JLL Consultants, Inc. v. Goldman Kurland & Mohidin, LLP (In re AgFeed USA, LLC)

565 B.R. 556, 2016 WL 5400357, 2016 U.S. Dist. LEXIS 131215
CourtDistrict Court, D. Delaware
DecidedSeptember 26, 2016
DocketBankr. Case No. 13-11761-BLS (Jointly Administered) Adv. Proc. No. 15-50929-BLS; Civ. No. 15-1113-LPS, Civ. No. 15-1194-LPS
StatusPublished
Cited by10 cases

This text of 565 B.R. 556 (JLL Consultants, Inc. v. Goldman Kurland & Mohidin, LLP (In re AgFeed USA, LLC)) is published on Counsel Stack Legal Research, covering District Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
JLL Consultants, Inc. v. Goldman Kurland & Mohidin, LLP (In re AgFeed USA, LLC), 565 B.R. 556, 2016 WL 5400357, 2016 U.S. Dist. LEXIS 131215 (D. Del. 2016).

Opinion

MEMORANDUM

LEONARD P. STARK, UNITED STATES DISTRICT JUDGE

Goldman Kurland & Mohidin, LLP (“Goldman”) and Pickard & Green, CPAs (“Pickard”), defendants in the above-captioned adversary proceeding (“Defendants”), move this Court (the “Motions to Withdraw”), pursuant to 28 U.S.C. § 157(d), to withdraw reference of the ad[559]*559versary proceeding to the United States Bankruptcy Court for the District of Delaware (“Bankruptcy Court”).1 (Civ. No. 15-1113, D.I. 1; Civ. No. 15-1194, D.I. 1) For the reasons stated below, the Court will deny the Motions to Withdraw without prejudice.

I. BACKGROUND

This matter arises from a complaint filed against Defendants and others in the above-captioned Chapter 11 cases (Adv. D.I. 1) (the “Complaint”). Debtors AgFeed Industries, Inc,, et al. (the “Company”), were born out of a reverse-merger of a China-based hog and feed producer and a Nevada corporation. (See Adv. D.I. 1 at ¶ 1) The Company manufactured and sold animal nutrition products, operating solely in China from its inception through the summer of 2010. {Id. at ¶ 2) In September 2010, the Company purchased U.S.-based hog producer M2P2 LLC and began a transition to a U.S.-centric board of directors. {Id. at ¶ 4)

Goldman is an accounting firm that allegedly provided accounting services to AgFeed from 2006 to 2013, including audits of 2008 and 2009 financial statements and work in connection with a special committee investigation from August 2012 to June 2013. {Id. at ¶ 12) Pickard is an accounting firm that allegedly reviewed the Company’s financial statements from 2009 to 2010. {Id. at ¶ 13)

The Complaint alleges that, from 2007 through 2010, the Company reported exponential growth on its financial statements based on materially inaccurate financial reporting. {See id. at ¶6) The Complaint alleges that the Company’s special committee investigation of its internal accounting and financial reporting issues identified extreme mismanagement of China-based operations, including the reporting of fictional assets and operations, as well as the keeping of two sets of books — one true and one to support the inflated revenues and profits reported in the financial statements. {Id. at ¶¶ 49-53) The Complaint further alleges that, in December 2011, the Company filed a Form 8-K with the SEC admitting that financial statements from 2008 through 2011 were false and unreliable due to “accounting improprieties.” {Id. at ¶ 54)

On July 15, 2013 (“Petition Daté”), the Company filed for relief under Chapter 11 of Bankruptcy Code. (Bankr. Case No. 13-11761-BLS, D.I. 1) On July 30, 2013, Goldman filed a proof of claim asserting $312,231 in unpaid fees and attaching invoices dated August 2012 through June 2013. (See Civ. No. 15-1194, D.I. 4-1) On October 4, 2013, Pickard filed a proof of claim asserting $18,750 in unpaid fees for accounting services and attaching invoices dated March 2013 through May 2013. (See Civ. No. 15-1113, D.I. 5-1)

On November 4, 2014, the Bankruptcy Court approved the Company’s Chapter 11 plan of liquidation. (Bankr. D.I. 1535) As of the plan’s effective date, all of the company’s assets were transferred to a liquidating trust. JLL Consultants, Inc. was appointed as trustee (“Trustee”) and designated to pursue the causes of action belonging to the liquidating trust, including causes of action against the Defendants. {See id. at Exh. A, § 6.3) On July 15, 2015, Trustee filed the Complaint, which alleges massive fraud upon the investing public arising out of AgFeed’s China-based operations. Based on the accounting services [560]*560Defendants provided, the Complaint asserts certain state-law causes of action against both Pickard and Goldman, including professional negligence, malpractice, and breach of contract. (See Adv. D.I. 1 at ¶¶ 117-25, 129-36) The Complaint also asserts several causes of action against Goldman which arise under the Bankruptcy Code, including recovery of fraudulent transfers pursuant to §§ 544 and 548; recovery of avoidable transfers pursuant to § 550; and disallowance of Goldman’s proof of claim pursuant to § 502(d). (See id. at ¶¶ 144-62)

Pickard filed its Motion to Withdraw on November 11, 2015 (Civ. No. 15-1113, D.I. 1), and Goldman filed its Motion to Withdraw on December 4, 2015 (Civ. No. 15-1194, D.I. I).2 Trustee has filed briefs in opposition to both Motions to Withdraw. (Civ. No. 15-1113, D.I. 5; Civ. No. 15-1194, D.I. 4) The Court heard oral argument on April 5, 2016. At the time the Motions to Withdraw were filed, Trustee had obtained an extension through July 11, 2016 to effect service of process on additional defendants, and the deadline for foreign defendants to answer or otherwise respond to the Complaint had been extended through August 10, 2016. (See Adv. D.I. 48) The docket reflects no further extension of those deadlines and that no answers have been filed to date. The docket further reflects that no discovery has been served and no initial trial conference has been held. (See Adv. D.I. 49)

II. CONTENTIONS

Both Defendants contend that the Court should exercise its discretion to withdraw the adversary proceeding for cause pursuant to 28 U.S.C. § 157(d) and Federal Rule of Bankruptcy Procedure 5011(a). Pickard argues that the only two causes of action asserted against it in the Complaint are professional negligence and breach of contract, both arising under state law. (See Civ. No. 15-1113, D.I. 2 at 1-2) Pickard argues that the proceeding is therefore non-core, because it does not involve any of the core proceedings listed under 28 U.S.C. § 157(b)(2), does not invoke a substantive right provided by title 11, and is not a proceeding that could arise only in the context of a bankruptcy case. (See id. at 5-8) The Bankruptcy Court is without constitutional authority to issue a final judgment or order in a non-core proceeding without the consent of the parties; because Pickard will not consent, cause exists to withdraw the reference. (See id. at 2, 8)

Pickard further argues that other factors identified by the Third Circuit weigh in favor of finding that cause exists to withdraw the reference, including that its Motion to Withdraw was timely filed and that keeping the case in the Bankruptcy Court will waste judicial resources because this Court must ultimately review the Bankruptcy Court’s proposed findings of fact and conclusions of law de novo. (See id. at 4-5, 8) Finally, Pickard argues that the fact it filed a proof of claim for unpaid professional fees in a nominal amount does not alone transform the adversary proceeding into a core proceeding. (See id. at 5 n.5)

As to the state-law claims against Goldman, Goldman has incorporated by reference the arguments made by Pickard in [561]

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Bluebook (online)
565 B.R. 556, 2016 WL 5400357, 2016 U.S. Dist. LEXIS 131215, Counsel Stack Legal Research, https://law.counselstack.com/opinion/jll-consultants-inc-v-goldman-kurland-mohidin-llp-in-re-agfeed-usa-ded-2016.