Case 2:16-bk-24862-BB Doc 972 Filed 12/15/17 Entered 12/15 ...omnimgt.com/cmsvol2/pub_47154/650188_972.pdf · 5. The Instart Logic Claim is based upon $18,777 owed by the Debtor to

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Scott F. Gautier (State Bar No. 211742)[email protected] D. Meek (State Bar No. 280562)[email protected] KAPLAN LLP2049 Century Park East, Suite 3400Los Angeles, CA 90067Telephone: 310 552 0130Facsimile: 310 229 5800

Attorneys for Province Inc., as Trustee of the NG DIP Liquidating Trust

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES COUNTY DIVISION

In re:

NG DIP, INC. (f/k/a Nasty Gal Inc.), a California Corporation,

Debtor and Debtor in Possession.

Case No. 2:16-bk-24862-BB

LIQUIDATING TRUST’S NOTICE OF OBJECTION AND OBJECTION TO PROOF OF CLAIM NO. 311-1 FILED BY INSTART LOGIC INC.

THIS OBJECTION APPLIES TO THE FOLLOWING PROOF OF CLAIM:

1. INSTART LOGIC, INC.– CLAIM NO. 311

Date: January 31, 2018Time: 10:00 a.m.Place: Courtroom 1539

255 East Temple StreetLos Angeles, CA 90012

Case 2:16-bk-24862-BB Doc 972 Filed 12/15/17 Entered 12/15/17 19:19:41 Desc Main Document Page 1 of 36

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TO THE HONORABLE SHERI BLUEBOND, UNITED STATES BANKRUPTCY

JUDGE, THE OFFICE OF THE UNITED STATES TRUSTEE, AND CLAIMANT

INSTART LOGIC, INC.:

PLEASE TAKE NOTICE that on January 31, 2018, at 10:00 a.m., in Courtroom 1539,

located at 255 East Temple St., Los Angeles, California, Province, Inc., as trustee (the “Trustee”)

of the NG DIP Liquidating Trust (the “Liquidating Trust”), will and hereby does move (the

“Objection”) the Court for an order reducing Claim No. 311, filed by Instart Logic Inc. (“Instart

Logic”) on March 15, 2017 (the “Instart Logic Claim”), from a general unsecured claim in the

amount of $114,349.00, to a general unsecured claim in the amount of $18,777.00.

PLEASE TAKE FURTHER NOTICE that the Objection is based upon this Notice, the

Objection, the Declaration of Amanda Demby annexed to the Objection, all pleadings and records

on file in this case, and such oral or written evidence as may be properly presented to the Court at

or before the time of the hearing. For further information concerning the Objection, you may

contact the undersigned counsel for the Liquidating Trust.

PLEASE TAKE FURTHER NOTICE that any response to the Objection must contain

at minimum the following:

a. The name of the claimant, the claim number and the description of the basis for the

claim, including without limitation, the amount thereof;

b. A concise statement setting forth the reasons why such claim should not be

disallowed, subordinated, or reduced for the reasons set forth in the Objection, including but not

limited to, any declarations or memoranda of law setting forth the specific factual and legal basis

upon which the claimant will rely in opposing the Objection; and

c. All documentation or other evidence supporting the claim, to the extent not

included with the original proof of claim, upon which the claimant will rely in opposing the

Objection at the hearing.


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PLEASE TAKE FURTHER NOTICE that any party wishing to respond to the

Objection must file and serve a response no later than 14 days prior to the hearing date set forth

above. IF YOU FAIL TO TIMELY RESPOND IN ACCORDANCE WITH THIS NOTICE,

THE COURT MAY GRANT THE RELIEF REQUESTED IN THE OBJECTION

WITHOUT FURTHER NOTICE OR HEARING.

DATED: December 15, 2017 ROBINS KAPLAN LLP

By: /s/ Kevin D. MeekScott F. Gautier Kevin D. Meek

Attorneys For Province, Inc., as trustee of the NG DIP Liquidating Trust


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Scott F. Gautier (State Bar No. 211742)[email protected] D. Meek (State Bar No. 280562)[email protected] KAPLAN LLP2049 Century Park East, Suite 3400Los Angeles, CA 90067Telephone: 310 552 0130Facsimile: 310 229 5800

Attorneys for Province Inc., as Trustee of the NG DIP Liquidating Trust

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES COUNTY DIVISION

In re:

NG DIP, INC. (f/k/a Nasty Gal Inc.), a California Corporation,

Debtor and Debtor in Possession.

Case No. 2:16-bk-24862-BB

Chapter 11

LIQUIDATING TRUST’S OBJECTION TO PROOF OF CLAIM NO. 311-1 FILED BY INSTART LOGIC, INC.; MEMORANDUM OF POINTS AND AUTHORITIES; DECLARATION OF AMANDA DEMBY IN SUPPORT THEREOF

THIS OBJECTION APPLIES TO THE FOLLOWING PROOF OF CLAIM:

1. INSTART LOGIC, INC.–CLAIM NO. 311

Date: January 31, 2018Time: 10:00 a.m.Place: Courtroom 1539

255 East Temple StreetLos Angeles, CA 90012


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Province, Inc., as trustee (the “Trustee”) of the NG DIP Liquidating Trust (the “Liquidating

Trust”), hereby objects (the “Objection”) to Claim No. 311-1 (the “Instart Logic Claim”), filed by

Instart Logic Inc. (“Instart Logic”), against the above-captioned debtor’s (the “Debtor”) bankruptcy

estate. In support of the Objection, the Liquidating Trust submits the following memorandum of

points and authorities and the Declaration of Amanda Demby (the “Demby Declaration”).

I.

INTRODUCTION

The Liquidating Trust seeks entry of an order reducing the Instart Logic Claim from a

general unsecured claim in the amount of $114,349.00, to a general unsecured claim in the

amount of $18,777.00. The disputed portion of the claim (the “Disputed Portion”) should be

disallowed because it is based entirely upon an “early termination penalty” in the amount of

$95,592.00, which is not specified in the agreement between Instart Logic and the Debtor, and

which does not represent actual damages incurred by Instart Logic. Accordingly, the Disputed

Portion should be disallowed, pursuant to section 502(b)(1) of the Bankruptcy Code, as

unenforceable against the Debtor.

II.

STATEMENT OF JURISDICTION

This Court has jurisdiction to consider the Objection pursuant to 28 U.S.C. §§ 157 and

1334. This matter relates to the administration of claims against the Debtor’s bankruptcy estate

and is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), and (O). Venue of this matter

is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. The statutory predicates for the

relief requested herein are sections 501 and 502(b) of title 11 of the United States Code (the

“Bankruptcy Code”), Rules 3001(b) and 3007 of the Federal Rules of Bankruptcy Procedure (the

“Bankruptcy Rules”), and Local Bankruptcy Rules 3001-1 and 3007-1.

III.


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STATEMENT OF FACTS

Background:

1. Prior to the commencement of this chapter 11 case, the Debtor and Instart Logic

entered into that certain Terms of Service Agreement dated March 14, 2016 (the “Agreement”),

whereby Instart Logic agreed to provide online and mobile services to the Debtor in exchange for

a fee. Exhibit “1” to Demby Declaration.

2. Section 3.2 of the Agreement governs termination, and provides that upon

termination, the Debtor is responsible for all fees and charges incurred prior to the date of

termination. No provision of the Agreement sets forth a penalty for early termination.

3. Section 8.8 of the Agreement is an “integration clause” that provides that the

Agreement is the “complete and exclusive statement of the mutual understanding of the parties”

and supersedes all other agreements.

4. Instart Logic filed the Instart Logic Claim against the Debtor’s Estate on March

15, 2017, asserting a general unsecured claim in the amount of $114,369.00. Exhibit “2” to

Demby Declaration.

5. The Instart Logic Claim is based upon $18,777 owed by the Debtor to Instart

Logic for pre-petition services, and $95,592.00 for an “early termination penalty.” Exhibit “2” at

section 8. The Instart Logic Claim provides no evidence of actual damages suffered by Instart

Logic as a result of the termination of its services.

6. On or about November 9, 2016 (the “Petition Date”), the Debtor filed a voluntary

petition for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”).

The Debtor’s Plan:

7. The Debtor no longer conducts business operations and is in the process of

liquidating its remaining assets pursuant to a plan of liquidation (the “Plan”) (Docket No. 658).

8. The Plan was confirmed on July 25, 2017, and the Debtor and Liquidating Trust

seek to resolve all claims filed against the Estate as efficiently as possible to allow for distribution

to unsecured creditors.


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9. Upon the occurrence of the effective date of the Plan (the “Effective Date”), the

Plan provides for the transfer of the Debtor’s assets to the Liquidation Trust, and the appointment

of the Trustee as the liquidating trustee of the Liquidating Trust. The Plan further provides that,

upon the Effective Date, the Liquidating Trust shall have standing to file objections to claims

filed against the Debtor’s estate.

10. The Effective Date of the Plan occurred on August 18, 2017, at 5:00 p.m. Pacific

Standard Time. On August 22, 2017, the Debtor filed its Notice of: (1) Confirmation of Joint

Liquidating Plan of Reorganization of Debtor and Official Committee of Unsecured Creditors

Dated May 23, 2017 and Occurrence of Effective Date Thereof; and (2) Deadlines for Filing

Certain Claims (the “Notice of Effective Date”) to all parties in interest.

IV.

LEGAL ARGUMENT

A. Standard For Allowance of Claims

When a creditor files a proof of claim executed in accordance with the Bankruptcy Code

and the Federal Rules of Bankruptcy Procedure, such claim is deemed allowed unless the debtor

or a party in interest objects. 11 U.S.C. § 502(a).

A proof of claim executed and filed in accordance with the Federal Rules of Bankruptcy

Procedure constitutes prima facie evidence of the validity and amount of the claim. See Fed. R.

Bankr. P. 3001(f); See also In re Holm, 931 F.2d 620, 623 (9th Cir. 1991) (quoting 3 Lawrence P.

King, Collier on Bankruptcy, § 502.02, p. 502-22 (15th ed. rev'd 2008). A filing "in accordance

with" the Rules, in order to receive the benefit of the claim's prima facie validity, means that the

proof of claim must "set forth the facts necessary to support the claim." In re Marino, 90 B.R. 25,

28 (Bankr. D. Conn. 1988) (citing 9 Collier at § 3001.05; see also All-American Auxiliary, 95

B.R. 540, 545 (Bankr. S.D. Ohio 1989).

A claimant must attach all necessary supporting documents to obtain prima facie validity

under Rule 3001(f). See All-American Auxiliary, 95 B.R. at 545. This is required by Rule

3001(c), which provides:


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When a claim, or an interest in property of the debtor securing the claim, is based on a writing, the original or a duplicate shall be filed with the proof of claim. If the writing has been lost or destroyed, a statement of the circumstances of the loss or destruction shall be filed with the claim.

Bankruptcy Rule 3001(c).

A creditor who files a proof of claim that lacks sufficient support under Rule 3001(c) and

(f) does so at its own risk. That proof of claim will lack prima facie validity, so any objection that

raises a legal or factual ground to disallow the claim will likely prevail absent an adequate

response by the creditor. See Campbell v. Verizon Wireless (In re Campbell), 336 B.R. 430, 436

(9th Cir. BAP 2005).

After an objection is raised, the objecting party bears the burden of going forward to

produce evidence sufficient to negate the prima facie validity of the filed claim. In re Pugh, 157

B.R. 898, 901 (B.A.P. 9th Cir. 1993) (citing In re Allegheny International, Inc., 954 F.2d 167,

173 (3d Cir. 1992). If the objecting party produces evidence sufficient to negate the validity of

the claim, the ultimate burden of persuasion remains on the claimant to demonstrate by a

preponderance of the evidence that the claim deserves to share in the distribution of the debtor's

assets. See id. (citing In re Allegheny International, Inc., 954 F.2d at 174; In re Holm, 931 F.2d at

623; and 3 Collier at § 502.02, p. 502-22). If the claimant cannot produce sufficient evidence to

prove the claim, the claim is subject to disallowance.

B. The Disputed Portion Should Be Disallowed Pursuant to Section 502(b)(1)

The Disputed Portion of the Instart Logic Claim should be disallowed in its entirety

because it is unenforceable against the Debtor under applicable law. 11 U.S.C. § 502(b)(1); In re

G.I. Indus., Inc., 204 F.3d 1276, 1281 (9th Cir. 2000). Section 502(b)(1) recognizes the settled

principle that “[c]reditors’ entitlements in bankruptcy arise in the first instance from the

underlying substantive law creating the debtor’s obligation, subject to any qualifying or contrary

provisions of the Bankruptcy Code.” Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co.,

549 U.S. 443, 450-41 (2007). A claim against the bankruptcy estate, therefore, “will not be

allowed in a bankruptcy proceeding if the same claim would not be enforceable against the debtor

outside of bankruptcy.” In re Combustion Eng’g, Inc., 391 F.3d 190, 245 (3d. Cir. 2004).


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The purported basis for the Disputed Portion is an “early termination penalty” against the

Debtor in the amount of $95,592.00. However, the Agreement does not provide that the Debtor is

liable for any “early termination” penalty in the event that it cancels its services with Instart Logic

before the end of the term of the Agreement; it simply states that the Debtor is liable for all fees

and charges incurred prior to the date of termination. Consequently, the Disputed Portion should

be disallowed as unenforceable against the Debtor. See Golden State Foods Corp. v.

Columbia/Okura LLC, 2014 WL 2931127, at *3 (C.D.Cal.,2014); Grey v. Am. Mgmt. Servs., 204

Cal.App.4th 803, 807, 139 Cal.Rptr.3d 210 (2012) (a contract with an integration clause is

intended to be the final and complete expression of the parties’ agreement).

V.

CONCLUSION

Based upon the foregoing, the Liquidating Trust respectfully requests that the Court

sustain this Objection and enter an Order reducing the Instart Logic Claim from a general

unsecured claim in the amount of $114,349.00, to a general unsecured claim in the amount of

$18,777.00. The Liquidating Trust further requests all other and further relief as the Court deems

just and proper.

DATED: December 1�, 2017 ROBINS KAPLAN LLP

By: /s/ Kevin D. MeekScott F. Gautier

Kevin D. Meek

Attorneys For Province, Inc., as trustee of the NG DIP Liquidating Trust


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DECLARATION OF AMANDA DEMBY

I, Amanda Demby, declare as follows:

1. I am a Managing Director with the firm, Province, Inc., the trustee (the “Trustee”)

of the NG DIP Liquidating Trust (the “Liquidating Trust”), and I am authorized to submit and I

make this declaration (“Declaration”) on behalf of the Liquidating Trust in connection with the

Liquidating Trust’s Objection to Proof of Claim No. 311-1 Filed By Instart Logic Inc. (the

“Objection”). Unless otherwise noted, capitalized terms referenced in this Declaration have the

same meaning as those set forth in the Objection.

2. Except as otherwise noted herein, I have personal knowledge of the facts presented

in this Declaration. If called as a witness to do so, I could competently testify thereto.

3. The above captioned debtor (the “Debtor”) and Instart Logic Inc. (“Instart Logic”)

entered into that certain Terms of Service Agreement dated March 14, 2016 (the “Agreement”).

Attached hereto as Exhibit “1” is a true and correct copy of the Agreement.

4. The Liquidating Trust, along with its professionals, has reviewed Claim No. 311-1,

filed by Instart Logic (the “Instart Logic Claim”) against the Debtor’s bankruptcy estate.

Attached as Exhibit “2” is a true and correct copy of the Instart Logic Claim.

5. Based upon that review, I believe that the Instart Logic Claim should be reduced

from a general unsecured claim in the amount of $114,349.00, to a general unsecured claim in the

amount of $18,777.00, for the reasons stated in the Objection.

I declare under penalty of perjury that the foregoing is true and correct. Executed this ___

day of December, 2017 at Los Angeles, California.

_______________________________________

Amanda Demby

14th

ornia.

______________________________________ _______________________________ _______________________________________________________________________________


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Exhibit 1






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Exhibit 2




















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Documents

Case 2:16-bk-24862-BB Doc 972 Filed 12/15/17 Entered 12/15 ...omnimgt.com/cmsvol2/pub_47154/650188_972.pdf · 5. The Instart Logic Claim is based upon $18,777 owed by the Debtor to