Transunion Risk & Alt. Data Solutions, Inc. v. Best One, Inc. (In re Tlfo, LLC)

572 B.R. 391

IN RE: TLFO, LLC, Debtor(s).

TransUnion Risk and Alternative Data Solutions, Inc., Plaintiff,

v.The Best One, Inc. and Ole Poulsen, Defendants.

CASE NO.: 13–20853–BKC–PGH

ADV. NO.: 14–01793–BKC–PGH–A

United States Bankruptcy Court, S.D. Florida, West Palm Beach Division.

Signed August 18, 2016

Ross E. Firsenbaum, Wilmer Cutler Pickering Hale & Dorr LLP, Brian K. Gart, Esq., Gordian Group, LLC, Philip D. Anker, New York, NY, David L. Gay, Esq., Paul Steven Singerman, Esq., Miami, FL, Michael R. Heyison, Boston, MA, for Plaintiff.

Laurel W. Marc–Charles, Miami, FL, Arthur H. Rice, Esq., Lisa M. Schiller, Esq., Ft. Lauderdale, FL, Luis Salazar, Esq., Salazar Law, for Defendants.

TRIAL ORDER

Paul G. Hyman, Jr., Chief United States Bankruptcy Judge

THIS MATTER came before the Court for trial (the "Trial") on May 16 and 17, 2016, and June 15, 22, 23, 24, and 27, 2016, upon (1) the Second Amended Complaint (the "Complaint") (ECF No. 61) and the Motion to Enforce Sale Order and to Hold The Best One, Inc. in Contempt (the "Motion to Enforce Sale Order") (ECF No. 1282, Case No. 13–20853–BKC–PGH)¹ filed by Plaintiff TransUnion Risk and Alternative Data Solutions, Inc. ("TRADS"); (2) the Answer, Affirmative Defenses, and Counterclaim (the "TBO Counterclaim") (ECF Nos. 333 and 334) filed by Defendant The Best One, Inc. ("TBO"); and (3) the Answer, Affirmative Defenses, and Counterclaim (the "Poulsen Counterclaim") (ECF Nos. 335 and 336) filed by Ole Poulsen ("Poulsen," and together with TBO, the "Defendants"). For the reasons discussed in detail below, the Court finds in favor of Plaintiff TRADS.

FINDINGS OF FACT AND PROCEDURAL BACKGROUND

I. The Parties

Plaintiff TRADS is a Delaware corporation and a subsidiary of TransUnion Corp. ("TransUnion"). For simplicity's sake, the Court will refer collectively to TRADS and TransUnion as "TransUnion–TRADS." Defendant TBO, now known as IDI, Inc.,² is a Florida corporation, which was formed by Michael Brauser in 2014. Mr. Brauser now serves as TBO's executive chairman. Defendant Poulsen is an individual currently living in Oregon. TLO, LLC ("TLO")³ is the entity whose chapter 11 bankruptcy filing prompted the events which led to the litigation now before the Court.

II. TLO: Inception through Bankruptcy Filing

In March 2009, Hank Asher formed TLO with two co-founders, Poulsen and John Walsh. Initially, Poulsen and Mr. Walsh each contributed $100.00 in exchange for each receiving a 10% equity interest in TLO and Mr. Asher contributed $800.00 in exchange for an 80% equity interest in TLO. Mr. Asher served as the de facto CEO and Poulsen served as the Chief Science Officer of TLO.

Between its formation in 2009 and its eventual bankruptcy filing in 2013, TLO developed a commercial product known as TLOxp. TLOxp was and is a program which allows users to search for information regarding individuals and entities. TLOxp relies on the ability to obtain data from various sources and more importantly, to process and sort that data. In order to process and sort the data, TLO utilized a computer programming language called BOLT and a computer program called BParser. BOLT was—and still is—a computer programming language which allows programmers to write programs, or scripts, for data processing and sorting. BParser was—and still is—a computer program which converts BOLT scripts into the universal, standard computer language known as C++ so that the BOLT scripts can be executed by a computer. BParser utilizes a "runtime library" to compile BOLT scripts into machine-readable code. For simplicity's sake, the Court will refer collectively to BOLT, BParser, the scripts written in BOLT, the BParser source code, the BParser executable version, and the runtime library as the "BOLT IP." The only commercial entities to have ever used the BOLT IP are TLO and, as discussed in detail later, TransUnion–TRADS.

Throughout its existence, TLO was a financially troubled company. In order to keep it afloat, Mr. Asher, through his corporation Technology Investors Inc., provided more than $88 million in funding to TLO. However, on January 11, 2013, Mr. Asher suddenly and unexpectedly passed away. Thereafter, his daughters Desiree Asher and Carly Asher Yoost (together, the "Asher Sisters") stepped in to manage TLO. At the time, TLO was losing more than $3 million per month and had only 45 days' worth of working capital. Moreover, at some point after Mr. Asher's passing, Poulsen stopped coming into the TLO offices and his employment as Chief Science Officer was eventually terminated by TLO several months later. Shortly thereafter, the Asher Sisters along with TLO's senior management decided that TLO would file for chapter 11 bankruptcy relief and retained bankruptcy attorney Robert C. Furr and his law firm Furr & Cohen, PA ("Furr & Cohen"). On May 9, 2013, TLO filed its voluntary chapter 11 bankruptcy petition (the "Petition Date").

III. The § 363 Sale of Substantially All of TLO's Assets

The Asher Sisters personally provided a total of $6 million in Court-approved debtor-in-possession financing in order for TLO to temporarily stay in business. Ultimately, however, it was determined that the only reasonable course of action was to sell TLO's business and assets. TLO, through its attorney Mr. Furr, engaged a Court-approved investment banker who identified several potential buyers, one of which was TransUnion–TRADS.

These potential buyers, including TransUnion–TRADS, signed non-disclosure agreements and conducted due diligence. In October 2013, TransUnion–TRADS made a $105 million "stalking horse" bid for the sale and purchase of substantially all of TLO's assets, including the BOLT IP.⁴ TLO chose TransUnion–TRADS as the stalking horse as it had made the highest and best offer at the time. On October 15, 2013, TLO filed a Motion for Entry of Order: (I) Approving Procedures in Connection with the Sale of Substantially All of the Debtor's Assets Free and Clear of Liens, Claims, Encumbrances and Other Interests, (II) Authorizing the Payment of Breakup Fee and Expense Reimbursement, (III) Setting Bid Deadline, Auction and Sale Approval Hearing Dates, (IV) Establishing Notice Procedures and Approving Forms of Notice, and (V) Approving Procedures Related to Assumption and Assignment of Executory Contracts and Unexpired Leases (the "Bid Procedures Motion").⁵ The Bid Procedures Motion (1) disclosed that the sale would be free and clear of all liens, claims, encumbrances and other interests in the acquired assets, with all liens, claims, encumbrances, and other interests to attach to the proceeds of the sale; (2) requested that an auction be held on November 20, 2013 (the "§ 363 Auction") and that a sale hearing be held on November 22, 2013 (the "Sale Hearing"); and (3) sought approval of bidding procedures.

After a hearing on the Bid Procedures Motion, the Court entered an Order on October 24, 2013, approving the bid procedures, scheduling the § 363 Auction to take place on November 20, 2013, and setting a hearing on November 22, 2013, to consider approval of the sale to the successful bidder (the "Bid Procedures Order"). See Bid Procedures Order.⁶ The October 24, 2013, Bid Procedures Order also contained, in pertinent part, the following provisions:

7. [TLO] is authorized to enter into an asset purchase agreement, on terms it deems reasonable after consultation with the Committee and Tech. Inc., with the Proposed Buyer, for the sale, free and clear of all liens, claims, liabilities, and other interests, of substantially all assets of [TLO] ... provided, however, ... the Sale pursuant to the Stalking Horse APA to the Proposed Buyer shall occur only if the Bankruptcy Court enters an order approving such Sale.

...

13. Objections to the transactions contemplated by the Sale (a "Sale Objection") shall (i) be filed with this Court and served on the Notice Parties, so as to be received on or before November 18, 2013 (the "Sale Objection Deadline"), at 5:00 p.m. (prevailing Eastern Time); (ii) be in writing and conform to the Federal Rules of Bankruptcy Procedure and the Local Rules of the Bankruptcy Court; (iii) set forth the name of the objecting party, the nature and amount of any claims or interests held or asserted against [TLO's] estate or properties, the basis for the objection and the specific grounds therefor; and (iv) be served so as to be received by the Sale Objection Deadline on all Notice Parties.

14. The failure to file and serve a Sale Objection by the Sale Objection Deadline shall be a bar to the assertion thereof at the Sale Hearing or thereafter.

Bid Procedures Order, ¶¶ 7, 13–14 (emphasis added). The Notice of Bid Deadline, Auction, and Sale Hearing attached as Exhibit 1 to the Bid Procedures Order further spelled out that "[TLO] intend[ed] to enter into an asset purchase agreement ... for the sale, free and clear of all liens, claims, liabilities, and other interests, to the maximum extent permitted by section 363 of the Bankruptcy Code, of substantially all assets of [TLO]." Id. , Ex. 1, ¶ 2 (emphasis added).

On November 1, 2013, TLO filed the Motion for Order (I) Approving the Sale of Substantially All of the Debtor's Assets Free and Clear of All Liens, Claims, Encumbrances and Other Interests (Other than Assumed Liabilities), (II) Approving the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; and (III) Granting Related Relief (the "Sale Motion").⁷ As Exhibit B to the Sale Motion, TLO attached the stalking horse asset purchase agreement (the "Stalking Horse APA") between TLO as the seller and TransUnion–TRADS as the buyer. The Sale Motion provided that pursuant to the Stalking Horse APA, TLO would "sell, transfer, convey, assign and deliver to the [successful bidder], at the Closing ..., free and clear of all Interests ..., all of [TLO's] right, title and interest throughout the world in and to all of the assets of [TLO] existing as of the Closing, whether tangible or intangible, real,...