RC JRV Tr. Co. v. Barnes & Thornburg L (In re JRV Grp. U.S. )
| Docket Number | 19-11095 (KBO),Adv. 21-51161 (KBO) |
| Decision Date | 24 August 2022 |
| Parties | In re JRV Group USA L.P., Debtor. v. Barnes & Thornburg LLP, et al., Defendants. RC JRV Trust Co. LLC, in its capacity as Trustee of the Liquidation Trust of JRV Group USA L.P., Plaintiff, Misc. No. 22-120 (CFC) |
| Court | U.S. District Court — District of Delaware |
Before the Court is a motion for leave (D.I. 1,3) (“Motion for Leave”), filed by Barnes & Thornburg LLP (“B&T”), defendant in the above-captioned adversary proceeding, seeking leave to appeal the Bankruptcy Court's interlocutory order dated February 24, 2022 (D.I 1-3) (“Order”), pursuant to 28 U.S.C. § 158(a)(3) and Federal Rule of Bankruptcy Procedure 8004. The Order denied without prejudice B&T's motion to dismiss (Adv. D.I. 4)[1] (“Motion to Dismiss”) the adversary complaint filed by RCJRV Trust Co. LLC (the “Trustee”), in its capacity as Trustee of the Liquidation Trust of JRV Group U.S. L.P. (“Debtor”), and (ii) granted the Trustee an extension of the expired deadline to properly effectuate service of process in accordance with Federal Rule of Civil Procedure 4, as made applicable to the adversary proceeding by Federal Rule of Bankruptcy Procedure 7004. The Court has considered the Trustee's response. (D.I. 2). No party requested oral argument. For the reasons set forth below, B&T's Motion for Leave is granted in part and denied in part.
1. Background. On May 13, 2019 (the “Petition Date”), the Debtor filed a voluntary petition under chapter 11 of the Bankruptcy Code. On the Petition Date, the Debtor also filed its Motion for Interim and Final Orders Pursuant to 11 U.S.C. §§ 105, 361, 362, 363, 364, 503 and 507 and Fed.R.Bankr.P. 2002 4001, 6004 and 9014 (i) Authorizing Debtor to Obtain Senior Secured, Superproriority, Postpetition Financing, (ii) Granting Liens and Superpriority Claims, (Ui) Approving Use of Cash Collateral of Prepetition Lenders, (iv) Granting Adequate Protection to Prepetition Lenders, (v) Modifying the Automatic Stay, (vi) Scheduling Final Hearing, and (vii) Granting Related Relief (B.D.I. 7) (the “DIP Motion”). Paragraph 12(a) of the DIP Motion designates Debtor's prepetition secured lenders as JRV Group Holding USA L.P. (“Holding”) and Comer Flag LLC (the “Prepetition Lenders”). Prior to and after the Petition Date, B&T represented Holding as its attorneys.
2. Based on certain representations in the DIP Motion, the Debtor released any claims or causes of action against any of the Prepetition Lenders or any of their respective affiliates, subsidiaries, agents, officers, directors shareholders, employees, members, managers, agents, attorneys, advisors, professionals, predecessors in interest, successors and assigns (solely in their respective capacities as such) (collectively, the “Prepetition Released Parties”). On May 15, 2019, the Bankruptcy Court entered an interim order granting the DIP Motion (B.D.L 29) (the “Interim DIP Order”). On August 4, 2020, the Bankruptcy Court entered the final order granting the DIP Motion (B.D.I. 473) (the “Final DIP Order”). The Final DIP Order reaffirms the stipulations, waivers, and releases contained in the DIP Motion (Final DIP Order at 6-12) and provides that such stipulations, waivers, and releases would not become effective until “the effective date of a chapter 11 plan.” (Id. at 35).
3. On August 6,2020, the Debtor filed a notice with the Bankruptcy Court (B.D.L 474) identifying August 5, 2020, as the “Effective Date” of the Debtor's chapter 11 plan of liquidation.
4. On September 14,2021, the Trustee filed its Complaint to Avoid and Recover Transfers Pursuant to 11 U.S.C. §§ 547, 548, 549, and 550 and to Disallow Claims Pursuant to 11 U.S.C. § 502 (Adv. D.I. 1) (the “Complaint”), seeking to recover allegedly preferential and fraudulent transfers totaling $551,439.61 from B&T. The Bankruptcy Court's docket entry for the filing of the Complaint states, “AP Summons Served due Dated: 12/13/2021.”
5. After filing the Complaint, counsel for the Trustee sent an email to counsel for B&T (the “First Email”) stating, “Attached please find a time-stamped copy of the complaint filed today in this matter and let us know if you will accept service of it on behalf of B&T.” Counsel for B&T sent a response email to counsel for the Trustee (the “Second Email”) stating, “Yes, I will accept service.”
6. The parties' counsel exchanged many communications in the following months regarding B&T's position that the release contained in the Final DIP Order precluded the complaint. However, from the filing of the Complaint on September 14,2021, through December 8, 2021, no further filings were made in the adversary proceeding. On December 8, 2021, the Trustee filed an Affidavit of Service (Adv. D.I. 3) (the “Service Affidavit”), whereby counsel for the Trustee stated that he caused a copy of the Complaint to be served on B&T. The Service Affidavit did not reference any summons. Federal Rule of Civil Procedure 4(m), made applicable to the Adversary Proceeding by Federal Rule of Bankruptcy Procedure 7004, required the Trustee to serve a summons on B&T by December 13, 2021. The Trustee did not file a summons with the Court and therefore did not serve a summons on B&T by the deadline.
7. On December 14,2021, after the deadline for service of process had passed, a representative of the Bankruptcy Court reached out to the Trustee's counsel to inquire about the fact that a summons had not been filed and whether the Trustee intended to proceed with the case. The Trustee's counsel advised that B&T had accepted service of the Complaint on September 14,2021. The court's representative asked the Trustee's counsel to submit an additional affidavit confirming that B&T agreed to waive the necessity of a summons.
8. Despite emails to B&T's counsel on December 15 and 16, 2021 seeking such a waiver, the Trustee did not obtain one. On December 17, 2021, B&T filed its Motion to Dismiss and brief in support, seeking to dismiss the Complaint in its entirety based on, inter alia, lack of personal jurisdiction (due to the failure to timely obtain and serve a summons) and the failure to state a claim upon which relief may be granted (based on the releases contained in the Interim DIP Order and the Final DIP Order). On January 14, 2022, the Trustee filed its opposition (Adv. D.I. 7). The Trustee argued that the Bankruptcy Court had broad discretion under Rule 4(m) to extend the time for service (See id. at 6). The Trustee further argued that while B&T was released “solely in their respective capacit[y]” as counsel to the Prepetition Lenders, the Complaint alleged claims against B&T in its capacity as counsel to the Debtors to recover preferential and fraudulent transfers from the Debtors, and that neither of the DIP Orders provided for a release of these claims. (See id. at 9). On January 28, 2022, B&T filed its reply in further support (Adv. D.I. 8), and on January 31,2022, the Trustee filed a request for oral argument (Adv. D.I. 9).
9. On February 24, 2022, the Honorable Christopher S. Sontchi[2] entered the Order, denying the Motion to Dismiss “without prejudice” and granting the Trustee an additional “sixty (60) days from the date of this Order to properly effectuate service of process in accordance with Fed.R.Civ.P. 4, as made applicable to this proceeding by Fed.R.Bankr.P. 7004.” (Order ¶¶ 1-2). The Order contains no further explanation.
10. On February 28, 2022, B&T was served with a summons and the Complaint, both by first class mail to its Delaware registered agent and by personal service upon a B&T partner in B&T's Wilmington, Delaware office.
11. On March 10, 2022, B&T appealed the Order. (Adv. D.L 14). B&T seeks leave to appeal the interlocutory Order with respect to two issues: (1) whether the Bankruptcy Court erred in not dismissing the Complaint for lack of personal jurisdiction as a matter of law (“Jurisdiction Ruling”), and (2) whether the Bankruptcy Court erred in determining that B&T was not released in accordance with the express language of the Interim DIP Order and/or the Final DIP Order as a matter of law (“Release Ruling”). On appeal, B&T would argue that it is undisputed that the Trustee failed to obtain a summons from the Bankruptcy Court, and under controlling Third Circuit law, Ayres v. Jacobs & Crumplar, P.A., 99 F.3d 565 (3d Cir. 1996), the Bankruptcy Court was required to dismiss the case. B&T argues that, without a summons, the Bankruptcy Court lacked personal jurisdiction over B&T, in which case “it becomes unnecessary for the district courts to consider such questions as whether service was properly made, or whether an extension to the 120-day[3] service period should be granted under Rule 4(m).” (D.I. 3 at 7 (quoting Ayers, 99 F.3d at 569). “The failure of a plaintiff to obtain valid process from the court to provide it with personal jurisdiction over the defendant in a civil case is fatal to the plaintiffs case.” Ayers, 99 F.3d at 569 (emphasis added).
12. Jurisdiction. This Court has jurisdiction to hear appeals “with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.” 28 U.S.C. § 158(a)(3). Section 158(a) does not identify the standard district courts should use in deciding whether to grant such an interlocutory appeal. See Id. “Typically, however, district courts follow the standards set forth under 28 U.S.C. § 1292(b), which govern interlocutory appeals from a district court to a court of appeals.” In re AE Liquidation, Inc., 451 B.R. 343, 346 (D. Del. 2011).[4]
Under the standards of section 1292(b), an interlocutory appeal is permitted only when the order at issue (1) involves a...
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