PlusFunds Group, Inc., a Delaware corporation

NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re 	: 	Chapter 11
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PLUSFUNDS GROUP, INC., 	: 	Case No. 06-10402 (JLG)
a Delaware Corporation, 	:
:
Debtor. 	:
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MEMORANDUM DECISION DENYING RENEWED MOTION OF THE SPHINX
TRUSTEE TO REOPEN CHAPTER 11 CASE FOLLOWING REMAND FROM THE
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
BROWN RUDNICK LLP
Attorneys for SPhinX Trustee
Attorneys for Official Liquidator of the SPhinX Funds
Seven Times Square
New York, NY 10036
David J. Molton, Esq.
Andrew Dash, Esq.
Daniel Saval, Esq.
BROWN RUDNICK LLP
Attorneys for SPhinX Trustee
Attorneys for Official Liquidator of the SPhinX Funds
One Financial Center
18th Floor
Boston, MA 02111
Brian Rice, Esq.
BEUS GILBERT PLLC
Attorneys for Official Liquidator of the SPhinX Funds
701 North 44 th Street
Phoenix, AZ 85008
Leo R. Beus
Timothy J. Paris
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DLA PIPER, LLP
Attorneys for Defendants
1251 Avenue of the Americas
New York, NY 10020
Gregg M. Galardi, Esq.
Daniel G. Egan, Esq.
DLA PIPER, LLP
Attorneys for Defendants
51 John F. Kennedy Parkway
Suite 120
Short Hills, NJ 07078
Andrew O. Bunn, Esq.
JAMES L. GARRITY, JR.
United States Bankruptcy Judge
Introduction
Harbour Trust Co. Ltd., as trustee (the “Trustee”) of the trust (the “SPhinX Trust”)
established pursuant to the terms of the confirmed Fifth Amended Plan of Liquidation of
PlusFunds Group, Inc., dated June 28, 2007 (“Plan”), and that certain SPhinX Trust Agreement
(the “Trust Agreement”), dated as of September 20, 2007, seeks for a second time to reopen the
chapter 11 case of PlusFunds Group, Inc. (“PlusFunds” or the “Debtor”). The Trustee requests
this relief in furtherance of its ultimate objective to extend the term of the SPhinX Trust, which
terminates automatically after five years unless extended in accordance with the requirements of
§ 10.3 of the Trust Agreement.
This Court considered a previous iteration of this request in February 2013. The Trustee
filed a motion (the “Extension Motion”) for approval of an amendment to the Trust Agreement
whereby the Trustee would be allowed to extend the term of the SPhinX Trust after the
termination date. A motion to reopen the bankruptcy case followed. The defendants of a 2008
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lawsuit filed by the Trustee (the “Defendants”)1 in the Superior Court of New Jersey (the
“Action”) opposed both motions. After oral argument, the Court (Peck, J.)2 issued a decision
(the “Decision”) denying the motion to reopen, and, therefore, did not consider the issue of
whether to approve the amendment to the Trust Agreement. In re PlusFunds Group, Inc., 492
B.R. 202, 211 (Bankr. S.D.N.Y. 2013) (“PlusFunds I”). On the Trustee’s appeal, the district
court affirmed the Decision in its entirety. Harbour Trust Co. v. Aaron (In re PlusFunds Group,
Inc.), 505 B.R. 419 (S.D.N.Y. 2014) (“PlusFunds II”). The Trustee subsequently appealed to the
United States Court of Appeals for the Second Circuit (the “Second Circuit”). On January 21,
2015, the Second Circuit issued a Summary Order remanding the matter for further proceedings.
Harbour Trust Co. v. Aaron (In re PlusFunds Group, Inc.), 589 F. App’x. 41 (2d Cir. 2015)
(“PlusFunds III”). The Second Circuit’s mandate to this Court is “to explain what prejudice, if
any, would result from opening the case.” Id. at 43.
On February 13, 2015, the Trustee filed its Renewed Motion of the SPhinX Trustee to
Reopen Chapter 11 Case Following Remand from the United States Court of Appeals for the
Second Circuit (the “Motion”) [ECF No. 808]. The Trustee argues that no cognizable prejudice
to the Defendants exists in reopening this case, and, therefore, the Court should grant its request
to reopen. The Trustee further submits that, upon reopening the case, the Court also should grant
the Extension Motion and the Trustee’s two subsequent requests for an extension of the SPhinX
Trust through September 20, 2015.3 Kenneth Krys (the “Liquidator”), as Official Liquidator4 of
1 The Defendants are Robert Aaron, Derivatives Portfolio Management, Ltd., Derivatives Portfolio Management,
LLC, DPM Mellon Limited, and DPM Mellon, LLC.
2 The Honorable James M. Peck retired from the bench on January 31, 2014. This case was reassigned to the
Honorable James L. Garrity, Jr. on February 18, 2015.
3 See Request of SPhinX Trustee for Approval of Second Extension of SPhinX Trust and Reservation of Rights
[ECF No. 799]; Request of SPhinX Trustee for Approval of Third Extension of SPhinX Trust and Reservation of
Rights [ECF No. 804].
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the SPhinX Funds and the sole beneficiary of the SPhinX Trust, filed a joinder in support of the
Motion. See Joinder of the Official Liquidator of the SPhinX Funds in the Renewed Motion of
the SPhinX Trustee to Reopen Chapter 11 Case Following Remand from the United States Court
of Appeals for the Second Circuit (the “Joinder”) [ECF No. 813]. The Defendants oppose the
Motion. See DPM Defendants’ Response to the Renewed Motion of the SPhinX Trustee to
Reopen Chapter 11 Case Following Remand from the United States Court of Appeals for the
Second Circuit (the “Response”) [ECF No. 814]. 5
For the reasons set forth below, the Court finds that no prejudice would result from
reopening the case. Nonetheless, the Court further finds that the Trustee has failed to meet its
burden under § 350 of the Bankruptcy Code, 11 U.S.C. §§ 101, et seq., as amended, to show
cause to reopen the case. Accordingly, the Court denies the Trustee’s request to reopen and will
not address the request to grant the Extension Motion and subsequent requests to extend the term
of the SPhinX Trust.
Factual and Procedural Background
PlusFunds filed its chapter 11case on March 6, 2006. See PlusFunds I, 492 B.R. at 204.
Prior to commencing its case, PlusFunds was a privately-held financial services provider.
Motion ¶ 11. Its investment management services offered certain private investment vehicles to
qualified investors seeking exposure to hedge fund investments through the Cayman Islands-
based SPhinX Funds. Id. Following (and precipitated in part by) the chapter 11 filing of Refco
4 On or about February 23, 2015, the Cayman Islands court overseeing the SPhinX Funds’ liquidation proceedings
entered an order approving the resignation of Margot MacInnis as one of two Joint Official Liquidators of the
SPhinX Funds. Kenneth Krys currently serves as the sole Official Liquidator of the SPhinX Funds, and the sole
beneficiary of the SPhinX Trust. See Joinder (defined below) at 2, n.1.
5 The Trustee also filed The SPhinX Trustee’s Reply in Further Support of the Renewed Motion of the SPhinX
Trustee to Reopen Chapter 11 Case Following Remand from the United States Court of Appeals for the Second
Circuit (the “Reply”) [ECF No. 816].
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Inc., the SPhinX Funds commenced their own voluntary liquidation proceedings in the Cayman
Islands. Id. ¶ 12. 6 Under the Plan, the SPhinX Funds hold an allowed unsecured claim in the
sum of $250 million. Id. ¶¶ 11, 12.7 The Plan provided for the creation of two trusts: the
SPhinX Trust, the primary purpose of which was to liquidate certain causes of action for the
exclusive benefit of the joint official liquidators of the SPhinX Funds; 8 and a “General Trust,”
vested primarily with cash for the benefit of the Debtor’s other unsecured creditors. Id. ¶ 14.
The Trust Agreement governs the SPhinX Trust.
The Trustee commenced the Action on March 5, 2008. PlusFunds I, 492 B.R. at 204.
Defendants removed the Action from the state court to the United States District Court for the
District of New Jersey (the “New Jersey District Court”) where the action is currently pending.9
See Response ¶7; Motion ¶ 29. On December 3, 2010, the trustee of the General Trust moved to
close the Debtor’s chapter 11 case. PlusFunds I, 492 B.R. at 204. In a supporting declaration,
the trustee of the General Trust stated that it “has determined that the Debtor’s estate has been
fully administered” and that “the Sphinx Trust does not anticipate any need for the Debtor’s
Chapter 11 Case to remain open.” Id. (citation omitted). This Court entered an order closing the
case on December 22, 2010. [ECF No. 769.]
6 The SPhinX Funds’ liquidation proceedings (and, indeed, this chapter 11 case) also were precipitated by the
commencement of an avoidance action by the Refco creditors’ committee against once of the SPhinX Funds; the
action sought recovery of approximately $312 million in allegedly preferential transfers. Motion ¶ 12. The action
triggered a wave of redemption requests by investors in the SPhinX Funds. Id.
7 Under the Plan, the SPhinX Funds agreed to provide $4 million to fund distributions to PlusFunds’ other unsecured
creditors. Motion ¶ 13.
8 As described above, Kenneth Krys currently serves as the sole Liquidator of the SPhinX Funds, and the sole
beneficiary of the SPhinX Trust.
9After the Action was removed to federal court, the Judicial Panel for Multi-District Litigation issued an order
conditionally transferring the Action to the United States District Court for the Southern District of New York.
PlusFunds I, 492 B.R. at 204. On March 25, 2014, the Action was remanded back to the New Jersey District Court.
See Response ¶7; Motion ¶ 29.
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Motion to Reopen and Decision
Under § 10.3 of the Trust Agreement, if the SPhinX Trust has not been previously
terminated, “on the fifth anniversary of the [Plan] Effective Date [i.e., September 20, 2012],
unless otherwise extended for cause by the Bankruptcy Court, the Trustee shall distribute all of
the Assets in accordance with the Plan and immediately thereafter, the SPhinX Trust shall
terminate.” Molton Decl., Ex. A § 10.3. That section further provides that “[u]pon motion to the
Bankruptcy Court, the Trustee shall have the right, with the approval of the Bankruptcy Court, to
extend the SPhinX Trust for successive one year periods; provided, however, such approval shall
be obtained no earlier than six months prior to the SPhinX Trust’s then stated termination.” Id.
The parties disagree on the status of the Trust Agreement.10 The Defendants contend that
the SPhinX Trust terminated by its own terms on September 20, 2012. The Trustee denies that
the SPhinX Trust has terminated and, in any event, on February 7, 2013, the Trustee, with the
written consent of the advisory board of the SPhinX Trust, entered into the Second Amendment
to the Sphinx Trust Agreement (the “Second Amendment”). PlusFunds I, 492 B.R. at 205. That
amendment modifies § 10.3 of the Trust Agreement to provide that “the Trustee may seek
approval of the initial one year extension within one hundred fifty (150) days of the [termination
date].” Id. at 205-06. The provision goes on to state that, if such initial extension is approved by
the Bankruptcy Court, it “shall be effective nunc pro tunc” to the termination date. Id. The
10 That disagreement plays a prominent role in the current status of the Action. On October 10, 2014, Defendants
submitted a Motion to Eliminate the PlusFunds Claims as Frivolous Under Rule 16(c)(2)(A) and for Lack of
Subject-Matter Jurisdiction Under Rule 12(b)(1) (the “District Court Standing Motion”). See Declaration of David
J. Molton in Support of Renewed Motion of the SPhinX Trustee to Reopen Chapter 11 Case Following Remand
from the United States Court of Appeals for the Second Circuit (“Molton Decl.”) [ECF No. 809], Ex. J. The motion
seeks dismissal of the Trustee’s claims based on the inability (resulting from the decisions of this Court and the
district court) to extend the term of the SPhinX Trust and the alleged termination of the SPhinX Trust by its own
terms under § 10.3. Id. For its part, the Trustee asserts that Defendants’ dismissal arguments are meritless, but
complains of uncertainty, delay, and incurred material costs in defending against those arguments. See Molton Decl.
¶¶ 11, 13. Following entry of the Second Circuit’s Summary Order, the New Jersey District Court entered an agreed
order “administratively terminating” the Defendants’ motion “pending the Southern District of New York
Bankruptcy Court’s consideration of the Second Circuit’s January 21, 2015 remand order.” Id. ¶ 13, Ex. P at 2. A
trial on the merits in the Action is scheduled to commence on June 22, 2015. Id. ¶ 13, Ex. Q at 1.
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Trustee filed the Extension Motion and motion to reopen this case soon after entry into the
Second Amendment.
As noted previously, on May 13, 2013, this Court denied the Trustee’s motion to reopen
this chapter 11 case. Notably, in doing so, the Court determined that the Defendants lack
standing to object to a reopening of the case because they do not constitute “parties in interest”
under § 1109(b) of the Bankruptcy Code. See PlusFunds I, 492 B.R. at 208. The Court also held
that opening the case to “administer assets” under § 350(b) of the Bankruptcy Code was
inappropriate inasmuch as the ongoing prosecution of the causes of action that are the subject of
the SPhinX Trust were known at the time the case was closed. Id. at 209. Finally, the Court
examined the factors relevant to the consideration of a request to reopen a case for cause set forth
in In re Easley-Brooks, 487 B.R. 400 (Bankr. S.D.N.Y. 2013). Weighing the factors it found
relevant to the issue of whether “cause” exists to reopen the case, the Court explained that “[(i)]
there is a non-bankruptcy forum capable of addressing issues related to the [SPhinX] Trust, [(ii)]
there has been no showing of prejudice resulting from denial of the Trustee’s request to reopen
the case, and [(iii)] there is no clearly articulated benefit to the Trustee in reopening the case.”
Id. at 210. These findings were based in large part on the Trustee’s own arguments that (i) the
SPhinX Trust never terminated because no distributions have been made to the SPhinX Trust
beneficiary, (ii) prosecution of the causes of action is among the wind-up duties of the Trustee,
and (iii) even if the SPhinX Trust is terminated, the ability to pursue the causes of action will be
transferred to the Liquidator. Id. at 209. The Court further found that the three remaining
Easley-Brooks factors – the length of time the case was closed, whether prior litigation
determined the appropriate forum, and whether it is clear that no relief is forthcoming by
reopening the case – were not directly relevant to its consideration of the motion to reopen. Id. at
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210 n.7. Because the case was not reopened, the Court took no action on the Extension Motion.
Id. at 211.
Appeal and Remand
As noted, the Trustee appealed the Decision to the district court.11 On February 10, 2014,
the district court affirmed the Decision in its entirety, finding that the Court (i) “reached the right
result” with respect to its holding that the Defendants lack standing to object to the motion to
reopen, and (ii) “acted well within its discretion in finding that the case did not need to be
reopened to administer assets or for other cause.” See PlusFunds II, 505 B.R. at 425-27. Also as
noted, the Summary Order followed the Trustee’s subsequent appeal to the Second Circuit. The
order explains that the Second Circuit was “unable to ascertain whether the Bankruptcy Court
fully considered whether any of the parties would suffer prejudice if it granted the Trustee’s
motion to reopen.” PlusFunds III, 589 F. App’x. at 42 (citation omitted). The court specifically
observed that although the Decision contained a finding “that there has been no showing of
prejudice resulting from denial of the Trustee’s request to reopen the case … it was silent as to
whether any prejudice would result from granting the Trustee’s request.” Id. at 42-43 (internal
quotation marks and citation omitted) (emphasis in original). The court further noted that it
“intimate[s] no view on the merits of the Trustee’s motion to reopen or on the question of
[Defendants’] standing.” Id.
Discussion
The Court first considers “what prejudice, if any, would result from reopening the
[Debtor’s] case.” PlusFunds III, 589 F. App’x. at 42. Defendants contend that they will be
prejudiced should the Court reopen the case and extend the term of the SPhinX Trust because the
11 Throughout the appellate process, Defendants have maintained a cross appeal on the standing issue. The district
court affirmed this Court’s finding that the Defendants did not have standing to oppose the motion to reopen. As
discussed briefly below, the Second Circuit expressed no view on the issue.
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arguments they advanced in support of the District Court Standing Motion “would be impaired,
hindered, and possibly undermined in their entirety.” Response at 14. The Trustee denies that
Defendants have standing to be heard on this matter and contends, in any event, that the only
substantive result of reopening the case and extending the SPhinX Trust’s term is that the
Defendants will be required to defend the Action on the merits, which the Trustee says is no
prejudice at all. Motion ¶ 38.
The Second Circuit left undisturbed the previous finding of both this Court and the
district court that Defendants “do not have standing as parties in interest to object to reopening of
the Debtor’s chapter 11 case.” PlusFunds I, 492 B.R. at 208; see also PlusFunds II, 505 B.R. at
425 (“Defendants lack standing to object to the Trustee’s motion”); PlusFunds III, 589 F. App’x.
at 43 (“We intimate no view … on the question of appellees’ standing”). Nonetheless, as
previously noted, the Court’s analysis of whether to reopen the case “necessarily is animated to
some extent” by their arguments. PlusFunds I, 492 B.R. at 208 (citation omitted). To that end,
when viewed together with the Extension Motion, reopening the case likely will “have an
adverse effect on the ability of [Defendants] to continue asserting procedural defenses in the
Action relating to the current legal status and viability of the [SPhinX] Trust.” Id. at 218.
However, in the context of § 350(b) of the Bankruptcy Code, courts do not view the obligation to
defend a claim on the merits as legal prejudice that weighs against the reopening of the case even
when the merits would not be reached but for the reopening of the case. See, e.g., In re Arana,
456 B.R. 161, 174 (Bankr. E.D.N.Y. 2011) (the obligation to defend a claim on the merits is not
the kind of legal prejudice that should be a bar to reopening a case); In re Stein, 394 B.R. 13, 18
(Bankr. E.D.N.Y. 2008) (that defendant was precluded from asserting an estoppel defense and
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was forced to defend action on the merits was not viewed as prejudice against reopening the
case.)
If the Debtor’s case is reopened, Defendants may be left to defend the Action on the
merits. However, that simply does not constitute prejudice that weighs against reopening the
case. Indeed, according to the Trustee, the Defendants will be required to defend on the merits
of the Action whether or not the case is reopened. No party will be prejudiced if the Court
reopens the case. 12
Scope of Summary Order
The Court now reviews the Trustee’s request that it reconsider its analysis in PlusFunds
I, reopen the case “for other cause”,13 and grant the Extension Motion as well as two subsequent
requests for an extension of the SPhinX Trust through September 20, 2015. See Motion ¶¶ 9, 10.
“Under the law-of-the-case doctrine, where a case has been decided by an appellate court and
remanded, the court to which it is remanded must proceed in accordance with the mandate and
12 Defendants’ reliance on In re Koch, 229 B.R. 78 (Bankr. E.D.N.Y. 1999) and In re Maloy, 195 B.R. 517 (Bankr.
M.D. Ga. 1996) is unpersuasive. To be sure, in each of those cases, the court found that the reopening of a
bankruptcy case would be prejudicial to the defendant in a lawsuit filed by a former bankruptcy debtor. Of
paramount concern to each of the Koch and Maloy courts, however, was the fact that each debtor had acted in bad
faith. In Koch, the bankruptcy court found that the reopening of a chapter 7 case in order to allow the debtor to
schedule an additional asset was prejudicial to a defendant in a state court action concerning the asset inasmuch as
“[i]t certainly hindered [defendant’s] efforts to dismiss the state court action by way of … motion for summary
judgment.” Koch, 229 B.R. at 86. The court further found, however, that the debtor had acted in bad faith in
seeking to reopen and opined that were it to condone such conduct “it would encourage debtors to conceal their
assets to have the claims of their creditors discharged, and then … commence an action to realize the value of those
assets without their participation.” Id. at 88. The court vacated its own prior orders reopening the chapter 7 case,
amending debtor’s schedules to list an undisclosed asset, and converting the reopened case to a chapter 11 case.
Similarly, in Maloy, the court denied a motion to reopen a chapter 7 case and noted that “[i]f [d]ebtor is to enjoy
some benefit from the Court’s favorable consideration of [a motion to reopen] to the detriment of [the defendant in a
federal lawsuit filed by the debtor who, by virtue of the reopening of the case, could be precluded from successfully
asserting a judicial estoppel argument] there has to be a showing of good faith on the part of [d]ebtor.” Maloy, 195
B.R. at 520. The court found that the debtor “failed to carry his burden of showing that the failure to list the asset
was an honest mistake,” and declined to reopen the case. Id. By contrast, here, there has been no allegation or
showing of bad faith by the Trustee.
13 Section 350(b) of the Bankruptcy Code allows a court to reopen a case “to administer assets, to accord relief to the
debtor, or for other cause.” 11 U.S.C. § 350(b). The request for relief in the Motion necessarily is limited to the
“for other cause” prong of this provision.
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such law of the case as was established by the appellate court.” Sompo Japan Ins. Co. Am. v.
Norfolk Southern Railway Co., 762 F.3d 165, 175 (2d Cir. 2014) (citation omitted). The Second
Circuit was “unable to ascertain whether [this Court] fully considered whether any of the parties
would suffer prejudice if it granted the Trustee’s motion to reopen.” PlusFunds III, 589 F.
App’x. at 42. It vacated the district court’s judgment and remanded to this Court “to explain
what prejudice, if any, would result from reopening the bankruptcy case.” Id. at 43. “[W]here
the mandate limits the issues open for consideration on remand, the [trial] court ordinarily may
not deviate from the specific dictates or spirit of the mandate by considering additional issues on
remand.” Sompo Japan, 762 F.3d at 175 (citation omitted). Having found that no party will
suffer prejudice if the case is reopened, the Court now must determine whether that finding alters
its prior determination not to reopen the case.
“‘A bankruptcy judge’s decision to grant or deny a motion to reopen pursuant to 11
U.S.C. § 350(b) shall not be disturbed absent an abuse of discretion.’” PlusFunds III, 589 F.
App’x. at 42 (quoting Smith v. Silverman (In re Smith), 645 F.3d 186, 189 (2d Cir. 2011)); see
also In re HBLS, L.P., 468 B.R. 634, 638 (Bankr. S.D.N.Y. 2012) (citation omitted) (In the final
analysis, “the decision to reopen a case is at the broad discretion of the bankruptcy court.”) 	“A
bankruptcy court abuses its discretion [only] when it bases its decision on an erroneous view of
the law or clearly erroneous factual findings.” In re Watkins, No. 06 Civ. 1341 (DGT), 2008 WL
708413, at *2 (E.D.N.Y. Mar. 14, 2008) (citations omitted).
The Bankruptcy Code does not define “cause” sufficient to reopen a case. See, e.g., In re
Cruz, 254 B.R. 801, 804 (Bankr. S.D.N.Y. 2000) (citing In re Chalasani, 92 F.3d 1300, 1307 (2d
Cir. 1996)). In the Decision, the Court applied the factors cited in In re Easley-Brooks, 487 B.R.
400, 406 (Bankr. S.D.N.Y. 2013) as relevant to the determination of whether “cause” exists to
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reopen the case under section 350(b).14 The three factors that the Court previously found
relevant – whether a non-bankruptcy forum has jurisdiction to determine the issue that is the
basis for reopening the case, whether any parties would suffer prejudice should the court grant or
deny the motion to reopen, and the extent of the benefit by reopening – remain the factors
relevant to the Trustee’s renewed motion.15
Adding our determination that no party will be prejudiced if this case is reopened to the
mix does not compel a different outcome. While the Trustee’s arguments suggest that whether
any party will be prejudiced if a case is reopened is the paramount factor in a determination of
whether to reopen a case, it is but one of many that the Court must balance. Here, although there
is no prejudice to Defendants if the case is reopened, there also (i) is a non-bankruptcy forum
capable of addressing issues related to the SPhinX Trust, (ii) has been no showing of prejudice
resulting from denial of the Trustee’s request to reopen the case, and (iii) is no clearly articulated
benefit to the Trustee in reopening the case.16 See PlusFunds I, 492 B.R. at 210. The Court is
14 The six factors that the Easley-Brooks court identified as relevant to whether a case should be reopened for
“cause” are: (i) the length of time that the case was closed, (ii) whether a non-bankruptcy forum has jurisdiction to
determine the issue that is the basis for reopening the case, (iii) whether prior litigation in the bankruptcy court
determined that a state court would be the appropriate forum, (iv) whether any parties would suffer prejudice should
the court grant or deny the motion to reopen, (v) the extent of the benefit by reopening, and (vi) whether it is clear at
the outset that no relief would be forthcoming by granting the motion to reopen. See Easley-Brooks, 487 B.R. at 407
(citing In re Otto, 311 B.R. 43, 47 (Bankr. E.D. Pa.2004)).
15 For the same reasons previously articulated, the remaining factors (length of time the case was closed, whether
prior litigation determined the appropriate forum, and whether it is clear that no relief is forthcoming by reopening
the case) are not directly relevant to the Court’s analysis. See PlusFunds I, 492 B.R. at 210 n.7.
16 The Court notes the Trustee asserted at oral argument that the Court “misapprehended” this factor and focused on
whether reopening the Debtor’s chapter 11 cases is essential (instead of beneficial) to the Trustee. 03/26/15 Tr.
22:25-23:3 (Molton). As observed above, reconsideration of this Court’s prior analysis goes beyond the mandate set
forth in the Summary Order. Assuming, arguendo, however, that the Trustee’s assertion has merit, it is unclear what
benefit necessarily results if the Court reopens this case. In order to find a benefit to the Trustee necessarily would
require that the Court extend the term of the SPhinX Trust. Without examining the merits of the Trustee’s
arguments to that end, the Court finds that even if it were to reopen this case and extend the trust term, the Trustee
still would have to address the tax consequences of the current status of the SPhinX Trust. Indeed, the Court
previously acknowledged that the IRS will not be bound by any decision rendered here. See 03/20/13 Tr. 30:24-
31:5 (Peck, J.) (“One of the questions that I have is the potential for disconnect between a determination made by a
Bankruptcy Court that hypothetically ratifies the actions of the trustees and positions that may be take n by the IRS
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obliged to weigh all of these factors when making its decision, and the fact that no party will be
prejudiced by the reopening of the case does not, by itself, constitute cause to reopen.17
The Trustee continues to contend that (i) the SPhinX Trust never terminated because no
distributions have been made to its beneficiaries, (ii) prosecution of the causes of action is among
the wind-up duties of the Trustee, and (iii) even if the SPhinX Trust is terminated, the ability to
pursue the causes of action will be transferred to the Liquidator. Furthermore, although the
Action has been remanded to the New Jersey District Court in the intervening months since this
Court issued its Decision, there still is a court that is in a good position to determine the status of
the SPhinX Trust within the context of the pending litigation. In addition, the Court’s conclusion
that the Trustee’s alleged ability to prosecute the Action indicates no clear prejudice to the
Trustee in declining to reopen the case remains unchanged as does its finding that the reopening
of the Debtor’s case to determine the status of the SPhinX Trust is not essential to preserve the
Action. Considered as a whole, then, the relevant Easley-Brooks factors, combined with the
that may be inconsistent therewith … . [I]t is entirely possible that regardless of what the Court may do, … there are
material adverse tax consequences that need to be addressed.”)
17 The Trustee cites to Batstone v. Emmerling (In re Emmerling), 223 B.R. 860 (B.A.P. 2d Cir. 1997) to urge the
opposite conclusion. Motion ¶ 13. In its remand order, the Second Circuit cited to Emmerling for the proposition
that among the “numerous factors and equitable concerns” that a court may consider in determining whether to
reopen a case, “[a] court of equity must consider whether reopening a case would prejudice the adversary or cause a
change in the adversary’s position.” 589 F. App’x. at 42 (citing Emmerling, 223 B.R. at 864). It is the next sentence
of the Emmerling decision upon which the Trustee relies. It provides that “[i]n the absence of some meaningful
prejudice, a court of equity would abuse its discretion by barring the reopening of a case.” 223 B.R. at 865.
However, when the quoted language is read in the context of that opinion, it is clear that the court was analyzing the
plaintiff’s “threshold” argument that the motion was barred by the doctrine of laches, noting that “laches” was one
of several factors relevant to the motion to reopen a bankruptcy case and vacate a default judgement. Id. at 864. In
that light, the court’s statement is not particularly noteworthy since it is well settled that an element of the laches
defense is prejudice to the party asserting the defense. See, e.g., Masterson v. NY Fusion Merch., LLC, 300 F.R.D.
201, 206 (S.D.N.Y. 2014) (quoting Ecolab, Inc. v. Envirochem, Inc., 264 F.3d 1358, 1372 (Fed.Cir.2001)) (“In order
to succeed on a defense of laches, a defendant has the burden of proving (1) that the “[plaintiff] unreasonably and
inexcusably delayed filing suit,” and (2) that the delay “resulted in material prejudice to the defendant.””). In any
event, although the Emmerling court found no merit to the laches argument, it did not rest its decision to reopen the
debtor’s case on the lack of prejudice to the plaintiff or weigh that factor more heavily than other factors. Indeed,
that was not an element considered by the court in assessing “cause.” Rather the court found that in that case, the
“statutory ‘cause’ to reopen under section 350(b) . . . depends upon whether cause exists to vacate the default
judgment since that is the sole purpose for reopening the case.” Id at 865. The court found ample cause to vacate the
default, id. at 865-869, and reopened the case with instructions that the default be vacated. Id. at 869.
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finding that no party would be prejudiced if the Court were to reopen the Debtor’s bankruptcy
case, continue to demonstrate that there is insufficient cause to reopen the Debtor’s case.
Conclusion
For the reasons stated, the Trustee has failed to meet its burden to show cause to reopen
the Debtor’s case, and the case shall remain closed. The Court need not, and will not, reach the
Trustee’s request to approve its motions to extend the SPhinX Trust. The parties are directed to
submit an agreed order consistent with this Memorandum Decision within 14 days.
SO ORDERED.
Dated: April 21, 2015
New York, New York
/s/ James L. Garrity, Jr.
UNITED STATES BANKRUPTCY JUDGE
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