In re Polaroid Corp.
| Decision Date | 23 November 2009 |
| Docket Number | Bankruptcy No. 08-46625(GFK).,Bankruptcy No. 08-46627(GFK).,Bankruptcy No. 08-46617.,Bankruptcy No. 08-46628(GFK).,Bankruptcy No. 08-46623(GFK).,Bankruptcy No. 08-46620(GFK).,Bankruptcy No. 08-46626(GFK).,Bankruptcy No. 08-46621(GFK).,Bankruptcy No. 08-46629(GFK).,Bankruptcy No. 08-46624(GFK).,Adversary No. 09-4031. |
| Citation | 420 B.R. 484 |
| Parties | In re POLAROID CORPORATION, et al, Debtors, (includes: Polaroid Holding Company; Polaroid Consumer Electronics, LLC; Polaroid Capital, LLC; Polaroid Latin America I Corporation; Polaroid Asia Pacific LLC; Polaroid International Holding LLC; Polaroid New Bedford Real Estate, LLC; Polaroid Norwood Real Estate, LLC; Polaroid Waltham Real Estate, LLC) Polaroid Corporation and Polaroid Consumer Electronics, LLC, Plaintiffs, v. Acorn Capital Group, LLC, as Lender and as Administrative and Collateral Agent, Defendant. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
George H. Singer, James A. Lodoen, Nicole Siemens, Sandra S. Smalley-Fleming, Terrence J. Fleming Lindquist & Vennum P.L.L.P., Minneapolis, MN, for Plaintiffs.
Daniel C. Beck, Michael Rosow, Winthrop & Weinstine PA, Thomas H. Boyd, Theresa H. Dykoschak, Faegre & Benson LLP, Minneapolis, MN, for Defendant.
ORDER GRANTING PLAINTIFFS' MOTION FOR DISMISSAL OF DEFENDANT'S COUNTERCLAIM, IN PART
At St. Paul, Minnesota, this 23rd day of November, 2009.
This adversary proceeding came on before the Court for hearing on the Plaintiffs' motion for dismissal of the Defendant's counterclaim. The Plaintiffs appeared by their attorney, Sandra S Smalley-Fleming. The Defendant appeared by its attorney, Thomas H. Boyd.
This adversary proceeding was commenced in February, 2009. At that time, the named plaintiffs (the Polaroid Corporation and Polaroid Consumer Electronics, LLC, collectively "the Polaroid Plaintiffs") were debtors-in-possession under Chapter 11.1 When the Polaroid Plaintiffs filed for bankruptcy, the Defendant ("Acorn") claimed a security interest in significant assets of theirs, including inventory and accounts held or sited in the United States and trademarks and associated rights in the United States, Canada, and Mexico.
Via this adversary proceeding, the Polaroid Plaintiffs sought, in the main, to avoid or otherwise nullify Acorn's liens.2 Their main theory was that the taking of the security interests constituted fraudulent transfers as to the Polaroid Plaintiffs' creditors. They cited both Minnesota state law and federal bankruptcy law. Toward the same end, they requested other forms of relief: the disallowance of Acorn's claim in their bankruptcy cases; the avoidance of Acorn's lien in consequence of any such disallowance; the equitable subordination of Acorn's claim; the recharacterization of Acorn's claim as equity rather than debt; and/or the nullification of Acorn's lien under more general equitable principles.
An involved series of events and circumstances is pleaded in support of these requests. However, the factual theory can be summed up simply enough: the Polaroid Plaintiffs were induced by the individual in control of them (Thomas J. Petters)to encumber their own assets to Acorn, in order to provide additional security for preexisting debts owed to Acorn by another company in Petters's business structure (PAC Funding, LLC). This, it is alleged, was done in early 2008, after Acorn discovered that Tom Petters and PAC Funding had misrepresented the existence and quality of assets originally proffered and given to Acorn as collateral for earlier loans to PAC Funding. The cause for avoidance or subordination would be that the Polaroid Plaintiffs received nothing to their benefit from pledging their assets for third-party debt on which they had had no legal obligation, and that Petters and Acorn knew that and still proceeded.3 The resulting expropriation of value would be redressed by one or more of the remedies requested.4
Through counsel, Acorn interposed its answer in March, 2009. The answer is lengthy like the complaint; but, it directly tracks the complaint's organization and it specifies Acorn's responses to the complaint's averments. Acorn addresses the requests for relief in the complaint's eleven separately-numbered counts. It pleads a dozen affirmative defenses, under the avoidance statutes plus boilerplate equitable theories.
Then, Acorn pleads a counterclaim, seeking to vindicate its asserted "valuable and enforceable lien in the [Polaroid Plaintiffs'] assets." It describes a series of financing-related transactions that had commenced in November, 2004, involving itself, PAC Funding, and then the Polaroid Plaintiffs. Acorn states that it first took a security interest in PAC Funding's assets, to secure all advances that Acorn was to make to PAC Funding under a revolving loan agreement. This collateral included PAC Funding's accounts, contract rights, and promissory notes. Then, Acorn alleges, an advance of approximately $15,000,000.00 was made under PAC Funding's credit facility on March 4, 2008, with payment wired directly to Plaintiff Polaroid Consumer Electronics at PAC Funding's request. In connection with that, the Polaroid Plaintiffs granted security interests in their United States inventory and accounts, first to PAC Funding and then to Acorn directly. Per Acorn, a second, similarly-structured,-routed, and -secured advance of $10,000,000.00 followed in mid-April, 2008. After that, in mid-May, 2008, the Polaroid Plaintiffs and Acorn executed documents under which the Polaroid Plaintiffs "absolutely and unconditionally guaranteed the payment of all amounts owing to Acorn pursuant to the PAC [Funding] credit agreement" (emphasis added), and the Polaroid Plaintiffs granted Acorn a security interest in their trademarks in the United States, Canada, and Mexico.5
On these stated facts, Acorn maintains that it had "valid and enforceable liens in [the Polaroid Plaintiffs'] assets." Acorn states that its secured rights derived from its "direct interest," i.e., the Polaroid Plaintiffs' grants of liens, and its "indirect interest," i.e., its liens in PAC Funding's contractual and secured rights as a creditor of the Polaroid Plaintiffs.6 So, as its relief on its counterclaim, Acorn seeks a declaratory judgment that it has "a valid and enforceable lien in [the Polaroid Plaintiffs'] assets, derived from [its] direct interest ... and [its] indirect interest in" those assets.
The Polaroid Plaintiffs move to dismiss Acorn's counterclaim. Predictably, Acorn strenuously resisted the motion.
Initially, it must be recognized that Acorn seeks relief as to, two distinct legal issues; the counterclaim encompasses requests for two different declaratory judgments7. Acorn's response does not expressly concede the point, but its arguments tend to cluster along the lines of the analysis. As it turns out, the outcome on the motion splits on the same lines.
The first prong of the counterclaim goes to Acorn's "direct interest," i.e., the security interest in trademarks and associated rights that the Polaroid Plaintiffs themselves granted to Acorn in May, 2008. As to this request, the Polaroid Plaintiffs frame their motion for dismissal under both FED.R.CIV.P. 12(b)(6) () and FED.R.CIV.P. 12(f) ().8 But, neither their briefing nor their oral presentation articulated a theory on which Acorn's counterclaim was legally deficient on its pleaded facts. Thus, there is no basis for dismissal under Rule 12(b)(6).9
Thus, as to that prong of the counterclaim, the motion rests solely on the argument that the request for relief is "redundant," i.e., that in seeking a declaratory judgment on the validity and enforceability of its "direct interest," Acorn "merely seek[s] resolution of matters that will be resolved as part of the claims that are already in the lawsuit." In support, counsel cites a number of recent decisions issued out of United States district courts from other districts, reported only in the electronic legal research services. None of these rulings have precedential effect here. And generally they stand for no more than a permissive authority in the court, to excise defendants' "redundant" requests for declaratory judgment where they would only mirror adjudications necessarily made in disposition of plaintiffs' claims.
That is not quite the case here, however. The main, frontal assault on Acorn's secured position-avoidance as a fraudulent transfer—does not implicate Acorn's technical compliance with the underlying legal requirements for a grant of lien under Article 9 of the Uniform Commercial Code. Adjudicating the demand for avoidance would not require a formal, threshold ruling that the transfer of the lien had been regular on its face, standing alone.
The case is a bit closer as to the other theories on which the Polaroid Plaintiffs would have Acorn's secured status nullified. They seek to have Acorn's claim disallowed under 11 U.S.C. § 502(b)(1).10 Their theory is broadly-pleaded, and might be construed to go to the liens' validity in the first instance. Their own request for a declaratory judgment in equity, to have Acorn's security instruments "declared null, void, and unenforceable," would or could require initial, subsidiary determinations as to the original propriety of these security interests under nonbankruptcy law. However, the findings and legal rulings made as the openers on these counts would not necessarily require a formal judgment of validity, in a form that would foreclose further challenges to Acorn's position under some other theory. The holdings might only be formulated as resolutions of discrete issues, which could later be invoked under the rubric of collateral estoppel, but they might not be classifiable as a full...
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