New York Satellite Industries, LLC

1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at BALTIMORE
In Re: 	*
NADER MODANLO
In Re:
NEW YORK SATELLITE INDUSTRIES,
LLC
* 	Case No. 	05-26549-NVA
* 	Chapter 	11
*
* 	Case No. 	06-10158-NVA
Debtors 	* 	Chapter 	11
MEMORANDUM OF DECISION IN SUPPORT OF ORDER
GRANTING CHAPTER 11 TRUSTEE’S EMERGENCY MOTION FOR
AUTHORITY TO TAKE ACTIONS IN CONNECTION WITH SUBSIDIARIES [111]
I. 	INTRODUCTION
This contested matter presents the following issues: whether a debtor's single member
Delaware limited liability company ("LLC"), which was dissolved upon the debtor's filing of
bankruptcy, was effectively resuscitated by the actions of the Court appointed bankruptcy trustee
(as the debtor's successor/personal representative), and whether the trustee possesses
management (governance) rights in the LLC (or just economic interests). The Delaware statute
governing the LLC is relatively new, and some of its provisions do not dovetail precisely.
Although the definitional section of the Delaware statute indicates that it applies to single
Signed: May 18, 2006
SO ORDERED
Entered: May 19, 2006 Case 06-10158 Doc 38 Filed 05/19/06 Page 1 of 30

1 On February 28, 2006, on the record at the outset of the hearing, the Court denied
procedural objections raised in Mr. Modanlo’s Opposition [119], finding that: (1) the relief
requested by the Trustee is not of the kind that needs to be brought by adversary proceeding
2
member LLCs, some of its operative provisions make sense only when applied to multi-member
LLCs. Little decisional law exists on the subject of the dissolution of single member LLCs and
the role of bankruptcy trustees in that context. The objective of the Chapter 11 Trustee in this
matter is to obtain leave of this Court to cause a Delaware LLC, which is the Debtor's principal
asset and a Chapter 11 Debtor itself, to call a meeting of shareholders of a corporation in which
it is the largest shareholder and holds control. The Court grants the relief requested by the
Trustee.
II. 	THE PLEADINGS
The Court has before it the following papers, on which the Court conducted evidentiary
hearings on February 28, 2006 and March 1, 2006: (1) the Emergency Motion for Authority to
Take Actions in Connection with Subsidiaries (the “Motion” or "Emergency Motion") [111]
filed by Christopher Mead (the Chapter 11 Trustee in the Nader Modanlo case) and New York
Satellite Industries, LLC (“NYSI”); (2) an Opposition to the Motion (the “Opposition”) [119]
filed by Nader Modanlo, the individual Debtor in the above-captioned eponymous Chapter 11
case; (3) the Chapter 11 Trustee’s Response [128] which addresses the procedural issues raised
in the Debtor’s Opposition; (4) a Position Statement [139] filed by Final Analysis
Communication Services, Inc. (“FACS”) which also addresses, inter alia, the procedural issues
raised in Mr. Modanlo’s Opposition. On February 28, 2006, the Court issued oral rulings with
respect to four procedural issues raised in Mr. Modanlo’s Opposition and standing objections
raised by the Trustee in its Response. 1 At the hearing, the Court heard testimony, received
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pursuant to Federal Rule of Bankruptcy Procedure 7001; (2) FACS is not an indispensable party
under Federal Rule of Bankruptcy Procedure Rule 7019 and need not be joined; and (3) the
issues presented are not matters which warrant abstention by this Court under 28 U.S.C. §
1334(c)(2). The Court also denied standing objections raised by the Trustee in its Response
[128], finding that both the Debtor and FACS would have standing to object to the Trustee’s
Emergency Motion.
2 A ten day stay of this Order is imposed by Bankruptcy Rule 6004(g). The Trustee
urged the Court to waive the stay to permit the Trustee to take immediate action consistent with
this Order. The Court declined to do so.
3 On January 3, 2006, the Debtor filed his Notice of Appeal [84] of this Order. On
February 7, 2006, the Debtor filed a Motion to Stay Appointment of Trustee [108] and
Memorandum of Points and Authorities in Support of its Motion to Stay. On February 14, 2006,
the United States Trustee filed its Opposition [114] to Debtor’s Motion to Stay Appointment of
Trustee. On February 17, 2006, Michael Ahan (an alleged major creditor of the Debtor) filed his
Opposition [120] to Debtor’s Motion to Stay Pending Appeal. On February 22, 2006, the Court
conducted a hearing with respect to the Motion to Stay. The Court issued an oral ruling denying
the Debtor’s Motion to Stay Appointment of Trustee, later memorialized in a Memorandum of
Decision in Support of Order Denying Motion to Stay Pending Appeal [131] and separate Order
[132] entered on February 24, 2006. The Court’s Memorandum [131] denying the stay pending
appeal of its Trustee Order provides a recitation of much of the background that gave rise to the
3
documentary evidence, and had the benefit of argument of counsel. In compliance with Rule
7052(a) of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), made applicable to
contested matters by Rule 9014 of the Bankruptcy Rules, the Court now issues this
Memorandum of Decision of its findings of fact and conclusions of law in support of its Order
Granting the Trustee’s Emergency Motion for Authority to Take Actions in Connection with
Subsidiaries. A separate Order [170] has issued granting the Trustee's Emergency Motion,
which Order is supported by this Memorandum of Decision. 2
III. 	BACKGROUND AND PROCEDURAL HISTORY
On December 23, 2005, the Court issued an Order [70] granting the Motion of Michael
Ahan (a major creditor of Nader Modanlo) for appointment of a Chapter 11 trustee in Nader
Modanlo’s Chapter 11 case.3 On January 10, 2006, the Court entered an Order [91] designating
Case 06-10158 Doc 38 Filed 05/19/06 Page 3 of 30

appointment of the Trustee.
4
Christopher B. Mead as the Modanlo Chapter 11 Trustee (the “Trustee” or "Mr. Mead").
Immediately following his appointment, Mr. Mead began to investigate the assets of the estate
(Mr. Modanlo’s assets) over which he had begun to act as Trustee. He determined that Mr.
Modanlo holds a 100% ownership interest in NYSI (a Delaware single member LLC), and that
NYSI owns approximately 65% of the equity interests and 85% of the voting interests in FACS
(a Maryland corporation). On January 10, 2006, the Trustee filed in this Court a voluntary
Chapter 11 petition for NYSI, the above captioned Case No. 06-10158, which is now jointly
administered with Mr. Modanlo’s Chapter 11 case.
In this Emergency Motion, Mr. Mead seeks the Court’s authorization to permit him to
“take actions as the Manager of NYSI and that NYSI be authorized to direct the Secretary of
FACS to call a special meeting of the stockholders of FACS and to take such other actions as are
allowed by FACS Bylaws and applicable Maryland law.” Trustee’s Emergency Mot. to Take
Actions in Connection with Subsidiaries, p. 8. As stated, the Debtor and FACS opposed the
Trustee’s Motion, maintaining that the Trustee is actually asking the Court to direct FACS (or its
officers or board) to take action, which the Debtor and FACS contend this Court lacks
jurisdiction to do. The Court did not, and does not need to, reach a decision regarding what, if
any, powers it can exercise over FACS or its officers or board, because the Trustee responded to
these objections and made clear to this Court’s satisfaction that his Motion does not ask the
Court to direct FACS or its officers or board to do anything. The relief sought by the Trustee is
as follows:
The Debtor owns 100% of the interests of NYSI which, in turn, owns at least
Case 06-10158 Doc 38 Filed 05/19/06 Page 4 of 30

4 A jury trial was held by the United States District Court for the District of Maryland
(Honorable Peter J. Messitte) in Final Analysis Communication Services, Inc. v. General
Dynamics Corp. et al., Case No. 8:03-cv-00307-PJM.
5 On April 10, 2006, the District Court entered final judgment in favor of FACS and
against General Dynamics in the amount of $19.87 million, with simple interest to accrue at the
rate of 6% per annum from September 19, 2000. See Order [411] signed April 13, 2006.
Contemporaneously, the District Court entered final judgment in favor of General Dynamics and
against FACS in the amount of $8.0 million, with simple interest to accrue at the rate of 6% per
annum from September 19, 2000.
5
63% of the equity interests in FACS, making NYSI the majority stockholder of
FACS. Section 2.3(b) of the FACS Bylaws specifically allows NYSI, as the FACS
majority stockholder, to request the calling of a special meeting of the stockholders
of FACS. 	The mechanism by which the Bylaws allow NYSI to call a special
meeting is for NYSI to direct the FACS Secretary to call the meeting. The procedure
is designed to be a simple ministerial act: step 1 - NYSI directs the Secretary to call
a special meeting; step 2 - the Secretary calls the meeting; step 3 - the meeting takes
place. The relief sought by the Emergency Motion is for authority to take step 1 and
other actions which the Trustee and NYSI may be allowed to take in connection with
NYSI’s majority stockholder interest in FACS. The movants do not (at this time) seek
the Court to order or direct that steps 2 and 3 above be taken. If this Court allows
NYSI to request one or more special meetings, the Secretary will have to act in his
fiduciary capacity in deciding what to do in response to NYSI directing that one or
more special meetings be called.
Resp. of Chapter 11 Trustee and NYSI to Debtor’s Procedural Arguments, p. 3-4 (emphasis
added).
Mr. Modanlo’s interest in FACS (through NYSI) is potentially quite valuable. FACS
received a jury verdict in its favor against General Dynamics Corporation in the amount of
approximately $129 million. 4 A Final Order of Judgment was entered reducing the net verdict to
approximately $11.87 million plus interest.5
Through his control of Mr. Modanlo’s assets and NYSI, the Trustee wishes to cause
FACS to hold a shareholder meeting. The Trustee concedes that he wishes to oust Mr. Modanlo
(and others) from the FACS board. The Debtor acknowledges that he previously has declined
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6 In 2001, fourteen shareholders of FACS filed claims in the Circuit Court of Maryland
for Montgomery County against Final Analysis, Inc. (“FAI”), FACS, and the Debtor alleging
misappropriation, fraud, and breach of fiduciary duty on the part of the Debtor and FAI.
Raymond Schettino, et al. v. Nader Modanlo, et al. (Defendants/Third-Party Plaintiffs) v.
Michael Ahan (Third-Party Defendant), Case No. 220156. On October 22, 2004, a jury found
that Mr. Modanlo had breached a fiduciary duty to Mr. Ahan, and awarded Mr. Ahan $103.93
million.
7 The Court finds that it is unnecessary to the disposition of this matter to interpret the
state court's consent order, and declines to do so. 28 U.S.C. § 157(b)(2)(M) specifically provides
that "orders approving the use or lease of property..." are proceedings over which the Bankruptcy
Court has jurisdiction. The Trustee's Motion seeks relief under section 363(b) of the Bankruptcy
Code, which governs the use, sale, or lease of property of the estate. The Trustee's Motion seeks
authorization from the Court to take action with respect to the powers Mr. Modanlo held as sole
member of NYSI. A request for use of such powers or interests of a debtor is properly brought
under section 363(b). The Court need not turn elsewhere to determine whether a trustee may
make use of such powers or interests. However, this Court notes that since the date of its Order
granting the Trustee's Motion, the state court has interpreted its own consent order, and has
found that the consent order does not prohibit a bankruptcy trustee from taking action. By order
entered on May 1, 2006, the Circuit Court of Maryland for Montgomery County (Honorable
Michael D. Mason) denied a Motion brought by FACS for Enforcement of Consent Order. The
state court, interpreted its own consent order not to bind a bankruptcy trustee and stated:
6
the Trustee’s request to call an emergency meeting of the shareholders of FACS. See Trustee’s
Exhibit #10. Mr. Modanlo argues that he is under no obligation to call such a meeting at the
Trustee's behest, and that any attempt by the Trustee to replace Mr. Modanlo (or anyone else) on
the board of FACS is neither lawful nor prudent. Additionally, the Debtor argues that the
Trustee's allegations have already been addressed in state court litigation in which an
Independent Investigator (James Cromwell, Esquire) was appointed by the Circuit Court of
Maryland for Montgomery County.6 The Debtor maintains that the relief sought by the Trustee
in the Emergency Motion is an attack on the state court's consent order of February 4, 2004,
which, by the Debtor's and FACS's interpretation, precludes the Trustee from taking the action
he seeks to take in the Emergency Motion. 7
Case 06-10158 Doc 38 Filed 05/19/06 Page 6 of 30

Under paragraph 8 of the Revised Settlement Agreement and Mutual
Releases, the Agreement is binding upon the parties and their “... trustees.”
However, the last part of the paragraph makes clear that it is directed at “... all
those acting in concert or participation with them or under their direction or
control.” This language is consistent with the purpose of the Agreement which
was to protect FACS from Nader Modanlo both individually and acting through
the control of others, including New York Satellite. However, the Agreement
would not extend to persons, including trustees, acting independently, beyond the
control of Nader Modanlo. Inasmuch as a bankruptcy trustee is not under the
control of Nader Modanlo, the Agreement would not bind him. Accordingly, the
Court denies the motion for enforcement of the consent order.
Order Den. FACS Mot. for Enforcement of Consent Order, May 1, 2006 (Honorable Michael D.
Mason, Circuit Court of Maryland for Montgomery County, MD).
7
The Debtor (Mr. Modanlo) argues that by operation of Delaware law, neither Mr.
Modanlo nor the Trustee as his successor, has any authority to cause NYSI (a single member
Delaware LLC) to do anything. The Debtor raised this argument for the first time at the hearing
on the Debtor’s Motion to Stay Appointment of Trustee, and raises it again orally in opposition
to the Trustee's Emergency Motion, relying upon section 18-304 of the Delaware Limited
Liability Company Act. The Debtor posits that Mr. Modanlo’s ability to act on behalf of the
LLC terminated when Mr. Modanlo (the LLC’s sole member) entered Chapter 11, and that
neither he nor Mr. Mead therefore had the power to place NYSI into Chapter 11. As will
become clear through the analysis that follows, the Court does not agree with Mr. Modanlo's
position, but the Court notes as an initial observation that it is highly curious that Mr. Modanlo
did not raise before now his argument that Delaware law barred him from acting for NYSI once
he filed Chapter 11. Indeed, one of the very reasons argued by Mr. Ahan and given by the Court
for the appointment of the Trustee in the first place was precisely because Mr. Modanlo was
negligent or incompetent as a manager when he permitted NYSI to relinquish its interests in
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8 The Delaware Limited Liability Company Act is codified in the Delaware Annotated
Code, Title 6, Chapter 18.
8
FACS. See generally Memorandum of Decision [131] in Support of Order Denying Motion to
Stay Pending Appeal. 	The Court wonders why, at the time Mr. Modanlo was contesting the
Trustee appointment, he did not say he had been rendered powerless to act for it by Delaware
law.
IV. 	ANALYSIS
A. Operation of Delaware Law Regarding NYSI as Single Member Limited Liability
Company
NYSI is a single member Delaware limited liability company, of which the Debtor was
the sole member. The Debtor raises interrelated issues with respect to the operation of the
Delaware Limited Liability Company Act 8 (the “Act” or the "Delaware Act") upon NYSI.
Debtor disputes that the Chapter 11 Trustee had the authority to place NYSI into Chapter 11.
The Debtor argues that since section 18-304 of the Act rendered him powerless to act on behalf
of NYSI once he filed his voluntary Chapter 11 petition on July 22, 2005 (causing him to cease
being a member of NYSI, and causing dissolution of NYSI), the Trustee, likewise, is precluded
from being a member of NYSI, and therefore could not act for it to make it a debtor under the
Bankruptcy Code. The Debtor also disputes that he (and hence the Trustee) held any
management (governance) rights in the LLC after the Modanlo bankruptcy case was filed, and
maintains that the Debtor's and Trustee's interests became limited at that point to mere economic
rights. Mr. Modanlo maintains that by operation of Delaware law, he (and thus the Trustee) lost
all governance rights as of the Modanlo petition date, including rights to control and take action
based on the LLC's majority voting and equity rights (e.g., to direct the secretary of FACS to call
Case 06-10158 Doc 38 Filed 05/19/06 Page 8 of 30

9 The Court notes that neither party provided the Court with a copy of the NYSI Limited
Liability Company Agreement.
9
a shareholder meeting). FACS, seeking to enter a limited appearance through counsel, filed a
“position statement” [139] presenting virtually the same argument, namely, that the Trustee has
only economic interests and no authority to manage the LLC:
In this case, the Trustee’s entire claim with respect to FACS is based on his
purported authority to exercise Mr. Modanlo’s rights concerning the governance of
NYSI. 	Indeed, the Trustee admits that he “seeks authority to take actions as the
Manager of NYSI....” The Trustee, however, has no such management authority
because Mr. Modanlo, in whose shoes the Trustee stands, lost that authority at the
moment Mr. Modanlo sought bankruptcy protection. 	The Trustee is, at best, an
assignee of a bankrupt’s interest in NYSI, as such has economic interests to any
profits, but completely and entirely lacks any governance or management authority
with respect to NYSI.
Position Statement of Final Analysis Communication Services, Inc. Regarding Trustee’s
Emergency Mot., p. 10.
1. 	Delaware Limited Liability Company Act
The Debtor (and FACS) rely primarily upon sections 18-304 and 18-801(a)(4) of the Act,
which provide in relevant part:
§ 18-304 Events of bankruptcy.
A person ceases to be a member of a limited liability company upon the happening of any of the
following events:
(1) Unless otherwise provided in a limited liability company agreement,9 or with the
written consent of all members, a member:
b. Files a voluntary petition in bankruptcy
DEL . CODE ANN . tit. 6, § 18-304.
§ 18-801 Dissolution.
(a) A limited liability company is dissolved and its affairs shall be wound up upon
the first to occur in the following:
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10 Section 18-806 was enacted on August 1, 2005. The Court has unearthed no case
interpreting that section, and the legislative history provides little more guidance than the text of
the statute itself.
10
(4) At any time there are no members; provided, that the limited liability
company is not dissolved and is not required to be wound up if:
a. 	Unless otherwise provided in a limited liability company
agreement, within 90 days or such other period as is provided for in the limited
liability company agreement after the occurrence of the event that terminated the
continued membership of the last remaining member, the personal representative of
the last remaining member agrees in writing to continue the limited liability company
and to the admission of the personal representative of such member or its nominee
or designee to the limited liability company as a member, effective as of the
occurrence of the event that terminated the continued membership of the last
remaining member; provided, that a limited liability company agreement may
provide that the personal representative of the last remaining member shall be
obligated to agree in writing to continue the limited liability company and to the
admission of the personal representative of such member or its nominee or designee
to the limited liability company as a member, effective as of the occurrence of the
event that terminated the continued membership of the last remaining member....
DEL . CODE ANN . tit. 6, § 18-801(a)(4).
The Debtor argues that when Mr. Modanlo filed his Chapter 11 petition, he ceased being
a member of NYSI under section 18-304, and that NYSI was dissolved pursuant to section 18-
801(a)(4). Mr. Modanlo ignores other relevant sections of the Act. The Trustee cites section 18-
806 entitled “Revocation of dissolution,” which provides: 10
§ 18-806 Revocation of dissolution.
Notwithstanding the occurrence of an event set forth in § 18-801(a)(1), (2), (3) or (4)
of this title, the limited liability company shall not be dissolved and its affairs shall
not be wound up if, prior to the filing of a certificate of cancellation in the office of
the Secretary of State, the limited liability company is continued, effective as of the
occurrence of such event, pursuant to the affirmative vote or written consent of all
remaining members of the limited liability company or the personal representative
of the last remaining member of the limited liability company if there is no remaining
member (and any other person whose approval is required under the limited liability
company agreement to revoke a dissolution pursuant to this section); provided,
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11
however, if the dissolution was caused by a vote or written consent, the dissolution
shall not be revoked unless each member and other person (or their respective
personal representatives) who voted in favor of, or consented to, the dissolution has
voted or consented in writing to continue the limited liability company. If there is no
remaining member of the limited liability company and the personal representative
of the last remaining member votes in favor of or consents to the continuation of the
limited liability company, such personal representative shall be required to agree in
writing to the admission of the personal representative of such member or its
nominee or designee to the limited liability company as a member, effective as of the
occurrence of the event that terminated the continued membership of the last
remaining member.
DEL . CODE ANN . tit. 6, § 18-806 (emphasis added).
On January 10, 2006, this Court entered an Order [91] Approving the Appointment of
Mr. Mead as the Chapter 11 Trustee in the Nader Modanlo case. That same day, Mr. Mead,
purportedly exercising the Debtor's rights, amended the LLC’s formation papers (see Trustee’s
Exhibit #2), designated himself the LLC manager, undid its dissolution, and placed NYSI into
voluntary Chapter 11. The Debtor argues that the actions taken by the Trustee from January 10,
2006 forward with respect to NYSI are of no effect since the Trustee, by operation of Delaware
law, could not have exercised such power. The Court disagrees.
Section 18-806 provides that “notwithstanding the occurrence of an event set forth in
§ 18-801(a)(1), (2), (3) or (4) of this title, the limited liability company shall not be dissolved
and its affairs not be wound up if, prior to the filing of a certificate of cancellation in the office
of the Secretary of State, the limited liability company is continued, effective as of the
occurrence of such event....” 	DEL . CODE ANN . tit. 6, § 18-806 (emphasis added). 	Mr. Modanlo
concedes that a certificate of dissolution was not filed. Transcript of Emergency Motion, March
1, 2006, p. 107, lines 22-24.
The Trustee produced at the hearing a document purporting to be a consent agreement to
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12
continue the existence of NYSI. The document was signed by the Trustee on the eve of the
hearing on the Trustee's Emergency Motion. See Trustee’s Ex. 14. It is entitled “New York
Satellite Industries, LLC Written Consent of and Agreement Regarding Admission of Personal
Representative of Last Remaining Member” (the “LLC Consent Agreement”) and provides:
Pursuant to Section 18-806 of the Delaware Limited Liability Company Act
(the “Act”), the undersigned, who is the Personal Representative (as defined in
Section 18-101(13) of the Act), by virtue of being appointed Trustee pursuant to In
re: Nader Modanlo, Case No. 05-26549-NVA filed in the United States Bankruptcy
Court for the District of Maryland (Greenbelt Division) of the last remaining member
of New York Satellite Industries, LLC (the “Company”) hereby consents to
continuation of the Company, effective as of the occurrence of an event described
in Section 18-801(a)(4) of the Act (that is, the bankruptcy of the last remaining
member), to the extent that such consent to continue has not already been made; and
the undersigned, as such Personal Representative, hereby agrees to the admission of
the undersigned, as a member of the Company, in such undersigned’s capacity as the
Personal Representative of the last remaining member, effective as of the date of the
occurrence of the event described in Section 18-801(a)(4) of the Act.
This Consent and Agreement of Admission has been signed this 28th day of February,
2006.
Trustee’s Exhibit #14.
The Trustee also produced a document entitled “Amendment of Limited Liability
Company Agreement" (the “LLC Amendment”), signed on January 10, 2006, the day Mr. Mead
was appointed Trustee. See Trustee's Exhibit #2. It provides, in relevant part:
... [I]n consideration of the Explanatory Statement, which is deemed a substantive
part of this Amendment, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Trustee hereby agrees as follows:
1. 	Notwithstanding anything else to the contrary, (i) the Company may
be managed by a manager, as such term is defined by the Act, and (ii) the Company’s
manager need not be a member of the Company.
2. 	The Trustee hereby appoints Christopher B. Mead, in his capacity as
Chapter 11 Trustee for Nader Modanlo, in Bankruptcy Case No. 05-26549-NVA,
United States Bankruptcy Court for the District of Maryland (“Manager”), as
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11 Section 18-402 permits, unless otherwise provided in a limited liability company
agreement, for LLC management, in whole or in part, by a manager. A manager is defined in the
Act as “a person who is named as a manager of a limited liability company pursuant to, a limited
liability agreement or similar instrument under which the limited liability company is formed.”
DEL . CODE ANN . tit. 6, § 18-801(10). Section 18-402 provides:
§ 18-402. Management of limited liability company
Unless otherwise provided in a limited liability company agreement, the
management of a limited liability company shall be vested in its members in
proportion to the ten current percentage or other interest of members in the profits
of the limited liability company owned by all of the members, the decision of
members owing more than 50 percent of the said percentage or other interest in the
profits controlling; provided however, that if a limited liability company agreement
provides for the management, in whole or in part, of a limited liability company by
a manager, the management of the limited liability company, to the extent so
provided, shall be vested in the manager who shall be chosen in the manner provided
in the limited liability company agreement. The manager shall also hold the offices
and have the responsibilities accorded to the manager by or in the manner provided
in a limited liability company agreement. A limited liability company may have
more than 1 manager. 	Unless otherwise provided in a limited liability company
agreement, each member has the authority to bind the limited liability company.
DEL . CODE ANN . tit. 6, § 18-402.
13
manager of the Company. Management of the Company shall be vested solely in the
Manager, and Manager shall have the absolute authority to take any and all actions
on behalf of the Company, and to sign any and all documents on the Company’s
behalf, including, but not limited to, any and all agreements, contracts, and
documents in connection with any court action. 	Any person dealing with the
Company may exclusively rely on the Manager’s signature as evidencing Managers
authority to act on behalf of the Company.
Amendment of Limited Liability Company, Trustee’s Exhibit #2.
Applying Delaware law, was the Trustee able to revive the LLC after its dissolution? This
Court believes that he could and did revive the LLC in either (or both) of two ways. First, the LLC
Amendment filed on the day of the appointment of the Chapter 11 Trustee constituted a writing
satisfying section 18-806 to revoke dissolution. The Trustee intended that the LLC Amendment also
would appoint him manager under section 18-402, and the Court finds that it did.11 Second, the
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Section 18-401 provides that “[a] person may be named or designated as a manager of the
limited liability company as provided in § 18-101(10)...,” namely, by a “limited liability agreement
or similar instrument under which the limited liability is formed.” DEL . CODE ANN . tit. 6, §§ 18-
101(10), 401.
12 Some step needed to be taken to revive the LLC before the Trustee could effectively
act to place it in bankruptcy. It might have been less confusing if the Trustee had filed the LLC
Consent Agreement first, on the day he was appointed. That alone would have accomplished the
revival of NYSI. If the Trustee had done this first, he may not have needed to file the LLC
Amendment. But he did file the LLC Amendment before he filed NYSI’s voluntary petition, and
this was sufficient to legitimize the petition at the time it was filed. As of the date on which both
were filed, either was effective.
14
LLC Consent Agreement executed on the eve of the March 1, 2006 hearing also constituted the
writing required by section 18-806, effective as of the filing of the Debtor’s voluntary bankruptcy.
The Trustee believes that the LLC Amendment accomplished the desired result, but also filed the
LLC Consent Agreement (in part) in case this Court did not agree and adopted arguments anticipated
to be made by the Debtor and FACS. 	Maybe this was a belt and suspenders approach by the
Trustee, but in this Court’s view, either the belt or the suspenders worked to revive the dissolved
LLC, assuming that the Trustee was Mr. Modanlo’s “personal representative.”12 Mr. Modanlo
contends that the Trustee was not his "personal representative." Again, this Court disagrees with
the Debtor.
2. 	The Chapter 11 Trustee as “Personal Representative”
Mr. Modanlo maintains that even if section 18-806 is applicable, it is not effective to revive
NYSI because Mr. Mead is not the “personal representative”or legal representative of Mr. Modanlo,
who is the last remaining member of the LLC. Section 18-101(13) of the Act defines “personal
representative” as: “to a natural person, the executor, administrator, guardian, conservator, or other
legal representative thereof and, as to a person other than a natural personal, the legal representative
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13 This Court looks to Third Circuit law since the statute being construed is a Delaware
statute.
15
or successor thereof.” 	DEL . CODE ANN . tit. 6, § 18-101(13). 	Mr. Modanlo argues that if the
Delaware legislature intended to give bankruptcy trustees authority to act under 18-806, it expressly
would have included such persons in the definition of personal representative. The Court finds this
argument unpersuasive.
The statutory and decisional authority is clear that a bankruptcy trustee is the successor to
property of the debtor's estate and is the legal representative of the estate. The Trustee succeeds to
the property of the debtor’s estate. See 11 U.S.C. §§ 541(a)(1), 704(1); see also In re Baer Group,
Inc., No. 91-5-6020-JS, 1997 WL 912291, at *10 (D. Md. Dec. 01, 1997) (a bankruptcy trustee is
the legal representative of the bankruptcy estate). As the representative of the estate, the trustee is
“the proper party in interest and the only party with standing to prosecute causes of actions
belonging to the estate.” In re Eisen, 31 F.3d 1447, 1451 n.2 (9th Cir. 1994). Since a bankruptcy
trustee may bring all causes of action the debtor could have brought on his own outside of
bankruptcy, the terms “personal representative” and "legal representative" cannot reasonably be
construed so narrowly as to exclude a trustee in bankruptcy.
To the extent there is a distinction between the representative of a bankruptcy estate and the
representative of a debtor in the circumstances of this case, this Court still finds the Chapter 11
Trustee to be the personal/legal representative of the Debtor. The Court of Appeals for the Third
Circuit 13 , in interpreting the term “legal representatives” as used in the context of a federal patent
statute, has stated: “The term ‘legal representatives’ used in R.S. Sec. 4898 is broad enough not
only to include a master or a trustee appointed by a court possessing adequate equity power but also
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14 Many of the cases ostensibly on the subject address whether the operating agreement
for the LLC is an executory contract and subject to the limitations of § 365(c),(e), or non-
executory in nature and subject to § 541(c)(1), an issue the parties in the instant case have not
briefed or raised. The parties have not provided the Court with a copy of the LLC agreement,
and therefore the Court cannot decide whether it might have reached the same decision under
section 541(c)(1) of the Bankruptcy Code. See In re Ehmann, 319 B.R. 200 (Bankr. D. Az.
2005); Milford Power Co., LLC v. PDC Milford Power, LLC, 866 A.2d 738 (Del. Super. Ct.
2004).
16
a trustee under a trust indenture, a guardian of property, or an executor or administrator, [or] an
assignee of an insolvent debtor....” McClaskey v. Harbison-Walker Refractories, Co., 138 F.2d 493,
495 (3d. Cir. 1943) (interpreting 35 U.S.C. § 261).
Accordingly, for the reasons stated, the Court finds the Trustee is the personal/legal
representative of the Debtor (Mr. Modanlo), that the Trustee has effectively revived the LLC, and
that he had the authority to place NYSI into voluntary bankruptcy.
3. 	The Authority of the Chapter 11 Trustee to Exercise Management/Governance Rights in
NYSI.
Next, the Debtor and FACS contend “that the Trustee is, at best, an assignee of a
bankrupt’s interest in NYSI and, as such, has economic interests to any profits, but completely
and entirely lacks any governance or management authority with respect to NYSI.” 	Position
Statement of Final Analysis Communication Services, Inc. Regarding Trustee’s Emergency Mot.,
p. 10. The Debtor and FACS cite to primarily two cases in support of their position. The
Trustee claims to be the successor to, and holder of, governance rights and cites three cases in
support of his position.
The Court is aware of a line of decisions concluding that management (governance)
rights are not generally assignable. Those cases, however, pertain in large measure to multi-
member LLCs.14 The most often cited case in Delaware, primarily relied upon by the Debtor and
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17
FACS, is the decision of the Delaware Chancery Court in Milford Power Co. v. PDC Milford
Power, LLC, 866 A.2d 738, 754 (D. Ch. 2004). The Milford decision concerns a multi-member
LLC. NYSI, however, is a single member LLC; the distinction is important. The Milford court
discussed at length the economic and public policy justifications for the enactment of section 18-
304:
Arguably, the Delaware LLC Act excuses Milford Holdings from accepting
performance from a trustee or assignee. For one thing, § 18-304 represents a default
rule of Delaware public policy that expresses the view that, absent a contractual
provision to the contrary, members of a Delaware LLC need not fear that they will
have as fellow members bankruptcy trustees or assigns of bankruptcy trustees. That
is, § 18-304 expressly recognizes the unique relationship that exists among members
of LLCs and protects solvent members from being forced into relationships they did
not choose that result from the bankruptcy of one of their chosen co-investors.
Likewise, other provisions of the LLC Act that provide that assignees of membership
interests be denied any right to participate as a member in the governance of the
entity, absent a provision in an LLC agreement to the contrary also constitute
applicable law that excuses a solvent member from accepting substitute performance
as a member from a Bankruptcy Trustee or an assignee of a Bankruptcy Trustee.
There are, of course, sound economic reasons why Delaware law, like that of many
other states, embraces a default rule that terminates an LLC member's interest upon
a bankruptcy filing. Typically, LLCs are closely held and the members often have
important managerial duties and powerful voting rights. The Milford Power LLC
Agreement is no exception; PDC's 5% interest gave it a seat on every important
management committee and voting rights that enabled it to veto a range of significant
business transactions. In a lucid article, Professor Ribstein has persuasively
explained the rational reasons why investors in alternative entities would agree in
advance to forsake their ownership interest upon filing bankruptcy because, by doing
so, they insulate themselves from the economic harm that might result to them if one
of their co-venturers files for bankruptcy. The harms than can result include having
a co-venturer with important power over the entity, whose economic incentives are
distorted by its insolvency, push to liquidate the venture or to take other short-term
measures that are beneficial to it as a debtor but detrimental to the venture as a whole
and its other investors.
Milford, 866 A.2d at 754.
The Milford court, adopting the reasoning of the United States District Court in In re IT
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15 302 B.R. 483 (D. Del. 2003), aff’g In re IT Group, Inc., No. 02-10118-MFW (Bankr.
D. Del. June 20, 2002).
18
Group, Inc.15, held that the ipso facto clause in the Milford Power LLC agreement was effective
to the extent it deprived the minority member (debtor) of its ability to participate as a member in
the governance of the LLC. Id. at 760. It held that the minority members retain only bare
economic rights as an equity owner. Id. The court stated:
By adhering to the reasoning of Judge Farnan in the In re IT case, I leave the parties
with a more complex outcome. By enforcing the Ipso Facto Clause so as to deprive
PDC (or a transferee from it) of the ability to exercise the strong participatory rights
given to PDC by the LLC Agreement, I recognize the legitimate business
justification for § 18-304 and ipso facto clauses modeled on it, a justification well-
explained by Professor Ribstein’s article on the subject. 	At the very least, my
approach alleviates the concern that members will, because of solvency concerns,
interfere with the ability of a limited liability company to pursue risky business
strategies that hold the promise for large profits.
Id. at 761.
The legitimate business justifications described by the court for the existence of section
18-304 (and similar default statutes around the country) make sense in the context of multi-
member LLCs. Like partners in a partnership, members of the LLC have voluntarily associated
in a business enterprise and the relationship among them may be personal in character. One
cannot simply substitute in someone else who is a stranger without affecting those (personal)
relationships among members. That reasoning, however, is substantially undermined, if not
meaningless, in the context of single member limited liability companies. By definition, there
can be no remaining members of a single member LLC (like NYSI) whose personal relationships
(among members) could be compromised by being forced to accept substitute performance from
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16 See 9 SUSAN KALINKA , LIMITED LIABILITY COMPANIES AND PARTNERSHIPS : A GUIDE
TO BUSINESS AND TAX PLANNING , LOUISIANA CIVIL LAW TREATISE § 1.44 (2006) (concerning
multi-member LLC’s but pointing out that there “is no reason to prohibit a trustee in bankruptcy
from assuming all of the rights and obligations of a debtor who is the only member of a single-
member LLC. In that case, there are no non-debtor members whose interests could be harmed
by the operation of the LLC by a trustee or debtor in possession.”)
19
a stranger (bankruptcy trustee). Accordingly, the Court finds the facts in, and holding of,
Milford distinguishable from the case at hand.
The Debtor argues that the Delaware statute simply does not contemplate and fails to
address single member LLCs. The Debtor speculates that this lapse occurred because the LLC
statute was adopted largely from the Partnership Act, and by definition a partnership requires
two or more partners. The Court disagrees that the Act does not address or apply to single
member LLCs. The Court recognizes the most basic of all cannons of statutory construction:
that statutes mean what they plainly say. The Delaware legislature specifically defined the term
‘limited liability company’ as “a limited liability company formed under the laws of the State of
Delaware and having 1 or more members.” DEL . CODE ANN . tit. 6, § 18-101(6).
LLCs are of relatively recent origin. It is not surprising, therefore, that the parties have
been unable to cite the Court to many cases specifically dealing with the issues in the context of
single member LLCs, nor has the Court’s own research uncovered more than a few. 16 But the
Court finds persuasive In re Albright, 291 B.R. 538 (Bankr. D. Col. 2003), which applies
Colorado’s version of the Limited Liability Company Act (the “Colorado Act”). The Colorado
Act is similar in many respects to the Delaware Act. In Albright, a Chapter 7 debtor was the sole
member and manager of a Colorado LLC. The Chapter 7 trustee filed a motion to allow the
trustee to take any and all necessary actions to liquidate property owned by the LLC. The trustee
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20
argued that because the debtor was the sole member and manger of the LLC at the time the
debtor filed bankruptcy, that he now controlled the LLC and could cause the LLC to sell the real
property that it owns and distribute the proceeds to the bankruptcy estate. The debtor, on the
other hand, argued that the trustee acts merely for her creditors and cannot assume management
of the LLC or cause the LLC to sell the real property. The court disagreed with the debtor,
finding that because there are no other members in the LLC, the trustee obtained all of her rights,
including the right to control the management of the LLC. Id. at 540. The court addressed the
same policy considerations described by the court in Milford.
[T]he charging order, as set forth in Section 703 of the Colorado Limited Liability
Company Act, exists to protect other members of an LLC from having involuntarily
to share governance responsibilities with someone they did not choose, or from
having to accept a creditor of another member as a co-manager. A charging order
protects the autonomy of the original members, and their ability to manage their own
enterprise. 	In a single-member entity, there are no non-debtor members to protect.
The charging order limitation serves no purpose in a single member limited liability
company, because there are no other parties’ interests affected.
Id. at 541.
Noting that the result would be different if there were other members in the LLC, the court held
that because the trustee became the sole member of the LLC upon the debtor’s bankruptcy filing,
the trustee controls, directly or indirectly, all governance of that entity, including decisions
regarding liquidation of the entity’s assets. Id.
The Court is also persuaded by the nonsensical scenario, as illustrated by Trustee’s
Exhibit #1, that would result if the Court were to conclude, as the Debtor would like it to, that
NYSI was dissolved and forever incapable of being resuscitated by the Trustee. If the Act and
cases were to be construed as to create a completely non-existent NYSI (or one with no ability to
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17 The Court cites to the relevant portion of the Trustee’s argument on this point:
So we have Mr. Aaronson’s and Mr. Tolchin’s argument that there is a single
section of the Delaware LLC statute, Section 18-304, which says in essence, as they
argue it, that a person ceases to be a member of an LLC upon the filing of
bankruptcy by that person. From that, without looking at anything else in the statute
or elsewhere, what they want to say somehow is New York Satellite no longer exists
and, lo and behold, it ends up back with Mr. Modanlo, not his bankruptcy estate, not
the trustee, not even Mr. Modanlo as a debtor; it just seems to be to his benefit.
Or worse, what they’re saying is New York Satellite just disappears and goes
poof into thin air and no longer exists and gee, now we have a huge problem because
if you look at Exhibit 1, we can’t get from the Mr. Modanlo/Mr. Mead level down
to FACS because the intermediate entity has just disappeared.
Well, that’s not how laws work. That’s not how laws are designed to work.
That law under the scenario wouldn’t make any sense at all. In fact, it’s a total and
utter misreading of the section that totally ignores other sections of the Delaware
LLC statute and the case law that they in fact attempt to rely on.
Transcript of Emergency Motion, March 1, 2006, p. 93, line 3-24, p. 94, line 1-2.
18 The Trustee also cites In re Desmond, No. 03-13878-MWV, 2005 WL 1244842 D.
N.H. Apr. 1, 2005) for the proposition that Mr. Modanlo is estopped from taking the position
that NYSI was dissolved under Delaware law upon the filing of Mr. Modanlo’s bankruptcy
petition. The Trustee argues that Mr. Modanlo continued to act on behalf of NYSI from the time
of the filing of his petition until at least the time this Court appointed the Chapter 11 Trustee.
The Court finds that it need not reach this argument because it finds the Trustee has complied
with the Delaware Act and rests its decision on other independent grounds.
21
be managed by anyone), how, in the circumstances in this case, could the Trustee (or even Mr.
Modanlo if he were still a debtor-in-possession) ever exercise the (85 %) voting or (63 %) equity
rights held by NYSI in FACS? 17 To whom or what would these rights escheat? This
interpretation of the statute does not lead to a logical result.18
The Court points to two sections of the Delaware Act (18-702 and 18-704), neither one of
which was raised in the parties’ papers or at the hearing. The Court finds these sections
inapplicable to the current Emergency Motion and to the position of the Debtor and FACS, but
feels it is appropriate to address them briefly because they pertain facially to aspects of the
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19 “Limited liability company interest” means a member’s share of the profits and losses
of a limited liability company and a member’s right to receive distributions of the limited
liability company’s assets. DEL . CODE ANN . tit. 6, § 18-101(8).
22
Debtor’s and FACS’ argument. Sections 18-702 and 18-704 provide in relevant part:
§ 18-702. Assignment of limited liability company interest
(a) A limited liability company interest 19 is assignable in whole or in part except as
provided in a limited liability company agreement. 	The assignee of a member’s
limited liability company interest shall have no right to participate in the
management of the business and affairs of a limited company except as provided in
a limited liability company agreement and upon:
(1) The approval of all of the members of the limited liability company other
than the member assigning the limited liability company interest; or
(2) Compliance with any procedure provided for in the limited liability
company agreement.
(b) Unless otherwise provided in a limited liability company agreement:
(1) An assignment of a limited liability company interest does not entitle the
assignee to become or to exercise any rights or powers of a member;
(2) An assignment of a limited liability company interest entitles the assignee
to share in such profits and losses, to receive such distribution or distributions, and
to receive such allocation of income, gain, loss, deduction, or credit or similar item
to which the assignor was entitled, to the extent assigned.
DEL . CODE ANN . tit. 6, § 18-702 (emphasis added).
§ 18-704. Right of assignee to become member.
(a) An assignee of a limited liability company interest may become a member as
provided in a limited liability company agreement and upon:
(1) The approval of all of the members of the limited liability
company other than the member assigning limited liability company
interest; or
(2) Compliance with any procedure provided for in the limited liability
company agreement.
DEL . CODE ANN . tit. 6, § 18-704 (emphasis added).
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23
Section 18-702 is a default rule under the Act that limits an “assignment” of an interest in
a limited liability company to the “limited liability company interest,” i.e., a member’s share of the
profits and losses of a limited liability company and a member’s right to receive distributions of the
limited liability company’s assets. 	The Court 	using principles of statutory construction and
adopting the reasoning of the Bankruptcy Court in In re Albright, finds these particular sections
inapplicable to cases concerning single member limited liability companies.
Again, the Court finds the reasoning in Albright persuasive. 	Albright implicates the
Colorado Limited Liability Company Act (the “Colorado Act”). Although not identical in form, the
relevant provisions of the Colorado Act and Delaware Act operate virtually identical. In particular,
section 7-80-702 of the Colorado Act provides:
(1) The interest of each member in a limited liability company constitutes the
personal property of the member and may be transferred or assigned. However, if
all of the other members of the limited liability company other than the member
proposing to dispose of his or its interest do not approve of the proposed transfer or
assignment by unanimous written consent, the transferee of the member’s interest
shall have no right to participate in the management of the business and affairs of the
limited liability company or to become a member. 	The transferee shall only be
entitled to receive the share of profits or other compensation by way of income and
the return of contributions to which that member would otherwise be entitled.
COLO . REV . STAT . § 7-80-702 (2004) (emphasis added).
Section 7-80-702 contains the clause “other than the member proposing to dispose of his or
its interest...,” confirming that “other members” do not include the transferee (or assignee). 	The
Colorado Act “requires the unanimous consent of “other members” in order to allow a transferee to
participate in the management of the LLC.” Albright, 291 B.R. at 540. The Albright court held that
because there were no other members in the LLC, unanimous approval of the transfer was
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24
unnecessary. Id. 	In a related footnote, the court noted that:
Under Colo.Rev.Stat. § 7-80-702, supra, the result would be different if there were
other non-debtor members in the LLC. Where a single member files bankruptcy
while the other members of a multi-member LLC do not, and where the non-debtor
members do not consent to a substitute member status for a member interest
transferee, the bankruptcy estate is only entitled to receive the share of profits or
other compensation by way of income and the return of the contributions to which
that member would be otherwise entitled.
Id., n.7.
Sections 18-702 and 18-704 of the Delaware Act contains similar provisions, providing that
an assignee of a LLC interest may become a member as provided in a LLC agreement and upon
“[t]he approval of all of the members of the limited liability company other than the member
assigning the limited liability company interest....” Parsing through the language of the section, the
Court can not possibly see how these sections are applicable in the instant case. “The plain meaning
of legislation should be conclusive, except in the rare cases in which the literal application of a
statute will produce a result demonstrably at odds with the intentions of its drafters. In such cases,
the intention of the drafters, rather than the strict language controls.” United States v. Ron Pair
Enter., 489 U.S. 235, 242 (1989) (internal citations omitted). 	It is clear that this Court’s decision
that these sections are inapplicable in single member LLCs do not contravene the policy reasons
underlying such default rules as discussed in Milford and Albright. These sections are meaningless
in the context of single member LLCs. 	There are no remaining members except, notably, the
member assigning the limited liability company interest (the Trustee), the very person these sections
preclude from offering consent. For this reason, the Court (noting that the Act as a whole states that
it contemplates single member limited liability companies) finds that these particular sections, 18-
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25
702 and 18-704, cannot apply in the context of single member limited liability companies. The
Debtor and FACS have not articulated, nor can we discern, any significant reason why the Delaware
legislature would have intended, or any policy reason would compel, the preclusion of governance
rights to the Chapter 11 Trustee of this single member limited liability company.
The parties in this case have presented the Court with an issue of early impression,
certainly in this District. The Court is persuaded that the Trustee has complied with the
mandates of the Delaware Act and, in particular, section 18-806 governing revocation of
dissolution. The Court finds that the decisional law interpreting LLC acts that divest bankruptcy
trustees of a LLC member’s management rights are founded on notions that (remaining)
members (like partners in a partnership) should not be forced to accept substituted performance
by a member’s trustee. The Court finds this concern to be applicable only in the context of
multi-member LLCs, not single member LLCs. Accordingly, the Court finds that the Trustee
had the power to place NYSI into bankruptcy upon his appointment, and, standing in the shoes
of the Debtor and complying with the mandates of the Delaware Act, possesses both the
economic and governance rights to participate in the management of NYSI that the Debtor
himself enjoyed prior to his bankruptcy filing.
B. Section 363(b)(1) Relief
The Trustee’s Emergency Motion seeks relief under section 363(b)(1) of the Bankruptcy
Code. Section 363(b)(1) states in relevant part that “[t]he trustee, after notice and a hearing, may
use, sell, or lease, other than in the ordinary course of business, property of the estate.” 11
U.S.C. § 363(b)(1). Most section 363(b)(1) motions involve use of tangible property, but
property of the estate includes intangible property as well, such as stockholder equity rights and
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26
voting rights. Collier on Bankruptcy, ¶ 363.02[1].
In the instant Motion, the Trustee, through his control of Mr. Modanlo’s assets and
NYSI, wishes to cause FACS (in which NYSI holds a majority stock interest) to hold a
shareholder meeting. The Trustee concedes that he wishes to oust Mr. Modanlo (and others)
from the FACS board. As previously noted, the Trustee has clarified the relief he seeks as
follows:
The Debtor owns 100% of the interests of NYSI which, in turn, owns at least 63%
of the equity interests in FACS, making NYSI the majority stockholder of FACS.
Section 2.3(b) of the FACS Bylaws specifically allows NYSI, as the FACS majority
stockholder, to request the calling of a special meeting of the stockholders of FACS.
The mechanism by which the Bylaws allow NYSI to call a special meeting is for
NYSI to direct the FACS Secretary to call the meeting. The procedure is designed
to be a simple ministerial act: step 1 - NYSI directs the Secretary to call a special
meeting; step 2 - the Secretary calls the meeting; step 3 - the meeting takes place.
The relief sought by the Emergency Motion is for authority to take step 1 and other
actions which the Trustee and NYSI may be allowed to take in connection with
NYSI’s majority stockholder interest in FACS. The movants do not (at this time)
seek the Court to order or direct that steps 2 and 3 above be taken. If this Court
allows NYSI to request one or more special meetings, the Secretary will have to act
in his fiduciary capacity in deciding what to do in response to NYSI directing that
one or more special meetings be called.
Resp. of Chapter 11 Trustee and NYSI to Debtor’s Procedural Arguments, p. 3-4.
The Trustee has stated that he believes that the actions he wants to take through NYSI (as the
majority stockholder of FACS) are consistent with the FACS Bylaws and applicable non-
bankruptcy law, and are in the ordinary course of business. Nonetheless, the Trustee has filed
the instant Motion asking for authority to act outside the ordinary course “in an abundance of
caution.” See Trustee’s Emergency Mot. to Take Actions in Connection with Subsidiaries, p. 5.
Neither the Bankruptcy Code nor its legislative history provides a framework for
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27
analyzing whether particular transactions are or are not in the ordinary course of business. In re
Dornier Aviation, No. 02-82003-SSM, 2002 WL 31999222, at *8 (Bankr. E.D. Va. Dec. 18,
2002). Courts have developed two commonly used tests for determining whether a transaction is
in the ordinary course of business: (1) horizontal dimensions test; and (2) vertical dimension
(also know as the reasonable expectations) test. In re Springfield Contracting Corp., 154 B.R.
214, 225-26 (Bankr. E.D. Va. 1993) (internal citations omitted). This Court need not determine
whether the proposed action is inside or outside the ordinary course of business because the
Court finds that even assuming the proposed action is outside the ordinary course, the Trustee
has articulated business justification for using the property as proposed and has demonstrated by
evidence in this matter (as addressed herein) that there are sound business reasons for granting
the relief sought under section 363(b).
Usually calling it the business judgment rule, courts have found that there must be some
“‘articulated business justification,’ other than appeasement of major creditors, for using, selling
or leasing property out of the ordinary course of business before the bankruptcy judge may order
such disposition under section 363(b).” Comm. of Equity Sec. Holders v. Lionel Corp. (In re
Lionel Corp.), 722 F.2d 1063, 1070 (2d Cir. 1983) (holding that a judge determining a § 363(b)
application must expressly find from the evidence presented before him at the hearing a good
business judgment reason to grant such an application).
The Court conducted a hearing over the course of two days, and after making an
independent evaluation of the evidence, is satisfied that the Trustee demonstrated business
justification for the request made. NYSI's ownership interests in FACS constitute the primary
assets available for recovery. The Trustee wishes to replace Mr. Modanlo (and others) on the
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20 The Prospect Telecom loan was the subject of the replevin action in state court. In
support of the Emergency Motion, the Trustee raised evidence about Mr. Modanlo’s handling of
the Prospect Telecom transaction that gave rise to the Court’s decision to appoint a Trustee in
the first place.
28
board so the Trustee can explore opportunities with respect to the judgment that FACS has
against General Dynamics. The Trustee fears that if he does not get control from Mr. Modanlo
in what remains of the General Dynamics litigation, opportunity for resolving the litigation
favorably may be reduced. The Trustee acknowledges that Mr. Modanlo was instrumental in
providing litigation support in the General Dynamics case, but the Trustee does not believe Mr.
Modanlo will resolve the General Dynamics litigation on his own as long as a judgment is
outstanding against him by Michael Ahan. The Trustee believes that given Mr. Ahan’s claim,
Mr. Modanlo may do what he can to delay or subvert the flow of money to FACS’ shareholders,
NYSI, and ultimately through it, to Mr. Modanlo’s estate. The Trustee also expressed serious
concerns over the loan purported to have been made by Prospect Telecom to NYSI, and Prospect
Telecom’s purported lien on all of NYSI's stock interests in FACS.20 Mr. Mead additionally
testified that despite numerous requests to obtain all documents related to the corporate
governance of NYSI, the Debtor has not produced any. See Transcript of Emergency Motion,
February 28, 2006, p. 95, line 1-4. 	The Court finds that the Trustee is credible, and that based
on the evidence presented, there is a reasonable articulated business justification (or sound
business reason) for the actions he wishes to take.
The Debtor and FACS maintain that the claims that concern the Trustee have been
thoroughly reviewed by the state court appointed independent Investigator, who concluded that
there has been no fraud or misappropriation by Mr. Modanlo, and that leaving Mr. Modanlo in
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21 But see supra, note 7.
29
place on the FACS board is in the best interest of FACS. Additionally, FACS argues that the
Trustee is in the wrong court, and the only court with authority to allow a change in the board of
directors of FACS is the Circuit Court of Maryland for Montgomery County.21 The Debtor and
FACS argue that it is imprudent to oust Mr. Modanlo from the FACS board, and that the Trustee
has not adequately considered the business issues that were fully evaluated by the Independent
Investigator and heard by the state court. The Debtor’s and FACS positions are not compelling
and the Debtor and FACS have not demonstrated that the Trustee has failed to present a sound
business reason to take the steps he proposes to take. As already stated, the Trustee has clarified
the relief he seeks, and the Court so construes his request as a request for an order authorizing
the Trustee to cause NYSI to direct the FACS secretary to call a special meeting of stockholders.
The Trustee refers to this action in its Response [128] as “step 1,” and appears to recognize that
if Trustee’s (NYSI’s) demand for a meeting is refused by FACS’ secretary, that a “step 2" may
be necessary (perhaps in another court). See Resp. of Chapter 11 Trustee and NYSI to Debtor’s
Procedural Arguments, p. 3-4. 	By the instant Motion, the Trustee does not request this Court to
order the FACS secretary (or anyone else) to call a stockholder meeting (“step 2"), and does not
request this Court to direct that the meeting take place (“step 3"). Id. These questions, if
necessary, are left to be decided for another day (and possibly for another court). The Trustee
asks only that he be authorized by this Court to take steps himself. Having heard and evaluated
the evidence, and for reasons stated, the Court has concluded that the Trustee is entitled to the
relief requested.
For the foregoing reasons, the Trustee’s Emergency Motion is granted. A separate order
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30
[170] has issued.
cc: 	Debtors
Joel S. Aronson, Esq.
Joseph B. Suntum, Esq.
Bradford F. Englander, Esq.
Michael D. Nord, Esq.
Richard Goldberg, Esq.
Lynn A. Kohen, Esq.
U.S. Trustee
Glenn Manishin, Esq.
Edward J. Tolchin, Esq.
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