In re: CPESAZ Liquidating, Inc. AND NDS Liquidating, Inc. AND CPESCA Liquidating, Inc.

FILED
JUN 2 2023
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP Nos. CC-22-1156-FSG
CPESAZ LIQUIDATING, INC., fka CC-22-1157-FSG
Community Provider of Enrichment (Related Appeals)
Services, Inc.; NDS LIQUIDATING,
INC., fka Novelles Developmental Bk. No. 9:20-bk-10554-DS
Services, Inc.; CPESCA LIQUIDATING,
INC., fka CPES California, Inc.,
Debtors.
ROBERT BENNETTI; LINDA
MARIANO; LINKI PEDDY; CHARLES
FOUST, JR.; CPES, INC., Employee Stock
Ownership Plan and Trust Participants,
Appellants,
v. MEMORANDUM*
OXFORD RESTRUCTURING
ADVISORS LLC,
Appellee.
Appeal from the United States Bankruptcy Court
for the Central District of California
Deborah J. Saltzman, Bankruptcy Judge, Presiding
Before: FARIS, SPRAKER, and GAN, Bankruptcy Judges.
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.88
INTRODUCTION
The chapter 11 1 debtors created an employee stock ownership plan,
or ESOP, under which the debtors contributed cash and shares of their
stock to a trust for the benefit of their employees. Former employees of the
debtors asserted claims against the debtors based on their rights in the
ESOP. The bankruptcy court disallowed their claims, holding that the
employees had rights against the ESOP trust but that those rights did not
give them any claim against the debtors.
The employees fail to establish an entitlement to payment from the
debtors: the debtors were not obligated to the employees under the ESOP,
and the employees’ claims were duplicative of claims asserted by the ESOP
trustee. We therefore AFFIRM.
FACTS
A. Prepetition events
Community Providers of Enrichment Services, Inc. (“CPES”) and its
subsidiaries, Novelles Developmental Services, Inc. and CPES California,
Inc. (collectively, the “Debtors”),2 provided behavioral health services in
1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal
Rules of Bankruptcy Procedure.
2
During the course of the bankruptcy case, the Debtors changed their names:
CPES became CPESAZ Liquidating, Inc.; Novelles Developmental Services, Inc.,
became NDS Liquidating, Inc.; and CPES California, Inc. became CPESCA Liquidating,
Inc. To minimize confusion, we will largely disregard the name change.
2
California and Arizona. The latter two entities were wholly-owned
subsidiaries of CPES. CPES was an S corporation; in order to maintain that
status, CPES could not have more than 100 shareholders. 26 U.S.C. § 1361.
CPES created an ESOP for the benefit of all three companies’
employees. Appellants Robert Bennetti, Linda Mariano, Linki Peddy, and
Charles Foust, Jr. (the “ESOP Participants”)3 are participants in the ESOP.
The ESOP was governed by the CPES Employee Stock Ownership
Plan (“ESOP Plan”) and CPES Employee Ownership Trust Agreement
(“ESOP Agreement”). Under these documents, CPES created a trust that
held all of CPES’s stock. The ESOP trust is operated by a trustee and a
committee, both of which are selected by CPES’s board of directors.
Section 13 of the ESOP Plan provided for distributions to plan
participants as directed by the ESOP committee. The distributions may be
made in CPES stock, cash, or both. However, because CPES was an S
corporation, distributions could be restricted to cash payments:
(b) . . . [W]hile CPES is an S Corporation, the
distribution of a Participant’s Capital Accumulation may be
made entirely in cash without granting him the right to
demand distribution in shares of CPES Stock. Alternatively,
CPES Stock may be distributed subject to the requirement that
it be immediately resold to CPES under payment terms that
3
The ESOP Participants purport to include the named parties as well as ninety-
two other individuals. Neither the notice of appeal nor the ESOP Participants’ briefs
identifies these ninety-two individuals. We express no opinion on the question whether
one may prosecute an appeal on behalf of unnamed appellants.
3
comply with Section 14.(b).
(Emphasis added.)
Section 19 of the ESOP Plan provided that, upon termination of the
plan, “the Accounts of the affected Participants . . . will become fully vested
as of that date . . . . A complete discontinuance of Employer Contributions
shall be deemed to be a termination of the Plan for this purpose.” Plan
termination could trigger distribution of participants’ benefits.
CPES appointed Miguel Paredes of Prudent Fiduciary Services, LLC
as trustee of the ESOP (“ESOP Trustee”).
B. The chapter 11 case
In 2020, the three Debtors filed chapter 11 petitions. The bankruptcy
court later approved the sale of the Debtors’ assets.4
The bankruptcy court approved an amended joint plan of
reorganization (“Liquidation Plan”) in May 2021. 5 The Liquidation Plan
called for liquidating the Debtors, which would result in a 100% payout to
unsecured creditors and a surplus for the ESOP, as stockholder of CPES. 6
4
No party appealed the sale order, and the sale has been consummated.
5 We affirmed the confirmation order. Bennetti v. CPESAZ Liquidating, Inc. (In re
CPESAZ Liquidating, Inc.), BAP No. CC-21-1123-LGT, 2022 WL 2719642 (9th Cir. BAP
Sept. 2 2022). The ESOP Participants appealed the ruling to the Ninth Circuit, where it is
pending.
6
The Liquidation Plan placed the equity interest in CPES held by the ESOP in
Class 6. It provided that equity interests would be paid a pro rata dividend once
unsecured claims were paid in full. It also stated that “the ESOP Trustee shall retain
responsibility, standing, and authority to commence, prosecute and settle lawsuits or
actions on behalf of the holders of beneficial interests to the Equity Interest in the
4
Appellee Oxford Restructuring Advisors, LLC was appointed liquidating
trustee of the CPES Liquidating Trust (the “Liquidating Trustee”).
C. The proofs of claim
In the meantime, on September 29, 2020, dozens of ESOP participants
filed proofs of claim for various dollar amounts. The proofs of claim were
filed with a claims agent and later filed under seal.7
The following day, the ESOP Trustee, on behalf of the ESOP, filed
two proofs of claim. The first claim asserted an unsecured claim for
$255,150, for “all amounts due to the ESOP related to participant
distributions that were made based on the prior 2018 stock value.” He
stated that, based on his review, CPES had inflated the valuation of its
stock in 2018, that distributions to ESOP participants based on that
valuation had been too large, and that as a result, the ESOP had less assets
for the other participants than it should have had.
In the second claim, the ESOP Trustee asserted that the ESOP held
100% of CPES’s shares and that “the ESOP, on behalf of the participants,
asserts a proof of interest for its equity interests in the Debtor. The ESOP,
on behalf of the participants, also asserts a proof of claim for all amounts
due to the ESOP related to its equity interests in the Debtor.”
ESOP.”
7
Counsel for the ESOP Participants acknowledge that they did not provide us
with copies of their proofs of claim in their excerpts of record. We have also been unable
to locate the proofs of claim on the bankruptcy court’s claims register or docket.
5
D. The omnibus objections
The Liquidating Trustee filed a pair of omnibus objections 8 to the
ESOP Participants’ proofs of claim. It argued that the ESOP Participants’
proofs of claim did not support claims against the Debtors, because the
ESOP Participants had rights against only the ESOP trust. It also argued
that the ESOP Participants’ claims were duplicative of the ESOP Trustee’s
claims and lacked sufficient information.
The ESOP Participants opposed the omnibus objections. They argued
that the Debtors had an obligation to repurchase company stock
distributed to plan participants and beneficiaries under 26 U.S.C.
§ 409(h)(1)(B), and that the ESOP participants are entitled to exercise a
“put” option and force the Debtors to repurchase the company stock under
26 U.S.C. § 409(h)(4). They acknowledged that this requirement does not
apply to S corporations such as CPES “if such plan provides that the
participant entitled to a distribution has a right to receive the distribution
in cash . . . .” 26 U.S.C. § 409(h)(2).
The ESOP Participants argued that the termination of the ESOP
triggered the Debtors’ repurchase obligations. They concluded that their
8
In bankruptcy parlance, an objection to multiple claims is called an “omnibus
objection.” See Rule 3007(d) (“[O]bjections to more than one claim may be joined in an
omnibus objection if all the claims were filed by the same entity, or the objections are
based solely on the grounds that the claims should be disallowed, in whole or in part,
because: . . . (1) they duplicate other claims; . . . (7) they are interests, rather than
claims[.]”).
6
rights under the Debtors’ repurchase obligations are “at parity” with
unsecured creditors under Arizona state law.
They also argued that their proofs of claim provided sufficient
information and were not duplicative of the ESOP Trustee’s claims.
The bankruptcy court sustained the objections, holding that the ESOP
Participants held no claims against the Debtors. It noted that “(1) the
Debtors are S corporations, which exempts them from the requirements of
26 U.S.C. § 409(h)(1), and (2) the ESOP Participants were never given debt
instruments of any kind . . . .” It explained that, because “CPES Stock is
held in the CPES ESOP and is never distributed directly to ESOP
Participants, it does not appear that the Debtor owes any direct obligation
to the Participants . . . .”
The bankruptcy court summarized:
There is not a “put” option in the CPES ESOP. The
Debtors are not required to repurchase stock held by ESOP
Participants because ESOP Participants do not hold stock under
the CPES ESOP. The Debtor contributes cash to the ESOP or
repurchases stock held in the ESOP Trust, which allows the
ESOP to fund distributions. The ESOP Participants simply have
not shown that this is a direct obligation of the Debtors.
Accordingly, the claim must be disallowed.
The court also held that the ESOP Participants’ claims were
duplicative of the ESOP Trustee’s claims. It agreed with the Liquidating
Trustee “that the ESOP Trustee is the only party with the authority to sue,
defend, compromise, arbitrate, or settle any suit or legal proceeding or any
7
claim due it or on which it may be liable . . . .” However, it disagreed with
the Liquidating Trustee’s position that the claims lacked sufficient
information.
The bankruptcy court entered orders sustaining the Liquidating
Trustee’s two omnibus objections. The ESOP Participants timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in disallowing the ESOP
Participants’ claims.
STANDARDS OF REVIEW
In the claim objection context, we review the bankruptcy court’s legal
conclusions de novo and its findings of fact for clear error. Lundell v. Anchor
Constr. Specialists, Inc. (In re Lundell), 223 F.3d 1035, 1039 (9th Cir. 2000).
“De novo review requires that we consider a matter anew, as if no
decision had been made previously.” Francis v. Wallace (In re Francis), 505
B.R. 914, 917 (9th Cir. BAP 2014).
Factual findings are clearly erroneous if they are “illogical,
implausible, or without support in the record.” Retz v. Samson (In re Retz),
606 F.3d 1189, 1196 (9th Cir. 2010). If two views of the evidence are
possible, the court’s choice between them cannot be clearly erroneous.
Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).
8
DISCUSSION
A. The ESOP Participants do not have any enforceable claim against
the Debtors.
The bankruptcy court held that the ESOP Participants do not have
any rights against the Debtors and so do not have any enforceable claims
against the Debtors. We agree; the ESOP Participants’ rights under the
ESOP do not make them unsecured creditors of the Debtors.
The Bankruptcy Code defines a “claim” as a “right to payment,
whether or not such right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured[.]” § 101(5)(A).
It is not enough that a creditor have a right to payment. The creditor
must also have a right to payment that is enforceable against the debtor or
the debtor’s property. § 502(b)(1). In other words, an obligation that a third
party owes, and the debtor does not owe, is not an allowed claim.
The ESOP Participants assert that they have rights against the
Debtors pursuant to the Tax Code, the ESOP Plan, Arizona law, and the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
They are wrong.
First, the ESOP Participants contend that the Tax Code mandates that
CPES owes them a “repurchase” or “put” obligation, whereby CPES must
repurchase the ESOP Participants’ stock following termination of the plan.
The Tax Code requires that, in certain situations, an ESOP must
9
provide that a participant “has a right to require that the employer
repurchase employer securities under a fair valuation formula.” 26 U.S.C.
§ 409(h)(1)(B). However, this requirement is inapplicable if the employer is
an S corporation, 9 26 U.S.C. § 409(h)(2)(B)(ii)(II), and if “such plan provides
that the participant entitled to a distribution has a right to receive the
distribution in cash,” subject to an exception not relevant here, 26 U.S.C.
§ 409(h)(2)(B)(i). This limitation is important because an S corporation may
not have more than 100 shareholders. If more than 100 parties become
owners of the corporation’s stock, the corporation loses substantial tax
benefits. See 26 U.S.C. § 1362(d)(2)(A) (termination of S corporation status);
Taproot Admin. Servs., Inc., 679 F.3d at 1110-11 & n.1 (noting that, “[t]o
receive such favorable tax treatment under the statute, a small business
corporation must first meet all of the eligibility requirements before
electing S corporation status[,]” and that “any subsequent violation of one
or more of the eligibility rules automatically terminates a corporation’s S
status”).
The parties agree that CPES is an S corporation. As such, the ESOP
need only provide the ESOP Participants a right to receive the distributions
9 Most corporations are treated as separate taxable entities that pay income tax on
their own income. An “S corporation” under 26 U.S.C. § 1361 is not a separately taxable
entity; rather, the corporation’s income is “passed through” to its shareholders. See
Taproot Admin. Servs., Inc. v. Comm'r, 679 F.3d 1109, 1110 (9th Cir. 2012) (“[A]n S
corporation’s profits pass through directly to its shareholders on a pro rata basis and are
reported on the shareholders’ individual tax returns. In this way, an S corporation
serves as a conduit through which income flows to its shareholders.” (cleaned up)).
10
in cash. Here, the ESOP Plan provides for this situation: “Distribution . . .
will be made in shares of CPES Stock, cash or a combination of both. . . .
[W]hile CPES is an S Corporation, the distribution of a Participant’s Capital
Accumulation may be made entirely in cash without granting him the right
to demand distribution in shares of CPES Stock.” In other words, consistent
with the Tax Code, the ESOP Plan provides that the Debtors’ employees
have no right to receive distribution in the form of stock. 10
The ESOP Participants acknowledge that S corporations may
distribute cash in lieu of stock.11 Rather, they seem to argue that the ESOP’s
distribution of cash is the legal equivalent of the employer’s repurchase of
shares from the ESOP Participants. They cite no authority for this novel
proposition, and we reject it. The employees had the right to receive cash
distributions from the ESOP trust; they had no right to receive any cash
payment from CPES.
Similarly, the ESOP Participants point out that the ESOP Plan
provides that they are to receive their vested benefits following the
termination of the plan. 12 They conclude that, “whether in the form of
10
Section 14(b) of the ESOP Plan discusses a “put option.” However, this section
explicitly does not apply to distribution of capital accumulation as discussed in section
13(b), which allows the ESOP to forego a distribution in stock because it is an S
corporation.
As the bankruptcy court pointed out, the ESOP Participants conceded that
11
CPES was not permitted to make any distribution directly to the ESOP Participants.
12
The ESOP Participants argue that the ESOP terminated at the latest on the
petition date, thus triggering the stock repurchase obligation. We need not decide if or
11
shares of [CPES] or cash [funded by CPES], the Participants are entitled to
payment from [CPES] under the ESOP.”
The ESOP Participants misconstrue the ESOP Plan. Termination of
the ESOP triggers certain distribution rights, but section 19 of the ESOP
Plan does not require that those distributions be made in the form of CPES
stock. The ESOP Participants are entitled to a cash distribution, but that
distribution comes from the ESOP, not the Debtors.
Therefore, the ESOP Participants did not have a right to any payment
from the Debtors (as opposed to the ESOP). As such, they could not
properly assert a proof of claim against the Debtors. The cases they rely on
do not convince us otherwise and, in any event, are not binding.
In re Indian Jewelers Supply Co., 604 B.R. 408 (Bankr. D.N.M. 2019), is
readily distinguishable. That case similarly concerned the treatment of the
claims of three ESOP participants against their employer, a chapter 11
debtor, whose shares were held in an ESOP trust for the employees. Id. at
410. However, unlike this case, the employees did have the right to receive
stock, and they had a “put” option which, if exercised, would require the
employer to buy the stock directly from the employees. Id. at 411. The first
claimant was allowed to assert a claim because she held a promissory note
issued to the claimant when she exercised her “put” option, id. at 415-16;
the second claimant’s distributions were improperly refused by the debtor,
when the ESOP terminated, because the Debtors had no obligation to buy stock from, or
distribute cash to, the ESOP Participants upon plan termination.
12
who did not allow the claimant to exercise his “put” option, id. at 416; and
the third claimant was “trying to collect his retirement benefits from the
Debtor,” id. at 417. None of these situations are applicable to this appeal: in
this case, it is the ESOP, not the Debtors, that distributes retirement benefits
to the ESOP Participants.
Merrimac Paper Co. v. Harrison (In re Merrimac Paper Co.), 420 F.3d 53(1st Cir. 2005), is similarly unavailing. As in Indian Jewelers, the relevant
ESOP plan provided that the vested portion of an employee’s individual
account would be distributed to him in the form of stock, and he could
enforce a “put” option. The claimant held a promissory note issued by the
debtor for the value of the redeemed shares; this gave the claimant a right
to payment against the debtor and entitled him to assert an unsecured
claim. The ESOP Participants here do not have similar rights against the
Debtors.
The ESOP Participants next argue that Arizona law provides that
they are on parity with unsecured creditors. They cite Arizona Revised
Statutes § 10-640(F), which provides that “[a] corporation’s indebtedness
to a shareholder incurred by reason of a distribution made in accordance
with this section is at parity with the corporation’s indebtedness to its
general, unsecured creditors . . . .” (Emphasis added.) This statute is of no
moment. As discussed above, the Debtors were not indebted to the ESOP
Participants due to stock distributions or otherwise; rather, CPES funds the
ESOP with company stock and cash, and only the ESOP has obligations to
13
make distributions to the employees.
Finally, the ESOP Participants assert that they were entitled to bring
their claims under 29 U.S.C. § 1132(a). That section creates certain private
rights of action in favor of plan participants, beneficiaries, and fiduciaries.
But none of those private rights of action allows the ESOP Participants to
assert rights to payment against the Debtors.
For example, section 1132(a)(1)(B) allows a participant or beneficiary
to bring a civil action “to recover benefits due to him under the terms of his
plan, to enforce his rights under the terms of the plan, or to clarify his
rights to future benefits under the terms of the plan.” But as we have
explained, under the terms of this ESOP plan, the ESOP trust owes benefits
to the participants; the Debtors do not.
Similarly, section 1132(a)(2) permits a participant or beneficiary to
sue “for appropriate relief under section 1109 of this title.” Section 1109 in
turn makes plan fiduciaries “personally liable to make good to such plan
any losses to the plan” caused by a breach of duties under ERISA, “and to
restore to such plan any profits of such fiduciary which have been made
through use of assets of the plan by the fiduciary . . . .” 29 U.S.C. § 1109(a)
(emphases added). By its terms, the statute obligates the fiduciary to make
the plan (i.e., the ESOP trust) whole and does not create a payment
obligation to plan participants.
Finally, 29 U.S.C. § 1132(a)(4) authorizes a participant or beneficiary
to sue “for appropriate relief in the case of a violation of section 1025(c) or
14
1032(a) of this title[.]” Those sections require the “administrator” or “plan
administrator” of the plan to provide certain notices and statements to
participants and beneficiaries. CPES was the plan administrator of the
ESOP Plan, so it owed a duty directly to the ESOP Participants to provide
the required reports and statements. The ESOP Participants say in their
briefs that they did not receive all required statements and reports, but as
far as we can tell from the record, their proofs of claim did not assert claims
based on that failure. 13
In short, ERISA does not give the ESOP Participants a right to
payment from the Debtors and does not transform them into unsecured
creditors of the Debtors.
The ESOP Participants rely on LaRue v. DeWolff, Boberg & Associates,
Inc., 552 U.S. 248 (2008), to support their position that they are entitled to
allege claims for breach of fiduciary duty directly against the Debtors
under ERISA. In that case, the U.S. Supreme Court held that individual
plan participants could assert claims on behalf of a benefits plan. Id. at 256.
But LaRue is inapplicable. In that case, the employer had allegedly
breached fiduciary duties to the plan. The Court stated that, because the
appeal arose out of a motion to dismiss, “we must assume that respondents
13
As we explain in the following section, we cannot review the proofs of claim
themselves because the ESOP Participants did not include them in their excerpt of
record and we have been unable to locate them on the bankruptcy court’s docket. The
lengthy excerpt from the proofs of claim in the ESOP Participants’ reply brief does not
assert a claim based on the failure to provide reports and statements.
15
breached fiduciary obligations defined in § 409(a) . . . .” Id. at 252. In this
case, however, the Debtors do not owe the ESOP or the ESOP Participants
any fiduciary duty. Rather, the ESOP Plan provides that “[t]he members of
the Committee 14 shall be the named fiduciaries with authority to control
and manage the operation and administration of the Plan.” The ESOP
Participants do not point to any law or agreement imposing fiduciary
duties on the Debtors. 15
B. The ESOP Participants’ claims were duplicative of the ESOP
Trustee’s claims.
The ESOP Participants argue that the bankruptcy court erred in
holding that their claims were duplicative of the ESOP Trustee’s claims. We
According to the ESOP Plan, the Administrative Committee “is appointed by
14
the Board of Directors.”
15
The definition of a “fiduciary” under ERISA provides:
[A] person is a fiduciary with respect to a plan to the extent (i) he exercises
any discretionary authority or discretionary control respecting
management of such plan or exercises any authority or control respecting
management or disposition of its assets, (ii) he renders investment advice
for a fee or other compensation . . . , or (iii) he has any discretionary
authority or discretionary responsibility in the administration of such
plan.
29 U.S.C. § 1002(21)(A); see also Johnson v. Couturier, 572 F.3d 1067, 1076 (9th Cir. 2009)
(The Ninth Circuit has “recognized that where members of an employer’s board of
directors have responsibility for the appointment and removal of ERISA trustees, those
directors are themselves subject to ERISA fiduciary duties, albeit only with respect to
trustee selection and retention.”). The ESOP Participants have not demonstrated that
the Debtors fall within this definition. The ESOP Participants believe that the ESOP
Trustee, the Debtors’ officers and directors, and possibly others breached fiduciary
duties to them, but they do not show that the Debtors owed them any such duty.
16
discern no error.
The ESOP Participants have not included the proofs of claim in their
excerpts of record or directed us to where we can find them in the record.
Because we do not have the proofs of claim before us, we cannot review
them. See Brown v. State Bar of Ariz. (In re Bankr. Petition Preparers Who Are
Not Certified Pursuant to Requirements of Ariz. Sup. Ct.), 307 B.R. 134, 144 (9th
Cir. BAP 2004) (“We need not examine the record beyond that provided in
the excerpts.”); Kritt v. Kritt (In re Kritt), 190 B.R. 382, 387 (9th Cir. BAP
1995) (“The appellants bear the responsibility to file an adequate record,
and the burden of showing that the bankruptcy court’s findings of fact are
clearly erroneous. Appellants should know that an attempt to reverse the
trial court’s findings of fact will require the entire record relied upon by the
trial court be supplied for review.” (cleaned up)). Therefore, the record on
appeal does not permit us to compare their claims with the ESOP Trustee’s
claims.
Even if we were to rely on the ESOP Participants’ unverified
representation of what they asserted in the proofs of claim, we would
discern no error. The ESOP Participants allegedly asserted unsecured
claims against the Debtors for the dollar amount of their ESOP account
balances as of the end of 2018. They also apparently asserted “claims for
the failure of the members of the [CPES’s] Board of Directors, and the
ESOP Board of Trustees or Committee and/or the ESOP Trustee, to ensure
a proper valuation of the shares of [CPES’s] capital stock.”
17
As we have explained, we reject the proposition that the ESOP
Participants had a right to payment from the Debtors based on the dollar
amounts in the individual accounts as of 2018 as unsecured debt.
The claims against the Debtors for breach of fiduciary duty relating to
the stock valuation is duplicative of the ESOP Trustee’s first claim. He
asserted a claim for $255,150 based on allegations that the 2018 valuation
overstated the value of the stock held by the ESOP. This appears to be the
same claim as that asserted by the ESOP Participants, even if the dollar
amounts differ.
Furthermore, the ESOP Trustee was solely empowered to bring these
claims under the ESOP Agreement and Liquidation Plan. Section C of the
ESOP Agreement provides that the ESOP Trustee has the power to:
(8) sue, defend, compromise, arbitrate or settle any suit or legal
proceeding or any claim due it or on which it may be liable;
(9) exercise any of the powers of any owner with respect to the
Trust Assets; and
(10) perform all acts which the Trustee shall deem necessary or
appropriate and exercise any and all powers and authority of
the Trustee under this Trust Agreement.
Similarly, the Liquidation Plan provided that “the ESOP Trustee shall
retain responsibility, standing, and authority to commence, prosecute and
settle lawsuits or actions on behalf of the holders of beneficial interests to
the Equity Interest in the ESOP.” The ESOP Participants cannot usurp the
18
ESOP Trustee’s powers to exercise the rights of the ESOP.16
The ESOP Participants complain, in summary, that the ESOP
Trustee’s claims do not protect their rights. However, any claim recovered
by the ESOP Trustee benefits the ESOP trust, which in turn benefits the
ESOP Participants. Conversely, the ESOP Participants’ strategy of
sustained litigation diminishes the assets available for distribution. As
counsel conceded at oral argument, the ESOP Participants are only entitled
to receive the fair market value of the CPES stock; needless litigation that
wastes estate assets is contrary to the ESOP Participants’ interests.17
CONCLUSION
The bankruptcy court did not err in sustaining the Liquidating
Trustee’s omnibus objections. We AFFIRM.
16 The ESOP Participants argue that the plan confirmation order preserved their
right to sue the Debtors. But the order only protected the ESOP Participants’ rights to
assert claims “to the extent any such claims or causes of action exist.” In other words,
the confirmation order only permitted them to retain existing causes of action; the
bankruptcy court held (and we agree) that they had no causes of action against the
Debtors. The confirmation order did not create any new claim.
17
The ESOP Participants maintain that their proofs of claim provided sufficient
information to support their claims. We do not understand why the ESOP Participants
are arguing this point because the bankruptcy court agreed with them.
19