Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Phar-Mor, Inc. v. Coopers & Lybrand

filed: April 11, 1994; As Corrected May 27, 1994.

PHAR-MOR, INC., PLAINTIFF
v.
COOPERS & LYBRAND, DEFENDANT. THE OFFICIAL UNSECURED CREDITOR'S COMMITTEE OF PHAR-MOR, INC., APPELLANTS *FN* IVAN BOWEN, II, ROBERT J. CARR, VERNON L. CARSON, MERLE T. CARSON, ROBERT M. CHASE, STEPHEN M. EHRLICHMAN, ROBERT J. FRISBY, RONALD GOLDBERG, CECILE GUTHMAN, HOWARD D. HIRSH REVOCABLE TRUST, WALTER JACOBSON, DIANE DYBSKY JACOBSON, ROBERT A. JUDELSON, EDWARD L. LEMBITZ PROFIT SHARING PLAN, MARC LEVENSTEIN, ANGELA LEVENSTEIN, MAURICE SPORTING GOODS, INC., PROTECTIVE INSURANCE COMPANY, ROBERT A. RIESMAN, JR., PHILIP E. ROLLHAUS, JR., JEANETTE M. SHEA TRUST, SPIEGEL, INC. SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN FOR THE BENEFIT OF JOHN J. SHEA, HELEN SHIRE, JACK SHIRE, BERNARD M. SUSMAN REVOCABLE TRUST, GLEN R. TRAYLOR, UNION LEAGUE BOYS & GIRLS CLUBS, RICHARD E. WEISS, JOHN B. WHITTED, JR., STEIN ROE INVESTMENT TRUST, OLYMPUS PRIVATE PLACEMENT FUND, L.P., VENCAP HOLDINGS [1987] PTE LTD., ODYSSEY PARTNERS, L.P., KEMPER TOTAL RETURN FUND, KEMPER GROWTH FUND, KEMPER RETIREMENT FUND SERIES I, KEMPER RETIREMENT FUND SERIES II, KEMPER SMALL CAPITALIZATION EQUITY FUND, KEMPER INVESTMENT PORTFOLIOS GROWTH PORTFOLIOS, KEMPER INVESTMENT PORTFOLIOS TOTAL RETURN PORTFOLIO, LUMBERMENS MUTUAL CASUALTY COMPANY, KEMPER FINANCIAL SERVICES, INC., NEW ECONOMY FUND, ANCHOR PATHWAY FUND GROWTH SERIES, AMERICA VARIABLE INSURANCE SERIES GROWTH FUND, ALBERT H. BITZER, JR. REVOCABLE TRUST, THE BOWEN FAMILY PARTNERSHIP, INC., SELECT EQUITY FUND OF THE COLLECTIVE TRUST FUNDS OF THE NORTHERN TRUST COMPANY, GROWTH EQUITY FUND-A OF THE COMMON TRUST FUNDS OF THE NORTHERN TRUST COMPANY, STEINROE PRIME EQUITIES, ANDREW K. BLOCK TRUST NO. 2, DAVID A. BRESKIN, BURTON B. KAPLAN, ARTHUR CHARLES NIELSEN, JR., RALPH M. SEGALL TRUST, MITCHELL GOLD-SMITH, ALLAN C. LICHTENBERG TRUST, EVA F. LICHTENBERG, JAMES D. WINSHIP, M.S. BLOCK 1985 FAMILY TRUST, PAGTIP, SHEET METAL WORKERS PENSION FUND, INTERVENORS*FN**



On Appeal From the United States District Court for the Western District of Pennsylvania. (D.C. Civil No. 92-02108).

Before: Becker and Stapleton, Circuit Judges, and Restani, Judge, U.s. Court of International Trade*fn*

Author: Becker

Opinion OF THE COURT

BECKER, Circuit Judge.

This appeal presents the interesting and important question whether § 1109(b) of the Bankruptcy Code, 11 U.S.C. § 1109(b), which provides that a creditors' committee "may raise and may appear and be heard on any issue in a case [under Chapter 11]," gives a creditors' committee the unconditional right to intervene in a proceeding in federal district court which is "related to" a bankruptcy case. This question arises in the context of a lawsuit filed by Phar-Mor, Inc. against its auditors, the accounting firm of Coopers and Lybrand ("Coopers"), alleging that Coopers failed to detect and/or was itself involved in a massive scheme to defraud Phar-Mor, a scheme so large that it forced Phar-Mor into bankruptcy once it came to light.

The lawsuit between Phar-Mor and Coppers had originally been filed in state court but was later removed to federal court, and the Unsecured Creditors' Committee of Phar-Mor (the "Committee") sought to intervene pursuant to Federal Rule of Civil Procedure 24. Both Phar-Mor and Coopers opposed the Committee's motion. The central issue before the district court on the motion was whether § 1109(b) gave the Committee an absolute right to intervene in the lawsuit under Federal Rule of Civil Procedure 24(a)(1), which provides that a party shall be permitted to intervene when a statute of the United States confers an unconditional right to intervene. The Committee argued that § 1109(b) gave it such a right, relying on this court's decision in In re Marin Motor Oil, Inc., 689 F.2d 445 (3d Cir. 1982), cert. denied, 459 U.S. 1207, 103 S. Ct. 1196 (1983), which held that § 1109(b) gives a creditors' committee an unconditional right to intervene in an adversary proceeding initiated by a trustee.

Phar-Mor and Coopers responded that § 1109(b) gave the Committee no right to intervene, and distinguished Marin. Section 1109(b), they contended, only applies to cases "under" Chapter 11, not those merely "related to" a Chapter 11 case; the Phar-Mor/Coopers lawsuit, which had been filed as a state common law civil action and then removed to federal court pursuant to 28 U.S.C. § 1452, was in federal court only because it was "related to" a bankruptcy case. Phar-Mor and Coopers focussed on what they thought were two related, but distinct, limitations of Marin. First, they submitted, Marin held only that § 1109(b) gave creditors' committees a right to intervene in "adversary proceedings," yet the lawsuit was not an adversary proceeding but a common law civil action in federal district court. Second, Phar-Mor and Coopers argued that Marin held only that the right to intervene extended to adversary proceedings brought by a trustee "under" Chapter 11, and since the Phar-Mor/Coopers lawsuit did not arise "under" Chapter 11, but was merely "related to" a Chapter 11 case, Marin did not apply.

The district court agreed with Phar-Mor and Coopers, and denied the Committee's motion to intervene. We reverse. We conclude that the Phar-Mor/Coopers lawsuit is an adversary proceeding, and that, in light of Marin, § 1109(b) gives a creditors' committee the right to intervene in an adversary proceeding, like the Phar-Mor/Coopers lawsuit, which is "related to" a bankruptcy case.

I. FACTS AND PROCEDURAL HISTORY

In July, 1992, Phar-Mor, one of the country's largest "deep-discount" drugstore chains, discovered that two of its executives, Michael Monus and Patrick Finn, had bilked it out of hundreds of millions of dollars. Believing that its auditors, Coopers, should have known what was going on, Phar-Mor sued Coopers in the Court of Common Pleas of Allegheny County (Pennsylvania) for fraud and malpractice, seeking in the neighborhood of $1 billion in damages.*fn1 Later that day, Phar-Mor filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Ohio.*fn2 About two months later, Coopers removed the state fraud and malpractice action to the United States District Court for the Western District of Pennsylvania pursuant to 28 U.S.C. § 1452(a), which allows a party to remove a cause of action "related to" a bankruptcy case from state court to federal district court.*fn3 The case is currently pending in that court.

The Committee moved to intervene in the now-federal lawsuit claiming, among other things, that it had an unconditional right to intervene under § 1109(b), which gives parties in interest an unconditional right to be heard on "any issue in a case under [Chapter 11]." The Committee argued that § 1109(b) gives it such a right because this court had held in Marin that § 1109(b) gives a creditors' committee an unconditional right to intervene in an adversary proceeding brought by a trustee in a Chapter 11 case. See 689 F.2d at 445. The district court denied the motion, holding that § 1109(b), as interpreted by Marin, does not give the Committee a right to intervene in a proceeding pending in federal district court, like the Phar-Mor/Coopers lawsuit, which is merely "related to" a bankruptcy case.*fn4

The Committee has timely appealed the district court's order denying the motion. We have jurisdiction because an order denying intervention of right is an appealable order. See Marin, 689 F.2d at 448-49. Because application of Rule 24(a)(1) requires the district court to construe the language of a statute, a purely legal question, our review of the district court's ruling on the Rule 24(a)(1) motion to intervene is plenary. See Air Courier Conference/Int'l Comm. v. U.S. Postal Serv.,c 959 F.2d 1213, 1217 (3d Cir. 1992).

II. MARIN

Federal Rule of Civil Procedure 24(a)(1) provides that upon timely application anyone shall be permitted to intervene in an action "when a statute of the United States confers an unconditional right to intervene." Fed. R. Civ. P. 24(a)(1). Whether § 1109(b) gives the Committee such an unconditional right to intervene in this litigation turns on our reading of Marin. As has been mentioned, this court held in Marin that § 1109(b) gives a creditors' committee an unconditional right to intervene in an adversary proceeding initiated by a trustee in a case under Chapter 11. In Marin, the debtor, Marin Motor Oil, Inc., filed a voluntary Chapter 11 petition and the trustee initiated two adversary proceedings -- one to impose a constructive trust on a home bought with money borrowed from the debtor corporation by its owner, and another to pierce the debtor corporation's veil so as to extend the Chapter 11 proceedings to the Marins' other businesses and the Marins personally and bring the non-debtors' assets into the debtor's estate. 689 F.2d at 446-447. The creditors' committee, unhappy with the trustee's performance, moved to intervene in the adversary proceedings. Id. at 447. The trustee opposed the intervention, arguing that § 1109(b) was limited to "cases,"*fn5 and that since the trustee was involved in "adversary proceedings," § 1109(b) did not apply. Id. at 450.

We rejected the trustee's argument, stating that § 1109(b) gave parties in interest an "unqualified" right to be heard, and, therefore, the term "case" in § 1109 includes any adversary proceeding instituted by a trustee under Chapter 11. Id. at 451. We viewed such an interpretation of § 1109(b) not only as the one best supported by the legislative history, but also as the one that comported with the usual expectation of parties in interest "that they will have a right to be heard, . . . by the tribunal adjudicating their interests." Id. at 450-51, 457.

Although a number of courts have agreed with Marin 's interpretation of § 1109(b), see In re Neuman, 124 Bankr. 155, 159-160 (S.D.N.Y. 1991), In re D.H. Overmyer Telecasting Co., 53 Bankr. 963, 975 (N.D. Ohio 1984), aff'd without op., 787 F.2d 589 (6th Cir. 1986), cf. In re Sapolin Paints, Inc., 6 Bankr. 582, 583-84 (Bankr. E.D.N.Y. 1980) (pre-Marin case employing a similar rationale to allow intervention in adversary proceedings pursuant to § 1109(b)), a number of courts have rejected it, see, e.g., Fuel Oil Supply & Terminaling v. Gulf Oil Corp., 762 F.2d 1283, 1286-87 (5th Cir. 1985); 995 Fifth Ave. Assocs., L.P. v. New York State Dep't of Taxation & Fin. (In re 995 Fifth Ave. Assocs., L.P.), 157 Bankr. 942, 951 (S.D.N.Y. 1993); In re CVC, Inc., 106 Bankr. 478, 479 (Bankr. N.D. Ohio 1989); In re Charter Co., 50 Bankr. 57, 62 (Bankr. W.D. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.