Kind Operations, Inc. v. Cadence Bank, N.A. (In re Pa Co-Man, Inc.), Bankruptcy No. 20-20422-JAD
| Docket Number | Bankruptcy No. 20-20422-JAD,Adversary No. 21-02061-JAD, Adversary No. 21-02075-JAD, Adversary No. 21-02061-JAD, Adversary No. 21-02076-JAD |
| Decision Date | 19 September 2022 |
| Parties | IN RE: PA CO-MAN, INC., Debtor. Kind Operations, Inc., as assignee of Rosemary C. Crawford, Chapter 7 Trustee of the Estate of PA Co-Man, Inc., Plaintiff, v. Cadence Bank, N.A. f/k/a AloStar Capital Finance and Peter Tsudis, Defendants. Kind Operations, Inc., as assignee of Rosemary C. Crawford, Chapter 7 Trustee of the Estate of PA Co-Man, Inc., Plaintiff, v. AOG, LLC and AUA Private Equity Partners, LLC, Defendants. Kind Operations, Inc., as assignee of Rosemary C. Crawford, Chapter 7 Trustee of the Estate of PA CO-Man, Inc., Plaintiff, v. Bank Hapoalim B.M., Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
Kirk B. Burkley, John J. Richardson, Alexandra Loree Yuill, Arthur Zamosky, Bernstein-Burkley, P.C., Pittsburgh, PA, for Plaintiff Kind Operations, Inc., as assignee of Rosemary C. Crawford, Chapter 7 Trustee of the Estate of PA CO-Man, Inc. in 21-02061.
Mitchell D. Cohen, Daniel C Green, VedderPrice, New York, NY, Courtney Helbling, Maribeth Thomas, Michael A. Shiner, Tucker Arensberg, P.C., Pittsburgh, PA, for Defendants AOG, LLC, AUA Private Equity Partners, LLC in 21-02061.
Steven Fox, Riemer & Braunstein LLP, New York, NY, for Defendant Cadence Bank, N.A. aka AloStar Capital Finance in 21-02061.
Brian Thornton Must, John R. O'Keefe, Jr., Metz Lewis Brodman Must O'Keefe LLC, Pittsburgh, PA, John Paul Regan, Saul Ewing Arnstein & Lehr, Pittsburgh, PA, for Defendant Peter Tsudis in 21-02061.
Timothy P. Palmer, Buchanan Ingersoll & Rooney PC, Pittsburgh, PA, Alissa Poynor, Riemer & Braunstein LLP, Boston, MA, for Defendant Cadence Bank, N.A. aka AloStar Capital Finance in 21-02061.
Stephen B. Selbst, Herrick Feinstein LLP, New York, NY, Helen S. Ward, Dentons Cohen & Grigsby, P.C., Pittsburgh, PA, for Defendant Bank Hapoalim B.M. in 21-02061.
Arthur Zamosky, Bernstein-Burkley, P.C., Pittsburgh, PA, for Plaintiff Kind Operations, Inc., as assignee of Rosemary C. Crawford, Chapter 7 Trustee of the Estate of PA CO-Man, Inc. in 21-02075, 21-02076.
Kyle J. Kolb, Herrick, Feinstein LLP, New York, NY, for Defendant in 21-02076.
This consolidated adversary proceeding asserts a myriad of civil actions arising out of a private foreclosure sale of substantially all of the debtor's assets pursuant to Article 9 of the Uniform Commercial Code.
The sale at issue occurred in the year prior to the debtor's slide into bankruptcy. The gist of the bankruptcy estate's grievances (asserted by its assignee) is that the debtor's pre-petition lenders, acting in concert with the debtor's chief executive officer and others, manufactured a private foreclosure sale without adequate marketing or competitive bidding. The plaintiff alleges that the net effect of the sale is that it essentially deprived the debtor and its other creditors from realizing any equity or enterprise value of the debtor's assets.
Consistent with this theory, on June 18, 2021, the bankruptcy estate, through its assignee KIND Operations, Inc. ("KIND"), filed an Adversary Complaint at Adversary No. 21-02061-JAD against the debtor's former secured lender, Cadence Bank, N.A. f/k/a AloStar Capital Finance ("Cadence").1
On July 19, 2021, KIND subsequently filed an Adversary Complaint at Adversary No. 21-02075-JAD against the alleged purchasers of the debtor's assets: AOG, LLC ("AOG") and AUA Private Equity Partners, LLC ("AUA").
Finally, also on July 19, 2021, KIND filed its Adversary Complaint at Adversary No. 21-02076-JAD against Bank Hapoalim B.M. ("Bank Hapoalim"), who was a participating lender in the pre-petition credit facility along with Cadence and who also benefitted from the sale.
Thereafter, on August 18, 2021, this Court entered an Order of Court consolidating each of these adversary proceedings at Adversary No. 21-02061-JAD (the "Consolidation Order," 21-02061-JAD, ECF No. 16). The Consolidation Order further granted KIND leave to file a single, consolidated amended complaint (the "Consolidated Amended Complaint") against all defendants. See Consolidation Order ¶ 2.
KIND then filed its Consolidated Amended Complaint on August 31, 2021 which further names the debtor's President and Chief Executive Officer, Mr. Peter Tsudis ("Mr. Tsudis"), as an additional defendant.
The Consolidated Amended Complaint is 137 paragraphs long and has eleven exhibits attached to it. See 21-02061-JAD, ECF No. 18.2
In the Consolidated Amended Complaint, KIND asserts seven causes of action which consist of: (i) a claim for violation of Article 9 of the Uniform Commercial Code against Cadence and Bank Hapoalim; (ii) a claim for successor liability against AOG; (iii) a claim for civil conspiracy against Mr. Tsudis, Cadence, Bank Hapoalim, AOG, and AUA; (iv) a claim for breach of fiduciary duty against Mr. Tsudis; (v) a claim for fraudulent concealment against Mr. Tsudis; (vi) a claim for aiding and abetting breach of fiduciary duty against Cadence, Bank Hapoalim, AOG, and AUA; and (vii) a claim for avoidance of fraudulent transfers against Mr. Tsudis, Cadence, Bank Hapoalim, AOG, and AUA.
In response to the Consolidated Amended Complaint, the defendants filed four separate motions to dismiss (collectively, the "Motions to Dismiss"). See Defendant's Motion to Dismiss (ECF No. 58) and accompanying brief (the "Cadence Brief," ECF No. 59) filed by Cadence; AUA Private Equity Partners, LLC and AOG, LLC's Motion to Dismiss Amended and Consolidated Adversary Complaint of KIND Operations, Inc. (ECF No. 50) and accompanying brief (the "AUA & AOG Brief," ECF No. 51); Motion to Dismiss (ECF No. 53) and brief in support (the "Tsudis Brief," ECF No. 54) filed by Mr. Tsudis; and Bank Hapoalim B.M.’s Motion to Dismiss the Amended and Consolidated Adversary Complaint (ECF No. 60) and brief (the "Bank Hapoalim Brief," ECF No. 61).3
KIND opposed the Motions to Dismiss, and filed its Plaintiff's Omnibus Response in Opposition to Defendants’ Motions to Dismiss (the "Plaintiff's Omnibus Response," ECF No. 90). On November 18, 2021, the Court held a hearing on the Motions to Dismiss. Thereafter, on January 3, 2022, the Court ordered that the parties file supplemental briefs. Supplemental briefing was completed on March 7, 2022.
Thereafter, on March 29, 2022, AOG and AUA filed a document titled: Notice of Supplemental Authority in Support of AUA Private Equity Partners, LLC and AOG, LLC's of Motion to Dismiss at ECF No. 156. Desiring the last word on these issues, on April 18, 2022, KIND filed a response to the same at ECF No. 163.
This matter is now ripe for adjudication.
PA Co-Man, Inc., is a Delaware corporation (the "Debtor") which is no longer operating and was formerly known as TruFood Mfg., Inc. The Debtor was formerly headquartered near Pittsburgh in Blawnox, Pennsylvania.
The Debtor's sole shareholder is an entity known as Tsudis Holdings, LLC, and Mr. Peter Tsudis is the Debtor's former President and Chief Executive Officer. See List of Equity Security Holders, 20-20422-JAD, ECF No. 12 at ECF p. 64.4
Before it ceased doing business, the Debtor operated as a manufacturer of nutrition bars, protein bars, chocolate products, and baked goods for various brands on a contract basis. KIND, a company which markets and sells these types of products, was one of the Debtor's major customers.
Based on the documents filed of record, it appears that the Debtor's business operations were substantial. For example, in calendar year 2019, the Debtor's business had in excess of $88 million of revenue. See Statement of Fin. Affairs for Non-Individuals Filing for Bankr., 20-20422-JAD, ECF No. 12 at ECF p. 55, Part 1.2. In 2018, it was in excess of $177 million. Id.
The Debtor commenced this bankruptcy case by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code on February 4, 2020 (the "Petition Date"). When the Debtor filed its bankruptcy case, the Debtor was a non-operating shell company with no employees. Id. At ECF 67 pp. 3-4. The schedules filed by the Debtor reflected that as of the Petition Date the Debtor had no assets. The schedules also reflected that as of the Petition Date the Debtor had at least 310 unpaid creditors holding $28,853,540.66 in aggregate nonpriority general unsecured claims. See Schedule E/F, 20-20422-JAD, ECF No. 12 at ECF pp. 8-52.
On June 2, 2020, the Debtor's case was converted to a chapter 7 liquidation. See Order, 20-20422-JAD, ECF No. 57. Upon the conversion of the case, Rosemary C. Crawford, Esquire was duly appointed as chapter 7 trustee (the "Trustee"). See Notice Appt. Interim Tr., 20-20422-JAD, ECF No. 58.
The Trustee's powers and duties include pursuing the estate's causes of action. See Artesanias Hacienda Real S.A. DE C.V. v. N. Mill Capital, LLC (In re Wilton Armetale, Inc.), 968 F.3d 273, 280 (3d Cir. 2020) ; see also 11 U.S.C. §§ 323(a), 323(b), and 704(a)(1).
Such causes of action include state law claims brought into the bankruptcy estate by the Debtor by operation of 11 U.S.C. § 541(a). This section of the Bankruptcy Code provides that the commencement of a bankruptcy case creates an estate comprising of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1).
Additional causes of action that the Trustee may pursue includes causes of action emanating from the Bankruptcy Code, see, e.g. 11 U.S.C. §§ 544, 547 and 548, and other causes of action "based on an injury to the debtor's estate that creates a secondary harm to all creditors[.]" In re Wilton Armetale, Inc., 968 F.3d at 283 (quoting Tronox, Inc. v. Kerr-McGee Corp. (In re Tronox, Inc.), 855 F.3d 84, 104 (2d Cir. 2017). As to the latter, those claims or causes of action include lawsuits alleging that "third partie...
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