In re Islet Scis., Inc.
| Decision Date | 14 March 2022 |
| Docket Number | Case No. 19-13366-MKN |
| Citation | 640 B.R. 425 |
| Parties | IN RE: ISLET SCIENCES, INC., a Nevada corporation, fdba One E-Commerce Corporation, fdba Arianne Co., Debtor. |
| Court | U.S. Bankruptcy Court — District of Nevada |
Ryan A. Andersen, Andersen Law Firm, Ltd., Las Vegas, NV, for Creditor Committee.
Ryan A. Andersen, Andersen Law Firm, Ltd., Brandon P. Johansson, Armstrong Teasdale LLP, Bryan A. Lindsey, Samuel A. Schwartz, Schwartz Law, PLLC, Connor H. Shea, Brownstein Hyatt Farber Schreck, LLP, Las Vegas, NV, Erin Edelman, Richard Engel, Armstrong Teasdale LLP, St. Louis, MO, for Debtor.
Edward M. McDonald, Office of U.S. Trustee, Las Vegas, NV, for U.S. Trustee.
Brandon P. Johansson, Armstrong Teasdale LLP, Las Vegas, NV, for Special Counsel.
Honorable Mike K. Nakagawa, United States Bankruptcy Judge On October 19, 2021, a trial was completed in the above-captioned Chapter 11 bankruptcy proceeding. The trial addressed the requests of the above-captioned Debtor to approve the following matters: (1) Debtor's Fourth Amended Plan of Reorganization of Islet Sciences, Inc., Under Chapter 11 of the Bankruptcy Code Dated May 7, 2021; (2) the Motion Pursuant to Bankruptcy Rule 9019 to Approve Settlement With: (I) the Official Committee of Unsecured Creditors; and (II) Western States Funding, LLC; and (3) the Motion to Modify Debtor's Chapter 11 Plan of Reorganization Pursuant to 11 U.S.C. § 1127.2 The appearances of counsel were noted on the record. After conclusion of the trial, the matters were taken under submission. This Memorandum Decision constitutes the court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052 and Civil Rule 52.3 This Memorandum Decision discusses matters for which evidence and written testimony were admitted under seal and such evidence and written testimony shall remain under seal.4
On May 29, 2019, an involuntary Chapter 7 petition ("Involuntary Petition") was filed against Islet Sciences, Inc., a Nevada corporation ("Debtor"). (ECF No. 1). The Involuntary Petition was filed by seven separate creditors: James Green, Kevin M. Long, VACO Raleigh, LLC, William Wilkison, Brighthaven Ventures LLC, Steve Delmar, and Apex Biostatistics, Inc. (collectively, "Petitioning Creditors"). All of the Petitioning Creditors hold unsecured claims against the Debtor which allegedly are not contingent as to liability nor subject to bona fide dispute as to liability or amount. See Exhibit "2" to Involuntary Petition at ¶¶ 11 and 12.
On July 19, 2019, Debtor filed a motion to convert the proceeding to one under Chapter 11 ("Conversion Motion"), along with a declaration of John F. Steel, IV ("Steel Declaration").5 (ECF Nos. 9 and 10).
On July 19, 2019, Debtor filed a motion, as prospective Chapter 11 debtor in possession ("DIP") for authority to borrow operating funds ("DIP Financing") from Western States Funding, LLC ("WSF"). (ECF No. 11).6
On July 28, 2019, Petitioning Creditors filed a motion for an order directing expedited discovery. (ECF No. 45).
On July 30, 2019, Debtor filed a motion for a protective order. (ECF No. 50).
On August 7, 2019, an expedited hearing was held on various motions.
On August 15, 2019, an order was entered with respect to the requested protective order. (ECF No. 78).
On September 10, 2019, Debtor filed a motion seeking to file under seal a copy of an agreement with Curiam Investments 2 LLC ("Curiam") to provide post-petition financing of certain litigation ("Litigation Funding").7 (ECF No. 94). The motion was supported by the Declaration of Francisco A. Villegas, Esq. ("Villegas Declaration"). (ECF No. 95). At the same time, Debtor filed a motion for authorization to approve the post-petition Litigation Funding through Curiam. (ECF No. 96). Attached as Exhibit "A" to the motion was a copy of a Security Agreement between the Debtor and Curiam dated November 2, 2018. Under the Security Agreement, Curiam had provided pre-petition Litigation Funding to the Debtor secured by the gross proceeds of any recovery from the NC Federal Litigation. (Debtor Ex. 11).
On September 18, 2019, an order was entered granting the Conversion Motion. (ECF No. 116).
On September 18, 2019, an order was entered authorizing Debtor to employ and retain the law firm of Brownstein Hyatt Farber Schreck, LLP, as counsel for the Debtor. (ECF No. 119).
On September 18, 2019, a notice of Chapter 11 bankruptcy case ("Bankruptcy Notice") was served on the creditor matrix8 previously filed in the case. (ECF No. 127). The Bankruptcy Notice established a deadline of January 22, 2020, for non-governmental creditors to file proofs of claim and a deadline of March 16, 2020, for governmental creditors to file proofs of claim ("POC Deadline").
On September 23, 2019, an order was entered approving a stipulation between the Debtor and the Petitioning Creditors regarding certain confidential information ("Protective Order"). (ECF No. 134). The order provides for certain documents to be exchanged confidentially, disclosed under restrictive terms if necessary, and to be filed with the court under seal upon proper request.
On September 24, 2019, an order was entered granting the Debtor's request to file the Litigation Funding document under seal. (ECF No. 136; Debtor Ex. 10).
On October 1, 2019, an order was entered granting Debtor's request to approve DIP Financing. (ECF No. 148). That order approved a $1 million credit facility from WSF, with the repayment obligation accorded superpriority administrative expense status pursuant to Sections 364(c)(1), 503(b) and 507(b). A "Revolving Line of Credit Promissory Note" approved by the order also permitted WSF to elect to convert any outstanding debt to equity through confirmation of a Chapter 11 plan of reorganization.
On October 8, 2019, an order was entered granting in part Debtor's motion to quash Petitioning Creditors’ access to copies of the post-petition Litigation Funding agreement. (ECF No. 153).
On October 14, 2019, Debtor filed an amended voluntary Chapter 11 petition setting forth its existing name, and adding "FDBA One E-Commerce Corporation" and "FDBA Arianne Co." (ECF No. 155).
On October 14, 2019, Debtor filed its initial schedules of assets and liabilities ("Schedules") along with its statement of financial affairs ("SOFA"). (ECF No. 156; Debtor Ex. 54). According to its initial property Schedule "A/B," Debtor has three separate assets described as "licenses, franchises, and royalties" having an unknown value. According to its initial Schedule "D," Debtor has one creditor, Curiam, holding a claim in the amount of $100,000, that is secured by property that is not identified in the schedule.9 No other secured creditors are listed on Schedule "D." According to its initial Schedule "E/F," Debtor has no priority unsecured creditors and forty non-priority unsecured creditors, with claims totaling $8,882,869.00. Out of forty non-priority unsecured claims, six of them are the Petitioning Creditors with claims totaling $2,170,650.00 and all of those claims are designated as disputed. The remaining thirty-four non-priority unsecured creditors have claims totaling $5,892,611.00 that are not disputed, contingent, or unliquidated.10 According to its initial Schedule "G," Debtor has four separate executory contracts and unexpired leases with Quest Advanced Diagnostics & IQVIA ("Quest"), UVA Licensing & Ventures Group ("UVA"), Xeris Pharmaceutical, Inc. ("Xeris"), and Yale University ("Yale"). Attached to the initial Schedules and SOFA is a thirty-page List of Equity Security Holders whose holdings range from a low of 4 shares to a high of 22,453,400 shares.
On October 17, 2019, an order was entered granting interim and final approval of the Litigation Funding and security agreements between the Debtor and Curiam. (ECF No. 160). The order approved a $3.5 million Litigation Funding credit facility to permit the Debtor to continue pursuing the NC Federal Litigation. Draws on the Litigation Funding are secured by a first priority security interest in the net proceeds of the NC Federal Litigation.
On October 17, 2019, an order was entered authorizing Debtor to employ and retain Armstrong Teasdale LLP, as special litigation counsel in the NC Federal Litigation. (ECF No. 162).
On October 22, 2019, separate orders were entered authorizing Debtor to employ special litigation counsel as well as two certified public accountants. (ECF Nos. 167, 168, and 169).
On November 13, 2019, an order was entered approving a stipulation terminating the automatic stay to permit the Litigation Creditors to file and prosecute certain counterclaims in the NC Federal Litigation. (ECF No. 182).
On November 20, 2019, Debtor filed its monthly operating report ("MOR") for the period ending October 31, 2019. (ECF No. 183; Creditor Ex. "G"). On its balance sheet, Debtor listed total assets of $227,783.00 consisting of loan funds that were in its prepetition bank accounts at the time the MOR was prepared.
On November 26, 2019, an official committee of unsecured creditors ("UCC") was appointed by the Office of the United States Trustee ("UST") pursuant to Section 1102(a)(1).11 (ECF No. 184).12 Members of the UCC consisted of Brighthaven Ventures LLC, Spring Point Project, and William Wilkison, i.e., two out of three of the UCC members were Petitioning Creditors.
On December 18, 2019, Debtor filed a motion seeking to disband the UCC. (ECF No. 205).
On January 7, 2020, Debtor filed a motion for authority to employ and retain Portage Point Partners, LLC ("Portage Point"), as its financial advisor for the purpose of performing a valuation analysis of the Debtor ("Portage Point Application").13 (ECF No. 214).
On January 21, 2020, the UST filed an amended notice of appointment for the UCC. (ECF No. 228). Members of the UCC now consists of Brighthaven Ventures LLC, Spring Point Project, William Wilkison, PCG Advisory, Inc., and COVA Capital Partners, LLC. In other words,...
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