Court Opinion

ID: 1042527
Source: CourtListenerOpinion
Date Created: 2013-10-01 19:36:49.850497+00
Date Added: 2024-06-11T12:30:09.484704
License: Public Domain

NOT PRECEDENTIAL

            UNITED STATES COURT OF APPEALS
                 FOR THE THIRD CIRCUIT
                      _____________

                           No. 12-3488
                          _____________

                    In re: CEDA MILLS, INC.,
                                Debtor

                          CHET DUFFY,
                                Appellant
                          _____________

                           No. 12-3560
                          _____________

                    In re: CEDA MILLS INC.,
                               Appellant

          On Appeal from the United States District Court
               for the Western District of Pennsylvania
       (District Court No. 2-10-cv-00796 and 2-10-cv-00599)
        District Judge: The Honorable Terrence F. McVerry

         Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                       September 12, 2013

Before: McKEE, Chief Judge, SMITH, and SLOVITER, Circuit Judges

                      (Filed: October 1, 2013)

                     _____________________

                            OPINION
                     _____________________
SMITH, Circuit Judge.

      This is an appeal by a debtor, Ceda Mills, Inc. (“Ceda Mills”), and its

majority shareholder, Chet Duffy (“Duffy”), from an order by the United States

District Court for the Western District of Pennsylvania affirming a final order of

the United States Bankruptcy Court for the Western District of Pennsylvania

instructing Ceda Mills to make distribution payments to minority shareholders.1

We will affirm.

      Ceda Mills was a company that processed steel at a facility in New Castle,

Pennsylvania. Duffy is the controlling shareholder of Ceda Mills, owning 83% of

the company’s outstanding shares of stock. The remaining 17% of the company’s

stock is held by four minority shareholders.

      In late summer and early autumn 2003, Ceda Mills’ facility and equipment

sustained extensive damage from severe thunderstorms, forcing the company to

cease operations. On April 2, 2004, Ceda Mills filed a voluntary petition under

Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy

Court for the Western District of Pennsylvania.        Among the debtor’s most

significant assets were claims brought in adversary proceedings by Ceda Mills

against its insurance carriers for bad faith denial of coverage and property damage

1
 The Bankruptcy Court had jurisdiction under 28 U.S.C. § 157. The District Court
had jurisdiction to review the Bankruptcy Court’s Order pursuant to 28 U.S.C.
§ 158(a). We exercise jurisdiction under 28 U.S.C. § 158(d).
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relating to the thunderstorms. On October 31, 2006, Ceda Mills successfully

negotiated a settlement of some of these claims, resulting in payment of

approximately $14.1 million to Ceda Mills.

      As the bankruptcy estate progressed, the Bankruptcy Court became

concerned that conduct by Ceda Mills and Duffy was threatening the integrity of

the bankruptcy process. Among other things, the Bankruptcy Court learned that

Duffy and Ceda Mills had failed to disclose information concerning the debtor’s

financial state (including information about the insurance settlement) to Ceda

Mills’ minority shareholders and creditors, thereby failing to give to these

interested parties an accurate disclosure of the debtor’s true financial condition.

The Bankruptcy Court also became concerned about several transfers of money

from Ceda Mills’ accounts to Duffy and members of his immediate family.

      In February 2010, Ceda Mills requested that the Bankruptcy Court accept

shareholder election forms signed by several minority shareholders. These forms

stated that the minority shareholders wished to waive any pro rata distribution of

excess funds held by Ceda Mills in exchange for the return of their initial

investment in the company.       The Bankruptcy Court declined to accept the

shareholder election forms, reasoning that it made no economic sense for the

minority shareholders to waive their right to the company’s surplus funds. Instead

                                        3
of accepting the shareholder election forms proffered by the debtor, the

Bankruptcy Court instructed the Office of the United States Trustee to investigate

the circumstances surrounding the minority shareholders’ signing of the

shareholder election forms.

      On March 10, 2010, the Trustee filed a report and recommendation advising

that three of the minority shareholders wished to rescind their previous elections

and instead receive their full pro rata interest in the company’s surplus funds. On

April 13, 2010, over the objection of Ceda Mills and Duffy, the Bankruptcy Court

adopted the findings of the Trustee’s report and issued an order that instructed

Ceda Mills to distribute excess funds to the minority shareholders who had elected

to receive such distributions in pro rata amounts equal to each shareholder’s equity

interest. Ceda Mills and Duffy each appealed the Bankruptcy Court’s order to the

District Court.2 On March 29, 2012, the District Court entered an order affirming

the Bankruptcy Court’s April 13, 2010 order. This timely appeal followed.

      On appeal of an order of the District Court in its bankruptcy appellate

capacity, we review the District Court’s findings of fact for clear error and its legal

conclusions de novo. In re Pransky, 318 F.3d 536, 542 (3d Cir. 2003). The

2
 The District Court initially dismissed both of the appeals as untimely. Ceda Mills
and Duffy each appealed dismissal. On July 18, 2011, this Court held that the
appeals from the Bankruptcy Court’s April 13, 2010 order were timely and sent the
matter back to the District Court. See In re Ceda Mills, Inc., 652 F.3d 495 (3d Cir.
2011).
                                          4
District Court rejected appellants’ argument that the Bankruptcy Court exceeded

its jurisdiction in issuing the April 13, 2010 order, holding that this order was a

proper exercise of the Bankruptcy Court’s jurisdiction under 28 U.S.C.

§ 157(b)(2)(A) & (b)(2)(O). The District Court also held that the Bankruptcy

Court did not violate appellants’ due process rights when it ordered Ceda Mills to

make distributions to minority shareholders without first conducting an evidentiary

hearing. In reaching this decision, the District Court agreed with the Bankruptcy

Court’s determination that no hearing was necessary because Ceda Mills and Duffy

had previously argued the issue before the Bankruptcy Court on several occasions.

Finally, the District Court did not modify the amounts that the Bankruptcy Court

ordered Ceda Mills to distribute to the minority shareholders, which were

calculated based on a financial report provided to the Bankruptcy Court on

November 19, 2009 by Ceda Mills’ counsel.

         After reviewing the record before us, we conclude that the District Court did

not err in its analysis. Accordingly, we will affirm the judgment of the District

Court.

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