In re Bluberi Gaming Techs., Inc.

Decision Date04 August 2016
Docket NumberCase No. 16bk05364
Citation554 B.R. 841
PartiesIn re: Bluberi Gaming Technologies, Inc., et al., Debtors in a Foreign Proceeding.
CourtU.S. Bankruptcy Court — Northern District of Illinois

Patrick C. Maxcy, Robert B. Millner and Geoffrey M. Miller, Dentons US LLP, Chicago, IL, Attorneys for Foreign Representative, Bluberi Gaming Technologies Inc.

Nancy A. Peterman, Greenberg Traurig, LLP, Chicago, IL, Richard F. Holley, Holley Driggs Walch Fine, Wray Puzey & Thompson, Las Vegas, NV, Attorneys for AGS LLC.

Eugene J. Geekie, Jr., and Kevin H. Morse, Arnstein & Lehr LLP, Chicago, IL, Michael C. Hammer & Robert L. Avers, Dickinson Wright PLLC, Ann Arbor, MI, Attorneys for Callidus Capital Corporation.

MEMORANDUM DECISION2

Timothy A. Barnes

, United States Bankruptcy Judge

This matter comes on for consideration on AGS LLC's Motion to Compel Performance of Bluberi Gaming Technologies Inc. Pursuant to 11 U.S.C. § 365(n)(4)

[Dkt. No. 60] (the “Motion ”), brought by AGS LLC (“AGS ”). Upon a review of the parties' respective filings and after holding hearings on the matter, for the reasons more fully stated below, the court finds that AGS has failed to establish a contractual right to the performance it seeks under 11 U.S.C. § 365(n)(4), and the Motion must, therefore, be denied.

JURISDICTION

The federal district courts have “original and exclusive jurisdiction” of all cases under title 11 of the United States Code, 11 U.S.C. § 101, et seq.

(the “Bankruptcy Code ”). 28 U.S.C. § 1334(a). The federal district courts also have “original but not exclusive jurisdiction” of all civil proceedings arising under title 11 of the United States Code, or arising in or related to cases under title 11. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under title 11. 28 U.S.C. § 157(b)(1)

. Bankruptcy judges must therefore determine, on motion or sua sponte, whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1), 157(c) ; In re

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adco Merch. Servs., Inc., 111 B.R. 684, 686 (N.D.Ill.1990). Instead, the bankruptcy court must “submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.” 28 U.S.C. § 157(c)(1).

The scope of what is or is not a core proceeding when arising in a chapter 15 case is unsettled. Recognition of foreign proceedings and other matters under chapter 15 of the Bankruptcy Code are expressly core proceedings. 28 U.S.C. § 157(b)(2)(P)

. At least one court has held, however, that the “other matters” language from this section is not outcome determinative. In re Fairfield Sentry Ltd. Litig., 458 B.R. 665, 676 (S.D.N.Y.2011) (“that ‘recognition of foreign proceedings and other matters under chapter 15 of title 11 are core proceedings is not relevant” to a determination of whether such “other matters” are in fact core proceedings). Put another way, the “other matters” catchall operates in much the same way as section 105 of the Bankruptcy Code —it helps fill in the gaps but does not allow the court to act where it clearly should not.

See, e.g., Mobil Oil Corp. v. Higginbotham, 436 U.S. 618, 625, 98 S.Ct. 2010, 56 L.Ed.2d 581 (1978)

(“There is a basic difference between filling a gap left by Congress' silence and rewriting rules that Congress has affirmatively and specifically enacted.”); Levit v. Ingersoll

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and Fin. Corp., 874 F.2d 1186, 1197–98 (7th Cir.1989) (same).

Each party has voluntarily submitted itself to this court's jurisdiction (the debtors and the Foreign Representative, as defined below, by petitioning for chapter 15 relief and AGS by bringing the Motion) or has impliedly consented to this court's jurisdiction, and thus the court may statutorily hear and determine the matters as core matters. R adco Merch. Servs., Inc., 111 B.R. at 686

. In addition, because the matter at bar arises out of an earlier order of the court that neither party challenged jurisdictionally, the court must treat the enforcement of the order as validly within its statutory jurisdiction. Id . at 688.

That does not, however, answer the question of whether the court may constitutionally hear and determine the matters, but that is an inquiry better taken up once informed by the history of this matter.

HISTORY

These chapter 15 cases were commenced on February 18, 2016 by Bluberi Gaming Technologies Inc. (“Bluberi Gaming ”), Bluberi Group Inc. and Bluberi USA, Inc. (collectively, “Bluberi ”).

Bluberi's Petitions and Verified Petitions [Dkt. Nos. 1, 2] (the “Petitions ”) and the other documents filed in support thereof, state the case for Bluberi's need for chapter 15 recognition and relief. Bluberi is, as is set forth in those documents, a Canadian company conducting business both in the United States and in Canada. That business is, at its essence, the development, sale and deployment of electronic gaming machines. Bluberi's customers are principally casinos in the United States, including casinos located in Native American lands, but also exist elsewhere throughout the Americas.

Aside from its direct revenues, Bluberi appears to have financed its operations and recent growth in two ways, from direct borrowing from Callidus Corporation (“Callidus ”), Bluberi's largest creditor, and through the sale of interests in electronic gaming equipment and licensing of its proprietary software to AGS. With those funds, Bluberi expanded its business operations to include a wider range of services in the gaming industry.

Those expanded operations have not yet generated sufficient revenue to pay the obligations incurred by Bluberi. As a result, on November 15, 2015, Bluberi commenced an insolvency proceeding under Canada's Companies' Creditors Arrangement Act (R.S.C.1985, c. C–36) (the “CCAA ”), pending before the Superior CourtCommercial Division, Province of Québec, District of Montréal (the “Canadian Court ”), File No. 500–11–049737–154 (the “Canadian Proceeding ”). The Petitions indicate that this case was commenced in support of the Canadian Proceeding.

Early in the Canadian Proceeding, Mr. Justice Jean–François Michaud of the Canadian Court appointed Ernst & Young Inc. as monitor and Joe Pernica of Pernica Advisory Services Inc. as Bluberi's Chief Restructuring Officer. At a subsequent hearing, Mr. Justice Michaud also authorized Bluberi Gaming to act as foreign representative for itself and the rest of Bluberi.3 Later still, the Canadian Court approved a sale of substantially all of Bluberi's assets to Callidus. That sale, however, has not yet closed.

In support of and in preparation for the sale, the Foreign Representative commenced the above-captioned chapter 15 cases, seeking an order granting recognition of the Canadian Proceedings under 11 U.S.C. § 1517

.4 Prior to the hearing on recognition of the Canadian Proceedings (the “Recognition Hearing ”), the Foreign Representative sought, on an emergency basis, interim relief under 11 U.S.C. § 1519. In that request, the Foreign Representative asked that the court order the projections of 11 U.S.C. § 365(e) —the so-called ipso facto contract termination prohibitions—on an interim basis in the case. The court conducted a hearing on the emergency motion on February 22, 2016. At the hearing, the court questioned the propriety of selectively applying provisions of the Bankruptcy Code in chapter 15 cases.5 Such a practice ignores the checks and balances elsewhere in the system that may have bearing on the provisions being applied as a whole. Selectively applying the substantive law of a nonmain jurisdiction upsets the equilibrium otherwise established in that domestic substantive law.

In the absence of an objection, however, though admittedly on very shortened notice for any such objection to be lodged, the court ordered the relief requested. See Provisional Order under Chapter 15 [Dkt. No. 38] (the “Provisional Order). In the Provisional Order, the court found that the ipso facto protections in section 365(e)

were consistent with the protections afforded by the automatic stay under 11 U.S.C. § 362(a), which would automatically apply in the case upon recognition under 11 U.S.C. § 1520(a)(1) and was also provisionally applied under the Provisional Order. By separate order, the court also scheduled the Recognition Hearing for March 15, 2016 and set notice requirements and objection deadlines relating thereto. For the order sought in the Recognition Hearing, the Foreign Representative asked that not just the preceding protections, but that section 365 in its entirety, be applied upon recognition under 11 U.S.C. §§ 1520(a)(1) & 1521.

Prior to the Recognition Hearing, AGS objected to the Provisional Order and the relief requested upon recognition. See AGS LLC's Response to Verified Petitions of Canadian Proceeding under Chapter 15 and Motion for Order Granting Related Relief, and Provisional Order under Chapter 15 [Dkt. No. 42] (the “Recognition Objection ”).6 In the Recognition Objection, AGS argued that the chapter 15 cases should not be permitted...

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