In re Metiom, Inc., 01-12840 (RDD).

• Decision Date: 01 December 2003
• Docket Number: No. 01-12840 (RDD).,01-12840 (RDD).
• Citation: 301 B.R. 634
• Parties: In re METIOM, INC., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

301 B.R. 634

In re METIOM, INC., Debtor.

No. 01-12840 (RDD).

United States Bankruptcy Court, S.D. New York.

December 1, 2003.

COPYRIGHT MATERIAL OMITTED

Arent, Fox, Kintner, Plotkin & Kahn, PLLC, by Andrew I. Silfen and Schuyler G. Carroll, for Creditor Trustee.

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., by Michael L. Schein, for divine Acquisition, Inc.

MEMORANDUM DECISION AND ORDER ON DIVINE'S MOTION TO DISMISS CLAIM OBJECTION UNDER SECTIONS 502(d) AND 510(c) OF THE BANKRUPTCY CODE

ROBERT D. DRAIN, Bankruptcy Judge.

Bernard Katz, the Creditor Trustee (the "Trustee") under the liquidating chapter 11 plan (the "Plan") of Metiom, Inc. ("Metiom") has objected to an unsecured prepetition claim (the "Claim") filed by Intira Corporation ("Intira") and later assigned to divine Acquisition, Inc. ("divine"). Under the Plan, the Trustee also succeeded to an objection to the Claim previously filed by the Official Committee of Unsecured Creditors (the "Committee"), and I have treated the two objections together, as consolidated (the "Claim Objection").

Before discovery, divine has asserted several reasons why the Claim Objection must be denied as a matter of law. As discussed below, I deem divine's response to the Claim Objection a motion to dismiss under Fed.R.Civ.P. 12(b)(6), as incorporated by Bankruptcy Rule 7012, and, following oral argument and post-hearing submissions, deny divine's motion.

Background

Metiom filed its chapter 11 petition on May 16, 2001. Metiom did not survive as a going concern. Its Plan was confirmed on November 28, 2001, and the Plan and the Trustee's appointment became effective on April 20, 2002.

Intira filed its proof of Claim on July 9, 2001 in the amount of $752,498, but divine admits that Intira's proof of claim incorrectly included $92,672 that divine says Metiom paid Intira in the ordinary course for postpetition services, and divine has volunteered to reduce the Claim to $659,826. (Although happy to have the Claim so reduced, the Trustee disputes divine's characterization of the $92,672 as having been paid in the ordinary course for valid postpetition services.)

Intira suffered its own financial difficulties and filed a chapter 11 case on July 30, 2001 in the United States Bankruptcy Court for the District of Delaware. On September 30, 2001 that court approved the sale of substantially all of Intira's assets, including the Claim, to divine under section 363(b) of the Bankruptcy Code. It is not disputed, however, that notice of the assignment of the Claim was not filed in Metiom's chapter 11 case under Bankruptcy Rule 3001(e);¹ nor, apparently, was notice of Intira's sale motion provided to Metiom.

On February 25, 2002 it was divine's turn to file under chapter 11 of the Bankruptcy Code, and its case is pending in the United States Bankruptcy Court for the District of Massachusetts. Divine states that on or about May 15, 2003 it sold substantially all of its assets to third parties under section 363(b) of the Bankruptcy Code; however, it apparently did not sell the Claim, because there has been no filing under Bankruptcy Rule 3001(e)(2) regarding divine's transfer of the Claim and divine continues to defend against the Claim Objection.

The Claim Objection alleges that Intira received a $170,000 payment on account of antecedent debt that cleared on March 19, 2001, which, therefore, constitutes a potentially avoidable preference under section 547(a) of the Bankruptcy Code. Consequently, the Claim Objection alleges, the Claim must be disallowed under section 502(d) of the Bankruptcy Code until the return of the amount of the preferential payment.²

The Claim Objection also alleges that, although Metiom tried soon after the petition date to cancel the parties' netsourcing agreement and recover computer servers in Intira's possession, Intira refused to release the servers unless it was paid the prepetition amount that it claimed it was owed. As a result of Intira's recalcitrance, the Claim Objection alleges, Metiom agreed in July, 2001 to pay Intira $92,672 out of the ordinary course without Court approval. Consequently, the Claim Objection alleges, the Claim should be disallowed under section 502(d) of the Bankruptcy Code unless the amount of the postpetition transfer avoidable under section 549(a) of the Bankruptcy Code is returned.³

Finally, the Claim Objection requests that, if allowed, the Claim be equitably subordinated to other unsecured claims under section 510(c) of the Bankruptcy Code because of Intira's wrongful delay in returning the servers. The Claim Objection does not detail any damages caused by Intira, with the exception of the $92,627 payment that the Trustee contends was merely ransom; however, the Trustee's Memorandum of Law in Further Support of Claims Objection, dated September 15, 2003 ("Memorandum of Law"), alleges three other ways that Intira damaged Metiom's estate and creditors: Intira's delay in returning the servers, and, more importantly, the valuable intellectual property stored in the servers, prejudiced Metiom's sale process; Hewlett-Packard, Inc., which leased the servers to Metiom, would not have asserted a $150,129.57 administrative expense if Intira had not retained the servers for the period covered by Hewlett-Packard's claim; and, before returning the servers, Intira improperly reformatted them, destroying much of Metiom's intellectual property stored therein.

Divine has adopted Intira's response to the Claim Objection and raised other responses, including, for the first time at the hearing on the Claim Objection, the contention that the Claim Objection, at least insofar as it is based on sections 502(d) and 510(c) of the Bankruptcy Code, violates the automatic stay in divine's chapter 11 case. Some of divine's responses dispute the Claim Objection's factual allegations, asserting, among other things, that there are defenses under section 547(c) of the Bankruptcy Code to the Trustee's preference allegation and that the allegedly improper $92,672 postpetition payment was made in the ordinary course for properly billed postpetition services and, therefore, did not require bankruptcy court approval.⁴ The parties have chosen to defer the evidentiary hearing on these issues, however, focusing first on divine's responses that the Claim Objection must fail as a matter of law, which are addressed below.

Discussion

I. Inapplicability of the Automatic Stay to the Claim Objection. As a threshold matter, this Court is authorized to determine whether the automatic stay in divine's chapter 11 case applies to the Claim Objection. In re Baldwin-United Corp. Litigation, 765 F.2d 343, 347 (2d Cir.1985) ("The court in which the litigation claimed to be stayed is pending has jurisdiction to determine not only its own jurisdiction but also the more precise question whether the proceeding pending before it is subject to the automatic stay."); NLRB v. Edward Cooper Painting, Inc., 804 F.2d 934, 939 (6th Cir.1986) (same).

The Trustee does not seek affirmative relief under either sections 547 or 549 of the Bankruptcy Code or damages resulting from Intira's postpetition conduct. He has waived such claims, asserting such rights only as grounds for objecting to, or equitably subordinating, the Claim. Divine's argument, therefore, that the Trustee has violated the automatic stay merely by asserting defenses that could give rise to a claim, hardly merits a response. By waiving affirmative relief, the Trustee has expressly not attempted "to recover a claim against the debtor," 11 U.S.C. § 362(a)(1), or "to obtain possession of property of the estate or of property from the estate" of divine. 11 U.S.C. § 362(a)(3). Accordingly, the only provision of section 362(a) of the Bankruptcy Code arguably implicated by the Claim Objection is section 362(a)(3)'s stay of "any act to ... to exercise control over property of the estate."

However, this provision of section 362(a)(3) does not apply, either, because the Trustee merely is proceeding defensively — not asserting a counterclaim — in objecting to the Claim. The Trustee is not exercising control over divine's property but, rather, simply is responding to a proof of claim filed in Metiom's chapter 11 case. Neither the language nor the policy of section 362(a)(3) apply in that context. See Justus v. Financial News Network Inc. (In re Financial News Network Inc.), 158 B.R. 570, 573 (S.D.N.Y.1993), holding that section 362(a) of the Bankruptcy Code does not prevent entities against whom a debtor proceeds in an offensive posture from protecting their legal rights in a defensive posture, including by objecting to a debtor's proof of claim if that objection does not also seek affirmative relief. Id. at 573. See also In re Meade, 1999 WL 33496001, at *1, n. 1, 1999 Bankr.LEXIS 1408, at *1, n. 1 (Bankr.E.D. Pa. June 3, 1999) (accord). Cf. In re Shared Technologies Cellular, Inc., 293 B.R. 89, 95-6 (D.Conn.2003) (relief from the automatic stay to pursue preference avoidance proceeding against the debtor was granted on the condition that any subsequent objection under section 502(d) of the Bankruptcy Code to the debtor's claim in the debtor/plaintiff's bankruptcy case would be stayed at least until the percentage distribution in the alleged preferential transferee's bankruptcy case could be determined).

II. Does the Claim Objection Fail Because not Brought as an Adversary Proceeding? Divine argues that the Claim Objection must be dismissed because the Trustee asserted rights involving sections 547 and 549 of the Bankruptcy Code and under section 510(c) of the Bankruptcy Code that are subject to Part VII of the Bankruptcy Rules, Fed. R. Bankr.P. 7001, but did not file an adversary proceeding. This is not, in divine's view, a matter that can be cured simply by refiling the Claim Objection as an adversary proceeding, because, divine contends, under the Plan the Trustee is time-barred from starting an adversary...