Optim creditor's motion to prosecute Cascade claims denied by court

By Caroline Salls

Pittsburgh, May 14 - Optim Energy, LLC creditor Walnut Creek Mining Co.'s motion to prosecute $700 million of claims made by Cascade Investment, LLC and subsidiary ECJV Holdings, LLC was denied on Tuesday by the U.S. Bankruptcy Court for the District of Delaware.

As Optim's largest non-insider creditor, Walnut Creek said it was pursuing the claims on Optim's behalf because Cascade is Optim's debtor-in-possession lender and, therefore, Optim cannot assert claims against it.

In the prosecution motion, Walnut Creek accused Cascade of an "inequitable scheme" and aiding and abetting ECJV in the "breach of its fiduciary duties."

Specifically, Walnut Creek and Optim claimed that Cascade changed its equity to a secured lien through a 2007 reimbursement agreement that was forcibly triggered after Optim filed for Chapter 11 bankruptcy, and Cascade took security interests in substantially all of Optim's assets to secure the reimbursement obligations.

Walnut Creek said this action led to Cascade "effectively transforming themselves from mere equity holders to senior secured lenders with a claimed lien on substantially all of the debtors' assets."

The company said that if the court does not allow the prosecution of the claims, Cascade will "seize all of the value of the debtors' estates, leaving unsecured creditors with little or nothing in the way of recoveries" and that "the costs incurred in pursuing such claims pale in comparison to recognizable value, even when discounting the inherent uncertainty of litigation."

In Tuesday's ruling, judge Brendan Linehan Shannon said "Walnut Creek has failed to allege colorable claims against Cascade and ECJV."

Specifically, the judge said Optim's operating agreement specifically states that no fiduciary duties were owed.

In addition, Shannon said the many transactions and financial arrangements that gave rise to Cascade and ECJV's secured claims "were structured and intended as debt obligations and are not susceptible to being recharacterized as equity contributions."

The judge also said there is no support on the record for Walnut Creek's claim of undercapitalization.

Optim, a Silver Spring, Md.-based power plant owner, filed bankruptcy on Feb. 12. The Chapter 11 case number is 14-10262.

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