In re: AMC Investors II LLC
Filing
6
OPINION - Signed by Judge Noel L. Hillman on 3/14/12. (rwc)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
AMC Investors LLC and
AMC Investors II LLC
Debtors/Appellants,
v.
CIVIL NO. 11-592(NLH)
11-593(NLH)
Eugenia VI Venture Holdings
Ltd.,
Appellee.
APPEARANCES:
Maria Aprile Sawczuk
Stevens & Lee
1105 North Market Street
7th Floor
Wilmington, DE 19801
Constantine D. Pourakis
485 Madison Avenue, 20th Floor
New York, NY 10022
Brian P. Miller
Akerman Senterfitt
One Southeast Third Avenue, 25th Floor
Miami, FL 33131-1714
On behalf of debtors/appellants
Mark David Collins
Cory Dean Kandestin
Marcos Alexis Ramos
Richards, Layton & Finger, PA
One Rodney Square, 920 N. King Street
Wilmington, DE 19801
Mitchell A. Karlan
200 Park Avenue
New York, NY 10166
On behalf of appellee
HILLMAN, District Judge
OPINION
Presently before the Court is the motion of debtors and
appellants, AMC Investors, LLC and AMC Investors II, LLC, for leave
to file an interlocutory appeal of an order entered by the
bankruptcy court in the involuntary Chapter 7 bankruptcy
proceedings commenced against the debtors by the appellee, Eugenia
VI Venture Holdings Ltd.
For the reasons expressed below, the
motion will be denied.
DISCUSSION
The underlying Chapter 7 bankruptcy concerns a multimillion dollar credit agreement between debtors and Eugenia that,
due to what Eugenia claims to be fraud and mismanagement, left the
debtors insolvent and in default under the credit agreement.
In
addition to other legal actions, Eugenia, as the debtors’ sole
creditor, instituted an involuntary Chapter 7 bankruptcy proceeding
against each of the debtors.
A trustee was appointed to the
debtors’ estates.1
During the course of the bankruptcy proceedings it became
clear that the trustee lacked the resources necessary to pursue any
litigation to benefit the debtors’ estates.
1
As a result, Eugenia
The two debtors are AMC Investors, LLC and AMC Investors
II, LLC, and two involuntary Chapter 7 petitions were filed, 0812264 (CSS) and 08-12265 (CSS). These bankruptcies are being
handled jointly, and the Court will refer to them collectively.
sought derivative standing to assert claims on behalf of the
debtors’ estates.
The bankruptcy court held that, pursuant to
Official Comm. of Unsecured Creditors of Cybergenics Corp. v.
Chinery, 330 F.3d 548 (3d Cir. 2003), the creditor, Eugenia, had
standing to assert claims in the Chapter 7 bankruptcy, despite the
presence of an appointed trustee.
In their request for leave to appeal that decision, the
debtors contend that the bankruptcy erred in that finding.
The
debtors are seeking an interlocutory appeal because they claim that
this Court’s reversal of that decision would eliminate
extraordinary costs for both parties in litigating claims that have
no prospect for success.2
The decision whether to grant leave to file an
interlocutory appeal from the bankruptcy court is informed by
reference to 28 U.S.C. § 1292(b), which governs interlocutory
appeals from the district courts to the courts of appeal.
In re
SemCrude, L.P., 407 B.R. 553, 556 (D. Del. 2009) (citing In Re
Magic Restaurants, Inc., 202 B.R. 24, 25 (D. Del. 1996)).
Leave to
file an interlocutory appeal may be granted when the order at
issue: (1) involves a controlling question of law; (2) upon which
2
This Court has jurisdiction to hear appeals from final
judgments, orders, decrees, and, with leave of the court, from
interlocutory orders and decrees entered by the bankruptcy court.
28 U.S.C. § 158(a).
there is substantial grounds for difference of opinion as to its
correctness; and (3) if appealed immediately, may materially
advance the ultimate termination of the litigation.
Id. at 556-57
(citing Katz v. Carte Blanche Corporation, 496 F.2d 747, 754 (3d
Cir. 1974).
A court’s discretion to grant or deny an interlocutory
appeal is not limited by this test, however.
“Leave to file an
interlocutory appeal may be denied for reasons apart from this
specified criteria, including such matters as the appellate docket
or the desire to have a full record before considering the disputed
legal issue.”
Id. (citation omitted).
Moreover, because an
interlocutory appeal “represents a deviation from the basic
judicial policy of deferring review until the entry of a final
judgement, the party seeking leave to appeal an interlocutory order
must also demonstrate that exceptional circumstances exist.”
Id.
(citation omitted).
Here, the debtors argue that the bankruptcy court’s
application of the Cybergenics case in a Chapter 7 proceeding was
patently incorrect because that case only applies to Chapter 11
proceedings.
The debtors further argue that allowing Eugenia to
have derivative standing to bring claims on behalf of the debtors’
estate would obviate the role of the trustee, who is only appointed
in Chapter 7 cases.
The debtors contend that the bankruptcy
court’s interpretation of Cybergenics is a controlling question of
law that leads to a substantial grounds for difference of opinion
as to its correctness, and this Court’s determination of that
question may materially advance the resolution of the litigation.
In its opposition to the debtors’ motion, Eugenia argues
that the debtors do not have standing to appeal because they are
not “aggrieved persons” whose rights can be vindicated on appeal.
They also argue that the debtors have failed to meet any of the
three elements needed in order for this Court to entertain their
interlocutory appeal.
This Court will decline to hear the debtors’ appeal
because the bankruptcy’s application of Cybergenics does not
present the requisite difference of opinion.
We also conclude that
appellant has failed to demonstrate exceptional circumstances or
has otherwise shown how the appeal will advance the litigation.
Appellant has therefore failed to meet the requirements for
interlocutory intervention by this Court.3
3
Ostensibly, the debtors’ standing to file this motion
should be the first issue resolved. While we have serious doubts
about appellants’ standing to pursue this appeal in the absence
of any direct harm to the debtor, see In re Dykes, 10 F.3d 184,
188-89 (3d Cir. 1993) (“To appeal from an order of a bankruptcy
court one must show that the order diminishes one’s property,
increases one’s burdens, or impairs one’s rights.”), we also
recognize that whether the debtors meet the “persons aggrieved”
test is a fact-intensive inquiry. In re Fryer, 235 Fed. Appx.
951, 954 (3d Cir. 2007) (citing In re Dykes, 10 F.3d at 185, 188)
(“Whether a litigant has standing to appeal a Bankruptcy Court
The debtors’ main argument is that the bankruptcy court
misapplied the Cybergenics standard by erroneously applying its
tenets to a Chapter 7 bankruptcy.
The debtors, however, have
failed to show that courts have interpreted the case so narrowly.
To the contrary, several courts have applied Cybergenics–or its
rationale--in Chapter 7 cases.
See In re Rim, 2010 WL 4615174, *7
(D.N.J. 2010) (“While the Third Circuit has not addressed
derivative standing for Chapter 7 creditors, other courts have
permitted individual creditors to bring derivative avoidance
actions where the Trustee has declined to do so.” (citing In re
Trailer Source, Inc. v. Jackson Truck & Trailer Repair, Inc., 555
F.3d 231, 243-44 (6th Cir. 2009) (finding that "there is no textual
support in the Code for drawing such a distinction between the
Chapter 7 and Chapter 11 contexts and that "there are substantial
policy reasons for allowing derivative standing in Chapter 7
proceedings"); In re Racing Servs., Inc. v. North Dakota Racing
Comm'n, 540 F.3d 892, 898 (8th Cir. 2008) (holding that "derivative
standing is available to a creditor to pursue avoidance actions
ruling is ordinarily a question of fact to be resolved by the
District Court . . . .”). In light of our determination that the
debtor has failed to meet the standard for an interlocutory
appeal, we need not resolve any factual dispute as to how the
debtors might be harmed by allowing the appellee to pursue
derivative claims on their behalf.
when it shows that a Chapter 7 trustee ... is ‘unable or unwilling'
to do so"); In re Sandenhill, Inc., 304 B.R. 692, 694 (E.D. Pa.
2004) ("[W]e frankly cannot imagine that the Third Circuit would
employ a different rationale in a Chapter 7 matter [than it did in
Cybergenics ].").); see also In re Yes! Entertainment Corp., 316
B.R. 141, 145 (D. Del. 2004) (“Although Cybergenics did not
specifically lay out the procedures that should be followed in
allowing creditors derivative standing, the Third Circuit expressed
its agreement with the approaches taken by the Second and Seventh
Circuits.” (citations omitted)).
Moreover, the bankruptcy court’s decision to confer
derivative standing to Eugenia was based not only on its
interpretation of Cybergenics and other case law, but also on the
facts specific to this case--namely, that the trustee lacks the
funds to prosecute potentially colorable claims, and that the
trustee consents to Eugenia’s derivative status.
These facts
distinguish it from other cases where no derivative status was
conferred in a Chapter 7 case.
Thus, in making its decision, the bankruptcy court did
not make a ruling on an issue where there has been a substantial
ground for difference of opinion.4 See In re Advanced Marketing
4
In deciding whether to grant the debtors’ request to hear
their interlocutory appeal, the Court makes no determination as
to the correctness of the bankruptcy court’s decision. Indeed,
Services, Inc., 2008 WL 5680878, *1-2 (D. Del. 2008) (“A question
of first impression, a lack of judicial authority on a legal
question, or a party's disagreement with a court's decision do not
demonstrate a substantial ground for difference of opinion.”
(citations omitted)); In re Dwek, 2011 WL 487582, *4 (D.N.J. 2011)
(explaining that a difference of opinion, the second Section
1292(b) factor, “must arise out of genuine doubt as to the correct
legal standard,” and that “[i]ssues of fact are not an appropriate
basis for an interlocutory appeal” (citations omitted)).
Additionally, the debtors have failed to show any
exceptional circumstances or how this appeal will help to reach the
bankruptcy’s final resolution that would warrant “a deviation from
the basic judicial policy of deferring review until the entry of a
final judgement.”
In re SemCrude, L.P., 407 B.R. 553, 556-57 (D.
Del. 2009) (citations omitted).
As evidenced by the bankruptcy
court hearing transcript, the derivative claims to be advanced by
Eugenia may be subject to several defenses, such as the statute of
limitations, collateral estoppel, and the doctrine of in pari
delicto, that may result in the dismissal of those claims.
Hearing Transcript, Debtors’ Ex. 4 at 38.)
(See
Thus, regardless of
whether the trustee or Eugenia brings those claims, they may lack
if the Court were to do so while still also declining to grant
the debtor’s motion, that would effectively create a backdoor
appeal.
validity, and, correspondingly demonstrate that the bankruptcy’s
grant of derivative standing to Eugenia is not “serious to the
conduct of the litigation, either practically or legally.”5
Katz
v. Carte Blanche Corp., 496 F.2d 747, 755 (3d Cir. 1974); see also
In re Advanced Marketing Services, Inc., 2008 WL 5680878, at *2 (D.
Del. 2008) (denying the claimant’s motion for leave to appeal the
bankruptcy court’s denial of its request for a TRO, and explaining,
“[I]t appears to the Court that, regardless of the TRO ruling, the
Bankruptcy Court will be required to preside over additional
proceedings related to [the claimant’s] claim whether it be further
injunctive proceedings, summary judgment proceedings, or a trial”).
CONCLUSION
Because the debtors have failed to meet all the required
elements to justify an interlocutory appeal, the debtors’ motion
for leave to appeal the bankruptcy court’s order granting Eugenia
5
We note that the debtors contend that the appellee has
sought to abuse the bankruptcy process by re-litigating claims
dismissed in the Southern District of New York and other fora or
are otherwise barred. If debtors are successful in dismissing
Eugenia’s claims at the motion to dismiss stage then their fears
of costly and protracted litigation that may have resulted from
the bankruptcy court’s order will be assuaged. Moreover, the
inquiry into the validity of those defenses is fact-specific
which clearly counsels against the granting of an interlocutory
appeal.
derivative rights to pursue the estates’ claims must be denied.
An
appropriate Order will be entered.
Date: March 14, 2012
At Camden, New Jersey
s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.
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