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Delaware Bankruptcy Litigation

Information on Corporate Bankruptcy Proceedings in Delaware and Throughout the United States

Univita Health Inc. Has Filed for Bankruptcy Under Chapter 7

Posted in Bankruptcy Case Summaries

In what looks like a case study in the need to diversify, Univita Health Inc. filed for Bankruptcy in the District of Delaware on August 28, 2015 – It is being administered as Case No. 15-11788.  Pursuant to the Bankruptcy Petition it filed, Univita has also filed for bankruptcy under chapter 7 for 11 affiliates.

Although no official explanation for the bankruptcy filing appears on the docket, a quick Google search leads me to believe that Univita was the sole authorizer of home services for most Medicaid plan members in Florida.  Univita broadened its business to compete in the home health-care sector, and may have stepped on some toes in the process.  Regardless of whether it was forced into bankruptcy because of low payment rates from Medicaid or the termination of its contract by the Florida Agency for Health Care Administration (the “AHCA”), it appears likely that a single aspect of its business caused its ultimate failure.  The AHCA now lists Univita as “CLOSED”.  The listing is on AHCA’s Website here.

While explanations are not readily apparent on the docket, they will likely be provided at the 341 Meeting of Creditors, which is currently scheduled for 9/25/2015 at 11:00 AM at the J. Caleb Boggs Federal Building, 844 King St., Room 2112, Wilmington, DE 19801.

As this is a Chapter 7 liquidation, topics that are discussed during a Section 341 meeting may include the following:

  • The nature and scope of a debtor’s assets and liabilities;
  • The amount of accounts receivable and accounts payable;
  • The extent that the debtor is able to repay its creditors;
  • Whether insurance remains active; and
  • The condition and location of goods received in the 20-45 days before bankruptcy.

The Debtor is represented by Young Conaway Stargatt & Taylor and Latham & Watkins LLP.  The Docket currently shows that David Carickhoff of Archer & Greiner PC will be the Trustee who will administer the bankruptcy estate.

John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at jbird@foxrothschild.com.

Santa Fe Gold Corp. Files for Bankruptcy

Posted in Bankruptcy Case Summaries

On August 26, 2015, Santa Fe Gold Corporation and three of its subsidiaries, filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the “Court”).  The case no. is 15-11761 and is pending before the Honorable Mary F. Walrath.

The Debtors are continuing in possession of their properties and are managing their businesses, as debtors in possession, in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court.

Santa Fe Gold is a U.S.-based mining and exploration enterprise.  Santa Fe controls: (i) the Summit mine and Lordsburg mill in southwestern New Mexico; (ii) a substantial land position near the Lordsburg mill, comprising the core of the Lordsburg Mining District; and (iii) a deposit of micaceous iron oxide (MIO) in Western Arizona.

According to their petition, the Debtors have approximately $19 million in total assets, and $29.8 million in total debts.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

USA Discounters Ltd. files for Chapter 11 Bankruptcy Protection

Posted in Bankruptcy Case Summaries

USA Discounters Ltd. filed for bankruptcy protection in the Delaware Bankruptcy Court and plans to wind down its business.  The case is before the Honorable Christopher S. Sontchi, and is assigned case no. 15-11755-CSS.

Prior to its bankruptcy filing, USA Discounters sold furniture, appliances, electronics, jewelry and other products from stores located near military bases, often financing such purchases through its own credit program. The company cited the tough retail climate, a defaulted loan and various governmental actions regarding its operations as factors for the chapter 11 filing.

USA Discounters expects to use its time in chapter 11 to wind down its operations. It closed its twenty-four USA Living stores before filing for bankruptcy protection and is still considering its options for its seven Fletcher’s Jewelers stores.

Founded in 1991 in Norfolk, Va., USA Discounters financed customers’ purchases of such items as televisions, washers, dryers and jewelry—products it said “might otherwise be out of reach” for its customers, many of whom were military members and their families and had “limited resources or tarnished credit profiles.

USA Discounters has stated that it is owed an estimated $114 million on existing payment plans, its most significant asset.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Judge Silverstein’s First Published Opinion – Scarborough-St. James Corporation

Posted in Opinions

On August 18, 2015, Judge Laurie Selber Silverstein of the Delaware Bankruptcy Court issued her first written opinion in the bankruptcy case Scarborough-St. James Corporation.  In her 17 page opinion, Judge Silverstein addressed a long-running dispute between a landlord and the debtor.

Neither the Landlord nor the Debtor were original parties to the lease agreement.  However, since they had both assumed their respective positions, they had engaged in extensive litigation concerning the payment of rent.  The parties had eventually engaged in arbitration, as required by their contract.  Following a lengthy arbitration process, in which the arbitrator issued both an initial ruling and a final award, the litigation between the parties continued.  The arbitration award was challenged in the New York state courts; the Landlord sought to evict the Debtor and collect on rent due through litigation in Michigan; and ultimately, the Debtor filed for bankruptcy in the Delaware Bankruptcy Court.  The Debtor listed total debts of $740,323.18, $720,204.80 of which is the Landlord’s claim.  Opinion at *8.

The standard arguments were made under Rexene, as that is the controlling precedent for lift-stay motions.  The Rexene opinion has been discussed multiple times in this blog – click here to see prior posts related to Rexene.

Ultimately, as the Debtor had not been highly engaged in the bankruptcy process and there had already been extensive litigation prior to the bankruptcy filing, Judge Silverstein held that the Debtor would not suffer great prejudice if the stay was lifted.  Opinion at *10.  Judge Silverstein also held that all of the other Rexene factors weighed against the Debtor.  Opinion at *11-13.  Additionally, Judge Silverstein held that the injunction previously entered by the Michigan State Court, which severely limited the Debtor’s ability to use rents, acted as adequate protection of the Landlord’s interests and so declined to grant the Landlord’s motion for additional adequate protection.  Opinion at *6 & 16.

My $.02

One of the Debtor’s arguments against the motion for relief from stay is that it would distract the Debtor’s principals, harming their reorganization efforts.  To this Judge Silverstein responded, “based on the docket to date, the Court concludes that continuation of the Michigan Litigation will in no way impact the administration of the estate…. in the five months since this case was commenced, Debtor has not sought assistance from this Court in administering these cases.”  If you are going to argue that the bankruptcy case is distracting your principals, you need to, at a minimum, be pursuing your bankruptcy.

Judge Silverstein’s first published decision may not be groundbreaking, but it does not contain any surprises and upholds the Delaware Bankruptcy Court’s reputation for publishing well reasoned decisions.  I’m sure all the members of the bar join me in wishing the best for Judge Silverstein as she rules on the matters before her.

John Bird practices with the law firm Fox Rothschild LLP in Wilmington, Delaware. You can reach John at 302-622-4263, or jbird@foxrothschild.com.

Furniture Brands International – 93 Additional Preference Claims Filed

Posted in Bankruptcy Case Update

Since the time of my last post, Alan D. Halperin, the Trustee of the FBI Wind Down, Inc. Liquidating Trust has filed 93 more preference complaints.  Because the Debtor filed for bankruptcy on September 9, 2013, the Trustee has only two more weeks to file any additional preference complaints.

While we cannot be certain that these are the final preference complaints that will be filed in this case, the clock is ticking.

Prior posts about FBI:

Furniture Brands Files for Bankruptcy in Delaware Seeking to Sell Assets

Furniture Brands International – Preference Litigation has Begun

Furniture Brands International – Preference Litigation Update

For reader’s looking for more information concerning claims and defenses in preference litigation, linked is a booklet I co-authored on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at jbird@foxrothschild.com.

Boomerang Systems, Inc. Formation Meeting Scheduled

Posted in Bankruptcy Case Update

In the Boomerang Systems, Inc. bankruptcy proceeding (Delaware Bankruptcy Case No. 15-11729), a formation meeting has been scheduled for Thursday, August 27, 2015 at 10:00 a.m. (ET) at the J. Caleb Boggs Federal Building, 844 King Street, Room 2112, Wilmington, DE 19801.  Click Here for a copy of the Notice of Formation Meeting for Official Committee of Unsecured Creditors issued by the Office of the United States Trustee.  If you want to be considered for Committee membership, you MUST complete a questionnaire and return it to the U.S. Trustee no later than August 25, 2015 at 5:00 p.m. (ET). Continue Reading

Furniture Brands International – Preference Litigation Update

Posted in Preference Litigation

As explained in a prior post, the Liquidating Trustee had sent out demand letters, the first step towards preference litigation.  The prior post is here: Furniture Brands International – Preference Litigation has Begun.

On August 13, 2015, Alan D. Halperin, the Trustee of the FBI Wind Down, Inc. Liquidating Trust began filing preference actions.  In what is almost certainly the first of many waves of complaints, he has filed complaints against 9 companies alleging they received preferential transfers.

Defenses to a Preference Action

The Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the “ordinary course of business defense” and the “new value defense.” For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a booklet I prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at jbird@foxrothschild.com.

Priority Status Given to Claims of Landlords Against Involuntary Debtors

Posted in Commercial Landlords

On August 11, 2015, the Bankruptcy Court for the Northern District of California ruled on an issue “of apparent first impression” that claims for unpaid rent brought by landlords for office space leased to the former law firm of Howrey LLP should be given priority status under the Bankruptcy Code.  The case is styled as In re Howrey LLP, C.A. No. 11-31376 (Bankr. N.D. Ca. Aug. 11, 2015), and is an important read for all landlords providing ongoing services to involuntary debtors.

The Court found that consistent with Congress’s intent to protect parties that deal with involuntary creditors, priority status must be provided to so-called “gap claims”.

The Court also rejected the arguments of the Creditors Committee, which opposed priority status, ruling that “[g]ap priority provides an inducement and a protection for parties who deal with involuntary debtors[]”, and that “there is no hint that Congress meant to exclude landlords (or others who have ongoing contractual relationships with debtors when involuntary petitions in bankruptcy are filed against them).”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Assumption/Assignment of Contracts – Preference Defense

Posted in Preference Litigation

Many preference defendants are not aware of the fact that if their pre-petition contract with the debtor is assumed or assigned in the course of the bankruptcy, then such assumption/assignment will generally serve as a bar to recovery for receipt of alleged preferential transfers.

Under established Third Circuit law, the assumption or assignment of a contract prohibits recovery for pre-petition transfers made to such creditor during the 90 day preference period.  See Kimmelman v. Port Authority of New York and New Jersey (In re Kiwi Int’l Air Lines, Inc.), 344 F.3d 311, 321 (3d Cir. 2003) (holding that 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.”).

Accordingly, a preference defendant should consult with counsel to determine if its pre-petition contract with the debtor has been assumed or assigned by court order, which may in turn serve as a complete defense to a threatened or pending preference action.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Ordinary Course of Business Defense Further Examined – Burtch v. Revchem Composites, Inc.

Posted in Preference Litigation

In the recent opinion of Burtch v. Revchem Composites, Inc. (In re Sierra Concrete Design, Inc.), Adv. No. 10-52667 (CSS), 2015 WL 4381571 (Bankr. D. Del. July 16, 2015), the Delaware Bankruptcy Court issued a memorandum opinion following trial on claims asserted by Jeoffrey Burtch, Chapter 7 Trustee of Sierra Concrete Design, Inc. (“Sierra” or “Debtors”), seeking recovery against Defendant Revchem Composites, Inc. (“Revchem”) for alleged preferential transfers under Sections 547 and 550 of the Bankruptcy Code.

In the memorandum opinion, the Court found that Revchem successfully established at trial that each of the payments received by Revchem from Sierra during the 90 day preference period were made in the “ordinary course” of the parties’ business relationship, and were thus shielded from recovery pursuant to Section 547(c)(2) of the Bankruptcy Code.

This opinion is notable because Revchem was able to establish this defense even though it received payments from Sierra during the preference period at a much faster rate (a standard deviation of 27.9 days) than during the pre-preference period.

This is so because, as testified by Revchem, Sierra was engaged in a construction project with tight timelines and needed product at a faster rate than normal.  Because the Debtors were at their credit limit and had to pay previous invoices before receiving new product, the Debtors were paying at a faster rate during the preference period.  Thus, the Court found that the accelerated payments during the preference period were made in the ordinary course of business and granted judgment for Revchem.

This decision is a “must-read” for preference action defendants, as it dispels the notion that transfers made at a faster rate during the preference period (as compared to the pre-preference period) cannot be protected by the ordinary course of business defense.  It is clear that the Court will examine and consider circumstances between the parties which lead to changes in rates of payment in determining whether such transfers can be shielded by Section 547(c)(2).

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.