David S. Kennedy, UNITED STATES CHIEF BANKRUPTCY JUDGE.
Clear Channel Outdoor, Inc. ("Clear Channel"), a prepetition judicial lien creditor,
The ultimate question for judicial determination here is whether "cause" exists as contemplated under 11 U.S.C. § 1104(a)(1), such that a Chapter 11 trustee should be appointed in lieu of Mr. Thomas continuing to serve as a debtor in possession, or whether such appointment of a trustee is in the interests of creditors as contemplated under 11 U.S.C. § 1104(a)(2).
This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). Accordingly, the Court has both the statutory and constitutional authority to hear and determine these proceedings subject to the statutory appellate provisions of 28 U.S.C. § 158(a)(1) and Part VIII ("Bankruptcy Appeals") of the Federal Rules of Bankruptcy Procedure. The following shall constitute the Court's findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure.
This Chapter 11 case arises out of more than a decade of litigation and legalistic bickering primarily between Mr. Thomas and the two judgment creditors, Clear Channel and Tennison Brothers. As such, a detailed discussion of the relevant pre- and postpetition background facts and procedural history of this Chapter 11 case may be helpful here and may be summarized as follows.
Mr. Thomas, who currently serves here as a Chapter 11 debtor in possession, is also a licensed attorney and businessman. He is a resident of the State of Tennessee and also a resident of the State of Florida, and has business ventures in Memphis, Tennessee. Clear Channel is a Delaware corporation with its principal address located in San Antonio, Texas; however, at all relevant times here, Clear Channel owned and/or operated billboard advertising structures in Shelby County, Tennessee. Tennison Brothers is a corporation with its principal office located in Memphis, Tennessee. Clear Channel and Tennison
On September 11, 2017, Clear Channel filed a motion seeking the appointment of a Chapter 11 trustee under 11 U.S.C. § 1104(a)(1) and (2) ("First Trustee Motion"). Dkt. No. 297. Thereafter, on September 18, 2017, Tennison Brothers filed a Notice of Joinder. Dkt. No. 303. An Objection thereto was filed by Mr. Thomas on September 25, 2017. Dkt. No. 308. The First Trustee Motion came to be heard by this Court on September 27, 2017, whereupon this Court at the early stages of this case denied the First Trustee Motion, but "without prejudice to a future motion being refiled for a change of circumstances not heretofore raised at this hearing." See Dkt. No. 311.
On October 26, 2018, Glankler Brown, PLLC ("Glankler Brown"), Memphis counsel for Mr. Thomas in this Chapter 11 case, filed an "Emergency Motion to Withdraw as the Attorney of Record." Dkt. No. 441. As reasons for seeking to withdraw, Glankler Brown asserted that numerous disagreements had arisen with Mr. Thomas and that Mr. Thomas "insisted on taking positions which are contrary to the advice of counsel and had on occasion taken positions which [they] consider repugnant or imprudent." See Dkt. No. 441, p. 2. After notice, that matter came to be heard before this Court on October 30, 2018; and an Order granting the withdrawal was entered on November 20, 2018, without opposition. Dkt. No. 461.
Ten days later, on November 30, 2018, Clear Channel filed a "Renewed Motion for Appointment of Chapter 11 Trustee," requesting the appointment of a Chapter 11 trustee with "limited powers." Dkt. No. 472, p. 2. On December 6, 2018, TDOT filed a Notice of Joinder to the Motion, Dkt. No. 480, and on December 7, 2018, Tennison Brothers filed the same, Dkt. No. 481 (collectively referred to as "Related Joinders"). An Objection to the Motion and Related Joinders was filed by Mrs. Thomas on December 11, 2018, putting forth three main arguments: (1) there is no cause for the appointment of a Chapter 11 trustee and Creditors have failed to demonstrate same; (2) Clear Channel and Tennison Brothers do not have a pecuniary interest in the bankruptcy estate and their interests should be disregarded for purposes of the analysis under § 1104(a)(2); and (3) Mrs. Thomas is preparing to file a confirmable Chapter 11 creditor plan. Dkt. No. 493. On December 13, 2018, the United States Trustee filed a Response to the Motion stating that it takes no position on the Motion, but that "[i]f the Court concludes to direct the appointment of a Chapter 11 trustee, the codified scheme in the Bankruptcy Code and Rules should not be altered with respect to the rights, powers and duties of a trustee appointed under 11 U.S.C. § 1104(a)." Dkt. No. 496, p. 3. It is important to note that the United States Trustee also filed a motion to dismiss this case or, in the alternative, to convert the Chapter 11 case to a liquidating case under Chapter 7. Dkt. No. 497. Mr. Thomas filed a "Response" to the Motion and Related Joinders on December 14, 2018, alleging three main issues: (1) objecting to the appointment of a Chapter 11 trustee "because creditors Clear Channel Outdoor and Tennison Brothers have failed to set forth any change in circumstances since their last Motions for the Appointment of a Trustee were denied"; (2) asserting that such creditors had a right to file their own plan of reorganization but have not done so; and (3) incorporating the objection of
All of these matters came before this Court on December 18, 2018, for a combined pre-trial conference, whereupon each interested party had the opportunity to, inter alia, provide a general overview of their positions and arguments. It should be noted that at the pre-trial conference Clear Channel orally amended its Motion by eliminating its request for the appointment of a Chapter 11 trustee with limited powers and agreeing with the United States Trustee's position that, if appointed, it should be a Chapter 11 trustee with
Clear Channel and Tennison Brothers entered into a lease agreement ("Lease") on August 19, 2004, for the erection of a billboard on Tennison Brothers' property located at 450 North Bellevue, Memphis, Tennessee 38105 ("Tennison Brothers Site"). See Tennison Bros. v. Thomas, 556 S.W.3d 697, 704 (Tenn. Ct. App. 2017) (hereinafter "Tennison II")). Within days of the execution of the Lease between Clear Channel and Tennison Brothers, Mr. Thomas entered into a written lease with Southern Millwork and Lumber Company, the owner of the real property adjacent to the Tennison Brothers Site. Id. Mr. Thomas also intended to construct a billboard on said real property. Id. At the time, the Tennessee Billboard Regulation and Control Act ("the Billboard Act") required permits to be obtained prior to constructing a billboard. Id.; see also TENN. CODE ANN. § 54-21-101, et seq. However, because of the proximity of the two properties, only one party could be awarded a permit. Id.
On or about August 24, 2004, Clear Channel applied for and was granted a permit to erect its billboard on the Tennison Brothers Site by TDOT, which happened to be around the same day Mr. Thomas had applied for and was denied the same for the adjacent real property. Id. at 704-05. Mr. Thomas, then, requested an administrative hearing before TDOT concerning its decision to grant Clear Channel a permit instead of him. Id. at 705. The legal battle over who should be awarded a permit to construct a billboard lasted approximately two years and resulted in a loss for Mr. Thomas. Id. However, the Creditors as well as TDOT did not know that Mr. Thomas had already constructed a billboard on the adjacent real property without a permit issued by the State of Tennessee. Id. at 706. Upon learning
Tennison Brothers named Clear Channel as a third-party defendant in the lawsuit, in which it answered and filed a cross-complaint against Mr. Thomas asserting various causes of action, including intentional interference with its business relationship with Tennison Brothers and statutory inducement to breach a contract. Id. at 707; see also Dkt. No. 122, Ex. 1 at ¶¶ 19-25, 27, 29-36, 38-41. Apparently, Mr. Thomas consistently refused to adequately respond to discovery in the Shelby County Chancery Court matter, despite two prior court orders compelling him to do so. Id. at 707-08. As such, the Chancery Court entered an Order on November 20, 2009, striking Mr. Thomas's answer and entering a default judgment against him. Id. Moreover, approximately six months later, Mr. Thomas, once again, refused to participate in and produce discovery, thereby causing the Chancery Court to enter a second Order forbidding Mr. Thomas from presenting proof related to damages and only allowing him the opportunity to cross-examine witnesses presented by other parties related to damages. Id. at 708-09.
After the hearing on damages, the Chancery Court found that Tennison Brothers and Clear Channel did not provide sufficient proof to conclude that Mr. Thomas had an improper motive, as is required to support a claim of intentional interference with business relationships, and therefore no damages were awarded. Id. at 709-10. Both Tennison Brothers and Clear Channel appealed to the Tennessee Court of Appeals, and it reversed the Chancery Court's findings and conclusions. Id. at 710. The Tennessee Court of Appeals determined that Tennison Brothers and Clear Channel had properly pled, inter alia, the elements for intentional interference with business relationships, that the trial court erred by going outside the pleadings to consider the issue of liability since there were well-pled facts in the respective complaints, and that Mr. Thomas had admitted to his improper motive when the default judgment was entered against him. Id.; see Tennison Bros. v. Thomas, 2014 WL 3845122, at *1 (Tenn. Ct. App. Aug. 6, 2014) (hereinafter "Tennison I").
On remand from the Tennessee Court of Appeals, the Shelby County Chancery Court appointed a Special Master to calculate the amount and type of damages that should be awarded to Tennison Brothers and Clear Channel for Mr. Thomas's tortious actions. Tennison II at 711. Ultimately, the Chancery Court adopted the report of the Special Master
Mr. Thomas appealed the Chancery Court's decision, and the Tennessee Court of Appeals affirmed the Chancery Court. Id. Mr. Thomas raised various issues on appeal, some of which were rejected and others of which were waived. Id. Particularly, it should be specifically noted here
Id. at 731 (emphasis added).
Clear Channel and Tennison Brothers have both filed proofs of claim in this Chapter 11 case based upon the prepetition judgments rendered by the Tennessee State Court on February 4, 2016, against Mr. Thomas. See Proof of Claim Nos. 4 and 7. However, Mr. Thomas now disputes these claims and has filed an objection to the claims (and the prepetition Tennessee State Court judgments) of both Clear Channel and Tennison Brothers in, for example, his official bankruptcy schedules, oral statements made in open court, and written pleadings filed with this Court. See Dkt. No. 451; see also Dkt. No. 39, Sch. E. In addition to the pending appeal regarding this Court's Memorandum and Opinion in Adversary Proceeding Nos. 16-00260 and 16-00261 rendering the prepetition State Court judgments non-dischargeable under 11 U.S.C. § 523(a)(6),
As mentioned above, TDOT has been engaged in litigation with Mr. Thomas since August 27, 2004, when TDOT denied his application for a permit to construct a billboard. Tennison II at 704. It is noted that TDOT denied Mr. Thomas' application due to his request being in violation of TDOT Rules and Regulations 1680-02-03-.03(1)(a)(4)(i)(I)
On March 5, 2007, Administrative Law Judge, the Honorable Thomas G. Stovall, issued a written ruling that TDOT had properly issued to Clear Channel permits to construct the Tennison Billboard and that the Thomas Billboard was illegally constructed and should be immediately removed. Tennison I at 12. After Judge Stovall issued his ruling on March 5, 2007, Mr. Thomas refused to remove the Thomas Billboard. Mr. Thomas then appealed the Order to the Honorable Gerald F. Nicely, the Commissioner of TDOT. Id. On July 31, 2007, the Commissioner of TDOT issued a Final Order upholding the Order issued by the Administrative Law Judge and held that the Thomas Billboard had been illegally constructed and should be immediately removed. Id. After the Commissioner of TDOT issued his ruling, Mr. Thomas nonetheless refused to remove the Thomas Billboard. Id. Since approximately 2006, TDOT sought to remove Mr. Thomas's signs that did not comply with the Billboard Act through a prior enforcement action in Chancery Court. Thomas v. Schroer, 248 F.Supp.3d 868, 874 (W.D. Tenn. 2017), reconsideration denied September 20, 2017.
On March 25, 2013, Mr. Thomas filed his first lawsuit in federal court against only TDOT, asserting numerous causes of action including the challenging of the constitutionality of the Tennessee Billboard Act on First Amendment grounds (the "First Federal Suit"). Id.; see Thomas v. Tennessee Dep't of Transp., 2013 WL 12099086 (W.D. Tenn. October 28, 2013) (dismissing the case and holding that TDOT is a state agency entitled to sovereign immunity under the Eleventh Amendment). However, while the First Federal Suit was on appeal, Mr. Thomas filed his second lawsuit against TDOT, instead this time naming multiple Tennessee state officials in their official capacities. Schroer, 248 F.Supp.3d at 874-75; see Dkt. No. 197, Ex. A. The Second Federal Suit alleged that one of the many billboards he owned erected without a permit was entitled to First Amendment protection as a display of non-commercial speech. Schroer, 248 F.Supp.3d at 875. On March 31, 2017, the Western District of Tennessee found the Billboard Act to be an unconstitutional, content-based regulation of speech. Id. at 894-95. Specifically, the District Court found that the Billboard Act, as applied to Mr. Thomas's non-commercial messages on one of his billboards (referred to as the "Crossroads Ford Sign"), was a violation of the United States Constitution by way of the First Amendment's Free Speech provision. Id. Thereafter, the Commissioner of TDOT filed a motion for reconsideration, but it was denied. See Thomas v. Schroer, 2017 WL 6489144, at *2 (W.D. Tenn. September 20, 2017). That suit is now on appeal and pending before the Sixth Circuit.
Aside from the aforementioned state court and federal court litigation, it should be noted that Mr. Thomas is also still engaged in a separate state court lawsuit with TDOT. Due to the contentious relationship, the State of Tennessee sought a restraining order, temporary injunction, declaratory judgment, and permanent injunction in the Chancery Court in Shelby County, Tennessee, back on March 2, 2007. It was assigned to the Honorable Chancellor Walter Evans: see case number CH-07454 therein. Numerous pleadings appear to have been filed in that case, and several
TDOT has filed a proof of claim in this Chapter 11 case based on violations of the Billboard Act. See Proof of Claim No. 5. However, Mr. Thomas has objected to this claim, Dkt. No. 385, and it is an ongoing contested matter pursuant to Bankruptcy Rule 9014(a). FED. R. BANKR. P. 9014(a). It should also be noted that TDOT and Mr. Thomas have filed various pleadings regarding discovery, all of which are currently pending and in dispute. See Dkt. Nos. 428, 429, 439, 449, 484, and 503.
The Bankruptcy Code gives the court the authority to order the appointment of a Chapter 11 trustee under 11 U.S.C. § 1104(a). This section provides, in pertinent part, that:
11 U.S.C. § 1104(a). In fact, regardless of a party in interest, a bankruptcy court also has the power in appropriate cases to appoint a trustee sua sponte.
However, "it is settled that appointment of a trustee should be the exception, rather than the rule." In re Sharon Steel Corp., 871 F.2d 1217, 1225 (3d Cir. 1989). "There is a strong presumption in Chapter 11 cases that the debtor-in-possession should be permitted to remain in control of the corporation absent a showing of need for the appointment of a trustee." In re Natron Corp., 330 B.R. 573, 591 (Bankr. W.D. Mich. 2005) (citation omitted). This presumption is based on the facts that the debtor in possession has a
Section 1104(a)(1) of the Bankruptcy Code mandates the court to appoint a trustee in a Chapter 11 case upon, for example, a determination of "cause." See Oklahoma Ref. Co. v. Blaik (In re Oklahoma Ref. Co.), 838 F.2d 1133, 1136 (10th Cir. 1988). Yet, "a determination of cause... is within the discretion of the court." Marvel Entm't, 140 F.3d at 472 (quoting Comm. of Dalkon Shield Claimants v. A.H. Robins Co., 828 F.2d 239, 242 (4th Cir. 1987)). It is important to note that section 1104(a)(1) does not provide an exhaustive list of "cause" for which a trustee may be appointed; but rather, it provides that the court shall order the appointment of a trustee "for cause, including fraud, dishonesty, incompetence, gross mismanagement of the debtor by current management... or similar cause ..." See 11 U.S.C. § 102(3) (providing that the terms "includes" and "including" are not limiting). Additional factors a court may use to determine if "cause" exists include whether:
In re LHC, LLC, 497 B.R. 281, 292 (Bankr. N.D. Ill. 2013) (citing In re Intercat, Inc., 247 B.R. 911, 921 (Bankr. S.D. Ga. 2000)); accord Nartron Corp., 330 B.R. at 592. Although there is no Sixth Circuit authority interpreting the scope of the provisions of 11 U.S.C. § 1104, there indeed are a number of appellate courts that have ruled in this area. For example, the Third Circuit has found that intense, irreconcilable conflicts and
In Marvel Entertainment, the Chapter 11 debtor in possession and the creditors had material conflicts of interests, severe acrimony, and took dramatically different stances on many issues, citing, among other things, the debtor in possession's institution of several adversary proceedings. 140 F.3d at 473. The Third Circuit adopted the reasoning of the Fifth Circuit in Cajun Electric, 74 F.3d at 600 (adopting dissent at 69 F.3d at 751), which recognized that some debtor-creditor conflict is "deep-seeded" and so inherent that proceeding like a typical Chapter 11 case is virtually impossible. Id. The Third Circuit held that, given the fact that this is a complicated bankruptcy case coupled with strife-ridden history and acrimony, the appointment of a trustee to act as a neutral and efficient fiduciary was appropriate under both § 1104(a)(1) or (a)(2). Id. at 475. It should be noted, however, that the Third Circuit expressly held that "there is no per se rule by which mere conflicts or acrimony between debtor and creditor mandate the appointment of a trustee." Id. at 473. Instead, the Third Circuit stated that the court must look at the circumstances of the case and such determination must be made on a case-by-case basis. Id.
Mr. Thomas, joining with Mrs. Thomas, argue that the Creditors, also including TDOT, have not meaningfully addressed any "cause" for the appointment of a Chapter 11 trustee and that "mere acrimony" is not sufficient cause. This Court, however, disagrees under the totality of the particular facts and circumstances existing in this case. Here, as in Marvel Entertainment, 140 F.3d at 473, and Cajun Electric, 74 F.3d at 600 (adopting dissent at 69 F.3d at 751), there is no reasonable likelihood of any cooperation among the parties in the foreseeable future, and the parties have been working at cross-purposes since this case was transferred to this Court. Simply put, the relationships here are very deeply-seeded with
Mr. Thomas also alleges that the Creditors have not demonstrated any change in circumstances since the filing of the First Motion to give rise to the appointment of a Chapter 11 trustee; yet, this Court must strongly disagree. For example, since the filing of the First Trustee Motion, Glankler Brown, PLLC, counsel for Mr. Thomas, has withdrawn, and Mr. Thomas indicated that he would be hiring new counsel. See Dkt. No. 461. Despite this indication, Mr. Thomas, not a known bankruptcy lawyer, has since chosen to act pro se. In addition, and after almost two and a half years, no § 1125 disclosure statement has been approved and a Chapter 11 plan has yet to be filed by Mr. Thomas, the Creditors, or TDOT notwithstanding the fact that the exclusivity period aborted back in 2017. Further, there has evidently not been any type of negotiation among Mr. Thomas, the Creditors, TDOT, and other parties in interest, and it appears likely that there will be none given the exact history of this case and the continued legalistic bickering. See Petit, 182 B.R. at 70 (finding that "[t]he tangled history of the[ ] proceedings suggest[ed] that `friction' will continue at an unacceptable level"). As such, for all of the reasons mentioned above including the lengthy and severe acrimony among the parties, this Court finds that sufficient "cause" indeed exists here to cause the appointment of a Chapter 11 trustee under 11 U.S.C. § 1104(a)(1).
Unlike § 1104(a)(1)'s mandatory provision, § 1104(a)(2) "envisions a flexible standard." Marvel Entm't, 140 F.3d at 474. Section 1104(a)(2) expressly provides that the court shall order for the appointment of a trustee in a Chapter 11 case if it is in the best interests of the creditors and the estate. "The flexible standards embodied in § 1104(a) are intended to accommodate two goals: (1) facilitation of the debtor's
Mrs. Thomas interestingly alleges, and Mr. Thomas joins in, that the Creditors' claims should be subordinated under the Bankruptcy Code, resulting in the Creditors apparently being left with non-pecuniary interests, and therefore giving rise to disregard their judicial liens and resulting interests for the purposes of §§ 1104(a)(2) and 1109(b). More specifically, Mrs. and Mr. Thomas argue, notwithstanding the Creditors' prepetition judicial liens arising out of final tort judgments, that the Creditors are not "parties in interest" under §§ 1104(a) and/or 1109(b), and that only those whose pecuniary interests may be adversely affected under § 1104(a)(2) may be considered. The test under § 1104(a)(2) regarding pecuniary interests only gives standing to "person with a financial stake in the bankruptcy court's order." Morgenstern v. Revco D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498, 499 (6th Cir. 1990) (recognizing the Supreme Court's "public interest" exception to the pecuniary interest test and finding that the United States Trustee has proper standing when considering an appointment under § 1104).
This Court has already ruled that Clear Channel and Tennison Brothers have valid claims based in tort law and non-tort law. See Dkt. No. 525 (emphasis added). Moreover, this Court found that because the Creditors had "claims" under 11 U.S.C. § 101(5), they also had proper standing to request the appointment of a trustee under 11 U.S.C. §§ 1104(a)(1)-(2) and 1109(b). Id. (emphasis added). Further, this Court accentuated the point that "the amount of the claim, even if de minimus, may create standing to institute such actions." Id. (emphasis added). Therefore, the Court strongly disagrees with the arguments made by Mrs. and Mr. Thomas.
The Court notes that in this Chapter 11 case there are approximately 600 docket entries that have been made on the Court's docket sheet in the main case, five adversary proceedings,
It also is noted that a Chapter 11 trustee is a disinterested party who serves as a fiduciary. Section 1104(d) of the Bankruptcy Code requires, in part, that the Chapter 11 trustee be a "disinterested person." See 11 U.S.C. § 1104(d). The Bankruptcy Code defines "disinterested person" as a person that:
11 U.S.C. § 101(14). Here, neither Mr. Thomas nor Clear Channel, Tennison Brothers, or TDOT are disinterested parties. These immediate, non-disinterested parties have been litigating for almost fifteen years with no end in sight. A change is desperately needed in this case and estate administration and is clearly warranted.
A Chapter 11 trustee will provide an objective, dispassionate, and disinterested view, for example, on Mr. Thomas's objections to claims in addition to all the other pending and future contested matters and adversary proceedings. "The need for a neutral party to mediate disputes between the debtor and its creditors is ground for a trustee's appointment." In re The Bible Speaks, 74 B.R. 511, 513 (Bankr. D. Mass. 1987) (citing In re Bonded Mailings, Inc., 20 B.R. 781 (E.D.N.Y. 1982). In addition, "[w]hen significant tensions are present among the parties ..., appointment of a trustee may diffuse tensions...." 7 COLLIER ON BANKRUPTCY ¶ 1104.02[3][d] (16th ed. 2016). Moreover, in these types of situations, the appointment of a trustee may be essential to achieve successful plan negotiations and, ultimately, the reorganization of the debtor. Marvel Entm't, 140 F.3d at 475. Mrs. Thomas alleged that she is preparing to file a confirmable creditor Chapter 11 plan, but one has yet to be filed. In addition, Mr. Thomas argued that the Creditors, including TDOT, could file their own plan of reorganization, but have failed to do so; however, Mr. Thomas, himself, has apparently not even made an effort to do so. A Chapter 11 trustee, of course, could file a plan (and also act as a de facto mediator of sorts). Considering the high level of acrimony that exists here and the amount of legalistic bickering that has taken place among the parties certainly makes the appointment of a trustee in the best interests of all parties and the estate. See Petit, 182 B.R. at 70 (finding for appointment of a trustee and stating that "[w]hile some degree of antagonism and animosity between a debtor and creditors can be expected in any bankruptcy proceeding, it [can] reach[ ] a particular intensity [ ] which [can] complicat[e] efforts to `reorganize'....); see also The Bible Speaks, 74 B.R. at 512 (stating that "friction [had] developed between the Debtor and the Creditors' Committee which threaten[ed] to engulf [the] estate in costly and legalistic bickering over the entire range of the reorganization process"). Therefore, under 11 U.S.C. § 1104(a)(2), this Court finds that the appointment of a Chapter 11 trustee is clearly called for and is otherwise in the best interests of the creditors and the estate in this case — i.e., a trustee with
Based on the totality of the particular facts and circumstances and applicable law
Accordingly, based on the foregoing and consideration of the entire Chapter 11 case and its prepetition and postpetition records as a whole,
