Loiselle et al v. CIT Group, et al

NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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:
In re: 	: 	Chapter 11
:
CIT GROUP INC. and 	: 	Case No. 09-16565 (ALG)
CIT GROUP FUNDING COMPANY 	:
OF DELAWARE LLC, 	:
:
Debtors. 	: 	(Jointly Administered)
:
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Marc J. Loiselle and Sandra A. Loiselle, 	:
:
Plaintiffs, 	: 	Adv. Proc. No. 10-03880 (ALG)
v. 	:
:
CIT Group Inc., 	:
CIT Group Funding Company of Delaware 	:
LLC, 	:
Defendant(s). 	:
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ORDER
On 	December 	8, 	2009, 	this 	Court 	confirmed 	the 	Debtors’ 	prepackaged 	plan 	of
reorganization, as modified and amended (the “Plan”), and two days later the plan became
effective. On October 14, 2010, more than ten months after confirmation, Marc J. and Sandra A.
Loiselle (collectively, the “Plaintiffs”) brought the above-captioned adversary proceeding against
the Defendants for injunctive and declaratory relief, the reissuance of assets and punitive
damages. The complaint alleges that the Plaintiffs held “in their personal IRA account a vested
interest in CIT,” that the “Defendant was obligated by rule and law to notify the Plaintiff[s] of”
their bankruptcy filing and “failed to do so.” See Complaint at ¶ 13. Based on the Defendants’
alleged failure to provide appropriate notice to the Plaintiffs, the Plaintiffs seek to have this
Court reinstate their prepetition equity interests in CIT Group Inc. and reimburse them for their
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costs and expenses so as to place them in the same position as they were prior to the petition
date. See Complaint at ¶¶ 1, 5, 18, 21. In the alternative, the Plaintiffs seek discovery to “show
the mismanagement and conversion of assets so as to restore the converted assets” to the
Defendants and the Defendants’ shareholders and “punitive damages for the failure to comply
with all Bankruptcy Court filing requirement[s].” See Complaint, Prayer for Relief ¶¶ (c)-(d). In
addition to filing the adversary proceeding in October, 2010, between March 10, 2010 and
March 24, 2010, approximately three months after confirmation, the Plaintiffs had filed seven
proofs of claim in the above-captioned Chapter 11 case.
On November 15, 2010, the Defendants filed a motion to dismiss the adversary complaint
for failure to state a claim upon which relief can be granted. Following a conference held before
this Court on November 23, 2010, the Plaintiffs filed their response to the motion to dismiss, and
the Defendants filed their reply. 	In their papers, the Defendants argued they provided the
Plaintiffs with proper notice of the bankruptcy cases when they served all shareholders with a
Combined Notice of case commencement and other matters on or before November 6, 2009. 1
The Combined Notice was served on the banks, brokers and other nominees who were the
registered holders of shares, and the Defendants submit that notice was sent to the registered
holder of the entity through which the Plaintiffs maintained their shares in an IRA Account. See
Defendants’ Reply at ¶ 5. The Defendants assert that serving the Combined Notice fulfilled any
obligation they might have had to provide notice to the Plaintiffs as they “were only obligated to
provide record holders,” and “not those persons who held debt and equity securities in ‘street
name,’ with mailed notice.” 	See Defendants’ Memorandum of Law at ¶ 24. 	Nevertheless, the
1 The Combined Notice is docket entry 69 in Case No. 09-16565 (ALG). The Confirmation Order, dated December
8, 2009 (Docket No. 193), found that the Debtors caused the Combined Notice to be served on all known interest
holders (equity holders) on or before November 6, 2009 and that they published the Combined Notice in the Wall
Street Journal (Global Edition) on November 6, 2009. See Confirmation Order at ¶ E.
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Defendants requested that all banks, brokers and other intermediaries immediately distribute the
Combined Notice to their beneficial holders (i.e., persons holding in street name). 	See Id. at ¶
25.
Although the Plaintiffs claim they did not receive timely notice of the Chapter 11 cases,
any dispute regarding notice is not material. 	Even accepting the allegations in the complaint as
true, the relief requested by the Plaintiffs cannot be granted as the demand for such relief was not
timely. 	A confirmation order may only be revoked if such order “was procured by fraud” and
only upon the “request of a party in interest at any time before 180 days after the date of the
entry of the order of confirmation.” 11 U.S.C. § 1144. As the confirmation order was entered on
December 8, 2009, any request to revoke the confirmation order, even on the ground of fraud,
had to be filed on or before June 7, 2010. This rule is strictly applied. 680 Fifth Ave. Assocs. v.
EGI Co. Servs. (In re 680 Fifth Ave. Assocs), 209 B.R. 314, 322-23 (Bankr. S.D.N.Y. 1997),
aff'd 169 B.R. 22 (S.D.N.Y. 1993), aff'd 29 F.3d 95 (2d Cir. 1994). 	In any event, it is not
unfairly applied here because the record is clear that the Plaintiffs had actual knowledge of the
Defendants’ Chapter 11 cases no later than March 10, 2010 when they began filing their proofs
of claim. 	The Plaintiffs could have but failed to timely request revocation of the confirmation
order.
It should also be noted that the assertions in the complaint of mismanagement and
conversion of assets are wholly without support, as is the demand that the Plaintiffs’ equity
interests be reinstated. 	Cf. Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). 	Although the
Debtors’ Plan converted debt to equity and eliminated all prior interests of preferred and
common shareholders, at the confirmation hearing the Debtors demonstrated, in accordance with
§ 1129(b) of the Bankruptcy Code, that there was no value for equity over the objection of
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several mainly small holders of debt or equity who contended that they were being unfairly
treated. 	See Transcript of Confirmation Hearing, dated December 8, 2009, at p. 22, line 16
through p. 27, line 25 (Docket No. 195) (testimony of Robert J. Duffy, Debtors’ financial
advisor).
Therefore, based on the foregoing and on the entire record in this case, it is hereby
ORDERED, that the Defendants’ motion to dismiss is granted and the above-captioned
adversary proceeding is dismissed.
Dated: New York, New York
January 4, 2011
/s/ Allan L. Gropper 	_
UNITED STATES BANKRUPTCY JUDGE
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