Delaware Business Bankruptcy Report

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

Morris James Delaware — Tue, 15 May 2012 13:45:58 -0500

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

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

On the Petition Date, the Debtors moved for approval of the bidding procedures for the sale of the Debtors’ fuel systems business. Subsequently, Debtors filed a Notice of Filing Schedules to Asst Purchase Agreement, which contained an exhibit including certain executory contracts to be assumed by the purchaser. The Supply Agreement with Almond was excluded from this list. The Debtors also filed a Notice of Intent to Assume and Assign Certain Leases and Executory Contracts and Fixing of Cure Amounts, which also excluded the Almond agreement.

The Asset Purchase Agreement was later amended and added the Supply Agreement to the Asset Purchase Agreement schedule and the Court approved the sale motion and entered the Sale Order. After the Sale Order was entered, Almond received payment in the amount of $367,385.57 (less than the amount it was owed), which satisfied its cure clam in accordance with the Amendment to Supply Agreement and the Sale Order.

In October 2, 2009, the Court converted the Debtors’ bankruptcy cases under chapter 7 of the Bankruptcy Code and Alfred T. Giuliano was appointed as the chapter 7 trustee (the “Chapter 7 Trustee”). The Chapter 7 Trustee commenced a preference action against Almond seeking recovery of $1,445,659.77, under sections 547 and 550 of the Bankruptcy Code. Almond answered, then sought summary judgment arguing that the Trustee could not satisfy section 547(b)(5) of the Bankruptcy Code that requires a finding that Almond received more than it otherwise would have received in a chapter 7 liquidation. The Chapter 7 Trustee responded to summary judgment arguing that summary judgment should be denied because the Supply Contract was not actually assumed and assigned.

The Court agreed with Almond. Under established Third Circuit law (see Kimmelman v. Port Authority of New York and New Jersey (In re Kiwi International Air Lines, Inc.), 344 F.3d 311, 321 (3d Cir. 2003)), section 547(b)(5) could not be satisfied if the executory contract at issue was assumed pursuant to a court order because “had the creditors not received the payments prepetition, they would have received amounts reflecting those sums, in any event, when the Bankruptcy Court approved the cures of assumed agreements.” The Court determined that the Almond Supply Agreement was assumed because Almond was specifically listed in a notice, its agreement was attached in the sale order and it was included in the list of contracts to be assumed and assigned to the asset purchase agreement. Summary judgment was granted in Almond’s favor.

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

Morris James Delaware — Tue, 15 May 2012 13:19:51 -0500

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

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

Mr. Emmons alleges that on June 9, 2009, he sustained severe injuries when a “multi-piece wheel” exploded at his saw mill in Ripley County, Missouri. The markings on the wheel component identified the manufacturers as Firestone and Motor Wheel Company. On January 22, 2010, Appellees commenced a personal injury suit in Missouri state court only against Bridgestone Americas, Inc. and Bridgestone Americas Tire Operations, LLC. In March 2010, the state court case was removed to federal court in Missouri.

In the meantime, the confirmation hearing was held on November 3, 2009, after which the Bankruptcy Court entered an order confirming the plan, which became effective on December 21, 2009. Pursuant to the confirmation order, the Debtors filed a notice on December 21, 2009 with the Bankruptcy Court establishing January 20, 2010 as the administrative bar date.

Appellees claim that they first learned that certain components of the multi-piece wheel were designed, manufactured, and/or sold by Hayes on or about July 23, 2010. Appellees were granted leave to add Hayes as a party to the Missouri cause of action on August 11, 2010 and were notified by letter dated August 20, 2010 by counsel for Hayes of Hayes’s chapter 11 plan. On September 28, 2010, Appellees filed a motion for relief from the plan discharge injunction and an application for allowance of late-filed administrative expense claims and reservations of rights. The Bankruptcy Court granted Appellees’ motions, indicating that the lack of actual notice of the administrative bar date was “fatal” to the Debtors.

The Debtors appealed, contending that the Bankruptcy Court failed to appropriately apply the “excusable neglect” standard to the late filed claim motions as required under Pioneer Inv. Servs. Co v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380 (1993) and In re O’Brien Envt’l Energy, Inc., 188 F.3d 116 (3d Cir. 1999) and that the Bankrutpcy Court erred by shifting the burden to prove that Appellees received actual notice to Hayes, yet denied the Debtors’ full discovery related to notice and good faith. The District Court agreed with the Debtors for the reasons set forth below.

First, the District Court evaluated the Supreme Court’s interpretation of the “excusable neglect” standard applied in allowing or disallowing late filed claims under Bankruptcy Rule 9006(b)(1). In Pioneer, 507 U.S. 380 (1993), the Supreme Court noted that the “determination is at bottom an equitable one, taking account of all relevant circumstances surrounding the party’s omission.” Such factors include: the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.

Remarking that “the Bankruptcy Court rested its excusable neglect determination on but two factors: the lack of actual notice by appellees of the bankruptcy proceedings and the court’s conclusion that the allowance of appellees’ claim did not constitute undue prejudice to the Debtors,” the District Court expressed concern over the Bankruptcy Court’s failure to address all of the factors identified in Pioneer and In re O’Brien. In particular, the District Court noted the Bankruptcy Court’s lack of discussion regarding the Debtors’ allegations of bad faith and constructive notice, evidence of which was in the record, according to the District Court.

In light of the analysis in Pioneer, particularly as it related to the Supreme Court’s emphasis on the good faith of the party claiming excusable neglect, the District Court reversed the Bankruptcy Court’s order and remanded for further proceedings.

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

Morris James Delaware — Tue, 01 May 2012 11:28:58 -0500

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

According to the first-day Declaration of Gordon Boggis, the President and Chief Executive Officer for each of the Debtors, filed in support of first-day motions (the “Declaration”),the Debtors are premier branded sporting goods companies that develop, source and market racquet sports equipment, footwear, apparel and accessories for tennis and indoor court sports, such as squash and racquetball, with leading market shares across a number of these categories worldwide. The Debtors also license the Prince trademark in certain countries for apparel, footwear and accessories and license proprietary technology patents for application in non-racquet sports categories, according to the Declaration.

The Declaration goes on to assert that the Debtors currently owe a total of approximately $65 million in secured indebtedness (the “Secured Debt”) to ABG-Prince LLC (“Authentic”), as well as $10.2 million in trade debt to vendors and approximately $1.8 million in other payables. Additionally, the Declaration cites declines in the global racquet sports market and demand for the industry’s products, as well as increased competition over the past five years and the economic downturn, as the combination which resulted in lower sales of the Debtors’ product lines.

In October 2011, for the second time in just over twelve months, the Debtors commenced a sale process to sell one or more of their assets and/or to enter into additional licensing arrangements with third parties, according to the Declaration, engaging Robert W. Baird and Company to explore licensing arrangements for the Debtors’ products and to market a wider array of the Debtors’ assets in order to accomplish this goal. Thereafter, the Declaration states that, in December 2011, the focus shifted to a potential sale of the Debtors as a going concern.

Contemporaneously with the petitions, Prince filed a proposed Chapter 11 Plan of Reorganization [Docket No. 18] and Disclosure Statement in Support of chapter 11 Plan of Reorganization [Docket No. 19]. A request for joint administration of the Debtors’ cases has also been filed [Docket No. 2].

Capitol Infrastructure and Affiliates File for Chapter 11 Protection

Morris James Delaware — Tue, 01 May 2012 09:21:40 -0500

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

According to the first-day Declaration of Glen D. Lang, the Chief Executive Officer of Capitol and the Manager or Chief Executive Officer of certain of the other Debtors, filed in support of Chapter 11 petitions and first-day motions (the “Declaration”),the Debtors are a fully integrated real estate and telecommunications company whose business is to secure telecommunications rights on properties, improve those rights by constructing broadband telecommunication infrastructure including fiber optics, coaxial cable, wireless systems, head end facilities, and satellite facitilies, and to deliver video, voice, internet and sometimes alarm services to end users. Prior to filing, the Debtors served communities with operations in 48 states and had 102,460 video customers, 14,034 voice customers and 47,933 data customers, with a year-end revenue of $69,159,735 for the year ended December 31, 2011.

The Declaration goes on to assert that, due to a variety of circumstances that culminated in February 2012, the Debtors’ overall cash flow from bank lending, other debt financing, commissions, and fees were all reduced dramatically, causing the Debtors to default on certain credit facilities and vendor payments and to lay off a substantial number of employees. These events led to the Debtors filing the Chapter 11 cases, according to the Declaration.

Bicent Holdings LLC Filed for Chapter 11 Protection

Morris James Delaware — Tue, 24 Apr 2012 08:44:44 -0500

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

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

Traffic Control and Safety Corporation Files for Chapter 11 Protection

Morris James Delaware — Mon, 23 Apr 2012 15:30:09 -0500

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

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

Solar Trust of America, LLC

Morris James Delaware — Wed, 11 Apr 2012 09:09:40 -0500

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

A motion for joint administration has been filed and the cases have been assigned to Bankruptcy Judge Kevin Gross. The cases will be jointly administered for procedural purposes under In re Solar Trust of America, LLC, et al., Case No. 12-11136 (KG).

AFA Foods, Inc. Files Chapter 11

Morris James Delaware — Wed, 11 Apr 2012 09:01:36 -0500

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

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

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

Morris James Delaware — Thu, 29 Mar 2012 15:31:46 -0500

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

The first-day declaration (the “Declaration”) of Michael T. Murren, the Chief Financial Officer of CRS and one of CRS’s affiliates, asserts that the Debtors have “negotiated and executed (a) a definitive postpetition financing agreement, thus ensuring liquidity during the Chapter 11 Cases, (b) a fully-baked sale process supported by the prepetition secured lenders and subject to higher or otherwise better bids in a competitive, market-tested auction, and (c) a comprehensive plan support agreement and wind-down strategy that is intended to satisfy administrative claimants and priority unsecured claimants pursuant to a chapter 11 plan, notwithstanding [the Debtors’] significant prepetition secured obligations.”

|The Declaration further states that the Debtors are headquartered in Cary, North Carolina, and are the leading provider of early phase clinical research services as a contract research organization providing testing services for name-brand pharmaceutical and generic drug companies. The tests run by the Debtors, according to the Declaration, are then utilized in reporting to the Food and Drug Administration (the “FDA”) by such pharmaceutical and drug companies. The Debtors have approximately $185 million in funded indebtedness comprised of the debts listed on page 6 of the Declaration.

According to the Declaration, the inaccurate date and time data entered by six research chemists at the Debtors’ Houston, Texas bioanalytical laboratory, purportedly to obtain additional compensation through weekend pay and for hours the chemists did not work, led to the Debtors hiring an independent third party, Bioclinical Research Solutions to investigate the allegations, developing and implementing a corrective preventative action plan, engaging in discussions with the FDA regarding the accuracy of certain trials conducted in the Houston laboratory between April 2005 and June 2010, engaging in a rework of certain studies conducted from April 1, 2005 to February 28, 2008, and to severe constraints on the Debtors’ liquidity position. The Debtors subsequently exited a leased facility, reduced workforce, and engaged in a marketing process which resulted in the Prepetition First Lien Lenders agreeing to provide debtor-in-possession financing the fund the Chapter 11 Cases, allow for the Debtors to conduct an appropriate marketing process postpetition, provide for a wind-down of the estates, and offer a bid higher than the other bidder through a credit bid.

The case has been assigned to Judge Kevin J. Carey and is being administered under Case Number 12-11004.

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

Morris James Delaware — Fri, 23 Mar 2012 11:03:26 -0500

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

The first-day declaration (the “Declaration”) of Robert C. Balderston, the President of the Debtor, asserts that the Debtor has been in the business of selling and servicing new and used Ford vehicles as an authorized and approved dealer for Ford Motor Company since 1978, employs approximately 124 people, and has a monthly payroll of approximately $557,000. Although the Debtor reported net revenues of approximately $60,800,000.00 during the fiscal year ended December 31, 2011, the Debtor’s involvement in pending state court litigation (the “State Court Litigation”) led to the Debtor seeking Chapter 11 protection, according to the Declaration.

In the State Court Litigation filed against the Debtor, a jury awarded actual damages of $171,520 and punitive damages of $1,750,000. The judgment was subsequently amended to include attorneys’ fees in the amount of $137,070. Through the bankruptcy process, the Debtor intends to restructure its debt obligations to enable it to satisfy the claims of its pre-petition, secured lender, vendors, and other creditors under a plan of reorganization, as well as to pursue its appeal of the state court judgment discussed above, according to the Declaration.

The case has been assigned to Judge Mary F. Walrath and is being administered under Case Number 12-10982.

FastShip, Inc. and Two Affiliates File Chapter 11

Morris James Delaware — Wed, 21 Mar 2012 11:00:11 -0500

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

The cases have been assigned to Bankruptcy Judge Brendan Linehan Shannon. The Debtors have filed a motion for joint administration of the cases under Case No. 12-10968 (BLS).

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

Morris James Delaware — Tue, 06 Mar 2012 15:42:02 -0500

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

According to the first-day Declaration of Benjamin B. Ward, the Chief Financial Officer of the Debtors, in Support of First Day Motions (the “Declaration”), Pemco is a wholly-owned subsidiary of WAS Inc., which is a wholly-owned subsidiary of WAS Holding. WAS Holding is 85.08% owned by Sun Aviation Services, LLC (“Sun Aviation”), which is not a debtor in these cases. In addition, Pemco is the 100% owner of Pemco World Air Services (Canada) Inc. (“Pemco Canada”), a Canadian entity also not involved in the bankruptcy cases.

The Declaration goes on to assert that the Debtors are an industry leader in maintenance, repair, and overhaul for wide and narrow body aircraft and regional jets from around the world, and are the world’s leading provider of narrow body aircraft cargo conversions. The downturn in the global economy, unprecedented volatility in the global credit markets, increased competition, and increasing material costs all adversely affected the Debtors’ operations and led to the bankruptcy filing, according to the Declaration.

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

Morris James Delaware — Tue, 28 Feb 2012 15:03:33 -0500

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

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

As part of the Debtors’ first day pleadings, they requested that the Court approve certain lease rejection procedures (the “Rejection Procedures Motion”), which the Court did on October 25, 2011 (the “Lease Rejection Order”). In relevant part, the Lease Rejection Order provides that “the proposed effective date of the rejection of each such contract(s), which date may not be before the date of service of the Rejection Notice nor before the date the Debtors relinquish (or already have relinquished) control of the applicable premises by delivering keys and/or security codes to the affected landlord…”

On December 30, 2011, the Debtors filed and served the Rejection Notice on the Over-Landlord and the Subtenant, proposing that the effective date of the rejection be the next day: December 31, 2011. On the same day, Friendly’s general counsel sent a letter to both the Over-Landlord and the Subtenant informing the parties that the Subtenant’s continued possession of the property as a sublessee was a matter between the Subtenant and the Over-Landlord. On January 3, 2012, the Subtenant filed a petition for relief under chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of New York.

On January 9, 2012, the Over-Landlord objected to the rejection of the Over-Lease, arguing that the Debtors were required to deliver the keys and/or security codes for the Premises to the Over-Landlord before rejection became effective. As of February 21, 2012, the Debtors had not delivered the keys and/or security codes for the Premises to the Over-Landlord.

The Court sustained the objection to the Debtors’ lease rejection, summarily discounting in a footnote the Debtors’ argument that all that was required of them, both under the In re CHI-CHI’s Inc., 305 B.R. 396 (Bankr. D. Del. 2004) case and under the Lease Rejection Order was to surrender their interests in the Premises. The Court disagreed with the proposition in CHI-CHI’s that the effective date for a lease rejection is the “day the Debtors surrendered the premises to the Landlords, and the Landlords were able to enter into agreements with the current tenants” because it “disregards Section 365(h)(1)(A)(ii) of the Bankruptcy Code, which explicitly provides that a subtenant retains its rights under a rejected lease.”

Therefore, because: (1) the Debtors enjoyed the right, and the benefit of the Sublease; (2) the Debtors, not the Over-Landlord, were in privity of contract with the Subtenant, and therefore in the best legal situation to resolve the Subtenant’s continued occupation of the Premises; and (3) the Lease Rejection Order provides that rejection was only effective once the “Debtors relinquish (or have already relinquished) control of the applicable premises by delivering keys and/or security codes to the affected landlord,” the Court sustained the Over-Landlord’s objection to the Debtors’ rejection of the Over-Lease, noting that such rejection would “not be effective until the Debtors relinquish control of the Premises by possession to [the Over-Landlord] by wresting possession from [the Subtenant].”

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

Morris James Delaware — Wed, 15 Feb 2012 09:50:30 -0500

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

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

LSP Energy Limited Partnership files for Chapter 11 Bankruptcy Protection

Morris James Delaware — Mon, 13 Feb 2012 09:47:08 -0500

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

The Debtors' bankruptcy cases have been assigned to Bankruptcy Judge Mary F. Walrath. The Debtors have filed motions to have the cases jointly administered as part of their first-day motions. These and other first-day motions are pending. The cases have been assigned Case Nos. 12-10460 through 12-10464.

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

Morris James Delaware — Thu, 02 Feb 2012 10:14:20 -0500

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

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

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

First, the Court recounted IEAM’s argument and the plethora of cases cited by IEAM in support of its contention – with which the Court agreed – that “statutes of limitations are customarily equitably tolled to avoid technical forfeitures that would unfairly thwart a trial on the merits, unless tolling would be ‘inconsistent with the text of the relevant statute.’” At 5. The Court went on to state that “IEAM’s argument fails, not on that score, but because it assumes without discussion that § 548’s two-year look-back period is a statute of limitations. It is not; the look-back period is a substantive element of a § 548 claim, there to cabin the broad power given to the trustee to pursue fraudulent transfers.” Id.

Next, once the Court made clear that time periods which are “substantive statutory element[s] cannot be equitably tolled,” the Court compared the § 548 look-back period with statutes of limitations, observing that the two were distinct in the multiple respects, including: (1) the § 548 look-back period does not cap or regulate how far into the future the trustee may bring a claim, whereas a statute of limitations begins running when a cause of action accrues and limits the time in which a claim may be brought; (2) the look-back period does not refer to an act which is within the trustee’s control, but to the universe of transfers that are recoverable. In light of the Court’s conclusion that the look-back period was not a statute of limitations, and noting that “no other published decision from a bankruptcy court in this district has squarely confronted the issue presented here,” the Court declined to adopt the rulings cited by IEAM in support of its conclusion and, instead, declined to alter or amend its earlier opinion dismissing the § 548 claim against the Collyer Defendants.

Involuntary Chapter 11 Case Filed Against Saab Cars North America, Inc.

Morris James Delaware — Thu, 02 Feb 2012 10:08:46 -0500

On January 30, 2011, a group of Saab Dealers signed on to an Involuntary Chapter 11 petition against Saab Cars North America, Inc. Most of the petitioning creditors list unreimbursed warranty obligations. Late last year, Saab Automobile AB, Saab Automobile Tools AB, and Saab Powertrain AB filed for bankruptcy in Sweden. At the time, according to a letter from Tim Colbeck, President and COO of Saab Cars North America, Inc. (“SCNA”), SCNA had sought to pursue an out of court solution for its North American operations. The case has been assigned case number 12-10344.

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

Morris James Delaware — Wed, 18 Jan 2012 16:07:51 -0500

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

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

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

According to the first-day Declaration of A. Keith Wall – the Executive Vice President and Chief Financial Officer of Buffets, Inc. and an officer, manager, and/or director of each of the Debtors – the Debtors comprise the nation’s largest company-owned steak-buffet restaurant chain, and one of the largest national chains in the family segment of the restaurant industry. The Debtors’ steak-buffet restaurants principally operate under the names Old Country Buffet®, Country Buffet®, HomeTown® Buffet, Ryan’s® and Fire Mountain®. The affidavit goes on to provide that the Debtors own and operate an 11-unit full service, casual dining chain under the name Tahoe Joe’s Famous Steakhouse®, as well.

Although the Debtors reduced a significant amount of their long term debt under their prior chapter 11 plan, Mr. Wall states, the Debtors continue to be affected by the “sluggish U.S. economy.” Mr. Wall specifically points to decreased discretionary spending among the Debtors’ core customers, compounded by higher gasoline and energy costs, increased debt service loads, lower consumer confidence, above-market rate leases, and the general economic downturn as the primary areas which affected the Debtors’ business.

The Debtors, in conjunction with a steering committee of the Debtors’ secured lenders, have engaged in months of negotiations and agreed upon a pre-negotiated plan of reorganization, according to the affidavit.

The case has been assigned to Judge Mary F. Walrath and is being administered under case number 12-10237.

Single Asset LLC's Chapter 11 Petition Dismissed As Bad Faith Filing

Morris James Delaware — Fri, 13 Jan 2012 16:17:43 -0500

In re: Jer/Jameson Mezz Borrower II, LLC, Case No. 11-13338 (MFW) (December 22, 2011)

On October 18, 2011 (the “Petition Date”), debtor JER/Jameson Mezz Borrower II (“Mezz II”) filed its Chapter 11 petition on the eve of a UCC auction for Mezz II’s only asset; its membership interest in JER/Jameson Mezz Borrower I, LLC (“Mezz I”). CDCF JIH Funding, LLC and ColFin JIH Funding, LLC (collectively, “Colony”) was Mezz II’s sole lender and issued a notice of intention to auction Mezz II’s asset prior to the bankruptcy filing because Mezz II failed to repay its debt on the maturity date.

The debt was initially incurred in 2006 and, at that time, Mezz II was formed as part of a capital structure to acquire a chain of economy hotels known as the Jameson Inns and Signature Inns for approximately $400 million. JER/Jameson Properties LLC and JER/Jamesone NC Properties LP “Operating Companies’) borrowed $175 million and four affiliates, including Mezz II, were formed for the sole purpose of borrowing additional funds.

Approximately one week after the Petition Date, on October 26, 2011, Mezz I and the Operating Companies filed chapter 11 petitions. Shortly after the Petition Date, but before the bankruptcy filings of Mezz I and the Operating Companies, Colony filed a motion to dismiss Mezz II’s petition and to obtain relief from the automatic stay to foreclose on its collateral. Colony sought to dismiss the Mezz II petition with prejudice pursuant to section 1112(b) and 349(a) of the Bankruptcy Code, arguing that the petition was filed in bad faith that was designed to forestall the foreclosure efforts. Mezz II and the other debtors (the “Debtors”) contended, however, that the petition was filed in good faith with an honest intent to reorganize their affairs and maximize value for their constituents.

The Court, relying upon Third Circuit authority, noted that the burden was on the Debtors to establish that the petition was filed in good faith to preserve their going concern value or to maximize the value of the Debtors’ estates rather than as a litigation tactic. In determining whether Mezz II’s petition was filed in good faith, the Court considered the factors set forth in In re Primestone Inv. Partners, L.P., 272 B.R. 554, 557 (D. Del. 2002). Weighing the factors, the Court concluded that the case had been filed for an improper purpose. Specifically, the Court noted that Mezz II: (i) had one asset (the membership interest in Mezz I); (ii) had few if any unsecured creditors who, if they existed, exerted no pressure on Mezz II before the filing; (iii) had no ongoing business operations or employees; (iv) filed the petition on the eve of foreclosure solely to obtain the benefit of the automatic stay; (v) had no cash or income and (vi) had no likelihood of reorganization because its sole lenders contended that they would oppose any plan of reorganization. The Court also found that the case involved “only a two-party dispute” between Mezz II’s lenders and lenders to Mezz II’s affiliates.

Mezz II’s sole non-independent director admitted that the Mezz II bankruptcy petition was filed to stop the UCC sale and to “get Colony’s attention” because negotiations were not going well.

Debtors argued, however, that the purpose behind the filing was to preserve their enterprise value for the benefit of all constituents and by seeking to recapitalize and restructure the entire capital stack or to conduct a sale of the Inns. While the Court agreed with the Debtors that it should consider the business enterprises holistically, it ruled that, absent substantive consolidation, a plan could not be confirmed over Colony’s objection. Therefore, Mezz II would be unable to obtain an accepting class of any plan.

Debtors failed to offer any evidence that more value would be realized in bankruptcy than without it. The Court concluded that the petition was filed in bad faith and for no legitimate purpose. Cause existed under section 349(a) of the Bankruptcy Code to dismiss the petition with prejudice. Colony was entitled to relief from the automatic stay under section 362(d)(1) of the Bankruptcy Code because Mezz II’s interests were not adequately protected and under section 362(d)(2) of the Bankruptcy Code because the collateral was not necessary for an effective reorganization (as one was not possible).

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

Morris James Delaware — Thu, 12 Jan 2012 09:42:37 -0500

Peak Broadcasting, LLC Files for Chapter 11 Protection.

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

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

Shortly after Peak Holding’s formation, it invested in the acquisition of two radio stations: (1) the Fresno Cluster acquisition, which involved the purchase of seven (7) radio broadcasting stations in Fresno, California; and (2) the Boise Cluster acquisition, which involved the purchase of six (6) radio stations in Boise, Idaho. Both clusters had AM and FM stations and, according to the declaration, evidenced (or have since developed) good “power ratios,” which are measures of success in the radio industry. The Declaration reports that the economic downturn of 2008 severely affected revenues from advertisements, particularly in the Fresno Cluster stations, which in turn affected the Debtors’ ability to pay their obligations under various loans.

The case has been assigned to Judge Peter J. Walsh and is being administered under case number 12-10183.