557 B.R. 911
Bankr. S.D. Miss.2016Background
- Slabbed New Media, LLC (debtor) is a single-member LLC owned by Douglas Handshoe; schedules show minimal assets (~$48k) and large liabilities (~$485k), including a $425,000 indemnity claim tied to a Canadian defamation judgment against Handshoe personally.
- Debtor proposed a Chapter 11 small-business plan funded primarily by proceeds from pending or potential litigation, donations to its website, and a $10,000 personal contribution from Handshoe.
- Creditors (Leary, Perret, Trout Point Lodge) and the U.S. Trustee objected, arguing the plan lacked financial projections, conflated Handshoe’s personal liabilities with Slabbed’s, and relied on speculative litigation recovery.
- Court directed amended disclosures; Debtor amended schedules to list four lawsuits and the domain slabbed.org, but Slabbed was not party to three of the four identified actions.
- At the confirmation hearing the court found Slabbed had negligible, inconsistent income, no meaningful capital, and that proposed funding (donations, litigious recoveries, $10,000) was speculative.
Issues
| Issue | Debtor's Argument | Creditors/US Trustee Argument | Held |
|---|---|---|---|
| Feasibility of plan under §1129(a)(11) | Plan is feasible because litigation proceeds and donations will fund distributions; no duty to disclose litigation strategy | Funding sources are speculative; no concrete projections or commitments; most litigation is personal to Handshoe | Denied — plan not feasible; funding too speculative |
| Sufficiency of disclosure about litigation assets | Amended disclosure adequately identified lawsuits and assets (domain) | Disclosures still lacked specifics on where suits were or Slabbed’s real standing in them; jurisdictional and ownership issues | Court found disclosures insufficient to cure feasibility problem; litigation prospects unreliable |
| Whether Slabbed’s schedules improperly treat Handshoe’s personal debts as corporate liabilities | Debtor treated some judgments/claims as Slabbed assets/liabilities and assigned certain fee receivables to Slabbed | Creditors argued many debts are Handshoe’s personal obligations and thus not bankruptcy assets of Slabbed | Court recognized Handshoe and Slabbed are separate; many liabilities stem from Handshoe personally, undermining Slabbed’s plan funding |
| Appropriateness of dismissal for failure to confirm by agreed deadline | Debtor sought confirmation by extended deadline | US Trustee moved for dismissal if no confirmation by deadline; order set dismissal if no confirmed plan | Case dismissed per agreed order after confirmation denied |
Key Cases Cited
- Fin. Sec. Assurance Inc. v. T-H New Orleans Ltd. P’ship, 116 F.3d 790 (5th Cir. 1997) (court must make a specific feasibility finding)
- Save Our Springs (S.O.S.) Alliance, Inc. v. WSI (II)-COS, L.L.C., 632 F.3d 168 (5th Cir. 2011) (feasibility requires reasonable assurance, not speculative donor pledges)
- Heartland Fed. Sav. & Loan Ass’n v. Briscoe Enters., Ltd., II, 994 F.2d 1160 (5th Cir. 1993) (feasibility standard: reasonable assurance of commercial viability)
- In re Am. Capital Equip., LLC, 688 F.3d 145 (3d Cir. 2012) (plans hinging on future litigation are speculative and may fail feasibility)
- In re FRGR Managing Member LLC, 419 B.R. 576 (Bankr. S.D.N.Y.) (potential recovery from litigation insufficient to show feasibility)