February 18, 2022 – The Court hearing the Semper Utilities case dismissed the Debtor’s Chapter 11 case [Docket No. 29] holding that the Debtor did not have the corporate authority to file for bankruptcy, but otherwise declining to weigh in on the underlying battle for control of the Debtor; a matter in respect of which it does not have jurisdiction (neither of the battling parties being a Debtor) and which is otherwise being considered by a state court. The upshot is that for now the "court permissively abstains from deciding any issue because ownership must be determined first and that issue must be decided in the state court on behalf of the non-debtor parties…"
The dismissal order provides: "the documents submitted by CTPC support a plausible conclusion that CTPC is now the record owner of the Debtor 1 [FN 1: "Whether or not CTPC can ultimately prevail on this conclusion is an issue to be determined by the state court"] . The Amended Certificate shows that at the time of the filing of this bankruptcy case Salazar, not Diaz, was the sole member of the Debtor. No corporate resolution has been produced evidencing Diaz’s authority to file the bankruptcy petition. In addition, no operating agreement (if any) was produced supporting Diaz’s right to file the bankruptcy petition…
...the court recognizes that there is a dispute as to the ownership of the Debtor. But that is a dispute between the two purported owners—not the Debtor. Neither purported owner is a debtor before this court and the court does not have jurisdiction over whether the transfer of Diaz’s ownership interest was improper. What is more, Diaz’s ownership interest in the Debtor is not property of the Debtor’s bankruptcy estate under the very definition of 11 U.S.C. § 541(a).
There simply is no bankruptcy court jurisdiction over the issue…
…even though there is a basis to dismiss the case due to a lack of authority to file the petition, CTPC and the Lenders still urge the court to issue findings of facts and conclusions of law as to the validity of their actions, but the court declines to do so as there already is a State Court Action seeking a declaration that CTPC is the owner, which action would impact the Debtor’s ability to pursue a chapter 11 case. Until that issue of ownership is decided, this court would not take any action in this case. This court permissively abstains from deciding any issue because ownership must be determined first and that issue must be decided in the state court on behalf of the non-debtor parties."
On February 11, 2022, Semper Utilities, LLC (“Semper” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of New Jersey, case number 22-11128 (Judge Andrew B. Altenburg Jr.). The Debtor’s Chapter 11 petition noted between 1-49 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $10.0mn and $50.0mn.
On February 14th, parties* claiming to be the legitimate owners of Debtor Semper Utilities, LLC (a Philapdelphia-based company servicing electric powerlines) filed a motion to dismiss the Debtor's Chapter 11 case, arguing that the Debtor (and its founder Sotero “Mike” Diaz) "did not have corporate authority to commence the Chapter 11 petition” [Docket No. 11].
* CTPC Holdings, Inc. ("CTPC") and CTPC's President Gladys Salazar ("Salazar," and with CTPC, the “Movants”). Salazar is also the Debtor's former CFO. The Movants claim to own the Debtor following the transfer of Mr. Diaz’s membership interests in the the Debtor from prepeition lender Chym Venture IV, LLC ("Chym"); with Chym having obtained those interests (pledged by Mr. Diaz) when the Debtor defaulted in respect of an earlier, Court-approved forbearance agreement.
At filing on February 11th, we detailed the Debtor's version of events: in short former CFO Salazar, aligned with prepetition creditors/lenders and various counsel, engaged in "wanton theft" and "acts of thuggery" as part of their criminal efforts to steal the company. This motion to convert now provides the riposte, ie that Salazar and CTPC are the rightful owners of the Debtor following the Debtor's default of the forbearance agreement and Mr. Diaz's related loss of his pledged equity.
As we noted in earlier coverage of this "he said…she said" battle for control of the Debtor's business amongst former colleagues, this will likely all come down to the status of that forbearance agreement and whether or not a default occured (and if it did, whether that default was cured on a timely basis by the Debtor) which triggered a transfer of ownership.
The Motion to Dismiss
The CTPC/Salazar motion to dismiss provides: "On December 2, 2021, a group of petitioning creditors, Chym Venture IV, LLC ('Chym'), SZY Holdings, LLC ('SZY'), Edison Power Constructors, Inc. and TruConTra Power, LLC (collectively, the 'Petitioning Creditors'), filed an involuntary Chapter 11 petition against Semper Utilities, LLC ('Semper') in the United States Bankruptcy Court for the District of New Jersey at Case No. 21-19326 (ABA) ('Involuntary Bankruptcy Case'), and sought the appointment of a Chapter 11 Trustee.
In response to the Involuntary Case, Semper and its sole shareholder, Sotero 'Mike Diaz ('S. Diaz'), entered into a Forbearance Agreement with Chym and SZY (collectively, the 'Secured Creditors'), which was approved by Consent Order entered on January 12, 2022, and which Consent Order dismissed the Involuntary Bankruptcy Case."
To here, at least, the parties agree on the facts. Then perspectives start to diverge.
The CTPC/Salazar motion continues: "Almost immediately upon entering into the Forbearance Agreement, Semper, through the actions and inactions by S. Diaz, defaulted thereunder and failed to cure its defaults. Therefore, by Assignment of Membership Interest ('Assignment') dated February 2, 2022 and effective February 4, 2022, Chym transferred S. Diaz’s membership interests in Semper to CTPC Holdings, Inc ('CTPC'), as assignee and nominee of Chym.
Despite having knowledge of the various defaults and notice of the Assignment, S. Diaz has refused to cede control of Semper’s business to CTPC. Moreover, S. Diaz and his various family members and acquaintances have intentionally interfered with the transition to CTPC. As a result of these actions and inactions, CTPC initiated an action by Order to Show Cause and Verified Complaint in the Superior Court of New Jersey, Camden County Chancery Division at Docket No. CAM-C-14-22 on February 9, 2022 ('State Court Litigation'). As of close of business on Friday, February 11, 2022, the Order to Show Cause had not yet been entered in the State Court, Litigation and S. Diaz improperly commenced this voluntary Chapter 11 proceeding on the evening of Friday, February 11, 2022.
CTPC and Gladys Salazar ('Ms. Salazar'), CTPC’s President (collectively, 'Movants'), assert that S. Diaz did not have corporate authority to commence the Chapter 11 petition and for other cause shown, now move to dismiss the within Chapter 11 bankruptcy proceeding pursuant to 11 U.S.C. § 1112(b) ('Motion).
As we detailed at filing, the Debtor has sought bankruptcy protection to buy time to pursue civil and criminal remedies against those it argues are responsible for its precipitous state; and to demand the return of property (eg utility trucks and equipment) that it claims have been stolen and which it otherwise needs in order to service its customer contracts.
In a motion requesting a court order for the turnover of estate property necessary to "restore its operations and customer relationships" (the "Turnover Motion"), the Debtor details what it sees as the efforts of Ms. Salazar to steal the company.
According to the Debtor, those efforts, beginning with an involuntary Chapter 11 in December 2021 (dismissed in January 2022)…evolved into "wanton theft" and "acts of thuggery;" including the hacking of computer systems, the seizure of vehicles and equipment, the use of armed guards to intimidate staff, and the representation to staff, clients and suppliers by the allegedly not so faithful Ms. Salazar that she was "acting for the Debtor and had full and exclusive operational authority to do so."
The crux of the matter is the status of a Court-approved forbearance agreement with creditors/lenders owed $9.6mn which was supposed to settle the involuntary 2021 bankruptcy filing. Just weeks later, those creditors/lenders now argue, however, that an event of default has occurred in respect of that agreement; with that default the grounds for the actions of Ms Salazar et al to effectively take control of the Debtor's business.
The Debtor argues that there was no default (which, absent a default, provides the Debtor with relief through June 15, 2022) and and that even if there was, it was not given its allotted time to cure. It further argues that in "retrospect…the Forbearance Agreement…was…a mechanism designed by the Lenders and their counsel to steal the Debtor's business and divest Mr. Diaz of ownership and operational control."
In setting out its goals for the Chapter 11 filing, the Debtor notes that it intends to "commence actions against each of those actors in due course" but in the interim asks that the Court "direct those parties having possession, custody and/or control of the Debtor's assets to turn over and deliver such assets to the Debtor immediately in order to permit the Debtor to reorganize consistent with the policy underlying Chapter 11."
The Turnover Motion provides: "This is the second Chapter 11 case involving the Debtor. On December 2, 2021, Chym IV Ventures, LLC ('Chym'), SZY Holdings, LLC ('SZY' and, collectively with Chym, the 'Lenders'), Edison Power Constructors, Inc. and TruConTra Power, LLC (collectively, with the Lenders, the 'Petitioning Creditors') filed an involuntary Chapter 11 petition against the Debtor in this Court (the 'Involuntary Case'). On January 12, 2022, this Court entered a consent order (the 'Consent Order') dismissing the Involuntary Case.
Among other things, the Consent Order approved a forbearance agreement (the 'Forbearance Agreement') between and among the Debtor and the Petitioning Creditors.
Pursuant to section 15, of the Forbearance Agreements, the Debtor was afforded seventy-two (72) hours, or three days, to cure alleged defaults.
On February 1, 2022, the Petitioning Creditors, through their counsel, issued a letter purporting to notice the occurrence of defaults by the Debtor under the Forbearance Agreement. The Debtor disputes that events of default had occurred or were continuing as of the date of the letter. However, by operation of section 15 of the Forbearance Agreement, the earliest date on which the Petitioning Creditors could have exercised their rights and remedies under the Forbearance Agreement was February 4, 2022, which was three days after the purported default notice.
On February 7, 2022, Michele M. Dudas, an attorney representing an entity known as CTPC Holdings Inc. ('CTPC') wrote to the undersigned counsel for the Debtor, stating, in relevant part, that CTPC was the "nominee and assignee of Chym" and that the Semper Interest had been assigned to CTPC on February 2, 2022, which she defined as the "Assignment Date". A copy of Ms. Dudas' letter is annexed hereto and made a part hereof as Exhibit 'C'.
That letter attached a document entitled Assignment and Transfer of Membership Interest dated February 2, 2022 (the 'Assignment") and is signed by Gladys Salazar ('Salazar') on behalf of CTPC, Chad Friedman, Esquire ('Friedman'), purportedly on behalf of Mr. Diaz, and a representative of SZY. Notably, Mr. Diaz did not execute the Assignment in his own right.
In determining this motion, this Court will benefit from an understanding of the relationships among the parties to the Assignment. Salazar is the Debtor's former chief financial officer. The Debtor submits that Salazar engaged in the theft or embezzlement of substantial assets of the Debtor during and after her employment with the Debtor. Moreover, upon information and belief, Salazar is a business partner with Friedman in CTPC or other business ventures and has been working in concert with Friedman to appropriate the Debtor's business and assets. Friedman is an attorney who is also the principal of Chym and who has actively (but unsuccessfully) solicited Mr. Diaz, both before and after the commencement of the Involuntary Case, to acquire the Debtor's business.
Viewed in retrospect, it is now clear that the Forbearance Agreement, rather than constituting a good faith vehicle for allowing the Debtor to restore its operations and customer relationships in the aftermath of the Involuntary Case, was instead a mechanism designed by the Lenders and their counsel to steal the Debtor's business and divest Mr. Diaz of ownership and operational control.
As such, the conduct of the Lenders and those who have abetted them in their efforts is unconscionable. In addition, and as set forth more particularly below, it is also illegal.
In the days following the Assignment, Salazar and CTPC sought to enter the Debtor's office facility, hacked the Debtor's computer systems, took possession of the Debtor's vehicle fleet, and contacted the Debtor's accounting firm, critical vendors, customers and prospective lenders. Salazar used armed security personnel in an effort to intimidate the Debtor's officers and employees in what can only be described as acts of thuggery. Salazar's message in all instances was that she was now acting for the Debtor and had full and exclusive operational authority to do so. While Salazar's efforts to invade the Debtor's office facility were thwarted by local police, she did in fact seize and remove critical vehicles and tools used by the Debtor in its operations. Upon information and belief, such assets are now in the possession of CTPC and/or Salazar.
The foregoing conduct by Salazar, Friedman and their various counsel rises to the level of wanton theft. While the Debtor intends to commence actions against each of those actors in due course, this Court should direct those parties having possession, custody and/or control of the Debtor's assets to turn over and deliver such assets to the Debtor immediately in order to permit the Debtor to reorganize consistent with the policy underlying Chapter 11."
About the Debtor
According to the Debtor: “Semper Utilities is a minority and veteran owned company. Along with the guidance of our CEO, we are a team of highly trained and experienced individuals who have a strong set of morals and ethics to help provide the highest level of safety, professionalism, and quality to our employees, partners, and customers.
The CEO, Mike Diaz, has over 30 years of experience in the utility industry with work in distribution, transmission, and underground services. He started Semper Utilities because he saw a need in the industry to provide professional, safe, and cost-effective utility construction services. Mike prides himself in having a team of highly experienced staff with a keen understanding of industry regulations and safety controls. Mike and his team encourage the utilization of modern technology to help support their clients in order to expand visual capabilities, while providing real-time status updates of current projects. They strongly believe in keeping project communication open to all networks within the company."
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