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Bittner v. Borne Chemical Co.

decided: October 8, 1982.

JOHN W. BITTNER, ISA R. COBLE, WILLIAM T. GALEY, WALTER B. LEVERING, JR., WALTER F. MARTIN, ANDREW T. ROLFE, ROBERT H. SMELLIE, JR., MARY G. WILSON, AND C. MERRITT WINSBY, AND THE CLASS OF ALL PERSONS WHO WERE STOCKHOLDERS OF THE ROLFITE COMPANY ON NOVEMBER 30, 1979, APPELLANTS
v.
BORNE CHEMICAL COMPANY, INC., A CORPORATION OF THE STATE OF NEW JERSEY



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY -- NEWARK. (D.C. Civil No. 81-00239).

Gibbons, Weis and Sloviter, Circuit Judges.

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Circuit Judge.

Stockholders of The Rolfite Company appeal from the judgment of the district court, affirming the decision of the bankruptcy court to assign a zero value to their claims in the reorganization proceedings of Borne Chemical Company, Inc. (Borne) under Chapter XI of the Bankruptcy Code (Code), 11 U.S.C. §§ 1-15326 (Supp. IV 1981). Since the bankruptcy court neither abused its discretionary authority to estimate the value of the claims pursuant to 11 U.S.C. § 502(c)(1) nor relied on clearly erroneous findings of fact, we affirm.

I.

Prior to filing its voluntary petition under Chapter XI of the Code, Borne commenced a state court action against Rolfite for the alleged pirating of trade secrets and proprietary information from Borne. The Rolfite Company filed a counterclaim, alleging, inter alia, that Borne had tortiously interfered with a proposed merger between Rolfite and the Quaker Chemical Corporation (Quaker) by unilaterally terminating a contract to manufacture Rolfite products and by bringing its suit. Sometime after Borne filed its Chapter XI petition, the Rolfite stockholders sought relief from the automatic stay so that the state court proceedings might be continued.*fn1 Borne then filed a motion to disallow temporarily the Rolfite claims until they were finally liquidated in the state court. The bankruptcy court lifted the automatic stay but also granted Borne's motion to disallow temporarily the claims, extending the time within which such claims could be filed and allowed if they should be eventually liquidated.

Upon denial of their motion to stay the hearing on confirmation of Borne's reorganization plan, the Rolfite stockholders appealed to the district court, which vacated the temporary disallowance order and directed the bankruptcy court to hold an estimation hearing. The parties agreed to establish guidelines for the submission of evidence at the hearing, and, in accordance with this agreement, the bankruptcy court relied on the parties' choice of relevant pleadings and other documents related to the state court litigation, and on briefs and oral argument. After weighing the evidence, the court assigned a zero value to the Rolfite claims and reinstated its earlier order to disallow temporarily the claims until such time as they might be liquidated in the state court, in effect requiring a waiver of discharge of the Rolfite claims from Borne. Upon appeal, the district court affirmed.

II.

Section 502(c) of the Code provides:

There shall be estimated for purposes of allowance under this section --

(1) any contingent or unliquidated claim, fixing or liquidation of which, as the case may be, would unduly delay the closing of the case. . . .

The Code, the Rules of Bankruptcy Procedure, 11 U.S.C. app. (1977), and the Suggested Interim Bankruptcy Rules, 11 U.S.C.A. (1982), are silent as to the manner in which contingent or unliquidated claims are to be estimated. Despite the lack of express direction on the matter, we are persuaded that Congress intended the procedure to be undertaken initially by the bankruptcy judges, using whatever method is best suited to the particular contingencies at issue. The principal consideration must be an accommodation to the underlying purposes of the Code. It is conceivable that in rare and unusual cases arbitration or even a jury trial on all or some of the issues may be necessary to obtain a reasonably accurate evaluation of the claims. See 3 Collier on Bankruptcy para. 502.03 (15th ed. 1981). Such methods, however, usually will run counter to the efficient administration of the bankrupt's estate and where there is sufficient evidence on which to base a reasonable estimate of the claim, the bankruptcy judge should determine the value. In so doing, the court is bound by the legal rules which may govern the ultimate value of the claim. For example, when the claim is based on an alleged breach of contract, the court must estimate its worth in accordance with accepted contract law. See, e.g., 3 Collier on Bankruptcy para. 57.15 [3.2] (14th ed. 1977). However, there are no other limitations on the court's authority to evaluate the claim save those general principles which should inform all decisions made pursuant to the Code.

In reviewing the method*fn2 by which a bankruptcy court has ascertained the value of a claim under section 502(c)(1), an appellate court may only reverse if the bankruptcy court has abused its discretion.*fn3 That standard of review is narrow. The appellate court must defer to the congressional intent to accord wide latitude to the decisions of the tribunal in question. Section 502(c)(1) of the Code embodies Congress' determination that the bankruptcy courts are better equipped to evaluate the evidence supporting a particular claim within the context of a particular bankruptcy proceeding. Thus, an appellate court can impose its own judgment only when "the factors considered [by the bankruptcy court] do not accord with those required by the policy underlying ...


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