Carnival Corp. v. Decurtis Holdings LLC (In re Decurtis Holdings LLC)

1

In re: DECURTIS HOLDINGS LLC, et al.,^[1] Debtors.

CARNIVAL CORPORATION, Plaintiff, v. DECURTIS HOLDINGS LLC and DECURTIS LLC, Defendants.

D.I. Nos. 73 & 302 Adv. D.I. Nos. 1 & 4

No. 23-10548 (JKS)

Adv. Pro. No. 23-50413 (JKS)

United States Bankruptcy Court, D. Delaware

August 9, 2023

Chapter 11

OPINION REGARDING OWNERSHIP OF THE DXP ASSETS AND CARNIVAL'S REQUEST FOR DECLARATORY AND INJUNCTIVE RELIEF

J KATE STICKLES UNITED STATES BANKRUPTCY JUDGE.

Debtors DeCurtis Holdings LLC and DeCurtis LLC (collectively, the "Debtors" or "DeCurtis"), a software company, create software for cruise lines, among other potential applications. In 2014, Carnival Corporation ("Carnival") hired DeCurtis to perform work in support of Carnival's development project, code named Project Trident, which eventually matured into Carnival's patented One Cruise Experience Access Network also referred to as the O.C.E.A.N' or OCEAN® Platform ("OCEAN" or "OCEAN Platform"). The OCEAN Platform "combines a first-of-its-kind wearable device (OceanMedallion' or Medallion®) with a network of servers, sensors, readers, and software to deliver guest engagement and personal service to guests on Carnival's ships."^[2] The work DeCurtis performed was done under a Master Service Agreement (the "MSA"), Mutual Non-Disclosure Agreement ("MNDA"), and Statements of Work (each a "SOW"), which impose confidentiality and use restrictions on DeCurtis.

In 2016, Debtors left Carnival's Project Trident. Debtors developed their own "comprehensive cruise experience" platform which eventually became known as the DeCurtis Experience Platform (the "DXP").

In 2017, Carnival publicly debuted the OCEAN Platform and, the following year, deployed its first OCEAN equipped cruise ship.

In 2019, Carnival began to suspect that DeCurtis was violating the parties' agreements and preparing to provide or providing infringing technology to Carnival's competitors. In 2020, the parties commenced litigation in the District Court for the Southern District of Florida including issues of breach of contract and patent infringement (the "Florida Litigation"). The jury returned a verdict in favor of Carnival on both the breach of contract claim and a patent infringement claim. Before any remaining issues could proceed before the Florida District Court, DeCurtis filed for bankruptcy.

Pending before the Court is expedited litigation regarding DeCurtis' motion to sell substantially all of its assets free and clear of all encumbrances pursuant to section 363 of the Bankruptcy Code ("Sale Motion").^[3] The terms of the debtor-in-possession financing and proposed sale order require the Court make certain findings regarding ownership of the DXP Assets,^[4] referred to as the DXP Order (as discussed below). Carnival disputes the Debtors' ownership of certain of its assets and filed the above-captioned adversary proceeding (the "Adversary Proceeding"') requesting a declaratory judgment and seeking a permanent injunction preventing the Debtors from selling or using certain of assets.^[5] Prior to a sale, the Court must determine whether Carnival has an ownership interest in the DXP, whether DeCurtis should be enjoined from selling r using the DXP, and whether DeCurtis can sell the DXP free and clear of any claims that Carnival may have, For the reasons set forth below, the Court finds that Carnival has an ownership interest in the DXP, monetary damages would not adequately remedy Carnival, and the Debtors cannot sell the DXP free and clear. Furthermore, Carnival is entitled to an injunction against the use or sale of the DXP.

JURISDICTION AND VENUE

This Court has subject matter jurisdiction to consider the relief requested by the Debtors and the Adversary Proceeding under 28U.S.C.§§157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated February 29, 2012. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue in this district is proper in accordance with 28 U.S.C §§ 1408 and 1409(a).

The statutory bases for the relief requested by the Debtors are 11 U.S.C. §§ 105(a), 363, 541, and Bankruptcy Rules 6004 and 6006. This Court has personal jurisdiction over the parties. This Court has exclusive jurisdiction over the assets within the Debtors' bankruptcy estate pursuant to 28 U.S.C. § 1334.

FACTUAL BACKGROUND^[6]

A. The Parties

DeCurtis LLC is a Delaware limited liability company headquartered in Orlando, Florida.^[7] DeCurtis has approximately 25 employees in the United States.^[8]

Invictus Global Management, LLC^[9] ("Invictus"), an investment firm, is the Debtors' pre-and postpetition lender.^[10] Invictus' affiliate, Invictus Special Situations Master I, L.P. (or its designees or assignees) is the stalking horse bidder (the "Stalking Horse Bidder").^[11]

Carnival, a creditor, challenges Debtors' ownership of their assets and Debtors' ability to sell their assets free and clear of Carnival's claims (among other claims).

B. Procedural History

i. The Sale Motion

On May 3, 2023, Debtors filed their Sale Motion. The Stalking Horse Terra Sheet underlying the Sale Motion provides that by no later than 55 days after the Petition Date:

Sellers shall have obtained an order of the Bankruptcy Court declaring that (A) the post-petition use, operation and licensing of the DXP Assets does not infringe, misappropriate or violate on any patent or other intellectual property rights of Carnival Corporation or its affiliates, (B) the Purchased Assets shall not be bound, burdened, encumbered or affected in any way by the Carnival MSA (including all statements of work thereunder), and can be sold free and clear of any interest of Carnival Corporation and its affiliates pursuant to section 363(f) of the Bankruptcy Code, and (C) the DXP Assets are not subject to any outstanding order, ruling or injunction (including any claim, motion or petition therefor) by or in favor of Carnival Corporation or its affiliates that does or could reasonably be expected to restrict, impair or otherwise affect the ownership, use or value of the DXP Assets (collectively, the "DXP Condition").^[12]

The executed Asset Purchase Agreement between the Debtors and Stalking Horse Bidder,^[13] also contains the "DXP Condition" with respect to entry of the "DXP Order."

On May 17, 2023, Carnival objected to the Sale Motion.^[14] Carnival's objection argued that Debtors cannot sell what they do not own (i.e., Carnival property) and that an adversary proceeding would be required to determine the precise extent of Carnival's property in the DXP or otherwise in DeCurtis' possession.^[15]

ii. The Adversaty Proceeding

Carnival sought, and this Court denied, relief from the automatic stay to seek an injunction in Florida.^[16] Thereafter, Carnival timely initiated the Adversary Proceeding against DeCurtis on June 23, 2023.^[17] Debtors answered the adversary complaint on July 12, 2023.^[18]Debtors' answer does not assert any counterclaims.

iii. The Trial on Ownership and Injunction

The Court conducted a bench trial July 18-20, 2023, on the issues of ownership and injunction that are addressed herein; among other issues which will be ruled upon separately.^[19]

C. Ownership

i. Non-DXP Assets, the DXP, and MAS

The Debtors' assets can be broken down into three segments: (i) Non-DXP Assets, (ii) DXP, and (iii) MAS, which is part of the DXP and a stand-alone asset.

The "Non-DXP Assets" in DeCurtis's possession in the estate include bank accounts, patents, trademarks and trade names, domain names, company files unrelated to DXP, and non-DXP software.^[20] Carnival does not assert ownership over the Non-DXP Assets.^[21]

The "DXP" is a software suite that relates to cruises.^[22] The "DXP Assets" in DeCurtis' possession consist of 68 DXP software modules (listed below) and documents related to the 68 DXP software modules and to the DXP:^[23]

Product

Application

1.

ARS- Booking Management

Bookable Experiences

2.

ARS- Booking Management

Dining

3.

ARS- Booking Management

Excursions

4.

ARS- Booking Management

Spa

5.

ARS- Inventoiy Management

Inventoiy and Package Management (Excursion, Entertainment events)

6.

ARS- Reports

ARS- Reports

7.

ARS-Vendor management

Vendor Management

8.

Sailor App

Pre-Cruise Experience Planning

9.

Sailor App

Shipboard Experience Planning

10.

Cabin Tablet and TV

Room Controls

11.

Crew App - Framework

Crew Directoiy

12.

Crew App - Framework

My Crew Profile

13.

Crew App - Helpdesk VQ

Crew App - Helpdesk VQ

14.

Crew App - Incident Management

Incident Management

15.

Crew App - Wearable Management

Cabin and Key Management

16.

Dining Greeter, ARS Greeter

Greeter

17.

Embarkation-Supervisor

Intelligence & Metrics

18.

Embarkation-Visitor Management

Visitor Management

19.

Sailor App, Crew App, Push Notification

Messages and Alerts

20.

Support Queue

Support Queue

21,

Crew App - Framework

Nearby Sailors

22.

ACI

Mobile Check-in

23.

ACI

Validate

24.

Embarkation Supervisor (In Port Manning)

Embarkation Supervisor (In Port Manning)

25.

Embarkation -S uperv isor

Embarkation Rules Engine

26.

Gangway

Gangway

27.

MOCI

Moderate Online Check-in

28.

MAS

Command Center

29.

MAS

BT Controller

30,

MAS

Muster Station

31.

MAS

Fleetwatch

32.

MAS Video Features

MAS, Sailor App, Cabin Tablet/TV)

33.

Crew App - Delivery Manager

F&B Bartender

34.

Crew App - Delivery Manager

F&B Kitchen

35.

Crew App - F&B Server

F&B Server

36.

Crew App - Table Management

F&B Greeter

37.

Crew App - Table Management

Table Management

38.

Venue Manager

F&B Venue Manager

39.

Cabin Tablet and TV

In Stateroom Display

40.

Cabin Tablet and TV

In Stateroom Tablet

41.

Cabin Tablet and TV

My...