The Debtor purchased a land surveying business from Surv-Tek, Inc. and signed a note payable to the seller in the amount of the purchase price less a down payment. The Debtor missed payments under the note and claimed that its financial difficulties resulted from the seller’s fraud and other misconduct. The Debtor commenced a chapter 11 case and removed state court litigation it had initiated to bankruptcy court.

The Court held a 9-day trial on all issues in the adversary proceeding (which included objections to claims) and on the Debtor’s motion to subordinate Surv-Tek’s claim under 11 U.S.C. 510(c). The Court imposed times limits on the parties at trial. Together, the parties asserted over 25 causes of action. The causes of action included, among other things, breaches of contracts, fraud, negligent misrepresentation, conversion, malicious abuse of process, violation of the Unfair Practices Act, and a claim for injunctive relief.

In a lengthy opinion, the Court ruled against the Debtor and guarantors on their claims, denied the motion to subordinate, found the Debtor liable under a note and lease, and ruled on the extent and validity of secured claims. The court denied all frauds claims asserted by all parties. The Court limited damages awards in favor of Surv-Tek and its affiliate based amounts asserted in their proofs of claim.

Prior to Motiva Performance Engineering, LLC’s bankruptcy filing, the state district court adjudged Motiva to be the owner of Settlement Funds paid by an insurance company as compensation for the loss of use of a vehicle owned by Motiva, which Defendant William Ferguson (part owner of Motiva) had claimed belonged to him. The district court ordered that if Ferguson had not already disbursed the Settlement Funds to Motiva, he was required to turn them over to a state court plaintiff in partial satisfaction of his judgment against Motiva. Ferguson did not abide by the state court’s order and Motiva filed bankruptcy. The trustee filed this adversary proceeding against Ferguson and his affiliates seeking, inter alia, turnover of the Settlement Funds. Ferguson claims that he already turned over the Settlement Funds by causing his wholly owned law firm to (1) pay Motiva’s bankruptcy counsel retainer, and (2) to deposit funds in Motiva’s DIP account. In a motion for summary judgment, the trustee argued that the retainer and the deposit were loans from Ferguson’s law firm to Motiva and sought an order requiring Ferguson to turn the Settlement Funds over to Motiva’s bankruptcy estate. Concluding that genuine issues of material fact preclude summary judgment, the Court denied the trustee’s motion.

The U.S. Trustee’s office objected to special counsel’s fee application, arguing that the Court did not pre-approve the contingent fee when counsel was employed, and that under a “reasonableness review” the fee was too high. Special counsel disagreed, asserting that the Court pre-approved the contingent fee, so a reasonableness review was not permitted. The Court found that it pre-approved the contingent fee arrangement, so it would be improper to conduct a reasonableness review. Alternatively, the Court held that the fee was reasonable.

After confirmation and substantial consummation of Debtor’s Chapter 11, Subchapter V plan, the United States Trustee (UST) moved for conversion or dismissal of the bankruptcy case under Section 1112(b)(1). The plan was confirmed with the support of all Debtor’s creditors and the plan is not in default. While the UST’s arguments may have constituted cause for dismissal or conversion pre-confirmation or pre-substantial consummation, they are ineffective at this stage of the case. If conversion or dismissal ever is required in this case, the Court will have to determine whether the “hybrid” plan in this case, which defers discharge pending completion of the plan payments, would survive or be negated.