Deluxe Building Solutions, LLC
This matter comes before the Court on a Motion to Dismiss the Involuntary Chapter 7 Petition filed by the Alleged Debtor, Deluxe Building Solutions, LLC (the “Alleged Debtor”). (Doc. 120.) For the following reasons, the Court will deny the requested relief in part, but will leave the record open for consideration of the remaining creditors’ claims.1
I. JURISDICTION
The Court has jurisdiction over this matter pursuant to
II. FACTUAL BACKGROUND AND PROCEDURAL POSTURE
The Alleged Debtor is a United States-based manufacturer of large-scale commercial volumetric steel modular buildings formerly operating out of Berwick, Pennsylvania. (Doc. 121-2, p. 15.)2 The Alleged Debtor is affiliated with a larger group of companies that focus on various aspects of architecture, engineering and construction software, technologies, and other innovations collectively known as the “Deluxe Group.” (Id.) Frydco Capital Group, LLC (“Frydco”) and Winter Investors, LLC (“Winter”) owned all interests in the Alleged Debtor
SyncPark, LLC (“SyncPark”) is a Delaware limited liability company with an address at 4 South Stanwich Road, Greenwich, Connecticut. (Id. at 3, 54.) SyncPark was formed to develop a system that automatically moves vehicles through an automated self-parking facility using linear synchronous motor technology (the “SyncPark System”). (Id. at 15.) Andrew W. Hayes (“Hayes”) and James G. Wieler (“Wieler”) own and control SyncPark. (Doc. 144, p. 41; Doc. 242, p. 22.)
In early 2020, the Alleged Debtor and SyncPark entered into a joint venture for the purpose of designing, manufacturing, and building automated self-parking garages modeled after the SyncPark System throughout the United States. (Doc. 121-2, p. 16.) To that end, on April 29, 2020, the Alleged Debtor and SyncPark entered into an operating agreement (the “JV Operating Agreement”) to form this joint venture, which they named SyncPark USA, LLC (the “Joint Venture”). (See Doc. 121-2.) Pursuant to the terms of the JV Operating Agreement, Frydman and Hayes were designated as non-member managers of the Joint Venture, and Wieler and Hayes were designated as its executives.3 (Id. at 3.) As its managers, Frydman and Hayes made up the Board of the Joint Venture. (Id. at 33.)
By agreement, the Alleged Debtor and SyncPark were each required to make an initial capital contribution in exchange for their ownership interest in the Joint Venture. (Id. at 16.)
While it is clear that the Alleged Debtor’s Funding Commitment was implicated once the Proposed Budget was approved, it is unclear whether such an obligation arises under a Proposed Budget that has not been approved. It is also unclear from the record if a Proposed Budget was ever submitted to the Board for approval in accordance with the terms of the JV Operating Agreement and, if it was, whether it was ever formally approved by the Board.4
Despite apparent efforts to build the POC Garage, Frydman admits that the Alleged Debtor struggled financially throughout its relationship with the Joint Venture. (Doc. 165, pp. 216–17.) According to Frydman, the original members of the Alleged Debtor, Winter and Frydco, invested some $31 million to support the Alleged Debtor from January 2018 through December 31, 2020. (Id. at 216.) While there was evidence that the Joint Venture had the potential to become profitable, in Winter and Frydco’s view, the Alleged Debtor’s significant financial deficit eventually outweighed the promise held by the Joint Venture. (Id. at 216–17.) Thus, effective December 31, 2020, Frydman asserts that Winter and Frydco transferred all their ownership interests in the Alleged Debtor to a newly formed member of the Deluxe Group called iBUILT. (Doc. 165, p. 210; Doc. 216, p. 147.) Contemporaneously, Frydman asserts that the Alleged Debtor also transferred its employees to iBUILT to continue the Alleged Debtor’s
As a result of these events, the Alleged Debtor ceased payment on a number of its financial obligations while waiting for its only source of income from receivables and anticipated litigation payouts to arrive. (Doc. 216, pp. 100–01.) Accordingly, on March 18, 2021, T&P, Superior, Labanara, and Wieler (collectively, the “Petitioning Creditors”), filed an involuntary bankruptcy petition pursuant to
The Alleged Debtor filed the instant Motion to Dismiss on September 2, 2021. (Doc. 120.) The Petitioning Creditors filed their Objection to the Motion on September 22, 2021. (Doc. 133.) The Court held seven non-consecutive days of evidentiary hearings on the Motion to Dismiss and Objection between September 23, 2021 and February 24, 2022,7 during which the Court heard testimony from the following witnesses: (1) Wieler; (2) Alastair Taylor (“Taylor”),
III. ANALYSIS
There are primarily two issues before the Court, each having two parts. The first issue is whether the Petitioning Creditors have standing to file the involuntary petition against the Alleged Debtor pursuant to
A. Section 303(b) Analysis
Where an alleged debtor has twelve or more creditors, as is the case here,
A claim is the subject of a bona fide dispute if “there is a genuine issue of a material fact that bears upon the debtor’s liability, or a meritorious contention as to the application of law to undisputed facts.” B.D.W. Assocs., Inc. v. Busy Beaver Bldg. Ctrs., Inc., 865 F.2d 65, 66 (3d Cir. 1989) (quotation marks omitted). Therefore, the evaluating court must determine whether there is an objective basis for either a factual or a legal dispute as to the validity of the debt. Id. The court is not required to resolve the dispute—only to identify its presence or absence. Id. If the court determines that a bona fide dispute exists, it must disqualify the claim and dismiss the petition if appropriate. Id. A claim is contingent as to liability if:
the debt is one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor and if such triggering event or occurrence was one reasonably contemplated by the debtor and creditor at the time the event giving rise to the claim occurred.
In re Raymark Industries, Inc., 99 B.R. at 301 (quoting In re All Media Properties, Inc., 5 B.R. 126, 133 (S.D. Tex. 1980), aff’d, 646 F.2d 193 (5th Cir. 1981)).
Initially, the Court observes that the Alleged Debtor does not dispute that this case was commenced by three or more entities, each of which argue they are the holder of a claim against the Alleged Debtor, and that such claims, if allowed, are asserted to aggregate at least $16,750 more than the value of any lien on property of the Alleged Debtor securing such claims. (Doc.
The Court considers these arguments below with respect to the Petitioning Creditors’ claims.
1. The Claims of T&P and Superior.
T&P and Superior base their claims on the Alleged Debtor’s failure to pay them for work completed pursuant to trade contracts purportedly entered with the Alleged Debtor. (Proof of Claim 21-1, Attachment 4; Proof of Claim 34-1, Attachment 1.) These contracts are evidenced by purchase orders for the performance of services related to the Alleged Debtor’s business venture.9 (See id.) Thus, T&P and Superior’s claims are grounded on an alleged breach of contract by the Alleged Debtor.
To establish a cause of action for breach of contract under Pennsylvania law, T&P and Superior must prove the following: (1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3) resultant damages. Ware v. Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir. 2003); Patel v. Dhaduk, 427 F. Supp. 3d 571, 577 (M.D. Pa. 2019), aff’d, 839 F. App’x 715 (3d Cir. 2020). At a minimum, a contract requires an offer, acceptance of that offer, and consideration. A.S. v. Off. for Disp. Resol. (Quakertown Cmty. Sch. Dist.), 88 A.3d 256, 265–66 (Pa. Commw. Ct. 2014) (citing Reed v. Pittsburgh Board of Public Education, 862 A.2d 131, 134 (Pa. Commw. Ct. 2004)).
Accordingly, to conclude that T&P and Superior’s claims are not subject to a bona fide dispute, the Court must first determine that a contract was formed, including its essential terms. Based on the evidence and argument presented, the Court finds that it is clear that the purchase orders constitute offers to T&P and Superior. However, it is not clear that these offers were validly extended by or on behalf of the Alleged Debtor. The Court finds that this discrepancy could well constitute a bona fide dispute sufficient to undermine T&P and Superior’s standing for
Acceptance of an offer requires “a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.” Schott v. Westinghouse Elec. Corp., 259 A.2d 443, 447 (Pa. 1969) (citation omitted). Indeed, “[i]t is settled law that the offeror is the master of his offer, and his provision as to time, place and manner or mode of acceptance must be complied with.” Van Schoiack v. U.S. Liab. Ins. Co., 133 A.2d 509, 514–15 (Pa. 1957); Harrison v. Nissan Motor Corp. in U.S., 111 F.3d 343, 348 (3d Cir. 1997). Accordingly, the failure to accept an offer in the manner invited or required by the offer can be fatal to the formation of a contract under Pennsylvania law. See Van Schoiack, 133 A.2d at 514–15
In this case, the purchase orders relied upon by T&P and Superior include the terms of acceptance, which read as follows:
Acceptance. Each [Purchase Order] is not binding on [the Alleged Debtor] until [T&P/Superior] accepts the Order in writing. If [T&P/Superior] does not accept the Order in writing within thirty (30) days of [T&P’s/Superior’s] receipt of the Order, the Order will lapse unless otherwise agreed to by [the Alleged Debtor] in writing. [The Alleged Debtor] may withdraw the Order at any time before it is accepted in writing by [T&P/Superior].
(Proof of Claim 21-1, Attachment 4; Proof of Claim 34-1, Attachment 1.) While T&P and Superior each claim that they accepted the purchase orders and began performance of the services bargained for therein, neither T&P nor Superior were able to produce a writing evidencing timely acceptance of the purchase order in accordance with the offer’s written requirements.
Indeed, T&P’s president testified: “I countersigned it by email. Unfortunately, I don’t have a copy of that email. Presumably it would be the Deluxe Building Systems – Solutions emails somewhere.” (Doc. 164, p. 213.) T&P’s president further testified that it was not his practice to retain such emails. (Doc. 165, p. 19 (“Typically with these sorts of [purchase orders] where they want a countersignature, I reply in writing via email, and I don’t have a copy of that email.”).) Superior’s president similarly testified that while the purchase order “could have been countersigned,” he did not know for sure. (Doc. 216, p. 73 (“Sometimes we get orders, we start working right away, and it’s not particularly important that I countersign it. I may have, I don’t know.”).) In addition, the Alleged Debtor’s chief systems officer, with whom both T&P and Superior had most of their dealings, testified that he could not say definitively whether he was aware of a countersigned version for either purchase order. (See Doc. 144, p. 107.) While the
Based on this testimony and lack of physical evidence, the Court finds that there is a bona fide dispute as to whether T&P or Superior accepted the offers in compliance with the terms of acceptance set by the Alleged Debtor. Having identified this dispute, the Court finds that T&P and Superior have failed to establish their prima facie case that their claims are not contingent as to liability or subject to a bona fide dispute under
2. The Claim of Wieler.
Generously construed, Wieler bases his claim on the Alleged Debtor’s failure to reimburse him for business and health care expenses. (Doc. 144, pp. 53–58.) Specifically, Wieler asserts that he incurred between $527.71 and $750 for travel expenses, which he believes he is entitled to recover from the Alleged Debtor. (Id. at 56–58.) Wieler also alleges that he is entitled to $1,026.80 in health care expense reimbursement from the Alleged Debtor under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) because the Alleged Debtor failed to inform him that his health insurance was about to be cancelled, but that he had a right to continue his health insurance at his own cost.11 (Id. at 54–56.)
As explained above, to establish a cause of action for breach of contract under Pennsylvania law, Wieler must prove the following: (1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3) resultant damages. Ware, 322 F.3d at 225; Patel, 427 F. Supp. 3d at 577. Accordingly, to conclude that Wieler’s claims are not subject to a bona fide dispute, the Court must first determine that a contract exists,
While Wieler has produced his employment contract with the Alleged Debtor, his contract hinges recovery of travel expenses upon such expenses being reasonable out-of-pocket expenses incurred during the performance of his duties for the Alleged Debtor; compliance with the Alleged Debtor’s expense reimbursement policies; and the Alleged Debtor’s approval of the expenses. The Court finds that Wieler has failed to produce evidence that he satisfied any of these essential terms of his employment contract. Indeed, he has failed to provide any evidence in support of the notion that his travel expenses were reasonable, that they were incurred within the performance of his duties, that he complied with the Alleged Debtor’s reimbursement policies, or that the Alleged Debtor approved his expenses.13 Rather, Wieler has only provided his own self-serving conclusory testimony that he is entitled to travel expenses from the Alleged Debtor. (See Doc. 144, pp. 56–58, 173.) It is well established that “[c]onclusory allegations that a plaintiff is entitled to some form of wages or expenses without further evidence that the employer actually owes those wages or expenses are insufficient to [support a claim for same].” See Becattini v. Lutronic Corp., No. 19-2464, 2021 WL 5822994, at *6 (E.D. Pa. Dec. 8, 2021) (citing Lejeck v. MBH Sols., Inc., No. 2:06-cv-342, 2007 WL 2743677, at *8 (W.D. Pa. Sept. 18, 2007)); Dardaris v. Dental Org. for Conscious Sedation, No. 06-947, 2007 WL 1300235, at *5 (E.D. Pa. May 3, 2007) (granting defendant’s motion for summary judgment where the plaintiff “failed to highlight for the Court which commissions remain unpaid” and did “not produce[] any evidence—employment contract, receipt, or invoice—showing that she was entitled to any specific payments that she did not receive”).
Wieler’s COBRA claim does not fare better. “COBRA requires employers that sponsor a group health plan for its employees to provide continuation coverage for employees who lose their coverage as a result of a qualifying event.” Glandorf v. W.G. Prods. Co., 31 F. App’x 772, 773 (3d Cir. 2022) (citing
Accordingly, for Wieler to establish his claim for health care expense recovery under COBRA, he must show that: (1) the Alleged Debtor was a “qualifying employer”; (2) Wieler was a “qualified employee”; (3) Wieler’s self-described January 4, 2021 “furlough” was a
3. The Claim of Labanara.
Labanara classifies his claim as having three parts, all of which stem from his employment contract with the Alleged Debtor. (Doc. 165, p. 51.) First, Labanara claims that he is owed unpaid wages for the week of February 1, 2021, plus the day of February 8, 2021, in the amount of $5,215. (Id. at 51–52, 89, 91.) Second, Labanara asserts that he is owed the cash-equivalent of 112 hours of accrued paid time off (“PTO”) in the amount of $13,776, though his
As with Wieler, to prevail on any portion of his claim, Labanara must prove the following: (1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3) resultant damages. Ware, 322 F.3d at 225; Patel, 427 F. Supp. 3d at 577.
In support of his claim for allegedly unpaid wages, Labanara produced his employment contract and a paystub reflecting his typical paycheck for a two-week period. (Proof of Claim 20-1.) Unlike Wieler, Labanara’s employment contract indicates that he was employed solely by the Alleged Debtor, rather than the Deluxe Group. (See Petitioning Creditors’ Exhibit 18A.) However, Labanara’s unpaid wages claim seeks recovery of wages accrued between February 1 and February 8, 2021, a period of time that post-dates the shift of all the Alleged Debtor’s employees, including Labanara, to iBUILT. (Doc. 216, pp. 115–16.) Indeed, it appears that Labanara acquiesced to this shift of employment from the Alleged Debtor to iBUILT as he accepted stock certificates from iBUILT, transitioned to using an iBUILT email account, and otherwise held himself out to third-parties as an iBUILT employee after the Alleged Debtor ceased operations on December 31, 2020. (Doc 165, pp. 44–45, 48–49, 86; Doc. 216, p. 115.) This creates a dispute over which entity, if any, owes Labanara the alleged unpaid wages in his
Labanara’s claim for allegedly unpaid PTO suffers the same fate. This portion of Labanara’s claim is for $6,888 of earned, but unused PTO at the time his employment was terminated by the Alleged Debtor. (Proof of Claim 20-1.) In support of this portion of his claim, Labanara produced his employment contract which includes a provision for the accrual of PTO that states, in pertinent part: “Employee shall be entitled to three (3) calendar weeks (or 15 working days) PTO in accordance with the PTO policy of Company plus additional time off for any floating holidays where the office of the Company is closed.” (Petitioning Creditors’ Exhibit 18A.) Thus, Labanara’s recovery of allegedly unpaid PTO hinges upon the PTO policies of the Alleged Debtor, which Labanara has failed to produce. Based on the lack of evidence showing entitlement to cash compensation for accrued, but unused PTO upon separation from the Alleged Debtor, the Court finds that there is a bona fide dispute and/or contingency as to this portion of Labanara’s claim. See Kuczeriawenko v. Patriot Buick GMC, Inc., No. 21-410, 2022 WL 2757365, at *4 (E.D. Pa. July 14, 2022) (noting that “[w]ithout a specific agreement or implication that accrued vacation days [are] compensable, [any] claim to such payment fails”). Labanara’s claim for allegedly unpaid PTO will accordingly be disqualified for purposes of
The final component of Labanara’s claim is for allegedly unreimbursed business expenses. In support of this portion of his claim, Labanara produced his employment contract and two business expense report forms. The first expense report, dated November 16, 2020, is addressed to the Alleged Debtor and seeks recovery of $443.05 incurred between July 30, 2020
The Court finds that there is a bona fide dispute regarding Labanara’s entitlement to recovery of the second expense report from the Alleged Debtor. As stated above, the Alleged Debtor argues that all of its employees became employees of iBUILT after midnight on January 1, 2021. (Doc. 216, pp. 115–16.) The record indicates that Labanara acquiesced to this employment arrangement. (See Doc 165, pp. 44–45, 48–49, 86; see also Doc. 216, p. 115.) Absent information regarding which liabilities the Alleged Debtor retained vis-à-vis its employees during this transition, if any, the Court cannot determine whether the Alleged Debtor is liable to reimburse Labanara for his expenses that were incurred while employed by the Alleged Debtor but submitted after he was employed by iBUILT. These unanswered questions regarding liability preclude Labanara from establishing his prima facie case that this portion of his claim is neither contingent as to liability nor subject to a bona fide dispute. The Court will therefore disqualify this portion of Labanara’s business expense claim under
In contrast, the Court finds that the first expense report, in which Labanara seeks reimbursement of $443.05 pertaining to expenses allegedly incurred between July 30, 2020 and October 21, 2020, is not subject to a bona fide dispute.17 Indeed, these expenses were incurred, and the report was submitted while Labanara was still employed by the Alleged Debtor. There is no evidence that Labanara failed to follow the proper procedures to be reimbursed for these expenses or that these expenses were unreasonable or incurred outside the scope of Labanara’s
B. Bad Faith19
The Alleged Debtor argues that Labanara filed the involuntary petition in bad faith because he failed to conduct a reasonable investigation into the other Petitioning Creditors’ claims before filing the petition. (Doc. 165, pp. 64–68.) The Alleged Debtor further asserts that Labanara engaged in bad faith by filing an involuntary petition to collect on a relatively modest sum, rather than pursuing more traditional and less aggressive debt collection efforts. (Id. at 83.) Labanara rejoins that he filed the petition because he wanted to secure repayment of valid debts that he asserts are owed to him. (Id. at 52–53.) Moreover, Labanara claims that he wanted to send a message that the Alleged Debtor does not pay its debts and that others should be wary of extending credit to the Alleged Debtor. (Id.)
The Third Circuit has recognized that “the filing of an involuntary petition is an extreme remedy with serious consequences to the alleged debtor, such as loss of credit standing, inability to transfer assets and carry on business affairs, and public embarrassment.” In re Forever Green, 804 F.3d at 335 (quoting In re Reid, 773 F.2d 945, 946 (7th Cir. 1985)) (quotation marks omitted). Therefore, the Third Circuit has held that bad faith may provide a separate basis for
The Third Circuit has adopted the “‘totality of the circumstances’ standard for determining bad faith under § 303.” Id. at 336. In conducting this fact-intensive review, courts may consider several non-exhaustive factors, including whether: (1) “the creditors satisfied the statutory criteria for filing the petition;” (2) “the involuntary petition was meritorious;” (3) “the creditors made a reasonable inquiry into the relevant facts and pertinent law before filing;” (4) “there was evidence of preferential payments to certain creditors or of dissipation of the debtor’s assets;” (5) “the filing was motivated by ill will or a desire to harass;” (6) “the petitioning creditors used the filing to obtain a disproportionate advantage for themselves rather than to protect against other creditors doing the same;” (7) “the filing was used as a tactical advantage in pending actions;” (8) “the filing was used as a substitute for customary debt-collection procedures;” and (9) “the filing had suspicious timing.” Id.
In this case, the Court finds that the evidence that Labanara was motivated to file the involuntary petition in bad faith is limited. Indeed, the Court finds that Labanara has satisfied the
C. Bad Faith Bar to Joinder.
The Alleged Debtor argues that the Court should apply the bad faith bar to joinder doctrine to preclude the Joining Creditors’ claims from satisfying the requirements in
Initially, the Court notes that the bad faith bar to joinder doctrine has not been widely utilized within the Third Circuit, and that courts applying the doctrine have limited its applicability to instances in which a single creditor has filed an involuntary petition in blatant disregard of the three-creditor requirement of
Having determined that the Joining Creditors’ claims are not barred on bad faith grounds, the Court turns to the claim of Hayes.
D. The Claim of Hayes.
Hayes classifies his claim as having two parts, both of which stem from his employment contract with the Alleged Debtor. (Doc. 217, p. 85.) First, Hayes asserts that he is owed unpaid wages in the amount of either $2,100 or $5,500.24 (Proof of Claim 31-1; Proof of Claim 32-1;
As with Wieler and Labanara, in order prevail on either aspect of his claim, Hayes must prove the following: (1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3) resultant damages. Ware, 322 F.3d at 225; Patel, 427 F. Supp. 3d at 577.
With respect to Hayes’ unpaid wages claim, while he has produced his employment contract with the Deluxe Group, he has provided no evidence regarding a breach of same. (See Doc. 237, pp. 206–07 (“Q: [Y]ou didn’t attach any pay stubs or any other documents to your proof of claim to substantiate that claim, right, Mr. Hayes? . . . . A: I don’t recall filing any pay stubs. . . . . Q: And you don’t recall filing any contracts either, right, appending any contracts on your proofs of claims, right? A: No, I did not.”).) Nor has he produced any evidence that he was employed by the Alleged Debtor and not some other member of the Deluxe Group during the time relevant to his unpaid wage claims. As the Court has already stated, “[c]onclusory allegations that a plaintiff is entitled to some form of wages or expenses without further evidence that the employer actually owes those wages or expenses are insufficient to [support a claim for same].” See Becattini, 2021 WL 5822994, at *6 (citing Lejeck, 2007 WL 2743677, at *8); Dardaris, 2007 WL 1300235, at *5 (granting defendant’s motion for summary judgment where the plaintiff “failed to highlight for the Court which commissions remain unpaid” and did “not
Hayes’ business expense claim meets the same fate. This portion of Hayes’ claim stems from a series of invoices for court reporting fees and expenses.25 (Proof of Claim 32-1.) Hayes’ employment contract includes the same term regarding reimbursement of business expenses as Wieler’s employment contract. (Doc. 150-5, p. 3 (“The Company shall, subject to approval, cover Hayes’ reasonable out-of-pocket expenses, incurred in the performance of Hayes’ Company Duties in accordance with the Company’s expense reimbursement policies in effect from time to time.”).) Thus, as with Wieler’s claim for travel expenses, Hayes’ contract provisions hinge recovery of business expenses upon such expenses being reasonable out-of-pocket expenses incurred during the performance of his duties for the Alleged Debtor;
For the foregoing reasons, the Court disqualifies the claims of T&P, Superior, and Wieler under
By the Court,
Henry W. Van Eck, Chief Bankruptcy Judge
Dated: October 28, 2022