Pliskin v. Radians Wareham Holding, Inc. (In re Icpw Liquidation Corp.)

• Decision Date: 11 March 2019
• Docket Number: Adv. Proc. No. 1:17-ap-01101-MB,Jointly administered with 1:17-bk-12409-MB,Lead Case No. 1:17-bk-12408-MB
• Citation: 600 B.R. 640
• Parties: IN RE: ICPW LIQUIDATION CORPORATION, a California Corporation, and ICPW Liquidation Corporation, a Nevada Corporation, Former Debtors. Matthew Pliskin, as Trustee of the Trust Created Under the Joint Plan of Liquidation Dated February 9, 2018, Plaintiff, v. Radians Wareham Holding, Inc., Radians, Inc., and Safety Supply Corporation, Defendants.
• Court: U.S. Bankruptcy Court — Central District of California

600 B.R. 640

IN RE: ICPW LIQUIDATION CORPORATION, a California Corporation,¹ and ICPW Liquidation Corporation, a Nevada Corporation,² Former Debtors.

Matthew Pliskin, as Trustee of the Trust Created Under the Joint Plan of Liquidation Dated February 9, 2018, Plaintiff,

v.Radians Wareham Holding, Inc., Radians, Inc., and Safety Supply Corporation, Defendants.

Lead Case No. 1:17-bk-12408-MB

Jointly administered with 1:17-bk-12409-MB

Adv. Proc. No. 1:17-ap-01101-MB

United States Bankruptcy Court, C.D. California, SAN FERNANDO VALLEY DIVISION.

Signed March 11, 2019

Tania M. Moyron, Dentons U.S. LLP, Los Angeles, CA, for Plaintiff.

Natalie B. Daghbandan, Bryan Cave Leighton Paisner LLP, Irvine, CA, Sharon Z. Weiss, Bryan Cave Leighton Paisner LLP, Santa Monica, CA, for Defendants.

MEMORANDUM OF DECISION RE: DEFENDANTS' MOTION TO DISMISS ADVERSARY COMPLAINT

Martin R. Barash, United States Bankruptcy Judge

I. INTRODUCTION

This adversary proceeding arises out of the prepetition acquisition of a secured loan by defendant Radians Wareham Holding, Inc. ("RWHI") and the prepetition exercise of remedies under that loan agreement against the chapter 11 debtors herein, Ironclad Performance Wear Corporation, a California corporation ("ICPW CA"), and Ironclad Performance Wear Corporation, a Nevada corporation ("ICPW NV") (collectively, the "Debtors").³ The plaintiff herein, Matthew Pliskin ("Plaintiff"), is trustee under a trust created pursuant to a joint plan of liquidation ("Plan") confirmed in the above-referenced chapter 11 cases. Plaintiff is successor in interest to the official committee of equity holders for ICPW NV ("Equity Committee"), which commenced this adversary proceeding prior to confirmation of the Plan by filing the complaint herein ("Complaint"). Adv. Dkt. 1.⁴

The Complaint alleges that RWHI acquired the loan and exercised remedies thereunder in an effort to acquire the Debtors' business and in a manner that caused injury to the Debtors and the value of their business. Based on this premise, the Complaint asserts: (i) a cause of action for economic duress, (ii) a cause of action for breach of the covenant of good faith and fair dealing, (iii) a cause of action for unjust enrichment, (iv) a cause of action for recovery, as an unauthorized transfer, of all funds paid to RWHI on its claims in the Debtors' cases, and (v) disallowance of the proof of claim filed by RWHI on account of the acquired loan. The Complaint also names as defendants RWHI's affiliates, Safety Supply Corporation ("Safety Supply"), and Radians, Inc. ("Radians") (together with Safety Supply and RWHI, "Defendants").

Defendants have filed their motion to dismiss the Complaint (the "Motion to Dismiss" or "MTD"). Adv. Dkt. 5. Defendants argue that Safety Supply and Radians should be dismissed from this lawsuit because the Complaint does not allege enough facts to support a claim against these affiliates of RWHI. Defendants further argue that all claims against them should be dismissed because: (i) the claims were released pursuant to the terms of a prepetition release executed by the Debtors, (ii) the claims were released pursuant to the terms of the agreed order approving the Debtor's postpetition financing, and (iii) the Complaint fails to adequately plead causes of action on which relief can be granted.

The Court has reviewed and considered all the pleadings filed in support of and in opposition to the Motion to Dismiss, the oral arguments of counsel, and the documents identified in Section IV below. For the reasons set forth below, the Motion to Dismiss will be granted in part and denied in part, as specified below.

II. BACKGROUND

On September 8, 2017 ("Petition Date"), the Debtors each filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. ICPW CA developed and manufactured high-performance task-specific gloves and apparel in a variety of end markets. See Omnibus Declaration of L. Geoff Greulich in Support of Debtors' Emergency "First Day" Motions ("Greulich Decl."), ¶ 3.⁵ ICPW NV was a publicly-traded company whose only business was owning all shares in ICPW CA. See Greulich Decl., Case Dkt. 6, ¶ 2. The Debtors' business was headquartered in Farmers Branch, Texas. Id.

In connection with commencement of these cases, the United States Trustee ("UST") appointed (1) the Equity Committee, see Case Dkt. 59; and (2) an official committee of unsecured creditors ("Creditors' Committee"). See Case Dkt. 62.

In late 2014, the Debtors obtained a revolving credit facility from Capital One, N.A. ("Capital One"), secured by substantially all of the Debtors' assets. Greulich Decl., Case Dkt. 6, ¶ 12. On July 25, 2017, Capital One assigned the loan to RWHI. Id. , ¶ 14. As of the Petition Date, RWHI was the Debtors' only secured creditor. Id. , ¶ 23. RWHI filed identical proofs of claim in each of the Debtors' cases. See Claim No. 20-1 in Case No. 1:17-bk-12408-MB; Claim No. 7-1 in Case No. 1:17-bk-12409-MB). Both proofs of claim asserted a claim amount of $ 3,464,093.28, owing as of the Petition Date (collectively, the "Claim").

Shortly before the Petition Date, the Debtors and RWHI entered into an asset purchase agreement ("APA") pursuant to which RWHI agreed to serve as a stalking horse, i.e., purchase the Debtors' assets subject to overbid and court approval. Greulich Decl., Case Dkt. 6, ¶ 27. The APA provided for certain bidding procedures applicable to the process, and a breakup fee of $ 500,000 ("Breakup Fee") if RWHI was not the winning bidder in an auction for the Debtors' assets, or if the Debtors proceeded with a plan of reorganization. See Greulich Decl. at 271-72..

On September 28, 2017, the Court entered an order approving the form of the APA and the bidding procedures to which the Debtors and RWHI agreed, including the Breakup Fee. See Case Dkt. 71 ("Bidding Procedures Order"). On October 30, 2017, the Court conducted an auction and thereafter approved the sale of substantially all the Debtors' assets to a purchaser other than RWHI. See Sale Order, Case Dkt. 177. The winning bidder agreed to purchase substantially all of the Debtors' assets for $ 25,500,000. Id. That sale closed on November 14. 2017. See Case Dkt. 237.

Also before the Petition Date, the Debtors and RWHI entered into the DIP Agreement, pursuant which RWHI agreed to provide postpetition financing while the Debtors marketed the opportunity to overbid for the assets. Greulich Decl., Case Dkt. 6, ¶ 23. On October 6, 2017, the Court entered its final order approving the DIP Agreement, the form of which was agreed to by the parties. See Case Dkt. 87 ("Final DIP Order"). Among other things, the Final DIP Order contained language (i) granting standing to the Equity Committee to pursue certain claims of the Debtors' estates (the "Estates") against RWHI, provided an action on such claims was commenced within a specified time period, and (ii) subject to such rights, waiving certain claims against RWHI:

kk. On or before the date that is sixty (60) days from the date of the entry of this Final Financing Order (the "Lookback Period"), the Official Committee of Unsecured Creditors and the Official Committee of Equity Holders shall have standing individually and on behalf of Debtors' Estates to object to, challenge, or seek to avoid the amount, validity, or enforceability of the Pre-Bankruptcy Secured Debt (or any portion thereof) or any of the liens and security interests created under the Pre-Bankruptcy Secured Debt and to bring any other claim that they have against Radians, individually or on behalf of the Debtors' Estates (separately and collectively, a "Challenge"). If no such action, objection or other Challenge is commenced by either the Official Committee of Unsecured Creditors or the Official Committee of Equity Holders within the Lookback Period, the Pre-Bankruptcy Secured Debt will be deemed and adjudicated finally and indefeasibly as valid and enforceable, the liens and security interests created under the Pre-Bankruptcy Secured Debt in the Collateral securing the Pre-Bankruptcy Secured Debt will be deemed and adjudicated finally and indefeasibly as valid, enforceable and perfected liens and security interests in that Collateral, and any affirmative claim(s) or cause(s) of action of any kind against Radians with respect to the Pre-Bankruptcy Secured Debt, or otherwise, and the liens and security interests securing the Pre-Bankruptcy Secured Debt, or any payment received by Radians will be forever barred. As provided in this Final Financing Order, the Debtors have waived and released, and shall be forever barred from asserting, any right to object to, challenge or seek to avoid, the amount, validity, or enforceability of the Pre-Bankruptcy Secured Debt or the liens and security interests in the Collateral securing the Pre-Bankruptcy Secured Debt. Except as otherwise may have been determined by the Court in the proceedings referenced above, and subject to further Order of the Court, in the event any payment made to, or other amount or value received by Radians from or for the account of any of the Debtors is avoided, rescinded, set aside or must otherwise be returned or repaid by Radians, whether in the Cases or any other proceedings, the indebtedness repaid shall be allowed as a claim in accordance with existing law. Any of Radians' claims, liens, rights, and remedies under the Loan Documents which survive such action shall be reinstated and fully preserved.

Case Dkt. 87 at 19 (Final DIP Order).

On December 5, 2017, the Equity Committee filed the Complaint and initiated the instant adversary proceeding. The Court subsequently confirmed the Plan, which dissolved the Equity Committee, created a trust solely for the benefit of the shareholders of ICPW NV, and transferred to the trust the rights of the Equity Committee to prosecute this action. See Case Dkt. 438, 442. Thereafter, the parties entered into a stipulation substituting Matthew Pliskin, as trustee under the trust...