SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 9)
MARVEL ENTERTAINMENT GROUP, INC.
(Name of Issuer)
Common Stock, par value $.01 per share
(Title of Class of Securities)
573913 10 0
(CUSIP Number)
Marvel Holdings Inc.
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copy to:
John M. Reiss
White & Case
1155 Avenue of the Americas
New York, NY 10036
(212) 354-8113
May 14, 1997
________________________________________________________
(Date of Event which Requires Filing of this Statement)
<PAGE>
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [ ].
_____________
Check the following box if a fee is being paid with this statement [ ].
Page 1 of 5 Pages
Exhibit Index appears on page 4.
<PAGE>
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Marvel Holdings Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a)[ ]
(b)[X]
3 SEC USE ONLY
4 SOURCE OF FUNDS
00
5 CHECK BOX IF DISCLOSURE OR LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY 50,932,167
OWNED BY EACH
8 SHARED VOTING POWER
REPORTING PERSON
WITH
9 SOLE DISPOSITIVE POWER
50,932,167
10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
50,932,167
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
50.03%
14 TYPE OF REPORTING PERSON
CO
<PAGE>
This statement amends and restates the Schedule 13D, relating to the
common stock, par value $.01 per share, of Marvel Entertainment Group, Inc.
("Marvel"), as originally filed with the Securities and Exchange Commission
(the "Commission"), on May 18, 1993 by New Marvel Holdings Inc., MacAndrews &
Forbes Holdings Inc. ("M&F"), and Mafco Holdings Inc. ("Mafco"), as amended by
Amendment No. 1, filed with the Commission on October 12, 1993 by Marvel
Holdings Inc. ("Marvel Holdings"), Marvel (Parent) Holdings Inc. ("Marvel
Parent"), Four Star Holdings Corp., Andrews Group Incorporated ("Andrews"),
M&F and Mafco, as amended by Amendment No. 2 filed with the Commission on
November 15, 1996 by Marvel Holdings, Marvel Parent, Andrews and Mafco, as
amended by Amendment No. 3, filed with the Commission on December 31, 1996 by
Marvel Holdings, Marvel Parent, Andrews and Mafco, as amended by Amendment No.
4 filed with the Commission on March 10, 1997 by Marvel Holdings, Marvel
Parent, Andrews and Mafco, as amended by Amendment No. 5 filed with the
Commission on April 25, 1997 by Marvel Holdings, as amended by Amendment No. 6
filed with the Commission on April 29, 1997 by Marvel Holdings, as amended by
Amendment No. 7 filed with the Commission on May 1, 1997 by Marvel Holdings,
and as amended by Amendment No. 8 filed with the Commission on May 9, 1997 by
Marvel Holdings.
ITEM 4. PURPOSE OF TRANSACTION
Item 4 is hereby amended by adding the following:
On May 14, 1997, the United States District Court for the District of
Delaware (the "District Court") entered its Order Denying Appellees' Motions
to Dismiss Appeal and Vacating Bankruptcy Court's March 24, 1997 Order (the
"Vacation Order"), pursuant to which the District Court vacated the March 24,
1997 Order (the "Stay Order") entered by the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). In so ruling, the
District Court determined that the Bankruptcy Court erred in holding that
section 362(a)(3) of the Bankruptcy Code prevents stockholders from voting
their shares of common stock in Marvel Entertainment Group, Inc. ("Marvel") to
change the Marvel Board of Directors unless they first seek and obtain relief
from the automatic stay in Marvel's chapter 11 case. Pursuant to the Vacation
Order, the Stay Order is vacated effective as of noon on Friday, May 23, 1997.
As a result of and in accordance with the Vacation Order, Marvel
Holdings, acting as the 50.03% Stockholder of Marvel, intends to take the
following actions effective as of 12:01 p.m. (New York time) on May 23, 1997:
(1) Remove each and every current Director of Marvel;
(2) Amend and modify Marvel's By-laws to provide that the Marvel Board
of Directors shall be composed of nine persons or such other number
of persons as may thereafter be fixed by the Board of Directors of
Marvel; and
(3) Elect the following persons to serve as members of the Marvel Board
of Directors:
Mr. Carl C. Icahn Mr. Robert Mitchell
Mr. Harold First Mr. Jouko T. Tamminen
Mr. Charles K. MacDonald Mr. Vincent J. Intrieri
Mr. Glen Adams Mr. Michael J. Koblitz
Mr. J. Winston Fowlkes, III
In addition, Marvel Holdings intends to review on a continuing basis
its investment in Marvel and may consider to advance any option available to
it including those actions set forth in clauses (a) through (j) of Item 4 of
Schedule 13D.
Except as set forth above and in Amendment Nos. 5, 6, 7 and 8 to Marvel
Holdings' Schedule 13D, Marvel Holdings has no plans or proposals that relate
to or would result in any of the actions specified in clauses (a) through (j)
of Item 4 of Schedule 13D
<PAGE>
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT NO. Description
8 Opinion and Order Denying Appellees' Motions
to Dismiss Appeal and Vacating Bankruptcy
Court's March 24, 1997 Order.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated May 15, 1997
MARVEL HOLDINGS INC.
By: /s/ Carl C. Icahn
Name: Carl C. Icahn
Title: Chairman and President
Signature page for Schedule 13D, Amendment No. 9, regarding the May 14, 1997
Opinion and Order of the United States District Court for the District of
Delaware.
<PAGE>
Exhibit No. 8
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
IN RE: )
)
MARVEL ENTERTAINMENT GROUP, ) Chapter 11 Case
INC. THE ASHER CANDY COMPANY, )
FLEER CORP., FRANK H. FLEER )
CORP., HEROES WORLD DISTRI- ) Nos. 96-2067 (HSB)
BUTION, INC., MALIBU COMICS ) through 96-2077 (HSB)
ENTERTAINMENT INC., MARVEL )
CHARACTERS INC., MARVEL DIRECT)
MARKETING INC., and SKYBOX )
INTERNATIONAL INC., ) (Jointly Administered)
)
Debtors. )
)
_____________________________ )
OFFICIAL BONDHOLDERS )
COMMITTEE, LaSALLE NATIONAL )
BANK, as Indenture Trustee, )
)
Appellants, )
)
v. ) Civil Action No. 97-145-RRM
)
THE CHASE MANHATTAN BANK, as )
agent, )
)
Appellees. )
)
IN RE: )
)
MARVEL ENTERTAINMENT GROUP, ) Chapter 11 Case
INC., THE ASHER CANDY COMPANY,)
FLEER CORP., FRANK H. FLEER )
CORP., HEROES WORLD DISTRIBU- )
TION, INC., MALIBU COMICS )
ENTERTAINMENT INC., MARVEL )
CHARACTERS INC., MARVEL DIRECT)
MARKETING INC., and SKYBOX )
INTERNATIONAL INC., ) Nos. 96-2069 (HSB)
)
Debtors. ) through 96-2077 (HSB)
<PAGE>
_____________________________ ) (Jointly Administered)
OFFICIAL BONDHOLDERS )
COMMITTEE, LA SALLE NATIONAL )
BANK, as Indenture Trustee, )
)
Appellants, )
)
v. ) Civil Action No. 97-146-RRM
)
MARVEL ENTERTAINMENT GROUP, )
INC., THE ASHER CANDY COMPANY,)
FLEER CORP., FRANK H. FLEER )
CORP., HEROES WORLD DISTRIBU- )
TION, INC., MALIBU COMICS )
ENTERTAINMENT INC., MARVEL )
CHARACTERS INC., MARVEL DIRECT)
MARKETING INC., and SKYBOX )
INTERNATIONAL INC., )
)
Appellees. )
____________________________
OPINION
____________________________
James L. Patton, Jr., Esquire, Laura Davis Jones, Esquire, Brendan Linehan
Shannon, Esquire, and Edwin J. Harron, Esquire, Young, Conaway, Stargatt &
Taylor, Wilmington, Delaware; Harvey R. Miller, Esquire, Marcia Goldstein,
Esquire, and Paul M. Basta, Esquire, Weil Gotshal & Manges LLP, New York, New
York; counsel for Marvel Entertainment Group, Inc.
Thomas L. Ambro, Esquire and Mark D. Collins, Esquire, Richards, Layton &
Finger, Wilmington, Delaware; Lawrence P. King, Esquire, Chaim J. Fortgang,
Esquire, Douglas S. Leibhafsky, Esquire, David C. Bryan, Esquire, and Amy R.
Wolf, Esquire, Wachtell, Lipton, Rosen & Katz, New York, New York; counsel for
Chase Manhattan Bank.
Joanne B. Wills, Esquire and David S. Eagle, Esquire, Klehr, Harrison, Harvey,
Branzburg & Ellers, Wilmington, Delaware; James E. Spiotto, Esquire, Ann
Acker, Esquire, Franklin H. Top, III, Esquire, and Nathan F. Coco, Esquire,
Chapman & Cutler, Chicago, Illinois; counsel for LaSalle National Bank as
Indenture Trustee.
Teresa K.D. Currier, Esquire and Adam G. Landis, Esquire, Duane, Morris &
Heckscher, Wilmington, Delaware; Gary M. Schildhorn, Esquire, Gary D.
Bressler, Esquire and Leon R. Barson, Esquire, Adelman, Lavine, Gold & Levin,
P.C., Philadelphia, Pennsylvania; counsel for Official Committee of Equity
Security Holders.
Neil B. Glassman, Esquire, Charlene Davis, and Jeffrey Schlerf, Esquire,
Bayard, Handelman & Murdoch, P.A., Wilmington, Delaware; David M. Friedman,
Esquire, Michael C. Harwood, Esquire, David S. Rosner, Esquire and Lorie R.
Beers, Esquire, Kasowitz, Benson, Torres & Friedman LLP, New York, New York;
counsel for Official Bondholders Committee.
____________________________
Dated: May 14, 1997
<PAGE>
McKELVIE, District Judge
This is a bankruptcy case. Marvel Entertainment Group, Inc.
("Marvel") and certain of its subsidiaries are debtors-in-possession in
Chapter 11 proceedings. Appellants Official Bondholder Committee ("the
Bondholders Committee") and LaSalle National Bank ("LaSalle") appeal from the
March 24, 1997 order of the United States Bankruptcy Court for the District of
Delaware enjoining the exercise of shareholder voting rights to replace
Marvel's board of directors. For the reasons set out below, the court will
vacate the bankruptcy court's order and remand for further proceedings
consistent with this opinion.
I. Factual and Procedural Background
The following facts are drawn from the parties' briefs and the
record of proceedings below. Approximately 80% of Marvel's common stock is
owned or controlled by three holding companies: Marvel Holdings, Inc.
("Marvel Holdings"), Marvel (Parent) Holdings, Inc. ("Marvel (Parent)"), and
Marvel III Holdings, Inc. All three holding companies (collectively referred
to herein as "the Marvel Holding Companies") are owned by Mr. Ronald O.
Perelman. The balance of Marvel's common stock is held by pubic stockholders
(18.84%) and entities owned or controlled by Mr. Perelman (2.35%).
In 1993 and 1994, the Marvel Holding Companies raised $894 million
through the issuance of bonds. The bonds were issued pursuant to three
separate indentures and were secured by a pledge of approximately 80% of
Marvel's stock and by 100% of the stock of Marvel (Parent) and Marvel
Holdings. An indenture trustee was appointed to act for the bondholders under
the indentures. LaSalle is the current indenture trustee.
On December 27, 1996, Marvel and certain of its subsidiaries
(collectively referred to herein as "the Debtors") filed separate petitions
for relief under Chapter 11 of the United States Bankruptcy Court for the
District of Delaware. The Debtors' cases have been procedurally consolidated
and are being jointly administered. On the same day, the Marvel Holding
Companies also filed petitions for relief under Chapter 11 in the bankruptcy
court. The Marvel Holding Companies' cases have also been procedurally
consolidated and are also being jointly administered, although they are being
administered separately from the Debtors' cases.
Shortly after the Debtors and the Marvel Holding Companies filed
petitions for Chapter 11 relief, the Bondholders Committee was formed in the
Marvel Holdings Companies' cases to represent parties currently holding the
bonds previously issued by the Marvel Holding Companies. After Marvel
obtained an order in its case requiring any potential claims against Marvel to
be filed within one month of its commencement of bankruptcy proceedings,
LaSalle (hereinafter referred to as "the Indenture Trustee") filed several
proofs of claims against Marvel on behalf of the bondholders so that they may
recover against Marvel in the event Marvel is liable for any wrongdoing with
respect to the amounts owed by the Marvel Holding Companies under the
indentures.
On January 13, 1997, the Bondholders Committee and the Indenture
Trustee moved to lift the automatic stay imposed by the Bankruptcy Code <F1>
in the Marvel Holding Companies' cases to allow the bondholders and the
Indenture Trustee to foreclose on and vote the pledged shares of stock as a
result of the Holding Companies' default under the indentures.
<F1> The Bankruptcy Code provides in relevant part:
(a) ...a petition filed under section 301...of this title...operates as
a stay, applicable to all entities, of-
(3) any act to obtain possession of property of the estate or to
exercise control over property of the estate...
See 11 U.S.C. Section 362(a)(3)
On February 26, 1997, after two days of evidentiary hearings, the
bankruptcy court entered an order lifting the stay in the Marvel Holding
Companies' cases to permit the bondholders and the Indenture Trustee to
foreclose on and vote the pledged shares. In lifting the stay, however, the
bankruptcy court noted that the issue of whether the automatic stay imposed in
the Debtors' cases would be implicated by any subsequent action taken by the
bondholders and the Indenture Trustee with respect to the pledged shares was
not yet before the court.
On March 19, 1997, the Bondholders Committee and the Indenture
<PAGE>
Trustee notified the Debtors of the intent of the bondholders and the
Indenture Trustee to vote the pledged shares to replace Marvel's board of
directors. Subsequently, on March 24, 1997, the Debtors instituted an
adversary proceeding in the Debtors' cases by filing a complaint for
declaratory and injunctive relief and a motion for a temporary restraining
order ("TRO") and a preliminary injunction enjoining the bondholders and the
Indenture Trustee from voting the pledged shares to replace Marvel's board of
directors. Also on that day, Chase Manhattan Bank, as agent for the senior
secured lenders in the Debtors' cases, commenced a similar adversary
proceeding in the Debtors' cases wherein it sought substantially the same
relief. Both the Debtors and Chase sought injunctive relief pursuant to
Sections 362(a) and 105(a)<F2> of the Bankruptcy Code.
<F2> Section 105(a) of the Bankruptcy Code provides in relevant part: "The
court may issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title." See U.S.C. Section
105(a).
Later that day, the bankruptcy court held a hearing on the Debtors'
and Chase's motions for a TRO. The court heard oral argument from the parties
but did not hear testimony or admit any evidence. At the conclusion of the
hearing, the court held that Section 362(a)(3) prevented the bondholders and
the Indenture Trustee from voting the pledged shares to replace Marvel's board
of directors until they first sought and obtained relief from the automatic
stay pursuant to Section 362(d) of the Bankruptcy Code.<F3> The court denied
the Debtors' and Chases' motions for a TRO pursuant to Section 105(a) because
neither the Debtors nor Chase made any showing of irreparable harm.
<F3> Section 362(d) of the Bankruptcy Code provides that, on request of a
party in interest and after notice and a hearing, the bankruptcy court shall
grant relief from the stay provided under Section 362(a) by terminating,
annulling, modifying, or conditioning such stay where, among other things, the
party interest demonstrates cause, including the lack of adequate protection
of a property interest. See 11 U.S.C. Section 362(d).
On March 28, 1997, the Bondholders Committee and the Indenture
Trustee filed a notice of appeal and a motion for expedited review of the
bankruptcy court's March 24, 1997 order. This court granted appellants'
motion on April 1, 1997. On April 10, 1997, appellees Chase and the Debtors
each moved to dismiss the appeal on the ground that this court lacks
jurisdiction to entertain the appeal. On May 1, 1997, the court heard oral
argument on appellees' motion and the merits of the appeal.
Shortly after the bankruptcy court issued its March 24, 1997 order,
appellants filed a motion to lift the stay pursuant to Section 362(d). A
hearing on that motion is currently scheduled in bankruptcy court for June 6,
1997. In addition, a hearing with respect to the relief sought by appellees
in the adversary proceedings is currently scheduled for June 16, 1997.
II. DISCUSSION
Before turning to the merits of this appeal, the court must address
appellees' contention that the court cannot hear the appeal because it lacks
jurisdiction.
A. THE COURT'S JURISDICTION OVER THE APPEAL
Appellees contend that the court lacks jurisdiction to hear this
appeal because the bankruptcy court's March 24, 1997 order is not a final
order. District courts have jurisdiction to hear appeals from the final
judgments, orders, and decrees of bankruptcy courts. 28 U.S.C. Section
158(a)(I). The Third Circuit has repeatedly emphasized that considerations
unique to bankruptcy proceedings require courts to adopt a pragmatic approach
in determining the finality of bankruptcy orders. Commerce Bank v. Mountain
View Village, Inc., 5 F.3d 34, 36-37 (3d Cir. 1993). The court has explained
that bankruptcy cases frequently involve protracted proceedings and the
participation of numerous parties. In re F/S Airlease II, Inc., 844 F.2d 99,
103-04 (3d Cir. 1988). To avoid the waste of time and resources that might
result from reviewing discrete portions of a case only after a plan of
reorganization is approved, courts have permitted review of orders that in
other contexts might be considered interlocutory. Id. at 104.
In determining the finality of bankruptcy orders, the Third Circuit
has relied on such factors as the impact of the order on the assets of the
estate, the preclusive effect of a decision on the merits, the need for
additional fact-finding on remand, and whether the interests of judicial
<PAGE>
economy will be furthered. Commerce Bank, 5 F.3d at 37. Applying some of
these factors in United States v. Nicolet, Inc., 857 F.2d 202 (3d Cir. 1988),
the Third Circuit held that a district court's decision concerning the
application of the automatic stay was a final, appealable order. In so
holding, the court relied on factors such as the unique characteristics of the
automatic stay, the purely legal nature of the district court's decision, and
the fact that the decision at issue required no further work by the district
court. Id. at 206; see also Lomas Financial Corp. v. Northern Trust Co., 932
F.2d 147, 151 n.2 (2d Cir. 1991) (observing that a decision that the automatic
stay applies is final as to that issue and is appealable).
Here, likewise, the court concludes that the bankruptcy court's
order is final and therefore appealable. The bankruptcy court's order
addresses a discrete legal issue -- whether Section 362(a)(3) prevents the
bondholders and the Indenture Trustee from voting the pledged shares to
replace Marvel's board of directors -- that would involve no additional fact-
finding on remand. This court's review of the bankruptcy court's decision
would also promote judicial economy. If the court does not hear this appeal,
it will nevertheless be faced with the issue raised by this appeal on final
appeal. During the interim, however, the bankruptcy court will have conducted
a fact-intensive hearing as to whether cause exists to lift the stay. Thus, a
decision by this court at this time that the automatic stay does not apply to
prevent the bondholders and the Indenture Trustee from voting the pledged
shares to replace Marvel's board of directors would save judicial time and
resources by obviating the need for the bankruptcy court to conduct that
hearing. Finally, the bankruptcy court's order has a significant impact on
the assets of the estate. Both sides in this dispute maintain that Marvel's
financial well-being is dependent upon the composition of its board. Thus,
the bankruptcy court's order either protects Marvel's assets or places them in
jeopardy.
The Debtors further contend that the bankruptcy court's order is not
appealable because it fails to meet the requirements of Rule 9021 of the
Federal Rules of Bankruptcy Procedure. Rule 9021, which makes Rule 58 of the
Federal Rules of Civil Procedure<F4> applicable to bankruptcy proceedings,
provides that "[e]very judgment entered in an adversary proceeding or in a
contested matter shall be set forth on a separate document." At the
conclusion of the hearing on appellees' motions for a TRO, the bankruptcy
court granted appellees' motions pursuant to Section 363(a)(3) and directed
that the record was "so ordered," but did not enter a separate order granting
that relief.
<F4> Rule 58 provides in relevant part: "Every judgment shall be set forth on
a separate document. A judgment is effective only when so set forth . . . ."
Appellate review, however, is not necessarily precluded where a
lower court fails to set forth a decision in a separate order. For instance,
in Schrob v. Catterson, 948 F.2d 1402, 1407 (3d Cir. 1991), a district court
orally denied a motion to dismiss at the conclusion of a hearing on the
motion, informing the parties that it would not enter a separate written order
because its ruling was too complicated to reduce to writing. Although the
Third Circuit noted its disapproval of the district court's procedure, it
stated that "a holding that it deprives us of appellate jurisdiction would
exalt form over substance." The court concluded that the transcript of the
hearing on the motion provided enough information to review the district
court's decision, and that therefore it would be inefficient to remand the
case simply because the district court failed to enter a separate order.
Here, the transcript of the hearing on appellees' motions for a TRO
provides sufficient information to review the bankruptcy court's decision
which this court has concluded is otherwise final and appealable.
Accordingly, the bankruptcy court's failure to enter a separate order granting
appellees' motion for a TRO does not preclude the court from reviewing its
decision. See also Burlington Northern R.R. Co. v. Huddleston, 94 F.3d 1413,
1416 n.3 (10th Cir. 1996) holding that the absence of a separate document will
not prohibit appellate review where no question exists as to the finality of a
lower court's decision).
Although the court has concluded that the bankruptcy court's March
24, 1997 order is final and appealable, the court observes that even if it had
concluded otherwise it would nevertheless grant appellants leave to appeal.
Under 28 U.S.C. Section 158(a)(3), upon granting leave to appeal, district
<PAGE>
courts have jurisdiction to hear appeals from interlocutory bankruptcy orders.
Rule 8003 of the Federal Rules of Bankruptcy Procedure, which governs motions
for leave to appeal, provides that, "[i]f a required motion for leave to
appeal is not filed, but a notice of appeal is timely filed, the district
court or bankruptcy appellate panel may grant leave to appeal or direct that a
motion for leave to appeal be filed." Fed. R. Bankr. P. 8003(c). Although
appellants have not filed a motion for leave to appeal, the court will
construe their timely notice of appeal as such a motion.
Neither Section 158(a) nor Rule 8003 set forth criteria for district
courts to evaluate in determining whether to grant leave to appeal
interlocutory bankruptcy orders. In In re Bertoli, 812 F.2d 136, 139 (3d Cir.
1987), the Third Circuit concluded that Congress intended district courts to
be able to review interlocutory orders "for such cause as found by the
district court" in that case. In deciding to hear an interlocutory bankruptcy
order, the district court applied the standard set forth under 28 U.S.C.
Section 1292(b) governing interlocutory appeals to the courts of appeals from
the orders of district courts. Under Section 1292(b), an interlocutory order
may be appealed where a district court certifies that 1) the order from which
the appeal is taken involves a controlling question of law; 2) there is
substantial ground for difference of opinion as to the controlling question of
law; and 3) an immediate appeal may materially advance the ultimate
termination of the litigation.
The bankruptcy court's order involves a controlling question of law.
A controlling question of law at the very least encompasses a ruling which, if
erroneous, would be reversible error on final appeal. Katz v. Carte Blanche
Corp., 496 F.2d 747, 755 (3d Cir. 1974) (en banc). If the bankruptcy court's
decision that Section 363(a)(3) prevents the bondholders and the Indenture
Trustee from voting the pledged shares to replace Marvel's board of directors
is erroneous, its decision would be reversible error if the bankruptcy court
grants the relief appellees seek in the adversary proceedings on that basis.
An immediate appeal of the bankruptcy court's order may also
materially advance the ultimate termination of the litigation in this case.
As discussed above, a decision by this court that the bankruptcy court erred
would obviate the need for the bankruptcy court to conduct a fact-intensive
hearing as to whether cause exists to lift the stay. Additionally, such a
decision by this court could also result in the speedy conclusion of the
adversary proceedings. Appellees moved for a TRO under Sections 362(a) and
105(a). The bankruptcy court denied appellees' motions under Section 105(a)
because appellees failed to show irreparable harm. Thus, unless appellees
demonstrate other grounds for injunctive relief, there may be little for the
bankruptcy court to do on remand in the adversary proceedings except enter
judgment in favor of appellants.
With respect to the requirement that there be substantial difference
of opinion as to the controlling issue of law, the court concludes that,
although the application of this criterion makes sense where a district court
must determine whether to certify a decision for appeal to a court of appeals,
it cannot apply where, as here, a district court believes that there is no
substantial ground for difference of opinion because the bankruptcy court's
decision is contrary to well-established law. To conclude that a district
court may grant leave to appeal where substantial ground for difference of
opinion exists but not where the court believes that the bankruptcy court's
decision is contrary to well-established law would create the absurd result
that interlocutory bankruptcy decisions involving close questions of law may
be appealable but those that are clearly reversible may not. To the extent
the Third Circuit has approved the standard set forth under Section 1292(b) as
a test for district courts to apply in determining whether to grant leave to
appeal interlocutory bankruptcy orders, the court believes that the Third
Circuit would not endorse a rigid application of that standard where it would
produce such a result.
Accordingly, for the reasons set out above, the court will deny
appellees' motion to dismiss the appeal.
B. THE BANKRUPTCY COURT'S DECISION
The bankruptcy court held that the automatic stay imposed by Section
362(a)(3) of the Bankruptcy Code prevents the bondholders and the Indenture
Trustee from voting the pledged shares to replace Marvel's board of directors
unless they first seek and obtain relief from the stay. The bankruptcy
<PAGE>
court's decision is a legal conclusion over which this court exercises plenary
review. See In re Visual Indus., Inc., 57 F.3d 321, 324 (3d Cir. 1995). The
court concludes that the bankruptcy court's decision was erroneous.
It is well settled that the right of shareholders to compel a
shareholders' meeting for the purpose of electing a new board of directors
subsists during reorganization proceedings. In re Johns-Manville Corp., 801
F.2d 60, 64 (2d Cir. 1986). The right of shareholders "to be represented by
directors of their choice and thus to control corporate policy is paramount."
In re Potter Instrument Co., Inc., 593 F.2d 470, 475 (2d Cir. 1979) (quoting
In re J.P. Linahan, Inc., 111 F.2d 590, 592 (2d Cir. 1940)). Shareholders,
moreover, "should have the right to be adequately represented in the conduct
of a debtor's affairs, particularly in such an important matter as the
reorganization of the debtor." Johns-Manville, 801 F.2d at 65 (quoting In re
Bush Terminal Co., 78 F.2d 662, 664 (2d Cir. 1935)). As a result, the
election of a new board of directors may be enjoined only under circumstances
demonstrating "clear abuse." See, e.g., Johns-Manville, 801 F.2d at 64; In re
Heck's Properties, Inc., 151 B.R. 739, 759-60 (S.D.W.Va. 1992); In re
Allegheny Internat'l Inc., 1988 WL 212509, at *4 (W.D. Pa. May 31, 1988).
"Clear abuse" requires a showing that the shareholders' action in seeking to
elect a new board of directors "demonstrates a willingness to risk
rehabilitation altogether in order to win a larger share for equity." Johns-
Manville, 801 F.2d at 65. The fact that the shareholders' action may be
motivated by a desire to arrogate more bargaining power in the negotiation of
a reorganization plan, without more, does not constitute clear abuse. Id. at
64.
It follows from these principles that the automatic stay provisions
of the Bankruptcy Code are not implicated by the exercise of shareholders'
corporate governance rights. Indeed, if it were otherwise, there would be no
need to determine whether shareholders' actions evidenced clear abuse. For
instance, because the directors of a debtor-in-possession control and manage
the debtors' operations, any election of a new board would be considered an
attempt to exercise control over the assets of the estate and would thus be
barred by Section 362(a)(3). In each of the cases cited above, however,
courts considered only whether shareholders' attempts to elect a new board
constituted clear abuse.
Chase suggests that the plain meaning of the language "to exercise
control over property of the estate," which was added to Section 362(a)(3) by
Congress in 1984, dictates the application of the automatic stay to an attempt
by shareholders to elect a new board of directors. As appellants point out,
however, if Congress had intended such a marked departure from well-
established law, the legislative history of the 1984 amendment would contain
some indication of that intention. The addition of the phrase "or to exercise
control over property of the estate" was made pursuant to Section 441(a)(2) of
the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-
353, 98 Stat. 333, under the subheading "Subtitle H -- Miscellaneous
Amendments to Title 11." As noted by one court, Congress provided no
explanation for adding the "exercise control" language to Section 362(a)(3).
See United States v. Inslaw, Inc., 932 F.2d 1467, 1473 n.3 (D.C. Cir. 1991).
Accordingly, the court cannot surmise that Congress intended the "exercise
control" language to apply to an action by shareholders to elect a new board
of directors. See In re Cohen, 106 F.3d 52, 58 (3d Cir. 1997) ("The Supreme
Court has observed that a court should 'not read the Bankruptcy Code to erode
past bankruptcy practice absent a clear indication that Congress intended such
a departure.'") (citation omitted).
The Debtors rely heavily on two cases in support of the automatic
stay. In an oral decision in In re Fairmont Communications Corp., No. 92-B-
44861 (Bankr. S.D.N.Y. Mar. 3, 1993), the bankruptcy court applied Section
362(a)(3) to prevent a creditor and shareholder of the debtor from appointing
additional members to the debtor's board of directors pursuant to certain
proxies that it had been granted to ensure repayment of its loan to the
debtor. In holding that the automatic stay applied, however, the court noted
that it was not "confronted with the conventional case of a shareholder
seeking to invoke its corporate governance rights" because the rights the
creditor/shareholder sought to exercise "stem[med] from its status as [the
debtor's] largest unsecured creditor and [were] implicated only because [its]
note [had] not been paid." Tr. at 14.
<PAGE>
Similarly, in In re Bicoastal Corp., 1989 Bankr. LEXIS 2046 (Bankr.
M.D. Fla. Nov. 21, 1989), the bankruptcy court held that Section 362(a)(3)
prevented a creditor and preferred shareholder of the debtor from exercising
its right to elect a majority of the debtor's board of directors that accrued
when the debtor failed to timely repay the creditor/preferred shareholder's
loan to the debtor. The court observed, however, that by reason of the
creditor's dual status as preferred shareholder and creditor, "matters of
corporate governing in the orthodox sense" were not implicated and that, if
that "were the case, there [was] hardly any doubt that absent some showing of
extraordinary circumstances, [the] Court [had] no jurisdictional power to
interfere with corporate governance." Id. at *14-15. The court noted that
"it was Congress' intent that the automatic stay permit [a] debtor to attempt
a repayment or reorganization or simply to be relieved of the financial
pressures that drove him into bankruptcy by granting the debtor a breathing
spell from his creditors," id. at *17, and applied Section 362(a)(3) because
the creditor/shareholder was a creditor of the debtor.
The courts in Fairmont and Bicoastal thus applied the automatic stay
provisions of Section 362(a)(3) in order to prevent creditors of debtors from
gaining control of the debtors' estates through the exercise of corporate
governance rights. The Debtors argue that here, too, the bondholders are
seeking to exercise rights accruing to them as creditors rather than
traditional shareholder rights because the shares were pledged as security for
the payment of the bonds issued by the Marvel Holding Companies. Appellants,
however, did not acquire shareholder rights in Marvel as creditors of Marvel,
but rather as creditors of the Marvel Holding Companies. Because the pledged
shares were property of the Marvel Holding Companies' estates, appellants were
required to seek and, indeed, obtained relief from the automatic stay in the
Marvel Holding Companies case that prevented them from exercising control over
those shares. The fact that they acquired shareholder rights in Marvel by
exercising creditor remedies in the Marvel Holding Companies case is of no
moment. Although the Debtors argue that the objective of the bondholders and
the Indenture Trustee is to "seize control of the assets and properties of
[Marvel] to effect a recovery on loans advanced," see Debtors' Ans. Br. at 21,
the bondholders cannot exercise their shareholder rights in Marvel to obtain
payment from Marvel of any claims they may have against the Marvel Holding
Companies for their default under the indentures. Marvel is apparently not a
party to the indentures and is thus not contractually obligated to repay the
bondholders. It is true that the Indenture Trustee filed proofs of claims
against Marvel on behalf of the bondholders so that they may recover against
Marvel in the event Marvel is liable for independent wrongdoing with respect
to the amounts owed by the Marvel Holding Companies under the indentures. The
Debtors, however, have not articulated how the bondholders might exploit their
right to elect a new board to collect on those potential claims. Thus, given
the paramount right of shareholders to exercise corporate governance rights,
the court believes that it would be inappropriate to apply the automatic stay
merely because of speculation that a new board elected by the bondholders
might take some action that would violate the automatic stay. Should a new
board elected by the bondholders attempt to take any action that would run
afoul of Section 362(a), they can be enjoined from doing so. See, e.g., In re
Prudential Lines Inc., 928 F.2d 565 (2d Cir. 1991) (enjoining sole shareholder
from taking worthless stock deduction under Section 362(a)(3) when deduction
would be an attempt to exercise control over property of debtor's estate).
Finally, Chase suggests that Marvel is insolvent and that as a
result the automatic stay applies. Chase cites dicta in Johns-Manville to the
effect that, if a debtor is insolvent, it would probably be inappropriate to
permit shareholders to call a meeting because they would no longer have equity
in the debtor and thus be real parties-in-interest. Even if that proposition
were correct, however, the bankruptcy court has never found that Marvel is
insolvent. Accordingly, that issue is not a proper subject of this appeal.
III. Conclusion
For reasons stated above, the court concludes that the bankruptcy
court erred in holding that Section 362(a)(3) prevents the bondholders and the
Indenture Trustee from voting the pledged shares to replace Marvel's board of
directors unless they first seek and obtain relief from the automatic stay.
Chase urges the court to sustain the TRO issued by the bankruptcy court on the
alternative ground that the bondholders and the Indenture Trustee should be
<PAGE>
enjoined under Section 105(a), or at least remand this matter to the
bankruptcy court for further consideration of appellees' motions for a TRO
under Section 105(a). The bankruptcy court, however, denied appellees'
motions for a TRO under Section 105(a) on the ground that they failed to show
"irreparable harm," as required for injunctive relief under Section 105(a),
see In re Wedgewood Realty Group, Ltd., 878 F.2d 693, 700-01 (3d Cir. 1989),
and appellees have not appealed that ruling. Accordingly, the court will
vacate the bankruptcy court's March 24, 1997 order. The court will, however,
provide that the effect of this decision be delayed for 10 days in order to
allow appellees to apply to the bankruptcy court for such relief as they may
deem appropriate.
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
IN RE: )
)
MARVEL ENTERTAINMENT GROUP, ) Chapter 11 Case
INC., THE ASHER CANDY COMPANY, )
FLEER CORP., FRANK H. FLEER )
CORP., HEROES WORLD DISTRI- ) Nos. 96-2067 (HSB)
BUTION, INC., MALIBU COMICS ) through 96-2077 (HSB)
ENTERTAINMENT INC., MARVEL )
CHARACTERS INC., MARVEL DIRECT )
MARKETING INC., and SKYBOX )
INTERNATIONAL INC., ) (Jointly Administered)
)
Debtors. )
_____________________________ )
)
OFFICIAL BONDHOLDERS )
COMMITTEE, LaSALLE NATIONAL )
BANK, as Indenture Trustee, )
)
Appellants, )
)
v. ) Civil Action No. 97-145-RRM
)
THE CHASE MANHATTAN BANK, as )
agent, )
)
Appellees. )
)
IN RE: )
)
MARVEL ENTERTAINMENT GROUP, ) Chapter 11 Case
INC., THE ASHER CANDY COMPANY, )
FLEER CORP., FRANK H. FLEER )
CORP., HEROES WORLD DISTRIBU- )
TION, INC., MALIBU COMICS )
ENTERTAINMENT INC., MARVEL )
CHARACTERS INC., MARVEL DIRECT )
MARKETING INC., and SKYBOX )
INTERNATIONAL INC., ) Nos. 96-2069 (HSB)
)
Debtors. ) through 96-2077 (HSB)
)
______________________________ ) (Jointly Administered)
<PAGE>
OFFICIAL BONDHOLDERS )
COMMITTEE, LaSALLE NATIONAL )
BANK, as Indenture Trustee, )
)
Appellants, )
)
v. ) Civil Action No. 97-146-RRM
)
MARVEL ENTERTAINMENT GROUP, )
INC., THE ASHER CANDY COMPANY, )
FLEER CORP., FRANK H. FLEER )
CORP., HEROES WORLD DISTRIBU- )
TION, INC., MALIBU COMICS )
ENTERTAINMENT INC., MARVEL )
CHARACTERS INC., MARVEL DIRECT )
MARKETING INC., and SKYBOX )
INTERNATIONAL INC., )
)
Appellees. )
ORDER DENYING APPELLEES' MOTIONS
TO DISMISS APPEAL AND VACATING
BANKRUPTCY COURT'S MARCH 24, 1997 ORDER
For the reasons set out in this court's May 14, 1997 opinion, IT IS
HEREBY ORDERED as follows:
1) Appellees' motions to dismiss the joint appeal of the Official
Bondholders Committee and LaSalle National Bank as Indenture Trustee (D.I. 12
(97-145) and D.I. 9 (97-146)) are denied.
2) The bankruptcy court's March 24, 1997 order issued in In re
Marvel Entertainment Group, Inc., et al., Case Nos. 96-2069 through 96-2077,
is vacated, effective at noon on May 23, 1997.
____________________________
UNITED STATES DISTRICT JUDGE
Dated: May 14, 1997
