In re Del. Valley Lift Truck Inc.
| Decision Date | 25 May 2022 |
| Docket Number | Case No. 20-14408-AMC |
| Citation | 640 B.R. 342 |
| Parties | IN RE: DELAWARE VALLEY LIFT TRUCK INC., Debtor |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
George M. Conway, United States Trustee, Philadelphia, PA, for Office of the U.S. Trustee.
Jami B. Nimeroff, Esq., Brown McGarry Nimeroff, Philadelphia, PA, Trustee, Pro Se.
Paul J. Winterhalter, Offit Kurman, P.A., Philadelphia, PA, for Debtor.
After the Court dismissed the above-captioned voluntary chapter 11 bankruptcy case filed by Delaware Valley Lift Truck, Inc. ("Debtor" or "DVLT") for cause pursuant to 11 U.S.C. § 1112(b), finding that the case had been filed in bad faith and without proper corporate authority, the United States Trustee ("UST") and James E. Meyer, a 50% equity holder of DVLT ("Jim" or together with the UST, "Movants"), each separately filed motions seeking sanctions against Debtor's counsel, Paul J. Winterhalter, Esq. ("Winterhalter") under Fed. R. Bankr. P. 9011 (" Rule 9011") and 11 U.S.C. § 105(a) (" Section 105(a)" or " § 105(a)"). Jim's motion for sanctions ("Jim's Motion") also seeks sanctions against Winterhalter under 28 U.S.C. § 1927 (" Section 1927" or " § 1927"), and against both Winterhalter's law firm, Offit Kurman, P.C.1 ("Offit Kurman"), under Rule 9011, 11 U.S.C. § 105(a), and 28 U.S.C. § 1927, and John W. Meyer, the other 50% equity holder of DVLT and brother to Jim ("Jack" or together with Jim, the "Brothers"), under 11 U.S.C. § 105(a) and Rule 9011 for certain conduct in connection with the filing and defense of the bankruptcy petition.
For the reasons discussed below, the Court concludes that Winterhalter's promotion of a bad faith bankruptcy filing, for the improper purpose of advancing Jack's personal goals, to the detriment of Jim and DVLT, thereby derailing litigation in another forum involving the Brothers, warrants sanctions jointly and severally against Winterhalter and Offit Kurman of $204,183.57 and against Winterhalter personally in the amount of $9,757.30.
DVLT was founded in 1985 by John C. Meyer ("John"), the father of Jim and Jack. Tr. of Remote Hrg. Dec. 16th & 17th, 2020 ( ), Case No. 20-14408, ECF No. ("ECF") 110 at 167:21–168:2, 218:10-16.2 As of November 10, 2020, the date DVLT's chapter 11 petition was filed ("Petition Date"), Jack served as the president of DVLT; Jim and Jack each respectively held a 50% interest in DVLT; and the Brothers, along with John, served as DVLT's only three directors (collectively the "DVLT Directors"). Dec. Hrg. Tr., ECF 109 at 40:22-23, 45:22, 51:23-52:2, 85:13–86:4, 93:2-9; id. , ECF 110 at 169:13–20; ECF 1 at 4. The powers and duties of the DVLT Directors, and the Brothers as 50% shareholders, were respectively set forth in the DVLT Bylaws ("Bylaws") and the DVLT Shareholder's Agreement, dated February 1, 2008 ("Shareholder's Agreement"). See Sanction Hrg. Winterhalter Ex. 23, 24; Sanction Hrg. Tr., ECF 170 at 83:17-84:23, 85:5-8, 98:11-13. Relevant to this case, the Shareholder's Agreement established the identities of the DVLT Directors as John, Jack, and Jim and set forth procedures with respect to corporate governance of all "major decisions" of the corporation which would require unanimous consent of the shareholders and set forth the process for breaking a deadlock between the Brothers. Shareholder's Agreement at 15 ¶ 26(a), 16 ¶ 26(c).3 Specifically, paragraph 26(c) of the Shareholder's Agreement contemplated a tiebreaking vote to be cast by John.4 Shareholder's Agreement at 16 ¶ 26(c). Also relevant to this case, the Bylaws established that, in order to have a quorum for the purpose of shareholder consideration of a matter, it was required that a majority of shareholders be present. See Bylaws, Art. III ¶ 3. The Bylaws also required that special meetings of the Board of Directors be called on at least two days’ notice to each director and established a majority of the directors in office would constitute a quorum for the transaction of business. See id. Art. IV ¶¶ 6, 7.
The relationship between the Brothers is, by all intents and purposes, a strained one that was heavily impacted by their involvements with the Debtor. In July of 2017, Jim's employment5 with DVLT ended following a meeting among the Brothers, Douglas Maloney, a lawyer representing Jim, and Barry Penn, a lawyer representing DVLT. Ex. 5, Jim's Decl., Mot. to Dismiss, ECF 59 at 13 ¶ 25; DVLT's Resp. in Oppn. to Mot. to Dismiss, ECF 86 at 21–22 ¶ 134. However, Jim's specific involvement with DVLT, and the reasons for his July 2017 termination are heavily disputed by the Brothers.
On March 15, 2018, Jim initiated litigation in the United States District Court for the Eastern District of Pennsylvania ("District Court") asserting, inter alia , claims for breach of fiduciary duties and corporate waste ("District Court Litigation") against Jack personally, DVLT, Jack's wife, and the Law Offices of Barry Penn, former counsel for DVLT ("Penn"). Second Am. Compl. ("Jim's Complaint"), Meyer et al v. Delaware Valley Lift Truck, Inc. et al , No. 2:18-cv-01118-WB (E.D. Pa. dismissed Dec. 2, 2021) ("Dist. Ct. Litig."), ECF 25 at ¶¶ 2–9, p. 20, 26, 29. Jim's Complaint in the District Court Litigation sought relief in the form of, inter alia , the appointment of a custodian to effectuate the involuntary winding up and dissolution of DVLT for Jack's alleged breaches of the Shareholder's Agreement, stemming from a number of alleged acts performed by Jack, including but not limited to, improperly terminating Jim's employment with DVLT, illegally seizing control of the company, and unfairly depriving Jim of his rights under the Shareholder's Agreement. Id. at 12, 13, 20–26 ¶¶ 41–50, 70–84. As of the Petition Date, pending before the District Court were cross-motions for summary judgment, the first of which was filed by defendant Penn on October 6, 2020, and the second of which was filed by Jim on October 7, 2020, seeking partial summary judgment.6 Dist. Ct. Litig., ECF Nos. 100, 101, & 102. Additionally, the parties to the District Court Litigation agreed by stipulation, confirmed by order of the District Court on November 4, 2020, to extend the time Jim had to respond to the oppositions of DVLT, Jack, and Penn to his partial summary judgment motion to November 18, 2020, and to extend the time for Penn to respond to Jim's opposition to his summary judgment motion to November 20, 2020. Dist. Ct. Litig., ECF No. 109.
However, on November 10, 2020, only six days later, Jack, acting on behalf of DVLT, filed and signed a voluntary petition for relief under chapter 11, subchapter V of the Bankruptcy Code for DVLT ("Petition"). Voluntary Pet. for Non-Individuals, ECF 1. Concurrently filed with the Petition, and in support thereof, was a corporate resolution, dated November 10, 2020, and a special meeting notice, dated October 26, 2020, which were both signed by Jack and purported to represent that the Debtor had convened a "meeting of the Shareholders and Directors" on November 6, 2020 beginning at 11:00 a.m., authorized the filing of the Petition, and resolved to enter into a stalking horse sale agreement with Best Line Leasing Inc. ("Best Line" or "Stalking Horse Bidder"). Corp. Resol. of DVLT, ECF 2. Thereafter, on November 13, 2020, a suggestion of bankruptcy was filed in the District Court, which resulted in the District Court Litigation being placed into suspense as to all defendants and the dismissal of all pending motions before the District Court on November 18, 2020. Dist. Ct. Litig., ECF Nos. 110, 111, 112.
As of the Petition Date, the Debtor was solvent, could pay its debts as they became due, and had roughly $4 million of net equity. Tr. of Video Conf. Op. of Ct. ("Tr. of Oral Op."), ECF 102 at 8:12-17. Nonetheless, on November 13, 2020, even before filing its schedules and other required documents, the Debtor filed, on an expedited basis, the "Debtor's Motion for Entry of an Order (A) Approving Bidding Procedures and Bidding Protections in Connection With the Proposed Sale of the Debtor's Assets, (B) Approving the Form and Manner of Notice; and (C) Granting Related Relief" ("Bid Procedures Motion")7 contemplating the expedited marketing and consummation of Best Line's stalking horse bid for the purchase of substantially all the assets of the Debtor. Bid Proc. Mot., ECF 22 at 1–2.8 The Bid Procedures Motion requested a November 25, 2020 deadline for obtaining expedited approval of the proposed bid procedures (twelve days after the Bid Procedures Motion was filed), a Bid Qualification9 Deadline of December 18, 2020, and subsequent auction just ten days later (if applicable) on December 28, 2020, followed by an expedited Sale Hearing on December 30, 2020. Id. at 5 ¶ 15. Specifically, Best Line's bid contemplated the purchase of certain DVLT assets, substantially in the form of an attached draft Asset Purchase Agreement ("APA"),10 dated October 17, 2020, for a contract price of $1,750,000.00, inclusive of a $50,000.00 deposit, and exclusive of the DVLT accounts receivable, contract rights, certain rental agreements defined in the Stalking Horse Bidder's proposed asset purchase agreement, any claims arising under Chapter 5 of the Bankruptcy Code, and DVLT's cash on hand. Id. at 6–7 ¶¶ 20, 21; Ex. 1, APA, Bid Proc. Mot., ECF 22. The APA further contemplated, as a condition precedent to the sale, a consulting agreement by and between Best Line and Jack to be executed concurrently with the APA ("Consulting Agreement"), but the Bid Procedures Motion did not include the terms of that agreement. Ex. 1, APA, Bid Proc. Mot., ECF 22 at 17 ¶ 10.4.
On November 14, 2020, the UST unsurprisingly objected to the Bid Procedures Motion, citing, inter alia , the Debtor's failure to file its schedules and other required bankruptcy documents; questions concerning the relationship of the Stalking Horse Bidder to the Debtor;...
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