Official Comm. Unsecured Creditors of HH Liquidation, LLC v. Comvest Grp. Holdings, LLC (In re HH Liquidation, LLC)

II. The Parties

A. The Debtors

3. Holdings, one of the Debtors on whose behalf the Committee brings this proceeding, is a limited liability company formed under the laws of Delaware. Prior to the Petition Date, certain Comvest entities owned an interest in Holdings. Holdings directly or indirectly owned and operated approximately 18 supermarkets and one pharmacy in Oregon and Washington before contracting to purchase 146 stores from Albertson's. PTO ¶ 5.

4. Operations, one of the Debtors on whose behalf the Committee brings these causes of action, is a limited liability company formed under the laws of Delaware. Operations was formed prior to the Albertson's Acquisition. Prior to the Petition Date, Operations was owned and managed by its sole member, Holdings. PTO ¶ 6.

5. OpCo South, one of the Debtors on whose behalf the Committee brings these causes of action, is a limited liability company formed under the laws of Delaware. OpCo South was formed prior to the Albertson's Acquisition. Prior to the Petition Date, OpCo South was owned and managed by its sole member, Operations. PTO ¶ 7.

6. OpCo North, one of the Debtors on whose behalf the Committee brings these causes of action, is a limited liability company formed under the laws of Delaware. OpCo North was formed prior to the Albertson's Acquisition. Prior to the Petition Date, OpCo North was owned and managed by its sole member, Operations. PTO ¶ 8.

7. Acquisition, one of the Debtors on whose behalf the Committee brings these causes of action, is a limited liability company formed under the laws of Delaware. Acquisition was formed prior to the Albertson's Acquisition. Prior to the Petition Date, Acquisition was owned and managed by its sole member, Operations. PTO ¶ 9.

8. Haggen, Inc., one of the Debtors on whose behalf the Committee brings these causes of action, is a corporation formed under the laws of the State of Washington. From 2011 through the Petition Date, Haggen, Inc. was owned by Acquisition. PTO ¶ 10.

B. The Non-Debtor Affiliate and Corporate Defendants 3

9. Defendant CGH is a limited liability company. PTO ¶ 11. Defendant CIP III is a limited partnership and is owned and/or controlled, directly or indirectly, by CGH. PTO ¶ 12. Defendant CIP IV is a limited partnership and is owned and/or controlled, directly or indirectly, by CGH. PTO ¶ 13. Defendant CHH III is a limited liability company and is owned and/or controlled, directly or indirectly, by CGH. CHH III holds 458,489 Class A Units in Holdings. PTO ¶¶ 14-15. Defendant CHH IV is a limited liability company and is owned and/or controlled, directly or indirectly, by CGH. CHH IV holds 1,724,792 Class A Units of Holdings. PTO ¶¶ 16-17. Defendant Comvest Advisors is a limited liability company and is owned and/or controlled, directly or indirectly, by CGH. PTO ¶ 18. Defendant Property Holdings is a limited liability company formed at the time of the Albertson's transaction. At all relevant times prior to the Petition Date, Property Holdings was owned and managed by its sole member, Holdings. PTO ¶ 19. Defendant PropCo South is a limited liability company formed at the time of the *222 Albertson's transaction. At all relevant times prior to the Petition Date, PropCo South was owned and managed by its sole member, non-Debtor Defendant Property Holdings. PTO ¶ 20. Defendant PropCo North is a limited liability company formed at the time of the Albertson's transaction. At all relevant times prior to the Petition Date, PropCo North was owned and managed by its sole member, non-Debtor Defendant Property Holdings. PTO ¶ 21.

10. From the time of their formation in December 2014 through the Petition Date, PropCo South and PropCo North were managed by their sole member, Property Holdings. PTO ¶ 60-61. Defendant Property Holdings II, is a limited liability company formed at the time of the Albertson's transaction. At all relevant times prior to the Petition Date, Property Holdings II was owned and managed by its sole member, Debtor Holdings. PTO ¶ 22. Defendant Haggen SLB is a limited liability company formed at the time of the Albertson's transaction. At all relevant times prior to the Petition Date, Haggen SLB was owned and managed by its sole member, Debtor Acquisition. PTO ¶ 23. From the time of their formation through the Petition Date, the SLB Entities had no creditors, did not create or maintain any board minutes, did not utilize or maintain their own business forms or domain name, and maintained their business addresses, books and record and email servers at the Debtors' location. PTO ¶ 63.

C. The Individual Defendants

11. John Caple . Caple is an individual residing in the state of Florida. Caple was a Partner at Comvest Partners until January 31, 2016. In addition, Caple served as (a) a Manager of Holdings since at least January 1, 2014 through at least the Petition Date, as well as President and Chief Executive Officer for the period beginning no later than January 1, 2014 through January 30, 2015, and (b) a Director of Haggen, Inc. since at least January 1, 2014 through at least the Petition Date. PTO ¶ 24. Caple joined Comvest in 2010, as a managing director and later became a partner. Caple was responsible for managing Comvest's investment in Haggen, and was the leader of the Deal Team; he was asked to leave the firm less than six months after Haggen filed for bankruptcy relief. Trial Tr. (10/16) at 101:22-102:6, 103:1-18, 183:7-21.

Michael Niegsch . Niegsch is an individual residing in the state of Florida. At all relevant times, Niegsch was a Vice President of Comvest Partners. In addition, Niegsch has served as a Manager of Holdings since January 30, 2015. PTO ¶ 26. Niegsch joined Comvest in 2010. He graduated from the University of Michigan four years earlier, spent about seven months at UBS, two years at Morgan Joseph, and one year as an independent consultant before joining Comvest. Trial Tr. (10/17) at 5:13-6:16. In the summer of 2014, Niegsch was designated the "quarterback" of the Deal Team. As such, Niegsch was responsible for overseeing third party due diligence streams, managing third party experts, interfacing with Caple and the IC, working with financing counterparties to arrange financing for the transaction, and interfacing with management concerning the store conversions. Niegsch participated in the negotiation of the APA, the ABL, and the Sale Leaseback Transactions, and was also responsible for negotiating with UBS about a possible loan against the PropCo Entities' real property, and ultimately with Citibank in August 2015 concerning the PropCo Advance. Trial Tr. (10/17) at 6:17-8:10.

Cecilio Rodriguez . Rodriguez is an individual residing in the state of Florida. At all relevant times, Rodriguez was the Chief *223 Financial Officer of Comvest Partners. In addition, Rodriguez has served as (a) Secretary and Chief Financial Officer of Holdings for the period November 24, 2014 through January 30, 2015, as well as a Manager of Holdings since November 24, 2014, and (b) a Director of Haggen, Inc. for the period beginning no later than September 1, 2014 through December 6, 2014. PTO ¶ 25.

John Clougher . Clougher is an individual residing in the state of Washington. Clougher served as Chief Executive Officer of (a) Holdings since January 30, 2015 through at least the Petition Date, as well as a Manager of Holdings during that time, (b) Acquisition since December 6, 2014 through at least the Petition Date, (c) Haggen, Inc. since September 8, 2014 through at least the Petition Date, as well as President during that time, Treasurer for the period September 8, 2014 through January 1, 2015, and Director since December 6, 2014 through at least the Petition Date, (d) Operations since December 22, 2014 through at least the Petition Date, (e) OpCo North since December 2, 2014 through at least the Petition Date, as well as President during that time, (f) Haggen SLB since December 2, 2014 through at least the Petition Date, as well as President during that time, (g) Property Holdings for the period December 2, 2014 through October 8, 2015, (h) Property Holdings II for the period December 2, 2014 through October 8, 2015, (i) Property Holdings III, for the period December 2, 2014 through October 8, 2015, and (j) PropCo North for the period December 2, 2014 through October 8, 2015. PTO ¶ 27.

William Shaner . Shaner is an individual residing in the state of Washington. Shaner served as (a) a Manager and President of Holdings from January 30, 2015 to September 2, 2015 (b) President of Acquisition from January 30, 2015 to September 2, 2015; President of Operations from December 22, 2014 to September 2, 2015, and (d) President and Chief Executive Officer of OpCo South from December 2, 2014 to September 2, 2015. PTO ¶ 29.

Blake Barnett . Barnett is an individual residing in the state of Washington. Barnett has served as the Chief Financial Officer of (a) Holdings since January 30, 2015 through at least the Petition Date, (b) Acquisition since January 30, 2015 through at least the Petition Date, (c) Haggen, Inc. since January 1, 2015 through at least the Petition Date, Operations since December 22, 2014 through at least the Petition Date, (e) OpCo North since December 2, 2015 through at least the Petition Date, (f) Property Holdings from December 2, 2014 through October 8, 2015, (g) Property Holdings II from December 2, 2014 through October 8, 2015, (h) Property Holdings III from December 2, 2014 through October 8, 2015, (i) Haggen SLB since December 2, 2015 through at least the Petition Date, (j) OpCo South since December 2, 2014 through at least the Petition Date (as well as Vice President since October 29, 2015 through at least the Petition Date), (k) PropCo South from December 2, 2014 through October 8, 2015, and (l) PropCo North from December 2, 2014 through October 8, 2015. PTO ¶ 28.

Derrick Anderson . Anderson is an individual residing in the state of Washington. Anderson served as the Secretary of (a) Holdings since January 30, 2015 through at least the Petition Date, (b) Acquisition since December 6, 2014 through at least the Petition Date, (c) Haggen, Inc. since September 8, 2014 through at least the Petition Date, (d) Operations since December 22, 2014 through at least the Petition Date, (e) OpCo South since December 2, 2014 through at least the Petition Date (as well as Vice President since October 29, 2015 through at least the Petition Date), (f)

*224 OpCo North since December 2, 2014 through at least the Petition Date, (g) Haggen SLB since December 2, 2014 through at least the Petition Date, (h) Property Holdings from December 2, 2014 through October 8, 2015, (i) Property Holdings II from December 2, 2014 through October 8, 2015, (j) Property Holdings III from December 2, 2014 through October 8, 2015, (k) PropCo North from December 2, 2014 through October 8, 2015, and (l) PropCo South from December 2, 2014 through October 8, 2015. PTO ¶ 30.

III. Relevant Procedural History

12. On the Petition Date, the Debtors filed with the Court voluntary petitions for relief under the Bankruptcy Code. These cases are being jointly administered for procedural purposes pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure. No trustee or examiner has been appointed in the Debtors' cases. PTO ¶ 1. The United States Trustee for Region 3 appointed the Committee on September 21, 2015, to represent the interests of all general unsecured creditors in these cases pursuant to Section 1102 of the Bankruptcy Code. PTO ¶ 2.

13. On January 14, 2016, the Committee, the Debtors, Comvest, the PropCo Entities, and Property Holdings II executed and filed that certain Stipulation and Order (1) Granting Derivative Standing to the Official Committee of Unsecured Creditors to Commence Litigation Against Haggen Property Holdings, LLC, Haggen Property South, LLC, Haggen Property North, LLC, Haggen Property Holdings II, LLC, Haggen Property Holdings III, LLC, Comvest Partners and/or Directors and Officers Thereof; and (2) Providing for a Litigation Standstill, at Docket No. 1216 (the "Initial Standing Stipulation"). On January 15, 2016, the Court approved the Initial Standing Stipulation. PTO ¶ 3.

14. On April 29, 2016, the Committee and the Debtors executed and filed that certain Stipulation and Order Granting Derivative Standing to the Official Committee of Unsecured Creditors to Commence Litigation Against Haggen SLB, and/or its Past and/or Present Directors and Officers, at Docket No. 1858 (the "Second Standing Stipulation" and together with the Initial Stipulation, the "Standing Stipulations"). On May 2, 2016, the Court approved the Second Standing Stipulation. PTO ¶ 4.

15. On September 7, 2016, the Committee filed its Complaint and Objection to Claims at Docket No. 1 (the "Complaint").

16. Defendants filed their Answer to the Complaint on December 9, 2016. Docket No. 16 (the "Answer").

17. The Court conducted a trial on five consecutive days from October 16-20, 2017, during which it heard live testimony from each of the seven Individual Defendants, Todd Hooper (a representative of ATK), and the following expert witnesses: David MacGreevey, Carol Flaton, and James Howard on behalf of the Committee; and Kevin Montague and John Satter on behalf of the Defendants. The Court also admitted into evidence numerous exhibits and deposition designations of 26 witnesses as well as the videotaped deposition of Thomas Clark, a non-defendant managing director of Comvest who sat on the IC during the relevant time.

IV. Comvest Acquires A Controlling Interest In Haggen

18. Haggen was founded in 1933 as a single grocery store. In the ensuing decades, the Haggen family operated the company and opened additional stores. In 1962, the Haggen family concentrated all *225 of their business activities in a single corporate entity, Haggen, Inc. By 2011, Haggen, Inc. operated a 30-store chain of grocery stores in the states of Washington and Oregon. PTO ¶ 31. 4

19. In 2011, the Haggen family sold an 80% equity interest in Haggen, Inc. to Comvest. Specifically, defendant CGH, a Comvest entity, purchased its majority stake in Haggen, Inc. through two newly-formed limited liability companies, Holdings and Acquisition, which it formed for that purpose. Thus, in January 2011, CGH formed Holdings and acquired 80% of the membership interests of that entity with the Haggen family obtaining the balance of the membership interests, and at about the same time, CGH also formed Acquisition. Holdings solely owned the membership interests in Acquisition, and Acquisition owned all of the stock of Haggen, Inc. PTO ¶ 32.

20. Over the next four years, under Comvest's direction, Haggen closed a number of unprofitable stores. As of the end of 2014, Haggen operated 18 grocery stores and one pharmacy on a profitable basis. PTO ¶ 33.

V. The Albertson's Transaction - The Project

A. Comvest Learns Of The Albertson's Opportunity

21. In the summer of 2014, Caple learned that the FTC required Albertson's and Safeway to divest a substantial number of stores as a condition to the closing of their proposed merger and identified this as an opportunity for Comvest. On August 13, 2014, Comvest submitted its initial indication of interest to acquire 22 stores in Washington and Oregon. Trial Tr. (10/16) at 104:25-105:18; PX 4; PTO ¶¶ 34, 46. Comvest originally focused on Washington and Oregon because those were the states in which Haggen operated.

22. On September 15, 2014, the Deal Team informed the IC that the number of stores being considered had increased from 22 to approximately 43, and all were located in Washington and Oregon. Compare PX 4.004 with PX 8.002. The IC was also informed that the appraised value of the real estate associated with those 43 stores exceeded the proposed purchase price by $56 million. The Deal Team described the proposed transaction as "transformational" but noted that it also "provide[d] integration execution risk (i.e., Haggen's current infrastructure will need to absorb 43 additional stores)." Trial Tr. (10/16) at 106:2-8; 106:25-112:17; PX 8.

23. Several weeks later, Comvest was informed by Albertson's representatives that Comvest would also have to bid on stores located in California to remain competitive. The Deal Team informed the IC of this development and noted that, although the execution risk would increase as Haggen entered new markets, they believed the proposed transaction was "too juicy" to pass up, in part, because of the value of the owned real estate associated with the stores. Trial Tr. (10/16) at 117:7-119:21; PX 6; PX 7.

*226 B. Comvest Focuses On The Real Estate .

24. On November 3, 2014, the Deal Team informed the IC that, among other things, "Albertson's has asked us to take 16 additional stores in Nevada and Arizona," nine of which were situated on fee-owned real estate and two of which were subject to ground leases. The IC was also told that Albertson's was "adding these stores to our deal for no additional purchase price because it makes their lives easier," and that the appraised value of the real estate associated with the stores in Nevada and Arizona was $56 million.

25. The Deal Team also included certain projections described as "downside scenarios." Clark and Marrero focused their attention on the value of the real estate. In particular, both Clark and Marrero sought assurances from Caple about the value of the "underlying real estate (in downside scenarios)" because, according to Marrero, "that affects [the] decision tree more than anything." Trial Tr. (10/16) at 119:22-123:6, 296:9-298:6; Clark Tr. at 116:20-117:10, 117:20-119:2; DX 79; PX 9. Indeed, Clark acknowledged that the "potential to acquire real estate with underlying value" was one of the "key components" to Comvest's deal thesis. Clark Tr. at 109:25-111:14; PX 26.005.

26. A month after Clark and Marrero sought assurances as to the value of the real estate, the Deal Team requested authority from the IC to submit Haggen's final bid, and submitted a "deck" in advance of the meeting. Trial Tr. (10/16) at 123:12-15; PX 30. In the deck, and at the meeting, the Deal Team told the IC that the "all-in purchase price of $430M" would be funded with the proceeds from the Sale Lease Back Transactions and the ABL, and would yield, among other things, residual real estate with an appraised value of $118 million, all of which would be transferred to the PropCo Entities. Trial Tr. (10/16) at 123:16-126:19; PX 19.004.

27. Several weeks later, before Haggen closed on the first store, Falk and Niegsch conferred on, among other things, the economic benefits that Comvest expected to reap from the real property. Specifically, and consistent with the representations set forth in the December deck, Niegsch confirmed for Falk that the PropCo Entities would have (a) unencumbered real estate appraised at $117 million, and (b) annual rental income of $13 million from the OpCo Entities (pursuant to the PropCo Leases), all for Comvest's ultimate benefit. Trial Tr. (10/17) at 49:4-51:17; PX 33.

VI. Execution Risks

A. Risks Are Identified Pre-Closing

28. Comvest knew in September that the initial proposal to acquire just 43 stores in Washington and Oregon states where it was already operating presented significant integration risks because Haggen was going to need to integrate the Albertson's and Safeway stores "into our chain and rebrand them. So there was an awful lot to do to get that done." According to Caple, "infrastructure," included employees, software and IT systems, union and vendor relationships, purchasing and distribution processes, and back office operations. Trial Tr. (10/16) at 112:18- 114:4; PX 8.003. Caple knew that these integration risks would increase as stores continued to be added. Id. at 119:10-17 .

29. Less than six weeks before the signing of the APA, certain of the Individual Defendants and Comvest's advisors identified substantial transaction risks and potential downside scenarios, including:

• "sales growth/banner conversion would have no benefit at all"

• "no labor savings at all, ever"

*227 • "store expenses are up some, 5%, 10% from base case"

• While the Haggen brand may bring positives, it "isn't going to overwhelm the customer at first."

• "We are fighting headwinds like eliminating the Von's card and fuel programs; not small takeaways."

• "We are eliminating banners that have a presence for years, and while somewhat tarnished, still maintain a loyal customer base."

PX 157.

30. Separately, in December, SuperValu raised concerns to Comvest and Haggen about "logistics/slotting," the process whereby decisions are made concerning the assortment of products that would be put on the shelves. SuperValu advised them that "[a]ssortment decisions must be made by Haggen immediately" or there would be "[r]isk to customer experience and out of stocks." PX 273.004.

B. Pricing Risks Were Identified

31. The pricing risks were among the most significant risks that were identified to the Defendants. The evidence establishes that Defendants were specifically advised prior to the execution of the APA that if Haggen failed to execute its pricing strategy, it would likely suffer a loss of customers.

32. On October 6, 2014, shortly after ATK was hired, Caple told Hooper that there "seems to be a huge capability gap around pricing at Haggen." Trial Tr. (10/20) at 149:12-21; PX 206.

33. On October 15, 2014, after having been alerted to the issue, ATK identified "pricing" as one of the "Key Decisions/Issues To Be Addressed" and advised Comvest and Haggen to "maintain" existing prices in the short-term in order to "minimize changes for [the] consumer." PX 211.010. Hooper advised Haggen that if Haggen did not maintain existing prices, particularly for "like items," Haggen was likely to lose customers. Trial Tr. (10/20) at 146:22-147:17.

34. ATK was terminated by early December. According to Hooper, Caple informed him that he did not want to pay ATK $500,000 per month for services. Trial Tr. (10/20) at 152:10-153-10.

35. Comvest and Haggen apparently thought they could "outsource" the pricing logistics to SuperValu. Trial Tr. (10/19) Tr. at 35:16-25; PX 72-0027. This assumption proved problematic because, among other reasons, (a) SuperValu had no prior relationship with Safeway, and (b) Comvest and Haggen decided to keep the legacy stores running on their own independent platform thereby preventing the integration of all three parts of the newly-formed enterprise. SuperValu (Collison) Tr. at 40:9-13, 41:21-42:6.

36. The logistics of training everyone on the various information systems created additional risks. SuperValu, for example, had to train all of the Safeway employees as well as approximately 130 merchants (the corporate-level managers that make "item and price and promotion decisions and assortment decisions."). Id. at 43:7-44:25 . SuperValu knew "early on" that it would take "months" to fully train everyone, a point that it asserts was conveyed to Haggen but nevertheless caused considerable concern due to the closing cadence schedule. Id. at 47:24-49:19 .

37. Concerning pricing and merchandising, SuperValu asserted that "we did not believe that there was adequate time for Haggen to make all the merchandising decisions that they needed to make in order to have the right prices, the right assortment in their stores." SuperValu (Collison) Tr. at 91:18-93:12; PX 273.003 *228 (identifying the impact and associated risks for pricing and merchandising issues caused by the accelerated conversion commencement date).

38. Haggen was dismissive of the risks that had been identified, with Clougher telling Barnett and Genser that "[t]here is a large level of b...s..." in SuperValu's risk analysis. PX 273.001. When the very first store opened, there were considerable pricing problems that resulted in multiple "shelf tags" for the same items; this created a laborious, complex set of issues that required determinations to be made as to which tag was the correct one, and then match that tag with the "point of sale system." Id. at 51:9-54:11 . As a consequence, there were inventory shortages and a loss of customers, just as SuperValu had warned back in December. Id. at 111:3-112:2 ; PX 273.

Certain Third-Parties' Roles With Projections

39. Defendants contend that their proposal to acquire 146 stores from Albertson's was "vetted by multiple third parties who were incentivized to rigorously inspect the deal" and all "believed it would work." See, e.g., Def. Trial Br. at 4-5, 15, 32-33. Defendants also contend that these third parties validated Haggen's corporate structure and found Comvest's projections to be reasonable. Trial Tr. (10/16) at 47:3-10; 66:24-25, 69:7-12. The evidence shows that Defendants' claims are somewhat overstated.

A. FTC

40. The FTC is a governmental agency that ordered Albertson's and Safeway to divest certain stores as a condition to approving the Albertson's/Safeway merger, and that approved Haggen as a qualified bidder of 146 of those stores. PTO ¶¶ 46, 48. The evidence shows that Haggen and Comvest (a) provided the FTC with a business plan and a set of projections (that did not include a "downside case" or a "real bad downside case" showing Haggen with barely any liquidity), and (b) participated in one in-person meeting with the FTC that lasted two to three hours. Trial Tr. (10/16) at 224:3-22; DX 72, PX 318. The FTC apparently relied on these materials and meeting in approving Haggen as a qualified bidder.

B. PNC

41. Defendants also contend that by agreeing to the terms of the ABL, PNC implicitly or explicitly validated or approved Haggen's new corporate structure, including the transfer of assets to bankruptcy remote entities, Comvest's projections, and the Albertson's Acquisition generally. See, e.g., Trial Tr. (10/16) at 60:15-21; Answer ¶ 82; Def. Trial Br. at 4, 11. The evidence somewhat contradicts Defendants' contentions concerning PNC.

42. Comvest and PNC had a long-standing relationship that preceded the Albertson's Acquisition, with PNC already having extended credit to "five or six" of Comvest's portfolio companies. PNC (Goldstein) Tr. at 39:11-22, 40:19-24; PX 369.003 (listing the entities PNC has provided financing to, including specific Comvest funds, companies to which Comvest provided debt financing, and Comvest portfolio companies). On August 30, 2014, Niegsch wrote to PNC about Haggen's potential acquisition of stores from Albertson's and Safeway and emphasized that "[g]iven the dynamics, we are going to be able to pick up the stores and some valuable real estate for a very attractive price." Niegsch expressed interest in "upsizing our current ABL facility and putting some leverage on the real estate." PX 366.004.

43. By October 2014, the Albertson's deal had expanded to include certain California stores and PNC was asked to lead a *229 $150 million underwriting for a revolving, asset- based loan. PNC was advised that Comvest planned to take out a $61 million term loan against the fee-owned real estate, with $50 million of the proceeds used to finance a "Comvest Dividend payable at closing." PX 367.

44. On December 1, 2014, PNC sought approval from its Credit Risk Management Committee and Executive Credit Risk Management Committee for a proposed $180 million revolving line of credit to Haggen. PNC (Goldstein) Tr. at 74:3-77:3; PX 369. These Committees approved the proposed transaction and provided six "business justifications" for the loan including the profitable nature of the deal to PNC, PNC's "extensive history with Comvest," and the fact that the loan was to be a "fully-secured, fully-monitored, revolver-only facility." PX 369.004.

45. Although PNC ultimately approved the loan, PNC's underwriters considered Haggen's proposed $180 million ABL risky and assigned it a "risk rating" of 12B. According to PNC, the numerical part of the risk rating is an assessment of the probability of the prospective borrower's default with "1" being the least likely and "14" being the most likely to default. The alphabetical part of the risk rating is an assessment of PNC's loss in the event of default or, stated another way, PNC's perception of the quality of collateral, with "A" being the most secure ( i.e. , cash collateral) and "G" being the least secure ( i.e. , unsecured). PNC (Goldstein) Tr. at 80:11-84:11, 85:11-20; PX 369.003. Thus, in assigning a risk rating of 12B to the proposed ABL, PNC determined that there was a very substantial risk of default, but concluded that the risk was mitigated by the strength of the collateral securing the ABL. PX 369.005-006.

46. On February 12, 2015, Haggen, Inc., OpCo South, and OpCo North entered into the ABL. PNC (Goldstein) Tr. at 100:7-101:9; PX 370. The ABL was projected to be, and initially was, for a maximum revolving advance amount of $180 million. Id. at 101:10-13, 104:20-23 ; PX 370.038.

47. Based on the foregoing, the Court concludes PNC identified risks, but justified extending the loan based on the quality of the collateral, the nature of the loan, and its long-standing relationship with Comvest.

C. Garrison

48. Garrison is a sale leaseback counterparty. Defendants contend that by entering into the Sale Leaseback Transactions, Garrison validated Haggen's new corporate structure, Comvest's projections, and the Albertson's Acquisition generally. Trial Tr. (10/16) at 60:22-61:4; Def. Trial Br. at 4, 12. The evidence is to the contrary.

49. Prior to entering into the Sale Leaseback Transaction, a team at Garrison prepared a "Confidential Information Memorandum" ("CIM"). The CIM was presented to Garrison's Management Committee, the body charged with the responsibility of approving the transaction on behalf of Garrison. Garrison (Rosenthal) Tr. at 41:5-44:21; PX 178. The CIM detailed, among other things, the many risks identified by Garrison as well as Garrison's overall strategy. PX 178.

50. The CIM and Garrison's testimony establish that Garrison entered into the Sale Leaseback Transactions because it believed it was acquiring real estate at a substantial discount to market, and that its business strategy would allow it to avoid the substantial transactional risks that it identified including, but not limited to, the risk that Haggen would run out of liquidity.

*230 51. Prior to entering into the transaction, Garrison and its industry consultant, Food Partners, identified numerous and substantial risks presented by the proposed Albertson's Acquisition. Garrison (Rosenthal) Tr. at 38:16-39:6, 74:17-25; PX 178.016. Among the risks identified by Garrison were:

a. Haggen was deemed to be a "non-investment grade credit"

b. Comvest planned to contribute insignificant new equity

c. Haggen was taking on higher than average risk with this "complicated endeavor" due to the "size of the transaction; the amount of stores that were being acquired."

d. Garrison was concerned that Haggen lacked the capability to successfully convert all the stores

e. Haggen lacked brand recognition in the new markets it was entering

f. Albertson's and Safeway were to remain direct competitors

g. Short term liquidity risk due to the possibility that corporate cash flows could be impaired

h. Possible delays in the conversion schedule; higher than expected costs; higher CAPEX; sales declines

Garrison (Rosenthal) Tr. at 75:2-76:11, 80:24-90:23; PX 178.016.

52. Food Partners also prepared its own independent risk assessment that was presented to Garrison's Management Committee as part of the CIM. Among the risks Food Partners identified were:

a. "This type of transaction [ i.e., the size and scale] has never been done before"

b. "Haggen brand and format is not portable for other markets."

c. "Leveraged acquisition with Comvest not investing equity"

d. Albertson's and Safeway "will be direct competitors and will know the markets (and customers) better than Haggen"

e. "Closing and conversion schedule highly risky, especially licenses and permits and executing SLB"

f. "Management team has not operated a traditional format in these markets"

g. "Transaction complexity and size may overwhelm Haggen"

h. "Haggen runs out of liquidity"

Garrison (Rosenthal) Tr. at 92:18-104:5; PX 178.093.

53. The opportunity to purchase the real property at such a substantial discount to market provided Garrison with the financial incentive to proceed, and the strategy of selling the real property individually over a nine-month period mitigated substantially all of the risks identified.

VII. Comvest's New Corporate Structure

54. The Committee contends that all of the claims at issue arise, in the first instance, from Comvest's decision to create a "PropCo/OpCo" structure in connection with the Albertson's Acquisition. To be clear, there is nothing illegal, improper or unfair about the utilization of a PropCo/OpCo structure.

55. The Committee contends that Comvest's adoption of the PropCo/OpCo structure in this case was problematic for at least the following reasons: (a) the structure was adopted on the eve of, and in connection with, a "transformative" transaction (b) the transaction involved an eight-fold increase in the number of Haggen's stores, including Haggen's expansion into three new states where Haggen had no prior name recognition, customer affinity, or reputation, (c) the transaction was fraught with substantial execution risks, *231 (d) the OpCo Entities were inadequately capitalized from the outset and remained so, and (e) Comvest devised the PropCo/OpCo structure with the specific intent of securing the economic benefits of the real estate for itself, whether the transaction succeeded (by leveraging the real estate to pay dividends to Comvest, and creating $13 million in annual cash flow from the rent due under the PropCo Leases and subleases), or failed (by placing the real estate beyond the reach of the OpCo Entities' creditors, Comvest intended to provide itself with "downside protection" in the event of a "disaster" or "liquidation" scenario).

56. The parties agree on certain basic facts. From the time of Comvest's investment in Haggen in 2011 through December 1, 2014, the equity owners of the enterprise ( i.e. , Comvest and members of the Haggen family, through HHI) owned the membership interests in Holdings, which owned all of the membership interests in Acquisition, which owned all of the common stock in Haggen, Inc. as follows:

PTO ¶ 55.

57. On the eve of the Albertson's Acquisition, Comvest caused Haggen to create ten new entities within a new "PropCo/OpCo" structure:

*232 58. The evidence establishes that Comvest created this structure with the intent of keeping the assets and liabilities of the PropCo Entities separate from the assets and liabilities of the OpCo Entities. Trial Tr. (10/16) at 147:19-148:6. Caple admitted that the effect of the PropCo/OpCo structure was to prevent the PropCo Entities' assets ( i.e. , the real estate) from being used to satisfy claims made against the OpCo Entities. Trial Tr. (10/16) at 292:17-294:4. Clark expressed the same view, testifying that he knew the real estate assets would be transferred to the PropCo Entities and would be unencumbered, and that there would be "no link directly between" the PropCo Entities and the OpCo Entities. Clark Tr. at 122:10-123:14, 125:11-126:6, 127:2-128:21.

59. Comvest was intent on placing as much of the real estate as possible into an entity or entities that creditors of the operations could not reach. This topic came up on November 20, 2014, when Barnett, who needed to know the names of the entities for purposes of executing various contracts, asked Niegsch about the status of the "legal entity structure." Trial Tr. (10/17) at 163:16-24; PX 29. Niegsch told Barnett that he was unsure, but if "we have to take the [BofA deal advocated by Albertson's/Cerberus], we could probably keep this structure, but it would mean nothing from a silo-'ing' of assets and liabilities perspective." PX 29.

60. At trial, Niegsch admitted that (a) the "structure" he was referring to was the PropCo/OpCo structure, (b) his reference to the "siloing" of assets and liabilities "was to the structure that [Comvest] was pursuing that would have separated the operating assets and liabilities from the real estate assets and liabilities," (c) if Comvest took the BofA deal it "wouldn't have a structure where the operating company had the operating assets and liabilities, and the real estate company had the real estate assets and liabilities," and (d) the effect of the PropCo/OpCo structure was that "the property assets couldn't be used to satisfy the OpCo liabilities and the OpCo assets couldn't be used to satisfy the PropCo liabilities." Trial Tr. (10/17) at 44:7-46:2, 164:19-165:11 (cross-collateralization would permit the lender to foreclose on all assets in the event of default); PX 29.

VIII. The Transactions Were Interrelated And Dependent

A. Holdings' Rights to Acquire Real Estate Were Transferred to PropCo Entities and SLB Entities Through the Contribution Agreements

61. With the corporate structure in place, Comvest executed on its strategy of the transfer of real estate assets from Holdings to the PropCo Entities and the SLB Entities through the use of the Contribution Agreements. Trial Tr. (10/17) at 62:20-63:8; PTO ¶ 65.

62. Holdings was the sole Haggen party to the APA and had the exclusive right to acquire, among other things, the real property assets, including fee-owned property and ground leases. PX 263. Haggen acquired the stores on a rolling basis. As the stores were acquired, Anderson signed Contribution Agreements whereby Holdings transferred its right to acquire specified stores to a PropCo Entity (if it was a fee owned property that was not included in an SLB transaction) or to an SLB Entity (if it was a fee owned property that was included in an SLB transaction). Trial Tr. (10/17) at 258:21-260:4; PTO ¶¶ 64-65; PX 263; PX 89-PX 103.

63. Holdings received nothing in exchange for the transfers of its right to acquire the real property assets to the PropCo Entities and the SLB Entities.

*233 Trial Tr. (10/16) at 126:20-127:25; Trial Tr. (10/17) at 260:16-20; 261:6-8.

B. The SLB Transactions

64. Haggen financed the Albertson's Acquisition by using a substantial portion of the acquired real estate in two sale leaseback transactions pursuant to which (a) Holdings transferred its right to acquire certain fee owned properties to one of the SLB Entities pursuant to the Contribution Agreements (b) the SLB Entities then sold those fee-owned properties to the SLB counterparties ( i.e., Garrison and Spirit) and (c) the sales proceeds were initially paid to the SLB Entities and most was then used to pay Albertson's purchase price; and the financial obligations under the SLB Leases were not assumed by the SLB Entities that received the money, but were placed on the OpCo Entities. Thus Haggen affiliates (the SLB Entities) received the proceeds from the SLB transactions. Another group (the OpCo Entities) assumed the obligations in the form of the SLB Leases.

1. The SLB Transactions with Spirit

65. Holdings signed the "Purchase and Sale Agreement and Joint Escrow Instructions" with Spirit, dated as of November 24, 2014 (together with any amendments thereto, the "Spirit SLB Agreement"). PTO ¶ 70.

66. Pursuant to the Spirit SLB Agreement, the SLB Entities sold 20 parcels of real estate (and improvements) to Spirit located in Arizona, California, Nevada, Oregon, and Washington (the "Spirit SLB Properties") for approximately $224.4 million. PTO ¶¶ 71-74.

67. An affiliate of Spirit, Spirit SPE HG 2015-1, LLC, as landlord, entered into a Master Lease Agreement with Operations, as tenant, as of February 12, 2015, with respect to certain of the other Spirit SLB Properties (together with any amendments thereto, and the Spirit Lease, the "Spirit Master Leases"). PTO ¶ 86.

2. The SLB Transactions with Garrison

68. Haggen also entered into a Sale Leaseback Transaction with Garrison. 5 Garrison understood that Comvest was the majority equity owner of Haggen and negotiated the Sale Leaseback Transaction with Niegsch. Garrison (Rosenthal) Tr. at 13:3-11. Garrison also understood that completion of the Sale Leaseback Transaction was dependent on Haggen's closing on the APA with Albertson's. Garrison (Rosenthal) Tr. at 23:11-25:5.

69. On December 4, 2014, Holdings and Garrison executed a "Purchase and Sale Agreement and Joint Escrow Instructions" (together with any amendments thereto, the "Garrison SLB Agreement"). PTO ¶ 75; Garrison (Rosenthal) Tr. at 25:6-18; PX 481. The Garrison SLB Agreement governed the "sale" part of the SLB transaction. Garrison (Rosenthal) Tr. at 108:22-109:3.

70. Pursuant to the Garrison SLB Agreement, the SLB Entities sold 19 parcels of real estate (and improvements) located in Arizona, California, Nevada, Oregon, and Washington (the "Garrison SLB Properties") for approximately $134.4 million. PTO ¶¶ 76. According to Garrison, Haggen determined which specific properties were included in the set. Garrison (Rosenthal) Tr. at 36:21-37:8.

*234 71. On February 17, 2015, Garrison, as landlord, and OpCo South and OpCo North, as tenants, entered into the Garrison Lease, as amended. The Garrison Lease set forth the terms by which the OpCo Entities leased each of the Garrison SLB Properties following Garrison's acquisition of them from the SLB Entities. PTO ¶¶ 82-84; Garrison (Rosenthal) Tr. at 107:13-109:3, PX 482.

72. The SLB Transactions yielded $358.8 million. As intended, the proceeds were used to pay Albertson's (which included payment for all of the fee owned properties subject to the SLB Transactions as well as the twenty-eight remaining fee owned properties that were transferred free and clear to the PropCo Entities), with the residual proceeds of $50 million going to the OpCo Entities. PTO ¶¶ 66-67, 87.

73. In exchange for the $50 million in SLB proceeds, the OpCo Entities assumed all of the massive long-term obligations under the SLB Leases. PTO ¶ 68.

3. The SLB Leases Were Above Market

74. James Howard offered expert testimony on the Committee's behalf concerning whether the SLB Leases were above market. Howard's ultimate conclusion was that the lease rates in the SLB Leases were above market. Trial Tr. (10/19) at 218:25-220:12. For the reasons set forth below, the Court finds that Howard was a credible witness, his methodology is generally accepted, and the bases for his opinions were reasonable. The Court therefore credits Howard's opinions as set forth herein and finds that the SLB Leases were above market.

75. Howard is well-qualified to offer expert opinions concerning commercial real estate leases, particularly those concerning supermarkets. Howard has over 35 years of relevant experience, including 27 years working on behalf of lenders in the real estate and special assets/workouts fields. As the market manager for Wachovia Bank's West Florida lending division, Howard oversaw loans of over $500 million to retail developers related to grocery stores. Since 2008, Howard has been advising retail developers as a Senior Managing Director of GlassRatner Advisory & Capital Group LLC. Based on his knowledge and experience, the Court concludes that Howard is qualified to offer his expert opinions concerning fair market rent. Trial Tr. (10/19) at 215:6-17, 216:9-217:1; PX 166.080-089.

76. Howard was first retained in April 2017 and was asked to examine the master leases related to the SLB Transactions and compare them to what he "would expect to see in the market at the time that the transaction transpired." Trial Tr. (10/19) at 214:19-24, 217:16. Howard assembled a team to assist him, and together they gathered and reviewed documents in connection with the preparation of a written report. Id. at 217:20-218:18 .

77. Howard's methodology was a classic "comparable transaction" analysis. After reviewing the Garrison CIM and Spirit confidential memorandum, Howard and his team used various databases to establish a "market rent" in each relevant geographic market. Howard and his team also visited each of the properties that was subject to the SLB transactions and conducted physical inspections to assess particular characteristics. Trial Tr. (10/19) at 220:13-221:13.

78. Howard compiled various schedules that included his "comparable transactions." The primary sources for Howard's comparable transactions were Duff & Phelps (commissioned by Spirit), Garrison, and CoStar. Howard focused on supermarkets (excluding all non-grocer tenants), eliminated smaller stores, and broke his *235 "comps" down by geographical area. Trial Tr. (10/19) at 221:17-227:3.

79. Howard's ultimate conclusions are that the SLB Leases were, in the aggregate, (a) $3.55 million above market on an annual basis, and (b) $17 million above market over the life of the leases. Trial Tr. (10/19) at 227:4-229:15; PX 166 (tables 11 and 11(a) ).

80. Defendants offered the expert testimony of John Satter to rebut Howard's conclusions. Satter's principal criticism was that Howard did not provide for an annual rent escalation clause. This is a significant point because all of the SLB Leases were subject to annual rent increases. On cross-examination, however, Satter was forced to admit that Howard had reviewed each of the 79 third-party leases that Albertson's assigned to Haggen as part of the Albertson's Acquisition, and not a single one contained an annual rent escalation clause. Trial Tr. (10/20) at 266:14-268:1.

81. In light of the sound methodology employed, and the reasonableness of Howard's decision not to include an annual rent escalation clause, the Court finds that Howard's opinions are credible, and the SLB Leases were above market to the extent determined by Howard.

C. The PropCo Leases/Rents

82. Simultaneous with the transfer of the fee-owned real estate to the PropCo Entities pursuant to the Contribution Agreements, Comvest caused the PropCo Leases to be executed pursuant to which the OpCo Entities were required to pay rent to their corporate cousins, the PropCo Entities. Notably, when the stores subject to the PropCo Leases were owned by Albertson's, they paid "nominal rent" of about $100 per store per year - a peppercorn - "[j]ust enough so that we have some consideration." Albertson's (Beckstrom) Tr. at 16:8-18:22, 22:23-23:7.

83. The Court finds, as a matter of fact, that the PropCo Leases did not result from arm's length negotiations. Comvest unilaterally decided the terms of the PropCo Leases and directed Akerman to prepare them, and Anderson signed all of the PropCo Leases on behalf of both the "landlords" and the "tenants." Trial Tr. (10/17) at 63:9-21, 261:13-24; PX 692-703. Trial Tr. (10/17) at 253:14-20, 254:14-21, 262:22-264:1. However, the Committee stipulated that the rental rates were not above market.

D. The Subleases (Ground Leases)

84. As with the Contribution Agreements and the PropCo Leases, Comvest also dictated the terms of the subleases between the PropCo Entities and the OpCo Entities pertaining to the ground leases.

85. According to Niegsch, at the time of the Albertson's Acquisition, Albertson's had a number of third-party ground leases. Comvest transferred the ground leases to the PropCo Entities and caused the OpCo Entities to enter into "subleases" at "market rates" with the PropCo Entities, pocketing the difference between the actual rent due under the ground leases and what Comvest determined the market rent to be. Trial Tr. (10/17) at 64:10-65:12. Each of the stores subject to a ground lease was forced to take a rent increase. Prior to the Albertson's Acquisition, the stores subject to the ground leases did not pay any additional "rent" to any Albertson's affiliate. Albertson's (Beckstrom) Tr. at 25:4-22, 27:7-31:25. Here, again, the Committee stipulated that the leases were at market rates.

E. Comvest's Domination Of The Transactions And Terms

86. Caple admitted that Comvest: (a) controlled the Haggen enterprise, (b)

*236 structured the Albertson's Acquisition, (c) determined to pursue the SLB transactions, (d) made the decision to enter into each applicable agreement, (e) authorized Caple, as Manager, to enter into the APA, (f) approved the PropCo Advance in August 2015, (g) approved the commencement of these bankruptcy cases, and (h) decided which Haggen entities would file for bankruptcy and which would not. Trial Tr. (10/16) at 146:3-147:18.

X. Comvest's "Investment" In Haggen

87. Defendants have repeatedly asserted that Comvest contributed nearly $200 million into the Albertson's Acquisition, comprised of the legacy stores with an alleged value of $100 to $140 million and an "equity investment" of $50 million. See , e.g., Hearing Tr. (9/26/17) at 26:24-27:2; Def. Trial Br. at 1, 2, 4, 29-30.

A. The Value Of Comvest's Interest In The Legacy Stores Was $26.5 million

88. As part of the Albertson's Acquisition, Comvest "contributed" the legacy stores by placing Haggen, Inc. on the "OpCo" side of the new corporate structure. Defendants contend that the value of the legacy stores was $100 million. Trial Tr. (10/16) at 50:21-51:7, 96:20-97:2; Def. Trial Br. at 1, 4, 29. At trial, Caple asserted that the Haggen legacy stores were worth between $100 to 140 million. Trial Tr. (10/16) at 269:17-21.

89. The best evidence of the value of Comvest's equity interest in the legacy stores is Comvest's contemporaneous communications to its investors. Comvest reported to its investors that as of December 31, 2014 (the time of the Albertson's Acquisition) Comvest's equity interest in Haggen was worth $26.5 million. Trial Tr. (10/16) at 274:20- 276:7; PX 636.

B. Comvest Never Intended To Make An "Equity Investment"

90. Comvest contends that it made an "equity contribution" of $50 million in the OpCo Entities in connection with the Albertson's Acquisition. 6 Trial Tr. (10/16) at 67:9-10; Def. Trial Br. at 1, 29. While Comvest "invested" (and lost) $50 million, the evidence conclusively establishes that Comvest did not intend to make an "equity investment" of any kind; rather, Comvest believed it was really making a short-term "bridge loan" at the insistence of the sellers.

91. Comvest did not believe that Haggen needed a $50 million "equity investment" to capitalize the OpCo Entities; rather, Albertson's and Cerberus insisted that Comvest put the money in and keep it there until Albertson's was paid in full, which Comvest expected to occur within 30 days after the closing of the last store in June. Trial Tr. (10/16) at 128:21-129:14, 131:6-12.

92. On December 3, 2014, when seeking approval of the Haggen bid, the Deal Team told the IC that even though Comvest was putting in $50 million, it would "have no risk outside its basis" because (a) half the money would be used to pay back an existing Haggen loan that Comvest had guaranteed (thereby eliminating a potential $25 million obligation), (b) the balance was expected to be repaid to Comvest in the form of a tax distribution later in the SLB and conversion processes, and (c) Comvest was also contemplating making *237 dividend distributions equal to its "investment" by selling ground leases and leveraging the PropCo Entities' real estate. Trial Tr. (10/16) at 129:15-133:13, Trial Tr. (10/17) at 142:10-18; PX 19.004, 19.012 (setting forth Comvest's "Real Estate Strategy Between Sign and Close/Comvest Dividend").

93. At trial, Caple admitted that $20 million from the proceeds of Haggen's preexisting loan was used to pay Comvest a dividend. Trial Tr. (10/16) at 129:15-130:25; PX 19.004. In other words, half of Comvest's $50 million "equity investment" was used to pay off a $25 million loan previously taken out by Haggen, Inc. that was guaranteed by Comvest, and where most of the proceeds ($20 million) was previously used to pay Comvest a dividend.

94. On January 27, 2015, before Haggen closed on the first Albertson's store, Falk sought confirmation that its "investment" would be risk-free and quickly recovered. Niegsch assured Falk that Haggen did not need Comvest's $50 million "to fund this transaction," but the Deal Team agreed to it because Cerberus required it. Trial Tr. (10/17) at 46:3-13 PX 33.001. Comvest characterized the so-called "equity investment" as a "bridge loan" because as the Deal Team told the IC in December Comvest intended to quickly recover the $50 million as soon as it could. Trial Tr. (10/17) at 47:18-23; 48:7-49:3; PX 33.

95. Comvest devised other methods by which it planned to quickly recover its "investment." The ABL that Comvest negotiated with PNC enabled it to use up to $50 million of the OpCo Entities' ABL credit line for purposes of paying Comvest dividends. Thus, the ABL provided that a $50 million dividend could be paid to Comvest (a) after Haggen received at least $300 million of SLB transaction proceeds (which Haggen was already under contract to receive), (b) after the store conversion process was complete, (c) as long as Haggen was not in default, and (d) as long as Haggen would still have 15% of the maximum availability after paying the dividend. PNC (Goldstein) Tr. at 126:21-130:12; PX 370.070. See also Trial Tr. (10/17) at 204:4-206:21.

XI. Haggen Suffers An Immediate Meltdown Post-Closing

96. On December 10, 2014, Albertson's, as sellers, and Holdings, as the buyer, entered into the APA. PTO ¶¶ 35-36, 47. On January 27, 2015, the FTC issued an order directing Albertson's and Safeway to, among other things, divest the 146 stores to Holdings. PX 314.006. Thereafter, Haggen closed on the stores on a rolling basis starting in February 2015. Haggen's demise was swift, began immediately, and continued unabated for seven months, ending in its September 2015 bankruptcy filing and complete liquidation.

97. Among the more significant issues that Haggen confronted was the pricing of their products. ATK and others had identified pricing issues as substantial risks.

98. Haggen's pricing strategy was simple - do not change any prices. Trial Tr. (10/19) at 30:13-17. Haggen did not execute this basic strategy. According to Barnett, "very early on in the process we became aware that our pricing was not where we wanted it to be" because the prices were too high. Trial Tr. (10/17) at 198:1-8. Shaner also knew that pricing problems emerged with the opening of OpCo South's very first store and believed they would be catastrophic if not corrected. Thus, Shaner called for a "SKU by SKU analysis and action plan ... ASAP before we go well down the [acquisition and conversion path]. We can't have some 12 week systemic program to fix. Needs urgent attention now." PX 159.

*238 99. Shaner conceded that the pricing problems were "very serious," stating they could cause customers to "get angry" and never return; further, Haggen would "never get a second chance to make a first impression." Nevertheless, Haggen continued to open stores knowing that these pricing problems persisted. Trial Tr. (10/19) at 33:7-34:1. See also id. at 30:18-32:15, 36:21-25 .

100. Shaner was not alone. Clougher, the CEO of OpCo South, also knew about pricing issues on the very first day and admitted that Haggen continued to acquire, convert, and open stores knowing that the pricing issues - including over 4,000 pricing errors -- had not been solved. Trial Tr. (10/19) at 118:20-22, 119:7-9, 120:7-121:15, 124:6-8; see also Trial Tr. (10/16) at 298:25-300:3 (showing Comvest knew of the pricing issues "early on" but never raised the issue with the Monitor and had no knowledge that anyone had done so on Haggen's behalf). Shaner claimed that Haggen hired SuperValu as the pricing manager because Albertson's was using their system and they assumed it would "work effectively" for Haggen. Shaner was forced to admit that Haggen and Comvest were "totally and completely wrong" about their assessment of SuperValu's capabilities. Trial Tr. (10/19) at 35:16- 36:2.

101. Even though the initial plan was to maintain prices, Caple, after learning of the pricing issues that were antagonizing its customers, directed Haggen to raise its prices - a strategy with which Shaner disagreed. Trial Tr. (10/19) at 37:21-38:15; PX 159.

102. Haggen's "partner," SuperValu, saw other mistakes and deficiencies that it believed contributed to Haggen's demise. For example, SuperValu did not believe that Haggen's marketing and merchandising capabilities were sufficient to handle the enormous expansion that was contemplated, asserting that Haggen "did not have the - both the talent nor the numbers of people in merchandising to adequately negotiate, make decisions, set up pricing, and manage a large chain," assertions that SuperValu contends were repeatedly conveyed to Haggen. SuperValu (Collison) Tr. at 166:12-167:12.

103. The consequences of these decisions and deficiencies were immediate and catastrophic. By April 2015, just a few weeks after closing on the first store, Haggen was already falling well short of projections across all converted stores. Trial Tr. (10/16) at 151:25-152:3; PX 11.003. By June 2015, the IC was informed that same store sales were "down 20-25% since Haggen took ownership of the stores." Trial Tr. (10/16) at 155:8-11; PX 16.004.

104. On June 16, 2015, the Deal Team presented a "deck" to the IC in which it disclosed that while 10% of the stores had yet to be acquired and converted, Haggen was going to face a liquidity shortfall in July 2015. Trial Tr. (10/16) at 154:2-155:7; PX 16.004.

105. As of July 13, 2015, Haggen had only $25 million of liquidity, but owed approximately $10 million to contractors and was "disputing the $43M in inventory payments to Albertson's." Trial Tr. (10/16) at 161:25-162:22; PX 18.003.

106. On July 28, 2015, PNC declared a default and a "springing event" under the ABL. PNC (Goldstein) Tr. at 150:16, 182:2-10; PX 375. A "springing event" occurs when a borrower's availability falls below a specified threshold and, from PNC's perspective, it could be an indication that a borrower is in distress. PNC (Goldstein) Tr. at 189:2-15.

107. Caple testified that he did not believe PNC's notice of default to be "really terribly relevant." According to Caple, the *239 event of default "wasn't as big an issue as the liquidity issues that we needed to work through" such that he could not even recall whether Haggen or Comvest ever disputed PNC's declarations of default (as established in the Forbearance Agreement (PX 254.002), where Haggen acknowledged that six separate events of default had occurred as of August 21, 2015, and were continuing). Trial Tr. (10/16) at 167:1-168:20.

XII. Comvest Tries To Find A Third-Party Lender

108. Beginning in June and continuing through early August of 2015, as the OpCo Entities faced plummeting sales and a liquidity shortfall, Comvest tried without success to arrange for third party financing. Notably, however, neither Comvest nor Haggen ever sought to obtain a loan from a third party to be extended directly to the OpCo Entities. Trial Tr. (10/17) at 22:24-23:11, 132:11-16. Caple testified at trial that he "didn't believe that anybody was going to make a loan to OpCo, given its current state." Trial Tr. (10/16) at 171:20-172:8.

109. Niegsch told Citibank that Comvest was not pursuing a loan on behalf of the OpCo Entities because it had no unencumbered assets and its financial performance struggled making a subordinated loan a "fairly risky loan." Trial Tr. (10/17) at 27:5-29:20; PX 113. Caple could not identify a person or entity who was asked to make a loan to OpCo in the Summer of 2015 besides the PropCo Entities. Trial Tr. (10/16) at 290:14-292:2. See also Trial Tr. (10/17) at 208:8-18.

A. UBS Is "Spooked" By Financial Performance And The Risk That The OpCo Entities Would File For Bankruptcy

110. By June 2015, with the OpCo Entities facing a liquidity shortfall, the situation was urgent and Niegsch's negotiations with UBS shifted from obtaining a loan to pay Comvest a dividend to obtaining a loan for the purpose of supporting the OpCo Entities. Trial Tr. (10/16) at 170:2-15; Trial Tr. (10/17) at 15:22-18:6; PX 36.

111. On June 16, 2015, the Deal Team provided an update to the IC and proposed the following solution to Haggen's liquidity shortfall: (a) a $55 million loan would be taken from UBS against the PropCo Entities' real estate, (b) the PropCo Entities would sell four ground leases for $16.4 million, (c) the resulting $71.4 million would be upstreamed to Holdings, and (d) Comvest would cause Holdings to distribute to the OpCo Entities amounts sufficient to address the liquidity shortfall, and the balance would be paid as a dividend to Comvest. Trial Tr. (10/16) at 157:22-160:10; PX 16.015.

112. During the course of the negotiations, Niegsch told UBS that the OpCo Entities were "underperforming." UBS demanded that Haggen represent and warrant that the OpCo Entities were not considering a bankruptcy filing. Comvest refused to give UBS the requested representation and warranty. Trial Tr. (10/16) at 174:24- 175:5; Trial Tr. (10/17) at 18:11-22:3. Consequently, UBS got "spooked" and refused to make a loan to the PropCo Entities secured by a lien on the PropCo Entities' unencumbered real estate. Trial Tr. (10/16) at 170:22-25, 174:13-23.

B. Comvest And Priddy Decline To Make A Loan Due To "Equitable Subordination" Concerns

113. On July 17, 2015, Caple reached out to Robert Priddy (a former Comvest partner) to gauge his interest in making a loan to the PropCo Entities secured by a first lien on the real estate. Trial Tr. (10/16) at 171:1-19; PX 1.

*240 114. In his e-mail, Caple informed Priddy that: (1) the OpCo Entities were facing a liquidity shortfall, (2) Haggen had "lost all of the price focused customers" but had not "yet had the time to attract quality focused customers," (3) Haggen's sales were down 20 to 30%, (4) Haggen was expected to close stores, and (5) UBS got "spooked," terminated negotiations, and left Haggen and Comvest "at the altar." Trial Tr. (10/16) at 172:9-174:12; PX 1.

115. Caple also told Priddy that Comvest decided not to make a loan directly to the OpCo Entities because it had "concerns about equitable subordination given that [Comvest was] equity." PX 1. See also Clark Tr. at 44:21-45:14 (detailing whether he discussed issues of "equitable subordination" in the context of the contemplated PropCo Advance, Clark testified: "If I may answer your [question] in a different way. I think the discussion was more, how do we do this such that it is a loan that we're making? So I know that might be semantics but that was the spirit of the discussion.").

116. Caple described the "equitable subordination" issue and related internal discussions at Comvest as follows:

Q: Can you explain to the judge what concerns you had about equitable subordination for Comvest.

A: Yeah, I'm not a lawyer, but my understanding is any time you make a loan into a business where you also own equity, there's a chance albeit, my understanding is it's a very small one but there's a chance that you can become equitably subordinated. At the time here, my partners were not at all happy about how this deal was going, to say the least, and putting additional money in with additional risk was a big issue and, you know, any issue was something that they were concerned about, even a very small percentage-type issue.

Q: And you discussed that precise topic with your colleagues at Comvest, right?

A: Yes.

Q: In fact, you specifically discussed the risks associated with equitable subordination, right?

A: And I don't remember the exact conversation, but I remember them having concerns.

Q: And you while you don't have a specific recollection, you believe you discussed the issue of equitable subordination at the investment committee to try to understand the risk, correct?

A: Yeah, I certainly remember them having real concerns about anything that might, you know.

Trial Tr. (10/16) at 175:6-176:14; PX 1.

117. Due to his prior association with Comvest, Priddy expressed concerns that he might also be implicated by issues of "equitable subordination if he chose to act as a lender." Priddy, nevertheless, proposed onerous terms for a loan. There is, however, no evidence that Comvest ever responded or otherwise pursued a loan with Priddy. See PX 1.

C. PNC Refused to Provide an Overadvance

118. After UBS and terminated negotiations, Comvest asked PNC to provide an overadvance to the OpCo Entities. But PNC knew at the time that the OpCo Entities had no unencumbered assets, were running out of liquidity, losing money, and had laid off hundreds of employees. PNC also knew that Haggen was looking to sell assets to generate liquidity and avoid running out of cash, that sales in the grocery stores were off by well more than 20% relative to projections, and that Haggen *241 had fared poorly on other financial metrics. PNC (Goldstein) Tr. at 166:7-169:5; PX 377.

119. Consequently, PNC concluded that Haggen's request for an overadvance "didn't make sense from a lender's perspective," and PNC decided not to even bring the request to the syndicate lenders for consideration. Trial Tr. (10/17) at 26:3-23; PNC (Goldstein) Tr. at 171:16-20, 173:17-174:18, 175:9-176:13; PX 39.002. On August 3, 2015, PNC imposed a $2.5 million "availability block" thereby restricting that portion of the borrowing base from being available to Haggen. PNC asserted a right to restrict availability under the circumstances and did so because it perceived Haggen to be in distress and sought to mitigate its own risks. PNC (Goldstein) Tr. at 179:2-183:25; PX 379.

XIII. The PropCo Advance

A. Citibank Refuses To Lend Against PropCo's Real Property

120. In early August 2015, after exhausting all other options, Comvest asked Citibank to provide a loan that would ultimately become the source of the funds used for the PropCo Advance. PX 113.009.

121. Citibank and a Comvest entity, CIP IV, had a pre-existing banking relationship dating back to at least 2010 when they first entered into a revolving credit line facility. On August 2, 2012, Citibank and CIP IV amended that credit facility and Citibank increased the line to $100 million (the "Fund IV Revolver"). 7 The Fund IV Revolver has been available to CIP IV on a continuous basis since 2010. Citibank (Raeburn) Tr. at 16:8-21, 17:5- 18:14, 19:6-20:14; PX 431.

122. In the end, the only loan Citibank would agree to make was a "qualified borrower loan" under the Fund IV Revolver to a to-be-formed, wholly-owned Comvest entity for which Comvest would provide a full guaranty. Trial Tr. (10/17) at 29:21-30:20; Citibank (Raeburn) Tr. at 76:21-77:25; PX 113.001-003. According to Citibank, the parties would "create a qualified borrower loan whereby Comvest designates an entity in which it has ownership as a qualified borrower. That loan would be guaranteed by Comvest ... [T]o the extent that Comvest has to repay the facility under the terms of the guarantee, it can in turn seek repayment from the qualified borrower that it guaranteed the facility for." Citibank (Raeburn) at 75:20-76:7; PX 113.

B. The Multi-Step Process Employed To Fund The PropCo Advance

123. Like the Albertson's Acquisition itself, the funding of the PropCo Advance required a fair amount of financial engineering by Comvest and the creation of another new corporate entity.

124. In its simplest form, the PropCo Advance was funded as follows: (1) Citibank advanced $25 million to a newly-formed "qualified borrower" formed and owned by Comvest, Property Lender, and the loan was guaranteed by Comvest, (2) Property Lender then advanced $25 million to the PropCo Entities, secured by a lien on the PropCo Entities' real estate, and (3) the PropCo Entities in turn advanced $25 million to the OpCo Entities, purportedly secured by a second lien on the OpCo Entities' assets behind PNC (and ahead of the OpCo Entities' unsecured creditors).

*242 125. On August 7, 2015, the PropCo Entities, as lenders, and the OpCo Entities, as borrowers, entered into the PropCo Agreement pursuant to which the PropCo Entities agreed to advance up to $25 million to the OpCo Entities. PX 244. Comvest caused the PropCo Agreement to be signed knowing that it did not have: (a) an agreement with Citibank with respect to a funding source for the PropCo Advance (the agreement with Citibank was not signed until August 12, 2015), or (b) as discussed in more detail below, PNC's consent to a subordinated lien on the OpCo Entities' assets (the Intercreditor Agreement was not signed until August 21, 2015).

126. The PropCo Agreement provided, among other things, that interest on the PropCo Advance was to begin on "___________,____, 2015" and the loan would mature on "April ___, 2016." PX 244 §§ 3.1, 13.1 [sic]. The PropCo Agreement also purported to grant to the PropCo Entities "a continuing security interest in and to and Lien on all of its Collateral, whether now owned or existing or hereafter created, acquired or arising and wheresoever located." PX 244 § 4.1. "Collateral" was defined to include, among other things, "all" of the OpCo Entities' receivables, equipment and fixtures, general intangibles, inventory, contract rights, and the proceeds thereof. PX 244.007 (definition of "Collateral").

127. On August 7, 2015, the OpCo Entities issued the PropCo Notes, one in favor of PropCo North in the amount of $12,640,750, and one in favor of PropCo South in the amount of $12,359,250.

128. Comvest created Haggen Property Lender, LLC as a wholly-owned affiliate to serve as the qualified borrower under the Fund IV Revolver, so that it could act as the conduit between Citibank and the PropCo Entities. Citibank (Raeburn) Tr. at 79:4-18; 99:12-100:9, 100:18-101:3; PX 113, PX 438. On August 12, 2015, consistent with the negotiations, Citibank, Comvest, and its newly-formed entity, Property Lender, completed the Qualified Borrower loan (pursuant to which Citibank agreed to advance $25 million to Property Lender, guaranteed by Comvest) by executing the following documents: (a) the "Qualified Borrower's Representation Letter" (pursuant to which Property Lender made certain representations and warranties to Citibank and otherwise agreed to borrow up to $25 million from Citibank, subject to the terms of the "Credit Agreement"), (b) the "Qualified Borrower Promissory Note" (pursuant to which Property Lender and Comvest promised to pay $25 million to Citibank in accordance with the terms set forth therein), and (c) the "Notice of Advance" (pursuant to which Property Lender and Comvest asked Citibank to advance $3,792,225.01 to PropCo North, and $3,707,774.99 to PropCo South (or, $7.5 million in the aggregate), on August 12, 2015). Citibank (Raeburn) Tr. at 109:11-110:23, 112:13-20; 117:15-119:7; PX 439; PX 248; PX 247.

129. Also on August 12, 2015, Property Lender, as lender, and the PropCo Entities, as borrowers, entered into a "Loan Agreement" pursuant to which, among other things, Property Lender agreed to advance $25 million to the PropCo Entities on the Closing Date ( i.e. , August 12, 2015). PX 251. Even though only $7.5 million was being advanced that day, the PropCo Entities also tendered a "Promissory Note" to Property Lender in the face amount of $25 million, purportedly secured by "the Security Instrument and the other Loan Documents." PX 252.

130. At the time it obtained the initial $7.5 million advance on August 12, 2015, Comvest knew that the OpCo Entities did not have PNC's consent to grant a second *243 lien on the OpCo Entities' assets, but the IC nevertheless approved of the request for an initial advance of $7.5 million because the situation was desperate and Comvest needed to "ensure OpCo ha[d] the liquidity to meet its obligations [the following day] and cover payroll later" in the week. Trial Tr. (10/17) at 31:2-34:18; PX 41.001 (Niegsch told the IC that "the PropCo loan to OpCo will not have a 2nd lien in OpCo until the forbearance agreement with the entire bank group is agreed on and executed," something that did not occur until August 21, 2015).

131. On August 21, 2015, the applicable parties executed the Forbearance Agreement and the Intercreditor Agreement. PX 254; PX 255.

132. As Comvest knew, the OpCo Entities could not grant a second lien on their assets without PNC's consent. Trial Tr. (10/17) at 32:7-34:17 ("We would not have the liens filed until the forbearance agreement was executed."). By amending the definitions of "Permitted Encumbrances" and "Permitted Indebtedness," PNC provided the requisite consent in the Forbearance Agreement on August 21, 2015. PX 254.005-006.

133. Comvest authorized Haggen to sign the Forbearance Agreement knowing that the Debtors were required to, among other things, acknowledge six existing events of default, and the indebtedness under the ABL in excess of $173 million. Trial Tr. (10/17) at 34:19-36:22; PX 254. The Forbearance Agreement also provided, among other things, that:

• The Borrowers (as defined) had to pay all of PNC's out-of-pocket expenses (including attorneys' and advisor fees) (Section 1(c) );

• The Credit Agreement was amended to include Haggen's alleged claims against Albertson's in the definition of "Commercial Tort Claims" so that those claims would be included in PNC's collateral (Section 2 (c) );

• PNC reduced substantially the Maximum Revolving Advance Amount and the Maximum Swing Loan Advance Amount (Section 2 (e)-(f) );

• A more restrictive formula for calculating Revolving Advances was adopted (Section 2(j) ); and

• The Borrowers had to adhere to a 13-week cash flow forecast and comply with other reporting obligations (Section 2 (o), (q) ).

PX 254.

134. The PropCo Entities, the OpCo Entities, and PNC also entered into an Intercreditor Agreement as of August 21, 2015. PX 255. Pursuant to the Intercreditor Agreement, the PropCo Advance was "subordinated to the prior payment in full in cash" of all amounts owed under the ABL, and the PropCo Entities' liens against the OpCo Entities' assets were subordinated to PNC's liens against those assets. Trial Tr. (10/17) at 37:4-38:4; PX 255.004-.005. In other words, as conditions to the PropCo Advance, the PropCo Entities were forced to agree that they could not recover the principal and interest under the PropCo Advance on "April ___, 2016" [sic], until PNC was first fully repaid $173 million (plus interest) in cash.

135. On August 21, 2015, (a) the PropCo Entities filed UCC-1 Financing Statements against the OpCo Entities, taking a "blanket lien" against OpCo Entities' assets (although the PropCo Entities' liens were subordinated to PNC's liens pursuant to the Intercreditor Agreement), and (b) Property Lender and Comvest tendered two "Notices of Advance" to Citibank in the aggregate amount of $17.5 million (the balance of the $25 million advance); the funds bypassed Property Lender and were sent by Citibank directly to the PropCo *244 Entities. Citibank (Raeburn) Tr. at 120:10-121:4, 122:4-14, 122:23-123:21; DX 772-774; PX 440-441; PX 254; PX 255.

D. The OpCo Entities Paid Wages In Excess Of $25 Million Between August 14, 2015 And The Petition Date

136. As described above, the PropCo Advance was disbursed in two parts, with $7.5 million being advanced on August 12, 2015, and $17.5 million being advanced on August 21, 2015. The record shows that the OpCo Entities paid employee wages of approximately $25 million from August 14, 2015, through the Petition Date, some of which was already in arrears when the advances were made.

137. The Court takes judicial notice of the Wage Motion. Fed. R. Evid. 201. The Wage Motion states that "historically, the Debtors' combined gross aggregate payroll liability is approximately $26.4 million per month." Wage Motion at ¶ 9. Haggen Inc. employees were paid approximately $2.1 million bi-weekly, Haggen OpCo North employees were paid approximately $1.9 million weekly, and Haggen OpCo South employees were paid approximately $3.6 million weekly.

138. The Wage Motion also stated that the most recent payroll before the Petition Date was made (i) to employees of Haggen OpCo North and Haggen OpCo South on September 4, 2015, for the period ending on August 29, 2015, and (ii) to employees of Haggen Inc. on August 28, 2015, for the period ending August 22, 2015. Id. ¶ 10 . Based on the foregoing, the Court finds, as a matter of fact, that the OpCo Entities paid wages as follows (stated in millions):

PropCo South PropCo North Haggen, Inc August 14 $3.6 $1.9 $2.1 August 21 $3.6 $1.9 August 28 $3.6 $1.9 $2.1 September 4 $3.6 $1.9 TOTAL $14.4 $6.6 $4.2

139. Based on the foregoing, the Court concludes that the OpCo Entities used the proceeds of the PropCo Advance to pay wages in arrears of approximately $25 million between August 14, 2015, and the Petition Date.

D. Flaton's Recharacterization Analysis

140. Carol Flaton offered expert testimony on behalf of the Committee with respect to its claim to recharacterize the PropCo Advance as an equity contribution (Count 71 of the Complaint) Defendants did not offer a rebuttal witness.

141. The Committee asked Flaton to assess the facts and circumstances surrounding the PropCo Advance and evaluate whether the transaction "looked more like a debt transaction or an equity transaction" and whether it was "inappropriately disguised as a loan and instead should be recharacterized and treated as an equity contribution." Trial Tr. (10/18) at 144:8-12; PX 118 at 5.

142. Flaton has been a managing director at Zolfo Cooper, the Committee's financial advisor, for four years. During her time at Zolfo, Flaton has provided financial advisory and management services to debtors, creditors, and committees. Prior to joining Zolfo Cooper, Flaton spent approximately six years at Lazard Freres, where she served as a managing director advising public and private companies, creditors, and equity holders in *245 complex restructurings. Before that, Flaton spent, collectively, approximately thirteen years at Credit Suisse/Credit Suisse First Boston (1995-2006) and Citibank (2006-2008), working in lending, finance, and risk management. In sum, Flaton has spent over thirty years in the fields of banking and finance, including positions in leveraged finance, lending, capital markets, and risk management, with a specialization in financial restructuring. Trial Tr. (10/18) at143:23-145:21, 149:15-21; PX 118 at 39 (Appendix A).

143. Based on the foregoing, the Court finds that Flaton is qualified to offer expert testimony on the questions presented to her.

144. Flaton's ultimate conclusion is that the PropCo Advance "looked more like an equity transaction than a debt transaction." More particularly, Flaton stated that, in her opinion, based on her extensive experience in analyzing loans, debt exchanges, debt refinances, distressed company situations and equity/capital raises:

[D]espite how the PropCo Loan was documented and recorded in OpCo's financial statements, I believe the facts and circumstances that existed at the time the PropCo Loan was made, including OpCo's financial condition, strongly indicate that an independent third party lender would not have provided additional financing to OpCo on the same or similar terms to the PropCo Loan such that the PropCo Loan was more representative of a equity contribution than a loan.

Trial Tr. (10/18) at 145:22-146:2; PX 118 at 10.

145. In reaching her conclusions, Flaton utilized the eleven-factor Roth Steel test and evaluated the facts and circumstances that existed at the time the PropCo Advance was made "from the perspective of a restructuring, finance and investment banking professional." Trial Tr. (10/18) at 146:3-8; PX 118 at 5. See Roth Steel Tube Co. v. Comm'r , 800 F.2d 625 (6th Cir. 1986).

146. In order to analyze the PropCo Advance in context, Flaton reviewed certain documents and events, including: (a) "very early... internal memos and e-mails saying that there was a liquidity problem," (b) the refusal by third parties, including UBS and PNC, to extend credit (UBS refused to lend against the PropCo real estate, and PNC refused to provide an "overadvance"), and (c) PNC's July 28, 2015, declaration of a default under the ABL and (d) Comvest's refusal to lend directly to the OpCo Entities due to concerns about "equitable subordination." Trial Tr. (10/18) at 150:1-151:24; PX 118 at 16. Flaton explained how these events related to her opinions:

A: Well, again, I was asked to look at a transaction which occurred in August [2015]. And the question really was, is this a transaction that a third party independent lender, would they make a loan, a piece of debt into this type of a situation. So it's important to understand the condition of the company that's being lent into and some of the facts around it and the trajectory. And it's all besides being, you know, not great, sales were down and I think they were substantially off their budget from EBITDA to the tune of I think $80 million in this July [2015] timeframe. It was all happening very quickly. So, you know, you've had an acquisition of stores, but it literally did not transpire from day one the way it was meant to.

Trial Tr. (10/18) at 151:25-152:15.

147. Flaton also analyzed the series of steps required to get the $25 million from Citibank to the OpCo Entities: (a) Citibank *246 agreed to advance $25 million to a newly-formed entity, Property Lender (wholly-owned by Comvest, at Citibank's insistence), secured by a guaranty from Comvest, (b) Haggen Property Lender then agreed to advance $25 million to the PropCo Entities, taking a lien on the PropCo Entities' real estate, and (c) Comvest then caused the PropCo Entities to agree to advance $25 million to the OpCo Entities, taking a second lien on the OpCo Entities' assets in return. Trial Tr. (10/18) at 152:16-154:8; PX 118 at 17.

148. With that background, Flaton analyzed the PropCo Advance in the context of the eleven Roth Steel factors. The Court will discuss Flaton's testimony and opinion in the "Conclusions of Law" section.

XIV. Comvest's IC Expected The Real Estate To Be Unencumbered And Available For Comvest's Benefit In A "Disaster Scenario"

149. The IC members "were not happy about" having to use the PropCo Entities' real estate to fund the OpCo Entities' liquidity shortfall. Trial Tr. (10/16) at 177:1-19. The evidence shows, and the Court concludes, that when it approved the Albertson's Acquisition, the IC relied on, among other things, the Deal Team's assertions that the real estate assets would (a) be transferred to PropCo Entities and remain unencumbered; which (b) would, among other things, provide Comvest with substantial downside protection "even in complete disaster/liquidation scenarios."

150. The Court's conclusions in this regard are based on PX 20, PX 45, PX 190 (collectively, the "Clark/Marrero E-mails"), and PX 189. During the relevant time, Clark was a managing director at Comvest and a member of the IC. Clark Tr. at 8:9-9:22. Clark was not named as a defendant in this action and did not testify live. The Court has, however, admitted into evidence and reviewed Clark's videotaped deposition. 8 196.

151. From the outset, Comvest focused on the valuable real estate available in a potential deal with Albertson's. In that regard, prior to approving Haggen's entry into the Albertson's Acquisition, the IC was expressly informed that, among other things: (a) Haggen was acquiring substantial real assets significantly below the appraised value;(PX 23, PX 26, and PX 30) (b) the real estate would mitigate the operational risks (Trial Tr. (10/17) at 56:19-58:19; PX 30.006) (c) by transferring the real estate to the PropCo Entities and shielding it from the operational risks, Comvest would be protected in a "downside scenario" (PX 20.002) and (d) Comvest would make "multiples of [its] money" even in downside scenarios (PX 45.002, PX 190.001).

152. By June 2015, Haggen faced substantial challenges and the issues concerning the protection afforded by the real estate came to the fore. On June 16, 2015, the Deal Team informed the IC that, among other things, even though the conversion process was not complete, same stores sales were down 20 to 25% and Haggen faced a liquidity shortfall. At around that time, Clark believed that Haggen could fail. Clark Tr. at 40:8-41:6. To address Haggen's liquidity shortfall, the Deal Team proposed leveraging the PropCo Entities' real property to support the OpCo Entities. Clark Tr. at 23:18-24:7, 25:18-26:9, 30:4-31:4; PX 16.004, 015.

153. The Deal Team's proposal struck a nerve with the IC because it contradicted what they had been led to believe. Caple recalled that "a number" of IC members *247 specifically told him that "they were under the impression that Comvest could still get its money back in Haggen through the real estate, even in a disaster scenario" with the OpCo Entities. Trial Tr. (10/16) at 177:20-24; see also Trial Tr. (10/16) at 177:25-179:7 (showing Caple recalled Clark telling him that he was "under the belief that the underlying real estate value was money good in a disaster scenario"). Caple's recollections in this regard are consistent with an e-mail that Clark sent to Marrero on July 14, 2015. Clark's e-mail stated, among other things, that:

• PropCo/Downside

• Under the impression/belief that the underlying real estate value was money-good in a disaster scenario

• News to Michael [Niegsch] and us that PropCo value seems encumbered

• ABS payable

• SLB guarantee

• Relied on this downside protection when approving the deal

Clark Tr. at 97:24-98:15; PX 20.

154. A few weeks later, Clark and Marrero collaborated on a more expansive version of Clark's e-mail. On Sunday, August 2, 2015, Clark and Marrero took turns wordsmithing a set of "observations" concerning Caple. Clark Tr. 72:15-76:22, 77:25-79:10; PX 190. Marrero then reorganized certain of the issues and presented the final document to Falk the following day. The issues set forth in these documents were the subject of numerous discussions among IC members. Clark Tr. at 64:14-65:23, 67:8-68:4, 69:11-16, 69:19-71:6, 80:3-20. The version that Marrero presented to Falk stated, among other things, that:

• We must avoid IC discussion from being a "sell job"

• IC relied on strong assertions that we would make multiples of our money on Haggen in even complete disaster/liquidation scenarios.

...

• We must carefully lay out [a] "likely case" as well as a "downside" case reflecting negative outcomes and the quantification of these financially

• Guarantees and ABS Liabilities at Holdings not understood by the IC and/or Deal team.

• We should not rely on [Deal] Team's "best thinking" but rather show sensitivities with thoughtful assumptions on both upside and down.

PX 45 (emphasis added).

155. Every member of the IC except Caple agreed with the substance of these communications. Nevertheless, after the Deal Team was unable to obtain a loan from unrelated third parties, Comvest's IC begrudgingly authorized the PropCo Entities to make the PropCo Advance, with certain IC members warning that they would not likely consent to the use of the PropCo Entities' assets again. PX 42.

A. Rodriguez's Failure to Recall is not Credible

156. At trial, Rodriguez was unable to recall participating in any discussions or communications concerning the Clark/Marrero e-mails. The Court is highly skeptical that Rodriguez was able to recall details of conversations that preceded the Albertson's Acquisition, but was unable to remember any aspect of the critical (and more recent) discussions that took place in the summer of 2015 while Haggen was melting down and the IC was being asked to leverage the PropCo Entities' real estate to support the OpCo Entities. Trial Tr. (10/18) at 114:5- 120:23.

*248 157. Rodriguez's complete failure to recall anything about these discussions is particularly concerning because Clark testified that Rodriguez was directly involved in addressing the issues raised in the Clark/Marrero e-mails. According to Clark:

• The Clark/Marrero e-mails were "prepared in conjunction" with Falk and Rodriguez for the purpose of giving Caple "feedback" (Comvest (Clark) Tr. at 61:16-62:7)

• Clark believed that Falk and Rodriguez met with Caple to discuss the observations on PX 45. ( Id. at 69:11-16)

• Rodriguez, Falk, Marrero, and Clark discussed the substance of PX 45 in various combinations and subsets of groups in August 2015 ( Id. at 70:9-71:6) and

• Clark spoke with Rodriguez about the issues set forth in PX 190, and believed that "a version of this document was shared with [Rodriguez] as well." ( Id. at 80:3-20).

158. Based on Clark's testimony, the Court finds that Rodriguez's failure to recall discussing any aspect of the Clark/Marrero e-mails was not credible. Consequently, the Court will draw a negative inference with respect to all of Rodriguez's testimony.

XV. Defendants' Blame Of Others

159. The Defendants contend that Haggen failed for three reasons: pricing issues, supply issues, and unfair competition. Defendants also contend that there were three -- and only three - culprits: Willard Bishop, SuperValu, and Albertson's. Trial Tr. (10/16) at 82:16-87:10; Trial Tr. (10/17) at 9:1-10; Def. Trial Br. at 21-25.

A. Willard Bishop Pricing Problems

160. Defendants contend that Willard Bishop contributed to the pricing problems that led to Haggen's demise. Neither Haggen nor Comvest took any steps to hold Willard Bishop accountable for the damage it allegedly did with respect to pricing issues other than to discontinue working with them. Trial Tr. (10/17) at 9:11-13, 9:24-10:13; Trial Tr. (10/19) at 193:19-20, 194:5-14, 195:13-17, 211:5-7.

B. SuperValu - Pricing And Supply Problems

161. Defendants contend that SuperValu contributed to the pricing and supply problems that led to Haggen's demise. Neither Haggen nor Comvest took any steps to hold SuperValu accountable for the damage it allegedly did with respect to the pricing and supply issues (other than to have "lots of discussions" with them). Trial Tr. (10/17) at 10:14-11:13. Indeed, as Barnett admitted, neither Haggen nor Comvest ever withheld payment from SuperValu, negotiated a reduction in the amounts due to SuperValu, or commenced an action against SuperValu. Trial Tr. (10/17) at 195:6-16; see also SuperValu (Collison) Tr. at 68:20- 69:7 (highlighting Haggen timely paid all amounts due to SuperValu), 78:18-79:12 (showing Haggen never attempted to terminate the Transition Services Agreement (the "TSA") (PX 271), and never invoked the "Dispute Resolution Clause" in Section 6.2(c) of the TSA).

162. The Debtors, certain non-Debtor affiliates (including the PropCo Entities), Comvest, and the Committee entered into a Settlement Agreement with Albertson's and Cerberus that was filed at Docket No. 1312-2 in the main case on January 27, 2016 (the "Settlement Agreement"). PX 117. Pursuant to the Settlement Agreement, SuperValu was released from "any *249 and all claims, demands, causes of action or sums owed, foreseeable or unforeseeable, which are based on conduct or inaction that occurred before" the closing of each store. Neither Comvest nor the Debtors received any monetary compensation in exchange for their release of SuperValu. Id. at .009-010.

C. Defendants Allegations Against Albertson's

163. Defendants contend that Albertson's engaged in unfair competition and contributed to the problems that led to Haggen's demise. Trial Tr. (10/16) at 84:19-85:1, 86:6- 87:10; Trial Tr. (10/17) at 9:19-22, 11:4-6; Def. Trial Br. at 3, 23-25.

164. On June 29, 2015, Haggen sent Albertson's a letter identifying certain allegedly wrongful conduct, and informing Albertson's that Haggen was withholding $43 million in inventory payments (the "Demand Letter"). PX 266. Prior to that time, Haggen had timely made all of the payments to Albertson's that it was required to make under the APA, but the OpCo Entities faced a liquidity shortfall at that time. Trial Tr. (10/17) at 11:4-18; Albertson's (Ewing) Tr. at 164:25-165:14; PX 16.004; PX 18.003.

165. In the Demand Letter, Haggen asserted that Albertson's had breached the APA and identified four specific instances of allegedly wrongful conduct. PX 266. Specifically, Haggen complained of (a) "Improper Transfer of Inventory out of Purchased Store(s)," (b) "Overstocking and Understocking of Inventory" (Haggen identified one store, acquired on February 26, 2015, where the inventory was allegedly so low that Haggen was forced to purchase approximately $208,000 of inventory to "help refill the store," and another store where a bakery manager was allegedly instructed to "purchase and/or bake 2 times her normal inventory levels" thereby causing Haggen to purchase unneeded baked goods at that store, as well as other similar issues concerning inventory), (c) "Failure to Advertise in the Ordinary Course of Business" (describing as "intentional misconduct" discrete problems relating to advertising that lasted a week. FTC (Frangie) Tr. at 142:3-23, 148:14-149:9); Albertson's (Cummins) Tr. at 38:21- 39:14, 40:25-45:14), and (d) "Misuse of Confidential Information and Failure to Use Commercially Reasonable Efforts to Preserve Existing Relationships" (alleging that Albertson's "substantially increased their advertising and marketing in the stores being acquired, and that Albertson's did so "based upon their knowledge of the Store Closing cadence" (Trial Tr. (10/16) at 301:1-20) ). PX 266. Haggen also notified Albertson's for the first time that it would "not make further payments of the Inventory Purchase Price" under the APA until Haggen completed its investigation and the matters "have been satisfactorily resolved." Trial Tr. (10/16) at 163:12-22; PX 266.006. According to Albertson's, Haggen had therefore not raised any issues concerning the pricing of inventory, and had not availed itself of the dispute resolution procedures in Section 6 of the APA, at any time prior to the date of the Demand Letter. Albertson's (Ewing) Tr. at 166:7-21.

166. Albertson's asserts that, far from engaging in "anti-competitive" conduct, Albertson's extended considerable courtesies to Haggen and made best efforts to cooperate during the store conversion process, including participating in weekly (or more frequent) meetings. Albertson's (Crandall) Tr. at 109:15-112:15, 161:13- 164:9, 60:17-62:12; Albertson's (Cummins) Tr. at 19:10-21:15, 45:25-47:20. The Court also notes that Albertson's met with the Monitor on a regular basis, and submitted "Compliance Reports" to the FTC, to report on the *250 progress of the conversions and address all issues concerning Haggen. Albertson's (Williams) Tr. at 141:15-159:23, 136:4- 16, 136:25-137:22, 160:6-176:12, 177:18:183:2; PX 598-610.

167. The uncontroverted evidence shows that, at the time the Demand Letter was sent, Haggen faced a liquidity shortfall and knew that it would be unable to pay Albertson's approximately $43 million when it became due in July 2015. Trial Tr. (10/16) at 161:25-163:4, 164:3-24; PX 18.003. Indeed, the Deal Team virtually admitted that the Demand Letter was pretextual in their July 2015 report to the IC, writing:

Assuming the [Albertson's] inventory payments and conversion capex payables can continue to be delayed, the latest daily liquidity model shows Haggen getting very close to negative liquidity at the beginning of August and then going negative on August 21. If Haggen misses its plan targets or needs to begin paying off its delayed one-time payables it will hit negative liquidity sooner.

PX 18.03.

168. The uncontroverted evidence also shows that (with the exception of the issue concerning the advertising described above) no one from Haggen or Comvest complained to the FTC or the Monitor about Albertson's allegedly anti-competitive conduct until mid-July, and even those complaints came as a result of inquires placed by the FTC that were prompted by news reports concerning employee layoffs at Haggen. Trial Tr. (10/17) at 12:20-13:18; Trial Tr. (10/19) at 38:21-39-24, 127:20-23, 128:21-129:2, 198:16-199:23; FTC (Frangie) Tr. at 137:25-146:12 (although Haggen's counsel identified numerous reasons for Haggen's struggles, including that "the Haggen brand and format did not seem to be catching on in California," only one of which was the "significant competitive response" from Albertson's).

169. On July 17, 2015, less than three weeks after receiving the Demand Letter, Albertson's sued Holdings in the Superior Court of the State of California, Case No. BC 588598 (the "Albertson's Action"). Trial Tr. (10/16) at 165:7-166:6; Trial Tr. (10/17) at 11:22-13:1; PX 306. Albertson's asserted claims for breach of contract, anticipatory breach of contract (repudiation), fraud, and breach of the implied covenant of good faith and fair dealing, all in an effort to recover the $43 million that was then due or about to become due. PX 306.

170. On September 1, 2015, just six days before the Petition Date, Haggen filed a responsive action against Albertson's in which it sought $1 billion in damages ("Haggen's Action"). PX 613.

171. Albertson's Action and Haggen's Action were resolved in the subsequent bankruptcy where the Court approved the Settlement Agreement. PX 117. The Settlement Agreement effectively embodied a "walk away." Pursuant to its terms (a) Albertson's was obligated to pay $5.75 million into a creditor trust, (b) Albertson's was to receive an unsecured claim against Holdings in the amount of $8.25 million, and assign such claim to the creditor trust, and (c) the parties exchanged mutual general releases. PX 117.004-009. Comvest acknowledged its belief that this was a "fair and equitable resolution to the billion dollar lawsuit that was brought." Trial Tr. (10/17) at 13:19-15:2.

172. Based on the foregoing, the Court concludes that the pricing, supply and anti-competitive issues allegedly caused by Willard Bishop, SuperValu, and Albertson's were not the primary cause of Haggen's demise.

*251 XVI. Comvest's Projections

A. Comvest's Projections Were Wrong

173. Prior to the Albertson's Acquisition, Comvest prepared projections of Haggen's future financial performance. These projections formed the predicate for determining the OpCo Entities' liquidity needs and capitalization. In the final version of projections presented to the IC, Comvest's "base case" assumed that Haggen would enjoy same store sales growth of 4.9% in the first year leading to earnings of $78.2 million. Based on these projections, Comvest underestimated the OpCo Entities' liquidity needs. For the reasons set forth below, the Court concludes that Comvest's "base case" was wrong and the overly optimistic assumptions caused the OpCo Entities to be undercapitalized from their December 2014 inception.

174. Comvest's industry consultant, ATK, created the 4.9% same store sales growth rate that was incorporated into Comvest's base case. Trial Tr. (10/20) at 106:14-16.

175. During his direct examination, Hooper testified that ATK's same store sales growth rate was based on certain objective data, "net promoter scores" and "word clouds," case studies, and the erroneous assumption that Haggen's supermarket "resets" would occur during or prior to store conversions. Trial Tr. (10/20) at 106:14-113:17. The data that ATK relied upon included factors such as industry growth, population growth, and inflation, and its own generalized belief "that the business could grow based on the strength of the brand and the strength of the proposition." Trial Tr. (10/20) at 105:18-24, 106:23-107:3.

176. ATK also relied on "net promoter scores" that showed Haggen's customers in Washington and Oregon had a positive view of the grocery chain. According to ATK, a "net promoter score" is a consumer survey designed to measure the strength of a brand because it shows "the loyalty and the connection of the relationship that the consumer has with the brand." Trial Tr. (10/20) at 107:12-14, 108:4-8.

177. Finally, Hooper testified that ATK's same store sales growth rate was also based, in part, on the assumption that Haggen's "resets" would occur during or prior to the conversions, an assumption that ATK specifically advised Haggen would have a significant impact on expected sales growth. PX 107.024. The Court heard considerable testimony about the meaning of "resets" and "conversions." The Court need not determine the precise meaning of these terms because the evidence shows that Haggen did not complete any "resets" prior to store conversions.

178. At trial, Caple admitted that total store resets were not supposed to occur as part of the conversion process because the stores came stocked with inventory that Haggen had to sell before it could do resets. Trial Tr. (10/16) at 150:24-151:24. Shaner also admitted that the "decision was made to not do the reset" until later in 2015, and observed that resets "are extraordinary, literally moving tens of thousands of products takes about a week and that is in consideration of doing nothing else in the store." Trial Tr. (10/19) at 13:22-15:15.

179. The evidence shows that the scope and timing of the Project had no precedent: an 18-store chain expanding eight-fold by acquiring 146 stores spread out over five states (including three where Haggen had no prior market presence), and where entrenched competition would remain. The entire transaction (the scope of which changed over time from an initial 22 stores in Washington and Oregon in *252 late August 2014, to ultimately 146 stores in five states by November 2014) was negotiated in less than four months; Haggen had just several months to develop conversion plans, hire hundreds of workers and managers, and create the "infrastructure" necessary to run a business of this magnitude; and Comvest and Haggen willingly agreed to acquire and convert all of the stores in just 120 days (which the FTC extended to 150).

180. David MacGreevey, an expert who testified on behalf of the Committee, presented a compelling analysis of "comparable" transactions showing that the Albertson's Acquisition was far greater in size, and was to be completed in a substantially shorter time frame, than any recent "comparable" transaction. Trial Tr. (10/18) at 36:6-37:11; PX 106.018. Even Shaner admitted that he had never seen a transaction of this magnitude. Trial Tr. (10/19) at 39:25-40:6.

181. Based on Hooper's testimony, Comvest's projections failed to take into account and were inconsistent with the actual pre-Albertson's Acquisition results of the Haggen legacy stores and the stores being acquired from Albertson's and Safeway. The evidence shows that sales at the legacy stores contracted in each of the four years from 2010 through 2013, before growing, but by only 0.5% in 2014 (when Comvest claims it engineered a turnaround at Haggen). Sales for the targeted stores also contracted or rose modestly (less than 2%) until 2014. PX 19.017; PX 26.008; PX 632.011. Notably, these historical results were attained without any of the risks that Haggen faced. Trial Tr. (10/16) at 115:16-117:6; Trial Tr. (10/17) at 142:19- 145:24; DX 79.006; PX 8.004. The Court is unable to reconcile the historical sales results, achieved without any of the foreseeable transactional or execution risks that Haggen confronted, with Comvest's projected base case 4.9% same store sales growth rate in the year immediately after the closing.

182. On October 31, 2015, ATK circulated another set of projections, including an "upside case," a base case, and a "downside case." The assumptions in the upside case were modified to assume even stronger same store sales growth in the second and third years. PX 157.005. On cross-examination, Shaner initially testified that he no longer had "heartburn" after receiving ATK's revised projections, and that he couldn't recall whether he agreed with the concerns expressed by Genser. Shaner was forced to recant that testimony after seeing that he, and Genser, and Barnett all expressed considerable concerns about ATK's later set of projections:

• Genser stated, among other things, that he did not "believe the downside case [was] draconian enough" and that "year one could be worse that [sic] what is presented and it never bounces back."

• Barnett expressed the view that "the downside is not a good representation of just how far 'down' could be, and therefore does not accurately represent both the Branding risk (SoCal) and Executional risk (both). My concern is that ATK presents, and therefore legitimizes the 'worst case,' which we know is not really the worst case."

• Shaner wrote: "I am strongly in Ira and Blake's camp. There are so many moving parts, and so much turmoil to manage through, that I think it's only prudent to be keenly aware of the potential downside risk scenarios ... [w]e are eliminating banners that have a presence for years, and while somewhat tarnished, still maintain a loyal customer base ... I believe in the Haggen *253 brand's ability over time, [but] the challenges to sales and ebitda in years 1-2 are significant."

Trial Tr. (10/19) at 24:22-29:5; PX 157.

183. In essence, Shaner maintained the very same concerns that he told Barnett had caused "heartburn" just days before Shaner was forced to admit that (a) he believed Haggen faced "significant challenge[s]" to sales and EBITDA during the first two years, and (b) that what he "foresaw back in October [2014] was exactly what happened. Sales and EBITDA in year one were just a disaster." Trial Tr. (10/19) at 29:6-12.

184. In response to the concerns expressed by Genser, Shaner, and Barnett, Niegsch claimed to have prepared a "real bad downside case" showing the operating companies "barely" having any liquidity after "cutting down Capex and G & A and stretching payables for more breathing room in that scenario." PX 157.003. Niegsch relied on the "real bad downside case" to dismiss the substantial concerns that ATK's "downside scenarios" did not sufficiently take into account the transaction and execution risks, yet Niegsch could not identify the "real bad downside case," and could not recall ever presenting it to, or discussing it with, the IC (or anyone else). Trial Tr. (10/17) at 136:24-139:24; Trial Tr. (10/19) at 101:13-18; PX 625.

185. While the Court never saw Niegsch's "real bad downside case," the evidence shows that Comvest's downside scenarios never showed the OpCo Entities losing any money. Trial Tr. (10/16) at 295:11-296:1. Indeed, prior to the time it approved Haggen's bid, the IC was never presented with a scenario that showed the OpCo Entities earning less than $40 million per year. Trial Tr. (10/17) at 62:7-12. Thus, although the Deal Team's downside projections assumed same store sales would decline by 5% in the first year (PX 19.026), the Deal Team changed other assumptions that mitigated the impact of the projected loss of sales such that Haggen still showed profits of almost $50 million in the first year.

XVII. The Court Accepts As Credible MacGreevey's Opinion That The OpCo Entities were Insolvent and Undercapitalized

186. David MacGreevey offered expert testimony on the Committee's behalf concerning whether the OpCo Entities were insolvent and undercapitalized on the date of the APA ( i.e. , December 10, 2014), and each day thereafter through the Petition Date. Trial Tr. (10/18) at 5:14-19. MacGreevey did not opine on the solvency of the PropCo Entitites or Holdings.

187. MacGreevey's ultimate conclusion is that the OpCo Entities were insolvent and undercapitalized as of the date of the APA and each day thereafter. Trial Tr. (10/18) at 7:19-8:2. For the reasons set forth below, while the Court finds that MacGreevey was an able witness, the Court does not credit his opinion and finds that the OpCo Entities were not insolvent and undercapitalized at the signing of the APA.

188. MacGreevey is well-qualified to offer his expert opinion on issues of insolvency. He has spent more than fifteen years in the restructuring and finance arenas, including more than seven years in the restructuring group at Duff & Phelps (and its predecessor, Chanin Capital Partners), and two years in the Restructuring and Special Situations practice of Macquarie Capital, before joining Zolfo Cooper LLC ("Zolfo Cooper") in 2011. MacGreevey has represented creditors and creditors' committees in a wide variety of cases and industries and has advised stakeholders on strategic transactions, including restructurings, mergers and acquisitions, and capital *254 raises. Trial Tr. (10/18) at 5:20-6:6; PX 106.064.

189. MacGreevey testified that working with projections and forecasts of future financial performance, including developing and critiquing projections, business plans, and liquidity forecasts, is one of his and Zolfo Cooper's "key competencies." MacGreevey has performed these services across a wide array of industries, including retail. While MacGreevey has some experience in the grocery sector (in particular, as advisor to the creditors' committee in A & P, a prior bankruptcy case), he does not hold himself out as an expert in that industry. Trial Tr. (10/18) at 6:7-7:5.

190. MacGreevey was asked to render his opinions in early 2017. A team of professionals at Zolfo Cooper assisted MacGreevey. Together, they gathered and reviewed information and spent "hundreds of hours" on the project. Trial Tr. (10/18) at 10:23-12:8; PX 106.067-71. Ultimately, MacGreevey prepared a written report setting forth his opinions, the methodologies utilized, and the bases for his opinions. Trial Tr. (10/18) at 8:12-9:4; PX 106.

191. Comvest's base case incorporated ATK's 4.9% same store sales growth rate. In contrast, MacGreevey's base case assumed that same store sales would contract by 8.6% in the first year.

192. Multiple parties reviewed OpCo's financials including the same store sales growth projections developed by ATK. These parties included the Deal Team, the Haggen management team, the IC, multiple lenders, the Sale Leaseback Counterparties, SuperValu, the FTC, and Unified Grocers. None of these parties ever argued that ATK's same store sales growth projections for OpCo were unreasonable. See Trial Tr. (10/16) at 218:9-25, 219:18-220:1, 223:4-24, 233:4-9 (Caple); Trial Tr. (10/17) at 89:21-90:7, 98:22-99:4, 99:20-100:15 (Niegsch).

193. The basis for MacGreevey's assertion that Haggen should have projected negative 8.6% same store sales growth as opposed to positive 4.9% same store sales growth is that MacGreevey believes that Haggen should have applied ATK's "pre-renovation" projection numbers rather than "post-renovation" projection numbers. Trial Tr. (10/17) at 56:19-57:10. MacGreevey did not develop his own numbers, but chose from a table in an ATK spreadsheet that had pre-renovation and post-renovation projections. Id. at 49:14-22. ATK used the post-renovation numbers rather than the pre-renovation numbers in developing their same store sales projections. Id. at 57:21-58:5. Hooper testified that, based on his conversations with Haggen and Comvest as well as his review of the capital expenditure budget, it was appropriate to project the post-renovation benefit for OpCo. Trial Tr. (10/20) at 119:6-24 (Hooper).

194. Hooper also testified as to multiple other reasons it was reasonable to project positive same store sales growth for OpCo. These reasons included, among others:

• Net Promoter Score: ATK performed a consumer survey of over 1,000 people to determine Haggen's net promoter score. Trial Tr. (10/20) at 109:20-21; 110:21-111:2 (Hooper); DX0072-0013. Haggen's high net promoter score in comparison to the net promoter score for Albertson's and Safeway gave ATK confidence that the brand could and would be successful. Trial Tr. (10/20) at 109:22-110:8 (Hooper);

• Word Cloud Surveys: ATK also performed a "word cloud" survey on over 1,000 people to see what words they associated with shopping at Haggen, Albertson's and Safeway.

*255 Id. at 112:16-18. The word cloud survey supported the thesis that Haggen could keep the Albertson's and Safeway customers who cared primarily about price and location while also attracting the Haggen customers who also cared about freshness, local products, organic products, and other key words. Id. at 111:16-112:15.

• Case Studies: ATK also analyzed prior grocery store conversions in the form of case studies to support their projection that OpCo would experience positive same store sales growth. i d. at 112:19-113:17. Based on a review of the case studies, ATK placed Haggen on the top half of its two-by-two grids signifying ATK's view that renovations were being performed prior to the banner conversion. id. at 119:6-24.

195. MacGreevey relied in significant part on a series of capital expenditure ranges contained in a chart provided in an ATK presentation indicating a certain capital expenditure range associated with a "refresh," a "minor remodel," and a "major remodel." Trial Tr. (10/18) at 21:18-23:13, 63:24-64:10 (MacGreevey); DX0041-0002. Those ranges, however, were not produced by ATK. Hooper testified that instead those ranges were provided by "the storyteller" i.e. the people that ATK interviewed-from Winn Dixie who observed the store conversions in that case study. Trial Tr. (10/20) at 113:18-115:10 (Hooper); DX041-0002. And the Winn Dixie case study qualified as a "store reset/remodel" according to ATK's own analysis. DX0041-0009.

196. Hooper testified that the plans to "Haggenize" the stores would fit within his view of a renovation. Trial Tr. (10/20) at 119:6-24 (Hooper). Thus, Hooper disagreed with MacGreevey and believed that post-renovation rather than pre-renovation numbers should be used in projecting same store sales growth. Id.

197. The Court finds that it was reasonable for Haggen and Comvest to rely on the same store sales projections developed by ATK. The overwhelming weight of the evidence indicates that Haggen intended to and did perform renovations at the acquired stores prior to reopening those stores under the Haggen banner.

198. MacGreevey also made an adjustment to "fix" certain operating costs rather than leave those costs variable as in the Management Base Case. Trial Tr. (10/18) at 75:14-78:4 (MacGreevey). If MacGreevey's adjustment to projected same store sales growth is rejected, then MacGreevey admits there is no impact to his adjustment to "fix" certain costs. Id. at 75:14-76:23 (MacGreevey). One of the costs MacGreevey determined should be 100% fixed was labor costs. Id. at 76:24-78:4 (MacGreevey). Shaner, Clougher and Hooper, all of whom (unlike MacGreevey) have extensive grocery experience, each testified that labor costs are not fixed in the grocery industry. Trial Tr. (10/19) at 93:2-14 (Shaner), 188:5-189:12 (Clougher); Trial Tr. (10/20) at 103:19-104:11 (Hooper) ("Q. In grocery is labor a fixed cost or a variable cost? A. Labor is commonly understood to be very variable.").

199. MacGreevey also "corrected" the Management Base Case by adjusting the store cadence to match the actual cadence and by implementing a $10 million minimum cash requirement in his liquidity calculation. Trial Tr. (10/18) at 78:5-16 (MacGreevey). The PNC Credit Agreement does not require a $10 million minimum cash requirement when calculating liquidity and evaluating whether a springing event had occurred. Id. at 78:25-79:23 (MacGreevey). Further, the actual store cadence would not have been known or *256 knowable as of the signing date of the APA. Id. at 79:24-80:17 (MacGreevey). The Court finds MacGreevey's "corrections" and "adjustments" to the Management Base Case unpersuasive.

200. Defendants elicited expert testimony from Montague in rebuttal to MacGreevey's testimony on solvency. Montague disagreed with the conclusions of MacGreevey and found MacGreevey's solvency analysis to be unreliable. Trial Tr. (10/20) Tr. at 204:18-22 (Montague). Montague testified that, under the management's base case assumptions, OpCo would pass all three solvency tests: the "Cash Flow Test," the "Capital Adequacy Test," and the "Balance Sheet Test." Id. at 191:15-17, 193:18-20, 194:11-195:2 (Montague).

201. The Court finds that OpCo was solvent and not undercapitalized as of the signing of the APA.

CONCLUSIONS OF LAW

I. THE COMMITTEE HAS FAILED TO PROVE ACTUAL FRAUD .

What would be an important claim in this case is one that the Committee did not bring, failed to prove, namely, that any Defendant committed fraud on any OpCo creditor. There was no allegation of any intent by the Defendants to actively mislead the OpCo creditors, there was no justifiable reliance by the OpCo creditors on a misrepresentation, and there were no damages to the OpCo creditors directly caused by a misrepresentation. The Committee cannot meet any element of common law fraud. H-M Wexford LLC v. Encorp, Inc. , 832 A.2d 129 , 144 (Del. Ch. 2003).

The Committee's theory is nonetheless based on fraud. They seek to "avoid" transfers from Holdings to PropCo, but avoiding those transfers will not result in any additional money going to the OpCo creditors. The Committee alleges a breach of fiduciary duty claim, but the duties and the allegations do not match, especially when Holdings has always been solvent. The Committee seeks to add substantive consolidation (as a makeshift alter ego theory) on other claims to rearrange the corporate structure. Yes, the bankruptcy happened very quickly, despite Defendants' efforts and the rapidity of the business failure was shocking. The Committee challenged the events but fell short of proving fraud. One of the reasons for incorporating in Delaware is its well-established respect for the corporate form. As the Delaware Supreme Court recently explained, "Delaware courts take the corporate form and corporate formalities very seriously," because it would "upset the contractual expectations" of the parties to conflate separate entities. Culverhouse v. Paulson & Co. , 133 A.3d 195 , 199-200 (Del. 2016) (internal quotation marks omitted). "It is only the exceptional case where a court will disregard the corporate form." Sears, Roebuck & Co. v. Sears plc , 744 F.Supp. 1297 , 1305 (D. Del. 1990) ; see also Vichi v. Koninklijke Philips Elecs. N.V. , 62 A.3d 26 , 49 (Del. Ch. 2012) ("Delaware courts take the corporate form and corporate formalities very seriously ... [and] will disregard the corporate form only in the exceptional case.").

The certainty allows businesses to determine which risks, and how much risk, they wish to take in new ventures. The Committee challenges these fundamental tenets of Delaware law, asking the Court to disregard Holdings' separate existence and distribute its assets to creditors of its subsidiaries, OpCo. This runs counter to the well-established rule that "parent and subsidiary corporations are separate entities, having separate assets and liabilities.... [H]ence, the parent's *257 creditors have no claim to the subsidiary's assets, and vice versa." In re Regency Holdings (Cayman), Inc. , 216 B.R. 371 , 375 (Bankr. S.D.N.Y. 1998) (citations omitted). If relief were granted on the present facts, disregard for the corporate form would be inconsistent with the expectations that businesses manifest in selecting Delaware as the site of incorporation.

II. THE CLAIM FOR SUBSTANTIVE CONSOLIDATION (COUNT 72)

The Court rejects the Committee's claim to substantively consolidate the PropCo Entities with Holdings and the OpCo Entities. To be entitled to substantive consolidation, the Committee has the burden of proving that the Debtors and the PropCo Entities disregarded their corporate separateness "so significantly" that "their creditors relied on the breakdown of entity borders and treated them as one legal entity." In re Owens Corning , 419 F.3d 195 , 211 (3d Cir. 2005). The Committee, however, offered no evidence that the OpCo Entities' creditors "actually or reasonably" relied on any breakdown of the entities' corporate separateness. Id. at 212 . Even if the Committee could meet its burden, an opponent of substantive consolidation can still preclude application of the remedy by showing that other creditors "actually relied on debtors' separate existence," and would be "adversely affected" by substantively consolidating the various entities. Id. Here, it is undisputed that some of Holdings' creditors did actually rely on the Debtors' corporate separateness and would be adversely affected by substantive consolidation. Accordingly, substantive consolidation is inappropriate in this case.

A. Legal Standard For Substantive Consolidation

Substantive consolidation in the Third Circuit is governed by Owens Corning . There, the Third Circuit analyzed the approaches to substantive consolidation utilized by other circuits, and then adopted a straightforward approach that differs meaningfully from the approaches in those circuits. See id. For example, the court explicitly rejected the " Auto-Train " approach, which it described as "fail[ing] to capture completely the few times that substantive consolidation may be considered and then, when it does hit one chord, it allows a threshold not sufficiently egregious and too imprecise for easy measure." Id. at 210 ( citing In re Auto-Train Corp. , 810 F.2d 270 , 276 (D.C. Cir. 1987) ). The court also rejected the "checklist" approach-utilized, for example, in the Second Circuit-because it "often results in rote following of a form containing factors where courts tally up and spit out a score without an eye on the principles that give the rationale for substantive consolidation (and why, as a result, it should so seldom be in play)." Id. at 210. The Court rejects the Committee's attempt to rely on non-Third-Circuit case law that does not apply the Owens Corning test.

The Committee relies on Stop & Go of Am., Inc. v. Stop & Go Shops, Inc. (In re Stop & Go of America, Inc.) , 49 B.R. 743 (Bankr. D. Mass. 1985). The test adopted by the Third Circuit in Owens Corning is exactly the opposite of the test used in Stop & Go . The Owens Corning court announced a hard and fast rule that substantive consolidation was never allowed where creditors were aware of and relied on the debtors' corporate separateness. 419 F.3d at 212 (holding that substantive consolidation is not available where creditors can prove "they are adversely affected and actually relied on debtors' separate existence."). The Stop & Go court, on the other hand, applied a very different standard, in which substantive consolidation was favored where the creditors understood the *258 separate corporate nature of the debtors. 49 B.R. at 750 ("[T]he Court cannot find that the defendants were ignorant of the relationship of the companies."). These conflicting standards cannot be reconciled, and the Court is bound to follow the lead of the Third Circuit.

In crafting the Third Circuit test, the Owens Corning court identified several important principles. One "fundamental ground rule" is that courts must limit "the cross-creep of liability by respective entity separateness" because "the general expectation of state law and of the Bankruptcy Code, and thus of commercial markets, is that courts respect entity separateness absent compelling circumstances." Id. at 211 . Another important principle is that substantive consolidation is "extreme" and "imprecise," and that this "rough justice remedy should be rare" and "one of last resort after considering and rejecting other remedies." Id. (emphasis added). Based on these principles, the Third Circuit concluded that substantive consolidation is available when "prepetition [the debtors] disregarded separateness so significantly their creditors relied on the breakdown of entity borders and treated them as one legal entity." Id. The Owens Corning court also stated that substantive consolidation is available when "postpetition their assets and liabilities are so scrambled that separating them is prohibitive and hurts all creditors." Id. at 211 . The Committee, however, has stated that its alleged entitlement to substantive consolidation flows from the Debtors and Defendants supposed prepetition disregard for corporate separateness. See D.I. 111 at 19 ("Ultimately, for the PropCo Entities to be consolidated, the Committee must show that, prepetition, they disregarded corporate separateness so significantly that their creditors relied on the breakdown of entity borders and treated them as one legal entity."). The Committee has not offered any evidence to support a finding that the assets and liabilities are so scrambled that separating them would hurt all creditors.

The Third Circuit went on to break down the elements of a substantive consolidation claim. First, the Committee must prove that the "parties' prepetition dealings" revealed "corporate disregard creating contractual expectations of creditors that they were dealing with debtors as one indistinguishable entity." Owens Corning , 419 F.3d at 212 . Second, a proponent of substantive consolidation must prove that "in their prepetition course of dealing, they actually and reasonably relied on debtors' supposed unity." Id. This prong has dual requirements: the creditor must not only prove actual reliance, but also that such reliance was "reasonable." Id. Simple ignorance of the debtors' corporate structure does not satisfy this test. Id. Third, if the first two prongs are met, an opponent of substantive consolidation can still preclude application of the remedy by showing that other creditors "actually relied on debtors' separate existence," and would be "adversely affected" by substantively consolidating the various entities. Id.

Finally, there is a split of authority regarding whether substantive consolidation is an appropriate remedy at all where, as here, the Committee seeks the consolidation of debtors and non-debtors. What is clear is that the burden on the Committee in establishing a right to this "extreme" and "rare" remedy is ratcheted up even further when seeking consolidation of a non-debtor entity. See In re Howland , 674 F. App'x 482 , 488 (6th Cir. 2017) ("Substantive consolidation is an 'extreme' measure, only to be used 'sparingly,' especially when consolidating a non-debtor entity.") ( citing Owens Corning , 419 F.3d at 208 -09 , 211 ).

*259 B. Creditor Reliance

It is important to consider the burden of proof for substantive consolidation. "Proponents of substantive consolidation have the burden of showing one or the other rationale for consolidation." Owens Corning , 419 F.3d at 212 . As the proponent of substantive consolidation, the Committee has the burden of proving that creditors "actually and reasonably" relied on a belief that the OpCo, PropCo, and SLB Entities were the same entity. Id. ("Proponents who are creditors must also show that, in their prepetition course of dealing, they actually and reasonably relied on debtors' supposed unity."); see also Howland , 674 F. App'x at 489 (holding that "the trustee's proposed amended complaint is devoid of any factual allegations that any creditor relied on the debtors' disregard of corporate formalities in making a business decision in connection with either entity" and dismissing the trustee's substantive consolidation claim). The Committee does not even attempt to meet this burden. Instead, they argue that there "was no public disclosure of the PropCo/OpCo structure" and that in the absence of public disclosure, the OpCo creditors' "lack of knowledge was a foregone conclusion." Trial Tr. (10/16) at 11:12-18; 11:22-24 (Morris). This argument changes the standard from "reasonable reliance" to mere ignorance and improperly shifts the burden of proof from the Committee to Defendants.

There is a difference between mere ignorance of debtors' corporate structure and "actual and reasonable reliance" on the debtors' supposed unity. The Third Circuit in Owens Corning did not rule that substantive consolidation is appropriate whenever debtors fail to publicize their corporate structure. Privately held companies rarely, if ever, issue public announcements about their corporate legal structure; and the Committee's argument would change substantive consolidation from a "rare" and "extreme" remedy to one that would be available in many bankruptcies. Owens Corning , 419 F.3d at 211 . Instead, the Owens Corning court set a standard of actual and reasonable reliance. See id. at 212 . This requires a creditor to engage in some minimal level of inquiry, such as asking whether the OpCo Entities owned any real property. Creditors, if interested, also had the option of checking the publicly available real property records to see who owned the real property upon which the stores sat. Had the OpCo Entities' creditors been interested and checked the real property records, they would have discovered recorded deeds showing that Albertson's conveyed the real property at issue to Spirit, GIG, and the PropCo Entities, not the OpCo Entities. See , e.g., DX0219; DX0232; DX0250; DX0251; DX0268. They also would have discovered the publicly recorded Memoranda of Lease disclosing that the OpCo Entities were tenants, and that they did not own the real property. See , e.g. , DX0265; DX0323. Publicly recorded deeds constitute constructive notice. See , e.g. , Sixty-01 Ass'n of Apartment Owners v. Parsons , 178 Wash.App. 228 , 314 P.3d 1121 , 1125 (2013) ("A recorded deed constitutes constructive notice of the interest acquired."). See also Ariz. Rev. Stat. § 33-416 ("The record of a grant, deed or instrument in writing authorized or required to be recorded, which has been duly acknowledged and recorded in the proper county, shall be notice to all persons of the existence of such grant, deed or instrument ....").

The Committee failed to prove any actual or reasonable creditor reliance. The Committee is arguing that Defendants must prove that not one of the OpCo Entities' thousands of unsecured creditors relied on the mistaken belief that the OpCo Entities owned the real property. This is *260 logistically impossible and inconsistent with the Owens Corning test which places the burden of proving actual and reasonable creditor reliance squarely on the Committee's shoulders. See 419 F.3d at 212 . The Committee has not even attempted to meet this burden, and this precludes substantive consolidation. Id.

Even though it was not their burden, Defendants did introduce evidence regarding four of the OpCo Entities' largest creditors-indeed, this was the only evidence regarding creditor reliance that was admitted at trial. The evidence shows that none of these creditors actually or reasonably relied on the Debtors' supposed unity with the PropCo and SLB Entities. Spirit, GIG, and Unified Grocers all knew that the OpCo Entities were separate companies that did not own any real property. Pepsi's corporate representative testified that they conducted no investigation and did not care whether or not the OpCo Entities owned any real property. See Trial Tr. (10/19) at 82:8-83:10 (Pepsi Stipulation). This is consistent with the experience of the Haggen management team, who all testified that (a) trade creditors never ask whether a grocery store owns real estate before extending credit, and (b) a trade creditor has never refused to extend credit to a grocery store on the basis that the grocery store does not own any real estate. See Trial Tr. (10/17) at 230:7-18 (Barnett); Trial Tr. (10/19) at 50:10-24, 80:8-81:17 (Shaner); Trial Tr. (10/19) at 148:18-149:7, 172:8-174:9 (Clougher). Unified Grocers, who ultimately did $13-14 million of business per week with the OpCo Entities, actively sought a guarantee from the PropCo Entities on its extension of credit to the OpCo Entities, was denied, and made the business decision to extend credit to the OpCo Entities anyway. In addition, some creditors such as Starbucks, MoneyGram, and TopCo extended credit after receiving a copy of the OpCo Entities' pro forma financial statements. See DX0217-DX0218 (Starbucks received OpCo pro forma); DX0177-DX0178 (TopCo received OpCo pro forma); DX0204-DX0205 (MoneyGram received OpCo pro forma). The pro forma financial statements do not identify any real property and have a substantial line item for "rent expense." As such, these creditors had in their possession financial statements from the OpCo Entities showing that "OpCo" did not own the real property upon which the stores operated.

In the Court's summary judgment ruling, it explained that "[t]he Committee will have the opportunity at trial to prove what creditors did not know and relied upon," and that "[a]fter trial, the Court will be in a better position to determine the creditors' recovery rights." D.I. 136 at 8. The trial has come and gone. Every single creditor that testified said that they either knew of or did not care about the Debtors' corporate structure. Not one creditor testified that they actually and reasonably relied on the Debtors' supposed unity with the PropCo and SLB Entities.

C. Harm From Substantive Consolidation.

In addition to failing the first prong of the Owens Corning test, substantive consolidation is unavailable here because the record is clear that Holdings' creditors "actually relied on debtors' separate existence" and would be "adversely affected" by substantive consolidation. Owens Corning , 419 F.3d at 212 .

Spirit and GIG entered into leases with the OpCo Entities whereby the OpCo Entities agreed to pay rent to Spirit and GIG for use of the grocery stores. See DX0226; DX0235. Both Spirit and GIG negotiated for and received a guarantee on these rental payments from Holdings. See DX0242; DX0396. In doing so, Spirit and *261 GIG understood the separate corporate existence between the OpCo Entities and Holdings, recognized that there was value in having an otherwise separate entity be liable for the rental payments, and understood that through the guarantees they would have access to assets that they (and other creditors of the OpCo Entities) would otherwise not have. As Spirit's corporate representative explained, having these guarantees provided a "feature that mitigates our risk in doing the transaction." D. Rosenberg Dep. at 52.18-53:6.

Substantive consolidation would be devastating on Holdings' creditors. These creditors would see their recovery drop from 100% to as little as 21%. See Trial Tr. (10/20) at 177:13-17; 178:6-13 (Montague). And the OpCo Entities' creditors would receive a windfall, as their recoveries would increase from 0% to over 20%. Trial Tr. (10/20) at 223:22-25 (Montague).

At that same hearing, the Committee's counsel argued that the prejudice to Holdings' creditors should be ignored because it was an "intercreditor" issue that could be addressed by a consensual plan. The Committee's counsel went so far as to promise such a consensual plan in a matter of days. See 9/26/17 Hr'g Tr. at 19:9-10 ("I hope to file the plan today, but I think it's just a matter of days ....") (Feinstein). It has been approximately four months, and no such plan has been filed.

III. THE HOLDINGS FRAUDULENT TRANSFER CLAIMS (COUNTS 1-19, 39-65) .

Fraudulent transfer is a statutory remedy that allows creditors to avoid transfers and return property to a debtor that originally owned it. 11 U.S.C. § 548 . Here, the Committee is seeking to avoid transfers from Holdings to PropCo and Holdings to Comvest. If successful, the result of these claims will be that the transferred property is returned to the Holdings estate. Id.

Holdings' creditors are already being paid in full. The Committee's ultimate goal is to take Holdings' property and distribute it to OpCo creditors who have never been Holdings creditors. The Committee is seeking a veil piercing remedy, but has not even attempted to satisfy the stringent requirements under Delaware law to pierce the corporate veil. Sears, 744 F.Supp. at 1305 ("It is only the exceptional case where a court will disregard the corporate form."). The Committee has argued that these legal defects in their fraudulent transfer claims can be overlooked because they "presuppose" the validity of the Debtor's corporate structure. This ignores that "Delaware courts take the corporate form and corporate formalities very seriously." The Court is bound to do the same in applying Delaware law. Vichi v. Koninklijke Philips Elec. N.V. , 62 A.3d 26 , 48-49 (Del. Ch. 2012).

This is not a case of fraudulent transfer. Holdings, the only Debtor that has ever held the property at issue, is solvent, and is paying its creditors in full. The Committee is trying to seize property that never belonged to OpCo, and distribute it to OpCo creditors that have never had a claim against Holdings. But OpCo's creditors lack standing to sue on behalf of Holdings for fraudulent transfer, and any recovery would not benefit Holdings' creditors who are to be repaid in full. See Adelphia Recovery Tr. v. Bank of Am., N.A. , 390 B.R. 80 , 94 (S.D.N.Y. 2008) ; see also In re New Life Adult Med. Day Care Ctr., Inc. , 2014 WL 6851258 , at *6 (Bankr. D.N.J. Dec. 3, 2014).

A. Legal Standard For Fraudulent Transfer

Fraudulent transfer is a legal, not an equitable, remedy.

*262 Boston Trading Grp., Inc. v. Burnazos , 835 F.2d 1504 , 1508 (1st Cir. 1987). Whether alleged under state law under 11 U.S.C. § 544 , or under 11 U.S.C. § 548 , the claim arises under statute, and each of the statutory elements must be met to impose liability. See 11 U.S.C. § 548 ; see also 11 U.S.C. § 544 . The remedies available are limited to those enumerated by statute. Id.

To allege a claim for fraudulent transfer under state law, the Committee must be a creditor of the transferor. See, e.g. Fidelity Nat'l Title Ins. Co. v. Schroeder , 179 Cal. App. 4th 834 , 841, 101 Cal.Rptr.3d 854 (Cal. Ct. App. 2009). Likewise, "the Bankruptcy Code's avoidance provisions can only be asserted to benefit a creditor of the debtor in question." Adelphia , 390 B.R. at 94 . "An obligation or transfer cannot be avoided as a fraudulent transfer or preference under sections 544, 547 and 548 of the Bankruptcy Code when doing so would not benefit any creditor of the particular debtor that incurred the obligation or made the transfer." Id. at 93 .

Fraudulent transfer claims may not be brought where they offer no benefit to creditors of the transferor's estate. Adelphia , 390 B.R. at 95 ("Under the principles of federal jurisdiction, a party does not have standing to sue where the party is not able to allege an injury that is likely to be redressed by the relief sought."). No recovery is allowed if it would not provide any benefit to actual creditors of the transferor. See In re Trans World Airlines, Inc. , 163 B.R. 964 , 969 (Bankr. D. Del. 1994) ; Whiteford Plastics Co. v. Chase Nat'l Bank of New York City , 179 F.2d 582 , 584 (2d Cir. 1950) (" 'It would be mockery of justice to [avoid a transaction] in the right of non-existing creditors.") (internal citation omitted). This rule precludes recovery actions when the transferor is solvent and the transferor's creditors are all being paid in full. See New Life , 2014 WL 6851258 , at *6.

Both the Bankruptcy Code and analogous state laws distinguish between claims for "actual" fraudulent transfer and "constructive" fraudulent transfer. Compare 11 U.S.C. § 548 (a)(1)(A) with 11 U.S.C. § 548 (a)(1)(B). To prove actual fraud, the plaintiff must show that the transfer was made with "actual intent to hinder, delay or defraud" the transferor's creditors. 11 U.S.C. § 548 (a)(1)(A). Constructive fraud, on the other hand, occurs when an insolvent transferor makes a transfer for less than reasonably equivalent value. See 11 U.S.C. § 548 (a)(1)(B). The plaintiff has the burden of proof under either theory of recovery. No claim for actual fraudulent transfer can succeed where the plaintiff fails to prove actual intent to hinder, delay or defraud the transferor's creditors. See , e.g. , In re Fedders N. Am., Inc. , 405 B.R. 527 , 545 (Bankr. D. Del. 2009). And no claim for constructive fraudulent transfer can succeed where the plaintiff fails to prove both (i) insolvency at the time of transfer, and (ii) failure of the transferor to receive reasonably equivalent value. See , e.g. , Burtch v. Opus LLC (In re Opus East, LLC) , 528 B.R. 30 , 51, 83 (Bankr. D. Del. 2015) ("The plaintiff bears the burden of proving insolvency by a preponderance of the evidence..." while "[t]he burden of proof is on the Trustee to establish that less than reasonably equivalent value was received by the Debtor for the allegedly fraudulent transfers.")

B. Fraudulent Transfer Claims (Both Actual And Constructive) Involving Transfers By Holdings

As a matter of law, the Committee is precluded from prosecuting a claim for fraudulent transfer against Holdings on behalf of persons who are not creditors of *263 Holdings. Adelphia , 390 B.R. at 95 . At bottom, the Committee is seeking to recover assets transferred from Holdings to the PropCo Entities used to pay OpCo creditors. This violates well-established rules of law and stops all of the fraudulent transfer claims directed at Holdings, including (i) the contribution to the PropCos, and (ii) the payment of the $1.5 million management fee from Holdings to Comvest.

Under state fraudulent transfer law, the Committee lacks standing to seek recovery on behalf of persons who are not creditors of Holdings. In re Global Grounds Greenery, LLC , 405 B.R. 659 , 662 (Bankr. D. Ariz. 2009) (stating "[t]here is no dispute that the Uniform Fraudulent Transfer Act, as adopted in Arizona and elsewhere, only creates causes of action for creditors of the transferor"); In re ShengdaTech, Inc. , 519 B.R. 292 , 303-04 (D. Nev. 2014) (holding that, under Nevada's Uniform Fraudulent Transfer Act, a creditor is the only party with standing to bring a claim); Fidelity Nat'l Title , 179 Cal. App. 4th at 841 , 101 Cal.Rptr.3d 854 (holding that, under California's Uniform Fraudulent Transfer Act, a fraudulent transfer may only be attacked by the creditor injured from the transfer); Douglas v. Hill , 148 Wash. App. 760 , 765, 199 P.3d 493 (Wash. Ct. App. 2009) (holding that "under the definitions provided in the UFTA, a creditor need only have a right to collect a payment to void a fraudulent transfer"); Norris v. R & T Mfg., LLC , 265 Or. App. 672 , 676, 338 P.3d 150 (Or. Ct. App. 2014) (holding that, to establish a claim under the Oregon Uniform Fraudulent Transfers Act, a plaintiff must prove that it "has a claim as a creditor that arose before or after the transfer was made"); Fisher v. Kelly , 30 Or. 1 , 46 P. 146 , 149 (1896) ("[B]efore a person can attack a transfer of personal property, either actual or constructive, he must show himself to be a creditor ...."). This rule acts as an absolute bar to all of the Committee's state law claims alleging fraudulent transfer by Holdings.

Holdings has sufficient assets to pay all of its creditors in full but this is also a bar to fraudulent transfer claims under the Bankruptcy Code. Adelphia , 390 B.R. at 94 ("[T]he Bankruptcy Code's avoidance provisions can only be asserted to benefit a creditor of the debtor in question."). This case is highly analogous to Adelphia . The debtors in Adelphia included the parent company Adelphia Communications Corporation ("Adelphia") and several of its subsidiaries (the "Obligor Debtors"). See id. at 83-85 . Like in this case, the creditors' committee asserted fraudulent transfer claims for transfers made by the Obligor Debtors in an attempt to increase the recovery for Adelphia's creditors.

In a detailed opinion, the court explained that fraudulent transfer claims could only proceed where they would generate a recovery for creditors of the specific transferor entities; it was not enough that the claims sought a recovery for creditors of a separate corporate affiliate. See id. at 94-95 . "Given that the creditors of the Obligor Debtors have received full payment with interest under the Plans, it follows that these creditors do not stand to benefit from recovery on the Bankruptcy Claims at issue here, and the [Adelphia Recovery Trust] does not have standing to bring these claims on their behalf." Id. at 95 . The court held that bankruptcy courts must look to the actual transferor entity, and determine whether any of the transferor's creditors have unpaid claims. See id. The court further concluded that where all transferor creditors are being paid in full, no party has standing to sue for fraudulent transfer, whether under state law or 11 U.S.C. § 548 . See id. at 92-97

In Adelphia , as here, the Adelphia Recovery Trust sought to cure its lack of *264 standing by arguing that the bankruptcy court had previously granted the creditors' committee procedural standing to commence its adversary proceeding, and by invoking its rights as a hypothetical lien creditor. See id. at 88-89, 96 . The court rejected this argument, explaining that the bankruptcy court's order allowing the creditors' committee to pursue claims did not resolve "the question of whether the Creditors' Committee had standing to prosecute specific claims." Id. at 88-89 . Further, the court noted that the rights of the creditors' committee as a hypothetical lien creditor were limited to asserting claims that would actually lead to an a recovery for the creditors of the transferor entity. Id. at 93 ("[A]n obligation or transfer cannot be avoided as a fraudulent transfer or preference under sections 544, 547 and 548 of the Bankruptcy Code when doing so would not benefit any creditor of the particular debtor that incurred the obligation or made the transfer.").

Many courts have held that fraudulent transfer claims are improper where, as here, the creditors of the transferor are being paid in full. See New Life , 2014 WL 6851258 , at *6 ("[E]ven applying the broadest application of the 'benefit to the estate' requirement, there is no conceivable benefit to the estate, either directly or indirectly. The Plan provided for full payment of all creditor claims...."). Likewise, in Adelphia , the plaintiff argued that recovery would benefit creditors of the parent Adelphia . The court explained that this was insufficient, because there was no benefit to the creditors of the actual transferors:

[N]o creditors of the Obligor Debtors, the specific debtors whose transfers and obligations the ART seeks to avoid, would benefit from recovery on these claims, as all creditors have been paid in full with interest under the Plans, and no creditors have been issued shares of the ART. It is therefore impossible to see how any recovery by the ART could result in any benefit, direct or indirect, to the creditors of the Obligor Debtors.

Adelphia , 390 B.R. at 97 . Here, the solvent debtor is the parent company (Holdings), meaning that even if the Committee is successful in transferring property from the PropCo Entities to Holdings, it still would not benefit the creditors at Holdings' subsidiaries (the OpCo Entities) because the Committee has not sued to pierce the corporate veil. Regency Holdings , 216 B.R. at 375 ("As a rule, parent and subsidiary corporations are separate entities, having separate assets and liabilities.... [H]ence, the parent's creditors have no claim to the subsidiary's assets, and vice versa.") (citations omitted). To recover from Holdings after avoiding transfers from Holdings to the PropCo Entities, the Committee had to have separately pled a claim for veil piercing in the Complaint. The Committee did not. The Committee pled a claim for substantive consolidation but, as discussed, this claim fails because the Committee fails the Owens Corning test.

The Intent to Delay, Hinder, or Defraud Creditors.

The claims alleging actual fraudulent transfer by Holdings also fail because the Committee has failed to prove that Holdings actually intended to defraud any of its creditors. To the contrary, the record shows that Holdings kept all of the Haggen-related assets in wholly-owned subsidiaries and Holdings' creditors are estimated to recover 100 percent of their claims.

The Committee argues that Holdings intended to defraud the OpCo Entities' creditors. See D.I. 111 at 2 ("Comvest structured the transactions in a manner intended to hinder, delay or defraud the OpCo Entities' unsecured creditors.").

*265 This argument fails as a matter of fact and law.

The evidence showed that the OpCo Entities were capitalized as fully as Defendants believed necessary, and the testimony was that Comvest and its directors worked for OpCo Entities' success. In addition, almost none of the badges of fraud are present here. The transfers of the right to acquire real property to the PropCo Entities were not concealed. The deeds conveying the property from Albertson's property-holding companies to the PropCo Entities, Spirit, and GIG were publicly recorded. See , e.g. , DX0219; DX0232; DX0250; DX0251; DX0268. Holdings was not under threat of suit when the transfers were made. The transfers were not for substantially all of Holdings' assets, as it continued to own the valuable membership interests of its wholly-owned subsidiaries. Holdings did not "abscond" indeed, it is willing and able to pay all of its creditors. Holdings received equivalent value for the transfers because the property was placed in its wholly- owned subsidiaries. And finally, Holdings has at all times been solvent. Simply put, there is no evidence of an intent to defraud. The evidence showed Defendants intended to build and grow a business.

The Committee did not prove that the use of the OpCo/PropCo legal structure was intended to defraud creditors. The Committee has stated that the OpCo/PropCo structure "is what's on trial" here, but admitted that these OpCo/PropCo corporate structures are not themselves improper. Trial Tr. (10/16) at 8:9-10 ("This chart, Your Honor, is what's on trial.") (Morris); 9/26/17 Hr'g Tr. 50:6-7 ("There is nothing, per se, wrong about the PropCo and OpCo structure.") (Feinstein). Witnesses provided extensive testimony about the business and financial reasons for using this type of structure. See Trial Tr. (10/17) at 90:8-91:25 (Niegsch); id. at 161:1-25 (Barnett); see also Trial Tr. (10/18) at 184:14-19 (Flaton) (calling "OpCo/PropCo structures" "fairly common" in the "business world"). The Committee has not cited a single case in which maintaining a preexisting OpCo/PropCo structure amounted to a fraudulent transfer. The Court believes there are none.

But even if there was an actual attempt to defraud the OpCo Entities' creditors, that would still not provide the basis for a claim alleging fraudulent transfer by Holdings to the PropCo Entities. The statutory text is clear: 11 U.S.C. § 548 only allows courts to avoid transfers made with an intent to defraud the transferor's creditors, i.e. , Holdings. The Court may avoid a transfer if the debtor "made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted." 11 U.S.C. § 548 (a)(1)(A). The law could not be clearer: Section 548 limits claims for fraudulent transfer to transfers that harm the transferor's creditors, not the creditors of some other entity.

The Committee's case theory is ultimately that Comvest undercapitalized the OpCo Entities. Even if intentionally undercapitalized, that would not have given rise to a claim for fraudulent transfer. Intentional undercapitalization has a number of remedies at law and equity, but a legal claim for fraudulent transfer is not one of them. Section 548 requires a "transfer." There is no such thing as a claim for fraudulent non-transfer.

C. Holdings' Solvency at the Time of the Transfer .

It is the Committee's burden to prove that Holdings was insolvent at the *266 time it made the transfer. See In re EBC I, Inc. , 380 B.R. 348 , 354 (Bankr. D. Del. 2008). Here, there is no evidence that Holdings was insolvent. And the Committee cannot seriously contend that Holdings is insolvent now, as its whole theory of the case is premised on recovering value from Holdings' equity and using it to pay the OpCo Entities' creditors. Instead, in its Opposition Brief to Defendants' Motion for Partial Summary Judgment, the Committee argues that if the Court grants the separate relief of substantive consolidation, then Holdings would be rendered insolvent and its claims for constructive fraudulent transfer could proceed. See D.I. 111 at 28. This argument fails for three reasons.

First, substantive consolidation "eliminates constructively fraudulent transfer avoidance claims" among the consolidated entities. In re Bauman , 535 B.R. 289 , 301 (Bankr. C.D. Ill. 2015) (This is because "the consolidated estate is augmented and diminished in equal amounts ...."). If the Court grants substantive consolidation, then the claims for constructive fraudulent transfer all fail. Id.

Second, for purposes of constructive fraudulent transfer, solvency is measured at the time of the transfer. See In re R.M.L., Inc. , 92 F.3d 139 , 154 (3d Cir. 1996) (holding that "solvency is measured at the time the debtor transferred value, not at some later or earlier time"). Even if Holdings is rendered insolvent by some future ruling, that does not retroactively make Holdings insolvent at the time of transfer. Id.

Third, the Committee did not introduce any evidence that establishes that if the Court consolidated all of the entities together, then Holdings was insolvent at the time of the transfers in question. The Committee's expert has testified that the OpCo Entities may have been insolvent from the moment that the APA was signed, but the Committee's expert did not testify that if you consolidated the OpCo and PropCo Entities' assets and liabilities, then that hypothetical consolidated entity was insolvent when the new stores were acquired.

D. Holdings Received Reasonably Equivalent Value .

The Committee has the burden of establishing that Holdings did not receive reasonably equivalent value when it transferred the right to acquire the real property from Albertson's to the PropCo Entities. See In re Key3Media Grp., Inc. , 336 B.R. 87 , 94 (Bankr. D. Del. 2005), aff'd , 2006 WL 2842462 (D. Del. Oct. 2, 2006) ( citing Mellon Bank, N.A. v. Metro Commc'ns, Inc. , 945 F.2d 635 , 646 (3d Cir. 1991) ). The Committee failed to meet this burden because it is undisputed that the PropCo Entities are-and at all times were-solvent, wholly- owned subsidiaries of Holdings.

Courts recognize that a transfer to a solvent, wholly-owned subsidiary does not amount to a fraudulent transfer. In re DVI, Inc. , 326 B.R. 301 , 306 (Bankr. D. Del. 2005) (concluding that where a debtor "made a contribution to a solvent wholly-owned entity, the Committee would not be able to state a fraudulent transfer claim."). The reasoning behind this rule is sound. It is not fraudulent to allocate property to a solvent, wholly-owned subsidiary because the transferor receives value equal to the transferred asset. See Branch v. F.D.I.C. , 825 F.Supp. 384 , 399-400 (D. Mass. 1993) ("The Court is aware of no case in which transfers to a solvent subsidiary have been determined to be for less than equivalent value."). That is exactly what happened in this case where the transfer was to downstream wholly-owned subsidiaries.

*267 It is undisputed that the non-debtor PropCo Entities are solvent, meaning that the value of the transferred property is ultimately available to satisfy any claims made by Holdings' creditors. See also In re First City Bancorporation of Tex., Inc. , 1995 WL 710912 , at *18 n.9 (Bankr. N.D. Tex. May 15, 1995) ("[A] transfer to a wholly-owned solvent subsidiary is often for reasonably equivalent value, because the value of the parent's stock interest in the subsidiary may be correspondingly increased ....").

E. This Case Is Distinguishable From Mervyn's .

Throughout these proceedings, the Committee has argued that this case is analogous to Mervyn's . Mervyn's was a longstanding department store chain owned by the Dayton Hudson Corporation. See In re Mervyn's Holdings, LLC , 426 B.R. 488 , 492 (Bankr. D. Del. 2010). In 2003, in order to devote more resources and attention to its Target line of stores, Dayton Hudson Corporation spun off the entire Mervyn's business in an equity transaction, transferring the membership interest in Mervyn's LLC to Mervyn's Holdings LLC. See id. at 493 . The private equity sponsors that owned Mervyn's Holdings thus acquired Mervyn's LLC as an ongoing enterprise with many preexisting creditors and liabilities. Id.

For decades, Mervyn's LLC and its predecessor corporation had owned both operating assets and valuable real property. Id. As part of the 2003 sale, the real property was "stripped" i.e. , transferred from Mervyn's LLC to "bankruptcy remote" entities outside of the Mervyn's ownership structure for "virtually no consideration." Id. at 500 . The "MDS Companies" that received the real property were ultimately owned by the same private equity sponsors, but were not subsidiaries of Mervyn's Holdings. Id. at 498 . The effect of this transaction was that the real estate assets were taken from the company and transferred to an entity outside the reach of Mervyn's LLC's creditors in a transaction that allegedly rendered Mervyn's LLC insolvent. Id. Mervyn's LLC's creditors went from holding claims against a solvent company with substantial real estate assets to holding claims against an insolvent shell company.

The central holding of Mervyn's was that it is improper to acquire an entity that has held real property and operating assets together for years, and then transfer *268 the real property to a separate entity (PropCo) in a transaction that renders the predecessor entity (OpCo) insolvent and prejudices the predecessor entity's longstanding, preexisting creditors. That is not what happened here, because:

1. Albertson's held the real property and operating assets in an OpCo/PropCo structure prior to the Albertson's Acquisition;

2. The Albertson's Acquisition was an asset sale-not a stock sale-which means that Holdings did not acquire a preexisting entity with preexisting creditors;

3. The OpCo Entities themselves had no preexisting creditors, and at no time did they ever own any real estate;

4. Holdings transferred the real property downstream to wholly-owned subsidiaries;

5. There is no evidence that Holdings is, or ever was, insolvent;

6. The Committee is not seeking to collapse the entire transaction; and

7. The Court now has the benefit of the evidence presented at trial, whereas the Court in Mervyn's was bound to "accept as true all factual allegations" on what was a pending motion dismiss.

The Albertson's Acquisition was an asset sale-not a stock sale-which means that Holdings did not acquire a preexisting entity with preexisting creditors. In Mervyn's , the private equity sponsors bought an ongoing entity-with preexisting creditors-that had held the real property and operating assets together for years. Id. at 493 . Here, the OpCo Entities' creditors extended credit to an entirely new entity that had never done business before the Albertson's Acquisition and that never owned real property.

In Mervyn's , the Court noted that the transfer of the real property from Mervyn's LLC to the MDS Companies had a "devastating" effect on Mervyn's LLC, the transferor. Id. at 498 . Here, there was no devastating effect on the transferor, because Holdings-not the OpCo Entities-was the transferor and Holdings transferred the real property downstream to wholly-owned subsidiaries (the PropCo Entities). This means that the property was not transferred outside the reach of any Holdings creditor because the value of the real property sat at Holdings' wholly-owned subsidiaries. The property likewise was not transferred outside the reach of the OpCo Entities' credi

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