In re: ) Chapter 11 MOTION TO APPROVE … · Debtor unjustifiably refuses to pursue such claims. See Cybergenics, 330 F.3d at 568, 572. Here, the Debtor has consented to vesting the

iN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: ) Chapter 11

REVSTONE INDUSTRIES, LLC, et al.,l ) Case No. 12-13262 (BLS)(Jointly Administered)

Debtors. )

MOTION TO APPROVE STIPULATION OF REVSTONE INDUSTRIES, LLCGRANTING LEAVE, STANDING, AND AUTHORITY TO

THE OFFICIAL COMMITTEE OF UNSECURED CREDITORSOF REVSTONE INDUSTRIES, LLC, TO COMMENCE,

PKOSECUTE, AND SETTLE CERTAIN CLAIMS AND CAUSES OF ACTION

Revstone Industries, LLC ("Revstone" or the "Debtor"), a debtor and debtor in

possession in the above captioned proceeding, by and through its undersigned counsel, hereby

files this motion (the "Motion") for entry of an order approving that certain Stipulation of

Revstone Industries, LLC GNanting Leave, Standing and Authority to The Official Committee of

Unsecured Creditors of Revstone Industries, LLC, To Commence, PNoseca~te, and Settle CeNtain

Claims and Causes of Action attached hereto as Exhibit A (the "Stipulation"). In support of this

Motion, the Debtor respectfully submits as follows:

Jurisdiction and Venue

The Court has jurisdiction over this action under 28 U.S.C. § 157(a) and

1334. This proceeding is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). Venue

is proper in this District pursuant to 28 U.S.C. § 1408 and 1409.

The Debtors in these Chapter 11 Cases and the,last four digits of each Debtor's federal tax identification numbers

are: Revstone Industries, LLC (7222); Spara, LLC (6613); Greenwood Forgings, LLC (9285); and US Tool andEngineering, LLC (6450). The location of the Debtors' headquarters and the service address for each of the Debtors

is: Revstone Industries, LLC, et al., c/o Huron Consulting Group Inc., 900 Wilshire Drive, Suite 270, Troy, MI

48084, Attn; John C. DiDonato, Chief Restructuring Officer.

DOCS DE:196223.2 73864/001

Case 12-13262-BLS Doc 1822 Filed 11/18/14 Page 1 of 7

2. The statutory predicates for the relief requested herein are sections 105(a),

1103(c), and 1109(b) of title 11 of the United States Code (the ̀ Bankruptcy Code")

Background

On December 3, 2012 (the "Petition Date"), Revstone commenced its

bankruptcy case by filing a voluntary petition for relief under chapter 11 of the Bankruptcy

Code.

4. The Debtor is continuing in possession of its property and is managing its

business as a debtor in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

On December 18, 2012, the Office of the United States Trustee appointed

a committee of unsecured creditors in Revstone's case (the "Committee"). No trustee or

examiner has been appointed in Revstone's chapter 11 case.

6. Over the last few months, Revstone and the Committee have been working

on the terms of a chapter 11 plan in this case, consistent with a global settlement agreement

involving Revstone and its debtor and non-debtor affiliates, the Committee, the Pension Benefit

Guaranty Corporation, and Boston Finance Group, LLC, previously approved by this Court.

7. Revstone and the Committee have agreed that, prior to confirmation of the

plan, the Committee should be granted the authority to pursue and prosecute the Affected Claims

(as defined below).

Relief Requested

8. By this Motion, the Debtor seeks entry of an order approving the

Stipulation granting the Committee standing and authority to prosecute, on behalf of Revstone's

estate, any and all available claims and/or causes of action causes of action for breach of

ZDOCS DE:196223.2 73864/001


fiduciary duty, aiding and abetting, defalcation, alter ego/veil piercing, unjust enrichment,

contribution, and/or indemnification, arising prior to the Petition Date, against former officers

and/or managers of Revstone, George S. Hofineister ("Hofineister"), Kay Hofineister, Ascalon

Enterprises, LLC ("Ascalon"), the Scott R. Hofineister Irrevocable Trust, the Megan G.

Hofineister Irrevocable Trust, the Jamie S. Hofineister Irrevocable Trust, any current and/or

former trustee of such trusts (collectively, the "Children's Trusts"), any member of Revstone's

controlled group within the meaning of 29 U.S.C. § 1301(a)(14), and/or any of its and/or their

related and/or affiliated persons and/or entities (collectively, the "Affected Claims"). For the

avoidance of doubt, the Affected Claims shall not include nor be deemed to include any claim or

cause of action against Revstone, Spara LLC or any of their respective debtor and non-debtor

direct and indirect subsidiaries, the independent managers and the chief restructuring officer of

Revstone or its affiliated chapter 11 debtors, Huron Consulting Services LLC or any of its

employees or personnel, or any professionals retained by Revstone, Spara, LLC, or their

affiliated debtors.

9. As described below, all of the legal requirements for granting the

Committee derivative standing to commence and prosecute the Affected Claims have beeni

satisfied.

Basis for Relief

10. The Third Circuit has held that sections 1103(c)(5) and 1109(b) of the

Bankruptcy Code implicitly authorize a court to grant a creditors' committee derivative standing

to prosecute actions on behalf of the estate. Official Comm. of UnsecuNed Creditors of

Cybergenics Corp. v. Chine~y, 330 F.3d 548, 568-69 (3d Cir. 2003) (en banc); see also In ~e

DOCS DE:196223.2 73864/001


Exide 'lechs., Inc., 299 B.R. 732, 739 (Bankr. D. Del. 2003) ("Cybergenics makes clear that a

bankruptcy court may utilize its equitable powers to grant acreditors-committee standing to

pursue avoidance actions"). Thus, bankruptcy courts are empowered to confer standing upon

creditors' committees to bring claims and causes of action like the claims that the Committee,

with the consent of the Debtor, seeks to bring in this case. See Cybergenics, 330 F.3d at 568-69

(holding that creditors' committee had standing to bring a cause of action under section 544 of

the Bankruptcy Code).

11. A creditor seeking derivative standing iri-the Third Circuit must establish

the following three elements: (i) a trustee's unjustifiable refusal to pursue a claim; (ii) a colorable

claim; and (iii) permission from. the bankruptcy court to initiate the action. In re Yes! Entm 't

Corp., 316 B.R. 141, 145 (D. Del. 2004). The Debtor and Committee have satisfied all three

elements.

12. First, the derivative standing test requires that the Committee show that

the Debtor unjustifiably and unreasonably refused the Committee's demand that the Debtor

assert the potential claims. Where the claims for which the Committee seeks standing would

benefit the estate, like the Affected Claims, courts will generally grant derivative standing if the

Debtor unjustifiably refuses to pursue such claims. See Cybergenics, 330 F.3d at 568, 572.

Here, the Debtor has consented to vesting the Committee with leave, standing and authority to

commence, prosecute, and settle any Affected Claims. Thus, the first element is met.

13. Second, the derivative standing test requires that the Committee show that

colorable claims exist against the Defendants. The case law construing the requirement for

"colorable" claims clearly provides that the requisite showing is a relatively low threshold to

4DOCS DE:196223.2 73864/001


satisfy. See, e.g., In re Adelphia Cornmc'ns Corp., 330 B.R. 364, 376 (Bankr. S.D.N.Y. 2005)

(holding that the requisite standard for presenting a "colorable" claim is relatively easy to meet);

In re America's Hobby Ctr., 223 B.R. 275, 288 (Bankr. S.D.N.Y. 1998) (observing that only if

the claim is "facially defective" should standing be denied). Courts have held that, in

determining whether a colorable claim exists, the court must engage in an inquiry "much the

same as that undertaken when a defendant moves to dismiss a complaint for failure to state a

claim." In re iPCS, Inc., 297 B.R. 283, 291 (Bankr. N.D. Ga. 2003); see also In re Valley PaNk,

217 B.R. 864, 869 n.4 (Bankr. D. Mont. 1998) (holding that the committee "does not have to

satisfy the quantum of proof necessary for a judgment in order to show a colorable claim").

14. Courts have also held that, in determining whether a claim is colorable, the

court is not required to conduct amini-trial. Instead, the court may "weigh the ̀ probability of

success and financial recovery,' as well as the anticipated costs of litigation, as part of a

cost/benefit analysis conducted to determine whether pursuit of colorable claims are likely to

benefit the estate." In Ne iPCS, 297 B.R. at 291. Thus, the Debtor and Committee are only

required to establish the existence of plausible claims —and that the Affected Claims have some

value to the Debtor's estate and its unsecured creditors.

15. The Affected Claims consist of claims for breach of fiduciary duty, aiding

and abetting, defalcation, alter ego/veil piercing, unjust enrichment, contribution, and/or

indemnification against, among others, the Debtor's former officers and/or managers of

Revstone, Hofineister, Ascalon and the Children's Trusts, all of which are colorable. As

recognized by the United States District Court for the Eastern District of Kentucky in Limbright

v. Hofineister, 2011 WL 5523713 (E.D. Ky. Nov. 14, 2011), the Children's Trusts are nothing

DOCS DE:196223.2 73864/001


more than asset-protection devices for Hofineister. Hofineister's three children are the

beneficiaries of the Children's Trusts, which in turn own 100% of the membership interests in

Ascalon. The Committee believes that claims exist against Hofineister and his affiliated entities

(excluding the Debtor, Spara LLC, and their respective subsidiaries) for breaches of duty and

wrongful acts as reflected in various filings that have been made in this case and other pending

proceedings. Accordingly, these claims are both colorable and have value to the estate.

16. Finally, the derivative standing test requires that the Committee seek

permission from the bankruptcy court. This element is satisfied by the filing of this Motion by

the Debtor seeking the Court's approval of the Stipulation.

Notice

17. This Motion has been served on (a) the Office of the United States Trustee

for the District of Delaware; (b) the Committee; and (c) all entities that have filed a request for

service of filings pursuant to Bankruptcy Rule 2002.

WHEREFORE, the Debtor requests that the Court enter an order, substantially

in the form annexed hereto (a) approving the Stipulation, and (b) providing the Debtor such other

and further relief as the Court may deem just, proper and equitable.

6DOCS D~:196223.2 73864/001


Dated: November 18, 2014 PACHULSKI STANG ZIEHL &JONES LLP

~/~~....

Laura Davis Jones (Bar No. 2436)David M. Bertenthal (CA Bar No. 167624)Colin R. Robinson (Bar No. 5524)919 North Market Street, 17t" FloorP.O. Box 8705Wilmington, DE 19899-8705 (Courier 19801)Telephone: (302) 652-4100Facsimile: (302) 652-4400Email : lj ones @pszj law. com

dbertenthal @pszj law. comcrobinson@pszj law. com

Counsel for Debtor Revstone Industries, LLC

7DOCS DE:196223.2 738(4/001


Exhibit A

Case 12-13262-BLS Doc 1822-1 Filed 11/18/14 Page 1 of 6

IN TH:E UNITED STATES BANKRUPTCY COURT

FOR T:HE DISTR1GT OF DELAWARE

In re: ) Chapter 11

REVSTC}NE INDUSTRIES, LLG, et al.,~ ) Case No. 1.2-13262 (BLS)} (Joi~~tly Admi~iistered)

Debtors. )

STIPULATION OF REVSTQNE INDUSTRIES, LLCGRANTING LEAVE, STANDING, AND AUTHORITY TO

THE OFFICIAL COI~'L~IITTEE OF UNSECURED CREDITC?RSOF REVSTONE INDUSTRIES, LLC, TO COMMENCE,

PROSECUTE, AND SETTLE CERTAIN CLAIMS AND CAUSES (7F ACTION

This Stipzslation of Revst~ane Industries, LLC Gr•cznting Leave, Standing, cznd Authority to

the Official Corstr~zittee of'Unsectsred Creclito~s afKevstone.IfadTsstries, LLC, try Comnzen.ce,

Pr•oseccate, and Settle Certain Clc~tms and Cauces ~fAction (the "Stipulation") is entered into as

of the 13th day of November 2014, by and among Revstone Industries, LLC ("Revst~ne"), one

~f the above-captioned debtors azid debtors-in-possession, and the Official Committee c.>f

Unsecured Creditors of Rcvstone (the "Committee"} as fellows:

RECITALS

A. On December 3, 207.? (the "Petition :Date"), Revstane and its affiliated. Det~tor,

Spara, LLC, filed chapter 1 I proceedings in this Caurt> and its other above-captiozied affiliates,

Greenwood F~r~ir~gs, LLC and US Taal &Engineering, LLC filed chapter 11 proceedings in

this Court on January 7, 2013.

' The Debtors in these Chapter l l Cases and the last four digits of each Debtor's federal tax identiCcation numbers

are: Revstone Industries, LLC (7222); Spara, LLC (6613); Greenwood F~orgings, LI,C (9285); and US Taol andEngineering, I.LG (fi4S0). 'The location of the Debtors' headquarters atad the service address f~~r each of the Debtorsis: Revstone Industries, LLC, et al., cIQ Huron Consulting Group inc., 900 Wilshire Drive, Suitc: 270, Troy, MT48084, Attn:.Iolm C. T~iDonato, Chief Restructuring Officer.


B. Revstone continues to conduct its business as a debtor in possession pursuant to

sections 11 Q7(a) and 1108 of the Bankruptcy Code.

C. 4n December 18, 201.2, the Unitcd States Trustee appointed the Committee to

represent the interests of Revsto~ie's unsecured creditors pursuant to section 1102 of the

Bankruptcy Code.

D. Revstone and. the; Coinmixtee have agreed that, prior to the continilation of a

chapter 11 plan that will contemplate the creation of a litigation trust, the C'omtnittee should

have, subject to the tet-ms of this Stipulation (including the final sentence of this paragraph D},

standing and authority to pursue and prosecute, on behalf of Revstonc's estate, any and all

available claims and/or causes of action fir breach of fiduciary duty, aiding and abetting,

defalcation, alter ego /veil piercing, unjust enrichi~7ent, contribution, and/ox indemnification,

arising prior to tl~.e Petition Date, against former gfficers and/ar managers of Revstone, George S.

Hofineister, Kay Hofrneister, Ascalon Enterprises, LLC, the Scott R_ Hofrneister Irrevocable

Trust, the Megan G. Hofineister Ir~~ev~cable Trust, the Jamie S. Hofineister Irrevocable Trust,

any cunec~t and/or fanner trustee of such trusts, any member of Revstane's controlled group

within. the meanitlg of 29 U.S,C. § 1301(a)(14), and/or any of its and/or their related at~d/or

affiliated persons and/or entities (collectively, the "Affect~;d Claims"). For the avoidance cif

doubt, the Affected. Claims shall riot include nor be deemed to include any claim or cause of

action against Revstane, Spara LLC or any of their respective debtor and non-debtor direct and

indirect subsidiaries, the independent managers and the chief restructuring officer of Revstone or

its affiliated chapter 11 debtors, Huron Consulti~~g Services LLC or any of its employees car

2


personnel, or any professionals retained by Revstone, Spara, LLC, or their affiliated debtors.

AGREEMENT

NOW, THEREFORE, Revstone and the Committee hereby stipulate and agree as

follows:

This Stipulation is subject to the approval ofthe Court.

2. Subject to the teens of this Stipulation, the Committee is ~nanted leave, standing,

and authority to commence, prosecute, and settle any Affected Claiiris with full rights and

privileges and in the stead of IZevstone and.its estate, with any ar~►d all recoveries to be reserved

for the benefit of Revstone's estate (subject t~ the teens of a continued flan).

The Committee and its counsel shall consult in good faith with Revstone and its

counsel in connection with any action against, or proposed settlement with, any of the targets or

defendants of the Affected Claims.

4. Al] communications between Revstonc acid the Committee, and any documents or

evidence of any kind, relating to the Affected Claims that are assembled, compiled, or exchanged

by Revstone and/or the Committee, shall be protected, as applicable, by attot7~ey client and work

product privileges and shall be deemed t~ be in furtherance of a joint litigation strategy.

5. Revstone retains the right to be heard or to appear in any action, proceeding, or

deposition initiated by the Committee in coi2nection with tl~e Affected Claims, and shall be

served with notice and copies of all documents served by the Committee in connection therewith.


6. This Stipulation maybe executed by facsimile or electronic mail in counterparts

and it shall not be necessary that the signatures af, or oil behalf of, each party appear nn each

counterpart, but it shall be sufficictlt that the signature of, ar on behalf af, each party appear on

one or mare counterparts, all. counterparts of which shall collectively constitute a single

document.

7. This Stipulation is not binding on any chapter 7 or chapter 11 trustee, litigation

trustee, car other similar fiduciary subsequently appointed i~z Revstone's case. This Stipulation

shall terminate upon the creation of a Litigation trust pursuant to a confirmed plan of

reorganization for Revstone, at which time the Affected Claims shall be assigned to such trust

pursuant to the teens of such confirmed plan.

This Stipulation does not extend to any pending litigation or• adversary

proceedings commenced by Revstane against any party as of the date ~f this Stipuldtion, or as to

any claims or causes of action that do not constitute the Affected Claims.

Tl~e Cou~~t shall retain jurisdiction to l~car zed determine airy maters and disputes

ari.sin~; from or related to this Stipulation.

~signaturc page f~l.lows]

4


REVST(~NE INDUSTRIES, LLC

Torn C. DiDonatoChief Restructuring Officer

OFFICIAL COMMITTEE OF UNSECURED CREDITORSOF REVSTON~ INDUSTRIES, LLC

Chairman


IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: ) Chapter 11

RFVSTONE INDUSTRIES, LLC, et al.,l ) Case No. 12-13262 (BLS)(Jointly Administered)

Debtors. )

ORDER APPROVING STIPULATION OF REVSTONE INDUSTRIES, LLCGRANTING LEAVE, STANDING, AND AUTHORITY TO

THE OFFICIAL COMMITTEE OF UNSECURED CREDITORSOF REVSTONE INDUSTRIES, LLC, TO COMMENCE,

PROSECUTE, AND SETTLE CERTAIN CLAIMS AND CAUSES OF ACTION

Upon the Motion2 of Revstone Industries, LLC ("Revstone" or the "Debtor"), a

debtor and debtor in possession in the above captioned proceeding, for an Order approving

Stipulation of Revstone Industries, LLC Granting Leave> Standing and Authority to The Official

ConZmittee of UnsecuNed CreditoNs of Revstone Industries, LLC, To Commence, Prosecute, and

Settle Certain Claims and Causes of Action (the "Stipulation"); and it appearing that the relief

sought in the Motion and the entry of this Order is appropriate, reasonable, and in the best

interest of the estate; and no adverse interest being represented; and sufficient cause appearing

therefor; and upon due deliberation given, it is hereby ORDERED that:

The Motion is GRANTED in its entirety.

2. The Stipulation is approved.

t The Debtors in these Chapter 11 Cases and the last four digits of each Debtor's federal tax identification numbersare: Revstone Industries, LLC (7222); Spara, LLC (6613); Greenwood Forgings, LLC (9285); and US Tool andEngineering, LLC (6450). The location of the Debtors' headquarters and the service address for each of the Debtorsis: Revstone Industries, LLC, et al., c/o Huron Consulting Group Inc., 900 Wilshire Drive, Suite 270, Troy, MI48084, AtM: John C. DiDonato, Chief Restructuring Officer.

2 Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Motion.

DOGS D~:196223.2 73864/001


3. The Committee, subject to the terms of the Stipulation, is granted leave,

standing, and authority to commence, prosecute, and settle any Affected Claims with full rights

and privileges and in the stead of Revstone and its estate, with any and all recoveries to be

reserved for the benefit of Revstone's estate (subject to the terms of a confirmed plan).

4. The terms and conditions of this Order shall be immediately effective and

enforceable upon its entry.

5. This Court shall retain jurisdiction with respect to all matters arising from

or related to the implementation of this Order.

Dated: , 2014

DOCS DE:196223.2 73864/001

The Honorable Brendan L. ShannonChief United States Bankruptcy Judge

2


Documents

In re: ) Chapter 11 MOTION TO APPROVE … · Debtor unjustifiably refuses to pursue such claims. See Cybergenics, 330 F.3d at 568, 572. Here, the Debtor has consented to vesting the