Figueroa Mountain Brewing, LLC

• Court: United States Bankruptcy Court, C.D. California
• Decided: July 2, 2021
• Docket: 9:20-bk-11208
• Status: Unknown

Opinion

1 NOT FOR PUBLICATION 2 FILED & ENTERED 3 JUL 02 2021 4 5 CLERK U.S. BANKRUPTCY COURT Central District of California 6 BY g a s p a r i a DEPUTY CLERK 7 8 UNITED STATES BANKRUPTCY COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 NORTHERN DIVISION 11 In re: Case No.: 9:20-bk-11208-MB 12 Chapter 11 13

14 FIGUEROA MOUNTAIN BREWING, LLC, MEMORANDUM OF DECISION GRANTING DEBTOR’S MOTION TO 15 RESTRICT WHITE WINSTON FROM CREDIT BIDDING PURSUANT TO 16 Debtor. § 363(k) AT PROPOSED SALE OF DEBTOR’S ASSETS 17

18 [CASE DKT. 397]

19 Evidentiary Hearing: Date: June 1, 2021 and June 2, 2021 20 Time: 10:00 a.m. 21 *ZoomGov 22 23 24 25 26 27 1 On March 29, 2021, Figueroa Mountain Brewing, LLC (the "Debtor") filed its motion seeking to restrict White Winston Select Asset Funds, LLC ("White Winston") from credit bidding 2 its secured claim in any sale of the Debtor's assets (the "Motion") pursuant to Bankruptcy Code section 363(k). Case Dkt. 397. On April 5, 2021, White Winston filed its opposition to the 3 Motion. Case Dkt. 436. On April 12, 2021, the Debtor filed its reply. Case Dkt. 458. On April 19, 2021, the Court held a preliminary hearing on the Motion, and on June 1 and 2, 2021, the Court 4 held an evidentiary hearing for the purposes of cross examination. For the reasons set forth below, the Court (i) finds "cause" under section 363(k) not to permit White Winston to credit bid its 5 secured claim because the claim is subject to a genuine dispute, and (ii) therefore will grant the Motion. 6 I. JURISDICTION AND AUTHORITY 7 The Motion seeks a determination of whether cause exists to deny a secured creditor the 8 ability to credit bid pursuant to Bankruptcy Code section 363(k). 11 U.S.C. § 363(k). The Court has jurisdiction over this issue because it arises under a provision of title 11 of the United States 9 Code. 28 U.S.C. § 1334(b). For the same reason, the Court has the constitutional authority to enter a final order disposing of the Motion. See Wellness Int'l Network, Ltd. v. Sharif, 135 S. Ct. 1932 10 (2015).

11 II. BACKGROUND

12 On October 5, 2020, the Debtor filed a voluntary petition commencing this chapter 11 case (the "Petition Date"). Case Dkt. 1. Since then, the Debtor has been operating its business and 13 managing its affairs as a debtor in possession. 11 U.S.C. §§ 1107(a) and 1108. The Debtor operates a craft beer company. The Debtor brews beer under the "Figueroa Mountain" brand, for 14 distribution through various wholesale channels, as well as a series of tap rooms operated by the Debtor and certain non-debtor affiliates. 15 A. The White Winston Proof of Claim 16 On April 5, 2021, White Winston filed its proof of claim in this case, which was assigned 17 claim number 57 by the Clerk of Court (the "POC"). Claims Dkt. 57. The POC asserts a total claim, as of the Petition Date, of $9,490,718.30, which White Winston asserts is secured by 18 substantially all the assets of the Debtor's estate.

19 White Winston asserts this liability under a certain bridge loan in the original stated principal amount of $750,000, (the "Bridge Loan"), which was entered into on or about July 26, 20 2019, and subsequently modified on November 12, 2019, January 16, 2020, and April 7, 2020. As modified, the stated principal balance of the Bridge Loan was ultimately increased to $10,500,000. 21 It appears that the bridge loan was structured and treated as a revolving loan, under which 22 the Debtor's revenues were generally collected by White Winston through a so-called "lockbox" account and then readvanced to the Debtor. With this construct in mind, the POC contains a 23 breakdown of the total asserted claim, detailing amounts purportedly advanced or charged to the loan, less the amount of collections, which are labeled as "repayments": 24 / / / 25 / / / 26 / / / / / / 27 / / / / / / 1 P Ar din vc ai np ca el s A fod rv a An cc ce rs u eto d D Ine tb et ro er s, t T (Cra ad pe i tC alr ie zd edit )o rs an d Others $ $9 1, ,0 06 67 1, ,5 16 70 7. .8 30 1 Lender's Professional Fees (including those incurred from Third Parties) $1,691,531.98 2 Lender's Closing Fees, Discounts, and Late Charges $1,948,366.48

3 Total Advances $13,27,918.27

4 Less: Repayments (Customer Collections) ($4,277,918.27)

5 TOTAL OBLIGATIONS $9,490,718.30

6 In addition to the foregoing summary, the POC contains (i) a narrative explanation of the claim, (ii) 49 numbered "Disbursement Statements," beginning with July 26, 2019 and ending on 7 July 24, 2020, POC Ex. 1, and (iii) copies of various agreements and instruments on which the claim is premised. POC Exs. 2-15. Notably, the four categories of charges to the loan that are 8 shown in the foregoing chart do not neatly correspond to explicit labels in the Disbursement Statements and appear to have been categorized and totaled after the fact. Further, the 9 Disbursement Statements do not show any activity (such as accruals or reconciliations) after July 31, 2020. Claims Dkt. 57 at Ex. 16. The POC, however, asserts amounts shown above as of 10 October 5, 2020.

11 In addition to the POC itself, there is additional information in the record regarding the basis and calculation of the amounts asserted in the POC. See Case Dkt. 400 (Declaration of 12 Matthew A. Lesnick) and Ex. 14 thereto. These documents are spreadsheets providing line-by-line detail of advances, fees and expenses, and interest charged to the loan, as well as collections. 13 Although only the amount of the "Customer Collections" matches precisely with the amount shown above, the amounts reflected in these spreadsheets approximate the amounts summarized in the 14 POC and are informative of the individual charges included in each category. Matthew Lesnick, Debtor’s counsel, testified that these documents were produced by White Winston "and are 15 supposed to represent an accounting of White Winston's claim." Id. at 2. There was no objection to the admission of this declaration and Exhibit, and no argument offered suggesting that these 16 spreadsheets do not reflect the detail supporting the POC.

17 The POC asserts that White Winston's security interest in the Debtor's assets is senior to all other competing rights, claims, liens, and encumbrances in those assets, except for certain senior 18 security interests of Montecito Bank and Trust ("MBT"). MBT has filed a proof of claim asserting a claim in the amount of $4,257,285.70, secured by substantially all the Debtor's assets. Claims 19 Dkt. 48. White Winston acknowledges that MBT's security interests in the Debtor's assets are senior to those of White Winston, except with respect to inventory and the proceeds thereof, up to 20 the principal amount of $1,500,000.00. White Winston asserts that this exception arises from a contractual subordination agreement, which is attached to White Winston’s POC as Exhibit 7. 21 B. The Adversary Proceeding 22 On January 21, 2021, White Winston commenced an adversary proceeding against the 23 Debtor. See Adversary No. 9:21-ap-01002-MB, Dkt. 1. Pursuant to its first amended complaint (the "FAC"), White Winston seeks declaratory relief regarding the validity, extent and priority of 24 its security interests and allowance of its claim. Adv. Dkt. 4.

25 On March 25, 2021, the Debtor filed its answer, affirmative defenses, and counterclaims against White Winston, one of which is also a crossclaim against MBT. Adv. Dkt. 10. The Debtor 26 denies that White Winston is entitled to relief on its complaint, asserts 11 affirmative defenses to the complaint, and alleges 18 different causes of action. Id. 27 1 (the "WT hh ite e D We ib nt so tr o nas Cse lart is m t "h )e : following as its affirmative defenses to the claim asserted in the POC

2 1. White Winston lacks capacity to sue because White Winston did not register in California as a foreign limited liability company doing intrastate business there; 3 2. The agreements between the Debtor and White Winston are void or voidable because 4 White Winston did not register in California as a foreign company doing intrastate business there; 5 3. White Winston is not entitled to relief because it is guilty of usury, charging interest on 6 interest, and other illegal acts;

7 4. White Winston's recovery is barred and/or subject to reduction because of the damages due the Debtor on its affirmative claims; 8

9 5. White Winston would be unjustly enriched if the requested relief were granted;

10 6. One or more of the agreements between the Debtor and White Winston are unenforceable because of fraud, mistake, duress and undue influence; 11 7. The White Winston Claim is barred because the agreements on which it is based are 12 unenforceable as unconscionable contracts, including under California Civil Code § 1670.5; 13 8. White Winston is barred by the doctrine of unclean hands; 14 9. White Winston is barred by illegality, impossibility and impracticability of 15 performance;

16 10. The Debtor's acts or omissions, if any, were justified; 17 11. The contracts on which the White Winston Claim are based have been satisfied. 18

19 The Debtor asserts the following as its counterclaims and cross-claim:

20 1. An action for declaratory relief against White Winston and MBT regarding the relative priority of the MBT and White Winston security interests;1 21 2. An objection to allowance of the White Winston Claim, pursuant to Bankruptcy Code 22 section 502(b)(1);

23 3. An action to determine that the amounts charged by White Winston for interest and fees constitute usurious interest and therefore are void, unenforceable and recoverable; 24 4. An action for declaratory relief recharacterizing as equity the debt asserted by White 25 Winston;

26 27 1 This is the only crossclaim asserted against MBT. 1 5. A Ban n a kc rt uio pn tc t yo C e oq du eit a sb ecly ti osu nb 5o 1r 0d (in c)a (t 1e ) t ;h e debt asserted by White Winston under

2 6. An action for fraud and fraudulent inducement with respect to the agreements under which White Winston asserts its claims, including releases contained therein; 3

7. An action to avoid the transactions related to the Bridge Loan, and to avoid and recover 4 all transfers of money to White Winston within one year prior to the Petition Date as preferential transfers under Bankruptcy Code section 547; 5

6 8. An action for avoidance and recovery of constructive fraudulent transfers to White Winston under Bankruptcy Code section 544(b) and Cal. Civ. Code § 3439.04(a)(2); 7 9. An action for avoidance and recovery of intentional fraudulent transfers to White 8 Winston under Bankruptcy Code section 544(b) and Cal. Civ. Code § 3439.04(a)(1);

9 10. An action for avoidance and recovery of constructive fraudulent transfers to White Winston under Bankruptcy Code section 548(a)(1)(B); 10 11. An action for avoidance and recovery of intentional fraudulent transfers to White 11 Winston under Bankruptcy Code section 548(a)(1)(A);

12 12. An action to preserve avoided transfers for the benefit of the Debtor's estate under Bankruptcy Code section 551; 13 13. An action for negligence arising from White Winston's conduct in respect of the Debtor; 14

14. An action for breach of the contracts between the Debtor and White Winston; 15

16 15. An action for breach of the implied covenant of good faith inherent in the contracts between the Debtor and White Winston; 17 16. An action for breach of fiduciary duty regarding White Winston's conduct in respect of 18 the Debtor;

19 17. An action for unjust enrichment; and

20 18. An action for predatory lending and unfair business practices under Cal. Bus. & Prof. Code § 17200. 21 Based on the foregoing, the Debtor seeks a determination of the relative lien priority 22 between MBT and White Winston, disallowance of the White Winston Claim (or, alternatively, either recharacterization of the claim as equity or equitable subordination of the claim), avoidance 23 and recovery of various transfers and obligations, and various compensatory, statutory and punitive damage awards against White Winston. 24 On June 16, 2021, the Court held a hearing on White Winston's motion to dismiss the 25 Counterclaim (the "Motion to Dismiss"), which remains pending. The Court intends to issue a separate ruling on the Motion to Dismiss pursuant to a separate memorandum of decision in the 26 adversary proceeding.

27 / / / / / / 1 C. The Debtor's Anticipated Sale of The Property

2 The Debtor has advised that it does not intend to pursue an "internal reorganization" under which the Debtor's business and financial affairs would be restructured under a chapter 11 plan, but 3 instead intends to sell its assets as a going business concern. To that end, the Debtor previously filed a motion to approve bidding procedures and the sale of assets, Case Dkt. 395, and applied for 4 authority to employ business brokers to market the Debtor's business and its assets. Case Dkt. 394.

5 Although the original sale motion was denied without prejudice, and the broker application withdrawn, the Debtor is proceeding with its plans to market the property for sale. On June 22, 6 2021, the Court held a hearing on a renewed application to employ business brokers to market the Debtor's business and assets for sale, which application was approved without objection. 7 The Court recognizes the importance of a prompt adjudication of the Motion considering 8 the Debtor's pending marketing and sale efforts. Whether and to what extent White Winston has the ability to credit bid its secured claim is material information to which other potential bidders are 9 undoubtedly entitled, as it may impact their willingness to invest time and resources in conducting due diligence and participating in a competitive bidding process for the Debtor's assets. 10 D. Evidence For and Against The Motion 11 In support of the Motion, the Debtor filed the Declaration of Jaime Dietenhofer (the 12 "Dietenhofer Declaration"), Case Dkt. 399; the Declaration of Matthew A. Lesnick, Case Dkt. 400; and a Request for Judicial Notice. Case Dkt. 398. In support of its Opposition, White Winston 13 filed the Declaration of Robert P. Mahoney (the "Mahoney Declaration"). Case Dkt. 436. The Debtor did not file any additional evidence in support of its Reply. No timely objections were 14 made to the admission and consideration of the declarations, the exhibits attached thereto, or the request for judicial notice. See Local Rule 9013-1(i). Accordingly, the declarations were deemed 15 admitted and the request for judicial notice granted. As reflected in the record of the evidentiary hearing held June 1 and June 2, 2021, certain other impeachment exhibits also were admitted into 16 evidence.

17 At the evidentiary hearing, White Winston elected to cross-examine Jaime Dietenhofer, who is the managing member and chief executive officer of the Debtor. The Debtor elected not to 18 cross-examine any witness. As a result of the cross-examination of Dietenhofer, the Court had the opportunity to observe Dietenhofer, assess his demeanor, and judge his credibility. Although the 19 cross-examination of Dietenhofer adduced some additional information that was not reflected in his declaration, the Court finds that Dietenhofer was a candid and credible witness. The Court was not 20 able to assess the credibility of Mahoney because he was not cross-examined. Accordingly, for purposes of the Motion, the Court accepts Mahoney's declaration testimony as true. 21 The Court will reserve its detailed discussion of the evidence for the legal analysis in the 22 following section. As a general matter, however, the Court observes that the nature of the evidence presented by the Debtor, on the one hand, and the evidence presented by White Winston, on the 23 other hand, was very different.

24 The Dietenhofer Declaration provides a first-hand history of the Debtor's business and financial affairs, its transactions with White Winston (including Dietenhofer's communications and 25 dealings with Todd Enright, the representative of White Winston who handled the firm's relationship with the Debtor), the financial and operational control exercised by White Winston 26 over the Debtor, detailed descriptions of amounts charged to the loan, the value (or lack of value) received by the Debtor in respect of these charges, and the impact of these events on the Debtor's 27 operations and financial condition. 1 securityI n a gc ro en et mra es nt, t st h pe e rM taa inh io nn ge y to D the ec l Bar ra idti go en Lp ori an nc .i p Ta hll ey Mde as hc ori nb ee ys Dan ed c la au rath tie on nt i dc oat ee ss nt oh te dlo ira en c ta lyn d respond to the testimony in the Dietenhofer Declaration. Thus, although White Winston makes 2 arguments in opposition to the Motion based on the content of the documents authenticated by Mahoney, Dietenhofer's narrative testimony is generally unrefuted. 3 III. 4 LEGAL ANALYSIS 5 A. Bankruptcy Code Section 363(k) and "Cause" to Deny a Credit Bid 6 Bankruptcy Code section 363(k) provides as follows: 7

8 At a sale under subsection (b) of this section of property that is subject to a lien that secures an allowed claim, unless the court for cause orders otherwise the holder of such claim may 9 bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property. 10 11 U.S.C. § 363(k). 11

12 The express terms of the statute provide (i) that a secured creditor may "credit bid" at a sale of estate property, i.e., offset its allowed claim against the purchase price of property sold pursuant 13 to Bankruptcy Code section 363(b), but (ii) that the court may deny a secured creditor the ability to do so for "cause." Thus, a secured creditor's right to credit bid is not absolute. See In re Free 14 Lance-Star Publ’g Co., 512 B.R. 798 (Bankr. E.D. Va. 2014) ("Credit bidding ... is not an absolute right."); In re Fisker Auto. Holdings, Inc., 510 B.R. 55, 59 (Bankr. D. Del. 2014) ("... the right to 15 credit bid is not absolute."); In re Theroux, 169 B.R. 498, 499, n. 3 (Bankr. D.R.I. 1994) ("there is 16 no absolute entitlement to credit bid").

17 The term "cause" is not defined in the Bankruptcy Code and is left to the courts to determine on a case-by-case basis. In re Olde Prairie Block, LLC, 464 B.R. 337, 348 (Bankr. N.D. 18 Ill. 2011); see also In re N.J. Affordable Homes Corp., 2006 WL 2128624 at *16 (finding that cause is "intended to be a flexible concept enabling a court to fashion an appropriate remedy on a 19 case-by-case basis"); In re River Rd. Hotel Partners, LLC, 2010 WL 6634603 at *1 (Bankr. N.D. 20 III. Oct. 5, 2010) (holding that "[s]ection 363 gives courts the discretion to decide what constitutes 'cause' and the flexibility to fashion an appropriate remedy by conditioning credit bidding on a 21 case-by-case basis."), aff'd River Rd. Hotel Partners, LLC v. Amalgamated Bank, 651 F.3d 642 (7th Cir. 2011). 22 "'Intrinsically, acting 'for cause' looks to the court's equity powers that allow the court to 23 balance the interests of the debtor, its creditors, and the other parties of interests in order to achieve 24 the maximization of the estate and an equitable distribution to all creditors.'" SEC v. Capital Cove Bancorp LLC, No. SACV 15-980-JLS (JCx), 2015 U.S. Dist. LEXIS 174856, at *29 (C.D. Cal. 25 Oct. 13, 2015) (quoting In re RML Dev., Inc., 528 B.R. 150, 155 (Bankr. W.D. Tenn. 2014)). "Generally, 'a court may deny a lender the right to credit bid in the interest of any policy advanced 26 by the Code, such as to ensure the success of the reorganization or to foster a competitive bidding environment.'" In re Free Lance-Star Publ'g Co., 512 B.R. 798, 805 (Bankr. E.D. Va. 2014) 27 (quoting In re Philadelphia Newspapers, LLC, 599 F.3d 298, 316 n.14 (3d Cir. 2010)). 1 The Debtor makes four overarching arguments for why "cause" exists to restrict White Winston's ability to credit bid under section 363. Case Dkt. 397 at 29. 2 First, the Debtor argues that White Winston is not entitled to credit bid because it does not 3 hold an "allowed" claim. Case Dkt. 397 at 29. The text of section 363 provides that a creditor may credit bid only where it holds "a lien [in the property to be sold] that secures an allowed claim." 11 4 U.S.C. § 363(k) (emphasis added). Pursuant to Bankruptcy Code section 502(a), "a claim . . . proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest . . . 5 objects." 11 U.S.C. § 502(a) (emphasis added). Here, the Debtor has filed the Counterclaim, 6 which includes an objection to the White Winston Claim.

7 White Winston argues that it would be unfair to limit or deny it a credit bid simply because the Debtor has filed an objection. The objection is part of a complicated adversary proceeding that 8 has not been adjudicated and cannot be adjudicated before there is a sale of the Debtor's assets. The Court agrees. The filing of an objection containing allegations—without more—is not enough 9 to limit or deny a credit bid. 10 If the objection cannot be timely adjudicated, any party seeking to limit or deny a credit bid 11 must support its request with evidence demonstrating "cause," and the secured creditor must have an opportunity to respond, present evidence in opposition to the request, and be heard. Here, that 12 opportunity has been provided. The procedures applicable to the Motion under Local Rule 9013-1 (including the submission of declaration testimony in support of and opposition to the relief 13 requested), and the opportunity for live cross-examination afforded the parties, have provided 14 adequate due process under the circumstances.

15 Second, the Debtor argues that White Winston should not be permitted to credit bid because doing so would chill the bidding process. Case Dkt. 397 at 43-45. The Debtor cites several cases 16 in which courts have based their decision to limit or deny a credit bid—at least in part—because they found that doing so would chill or eliminate competitive bidding. See, e.g., In re Free Lance- 17 Star Publ’g Co. 512 B.R. at 807 (Bankr. E.D. Va. 2014) (expert witness testified "that under the 18 unique circumstances of this case, limiting DSP's credit bid would help restore a competitive bidding environment and engender enthusiasm for the sale"), aff'd DSP Acquisition, LLC v. Free 19 Lance-Star Publ’g Co., 512 B.R. 808 (E.D. Va. 2014); In re Fisker Automotive Holdings, Inc., 510 B.R. 55, 60 ("The evidence in this case is express and unrebutted that there will be no bidding—not 20 just a chilling of bidding—if the Court does not limit the credit bid.")

21 White Winston argues that those cases are distinguishable because the Debtor has not 22 offered any evidence that bidding would be chilled by White Winston's exercise of a credit bid in the full amount of its secured claim. The Court agrees. Without evidence assessing the risk that a 23 credit bid will chill bidding for a particular asset, it is difficult for the Court to assess whether that risk rises to the level of "cause." The Court, moreover, is not persuaded that the risk of chilling 24 bids is an independently adequate basis to limit or deny a credit bid. In each of the cited cases, the 25 court identified other reasons why permitting the secured creditor to credit bid the entirety of its claim was not equitable. 26 Third, the Debtor argues that White Winston should not be permitted to credit bid because it 27 has engaged in inequitable conduct. Case Dkt. 397 at 45-46. The Debtor contends that under the pretense that it would eventually provide the working capital that the Debtor desperately needed 1 (which it did not provide to the extent anticipated), White Winston induced the Debtor to enter into the Bridge Loan, through which White Winston used its contractual rights and position of power to 2 exercise financial and operational control over the Debtor, exacerbate the Debtor's financial difficulties, increase the Debtor's indebtedness to White Winston (by adding millions of dollars of 3 fraudulent, unreasonable and/or unnecessary amounts to the Bridge Loan) and thereby enhance White Winston's leverage—with the ultimate objective of acquiring ownership of the Debtor's 4 assets.

5 White Winston denies these allegations, arguing that the Dietenhofer testimony on these 6 issues is inaccurate, vague and/or conclusory. White Winston relies heavily on the recitations and operative language of the loan documents, arguing that all of the loan transactions with the Debtor 7 were undertaken at the request of the Debtor, and that all of the rights White Winston exercised were in accordance with those agreements. White Winston contends that if the cost of the loans 8 was high, it was because the Debtor was already in financial distress. White Winston also emphasizes the acknowledgments and releases contained in each of three loan modifications and 9 two forbearance agreements insulate White Winston and the White Winston Claim from the myriad 10 claims of wrongdoing asserted by the Debtor.

11 Although the Court discusses below how the evidentiary record is adequate to establish a genuine dispute with respect to the White Winston Claim (i.e., the Debtor's fourth argument), the 12 evidentiary record presently is not adequate to establish definitively that White Winston is responsible for the inequitable conduct of which it has been accused. Proving White Winston's 13 inequitable conduct likely will require additional evidence at trial on the Counterclaim, that 14 demonstrates further White Winston's true intent, unravels complex issues of causation (e.g., as they pertain to the Debtor's existing financial distress and the extent to which White Winston may 15 have exacerbated that distress), and provides a forensic accounting of the entire relationship (e.g., to understand exactly what the Debtor received from White Winston, when and for how long). 16 While the Dietenhofer Declaration, the POC, and other available documents establish an objective basis for the Debtor's contentions in these matters, they do not conclusively prove them. 17

18 The cases discussed by the Debtor in which a section 363(k) credit bid was denied for inequitable conduct appear to have involved a more comprehensive factual record and/or followed 19 more extensive proceedings. For instance, in In re Aloha Airlines, 2009 WL 1371950 (Bankr. D. Haw. May 14, 2009), the court denied a credit bid for the assets of Aloha Airlines because, among 20 other things, one of the participants in the bid had entered the Hawaiian inter-island air travel market for the purposes of putting Aloha Airlines out of business, supported its effort by misusing 21 information subject to confidentiality agreements, and relying on sworn misstatements to cover up 22 its dishonesty and intentional destruction of records. Id. at *8-*9. The court relied on factual findings made by the court in its decision on the merits of a completed adversary proceeding (in 23 another bankruptcy case), as well as findings made in connection with a motion for sanctions in that proceeding. Id. at *2-*3. 24

25 In In re Free Lance-Star Publ'g Co., the court found that the acquirer of a defaulted loan engaged in inequitable conduct aimed at ensuring it would be the winning bidder in a section 363 26 sale. See In re Free Lance-Star Publ’g Co., 512 B.R. at 806. The lender attempted unilaterally to expand the scope of its liens after the debtor declined to do so, recorded UCC financing statements 27 it was not authorized to record, failed to disclose those filings during cash collateral hearings in which the lender sought liens on those assets, pressured the debtors to shorten the marketing period 1 for the sale of the business, and insisted on the insertion of language in the marketing materials prominently advertising its credit bid rights in order to dissuade competitive bidders. The court 2 reached these conclusions after a three-day evidentiary hearing in which it not only considered the section 363(k) issue, but also cross motions for summary judgment on the central issue of the 3 extent of the lenders' liens. Id. at 800.

4 By comparison, the misconduct alleged by the Debtor here is substantially more complicated to prove and not yet proven—even though the available evidence provides an 5 objective basis for disputing the White Winston Claim. 6 B. Genuine Dispute 7 The Debtor's fourth argument in support of denying White Winston a credit bid is that the 8 White Winston claim is subject to a genuine dispute. Courts have found "cause" under section 363(k) "to bar a secured creditor from credit bidding when the creditor's lien is questioned or 9 otherwise in dispute." In re Olde Prairie Block Owner, LLC, 464 B.R. at 348; see also In re Fisker Auto. Holdings, Inc., 510 B.R. at 61 (credit bid not permitted where amount of allowed secured 10 claim had not yet been determined); In re Daufuskie Island Props., LLC, 441 B.R. 60, 64 (Bankr. 11 D.S.C. 2010) (creditor was not entitled to credit bid where its mortgage was in dispute); Nat 'l Bank of Commerce v. McMullan (In re McMullan), 196 B.R. 818, 835 (Bankr. W.D. Ark. 1996) (holding 12 that "at any such sale, [the secured creditor] shall not be entitled to offset any of its claimed liens or security interests under 11 U.S.C. § 363(k) because the validity of its liens and security interests are 13 unresolved.") aff'd, 162 F.3d 1164 (8th Cir. 1998).

14 This makes sense because it would be unfair to the estate and its myriad stakeholders for a 15 purportedly secured creditor to credit bid for assets and obtain an offset against the purchase price based on a secured claim that is later disallowed. 16 When courts apply this principal, they typically have not yet adjudicated allowance of the 17 secured claim and/or related adversary claims, and they do not require the party seeking to limit or deny a credit bid to demonstrate that it is likely to succeed on its challenges. Instead, courts require 18 a showing that a "sufficient dispute exists regarding the lien forming the basis for a credit bid." In 19 re Merit Group, Inc., 464 B.R. 240, 252 (Bankr. D.S.C. 2011) (emphasis added); see also In re L.L. Murphrey Co., No. 12--03837--8--JRL, 2013 Bankr. LEXIS 2318, at *17 (Bankr. E.D.N.C. June 6, 20 2013) (quoting Merit Group); Ratcliff v. Rancher's Legacy Meat Co., No. 20-CV-834 (NEB), 2020 U.S. Dist. LEXIS 127276, at *13 (D. Minn. July 20, 2020) ("Bankruptcy courts may also prohibit 21 credit bidding entirely where the validity of the creditor's lien is genuinely in dispute" and describing the dispute as "bona fide") (emphasis added); In re Octagon Roofing, 123 B.R. 583, 592 22 (Bankr. N.D. Ill. 1991) (conditioning credit bid where lien was subject to a "bona fide dispute" 23 within the meaning of Bankruptcy Code section 363(f)(4)).

24 In articulating the standard for a "sufficient" or "genuine" dispute, the Court finds instructive and adopts for this purpose the test articulated for whether a dispute is a "bona fide 25 dispute" under Bankruptcy Code section 363(f)(4), which effectuates a similar goal: "That test 26 requires the court to determine whether there is an objective basis for either a factual or a legal dispute as to the validity of the claim. In re Dewey Ranch Hockey, LLC, 406 B.R. 30, 39 (Bankr. 27 D. Ariz. 2009); see also SEC v. Capital Cove Bancorp LLC, No. SACV 15-980-JLS (JCx), 2015 U.S. Dist. LEXIS 174856, at *15 (C.D. Cal. Oct. 13, 2015) ("the moving party must provide some 1 f 2a :c 1t 2u -a bl k g -5ro 1u 2n 0d 8s - Rto N s ,h 2o 0w 1 4a n B o ab nj ke rc . t Liv Ee X b Ia Ss i 1s 0f 3o 3r ,t h ate *d 2is 2p (u Bte a" n) k. r .( q Cu .o Dti . n Cg a I ln . Mre a K r. e 1l 7lo , g 2g 0- 1T 4a )x )e .2, N

o. 2 The Court finds that there is an objective basis in fact and law to conclude that the White 3 Winston Claim is subject to dispute. Although the Court does not find all of the Debtor's arguments persuasive, the Court concludes there is a sufficient dispute regarding the White 4 Winston claim to establish "cause" to deny White Winston a credit bid under Bankruptcy Code section 363(k).3 5

1. Failure to Register As A Foreign Corporation Engaged in Intrastate Business 6

7 The Debtor argues that White Winston does not have the capacity to prosecute the White Winston Claim because it is a Delaware limited liability company and has not registered to conduct 8 intrastate business in California. Cal. Corp. Code § 17708.07(a) ("A foreign limited liability company transacting intrastate business in this state shall not maintain an action or proceeding in 9 this state unless it has a certificate of registration to transact intrastate business in this state.") The Debtor contends that White Winston conducted intrastate business by exerting financial and 10 operational control over the Debtor's retail and wholesale brewing business, which is conducted in 11 California. Case Dkt. 397 at 32.

12 White Winston does not contend that it is registered to conduct intrastate business in California, but cites to exceptions in the same statute under which creating, securing and collecting 13 debt are specifically deemed not to constitute "intrastate" business:

14 (b) Without excluding other activities that may not be considered to be 15 transacting intrastate business in this state within the meaning of this article, activities of a foreign limited liability company that do not constitute transacting 16 intrastate business in this state include all of the following: . . . 17 (7) Creating or acquiring indebtedness, evidences of indebtedness, 18 mortgages, liens, or security interests in real or personal property. 19

20 2 “Bona fide dispute” is not defined in section 363(f)(4) or anywhere else in the 21 Bankruptcy Code. The term ‘bona fide dispute’ is also found in section 303, and the Ninth Circuit, in interpreting the phrase for purposes of that section, defines it as the existence of ‘an objective 22 basis for either a factual or a legal dispute as to the validity of the debt.’ In re Vortex Fishing Sys., 23 Inc., 277 F.3d 1057, 1064 (9th Cir. 2002).” In re GGW Brands, LLC, 2013 WL 6906375 at *24 (Bankr. C.D. Cal. November 15, 2013). 24 3 The Court's findings and conclusions are based on the record now before it. The Court 25 must necessarily make these findings and conclusions to adjudicate whether the White Winston 26 Claim is the subject of a genuine dispute, for purposes of adjudicating White Winston's rights under Bankruptcy Code section 363(k). These findings and conclusions are without prejudice to 27 judgment on the merits of the pending adversary, as to which the parties will have the opportunity to conduct discovery and present additional evidence. 1 (8) Securing or collecting debts or enforcing mortgages or other security interests in property securing the debts and holding, protecting, or 2 maintaining property so acquired.

3 Cal. Corp. Code § 17708.03(b).

4 The Court is not persuaded on the record before it that there is a genuine dispute over White Winston's capacity to enforce its claims under the Bridge Loan. 5

6 First, the extent of White Winston's active involvement with the Debtor's affairs was in furtherance of its interests as a secured lender, its activity does not trigger section 17708.07(a). 7 Second, to the extent it was in furtherance of a scheme to acquire the Debtor, it seems more in the nature of interstate commerce (irrespective of whether it was proper). Third, entry into the Bridge 8 Loan did not arise out of White Winston's involvement in the business of the Debtor; rather, White Winston appears to have become involved in the Debtor's business after entering into the Bridge 9 Loan. See Mazzei v. Sika Stables, LLC, No. CV 19-572 DSF (MRWx), 2020 U.S. Dist. LEXIS 10 164557, at *4 (C.D. Cal. Apr. 23, 2020) (party questioning an opposing party's capacity to sue under section 177808.07 bears the burden of proving, among other things, that "the action arises 11 out of a transaction of intrastate business by a foreign corporation”) (quoting United Med. Mgmt. Ltd. v. Gatto, 49 Cal. App. 4th 1732, 1740 (1996)). 12 2. Avoidance of Constructive Fraudulent Transfers & Obligations 13 The Debtor argues that its cause of action to avoid all obligations incurred under the Bridge 14 Loan, and all liens transferred to White Winston to secure those obligations, raises a genuine 15 dispute with respect to the White Winston Claim. The Court agrees.

16 Bankruptcy Code section 548(a) authorizes the trustee or debtor in possession to avoid transfers of property and obligations incurred by the Debtor where: (i) the transfer or obligation 17 was incurred within two years of the petition date; (ii) the property transferred and/or debt incurred were in exchange for "less than a reasonably equivalent value," and (iii) the debtor was financially 18 unsound at the time of or as a result of the transaction, meaning that the debtor (1) was "insolvent;" 19 (b) had "unreasonably small capital" for any business in which the debtor was or was about to become engaged; or (c) "intended" to incur or "believed" that it would incur debts "beyond the 20 debtor's ability to pay as such debts matured." 11 U.S.C. §§ 548(a)(1), 1107(a).

21 The language of Section 548 of the Bankruptcy Code clearly states that "the debtor" must receive reasonably equivalent "value" in exchange for" the transfer or 22 the obligation. [Citation omitted]. That language means that a benefit is cognizable 23 only if three requirements are satisfied. First, the benefit must be received, even if indirectly, by the debtor, and the touchstone of a cognizable benefit is whether the 24 "debtor's net worth has been preserved and the interests of the creditors will not have been injured by the transfer.” General Electric Credit Corp. v. Murphy, 895 25 F.2d 725, 727 (11th Cir. 1990) (quoting Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979, 991). Second, any purported benefits must also be limited to 26 cognizable "value." Section 548 does not refer to "benefits" whether direct or 27 indirect. It requires reasonably equivalent "value" and includes a precise definition of "value" that encompasses only "property" and "satisfaction or securing of a 1 . Third, property must have been received by the debtors "in exchange for" the transfers or obligation. Any "property" that the debtors would have enjoyed 2 regardless of the [transaction] cannot be regarded as property received "in exchange for" the transfer or obligation. 3 Blixseth v. Kirschner (In re Yellowstone Mt. Club, LLC), 436 B.R. 598, 668 (Bankr. D. Mont. 4 2010).4

5 "Once avoided, the transaction is a nullity and is treated as if it never happened." United 6 States v. Sims (In re Feiler), 218 F.3d 948, 953 (9th Cir. 2000). Unlike the language used in other avoidance provisions of the Bankruptcy Code, such as section 548(c) and 550(a), the statute does 7 not limit avoidance to the extent the debtor received less than reasonably equivalent value. Instead, the statute provides for avoidance of the entire transfer or obligation if the debtor received less than 8 reasonably equivalent value and the other statutory requirements are met.

9 In that instance, the transferee or obligee may retain certain rights by establishing its 10 entitlement to the defense afforded by section 548(c): "[T]he transferee or obligee of such transfer or obligation that takes for value and in good faith has a lien on or may retain any interest 11 transferred or may enforce any obligation incurred, as the case may be, to the extent that such transferee or obligee gave value to the debtor in exchange for such transfer or obligation." 11 12 U.S.C. § 548(c). But the burden is on the transferee or obligee to establish this entitlement. See In re Agric. Research & Tech. Grp., Inc., 916 F.2d 528, 535 (9th Cir. 1990); Rund v. Kirkland (In re 13 EPD Inv. Co., LLC), Nos. 2:10-bk-62208-ER, 2:12-ap-02424-ER, 2020 Bankr. LEXIS 3091, at *66 14 (Bankr. C.D. Cal. Oct. 29, 2020).

15 The evidence presented provides an objective basis for the Debtor's cause of action to avoid the Bridge Loan and related transactions. For this reason, there is also an objective basis on which 16 to conclude that the White Winston Claim, which is based on those transactions, is the subject of a genuine dispute. 17

18 a. Timing.

19 The transactions took place, at the earliest, beginning in early July of 2019 with the original [Terms Letters]. The Bridge Loan itself was executed as of July 26, 2019. Case Dkt. 436 at 71. 20 The Petition Date was October 5, 2020—which is less than two years later. Case Dkt. 1.

21 b. Financial Condition 22 The evidence supports the conclusion that the financial condition requirement is satisfied. 23 The unrefuted testimony of Jaime Dietenhofer indicates that the Debtor sought to complete an expansion of its brewing facilities, but the project (which was then and still is not entirely 24

25 4 The Court is aware that the Debtor also seeks avoidance of the same transactions as a 26 constructive fraudulent transfer under Bankruptcy Code section 544(b) and applicable state law. Because the Court concludes that there is an objective basis for avoidance under section 548, the 27 Court does not believe it is necessary to address the parallel cause of action under section 544(b) and state law. 1 complete) cost substantially more and took longer than expected. The Debtor had incurred millions in debt to its builder and others that it was unable to pay. The Debtor also did not have the working 2 capital to buy the raw materials necessary to utilize the additional brewing capacity that it did complete. These facts support the conclusion that the Debtor had unreasonably small capital for 3 the business in which it was or was about to become engaged Further, it is clear the Debtor did not believe it could service its debts and pay its obligations as they became due without a facility that 4 provided access to $2 million in actual working capital to buy additional raw materials, something that the Bridge Loan does not appear to have provided. Finally, the Schedules of Assets and 5 Liabilities filed by the Debtor in this case suggest that if the Debtor was not already insolvent at the 6 time it entered into the Bridge Loan, it was rendered insolvent by the obligations incurred pursuant to that loan. See Case Dkt. 142 at 16 (Summary of Schedules) (showing $870,672.76 in assets and 7 $18,428,210.02 in liabilities).

8 c. Reasonably Equivalent Value

9 The unrefuted evidence identifies myriad ways in which the Debtor did not receive reasonably equivalent value in exchange for the obligations under the Bridge Loan and the liens 10 granted to secure those obligations. The court will discuss each of the most salient issues, in turn. 11

12 i. Roll-Up Transactions

13 On its Disbursement Statement #20, dated November 12, 2019, White Winston purports to have "disbursed" under the Bridge Loan $4,610,561.00 in principal and fees. Claims Dkt. 57 at 14 244. This coincides with a modification of the Bridge Loan of the same date, which purports to (i) 15 increase the nominal principal amount of the facility from $750,000 to $6.25 million, and (ii) "roll" into the secured Bridge Loan approximately $3.7 million in unsecured debt owed to unsecured 16 creditors other than White Winston. See Claims Dkt. 57 at 127-165; Case Dkt. 399 at 11:13-14:13. On that date, White Winston purports to have "disbursed" $3,798,061.06 to three unsecured 17 creditors with respect to their claims, $625,000.00 to itself as a loan origination fee, and $187,500.00 to itself as a closing fee. 18

19 It does not appear that this transaction provided any value to the Debtor, let alone "reasonably equivalent value." First, it is undisputed that White Winston did not disburse any cash 20 to anyone in satisfaction of these claims. Second, there is an objective basis to conclude that the agreements between White Winston and the other creditors with respect to the claims (i) are 21 illusory, (ii) did not actually extinguish the Debtor's liability to those creditors, and (iii) to the extent they were actually executed, were not executed until many months after White Winston 22 recorded these "disbursements" and began charging the Debtor interest on them. 23 Third, even if the underlying unsecured debts were extinguished in the transaction, in 24 exchange for adding them to the Bridge Loan, the Debtor did not receive any value from it. Rather, the Debtor appears to have received a net economic detriment. By adding these debts to the 25 principal balance of the Bridge Loan, they were converted from unsecured to secured debts, subjected to a higher interest rate, and were the basis of additional fees. Moreover, the unrefuted 26 testimony of Jaime Dietenhofer is that the unsecured creditors, whose claims were the subject of 27 this transaction, had not filed any lawsuit, taken any other action or threatened any action against the Debtor at the time of the transaction. 1 ii. Consulting Fees

2 The Disbursement Statements attached to the POC show that White Winston charged to the 3 Bridge Loan and purportedly "disbursed" to itself at least $1,197,306.68 in "Consulting and Monitoring" fees. The unrefuted testimony of Jaime Dietenhofer is that these services provided no 4 benefit to the Debtor, did not result in any work product or constructive advice to the Debtor, and are not supported by invoices that contain detail of the work performed—notwithstanding the 5 contractual requirement in the "Consulting Agreement" attached as Exhibit 11 to the Dietenhofer Declaration that amounts would be due for consulting services only after "presentation of a detailed 6 billing invoice." See Case Dkt. 399 at 14:16-15:14 & 51. Moreover, the Consulting Agreement 7 provides that consulting services would be provided to the Debtor, prior to an Event of Default, "at the request of Client, either verbally or in writing (including email)." Dietenhofer's unrefuted 8 testimony is that the Debtor never requested such services and, at least with respect to one business matter, had no need for them. Hearing Transcript, June 2, 2021 at 60:12-61:24. This evidence 9 provides an objective basis to conclude that the Debtor did not receive reasonably equivalent value in exchange for the consulting fees it was charged under the Bridge Loan.5 10

11 Similarly, the Disbursement Statements show $97,842.50 in "disbursements" for "Third Party Services—Credit Admin & Acctg. By Hillcrest Capital." Dietenhofer's unrefuted testimony 12 is that (i) Hillcrest Capital is an affiliate or alter ego of White Winston and/or its principals, (ii) Hillcrest provided no value to the Debtor, (iii) the Debtor never received work product or advice 13 from Hillcrest, and (iv) the Debtor is not aware of what services Hillcrest purportedly provided. 14 This evidence provides an objective basis to conclude that the Debtor did not receive reasonably equivalent value in exchange for the fees charged to the Bridge Loan in respect of Hillcrest Capital. 15 iii. "Comfort Letter" Charges 16 On its Disbursement Statement #36, dated March 6, 2020, White Winston purports to have 17 "disbursed" for the benefit of the Debtor $124,500 for "Amount potentially due Steve Almaraz per 2/20/20 Letter." Claims Dkt. 57 at 262. According to Dietenhofer's unrefuted testimony: (i) this 18 charge refers to a "comfort letter" that White Winston entered into with Almaraz promising to pay 19 him $124,500 if he was terminated by the Debtor; (ii) Almaraz was not terminated at the time of the disbursement statement; and (iii) Almaraz was terminated after the Petition Date, when he was 20 furloughed and then decided to leave voluntarily. Moreover, on June 22, 2021, the Court held a hearing on approval of a compromise of Almaraz's claims against the Debtor, pursuant to which the 21 Debtor has agreed to pay Almaraz just over $51,000. The Court approved the compromise and entry of an order is pending. It is clear from this record that White Winston did not disburse 22 $124,500 for the benefit of the Debtor at the time of the Disbursement Statement or anytime 23 thereafter, and there is an objective basis to dispute whether the Debtor received reasonably 24 5 Although by no means necessary to this conclusion, the Court notes that the evidence 25 suggesting an ulterior motive on the part of White Winston and Enright provides additional 26 support. There is an objective basis to conclude that White Winston and Enright were using their roles as a lender and "consultant" to exacerbate the Debtor's distress and position White Winston to 27 acquire the Debtor's assets. This casts further doubt on the extent to which any "consulting" services actually conferred value on the Debtor. 1 equivalent value in exchange for the amount purportedly "disbursed" with respect to the Almaraz comfort letter and the interest accrued on that amount. 2 Also, on its Disbursement Statement #36, White Winston purports to have "disbursed" for 3 the benefit of the Debtor $60,000 for "Amount potentially due Jen Pommier per 2/20/20 Letter." Case Dkt. 57 at 262. According to Dietenhofer's unrefuted testimony: (i) this charge refers to a 4 "comfort letter" that White Winston entered into with Pommier promising to pay her this amount if she was terminated by the Debtor; (ii) Pommier was never terminated by the Debtor, but instead 5 left voluntarily to take another job, and (iii) based on conversations with Pommier, Dietenhofer 6 does not believe Pommier was ever paid such amount by White Winston. Accordingly, there is an objective basis to dispute whether the Debtor received reasonably equivalent value in exchange for 7 the amount purportedly "disbursed" regarding the Pommier comfort letter and the interest accrued on that amount. 8 iv. Miscellaneous Accruals for "Unbilled" Amounts

9 Disbursement Statement #36, dated March 6, 2020, shows a charge in the amount of $606,720.27, described as "Other Accruals/Reserves per Standstill Agreement." This total 10 corresponds to the following amounts detailed in the claim backup materials produced by White 11 Winston:

12 $ 150,000.00 Accrued expenses: Unbilled C&M Fees $ 63,365.13 Accrued expenses: Montecito Bank payments 13 $ 75,000.00 Accrued expenses: Unbilled legal fees $ 318,355.14 Accrued expenses: Unbilled Professional/Liquidation Fees 14

15 Case Dkt. 400 at 5.

16 It does not appear that most of these funds were actually disbursed (although there is some uncertainty about the Montecito Bank payments) or that the Debtor otherwise received reasonably 17 equivalent value in exchange for incurring these charges—most of which appear to be for "unbilled" amounts—and for the interest accrued thereon. Moreover, even if these amounts 18 ultimately were expended, it is not clear when they were expended and exactly for what purpose. 19 Thus, the Court finds an objective basis to dispute whether the Debtor received reasonably equivalent value in exchange for incurring most of these obligations. 20 v. Travel and Legal Reimbursements 21 White Winston billed the Debtor for $141,998.14 for travel expense reimbursements. 22 Dietenhofer's unrefuted testimony provides an objective basis to dispute whether some or all of these obligations conferred any benefit on the Debtor. Case Dkt. 399 at 15:16-16:12 & Ex. 12. For 23 instance, Dietenhofer testifies that after February 2020, no representative of White Winston 24 traveled to California to visit the Debtor, yet White Winston billed the Debtor for travel charges after that day of over $43,027.24. 25 Further, there is evidence suggesting that White Winston billed for first class travel and 26 lodging, including for hotel rooms in Massachusetts, where the Debtor has no operations or 27 personnel. Even if one assumes for the sake of argument that the Bridge Loan was beneficial to the Debtor, and agreeing to the reimbursement of reasonable travel expenses necessitated by the Bridge 1 Loan transactions was a reasonable and necessary cost of those transactions, it does not follow that unreasonable, unrelated and/or fraudulent charges charged to the loan constitute such a cost. 2 A similar problem exists with respect to legal fees. White Winston charged the Debtor 3 more than $300,000 in legal fees, plus interest and fees on those charges. What were those charges for? Was the work actually performed? Was the work a reasonable and necessary expense 4 incurred in connection with a transaction that benefitted the Debtor? These are legitimate questions. Yet the unrefuted testimony is that White Winston has never provided the Debtor with 5 backup invoices or billing statements for these charges. Accordingly, the Court finds that there is 6 an objective basis to challenge whether the Debtor received reasonably equivalent value in exchange for these obligations. 7 vi. Interest 8 The POC asserts $1,061,177.31 in "Advances for Accrued Interest (Capitalized)." Some 9 portion of this amount constitutes an obligation for which the Debtor did not receive reasonably equivalent value. As reflected in the Disbursement Statements, every charge under the Bridge 10 Loan was treated as an "advance," regardless of whether it was an actual advance of principal to or 11 on behalf of the Debtor, capitalized interest, reimbursement of some cost incurred by a third party, or a fee charged by White Winston. Based on the Court's analysis above, Debtor did not receive 12 reasonably equivalent value for many of these obligations. This is likewise true of the interest charged on those obligations, as well as any interest charged on such interest. 13 vii. Acknowledgements and Releases. 14 In its papers and at the hearing on the Motion, White Winston emphasized that on multiple 15 occasions the Debtor signed acknowledgements of the amounts due under the Bridge Loan 16 "without defense or offset" and broad releases in favor of White Winston. White Winston argues these constitute waivers that preclude relief on both the Debtor's claim objections and its 17 affirmative claims against White Winston.

18 Whatever their impact on contractual claims and defenses, these agreements could not have waived any avoidance action for recovery of a constructively fraudulent transfer. This is because 19 avoidance causes of action belong to the estate and may only be asserted or waived by a 20 representative of the estate, i.e., a trustee or debtor in possession. The Debtor could not have waived any such action because prepetition the estate did not exist, and the Debtor was not the 21 debtor in possession. See In re Physiotherapy Holdings, Inc., 2016 WL 3611831, at *14 (Bankr. D. Del. June 20, 2016). 22 d. Good Faith Value Defense 23

24 The overarching question presented by the Debtor's avoidance action for constructive fraudulent transfer under section 548 is whether the value of what the Debtor received was 25 reasonably equivalent to the obligations that White Winston asserts against the Debtor in the POC. The foregoing analysis shows that there is an objective basis to conclude otherwise to avoid the 26 Bridge Loan transactions in their entirety, and thereby avoid the obligations asserted in the POC.

27 White Winston undoubtedly will argue at trial that it is entitled to a claim and/or lien to the 1 for the Court to determine whether and to what extent White Winston may be entitled to such a defense. 2 own Understanding exactly how much value was received by the Debtor from White Winston is 3 | complicated by several factors. First, the Bridge Loan was structured as a revolving loan, in which all the Debtor's collections to a certain lockbox account were treated as payments of the loan and 4 then certain amounts readvanced. Thus, the principal amount fluctuated regularly. Second, as 5 noted, every debit under the Disbursement Statements was treated as an "advance," regardless of whether it was merely a release of collateral, an actual advance of new value, a fee, a 6 | reimbursement, or accrued interest. Third, interest was accrued and compounded over time on all these amounts. Given these circumstances, the Court is unable to unravel these transactions and 7 | calculate with any certainty the amount of value actually conferred on the Debtor by White Winston. In the context of the Motion—as it will be at trial—the burden to show the extent of any 8 | value given is squarely on White Winston. It has not done so. ? Furthermore, White Winston has not established that any value it conferred on the Debtor 10 || Was given in good faith. Although White Winston has argued that Dietenhofer's testimony was too "conclusory" to substantiate any of the claims asserted against White Winston, the Court finds that 11 |it did provide objective evidentiary support for the Debtor's contentions that White Winston used the Bridge Loan transactions to exert financial and operational control over the Debtor, exacerbate 12 | the Debtor's financial difficulties, increase the Debtor's indebtedness to White Winston and thereby 3 enhance White Winston's leverage—all with the ultimate objective of acquiring ownership of the Debtor's assets. Nothing in the Mahoney Declaration or the cross-examination of Dietenhofer has 14 || persuaded the Court otherwise. 15 3. Other Theories 16 Because the Court finds ample evidence of a genuine dispute based on the Debtor's section 548 avoidance action, the Court finds it unnecessary to address the Debtors' other asserted theories. 17 | The Court expresses no opinion about the merits of those disputes. 18 IV. CONCLUSION 19 . . For the foregoing reasons, the Court finds "cause" pursuant to Bankruptcy Code section 20 || 363(k) to deny White Winston the opportunity to credit bid the White Winston Claim, in any amount, in connection with any sale of the assets of the Debtor's estate. Accordingly, the Court 21 || will enter a separate order granting the Motion. 22 1; 0 Berk — Date: July 2, 2021 ans □□□ EEE 24 Martin R Barash United States Bankruptcy Judge 25 26 27 28 17