MEMORANDUM ORDER1

(Re: docket no. 2152, 2188)

BRENDAN LINEHAN SHANNON, Bankruptcy Judge.

Before the Court is the "Debtors' Second Motion for Entry of an Order Authorizing Abandonment and Destruction of Certain Books and Records,"2 seeking authority to destroy certain documents, books, and records currently held by post-confirmation debtors APP Winddown, LLC (f/k/a American Apparel, LLC, f/k/a American Apparel, Inc.) and APP Shipping Winddown, Inc. (f/k/a Fresh Air Freight, Inc.) (collectively, "APP" or the "Post-Confirmation Debtors").

Peter Kravitz, as Litigation Trustee of the AAI Litigation Trust (the "Litigation Trustee"), and Dov Charney and Adrian Kowalewski (the "State Court Defendants") filed objections to the Document Destruction Motion.3 A hearing was held on July 31, 2019, and, afterward, the parties filed letters with the Court in further support of their respective positions. After due deliberation, the Court hereby FINDS as follows: Background

1. This current bankruptcy case was commenced on November 14, 2016, when APP filed voluntary petitions for relief under chapter 11 of title 11, United States Code (the "2016 Bankruptcy Case"). That petition followed an earlier chapter 11 case filed on October 5, 2015 (Case No. 15-12055) (the "2015 Bankruptcy Case").

2. On January 27, 2016, this Court entered an order confirming the First Amended Joint Plan of Reorganization in the 2015 Bankruptcy Case (the "Prior Plan"), which became effective on February 5, 2016 (the "Prior Plan Effective Date").

3. On the Prior Plan Effective Date, the AAI Litigation Trust was established for the purpose of prosecuting specified causes of action and making distributions (if any) to holders of allowed general unsecured claims in their capacities as Litigation Trust beneficiaries. The causes of action transferred to the AAI Litigation Trust included claims and causes of action against the 2015 Debtors' former officers.4

4. The Litigation Trust Agreement between and among the Litigation Trustee and the Reorganized 2015 Debtors dated February 5, 2016 provides in Section 1.7 entitled "Books and Records," in pertinent part:

5. On November 28, 2018, this Court entered an Order confirming Third Amended Joint Plan of Liquidation (the "Liquidating Plan") in the 2016 Bankruptcy Case, which became effective on December 14, 2018 (the "Effective Date"). On the Effective Date, four of the Debtors were deemed dissolved, and all of their assets vested in APP Winddown, LLC.

6. Section III.K. of the Liquidating Plan addresses recordkeeping, including the following:

7. Section III.O of the Liquidating Plan addresses the relationship between the Post-Confirmation Debtors and the Litigation Trustee, and states, in part:

STANDARD

9 APP seeks relief under Bankruptcy Code § 554, which provides that "[a]fter notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate."6

10. Generally, when deciding whether property may be abandoned under § 554, a court will defer to a trustee's judgment upon finding that the trustee made: (1) a business judgment; (2) in good faith; (3) upon some reasonable basis; and (4) within the trustee's scope of authority.7

11. Here, however, there is no estate to consider in the post-confirmation posture of this case. Instead, APP's judgment, good faith, reasonableness and authority are determined in reference to the terms of the confirmed Plan. "In construing a confirmed plan of reorganization, we apply contract principles."8

12. "Delaware adheres to the `objective' theory of contracts, i.e. a contract's construction should be that which would be understood by an objective, reasonable third party."9 "We will read a contract as a whole and we will give each provision and term effect, so as not to render any part of the contract mere surplusage."10 "We will not read a contract to render a provision or term `meaningless or illusory.'"11 "When the contract is clear and unambiguous, we will give effect to the plain-meaning of the contract's terms and provisions."12

ANALYSIS

13. APP argues that Section III.K.1 of the Liquidating Plan provides that the Post-Confirmation Debtors will "maintain the books and records of the Debtors for matters related to the Post-Confirmation Debtor Functions and the Creditors' Trust Functions, subject to destruction, transfer and access rights set forth in this Section III.K of the Plan." Section III.K.5 then provides that, after 21 days' notice to certain parties, the Post-Confirmation Debtors can "destroy any documents and records of the Debtors that it believes are no longer required to effectuate the terms and conditions of the Plan or the Settlements." APP further argues that the Liquidating Plan grants the Litigation Trustee (and other parties) the right to request a transfer of documents and records they do not want destroyed, at the requesting parties' cost.13

14. APP also contends that the causes of action being pursued by the Litigation Trustee were property of the 2015 bankruptcy estate, not property of the 2016 estate, and any records in connection with those causes of action are not needed for the post-confirmation functions of APP or the Creditors' Fund Trustee and, therefore, may be destroyed or, on request, transferred to the Litigation Trustee at the Trust's cost.

15. In response, the Litigation Trustee argues that the Liquidating Plan must be read as a whole and cites to language not quoted by APP. The Litigation Trustee points out that the last sentence of Section III.K.1 (entitled Continued Recordkeeping) specifically states "Nothing in the Plan shall obligate the Post-Confirmation Debtors to maintain any Specified Books and Records (as defined in the Litigation Trust Agreement), for a period longer than indicated in Section 1.7(b) of the Litigation Trust Agreement," (i.e., six years after the date of the Litigation Trust Agreement, which is until February 5, 2022). The Liquidating Plan also provides that the Post-Confirmation Debtors may:

The Litigation Trustee argues that "[i]f there was no obligation of the Debtors to maintain records for the six-year period, there would be no need to include a provision in the Plan that ensures that the six-year period was not extended beyond the 2022 date . . . or a provision that provides for a storage agent for the Debtors' records."15

16. The State Court Defendants also object to the Document Destruction Motion, arguing that the records and documents related to the State Court Litigation are still necessary to "effectuate the terms and conditions of the [Liquidating] Plan" because the Post-Confirmation Debtors have an obligation to retain those documents and preserve evidence while the State Court Litigation is pending. The State Court Defendants cite to Section X.J. of the Liquidating Plan, which provides:

17. Upon review of the specific provisions of the Liquidating Plan, the Court concludes that the Document Destruction Motion must be denied. Section III.K.5 of the Liquidating Plan allows destruction of documents and records only if they "are no longer required to effectuate the terms and conditions of the Plan." The Liquidating Plan recognizes the Post-Confirmation Debtors' obligation to maintain any Specified Books and Records for the period set forth in the Litigation Trust Agreement (i.e., until February 5, 2022). The Liquidating Plan also provided that none of its provisions would affect the rights of the Litigation Trustee under the Trust Agreement to pursue the Litigation Trust Causes of Action. The Specified Books and Records are necessary to pursue those actions. Therefore, to "effectuate the terms" of the Liquidating Plan, the Post-Confirmation Debtors must retain and preserve the Specified Books and Records as required by the Liquidating Plan and the Litigation Trust Agreement.17

Accordingly, it is hereby:

ORDERED that the Post-Confirmation Debtors' Document Destruction

Motion is DENIED.