Article courtesy of Michael Robson (Greenberg Traurig, LLP)
FishDish, LLC v. VeroBlue Farms USA, Inc., No. 19 CV 3026 CJW KEM, 2022 WL 1093271 (N.D. Iowa Apr. 12, 2022)
In a dispute between FishDish, LLC (“FishDish”) and Alder Aqua, Ltd. (“Alder Aqua”), VeroBlue Farms USA, Inc. (“VeroBlue”), and Broadmoor Financial L.P. (collectively “appellees”) on appeal from the order the Northern District of Iowa Bankruptcy Court’s Chapter 11 plan, the court denied the appellees motion to dismiss the case.
The dispute stemmed from debt taken out to fund appellees fish farming business. VeroBlue is a fish farming business that raises and sells fish to restaurants and grocery chains. VeroBlue financed the growth of its business by selling $28 million of preferred shares to Alder Aqua and $6 million of preferred shares to FishDish. VeroBlue further raised another $29 million through a secured lending facility that the original creditor (Amstar Group, LLC) transferred to Broadmoor Financial L.P. After raising the funds, VeroBlue failed to raise the quality and quantity of fish it anticipated and to find a reliable market for the fish it did produce. After a change in management and failure to secure additional funding, in September 2018, VeroBlue sought to implement a comprehensive restructuring under Chapter 11 of the Bankruptcy Code.
During bankruptcy proceedings, the United States Trustee appointed an official Unsecured Creditors Committee (the “UCC”) to which the bankruptcy court granted additional time to investigate claims and liens. FishDish also formed an Ad Hoc Committee of Equity Holders (the “AHC”). In December 2018, the UCC, joined by the AHC, filed a Challenge Notice of Claims. Over the course of January through March 2019, the bankruptcy court held hearings on issues raised by the Challenge Notice of Claims. In May 2019, the bankruptcy court confirmed VeroBlue’s bankruptcy plan (the “Plan”). Under the Plan, FishDish was unable to recover any of its investment because VeroBlue did not have sufficient funds to pay any equity holders. FishDish objected to the Plan, was overruled, and appealed to the United States District Court, N.D. Iowa, Central Division (the “Court”).
On appeal, FishDish raised three principal issues. Namely, (1) the bankruptcy court improperly denied discovery requests during the bankruptcy proceeding that would have revealed information essential to resolving its claims, (2) the bankruptcy court did not provide the requisite notice and opportunity to object to an Amended Disclosure Statement that also lacked sufficient information and (3) the bankruptcy court erred in entering the Confirmation Order because the Plan (1) did not treat equity holders equally, (2) was not proposed in good faith, (3) was not in the best interest of creditors, and (4) was not feasible. Alder Aqua objected to FishDish’s appeal arguing it should be dismissed (i) for lack of standing and (ii) on equitable grounds.
The Court rejected Alder Aqua’s objection as to FishDish’s lack of standing. Examining the fact at hand, the Court noted that the bankruptcy court had previously held that FishDish had standing as an aggrieved person and this finding was not appealed and therefore that decision continues to govern unless there is manifest injustice which is not applicable here. The Court then rejected Alder Aqua’s objection to dismiss on the basis of equitable grounds and instead addressed the merits of FishDish’s arguments on appeal.
First, the Court addressed FishDish’s claim that the bankruptcy court applied the wrong standard when it found FishDish had no colorable claim and denied discovery on that ground. The Court noted that FishDish expressly stated at a hearing that it did not need any additional information, it had investigated its claims and had substantial information to make its case. Accordingly, the Court found that FishDish’s claim that it was denied discovery during the proceedings lacked merit. The Court also held that FishDish’s claims were untimely. In light of the foregoing, the Court held that the bankruptcy court did not abuse its discretion by denying FishDish’s discovery request. Second, the Court addressed FishDish’s claim that the bankruptcy court did not provide the requisite notice and opportunity to object to an Amended Disclosure Statement and that the notice also lacked sufficient information. Examining the facts at hand, the Court noted that the original disclosure statement was filed in December 2018 and any changes thereto were to reflect the settlement with the UCC, but that the statement was otherwise the same. Given the date of the original disclosure statement and the lack of adverse changes thereto, the Court held that the notice given was sufficient to allow FishDish to meaningfully object. Third, the Court addressed FishDish’s claim that the bankruptcy court erred in entering the Confirmation Order because the Plan (1) did not treat equity holders equally, (2) was not proposed in good faith, (3) was not in the best interest of creditors, and (4) was not feasible. The Court disagreed with FishDish’s claims and affirmed the Plan. In evaluating FishDish’s claims, the Court found that (1) there was no preferential treatment because it comported with the requirement of 11 U.S.C. § 1123(a)(4) that they “provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest”; (2) the Plan was proposed in good faith because it was “possible, achievable, and focused on reorganization”; (3) the Plan satisfied the Best Interests of Creditors Test of 11 U.S.C. § 1129(a)(7)(A)(ii); and (4) the Plan was feasible Under Section 1129(a)(11) as the Court found the evidence to conclusively demonstrate intention and ability to fully fund the Plan.