Protopapas v. Whittaker, Clark & Daniels, Inc.

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PETER PROTOPAPAS in his capacity as Court-Appointed Receiver and THE OFFICIAL COMMITTEE OF TALC CLAIMANTS, Appellants, v. WHITTAKER, CLARK & DANIELS, INC., Appellee.

Civil Action No. 23-4151 (ZNQ)

United States District Court, D. New Jersey

May 31, 2024

NOT FOR PUBLICATION

OPINION

ZAHID N. QURAISHI UNITED STATES DISTRICT JUDGE

THIS MATTER comes before the Court upon Peter Protopapas', in his capacity as a Court Appointed Receiver (“Receiver”), and the Official Committee of Talc Claimants' (“Talc Claimants,” together “Appellants”) joint filing of an appeal of the District of New Jersey Bankruptcy Court's (“Bankruptcy Court”) decision to deny a motion to dismiss a Chapter 11 bankruptcy filed by Whittaker, Clark & Daniels (“WCD” or “Appellee”). (ECF No. 1.)^[1] The Court has carefully considered the parties' submissions and decides the Motion without oral argument pursuant to Federal Rule of Civil Procedure 78 and Local Civil Rule 78.1. For the reasons set forth below, the Court DISMISSES Appellants' appeal.

I. BACKGROUND AND PROCEDURAL HISTORY

A. BACKGROUND ON WCD

WCD was a New York corporation that from 1918 through 2004 supplied “minerals and pigments” to industrial customers. (WCD Brief (“WCD Br.”), ECF No 22 at 15.)^[2] WCD reincorporated in New Jersey in 1972. (Id.) At its peak, WCD was “one of the largest talc and industrial compound supply and distribution businesses in the United States.” (ECF No. 18-1 at 851; see also WCD Br. at 15.) Brilliant National Services (“Brilliant”) purchased WCD's stock in 1988. (Appellants' Brief (“App. Br.”), ECF No. 18 at 18.) WCD, Brilliant, and affiliate entities L.A Terminals, Inc. (“LAT”) and Soco West, Inc. (“Soco”, collectively, “Debtors”), are all owned by Berkshire Hathaway. (App. Br. at 18.) WCD, LAT, and Soco are direct or indirect subsidiaries of Brilliant. (Id.)

In 2004 the operating assets and intellectual property of WCD and the affiliate entities were sold to Bain Capital under the umbrella of Benntag N.A., at which time WCD “kept tort liabilities involving asbestos and talc.”^[3](WCD Br. at 15; App. Br. at 19.) WCD, Soco, and Brilliant also retained liability for environmental remediation costs and obligations relating to their, and their predecessors in interest, “production or handling of hazardous materials which contaminated certain properties” as well as specific assets including “asbestos- and environmental-related insurance receivables and certain real estate.” (App. Br. at 19-20.) In 2004 WCD stopped operating commercially, and became what Appellants in this case characterize as “a nonoperating shell entity whose corporate existence has been maintained for the sole purpose of managing legacy asbestos- and talc-related liabilities.” (Id. at 20.)

In 2007 the Debtors were purchased by National Indemnity Company, an affiliate of Berkshire Hathaway. (Id.) Since the purchase, the Debtors have paid out $300 million related to asbestos and environmental claims. (Id.) As of Appellants' Petition Date, there were approximately 1,012 asbestos- and talc- related litigation claims pending against WCD, and one environmental-related claim. (Id.)

B. THE SOUTH CAROLINA ACTION

On March 3, 2023 a jury rendered a verdict of over $29 million against WCD in the South Carolina Court of Common Pleas (“South Carolina court”) case Sarah J. Plant and Parker Plant v. Avon Products, Inc., et al., C/A No. 2022-CP-40-1265 (S.C. C.P.) related to asbestos exposure in cosmetics leading to mesothelioma. (Id.) Following the verdict, plaintiffs in the South Carolina action Sarah J. Plant and Parker Plant (together, “Plant”) filed a motion asking the South Carolina court to appoint a receiver for WCD under the South Carolina Code § 15-65-10(4) (“S.C. § 15-6510(4)”). (Id. at 21 (citing ECF No. 18-1 at 91).) S.C. § 15-65-10(4) allows for the appointment of a receiver by a judge of the circuit court in cases where, “a corporation . . . is insolvent or in imminent danger of insolvency . . . and, in like cases, of the property within this state of foreign corporations.” S.C. § 15-65-10(4).

Justice Jean Hoefer Toal (ret.), a retired Chief Justice of the Supreme Court of South Carolina who has now been appointed to the trial court bench to oversee South Carolina's asbestos cases, presided over the case. (App. Br. at 21.) Justice Toal granted the motion on an expedited basis on March 10, 2023, finding that based on documents in front of the court, existing jury verdicts, and the court's knowledge of additional pending litigations against WCD, “WCD appears to actually be insolvent and it is certainly in imminent danger of insolvency.” (“Receivership Order”, ECF No. 18-1 at 12.) Justice Toal appointed Peter Protopapas as receiver under the statute “pursuant to the South Carolina Law” and conferred the “power and authority [sic] fully administer all assets of WCD, accept service on behalf of WCD, engage counsel on behalf of WCD and take any and all steps necessary to protect the interests of WCD whatever they may be.” (See generally id. at 8-15.) The Receivership Order specified “the powers of a receiver are as broad as the law permits” and noted “[n]othing in this order is intended to limit the power of the receiver to bring claims against any entity or individual.” (Id. at 12.) The Receivership Order further enumerated additional rights of the Receiver including collecting accounts receivable from tenants and changing locks to premises at which property was situated. (Id. at 13.)

On March 16, 2023, WCD filed a motion for reconsideration of the Receivership Order, asking Justice Toal to vacate the receivership. (App. Br. at 22 (citing ECF No. 18-1 at 111); see generally ECF No. 18-1 at 211-222.) During the reconsideration hearing (“Reconsideration Hearing”) on April 18, 2023, Plant's counsel argued on the record “to the extent there is a consideration of a bankruptcy filing . . . I just want it in the record for any bankruptcy judge that's looking at this issue that at the present time a receivership is in place” and that during a receivership “the property of [WCD] . . . it's in the property of the Court.” (ECF No. 18-1 at 218.) Counsel further urged Justice Toal to agree on the record that once a receivership was in place WCD did not “have the authority to enter a bankruptcy. They don't control [the property].” (Id.)

Justice Toal replied on the record that she was “well aware” of the asset situation and “that was the main factor in [her] signing the order so quickly” given she was not clear on WCD's asset picture and wanted to make sure someone “would not simply declare bankruptcy and that entity would still be controlling things.” (Id.) In an oral decision, Justice Toal then held that she was “deny[ing] the motion to reconsider and dissolve the receivership” and that she was “satisfied . . . there [were] sufficient connections with South Carolina of the [WCD] assets . . . to justify the receivership.” (Id. at 220.) Her order did not modify the existing Receivership Order. (Id. at 220.) Justice Toal ordered the parties to submit proposed final orders that would be “in some kind of shape for Appellate Courts to review.” (App. Br. at 23 (citing ECF No. 18-1 at 221).)

On April 24, 2023, Plant's counsel submitted a proposed order to the South Carolina court, which included language in a footnote that stated “WCD no longer has the rights to administer [the property of the corporation]. This removal of rights includes . . . the ability of the company to institute a bankruptcy proceeding.” (WCD Br. at 23 (citing ECF No. 18-1 at 1006 n.12).) WCD's counsel was required to submit their comments on the proposed order to the South Carolina court on April 27, 2023. (App. Br. at 26.)

C. THE CHAPTER 11 BANKRUPTCY PETITION

One day before the due date for its submission to the South Carolina court on Plant's proposed Reconsideration Order, WCD and its affiliate debtor entities filed a Chapter 11 bankruptcy in the District of New Jersey. (Id.)^[4] A newly constituted WCD Board of Directors (the “Filing BOD”) approved the filing of the bankruptcy petition. (Id.)^[5] WCD's bankruptcy docket in the District of New Jersey Bankruptcy Court is number 23-13575.

The Receiver filed a motion to dismiss the bankruptcy action on May 3, 2023 (N.J. Bk. Dkt. 62), followed by an Amended Motion to Dismiss on May 19, 2023 (N.J. Bk. Dkt. 117).

Creditors were appointed to the Official Committee of Talc Claimants by the United States Trustee Martha Hildebrandt according to § 1102(a)(1) of the Bankruptcy Code on May 24, 2023. (N.J. Bk. Dkt. 121.) The Talc Claimants then joined the Receiver's Amended Motion to Dismiss. (N.J. Bk. Dkt. 132.) On June 6, 2023, a hearing on the joint motion took place in front of the Honorable Michael B. Kaplan, C.J.B.C. (N.J. Bk. Dkt. 175; see generally ECF No. 18-1 at 1115-1191.) Appellants' arguments in front of the Bankruptcy Court relied on the Filing BOD's lack of authority to file a Chapter 11 Bankruptcy Petition in light of the Receivership Order, and further argued that the Rooker-Feldman doctrine applied, which prohibits federal appellate review of a state court judgment.^[6] (Id.) Following oral argument, the Bankruptcy Court denied the joint Amended Motion to Dismiss, resulting in the order under appeal in the instant action. (ECF No. 1-2; N.J. Bk. Dkt. 211; see generally “Bk. Op.,” N.J. Bk. Dkt. 210.)

In an 18-page Letter Opinion filed on June 20, 2023, the Bankruptcy Court held that “WCD's bankruptcy was filed by entities with proper authority” and that “there exists no cause for dismissal.” (Bk. Op. at 4-5.) Further, the Bankruptcy Court wrote its opinion did not “intend to examine the merits of the South Carolina Court's ruling with respect to the appointment of the Receiver”, “r...