524 B.R. 598
Bankr. D. Del.2015Background
- Allied Systems emerged from a 2007 bankruptcy with Yucaipa as the sponsor; Yucaipa obtained control incentives and Allied obtained two credit facilities (First Lien and Second Lien).
- Allied’s business deteriorated in 2008; Yucaipa sought to acquire lender roles despite contractual restrictions, leading to amendments (Third and a disputed Fourth Amendment) and alleged manipulation of lender votes.
- ComVest became Requisite Lender; Yucaipa allegedly caused defaults and took steps to secure control, benefiting itself but not Allied.
- The Official Committee of Unsecured Creditors (with intervening petitioning creditors) sued CEO/director Mark Gendregske for breach of fiduciary duty and aiding and abetting those breaches; Committee obtained standing to prosecute.
- Procedurally, Gendregske moved to dismiss, moved for a determination that the claims are non-core, sought withdrawal of the reference, and demanded a jury; the court previously denied dismissal but then reconsidered core/non-core characterization.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Gendregske’s breach of fiduciary duty and aiding-and-abetting claims "core" under 28 U.S.C. § 157(b)? | Claims are core because they are intertwined with an equitable subordination claim against Yucaipa and affect the estate. | Claims are non-core state-law causes of action that do not invoke Title 11 substantive rights and could arise outside bankruptcy. | Held non-core: not listed in § 157(b)(2), do not invoke Title 11 rights, and could exist outside bankruptcy; "related to" jurisdiction exists. |
| Should the court strike Gendregske’s jury demand? | The Committee contends relief sought is equitable (including disgorgement/restitution), so no jury; mix of remedies supports striking the jury. | Gendregske argues the prayer seeks compensatory money damages (legal relief), so Seventh Amendment jury right applies. | Denied: Court treats the relief against Gendregske as legal (compensatory monetary damages), so jury demand stands. |
| Whether April 9 Order should be amended to remove statements that claims are core and that the bankruptcy court may enter final judgment | N/A (plaintiff relied on earlier order) | Gendregske argues the Order misstated the core status and the court should correct clear error under Rule 59(e). | Granted: Court amends prior order to remove statements that claims are core and that it has power to enter final judgment. |
| Whether resolution of these non-core claims is "related to" the bankruptcy case | Committee: Successful claims could increase estate funds and affect creditor recoveries. | Gendregske: Non-core but acknowledges "related to" jurisdictional limits. | Held: Claims are "related to" the case because their resolution could conceivably affect the estate. |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (U.S. 2011) (distinguishes core statutory authority from constitutional limits on bankruptcy adjudication)
- Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165 (U.S. 2014) (clarifies bankruptcy judge powers and procedure for unconstitutional-core claims)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (U.S. 1989) (Seventh Amendment jury-trial analysis and two-part legal/equitable test)
- Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (U.S. 2002) (distinguishes equitable restitution—traceable funds—from monetary relief imposing personal liability)
- In re Exide Techs., 544 F.3d 196 (3d Cir. 2008) (each claim must satisfy core test independently; rejects "intertwinement" as making non-core claims core)
- Pereira v. Farace, 413 F.3d 330 (2d Cir. 2005) (held breach-of-fiduciary damages were legal/compensatory and entitled to jury trial)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (framework for "related to" bankruptcy jurisdiction analysis)