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In re DNIB Unwind, Inc.

United States District Court, D. Delaware

August 8, 2017

IN RE DNIB UNWIND, INC. f/k/a BIND THERAPEUTICS, INC., Post-Effective Date Debtor.
v.
GEOFFREY L. BERMAN, in his capacity as Trustee of the Liquidating Trust of DNIB Unwind, Inc. f/k/a Bind Therapeutics, Inc., Defendant/Appellee. B.E. CAPITAL MANAGEMENT FUND, LP, on behalf of itself and all others similarly situated, Appellants, No. 16-11084 (BLS) Adv. No. 17-50882 (BLS)

          MEMORANDUM

         I. INTRODUCTION

         Presently before the court is appellant B.E. Capital Management LLP's Emergency Motion for Temporary Restraining Order and Preliminary Injunction and a Stay Pending Appeal Pursuant to Bankruptcy Rule 8007 (D.I. 4) ("Emergency Motion"). For the reasons that follow, the court will deny the Emergency Motion.

         II. BACKGROUND

         This appeal arises from the bankruptcy court's memorandum order, entered on July 13, 2017 (B.D.I. 694)[1] ("Memorandum Order") denying appellant's Motion for Determination that the Trustee's Conditioning of Distributions to Shareholders on their Submission of Equity Distribution Form Violates the Plan, or, Alternatively, is an Impermissible Plan Modification (B.D.I. 615) ("Motion for Determination"), which sought a determination by the bankruptcy court that the Trustee's conditioning of distributions to shareholders upon receipt of certain Tax Documents (defined below) is impermissible under the debtors' confirmed plan.

         The following facts appear to be undisputed. On September 26, 2016, the bankruptcy court entered an order confirming debtors' plan of liquidation (B.D.I. 457), which, inter alia, established the Liquidating Trust of DNIB Unwind, Inc. ("Trust") and appointed appellee Geoffrey L. Berman as Trustee. On December 15, 2016, Trustee made an initial distribution of $8 million to shareholders. (See B.D.I 694 at 3.) Thereafter, in consultation with the Trust's tax professionals, Trustee concluded that further distributions to the debtors' former shareholders should be conditioned upon submission of certain tax documents, consisting of a Form W-8 or W-9 (the "Tax Forms") and an equity certification form (the "Equity Certification Form")[2] to be completed by the nominees of DNIB shareholders (the "Nominees") who held their shares in street name (collectively, the "Tax Documents"). On February 7, 2017, Trustee sent a notice requesting submission of same on or before August 7, 2017 ("Submission Deadline"). (See B.D.I. 590.) On March 22, 2017, appellant filed the Motion for Determination, arguing that the Trustee is mistaken (or at least overly cautious) in his position that the Tax Forms and Equity Certification Forms are necessary; that there may be alternative approaches (such as seeking a private letter ruling from the IRS); and that requiring submission of this information unfairly burdens shareholders, placing an unreasonable and unnecessary condition upon their right to receive their distributions. (See B.D.I. 615.) A hearing on the Motion for Determination was held on May 31, 2017. (D.I. 4-4.)

         On July 13, 2017, the bankruptcy court entered the Memorandum Order denying the relief sought in the Motion for Determination. (B.D.I. 694.) The bankruptcy court determined that the plan and confirmation order, along with the post-confirmation trust instrument ("Trust Agreement"), govern the rights and responsibilities of the Trustee and the beneficiaries, and that those governing documents permit the Trustee to demand from Trust beneficiaries any forms or information relating to the Trustee's obligations to withhold and to condition distributions upon receipt of such forms or information. (See Id. at 2.) The bankruptcy court noted that "the Trustee's documentation requests here impose at most a modest burden on the shareholders/beneficiaries" and further declined, on a post-confirmation basis, to second-guess the judgment of the Trustee in the exercise of his duties where those actions are directly contemplated by the governing documents. (See Id. at 3.)

         The procedural posture of this Emergency Motion is unusual given the pendency of an adversary proceeding appellant initiated immediately following the entry of the Memorandum Order, which remains pending before the bankruptcy court, and which seeks identical relief. Specifically, on July 14, 2017, appellant filed its Notice of Appeal with respect to the Memorandum Order. (D.I. 1.) The same day, appellant initiated the adversary proceeding against Trustee by filing a complaint seeking declaratory and injunctive relief (as later amended, the "Complaint") (Adv. D.I. 1, 14), together with an Emergency Motion for Preliminary Injunction and Temporary Restraining Order (Adv. D.I. 4) ("TRO Motion"). The TRO Motion seeks precisely the same relief sought in the Emergency Motion: an order enjoining the Trustee, through a final adjudication of the Motion for Determination, from:

(i) conditioning further distributions to DNIB shareholders on the receipt of required tax documents, consisting of a Form W-8 or W-9 (the "Tax Forms") and an equity certification form (the "Equity Certification Form") to be completed by the nominees of DNIB shareholders (the "Nominees") who held their shares in street name (collectively, the "Tax Documents"); and
(ii) making any further distributions to DNIB shareholders until further order of the court. (See Adv. D.I. 4 at 12; D.I. 4 at 1-2.) The TRO Motion further sought a stay pending appeal as alternative relief to the injunctive relief it sought. (See Adv. D.I. 4 at 11-12.) On July 20, the bankruptcy court promptly set a hearing on the TRO Motion for August 3, 2017. (See Adv. D.I. 9.) Notwithstanding the pending TRO Motion, and the appellant's knowledge on July 20 that an emergency hearing date had been set by the bankruptcy court, appellant filed the Emergency Motion in this court on July 25. (D.I. 4.) As Trustee points out, ordinarily, a motion seeking a stay pending appeal of a bankruptcy court's order must be brought first in the bankruptcy court. See Fed. R. Bankr. P. 8007(a)(1). Only if bringing the motion in the bankruptcy court is impracticable or if the bankruptcy court has failed to rule on the motion seeking a stay may the movant bring the motion to the district court before giving the bankruptcy court an opportunity to consider the relief sought. See Fed. R. Bankr. P. 8OO7(b)(2)(A)-(B). Clearly neither condition arose here, as the bankruptcy court promptly scheduled the matter for hearing.

         With respect to these duplicate requests for relief, Appellant merely offered: "[s]hould the Bankruptcy Court grant relief duplicative of that sought/herein, B.E. Capital will promptly notify this Court." (D.I. 4 at 6.) On August 3, the bankruptcy court held a hearing on the TRO Motion, and on August 7, appellant filed a letter (i) advising this court that the request for stay had been denied, and (ii) requesting leave to file a reply in further support of the Emergency Motion. (See D.I. 11.) Given appellant's request for expedited consideration of its Emergency Motion, which appellant argued must be decided prior to4he August 7 Submission Deadline, appellant's offer to promptly advise this court of any duplicative relief granted by the bankruptcy court is hollow and would not have spared this court its time and efforts in considering the pleadings on an expedited basis had the bankruptcy court granted the stay requested in the TRO Motion. Appellant's tactics are wasteful of the court's resources and improper.[3]

         III. JURISDICTION AND STANDARDS OF REVIEW

         Appeals from the bankruptcy court to this court are governed by 28 U.S.C. § 158. District courts have mandatory jurisdiction to hear appeals "from final judgments, orders, and decrees." 28 U.S.C. § 158(a)(1).

         "A preliminary injunction should be granted only in extraordinary situations ..." Uniflex, Inc. v. Endurapack, Inc. (In re Uniflex, Inc.), 319 B.R. 101, 104 (Bankr. D. Del. 2005). For a preliminary injunction to issue, a movant must show that it is both (1) likely to experience irreparable harm without an injunction and (2) reasonably likely to succeed on the merits. See Adams v. Freedom Forge Corp., 204 F.3d 475, 484 (3d Cir. 2000) (citations omitted). "A court may not grant this kind of injunctive relief without satisfying these requirements, regardless of what the equities seem to require. If relevant, the court should also examine the likelihood of irreparable harm to the nonmoving party and whether the injunction serves the public interest." Id.

         "The granting of a motion for stay pending appeal is discretionary with the court." See Inre Trans World Airlines, Inc., 2001 WL 1820325, at *2-3 (Bankr. D. Del. Mar. 27, 2001). Appellant bears the burden of proving that a stay of the Confirmation Order is warranted based on the following criteria: (1) whether appellant has made "a strong showing" that it is likely to succeed on the merits; (2) whether appellant will be irreparably injured absent a stay; (3) whether a stay will substantially injure other interested parties; and (4) where the public interest lies. Republic ofPhil. v. Westinghouse Electric Corp.,949 F.2d 653, 658 (3d Cir. 1991). The most critical factors, according to the Supreme Court, are the first two: whether the appellant has demonstrated (1) a strong showing of the likelihood of success, and (2) that it will suffer irreparable harm - the latter referring to harm that cannot be prevented or ...


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