New Bankruptcy Opinion: IN RE METAWISE GROUP, INC. – Bankr. Court, ND California, 2015

In re METAWISE GROUP, INC. and DRACO RESOURCES, INC., Chapter 11, Debtors.

PROGRESSIVE ENVIRONMENTAL SERVICES, INC., Plaintiff,

v.

METAWISE GROUP, INC.; DRACO RESOURCES, INC.; ARMCO METALS HOLDINGS, INC.; METAMINING, INC.; and SONGQIANG CHEN, Defendants.

Bankruptcy Case No. 14-31652DM, Adversary Proceeding No. 14-3156DM.

United States Bankruptcy Court, N.D. California.

January 12, 2015.

MEMORANDUM DECISION ON MOTIONS TO DISMISS CLAIMS AGAINST CERTAIN DEFENDANTS

DENNIS MONTALI, Bankruptcy Judge.

On November 13, 2014, debtors Metawise Group, Inc. (Case No. 14-31652) and Draco Resources, Inc. (Case No. 14-31654) filed their chapter 11 petitions in this court. Metawise owns 100% of the stock of Draco. Prior to the petition date, plaintiff Progressive Environmental Services, Inc. (“Plaintiff”), a judgment creditor of Metawise, filed this action asserting fraudulent transfer, conspiracy and aiding and abetting in conspiracy to defraud against both debtors and third parties Metamining, Inc. (“Metamining”), Songqiang Chen (“Mr. Chen”), and Armco Metals Holdings, Inc. (“Armco”). Plaintiff sought to enjoin possible transactions between the third parties and the debtors.

On November 25, 2014, Metamining and Chen filed and properly served a motion to dismiss all of Plaintiff’s claims against them; the hearing on their motion is set for January 16, 2015. On December 8, 2014, Armco filed and properly served its motion to dismiss the claims against it; Armco’s motion is also set for hearing on January 16, 2015. Pursuant to B.L.R. 7007-1(b), the deadline for filing opposition(s) to these motions to dismiss was January 2, 2015. As of January 8, 2015, no opposition has been filed to either motion.

The court has reviewed the motions to dismiss, and finds them both well-taken. First, the claims against Armco have been rendered moot by the bankruptcy filing. Plaintiff sought to enjoin a stock exchange between Draco and Armco. No such transfer occurred prior to the petition date and still has not occurred. At this juncture, Metawise (as the holder of 100% of the stock of Draco) will have to obtain court approval of a sale or transfer of its ownership interests in Draco, or at least give creditors and others parties in interest of its intent to do so, either through a plan or a motion under 11 U.S.C. § 363. As any such stock transfer is thus subject to this court’s review, the request for an injunction and for declaratory relief as to Armco is moot. Thus, the court will grant Armco’s motion to dismiss.

Moreover, Plaintiff sought a declaratory judgment that it “is the proper party to own and hold the 2% common stock in Metamining and all of the shares in Draco that were previously owned by Metawise, requiring Metawise to immediately turn over the 2% common stock in Metamining and all of the shares in Draco to SWS.” The automatic stay precludes further prosecution of this claim for relief, as Schedule B, Item 13 reflect that Metawise owns 100% of Draco’s stock and a 2% equity interest in Metamining, Inc.

Finally, Plaintiff lacks standing to prosecute its fraudulent transfer claims against Mr. Chen and Metamining (and others), as those claims are property of the bankruptcy estate, and must be prosecuted by an estate representative (usually a trustee, debtor-in-possession, or a creditors’ committee) or by a party authorized by the court to pursue such relief.

For the foregoing reasons and in the absence of any timely opposition, the court will grant both motions to dismiss and will take the January 16 hearings off calendar. Counsel for each movant should prepare and upload orders granting their respective motion for the reasons stated in this memorandum decision. Counsel should serve the proposed orders on Plaintiff’s counsel and file a separate certificate of such service.

Save trees – read court opinions online on Google Scholar.

300x600

Leave a Reply