Glacial Energy Holdings files Chapter 11

On Thursday, April 10, 2014, electricity and natural gas provider Glacial Energy Holdings and its affiliated debtors filed for Chapter 11 bankruptcy protection in Delaware.  A copy of Glacial Energy's bankruptcy petition may be found here. According to the petition, Glacial Energy estimates its assets between $500 million to $1 billion with liabilities estimated to be more than $1 billion.  A consolidated list of creditors holding the largest 20 unsecured claims was filed with the petition of Gridway Energy Holdings, Inc.  A copy of Gridway Energy's petition and list of creditors is found here.  

Debtors offer the declaration of Randy Lennan in support of their first day motions and applications.  A copy of the Lennan Declaration is attached here.  According to the Lennan Declaration, Debtors have reached an agreement with its lender, Vantage Commodities Financial Services I LLC to provide debtor in possession financing and act as the stalking horse bidder in the sale of the Debtors' assets through an auction.

The lead case is Gridway Energy Holdings Inc., case no. 14-10833-CSS. The cases have been assigned to The Honorable Christopher S. Sontchi for administration. 

Brookstone Holdings Corp. and its affiliated debtors file Chapter 11 Bankruptcy in Delaware

On Thursday, April 3, 2014, Brookstone Holdings Corp. and its affiliated debtors ("Debtors") sought chapter 11 protection in Delaware. A copy of Brookstone Holdings’s bankruptcy petition along with a list of the top 30 creditors and other supporting documents is here.

According to the petition, Brookstone has between 1,000 and 5,000 creditors. Brookstone’s estimated assets are listed between $100 million and $500 million with liabilities also estimated between $100 million and $500 million.

Debtors submitted the declaration of James M. Speltz. Brookstone Company, Inc.'s President and Chief Executive Officer, in support of their petitions and first day filings.  A copy of the Declaration of James M. Speltz in Support of Chapter 11 Petitions and First Day Pleadings may be found here.

According to the Speltz Declaration, Debtors have entered into a restructuring agreement and agreements with an affiliate of Spence Spirit Holdings, Inc. that contemplate, among other things, the filing of a Chapter 11 plan within 20 days of the bankruptcy filing.  The agreements further contemplate competitive bidding and an auction process for the right to serve as plan sponsor.  

The cases have been assigned to The Honorable Brendan L. Shannon (lead case no. 14-10752-BLS).

  

Ablest, Inc. (d/b/a Select Staffing) files Chapter 11

On Tuesday, April 1, 2014, Santa Barbara, California based Ablest, Inc. d/b/a Select Staffing and its affiliated debtors filed for chapter 11 protection in Delaware.  A copy of Select Staffing's bankruptcy petition is here.  A list of the top 35 creditors was filed with the petition and may be found here. According to the petition, Select Staffing has between 10,000 and 25,000 creditors.  Select Staffing's estimated assets are listed between $100 million and $500 million with liabilities estimated between $500,000 and $1 million.  

The case has been assigned to Bankruptcy Judge Kevin Carey (lead case no. 14-10717-KJC).

Allonhill, LLC files Chapter 11 bankruptcy

On March 26, 2014, Denver, Colorado based Allonhill, LLC  sought chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware.  A copy of the petition along with other supporting documents, including a list of the creditors holding 20 of the largest unsecured claims is attached here.  According to the declaration offered in support of the petition and first day motions, the debtor is a professional services firm that provides loan due diligence and credit risk management services for institutional investors, sellers and servicers of mortgage loans.  A copy of the declaration of Margaret Sue Allon in support of the Chapter 11 petition and first day motions is attached here.  

The debtor sold substantially all of its assets to Stewart Lender Services, Inc. in August 2013.  The debtor's current business consists of managing its remaining assets, as well as managing its rights and complying with its remaining obligations under the Asset Purchase Agreement with Stewart.  Recently, in March 2014, debtor was found liable for breach of contract and fraud in an amount exceeding $25M to Aurora Commercial Corporation f/k/a Aurora Bank FSB.  Debtor has appealed this judgment.  By filing the bankruptcy petition, according to the Allon Declaration, debtor seeks to preserve the value of its assets, maximize the value of its rights under the Stewart APA, resolve issues relating to certain residual contracts and stay immediate execution of the Aurora Judgment.  

The case is no. 14-10663-KG and has been assigned to Chief Bankruptcy Judge Kevin Gross for purposes of administration.  

Simplexity, LLC and Two Affiliates File Chapter 11

Simplexity, LLC, Simplexity Services, LLC and Adeptio INPC Holdings, LLC filed chapter 11 petitions in Delaware on March 16, 2014.  As of this posting, none of the customary “first day” motions have been filed.  A copy of the petition may be found here.  Simplexity is the parent company and operator of Wirefly, an online retailer of wireless services and devices.

Immediately after the filing, a proposed class action adversary complaint alleging violations of the WARN act was filed against Simplexity, LLC on behalf of approximately 350 former employees arising from an alleged mass layoff just days before the filing.

The cases have been assigned to The Honorable Kevin Gross and are being administered as case no. 14-10569.

Quiznos Serves Up Its Pre-Packaged Bankruptcy

 On Friday, March 14, 2014, QCE Finance LLC and various affiliates filed for chapter 11 protection in Delaware.  A copy of QCE’s bankruptcy petition is attached here.

The bankruptcy was filed as a prepackaged case; a reorganization plan was filed with the petition, and solicitation of votes in favor of the plan occurred before the filing. 

The case is being jointly administered as case no. 14-10543, and has been assigned to The Honorable Peter J. Walsh.

Uranium Supplier, USEC, Inc. Files Chapter 11

Listing more than $1 billion in potential liabilities, and assets of $50 to $100 million, USEC, Inc., a global supplier of low enriched uranium for use in nuclear power plants, filed for chapter 11 protection in the Bankruptcy Court for the District of Delaware.  The case is being administered as case no. 14-10475, and has been assigned to The Honorable Christopher S. Sontchi.

A copy of the petition is attached here.  For more information about the background of this “pre-arranged” case, please consult the affidavit of John R. Castellano, attached here.

Petition Date Fixes Amount of Defendant's Subsequent New Value

 Authored by Jeffrey R. Waxman
This article was originally published in American Bankruptcy Institute Journal, Vol. XXXIII, No. 3, March 2014.

The ABI Journal published a pair of articles in the March 2012 issue addressing the U.S. Bankruptcy Court for the District of Delaware’s decision in Friedman’s Liquidating Trust v. Roth Staffing Companies LP . This article provides an update following the recent decision of the Court of Appeals for the Third Circuit affirming the decisions of the bankruptcy and district courts.

 

To view the full article, click here.

Sorenson Communications, Inc. and affiliates file pre-packaged Chapter 11 bankruptcy

On March 3, 2014, Sorenson Communications, Inc. and several affiliates filed a pre-packaged Chapter 11 case in Delaware.  A copy of the petition is attached [HERE].  A plan has been filed and the plan was solicited before the filing.  The proposed prepackaged plan provides for a new $550 million first lien term loan exist facility and potentially includes a $25 million first lien revolving credit facility. 

Debtors are providers of telecommunication products and services for hard-of-hearing and speech-impaired individuals.  The case is docketed at 14-10454, and has been assigned to Judge Brendan Linehan Shannon.  For more information about the case, a copy of the declaration filed by Scott Sorensen is attached [HERE].

Event Rentals, Inc., Nation's Largest Provider of Event Rental Products And Related Services, Seeks Shelter In Chapter 11

On February 13, 2014, Event Rentals, Inc. and various affiliates filed for bankruptcy protection under Chapter 11 of the bankruptcy code.  In part, the filings were precipitated by the economic downturn and clients’ scaleback of discretionary spending, resulting in an overcapacity in the rental market.  The debtors have filed the petition to pursue a potential going-concern sale of their businesses.  Further information about the debtors’ filing can be found in the declaration of Jeffrey M. Black, attached here.  A copy of the petition, including a list of largest creditors, can be found here.

The case has been assigned to the Honorable Peter J. Walsh, and is being jointly administered with the other debtor cases at docket no. 14-10282.

Tuscany Holdings International (U.S.A.) Ltd. Files Chapter 11

On February 2, 2014, Tuscany Holdings International (U.S.A.) Ltd. and Tuscany International Drilling, Inc. filed chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware.  Tuscany Drilling, based in Canada, is the parent of Tuscany Holdings according to the Declaration of Deryck Helkaa filed in support of the petitions (the “Helkaa Declaration”).  According to the Helkaa Declaration, the debtors provide onshore drilling and workover services to oil and gas companies to support exploration, production and development of oil and gas.

According to Mr. Helkaa, the debtors’ main goal by the filings is to restructure their balance sheet through a consensual plan of reorganization supported by the prepetition lenders.  The debtors have entered into a Restructuring Support Agreement with the prepetition lenders holding approximately 95% of the debt.  A copy of the petition is attached here.  A copy of the Helkaa Declaration is attached here.  The cases have been assigned to the Honorable Kevin Gross, and are being jointly administered under case no. 14-10193.

Ninth Circuit Reverses § 524(g) Plan Confirmation, Upholds Injunction of Insurer Contribution Rights

 

Friedman's: The Gift That Keeps on Giving. Judge Christopher S. Sontchi Grants Summary Judgment For Defendant Based on Third Circuit's Affirmation Of His Honor's Friedman's Opinion

In a memorandum opinion filed December 27, 2013, Judge Christopher S. Sontchi, Bankruptcy Judge for the U.S. Bankruptcy Court for the District of Delaware, granted summary judgment for a preference defendant based upon the December 24, 2013 precedential opinion of the United States Circuit Court of Appeals for the Third Circuit, Friedman’s Litigation Trust v. Roth Staffing Companies LP, Case. No. 13-1712 (see our Friedman's blog post here).

Noting that Friedman’s had affirmed his opinion holding that preference analysis is fixed as of the petition date, Judge Sontchi held in Car-Ber that the fact that new value invoices incurred in the days leading up to bankruptcy had been subsequently paid, post-petition, by a third-party did not strip the ability of the preference defendant to use the invoices as new value in the preference action.

The plaintiff’s expert had opined that the defendant’s preference exposure exceeded $80,000, but the expert had given the defendant no credit for new value that had been provided to the debtor pre-petition, but had been paid by a third-party after the petition.  If the new value was allowed to be used as a defense, the defendant would have no liability.

Noting that the Third Circuit had just recently affirmed the idea that the preference analysis should be fixed as of the petition date, Judge Sontchi gave no credence to the Trustee’s position.  Moreover, Judge Sontchi rejected the Trustee’s argument that the Third Circuit’s opinion should be limited to wage claims.  Instead Judge Sontchi held that the Third Circuit had carved out only two exceptions neither of which was implicated in Car-Ber.  So Judge Sontchi entered summary judgment in favor of the defendant.

A copy of Judge Sontchi’s Memorandum Opinion is attached here.

Stanziale v. Car-Ber Testing, Inc. (In re Conex Holdings, LLC), Adv. Pro. No. 12-51132 (Bankr. D. Del. Dec. 27, 2013)

Happy Holidays to Preference Defendants: Third Circuit Holds Post-Petition Payments Do Not Reduce New Value Defense in Subsequent Preference Action

In this precedential decision by the United States Court of Appeals for the Third Circuit, the Court in Friedman’s Liquidating Trust v. Roth Staffing Companies LP (Case No. 13-1712) held that “where ‘an otherwise unavoidable transfer’ is made after the filing of a bankruptcy petition, it does not affect the new value defense.”

The opinion, filed December 24, 2013, examined closely two prior decisions of the Circuit: In re New York City Shoes, 880 F.2d 679 (3d Cir. 1989) and In re Winstar Communications, Inc.,  554 F.3d 382 (3d Cir. 2009).  The recent opinion found that the language of the new value test in New York City Shoes was mere dicta.  The Court also recognized that in the Winstar case, the Court had called the New York City Shoes dicta a “holding.”  However, the Court noted that articulation of the new value three-part test in New York City Shoes was wholly unnecessary to the decision either in that case or in Winstar.  Accordingly, the Friedman’s Court found that it was not bound by either decision.

In its analysis, the Court focused on the “contextual indicators” in the Code that point to the petition date as being the operative cutoff date for the new value defense.  First, the Court noted that Section 547 is captioned “Preferences” and concerns transfers made during that time period.  “It would make sense that the calculation of the amount of the preference, and application of any new value reduced by subsequent transfers, would relate to that time period.”

The Court also agreed that the “hypothetical liquidation test” was to be performed as of the petition date.  That too, points to the cutoff period being the petition date for purposes of calculating new value.

Likewise, the Court found persuasive the fact that the statute of limitations for preference actions begins to run as of the petition date.  This “suggests that the calculation of preference liability should remain constant post-petition.”  To hold otherwise means that the “calculation of preference liability could change depending on when the preference avoidance action was filed.”

The Court also examined the policies behind Section 547 of the Code, including the policy of encouraging trade creditors to continue deadline with troubled debtors, and to treat fairly those creditors who have replenished the estate after receiving transfers.  Notably, the Court rejected the Liquidating Trust’s “double dipping” argument, i.e. the argument that the creditor, post-petition, receives payment and yet, at the same time gets to use the invoices (which were unpaid on the petition date) as new value.  The Court noted that such an argument was misleading, as it implied that the creditor, when paid post-petition, was paid for goods or services never delivered or received.

This is a decision well worth a full read.  Accordingly, we have attached a copy here.  Happy Holidays.

Friedman's Liquidating Trust v. Roth Staffing Companies LP (In re Friedman's Inc.), Case No. 13-1712 (3d Cir.)  

F&H Acquisition Corp. Files Chapter 11 Protection With Sale Planned

On December 15, 2013, F&H Acquisition Corp., owner of Fox & Hound and Champps restaurants  (collectively, with its affiliated debtors, the "Debtors"), filed Chapter 11 bankruptcy protection in Delaware.  A copy of the petition may be found here.  “The recession has been a primary factor in the decline in the debtors’ sales, as consumers prioritized the savings of dining at home over eating out,” according to the declaration of James Zielke, chief financial officer of F&H, offered by the Debtors in support of their first day motions.  A copy of the Zielke declaration may be found here.  While the Debtors intend for a sale, the Debtors have not come to terms with a stalking horse bidder as of the date of the petition.

The case is In re: F&H Acquisition Corp. 13-13220. U.S. Bankruptcy Court for the District of Delaware.  The cases have been assigned to Chief Bankruptcy Judge Kevin Gross. 

Bankruptcy Court Grants Insurance Premium Financing Company's Motion for Summary Judgment on Claims of Preference Liability

On December 5, 2013, Bankruptcy Judge Peter J. Walsh granted summary judgment in favor of an insurance premium financing company relating to alleged preference liability asserted by Chapter 7 trustee.  In ruling in favor of the Defendant, the Court determined that the company's secured status was determined as of the date of the transfer of payments consistent with the holdings of the Bankruptcy Courts of the Southern District of New York and the Northern District of Illinois.  As a result, the value of the unearned premiums exceeded the outstanding balance, and the creditor was secured in the ninety days prior to the bankruptcy petition.  The company did not receive more than it would have in a hypothetical chapter 7 because each transfer in question resulted in the financing company being oversecured.  A copy of the opinion may be found here.  

The case is Forman v. IPFS Corporation of the South f/k/a Premium Financing Specialists of the South, Inc. (In re: Alabama Aircraft Industries, Inc.),,  Adv. Proc. No. 13-50727 (PJW).

OCZ Technology Group, Inc. files Chapter 11 Bankruptcy

On December 2, 2013, OCZ Techology Group, Inc. ("OCZ") and two affiliated debtors (Indilinx, Inc. and Sanrad, Inc.) filed their voluntary petitions under Chapter 11 of the United States Bankruptcy Code.  A copy of the petition may be found here.  The debtors submitted the Declaration of Rafael Torres in support of the petitions and first day pleadings.  Mr. Torres is the Chief Financial Officer of OCZ and corporate secretary of Indilinx and Sanrad.  A copy of the Torres Declaration is attached here. According to the Torres Declaration, the debtors have entered into an asset purchase agreement with Toshiba Corporation, pursuant to which Toshiba will acquire substantially all of the Debtors' assets.

The case has been assigned to Bankruptcy Judge Peter J. Walsh. The main case number is 13-13126-PJW.

Utility Seeks $95,000 503(b)(9) Claim for Electricity and Natural Gas; In 43-page Opinion, Delaware Bankruptcy Court Finds Electricity Not a "Good" Under 503(b)(9): Awards Utility Just $78 For Natural Gas Provided In 20-day Period, Denies Immediate Pay

On November 1, 2013, in NE Opco, Inc., Case No. 13-11483, United States Bankruptcy Judge Christopher S. Sontchi answered the question of whether electricity is a good for 503(b)(9) purposes.  While noting the highly charged topic had been addressed both positively and negatively by various courts, the Court determined that, with respect to electricity, the hypothetical ability to separate electricity’s identification from consumption was simply not conducive to a finding that electricity was a good.

The Court acknowledged, however, that no fracking of existing legal doctrine was required to hold that natural gas is a good.  However, rather than accept the predominant purpose test to determine whether all natural gas related services qualified for 503(b)(9) treatment, the Court relied on the apportionment test.  Analyzing invoices supplied by the utility, the Court found that the utility’s claim was inflated, and held that the utility only supplied a mere $78 in natural gas during the 20-day period.

The opinion can be accessed here.

Goldking Holdings, LLC and Affiliates Enter Chapter 11

On Wednesday, October 30, 2013, Goldking Holdings, LLC, and two affiliates (“Debtors”) filed voluntary chapter 11 petitions in Delaware.  A copy of the petition is [here].

The declaration filed in support of the petitions by Edward Hebert (the “Hebert Declaration”), attached [here], notes that the Debtors were “organized for the purpose of acquiring and developing oil and gas properties onshore and in state waters South Louisiana and the upper Texas Gulf Coast.”  According to the Hebert Declaration, as of the petition date, the Debtors leased approximately 9000 net acres and operated 47 wells.

 The Hebert Declaration indicates that alleged past mismanagement and expenses relating to unsuccessful exploratory efforts placed a significant strain on the Debtors’ cashflow.

 The cases have been assigned to The Honorable Brendan L. Shannon, and are being jointly administered under case no. 13-12820-BLS.

Green Field Energy Services, Inc. files Chapter 11 in Delaware

 On October 27, 2013, Green Field Energy Services, Inc. and two affiliates (“Debtors”) filed chapter 11 petitions in Delaware.  In the petition, the Debtors list both assets and liabilities between $100 million and $500 million.  A copy of the petition is attached [here].

According to the affidavit filed in support of the petition and various first day motions by Earl Blackwell (the “Blackwell Affidavit”), a copy of which is attached [here], the Debtors, who are headquartered in Lafayette, Louisiana, are part of an independent oil field services company that develops and enhances the production of hydrocarbons, including through hydraulic fracturing.

The case has been assigned to The Honorable Kevin Gross, and is being administered at docket no. 13-12783-KG.

Bankruptcy Court Upholds Ordinary Course of Business Defense In Preference Action

 On October 2, 2013, Judge Mary F. Walrath issued an opinion in the case of Burtch v. Texstars, Inc. (In re AE Liquidation, Inc.),  Adv. Proc. No. 10-55502.  A copy of the opinion may be found here.  The case involved a preference claim asserted by the Chapter 7 Trustee against Texstars, Inc (“Texstars”). 

The Trustee claimed that Texstars had received $781,702.61 in preferential transfers.  When the parties were unable to resolve the matter, the case went to trial.  During the pretrial conference, the Trustee conceded that Texstars had $164,654 in new value.  Accordingly, the issues at trial revolved around whether the remaining payments were made in the ordinary course of business.  In particular, the sole issue was whether the payments were made in the ordinary course of business as between the parties pursuant to Section 547(c)(2)(A) of the Bankruptcy Code.

The Court’s opinion examined each element of the course of business in turn.  First, the Court looked at the length of the relationship between the debtor and Texstars, and found that the two years the parties had engaged in business was sufficient to establish a course of dealing.  Second, the Court examined the similarity of the transfers during the pre-preference and preference period, and found the 10% to 15% difference in payment timing to be insufficient to take the payments outside the norm where payments were made between 1 and 456 days after invoice historically.  Moreover, the Court confirmed that the operative date for looking at timing was the “clear date” as Texstars proposed and not the “check cut date” as the Trustee had proposed.

The Court also examined the manner in which payments were tendered.  In this case, the very last payment received by Texstars was by wire transfer.  This differed from all other historical payments, all of which had been by check.  Nonetheless, the Court found this difference to be immaterial where Texstars had not requested to be paid by wire.  While there was some evidence that a few checks were overnighted to Texstars, the Court nonetheless found that based on the timing analysis, the fact that some checks were overnighted was still insufficient to render the payments outside the ordinary course of business.

The Trustee also argued that Texstars had engaged in undue collection efforts.  In the lead up to bankruptcy, the debtor had sent correspondence to Texstars that the debtor would be winding down, or reducing production of airplanes, and would not accept further deliveries of airplane parts from Texstars.  Texstars sent a letter to the debtor indicating that while Texstars would “rightsize” production to meet the reduced demand by the debtor, a restart of full production would require the debtor to bring all accounts and outstanding amounts current.  After examining this correspondence, and comparing it with a demand for payment letter issued by Texstars to the debtor in a prior year, the Court found that while the “rightsizing” letter did complain about the debtor not keeping its accounts current, it did not constitute a demand for payment.

In sum, the Court found no evidence that Texstars attempted to take advantage of the debtor’s deteriorating condition, and found that Texstars met its burden under 547(c)(2) of showing that the alleged preferential payments were made in the ordinary course of business between the parties.

FriendFinder Networks Inc. and Affiliates Seek Chapter 11 Bankruptcy Protection

FriendFinder Networks, Inc. and its affiliated debtors (collectively, the "Debtors")  filed for Chapter 11 bankruptcy on Tuesday, September 17, 2013 in Delaware.  A copy of the petition may be found here.  According to the Declaration of Ezra Shashoua, FriendFinder Networks, Inc.'s Chief Financial Officer, Debtors are an internet and technology company providing services in the social networking and web-based video sharing market.  Debtors operate a wide variety of internet websites, and offer online products and services, which provide adult-oriented content.  Debtors also engage in entertainment activities consisting of publishing, licensing, studio production and distribution of adult entertainment materials.  Debtors publish Penthouse and other adult-oriented magazines and digests.  Debtors cite declining financial performance and pending debt maturities as reasons for their bankruptcy filings.

According to the Shashoua Declaration, Debtors had outstanding debt obligations in the aggregate principal amount of $530.9 million as of the petition date.  Debtors seek to propose a plan of reorganization (the "Plan") to implement the transactions set forth in a Transaction Support Agreement dated September 16, 2013 (as amended and modified, the "TSA").  Debtors indicate that these chapter 11 cases are intended to implement a prompt financial restructuring of the Debtors' secured debt through the Plan and the TSA and intend to satisfy in full claims of the Debtors' general unsecured creditors.  

 PMGI Holdings Inc., Case No. 13-12404, has been assigned to Bankruptcy Judge Christopher S. Sontchi.  

Furniture Brands International, Inc. Files Chapter 11

Furniture Brands International, Inc. and affiliates, including Action Transport, Inc., Broyhill Furniture Industries, Inc., Broyhill Home Furnishings, Inc., Broyhill Retail, Inc., Broyhill Transport, Inc., Furniture Brands Holdings, Inc., Furniture Brands Operations, Inc., Furniture Brands Resource Company, Inc., HDM Furniture Industries, Inc., HDM Retail, Inc., HDM Transport, Inc., Lane Furniture Industries, Inc., Lane Home Furnishings Retail, Inc., Laneventure, Inc., Maitland-Smith Furniture  Industries, Inc., Thomasville Furniture Industries, Inc., Thomasville Home Furnishings, Inc., and Thomasville Retail, Inc. (f/k/a Classic Design Furnishings, Inc.), have sought protection in Chapter 11 in Delaware.  A copy of the petition is attached HERE.

In the first day declaration filed by Vance Johnston (attached HERE) in support of the petition, Mr. Johnston identifies Furniture Brands as “a world leader in designing, manufacturing, sourcing, and retailing home furnishings.”  The brands include well-known names of Broyhill, Lane and Thomasville among others.

Mr. Johnson cites to depressed sales as a result of the sluggish economy of the United States, competition, and tight consumer lending as some of the reasons for the filing.  In addition, Mr. Johnson notes that the Debtors have been experiencing strains on its liquidity in addition to mounting pension liabilities.

Mr. Johnson notes that the Debtors propose a sale of assets as part of the bankruptcy.  As part of that process, Mr. Johnson notes that the Debtors have secured a $140 million DIP facility commitment from Oaktree Capital Management, L.P and certain of its affiliates, and that Oaktree has agreed to act as the stalking horse for the sale of certain of the Debtors’ assets.

The case was filed on September 9, 2013 and is being administered as Case No. 13-12329.  The judge assigned to the case is The Honorable Christopher S. Sontchi.

 

Home Medical Provider, Landauer Heathcare Holdings, Inc., And Affiliates, Seek Protection in Chapter 11

 On August 16, 2013, Landauer Healthcare Holdings, Inc. and seven affiliates filed for protection from creditors pursuant to Chapter 11 of the United States Bankruptcy Code in Delaware.  The petition listed assets and liabilities between $50 million and $100 million.  A copy of the petition may be found here.

According to the affidavit in support of the filing, prepared by Alan J. Landauer (the “Landauer Affidavit” found here), the debtor is a provider of home medical equipment and related products and services.  The debtor provides equipment and services to over 240,000 patients in eight states, while employing approximately 650 employees at 32 operating locations.

The Landauer Affidavit notes that in 2013 the Debtor has encountered financial and operational issues.  On July 1, 2013, the debtors were told that they would no longer be able to provide services to Medicare patients.  That inability impacted the Debtor’s ability to attract new customers.

Prior to the bankruptcy filing, the debtors had sought to consummate a sale of their assets to a competitor, but that sale fell through, and litigation has followed.  Beginning in late July , the debtors continued their efforts to find a buyer.  Those efforts have resulted in finding a purchaser to act as a stalking horse in the bankruptcy.  According to the Landauer Affidavit, the debtors have secured use of cash collateral in order to get a bid procedures order entered by August 31.

The case has been assigned to the Honorable Christopher S. Sontchi, and is being jointly administered under case no. 13-12098.

Ambulance Company Rural/Metro Files For Chapter 11 Protection in Delaware

Private equity-owned Rural/Metro Corp. and more than 50 affiliates ("Debtors") filed Chapter 11 protection on Sunday August 4, 2013 after reaching an agreement with creditors.  A copy of the bankruptcy petition may be found here.  The Scottsdale, Arizona-based company lists assets and debts of more than $500 million.

The secured lenders agreed to provide $75 million in financing to fund the turnaround that is anticipated to be completed by the end of the calendar year.  See the Declaration of Stephen Faber in Support of Chapter 11 Petition and First Day Pleadings.  Debtors anticipate that they will submit their plan of reorganization by September 15, in accordance with the creditors' support agreement.  Debtors seek to shed half of their $735 million in funded debt by December 20th.  The supporting noteholders agreed to make an $135 million equity investment when the companies exit bankruptcy.  As part of the first day hearing held on August 6, 2013, Debtors received approval to borrow as much as $40 million from the loan.  A copy of the interim order (I) authorizing debtors (a) to obtain post-petition secured financing, and (b) to utilize cash collateral, (II) granting adequate protection to prepetition first lien secured parties, and (III) scheduling a final hearing for August 28, 2013  is attached here.

The main case number is 13-11952-KJC and the cases have been assigned to Judge Kevin Carey for administration.

Maxcom Telecomunicaciones Files Chapter 11 Bankruptcy

On July 23, 2013, Maxcom Telecomunicaciones SAB ("Maxcom"), a Mexico City-based carrier, filed for Chapter 11 bankruptcy court protection in Delaware.  A copy of the petition may be found here.  Fourteen of the company’s affiliates (collectively with Maxcom, the "Debtors") have also filed Chapter 11 petitions.

According to its petition, Maxcom listed $11.1 billion in assets and $402.3 million in debt.  As set forth in the declaration of Gonzalo Alarcon I., found here and offered in support of the first day motions, the Debtors contemplate a prepackaged chapter 11 restructuring plan (the "Plan") that will result in the Debtors receiving a $45 million capital infusion from a prospective purchaser, a group of investors led by private equity firm Ventura Capital Privado, S.A. de C.V.  A copy of the proposed Plan may be found here

 The lead case is In re Maxcom Telecomunicaciones SAB, 13-11839, U.S. Bankruptcy Court, District of Delaware.  Bankruptcy Judge Peter J. Walsh has been assigned to the case. 

Electric Car Maker Coda Holdings, Inc. Files Chapter 11 Bankruptcy

 On May 1, 2013, Coda Holdings, Inc. and its affiliated debtors  (the "Debtors") commenced chapter 11 cases in the U.S. Bankruptcy Court for the District of Delaware. A copy of the Coda Holdings, Inc. chapter 11 petition may be found here.  In support of the first day filings, Debtors offered the Declaration of John P. Madden.  A copy of Mr. Madden's Declaration is found here.  Mr. Madden is the Debtors' Chief Restructuring Officer.  

According to Mr. Madden's Declaration, Debtors design, develop, and sell all-electric vehicles ("EVs"), electric drive propulsion systems, and stationary energy storage systems.  Debtors' proprietary battery management system provides valuable energy storage, supply, protection and flexibility to users in a wide range of stationary and EV applications.  Debtors cite difficulties in brings its CODA Sedan to the market, combined with the muted response to the vehicle once final production began that resulted in substantially greater expenses and lower revenues than anticipated as possible causes for the bankruptcy.

Debtors contend that they have been attempting to sell their assets since the fall of 2012 without success.  On April 30, 2013, Debtors entered into a Restructuring Support Agreement with its supporting lenders that proposes a public auction designed to maximize the value of Debtors' assets and permit the orderly winding up of Debtors' affairs following a sale through a confirmed liquidation plan of reorganization.  As set forth in the Madden Declaration, a group of lenders plans to extend debtor-in-possession financing and will serve as the stalking horse bidder in connection with a section 363 sale of the Debtors' assets, and to support a plan of reorganization that will provide for some value to the estate.

Debtors moved for joint administration of their chapter 11 cases for procedural purposes only.  Debtors propose to appoint Kurtzman Carson Consultants LLC as claims and noticing agent.  These motions and other first day motions are scheduled to be heard on May 3, 2013 at 10:00 am.  The Coda Holdings, Inc. bankruptcy case has been assigned Case Number 13-11153-CSS.  The cases have been assigned to Bankruptcy Judge Christopher S. Sontchi. 

The SCOOTER Store Holdings, Inc. files Chapter 11

On April 15, 2013, Texas-based The SCOOTER Store Holdings, Inc. ("Scooter") and 71 of its affiliates (collectively, "Debtors") each filed a voluntary petition for relief  under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.  A copy of Scooter's bankruptcy petition may be found here.   

Debtors submitted the Declaration of Charles Lowrey, Scooter's Chief Financial Officer, in support of the chapter 11 petitions and first day motions.  A copy of Mr. Lowrey's declaration may be found here.  According to the Lowrey Declaration, Debtors are a major supplier of power wheelchairs, scooters and related assisted devices for those with mobility limitations. In February 2011, a majority voting interest in Debtors was purchased by affiliates of private equity firm Sun Capital Partners. 

Debtors cite structural challenges and changes to various health care laws as causes for the bankruptcy.  Debtors occupy 57 distribution centers in 41 states and also lease approximately 60 other offices, retail stores and other real estate.  The combination of the financial and commercial damage resulting from changes to health care laws and government investigations have made it increasingly difficult for the Debtors to service their debt obligations.  Debtors seek to sell substantially all of their assets through their bankruptcy proceedings pursuant to section 363 of the Bankruptcy Code.

 As further detailed in the Lowrey Declaration, Debtors’ capital structure consists of a first lien revolving credit facility (the “First Lien Facility”), a second lien term loan facility (the “Second Lien Facility”, and a third lien term loan facility (the “Third Lien Facility”; each of the First Lien Facility, the Second Lien Facility and the Third Lien Facility, a “Credit Facility,” and collectively the “Credit Facilities”).  Debtors also entered into a Security Agreement, dated as of June 14, 2012, in favor of Pride Mobility Products Corporation (“Pride”) pursuant to which Debtors granted a security interest in and a lien on certain inventory and proceeds thereof to secure certain obligations of Debtors to Pride (the “Pride Obligations”).  Each of the First Lien Facility, the Second Lien Facility, the Third Lien Facility and the Pride Obligations are subject to separate intercreditor agreements (each an “Intercreditor Agreement,” and collectively the “Intercreditor Agreements”), which set forth the respective priorities of the Credit Facilities and the Pride Obligations.  Due to current financial impairments, Debtors are currently in default under each of the Credit Facilities and have worked with the Administrative Agents under each Credit Facility to reach a consensual resolution and entered into Forbearance Agreements with respect to each of the Credit Facilities on March 13, 2013.

The Lowrey Declaration also offers background into the events leading to the chapter 11 cases.  Debtors contend that the changes in recent years to various health care laws and regulations have had a severe negative impact to Debtors' operations.  Debtors have been the subject of a criminal investigation by the Department of Justice and civil investigation relating to their former business practices, including billing and reimbursement procedures.  According to the Lowrey Declaration, Debtors have been working with the Department of Justice and the Department of Health and Human Services Office of the Inspector General to provide requested information.  
 
The cases have been assigned to Bankruptcy Judge Peter J. Walsh.  
 
On April 16, 2013, the Court granted Debtors' motion for joint administration of the cases and all original docket entries are to be made in Scooter's case, Case No. 13-10904-PJW.

 

Rotech Healthcare Inc. Files for Chapter 11 Protection

On April 8, 2013, Rotech Healthcare Inc. and over 100 of its affiliates (collectively, the "Company") filed for chapter 11 protection in the United States Bankruptcy Court for the District of Delaware.  A copy of the chapter 11 petition filed by the Orlando, Florida-based company may be found here.  According to the petition and the Declaration of Steven P. Alsene, the Company's President and Chief Executive Officer, offered in support of the Company's first day motions and applications, the Company has more than $100 million in assets and owes lenders and noteholders approximately $543.5 million.  

As set forth in the Alsene Declaration, the Company is one of the largest providers of home medical equipment and related products in the United States.  Since 2005, the Company has experienced over $1.2 billion in aggregate losses that it attributes to reductions in insurer reimbursement rates resulting from three different pieces of legislation:  The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, The Deficit Reduction Act of 2005, and the Medicare Improvement for Patients and Providers Act of 2008.

In response to its financial and operational challenges, in the fourth quarter of 2012, the Company retained Barclays Capital, Inc. to determine whether an out-of-court restructuring of the Company's balance sheet would be feasible.  However, according to the Alsene Declaration, the Company's bankruptcy filing became necessary because of the lack of market interest in an out-of-court restructuring, coupled with the Company's increased need to service its long term debt obligations in light of declining revenues and operational challenges.

On March 15, 2013, a majority of holders of its First and Second Lien Notes (the "Consenting Noteholders") reached an agreement (the "Plan Support Agreement") to allow the Company to restructure and recapitalize to eliminate substantial secured legacy debt.  Pursuant to the Plan Support Agreement, the Company agreed to reorganize its capital structure through a pre-arranged chapter 11 plan (the "Plan").

According to Mr. Alsene's Declaration, subject to the terms and conditions of the Plan, the Company anticipates that "(i) holders of the Term Loan Facility and the First Lien Notes will receive their pro rata share of an amended and restated term loan to be secured by a first priority security interest in substantially all of the reorganized Company’s assets; (ii) the Second Lien Notes will be converted into 100% of the common equity of the reorganized Company, subject to dilution by the equity interests issued under the Management Equity Incentive Program (thereby eliminating in excess of $300 million of secured debt); (iii) all the Company’s outstanding shares will receive a distribution of 10 cents per share (provided that the total amount paid on account of such interests does not exceed $2.62 million); provided, however, that if a senior class rejects the plan, the shareholders may receive less or nothing at all and (iv) trade creditors and vendors who agree to maintain or reinstate payment terms as existing prior to the Commencement Date will be paid in full upon the effective date of the Plan. Other unsecured claims will be paid in full if the aggregate amount of unsecured claims does not exceed $2,500,000 and except as otherwise set forth in the Plan."  

As part of its first day filings that were heard on April 9, 2013, the Company moved for an Order directing the procedural consolidation and joint administration of the chapter 11 cases.  The Bankruptcy Court granted this and other first day motion and applications.  The docket for case number 13-10741-PJW should be consulted for all matters affecting this case.  The cases have been assigned to Bankruptcy Judge Peter J. Walsh.  

 

 

 

Central European Distribution Corporation Files Prepackaged Chapter 11 Bankruptcy

On April 7, 2013, vodka producer Central European Distribution Corporation ("CEDC") and its affiliated debtors,  CEDC Finance Corporation LLC ("CEDC FinCo LLC") and CEDC Finance Corporation International, Inc. ("CEDC FinCo" collectively, with CEDC and CEDC FinCo LLC, the "Debtors") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.  A copy of CEDC's chapter 11 petition may be found here.

According to the Declaration of N. Scott Fine, CEDC's Vice Chairman and Lead Director of the Board of Directors offered in support of the Debtors' petitions and first day filings (the "Fine Declaration"), CEDC is the direct parent of debtor CEDC FinCo LLC and indirect parent of debtor CEDC FinCo as well as numerous non-debtor operating subsidiaries organized under the laws of Poland, Russia and several other nations.  According to their filings, Debtors are the largest integrated spirit beverages business by total volume in Central and Eastern Europe.

Debtors filed a joint prepackaged plan of reorganization (the "Plan") and disclosure statement (the "Disclosure Statement") on the petition date.  As stated in the Fine Declaration, the Plan provides for the payment in full of all allowed general unsecured claims, other than claims arising from unsecured debt securities which are impaired and separately classified.  According to the Fine Declaration, Debtors solicited votes on the Plan prior to commencing the cases and received overwhelming support for the Plan. If the Plan is approved, Roust Trading Ltd. ("Roust Trading"), CEDC's largest stockholder will obtain 100 percent of the outstanding stock.  The Fine Declaration states that Roust Trading is controlled by Russian businessman Roustam Tariko.

As part of their first day filings that were heard on April 9, 2013, Debtors moved for an Order directing joint administration of the cases.  The Court granted this motion and other first day motions and the cases have been consolidated for purposes of administration under Case No. 13-10738.  The cases have been assigned to US Bankruptcy Judge Christoper S. Sontchi.  

A combined hearing regarding the adequacy of the Disclosure Statement and Plan confirmation is scheduled for May 13, 2013.  A copy of the Court's April 9, 2013 Order may be found here.

 

 

 

Dex One Corporation and SuperMedia Inc. File Voluntary Chapter 11 Petitions

Dex One Corporation and SuperMedia Inc. and their respective affiliates filed voluntary chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware to implement “pre-packaged” Plans of Reorganization as part of proposed merger.

On March 17, 2013  and March 18, 2013, Dex One Corporation and eleven affiliated debtors (collectively, “Dex One”) filed their voluntary chapter 11 petitions.  A motion for joint administration of the Dex One cases under Case No. 13-10533-PJW has been filed and the cases have been assigned to Bankruptcy Judge Kevin Gross.   Dex One Corporation is headquartered in Cary, North Carolina and employs approximately 2,200 people, according to the declaration of Mark W. Hianik, Dex One Corporation’s Senior Vice President, General Counsel and Chief Administrative Officer offered in support of Dex One’s first day motions (the “Hianik Declaration”).  The Hianik Declaration provides that Dex One is a leading provider of proprietary and affiliate-provided marketing solutions to help local business and consumers connect with each other.    According to the Hianik Declaration, Dex One filed these prepackaged chapter 11 cases to effect a merger transaction and resulting merger agreement signed on August 20, 2012 (the “Merger Agreement”), that will combine Dex One’s businesses and corporate structure with that of SuperMedia Inc. and its subsidiaries (collectively, “SuperMedia”).   An overwhelming majority of Dex One’s secured lenders support the proposed Plan of Reorganization according to the Hianik Declaration.

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In re Mervyn's Holdings, LLC, et al., Case No. 08-11586 (KG); WM Inland Adjacent LLC v. Mervyn's LLC, Adv. Proc. No. 09-50920 (KG) (January 8, 2013)

Claims arising from indemnification provision in non-residential commercial lease, including requirement to keep property free of mechanics’ liens, that was rejected post-petition, are entitled to administrative priority pursuant to section 365(d)(3) of the Bankruptcy Code.

On January 8, 2008, debtors Mervyn’s Holdings, LLC, Mervyn’s LLC (“Mervyn’s”) and Mervyn’s Brands, LLC (collectively, the “Debtors”) executed a lease (the “Lease”) on a commercial property in San Bernardino, California (the “Premises”) owned by WM Inlands Adjacent LLC (“WM Inland”) and a construction agreement relating to prospective property improvements to the Premises, included as Exhibit C to the Lease (the “Construction Agreement”). Mervyn’s entered into an agreement with a general contractor Fisher Development Inc. (“Fisher”) to improve and renovate the Premises. The Lease and Construction Agreement required Mervyn’s to indemnify WM Inland for various liabilities occurring prior to, during and after the term of the Lease. These indemnification duties included a duty to keep the premises free of mechanics’ liens and pay WM Inland as additional rent all amounts and changes due under the Lease, including attorneys’ fees (the “Indemnification Obligations”).

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In re: Open Range Communications, Inc., Case No. 11-13188 (KJC); Velocitel, Inc. v. Charles M. Forman, et al., Adv. Proc. No. 12-50476 (KJC) (February 12, 2013)

Bankruptcy Court refuses to hold deposit account as creating a “resulting trust” for the exclusive benefit of third-party contractors based on language in loan agreement under Delaware law.

In January 2009, the United States of America, Department of Agriculture, Rural Utilities Services (“RUS”) entered into a loan agreement (the “Loan Agreement”) with Open Range Communications, Inc. (“Open Range” or the “Debtor”) to provide up to $267 million to Open Range for the construction of infrastructure necessary to provide broadband services to certain rural communities. Pursuant to the Loan Agreement, when Open Range satisfied certain conditions, RUS would deposit advances in an account at TD Bank, N.A. (the “Deposit Account”), out of which RUS would pay certain costs connected to construction of the broadband network, including third-party contractors.

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Conexant Systems, Inc. Files for Chapter 11 Bankruptcy After Negotiating Reorganization Plan Involving Asset Sale

Conexant Systems, Inc. Files for Chapter 11 Bankruptcy After Negotiating Reorganization Plan Involving Asset Sale

On February 28, 2013 (the “Petition Date”), Newport Beach, California-based semiconductor maker, Conexant Systems, Inc. and its affiliated debtors (“Debtors”)  filed for Chapter 11 protection in Wilmington, Delaware.  According to the Declaration of Sailesh Chittipeddi, Conexant Systems, Inc.’s President and CEO offered in support of the Debtors’ Chapter 11 petitions and first day motions (the “Chittipeddi Declaration”), the Debtors filed their petitions because of declining revenue, increasing costs and significant debt obligations.  According to the Chittipeddi Declaration, Debtors intend to sell their assets to QP SFM Capital Holdings Limited, an entity managed by Soros Fund Management LLC (the “Secured Lender”), through the Debtors’ proposed plan of reorganization (the “Plan”).  Under the terms of the Plan, the Secured Lender will convert the secured portion of its existing senior secured notes claim totaling approximately $80 million into new equity and will hold a $76 million unsecured note.  The Secured Lender will also provide Debtors with $15 million in senior secured debtor-in-possession financing.    Holders of allowed unsecured claims will receive a pro rata share of $2 million provided that if the class of unsecured creditors votes in favor of the Plan, then the Secured Lender will waive its unsecured deficiency claim totaling approximately $114.5 million.  A consolidated list of the creditors holding the 30 largest unsecured claims is set forth in the attachment hereto.  Debtors seek to consummate the Plan within 120 days of the Petition Date.

The lead case is In re Conexant Systems Inc., Case No. 13-10367 and a motion directing joint administration of the cases has been filed.  The cases have been assigned to Bankruptcy Judge Mary Walrath.

Ormet Corporation Files for Chapter 11 Protection

Ormet Corporation Files for Chapter 11 Protection 

On the evening of Monday February 25, 2013, Ormet Corporation and its subsidiaries, Ormet Primary Aluminum Corporation, Ormet Aluminum Mill Products Corporation, Specialty Blanks Holding Corporation, and Ormet Railroad Corporation (collectively, the “Debtors”), voluntarily filed for bankruptcy protection in Wilmington, Delaware.  According to the first-day declaration of James Burns (the “Burns Declaration”), Ormet Corporation’s Chief Financial Officer and Secretary, offered in support of Debtors’ First Day Motion and Applications, the Debtors’ businesses include smelting operations located along the Ohio River in Hannibal, Ohio, which also serves as Ormet Corporation’s headquarters.  Ormet Corporation is a holding Company with its wholly owned subsidiary, Ormet Primary Aluminum Corporation (“OPAC”), as the operating entity, which includes the smelter operations in Hannibal, Ohio and a refinery operation in Burnside, Louisiana.  

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American Bar Association National Conference of Bankruptcy Judges Report to the House of Delegates

American Bar Association National Conference of Bankruptcy Judges Supports the Authority of the United States Bankruptcy Judges to Hear, Determine, and Enter Final Orders and Judgments in Core Proceedings Upon the Parties’ Express Consent and Believes Such Recommendation is Consistent with Article III of the United States Constitution.

Summary:

The ABA National Conference of Bankruptcy Judges (the “ABA NCBJ”) issued a recommendation evaluating Stern v. Marshall and concluding that a United States Bankruptcy Judge may adjudicate a Stern-type proceeding in the same manner as a non-core proceeding – that is, upon the express consent of the parties. In reaching this conclusion and in support of this recommendation, the ABA NCBJ compared the scenario to the well-established case law concerning magistrate judge authority, finding numerous similarities in the position of magistrate judges and that of bankruptcy judges.

Additionally, the ABA NCBJ noted that express consent satisfies the primary concerns associated with limiting certain actions to Article III judges. Specifically, the ABA NCBJ was satisfied that express consent satisfies the individual rights prong of Article III, which guarantees an impartial and independent adjudication “subject to waiver, just as are other personal constitutional rights.” Additionally, the ABA NCBJ was satisfied that the structural separation of powers interests were addressed where parties expressly consented to adjudication by a non-Article III tribunal.
Although the ABA NCBJ noted that implicit “consent” in the form of filing a proof of claim in the bankruptcy does not pass Constitutional muster pursuant to Stern v. Marshall, the ABA NCBJ determined that bankruptcy court adjudication with express consent was not only permissible, but also consistent with the interests of judicial economy and practicality in light of the volume of such cases passing through bankruptcy courts’ dockets.
 

Bankruptcy Court permits post-petition "lock-up" agreement and confirms plan

In re: Indianapolis Downs, LLC et al., Case No. 11-11046 (BLS) (January 31, 2013)

Bankruptcy Court declined to designate the votes of the parties of a post-petition Restructuring Support Agreement (the “RSA”) (i.e., a lock-up agreement) and confirmed the Indianapolis Downs, LLC and Indiana Downs Capital Corp. (collectively, the “Debtors”) Modified Second Amended Joint Plan of Reorganization (the “Plan”).  Confirmation was opposed by certain members of senior management and holders of equity and debt of the Debtors (the “Oliver Parties”).  The Oliver Parties argued that the RSA constituted an impermissible post-petition solicitation of votes contrary to section 1125(b) of the Bankruptcy Code.  The Oliver Parties also argued that the votes of the parties of the RSA should be designated pursuant to section 1126(e) of the Bankruptcy Code which would ultimately result in rendering the Debtors unable of securing adequate votes for confirmation of the Plan.  The Court found that the RSA did not constitute an improper solicitation of votes and refused to designate the votes of the parties to the RSA.

Discussion:

By way of background, the Debtors operated a combined horse racing track and casino, or, a “racino” in Shelbyville, Indiana. The Debtors filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) on April 7, 2011 (the “Petition Date”).

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ATLS Acquisition, LLC and Various Affiliates File Chapter 11

On February 15, 2013, ATLS Acquisition, LLC and 9 affiliates filed chapter 11 petitions in Delaware.  The cases are being jointly administered under Case No. 13-10262 and have been assigned to the Honorable Peter J. Walsh.

According to the Declaration of Frank A. Harvey, the President and CEO of ATLS Acquisition, filed in support of the petitions, the Debtors are “the leading mail order provider of diabetes testing supplies.”  In addition, “the Debtors also sell insulin pumps and insulin pump supplies, ostomy, catheter and CPAP supplies and operate a large mail order pharmacy.”

The Debtors cite to various events precipitating the filing, including disputes with Medco over payment of certain tax liabilities, previously unknown claims, and issues with certain alleged overpayments and audits of payments, which the Debtors believe are “substantially overstated.”  Additionally, the Debtors allege that certain actions by parties have interfered with patient relationships and are negatively impacting the Debtor’s business operations.

Mr. Harvey notes that through the chapter 11 process, the Debtors are hopeful to stabilize the business, and intend to either pursue a plan of reorganization or pursue a sale of the Debtors.
 

Bankruptcy Court Grants Priming Lien To Debtors' Primary Contract Manufacturer To Secure Post-Petition Trade Credit And Authorizes Continued Use Of Cash Collateral Over Secured Creditors Objection

In re: Satcon Technology Corporation, et al., Case No. 12-12869 (KG) (December 7, 2012)

After an evidentiary hearing, the Bankruptcy Court granted the Debtors’ Emergency Motion for Entry of an Order Authorizing (I) Entry Into a Settlement with Great Wall, (II) Incurrence of Post-Petition Trade Credit, and (III) Granting of a Priming Lien to Secure Post-Petition Trade Credit (the “Settlement Motion”) and the Motion of Debtors for Entry of Final Order Authorizing Use of Cash Collateral (The “Cash Collateral Motion”). The Court found that the Debtors’ settlement with its creditor, supplier and customer, Great Wall, provided Debtors with numerous benefits, including continued relations that would enable Debtors to continue operations and avoid immediate liquidation. Further, the Court granted the Cash Collateral Motion because, for among other reasons, the Secured Creditors’ interests were adequately protected. Following its ruling, the Bankruptcy Court permitted an oral stay of its ruling for two days (extended for another two days) to allow the appealing parties an opportunity to request a stay pending appeal from the District Court.[1]
 

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Court Grants Motion For Protective Order, Holding That Affidavits Of Debtor's Former Employees Prepared By Preference Defendants For Mediation Were Protected Attorney Work Product Under Rule 26(b)

Burtch v. Luminescent Systems, Inc., et al. (In re AE Liquidation, Inc.), Case No. 08-13031 (MFW), Adv. Nos. 10-55460 (MFW), 10-55384 (MFW) (December 11, 2012) (J. Walrath)

On November 25, 2008, AE Liquidation, Inc. (the “Debtor”) filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code, which case was subsequently converted to chapter 7 on March 5, 2009, at which time Jeoffrey L. Burtch (the “Trustee”) was appointed as trustee. 

On November 18, 2010, the Trustee commenced preference actions against Luminescent Systems, Inc. and Astronics Advanced Electronic Systems Corp. (collectively, the “Defendants”).  After the parties were directed to go to mediation, but before the mediation took place, the Defendants gathered affidavits from two former employees of the Debtor. 

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Court Dismisses One Adversary Proceeding Filed By Trustee Due To Debtors' Previous Release Of Defendant And Denies Motion To Dismiss Adversary Proceeding Against Defendant Which Merged With Releasee After The Release

Burtch v. Avnet, Inc. and Burtch v. Bell Microproducts, Inc., et al. (In re Managed Storage International, Inc.), Case No. 09-10368 (MFW), Adv. Nos. 12-50026 (MFW), 12-50028 (MFW) (November 26, 2012) (J. Walrath)

On February 4, 2009, Managed Storage International, Inc. and its related affiliates (the “Debtors”) filed voluntary petitions under chapter 11 of the Bankruptcy Code, along with a motion for approval of bid procedures and a motion to sell all of their assets free and clear of liens. Avnet, Inc. (“Avnet”) asserted a purchase money security interest in certain of the Debtors’ assets, including any accounts receivable or proceeds relating to those assets, at the February 26, 2009 bid procedures hearing and in a limited objection filed to the sale motion. The Debtors, Avnet, and the purchaser entered into a stipulation providing for the segregation of the proceeds of the Avnet collateral, which stipulation was approved by the Court.

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Coltec's Motion To Dismiss On Trustee's Causes Of Action Pursuant To Sections 547, 548, 549, And 550 Of Bankruptcy Code Granted; Motion To Dismiss Claims For Contribution For Debtors' Environmental Liability Under Section 107 Of CERCLA Denied

In re Crucible Materials Corp., Case No. 09-11582 (MFW); Gellert v. Coltec Industries, Inc., Adv. Proc. Case No. 11-53884 (MFW) (October 31, 2012)

The Litigation Trustee (the “Trustee”) filed a Complaint against Coltec Industries, Inc. (“Coltec”) seeking indemnification from Coltec for environmental costs under a 1985 Purchase Agreement, judgment for contribution for the Debtors’ CERCLA liability and to avoid and recover pursuant to sections 547, 548, 549, and 550 of the Bankruptcy Code certain transfers associated with bond payments made by Debtors (the “Avoidance Claims”). In response, Coltec moved to dismiss the Trustee’s Avoidance Claims and the contribution claim made under section 107 of CERCLA for failure to state a claim under Federal Rule 12(b)(6) and Rule 9(b). The Court dismissed the Avoidance Claims, but denied the motion to dismiss as to claims under section 107 of CERCLA.

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Court Holds That A Motion Concerning The Sale Of Assets Located In The United States Is Subject To The Legal Standards Governing A Transfer By A Trustee Outside The Ordinary Course Of Business (i.e. Whether The Transaction Is A Sound Exercise Of The Trust

In re Elpida Memory, Inc., Case No. 12-10947 (CSS) (November 16, 2012) (J. Sontchi)

Elpida Memory, Inc. (“Elpida” or the “Debtor”) filed a petition for commencement of corporation reorganization proceedings under the Japan Corporate Reorganization Act (Kaishu Kosei Ho) in the Tokyo District Court, Civil Division (the “Tokyo Court”) on February 27, 2012. On March 23, 2012, the Tokyo Court entered its Court Decision on Commencement of Reorganization Proceeding (the “Commencement Order”), appointed Messrs. Yukio Sakamoto and Nobuaki Kobayashi as trustees (the “Trustees” or the “Foreign Representatives”) for Elpida’s corporate reorganization proceeding in Japan, and appointed Mr. Atsushi Toki as examiner of Elpida.

On March 19, 2012, Mr. Sakamoto filed a verified petition pursuant to sections 1504 and 1515 of the Bankruptcy Code commencing the Chapter 15 case in Delaware. On April 24, 2012, the United States Bankruptcy Court for the District of Delaware (the “Court”) entered an order recognizing the foreign main proceeding (the “Recognition Order”) in the Tokyo Court and recognizing the Trustees as Elpida’s foreign representatives.

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Bankruptcy Court Permits Trustee's Claims Against Debtor's Parent And Related Entities Based Upon Theories Of Breach Of Fiduciary Duty And Other Related Causes Of Action Under Delaware Law

Burtch v. Opus, L.L.C., et al. (In re: Opus East, LLC), Case No. 09-12261; Adv. Proc. No. 11-52423 (MFW), October 12, 2012 (Walrath, J.)

Judge Mary Walrath dismissed five of sixty claims asserted by Jeoffrey L. Burtch, the Chapter 7 trustee (the “Trustee”) of the estate of Opus East, L.L.C. (“Debtor”), but provided the Trustee with leave to amend the Complaint as to those dismissed counts within 30 days. The Bankruptcy Court dismissed Counts 1, 41 and 56-59, based on allegations of piercing the corporate veil, fraud, and tortious interference of contract, but denied Defendants’ Rule 12 motion to dismiss as to remaining counts, including Counts 2-17, 42 and 50-55, based on allegations of breach of fiduciary duty and unjust enrichment.

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Court Grants Motion to Dismiss for Lack of Subject Matter Jurisdiction and Premature Request for Declaratory Relief

Washington Mutual, Inc. v. XL Specialty Insurance Company (In re Washington Mutual, Inc.), Bankruptcy Case No. 08-12229 (MFW), Adv. No. 12-50422 (MFW) (October 4, 2012) (J. Walrath)

The background is relatively complex and is summarized in short-form here to include only facts applicable to the adversary proceeding.  Washington Mutual, Inc. (“WMI”) is a bank holding company that formerly owned Washington Mutual Bank (“WMB”).  In early 2008, WMI purchased $250 million of coverage under twelve insurance policies (the “2008-09 Policies”) for WMI and its directors and officers for claims made from May 1, 2008 to May 1, 2009.  Shortly before the seizure of WMB by the Office of Thrift Supervision on September 25, 2008, WMI made a downstream capital contribution of $500 million to WMB (the “September 2008 Downstream”).  WMI and WMI Investment Corp. (collectively, the “Debtors”) filed voluntary petitions for relief on September 26, 2008 under chapter 11 of the Bankruptcy Code.

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Ad Hoc Noteholder Committee's Fees Not Entitled To Administrative Priority Pursuant To 11 U.S.C. § 503((b)(3)(D) Even Though Debtors Stipulated To Their Administrative Priority

 In re: Tropicana Entertainment LLC, et al., No. 10-3970 (Third Circuit), August 31, 2012 (Ambro, Chagares and Aldisert) (2012 WL 3776531) (Not Precedential)

On December 12, 2007, the New Jersey Casino Control Commission revoked the gaming license of Tropicana Entertainment LLC and its affiliate debtors (“Debtors”) as a result of the gross mismanagement of one of its board members, William J. Yung.  As a result of the license revocation, Debtors’ defaulted on their loan and suffered severe financial difficulty.  The Ad Hoc Consortium of Senior Subordinated Noteholders (the “Consortium”) demanded that Yung resign.  Yung refused and subsequently, the Debtors filed their Chapter 11 petitions for bankruptcy protection in the U.S. Bankruptcy Court for the U.S. District Court of Delaware on May 5, 2008.

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Adversary Complaint Dismissed In Part For Failure to Establish Antecedent Nature of the Debt; Court Opines on the Applicability of the Valley Media and Oakwood Homes Motion to Dismiss Tests Post-Iqbal and Twombly

Anderson News, LLC v. The News Group, Inc. (In re Anderson News, LLC), Case No. 09-10695 (CSS), Adv. No. 11-53979 (CSS) (August 22, 2012) (J. Sontchi)

Defendant The News Group, Inc. (the “Defendant”) filed a motion to dismiss the preference action brought by Debtor Anderson News, LLC (the “Debtor”), arguing that the Court lacked subject matter jurisdiction under the Supreme Court’s Stern v. Marshall opinion, __ U.S. __, 131 S.Ct. 2594 (2011), and that the Debtor failed to state a claim for which relief can be granted due to the inadequacy of the pleadings with respect to whether the transfers: (1) were on account of an antecedent debt, (2) were made while the debtor was insolvent, and (3) enabled the defendant to receive more than it would have received under Chapter 7 of the Bankruptcy Code.

The Court granted the motion to dismiss in part, without prejudice, “based upon [the Debtor’s] failure to assert a plausible claim that the transfers were on account of an antecedent debt.” The Court denied the balance of the motion to dismiss.

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Court Holds An EBITDA-Based Bonus Plan Could Be Paid As An Ordinary Course Transaction

In re Blitz USA, Inc., Case No. 11-13603 (PJW) (July 9, 2012) (J. Walsh)

Blitz USA, Inc. (“Blitz”), manufacturers of portable consumer gas containers, and several of its affiliates (collectively, the “Debtors”) filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code on November 9, 2011. Thereafter, on May 5, 2012, the Debtors filed a motion (the “Motion”) seeking court approval of an EBITDA-based employee bonus plan for Fiscal Year 2012 (the “Bonus Plan”), in which the Debtors argued that the payments under the Bonus Plan were ordinary course transactions or, alternatively, that, even if the Bonus Plan payment was not in the ordinary course of business, the Bonus Plan satisfied the requirements of 503(c)(3) of the Bankruptcy Code. The Official Committee of Unsecured Creditors filed an objection to the Motion, arguing that the Bonus Plan was not an ordinary course transaction and was not justified by the facts and circumstances of the case. The U.S. Trustee also filed an objection, taking issue with the amount of payments designated for certain insiders. 

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Bankruptcy Court Disallows Claim For Damages Relating To Real Estate Development Agreement Because Claim Had Been Released Upon Termination Of LLC Agreement

In re: Magna Entertainment Corp., Case No. 09-10720 (MFW) (July 9, 2012)

Magna Entertainment Corp. and its affiliates (the “Debtors”) objected to the claim of Santa Anita Associates Holding Co. (“Caruso”) and Santa Anita Associates, LLC (“Associates”) seeking in excess of $21 million for damages resulting from debtor The Santa Anita Companies, Inc.’s (“SAC”) failure to enter into a ground lease associated with a joint venture between Caruso, Associates and Santa Anita Enterprise, Inc. (“Enterprise”), a non-debtor affiliate of the Debtors, to develop a shopping center adjacent to the Santa Anita Racetrack on property (the “Property”) owed by SAC. The agreement was encompassed in an LLC Agreement (SAC was not a party to the LLC Agreement).

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Former Debtor Executives' Claims Capped Under Bankruptcy Code § 502(b)(7) Because Change In Control Agreements Were Part Of Employment Contracts

In re: VeraSun Energy Corp., Case No. 08-12606 (BLS), March 26, 2012

Debtor VeraSun Energy Corp. sought to limit its former executives (the “Executives”) claims arguing that they exceeded the cap that § 502(b)(7) of the Bankruptcy Code imposes on claims resulting from the termination of employment contracts. In November of 2007, VeraSun sought to merge with U.S. BioEnergy. As the negotiations progressed, VeraSun’s board of directors received a recommendation from its committee on compensation that its senior managers should enter into “change in control” (“CIC”) agreements to keep the Executives with the company following the merger. The CIC agreements provided the Executives with benefits including cash payments equal to two times – or three times in the case of the CEO – base salary and target annual bonus if they were later terminated. The Executives were also provided with medical benefits and payments for unused vacations.

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Court Explains Decision to Seal Courtroom to Determine Whether to Order Disclosure of Personal Files

In re Catholic Diocese of Wilmington, Inc., Case No. 09-13560 (CSS) (June 20, 2012) (J. Sontchi)

On October 12, 2009, the Catholic Diocese of Wilmington, Inc. (the “Diocese”) filed bankruptcy under Chapter 11 of the Bankruptcy Code. The Conformed Second Amended Chapter 11 Plan of Reorganization of Catholic Diocese of Wilmington, Inc. (the “Plan”) was confirmed on July 28, 2011 and went effective on September 26, 2011 (the “Effective Date”). Among other things, the Plan mandated production of certain documents concerning the sexual abuse of minors, which production included the personnel files of Charles W. Wiggins and Kenneth Martin, among others. Messrs. Wiggins and Martin objected (the “Objection”) to the disclosure of their personnel files and each filed a motion for a protective order.

The Court scheduled briefing regarding the Objection and directed the parties to file the briefing under seal.  Thereafter, the Court conducted hearings on the Objection on June 19 and June 20, 2012 (the “Hearings”), during which the Court sealed the courtroom to the public and sealed the transcripts of the Hearings, pending further order of the Court.  In accord with this ruling, two members of the press were prohibited from entering the courtroom or attending the hearings by telephone.

Thereafter, on June 20, 2012, the Court issued its order publicly explaining its decision to seal the courtroom and the record.

Though the Court recognized the common law right of access to judicial proceedings and to inspect judicial records, the Court also recognized that where an overriding interest making “closure [ ] essential to preserve higher values” existed, a Court may direct closure which is “narrowly tailored to serve that interest.”  The Court acknowledged the public interest in the Diocese case, in particular, where “[t]he very heart of the heavily negotiated Non-Monetary Provisions was and is to shed light on the abuse of children by Catholic priests and the Church’s cover up of that abuse.” 

However, the Court balanced this public interest against the privacy rights of Messrs. Wiggins and Martin and the integrity of the judicial process and reasoned that where, as was the case with the Objection, the very issue before the Court was whether to order the disclosure of the files, holding a public hearing on whether the substance of the files should be made public “would make a mockery of the judicial process and the rights of Messrs. Wiggins and Martin.”  Accordingly, the Court sealed the courtroom and the records, but indicated that this ruling would be revisited “in the context of [the Court’s] decision as to whether the files themselves [and the record] should be made public.”

 

 

 

GameTech International, Inc. and Affiliates File for Chapter 11 Protection

On July 2, 2012, GameTech International, Inc. (“GameTech”) and four affiliates (the “Affiliated Debtors,” and, together with GameTech, collectively referred to as the “Debtors”) filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The Affiliated Debtors include: GameTech International, Inc., GameTech Arizona Corporation, GameTech Canada Corporation, GameTech Mexico S. De R.L. De C.V.

The petition lists both assets and liabilities of $10 to $50 million.  According to the declaration (the “Declaration”) of Andrew E. Robinson, the Senior Vice President, Chief Financial Officer and Treasurer of GameTech and President of three of the Affiliated Debtors, the Debtors are principally involved in the bingo market and in the video terminal market.  According to the Declaration, the Debtors’ secured loan was purchased by one of the Debtors’ principal competitors, which has attempted to use the loan to force a merger transaction on the Debtors.  The Declaration goes on to state that the Debtors’ competitor refused the Debtors’ request for even a short (6-day) forbearance to allow the Debtors to work through the issues with their competitor, leading to the Debtors’ bankruptcy filing.

Judge Peter J. Walsh was assigned to the case, which is being administered under case number 12-11964 (PJW).

Colorado-based Cordillera Golf Club, LLC files for Chapter 11 Protection

On June 26, 2012, Cordillera Golf Club, LLC (“Cordillera”) filed for Chapter 11 protection in the United States Bankruptcy Court for the District of Delaware.  Cordillera filed the declaration of Daniel L. Fitchett, Jr., Cordillera’s CEO,  in support of the Chapter 11 petition and first day motions.  According to the declaration, Cordillera is a party to pending litigation in the District Court for Eagle County, Colorado with the Cordillera Property Owners’ Association, as well as litigation with certain members.  According to the declaration, Cordillera contends that it was unable to meet its 2010 budget and forecast and its financial issues were exacerbated by the tension and subsequent litigation.

According to the declaration, Alpine Bank, Cordillera’s senior lender, is owed  $12.7 million.  This debt is secured with a deed of trust against Cordillera Club’s real property, facilities and improvements.   Cordillera asserts in the declaration that it will be unable to make its next payment to Alpine Bank.   Through the bankruptcy process, Cordillera is seeking to maximize the value of its estate for the benefit of its creditors through the potential sale of one of its club facilities as defined in the declaration.  Cordillera filed its “first day” papers including a request for use of cash collateral in order to continue effective operation.  The first day hearing was held on June 27, 2012.

The case is being administered under case number 12-11893 and has been assigned to Bankruptcy Judge Christopher S. Sontchi.

Northstar Aerospace (USA) Inc. and Affiliates File for Chapter 11 Protection

On June 14, 2012, Northstar Aerospace (USA) Inc. (“Northstar USA”) and three affiliates (the “Affiliated Debtors,” and, together with Northstar USA, collectively referred to as the “Debtors”) filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The Affiliated Debtors include: Northstar Aerospace (Chicago) I.c, D-Velco Manufacturing of Arizona, and Derlan USA, Inc.

Though the petition lists assets of just $0 to $50,000, the liabilities are reported to be between $50 and $100 million.  According to the declaration (the “Declaration”) of Craig A. Yuen, the Senior Vice President, Finance and Chief Financial Officer of Northstar USA and a director of each of the Debtors, certain of the Debtors’ Canadian affiliates simultaneously filed for protection pursuant to the Companies’ Creditors Arrangement Act (the “CCAA”) in Canada.  The Debtors are in the business of supplying components and assemblies for the commercial and military aerospace markets, machining and fabrication services for a variety of aerospace applications, and maintaining, repairing, and performing overhaul services for aerospace products, according to the Declaration.

According to Mr. Yuen, the Debtors face “severe liquidity issues as a result of: (i) low to negative profit margins on significant customer contracts; (ii) decreases in defense spending and a resulting stretch out of deliveries of backlog orders and a decline in new business orders placed, and (iii) the inability to secure additional funding.”  Moreover, the Debtors are in the process of completing “an extensive marketing process for the sale of its business or assets,” states Mr. Yuen.  To that end, the Debtors have entered into a stalking horse agreement with a potential purchaser and plan to seek approval of bid procedures from the Court, according to the Declaration.

Judge Peter J. Walsh was initially assigned to the case, but the case was re-assigned to Judge Mary F. Walrath later in the day.  The case is being administered under case number 12-11817 (MFW).

Denial of stay relief reviewed under an abuse of discretion standard when exercising appellate jurisdiction under 28 U.S.C. § 158 (a), District Court lacks jurisdiction to modify an injunction where it was exercising original jurisdiction

In re: Stone Resources, Inc., Case No. 11-2888 (3d Cir. May 29, 2012) (Greenaway, Roth and Tashima, Circuit Judges) (Not Precedential)

Prior to Stone Resources, Inc.’s (“Stone”) bankruptcy, the District Court, exercising original jurisdiction, entered a preliminary injunction against Stone and in favor of MarbleLife, Inc. (“MarbleLife”). Stone filed Chapter 11 bankruptcy following denial of its motion to reconsider the Order entering the injunction. MarbleLife moved to dismiss the bankruptcy, or alternatively, for relief from the automatic stay. The Bankruptcy Court denied both requests and MarbleLife appealed to the District Court.

The District Court (the same judge that entered the injunction) reversed the Bankruptcy Court’s denial of relief from the automatic stay and assumed that relief followed automatically from the fact that the preliminary injunction was not a “claim” dischargeable in bankruptcy. The District Court reinstated and modified the preliminary injunction entered in the non-bankruptcy District Court action. Stone appealed to the Third Circuit Court of Appeals. The Third Circuit vacated and remanded the District Court’s order and also vacated the District Court’s order modifying the terms of the injunction in another case.

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Adversary Proceeding for Contempt Not Dismissed; State Court Action Brought By Claimants Plausibly Barred By Confirmed Plan

WCI Communities, Inc. v. Espinal (In re WCI Communities, Inc.), Case No. 08-11643 (KJC), Adv. No. 09-52250 (KJC) (June 1, 2012) (J. Carey)

On August 4, 2008, the Debtors – who constructed homes and operated residential leisure-oriented communities – filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. Thereafter, on July 17, 2009, the Debtors filed the Second Amended Joint Chapter 11 Plan of Reorganization for WCI Communities, Inc. and its Affiliated Debtors (the “Plan”). Ten days later, Joseph and Fabiola Espinal individually, as parents and natural guardians of Emily and Camila Espinal, and as representatives of an alleged class of similarly situated individuals (collectively, the “Espinals”), filed a class action complaint (the “State Court Action”) against Heron Bay Community Association, Inc., Parkland Golf & Country Club Foundation, Inc., Venetian Golf & River Club Property Owners Association, Inc., Pelican Preserve Community Association, Inc., Rimini Property Owners’’ Association, Inc., The Landings at Waterlefe Property Owners Association, Inc., The Sound at Waterlefe Condominium Association, Inc., and Toscana II at Renaissance Condominium Association, Inc. (collectively, the “WCI Associations”). 

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Allied Automotive Group, Inc. and Affiliates Join Allied Systems Holdings, Inc. in Chapter 11

On June 10, 2012, Allied Automotive Group, Inc. (“Allied”) and sixteen affiliates (collectively, the “Debtors”) filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The petition lists both assets between $10 and $50 million, and liabilities between $50 and $100 million.  The Debtors’ cases have been assigned to Judge Christopher S. Sontchi.

Pursuant to the Debtors’ request, the Debtors’ cases are being jointly administered under the Allied Systems Holdings, Inc. bankruptcy case – which was filed on May 17, 2012 – under case number 12-11564 (CSS).

Bar Date Notice Sent to Improper Address Still Reasonably Calculated to Apprise Creditor of Proof of Claim Deadline

In re Freedom Communications Holding, Inc. et al., Case No. 09-13046 (BLS) (May 31, 2012) (J. Shannon)

The claim of Katherine Gibson, an ex-employee of the debtor, was deemed tardily-filed that required classification as a subordinate claim under the confirmed plan of reorganization (the “Plan”). Gibson alleged that she did not receive notice of Freedom’s bankruptcy or the claims bar date in the case. However, the Court found that the evidence showed that Freedom sent the required notice to Gibson at her last known address it had on file for her. As a result, under the circumstances, the Court found that the notice was reasonably calculated to apprise Gibson of both the Freedom bankruptcy and the claims bar date to properly classify the claim as a tardily-filed and subordinated claim under the Plan.

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WP Steel Venture LLC and Affiliates File for Chapter 11 Protection

Earlier today, WP Steel Venture LLC (“WP Steel”) and seven affiliates (the “Affiliated Debtors,” and, collectively with WP Steel, the “Debtors”) filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The Affiliated Debtors include: Metal Centers LLC, RG, Steel, LLC, RG Steel Railroad Holding, LLC, RG Steel Sparrows Point, LLC, RG Steel Warren, LLC, RG Steel Wheeling, LLC, and RG Steel Wheeling Steel Group, LLC.

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Bankruptcy Court Reiterates that Assumption and Assignment of an Executory Contract is Protection from Preference Claims

In re Carolina Fluid Handling Intermediate Holding Corp.(Giuliano v. Almond Investment Co.), Case No. 09-10384 (CSS) (March 14, 2012) (J. Sontchi)

Prior to the Petition Date, Almond Products, Inc. (“Almond”) agreed to supply goods and services to Fluid Routing Solutions, Inc. (together with its affiliate debtors, the “Debtors”) in connection with Debtors’ fuel systems business pursuant to supply agreement (the “Supply Agreement”). Under the Supply Agreement, Almond was to supply all of the parts Debtors required at a specific rate for a specific period of time. As of the February 6, 2009 petition date (the “Petition Date”), Debtors owed Almond $518,786.00.

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District Court Reverses Bankruptcy Court's Grant of Leave to File a Late Claim and Remands for Further Proceedings Regarding Whether Appellees Met the "Excusable Neglect" Standard

Hayes Lemmerz International v. Emmons (In re Hayes Lemmerz International, Inc.), Case No. 09-11655 (MFW), Civ. No. 11-143-SLR (April 9, 2012) (J. Robinson)

On May 11, 2009, Hayes Lemmerz International, Inc. (“Hayes”) and certain subsidiaries (collectively, the “Debtors”) filed voluntary petitions under chapter 11 of the Bankruptcy Code.  Notice of the proposed plan of reorganization and the confirmation hearing was published on September 10, 2009 in national and regional newspapers, including in Missouri where one of the Debtors’ manufacturing facilities was located and where future plaintiffs Gary Emmons and Deborah Emmons (collectively, “Appellees”) were located. 

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Prince Sports, Inc. and Affiliates File for Chapter 11 Protection

On May 1, 2012, Prince Sports, Inc. (“Prince”) and three affiliates (collectively, the “Debtors”) filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The petition lists both assets and liabilities between $50 and $100 million.  The case has been assigned to Judge Kevin J. Carey and is being administered under case number 12-11439 (KJC).

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Capitol Infrastructure and Affiliates File for Chapter 11 Protection

On April 27, 2012, Capitol Infrastructure, LLC (“Capitol”) and several affiliates (collectively, the “Debtors”) filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The petition lists assets between $100,000 to $500,000 and liabilities between $100 to $500 million.  The case has been assigned to Chief Judge Kevin Gross and is being administered under case number 12-11362 (KG).

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Bicent Holdings LLC Filed for Chapter 11 Protection

On April 23, 2012, Bicent Holdings LLC and 12 affiliated debtors (collectively, the "Debtors") filed for Chapter 11 bankruptcy protection.  According to the declaration of Bicent Holdings LLC's Chief Financial Officer Christopher L. Ryan offered in support of the Chapter 11 Petitions and First Day Pleadings, Debtors filed their Chapter 11 cases to reorganize their financial affairs, restructure their debt and de-leverage their balance sheets.  Debtors own and operate two electric power generating facilities located in California and Montana. The Debtors assert that they have the support of certain first and second lien lenders for a pre-arranged plan of reorganization.  Debtors have approximately $383.7 million of outstanding principal indebtedness under its prepetition credit agreements. 

The Debtors have filed a Motion for Joint Administration Pursuant to Bankruptcy Rule 1015 and Local Rule 1015-1.  The cases have been assigned to Chief Bankruptcy Judge Kevin Gross under case Number 12-11304-KG.

Traffic Control and Safety Corporation Files for Chapter 11 Protection

On April 20, 2012, Traffic Control and Safety Corporation ("TCSC") and six affiliated debtors (collectively, the "Debtors") filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The Debtors offered the affidavit (the "Affidavit") of Greg Grosch, TCSC's Chief Executive Officer, in support of its first day motions.  As set forth in the Affidavit, the Debtors are the largest independent provider of traffic control and safety services and products in California and Hawaii.  The Affidavit provides various reasons for the bankruptcy filing including reductions in state and local government spending and declines in residential and commercial construction that have resulted in weaker demands for traffic control products and services.  The Debtors seek to sell substantially all of their assets to a stalking horse bidder as outlined its Sale Motion.  

The bankruptcy cases have been assigned to Bankruptcy Judge Kevin J. Carey.  Debtors have filed a Motion for Joint Administration of the Chapter 11 Cases as part of their first day motions under In re Traffic Control and Safety Corporation, Case No. 12-11287 (KJC).

Solar Trust of America, LLC

On April 2, 2012, Solar Trust of America, LLC ("STA") and it affiliated debtors (collectively, the "Debtors") filed for Chapter 11 protection in the United States Bankruptcy Court for the District of Delaware.  The Debtors filed the declaration of STA's President and Chief Operating Officer, Edward Kleinschmidt, in support of the chapter 11 petitions and first day motions (the "Declaration").  According to the Declaration, the Debtors have the rights to develop one of the world's largest permitted solar power plant facilities, which is to be located near Blythe, California (the "Blythe Project") that is expected to have generating capacity of up to 1,000 MW.  As set forth in the Declaration, the Debtors consider the Blythe Project as their most substantial asset.  The Debtors cite their lack of short-term liquidity and significant amount of liabilities as events leading to the Debtors' bankruptcy filing.  According to the bankruptcy petition of STA, assets were listed between $1 million and $10 million and liabilities were listed between $50 million and $100 million.

 

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AFA Foods, Inc. Files Chapter 11

On April 2, 2012, AFA Investment Inc., parent company of AFA Foods, Inc. and seven other affiliates (collectively, the "Debtors") filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The declaration of Ron Allen, Interim Chief Executive Officer, was offered in support of the Debtors' first-day pleadings (the "Declaration").  According to the Declaration, the Debtors are a consolidation of various meat processors that comprise one of the largest ground beef processing enterprises in the United States.  Headquartered in King of Prussia, Pennsylvania, Debtors process over 500 million pounds of ground beef products annually.  According to the Declaration, the bankruptcy was caused, at least in part, by the recent and unanticipated market developments involving public outcry over the use of boneless lean beef trimmings.  According to the Declaration, the Debtors' primary objective in commencing the bankruptcy proceedings was to pursue a prompt sale of their assets.  As of February 26, 2012, on a consolidated basis, the Debtors' books and records reflected approximately $219.6 million in assets and $197.3 million in liabilities.

The cases have been assigned to Bankruptcy Judge Mary F. Walrath and a motion for joint administration was filed to administer the cases under In re AFA Investment Inc., Case No. 12-11127 (MFW).

Contract Research Solutions, Inc. and Several Affiliates File for Chapter 11 Protection

On March 26, 2012, Contract Research Solutions, Inc. (“CRS”) and several affiliates (collectively, the “Debtors”), including its Canadian subsidiaries, filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The petition lists assets between $1 million and $10 million, lists liabilities between $100 million and $500 million, and estimates the number of creditors in the range of 5,001 to 10,000.

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Blue Springs Ford Sales, Inc. Files for Chapter 11 Protection

On March 21, 2012, Blue Springs Ford Sales, Inc. (the “Debtor”) filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The petition lists both assets and liabilities between $10 million to $50 million, with the number of creditors estimated to fall between 200 and 999.

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FastShip, Inc. and Two Affiliates File Chapter 11

On March 20, 2012, FastShip, Inc. and two affiliates, FastShip Atlantic, Inc. and Thornycroft, Giles & Co., Inc. (collectively, the "Debtors"), filed for Chapter 11 protection in the U.S. Bankruptcy Court of the District of Delaware.   According to the declaration of Roland K. Bullard, II offered in support of the Debtors' Chapter 11 petitions, the Debtors are privately held companies that attempted to raise seed capital to implement a business plan using patented ship technology to revolutionize international freight transportation.  The Debtors cite the inability to raise capital and potential patent infringement by the U.S. government in its design of a new shipping vessel as reasons for the bankruptcy.  Through the bankruptcy process, the Debtors will attempt to create a liquidating trust to pursue and monetize a claim against the U.S. government and distribute the proceeds to their creditors. 

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Pemco World Air Services, Inc. Files for Chapter 11 Protection

On March 5, 2012, Pemco World Air Services, Inc. (“Pemco”) and two affiliates, WAS Aviation Services Holding Corp. (“WAS Holding”) and WAS Aviation Services, Inc. (“WAS Inc.,” collectively with WAS Holding, the “Debtors”) filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.  The petition lists both assets and liabilities between $50 million to $100 million.  The case has been assigned to Judge Mary F. Walrath and is being administered under case number 12-10799 (MFW).

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Debtor Cannot Reject Lease Until It Surrenders the Premises to the Landlord, Even Where Subtenant is the Continued Occupant

In re Amicus Wind Down Corporation, Case No. 11-13167 (KG) (Jointly Administered), (February 24, 2012) (C.J. Gross)

On March 17, 2008, Friendly Ice Cream Corporation (“Friendly” or “Debtors”) and Park Tysen Associates LLC (the “Over-Landlord”) entered into a lease for property (the “Over-Lease”) located at 2720 Hylan Boulevard, Staten Island, New York (the “Premises”). Subsequently, on March 28, 2008, Friendly entered into a sublease with Rappan Restaurants, Inc. (the “Subtenant”) for the Premises (the “Sublease”). The Subtenant had sole possession of the premises from the date the Sublease was executed until the opinion was issued.

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TSC Global, LLC and 10 of its affiliates (the "Debtors") filed for Chapter 11 protection in the U.S. Bankruptcy Court of the District of Delaware

The petitions were filed on February 12 and 13, 2012.  The Debtors offered a declaration of Barry Kasoff in support of their Chapter 11 petitions. 

The cases have been assigned to Chief Bankruptcy Judge Kevin Gross.  The Debtors have filed a motion for joint administration of the cases under Case No. 12-10505 (KG). 

LSP Energy Limited Partnership files for Chapter 11 Bankruptcy Protection

On February 10, 2012, LSP Energy Limited Partnership ("LSP") and three (3) affiliated entities, LSP Energy, Inc., LSP Batesville Holding, LLC and LSP Batesville Funding Corporation   (collectively, the "Debtors") filed Chapter 11 petitions in the U.S. Bankruptcy Court for the District of Delaware.  According to the Affidavit of Thomas Favinger offered in support of the Debtors' first-day motions, LSP is the owner and operator of a electric generation facility (the "Facility") located in Batesville, Mississippi.  The Facility and the fifty-eight (58) acre parcel of real property on which the Facility is located are asserted as LSP's principal assets.  It is asserted that LSP, while having sufficient liquidity to fund its operations in the near term, lacks sufficient liquidity to continue funding operations and also fully service secured obligations going forward.

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Two-Year Look-Back Period in 11 U.S.C. § 548 is Not a Statute of Limitations Subject to Equitable Tolling

Industrial Enterprises of America, Inc. v. Burtis (In re Pitt Penn Holding Co., Inc.), Case No. 09-11475 (BLS) (Jointly Administered), Adv. No. 11-51868 (BLS) (January 24, 2012) (J. Shannon)

The Court was faced with numerous adversary proceedings filed on similar factual bases including, in relevant part, claims under 11 U.S.C. § 548 to recover transfers which occurred more than two years prior to the petition date.  In the Industrial Enterprises of America, Inc. v. Burtis adversary (the “Burtis Adversary”), the Court granted the motion to dismiss of two of the defendants (the “Collyer Defendants”) with respect to the § 548 claims alleged against them in light of the fact that the claims were based entirely upon transfers which occurred prior to the two-year look-back period.

Plaintiff Industrial Enterprises of America, Inc. (the “Plaintiff” or “IEAM”) filed a motion for reconsideration, arguing that the Court’s grant of the motion to dismiss was both inconsistent with the Court’s rulings in other IEAM adversaries wherein the Court equitably tolled the two-year look-back period and with the case law.  When the inconsistent rulings and grounds for the motion for reconsideration were brought to the Court’s attention at a hearing, the Court welcomed submissions from defendants in other similar pending IEAM adversaries. 

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On January 18, 2012, Buffets Restaurants Holdings, Inc. and Several Affiliates (collectively, the "Debtors") Filed for Chapter 11 Protection in the U.S. Bankruptcy Court for the District of Delaware

Buffets Restaurants Holdings, Inc. Files for Chapter 11 Protection for the Second Time in Four Years.

The petition lists both assets and liabilities between $100 million and $500 million. The case has been assigned to Judge Mary F. Walrath and is being administered under case number 12-10237. A motion for joint administration of the Debtors’ cases is pending.

The Debtors previously filed for chapter 11 relief in January of 2008 and, after approximately 16 months in chapter 11, the Debtors reorganized and confirmed their plan on April 17, 2009. The plan went effective on April 28, 2009 and the cases have been closed.

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On January 10, 2012, Peak Broadcasting, LLC and Several Affiliates (collectively, the "Debtors") Filed for Chapter 11 Protection in the U.S. Bankruptcy Court for the District of Delaware

Peak Broadcasting, LLC Files for Chapter 11 Protection.

The petition lists both assets and liabilities between $50 million to $100 million.  The case has been assigned to Judge Peter J. Walsh and is being administered under case number 12-10183.

According to the first-day Declaration of Todd Lawley, Chief Executive Officer and Managing Member of each of the Debtors since their formation at the end of 2006 and early 2007, as applicable, Peak Holding was formed in 2006 with the goal of becoming a radio broadcasting platform serving local, growing communities throughout the Western United States. 

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On January 3, 2012, Coach Am Group Holdings Corp. and Various Affiliates (collectively, the "Debtors") Filed for Chapter 11 Protection in the U.S. Bankruptcy Court for the District of Delaware

Coach Am Group Holdings Corp. Files for Chapter 11 Protection. 

The petition lists assets between $0 to $50,000 and liabilities between $1 million to $10 million.  Chief Judge Kevin Gross has been assigned the cases, in which motions to have the cases jointly administered under the Coach Am Group Holdings Corp. case number (12-10010) are pending.

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Trident Microsystems, Inc. Files for Chapter 11 Protection

On January 4, 2012, Trident Microsystems, Inc. and Trident Microsystems (Far East) Ltd. filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware. The petition lists assets between $100 million and $500 million and liabilities between $10 million and $50 million. Judge Christopher S. Sontchi has been assigned the case, which is being administered as case no. 12-10069.

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In re Friedman's Inc., Case No. 09-10161 (CSS), Friedman's Inc. v. Roth Staffing Companies, L.P., Adv. Pro. No. 09-50364 (CSS) (Bankr. D. Del., Nov. 30, 2011)

Preference Liability “Fixed” As Of The Petition Date: Prepetition Invoices Subsequently Paid Under Critical Vendor Order Are Still “New Value”

In what may end up being a bit of a landmark decision, Judge Christopher S. Sontchi has opined that preference liability is “fixed” as of the petition date, and is not affected by subsequent events in the bankruptcy case.

 In this case, the debtor made about $80,000 worth of preferential payments to the defendant.  Defendant provided approximately $100,000 of new value within the meaning of 547(c)(4) and therefore had no preference liability. However, during the case, pursuant to a critical vendor order authorizing the debtor to pay prepetition debt, the defendant received payment on some of the prepetition invoices that constituted new value. In the subsequently filed preference action, the debtor claimed that any invoices paid under the critical vendor order could not be used as new value. In essence, the debtor contended that the defendant’s preference liability had been increased by virtue of receiving the post-petition payments on prepetition debt.

The Court disagreed. The Court noted that the Third Circuit’s decision in New York City Shoes, Inc. v. Bentley Int’l Inc., 880 F.2d 679 (3d Cir. 1989), while not directly on point, had defined the new value defense has having three parts: (1) the creditor must have received a transfer that is otherwise voidable as a preference under section 547(b); (2) after receiving the preferential transfer, the preferred creditor must advance “new value” to the debtor on a unsecured basis; and (3) the debtor must not have fully compensated the creditor for the “new value” as of the date that it filed its bankruptcy petition. This last point, the Court held, “clearly supports fixing the entirety of the preference analysis on the Petition Date.” Setting preference liability as of the petition date “is consistent with the purpose of the preference law – to reduce damaging, pre-petition opt out behavior and to level the pre-bankruptcy playing field for all creditors. Once the bankruptcy is filed the preference law becomes unnecessary. . . Neither the post-petition provision of new value by the creditor nor the post-petition payment of unpaid pre-petition new value affects the preference calculation.”

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Circumstances Did Not Warrant Interlocutory Appeal of Order Denying Plaintiff's Motion to Dismiss Its Own Complaint as Lacking Subject Matter Jurisdiction

Mata v. Eclipse Aerospace, Inc. & Production Line Group v. Eclipse Aerospace, Inc. (In re AE Liquidation, Inc.), Case No. 08-13031 (MFW), Adv. Pro. No. 08-51891 (MFW), Misc. No. 10-193-LPS (May 10, 2011) (J. Stark)

On August 4, 2010, the Bankruptcy Court denied plaintiff Production Line Group’s (the “Plaintiff” or the “PLG”) motion to dismiss its own complaint as lacking subject matter jurisdiction. The issues set forth in the Plaintiff’s motion to dismiss centered around a dispute concerning the status of certain aircraft which members of the Plaintiff’s constituency had purchased from the Debtor prior to the bankruptcy filing, and the ownership of which had yet to be determined. Although the PLG had entered into purchase agreements for the aircraft and made substantial down payments (typically 60% of the purchase price), there was some question as to whether the airplanes were property of the estate.

During the course of the bankruptcy (which was filed under chapter 11 and subsequently converted to chapter 7), a sale of substantially all of the Debtor’s assets was consummated, subject to the PLG’s rights in the airplanes. Thereafter, the PLG moved to dismiss the adversary proceeding it had filed in the bankruptcy case, claiming the Bankruptcy Court no longer had jurisdiction to determine the ownership of the airplanes. Post-sale, the PLG argued, the airplanes were either owned by the PLG or by Eclipse Aerospace, Inc., the purchaser of the Debtor’s assets, both of which were non-debtor parties. 

The Bankruptcy Court denied the motion, concluding that it had exclusive jurisdiction over at least one of the questions raised in the PLG complaint – namely, whether the airplanes constituted property of the estate prior to the sale. The PLG filed a motion for leave to appeal the Bankruptcy Court’s order, which the District Court denied for the reasons set forth below.

Discussion:

The District Court concluded that none of the three factors favoring interlocutory appeal were present, nor had the Plaintiffs presented any rationale which might persuade the Court to entertain the interlocutory appeal, and, accordingly, denied the motion for leave to appeal. Though the Bankruptcy Code does not identify the standard district courts should use in deciding whether to grant an interlocutory appeal, district courts typically follow the standards set forth under 28 U.S.C. § 1292(b), which govern interlocutory appeals from a district court to a court of appeals. 

Under the § 1292(b) standards, an interlocutory appeal is “permitted only when the order at issue (1) involves a controlling question of law upon which there is (2) substantial grounds for a difference of opinion as to its correctness, and (3) if appealed immediately, may materially advance the ultimate termination of the litigation.” At 5.

First, the District Court found that first factor did not favor the interlocutory appeal because the issue did not involve a controlling question of law, but rather was inextricably fact-based as it centered around “whether the property is or is not bankruptcy estate property…the very question presented by the Adversary Proceeding.” At 6.

Second, the District Court waived off the Plaintiffs’ concerns as mere disagreement with the Bankruptcy Court’s conclusions, which “does not create a substantial ground for difference of opinion.” At 8.

Finally, rather than materially advance the litigation towards termination, the District Court concluded that an interlocutory appeal would “only promote piecemeal determination of the questions raised in the adversary action and would likely create unnecessary delay.” At 9. Without any "circumstance or reason that distinguishes the case from the procedural norm and establishes the need for immediate review,” the case did not warrant interlocutory appeal and the District Court denied the Plaintiffs’ motion for same.

Court Held That Post-Confirmation Suit for Breach of Two Reinsurance Agreements and Bad faith Refusal to Pay Claims Was Non-Core

 Logan v. Westchester Fire Insurance Company (In re PRS Insurance Group, Inc.), Case No. 00-4070 (MFW), Adv. Pro. No. 11-50467 (MFW) (March 30, 2011) (J. Walrath)

PRS Insurance Group, Inc. (“PRS”), along with certain of its subsidiaries, commenced cases under Chapter 11 of the Bankruptcy Code on January 19, 2001. Sean C. Logan serves as Trustee in the cases and, subsequent to the initial filing, the Trustee commenced chapter 11 cases on behalf of certain off-shore affiliates of PRS, including Enterprise Group Insurance Company Ltd. (“EGIC”). On March 2, 2007, the Court entered an order confirming the Joint Debtors’ Plan of Liquidation, which became effective on August 24, 2007.

On March 16, 2010, the Trustee, on behalf of EGIC, filed suit in the District Court for the Northern District of Ohio against Westchester Fire Insurance Company and ACE INA Holdings, Inc. (the “Defendants”) for breach of two reinsurance agreements and bad faith refusal to pay claims. The action was transferred to the District Court for the District of Delaware on October 28, 2010. The Trustee filed a motion to refer the action to the Bankruptcy Court on December 12, 2010, and the District Court granted the Trustee’s request but limited the referral to the determination of whether the action constitutes a core proceeding under the Bankruptcy Code. Though the Trustee asserted that the matter was a core proceeding under 28 U.S.C. § 157(b)(2)(E) because it is an “[order] to turn over property of the estate,” the Bankruptcy Court agreed with the Defendants that the matter was non-core.

Discussion:

Bankruptcy court jurisdiction is divided into “core” and “non-core” jurisdiction. Cases under title 11, proceedings arising under title 11, and proceedings arising in a case under title 11 are core proceedings. However, proceedings that are merely “related to” a case under title 11 are non-core. The Defendants argued, and the Court agreed, that the proceeding at bar was not within the Court’s jurisdiction “under” title 11 or “arising under” title 11 as the action was separate from the bankruptcy petitions and did not involve any steps in the bankruptcy cases.

Defendants further argued, and the Court again agreed, that the cause of action did not fall within the Court’s “arising in” jurisdiction, citing numerous courts that had held that an action by a debtor or trustee against the debtor’s insurer is a non-core proceeding. See, e.g., In re United States Brass Corp., 110 F.3d 1261, 1268 (7th Cir. 1997); Allied Prod. Corp. v. Hartford Accident & Indem. Co., 2003 U.S. Dist. LEXIS 2596, *5 (N.D. Ill. Feb. 24, 2003); In re Ramex Int’l, Inc., 91 B.R. 313, 315 (E.D. Pa. 1988); G-1 Holdings, Inc. v. Hartford Accident & Indem. Co. (In re G-1 Holdings, Inc.), 278 B.R. 376, 380 (Bankr. D.N.J. 2002). Reasoning that the action was for breach of two reinsurance agreements and bad faith refusal to pay claims – neither of which involved a dispute that could arise only in the context of a bankruptcy case – the Court declined to find core jurisdiction.

Finally, the Court was unpersuaded by the Trustee’s argument that the action may impact the size of the liquidating trust and remarked that “the Court may not even have ‘related to’ jurisdiction over the Trustee’s action” because “a court may only exercise jurisdiction [post-confirmation] where a claim has ‘a close nexus to the bankruptcy plan or proceeding’ and the matter at issue ‘affects the interpretation, implementation, consummation, execution, or administration of a confirmed plan or incorporated litigation trust agreement.’” “The mere potential to increase the assets of a post-confirmation trust is insufficient to establish the required ‘close nexus.’”

Accordingly, for the reasons set forth above, the Court held that the proceeding was non-core.

Finish Him! Bankruptcy Court Dismissed Suit Over Mortal Kombat Intellectual Property Rights For Lack Of Subject-Matter Jurisdiction

 In re: Midway Games Inc., Case No. 09-10465 (KG); Threshold Entertainment, Inc. v. Midway Games Inc., et al., Adv. Case No. 09-51081 (KG)(March 29, 2011) (J. Gross)

Following their bankruptcy, Midway Games Inc. and its affiliated debtors (the “Debtors” or “Midway”) sold their assets to Warner Bros. Entertainment Inc. (“WBEI”). Threshold Entertainment, Inc. (“Threshold” or “Plaintiff”) initiated an adversary proceeding (the “Adversary”) against the Debtors and sought declaratory relief with respect to certain license and intellectual property rights (the “Intellectual Property Claims”) relating to Midway’s series of Mortal Kombat videogames. Threshold also objected (the “Objection”) to the asset sale (the “Sale”) to WBEI and the parties agreed to resolve the Objection by including language in the Sale Order that made the purchase subject to Threshold’s Intellectual Property Claims, if any. The Court entered the Sale Order on July 1, 2009.

Relating to the Adversary, the Court was asked to rule on Threshold’s motions to: (1) substitute WBEI as a defendant pursuant to Rule 25 of the Federal Rules of Civil Procedure and 2) transfer the Adversary to the District Court for the Central District of California. WBEI, in turn, argued that the Delaware Bankruptcy Court (the “Court”) lacked subject matter jurisdiction over these matters because the Sale relieved the Debtors of any interest in the outcome of the Adversary or Mortal Kombat. As discussed below, the Court found that it lacked jurisdiction over the Adversary, denied Threshold’s motions and dismissed the Adversary.

Discussion:

The Court dismissed the Adversary finding that it did not have subject matter jurisdiction over the Adversary. With respect to non-core proceedings, the Court noted, a bankruptcy court will have jurisdiction over such matters only if they are sufficiently “related to” the bankruptcy estate.  See Binder v. Price Waterhouse & Co., LLP (In re Resorts Int’l, Inc.) 372 F.3d 154, 162 (3d Cir. 2004) (bankruptcy court jurisdiction potentially extends to four types of title 11 matters). Quoting Pacor Inc. v. Higgins, (In re Pacor), 743 F.2d 984, 994 (3d Cir. 1984) the Court set forth the test for “related to” jurisdiction, which is “whether the outcome of [a] proceeding could conceivably have any effect on the estate being administered in bankruptcy.” Because the Intellectual Property Claims could have no conceivable effect on the bankruptcy estate, the Court, therefore, declined to retain jurisdiction of the Adversary. The Court reasoned that the dispute was between two related third parties – Threshold and WBEI, and the property, Mortal Kombat, was sold and therefore, was no longer part of the estate. The dispute did not concern the terms of the Sale or anything that may have placed the Debtors’ estate at risk. As such, the Court dismissed the Adversary and denied Threshold’s motions.

Bank Held a Valid Security Interest in Debtor's Collateral and Thereby Qualified for a Contemporaneous Exchange of New Value Exception Under 547(c)(1) and Repayment on Loan was not a Fraudulent Conveyance Under 548

In re: J. Silver Clothing, Inc., Chapter 7, Case No. 05-10522 (PJW); Burtch v. Connecticut Community Bank, N.A. d/b/a The Greenwich Bank, Adv. Pro. No. 07-50814 (KG) (April 29, 2011) (J. Gross)

Summary:

The Chapter 7 Trustee (the “Trustee”) filed a Complaint seeking, inter alia, to avoid Debtor’s transfer of a security interest in substantially all of its assets to Connecticut Community Bank, N.A. d/b/a The Greenwich Bank & Trust Company (the “Bank”), which occurred with the preference period. The Court was first asked to determine whether the transfer met the requirements of section 547(c)(1). The Court determined that the transfer met both of the requirements of the subsection as the transfer was intended by the debtor and the creditor to be a contemporaneous exchange and was, in fact, a contemporaneous exchange.

Discussion:

The during the fall of 2004, the Debtor entered into a revolving credit loan in an amount that would not exceed $1 million (the “Loan”). The Loan closed on December 1, 2004. Debtor entered into a Loan and Security Agreement (the “Loan Agreement”) with the Bank and Debtor executed a Credit Agreement and Commercial Revolving Loan Note (the “Note”). The Bank required a first lien on all of Debtor’s business assets, excluding real estate. The Bank also required a guarantee from co-defendant James Fuld (“Fuld”). The guarantee provided a more timely closing, a lower interest rate and more favorable repayment terms.

The Bank’s first lien covered substantially all of the Debtor’s assets. To ensure its first lien position, the Bank caused Debtor to file UCC-3’s cancelling prior recorded security interests in Debtor’s assets and certificate that no liens existed in Delaware. The Bank also required Fuld to subordinate his notes. However, problems ensued when the Bank attempted to perfect its security interest in the Collateral. Bank’s counsel mailed its UCC-1 to the Delaware Division of Corporations on December 3, 2004, one day after the Bank made its first distribution under the Loan. The Division of Corporations rejected the First UCC-1 and on December 20, 2004, counsel mailed a second, corrected UCC-1. The Debtor filed its own UCC-1 on December 30, 2004. The Bank’s Second UCC-1 was filed on January 4, 2005. 

Thereafter, in mid-January 2005, the Debtor sold 29 stores for $1.4 million to Hoffman Acquisition Corp. (“Hoffman”). Hoffman required the Bank to release its lien on the Debtor’s assets. The sale closed on February 16, 2005 and as required by the Loan Agreement, Hoffman, on Debtor’s behalf, paid the Bank $485,569.95 (the “Repayment”) which the Debtor owed, thereby enabling the Bank to release its lien. Debtor then filed its petition under chapter 11 of the Bankruptcy Code on February 25, 2005. The case was subsequently converted to a chapter 7. The Trustee’s claims arise from the Loan and the Repayment.

The Court granted summary judgment in favor of defendants. The Court found that the Debtor’s transfer of the security interest in the Collateral to the Bank was intended by the parties as a contemporaneous exchange for the Bank’s $1 million credit loan to Debtor (under section 547(c)(1)(A)) and was in fact, substantially contemporaneous (under section 547(c)(1)(B)). First, the Court determined that the documents underlying the Loan supported a finding that the parties intended for the exchange to be contemporaneous. Not only did the Bank offer evidence that the Loan was contemplated only with a first priority lien on the Collateral and Fuld’s Guarantee, the Defendants also provided direct evidence that the Debtor intended and took action to provide the Bank with a first lien on the Collateral. The Debtor was required to file a UCC-3 and also filed a UCC-1.

Next, under section 547(c)(B), the Court refused to adopt a bright-line rule in interpreting section 547(e). The Court concluded that Section 547(e) does not inform the “substantially contemporaneous” requirement of section 547(c). Rather, the Court noted that the modifier “substantial” makes it clear that contemporaneity is a flexible concept which requires a case-by-case inquiry into all relevant circumstances. The Court looked to the totality of the circumstances, including reasons for the delay, the intent of the parties, and the possibility of fraud.

The Court also dismissed the remaining causes of action, including these alleging a fraudulent transfer. The Court concluded that the Bank had a valid, perfected security interest and was over secured. Therefore, there was no question that the Debtor received reasonably equivalent value for the repayment on the Loan. 

Bankruptcy Court Holds That Debtor's Claims Relating To Environmental Clean-Up of Debtor's Property Are Non-Core

In re: NEC Holdings Corp., et al., Chapter 11, Case No. 10-11890 (PJW); NEC Holdings Corp., et al. v. Linde LLC, et al., Adv. Proc. No. 11-51129 (PJW) (J. Walsh) (May 4, 2011, amended May 18, 2011)

The Court was asked to determine whether environmental claims were core or non-core. Debtors commenced an adversary proceeding against Linde LLC and related entities (“Linde”) seeking recovery of costs, contribution and declaratory relief relating to environmental liabilities of real property located at 400 Clermont Terrance in Union, New Jersey.

The Union property is the Debtors sole remaining substantial tangible asset. Linde was the prior owner of the Union property. The Debtors filed an adversary proceeding seeking recovery for costs and contribution and declaratory relief under CERCLA; contribution under the New Jersey Sill Act and contribution under the New Jersey Joint Tortfeasors Contribution Law. Debtors assert that the claims are core proceedings under section 157(b)(2)(A) and (O). The Defendants moved for a determination that the claims are non-core.

Discussion:

The Court first looked to the non-exhaustive list of core proceedings in section 157(b)(2) of the Bankruptcy Code. The Court then performed a claim-by-claim two-step test by reviewing whether the claim (1) invokes a substantive right provided by title 11 or (2) is a proceeding, that by its nature, could arise only in the context of a bankruptcy case. See In re Exide Technologies, 544 F.3d 196, 206 (3d Cir. 2008).

The Court did not accept the Debtors’ arguments that these claims were core. Debtors asserted that the claims fall under section 157(b)(2)(A) covering “matters concerning the administration of the estate” or section 157(b)(2)(O) covering “other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims.” 

In ruling for Defendants, the Court held that the claims do not involve any substantive rights arising under the Bankruptcy Code. Further, the claims could arise outside of the bankruptcy context. Thus, even if the claims fit into section 157(b)(2)(A) or (O), they did not satisfy the two-step test for core proceedings. 

"Make-Whole Premium" Claims Are Akin To Claims For Liquidated Damages, Not Claims For Unmatured Interest And Are Therefore, Not Subject to Disallowance, But Rather Allowable Unsecured Claims

In re: Trico Marine Services, Inc., Case No. 10-12653 (BLS) (April 15, 2011) (J. Shannon)

The Court was asked to decide the Debtors’ motion (the “Motion”) to determine the validity and priority of a certain make-whole premium (the “Make-Whole Premium”). In 1999, Debtor Trico Marine International issued notes (the “Obligation”) to finance the construction of two supply vessels (the “Vessels”). The Obligation was governed by the terms of a trust indenture (the “Indenture”) between TMI and Bank One Trust Company, N.A., the predecessor-in-interest to the indenture trustee Bank of New York Mellon Trust Company, N.A. (the “Indenture Trustee”).

The Indenture provided that the Obligation was subject to semi-annual mandatory sinking fund redemption payments (the “Mandatory Redemption Payments”). The Indenture was not secured by any of the Debtors’ property. Rather, the Obligation was guaranteed by the U.S Secretary of Transportation, on behalf of the Maritime Administration (“MARAD”) under the terms of a guarantee (the “Guarantee”).

Following the Petition Date, the Debtors liquidated certain assets and sold the Vessels (the “Sale”). In exchange for its consent to the Sale, MARAD required the Debtors to redeem the Obligation in full to ensure that the Indenture Trustee would not call upon the Guarantee. Upon closing of the Sale, the Debtors caused the Indenture Trustee to receive a payoff of $4,555,489 (the “Payoff”). 

Under the terms of the Indenture, the Obligation was also subject to the optional Make-Whole Premium that matured only if and when TMI elected, at its option, to redeem the Obligation, “in whole or in part, at any time, at the redemption prices.” The Indenture Trustee sought full and immediate payment of the Make-Whole Premium out of the Sale proceeds held in escrow.  Based upon the date of redemption, the Indenture Trustee asserted that the Make-Whole Premium owed was $511,849.01. 

Discussion:

The Debtors’ motion sought a determination that the Make-Whole Premium was not an allowable claim because it was an unmatured interest subject to disallowance under section 502(b)(2). In the alternative, the Debtors asserted that the Make-Whole Premium was, at best, a general unsecured claim – not covered by the Guarantee and therefore, not subject to MARAD’s lien under the Security Agreement.

The Court agreed with the Debtors’ alternative argument. The Court concluded that make-whole or prepayment obligations are in the nature of liquidated damages rather than an unmatured interest. The Guarantee did not cover the Make-Whole Premium. 

Furthermore, the Sale Order did not entitle the Indenture Trustee to full and immediate payment out of the reserved funds in the MARAD Escrow. The Court refused to interpret the Sale Order to allow the Indenture a new, senior lien. Rather, The Indenture Trustee was only entitled to its pro rata distribution under the Debtors’ plan for reorganization on account of its general unsecured claim for the Make-Whole Premium, to the extent that such claim was allowed. 

Motion To Dismiss Granted For Failing To Adequately Plead Causes Of Action

In re: DBSI, Inc., Case No. 08-12687 (PJW); Zazzali v. Wavetronix LLC, et al., Adv. Case No. 10-55963 (March 4, 2011) (J.Walsh)

The trustees of the DBSI Estate Trust and the DBSI Litigation Trust (collectively, the Trustees) filed counts, set forth in the Complaint, against the Individual Defendants alleging theories including fraudulent conveyances, personal guaranty, breach of fiduciary duties, unjust enrichment and breach of contract concerning the DBSI enterprise’s business activities and specifically, those activities relating to DBSI’s investment in technology companies.  

The Complaint alleges that the investments were structured as loans from Stellar Technologies LLC (“Stellar”), a holding company majority-owed by DBSI Inc. (“DBSI”) and that these unproductive investments benefitted only the DBSI insiders by way of tax advantages that otherwise would have belonged to the DBSI companies. During the four years prior to the petition date, DBSI transferred over $10 million to Wavetronix LLC (“Wavetronix”) through a DBSI affiliate, DBSI Redemption Reserve (“DRR”). Stellar owned approximately 60% of Wavetronix and defendants David Arnold (“Arnold”) and Michael Jensen (“Jensen”) owed the remaining 40%. The individual defendants include Arnold, his wife Linda and Jensen (collectively, the “Individual Defendants”). A primary issue in this dispute was whether the funds transferred through DRR were capital contributions or loans to Wavetronix. The Trustees alleged that the transfers were loans. The Individual Defendants moved to dismiss the Complaint as failing to adequately plead any of the causes of action against them. The Court granted the motion. 

Discussion:

The Court dismissed each of the causes of action against the Individual Defendants. The Trustees were permitted to refile the Complaint as to the fraudulent conveyances (counts 1-6) and counts 15 (breach of fiduciary duties) and 16 (unjust enrichment). With regard to alleged fraudulent transfers, the Court cited AstroPower Liquidating Trust v. Xantrex Tech., Inc. (In re AstroPower Liquidating Trust), 335 B.R. 309, 333 (Bankr. D.Del. 2005) to require that the Complaint must set forth facts with sufficient particularity to apprise the defendants fairly of the charges made against them so that they can prepare an adequate answer. The Plaintiff, through the Complaint, must identify one of the following four factors: 1) the date of the transfer, the amount of the transfer, the name of the transferor, and the name of the transferee. See Giuliano v. U.S. Nursing Corp. (In re Lexington Healthcare Group), 339 B.R. 570, 575 (Bankr. D.Del. 2006). The Complaint failed to identify any transfers made to the Individual Defendants or for their benefit to sufficiently plead fraudulent transfer actions.  

The Court then turned to the remaining claims. With regard to the alleged breach of the personal guaranty (count 14), the Court reviewed the language set forth in the guaranty and determined that it covered claims made on or prior to December 31, 2008 and expired without any claims having been made during the duration. As such, the count was dismissed with prejudice. With regard to an alleged breach of fiduciary duty (count 15) and unjust enrichment (count 16), the Court concluded that the Trustees failed to provide any specific allegations. Finally, the Court dismissed count 17 (breach of operating agreement) with prejudice based on the language of the operating agreement that precluded Arnold or Jensen from being deemed delinquent.

Motion to Dismiss Granted as to Preferential Transfer Claims, Fraudulent Transfer Claims, Aiding and Abetting Claims Against Individual Director, Disallowance of Claims, and Claims for Recharacterization and Disgorgement

Burtch v. Huston (In re USDigital, Inc.), Case No. 09-10374 (CSS), Adv. Pro. No. 09-50469 (CSS) (January 5, 2011) (J. Sontchi)

On March 26, 2007 (the “Petition Date”), USDigital filed a voluntary Chapter 7 petition, subsequent to which Jeoffrey L. Burtch was appointed as successor interim Chapter 7 Trustee (the “Trustee”). The Trustee filed a complaint on March 18, 2009 seeking to avoid prepetition transfers and alleging breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty, usurping corporate opportunity, corporate waste, unjust enrichment, accounting, disallowance of claims, equitable subordination, and recharacterization against NexGen Telecom, LLC (“NexGen”), Infinidi Media, Inc. (“Infinidi Media”), Stonebridge Marketing, LLC (“Stonebridge”), and directors of USDigital, Inc. (collectively, the “Defendants”).

On November 12, 2009, the Defendants filed a motion to dismiss, to which the Trustee objected on January 14, 2010. The Defendants filed a reply brief on February 12, 2010 and the Court entered its order and issued its opinion on January 5, 2011.

By way of background, USDigital was one of four separate, but interconnected, corporations formed between 2003 and 2006. The corporate quartet consisted of: (1) USDigital; (2) USDigital Television, LLC (“USDTV”); (3) NexGen; and (4) Infinidi Media. Each of these corporations shared the same source of capital, had many of the same directors and officers, and entered into transactions with one another. In relevant part, on June 13, 2006, USDTV executed a promissory note in favor of NexGen in the amount of $104,160.00 secured by set top boxes owned by USDTV, which transaction was documented by a security agreement (the “USDTV Security Agreement”). 

Following USDTV’s bankruptcy petition in 2007, USDigital and USDTV entered into an asset purchase agreement (the “APA”) for the sale of substantially all of USDTV’s assets to USDigital, as well as USDigital’s assumption of USDTV’s liabilities to NexGen including the USDTV Security Agreement, which sale was approved on September 12, 2006.

Discussion:

The Court’s ruling and rationale concerning each of the counts of the complaint are set forth below.

Count I: Preferential Transfers to NexGen

Count I of the Complaint alleged that USDigital made two preferential transfers to NexGen: (i) a security interest in the set top boxes, and (ii) a $44,421 payment for expense reimbursement for a payment NexGen made to ESPN on USDTV’s behalf. The issue with respect to both transfers was whether the payment was made “for or on account of an antecedent debt,” as required by 11 U.S.C. § 547(b)(2). The Court determined that neither payment was made on account of an antecedent debt because: (i) the transfer of the security interest occurred on the same day as USDigital incurred the obligation to make such transfer, both of which events either occurred on the date USDigital entered into the APA or on the date the Court approved the asset sale; and (ii) the expense reimbursement payment was made on August 8, 2006, comfortably before the Debtor became obligated to make such payment pursuant to the September 12, 2006 approval of the APA. Accordingly, Count I was dismissed.

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Excess Insurers Have Standing In Bankruptcy Court To Object To A Plan Of Reorganization Where The Plan Process Resulted In Additional Potential Liability For The Insurers

Hartford Accident and Indemnity Company, et al. v. Global Industrial Technologies, Inc., et al. (In re Global Industrial Technologies, Inc.), Case No. 08-3650 (3d Cir. May 4, 2011) (C.J. McKee, J. Scirica, J. Ambro, J. Fuentes, J. Smith, J. Fisher, J. Chagares, J. Jordan, J. Vanaskie, J. Nygaard)

One vote separated the Third Circuit from splitting directly down the middle in its 6-4 determination that Hartford Accident and Indemnity Company, First State Insurance Company, and Twin City Fire Insurance Company (collectively, “Hartford”), as well as Century Indemnity Company and Westchester Fire Insurance Company (collectively, “Century”) had standing to challenge the confirmation of a plan of reorganization filed by Global Industrial Technologies, Inc. (“GIT”).  The appellants were comprised of Hartford, Century, and various related American International Group, Inc. (“AIG”) entities, while the appellees included GIT, the Official Committee of Asbestos Creditors and Unsecured Trade Creditors, and the Legal Representatives for Future Asbestos and Silica Claimants.  Consistent with the Third Circuit’s opinion, arguments made by any of the appellees will simply be attributed to GIT for simplification and convenience.

In sum, the majority held that “when a federal court gives its approval to a plan that allows a party to put its hands into other people’s pockets, the ones with the pockets are entitled to be fully heard and to have their legitimate objections addressed.”

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Post-Petition Rent Is Not An Actual And Necessary Cost And Expense Of Preserving The Estate When Landlord Had Actual Possession And Control Over The Leased Premises Immediately After The Petition Date

In re: Ace Mortgage Funding, LLC, Chapter 7, Case No. 08-12645 (CSS) (April 15, 2011) (J. Sontchi)

The Court was asked to decide a landlord’s motion seeking allowance and payment of unpaid post-petition rent as an administrative expense.   The debtor was in default under the terms of the lease for failure to pay rent.  Immediately after the petition date, the landlord took possession and control of the leased premises and only provided limited access to the trustee.   The trustee did not move to reject the lease and did not pay post-petition rent or taxes and insurance on the leased premises.   The trustee objected to the motion on two grounds:  (1) a pre-petition assumption and assignment agreement released the debtor from any obligation under the lease and (2) any rent due under the lease was not entitled to administrative priority because the landlord changed the locks immediately after the petition date and had possession and control over the leased premises.

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Retention of Committee Counsel Denied For Defective Disclosure Under 2014(a); Court Determines Facts Suggest Improper Solicitation Of Creditors And Urges U.S. Trustee To Review Process Of Committee Formation Meetings

In re Universal Building Products, Case No. 10-12453 (MFW), Mem. Op. (November 4, 2010)

Following a meeting to form an official committee of unsecured creditors in this case, the committee selected two law firms to act as committee co-counsel.  The proposed counsel filed retention applications and initial declarations pursuant to FRBP 2014.  The Debtor objected to the firms’ retention on the basis that counsel had improperly solicited creditors and proxy holders prior to the formation meeting, and failed to disclose such contacts in their respective disclosures.  The U.S. Trustee asserted similar objections.  Following discovery, briefing and an evidentiary hearing, Judge Mary F. Walrath concluded that the facts suggested that the firms had improperly solicited creditors for their votes at the formation meeting.  The Court also found the respective disclosures filed by the firms to be deficient, and held that such deficiencies were not cured by subsequent disclosures.

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District Court Affirms That Mutuality Requirement For Setoff Under 11 U.S.C. § 553 Cannot Be Supplied By A Multi-Party Agreement Contemplating A Triangular Setoff

Chevron Prods. Co. v. SemCrude, L.P., Case No. 08-11525 (BLS), C.A. No. 09-288 (JJF) (April 30, 2010) (J. Farnan)

Chevron Products Company (“Chevron”) sought relief from the automatic stay (the “Motion for Relief From Stay”) to exercise its contractual right to setoff against certain claims and debts with SemCrude, L.P., SemFuel, L.P., and SemStream, L.P. (collectively the “Debtors”).  On January 9, 2009, the Bankruptcy Court for the District of Delaware (“Bankruptcy Court”), in an order by Judge Shannon, denied the relief sought, holding that no exception to the “mutuality” requirement under § 553 applied.  Chevron filed a motion for reconsideration (the “Motion for Reconsideration”), raising for the first time the safe harbor protections provided under 11 U.S.C. §§ 362(b)(6), (17), (27), 556, 560, and 561.  On March 19, 2009, the Court denied Chevron’s Motion for Reconsideration

On Appeal, the District Court held that the Bankruptcy Court correctly denied both the Motion for Relief From Stay and the Motion for Reconsideration.

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Summary Judgment Denied On 547(c)(2) Ordinary Course Defense, But Fraudulent Conveyance Claims Dismissed With Leave To Amend

Wahoski v. Classic Packaging Co. (In re Pillowtex Corp.), Adv. Pro. No. 05-30182 (KJC) (April 14, 2010) (J. Carey)

John Wahoski, as liquidating trustee of Pillowtex Corporation (the “Liquidating Trustee”) sought to recover $61,761.32 in allegedly preferential payments (the “Transfers”) from Classic Packaging Company (“Classic”), which had sold plastic bags and packaging printed with the Pillowtex brand names to the Debtors prior to the petition date.  The Liquidating Trustee was also pursuing a claim to recover allegedly fraudulent transfers. 

Classic filed a motion for summary judgment with regard to the Transfers, arguing that the ordinary course of business defense applied to each Transfer and a motion to dismiss arguing that the complaint did not set forth fraudulent transfer claims with sufficient specificity.  For the reasons articulated below, the Court denied the motion for summary judgment and granted the motion to dismiss.

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No Official Equity Committee Was Required Where It Was Unlikely Equity Would Receive Any Distribution And Where Equity Holders' Interests Were Already Sufficiently Represented

US Concrete, Inc., Case No. 10-11407 (PJW) (June 21, 2010) (J. Walsh)

In this case, the Court denied the Ad Hoc Equity Committee’s (“AHEC”) motion to appoint an official committee of equity holders because the Court was not convinced equity holders would receive any recovery and because the Court felt the equity holders did not require any additional representation.  In determining whether to appoint an official committee of equity holders, a court considers two factors: (a) whether there is a substantial likelihood that equity holders will receive a meaningful distribution under a strict application of the absolute priority rule, and (b) whether equity holders were able to represent their interests without an official committee.  The Court held in favor of the objectors on both counts.

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District Court Applies FRCP 59(e) In Denying Trustee's Motion To Alter Or Amend Judgment And Amend Complaint

Jeoffrey L. Burtch, Chapter 7 Trustee, Factory 2-U Stores, Inc. et al., v. Milberg Factors, Inc., C.A. No. 07-556-JJF-LPS (D.Del. June 4, 2010) (Farnan, J.)

Plaintiff Jeoffrey L. Burtch (“Plaintiff” or Burtch”) is the Chapter 7 Trustee for Factory 2-U Stores, Inc. and its affiliates (collectively, “Factory 2-U”).  The eight defendants (“Defendants”) are engaged in the business of “factoring”.  Plaintiff filed a complaint against Defendants asserting four claims arising from alleged violations of the Sherman Act (“Complaint”).  Defendants moved to dismiss the Complaint.  Magistrate Judge Stark issued a “Report and Recommendation Regarding Motion to Dismiss the Complaint” on March 30, 2009 that was adopted by the District Court.  The District Court then entered an Order dismissing the Complaint.   Plaintiff sought to reopen the Order dismissing his Complaint and sought leave to file an Amended Complaint.

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Permissive Abstention Appropriate Where Claims For Payment Of Outstanding Invoices Centered On Contractual Dispute.

DHP Holdings II Corp. v. Peter Skop Industries, Inc. (DHP Holdings II Corp.), Case No. 08-13422, Adv. No. 09-52811 (August 13, 2010) (J. Walrath)

On December 29, 2008 (the “Petition Date”), DHP Holdings II Corporation and several of its affiliates (collectively, the “Debtors”) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code.  Prior to the Petition Date, PSI purchased several products from the Debtors for which PSI had not remitted payment as of the Petition Date.  The Debtors commenced an adversary proceeding on November 20, 2009 to recover the amounts due under the invoices (a total of $123,261.00) it had submitted to PSI, for turnover of the property pursuant to section 542 of the Bankruptcy Code, for breach of contract, and to disallow any claims of PSI pursuant to section 502(d).

In PSI’s answer, it denies that it owes a debt to the Debtors because, inter alia, the Debtors fraudulently misrepresented their financial condition in order to induce PSI to purchase products, even though the Debtors were aware that they would not be able to satisfy their warranty obligations.  As a result, PSI argues that it possesses setoff and recoupment rights due to known warranty claims, anticipated warranty claims, and tort claims brought by customers who purchased the Debtors’ products from it.  PSI moved for permissive abstention, arguing that the twelve factors to be considered in granting permissive abstention weighed in favor of the Court abstaining.  The Court agreed for the reasons set forth more fully below.

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Landlord's Claim For Rejection Damages Denied; Landlord Waived Rights To Claim Rejection Damages In New Lease.

In re Stock Building Supply, LLC, et al., Case No. 09-11572 (MFW) (July 28, 2010) (Walrath, J.)

The court disallowed Somerset Properties SPE, LLC’s (“Landlord” or “Somerset”) claim for rejection damages because the new lease entered into between the parties contained a waiver of any right to rejection damages in the Debtor’s bankruptcy case.  Subsequent to the effective date of the plan for reorganization, the Debtor and Landlord entered into a new lease that contained a provision stating in relevant part:

Waiver of Proof of Claim.  In consideration of the Tenant entering into this new Lease, the Landlord hereby stipulates that it has not suffered any damages and hereby agrees that it has not suffered any damages and hereby agrees not to file any proof of claim in the Bankruptcy Case by reason of the rejection of the Prior Lease by the Tenant.  Landlord further waives any rights it may have to file any subsequent proof of claim for damages in the Bankruptcy Case.

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Forum Selection Clause Did Not Apply To Core Matter; Motion To Dismiss Denied.

Charys Liquidating Trust v. McMahan Securities Co. (In re Charys Holding Company, Inc.), Case No. 08-10289 (BLS), Adv. No. 10-50213 (BLS) (August 27, 2010) (J. Shannon)

On or about October 11, 2006, Charys Holding Company, Inc. (“Charys”) entered into an agreement (the “Engagement Letter”) with McMahan Securities Co. (“McMahan” or “Defendant”) whereby McMahan agreed to serve as Charys’s “exclusive financial advisor and placement agent” in connection with a private placement by Charys of up to $150 million in senior convertible notes (the “Notes”).  The Engagement Letter also provided McMahan the option, which McMahan exercised, to place an additional 15% on the amount of the offering.  Charys later entered into an indenture agreement with the Bank of New York Mellon Trust Company, N.A., as trustee, and then issued $201,250,000.00 of Notes (the “McMahan Financing”).

Pursuant to the Engagement Letter, McMahan was to receive a fee of 4% of the gross proceeds of a placement up to $75 million, and 5% of aggregate gross proceeds in excess of $75 million, for a total of $9,312,500.00 on the proceeds, which equaled $201,250,000.00.  However, McMahan withheld $9,957,000.00 from Charys’s portion of the initial proceeds of $175 million and $1,434,635.42 from Charys’s portion of the additional proceeds of $26,250,000.00 (collectively, the “Transfers”), for a total of $11,391,635.42. 

Charys, along with Crochet & Borel Services, Inc. (together, the “Debtors”), filed for bankruptcy on February 14, 2008 (the “Petition Date”).  Once the plan was confirmed, two trusts (the Charys Liquidating Trust and the C&B Liquidating Trust, collectively referred to as the “Trusts” or the “Plaintiffs”) were established and certain of the Debtor’s assets, including avoidance actions, were transferred to the Trusts.  The Trusts instituted the instant adversary proceeding on February 12, 2010, in which it sought the difference between the amount agreed upon and the amount transferred to McMahan and alleged that McMahan’s fees exceeded the prevailing market rate for comparable investment banking services.

McMahan responded with a motion to dismiss, arguing that that: (1) the Engagement Letter contained a forum selection clause requiring the action to be commenced and litigated in Connecticut state court; (2) Charys failed to plead sufficient facts to establish its claims; and (3) Charys’s admission that the Transfers were made on account of an antecedent debt proved that the Transfers were in exchange for reasonably equivalent value.  The Trusts filed a response and an amended complaint.  McMahan filed a reply, and the Court declined to hear oral argument on the matter.

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Genuine Issues Of Material Fact Preclude Summary Judgment On Recharacterization And Equitable Subordination Claims.

Official Unsecured Creditors’ Committee of Broadstripe, LLC v. Capital Management, L.P. (In re Broadstripe, LLC), Case No. 09-10006 (CSS), Adv. No. 09-50966 (CSS) (September 2, 2010) (J. Sontchi)

On January 2, 2009 (the “Petition Date”), Broadstripe commenced its Chapter 11 cases by filing voluntary petitions for relief.  Sometime thereafter, the Official Unsecured Creditors’ Committee (“OUCC”) filed the instant Complaint in which it sought relief from Highland Capital (“Highland”) under twelve theories.  The Complaint centered around two events: (1) Highland’s objection to the Wave Sale, pursuant to which WaveDivision Holdings, LLC (“Wave”) committed to purchase two of Broadstripe’s three systems for $157 million; and (2) Highland’s alleged representation that it would finance the James Cable Asset Purchase Agreement (the “James Cable APA”) – pursuant to which Broadstripe, which represented in the James Cable APA that it had the financial capacity to consummate the sale, would purchase substantially all of James Cable’s assets for a purchase price to be determined later – and its subsequent refusal and failure to do so.

On September 2, 2010, the Court issued a memorandum opinion containing its findings of fact and conclusions of law with respect to its May 3, 2010 order denying Highland’s motion for summary judgment as to Counts One (recharacterization), Two (equitable subordination), Four (breach of duty of care), Five (breach of duty of loyalty), Six (aiding and abetting breach of duty of care), Seven (aiding and abetting breach of duty of loyalty), Eight (preference claims related to First Liens), Nine (preference claims related to Second Liens), Eleven (recovery of avoidance actions), and Twelve (disallowance of Highland’s claims pursuant to § 502(d)) and granting the motion with respect to Count Three (alter ego). 

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Substantial Contribution Claim Denied Where Motivated By Self Interest

Ad Hoc Consortium of Senior Subordinated Noteholders v. Liquidating Landco Debtors (In re Tropicana Entertainment LLC), Case No. 08-10856 (KJC), Civ No. 09-771-SLR (September 22, 2010) (J. Robinson).

Tropicana Entertainment LLC and related entities (collectively “Tropicana”) encountered severe financial difficulty following the revocation of its gaming license in New Jersey and the threat of de-licensure in Indiana and Nevada, all of which was allegedly triggered by poor business decisions made by board member William J. Yung, III (“Yung”). The Ad Hoc Consortium of Senior Subordinated Noteholders (“Appellant”) urged Yung to step down from Tropicana’s board of directors, but Yung refused and Tropicana filed chapter 11 bankruptcy petitions on May 5, 2008 (the “Petition Date”).

The next day, Appellant filed an emergency motion for the appointment of a chapter 11 trustee (the “Trustee Motion”) in an effort to remove Yung from management. Several parties joined in the Trustee Motion, and the Trustee Motion was settled following the first day of trial when Yung agreed to resign from his management positions and Tropicana agreed to acknowledge Appellant’s substantial contribution to the bankruptcy estates by prosecution of the Trustee Motion. On July 31, 2009, Appellant filed its application for allowance of an administrative claim under 11 U.S.C. §§ 503(b)(3) and (b)(4) for $2,434,474 (the “Application”), representing the legal fees and expenses incurred by appellant in connection with the Trustee Motion. On September 10, 2009 the Bankruptcy Court held a hearing on the Application and orally denied the relief sought therein upon finding that the Appellant filed the Trustee Motion in its own self-interest. Appellant then filed the instant appeal to the District Court.

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Preference Defendant Wins Summary Judgment On Ordinary Course Of Business Defense

Burtch v. Detroit Forming, Inc. (In re Archway Cookies), Case No. 08-12323 (CSS), Adv. No. 09-51429 (CSS) (September 1, 2010) (J. Sontchi).

On October 6, 2008 (the “Petition Date”), Archway Cookies LLC and Mother’s Cake & Cookie Co. (collectively, the “Debtors”) filed voluntary petitions under Chapter 11 of the Bankruptcy Code. The Debtors subsequently converted the case to one under Chapter 7 on January 9, 2009, and Jeoffrey L. Burtch was appointed the Chapter 7 Trustee (the “Plaintiff” or “Trustee”). On July 15, 2009, the Trustee commenced an adversary proceeding against Detroit Forming, Inc. (“DFI” or the “Defendant”) under 11 U.S.C. §§ 547 and 550 (the “Complaint”) seeking to avoid as preferential six (6) transfers totaling $180,648.17. In October 2009, DFI filed a motion for summary judgment, arguing that the alleged transfers were subject to the ordinary course of business defense. 

DFI is a manufacturer of plastic trays used in the food industry and, prior to the Petition Date, DFI provided plastic trays to the Debtors for over two years. The average number of days-to-payment from October 2006 through July 7, 2008 (the “Historical Period”) was 42 with a range of 21 to 177 days. The average number of days from July 8, 2008 through October 6, 2008 (the “Preference Period”) was 47 days, with a range of 33 to 64 days. The Court granted summary judgment on DFI’s behalf, holding that the ordinary course of business defense applied.

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Administrative Expense Claim for Ad Valorem Tax Denied

In re WCI Communities, Inc., Case No. 08-11643 (KJC) (September 2, 2010) (J. Carey) 

WCI and related entities (the “Debtors”) filed for relief under chapter 11 of the Bankruptcy Code on August 4, 2008 (the “Petition Date”). As of the Petition Date, WCI was the lessee under two leases, hereafter referred to as the Ground Lease and the Welcome Center Lease (collectively, the “Leases”) of overlapping property with Kiva, Inc., the predecessor to Fremont Building Company (“Fremont”). The Leases were “net leases” that required WCI to pay all taxes and other charges owing with respect to the leased properties as “additional rent.” In its application, Fremont sought payment of one outstanding ad valorem tax obligation in the amount of $131,774.95, alleged to be due under both Leases.

However, effective February 27, 2009, the Leases were rejected by the Debtor. Accordingly, the Court undertook to determine when the obligation to pay the taxes under the Leases arose and whether payment of such taxes conferred a benefit on the estate.

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It's Not Double-Counting: Using §503(b)(9) Invoices as New Value Defense to Preferences

It's Not Double-Counting: Using §503(b)(9) Invoices as New Value Defense to Preferences.  ABI Journal, Vol XXIX, No. 3, April 2010.  Authored by Carl N. Kunz, III.

Successor Trustee Of A Trust Is Not A "Transferee" For Purposes Of 11 U.S.C. § 550

Mervyn’s LLC v. Lubert-Adler Group IV, LLC (In re Mervyn’s Holdings, LLC), Adv. Pro. No. 08-51402 (KG) (March 12, 2010) (K. Gross).

The Official Committee of Unsecured Creditors (the “Committee”) asserted a subsequent transferee claim pursuant to 11 U.S.C. § 550(a)(2) against Bank of America (in its capacity as successor trustee of a trust) to recover certain liens granted to the former trustee on transferred real estate. Due to numerous omissions in the original Complaint, which Bank of America addressed in a timely filed motion to dismiss, the Committee sought to amend its Complaint. Bank of America opposed the amendments, arguing that they would prove futile because Bank of America was not a “transferee” for purposes of 11 U.S.C. § 550.

 

The Court agreed with Bank of America, denying the Committee’s Motion to Amend as futile and granting Bank of America’s Motion to Dismiss.

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Rooker-Feldman Doctrine Requires Dismissal Of Complaint For Lack Of Subject Matter Jurisdiction

Edwards v. New Century Mortgage Corp., et al. (In re New Century TRS Holdings, Inc.), Adv. Pro. No. 08-50000 (KJC) (February 2, 2010).

On April 2, 2007, New Century Mortgage Corporation and its affiliates (the "Debtors") filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code. On January 3, 2008, Gary Forrest Edwards ("Plaintiff" or "Edwards") commenced an adversary proceeding against the banks, individuals, and Court he held responsible for the foreclosure on his home. Edwards later filed an amended complaint, which contained a litany of requests for relief in connection with the state court mortgage foreclosure action. Various Defendants filed motions to dismiss for lack of subject matter jurisdiction, asserting that the Rooker-Feldman doctrine applied, and arguing that the complaint failed to state a claim upon which relief may be granted.

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Foundry Company, Neenah Enterprises, Inc., and 17 Affiliates File Chapter 11

On February 3, 2010, Neenah Enterprises, Inc. and 17 of its affiliates sought chapter 11 bankruptcy protection in Delaware. The case has been assigned to Judge Mary F. Walrath, and has been designated case no. 10-10360.

According to the first day affidavit of Robert E. Ostendorf, Jr., President and CEO of the debtors, the debtors are one of the largest independent foundry companies in the U.S. and are one of the leading suppliers of castings to the domestic municipal products markets.

According to Mr. Ostendorf, reasons for the filing include “dramatic cyclical declines in some of the Company’s most important markets including trucks, railroad, construction, and agricultural equipment.” Additionally, there was a slow down in the orders placed by manufacturers in the residential segment leadings to lower demand for HVAC equipment, and increasing pressure from competitors and customers leading to reduced prices.

Prior to filing the bankruptcy cases, the debtors entered into a lock-up agreement with certain creditor constituencies to support a pre-negotiate plan that contemplates, among other things, according to Mr. Ostendorf, payment in full or reinstatement of the Prepetition Working Capital Lenders, exchange of Secured Notes for 97% of new common stock to be issued by the company, exchange of the Subordinated Notes for 3% of the company’s new common stock on the terms set forth in the Plan Term Sheet. Claims of general unsecured creditors are contemplated to be either reinstated or paid in full. Claims and interests of the company’s existing equity holders will be cancelled and extinguished.

Specialty Packaging Holdings, Inc., And Five Subsidiaries Enter Chapter 11

Today, January 20, 2010, Specialty Packaging Holdings, Inc. and five direct and indirect debtor subsidiaries commenced Chapter 11 bankruptcy proceedings in Delaware. 

According to the declaration of Michael J. Musso, CRO and Interim CEO of the Debtors, the Debtors are collectively an industry leading global developer and manufacturer of color cosmetics. They entered chapter 11 proceedings as a result of “extreme liquidity pressure” occasioned, in part, by “efforts to expand into new market segments, pricing and margin difficulties, lack of expense management, inadequate working capital planning, and initiatives that were not balanced with cash flow requirements.”

Among other matters, the certain of the debtors are seeking expedited consideration of bid procedures in connection with a contemplated sale of certain of the Debtors’ assets.

This case has been assigned to The Honorable Kevin Gross, and has been docketed at Case No. 10-10142.

Third Circuit (Again) Reaffirms Pacor Test for 'Related-To' Jurisdiction and Denies Extension of Section 105(a) Stay

W.R. Grace & Co. v. Chakarian, Nos. 3697/3720, 2009 WL 5151089 (3d. Cir. Dec. 31, 2009)

In this joint appeal from decisions of the United States Bankruptcy Court for the District of Delaware and the United States District Court for the District of Delaware, the debtor, W.R. Grace & Co. (“Grace”) appealed an order denying expansion of an injunction under Section 105(a) of the Bankruptcy Code to bar claims brought by claimants (the “Libby Claimants”) against the State of Montana, alleged to arise out of Grace’s operation of a vermiculite mine near Libby, Montana.

On December 31, 2009, the Third Circuit affirmed the Bankruptcy Court and District Court’s refusal to extend the stay to the claims of the Libby Claimants against the State of Montana. In doing so, the Third Circuit found that the Bankruptcy Court properly determined that it did not have “related-to” jurisdiction over the claims.

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Delaware Chapter 11 Filings - 2009

Commercial Chapter 11 case filings in the United States Bankruptcy Court for the District of Delaware in 2009:

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"Goods" For 503(b)(9) Purposes Must Be Movable

In re Goody’s Family Clothing, Inc., Case No. 08-11133 (CSS), Opinion (Bankr. D. Del., Feb. 6, 2009).

The Debtors filed an objection to Section 503(b)(9) (“503(b)(9)”) administrative claims they alleged were misclassified on the basis that the claimant, Added Value Services, Inc. (“AVS”) provided services and not goods, as is required under 503(b)(9) of the Bankruptcy Code. The Court, holding that goods must be “movable,” agreed with the Debtors and found that AVS’s claim was misclassified as a 503(b)(9) claim.

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Court Action Barred by Plan Injunction

Moss Landing Commercial Park, LLC v. Kaiser Aluminum Corp. (In re Kaiser Aluminum Corp.), Case No. 02-10429, 2009 WL 150863 (D. Del. Jan. 21, 2009) (Judge Joseph J. Farnan, Jr.)

Moss Landing Commercial Park, LLC (“Moss Landing”) appealed a Bankruptcy Court Order that required Moss Landing to dismiss without prejudice the action it filed against the reorganized Debtors in California. In the California action, Moss Landing sought, among other things, injunctive relief requiring the Debtors to remediate environmental contamination they caused to land purchased by Moss Landing prior to the confirmation of Debtors’ Plan. In its appeal, Moss Landing contended that (1) the bankruptcy discharge did not apply to actions against a reorganized debtor for injunctive relief and (2) the Debtors failed to provide it, a known creditor, with actual notice of the confirmation hearing on the Plan, and therefore, Moss Landing could not be bound by the Plan. The Debtors countered that (1) the Plan injunction bars all entities from commencing or continuing any action on account of any claim or liability arising on or before the Plan effective date, (2) Moss Landing, as a successor in interest to a party who settled the remediation claim with the Debtors, was not entitled to notice, and (3) Moss Landing alternatively moved for money damages and because the injunctive claims could be converted to money damages, the Plan injunction bars the action. 

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No Exception to Mutual Debt Requirement - Triangular Setoff Denied

In re Semcrude, L.P., 2009 WL 68873 (Bankr. D. Del. Jan. 9, 2009) (Judge Brendan Linehan Shannon)

Chevron entered into pre-petition contracts with SemCrude, L.P., SemFuel, L.P., and SemStream, L.P. for the sale or purchase of crude oil, regular unleaded gasoline, and/or butane, isobutene and propane. The sale/purchase agreements all contained netting provisions that provided that if either party failed to meet its payment or delivery obligations, then the other party could offset any deliveries or overdue payments against the defaulting party or any of its affiliates. It was undisputed that the three debtors were affiliates of each other. As of the petition date, Chevron owed a balance of approximately $1.4 million to SemCrude, L.P. However, Chevron was owed approximately $10.2 million by SemFuel, L.P. and $3.3 million by SemStream, L.P. Chevron Products Company (“Chevron”) moved for relief from the automatic stay to effect a triangular setoff of these debts owed between it and three separate debtors. 

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Valid Setoffs Are Unavoidable

Claybrook v. Metro Auto Xpress, LLC (In re American Remanufacturers, Inc.), Case No. 05-20022, 2008 WL 2909871 (Bankr. D. Del. July 25, 2008) (Walsh, J.)

In this Chapter 7 case, the American Remanufacturers, Inc.’s (the “Debtors”) business involved remanufacturing automobile parts for resale. Prior to and after the bankruptcy, the Tri-City purchased automotive parts produced by the Debtors and received credits for used parts it sold to the Debtors. The Chapter 7 Trustee commenced an adversary proceeding against Metro Auto Xpress trading as Tri-City Automotive Warehouse (“Tri-City”) alleging breach of contract, unjust enrichment, quantum meruit, and avoidance and turnover of estate property.  The Bankruptcy Court granted Tri-City’s motion to dismiss the avoidance and recovery claims.

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Delaware Chapter 11 Filings - 2008

Commercial Chapter 11 case filings in the United States Bankruptcy Court for the District of Delaware in 2008:

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Post-petition Stub Rent Allowed as an Administrative Expense Claim Under 503(b)(1)

In re Goody’s Family Clothing, Inc., 392 B.R. 604 (Bankr. D. Del. 2008) (Judge Christopher S. Sontchi)

The Bankruptcy Court held that the court may allow an administrative claim for unpaid post-petition rent under section 503(b)(1), provided that the claim is for an actual, necessary cost and expense of preserving the estate. The amount of the claim is the fair market value of the premises, which is presumed to be the rent due under the lease, unless contrary evidence is presented. However, timing of administrative expense payments remain at the discretion of the court.

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Third Circuit Reverses Bankruptcy Court's Exercise of Jurisdiction Over Non-Debtors

In re Exide Techs., No. 07-2230, __ F.3d __ (3d Cir. Sept. 19, 2008)

The persistent question of when a bankruptcy court can exercise “core” jurisdiction over nondebtor vs. nondebtor disputes received close examination in a precedential opinion issued by the Third Circuit Court of Appeals on September 19, 2008.

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Eastern District of Michigan Bankruptcy Court Follows Delaware Opinions In Holding That 502(d) Does Not Apply to Administrative Expenses Under Section 503(b)(9)

In a decision issued on September 16, 2008, the Honorable Phillip J. Shefferly, a Bankruptcy Judge for the United States Bankruptcy Court for the Eastern District of Michigan, Southern Division, issued an opinion in the Plastech Engineered Products, Inc. et al., bankruptcy cases holding that 502(d) of the Bankruptcy Code was not an impediment to the payment of administrative claims under 503(b)(9).

 

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Supreme Court Reverses 11th Circuit Court of Appeals in Florida Department of Revenue v. Piccadilly Cafeterias

Fla. Dept. of Rev. v. Piccadilly Cafeterias, Inc., No. 07-312 (2008)

Today, the United States Supreme Court reversed the decision of the United States Court of Appeals for the Eleventh Circuit in Florida Department of Revenue v. Piccadilly Cafeterias, Inc., holding that the stamp tax exemption of  11 U.S.C. § 1146(a) does not apply to a transfer that is made prior to confirmation of a Chapter 11 plan.  This decision resolves a circuit split that pitted the Third Circuit (In re Hechinger Invs. Co. of Del., 335 F.3d 243 (3d Cir. 2003)) and Fourth Circuit (In re NVR, LP, 189 F.3d 442 (4th Cir. 1999)) against the Eleventh Circuit (In re Piccadilly Cafeterias, Inc., 484 F.3d 1299 (11th Cir. 2007) (per curiam)).

Justice Thomas delivered the opinion, in which Chief Justice Roberts and Justices Scalia, Kennedy, Souter, Ginsburg and Alito joined.  Justice Breyer filed a dissenting opinion, in which Justice Stevens joined.

The opinion is here.

The Bankruptcy Court Reaffirms that Frenville is the Law in the Third Circuit: Bankruptcy Court Must Examine State Law to Determine When a Claim or Interest Arises

JELD-WEN, Inc. v. Brunt (In re Grossman’s, Inc.), Nos. 97-00695, Adv. No. 07-51602 (Bankr. D. Del. June 9, 2008) (Judge Peter J. Walsh)

 

The Bankruptcy Court confirmed Grossman’s chapter 11 plan for reorganization in December 1997 in which all claims against Grossman’s were discharged.  Approximately ten years later, Mary and Gordon Van Brunt sued JELD-WEN, as successor in interest to Grossman’s, for injuries allegedly caused by materials sold by Grossman’s that contained asbestos.  JELD-WEN contended that these state court claims were discharged by the confirmed plan and commenced an adversary proceeding against the Van Brunts seeking (i) a permanent injunction enjoining defendants’ prosecution of claims against JELD-WEN; (ii) a determination that these claims were discharged; and (iii) an award of damages.

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The Scope of 11 U.S.C. § 546(e) Is Not Restricted To Publicly Traded Securities; Bad Faith or Intent to Defraud Must Be Demonstrated to Collapse Otherwise Independent Transactions

Plassein Int’l Corp. v. B.A. Capital Co. LP (In re Plassein Int’l Corp.), No. 03-14489, 2008 WL 2073495 (D. Del. May 15, 2008) (Judge Joseph J. Farnan, Jr.)

The Debtors’ Chapter 7 Trustee (the “Trustee”) commenced an adversary proceeding against B.A. Capital Co. LP alleging that a series of fraudulent transfers rendered the Debtors insolvent or with unreasonably small capital for its businesses. The Bankruptcy Court had dismissed the Complaint because the court concluded (i) the transfers were settlement payments, pursuant to 11 U.S.C. § 546(e) and thus, not subject to avoidance under 11 U.S.C. § 544(b); (ii) the Complaint failed to state a claim upon which relief could be granted because it failed to assert that Plassein or any of the related Debtors made the allegedly fraudulent transfers; and (iii) the allegations within the Complaint could not be collapsed because neither the intent to defraud nor bad faith was alleged. The District Court affirmed.

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The District Court Holds That the Discounted Cash Flow Methodology May Be Used to Determine a Debtors' Solvency Even If There Is a Public Market for the Debtors' Stock.

In re American Classic Voyages, Co., 384 B.R. 62 (D. Del. 2008) (Judge Joseph J. Farnan, Jr.)

The Debtors appealed the bankruptcy court’s decision under the theory that a 2007 Third Circuit decision prohibited use of the discounted cash flow methodology when there was a public market for the Debtors’ stock. The District Court rejected Debtors’ argument, holding that the discounted cash flow methodology may be utilized. Further, the District Court determined there was no error in the bankruptcy court’s findings and analysis regarding the Debtors’ inability to prove its insolvency by a preponderance of the evidence.

 

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The Bankruptcy Court for the District of Delaware Held That a Breach of the Fiduciary Duty of Loyalty Cause of Action Was Not a Disguised Deepening Insolvency Claim

Miller v. McCown De Leeuw & Co., Inc. (In re Brown Schools), No. 05-10841, Adv. No. 06-50861 (Bankr. D. Del. April 24, 2008) (Judge Mary F. Walrath)

The Bankruptcy Court reaffirmed that Delaware does not recognize a deepening insolvency cause of action. However, the Court determined that a breach of the duty of loyalty claim could still be asserted. Unlike a breach of the duty of care, a breach of the duty of loyalty is not a disguised deepening insolvency claim. Further, damages based on deepening insolvency could be used in the damages calculations. Finally, a claim for aiding and abetting fraudulent transfers is not a recognized cause of action in Delaware.

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The Bankruptcy Court for the District of Delaware Holds That Debtors Must Assume or Reject Master Leases as a Whole

In re Buffets Holdings, Inc., No. 08-10141 (Bankr. D. Del. May 16, 2008) (Judge Mary F. Walrath)

The Bankruptcy Court held that Master Leases were integrated and could not be separately assumed and assigned or rejected based on the terms of the Master Leases and the parties’ course of conduct.

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Third Circuit Denies Debtors' Appeal from Order Denying Request for Hearing on Chapter 7 Trustee's Eligibility to Serve, Finding That Order Was Not Final and Jurisdiction Was Therefore Lacking

In re Truong, 513 F.3d 91 (3d Cir. 2008) (per curiam) (Precedential)

The debtors in this Chapter 7 case filed a motion in the Bankruptcy Court to hold a hearing on whether the Chapter 7 Trustee should be removed under 11 U.S.C. § 324 (a) because of a conflict of interest. The Bankruptcy Court denied the motion, and the District Court dismissed the debtors’ appeal. The Third Circuit held that the appeal was from an interlocutory appeal, and that it therefore lacked jurisdiction under 28 U.S.C. § 158(d).

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Third Circuit Affirms Order of District Court for Western District of Pennsylvania and Holds That Insurers Were Not "Persons Aggrieved" by Pittsburgh Corning Rule 2019 Order

In re Pittsburgh Corning Corp., No. 05-4781 (3d Cir. Jan. 10, 2008) (Rendell, J.)

Various insurers appealed from a district court order affirming a bankruptcy court order setting procedures for the filing of statements under Fed. R. Bankr. P. 2019.  In a non-precedential opinion, the United States Court of Appeals for the Third Circuit held that the insurers were not “person aggrieved,” and therefore lacked bankruptcy appellate standing. Continue Reading...

Delaware Bankruptcy Court Off to Busy Start in 2008

Lending credence to speculation that 2008 will be a busy year for the United States Bankruptcy Court for the District of Delaware, several large cases have filed in Delaware in the opening weeks of the year.

On January 18, 2008, Domain Home Furnishings filed a petition for relief under Chapter 11 of the Bankruptcy Code.  This case is being jointly administered under case number 08-10132.  Judge Walsh is presiding over this case.  Domain is a furniture retailer with twenty-seven locations throughout the Northeast and Mid-Atlantic.  According to papers that the debtor filed in the case, Domain hopes to reorganize its business.

On January 22, 2008, Buffets Holdings, Inc. and its related debtors commenced Chapter 11 cases.  These cases are being presided over by Chief Judge Mary F. Walrath, and are being jointly administered under case number 08-10141.  The debtors operate 626 restaurants in thirty-nine states under the Tahoe Joe’s Famous Steakhouse, Old Country Buffet, HomeTown Buffet, Ryan’s and Fire Mountain brands.  The debtors, who employ 37,000 people, have obtained debtor-in-possession financing of $385 million. Indications are that the debtors intend to reorganize their businesses, and continue to operate.

Also on January 22, 2008, Answer Financial, Inc. filed a Chapter 11 petition.  This case is being presided over by Chief Judge Mary F. Walrath, under case number 08-10140.  Answer Financial is an insurance agency that operates over the Internet and phone.  According to its petition, the debtor has between $1,000,001 and $10 million in assets, and between $50,000,001 and $100 million in liabilities.

District Court Denies Plaintiffs' Counsel's Appeal, Finds Claimants' Post Bar Date Ratification of Proofs of Claim to Be Ineffective

Mission Towers v. W.R. Grace, C.A. No. 07-287 (D. Del. Dec. 6, 2007) (Senior Judge Ronald L. Buckwalter)

The law firm of Speights & Runyan filed thousands of claims on behalf of creditors in the W.R. Grace & Co. bankruptcy.  The debtors moved to expunge and disallow 71 of the claims, contending that Speights & Runyan lacked express authority to file the proofs of claim as of the time that they were filed.  The United States Bankruptcy Court for the District of Delaware held that, although a claimant may authorize the filing of a claim after it is filed, if the ratification occurs after the bar date has passed, that ratification is insufficient to make the claim timely filed.  Accordingly, because authorization for these 71 claims was not established as of the deadline for filing proofs of claim, the Court expunged and disallowed the claims.  The United States District Court for the District of Delaware affirmed.

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Retiree's SERP Plan Was Not An Executory Contract and Was Not A Retiree Benefits Plan Under 11 U.S.C. § 1114

In re Exide Techs., No. 02-11125 (KJC), 2007 WL 4268763, – B.R. – (Bankr. D. Del. Dec. 5, 2007) (Judge Kevin J. Carey)

A former executive vice-president of the debtor, Exide Technologies, filed a motion to enforce the debtor’s plan of reorganization, arguing that a retirement payment program that he entered into with the debtor was an executory contract that the debtor assumed under its plan.  The United States Bankruptcy Court for the District of Delaware denied the motion, finding that the contract between the parties to enter into the program lacked mutuality of obligation because the only remaining obligations thereunder belonged to the debtor.  Accordingly, it was not an executory contract that could be assumed.  The Court also determined that the plan was not a retiree benefits program under 11 U.S.C. § 1114 that could not be terminated by the debtor.

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Synova Healthcare Group, Inc. Commences Bankruptcy Case in Delaware

Synova Healthcare Group, Inc. and its affiliated debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.  The debtors filed these cases, over which Judge Christopher S. Sontchi is presiding, on December 18, 2007.

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Court Grants Motion to Dismiss Amended Avoidance Complaint, But Grants Plaintiff Leave to Amend

MAS Litigation Trust v. Plastech Engineered Prods. (In re Meridian Automotive Sys.-Composite Ops. Inc.), Adv. Pro. No. 07-51196 (KG), 2007 WL 4322527 (Bankr. D. Del. Dec. 5, 2007) (Judge Kevin Gross)

Plastech Engineered Products, Inc., a defendant in an avoidance action commenced by the MAS Litigation Trust, moved to dismiss the plaintiff’s amended complaint on the grounds that, inter alia, the new claims set forth in the amended complaint did not relate back to the original complaint.  In a matter related to one we discussed here last week, The United States Bankruptcy Court for the District of Delaware granted the motion, finding that the new claims did not seem to arise out of the same transactions described in the original complaint.  However, the Court granted the plaintiff twenty days to amend the complaint, if it could allege facts sufficient to show the additional claims related back to the original ones.

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Subprime Lender Delta Financial Corporation Enters Bankruptcy

Delta Financial Corporation became the latest subprime lender casualty when it filed a Chapter 11 petition yesterday in the United States Bankruptcy Court for the District of Delaware.  Related debtors Delta Funding Corporation, Renaissance REIT Investment Corp. and Renaissance Mortgage Investment Corporation also filed petitions in these cases that are being presided over by Judge Christopher S. Sontchi.

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Chapter 7 Trustee's Counsel's Effort to Enter Into Hedging Transaction With Respect to Anticipated Contingency Fees was Impermissible Fee Sharing

In re Winstar Comms., Inc., Nos. 01-1430 (KJC)–01-462(KJC), -- B.R. --, 2007 WL 4268775 (Bankr. D. Del. Dec. 4, 2007) (Judge Kevin J. Carey)

Professionals retained by the Chapter 7 Trustee of the estate of debtor Winstar Communications, Inc. filed a motion to approve a hedging transaction with a lender under which they would receive a fixed price payment from the lender in return for the lender paying all or some of the contingency fees that counsel would receive for representing the trustee in an adversary proceeding.  The United States Bankruptcy Court for the District of Delaware found that this transaction was a form of fee sharing that was prohibited under 11 U.S.C. § 504.  Accordingly, the Court denied the motion, without prejudice to the professionals’ ability to seek the approval of a revised arrangement.

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Bankruptcy Court Dismisses Adversary Complaint For Failure To Comply With Service Requirements of Fed. R. Bankr. P. 7004(b)(3)

MAS Litigation  Trust v. Plastech LDM (In re Meridian Automotive Sys.-Composite Ops., Inc., Case No. 05-11168 (MFW), Adv. Pro. No. 07-51195 (KG), 2007 WL 4292130 (Bankr. D. Del. Dec. 5, 2007) (Judge Kevin Gross)

The trustee of the litigation trust for the estate of debtor Meridian Automotive Systems, Inc. attempted to serve an adversary complaint by naming and serving an entity that does not exist, and addressed such service to an incorrect address and without addressing service to an officer or agent of the defendant.  On the putative defendant’s motion, the United States Bankruptcy Court for the District of Delaware dismissed the complaint, finding that service did not comport with the requirements of Fed. R. Bankr. P. 7004(b)(3).

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Joan Fabrics Case Converts to Chapter 7

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.

Pope & Talbot Files Bankruptcy Case Three Weeks After Commencing Canadian Insolvency Proceedings

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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Hoboken Wood Flooring Case Dismissed

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.

Bankruptcy Court Holds That It Possesses Jurisdiction to Determine Amount of Workers' Compensation Owed By American Airlines to Former TWA Employee

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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Court Holds That Funds Collected From Amp'd Mobile Customers for Insurance on Cellphones Are Property of the Estate, and Not Held in Trust for Insurer

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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Third Circuit Publishes Significant Opinion on Bankruptcy Jurisdiction, Holds That When a Court Possesses "Arising In" Jurisdiction, "Close Nexus" Test Does Not Apply

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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Hard Surface Distributor Hoboken Wood Flooring LLC Files Chapter 7 Petition in Delaware

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.

Buyer of Debtor's Assets Did Not Purchase Receivables Related to Unassumed and Unassigned Contract

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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Preference Defendant's "Insufficient" Affidavit as to Ordinary Business Terms Prompts Court to Grant of Summary Judgment in Favor of Plaintiff

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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Mattress Retailer Gallery Corp. Files Chapter 11 Petition in Delaware

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.

Delaware Chapter 11 Filings - 2007

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

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When Is Failure to Disclose Ownership of a License Plate Indicative of Bad Faith Chapter 7 Filing?

In re Murray, 377 B.R. 464 (Bankr. D. Del. 2007) (Judge Brendan L. Shannon)

Although our purpose here at the Delaware Business Bankruptcy Report is to provide news and commentary on commercial bankruptcy cases here in Delaware, the Court published an opinion this week in a consumer case that we want to share with our readers. First, a little background information is helpful. In Delaware, license plates are freely transferable.  There is a vigorous trade in low-digit license plates. The most coveted plates of all are those with a single digit. Similarly, two-digit and three-digit plates are hot commodities that can sell for eye popping prices.

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Court Denies Landlord's Request for Section 365(d)(3) Treatment for Obligations Incurred Pre-Petition But Invoiced Post-Petition

In re Pac-West Telecomm, Case No. 07-10562 (BLS), -- B.R. --, 2007 WL 2910093 (Bankr. D. Del. Oct. 5, 2007) (Judge Brendan L. Shannon)

Debtor Pac-West Telecomm, Inc. commenced its bankruptcy case on April 30, 2007. Carlyle One Wilshire II, L.P., a landlord of the debtor, filed a motion under 11 U.S.C. § 365(d)(3) to compel the debtor to pay amounts allegedly coming due post-petition under the leases between the parties. The motion related to two sets of charges. The first was to recapture amounts undercharged for electricity usage prior to the commencement of the case. The second was for late charges and attorneys’ fees allegedly owing under the leases.  The United States Bankruptcy Court for the District of Delaware denied the request for payment under section 365(d)(3), finding that the amounts invoiced were pre-petition obligations of the debtor.

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District Court Grants Defendants' Motion to Strike Damages Claims, Finding Plaintiff Did Not Give Notice of Grounds Upon Which Claims Rested

Stanziale v. Pepper Hamilton LLP (In re Student Finance Corp.), No. 04-1551 (JJF), 2007 WL 2936195 (D. Del. Oct. 5, 2007) (Judge Joseph J. Farnan, Jr.)

In this adversary proceeding in the United States District Court for the District of Delaware, certain defendants moved to strike damages claims alleged by the trustee of the estate of Student Finance Corporation.  The Court granted the motion, finding that the trustee failed to provide fair notice of these damages claims, as required under Fed. R. Civ. P. 8(a) (made applicable to this adversary proceeding by Fed. R. Bankr. P. 7008(a)). 

 

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Third Circuit Holds Bankruptcy Court's Interpretation of Own Order To Be Reviewed Under Abuse of Discretion Standard

In re Shenango Group Inc., 501 F.3d 338 (3d Cir. Sept. 6, 2007) (Circuit Judge D. Brooks Smith)

In this precedential opinion, the United States Court of Appeals for the Third Circuit, in a case of first impression, adopted a standard for reviewing a bankruptcy court’s interpretation of its own order. If the appeal concerns a bankruptcy court’s interpretation its own order, the Court held that an abuse of discretion standard should be applied. If the issue under review presents only a question of law, that review will be de novo.

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Sale of Premises Subject to a Lease Rejected by Debtor Eliminates Portion of Landlord's Rejection Damages Claim

In re FLYi, Inc., 377 B.R. 140 (Bankr. D. Del. 2007) (Judge Mary F. Walrath)

The debtor rejected a lease of non-residential real property, and the landlord filed its rejection damages claim. Thereafter, the landlord sold the premises. The trust for the debtor’s estate objected to the claim. The Court sustained the objection in part, finding that when the landlord sold the premises, it exercised full dominion, eliminating any claim it had against the debtor for rent arising after the sale of the premises.

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Court Reconsiders Order, Grants Trustee's Counsel Fees In Excess of Carve-Out and Approves Reduction of Carve-Out for Unsecured Creditors

In re Argose, Inc., 377 B.R. 148 (Bankr. D. Del. 2007) (Judge Mary F. Walrath)

The Trustee of the debtor’s Chapter 7 estate entered into a stipulation with the debtor’s secured lenders for the payment of fees to Trustee’s counsel. The stipulation permitted a carve-out for Trustee’s counsel of $50,000, which could be renegotiated depending on the “complexity” of the sale of the debtor’s assets. The stipulation also carved out $50,000 for unsecured creditors. The Court entered an order approving the stipulation. After asset sales that returned far less for the estate than anticipated, Trustee’s counsel submitted final fee applications for $81,393.50. After the Court approved the application, the Trustee paid the fee to his counsel. The Trustee then moved to modify the order approving the stipulation to allow the higher fees, and represented to the Court that, as a consequence, after payment of the Trustee’s commissions, there would be insufficient funds to pay to the unsecured creditors their full $50,000 carve out. The Court denied the motion, and the Trustee moved for reconsideration. On reconsideration, the Court reversed itself, finding that the stipulation permitted this course of action.

 

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Aspen Executive Air, LLC Files Chapter 11 Case in Delaware

Aspen Executive Air, LLC, a Colorado-based company, has filed a Chapter 11 petition in the United States Bankruptcy Court for the District of Delaware. This case has been assigned to Chief Judge Mary F. Walrath under case number 07-11341. The debtor filed this case on September 14, 2007, but, as of the date of this writing, has not filed any motions in the case. According to the debtor's petition, Calim Venture Partners II

a non-debtor owns a 99% membership interest in the debtor. Continue Reading...

SCO Group Files Bankruptcy in Delaware

The SCO Group, Inc. and SCO Operations, Inc. each filed voluntary petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code. The SCO debtors filed their cases in Delaware, where Judge Kevin Gross will preside. 

 

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Fedders Bankruptcy Case Files in Delaware

Fedders North America, Inc. and sixteen affiliated debtors, including its parent company, the Fedders Corporation filed petitions under Chapter 11 of the Bankruptcy Code in Delaware earlier today. Judge Brendan Linehan Shannon will preside over these cases.

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American Home Mortgage Files Bankruptcy in Delaware

This morning, in a filing that had been widely anticipated in the past two weeks, causing tremors in financial markets, American Home Mortgage Holdings, Inc. and certain of its affiliates filed petitions under Chapter 11 of the Bankruptcy Code in the United States District Court for the District of Delaware. Judge Christopher S. Sontchi has been assigned to these cases, which rank among the largest ever filed by a mortgage lender.

Unlike the string of subprime lender cases that have been filed this year, many of which filed in Delaware, this is a case of an Alt-A lender seeking bankruptcy protection. Alt-A loans, sometimes called “no doc loans,” are those made to borrowers with better credit scores, but with little or no income verification. In the wake of the recent subprime collapse, Alt-A lenders were predicted by many analysts to be highly vulnerable. According to press accounts, in recent weeks, other lenders with portfolios of Alt-A loans have moved to cut back on such transactions.

According to the debtors’ declaration in support of their petitions, these filings were brought on by rising default rates and falling real estate values that led to margin calls with respect to the debtors’ credit facilities. On Friday, August 3, 2007, the debtors terminated 6,500 employees in anticipation of these filings and the closing of the debtors’ businesses. As of December 31, 2006, the debtors report that they held a leveraged portfolio of mortgage loans and mortgage-backed securities of approximately $15.6 billion, while debtor American Home Mortgage Servicing, Inc. serviced approximately 197,000 loans with an aggregate principal amount of approximately $46.3 billion.

Caribbean Supermarket Chain Pueblo Files For Chapter 11 Protection

This morning, Nutritional Sourcing Corporation - a holding company for affiliated debtors Pueblo International LLC and FLBN, LLC - along with these affiliates, filed petitions for Chapter 11 relief in the United States Bankruptcy Court for the District of Delaware. These cases have been assigned to the Honorable Peter J. Walsh.

 

According to press reports, debtors FLBN and Pueblo International operates the Pueblo chain of supermarkets in Puerto Rico and the U.S. Virgin Islands. According to press accounts, the St. Croix and St. Thomas, VI Pueblo supermarkets closed suddenly in recent weeks amid rumors of a sale of the chain to Whole Market Foods LLC, a St. Thomas-based company. According to Pueblo’s website, Pueblo was the first supermarket franchise in Puerto Rico and U.S. Virgin Islands, established in 1955. Pueblo also operates Blockbuster video stores in Puerto Rico and the Virgin Islands.

 

National Sourcing’s financial report for the fiscal year ending October 28, 2006 reports that rising oil prices and increased competition have had a deleterious effect on its performance. In recent years, the number of supermarkets and video stores operated by the debtors have decreased. This financial report also indicates that the debtors were highly leveraged.       

Northwest Suburban Community Hospital, Inc. Files Chapter 11 Petition

Northwest Suburban Community Hospital, Inc., a wholly-owned subsidiary of non-debtor Chatham Capital Corp., filed a petition for relief under Chapter 11 of the Bankruptcy Code by commencing a case in the United States Bankruptcy Court for the District of Delaware on July 30, 2007. This case, has been assigned to the Honorable Kevin Gross under case number 07-11018.

According to the debtor’s first day declaration, beginning in 1997, the debtor operated a treatment facility for morbidly obese patients at its facility in Belvidere, Illinois. However, because of declining business and revenue attributed by the debtor to increased competition and insufficient levels of reimbursement from Blue Cross Blue Shield of Illinois, the debtor ceased its treatment of obesity in January 2007. Since that time, the debtor has continued to operate an emergency standby department at its facility.

According to the declaration, the debtor’s liabilities exceed its assets by in excess of $3.7 million. The debtor is using the bankruptcy process to effect a sale of its facility. SwedishAmerican Hospital is the proposed stalking horse, with a bid of $5,750,000.

District Court Denies Motion to Withdraw Reference

OHC Liquidation Trust v. Discovery Re (In re Oakwood Homes Corp.), C.A. No. 06-436-JJF, 2007 WL 2071730 (D. Del. July 17, 2007) (Judge Joseph J. Farnan, Jr.)

The United States District of Delaware denied the motion of defendants Discovery Re and United States Fidelity & Guaranty Company to withdraw the reference in this adversary proceeding commenced by the OHC Liquidation Trust. Pursuant to an order of then District Court Chief Judge Sue L. Robinson, effective October 6, 2001, under 28 U.S.C. §  157(a), all cases in the District of Delaware under Chapter 11 of the Bankruptcy Code are automatically referred to the Bankruptcy Court. However, under 28 U.S.C. § 157 a party may seek mandatory or permissive withdrawal of the reference so that the case or proceeding may be heard in the District Court. The defendants in this matter sought withdrawal of the reference on mandatory withdrawal grounds, or, in the alternative, on permissive grounds. The District Court found that mandatory withdrawal was not applicable where, as here, only state law claims were in play, and further found that the factors favoring permissive withdrawal were not satisfied.

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Bankruptcy Court Overrules Plan Administrator's Objection to Advancement and Indemnification Claim of Former Officer of RNI Debtors

In re RNI Wind Down Corp., 369 B.R. 174 (Bankr. D. Del. 2007) (Judge Christopher S. Sontchi)

Andrew D. Feldman, a former officer of RNI, a debtor with a Chapter 11 case pending in the United States Bankruptcy Court for the District of Delaware, filed a proof of claim for advancement and indemnification of legal fees and expenses incurred in connection with an SEC investigation of the RNI debtors and certain of their officers and directors. The Plan Administrator objected to the claim, arguing that it was a claim for reimbursement subject to disallowance under 11 U.S.C. § 502(e)(1)(B).  While the Court agreed advancement and indemnification claims are claims for reimbursement, the Court held that Feldman’s claim was not a contingent claim, and was not a claim for which the debtors were co-liable, and therefore was not subject to disallowance under that section. The Court also declined the Plan Administrator’s alternative argument that the Court should estimate Feldman’s claim. In so doing, the Court rejected the argument that estimation was required to prevent undue delay of the administration of the bankruptcy estate.

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Oasys Mobile, Inc. Files for Bankruptcy; Proposes Prepackaged Plan of Reorganization

On July 18, 2007, Oasys Mobile, Inc. filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code.  Judge Christopher S. Sontchi of the United States Bankruptcy Court for the District of Delaware has been assigned to the case.  The case number is 07-10961.

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Alliance Bancorp Files Chapter 7 Plan in Delaware, Becoming Latest Mortgage Lender to Enter Bankruptcy

On July 13, 2007, Alliance Bancorp, Inc., Alliance Mortgage Investments, Inc. and Alliance Bancorp filed petitions under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware, becoming the latest in a series of residential mortgage lenders to file bankruptcy petitions in Delaware.  However, unlike previous cases that have filed here, Alliance is planning to liquidate, rather than reorganize.  Judge Christopher S. Sontchi has been assigned to this case.

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Wireless Payment Technology Innovator Creditel Files Chapter 11 Petition

On July 13, 2007, Virtual Fonlink, Inc. d/b/a Creditel filed a voluntary petition for relief under Chapter 11 of the Bankruptcy in the United States Bankruptcy Court for the District of Delaware.  This case is pending before Chief Judge Mary F. Walrath.

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The Fitness Company Files Chapter 11 Petition

On July 12, 2007, The Fitness Company and associated debtors filed petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.  These cases have been assigned to Judge Peter J. Walsh.

 

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Pharmaceutical Companies Exaeris, Inc. and Inyx USA Ltd. File Chapter 11 Petitions in Delaware

On July 2, 2007, Exaeris, Inc. and Inyx USA Ltd. each filed petitions for bankruptcy under Chapter 11 of the Bankruptcy Code. The debtors filed a motion for joint administration of these cases under case number 07-10887. Judge Kevin Gross of the United States Bankruptcy Court for the District of Delaware has been assigned to these cases. Continue Reading...

MediCor Ltd. Files Chapter 11 Petition in Delaware

On June 29, 2007, MediCor Ltd., a Delaware corporation, and seven affiliated debtors filed voluntary petitions for bankruptcy under Chapter 11. Chief Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware has been assigned to these cases. The debtor’s petition described its businesses as “a global health care company that acquires, develops, manufactures and markets products primarily for esthetic, plastic and reconstructive surgery and dermatology markets.” Continue Reading...

Third Circuit Rules That Contemporaneous Exchange for New Value Defense to Preference Claim is Not Barred by Existence of Credit Relationship

Hechinger Inv. Co. of Del. v. Universal Forest Prods., Inc. (In re Hechinger Inv. Co. of Del.), 489 F.3d 568 (3d Cir. 2007) (Circuit Judge Marjorie O. Rendell)

The Third Circuit reversed a Bankruptcy Court decision in an avoidance and recovery action brought by debtors Hechinger Investment Company of Delaware against Universal Forest Products, Inc. that held that the contemporaneous exchange for new value defense to a preference cause of action was not available where the parties intended a credit relationship. Instead, the Third Circuit found that this defense applies to little other than a credit relationship, and remanded to the Bankruptcy Court for a determination of whether the parties intended that the payments in question were intended by the parties to be contemporaneous exchange for new value.

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Chapter 7 Trustee Fails To Demonstrate Likelihood of Success On Merits In Establishing That Proceeds of D&O Liability Policy Were Property of Estate

George L. Miller, Chapter 7 Trustee of World Health Alternatives, Inc. v. McDonald (In re World Health Alternatives, Inc.), 369 B.R. 805 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

The United States Bankruptcy Court for the District of Delaware held that the Chapter 7 trustee of the estate of debtor World Health Alternatives, Inc. was not entitled to a preliminary injunction to prevent the settlement of litigation pending against the debtor’s officers and directors in the United States District Court for the Western District of Pennsylvania. The Trustee sought to preserve, as alleged property of the estate, the proceeds of a directors and officers liability policy that provided coverage, first to the debtor’s officers and directors, then to the debtor for indemnification claims by the officers and directors and, lastly, for direct claims against the debtor. The trustee failed to demonstrate a likelihood of success on the merits in establishing that the proceeds were included in the property of the estate because there were no claims directly against the debtor in the District Court litigation, and because the directors and officers did not assert any indemnification claims against the debtor under the policy.

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Tweeter Home Entertainment Group, Inc. and Affiliates Seek Chapter 11 Protection

On Monday, June 11, 2007, Tweeter Home Entertainment Group, Inc. and certain related companies filed voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the District of Delaware.  An exhibit to the petition lists $258.6 million in total assets and $190.4 million in total debts.  The Tweeter petition has been given case number 07-10787 and the case has been assigned to The Honorable Peter J. Walsh. Continue Reading...

Amp'd Mobile, Inc. Files Chapter 11 Petition

On June 1, 2007, Amp’d Mobile, Inc. filed a voluntary petition for relief under Chapter 11 in the United States Bankruptcy Court for the District of Delaware.  Judge Brendan Linehan Shannon has been assigned to the case.

 

Amp’d, a provider of mobile phone and entertainment services, proposes to continue to operate out of cash collateral while continuing to seek debtor-in-possession financing.  On June 5, 2007, Judge Shannon approved the debtor’s cash collateral motion on an interim basis, pending a final hearing on June 20, 2007.

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InSight Health Services files Chapter 11 Petition; Proposes Prepackaged Plan of Reorganization

On May 29, 2007, InSight Health Services Holdings Corp. (Case No. 07-10700) and InSight Health Services Corp. (Case No. 07-10701) filed voluntary petitions in the United States Bankruptcy Code for the District of Delaware for relief under Chapter 11 of the Bankruptcy Code.  The debtors are proposing a prepackaged plan that effects a debt to equity swap to alleviate the burdens upon the debtors from extensive senior subordinated note debts. 

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Bankruptcy Court Grants Limited Stay of Proceeding Pending District Court's Decision on Defendants' Request for Interlocutory Appeal

Haskell v. Goldman, Sachs & Co. (In re Genesis Health Ventures, Inc.), 367 B.R. 516 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

In this adversary proceeding commenced by investors in reorganized debtor Genesis Health Ventures, the non-debtor defendants requested leave of the United States District Court for the District of Delaware to take an interlocutory appeal from a decision of the Bankruptcy Court denying the defendants, who were senior secured debt holders, the protections of 11 U.S.C. § 1144. The defendants moved for a stay of proceedings pending the district court’s decision. The bankruptcy court granted a limited stay of the proceedings, balancing the need to move forward with the possibility that the request may remain before the district court for an extended period without being decided.

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Court Disallows Claim, Finding That Doctrine of Ratification Did Not Rescue Proofs of Claim Filed Before Bar Date by Counsel, Where Ratification Came After Bar Date

In re W.R. Grace & Co., 366 B.R. 302 (Bankr. D. Del. 2007) (Judge Judith K. Fitzgerald)

The law firm of Speights & Runyan filed thousands of claims on behalf of creditors in the W.R. Grace & Co. bankruptcy. The debtors moved to expunge and disallow 71 of these claims, contending that Speights & Runyan lacked express authority to file the proofs of claim as of the time that they were filed. The United States Bankruptcy Court for the District of Delaware held that, although a claimant may authorize the filing of a claim after it is filed, if the ratification occurs after the bar date has passed, that ratification is insufficient to make the claim timely filed. Accordingly, because authorization for these 71 claims was not established as of the deadline for filing proofs of claim, the Court expunged and disallowed the claims.

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Court Declines to Approve Settlement of Plan Administrator's Objection to Indenture Trustee's Claim for Fees and Expenses, Finding Evidence of Reasonableness of Claim to Be Lacking

In re RNI Wind Down Corp., Case No. 06-10110 (CSS), 2007 WL 949647 (Bankr. D. Del. March 29, 2007) (Judge Christopher S. Sontchi)

The Plan Administrator in the bankruptcy case of RNI Wind Down Corporation and its affiliated debtors objected to a request for payment of fees and expenses pursuant to the debtors’ plan of reorganization by the indenture trustee of pre-petition notes of the debtors. The parties agreed to a settlement and moved for approval of the agreement. The Delaware Bankruptcy Court refused to approve the settlement, finding that the legal invoices and request for fees were so heavily redacted and inspecific as to make it impossible for the court to determine whether they were reasonable, and thus whether the settlement was equitable and fair. The court also determined that the plan did not modify the indenture agreement, which was a pre-petition contract among non-debtors, and that it lacked jurisdiction over claims arising under the indenture.

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Equity Committee Appointed in Hancock Fabrics Case

On May 22, 2007, United States Trustee Kelly Beudin Stapleton appointed an Official Committee of Equity Security Holders in the Hancock Fabrics, Inc. case (07-10353 (BLS)). The members of the committee are Berg & Berg Enterprises LLC of Cupertino, California, Trellus Management of New York and Warren B. Kanders of Stamford, Connecticut. Sonnenschein Nath & Rosenthal of New York and Morris Nichols Arsht & Tunnell LLP of Wilmington, Delaware will serve as counsel to the equity committee. Continue Reading...

The End of the Road for Eastern Airlines Pilots? Third Circuit Blocks Pilots Groups' Efforts to Force Continental Airlines Pilots to Arbitrate Claims Discharged in Continental Bankruptcy

Cont’l Airlines, Inc. v. Eastern Pilots Merger Comm. (In re Cont’l Airlines, Inc.), 484 F.3d 173 (3d Cir. 2007) (Circuit Judge Julio M. Fuentes)

In their third visit to the United States Court of Appeals for the Third Circuit, a group of former pilots of Eastern Airlines appealed from a decision of the United States District Court for the District of Delaware enjoining them from proceeding to arbitration with debtor Continental Airlines and its pilots. Because the Eastern pilots sought arbitration under their former collective bargaining agreement (the “CBA”) with Eastern Airlines (which became an obligation of Continental Airlines when it merged with Eastern), and the debtors’ obligations under the CBA had been discharged, the debtors would not be compelled to appear at an arbitration in which no award against them would be possible. The Continental pilots were not a party to the CBA, and could not be bound by its arbitration provision.

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The Holliston Mills, Inc. Seeks Chapter 11 Protection

On May 21, 2007, The Holliston Mills, Inc., filed a chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Delaware.  The petition has been assigned case number 07-10687 and Chief Bankruptcy Judge Mary F. Walrath is presiding over the matter. Continue Reading...

Adversary Proceeding Relating to Pre-Petition Insurance Coverage Dispute Was Non-Core Matter

Consolidated SWINC Estate and SWE&C Liquidating Trust v. ACE USA, Inc. (In re Stone & Webster, Inc.), 367 B.R. 523 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

The liquidating trusts of the Stone & Webster debtors commenced an adversary proceeding against insurers of the debtors in connection with a coverage dispute that had been waged for many years, including well before the petition date. The insurers moved for a determination of the core/non-core status of the adversary proceeding. The United States Bankruptcy Court for the District of Delaware determined that the suit was merely a pre-petition state law breach of contract action over which the court had no jurisdiction under the United States Supreme Court’s decision in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71 (1982).

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Up in Smoke: Liberty Brands, LLC files for Chapter 11 Protection

Liberty Brands, LLC, a manufacturer of tobacco products with brand names including Always Save, Best Choice, Circle Z and Sonic (according to a May 8, 2007 Annual Approved Tobacco List posted on the website for the North Carolina Department of Justice www.ncdoj.com/DocumentStreamerClient), filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Delaware on Thursday, May 10, 2007.  The petition has been assigned case number 07-10645.  It lists assets of less than $10 million with liabilities falling between $10 and $50 million.

Mission Critical Enterprises, Inc. Files Chapter 11

Mission Critical Enterprises, Inc., a full service design and consulting company according to its website, filed for Chapter 11 protection on May 4, 2007, listing estimated liabilities at $1 million or less.

Insider's Purchase of Impaired Claims to Secure Plan Votes Constituted Improper "Gerrymandering," Rendering Plan Unconfirmable

In re Machne Menachem, Inc., 233 Fed. Appx. 119 (3d. Cir. Apr. 19, 2007) (Circuit Judge Julio M. Fuentes)

An insider of debtor Machne Menachem, Inc. purchased the claims of four unsecured creditors to alter the composition of the class of non-insider unsecured claimants. When the debtor’s plan or reorganization was then approved by voters and confirmed by the United States Bankruptcy Court for the Middle District of Pennsylvania, a former director of the debtor, who also was the proponent of a competing plan, appealed the confirmation order to the district court, arguing that the plan violated the good faith requirement of the plan confirmation provisions of the Bankruptcy Code. The district court reversed the bankruptcy court, and the Third Circuit affirmed the reversal, finding that the debtor impermissibly gerrymandered the classes to secure the necessary votes in favor of the plan.

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Pac-West Telecomm, Inc. and Various Affiliates File Chapter 11 Petitions

Yesterday, April 30, 2007, Pac-West Telecomm, Inc. and certain related entities filed chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware.  The case has been assigned case number 07-10562.  The petition lists assets of approximately $54 million and liabilities of approximately $66 million.

Other filing entities are PWT of New York, Inc., PWT Services, Inc., Pac-West Telecomm of Virginia, Inc., Installnet, Inc., and U.S. Net Solutions, Inc.

Decisions From Delaware Factor Into NY Bankruptcy Court's Denial Of Reclamation Claims

Judge Burton R. Lifland of the Bankruptcy Court for the Southern District of New York issued a decision on Thursday (here) that will undoubtedly be the discussion topic at many future bankruptcy conferences.  In his April 19, 2007 decision in the Dana Corporation bankruptcy, Judge Lifland held (i) there is no federal right of reclamation created by 11 U.S.C § 546(c), and (2) unless an individual reclamation claimant holds a claim in excess of a superior claimant's claim, the reclamation claim is valueless. Continue Reading...

Motion to Expand Preliminary Injunction to Include Actions Against State of Montana Denied; State Court Claims Permitted to Proceed Against State Without Debtors Based on Finding of Absence of Related-To Jurisdiction

W.R. Grace & Co. v. Chakarian (In re W.R. Grace & Co.), 366 B.R. 295 (Bankr. D. Del. 2007) (Judge Judith K. Fitzgerald)

In an opinion interpreting the Third Circuit’s Pacor standard for related-to jurisdiction, the Court held that state court actions against the State of Montana in which the W.R. Grace & Co. debtors were named as co-defendants – but which causes of action were enjoined – could proceed to the extent that they sought to establish the liability of the State of Montana. Because Montana would have to bring subsequent claims against the Debtors for indemnity and contribution, the state court actions had no “conceivable” effect on the bankruptcy estate, as contemplated by Pacor, so as to vest the Court with related-to jurisdiction over the claims. The Court therefore denied the Debtors’ motion to expand a preliminary injunction against the suits to the state of Montana.

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State of Montana's Motion For Relief From Automatic Stay To Join W.R. Grace As Third Party Defendant In State Court Asbestos Litigation Is Denied

In re W.R. Grace & Co., Case No. 01-01139, 2007 WL 1129170 (Bankr. D. Del. April 13, 2007) (Judge Judith K. Fitzgerald)

The State of Montana filed a motion for relief from the automatic stay to join debtor W.R. Grace & Co. as a third-party defendant in asbestos-related litigation pending in Montana state courts. The claims asserted in those actions arose out of Grace’s former vermiculite mining and processing operation in Montana.

The United States Bankruptcy Court for the District of Delaware analyzed Montana’s request under the standard articulated by the court in In re Rexene Products Co. and In re Continental Airlines, Inc. That standard requires consideration of the prejudice and hardships to the parties, as well as the likelihood that the creditor would ultimately prevail on the merits. The court denied the motion, finding that the debtor, the bankruptcy estate and the other creditors would suffer great prejudice if Montana were permitted to proceed against the debtor in state court, and that Montana’s claims for indemnity and contribution were premature, but preserved in Montana’s proof of claim.

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Custom Foods Receives $25 Million In Interim Financing

At the hearing of First Day motions on April 17, 2007, Judge Peter J. Walsh authorized Custom Food Products, Inc. to borrow up to $25 million in interim post-petition DIP financing from Wachovia Capital Finance Corporation (inclusive of a letter of credit subfacility of $5 million and an over-advance subfacility of $3 million).  A final hearing to approve the post-petition financing has been set for May 16, 2007 at 10:30 a.m.

Custom Food Products, Inc. Files In Delaware

Custom Food Products, Inc., located in Carson, California, filed a voluntary Chapter 11 petition on April 13, 2007 in the Bankruptcy Court for the District of Delaware.  The petition has been assigned case number 07-10495.  Judge Peter J. Walsh is presiding over this case.  The petition lists between $1 million and $100 million in assets, and a similar amount of liabilities.  The petition was filed by Klee, Tuchin, Bogdanoff & Stern LLP located in Los Angeles, California, and by the Wilmington, Delaware office of Pachulski Stang Ziehl Young Jones & Weintraub LLP.

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Third Circuit Tees Off on Debtor's Former CFO, Affirms District Court Order Holding That Golf Club Membership Was Not Transferred to Exec and Belonged to Debtor

Pickett v. Integrated Health Servs., Inc. (In re Integrated Health Servs., Inc.), 233 Fed. Appx. 115 (3d Cir. 2007) (Circuit Judge Maryanne Trump Barry)

Prior to the petition date of debtor Integrated Health Services, Inc., the debtor issued a memo assigning some interest in a corporate golf club membership to its Executive Vice President and Chief Financial Officer, C. Taylor Pickett. This membership was later scheduled by the debtor as an asset of the debtor on schedules signed by Pickett. After Pickett left employment of the debtor almost two years after the petition date, the debtor removed Pickett as the corporate designee on the membership. Pickett then sought a declaratory judgment from the bankruptcy court that the membership was assigned to him, and that the debtor had no interest in it. The bankruptcy court granted summary judgment in favor of the debtor, finding the assignment memo to be ambiguous, and that the parties’ behavior evidenced that they believed that the debtor retained ownership of the membership. The district court affirmed, and the Third Circuit affirmed the district court order.

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Joan Fabrics Corporation and Madison Avenue Designs LLC File Chapter 11 Petitions

Joan Fabrics Corporation and Madison Avenue Designs LLC filed voluntary Chapter 11 petitions on April 10, 2007 in the Bankruptcy Court for the District of Delaware.  They have been assigned case numbers 07-10479 and 07-10480, respectively.  Each petition lists between $1 million and $100 million each in assets and liabilities.  The petitions were filed by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. in Boston, Massachusetts, and by the Wilmington office of Pachulski, Stang, Ziehl Young, Jones & Weintraub LLP.  Judge Christopher S. Sontchi is presiding over these cases.

 

UPDATE: These cases converted to Chapter 7, effective November 20, 2007 at 5:00 p.m. EST.

New Century Mortgage Corporation files Bankruptcy In Delaware

On Monday, April 2, 2007, New Century Mortgage Corporation and certain affiliated companies filed for bankruptcy protection in the United States Bankruptcy Court for the District of Delaware pursuant to chapter 11 of the Bankruptcy Code.  New Century listed assets and liabilities each in excess of $100 million.  New Century's counsel is O'Melveny & Myers, LLP in San Francisco, California.  New Century's Delaware counsel is Richards, Layton & Finger, P.A.

Ambiguous Plan Provisions Would Not Be Interpreted To Deny Potential Administrative Claimant Its Right To Payment In Full

Forklift LP Corp. v. iS3C, Inc. (In Re Forklift LP Corp.), 363 B.R. 388 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

In connection with pending litigation over a failed post-petition software upgrade, the plaintiff asserted that even if its challenge to defendant’s right to payment was unsuccessful, the defendant’s administrative claim was subject to the provisions of the confirmed Plan, which, the plaintiff contended, resulted in defendant receiving less than full payment. Defendant moved for partial summary judgment on its right to receive payment in full, arguing that the Plan was ambiguous. The Court agreed, and held that the ambiguity in the Plan would not deny defendant its right to payment in full in light of the clear language of the Confirmation Order, the Disclosure Statement and the doctrine of judicial estoppel.

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Trustee Failed To State A Claim For Turnover Under 11 U.S.C. § 542 Where Genuine Dispute Existed As To Whether Security Deposit Was Property Of The Estate

Giuliano v. Fairfield Group Health Care Centers Ltd. P'ship (In Re Lexington Healthcare Group, Inc.), 363 B.R. 713 (Bankr. D. Del. 2007) (Judge Mary F. Walrath)

The Chapter 7 Trustee filed a complaint against a nursing home landlord under Section 542 of the bankruptcy code seeking turnover of a $2.2 million security deposit posted by the Debtor’s predecessor. The landlord filed a motion to dismiss under FRBP 12(b)(6) claiming that a turnover action under Section 542 may only be used to obtain property which is undisputedly property of the bankruptcy estate. Noting that the Trustee had not pled an absolute right to the security deposit, and that a genuine dispute existed over rights to it, the Court agreed and dismissed the turnover action.

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Plaintiff Could Amend Its Complaint Against The IT Trust To Assert A Breach Of Contract Claim Arising From Trust's Alleged Violation Of Settlement Agreement And Release

Integrated Water Res., Inc. v. Shaw Envntl., Inc. (In re IT Group, Inc.), 361 B.R. 417(Bankr. D. Del. 2007) (Judge Mary F. Walrath)

The Plaintiff in this adversary proceeding sought to amend its complaint to add a claim for breach of contract against the IT Trust. The Plaintiff asserted that the Trust had violated the terms of a settlement agreement and releases contained therein by assigning its claims against the Plaintiff to a third party. The Court granted the motion to amend, finding that there was no undue delay by the Plaintiff, there was no undue prejudice to the Trust, and that the proposed amendment was not futile.

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Bankruptcy Court Approves Management Incentive Plan and Sales Bonus Plan as Proper Exercise of Debtor's Business Judgment and Holds That Plans Were Not KERPs That Were Subject to 11 U.S.C. § 503(c)

In re Global Home Prods., LLC, Case No. 06-10340 (KG), 369 B.R. 778 (Bankr. D. Del. 2007) (Judge Kevin Gross)

The debtors proposed bonus plans for management and certain sales staff, which were based on performance and incentives. The debtors’ unionized employees objected to the plan, characterizing it as a Key Employee Retention Plan (KERP), approval of which was subject to the rigorous requirements of 11 U.S.C. § 503(c). The court approved the plans, finding that section 503(c) was inapplicable, as the plans were primarily incentivizing, rather than retentive or in the nature of severance. Accordingly, the court measured whether the plans were formulated according to a proper exercise of the debtors’ business judgment, and finding that they were, approved them under the less exacting business judgment standard of 11 U.S.C. § 363.

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Bankruptcy Court, Approving In Pari Delicto Defense, Grants Motion to Dismiss Trustee's Legal Malpractice and Fiduciary Duty Claims Against Debtors' Pre-Petition Counsel

In re Scott Acquisition Corp., 364 B.R. 562 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

The Chapter 7 Trustee of the estate of debtors Scott Acquisition Corporation and Scotty’s Inc. filed a complaint against the debtors’ pre-petition counsel, asserting legal malpractice, breach of fiduciary duty and fraudulent transfer claims. The claims arose from a series of transactions between the debtors and insiders of the debtors, in which the defendants represented both the debtors and the insiders. The defendants filed a motion to dismiss the legal malpractice and breach of fiduciary duty claims, asserting that the trustee was estopped from prosecuting those claims by the equitable defense of in pari delicto. The United States Bankruptcy Court for the District of Delaware granted the motion, finding the in pari delicto defense barred those claims, but permitted the fraudulent transfer count to go forward.

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Appointment of Interim Trustee Does Not Toll Statute of Limitations Under 11 U.S.C. § 546(a); Avoidance Actions Brought By Trustee Were Time-Barred When Commenced More Than Two Years After Petition Date

In re Am. Pad & Paper Co., 478 F.3d 546 (3d Cir. 2007) (Circuit Judge Dolores Korman Sloviter)

Steven Singer, the Chapter 7 Trustee of American Pad & Paper Co. and its co-debtors, was elected under 11 U.S.C. § 702 more than two years after the entry of the order for relief in the debtors’ cases. Singer was elected subsequent to the appointment of an interim trustee under section 701, who was appointed eleven days before the two-year anniversary of the entry of the order for relief.

Singer thereafter commenced avoidance actions against approximately 150 defendants, many of whom moved to dismiss on the basis that such actions were time-barred by 11 U.S.C. § 546(a), which requires that such avoidance actions by filed by the later of two years after the entry of the order for relief, or one year after the appointment of a trustee under section 702, 1104, 1163, 1202 or 1302, if that appointment occurred before the two years after the entry of the order for relief. The Bankruptcy Court dismissed those actions, and the District Court affirmed. The Third Circuit affirmed, finding that under the plain language of the statute, the actions were time-barred.

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Motion to Dismiss for Failure to Prosecute Denied; Bankruptcy Court Holds Five Year Period of Inactivity by Plaintiff Insufficient to Justify Sanction of Dismissal

Fruehauf Trailer Corp. v. Nat. Union Fire Ins. Co. of Pittsburgh, PA (In re Fruehauf Trailer Corp.), Case Nos. 96-1563–1572, Adv. Pro. No. 98-514, 2007 WL 676248 (Bankr. D. Del. March 2, 2007) (Judge Peter J. Walsh)

The defendants filed this motion to dismiss for failure to prosecute under Federal Rule of Civil Procedure 41(b), after a period of inactivity in the instant adversary proceeding of more than five years. The court denied the motion, finding that the plaintiff asserted cognizable claims, and that the most drastic sanction of dismissal was inappropriate. The Court held that giving the defendants the benefit of the doubt in all issues of fact that became vague as a result of the passage of time was sufficient to counter-balance the prejudice to defendants caused by the delay. In addition, the Court found that it was obliged to refer the matter to arbitration, pursuant to the agreement between the debtor and the defendants.

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Bankruptcy Court Declines to Grant Request for Certification of Appeal Directly to Third Circuit; Defers to District Court's Consideration of Motion for Leave to Appeal

Simon & Schuster, Inc. v. Advanced Marketing Servs. Inc. (In re Advanced Marketing Servs. Inc.), 366 B.R. 429 (Bankr. D. Del. 2007) (Judge Christopher S. Sontchi)

Simon & Schuster, a creditor of debtor Advanced Marketing Services, Inc., filed a reclamation claim against the debtor, and sought to have a temporary restraining order put in place to prevent the debtor from selling the S&S goods that were subject to the reclamation claim. The court denied the motion in a previously reported opinion. (here)

S&S then sought to pursue an appeal of the court’s interlocutory order denying the TRO motion, moved the District Court for leave to appeal, and requested that the Bankruptcy Court certify that the case was suitable for direct appeal to the United States Court of Appeals for the Third Circuit, pursuant to 11 U.S.C. § 158(d)(2). The Bankruptcy Court declined to decide the request, finding that, because the District Court and Bankruptcy Court were being asked to make an almost identical set of findings, judicial resources would best be used by deferring to the District Court to decide the motion for leave to appeal. Moreover, respect for the hierarchy of the courts warranted deference to the District Court.

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Third Circuit Sustains Objection to Claim of Massachusetts Taxing Authority for Sales Tax, Finding That Goods Drop-Shipped F.O.B. Debtor's California Warehouse Were Not "Delivered" in Massachusetts

In re Valley Media, Inc., 226 Fed. Appx. 120 (3d Cir. 2007) (Circuit Judge Maryanne Trump Barry)

The Massachusetts Department of Revenue filed a proof of claim in the bankruptcy case of Valley Media, Inc., asserting that Valley owed the commonwealth for uncollected sales tax for goods drop-shipped on behalf of retailers by Valley to customers in Massachusetts. The United States Bankruptcy Court for the District of Delaware sustained the debtor’s objection to the claim, finding that the term “delivery” is defined in accordance with the Uniform Commercial Code, and further finding that such shipments were not a “delivery in the commonwealth” subject to sales tax under Massachusetts law. The United States District Court for the District of Delaware sustained the objection, and the Third Circuit affirmed.

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Party That Received Checks From Debtor, But Did Not Have Right To Payment, Who Then Forwarded Checks To Party With Right To Payment From Debtor, Held Not To Be "Transferee" For Purposes Of Preference Complaint

Broadway Advisors, LLC v. Hipro Elecs., Inc. (In re Gruppo Antico, Inc.), 359 B.R. 578 (Bankr. D. Del. 2007) (Judge Kevin J. Carey)

Vendor Hipro Electronics, Ltd. of Taiwan sold computer parts to the debtor prior to the commencement of the debtor’s bankruptcy case. However, in the period running up to the petition date, the debtor sent payments for Hipro Taiwan invoices to another Hipro entity, Hipro Electronics, Inc., in Texas. Hipro USA forwarded those checks to Hipro Taiwan, who deposited the checks into their own account. The debtor, however, commenced a preference action against Hipro USA. Hipro USA filed a motion for judgment on the pleadings. The court held that, because Hipro USA never deposited the funds, it was not a transferee of the debtor, and therefore could not be liable for the avoidance of the payments that the debtor sent to Hipro USA.

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Execution Of Releases Of Liens On Vehicle Certificates Of Title Constitutes Release Of Liens Themselves

Mfrs. and Traders Trust v. Wyo. Sand and Stone, 223 Fed. Appx. 146 (3d Cir. 2007) (Circuit Judge Anthony J. Scirica)

A lender holding a security interest in vehicles of the debtor executed releases of those liens, and delivered those releases to an auctioneer selling the debtor’s vehicles. Execution of the releases prior to auction was purportedly going to assist in obtaining a higher price for the vehicles. An unsecured creditor of the debtor asserted that the proceeds of the sale did not belong to the lender because the liens were released prior to the sale. The Third Circuit Court of Appeals affirmed the bankruptcy court’s holding that by executing the releases, the lender released its liens.

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Transfer of Funds By Debtor To Rightful Owner Did Not Create Preference Liability Under 11 U.S.C. § 547(b) Where Debtor Acquired Funds By Conversion

Claybrook v. Consolidated Foods, Inc. (In re Bake-Line Group, LLC), 359 B.R. 566 (Bankr D. Del. Feb. 5, 2007) (Judge Peter J. Walsh)

The debtor came into possession of a check made payable to the preference defendant when the postman mistakenly delivered the check to the debtor. The debtor converted the check, depositing it into the debtor’s bank account. The defendant learned of the debtor’s actions, and demanded and received from the debtor a check to cover the funds that the debtor had converted. Days later, the debtor commenced its bankruptcy case.

The plaintiff in this adversary proceeding, the trustee of the debtor’s estate, sued the defendant to recover the payment as a preferential transfer. The court granted summary judgment in favor of the defendant, finding that the debtor converted the funds, and never had any interest in them that it could transfer.

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District Court Dismisses Appeal As Untimely Under Fed. R. Bankr. P. 8002(a) Where Appellant Filed Notice Of Appeal Fifteen Calendar Days After Date Of Entry Of Order

Hayes v. Genesis Health Ventures, Inc. (In re Genesis Health Ventures, Inc.), Civ. A. No. 06-397 (JJF), Case No. 00-2692 (PJW), 2007 WL 211209 (D. Del. Jan. 26, 2007) (Judge Joseph J. Farnan, Jr.)

The appellant filed a notice of appeal from an order of the Bankruptcy Court imposing sanctions against the appellant. However, although the notice of appeal was dated eight days after the date of entry of the order, it was not filed until fifteen days after the date of entry of the order appealed from. Because the ten day deadline to file a notice of appeal under Federal Rule of Bankruptcy Procedure 8002(a) was jurisdictional, the District Court found that it lacked jurisdiction to adjudicate the appeal.

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Court Denies TRO Application Of Reclamation Claimant Whose Goods Were Subject To Prior Liens Of Debtors' Lenders

In re Advanced Marketing Services, Inc., 360 B.R. 421 (Bankr. D. Del. 2007) (Judge Christopher S. Sontchi)

Simon & Schuster asserted a reclamation demand in excess of $5 million, and filed an adversary Complaint against the debtor to enforce its reclamation rights. In support of the complaint, Simon & Schuster sought a temporary restraining order to prevent the debtor from selling its goods. The court denied the application for the TRO, finding that the goods that were the object of the reclamation demand were subject to a prior, superior security interest of the debtors’ pre-petition and post-petition lenders. Accordingly, S&S was unable to show that it had a likelihood of success on the merits.

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On Cross Motions For Summary Judgment, Court Grants Summary Judgment In Favor Of Debtor In Dispute Over Reconciliation Of Accounts

FSQ, Inc. v. Integrated Health Servs., Inc. (In re Integrated Health Servs., Inc.), 358 B.R. 637 (Bankr. D. Del. 2007) (Judge Mary F. Walrath)

FSQ sued the Debtors to recover $1,268,762 in payments allegedly due to FSQ by the Debtors’ estates with respect to a reconciliation of claims during a period in which FSQ managed the Debtors’ health-care facilities. The parties filed cross motions for summary judgment. The Court denied FSQ’s motion, and granted the Debtors’ motion for summary judgment, find that the claims asserted by FSQ had been released pursuant to agreements between the parties that settled all claims arising during the time that FSQ managed the Debtors’ facilities, and prior to FSQ being granted licenses to operate the facilities themselves.

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Court Grants Summary Judgment To Recipient Of Alleged Fraudulent Transfer On "Settlement Payment" Defense Of 11 U.S.C. § 546(e)

Official Comm. of Unsecured Creditors of the IT Group, Inc. v. Acres of Diamonds, L.P. (In re the IT Group, Inc.), 359 B.R. 97 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)

Within a year prior to the petition date of the IT Group, Inc. debtors, defendant Acres of Diamonds L.P. sold to Organic Waste Technologies, Inc. five shares of the common stock of Keystone Recovery, Inc. Organic Waste paid for the shares by making a wire transfer of $575,000 from debtor IT Corporation’s Citibank account. Prior to confirmation of the debtors’ Chapter 11 plan, the debtors commenced a preference action against Acres, seeking to avoid and recover the $575,000 payment. The complaint was thereafter amended to add a fraudulent transfer cause of action, and amended again to drop the preference claim. 

The court granted Acres’ motion for summary judgment, finding that the transfer was a payment for securities, made by a financial institution, and therefore excepted from avoidance under section 546(e) of the Bankruptcy Code.

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New Value Must Remain Unpaid? It's Time to Resole New York City Shoes

New Value Must Remain Unpaid?  It's Time to Resole New York City Shoes.  ABI Journal, Vol. XXV, No. 9, November 2006.  Co-authored by: Carl N. Kunz, III.

 

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Court Denies Request For Immediate Payment To Creditor Pursuant To 11 U.S.C. § 503(b)(9) Because Of Finding Of Prejudice To Debtor And Absence Of Hardship To Creditor

In re Global Home Prods., LLC, Case No. 06-10340 (KG), 2006 WL 3791955 (Bankr. D. Del. Dec. 21, 2006) (Judge Kevin Gross)

The movant, a creditor of the debtors, with an administrative expense claim for goods delivered to the debtor within the 20 days preceding the date of the debtors’ bankruptcy petitions, moved for allowance and immediate payment of its claim pursuant to11 U.S.C. § 503(b)(9). The court denied the request for immediate payment, finding that the harm to the debtor of being required to make a payment that was not in its budget, and of a type that many other parties had sought, and might in the future seek, outweighed the hardship, if any, to the creditor.

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In Consolidated Appeal, District Court Affirms Bankruptcy Court Finding That Pre-Petition Credit Agreement Was Properly Modified

In re Aurora Foods, Inc., C.A. No. 04-166 (GMS), 2006 WL 3747306 (D. Del. Dec. 19, 2006) (Judge Gregory M. Sleet)

W Top Hat, Ltd. was one of several lenders entering into a credit agreement with the Aurora Foods Inc. debtors prior to Aurora’s bankruptcy. The credit agreement was modified several times prior to the bankruptcy. W Top Hat commenced an adversary proceeding against the debtors, contending that the final pre-petition modification to the credit agreement was improperly made. The bankruptcy court granted the debtors’ motion to dismiss the adversary proceeding. W Top Hat also objected to confirmation of the debtors’ plan, contending that the debtors failed to make required payments under the credit agreement. The bankruptcy court overruled W Top Hat’s objection, and confirmed the plan.

W Top Hat appealed both the dismissal of the adversary proceeding and the decisions overruling its objection to the confirmation order. Those appeals were consolidated on W Top Hat’s motion.

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Motion For Abstention Denied On Grounds Of Judicial Estoppel

Finova Capital Corp. v. Cote (In re Finova Capital Corp.), 358 B.R. 113 (Bankr. D. Del. 2006) (Judge Peter J. Walsh)

The debtor sued the defendants in Vermont Superior Court for breach of contract. The Superior Court granted the defendants’ motion to dismiss on the basis of lack of jurisdiction, which, the Superior Court held, was vested with the Bankruptcy Court. The debtor then commenced an adversary proceeding in the Bankruptcy Court asserting the same breach of contact claims. The defendants moved the Bankruptcy Court to abstain, alleging that the Bankruptcy Court lacked personal jurisdiction. The Bankruptcy Court denied the motion on the basis of judicial estoppel.

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Court Applies Federal Contracts Dispute Act to Calculate Pre-Judgment Interest; Reduces Amount Sought from $490,000 to $75,000

Shaw Group v. Bechtel Jacobs Co. (In re IT Group, Inc.), 359 B.R. 90 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)

Shaw Group, successor to the Debtors in this case under an Asset Purchase Agreement, prevailed on its Motion for Summary Judgment against contractor Bechtel Jacobs with respect to its breach of contract and unjust enrichment claims against Bechtel, by an order of the Court dated September 21, 2006. Shaw then moved for prejudgment interest, and the Court granted the motion, holding that the Contracts Dispute Act governed this question.

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Stalking Horse Bidder Whose Bid Did Not Prevail At An Asset Foreclosure Sale Gets An Allowed Claim Against The Secured Party For The Break-up Fee, But No Other Damages

In re Finova Capital Corp., 356 B.R. 609 (Bankr. D. Del. 2006) (Judge Peter J. Walsh)

This case presents the bankruptcy court’s detailed findings and conclusions following a trial on a claim objection. The debtor, Finova Capital, a former middle market lender, objected to the proof of claim filed by Olsen Industries, a company which had been the initial but unsuccessful bidder for the assets of a company to which Finova had been an undersecured lender. The issues revolved around competing interpretations of a March 2000 letter agreement by which Olsen Industries agreed to serve as the stalking horse bidder in the public foreclosure sale of the assets of the company, Consolidated Industries, which manufactured and distributed gas furnaces. Olsen claimed that Finova breached the letter agreement and that it was thereby entitled to millions of dollars in damages. The court found no breach, apart from Olsen being entitled to its $100,000 break-up fee.

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Expert's "Invented" Enterprise Valuation Methodology Found Unreliable and Inadmissible

In re Nellson Nutraceutical, Inc., 356 B .R.364 (Bankr. D. Del. 2006) (Judge Christopher S. Sontchi)

At trial to determine the enterprise value of the Debtors, the Debtors’ expert tendered a valuation opinion based on a metric of EBITDA minus capital expenditures. Because this methodology is not generally accepted by experts in the field, and, moreover, was invented by the Debtors’ expert for use in this trial, the Court held that this method lacked reliability, and the Debtors’ expert’s testimony was therefore inadmissible under Federal Rule of Evidence 702.

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Court Grants In Part Trustee's Motion To Enjoin Auction Sale Of Equipment Allegedly Belonging To The Debtors

Shubert v. Premier Paper Prods, LLC (In re American Tissue Inc.), Case No. 01-10370 (KG), Adv. No. 06-50929 (KG) (Bankr. D. Del. Dec. 4, 2006) (Judge Kevin Gross)

This dispute concerned numerous items of machinery and equipment which the Chapter 7 Trustee alleged belonged to the debtors but were in possession of the defendants. In this ruling, the Bankruptcy Court extended an ex parte temporary restraining order into a preliminary injunction, but with added limitations based on the evidence. The court allowed the planned auction to go forward, but escrowed the sale proceeds from the items to which it was shown the debtors might have title.

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Partial Summary Judgment Was Appropriate Where Chapter 7 Trustee Filed Preference And Fraudulent Transfer Claims After Statute Of Limitations Ran, And Where Trustee Merely Recited Fraudulent Transfer Statute, But Alleged No Facts In Support Of Claims

Burtch v. Dent, (In re Circle Y of Yoakum, Tx.), 354 B.R. 349 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)

The Chapter 7 Trustee of debtor Circle Y’s estate asserted claims under sections 547 and 548 of the Bankruptcy Code relating to payments made to an insider more than one year before the petition date. The Bankruptcy Court held that those claims were time-barred. Also, because the Trustee’s fraudulent transfer claims pled no facts in support of the Trustee’s allegations, but merely recited relevant statutory language, the Bankruptcy Court dismissed those claims for failure to plead fraud with sufficient particularity. However, the Court granted the Chapter 7 Trustee leave to amend to add additional payments where those payments were part of a discernible pattern with payments alleged in the Trustee’s original complaint.

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Entry Of Final Judgment Denied Where Summary Judgment Only Granted Partial Relief

Fluor Enters. Corp. v. Orion Refining Corp. (In re Orion Refining Corp.), 355 B.R. 433 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)

The Court granted summary judgment as to two counts of a four count complaint. Because each count sought relief under a common set of operative facts, the Court did not exercise its discretion to enter final judgment on each of the two counts as to which it entered summary judgment.

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In Calculating a Guarantor's Liability, the State Law Applicable to the Guaranty, Rather than the Law Applicable to the Underlying Loan Agreements, Governs

In re Stone & Webster, Inc., 354 B.R. 686 (D. Del. 2006) (Judge Sue L. Robinson)

This was a case of contract interpretation and choice of law issues, in connection with a determination of damages owed by a guarantor to a lender. The lender argued that the law to be applied was the Bankruptcy Code and Delaware law, because of the venue of the case; the guarantor argued in favor of the Saudi Arabian law selected in the underlying credit agreement. The court found that New York law, the law chosen in the guaranty, applied.

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Approval of Settlement Agreement Denied; Settlement Agreement Was In Conflict with Substantially Consummated Plan of Reorganization

Magten Asset Mngmnt. Corp. v. Northwestern Corp. (In re Northwestern Corp.), 352 B.R. 32 (D. Del. 2006) (Judge Joseph J. Farnan, Jr.)

The appellant, a creditor in the debtors’ bankruptcy case, appealed from a Bankruptcy Court decision denying approval under Federal Rule of Bankruptcy Procedure 9019 of the appellant’s motion to approve a global settlement of litigation and claims with the debtors. The District Court affirmed the Bankruptcy Court decision, holding that the express terms of the settlement agreement required that it be approved by the Court prior to becoming effective, and that the settlement agreement could not be approved because it was inconsistent with the debtors’ plan of reorganization. Because the plan had been substantially consummated, it could not be amended.

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In A Chapter 11 Case, If A Post-Confirmation Equity Committee Is To Be Appointed, It Must Be Provided For In The Plan And Cannot Be Created By Post-Confirmation Motion

In re Genesis Health Ventures, Inc., 204 Fed. Appx. 144 (3d Cir. Oct. 4, 2006) (per curiam)

This decision from the Third Circuit, which was entered per curium and marked “non-precedential,” involved an appeal from a former shareholder of the debtor, Genesis Health Ventures, Inc., who was proceeding pro se. Shortly after the bankruptcy court confirmed the debtors’ plan of reorganization in 2001, the former shareholder, James Hayes, filed a motion for formation of an equity committee post-confirmation. Because of the other appeals he was pursuing in the bankruptcy case, his motion was left pending for over three years, at which point he returned to the bankruptcy court, where the court then denied the motion as untimely and subject to the doctrine of “equitable mootness.” The district court agreed, and so did the court of appeals. Underlying the discussion of that doctrine lay the implicit proposition that the motion was really a challenge to the terms of the plan, though presented procedurally in a manner distinct from plan objections.

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Due Process Not Violated Where Non-Dischargability Judgment Was Entered By Default Against Pro Se Debtor Who Had Not Notified Bankruptcy Court Of His Change Of Address

Banks v. Moore (In re Banks), No. 06-1828, 204 Fed. Appx. 141, 2006 WL 2818950 (3d Cir. Oct. 3, 2006) (per curiam)

This court of appeals ruling affirming a default judgment in favor of a creditor in an adversary action on non-dischargability turned on the principle that “the debtor who failed to keep the court apprised of his proper mailing address has only himself to blame.” In this case, the debtor’s new address was the county jail. This decision was entered per curiam and is marked as “not precedential.”

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Fraudulent Transfer Complaint Dismissed For Lack Of Personal Jurisdiction

Astropower Liquidating Trust v. Xantrex Tech (In re Astropower Liquidating Trust), Case No. 04-10322 (MFW), Adv. Pro. No. 05-50867, 2006 WL 2850110 (Bankr. D. Del. Oct. 2, 2006) (Judge Mary F. Walrath)

Defendants Merrill Lynch Asset Management and Merrill Lynch Investment Managers Limited moved to dismiss a fraudulent transfer complaint for lack of personal jurisdiction. Finding that the minimum contacts requirement for personal jurisdiction was not met, the Court dismissed the complaint.

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Sale Order Does Not Protect A Non-Debtor Subsidiary Sold During Bankruptcy From Preference Action

Amphenol Corp. v. Shandler (In re Insilco Techs., Inc.) 351 B.R. 313 (Bankr. D. Del. 2006) (Judge Kevin J. Carey)

Amphenol challenged the filing of a preference action against PCM, a non-debtor subsidiary it had purchased from the debtor, because the order approving the sale did so free of all liens and encumbrances. The Court interpreted the sale agreement and order as releasing Amphenol from the estate’s claims related to the purchase and ownership of PCM’s stock, but not releasing PCM itself from any estate actions, as PCM was a distinct corporate entity from Amphenol.

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Court Permits Creditor To File Late Proof Of Claim Because Of Excusable Neglect Where Claim Was Scheduled By Debtor In Different Amount, But Creditor Filed Claim Three Days After Claim Bar Date

In re Garden Ridge Corp., 348 B.R. 642 (Bankr. D. Del. 2006) (Judge Randolph Baxter)

The Debtor Scheduled a Creditor’s Claim in One Amount and the Creditor Filed a Proof of Claim in Another Amount Three Days After the Bar Date. Eighteen Months Later, the Post-Effective Date Committee Rejected the Late Filed Claim. The Court Permitted the Late Filing.

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Cure Claim Allowed Only For Such Repairs As Are Necessary To Permit Landlord's Premises To Be Used For A Specific Purpose

In re Fleming Cos., Inc., Case No. 03-10945 (MFW), 2006 WL 2320974 (Bankr. D. Del. Aug. 9, 2006) (Judge Mary F. Walrath)

Where the Debtor assumed and assigned a lease of non-residential real property to a third-party, and the property was in deplorable condition at the time of assumption, under Wisconsin law, the landlord could recover the amount necessary to restore the property to its particular purpose as a grocery store as “cure” pursuant to sections 365 and 503(b).

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"Reorganization Test" Must Be Applied In The Aggregate When Considering Requests To Terminate Debtors' Multiple Pension Plans.

In re Kaiser Aluminum Corp., 456 F.3d 328 (3d Cir. 2006) (Circuit Judge Marjorie O. Rendell)

In this issue of first impression in the circuit courts, the Third Circuit Court of Appeals held that when an employer in Chapter 11 seeks voluntarily to terminate multiple pension plans under ERISA’s “reorganization test,” a court must consider termination of the plans in the aggregate, rather than on a plan-by-plan basis.

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Leave To Amend Complaint Is Freely Given Where There Is No Prejudice To The Non-moving Party

PCT v. Authentic Specialty Foods, Inc. (In re Fleming Cos., Inc.), 347 B.R. 163 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)

In this adversary proceeding, after eight months of litigation, the plaintiff sought leave to amend its complaint to add three additional causes of action. The Court found that, where discovery deadlines had not expired and where the plaintiff was willing to allow defendant to take additional discovery, the Court held there was no prejudice to the defendant, no undue delay by plaintiff, and amendment would not be futile and allowed the amendment.

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Abstention In Favor Of Arbitration Warranted Where State Law Issues Predominate

In re Loewen Group Int'l, 344 B.R. 727 (Bankr. D. Del. 2006) (Judge Peter J. Walsh)

The reorganized debtor sued the buyer of certain real estate when the buyer refused to close. When the buyer counter-claimed, the debtor moved the Bankruptcy Court to abstain in favor of arbitration. The Court held that the factors that favored abstention were substantive. Specifically, the actions were state law issues, their resolution would not have an effect on the efficient administration of the estate, and the claims in the adversary proceeding were extremely remote from the underlying Chapter 11 case. The Court granted the abstention motion and referred the case to arbitration.

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Senior Lender's Carve Out for Benefit of General Unsecured Creditors Does Not Violate Absolute Priority Rule

In re World Health Alternatives, Inc., 344 B.R. 291 (Bankr. D. Del. 2006) (Judge Peter J. Walsh)

The Debtors, Committee, and Senior Lender moved for approval of a global settlement and the United States Trustee objected, arguing that the Committee was not authorized to borrow and/or compromise estate claims and causes of action at the expense of priority unsecured creditors in a Chapter 11 case. The Court approved the settlement. Funds set aside for the general unsecured creditors were part of the lender’s perfected security interest and not property of the estate, so the settlement did not violate the Code’s absolute priority rule.

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Court Denies Motion To Reject Settlement Agreement

In re LG Philips Displays USA, Inc., Case No 06-10245 (BLS), 2006 WL 1748671 (Bankr. D. Del. June 21, 2006) (Judge Brendan L. Shannon)

Debtor moved to reject a settlement agreement under which debtor conveyed option to purchase real estate, as the Debtor wished to purchase the property itself. The party holding the purchase option objected to the motion. The Court denied the motion, holding that the settlement agreement was not an executory contract that could be rejected under the Bankruptcy Code.

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U.S. Supreme Court Holds That Insurance Company's Claim To Recover Unpaid Workers' Compensation Premiums In Debtor-Employer's Chapter 11 Case Was Not Entitled To Priority Treatment Under 11 U.S.C. § 507(a)(5) As "Contributions To An Employee Benefit

Howard Delivery Serv., Inc. v. Zurich Am. Ins. Co., 126 S.Ct. 2105 (2006) (Justice Ruth Bader Ginsburg)

Resolving a split among the circuits, the Supreme Court held that an insurer’s claim to recover unpaid workers’ compensation premiums in a Chapter 11 case was not entitled to priority treatment under 11 U.S.C. § 507(a)(5) as “contributions to an employee benefit plan.” Insurer Zurich American Insurance Company provided workers’ compensation insurance for debtor Howard Delivery Service, Inc. The Court held that, because the benefits of such coverage inure mainly to the employer, workers’ compensation insurance is not an “employee benefit plan.” Although the Court acknowledged that employees do benefit from such coverage, the greater benefit is to the employer.

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Employee Payroll Deductions For Health Benefits Do Not Constitute Preferential Transfers When Paid Into A Health Plan