Energy Conversion Devices Liquidation Trust v. Ovonyx, Inc. (In re Energy Conversion Devices, Inc.)

• Decision Date: 14 March 2022
• Docket Number: Case No. 22-10004,Bankr. Case No. 12-43166-TJT,Adv. Pro. No. 18-04320
• Citation: 638 B.R. 81
• Parties: IN RE: ENERGY CONVERSION DEVICES, INC. Debtor, Energy Conversion Devices Liquidation Trust, Plaintiff/Appellee, v. Ovonyx, Inc., Tyler Lowrey, Micron Technology, Inc., Ovonyx Memory Technology, LLC, and Intel Corporation, Defendants/Appellants.
• Court: U.S. District Court — Eastern District of Michigan

638 B.R. 81

IN RE: ENERGY CONVERSION DEVICES, INC. Debtor,Energy Conversion Devices Liquidation Trust, Plaintiff/Appellee,

v.Ovonyx, Inc., Tyler Lowrey, Micron Technology, Inc., Ovonyx Memory Technology, LLC, and Intel Corporation, Defendants/Appellants.

Case No. 22-10004

Bankr. Case No. 12-43166-TJT

Adv. Pro. No. 18-04320

United States District Court, E.D. Michigan, Southern Division.

Signed March 14, 2022

Fred K. Herrmann, William C. Blasses, Kerr, Russell and Weber, PLC, Detroit, MI, Katherine Ann Preston, Winston & Strawn/Chicago, Houston, TX, Natalie L. Arbaugh, Winston & Strawn/Chicago, Dallas, TX, for Plaintiff/Appellee.

Edward T. Sable, Robert M. Riley, Rian Dawson, Joseph R. Sgroi, Honigman LLP, Detroit, MI, Eric Drew Winston, Quinn Emanuel Urquhart & Sullivan LLP, Los Angeles, CA, for Defendants/Appellants.

OPINION AND ORDER DENYING DEFENDANTS/APPELLANTS OVONYX, INC. AND MICRON TECHNOLOGY, INC.'S MOTION FOR LEAVE TO APPEAL THE BANKRUPTCY COURT'S ORDER DENYING THEIR MOTION TO DISMISS (ECF NO. 1)

Paul D. Borman, United States District Judge

Before the Court is Defendants/Appellants Ovonyx, Inc. and Micron Technology, Inc.'s Motion for Leave to Appeal the Bankruptcy Court's Order Denying Their Motion to Dismiss for Lack of Standing (Bankr.Adv. Pro. No. 416, Adv. Pro. No. 18-04320). (ECF No. 1, Defendants/Appellants' Motion for Leave to Appeal.) Plaintiff/Appellee Energy Conversion Devices Liquidation Trust filed a Response in opposition to Defendants/Appellants' Motion (ECF No. 4), and Defendants/Appellants filed a Reply (ECF No. 5). The Court held a hearing on Defendants/Appellants' motion for leave to appeal on Friday, March 11, 2022. For the reasons that follow, Defendants/Appellants' Motion for Leave to Appeal is DENIED.

I. BACKGROUND

A. Energy Conversion Devices, Inc. Files Chapter 11 bankruptcy

On February 14, 2012, Energy Conversion Devices, Inc. ("ECD") filed a Chapter 11 petition in the bankruptcy court, which was assigned to Bankruptcy Court Judge Thomas J. Tucker. (Bankr. No. 1.)¹ On July 30, 2012, the bankruptcy court confirmed the liquidation plan of ECD and its wholly-owned subsidiary, United Solar Ovonic LLC ("USO") (the "Plan"), and the Plan became effective August 28, 2012. (Bankr. Nos. 1064, 1220.)

The Plan provided for a liquidating trust, to be created by and to operate under a trust agreement, and for the appointment of a liquidation trustee. (Bankr. No. 1063, Ex. 1, "Trust Agreement.") The liquidating trust is the Energy Conversion Devices Liquidation Trust ("Plaintiff Trust"), and the operative trust agreement is entitled "Liquidation Trust Agreement and Declaration of Trust" (the "Trust Agreement"). John Madden has been appointed the Liquidation Trustee. (Bankr. No. 1063.)

The "primary purposes" of the Trust "are to (i) pursue Causes of Action for the benefit of the Beneficiaries ..., (ii) review and object to claims filed in the Bankruptcy Cases, (iii) liquidate the Assets transferred to it on the Effective Date, and (iv) distribute any proceeds of the Assets as may be provided in the Plan and otherwise exercise the duties of a chapter 7 trustee and debtor in possession." (Trust Agreement at p. 1, Recitals D.)

The Trust Agreement provides for the duration and termination of the Trust. Specifically, the Agreement states:

Section 6.01 Duration of Liquidation Trust

This Liquidation Trust shall terminate on the date upon which all of the Assets have been distributed to the Beneficiaries and all of the necessary tax returns have been prepared and filed; provided, however , that the Liquidation Trust shall terminate no later than the fifth anniversary of the Effective Date; and provided further, however , that prior to such termination date, the Liquidation Trustee may seek multiple fixed-term extensions of such termination date from the Bankruptcy Court if the extension is necessary for the liquidating purposes of the Liquidation Trust. Any such extension must be obtained at least three (3) months before the expiration of the original term and each extended term.

(Trust Agreement at p. 23, Section 6.01 (emphases in original).)

The effective date of the Plan was August 28, 2012. (Bankr. No. 1220.) Thus, pursuant to Section 6.01, the Trust was set to terminate on August 28, 2017, unless the Trust sought to extend its term.

On April 17, 2017, the Trust filed a motion for extension of the Trust, requesting an extension of two years, until August 28, 2019. (Bankr. No. 2586.) The Trust explained that the extension was warranted because "there are still matters pending that require the existence of the Liquidation Trust to be continued for at least two (2) additional years." (Id. ) The Trust stated that: it was in the process of identifying and engaging buyers for an asset, Ovonic Cognitive Computer, Inc.; it is engaged in ongoing efforts to recover funds from a subsidiary arising out of tax refunds; and, it is the plaintiff to two litigation actions, both on appeal. (Id. at p. 4, ¶ 10.)

The bankruptcy court granted the extension, extending the termination date to August 28, 2019. (Bankr. No. 2588.) Plaintiff Trust never sought or obtained a further extension of the termination date. Accordingly, the Trust terminated on August 28, 2019.

Significantly, Section 6.03 of the Trust Agreement gives the Liquidation Trustee winding-up authority to continue to act after termination of the Trust. Specifically, that Section states:

Section 6.03 Continuance of Liquidation Trust for Winding Up.

After the termination of the Liquidation Trust and for the purpose of liquidating and winding up the affairs of the Liquidation Trust, the Liquidation Trustee shall continue to act as such until its duties have been fully performed . Upon termination of the Liquidation Trust, the Liquidation Trustee shall retain for a period of seven years the books, records, Beneficiary lists, Register, and certificates and other documents and files which shall have been delivered to or created by the Liquidation Trustee. At the Liquidation Trustee's discretion, all other records and documents may, but need not, be destroyed at any time after two years from the completion and winding up of the affairs of the Liquidation Trust. Except as otherwise specifically provided herein, upon the termination of the Liquidation Trust, the Liquidation Trustee shall have no further duties or obligations hereunder

(Trust Agreement, Section 6.03 (emphasis added).)

B. Adversary Proceeding – Energy Conversion Devices Liquidation Trust v. Ovonyx, Inc., et al. , Adv. Pro. No. 18-04320

In performing his duties under the Trust Agreement, the Trustee, John Madden, filed the underlying adversary proceeding on July 12, 2018, and then filed an amended complaint on August 1, 2018. (Bankr. No. 2631) (Bankr.Adv. Pro. Nos. 1, 8.) The Plaintiff Trust's First Amended Complaint alleged multiple claims under Michigan law, including breach of contract, alter ego/successor liability, tortious interference with contract, fraudulent transfer, aiding and abetting tortious interference with contract, and declaratory judgment, against five defendants: Ovonyx, Inc.; Micron Technology, Inc.; Tyler Lowrey; Ovonyx Memory Technology, LLC; and Intel Corporation. (Id. )

All five defendants initially moved for dismissal under Fed. R. Civ. P. 12(b)(6), for failure to state a claim. After extensive briefing and a hearing, the bankruptcy court filed a lengthy, 146-page written Opinion and Order on October 1, 2020, granting the defendants' motions in part, and denying them in part. (Bankr.Adv. Pro. No. 192, 193.) In re: Energy Conversion Devices, Inc. , 621 B.R. 674 (Bankr. E.D. Mich. 2020).

On November 5, 2020, the defendants (other than Tyler Lowrey) each filed separate answers to the First Amended Complaint. (Bankr.Adv. Pro. Nos. 201, 203, 205, 207.) The parties have since: (1) engaged in extensive discovery; (2) Defendants Micron Technology, Inc., Ovonyx, Inc., and Ovonyx Memory Technology, Inc., have filed amended answers; (3) Plaintiff Trust filed a second and then a third amended complaint; and, (4) the scheduling order has been amended several times.

The bankruptcy court dismissed the only claim against Defendant Tyler Lowrey on October 1, 2020 (Bankr.Adv. Pro. No. 193), and recently entered a stipulation dismissing claims against Defendant Intel Corporation on March 8, 2022 (Bankr.Adv. Pro. No. 571). While the other three defendants remain in the case, only two of the three defendants, Ovonyx, Inc. and Micron Technology, Inc., moved to dismiss for lack of standing.

On August 20, 2021, two defendants, Ovonyx, Inc. and Micron Technology, Inc., jointly filed their Motion to Dismiss for Lack of Standing. (Bankr.Adv. Pro. No. 296.) In that motion to dismiss, filed essentially two years after the Trust terminated, defendants Ovonyx and Micron argued that the Plaintiff Trust no longer has standing to prosecute any of the claims in this adversary proceeding, because, under Section 6.01 of the Trust Agreement, the Trust terminated on August 28, 2019. Defendants further argued that the Trustee's limited wind-up powers do not give him standing to continue prosecuting the case.

On September 17, 2021, Plaintiff Trust filed a Response in opposition to the defendants' motion to dismiss for lack of standing. (Bankr.Adv. Pro. No. 330.) Plaintiff Trust argued that the Trust can continue to prosecute this action under Section 6.03 of the Trust Agreement. Plaintiff also argued that the defendants' motion must be denied because the defendants improperly conflate standing and capacity to sue, and that the motion must be denied because defendants have waived their argument that the Trust lacks capacity to sue.

On October 4, 2021, the defendants filed a Reply brief in support of their motion to dismiss. Defendants argued, again, that the Trust has no standing to sue after the Trust Agreement terminated on August 28, 2019, and that they have not waived any arguments because the Trust has not maintained its capacity...