Berg v. Esposito (In re Oxborrow)

913 F.2d 751
CourtCourt of Appeals for the Ninth Circuit
DecidedSeptember 6, 1990
DocketNo. 89-35073
StatusPublished
Cited by2 cases

This text of 913 F.2d 751 (Berg v. Esposito (In re Oxborrow)) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Berg v. Esposito (In re Oxborrow), 913 F.2d 751 (9th Cir. 1990).

Opinion

O’SCANNLAIN, Circuit Judge:

This is an appeal from the district court’s affirmance of the bankruptcy court’s order resolving an election dispute among creditors.

I

On September 28, 1984, debtor Kenneth D. Oxborrow filed for reorganization under Chapter 11 of the Bankruptcy Code. See 11 U.S.C.A. §§ 1101-1174 (West 1979 & Supp.1990). Oxborrow and others had operated an “investment pool” specializing in the commodities and futures markets which attracted between 900 and 1200 investors drawn largely from the Pacific Northwest states. Some 800 creditors filed claims against the bankruptcy estate. The bankruptcy court appointed Joseph Esposi-to and John Layman to serve as the estate’s trustees.

As Chapter 11 trustees, Esposito and Layman brought lawsuits to recover from some investors (some of whom are now creditors) alleged fraudulent conveyances and preferences. Such investors did not wish to return the payments. Arguing that the lawsuits would not recover sufficient funds to offset any attorneys’ fees collected by the “self-serving” trustees, these investors and other creditors sought to have confirmed a reorganization plan that essentially would have entailed abandoning the lawsuits. On January 7, 1988, the bankruptcy court determined that the proposed plan was nonconfirmable and converted the matter into a Chapter 7 liquidation.

Pursuant to 11 U.S.C. § 701, the Chapter 11 trustees, Esposito and Layman, became interim Chapter 7 trustees. Before the first creditors’ meeting, the trustees filed objections to the claims of all creditors who were subject to their lawsuits.

On February 4, 1988, the first creditors’ meeting was held pursuant to 11 U.S.C. § 341(a). At this meeting, creditor Harry Smithwick requested a trustee election and voted to nominate a certain Ronald Springer. Apparently because the bankruptcy clerk had never before conducted a contested election under 11 U.S.C. § 702, there was some confusion. Before conducting the election, the clerk allowed a question- and-answer session in which attorney D. Gordon Willhite, interim trustees Esposito and Layman, and Smithwick and other creditors participated.

Without first determining who was eligible to vote or what percentage of the creditors was requesting an election, the clerk allowed all creditors present to vote for a permanent trustee. Based on all the votes obtained, the clerk announced that Springer had been elected permanent trustee. The interim trustees disputed the election results, and the meeting was adjourned.

[753]*753On May 3, 1988, the bankruptcy court issued its order resolving the election dispute. Based upon tabulations by the clerk, the court determined that twenty-six percent of the eligible claims were voted during the election, but that creditors holding only fourteen percent of the eligible claims had requested an election. Thus, the court concluded that although the twenty-percent voting requirement of 11 U.S.C. § 702(c) was met, the election was invalid because the separate twenty-percent requesting requirement of 11 U.S.C. § 702(b) was not satisfied. The interim trustees therefore became the permanent trustees pursuant to 11 U.S.C. § 702(d).

Smithwick and another creditor, Doug Berg (“appellants”), appealed from the bankruptcy court’s order resolving the election dispute. On January 6, 1989, the district court affirmed the order.

Appellants timely appeal; we have jurisdiction under 28 U.S.C. § 158(d) and § 1291.

II

Appellants contend that the district court erred in affirming the bankruptcy court’s order.1 We disagree.

Section 702 sets forth the process for electing a permanent trustee in a Chapter 7 bankruptcy proceeding. To be eligible to vote, a creditor must hold a certain kind of claim described in section 702(a). Under section 702(b), however, an election is not valid unless creditors holding twenty percent of eligible claims request an election. Finally, under section 702(c), a candidate is elected trustee if creditors holding twenty percent of the eligible claims actually vote and a majority of such claims is voted for the candidate.2

Here, Smithwick, who held a number of proxies, was the only eligible creditor requesting an election before the clerk allowed all creditors in attendance to vote. After Esposito and Layman disputed the election, an attempt was made to determine the percentage requesting the election. In making this determination, the bankruptcy court counted the following creditors as having requested an election: (1) Smi-thwick; (2) the creditors who had delivered their proxies to Smithwick; and (3) all those who voted against the interim trustees, because such creditors had “impliedly requested” an election. Creditors voting for the interim trustees were considered as not having requested an election, because the interim trustees would become trustees if no election had been held. See 11 U.S.C. § 702(d) (1988).

Using this reasoning, the bankruptcy court determined that creditors holding twenty-six percent of the eligible claims voted during the election pursuant to section 702(c), but that creditors holding only fourteen percent of the eligible claims had requested an election pursuant to section 702(b). The court therefore found that the twenty-percent requesting requirement of [754]*754section 702(b) had not been satisfied; consequently, the interim trustees became the permanent trustees.

We cannot say that this ruling was error. We reject appellants’ argument that because twenty-six percent of the eligible claims were actually voted, the twenty-percent requesting requirement should also be considered to have been satisfied. The twenty-percent requesting requirement of section 702(b) is distinct from and independent of the twenty-percent voting requirement of section 702(c).

To construe the statute otherwise would deprive its words of their logical meaning. See In re Baton Rouge Marine Repair & Drydock, Inc., 57 B.R. 19, 23 (Bankr.M.D.La.1985) (“Obviously, the 20% requirement to call a trustee election [pursuant to 11 U.S.C. § 702(b)] was not met.”); In re Blanchard Management Corp., 10 B.R. 186, 188 (Bankr.S.D.N.Y.1981) (stating that “under the provisions of the Code, to elect a trustee it is necessary that creditors holding at least 20 percent in amount of the type of claims referred to in 11 U.S.C. § 702

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Related

In Re Michelex Ltd.
195 B.R. 993 (W.D. Michigan, 1996)
In Re Oxborrow
913 F.2d 751 (Ninth Circuit, 1990)

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Bluebook (online)
913 F.2d 751, Counsel Stack Legal Research, https://law.counselstack.com/opinion/berg-v-esposito-in-re-oxborrow-ca9-1990.