Neiger v. Cipla USA Inc.

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: Chapter 11

ACHAOGEN, INC. Case No. 19-10844 (BLS)

Debtor.

EDWARD E. NEIGER, as Trustee of the

Achaogen Plan Trust,

Plaintiff, Adv. Proc. No. 21-50479 (BLS)

v. Re: Adv. Docket Nos. 9, 10, 19 and 21

CIPLA USA, INC.

Defendant.

Justin R. Alberto, Esquire Jeremy W. Ryan, Esquire

Cole Schotz P.C. Jesse L. Noa, Esquire

500 Delaware Avenue, Suite 1410 Potter Anderson & Corroon LLP

Wilmington, DE 19801 Hercules Plaza, 6th Floor

1313 N. Market Street

Joseph L. Steinfeld, Jr., Esquire Wilmington, DE 19801

Nicholas C. Brown, Esquire

ASK LLP Counsel to Defendant Cipla USA, Inc.

2600 Eagan Woods Drive, Suite 400

St. Paul, MN 55121

Counsel to Plaintiff Edward E. Neiger, in his

capacity as Plan Trustee of the Achaogen Plan

Trust

MEMORANDUM OPINION1

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1 This Court has jurisdiction to decide the Motion pursuant to 28 U.S.C. § 157 and § 1334(b). The Bankruptcy

Court also has the power to enter an order on a motion to dismiss even if the matter is non-core or the Court has no

authority to enter a final order on the merits. Burtch v. Owlstone, Inc. (In re Advance Nanotech, Inc.), 2014 WL

1320145, *2 (Bankr. D. Del. Apr. 2, 2014) (citing In re Trinsum Grp., Inc., 467 B.R. 734, 739 (Bankr. S.D.N.Y. 2012)

(“After Stern v. Marshall, the ability of bankruptcy judges to enter interlocutory orders in proceedings . . . has been

reaffirmed . . . .”)).

The matter before the Court is defendant Cipla USA, Inc’s (“Cipla”) motion to dismiss

(the “Motion”)2 Counts IV, V, VI, VIII, IX and X of the Complaint in this adversary proceeding.

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The Motion is opposed by plaintiff Edward E. Neiger, as Trustee of the Achaogen Plan Trust

(the “Plaintiff”). In broad brush, the Complaint alleges that Cipla willingly participated in a

court-approved sale process. The Plaintiff claims that Cipla acted unreasonably and without

justification when it backed out of its obligations both as the back-up bidder for the China Assets

and successful bidder for C-Scape. The Complaint further alleges that, as a result of Cipla’s

deliberate efforts to frustrate the sale process, the Debtor has lost substantial value. For the

reasons that follow, the Motion will be granted in part, and denied in part.

BACKGROUND3

2F

Achaogen, Inc. (the “Debtor” or “Achaogen”) was a pharmaceutical company that

developed and commercialized drugs to fight drug-resistant bacterial infections, known as

“superbugs.” By April 2019, the Debtor had developed two anti-infective drugs: Plazomicin,

which received approval in June 2018 by the Food and Drug Administration (“FDA”), and C-

Scape, which was in the FDA Phase I approval process as of April 2019. These two drugs were

the Debtor’s primary anticipated source of revenue while the company was operational.

The Debtor invested significant efforts and financial resources into the development of

Plazomicin.4 After the FDA approved Plazomicin for commercial use, the Debtor’s business

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failed to generate anticipated sales volume, leading to a liquidity crisis.

2 Adv. Docket No. 10.

3 Pursuant to Fed. R. Civ. P. 52 (made applicable here through Fed. R. Bankr. P. 7052), the Court does not

make findings of fact for purposes of a decision on a Fed. R. Civ. P. 12 motion. Factual allegations set forth herein

are derived from the Plaintiff’s Complaint.

4 See Declaration of Blake Wise in Support of First Day Relief [Docket No. 3].

On April 15, 2019, the Debtor filed a voluntary petition for relief under Chapter 11 of the

Bankruptcy Code in this Court. The stated purpose of the bankruptcy filing was to sell the

Debtor’s assets pursuant to Bankruptcy Code § 363.5 On May 1, 2019, the Court entered a

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bidding procedures order6 authorizing the Debtor to market its assets and to solicit bids for the

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purchase of both Plazomicin and C-Scape.

On June 3, 2019, the Debtor commenced an auction (the “June 3 Auction”) for the

Plazomicin asset.7 The Plazomicin asset was split into two separate components for bidding

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purposes: (1) the rights to Plazomicin in the greater China region (the “China Assets”) and the

global rights to Plazomicin in the rest of the world, excluding China (the “Global Rights”).8 The

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Global Rights to Plazomicin included related patents, trademarks, domain names, contracts,

government approvals and certain other related assets and to assume certain liabilities of

Achaogen. The Complaint alleges that all parties to the auction understood that the buyer of the

Global Assets would be expected to enter into a licensing arrangement with the buyer of the

China Assets.

At the conclusion of the June 3 Auction, Cipla was declared the successful bidder for the

Global Rights, and Qilu Antibiotics Pharmaceutical Co. Ltd. (“Qilu”) was declared the

successful bidder for the China Assets. Additionally, Cipla was designated the back-up bidder

for the China Assets. Shortly thereafter, Cipla and Achaogen entered into an asset purchase

agreement for the Global Rights, subject to the Debtor’s right and obligation to license the China

Assets to Qilu (the “Cipla Plazomicin Sale Agreement”).9

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5 Id.

6 Docket No. 123.

7 Complaint, ¶ 24.

8 Id. at ¶¶ 24-28. The Plaintiff’s claims do not arise from the Global Rights.

9 By order dated July 23, 2019 [Docket No. 371], the Court approved the Cipla Plazomicin Sale Agreement

(the “Cipla Sale Order”).

On June 12, 2019, the Debtor conducted a separate auction for the C-Scape asset (the

“June 12 Auction”). At the conclusion of that auction, Cipla was declared the successful bidder

for C-Scape. Ultimately, the Debtor entered into the following agreements with Cipla: (a) the

Cipla Plazomicin Sale Agreement, and (b) an asset purchase agreement dated June 20, 2019 for

the C-Scape asset (the “Cipla C-Scape Sale Agreement,” and collectively with the Cipla

Plazomicin Sale Agreement, the “Cipla Sale Agreements”).10

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The Complaint alleges that the Debtor, Cipla and Qilu attempted to negotiate the terms of

the license for the China Assets. The Debtor served as a facilitator of discussions between Cipla

and Qilu regarding a license agreement for Qilu, with the goal of closing both the Cipla Sale

Agreements and Qilu License Agreement at or about the same time.11 After a draft of the license

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agreement was circulated to Cipla, the Plaintiff alleges that Cipla did not provide comments or

otherwise engage in a timely manner.12 Cipla ultimately provided extensive changes to the draft

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that, according to the Plaintiff, “greatly deviated from the draft provided by [the Debtor] and

have drastically taken back what was offered for sale by the [Debtor].”13

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Several weeks after the auctions, Qilu informed the Debtor of its decision to end

negotiations and walk away from its bid for the China Assets due to the difficulties Cipla was

creating in the negotiations over the Qilu License Agreement.14 The Complaint alleges that Qilu

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reported to the Debtor that it believed Cipla had not been acting in good faith, and Qilu identified

10 Complaint, ¶ 45; see Plaintiff’s Ex. G.

11 Id. at ¶ 36.

12 Id. at ¶ 37.

13 Id. at ¶ 39.

14 Id. at ¶ 65 In January 2020, Achaogen reached a settlement with Qilu over Achaogen’s claim related to

Qilu’s repudiation of its bid for the China Assets. The settlement was approved by the Court on February 12, 2020

[Docket No. 603].

its incurred and anticipated costs in connection with the negotiations as the primary factors for

abandoning its obligation to purchase the China Assets.15

14F

After learning of Qilu’s decision to walk away, the Debtor informed Cipla that it would

have to consummate the purchase of the China Assets based on its designation as the back-up

bidder at the June 3 Auction.16 As the back-up bidder, the Bidding Procedures and the Cipla Sale

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Order required Cipla to step into Qilu’s shoes after Qilu elected not to follow through on its

bid.17

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On July 31, 2019, Cipla informed the Debtor that it would not be fulfilling its obligation

to purchase the China Assets as the back-up bidder.18 The Complaint alleges that Cipla delayed

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negotiations with Qilu to search for a buyer willing to pay an amount above Cipla’s bid and, after

causing Qilu to withdraw its bid, the Plaintiff alleges that Cipla intended to sell the China Assets

to a third-party at a profit.19 However, the Complaint claims that Cipla’s search did not yield

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the intended result.20

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The Plaintiff alleges that by late July 2019, the Debtor started to receive mixed signals

from Cipla regarding its willingness to close the C-Scape transaction.21 In addition to the delays

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in negotiating the language of a proposed sale order for Plazomicin, Cipla failed to consummate

the C-Scape Sale Agreement as the successful bidder.22

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After both Qilu and Cipla failed to fulfill their obligations to purchase C-Scape and the

China Assets, the Debtor undertook efforts to find an alternate purchaser.23 Prior to

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15 Id. at ¶ 65.

16 Id. at ¶ 67; see Plaintiff’s Ex. L.

17 Id. at ¶ 68.

18 Id. at ¶ 72.

19 Id. at ¶ 73.

20 Id.

21 Id. at ¶ 55.

22 Id. at ¶¶ 57, 58.

23 Id. at ¶ 76.

confirmation, the Debtor was able to find an alternate buyer for the China Assets for an amount

far less than the consideration offered by Cipla as the back-up bidder.24 That sale closed on

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January 9, 2020. The Debtor has been unable to find a buyer for C-Scape and the Complaint

alleges that the value of C-Scape has plummeted.25

24F

On May 29, 2020, the Court approved and entered an order (the “Confirmation Order”)

[Docket No. 697] confirming the Debtor’s first amended joint plan of liquidation (the “Plan”)

[Docket No. 656]. Pursuant to the Plan and Confirmation Order, the assets of the Debtor

immediately vested in the Achaogen Plan Trust and the Plaintiff was appointed as Plan Trustee.

The Plaintiff has commenced this adversary proceeding against Cipla to recover losses it

claims resulted from Cipla’s wrongful conduct in the sale process. The ten-count Complaint

alleges the following claims: (Count I) breach of contract; (Count II) breach of oral contract;

(Count III) breach of contract- bad faith; (Count IV) tortious interference with contract; (Count

V) tortious interference with business relations; (Count VI) tortious interference with prospective

economic advantage; (Count VII) breach of contract; (Count VIII) promissory estoppel; (Count

IX) breach of implied covenant of good faith and fair dealing; and (Count X) contempt for

willful violation of court orders.

Cipla filed its Motion to dismiss Counts IV, V, VI, VIII, IX, and X pursuant to Federal

Rules of Civil Procedure 8 and 12(b)(6) in their entirety and with prejudice. The Plaintiff has

responded, and the matter is ripe for disposition.

LEGAL STANDARDS

Fed. R. Civ. P. 12(b)(6) (made applicable here through Bankr. R. 7012) governs a motion

to dismiss for failure to state a claim upon which relief can be granted. “The purpose of a motion

24 Id. at ¶ 78, 80.

25 Id. at ¶¶ 80,81.

to dismiss is to test the sufficiency of a complaint, not to resolve disputed facts or decide the

merits of the case.”26 When reviewing a motion to dismiss, the Court will construe the complaint

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“in the light most favorable to the plaintiff.”27

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“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible on its face.’”28 “While a complaint

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attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, . . . a

plaintiff’s obligation to provide the grounds of his entitle[ment] to relief require more than labels

and conclusions, and a formulaic recitation of the elements of a cause of action will not do.

Factual allegations must be enough to raise a right to relief above the speculative level.”29

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The court must also determine whether the factual allegations “are sufficient to show the

plaintiff has a ‘plausible claim for relief.’”30 Federal Rule of Civil Procedure 8(a)(2), made

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applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7008(a), requires that a

complaint contain “a short and plain statement of the claim showing that the pleader is entitled to

relief.”31 The Supreme Court has recognized that the purpose of Rule 8 is “to give the defendant

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fair notice of what the . . . claim is and the grounds upon which it rests.”32 The Supreme Court

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and the Third Circuit have both stated that “Rule 8(a)(2) still requires a ‘showing,’ rather than a

blanket assertion, of entitlement to relief.”33 Thus “it is clear that conclusory or ‘bare-bones’

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allegations will no longer survive a motion to dismiss.”34

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26 Paul v. Intel Corp. (In re Intel Corp. Microprocessor Antitrust Litig.), 496 F. Supp. 2d 404, 407 (D. Del

2007).

27 Burtch v. Milberg Factors, Inc., 662 F.3d 212, 220 (3d Cir. 2011).

28 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)).

29 Twombly, 550 U.S. at 555 (internal citations omitted).

30 Fowler v. UPMC Shadyside, 578 F.3d 203, 211.

31 FED. R. CIV. P. 8(a)(2).

32 Twombly, 550 U.S. at 555 (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)) (internal quotation marks

omitted).

33 Id. at 555 n.3; Fowler, 578 F.3d at 211 (citations omitted).

34 Fowler, 578 F.3d at 210.

DISCUSSION

Counts IV, V and VI: The Tortious Interference Claims

The Complaint alleges three related claims for tortious interference against Cipla: Counts

IV, V, and VI (collectively, the “Tortious Interference Claims”). These claims allege that Cipla

acted intentionally to disrupt efforts made by the Debtor and Qilu to finalize a sale of the China

Assets, so that Cipla could profit from the transaction itself. The Plaintiff asserts that the factual

allegations in the Complaint underlying these claims are sufficient to demonstrate that each

element of the Tortious Interference Claims is met and that Cipla will be found liable.35

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a. Tortious Interference with Contract.

The Court turns first to the Plaintiff’s claim for tortious interference with contract (Count

IV) regarding the China Assets. To establish this claim under Delaware law, a plaintiff must

demonstrate that a defendant interfered with “(1) a contract, (2) about which defendant knew and

(3) an intentional act that is a significant factor in causing the breach of such contract (4) without

justification (5) which causes injury.”36

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Count IV is predicated on Cipla’s alleged interference with the sale of the China Assets.

The Complaint alleges that Cipla intentionally delayed and disrupted the negotiations concerning

the Qilu License transaction, which ultimately caused the deal to collapse. The Complaint alleges

that Cipla’s wrongful and obstructive conduct during the negotiations was a significant factor

contributing to Qilu’s ultimate refusal to consummate the Qilu License Agreement and the

repudiation of its bid for the China Assets. The Complaint further alleges that Cipla’s tortious

interference resulted in Achaogen’s inability to finalize an agreement on those deals.

35 Adv. Docket No. 19 at p. 5.

36 Colbert v. Goodville Mut. Cas. Co., 2011 WL 441363, at *1 (Del. Super. Jan. 21, 2011).

Cipla responds that there was no valid enforceable contract with which Cipla could

tortiously interfere, and therefore the Complaint fails to state a claim under Rule 12(b)(6).

Specifically, while the Complaint alleges that Qilu was the winning bidder at the auction for the

China Assets, it acknowledges that a final form of asset purchase agreement was never executed

by the parties, and the Court never entered an Order approving the sale and authorizing the

parties to consummate the transaction. Cipla is correct and, as discussed below, there was not a

valid, enforceable contract between the Debtor and Qilu with which it could have interfered.

The Debtor offers case law for the proposition that a bid accepted at auction gives rise to

an enforceable, binding contract at that moment. Camden v. Mayhew, 129 U.S. 73, 83, 9 S.Ct.

246, 248, 32 L.Ed. 608 (1889); Freehill v. Greenfeld, 204 F.2d 907, 908-09 (2d Cir. 1953) (“an

accepted bid at a judicial sale, subject to confirmation, binds the bidder, though it does not bind

the court. It is to be considered as a contract concluded between the parties, but subject to the

consent of a third person; indeed, it would otherwise be difficult to conduct judicial sales at

all.”); Matter of Fairfield General Corp., 75 N.J. 398, 411, 383 A.2d 98, 105 (Sup. Ct. N.J.

1978) (pointing to “overwhelming authority supports the proposition that once the purchaser

makes a bid which is agreed to by the seller, or he signs an agreement to purchase, he is bound to

complete the purchase and to pay the agreed consideration unless the court, in refusing to

confirm the sale, relieves him of his bid”).

Cipla responds that the majority of courts have concluded that the winning bidder at a

bankruptcy auction has not entered into a binding, contractual relationship until the bankruptcy

court has approved the sale. In re Susquehana Chemical Corp., 92 F. Supp. 917, 919 (M.D. Pa.

1950) (noting that “[t]o hold that an enforceable contract exists between trustee and bidder prior

to the court’s approval would prove inimical to the interests of creditors who are entitled to

receive the highest attainable values for the Debtor assets.”) (emphasis added). See also In re

Realty Found., 75 F.2d 286, 288 (2d Cir. 1935) (“A contract with the bidder only arises after his

bid has been accepted and the sale to him confirmed.”) (emphasis added). See also In re Klein’s

Rapid Shoe Repair Co., 54 F.2d 495, 496 (2d Cir. 1931) (“Until confirmation, even an accepted

bid makes no more than the one whose proposal has been recommended.”); In re Welch, 92 F.

Supp. 510, 515 (W.D. Ky. 1950) (same); Coppola v. Superior Court, 259 Cal.Rptr. 811, 824

(Cal.App. 2 Dist. 1989) (“In a judicial sale an accepted bid at the sale has no legal

significance until the sale is confirmed by the bankruptcy court.”) (emphasis added).

Count IV requires that the Plaintiff allege the existence of a valid, enforceable contract.

Applying these principles to the particular facts alleged, the Court finds that in the absence of a

court order, the acceptance of a winning bid at auction does not result in an enforceable contract

for purposes of establishing a requisite element of tortious interference with a contract. As

discussed more fully below in the context of Count VIII, however, principles of promissory

estoppel may operate to ensure that parties aggrieved – either buyer or sellers – by conduct at or

after an auction are not without some remedy. As pled, the Complaint does not satisfy this

element and Count IV must therefore be dismissed. The Plaintiff will be afforded leave to

replead.

b. Tortious Interference with Business Relations and with Prospective Economic

Advantage.

Next, the Court addresses collectively the Plaintiff’s claims for tortious interference with

business relations (Count V) and tortious interference with prospective economic advantage

(Count VI). To state a claim for tortious interference with prospective economic advantage, a

plaintiff must plead (1) the existence of a reasonably probable business opportunity, (2)

intentional interference by the defendant with that opportunity, (3) proximate causation, and (4)

damages.”37 The elements of a claim for tortious interference with business relations are nearly

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identical.38 To plead the first element (a reasonably probable business opportunity), a plaintiff

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“must identify a specific party who was prepared to enter into a business relationship but was

dissuaded from doing so by the defendant.”39

38F

As noted above, the Complaint alleges that Cipla wrongfully and deliberately interfered

with the Debtor’s business relations with Qilu, and but for that interference, Qilu and the Debtor

would have closed the transaction for the China Assets. Plaintiff has pled allegations sufficient

to survive Cipla’s motion. The Motion to Dismiss will be denied as to Counts V and VI.

Count VIII: Promissory Estoppel

The Plaintiff asserts a promissory estoppel claim due to Cipla’s alleged failure to close on

the Cipla C-Scape Sale Agreement.40 To state a claim for promissory estoppel, a plaintiff must

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plausibly allege the following: (1) a promise was made; (2) it was the reasonable expectation of

the promisor to induce action or forbearance on the part of the promisee; (3) the promisee

reasonably relied on the promise and took action to his detriment; and (4) such a promise is

binding because injustice will be avoided only by the enforcement of the promise.41

40F

The Complaint alleges that “Cipla unequivocally stated to Achaogen that it would

proceed with the Cipla C-Scape Sale Agreement.”42 The Complaint alleges that Cipla knew or

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should have known that its statements of intent to follow through on its agreement to purchase C-

37 See Axogen Corp. v. Integra LifeSciences Corp., 2021 WL 5903306, at *3 (Del. Super. Ct. Dec. 13, 2021).

See also Organovo Holdings, Inc. v. Dimitrov, 162 A.3d 102, 122 (Del. Ch. 2017).

38 “Under Delaware law, the elements of tortious interference with business relations are: (1) reasonable

probability of business opportunity; (2) intentional interference by defendant with that business opportunity; (3)

proximate causation; and (4) damages.” See Preston Hollow Capital LLC v. Nuveen LLC, 2020 WL 1814756, at *12

(Del. Ch. Apr. 9, 2020).

39 Organovo Holdings, 162 A.3d at 122.

40 See Compl., ¶¶ 174, 178.

41 Chrysler Corp. (Delaware) v. Chaplake Holdings, Ltd., 822 A.2d 1024, 1032 (Del. 2003).

42 See Compl., ¶ 175.

Scape would cause Achaogen not to take steps to find another buyer.43 The Complaint alleges

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that Achaogen detrimentally relied on Cipla’s statement that it would close the Cipla C-Scape

Sale Agreement.44 The Complaint further alleges that as a result of Cipla’s failure to

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consummate the deal, Achaogen lost government funding for C-Scape, C-Scape’s value

deteriorated, and Achaogen was unable to properly monetize C-Scape through the bankruptcy

process.45

44F

The Plaintiff’s promissory estoppel claim is pled in the alternative to the breach of

contract claim. Cipla acknowledges that a claim of promissory estoppel can be pled in the

alternative. The Complaint provides sufficient allegations to overcome the Motion to Dismiss.

Accordingly, the Court will deny the Motion as to the promissory estoppel claim.

Count IX: Breach of Implied Covenant of Good Faith

The implied covenant of good faith and fair dealing “requires a party in a contractual

relationship to refrain from arbitrary or unreasonable conduct which has the effect of preventing

the other party to the contract from receiving the fruits of the bargain.”46 “The implied covenant

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cannot be used when the contract already speaks to the obligation at issue.”47 “[T]he [implied]

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covenant of good faith is a limited and extraordinary legal remedy.”48 To successfully “plead a

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claim for breach of the implied covenant ‘a litigant must allege a specific obligation implied in

the contract, a breach of that obligation, and resulting damages.’”49

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43 Id. at ¶ 177.

44 Id. at ¶ 178.

45 Id. at ¶¶ 179-181.

46 Truinject Corp. v. Nestlé Skin Health, S.A., 2020 WL 70981, at *13 (D. Del. Jan. 7, 2020) (quoting Fortis

Advisors LLC v. Dialog Semiconductor PLC, 2015 WL 401371, at *3 (Del. Ch. Jan. 30, 2015) (internal quotations

omitted)).

47 Id.

48 Id. See also Oxbow Carbon & Minerals Holdings, Inc. v. Crestview-Oxbow Acquisition, LLC, 202 A.3d

482, 507 (Del. 2019) (quoting Nemec v. Shrader, 991 A.2d 1120, 1128 (Del. 2010)).

49 Truinject, 2020 WL 70981, at *14 (quoting Fortis Advisors, 2015 WL 401371, at *3).

Cipla argues that the covenant of good faith and fair dealing cannot be alleged when the

contract grants explicit termination rights to Cipla and the question, as asserted in the breach of

contract claims, is whether Cipla was justified in exercising those rights. Cipla claims there is no

gap to be filled by the implied covenant. Cipla further argues that certain allegations in the

Complaint (claiming that Cipla delayed negotiations on the Qilu license agreement to cause Qilu

to withdraw its bid and provide Cipla with an opportunity to sell the asset) are speculative and

without factual support.

In response, the Plaintiff argues that termination rights in the Plazomicin Sale Agreement

do not address the claims in Count IX. Instead, the Plaintiff asserts that the Complaint plausibly

alleges that Cipla acted unreasonably and arbitrarily regarding the overarching purpose of the

agreement when interfering with the Qilu license agreement negotiations, in failing to close as

back-up bidder on the China Assets, or by intentionally delaying and making false promises

regarding the C-Scape purchase agreement.

As noted above, in the context of a Rule 12(b)(6) Motion, the Court must take the

Plaintiff’s allegations as true. The Court concludes that the Plaintiff’s factual allegations for

Count IX are sufficient at this stage to raise the right to relief above the speculative level.50

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Accordingly, the Court will deny the Motion as to Count IX.

Count X: Contempt for Willful Violation of Court Orders

The Third Circuit Court of Appeals recognizes a cause of action for contempt where a

plaintiff proves the following elements by clear and convincing evidence: (1) a valid order of the

50 Twombly, 550 U.S. at 555.

court existed; (2) the defendant had knowledge of the order; and (3) the defendant disobeyed the

order.51

50F

The Complaint alleges that Cipla was aware of the Bidding Procedures Order when it

participated in the June 3 Auction. The Complaint alleges that at the conclusion of the June 3

Auction, Cipla’s bid for the China Assets was designated as the back-up bidder, which was later

memorialized in Cipla Sale Order. The Complaint alleges that the Debtor incurred significant

expenses and lost sale proceeds as a result of Cipla’s breach and willful failure to honor its

obligations under the Bidding Procedures Order and the Cipla Sale Order. As a result, the

Plaintiff seeks compensatory damages and an award of exemplary or punitive damages for

willfully violating the Court orders.

Cipla argues that Count X should be dismissed, arguing that the Third Circuit has held

that Bankruptcy Code § 105 does not create a private cause of action for civil contempt. 52

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Cipla argues that the proper mechanism for a contempt claim is through a contempt proceeding

in the underlying bankruptcy case, not as a private cause of action in an adversary proceeding.

In Joubert, however, the discharged debtor initiated a putative class action in the District

Court seeking damages and injunctive relief to address an alleged “widespread practice by

mortgagees of assessing, without notice to mortgagors, post-petition, pre-confirmation attorney

fees” in violation of Bankruptcy Code § 506(b)’s requirement that bankruptcy courts first

adjudge such fees as “reasonable.”53 The Third Circuit determined that § 105(a) does not afford

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51 Clean Harbors, Inc. v. Arkema, Inc. (In re Safety-Kleen), 331 B.R. 605, 608 (Bankr. D. Del. 2005) (quoting

Roe v. Operational Rescue, 54 F.3d 133, 137 (3d Cir. 1995)).

52 In re Joubert, 411 F.3d 452 (3d Cir. 2005) (holding that § 105 does not afford debtors a private cause of

action to remedy violations of § 506(b);the debtor’s remedy was a contempt proceeding in bankruptcy court).

53 Joubert, 411 F.3d at 453.

a private cause of action in district court to redress an alleged §506(b) violation; instead,

“Jourbert’s lone remedy is a contempt proceeding pursuant to § 105(a) in bankruptcy court.”

The Plaintiffs contend that other bankruptcy courts in this district have considered civil

contempt claims in adversary proceedings..*° The Court agrees that a contempt claim may be

pursued before the bankruptcy court in an adversary proceeding. Accordingly, the Motion to

Dismiss Count X is denied.

CONCLUSION

For the reasons set forth above, Cipla’s Motion is GRANTED, in part, with respect to

Count IV, which will be dismissed without prejudice, and Cipla’s Motion is DENIED with

respect to Count V, VI, VIII, [X and X. An appropriate Order follows.

> aay

Dated: January 30 , 2023 Wao RR AA | ann

Brendan finehan Shannon

United States Bankruptcy Judge

*4 Td. at 455. The Supreme Court has recognized bankruptcy court may impose civil contempt sanctions

under Bankruptcy Code sections 524 and 105(a) for violation of a discharge order “when there is no objectively

reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.” Taggart v.

Lorenzen, 139 8.Ct. 1795, 1801, 204 L.Ed.2d 129 (2019).

% WCI Communities, Inc. v. Espinal (In re WCI Communities, Inc.), 2012 WL 1981713, *8 (Bankr. D. Del.

June 1, 2012); Clean Harbors, Inc. v. Arkema, Inc. (In re Safety-Kleen), 331 B.R. 605 (Bankr. D. Del. 2005);

Hechinger Inv. Co. of Del., Inc. v. Allfirst Bank (In re Hechinger Inv. Co. of Del., Inc.), 282 B.R. 149, 158 (Bankr.

D. Del. 2002).

15