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In re General Maritime Corporation

United States District Court, S.D. New York

September 29, 2014

In re: GENERAL MARITIME CORPORATION, Debtor.
v.
GENERAL MARITIME CORPORATION, Appellee. DONALD C. MARRO, Appellant,

OPINION AND ORDER

EDGARDO RAMOS, District Judge.

Donald Marro ("Appellant"), proceeding pro se, appeals from an order of the United States Bankruptcy Court for the Southern District of New York (the "Disallowance Order") that expunged an $81, 250 claim he filed in the underlying Chapter 11 bankruptcy proceeding. Doc. 1.[1] The reorganized debtors-in-possession, General Maritime Corporation and certain of its subsidiaries (collectively, "Appellees"), [2] objected to a series of claims, including Appellant's, on the grounds that the claims were subject to mandatory subordination under the Bankruptcy Code and consequently would not receive distributions under the applicable reorganization plan.[3] The Disallowance Order, issued after a hearing, overruled Appellant's response to Appellees' objections and expunged the claims. Bankr. Doc. 996. For the reasons set forth below, the Bankruptcy Court's order is AFFIRMED.

I. Background

Appellees filed for Chapter 11 bankruptcy protection on November 17, 2011. Bankr. Doc. 1. At the time, Appellant held $50, 000 worth of Appellees' Senior Notes. See Bankr. Doc. 988, Annex 1 (the "Proof of Claim").[4] Pursuant to the reorganization plan, Appellees were to distribute cash, equity and warrants to the Senior Notes Indenture Trustee. See Bankr. Doc. 755 ("Plan") at 17, 46.[5] This distribution was to be passed on to the noteholders and would serve as full satisfaction of their claims. See id. at 25, 46. Appellant acknowledges having received his distribution from the Trustee. See Doc. 16 at 11:14-15 ("I had already received a distribution for the bonds."). Nevertheless, Appellant filed a proof of claim for $81, 250: $50, 000 for the principal amount of the notes and $31, 250 for "opportunity costs" and other damages. See Proof of Claim. These damages are, at various points in Appellant's papers, attributed to fraudulent inducement, fraudulent retention, breach of contract (the bond indenture), and breach of fiduciary duty by Appellees. See, e.g., Proof of Claim; Bankr. Doc. 980 at 4 of 43; Doc. 9 ("Appellant's Br.") at 2 of 17.

On April 15, 2013, Appellees filed an objection seeking to expunge a number of claims, including Appellant's. Bankr. Doc. 974. Appellees' position was that the claims were subject to mandatory subordination under section 510(b) of the Bankruptcy Code and would therefore not receive distributions under the Plan. See id. Appellant filed a response to the objection on May 6, 2013, and Appellees replied on June 4, 2013. Bankr. Docs. 980, 988. The Bankruptcy Court held a hearing on June 6, 2013. See Bankr. Doc. 998 ("Bankr. Tr.").[6] During the proceedings, the Bankruptcy Court noted that general unsecured creditors had received distributions ranging from 1.88 to 0.75 percent. Bankr. Tr. at 6:24-7:1. After discussing the court's prior decisions in In re Enron Corp., 341 B.R. 141 (Bankr. S.D.N.Y. 2006), and In re WorldCom, Inc., 329 B.R. 10 (Bankr. S.D.N.Y. 2005), the court concluded that the principles articulated in those cases "merely apply" to Appellant's claim. Bankr. Tr. at 7:9-8:18. In other words, according to the Bankruptcy Court, the same principles that required subordination of the claims at issue in Enron and WorldCom operated to compel subordination here. The court therefore sustained Appellees' objection, overruled Appellant's response, and expunged Appellant's claim. Id. at 8:18-21. The Disallowance Order was issued the following day. Bankr. Doc. 996. This appeal followed. Doc. 1.

II. Discussion

A. Standard of Review of Bankruptcy Court Judgments

This Court has jurisdiction to hear appeals from decisions of a bankruptcy court pursuant to 28 U.S.C. § 158(a), which provides in relevant part that "[t]he district courts of the United States shall have jurisdiction to hear appeals... from final judgments, orders, and decrees;... [and, ] with leave of the court, from other interlocutory orders and decrees... of bankruptcy judges." 28 U.S.C. § 158(a)(1), (3). A district court generally reviews the findings of fact of a bankruptcy court under a "clearly erroneous" standard, see Fed.R.Bankr.P. 8013, but conclusions of law are reviewed de novo. See, e.g., Shugrue v. Air Line Pilots Assoc., Int'l (In re Ionosphere Clubs, Inc.), 922 F.2d 984, 988-89 (2d Cir. 1990); Nova v. Premier Operations, Ltd. (In re Premier Operations), 294 B.R. 213, 217 (S.D.N.Y. 2003).

B. Appellant's Pro Se Status

Because Appellant is proceeding pro se, his submissions "must be construed liberally and interpreted to raise the strongest arguments that they suggest. '" Triestman v. Fed. Bureau of Prisons, 470 F.3d 471, 474 (2d Cir. 2006) (per curiam) (emphasis in original) (quoting Pabon v. Wright, 459 F.3d 241, 248 (2d Cir. 2006))).

C. The Bankruptcy Court Properly Subordinated and Expunged Appellant's Claim

As noted, Appellant does not contest that he received his pro rata distribution under the Plan. Because that distribution served as full satisfaction of the noteholders' claims, the $50, 000 portion of Appellant's claim - representing the face value of his notes - was properly expunged.[7]

The focus of the instant appeal is on the $31, 250 residual portion of Appellant's claim, which the Bankruptcy Court expunged on the grounds that (1) the claim is subject to mandatory subordination under section 510(b) of the Bankruptcy Code, and (2) since general unsecured creditors were not paid in full on ...


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