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In re Sch Corp.

United States District Court, Third Circuit

July 8, 2013

In re: SCH CORP., et al., Chapter 11, Liquidating Debtors.
v.
CARL SINGLEY, Appellee. CFI CLASS ACTION CLAIMANTS, Appellants, Civ. No. 12-1577-SLR.

MEMORANDUM ORDER

SUE L ROBINSON, District Judge.

At Wilmington this 8th day of July, 2013 having reviewed Carl Singley's ("Singley") motion to dismiss the appeal filed by CFI Class Action Claimants ("CFI"), and the papers filed in connection therewith;

IT IS ORDERED that said motion to dismiss (D. I. 9) is granted, for the reasons that follow:

1. Background. Singley is the disbursing agent, litigation designee, and responsible officer for SCH Corp., American Corrective Counseling Services, Inc. and ACCS Corp., the liquidating debtors (collectively, the "debtors").

2. Prior to the debtors' bankruptcy filings, class action litigations against the debtors occurred in California, Florida, Indiana, and Pennsylvania, alleging, among other harms, violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (the "FDCPA") and certain similar state statutes. ( Id. at ¶ 10)

3. On January 19, 2009 (the "Petition Date"), the debtors each filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). ( Id. at ¶ 8) The plaintiffs in California ("Del Campo"), Florida, and Indiana were given the acronym of the "CFI Claimants" and were actively represented by counsel in the chapter 11 case. ( Id. at ¶ 11)

4. On or about May 22, 2009, the debtors filed a proposed plan to sell its business to National Corrective Group, Inc. ("NCG"), an affiliate of the debtors' primary secured lender, Levine Leichtman Capital Partners III, L.P. ("LLCP"). ( Id. at ¶¶ 12, 18, 22). This plan provided third-party releases from liability, in exchange for a total consideration of approximately $2.5 million. ( Id. at ¶ 22) This plan was rejected by CFI, and the debtors abandoned the plan.

5. On August 5, 2009, the debtors proposed a new plan (the "amended plan"), which removed the third-party releases and included a $1 million payment to debtors paid in five $200, 000 installments, one payment per year. ( Id. at ¶ 24) However, NCG would be able to offset certain litigation costs up to $200, 000 per year. ( Id. )

6. With the support of CFI, [1] the amended plan was confirmed by a confirmation order from the Bankruptcy Court on November 2, 2009. ( Id. at ¶¶ 25-26) The effective date was December 21, 2009. ( Id. )

7. On January 4, 2010, Christina Smith and other plaintiffs initiated a new class action suit against LLCP, NCG, and others (the "Smith" action), alleging claims under the Fair Debt Collection Practices Act, RICO, and state law. ( Id. at ¶ 27) Irv Acklesberg ("Acklesberg") and Paul Arons ("Arons"), counsel for CFI prior to and during the bankruptcy cases, along with other counsel, filed the complaint on behalf of the plaintiffs. ( Id. )

8. On March 9, 2011, the United States District Court for the Northern District of California granted a motion that forced the withdrawal of Acklesberg and Arons, on the grounds that they had a disqualifying conflict of interest - costs accrued defending the Smith litigation reduced amounts recoverable under the amended plan. ( Id. at ¶¶ 28-29)

9. After that disqualification, one or more defendants moved to disqualify plaintiff's counsel in the Del Campo litigation. On September 29, 2011, the United States District Court for the Northern District of California granted that motion. ( Id. ¶ at 30)

10. After disqualification, counsel for CFI asserted that the bankruptcy cases should be dismissed for lack of good faith. ( Id. ¶ at 33)

11. On September 14, 2012, following a three-day evidentiary hearing on the motion to dismiss and Singley's motion to approve a compromise, the Bankruptcy Court issued an oral ruling denying CFI's motion ...


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