In re Aphton Corp., Bankruptcy No. 06-10510(CSS).
| Decision Date | 27 January 2010 |
| Docket Number | Adversary No. 08-50636(CSS).,Bankruptcy No. 06-10510(CSS). |
| Parties | In re APHTON CORPORATION, Debtor. Wayne Walker, as Trustee of Aphton Corporation, Plaintiff, v. Sonafi Pasteur a/k/a Aventis, SF Capital Partners, Heartland Group, Inc., solely on behalf of the Heartland Value Fund, and Legg Mason Partners Fundamental Value Fund, Inc. f/k/a Smith Barney Fundamental Value Fund, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Garvan F. McDaniel, Bifferato Gentilotti LLC, Wilmington, DE and John K. Sherwood, Jeffrey A. Kramer, Lowenstein Sandler PC, Roseland, NJ, for Sanofi Pasteur Limited and Aventis Pharmaceuticals, Inc.
Leigh-Anne M. Raport, David B. Stratton, Pepper Hamilton LLP, Wilmington, DE and Alan J. Lipkin, Paul W. Horan, New York, NY, for Legg Mason Partners Fundamental Value Fund, a series of Legg Mason Partners Equity Trust and successor to Legg Mason Partners Fundamental Value Fund, Inc., SF Capital Partners, Ltd., and the Heartland Group, Inc., solely on behalf of the Heartland Value Fund.
Shannon D. Leight, Albert A. Ciardi, III, Joseph V. Bongiorno, Ciardi & Ciardi, P.C., Wilmington, DE, for Wayne Walker as Trustee for Aphton Corporation.
Before the Court are several motions brought by Sanofi Pasteur Limited ("SP") and Aventis Pharmaceuticals, Inc. ("Aventis Pharmaceuticals") (collectively, "Aventis"),2 SF Capital Partners ("SF Capital"), Heartland Group, Inc., solely on behalf of the Heartland Value Fund and Heartland Value Fund, Inc. (collectively, "Heartland"), and Legg Mason Partners Fundamental Value Fund, Inc. f/k/a Smith Barney Fundamental Value Fund, Inc. ("Smith Barney") (collectively, SF Capital, Heartland, and Smith Barney shall be referred to as the "Former Noteholders").
The Former Noteholders and Aventis seek to dismiss the First Amended Complaint of Wayne Walker as Trustee of Aphton Corporation to Avoid and Recover Transfers Pursuant to 11 U.S.C. § 544, 548 and 550 (the "Complaint"). The Complaint contains six counts.3 Counts I through III set forth constructive fraudulent conveyance claims against Aventis. Counts V through VII set forth constructive fraudulent conveyance claims against the Former Noteholders. Aventis and the Former Noteholders argue that the Complaint fails to state a claim upon which relief can be granted.
The Former Noteholders have also filed a motion for sanctions pursuant to Federal Rule of Bankruptcy Procedure 9011. They argue that the actions of the Trustee's counsel were objectively unreasonable in filing and maintaining the original complaint, and that the Trustee's counsel took no action to dismiss voluntarily the original complaint or remedy its infirmities after being placed on notice of the Former Noteholders' position.
For the reasons set forth below, the Court will (i) grant Aventis's motion to dismiss; (ii) grant in part and deny in part the Former Noteholders' motion to dismiss; and (iii) deny the motion for sanctions.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (F) and (H).
Aphton Corporation (the "Debtor") is a biopharmaceutical company that researches, develops, and commercializes pharmaceutical products for the treatment of cancer and gastrointestinal disease. The Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code in May, 2006.
Aventis Pharmaceuticals and SP are in the business of research, development and production of pharmaceuticals. The Complaint asserts that SP is "also known as" Aventis, although the motion to dismiss asserts that they are separate legal entities.
The Former Noteholders and the Debtor were parties to a Purchase Agreement for certain notes. Per the agreement, the Former Noteholders paid the Debtor $15 million in exchange for the Debtor issuing notes that bore an equivalent face value.
In early 1997, the Debtor entered into a Co-Promotion Agreement and License (the "Co-Promotion Agreement") with Connaught Laboratories Limited and its affiliated entities (collectively, "CLL").4 The Co-Promotion Agreement pertained to the Debtor's development of a non-toxic immunotherapy drug, known as Insegia, designed to treat certain types of cancer, and the collaboration between the Debtor and Aventis in the co-promotion, marketing, selling and distribution of products being developed by the Debtor, including Insegia. The Co-Promotion Agreement also granted Aventis a non-exclusive license to manufacture the Debtor's products and to have the Debtor's products manufactured for it, while reserving the rights to promote, market, distribute and sell products on its own or in conjunction with Aventis.
Subsequent to the entry of the Co-Promotion Agreement, the Debtor and Aventis entered into two supply agreements (the "Supply Agreements") that required (i) Aventis to supply the Debtor with certain biological materials necessary for the Debtor's development of its products; and (ii) the Debtor to supply Aventis with the Debtor's products.
In 2002, the Debtor and Aventis entered into an agreement to restructure the Co-Promotion Agreement.5 Under the restructuring agreement, the parties agreed to enter into a new co-promotion agreement under which the Debtor would grant Aventis an exclusive license related to the development, promotion, marketing, distribution or sale of any products. At the same time, the Debtor and Aventis entered into the Debenture Purchase Agreement in which the Debtor agreed to sell and Aventis agreed to purchase a convertible debenture in the principal amount of $3 million due December 19, 2007 (the "Debenture").
In February, 2005, the Debtor announced that Insegia had failed to meet the clinical benchmarks necessary for FDA approval.
In a letter dated April 27, 2005, Aventis demanded that the Debtor pay $3 million and all accrued interest pursuant to the Debenture. Aventis asserted redemption was mandatory because (as revealed in the Debtor's public filings) the Debtor had signed prohibited collaboration agreements. The Debtor redeemed the Debenture for $3 million in accordance with the terms of the Debenture Agreement (the "Redemption Payment") on August 4, 2005.
On November 2, 2005, SP (as successor-in-interest to CLL) and the Debtor memorialized an agreement concerning termination (the "Termination Agreement") of the Co-Promotion Agreement and the Supply Agreements. In the Termination Agreement, SP forgave a receivable due from the Debtor to SP for "conjugation services" in the amount of $1.8 million. The Termination Agreement contained a provision for the Debtor and SP to enter into a new supply agreement. It did not mention the Redemption Payment.
In March, 2003, the Debtor issued notes (the "Notes") to the Former Noteholders. The Former Noteholders paid the Debtor $15 million in exchange for Notes bearing an equivalent face value.6 The Notes provided that the Former Noteholders were entitled to convert any portion of the outstanding principal balance, plus accrued interest, into shares of the Debtor's stock. The Notes further provided that, upon the occurrence of an event of default, the noteholders were entitled to redeem any portion of the Notes for cash equal to 110% of the principal amount, plus accrued and unpaid interest and any other amounts due.
Subsequent to the Redemption Payment, the Former Noteholders asserted that the Redemption Payment constituted an event of default under the securities purchase agreement and demanded redemption of the Notes. The Debtor and the Former Noteholders reached an agreement in November, 2005, wherein the Former Noteholders agreed to surrender the Notes in exchange for a total payment of $3 million in cash, the issuance of 10,000 shares of preferred stock and 2 million shares of common stock (the "Exchange Agreement Payment").
In May, 2006, the Debtor filed its Chapter 11 case. In March, 2007, the Court confirmed the Debtor's liquidating plan (the "Plan"). The Plan authorized the Trustee to pursue potential avoidance actions or litigation claims.
In May, 2008, the Trustee commenced this adversary proceeding by filing a complaint7 against both the Former Noteholders and Aventis. The Complaint seeks to avoid the transfers from the Debtor to Aventis and from the Debtor to the Former Noteholders, pursuant to §§ 544 and 548 of the Bankruptcy Code; and to recover the value of the transfers from the Debtor to Aventis and the Debtor to the Former Noteholders, pursuant to § 550 of the Bankruptcy Code.
Counts I and V of the Complaint assert that the Trustee is a lien creditor pursuant to § 544(b) of the Bankruptcy Code and that the $3 million transferred to Aventis and the $3 million transferred to the Former Noteholders were each fraudulent transfers under the "Pennsylvania and/or Delaware Uniform Fraudulent Transfer Act."8
Counts II and VI of the Complaint assert fraudulent conveyance claims pursuant to § 548 of the Bankruptcy Code. Both counts assert that (i) the transfers were made within two years of the petition date; (ii) the Debtor received less than reasonably equivalent value for the transfer; and (iii) the transfers occurred at a time when the Debtor was insolvent.
Specifically, in Count II the Trustee argues that (i) the transfer from the Debtor to Aventis of $3 million pursuant to the Termination Agreement, and (ii) the Debtor's loss of the right to receive biological agents, was not reasonably equivalent to (a) the return of its marketing...
To continue reading
Request your trial
-
Arrowsmith v. Lemberg Law, LLC (In re Health Diagnostics Lab., Inc.)
...a "transfer" occurs when a debtor forgives indebtedness owed to it by a third party. See generally Aphton Corp. v. Sonafi Pasteur (In re Aphton Corp.), 423 B.R. 76 (Bankr. D. Del. 2010) ; Short v. Groves (In re Short), No. 08-5232, 2009 WL 2563469, at *3 (Bankr. D. Kan. Aug. 18, 2009) ("Red......
-
Miller v. Black Diamond Capital Mgmt., L.L.C. (In re Bayou Steel BD Holdings, L.L.C.)
...16, 2019) ("For struggling businesses, an insider is often the only party willing to lend")159 Walker v. Sonafi Pasteur a/k/a Aventis (In re Aphton Corp.) , 423 B.R. 76, 85 (Bankr. D. Del. 2010).160 Miller v. Bradley (In re W.J. Bradley Mortg. Cap., LLC) , 598 B.R. 150, 169 (Bankr. D. Del. ......
-
Burtch v. Opus, LLC (In re Opus E., LLC)
...receives reasonably equivalent value for what it gives up if it gets ‘roughly the value it gave.’ ”); Walker v. Sonafi Pasteur (In re Aphton Corp.), 423 B.R. 76, 89 (Bankr.D.Del.2010) (same). Payments made on account of valid antecedent debts are presumptively made for reasonably equivalent......
-
Jeoffrey L. Burtch, Chapter 7 Tr. for the Estate of Opus E., LLC v. Opus, LLC (In re Opus E., LLC)
...equivalent value for what it gives up if it gets ‘roughly the value it gave.’ ”); Walker v. Sonafi Pasteur (In re Aphton Corp.), 423 B.R. 76, 89 (Bankr.D.Del.2010) (same). Payments made on account of valid antecedent debts are presumptively made for reasonably equivalent value. The Bankrupt......
-
Iqbal 'Plausibility' in Pharmaceutical and Medical Device Litigation
...notes 23 6–38 and accompanying text. The two bankruptcy court decisions fell into “no-difference” categories. See In re Aphton Corp., 423 B.R. 76 (Bankr. D. Del. Jan. 27, 2010) (denying motion to dismiss in part, having found “plausibility” test satisfied; denying in part because Rule 9(b) ......