480 B.R. 820
Bankr. N.D. Ill.2012Background
- BCI sold to Sun Capital in 2005 via an LBO structure involving Barsaled and Holdings, with Sun providing most financing and taking control post-closing.
- The sale terms kept real estate and excess cash out of Sun’s purchase, with a plan to refund excess working capital to ensure liquidity after closing.
- After closing, Sun replaced Sellers on BCI’s board and pursued aggressive financing and cost strategies, including large inventory markdowns and adverse operating changes.
- BCI later filed for Chapter 11 in 2006; Sun’s secured claim was asserted and challenged through an adversary proceeding alleging fraudulent transfers.
- A core question was whether the bankruptcy court could render final judgments on fraudulent transfer counts after Stem v. Marshall, and whether the sale/LBO could be collapsed for purposes of liability; the court ultimately adjudicated the claims and found no collapse and no insolvency.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Core jurisdiction post-Stem | Stem permits final judgment in core claims | Stem narrows core scope; may not justify final judgment | Court may render final judgment on core claims |
| Collapsing the LBO transactions | LBO should be collapsed into one transaction | Transactions not collapsing; no interdependence shown | Collapsing not warranted; not treated as one transaction |
| Insolvency/undercapitalization | BCI insolvent or undercapitalized due to LBO | No insolvency or undercapitalization; projections and capital were adequate | BCI not insolvent or undercapitalized; no liability from insolvency |
| Consent to final adjudication by the bankruptcy court | Consent existed via core designation and conduct | Consent insufficient if core/subject matter improper | Consent evidenced; bankruptcy court authorized to enter final orders and judgment |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (limits bankruptcy court power without consent)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (fraudulent transfer actions precede proceedings; overview of core vs. non-core)
- Langenkamp v. Culp, 498 U.S. 42 (1990) (filing a proof of claim subjects creditor to bankruptcy court jurisdiction)
- In re Ortiz, 665 F.3d 906 (7th Cir.2011) (Seventh Circuit approach to core vs. non-core and overlap with claims)