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In re BGI, Inc.

United States District Court, S.D. New York

January 28, 2014

In re BGI, INC., f/k/a Borders Group, Inc., Debtor.
v.
- BGI CREDITORS' LIQUIDATING TRUST AND CURTIS R. SMITH, in his capacity as the Liquidating Trustee, Appellees ERIC BEEMAN, JANE FREIJ, AND ROBERT TRAKTMAN, Appellants, - Bankruptcy No. 11-10614

Page 755

Substantively Consolidated.

For Appellants: Clinton A. Krislov, Esq., Kenneth T. Goldstein, Esq., KRISLOV & ASSOCIATES, LTD., Chicago, Illinois; Jay Teitelbaum, Esq., TEITELBAUM & BASKIN, LLP, White Plains, New York.

For Appellees: Bruce Buechler, Esq., Bruce S. Nathan, Esq., Andrew Behlmann, Esq., LOWENSTEIN SANDLER LLP, New York, New York.

OPINION

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Shira A. Scheindlin, U.S.D.J.

OPINION AND ORDER

I. INTRODUCTION

This dispute arises from the chapter 11 bankruptcy cases of Borders Group, Inc.

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and certain of its affiliates (" Borders" ).[1] Eric Beeman, Jane Freij, and Robert Traktman (" Appellants" ), holders of unused Borders gift cards, appeal from an order of bankruptcy judge Martin Glenn permitting a second interim distribution under the Plan (the " Second Distribution Order" ).[2] Appellants ask this Court to (1) certify a direct appeal to the Court of Appeals pursuant to section 158(d)(2) of title 28 of the United States Code (" section 158(d)(2)" ) and (2) stay interim distributions pending disposition of their appeals.[3] For the reasons set forth below, their motion is denied.

II. BACKGROUND

When Borders and its affiliates filed their chapter 11 bankruptcy petitions on February 16, 2011, they intended to reorganize through a sale of their business as a going concern to a third party.[4] To that end, they sought and received authorization from Judge Glenn to continue customer programs, such as gift cards.[5] As of June 2011, Borders' " books and records indicated the existence of approximately 17.7 million outstanding gift cards with unredeemed balances aggregating approximately $210.5 million." [6]

On April 8, 2011, Judge Glenn entered an order establishing June 1, 2011 as the last date for prepetition creditors to file proofs of claim (the " Bar Date Order" ).[7] The Bar Date Order required notice by mail to all known creditors and notice by publication to all unknown creditors.[8] No appeal was taken from the Bar Date Order. Neither Appellants, nor any other holder of a gift card, filed a timely proof of claim.[9]

The proposed sale of Borders' business as a going concern was unsuccessful.[10] Borders then sought and received approval

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to sell its stores and intellectual property assets.[11] " As of September 27, 2011, all e-commerce transactions on the Debtors' website ceased, including the processing and honoring of gift-cards." [12]

On November 10, 2011, Borders filed a disclosure statement pursuant to section 1125 of the Bankruptcy Code.[13] Judge Glenn approved the disclosure statement, the means of soliciting votes on the Plan, and the form of notice of the hearing on confirmation.[14] The Plan was confirmed on December 21, 2011, and became effective on January 12, 2012.[15] Appellants did not object to the Plan before it was confirmed. Following confirmation, they neither sought reconsideration, pursued stay relief, nor appealed from the confirmation order.

Just prior to the effective date, Beeman and Freij sought leave to file untimely proofs of claim based on the amounts remaining on their gift cards.[16] Appellants also moved to certify a class of gift card holders.[17] In February 2012, Traktman filed an untimely proof of claim relating to his gift card.[18] Judge Glenn denied both motions,[19] and later sustained the Trust's objection to Traktman's untimely claim and disallowed it.[20] Appeals from these orders were assigned to Judge Carter.

In September 2012, the Trust sought authorization to make interim distributions pursuant to the Plan of up to $75 million to holders of allowed general unsecured claims (the " First Distribution Motion" ).[21] Appellants filed an objection and separately moved to stay all interim distributions pending resolution of their then-pending appeals.[22] On November 5, 2012, Judge Glenn entered orders granting the Trustee's motion (the " First Distribution Order" ) and denying stay relief.[23]

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Judge Glenn held that Appellants' request for a stay was more akin to a collateral attack on a confirmed, substantially consummated plan, which is prohibited by sections 1127(b) and 1144 of title 11 of the United States Code.[24] He reasoned that:

Granting the requested relief would necessarily interfere with the Liquidating Trustee's ability to carry out the provisions of the Plan requiring it to make scheduled interim distributions, and the Claimants' ultimate goal -- allowing a class of gift-card holders to file untimely proofs of claims -- would result in a substantial redistribution of estate assets long after confirmation of the Plan. The Court therefore considers the Gift-Card Claimants' Motion to be an action to revoke the confirmed chapter 11 Plan.[25]

In addition, Judge Glenn found that Appellants did not meet the standard for a stay pending appeal pursuant to Rule 8005 of the Federal Rules of Bankruptcy Procedure (" Rule 8005).[26] Although Appellants did not appeal from the First Distribution Order, they filed a motion asking Judge Carter to stay further distributions.[27]

While the appeals were still pending, the Trust sought authorization for a second interim distribution of an additional $25 million (the " Second Distribution Motion" ).[28] Appellants filed an objection, arguing that Judge Glenn should delay ruling on the motion to ensure that sufficient funds remained in the Trust to satisfy gift card claims in the event that Judge Carter reversed the prior orders.[29] Appellants did not separately move for a stay.

Judge Glenn held a hearing on May 22, 2013, and deferred ruling on the motion based on the parties' assertions that Judge Carter was likely to decide the appeals in a matter of weeks.[30] That same day, Judge Carter issued his decision dismissing the appeals as equitably moot.[31]

On May 23, 2013, Judge Glenn entered the Second Distribution Order. Appellants filed a timely appeal, which was assigned to this Court on August 16, 2013. On August 19, 2013, Appellees filed a letter indicating that they intended to make a motion seeking to have this appeal assigned to Judge Carter. On August 28, 2013, Appellants responded that transferring the case to Judge Carter was not warranted because the appeals were no longer before him.[32] They argued that instead of assigning the appeal to Judge Carter, I should either certify a direct

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appeal pursuant to section 158(d)(2) or, over their objection, dismiss the appeal as equitably moot.[33]

Following a hearing, Appellants filed their motion for direct certification. In addition, Appellants request a stay of " further distributions until the matter can be ruled on by the Court of Appeals." [34] They characterize this appeal as presenting a single issue, " [w]hether the second and subsequent interim Liquidation distributions to [ ] general [unsecured] creditors should be approved or stayed during the pendency of the" appeals before the Second Circuit.[35]

By September 30, 2013, the Trust had distributed $91 million out of the $100 million authorized under the two interim distribution orders, including roughly $86 million to 1,700 holders of unsecured claims.[36] As of the same date, the Trust held an aggregate cash balance of approximately $22.9 million.[37]

III. LEGAL STANDARD

A. Section 158(d)(2)

Under section 158(d)(2), the court of appeals has jurisdiction over appeals from final and interlocutory bankruptcy court orders[38] in certain circumstances. ...


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