IN RE: G-IHOLDINGS, INC. f/k/a/ GAF CORPORATION v. G-IHOLDINGS, INC. f/k/a GAF CORPORATION

PRECEDENTIAL
UNITED STATES COURT OF
APPEALS
FOR THE THIRD CIRCUIT
____________
03-3188
____________
IN RE: G-I HOLDINGS, INC.
f/k/a/ GAF CORPORATION,
Debtor
THE OFFICIAL COMMITTEE
OF ASBESTOS CLAIMANTS,
Appellant
v.
G-I HOLDINGS, INC.
f/k/a GAF CORPORATION;
ASBESTOS DEMAND HOLDERS;
UNITED STATES DEPARTMENT
OF JUSTICE; UNITED STATES
DEPARTMENT OF TRUSTEE;
BANK OF NEW YORK
____________________
ON APPEAL FROM THE UNITED
STATES DISTRICT COURT
FOR THE DISTRICT OF NEW
JERSEY
____________________
(D.C. Civ. No. 03-cv-00842)
District Judge: The Honorable William
G. Bassler
Argued: June 15, 2004
Before: ALITO, SMITH, and BECKER
Circuit Judges
(Filed: September 24, 2004)
Elihu Inselbuch (Argued)
Caplin & Drysdale, Chtd.
399 Park Avenue, 27th Floor
New York, NY 10022
Peter Van N. Lockwood
Trevor W. Swett
Albert G. Lauber
Caplin & Drysdale, Chtd.
One Thomas Circle, N.W.
Washington, D.C. 20005
Counsel for Appellant
Martin J. Bienenstock (Argued)
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Dennis J. O'Grady
Riker, Danzig, Scherer, Hyland
& Perretti LLP
Headquarters Plaza
One Speedwell Avenue
Morristown, NJ 07962
Counsel for Appellee
____________________
OPINION
____________________
ALITO, Circuit Judge:
This is an appeal by the Official
Committee of Asbestos Claimants (“the
Committee”) from a District Court order

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that affirmed a Bankruptcy Court order
denying the Committee*s motion for the
appointment of a chapter 11 trustee. The
Committee contends that the District Court
and the Bankruptcy Court misapplied our
decision in In re Marvel Entertainment
Group Inc., 140 F.3d 463 (3d Cir. 1998)
(“Marvel”). The Committee does not
dispute the proposition that, under our
cases, the party seeking the appointment of
a trustee generally bears the burden of
persuasion by clear and convincing
evidence, but the Committee contends that
what Marvel described as the strong
presumption in favor of a debtor’s current
management is inapplicable under the facts
of this case and that the Committee’s
burden of persuasion was therefore
reduced to proof by a preponderance of the
evidence. Accordingly, the Committee
argues, the Bankruptcy Court and the
District Court erred in applying the clear
and convincing standard, and the
Committee asks us to reverse and remand
with instructions to reconsider the
evidence under the preponderance
standard. Because we see no support for
the proposition that the burden of
persuasion in a case of this nature is ever
reduced from clear and convincing
evidence to a preponderance of the
evidence, we reject the Committee’s
argument and affirm the decision of the
District Court.
I.
In January 2001, G-I Holdings, Inc.
(“G-I”) filed a voluntary petition for
reorganization under Chapter 11 of the
Bankruptcy Code, 11 U.S.C. §§ 101 et seq.
G-I now operates as debtor-in-possession
under 11 U.S.C. §§ 1107(a) and 1108.
G-I, a holding company that is beneficially
owned by Samuel Heyman, succeeded to
the liabilities of GAF Corporation and the
Ruberoid Company. Beginning in the
1970s, GAF, Ruberoid, and other former
producers of asbestos products faced mass
tort litigation throughout the United States
regarding asbestos-related injuries. Before
filing for chapter 11 reorganization, G-I
had inherited responsibility for some
150,000 pending asbestos suits. In January
2001, pursuant to 11 U.S.C. § 1102(a), the
United States Trustee appointed the
Committee to represent persons asserting
asbestos tort claims against G-I. In
November 2002, the Committee filed a
motion for the appointment of a chapter 11
trustee. The parties produced and the
Bankruptcy Judge reviewed more than 250
exhibits relating to the motion, and the
Bankruptcy Judge then held a hearing. In
support of its motion, the Committee
advanced two arguments, only one of
which is now relevant.1 The argument
1The first argument – that the
appointment of a trustee was necessary
because a panel decision of our Court, see
In re Cybergenics Corp., 304 F.3d 316,
332 (3d Cir. 2002) (“Cybergenics II”),
rehearing en banc granted and opinion
vacated by Official Committee of
Unsecured Creditors of Cybergenics Corp.
v. Chinery, 310 F.3d 785 (3d Cir. 2002),
precluded the Committee from suing to
recover property on behalf of a bankruptcy

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implicated in this appeal was that
excessive conflict between G-I and the
asbestos claimants warranted appointment
of a trustee under both 11 U.S.C. §
1104(a )(1), w hich au thorizes the
appointment of a trustee “for cause,” and
11 U.S.C. § 1104(a)(2), which authorizes
the appointment of an outside trustee when
the appointment is “in the interests of
creditors.” In simple terms, it is the
Committee’s position that G-I's current
management is subordinating the interests
of asbestos claimants to those of Heyman
and favored creditors. Among other
things, the Committee complains that
current management refused to bring
fraudulent conveyance actions against
Heyman and others, joined with a
subsidiary in litigation designed to shield
the former assets of GAF’s building and
roofing products business from asbestos
claimants, and lavishly funded a lawsuit
charging three law firms that represent
asbestos claimants with racketeering,
fraud, and other torts. G-I, in turn, insists
that Heyman revived a troubled business
and that current management is simply
attempting to defend itself against largely
spurious asbestos claims.
After the hearing, the Bankruptcy
Court denied the Committee’s motion.
The Court noted that the party seeking
appointment of a trustee must prove the
need for the appointment by clear and
convincing evidence and that there is a
strong presumption” against appointing a
trustee. JA30. The Court recognized that
the appointment of a trustee may be called
for when there is extreme acrimony
between a debtor in possession and
creditors, but the Court found it
“app ropria te to apply the usual
presumption” in this case both because
“management of G-I ha[d] been in place
for years and [was] familiar with the
company’s operations” and because there
was insufficient evidence to show that
appointment of a trustee would be helpful.
JA30. “[T]he evidence presented by the
Committee,” the Bankruptcy Court
concluded, did not meet the clear and
convincing standard. Id. at 31. While
acknowledging that there was some
“strident disagreement and litigation on
critical aspects of this case,” the Court
noted that the debtor in possession had
“shown at least a degree of willingness to
cooperate with the Committee” by
obtaining tolling agreements from Heyman
and other targets of avoidance actions. Id.
at 32. Apparently referring to G-I’s
lawsuit against the law firms and the
Committee’s fraudulent conveyance action
against Heyman, both of which were
pending in the Southern District of New
York, the Bankruptcy Court also pointed
out that critical disputed issues, such as the
legitimacy of corporate restructurings and
the litigation against the plaintiffs’
asbestos firm, “would be tested and
ultimately resolved in other proceedings.”
Id. at 33. The Committee then took an
appeal to the District Court. The
Committee argued that “the usual
presumption in favor of current
estate – is not implicated in this appeal.

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management” is inapplicable in this case
for three reasons: “(1) G-I is a holding
company – a mere shell that operates no
‘business’ at all – and hence its existing
managers’ familiarity with the business is
irrelevant to the decision of whether or not
to appoint a trustee . . .; (2) because a
trustee would simply need to manage
asbestos claims, the trustee would not need
to incur the usual substantial costs
associated with learning how to manage an
active service company . . .; and (3) G-I
has shown no presumptive ability to
discharge its fiduciary duties to creditors
given its actions and the ‘structural
problem’ of Heyman’s control as the
dominant shareholder.” Dist Ct. Op. at 13,
JA18. Because the usual presumption was
inapplicable, the Committee argued, the
Bankruptcy Judge’s “‘reliance upon that
presumption as the basis for [her] ruling
was an abuse of discretion per se . . .,’”
and “the Committee only had to show that
a trustee was ‘w ar ra nted by a
preponderance of the evidence,’ rather
than by clear and convincing evidence.”
Dist. Ct. Op. at 12, JA17 (quoting
Committee’s Dist. Ct. Reply Br. at 5, 21).
The District Court affirmed the
order of the Bankruptcy Court and issued
a detailed opinion explaining the basis for
its decision. The District Court held that
the Bankruptcy Judge “did not abuse her
discretion in finding that the Committee
had failed to produce clear and convincing
evidence of the need for a trustee under
either subsection of 1104(a)” and that
“[t]he Committee ha[d] not proved the
need for a trustee by the same type of clear
and convincing evidence presented in
cases in which bankruptcy trustees had
been appointed. Dist Ct. Op. at 18, JA 23.
The District Court wrote:
[The Bankruptcy Judge]
clearly is not convinced that
Heyman is fraudulently
attempting to avoid asbestos
liability or that his control of
G-1 renders G-1 unfit to
serve as fiduciary for the
estate. She correctly notes
that the parties will have the
opportunity to test and
ultimately resolve such
allegations in the other
proceedings.
Dist. Ct. Op. at 17, JA 22. The
District Court also observed that “neither
Marvel nor any other case cited by the
parties suggests that if a court deems the
presumption in favor of current
management inapplicable, the movant
need no longer present clear and
convincing evidence that a trustee is
necessary.”
Dist. Ct. Op. at 15, JA 20. In the
present appeal, the Committee could have
argued that the evidence before the
Bankruptcy Court proved by clear and
convincing evidence that the standard for
the appointment of a trustee was met and
that the Bankruptcy Court erred in finding
otherwise. But the Committee has elected
not to advance this factual argument.
Instead, the Committee argues that the
Bankruptcy Court and the District Court

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committed two errors of law. First, the
Committee contends that “the ususal
presumption in favor of existin g
management” should not have been
applied in this case because G-I's
“managers have no significant experience
operating the debtor’s business . . . and
cannot be relied upon to discharge
faithfully their fiduciary obligations to the
estate and its creditors.” Appellant’s Br. at
20. Second, the Committee maintains that,
with the presumption in favor of current
management out of the way, “[t]he
standard of proof to which the committee
should have been held was the normal
‘preponderance of the evidence’ standard.”
Id. at 20.
II.
Section 1104(a) of the Bankruptcy Code,
11 U.S.C. § 1104(a), authorizes the
appointment of a trustee in a chapter 11
case in two circumstances. Section
1104(a) states:
(a) At any time after the
commencement of the case
but before confirmation of a
plan, on request of a party in
interest or the United States
trustee, and after notice and
a hearing, the court shall
order the appointment of a
trustee-
(1) for cause, including
f r a u d , d i s h o n e s t y ,
incompetence, or gross
mismanagement of the
affairs of the debtor by
current management, either
b e f o r e o r a f t e r t h e
commencement of the case,
or similar cause, but not
including the number of
holders of securities of the
debtor or the amount of
assets or liabilities of the
debtor; or
(2) if such appointment is
in the interests of creditors,
any equity security holders,
and other interests of the
estate, without regard to the
number of holders of
securities of the debtor or
the amount of assets or
liabilities of the debtor.
11 U.S.C. § 1104(a) (emphasis added).
“The party moving for appointment
of a trustee . . . must prove the need for a
trustee under either subsection by clear and
convincing evidence.” Marvel, 140 F.3d
at 473. See also In re Sharon Steel Corp.,
871 F.2d 1217, 1226 (3d Cir. 1989). If a
court finds that the moving party has
discharged this burden, it “shall” appoint a
trustee, 11 U.S.C. § 1104(a), but
determining whether the moving party has
satisfied its burden under either subsection
is committed to the court’s discretion.
Marvel, 140 F.3d at 471; Sharon Steel, 871
F.2d at 1225-26.
The Committee’s argument in this
appeal is based on our reference in Marvel

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to “the strong presumption against
appointing an outside trustee.” 140 F.3d at
471. As noted, the Committee’s position
is that, once this presumption is out of the
way, a party seeking the appointment of a
trustee is no longer required to prove its
case by clear and convincing evidence, but
is merely required to satisfy the
preponderance of the evidence standard.
We see no basis for this argument.
T h ere a r e t w o p l au si b le
interpretations of our reference in Marvel
to “the strong presumption against
appointing an outside trustee.” The first is
that we employed the term “presumption”
in the technical sense expressed in Rule
301 of the Federal Rules of Evidence. The
second is that we simply used that term as
another way of referring to the heavy
burden of persuasion, i.e., by clear and
convincing evidence, that the party seeking
the appointment of an outside trustee must
face. Although we now hold that the
second interpretation is the correct one, the
choice between the two interpretations has
no bearing on the outcome of this appeal
because neither interpretation supports the
Committee’s position.
A.
As noted, the first interpretation
would read Marvel as using the term
“presumption” in a technical sense. Rule
301 of the Federal Rules of Evidence,
which applies in bankruptcy proceedings,
see Bankruptcy Rule 9017, governs
presumptions in civil cases not otherwise
provided for by an Act of Congress or
another provision of the Evidence Rules.
Under Rule 301, “a presumption imposes
on the party against whom it is directed the
burden of going forward with evidence to
rebut or meet the presumption, but does
not shift to such party the burden of proof
in the sense of the risk of nonpersuasion,
which remains throughout the trial upon
the party on whom it was originally set.”
If the party against whom the presumption
is directed offers sufficient evidence “to
rebut or meet the presumption,” that party
discharges its burden of production, but
the burden of persuasion remains where it
was at the start. See, e.g., 1 CHRISTOPHER
B. MUELLER AND LAIRD C. KIRKPATRICK,
FEDERAL EVIDENCE § 66 at 322 (2d ed.
1994).
In the present case, as noted, the
Committee contends that “the strong
presumption” against the appointment of a
trustee is inapplicable because it is
unwarranted by the facts. The
Co mm ittee’s argu men t migh t be
interpreted to mean either (a) that the
presumption never properly came into play
because the debtor bore the burden of
establishing the basic facts that must be
shown to give rise to the presumption and
failed to establish those basic facts or (b)
that the presumption dropped out of the
case because the Committee adequately
rebutted or met it. In neither event,
however, would the allocation or the
nature of the burden of persuasion be
altered.
Under Sharon Steel, 871 F.2d at
1226, and Marvel, 140 F.3d at 471, the

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party moving for the appointment of a
trustee begins with the burden of
persuasion by clear and convincing
evidence. If the debtor in possession were
required to prove certain basic facts in
order to invoke the “presumption” at issue,
the debtor’s failure to do so would have no
effect on the burden of persuasion, which
would “remain[] throughout the trial upon
the party on whom it was originally set.”
Fed. R. Evid 301. Similarly, if the
presumption arose but was sufficiently
rebutted by the Committee, the only effect
would be to relieve the Committee of its
burden of production. Fed. R. Evid 301.
It would then be up to the Bankruptcy
Court to weigh all the evidence and
determine whether the Committee had
proved its case by clear and convincing
evidence. This is precisely what the
Bankruptcy Court did.
B.
The other – and, we now hold,
correct – reading of Marvel is that our
reference to the heavy “presumption”
against the appointment of an outside
trustee was simply another way of
referring to the heavy the burden of
persuasion (by clear and convincing
evidence) that the party moving for the
appointment of a trustee must bear. In
Marvel, we wrote:
The party moving for
appointment of a trustee . . .
must prove the need for a
trustee . . . by clear and
convincing evidence.” See
Sharon Steel, 871 F.2d at
1226. “It is settled that
appointment of a trustee
should be the exception,
rather than the rule.” Id. at
1225. In the usual chapter
11 proceeding, the debtor
remains in possession
throughout reorganization
b e c a u s e “ c u r r e n t
management is generally
best suited to orchestrate the
process of rehabilitation for
the benefit of creditors and
other interests of the estate.”
In re V. Savino Oil &
Heating Co., 99 B.R. 518,
524 (Bankr. E.D.N.Y .
1989). Thus the basis for
the strong presumption
against appointing an
outside trustee is that there
is often no need for one:
“The debtor-in-possession is
a fiduciary of the creditors
and, as a result, has an
obligation to refrain from
acting in a manner which
could damage the estate, or
h i n d e r a s u c c e s s f u l
reorganization.” party to
conduct operations during
the reorganization. Petit v.
New England Mort. Servs.,
182 B.R. 64, 69 (D.Me.
1995). T h e s t r on g
presumption also finds its
basis in the debtor-in-
p o s s e s s i o n ’ s u s u a l
familiarity with the business

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it had already bee managing
at the time of the bankruptcy
filing, often making it the
best party to conduct
operations durin g th e
reorganization. See Sharon
Steel, 871 F.2d at 1226.
140 F.3d at 471 (emphasis added) (citation
omitted).
When the references to a
“presumption” are read in the context of
this entire passage, it seems clear that we
used the term as a synonym for the clear
and convincing burden of persuasion.
After expressly mentioning the burden of
persuasion in the first sentence of this
passage, we began in the fourth sentence
to refer to the presumption without
suggesting that we had moved on to a
discussion of a new concept. In the next-
to-last sentence of the passage, we
discussed “the basis for the strong
presumption” and cited a page of a
bankruptcy court opinion that refers to the
clear and convincing evidence burden of
persuasion. See Petit, 182 B.R. at 69.2
Furthermore, in the final sentence of the
passage, we cited Sharon Steel, 871 F.2d
at 1226, as support for the proposition that
“the strong presumption also finds its basis
in the debtor-in-possession’s usual
familiarity with the business it had already
2On the cited page, Petit states:
The party seeking the
trustee’s appointment has
the burden of establishing
the need for such action and,
although the Court of
Appeals for the First Circuit
has never held so directly,
many courts require a
showing of clear and
c o n v i n c i n g e v i d e n c e
supporting the motion prior
to taking such action. See,
e.g., In re Sharon Steel, 871
f.2d 1217, 1226 (3d Cir.
1989) . . . .
Petit, 182 B.R.at 69 (emphasis added).
In the preceding sentence at 182
B.R. at 68, the Petit court wrote:
The presumption in chapter
11 cases is that “current
management is generally
best suited to orchestrate the
process of rehabilitation for
the benefit of creditors and
other interests of the estate.”
In re V. Savino Oil &
Heating Co., 99 B.R. 518,
524 ( Bankr. E.D.N.Y.
1989).
(emphasis added).
It is thus apparent that the Petit
court used the term “presumption” as
another way of referring to the burden of
persuasion. This interpretation is
reinforced by the fact that the sentence in
In re V. Savino Oil & Heating Co., 99
B.R. at 524, that the Petit court partially
quoted used the term “assumption,” not
“presumption.” This shows that the Petit
court did not use the term “presumption”
in its technical sense.

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been managing at the time of the
bankruptcy filing.” Marvel, 140 F.3d at
471. Sharon Steel, however, while
referring to the clear and convincing
burden of persuasion, makes no reference
to the concept of a presumption. For all
these reasons, we interpret Marvel’s use of
the term presumption as simply referring
to the burden of persuasion, and not to the
concept of a presumption in the sense in
which the term is used in the law of
evidence.
When Marvel is read in this way,
we see no basis for arguing that it was
improper to apply the clear and convincing
standard in this case. In Sharon Steel, 871
F.2d at 1226, we stated without
qualification that “[t]he party moving for
the appointment of a trustee . . . must
prove the need for a trustee . . . by clear
and convincing evidence,” and in Marvel,
140 F.3d at 471, we quoted and applied
this rule. Our further statement in Marvel,
140 F.3d at 471, that “[t]he facts . . .
militate[d] against invoking [the]
presumption,” meant that the facts
satisfied the clear and convincing burden.
In order for the Committee to prevail in
the present case, it too was obligated to
overcome that burden, but the Committee,
as noted, does not argue in this appeal that
the Bankruptcy Court abused its discretion
in finding that the burden was not met.
What the Committee now seeks is a
modification of the rule that we adopted in
Sharon Steel. The Committee in effect
asks us to hold that the party moving for
the appointment of a trustee is only
sometimes required to prove its case by
clear and convincing evidence.
According to the Committee, if the debtor
in possession lacks special expertise in
running the business and the appointment
of a trustee would not impose large costs,
the party seeking the appointment of a
trustee need only prove its case by the
preponderance of the evidence. This
argument is not only inconsistent with our
prior cases, but it advocates an awkward
and unorthodox procedure. Whether a
debtor in possession possesses special
expertise and whether the appointment of
a trustee would be costly will often be
contested, as they are here. In the
Committee’s view, a bankruptcy court
would first be required to make findings
on those questions; then, depending on
those findings, it would identify the
applicable burden of persuasion; and
finally, it would determine whether the
applicable burden had been met. This
cumbersome and strange procedure has
little to recommend it.
As Sharon Steel stated, the party
asking for the appointment of a trustee
bears the burden of persuasion by clear
and convincing evidence. This burden
does not shrink or shift. Whether the
debtor in possession has special expertise
and whether the appointment of a trustee
would entail substantial costs are relevant
factors to be considered in determining
whether this burden has been met in a
particular case.

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III.
As we have noted, the Committee
could have argued that the evidence that it
offered in the proceeding before the
Bankruptcy Court was so strong that the
Bankruptcy Court had no choice but to
find that the Committee had proven that
the conditions for the appointment of a
trustee were present. This argument,
howe ver, would have faced two
formidable obstacles: the abuse of
discretion standard of appellate review and
the clear and convincing burden of
persuasion. The Committee chose not to
attempt to surmount those obstacles, and
thus this factual argument is not before us.
We add, however, that if the
argument were before us, we would hold
that the Bankruptcy Court did not abuse its
discretion in finding that the conditions for
the appointment of a trustee were not
established by clear and convincing
evidence. There is unquestionably
considerable acrimony between the debtor
and the asbestos claimants, but as the
Bankruptcy Court noted, some of the most
contentious disputes will presumably be
addressed in other pending litigation, and
it was the Bankruptcy Court’s judgment
that the debtor in possession would be able
to discharge its fiduciary obligations with
regard to other matters. W e cannot say
that the Bankruptcy Court abused the
broad discretion that it possesses in
determining whether the conditions
specified in 11 U.S.C. § 1104(a) have been
adequately shown.
For the reasons set out
above, the order of the District Court is
affirmed.

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