In the recent decision of Gavin Salmonese, LLC v. Shyamsundar, et al. (In re AmCad Holdings, LLC, et al.) (Bankr. D. Del. June 14, 2016), Judge Walrath considered whether a liquidation trustee had standing to bring a claim for breach of fiduciary duty against the debtors’ former D&Os when the post-confirmation trust was the recipient of a wholesale assignment of causes of action, without specifying breach of fiduciary duty claims.
The answer is no. The Court stated that “related to” jurisdiction post-confirmation is much more narrow and may only be exercised over matters which have a “close nexus to the bankruptcy plan or proceeding.” Binder v. Price Waterhouse & Co., LLP (In re Resorts Int’l, Inc.), 372 F.3d 154, 164–65 (3d Cir. 2004). A chapter 11 plan that retains jurisdiction over a specific cause of action generally satisfies the close nexus requirement. BWI Liquidating Corp. v. City of Rialto (In re BWI Liquidating Corp.), 437 B.R. 160, 166 (Bankr. D. Del. 2010). However, a wholesale assignment of causes of action from the bankruptcy estate to a post-confirmation trust fails to establish a close nexus as to any specific cause of action. Insilco, 330 B.R. at 523-26.
Here, the Plan provides that the Court shall retain jurisdiction over “Causes of Action,” a term broadly defined to include:
all of the Debtors’ actions, causes of action, choses in action, liabilities, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, third-party claims, counterclaims, and crossclaims, whether known or unknown, reduced to judgment or not reduced to judgment, liquidated or unliquidated, contingent or non-contingent, matured or unmatured, disputed or undisputed, secured or unsecured, assertable directly or derivatively, existing or hereinafter arising, in law or equity or otherwise, based in whole or in part upon any act or omission or other event occurring prior to the Petition Date, or during the course of the Bankruptcy Cases, through, and including the Effective Date, including but not limited to, the Avoidance Actions and Trust Claims.
The Court found that nowhere in the definition of “Cause of Action” or elsewhere in the Plan are specific breach of fiduciary duty claims against the Officer Defendants or Manager Defendants (the named defendants) mentioned. However, the Court provided that even if the “Cause of Action” definition encompasses those claims, a wholesale assignment of claims to a post-confirmation trust is insufficient to establish a close nexus with respect to any individual claim. Thus, the Court found that the Trust lacked standing to bring breach of fiduciary duty claims against the D&Os.
Further, the Court dismissed the preference claims. The Complaint only alleged that “numerous Managers of the Debtor caused [AmCad Holdings, LLC] to repay the loans that those Managers made to the company.” (Adv. D.I. 1 at 10.) The Complaint fails to indicate the loan, the date or amount of each payment of the loans, or who was repaid. However, alleged preferential transfers must be identified with particularity to ensure that the defendant receives sufficient notice of what transfer is sought to be avoided. Thus, the Court dismissed the Trust’s avoidance actions, and the disallowance of claims under Section 550.
Carl D. Neff is a bankruptcy attorney 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 or at email@example.com.