Stoebner v. Opportunity Fin., LLC (In re Polaroid Corp.), JOINTLY ADMINISTERED UNDER CASE NO. 08-46617

• Decision Date: 14 January 2016
• Docket Number: 08-46629 (GFK),08-46626 (GFK),ADV 10-4600,08-46624 (GFK),JOINTLY ADMINISTERED UNDER CASE NO. 08-46617,08-46628 (GFK),Court File No. 08-46617,08-46623 (GFK),Court File Nos: 08-46621 (GFK),08-46620 (GFK),08-46627 (GFK),08-46625 (GFK)
• Citation: 543 B.R. 888
• Parties: In re: Polaroid Corporation, et al, Debtors. (includes: Polaroid Holding Company; Polaroid Consumer Electronics, LLC ; Polaroid Capital, LLC; Polaroid Latin America I Corporation ; Polaroid Asia Pacific LLC ; Polaroid International Holding LLC; Polaroid New Bedford Real Estate, LLC; Polaroid Norwood Real Estate, LLC; Polaroid Waltham Real Estate, LLC) John R. Stoebner, Trustee, Plaintiff, v. Opportunity Finance, LLC; Opportunity Finance Securitization, LLC; Opportunity Finance Securitization II, LLC; Sabes Minnesota Limited Partnership; Robert W. Sabes; Janet F. Sabes; Jon R. Sabes; Steven Sabes; DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main ; and John and Jane Does 1-30, Defendants.
• Court: U.S. Bankruptcy Court — District of Minnesota

543 B.R. 888

In re: Polaroid Corporation, et al, Debtors.

(includes: Polaroid Holding Company; Polaroid Consumer Electronics, LLC ; Polaroid Capital, LLC; Polaroid Latin America I Corporation ; Polaroid Asia Pacific LLC ; Polaroid International Holding LLC; Polaroid New Bedford Real Estate, LLC; Polaroid Norwood Real Estate, LLC; Polaroid Waltham Real Estate, LLC)

John R. Stoebner, Trustee, Plaintiff,

v.Opportunity Finance, LLC; Opportunity Finance Securitization, LLC; Opportunity Finance Securitization II, LLC; Sabes Minnesota Limited Partnership; Robert W. Sabes; Janet F. Sabes; Jon R. Sabes; Steven Sabes; DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main ; and John and Jane Does 1-30, Defendants.

JOINTLY ADMINISTERED UNDER CASE NO. 08-46617

Court File No. 08-46617

Court File Nos: 08-46621 (GFK)

08-46620 (GFK)

08-46623 (GFK)

08-46624 (GFK)

08-46625 (GFK)

08-46626 (GFK)

08-46627 (GFK)

08-46628 (GFK)

08-46629 (GFK)

ADV 10-4600

United States Bankruptcy Court, D. Minnesota.

Signed January 14, 2016

Amy L. Schwartz, Richard T. Thomson, Rosanne H. Wirth, Lapp, Libra, Thomson, Stoebner & Pusch, Minneapolis, MN, for Plaintiff.

Jefferey D. Bailey, Jonathan M. Landy, Christopher J. Mandernach, Joseph G. Petrosinelli, Williams and Connolly LLP, Washington, DC, Benjamin Gurstelle, John R. McDonald, Briggs and Morgan, P.A., Minneapolis, MN, Michael Rosow, Winthrop & Weinstine, Minneapolis, MN, for Defendant.

ORDER GRANTING DEFENDANTS' MOTIONS FOR DISMISSAL

GREGORY F. KISHEL, CHIEF UNITED STATES BANKRUPTCY JUDGE

This adversary proceeding came before the court for hearing on two separate motions for dismissal. One movant was Defendant DZ Bank AG Deutsche Zentral–Genossenschaftsbank, Frankfurt am Main ("DZ Bank"). It appeared by its attorney, H. Peter Haveles, Jr., Kaye Scholer LLP. The remaining named Defendants (collectively, "the Opportunity Finance defendants") made the other motion. They appeared by their attorney, Joseph G. Petrosinelli, Williams & Connolly LLP. The Plaintiff ("the Trustee") appeared by his attorneys, Richard T. Thomson, Stephen J. Creasey, and Amy L. Schwartz, Lapp, Libra, Thomson, Stoebner & Pusch. This decision is based on the written submissions for both motions, the Trustee's Second Amended Complaint, and the arguments of counsel.

INTRODUCTION

This adversary proceeding is another outgrowth of the largest bankruptcy cases ever commenced in the District of Minnesota—those of Petters Company, Inc. ("PCI") and certain of its affiliates, BKY 08–45257, and the related group of cases in which the Polaroid Corporation was the lead debtor, BKY 08–46617. The precipitant of the bankruptcy filings was the failure of massive criminal activity perpetrated by Thomas J. Petters through PCI. Measured by aggregate losses, it was the largest case of financial fraud in Minnesota history. It appears to have been the third largest Ponzi scheme in United States history.

Before late September, 2008, Tom Petters was a prominent presence in entrepreneurial circles in Minnesota. After starting in the 1980s as a direct retailer of overstock and surplus merchandise, he built a sizeable corporate edifice under the umbrella of PCI and another holding company, Petters Group Worldwide, LLC ("PGW"). Through PCI, Tom Petters held himself out as an intermediary for the sale and acquisition of merchandise inventory directly between retailers, outside customary producer-retailer channels. In retail-trade circles, this sort of activity is called "diverting." After Tom Petters was arrested in early October, 2008, it emerged that the great majority of PCI's activity was "diverting" of a different sort—a sham, an elaborate Ponzi scheme. Over a period of years, more than 200 parties were involved in lending to PCI that was ostensibly to finance inventory transactions. Post-collapse investigation revealed that such funding was actually used to repay earlier lenders to PCI.

Federal criminal charges were brought against Tom Petters. In connection with them, a receiver was appointed to secure and marshal his assets. Soon after that, the receiver put PCI and a group of its affiliated entities into bankruptcy under Chapter 11. The Trustee in the PCI-related cases is engaged in a massive "clawback" litigation effort to remediate the brunt of the scheme's failure on the lender-investors left unsatisfied at the end.¹

Apart from his activity through PCI, Tom Petters had acquired interests in independent, established business operations of very different profiles: Sun Country Airlines (acquired in full October, 2006); the mail-order retailer Fingerhut Direct Marketing, n/k/a Bluestem Brands (significant equity acquired 2004/2007); and, here, the Polaroid Corporation (acquired in full April, 2005).² PCI's faltering and failure had a rapid cascade-effect for the Polaroid Corporation and its affiliates.³ Bankruptcy filings for the Polaroid Corporation and a group of its affiliates followed, within two months.⁴

As pleaded, however, this adversary proceeding comes out of the prehistory of all that. It is based on acts and events that happened before Tom Petters acquired the Polaroid Corporation's actual structure.

The Trustee's suit is premised on a discrete chain of business and lending transactions. He describes them in the complaint as follows.⁵ Before April, 2005, Tom Petters transacted with the Polaroid enterprise as it was operated under previous ownership. He used a company in his personal enterprise structure for these dealings. The Polaroid Corporation of that time was his contractual counterparty. Through these transactions Tom Petters procured and distributed new consumer goods, under license of the Polaroid brand and marks. To put it directly: the transactions at issue in this adversary proceeding involved the generalized banner of the Polaroid name; but, at the time of the transactions at issue Tom Petters was contracting with the Polaroid enterprise from the outside .⁶ The Opportunity Finance defendants were involved in those transactions, as lenders that provided the funding to Tom Petters for the acquisition, branding, and disposition of the goods. DZ Bank, as a senior secured lender to the Opportunity Finance defendants, provided those parties the funding for their lending to the Petters enterprise.

In his initial pleading, the Trustee postured this adversary proceeding similarly to the "clawback" litigation pending in the PCI cases.⁷ The Trustee cites 11 U.S.C. § 544(b) as his statutory empowerment to sue for avoidance.⁸ He relies on the fraudulent-transfer law of Minnesota for the substantive governance.⁹ For these cases, the applicable statute is the Minnesota enactment of the Uniform Fraudulent Transfer Act, Minn.Stat. §§ 513.41 —513.51 (2014) ("MUFTA").¹⁰ His complaint blazons many of the same factual theories, legal concepts, and arguments to justify this suit; it features much the same wording in its text. The effort is obvious: to evoke a strong resonance with the essence of "clawback"—a complex of legal remedies advanced to relieve end-victims from the patent inequity left after the failure of a Ponzi scheme.¹¹

However—as will be seen—there are marked differences between the theory and basis of suit for the PCI docket, and the pleaded factual basis and legal substance of this adversary proceeding. This is a product of the historical boundary line that lies at Tom Petters's acquisition of the Polaroid enterprise in 2005, when he ceased to be a contractual counterparty with the enterprises's previous owner and himself took the ownership of the Polaroid enterprise that ended up in bankruptcy.

At this point, the most crucial difference lies at the bottom of the legal framework for avoidance litigation in bankruptcy: the named plaintiff's standing as trustee to bring suit on the subject transfers, and whether his chosen remedy even applies to those transfers. For a motion for dismissal, that issue presents the biggest defect in the Trustee's fact-pleading—transplanted as it was from litigation that featured similar legal claims but different fact-pleading. Were that defect somehow remedied, there is another large gap in the facts he pleads for the relief he seeks. That one stems from a development in precedential case law that occurred after this matter was sued out.

THE PARTIES; THEIR POSTURE IN RELATION TO THE CLAIMS IN SUIT

The Trustee is the statutory steward of the bankruptcy estates of the Polaroid debtors, the corporate entities that are in bankruptcy in these cases.¹² See 11 U.S.C. §§ 701, 702(d), and 704. He was appointed as such after the Polaroid debtors' cases were converted for liquidation under Chapter 7 in late August, 2009.¹³ For his avoidance claims in this adversary proceeding, however, he tries to assume a status derivative of a different company named Petters Consumer Brands, LLC ("PettersCB"), or a company descended from PettersCB.

PettersCB was the entity in Tom Petters's personal enterprise structure that did business in consumer electronic goods bearing the Polaroid brand name, before Tom Petters acquired the whole Polaroid enterprise in April, 2005.¹⁴ Second Amended Complaint, ¶ 36 ("During the time in question, [PettersCB] was in the business of buying consumer electronics to which [it] would affix the ‘Polaroid’ brand name and sell to retailers like Best Buy."). Through this adversary proceeding, the Trustee invokes MUFTA to avoid payments of money made to one or more of the Opportunity Finance defendants from 2003 through 2005, on financing they provided for transactions to which PettersCB was a contractual party. Second Amended Complaint, ¶ 40. He also sues Defendant Opportunity Finance, LLC (individually, "OppFinLLC") in separate counts under common-law theories (breach of contract and fraud). Somewhat confusingly, he classifies the relief he requests under those counts by using the same wording as under the statutory counts—the avoidance of transfers.

The Trustee identifies two multi-membered groupings within the...