Miller v. Dutil et al

UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
TOTAL CONTAINMENT, INC. 	:
Debtor 	: 	Bankruptcy No. 04-13144bif
____________________________________
GEORGE L. MILLER, Chapter 11 trustee 	:
Plaintiff 	:
v. 	:
MARCEL DUTIL, et al. 	:
Defendants 	: 	Adversary No. 05-0145
____________________________________
..............................................................
MEMORANDUM
..............................................................
Presently before me is a summary judgment motion filed by the plaintiff,
George L. Miller, in his capacity as counterclaim defendant, third-party defendant and
third-party plaintiff. In addition, a motion for summary judgment was filed by third-party
defendants Andre Marsan and Groupe Conseil Marsan, Inc. These two summary
judgment motions are opposed. As will be discussed, the claims at issue have been
narrowed by agreement of the parties.
I.
The plan administrator, Mr. George L. Miller, who is the former chapter 11
trustee in the above-captioned case, had filed an amended complaint asserting seven
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As successor in interest to defendant Canam Steel Corp.1
2
causes of action against eleven defendants, and seeking a total of $23 million in damages
as well as declaratory relief. Among those claims, Mr. Miller averred that the individual
defendants wrongfully caused the debtor, Total Containment, Inc. (“TCI”) to fail to
defend against prepetition lawsuits brought by Murphy Oil USA, Inc. and PISCES OPW,
Inc., purportedly causing damage to the debtor in excess of $5 million. Id., ¶¶ 35-46.
In response to Mr. Miller’s amended complaint, the individual defendants,
as well as some corporate defendants, raised numerous counterclaims. In addition, they
asserted third-party claims against Mr. Miller in his individual capacity. These
counterclaims and third-party claims can be placed into four groups.
First, defendants Winston Towers 1988, Inc., Canam Group, Inc., Marcel1
Dutil, Bernard Gouin, Pierre DesJardins, Jay Wright, and Finloc, Inc. averred that the
former trustee, in both his official and individual capacities, acted negligently and
breached his fiduciary duty in failing to timely raise a claim under a prepetition insurance
policy (a “D&O First” Policy) issued to TCI by American International Specialty Lines
Insurance Company, with policy number 320-83-57 and with a policy period from May
31, 2003 until May 31, 2004.
Second, these same defendants claimed that the former trustee acted
negligently and breached his fiduciary duty, in both his official and individual capacities,
by failing to move to vacate or set aside the prepetition judgments entered against TCI by
PISCES and Murphy Oil.
Third, the same defendants alleged that the former trustee acted negligently
and breached his fiduciary duty, in both his official and individual capacities, by his post-
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petition conduct in selling two facilities of TCI (one located in Bakersfield, California,
and the other located in Oaks, Pennsylvania). These defendants maintain that the
trustee’s actions failed to achieve the best price available.
And fourth, these same defendants averred that the former trustee, Mr.
Miller, should be held liable, in both his official and individual capacities, in his exercise
of control over TCI’s affiliate company, Delaware Valley Enterprises NV, formerly
known as TCI Environment NV/SA (“TCIE”). TCI held 99% of the outstanding shares
of TCIE, which shareholder interest became part of the TCI bankruptcy estate controlled
by Mr. Miller. In his exercise of that control, Mr. Miller appointed two new corporate
directors and purportedly authorized a dividend payable from TCIE to TCI.
Defendant Canam Group, Inc. asserts among its counterclaims that it is a
creditor of TCIE and that Mr. Miller, in his official capacity as trustee, authorized a
fraudulent transfer of assets from TCIE to TCI while TCIE was insolvent. This transfer
was improper as Mr. Miller should not have authorized any TCIE distribution to
shareholder TCI until TCIE creditors were repaid in full.
In addition, defendants Winston Towers 1988, Inc., and Canam Group, Inc.,
aver that Mr. Miller appointed two TCIE directors who were unqualified and who were
paid excessive compensation. For example, defendant Winston Towers 1988, Inc. alleges
in paragraphs 11-12, 69-71 of its counterclaims and third-party claims:
11. As the majority shareholder of TCIE, at the annual
meeting in May, 2004 the Trustee replaced two of the three
directors of TCIE, by appointing John R. Peters (“Mr.
Peters”), the Trustee’s next-door neighbor, and John B. Rice
(“Mr. Rice”), the Trustee’s personal attorney and whose firm
is also presently representing the Trustee’s accounting firm,
Miller, Coffey Tate. Neither had any relevant industry
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experience and neither was qualified to oversee the affairs of
TCIE.
12. Nevertheless, following the appointment of Mr. Peters and
Mr. Rice to the TCIE board, the Trustee caused TCIE to pay
each of his appointed directors a monthly fee of €1,500. In
March, 2006, the monthly director fee for each was increased
to €3,500.
69. Further, Mr. Miller’s administration of the estate’s
controlling interest in TCIE also fell below the standard of
care. As the Chapter 11 Trustee for TCI, Mr. Miller had the
duty to exercise the rights and responsibilities as the
controlling shareholder of TCIE, which stock was a principal
asset of TCI. Mr. Miller appointed friends and cronies as
directors of TCIE board who collected substantial director
fees from TCIE. However, these directors lacked the
experience and skills to provide the appropriate supervision
over TCIE management, and therefore, the TCIE board did
not function properly. Thus, TCIE’s payment of the directors
fees was an unnecessary expenditure of its resources which
should have been available to pay TCIE creditors or for
distribution to TCI following the satisfaction of TCIE’s
creditors.
70. As a consequence of Mr. Miller’s failure to properly
exercise the rights and responsibilities of the controlling
shareholder of TCIE through the appointment and payment of
unqualified directors, TCIE was unnecessarily depleted of the
cash that was paid to the directors appointed by Mr. Miller.
These funds should have been available to satisfy the
obligations of TCIE to its creditors, and after satisfaction of
its creditors for distribution to the TCI estate.
71. As the Chapter 11 Trustee for TCI, Mr. Miller had a duty
to exercise reasonable diligence and care in the performance
of his duties on behalf of the TCI estate. Mr. Miller’s duty to
exercise reasonable diligence and care in the performance of
his duties on behalf of the TCI estate extended to creditors
such as Winston Towers.
In response to the factual and legal assertions made against him by the
various defendants, Mr. Miller denied appointing unqualified directors of TCIE, denied
wrongfully conveying any TCIE assets, and denied breaching any fiduciary duties or
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acting negligently with respect to the D&O insurance policy, the PISCES and Murphy Oil
judgments, the sale of the two TCI facilities or via conduct as majority shareholder of
TCIE.
In addition to these denials, Mr. Miller asserted a third-party complaint
against Mr. Andre Marsan and Group Conseil Marsan, Inc. In this third party complaint,
Mr. Miller alleged that, prior to TCI’s bankruptcy filing on March 4, 2004, both
defendants were “in charge of, and made decisions related to, the day to day operations of
TCI in conjunction with the TCI Board of Directors, and other insiders and their
affiliates. . . .” Complaint, ¶ 13. In failing to take any action to vacate the PISCES and
Murphy Oil judgments against TCI, Mr. Marsan and Group Conseil Marsan allegedly
violated their fiduciary duties to TCI and were negligent. Mr. Miller then asserted that
these two third-party defendants were liable to him in contribution or indemnity to the
extent he was liable to the counterclaiming defendants. Third-Party Complaint, ¶¶ 27, 33.
Mr. Miller also raised similar contribution or indemnity claims against Marsan and Group
Conseil Marsan concerning the counterclaims and third party claims made against him
involving the sale of the two TCI facilities. Mr. Marsan and Group Conseil Marsan
responded to Mr. Miller’s complaint by denying all liability over to Mr. Miller.
Thereafter, Mr. Miller and the various defendants and third-party
defendants undertook discovery and ultimately entered into a stipulation dismissing the
following counterclaims and third-party claims: the claims involving the PISCES
judgment; and the sale of the two TCI facilities. (See docket entry # 227.) Moreover, all
parties agreed that the counterclaims and third-party claims involving the D&O policy
were rendered moot by the insurance company’s acceptance of the individual director’s
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claims under the D&O policy, as well as my ruling on September 26, 2007, which ruling
permitted the director and officer defendants to use the proceeds of that D&O policy.
Accordingly, there are relatively few counterclaims and third-party claims
still outstanding. Mr. Miller now seeks summary judgment as to all those remaining
claims, except as to the fraudulent conveyance claim raised against him by Canam Group,
Inc. Therefore, the only counterclaims and third-party claims remaining for possible
resolution via summary judgment are the negligence and breach of fiduciary duty claims
lodged against Mr. Miller in his representative and individual capacities as the former
chapter 11 trustee of TCI involving his failure to seek to vacate the prepetition judgment
against the debtor by Murphy Oil, and concerning his selection of Messrs. Rice and Peters
as corporate directors of TCIE and the alleged payment to them of excessive
compensation.
Mr. Marsan and Groupe Conseil Marsan, Inc. have also demanded entry of
summary judgment on the indemnity and contribution claims lodged against them by Mr.
Miller. Of those four claims—involving the sale of the two facilities and the PISCES and
Murphy Oil judgments—the trustee has agreed to dismiss all but the Murphy Oil related
claim. And that remaining third-party claim can only survive if Mr. Miller is denied
summary judgment.
II.
Federal Rule of Bankruptcy Procedure 7056 incorporates Fed. R. Civ. P.
56, the summary judgment rule, into bankruptcy adversary proceedings. Summary
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judgment avoids the expense and delay of an unnecessary trial when no material facts are
in dispute and one of the parties is entitled to prevail on the merits. See, e.g., Goodman v.
Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038
(1977). The standard for determining the applicability of summary judgment under Rule
56 is well established. As the Third Circuit Court of Appeals observed:
Summary judgment is appropriate when the moving party is
entitled to judgment as a matter of law and there is no genuine
dispute of material fact. . . . In order to defeat “a properly
supported summary judgment motion, the party opposing it
must present sufficient evidence for a reasonable jury to find
in its favor.” Groman v. Township of Manalapan, 47 F.3d
628, 633 (3d Cir. 1995) (citing Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 250-52, 106 S. Ct. 2505, 2511-12, 91 L.
Ed. 2d 202 (1986)). In essence, the non-moving party must
demonstrate a dispute over facts that might affect the outcome
of the suit. Id. Moreover, in reviewing the record, we must
give the non-moving party the benefit of all reasonable
inferences. . . .
Hampton v. Borough of Tinton Falls Police Dep’t, 98 F.3d 107, 112 (3d Cir. 1996).
The application of these general principles is affected by the allocation of
the evidentiary burden of persuasion were the dispute to proceed to trial. That is, a trial
court’s approach to summary judgment is influenced by whether the party seeking
summary judgment would have the burden of persuasion at trial. See generally
Coquellette, et al. 11 Moore’s Federal Practice 3d, §§ 56.03[4], 56.13[3] (2006). This
approach was well summarized in Adams v. Consolidated Rail Corp., 1994 WL 383633,
at *1-*2 (E.D. Pa. 1994):
The Supreme Court articulated the allocation of burdens
between a moving and nonmoving party in a motion for
summary judgment in Celotex Corp. v. Catrett, 477 U.S. 317
(1986). The Court held that where the movant is the
defendant, or the party without the burden of proof on the
underlying claim, the movant still has the initial burden of
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showing the court the absence of a genuine issue of material
fact, but that this does not require the movant to support the
motion with affidavits or other materials that negated the
opponent’s claim. Id. at 323. In contrast, where, as here, “the
party moving for summary judgment is the plaintiff, or the
party who bears the burden of proof at trial, the standard is
more stringent.” National State Bank v. Federal Reserve
Bank, 979 F.2d 1579, 1582 (3d Cir. 1992). To sustain its
initial burden under such circumstances, the movant must:
“support its motion with credible evidence . . .
that would entitle it to a directed verdict if not
controverted at trial. In other words, the
moving party must show that, on all the
essential elements of its case on which it bears
the burden of proof at trial, no reasonable jury
could find for the non-moving party.”
Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.
1993). . . . If the movant makes such an affirmative showing,
it is entitled to summary judgment unless the nonmoving
party, in response, comes forward with significant, probative
evidence demonstrating the existence of a triable issue of
fact[.]
(citations omitted); accord In re White, 243 B.R. 498, 501 n.4 (Bankr. N.D. Ala. 1999).
Thus, “[w]hen, as here, the nonmoving party bears the burden of persuasion
at trial, the moving party may meet its burden on summary judgment by showing that the
nonmoving party’s evidence is insufficient to carry that burden. The nonmoving party
creates a genuine issue of material fact if he provides sufficient evidence to allow a
reasonable jury to find for him at trial.” Wetzel v. Tucker, 139 F.3d 380, 383 n.2 (3d Cir.
1998).
As noted earlier, in applying the above-mentioned standard for summary
judgment, “[the court must] view the underlying facts and all reasonable inferences
therefrom in the light most favorable to the party opposing the motion.” Pennsylvania
Coal Ass’n v. Babbitt, 63 F.3d 231, 236 (3d Cir. 1995); see also Wetzel v. Tucker, 139
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F.3d at 383 n.2; Helen L. v. DiDario, 46 F.3d 325, 329 (3d Cir.), cert. denied sub nom.
Pennsylvania Secretary of Public Welfare v. Idell S., 516 U.S. 813 (1995); Valhal Corp.
v. Sullivan Associates, Inc., 44 F.3d 195, 200 (3d Cir. 1995); Goodman v. Mead Johnson
& Co., 534 F.2d at 573. Moreover, the moving party bears the burden of proving that no
genuine issue of material fact is in dispute. Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 586 n.10 (1986). Once the movant has carried its initial
burden, however, the nonmoving party “must come forward with ‘specific facts showing
that there is a genuine issue for trial.’” Id. at 587 (quoting Fed. R. Civ. P. 56(e)). As
explained by the Third Circuit:
At the summary judgment stage of proceedings, if the movant
—in this case the Defendants—can point to the absence of
any factual support for one of [the] essential elements [of the
complaint], then the non-movant, bearing the burden of
persuasion at trial, must introduce specific facts showing a
need for trial, pursuant to Fed. R. Civ. P. 56(e). See Celotex,
477 U.S. at 322-24, 106 S. Ct. 2548. If the non-moving party
fails to go beyond conclusory allegations in its pleadings and
to produce specific facts indicating that there is a genuine
issue for trial, summary judgment will be granted in favor of
the moving party.
Annulli v. Panikkar, 200 F.3d 189, 198-99 (3d Cir. 1999) (overruled on other grounds by
Rotella v. Wood, 528 U.S. 549 (2000)) (citations omitted).
III.
In applying this standard, I shall first consider the counterclaims and third-
party claims against Mr. Miller arising from the prepetition Murphy Oil prepetition state
judgment against TCI.
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Miller’s third-party complaint against the Marsan defendants suggests that the2
Murphy Oil judgment was entered in state court on February 10, 2004. Complaint, ¶ 19.
Actually, the state court order was dated February 10, 2004, but not entered until March 1, 2004.
See Miller’s Ex. AA; Claims Docket No. 11, Ex. A; Marsan Motion for Summary Judgment, Ex.
6.
Thus, there is no dispute that the judgment order was entered in state court prior to
TCI’s bankruptcy filing on March 4, 2004 and that entry of this order occurred within 30 days of
the commencement of the bankruptcy case.
The Murphy Oil related counterclaims and third-party claims are as follows:3
Winston Towers1988 counterclaims V-VIII: Canam Group counterclaims VI-IX; Dutil, Gouin
and DesJardins counterclaims V-VIII; Jay Wright counterclaims and third-party claims III-IV;
Finloc, Inc. counterclaims V-VIII.
10
In Mr. Miller’s amended complaint, he asserts that, by order dated March 1,
2004, the state court entered judgment in the amount of $4 million in favor of Murphy Oil
as a sanction for TCI’s willful failure to comply with an order compelling discovery.
Amended Complaint, ¶ 53. TCI filed a voluntary petition in bankruptcy on March 4,
2004, less than thirty days from the entry of this order. 	The counterclaim defendants2
complain that Mr. Miller should have taken prompt steps to vacate or set aside that
sanctions judgment. And they seek damages against him for his failure to do so. 3
Mr. Miller counters that he was unlikely to be successful in vacating this
default order and made a reasoned decision not to try. Based upon conversations he had
with various attorneys (who did not represent him), he contends that he would be unable
to demonstrate a reasonable explanation for the entry of the Murphy Oil sanction against
TCI, because his investigation led him to conclude that TCI purposely did not comply
with Murphy Oil’s discovery requests as part of a stratagem undertaken by the
defendants. Moreover, he maintains that either he had no unencumbered funds with
which to prosecute such an action or, if he did, that it would be an unreasonable
expenditure of such funds.
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The Marsan defendants, relying upon the deposition of Mr. Marsan,
maintain that they had no responsibility for managing or overseeing litigation against
TCI. They also contend that the span between entry of the Murphy Oil sanctions order
and appointment of the bankruptcy trustee was too brief for action to be taken by them.
In seeking summary judgment on the claims involving Murphy Oil’s
prepetition sanctions order, Mr. Miller relies upon his own deposition testimony as well
as upon the “expert report” of Gary F. Seitz, Esq., an individual appointed by the United
States trustee as a bankruptcy trustee in numerous cases in this district. Miller, Ex. A.
Mr. Seitz opined as follows:
The likelihood of opening these judgments [in favor of
PISCES and Murphy Oil] was severely hampered by the
Debtor’s prior directors knowingly ignoring and flaunting
state and federal court orders despite legal advice
recommending a different course of action. The
directors permitted the entries of the default judgment as part
of a strategy to hinder and delay its creditors. . . . By acting in
a calculated, deliberate and intentional manner, the directors’
conduct vitiated proof of any excusable neglect needed to
seek relief from the judgment.
***
The directors’ intentional wrongdoing leading to the
judgments was such that the Trustee was unable to provide a
reasonable explanation or excuse for the delay that led to
the entry of the judgments—without which the Trustee could
not prevail in any further litigation to open the judgments.
Miller, Ex. A at 22-23.
The counterclaim defendants challenge Mr. Seitz’s reasoning, relying
primarily upon an opinion letter written by former state court judge Abraham J. Gafni,
who opined that as the Murphy Oil plaintiff had sued TCI in tort, the state trial court erred
in failing to hold a damage hearing prior to entering the discovery sanctions order, and
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Former Judge Gafni concluded that no evidence of damages was presented from4
the absence of any affidavit attached to Murphy Oil’s sanctions motion, from Mr. Miller’s
deposition (which simply stated that he did not know if any evidence regarding damages was
offered, Defendants’ Ex. 5, at 25-27; Ex. 7, at 49, 64) and because the February 10, 2004 state
court order made reference to a demand in the complaint but there was no liquidated damage
claim in the complaint. Defendants’ Ex. 11, at 4.
I do not find the record undisputed on this point. That is, there is no document,
affidavit or transcript that clearly demonstrates whether Murphy Oil did or did not offer any
evidence in support of its discovery sanctions judgment.
12
thus the $4 million judgment was defective and open to challenge. Defendants’ Ex.11 at
4 ; see generally Pa. R. Civ. P. 1037.4
In general, if a default judgment is taken against a defendant, Pennsylvania
law provides two distinct methods for setting aside that judgment. State law distinguishes
between striking or opening the judgment. A judgment will be stricken only if a defect in
the judgment, such as a defect in service, is apparent on the face of the record. No
extrinsic evidence may be offered to demonstrate that defect. See Dubrey v. Izaguirre,
454 Pa. Super. 504, 509-10 (1996):
A petition to strike a judgment does not involve the discretion
of the court . . . . Instead, it acts as a demurrer to the record
and, as such, may be granted only when “a fatal defect in the
judgment appears on the face of the record.” . . . Therefore, to
grant a petition to strike a judgment based upon improper
service, the court must be unable to find proper service,
reviewing only the record as it existed when judgment was
entered.
(citations omitted); accord Cintas Corp. v. Lee’s Cleaning Services, Inc., 549 Pa. 84, 93
(1997); City of Philadelphia v. Campbell, 32 Pa. Commw. 166 (1977) (default judgment
is stricken because of a defect in service apparent in the affidavit of service).
Conversely, if there is no defect apparent upon examination of the record,
then a defendant may seek to open a default judgment by presenting extrinsic evidence.
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See, e.g., Liquid Carbonic Corp. v. Cooper & Reese, Inc., 272 Pa. Super. 462 (1979).
However, unless the defect in service is such as to give rise to a due process violation, in
order to open a judgment the defendant must demonstrate a reasonable explanation for the
entry of the default, some likelihood of a meritorious defense, and prompt action once the
entry of default is known. See, e.g., Cintas Corp. v. Lee’s Cleaning Services, Inc., 549
Pa. at 93-94; PNC Bank, N.A. v. Unknown Heirs, 929 A.2d 219, 228 (Pa. Super. 2007);
Romeo v. Looks, 369 Pa. Super. 608, 620 (1987); Commonwealth ex rel Schwarz v.
Schwarz, 252 Pa. Super. 95, 99-100 (1977).
To some extent, both the counterclaim defendants and Mr. Miller assume
that this general three-part standard for opening default judgments applies to any attempt
to vacate the Murphy Oil judgment. Mr. Miller argues that he could not offer a
reasonable explanation for the entry of the sanctions order, as he believes the failure to
provide discovery was done willfully by TCI. And the defendants assume that Mr.
Miller’s failure to act promptly, after he was appointed trustee, now precludes any relief
from the state court. As former Judge Gafni observed though, relief from the state court
entry of default judgment as a discovery sanction is not necessarily governed by the three-
part test just detailed.
Pennsylvania Rule of Civil Procedure 4019(c)(3) authorizes a Pennsylvania
trial court to, inter alia, enter a default judgment against a party that has failed to comply
with a discovery order. See, e.g., Fox v. Gabler, 534 Pa. 185, 189 (1993); Luszczynski v.
Bradley, 729 A.2d 83 (Pa. Super. 1999). Where the discovery sanction only fixes liability
but not damages, and so is not a final adjudication of the civil action, the sanctioned party
may not file a petition to open the default but may only seek reconsideration within 30
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days from entry of default. See, e.g., Edney v. Southeastern Pennsylvania Transportation
Authority, 356 Pa. Super. 160, 163 (1986). If the sanctions order under Rule 4019(c)(3)
fully disposes of the litigation, then the defaulted party can appeal within 30 days from
entry of the judgment, and the appellate court would consider whether the discovery
sanction imposed was appropriate. See, e.g., Baranowski v. American Multi-Cinema,
Inc., 455 Pa. Super. 356, 358 n.2 (1997); Standard Pennsylvania Practice § 34:95 (2007).
The standard of appellate review, however, is abuse of discretion. See, e.g., Reilly v.
Ernst & Young, LLP, 929 A.2d 1193, 1199 (Pa. Super. 2007).
Not addressed by either party, however, is the effect of the provisions of 11
U.S.C. § 108(c) of the Bankruptcy Code on these Murphy Oil sanctions-related
counterclaims and third-party claims. This section states:
(c) Except as provided in section 524 of this title, if applicable
nonbankruptcy law, an order entered in a nonbankruptcy
proceeding, or an agreement fixes a period for commencing or
continuing a civil action in a court other than a bankruptcy
court on a claim against the debtor, or against an individual
with respect to which such individual is protected under
section 1201 or 1301 of this title, and such period has not
expired before the date of the filing of the petition, then such
period does not expire until the later of--
(1) the end of such period, including any
suspension of such period occurring on or after
the commencement of the case; or
(2) 30 days after notice of the termination or
expiration of the stay under section 362, 922,
1201, or 1301 of this title, as the case may be,
with respect to such claim.
As mentioned earlier, TCI was the subject of state court litigation brought
by Murphy Oil. Murphy Oil obtained a default judgment via sanctions order. Relief from
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that judgment could be sought, under Pennsylvania law, by reconsideration or by
appellate review. The deadline for either action was 30 days from the entry of the
judgment. See Pa. R. App. P. 903(a) and 1701(b)(3)(ii); Witherspoon v. Wal-Mart
Stores, Inc., 814 A.2d 1222, 1225 (Pa. Super. 2002) (“As we have repeatedly stated, once
a final order or judgment is entered, an appeal must be filed within thirty days or, the trial
court must expressly grant reconsideration within thirty days.”).
The debtor’s bankruptcy petition was filed within 30 days of the entry of the
judgment. Thus, the deadline for seeking reconsideration or filing a notice of appeal had
not expired prior to the commencement of this chapter 11 case. The bankruptcy stay
under section 362(a) precluded the chapter 11 debtor (or the trustee) from filing for
reconsideration or taking an appeal, as the underlying state court litigation represented a
claim against the debtor. See, e.g., Constitution Bank v. Tubbs, 68 F.3d at 693-94; see
generally In re Krystal Cadillac Oldsmobile GMC Truck, Inc., 142 F.3d 631 (3d Cir.
1998); In re Highway Truck Drivers & Helpers Local Union No. 107, 888 F.2d 293, 298
(3d Cir. 1989); Association of St. Croix Condominium Owners v. St. Croix Hotel Corp.,
682 F.2d 446, 448-49 (3d Cir. 1982). Therefore, by virtue of section 108(c), as the time
period for challenge to the Murphy Oil judgment had not expired as of the filing of the
bankruptcy petition, that time period for action was extended until 30 days from the
termination or expiration of the bankruptcy stay under section 362. See In re Hoffinger
Industries, Inc., 329 F.3d 948, 952-54 (8th Cir. 2003); In re Capgro Leasing Associates,
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At oral argument, the counterclaim defendants argued that the provisions of5
section 108(b) applied. Respectfully, I disagree. As explained by one treatise:
It is important to note that section 108(b) does not apply to time
periods in actions against the debtor, or against a codebtor
protected by the codebtor stay of section 1201 or 1301 of the Code.
Such actions are stayed by section 362, 922, 1201 or 1301 and may
proceed only when the stay under the applicable section terminates.
At that point, the time available is governed by section 108(c),
which provides at least 30 days to take action when an act or
proceeding had been stayed. Thus, when the debtor has a deadline
for filing an appeal prior to bankruptcy, if the action was originally
brought against the debtor, the trustee need not meet the 60 day
time limit of section 108(b) since the action would have been
stayed by section 362. There is no need to file pleadings or other
briefs in a proceeding which has been stayed; section 108(c) will
be applicable if the stay terminates. However, section 108(b)
would probably be applicable to time periods for the trustee to act
in proceedings against the debtor that are not automatically stayed,
such as police or regulatory enforcement actions, since section
108(c) is intended to deal only with those actions which are stayed
as a result of the bankruptcy filing.
2 Collier on Bankruptcy, ¶ 108.03[2] at 108-11 (15th ed. rev. 2007) (footnotes omitted). See
Counties Contracting and Const. Co. v. Constitution Life Ins. Co., 855 F.2d 1054 (3d Cir. 1988)
(section 108(b) applies to a grace period in an insurance contract).
In this instance, Murphy Oil had brought an action against TCI in state court.
Upon TCI’s filing, that action was stayed by virtue of section 362(a), including any appeals from
the prepetition sanctions order.
16
169 B.R. 305 (Bankr. E.D.N.Y. 1994); Citizens National Bank of Evans City v. Gold, 439
Pa. Super. 254 (1995). 5
No party has sought to terminate the bankruptcy stay concerning the
Murphy Oil judgment. See generally In re Hoffinger Industries, Inc. (debtor sought relief
from the stay). Nor has the stay expired. Although the chapter 11 trustee confirmed a
liquidation plan, paragraph 12.0 of the approved “amended plan of liquidation” dated
November 10, 2005, expressly stated:
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Indeed, a provision of the confirmed chapter 11 plan, Amended Chapter 11 Plan6
of Liquidation, Article IX, ¶ 9.0, provided that “parties in interest” as well as the trustee could
object to claims prior to the effective date of the plan. While this court may have no power to
vacate a duly entered order of the state court, see generally In re Knapper, 407 F.3d 573 (3d Cir.
2005); In re Wilson, 116 F.3d 87, 90 (3d Cir. 1997), such a plan provision might be germane in
determining whether authority should be granted to a creditor to prosecute a state court appeal
from the Murphy Oil judgment at that creditor’s expense.
Not presently before me, as Murphy Oil is not a party to this adversary
proceeding, is the effect (if any) on possible state court relief in light of proof of claims
objections filed after the complaint, counterclaims, and third-party pleading were filed. Both Mr.
(continued...)
17
12.0. Term of Bankruptcy Injunction or Stays. Unless
otherwise provided, all injunctions or stays provided for in
this Chapter 11 Case under sections 105 or 362 of the
Bankruptcy Code, or otherwise, and in existence on the
Confirmation Date, shall remain in full force and effect until
the dissolution of the Debtor.
As there has been no dissolution of TCI, it appears that the stay currently remains in
effect.
Accordingly, the time period for Mr. Miller to act in state court to vacate
the Murphy Oil judgment has not expired. Moreover, if a bankruptcy fiduciary
wrongfully fails to act on behalf of the estate, such as filing a valid objection to a claim, a
creditor or other party in interest can seek court approval to do so. See In re Thompson,
965 F.2d 1136, 1147 (1st Cir. 1992) (“As a general rule, absent leave of court, the chapter
7 trustee alone may interpose objections to proofs of claim. Leave to object is not
generally accorded an individual creditor unless the chapter 7 trustee refuses to object,
notwithstanding a request to do so, and the bankruptcy court permits the creditor to object
in the trustee’s stead.”); see generally Official Committee of Unsecured Creditors of
Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery, 330 F.3d 548 (3d Cir. 2003); In
re Elder, 321 B.R. 820, 829 (Bankr. E.D. Va. 2005). 6
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(...continued)6
Miller, in his capacity as plan administrator, along with Finloc US, Inc and Canam Steel
Corporation (predecessor in interest to Canam Group, Inc.)—the latter two acting jointly—filed
separate objections to Murphy Oil’s unsecured proof of claim in this case. Mr. Miller reached an
accord with Murphy Oil on December 11, 2006, which allowed the claim in the amount of $4
million. Canam Steel and Finloc withdrew their joint objection on January 9, 2007 “because,
under prevailing law, any objection is effectively foreclosed by the Chapter 11 Trustee’s failure
to move, vacate appeal or take any action in the state court to challenge the judgment obtained
prepetition by Murphy Oil. . . .”
Mr. Miller cannot complain of the failure of the Marsan defendants to act when7
he was and still appears to be free to take the same action.
Therefore, I do not address the numerous issues raised by the various parties that8
involve the merits of these counterclaims.
18
The counterclaims and third-party claims against Mr. Miller concerning the
Murphy Oil default judgment assume that the opportunity for the former trustee to seek
relief in state court has long passed, and only seek relief on the basis of his failure to
timely act. As that assumption is incorrect, and as Mr. Miller or possibly other parties in
interest, such as the defendants, are not precluded by virtue of the passage of time from
seeking relief from the state court concerning the Murphy Oil judgment, these
counterclaims and third-party claims are not ripe for adjudication. See also Bagoly v.
Riccio, 102 Conn. App. 792 (2007) (negligence action against attorney is tolled while the
attorney could still mitigate any harm). Therefore, dismissal of these counterclaims and
third-party claims in favor of Mr. Miller and in favor of Mr. Marsan and Group Conseil
Marsan are warranted. 	See Brubaker v. East Hempfield Tp., 234 Fed. Appx. 32 (3d Cir.7
2007); Taylor Inv., Ltd. v. Upper Darby Twp, 983 F.2d 1285 (3d Cir. 1993) (when claim
is not ripe, dismissal rather than summary judgment is appropriate). 8
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Canam Group avers that it holds claims against TCIE and the debtor, while9
Winston Towers contends that it holds a claim only against TCI. Canam Group also maintains
that TCIE is insolvent. If so, it is not apparent that Winston Towers suffered any harm from Mr.
Miller’s alleged wrongdoing in using TCIE assets. I need not resolve this standing issue as
Canam Group would still have the right to complain.
19
IV.
Next, Canam Group, Inc. (in counterclaims X-XIII) and Winston Towers
1988, Inc. (in counterclaims IX-XII) have complained that Mr. Miller, as the
representative of TCI (which was the 99% shareholder of TCIE), voted the debtor’s
shareholder interest to appoint unqualified directors to TCIE’s Board and then paid them
excessive compensation from TCIE assets. 	They seek damages equal to the amount of9
director compensation paid from May 2004 to these directors, asserting Mr. Miller’s
liability due to negligence and breach of fiduciary duty, both in his representative trustee
capacity and individually.
There appears to be no dispute that TCIE was an entity “organized and
existing under the laws of Belgium as a . . . limited liability company.” Miller Ex. TT,
Letter of Jan Peeters dated April 16, 2007, at 2. It was incorporated in August 1992. Id.
TCI held a 99% shareholder interest in TCIE. Miller Ex. A, at 24. On March 19, 2004,
Mr. Miller was appointed chapter 11 trustee. See docket entry # 64. Thereafter and in
response to certain director resignations, Mr. Miller arranged to have Mr. John B. Rice
and Mr. John R. Peters appointed as directors of TCIE in May or June 2004. Defendants’
Ex. 13, at 29, 34; Miller Ex. A, at 24. Mr. Rice is a litigation attorney previously known
to Mr. Miller, and had represented him in an individual matter. Id., at 29-30, 32. Mr.
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Mr. Miller also arranged for Mr. Frank Frio to be appointed to the TCIE Board10
of Directors. No complaint has been lodged regarding this appointment.
Canam Group and TCIE are involved in litigation that was removed to this court11
from the District Court of Maryland.
20
Peters is employed as a “certified fraud examiner,” id. at 36, has some expertise in
“financial transactions,” id., at 37, and is also a neighbor of Mr. Miller. Id., at 35. Mr.
Peters was chosen by Mr. Miller because he might be useful in any investigation of
“TCIE and its transactions with other people.” Id., at 37. Mr. Rice was selected because
Mr. Miller believed that TCIE was involved in various litigation. Id., at 32. 	It is further10
undisputed that Mr. Miller, at some unspecified point, approved director compensation
initially at 1,500 euros monthly, and then at some unspecified date increased it to 3,500
euros, with the increase intending to last only until TCIE sold all of its assets. Id., at 175-
76; Miller’s Answers to Interrogatories ## 10, 11 concerning his fee application as
Trustee, dated November 9, 2006:
Interrogatory No. 10: Describe in detail any factual bases for
the determination of compensation to be paid to each Director
of TCIE that you appointed, and in your answer state the
number of hours per month expended on TClE business by
each Director.
Response: Initially, the new directors had no compensation.
When it became apparent that they would be occupied
responding to Canam’s litigation, 	they were compensated11
with 1,500 euros a month. When additional time had to be
spent with respect to the sale process, their compensation was
increased to 3,500 euros per month, based upon an estimated
8-10 hours of work per month. The Plan Administrator’s
general impression is that the new directors worked
substantially more hours than estimated without additional
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This is the date that the trustee’s confirmed plan became effective and he ceased12
acting as trustee and became Plan Administrator. As the interrogatories concerned only fees for
his services as trustee, Mr. Miller took the position in these interrogatory answers that post-
effective date events were irrelevant.
On July 6, 2006, this court approved the sale of TCIE’s assets to Groep13
Carpentier, which order was not opposed by any party in interest.
21
compensation. The Plan Administrator objects to discovery
pertaining to events after May 5, 2006. 12
Interrogatory No. 11: Following the closing on the sale of
TCIE assets to Groep Carpentier, 	describe in detail the13
compensation, if any, the Directors are now receiving and the
amount of time each Director is expending on TCIE matters
each month.
Response: Objection, this interrogatory is not related to the Fee Request
because it relates entirely to potential future events after May
5, 2006. Without waiver of the above objection, to the best of
the Plan Administrator’s knowledge, events relating to the
closing are ongoing, and to the extent there may be post
closing adjustments to compensation those adjustments have
not yet been determined.
Thus, director compensation was authorized by Mr. Miller based upon his
belief that the directors were spending considerable time on TCIE litigation matters, and
this stipend was then increased to compensate directors for time spent concerning the sale
of TCIE’s assets. Id., at 33-34, 176-77. TCIE is located in Belgium and Mr. Rice has
never traveled to its business location. Defendants’ Ex. 14, at 10. Mr. Peters has visited
there one time. Defendants’ Ex. 13, at 177. Mr. Rice cannot read documents written in
Dutch. Defendants’ Ex. 14, at 47.
Defendants Canam Group and Winston Towers also rely on a December
2006 affidavit from Mr. Jan Peeters, an attorney practicing in Belgium who practices in
the fields of “capital market operations . . . , corporate finance, venture capital, mergers
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22
and acquisitions and financial services regulations.” Peeter’s Affidavit, ¶ 3. This
affidavit was offered to corroborate the corporation liquidation procedure under Belgian
law detailed in a pleading filed by Canam Steel Corporation (predecessor in interest to
Canam Group as a purported creditor of TCIE) and is now used by the counterclaimants
to argue that TCIE should have been officially liquidated either in connection with or
immediately after the sale of its assets to Groep Carpentier, thereby ending the need to
pay directors.
In seeking summary judgment, Mr. Miller contends that the professional
backgrounds of Messrs. Rice and Peters, along with his confidence in their propriety,
made them suitable to serve as directors entitled to reasonable compensation for their
services. See Miller Ex. A at 24; Miller Reply Ex. A at 10. He notes that TCI
compensated its own directors. Miller Ex. BB, at 359-60. A former director of TCIE did
not speak Dutch, so Mr. Miller did not consider that language deficiency material. Miller
Reply Ex. C, at 33-34. Corporate documents, such as minutes, were routinely translated
into English. Id. Moreover, that former director traveled to Belgium only once on TCIE
business. Id., at 48.
Mr. Miller further maintains that the counterclaimants failed to meet their
evidentiary burden in opposing summary judgment because they did not refer to any
evidence that would be presented at trial demonstrating that the two directors were
unqualified for their positions or acted improperly as directors. Nor, he notes, did the
counterclaimants refer to any evidence that would be presented at trial addressing the
reasonableness of compensation paid to directors of entities such as TCIE.
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Indeed, the parties do not address whether Mr. Miller had any fiduciary duty in14
his individual capacity and, if so, to whom. They spend time arguing whether the exculpation
clause of the confirmed plan applies to these counterclaims and third-party claims against Mr.
Miller in his individual capacity.
Previously, I concluded in this chapter 11 case that individual liability of a
bankruptcy trustee and plan administrator may be limited to conduct giving rise to “gross
negligence” and “willful misconduct.” See generally In re eToys, Inc., 331 B.R. 176 (Bankr. D.
Del. 2005); State of Illinois, Dep’t of Revenue v. Schechter, 195 B.R. 380, 384 (Bankr. N.D. Ill.
1996). This standard does not apply to liability of a bankruptcy trustee in his official capacity.
(continued...)
23
Nonetheless, giving the defendants the benefit of all inferences, and
recognizing that in this circuit there is no partial summary judgment for single claims, see
Coffman v. Federal Laboratories, Inc., 171 F.2d 94, 98 (3d Cir. 1948), summary judgment
on this issue is not warranted.
Even if I accept for summary judgment purposes that it was reasonable for
Mr. Miller to arrange for Messrs. Rice and Peters to be appointed TCIE trustees, and even
if I accept that they were initially paid reasonable compensation and that this
compensation could increase due to director services connected with the TCIE asset sale,
there is no evidence when, if ever, the higher compensation ceased—although the sale
was approved in July 2006. Mr. Miller’s answer to interrogatories, quoted above, gives
rise to the inference that this higher compensation may have continued long past the sale
approval date. Thus, there is a material fact in dispute. See generally Telxon Corp. v.
Meyerson, 802 A.2d 257, 265-66 (Del. 2002); Resolution Trust Corp. v. Gibson
829 F. Supp. 1121, 1128-30 (W.D. Mo. 1993).
There is also no evidence that TCIE was or was not insolvent: a fact that
could affect issues of standing, the measure of damages, if any, and the fiduciary duty of
Mr. Miller, if any. 	Accordingly, Mr. Miller’s request for summary judgment as to14
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(...continued)14
And if the trustee is liable in his representational capacity, then the estate itself would be liable.
See generally David S. Rogers, as Trustee For Bankruptcy Estate of David G. Ackley v. Virgin
Land, Inc., Ackley Communications, Enterprises, 1996 WL 493174 (D.V.I. 1996).
It would be inappropriate to consider whether negligence, gross negligence or
willful misconduct has occurred without knowledge of all material facts.
24
Canam Group, Inc. counterclaims X-XIII and Winston Towers 1988, Inc. counterclaims
IX-XII shall be denied. An appropriate order will be entered.
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UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
TOTAL CONTAINMENT, INC. 	:
Debtor 	: 	Bankruptcy No. 04-13144bif
____________________________________
GEORGE L. MILLER, Chapter 11 trustee 	:
Plaintiff 	:
v. 	:
MARCEL DUTIL, et al. 	:
Defendants 	: 	Adversary No. 05-0145
____________________________________
..............................................................
ORDER
..............................................................
AND NOW, this 28th day of January 2008, for the reasons stated in the
accompanying memorandum, it is hereby ordered that the motion for summary judgment
filed by George L. Miller, in his capacity as counterclaim defendant and third-party
defendant, is denied as to Canam Group, Inc. counterclaims X-XIII and Winston Towers
1988, Inc. counterclaims IX-XII. As to Winston Towers1988 counterclaims V-VIII:
Canam Group counterclaims VI-IX; Dutil, Gouin and DesJardins counterclaims V-VIII;
Jay Wright counterclaims and third-party claims III-IV; Finloc, Inc. counterclaims V-
VIII, those claims were previously dismissed voluntarily regarding the PISCES judgment
and are now dismissed regarding the Murphy Oil sanctions judgment. All counterclaims
and third-party claims concerning the “D&O First” Policy issued to TCI by American
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International Specialty Lines Insurance Company, with policy number 320-83-57 and
with a policy period from May 31, 2003 until May 31, 2004 are, by agreement, dismissed
as moot.
It is further ordered that Counts I and II of the third-party claims brought by
George L. Miller against Andre Marsan and Groupe Conseil Marsan, Inc. concerning the
Murphy Oil sanctions judgment is also dismissed. (The other third-party claims against
these two third-party defendants were previously dismissed voluntarily.)
____________________
BRUCE FOX
United States Bankruptcy Judge
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copies to:
Steven M. Coren, Esq.
Kaufman, Coren & Ress, P.C.
1525 Locust St.,17th Floor
Philadelphia, PA 19102
Joseph M. Toddy, Esq.
Zarwin, Baum, DeVito, Schaer, Toddy P.C.
1515 Market Street, Suite 1200
Philadelphia, PA 19102
Jeffrey D. Herschman, Esq.
DLA Piper Rudnic Gray Cary US, LLP
6225 Smith Ave
Baltimore, MD 21290
Phillip E. Wilson, Jr., Esq.
DLA Piper Rudnick Gray Cary US, LLP
One Liberty Place
1650 Market Street, Suite 4900
Philadelphia, PA 19103
Christopher W. Wasson, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
18th & Arch Sts.
Philadelphia, PA 19103
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