In re Jobs.Com, Inc., 01-41861-BJH-11.

Decision Date10 September 2002
Docket NumberNo. 01-41861-BJH-11.,01-41861-BJH-11.
Citation283 B.R. 209
PartiesIn re JOBS.COM, INC.
CourtU.S. Bankruptcy Court — Northern District of Texas

John Y. Bonds, III, Shannon, Gracey, Ratliff & Miller, Ft. Worth, TX, Michael S. Britton, Shields, Britton & Fraser, Plano, TX, Steven John Coaty, Coaty Law Offices, Newport, RI, John Mark Chevallier, McGuire, Craddock, Strother & Hale, Michael W. Deeds, Linebarger, Goggan, Blair & et al., Dean W. Ferguson, Munsch, Hardt, Kopf, Harr & Dinan, Dallas, TX, Sherrel K. Knighton, Law Offices of Robert E. Luna, William Thomas McLain, Reagan & McLain, Alan K. Motes, Vinson & Elkins, Michael R. Rochelle, Rochelle, Elrod & Hutcheson, Hutton W. Sentell, Law Offices of Joseph E. Ashmore, Jr., Andrea Sheehan, Eric J. Spett, Munsch, Hardt, Kopf, Harr & Dinan, Louis Raymond Strubeck, Jr., Fulbright & Jaworski, Alan S. Trust, Trust.Law.Firm, P.C., Dallas, TX, Alan W. Kornberg, Allan J. Arffa, Erica G. Weinberger, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, Nelson S. Ebaugh, Hiersche, Martens, Hayward, et al., Addison, TX, Larry Alan Levick, Gerard, Singer & Levick, Addison, TX, Russell W. Mills, Gerald P. Urbach, Hiersche, Martens, Hayward, et al., Addison, TX, Tally F. Parker, Jr., Parker & Marks, Irving, TX, Charles R. Gibbs, Akin, Gump, Strauss, Hauer & Feld, Dallas, TX, represents creditor.

Scott D. McDonald, Gardere, Wynne & Sewell, Deirdre B. Ruckman, Gardere, Wynne & Sewell, Dallas, TX, represents debtor.

Jonathan Davidson, Digital Coast Partners, LLC, Santa Monica, CA, pro se.

MEMORANDUM OPINION

BARBARA J. HOUSER, Bankruptcy Judge.

Before the Court is the Debtor's Objection to Claims of Series C Preferred Stock and Warrant Holders (Claims No. 90, 91, 92, 93, 94, 95, 96, and 97), the First Omnibus Objection to Claims filed by jobs.com (collectively, the "Claim Objection"), the joinder in the Claim Objection filed by Heritage Exhibits, Inc. (the "Joinder"), and the responses to the Claim Objection filed by the Carrieri Group1 (the "Response"). The Court has jurisdiction over the Claim Objection, the Joinder, and the Response in accordance with 28 U.S.C. §§ 1334 and 157. Resolving claim objections are core proceedings in accordance with 28 U.S.C. § 157. This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law in accordance with Fed.R.Civ.P. 52, made applicable here by Bankruptcy Rules 7052 and 9014.

The Court heard the Claim Objection over several days. Closing arguments were made on August 6, 2002. After careful consideration of the Claim Objection, the Joinder, the Response, the evidence, the relevant authorities, and the arguments of counsel, the Court concludes that the members of the Carrieri Group do not hold allowable claims against the Debtor.

I. FACTUAL BACKGROUND

As part of the Merger Agreement that resulted in the Debtor's creation, the Debtor issued shares of Series C-1 preferred stock (the "C-1 Stock") to each member of the Carrieri Group. The C-1 Stock was issued subject to the terms and conditions of the Statement of Designation, Preferences and Rights of Series C-1 Preferred Stock of Opportunity Network, Inc. (the "Statement"). See Debtor Exhibits P & Q. The Statement contained, among other things, a redemption provision requiring the Debtor to redeem the C-1 Stock under certain circumstances. See Debtor Exhibit Q at ¶ 5. Specifically, the Statement provided that "[a]t any time and from time to time after March 22, 2001, upon receipt of written demand from any holder of shares of Series C-1 Preferred, the Corporation, to the extent it has legally available funds therefore, shall redeem the whole or any part of such holder's shares ...." See id.

In addition to the C-1 Stock and the Statement, each member of the Carrieri Group also received warrants for the purchase of additional preferred stock of the Debtor as part of the merger transaction. Specifically, each member of the Carrieri Group received a Series C-2 Preferred Stock Warrant (the "C-2 Warrants"), a Series C-3 Preferred Stock Warrant (the "C-3 Warrants"), and a Series C-4 Preferred Stock Warrant (the "C-4 Warrants") (collectively, the "Warrants"). See Debtor Exhibits R, S, & T. The Debtor agreed to repurchase the Warrants at an agreed price if it had "legally available funds" at the time of demand by the holder of the Warrants. See id. at ¶ 5. Demand could be made for the repurchase of the C-2 Warrants and the C-3 Warrants at any time after March 19, 2002. See Debtor Exhibits R & S at ¶ 5. Demand could be made for the repurchase of the C-4 Warrants at any time after March 22, 2003. See Debtor Exhibit T at ¶ 5. The Warrants expired on March 22, 2004. See Debtor Exhibits R, S, & T at ¶ 2.

Each member of the Carrieri Group made written demand for redemption of the C-1 Stock on or about February 20, 2001, specifying a redemption date of either March 22 or 23, 2001, and returned his stock certificate. See Debtor Exhibits L & M. The Debtor rejected these demands in writing (a series of letters sent by its counsel which stated that "[t]he Statement of Designation, Preferences and Rights of Series C-1 Preferred Stock sets forth the requirements that must be satisfied before a holder of Series C-1 Preferred Stock may exercise its redemption rights. It appears to jobs.com that you have failed to satisfy such requirements. As a consequence, we are returning your original ... letter to you, and the original stock certificate that you sent to us."). See Debtor Exhibit N.

The Statement required that the certificate representing the C-1 Stock be returned by each holder when demand was made "duly endorsed or assigned" to the Debtor. No member of the Carrieri Group complied with this requirement when the demand for redemption was first made.

The Debtor filed its voluntary petition under Chapter 11 of the Bankruptcy Code on March 15, 2001 (the "Petition Date"), a few days before the specified redemption dates (March 22 or 23, 2001) for the C-1 Stock, thereby commencing this bankruptcy case (the "Case"). On July 21, 2001, each member of the Carrieri Group filed unsecured claims against the Debtor (the "Claims") in the Case in "unknown amounts" arising from the C-1 Stock, the Statement, and the Warrants. See Debtor Exhibits A, B, C, D, E, F, G, & H. By letters dated March 19, 2002, each member of the Carrieri Group made demand on the Debtor for (i) repurchase of the C-2 Warrants and the C-3 Warrants, and (ii) redemption of the C-1 Stock. See Debtor Exhibit O. In connection with this demand for redemption of the C-1 Stock, the certificates were again returned (this time duly endorsed to the Debtor as required by the Statement).

II. CONTENTION OF THE PARTIES

The Debtor contends that members of the Carrieri Group hold equity interests in the Debtor, not unsecured claims. Heritage agrees, but pleads in the alternative that any claims held by members of the Carrieri Group must be subordinated in accordance with § 510(b) of the Bankruptcy Code.

The members of the Carrieri Group contend that because they gave notice of their desire to compel redemption of the C-1 Stock prepetition, they held contingent, unsecured claims against the Debtor that matured post-petition in the aggregate amount of $880,000. In addition, the members of the Carrieri Group contend that because the Warrants contained a repurchase obligation, they held contingent, unsecured claims against the Debtor in the aggregate amount of $3,105,716, of which $1,320,000 arises from the demand for repurchase of the C-2 Warrants and the C-3 Warrants (which matured on March 22, 2002 after such demand) and $1,785,716 arises from the C-4 Warrants (which could not be the subject of a demand for repurchase until March 22, 2003).

III. LEGAL ANALYSIS
A. Preliminary Statement

The parties agree that members of the Carrieri Group either hold (i) claims against the Debtor, (ii) equity securities of the Debtor, or (iii) both. Thus, the starting point in the Court's analysis is § 101 of the Bankruptcy Code which contains definitions of both "claim" and "equity security."

Section 101(5)(A) defines claim to mean a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." This definition of claim is intentionally broad. See In re Andrews, 239 F.3d 708, 710 (5th Cir.2001) (section 101(5) contains the "broadest possible definition of the term `claim' [which] captures all legal obligations of the debtor, no matter how remote or contingent"). Section 101(16) defines equity security to mean, as relevant here, "share in a corporation," see 11 U.S.C. § 101(16)(A), or "warrant or right, other than a right to convert, sell, or subscribe to a share, security, or interest of a ... [corporation]," see 11 U.S.C. § 101(16)(C).

In accordance with § 101(16)(A), the C-1 Stock is an equity security. However, for the reasons explained more fully below, the Court concludes that members of the Carrieri Group held contingent and unmatured claims against the Debtor for redemption of the C-1 Stock on the Petition Date. But, those claims are not allowable against the Debtor in accordance with § 502(b)(1) of the Bankruptcy Code.

Because of prior precedent in this District, the Court concludes that the Warrants and the right to compel repurchase of the Warrants are equity securities in accordance with § 101(16)(C) of the Bankruptcy Code until the obligation to repurchase matured, at which time they became claims. If this binding precedent did not exist, the Court would conclude that while the Warrants are equity securities in accordance with § 101(16)(C), the contractual right to compel the Debtor's repurchase of the Warrants (as set forth in the Warrants) gives rise to contingent and unmatured claims against the Debtor as of the Petition Date. But, those claims are not allowable against the Debtor in...

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