuasion in the first sentence of this The presumption in chapter passage, we began in the fourth sentence 11 cases is that “current to refer to the presumption without management is generally suggesting that we had moved on to a best suited to orchestrate the discussion of a new concept. In the next- process of rehabilitation for to-last sentence of the passage, we the benefit of creditors and discussed “the basis for the strong other interests of the estate.” presumption” and cited a page of a In re V. Savino Oil & bankruptcy court opinion that refers to the Heating Co., 99 B.R. 518, clear and convincing evidence burden of 524 ( Bankr. E.D.N.Y. persuasion. See Petit, 182 B.R. at 69.2 1989). (emphasis added). It is thus apparent that the Petit 2 On the cited page, Petit states: court used the term “presumption” as The party seeking the another way of referring to the burden of trustee’s appointment has persuasion. This interpretation is the burden of establishing reinforced by the fact that the sentence in the need for such action and, In re V. Savino Oil & Heating Co., 99 although the Court of B.R. at 524, that the Petit court partially Appeals for the First Circuit quoted used the term “assumption,” not has never held so directly, “presumption.” This shows that the Petit many courts require a court did not use the term “presumption” showing of clear and in its technical sense. 8 been managing at the time of the sometimes required to prove its case by bankruptcy filing.” Marvel, 140 F.3d at clear and convincing evidence. 471. Sharon Steel, however, while According to the Committee, if the debtor referring to the clear and convincing in possession lacks special expertise in burden of persuasion, makes no reference running the business and the appointment to the concept of a presumption. For all of a trustee would not impose large costs, these reasons, we interpret Marvel’s use of the party seeking the appointment of a the term presumption as simply referring trustee need only prove its case by the to the burden of persuasion, and not to the preponderance of the evidence. This concept of a presumption in the sense in argument is not only inconsistent with our which the term is used in the law of prior cases, but it advocates an awkward evidence. and unorthodox procedure. Whether a debtor in possession possesses special When Marvel is read in this way, expertise and whether the appointment of we see no basis for arguing that it was a trustee would be costly will often be improper to apply the clear and convincing contested, as they are here. In the standard in this case. In Sharon Steel, 871 Committee’s view, a bankruptcy court F.2d at 1226, we stated without would first be required to make findings qualification that “[t]he party moving for on those questions; then, depending on the appointment of a trustee . . . must those findings, it would identify the prove the need for a trustee . . . by clear applicable burden of persuasion; and and convincing evidence,” and in Marvel, finally, it would determine whether the 140 F.3d at 471, we quoted and applied applicable burden had been met. This this rule. Our further statement in Marvel, cumbersome and strange procedure has 140 F.3d at 471, that “[t]he facts . . . little to recommend it. militate[d] against invoking [the] presumption,” meant that the facts As Sharon Steel stated, the party satisfied the clear and convincing burden. asking for the appointment of a trustee In order for the Committee to prevail in bears the burden of persuasion by clear the present case, it too was obligated to and convincing evidence. This burden overcome that burden, but the Committee, does not shrink or shift. Whether the as noted, does not argue in this appeal that debtor in possession has special expertise the Bankruptcy Court abused its discretion and whether the appointment of a trustee in finding that the burden was not met. would entail substantial costs are relevant factors to be considered in determining What the Committee now seeks is a whether this burden has been met in a modification of the rule that we adopted in particular case. Sharon Steel. The Committee in effect asks us to hold that the party moving for the appointment of a trustee is only 9