Halperin v. Richards (In re Oldapco, Inc.)
| Decision Date | 25 June 2020 |
| Docket Number | Case No. 17-12082 (MFW),Adv. No. 18-50955 |
| Parties | IN RE: OLDAPCO, INC., et al., Debtors. Alan D. Halperin and Eugene I. Davis, as Co-Trustees of the Appvion Liquidating Trust, Plaintiffs, v. Mark R. Richards, Thomas J. Ferree, Tami L. Van Straten, Jeffrey J. Fletcher, Kerry S. Arent, Stephen P. Carter, Terry M. Murphy, Andrew F. Reardon, Kathi P. Seifert, Mark A. Suwyn, Carl J. Laurino, David A. Roberts, Kevin Gilligan, Argent Trust Company, Stout Risius Ross Inc., Stout Risius Ross, LLC, John/Jane Does 1-40 Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Gordon Z. Novod, New York, NY, Vivek Upadhya, Wilmington, DE, Grant & Eisenhofer PA., for Plaintiffs.
Michael T. Graham, Craig C. Martin, Chicago, IL, Daniel Forman, Willkie Farr Gallagher LLP, New York, NY, David Jimenez-Ekman, Caroline L. Meneau, Melissa M. Root, Jenner & Block LLP, Chicago, IL, Mark Minuti, Saul Ewing Arnstein & Lehr LLP, Wilmington, DE, for Defendants.
Mary F. Walrath, United States Bankruptcy Judge Before the Court are the Motions of Stout Risius Ross, Inc. and Stout Risius Ross LLC (together "Stout") and Argent Trust Company ("Argent") (collectively, the "Defendants") to Strike portions of the Appvion Liquidating Trust's Revised Second Amended Complaint. Alan D. Halperin and Euqene I. Davis, Co-Trustees of the Appvion Liquidating Trust (the "Plaintiffs") oppose both Motions. For the reasons set forth below, the Court will deny both Motions to Strike.
On October 1, 2017, Appvion, Inc., and its affiliates (collectively, the "Debtors") filed voluntary petitions for relief under chapter 11. Under the Debtors' confirmed Combined Plans of Liquidation, the Plaintiffs were given authority to pursue certain of the estates' causes of action.
On November 30, 2018, the Plaintiffs commenced this adversary proceeding against certain former directors and officers of the Debtors (the "former D&Os") and the Defendants. In the complaint, the Plaintiffs asserted nine state law tort causes of action against the former D&Os and causes of action against the Defendants for aiding and abetting breaches of fiduciary duty by the former D&Os.
On January 29, 2019, the Defendants filed Motions to Dismiss the complaint (and to transfer venue of Counts I through VIII).2 In response, the Plaintiffs filed the First Amended Complaint, which added nine avoidance actions, Counts X through XVIII, against the former D&Os and the Defendants. After another round of amendments, the Plaintiffs filed the Revised Second Amended Complaint (the "Complaint"), and the parties agreed that the Defendants' Motions to Dismiss were ripe for decision as if they applied to the Complaint.
On October 23, 2019, the Court issued an Opinion and Order transferring venue of Counts I through VIII to the United States District Court for the Eastern District of Wisconsin. As a result of that decision, the only claims remaining before the Court are Counts IX through XVIII of the Revised Second Amended Complaint. The only claims remaining against Argent are a preference (Count XII) and a fraudulent conveyance claim (Count XIII), and the only claims remaining against Stout are a preference (Count X) and a fraudulent conveyance claim (Count XI).
Following the Court's Opinion, a dispute arose between the parties over how the Defendants should answer the Complaint. The Plaintiffs demanded that Argent answer 328 paragraphs and that Stout answer 338 paragraphs. Argent and Stout countered that they only needed to answer a fraction of the allegations in the Complaint because most of the allegations related to the transferred counts and were, therefore, irrelevant to the counts against them.
Unable to resolve the dispute, the Defendants filed Motions to Strike significant portions of the Complaint and a Joint Opening Brief on December 20, 2019. On January 3, 2020, the Plaintiffs filed their Memorandum of Law in Opposition and on January 10, 2020, the Defendants filed a Reply Brief. The Motions have been fully briefed and the matter is now ripe for decision.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334(b) and Article XV of the Combined Plan of Liquidation. This adversary proceeding is a core matter pursuant to 28 U.S.C. § 157(b), as it involves administration of the bankruptcy case. Furthermore, Counts X through XIII are core proceedings because they assert avoidance actions under chapter 5 of the Bankruptcy Code. 28 U.S.C. § 157(b)(2)(F) & (H).
The Defendants argue that hundreds of paragraphs in the Revised Second Amended Complaint should be stricken under Rule 12(f) because the paragraphs are immaterial and impertinent to the avoidance actions against them. The Defendants maintain that those paragraphs are material and relevant only to Counts I through VIII, which were transferred.
The Plaintiffs now assert that Argent must answer 274 paragraphs of the Complaint, while Argent argues it must answer only 45 paragraphs.3 The Plaintiffs contend that Stout must answer 307 paragraphs, whereas Stout maintains it must answer only 79 paragraphs.4
According to the Defendants, the Plaintiffs' arguments opposing the prior Motions to Dismiss and the Court's Opinion denying the Motions, indicate that hundreds of the paragraphs of the Complaint are immaterial and impertinent. They argue that, in response to their prior Motions to Dismiss, the Plaintiffs cited only a few paragraphs of the Complaint as proof that the avoidance actions were properly pled. Similarly, they note that the Court's Opinion cited only a handful of paragraphs in concluding that the avoidance actions were sufficiently pled.
The Defendants maintain that even if the hundreds of paragraphs are material and pertinent to the Plaintiffs' claims, the paragraphs should be stricken for violating Rule 8. The Defendants contend that the Complaint is excessively long and cumbersome, contrary to the requirements of Rule 8. Further, the Defendants contend that many of the allegations plead evidence, which accelerates discovery to the pleading stages and is discouraged by the Federal Rules.
The Plaintiffs argue that the Defendants have failed to meet their burden under Rule 12(f) by failing to demonstrate that the allegations in dispute are immaterial and impertinent. By focusing on the evolution of the Complaint, rather than on its substance, the Plaintiffs contend that the Defendants have failed to explain why any specific allegations are immaterial and impertinent. The Plaintiffs maintain that many of the paragraphs that the Defendants move to strike are material to the preferential and fraudulent transfer claims because the paragraphs contain allegations about transfers between the Debtors and the Defendants, antecedent debts, whether the Debtors received reasonably equivalent value, and the solvency of the Debtors. Furthermore, the Plaintiffs argue that the Defendants have failed to demonstrate that they will suffer any prejudice by answering the allegations. Lastly, the Plaintiffs contend that the Defendants' Motions to Strike are procedurally barred by Rule 12(g).
Rule 12(g) of the Federal Rules of Civil Procedure states that "[e]xcept as provided in Rule 12(h)(2) or (3),5 a party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion." Fed. R. Civ. P. 12(g)(2).
However, when an amended complaint "contain[s] new information or different allegations making it subject to a defense or objection that was not previously apparent ... a party may move to dismiss on the basis of the newly discovered ground even if she filed a Rule 12 motion previously." 5C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1388 (3d ed. 2018). See, e.g., Roma Concrete Corp. v. Pension Assocs., No. CV 19-1123, 2019 WL 3683561, at *3 (E.D. Pa. Aug. 6, 2019) ().
The issue before the Court is whether the arguments raised by the Defendants in their Motions to Strike were available and apparent when the Defendants filed their initial Rule 12(b) Motions to Dismiss.
In this case, the Defendants' Motions to Dismiss were filed before the Revised Second Amended Complaint was filed. Nonetheless, the Revised Second Amended Complaint is nearly identical to the First Amended Complaint,6 and, as a result, the parties agreed that the issues raised by the Motions to Dismiss could be treated as being applicable to the Revised Second Amended Complaint.
While the Court's order transferring Counts I through VIII to the Eastern District of Wisconsin did not require that the Plaintiffs file a further amended complaint, the Defendants argue that the transfer resulted in a new basis for a Rule 12 motion by them: namely, that the Complaint now contains numerous extraneous allegations that are not relevant to the remaining counts.
The Court agrees with the Defendants. Until Counts I through VIII were transferred, the Defendants could not credibly argue that the Revised Second Amended Complaint contained allegations that were not relevant to any of the remaining parties or counts. Thus, the Court concludes that the Defendants are not barred by Rule 12(g) from filing their Motions to Strike.
Rule 12(f) provides that "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). The purpose of a Rule 12(f) motion to strike is to "clean up the pleadings, streamline litigation, and avoid the unnecessary forays into immaterial matters." Karpov v. Karpov, 307 F.R.D. 345, 348 (D. Del. 2015).
Allegations are "immaterial" if they have no essential or...
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Halperin v. Richards
...Appvion and its affiliates filed for bankruptcy protection in the Bankruptcy Court for the District of Delaware. See In re OLDAPCO, Inc., 622 B.R. 140 (Bankr. D. Del. 2020). Under Appvion's liquidation plan, Appvion's bankruptcy creditors were given authority through a liquidating trust to ......
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