Opinion ID: 4777078
Heading Depth: 2
Heading Rank: 8

Heading: The Adversary Proceedings

Text: In July 2016, the Trustee commenced an adversary proceeding against ICSP, seeking a declaratory judgment that the Debtors’ estates were entitled to the entire $5.5 million Tax Refund. ICSP filed an answer and counterclaims, joining BMO as an additional counterclaim defendant and seeking a declaratory judgment that ICSP was entitled to the Tax Refund. BMO and ICSP both moved for summary judgment on the Tax Refund claims. The Bankruptcy Court granted summary judgment to BMO and denied ICSP’s motion for summary judgment on the Tax Refund claims. See In re LTC Holdings, Inc., 597 B.R. 565, 567 (Bankr. D. Del. 2019).3 The Bankruptcy Court determined that, when the Settlement Order was entered in 3 The remaining claims in the consolidated adversary proceeding, which were unrelated to the Tax Refund, were later dismissed pursuant to a separate settlement approved by the Bankruptcy Court. 12 June 2016, the United States had not yet been “paid in full” under 11 U.S.C. § 509(c). ICSP’s subrogation rights therefore remained subordinate, and the United States was entitled to waive its right to set off the Tax Refund in order to settle its remaining and superior claim. The Bankruptcy Court then concluded that the United States’ waiver extinguished ICSP’s ability to be subrogated to the setoff rights. ICSP appealed to the District Court, which affirmed on essentially the same grounds set forth by the Bankruptcy Court in its ruling. See In re LTC Holdings, Inc., No. 1-19-cv-00327, 2020 WL 5576850, at  (D. Del. Sept. 17, 2020). This timely appeal ensued.