Bittner v. Borne Chemical Co., Inc.

Before filing for bankruptcy reorganization, Borne Chemical Co., Inc. (Borne) (debtor) (defendant) had a contract to manufacture products for The Rolfite Company (Rolfite). Borne terminated the contract and sued Rolfite in state court for allegedly stealing trade secrets and proprietary information. Rolfite counterclaimed, alleging that Borne tortiously interfered with a proposed merger between Rolfite and a third company by unilaterally terminating the contract and suing. After Borne filed for reorganization, Rolfite stockholders (plaintiffs) sought relief from the automatic stay to allow them to continue pursuing the counterclaims against Borne. Borne filed a motion to temporarily disallow the Rolfite claims until liquidated in state court. The bankruptcy court lifted the stay but also temporarily disallowed the claims, extending the time to file and allow the claims if eventually liquidated. The stockholders appealed. The district court vacated the temporary-disallowance order and directed the bankruptcy court to conduct a hearing to estimate the value of the claims. After a hearing, the bankruptcy court assigned a zero value to the Rolfite claims and reinstated its temporary-disallowance order. The district court affirmed, and Rolfite appealed to the Third Circuit, arguing the bankruptcy court should have used the present value of the claims taking into account the likelihood of success in state court, instead of assessing the claims on the ultimate merits and valuing them at zero.