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In re S.S. Body Armor I, Inc.

United States District Court, D. Delaware

June 29, 2018

IN RE S.S. BODY ARMOR I, INC., et ah, Debtors.
v.
S.S. BODY ARMOR I, INC., Appellee. CARTER LED YARD & MILBURN, LLP, Appellant,

          ORDER

         WHEREAS, on April 14, 2010, SS Body Armor I, Inc., together with certain affiliates ("Debtors"), filed voluntary petitions for relief (B.D.I. I)[1] under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware ("Bankruptcy Court");

         WHEREAS, prior to the Petition Date, Debtor's former CEO David Brooks was indicted in the Eastern District of New York in connection with a massive insider trading scheme;

         WHEREAS, prior to the Petition Date, from 2007 through 2010, shareholder D. David Cohen ("Cohen") and appellant law firm Carter Ledyard & Milburn LLP ("CLM") together bore the expense of objecting to and successfully appealing the combined settlement of class action and shareholder derivative lawsuits involving the Debtors; absent Cohen and CLM's efforts and successful appeal, that settlement would have otherwise released and indemnified Brooks from liability under § 304 of the Sarbanes-Oxley Act, 15 U.S.C. § 7243(a) ("SOX 304");[2]

         WHEREAS, in2OlO, the U.S. Attorney's Office in the Eastern District of New York ("USAO- EDNY") commenced a civil forfeiture proceeding ("Civil Forfeiture Proceeding") against a multitude of Brooks-related assets, pursuant to which, Debtor asserts, approximately $168 million of assets are currently restrained (see D.I. 11 at 2);[3]

         WHEREAS, on November 10, 2015, the Debtors confirmed a plan of liquidation, which established a recovery trust ("Recovery Trust") to pursue estate claims (B.D.I. 3526) ("Plan");

         WHEREAS, on December 3, 2015, the Bankruptcy Court ruled that CLM and Cohen were entitled to a fee award for their efforts in preserving the SOX 304 claim, to be paid only from funds which the Debtors or their successors-in-interest receive on account of the SOX 304 Claim, if any, in an amount to be determined by the Bankruptcy Court (B.D.I. 3624) ("Fee Order");

         WHEREAS, Appellants have appealed the Fee Order on the basis that, inter alia, the Bankruptcy Court applied the wrong legal standard in making payment of the fee award contingent upon a recovery by the Debtor on account of the SOX 304 claim, and that appeal remains pending;[4]

         WHEREAS, in October of 2016, Brooks died in prison while his appeals of his criminal convictions[5] were pending in the Second Circuit, and, as a result, those convictions as well as all restitution awards, fines, and orders of forfeiture were vacated under the doctrine of abatement;[6]

         WHEREAS, following Brooks' death, various parties[7] entered into a term sheet for a possible global settlement of multiple claims and causes of action, involving multiple parties and litigation in multiple venues, [8] which has not yet been approved or finalized by the parties, but which the Debtor anticipates will be finalized and funded by July 20, 2018;[9]

         WHEREAS, upon learning of the potential global settlement, on January 17, 2018, appellant filed a motion (B.D.I. 4019) requesting that the Bankruptcy Court require the Debtor to establish a $25 million reserve to pay the fee award ("Fee Reserve Motion"), [10] which was heard (B.D.I. 4046) and granted, in part, on February 16, 2018 (B.D.I. 4100) ("Reserve Order"), with the Bankruptcy Court ordering the Debtor to establish $5 million reserve;[11]

         WHEREAS, on March 27, 2018, appellant filed with the Bankruptcy Court a motion for stay pending appeal (B.D.I. 4059), which was heard (B.D.I. 4110) and denied by the Bankruptcy Court on April 24, 2018 (B.D.I. 4100);[12]

         WHEREAS, on April 25, 2018, appellant filed its notice of appeal (D.I. 1), and contemporaneously therewith, an emergency motion for stay pending appeal (D.I. 5) ("Emergency Stay Motion") and a motion for expedited consideration (D.I. 6) ("Motion to Expedite"); WHEREAS, on May 16, 2018, the court granted the Motion to Expedite and set an expedited briefing schedule with respect to the Emergency Stay Motion (D.I. 10); WHEREAS the Emergency Stay Motion has been fully briefed (D.I. 5, 11, 12, 13) and is presently before the court; WHEREAS, the court has considered the parties' briefing and the applicable law; IT IS HEREBY ORDERED THAT:

         Appellant's Emergency Stay Motion ...


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