The WARN Act contains statutory exceptions for circumstances in which (a) at the time notice would have been required, the company is actively seeking new capital or business, and it reasonably believes that sending a WARN notice would tank those efforts (this is the so-called “faltering company” exception) and (b) the layoffs are caused by “unanticipated business circumstances.” Where either of those exceptions applies, the 60-day notice period may be shortened. But even then, the company is still required to provide a notice. The notice must contain a brief statement explaining why one or more of the exceptions applies. The summary judgment record here shows that both of the exceptions were in fact applicable. The form of notice the company sent, however, failed to comply with the statutory requirements.

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[E]ven when an employer has a valid defense on the merits, the statute still requires the employer to send a notice that provides employees with a brief statement of the basis for reducing the notice period. The law is clear that this statement must be factual rather than conclusory. As described in further detail below, the notices that the debtors sent were inadequate. The debtors emphasize that much of the information that should have been included in the notices was communicated separately to the employees and indeed was so widely publicized that it was well known to everyone and anyone. While there is some truth to that, and it is certainly relevant to the issue of “good faith” addressed below, it does not fully excuse the failure to send a compliant notice as the statute requires.

These adversary proceedings (the “Adversary Proceedings”) were commenced by Douglas T. Tabachnik in his capacity as the Chapter 7 Trustee (the “Trustee”) of The Worth Collection, Ltd. (the “Debtor”) against various entities and nine individual defendants (collectively, the “Defendants”). The complaints in each Adversary Proceeding assert claims against specific Defendants arising out of a series of leveraged buy-out transactions undertaken by the Debtor in September 2016 (the “LBO Transaction”). The first three counts in every complaint assert the same claims: Count I – Substantive Consolidation; Count II – Declaratory Relief: Piercing the Corporate Veil; and Count III – Declaratory Relief: Collapsing of Transactions Associated with the LBO Transaction. The relief sought in Counts I – III is essential to the Trustee’s ability to prevail against the Defendants on any of the remaining counts in his Complaints.

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The Trustee also argues that the Complaint alleges that each of the transactions was executed in furtherance of a common purpose: the fraudulent LBO Transaction, which ultimately enriched, among others, the Defendants, at the expense of the Debtor’s creditors. He argues that the unique structure of the LBO Transaction is a dispositive fact because it was that leverage which left the Debtor unable to pay its creditors after the Closing Distributions were transferred to Defendants, thus effectively leaving the Debtor’s creditors to foot the bill.

As noted above, it is not unusual for courts to collapse transactions in an LBO context to assess fraudulent transfer liability.88 But the Trustee’s broad allegation that the result of the LBO Transactions was unfair to the Debtor’s creditors cannot, on its own, provide the factual support needed for collapsing transactions. The Court agrees with the Defendants that the Complaint’s recitals of the elements of the collapsing doctrine are not sufficient at this stage to support the claim in Count III.89 Accordingly Count III will be dismissed.

The Court issues the instant Memorandum Opinion to remind parties that gamesmanship and ambush tactics will not be tolerated in this Court. After Garcia Grain Trading Corp. (“Plaintiff”) and its counsel Mr. David Langston expended an estimated $50,277.52 in fees and expenses and traveled to McAllen, Texas from Lubbock, Texas, for a scheduled hearing on Rodolfo Plascencia, Sr. and WNGU Properties, LLC’s (“Defendants”) motion for sanctions levied against both Plaintiff and its counsel Mr. David Langston, Defendants after entering their appearance and without notice to Plaintiff, withdrew their motion for sanctions. In response, the Court ordered fee shifting against Defendants and directed Plaintiff to file a fee application to recover costs associated with defending against the sanctions charged against it. The Court subsequently held a show cause hearing to give Defendants an opportunity to explain why the Court should not order fee shifting, yet Defendants failed to provide any explanation for their last-minute withdrawal of their motion for sanctions. Accordingly, the Court issues this instant Memorandum Opinion and accompanying Order.

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Accordingly, the Court finds that by filing a motion that asserts serious allegations against Plaintiff and its counsel, and then withdrawing the motion minutes before Plaintiff had an opportunity to address the allegations in open court, causing Plaintiff to unnecessarily expend resources in mounting a defense, Defendants have deliberately abused the judicial process. For these reasons, the Court finds that Defendants acted in bad faith and should be sanctioned pursuant to § 105(a) and this Court’s inherent authority. The Court will enter a separate order directing Plaintiff to file an application for its fees and expenses incurred in its defense to the Motion for Sanctions.

The Trustee challenges the Debtor’s claimed expenses on her Means Test for her gym membership, private Pilates classes, additional food, and transportation. The Debtor asserts that the expenses are allowable as Other Necessary Expenses or as special circumstances.

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[T]he Court determines that the Trustee’s Objection to confirmation is sustained as to the Debtor’s expenses for her gym membership, private Pilates classes, and additional food. The Court further determines that the Trustee’s Objection is overruled as to the Debtor’s transportation expenses and those expenses will be allowed as a special circumstance.

John A. Hanratty (“Hanratty”) is the managing member of Ebury Street Capital, LLC and the related entities that are debtors before this Court (collectively “Debtors”). Hanratty testified as the managing member and last remaining employee of Debtors, but Hanratty is not a debtor. Hanratty is a party to criminal litigation in the Southern District of New York, as well as civil litigation in Texas, New York, and Puerto Rico. All of this litigation involves transactions related to certain Debtors. While the litigation against Hanratty is not within the confines of this Court’s jurisdiction, questions regarding the interplay between the criminal litigation against Hanratty and the Debtors’ operations quickly arose in these cases.

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While Debtors faced difficulties, there is not enough here to overcome the grounds supporting dismissal. Debtors did not establish a reasonable likelihood that a plan will be confirmed within a reasonable period of time. A plan has not been filed to date, and Debtors acknowledge that liquidation is their only path forward. Nor did Debtors establish that their deficiencies and omissions in Schedules, reports, and fees will be cured within a reasonable period of time. In their Post-Hearing Brief, Debtors argue that “substantial leeway must be given for the opportunity to allow the Debtors an organized process that maximizes the return to all creditors.” (Doc. 261). The record supports that, given the unique facts of these cases, leeway was provided on numerous occasions. Notably, the Bankruptcy Administrator continued the meeting of creditors five times, but even after the final setting, it was admitted that Schedules still require amendments because of inaccuracies. The Court also extended deadlines several times. (Docs. 38, 100, 106, 238). Debtors also argue that there is a lack of urgency here because the Bankruptcy Administrator and creditors waited five months before seeking dismissal. Id. The Court does not find this argument persuasive. Instead, it views any perceived delay by the Bankruptcy Administrator in seeking dismissal as her attempt work with Debtors and provide them with every opportunity to rehabilitate.

The decision in Merit Management quite clearly commands that in deciding whether section 546(e) applies I should look at the transfer that the plaintiff seeks to avoid and whether that transfer “itself” was a payment to a protected entity of a kind that invoked the protections of section 546(e). The transfers that GBG made to GBGH and to Fung Holdings plainly were not securities transactions. Defendants want me to look at a prior transaction – the October 1998 Centric sale – in order to find a “securities transaction” that allegedly is relevant. However, the Trustee does not challenge the Centric sale and does not seek to avoid it. The Trustee only challenges the March 2019 transfers that GBG made. Defendants do not want to focus on the transfers that are the actual subjects of the Amended Complaint, and instead they want to re-define the relevant transactions to try to bring section 546(e) into play, but that is exactly what the Supreme Court said in Merit Management that I should not do.

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In this case, the $196 million of transfers that GBG made to GBGH were not made to complete a securities transaction. Defendants’ sole argument is that somehow the motivation for the transfers was a sale by GBG, six months earlier, of the stock of a subsidiary. But those sale proceeds were not even used to fund the dividend. The sale proceeds had already been paid to GBG’s creditors, as noted above.

At least two other recent decisions have rejected efforts to use Merit Management to protect a transaction from avoidance merely because some or all of the transferred funds had originated from a prior securities transaction.

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The Supreme Court confirmed in Merit Management that in challenging a transfer a trustee must identify characteristics of a challenged transfer that actually make it subject to avoidance, and in that sense a trustee is not free to define a “transfer” in any way the trustee chooses. So long as the Trustee identifies the necessary elements for avoidance, however, a Court has no reason to look beyond the particular transfer that a Trustee has challenged. In this case the Amended Complaint alleges all of the necessary elements for the avoidance of the transfers that GBG made in March 2019, and there is nothing about those particular transfers that would bring the protections of section 546(e) into play. Merit Management makes clear, under these circumstances, that section 546(e) is not applicable.

“Statutes of repose make the filing of suit within a specified time a substantive part of the plaintiff’s cause of action” and this “cannot be over-ridden by a procedural rule such as Rule 15 to save a late-filed and thus, extinguished claim.”

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The extinguishable theory of a statute of repose is in direct conflict with Section 546(a), which is designed “to give the trustee ‘some breathing room’ to determine which claims to bring under section 544.” . . . The “overwhelming majority of courts that have been asked to decide whether section 546(a) preempts a state statute of repose have concluded that it does under conflict preemption.”

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§ 24.004 must give way to § 546(a) of the Bankruptcy Code to further Congress’s interest in enacting § 546(a)—providing the trustee with time to identify valuable causes of action for the benefit of creditors. This Court adopts the reasoning in Judge Owens’s opinion, and finds that TUFTA’s repose statute is preempted by § 546(a) of the Code.

Trustee asserts that the reason for J.C.'s delay cannot form the basis for excusable neglect. In particular, Trustee contends that J.C. should have been in communication with the law firm who he thought filed his proof of claim. As he was not, Trustee argues, the failure to timely file a proof of claim was not outside J.C.'s control. Based on the unefuted evidence, I make the following findings of fact. Prior to the Bar Date, J.C. received a solicitation from ASK LLP seeking to represent him and other abuse claimants in the BSA bankruptcy case. J.C. responded to the solicitation and ASK telephonically interviewed J.C. for approximately an hour to vet his claim. During the interview, J.C. disclosed substantial details of the abuse he suffered as a Boy Scout. Based on the interview process, J.C. believed "that ASK filed all the forms that were necessary to preserve [his] claim."

Based on his belief that the necessary forms had been filed, J.C. also declined to engage the firm representing his brother in the bankruptcy case. After confirmation of the Plan, J.C. discovered that ASK did not submit a proof of claim on his behalf.

I conclude based on these facts that there is a basis for J.C. to have believed that ASK filed a proof of claim for him and that he intended that to happen. He was solicited by a law firm, participated in an hour-long vetting call with a law firm in which he described the abuse he suffered. Had he not believed that the paperwork was filed, he may have chosen to speak with his brother's law firm. At the very least, J.C. 's confusion about whether he was represented is a sufficient excuse for purposes of the Pioneer analysis.

At conclusion of the trial, and now again after carefully reviewing and considering the testimony and evidence presented at trial, the Court is perplexed by the demise of debtor, Amy Liebl Darter, MD, PC (“Debtor”), and the explanation provided therefor by Liebl-Weaver and KT Weaver. As late as the summer of 2022, Debtor was an economically viable and successful medical practice, managed by Liebl-Weaver. Less than a year later, after Debtor was struck by alleged employee wrongdoing and a cybersecurity attack, Liebl-Weaver lost her medical license, Debtor filed a chapter 7 bankruptcy petition, and minimal assets were available for distribution to creditors. In the year during which all of these calamities struck, Liebl-Weaver, KT Weaver, and KT Weaver Construction received a combined $818,739.67 from Debtor, a disturbing fact leading Trustee to commence this adversary proceeding.

Blame for Debtor’s ultimate demise is cast by Liebl-Weaver and KT Weaver on a far-fetched tale of identity theft, employee theft and wrongdoing, and an “acute” cybersecurity attack for which there is no reliable evidence. Their testimony seems particularly incredible when juxtaposed with their complete inaction to recover from these catastrophes. And, conveniently, the cybersecurity attack left them without any electronic records from which the details of the services Liebl-Weaver, KT Weaver, and KT Weaver Construction allegedly provided to Debtor could be ascertained. Moreover, the cybersecurity attack somehow resulted in Defendants’ paper records and files being in complete shambles and essentially worthless to the Trustee.

For reasons stated below, the Court simply cannot accept Liebl-Weaver’s and KT Weaver’s dubious explanations for why Liebl-Weaver, KT Weaver, and KT Weaver Construction deliberately and intentionally drained the available cash from Debtor prior to its bankruptcy filing. The most telling flaw in their explanation for the demise of Debtor is Liebl-Weaver’s apparent failure to take the necessary steps to regain access to Debtor’s computer system, specifically Debtor’s medical records, be it through legal and/or computer experts engaged near the time of the cybersecurity attack. Moreover, rather than preserve the medical business, Liebl-Weaver allowed KT Weaver and KT Weaver Construction to continue to make costly improvements to Debtor’s office building at great expense to Debtor (despite the building being owned by AAA Sisters). The Court will never understand why Liebl-Weaver allowed this to unfold, but she did, and effectively stripped all cash from Debtor and directed it into her pockets and those of her husband, and his entity.

The Court also rejects Defendant’s third argument that, because Defendant reserved objections to the relevance of the search results, those search results should not be produced to Plaintiff at this discovery stage in the case. Once again, Defendant’s argument is inconsistent with Fed.R.Civ.P. 26(b)(1) and Fed.R.Bankr.P. 7026 which provide that parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case. Also, Fed.R.Evid. 401 deems “evidence relevant if it has ‘any tendency to make a fact more or less probable’ (emphasis added) . . .”

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In the instant case, however, the parties agreed upon the ESI search terms. Consequently, there can be no argument of a “fishing expedition.” Also, because Plaintiff paid for Archer Hill to conduct the search and wants to review (at its expense) all ESI search results that Defendant withheld solely based on relevance, there can be no argument of an undue burden on Defendant.

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The Court also rejects Defendant’s fourth argument that Plaintiff failed to carry the burden of demonstrating relevance. At this discovery stage in the case, “[s]howing relevance is an ‘extremely low bar.’”

The Defendants argue that there is a mandatory stay of the appeal under applicable Supreme Court authority because its claims were subject to an arbitration clause. The Plaintiffs oppose the Motion, contending that the authority on which the Defendants rely does not apply to bankruptcy cases, and that even if it does, it does not apply here because the appeal is frivolous.

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The Court agrees with the Defendants that their argument is not frivolous, even though the Court disagreed with that argument in deciding the Motion to Dismiss. Although only two of the parties’ agreements contain arbitration provisions and although not all the agreements are between the same parties, the Court concludes that there is a facially valid argument that the agreements and parties are so inter-related that an appellate court could conclude that all claims under those agreements should be arbitrated. Therefore, the Court concludes that the Defendants’ argument is not frivolous and that the Coinbase mandate of a stay pending appeal is applicable.

The Court does not suggest by its ruling in this case, however, that the holding in Coinbase is applicable to all adversary proceedings in bankruptcy cases. Rather, the Court concludes only that Coinbase is applicable on the unique facts of this case where (1) the adversary proceeding deals with discrete issues between a few parties; (2) the stay of the adversary will not affect the ability of the Court to address unrelated issues in the bankruptcy case; (3) the plan has been confirmed and there are few other matters pending; and (4) the order on appeal was a denial of the asserted right to arbitrate all of the issues present in the adversary proceeding.