In re: Radnor Holdings Corporation, et al.

Filing 19

MEMORANDUM regarding Appeal from Bankruptcy Court appealing the Order entered on 04/22/2016, by Honorable Kevin Gross in Bankruptcy case number 12-51308 (KG). Signed by Judge Richard G. Andrews on 2/9/2017. (nms) Modified on 2/9/2017 (nms).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
INRE:

Chapter 11

RADNOR HOLDINGS CORPORATION, et al.,

Banla. Case No. 06-10894-KG
Adv. No. 12-51308-KG

Debtors.
MICHAEL T. KENNEDY,

Civ. No. 16-332-RGA
Appellant,
V.

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP,
TENNENBAUN CAPITAL PARTNERS, LLC,
ALVAREZ AND MARSHAL LLC,
Appellees.

MEMORANDUM
Appellant Michael T. Kennedy, prose.
David B. Stratton, Esq., Pepper Hamilton LLP, Wilmington, DE, attorney for Appellees
Skadden, Arps, Slate, Meagher & Flom LLP, Gregg Galardi, Richard T. Prins, and SK Private
Investment Fund 1998 LLC.
Russell C. Silberglied, Esq., Cory D. Kandestin, Esq., Richards Layton & Finger, P.A.,
Wilmington, DE, attorneys for Appellees Tennenbaum Capital Partners, LLC, Tennenbaum &
Co. LLC, Special Value Expansion Fund, LLC, Special Value Opportunities Fund, LLC, Babson
& Co. LLC, Michael E. Tennenbaum, Suzanne S. Tennenbaum, David A. Hollander, Mark K.
Holdsworth, Howard M. Levkowitz, Richard E. Spencer, and Jose Feliciano.

February

_g_, 2017

~D~JlIDGE:
Presently before the Court is an appeal by Michael T. Kennedy from a memorandum
opinion and final order (Adv. D.I. 121, 122) 1 (the "Dismissal Order") of the United States
Bankruptcy Court for the District of Delaware granting with prejudice the motions to dismiss
(Adv. D.I. 110, 112) filed by the Skadden Defendants2 and the Tennenbaum Defendants 3 with
respect to Kennedy's amended complaint ("Complaint")4 and imposing sanctions.

I.

Introduction

Kennedy was the founder, chairman, and 80% shareholder of Radnor Holdings
Corporation ("Radnor"). In 2006, Radnor and numerous related subsidiaries ("Debtors") filed
voluntary petitions for relief under chapter 11 of the Bankruptcy Code. Radnor later sold its
assets to an affiliate of its secured lender, Tennenbaum Capital Partners LLC ("Tennenbaum")
(B.D.I. 698) ("Sale Order"). Skadden served as Radnor's counsel in the chapter 11 cases. In
December 2012 - more than six years after the sale to Tennenbaum was approved by the
Bankruptcy Court - Kennedy filed three challenges against Tennenbaum and Skadden: (1) a
motion to set aside the Sale Order approving the sale ofRadnor's assets to Tennenbaum; (2) an
objection to Skadden's final fee application; and (3) a complaint seeking $300 million in

1

The docket of the chapter 11 cases, In Radnor Holdings Corporation., Case No. 06-10894
(KG) (Bankr. D. Del.), is cited herein as "B.D.I. _." The docket of the adversary proceeding,
Kennedy v. Skadden, Arps, Slate, Meagher & Flom LLP, et al., Adv. No. 12-51308 (KG) (Bankr.
D. Del.), is cited herein as "Adv. D.I. _."
2

The Skadden Defendants include defendants Skadden, Arps, Slate, Meagher & Flom LLP,
Gregg Galardi, Richard T. Prins, and SK Private Investment Fund 1998 LLC.

3

The Tennenbaum Defendants include defendants Tennenbaum Capital Partners, LLC,
Tennenbaum & Co. LLC, Special Value Expansion Fund, LLC, Special Value Opportunities
Fund, LLC, Babson & Co. LLC, Michael E. Tennenbaum, Suzanne S. Tennenbaum, David A.
Hollander, Mark K. Holdsworth, Howard M. Levkowitz, Richard E. Spencer, and Jose Feliciano.
4

The Court's reference to "the Complaint" is to the Amended Complaint filed on February 26,
2013. (Adv. D.I. 6). The original complaint dates back to December 26, 2012. (Adv. D.I. 1).
1

damages and rescission of the asset sale. (See B.D.I. 1993, 1994). Each of these requests for
relief alleged the same underlying wrongdoing: a conspiracy by Tennenbaum and Skadden to
hide conflicts of interest, retain Skadden as Radnor' s bankruptcy counsel, and ensure a sale to
Tennenbaum to the exclusion of other restructuring options preferred by Kennedy. (See Adv.
D.I. 6

at~

30; B.D.I. 1993 at 3-4, Preliminary Statement).

The Bankruptcy Court denied the request to set aside the Sale Order as time-barred. (See
B.D.I. 2032). The Bankruptcy Court then scheduled a hearing on Kennedy's fee objection.
Because the fee objection expressly incorporated all of the allegations in the Complaint, the
Bankruptcy Court stayed the Complaint's response deadline until after the fee objection could be
heard. (See Adv. D.I. 24). The Bankruptcy Court conducted a two-day evidentiary hearing on
the fee objection and determined that Skadden and Tennenbaum did not fail to disclose conflicts
or act improperly in the chapter 11 cases. In re Radnor Holdings Corp., 2013 WL 3228116
(Bankr. D. Del. June 20, 2013). This Court and the Third Circuit affirmed. Upon conclusion of
the Third Circuit appeal, Skadden and Tennenbaum moved separately to dismiss the Complaint.
The Bankruptcy Court granted those motions, and this appeal followed.

II.

Background
A. Skadden's Retention
On August 25, 2006, the Debtors filed an application to retain Skadden as their

bankruptcy counsel, effective as of the petition date, pursuant to an engagement agreement dated
July 5, 2006. (See B.D.I. 96). At the time, Tennenbaum was a secured lender to Radnor and
controlled one of Radnor's four board seats by virtue of its appointment of Jose Feliciano, who
served on the board from February 9, 2006 until June 26, 2006. Counsel to a debtor must be
"disinterested" and not "hold or represent an interest adverse to the estate." 11 U.S.C. § 327(a).
Likewise, Bankruptcy Rule 2014 requires debtors' counsel to disclose connections with parties
2

in interest in the bankruptcy case. Fed. R. Banlcr. P. 2014(a). In support of its retention,
Skadden filed several declarations disclosing its ties with Tennenbaum. (See B.D.I. 96, dated
August 29, 2006; B.D.I. 223, dated September 18, 2006; and B.D.I. 1222, dated December 19,
2007). The declaration annexed to the retention application disclosed Skadden's representation
ofTennenbaum in matters unrelated to Radnor; that Skadden previously provided approximately
five hours of tax advice to Tennenbaum in matters related to Radnor; that Skadden obtained a
full waiver from Tennenbaum in connection with its proposed retention; and that during the
previous 12-month period, the value of time Skadden billed to Tennenbaum accounted for .027%
of the value of time billed to all Skadden client matters. (See B.D.I. 96 at 11-12). On September
13, 2006, the U.S. Trustee opposed Skadden's retention, arguing that Skadden's relationship
with Tennenbaum was a conflict of interest. (See B.D.I. 169). This objection created a contested
matter. At issue was whether Skadden's relationship with Tennenbaum would disqualify it from
becoming counsel to the Debtors. Skadden filed a supplemental declaration describing
Skadden's work for Tennenbaum, which included representing Tennenbaum in its capacity as a
registered investment advisor and occasionally on corporate matters, as well as assisting
Tennenbaum's two affiliates - funds that make investments in companies like Radnor- in
formation, raising capital, SEC regulatory and reporting requirements, and day to day corporate
matters. (See B.D.I. 223).
The Bankruptcy Court held a contested evidentiary hearing on September 20, 2006, at
which time Skadden's connections with Tennenbaum were explored and evaluated. (See B.D.I.
298, 9/20/06 Hr'g. Tr.). Skadden further disclosed that certain Skadden partners invested in
Tennenbaum-affiliated funds, over which they had no investment authority. (See id. at 36-37).
Based on these disclosures and the evidence presented at the hearing, the Bankruptcy Court
concluded that Tennenbaum was not a significant client and Skadden's relationship with

3

Tennenbaum was not a disabling conflict of interest. On September 21, 2006, the Bankruptcy
Court authorized Skadden's retention, and this order was not appealed. (B.D.I. 246). This final
order resolved the issue of whether Skadden was conflicted, which is a core allegation of the
Complaint.

B.

Litigation Against Tennenbaum

Tennenbaum's secured claims were heavily litigated during the chapter 11 cases. On the
first day of the chapter 11 cases, Skadden recommended to Radnor's board that it form a special
committee and hire separate counsel that had not represented Tennenbaum to investigate any
potential claims and causes of action against Tennenbaum and the liens securing Tennenbaum's
claims. (See B.D.I. 298, 9120106 Hr'g. Tr. at 36). WilmerHale was retained by the special
committee, and its retention was approved by the Bankruptcy Court. (See B.D.I. 276). On
October 25, 2006, the Debtors filed an objection to Tennenbaum's claims. (B.D.I. 476). The
objection was filed by WilmerHale as counsel for the special committee and by Skadden as
counsel for the Debtors.
After attempts at restructuring proved unsuccessful, the Debtors initiated a sale process,
and ultimately requested that Tennenbaum make an offer to purchase Radnor's operating
business. During the sale process, the Official Committee of Unsecured Creditors ("Committee')
initiated an adversary proceeding against Tennenbaum and Feliciano, asserting causes of action
based on recharacterization, equitable subordination, breaches of fiduciary duty, fraudulent
conveyances, avoidance ofliens, and objections to claims. (See B.D.I. 526). The Committee
alleged that Tennenbaum became Radnor's secured lender so that it could engineer a bankruptcy
fire sale and buy the company at a low price, leaving unsecured creditors with nothing:
[I]fTennenbaum is permitted to consummate its scheme and to proceed with its
acquisition plan, the unsecured creditors stand to recover nothing. That outcome is
by design, the result of a deliberate, coordinated plan by Tennenbaum to increase the
debt load of the already over-leveraged Debtors, take them into default, and then
4

acquire Debtors' valuable assets and business operations in a fire-sale at a discount
so steep that it constitutes a constructively fraudulent transfer.

(See id. at 2). On November 17, 2006, following an eight-day trial, the Bankruptcy Court
entered a judgment against the Committee on each count of its complaint not previously
withdrawn by the Committee ("Tennenbaum Judgment"). See Official Comm. of Unsecured

Creditors ofRadnor Holdings Corp. v. Tennenbaum Capital Partners LLC, 353 B.R. 820, 827
(Bankr. D. Del. 2006). Kennedy was a key witness against Tennenbaum during the trial, and the
Bankruptcy Court determined that:
TCP [Tennenbaum Capital Partners] did not engage in misconduct; TCP did not
seek to benefit itself at the expense of others; TCP did not seek to mislead trade
creditors, public noteholders or other stakeholders. TCP at all times acted in good
faith with a view to maximize Radnor's value to all constituents.
Id. at 841 (emphasis in original). The Committee appealed the Tennenbaum Judgment but later
voluntarily dismissed the appeal. The Tennenbaum Judgment resolved the issue of whether
Skadden and Tennenbaum conspired in the bankruptcy cases to ensure a sale to Tennenbaum,
which is a core allegation of the Complaint. 5

C.

Sale of Debtors' Assets to Tennenbaum's Affiliate

On November 21, 2006, the Bankruptcy Court entered the Sale Order approving the sale
of substantially all of the Debtors' assets to an affiliate ofTennenbaum. The Sale Order contains
specific findings, including that: (1) the sale to Tennenbaum represented the highest and best
offer after a fair marketing process (B.D.I. 698

at~

M); (2) the asset purchase agreement and sale

transaction were negotiated by the Debtors and Tennenbaum at arms' length, without collusion

See Complaint at~ 30 ("Defendants acted in concert ... to orchestrate a sale of Radnor's assets
to the exclusive benefit of the Tennenbaum defendants").
5
5

or fraud, and in good faith within the meaning of sections 363(m) 6 and (n) 7 of the Bankruptcy
Code (id. at if N); (3) Tennenbaum did not engage in any conduct that would permit the sale to be
avoided, or costs or damages imposed, under section 363(n) (id.); (4) there was no evidence of
insider influence, improper conduct, fraud, or collusion by Tennenbaum or its affiliate in
connection with the negotiation and the sale (id. at if W); and (5) the sale was undertaken by
Tennenbaum in good faith and Tennenbaum was a purchaser in good faith within the meaning of
section 363(m) (id. at 15, if 5). The Bankruptcy Court further found that a restructuring or
reorganization (as opposed to the sale and liquidation) was precluded by Radnor's
circumstances, not by improper conduct on Skadden or Tennenbaum's part. (See id. at if L). The
Sale Order was not appealed. Thus, the Sale Order resolved the issue of whether Tennenbaum's
purchase of the Debtors' assets was somehow wrongful, which is a core allegation of the
Complaint.

D.

The Plan of Liquidation

On September 10, 2012, the Bankruptcy Court held a hearing to consider confirmation of
the Debtors' plan of liquidation. Kennedy's counsel requested that confirmation be delayed so
that Kennedy could object to the plan on the basis of an unspecified "matter" that Kennedy had
''uncovered." See Radnor, 2013 WL 3228116, at *11. It is now clear that the newly uncovered
matter was the same wrongdoing alleged in the Complaint. (See Complaint at if 209 (alleging

6

Section 363(m) of the Bankruptcy Code provides that a reversal or modification of an order
approving a sale under section 363(b) "does not affect the validity of [the] sale ... under such
authorization to an entity that purchased ... such property in good faith, whether or not such
entity knew of the pendency of the appeal, unless such authorization and such sale ... were
stayed pending appeal." See 11 U.S.C. § 363(m).
7

Section 363(n) of the Bankruptcy Code provides that a debtor may (a) avoid a sale approved
under section 363(b) if the sale price was controlled by an agreement among potential bidders, or
(b) recover from a party to such an agreement any amount by which the value of the property
sold exceeds the price at which the sale was consummated. See 11 U.S.C. § 363(n).
6

that Kennedy learned of the wrongdoing while preparing for the confirmation hearing)). The
Bankruptcy Court extended Kennedy's deadline to object for 30 days, and Radnor later
voluntarily extended that deadline by an additional 90 days. Radnor, 2013 WL 3228116, at *11.
Despite these extensions, Kennedy failed to file any objection to the proposed plan; rather he
filed another motion to extend his objection deadline. See id. at *11 ("On July 15, 2012, the
Court denied Kennedy's Motion to Extend, and Kennedy was time-barred from filing any
objection to confirmation of the Debtors' plan in the above-captioned cases"). On September 10,
2012, the Bankruptcy Court entered the Confirmation Order (B.D.I. 1976), which was not
appealed. The Confirmation Order included a finding that Debtors had acted in good faith in
negotiating, formulating, and soliciting votes for acceptance of the plan (id. at 17-18, 22-23);
enjoined claimholders from taking any action inconsistent with the provisions of the plan (id. at
27-28); and released the Debtors and their professionals from any liability for any post-petition
act or omission arising out of the chapter 11 cases, except for willful misconduct or gross
negligence (id. at 28). The plan also resulted in the elimination of all of Kennedy's equity in
Radnor.

E.

Final Fee Order

As consideration in the asset sale, Tennenbaum paid cash and also "credit bid" a portion
of its secured claim. Because Tennenbaum did not credit bid its entire claim, it still held claims
against Radnor after the sale. Kennedy had personally guaranteed up to $10 million of those
claims, so Tennenbaum sought to enforce the guaranty. When Kennedy refused to pay,
Tennenbaum sued him for breach of contract in New York and prevailed. 8 Tennenbaum and
Kennedy have been embroiled in litigation for years. But it was only after plan confirmation -

8

See Tennenbaum Capital Partners, LLC v. Kennedy, 2009 WL 2913679, at *1 (S.D.N.Y. Sept.
11, 2009), aff'd, 375 F. App'x 180, 181 (2d Cir. 2010).
7

when his objections were barred - that Kennedy initiated his challenges against Tennenbaum and
Skadden alleging misconduct in the chapter 11 cases.
On November 18, 2012, Skadden filed its final fee application seeking compensation for
services rendered and reimbursement of expenses incurred as counsel to Debtors for the period
from August 21, 2006 through and including September 28, 2012. (B.D.I. 1989). On December
26, 2012, Kennedy filed a combined motion and objection, in which he objected to the
Skadden's final fee application and moved to set aside the Sale Order under Rule 60(b) (B.D.I.
1993) ("Objection"). The Objection purported to seek various forms ofrelief in addition to
"setting aside" the Sale Order, including "revesting" in the Debtors' estates the assets sold to
Tennenbaum's affiliate; invalidating certain plan releases approved in the Confirmation Order;
and appointing an examiner, trustee, and special counsel to conduct an investigation and bring
certain causes of action at Kennedy's behest. (See id.) Contemporaneously therewith, Kennedy
also filed the Complaint which sought $300 million in damages and rescission of the sale.
Kennedy's Objection expressly incorporated the allegations of the Complaint: (1) Tennenbaum
was a major client of Skadden; (2) Skadden failed to disclose this to Kennedy, Radnor's board,
or the Bankruptcy Court; (3) Tennenbaum steered Radnor to retain Skadden; (4) Tennenbaum
and Skadden colluded and conspired to advance Tennenbaum's objectives in the Debtors'
chapter 11 cases to the exclusion of Kennedy's goals; (5) Skadden "effectively represented"
Tennenbaum's interests in Radnor's chapter 11 cases; (6) Skadden prevented Kennedy from
participating in the chapter 11 cases and orchestrated a sale of Debtor's assets to Tennenbaum;
and (7) Skadden frustrated Kennedy's and Radnor's attempts to reorganize Radnor. (See Adv.
D.I. 6).
The Bankruptcy Court denied the request to set aside the Sale Order as time-barred, as
more than six years had passed since its entry. (See B.D.I. 2032). The Bankruptcy Court then

8

stayed Defendants' deadline to respond to the Complaint until after the resolution of the
Objection. (See Adv. D.I. 24). On May 1 and 2, 2013, the Bankruptcy Court conducted a twoday evidentiary hearing on the Objection, and Kennedy was represented by counsel and
personally testified at the hearing. (See B.D.I. 2053 at 2 (listing counsel); Radnor, 2013 WL
3228116, *6 (credibility findings on Kennedy's testimony)). In hearing evidence, several of the
Bankruptcy Court's rulings turned on Kennedy's incorporation of the Complaint's allegations
into his Objection. (See, e.g., B.D.I. 2053, 5/112013 Hr'g. Tr. at 62 ("Mr. Kennedy has injected
his complaint into this [Objection]")).
Following the evidentiary hearing and post-trial briefing (B.D.I. 2068, 2073), the
Bankruptcy Court overruled Kennedy's Objection in all respects and approved Skadden's final
fee application in its entirety ("Final Fee Order"). See In re Radnor, 2013 WL 3228116 (Bankr.
D. Del. June 20, 2013). The Final Fee Order contains numerous and detailed findings of fact and
conclusions of law upon which the Bankruptcy Court determined that the claims and allegations
of misconduct by Skadden asserted in the Complaint and Objection were without basis in fact
and lacked legal foundation. (See id.) The Bankruptcy Court rejected Kennedy's allegations that
Tennenbaum and Skadden had colluded or conspired in the chapter 11 cases:
Skadden did not wrongfully collude or conspire with Tennenbaum to orchestrate
or manipulate these Chapter 11 cases and the sale process for the benefit of
Tennenbaum at the expense of the Debtors' creditors and equity interest holders,
or Kennedy and his affiliates ... There was no collusion or conspiracy between
Skadden and its affiliates on the one hand, and Tennenbaum or its affiliates on the
other in connection with any matter in these Chapter 11 cases.

Radnor, 2013 WL 3228116, at *9. The Bankruptcy Court further rejected Kennedy's allegations
that Tennenbaum engaged in any wrongdoing in the bankruptcy case:
Tennenbaum did not engage in misconduct, wrongful conduct, fraud, illegal
conduct or a breach of fiduciary duty ... Tennenbaum at all times acted in good
faith with a view to maximizing Radnor's value to all constituents.

Id. The Bankruptcy Court further rejected Kennedy's allegations that Skadden made insufficient
9

disclosures and concealed conflicts of interest:
Given the full record of Skadden disclosures, Skadden did not misrepresent its
relationships with Tennenbaum to the Court or the UST. Skadden's numerous
disclosures in these Chapter 11 cases (including the Galardi declarations and
Skadden's statements at the September 20, 2006 hearing) were extensive, publicly
filed, made on the record, and available to any member of the public, including
Kennedy.

Id. at *4. The Bankruptcy Court further rejected Kennedy's allegations that he did not know of
Skadden's relationship with Tennenbaum, finding that he knew of it in 2006. See id. at *4
("Skadden's pre-existing attorney client relationship with Tennenbaum was disclosed and known
to Kennedy ... when Skadden was retained prepetition ... "); id. at *6 ("the Court finds that
Kennedy lacks credibility" in claiming that he did not know about the relationship); id. (finding
"not believable" Kennedy's testimony that he believed that Skadden had done no Radnor-related
work for Tennenbaum other than five hours of tax-related work).
The findings and conclusions in the Final Fee Order are clearly contrary to the
Complaint's core allegations that Skadden and Tennenbaum conspired to hide conflicts of
interest, and to engineer an asset sale to Tennenbaum in the chapter 11 cases, to the detriment of
Kennedy and other shareholders and creditors.

F.

Subsequent Litigation and Appeals
Kennedy appealed the Final Fee Order on July 3, 2013. (B.D.I. 2078). On September 5,

2013, the Skadden Defendants filed a motion for sanctions against Kennedy pursuant to Federal
Rule of Bankruptcy Procedure 9011 and 28 U.S.C. § 1927,9 seeking, among other relief,
dismissal of the Complaint (Adv. D.I. 58) ("Sanctions Motion"). On August 14, 2014, this Court
affirmed the Final Fee Order, finding that the Bankruptcy Court's factual findings and

9

28 U .S.C. § 1927 provides, "Any attorney or other person admitted to conduct cases in any
court of the United States or any Territory thereof who so multiplies the proceedings in any case
unreasonably and vexatiously may be required by the court to satisfy personally the excess costs,
expenses, and attorneys' fees reasonably incurred because of such conduct."
10

conclusions were proper based on its "thorough and reasoned memorandum opinion" including
findings that Kennedy's testimony lacked credibility, that Kennedy made "numerous assertions
devoid of specific facts to support his position," and that Skadden's disclosures were "adequate
and sufficient." See Kennedy v. Ska.dden, Arps, Slate, Meagher & Flom LLP (Jn re Radnor
Holdings Corp.), 528 B.R. 245 (D. Del. 2014). On September 2, 2014, Kennedy appealed this

Court's ruling to the Third Circuit.
While the Third Circuit appeal was pending, the Honorable Peter J. Walsh retired, and
the chapter 11 cases were reassigned to the Honorable Kevin Gross on December 10, 2014.
(B.D.I. 2131). Shortly thereafter, on January 23, 2015, Kennedy filed a motion to vacate the
Final Fee Order, on the grounds that Judge Walsh had relied on false statements and was not
aware of important new evidence (B.D.I. 2133) ("Motion to Vacate"). The Third Circuit appeal
was stayed while the Motion to Vacate was pending. On March 18, 2015, the Bankruptcy Court
denied the Motion to Vacate, finding that Kennedy had not asserted a single new fact or
argument which the Bankruptcy Court and this Court had not already considered and rejected,
and that Kennedy, dissatisfied with the ruling, was merely "taking a 'run' at a newly assigned
judge." (See B.D.I. 2151 at 11). The Bankruptcy Court further determined that it was the law of
the case that (1) the Skadden Retention Order resolved Skadden's purported conflict of interest
and failure to disclose; (2) the Tennenbaum Judgment resolved Tennenbaum's purported
improper scheme in the bankruptcy case to buy Debtors; (3) the Sale Order resolved
Tennenbaum's purported conspiracy with Skadden to purchase Debtors; and (4) the Final Fee
Order resolved and rejected all allegations of wrongdoing by and between Tennenbaum and
Skadden. See id. The Bankruptcy Court deferred ruling on the Sanctions Motion, however,
finding it inappropriate to consider it while the Third Circuit appeal remained pending. (See id.
at 12). On December 10, 2015, the Third Circuit affirmed the Final Fee Order. See In re Radnor
11

Holdings Corp., 629 F. App'x 277 (3d Cir. 2015). 10 On October 11, 2016, the United States
Supreme Court denied Kennedy's petition for certiorari. (See D.I. 18).
On February 12, 2016, the Defendants filed their motions to dismiss (Adv. D.I. 110, 112).
On April 22, 2016, the Bankruptcy Court entered the Dismissal Order, dismissing the Complaint
with prejudice on grounds that the claims were (1) time-barred, (2) precluded by prior court
orders and opinions, and (3) asserted by Kennedy without proper standing. (See Adv. D.I. 121).
The Bankruptcy Court further determined that Kennedy had litigated his claims "beyond
reason," which justified Defendants' request for sanctions, but declined to impose fees and costs;
rather, the Bankruptcy Court barred Kennedy from filing any further motions without first
obtaining leave of the court. (See Adv. D.I. 121 at 12). On May 5, 2016, Kennedy timely
appealed the Dismissal Order. (See D.I. 1). The merits of the appeal have been fully briefed.
(D.I. 10, 12, 14, 16). No party has requested oral argument with respect to the appeal. (See D.I.
17).

III.

CONTENTIONS

On appeal, Kennedy raises several constitutional arguments, including that the
Bankruptcy Court, as a non-Article III court, lacked authority to enter a final order dismissing
the Complaint because Kennedy did not consent to the Bankruptcy Court's authority, and the
Complaint included non-core claims. (D.I. 10 at 12-16). Throughout the pleadings, Kennedy
also generally asserts that the Bankruptcy Court's dismissal of the Complaint without discovery
and a jury trial violated his rights under the Fifth, Seventh, and Fourteenth Amendments to the
United States Constitution. (See id. at 12-15). Kennedy further asserts that the Bankruptcy
Court erred in concluding that equitable tolling did not apply to the statute oflimitations based
on Defendants' concealment of fees and material adverse conflicts. (See id. at 18-20). Kennedy

10

On January 19, 2016, the Third Circuit issued its mandate affirming the Final Fee Order.
12

argues that the Bankruptcy Court also erred in applying law of the case, resjudicata, and
collateral estoppel because Kennedy was not a party to prior proceedings and did not have an
opportunity to litigate the issues presented in the Complaint. (See id. at 20-23). Finally,
Kennedy argues that the Bankruptcy Court erred in concluding he lacked standing to assert the
claims included in the Complaint because he may be granted standing under a provision of
Delaware General Corporate Law, pursuant to which Kennedy argues Radnor may appoint a
trustee by petitioning the Delaware Court of Chancery. (See id. at 24-25).
Defendants argue there is no merit in Kennedy's constitutional arguments. According to
Defendants, the Bankruptcy Court had authority to enter the Dismissal Order because claims in
the Complaint are core matters arising in the chapter 11 cases, Kennedy consented to the
Bankruptcy Court's final adjudication of the Complaint, and because the Bankruptcy Court has
authority to grant pretrial dispositive motions in adversary proceedings even with respect to noncore claims. (See D.I. 12 at 45-48; D.I. 14 at 19-21). Defendants further argue that Kennedy's
putative jury trial and discovery rights were not implicated by the Dismissal Order where the
Complaint failed to make a plausible showing that Kennedy was entitled to the relief sought in
the Complaint. (See D.I. 12 at 48-50). According to Defendants, the Bankruptcy Court also
correctly dismissed all causes of action in the Complaint, which were time-barred under any
potentially applicable statute oflimitations, and correctly determined that equitable tolling did
not apply because (i) any allegations that Skadden concealed payments or material adverse
conflicts are contrary to the Bankruptcy Court's findings, and (ii) because Kennedy was on
notice of the facts and circumstances underlying his putative claims even before the sale
transaction was approved in 2006. (See D.I. 12 at 25-28; D.I. 14 at 21-23). Defendants further
argue that the Bankruptcy Court was correct in applying the doctrines of law of the case, res

judicata, and collateral estoppel in dismissing the Complaint, as the core allegations of
13

concealment and misconduct have been litigated and rejected by prior orders of the Bankruptcy
Court. (See D.I. 12 at 29-37; D.I. 14 at 23-26). Finally, Defendants dispute Kennedy's standing
as the claims in the Complaint are derivative and may be asserted, if at all, only by the trustee
appointed pursuant to the terms of the plan. (See D.I. 12 at 37-40; D.I. 14 at 26-28).
Defendants argue the Court may affirm the Dismissal Order on several additional
grounds. 11 Defendants argue that the Complaint is barred by the plan and releases contained in
the Sale Order. 12 (See D.I. 12 at 43-45; D.I. 14 at 28-30). The Tennenbaum Defendants argue
that because the Complaint was barred by the Confirmation Order, the Complaint constitutes a
collateral attack on the Confirmation Order. (See D.I. 14 at 29-30). The Skadden Defendants
contend that Kennedy failed to appeal the Bankruptcy Court's dismissal of the Complaint as a
sanction, and that the Court may affirm the Dismissal Order on this basis alone. (See D.I. 12 at
3).

IV.

JURISDICTION AND STAND ARD OF REVIEW
The Court has jurisdiction to hear an appeal from a final judgment of the Bankruptcy

Court pursuant to 28 U.S.C. § 158(a)(l). On appeal from an order issued by the Bankruptcy
Court, a district court "review[s] the Bankruptcy Court's factual findings under a clearly
erroneous standard and exercise[ s] plenary review over legal issues." In re Trans World

Airlines, Inc., 145 F .3d 124, 130 (3d Cir. 1998) (noting that both the district court and the Third
Circuit "review the bankruptcy court's legal determinations de novo, its factual findings for clear
error and its exercise of discretion for abuse thereof."). Thus, the Court reviews de novo the

11

See Nicini v. Morra, 212 F.3d 798, 805 (3d Cir. 2005) ("[The Third Circuit] may affirm the
District Court on any grounds supported by the record."); Storey v. Burns Int 'l Sec. Servs., 390
F.3d 760, 761 n.1 (3d Cir. 2004) ("An appellate court may affirm a result reached by the district
court if the record supports the judgment.").
12

In connection with the sale, the Bankruptcy Court approved a release in favor ofTennenbaum,
barring claims relating to events predating the sale. (See B.D.I. 698, Ex. A at§ 12.11).
14

Bankruptcy Court's application of statute oflimitations and claim preclusion doctrines, but need
not reexamine findings or conclusions determined in the prior proceedings that are not part of the
instant appeal because "there is no further fact-finding function for a court to perform. See Tice

v. Bristol Myers Squibb Co., 515 F. Supp. 2d 580, 590 (W.D. Pa. 2007) (quoting Parklane
Hosiery v. Shore, 439 U.S. 322, 336 (1979)). A dismissal for lack of standing is a "purely legal
question" also subject to de novo review. In re Yes! Entm 't Corp., 316 B.R. 141, 144 (D. Del.
2004); In re Global Indus. Tech., Inc., 645 F.3d 201, 209 (3d Cir. 2011).

V.

DISCUSSION
The Complaint is 327 paragraphs long and includes ten separate causes of action,

including breach of fiduciary duties, fraud, conspiracy to commit fraud, malpractice, perjury,
unjust enrichment, obstruction of justice, breach of contract, tortious interference, and theft by
deception. The Complaint's allegations may be summarized as follows. Tennenbaum was an
important Skadden client (see Adv. D.I. 6 at iii! 37, 226). Skadden did not disclose the
relationship with Tennenbaum to Kennedy, Radnor's board, or the Bankruptcy Court (id. at iril
100, 107-109, 116, 144, 218, 239, 281). Tennenbaum directed Radnor to retain Skadden (id. at if
112). Tennenbaum and Skadden conspired to achieve Tennenbaum's goals in the chapter 11
cases (id. at iii! 202, 219, 228, 230, 247, 281). Skadden represented Tennenbaum's interests in
the chapter 11 cases (id. at iril 164, 281). Skadden orchestrated the sale of Radnor's assets to
Tennenbaum (id. at iril 156, 169). Skadden thwarted Kennedy's and Radnor's efforts to
reorganize Radnor (id. at iii! 137, 152-54, 166, 171, 183, 185, 216, 281).

A. The Bankruptcy Court Properly Dismissed the Complaint as Time-Barred
Because Equitable Tolling Does Not Apply
The Bankruptcy Court determined that, while several statutes oflimitations might apply
to Kennedy's claims, under any potentially applicable statute oflimitations, all of the causes of
action asserted in the Complaint were time-barred. (See Adv. D.I. 121 at 9). The Complaint
15

alleges wrongdoing predating and culminating in Radnor's sale to Tennenbaum. The
Bankruptcy Court found that Kennedy was on notice of Skadden' s relationship with
Tennenbaum and the basic allegations underlying the Complaint by at least the November 21,
2006 sale hearing, more than six years before Kennedy filed his original complaint on December
26, 2012. (See id.). As set forth in the Dismissal Order, none of the statutes oflimitations reach
as far back as six years. 13 Kennedy does not dispute that his claims were untimely. Rather,
Kennedy argues that any statute oflimitations was equitably tolled by Defendants' "concealment
of material and adverse facts" - namely, their alleged concealment of fee payments and conflicts
of interest-which Kennedy only just discovered in 2012. (See DJ. 10 at 18-20).
According to Defendants, Kennedy does not dispute (and therefore concedes) that all of
his claims are untimely, and the only challenge on appeal is whether dismissal of the Complaint
was in error because his claims should have been saved by the "equitable tolling" doctrine. (See
DJ. 12 at 24-25). Defendants argue that Kennedy failed to establish any fraud or concealment
which could predicate equitable tolling. Even if Kennedy had carried his burden to establish that
equitable tolling applies, Defendants argue that equitable tolling extends only until a person is
put on "inquiry notice," and Kennedy had actual knowledge of Skadden' s relationship with
Tennenbaum prior to the bankruptcy filing in 2006. (See id. at 26-27; DJ. 14 at 21-23).
A plaintiff bears the burden of establishing that equitable tolling applies. See Graulich v.
Dell Inc., 2011WL1843813, at *6 (Del. Ch. May 16, 2011). Kennedy argues that Defendants

"knowingly concealed $10 million in fee payments to Radnor legal and financial advisors;" and
"concealed Skadden's ownership of Radnor stocks and bonds." (DJ. 10 at 19). Kennedy argues

13

See Adv. DJ. 121 at 6-9 (listing each potentially applicable statute oflimitations). Skadden's
representation of the Debtors was governed by New York law under the engagement agreement;
the Debtors were headquartered in Pennsylvania; and the chapter 11 cases were filed in
Delaware.
16

that this intentional concealment is evidenced by testimony at the evidentiary hearing held on
May 1, 2013, and is sufficient to equitably toll the statute oflimitations. Defendants argue that
Kennedy's allegations of concealment cannot survive the Bankruptcy Court's specific findings to
the contrary that Defendants did not engage in any misconduct (much less fraudulent
concealment of misconduct). In two final orders, the Bankruptcy Court has determined that no
concealment occurred. See Radnor, 2013 WL 3228116, at *9 (finding no concealment or
conspiracy and that Skadden's retention disclosures were sufficient); B.D.I. 2151 at 11 ("[I]t is
the law of the case that: [t]he Skadden Retention Order resolved Skadden's purported conflict of
interest and failure to disclose"); see id. at 4 (rejecting Kennedy's argument that the Bankruptcy
Court had failed to consider evidence of non-disclosures).
The Court has reviewed the record and finds no plausible support for Kennedy's
allegations that Defendants concealed fees or conflicts of interest. With respect to Skadden's
relationship to Tennenbaum, many public disclosures were made, it was a contested matter, and
an evidentiary hearing was held. The Bankruptcy Court found no disabling conflicts, and
Kennedy's assertions that he was unaware of Skadden's representation ofTennenbaum in
unrelated matters were belied by his communications before Skadden' s retention. 14 With respect
to fees, Kennedy provides no support for his repeated allegations that Defendants admitted to
concealing $10 million in fees at the May 2013 evidentiary hearings. (See e.g., D.I. 10 at 5).
The Court has reviewed the transcripts of those hearings and finds no support for this allegation.

14

See May 30, 2006 email from Kennedy to Feliciano, in which Kennedy states:
I understand that Skadden has represented [Tennenbaum Capital Partners] in other
unrelated matters in the past and Skadden does not consider them a conflict, however I
want to make certain that you would not have a problem with Skadden representing the
company if the board chooses them during our process. Please confirm via email so I can
reaffirm with Skadden and the other board members before our meeting tomorrow.
Radnor, 2013 WL 3228116 at *6 (quoting email).

17

(See B.D.I. 2053, 2063). 15 Kennedy's repeated allegations that Skadden concealed its partners'
investment in Tennenbaum funds are also belied by the record, as this disclosure was made to the
Bankruptcy Court prior to its approval of Skadden's retention and in subsequent filings. (See
B.D.I. 298, 912012006 Hr'g. Tr. at 36-37; see also B.D.I. 2016 (disclosing that, in 2004, 39
shares of a Tennenbaum affiliate were purchased by 23 Skadden partners and their spouses at
$500 per share, for an aggregate of $19,500, and that these were individual personal investments
as to which Skadden itself was not a party). Kennedy's allegations that Skadden concealed or
misrepresented its relationship with Tennenbaum are flatly contradicted by the record in this
case, and there is no basis for equitable tolling.
Even if Kennedy had carried his burden of establishing concealment, equitable tolling
would extend only until Kennedy was put on inquiry notice. See Graulich, 2011 WL 1843 813,
at *6. A "plaintiff is on inquiry notice when the information underlying plaintiff's claim is
readily available." See Jn re Dean Witter P'ship Litig., No. 14816-VCC, 1998 WL 442456, at *8
(Del. Ch. July 17, 1998); see also In re AMC Investors, LLC, 524 B.R. 62, 80-81 (Bankr. D. Del.
2015) (quoting Vichi v. Koninklijke Phillips Electronics NV., 2009 WL 4345724, at *17 (Del.
Ch. 2009) (statute begins to run ''upon the discovery of facts constituting the basis for the cause
of action or the existence of facts sufficient to put a person of ordinary intelligence and prudence
on inquiry which, if pursued, would lead to the discovery of such facts.") Here, the Bankruptcy
Court previously determined Kennedy had actual knowledge of Skadden's relationship with
Tennenbaum before the chapter 11 cases began. (See Radnor, 2013 WL 3228116, at *4

15

The source of Kennedy's $10 million fee allegation is unclear. At the May 1 and 2, 2013
evidentiary hearing, Kennedy attempted to offer into evidence certain public filings as evidence
that Skadden received $3 million in fees from Tennenbaum for work performed in 2004 and
2005 and that Lehman, which served as Radnor's investment banker, received $7 million in fees
from Tennenbaum prior to the bankruptcy proceedings. The Bankruptcy Court reviewed the
documents but did not agree with Kennedy's interpretation. (See B.D.I. 2063 at 24-25).
18

("Skadden's pre-existing attorney client relationship with Tennenbaum was disclosed and known
to Kennedy ... when Skadden was retained prepetition ... ")). Kennedy fares no better in
contending that he did not become aware of the conduct underlying his claims until 2012, upon
reviewing transcripts from bankruptcy proceedings held in 2006. (See Adv. D.I. 6 at if 209
(describing the Skadden retention hearing transcripts)). Even if this were not contrary to his own
prior pleadings 16 and the Bankruptcy Court's factual findings, 17 the information from which
Kennedy discovered his alleged claims was publicly available no later than the hearing October
27, 2006. See Seidel v. Lee, 954 F. Supp. 810, 817 (D. Del. 1996) (tolling did not apply because
the "public documents, which form the basis of many of Plaintiffs claims, could have provided
Plaintiff with adequate notice of any alleged misconduct by Defendants."). The Court finds no
error in the Bankruptcy Court's determination that the claims in the Complaint were barred by
statutes of limitations and that Kennedy failed to establish a basis for equitable tolling. The
Dismissal Order may be affirmed on this basis alone.

B.

The Bankruptcy Court Correctly Applied Preclusive Doctrines

The doctrines of law of the case, claim preclusion, and issue preclusion bar litigation of
claims or issues that a court has already adjudicated. The Court finds that the Bankruptcy
Court's prior rulings satisfy all three doctrines and bar the Complaint.

Law of the case. The Court finds no error in the Bankruptcy Court's determination that

See Complaint at if 207 (alleging Kennedy learned of conflict in February 2008); see also
B.D.I. 1993 at if 10 ("the true nature of the conflicts of the Debtors' professionals in this case
were discovered shortly after a meeting between Mr. Kennedy and Attorneys Patricia Moran and
Ralph Arditi, of Skadden Arps in Skadden's New York offices on November 18, 2008").
16

17

The Bankruptcy Court has previously determined that Kennedy had actual knowledge of
Skadden's relationship with the Tennenbaum before the chapter 11 cases were filed in 2006
(Radnor, 2013 WL 3228116, at *4), and knew of the relationship no later than the sale hearing
on November 21, 2006, more than six years before Kennedy filed his original complaint (B.D.I.
2151 at 10).
19

the law of the case doctrine required dismissal of the Complaint. This doctrine bars re-litigation
"of matters once decided during the course of a single continuing lawsuit." Casey v. Planned

Parenthood, l 4 F .3d 848, 856 (3d Cir. 1994). The doctrine applies to "subsequent rulings by the
same judge in the same case or a closely related one [and] to rulings by different judges at the
same level." Id. at 856 n.11. The doctrine mandates that "when a court decides a rule oflaw,
that rule oflaw should continue to govern the same issues in subsequent stages in the litigation."

See In re Resyn Corp., 945 F.2d 1279, 1281 (3d Cir. 1991). Defendants argue that the
Bankruptcy Court's decision in the Final Fee Order "resolved and rejected all allegations of
wrongdoing by and between Tennenbaum and Skadden." (B .D. I. 2151 at 11.) The Bankruptcy
Court has twice held that this ruling is the law of the case, and Defendants argue that it should
remain so. (See D.I. 14 at 23).
Kennedy argues that the law of the case doctrine should not apply because there was a
lack of proper fact finding on new issues in the prior proceedings. (See D.I. 10 at 23). However,
the new issues Kennedy alleges -Defendants' alleged concealment from Kennedy and Radnor
of fees and investment in Tennenbaum funds - were already litigated and rejected following the
two-day evidentiary hearing. See Adv. D.I. 121 at 10 (finding that the Final Fee Order
"addressed all of the points Kennedy made in the Complaint."); Radnor, 2013 WL 3228116, at
*4 (finding Skadden made adequate disclosures regarding Tennenbaum to Kennedy, the Debtors,
its board, and general counsel); id. at *3 (finding Skadden disclosed the fact that certain Skadden
partners invested in Tennenbaum funds over which they had no investment authority).
The Court agrees that the law of the case doctrine precludes Kennedy from re-litigating
issues previously decided by the Bankruptcy Court. See In re DuFrayne, 194 B.R. 354, 358
(E.D. Pa. 1996") ("the factual findings made in the [main bankruptcy case opinion denying
confirmation] are the law of the case and are therefore binding on the parties in this [adversary]
20

proceeding."). Allowing any of the causes of action in the Complaint to go forward would
necessarily require re-litigation of issues previously decided after thorough evidentiary hearings
conducted by the Bankruptcy Court.
Claim preclusion. The Court finds no error in the Bankruptcy Court's determination
that the doctrine of claim preclusion or res judicata also required dismissal of the Complaint.
The elements of claim preclusion are (i) a final judgment on the merits in a prior suit, involving
(ii) the same parties or their privies, and (iii) a subsequent suit on the same cause of action. See
Shanin v. Darling, 606 F. Supp. 2d 525, 545 (D. Del. 2009). Here, the merits of Kennedy's

claims of concealment and misconduct were decided in the Final Fee Order, which is a final
judgment that has been affirmed by the Third Circuit. Defendants argue claim preclusion clearly
applies because that litigation involved the same parties, and adjudicated identical allegations.
(See D.I. 14 at 24). The Court agrees. A suit is based on the "same cause of action" if it is based

on the same ''underlying events giving rise to the ... claims." CoreStates Bank, NA. v. Huls
Am., Inc., 176 F.3d 187, 194 (3d Cir. 1999). The Complaint and the Objection to Skadden's

final fee application were based on identical allegations, and the Final Fee Order adjudicated
those allegations. Thus, claim preclusion barred re-litigation of the allegations and required
dismissal of the Complaint.
Issue preclusion. The Court finds no error in the Bankruptcy Court's conclusion that the
doctrines of issue preclusion or collateral estoppel also required dismissal of the Complaint.
Issue preclusion applies where "(1) the identical issue was previously adjudicated; (2) the issue
was actually litigated; (3) the previous determination was necessary to the decision; and (4) the
party being precluded from re-litigating the issue was fully represented in the prior action." See
Henglein v. Colt Indus. Operating Corp., 260 F.3d 201, 209 (3d Cir. 2001) (quotingRaytech
Corp. v. White, 54 F.3d 187, 190 (3d Cir. 1995)). Defendants argue the issue preclusion doctrine

21

clearly applies with respect to the Final Fee Order. (See D.I. 12 at 35; D.I. 1 at 24). The Court
agrees. The Bankruptcy Court had previously adjudicated issues identical to the core allegations
in the Complaint: (1) the issue of Skadden's alleged conflict of interest in the Final Fee Order,
and (2) the issue ofTennenbaum's alleged wrongdoing in the Final Fee Order and Tennenbaum
Judgment. (See D.I. 12 at 35-37). In both cases, the issues were actually litigated in contested
evidentiary hearings, and a determination on those issues was necessary to approving the relief
sought.
Kennedy argues the Bankruptcy Court's rulings on prior contested matters, including the
Bankruptcy Court's orders approving Skadden's retention, the asset sale, and adjudicating the
Tennenbaum Judgment - should not have res judicata or collateral estoppel effect because he
was not party to those proceedings and did not have the opportunity to fully litigate the issues.
(See D.I. 10 at 20-23). Although Kennedy was not personally party to those proceedings, his

privy- Radnor-was a party to those proceedings. See Radovich v. L.P. YA Global Invs., L.P.,
570 F. App'x 203, 207-08 (3d Cir. 2014) (finding a debtor's chairman and majority shareholder
- like Kennedy - stood in privity with the debtor for res judicata purposes, and could not relitigate claims already litigated by the debtor). Kennedy's essential allegations and issues in the
Complaint were actually and fully litigated in the Bankruptcy Court. (See B.D.I. 2151 at 8 ("As
the basis for his motion [to set aside the Sale Order], [Fee O]bjection, and [C]omplaint, Mr.
Kennedy alleged that Tennenbaum and Skadden failed to disclose conflicts of interest to the
Court. He also alleged that Tennenbaum and Skadden collaborated to manipulate the Debtors'
restructuring in Tennenbaum's favor. These are the same allegations that he is once again
raising in the [Motion to Vacate].") The Bankruptcy Court properly precluded re-litigation of
the issues and claims in dismissing the Complaint.

22

C.

The Bankruptcy Court Properly Dismissed the Complaint Based on
Kennedy's Lack of Standing

The Bankruptcy Court held that Kennedy lacked standing to bring any of the claims in the
Complaint because all of the claims he asserts are derivative. (See Adv. D.I. 121 at 11 (citing

Tooley v. Dona/don, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1036 (Del. 2006)). On appeal,
Kennedy appears to misunderstand the Bankruptcy Court's ruling, arguing that dismissal for lack
of standing was error because he is a party in interest and meets the minimal constitutional standing
requirement under Article III. (See D.I. 10 at 24). Defendants argue that dismissal on the basis of
standing was indeed correct, for even if the Complaint states a viable claim, any such claim belongs
to Radnor, and Kennedy lacks authority to assert it. (See D.I. 12 at 37-38; D.I. 14 at 26-28).
Under Delaware law, the test for determining whether a claim is derivative or direct is the
following: "[l]ooking at the body of the complaint and considering the nature of relief requested,
has the plaintiff demonstrated that he or she can prevail without showing an injury to the
corporation?" See Tooley, 845 A.2d at 1036. The Bankruptcy Court concluded that Kennedy
cannot prevail on his causes of action without showing injury to Radnor, and the Court agrees.
The Complaint alleges that as a result of Defendants' misconduct, Radnor was sold to Tennenbaum
at a reduced sale price while Radnor could have restructured more favorably. This is an injury to
Radnor, and Kennedy is affected through Radnor, by virtue of his ownership of equity. See Moore

v. Martillo (In re CD Liquidation Co.), 462 B.R. 124, 132 (Bankr. D. Del. 2011) ("[plaintiffs]
claim that [the transaction] devalued his shares is a classic derivative claim. It flows from harm
to the corporation.") Radnor would be the only proper plaintiff to assert such derivative claims.
Although Kennedy also purports to bring the claims on behalf of Radnor as a plaintiff, as well as
on behalf of four family trusts, he has no authority to pursue such claims. Only the plan trustee

23

may assert claims on Radnor's behalf, 18 and Kennedy may not represent entities pro se. 19
Alternatively, Kennedy argues that certain provisions of Delaware state law permit
shareholders to petition the Delaware Court of Chancery for appointment of a trustee to bring
claims. (See id. at 24-25). Defendants point out that Kennedy is no longer a shareholder, as his
shares were cancelled under the plan. (See D.I. 14 at 28). Moreover, Kennedy has never sought
such relief from the Court of Chancery, and Defendants urge the Court not to consider it. (See D.I.
14 at 28). Defendants further argue that Kennedy cannot proceed pro se to bring derivative suits
on behalf of shareholders. (See D.I. 12 at 38).
The Court agrees with Defendants. Sections 278 and 279 of Delaware General
Corporation Law govern the process of corporate dissolution under Delaware state law, and the
possible appointment of a trustee - by the Delaware Court of Chancery - following dissolution. 20
Section 278 merely preserves claims of a corporation dissolved under Delaware law, and it does
not purport to create an independent basis for standing. Kennedy cites no authority for his
argument that the Delaware Court of Chancery may appoint him to pursue derivative litigation
on behalf of Radnor shareholders, notwithstanding the provisions of a confirmed plan of
liquidation. Moreover, Kennedy may not represent the corporation or any other entity prose.
Any such representation would be contrary to controlling law. See Delaware Elevator, Inc. v.

18

The plan provides that "[o]n the Effective Date, ... all assets of the Debtors ... shall be, and
shall be deemed, assigned to the Plan Trust ... " (See B.D.I. 1976, Ex. A at 24). The plan further
provides that "[t]he Plan Trustee,'' as trustee of the Plan trust, "shall liquidate ... assets of the
Debtors and the Estates (including, without limitation, all Causes of Action)." (See id.)
19

See Rowland v. Cal. Men's Colony, 506 U.S. 194, 201-02 (1993) ("It has been the law for the
better part of two centuries ... that a corporation may appear in the federal courts only through
licensed counsel. As the courts have recognized, the rationale for that rule applies equally to all
artificial entities.") (citations omitted); Marin v. Leslie, 337 F. App'x 217, 219-20 (3d Cir. 2009)
(trustee may not proceed prose to represent trusts).
20

See 8 Del. C. §§ 278 and 279.
24

Williams, 2011WL1005181, at *1 (Del. Ch. Mar. 16, 2011) (holding that plaintiff may only

represent himself and may not represent any entities in a prose capacity.) Because Kennedy
lacks standing and authority to pursue the claims asserted in the Complaint, the Dismissal Order
must be affirmed on this basis as well.
D. Kennedy's Constitutional Arguments Lack Merit
Authority to dismiss the Complaint. Kennedy contends that the Bankruptcy Court, as a

non-Article III court, lacked authority to dismiss his Complaint because it contained non-core
claims, and Kennedy never consented to the Bankruptcy Court's final adjudication of the
Complaint. (See D.I. 10 at 12-17). Kennedy argues his claims are non-core, citing Halper:
To determine whether a proceeding is a "core" proceeding, courts of this Circuit
must consult two sources. First, a court must consult§ 157(b). Although§ 157(b)
does not precisely define "core" proceedings, it nonetheless provides an illustrative
list of proceedings that may be considered "core." ... Second, the court must apply
this court's test for a "core" proceeding. Under that test," 'a proceeding is core [l]
if it invokes a substantive right provided by title 11 or [2] if it is a proceeding, that
by its nature, could arise only in the context of a bankruptcy case.' "
See Halper v. Halper, 164 F.3d 830, 836 (3d Cir. 1999). Kennedy argues his claims are not

included in section 157(b)'s list of core proceedings and are non-core because they are based on
Defendants' prepetition concealment of fees and conflicts. Because the alleged concealment
occurred prepetition, Kennedy reasons that his claims are not integral to the administration of the
chapter 11 cases, do not invoke issues of bankruptcy law, and could by their nature arise outside
of the bankruptcy proceedings. (See id. at 16). Defendants argue Kennedy's claims are core as
they are based on Skadden's disclosures under section 327 of the Bankruptcy Code and
Bankruptcy Rule 2014, and its alleged collusion to manipulate the bankruptcy case and obtain a
sale of assets under section 363 of the Bankruptcy Code. (See D.I. 14 at 19).
The Court agrees with the Bankruptcy Court's prior determination that the Complaint
unequivocally addresses matters in the bankruptcy case, which include matters concerning the
25

administration of the estate. See 28 U.S.C. § 157(b)(2)(A); Adv. D.I. 87. As the Bankruptcy Court
determined, the claims in the Complaint are "primarily based on post-petition conduct arising in
the Bankruptcy Case and arising under the Bankruptcy Code and are therefore core." (See id.; see

also In re McClelland, 460 B.R. 397, 403-05 (Bankr. S.D.N.Y. 2011) (bankruptcy court had
jurisdiction over "a core proceeding, and ... power to enter final order" in adversary proceeding
against estate professional notwithstanding Stern v. Marshall, 564 U.S. 462 (2011) and

Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989)). That Kennedy has asserted other causes
of action against estate professionals for fraud does not change the Court's view. See In re Winstar

Commc 'ns, Inc., 435 B.R. 33, 40-41 (Banlcr. D. Del. 2010), aff'd, 2013 WL 6053838 (D. Del. Nov.
15, 2013) (holding that Bankruptcy Court had core jurisdiction over claims against bankruptcy
estate professionals including claims for fraud, aiding and abetting fraud, and civil conspiracy).
Defendants further argue that even if the Complaint contains non-core claims, it makes
no difference because the same standard of review applies. Whether a claim is core or non-core
does not affect a bankruptcy court's jurisdiction to hear a case, only its authority to enter a final
order. (See D.I. 14 at 19 (citing In re Seven Fields Dev. Corp., 505 F.3d 237, 253-54 (3d Cir.
2007) (distinguishing between a bankruptcy court's subject matter jurisdiction and its authority
to determine claims under 28 U.S.C. § 157)); 28 U.S.C. § 157(c) (bankruptcy court may render
proposed findings of fact and conclusions on non-core claims)). Defendants argue that courts in
this circuit recognize the bankruptcy court's authority to dismiss complaints containing non-core
claims. See In re Tropicana Entm 't, LLC, 520 B.R. 455, 463 (Bankr. D. Del. 2014) ("[t]he
Bankruptcy Court ... has the power to enter an order on a motion to dismiss even if the matter is
non-core or it has the no authority to enter an order on the merits."); In re Advance Nanotech,

Inc., 2014 WL 1320145, at *5 (Banlcr. D. Del. Apr. 2, 2014) (same). Defendants argue that,
even assuming the Complaint contains non-core claims, and the Bankruptcy Court lacked
26

authority to dismiss them, the Dismissal Order would stand as a proposed order subject to de
nova review - the same review the Court would apply if the Bankruptcy Court had authority and
its ruling was rendered as a matter oflaw. (See D.I. 14 at 20-21 (citing Amended Standing Order
ofReference, D. Del. (Feb. 29, 2012) ("If a bankruptcy judge or district judge determines that
entry of a final order or judgment by a bankruptcy judge would not be consistent with Article III
... [t]he district court may treat any order of the Bankruptcy Court as proposed findings of fact
and conclusions of law."))). Whether characterized as a final order or proposed order,
Defendants contend, the Court conducts the same review of the Dismissal Order.
The Court agrees that the Bankruptcy Court had authority to dismiss the Complaint and
will affirm the Dismissal Order for the reasons set forth herein. In the alternative, assuming the
Complaint contained non-core claims, and further assuming the Bankruptcy Court lacked
authority to rule on the dispositive motion, the Court treats the Bankruptcy Court's Dismissal
Order as proposed findings of fact and conclusions of law with respect to its dismissal of those
claims, and adopts the Bankruptcy Court's proposed findings and conclusions for the reasons set
forth herein. 21
Right to discovery. Kennedy makes several additional constitutional arguments,

including that the Dismissal Order was improper because it infringed on his rights under the
Fifth, Seventh, and Fourteenth Amendments of the United States Constitution. (See D.I. 10 at
14-16). Specifically, Kennedy argues that his due process and property rights required both
discovery and a jury trial prior to dismissal of his Complaint. (See D.I. 10 at 17).

21

Defendants also argue that Kennedy consented to the Bankruptcy Court's adjudication because
the Complaint states that the Bankruptcy Court "has jurisdiction and venue is proper." (See D.I.
12 at 46-47 (citing Adv. D.I. 1 at~~ 21-22)). The Complaint speaks to jurisdiction, not
adjudicatory authority, and "[a] document filed prose is to be liberally construed." See Erickson
v. Pardus, 551 U.S. 89, 94 (2007) (internal quotations omitted). Kennedy's purported consent is
contradicted by his courtroom statements. (See B.D.I. 2132, 9/22/2014 Hr' g. Tr. at 18-19).
27

First, Kennedy was not entitled to discovery where his claims could not survive Rule
12(b)(6)'s plausibility test. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) ("[t]o survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a
claim to reliefthat is plausible on its face."); Townsend v. New Jersey Transit, 516 F. App'x 110,
111 (3d Cir. 2013) (affirming dismissal under Rule 12(b)(6) where plaintiff"presented
allegations ... already litigated and decided.") As discussed above, Kennedy's claims are timebarred; precluded by prior findings, decisions, and rulings of the Bankruptcy Court; and asserted
without standing. "[T]he purpose of Rule 12(b)(6) is to streamline ... litigation by dispensing
with needless discovery and factfinding." Clark v. Vernon, 228 F. App'x 128, 132-33 (3d Cir.
2007) (internal quotation marks omitted). Before a plaintiff is entitled to discovery, plaintiff
must "first produce a complaint that passes [Rule 12(b)(6)'s] plausibility test." Schatz v.

Republican State Leadership Comm., 669 F.3d 50, 56 (1st Cir. 2012); see also Mann v. Brenner,
375 F. App'x 232, 239 (3d Cir. 2010) (appellant was not entitled to discovery prior to a Rule
12(b)(6) ruling because "a motion to dismiss ... tests the legal sufficiency of a claim, and
therefore may be decided on its face without extensive factual development"); OSU Student

Alliance v. Ray, 699 F.3d 1053, 1078 (9th Cir. 2012) ("when a plaintiff presses an implausible
claim, lack of access of evidence does not save the complaint.") Because the Complaint fails to
state a claim, Kennedy's argument that he was entitled to discovery fails. (See D.I. 10 at 48).
Right to a jury trial. Kennedy's argument that he was entitled to a jury trial prior to

dismissal also fails. See B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S.Ct. 1293, 1304
(2015) ("As to the Seventh Amendment, ... [the Supreme Court] has already held that the right
to a jury trial does not negate the issue-preclusive effect of a judgment, even if that judgment was
entered by a jury-less tribunal."); McArdle v. Verizon Commc'ns Inc., 567 F. App'x 116, 119 (3d
Cir. 2014) (Where ... a district court concludes as a matter of law that plaintiff cannot succeed
28

on his claim, the district court's legal determination does not invade the province of the jury and,
therefore, does not violate his Seventh Amendment rights."); Clark v. Zeiger, 210 F. App'x 612
(91h Cir. 2006) (finding that "the Rule 12(b)( 6) dismissal of a plaintiffs complaint ... did not
violate his right to a jury trial under the Seventh Amendment); Boyd v. King Par, LLC, 2011 WL
5509873, at *2 (W.D. Mich. Nov. 10, 2011) (court may rule on pre-trial dispositive motion
despite jury trial rights). Where, as here, the Complaint failed to state an actionable claim, the
Seventh Amendment is not implicated, and Kennedy has no right to a jury trial. See Raul v.

American Stock Exchange, 1996 WL 627574, at *2 (S.D.N.Y. 1996) ("In dismissing plaintiffs
complaints ... [the] court ruled as a matter of law that plaintiff had failed to state an actionable
claim against either defendant. Thus plaintiff never fell within the aegis of the Seventh
Amendment, and was never entitled to a jury trial.")

E.

Sanctions

Skadden Defendants contend that the Bankruptcy Court dismissed the Complaint as a
sanction against Kennedy under Bankruptcy Rule 9011, and that the sanction was an independent
basis for dismissal. (See D.I. 12 at 5). Defendants argue that Kennedy did not dispute the
imposition of this sanction in his opening brief, that any such argument is waived, and that the
Dismissal Order may be affirmed on this basis alone. (See id.) The Court does not agree that the
sanction granted in the Dismissal Order included dismissal of the Complaint. This relief appears
separate from, and supplemental to, the Complaint's dismissal. Although the Bankruptcy Court
found that Kennedy had "litigated beyond reason," and that his conduct was sanctionable, the
Bankruptcy Court denied Skadden's request to impose the fees and expenses, concluding that
"barring Kennedy from further filings without the [Bankruptcy Court]'s permission will suffice
as an appropriate sanction." (See Adv. D.I. 121 at 12). As the sanction does not clearly include
dismissal, the Court does not find that the Dismissal Order may be affirmed on this basis.
29

VI.

CONCLUSION
For the foregoing reasons, the Dismissal Order is affirmed. An appropriate order shall

issue.

30