Sontchi, J.
The Plaintiffs in this action commenced an adversary proceeding against the Debtors, claiming that one of the Debtors, pursuant to a contractual relationship, held funds owned by them as a mere conduit. The Plaintiffs seek a ruling by the Court that these funds are not property of the estate, and therefore the automatic stay should be lifted and the Debtors should be required to remit them to the Plaintiffs. Because the Debtors' Operating Reports showed a risk that the cash burn associated with paying professionals may leave the Debtors with insufficient cash to pay the Plaintiffs, the Plaintiffs requested, and were granted subject to certain conditions, a order to ensure the Debtors' cash balance did not dip below $900,000.
The Third Circuit has held that § 1109(b) of the Code creates a statutory right of intervention under Rule 24(a)(1). The Court holds that QCA qualifies as a creditor under § 1109(b) because QCA has filed a claim against the estate, the Debtors have acknowledged that claim in their schedules and the Court has yet to decide the merits of QCA's claim. Thus, QCA has a right to intervene under Rule 24(a)(1).
Rule 24(a)(2) is understood to have four requirements before a right to intervention can be claimed. QCA has presented all four requirements. The Plaintiffs, in opposing QCA, have focused on the fact that allowing QCA to intervene now can (1) prejudice the Plaintiffs by reducing their recoveries and (2) allows QCA to free-ride on the Plaintiffs' efforts to ensure sufficient funds were set aside to pay their claims. Although the Court acknowledges that this theoretically prejudices the Plaintiffs, this type of prejudice is irrelevant to intervention as a matter of right under Rule 24(a)(2), which only requires that intervention be timely. The Court therefore finds that QCA must be allowed to intervene under Rule 24(a)(2).
Finally, the Court finds that permissive intervention is warranted under Rule 24(b)(1)(B). QCA clearly presents questions of law and fact similar to the Plaintiffs and therefore judicial economy and consistency are served by adjudicating all claims in a single proceeding. Because QCA's interest is not represented by the Plaintiffs, QCA's intervention is not redundant or wasteful. The Court therefore finds it proper to allow intervention.
Quapaw Casino Authority of the Quapaw Tribe of Oklahoma (the "QCA") d/b/a Quapaw Casino ("Casino") owns and operates the Casino in Miami, Oklahoma. On or about January 16, 2014, QCA entered into a Financial Services Agreement (the "Agreement") with the Debtor-Defendant, Check Holdings, LLC ("Check Holdings") that required Check Holdings to provide automated teller machines ("ATM") and other cash advance transaction services to the Casino. The Agreement provided that if a patron of the Casino used a credit/ debit card at a Casino ATM or presented checks to the Casino's cash vault, Check Holdings would reimburse the Casino for the funds it advanced to the patron. Check Holdings was entitled to retain fees for its services.
On May 15, 2014, the Casino terminated the Agreement with Check Holdings when Check Holdings failed to reimburse funds the Casino advanced between April 24, 2014 and May 14, 2014, notwithstanding the pledges it made in the Agreement. Check Holdings filed for bankruptcy on May 23, 2014, two days after Money Centers of America, Inc. filed its Chapter 11 petition (collectively, "Debtors"). Money
Casino Caribbean, LLC, Macau Casino, LLC, Macau Southcenter, LLC, and Yakima Cardroom (collectively, "Plaintiffs") filed an adversary complaint (the "Complaint") against Debtors on July 7, 2014, to seek recovery of $860,772.10, plus interest. The Debtors filed a motion to dismiss on September 9, 2014, which was granted and denied in part.
On November 20, 2014, various professionals representing Debtors filed applications for compensation in amounts exceeding $1 million. Debtors operating report for October and November showed approximately $2.4 million in cash, so Plaintiffs contacted the Chapter 11 Trustee (the "Trustee"') to ensure that the Debtors retained enough cash to fully satisfy the Plaintiffs' claims. As a result, the December 10, 2014 Omnibus Order (the "Omnibus Order") contained a requirement that the Trustee give 10-days notice to Plaintiffs' counsel of any disbursements that will cause the estate's cash balance to fall below $900,000. The Omnibus Order further provides that Plaintiffs must file a motion for relief within the 10-day notice period in order to prevent disbursement.
QCA filed a Motion of the Quapaw Casino Authority to Intervene as an Additional Adversary Plaintiff (the "Motion to Intervene") on January 21, 2015. That same day, QCA also filed An Opening Brief of the Quapaw Casino Authority In Support of its Motion to Intervene (the "Brief"). This was the first time QCA had filed an adversary action in the Debtors case. On February 4, 2015, Plaintiffs filed their Answering Brief in Opposition to the Motion to Intervene of the Quapaw Casino Authority (the "Opposition Brief"). On February 11, 2015, QCA's Reply Brief in Support of its Motion to Intervene (the "Reply") was filed thereto.
QCA claims that its intervention in the Plaintiffs' adversary proceeding is proper under Fed.R.Civ.P. 24(a) and (b). QCA first asserts a right to intervene under Rule 24(a)(1), arguing that because QCA is a creditor and party in interest, the Third Circuit's interpretation of 11 U.S.C. § 1109(b) gives it a federal statutory right of intervention. QCA contends that even though it is asserting that the funds it claims are not property of Debtors' estate, it still still qualifies as a creditor under § 1109(b) because the Debtors' schedules list its claim as a liability of the estate. In support of this interpretation, QCA notes that it has the burden of proving that the claimed funds are not property of the estate; if it is unsuccessful, it will be treated as a creditor in Debtors' bankruptcy case.
Additionally, QCA claims a right to intervene under Rule 24(a)(2). First, QCA asserts that the funds it claims are the same funds claimed by the Plaintiffs. Second, QCA believes that the Plaintiffs' success on the merits could affect QCA's ability
Furthermore, QCA claims that the Motion to Intervene is timely and creates no prejudice to the existing parties because Plaintiffs' adversary proceeding is in its preliminary stages and Debtors have not filed an answer to the Complaint; therefore, any delay will be minimal. QCA further asserts that the six month delay between the Plaintiffs' filing of the Complaint and its filing of the Motion to Intervene is inconsequential because QCA's proof of claim was not filed until three months after the Complaint and the risk to its rights only developed one month later when professional expenses and the Debtors' operating report were brought before this Court.
Alternatively, QCA believes that permissive intervention is appropriate under Rule 24(b) because the facts and law at issue in Plaintiffs' adversary proceeding are identical to the facts and law alleged in QCA's complaint. QCA claims that Plaintiffs and it have similar contractual agreements with Check Holding and claim the same legal theory for excluding the funds from the bankruptcy estate. QCA therefore believes judicial economy will be served by allowing intervention.
Plaintiffs argue that QCA should not be allowed to intervene under Rule 24. First, Plaintiffs contend that QCA cannot assert § 1109(b) as a basis for mandatory intervention because QCA is neither a creditor nor party in interest. Plaintiffs note that QCA has asserted that Check Holdings was a mere conduit with no ownership interest in the funds and that the funds are not property of the estate. As Plaintiffs see it, a party is only a creditor when it has a claim against the debtor or the estate. Also, Plaintiffs allege that QCA is not a "party in interest" because it does not have an interest in Debtors' reorganization and is not seeking equitable relief against any estate property.
Additionally, Plaintiffs believe that Debtors' bankruptcy estate is not a "specific fund" for purposes of Rule 24(a)(2). They argue that the money QCA claims is not part of a segregated fund. Plaintiffs also contend that QCA's Motion to Intervene is purely economic since QCA is only trying to ensure that there are sufficient funds to satisfy its interest. Finally, Plaintiffs assert that QCA's rights are not impaired because it can commence its own adversary proceeding.
Lastly, Plaintiffs claim that QCA does not add any new issues to the current adversary proceeding and cannot permissively intervene. They argue that if QCA is permitted to intervene, the amount that the Plaintiffs preserved by way of the Omnibus Order would be insufficient to pay both their claims and QCA's claims. Plaintiffs assert that QCA's late intervention works purely to its own advantage and prejudices the Plaintiffs.
A movant has an unconditional right to intervene when its motion is timely filed and either (A) a federal statute grants an unconditional right to intervene or (B) the movant claims an interest that is related to the property or transaction that is the subject of the adversary proceeding and disposing of the proceeding impairs or impedes the movant's ability to protect its
First, QCA asserts that the Third Circuit's recognition of § 1109(b) as a basis for mandatory intervention must be followed, even though other circuits have disagreed with § 1109(b)'s applicability to Rule 24(a)(1). Plaintiffs do not dispute this. Instead, Plaintiffs contend that QCA is neither a creditor nor party in interest under § 1109(b) because QCA alleges that the money it seeks is not property of the estate, which means that it does not have a claim. QCA responds by arguing that it is presumed to be a creditor because Debtors list QCA in their schedules and it filed a proof of claim, notwithstanding its reservation of rights. As discussed below, the Court finds that QCA is a creditor under § 1109(b). Thus, QCA must be allowed to intervene under Rule 24(a)(1).
In its Brief, QCA cites Collier on Bankruptcy ¶ 541.28, 11 USC § 1111(a) and two cases
Section 1111(a) provides that a proof of claim or interest is deemed filed under 11 USC § 501 if it appears on the debtor's schedules.
Precedent clearly indicates that QCA should be deemed a creditor under § 1109(b). First, QCA's claim that the funds are not property of Debtors' estate has not been determined by this Court. QCA is nominally a creditor based on Debtors' schedules and QCA's proof of claim. If QCA loses its claim against the Debtors, then QCA would have an interest in Debtors' reorganization and a prepetition claim against the estate.
First, In re Odle concerned an attorney who filed a secured claim in the amount of 20% of a settlement that the debtor obtained pursuant to a state workers' compensation statute.
Second, Plaintiffs rely on In re Cogar for the proposition that property cannot be included in the estate when the debtor does not own it.
In the third case, In re Lone Star Pub Operations, LLC, the court held that the debtor did not have an ownership interest in the money that the trustee attempted to claw back from the defendants.
Lastly, the question in In re Golden Triangle Capital, Inc. was whether the claimed funds were part of a constructive trust.
Under Rule 24(a)(2), the Court must allow intervention when four requirements are met: (1) the application for intervention is timely, (2) the applicant has a sufficient interest in the litigation, (3) the interest may be affected or impaired, as a practical matter by the disposition of the action and (4) the interest is not adequately represented by an existing party in the litigation.
First, QCA argues that intervention is timely because adversary proceeding is in preliminary stages and therefore the Plaintiffs will not be prejudiced. However, Plaintiffs contend that they will be prejudiced because they took steps to ensure that their interest the funds are preserved until the adversary proceeding is resolved while QCA "sat on its rights for fifteen months."
At the time the Motion to Intervene was filed, an answer to the Complaint had not been filed, illustrating that the adversary proceeding was just beginning. Additionally, only six months elapsed between when the Plaintiffs filed their adversary complaint and when QCA filed its Motion to Intervene. The fact that QCA did not file its Motion to Intervene at the adversary proceeding's inception is de minimis. QCA formally became a creditor in the bankruptcy case when it filed its proof of claim on October 31, 2014, approximately three months after Plaintiffs' commenced the adversary proceeding. QCA filed its claim within a reasonable time "after [QCA] knew, or should have known,"
Lastly, it is inconsequential to Rule 24(a)(2) analysis that QCA's claim may leave the Debtors with insufficient funds to pay both QCA and the Plaintiffs. As Mountain Top explains, the court should analyze prejudice in reference to the delay caused by intervention, not the effect that the prospective outcome of intervention may have on the non-intervenor's interest.
In regard to the second requirement, QCA asserts that it has an interest in the limited funds that the trustee claims are part of the Debtors' estate. However, the Plaintiffs argue that the estate funds cannot be "specific funds" by merely being part of Debtors' bankruptcy estate. Plaintiffs' rely on the fact that the money QCA claims an interest in was not set aside in a discrete fund. According to Plaintiffs, the timing of QCA's motion indicates that its interest is purely economic, which is insufficient to establish a "significantly protectable" interest under Liberty Mutual Insurance Co. v. Treesdale, Inc.
Moreover, the Omnibus Order effectively sets aside $900,000 of the estate's funds to provide Plaintiffs, in the event they succeed in the adversary proceeding, with the opportunity to recover moneys they claim are not property of the estate available to general creditors. QCA claims a similar interest to Plaintiffs, which is significantly protectable by the amount reserved in the Omnibus Order. Thus, the movants in Liberty Mutual are distinguishable from QCA because those movants did not have a property or legally protectable interest in the funds subject to dispute.
Additionally, QCA contends that its interest may be impaired because the estate's funds could be depleted if Plaintiffs prevail on their claims. Plaintiffs counter
Lastly, Plaintiffs are only asserting the amount of their respective claims and have not excluded money to the benefit of QCA or any other creditor with a similar position against property of the estate. Thus, Plaintiffs do not adequately represent QCA's interest in the funds.
A court may permit anyone to intervene when a timely motion is filed, and there is either (1) a federal statute that provides the intervener a conditional right or (2) "the claim or defense that the intervener asserts shares a common question of law or fact with the main action."
QCA relies on Moore's Federal Practice to assert that the question of fact that it raises in its proposed complaint is identical to Plaintiffs' claims in that they both allege a contractual relationship and Check Holding's failure to reimburse funds pursuant to the contract during the same time period. Also, QCA contends that the legal theory raised is the same as Plaintiffs' because they both argue that Check Holding was a "pass through" for the funds and therefore Check Holding never had an ownership interest in the funds. Finally, QCA insists intervention is warranted because judicial economy and consistency will be served by resolving these issues in a single proceeding.
In response, Plaintiffs cite two cases for the proposition that movants should not be allowed to intervene when they add no new issues to the present litigation; neither case, however, weighs against permitting intervention here. The movants in Hallco and Bisanz, respectively, were already adequately represented by litigants in those proceedings.
Because the Court agrees that judicial economy and consistency would be served by allowing intervention, and because QCA's intervention protects an interest not served by the existing Plaintiffs, the Court holds that permissive intervention is warranted under Fed.R.Civ.P. 24(b).
The Court finds that QCA has a right to intervene under Fed.R.Civ.P. 24(a)(1) and (a)(2), and that permissive intervention is warranted under Fed.R.Civ.P. 24(b). For the reasons set forth above, the Court will grant the Motion to Intervene.
