The Court views the Debtor’s Objection to the MarkWest Claim as an effort to ensure that the amount contained therein does not become allowed as filed but remains subject to the outcome of the Colorado Litigation. The Debtor’s reply to MarkWest’s response to the Objection supports this view: “Had the Reorganized Debtor not objected to the MarkWest Claim by the deadline set for in the confirmed Plan, the MarkWest Claim would be deemed allowed under the confirmed Plan. Had the MarkWest Claim become allowed under the confirmed Plan, MarkWest would likely have filed with the Colorado Court of Appeals a motion seeking to dismiss the Appeal as moot.”

As provided in the Confirmation Order, the Court must reserve the final determination of the appropriate amount of the Claim until the conclusion of the Colorado Litigation.

Accordingly, it is ORDERED that a ruling on the Objection is DEFERRED pending the final disposition of the Colorado Litigation

The Trustee seeks a direct appeal of the Bankruptcy Court’s order, dated July 7, 2023 (Adv. D.I. 482)1 (the “Final Judgment”), and accompanying opinion, In re Samson Resources Corp., No. 15-11934, 2023 WL 4003815 (Bankr. D. Del. June 14, 2023) (the “Opinion”), which found that the 2011 sale of SIC did not constitute a fraudulent transfer. The Trustee further seeks to certify his appeals of two interlocutory orders, issued on January 6, 2021 and August 23, 2022 (the “Interlocutory Orders”), which together held that certain transfers made by SIC fall within the Bankruptcy Code’s § 546(e) safe harbor.

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I conclude that certification is inappropriate. Even if the questions presented were “novel” and “highly important to financial markets,” they are not dispositive of the appeal, i.e., the answers will not affect the outcome unless the court hearing the appeal also reverses the Bankruptcy Court’s factual findings that the transferors were solvent and received reasonably equivalent value for the transfers. See In re LATAM Airlines Grp., S.A., No. 20-11254, 2022 WL 2962948, at *7 (Bankr. S.D.N.Y. July 26, 2022) (declining to certify for direct appeal where the Bankruptcy Court’s factual finding made consideration of the challenged legal question unnecessary). Put another way, the court reviewing the Bankruptcy Court’s judgment need not consider the legal questions regarding the applicability of § 546(e)’s safe harbor unless and until the reviewing court determines that the Bankruptcy Court clearly erred in its factual findings. Such questions do not “fall within the ambit of section 158(d)(2)(A)(i).” Id.; see also In re Am. Home Mortg., 408 B.R. at 44 (declining to certify for direct appeal where the Bankruptcy Court’s decision involved “mixed questions that implicate the particular circumstances of this case”).

In closing arguments, U.S. Bank asserted that the “plain language” of the anti-modification provision applied to any property a debtor used as a principal residence, whether or not the debtor also used the property for some other purpose. Lee countered that section 1123(b)(5)’s anti-modification provision applied to a claim “secured only by the [d]ebtor’s principal residence” and her property wasn’t subject to the provision because, “from an acreage standpoint,” it was “primarily farmland.”

The bankruptcy court agreed with U.S. Bank that the plain language of section 1123(b)(5) did not require that Lee use the property exclusively as her principal residence. And, because it was undisputed that the property was Lee’s principal residence, section 1123(b)(5) applied to Lee’s mortgage. The bankruptcy court therefore found that it could not confirm Lee’s proposed plan and that Lee failed to establish a prospect of reorganization. Thus, the bankruptcy court granted U.S. Bank’s motion for relief from the automatic stay.

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In short, we hold that section 1123(b)(5) is unambiguous and has three requirements: “first, the security interest must be in real property; second, the real property must be the only security for the debt; and third, the real property must be the debtor’s principal residence.” Wages, 508 B.R. at 165. Because U.S. Bank holds a claim that is secured only by a security interest in real property that Lee uses as her principal residence, the anti-modification provision applies to U.S. Bank’s security interest and the bank was entitled to relief from the automatic stay. Like the district court, we affirm the bankruptcy court’s order granting relief from the stay.

The Bankruptcy Court held a hearing in March of 2021 to consider Freedom’s objections to the Third Modified Plan. At the hearing, the Bankruptcy Court questioned Freedom about why it was challenging the use of rental income to pay off its secured claim when it had consented to that arrangement previously: “[I]n January of 2020, a little over a year ago, [Freedom] was okay with using the rents to apply against plan payments. They consented to it. And … now you’re saying you don’t want to do that anymore[?]” In response, Freedom argued that the Third Modified Plan was “a new plan” to which it had not consented, stating that “[t]here was nothing in [the Consent Order] that required the creditor to consent to future plans, different plans.”

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A confirmation hearing was held the following month. The Bankruptcy Court held that “the issues of value, the use of the rents [to pay down the secured claim,] and the step up in payments [were] res judicata” because of the Consent Order and Smith’s Second Modified Plan.

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The question in this case is whether res judicata applies to a confirmed plan when the debtor properly seeks to modify plan terms under § 1329.16 Freedom argues that, once a plan is modified, all of the components of the plan are open to challenge. In other words, Freedom says that all of the terms of Smith’s plan can be reconsidered when she asks to modify the plan under § 1329. As Freedom sees it, “[c]onsiderations of finality and reliance … are absent” because Smith “abandoned the prior confirmed plans and filed a Third Modified Plan[.]”

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Allowing all the terms of a previously confirmed plan to be reconsidered during a modification proceeding would be “inconsistent with the general policy favoring the finality of confirmed plans[.]” If Freedom’s position were to prevail, then overdue objections could be shoehorned into the confirmation proceedings, even though unrelated to a debtor’s proposed modification. Such a result would violate § 1327(a).

The ERS Beneficiaries are recipients of pension payments made by ERS, the Commonwealth's "chronically underfunded" pension fund that required public employees to pay into ERS while they were working with promises of a pension during their retirement. In 2008, at the advice of its financial advisor, UBS, ERS attempted to cover its fiscal deficit by issuing $3 billion in bonds to fund its pension payments. These bonds, which were underwritten by UBS, failed to make up for ERS's budgetary shortfalls and, indeed, worsened ERS's financial condition. A few years later, in 2011, the Commonwealth acknowledged that ERS illegally authorized the 2008 bond issuance, and the Commonwealth legislature amended a statute to reinforce existing prohibitions on ERS's ability to issue bonds.

In September 2011, the ERS Beneficiaries filed the Commonwealth Action against UBS in the Commonwealth Court.

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The ERS Beneficiaries do not appear to dispute the fact that the Plan and PROMESA preclude them from raising derivative claims based on ERS's injury. Instead, the ERS Beneficiaries maintain that their Commonwealth Action claims "are separate and distinct from ERS'[s] own right to damages."

A close review of the FAC's allegations reveals that the ERS Beneficiaries' claims are wholly derivative of ERS's injuries.

WSFS and Wilmington argue that: (a) RWE is resigning, which will leave the Committee with only two members; and (b) Drax is a competitor and will have to be excluded from certain confidential business information that the Debtors may provide to the Committee, and Drax may have recuse itself from voting on certain Committee resolutions. The U.S. Trustee responds by arguing that RWE has not yet resigned, and the U.S. Trustee will deal with a resignation if and when it happens.

The Court finds that, regardless of RWE’s impending resignation, and regardless of Drax’s ability to receive and act on confidential business information, adequate representation requires that at least one Indenture Trustee be added to the Committee. This is a case in which the overwhelming majority of the debt – over $1.1 Billion – is bond debt. The RSAs are not a reason to exclude either of the Indenture Trustees from the Committee. First, the RSAs have not been presented to the Court for approval. The RSAs are the subject of continuing negotiations among the Debtors, the Committee, and the Ad Hoc Group.

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The U.S. Trustee argues that, even if the Motion is granted, the Court lacks the power to direct the appointment of one or more individual Committee members, citing In re Dow Corning Corp., 212 B.R. 258 (E.D. Mich. 1997). The Dow Corning case, however, was decided under former Section 1102(a)(2), under which parties could request the court to appoint “additional committees” to assure adequate representation. The current statute, Section 1102(a)(4), permits the Court to “change the membership of a committee.”

Still, the appointment of individual committee members is statutorily allocated to the U.S. Trustee, at least in the first instance. 11 U.S.C. § 1102(a)(1) (“the United States trustee shall appoint a committee of creditors holding unsecured claims…”). The Committee should “ordinarily? consist of persons, willing to serve, holding the seven largest claims against the? debtor. 11 U.S.C. §1102(b)(1). This language has been described as “precatory” and “non-binding,” and “affords no right of membership.”

Where, as in this case, there are two Indenture Trustees seeking appointment to the Committee, the Court will direct the U.S. Trustee to appoint one or both Indenture Trustees to the Committee. The Court will not direct the appointment of both Indenture Trustees to the Committee. If the U.S. Trustee decides to appoint one Indenture Trustee, he may choose between WSFS and Wilmington Trust.

Is a chapter 7 trustee entitled to compensation when the bankruptcy case is converted to chapter 13 prior to the chapter 7 trustee having made any distributions? This is a question that bankruptcy courts have struggled with. As one court put it, there are “as many as six different discernible theories.”

In the instant case, the former Chapter 7 Trustee discovered undisclosed, non-exempt equity in the Debtor’s residence while the case was pending under chapter 7. Such efforts will result in non-priority, unsecured claims being paid in full in the converted chapter 13 case.2 The fractured caselaw suggests chapter 7 trustee fees should be allowed in the converted chapter 13 case in a range of $0 to the entire commission the former Chapter 7 Trustee would have received had the case remained in chapter 7.

This Court determines that it has the authority to award reasonable compensation for the former Chapter 7 Trustee’s services, despite no distributions having been made while the case was pending under chapter 7. The Court takes into account all relevant factors in making its award, which includes an appropriate hourly rate, time spent, and a fee enhancement for the diligent investigation and discovery of non-exempt assets.

The Creditor objected stating that the Debtor’s plan violates 11 U.S.C. §§ 1129(a)(3), (7) and 1191. The Trustee also objected to the Debtor’s plan specifically as to the provisions allowing the Debtor to directly make its payments to creditors instead of through the Trustee. The Court finds that the Debtor carried its burden by meeting its requirements under §§ 1129 and 1191(b) and overrules the outstanding objections.

* * *

The parties misplace their reliance on these cases. The standards used and decisions reached by the Phoenix Piccadilly and Who Dat? courts addressed different procedural postures than the case at bar. The court in Phoenix Piccadilly examined whether the debtor in that case filed its petition, not its plan, in bad faith. The court in Who Dat? addressed a creditor’s motion to dismiss or, alternatively, convert as well as the creditor’s objection to confirmation when finding that the case should be dismissed. The issue before this Court is only whether the Debtor filed its plan in good faith for purposes of confirmation under § 1129(a)(3).

The Creditor argues that the plan aims solely to benefit insiders, that the Debtor inappropriately included non-business-related expenses in its budget which, the Creditor claims, decreases the funds available for unsecured creditors, and the Debtor’s purchase of a car for Mr. Johnson during its litigation with Mr. Fields, demonstrates bad faith. Hr’g Held, Doc. 90. The Court disagrees.

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The Debtor cannot immediately make SCB more profitable to pay its receivable. The Debtor’s determination that the debt owed to it is worthless for the purposes of liquidation is based on SCB’s current financial position, not on hypothetical improvements to SCB’s business that may improve SCB’s finances. Thus, the Court does not find the Creditor’s arguments about theories to potentially improve SCB’s business circumstances persuasive as to deny confirmation of the Debtor’s plan under § 1129(a)(7).

The Creditor argues that the receivable is worth more than the Debtor assigned as its liquidation value. When asked by his own counsel how much the Creditor himself would pay for the receivable, however, the Creditor stated he valued it at $5,000, over $30,000 less than what Dr. Smisson offered to pay for it under the plan. Thus, the Creditor’s testimony demonstrates that the Debtor did not undervalue the Bass Capital Group receivable for purposes of liquidation.

* * *

The parties do not dispute that the plan does not comply with §§ 1129(a)(8) and (10) of the Bankruptcy Code. Because the Debtor filed under Chapter 11 Subchapter V, however, the plan need not comply with §§ 1129(a)(8) and (10) if it complies with § 1191(b). Section 1191(b) requires that the plan “not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.” Only the Creditor, as the Debtor’s largest unsecured creditor, is both impaired and has not accepted the plan. Thus, the Court must determine whether the plan is unfairly discriminatory and fair and equitable as to the Creditor’s claim.

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While the plan does not provide for a large dividend to unsecured creditors, the Debtor’s budget demonstrates that it will reorganize from an entity that has not made a profit since at least 2018 to a profitable entity under its plan. Debt.’s Ch. 11 Plan, Doc. 64, Ex. B. The Creditor argues that the dividend provided for unsecured creditors by the Debtor demonstrates that the Debtor made no attempt to provide for the Creditor’s claim. Id. Small dividend payments, while unfortunate for creditors, are not uncommon in bankruptcy cases and not indicative of unfair discrimination. The Creditor also argues that Dr. Smisson owns the companies that stand to benefit from Trimax’s decision not to pursue its accounts receivable. Id. The Court agrees that Trimax’s insiders benefit under the plan and that these benefits should be viewed with significant scrutiny, especially the decision not to pursue the debt owed by SCB to the Debtor. The Court, however, finds, after the substantial testimony about SCB and the other insider-owned businesses, that the Debtor carried its burden to prove that collecting on these accounts receivable would not provide value to the estate.

CLO HoldCo’s relies on In re Kolstad which we can certainly consider but we conclude it is not dispositive of this case for at least two reasons. First, In re Kolstad involved an amendment to a proof of claim that was filed after the bar date but prior to plan confirmation. Id. at 176 (noting the amended proof of claim was not filed “until virtually the eve of the confirmation hearing”). Thus, In re Kolstad did not address or even consider whether a post-confirmation amendment, like CLO HoldCo’s attempted amendment here, warrants a heightened showing as other circuits have. See, e.g., Holstein v. Brill, 987 F.2d 1268, 1270–71 (7th Cir. 1993) (explaining that “[c]onfirmation of the plan of reorganization is . . . equivalent to final judgment in ordinary civil litigation” and therefore post-confirmation amendments “should be allowed only for compelling reasons”); In re Winn-Dixie Stores, Inc., 639 F.3d 1053, 1056 (11th Cir. 2011) (reasoning that “amendment of a creditor’s claim after confirmation of a plan can render a plan infeasible or alter the distribution to other creditors” and therefore concluding “only . . . compelling circumstances justify” post-confirmation amendment). We hold that in circumstances like the case at bar—a post-confirmation amendment—more is required.

To be explicit, by “more” we mean “compelling circumstances.” Post-confirmation amendments warrant a heightened showing because a confirmed plan of reorganization is equivalent to a final judgment in civil litigation. . . . This potential res judicata effect justifies ratcheting up the legal standard because post confirmation amendments may “mak[e] the plan infeasible,” “disrupt the orderly process of adjudication,” and “alter the distribution[s] to other creditors.”

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Based on the foregoing principles, the bankruptcy court did not apply the incorrect legal standard when it denied CLO HoldCo’s motion to ratify the second amended proof of claim. Instead, it considered several equitable factors, including the fact that CLO HoldCo did not identify any appropriate reason—let alone a compelling reason—for its nearly year-long delay in seeking a post-confirmation amendment. This unexcused delay would have been sufficient by itself for the bankruptcy court to deny the post-confirmation amendment.

The Court finds that Mr. Kang was an unknown creditor at the time of the bankruptcy filing and the 363 Sale. As an unknown creditor, Mr. Kang was not entitled to actual notice and the notice he received, to the extent he was entitled to any, was sufficient under Bankruptcy Rule 2002(i) and/or as a result of the Publication Notices. Any Due Process rights Mr. Kang may have had regarding the 363 Sale were satisfied as to the sale to Darcars and any potential successor liability claims. In these circumstances, the Court finds that Mr. Kang was not entitled to any other or additional notice at all, whether constructive or otherwise. If Mr. Kang wanted (or wants) relief from the Sale Order, he should have come to the Bankruptcy Court first, as expressly contemplated by that Order. He has not pursued that path up to now and is not foreclosed from seeking that type of relief by this ruling. Accordingly, this determination is being made without prejudice to Mr. Kang’s right to seek such relief in the Bankruptcy Court as he believes appropriate in these circumstances and without prejudice to the rights of interested parties to object.

Finally, because the Sale Order’s protections at issue here only applied to successor liability claims, Mr. Kang is precluded from seeking discovery from Darcars only to the extent the discovery relates directly and exclusively to potential successor liability claims against Darcars. To the extent that Mr. Kang is seeking discovery relating to other issues that may be relevant to his State Court Action against AUA and Mr. DeMaio, this Court is not precluding him from seeking such discovery. Thus, for example, if (as the result of the sale) Darcars has the Debtor’s records relating to the sale of motor vehicles by the Debtor and the documentary fees it charged, Mr. Kang may request those records, subject to any and all appropriate objections by Darcars.

Bankruptcy courts have ruled that a bankruptcy trustee can bring a claim for successor liability whether sounding in alter ego or other theories when the claim is a general claim common to all creditors and is allowed by state law. In re PA Co-Man, Inc., 644 B.R. 553, 635 (Bankr. W.D. Pa. 2022). The problem for the Trustee is that the Smith parties' claim is for breach of loan agreements which is not common to all creditors. Those claims represent a specific injury to the Smith parties.

Here, the Smith Parties allege that, as a result of a fraudulent scheme carried out by the Launius Parties and the Avalon Parties ( collectively, "the Defendants"), the Defendants not only interfered with debt negotiations and work-out of the debt between the three lenders but also caused the Car Wash to be transferred in order to avoid the liabilities of the Launius Parties on the three loans. The Smith Parties' injury is that their three loans are not being paid. In turn, the Smith Parties, as the lenders of the three loans to the Launius Parties, seek to hold Avalon Ventures Chicago, LLC liable to them for payment of the three loans due to its managers' involvement in the fraudulent scheme to assist the Launius Parties in escaping liability under the loans.

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Herc, it is unclear whether the doctrine of in pari delicto bars the Trustee from asserting any of the claims. This is because the Smith Parties allege that Mr. Launius was terminated and removed from operating the Car Wash "against Launius' will and under duress." However, they also allege that"[ o ]n information and belief, ... Defendants Stern, Steinberg and Launius were part of a fraudulent scheme to interfere with the debt negotiations and work-out of the debt" between the Smith Parties and Mr. Launis and "to transfer the Car Wash in an attempt to avoid the liabilities of Mr. Launius, We'll Clean, Inc. and We'll Clean It, Inc., "which included the three loans .... " that are the subject of the State Court Suit.

Since the court finds that Count V is not a general claim, i.e., it is a claim personal to the Smith Parties, it does not have to rule on whether the Trustee is barred by the doctrine of in pari delicto. Whether the Launius Defendants are barred by the in pari delicto doctrine from recovering herein is an issue of fact for the judge or jury who will resolve the issues herein in considering Illinois law that recognizes the exception discussed in Rees v. Schmits.

This matter came before me on the Motion for Partial Summary Judgment Re: Lien Priority (hereafter, the “Motion”) of Walsh Construction Company II, LLC (hereafter, “Walsh”).I am asked to determine whether Walsh’s construction lien has priority over the subsequent deed of trust of Pivot Apartment Lender, LLC (hereafter, “Pivot Lender”) regarding real property commonly known as the Pivot Apartments, located at 1208 Pine Street in Seattle, Washington (hereafter, the “Property”) and owned by B-1208 Pine, LLC (hereafter, the “Debtor”).

Walsh argues that pursuant to Washington’s mechanics’ lien statute, RCW 60.04.061, its lien attached to the Property three years before Pivot Lender recorded its deed of trust, and accordingly, Walsh’s lien is senior in priority. Conversely, Pivot Lender argues that its deed of trust should be equitably subrogated to a senior position by virtue of having paid off the previous senior secured interest of Bank OZK. The short answer is that under Washington law Pivot Lender would generally be equitably subrogated, even as to mechanics’ liens, if the requirements of the Restatement (Third) of Property: Mortgages § 7.6 (hereafter the “Restatement § 7.6”) were met. Walsh has failed to establish undisputed facts entitling it to a determination that its lien position is senior to the entirety of Pivot Lender’s security interest. Therefore, for the following reasons, Walsh’s Motion is denied.

ABC argues that Debtors should have been barred from filing a third motion to avoid a judicial lien under Federal Rule of Civil Procedure 41(a)(1)(B), which applies to contested bankruptcy proceedings through Federal Rules of Bankruptcy Procedure 9014 and 7041. Under Rule 41(a)(1)(B)’s two-dismissal rule, a plaintiff’s second voluntary dismissal of the same claim “operates as an adjudication upon the merits,” foreclosing a party’s ability to refile the same claim a third time.

As the BAP noted, applying the two-dismissal rule in a contested bankruptcy proceeding poses a unique challenge because no “answer” is required. The BAP concluded that in the context of contested matters, “a response or objection to a motion for relief constitutes an ‘answer’ for purposes of Rule 41(a)” because it “serves the same purpose as an answer to a complaint: it puts the merits of the dispute in contention.” We agree. A written response to a motion for relief in a contested bankruptcy matter serves as the equivalent of an answer for purposes of applying Rule 41(a).

Given this context, the BAP did not err in concluding that Rule 41(a)(1)(B) does not bar Debtors’ third motion to avoid a judicial lien. By the time Debtors filed a notice withdrawing their first motion before the bankruptcy court, ABC had already filed an answer by way of objection to the motion. Debtors could not dismiss the action under Rule 41(a)(1)(A) without a court order or stipulation from the parties, neither of which occurred.

“[T]he language of the parties’ agreements, as well as the admissions of the Banks’ representatives, establish that [the agreements] created pledges of accounts receivable between the various Affiliates and Banks and, therefore, the claims here belong to the Affiliates, not the Banks.”Finding that the “Banks are only lenders to and collection agents for the Affiliates,” which “retained the ultimate responsibility to repay these loans under the agreements,” the Bankruptcy Court rejected the Banks’ characterization of the parties’ agreements as “independent, contractual obligations owed by FDI to the Banks.” The Bankruptcy Court held that the Affiliates’ pledges of accounts receivables “fit[] the broad definition of transfer under Section 101(54) of the Bankruptcy Code.” Because the claims at issue were transferred for Section 502(d) purposes from the Affiliates to the Banks, the Bankruptcy Court deemed them disallowable.

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In re Asia Glob. Crossing, Ltd., 333 B.R. 199, 202 (Bankr. S.D.N.Y. 2005) (“[T]he purpose of § 502(d) is to preclude entities that have received voidable transfers from sharing in the distribution of assets unless or until the voidable transfer has been returned to the estate.” (quotation marks and citation omitted)). “[A] transferee of a claim is subject to disallowance under Section 502(d) on par with the transferor.”

* * *

The parties do not dispute that any claims of the Affiliates against FDI are disallowable under Section 502(d) because the Affiliates have not returned to FDI any voidable transfers or preferences that they received. Instead, the dispute centers around whether the Banks’ claims against FDI are transfers from the Affiliates or independent contractual obligations owed by FDI to the Banks.

* * *

The Banks disagree that the Affiliates bore the primary risk of FDI’s non-payment. The Banks argue that they directly assumed the risk of FDI’s payment and maintained the ability to pursue the Affiliates as guarantors of the Debtor’s obligation through the Banks’ security interest. Appellants’ Br. at 28-29. But, as the Bankruptcy Court noted, the instruction on the invoices for FDI to pay the Banks directly had no effect on the Affiliates’ credit balances with the Banks; the Banks could demand payment from the Affiliates for the entire outstanding loan balance; and “in the event that the Affiliates paid all outstanding obligations to the Banks, the Banks would no longer hold an interest in the Affiliates’ outstanding accounts receivable.”

Plaintiffs asserted that the Litigation Trustee and its counsel (which the Trustee shares with WSFS) were entitled to review documents subject to any joint privilege between CHSI and Quorum, including their joint representation privilege and their post-spin joint defense privilege in connection with the Securities Cases. Plaintiffs argued that Quorum's attorney-client privilege was transferred to the Litigation Trust, and that this transfer gave the Litigation Trustee the right to demand, access, and use the jointly privileged documents that CHSI previously shared with Quorum. CHSI asserted that Quorum could not assign or transfer CHSI' s rights with respect to the joint privilege, and even assuming that the Litigation Trust could access the joint privileged documents, its counsel-which also represents WSFS--could not.

The Bankruptcy Court ruled from the bench that the Litigation Trust is entitled to discovery of the jointly privileged documents. The Bankruptcy Court described the Litigation Trustee as "the successor to" Quorum's "rights and [privileges]." Although the Litigation Trustee had not succeeded to CHSI' s rights and privileges, the Bankruptcy Court reasoned that since "Quorum [ would] be able to obtain this information if they were standing alone as the plaintiff," the Litigation Trustee was likewise entitled to obtain it.

* * *

The CHSI Defendants further argue that Quorum could not have assigned its interest in the·joint-privileged documents to the Litigation Trust absent its consent, but it cites no cases supporting this position. As the Litigation Trust points out, multiple courts have held that a debtor may validly transfer its joint privilege rights to a successor-in-interest in bankruptcy including a litigation trust-without the consent of the other party to the joint privilege. For example, the court in In re Crescent Resources held that a litigation trust created pursuant to a plan of reorganization was entitled to access documents subject to a joint privilege between the debtor and its former parent on facts that are nearly identical to those presented here. 457 B.R. 506,511,525,528 (Bankr. W.D. Tex. 2011). In Crescent, the debtor's plan of reorganization established a litigation trust to pursue claims that the debtor could have asserted prior to filing for bankruptcy. Id. at 509. Under the litigation trust agreement, the reorganized debtor transferred to the litigation trust "all rights and interests to any attorney-client privilege, work product privilege, or other privilege or immunity attaching to any documents or communications associated with the Litigation Trust claims." Id. at 511. The litigation trust subsequently filed fraudulent transfer claims against the debtor's former parent company, alleging that the debtor's spin-off from the former parent rendered the debtor insolvent. Id. When the litigation trustee sought to compel the turnover of documents from a law firm that had previously represented both the parent and the debtor, the parent company and law firm objected that the documents were subject to a joint privilege held by both the debtor and the parent company. Finding that the debtor's prepetition privilege "passed to the Litigation Trust by operation of the plan of reorganization," the court ruled that the parent company "cannot invoke attorney-client privilege to stop the Trust from using the joint-client files in adversary proceedings between [the parent] and the Trust."

The CHSI Defendants argue that the Crescent case is the only case cited by Plaintiffs in which a litigation trust obtained a debtor's share of a joint privilege via contractual assignment but "Crescent offers no guidance because the bankruptcy court did not even pass on the validity of that assignment, which was never disputed by the parties," and the decision "failed to grapple with the central premise that a joint privilege is subject to bilateral control.""[I]f anything, Crescent[] supports CHSI's position because the bankruptcy court there observed, in reliance on Teleglobe , that the litigation trust could not "unilaterally waive the joint-client privilege and use jointly privileged information in proceedings involving third parties."

The Court disagrees. Applicable law regarding joint privilege protection provides that both parties to a joint privilege must consent to a waiver of the privilege, but neither can preclude the other from assigning the privilege to its successor-in-interest pursuant to a court order, as happened here, without objection from the CHSI Defendants. Indeed, other cases have upheld the transfer of a party's joint privilege rights without the consent of the other party to the joint privilege in analogous situations.

Mr. George has a minority ownership interest in both members of the Debtor, RWMV and CMDC. He is not able to vote or impact the corporate actions of either entity, let alone the Debtor. As represented by the Trustee and George, the Debtor’s interests are perfectly aligned with RWMV in the Civil Action. Any personal interest George has in the outcome of the Civil Action would therefore also be perfectly aligned. There have been no crossclaims filed in the Civil Action and no indication as to any diverging interests between the Debtor and RWMV.

* * *

Other possible conflicts identified by Blackhawk center around avoiding liability on guaranties. However, any strategies employed in the Civil Action would be with the Trustee’s knowledge and approval. See id. (potential for settlement is not fatal to § 327(e) appointment because “the Trustee, an attorney, will control any settlement negotiations”).

The Trustee is a competent attorney with many years of experience, including as a trustee in coal cases. The Trustee is the one making decisions for the bankruptcy estate, not George. In the role of special counsel, George truly is a hired gun as contemplated in Polaroid, retained to handle “the continuance of a pre-petition engagement to a conclusion on its merits under its governing substantive law.”

If he wasn’t already, the Trustee is acutely aware of the potential conflicts articulated by Blackhawk through the disclosure process and the lengthy arguments that followed. In making decisions on how to proceed with the litigation in the Civil Action, including evaluating any type of potential settlement, the court expects the Trustee to act as he would in any other situation, that being with the best interest of the estate in mind.

In deferring to the Trustee’s choice of representation, the court relies on more than just his competency and experience. George, as well as any other professional employed by the estate, has a continued duty to disclose any conflicts or adverse interest that may arise or develop even after being initially approved. If any new or conflicting information would come to light, the court would examine it to determine if disqualification is appropriate. Compensation requires a second look where the court may reduce or disallow fees to counsel. The court is confident that George is aware of this risk.

This Decision concerns Reorganized Debtors’ objection to six proofs of claim filed by individuals (the “Claimants”) who assert that they sustained illness caused by use of Revlon hair straightener products. (the “Eleventh Omnibus Objection”)]. Reorganized Debtors seek the expungement of these six individuals’ claims because, although the Claimants timely filed proofs of claim, they failed to meet the confirmed plan of reorganization’s requirement that all individuals seeking compensation from the estate for asserted injuries allegedly caused by use of Revlon hair straightener products must file a complaint in pending multi-district litigation (“MDL”) proceedings by September 14, 2023, or have their claims “disallowed.” The six Claimants who are the subject of this Decision all acknowledge that they did not file an MDL complaint as required by the confirmed plan of reorganization, but they argue that Debtors failed to provide sufficient notice of this obligation, or, in the alternative, that their failure to realize they needed to file an MDL complaint constitutes excusable neglect and thus warrants denial of the Eleventh Omnibus Objection as to them.

The Court sympathizes with these individual claimants, who assert they have suffered serious medical harms that they contend Revlon caused. The Court nevertheless disagrees with their contentions as a matter of law and sustains Reorganized Debtors’ objections to their claims.

As to the settlement, the Court finds that the NYAG Settlement Agreement is reasonable given all of the facts and circumstances in the record. The NYAG Settlement Agreement resolves, solely with respect to the Debtors, an action commenced by NYAG in the Supreme Court of the State of New York, County of New York, styled The People of the State of New York v. Gemini Trust Co. et al., Case No. 452784/2023 (the “NYAG Action”). It also provides for allowance of proofs of claim numbered 855, 856 and 857 filed by NYAG in the Debtors’ Chapter 11 cases. See generally SEC/NYAG Ex. 16 (the “NYAG Claims”). Both the NYAG Claims and the NYAG Action allege, among other things, that the Debtors and certain other co-defendants used fraudulent practices and engaged in fraudulent and illegal acts to defraud their investors, who are the customers holding unsecured claims in these cases. The NYAG Settlement Motion is supported by various creditor groups in these cases, including the Official Committee of Unsecured Creditors appointed in the Debtors’ bankruptcy cases (the “Committee”), an Ad Hoc Group of the Debtors’ lenders holding approximately $2.5 billion in claims asserted against the Debtors (the “Ad Hoc Group”) and NYAG itself.5 Only Digital Currency Group, Inc. (“DCG”)—the Debtors’ equity holder and a co-defendant in the NYAG Action—objects to the settlement.6 DCG presents only a conclusory argument as to the substantive terms of the NYAG Settlement Agreement, instead focusing on its contention that there was an inadequate process used to reach the result. But the record here is more than sufficient to justify both the process and actual terms of the NYAG Settlement Agreement itself. In overruling DCG’s objection, the Court ultimately concludes that its objection is a result oriented one based on DCG’s lack of recovery as an equity holder under the Plan. But as discussed below, there are nowhere near enough assets to provide any recovery to DCG in these cases. In the end, DCG has not presented any basis for concluding that the NYAG Settlement Agreement is anything but reasonable and appropriate.

As to confirmation, the Court finds that the Plan should be confirmed because it satisfies all requirements of applicable law. Broadly speaking, the Plan provides for all of the Debtors’ limited assets to be paid to its unsecured creditors. Like the NYAG Settlement Agreement, the Plan enjoys the wide support of the creditors here, including the Committee, the Ad Hoc Group, the Ad Hoc Dollar Group and one of the Debtors’ individual investors named Teddy André Amadéo Gorisse (collectively, the “Plan Proponents”). The Court has three remaining objections to confirmation: 1) DCG; 2) the Genesis Crypto Creditors Ad Hoc Group (“CCAHG”); and (3) the Office of the United States Trustee (the “UST”).8 In approving the Plan, several principles of restructuring are particularly important. The first is the concept of standing, which determines “whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues” and involves “both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise.” The second is the absolute priority rule, which provides “that a reorganization plan may not give ‘property’ to the holders of any junior claims or interests ‘on account of’ those claims or interests, unless all classes of senior claims either receive the full value of their claims or give their consent.” More specifically, the doctrine “forbids a debtor's equity holders from recovering value from the estate before all creditors are paid.” The result here also implicates the principles behind the solvent debtor exception, which generally provides that an equity holder may not recover any value until after creditors receive the full benefit of their contractual bargain.

These principles provide essential context to the Court’s rejection of the confirmation objection of the Debtors’ equity holder, DCG.9 DCG objects to the way the claims of unsecured creditors are valued under the mechanics for distributions in the Plan (the “Distribution Principles”),10 arguing that the claims should instead be valued in U.S. dollars as of the date of filing of the Debtors’ bankruptcy. But DCG has objected to a plan in which it has no economic stake. The record here clearly establishes that there is not sufficient value in the Debtors’ estates to provide DCG a recovery as equity holder after unsecured creditors are paid. In short, the Debtors are insolvent. Given the size of the creditor claims, DCG is out of the money as an equity holder by billions of dollars, even if the Court valued creditor claims using the method DCG proposes.

Ultimately, it does not matter whether the Court classifies the Debtor’s parents’ contributions as loans or gifts. The record and applicable case law clearly demonstrate that the contributions alone could not support Chapter 13 eligibility under § 109(e).

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The record fails to show any of the critical characteristics that courts have used to find that gratuitous contributions are sufficient to constitute income for Chapter 13 eligibility purposes. Neither of the Debtor’s parents testified or submitted an affidavit evidencing a commitment, ability, or duty to continue making contributions to the Debtor for the life of his Chapter 13 plan. The Debtor admits that all payments were (and continue to be) on an “as-needed” basis. Also, to the extent that it is still relevant in light of the parties’ “testing date” stipulation, the docket in this case reflects a postpetition payment history for the Debtor that is less than perfect. The Debtor has fallen behind on Chapter 13 plan payments twice in this case so far. Moreover, if the contributions are gifts, the Debtor’s parents have no legal or contractual interest in the Debtor making his plan payments.

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Ultimately, the proposed plan funding scheme could not sufficiently fund the Debtor’s plan without some priority claim holders accepting payment of less than their entire claim, which the Court has no reason to believe would happen here. Congress intended § 101(30) to encompass broad and varied sources of income for a court to consider when determining a debtor’s eligibility under Chapter 13. However, it defies logic that Congress intended to include loans that, by definition, constitute administrative expense claims that would dilute or altogether eliminate dividends to other creditors. Accordingly, the Debtor’s parents’ contributions, if classified as loans, cannot support the Debtor’s Chapter 13 eligibility as the sole source of plan funding on the Petition Date.