UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 95-30760
IN RE CAJUN ELECTRIC POWER COOPERATIVE, INC.,
Debtor,
CAJUN ELECTRIC POWER COOPERATIVE, INC., ET AL.
Appellants,
VERSUS
CENTRAL LOUISIANA ELECTRIC COMPANY, INC., ET AL.
Appellees,
Appeal from the United States District Court
for the Middle District of Louisiana
November 20, 1995
Before REYNALDO G. GARZA, BARKSDALE and EMILIO M. GARZA, Circuit
Judges.
REYNALDO G. GARZA, Circuit Judge:
Appellants appeal from the appointment of a trustee in a
Chapter 11 bankruptcy. For the reasons stated below, we vacate the
appointment of a trustee and remand for further proceedings.
I.
BACKGROUND
This is an appeal from the district court's appointment of a
trustee for Cajun Electric Power Cooperative, Inc. ("Cajun"). The
district court appointed a trustee because it found that conflicts
of interest existed among Cajun's board members, and because it
felt that the appointment of a trustee would be in the best
interest of all parties.
Cajun's financial problems can be traced back to its ill-fated
investment in Gulf States Utilities' River Bend Nuclear Power
Facility ("River Bend"). Cajun borrowed at least $1.6 billion from
the Rural Utilities Service ("RUS"), an agency of the federal
government, to invest in River Bend. The investment went sour, and
Cajun has since sued Gulf States Utilities on the grounds that it
was fraudulently induced to invest in River Bend.
Cajun's financial problems came to a head when the Louisiana
Public Service Commission ("LPSC") ordered Cajun to lower its
rates. Because it could not meet its debt obligations under the
lower rates, Cajun filed for bankruptcy under Chapter 11 the same
day that the rate decrease went into effect.
The conflicts among Cajun's board members became apparent when
the board had to decide whether to appeal the LPSC's order to lower
Cajun's rates. This decision was made difficult by the fact that
Cajun's board members were managers or board members of its twelve
member companies, who bought all of their electricity from Cajun.
If they voted to appeal the rate decrease, they would be attempting
to raise the price of electricity charged to the member-customers
for which they worked. On the other hand, if the prices were
lowered, it would be more difficult for Cajun to pay its debt
2
obligations. Several board members resigned because of this
conflict, but the board ultimately decided to appeal the rate
decrease. The appeal, however, was not successful.
The RUS, along with some of Cajun's other creditors, moved for
the appointment of a trustee. The district court granted this
motion, finding that a trustee should be appointed because of the
conflict of interest created by the fact that Cajun's board members
owed duties of loyalty to Cajun, to Cajun's creditors, and to
Cajun's member-customers. Cajun appeals from the appointment of a
trustee.
II.
APPEALABILITY OF THE APPOINTMENT OF A TRUSTEE
We turn first to the issue of whether the appointment of a
trustee is presently appealable. Because this is an appeal from a
district court sitting in bankruptcy, our jurisdiction is governed
by 28 U.S.C. § 1291 ("Section 1291"). Section 1291 provides that
this Court has "jurisdiction of appeals from final decisions of the
district courts. . . ." Thus, whether the district court's
appointment of a trustee is appealable turns on whether it is
viewed as a final order.
Normally, a final order is one that ends the litigation in the
trial court. However, because of considerations unique to
bankruptcy appeals—such as the protracted nature of bankruptcy
proceedings and the large number of parties interested in
them—courts have applied liberalized rules of finality for
3
bankruptcy appeals. The appellees, citing Matter of Hawaii Corp.,1
argue that these liberalized rules apply only to appeals from a
district court's review of a bankruptcy court's decision pursuant
to 28 U.S.C. § 158(d) ("Section 158(d)"), not to appeals from a
district court sitting in bankruptcy pursuant to Section 1291.
Other circuits, however, have refused to follow Matter of Hawaii
Corp. They "see no reason . . . for interpreting the word 'final'
in [Section] 1291 differently from the way [they interpret] it in
. . . Section 158(d)."2 We too see no reason to apply different
rules of finality for Section 1291 appeals, and will apply the same
rules that we apply to Section 158(d) appeals.
Applying this liberalized concept of finality, we must now
determine whether the appointment of a trustee in a Chapter 11 case
is a final, appealable order. This is a question of first
impression in this circuit. The only case in this circuit
addressing the appealability of the appointment of a trustee, In re
Delta Services Industries,3 is inapplicable to the case at bar. In
re Delta Services Industries held that the appointment of an
interim trustee in a Chapter 7 case is not immediately appealable.
However, that case involved an interim trustee, the appointment of
which "constitutes only a preliminary step in [a debtor's]
1
796 F.2d 1139, 1141-42 (9th Cir. 1986).
2
Tringali v. Hathaway Machinery Co., 796 F.2d 553, 558 (1st
Cir. 1986). Accord A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1009
(4th Cir.), cert. denied, 479 U.S. 876 (1986); In re Amatex Corp.,
755 F.2d 1034, 1039 (3d Cir. 1985); In re UNR Industries, Inc., 725
F.2d 1111, 1115 (7th Cir. 1984).
3
782 F.2d 1267 (5th Cir. 1986).
4
liquidation."4 The case at bar, on the other hand, involves the
appointment of a permanent trustee who is to negotiate a plan of
reorganization.
Four other circuits have allowed appeals from the appointment
of a trustee.5 Of those four, the First Circuit gave the most
convincing rationale for asserting appellate jurisdiction. First,
it noted that the appointment of a trustee in a Chapter 11 case is
"a decision of a significant and discrete dispute."6 It then went
on to state that:
It seems plain that the decision of an appeal from the
court's order [appointing a trustee] could not be
meaningfully postponed until the end of the entire
Chapter 11 proceeding. If an appeal were postponed until
a plan of reorganization were confirmed, there would be
no satisfactory way to vindicate the [debtor's rights].7
This rationale is well-reasoned. Without an immediate appeal, a
debtor would have no effective relief from an erroneous
appointment. The only option would be an appeal after a plan of
reorganization was confirmed. By that time, the debtor would
already have been out of possession for months, if not years, and
4
Id. at 1271.
5
See In re Plaza de Diego Shopping Center Inc., 911 F.2d 820
(1st Cir. 1990); In re Sharon Steel Corp., 871 F.2d 1217 (3d Cir.
1989); In re Oklahoma Refining Co., 838 F.2d 1133 (10th Cir. 1988);
Dalkon Shield Claimants v. A.H. Robins Co., 828 F.2d 239 (4th Cir.
1987). Cf. In re Reid, 773 F.2d 945 (7th Cir. 1985)(holding that
the appointment of an interim trustee in a Chapter 11 case is
immediately appealable). But see Matter of Cash Currency Exchange,
Inc., 762 F.2d 542, 546 (7th Cir.), cert. denied, 474 U.S. 904
(1985)(holding that the appointment of a trustee in a Chapter 11
case is not immediately appealable).
6
In re Plaza de Diego Shopping Center, Inc., 911 F.2d at 826.
7
Id.
5
the only relief would be to vacate the plan of reorganization and
start new negotiations with creditors. An immediate appeal is a
better option. Consequently, we hold that the appointment of a
trustee in a Chapter 11 case is an immediately appealable final
order.
III.
STANDING
The appellees challenge the appellants' standing to bring this
appeal. Only one appellee, Central Louisiana Electric Company,
Inc. ("CLECO"), actually challenges Cajun's standing.8 CLECO
argues that Cajun lacks standing because it is "hopelessly
insolvent." To have standing to appeal a bankruptcy order, a party
must show that it was "directly and adversely affected pecuniarily
by" the order, or that the order diminished its property, increased
its burdens or impaired its rights.9 CLECO argues that Cajun is so
insolvent that it lacks any hope of return under any
reorganization, and is thus not adversely affected by the
appointment of a trustee. CLECO's argument is without merit. When
the trustee was appointed, Cajun lost all the rights it had as a
debtor-in-possession, including the right to operate its business.
8
The other appellees merely challenge the other appellants'
standing; they do not challenge Cajun's standing.
9
In re El San Juan Hotel, 809 F.2d 151, 154 (1st Cir. 1987).
See Rohm & Hass Texas, Inc. v. Ortiz Bros. Insulation, Inc., 32
F.3d 205, 208 n. 18 (5th Cir. 1994)(noting that, to appeal a
bankruptcy order, a party must show that it was aggrieved by that
order).
6
Clearly, it was aggrieved by losing the right to run itself.
Accordingly, we hold that Cajun has standing to prosecute this
appeal.
Although the appellees questioned the standing of the other
appellants, we will only address the issue of whether appellant
Cajun has standing. Because we hold that Cajun has standing, we
need not consider whether the other parties have standing. The
other parties raise the same issue on appeal—the propriety of the
appointment of the trustee—as Cajun. Thus, whether they have
standing to prosecute this appeal is of no consequence; because
Cajun has standing, we can decide whether the district court erred
in appointing a trustee even if the other appellants do not.
IV.
THE APPOINTMENT OF A TRUSTEE
We now turn to the sole substantive issue in this appeal,
whether the district court erred in appointing a trustee. The
district court justified its appointment on two grounds: First, it
held that there was cause to appoint a trustee under 11 U.S.C. §
1104(a)(1); and second, it held that the appointment of a trustee
was in the best interest of the parties under 11 U.S.C.
§1104(a)(2). The district court's appointment of a trustee is
reviewable only for abuse of discretion.10 Our review of the record
convinces us that the district court abused its discretion in
10
In re Sharon Steel Corp., 871 F.2d at 1225-26; In re Dalkon
Shield Claimants, 828 F.2d at 242.
7
appointing a trustee.
We will first review whether the appointment of the trustee
can be justified under 11 U.S.C. § 1104(a)(1) ("Section
1104(a)(1)"). Section 1104(a)(1) provides that a court shall order
the appointment of a trustee—
for cause, including fraud, dishonesty, incompetence or
gross mismanagement of the affairs of the debtor by
current management, either before or after the
commencement of the case, or similar cause. . . .
The appointment of a trustee pursuant to Section 1104(a)(1) is an
extraordinary remedy, and there is a strong presumption that the
debtor should be permitted to remain in possession absent a showing
of need for the appointment of a trustee.11 The parties moving for
the appointment of a trustee have the burden of proof, which they
must meet by clear and convincing evidence.12
The district court gave several reasons for appointing a
trustee,13 but they all stemmed from one conflict of interest:
Cajun's inherent conflict between the interests of its member-
customers, who want low rates, and those of its creditors, who want
11
5 LAWRENCE KING, COLLIER ON BANKRUPTCY § 1104.01[7][b] (15th ed.
1995).
12
Id.
13
The district court gave the following examples of conflicts:
(1) a dispute over the appeal of a Louisiana Public Service
Commission order setting rates; (2) failure to collect monies owed
by its member-customers; (3) failure to allow members access to
information and to participate in possible sales of Cajun's assets;
(4) failure to take a position in litigation between the LPSC and
the RUS over which entity had the power to regulate its rates; (5)
the interests of some of Cajun's members in purchasing some of its
assets; and (6) the existence and nature of the all-requirements
contracts between Cajun and its member-customers.
8
to raise rates.14 The district court gave several reasons for
appointing a trustee,15 but they all stemmed from one conflict of
interest: Cajun's inherent conflict between the interests of its
member-customers, who want low rates, and those of its creditors,
who want to raise rates. However, because this inherent conflict
results from Cajun's organizational structure—a structure that
Congress encouraged it to adopt—the conflict is insufficient to
justify the appointment of a trustee.
Congress intended that utilities which borrowed from the RUS
14
The dissent claims that two of the reasons given by the
district court, the failure to collect monies owed by member-
customers and the failure to allow members access to information
and to participate in possible sales of Cajun's assets, show
conflicts not present in a healthy cooperative. However, we do not
think that these reasons constitute sufficient cause to justify the
appointment of a trustee under Section 1104(a)(1). Cajun's
accounts receivable owed by its member-customers were no greater
during the bankruptcy than they were before the bankruptcy. Thus,
Cajun is simply operating as it did before it declared bankruptcy;
it is not attempting to keep money from its creditors by failing to
collect accounts receivable from member-customers. Similarly,
Cajun's failure to share information about possible asset sales
with CLECO or Teche Electric Cooperative, Inc. ("Teche") do not
constitute cause for the appointment of a trustee. CLECO is
attempting to acquire Cajun's members, and Teche is effectively
controlled by CLECO. A healthy cooperative is not obligated to
share information about potential sales of its assets with
companies that are seeking to acquire its members.
15
The district court gave the following examples of conflicts:
(1) a dispute over the appeal of a Louisiana Public Service
Commission order setting rates; (2) failure to collect monies owed
by its member-customers; (3) failure to allow members access to
information and to participate in possible sales of Cajun's assets;
(4) failure to take a position in litigation between the LPSC and
the RUS over which entity had the power to regulate its rates; (5)
the interests of some of Cajun's members in purchasing some of its
assets; and (6) the existence and nature of the all-requirements
contracts between Cajun and its member-customers.
9
be cooperatives. The Rural Electrification Act of 193616 is set up
to favor cooperatives. Specifically, it provides that in making
loans, the Administrator "shall give preference to . . .
cooperative, nonprofit and limited dividend associations. . . ."17
In fact, according to the parties' stipulation in this case, all
electric generation and transmission companies receiving loans from
the RUS are organized as cooperatives. The fact that Congress and
the RUS encouraged—if not required—Cajun to organize itself as a
cooperative leads us to believe that any conflict inherently
arising from Cajun's organization as a cooperative is insufficient
to justify the appointment of a trustee. Further, holding that
these inherent conflicts constitute cause for appointing a trustee
would create a per se rule permitting the appointment of a trustee
in any case involving a cooperative. Nothing in the Bankruptcy
Code or its legislative history indicates that Congress intended
such a per se rule. In fact, when Congress wanted to create
special rules for certain types of businesses, it did so.18
Congress did not create such a per se rule, and we refuse to create
one by judicial fiat.
Because all of the conflicts found by the district court arose
from Cajun's organizational structure, we hold that the district
16
7 U.S.C. § 901 et seq.
17
7 U.S.C. § 904.
18
For example, Congress provided specific rules in cases
involving "a single asset real estate business," see 7 U.S.C. §§
101(51B), 363(d)(3), a "small business," see 7 U.S.C. §§ 101(51C),
1102(a)(3), 1121(3), 1125(f), and a "family farmer," see 7 U.S.C.
§ 101(18), among others.
10
court erred in finding that cause existed to appoint a trustee.
Appellees cite In re Colorado-Ute19 for the proposition that
the conflicts inherent in any cooperative justify the appointment
of a trustee. That case, however, is distinguishable. In
Colorado-Ute, the district court found that the debtor had
committed a number of bad acts, including making transfers on the
eve of bankruptcy in an effort to destroy the RUS' security
interest, and that the debtor had an incompetent board and
management. Cajun, on the other hand, has committed no such bad
acts, and the district court did not find its management or board
incompetent. Thus, the factors justifying the appointment of a
trustee in Colorado-Ute are not present in the instant case.20
The district court also justified its appointment of a trustee
upon Section 1104(a)(2). That section provides that the district
court shall appoint a trustee when such an appointment is in the
best interests of all the parties. The district court found that
the appointment of a trustee was in the best interests of the
parties because of the conflicts discussed above. However, just as
such conflicts do not justify the appointment of a trustee for
cause pursuant to Section 1104(a)(1), they also do not make the
appointment of a trustee in the best interests of the parties under
19
120 B.R. 164 (Bankr. D. Colo. 1990).
20
The dissent claims that we would never affirm the appointment
of a trustee in a case involving a cooperative where the cause for
appointment can be traced back to a cooperative's inherent
structure. We disagree. In a case like Colorado-Ute, where a
cooperative had actually engaged in bad acts, we would affirm the
appointment of a trustee.
11
Section 1104(a)(2).21 Further, the fact that the debtor and several
creditors are appealing the trustee's appointment is evidence that
the appointment was not in their best interest.22 Thus, we hold
that the district court erred in finding that the appointment of a
trustee was in the parties' best interests.
In closing, we note that our vacation of the appointment of
the trustee does not leave the parties' best interests unprotected.
The bankruptcy court, even with the debtor in possession, can still
enter orders in the reorganization plan to be adopted and the lack
of the trustee is not an impediment to this inherent power of the
bankruptcy court.
IV.
CONCLUSION
Because the district court erred in appointing a trustee, we
VACATE the appointment of the trustee and REMAND this case for
further proceedings.
21
See COLLIER ON BANKRUPTCY, supra note 11, at § 1104.01[7][d]
(noting that "there are few situations . . . when grounds will
exist for the appointment of a trustee under [Section 1104(a)(2)]
although 'cause' for such appointment will not exist under [Section
1104(a)(1)].").
22
See 5 COLLIER ON BANKRUPTCY, supra note 11, at § 1104.01[7][d]
(noting that "[i]n any case in which equity security holders or
other ownership interests support the debtor's current management,
the court should refrain from appointing a trustee under [Section
1104(a)(2)]").
-12-
EMILIO M. GARZA, Circuit Judge, concurring in part and dissenting
in part:
I concur in the majority opinion except as to Part IV and the
ultimate judgment. I do not agree with the majority that affirming
the district court's order would create a "per se rule" under which
any cooperative seeking Chapter 11 protection would be
automatically subject to the appointment of a trustee. In my view
the conflicts present in this case provide sufficient "cause" to
support the district court's appointment of a trustee under
§ 1104(a)(1). See maj. op. at 8 n.13 (detailing Cajun Electric's
conflicts of interest). The conflicts present in this case go
beyond the "inherent" conflicts under which all healthy
cooperatives operate.23 Presumably, healthy cooperatives do not
fail to collect monies owed by member-customers or attempt to deny
member-customers access to information. Nor do members in healthy
cooperatives consider strategies which seem designed to break-up
and scavenge the assets of the debtor. See Joint Stipulation at 4
¶ 15 ("Some members . . . have expressed an interest in purchasing
Cajun's assets, either by themselves alone or by forming a venture
with one or more others."). Once cooperative members begin working
at cross-purposes, to the extent Cajun's members have, the
appointment of a trustee may be the only effective way to pursue
The majority also errs in conflating the conflicts "inherent" in any
cooperative organization with those "arising from" inherent conflicts. See maj.
op. at 8-9. In my opinion, the majority would shield a cooperative from trustee
appointment, no matter how egregious its internal conflicts were, so long as the
conflicts could be traced back to the cooperative structure.
reorganization. See In re Colorado-Ute Electric Ass'n, Inc., 120
B.R. 164, 176 (D. Colo. 1990) (holding the appointment of a trustee
proper where court could not envision a way for current management
to resolve conflicts). As the district court recognized, this is
a large and messy bankruptcy that promises to get worse without an
disinterested administrator at the helm. Accordingly, I
respectfully dissent from Part IV of the majority opinion, and
would affirm the district court's appointment of a trustee.
-14-