IN RE KAKE TRIBAL CORPORATION, (Bankr.D.Alaska 2001)

DONALD MacDONALD, United States Bankruptcy Judge.

On March 21, 2001, a continued relief from stay hearing was held concurrently with the hearing on confirmation of the debtor's third amended plan. David Bundy appeared on behalf of the debtor, Spencer Sneed appeared for the Unsecured Creditors' Committee, and Fred Triem appeared on behalf of the Kake shareholders who are seeking relief from stay. Having reviewed the motion and opposition thereto, as well as the supplemental briefs filed after the hearing, and considered the comments of counsel made at the hearing,

IT IS ORDERED:

1) Relief from stay is granted with regard to the appeal pending in the state court proceeding Hanson v. Kake Tribal Corporation, Case No. 1PE-90-072 CI [S-09299]. Any costs awarded to Mr. Triem as a result of this appeal may be recovered from the common fund which exists in the state court action. Under no circumstance may Mr. Triem seek to recover costs awarded in this state court action from the debtor in this proceeding.

2) Relief from stay is denied with respect to the state court action, Nauska v. Kake Tribal Corporation, Case No. 1PE-95-001 [S-09180].

3) Relief from stay is denied with respect to the shareholder derivative claim contained in the state court action entitled Tagaban v. Jackson, et al., Case No. 1PE-98-022.

4) With regard to the direct shareholder cause of action, purportedly on behalf of the Martin and Hanson classes of shareholders, contained in the state court action entitled Tagaban v. Jackson, et al., Case No. 1PE-98-022, relief from stay is denied at this time, pending a resolution of the issue of Mr. Triem's standing to represent those classes of shareholders in this bankruptcy proceeding.

Discussion

At the hearing on March 21, the debtor agreed that the motion for relief from stay could be granted with regard to the appeal pending in Hanson v. Kake Tribal Corporation, Case No. 1PE-90-072 CI, [S-09299]. This appeal pertains solely to the award of litigation costs to Mr. Triem out of a common fund. Mr. Triem represented at the hearing that the outcome of this appeal would have no impact on the debtor, one way or the other. Mr. Bundy indicated that the parties could possibly stipulate to relief from stay as to this appeal, provided there was appropriate language in any order granting relief from stay that precluded Mr. Triem from recovering any of his costs from Kake. Mr. Triem did not object to this suggested limitation. Relief from stay with regard to this appeal will therefore be granted.

Mr. Triem also seeks relief from stay with regard to two remaining state court actions. The first is an appeal pending in a class action suit brought against the debtor, Nauska v. Kake Tribal Corporation, Case No. 1PE-95-001 [S-09180]. This action was dismissed, with prejudice, pursuant to the terms of a court approved settlement. The appeal in this action pertains to the appropriateness of a Kake director's intervention in the shareholder suit, as a plaintiff, and then reaching a settlement and agreeing to dismiss the suit, over the objections of the plaintiffs who initially filed the suit. Mr. Triem contends prosecution of this appeal, if successful, will benefit Kake because Kake's liability to the Martin class of shareholders will be significantly reduced.

The second action still at issue in Mr. Triem's motion, Tagaban v. Jackson, et al., Case No. 1PE-98-022, is pending in the superior court. The complaint has two counts. The first is a shareholder derivative claim, brought on behalf of Kake, for damages for the purported illegal dividend payments authorized by Kake's directors and others. Mr. Triem concedes that this count is property of the bankruptcy estate. The second count is brought by Tagaban, on behalf of the Hanson and Martin class shareholders as judgment creditors, and again seeks damages for the purported illegal dividends. At the hearing on March 21, Mr. Triem stated that conditional relief from stay could be granted as to this count, so that any damages awarded would not be recovered from either Kake or its directors and officers.

Relief from stay will not be granted at this time for the remaining two state court actions. First, a confirmed plan in this case would make the shareholder suit involving the Martin class moot. The confirmed plan would be binding on all members of the Martin class, including the initial plaintiffs who object to Martin's intervention in the suit. A confirmed plan would also render moot the shareholder derivative action claim pending in state court against Kake's officers and directors. Judicial economy will best be served if the debtor is allowed to focus its efforts on reorganization and proceed to confirmation. Relief from stay is denied with respect to the appeal in Nauska v. Kake Tribal Corporation, Case No. 1PE-95-001 [S-09180] and the shareholder derivative claim contained in Tagaban v. Jackson, et al., Case No. 1PE-98-022.

See Benedor Corp. v. Conejo Enterp., Inc. (In re Conejo Enterp., Inc.), 96 F.3d 346, 352 (9th Cir. 1996) [bankruptcy court's denial of relief from stay to permit state court action to proceed was reasonable, where reasons for denial included: 1) staying the state court action would give the court and other parties time to see whether a particular creditor would file a proof of claim before an upcoming claim bar date, 2) staying the action promoted judicial economy by minimizing the duplication of litigation in two separate forums and promoting the efficient administration of the estate, and 3) staying the state court action preserved a level playing field for negotiation of a consensual reorganization plan.].

While the direct claim against Kake's professionals for allowing payment of illegal dividends would not be resolved by plan confirmation, I find it is appropriate to defer the granting of relief from stay on this count. "Although an action against third parties such as guarantors or codefendants is not stayed under section 362(a), a court retains the power to enjoin the action if continuation of the action would interfere substantially with the debtor's reorganization." I feel that the prosecution of this claim would interfere with Kake's reorganization efforts.

3 Collier on Bankruptcy, ¶ 362.07[2] at p. 362-80 (15th ed. revised 2000).

Additionally, the issue of Mr. Triem's standing to represent these classes in this bankruptcy proceeding is in question. The direct action pending in state court is purportedly brought on behalf of the Martin and Hanson classes of shareholders. The voting on confirmation of the debtor's third amended plan reflects that an overwhelming majority of the Hanson class, represented by Mr. Triem, accepted the plan, contrary to Mr. Triem's direction. The issue of whom Mr. Triem is representing, and whether his proposed course of action in this bankruptcy case is in accord with the wishes of his clients, must be resolved before the court will determine the remaining relief from stay issues. The court will deal with the standing issue through a separate order.

Mr. Triem filed an objection to confirmation and cast a ballot for the entire Hanson class, rejecting the plan.

ORDER DENYING CONFIRMATION OF PLAN

The debtor's third amended plan duly came before the court for hearing on March 21, 2001. David Bundy appeared on behalf of the debtor. Spencer Sneed appeared on behalf of the Unsecured Creditors Committee. Barbara Franklin appeared on behalf of the United States Trustee's Office. Michael Parise appeared on behalf of Key Bank National Association. Jon Dawson appeared on behalf of Arctic King Trading Corp. Fred Triem appeared on behalf of Class Action Plaintiffs-Creditors Hanson Class and Tagaban/Nauska Class. After hearing the arguments of counsel, and reviewing their briefs, IT IS ORDERED:

Confirmation of Kake Tribal Corporation's third amended plan of reorganization is denied.

Discussion

Fred Triem has filed extensive objections to confirmation for the Hanson class. In addition to reviewing the objections of creditors and parties in interest, the court retains an independent duty to review a chapter 11 plan for compliance with the confirmation requirements of 11 U.S.C. § 1129.

In re Chandler Airpark Joint Venture One, 163 B.R. 566 (Bankr.D.Ariz. 1992).

The Hanson class is an impaired class and is listed as a disputed creditor in the debtor's schedules. Chapter 11 creditors holding disputed claims must file proofs of claim. None of the voting members of the Hanson class have filed proofs of claim nor has Mr. Triem filed a proof of claim on behalf of this class. Only holders of allowed claims or interests may accept or reject the plan. None of the votes submitted by the Hanson class members, nor the vote of Mr. Triem, purportedly on behalf of the entire class, were made by a creditor with an allowed claim. Accordingly, the votes submitted by the Hanson class cannot be counted for purposes of confirmation. Impaired classes which fail to vote have not accepted the plan.

F.R.Bankr.P. 3003(c)(2).

It appears that notice of the claims bar deadline was not given to Mr. Triem or the individual members of the Hanson class. None of these parties were listed on the mailing matrix used for serving notice of the claims bar date and the § 341 meeting.

11 U.S.C. § 1126(a).

In re Higgins Slacks Co., 178 B.R. 853 (Bankr.N.D.Ala. 1995).

Because the Hanson class has not accepted the plan, the cramdown provisions of 11 U.S.C. § 1129(b)(2)(B) apply. The amount due the Hanson class is not disputed; only the extent of its security. The Hanson class must receive the full present value of its debt, whether secured or not. No evidence was presented at confirmation which indicated that the 6% interest rate provided in the plan would yield the present value of the Hanson class debt. Moreover, payments due the Hanson class are not payable over a definite term. It is impossible for the court to make the present value determination needed to ensure cramdown compliance. Confirmation must, therefore, be denied.

In re Johnston, 21 F.3d 323, 329 (9th Cir. 1994).

United Sav. Ass'n. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 377 (1988); In re Camino Real Landscape Maint. Contractors, Inc., 818 F.2d 1503, 1505 (9th Cir. 1987).