The first motion, brought by the Defendant directors and officers ( collectively, the "D&Os"), seeks to dismiss claims of breach of fiduciary duties, fraudulent transfers, and breach of the applicable Limited Liability Company agreements (the "D&Os Motion to Dismiss"). The second motion, brought by Defendants Sun Capital Partners, Inc. ("Sun Capital Partners"), Sun Capital Management VI, LLC ("Sun Management"), and Furniture Factory Note Holding LLC ("Note Holding" and together with Sun Capital Partners, Sun Management and any other of its affiliates, "Sun Capital"), seeks to dismiss claims of aiding and abetting breach of fiduciary duties, recharacterization of debt, equitable subordination, and wrongful distribution.

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[T]he Complaint pleads plausible claims for breach of fiduciary duty as to Counts 1 (except as to Feinberg), 2 and 3. As to Count 11, the Complaint does not state a plausible claim for breach of the LLC Agreements as to a member but does state a plausible claim for breach of the LLC Agreements as to a distribution to a non-member. As a result, the D&Os Motion to Dismiss will be granted in part, and denied, in part, as to Counts 1 and 11; and denied as to Counts 2 and 3.

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[T]he Complaint pleads plausible claims for aiding and abetting breach of fiduciary duty, recharacterization, and equitable subordination; however, the Complaint does not plead the requisite factors for wrongful distribution. As a result, the Sun Capital Motion to Dismiss will be denied as to Counts 4, 5, 6, 7, and 8 and the Sun Capital Motion to Dismiss will be granted as to Count 10 of the Complaint.

The Debtor GenCanna Global, USA owned a 50% interest in 4274 Colby, LLC, a Kentucky limited liability company (the “Company”). The Plaintiff GenCanna Acquisition Corp. acquired the Debtor’s interest in the Company in a bankruptcy sale of substantially all the Debtor’s assets. Defendant 101 Enterprises, LLC owns the other 50% interest in the Company. Defendant William Hilliard was a co-manager of the Company and Defendants Kevin Murray and Gregory F. Martini own some or all of 101 Enterprises.

The Plaintiff initiated this adversary proceeding seeking, among other things, a declaratory judgment that it acquired a Member’s governance and economic rights when it purchased the Debtor’s interest in the Company. [ECF No. 1 (Count 1).] The Defendants concede the Plaintiff purchased an economic right to profits. But they argue the Plaintiff did not acquire the Debtor’s governance rights based on application of Kentucky law and the terms of the Company’s Operating Agreement.

The Plaintiff acquired the Debtor’s Interest in the Company subject to the terms of the Operating Agreement, which limits transfers without the consent of the other Member. 101 Enterprises has not consented to admit the Plaintiff as Member, so the Defendants’ motion for summary judgment is granted and the Plaintiff’s motion for summary judgment is denied.

The Motion, filed in response to the Default Judgment Motion, shocks the conscience of the Court. It continues the pattern of Synergy’s, and its counsel’s, utter failure to comply with the well established deadlines set by the discovery rules contained in the Federal Rules of Civil Procedure (applicable pursuant to the Federal Rules of Bankruptcy Procedure) or timely seek an extension of such deadlines.

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Synergy and its counsel have a blatant disregarded the Federal Rules of Civil Procedure, this Court, and Trustee.

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Synergy’s conduct is nothing short of bad faith - its flippant disregard of the deadlines to respond to the Discovery Requests, the litany of excuses given for the delays and the broken promises of responses and production being forthcoming, the added delay in complying with discovery by responding to the Compel Motion rather than responding to the Discovery Requests and producing documents again without any valid or legitimate excuse,1 the defiant noncompliance with the Compel Order coupled with more broken promises responses and production were forthcoming, and finally not even filing a response to the Default Judgment Motion but a late night motion to extend the time to respond thereto for an additional 14 days, again without any provision of the written responses and production of documents responsive to the Discovery Requests. And, it bears repeating, at no time has Synergy or its counsel ever sought an extension of time to respond to and produce documents responsive to the Discovery Requests - not even in the face of the Compel Order, which Synergy failed to satisfy. When a party is consistently uncooperative in discovery, bad faith may be inferred.

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Synergy and its counsel were previously ordered to pay Trustee’s attorney fees for the cost of preparing, filing, and prosecuting the Compel Motion. Such sanction, however, seemingly had little to no effect on their motivation to satisfy Synergy’s discovery obligations. It just prompted more dilatory conduct and lame excuses.

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Synergy shall provide complete discovery responses and document production to Trustee no later than 12:00 p.m. on September 8, 2023. Synergy’s failure to provide full and complete written discovery responses and document production by 12:00 p.m. on September 8, 2023, shall result in Synergy’s answer herein being stricken and immediate entry of a default judgment against Synergy without further notice or hearing upon Trustee filing a notice Synergy has failed to timely satisfy such deadline.

The Court denied the Pressmans’ first post-deadline motion for an extension in an order dated August 10, 2023 [ECF No. 29]. The Court noted that the Pressmans’ motion had merely argued that the Debtor was not entitled to a discharge, without addressing the relevant factors under Rule 4004(b)(2). The Pressmans also acknowledged, during a hearing, that all of the facts upon which they relied were derived from information that was set forth in the Debtor’s schedules (which had been filed in March 2023 and amended in May 2023) or in other sources that predated the deadline of June 23, 2023. The Court therefore ruled that the Pressmans had not shown a basis for relief under Rule 4004(b)(2). However, left open the opportunity for the movants to proceed if they could establish that after June 23, 2023 they learned of new facts showing a newly-discovered concealment of property that would warrant an extension under Rule 4004(b).

The Pressmans promptly filed a second motion for an extension of the deadline. Their primary contention in the second motion is that their former counsel allegedly did not tell them of the deadline and allegedly failed in his responsibility to ensure that the deadline was extended. Even if that were true, such alleged failures of counsel would not be proper grounds for relief under Rule 4004(b). It is well-settled that parties are responsible for the acts, omissions and knowledge of their attorneys, and any failures of counsel to comply with known deadlines (or to obtain extensions of those deadlines) are attributable to the clients themselves.

The United States Trustee (UST) seeks to reopen debtor’s chapter 7 bankruptcy case pursuant to 11 U.S.C. § 350(b) and Fed. R. Bankr. P. 5010, and to appoint a chapter 7 trustee to investigate debtor’s pending state court civil lawsuit for childhood sexual abuse filed in 2020 against, inter alia, the Roman Catholic Diocese of Joliet, Illinois. The UST asserts the cause of action is property of the bankruptcy estate because it accrued on or before the filing of debtor’s 2007 bankruptcy case and is therefore subject to administration. Following a hearing at which the parties presented argument, the Court directed the parties to file additional briefs and took the motion under advisement. Because the Court finds there are no facts before it to justify a finding that a valid cause of action accrued at a time that would make it property of the debtor’s bankruptcy estate, the UST’s motion to reopen the bankruptcy case is denied.

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The UST has failed to show that debtor’s personal injury cause of action accrued on or before the filing of her 2007 bankruptcy case and was therefore property of her bankruptcy estate. Even if a cause of action had accrued prior to the bankruptcy filing, such cause of action would be barred by the applicable Illinois statute of limitations. The UST has therefore failed to make a prima facie showing that debtor’s bankruptcy estate has not already been fully administered. Because it would be futile to reopen the bankruptcy case, the motion of the UST to reopen debtor’s 2007 bankruptcy case is DENIED.

If the state court, having access to information not available to this Court, reaches a conclusion that debtor’s cause of action accrued on or before March 7, 2007, and that debtor’s claim is, nevertheless, somehow not barred by the applicable statute of limitations, the UST may file another motion seeking to reopen the bankruptcy case.

Chapter 111 debtor Svenhard’s Swedish Bakery (“Debtor”) appeals the bankruptcy court’s order denying its motion to assume and assign, pursuant to § 365, a purported executory contract. The contract in question is a settlement agreement between Debtor and the Confectionery Union and Industrial Pension Fund (the “Pension Fund”) which provides for the release of approximately $46,000,000 of Debtor’s liability after payment of reduced amounts on specified terms.

The bankruptcy court held that the settlement agreement is not an executory contract because the Pension Fund’s only contractual obligation—to release its claim upon full payment under the agreement—is not due until after Debtor fully performs. Debtor has not demonstrated reversible error; we AFFIRM.

The district court held that the bankruptcy court has inherent authority to issue civil contempt sanctions, including per diem sanctions and attorneys' fees, arising out of a contemnor's failure to comply with the bankruptcy court's orders.

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[W]e hold that a bankruptcy court's inherent sanctioning authority includes the power to impose civil contempt sanctions in non-nominal amounts to compensate an injured party and coerce future compliance with the court's orders. We also hold that when, as here, a bankruptcy court imposes civil contempt sanctions pursuant to its inherent authority for the misconduct of an attorney acting on behalf of a litigant (that is, in his role as an advocate), the court must find that the attorney acted willfully or in bad faith and that the King factors have been established. The bankruptcy court must also provide notice and an opportunity to be heard. Because the bankruptcy court made these requisite findings and complied with the mandates of due process when imposing $55,000 in per diem sanctions and $36,600 in attorneys' fees pursuant to its inherent authority, Worms has failed to show anything close to an abuse of discretion.

[T]he bankruptcy court's imposition of civil contempt sanctions against Worms in the amounts of $55,000 (for 55 days of noncompliance with the court's discovery orders) and $36,600 (for attorneys' fees the FR incurred in connection with its sanctions motion before the bankruptcy court) were proper.

Quorum disputes that the three defendants are entitled to any indemnification in connection with this Adversary Proceeding and rejected the indemnification request in its entirety. Thereafter, it filed the Motion to Intervene and Complaint with this Court. The CHS Movants have filed their Motion to Stay in response to Quorum’s attempt to litigate its indemnification obligations in this Court rather than through arbitration.

As noted above, Quorum’s Intervenor Complaint seeks a declaratory judgment on the issue of its obligation to indemnify the CHS Parties. The parties disagree as to whether the action should be stayed pursuant to Section 3 of the Federal Arbitration Act. Central to this issue is the meaning and scope of the term “monetary relief” as it appears in the Separation Agreement. The Separation Agreement requires any and all disputes to be arbitrated except those concerning non-monetary relief. Quorum asserts that its Intervenor Complaint is ripe for adjudication by this Court, rather than through arbitration, because a declaratory judgment action does not seek monetary damages. By contrast, the CHS Parties urge this Court to consider the substance of the relief requested — namely a decision by this Court regarding whether Quorum is obliged to pay for legal fees associated with the underlying Adversary Proceeding.

The Court agrees with the interpretation set forth by the CHS Parties. The relief sought by Quorum through its Complaint is inherently monetary, irrespective of the procedural mechanisms utilized to achieve the result. By its very nature, indemnification involves the potential transfer of money from one party to another. A ruling by this Court on that specific issue in response to a pending request for payment directly affects whether and to what extent the parties are entitled to payment. Therefore, per the Separation Agreement, this Court finds that the matter falls squarely within the scope of the arbitration clause, and the parties have contracted to resolve the dispute in arbitration. The Motion to Stay will be granted.

Turning now to the issue of intervention, the Court will deny without prejudice Quorum’s Motion to Intervene. Quorum moves to intervene for the express purpose of obtaining a declaratory judgment via the Intervenor Complaint that is not properly before this Court. Because the indemnification dispute set forth in the Intervenor Complaint must be decided in arbitration, the Court finds no reason to allow Quorum to intervene for the purpose of prosecuting its Intervenor Complaint.

However, the Court observes that Quorum has identified a cognizable interest in the disposition of certain counts27 of the underlying Adversary Proceeding dealing with the validity of the indemnification clauses. This Court also notes Quorum’s statutory right to intervene as a party in interest pursuant to Section 1109(b).28 The Court would consider permitting Quorum to intervene in this adversary proceeding upon the filing of a motion requesting that relief.

In this case, the Court is persuaded that partial relief of the November 22, 2022 Order is appropriate. First, Ms. Klaus and Mr. Roosen should only be required to produce policies and procedures in place to determine that the obligation assigned to CCSI was valid and enforceable. These policies and procedures should include any analysis as to whether the debt in question was barred by applicable statute of limitations. Second, the 2004 examination of Mr. Roosen should be limited to those facts directly related to Ms. Gillespie but may include an inquiry into the policies and procedures involving the determination of the validity of the debt Ms. Gillespie owed to CCSI and those policies and procedures that were in place once Mr. Roosen was informed of Ms. Gillespie’s bankruptcy petition. Third, the present facts of this case persuade the Court that the 2004 examination of Ms. Klaus is unnecessary. The examination of Mr. Roosen as to the specific acts regarding Ms. Gillespie should be sufficient to allow Mr. Friedman and Ms. Gillespie to determine if they wish to pursue any action for the violation of the automatic stay or the FDCPA.

The Court does not reach this conclusion lightly. Originally, the statements made by Mr. Friedman caused grave concern to the Court that serious violations of the FDCPA could exist. The Court was also concerned that there was an unexplained delay in the return of the funds to Ms. Gillespie when the Court first heard this matter on November 3, 2022. Subsequently, explanations have been given that may, or may not, be completely satisfactory. At this early stage of the proceeding, which only involves the 2004 examination stage, this Court is not in a position to assess whether Ms. Gillespie has viable claims or whether CCSI has viable defenses. The Court will note, however, that while it has limited the inquiry by Mr. Friedman, it also has liberated him from subsequent claims that he has not complied with Rule 9011. Second, the Court will also note that Ms. Klaus’ invitation to Mr. Friedman to file a motion or an adversary proceeding remains open and that either method may prove more satisfactory to the parties then skirmishing over Rule 2004 discovery issues.

[T]he Neutral may have a significant impact on the Insurers' rights as the Neutral will set the value of the Survivor Claims prior to the Trust seeking coverage from the Insurers. As such, in order for the Neutral to live up to its title and truly be neutral, the TAC cannot have influence over the Neutral. The Revised Confirmation Order requires that appointment of the Neutral shall be by motion of the Trust Administrator and is subject to Bankruptcy Court approval. However, the Court finds the standards laid out in the Revised Confirmation Order do not go far enough, and while Court approval is proper, at a minimum, the selection must be made either together with the Insurers, or at this Court's discretion after input from interested parties. For this reason, the Plan cannot be confirmed.

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This Court finds that the that the Policies in this case are not executory. The "obligations" discussed by the Insurers do not render the Policies executory. Regarding the Insurers' argument that the Debtor's duty to defend renders the Policies executory, there is significant caselaw indicating that this is not the case.

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[T]he Court finds that the Insurers are correct in their argument that this Court lacks jurisdiction to order or approve the transfer of the OCE's interest in the Policies, because the Court's jurisdiction is limited to property of the Debtor, or the estate. 11 U.S.C. § 541. Therefore, the Court does not rule on the transfer of the OCE's interests in the Policies, and the parties are free to raise this matter before a state court at the appropriate juncture. Instead, the Court merely finds that the Plan provisions do not violate the Bankruptcy Code, and therefore do not make the Plan unconfirmable, but this Court has no jurisdiction over OCE property, including its interest in the Policies.

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[T]he Court cannot find that the Plan satisfies the requirements of 1129(a)(3) as currently proposed. While the Court overrules the Insurers' objections related to the Debtor's conduct in negotiating, drafting or trying the confirmation of the Plan, the terms of the Plan and the TDPs are currently too biased for the Court to make a good faith finding. However, modifying the language related to the protection of the Insurers rights and defenses under the Policies, and the terms of the TDPs, so as to ensure that a neutral party seeks to assign a claim value to the Survivors claims might resolve these issues.

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[A]s currently drafted, the Plan appears to allow compensation for claims which are facially invalid or fraudulent. The Expedited Distribution cannot be an avenue for claims that are facially invalid or fraudulent to receive a distribution. For this additional reason, the Plan cannot be confirmed. If objections to these claims had been filed, the claims likely would have been disallowed, and in certain cases the attorneys that filed these claims may have been subject to sanctions under Federal Rule 11 or the New Jersey Rules of Professional Conduct (the "RPC"). The fact that the claims review is being handled by the Trust does not mean that this Court does not have jurisdiction over these claims, nor that it can allow facially invalid or fraudulent claims

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[S]several of the claims filed are invalid on their face, and yet the Plan would permit these claims to be paid, and the attorneys that filed these invalid and potentially fraudulent claims to receive one-third, or more, of the $2,500 expedited distribution.22 The Court cannot approve a Plan which allows attorneys to file invalid and fraudulent claims without consequence. Nor can the Court allow attorneys to collect contingency fees in excess of what is permitted under New Jersey law, or in excess of what is reasonable for the work required and risk taken. Any future plan must take steps to ensure that the Survivors' attorneys are not violating the RPCs and taking advantage of the Survivors.

The dispute over the applicable legal standard, however, is ultimately a tempest in a teapot. While it is true that cases articulate the standard in different ways, there really is no disagreement that once the bar date passes, a proof of claim typically cannot be amended to seek recovery of new or different amounts that were not fairly encompassed in the original (timely-filed) proof of claim. Rather, such amendments are limited to fleshing out the details of – but not fundamentally changing – the timely-filed proof of claim. Changing a proof of claim to add amounts that were outside the scope of the original proof of claim is treated as the filing of a new claim. And to do that, one would be required to meet Bankruptcy Rule 9006(b)’s “excusable neglect” standard for a late-filed claim set out by the Supreme Court in Pioneer.

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Based on the Court’s review of the proofs of claim at issue, and the evidence submitted during the August 21, 2023 evidentiary hearing, the Court reads PSE&G’s original proof of claim to be limited (subject to one inapplicable exception) to recovering its share of the costs that were borne by the Lower Passaic River Study Area Cooperating Parties Group (to which the parties refer as the “CPG”), of which PSE&G was a member. The amended proof of claim, however, seeks to recover on account of costs borne by PSE&G directly that are unrelated to PSE&G’s membership in the CPG.

The proposed amendment would thus expand the damages sought beyond the claim for which PSE&G’s timely-filed proof of claim put the debtors and other parties on notice. It is true, as PSE&G argues, that there is some common denominator between its proofs of claim. The costs for which PSE&G seeks recovery are amounts relating to the cleanup of the Passaic River, following the discharge of dioxin, for which the debtors are alleged to be liable under various environmental laws. But that is insufficient for this purpose. At least in the context of amending a proof of claim after the bar date, that is not what is meant by a single “transaction or occurrence.” Rather, just like the doctrine that otherwise governs motions for leave to amend proofs of claim, Civil Rule 15’s “transaction or occurrence” test would not allow a claim to “relate back” to original filing if it seeks damages that were not fairly encompassed n the original claim. The motion for leave to amend is therefore denied.

Lynn Tilton was the sole director and indirect owner of TransCare Corp. When TransCare was on the brink of bankruptcy, Tilton created a plan to sell the profitable parts of the business to herself. She directed Patriarch Partners Agency Services, LLC, a company she controlled, to foreclose on the TransCare assets associated with its profitable business lines. Patriarch Partners Agency Services then sold those assets to two other companies that she created and controlled. What remained of TransCare filed for Chapter 7 bankruptcy.

Both the bankruptcy court and the district court agreed that (1) Tilton had breached her fiduciary duties by engaging in a self-interested transaction that failed to meet the entire fairness standard, and (2) the foreclosure on TransCare’s assets was an actual fraudulent conveyance. The district court calculated that Tilton and her companies owed TransCare’s bankruptcy estate a combined total of $39.2 million in damages.

We find no error in the determination of the bankruptcy and district courts that Tilton breached her fiduciary duties to TransCare and engaged in an actual fraudulent transfer. Tilton did not meet her burden to prove fair dealing or fair price with respect to the sale of the TransCare assets, and nearly every badge of fraud was present in the transfer. We also find no clear error in the damages award, which was based on the projected future earnings of the TransCare assets that Tilton had sold to herself.

Housing prices fluctuate over time, as do the relative financial risks and benefits of home ownership. Ideally, home values appreciate. Yet history cautions, there are no guarantees. Reliably predicting the real estate market’s ebbs and flows ranges from difficult to a fool’s errand.

In 2021, Wendy Elassal (“Debtor”) filed chapter 13 bankruptcy, committing three years of disposable income to keep her assets—including a $250,000 home—with $228,000 of liens. Although unsecured creditors would have received nothing in a hypothetical Chapter 7 liquidation (Debtor could have exempted the remaining home equity), Debtor’s Second Amended Plan proposed to pay a minimum of $1,277.16 towards $93,805.83 in general unsecured claims. This plan was confirmed without objection.

Who could have predicted, in less than two years, Debtor’s home would sell for $435,000, netting $177,695.13 in proceeds after full payment of the liens? Not the Trustee, who consented to confirmation; nor the unsecured creditors, who could reasonably have decided something was better than nothing at the time. Likely not even Debtor, who agreed to the modest payment to unsecured creditors, whether her home appreciated or depreciated.

Through either her uncanny real estate market expertise or good fortune, Debtor’s decision to file and remain in Chapter 13 has “paid off.” But for whom? Debtor wants to keep the money: Having now paid her secured creditors, she seeks Court approval to use all of the sale proceeds to buy a new home—for cash—while making her promised dividend to unsecured creditors over the remainder of her plan. The Trustee’s objection and proposed plan modification urge a different outcome: Debtor may only keep what remains after unsecured claimants receive full payment—anything less would be inconsistent with the code and evidence Debtor’s lack of good faith. The Court disagrees. Superior discernment or luck is neither gamesmanship nor an absence of good faith. Because the Court determines: (1) the estate replenishment theory best harmonizes 11 U.S.C. §§ 1306 and 1327, Debtor’s home vested in her at confirmation; (2) the sale proceeds, derived from post-confirmation appreciation of Debtor’s pre-petition real property, cannot be untethered from the real property itself, and do not refill the estate; and (3) the sale proceeds, particularly when escrowed for direct rollover into a new home purchase, are not “disposable income”—Debtor may use the sale proceeds to buy a new residence. The Trustee’s objection is OVERRULED, and her plan modification is DENIED.

When, as here, the chapter 13 trustee opposes confirmation under 11 U.S.C. § 1325(b), the plan cannot be confirmed unless the debtor devotes his “projected disposable income” to payment of unsecured creditors over the “applicable commitment period.” A debtor’s projected disposable income and his applicable commitment period are based, in part, on his “current monthly income.” That term is at the center of the dispute in this case.

Warren Hughes, the debtor, is a physical therapist operating a business as a sole proprietor. At the outset of his case, the debtor completed Official Form 122C-1, entitled Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period. On the form, he reported that there were four persons in his household and that his average monthly income was roughly $4,000 (calculated as gross business receipts of $12,200 minus operating expenses of $8,200). Based on these figures, the debtor reported that his annualized current monthly income was about $48,000. At the time, the median income for a family of four in Maine was approximately $97,000. As a result, Form 122C-1 showed that the debtor was a below-median-income debtor with a 36-month commitment period. The debtor did not complete Official Form 122C-2, which employs a means test to compute the disposable income of an above-median-income debtor.

The trustee opposes confirmation for one reason: he believes that the debtor should not be permitted to deduct his business expenses when calculating current monthly income (“CMI”). For the most part, the trustee’s belief is rooted in 11 U.S.C. § 1325(b)(2)(B), which provides for business expenses to be deducted from CMI in the calculation of disposable income. Because business expenses are deducted from CMI, says the trustee, they cannot also be deducted when calculating CMI in the first place. In the trustee’s estimation, Mr. Hughes is above median income, his commitment period is 60 months, and he is subject to a means test when computing disposable income. There is ample authority supporting the trustee’s position.

Although the dispute here is framed with relative ease, resolving the dispute is more challenging. Neither the debtor nor the trustee offers an interpretation of the pertinent statutes that is entirely satisfactory. Although both interpretations appear to collide, to some extent, with traditional precepts for construing statutes, the debtor has the better view. Although that view renders section 1325(b)(2)(B) surplusage, it results in a more coherent statutory scheme and better comports with stated policy goals. For this reason, the debtor may deduct his ordinary and necessary business expenses from gross business receipts when calculating CMI. The trustee’s objection will be overruled.