598 B.R. 179
Bankr. W.D. Pa.2019Background
- The Dille Family Trust (the putative debtor) filed a Chapter 11 petition amid competing federal lawsuits over alleged "Buck Rogers" intellectual property rights; beneficiaries and third parties contested the filing as a litigation tactic.
- Objectors (Team Angry Filmworks/Don Murphy, beneficiaries Lorraine Williams and Robert Flint Dille, and Nowlan Family Trust) moved to dismiss, arguing the Trust is an ordinary family/spendthrift trust and not a "business trust" eligible under 11 U.S.C. § 109(d); bad-faith filing claims were also raised.
- The Court appointed a Chapter 11 Trustee for cause after finding no meaningful business operations, discovery obfuscation, and trustee/beneficiary conflict; the Trustee continued to pursue monetization and sale strategies, prompting renewed dismissal motions.
- The Trustee and non‑bankruptcy trustee (Louise Geer) argued the trust is a business trust; objectors pressed dismissal.
- The Court held an evidentiary and briefing process and concluded the Trust was created and operated as an estate‑planning/family (non‑business) trust, lacking indicia of corporateness (transferability, perpetual life, investor structure, bargained‑for exchange), and therefore ineligible to be a Chapter 11 debtor.
- The Court dismissed the bankruptcy with prejudice, mooted pending motions, preserved judgments allowing fees to professionals, and rejected waiver/estoppel defenses to dismissal timing; beneficiaries and creditors were found to have standing to pursue dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Dille Family Trust is a "business trust" eligible under 11 U.S.C. § 109(d) | Trust is an ordinary family/spendthrift trust created for estate planning, not business; thus ineligible | Trustee and Geer: trust has broad powers and engaged in IP licensing and commercialization, showing business trust attributes | Held: Not a business trust; primary purpose and trust instrument show estate‑planning/family trust lacking corporate indicia → ineligible; case dismissed with prejudice |
| Whether trust's business activity (licensing) converts it into a business trust | Movants: limited/licensed activity insufficient; trust documents control | Defendants: licensing, deals, and trustee powers show business operations and profit motive | Held: Business activity alone insufficient; must examine trust instrument and indicia of corporateness — here activity insufficient to overcome estate‑planning purpose |
| Whether movants waived or are estopped from seeking dismissal on eligibility grounds | Defendants argued prior withdrawals/settlement conduct barred later challenge | Movants: earlier withdrawal was without prejudice; reservation of rights; no inducement or clear abandonment | Held: No waiver/estoppel — withdrawal was without prejudice and movants reserved right to renew; doctrines do not bar dismissal |
| Standing to move to dismiss | Some movants (beneficiaries/claimants) have pecuniary interests affected by the bankruptcy | Defendants challenged standing of some movants (e.g., Murphy) | Held: At least three movants have pecuniary interests/claims; they have standing to seek dismissal under §1109(b) |
Key Cases Cited
- Americold Realty Tr. v. ConAgra Foods, Inc., 136 S. Ct. 1012 (U.S. 2016) (distinguishing ordinary trusts as fiduciary relationships from entities treated as separate legal persons)
- Field v. Mans, 516 U.S. 59 (U.S. 1995) (federal common‑law incorporation of terms of art in the Bankruptcy Code)
- GBForefront, L.P. v. Forefront Mgmt. Grp., L.L.C., 888 F.3d 29 (3d Cir. 2018) (contrast between traditional trusts and business trusts; relevance of bargained‑for exchange)
- Secured Equip. Tr. of E. Airlines, Inc. v. First Fid. Bank (In re Secured Equip. Tr.), 38 F.3d 86 (2d Cir. 1994) (multi‑factor test: corporate attributes, business purpose, business‑like activities, investor benefit, profit motive)
- Kenneth Allen Knight Tr. (In re Kenneth Allen Knight Tr.), 303 F.3d 671 (6th Cir. 2002) ("primary purpose" test — trusts created primarily to carry on commercial activity for profit qualify as business trusts)
- Morrissey v. Commissioner, 296 U.S. 344 (U.S. 1935) (historical discussion of business/Massachusetts trusts and indicia of corporate character)