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Allegheny Intern., Inc. v. Allegheny Ludlum Steel Corp.

filed: November 29, 1990; As Corrected January 4, 1991.


On Appeal From the United States District Court for the Western District of Pennsylvania; D.C. Civil No. 90-00253.

Sloviter, Becker and Rosenn, Circuit Judges.

Author: Becker

BECKER, Circuit Judge


These consolidated appeals raise a number of interesting questions of bankruptcy procedure, centering on whether a defendant in an adversary action commenced in bankruptcy court has a seventh amendment right to a jury trial. Before reaching these questions, however, we must determine our jurisdiction. In particular, we must address: (1) whether we have jurisdiction, pursuant to 28 U.S.C. § 1291, over defendant's appeal of the district court's order denying its motion for withdrawal of reference of the adversary action; and (2) whether we have jurisdiction, pursuant to 28 U.S.C. § 158(d), over defendant's appeal of the district court's order dismissing for lack of jurisdiction defendant's appeal of the bankruptcy court's refusal to transfer the adversary action to the district court. Both attempts to get the case before the district court were initiated by defendant in an effort to secure a jury trial, which, defendant apparently assumed, could only be conducted in the district court. We must consider, additionally, whether, given the fundamental nature of the constitutional right at stake, we should consider this case on mandamus pursuant to 28 U.S.C. § 1651. See Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962), 8 L. Ed. 2d 44, 82 S. Ct. 894 (jury trial right protectible by mandamus).

For a number of reasons, most notably the pendency in the bankruptcy court of a motion by defendant for judgment on the pleadings, we conclude that we are without jurisdiction to hear defendant's appeals, notwithstanding the "flexible" finality jurisprudence applicable to bankruptcy appeals, see In re Pruitt, 910 F.2d 1160 (3d Cir. 1990) (§ 1291); Wheeling-Pittsburgh Steel Corp. v. McCune, 836 F.2d 153 (3d Cir. 1987) (§ 158(d)). If granted by the bankruptcy court, defendant's motion for judgment on the pleadings would dispose of the debtor's adversary action as a matter of law, would obviate the need for a jury trial, and would render moot defendant's instant appeals. In light of this possibility, we decline to issue what would be, in effect, an advisory opinion concerning defendant's entitlement to a jury trial under the seventh amendment. For the same reason, we also decline to exercise mandamus jurisdiction under § 1651, even though defendant's appeals raise a seventh amendment issue. Defendant's appeals accordingly will be dismissed.


Between mid-1979 and December 26, 1980, Allegheny Ludlum Steel Corporation ("ALSC"), a steel products manufacturing company and the predecessor-in-interest of defendant Allegheny Ludlum Corporation ("Ludlum"), was a wholly-owned subsidiary of plaintiff/debtor Allegheny International, Incorporated ("AI"). In 1980, AI sold to a management group, incorporated as LSC Corporation, all of the outstanding capital stock in ALSC. After the sale, LSC Corporation was merged into ALSC, which subsequently became defendant Ludlum. The principal document which effected this transaction was an agreement dated November 26, 1980 ("the November 1980 Agreement").

Before consummating the sale, the parties recognized that certain tax refunds would be payable to Ludlum, even though the refunds resulted from tax attributes of AI prior to the sale. Ludlum therefore agreed in § 12(d) of the November 1980 Agreement that it would reimburse AI if it received such tax refunds. The parties similarly anticipated that Ludlum might incur tax liabilities after the closing date as a result of transactions occurring before the sale. AI accordingly agreed in § 12(e) of the November 1980 Agreement that it would reimburse Ludlum if Ludlum incurred such tax liabilities. Later, because Ludlum did not have an operational risk management program in place at the time of the sale, AI also agreed in a letter agreement dated August 10, 1981 ("the Letter Agreement") that it would continue to provide insurance coverage for Ludlum until Ludlum obtained its own insurance. The Letter Agreement required Ludlum to reimburse AI for all expenses incurred in providing such interim insurance coverage.

On February 20, 1988, AI filed a voluntary petition for reorganization under Chapter 11 in the bankruptcy court for the Western District of Pennsylvania. On May 27, 1988, Ludlum initiated proceedings against AI in bankruptcy court by filing a proof of claim. This claim involved only one liquidated matter -- a $51,994 tax claim. Ludlum asserted that: (1) in October of 1984, it paid AI $51,994 for the use, with respect to its 1983 tax year, of certain investment tax credits relating to Oklahoma Tubular Products Company, a former affiliate of AI ("the 1983 Oklahoma Tubular Claim"); and (2) subsequent to Ludlum's payment of the $51,994, the Internal Revenue Service ("IRS") disallowed Ludlum's use of these tax credits. Ludlum therefore contended that it was entitled to reimbursement from AI of the $51,994.

In completing the proof of claim form, Ludlum identified as potential setoffs or counterclaims "possible recoupment claims in respect of tax benefits pursuant to Section 12(d) of the [November 1980] Agreement." Ludlum, as a precautionary matter, also listed all "claims for reimbursement of tax detriments pursuant to § 12(e) of the [November 1980] Agreement." Both parties agree, however, that Ludlum's proof of claim contained only one liquidated item -- the 1983 Oklahoma Tubular Claim.

The parties eventually entered into a stipulation for partial allowance of Ludlum's proof of claim. Under the stipulation, Ludlum was to receive a $51,994 unsecured claim against AI's estate. Moreover, if Ludlum ultimately received a distribution less than $51,994, the stipulation entitled it to setoff the deficiency against any amount due AI under § 12(d) of the November 1980 Agreement. Likewise, if Ludlum prevailed in its dispute with the IRS concerning the 1983 Oklahoma Tubular Claim after already receiving a distribution on its claim, the stipulation provided that Ludlum must reimburse to AI any amount received in excess of $51,994. The bankruptcy court entered an order approving the stipulation on February 23, 1989.

In September of 1989, approximately seven months after the parties entered into the stipulation and before Ludlum received a distribution on its claim, the IRS reversed its prior disallowance of Ludlum's use of the 1983 Oklahoma Tubular Claim. This reversal, Ludlum points out, enabled it to realize the full value of the 1983 Oklahoma Tubular Claim, and, it submits, thereby mooted its proof of claim and rendered unnecessary its continued participation in AI's bankruptcy.*fn1

On November 28, 1989, AI filed an adversary proceeding against Ludlum in bankruptcy court alleging breach of contract. AI claimed, in particular, that Ludlum was liable under § 12(d) of the November 1980 Agreement for a $2,483,067 tax refund allegedly received by Ludlum in 1989 with respect to its 1981 tax year. AI also averred that under the terms of the Letter Agreement, Ludlum was required to ...

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