Manville Corp. v. Equity Security Holders Committee (In re Johns-Manville Corp.)

Asbestos manufacturer Manville Corporation (Manville) (debtor) (plaintiff) filed a Chapter 11 bankruptcy petition. The bankruptcy court appointed various committees to represent interested parties, including a committee of Manville’s stockholders (the equity committee) (defendant), creditors’ committees, and a committee of asbestos health-related claimants and creditors. Under 11 U.S.C. § 1121, Manville had the exclusive right to file a proposed reorganization plan for 120 days after filing its bankruptcy petition. The bankruptcy court extended that exclusive time for Manville by over three years. As a result, the various committees were not able to propose their own plans and had to rely on Manville’s board of directors to represent the committees’ competing interests in Manville’s proposed plan. After extensive negotiations, Manville agreed on a proposed plan with entities including the creditors’ committees and the asbestos claimants’ committee. However, the equity committee objected, asserting that the plan would drastically dilute the stockholders’ equity. The equity committee sued Manville in Delaware state court, seeking to compel a shareholders’ meeting at which the equity securityholders hoped to elect new directors who would reconsider the proposed plan. Manville brought an adversary proceeding in the bankruptcy court to enjoin the equity committee from pursuing the Delaware action. The bankruptcy court granted summary judgment for Manville after concluding, among other things, that the shareholder meeting could derail Manville’s reorganization efforts. The only evidence that the bankruptcy court cited in support of this conclusion was a Manville director’s statement that a further stalemate in negotiations could jeopardize Manville’s ability to reorganize. The district court affirmed, finding that the equity committee had committed clear abuse of its right to call a shareholder meeting because the committee was either trying to destroy Manville’s reorganization or trying to obtain leverage to use in renegotiating the proposed plan. The equity committee appealed.