This case presents the unusual situation in which equity holders who were, pursuant to the Plan, expected to get nothing, are now, several years post-confirmation, likely to recover. This welcome development, however, comes with some complications.

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Movants counter that these provisions are not triggered by their Motion, which does not seek a determination of liability against the Plan Administrator or seek recovery from either him or the Reorganized Debtors. I agree.

The Plan Administrator’s proposed reading of these provisions is far too broad. Given that neither the Plan nor the Confirmation Order includes standards applicable to the Plan Administrator’s removal, his proposed interpretation of these provisions would effectively prevent any oversight. The Motion is not seeking to hold the Plan Administrator liable for anything. Instead, the Motion seeks to have him replaced.

Movants contend that the Plan Administrator should be subject to the disinterested requirements that the Bankruptcy Code (the “Code”) imposes on a debtor’s professionals during the pendency of a bankruptcy case, or a trustee appointed by the Court. See 11 U.S.C. §§ 324, 327, 328. Movants have cited to no authority that supports their position that a post-confirmation plan administrator must be disinterested.12 A post-confirmation plan administrator is not appointed pursuant to Sections 324, 327, or 328. Like a liquidating trustee, a plan administrator is appointed pursuant to Section 1123 and is a “representative of the estate.”

Additionally, requiring the post-confirmation estate representative to be disinterested would make little sense. . . . I find the Plan Administrator is not required to be disinterested.

Movants argue that the Plan Administrator’s loyalties are divided due to his status as both shareholder and distribution agent. Movants suggest that while there is enough money now to simply end the California Litigation and pay the preferred shareholders with the proceeds, the Plan Administrator is continuing to prosecute the case for the sole purposes of ensuring that he recovers as much as possible in his capacity as common shareholder. Specifically, Movants argue that “it is clear that the continued prosecution of the California Litigation by Hansen is not fair to other claimants, and Hansen should be removed from his position of power as Plan Administrator.”

Movants have failed to allege sufficient facts to support the conclusion that the Plan Administrator’s actions with respect to the California Litigation constitute self-dealing. For example, Movants do not allege: 1) that the California Litigation is not beneficial to the creditors as a whole; 2) that the Plan Administrator has made any decisions with respect to the California Litigation that would result in a benefit to him that is distinct from the benefit received by all shareholders; or 3) that any benefit to the Plan Administrator would be material.

Additionally, Movants’ argument on this issue simply makes no sense. As they concede, the Plan Administrator owes fiduciary duties to all creditors, not just the preferred shareholders.17 If the Plan Administrator were to do as Movants suggest and settle the California Litigation with only enough money to pay out the preferred shareholders, that might very well constitute a breach of fiduciary duty to the common shareholders. Movants’ argument that the continued prosecution of the California Litigation will only enrich the Plan Administrator and other similar equity holders “to the detriment of the Debtors and other equity holders,” misconstrues the facts. If prosecution of the California Litigation is to the detriment of certain equity holders it is only because they are defendants in that action. As is evident from settlement proceeds collected so far (and the fact that previously out of the money equity holders now stand to get paid), pursuing claims against those individuals has been and continues to be in the best interest of all of the other creditors.

The Lessors otherwise assert that the Debtor filed this case in bad faith solely to invoke the cap on rejection damages under section 502(b)(6) of the Bankruptcy Code. Lessors have not provided authority indicating that using the Bankruptcy Code exactly as it was intended renders a filing to be one made in bad faith. Mr. Rosenfeld credibly testified that the Debtor attempted to market and sublease the spaces at issue but it was not able to accomplish that goal.50 There is some dispute between the Debtor and the Lessors as to who was really responsible for the lack of success in the sublease/assignment process, but regardless of where the sticking point was, the Court finds that the breakdown in those negotiations does not indicate a lack of good faith on the part of Macedon. This Debtor is merely one of many debtors that end up in chapter 11 seeking to reject leases that are burdensome to the estate. This is not the first debtor to exercise such business judgment (see essentially any large retail case) and it will not be the last. Further, Mr. Rosenfeld credibly testified regarding the reduced need for the leased office space given the change in circumstances with the Debtor's customers, the COVID pandemic and the Debtors’ employees.51 Mr. Davis also credibly corroborated that the Debtor will not be able to produce positive cash flow if the Leases are paid according to terms, resulting in approximately nine million dollars in operational losses over the life of the projections in Exhibit 2.0 of the Davis Expert Report. In short, if the course is not changed, the Company will only be able to meet its obligations and maintain necessary working capital through February of 2026. In other words, the company will run out of the cash necessary to operate its business in February 2026 if the Leases are not rejected.

Ultimately, the Court cannot find that the evidence before it establishes subjective bad faith. Instead, the Court sees a landscape of economic uncertainty and a debtor seeking to limit its liabilities and pay its creditors what they're entitled to under the Bankruptcy Code so that it can service its debt, pay and retain its employees, pay trade creditors and turn a profit. The desire to do so is not bad faith on the part of the Debtor.

I conclude that Plaintiff has alleged facts that constitute red flags and allow for the inference that Rome and Karides had knowledge of corporate misconduct at Live Well. Trustee alleges that Rome and Karides had knowledge of Scenario 14, were present at multiple board meetings at which it was discussed and explained and were aware of the massive increases in the values of the bond portfolio as well as the significant purchases of HECM IO bonds. Because of their knowledge of Scenario 14, Rome and Karides were aware, or should have been aware, that Live Well was borrowing from repo lenders based on the values generated by Scenario 14 rather than the lower, actual market values at which HECM IO bonds traded and at which Live Well purchased the bonds. Rome and Karides (both sophisticated investors) knew or should have known that any borrowings based on values generated by Scenario 14 were not based on market value and could only have been the result of some type of fraud.

While Rome and Karides correctly point out that the red flags alleged by Trustee are not the stereotypical red flags involving government investigations or pending lawsuits, an investigation or action need not be commenced for a red flag to exist.38 Rome's and Karide' s argument that astronomical returns on investments cannot constitute red flags is unpersuasive especially in light of their knowledge that repo lenders lend on a discount to market value. Contrary to the arguments made by Rome and Karides, such knowledge gives rise to a reasonable inference of knowledge of corporate wrongdoing.

Trustee also asserts that Rome and Karides acted in bad faith by resigning from Live Well's board. Plaintiff alleges that Rome and Karides agreed to resign from the board in exchange for Live Well repurchasing the preferred stock at a grossly inflated value due to the bond fraud. Plaintiff alleges that by resigning, Rome and Karides ceded control of Live Well to a known looter.

Generally, a director does not violate the fiduciary duty of loyalty by resigning from its position on a board of directors. This rule, however, is not absolute. A director may face liability for violation of the duty of loyalty if a director has knowledge of wrongdoing and fails to act prior to resigning. In such cases, courts decline to dismiss claims of bad faith against directors.

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Directors may act in bad faith by intentionally failing to act when there is a known duty to act. Trustee alleges Rome and Karides failed to act to prevent Hild from obtaining excessive guarantee and director fees because of the opportunity to receive a financial benefit through the Stock Purchase Agreement. Trustee has sufficiently alleged that Rome and Karides put their own self-interests over the interests of Live Well.

Count I will not be dismissed for failure to state a claim.

While I agree with Trustee that there is nothing pied ( or submitted by Movants) to indicate that shareholders and creditors had the critical knowledge surrounding Scenario 14, that is not the correct inquiry. Count 1 is a claim for breach of fiduciary duty. As such, Trustee brings this claim as Debtor's successor in interest. The correct inquiry is whether Live Well-not its shareholders or creditors-were on inquiry notice of the claims. Clearly certain Live Well directors (Hild, Rome and Karides) were on inquiry notice with respect to the underlying facts of Count 1. Whether there is any argument that Live Well itself is not on inquiry notice (as opposed to shareholders or creditors) has not been pled or briefed.

All claims in Count I arising prior to June 10, 2016 will be dismissed with leave to amend, if possible.

Charmoli opposed dismissal, arguing that, at a minimum, he alleged facts plausibly pleading that section 631.11 bars Aspen from rescinding the policies because Aspen failed to give Charmoli timely notice of its intent to rescind, as required by section 631.11(4)(b). This court denied Aspen’s motion to dismiss, concluding that the complaint’s factual allegations and the facts of which the court may take judicial notice do not establish, as a matter of law, that Aspen’s rescission was timely.

Aspen moved the district court for leave to appeal this court’s order denying its motion to dismiss. Aspen now requests that this court stay further proceedings while it awaits action by the district court. But the discovery the parties are currently undertaking will be necessary unless Aspen convinces the district court both to allow an interlocutory appeal and to accept Aspen’s view that its notice of rescission was timely because, as a matter of law, it could not have had “knowledge of sufficient facts to constitute grounds for rescission”, the trigger for section 631.11(4)(b)’s rescission-notice deadline, until the judgment entered in Charmoli’s criminal case became non-appealable. The chance that Aspen’s interlocutory appeal will be successful is slim, at best. Among other things, the facts Charmoli alleges in the complaint and those of which the court may take judicial notice plausibly “raise a reasonable expectation that discovery will reveal evidence”, that Aspen had the requisite knowledge long before the district court entered judgment in the criminal case, making Aspen’s request for dismissal of the complaint on rescission grounds inappropriate.

What is more, Aspen has not shown that it will suffer substantial harm by participating in discovery calculated to create a complete record while it awaits the district court’s ruling on its motion for leave to appeal. And delay in resolving Charmoli’s coverage claim—a claim that, if proven, may provide his bankruptcy estate with a means of defending and resolving the many malpractice claims asserted against it—will likely burden Charmoli’s bankruptcy estate, and thus his creditors, with the extra administrative costs resulting from piecemeal appeals.

The Debtor filed his schedules in this case on February 24, 2023,2 two days after filing his bankruptcy petition. Schedule D lists a secured claim in the amount of $219,945.00. Schedule E/F lists unsecured priority claims totaling $21,183.00, and unsecured non-priority claims totaling $2,446,464.04. As the Creditor correctly points out, the total of these scheduled debts is $2,687,592.04.

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The Debtor’s Schedule E/F lists these three judgment debts in the amount of $800,000.00 each, without including any post-judgment interest. The Creditor argues that the actual amount of the debt on each of these judgments is higher, because the debts include post-judgment interest that accrued from the date of the judgments (July 8, 2022) to the date on which the Debtor filed his bankruptcy petition (February 22, 2023). The Creditor is correct about this, but the Creditor has overstated the amount of the post-judgment interest.

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The Creditor has filed a spreadsheet on which she calculates that the post-judgment interest on her $800,000.00 judgment, from the date of the judgment to the bankruptcy petition date, is $21,548.60.5 The Creditor multiplies that amount by three to calculate the post-petition judgment on the three $800,000.00 judgments, for a total of $64,645.80. The Creditor argues that this amount must be added to the Debtor’s debts, for purposes of § 109(e), and that when this is done, the Debtor’s total noncontingent, liquidated debts as of the petition date exceed the $2.75 million limit in § 109(e).

If the Court adds the alleged post-judgment interest of $64,645.80 to the $2,687,592.04 total of debts listed in the Debtor’s Schedules D and E/F, the total of debts is $2,752,237.84. If this were the correct debt total under § 109(e), it would make the Debtor ineligible for Chapter 13.

The Court finds, however, that the Creditor has not correctly calculated the amount of the post-judgment interest. The correct method of calculating the post-judgment interest on the Creditor’s $800,000.00 judgment is as follows. First, the applicable interest rate is 2.85% per annum, which, in the words of 28 U.S.C. § 1961(a), is the rate “equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment.”

Second, that interest rate does not change — as indicated by the wording of § 1961(a) just quoted, the interest rate is the same for all time after entry of the judgment.

Third, under § 1961(b), the interest is “computed daily,” but is only “compounded annually.”

Given these rules, the correct interest amount is $14,304.66. This is derived by multiplying $800,000.00 by .0285 (= $22,800.00), then dividing that by 365 to get a daily interest amount (= $62.4657534), then multiplying that by the 229 days that passed from the date of entry of the judgment to the bankruptcy petition date (= $14,304.66). (Interest accrued on the full $800,000.00, because the Debtor made no payments on any of the $800,000.00 judgments.)

Thus, the Creditor’s interest calculation of $21,548.60 per judgment is too high. The correct amount is $14,304.66 per judgment, for a total post-judgment interest amount on the three judgments of $42,913.97.9 When that amount is added to the Debtor’s total scheduled debt amount of $2,687,592.04, the total is $2,730,506.01. That is below the $2.75 million debt limit in § 109(e), so the Debtor is eligible to be a debtor in Chapter 13.

The Court denied Aearo’s PI Motion largely over concerns that Aearo’s request to extend the automatic stay to a nondebtor—at least without establishing a financial impact on the estate if the stay was not extended—exceeded its jurisdictional limits. Those same concerns inform this decision. Admittedly, § 1112(b) is not itself jurisdictional, but requiring a valid bankruptcy purpose and a debtor in need of bankruptcy relief protects this Court’s jurisdictional integrity. Otherwise, a bankruptcy court risks becoming another court of general jurisdiction, which it most decidedly is not. Absent a Congressional intervention that clarifies if, when, and under what circumstances debtors involved in mass tort litigation may file for bankruptcy, the Court is unwilling to ignore that the Aearo Entities—at least presently—enjoy a greater degree of financial security than warrants bankruptcy protection.

In this Court’s view, allowing an otherwise financially healthy debtor with no impending solvency issues to remain in bankruptcy, much less one whose liability for most of its debts is supported by an even more financially healthy, Fortune 500 multinational conglomerate, exceeds the boundaries of the Court’s limited jurisdiction. Accordingly, the Court is compelled to GRANT the Motions without prejudice.

The Court concedes that the slope here is exceedingly steep and slippery. Aearo and 3M will face significant waves of litigation upon dismissal that, unless resolved by agreement, could rapidly and unequivocally present a significant change in circumstances. This decision is not intended to forestall a repeat filing of Aearo—or an initial filing by 3M for that matter—should the circumstances warrant it. But sitting here today and considering the evidence presented by the parties, the Court simply cannot conclude that the Aearo Entities’ petitions were anything but fatally premature. For this reason, the cases are, as a group, hereby DISMISSED.