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Browning v. Prostok5/27/2005
Argued October 19, 2004
JUSTICE O'NEILL did not participate in the decision.
This dispute arises out of highly contentious bankruptcy proceedings. During the bankruptcy proceedings, a committee representing bond and trade unsecured creditors vigorously disputed the valuation of the debtor as presented by the debtor's management. The committee sought to replace the debtor's management with a bankruptcy trustee, based in part on allegations of intentional undervaluation of the debtor. In addition, the committee objected to the debtor's plan of reorganization, again raising allegations of intentional undervaluation. Over two years after the bankruptcy court entered its order confirming the reorganization plan proposed by the debtor, a class of bondholders brought this suit. The class of bondholders alleges that the officers and directors breached their fiduciary duties by intentionally undervaluing the debtor during the bankruptcy proceedings. The trial court granted summary judgment against the class and entered a take-nothing judgment. We consider whether the class claims, based on conduct occurring during bankruptcy proceedings, can be maintained in state court years after the bankruptcy court's final order confirming the debtor's reorganization plan. We conclude that the claims cannot.
I. Background and Procedural History
A. Bankruptcy Proceedings
On October 28, 1990, National Gypsum Company and its parent holding company, Aancor Holdings (collectively National Gypsum), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. The United States Bankruptcy Court for the Northern District of Texas, Dallas Division, consolidated and jointly administered the cases.
National Gypsum had three classes of publicly traded debt: 1) senior notes, 2) senior debentures, and 3) junior bonds. The senior notes and senior debentures were held by several entities known collectively as the Senior Bondholders. The junior bonds were held by persons and entities referred to as Junior Bondholders, and include Jeff Prostok and the class members he represents. In addition, there were parties holding actual or potential claims against National Gypsum arising from personal injury and property damage related to asbestos products, the Asbestos Claimants. This case stems from conflicts that arose during the bankruptcy proceedings between the Junior Bondholders and Asbestos Claimants, on one side, and the Senior Bondholders and National Gypsum management, on the other.
During the bankruptcy proceedings, National Gypsum operated as debtor-in-possession under the Bankruptcy Code. In November 1990, the United States trustee appointed a committee of bond and trade unsecured creditors (the BT Committee) to serve as a statutory creditors' committee in the Chapter 11 proceedings. Section 1104 of the Bankruptcy Code authorizes the bankruptcy court to replace a debtor-in-possession with an appointed trustee upon a determination that it would be in the best interest of the debtor's stakeholders or upon a determination of "cause, including fraud, dishonesty, incompetence, or gross management." 11 U.S.C. ยง 1104(a). In January 1992, the BT Committee moved to replace National Gypsum's management with a bankruptcy trustee for the National Gypsum estate. The BT Committee claimed, among other things, that National Gypsum management had intentionally undervalued National Gypsum by "understat all its forecasts to hide its objective views of the company." After a two-day hearing on the motion in March 1992, the bankruptcy court held that the BT Committee did not meet its burden on this issue and denied the BT Committee's motion.
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