Delaware Business Bankruptcy Report : Delaware Business Bankruptcy Report : Morris James LLP Lawyers & Attorneys

Effective at 5:00 p.m. Eastern time today, the Chapter 11 cases of Joan Fabrics Corp. and Madison Avenue Designs, LLC will convert to cases under Chapter 7 of the Bankruptcy Code.  Yesterday, Judge Christopher S. Sontchi entered an order approving the debtors' motion to convert the cases.

In July, 2007, the Court approved a sale of substantially all of the debtors' assets.  Since that time, the debtors engaged in the process of winding down their remaining operations.  However, according to the debtors' motion convert the cases, the debtors' lenders did not consent to the debtors' further use of the lenders' cash collateral to administer the estates.  The debtors therefore moved to convert the cases, and the Court approved the request.

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On November 19, 2007, Pope & Talbot, Inc., a Portland, Oregon-based concern, along with certain affiliates, filed cases under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.  Judge Christopher S. Sontchi has been assigned to the cases.

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On November 16, 2007, Judge Christopher S. Sontchi of the United States Bankruptcy Court for the District of Delaware entered an order dismissing the Chapter 7 bankruptcy cases of Hoboken Wood Flooring LLC and its affiliated debtors.

In a motion to dismiss the cases filed by the interim trustee of the debtor's estates, the trustee alleged that all the debtors' assets were encumbered by prior liens, and that there would be no funds with which to pay for the administration of the debtors' estates.  Moreover, the trustee and the debtors' lender were unable to agree to a funding arrangement that would permit the trustee to be compensated.  Pending before the Court at the time the cases were dismissed were motion of the prepetition lenders for relief from stay to foreclose on their collateral to prevent the trustee from using cash collateral.

The dismissal of these cases returns the debtors, lenders and other creditors to substantially the same position they were in before the debtors filed the cases on November 7, 2007.

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In re TWA Inc. Post Confirmation Estate, No. 01-00056 (PJW), 2007 WL 2757148 (Bankr. D. Del. Sept. 21, 2007) (Judge Peter J. Walsh)

In this proceeding, the United States Bankruptcy Court for the District of Delaware held that it possessed subject matter jurisdiction to determine the amount of workers’ compensation benefits owed by American Airlines to a former employee of debtor Trans World Airlines. The matter was a core proceeding because it related to a claim filed against the debtor’s estate, even though the debtor was not liable for the claim. However, because the obligation was one assumed by American Airlines under the terms of the Bankruptcy Court’s order approving the sale of TWA’s assets to American, the Bankruptcy Court was required to interpret its own sale order, and thus this was a core proceeding.

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Asurion Ins. Servs., Inc. v. Amp’d Mobile, Inc. (In re Amp’d Mobile, Inc.),  377 B.R. 478  (Bankr. D. Del. 2007) (Judge Brendan Linehan Shannon)

The United States Bankruptcy Court for the District of Delaware denied a vendor’s request for a determination that funds that the debtor received in connection with a contract between the parties were not property of the estate, and that such funds were held in a constructive trust. The vendor, Asurion Insurance Services, Inc., was party to an agreement with the debtor to offer insurance to the debtor’s customers against loss or damage to the participating customers’ cellular phones. The Court found that there was no fiduciary relationship between Asurion and the debtor so as to warrant a finding that the premium payments the debtor received from its customers were anything other then property of the debtor’s estate.

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In re Seven Fields Dev. Corp., 505 F.3d 237 (3d Cir. 2007) (Circuit Judge Morton I. Greenberg)

Creditors of the debtor, Seven Fields Development Corporation, brought an action against an accounting firm employed by the debtor for alleged misconduct occurring during the debtor’s Chapter 11 case, but prior to plan confirmation. The United States Court of Appeals for the Third Circuit found the claims arose in bankruptcy, and the action therefore was a core proceeding. Because the Bankruptcy Court possessed “arising in” jurisdiction, there was no need for the Bankruptcy Court to determine whether the action had a “close nexus” to the bankruptcy case. In dicta, the Third Circuit also decided that when a federal court exercises “related to” jurisdiction, the Court is required to determine whether there is a “close nexus” between the claims asserted and the bankruptcy cases, such determination to be made as of the time that the claims are brought.

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InPhonic, Inc., a provider of wireless services and devices, filed a Chapter 11 petition today in the United States Bankruptcy Court for the District of Delaware. InPhonic, along with its co-debtors, has requested that their cases be jointly administered under case number 07-11166. Judge Kevin Gross will preside over these cases.

InPhonic sells its services through various websites.  Its stock is traded on the NASDAQ under symbol INPC. InPhonic stock closed at $0.06 today, falling from an opening price of $0.40, and from a 52 week high of $14.49.

InPhonic attributes today’s filing, in part, to a recent default under a prepetition credit agreement, as well as illiquidity and declining revenues caused by unprofitable marketing activities and an inability to maintain adequate inventory of the most popular wireless devices. InPhonic’s top creditor list reads like a who’s who of the nation’s top technology companies. MSN, Yahoo!, Google, America Online and Verizon all rank among the debtor’s top ten creditors.

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On November 7, 2007, affiliated debtors Hoboken Wood Flooring LLC, HWF Holdings LLC, SPI Floors LLC, Garden State Supplies LLC, and WFA, LLC filed petitions for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. According to press accounts, Hoboken Wood Flooring is the largest independent wood flooring distributor in the United States. Judge Christopher S. Sontchi has been assigned to preside over these cases. The debtors report over $100 million in liabilities, and estimate that no distributions will be made to unsecured creditors.

 

UPDATE: The United States Bankruptcy Court for the District of Delaware dismissed these bankruptcy cases on November 16, 2007.  Details are available here.

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Integrated Water Res., Inc. v. Shaw Envtl., Inc. (In re IT Group, Inc.), 377 B.R. 471 (Bankr. D. Del. 2007)  (Judge Mary F. Walrath)

Shaw Environmental, Inc. purchased in bankruptcy substantially all the assets of debtor IT Group, Inc. However, among the debtor’s executory contracts that were not assumed and assigned to Shaw was a sub-subcontract with Integrated Water Resource. Pursuant to the sub-subcontract, the debtor provided environmental remediation work in Cape Canaveral, Florida. When Shaw filed suit in California Superior Court to collect from Integrated an account receivable that Integrated allegedly owed under the sub-subcontact, Integrated commenced an adversary proceeding in the United States Bankruptcy Court for the District of Delaware to enjoin the California action. In this opinion, the Court granted summary judgment in favor of Integrated, finding that the sub-subcontract and any receivables associated with it were expressly excluded from the asset purchase agreement between Shaw and the IT Group.

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In re Just for Feet, Inc., 375 B.R. 129 (Bankr D. Del. 2007) (Judge Judith K. Fitzgerald)

In these adversary proceedings in the United States Bankruptcy Court for the District of Delaware, the Court granted summary judgment in favor of the plaintiff, Charles R. Goldstein, Chapter 7 Trustee of the Estate of Just for Feet, Inc., with respect to the defendants’ ordinary course of business defense under 11 U.S.C. § 547(c)(2). The Court’s ruling was based on the defendants’ failure to prove the “ordinary business terms” element of the defense. Although the defendants’ produced an affidavit from their president in support of the industry terms prong of the ordinary course of business defense, the Court found the affidavit to be insufficient where it merely stated that the affiant was familiar with industry billing practices and that the transfers in question were made in a fashion consistent with those practices. The affidavit failed to identify what the practices were in the defendants’ industry and what the practices were between the debtor and the defendants.

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On November 1, 2007, California mattress retailer Gallery Corporation filed a petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.  The debtor is a wholly-owned subsidiary of non-debtor Pacific Coast Mattress, Inc.

According to the affidavit that the debtor filed in support of its first-day motions, the debtor owns and operates 52 Mattress Gallery retail stores in Southern California.  The debtor attributes the filing, in part, to fallout from record high gas prices, home foreclosures and the subprime lending crisis, which led to a downturn in the Southern California housing market.  As a result, according to the debtor, fewer people have been buying and furnishing homes, severely affecting the debtor’s business. 

The debtor will propose a sale of all its stock to Ortho Mattress, Inc.  According to the debtor's affidavit, Ortho Mattress has made an irrevocable commitment to purchase the stock.  The Honorable Kevin Gross is presiding over this case, which has been assigned case number 07-11628.

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Commercial Chapter 11 case filings in the United States Bankruptcy Court for the District of Delaware in 2007:

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