Michael E. Ridgway, Chief United States Bankruptcy Judge
At Minneapolis, Minnesota, August 7, 2019.
On November 29, 2018, the Court held a hearing on a motion by the Gander Mountain Liquidating Trust (the "Trust") in which the Trust objected to claims filed by certain individuals known throughout these proceedings as the "Key Executives."
This is a core proceeding under 28 U.S.C. § 157(b)(2)(B), (I) and the Court has jurisdiction under 28 U.S.C. §§ 157(b)(2)(B), (I) and 1334. This memorandum decision is based on all the information available to the Court and constitutes the Court's findings of fact and conclusions of law under Fed. R. Bankr. P. 7052, made applicable to this contested matter by Fed. R. Bankr. P. 9014(c).
For the reasons stated herein, the Trust's motion objecting to certain claims of the Key Executives is
The Plan of Liquidation (the "Plan") in this case provided for the substantive consolidation of the estates of the debtors, and they will therefore be referred to herein as a singular "debtor." ECF No. 1572, Art. IV, A. By operation of the Plan's terms, the Trust was created and became the successor to the debtor in possession ("DIP") on the Plan's "Effective Date," defined as February 8, 2018; at that time, the debtor irrevocably transferred its assets to the Trust. ECF No. 1359, Art. IV,
On April 14, 2017, the Court approved the Key Employee Retention Plan ("KERP") and the Key Employee Incentive Plan ("KEIP"), as follows:
ECF No. 436.
The KERP and KEIP (collectively, the "Key Employee Plans") had been negotiated and entered into by each of the Key Executives with the debtor and the Creditors Committee. ECF No. 1845. The relevant material provisions of the Key Employee Plans as they appear in the Kinsella Declaration are substantially identical; together they provide a structure through which the Key Executives could earn bonuses during Gander Mountain's reorganization under the Bankruptcy Code. ECF No. 436. Each of the Key Executives agreed to and signed his respective contract on either April 13, 2017, or April 17, 2017.
The Key Employee Plans are each the length of just one double-sided page. ECF No. 436. The substantive provisions relevant here are as follows:
ECF No. 436 (emphasis added).
There is no dispute that the Key Executives satisfied the requirements for the first tier, the threshold bonus, and were awarded the corresponding bonuses of approximately $1,250,000.00, in full, between May and September 2017. ECF Nos. 1821, 1845. The issue here lies in whether the Key Executives have met the requirements for receiving an additional $1,875,000.00 under any of the remaining three bonus tiers. ECF Nos. 1821, 1845. This determination comes down to the contract language in the Key Employee Plans, including several provisions concerning the
On May 4, 2017, the Court entered an Order Authorizing the Sale of Certain Assets Free and Clear of Liens, Claims, Rights, Encumbrances, and other Interests ("Sale of Assets Order"), ECF No. 691, which authorized the debtor to sell certain assets to CWI, Inc. ("CWI" or "Camping World") c/o Camping World Holdings, Inc. ("CWH"). ECF No. 691. The Sale of Assets Order also approved a Designation Rights Agreement ("Designation Agreement") between the debtor and CWI, which granted CWI the right to act as the debtor's agent for the purpose of assigning the debtor's real property leases, and required that CWI would assign a minimum of 17 of the debtor's store leases to itself or its affiliates. ECF No. 691. The requirement that CWI assign a minimum of 17 store leases to itself was a notable provision, since CWI did not automatically take on the leases through the sale. As will be discussed further herein, it is not entirely clear whether the Key Executives argue that the Sale of Assets Order could qualify as the kind of "sale or transfer" required by the Key Employee Plans, but the Court nevertheless finds that it did not.
From May to October 2017, the Court issued three different orders approving the assumption and assignment of certain executory contracts and unexpired leases; these orders ultimately authorized the assignment of 19 of the debtor's store and distribution center leases to CWI. ECF Nos. 730, 965, and 1299. As of January 26, 2018, the date the Plan was confirmed in this case ("Confirmation Date"), those 19 transferred stores were the only stores the record shows were assumed by the debtor and assigned to any party. Similarly, as of the Confirmation Date, the estimated value available for distribution to general unsecured creditors was represented by a range: 2.2% - 6.4%. ECF No. 1359. There is nothing in the record to indicate that these numbers changed by the Plan's Effective Date. ECF No. 1359, Art. I, A. 38.
The Trust argued that the Court should disallow the Key Executives' claims regarding the unearned bonuses because the debtor's estate fully satisfied all obligations to the Key Executives when the Trust paid the Key Executives the threshold bonus under the Key Employee Plans. ECF No. 1845. In making this argument, the Trust points to the plain language of the Key Employee Plans, arguing that it is unambiguous and, therefore, no external evidence is necessary for interpreting the relevant provisions. ECF No. 1845.
In response, the Key Executives argue that the Key Employee Plans are ambiguous, and that extrinsic evidence should therefore be admitted to interpret their provisions. ECF No. 1821. In the alternative, the Key Executives argue that it would be premature for the Court to interpret the contract provisions of the Key Employee Plans, since the facts make an otherwise unambiguous contract provision uninterpretable. ECF No. 1821.
As with many areas of the law, contract law encompasses a variety of its own uniquely-tailored rules and requirements;
The parol evidence rule specifically prohibits extrinsic evidence from being admitted to explain or contradict the meaning of an unambiguous contract.
In this case, there has been considerable argument by both the Trust and the Key Executives about the supposed ambiguity in the Key Employee Plans concerning the timing of the contract provisions; more specifically, the parties have debated at what point the contract provisions should be interpreted. The Key Executives claim that the Key Employee Plans are "ambiguous because they fail to establish crucial deadlines," and "there is no deadline for selling or transferring the stores . . . the `Going Concern Sale' does not specify when the sale or transfer must be effectuated." ECF No. 1922. Essentially, the Key Executives argue that because no deadline is included in close proximity to the term "Going Concern Sale" in the Key Employee Plans, the deadline for such a sale cannot reasonably incorporate the Plan's Confirmation Date. ECF No. 1922. As the Key Executives state in their supplemental memorandum of law:
ECF No. 1922.
This construction, however, ignores the plain and unambiguous contract language of the Key Employee Plans, which does define when stores need to be sold or transferred, and is therefore determinative of the questions at issue here:
ECF No. 431 (emphasis added). In the context of the Key Employee Plans, "the Plan" is a defined term that refers to Gander Mountain's Plan of Reorganization and/or Liquidation. As was discussed above, the Plan defines the Effective Date as February 8, 2018. ECF No. 1359.
Therefore, outside of where the contact language specifies otherwise, all of the bonus amounts under the Target, Stretch, and Maximum Bonus tiers of the KEIP and KERP are to be determined as of the Effective Date of the Plan — February 8, 2018. The language is unambiguous, and leaves no room for interpretation: the bonuses
The plain language of the Key Employee Plans clarifies how its provisions should be read, thereby resolving issues of potential ambiguity. Therefore, no further evidence is needed. All that remains is to determine whether the Key Executives satisfied the explicit requirements of each of the three remaining bonus tiers. Since the Payment Provisions section of the Key Employee Plans state that each tier exists independently of one another, the next step of this analysis must include an examination of whether each of these individual tiers is separately met.
The Target Bonus provision of the Key Employee Plans states:
ECF No. 431.
This test is a conjunctive one, since the bonus is earned only if both components are met; the estimate for the cash or value available to unsecured creditors must be five percent or more,
As was previously discussed, the estimate of the value available for distribution to general unsecured creditors was 2.2% - 6.4%. There has been much debate about whether the 2.2% - 6.4% range is enough to satisfy a provision that requires an estimate that "is equal to or exceeds 5%." The
The record shows that, as of the Plan's Effective Date, February 8, 2018, 19 stores had been assumed and assigned. The Key Executives stated that "The claim amounts were based on information . . . that CWH intended to open more than 35 Gander Mountain/Overton stores." ECF No. 1845. Their argument is this: they met the requirements of this tier simply because, ". . . at the time of confirmation of the Debtor's Chapter 11 Plan CWH had already contemplated reopening upwards of 70 Gander Mountain stores." ECF No. 1845. Although the Key Executives supplied ample evidence that the opening of such stores was contemplated, including that such statements were made officially to the SEC and in press releases, the Executives did not fully address the issue most relevant to this inquiry: how many stores were actually "sold or transferred" as of the Effective Date? The assertion that mere contemplation of opening stores could satisfy the requirements of the bonus tiers in the Key Employee Plans is a misinterpretation of the plain language of the contracts, which states that ". . . at least 35 stores
It appears possible that the Key Executives may be arguing, as a somewhat ambiguous and circuitous afterthought, that the Order Authorizing the Sale of Certain Assets, ECF No. 691, met the "sold or transferred" requirement of the Key Employee Plans. ECF No. 1930, 1845. However, the Court agrees with the Trust's interpretation: a natural and plain meaning of the phrase "sold or transferred" must include a requirement for the store leases to be assumed or assigned. ECF No. 1864. As the Trust stated, "A store sold and transferred by Gander Mountain meant that the assignee was curing and assuming the financial obligations associated with the store, including continuing lease obligations." ECF No. 1921. In fact, it appears that here, Camping World specifically did not assume responsibility for stores much beyond the 17 it was required to assume; instead, it allowed the leases to be rejected by standard operation of the bankruptcy case, leaving the estate with millions in rejection damages claims, and then re-engaged with the landlords of the stores to negotiate those very same leases after the Effective Date had passed. ECF No. 1864.
While the Key Executives correctly point out that "The Terms `[assumption] and assignment' are no where to be found in the KEIPs or the KERPs," ECF No. 1845, a sale or transfer of a store cannot occur without the assumption of that store's lease. This fact is shown most clearly by the Trust's representation that the estate here faced some $150 million in rejection damages claims when none of the leases outside of the 19 discussed here were assumed. ECF No. 1864. Through the Sale of Assets Order, the debtor's assets were sold to CWI, and CWI was granted the ability to act as the debtor's agent in assigning store leases. Put simply, neither acquiring the ability to assign leases nor acquiring ownership of inventory and equipment assets qualifies as a "sale
The Key Executives point to the fact that Camping World acquired equipment and inventory through the Sale of Assets Order that remained in some of the store locations where leases were not assumed or assigned. ECF No. 1930. They argue that "[i]f the leases were truly rejected, the landlords would not allow the inventory and equipment to remain on the premises while a new lease was negotiated." ECF No. 1930. They further argue that "it defies logic to hold that these contracts were rejected as a matter of law." This argument, however, ignores the language of the Plan — and the Bankruptcy Code, for that matter — which states just that:
ECF No. 1359 at Art. VII, A. p. 35. Further, the landlords clearly did not sit on their laurels as equipment and inventory remained in these stores — hence, the $150 million in claims for rejection damages.
As discussed above, the plain language of the Key Employee Plans requires that the calculation of the number of stores that were actually sold or transferred be determined as of the Effective Date. Therefore, the actual count for determining whether the requirements have been met under this tier is 19 stores. Obviously, 19 is less
The Stretch Bonus provision of the Key Employee Plans states:
ECF No. 431.
Unlike the Target Bonus tier, the Stretch Bonus tier is disjunctive — it can be successfully met if either of two options is met — either the value estimated to be available for distribution to unsecured creditors is equal to or exceeds 10%
It is possible that the 2.2% - 6.4% estimated range of value available for distribution could meet a requirement that the estimate be 5% or more. However, the 2.2% - 6.4% range absolutely could not meet a requirement that the estimate be 10% or more, despite the Key Executives' best attempts to argue otherwise.
The second component requires that 60 stores be sold as of the Effective Date. However, as was already discussed under the Target Bonus tier, only 19 stores had been assumed and assigned as of that date. Therefore, the second option for meeting this bonus tier is also unsatisfied, meaning that the Key Executives failed to meet the requirements to be compensated under the Stretch Bonus tier.
The Maximum Bonus provision of the Key Employee Plans states:
ECF No. 431.
The Maximum Bonus tier presents another conjunctive test, as it can only be satisfied if the estimated value available for distribution to unsecured creditors is equal to or exceeds 10%
The previous analysis from the Target Bonus and Stretch Bonus tiers shows that neither of these requirements is met; the 2.2% - 6.4% range cannot be read to satisfy a 10% estimate requirement, and the 19 stores that had been assumed and assigned as of the Effective Date fall well short of the 70-store requirement to satisfy this tier.
The Maximum Bonus tier does have a caveat, however; it states that some part of the bonus may be available if the estimate of value available for distribution to unsecured creditors is between 5% and 10%. However, this provision only becomes relevant in relation to "the applicable bonus amount for the Maximum opportunity." Since the store requirement for the Maximum Bonus tier is not met, there is no bonus amount for this tier, and this caveat does not apply. As with the Target Bonus and Stretch Bonus tiers, the Key Executives failed to satisfy the requirements to receive their bonuses under the Maximum Bonus tier.
The Court does not doubt that, as the Key Executives asserted in their pleadings, "The energy, time, and work expended by each of the Key Executives was instrumental in preserving the value of the estate, allowed for the sale of the assets of the debtor, and otherwise allowed the debtor to continue operating with the continuity necessary to enhance the value of the estate for the benefit of not only the bankruptcy estate, but all creditors as well, including unsecured creditors." ECF No. 1845, p. 6.
Still, contract law is somewhat singular in the legal world for its brazen constructs: with few exceptions, whatever language is in a contract becomes "the law" under which the parties to the contract must operate. Here, then, the "law" states that bonus amounts
Accordingly,
IT IS HEREBY ORDERED that the Trust's Omnibus Objection to Claims Filed by Certain Former Key Executives is