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In re GSE Environmental, Inc.

United States District Court, D. Delaware

November 15, 2017

IN RE GSE ENVIRONMENTAL, INC., et al, Debtors.
v.
GSE ENVIRONMENTAL, INC., et al, Appellees. CHARLES A. SORRENTINO, Appellant, Civ. No. 16-616 (LPS)

          MEMORANDUM

          LEONARD P. STARKT, UNITED STATES DISTRICT JUDGE

         Pending before the Court is appellant Charles A. Sorrentino's appeal (D.I. 1) from the Bankruptcy Court's decision, GSE Envtl, Inc. v. Sorrentino (In re GSE Envtl, Inc.), 2016 WL 3963978 (Bankr. D. Del. July 18, 2016) ("Order"), which granted appellees' Motion for Judgment on the Pleadings (Adv. D.I. 12, 13)[1] with respect to appellees' First Amended Complaint (Adv. D.I. 6), which had sought declaratory relief in the form of, inter alia, a determination that the claim filed by appellant constitutes an equity security. For the reasons that follow, the Court will affirm the Order.

         I. BACKGROUND

          On May 4, 2014 ("Petition Date"), appellees GSE Holding, Inc. ("GSE Holding") and GSE Environmental, Inc., together with certain affiliates ("Debtors"), filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.

         Prior to the Petition Date, appellant and GSE Holding entered into a letter agreement dated July 1, 2013 (the "Initial Employment Agreement"). Pursuant to the Initial Employment Agreement, appellant served as Interim President and Chief Executive Officer, and his compensation was $ 186, 000 per month in cash. Appellant received his salary of $ 186, 000 per month in cash for the period of July 1, 2013 to August 8, 2013. By letter agreement dated August 8, 2013, appellant and GSE Holding amended the Initial Employment Agreement (the "Amended Employment Agreement").[2] The Amended Employment Agreement divided appellant's monthly compensation into two parts, $100, 000 in cash and $86, 000 in stock, as follows:

         Commencing on the date hereof, your monthly base salary of $186, 000 (the "Base Salary"), which shall be prorated for any partial months, will be payable in a combination of cash and Company stock as follows:

(i) One Hundred Thousand Dollars ($ 100, 000) of the monthly Base Salary shall be paid in cash to you in accordance with the Company's normal payroll practices; and
(ii) Eighty Six Thousand Dollars [($86, 000)] of the monthly Base Salary shall be paid to you in the form of Company stock which shall be granted to you from the Company's 2011 Omnibus Incentive Compensation Plan ... on the date that is the later of (i) seven (7) days after the start date of a replacement CEO, and (ii) February 13, 2014 (the "Grant Date").

         Accordingly, from August 8, 2013 to November 5, 2013, appellant's base monthly compensation was payable in the form of cash ($100, 000) and stock ($86, 000). Appellant was paid all of his cash compensation under the Amended Employment Agreement. Appellant, however, did not receive the $86, 000 per month in stock owed to him under the Amended Employment Agreement. Therefore, following the Petition Date, appellant filed a proof of claim (as amended, "Alleged Claim") in the amount of $260, 866.67, which equals three months plus one day at the rate of $86, 000 per month. Of that amount, the Alleged Claim asserts $12, 475.00 as a priority unsecured claim, earned within 180 days of cessation of employment, and $248, 391.67 as a general unsecured claim. (See D.I. 10 at APP35)[3]

         B. Plan of Reorganization

         On July 25, 2014, the Bankruptcy Court entered an order (B.D.I. 340) ("Confirmation Order") confirming the Debtors' plan of reorganization (B.D.I. 316) ("Plan"). The Plan classified "Parent Equity Interests" in Class 9. "Parent Equity Interests" are defined in the Plan as "Interests in GSE Holding." (See Plan at Art. I.A.84) The term "Interests" is defined in the Plan, in relevant part, as any "Equity Security, including all issued, unissued, authorized, or outstanding shares of capital stock of the Debtors together with any warrants, options, or contractual rights to purchase or acquire such Equity Securities at any time and all rights arising with respect thereto."[4] (See Id. at Art. I.A.71) The Plan provides that, "[o]n the Effective Date, the Parent Equity Interests shall be deemed cancelled and extinguished, and shall be of no further force and effect, whether surrendered for cancellation or otherwise, and there shall be no distribution to holders of Parent Equity Interests on account of such Parent Equity Interests." (See Id. at Art. III.B.9.b) Thus, holders of Parent Equity Interests will receive no distribution under the Plan on account of such Parent Equity Interests.

         The Plan classified "Section 510(b) Claims" in Class 6. Section 510(b) Claims are defined in the Plan, in relevant part, as any claim against the Debtors "arising from rescission of a purchase or sale of a Security of any of the Debtors .. . [or] for damages arising from the purchase or sale of such a security."[5] (See Id. at Art. LA. 107) The Plan provided that, "[o]n the Effective Date, all Claims in Class 6 shall be cancelled without any distribution." (See Id. at Art. III.B.6.b) Thus, holders of Section 510(b) Claims also will receive no distribution under the Plan on account of such Section 510(b) Claims.

         C. Adversary Proceeding

         Per the First Amended Complaint filed on March 25, 2016, Debtors sought declaratory relief that (i) appellant actually holds an equity interest, rather than a claim, and (ii) that if appellant holds a claim, it is a subordinated Class 6 "Section 510(b) Claim" under the Plan. (See D.I. 10 at APP1-11) On May 10, 2016, appellant filed his answer, maintaining that he held a Class 5 "General Unsecured Claim" under the Plan. (See Id. at APP95) Unlike Class 9 Parent Equity Interests and Class 6 Section 510(b) ...


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