United States District Court, D. Colorado
HARVEY SENDER, not individually but solely as trustee for the estates of Craig Energy, LLC and Craig Energy Holdings, LLC, Plaintiff,
v.
CAPITAL ONE BUSINESS CREDIT CORPORATION, MEDLEY OPPORTUNITY FUND II, LP, CRAIG OBERMUELLER, DIANA OBERMUELLER, CRAIG'S NEWCO, INC., DAVIS, MALM & D'AGOSTINE P.C., and J2 PARTNERS, INC., Defendants.
ORDER
Scott
T. Varholak United States Magistrate Judge
This
matter is before the Court on the Order to Show Cause issued
by the Court on July 23, 2018, which ordered the parties to
show cause why this case should not be transferred to the
United States Bankruptcy Court for the District of Colorado
(the “Bankruptcy Court”).[1] [#67] The Court has
carefully considered the parties' briefing in response to
the Order to Show Cause [#70, 71, 74, 75], the case file, and
the applicable case law, and has determined that oral
argument would not materially assist in the disposition of
the Order to Show Cause. For the following reasons, the Order
to Show Cause is MADE ABSOLUTE and the Clerk
of Court is directed to TRANSFER this case
(and all pleadings and documents filed therein) to the United
States Bankruptcy Court for the District of Colorado.
I.
BACKGROUND[2]
In
2013, Defendants Craig and Diana Obermueller (collectively,
the “Obermuellers”) sought to sell Craigs
Roustabout Service, Inc. (“CRS”), an oil and gas
production services company that was 100 percent owned by the
Obermuellers at the time. [#1 at ¶¶ 6, 14-16] The
Obermuellers, CRS, and Spindletop Holdings, LLC
(“Spindletop”)[3] entered into a Stock Purchase Agreement
dated September 20, 2013 (the “Stock Purchase
Agreement”) to effectuate a leveraged buyout
(“LBO”) of CRS from the Obermuellers.
[Id. at ¶ 18] Pursuant to the Stock Purchase
Agreement, the Obermuellers contributed their CRS stock to a
newly formed entity called Craig's NewCo, Inc.
(“Newco”) and caused CRS to be converted from a
Utah S corporation to a Colorado limited liability company
called Craig Energy, LLC (“Craig Energy”).
[Id. at ¶¶ 19-20] Spindletop, which became
Craig Energy Holdings, LLC (“Energy Holdings”),
purchased a 100 percent interest in Craig Energy from Newco
for $32.5 million in cash subject to post-closing
adjustments, a $3.25 million promissory note payable to the
Obermuellers, and an earn-out payable to the Obermuellers
capped at $6 million. [Id. at ¶ 21]
To
finance the purchase and obtain working capital, Craig Energy
obtained separate loans from Defendant Capital One Business
Credit Corporation (“Capital One”) and Defendant
Medley Opportunity Fund II, LP (“Medley”).
[Id. at ¶ 22] Capital One, as agent for certain
lenders, entered into a Loan and Security Agreement dated
November 26, 2013 with Craig Energy, as borrower, and Energy
Holdings, as guarantor, pursuant to which Capital One, as
agent, made loans to Craig Energy totaling $32 million (the
“Capital One Agreement”). [Id. at ¶
23] The Capital One loans were due and payable in full on
November 26, 2018. [Id. at ¶ 28] In exchange
for the Capital One loans, Craig Energy purportedly granted
Capital One security interests in substantially all of Craig
Energy's assets. [Id. at ¶ 26]
In
addition, Medley, as agent for certain lenders, entered into
a Loan and Security Agreement dated November 26, 2013 with
Craig Energy, as borrower, and Energy Holdings, as guarantor,
pursuant to which Medley, as agent, made a $14 million term
loan to Craig Energy (the “Medley Agreement”).
[Id. at ¶ 29] The Medley loan was due and
payable in full on November 26, 2018. [Id. at ¶
34] In exchange for the Medley loan, Craig Energy purportedly
granted Medley security interests in substantially all of
Craig Energy's assets. [Id. at ¶ 31]
Pursuant
to a Management Agreement dated November 26, 2013, Energy
Holdings, on behalf of itself and Craig Energy, agreed to pay
J2 a monthly fee of $35, 000 to provide advisory, consulting,
and other services, and an additional fee for investment
banking services. [Id. at ¶¶ 69-72]
On
February 19, 2016, Craig Energy and Energy Holdings each
filed voluntary petitions for Chapter 11 bankruptcy in the
Bankruptcy Court.[4] [Id. at ¶ 74] On February
29, 2016, the Bankruptcy Court entered orders granting Craig
Energy's and Energy Holdings' motions to convert
their cases to cases under Chapter 7 of the Bankruptcy Code.
[Id. ¶ 75; see also Craig Energy
Bankruptcy, #19; Energy Holdings Bankruptcy, #17] On March 1,
2016, the Bankruptcy Court appointed Harvey Sender (the
“Trustee”) as the trustee in both the Craig
Energy Bankruptcy and the Energy Holdings Bankruptcy. [Craig
Energy Bankruptcy, #20; Energy Holdings Bankruptcy, #18]
Capital One filed a proof of claim in the Craig Energy
Bankruptcy for $10, 391, 043.24, and Medley filed a proof of
claim in the Craig Energy Bankruptcy for $16, 146, 318.82.
[#1 at ¶¶ 77, 78]
On
February 16, 2018, the Trustee filed this lawsuit, not
individually but solely as the Chapter 7 Trustee for the
estates of Craig Energy and Energy Holdings. [#1] The
Complaint asserts 19 causes of action and “demands a
trial by jury in this case of all issues triable of right by
jury” (the “Jury Demand”). [Id. at
42] The Trustee summarizes the claims filed in this lawsuit
as follows:
•Against all Defendants: avoidance and recovery of
alleged fraudulent transfers and obligations incurred
pursuant to 11 U.S.C. §§ 544(b)(1), 550, and 551,
Utah Code §§ 25-6-202(1)(b) and 25-6-203(1), and
C.R.S.A. §§ 38-8-105 and 38-8-106;
•Against the Obermuellers: breach of fiduciary duty;
• Against Capital One and Medley: declaratory judgment
regarding the validity, priority, and extent of their alleged
liens in rolling stock;
• Against Capital One and Medley: unjust enrichment; and
• Against J2: avoidance and recovery of alleged
preferential transfers pursuant to 11 U.S.C. ...