497 B.R. 403
Bankr. S.D.N.Y.2013Background
- Two motions are before the Court: UMB Bank’s motion to dismiss counts 3 and 5, and the Committee’s motion to dismiss certain junior secured noteholder counterclaims.
- The cases were consolidated (Committee Adversary and Debtors’ Adversary) and later further proceedings consolidated; counterclaims followed.
- The Cash Collateral Order authorized use of cash collateral and provided adequate protection liens to the JSNs for diminution in value.
- The JSNs claim liens on collateral released by Wells Fargo as Collateral Agent; releases were effectuated via UCC-3 filings.
- An Examiner’s report and a Plan Support Agreement formed part of the factual/procedural backdrop, including a global Ally settlement.
- Key issues center on the extent and validity of JSN liens, the effect of collateral releases, and the proper treatment of post-petition interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Count III survives on the record. | Debtors/Committee argue releases removed collateral; the JSNs lack enforceable lien on released assets. | JSNs contend they retain liens on collateral that was released but remains part of their security. | Count III denied without prejudice pending fuller factual record. |
| Whether Count V should be dismissed or ripe given aggregation/valuation. | Aggregation across estates may be appropriate; need evidentiary record to value collateral and determine oversecured status. | Section 506(b) requires showing oversecured by aggregate value; argues for dismissal on pleadings. | Count V denied without prejudice pending evidentiary record. |
| Whether Counterclaims Seven, Nine, Twenty-two–Twenty-five, and Twenty-three are dismissible. | Avoidance actions and certain liens cannot be asserted as JSN collateral; releases and UCC filings affect validity. | Counterclaims challenge the validity/priority of releases and asserted liens. | Counterclaims Nine, Twenty-two, Twenty-three, Twenty-four, and Twenty-five dismissed with prejudice; others treated as described. |
| Whether the Collateral Agent’s releases were effective and enforceable against the JSNs. | Releases were authorized; UCC-3 filings properly executed by the secured party; releases are effective. | Releases could breach the Indenture/Pledge Agreement and require further inquiry. | Releases enforced; Counterclaims Twenty-two and Twenty-three dismissed with prejudice; Twenty-four and Twenty-five dismissed with prejudice. |
| Whether use of cash collateral creates diminution or adequate protection issues under 506(c). | Cash Collateral Order governs use; no separate 506(c) surcharge needed if adequate protection exists. | JSNs seek declaration to preserve rights to additional protections and potential surcharge. | Counterclaims Twenty-six and Twenty-eight dismissed with prejudice; Twenty-seven and Thirty dismissed without prejudice; Twenty-nine may be renewed. |
| Whether certain claims for post-petition interest are ripe. | Ripeness depends on whether JSNs are oversecured; requests depend on Count V outcome. | If oversecured, post-petition interest issues should be decided. | Denied without prejudice; can be renewed if oversecured status is determined. |
Key Cases Cited
- In re Delta Air Lines, Inc., 608 F.3d 139 (2d Cir. 2010) (contracts/intent and enforceability; unambiguous terms govern)
- In re Motors Liquidation Co., 486 B.R. 596 (S.D.N.Y. 2013) (authority of proper party to file UCC-3 releases; notice and priority)
- In re Tek-Aids Indus., Inc., 145 B.R. 253 (Bankr.N.D. Ill. 1992) (avoidance actions as post-petition property; estate ownership)
- In re Figearo, 79 B.R. 914 (Bankr.D. Nev. 1987) (distinction on attachment to avoidance recoveries)
- In re DeNofa, 124 F. App’x 729 (3d Cir. 2005) (prior proceedings on bifurcated valuation/oversecured issues)