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.
Continue Reading...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.
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.
Delaware Chapter 11 Filings - 2009
Commercial Chapter 11 case filings in the United States Bankruptcy Court for the District of Delaware in 2009:
Continue Reading..."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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...Delaware Chapter 11 Filings - 2008
Commercial Chapter 11 case filings in the United States Bankruptcy Court for the District of Delaware in 2008:
Continue Reading...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.
Continue Reading...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.
Continue Reading...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)
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.
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)
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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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).
Continue Reading...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.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.
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.
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.
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.
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.
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.
Continue Reading...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.
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
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).
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.
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.
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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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:
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
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.
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.
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.
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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.”
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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.
Continue Reading...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.
Continue Reading...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.
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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.
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.
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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
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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.
Continue Reading...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.
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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).
Continue Reading...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.
Continue Reading...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.
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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.
Continue Reading...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.
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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.”
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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).
Continue Reading..."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.
Continue Reading...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.
Continue Reading...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.
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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...Employee Payroll Deductions For Health Benefits Do Not Constitute Preferential Transfers When Paid Into A Health Plan
Golden v. The Guardian (In re Lenox Healthcare, Inc.), 343 B.R. 96 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)
When Guardian Life Insurance Company of America was sued by the Chapter 11 Trustee for Lenox Healthcare, Inc. for alleged preferential, fraudulent and unauthorized post-petition transfers it received, Guardian moved for summary judgment in part on the basis that the transfers it received were actually deductions taken by Lenox from its employees’ paychecks for the purpose of procuring health benefits. As a result, Guardian argued, the funds received by it were not transfers of the debtor’s interest in property, and therefore were not recoverable as preferences. The Bankruptcy Court (Judge Mary F. Walrath) agreed.
Continue Reading...Letter Of Credit And Its Proceeds Are Not Property Of The Estate
In re Oakwood Homes Corp., 342 B.R. 59 (Bankr. D. Del. 2006) (Judge Peter J. Walsh)
Defendants moved to dismiss an adversary complaint seeking recovery of funds related to a surety bond and to a letter of credit.
The Court dismissed the counts in the complaint that sought to recover the letter of credit and the proceeds of the letter of credit as neither was property of the estate. However, the Court denied the motion to dismiss counts which sought to recover for alleged contract breaches between the debtors and the Defendants because the estate had a recognized interest in the contractual and equitable claims of the debtor, which were property of the estate.
The Court also granted leave to amend two fraudulent transfer counts.
Court Denies Indemnitee's Motion for Administrative Expense, Finding That Indemnity Obligation of Debtors-Indemnitor Arose Pre-Petition Under Applicable State Law
In re ANC Rental Corp., 341 B.R. 178 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)
The claimant, Joan Martin, filed a motion for allowance and payment of an administrative expense against the estate of the debtors. The claim arose out of a pre-petition agreement under which the claimant rented a car from debtor Alamo Rent-A-Car. Martin was involved in a serious car accident in which two died. Post-petition, representatives of the other parties to the accident sued Martin and the debtors, who were found jointly and severally liable. The Minnesota court presiding over that matter found that the debtors had an indemnity obligation to Martin, and found the debtors primarily liable for payment of damages. Martin paid the settlement amount, and then filed an administrative expense motion against the debtors’ estate. The Bankruptcy Court denied the motion, finding that the indemnity obligation was an implied term of the car rental agreement, and therefore was a pre-petition obligation of the debtors that was not entitled to be allowed and paid as an administrative expense.
Continue Reading...Law Firm Disqualified For Concurrent Conflict Of Interest
In re Meridian Auto. Sys., 340 B.R. 740 (Bankr. D. Del. April 17, 2006) (Judge Mary F. Walrath)
A law firm that pre-petition represented a holder of first and second lien secured debt cannot thereafter represent an informal committee of first lien lenders when the debtor seeks bankruptcy protection. The committee representation is, by its nature, adverse to the interests of holders of other tranches of debt, and the representation therefore is prohibited by Model Rule of Professional Conduct 1.9(a).
Continue Reading...Property In Dispute Between A Debtor, Contractor, And A Buyer Of The Debtor's Assets Remains Property Of The Buyer
In re Orion Refining Corp. (Syracuse v. Orion Refining Corp.),341 B.R. 470 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)
A contractor sought summary judgment on a complaint he filed to determine title to surplus materials located at a facility the Debtor sold to a third-party. The Debtor filed a cross-motion for partial summary judgment asserting that title to the surplus materials passed to the purchaser of the facility. The Court denied the contractor’s summary judgment motion because the buyer’s interest in the surplus materials as a third party purchaser could not be challenged based upon the contractor’s claim against the debtor. The Court also granted the debtor’s cross motion and released sale proceeds held in escrow to the debtor.
Continue Reading...Prepetition Amendment To Pension Plan Is A Fraudulent Transfer
Pension Transfer Corp. v. Beneficiaries Under the Third Amendment to Fruehauf Trailer Corp. Retirement Plan No. 003 (In re Fruehauf Trailer Corp.), 444 F.3d 203 (3d Cir. 2006) (Circuit Judge Thomas L. Ambro)
The Delaware District Court approved the avoidance of an alleged fraudulent transfer under §548(a)(1) of the Bankruptcy Code of a surplus from a union pension plan that was used to provide benefits to management through a pre-petition amendment to the debtor’s pension plan.
The pension plan had been amended on September 19, 1996 and the Debtor filed its bankruptcy petition approximately two weeks later.
The District Court found that there was not reasonably equivalent value provided to the Debtor for the loss of the surplus used to provide benefits to management. The Defendants had failed to prove that the plan amendment helped to retain key personnel so that the debtor could sell its assets as a going concern.
On appeal, the Third Circuit concluded that the amendment to the pension plan was fraudulent despite the lack of a precise calculation of the benefits conferred and received by the plaintiff.
Trademark License Was Executory, And Debtor's Rejection Was Supported By Business Judgment
In re Exide Techs., 340 B.R. 222 (Bankr. D. Del. 2006 (Judge Kevin J. Carey)
The debtor sought to reject a trademark agreement and the other party to the agreement argued that the agreement was not executory and, if the agreement was executory, the debtor did not exercise proper business judgment in rejecting the agreement. The Court held that the agreement was executory and approved the debtor’s decision to reject the agreement holding that the debtor exercised proper business judgment.
Continue Reading...Letters Asking Debtor To Comply With Trade Terms Does Not Invalidate Ordinary Course Defense, But Change In Credit Terms To Payment In Advance Takes Payments Out Of The § 547(c)(2) Safe Harbor
In re Hayes Lemmerz Int'l, Inc. (HLI Creditor Trust v. Metal Techs., Inc., 337 B.R. 49 (Bankr. D. Del. 2006) (Judge Paul B. Lindsey)
The Court presided over a trial in which only the defendant’s § 547(c)(2)(B) and (C) ordinary course of business defenses were at issue.
The Court found that the payments had been made pursuant to ordinary business terms in the defendant’s industry under pre-BAPCPA §547(c)(2)(C) and read the acceptable range of payment aging broadly.
The Court further found that a creditor who insists on a debtor remaining within credit terms established by the parties can do so without taking subsequent payments out of the ordinary course of business under §547 (c)(2)(B). However, if credit terms are altered, such as when shipment is conditioned on advance payment, the ordinary course defense is defeated.
Proofs Of Claim Of Debtor's Former Employees Terminated Within Ninety Days Before Petition Date Allowed Because Right To Severance Is Based On Termination Date, Not On Date Of Employment Contracts
In re Garden Ridge Corp., Case No. 04-10324 (KJC), 2006 WL 521914 (Bankr. D. Del. March 2, 2006) (Judge Kevin J. Carey)
Two former employees of the Debtor had employment contracts entitling them to severance pay if they were terminated without cause. Both former employees were fired within the 90 day period preceding the Petition Date. Each filed a proof of claim asserting they were entitled to an unsecured priority claim of $4,650, pursuant to 11 U.S.C. § 507(a)(3), on the basis that their severance compensation was “earned within 90 days before the date of the filing of the petition.” The Debtor objected to both claims, asserting that the right to payment accrued when the employees each entered into their respective employment contracts. The Court held that the employees held valid claims under section 507(a)(3) because the significant date was the date of termination, not the date of their employment contracts.
Continue Reading...11 U.S.C. § 363(k) Allows A Secured Creditor To Credit Bid Up To The Full Face Value Of Its Claim, Even When The Collateral Securing The Claim Has No Economic Value
Cohen v. KB Mezzanine Fund II (In re Submicron Sys. Corp.), 432 F.3d 448 (3d Cir. 2006) (Circuit Judge Thomas L. Ambro)
The Plan Administrator for the Debtor’s estate commenced an adversary proceeding seeking to recharacterize the secured claims of insiders of the debtor from debt to equity, or in the alternative, to equitably subordinate the claims and impose a constructive trust. The District Court entered judgment in favor of the defendants, and the Third Circuit affirmed. The Third Circuit held that the creditors’ security interests were properly perfected, and that their credit bids to purchase assets of the debtor were not capped by the economic value of the collateral securing their claims. Instead, they could credit bid up to the full face value of their secured claims.
Continue Reading...Delaware Bankruptcy Court Holds That New Value Need Not Remain Unpaid For Preference Defendant To Prove Subsequent New Value Defense
Hechinger Inv. Co. of Del. v. Universal Forest Products, Inc. (In re Hechinger Inv. Co. of Del., Inc.), Case No. 99-02261 (PJW), Adv. Pro. No, 01-3170 (PBL), 2004 WL 3113718 (Bankr. D. Del. December 14, 2004) (Judge Paul B. Lindsey)
The debtor, Hechinger Investment Company, operated a chain of home improvement stores. Defendant Universal Forest Products was a trade creditor of the debtor, supplying treated wood products for sale at the debtor’s stores. The debtor brought a preference action against UFP. UFP filed a motion for summary judgment, asserting various defenses under 11 U.S.C. § 547(c), including, most notably, a subsequent new value defense under section 547(c)(4). The Court distinguished the Third Circuit case of In re New York City Shoes, Inc., 880 F.2d 679 (3d Cir.1989), holding that in a typical running account scenario like this one, there is no requirement in section 547(c) that new value remain unpaid. However, the Court held that summary judgment was premature absent a waiver of the other asserted defenses under section 547(c), or a stipulation by the parties as to the amount in controversy, because a calculation under section 547(c)(4) must be prefaced by a determination of whether the transfers made on account of new value are "otherwise avoidable."
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