454 B.R. 574
Bankr. D. Del.2011Background
- Moll Industries filed Chapter 11; HCMLP and related secured lenders held a prepetition secured loan facility including a Texas exit facility and a mezzanine note.
- Moll’s plan from Moll I (Texas) was confirmed in 2003; post-confirmation amendments in 2004 altered the secured loans.
- Moll and affiliates filed bankruptcy in Delaware (2010); Official Committee of Unsecured Creditors formed May 10, 2010.
- Committee filed Amended Complaint Oct 15, 2010 seeking recharacterization or equitable subordination of secured claims and avoidance of a security interest, plus alter ego against HCMLP.
- Secured Lenders and HCMLP moved to dismiss; the court granted in part and denied in part based on Rule 12(b)(6) and res judicata considerations.
- The court dismissed recharacterization and equitable subordination and alter ego claims, but allowed the avoidance claim against a Moll bank account to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Committee’s recharacterization claim states a claim | Committee argues the 2004 amendments show equity intent. | Lenders contend factors support debt, not equity; preexisting lender relationship applies. | Dismissed; no plausible recharacterization pleaded. |
| Whether the Committee’s equitable subordination claim states a claim | Inequitable conduct by HCMLP and affiliates harmed creditors. | No adequate conduct by lenders; equity not shown. | Dismissed; inequitable conduct not adequately alleged. |
| Whether the Committee may avoid the security interest in Moll's deposit account | Lenders lacked control; perfection lacking under UCC; avoidance warranted. | Elements of avoidance formulaic and well known; control present. | Denied; avoidance claim survives. |
| Whether the Committee’s alter-ego claim against HCMLP survives | HCMLP and Moll operated as a single economic entity. | Alter ego requires more thorough piercing through all layers; not shown. | Granted; alter ego claim against HCMLP dismissed. |
Key Cases Cited
- In re Exide Techs., Inc., 299 B.R. 732 (Bankr. D. Del. 2003) (eleven-factor framework for recharacterization)
- In re SubMicron Sys. Corp., 432 F.3d 448 (3d Cir. 2006) (contextual application of factors; case-by-case)
- Radnor Holdings Corp., 353 B.R. 820 (Bankr. D. Del. 2006) (single enterprise; forbearance and lender actions allowed)
- AutoStyle Plastics, Inc., 269 F.3d 726 (6th Cir. 2001) (sinking fund and debt vs. equity indicators)
- Winstar Commc'ns, Inc., 554 F.3d 382 (3d Cir. 2009) (inequitable conduct formal requirement for subordination)
- Foxmeyer, 290 B.R. 229 (Bankr. D. Del. 2003) (alter ego; scope of piercing; parent-subsidiary relationships)
- Heritage Org., L.L.C., 413 B.R. 438 (Bankr. N.D. Tex. 2009) (multi-layer alter-ego analysis; single enterprise concept)
- Holywell Corp. v. Smith, 503 U.S. 47 (U.S. 1992) (post-confirmation creditors not bound by plan)