TWL CORPORATION, et al. - Eastern District of Texas

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of the defendants on behalf of all the defendants’ former employees. On the same day, Teta filed a motion seeking certification of a class of the defendants’ former employees with himself as the lead plaintiff. In the meantime, the Court entered an order approving the sale of the defendants’ assets in the underlying bankruptcy case. Following completion of the sale, the cases remained in chapter 11 in order to accommodate the desire of the unsecured creditors’ committee and the defendants to resolve outstanding litigation prior to conversion or dismissal. The defendants used the proceeds of the asset sale and litigation to satisfy the lien of their senior secured lender and to pay the cure amounts of contracts that the defendants had assumed and assigned to the purchaser. Trinity Investments, G.P., took the position that it was entitled to the remaining cash in the defendants’ estates as a secured creditor of the defendants. The unsecured creditors’ committee objected to Trinity’s status as a secured creditor. On March 23, 2009, the Court granted a motion by Teta to stay consideration of the class proof of claim until after the Court’s ruling on the defendants’ motion to dismiss this adversary proceeding. In addition, on March 24, 2009, at the parties’ request, the Court abated this adversary proceeding until October 6, 2009. The Court thereafter continued the hearing on the motion to dismiss and the request for class certification several times. The parties represented that they did not wish to proceed with this adversary proceeding until such time as the size of the estate could be determined. On April 2, 2010, the Court entered an order converting the defendants’ cases to chapter 7. The Court subsequently appointed Michelle Chow as the chapter 7 trustee for the defendants’ estates. The last day to file proofs of claim in the converted cases was 4
December 10, 2010. The chapter 7 trustee served notice of the new bar date on all known creditors and parties in interest. Creditors filed 86 claims against the estate of TWL Corporation and 107 claims against TWL Knowledge Group, Inc. The vast majority of these claims were filed by taxing authorities, governmental agencies, and businesses. By the Court’s count, 34 individuals filed claims against the bankruptcy estates. The majority of these individual claims are based upon unpaid invoices for goods sold to the defendants and services performed for the defendants, such as the preparation of workbooks and appearances in training videos. It appears to the Court that less than 20 individuals filed claims against one or both of the defendants for unpaid wages, salaries, or commissions, which may be entitled to priority under §§ 507(a)(4) or (5) of the Bankruptcy Code. DISCUSSION The chapter 7 trustee opposes Teta’s motion for class certification. The trustee raises two objections. First, the trustee objects that the proposed class is relatively small. Second, the trustee objects that Teta and his proposed class counsel suffer from conflicts of interest in that they are seeking or may seek to recover priority claims on their own behalf from the defendants’ estates. The trustee argues that any recovery on such claims would reduce or eliminate the distribution to the putative class members, because there are not enough assets in the defendants’ estates to pay all creditors in full. “There is no absolute right to file a class proof of claim under the Bankruptcy Code.” In re Bally Total Fitness of Greater N.Y., 402 B.R. 616, 619 (Bankr. S.D. N.Y. 2009), aff'd, 411 B.R. 142, 145 (S.D. N.Y. 2009). Indeed, the Fifth Circuit has not addressed whether the Bankruptcy Code and Rules authorize the filing of a class claim, 5
Page 1 and 2: EOD 03/23/2011 IN THE UNITED STATES
Page 3: September 8, 2008. On February 18,
Page 7 and 8: through the application of Federal
Page 9 and 10: defendants’ small offices located

TWL CORPORATION, et al. - Eastern District of Texas

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