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

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

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

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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)

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

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

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

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

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

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

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

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

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

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

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

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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.

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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.

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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.

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