562 B.R. 614
Bankr. D. Del.2016Background
- Debtors (Millennium Lab) filed Chapter 11 after incurring about $1.8 billion under a 2014 Credit Agreement; a prepackaged plan confirmed Dec. 14, 2015 created two post-confirmation trusts (Corporate Trust and Lender Trust) and appointed Marc S. Kirschner trustee of both.
- The Corporate Trust holds debtor-retained claims for the benefit of holders of claims related to the 2014 Credit Agreement (Class 2); the Lender Trust holds claims contributed by the Consenting Lenders (benefiting those lenders).
- Trustee filed a Rule 2004 motion post-confirmation seeking targeted discovery from banks, Simpson Thacher (counsel), and KPMG to investigate the causes of the Debtors’ collapse and identify potential prepetition claims.
- Objectors (JPMorgan, Citigroup, BMO, SunTrust, Simpson Thacher, KPMG) argued lack of post-confirmation jurisdiction, overbroad/untimely 2004 discovery, and (KPMG) that its engagement letter’s arbitration clause governs discovery.
- The Trustee represented the 2004 requests are an initial investigation (no litigation decision yet) and that existing debtor documents are insufficient to evaluate potential claims.
- The court held it has subject-matter jurisdiction over the post-confirmation Rule 2004 motion, granted the motion as to the Corporate Trust, denied it as to the Lender Trust, and ruled the KPMG arbitration clause does not bar the 2004 examination.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject-matter jurisdiction over a post-confirmation Rule 2004 motion | Trustee: Rule 2004 "arises in" Title 11; bankruptcy court has core jurisdiction regardless of post-confirmation status | Objectors: Post-confirmation "related to" test (Resorts) applies; no close nexus to plan so no jurisdiction | Court: 2004 "arises in" Title 11; Resorts close-nexus test not required; court has jurisdiction |
| Whether Rule 2004 discovery is appropriate for Corporate Trust claims | Trustee: Good cause; 2004 necessary to discover estate claims, assets, and wrongdoing tied to 2014 Credit Agreement | Objectors: Requests are overbroad, burdensome, and not justified by good cause | Court: Trustee showed good cause for Corporate Trust investigations; granted (subject to meet-and-confer on scope) |
| Whether Rule 2004 may be used to investigate claims belonging to the Lender Trust (non-debtor creditor claims) | Trustee: Trustee serves both trusts and requests unified discovery | Objectors: Lender Trust claims are third-party creditor claims, outside Rule 2004’s purpose; improper use as private collection tool | Court: Denied for Lender Trust—2004 cannot be used to pursue private non-debtor creditor claims |
| Whether KPMG engagement letter arbitration clause bars Rule 2004 discovery | KPMG: Engagement agreement requires mediation/arbitration of disputes; 2004 discovery falls within clause | Trustee: 2004 is investigatory (not a "dispute or claim") and precedes any claim—clause not triggered | Court: Arbitration clause inapplicable to Rule 2004 investigation; KPMG can assert arbitration later if/when a specific claim is filed |
Key Cases Cited
- In re Resorts Int’l, 372 F.3d 154 (3d Cir.) (post-confirmation "close nexus" test for "related to" jurisdiction)
- In re Seven Fields Dev. Corp., 505 F.3d 237 (3d Cir.) (once a matter "arises in" Title 11, close-nexus test is unnecessary post-confirmation)
- Stoe v. Flaherty, 436 F.3d 209 (3d Cir.) (bankruptcy jurisdiction categories and analysis)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.) (standard for "related to" jurisdiction pre-confirmation)
- Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220 (1987) (Federal Arbitration Act requires rigorous enforcement of arbitration agreements)