Barnard v. Verizon Communications, Inc.
- Citation:
- No. 11-1318 (3d Cir. Nov. 14, 2011) (not precedential)
- Tag(s):
-
- Ruling:
- Following the confirmation of a debtor's plan of reorganization, a group of former investors in the debtor filed suit in federal district court against the administrative agent for certain creditors of the debtor, alleging that the agent had unlawfully converted the investors' shares into its own by exerting illicit influence on the bankruptcy court in order to receive an equity interest in the reorganized debtor under the plan. The Third Circuit affirmed the district court's dismissal of the investor's conversion claim, holding that it constituted an impermissible collateral attack on the final judgment of the bankruptcy court.
- Procedural context:
- The group of investors appealed from district court orders granting the defendants' motions to dismiss its complaint with prejudice.
- Facts:
- The case arose from the 2006 spin-off by Verizon Communications, Inc. ("Verizon") of its Yellow Pages publishing business. As part of the spin-off, certain creditors of Verizon agreed to exchange $7 billion of Verizon debt for an equal amount of debt of Idearc, Inc. ("Idearc"), the spun-off entity. Defendant J.P Morgan Chase Bank, N.A. ("JPMC") served as administrative agent for the debt exchange. In 2009, less than three years after its spin-off, Idearc filed for chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Texas. The appellants, a group of former investors in Idearc, actively participated in the bankruptcy proceedings and sought, among other things, to have Idearc's bankruptcy proceedings dismissed on the ground that the Idearc bankruptcy was part of an elaborate scheme orchestrated by Verizon to deprive the former investors of their Idearc shares. The bankruptcy court denied the appellants' motion to dismiss and ultimately confirmed Idearc's plan of reorganization over their objections.
Appellants subsequently filed suit in the U.S. District Court for the Eastern District of Pennsylvania against Verizon and JPMC. The appellants' complaint asserted, among other things, a claim against JPMC for conversion. Specifically, appellants alleged that JPMC had exerted illicit influence over the bankruptcy court in order to convert appellants' Idearc shares into its own pursuant to the plan. The district court dismissed appellants' complaint with prejudice, and the Third Circuit affirmed. The court held that the appellants' conversion claim was "essentially a collateral attack on the final judgment of the Bankruptcy Court." Because a final judgment has res judicata effect and may not be attacked collaterally, the district court had appropriately dismissed this claim.
- Judge(s):
- Scirica, Smith, and Jordan
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