Harper v. Oversight Committee (In Re Conco, Inc.)
855 F.3d 703
| 6th Cir. | 2017Background
- Conco, Inc., wholly owned by an ESOP, filed Chapter 11 on Nov. 5, 2012; its primary competitor Delfasco sought to acquire Conco during the bankruptcy.
- Conco’s Third Amended Plan (confirmed Nov. 20, 2014) treated equity (Class 4) as retained by holders and included language that "the Debtor may not contribute . . . nor repurchase any employee-owned equity securities through December 31, 2018."
- The UCC supported the plan (which provided defined and contingent creditor distributions through 2018) after negotiations that rejected Delfasco’s takeover proposals because major customers would terminate contracts if Delfasco gained control.
- ESOP trustees and others later received offers from Delfasco to buy the ESOP-held Conco stock; trustees sued (ERISA claims) and the oversight committee moved to enforce the confirmed plan to enjoin any sale of Class 4 equity before Dec. 31, 2018.
- The bankruptcy court (Feb. 18, 2016) enjoined sale/transfers of the ESOP-held equity until Jan. 1, 2019; the district court affirmed and the Sixth Circuit, reviewing the bankruptcy court’s interpretation for abuse of discretion, affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court modified or merely interpreted the Confirmed Plan (standard of review) | Appellants: ruling effectively modified the plan or required de novo review as a pure legal contract interpretation | Appellees: court only interpreted the plan and exercised equitable powers; deferential (abuse of discretion) review applies | Court: interpretation + equitable enforcement; abuse of discretion is proper standard |
| Whether the Confirmed Plan unambiguously prohibited third-party sales of ESOP-held equity through 12/31/2018 | Appellants: plan language only bars Debtor from repurchasing shares; silent re third-party sales, so such sales are permitted | Appellees: silence read in context and negotiations shows intent to maintain same ownership/management through 2018 and thus bar sales to third parties (esp. Delfasco) | Court: text ambiguous/silent but contextual contract principles and plan history show parties intended to prevent third-party sales through 2018; enjoin sales until 1/1/2019 |
| Whether the Disclosure Statement failed to adequately disclose a sale restriction | Appellants: identical language in disclosure statement shows no restriction on third-party sales | Appellees: disclosure mirrored the plan and therefore adequately disclosed the bargain | Court: Disclosure Statement adequately mirrored plan; no abuse of discretion finding |
| Whether enjoining Delfasco’s purchase was within bankruptcy equitable/enforcement powers | Appellants: prohibiting third-party sale exceeds plan terms | Appellees: §1142(b) and court’s power to interpret confirmation orders support injunction to effectuate plan | Held: Bankruptcy court properly exercised equitable enforcement authority to prevent a sale that would defeat the plan’s purpose through 2018 |
Key Cases Cited
- In re Dow Corning Corp., 456 F.3d 668 (6th Cir. 2006) (confirmed-plan interpretation reviewed for abuse of discretion where court exercised equitable powers)
- In re Terex Corp., 984 F.2d 170 (6th Cir. 1993) (distinguishing plan interpretation from legal conclusion; deference to bankruptcy court’s plan interpretation)
- Travelers Indemnity Co. v. Bailey, 557 U.S. 137 (2009) (bankruptcy court has power to interpret its prior orders)
- McMillian v. LTV Steel, Inc., 555 F.3d 218 (6th Cir. 2009) (appellate review of bankruptcy court’s order is direct; no deference to district court on appeals from district court affirming bankruptcy court)