West Virginia High Technology Consortium Foundatio and HT Foundation Holdings, Inc.

1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
In re: 	)
)
WEST VIRGINIA HIGH TECHNOLOGY 	)
CONSORTIUM FOUNDATION and 	) 	Case No. 16-bk-806
HT FOUNDATION HOLDINGS, INC., 	) 	Jointly Administered
)
Debtors. 	) 	Chapter 11
__________________________________ 	)
MEMORANDUM OPINION
I. BACKGROUND
On March 6, 2017, the court conducted a hearing to consider Huntington National Bank’s
request that the court order the appointment of a trustee to administer the jointly administered
Chapter 11 cases of West Virginia High Technology Consortium Foundation (“Foundation”) and
HT Foundation Holdings, Inc. (“Holdings”) (together, the “Debtors”). On the eve of the hearing,
the Creditor filed with the court a reply brief and voluminous exhibits. At the hearing, the Creditor
indicated that, although it filed many lengthy exhibits, it intended to designate specific portions of
several depositions to be considered by the court. Because the reply and exhibits were filed the
night before the hearing, and because of the request to designate exhibits in such a fashion, the
Debtors requested the opportunity to file a surreply, which the court granted. At the conclusion of
the hearing, the court took the matter under advisement pending the Debtors’ surreply. On March
13, 2017, the Debtors filed their surreply such that the Creditor’s motion is now ripe for
disposition.
The Creditor asserts that the court must order the appointment of a Chapter 11 trustee
because the Debtors’ current management is grossly incompetent and dishonest. Specifically, it
argues that Foundation’s continued engagement in research and development projects without
conclusive proof that those projects financially benefit the Debtors’ total operation is grossly
incompetent. Moreover, they assert that the Debtors’ current plan to cooperate with a non-debtor
related entity to expand the scale of the technology park operated by the Debtors at a time when
No. 1:16-bk-00806 Doc 348 Filed 04/21/17 Entered 04/21/17 14:16:11 Page 1 of 8

2
the technology park is substantially under-occupied again demonstrates gross incompetence by
management. Finally, the Creditor asserts that the Debtors’ CEO, James Estep, was dishonest on
two separate occasions.
In response, the Debtors’ assert that the Creditor has failed to meet its burden to
demonstrate that cause exists for the appointment of a trustee. 	First, the Debtor asserts that the
research and development projects are not a cash drain on their operations. Second, the Debtors
assert that their managers and directors are well-informed about the financial health of the Debtors
and make prudent business decisions consistent with the non-profit mission of the Debtor. Third,
the Debtors argue that the decision to cooperate with other entities to develop adjoining real estate
is not gross incompetence; rather, it is a decision to attempt to generate new business and support
the Debtors’ nonprofit mission. Finally, the Debtors assert that the Creditor fails to prove that Mr.
Estep was dishonest at any point. Thus, they assert that the Creditor failed to demonstrate cause
exists for the appointment of a trustee. Additionally, they assert that the appointment of a trustee
is not in the best interest of creditors, equity holders, and other interests of the estate.
II. DISCUSSION
Section 1104 of the Bankruptcy Code provides that the court shall order the appointment
of a trustee in a Chapter 11 case if cause so requires. 	The Bankruptcy Code provides a non-
exhaustive list of what constitutes cause, including “fraud, dishonesty, incompetence, or gross
management of the affairs of the debtor by current management, either before or after the
commencement of the case.” 	11 U.S.C. § 1104(a)(1). 	Additionally, courts have identified
additional bases for the appointment of a Chapter 11 trustee including conflicts of interest, self-
dealing, inadequate bookkeeping, and loss of creditor confidence. In re Ashley River Consulting,
LLC, Case No. 14-13406, 2015 WL 1540941, at *9 (Bankr. S.D.N.Y. March 31, 2015). Upon a
successful demonstration that cause exists, the appointment of a trustee is mandatory. 	In re
Oklahoma Refining Co., 838 F.2d 1133, 1136 (10th Cir. 1988).
The determination of whether cause exists “is within the discretion of the court and due
consideration must be given to the various interests involved in the bankruptcy proceeding.”
Committee of Dalkon Shield Claimants v. A.H. Robins Co., Inc., 828 F.2d 239, 242 (4th Cir. 1987).
Regardless of the precise form of the questioned conduct, the analysis necessary to determine if
cause exists requires a “fact-sensitive determination that must be made on a case-by-case basis.”
In re G-I Holdings, 384 F.3d 313, 318 (3rd Cir. 2004). Notably, mismanagement or incompetence
No. 1:16-bk-00806 Doc 348 Filed 04/21/17 Entered 04/21/17 14:16:11 Page 2 of 8

3
must be gross to justify the appointment of a trustee. In re Evans, 48 B.R. 46, 48 (Bankr. W.D.
Tx. 1985) (“Every bankruptcy [involves] a certain level of incompetence or mismanagement. As
a result, the courts have required a finding of more than simple mismanagement or incompetence.”)
The court must also order the appointment of a trustee “if such appointment is in the
interests of creditors, any equity security holders, and other interests of the estate . . . .” 11 U.S.C.
§ 1104(a)(2). 	To determine whether the appointment of a trustee is in the best interests of the
pertinent parties, courts employ a balancing test whereby they seek to determine whether “the
benefits to all interests of the estate to be derived from a trustee outweigh the detriment to the
estate.” 7 Collier on Bankruptcy ¶ 1104.02[3][d][ii].
Notably, because “the Bankruptcy Code favors allowing a debtor in possession to continue
managing its business operations, the appointment of a trustee in a Chapter 11 case is an
extraordinary remedy; it ‘is the exception rather than the rule.’” In re Fraidin, Case No. 94-1658,
43 F.3d 1466, *1 (4th Cir. Dec. 9, 1994) (unpublished) (quoting In re U.S. Communications of
Westchester, Inc., 123 B.R. 491, 495 (Bankr. S.D.N.Y. 1991). Moreover, “[t]he moving party has
the burden of showing, by clear and convincing evidence,” that the appointment of a trustee is
necessary. In re Davis, Case No. 09-10198, 2010 WL 2640587, at *2 (Bankr. E.D.N.C. June 29,
2010) (citing In re The 1031 Tax Group, LLC, 374 B.R. 78, 85 (Bankr. S.D.N.Y. 2007).
Here, the Creditor first asserts that the Foundation continues to operate its research and
development projects despite those projects failing to generate positive net operating income over
the past eight years. 	It asserts that the Foundation continues to operate the research and
development projects without sufficiently evaluating whether they cause a drain on the Debtors’
overall business. 	Rather, it alleges that the Debtors’ management is preoccupied with the non-
profit purpose of the Debtors and is neglecting its financial responsibilities. 	Moreover, the
Creditor speculates that the Foundation may only continue research and development work in order
to justify (1) having a large staff and (2) highly compensating the Debtors’ managers, particularly
Mr. Estep. The Creditor further argues that the Debtors’ gross mismanagement is evidenced by
its alleged failures to clearly report the financial woes of its research and development projects to
its Board of Directors. The essence of the Creditor’s argument is that savvy management would
eliminate the research and development portion of the Foundation’s business, reduce staff, reduce
executive compensation, and operate simply to manage the Debtors’ real property. However, it
asserts that the Debtors’ management is not willing to do so and has not presented its Board of
No. 1:16-bk-00806 Doc 348 Filed 04/21/17 Entered 04/21/17 14:16:11 Page 3 of 8

4
Directors with sufficient financial data with which it could adequately evaluate management’s
performance and an appropriate range of alternative options for the operation of the Debtors while
under financial distress.
The Debtors argue, in response, that research and development is not a cash drain on the
Debtors’ business, that they provide adequate reporting to their Board of Directors, and that the
Creditor’s proposition of eliminating research and development in favor of transitioning into a
property management entity would contradict the Debtors’ pursuit of their non-profit mission and
would thus jeopardize the Debtors’ tax-exempt status. 	In that regard, Stacey Layman, the
Foundation’s Director of Accounting and Finance, testified that net operating income is not an
adequate measure of the financial health of a non-profit company. 	Rather, she testified that
consideration of a non-profit’s cash position indicates its financial health. Regarding the Debtors,
she explained that they have more cash on hand now than they did when they filed for bankruptcy
protection. She opined, therefore, that despite the Creditor’s assertion to the contrary, the Debtors’
consistent growth of cash on hand shows that research and development is sustainable.
Layman further testified that, although there was a time when the Debtors considered
eliminating the research and development portion of its business, such consideration was because
government sequestration left the Foundation with no research and development projects and little
hope for obtaining future projects. Since then, however, the Foundation has been awarded several
new research and development projects and is optimistic about the future of the research and
development business line. 	Layman further asserted that research and development is self-
sustaining whenever it has active government contracts as their costs are reimbursed dollar-for-
dollar, or at a slight profit, by the government. 	However, she also indicated that there are costs
related to research and development that may not be billed to clients.
The Creditor next argued that the Debtors are foolishly pursuing an opportunity to develop
neighboring property in order to allow for the construction of new buildings that are intended to
house government agencies. Particularly, the Foundation has sought a grant to develop a road in
its office park. One of its non-debtor subsidiaries is donating land to facilitate the development of
the road and neighboring property. The Creditor asserts that such expansion plans are shocking,
irresponsible, and foolish, particularly at a time when the Debtors are unable to achieve maximum
occupancy in their office buildings.
The Debtors admit that they are involved in the development of a road and have applied
No. 1:16-bk-00806 Doc 348 Filed 04/21/17 Entered 04/21/17 14:16:11 Page 4 of 8

5
for a federal grant to support its development. However, as indicated by the deposition testimony
of Brad Calandrelli, the Debtors’ Director of Facilities, the purpose of the purported expansion is
to allow for the construction of buildings designed to meet the needs of specific government
agencies. 	The Debtors assert that such construction supports their mission of developing
technology-related jobs in northern West Virginia because the presence of new government
agencies in the area will likely advance their effort to recruit ancillary businesses that may be
interested in leasing space in the Debtors’ technology park. 	Thus, the Debtors assert that the
Debtors are neither giving away estate property nor contributing to the development of new office
buildings that will compete with their current property management efforts.
The Creditor finally points to several statements made by Estep, asserting that he is
dishonest and has lied to it and the court on at least two occasions. It points to Estep’s attestation
through a March 26, 2008 affidavit that the Debtors’ real estate was not encumbered. However,
at that time, the Debtors’ real estate was subject to a federal interest which granted the United
States a security interest for its contingent claim totaling millions of dollars. 1 The Creditor argues
that Estep, as the CEO of an entity that routinely deals with government grants must have been
knowledgeable about federal interests and thus knew of the encumbrance at that time. The Creditor
next points to a second allegedly dishonest communication between its agents and Mr. Estep that
occurred on March 2, 2016. At that time, Mr. Estep informed the Creditor that it was facing “the
collapse of [its] R&D program” and that the Debtors intended to shut down the research and
development program. In contradiction to that claim, the Creditor points to the testimony of Estep,
Layman, and various directors who all have stated that the Debtors never concluded that they
would definitively shut down the research and development business line.
In response, the Debtors assert that the Creditor has not demonstrated that either of these
claims were dishonest. Rather, the Debtors asserted, through Estep’s testimony, that the Debtors’
general counsel informed Estep that its real property was unencumbered as of March 26, 2008.
Estep further stated that he was unaware of any right of the federal government to assert an
encumbrance in the Debtors’ real property and did not intend to mislead anyone by virtue of his
1 The Economic Development Administration (“EDA”) filed a proof of claim asserting that it has
a contingent secured claim perfected through operation of law. The EDA alleges that it made
awards to the Debtors in amounts of $1,440,000, $976,000, $2,000,000, and $1,200,000. It
further asserts that if the Debtors’ real property is sold, transferred, or otherwise used in a
manner that constitutes an unauthorized use of the property, then it must be reimbursed.
No. 1:16-bk-00806 Doc 348 Filed 04/21/17 Entered 04/21/17 14:16:11 Page 5 of 8

6
affidavit. Moreover, the Debtors assert that they dispute the validity of the federal government’s
federal interest in their property. Regarding Estep’s March 2, 2016 communication, the Debtors
assert that his testimony showed that at that time he was genuinely concerned with the Debtors
financial health and feared that the research and development business might be unsustainable.
Estep testified, as did Ms. Layman, that the research and development operations are now
rebounding.
Having considered the evidence and parties arguments, the court finds that the Creditor has
failed to demonstrate by a clear and convincing margin that the Debtors’ management is grossly
mismanaging the Debtors, is incompetent, or is dishonest.
First, it is important to note that the Debtors are not-for-profit entities. 	The duties of
directors and management in a not-for-profit company differ from those of a for-profit company.
The Debtors are not required, under traditional circumstances, to maximize profits. Rather, they
must pursue their philanthropic mission. See W. Va. §§ 31E-3-301, 8-830, and 8-831. Although,
it should be noted that once in bankruptcy, the directors and management owe fiduciary obligations
to creditors to ensure that the pursuit of their philanthropic mission is not financed on the backs of
creditors without their consent. 	In re Burton, 416 B.R. 539, 547 (Bankr. N.D.W. Va. 2009).
Nonetheless, the Debtors are not required to abandon their philanthropic mission. Thus, as long as
the Debtors are able to pay their creditors, they are free to pursue their mission.
Here, this appears to be the case. The Debtors cash position is improving and the Creditor
is receiving substantial adequate protection payments. 	The Debtors argue that the research and
development business is not a cash drain and that the Creditor has failed to demonstrate that it is. 2
The Debtors indicated that previous financial troubles relating to research and development
occurred when the Foundation did not have government contracts, and thus conducted some self-
funded development in order to remain competitive for future contracts. 	However, the Debtors
assert that the Foundation currently has several contracts and will be considered for several more,
2 The Creditor successfully identified an area of concern regarding the Debtors’ management. The
parties dispute, and it is unclear to the court at this time, whether the research and development
business is contributing positively to the Debtors’ overall cash position. 	The Debtors did not
provide much clarity on the topic despite being provided with the opportunity to do so. 	While
disappointing, the Debtors’ failure in that regard is not critical to the conclusions reached by the
court on the Creditor’s motion. 	However, it may be of consequence as the case progresses;
especially for feasibility considerations in conjunction with confirmation proceedings.
No. 1:16-bk-00806 Doc 348 Filed 04/21/17 Entered 04/21/17 14:16:11 Page 6 of 8

7
particularly if it emerges from bankruptcy. The Debtors’ management is entitled to exercise its
business judgment so long as the judgment is well-informed, which it is in this case. Although the
Creditor asserts that the Debtors failed to provide certain specific financial information to their
Directors, the court is satisfied that the information provided, though not crystal clear, was
sufficient to comport with their duties. 	Additionally, when asked, the Directors deposed by the
Creditor stated that they were content with the financial reporting provided by management.
Moreover, Ms. Layman testified that she frequently briefs Estep on financial matters, and Estep
indicated that he was knowledgeable about the financial well-being of the Debtors as well.
Although the reporting and analysis may not be as conclusive as the Creditor argues it needs to be,
it is clear that neither management nor the Board of Directors has operated in the dark.
Moreover, the Debtors provided a rational explanation regarding its plans to assist in the
development of a road and the potential development of new buildings near the Debtors’ real
estate. Again, the Debtors’ management is entitled to exercise reasonable business judgment, and
an attempt to recruit new anchors for job growth is both aligned with the Debtors’ charitable
purpose and attract new tenants to the Debtors’ properties.
As discussed above, a mere showing of mismanagement is not cause for the mandatory
appointment of a trustee. 	Although the Debtors’ management has not perfectly navigated this
bankruptcy, or the years preceding it, the Creditor has not shown that Estep or anyone else is
grossly mismanaging the Debtors or that they are incompetent.
Moreover, the Creditor failed to show that Estep has been dishonest. While it is true that
the affidavit signed by Estep on March 26, 2008, may be inaccurate as there is now a disputed
federal interest, the Creditor did not provide sufficient evidence to prove that Estep was aware of
the federal interest. 	Of note, although Estep is deeply experienced with grant applications and
property development, Estep is not a lawyer. 	Insofar as the effectiveness of a federal interest
without recordation stems from case law, it is plausible, if not probable, that a layman would be
unaware of such an interest encumbering real property. Moreover, Estep indicates that he relied
upon the report that the property was unencumbered by the Debtors’ general counsel. That reliance
is justified. Regarding the March 2, 2016 communication, the Creditor again fails to demonstrate
that Estep was dishonest. 	The record is clear that the Debtors were in crisis at that time, and
Estep’s statement that the Foundation might need to cease its research and development efforts
was justified. Though no formal decision to close that business line was under advisement at that
No. 1:16-bk-00806 Doc 348 Filed 04/21/17 Entered 04/21/17 14:16:11 Page 7 of 8

8
time, Estep’s claim had validity, and the fact that it never materialized does not make the claim
dishonest.
III. CONCLUSION
Therefore, the Creditor has not identified any cause that justifies the appointment of a
trustee. Furthermore, such an appointment would not be in the best interest of the creditors and
other stakeholders. For instance, the appointment of a trustee comes at a cost. Not only would the
trustee require compensation, but a trustee would need time to become familiar with the Debtors’
business and operations. Moreover, the appointment of a trustee has several other risks. First, it
is possible that the appointment of a trustee would jeopardize the ability of the Debtors to carry on
their charitable missions. 	Second, the possibility exists that the Debtors would lose their tax-
exempt status, and would thus incur substantial new financial obligations. 	Third, the Debtors’
current management has, and is required to have, top secret security clearances with the
government. 	It is unclear at this time how the appointment of a trustee would affect that
requirement.
Therefore, for the reasons stated herein, the court will deny the Creditor’s Motion to
Appoint Trustee.
No. 1:16-bk-00806 Doc 348 Filed 04/21/17 Entered 04/21/17 14:16:11 Page 8 of 8