In Re Philadelphia Newspapers, LLC , 690 F.3d 161 ( 2012 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_________________
No. 11-3257
_________________
In Re: PHILADELPHIA NEWSPAPERS, LLC, et al.
Debtors
Vahan H. Gureghian,
Danielle Gureghian, and
Charter School Management, Inc.,
Appellants
_________________
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Action No. 2-10-cv-07098)
District Judge: Honorable Eduardo C. Robreno
_________________
Argued May 23, 2012
Before: AMBRO, FUENTES,
and HARDIMAN, Circuit Judges
(Opinion filed July 26, 2012)
David A. Barnes, Esquire (Argued)
Edmond M. George, Esquire
Obermayer, Rebmann, Maxwell & Hippel
1617 John F. Kennedy Boulevard
One Penn Center, 19th Floor
Philadelphia, PA 19103-0000
Counsel for Appellants
David F. Abernethy, Esquire
Andrew J. Flame, Esquire
Andrew C. Kassner, Esquire
Drinker, Biddle & Reath
18th & Cherry Streets
One Logan Square, Suite 2000
Philadelphia, PA 19103-0000
Fred S. Hodara, Esquire
Abid Qureshi, Esquire
Sunish Gulati, Esquire (Argued)
Akin, Gump, Strauss, Hauer & Feld
One Bryant Park, 42nd Floor
New York, NY 10036
Counsel for Appellee
Anne M. Aaronson, Esquire
Christie C. Comerford, Esquire
Lawrence G. McMichael, Esquire
Catherine G. Pappas, Esquire
Laura E. Vendzules, Esquire
2
Dilworth Paxson
1500 Market Street, Suite 3500E
Philadelphia, PA 19102
Richard J. Corbi, Esquire
Michael T. Mervis, Esquire
Allison Meyer, Esquire
Proskauer Rose
Eleven Times Square, 17th Floor
New York, NY 10036-8299
Paul V. Possinger, Esquire
Mark K. Thomas, Esquire
Peter J. Young, Esquire
Proskauer Rose
70 West Madison, Suite 3800
Chicago, IL 60602-4342
John M. Elliott, Esquire
Mark J. Schwemler, Esquire
Elliott Greenleaf & Siedlkowski
925 Harvest Drive, Suite 300
Union Meeting Corporate Center V
Blue Bell, PA 19422-0000
Counsel for Debtors
_________________
OPINION OF THE COURT
_________________
3
AMBRO, Circuit Judge
Vahan H. Gureghian, Danielle Gureghian, and Charter
School Management, Inc. (collectively, the ―CSMI Parties‖)
appeal from the judgment of the District Court affirming the
Bankruptcy Court‘s decision to deny the CSMI Parties‘ requests
for the allowance of administrative expense claims under 11
U.S.C. § 503(b) in the Chapter 11 bankruptcy proceedings of
Philadelphia Newspapers, LLC and certain of its affiliates
(collectively, the ―Debtors‖).1 In affirming the Bankruptcy
Court‘s decision, the District Court held that the appeal was
equitably moot, and alternatively that the CSMI Parties failed to
establish their entitlement to administrative expense claims.
Though we hold that the appeal is not equitably moot, we affirm
the District Court‘s judgment based on its conclusions regarding
the administrative expense requests.
I. Background
Bankruptcy Court Proceedings
This appeal relates to a defamation action filed by the
CSMI Parties against Philadelphia Media Holdings, LLC (one
of the Debtors), The Philadelphia Inquirer, and several Inquirer
employees in the Court of Common Pleas of Delaware County,
1
The Debtors are PMH Acquisition, LLC, Broad Street Video,
LLC, Philadelphia Newspapers, LLC, Philadelphia Direct, LLC,
Philly Online, LLC, PMH Holdings, LLC, Broad Street
Publishing, LLC, Philadelphia Media, LLC, and Philadelphia
Media Holdings, LLC.
4
Pennsylvania. The action concerns certain articles published in
print and online by the Inquirer discussing the CSMI Parties‘
contract management of the Chester Community Charter School
(the ―Articles‖). After the filing of the action, the Debtors filed
for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C.
§§ 101 et seq. The CSMI Parties assert that post-petition the
Debtors published an article that links to and endorses the
Articles. On August 2, 2010, they timely filed the
administrative expense requests based on these allegations.2
Specifically, the CSMI Parties alleged that pre-petition
the Debtors published a charter school webpage (the ―Charter
Page‖) that contained links to various items published by the
Inquirer about charter schools, including the Articles.3 They
claimed that these links endorsed the Articles as accurate
reporting and misled the public into believing that the CSMI
Parties engaged in wrongdoing similar to the improper or illegal
conduct alleged in other linked news items. They also
highlighted that the Articles were displayed beneath the Charter
Page‘s title bar as a ―marquee‖ enclosed in a separate box
containing photographs, thereby drawing attention to the
Articles.
2
The CSMI Parties filed one request in each of the Debtors‘
proceedings.
3
The CSMI Parties‘ statements in the materials supporting the
administrative expense requests implied that the Charter Page
was published for the first time post-petition. At the hearing
before the Bankruptcy Court on the requests, the Debtors
introduced evidence that the Charter Page was created pre-
petition and had not been modified post-petition. Before the
District Court and us, the CSMI Parties abandoned their
assertion about the initial publication date of the Charter Page.
5
They further alleged that post-petition the Debtors
published an editorial article titled ―Not the Lessons Charters
Were Supposed to Teach‖ by Inquirer columnist Monica Yant
Kinney (the ―Kinney Article‖). It contained a link to and a
statement endorsing the Charter Page. The Kinney Article read:
―Some city charter schools – think Mastery, KIPP,
Independence, Young Scholars – are soaring. But if you follow
the remarkable reporting of my colleague Martha Woodall
(http://go.philly.com/charter), you‘ll see greedy grown-ups
pilfering public gold under the guise of enriching children‘s
lives.‖ The CSMI Parties argue that this link and statement
―republished‖ the Articles.4
Each administrative expense request asserted an
estimated claim of $1,800,000 for the Debtors‘ alleged post-
petition act of defamation. Each also sought $147,140 in
alleged damages for the Debtors‘ post-petition conduct and
prosecution of claims against the CSMI Parties.5
4
The CSMI Parties did not include this argument in the
materials supporting the administrative expense requests.
Rather, they first mentioned the Kinney Article in their response
to the Debtors‘ objection to the requests. The parties agree that
the Bankruptcy Court properly considered this argument.
5
The $147,140 is for legal costs related to adversary
proceedings before the Bankruptcy Court seeking to stay the
prosecution of the Pennsylvania state court action regarding the
Articles. The CSMI Parties do not present any arguments on
appeal regarding these fees, nor did they do so in the District
Court.
6
Three weeks after the CSMI Parties made the
administrative expense requests, the Debtors filed on August 23
an objection to the requests along with a motion for an expedited
hearing. The next day, the CSMI Parties objected to the
Debtors‘ motion to expedite. The Bankruptcy Court held a
hearing on the motion to expedite on August 26. At that
hearing, the Debtors stated that they requested an expedited
hearing because the closing under the then-current version of the
Debtors‘ confirmed plan of reorganization6 was scheduled to
take place on August 31, and reserving $1.8 million for the
requests would affect adversely their post-closing working
capital.7 The Bankruptcy Court granted the motion to expedite
and scheduled an evidentiary hearing for August 30.
Bankruptcy Judge Stephen Raslavich also made
preliminary statements regarding the administrative expense
requests. He noted that he could
6
The Bankruptcy Court confirmed the Fourth Amended Joint
Chapter 11 Plan (the ―Fourth Amended Plan‖) at the end of June
2010. It contemplated a sale of substantially all of the Debtors‘
assets for a ―base purchase price‖ of $105 million in cash.
Under the asset purchase agreement, this cash was to be
delivered to the entity designated to distribute funds to holders
of claims under the Fourth Amended Plan.
7
The agreement for the purchase of substantially all of the
Debtors‘ assets provided that the purchaser would assume
certain administrative expense claims, the definition of which
did not include the claims arising from the CSMI Parties‘
administrative expense requests.
7
detect virtually no merit to this assertion of an
administrative expense claim. . . . I didn‘t want to
mislead you as to what my preliminary sense of
this is . . . . [I]t‘s going to take an enormous
amount of persuading to convince me that the
allegations of damage . . . [provide] some kind of
[ongoing] recoverable damage in the nature of a
bankruptcy estate administrative claim.
Nonetheless, the Judge worked with the CSMI Parties to
establish an acceptable hearing date and time.
At the hearing on the Debtors‘ objection to the
administrative expense requests, Judge Raslavich, after hearing
testimony and oral argument, denied the requests. He held that
the CSMI Parties had not sustained their burden of proof in
establishing entitlement to an administrative expense claim. The
CSMI Parties timely appealed to the District Court on
September 10.
The closing did not take place as anticipated because of
failed negotiations with the Debtors‘ labor unions, the
acceptable completion of which was a condition to closing. The
Debtors conducted another auction of substantially all of their
assets on September 23, and the sale was consummated under
the terms of the Fifth Amended Joint Chapter 11 Plan (the ―Fifth
Amended Plan‖ or ―Plan‖) for a purchase price of $105 million
in cash.8
8
The Bankruptcy Court confirmed the Fifth Amended Plan at
the end of September 2010. Similar to the agreement
accompanying the Fourth Amended Plan, the final agreement
8
District Court Decision
Before the District Court, the CSMI Parties argued that
the Bankruptcy Court erred in denying the administrative claims
requests because the Kinney Article‘s link and reference to the
Charter Page provided a post-petition tort claim. They also
asserted that the Bankruptcy Court prejudged the merits of the
requests and infringed on their due process rights by forcing
them to proceed on an expedited basis. The Debtors argued that
the appeal should be dismissed as equitably moot.9
The District Court held that the appeal was equitably
moot, ―as the plan has been substantially consummated and no
stay was sought,‖ but nonetheless considered the merits. After
noting that courts often provide their preliminary impressions on
matters to narrow issues and that expedited hearings are
for the purchase of substantially all of the Debtors‘ assets
provided that the purchaser would assume certain administrative
expense claims, whose definition did not include the claims
arising from the CSMI Parties‘ administrative expense requests.
It also similarly provided that the ―base purchase price‖ of $105
million in cash would be delivered to the entity designated to
distribute funds to holders of claims under the Fifth Amended
Plan.
9
Before the District Court (per Judge Eduardo Robreno), the
Appellee was Philadelphia Media Network Inc., which under the
Plan, as purchaser of substantially all of the Debtors‘ assets,
possesses the rights of a party in interest for all matters related
to the Debtors‘ Chapter 11 cases. Before us, Philadelphia Media
Network Inc. remains the Appellee. For convenience, we refer
to the Debtors when discussing the Appellee.
9
―commonplace and often necessary‖ in bankruptcy proceedings,
it considered the claims underlying the administrative expense
requests. It affirmed the Bankruptcy Court‘s denial of the
requests based on its holding that ―merely post[ing] a link to the
charter school webpage that contained the original articles . . . ,
as the courts that have had occasion to consider this issue have
uniformly held, is not distinct tortious conduct upon which a
defamation claim can be grounded.‖
In addition to advancing the same arguments regarding
the Bankruptcy Court‘s actions and decisions as they did before
the District Court, the CSMI Parties argue to us that the District
Court erred in holding that the appeal is equitably moot.
II. Jurisdiction and Standard of Review
The Bankruptcy Court had jurisdiction under 28 U.S.C.
§ 157(b). The District Court had jurisdiction under 28 U.S.C.
§§ 158(a) and 1334. We have jurisdiction under 28 U.S.C.
§§ 158(d) and 1291.
Our precedent requires us to review for abuse of
discretion a district court‘s decision that an appeal is equitably
moot. In re Cont’l Airlines, 91 F.3d 553, 560 (3d Cir. 1996) (en
banc) (―Continental I‖).10 Because a district court sits as an
10
Then Circuit Judge Alito criticized this standard of review as
contradicting our precedent that where the district court sits as
an appellate court, we exercise plenary review. Continental I,
91 F.3d at 568 n.4 (Alito, J., dissenting) (―We are essentially
called on to review whether the district court properly decided
not to reach the merits of the . . . appeal. We are in just as good
10
appellate court to review a bankruptcy court, we review a
bankruptcy court‘s ―legal determinations de novo, its factual
findings for clear error, and its exercises of discretion for abuse
thereof.‖ In re Goody’s Family Clothing Inc., 610 F.3d 812,
816 (3d Cir. 2010).
III. Equitable Mootness
Equitable mootness is a way for an appellate court to
avoid deciding the merits of an appeal. In this uncommon act, a
court dismisses an appeal even if it has jurisdiction and can
grant relief if ―implementation of that relief would be
inequitable.‖ Continental I, 91 F.3d at 559 (quoting In re
Chateaugay Corp., 988 F.2d 322, 325 (2d Cir. 1993)). The term
―mootness‖ is a misnomer. Unlike mootness in the
constitutional sense, where it is impossible for a court to grant
any relief, ―mootness‖ here is used ―as a shortcut for a court‘s
decision that the fait accompli of a plan confirmation should
preclude further judicial proceedings.‖ Id.A court arrives at this decision through the application of
―prudential‖ considerations that address ―concerns unique to
bankruptcy proceedings.‖ Id. These concerns relate to the
adverse effects of the unraveling of a confirmed plan that could
result from allowing the appeal to proceed. The equitable
mootness doctrine recognizes that if a successful appeal would
be fatal to a plan, prudence may require the appeal be dismissed
because granting relief to the appellant ―would lead to a
perverse outcome.‖ United States Tr. v. Official Comm. of
a position to make this determination as was the district court,
which sat as an appellate court in this case.‖). He stated:
―[P]lenary review would better serve these ends.‖ Id.11
Equity Sec. Holders (In re Zenith Elecs. Corp.), 329 F.3d 338,
343 (3d Cir. 2003). A ―perverse outcome‖ often involves injury
to third parties, particularly investors, who have relied on the
confirmed plan, see Nordhoff Invs. Inc. v. Zenith Elecs. Corp.,
258 F.3d 180, 184 (3d Cir. 2001) (―One inequity, in particular,
that is often at issue is the effect upon innocent third parties.
When transactions following court orders are unraveled, third
parties not before us who [took actions] in reliance on those
orders will likely suffer adverse effects.‖), or the potential for
chaos in the bankruptcy court, see Continental I, 91 F.3d at 560–
61 (citing In re Robert Farms, 652 F.2d 793 (9th Cir. 1981))
(reversal of the plan‘s confirmation would ―create an
unmanageable, uncontrollable situation for the Bankruptcy
Court‖).
The ―prudential‖ factors we consider in evaluating
equitable mootness are the following:
(1) whether the reorganization plan has been
substantially consummated, (2) whether a stay has
been obtained, (3) whether the relief requested
would affect the rights of parties not before the
court, (4) whether the relief requested would
affect the success of the plan, and (5) the public
policy of affording finality to bankruptcy
judgments.
Continental I, 91 F.3d at 560. ―These factors are given varying
weight, depending on the particular circumstances.‖ In re PWS
Holding Corp., 228 F.3d 224, 236 (3d Cir. 2000).
The first factor, typically ―the foremost consideration,‖
id., requires that a court consider whether allowing an appeal to
12
go forward will undermine the plan, and not merely whether the
plan has been substantially consummated under the Bankruptcy
Code‘s definition.11 See, e.g., Zenith Elecs., 329 F.3d at 34344
(holding that the district court abused its discretion in finding
the appeal equitably moot because it merely determined that the
plan had been substantially consummated in a definitional sense
and did not provide a complete analysis of the first factor);
United Artists Theatre Co. v. Walton (In re United Artists
Theatre Co.), 315 F.3d 217, 228 (3d Cir. 2003) (holding that the
substantial consummation factor weighed against equitable
mootness, despite the plan satisfying the Bankruptcy Code‘s
definition, because the relief sought ―does not undermine the
Plan‘s foundation‖); PWS Holding, 228 F.3d at 236 (declining to
dismiss an appeal seeking alterations to a confirmed plan as
equitably moot because a successful appeal would not ―knock
the props out from under the authorization for every transaction
that has taken place‖ (quoting In re Chateaugay Corp., 167 B.R.
776, 780 (S.D.N.Y. 1994))).
The second factor principally duplicates the first ―in the
sense that a plan cannot be substantially consummated if the
appellant has successfully sought a stay.‖ Zenith Elecs., 329
F.3d at 346 n.4. Thus this factor ―should only weigh heavily
against the appellant if, by a failure to secure a stay, a
reorganization plan was confirmed, the existence of which is
later threatened by the appellant‘s appeal.‖ Id. See also United
11
The Bankruptcy Code defines ―substantial consummation‖ as:
―(A) transfer of all or substantially all of the property proposed
by the plan to be transferred; (B) assumption by the debtor or by
the successor to the debtor under the plan of the business or of
the management of all or substantially all of the property dealt
with by the plan; and (C) commencement of distribution under
the plan.‖ 11 U.S.C. § 1101(2).
13
Artists, 315 F.3d at 228 (noting that failure to seek a stay
weighed against appellant, but ―because the remedy [appellant]
seeks does not undermine the Plan‘s foundation, this omission is
not fatal‖); Nordhoff Invs. Inc. v. Zenith Elecs. Corp., 258 F.3d
180, 186–87 (3d Cir. 2001) (―[I]t ‗is obligatory upon appellant
. . . to pursue with diligence all available remedies to obtain a
stay of execution of the objectionable order . . . if the failure to
do so creates a situation rendering it inequitable to reverse the
orders appealed from.‘‖ (emphasis added) (quoting In re
Highway Truck Drivers & Helpers Local Union No. 107, 888
F.2d 293, 297 (3d Cir. 1989))).
The third factor asks to what extent the relief sought
would adversely affect parties not before the court. Stated
differently, ―[h]igh on the list of prudential considerations . . . is
the reliance of third parties, in particular investors, on the
finality of the transaction.‖ Continental I, 91 F.3d at 562. The
fourth factor largely replicates the analysis of the first in that it
considers whether granting the appellant the requested relief
would unravel the plan. See Nordhoff Invs., 258 F.3d at 189.
Finally, the fifth factor supports the other four by encouraging
investors and others to rely on confirmation orders, thereby
facilitating successful reorganizations by fostering confidence in
the finality of confirmed plans. See id. at 190; Continental I, 91
F.3d at 565 (―[T]he importance of allowing approved
reorganizations to go forward in reliance on bankruptcy court
confirmation orders may be the central animating force behind
the equitable mootness doctrine.‖).
Taken together, these factors recognize that a court only
should apply the equitable mootness doctrine if doing so will
―unscrambl[e] complex bankruptcy reorganizations when the
appealing party should have acted before the plan became
extremely difficult to retract.‖ Nordhoff Invs., 258 F.3d at 185.
14
The doctrine is quite rightly ―limited in scope‖ and ―cautiously
applied.‖12 Continental I, 91 F.3d at 559.
In holding that the appeal is equitably moot, the District
Court seemingly relied on the Plan‘s substantial consummation
under the Bankruptcy Code‘s definition. We discern no analysis
of whether a ruling favorable to the CSMI Parties would upset
the Plan. The Court also faulted the CSMI Parties for not
seeking a stay without explaining whether a stay was critical
given the progression of the Debtors‘ bankruptcy proceedings.
Moreover, it did not include any analysis of the final three
factors.
12
In Continental I, our court sitting en banc invoked the
equitable mootness doctrine by a narrow 7-6 margin. As
referenced above, then Judge Alito dissented, and was joined by
five judges. For the dissenters, the extraordinary nature of the
equitable mootness doctrine required, at the very least, a more
limited application than the majority provided in weighing the
five factors it set out. Continental I, 91 F.3d at 567 (Alito, J.,
dissenting). Indeed, the majority did not ―undertake an
independent analysis of the origin or scope of the doctrine,‖ but
simply assumed its existence and adopted it as our own. Id. at
568. This resulted in an unjustifiably expansive doctrine that
―can easily be used as a weapon to prevent any appellate review
of bankruptcy court orders confirming reorganization plans. It
thus places far too much power in the hands of bankruptcy
judges.‖ Nordhoff Invs., 258 F.3d at 191 (Alito, J., concurring);
see also Continental I, 91 F.3d at 568-71 (Alito, J., dissenting).
15
In our view, a balancing of the equitable mootness factors
calls for allowing this appeal to proceed. Though the Plan was
substantially consummated in a definitional sense after the
Bankruptcy Court denied the administrative expense requests, a
ruling in favor of the CSMI Parties will not upset the Plan. It
provides that administrative expense claims will be paid on the
later of the Plan‘s effective date or the date on which the claims
become allowed. It also establishes an account from which a
designated entity is to distribute funds to holders of allowed
administrative expense claims as provided by the Plan. If the
CSMI Parties‘ administrative expense requests are allowed, they
may be paid under the Plan without upsetting it.
Indeed, on appeal the Debtors do not argue that
allowance of the requests will undermine the Plan. Also, under
the agreement for the purchase of substantially all of the
Debtors‘ assets and the Plan, the Debtors are responsible for
paying the requests if they are allowed. These facts make this
appeal unlike Continental I, in which the debtor entered into an
agreement with investors premised on the limitation of the
amount of administrative expense claims that the investors
would assume. That agreement was incorporated explicitly into
the confirmed plan. 91 F.3d at 556. A holding in favor of the
appellant would have provided for an additional (and sizable)
administrative expense claim that the investor would be required
to assume, and thus arguably would have upset the plan. Here,
the administrative expense requests were not part of the
purchaser‘s calculus at the time of the sale and their allowance,
only 1.7% of the monies ($105 million) coming into the
Debtors‘ estates from the purchase of their assets consummated
under the terms of the Fifth Amended Plan, will not unravel the
sale or the Plan.
16
In addition, at the time of the Bankruptcy Court‘s ruling
on the administrative expense requests, the then-current plan
(the Fourth Amended Plan) already had been confirmed. The
closing on that plan, scheduled for a day after the hearing on the
requests, did not occur. Instead the Fourth Amended Plan
became moot (pun intended) when the Fifth Amended Plan was
confirmed a month later.
Though perhaps the CSMI Parties should have sought a
stay of the order confirming the Fifth Amended Plan, given the
timing of their appeal during the progression of Debtors‘
bankruptcy proceedings, they need not be faulted unduly for
failing to do so. Moreover, the CSMI Parties‘ appeal of the
Bankruptcy Court‘s disallowance of its requests categorized the
requests as disputed administrative expense claims. Under the
Plan, the Debtors should have set aside sufficient funds in the
distribution account to fulfill the requests if the CSMI Parties
prevailed on appeal and the requests later became allowed
claims. As such, the CSMI Parties‘ posting of a bond was not
critical to the Debtors or the entities designated to administer the
Plan.
As concerns the rights of parties not before us (the third
factor), the Bankruptcy Code and the Plan establish priority of
payment among the Debtors‘ creditors. The latter provides a
mechanism for payment of disputed administrative expense
claims if they are deemed allowed claims. See Plan §§ 5.04,
7.09, 7.11, 7.13 (establishing the distribution account, and
detailing powers and duties of the liquidating trustee and
distribution agent). No doubt the appeal can proceed without
causing substantial harm to other creditors. In this context, it is
hard to say that the Plan‘s success, the fourth factor, will be
affected.
17
Accordingly, the first four factors weigh in favor of
allowing the appeal to proceed. Though the finality of the
Bankruptcy Court‘s decision necessarily will be disturbed,
because a holding in favor of the CSMI Parties on appeal will
not unscramble the Plan or upset the rights of other parties, we
honor the CSMI Parties‘ statutory right to review of the Court‘s
decision. We thus hold that the appeal is not equitably moot.
IV. The Bankruptcy Court’s Handling of the
Administrative Expense Requests
Expedited Hearing
The CSMI Parties argue that the expedited hearing on
August 30, 2010, violated their due process rights and that the
Bankruptcy Court abused its discretion in holding the hearing on
such an expedited basis. We review due process claims de novo.
Fadiga v. Att’y Gen., 488 F.3d 142, 154 (3d Cir. 2007).
Due process generally requires notice and an opportunity
to be heard. See United States v. James Daniel Good Real
Prop., 510 U.S. 43, 48 (1993). The CSMI Parties received
notice of the hearing on the Debtors‘ objection to the
administrative expense requests a week before the hearing took
place. They also were given the opportunity to be heard at the
hearing on the motion to expedite. At that hearing, the
Bankruptcy Court asked them to propose a schedule (taking into
account the scheduled closing).
Under Fed. R. Bankr. P. 9006(c), ―for cause shown‖ a
bankruptcy court has the discretion to set an expedited schedule
for the hearing of a substantive motion. In exercising that
18
discretion, it should consider the prejudice to parties entitled to
notice and weigh this against the reasons for hearing the motion
on an expedited basis. See In re Grant Broad. of Phila., Inc., 71
B.R. 390, 397 (Bankr. E.D. Pa. 1987). The Debtors stated that
they needed to resolve the administrative expense requests
before the closing under the then-current Fourth Amended Plan.
The CSMI Parties‘ requests were for $1.8 million, small relative
to the proposed purchase price under the agreement
accompanying the Fourth Amended Plan. However, the CSMI
Parties had a week to prepare for the expedited hearing. This
was sufficient time for them to ready witness testimony and
draft a detailed twelve-page brief in opposition to the Debtors‘
objection to the requests. At the hearing, they presented this
testimony and expounded on their written arguments regarding
the requests.
Given the accelerated time frame of bankruptcy
proceedings and the facts before us, we conclude that the CSMI
Parties were given more than adequate time to prepare for the
expedited hearing. See Hester v. NCNB Nat’l Bank (In re
Hester), 899 F.2d 361, 364 n.3 (5th Cir. 1990) (―[M]otions for
material reductions in the notice period are routinely granted by
bankruptcy courts.‖). The Bankruptcy Court did not abuse its
discretion in hearing the Debtors‘ objection to the requests on an
expedited basis and the expedited hearing did not violate the
CSMI Parties‘ due process rights.
Preliminary Statements At Hearing On Motion to Expedite
The CSMI Parties argue that Judge Raslavich made
improper premature conclusions at the August 26, 2010, hearing
on the Debtors‘ motion to expedite. As the District Court noted,
judges often inform parties of their preliminary impressions to
19
narrow issues and assist the parties in focusing both themselves
and the court. See, e.g., Official Comm. of Asbestos Pers. Injury
Claimants v. Sealed Air Corp. (In re W.R. Grace & Co.), 285
B.R. 148, 158 (Bankr. D. Del. 2002) (giving preliminary views
as to the appointment of a Chapter 11 trustee before denying the
motion to appoint a trustee ―at this time‖). The CSMI Parties
elected to proceed, and Judge Raslavich held an evidentiary
hearing during which they had an opportunity to present their
full case. This included arguments regarding the Kinney Article
that they raised for the first time in response to the Debtors‘
objection, which was filed after the hearing on the motion to
expedite. Indeed, the CSMI Parties focused on the Kinney
Article during the August 30 hearing and their arguments
regarding the Kinney Article served as the primary basis of their
appeal to the District Court and to us. Thus Judge Raslavich‘s
comments at the August 26 hearing on the motion to expedite
served their purpose. In giving the CSMI Parties a preview of
what they needed to do to counteract his pre-hearing
impressions, which certainly were not irrevocable, he
encouraged the CSMI Parties to develop additional arguments.
Most counsel would prize such insights.
Moreover, at the end of the August 30 hearing, Judge
Raslavich articulated his reasoning for sustaining the Debtors‘
objection, specifically noting case law cited in the CSMI
Parties‘ written response to the Debtors‘ objection. With this
background, we can hardly conclude that his candid preliminary
comments at the August 26 hearing on the motion to expedite
prejudiced the CSMI Parties.
20
V. Administrative Expense Requests
Administrative Expense Claims Under the Bankruptcy Code
Section 503 of the Bankruptcy Code provides that,
―[a]fter notice and a hearing, there shall be allowed
administrative expenses, . . . including—(1)(A) the actual,
necessary costs and expenses of preserving the estate . . . .‖ 11
U.S.C. § 503(b). For a claim to be entitled to administrative
expense status, it must ―arise from a [post-petition] transaction
with the debtor-in-possession,‖ and ―be beneficial to the debtor-
in-possession in the operation of the business.‖ Calpine Corp.
v. O’Brien Envtl. Energy, Inc. (In re O’Brien Envtl. Energy,
Inc.), 181 F.3d 527, 53233 (3d Cir. 1999). The party asserting
an administrative expense claim bears the burden of
demonstrating that it deserves administrative expense status. Id.
at 533.
The Supreme Court has held that fairness may call for the
allowance of post-petition tort claims as administrative expenses
if those claims arise from actions related to the preservation of a
debtor‘s estate despite having no discernable benefit to the
estate. Reading Co. v. Brown, 391 U.S. 471, 477 (1968)
(deeming costs from fire damage resulting from the negligent
actions of the bankruptcy receiver acting in the scope of his
authority an ―actual and necessary‖ expense of reorganization).
Based on Reading, courts in our Circuit have granted requests
for administrative expense claims arising from a variety of tort
actions. See, e.g., In re B. Cohen & Sons Caterers, Inc., 143
B.R. 27 (E.D. Pa. 1992) (granting an administrative expense
claim for injuries resulting from a slip and fall while on the
debtor‘s premises); In re Hayes Lemmerz Int’l, Inc., 340 B.R.
461 (Bankr. D. Del. 2006) (granting an administrative expense
21
claim to the lessor of machines that the debtor-lessee returned
damaged where the damage occurred post-petition); In re
Women First Healthcare, Inc., 332 B.R. 115 (Bankr. D. Del.
2005) (granting the stalking horse bidder an administrative
expense claim as compensation for its reliance on the debtor‘s
negligent misrepresentations regarding the sale). Also based on
Reading, courts in other jurisdictions have denied administrative
expense requests where the alleged tort claims were speculative
or too strained to be considered related to the preservation of a
debtor‘s estate. See, e.g., In re Aspen Limousine Serv., Inc., 193
B.R. 325 (D. Colo. 1996) (holding that asserted antitrust
damages were too speculative as to their amount and unrelated
to the preservation of the debtor‘s estate); In re Pacesetter
Designs, Inc., 114 B.R. 731 (Bankr. D. Colo. 1990) (granting
administrative expense status to certain medical expenses
resulting from an injury to an employee of the debtor-in-
possession, but disallowing other expenses as ―too strained‖ and
―too disparate with the language and intent of the Bankruptcy
Code‖ to be considered costs of administration).
In Pa. Dep’t of Envtl. Res. v. Tri-State Clinical Labs.,
Inc., 178 F.3d 685 (3d Cir. 1999), we discussed Reading in the
context of whether a criminal fine for post-petition waste
management violations was an administrative expense under
Chapter 7. We observed that the Supreme Court‘s concept of
―necessary costs‖ as including expenses incident to the
preservation of a debtor‘s estate advances the language of
§ 503(b). ―[R]ead as a whole, [it] suggests a quid pro quo
pursuant to which the estate accrues a debt in exchange for some
consideration necessary to the operation or rehabilitation of the
estate.‖ Id. at 690–91. With this case law context, we turn to
the CSMI Parties‘ alleged tort, and whether it is eligible for
administrative expense status.
22
Alleged Tort
For the CSMI Parties to be entitled to administrative
expense claims, they must demonstrate that their allegations
regarding the ―republishing‖ of the Articles support a cause of
action. To state a cause of action for defamation under
Pennsylvania law, a plaintiff must establish: ―(1) the defamatory
character of the communication; (2) its publication by the
defendant; (3) a reference to the plaintiff; (4) a recipient‘s
understanding of the communication‘s defamatory character and
its application to plaintiff; (5) special harm resulting from the
publication; and (6) abuse of any conditional privilege.‖ Iafrate
v. Hadesty, 621 A.2d 1005, 1006 (Pa. Super. Ct. 1993) (quoting
Smith v. Wagner, 588 A.2d 1308, 1311 (Pa. Super. Ct. 1991)).
The statute of limitations for defamation claims is one year from
the date of publication. 42 Pa. Cons. Stat. § 5523. To avoid the
potential for endless re-triggering of the statute of limitations,
Pennsylvania has adopted the ―single publication rule,‖ which
holds that for purposes of the statute of limitations ―any one
edition of a book or newspaper, or any one radio, television
broadcast, exhibition of a motion picture or similar aggregate
communication is a single publication.‖ Graham v. Today’s
Spirit, 468 A.2d 454, 457 (Pa. 1983) (quoting Restatement
(Second) of Torts § 577(A)(3)); see also 42 Pa. Cons. Stat.
§ 341(b). Under this rule, ―it is the original printing of the
defamatory material and not the circulation of it which results in
a cause of action.‖ Graham, 468 A.2d at 457.
Pennsylvania courts have not considered whether the
single publication rule applies to Internet publication. Other
courts addressing Internet-based defamation have found the rule
applicable to information widely available on the Internet.
Noting that ―[c]oncerns regarding the rapid pace of changes in
the way information is disseminated, the desire to avoid
23
multiplicity of suits and the need to give effect to relevant
Statutes of Limitation . . . gave rise to the single publication
rule,‖ those courts reason that there is ―no rational basis upon
which to distinguish publication of a book or report through
traditional printed media and publication through electronic
means . . . .‖ Firth v. State, 706 N.Y.S.2d 835, 843 (N.Y. Ct. Cl.
2000), aff’d 775 N.E.2d 463 (N.Y. Ct. App. 2002); see also
Nationwide Bi-Weekly Admin., Inc. v. Belo Corp., 512 F.3d 137,
144 (5th Cir. 2007) (―Every court to consider the issue after
Firth has followed suit in holding that the single publication rule
applies to information widely available on the Internet.‖); Oja v.
U.S. Army Corps of Eng’rs, 440 F.3d 1122, 1131 (9th Cir.
2006). We believe that Pennsylvania courts would extend the
single publication rule to publicly accessible material on the
Internet based on similar reasoning.
An exception to the single publication rule is the doctrine
of republication. Republishing material (for example, the
second edition of a book), editing and reissuing material, or
placing it in a new form that includes the allegedly defamatory
material, resets the statute of limitations. Restatement (Second)
of Torts § 577(A); Davis v. Mitan (In re Davis), 347 B.R. 607,
611 (W.D. Ky. 2006). Traditional principles of republication
thus require the retransmission of the allegedly defamatory
material itself for the doctrine to apply. However, courts
addressing the doctrine in the context of Internet publications
generally distinguish between linking, adding unrelated content,
or making technical changes to an already published website
(which they hold is not republication), and adding substantive
material related to the allegedly defamatory material to an
already published website (which they hold is republication).
See Davis, 347 B.R. at 611–12.
24
Several courts specifically have considered whether
linking to previously published material is republication. To
date, they all hold that it is not based on a determination that a
link is akin to the release of an additional copy of the same
edition of a publication because it does not alter the substance of
the original publication. See, e.g., Sundance Image Tech., Inc. v.
Cone Editions Press, Ltd., No. 02-02258, 2007 WL 935703(S.D. Cal. Mar. 7, 2007); Churchill v. State of N.J., 876 A.2d
311 (N.J. Super. Ct. 2005).
Moreover, in a case with facts similar to this appeal, the
Court held that a link and reference to an allegedly defamatory
article did not amount to a republication of the article. In Salyer
v. Southern Poverty Law Center, Inc., 701 F. Supp. 2d 912(W.D. Ky. 2009) (Heyburn II, J.), the defendant posted an
allegedly defamatory article to his website. Between the time of
the initial posting and the defendant‘s removal of the article
from the website, the defendant linked to the article while
referencing it several times in other articles posted on the
website. None of the references mentioned the plaintiff by name
or restated the allegedly defamatory comments. The Court
analyzed the link and reference separately, holding that neither
amounted to republication. As to the link, it cautioned that ―to
find that a new link to an unchanged article posted long ago on a
website republishes that article would result in a continual
retriggering of the limitations period,‖ and thus held that a link
―is simply a new means for accessing the referenced article,‖ not
a republication. Id. at 916–18. As to the reference, it noted that
―[w]hile [a reference] may call the existence of the article to the
attention of a new audience, it does not present the defamatory
contents of the article to the audience. Therefore, a reference,
without more, is not properly a republication.‖ Id. at 916(emphases in original).
25
We agree with the distinction in these cases. The single
publication rule advances the statute of limitations‘ policy of
ensuring that defamation suits are brought within a specific time
after the initial publication. Websites are constantly linked and
updated. If each link or technical change were an act of
republication, the statute of limitations would be retriggered
endlessly and its effectiveness essentially eliminated. A
publisher would remain subject to suit for statements made
many years prior, and ultimately could be sued repeatedly for a
single tortious act the prohibition of which was the genesis of
the single publication rule. See Graham, 468 A.2d at 458.
Additionally, under traditional principles of republication, a
mere reference to an article, regardless how favorable it is as
long as it does not restate the defamatory material, does not
republish the material. See Salyer, 701 F. Supp. 2d at 916.
These traditional principles are as applicable to Internet
publication as traditional publication, if not more so. Publishing
a favorable reference with a link on the Internet is significantly
easier. Taken together, though a link and reference may bring
readers‘ attention to the existence of an article, they do not
republish the article.
Though the Kinney Article‘s link may allow for easy
access to the Charter Page, and the reference may speak
favorably of the items collected by the Charter Page, including
the Articles regarding the CSMI Parties, here they do not
amount to the restatement or alteration of the allegedly
defamatory material in the Articles necessary for a republication.
The Bankruptcy and District Courts were correct in sustaining
the Debtors‘ objection to the administrative expense requests on
the basis that the CSMI Parties cannot advance a sustainable
cause of action to support the requests. Though the publication
of the Kinney Article occurred during the post-petition operation
of the Debtors‘ newspaper, the claim is so speculative that we
26
can discern no benefit conferred on the Debtors‘ estates even
under Reading‘s view of what is a ―necessary‖ expense.
* * * * *
For the reasons stated above, we affirm the District
Court‘s judgment, but hold that the appeal is not equitably moot.
27