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Delaware Business Bankruptcy Report (10)

Section 503(b)(9) Claims and Bar Dates: Creditors Must Be Vigilant

Posted: August 21st, 2008, 1:08pm PDT

Section 503(b)(9) Claims and Bar Dates: Creditors Must Be Vigilant, ABI Journal, Vol. XXVII, No. 6, July/August 2008. Authored by: Carl N. Kunz, III
Boscov's, Inc. and Affiliates File Chapter 11 in Delaware

Posted: August 4th, 2008, 7:18am PDT

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Early this morning, August 4, 2008, Boscov’s, Inc. and 7 affiliated debtors filed Chapter 11 petitions in Delaware. The affiliates are: Boscov’s Investment Company, Boscov’s Department Store, LLC, Boscov’s Finance Company, Inc., Boscov’s PSI Inc., Boscov’s Transportation Company LLC, Retail Construction and Development, Inc. and SDS, Inc. Judge Kevin Gross is presiding over these cases. The petition is here.
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According to an affidavit filed by Michael J. Hughes, Executive VP-Capital Development for Boscov’s, Inc. and Boscov’s Department Stores, LLC, Boscov’s Inc., through Boscov’s Department Stores and other subsidiaries, owns and operates the nation’s largest family owned, full-service department store chain, and currently operates 49 stores in Pennsylvania, New Jersey, Maryland, New York, Delaware and Virginia.

Mr. Hughes indicates in his affidavit that the collapse of the housing market, skyrocketing energy and gasoline prices and steadily increasing food costs, among other things, have resulted in a decline in the discretionary spending by consumers upon which the Debtors’ businesses depends. Tightening in the credit markets, including tightening of credit terms by Boscov’s trade creditors, is also noted as a factor in the filing.

The expressed goal of Boscov’s filing is to develop a business plan that will recast and streamline the Debtors’ capital and expense structure to position the Debtors to compete successfully in the broadline retail industry. In the short term, the Debtors anticipate the closing of approximately 10 unprofitable stores and the immediate liquidation of the inventory in those stores through going-out-of-business sales. Boscov’s is looking to have a plan proposed in the fall with possible confirmation during the first quarter of 2009.
Morris James Bankruptcy Partners Miller and Kunz Recognized by 2008 Chambers USA

Posted: June 23rd, 2008, 2:32pm PDT

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The publishers of Chambers USA: America’s Leading Lawyers for Business recently launched the 2008 Client’s Guide. Morris James partners Stephen M. Miller and Carl N. (“Chuck”) Kunz, III have been recognized by Chambers this year in the area of bankruptcy. Mr. Miller appears in Chambers for the 4th time.

In its description of the Morris James Bankruptcy and Creditors’ Rights Group, Chambers USA notes that “this ‘persuasive and innovative’ team has also carved itself a niche in the representation of commercial landlords in bankruptcy proceedings across the country. The attorneys here are known for their quiet reliability and diligence, which is a great help for their clients: ‘I can rely on them to work independently when I’m tied up on other matters.’ Group chair Stephen Miller ‘does a wonderful job’ on the creditors side, and is rated for his ‘smart, diligent and solid approach.’ Carl Kunz makes his first appearance in these rankings this year, and does so thanks to a growing band of followers who affirm that ‘his practice is really taking off.’ He is building a reputation for the representation of secured and unsecured creditors in Chapter 11 and Chapter 7 bankruptcies in Delaware and beyond, and his background in litigation is an obvious asset to his clients. Collectively, Miller and Kunz are highlighted for their ability to ‘handle matters in a cost-efficient manner’ - an attention to value which is exemplified by the team’s willingness to ‘keep me informed about the status of matters,’ according to one client - and their proactivity with regard to dealing with ‘what may be coming up later in a case.’”

Chambers USA ranks law firms and attorneys in particular areas of law based upon the results of more than 14,000 interviews conducted during a six-month period. The qualities assessed during the interviews are those most valued by the client: technical legal ability, professional conduct, client service, commercial awareness, diligence, and commitment.
Morris James Attorneys at ABI Summer Conferences

Posted: June 19th, 2008, 10:35am PDT

Brett D. Fallon, a partner in Morris James' Bankruptcy and Creditors' Rights group, will be a panelist at this year's American Bankruptcy Institute 4th Annual Mid-Atlantic Bankruptcy Workshop. The conference which will take place in Cambridge, Maryland from July 31 through August 2, 2008.

Brett will speak on the "Leveling the Playing Field: Avoidance Issues Update” panel, which will be moderated by the Honorable Mary D. France of the United States Bankruptcy Court for the Middle District of Pennsylvania. Brett is also a member of the Advisory Board for the conference.

Morris James attorney Thomas M. Horan is the facilitator of the “Swords into Plowshares: Mediation and ADR” panel at the conference. That panel will be moderated by the Honorable Kevin Gross of the United States Bankruptcy Court for the District of Delaware.

Morris James attorneys Douglas N. Candeub and Ericka F. Johnson also plan to attend the conference.

Visit the ABI website to register for the Mid-Atlantic Bankruptcy Workshop.

Brett is also planning to attend the ABI's 13th Annual Southeast Bankruptcy Workshop in Amelia Island, Florida from July 16 through 19, 2008. Brett will be joined by Morris James partners Stephen M. Miller and Carl N. ("Chuck") Kunz, III. Steve Miller will also attend the ABI's 15th Annual Northeast Bankruptcy Conference in Brewster, Massachusetts from July 10 through 13, 2008.
Brett D. Fallon Appointed Chair of the Claims and Priorities Subcommittee of the ABA Business Bankruptcy Committee

Posted: June 19th, 2008, 10:26am PDT

On April 1, 2008, Brett D. Fallon, a Partner in Morris James' Bankruptcy and Creditors' Rights group, was appointed as Chair of the Claims and Priorities Subcommittee of the American Bar Association Business Bankruptcy Committee. Mr. Fallon's three (3) year term will begin at the committee's fall meeting. The Business Bankruptcy Committee operates through 33 subcommittees and consists of approximately 1,200 members, and is the largest group in the world made up exclusively of bankruptcy lawyers, professors and judges.

The Business Bankruptcy Committee is affiliated with the Business Law Section of the American Bar Association. It offers educational programs, develops and reviews proposed bankruptcy legislation, and is an important participant in United Nations Commission on International Trade Law's Insolvency and Secured Transactions Working Group.
Supreme Court Reverses 11th Circuit Court of Appeals in Florida Department of Revenue v. Piaccadilly Cafeterias

Posted: June 16th, 2008, 11:33am PDT

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

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

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

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

Posted: June 16th, 2008, 11:33am PDT

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

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

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

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

Posted: June 11th, 2008, 12:42pm PDT

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.
Grossman’s was a retailer of home improvement and building products. Grossman’s filed for protection under chapter 11 of the Bankruptcy Code in April 1997. The deadline for filing proofs of claim was August 4, 1997. At the time of this chapter 11 case, Grossman’s was unaware of any potential products liability lawsuits. However, Grossman’s was apparently aware that it sold products containing asbestos and was aware of the health risks associated with asbestos. Mary Van Brunt allegedly purchased home improvement products containing asbestos from Grossman’s in 1977. The Van Brunts did not file a proof of claim in the bankruptcy case. Thirty years after purchasing the products, Mary Van Brunt was diagnosed with mesothelioma. She did not exhibit symptoms of the disease until late 2006. As a result of the diagnosis, the Van Brunts filed a products liability suit in New York State Court against JELD-WEN. JELD-WEN subsequently commenced this adversary proceeding in the Bankruptcy Court for the District of Delaware.

JELD-WEN contended that the Van Brunts’ state court claims were barred by the Confirmation Order entered in the Grossman’s bankruptcy case. The Confirmation Order contained an injunction provision that barred claims arising before the effective date. The Bankruptcy Court concluded that the threshold question in this case was whether the Van Brunts’ claim arose before or after the Plan’s effective date.

The Bankruptcy Court utilized the holding of In re Frenville Co., Inc., 744 F.2d 332 (3d Cir. 1984), to determine that a bankruptcy court must examine state law to determine when a claim or interest arises. The Van Brunts’ filed their products liability claim in New York state court and no party disputed that New York state law governed these claims. Under New York law, asbestos injury claims do not arise until the injury manifests itself. Thus, the Van Brunts’ claims did not arise until after the plan’s effective date.

However, JELD-WEN contended that the majority of courts have concluded that a claim arises when the acts giving rise to the claim were performed. The cases cited by JELD-WEN for this proposition were located outside the Third Circuit. Additionally, JELD-WEN argued that Frenville was one of the “most criticized and least followed precedence” decided under the Bankruptcy Code and suggested that the Bankruptcy Court ignore it. The Bankruptcy Court refused to ignore Frenville and noted that another Third Circuit case, Jones v. Chemetron Corp., 212 F.3d 199, 206 (3d Cir. 2000), reaffirmed Frenville as the law of this circuit, despite contrary authority in other circuits.

The Bankruptcy Court further observed that the Third Circuit decided the question of when an asbestos claim arises in Schweitzer v. Consol. Rail Corp., 758 F.2d 936 (3d Cir. 1985). The Third Circuit held in the Schweitzer case that a claim for asbestos related injuries does not arise until the injuries manifest themselves. In doing so, the court reasoned that an injury that has not manifested itself would have damages insufficient to sustain a cause of action under tort law. Further, requiring a person who has no idea that he would be harmed by a product produced or sold by the debtor to file a claim in a debtor’s bankruptcy case would be absurd. Thus, the Third Circuit concluded that a claim for an asbestos-related injury does not arise until the injuries manifest themselves.

The Bankruptcy Court relied on this precedent and held that the Van Brunts’ claims did not arise until Mary Van Brunt began to exhibit symptoms of her injuries. As a result, the Confirmation Order did not bar the Van Brunts’ state court claims against JELD-WEN.
Goody's Family Clothing, Inc. and Related Entities Seeks Chapter 11 Protection

Posted: June 10th, 2008, 10:04am PDT

Yesterday, June 9, 2008, Goody’s Family Clothing, Inc. and 19 of its subsidiaries and affiliates sought bankruptcy protection in the United States Bankruptcy Court for the District of Delaware. The case is being administered under case number 08-11133.
According to the affidavit filed in support of the bankruptcy petitions and related first-day motions, Goody’s is a privately held Tennessee corporation owned by a Delaware entity, Goody’s Holdings, Inc., a non-debtor. The debtors operate specialty stores that sell clothes, shoes, accessories and gift items. In addition to website operations, the debtors operate 355 specialty stores throughout the southern and central United States.

According to the affidavit, events leading to the bankruptcy filing include operational losses, tightening of the credit markets, strain on merchandise flow and underperforming stores in the chain. Prior to the bankruptcy filing, Goody’s closed 18 stores, and, according to the affidavit, the debtors plan to close an additional 69 stores.

The affidavit indicates that the debtors began discussions with their major trade creditors prior to the filing to gather support for a plan of reorganization that the debtors expect to file within the first month of these cases.

The Honorable Christopher S. Sontchi has been assigned to the cases.
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

Posted: June 4th, 2008, 10:10am PDT

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.
On appeal, the Trustee first asserted that the prohibition on avoiding transfers listed in 11 U.S.C. § 546(e) only applied to publicly traded securities. On the other hand, Appellees asserted that the plain language of 11 U.S.C. § 546(e) and applicable Third Circuit case law demonstrated that the applicability of section 546(e) is not limited to publicly traded securities. The District Court concluded that the Bankruptcy Court correctly held that 11 U.S.C. 546(e) is not limited to publicly traded securities. Rather, the Court noted, Third Circuit case law, including In re Resorts Intl., Inc., 181 F.3d 505 (3d Cir. 1999) demonstrated that the phrase “settlement payment” should be broadly construed.

Second, the Trustee contended that the record established that the transferor, Plassein Packaging, was a debtor or the same entity as the Debtors. The Trustee asserted that the court should have looked to the public record to conclude that Plassein Packaging and Plassein International were the same entity. Appellees conversely argued that the Trustee failed to allege such a relationship in the Complaint. The District Court affirmed the Bankruptcy Court’s dismissal of the Complaint for failure to state a claim upon which relief could be granted. The District Court concluded that the Complaint failed to state such an allegation and this deficiency could not be cured by subsequent briefing or affidavits. Further, the Court determined that the Bankruptcy Court’s decision not consult the public record was not erroneous.

Finally, the Trustee argued that actual intent to defraud was not a required element to collapse the transactions. The Trustee sought to avoid the implication that Plassein Packaging was not a debtor by arguing that the transactions were a single integrated plan. Appellees countered, arguing that Third Circuit precedent requires a showing of bad faith or intent to defraud to collapse otherwise separate transactions. The District Court held that the allegations within the Complaint did not support collapsing the transactions. The court noted that collapsing otherwise separate transactions requires proof of bad faith or intent to defraud.

Thus, the District Court affirmed the Bankruptcy Court’s order.