On July 19-21, 2017, David W. Carickhoff, in his capacity as Chapter 7 Trustee of the Estates of Univita Holdings, et al., filed approximately 46 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547 and 550 of the Bankruptcy Code.

Univita Health, Inc. and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on August 28, 2015 under Chapter 7 of the Bankruptcy Code.  The cases are jointly administered pursuant to Rule 1015(b) of the Bankruptcy Rules.

The various avoidance actions are pending before the Honorable Mary F. Walrath.  The Pretrial Conference has been set for 10/4/2017 at 02:00 PM ET.

For readers looking for more information concerning claims and defenses in preference litigation, attached is a booklet prepared by this firm on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In a decision signed July 26, 2017 in the Nephrogenex bankruptcy (case 16-11074), Judge Gross of the Delaware Bankruptcy Court approved of the application of the Debtor’s investment banker for a success fee over the objection of, among others, the Debtor and the purchaser of all the reorganized debtor’s equity. Judge Gross’s opinion is available here (the “Opinion”).

In this case, the Debtor hired an investment banker (“CS”), which was duly approved by the Court.  Part of CS’s compensation included a “Sale Transaction” fee which would be earned in the event of a Sale Transaction.  The term Sale Transaction was broadly defined, Opinion at *4, and included:

“any transaction or series of transactions involving (a) an acquisition, merger, consolidation, or other business combination pursuant to which all or substantially all of the business assets, subsidiaries, divisions, business segments, operations, securities, or equity interests of the Company are, directly or indirectly, combined with another company; (b) the acquisition, directly or indirectly, by a buyer or buyers. . . of equity interests or options, or any combination thereof constituting a majority of the then outstanding economic interests in the Company. . .”  Opinion at *4.

As part of the Plan of liquidation, the equity of the reorganized debtor would be transferred to one of its creditors as satisfaction of that creditor’s claim.  After the transfer of equity, CS filed its fee application alleging that the release of the claim, with a post-distribution value of approximately $2 million (the claim was for $4,312,698.51 and the estimated distribution was 49.5%, Opinion at *2-3), was a Sale Transaction, triggering its success fee.

After reviewing all the relevant documents and hearing the testimony of the principle of CS, Mr. Cassel, Judge Gross agreed with CS, holding that the equity transfer satisfied the definition in CS’s engagement documents.  The one wrinkle that the objecting parties tried to use to oppose the the payment, is that CS’s retention agreement provided that the success fee would be paid out of the proceeds of the Sale Transaction, and there were no proceeds from this transaction.  Judge Gross determined that this was not a necessary requirement of compensation on the basis of two parts of the engagement agreement.  First, “the Engagement Agreement does not provide that the Sales Transaction Fee can only be paid if the Sales Transaction generates cash.”  Second, “the Engagement Agreement defines ‘Sale Consideration’ to include ‘(y) the principal amount of all indebtedness for borrowed money or other liabilities of the [Debtor] or [Debtor] related entity as applicable, as set forth on the most recent balance sheet, or in the case of a sale of assets, all indebtedness for borrowed money or other liabilities assumed, cancelled, exchanged, or forgiven by a third party. . . .'”  Opinion at *8.

Because people constantly try to find ways to get around definitions to maximize their profit, attorneys, like those representing CS, often draft language as broad (or narrow) as possible to best protect their client.  In this case, was the recipient of the reorganized debtor truly intending to buy the company?  Probably not.  However, CS’s attorney’s careful drafting of their retention agreement helped ensure that even if the acquiring company was trying to avoid the success fee, CS still received it.  The takeaway in this Opinion is, if you represent the retained professional, to make sure there is no language disallowing a fee for some reason, like a lack of cash in the consideration received.

John Bird practices with the law firm Fox Rothschild LLP and is resident in Portland, Oregon. You can reach John at 302-622-4263, or jbird@foxrothschild.com.

In a decision signed July 17, 2017 in the Our Alchemy, LLC bankruptcy (case 16-11596), Judge Gross of the Delaware Bankruptcy Court granted a trustee’s partial motion to dismiss a complaint, holding that a creditor cannot assert general claims against a Chapter 7 Trustee in his official capacity (essentially a derivative action meant to enrich the creditor body) . Judge Gross’s opinion is available here (the “Opinion”).  In the adversary proceeding in which this Opinion was issued, Nu Image, Inc (“NI”) sought to recover from the chapter 7 trustee, George L. Miller (the “Trustee”), alleging that he breached his fiduciary duty by “(i) failing to exploit the Agreements, (ii) delaying the request for permission to sell the estate’s interests and assets, (iii) letting the time to assume or reject the Agreements lapse, and (iv) establishing an utter indifference to the effect of his actions on the estate’s creditors, particularly Nu Image.”  Opinion at *6.

The Debtor’s business model involved distributing, or “exploiting”, movies for filmmakers.  The Debtor entered into agreements to distribute 163 films owned by NI.  Opinion at *2.  In its agreement with NI, as with other film owners, the Debtor contracted to share the profits of film distribution.  The first claim of the Complaint  asserts that the Trustee failed to take action for the benefit of all the Debtor’s creditors. Opinion at *9

Unfortunately for NI, suing a trustee in its professional capacity is, by definition, a general claim that would be paid out of the estate’s corpus.  “In the Third Circuit individual creditors may not assert general claims because they belong to all creditors.”    Opinion at *7 (quoting PHP Liquidating, LLC v. Robbins (In re PHP Healthcare Corp.), 128 Fed. Appx. 839, 844-45 (3d Cir. 2005)).  Further, in the Third Circuit, a creditor does not have standing to assert claims for damages alleged to have been caused to the creditor body at large without prior permission of the bankruptcy court.  Opinion at *9.  In the instant case, NI had not requested court approval to assert a claim against the Trustee for breach of his duty, and accordingly had no standing to assert the first cause of action contained in its complaint.

With no further ado, the Court granted the motion to dismiss the fiduciary duties claim of the complaint.  Judge Gross then extended the Trustee’s deadline to respond to the other counts in the complaint and to assert any compulsory counterclaims.

John Bird practices with the law firm Fox Rothschild LLP in Wilmington, Delaware. You can reach John at 302-622-4263, or jbird@foxrothschild.com.

On July 6-7, 2017, Craig Jalbert, in his capacity as Trustee for F2 Liquidating Trust, filed approximately 187 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code (depending on the nature of the claims).  In certain instances, the Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

F-Squared Investment Management and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on July 8, 2015 under Chapter 11 of the Bankruptcy Code.   The Court confirmed the Debtors’ Joint Plan of Liquidation.  The Liquidating Trust was established in accordance with the Plan and Confirmation Order.

The various avoidance actions are pending before the Honorable Laurie Selber Silverstein.  As of the date of this post, the pretrial conference has not yet been scheduled.

For readers looking for more information concerning claims and defenses in preference litigation, attached is a booklet prepared by this firm on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

We have previously posted about a couple major milestones for Green Field Energy – here Green Field Energy Files for Bankruptcy Protection in Delaware and here: Green Field Energy Services – Preference Actions Filed.  In this Opinion, published June 23, 2017, the Court denied the defendants Motion to Abate (or stay the action).  A copy of the Opinion is available here.

Alan Halperin, the Trustee of the GFES Liquidation Trust (the “Trustee”), filed a complaint alleging that the defendant, Moreno, received a fraudulent transfer, and that its subsidiary breached two contracts requiring the purchase of preferred stock to fund GFES.  The Court denied a motion to dismiss and “considerable” discovery has taken place. A trial on the Trustee’s motion for partial summary judgment is scheduled to begin on December 11, 2017.

One year after the Trustee commenced the adversary proceeding, defendants sought leave to file a third-party complaint against GE, alleging that it was liable for contribution. The Court denied the Third Party Motion, holding that it did not have subject matter jurisdiction. On July 25, 2016, defendants filed with the District Court an appeal motion and notice of interlocutory appeal to enable them to take an interlocutory appeal from the Court’s denial of the Third-Party Motion. The Appeal Motion has been fully briefed and remains pending.  On November 22, 2016, defendants filed the Withdrawal Motion so they can add GE as a party and avoid the Court’s jurisdiction limitation. The Withdrawal Motion is pending in the District Court.  Now, the defendants have moved for the Bankruptcy Court to “Abate”, or stay, the adversary proceeding pending the District Court’s decisions.

Judge Gross cited Am. Classic Voyages Co. v. Westaff (In re Am. Classic Voyages Co.), 337 B.R. 509, 511 (D. Del. 2006), in holding that courts must consider four other factors on a motion to withdraw the reference, which the Court is weighing on the issue of the likelihood of success. They are (1) promoting uniformity of bankruptcy administration, (2) reducing forum shopping and confusion, (3) fostering economical use of debtor-creditor resources and (4) expediting the bankruptcy process.

While Judge Gross examines each factor in turn, holding that defendants failed to carry their burden for each, it appears that the greatest weight arises from the significant time that defendants allowed to pass prior to moving to join GE and the ability to sue for contribution outside of the Bankruptcy Court.

John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at jbird@foxrothschild.com.

On June 15, 2017, Curtis R. Smith, as Liquidating Trustee of the Hastings Creditors’ Liquidating Trust, filed approximately 69 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code.  The Liquidating Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

Draw Another Circle, LLC and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on June 13, 2015 under Chapter 11 of the Bankruptcy Code.   On February 14, 2017, the Court confirmed the Debtors’ Plan.  The Trust was established in accordance with the Plan and Confirmation Order.

The various avoidance actions are pending before the Honorable Kevin J. Carey.  As of the date of this post, the pretrial conference has not yet been scheduled.

For readers looking for more information concerning claims and defenses in preference litigation, attached is a booklet prepared by this firm on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

On June 13, 2017, The Original Soupman, Inc. and its affiliates (collectively “Debtors” or “Original Soupman”) commenced voluntary bankruptcy proceedings under Chapter 11 of the Bankruptcy Code.  According to its petition, Original Soupman estimates that its assets are between $1 million and $10 million, and its liabilities are between $10 million and $50 million.

Shortly after the commencement of the bankruptcy case, the Debtors filed a number of first-day motions, including a critical vendor motion, and a DIP financing motion.  The first-day hearing to consider the interim relief requested in the various first-day motions is scheduled for June 20th at 2:00 p.m.  The case has been assigned to the Honorable Laurie Selber Silverstein.  The law firm of Polsinelli PC represents the Debtors in these bankruptcy proceedings.

A recent press release issued by the Debtors advises that Original Soupman obtain $2 million debtor in possession financing, and that operations of the Debtors will resume during the course of the bankruptcy. Stay tuned for further developments in this case.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

On June 13, 2017, Judge Kevin Gross of the Delaware Bankruptcy Court issued an opinion granting in part and denying in part BMW’s motion to dismiss a complaint filed by Emerald Capital Advisors Corp., in its capacity as trustee for FAH Liquidating Trust – established in the Fisker bankruptcy proceedings.  A copy of the Opinion is available here.

Judge Gross addresses a large number of issues in the Opinion, including extraterritorial transfers, the findings necessary to support a motion to dismiss, and the relevant statute of limitations.  The primary holding in the Opinion, was that for the majority of the causes of action alleged by the plaintiff, the statute of limitations has expired – resulting in granting the motion to dismiss as to $31,786,216.13 and denied to the remaining $793,761.87.  The one major caveat and the most interesting aspect of the decision involves the plaintiff’s claim for unjust enrichment.

Judge Gross spent less than two pages of the 26-page Opinion in denying the motion to dismiss as to the count of unjust enrichment in the complaint.  Judge Gross cited to Halperin v. Moreno, (In re Green Field Energy Svcs., Inc.), 2015 WL 5146161 at *10 (Bankr. D. Del. Aug. 31, 2015) in holding that a claim for unjust enrichment can survive a motion to dismiss where it is plausible that the plaintiff’s other claims may fail and leave the plaintiff without a remedy at law.

It is clear however, that at the pleading stage it is entirely acceptable to pursue alternative theories.  Lass v. Bank of Am., N.A., 695 F. 3d 129, 140 (1st Cir. 2012).  It is also well established that a plaintiff may plead alternative claims for relief even where the pleading contains claims for breach of contract and unjust enrichment.  Pedrick v. Roten, 70 F. Supp. 3d 638, 653 (D. Del. 2014) (citing Corbin on Contracts § 66.10 (2014) for the proposition that “[e]xpectancy damages and restitution will not ordinarily be given as concurrent remedies for the same injury, although they may be pleaded as alternatives”).   The unjust enrichment claim in Count V is significant because it keeps alive the claim for the entire amount which the Trustee has placed at issue, namely, $32,579,798.87.

Opinion at *25.  Clearly, the fact that the Bankruptcy Court is a court of equity is clearly on display in allowing the unjust enrichment count survive, specifically for the purpose of ensuring that a plaintiff has a remedy at law in the failure of its other claims.  In this case, claims totaling $31 million that would otherwise have been dismissed survive to be disputed another day.  I have little doubt that trustees who had not been including unjust enrichment counts in their preference complaints will quickly make an adjustment.

John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at jbird@foxrothschild.com.

On May 23, 2017, Don A. Beskrone, the chapter 7 trustee for the estate of PennySaver USA Publishing, LLC filed preference actions against 46 defendants.  PennySaver was an iconic company that specialized in the production, printing, and dissemination of a free weekly publication, offering coupons and classified ads to targeted audiences.

By 2013, the Debtors’ print circulation locally targeted 780 zones or regions and reached approximately 9.1 million California households every week. The Debtors’ website, PennySaverUSA.com, received 1 million unique visitors each month.  By 2015, the Debtors encountered financial difficulties, which arose from a number of causes including, among other things: (i) a decline in print advertising market that corresponded with a rise in electronic media and changing consumer habits, and (ii) a related inability of the Debtors to pay their debts as they came due.  Finally, on May 29, 2015 (the “Petition Date”), the Debtors filed for bankruptcy.  Accordingly, the Trustee had until May 29, 2017 to file preference actions in this case pursuant to the statute of limitations contained in the Bankruptcy Code.

These cases have been filed in the Bankruptcy Court for the District of Delaware.  The Trustee is represented by Ashby & Geddes, P.A.

Preference actions are a form of litigation specifically provided for by the Bankruptcy Code which are intended to recover payments made by the Debtor within the 90 days prior to declaring bankruptcy.  The presumption is that the Debtor knew it was going to file bankruptcy, so any payments it made during this 90-day window went to friends and people it wanted to keep happy, and stiffed those the Debtor’s management didn’t like.   Recognizing that these payments aren’t always made for inappropriate reasons, the Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the “ordinary course of business defense” and the “new value defense.” For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a booklet I prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at jbird@foxrothschild.com.

On May 17th, Tidewater, Inc. and its affiliated debtors (“Tidewater” or “Debtors”) filed for chapter 11 protection in the United States Bankruptcy Court for the District of Delaware.

On the same day, the Court entered an Interim Utilities Order (click here), which among other things sets forth deadlines for utility providers to object to the proposed adequate assurance procedures or the amount of adequate assurance.  The proposed Interim Utilities Order establishes the proposed amount of adequate assurance of payment to each utility provider of the Debtors under Section 366 of the Bankruptcy Code.  The adequate assurance amount proposed by the Debtors represents the average amount owed to such utility provider over a two-week period.

Any Tidewater utility provider looking to object to the proposed adequate assurance amount or the procedures should act quickly.  By way of brief background, Section 366 of the Bankruptcy Code was enacted to balance a debtor’s need for utility services from a provider that holds a monopoly of such services, with the need of the utility to ensure for it and its rate payers that it receives payment for providing these essential services.  See In re Hanratty, 907 F.2d 1418, 1424 (3d Cir. 1990). The amount of adequate assurance required is made on a case-by-case determination and, in making such a determination, it is appropriate for the Court to consider “the length of time necessary for the utility to effect termination once one billing cycle is missed.”  In re: Begley, 760 F.2d 46, 49 (3d Cir. 1985).

Per the interim order, a final hearing on the Debtors’ utilities motion has been scheduled for June 14, 2017 at 10:00 a.m.  Objections to the proposed final order must be filed on or before June 7th at 4:00 p.m.  This bankruptcy case is pending before Judge Brendan L. Shannon.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272.