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

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

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

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

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

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

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

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

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

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

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

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