Indeed, at the end of the day, the trustee’s case fails for the same reason this Court dismissed the trustee’s claim for common law fraud. To the extent any fraud occurred here, the debtors (in whose shoes the trustee stands) were the perpetrator rather than the victim. While the trustee has standing to assert claims held by the debtors for the benefit of creditors, the trustee cannot assert claims for fraud that are held directly by either shareholders or creditors—and that run against the debtors. To be sure, there is a point at which a corporation’s directors and officers, were they to choose to steer a company down a path of criminality, would breach their duties to act in the company’s best interests. The conduct shown in the summary judgment record, however, falls far short of that line. That record, read in the light most favorable to the trustee, demonstrates that the debtors made improper accounting decisions with respect to its receivables. The trustee argues vigorously that these errors violated the company’s or the individuals’ obligations under the federal securities laws. Even if the trustee were correct about that (and it bears note that nothing in the record suggests that either the SEC or the company’s shareholders ever asserted such a claim), that would still fall short of what one needs to demonstrate in order to establish a claim of breach of fiduciary duty.

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[B]laming the failure of the business on the erroneous accounting judgments badly loses the forest for trees. The accounting issue arose only because the company’s cash collections were falling short. And when a company is not getting paid for the services it performs, even the most immaculate accounting will not yield a successful business enterprise. Devor’s overly general and conclusory assertions about causation—which is the only evidence on which the trustee relies to establish this element—ultimately amounts to little more than camouflage. To the extent the defendants’ accounting judgments turned out to be incorrect, their efforts proved to be a band aid that failed to stop the bleeding. No reasonable factfinder, however, could find that an inadequate band aid was the cause of the patient’s injury. Accordingly, even if one or more of the defendants had breached his fiduciary duties, defendants would still be entitled to summary judgment on account of the plaintiff’s failure to demonstrate causation.

Given the District Court’s affirmance of the Confirmation Order, the Mezz Lender is required to compensate TH Holdco under the Bond for any losses sustained by TH Holdco by virtue of the unsuccessful appeal. The issue before the Court today is the amount of such compensable losses. On one hand, TH Holdco asserts that the quantifiable harms it incurred as a result of the stay exceeds $10 million, thus supporting payment of the $5 million Bond in its entirety. In response, Mezz Lender concedes there are some damages here but has steadfastly been unwilling to provide its view on an actual number, although it is clear that the Mezz Lender contends the number is nowhere close to the $5 million Bond amount. See Opp. at 2. In assessing this dispute, there are six possible categories of damages identified by TH Holdco: (1) default interest; (2) lost hotel and residential profits; (3) repair and maintenance costs; (4) attorneys’ fees; (5) real estate taxes; and (6) a lapsed liquor license. The Court focuses first on what it considers as the two biggest buckets of damages: default interest and lost profits.

TH Holdco’s position is straightforward. It contends that it is entitled to default interest that accrued during the delay caused by the unsuccessful appeal. TH Holdco quantifies the default interest that accrued on the Mortgage Note during the stay as approximately $58,800 per diem, totaling $5,645,000 for the entire period.

Mezz Lender disagrees. It asserts that, once TH Holdco credit bid its claim, any possible claim for ongoing interest stopped running since the debt merged with the bid.

The goal of the appeal by Mezz Lender was to reverse the Confirmation Order and deny TH Holdco ownership of the Property. With the stay of the confirmation order awarding the Property to TH Holdco, Mezz Lender maintained its rights while the appeal was pending but so did TH Holdco. TH Holdco’s credit bid did not become effective until the appeal was resolved and the confirmation order became final, which resulted in the sale finally closing on November 9, 2022. Until such time, TH Holdco’s credit bid was not final because the confirmation order and related sale were stayed, a stay that was requested by Mezz Lender.

Until such time as that credit bid became the winning bid–which did not occur until the appeal was decided and confirmation order became final–TH Holdco’s claim remained open and it continued to accrue whatever interest to which it was entitled. As for its entitlement to such interest, that issue was decided by the Court, who explicitly concluded at the confirmation hearing that TH Holdco was entitled to interest on its claim.

The arguments for Van’s reading of 1192(2) and 523(a)—that 523(a) has no role in the case of a subchapter V debtor who is not an individual—are laid out in the case Van’s relies on to support its motion to dismiss the second claim: the 2023 Ninth Circuit Bankruptcy Appellate Panel decision in Lafferty v. Off-Spec Solutions, LLC (In re Off-Spec Solutions, LLC). The contrary arguments are laid out in two courts of appeals decisions: the Fourth Circuit’s 2022 decision in Cantwell-Cleary Co. v. Cleary Packaging, LLC (In re Cleary Packaging, LLC) and the Fifth Circuit’s 2024 decision in Avion Funding, LLC v. GFS Industries, LLC (Matter of GFS Industries, LLC)

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Section 1192 effects and limits the discharge in a subchapter V case in which the plan is confirmed without acceptance by all classes—regardless of the nature of the debtor. Under 1192(2), that discharge excepts “any debt . . . of the kind specified in section 523(a).” A debt is specified in 523(a) if it is described by one of that subsection’s paragraphs (1) through (20). “Debt(s) of the kind” refers to types of debt, not types of debtors. Thus, the plain meaning of 1192(2) is that the discharge under a subchapter V plan confirmed nonconsensually excepts the debts listed in the 523(a) debt-type list—even when the debtor is not an individual.

Even if the meaning of 1192(2) were not plain, reading it to apply to all debtor types follows the broader structure of bankruptcy discharges. Each of the discharge sections (727, 1141, 1192, 1228, and 1328) defines the debts it discharges and then excepts certain categories of debt by employing one of two types of cross-references to 523(a).

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I agree with the courts of appeals that reading “debt . . . of the kind specified in 523(a)” in 1192(2) to limit only the discharge of an individual debtor is inconsistent with Congress’s use of the same phrase in 1141(d)(6) when limiting the discharge of a corporation. The Ninth Circuit has held that “[w]hen courts can ‘interpret statutes to be coherent and internally consistent,’ they should

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Although I agree with the conclusions reached in Cleary and GFS, two rationales for those decisions are questionable.

This adversary proceeding was filed on September 20, 2010. Compl., ECF No. 1. Kenneth M. Krys and Greig Mitchell (the “Liquidators”), in their capacities as the duly appointed Liquidators and Foreign Representatives of Fairfield Sentry Limited (In Liquidation) (“Sentry”) and Fairfield Sigma Limited (In Liquidation) (“Sigma” and, together with Sentry, the “Fairfield Funds”) filed the Amended Complaint on August 11, 2021. Via the Amended Complaint, the Liquidators seek the imposition of a constructive trust and recovery of nearly $47 million allegedly received by BNP Paribas Securities Services Luxembourg (“BNP Paribas SSL”) and Beneficial Owners of the Accounts Held in the Name of BNP Paribas Securities Services Luxembourg (the “Beneficial Owners”). Of that amount, Defendant allegedly received $5.6 million through a redemption payment from its investment in Sigma. All payments were made in Euros, so the Plaintiffs have “applied the exchange rate as of the date of that redemption payment out of Sigma.” The amount received by Defendant in Euros was €4,514,478.02.

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Defendant has moved to dismiss the Amended Complaint for lack of personal jurisdiction, arguing that the Amended Complaint has not sufficiently alleged minimum contacts with the forum to establish personal jurisdiction over Defendant and that exercising personal jurisdiction would be unreasonable.

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Defendant asserts that “according to the Plaintiffs’ own allegations, every relevant and material aspect of the claims . . . is foreign” and that the “Plaintiffs have elsewhere, when it has served their purposes, adopted” allegations showing the foreignness of the claims. Defendant points to the Plaintiffs’ arguments before the District Court, wherein Plaintiffs argued that “every relevant component of the transactions at issue here occurred outside the territorial jurisdiction of the United States.”

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As another bankruptcy court in this district has stated, the “tests for personal jurisdiction and extraterritoriality are not the same.”

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By arguing in the District Court that the redemption transfers were foreign for purposes of extraterritoriality, Plaintiffs did not preclude arguing that there were contacts with the forum for purposes of personal jurisdiction.

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First, the Liquidators point to the documents given to the EGA Fund before and throughout the relevant period of investment, which documents “made clear that the main purpose of the Funds’ existence was to invest in BLMIS, a New York-based broker dealer registered in the U.S., in order to invest in U.S. securities markets and U.S. Treasury Bills.”

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Second, evidence shows that Defendant was in communication via email with the manager of the Fairfield Funds in New York, the Fairfield Greenwich Group, regarding investments with the Fairfield Funds. Hr’g Tr. 128:10–17 (stating that the Liquidators submitted 21 emails “between Fairfield and Rothschild personnel,” of which four “appear to be with Fairfield personnel in the U.S.”); see also Flugman Decl. Exs. 41–42 (emails received by Defendant from sender with “@fggus.com” email address). These contacts demonstrate demonstrated facts showing continuous and systemic contacts with the forum.

Regardless of the parties' arguments, the overarching issue before the Court is whether the Debtor meets the requirements for confirmation of the Plan. To determine that issue, it is important to understand what is before the Third Circuit, because that will impact how the Plan must treat the Claim. The Debtor's argument that the Judgment is on appeal fails for several reasons. First, the Notice of Appeal lists several decisions and orders that she appeals, but each concerns the District Court's order allowing Lilliston to execute on the Property to collect on the Judgment. The Appeal is not related to the underlying Judgment, meaning that even if the Debtor is successful, the Judgment will remain in place. This is supported by the Debtor's informal brief before the Third Circuit where the Debtor asks the Third Circuit to "[r]everse all of the District Comi's post-judgment orders and writs .... " Dkt. No. 54-7 (emphasis added). In other words, if the Debtor were successful on appeal, the Judgment would not be altered, only Lilliston's means of collection. Moreover, the Debtor already appealed the initial judgment, and that judgment was affirmed by the Third Circuit, and therefore, it is final.

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Because Lilliston has not agreed to the terms of the Plan, and the Debtor is not surrendering the Property, the Plan must satisfy section 1325(a)(5)(B). Assuming the Plan was to pay the Claim out over a maximum length plan, the Debtor would have to make sixty monthly payments of $2,434.91, which sum does not include amounts needed to pay unsecured creditors, the Chapter 13 trustee's commissions, or the Debtor's attorneys' fees. The Plan fails to provide for this payment, and therefore, cannot be confirmed.

This action is based on the alleged wrongful actions and conduct of the various defendants in connection with the potential sale of Lauren’s assets to SEI that was in the works prior to Lauren’s bankruptcy filing. The Trustee’s complaint, at its core, describes the “migration” of Lauren’s valuable, mostly intangible assets to SEI, beginning in the due-diligence phase of the potential sale and continuing into the period after Lauren’s bankruptcy filing. As described, SEI engaged in a scheme to obtain not only Lauren’s assets but also its ongoing projects; this was accomplished bxy bringing-in Lauren’s engineers to service the projects. In effect, the Trustee is charging SEI with stealing the debtor’s business and thus the potentially valuable asset base and projects in place at the time Lauren filed bankruptcy.

The complaint goes into much detail in identifying and describing the intellectual property and data that SEI obtained and still holds, see id. ¶ 39; the work product and associated data that the hired engineers brought with them to SEI, ¶¶ 40–41; and the names of Lauren’s projects that were “reassigned” to SEI, none of which SEI has paid for or returned,

On April 8, 2022, Richard Arrowsmith, in his capacity as the Liquidating Trustee of the HDL Liquidating Trust (the “Liquidating Trustee”),2 filed a Complaint to Recover Avoidable Transfers against Christian Life Assembly of Columbia, South Carolina, Inc., d/b/a Christian Life Church and the South Carolina School of Leadership (“CLC”) in the United States Bankruptcy Court for the Eastern District of Virginia (the “Court”). Compl. to Recover Avoidable Transfers, Adv. Pro. No. 22-03020, ECF No. 1, as amended at ECF No. 18. On May 9, 2022, the Liquidating Trustee filed a similar complaint in this Court against Lake Murray Baptist Church (“LMBC,” and together with CLC, the “Defendants”).

The Complaints filed by the Liquidating Trustee seek to recover funds under section 550(a) of Title 11 of the United States Code (the “Bankruptcy Code”) that the Liquidating Trustee claims were fraudulently transferred from the Debtors’ bankruptcy estate (the “Bankruptcy Estate”) to Floyd Calhoun Dent, III (“Dent”) and BlueWave Healthcare Consultants, Inc. (“BlueWave”), and then were transferred by Dent and BlueWave to CLC and LMBC. The Liquidating Trustee maintains that by employing commonly accepted forensic methodologies, he can trace $1,149,900 of the Debtors’ fraudulently transferred funds into CLC and that he can trace $238,512 of the Debtors’ fraudulently transferred funds into LMBC.

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Applying the LIBR, the Court finds that the Liquidating Trustee has proven that Defendant CLC received funds in the amount of $1,149,900 and that Defendant LMBC received funds in the amount of $238,512 that are directly traceable to the Avoided Transfers. The Court also finds that the Charitable Contributions Exception is not a defense assertable by the Defendants in this recovery action under section 550(a) of the Bankruptcy Code. Judgment will be awarded in favor of the Liquidating Trustee against Defendant Christian Life Assembly of Columbia, South Carolina, Inc. in the amount of $1,149,900. Judgment will be awarded in favor of the Liquidating Trustee against Defendant Lake Murray Baptist Church in the amount of $238,512.

ANKOR E&P argues that the Court should disregard the fact that it attempts to amend its claims so late in the timeline of the case because Northstar did not file an objection until over five years after confirmation. Northstar objected to ANKOR E&P’s claim on November 10, 2022, after being provided a deadline extension for objecting to the claim. ANKOR E&P may not allege that Northstar delayed asserting its rights. Northstar also placed ANKOR E&P on notice that it was not the proper party to file its claim in its reply in support of its claim objection. ANKOR E&P did not make any attempt to remedy its error for almost five months following Northstar’s reply. Even prior to being placed on notice, ANKOR E&P is responsible for asserting a valid claim and has failed to explain why it did not attempt to correct its error in the six years since it filed its proof of claim. See Highland, 102 F.4th (“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.”).

Northstar relied on the filed proofs of claim to plan the administration of the estate and distributions under its plan. Administering the case and preparing for creditor distributions required Northstar to estimate the validity and amounts of claims and determine which claims warranted expending limited resources to pursue objection litigation. Throughout this process, Northstar had assumed ANKOR E&P was asserting a non-operating co-owner claim and planned its litigation and eventual creditor distributions based on that assumption. Northstar has paid or settled all administrative, priority, and gap claims. It has resolved the majority of all disputed unsecured claims necessary to commence final distributions to unsecured creditors. Permitting ANKOR E&P to substitute ANKOR Energy’s operator claim for ANKOR E&P’s non-operator claim five and a half years after plan confirmation would hinder Northstar’s efforts in administering the estate.

ANKOR E&P has failed to demonstrate compelling circumstances to justify its substantial delay in attempting to amend its proof of claim.

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ANKOR E&P’s motion for leave to amend its proof of claim is denied. Because ANKOR E&P is not the proper claimant, its proof of claim is disallowed.

Rule 807, the Residual Exception rule, allows the admission of hearsay evidence that does not fit within the specific exceptions enumerated in Rules 803 and 804 if the proponent demonstrates that the evidence has “sufficient guarantees of trustworthiness” and is “more probative on the point for which it is offered than any other evidence that the proponent can obtain through reasonable efforts.” Fed. R. Evid. 807(a).

Here, MN DLI argues that the payroll records it obtained from HyLife have sufficient guarantees of trustworthiness because they were provided by HyLife’s own counsel during MN DLI’s official investigation. But counsel did not create or maintain the records. HyLife did. HyLife’s counsel merely was a conduit between HyLife and MN DLI. MN DLI argues that the fact that HyLife’s counsel transmitted the records to MN DLI is enough for me to determine that the records are trustworthy. That argument misses the mark. The records were only transmitted to MN DLI by counsel. Therefore, there is no basis upon which I might determine that the evidence sought to be admitted has sufficient guarantees of trustworthiness.

There is no dispute among the parties that MN DLI did not seek discovery from HyLife in connection with the Motion. While the relevant documents could have been sought through discovery and perhaps properly be admitted into evidence, they were not. In other words, there likely was evidence that could have been obtained through reasonable efforts. Therefore, Rule 807 is not an appropriate basis upon which to admit MN DLI’s evidence.

Having found that MN DLI’s proposed evidence is inadmissible, there is no evidentiary basis upon which I could grant the Motion. Therefore, I am compelled to sustain the Liquidating Trustee’s objection to the Motion and deny the Motion.

I do so, however, with some discomfort. Although MN DLI’s evidence is inadmissible hearsay, that does not mean that I do not have reason to suspect that there are employees with legitimate claims. I raised this concern at the March 13 hearing with counsel to the Liquidating Trustee . Counsel, to his credit and that of the Liquidating Trustee, assured me that “[i]f anyone comes forward that was not paid the Trustee is going to cut a check to them immediately. We take this very seriously . . .”

In this chapter 13 bankruptcy, Debtors filed an application for approval of professional fees incurred by their attorney in excess of $20,000. The amount subject to approval is three times greater than the presumed reasonable fee allowed under the local rules. This Court previously approved and awarded Debtors’ counsel’s fees and costs in the amount of $14,250. For the reasons stated below, this Court denies approval of the additional fees in the amount of $6,704.26. However, the additional costs in the amount of $119.97 are approved.

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Empirical evidence shows that chapter 13 cases are far more likely to succeed when debtors are represented by counsel. In re Moukazis, 479 B.R. 247, 253 (Bankr. E.D.N.Y 2012). Accordingly, the significance of Applicant’s representation of debtors in a geographic area that is underserved cannot be overstated. Further, Applicant is entitled to reasonable fees for these services. Although this Court is not persuaded that fees in excess of $20,000 in this case are reasonable, this does not in any way diminish the importance of the services Applicant provides to debtors. Despite the significant and important service Applicant provides, where defined services presumptively cost $6,000, permitting counsel to receive $12,000 to $18,000 for providing essentially the same services calls into question the integrity and fairness of this Court’s analysis of reasonableness. Under these circumstances, this Court must exercise its authority and award less fees than requested. An Order will be entered separately

In July 2018, Plaintiff/Debtor James McNeal (“Plaintiff”) entered into an agreement with Defendants Lyle and Jessica Brouse (“Defendants”) for the sale of a parcel of real estate and, with the assistance of counsel, the parties subsequently executed a deed conveying the property. Shortly thereafter, Plaintiff contested the transaction claiming the deed did not reflect the parties’ agreement for the sale of the property. Plaintiff believed he was conveying 1.5 acres for $5,000 but learned that his entire interest in the 22 acre property had been conveyed for $1.00. Once he contacted Defendants regarding the supposed mistake, he claims Defendants agreed to rescind the transaction. Defendants vigorously dispute Plaintiff’s characterization of the events.

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[C]ontrary to Plaintiff’s assertion, the weight of authority is against a Chapter 13 debtor directly asserting the trustee’s avoidance power. Furthermore, the Third Circuit has already concluded that based on the plain language of the statute, a Chapter 13 debtor may not utilize the Trustee’s power under §544. The result here should not be any different. The plain language of §548(a)(1) states “the trustee may avoid any transfer…”

Unlike Chapter 11 and Chapter 12,9 debtors filing under Chapter 13 of the Bankruptcy Code have not been granted the full range of the trustee’s powers.

The parties focus their briefing on whether the State Court’s order was a “ministerial act” that was not subject to the automatic stay. But there is an alternative reason why the State Court’s order did not violate § 362(a)(1). Whereas § 362(a)(1) generally prohibits the continuation of civil actions, there is a specific exception to the stay for the continuation of civil actions “for the dissolution of a marriage[.]” § 362(b)(2)(A)(iv). Of course, there is an exception to this exception, under which § 362(a)(1) still prohibits such a proceeding if it “seeks to determine the division of property that is property of the estate[.]” § 362(b)(2)(A)(iv). The State Court’s order falls within the exception but not the exception to the exception, so it did not violate § 362(a)(1).

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Regardless of whether the deeds were property of the estate, the State Court’s order did not seek to determine the division of any property. In the divorce context, “division of property” refers to the “judgment in a divorce case determining the distribution of the marital property between the divorcing parties.” Property Settlement, Black’s Law Dictionary (9th ed. 2009); see Division of Property, Black’s Law Dictionary (9th ed. 2009) (redirecting to the definition of “property settlement”). Thus, the State Court’s order to the Prothonotary did not “determine” a “division of property” because the property settlement—the Equitable Distribution Order—was already a final judgment. There was nothing left for the State Court to “determine” regarding the division of the marital estate. So the State Court’s order did not fall under the exception to the exception under § 362(b)(2)(A)(iv), and therefore did not violate § 362(a)(1).

I have granted MOAC's motion for a stay pending appeal from my order dated May 2, 2024. For the avoidance of doubt, I am NOT staying my original decision dated February 27, 2020. That order has already been affirmed by the Second Circuit, so as far as I am concerned there is nothing for me to stay in that regard. Normally when my decisions have been affirmed, I do not stay them.

Staying the order at Dkt. #85 means that my decision awarding the lease to the Sears Liquidating Trustee has been stayed. However, for the avoidance of doubt (a phrase of which MOAC is fond), the stay pending appeal also means that if there are in fact still eight days left for the Trustee to assume the Lease (the original assignment having been vacated), then those eight days will not run pending MOAC's appeal.

The stay places ownership of the Lease in limbo, since the Second Circuit has affirmed my conclusion that the lease could not be validly assigned to Transform and as far as I am concerned that assignment has been undone and Transform has nothing except the Trustee's promise to make it whole - pursuant to an agreement that, as MOAC has aptly noted, is none of my concern.

In light of the stay, there can be no efforts to lease/sublease the Sears premises until you all get your various grievances sorted out by the Court of Appeals (since everyone seems to feel aggrieved by my decision).