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In re FAH Liquidating Corp.

United States District Court, D. Delaware

June 11, 2018

In re FAH LIQUIDATING CORP. (f/k/a FISKER AUTOMOTIVE HOLDINGS, INC.), et al, Debtors.
v.
BAYERISCHE MOTOREN WERKE AKTIENGESELLSCHAFT, Defendant. EMERALD CAPITAL ADVISORS CORP., in its capacity as Trustee for the FAH Liquidating Trust, Plaintiff, Adv. No. 15-51898 (KG)

         Chapter 11

          MEMORANDUM

         I. INTRODUCTION

         Bayerische Motoren Werke Aktiengesellschaft ("BMW"), defendant in the above-captioned adversary proceeding, moves this court (D.I. 1) ("Motion for Leave") for leave to appeal the Bankruptcy Court's interlocutory decision, Emerald Capital Advisors Corp. v. Bayerische Moteren Werke Aktiengesellschaft (In re FAH Liquidating Corp.), 572 B.R. 117 (Bankr. D. Del. 2017) ("Decision"), granting in part and denying in part BMW's motion to dismiss the adversary proceeding. For the reasons stated below, the court will deny the Motion for Leave.

         II. BACKGROUND

         A. The Agreements

         According to the Complaint, this dispute arises from agreements between BMW, a corporation organized under the laws of the Federal Republic of Germany, and Fisker Automotive, Inc. (together with Fisker Automotive Holdings, Inc., "Debtors"). (See Adv. D.I. I).[1] Debtors were founded in 2007 to design, assemble, and manufacture premium plug-in hybrid electric vehicles. (Bankr. D.I. 3 at ¶ 5). Around October 2011, Debtors were developing the "N" or "Nina Platform" to launch their second vehicle, the Atlantic sedan. (Id. at ¶ 18). Debtors entered into supply and service agreements with third parties including BMW. In April 2011, the parties entered into a development agreement "for the installation of BMW N26B2O engines with parts and components into a Fisker Nina vehicle ... for the purpose of securing the project's milestones with the view of the conclusion of a final Purchase, Supply and Development Agreement." (Adv. D.I. 6 at Ex. A). The parties also entered into a supply agreement (together with the development agreement, the "Agreements") for "the supply of BMW N20B20 engines [], other standard BMW powertrain and chassis parts and components ... for use in the Nina." (Id. at Ex. B, ¶ 1.1).

         The Agreements obligated Fisker to pay BMW for its services in three tranches: (1) €150, 000 at signing, (2) €250, 000 "after successful engine start up in vehicle and test bench" and (3) €300, 000 on September 30, 2011. (Id. at Ex. A, ¶ 6.2). Among other services required under the development agreement, BMW was obligated to develop and deliver six prototype N26B2O engines and related parts. (Id. at Annex 3). Pursuant to the supply agreement, Debtors were required to pay three upfront, yearly installments of €22 million for a total of €66 million to BMW for expanding its production capacity as needed to manufacture 515, 000 engines. (Id. at Ex. B, App. 5). The upfront payments were to cover BMW's "structural invest[ment], machining, tooling, [and] development costs" and were to be paid to BMW "regardless of the actual volumes attained." (Id. at ¶ 5.2.1). In 2012, the parties amended the Supply Agreement and modified the upfront payment schedule to reflect Debtors' reduced forecast for production needs. (Id. at Ex. C, App. 5, ¶ 5.2.1). The new schedule identified Debtors' first €22 million payment made in 2011, relieved Debtors of their payment in 2012, and obligated Debtors to make payments of €7.5 million in 2013, €6.25 million in 2014, €5 million in 2015, and €1.25 million in 2016. (Id.)

         B. The Complaint

         The Complaint alleges that Debtors made five wire transfers in the total amount of $32, 579, 798.87 (collectively, the "Transfers") between June 30, 2011 and April 9, 2012. BMW acknowledges that Debtors made all three tranche payments required under the development agreement on June 30, December 20, and April 4, 2011. (Adv. D.I. 15 at 7). BMW identifies the July 29, 2011 payment as the upfront payment of €22 million required under the supply agreement. On November 22, 2013, Debtors filed for relief under Chapter 11. In May of 2014, Debtors rejected the Agreements with BMW. (Bankr. D.I. 932). On July 28, 2014, the Bankruptcy Court confirmed Debtors' plan of liquidation (Bankr. D.I. 1137). Under the plan, Debtors assigned to a liquidating trust ("Trust") all estate causes of action, including any actions against BMW. (See Id. at Art. IV.L). On November 19, 2015, the Trust filed its complaint seeking to recover from BMW the $32.5 million in Transfers. (Adv. D.I. 1). The Complaint alleges that BMW did not manufacture or deliver any engines pursuant to the Agreements or otherwise give any value in exchange for the Transfers. (Id. at ¶ 16). The Complaint seeks to recover the Transfers under various theories, including: avoidance, recovery, and turnover of certain of the transfers as constructively fraudulent under §§ 542, 548, and 550 (Counts I, III, and IV); avoidance of the transfers as constructively fraudulent under § 544(b)(1) (Count II); and unjust enrichment (Count V).

         C. The Motion to Dismiss

         BMW moved to dismiss the claims under Federal Rule of Civil Procedure 12(b)(6), made applicable to the adversary proceeding by Bankruptcy Rule 7012(b). (Adv. D.I. 15). BMW argued generally that, based on the Debtors' rejection of the contract, Debtors are deemed to be in breach of the contract under § 365(g)(1), cannot allege substantial performance, and therefore cannot bring suit under the Agreements. (Id. at 1). Because Trustee did not seek to avoid the Agreements themselves as fraudulent transfers, and now seeks to avoid discrete payments under the contract, BMW alleges, "[t]he entire action is an end-run around the rules of contract law, attempting to obtain by avoidance what the Trustee could not obtain by suing under the contract itself." (See id.) BMW further argued the fraudulent transfer action must be dismissed because "payments made under a valid contract are, by definition, payments for reasonably equivalent value." (Id. at 1). BMW further asserts that, based on Trustee's allegation that the parties had a written contract, Trustee cannot proceed on an unjust enrichment theory as a matter of law. (Id. at 3).

         On June 13, 2017, the Bankruptcy Court issued the Decision granting in part and denying in part BMW's motion to dismiss. The Bankruptcy Court dismissed Trustee's claims under § 544 (Count II), concluding that German law, as the applicable non-bankruptcy law, did not provide a remedy. FAH, 572 B.R. at 130. The Bankruptcy Court further dismissed Counts I, III, and IV to the extent of $31, 786, 216.13, ruling that all but $793, 761.87 of the transfers were made outside of the applicable statutory period. Id. at 128. The Bankruptcy Court denied the motion to dismiss with respect to the remaining $793, 761.87 on the basis that Trustee had adequately alleged that the Debtors received less than reasonably equivalent value in exchange for the Transfers. Id. Finally, the Bankruptcy Court denied the motion to dismiss with respect to the unjust enrichment count. Id. at 131. The Bankruptcy Court noted that it had previously allowed claims for unjust enrichment to proceed where the debtor might be left with no other legal remedy; here, Trustee had a plausible legal remedy, in form of constructive fraudulent transfer claim, for only $793, 761.87 of the Transfers made within the 2-year look back period, and not for the remaining $31, 786, 216.13 in payments: "Trustee has brought the adversary proceeding to recover more than $32.5 million that Debtors transferred to [BMW] for what appears to be little or nothing. It remains unclear what, if anything, Debtors received in return for the payments. Trustee has some viable claims." Id. at 131. BMW seeks leave to appeal the Decision, arguing that the Bankruptcy Court erred in failing to dismiss all claims.

         D. Discovery

         At a hearing on April 26, 2017, counsel for Trustee suggested that, "mindful of the cost" of litigation, it may never have filed this lawsuit if BMW had simply explained what it did with the money. (See Adv. D.I. 37, 4/26/17 Hr'g Tr. at 18:22-19:1 ("And the reason it took so long for this proceeding to be filed was we said this really doesn't have to be too complicated ... If [BMW] used the thirty-three million dollars, there is no litigation. And we have enough things going on, we don't need another litigation.") BMW disputes Trustee's representation, stating that it "has no record of any representative of the Trustee (or of the Debtors) contacting anyone at BMW about this matter prior to filing the complaint." (Adv. D.I. 51). Based on Trustee's representation, however, BMW subsequently moved for a case management order that would establish "a two-phased [discovery] approach, in which the second phase may never become necessary":

In the first phase, BMW AG would produce to the Trustee (subject to entry of an adequate confidentiality order) spreadsheets summarizing its expenditures on the Fisker project from 2011 through 2013 (which were prepared contemporaneous to the project, and will show that BMW AG expended substantially in excess of the €22.7 million Fisker paid) and the underlying invoices (for the purchase of machinery, tools, and the like for the build-out of production capacity) from which the summaries were prepared. Following that production, BMW AG would produce (in Germany) a Rule 30(b)(6) designee for deposition on the subject of its Fisker expenditures. The proposal would not curtail the Trustee's right to seek additional discovery after phase one, nor BMW AG's right to oppose additional discovery. At the conclusion of phase one, the parties should be in a position to either dispose of or ...

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