583 B.R. 304
Bankr. D. Del.2018Background
- Debtor Equinox (EP) retained law firm Richards, Layton & Finger (RLF) prepetition for possible Chapter 11 planning, an out‑of‑court sale, and then for Chapter 7 work; RLF received five prepetition payments totaling $317,105.91 (including a $75,000 Chapter 7 retainer).
- EP closed an asset sale to Brookfield (Purchaser) under an APA that (a) purchased substantially all cash and cash equivalents except one specifically excluded PNC account, and (b) included a Cash Burndown Schedule (Schedule 6.12) that listed the $75,000 Chapter 7 retainer as a post‑closing item funded/treated as PNC net debt and ultimately as Purchaser/Purchased Asset if unpaid.
- Trustee filed an adversary complaint to recover the five payments under various avoidance theories; parties stipulated to dismiss all claims with prejudice except Count IV (§§105/329) concerning whether the $75,000 Chapter 7 retainer was excessive.
- Thirteen months later the Trustee sought leave to amend to reassert claims as to the other four payments under §329 and add two additional counts (disclosure/creditor allegations); RLF opposed and moved for judgment on the pleadings that Trustee lacked standing to recover the $75,000 because, under the APA, refunded retainer funds would belong to the Purchaser.
- The court denied leave to amend (futility, prejudice, undue delay) and granted RLF’s Rule 12(c) motion: Trustee lacks standing to pursue return of the Chapter 7 retainer because the APA treats the funds as Purchaser/Purchased Asset if returned, not estate property.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Trustee should be allowed to amend complaint to revive claims about the four prepetition payments (and add disclosure/creditor counts) | Amendments seek §329 review of all bankruptcy‑related fees paid within one year; preserved by original Count IV; no prejudice because RLF knew of payments | Amendments are barred by prior stipulation dismissing claims with prejudice; futile, unduly delayed, prejudicial, and in bad faith | Denied: amendment futile (claim preclusion), unduly prejudicial to RLF, and unduly delayed |
| Whether Trustee has standing to recover the $75,000 Chapter 7 retainer under §329 | Trustee: retainer was paid from Debtor funds and could be excessive under §329; Rule 2017 allows court to review and order return even if benefit flows elsewhere | RLF: APA and Schedule 6.12 designate the retainer as Purchaser/Purchased Asset if not paid to RLF, so returned funds would not be estate property; Trustee lacks standing | Granted for RLF: Trustee lacks standing because, per APA, refunded retainer would be Purchaser property, not estate property |
| Whether the APA’s specific provisions (Schedule 6.12) or general expense clause (§9.01) governs ownership of the retainer | Trustee emphasizes §9.01 saying costs are Seller’s expenses | RLF emphasizes the specific Schedule 6.12 and §6.12 that earmark and treat the $75,000 as PNC net debt/Purchaser interest | Court: specific Schedule §6.12 controls over general §9.01; retainer would be Purchaser’s if returned |
| Whether the Trustee pleaded facts sufficient to show estate ownership or standing | Trustee alleged payments but did not allege funds would be estate property if returned or that retainer came from the excluded account | RLF points to the complaint’s own exhibits indicating payments came from an account acquired by Purchaser; Trustee bears burden to plead standing | Court: Trustee failed to plead standing (no plausible allegation that retainer would be estate property if returned); judgment on pleadings for RLF |
Key Cases Cited
- Foman v. Davis, 371 U.S. 178 (U.S. 1962) (standards for leave to amend pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must state a plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (Iqbal/Twombly plausibility standard for complaints)
- Great Western Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159 (3d Cir. 2010) (res judicata/claim preclusion principles)
- Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (U.S. 1972) (trustee lacks standing to assert claims belonging solely to creditors)