In re: SVS Holdings, Inc.

Filing 31

ORDER Joint Motion for Clarification of the Bankruptcy Court's Authority to Enter an Order Confirming a Proposed Chapter 11 Plan Which IncludesSubstantive Consolidation of the Bankruptcy Estates of Svs and Sequoia 23 is granted on the terms stated in this order. By Judge Robert E. Blackburn on 9/23/2015.(mlace, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Action No. 13-cv-00169-REB
(Bankruptcy Case No. 10-24238-HRT (Chapter 7))
Adversary Proceeding No. 12-01757-HRT
In re: SVS HOLDINGS, INC.
Debtor.

TOM H. CONNOLLY, Chapter 7 Trustee,
Plaintiff,
v.
SEQUOIA VOTING SYSTEMS, INC.,
DOMINION VOTING SYSTEMS CORPORATION and
DOMINION VOTING SYSTEMS, INC.,
Defendants.

ORDER
Blackburn, J.
This matter is before me on the Joint Motion for Clarification of the Bankruptcy
Court’s Authority to Enter an Order Confirming a Proposed Chapter 11 Plan Which
Includes Substantive Consolidation of the Bankruptcy Estates of Svs and Sequoia
[#23]1 filed October 3, 2014. The parties filed briefs [#26, #27, #28, #29] addressing the
issues raised in the joint motion. The Chapter 7 Trustee filed a notice of supplemental
authority [#30] on June 19, 2015. I grant the motion on the terms stated in this order.

1

“[#23]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.

The complaint [#3-1] that is the foundation of this adversary proceeding was filed by
the Chapter 7 Trustee on behalf of the Chapter 7 bankruptcy estate of debtor SVS
Holdings, Inc. In the complaint the trustee alleges that the management of defendant
Sequoia Voting Systems, Inc. created the debtor corporation, SVS Holdings, Inc., for the
purpose of acquiring the equity interests in Sequoia from Smartmatic Corporation. The
trustee alleges that SVS acquired all of the issued and outstanding stock of Sequoia, that
SVS is the sole shareholder of Sequoia, and that SVS was created, owned, controlled, and
completely dominated by the management of Sequoia. Complaint [#3-1], p. 3. The trustee
alleges that SVS and Sequoia are alter-egos of each other.
In the complaint the trustee asserts claims against Sequoia2 as well as Dominion
Voting Systems Corporation and Dominion Voting Systems, Inc. The trustee asserts a
claim for substantive consolidation of the debtor, SVS, and Sequoia.
In addition, the trustee asserts claims seeking to avoid transfers in 2009 and 2011
among Sequoia and the two Dominion defendants, Dominion Voting Systems Corporation
and Dominion Voting Systems, Inc. (Dominion). These claims allege fraudulent transfers
under sections 544 and 548 of the United States Bankruptcy Code and under state uniform
fraudulent transfer acts.
Dominion demands a jury trial, and, based on that demand, I entered an order [#14]
withdrawing the reference of this adversary proceeding to the bankruptcy court and
referring this case to the bankruptcy court for resolution of pretrial issues.
In 2014, Sequoia filed a bankruptcy petition under Chapter 11 of the bankruptcy

2

Sequoia was not named as a defendant in the initial complaint [#3-1]. The trustee filed an
amended complaint on December 4, 2013, but the amended complaint has not been docketed in this court
under the above-captioned case number. In the amended complaint, Sequoia is named as a defendant
along with the two Dominion entities.

2

code. Pending in the bankruptcy court is a proposed plan of reorganization which would
involve the substantive consolidation of SVS and Sequoia. Under 11 U.S.C.
§ 157(b)(2)(L), confirmation of a plan of reorganization is a core proceeding within the
jurisdiction of the bankruptcy code. Under § 1123(a)(5)(C) of the code, a plan of
reorganization may include merger or consolidation of the debtor with one or more
persons. To this point, the parties are in agreement.
The key question at issue now is how an order of the bankruptcy court approving a
plan of reorganization which includes substantive consolidation of SVS and Sequoia would
affect issues in this adversary proceeding. From the perspective of Dominion, any such
order by the bankruptcy court must be viewed in this adversary proceeding as a report and
recommendation of the bankruptcy court on the issue of substantive consolidation rather
than a binding order which resolves the issue of substantive consolidation. In this
adversary proceeding, substantive consolidation would affect two issues important to
Dominion: (1) whether the trustee can prove transfer of the property of the debtor, SVS, in
the 2009 and 2011 transactions; and (2) whether the defenses of Dominion invoking
statute of limitations are righteous.
For many of the claims at issue in this case, the trustee must show a transfer of
property of the debtor. Dominion contends a determination of this issue in this adversary
proceeding must be made by a jury because Dominion is entitled to a jury trial on the
claims of fraudulent transfer asserted against Dominion. The trustee does not dispute that
Dominion is entitled to a jury trial in this adversary proceeding on the claims of fraudulent
transfer. Dominion contends no assets of SVS were involved in the 2009 and 2011
transfers. If so, Dominion contends, the trustee does not have valid claims for fraudulent
transfer of property of the debtor, SVS. If a substantive consolidation of SVS and Sequoia
3

by the bankruptcy court is binding in this adversary proceeding, then property of SVS likely
will be considered to be property of Sequoia and vice versa. If substantive consolidation
by the bankruptcy court creates this result, Dominion contends, then Dominion will be
deprived of its right to a jury determination on the question of whether the transfers at
issue were transfers of the property of SVS, the debtor, rather than property of Sequoia.
Dominion notes also that the substantive consolidation proposed in the bankruptcy
court would be nunc pro tunc to 2010, making the 2014 bankruptcy filing of Sequoia
retroactive to the 2010 bankruptcy filing of SVS. Such a consolidation would affect the
defenses of Dominion based upon statutes of limitations. On this issue as well, Dominion
asserts that it is entitled to a jury determination independent of a substantive consolidation
by the bankruptcy court.
A claim for substantive consolidation of SVS and Sequoia is pending also in this
adversary proceeding. Dominion notes that it has not been permitted to contest
substantive consolidation in the bankruptcy court. The trustee dropped Dominion as a
party to the substantive consolidation claim in this adversary proceeding, and Sequoia has
confessed that claim. In this adversary proceeding Dominion seeks to preserve a right to
contest substantive consolidation.
Substantive consolidation is an equitable issue for the court, not a leagal issue for a
jury. That equitable determination may have a substantial effect on the defenses of
Dominion, which involve jury issues to some extent, but that fact does not mean Dominion
is entitled to a jury determination of the equitable issue of substantive consolidation. If this
Article III court makes a substantive consolidation determination independent of the
substantive consolidation determination of the bankruptcy court, the issue of substantive
consolidation always will be an equitable issue and not a jury issue.
4

Nothing in the record of this case indicates that the bankruptcy court has entered an
order which directs substantive consolidation of the estates of SVS and Sequoia. Without
question, the bankruptcy court has the authority and jurisdiction to confirm a plan of
reorganization and to include in a plan the merger or consolidation of the debtor. 11
U.S.C. § 157(b)(2)(L), § 1123(a)(5)(C). Under D.C.COLO.LCivR 84.1(b), this court may
treat a final order or judgment of the bankruptcy court as proposed findings of fact and
conclusions of law if this court concludes the bankruptcy court could not have entered a
final order of judgment consistent with Article III of the Constitution of the United States.
Substantive consolidation would have a substantial effect on the defenses of
Dominion in this adversary proceeding. Dominion has not had an opportunity to contest
the issue of substantive consolidation in the bankruptcy court. Due process requires that
Dominion have an opportunity to contest the issue of substantive consolidation solely as it
applies to this adversary proceeding. Therefore, if the bankruptcy court confirms a plan of
reorganization which includes substantive consolidation of SVS and Sequoia, I will treat
such an order as proposed findings of fact and conclusions of law with regard to the issue
of substantive consolidation in this adversary proceeding. If the bankruptcy court confirms
a plan of reorganization which includes substantive consolidation of SVS and Sequoia, the
deadline for filing objections to that order, as specified in D.C.COLO.LCivR 84.1(e), shall
run from the date the order of confirmation is filed in this adversary proceeding. The
opportunity to file objections will provide to Dominion an opportunity to contest the issue of
substantive consolidation as applied in this adversary proceeding.
THEREFORE, IT IS ORDERED as follows:
1. That the Joint Motion for Clarification of the Bankruptcy Court’s Authority
to Enter an Order Confirming a Proposed Chapter 11 Plan Which Includes
5

Substantive Consolidation of the Bankruptcy Estates of Svs and Sequoia [#23] filed
October 3, 2014, is granted on the terms stated in this order;
2. That the parties to this adversary proceeding and this court recognize the
authority and jurisdiction of the bankruptcy court to confirm a plan of reorganization and to
include the merger or consolidation of the debtor in that plan of reorganization;
3. That if the bankruptcy court confirms a plan of reorganization which includes
substantive consolidation of SVS and Sequoia, this court will treat such an order as
proposed findings of fact and conclusions of law with regard to the issue of substantive
consolidation in this adversary proceeding; and
4. That if the bankruptcy court confirms a plan of reorganization which includes
substantive consolidation of SVS and Sequoia, the deadline for filing objections to that
order for purposes of this adversary proceeding, as specified in D.C.COLO.LCivR 84.1(e),
shall run from the date the order of confirmation is filed in this adversary proceeding.
Dated September 23, 2015, at Denver, Colorado.
BY THE COURT:

6