Oggusa, Inc. v. S. Tier Hemp, LLC (In re Oggusa, Inc.)
| Decision Date | 16 March 2021 |
| Docket Number | ADV. NO. 20-5034,CASE NO. 20-50133 |
| Parties | IN RE OGGUSA, INC., et al. DEBTOR OGGUSA, INC., ET AL. PLAINTIFFS v. SOUTHERN TIER HEMP, LLC DEFENDANT |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Kentucky |
The Plaintiffs OGGUSA, Inc., OGG, Inc., and GenCanna Acquisition Corp. are pursuing certain contractual and equitable claims against the Defendant Southern Tier Hemp, LLC. [ECF Nos. 1, 34.] Southern Tier filed a Motion to Determine Adversary Proceeding as "Non-Core" pursuant to 28 U.S.C. § 157(b)(3). [ECF No. 10.] It also filed a related Motion to Dismiss under Civil Rule 12 (incorporated by Bankruptcy Rule 7012) arguing the Bankruptcy Court lacks subject matter jurisdiction and the Plaintiffs have failed to state claims upon which relief can be granted. [ECF No. 11.] The Motion to Dismiss alternatively requests permissive abstention and a change in venue of certain counts. [Id.] Southern Tier also seeks a stay while it pursues withdrawal of the reference in the District Court. [ECF No. 16.]
The Plaintiffs object to Southern Tier's Motions. [ECF Nos. 35, 36, 37, 47.] Arguments were heard on February 18, 2021, and the matter was submitted. [ECF Nos. 42-44.]
The Bankruptcy Court has subject matter jurisdiction, and there is Article III and Civil Rule 17 standing. Count 1 is dismissed, but the Plaintiffs have adequately pleaded Counts 2-11. The remaining counts are non-core state law claims, so the District Court must review any findings of fact and conclusions of law. Southern Tier's requests for permissive abstention, stay of the proceedings and venue transfer are rejected.
On January 24, 2020, three petitioning creditors filed an involuntary chapter 11 petition against OGGUSA, Inc., then known as GenCanna Global USA, Inc. ("OGGUSA"). [Case No. 20-50133, ECF No. 1.] OGGUSA consented to the involuntary petition on February 6, 2020. [Id., ECF No. 37.] An order for relief was entered the same day. [Id., ECF No. 94.]
On February 5, 2020, OGGUSA's parent company, GenCanna Global, Inc., the prior name of OGG, Inc. ("OGG", and together with OGGUSA, the "Plaintiff Debtors"),1 and one of its wholly owned subsidiaries, Hemp Kentucky LLC, filed voluntary chapter 11 petitions. The Debtors' cases were jointly administered. [Id., ECF No. 89.]
MGG Investment Group, L.P. ("MGG"), the agent for the Debtors' primary prepetition secured lenders, established an interim debtor-in-possession financing facility that was approved on February 6, 2020 ("DIP Facility"). [Id., ECF No. 82.] The Unsecured Creditors Committee, among others, objected to final approval of the DIP Facility. [Id., ECF No. 224.]
The parties attempted to negotiate a final order, but they were unsuccessful. A final order was entered after an evidentiary hearing and subsequent negotiations among the parties. [Id., ECF No. 474.] The final DIP Facility order authorized a senior secured superpriority lien on allthe Debtors' assets except commercial tort claims, claims against the Debtors' officers and directors, and any claims under Chapter 5 of the Bankruptcy Code. [Id.] It also established deadlines for the Committee to challenge liens on, and claims related to, MGG's senior prepetition financing and for the Debtors to take action to coordinate an asset sale or reorganization. [Id.]
Pursuant to the deadlines, the Debtors moved for an order establishing bidding procedures for a sale of substantially all their assets pursuant to 11 U.S.C. § 363(f). [Id., ECF No. 136.] The bidding procedures motion was subsequently approved on March 6, 2020. [Id., ECF No. 304.]
On April 27, 2020, the Debtors provided notice that they had accepted a bid from an entity wholly owned by funds and accounts managed by MGG. [Id., ECF No. 682.] The named purchaser was Plaintiff GenCanna Acquisition Corporation ("GAC").
The Committee and several other creditors objected to the Sale. [Id., ECF No. 690.] The Committee also filed a request for standing and authority to prosecute its claims against MGG. [Id., ECF No. 717.]
An evidentiary hearing was held on May 6-7, 2020. [Id., ECF Nos. 812-815.] While the hearing was ongoing, the Debtors, MGG, GAC, and the Committee continued to work diligently toward a consensual sale order and global resolution of their disputes. The parties reported on the final day of the hearing that they had generally reached some settlement terms that would require MGG to contribute additional assets to the Debtors' estate. But the parties needed additional time to negotiate and document the terms, so they were unable to present a consensualsale order prior to the conclusion of the hearing. [Id., ECF No. 815; ECF No. 982 at pp. 5-6, 191-192.]
The Sale was ultimately approved over the objections, based in part on the concessions by MGG, and in anticipation of the developing settlement negotiations. [Id., ECF No. 814 at 1:05:24; ECF No. 982 at pp. 195-197.] An order approving the Sale was entered on May 19, 2020. [Id., ECF No. 850.] The Sale closed on May 29, 2020. [Id., ECF No. 889.]
As instructed at the Sale hearing, the parties continued to negotiate a global settlement in support of a consensual plan. The Debtors initially proposed a compromise with MGG and GAC on July 30, 2020. Under the terms of the proposed settlement, MGG agreed to pay $1 million in cash to the Debtors' estate. The prepetition lenders would have an allowed secured claim of approximately $27 million, which they would subordinate to the rights of the other unsecured creditors. [Id. at §§ 2-4.] GAC also agreed to share the proceeds of litigation related to claims arising from certain assets, including claims against Michael Falcone and Southern Tier. [Id. at § 5(a).]
A week later, the Debtors filed a proposed disclosure statement and liquidating plan that incorporated the MGG Settlement. [Id., ECF No. 1163 (plan), ECF No. 1164 (disclosure statement).] The Committee also filed a Motion to Convert Pursuant to 11 U.S.C. § 1112. [Id., ECF No. 1161.] Later comments confirmed the Committee continued to negotiate a resolution of all issues, but it still was not satisfied with its level of participation and the terms of the settlement. Eventually, multiple parties filed written objections to the MGG Settlement and initial reorganization plan and disclosure statement. [Id., ECF Nos. 1187, 1196, 1199, 1200, 1202, 1219, 1230.]
The Debtors, MGG, GAC, and the Committee were ordered to mediate the settlement disputes, conversion request, authority to prosecute claims, and ancillary issues before Hon. Tracey N. Wise. [Id., ECF Nos. 1285, 1287.] The September mediation lasted weeks and was ultimately successful, resulting in amendments to the relevant documents in early October. [Id., ECF Nos. 1405, 1407, 1496.]
Parties that claimed to hold an equity interest in OGG and a creditor interest in OGGUSA, referred to as the Marimed Parties, still objected to the reorganization plan and the MGG Settlement. The Debtors filed their Second Amended Joint Plan of Liquidation prior to the confirmation hearing scheduled in early November to set out the final concessions of the Debtors, MGG, GAC, and the Committee. [Id., ECF No. 1497 (hereafter, the "Plan").] On the eve of the confirmation hearing, the Debtors, MGG, GAC, and the Committee resolved the disputes with the Marimed Parties. The Marimed Parties agreed to withdraw their objections and vote in favor of the Plan in exchange for an allowed claim. [Id., ECF No. 1516.]
The resolution with the Marimed Parties cleared the final hurdle for approval of the MGG Settlement on November 10, 2020, and the consensual confirmation of the Plan on November 11, 2020. [Id., ECF Nos. 1511, 1517.]
October 14, 2020, the Plaintiffs jointly filed this adversary proceeding. [ECF No. 1.] The Plaintiffs allege that Falcone, as the chair of the Plaintiff Debtors' board of directors, used Plaintiff Debtors' money to operate his side-business, Southern Tier, and that Southern Tier breached its oral and written promises to compensate the Plaintiff Debtors. [ECF No. 1 at ¶¶ 1-4.]
The Plaintiffs' claims are based on the following:
The Plaintiff Debtors and GAC jointly request turnover of any funds due from Southern Tier related...
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