Delaware Business Bankruptcy Report : Delaware Business Bankruptcy Report : Morris James LLP Lawyers & Attorneys

 Logan v. Westchester Fire Insurance Company (In re PRS Insurance Group, Inc.), Case No. 00-4070 (MFW), Adv. Pro. No. 11-50467 (MFW) (March 30, 2011) (J. Walrath)

PRS Insurance Group, Inc. (“PRS”), along with certain of its subsidiaries, commenced cases under Chapter 11 of the Bankruptcy Code on January 19, 2001. Sean C. Logan serves as Trustee in the cases and, subsequent to the initial filing, the Trustee commenced chapter 11 cases on behalf of certain off-shore affiliates of PRS, including Enterprise Group Insurance Company Ltd. (“EGIC”). On March 2, 2007, the Court entered an order confirming the Joint Debtors’ Plan of Liquidation, which became effective on August 24, 2007.

On March 16, 2010, the Trustee, on behalf of EGIC, filed suit in the District Court for the Northern District of Ohio against Westchester Fire Insurance Company and ACE INA Holdings, Inc. (the “Defendants”) for breach of two reinsurance agreements and bad faith refusal to pay claims. The action was transferred to the District Court for the District of Delaware on October 28, 2010. The Trustee filed a motion to refer the action to the Bankruptcy Court on December 12, 2010, and the District Court granted the Trustee’s request but limited the referral to the determination of whether the action constitutes a core proceeding under the Bankruptcy Code. Though the Trustee asserted that the matter was a core proceeding under 28 U.S.C. § 157(b)(2)(E) because it is an “[order] to turn over property of the estate,” the Bankruptcy Court agreed with the Defendants that the matter was non-core.

Discussion:

Bankruptcy court jurisdiction is divided into “core” and “non-core” jurisdiction. Cases under title 11, proceedings arising under title 11, and proceedings arising in a case under title 11 are core proceedings. However, proceedings that are merely “related to” a case under title 11 are non-core. The Defendants argued, and the Court agreed, that the proceeding at bar was not within the Court’s jurisdiction “under” title 11 or “arising under” title 11 as the action was separate from the bankruptcy petitions and did not involve any steps in the bankruptcy cases.

Defendants further argued, and the Court again agreed, that the cause of action did not fall within the Court’s “arising in” jurisdiction, citing numerous courts that had held that an action by a debtor or trustee against the debtor’s insurer is a non-core proceeding. See, e.g., In re United States Brass Corp., 110 F.3d 1261, 1268 (7th Cir. 1997); Allied Prod. Corp. v. Hartford Accident & Indem. Co., 2003 U.S. Dist. LEXIS 2596, *5 (N.D. Ill. Feb. 24, 2003); In re Ramex Int’l, Inc., 91 B.R. 313, 315 (E.D. Pa. 1988); G-1 Holdings, Inc. v. Hartford Accident & Indem. Co. (In re G-1 Holdings, Inc.), 278 B.R. 376, 380 (Bankr. D.N.J. 2002). Reasoning that the action was for breach of two reinsurance agreements and bad faith refusal to pay claims – neither of which involved a dispute that could arise only in the context of a bankruptcy case – the Court declined to find core jurisdiction.

Finally, the Court was unpersuaded by the Trustee’s argument that the action may impact the size of the liquidating trust and remarked that “the Court may not even have ‘related to’ jurisdiction over the Trustee’s action” because “a court may only exercise jurisdiction [post-confirmation] where a claim has ‘a close nexus to the bankruptcy plan or proceeding’ and the matter at issue ‘affects the interpretation, implementation, consummation, execution, or administration of a confirmed plan or incorporated litigation trust agreement.’” “The mere potential to increase the assets of a post-confirmation trust is insufficient to establish the required ‘close nexus.’”

Accordingly, for the reasons set forth above, the Court held that the proceeding was non-core.

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 In re: Midway Games Inc., Case No. 09-10465 (KG); Threshold Entertainment, Inc. v. Midway Games Inc., et al., Adv. Case No. 09-51081 (KG)(March 29, 2011) (J. Gross)

Following their bankruptcy, Midway Games Inc. and its affiliated debtors (the “Debtors” or “Midway”) sold their assets to Warner Bros. Entertainment Inc. (“WBEI”). Threshold Entertainment, Inc. (“Threshold” or “Plaintiff”) initiated an adversary proceeding (the “Adversary”) against the Debtors and sought declaratory relief with respect to certain license and intellectual property rights (the “Intellectual Property Claims”) relating to Midway’s series of Mortal Kombat videogames. Threshold also objected (the “Objection”) to the asset sale (the “Sale”) to WBEI and the parties agreed to resolve the Objection by including language in the Sale Order that made the purchase subject to Threshold’s Intellectual Property Claims, if any. The Court entered the Sale Order on July 1, 2009.

Relating to the Adversary, the Court was asked to rule on Threshold’s motions to: (1) substitute WBEI as a defendant pursuant to Rule 25 of the Federal Rules of Civil Procedure and 2) transfer the Adversary to the District Court for the Central District of California. WBEI, in turn, argued that the Delaware Bankruptcy Court (the “Court”) lacked subject matter jurisdiction over these matters because the Sale relieved the Debtors of any interest in the outcome of the Adversary or Mortal Kombat. As discussed below, the Court found that it lacked jurisdiction over the Adversary, denied Threshold’s motions and dismissed the Adversary.

Discussion:

The Court dismissed the Adversary finding that it did not have subject matter jurisdiction over the Adversary. With respect to non-core proceedings, the Court noted, a bankruptcy court will have jurisdiction over such matters only if they are sufficiently “related to” the bankruptcy estate.  See Binder v. Price Waterhouse & Co., LLP (In re Resorts Int’l, Inc.) 372 F.3d 154, 162 (3d Cir. 2004) (bankruptcy court jurisdiction potentially extends to four types of title 11 matters). Quoting Pacor Inc. v. Higgins, (In re Pacor), 743 F.2d 984, 994 (3d Cir. 1984) the Court set forth the test for “related to” jurisdiction, which is “whether the outcome of [a] proceeding could conceivably have any effect on the estate being administered in bankruptcy.” Because the Intellectual Property Claims could have no conceivable effect on the bankruptcy estate, the Court, therefore, declined to retain jurisdiction of the Adversary. The Court reasoned that the dispute was between two related third parties – Threshold and WBEI, and the property, Mortal Kombat, was sold and therefore, was no longer part of the estate. The dispute did not concern the terms of the Sale or anything that may have placed the Debtors’ estate at risk. As such, the Court dismissed the Adversary and denied Threshold’s motions.

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In re: J. Silver Clothing, Inc., Chapter 7, Case No. 05-10522 (PJW); Burtch v. Connecticut Community Bank, N.A. d/b/a The Greenwich Bank, Adv. Pro. No. 07-50814 (KG) (April 29, 2011) (J. Gross)

Summary:

The Chapter 7 Trustee (the “Trustee”) filed a Complaint seeking, inter alia, to avoid Debtor’s transfer of a security interest in substantially all of its assets to Connecticut Community Bank, N.A. d/b/a The Greenwich Bank & Trust Company (the “Bank”), which occurred with the preference period. The Court was first asked to determine whether the transfer met the requirements of section 547(c)(1). The Court determined that the transfer met both of the requirements of the subsection as the transfer was intended by the debtor and the creditor to be a contemporaneous exchange and was, in fact, a contemporaneous exchange.

Discussion:

The during the fall of 2004, the Debtor entered into a revolving credit loan in an amount that would not exceed $1 million (the “Loan”). The Loan closed on December 1, 2004. Debtor entered into a Loan and Security Agreement (the “Loan Agreement”) with the Bank and Debtor executed a Credit Agreement and Commercial Revolving Loan Note (the “Note”). The Bank required a first lien on all of Debtor’s business assets, excluding real estate. The Bank also required a guarantee from co-defendant James Fuld (“Fuld”). The guarantee provided a more timely closing, a lower interest rate and more favorable repayment terms.

The Bank’s first lien covered substantially all of the Debtor’s assets. To ensure its first lien position, the Bank caused Debtor to file UCC-3’s cancelling prior recorded security interests in Debtor’s assets and certificate that no liens existed in Delaware. The Bank also required Fuld to subordinate his notes. However, problems ensued when the Bank attempted to perfect its security interest in the Collateral. Bank’s counsel mailed its UCC-1 to the Delaware Division of Corporations on December 3, 2004, one day after the Bank made its first distribution under the Loan. The Division of Corporations rejected the First UCC-1 and on December 20, 2004, counsel mailed a second, corrected UCC-1. The Debtor filed its own UCC-1 on December 30, 2004. The Bank’s Second UCC-1 was filed on January 4, 2005. 

Thereafter, in mid-January 2005, the Debtor sold 29 stores for $1.4 million to Hoffman Acquisition Corp. (“Hoffman”). Hoffman required the Bank to release its lien on the Debtor’s assets. The sale closed on February 16, 2005 and as required by the Loan Agreement, Hoffman, on Debtor’s behalf, paid the Bank $485,569.95 (the “Repayment”) which the Debtor owed, thereby enabling the Bank to release its lien. Debtor then filed its petition under chapter 11 of the Bankruptcy Code on February 25, 2005. The case was subsequently converted to a chapter 7. The Trustee’s claims arise from the Loan and the Repayment.

The Court granted summary judgment in favor of defendants. The Court found that the Debtor’s transfer of the security interest in the Collateral to the Bank was intended by the parties as a contemporaneous exchange for the Bank’s $1 million credit loan to Debtor (under section 547(c)(1)(A)) and was in fact, substantially contemporaneous (under section 547(c)(1)(B)). First, the Court determined that the documents underlying the Loan supported a finding that the parties intended for the exchange to be contemporaneous. Not only did the Bank offer evidence that the Loan was contemplated only with a first priority lien on the Collateral and Fuld’s Guarantee, the Defendants also provided direct evidence that the Debtor intended and took action to provide the Bank with a first lien on the Collateral. The Debtor was required to file a UCC-3 and also filed a UCC-1.

Next, under section 547(c)(B), the Court refused to adopt a bright-line rule in interpreting section 547(e). The Court concluded that Section 547(e) does not inform the “substantially contemporaneous” requirement of section 547(c). Rather, the Court noted that the modifier “substantial” makes it clear that contemporaneity is a flexible concept which requires a case-by-case inquiry into all relevant circumstances. The Court looked to the totality of the circumstances, including reasons for the delay, the intent of the parties, and the possibility of fraud.

The Court also dismissed the remaining causes of action, including these alleging a fraudulent transfer. The Court concluded that the Bank had a valid, perfected security interest and was over secured. Therefore, there was no question that the Debtor received reasonably equivalent value for the repayment on the Loan. 

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In re: NEC Holdings Corp., et al., Chapter 11, Case No. 10-11890 (PJW); NEC Holdings Corp., et al. v. Linde LLC, et al., Adv. Proc. No. 11-51129 (PJW) (J. Walsh) (May 4, 2011, amended May 18, 2011)

The Court was asked to determine whether environmental claims were core or non-core. Debtors commenced an adversary proceeding against Linde LLC and related entities (“Linde”) seeking recovery of costs, contribution and declaratory relief relating to environmental liabilities of real property located at 400 Clermont Terrance in Union, New Jersey.

The Union property is the Debtors sole remaining substantial tangible asset. Linde was the prior owner of the Union property. The Debtors filed an adversary proceeding seeking recovery for costs and contribution and declaratory relief under CERCLA; contribution under the New Jersey Sill Act and contribution under the New Jersey Joint Tortfeasors Contribution Law. Debtors assert that the claims are core proceedings under section 157(b)(2)(A) and (O). The Defendants moved for a determination that the claims are non-core.

Discussion:

The Court first looked to the non-exhaustive list of core proceedings in section 157(b)(2) of the Bankruptcy Code. The Court then performed a claim-by-claim two-step test by reviewing whether the claim (1) invokes a substantive right provided by title 11 or (2) is a proceeding, that by its nature, could arise only in the context of a bankruptcy case. See In re Exide Technologies, 544 F.3d 196, 206 (3d Cir. 2008).

The Court did not accept the Debtors’ arguments that these claims were core. Debtors asserted that the claims fall under section 157(b)(2)(A) covering “matters concerning the administration of the estate” or section 157(b)(2)(O) covering “other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims.” 

In ruling for Defendants, the Court held that the claims do not involve any substantive rights arising under the Bankruptcy Code. Further, the claims could arise outside of the bankruptcy context. Thus, even if the claims fit into section 157(b)(2)(A) or (O), they did not satisfy the two-step test for core proceedings. 

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In re: DBSI, Inc., Case No. 08-12687 (PJW); Zazzali v. Wavetronix LLC, et al., Adv. Case No. 10-55963 (March 4, 2011) (J.Walsh)

The trustees of the DBSI Estate Trust and the DBSI Litigation Trust (collectively, the Trustees) filed counts, set forth in the Complaint, against the Individual Defendants alleging theories including fraudulent conveyances, personal guaranty, breach of fiduciary duties, unjust enrichment and breach of contract concerning the DBSI enterprise’s business activities and specifically, those activities relating to DBSI’s investment in technology companies.  

The Complaint alleges that the investments were structured as loans from Stellar Technologies LLC (“Stellar”), a holding company majority-owed by DBSI Inc. (“DBSI”) and that these unproductive investments benefitted only the DBSI insiders by way of tax advantages that otherwise would have belonged to the DBSI companies. During the four years prior to the petition date, DBSI transferred over $10 million to Wavetronix LLC (“Wavetronix”) through a DBSI affiliate, DBSI Redemption Reserve (“DRR”). Stellar owned approximately 60% of Wavetronix and defendants David Arnold (“Arnold”) and Michael Jensen (“Jensen”) owed the remaining 40%. The individual defendants include Arnold, his wife Linda and Jensen (collectively, the “Individual Defendants”). A primary issue in this dispute was whether the funds transferred through DRR were capital contributions or loans to Wavetronix. The Trustees alleged that the transfers were loans. The Individual Defendants moved to dismiss the Complaint as failing to adequately plead any of the causes of action against them. The Court granted the motion. 

Discussion:

The Court dismissed each of the causes of action against the Individual Defendants. The Trustees were permitted to refile the Complaint as to the fraudulent conveyances (counts 1-6) and counts 15 (breach of fiduciary duties) and 16 (unjust enrichment). With regard to alleged fraudulent transfers, the Court cited AstroPower Liquidating Trust v. Xantrex Tech., Inc. (In re AstroPower Liquidating Trust), 335 B.R. 309, 333 (Bankr. D.Del. 2005) to require that the Complaint must set forth facts with sufficient particularity to apprise the defendants fairly of the charges made against them so that they can prepare an adequate answer. The Plaintiff, through the Complaint, must identify one of the following four factors: 1) the date of the transfer, the amount of the transfer, the name of the transferor, and the name of the transferee. See Giuliano v. U.S. Nursing Corp. (In re Lexington Healthcare Group), 339 B.R. 570, 575 (Bankr. D.Del. 2006). The Complaint failed to identify any transfers made to the Individual Defendants or for their benefit to sufficiently plead fraudulent transfer actions.  

The Court then turned to the remaining claims. With regard to the alleged breach of the personal guaranty (count 14), the Court reviewed the language set forth in the guaranty and determined that it covered claims made on or prior to December 31, 2008 and expired without any claims having been made during the duration. As such, the count was dismissed with prejudice. With regard to an alleged breach of fiduciary duty (count 15) and unjust enrichment (count 16), the Court concluded that the Trustees failed to provide any specific allegations. Finally, the Court dismissed count 17 (breach of operating agreement) with prejudice based on the language of the operating agreement that precluded Arnold or Jensen from being deemed delinquent.

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Burtch v. Huston (In re USDigital, Inc.), Case No. 09-10374 (CSS), Adv. Pro. No. 09-50469 (CSS) (January 5, 2011) (J. Sontchi)

On March 26, 2007 (the “Petition Date”), USDigital filed a voluntary Chapter 7 petition, subsequent to which Jeoffrey L. Burtch was appointed as successor interim Chapter 7 Trustee (the “Trustee”). The Trustee filed a complaint on March 18, 2009 seeking to avoid prepetition transfers and alleging breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty, usurping corporate opportunity, corporate waste, unjust enrichment, accounting, disallowance of claims, equitable subordination, and recharacterization against NexGen Telecom, LLC (“NexGen”), Infinidi Media, Inc. (“Infinidi Media”), Stonebridge Marketing, LLC (“Stonebridge”), and directors of USDigital, Inc. (collectively, the “Defendants”).

On November 12, 2009, the Defendants filed a motion to dismiss, to which the Trustee objected on January 14, 2010. The Defendants filed a reply brief on February 12, 2010 and the Court entered its order and issued its opinion on January 5, 2011.

By way of background, USDigital was one of four separate, but interconnected, corporations formed between 2003 and 2006. The corporate quartet consisted of: (1) USDigital; (2) USDigital Television, LLC (“USDTV”); (3) NexGen; and (4) Infinidi Media. Each of these corporations shared the same source of capital, had many of the same directors and officers, and entered into transactions with one another. In relevant part, on June 13, 2006, USDTV executed a promissory note in favor of NexGen in the amount of $104,160.00 secured by set top boxes owned by USDTV, which transaction was documented by a security agreement (the “USDTV Security Agreement”). 

Following USDTV’s bankruptcy petition in 2007, USDigital and USDTV entered into an asset purchase agreement (the “APA”) for the sale of substantially all of USDTV’s assets to USDigital, as well as USDigital’s assumption of USDTV’s liabilities to NexGen including the USDTV Security Agreement, which sale was approved on September 12, 2006.

Discussion:

The Court’s ruling and rationale concerning each of the counts of the complaint are set forth below.

Count I: Preferential Transfers to NexGen

Count I of the Complaint alleged that USDigital made two preferential transfers to NexGen: (i) a security interest in the set top boxes, and (ii) a $44,421 payment for expense reimbursement for a payment NexGen made to ESPN on USDTV’s behalf. The issue with respect to both transfers was whether the payment was made “for or on account of an antecedent debt,” as required by 11 U.S.C. § 547(b)(2). The Court determined that neither payment was made on account of an antecedent debt because: (i) the transfer of the security interest occurred on the same day as USDigital incurred the obligation to make such transfer, both of which events either occurred on the date USDigital entered into the APA or on the date the Court approved the asset sale; and (ii) the expense reimbursement payment was made on August 8, 2006, comfortably before the Debtor became obligated to make such payment pursuant to the September 12, 2006 approval of the APA. Accordingly, Count I was dismissed.

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Wahoski v. Classic Packaging Co. (In re Pillowtex Corp.), Adv. Pro. No. 05-30182 (KJC) (April 14, 2010) (J. Carey)

John Wahoski, as liquidating trustee of Pillowtex Corporation (the “Liquidating Trustee”) sought to recover $61,761.32 in allegedly preferential payments (the “Transfers”) from Classic Packaging Company (“Classic”), which had sold plastic bags and packaging printed with the Pillowtex brand names to the Debtors prior to the petition date.  The Liquidating Trustee was also pursuing a claim to recover allegedly fraudulent transfers. 

Classic filed a motion for summary judgment with regard to the Transfers, arguing that the ordinary course of business defense applied to each Transfer and a motion to dismiss arguing that the complaint did not set forth fraudulent transfer claims with sufficient specificity.  For the reasons articulated below, the Court denied the motion for summary judgment and granted the motion to dismiss.

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Mervyn’s LLC v. Lubert-Adler Group IV, LLC (In re Mervyn’s Holdings, LLC), Adv. Pro. No. 08-51402 (KG) (March 12, 2010) (K. Gross).

The Official Committee of Unsecured Creditors (the “Committee”) asserted a subsequent transferee claim pursuant to 11 U.S.C. § 550(a)(2) against Bank of America (in its capacity as successor trustee of a trust) to recover certain liens granted to the former trustee on transferred real estate. Due to numerous omissions in the original Complaint, which Bank of America addressed in a timely filed motion to dismiss, the Committee sought to amend its Complaint. Bank of America opposed the amendments, arguing that they would prove futile because Bank of America was not a “transferee” for purposes of 11 U.S.C. § 550.

The Court agreed with Bank of America, denying the Committee’s Motion to Amend as futile and granting Bank of America’s Motion to Dismiss.

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JELD-WEN, Inc. v. Brunt (In re Grossman’s, Inc.), Nos. 97-00695, Adv. No. 07-51602 (Bankr. D. Del. June 9, 2008) (Judge Peter J. Walsh)

The Bankruptcy Court confirmed Grossman’s chapter 11 plan for reorganization in December 1997 in which all claims against Grossman’s were discharged.  Approximately ten years later, Mary and Gordon Van Brunt sued JELD-WEN, as successor in interest to Grossman’s, for injuries allegedly caused by materials sold by Grossman’s that contained asbestos.  JELD-WEN contended that these state court claims were discharged by the confirmed plan and commenced an adversary proceeding against the Van Brunts seeking (i) a permanent injunction enjoining defendants’ prosecution of claims against JELD-WEN; (ii) a determination that these claims were discharged; and (iii) an award of damages.

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Miller v. McCown De Leeuw & Co., Inc. (In re Brown Schools), No. 05-10841, Adv. No. 06-50861 (Bankr. D. Del. April 24, 2008) (Judge Mary F. Walrath)

The Bankruptcy Court reaffirmed that Delaware does not recognize a deepening insolvency cause of action. However, the Court determined that a breach of the duty of loyalty claim could still be asserted. Unlike a breach of the duty of care, a breach of the duty of loyalty is not a disguised deepening insolvency claim. Further, damages based on deepening insolvency could be used in the damages calculations. Finally, a claim for aiding and abetting fraudulent transfers is not a recognized cause of action in Delaware.

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MAS Litigation Trust v. Plastech Engineered Prods. (In re Meridian Automotive Sys.-Composite Ops. Inc.), Adv. Pro. No. 07-51196 (KG), 2007 WL 4322527 (Bankr. D. Del. Dec. 5, 2007) (Judge Kevin Gross)

Plastech Engineered Products, Inc., a defendant in an avoidance action commenced by the MAS Litigation Trust, moved to dismiss the plaintiff’s amended complaint on the grounds that, inter alia, the new claims set forth in the amended complaint did not relate back to the original complaint.  In a matter related to one we discussed here last week, The United States Bankruptcy Court for the District of Delaware granted the motion, finding that the new claims did not seem to arise out of the same transactions described in the original complaint.  However, the Court granted the plaintiff twenty days to amend the complaint, if it could allege facts sufficient to show the additional claims related back to the original ones.

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MAS Litigation  Trust v. Plastech LDM (In re Meridian Automotive Sys.-Composite Ops., Inc., Case No. 05-11168 (MFW), Adv. Pro. No. 07-51195 (KG), 2007 WL 4292130 (Bankr. D. Del. Dec. 5, 2007) (Judge Kevin Gross)

The trustee of the litigation trust for the estate of debtor Meridian Automotive Systems, Inc. attempted to serve an adversary complaint by naming and serving an entity that does not exist, and addressed such service to an incorrect address and without addressing service to an officer or agent of the defendant.  On the putative defendant’s motion, the United States Bankruptcy Court for the District of Delaware dismissed the complaint, finding that service did not comport with the requirements of Fed. R. Bankr. P. 7004(b)(3).

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Asurion Ins. Servs., Inc. v. Amp’d Mobile, Inc. (In re Amp’d Mobile, Inc.),  377 B.R. 478  (Bankr. D. Del. 2007) (Judge Brendan Linehan Shannon)

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Stanziale v. Pepper Hamilton LLP (In re Student Finance Corp.), No. 04-1551 (JJF), 2007 WL 2936195 (D. Del. Oct. 5, 2007) (Judge Joseph J. Farnan, Jr.)

In this adversary proceeding in the United States District Court for the District of Delaware, certain defendants moved to strike damages claims alleged by the trustee of the estate of Student Finance Corporation.  The Court granted the motion, finding that the trustee failed to provide fair notice of these damages claims, as required under Fed. R. Civ. P. 8(a) (made applicable to this adversary proceeding by Fed. R. Bankr. P. 7008(a)). 

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Haskell v. Goldman, Sachs & Co. (In re Genesis Health Ventures, Inc.), 367 B.R. 516 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

In this adversary proceeding commenced by investors in reorganized debtor Genesis Health Ventures, the non-debtor defendants requested leave of the United States District Court for the District of Delaware to take an interlocutory appeal from a decision of the Bankruptcy Court denying the defendants, who were senior secured debt holders, the protections of 11 U.S.C. § 1144. The defendants moved for a stay of proceedings pending the district court’s decision. The bankruptcy court granted a limited stay of the proceedings, balancing the need to move forward with the possibility that the request may remain before the district court for an extended period without being decided.

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Consolidated SWINC Estate and SWE&C Liquidating Trust v. ACE USA, Inc. (In re Stone & Webster, Inc.), 367 B.R. 523 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

The liquidating trusts of the Stone & Webster debtors commenced an adversary proceeding against insurers of the debtors in connection with a coverage dispute that had been waged for many years, including well before the petition date. The insurers moved for a determination of the core/non-core status of the adversary proceeding. The United States Bankruptcy Court for the District of Delaware determined that the suit was merely a pre-petition state law breach of contract action over which the court had no jurisdiction under the United States Supreme Court’s decision in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71 (1982).

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Forklift LP Corp. v. iS3C, Inc. (In Re Forklift LP Corp.), 363 B.R. 388 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

In connection with pending litigation over a failed post-petition software upgrade, the plaintiff asserted that even if its challenge to defendant’s right to payment was unsuccessful, the defendant’s administrative claim was subject to the provisions of the confirmed Plan, which, the plaintiff contended, resulted in defendant receiving less than full payment. Defendant moved for partial summary judgment on its right to receive payment in full, arguing that the Plan was ambiguous. The Court agreed, and held that the ambiguity in the Plan would not deny defendant its right to payment in full in light of the clear language of the Confirmation Order, the Disclosure Statement and the doctrine of judicial estoppel.

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Integrated Water Res., Inc. v. Shaw Envntl., Inc. (In re IT Group, Inc.), 361 B.R. 417(Bankr. D. Del. 2007) (Judge Mary F. Walrath)

The Plaintiff in this adversary proceeding sought to amend its complaint to add a claim for breach of contract against the IT Trust. The Plaintiff asserted that the Trust had violated the terms of a settlement agreement and releases contained therein by assigning its claims against the Plaintiff to a third party. The Court granted the motion to amend, finding that there was no undue delay by the Plaintiff, there was no undue prejudice to the Trust, and that the proposed amendment was not futile.

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In re Scott Acquisition Corp., 364 B.R. 562 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

The Chapter 7 Trustee of the estate of debtors Scott Acquisition Corporation and Scotty’s Inc. filed a complaint against the debtors’ pre-petition counsel, asserting legal malpractice, breach of fiduciary duty and fraudulent transfer claims. The claims arose from a series of transactions between the debtors and insiders of the debtors, in which the defendants represented both the debtors and the insiders. The defendants filed a motion to dismiss the legal malpractice and breach of fiduciary duty claims, asserting that the trustee was estopped from prosecuting those claims by the equitable defense of in pari delicto. The United States Bankruptcy Court for the District of Delaware granted the motion, finding the in pari delicto defense barred those claims, but permitted the fraudulent transfer count to go forward.

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Fruehauf Trailer Corp. v. Nat. Union Fire Ins. Co. of Pittsburgh, PA (In re Fruehauf Trailer Corp.), Case Nos. 96-1563–1572, Adv. Pro. No. 98-514, 2007 WL 676248 (Bankr. D. Del. March 2, 2007) (Judge Peter J. Walsh)

The defendants filed this motion to dismiss for failure to prosecute under Federal Rule of Civil Procedure 41(b), after a period of inactivity in the instant adversary proceeding of more than five years. The court denied the motion, finding that the plaintiff asserted cognizable claims, and that the most drastic sanction of dismissal was inappropriate. The Court held that giving the defendants the benefit of the doubt in all issues of fact that became vague as a result of the passage of time was sufficient to counter-balance the prejudice to defendants caused by the delay. In addition, the Court found that it was obliged to refer the matter to arbitration, pursuant to the agreement between the debtor and the defendants.

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Shaw Group v. Bechtel Jacobs Co. (In re IT Group, Inc.), 359 B.R. 90 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)

Shaw Group, successor to the Debtors in this case under an Asset Purchase Agreement, prevailed on its Motion for Summary Judgment against contractor Bechtel Jacobs with respect to its breach of contract and unjust enrichment claims against Bechtel, by an order of the Court dated September 21, 2006. Shaw then moved for prejudgment interest, and the Court granted the motion, holding that the Contracts Dispute Act governed this question.

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Banks v. Moore (In re Banks), No. 06-1828, 204 Fed. Appx. 141, 2006 WL 2818950 (3d Cir. Oct. 3, 2006) (per curiam)

This court of appeals ruling affirming a default judgment in favor of a creditor in an adversary action on non-dischargability turned on the principle that “the debtor who failed to keep the court apprised of his proper mailing address has only himself to blame.” In this case, the debtor’s new address was the county jail. This decision was entered per curiam and is marked as “not precedential.”

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