Eletson Holdings Inc., 664 B.R. 569

Background

In 2018 Holdings and Finance issued First Preferred Ship Mortgage Notes (the "New Notes") under an Indenture with Wilmington as trustee; the Debtors defaulted in 2019 and interest/fees accrued per the Indenture.
The parties negotiated two Restructuring Support Agreements (RSAs); the Second RSA set milestones and contained a transfer restriction on the notes but was breached by the Debtors and later terminated/abandoned by noteholders.
Noteholders (including sales to Pach Shemen, VR Global, Alpine) and Wilmington (as indenture trustee) pursued remedies: Wilmington filed federal suit seeking unpaid principal/interest and later joined involuntary bankruptcy petitions; certain petitioning creditors sought administrative expense priority for costs of the involuntary filings.
Debtors objected to (a) several duplicative individual proofs of claim, (b) Wilmington’s secured prepetition and administrative claims and fees, and (c) administrative claims of Pach Shemen, VR Global, and Alpine (the Petitioning Creditors).
After evidentiary hearings, the Bankruptcy Court sustained the duplicative-claim objections, reclassified Wilmington’s secured prepetition claim to unsecured to the extent collateral had no value, allowed Wilmington’s administrative claim, reduced Wilmington’s prepetition claim to avoid double recovery, and allowed the Petitioning Creditors’ administrative claims in specified amounts.

Issues

Issue	Debtors' Argument	Creditors' Argument	Held
Are Gustafson, Fleishmann/Dorette, and Middle East claims duplicative of indenture trustee claims?	Those individual claims duplicate trustee-filed claims and should be disallowed.	Trustee claims cover all noteholders per Bar Date Order and Indenture; duplicates should be struck.	Sustained: individual claims disallowed as duplicative.
Are Wilmington’s prepetition claims properly secured and must Wilmington identify each noteholder (or be reduced for allegedly invalid holders like Pach Shemen/Alpine)?	Prepetition claims are unsecured (collateral was foreclosed) and should be reduced to exclude recovery for entities that are not valid noteholders; compel list of noteholders.	Wilmington filed representative claims per Indenture and Bar Date Order; claimant identity is not a 502(b) disallowance ground; Pach Shemen/Alpine validly acquired notes.	Partially overruled: reclassified as unsecured to extent collateral has no value; Wilmington may file on behalf of all holders; Pach Shemen/Alpine are valid noteholders.
Is Wilmington (and its counsel) barred from fees/administrative priority because of alleged bad faith in bringing litigation/joining involuntary petitions?	Wilmington took direction from disputed purchasers and acted despite the Second RSA/forbidden conduct; fees should be disallowed or reduced.	Wilmington had authority under Indenture, reasonably verified noteholder status, acted under direction letters with requisite majorities, and provided time records; fees are compensable under §§503(b)(3),(4).	Overruled: court finds no bad faith; Wilmington’s administrative fees allowed as reasonable; prepetition claim reduced to avoid double recovery.
Are Petitioning Creditors entitled to administrative expense priority for prosecuting the involuntary petitions and are their fees subject to setoff or disallowance for bad faith/invalid purchases?	Their purchases of notes were void under RSAs/OCM stipulation so they were not proper creditors; fees were self-serving or excessive and should be disallowed or subject to setoff.	Petitioning Creditors validly hold notes (RSA abandoned/terminated), claims for administrative fees are allowed under §§503(b)(3),(4), third-party payment of counsel does not bar recovery, and issues under §303 are moot after conversion.	Overruled: Petitioning Creditors are valid creditors; administrative expense claims allowed in the stated amounts; setoff rejected for lack of concrete liquidated claims.

Key Cases Cited

In re Rockefeller Ctr. Properties, 272 B.R. 524 (Bankr. S.D.N.Y. 2000) (prima facie validity of properly filed proof of claim and burden-shifting)
Jones v. Hirschfeld, 348 F. Supp. 2d 50 (S.D.N.Y. 2004) (contract abandonment may be inferred from conduct; requires clear, affirmative acts)
Savitsky v. Sukenik, 240 A.D.2d 557 (N.Y. App. Div. 1997) (abandonment where party acted inconsistently with contract and other party acquiesced)
In re Lavigne, 114 F.3d 379 (2d Cir. 1997) (material breach bars enforcement of contract by breaching party)
Nadeau v. Equity Residential Properties Mgmt. Corp., 251 F. Supp. 3d 637 (S.D.N.Y. 2017) (material breach inquiry and effect on contractual enforcement)
In re Key Auto Liquidation Ctr., Inc., 384 B.R. 599 (Bankr. N.D. Fla. 2008) (purpose of §§503(b)(3)(A) and (4) is to compensate petitioning creditors for costs of involuntary petitions)
Speer v. Clipper Realty Trust (In re Speer), [citation="771 F. App'x 25"] (2d Cir. 2019) (voluntary conversion of involuntary chapter 7 renders §303 issues moot)
In re 1031 Tax Grp., LLC, 397 B.R. 670 (Bankr. S.D.N.Y. 2008) (reservation of rights preserves claims but does not create them)
Willett v. Lincolnshire Mgmt., Inc., 302 A.D.2d 271 (N.Y. App. Div. 2003) (no right to setoff for speculative or unliquidated claims)
Correspondent Servs. Corp. v. J.V.W. Inv. Ltd., 524 F. Supp. 2d 412 (S.D.N.Y. 2007) (same principle on setoff and liquidated claims)