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In re: F-Squared Investment Management LLC

United States District Court, D. Delaware

March 29, 2019

In re F-SQUARED INVESTMENT MANAGEMENT LLC, et al., Debtors. CRAIG JALBERT, in his capacity as Trustee for the F2 Liquidating Trust, Plaintiff-Appellant,
v.
ROOKER PRICE, ADAM GRAVES, BRIAN DOHERTY, JOHN GREG WHITAKER, KATE KINLIN, LISA QUINN, MARK RAMUNNO, MICHAEL FARDY, NICOLE MILLER, STEPHEN DEGNAN WALTER HARTFORD, WILLIAM MCNAMARA, ZACHARY ZELTSAN, SHANNON PRICE, EVGENY BURNAEV, ELENA ZARUBINA, ALEXEY PANCHEKHA, EMILY MEYER, WILLIAM MONAHAN, SVITLANA SENENKO, ROBERT GOTTLIEB, Defendants-Appellees. Adv. Proc. No. 17-50710 (LSS) Adv. Proc. No. 17-50727 (LSS) Adv. Proc. No. 17-50737 (LSS) Adv. Proc. No. 17-50771 (LSS) Adv. Proc. No. 17-50781 (LSS) Adv. Proc. No. 17-50796 (LSS) Adv. Proc. No. 17-50801 (LSS) Adv. Proc. No. 17-50810 (LSS) Adv. Proc. No. 17-50814 (LSS) Adv. Proc. No. 17-50830 (LSS) Adv. Proc. No. 17-50836 (LSS) Adv. Proc. No. 17-50838 (LSS) Adv. Proc. No. 17-50840 (LSS) Adv. Proc. No. 17-50867 (LSS) Adv. Proc. No. 17-50667 (LSS) Adv. Proc. No. 17-50698 (LSS) Adv. Proc. No. 17-50730 (LSS) Adv. Proc. No. 17-50757 (LSS) Adv. Proc. No. 17-50839 (LSS) Adv. Proc. No. 17-50845 (LSS) Adv. Proc. No. 17-50862 (LSS)

          MEMORANDUM ORDER

          HONORABLE LEONARD P. STARK UNITED STATES DISTRICT JUDGE

         Having reviewed the papers submitted in connection with the motion to dismiss for lack of jurisdiction (D.I. 5) (“Motion to Dismiss”) filed by the above-captioned defendants-appellees (“Defendants-Appellees”) with respect to the appeal filed by plaintiff-appellant Craig Jalbert, in his capacity as Trustee for the F2 Liquidating Trust (“Trustee”), from the Bankruptcy Court's

         (i) November 27, 2017 Order Granting in Part and Denying in Part the Motion of the Trustee Extending Time to Effect Service (the “2017 Order”), and (ii) July 30, 2018 Order Granting in Part and Denying in Part the Motion by Trustee for (A) Reconsideration of Order Granting in Part and Denying in Part the Motion of the Trustee Extending Time to Effect Service and (B) Amended Relief (the “2018 Order, ” and, together with the 2017 Order, the “Orders”); and having considered Trustee's objection to the Motion to Dismiss (D.I. 6) (“Objection”) and Defendants-Appellees' reply (D.I. 8) (“Reply”); and the Court having determined that oral argument is not necessary because the facts and legal arguments are adequately presented in the briefs and record and the decisional process would not be significantly aided by oral argument;

         IT IS HEREBY ORDERED that the Motion to Dismiss (D.I. 5) is GRANTED, for the reasons that follow:

         1. Introduction. This appeal arises from the Bankruptcy Court's denial in part of Trustee's motion to extend (“Motion to Extend”) the deadline to effect service under Federal Rule of Civil Procedure 4(m) (“Rule 4(m)”), made applicable to the adversary proceedings by Rule 7004(a)(1) of the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rule 7004”). Defendants-Appellees have moved to dismiss the appeal on the basis that the Orders are interlocutory, Trustee failed seek leave from the Court to appeal the interlocutory Orders, and the appeal does not otherwise meet the criteria set forth in 28 U.S.C. § 1292 for interlocutory review.

         2. Background. The following facts are not disputed. On July 8, 2015, F-Squared Investment Management, LLC, together with certain affiliates (together, the “Debtors”), filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. Following confirmation of the Debtors' plan of liquidation, the F2 Liquidating Trust was established to, inter alia, prosecute causes of action pursuant to chapter 5 of the Bankruptcy Code. Toward that end, Trustee commenced 215 adversary proceedings against the Debtors' former officers, directors, and employees, who had received bonus, tax and/or profit distributions prior to the petition date.

         3. The complaints were filed between June 30, 2017 and July 7, 2017, just prior to expiration of the two-year statutory deadline for commencing such actions. (See D.I. 6 at 3; see also Jalbert v. Kinlin, Adv. No. 17-50781 (LSS), Adv. D.I. 3 at 2-3) Bankruptcy Rule 7004 affords a 90-day period to effect service of process (the “7004 Deadline”). The 7004 Deadline, therefore, expired between September 28, 2017 and October 4, 2017. (D.I. 6 at 3) According to Trustee, “the summonses, complaints and other necessary process . . . [were] sent to all defendants by first class postage pre-paid mail on August 11, 2017, with service addresses known to the Trustee after his review of the Debtors' books and records, the proofs of claim on file and other diligence.” (Id.)[1] Process for six defendants was returned to Trustee. (See B.D.I. 1069, 11/9/2017 Hr'g Tr. at 9)

         4. On September 27, 2017, prior to expiration of the 7004 Deadline, Trustee filed the Motion to Extend, seeking a blanket order extending the 7004 Deadline for cause. (Jalbert v. Kinlin, Adv. No. 17-50781-LSS, Adv. D.I. 3) The Motion to Extend was filed in every single adversary proceeding and served on all defendants. (D.I. 6 at 5) The request for relief was based on Rule 4(m) and Bankruptcy Rule 9006(b)(1). Defendants-Appellees objected.

         5. Bankruptcy Rule 9006(b)(1) provides:

the court for cause shown may at any time in its discretion (1) with or without motion or notice order the period enlarged if the request therefor is made before the expiration of the period originally prescribed or as extended by a previous order or (2) on a motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.

         Federal Rule of Civil Procedure 4(m) governs enlargements of time for a plaintiff to serve the summons and complaint, providing:

If a defendant is not served within 90 days after the complaint is filed , the court . . . must dismiss the action without prejudice against that defendant or order that service be made within a specified time. But if the plaintiff shows good cause for the failure, the court must extend the time for service for an appropriate period.

(Emphasis added) The Third Circuit has interpreted Rule 4(m) “to require a court to extend time if good cause is shown and to allow a court discretion to dismiss or extend time absent a showing of good cause.” Petrucelli v. Bohringer and Ratzinger, 46 F.3d 1298, 1305 (3d Cir. 1995).

First, the [court] should determine whether good cause exists for an extension of time. If good cause is present, the [court] must extend the time for service and the inquiry is ended. If, however, good cause does not exist, the court may in its discretion decide whether ...

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