In re: DNIB UNWIND, INC. et al.

Filing 12

MEMORANDUM OPINION re 4 Emergency Motion. Signed by Judge Gregory M. Sleet on 8/8/2017. (asw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
Chapter 11
Case No. 16-11084 (BLS)
(Jointly Administered)

IN RE DNIB UNWIND, INC. (f/k/a BIND
THERAPEUTICS, INC.),
Post-Effective Date Debtor.
B.E. CAPITAL MANAGEMENT FUND, LP,
on behalf of itself and all others similarly situated,

Adv. No. 17-50882 (BLS)

Appellants,
Civ. No. 17-945 (GMS)

v.
GEOFFREY L. BERMAN, in his capacity as
Trustee of the Liquidating Trust of DNIB Unwind,
Inc. (f/k/a Bind Therapeutics, Inc.),
Defendant/Appellee.

MEMORANDUM

I.

INTRODUCTION
Presently before the court is appellant B.E. Capital Management LLP's Emergency Motion

for Temporary Restraining Order and Preliminary Injunction and a Stay Pending Appeal Pursuant
to Bankruptcy Rule 8007 (D.I. 4) ("Emergency Motion"). For the reasons that follow, the court
will deny the Emergency Motion.

II.

BACKGROUND
This appeal arises from the bankruptcy comi's memorandum order, entered on July 13,

2017 (B.D.I. 694) 1 ("Memorandum Order") denying appellant's Motionjor Determination that
the Trustee's Conditioning of Distributions to Shareholders on their Submission of Equity
Distribution Form Violates the Plan, or, Alternatively, is an Impermissible Plan Modification

1

The docket of the Chapter 11 cases, captioned In re DNIB Unwind, Inc., Case No. 16-11084 (BLS) (Bankr. D.
Del.), is cited herein as "B.D.I. _." The docket of the adversary proceeding, captioned B.E. Capital Management
Fund LP v. Berman, Adv. No. 17-50882 (BLS) (Bankr. D. Del.), is cited herein as "Adv. D.I. _."

1

(B.D.I. 615) ("Motion for Determination"), which sought a determination by the bankruptcy
court that the Trustee's conditioning of distributions to shareholders upon receipt of certain Tax
Documents (defined below) is impermissible under the debtors' confirmed plan.
The following facts appear to be undisputed. On September 26, 2016, the bankruptcy court
entered an order confirming debtors' plan ofliquidation (B.D.I. 457), which, inter alia, established
the Liquidating Trust ofDNIB Unwind, Inc. ("Trust") and appointed appellee Geoffrey L. Berman
as Trustee.

On December 15, 2016, Trustee made an initial distribution of $8 million to

shareholders. (See B.D.I 694 at 3.) Thereafter, in consultation with the Trust's tax professionals,
Trustee concluded that further distributions to the debtors' former shareholders should be
conditioned upon submission of certain tax documents, consisting of a Form W-8 or W-9 (the "Tax
Forms") and an equity certification form (the "Equity Certification Form")2to be completed by the
nominees of DNIB shareholders (the "Nominees") who held their shares in street name
(collectively, the "Tax Documents"). On February 7, 2017, Trustee sent a notice requesting
submission of same on or before August 7, 2017 ("Submission Deadline"). (See B.D.I. 590.) On
March 22, 2017, appellant filed the Motion for Determination, arguing that the Trustee is mistaken
(or at least overly cautious) in his position that the Tax Fonns and Equity Certification Forms are
necessary; that there may be alternative approaches (such as seeking a private letter ruling from
the IRS); and that requiring submission of this information unfairly burdens shareholders, placing
an unreasonable and unnecessary condition upon their right to receive their distributions. (See

2

The Equity Certification Form requires that each Nominee provide the following information: (1) DTC participant
name, number, contact name, contact number and email address, and authorized signature; (2) beneficial holder
name and account number; and (3) number of shares of CU SIP 05548N 107 that were held by the Nominee for the
indicated account as of the Distribution Record Date. (See B.D.I. 627-1, if 8, Ex. 2.) Depository Trust Company
("DTC") is the Trust's transfer agent. It is the Trustee's position that because most DNIB stock in existence on the
Distribution Record Date was held in street name, the Trustee does not know the identity of each individual
shareholder, nor does the Trustee know how many shares ofDNIB stock each such holder owned as of the
Distribution Record Date. As a result, the Trustee required that all Nominees complete the Equity Certification
Form. (See D.I. 9 at 11-12.)

2

B.D.I. 615.) A hearing on the Motion for Determination was held on May 31, 2017. (D.I. 4-4.)
On July 13, 2017, the bankruptcy court entered the Memorandum Order denying the relief
sought in the Motion for Determination. (B.D.I. 694.) The bankruptcy court determined that the
plan and confirmation order, along with the post-confirmation trust instrument ("Trust
Agreement"), govern the rights and responsibilities of the Trustee and the beneficiaries, and that
those governing documents permit the Trustee to demand from Trust beneficiaries any forms or
information relating to the Trustee's obligations to withhold and to condition distributions upon
receipt of such forms or information. (See id. at 2.) The bankruptcy court noted that "the Trustee's
documentation requests here impose at most a modest burden on the shareholders/beneficiaries"
and further declined, on a post-confirmation basis, to second-guess the judgment of the Trustee in
the exercise of his duties where those actions are directly contemplated by the governing
documents. (See id. at 3.)
The procedural posture of this Emergency Motion is unusual given the pendency of an
adversary proceeding appellant initiated immediately following the entry of the Memorandum
Order, which remains pending before the bankruptcy court, and which seeks identical relief.
Specifically, on July 14, 2017, appellant filed its Notice of Appeal with respect to the
Memorandum Order. (D.I. 1.) The same day, appellant initiated the adversary proceeding against
Trustee by filing a complaint seeking declaratory and injunctive relief (as later amended, the
"Complaint") (Adv. D .I. 1, 14), together with an Emergency Motion for Preliminary Injunction
and Temporary Restraining Order (Adv. D.I. 4) ("TRO Motion"). The TRO Motion seeks

precisely the same relief sought in the Emergency Motion: an order enjoining the Trustee, through
a final adjudication of the Motion for Determination, from:
(i) conditioning further distributions to DNIB shareholders on the receipt of required tax
documents, consisting of a Form W-8 or W-9 (the "Tax Forms") and an equity
certification form (the "Equity Certification Form") to be completed by the nominees of
3

DNIB shareholders (the "Nominees") who held their shares in street name (collectively,
the "Tax Documents"); and
(ii) making any further distributions to DNIB shareholders until further order of the court.
(See Adv. D.I. 4 at 12; D.I. 4 at 1-2.) The TRO Motion further sought a stay pending appeal as

alternative relief to the injunctive relief it sought.. (See Adv. D.I. 4 at 11-12.) On July 20, the
bankruptcy court promptly set a hearing on the TRO Motion for August 3, 2017. (See Adv. D.I.
9.) Notwithstanding the pending TRO Motion, and the appellant's knowledge on July 20 that an
emergency hearing date had been set by the bankruptcy court, appellant filed the Emergency
Motion in this court on July 25. (D.I. 4.) As Trustee points out, ordinarily, a motion seeking a
stay pending appeal of a bankruptcy court's order must be brought first in the bankruptcy court.
See Fed. R. Bankr. P. 8007(a)(l).

Only if bringing the motion in the bankruptcy court is

impracticable or if the bankruptcy court has failed to rule-en the motion seeking a stay may the
movant bring the motion to the district court before giving the ankruptcy court an opportunity to
consider the relief sought. See Fed. R. Bankr. P. 8007(b)( (A)-(B). Clearly neither condition
arose here, as the bankruptcy court promptly scheduled the matter for hearing.
With respect to these duplicate requests for relief,

Ap!~llant mere!y offered: "[s]hould

the Bankruptcy Court grant relief duplicative of that sought li.erein, B.E. Capital will promptly
notify this Court." (D.I. 4 at 6.) On August 3, the bankrup cy court held a hearing on the TRO
Motion, and on August 7, appellant filed a letter (i) advisi

this court that the request for stay

had been denied, and (ii) requesting leave to file a reply in miher support of the Emergency
Motion. (See D.I. 11.) Given appellant's request for expe ited consideration of its Emergency
Motion, which appellant argued must be decided prior t

he August 7 Submission Deadline,

appellant's offer to promptly advise this court of any duplicative relief granted by the bankruptcy
court is hollow and would not have spared this court its time and efforts in considering the

4

pleadings on an expedited basis had the bankruptcy court granted the stay requested in the TRO
Motion. Appellant's tactics are wasteful of the court's resources and improper. 3

III.

JURISDICTION AND STANDARDS OF REVIEW
Appeals from the bankruptcy court to this court are governed by 28 U.S.C. § 158. District

courts have mandatory jurisdiction to hear appeals "from final judgments, orders, and decrees."
28 U.S.C. § 158(a)(l).
"A preliminary injunction should be granted only in extraordinary situations ... " Uniflex,

Inc. v. Endurapack, Inc. (In re Uniflex, Inc.), 319 B.R. 101, 104 (Banla. D. Del. 2005). For a
preliminary injunction to issue, a movant must show that it is both (1) likely to experience
irreparable harm without an injunction and (2) reasonably likely to succeed on the merits. See

Adams v. Freedom Forge Corp., 204 F.3d 475, 484 (3d Cir. 2000) (citations omitted). "A court
may not grant this kind of injunctive relief without satisfying these requirements, regardless of
what the equities seem to require. If relevant, the court should also examine the likelihood of
irreparable harm to the nonmoving party and whether the injunction serves the public interest."

Id.

3

The court was initially inclined to let the matter of the tactics employed by appellant rest with the relatively mild
admonishment noted above. On reflection, however, the court will take this opportunity to remind practitioners
appearing before it and our sister bankruptcy court of the need to exercise some modicum of restraint and good
judgment- regardless of the area of counsel's practice. The bankruptcy and district courts for the District of
Delaware are some of the busiest in the nation. Moreover, the bankruptcy court has operated and continues to
operate with a veritable sword of Damocles hanging over its collective head - the potential loss of one or more of its
judicial officers unless and until all of the court's seats are made permanent. This court, for the second time during
the tenure of this judge, has been made to seek the assistance of district judges from other judicial districts due to the
existence of one or more vacancies among the four authorized seats. It seems no one can say with any degree of
certainty how long either of these conditions will remain extant. Lawyers should not operate like the proverbial
ostrich with its head in the sand. Lawyers are officers of each of those courts and should conduct themselves as
such - having regard not just for the interest of their clients but for the health of the institutions before whom they
are litigating, including the human beings who conduct the business of those institutions - namely, the judges. This
improvident appeal is but one example of the too, too many instances where lawyers simply leave their common
sense at home rather than bringing it along to the office. This approach to practice, as this judge has said from time
to time, is like inflicting death by a thousand cuts, and it needs to stop!

5

"The granting of a motion for stay pending appeal is discretionary with the court." See In

re Trans World Airlines, Inc., 2001 WL 1820325, at *2-3 (Bankr. D. Del. Mar. 27, 2001).
Appellant bears the burden of proving that a stay of the Confirmation Order is warranted based on
the following criteria: (1) whether appellant has made "a strong showing" that it is likely to succeed
on the merits; (2) whether appellant will be irreparably injured absent a stay; (3) whether a stay
will substantially injure other interested parties; and (4) where the public interest lies. Republic of

Phil. v. Westinghouse Electric Corp., 949 F.2d 653, 658 (3d Cir. 1991). The most critical factors,
according to the Supreme Court, are the first two: whether the appellant has demonstrated (1) a
strong showing of the likelihood of success, and (2) that it will suffer irreparable harm - the latter
referring to harm that cannot be prevented or fully rectified by a successful appeal. Jn re Revel

AC, Inc., 802 F.3d 558, 568 (3d Cir. 2015) (citing Nken v. Holder, 556 U.S. 418, 434 (2009)
(internal citations omitted)). The court's analysis should proceed as follows:
Did the applicant make a sufficient showing that (a) it can win on the merits (significantly
better than negligible but not greater than 50%) and (b) will suffer irreparable harm absent
a stay? If it has, we balance the relative harms considering all four factors using a 'sliding
scale' approach. However, ifthe movant does not make the requisite showings on either
of these first two factors, the inquiry into the balance of harms and the public interest is
unnecessary, and the stay should be denied without further analysis.

Revel AC, 802 F.3d at 571 (emphasis in text) (internal quotations and citations omitted).
IV.

DISCUSSION
A. Motion for Injunction
Appellant purports to seek injunctive relief pursuant to Federal Rule of Civil Procedure

65. While Rule 65 refers to injunctive relief, the relief sought in the Emergency Motion ties to
the permanent injunctive relief sought by appellant in the Complaint, which remains pending
before the bankruptcy court. There is no complaint for injunctive relief filed by appellant
pending before this court. Even ifthe motion for injunctive relief were procedurally proper, the

6

circumstances of this case are not extraordinary, and appellant has not established the elements
necessary to warrant such relief.
B. Motion for Stay Pending Appeal

Likelihood ofSuccess on the Merits. As to the first factor, appellant has not met its
burden of making "a strong showing" that it is likely to succeed on the merits. According to
appellant's designation, the issue on appeal is: "Did the Bankruptcy Court err, as a matter oflaw,
[in holding] that the Plan, the Confirmation Order and the Trust Agreement all operate to provide
the Trustee with the authority to demand the tax forms and the Certifications?" (D.I. 5.)
Appellant argues that the Trustee's proposal not to make distributions to holders of DNIB stock
in street name through the debtors' transfer agent violates Section X.K of the plan." (D.I. 4 at 4.)
Appellant further argues that the Trustee "can satisfy tax reporting requirements by complying
with 26 C.F.R. § 1.671-4(b)(3), an optional reporting method for trusts treated as owned by two
or more grantor beneficiaries." (See id. at 5, n.5.) "Alternatively, [Trustee] can satisfy tax
reporting requirements under 26 CFR § 1.671-4(a) by relying on the Form W-9 provided by the
Debtor's transfer agent, as other liquidating trusts do and have done. Neither reporting method
requires the collection of Form W-9s from trust beneficiaries." (See id.) Appellant further takes
issue with the fact that the bankruptcy court did not rule on whether the optional reporting
methods appellant has suggested would in fact permit the Trustee to fulfill his tax reporting
obligations under the plan and Trust Agreement. 4
Conversely, the Trustee argues that section X.K of the plan, cited by appellant, provides
that the Trustee may make distributions to holders of claims and shareholders in any of a number
of different ways, including through a transfer agent, but does not require it. (See D .I. 9 at 13.)

4

In declining to substitute its own judgment for the Trustee's, the bankruptcy court stated: "[Appellant] may be
correct that there are other avenues available to the Trustee. But the Trustee is entitled to exercise his discretion and
judgment in construing and carrying out his duties." (B.D.I. 694 at 3.)

7

Trustee further relies on his declaration setting forth the advice that the Trust has received from
its tax professionals; specifically, that the Trust's accountant has advised the Trustee that the
Trust is required to provide to IRS tax identification numbers for each individual DNIB
shareholder entitled to a distribution to the plan. (See D.I. 9-1, if 5-6.) Trustee further argues
that the governing documents explicitly provide that the Trustee may condition future
distributions to shareholders upon receipt of a completed Form W-8 or W-9. (See id at 8-9.)
Trustee contends that, because most DNIB stock in existence on the Distribution Record Date
was held in street name, the Trustee does not know the identity of each individual shareholder,
nor does the Trustee know how many shares of DNIB stock each such holder owned as of the
Distribution Record Date, and as a result, the Trustee required that all Nominees complete the
Equity Certification Form. (See id at 11-12.)
The court agrees with Trustee. Section X.K of the plan clearly provides that the Trustee
may make distributions to holders of claims and shareholders in a number of different ways,
including: ( 1) at addresses set forth on proofs of claim filed by creditors or proofs of interest
filed by shareholders; (2) at addresses set forth in any written notices of address change; (3) at
the address reflected in the Schedules Q!. (4) through the transfer agent for BIND Equity
Interests. (See D.I. 4-2, Ex. A, at 51) (emphasis added).) The court finds no support in the
governing documents for appellant's position that only the transfer agent (and not the Trustee)
may make distributions to shareholders.
Paragraph 3 of the Confirmation Order provides that the debtors are required to make all
required withholding payments and to comply with all applicable tax laws with respect to any
distributions. (B.D.I. 457 at 17.) The plain language of the plan and the Trust Agreement further
provide that the Trustee may require that eligible shareholders return a completed Tax Form to

8

the Trust by a date certain to receive distributions from the Trust. Specifically, Section XVI.J of
the plan provides as follows:
The Debtors or [T]rustee may require, as a condition to receipt of a Distribution,
that the Holder of an Allowed Claim or Allowed Equity Interest complete and
return a Form W-8 or W-9, as applicable to each such Holder. If the Debtors or
[T]rustee make such a request and the Holder fails to comply before the date that
is 180 days after the request is made, the amount of such Distribution shall
irrevocably revert to the Debtors or the [T]rustee and any Claim in respect of such
Distribution shall be disallowed and forever barred from assertion against the
Debtors or the [T]rustee, or their respective property.
(D.I. 4-2, Ex. A, at 67.) The plan further provides that the Trustee has the discretion to
administer the plan and to make distributions to stakeholders, including shareholders, pursuant to
the plan. (See id.) Section 4.l(f) of the Trust Agreement also explicitly authorizes the Trustee to
request and obtain the Tax Forms from Trust beneficiaries. (B.D.I. 457 at Ex. A, Ex. A.)
The Trustee has been advised by its tax professionals that the Trust is required to provide
the IRS tax identification numbers for each beneficiary of the Trust, including all shareholders
entitled to a distribution under the plan (B.D.I. 627-1 at if 6). Appellant has offered no reason
why the Trustee should not rely upon the advice of his professionals. Under the plain language
of the governing documents, the Trustee is also within his authority to request Tax Documents
and to condition distributions upon receipt of same. Although appellant clearly disagrees with
the tax advice provided by the Trust's tax professionals, appellant offers only its own opinion
that there are other ways in which the Trustee may satisfy his obligations. Appellant has
provided no contradictory expert opinion or testimony from a tax professional to support its
allegation that the Tax Forms are not required and suggests no viable alternative to the Equity
Certification Form. Based on the foregoing, the court cannot conclude that appellant has a
likelihood of success on appeal.

Irreparable Injury Absent a Stay. Appellant has also failed to establish that it would
suffer irreparable harm if is not granted stay relief. Irreparable harm is "harm that cannot be
9

prevented or fully rectified" by a successful appeal. Revel AC, 802 F.3d at 568. Appellant
argues that if the Trustee is permitted to condition distributions on the receipt of the Tax
Documents, he will cause a substantial number of Distribution Record Date shareholders 5 to
forfeit future plan distributions to which they legally are entitled. (See D.I. 4 at 11.) Appellant
further argues that, "[o]nee August 7 has passed and the funds are out of the door, there is no
prospect of clawing the distributions back into the estate and distributing them to the rightful
recipients should it later be determined that the Trustee's actions were, in fact, in contravention
of the Plan and the Bankruptcy Code. Were this to happen, [appellant] would suffer irreparable
injury without recourse against those Distribution Record Date shareholders that received a
windfall at its expense." (See D.I. 4 at 12.) Conversely, Trustee argues that appellant will not
suffer irreparable harm (or any harm) if injunctive relief is not granted because appellant, as a
shareholder of record as of the Distribution Record Date, has already provided the requisite Tax
Documents to the Trust and, therefore, will receive its pro rata share of all future distributions
under the plan regardless of when they are made. (See D.I. 9 at 13-14.)
Appellant purports to represent similarly situated shareholders but, having apparently
complied with the Trustee's request, it cannot be said that appellant is similarly situated.
Moreover, appellant's harm, if any, is economic. "A purely economic injury, compensable in
money, cannot satisfy the irreparable injury requirement" unless "the potential economic loss is
so great as to threaten the existence of the movant's business." See Revel AC, 802 F.3d at 572.
No such assertion is advanced in the Emergency Motion.

5
Appellant appears to assert, without analysis, that the Distribution Record Date shareholders that do not submit the
Tax Documents, and therefore do not receive distributions, comprise a putative class, and that appellant is
representative of that class. (See D.l. 4 at 11.)

10

Other factors. Having evaluated appellant's likelihood of success on the merits and
irreparable injury absent a stay, and having determined that appellant has failed to carry its
burden as to either element, the court is satisfied no further analysis is required. 6

V.

CONCLUSION
The bankruptcy court's ruling is supported by the plain terms of the governing documents.

Appellant has failed to establish a likelihood of success on appeal or that it will suffer irreparable
harm in absence of a stay. For the foregoing reasons, the court will deny the Emergency Motion.
A separate order shall follow.
Dated: August { , 2017

u

6

"If the movant does not make the requisite showings on either of these first two factors, the inquiry into the
balance of harms and the public interest is unnecessary, and the stay should be denied without further analysis." See
Revel AC, 802 F.3d at 571.

11