596 B.R. 350
Bankr. W.D. Tenn.2019Background
- Debtor William H. Thomas Jr., a licensed attorney and businessman, has long-running prepetition litigation with creditors Clear Channel Outdoor and Tennison Brothers and with the Tennessee Department of Transportation (TDOT) over illegally constructed billboards; state-court judgments were entered against him.
- Clear Channel, Tennison Brothers, and TDOT are prepetition judgment (judicial lien) creditors and filed proofs of claim in the Chapter 11 case; Thomas has contested those claims and filed adversary proceedings seeking preferences/fraudulent-transfer relief.
- Clear Channel moved for appointment of a Chapter 11 trustee (first motion denied without prejudice in 2017); after debtor’s counsel withdrew in late 2018, Clear Channel renewed its motion in November 2018, joined by TDOT and Tennison Brothers.
- Debtor and his wife opposed appointment, arguing creditors lack pecuniary interest and there has been no change in circumstances; U.S. Trustee took no position but asked that a trustee, if appointed, have full statutory powers.
- The record showed extensive acrimony, discovery battles, multiple adversary proceedings and contested matters, no approved disclosure statement, no plan, and pro se debtor conduct after counsel withdrew.
- The bankruptcy court concluded that severe, entrenched acrimony and lack of progress in the case established cause and that appointment of a disinterested Chapter 11 trustee with full powers was in the best interests of creditors and the estate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists under 11 U.S.C. § 1104(a)(1) to appoint a trustee | Clear Channel: prolonged acrimony, discovery disputes, counsel withdrawal, and inability to proceed justify trustee appointment | Thomas: mere acrimony insufficient; creditors failed to show changed circumstances since first motion | Court: Found severe, entrenched acrimony and litigation history constitute "cause"; trustee appointed |
| Whether appointment is warranted under § 1104(a)(2) (best interests test) | Creditors/TDOT: neutral trustee will facilitate administration, mediate disputes, enable plan process | Thomas: creditors lack pecuniary interest (should be subordinated) and no need for trustee; Mrs. Thomas preparing a creditor plan | Court: Appointment in creditors’ and estate’s best interests; trustee with full powers ordered |
| Standing of prepetition judgment creditors to move for trustee | Creditors: hold bankruptcy "claims" and therefore have standing to seek trustee | Thomas: creditors’ claims punitive/non-pecuniary and should be subordinated, removing standing | Court: Creditors have claims under § 101(5); amount of claim not dispositive; they have standing |
| Appropriate scope of trustee's authority | U.S. Trustee and creditors: trustee should have full statutory powers and duties | Thomas: (implicitly) any trustee should be limited; opposes removal of debtor control | Court: Orders appointment of Chapter 11 trustee with full statutory duties, powers, responsibilities |
Key Cases Cited
- Marvel Entm't Group v. Official Comm. of Unsecured Creditors, 140 F.3d 463 (3d Cir. 1998) (severe, irreconcilable acrimony between debtor and creditors can constitute cause to appoint a trustee)
- Cajun Elec. Power Coop. v. Cent. La. Elec. Coop., 74 F.3d 599 (5th Cir. 1996) (acrimony can justify trustee when parties work at cross-purposes)
- In re Sharon Steel Corp., 871 F.2d 1217 (3d Cir. 1989) (appointment of trustee is an extraordinary remedy and presumption favors debtor-in-possession)
- Adams v. Marwil (In re Bayou Grp., LLC), 564 F.3d 541 (2d Cir. 2009) (discusses burden of proof and standards for appointing a trustee)
- Morgenstern v. Revco D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498 (6th Cir. 1990) (standing under § 1104(a)(2) generally requires a pecuniary interest, subject to public-interest exceptions)