Opinion
12-11564 (CSS) Adv. Proc. 13-50530 14-50971 (CSS)
07-23-2021
In re: ASHINC Corporation, et al., Debtors. v. BDCM OPPORTUNITY FUND II, LP, BLACK DIAMOND CLO 2005-1 LTD., and SPECTRUM INVESTMENT PARTNERS, L.P., Intervenors, CATHERINE E. YOUNGMAN, LITIGATION TRUSTEE FOR ASHINC CORPORATION, ET AL., AS SUCCESSOR TO THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF ASHINC CORPORATION, AND ITS AFFILIATED DEBTORS, Plaintiff, YUCAIPA AMERICAN ALLIANCE FUND I, L.P., and YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND I, L.P., Defendants. CATHERINE E. YOUNGMAN, LITIGATION TRUSTEE FOR ASHINC CORPORATION, ET AL., AS SUCCESSOR TO BDCM OPPORTUNITY FUND II, LP, BLACK DIAMOND CLO 2005-1 LTD., SPECTRUM INVESTMENT PARTNERS, L.P., BLACK DIAMOND COMMERCIAL FINANCE, L.L.C., as co- administrative agent, and SPECTRUM COMMERCIAL FINANCE LLC, as co-administrative agent, Plaintiff, v. YUCAIPA AMERICAN ALLIANCE FUND I, L.P., and YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND I, L.P., Defendants.
FOX ROTHSCHILD LLP Seth A. Niederman Citizens Bank Center and JOSEPH HAGE AARONSON LLC Gregory P. Joseph Douglas J. Pepe Gila S. Singer and ZAIGER LLC Jeffrey H. Zaiger Judd A. Lindenfeld (pro hac vice forthcoming) Counsel for the Litigation Trustee and Plan Administrator
Chapter 11
FOX ROTHSCHILD LLP
Seth A. Niederman
Citizens Bank Center
and JOSEPH HAGE AARONSON LLC
Gregory P. Joseph
Douglas J. Pepe
Gila S. Singer
and ZAIGER LLC
Jeffrey H. Zaiger
Judd A. Lindenfeld (pro hac vice forthcoming)
Counsel for the Litigation Trustee and Plan Administrator
LITIGATION TRUSTEE'S MEMORANDUM IN RESPONSE TO: (1) YUCAIPA'S OBJECTIONS TO SUMMARY JUDGMENT OPINION AND ORDER, ENTRY OF JUDGMENT, AND PROPOSED FORM OF JUDGMENT, AND (2) QUESTIONS FROM THE COURT
Christopher S. Sontchi, Chief United States Bankruptcy Judge
TABLE OF CONTENTS
TABLE OF AUTHORITIES ......................................................................................................... iii
PRELIMINARY STATEMENT ..................................................................................................... 1
ARGUMENT ................................................................................................................................... 3
I. Yucaipa Consented to Jurisdiction To Enter Final Orders And Judgments With Respect to the Estate Claims - Including Estate Claim 5 ...................... 3
A. Yucaipa's Answer to the Estate Claims Omitted a Rule 7012 Statement ............ 4
B. Yucaipa Alleged this Court Had Jurisdiction to Enter Final Orders and Judgments Relating to the FLCA in the Related Allied Adversary Proceeding ...6
C. Yucaipa Never Objected to the Court's Jurisdiction Following Entry of an Earlier Summary Judgment Order in the Estate Action ..................... 7
D. Yucaipa's Former Co-Defendant Routinely Objected to Entry of Final Orders or Judgments While Yucaipa Remained Silent ................. 8
E. Yucaipa Cannot Retroactively Waive Its Consent to this Court's Adjudication of Non-Core Claims in the Estate Action After 4.5 Years ................................... 8
II. The Court Does Not Need to Provide Proposed Findings of Fact .................... 10
III. There is No Just Reason to Delay Judgment on Estate Claim 5, 10-11, & 13 ...................................................................................... 11
A. The Judgment Should be Certified Under Rule 54(b) ........................................ 12
B. Any Stay Must Include a Condition that Yucaipa Post Adequate Security ........ 15
IV. The Court Has Jurisdiction to Ultimately Enter Judgment On Equitable Subordination Claims - Estate Claims 1 and 2, and Lender Claim 1 ............. 16
V. Yucaipa's Additional Objections to the Opinion's Reasoning Are Meritless ....................................................................... 16
A. While Unnecessary to Its Holdings, the Court's Factual Findings Were Correct ........................................................ 17
B. The Court's Holdings On the Trustee's Breach of Contract Claims Were Correct As a Matter of Law ....................................... 19
C. The Court Correctly Held That Direct Lender Claim 2 (Breach of Contract) Was Timely ............................................. 21
D. The Court Should Exercise Its Discretion to Award Prejudgment Interest on Estate Claims 10, 11, and 13 ....................................... 21
CONCLUSION .............................................................................................................................. 22
TABLE OF AUTHORITIES
Abbott Lab'ys v. Adelphia Supply USA, 2020 WL 7643213 (E.D.N.Y. Dec. 23, 2020) ................................................................... 15
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ........................................................................................................... 17
Barone v. Strouse, Greenberg Mortg. Co., 71 B.R 521 (Bankr. E.D. Pa. 1987) ................................................................................... 10
Berckeley Inv. Grp. v. Colkitt, 455 F.3d 195 (3d Cir. 2006) ............................................................................................... 12
Curtiss-Wright Corp. v. Gen. Elec. Co., 446 U.S. 1 (1980) ......................................................................................................... 12, 15
Devices Liquidation Tr. v. KMT Wireless, LLC, 588 B.R. 661 (Bankr. E.D.N.Y. 2018) ....................................................................... 10 n.21
Exec. Benefits Ins. Agency v. Arkinson, 573 U.S. 25 (2014) ............................................................................................................... 3
In re Acequia, Inc., 34 F.3d 800 (9th Cir. 1994) ............................................................................................... 21
In re Allied Sys. Holdings, Inc., 556 B.R. 581 (D. Del. 2016), aff'd sub nom. In re ASHINC Corp., 683 Fed.Appx. 131 (3d Cir. 2017) ...................... 7 n.14
In re Green Field Energy Servs., Inc., 610 B.R. 760 (D. Del. 2019), aff'd, 834 Fed.Appx. 695 (3d Cir. 2020) .................................................................. 19-20, 21
In re Hechinger Inv. Co. of Del., Inc, 489 F.3d 568 (3d Cir. 2007) ......................................................................................... 21-22
In re Milwaukee Cheese Wis., Inc., 112 F.3d 845 (7th Cir. 1997) ............................................................................................. 22
In re Revstone Indus., LLC, 2019 WL 2929328 (D. Del. July 8, 2019) ......................................................................... 17
In re Tribune Media Co., 902 F.3d 384 (3d Cir. 2018) ................................................................................................. 3
In re Ultimate Escapes Holdings, LLC, 551 B.R. 749 (D. Del. 2016), aff'd, 682 Fed.Appx. 125 (3d Cir. 2017) ................................................................. 16-17 n.28
In re Winstar Commc'ns, Inc., 348 B.R. 234 (Bankr. D. Del. 2005), aff'd, 2007 WL 1232185 (D. Del. Apr. 26, 2007), aff'd in part, modified in part, 554 F.3d 382 (3d Cir. 2009) ............................................. 16
Interdigital Commc'ns, Inc. v. ZTE Corp., 2016 WL 3226011 (D. Del. June 7, 2016) ......................................................................... 14
Keurig, Inc. v. Sturm Foods, Inc., 2012 WL 12896333 (D. Del. Nov. 2, 2012), aff'd, 732 F.3d 1370 (Fed. Cir. 2013) ................................................................................ 13
Leibowitz v. Kalamata Capital Grp. LLC, 625 B.R. 390 (N.D. Ill. 2021) .................................................................................... 10 n.21
Power Up Lending Grp. v. Cardinal Energy Grp., 2020 WL 2572198 (E.D.N.Y. May 21, 2020) ................................................................... 15
RG Premier Bank of P.R. v. Alvarado, 463 B.R. 200 (D.P.R. 2011) ............................................................................................... 10
Rodriguez v. City of Phila., 2018 WL 3036283 (E.D. Pa. June 18, 2018) ..................................................................... 14
Roell v. Withrow, 583 U.S. 580 (2003) ............................................................................................................. 3
Sheet Metal Workers Nat'l Pension Fund v. Kern, 542 B.R. 87 (Bankr. E.D.N.Y. 2017) ......................................................................... 10 n.21
Stern v. Marshall, 564 U.S. 462 (2011) ............................................................................................................. 4
Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665 (2015) ......................................................................................................... 3, 9
Rules & Statutes
D. Del. LR 7012-1 ............................................................................................................................ 4
Fed. R. Bankr. P. 7012 ........................................................................................................... 4, 5, 7
Fed. R. Bankr. P. 7052 ............................................................................................... 10 & n.21, 11
Fed. R. Bankr. P. 7054 ................................................................................................................. 12
Fed. R. Bankr. P. 9033 ....................................................................................................... 1, 11, 16
Fed. R. Civ. P. 52(a)(3) ................................................................................................ 10 & n.21, 11
Fed. R. Civ. P. 54(b) .......................................................................................................... 12, 14, 15
Fed. R. Civ. P. 62(h) ...................................................................................................................... 15
28 U.S.C. § 157(c)(2) ....................................................................................................................... 3
Other Authorities
Jonathan Friedland, Commercial Bankruptcy Litigation § 12:12 (2021) ........................ 16
11 William L. Norton, Norton Bankruptcy Law and Practice (3d ed. 2011) ................... 10
On May 4, 2021, this Court issued its Summary Judgment Opinion (the "Opinion") and Order (the "Order") addressing the cross-motions for Summary Judgment filed in the Estate Action (13-50530) and Lender Action (14-50971) by the Trustee and Yucaipa. The Order directed the parties to submit a Proposed Judgment reflecting Your Honor's rulings by May 18, 2021. Prior to submission of that Proposed Judgment, however, Yucaipa filed objections to the Opinion and Order styled under Fed.R.Bankr.P. 9033 (the "9033 Objections"), and later lodged an Objection to Entry of Judgment and Additional Objections to the Proposed Form of Judgment submitted (the "Proposed Judgment Objections," and, together with the 9033 Objections, the "Objections"). The Court subsequently advanced questions to the Trustee regarding: (i) whether Yucaipa consented to the Court exercising jurisdiction to issue final orders and judgments on non-core claims through its conduct, and (ii) if the Court can provide findings of fact on summary judgment where the Court ruled as a matter of law, in whole or in part, in favor of the Trustee on Estate Claims 1, 2, 5, 10-11, and 13 and Direct Lender Claims 1 and 2, and in favor of Yucaipa on Estate Claims 3, 4, 6 and Direct Lender Claim 4. This submission addresses Yucaipa's Objections and the Court's questions.
Abbreviations relied on and citation conventions used in the Trustee's briefing for summary judgment are used again here. For the Court's convenience, an appendix of all abbreviations relied on by the Trustee in that briefing is attached as Appendix A. The Trustee hereby incorporates by reference all evidence, arguments, and authorities set forth in the summary judgment briefing and during oral argument held on February 4, 2021.
The Debtors in these cases, along with the federal tax identification number (or Canadian business number where applicable) for each of the Debtors, are: ASHINC Corporation (f/k/a Allied Systems Holdings, Inc.) (58-0360550); AAINC Corporation (f/k/a Allied Automotive Group, Inc.) (58-2201081); AFBLLC LLC (f/k/a Allied Freight Broker LLC) (59-2876864); ASCCO (Canada) Company (f/k/a Allied Systems (Canada) Company) (90-0169283); ASLTD L.P. (f/k/a Allied Systems, Ltd. (L.P.) (58-1710028); AXALLC LLC (f/k/a Axis Areta, LLC) (45-5215545); AXCCO Canada Company (f/k/a Axis Canada Company) (875688228); AXGINC Corporation (f/k/a Axis Group, Inc.) (58-2204628); Commercial Carriers, Inc. (38-0436930); CTSINC Corporation (f/k/a CT Services, Inc.) (38-2918187); CTLLC LLC (f/k/a Cordin Transport LLC) (38-1985795); F.J. Boutell Driveway LLC (38-0365100); GACS Incorporated (58-1944786); Logistic Systems, LLC (45-4241751); Logistic Technology, LLC (45-4242057); QAT, Inc. (59-2876863); RMX LLC (31-0961359); Transport Support LLC (38-2349563); and Terminal Services LLC (91-0847582). The location of the Debtors' corporate headquarters and the Debtors' address for service of process is 2302 Parklake Drive, Bldg. 15, Ste. 600, Atlanta, Georgia 30345.
13-50530, D.I. 828; 14-50971, D.I. 566.
13-50530, D.I. 830, 14-50971, D.I. 568.
PRELIMINARY STATEMENT
Contrary to Yucaipa's Objections, this Court can, and should, enter a judgment consistent with the Opinion's rulings with respect to the Estate Claims for breach of contract (Estate Claim 5) and fraudulent transfer and disallowance (Estate Claims 10-11 & 13). As discussed, this Court has jurisdiction to enter final orders and judgment on the Estate Claims as a result of Yucaipa's knowing and voluntary consent to the Court's jurisdiction evinced by, among other things, having not included the requisite "non-consent" language in its responsive papers, taking contradicting positions in related proceedings, and never moving to withdraw the reference or determine the status of the Estate Claims (unlike the Direct Lender Claims). Moreover, Yucaipa's tactics to further delay judgment as to these claims should be rejected. The Estate Claims have been pending for over 8 years, and given serious questions raised concerning Yucaipa's efforts to dissipate assets from which it could satisfy a judgment - which Yucaipa notably has never denied - there is no just reason to delay entry of judgment at this time. As illustrated in this brief, Yucaipa's eleventh-hour jurisdictional arguments have all the hallmarks of impermissible gamesmanship given its deviating positions throughout the litigation. The arguments should be rejected, and the Trustee respectfully requests that the Court:
The Trustee does not oppose a clarification of the Opinion and Order identifying that the non-core Direct Lender Claims should be construed as proposed findings and conclusions. This has little practical effect, however, given that the Estate Claims subsume the Lender Claims and do not alter damages at issue. (See, e.g., Opinion at 46 n.122).
• Enter the enclosed Amended Proposed Judgment in the Trustee's favor on the Estate Claims for breach of contract (Estate Claim 5) fraudulent transfer, and disallowance (Estate Claims 10-11 and 13), consistent with the Opinion and Order.
• Enter the A mended Proposed Judgment for Yucaipa on Estate Claims 3, 4, 6, and Direct Lender Claim 4, consistent with the Opinion and Order.
• Issue a clarification that - solely as it relates to Direct Lender Claims 2 and 3 - the Opinion's rulings are being entered as proposed findings and conclusions.
• In an abundance of caution, clarify that if it is later determined that this Court somehow lacked jurisdiction to enter final orders and judgments on Estate Claim 5, that the Opinion should be construed as proposed findings and conclusions. Because the District Court's standard of review is de novo, any error in this regard is harmless. See Exec. Benefits Ins. Agency v. Arkinson, 573 U.S 25 39-40 (2014) (District Court's de novo review of the Bankruptcy Court's order granting summary judgment and entry of its own judgment cured any error in the Bankruptcy Court's earlier entry of judgment).
Tellingly, Yucaipa's Objections do not contest the Court's jurisdiction to enter final orders or judgment where summary judgment was granted in its favor. For reasons addressed, Yucaipa already consented to jurisdiction on the Estate Claims. While Direct Lender Claim 4 (Tortious Interference) was determined to be non-core, the parties previously stipulated to dismissal with prejudice of the Individual Defendants against whom the claim was raised, making this issue moot.
ARGUMENT
I. Yucaipa Consented to Jurisdiction To Enter Final Orders And Judgments With Respect to the Estate Claims - Including Estate Claim 5
It is settled law that for non-core proceedings and claims, the parties still may consent to a bankruptcy court "entering] appropriate orders and judgments." See 28 U.S C § 157(c)(2) As Yucaipa acknowledges, such consent can be express or implied under Supreme Court precedent. (See 9033 Objections at 3) (citing Wellness Int'l Network, Ltd. v. Sharif , 575 U.S. 665 686 (2015)). Under this standard, the "key inquiry is whether the litigant or counsel was made aware of the need for consent and the right to refuse it, and still voluntarily appeared to try the case before the non-Article III adjudicator." Wellness, 575 U S at 685 (citing Roell v. Withrow, 583 U.S. 580 590 (2003)). This standard is designed to "increase[e] judicial efficiency and check[] gamesmanship" by the parties. Id.
In applying this standard, the Third Circuit has observed that "a litigant's consent gives bankruptcy courts the constitutional authority to enter a final judgment on claims that ordinarily require a ruling by an Article III court." In re Tribune Media Co., 902 F.3d 384 394 (3d Cir. 2018) (citing Wellness, 575 U.S. at 669) Courts require "claimants to raise the issue of consent before bankruptcy cases conclude, and have looked to litigants' actions to determine if they have knowingly and voluntarily consented to jurisdiction." Id. at 395. The Supreme Court has "highlighted the consequences of a litigant sandbagging the court-remaining silent about his objection and belatedly raising the error only if the case does not conclude in his favor." Id. (quoting Stern v. Marshall, 564 U.S. 462, 482 (2011)).
In this case, Yucaipa argues that the Court lacks jurisdiction to enter final orders and judgments on both the Estate Claim and Direct Lender Claim for breach of contract - i.e., Estate Claim 5 and Direct Lender Claim 2 - because they are non-core claims. Its argument rests principally on the Court's prior determination on Yucaipa's motion to determine the non-core status of the breach of contract claim filed only in the Lender Action. (See 9033 Objections at 2 (citing 14-50971, D.I. 70)). Yucaipa never moved to determine the status of Estate Claims, and never moved to withdraw the reference with respect to those claims. Rather, Yucaipa knowingly and voluntarily waived its right to object to this Court adjudicating and entering final orders and judgments on all Estate Claims. In trying to escape the import of this voluntary consent, the Objections obfuscate critical facts making clear that the standards for consent have been met.
A. Yucaipa's Answer to the Estate Claims Omitted a Rule 7012 Statement
Under Fed.R.Bankr.P. 7012(b) "[a] responsive pleading shall include a statement that the party does or does not consent to entry of final orders or judgment by the bankruptcy court." Local Rule 7012-1 further provides:
In addition to statements required by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure, any answer, motion or response shall contain a statement that the filing party does or does not consent to entry of final orders or judgment by the Court if it is determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. If no such statement is included in the answer, motion or responses thereto, the filing party shall have waived the right to contest the authority of the Court to enter final orders or judgments.
Available at https://www.deb.uscourts.gov/sites/default/files/local_rules/LocalRules_2013.pdf.
Yucaipa filed its initial and amended answers to the Estate Claims on February 11, 2013, and April 1, 2013, respectively. Both answers omitted any Rule 7012 statement or comparable language suggesting in any way that Yucaipa did not consent to entry of final orders or judgment by this Court. Moreover, Yucaipa cannot credibly argue that its counsel was unaware of Yucaipa's right to withhold such consent. Indeed, in contrast to its responsive pleading in the Estate Action, Yucaipa's preliminary statement in its Answer in the Lender Action expressly states that with respect to "every allegation and each cause of action set forth in the Complaint other than Plaintiffs' claim for equitable subordination," Yucaipa: "(b) contest[s], on independent grounds, venue before the United States Bankruptcy Court; (c) contest[s], on independent grounds, the jurisdiction of the United States Bankruptcy Court; (d) do[es] not consent to the Bankruptcy Court conducting the jury trial; and (e) do[es] not consent to entry of final orders or judgment by the Bankruptcy Court." Similarly, Yucaipa expressly stated that it "does not consent to the exercise of jurisdiction by the Bankruptcy Court over any part of this adversary proceeding" in its Answer to an adversary proceeding in the BRAC Group Inc. bankruptcy before this Court. Yucaipa was represented in that adversary proceeding by Robert A. Klyman, who had represented Yucaipa throughout these Adversary Proceedings, including in connection with Yucaipa's responsive pleadings.
See 13-50530, D.I. 16 & 95.
See 14-50971, D.I. 19 at 2. In light of this language in Yucaipa's Answer to the Lender Complaint and subsequent case events in the Lender Action, the Trustee is not advocating for entry of judgment on Direct Lender Claim 2 at this time; rather, we submit that a clarification can be made that the rulings on that claim are entered as proposed findings and conclusions.
See BRAC Group, Inc., et al v. Yucaipa American Funds, LLC, Adv. Proc. No. 04-54448 (Bankr. D. Del.) (Nov. 5, 2004), D.I. 10 at 1.
The omission of a Rule 7012 statement in Yucaipa's Answer, standing alone, operates as a clear waiver of its right to now belatedly object to entry of final orders and judgment to the Estate Claims. However, additional context and history, as discussed below, further illustrate that Yucaipa knowingly and voluntarily waived its right to object to jurisdiction.
B. Yucaipa Alleged this Court Had Jurisdiction to Enter Final Orders and Judgments Relating to the FLCA in the Related Allied Adversary Proceeding
On October 18, 2012 - prior to commencement of these Adversary Proceedings - Allied filed a Verified Complaint in the related Allied Adversary Proceeding (12-50947) against First Lien Lenders (including BD/S) seeking a judicial declaration regarding the validity and enforceability of the Fourth Amendment to First Lien Credit Agreement. (See 12-50947, D.I. 1). Yucaipa filed an Answer, Counterclaims, and Cross-Claims in that proceeding on December 5, 2012 (id., D.I. 55), which was subsequently amended on January 5, 2013 (id., D.I. 65)). In both its initial and amended Answers, Yucaipa admitted that the Bankruptcy Court had jurisdiction.Yucaipa also affirmatively sought declaratory, injunctive, and other relief relating to its rights under the First Lien Credit Agreement in its counterclaims and cross-claims. (Id. ¶¶102-140). In asserting these claims, Yucaipa alleged, among other things, that this Court is "the only court capable of resolving the core issues" relating to the First Lien Credit Agreement (id. at p. 15), and that the Bankruptcy Court had "exclusive jurisdiction" over the adversary proceeding. (Id. ¶¶30-31). Further Yucaipa's prayer for relief asked the Court to "enter the declaratory judgment and injunctive and other relief described" without any hint that the Court should only be entering proposed findings and conclusions.
See 12-50947, D.I. 1 at ¶¶12-13 and D.I. 65 at p. 52 ¶¶30-31.
On February 27, 2013, this Court dismissed Yucaipa's cross-claims and counterclaims in the Allied Adversary Proceeding, finding, among other things, that it "has judicial power to enter a final order." (Id., D.I. 139 at p. 3). Yucaipa filed a Notice of Appeal on March 6, 2013, without raising any jurisdictional challenge to the Court's issuance of that final order. (Id., D.I. 149).
Given the positions taken by Yucaipa, it is unsurprising that Yucaipa elected to consent to this Court entering final orders and judgments in the Estate Action. In the Allied Adversary Proceeding, Yucaipa wanted this Court to resolve disputes relating to the FLCA, and to issue final orders in an effort to circumvent BD/S' ongoing NY Action (which ultimately resulted in the Fourth Amendment being held null and void). Not consenting to this Court's jurisdiction in the Estate Action would have contradicted and undermined these positions.
C. Yucaipa Never Objected to the Court's Jurisdiction Following Entry of an Earlier Summary Judgment Order in the Estate Action
On July 9, 2013, BD/S moved for summary judgment in the Allied Adversary Proceeding and the Estate Action for an order that the Fourth Amendment was invalid, Yucaipa was not Requisite Lender, and BD/S were Requisite Lenders. In responding, Yucaipa again opted not to include a Rule 7012 statement that it did not consent to entry of final orders or judgment. Yucaipa also raised no objection to this Court's jurisdiction when it granted summary judgment to BD/S on August 8, 2013. Nor did Yucaipa raise a jurisdictional objection in its appeals to the District Court and Third Circuit seeking to overturn this order, or in its failed petition for panel rehearing. Moreover, Yucaipa affirmatively consented to entry of a final judgment by this Court in the Allied Adversary Proceeding on September 6, 2018. These facts highlight Yucaipa's knowing and voluntary consent to this Court's ability to enter final orders and judgments in the Estate Action.
See 12-50947, D.I. 246-50; 13-50530, D.I. 253-57.
See 13-50530, D.I. 261-266.
Id., D.I. 280, 289.
See In re Allied Sys. Holdings, Inc., 556 B.R. 581 (D. Del. 2016), aff'd sub nom. In re ASHINC Corp., 683 Fed.Appx. 131 (3d Cir. 2017) (affirming the Bankruptcy Court's holdings that (i) the Third Amendment was validly enacted, (iii) Yucaipa's First Lien Debt holdings should be excluded from calculating Requisite Lender status, (iii) BD/S are Requisite Lenders, and (iv) the First Lien Credit Agreement and Third Amendment are unambiguous.
See 12-50947, D.I. 317 at p. 3 ("[F]inal judgment is hereby entered as to all issues in this Adversary Proceeding.").
D. Yucaipa's Former Co-Defendant Routinely Objected to Entry of Final Orders or Judgments While Yucaipa Remained Silent
Any suggestion that Yucaipa or its counsel were not aware of the right to refuse consent to this Court's jurisdiction to enter final orders and judgments on non-core claims is further belied by the fact that its former co-defendant in the Estate Action - Mark Gendregske - routinely included reservation language in joint filings where Yucaipa elected not to insert similar language. These include the Court's initial Scheduling Order setting the Estate Action for a trial, which was "entered without prejudice to any of Gendregske's rights to request severance, demand a jury trial, and/or move to withdraw the reference," but which did not contain any similar reservation language with respect to Yucaipa. Moreover, Yucaipa was aware of Mr. Gendregske's motion for withdrawal of the reference in the Estate Action and his seeking an Order determining that the cause of action against him (breach of fiduciary duty) was a non-core claim. Yucaipa never made a similar motion or sought a similar order in the Estate Action, however, having elected to do so only in the Lender Action.
13-50530, D.I. 28 at ¶12.
See id., D.I. 111 & 113.
See 14-50971, D.I. 7-9; see also id., D.I. 98 (District Court's Order denying Yucaipa's motion for withdrawal of the reference in the Lender Action).
E. Yucaipa Cannot Retroactively Waive Its Consent to this Court's Adjudication of Non-Core Claims in the Estate Action After 4.5 Years
To support its contention that it did not consent to the this Court entering final orders and judgments on non-core claims in both the Estate and Lender Actions, Yucaipa is relegated to referring to "no consent" language raised for the first time in filings four and a half years into the Estate Action. Notably, around this time it became the parties' practice to file duplicate copies of filings in both Adversary Proceedings because the Litigation Trustee had been substituted as Plaintiff in both actions and the Adversary Proceedings were coordinated for discovery purposes. It is therefore unclear whether Yucaipa intended its "non consent" language to apply to both actions. Even if it did, however, the parties had already engaged in extensive litigation and appeals by August 31, 2017, and Yucaipa does not (and cannot) provide reference to any "non consent" language prior to that time. Critically, Yucaipa also cannot provide any support for the proposition that it was somehow permitted to retroactively retract its clear waiver prior to that point in time.
See 9033 Objections at 4 (citing Certificate of Counsel Regarding Amended Scheduling Order dated August 31, 2017 (13-50530, D.I. 416) as first example of "no consent" language).
Yucaipa's 9033 Objection omits reference to a duplicate Certificate of Counsel entered in the Lender Action on August 31, 2017. See 14-50947, D.I. 215-16.
Finally, Yucaipa's memorandum of law in support of the latest round of summary judgment motions concludes by specifically requesting entry of "summary judgment" on the Estate Claims, without any reference to any prior "non consent" reservation. (See, e.g., 13-50530, D.I. 699). Moreover, Yucaipa's counsel did not raise any objection to this Court entering final orders and judgments at oral argument on the cross-motions for summary judgment. Tellingly, Yucaipa has also raised no objection to the entry of judgment on the claims where the Court ruled in Yucaipa's favor. This is precisely the type of gamesmanship the Supreme Court cautioned against. See Wellness, 575 U.S. at 684-85.
The consequences of Yucaipa's knowing and voluntary waiver to this Court entering final orders and judgments on the Estate Claims should be enforced, and the Amended Proposed Judgment promptly entered.
II. The Court Does Not Need to Provide Proposed Findings of Fact
Under Fed.R.Civ.P. 52(a)(3) - made applicable to adversary proceedings under Fed.R.Bankr.P. 7052 - this Court "is not required to state findings or conclusions when ruling a motion under Rule 12 or 56." Rule 52(a)(3) is stated permissively, leaving it "totally within the discretion of bankruptcy judges as to whether they wish to make any specific findings of fact and/or conclusions of law" in connection with deciding a motion for summary judgment. Barone v. Strouse, Greenberg Mortg. Co., 71 B.R 521, 524 (Bankr. E.D. Pa. 1987). Further, "[f]indings of fact and conclusions of law need not be designated as such and need not be set forth in a separate document. Federal Rule 52(a) makes it clear that it is sufficient if there are findings and conclusions in an opinion or memorandum of decision." RG Premier Bank of P.R. v. Alvarado, 463 B.R. 200, 206 (D.P.R. 2011) (citing 11 William L. Norton, Norton Bankruptcy Law and Practice (3d ed. 2011)).
See also, e.g., Leibowitz v. Kalamata Capital Grp. LLC, 625 B.R. 390, 398 n.5 (N.D. Ill. 2021) ("[T]he court is not stating findings of fact or conclusions of law because Civil Rule 52(a)(3), made applicable by Bankruptcy Rule 7052, does not so require when ruling on a motion for summary judgment . . . [T]his Memorandum Decision constitutes the court's statement on the record for granting or denying the Motions."); Devices Liquidation Tr. v. KMT Wireless, LLC, 588 B.R. 661, 662 (Bankr. E.D.N.Y. 2018) ("The Court is not stating findings of facts and conclusions of law as [Bankruptcy Rule] 7052 . . . does not so require in ruling on a motion for summary judgment."); Sheet Metal Workers Nat'l Pension Fund v. Kern, 542 B.R. 87, 90 (Bankr. E.D.N.Y. 2017) (same)
As such, Yucaipa's contention that this Court somehow compounded errors by stating that the Opinion constituted findings under a rule only pertaining to bench trials is incorrect. (See 9033 Objections at 5). Your Honor's holding that the "Opinion constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052" (Opinion a 2 n.1) was also well within the Court's discretion because the Opinion was issued as a precursor to the Court entering a judgment. (See 12-11564, 5/12/21 Tr. at 9:25-10:6: "Let's be clear, judgment will be entered. The Court [has] ruled."). As discussed, there is no dispute that the Court has jurisdiction to enter judgment at this time on the core Estate Claims (10, 11, and 13), and the Court also has jurisdiction to enter judgment on Estate Claim 5 given Yucaipa's waiver and implicit consent to the Court's jurisdiction to do so. Accordingly, to the extent the Opinion constitutes findings of fact and conclusions of law with respect to Estate Claims 5, 10, II, and 13, such findings were properly made within the Court's discretion under Rule 52(a)(3) as a precursor to the Court's authority to enter final judgment on those claims.
Moreover, since the findings of fact and conclusions of law were made pursuant to Rule 52(a)(3), Yucaipa's objections under Fed.R.Bankr.P. 9033 to findings of fact and conclusions of law pertaining to Estate Claims 5, 10, 11, and 13 are improper and should be disregarded.
III. There is No Just Reason to Delay Judgment on Estate Claim 5, 10-11, & 13
For nearly a decade, Yucaipa's scorched earth litigation tactics have forced the parties to litigate issues with respect to the Third Amendment and purported Fourth Amendment across multiple jurisdictions and appellate courts. In addition to filing two interlocutory appeals in this case, Yucaipa challenged the New York Court's ruling in this Court, brought suit in Delaware Chancery Court against BD/S and the BD/S-affiliated co-Agents, and filed a RICO action in federal courts in New York and Delaware against BD/S and their individual employees. These efforts, all unsuccessful, underscore that Yucaipa's current position against piecemeal litigation is a tactical ploy. In light of the long and arduous procedural history of this case, and the serious questions raised by the Trustee about Yucaipa's efforts to dissipate assets from which it could satisfy a judgment, the Court should permit judgment on Estate Claim 5, 10-11, and 13 pursuant to Fed.R.Civ.P. 54(b) (made applicable by Fed.R.Bankr.P. 7054). In the event the Court enters judgment on these claims, the Trustee does not oppose the issuance of a stay that is expressly conditioned on Yucaipa posting adequate security.
See 13-50530, D.I. 706 at 27-28.
A. The Judgment Should be Certified Under Rule 54(b)
Certification under Rule 54(b) is appropriate where (1) there has been a "final judgment" on the merits, i.e., "an ultimate disposition" on "a cognizable claim for relief"; and (2) there is "no just reason [for] delay." Curtiss-Wright Corp. v. Gen. Elec. Co., 446 U.S. 1, 7-8 (1980).While the issuance of a Rule 54(b) judgment lies entirely within the discretion of the lower court, the Third Circuit has identified certain factors that are often relevant to the question of whether or not there is "no just reason to delay." They are: "(1) the relationship between the adjudicated and unadjudicated claims; (2) the possibility that the need for review might or might not be mooted by future developments in the [lower] court; (3) the possibility that the reviewing court might be obliged to consider the same issue a second time; (4) the presence or absence of a claim or counterclaim which could result in set-off against the judgment sought to be made final; [and] (5) miscellaneous factors such as delay, economic and solvency considerations, shortening the time of trial, frivolity of competing claims, expense, and the like." Berckeley Inv. Grp. v. Colkitt, 455 F.3d 195, 203 (3d Cir. 2006). Each factor weighs in the Trustee's favor here.
There is no dispute that the Opinion constitutes a final judgment with respect to Estate Claims 5, 10-11, and 13.
Factor 1: The adjudicated and unadjudicated claims are different. As an initial matter, many of Yucaipa's arguments regarding the overlapping nature of the adjudicated and unadjudicated claims focus on Lender Claim 2. These arguments are not relevant if the Court elects to reframe the rulings on the non-core Lender Claims as proposed findings and conclusions. Additionally, the relevant question for the first factor is not whether there is any factual overlap between the adjudicated and unadjudicated claims, but whether "the degree of overlap is insignificant on the whole." Keurig, Inc. v. Sturm Foods, Inc., 2012 WL 12896333, at *2 (D. Del. Nov. 2, 2012), aff'd, 732 F.3d 1370 (Fed. Cir. 2013).
See Proposed Judgment Objections at 10 ("Yucaipa's statute of limitations argument applies both in Lender Claim 2 (breach of contract) and Lender Claim 3 (breach of the implied covenant of good faith and fair dealing)" and "the Litigation Trustee's breach of fiduciary duty claim is duplicative of the Lenders' breach of contract claims"); id. at 12 (raising concern that "the factual and legal issues concerning damages will be subject to de novo review by the District Court (as to Lender Claim 2), and simultaneously will need to be tried (as to Lender Claim 3)").
Here, Estate Claims 5, 10-11, and 13 are distinct from the remaining claims. Estate Claim 5 is based on a single fact that Yucaipa did not make a capital contribution to Allied on August 31, 2009. Estate Claims 10-11 and 13 are based on specific fraudulent transfers to Yucaipa. In contrast, the unadjudicated claims, including Estate Claims 1-2 (equitable subordination), Estate Claim 7 (breach of fiduciary duty), and Lender Claim 3 (breach of good faith and fair dealing) concern Yucaipa's conduct as purported Requisite Lender for over three years. Because these claims involve facts distinct from the adjudicated claims, the degree of overlap (if any) is minimal. See Keurig, 2012 WL 12896333, at *2 ("[W]hile the parties and generic information about [the case] are relevant to both the [adjudicated] and [unadjudicated] issues, the legal issues and corresponding factual concerns are very different.").
Yucaipa's reference to District Judge Robinson's remarks regarding the relationship between the Estate Claims and Lender Claims is inapposite. (See Proposed Judgment Objections at 13). Since Judge Robinson made the observation about "overlapping" issues, the parties and claims at issue have been whittled down by settlements and voluntary dismissals. While not specific, Judge Robinson's comment was also likely animated by the similarities between the Estate's and Lenders' equitable subordination claims, as well as the Lender's breach of fiduciary claim - which remain to be tried at the same time following the Court's Opinion and Order.
Factor 2: Future developments will not moot Yucaipa's need to appeal. Plainly, Yucaipa intends to appeal a final judgment entered by the Court with respect to Estate Claims 5, 10-11, and 13 whether that judgment is entered now or upon the resolution of the remaining claims. (See Proposed Judgment Objections at 14 (noting that if the Court certifies the judgment on Estate Claims 5, 10-11 & 13, it will "be forced to immediately appeal the Rule 54(b) judgment to preserve its appellate rights")). Since there are no future developments that will moot Yucaipa's need to appeal, the second factor weighs in favor of certification. See Interdigital Commc'ns, Inc. v. ZTE Corp., 2016 WL 3226011, at *2 (D. Del. June 7, 2016) (second factor favors certification because "Defendants will eventually appeal the liability judgment . . .; the only question is when that will occur").
Factor 3: No risk of repetitive review. There is no risk that the reviewing courts will be forced to consider the same issue twice if judgment is entered for the Trustee. This is the case even in the example Yucaipa points to - an appeal of a Rule 54(b) judgment regarding the damages for the Trustee's contract claims. (Proposed Judgment Objections at 14). The Court's ruling that Yucaipa failed to create a genuine issue with respect to the Trustee's damages was supported by black letter New York law. However, in the event the District Court or Third Circuit disagrees, it would remand to this Court on the issue as to the amount of the Trustee's damages. This discrete issue is subject to remand regardless of whether Yucaipa appeals now or after judgment is entered on the unadjudicated claims.
Factor 4: No possibility of set-off. There is no possibility of a set-off here, which weighs in favor of entry of judgment. See, e.g., Rodriguez v. City of Phila., 2018 WL 3036283, at *13 (E.D. Pa. June 18, 2018) (impossibility of set-off favors certification of judgment).
Factor 5: Credible concerns about Yucaipa's solvency. The final factor is the most important to this case. A credible risk that the defendant will dissipate its assets before a plaintiff is able to collect on its judgment bears substantial weight in this analysis. See, e.g., Abbott Lab'ys v. Adelphia Supply USA, 2020 WL 7643213, at *5 (E.D.N.Y. Dec. 23, 2020) (finding that "a serious risk that [] defendants will dissipate their assets prior to final judgment and collection" outweighed any risk of judicial inefficiency that would result from entering a final judgment); Power Up Lending Grp. v. Cardinal Energy Grp., 2020 WL 2572198, at *4 (E.D.N.Y. May 21, 2020) (given "the various indications that [defendant] might be insolvent, Plaintiff would suffer harm in further delaying entry of judgment and, in turn, its ability to collect on such judgment."). As discussed in the Trustee's Rule 2004 motion, the Trustee has substantial and legitimate concerns that Yucaipa has been dissipating assets from which it could satisfy a judgment. Any risk of judicial inefficiency resulting from entering a judgment now (which we contend there are none) is greatly outweighed by the prejudice to the Trustee that would result from delaying its ability to receive a judgment now.
See 12-11564, D.I. 4161.
B. Any Stay Must Include a Condition that Yucaipa Post Adequate Security
In the event the Court enters a judgment, Yucaipa requests a stay of the proceedings pursuant to Fed.R.Civ.P. 62(h). Rule 62(h) allows the Court to stay a Rule 54(b) judgment while imposing any "terms necessary to secure the benefit of the stayed judgment for the party in whose favor it was entered." The Supreme Court has recognized that Rule 62(h) permits the court to provide for "valid considerations of [a defendant's] economic duress and solvency" when deciding whether to enter a final judgment. Curtiss-Wright Corp., 446 U.S. at 13 n.3.
Pursuant to the instructions emailed to the parties by Chambers on May 27, 2021, there is "[n]o need to address stay of enforcement of judgment" in this response. Yucaipa's present request clearly fails to meet the procedural requirements for a stay motion and is not properly before the Court. The Trustee reserves the right to formally respond if/when Yucaipa properly moves.
As discussed, the Trustee's request for a judgment is driven in large measure by concerns regarding Yucaipa's solvency. These concerns could be addressed if Yucaipa posted security with the Court in the amount equal to the Trustee's damages award. This can be addressed, however, if and when Yucaipa files a proper motion for a stay. (See n.27, above).
IV. The Court Has Jurisdiction to Ultimately Enter Judgment On Equitable Subordination Claims - Estate Claims 1 and 2, and Lender Claim 1
The Court granted in part, and denied in part, the Trustee's equitable subordination claims asserted in Estate Claims 1 and 2, and Lender Claim 1. The Trustee agrees with Yucaipa that to the extent aspects of these claims remain to be adjudicated at trial - including assessing damages - judgment should await a final post-trial ruling. As these claims are rooted in equitable subordination, however, they are undisputedly core claims over which this Court has jurisdiction to ultimately enter judgment at that time. See In re Winstar Commc'ns, Inc., 348 B.R. 234, 249 (Bankr. D. Del. 2005) ("Equitable subordination is unquestionabl[y] a 'core' proceeding pursuant to section 157(b)(2)."), aff'd, 2007 WL 1232185 (D. Del. Apr. 26, 2007), aff'd in part, modified in part, 554 F.3d 382 (3d Cir. 2009).
V. Yucaipa's Additional Objections to the Opinion's Reasoning Are Meritless
As a threshold matter, Yucaipa's 9033 Objections are procedurally improper. The Court did not issue Proposed Findings of Fact and Conclusions of Law, and to the extent Yucaipa treated the Court's Opinion as such, the 9033 Objections fail to comply with Rule 9033(b)'s requirements that "[e]ach objection . . . identify the particular proposed finding or conclusion to which an objection is made" and that "the grounds for each objection . . . be stated with specificity." Jonathan Friedland, Commercial Bankruptcy Litigation § 12:12 (2021). Here, Yucaipa attempts to generally object to multi-page passages with exemplars. In addition to being procedurally improper, the 9033 Objections are also meritless.
See also In re Ultimate Escapes Holdings, LLC, 551 B.R. 749, 760 n.3 (D. Del. 2016) (opposition to proposed findings "in their entirety" was improper, and the Court will only review "the Trustee's thirty specific objections . . . . In my opinion, any unspecified objections are waived"), aff'd, 682 Fed.Appx. 125 (3d Cir. 2017).
See 9033 Objections at 10 (objecting to pages 6-22 of the Opinion); 12 (objecting to pages 26-38 of the Opinion); 13 (objection to pages 38-46 of the Opinion).
A. While Unnecessary to Its Holdings, the Court's Factual Findings Were Correct
Yucaipa objects to points in the Court's "Facts / Background" section of the Opinion, arguing that the Court broadly violated the fundamental standards applying to a motion for summary judgment. (9033 Objections at 10). This objection is baseless.
Although disputes on a motion for summary judgment must be viewed in the light most favorable to the non-moving party, the non-moving party is "not automatically entitled to a presumption of correctness on a given factual issue without offering any concrete evidence from which a reasonable juror could return a verdict in his favor." In re Revstone Indus., LLC, 2019 WL 2929328, at *4 (D. Del. July 8, 2019) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986)). Here, the Court identified instances where Yucaipa unquestionably failed to put forth "concrete evidence" to rebut the evidence in the Trustee's motion. Yucaipa's "illustrative" examples highlight the weakness of this objection.
Whether Yucaipa demanded a premium on its debt was not "heavily disputed." Yucaipa claims that the parties "heavily disputed" whether it demanded a premium price for its Term Loans from JCT from late 2011 through spring 2012. (9033 Objections at 10-11). But Yucaipa's "evidence" that it agreed to ratable treatment consists only of attorney arguments, which do not preclude the entry of summary judgment. See 13-50530, D.I. 794 at 10-11; see also Revstone, 2019 WL 2929328, at *4 (denying objection because Bankruptcy Court "did not weigh any evidence or determine the truth of any matter," rather it "determined that Defendant failed to present anything in rebuttal to the Motions other than conclusory, self-serving, and hedged statements unsupported by any evidence"). Given Yucaipa's failure to put forth concrete evidence that it offered ratable treatment to the Lenders, the Trustee's substantial evidence to the contrary stands undisputed.
Yucaipa's option to contribute cash or debt in August 2009. Yucaipa argues that the Court made an "unsupported" and "illogical" finding that it would have made little sense for Yucaipa to exchange its Term Loans for worthless equity in Allied in August 2009. (9033 Objections at 11). This misses the point. Whether it would have made more sense for Yucaipa to contribute Term Loans or equity to Allied on August 31, 2009, has no bearing on the undisputed fact that "Allied received neither." (Opinion at 30). The Court measured the Estate's damages not by deciding that it was logical for Yucaipa to elect a cash contribution in August 2009, but by observing that Yucaipa can no longer contribute its Term Loans. (Opinion at 32-33). Yucaipa failed to contest this dispositive finding.
The effect on Allied of Yucaipa's failure to make a Capital Contribution. Yucaipa further argues that the Court engaged in "speculation about what would have happened in [a] counterfactual scenario" in which Yucaipa made its Capital Contribution. (9033 Objections at 11-12). But the Court did the exact opposite - it rejected Yucaipa's expert's speculation that "Allied would have 'burned through' all the money and it would add no value to Allied," had Yucaipa made the Capital Contribution. (Opinion at 31-32). Refusing to engage in such speculation, the Court made the uncontroversial point that if Allied was already headed toward a second bankruptcy, Yucaipa's failure to make a Capital Contribution did not help Allied avoid that fate. (Id. at 32). In any event, the Court's statement was in the context of discussing the damages to the Estate as a result of Yucaipa's breach of the Capital Contribution Provision. As discussed further below, Yucaipa fails to challenge the Court's key holding that, under settled New York law, the full cash value of the Capital Contribution as a result of Yucaipa's breach is a stable foundation to award damages given that Yucaipa admitted (as it must) that it breached the First Lien Credit Agreement.
13-50530, D.I. 822 at 59:25-60:15 (Yucaipa's Counsel: "[I]n hindsight we know the fourth amendment was void ab initio, so when Yucaipa acquired more than the third amendment allowed, that was a breach of the contract. The second breach is what we call the capital contribution provision . . . [T]en days after acquiring term loans [Yuciapa] needs to make a capital contribution; undisputed Yucaipa didn't do that. And again . . . in hindsight we know that that was required, and it was a breach of the contract in failing to make the capital contribution within ten days.")
B. The Court's Holdings On the Trustee's Breach of Contract Claims Were Correct As a Matter of Law
Yucaipa further objects to the Court's conclusions with respect to the Estate's and Lenders' breach of contract claims by simply repeating the same arguments advanced in its opposition papers. Simply re-raising points already lost does not merit review or modification.
The Court correctly applied New York law to measure damages. Yucaipa repeats its argument that there is a "genuine dispute" concerning the fact and amount of damages for Yucaipa's breach of the Capital Contribution Provision. (9033 Objections at 12). The Court, however, correctly applied New York law on this issue, which places the "burden of uncertainty" as to the amount of damages on the wrongdoer. (Opinion at 31). The Court rejected Yucaipa's expert's "speculative" opinion that Allied "would have 'burned through' all the money" and accepted the reasonable estimate put forth by the Trustee's expert that damages are best measured by the full cash value of the Capital Contribution. (Id. at 30-31). Because Yucaipa fails to challenge the Court's application of New York law, its objection must fail. See In re Green Field Energy Servs., Inc., 610 B.R. 760, 771-72 (D. Del. 2019) (denying objection to proposed findings of fact because defendants "ignore [the bankruptcy court's] critical holding and have not objected to it"), aff'd, 834 Fed.Appx. 695 (3d Cir. 2020).
Yucaipa conflates Estate Claim 5 and Lender Claim 2. Yucaipa further argues that the Court could not have awarded prejudgment interest on the Trustee's breach of contract claim from August 2009 and "simultaneously" held that Yucaipa's breach was not actionable until December 2013. (9033 Objections at 12-13). This argument conflates the Estate's and the Lenders' breach of contract claims as well as the continuous breach doctrine. The Estate's breach of contract claim is based solely on Yucaipa's failure to make the Capital Contribution and was actionable when Yucaipa's contribution was due - i.e., August 31, 2009. (Opinion at 32). In contrast, the Court held that the Lenders' breach of contract claim is based on Yucaipa's continuous breaches, which only became actionable upon the JCT 363 sale in December 2013. (Id. at 45). The Court correctly awarded prejudgment interest on the Estate's breach of contract claim from August 2009.
The Court correctly found that the meaning of Section 2.7(f) of the First Lien Credit Agreement is clear and unambiguous under controlling New York law. Yucaipa objects to the Court's holding that the First Lien Credit Agreement's covenant not to sue at § 2.7(f) (the "Covenant Not to Sue") did not foreclose the Estate's breach of contract claim. (See Opinion 34-38). Yucaipa argues that this Court improperly referred to hypothetical "omissions" that could apply to the Covenant Not to Sue at issue in order to reject Yucaipa's interpretation of the provision. (9033 Objections at 13). However, this Court's holding was that the Covenant Not to Sue clearly and unambiguously bars Allied from suing over an "omission" by Yucaipa "only … when Yucaipa makes a Capital Contribution of its Term Loans, which Yucaipa did not do." (Opinion at 38 (emphasis in original)). Yucaipa does not (and cannot) challenge this Court's understanding of the plain meaning of this provision. Thus, its objection fails. See In re Green Field Energy Servs., Inc., 610 B.R. at 771-72.
C. The Court Correctly Held That Direct Lender Claim 2 (Breach of Contract) Was Timely
Yucaipa objects to the Court's conclusion that the Lenders' breach of contract claim is timely by repeating the same arguments it advanced in its summary judgment briefing and at oral argument. (See 9033 Objections at 13-14). In holding that the continuous breach doctrine applies, this Court correctly recognized (i) the continuing nature of the Lenders' rights under the FLCA; (ii) an admission by Derex Walker (of Yucaipa) that there had been multiple breaches of the First Lien Credit Agreement dating back to August 2009; (iii) the fact that the Lenders' damages were not ascertainable until December 27, 2013; and (iv) relevant case law supporting the Trustee's argument. (See Opinion at 41-45). None of Yucaipa's repetitive arguments undermine the Court's well-reasoned finding that the doctrine applies here as a matter of law.
D. The Court Should Exercise Its Discretion to Award Prejudgment Interest on Estate Claims 10, 11, and 13
Yucaipa also objects to the award of prejudgment interest on the Estate's fraudulent transfer and disallowance claims (Estate Claims 10, 11, and 13), asserting that the Opinion failed to justify an award of prejudgment interest and that there was "virtually no briefing on this issue." (Proposed Judgment Objections at 16-17). The award of prejudgment interest for claims under sections 548(a) and 550(a) of the Bankruptcy Code, however, "is a matter left to the sound discretion of the trial court. Awards of prejudgment interest are governed by considerations of fairness and are awarded when it is necessary to make the wronged party whole." In re Acequia, Inc., 34 F.3d 800, 818 (9th Cir. 1994). The Third Circuit has observed that "discretion must be exercised according to law, which means that prejudgment interest should be awarded unless there is a sound reason not to do so." In re Hechinger Inv. Co. of Del., Inc, 489 F.3d 568, 579-80 (3d Cir. 2007) (quoting In re Milwaukee Cheese Wis., Inc., 112 F.3d 845, 849 (7th Cir. 1997)).
Additionally, the award of prejudgment interest on Estate Claims 10, 11, and 13 was plainly before the Court and cannot come as a surprise to Yucaipa. A request for prejudgment interest on these claims was expressly included in the prayer for relief in the Complaint and Amended Complaint in the Estate Action. The request was also reiterated in the Trustee's Motion. (See 13-50530, D.I. 706, 712, at 37: "Prejudgment interest should be granted on all fraudulent transfers."). Given that Yucaipa can claim no sound reason why the Estate should not be made whole by awarding prejudgment interest, the Trustee's request should be granted.
13-50530, D.I. 1 at 57 (subparagraph (h)), and D.I. 76 at 60 (subparagraph (h).
CONCLUSION
For the foregoing reasons, the Trustee respectfully requests that the Court enter the Amended Proposed Judgment at this time, clarify the Opinion and Order as explained above, and reject Yucaipa's remaining Objections.
Appendix A
Abbreviations and Defined Terms
13-50530
Catherine E. Youngman, Litig. Tr. for ASHINC Corp. v. Yucaipa Am. All. Fund I, L.P., Adv. Proc. No. 13-50530 (Bankr. D. Del.)
14-50971
Catherine E. Youngman, Litig. Tr. for ASHINC Corp. v. Yucaipa Am. All. Fund I, L.P., Adv. Proc. No. 14-50971 (Bankr. D. Del.)
In re Allied Holdings, Inc., et al., Case Nos. 05-12515 through 05-12526 and 05-12528 through 05-12537 (Bankr. N.D.Ga.) 2005 Bankruptcy
Active
Active Carhaul
Allied Adversary Proceeding
ASHINC Corp. v. AMMC VIII, Ltd. et al., Adv. Proc. No. 12-50947-CSS (Bankr. D. Del)
Allied or the Company
ASHINC Corp. (formerly known as Allied Systems Holdings, Inc.) and related Debtors
Amended Plan
Debtors' Modified First Amended Joint Chapter 11 Plan of Reorganization dated December 3, 2015 (Case No. 12-11564, D.I. 3360-1)
BD/S
Black Diamond and Spectrum
Black Diamond
BDCM Opportunity Fund II, LP and Black Diamond CLO 2005-1 Ltd.
Board
Allied's Board of Directors
Burkle
Defendant Ronald Burkle
CIT
CIT Group/Business Credit, Inc.
ComVest
ComVest Investment III, L.P.
Credit Agreements
Allied's First Lien Credit Agreement and Second Lien Credit Agreement
D. Del. Compl.
Yucaipa Am. All. Fund I, L.P. et al. v. Richard A. Ehrlich et al., No. 15-cv-373 (D. Del. May 8, 2015), ECF No. 1
Ehrlich Decl. Direct Lender Claims
Claims brought on behalf of the lenders under Allied's first lien credit facility asserted in Adv. Proc. No. 14-50971
The accompanying Declaration of Richard Ehrlich, dated December 18, 2020
Entities Opposition or Entities Opp.
Litigation Trustee's Opposition to the Motion for Summary Judgment by Yucaipa American Alliance Fund I, LP and Yucaipa American Alliance (Parallel) Fund I, LP, dated July 17, 2020
Ex. Estate Claims
Claims brought on behalf of the Allied Estates asserted in Adv. Proc. No. 13-50530
Exhibits to the first Declaration of Gila S. Singer, dated May 1, 2020 (13-50530, D.I. 713; 14-50971, D.I. 466); Second Declaration of Gila S. Singer, dated August 21, 2020 (13-50530, D.I. 772; 14-50971, D.I. 516); and the accompanying Third Declaration of Gila S. Singer
First Lien Credit Agreement or “FLCA”
Amended and Restated First Lien Secured Super-Priority Debtor in Possession and Exit Credit and Guaranty Agreement, dated as of May 15, 2007 (Ex. 9)
Gendregske Br.
Defendant Mark Gendregske's Opening Brief in Support of his Motion for Summary Judgment, dated May 1, 2020 (13-50530, D.I. 708)
Georgia Action
Allied Systems Holdings, Inc., et al. v. The CIT Group/Business Credit, Inc., Civil Action No. 2009-CV-177574 (Super. Ct. Fulton Cnty.)
Harris Decl.
The accompanying Declaration of Adam C. Harris, dated December 18, 2020
Indiv. Br.
Memorandum of Points and Authorities in Support of Motion for Summary Judgment by Defendants Ronald Burkle, Jos Opdeweegh, Derex Walker, Jeff Pelletier, and Ira Tochner (13-50530, D.I. 699; 14-50971, D.I. 456)
Individual Defendants
Defendants Ronald Burkle, Jos Opdeweegh, Derex Walker, Jeff Pelletier, and Ira Tochner
Individuals Opposition or Indiv. Opp.
Litigation Trustee's Opposition to the Motion for Summary Judgment by the Individual Defendants, dated July 17, 2020
Jack Cooper or JCT
Jack Cooper Transport
JCT 363 Sale
Purchase by JCT of substantially all of Allied's assets for $135 million following an auction for Debtors' assets under 11 U.S.C. §363, which closed on December 27, 2013
Joint Procedural History
Joint Procedural History, dated July 25, 2019 (13-50530, D.I. 599; 14-50971, D.I. 365)
Kasowitz
Kasowitz Benson Torres LLP
Latham
Latham & Watkins LLP
LPA
Loan Purchase Agreement between Yucaipa and ComVest, dated August 21, 2009 (Ex. 43)
MMSA
Monitoring and Management Services Agreement, dated May 29, 2007 (Scolnick Ex. 32)
NY Action
BDCM Opportunity Fund II, LP, et al. v. Yucaipa American Alliance Fund I, L.P., et al., Index No. 650150/2012 (N.Y. Sup. Ct. N.Y. Cnty.)
Opposition or Opp.
Opposition to the Litigation Trustee's Motion for Summary Judgment by Defendants Yucaipa American Alliance Fund I, L.P., Yucaipa American Alliance (Parallel) Fund I, L.P., Ronald Bukle, Ira Tochner, Derex Walker, Jos Opdeweegh, and Jeff Pelletier
Plan
Second Amended Joint Plan of Reorganization, In re Allied Holdings, Inc., No. 05-12515 (CRM) (Bankr. N.D.Ga.), D.I. 2802 (Ex. 11)
Requisite Lenders
As defined in Allied's First Lien Credit Agreement (Ex. 9 at 41)
Scolnick Ex.
Exhibits to the Declaration of Kahn A. Scolnick, dated May 1, 2020 (13-50530, D.I. 721; 14-50971, D.I. 457)
Scolnick Opp. Ex.
Exhibits to the Declaration of Kahn A. Scolnick, dated August 21, 2020 (13-50530, D.I. 767; 14-50971, D.I. 511)
SDNY Compl.
Yucaipa Am. All. Fund I, L.P. et al. v. Richard A. Ehrlich et al., No. 15-cv-916 (S.D.N.Y. Feb. 6, 2015), ECF No. 1
Second Lien Credit Agreement
Second Lien Secured Super-Priority Debtor in Possession and Exit Credit and Guaranty Agreement, dated as of May 15, 2007
Spectrum
Spectrum Investment Partners, L.P.
Tender Offer
February 4, 2009 tender offer by Yucaipa for Allied first lien debt (Ex. 30)
Third Amendment
Amendment No. 3 to First Lien Credit Agreement and Consent, dated as of April 17, 2008
Troutman
Troutman Sanders LLP
Trustee
Plaintiff Catherine E. Youngman, as Litigation Trustee for ASHINC Corp. (formerly known as Allied Systems Holdings, Inc.) and related Debtors
Trustee Brief
Litigation Trustee's Memorandum in Support of Motion for Partial Summary Judgment, dated May 1, 2020 (13-50530, D.I. 706; 14-50971 D.I. 463)
UVTA
Uniform Voidable Transactions Act
Yucaipa
Defendants Yucaipa American Alliance Fund I, L.P. and Yucaipa American Alliance (Parallel) Fund I, L.P.
Yucaipa Br.
Memorandum of Points and Authorities in Support of Motion for Summary Judgment by Defendants Yucaipa American Alliance Fund I, L.P. and Yucaipa American Alliance (Parallel) Fund I, L.P., dated May 1, 2020 (13-50530, D.I. 697; 14-50971, D.I. 454)
Yucaipa Directors
Defendants Jos Opdeweegh, Derex Walker, Jeff Pelletier, and Ira Tochner
Yucaipa-ComVest Transaction
Yucaipa's August 21, 2009 purchase of ComVest's $145.1 million (principal face amount) of Allied First Lien Debt for approximately $43 million pursuant to the LPA
IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re: ASHINC Corporation, et al [1], Debtors
CATHERINE E. YOUNGMAN, LITIGATION TRUSTEE FOR ASHINC CORPORATION, ET. AL., AS SUCCESSOR TO THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS ASHINC CORPORATION, AND ITS AFFILIATED DEBTORS Plaintiff, BDCM OPPORTUNITY FUND II, LP, BLACK DIAMOND CLO 2005-1 LTD., and SPECTRUM INVESTMENT PARTNERS, L.P., Intervenors, v. YUCAIPA AMERICAN ALLIANCE FUND I, L.P., and YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND I, L.P., Defendants.
CATHERINE E. YOUNGMAN, LITIGATION TRUSTEE FOR ASHINC CORPORATION, ET AL., AS SUCCESSOR TO BDCM OPPORTUNITY FUND II, LP, BLACK DIAMOND CLO 2005-1 LTD., SPECTRUM INVESTMENT PARTNERS, L.P., BLACK DIAMOND COMMERCIAL FINANCE, L.L.C., as co-administrative agent, and SPECTRUM COMMERCIAL FINANCE LLC, as co-administrative agent, Plaintiff, v. YUCAIPA AMERICAN ALLIANCE FUND I, L.P., and YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND I, L.P., Defendants.
Chapter 11
Case No. 12-11564 (CSS)
Adv. Proc. No. 13-50530 (CSS)Adv. Pro. No. 14-50971 (CSS)
[AMENDED PROPOSED] FORM OF JUDGMENT
WHEREAS, the Honorable Christopher S. Sontchi, Chief United States Bankruptcy Judge of the United States Bankruptcy Court for the District of Delaware, issued an Order dated May 4, 2021 (the “Order, ” 13-50530, D.I. 826; 14-50971, D.I. 564), granting in part and denying in part the motion for summary judgment of Plaintiff Catherine E. Youngman, as Litigation Trustee for ASHINC Corporation and related debtors (the “Litigation Trustee's Motion”), and granting in part and denying in part the motion for the summary judgment of Defendants Yucaipa American Alliance Fund I, L.P. and Yucaipa American Alliance (Parallel) Fund I, L.P. (“Yucaipa's Motion”);
WHEREAS, the Order was based upon the Court's Opinion dated May 4, 2021 (the “Opinion, ” 13-50530, D.I. 825; 14-50971, D.I. 563);
WHEREAS, Yucaipa American Alliance Fund I, L.P. and Yucaipa American Alliance (Parallel) (together “Yucaipa”) submitted Objections to the Bankruptcy Court's May 4, 2021 Summary Judgment Opinion and Order [Federal Rule of Bankruptcy Procedure] on May 18, 2021 (the “Rule 9033 Objections” 13-50530, D.I. 828; 14-50971, D.I. 566);
WHEREAS, the Trustee submitted a Proposed Form of Judgment on May 18, 2021 (13-50530, D.I. No. 829; 14-50971, D.I. No. 567);
WHEREAS, Yucaipa submitted an Objection to the Entry of Judgment and Additional Objections to the Proposed Form of Judgment Submitted by the Litigation Trustee; Request for Stay in the Alternative (the "Proposed Judgment Objections") (13-50530, D.I. 830, 14-50971, D.I. 568);
WHEREAS, the Trustee submitted a Response to: (1) Yucaipa's Objections to Summary Judgment Opinion and Order, Entry of Judgment, and Proposed Form of Judgment, and (2) Questions from the Court (the "Trustee Responses" 13-50530, D.I. 836, 14-50971, D.I. 574)
WHEREAS, the Court, having issued the Opinion and Order granting in part and denying in part certain of the Litigation Trustee's claims and awarding damages to the Litigation Trustee, and having reviewed and considered the Rule 9033 Objections, the Proposed Judgment Objections, and the Trustee Responses, it is,
HEREBY ORDERED, ADJUDGED, AND DECREED that, for the reasons set forth in the Opinion, Judgment shall be entered, as follows:
1. The Litigation Trustee, having an address at 49 Market Street, Morristown, New Jersey 07960, shall have judgment against Yucaipa, having an address at 9130 West Sunset Boulevard, Los Angeles, California 90069, on the Litigation Trustee's Motion on Estate Claim 5 (Breach of Contract), in the amount of $57, 356, 044.33, plus prejudgment interest at the applicable New York simple interest rate of 9% per annum from August 31, 2009, through the date this judgment is entered in the amount of $ ___, making the total of the award and pre-judgment interest the amount of $ ___, with post-judgment interest accruing until the payment of the judgment is complete.
2. The Court enters judgment on behalf of the Litigation Trustee and against Yucaipa on the Litigation Trustee's Motion on Estate Claims 10 (Constructive Fraudulent Transfers), 11 (Constructive Fraudulent Transfers), and 13 (Disallowance of Claims), in the amount of $7, 038, 711.30, plus prejudgment interest in the amount of $ ___, based on quarterly compounded interest at the average Federal Reserve discount rate between the date of each transfer and the date this judgment is entered plus 5.0%, calculated from the date of each transfer through the date this judgment is entered, making the total of the award and pre-judgment interest the amount of $ ___, with post-judgment interest accruing until the payment of the judgment is complete.
3. The Court enters judgment on behalf of Yucaipa and against the Trustee on the Litigation Trustee's Motion on Lender Claim 4 (Tortious Interference), and on Yucaipa's Motion on Estate Claim 3 (Recharacterization), Estate Claim 4 (Specific Performance), and Estate Claim 6 (Specific Performance).
FURTHER ORDERED, ADJUDGED AND DECREED that there is no just reason to delay entry of this Judgment pursuant to Federal Rule of Civil Procedure 54(b), made applicable to the above-captioned adversary proceedings by Federal Rule of Bankruptcy 7054. Among other reasons, the litigation history between the parties has been long and arduous, spanning over 8 years, with long delays that have now resulted in the Trustee's reasonable concerns about the solvency of Yucaipa. Moreover, the claims upon which this Judgment is being entered are severable and distinct from the claims and issues remaining for trial, and there are no pending counterclaims that could result in a set-off against this Judgment. Dated: June__, 2021