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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re EBC I, f/k/a ETOYS, INC., Reorganized Debtor. EBC I, f/k/a ETOYS, INC., Adv. Proc. No. 03-50003 (MFW) Plaintiff, v. AMERICA ONLINE, INC., Defendant. Chapter 11 Case No. 01-0706 (MFW)
MOTION FOR LEAVE TO APPEAL Pursuant to 28 U.S.C. § 158(a)(3) and Bankruptcy Rule 8003(a), defendant America Online, Inc. ("AOL")1 respectfully moves the District Court for leave to bring an interlocutory appeal from the Order entered by the Bankruptcy Court on December 7, 2006, which granted in part the Motion for Summary Judgment filed by the plaintiff and entered judgment in favor of the plaintiff on Count I of the Complaint.2 The Bankruptcy Court's decision represents a dramatic and unprecedented expansion of the law of fraudulent conveyance. If left unreviewed, the decision would have far reaching implications for parties who conduct business with troubled companies. Because the question presented is a pure question of law whose resolution now
1 2
Subsequently renamed AOL LLC.
Pursuant to Bankruptcy Rule 8003(a)(4), the Bankruptcy Court's December 7, 2006 Opinion and Order are attached hereto as Exhibits A and B.
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could avoid the need for a potentially lengthy trial involving complex factual questions, granting AOL leave to bring an immediate interlocutory appeal is appropriate. INTRODUCTION AND SUMMARY OF ARGUMENT In August 1999 AOL and eToys, Inc. entered into an agreement (as amended in November 2000, the "1999 Marketing Agreement") under which AOL promised to provide Internet marketing and promotional services to eToys. eToys thereafter filed for bankruptcy protection. EBC I, the plaintiff in this action, is a litigation trust that has succeeded to causes of action held by eToys. It brought suit against AOL on January 3, 2003, seeking to recover payments that eToys had made to AOL under the 1999 Marketing Agreement prior to the eToys bankruptcy filing. EBC I's complaint asserted various legal theories, including breach of contract, unjust enrichment, fraudulent conveyance under state law, and that certain events relating to the payments and the contract were fraudulent conveyances that could be avoided under Section 548 of the Bankruptcy Code. After a period of motions practice and discovery, in May 2004 the parties filed cross-motions for summary judgment on the controlling issues of law. While various of EBC I's claims have been abandoned or were dismissed as a matter of law, the Bankruptcy Court accepted EBC I's novel argument that AOL's pre-bankruptcy termination of the eToys contract, pursuant to its express terms, constituted a "transfer of an interest of the debtor in property" that is avoidable under Section 548. The Bankruptcy Court ordered further evidentiary hearings to be held to establish the value of the interest in property it believed was transferred by the termination. AOL respectfully submits that the District Court should grant leave for an immediate appeal of the Bankruptcy Court's Order, for the following reasons:
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First, the Bankruptcy Court's judgment is based on a controlling question of law as to which there is a substantial ground for difference of opinion. Numerous prior cases have held that a pre-petition termination of a contract pursuant to its terms does not constitute a "transfer" of "property" for purposes of Section 548. This conclusion is compelled by the fundamental nature of contract rights. The benefits of a contract come only with its corresponding obligations and conditions. While a contract, taken as a whole, may properly be viewed as an asset, the conditional rights of one party to receive future performance from the other do not constitute a form of property independent of the remaining obligations and conditions of the contract. The Bankruptcy Court acknowledged the body of case law holding to this effect, but declined to follow that precedent. Instead, the Bankruptcy Court's Opinion announces a new principle of law to the contrary. Our research suggests that this is the first case in which any court has ever held that a debtor's loss of rights to future performance, resulting from termination of a services contract, can be treated as a fraudulent conveyance under Section 548. This issue clearly is controlling, and there unquestionably is substantial ground for difference of opinion, given the Bankruptcy Court's radical--and acknowledged--departure from prior case law. Second, granting leave to appeal now will materially advance the termination of the litigation. By hearing this appeal, the District Court can resolve this pure issue of law at a time when its ruling may save the parties and the Bankruptcy Court from undertaking further protracted evidentiary proceedings. Finally, this case presents the extraordinary circumstance where there will be no detriment or prejudice to any party by granting leave for appeal. The plaintiff, EBC I, is not an operating company. It exists solely to pursue claims such as that filed against AOL. This case has been pending for nearly four years. There is no current litigation activity and nothing is
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presently pending. The evidentiary hearings contemplated by the Bankruptcy Court and other subsequent proceedings will take further extended time periods. No party has any immediate need for relief or any interest that will be significantly affected by allowing an appeal now, instead of later. In this context, the normal concerns associated with interlocutory appeal-- the adverse effects of piecemeal litigation--do not pertain. QUESTION PRESENTED ON APPEAL This case arises out of a services contract that permitted the services provider to terminate the contract under specified circumstances. The question presented in this appeal is whether--in the absence of any finding that the debtor received less than full consideration when it entered into the contract granting the service provider the right to terminate--the service provider's exercise of its previously granted contractual right to terminate the contract can constitute a fraudulent conveyance under Section 548 of the Bankruptcy Code. RELIEF SOUGHT ON APPEAL AOL seeks an Order from the District Court reversing the Bankruptcy Court's entry of judgment for the plaintiff on Count I of the Complaint, and directing the entry of summary judgment in favor of AOL. STATEMENT OF FACTS Pursuant to the 1999 Marketing Agreement AOL promised to provide branding, marketing services and Internet on-screen promotions, known as "impressions," to eToys during the period August 1999 through August 2002. In exchange, eToys originally promised to pay AOL the total amount of $18 million, in twelve quarterly payments of $1.5 million each. (1999
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Marketing Agreement § 4.1.)3 eToys expressly agreed that these payments would be "nonrefundable." (EBC I's Resp. to AOL's Req. for Admission No. 5.) eToys also expressly agreed that AOL's obligations to continue providing marketing services were contingent on eToys staying in business. (1999 Marketing Agreement § 5.6.) Either party had the right to terminate in the event that the other party became insolvent or ceased to do business in the normal course. (Id.) On November 15, 2000, eToys and AOL amended the 1999 Marketing Agreement to resolve issues relating to the sufficiency of AOL's prior performance (the "Amendment"). (See Lenk Dep. Ex. 10.) The parties agreed to reduce eToys's payment obligations and to modify the marketing services to be delivered by AOL. (EBC I's Resp. to AOL's Req. for Admission No. 20.) The Amendment did not alter any of the other previously agreed terms of the 1999 Marketing Agreement, including the non-refundable payment provision or the termination clause. (Amendment § 8.a; see Brine Dep. 102:17-103:1; Baig Dep. 122:8-13, 124:2-4; Valle Dep. 71:15-22.) eToys's financial position deteriorated rapidly beginning in December 2000 due to decreasing sales. In February 2001 eToys announced termination of the employment of all of its employees and stopped paying past due debts. (Lenk Dep. Exs. 12 and 13; Schoch Dep. Exs. 8 and 9; EBC I's Resp. to AOL's Req. for Admission Nos. 51 and 52.) On February 26, 2001, eToys issued a press release announcing that its liabilities exceeded its assets, that it would file for bankruptcy in the near future, and that it would close its website within one or two weeks. (Lenk Dep. Ex. 15.) Pursuant to the terms of the 1999 Marketing Agreement (as amended), on
3
Citations to factual materials provided herein are to the record below, which shall be transmitted to this Court in the event this motion is granted.
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February 28, 2001, AOL sent eToys written notice of the immediate termination of the contract. (Schoch Dep. Ex. 13; AOL's Resp. to EBC I's Req. for Admission No. 11.) In its Complaint and Motion for Partial Summary Judgment, EBC I argued that termination of the 1999 Marketing Agreement (as amended) pursuant to its express terms by AOL on February 28, 2001, was itself a "transfer" of eToys's "property" for which reasonably equivalent value was not received, and therefore that the termination is avoidable under Section 548(a)(1)(B) of the Bankruptcy Code. In its Cross-Motion for Summary Judgment, AOL relied on a number of cases in which courts held that pre-petition termination of a contract pursuant to its terms did not constitute a transfer of any right and had, thus, refused to extend Section 548(a)(1)(B) to avoid such terminations. In addition, AOL noted that to its knowledge, no court has ever held that termination of a services contract, as opposed to contracts involving interests in real property, constituted an avoidable transfer of a property interest. Despite these precedents, in its December 7, 2006 Order, the Bankruptcy Court held that termination of the 1999 Marketing Agreement (as amended) by AOL pursuant to its terms was a transfer of eToys's property and ordered an evidentiary hearing to determine the value to be recovered. ARGUMENT 28 U.S.C. § 158(a)(3) provides that, with leave of a district court, a bankruptcy court's interlocutory order may be reviewed in the district court. "The district court has broad discretion in determining whether to exercise jurisdiction over interlocutory appeals from the bankruptcy court." Dan Valley Excavating, Inc. v. Residential Funding Corp. (In re United Homes of Michigan, Inc.), No. 01 C 8896, 2002 WL 126518, at *1 (N.D. Ill. Jan. 30, 2002) (attached as Exhibit C); see also Sheehan ex rel. O'Brien v. Richardson, 315 B.R. 226, 234 (D.R.I. 2004) (noting the district court's "broad jurisdictional discretion provided by [28 U.S.C.] § 158").
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In considering whether to permit an interlocutory appeal, many courts have looked to the criteria set forth in 28 U.S.C. § 1292(b), which governs interlocutory appeals from district courts to the courts of appeals. See Enron Corp. v. Springfield Assocs., L.L.C. (In re Enron Corp.), No. 01-16034, ADV. 05-01025, ADV. 05-01029, ADV. 05-01074, ADV. 05-01105, M-47(SAS), ADV. 05-010, 2006 WL 2548592, at *3 (S.D.N.Y. Sept. 5, 2006) (noting that [28 U.S.C.] § 1292(b) allows for interlocutory appeal where the order at issue "`(1) involve[s] a controlling question of law (2) over which there is substantial ground for difference of opinion,' and the movant [can] also show that `(3) an immediate appeal would materially advance the ultimate termination of the litigation'") (quoting 28 U.S.C. § 1292(b)) (attached as Exhibit D); see also Official Bondholders Comm. v. Chase Manhattan Bank (In re Marvel Entm't Group), 209 B.R. 832, 837 (D. Del. 1997) (referring to courts' application of § 1292(b) criteria when considering whether to permit appeals of bankruptcy orders). Here, the Bankruptcy Court's summary judgment order turns on a controlling question of law about which there is substantial ground for a difference of opinion. Hearing an appeal related to the order could avoid the need for a potentially complex and protracted evidentiary hearing. And under the circumstances of this case, a further delay in the bankruptcy proceedings while this Court considers an appeal would cause no material prejudice to the parties. AOL respectfully requests that the Court grant it leave to appeal. I. THE BANKRUPTCY COURT'S JUDGMENT IS BASED ON A CONTROLLING QUESTION OF LAW AS TO WHICH THERE IS A SUBSTANTIAL GROUND FOR DIFFERENCE OF OPINION A. The Court's Entry of Judgment Was Based On a Pure Issue of Law
The Bankruptcy Court held that AOL's exercise of its contractual rights to terminate its agreement with eToys is avoidable under Section 548. Specifically, the Bankruptcy Court held that a debtor's pre-petition contractual rights to receive future services are a form of "property 7
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rights," entirely distinct from the debtor's obligations and bargained for conditions in the same contract. (Op. at 20.) "A controlling question of law [includes] at the very least a ruling which, if erroneous, would be reversible error on final appeal." Official Bondholders Comm. v. Chase Manhattan Bank (In re Marvel Entm't Group), 209 B.R. 832, 837 (D. Del. 1997) (citing Katz v. Carte Blanche Corp., 496 F.2d 747, 755 (3d Cir. 1974)). There can be no question that the question presented in this appeal is a controlling interpretation of law. If the District Court were to conclude, consistent with the general view of the law of fraudulent conveyance prior to this opinion, that a party's exercise of rights previously granted to it under a services contract cannot represent a fraudulent conveyance, so long as the granting of those rights was within an agreement under which reasonably equivalent value was exchanged, Count I of the Complaint would be dismissed. As such, the question presented here is controlling. B. This Ruling Is In Direct Conflict With a Substantial Body of Case Law Holding That Pre-petition Termination of a Contract Pursuant to Its Terms Does Not Constitute a Transfer Under Section 548
As AOL noted in its Brief in Support of its Motion for Summary Judgment, a number of cases addressing the issue have held that the pre-petition termination of a contract pursuant to its terms does not amount to a transfer as defined by Section 548(a)(1)(B). See Edwards v. Federal Home Loan Mortgage Corp. (In re LiTenda Mortgage Corp.), 246 B.R. 185, 191 (Bankr. D.N.J. 2000) ("[A] pre-petition termination of a contract pursuant to its terms and the consequent cessation of a debtor's rights under a contract does not constitute a transfer within the meaning of . . . [11 U.S.C.] § 548(a).") (citing cases), aff'd, 276 F.3d 578 (3d Cir. 2001) (Table); see also Sullivan v. Willock (In re Wey), 854 F.2d 196, 199 (7th Cir. 1988) (holding that forfeiture of down payment when final payment could not be paid pursuant to terms of contract did not constitute a transfer); Coast Cities Truck Sales, Inc. v. Navistar Int'l Transp. Co. (In re Coast 8
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Cities Truck Sales, Inc.), 147 B.R. 674, 677-78, (D.N.J. 1992) (determining that "Coast Cities possessed no rights as a matter of law which it could relinquish since the contract between Navistar and the debtor had expired by its own terms" pre-petition; holding that expiration of contract was not a transfer under Section 548), aff'd, 5 F.3d 1488 (3d Cir. 1993) (Table); Creditors' Comm. v. Jermoo's Inc. (In re Jermoo's Inc.), 38 B.R. 197, 203-06 (Bank. W.D. Wis. 1984) (finding no transfer under Section 548 where franchisor terminated franchise-dealership contracts pre-petition pursuant to provision in contracts that permitted termination by franchisor if franschisee did not cure dishonored checks within five days of receiving notice). In reaching the opposite conclusion, the Bankruptcy Court relied on a series of cases that all involved contractual rights to interests in real property, such as leases, land sales installment contracts, and franchise agreements. (See Op. at 8-9.) Property interests are expressly addressed in Section 548, which is why those cases reached the results they did. In this case, however, there is no interest in tangible property of any kind. Not only is the Opinion in conflict with the case law in other jurisdictions, it appears to be the first instance in which a court has ever held that Section 548 applies to a debtor's pre-petition rights under a contract that provides only for the receipt of services. In these circumstances, there clearly is substantial ground for a difference of opinion warranting a permissive appeal. Courts have held that substantial ground for a difference of opinion exists where a bankruptcy court's order is in conflict with other court decisions, as well as where authority does not address the particular issue and merely provides a backdrop that demonstrates that the question is unsettled. In In re GroupHealth Partnership, Inc., No. 920124, 1992 WL 96333, at *2 (E.D. Pa. Apr. 21, 1992) (attached as Exhibit E), the district court granted leave to appeal a bankruptcy court's opinion and order holding that a health maintenance
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organization ("HMO") was not outside the scope of Chapter 11 of the Bankruptcy Code because it did not qualify as a domestic insurance company. The district court held that a substantial ground for difference of opinion was presented because the would-be appellee had cited "two cases in which courts concluded that HMOs were domestic insurance companies for the purposes of the bankruptcy code." Id.; see also Beatty v. U.S.A. (In re Beatty), No. IP 01-1582-C-T/K, 2002 WL 535316, at *1 (S.D. Ind. Feb. 27, 2002) ("[T]here is a substantial ground for difference of opinion on these issues as evidenced by the case law support found by Defendant and the bankruptcy judge's contrary opinion.") (attached as Exhibit F); U.S.A. v. Tomlin (In re Tomlin), Nos. Civ. 2:00-CV-1161-T, 3:99-35175-HCA-7, 2000 WL 1909912, at *1 (N.D. Tex. Nov. 21, 2000) (noting that references in cited precedents to executor's duty to hold estate in trust did not specify the extent to which a fiduciary duty was owed and, since no current authority focused on the specific issue, defendant had satisfied the requirement that there be a substantial ground for a difference of opinion) (attached as Exhibit G). AOL respectfully submits that the basis for the Bankruptcy Court's Opinion is in conflict with other precedent and that, in ruling that pre-petition termination of a contract for services constitutes a transfer that can be avoided pursuant to Section 548, the Bankruptcy Court expanded the coverage of Section 548 to an issue never before precisely addressed. Thus, substantial ground for a difference of opinion exists. C. If Allowed to Stand, the Principle of Law Created in the Bankruptcy Court's Opinion Could Have Massive Implications in Future Bankruptcy Cases
Large corporate debtors typically experience substantial changes in rights under contracts in the period preceding a bankruptcy filing. A debtor's deteriorating condition often leads to material breaches of existing contracts, such as financial defaults, operational defaults, failure to deliver promised goods or services, violation of covenants, and numerous other material events 10
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of non-performance. In turn, those breaches result in additional remedies and rights being made available to the contract counter parties, including rights to receive penalties and other payments, rights to additional security, acceleration of obligations, triggering of protective provisions and contract termination. All of these events could be viewed as a "transfer" of some "rights" a debtor had pre-bankruptcy. However, these events have never before been viewed as giving rise to a fraudulent conveyance action under Section 548 with respect to contracts for services. This is because, in the case of a contract, the "transfer" of value--the exchange of consideration-- took place at the time the contract was entered into. As long as the debtor received reasonable consideration at the time the contract was executed, and under the contract taken as a whole, the value of its rights going forward necessarily is dependent on its obligations and on the conditions that were bargained for in the contract. The Bankruptcy Court in the present case effectively held that a debtor's pre-petition contract benefits should be valued without regard to the corresponding contract obligations and terms. It went on to hold that, to the extent the debtor was deprived of any of the value of those benefits for any reason at a time when it was insolvent, Section 548 supports recovery against the counter party. Such a holding would radically alter the law of fraudulent conveyance. In this case, the debtor had paid AOL consideration for a long-term Internet marketing services contract. It is undisputed that the debtor received, in addition to individual advertising impressions, the benefits of being identified as AOL's primary sponsored retailer for toys and baby products. AOL agreed to this sponsorship, but in so doing it required as a condition that eToys remain in business. This was critically important to AOL. It obviously did not want to sponsor and facilitate sending AOL members to make purchases at a retailer that would not deliver on purchases. Thus, AOL insisted on the right to terminate if eToys declared itself
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insolvent. eToys bargained for this result, and there is no finding, nor could there be, that eToys did not receive good consideration when it made that bargain. 4 Yet the Bankruptcy Court ignored the terms agreed to by the parties and would compensate eToys without regard to contract rights and obligations that were bargained for and supported by an exchange of fair consideration. If left to stand, the Bankruptcy Court's new rule of law ultimately would result in a practice where corporate debtors would review all contractual events occurring after a date of arguable insolvency, and would file actions for any significant asserted effects on their rights under contract clauses that previously had been bargained for. Not only would such a result be contrary to the Bankruptcy Code and the prior case law, it would be unworkable. II. PERMITTING AN APPEAL WILL MATERIALLY ADVANCE THE TERMINATION OF THIS LITIGATION An appeal serves to materially advance termination of the litigation when "resolution of a controlling legal question would serve to avoid a trial or otherwise substantially shorten the litigation." McFarlin v. Conseco Servs., LLC, 381 F.3d 1251, 1259 (11th Cir. 2004); see also Official Comm. of Unsecured Creditors v. Qwest Commc'ns Corp. (In re A.P. Liquidating Co.), 350 B.R. 752, 756 (E.D. Mich. 2006) (finding requirement for material advancement satisfied based on plaintiffs' contention that an immediate appeal would avoid a bench trial that might be overturned on appeal, thereby saving "court resources and the parties' time and expenses"); Official Bondholders Comm. v. Chase Manhattan Bank (In re Marvel Entm't Group), 209 B.R.
4
Contrary to the Bankruptcy Court's view, eToys's announcement that it would discontinue its operations was a breach of the 1999 Marketing Agreement that was material to AOL. Cf. Op. at 12. Allowing eToys to continue marketing to AOL's customers after it was clear that eToys would not deliver products ordered by those customers would have posed a significant threat to AOL's reputation and business.
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832, 837 (D. Del. 1997) (noting that an appeal might materially advance termination where "a decision by this court that the bankruptcy court erred would obviate the need for the bankruptcy court to conduct a fact-intensive hearing"). Allowing an appeal at this time to obtain a ruling on the controlling issue of law similarly will materially advance the termination of this litigation. If this Court concludes that the Bankruptcy Court erred, the result will be that the parties and the courts will avoid substantial additional evidentiary proceedings. While the Bankruptcy Court ruled in favor of EBC I on the core legal issue, it noted that the parties had not presented sufficient evidence to determine the value of the services allegedly transferred. Accordingly, the Bankruptcy Court held that further evidentiary hearings will be held on the valuation issues. (Op. at 21.) Such proceedings, if held, would be complex and potentially lengthy. Section 548 provides for the avoidance of transfers of property that lack consideration at a time when a debtor was insolvent. Here, the Bankruptcy Court found that eToys had a property interest in future Internet advertising services to be provided by AOL, in the form of impressions that would be shown to AOL's members. Even if the Bankruptcy Court were correct in its interpretation of the law, eToys would be entitled to recover only that "interest in property" to which it was entitled under the contract--i.e., some number of future internet advertising impressions. Determining the value of such impressions, however, would be complex. As an initial matter, the Bankruptcy Court would need to determine how many advertising impressions were yet to be delivered by AOL as of February 28, 2001. There is no question that AOL performed substantially over the holiday season from November 2000 through January 2001, but that
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number may be subject to evidentiary disputes, particularly given that nearly six years have lapsed. Even more difficult would be the question of how to value those impressions. eToys had contract rights to receive the impressions at a time when the "dot com" economy was crashing, and the value of the impressions was far lower than in earlier periods. The question of value would necessarily have to be addressed through expert testimony. In addition, it is uncertain what scenario the Bankruptcy Court would have to assume for purposes of the valuation proceeding. Because eToys went out of business, it is clear that it would not have used the impressions itself if AOL had not terminated the contract. At best, if there had been no termination, eToys would have attempted to sell those rights (assuming that were permissible under Section 365 of the Bankruptcy Code) to others in its Chapter 11 proceeding, perhaps in late 2001 or 2002. Certainly the amount that a third party would have paid at that point would have been a fraction of the initial contract price, which would introduce another factor for debate in conducting a valuation of eToys's remaining rights to impressions under the contract. The evidentiary proceeding contemplated by the Bankruptcy Court on these issues would be complicated and expensive. Both parties, as well as the Bankruptcy Court, will benefit by having the controlling question of law determined by this Court prior to the further investment of such resources. If, as is likely, this Court reverses the Bankruptcy Court, those costs will be avoided altogether.
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III.
THIS CASE PRESENTS THE EXCEPTIONAL CIRCUMSTANCE WHERE AN APPEAL WILL RESULT IN NO SIGNIFICANT DETRIMENT TO ANY PARTY Courts generally are reluctant to permit interlocutory appeals of lower court rulings,
because of the delay and prejudice to opposing parties that can result from piecemeal disposition. See Colonial Bank v. Freeman (In re Pacific Forest Prod. Corp.), 335 B.R. 910, 919 (S.D. Fla. 2005). In this case, however, there is no significant detriment posed by an appeal on the central legal issue. The lack of any prejudice to the plaintiff, combined with the importance of the legal issue and novelty of the Bankruptcy Court's ruling, constitute extraordinary circumstances supporting immediate appellate review. eToys filed its Chapter 11 bankruptcy petition on March 7, 2001. After the filing, it shut down its business operations and implemented a liquidation of its assets in an effort to pay creditors. That strategy was implemented through a plan of reorganization proposed by eToys that was confirmed by the Bankruptcy Court and became effective on November 5, 2002 (the "Plan"). Pursuant to the Plan, EBC I, as successor to eToys, and its affiliated debtors and debtorsin-possession, were substantively consolidated. See Bankr. Docket # 1142, First Amended Plan, Article VI. EBC I's primary activities under the Plan were to prosecute litigation claims of the debtors and to complete the transfer of assets of the estate to holders of allowed claims. See id. Section 5.1. Future recoveries resulting from litigation claims would also be distributed to holders of allowed claims. Id. EBC I filed its complaint against AOL on January 3, 2003. After a period of motions practice and discovery, the parties filed cross-motions for summary judgment with briefing completed in June 2004. In the two and one-half years since that time, there has been no litigation activity. There is no activity currently scheduled. To our knowledge, EBC I does not 15
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have any operations. Neither it, nor the creditors that would ultimately recover funds in the unlikely event that the Bankruptcy Court's ruling stands, will incur any incremental detriment as a result of the delay that would occur by permitting this appeal--a delay which likely will not be significant given the more than four year history of this litigation. While bankruptcy policy generally favors rapid resolution of disputes to maximize realization of assets and increase payments to creditors, in this case, whatever asset may be available is not wasting. If the case proceeds in the Bankruptcy Court, it is likely that there would be an appeal in any event, so the overall difference in time would not be expected to be significant. And if the debtor believes time is of the essence, AOL would be amenable to an agreement to expedite the appeal. Given the significant potential for reversal, it actually is in the interest of the creditors to take the time to resolve the issue now, rather than having the estate bear the cost of an expensive trial that ultimately may have been unnecessary. In balancing the factors for consideration of a requested appeal, then, the current circumstances present the extraordinary case where there is no significant downside. On the other hand, as noted above, there is a strong likelihood that an appeal would provide the significant benefit of clarifying the controlling legal issue in advance of further extended evidentiary proceedings. CONCLUSION For the foregoing reasons, AOL respectfully requests that it be granted leave to appeal the Bankruptcy Court's December 7, 2006 Opinion and Order.
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Dated: December 18, 2006
Respectfully submitted, /s/ Christina M. Thompson Karen C. Bifferato (Bar #3279) Marc J. Phillips (Bar #4445) Christina M. Thompson (Bar #3976) CONNOLLY BOVE LODGE & HUTZ LLP The Nemours Building 1007 North Orange Street, P.O. Box 2207 Wilmington, DE 19899-2207 Tel: (302) 658-9141 Fax: (302) 658-5614 James R. Wrathall Amanda L. Major WILMER CUTLER PICKERING HALE AND DORR LLP 1875 Pennsylvania Avenue, N.W. Washington, DC 20006 Tel: (202) 663-6000 Fax: (202) 663-6363 Attorneys for America Online, Inc.
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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re EBC I, f/k/a ETOYS, INC., Reorganized Debtor. EBC I, f/k/a ETOYS, INC., Adv. Proc. No. 03-50003 (MFW) Plaintiff, v. AMERICA ONLINE, INC., Defendant. (PROPOSED) ORDER GRANTING MOTION FOR LEAVE TO APPEAL Upon consideration of the Motion for Leave to Appeal filed by defendant America Online, Inc., it is this ___ day of ___________, 200__, ORDERED that the defendant's Motion for Leave to Appeal from the Bankruptcy Court's December 7, 2006 Opinion and Order entering summary judgment in favor of the plaintiff on Count I of the Complaint is GRANTED. It is further ORDERED that the parties and the clerk shall proceed with the appeal pursuant to the timeframes set forth in the applicable rules, with the date of this Order deemed to establish the initial date of filing of the notice of appeal. SO ORDERED. ____________________________ United States District Judge Chapter 11 Case No. 01-0706 (MFW)