762 F.

2d 1283
54 USLW 2001, 12 Collier Bankr.Cas.2d 1381,
Bankr. L. Rep. P 70,592

FUEL OIL SUPPLY AND TERMINALING, Plaintiff,

The Official Creditors Committee of Fuel Oil Supply and
Terminaling, Movants-Appellants,
v.
GULF OIL CORPORATION, Defendant-Appellee,
Banque De Paris Et Des Pays-Bas, et al., Third-Party
Defendants-Appellees.
No. 84-2464.

United States Court of Appeals,

Fifth Circuit.
June 17, 1985.

Lackshin & Nathan, Michael S. Holmes, Herbert N. Lackshin, Houston,

Tex., for movants-appellants.
Nancy Atlas, Houston, Tex., for Fuel Oil.
Bruce A. Atkins, Dotson, Babcock & Scofield, William M. Schultz, James
C. Kean, Houston, Tex., for Gulf Oil.
Schlanger, Cook, Cohn, Mills & Grossberg, C. Henry Kollenberg,
Houston, Tex., for Banque De Paris.
Baker & Botts, Robert E. Goodman, Jr., Houston, Tex., for Lockwood.
Appeal from the United States District Court for the Southern District of
Texas.
Before GEE, POLITZ, and WILLIAMS, Circuit Judges.
GEE, Circuit Judge:

This case requires us to determine whether a creditors committee has an

absolute statutory right to intervene in a bankruptcy adversary proceeding.* We
hold that the committee has no such statutory right, but we remand the case to
the district court to determine whether another basis may exist for the
committee to intervene.

I.
2

The facts of this case are simple and undisputed. The Official Creditors
Committee of Fuel Oil Supply & Terminaling, Inc. (the "Creditors Committee")
initiated a bankruptcy adversary proceeding to set aside a preferential transfer.
The bankruptcy court dismissed this suit for lack of standing. The Creditors
Committee then filed a motion under Rule 24(a), Fed.R.Civ.P., to intervene as
of right in another adversary proceeding to attempt to set aside a claimed
preferential transfer. Gulf Oil Corp. (Gulf) filed an objection to this motion.
The district court denied the motion without a hearing and filed no findings of
fact or conclusions of law with respect to its ruling. This appeal followed.

II.
3

On appeal the Creditors Committee contends that Sec. 1109(b) of the

Bankruptcy Reform Act of 1978 (the "Bankruptcy Code"), 11 U.S.C. Sec.
1109(b), is "a statute confer[ring] an unconditional right to intervene" within
the meaning of rule 24(a)(1), Fed.R.Civ.P.1 Section 1109(b) provides: "A party
in interest, including the debtor, the trustee, a creditors' committee, an equity
security holders' committee, a creditor, an equity security holder, or any
indenture trustee, may raise and may appear and be heard on any issue in a case
under this chapter." The Creditors Committee contends that Congress intended
"case" as used in Sec. 1109(b) to be an all-encompassing term, allowing a party
in interest to intervene in any proceeding related to a case in bankruptcy.2 Gulf
argues that Congress did intend to create a distinction for Sec. 1109(b)
purposes between a "case" and proceedings ancillary to a case, and that Sec.
1109(b) therefore does not grant the Creditors Committee an absolute statutory
right to intervene in an adversary proceeding.

The issue whether Sec. 1109(b) provides parties in interest with an absolute
right to intervene in bankruptcy adversary proceedings is one of first impression
in this Court, and only a few other courts have dealt with this issue. The Third
Circuit, in In re Marin Motor Oil, Inc., 689 F.2d 445, 449-57 (3d Cir.1982),
cert. denied, 459 U.S. 1206, 103 S.Ct. 1196, 75 L.Ed.2d 440 (1983), held that
Sec. 1109(b) creates an absolute right to intervene in adversary proceedings.
Several lower court decisions are in line with the Third Circuit's holding. E.g.,

In re Parrot Packing Co., 42 B.R. 323 (N.D.Ind.1983), In re Penn-Dixie

Industries, Inc., 9 B.R. 936 (S.D.N.Y.1981); In re Overmyer, 30 B.R. 123
(Bankr.S.D.N.Y.1983); In re D.H. Overmyer Telecasting Co., 18 B.R. 107
(Bankr.N.D.Ohio 1982); In re Sapolin Paints, Inc., 6 B.R. 582
(Bankr.E.D.N.Y.1980). On the other hand, In re George Rodman, Inc., 33 B.R.
348 (Bankr.W.D.Okla.1983), held that Sec. 1109(b) does not provide a party in
interest with an absolute right to intervene in adversary proceedings. We must
decide which of these interpretations to adopt as the law of this Circuit.
5

A. At first blush, prior bankruptcy practice and the legislative history of Sec.
1109(b) appear to support the view of the Third Circuit that Sec. 1109(b)
requires a bankruptcy court automatically to allow a party in interest to
intervene in adversary proceedings. Section 1109(b) is derived from Chapter X,
Rule 10-210(a) of the former bankruptcy code.3 This rule, in turn, was based on
Sec. 206 of the former code. As a leading bankruptcy treatise notes, the scope
of the rights created by Sec. 206 and Rule 10-210(a) was broadly construed.

6 standing conferred by Section 206 of the Bankruptcy Act and Chapter X Rule
The
10-210(a)(1) was absolute and unlimited, and gave the debtor, creditors,
stockholders and indenture trustees the same rights as if they were successful
intervenors in the case, but without the necessity of a formal order of intervention.
Those within the specified categories who sought to participate in the
reorganization, therefore, were by statute parties to the case.
7

5 Collier on Bankruptcy p 1109.02 at 1109-19 to -20 (15th ed. 1984).

As the legislative history of Sec. 1109(b) makes clear, Congress intended Sec.
1109(b) to carry forward to the current Bankruptcy Code the broad rights to
appear and be heard granted to interested parties under the former bankruptcy
code. See S.Rep. No. 95-989, 95th Cong., 2d Sess. 116, reprinted in 1978
U.S.Code Cong. & Ad.News 5787, 5902 (noting that Sec. 1109(b) provides a
creditor "in unqualified terms ... [with] the right to be heard as a party in
interest...."). See also 5 Collier on Bankruptcy p 1109.02 at 1109-23 (Sec.
1109(b)'s designated "parties in interest" presumably do not have to intervene
formally in a Chapter 11 case). Furthermore, as the Marin court pointed out, the
Bankruptcy Code makes no distinction between "case" and "adversary
proceeding" for intervention purposes. Based on the Bankruptcy Code alone,
therefore, the argument that Sec. 1109(b) creates an absolute right to intervene
in adversary proceedings appears strong.

B. This argument loses much of its force, however, when Sec. 1109(b) is
juxtaposed with the procedural rules governing intervention, Rule 24,

Fed.R.Civ.P., and Bankruptcy Rule (BR) 7024.4 First, Rule 24(a)(1), which
states that a person may intervene if "a statute of the United States confers an
unconditional right" to do so, has been narrowly construed; courts have been
hesitant to find unconditional statutory rights of intervention. C. Wright & A.
Miller, Federal Practice and Procedure, Civil Sec. 1906 (1972 & Supp.1984);
see, e.g., United States v. Allegheny-Ludlum Industries, Inc., 517 F.2d 826,
842-43 (5th Cir.1975) (because EEOC and Secretary of Labor brought action to
compel compliance with Title VII under "pattern or practice" section of Title
VII and not under section containing procedures for filing lawsuits, private
parties had no unconditional statutory right to intervene), cert. denied, 425 U.S.
944, 96 S.Ct. 1684, 48 L.Ed.2d 187 (1976). The statutes that do confer an
absolute right to intervene generally confer that right upon the United States or
a federal regulatory commission; private parties are rarely given an
unconditional statutory right to intervene. Wright & Miller, supra, Civil Sec.
1906. Section 1109(b) is not the type of statute generally considered to provide
an absolute right to intervene. 5
10

Second, an examination of the Code of Judiciary and Judicial Procedure (Title

28, United States Code) and of the Bankruptcy Rules reveals that Congress in
many instances has drawn distinctions between bankruptcy "cases" and the
proceedings related to them. Examples of the distinctions drawn under Title 28
include separate provisions dealing with jurisdiction, 28 U.S.C. Sec. 1471(a)
and (b); abstention, 28 U.S.C. Sec. 1471(d) and 11 U.S.C. Sec. 305; venue, 28
U.S.C. Sec. 1472 and Sec. 1473; and jury trials, 28 U.S.C. Sec. 1480(a). See In
re George Rodman, Inc., 33 B.R. 348, 349 (Bankr.W.D.Okla.1983).
Furthermore, the Advisory Committee Note to BR 7024 discusses bankruptcy
intervention, stating:

11person may seek to intervene in the case under the Code or in an adversary
A
proceeding relating to the case under the Code. Intervention in a case under the
Code is governed by Rule 2018 and intervention in an adversary proceeding is
governed by this rule. Intervention in a case and intervention in an adversary
proceeding must be sought separately.
12

The last sentence quoted makes no sense if intervention in the "case" provided
entrance to the adversary proceeding as well. Because of the limited scope of
Rule 24(a)(1) and the distinctions Congress has drawn between bankruptcy
"cases" and related "proceedings," therefore, we conclude that Congress did not
create an absolute statutory right to intervene in bankruptcy adversary
proceedings through Sec. 1109(b).

13

C. Our conclusion with respect to this legislative intent in no way restricts the

broad, legitimate right to appear and be heard that Sec. 1109(b) grants to parties
in interest. These parties in interest, including the Creditors Committee in this
case, may still intervene as of right under Rule 24(a)(2), Fed.R.Civ.P. Under
this rule, a person may intervene as of right when the person "claims an interest
in the property or transaction which is the subject of the action," and the person
is "so situated that the disposition of the action may as a practical matter impair
or impede his ability to protect that interest." Intervention is not permitted,
however, if the applicant's interest is "adequately represented by existing
parties." See supra note 1. Of course, permissive intervention under Rule 24(b)
is likewise a possibility.
14

We are convinced that Congress must have intended courts to apply Rule 24(a)
(2) rather than Rule 24(a)(1) to applications to intervene in bankruptcy
adversary proceedings under Sec. 1109(b). This approach allows any party in
interest with a stake in the outcome of an adversary proceeding to intervene in
that proceeding as of right. This broad right to intervene is consistent with the
expansive right to be heard created by Sec. 1109(b). At the same time,
however, the bankruptcy court is permitted to control the proceeding by
restricting intervention to those persons whose interests in the outcome of the
proceeding are not already adequately represented by existing parties. Thus, for
example, individual creditors whose interests in a particular adversary
proceeding are adequately represented by a creditors' committee would not be
permitted to intervene under Sec. 1109(b) in the adversary proceeding; on the
other reading, both the committee and each individual creditor--perhaps
hundreds of them--would be automatic parties to every adversary proceeding
connected with the case.

15

We find support for our interpretation of Sec. 1109(b) and the relevant
procedural rules in several bankruptcy cases dealing with a creditors'
committee's right to initiate adversary proceedings. These cases have held that
Sec. 1109(b) permits a creditors' committee to initiate adversary proceedings,
but only if the bankruptcy trustee or debtor-in-possession has failed to act to
protect the creditors' interests. In re Jermoo's, Inc., 38 B.R. 197, 199-200
(Bankr.W.D.Wis.1984); In re Toledo Equipment Co., 35 B.R. 315, 319
(Bankr.N.D.Ohio 1983); In re Chemical Separations Corp., 32 B.R. 816, 81819 (Bankr.E.D.Tenn.1983); In re Joyanna Holitogs, Inc., 21 B.R. 323, 325-26
(Bankr.S.D.N.Y.1982). See also In re Wesco Products Co., 22 B.R. 107, 109110 (Bankr.N.D.Ill.1982) (court dismissed creditors' committee's adversary
complaint when, four months after the complaint was filed, the debtor-inpossession filed a substantially identical complaint). Because these cases did
not deal with intervention, Rule 24 did not apply. In determining the creditors'
committees' rights to initiate adversary proceedings, however, the courts used

precisely the analysis suggested by the terms of Rule 24(a)(2). We think that
their approach in those cases was correct and that the Rule 24(a)(2) analysis
should be used in determining a party in interest's right to intervene as well.
16

Applying our conclusion with respect to Sec. 1109(b) to the facts of the instant
case, we hold that the district court correctly ruled that the Creditors
Committee has no absolute statutory right to intervene. Because the court made
no findings of fact or conclusions of law, however, we cannot determine
whether the Creditors Committee may intervene as of right under Rule 24(a)(2)
or by permission under Rule 24(b). We must therefore remand this case to the
district court for further proceedings consistent with this opinion.

17

REVERSED and REMANDED.

In accordance with Court policy, this opinion, being one which initiates a
conflict with the rule declared in another circuit, was circulated before release
to the entire Court, and rehearing en banc was not voted by a majority of the
judges in active service

Rule 24(a) provides:

Upon timely application anyone shall be permitted to intervene in an action: (1)
when a statute of the United States confers an unconditional right to intervene;
or (2) when the applicant claims an interest relating to the property or
transaction which is the subject of the action and he is so situated that the
disposition of the action may as a practical matter impair or impede his ability
to protect that interest, unless the applicant's interest is adequately represented
by existing parties.

The Bankruptcy Code does not explicitly define "case," but uses the term in a
general sense to refer to matters brought under the Code, both those initiated by
the debtor ("voluntary") and those initiated by others ("involuntary").
Bankruptcy Rule 7001 defines "adversary proceeding" as a
proceeding in a bankruptcy court (1) to recover money or property, except a
proceeding under Sec. 554(b) or Sec. 725 of the Code, Rule 2017, or Rule
6002, (2) to determine the validity, priority, or extent of a lien or other interest
in property, other than a proceeding under Rule 4003(d), (3) to obtain approval
pursuant to Sec. 363(h) for the sale of both the interest of the estate and of a coowner in property, (4) to object to or revoke a discharge, (5) to revoke an order
of confirmation of a chapter 11 or chapter 13 plan, (6) to determine the

dischargeability of a debt, (7) to obtain an injunction or other equitable relief,

(8) to subordinate any allowed claim or interest, except when subordination is
provided in a chapter 9, 11, or 13 plan, (9) to obtain a declaratory judgment
relating to any of the foregoing, or (10) to determine a claim or cause of action
removed to a bankruptcy court.
3

Rule 10-210(a) provided in pertinent part: "The debtor, the indenture trustees
and any creditor or stockholder of the debtor shall have the right to be heard on
all matters arising in a Chapter X case."

BR 7024 simply states that Rule 24 applies in adversary proceedings. For the
text of Rule 24(a), see supra note 1

Examples of statutes that courts have held to confer an unconditional right to

intervene under Rule 24(a)(1) include 28 U.S.C. Sec. 2403 (granting United
States right to intervene in any proceeding in federal court in which the
constitutionality of an Act of Congress affecting the public interest is in
question and granting states right to intervene in actions challenging the
constitutionality of state statutes); 42 U.S.C. Sec. 2000h-2 (granting United
States right to intervene in actions seeking relief from denial of equal protection
on account of race, color, religion, or national origin); and 28 U.S.C. Sec. 2323
(granting Interstate Commerce Commission right to intervene in an action
involving validity of an ICC order or requirement). See Wright & Miller, supra,
Civil Sec. 1906