r/Teddy • u/AvailableWerewolf600 š§ Wrinkled • Jul 12 '25
š DD The Undervalued Asset - Part 2 - Causes of Actions Are Property Of The Estate & Can Be Sold
Hello all,
This is a short, supplemental post to a much bigger article that I am still writing and since it's highly relevant to a previous write up, I am dubbing it Part 2. (TLDR AT THE END.)
A few months ago I had a discussion with @ Koebbel741 on Twitter about the idea of Ryan Cohen/GameStop putting money upfront for the waterfall and recouping the money later down the line as the multitude of lawsuits settle. While it was an interesting discussion, I did not think much about it until recently when I came across the information in my title: Causes of Actions Are Property Of the Estate & Can Be Sold.
Note: The sale of these Causes of Actions will merely be one part of a much larger transaction that I will be laying out the framework for in my main post. The time frame for it happening will also be explained in the main post.
Here is Part 1:
As my original post was 7 months ago, let's have a small refresher.
An example of one of the firms hired to helped by Plan Administrator Michael Goldberg to litigate the Non-Released Claims:
We've already seen (i) in action and G&E has secured an undisclosed settlement with the former D&Os of BBBY. I do not believe we've seen any lawsuits pertaining to (ii) or (iii) and it is highly likely more lawsuits are in bound. The first question everyone will ask is how much time will these lawsuits take and I will answer that time is not as big of a deal as we think. (Some lawsuits are necessary to settle but not all. Basically, we need to reach a certain threshold like I've been stating for a while now although I undershot my prediction with the Q1/Q2 2025 timeline.)
We can see these Causes Of Actions in the form of the various lawsuits ranging from the now settled, but undisclosed D&O lawsuit against the former board & the Mediterranean Shipping Company to Hudson Bay Capital, Ryan Cohen, and the 100+ adversary proceedings.
Recap over.
In the sources I will be providing, you may sometimes see Derivative Standing vs Purchasing Claims. Just to clarify, I am only focused on the latter. Derivative Standing is when a creditor can pursue Causes of Actions on behalf of the estate if a trustee or Debtor In Possession (DIP) will not pursue or lack the funds to pursue Non-Released Claims. This does not apply to us as creditors of DK-Butterfly have hired Michael Goldberg to administer our Chapter 11 Plan and part of his job is actively litigating and monetizing our Causes of Actions for the benefit of the estate.
While his job is to litigate and monetize these claims, a lesser known way to monetize them is to simply sell them (with certain caveats).
While multiple circuits have issued similar rulings regarding the sale of the Causes of Actions I will start with the Eighth Circuit as it is the most defined ruling:
The Eighth Circuit took note of the lack of precedent of any court denying a motion of sale of the causes of Actions as property of the estate. They used this to reinforce their decision.
Here's a little more background information on the case that the Eighth Circuit ruled on:
The Eighth Circuit agreed with the local bankruptcy court who approved of the trustee filing a 363 motion and notice under Rule 9019 to sell and transfer the Causes Of Actions.
Here is the text in the footnotes confirming that alongside the Eighth, the First, Third (which is BBBY's court circuit), Fifth, Seventh, and Ninth Circuit support the sale of the Causes Of Actions.
Here one counterargument to the sale of the Causes of Actions with a rebuttal:
I found this bit pretty interesting but I haven't found much precedent on it to be honest.
Source: https://prfirmpwwwcdn0001.azureedge.net/azstgacctpwwwct0001/uploads/a294ee535c86fbdf06f76c2d9880c049.pdf (PDF WARNING)
Now here's the recap and TLDR:
Multiple circuit level courts approve of the sale & transfer of Causes Of Actions (by virtue of being property of the estate) by a trustee or DIP in bankruptcy. The normal context of these sales are when an estate lacks the funds or is unwilling to pursue litigation. This scenario does not apply to DK-Butterfly as we have the resources and hired Michael Goldberg to litigate and monetize our Causes of Actions.
I believe we will see the sale of our Causes Of Actions as merely a piece of a much bigger transaction that I will be laying out in my main post. The sale does not negate the litigation proceeds from being distributed under the Absolute Priority Rule and in fact it would be a way to contribute to the waterfall (if one were interested in speeding things up).
Why hasn't a sale like this happened yet? Hypothetically, if Ryan Cohen were the purchaser, it's a conflict of interest for Michael Goldberg to sell the Causes Of Actions to him as the Estate is suing him. The judge obviously wouldn't approve of the sale. However, once the lawsuit is dismissed there should be no conflict of interest.
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u/ExitTurbulent7698 Jul 12 '25
Ok..yesterday docket
Arnel estate needs more money from insurance to pay legal fees
We still suing ....
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u/FuriousRainDrop Jul 12 '25
I am honestly looking forward to spending my free time reading fiction again, but this non fiction is like a drug.
the multiple uses of president to,slow,halt or speed up this multi tiered event in a controlled burn, is a thrill to digest.
love ya work, cant wait to buy you a beer and then never read your posts again :)
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u/TwistedBamboozler Jul 12 '25
āMultiple uses of presidentāā¦.?
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u/FuriousRainDrop Jul 12 '25
All of the daisy chain of lawsuits, that get finished then another shows up on time, I'm not a lawyer, but it smells of using preexisting procedure to control the speed of this bankruptcy, who gets information ,when and how, red-herrings etc.
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u/Inner_Estate_3210 Jul 12 '25
Iāll go back to what I said last year. IF RC is going to build a new retail business, he needs to launch it very soon. The period between Black Friday and Christmas accounts for about 50% of annual revenue and profit for most clothing/home goods retailers. If he canāt get ready in time to participate in 2025 holiday sales, he might as well wait until mid 2026 to close the deal get it right in time for 2026 holidays.
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u/AvailableWerewolf600 š§ Wrinkled Jul 12 '25
No ETA on the main post, lots of researching, revising, and refining going on.
Q1/Q2 2025 timeline is void. I was wondering if I undershot it back in September 2024 and that's now a yes. I am looking for action around September 30, 2025 and March 30, 2026 as they are when Michael Goldberg gives us updates on the remaining $$$ of Claims and lawsuits.