Commercial Litigation meets Bankruptcy Appeal, In re Rowley Solar, LLC
Amann Burnett was hired to represent Invaleon after this decision, which was cross-appealed to the Bankruptcy Appellate Panel. Oral argument is scheduled at the end of the month and Josh and I are looking forward to it.
Release – Settlement-Bankruptcy
Where a corporation has objected to proofs of claim filed by two (2) individuals and their realty trust, the objections should be sustained as to the individuals based on a stipulation of settlement and overruled as to the trust, which was not a party to the stipulation.
“This chapter 11 case is before the Court on the objections of lnvaleon Technologies Corporation (‘Invaleon’) to proofs of claim filed by Bonni Berkowitz (‘Bonnie’), Barbara Berkowitz (‘Barbara; with Bonni, ‘the Berkowitzes’) and a realty trust of which the Berkowitz’s are trustees, Maven Revocable Trust (‘Maven’) (collectively, ‘the Berkowitz Parties’) on the basis that the claims have been released.
Maven denies that it gave a release. The Berkowitz’s contend that their releases were given as part of a settlement agreement that should be rescinded because Invaleon induced them to enter into it by fraud; and, in the alternative, they further contend that Invaleon should be compelled to pay their released claims as damages for breach of the settlement agreement.
After an evidentiary hearing, the Court now enters the following findings of fact and rulings of law and, on the basis thereof, will sustain the objections to the Berkowitz’s’ claims but overrule the objection to the Maven claim.
Invaleon has objected to each of the claims in issue on the basis that, through the Stipulation, the claim has been released. Though the Berkowitz’s do not dispute that they released their claims, Maven responds that it was not a party to the Stipulation and gave no release through it.
Invaleon has not replied to this response. I have found that Maven is correct as to the facts: Maven was not a party to the Stipulation. The Berkowitz’s gave releases through the Stipulation but Maven did not.
Maven’s proof of claim No. 8 was filed in accordance with the Federal Rules of Bankruptcy Procedure and therefore enjoys prima facie validity.
Release is an affirmative defense; the burden of proving it accordingly falls on the party asserting the defense, here Invaleon. Invaleon having failed to adduce evidence that Maven has released the claim it asserts in Proof of Claim No. 8 and Invaleon having failed even to adduce argument to support its contention that Maven has released this claim, I conclude that no release by Maven has been established.
Invaleon’ s objection must accordingly be overruled as to Maven’s Proof of Claim No. 8.
The Berkowitz’s’ concede that through the Stipulation, they released their claims remaining in issue, Bonni’s Proofs of Claim Nos. 10 and 11 and Barbara’s Proof of Claim No. 12. As to each of these, however, the Berkowitz’s contend that the Stipulation, including the releases given through it, should be rescinded for fraud in the inducement and given no effect; and in the alternative, the Berkowitz’s argue that Invaleon has breached the Stipulation and that, although the claims themselves have been released, Invaleon should be compelled to pay the amounts of their claims as damages for the breach.
The Berkowitz’s’ argument that the Stipulation, including especially their releases, should be rescinded for fraud in the inducement, is an affirmative defense. Accordingly, the burden is on the Berkowitz’s to prove the fraud.
Though the Berkowitz’s adduced a very lengthy statement of the misrepresentations that form the basis of their charge of fraud in the inducement, most of the alleged misrepresentations occurred before the negotiation of the Settlement. They had nothing to do with the Berkowitz’s’ decision to enter the Stipulation, except that on the basis of them they had learned over and over again that [Tom] Wu and Invaleon were not credible and were not to be trusted. During closing arguments, the Berkowitz’s identified only one allegation of fraud on which they are relying: their allegation that they were induced to enter into the Settlement by a false promise by Wu, on behalf of Invaleon, that Invaleon would never again set foot on the project site. I have found that the Settlement included no such promise or agreement by Invaleon. Accordingly, this basis for fraudulent inducement comes to nothing.
Though they did not identify a second alleged misrepresentation during closing arguments, the Berkowitz’s have repeatedly alleged a second misrepresentation: that during the negotiation of the Settlement, Wu represented that the project was mechanically complete and essentially ready to be turned on, that this was false and that in reliance on this representation they agreed to the terms of the Settlement.
I have found that the evidence fails to establish that the project was not mechanically complete or ready to be turned on when the Settlement was being negotiated. I have further found that the Berkowitz’s have failed to establish that they relied on these representations in entering into the Settlement. For failure to establish that the alleged representation was false and that they relied on it, this basis for fraud in the inducement, too, comes to nothing. The Berkowitz’s have accordingly failed to show fraud in the inducement.
In the alternative the Berkowitz’s argue that Invaleon has breached the Stipulation, specifically its alleged requirement that Invaleon not ever enter onto the project site again and that, although their claims have been released, Invaleon should be compelled to pay the amounts of the released claims as damages for the breach. I have concluded that the Settlement included no term requiring that Invaleon never set foot on the property again. It follows that whatever offence may have been caused by Invaleon’ s coming onto the property at the request of PowerFund, that conduct was not a breach of the Settlement..
For the reasons stated above, the Court will, by separate order, overrule the Omnibus Objection as to Claim 8 of Maven Realty Trust and sustain the Omnibus Objection as to Claims 10 and 12 of Bonni Berkowitz and Claim 12 of Barbara Berkowitz.
In Re: Rowley Solar LLC (Lawyers Weekly No. 04-021-22) (20 pages) (Bailey, J.) (Chapter 11 Case No. 19-12419-FJB) (April 18, 2022).
