Judge Silverstein Tosses Bad Faith Filing in Rent-A-Wreck of America But Doesn’t Award Sanctions – Finds That a Filing to Employ the Powers of the Code is Alone Insufficient to Support Good Faith

In re Rent-A-Wreck of America, Inc., 580 B.R. 364 (Bankr. D. Del. 2018)

In this February 13, 2018 Opinion, Judge Silverstein of the Delaware Bankruptcy Court dismissed the voluntary chapter 11 proceedings filed by Rent-A-Wreck of America, Inc. (“RAWA”) and its wholly owned subsidiary, Bundy American, LLC (“Bundy”, and together with RAWA, the “Debtors”).  Judge Silverstein found that the Debtors did not file their petitions in good faith as required by 11 U.S.C. § 1112(b).  While the Court found that the Debtors’ actions in commencing the cases fell “on the dark side of the spectrum” which ranges… Read More

The Supreme Court’s Answer is Simply “No”—Structured Dismissals Cannot Deviate From the Code’s Priority Rules Without Consent of Affected Creditors

Czyzewski v. Jevic Holding Corp., 580 U.S. ___ (2017)

In Official Comm. of Unsecured Creditors v. CIT Group/Business Credit, Inc. (In re Jevic Holding Corp.), 787 F.3d 173 (3d Cir. May 21, 2015), the Third Circuit Court of Appeals examined structured dismissals and whether the distributions provided for therein can deviate from the Bankruptcy Code’s priority distribution scheme.  It held that they could but only in the “rare case.”  Almost two years later, the Supreme Court has weighed in on the issue, disagreeing with the Third Circuit and holding that a bankruptcy court cannot approve a structured dismissal that… Read More

Delaware Bankruptcy Court Sidesteps Decision on “Novel” Bar to Joinder Doctrine; Movant Failed to Demonstrate Bad Faith For Involuntary Chapter 7 Petition

In re Luxeyard, Inc., 556 B.R. 627 (Bankr. D. Del. 2016)

Declining to opine upon the “bar to joinder doctrine,” the Delaware Bankruptcy Court in this Opinion applied the Third Circuit’s “totality of the circumstances” bad faith test to deny a motion to bar the joinder of additional petitioners to an involuntary petition under Section 303(c) of the Bankruptcy Code.  Simply put, the Debtor did not carry its burden to show there was a bad faith filing, and therefore, the Court need not consider the bar to joinder doctrine.

Jinsun, LLC (“Jinsun”), whose sole manager and employee is Kevin Casey,… Read More

Bankruptcy Court Sidesteps Corporate Governance Issue, Deciding Motion to Dismiss Chapter 11 Cases on Other Grounds

In re Intervention Energy Holdings, LLC, No. 16-11247 (KJC), 2016 WL 3185576 (Bankr. D. Del. June 3, 2016)

In this Opinion, Judge Kevin J. Carey denies a secured creditor and common member’s motion to dismiss the Chapter 11 cases of two Delaware limited liability companies for lack of corporate authority, siding with other federal courts that have “consistently refused to enforce waivers of federal bankruptcy rights.”  Op. at *10.  In doing so, the Court declines “the parties’ invitation to decide what may well be a question of first impression of state law (i.e., determining the scope of LLC… Read More

Court Dismisses Involuntary Chapter 11 Case on Findings of Bad Faith and Failure to Meet Standards under Section 303

In re Metrogate, LLC, No. 15-12593 (KJC), 2016 WL 3150177 (Bankr. D. Del. May 26, 2016), (with note regarding In re Diamondhead Casino Corp., No. 15-11647 (LSS), 2016 WL 3284674 (Bankr. D. Del. June 7, 2016))

In this Opinion, the Delaware Bankruptcy Court dismissed an involuntary chapter 11 case against Metrogate, LLC f/k/a Advance Realty Group, LLC (“Metrogate”) on findings that it failed to meet the standards under section 303 of the Bankruptcy Code and was filed in bad faith.  Judge Kevin J. Carey’s ruling clarified statutory requirements under section 303 and confirmed bad faith as an independent ground… Read More

Third Circuit Holds That Bad Faith Determined by the Totality of the Circumstances Provides an Independent Basis for Dismissing an Involuntary Petition

In re Forever Green Athletic Fields, Inc., No. 14-3906, 2015 WL 6080665 (3d Cir. Oct. 16, 2015)

Despite no dispute that the petitioning creditors satisfied the statutory requirements for commencing an involuntary chapter 7 proceeding under section 303(b)(1) of the Bankruptcy Code and that the putative debtor was not paying its debts as they came due, this precedential Opinion of the Third Circuit Court of Appeals adopted the “totality of the circumstances” standard for determining bad faith under section 303 and affirmed the decisions of the lower courts that dismissed the proceeding as a bad faith filing.

In ruling so,… Read More

UPDATE – Scarborough-St. James Corp. Case Dismissed For Cause, Substantive Rulings Survive Dismissal

In re Scarborough-St. James Corp., No. 15-10625 (LSS), 2015 WL 5672628 (Bankr. D. Del. Sept. 24, 2015)

With the Landlord* receiving Bankruptcy Court approval to continue its previously stayed litigation against the Debtor in Michigan state court, the Debtor moved to dismiss its bankruptcy case for cause under Bankruptcy Code § 1112(b)(1), alleging no remaining purpose existed by having the Debtor remain in bankruptcy.  The Court granted dismissal, finding that this two-party dispute is properly litigated in state court and it is unlikely that the Debtor will be able to rehabilitate under the Bankruptcy Code.  Op. at 3. … Read More

The Baha Mar Debtors Sent Packing Back To The Bahamas

In re Northshore Mainland Servs., Inc., 2015 WL 5444707, Case No. 15-11402 (KJC), — B.R. —- (Bankr. D. Del. Sept. 15, 2015)

In His Honor’s most recent Memorandum, Judge Carey dismissed the chapter 11 cases of the Baha Mar debtors (the “Debtors”), except as to one—Northshore Mainland Services, Inc, which is a Delaware corporation with operations in the United States.  Despite the Court’s acknowledgment of the significant benefits to all parties in proceeding with a restructuring under chapter 11, the Court appeared constrained to rule that all parties would be best served by dismissal under Bankruptcy Code section… Read More

Third Circuit Approves of Structured Dismissals That Deviate From the Bankruptcy Code’s Priority Scheme – But Only in Rare Cases

Official Comm. of Unsecured Creditors v. CIT Group/Business Credit, Inc. (In re Jevic Holding Corp.), No. 14-1465, 2015 WL 2403443 (3d Cir. May 21, 2015)

The Third Circuit Court of Appeals (the “Third Circuit”) answered a novel question of bankruptcy law in the affirmative—whether a chapter 11 case can ever be resolved in a “structured dismissal” (a disposition that winds up the bankruptcy with certain conditions attached instead of simply dismissing the case and restoring the status quo ante) that deviates from the priority scheme of the Bankruptcy Code.  In rare cases, the Bankruptcy… Read More

“Thread-bare” Complaint Alleging Collective and Non-Specific Breaches of Fiduciary Duty Dismissed Against Individual Officers and Directors

Stanziale v. Heico Holdings, Inc. (In re Conex Holdings, LLC), Adv. No. 13-50941 (CSS), 2014 WL 3883712 (Bankr. D. Del. Aug. 8, 2014)

In this short Memorandum Opinion, the Bankruptcy Court dismissed a chapter 7 trustee’s claims for breaches of fiduciary duties against certain officers and directors under Texas common and statutory law.  In doing so, Judge Sontchi held that the trustee failed to plead facts with any specificity as to how each officer and director breached his duties.  However, the Court allowed the trustee leave to amend his complaint within 30 days to allege… Read More