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In re Ceda Mills

September 8, 2010

CEDA MILLS, INC., APPELLANT.


The opinion of the court was delivered by: Terrence F. McVerry United States District Court Judge

MEMORANDUM OPINION AND ORDER OF COURT

Pending before the Court is an appeal from the April 13, 2010 order of the Bankruptcy Court filed by Debtor/Appellant Ceda Mills, Inc. ("Ceda Mills"). Ceda Mills filed a comprehensive brief in support of its position (Document No. 4), and the appeal is ripe for decision.

Bankruptcy Rule 8013 provides that the district court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed. R. Bankr. P. 8013. Bankruptcy Rule 8002 provides that notice of appeal must be filed within fourteen days "of the date of the entry of judgment, order, or decree appealed from." Fed. R. Bankr. P. 8002(a). Rule 8002 is jurisdictional in nature, and therefore, "[t]he failure to file a timely notice of appeal [from a Bankruptcy Court order] creates a jurisdictional defect barring appellate review." Taylor v. Taylor (In re Taylor), 343 Fed. Appx. 753, 755 n. 1 (3d Cir. Sept.2, 2009) (citing Shareholders v. Sound Radio, Inc., 109 F.3d 873, 879 (3d Cir.1997)) (internal quotations omitted). But see Bowles v. Russell, 551 U.S. 205, 209-13, 127 S.Ct. 2360, 168 L.Ed.2d 96 (2007); Eberhart v. United States, 546 U.S. 12, 15-17, 126 S.Ct. 403, 163 L.Ed.2d 14 (2005); Kontrick v. Ryan, 540 U.S. 443, 452-56, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004).

As this Court has previously held in an earlier appeal from Appellant regarding this same issue, serial attempts to obtain the same relief do not afford the movant with the protection of a renewed time period in which to appeal. In re Ceda Mills, Inc., No. 09-181, 2009 U.S. Dist. LEXIS 80787, * 12, 2009 WL 2883032 (W.D.Pa. Sept. 4, 2009). "The issue... is whether 'the factual and legal issues surrounding the [first order] and the [second order] are roughly similar." Taylor, 343 Fed. Appx. at 756 (citing Turner v. Evers, 726 F.2d 112, 114 (3d Cir.1984)). As the Court of Appeals for the Third Circuit explained, the focus is upon the function of the motion, not its caption. Turner, 726 F.2d at 114.

The order from which Appellant seeks an appeal is the latest challenge in a series by Appellant to orders from the Bankruptcy Court ordering Appellant to remit to its minority shareholders their unpaid pro rata share of surplus funds realized by Appellant upon the liquidation of its assets and the settlement of litigation. While the parties are familiar with the general background of this case, a review of the general factual and procedural history of the bankruptcy proceeding itself is appropriate, given the nature of this most recent appeal and the underlying orders of the Bankruptcy Court from which Appellant repeatedly repels.

On April 2, 2004, Appellant filed a voluntary petition for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Western District of Pennsylvania at bankruptcy number 04-24454. At the time of the filing, Appellant's business operations had ceased because of severe weather damage to both Appellant's plant and to its machinery. Pursuant to its amended plan of reorganization, which was filed along with an amended disclosure statement on April 20, 2005, Appellant would fund its plan for reorganization through the use of insurance proceeds and from ongoing business operations. The amended plan for reorganization also noted that if Appellant was "unsuccessful in its litigation against its insurance carrier, the Plan will require liquidation of the Debtor's assets and it is unlikely that anyone except administrative claimants and some secured claimants would receive payment." Appellant's amended plan of reorganization was confirmed on June 24, 2005.

In its effort to recover insurance proceeds, Appellant commenced an adversary proceeding on August 5, 2005 against Cincinnati Insurance Company (its insurance carrier), PNK United Inc., Tennis Roofing and Asphalt, Inc., and Glen Flex Roofing Systems, for, inter alia, property damage, business interruption, and bad faith denial of coverage. Pending the resolution of that adversary proceeding, the Bankruptcy Court granted Appellant's request and approved the sale of Appellant's real and personal property on July 19, 2006. The adversary proceeding ultimately resulted in a settlement between the parties on or about October 31, 2006. As the result of the settlement, Appellant obtained enough funds to pay all of its creditors the full amount of their allowed claims. In connection with the receipt of such funds, the Bankruptcy Court required Appellant to pay all creditors the full amount of their allowed claims. However, the settlement was placed under seal at the request of the defendants and without the objection of Appellant. As a result, apparently no notice was provided to Appellant's creditors or, more importantly to this appeal, to its minority shareholders about the receipt of funds as part of the settlement.*fn1

This appeal requires a review of the sequence, nature, and timing of Appellant's various filings and the Bankruptcy Court's orders beginning with the Order filed on September 19, 2008. With that Order, the Bankruptcy Court found that various claim settlements effectuated by Appellant with creditors were tainted with inequity, having been made by Appellant with the benefit of non-public information, namely with the knowledge of the result of the adversarial proceeding settlement. The Bankruptcy Court found that the hundreds of thousands of dollars of payments to, and for the benefit of, Appellant's principal and his relatives were unauthorized and improper because no such person had any valid claim allowed against Appellant. Further, the Bankruptcy Court found Appellant's financial reporting to that point to have been woefully inadequate and inaccurate. As such, the Bankruptcy Court ordered Appellant to provide shareholders and the Court itself with a full accounting and to further provide an opportunity for the minority shareholders to be paid their ratable share of the surplus funds recovered in light of the fact this was a liquidating Chapter 11 bankruptcy that has resulted in enough funds to pay creditors in full and to pay a sizable distribution to equity holders, coupled with the fact that Appellant had been paying its principal and his relatives without remitting any distributions to minority shareholders. The Bankruptcy Court's holding was based upon the fact that the case had become a Chapter 11 liquidation, and the determination that the minority shareholders had not been provided with meaningful notice of any of the proceedings.*fn2

Instead of appealing that Order, Appellant opted to move for modification/reconsideration on September 29, 2008. In particular, Appellant lodged six challenges to the September 19, 2008 Order exclusively related to the proposed Notice to Shareholders. Notable for the purpose of the pending appeal, Appellant advanced the following two arguments:

1. The [Bankruptcy] Court lacks jurisdiction over the relations of a Post-Conformation Debtor corporation and its shareholders in matters unrelated to the substantial consummation of the Debtor's Plan, particularly in the absence of any controversy, case or proceeding.

2. The Court has improperly abrogated the rights of the Debtor as to its shareholders by disregarding the provision of the Pennsylvania Business Corporation laws and in disregarding the Debtor's Corporate Bylaws and Shareholder Agreements.

These are the very same arguments presented by Appellant in the appeal sub judice. Further, not only are the arguments the same, the structure and rationale for the arguments, including citations to legal authority, are the same.

A hearing was conducted on October 21, 2008, to consider Appellant's motion to modify order/motion for reconsideration. On November 14, 2008, the Bankruptcy Court entered a Memorandum Opinion and Order which denied said motion. The Bankruptcy Court made a specific finding that "Ceda Mills' inaccurate and incomplete financial reporting undermines the integrity of the bankruptcy process." As originally outlined in the September 19, 2008 Order, and reiterated in greater detail in the November 14, 2008 Memorandum Opinion and Order, the purpose of the notification requirement to shareholders was the result of what the Bankruptcy Court determined to be inaccurate, incomplete, and misleading financial reporting by Appellant. Among other deficiencies, the Bankruptcy Court noted that financial reports submitted by Appellant were "illegible", "difficult to read", "virtually all of them are hand-written", they "omit a number of items that should have been reported... for example, both [the specific amount] received as a result of the October 31, 2006 settlement and the extensive payments by Ceda Mills to the insiders of the debtor appear to be omitted and/or under reported", and "income in the Statement of Operations is... under reported" by a significantly large amount.

On November 25, 2008, the Bankruptcy Court granted Appellant's motion for an extension of time to December 15, 2008 to appeal the November 14, 2008 order. Once again, Appellant chose not to file an appeal, but rather filed a motion for appropriate relief under Fed.R.Civ.P. 60(b) from the November 14, 2008 Memorandum Opinion and Order, arguing that the actions it took subsequent to the November 14, 2008 Order satisfied Appellant's obligations to account to the shareholders. More particularly, Appellant averred that it had proposed and made distributions to the minority shareholders in amounts equal to the return of each shareholder's original capital investment. Appellant further averred that the minority shareholders were satisfied with receiving a ...


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