Filed: Nov. 16, 2017
Latest Update: Mar. 03, 2020
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 16-3919 _ IN RE: WORLDSPACE, INC., et al., Debtors MATHEWKUTTY SEBASTIAN, Appellant v. DONALD J. FRICKEL; ROBERT A. SCHMITZ; SHEARMAN & STERLING LP; QUEST TURNAROUND ADVISORS LLC; CHARLES M. FORMAN as Chapter 7 Trustee of WorldSpace, Inc. et al., Nominal Defendant _ On Appeal from the United States District Court for the District of Delaware (D.C. No. 1-15-cv-00025) District Judge: Hon. Gregory M. Sleet _ Submitted Under
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 16-3919 _ IN RE: WORLDSPACE, INC., et al., Debtors MATHEWKUTTY SEBASTIAN, Appellant v. DONALD J. FRICKEL; ROBERT A. SCHMITZ; SHEARMAN & STERLING LP; QUEST TURNAROUND ADVISORS LLC; CHARLES M. FORMAN as Chapter 7 Trustee of WorldSpace, Inc. et al., Nominal Defendant _ On Appeal from the United States District Court for the District of Delaware (D.C. No. 1-15-cv-00025) District Judge: Hon. Gregory M. Sleet _ Submitted Under ..
More
NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 16-3919
_____________
IN RE: WORLDSPACE, INC., et al.,
Debtors
MATHEWKUTTY SEBASTIAN,
Appellant
v.
DONALD J. FRICKEL; ROBERT A. SCHMITZ;
SHEARMAN & STERLING LP; QUEST TURNAROUND ADVISORS LLC;
CHARLES M. FORMAN as Chapter 7 Trustee of WorldSpace, Inc. et al., Nominal
Defendant
_____________
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1-15-cv-00025)
District Judge: Hon. Gregory M. Sleet
______________
Submitted Under Third Circuit L.A.R. 34.1(a)
June 6, 2017
______________
Before: CHAGARES, GREENAWAY, JR., and VANASKIE, Circuit Judges
(Filed: November 16, 2017)
______________
OPINION *
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
______________
VANASKIE, Circuit Judge.
This appeal in a bankruptcy case turns on the question of whether the Debtor,
WorldSpace, Inc., was contractually obligated to Appellant Mathewkutty Sebastian under
a written employment contract that set forth the terms of Sebastian’s employment with a
subsidiary of WorldSpace, WorldSpace Middle East FZCo (“FZCo”). The Bankruptcy
Court concluded that WorldSpace was not an obligor under the employment contract, and
the District Court affirmed that conclusion. We agree, and will affirm the dismissal of
the derivative action brought by Sebastian on the ground that he lacks creditor standing.
I.
Sebastian’s claim to standing as a creditor of WorldSpace rests upon a July 1,
2008 three page letter which begins as follows:
Dear Mr. Sebastian,
I am pleased to reconfirm your employment with WorldSpace Middle East
FZCo (the “Company”), located in Dubai, United Arab Emirates that you
have held beginning in January, 2004. Your employment will be in the
position of Managing Director, WorldSpace Middle East FZCo. In this
position you will report to the Chief Operating Officer of WorldSpace, Inc.
or his/her designate. You will be responsible for the following:
* Developing and implementing strategic and tactical plans for
achieving the Company’s operational, financial and strategic goals in the
Middle Eastern region
* Managing Company staff located in the Middle Eastern region
The Company reserves the right to assign additional responsibilities
according to its needs and requirements prevailing at the time.
2
(App. 150) (emphasis added). The letter goes on to state that Sebastian’s “employment
with the Company shall be ‘at will,’” and that the “letter is the complete offer for
employment and may not be amended or altered in any way by oral statements, and can
only be altered by a written amendment signed by an authorized signatory of the
Company.” (Id. at 152) (emphasis added). The letter was signed by Gregory B.
Armstrong under the title of Chief Operating Officer (“COO”) of WorldSpace. Sebastian
counter-signed the letter, signifying his acceptance of the terms of employment.
Four months after the letter was signed, WorldSpace commenced a Chapter 11
bankruptcy case. FZCo was not a party to the bankruptcy case. WorldSpace hired
Appellee law firm Shearman & Sterling to represent it in the bankruptcy process, and the
Bankruptcy Court approved Appellee Robert A. Schmitz to serve as WorldSpace’s
restructuring officer. Schmitz’s company is Appellee Quest Turnaround Advisors LLC.
In March 2010, Schmitz told Sebastian to wind up FZCo’s Dubai operations.
Sebastian did as directed. By letter dated March 9, 2010, Sebastian’s resignation as
Managing Director of FZCo was accepted by WorldSpace as “the majority shareholder of
[FZCo].” (Id. at 143.)
In late May of 2010, WorldSpace filed a motion to approve the sale of its assets
for $5.5 million. On June 2, 2010, the Bankruptcy Court approved the sale.
In November of 2010, Sebastian submitted three proofs of claim, each in the
identical amount of $170,705.90 for “salaries/wages for services rendered.” 1 (Id. at 149.)
1
Two of the claims were withdrawn as duplicative, and we will confine our
discussion to the proof of claim that was not withdrawn, Claim #353.
3
In support of these proofs of claim, Sebastian submitted a copy of the July 1, 2008 letter
agreement. WorldSpace objected to the proofs of claim on the ground that Sebastian was
an employee of non-debtor FZCo, and not WorldSpace.
Considerable time passed with the WorldSpace estate neither paying Sebastian’s
claim nor seeking confirmation of a Chapter 11 plan. Sebastian alleges that during this
period Appellees made representations suggesting that WorldSpace possessed sufficient
funds to pay his claim. But in reality, these representations were, according to Sebastian,
misrepresentations. Sebastian claims that the Appellees dithered in disclosing the
inability of WorldSpace to reorganize so that they could take what remained of
WorldSpace’s assets for themselves. Finally, in May 2012—three-and-a-half years after
filing for Chapter 11—WorldSpace, over Sebastian’s objection, successfully moved the
Bankruptcy Court to convert its case to Chapter 7. The Bankruptcy Court appointed a
Chapter 7 trustee to wind up the affairs of WorldSpace.
Almost two years later, Sebastian filed a derivative action against the Appellees on
behalf of the entire bankruptcy estate, arguing he was a creditor because of the
$170,705.90 he believed was owed to him by WorldSpace. He alleged that Appellees
had breached their fiduciary duties to the WorldSpace estate by running up fees while
delaying WorldSpace’s conversion to Chapter 7. Appellees moved to dismiss the
derivative action. The Bankruptcy Court granted the motion after finding that the
pleadings and accompanying materials established that Sebastian was an employee of
non-debtor FZCo, WorldSpace was not an obligor under the employment agreement
between FZCo and Sebastian, and therefore Sebastian lacked creditor standing to bring
4
the derivative action. The District Court affirmed and added an alternative ground for
affirmance: Sebastian never received permission from the Bankruptcy Court to file his
derivative action. This appeal followed.
II.
The Bankruptcy Court had jurisdiction under 28 U.S.C. § 157. The District Court
had jurisdiction under 28 U.S.C. § 158(a)(1) to review the Bankruptcy Court’s dismissal
order. And we have appellate jurisdiction under 28 U.S.C. § 1291. Our task is to “stand
in the shoes” of the District Court and review the Bankruptcy Court’s decision anew. In
re Pransky, 318 F.3d 536, 542 (3d Cir. 2003) (quoting In re Krystal Cadillac Oldsmobile
GMC Truck, Inc.,
142 F.3d 631, 635 (3d Cir. 1998)). “[W]e review a bankruptcy court’s
‘legal determinations de novo, its factual findings for clear error, and its exercises of
discretion for abuse thereof.’” In re Miller,
730 F.3d 198, 203 (3d Cir. 2013) (quoting In
re Michael,
699 F.3d 305, 308 n.2 (3d Cir. 2012)).
III.
Sebastian must have standing to bring his derivative action. In re Glob. Indus.
Techs., Inc., 645 F.3d 201, 211 (3d Cir. 2011). Sebastian’s only route to standing is as a
creditor of the debtor. See N. Am. Catholic Educ. Programming Found., Ins. v.
Gheewalla,
930 A.2d 92, 101 (Del. 2007) (permitting creditors to bring certain derivative
actions). But for Sebastian to be a creditor, the $170,705.90 owed to him must be owed
by the debtor, WorldSpace, not non-debtor FZCo. Sebastian claims that he is a creditor
of WorldSpace because it assumed contractual liability to him under the July 1, 2008
letter agreement that governed his employment by FZCo.
5
Maryland law governs Sebastian’s claim. 2 Under Maryland law, the first step in
interpreting a contract is to refer to its text, and determine whether it is ambiguous.
Cochran v. Norkunas, 919 A.2d 700, 709 (Md. 2007). A text is ambiguous if it is
reasonably susceptible to two or more meanings, and the corollary is true as well—a text
that is reasonably susceptible to only one meaning is unambiguous. Calomiris v. Woods,
727 A.2d 358, 363 (Md. 1999). If a text is unambiguous, courts must give effect to the
text’s plain meaning by focusing on the four corners of the document, extrinsic evidence
may not be admitted to prove meaning, and interpretation is a question of law. See
Cochran, 919 at 709, 709 n.8 (discussing interpretation of unambiguous contracts);
Calomiris, 727 at 363-64 (discussing the use of extrinsic evidence). With an ambiguous
contract, by contrast, extrinsic evidence may be admitted to prove the text’s meaning, and
interpretation is a question of fact. City of Bowie v. Mie, Props., Inc.,
922 A.2d 509, 522-
23 (Md. 2007). Whether a text is ambiguous is itself a question of law.
Id. at 524.
Sebastian asserts that the July 1, 2008 letter agreement was unambiguous in
making WorldSpace a party to it. In support of his position, he points to the fact that the
letter was signed by Gregory Armstrong on top of a signature block containing
Armstrong’s title as his WorldSpace’s COO, and the letter begins with the statement “I,”
referring to Armstrong, “reconfirm your employment with [FZCo].” (App. 150.)
Sebastian also points to the fact that the letter states that Sebastian, “[a]s a key employee”
2
We assume that Maryland law governs because the parties, the Bankruptcy
Court, and the District Court all also assumed the same based upon the fact that
WorldSpace maintained its principal place of business in Maryland.
6
was “eligible to participate” in WorldSpace’s equity Incentive Award Plan. (Id.) Finally,
Sebastian argues that the fact that he was to “report to” WorldSpace’s COO confirms that
WorldSpace was bound by the terms of the July 1, 2008 letter agreement. (Id.)
In spite of the contract’s references to WorldSpace, we find that the District and
Bankruptcy Courts are correct—the contract is unambiguously “with . . . FZCo.” That is
precisely what the contract’s very first sentence says. Sebastian is an employee of FZCo,
a fact that is made abundantly clear by the more than 20 references to FZCo in the letter
agreement in the context of Sebastian’s employment responsibilities. Furthermore, there
is no explicit assumption of contractual responsibility assumed by WorldSpace. The July
1, 2008 letter agreement established only the rights, responsibilities and liabilities of
Sebastian and FZCo.
Sebastian’s signature-block argument does not carry the day because context is
key, and there is no hard and fast rule as to the significance of a company officer’s
signature over his or her title. For example, when courts are asked to decide whether a
company president’s signature, placed atop his or her title, indicates that the president
bound only the company and not himself or herself, there is no one right answer—the
contract’s entire text determines the outcome, not some special rule about signatures. 3
3
Cf. 84 Lumber Co. v. Smith, 356 S.W.3d 380, 383 (Tenn. 2011) (finding that
based on the specific language of the contract, the fact that a lumber-company president
signed a loan document over his title did not mean that he had signed only in his official
capacity); Anderson v. Gardner,
647 P.2d 3, 4 (Utah 1982) (same, but with respect to a
radio-station general manager).
7
Thus, the signature block alone does not sway us from taking the contract’s crystal-clear
opening sentence literally.
The same goes with the fact that the contract had Sebastian reporting to
WorldSpace’s COO, and gave Sebastian eligibility for WorldSpace’s Award Incentive
Plan. It is not uncommon or impermissible for an employee of a subsidiary to report to
an officer of the parent corporation. See, e.g., Craig v. Lake Asbestos of Quebec, Ltd.,
843 F.2d 145, 151-52 (3d Cir. 1988) (holding that a subsidiary was not controlled by the
parent even though the subsidiary’s chairman reported to the parent). And the fact that
Sebastian may have received benefits from the parent, on its own, is insufficient to
“outweigh” other “significant factors . . . which weigh heavily” in the other direction—
factors like the explicit opening sentence in Sebastian’s contract and the more than 20
references to FZCo as Sebastian’s employer. In re Enterprise Rent-A-Car Wage & Hour
Emp’t Practices Litig.,
683 F.3d 462, 470-71 (3d Cir. 2012) (quoting Moreau v. Air
France,
356 F.3d 942, 952 (9th Cir. 2004)) (holding that a parent’s direction of its
subsidiaries’ benefits programs is insufficient to support a finding that the parent was a
joint-employer). The clarity of the contract’s first sentence along with the entire context
of the letter agreement compel a holding that WorldSpace did not assume contractual
responsibility for Sebastian’s employment, and Sebastian is not a creditor of
WorldSpace. 4
4
Because we will affirm on the basis that the Bankruptcy Court’s holding was
correct with respect to Sebastian’s lack of creditor standing, we need not address the
District Court’s alternative ground for affirmance, that Sebastian’s claim also fails for
failure to seek permission to file his action.
8
IV.
In sum, Sebastian’s employment was with FZCo, and FZCo is the entity against
whom Sebastian’s $170,705.90 claim is properly lodged, not WorldSpace. Sebastian is
therefore without creditor standing to bring his derivative action against WorldSpace, as
the Bankruptcy Court and the District Court correctly held. We will affirm.
9
