Free Memorandum and Order - District Court of Delaware - Delaware

Case 1:07-cv-00263-SLR Document 21 Filed 03/31/2008 Page 1 of 4
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
ln re: ) Chapter 11
MAGNATRAX CORPORATION, g Bank. No. 03-11402 (KG)
Debtor. ;

ONEX AMERICAN HOLDINGS, LLC, g
Appellant, g
v. g Civ. No. 07-263-SLR
RICHARD M. KIPPERMAN, g
Appellee. g
MEMORANDUM ORDER
At Wilmington this 31s* day of March, 2008, having reviewed the papers filed in
connection with the above captioned bankruptcy appeal;
IT IS ORDERED that the appeal is denied and the order of the bankruptcy court
dated April 16, 2007 is affirmed, for the reasons that follow:
1. Standard of review. This court has jurisdiction to hear an appeal from the
bankruptcy court pursuant to 28 U.S.C. § 158(a). In undertaking a review of the issues
on appeal, the court applies a clearly erroneous standard to the bankruptcy court’s
findings of fact and a plenary standard to that court’s legal conclusions. g Am. Flint
Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999). With
mixed questions of law and fact, the court must accept the bankruptcy court’s "finding of
historical or narrative facts unless clearly erroneous, but exercise[s] ‘pIenary review of

Case 1 :07-cv-00263-SLR Document 21 Filed 03/31/2008 Page 2 of 4
the [bankruptcy] court’s choice and interpretation of legal precepts and its application of
those precepts to the historical facts."' Mellon Bank, N.A. v. Metro Communications,
@, 945 F.2d 635, 642 (3d Cir. 1991) (citing Universal Minerals, Inc. v. C.A. Hughes &
g, 669 F.2d 98, 101-02 (3d Cir. 1981)). The district court’s appellate responsibilities
are further informed by the directive of the United States Court of Appeals for the Third
Circuit, which effectively reviews on a g @ basis bankruptcy court opinions. mle
Hechinger, 298 F.3d 219, 224 (3d Cir. 2002); In re Telegroup, 281 F.3d 133, 136 (3d
Cir. 2002).
2. Background. Under the Fifth Amended and Restated Joint Plan of
Reorganization under Chapter 11 of the Bankruptcy Code of debtor Magnatrax
Corporation ("the Plan"), confirmed by order of the bankruptcy court dated November
17, 2003, the Magnatrax Litigation Trust ("the Trust") was created. Causes of action
were assigned to the Trust when unsecured creditors elected to become beneficiaries
thereunder by funding the Trust’s expenses through contributing a portion of their
distributions under the Plan. The claims in the bankruptcy case of the Trust’s
beneficiaries total approximately $12 million. The Trust brought suit seeking $600
million against appellant Onex American Holdings LLC ("Onex American")' and
afiliates, which suit is currently pending in the United States District Court for the
Northern District of Georgia ("the Georgia Litigation").
3. Onex American sought to reopen the Chapter 11 case for the limited purpose g
‘ApparentIy Onex American no longer exists and, in fact, has not been in
existence for almost five years. Months after the bankruptcy court’s decision and the
instant appeal, Onex Corporation filed a motion to intervene as "an aggrieved party."
(D.l. 15) Given the court’s ruling @, the motion will be denied as moot.
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of enabling the bankruptcy court to consider the question of whether the Trust’s efforts
to recover $600 million in the Georgia Litigation violates the Plan and the confirmation
order. More specifically, Onex American argues that the Trust is violating the absolute
priority rule through its efforts in the Georgia Litigation since such a recovery would
result in up to 50 times the Trust beneficiaries’ claims when the Plan was "crammed
down" on Onex American and other equity holders, all in violation of 11 U.S.C. §
1129(b).
4. The bankruptcy court concluded that the above issue had already been
raised in the Georgia Litigation through motions to dismiss. The district court in the
Georgia Litigation dismissed some counts and sustained others, but declined
to narrow the case on the issue of recovery at this time. Whether,
under bankruptcy principles, a plaintiff representing a class of
unsecured creditors has or does not have the right to recover more
than the amount of the actual damages ofthose unsecured creditors
is an issue that is better determined after liability issues.
(D.l. 14, tab 2 at 2) Because Onex American did not seek a ruling that the Trust
violated the Plan by filing the Georgia Litigation jg se, only by seeking more than the
$12 million worth of claims represented by the Trust’s beneficiaries, the bankruptcy
court concluded that the issue raised by Onex American was not ripe for adjudication
and denied the motion to reopen without prejudice.
5. Conclusion. The court finds no error of law in the bankruptcy court’s order.
Because there has been no adjudication in the Georgia Litigation allowing the
requested $600 million recovery, there are no "aggrieved parties" with respect to this
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Case 1 :O7—cv-00263-SLR Document 21 Filed O3/31/2008 Page 4 of 4
issue.2 As further noted by the bankruptcy court, a decision on the issue in the context
of a closed bankruptcy proceeding would "interfere with the jurisdiction" of the district
court in the Georgia Litigation, "in violation of the principle of comity and contrary to the
best interest ofjustice. In re Zinchiak, 406 F,3d 214, 225 (3d Cir. 2005)." (@4 at 3)
United States £trict Judge
2The court notes that the burden of discovery will be the same, regardless of the
amount of damages sought.
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