Filed: Oct. 01, 2013
Latest Update: Mar. 28, 2017
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 12-3488 _ In re: CEDA MILLS, INC., Debtor CHET DUFFY, Appellant _ No. 12-3560 _ In re: CEDA MILLS INC., Appellant On Appeal from the United States District Court for the Western District of Pennsylvania (District Court No. 2-10-cv-00796 and 2-10-cv-00599) District Judge: The Honorable Terrence F. McVerry Submitted Pursuant to Third Circuit L.A.R. 34.1(a) September 12, 2013 Before: McKEE, Chief Judge, SMITH, and SLOVITER,
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 12-3488 _ In re: CEDA MILLS, INC., Debtor CHET DUFFY, Appellant _ No. 12-3560 _ In re: CEDA MILLS INC., Appellant On Appeal from the United States District Court for the Western District of Pennsylvania (District Court No. 2-10-cv-00796 and 2-10-cv-00599) District Judge: The Honorable Terrence F. McVerry Submitted Pursuant to Third Circuit L.A.R. 34.1(a) September 12, 2013 Before: McKEE, Chief Judge, SMITH, and SLOVITER, ..
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 12-3488
_____________
In re: CEDA MILLS, INC.,
Debtor
CHET DUFFY,
Appellant
_____________
No. 12-3560
_____________
In re: CEDA MILLS INC.,
Appellant
On Appeal from the United States District Court
for the Western District of Pennsylvania
(District Court No. 2-10-cv-00796 and 2-10-cv-00599)
District Judge: The Honorable Terrence F. McVerry
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
September 12, 2013
Before: McKEE, Chief Judge, SMITH, and SLOVITER, Circuit Judges
(Filed: October 1, 2013)
_____________________
OPINION
_____________________
SMITH, Circuit Judge.
This is an appeal by a debtor, Ceda Mills, Inc. (“Ceda Mills”), and its
majority shareholder, Chet Duffy (“Duffy”), from an order by the United States
District Court for the Western District of Pennsylvania affirming a final order of
the United States Bankruptcy Court for the Western District of Pennsylvania
instructing Ceda Mills to make distribution payments to minority shareholders.1
We will affirm.
Ceda Mills was a company that processed steel at a facility in New Castle,
Pennsylvania. Duffy is the controlling shareholder of Ceda Mills, owning 83% of
the company’s outstanding shares of stock. The remaining 17% of the company’s
stock is held by four minority shareholders.
In late summer and early autumn 2003, Ceda Mills’ facility and equipment
sustained extensive damage from severe thunderstorms, forcing the company to
cease operations. On April 2, 2004, Ceda Mills filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Western District of Pennsylvania. Among the debtor’s most
significant assets were claims brought in adversary proceedings by Ceda Mills
against its insurance carriers for bad faith denial of coverage and property damage
1
The Bankruptcy Court had jurisdiction under 28 U.S.C. § 157. The District Court
had jurisdiction to review the Bankruptcy Court’s Order pursuant to 28 U.S.C.
§ 158(a). We exercise jurisdiction under 28 U.S.C. § 158(d).
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relating to the thunderstorms. On October 31, 2006, Ceda Mills successfully
negotiated a settlement of some of these claims, resulting in payment of
approximately $14.1 million to Ceda Mills.
As the bankruptcy estate progressed, the Bankruptcy Court became
concerned that conduct by Ceda Mills and Duffy was threatening the integrity of
the bankruptcy process. Among other things, the Bankruptcy Court learned that
Duffy and Ceda Mills had failed to disclose information concerning the debtor’s
financial state (including information about the insurance settlement) to Ceda
Mills’ minority shareholders and creditors, thereby failing to give to these
interested parties an accurate disclosure of the debtor’s true financial condition.
The Bankruptcy Court also became concerned about several transfers of money
from Ceda Mills’ accounts to Duffy and members of his immediate family.
In February 2010, Ceda Mills requested that the Bankruptcy Court accept
shareholder election forms signed by several minority shareholders. These forms
stated that the minority shareholders wished to waive any pro rata distribution of
excess funds held by Ceda Mills in exchange for the return of their initial
investment in the company. The Bankruptcy Court declined to accept the
shareholder election forms, reasoning that it made no economic sense for the
minority shareholders to waive their right to the company’s surplus funds. Instead
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of accepting the shareholder election forms proffered by the debtor, the
Bankruptcy Court instructed the Office of the United States Trustee to investigate
the circumstances surrounding the minority shareholders’ signing of the
shareholder election forms.
On March 10, 2010, the Trustee filed a report and recommendation advising
that three of the minority shareholders wished to rescind their previous elections
and instead receive their full pro rata interest in the company’s surplus funds. On
April 13, 2010, over the objection of Ceda Mills and Duffy, the Bankruptcy Court
adopted the findings of the Trustee’s report and issued an order that instructed
Ceda Mills to distribute excess funds to the minority shareholders who had elected
to receive such distributions in pro rata amounts equal to each shareholder’s equity
interest. Ceda Mills and Duffy each appealed the Bankruptcy Court’s order to the
District Court.2 On March 29, 2012, the District Court entered an order affirming
the Bankruptcy Court’s April 13, 2010 order. This timely appeal followed.
On appeal of an order of the District Court in its bankruptcy appellate
capacity, we review the District Court’s findings of fact for clear error and its legal
conclusions de novo. In re Pransky,
318 F.3d 536, 542 (3d Cir. 2003). The
2
The District Court initially dismissed both of the appeals as untimely. Ceda Mills
and Duffy each appealed dismissal. On July 18, 2011, this Court held that the
appeals from the Bankruptcy Court’s April 13, 2010 order were timely and sent the
matter back to the District Court. See In re Ceda Mills, Inc.,
652 F.3d 495 (3d Cir.
2011).
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District Court rejected appellants’ argument that the Bankruptcy Court exceeded
its jurisdiction in issuing the April 13, 2010 order, holding that this order was a
proper exercise of the Bankruptcy Court’s jurisdiction under 28 U.S.C.
§ 157(b)(2)(A) & (b)(2)(O). The District Court also held that the Bankruptcy
Court did not violate appellants’ due process rights when it ordered Ceda Mills to
make distributions to minority shareholders without first conducting an evidentiary
hearing. In reaching this decision, the District Court agreed with the Bankruptcy
Court’s determination that no hearing was necessary because Ceda Mills and Duffy
had previously argued the issue before the Bankruptcy Court on several occasions.
Finally, the District Court did not modify the amounts that the Bankruptcy Court
ordered Ceda Mills to distribute to the minority shareholders, which were
calculated based on a financial report provided to the Bankruptcy Court on
November 19, 2009 by Ceda Mills’ counsel.
After reviewing the record before us, we conclude that the District Court did
not err in its analysis. Accordingly, we will affirm the judgment of the District
Court.
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