MF Global Holdings Ltd. and Litigation Trustee of the MF Global Litigation Tru

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
MF GLOBAL HOLDINGS LTD., et al.,
Debtors.
NOT FOR PUBLICATION
Case No. 11-15059 (MG)
MEMORANDUM OPINION AND ORDER SUSTAINING OBJECTION, EXPUNGING
CLAIM NO. 1836 AND IMPOSING SANCTIONS
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the Chapter 11 Trustee’s Objection to the Administrative
Claim filed by Michelle Y. Coe (Claim No. 1836) and Request for Sanctions (“Objection,” ECF
Doc. # 1295). In the Objection, Louis J. Freeh (the “Chapter 11 Trustee”), the chapter 11 trustee
of MF Global Holdings Ltd., MF Global Finance USA Inc., MF Global Capital LLC, MF Global
FX Clear LLC, MF Global Market Services LLC, and MF Global Holdings USA Inc. (“Holdings
USA” and collectively with MF Global Holdings Ltd., MF Global Finance USA Inc., MF Global
Capital LLC, MF Global FX Clear LLC, and MF Global Market Services LLC, the “Debtors”),
seeks an order expunging the administrative expense claim filed by Michelle Y. Coe (“Ms. Coe”)
represented by claim number 1836 (“Administrative Claim”), and imposing sanctions against
Ms. Coe for continued frivolous filings in this Court. Ms. Coe filed a response to the Opposition
(“Response,” ECF Doc. # 1304). The Court held a hearing on the matter on April 18, 2013.
For the reasons stated below, the Court SUSTAINS the Chapter 11 Trustee’s Objection,
expunges the Administrative Claim and imposes monetary sanctions against Ms. Coe in the
amount of $250 payable to the Clerk of the Bankruptcy Court.
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BACKGROUND
On October 31, 2011, MF Global Holdings (“Holdings”), the parent company of various
subsidiaries including MF Global Holdings USA Inc. (“Holdings USA”), filed a voluntary
petition for relief under chapter 11 of the Bankruptcy Code. Holdings USA is the parent
company to MF Global Inc. (“MFGI”), which is currently being liquidated in a separate
proceeding before this Court pursuant to the provisions of the Securities Investor Protection Act
(“SIPA”). 	The Court established August 22, 2012 as the general bar date for all claims, except
in certain circumstances, and August 29, 2012 as the bar date for Governmental Units.
On February 15, 2013, the Court entered the Order Pursuant to Sections 105 and 503 of
the Bankruptcy Code and Bankruptcy Rules 2002 and 9007 (I) Setting Bar Date for Filing
Proofs of Claim Asserting Administrative Claims and (II) Approving Form and Manner of Notice
Thereof (the “Admin Claims Bar Date Order,” ECF Doc. # 1091). Pursuant to the Admin
Claims Bar Date Order, the Court established March 15, 2013 as the last date to file an Admin
Claim. The term “Admin Claim” means:
(a) any 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, and (b) any right to an
equitable remedy for breach of performance if such breach gives rise to a
right of payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured, that (x) arises under sections 365(d)(3),
365(d)(5), or 503(b)(1) through (8) of the Bankruptcy Code (excluding,
for the avoidance of doubt, claims arising under section 503(b)(9)) and (y)
first arose (or, only in the case of unexpired leases of real and personal
property, accrued) as to or against: (i) Holdings Ltd. or FinCo, on or after
October 31, 2011 through and including March 1, 2013; (ii) Capital,
Market Services or FX Clear, on or after December 19, 2011 through and
including March 1, 2013; and (iii) Holdings USA, on or after March 2,
2012 through and including March 1, 2013.
See Admin Claims Bar Date Motion (ECF Doc. # 1044).
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A. 	Ms. Coe’s Previous Claims Against the Estate
On July 5, 2010, Ms. Coe filed a $25 million claim against Holdings USA for
“Intellectual Property Trade Secret” and a $10 million claim against MFGI for “Trade Secret.”
The claims allegedly arose not from any direct relationship between Ms. Coe and any of the
Debtors, but instead from Man Financial’s purchase of certain assets from Refco Inc., et al
(“Refco”) entities (the “Refco Sellers”) in 2005 during Refco’s bankruptcy case. MFGI is a
successor to Man Financial.
Ms. Coe had asserted claims for “Intellectual Property Trade Secret” and “breach of
contract and fiduciary responsibility” against Refco in the Refco bankruptcy, and her claims
were disallowed and expunged in those cases as inconsistent with the debtors’ books and
records. The Refco court also expunged an administrative expense claim filed by Ms. Coe as
inconsistent with the reorganized debtors’ books and records. On July 31, 2007, the Refco court
denied a motion filed by Ms. Coe seeking reconsideration of the denial of her claims, and on
August 10, 2007, it rejected a motion filed by Ms. Coe to reconsider the Lift Stay Decision (the
“Refco Bankruptcy Decision”). The District Court dismissed Ms. Coe’s appeal of the Coe
Bankruptcy Decision, and the Second Circuit affirmed the Bankruptcy Court’s and the District
Court’s decision. See Chapter 11 Trustee Objection to the Coe General Unsecured Claim, ECF
Doc. # 865.
The Chapter 11 and SIPA Trustees objected to Ms. Coe’s claims as inconsistent with
their books and records. They argued that Ms. Coe failed to provide a sufficient legal or factual
basis to support her claims as required by law, and that she was collaterally estopped from
asserting her previously expunged claims against them. The Court expunged Ms. Coe’s claims
on November 13, 2012 in a Memorandum Opinion and Order Sustaining the Objections of the
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Chapter 11 Trustee and the SIPA Trustee to the Claims of Michelle Y. Coe (the “Memorandum
Opinion,” ECF Doc. # 907).
In its Memorandum Opinion, the Court found that the Chapter 11 and SIPA Trustees
provided sufficient evidence to shift the burden to Ms. Coe to establish the basis for her claims,
and Coe failed to meet her burden establishing the validity of her claims. Ms. Coe had no
interest in any of the Debtors’ cases and no direct claim against any of the Debtors. The Court
found that even if Ms. Coe could establish that Holdings USA or MGFI should be liable for the
conduct of Refco by virtue of successor liability, the claims at issue had already been considered
and disallowed and expunged in the Refco bankruptcy. Therefore, Ms. Coe was collaterally
estopped from proceeding with her claims in these cases. The Court also stated that “any future
frivolous filings by Coe in these cases will result in the imposition of sanctions.”
B. 	The Administrative Expense Claim
On February 27, 2013, Ms. Coe filed the Administrative Claim against the Chapter 11
Debtors in the amount of $35 million. This Claim is identical to the claims expunged by the
Court in its Memorandum Opinion—it is based on “Intellectual Property/Trade Secret acquired
by Man Financial during the Refco et al bankruptcy.” See Administrative Claim (annexed to the
Objection as Exhibit A). In support of the Administrative Claim, Ms. Coe submitted the same
emails and documentation that she had submitted with her previous claims.
The Chapter 11 Trustee asserts that the Administrative Claim does not qualify as an
administrative expense pursuant to section 503(b) of the Bankruptcy Code and is not an Admin
Claim as defined in the Admin Claims Bar Date Motion. The Chapter 11 Trustee relies upon and
incorporates by reference all of the Exhibits attached to the Objection, in particular the
Memorandum Opinion (Exhibit C) and the Claim 229 Objection (Exhibit D), as the basis for this
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Objection. It also requests that the Court impose sanctions against Ms. Coe for her frivolous
filing.
In her Response, Ms. Coe asserts that she meant to include MFGI as one of the entities
against whom she has a claim. She also writes “Furthermore, this court has expressed that the
claimant can pursue all other entities, however, the form only allows the claimant to pursue MF
Global Holding et al.”
DISCUSSION
Administrative expenses are treated in section 503(b) of the Bankruptcy Code. Under
section 503(b)(1)(A), such expenses include “the actual, necessary costs and expenses of
preserving the estate.” For a claim to be afforded administrative priority, a claimant must show
both that: (i) the transaction giving rise to the claim occurred post-petition, and (ii) the debtor
directly benefited as a result of the transaction. See In re Grubb & Ellis Co., 478 B.R. 622, 624
(Bankr. S.D.N.Y. 2012) (citing Trs. of Amalgamated Ins. Fund v. McFarlin’s, Inc., 789 F.2d 98,
101 (2d Cir. 1986)); In re Enron Corp., 279 B.R. 79, 85 (Bankr. S.D.N.Y. 2002). The claimant
bears the burden of establishing its entitlement to administrative expense priority treatment. In
re Drexel Burnham Lambert Group, Inc., 134 B.R. 482, 489 (Bankr. S.D.N.Y. 1991).
It is clear that Ms. Coe cannot establish that she is entitled to administrative priority.
First, as shown by the Memorandum Opinion, Ms. Coe has repeatedly failed to provide any
evidence showing that she has a legitimate claim, let alone an administrative expense claim,
against the estate. Moreover, any transaction purportedly giving rise to the Administrative Claim
took place pre-petition, as Ms. Coe claims that her intellectual property was appropriated by
Refco, a predecessor to Man Financial. This Court already considered and expunged this exact
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claim in its Memorandum Opinion. The Court therefore SUSTAINS the Chapter 11 Trustee’s
Objection and EXPUNGES Ms. Coe’s Administrative Claim.
Ms. Coe was expressly warned by the Court in the Memorandum Opinion of the
consequences of continuing to file frivolous pleadings in the MF Global cases. Coe’s
Administrative Claim is frivolous. This is not a trifling matter. Frivolous claims such as the
pending Administrative Claim require an objection by a trustee and decision by the Court,
increasing the administrative costs in the case, diminishing recoveries by legitimate creditors of
the estate. Ms. Coe raised and lost essentially the same arguments raised now in the bankruptcy
court, district court and court of appeals in the earlier Refco case, and she again raised essentially
the same arguments at an earlier stage of this case resulting in the Memorandum Opinion. Ms.
Coe was warned that sanctions would be imposed if she did it again. The Court is mindful that
Ms. Coe appears in this case pro se, but that cannot excuse repeated frivolous conduct.
Therefore, the Court imposes a monetary sanction requiring Michelle Y. Coe to pay the sum of
$250 to the Clerk of the United States Bankruptcy Court for the Southern District of New York
within fourteen (14) days from the date of this Order. Any further frivolous filings by Ms. Coe
will result in the imposition of substantially increased sanctions.
IT IS SO ORDERED.
Dated: April 18, 2013
New York, New York.
_____/s/Martin Glenn_______
MARTIN GLENN
United States Bankruptcy Judge
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