Delaware Bankruptcy Litigation : Delaware Bankruptcy Lawyer & Attorney : Fox Rothschild Law Firm : Financial Restructuring & Bankruptcy Litigation

Introduction

On January 3, 2012,  Coach Am Group Holdings Corp., along with certain of its affiliates ("Coach" and/or "Debtors") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Aside from Coach America, Coach also operates under the brand names CUSA, American Coach Lines and Gray Line.  According to the Declaration of Coach's Chief Restructuring Officer (the "Declaration" or "Decl."),  Coach enters bankruptcy with approximately 6,000 employees and a fleet of over 3,000 vehicles. 

Events Leading to Bankruptcy

Like many chapter 11 debtors before it, Coach believes that its business is operationally sound, however, it needs to reorganize as a result of the recession that began in 2008.  Specifically, the company contends that its debt requirements and increased insurance costs have negatively affected liquidity.  Without sufficient cash, Coach is unable to implement much needed capital improvements.  Decl. at *7. 

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Introduction

This month, Bruce H. Mason, acting as creditor trustee (the "Trustee") for the CEI Liquidation Trust (the "Liquidation Trust" or "Trust") began filing preference actions against various defendants.  As stated in the Liquidation Trust's complaints, the Trust was created in the Champion Enterprises (aka "Champion Home Builders" or "Champion") bankruptcy pursuant to Champion's Second Amended Joint Plan of Liquidation.  This post will look at Champion's business, why the company filed for bankruptcy as well as some of the events that have transpired since the company entered into bankruptcy.

Background

As I discussed in a 2009 post on this blog, Champion filed for bankruptcy protection in the Delaware Bankruptcy Court on November 25, 2009.  One of the first documents Champion filed with the Bankruptcy Court was the Declaration of Champion's CFO in Support of its First Day Motions (the "Declaration").  As reflected in the Declaration, Champion builds commercial and residential modular housing throughout the United States.  The company began in 1953 in Dryden, Michigan where it produced roughly two houses per week. Over the years, Champion expanded in to the production of travel trailers, campers, commercial buses and mobile homes.  Decl. at *4.

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Summary

In a very easy to follow opinion issued October 21, 2011, Judge Sontchi of the Delaware Bankruptcy Court denied a motion to dismiss an avoidance action for improper venue or, in the alternative, to transfer venue of the action. Judge Sontchi’s opinion is available here (the “Opinion”). The Opinion provides an excellent framework for all preference defendants to analyze how applicable this defense may be in actions brought against them. The following posts have addressed issues of venue:

Decision in NWL Holdings, Inc., Limits the Ability of Defendants to Transfer Preference Actions

Decision in DBSI Inc., Reminds Us that District Courts have Personal Jurisdiction Throughout the United States

Decision in DHP Holdings Considers Forum Selection Clause in Deciding Whether to Grant Motion to Change Venue

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Introduction

Earlier this month, the Liquidating Trust in the Advanta Corp. bankruptcy proceeding began filing preference complaints in the Delaware Bankruptcy Court.  Advanta and certain affiliates ("Advanta") filed for bankruptcy in Delaware in November of 2009.  As stated in the Liquidating Trust's complaints, Advanta was at one time one of the largest issuers of "business purpose credit cards" in the United States. 

Background

Advanta started in 1974 as "Teachers Service Organization, Inc.."  In the 1980s, Teacher Service Organization became one of the first companies to securitize credit card and mortgage receivables.  In 1988, the company changed its name to Advanta.  Starting in the 1990s, Advanta began issuing credit cards targeting small businesses.  In 2001, Advanta made small business credit cards its primary focus.  See Advanta's Declaration in Support of Chapter 11 Petitions and First-Day Motions (the "Declaration" or "Decl."), filed with the Delaware Bankruptcy Court on November 8, 2009.

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Introduction

On October 4, 2011, Real Mex Restaurants, Inc. ("Real Mex") filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  In addition to Real Max, several of the company's subsidiaries also filed for bankruptcy protection.  These subsidiaries include Acapulco Restaurants, Inc., Chevys Restaurants, LLC, El Torito Restaurants, Inc., and El Paso Cantina, Inc. (collectively with Real Mex, the "Debtors").  This post will provide a brief summary of Real Mex's business operations, factors that lead to the company's bankruptcy filing, as well as the company's objectives now that it is in bankruptcy.  As I often do, much of the information provided in this post comes from the Declaration of Debtors' CFO in Support of First Day Motions (the "Declaration" or "Decl.").

Background

Real Mex describes itself as the "largest full service Mexican casual dining restaurant chain operator in the United States in terms of number of restaurants."  Decl. at *3.  As of June of 2011, Real Mex operated 178 restaurants, the vast majority of which are in California.  In addition to operating restaurants, Real Mex also franchises or licenses 30 restaurants in 10 states and two foreign countries.  The company's restaurants are spread all over the U.S., with stores in Washington state, New York, Florida and Louisiana (among others).  Id.

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Introduction

On October 17, 2011, commercial real estate developer Security National Properties Funding III, LLC ("Security National"), and certain affiliates filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Based in Eureka, California, Security National owns and operates 33 commercial properties in fifteen states across the U.S.  The company's holdings include commercial office space, retail locations, a mobile home park and industrial-use property.  See Declaration of Security National's CFO (the "Declaration"), filed with the Bankruptcy Court in conjunction with its bankruptcy petitions.  As is often the case,  this post will look at the debtor-company's finances and operations, why the company filed for bankruptcy and what it hopes to achieve while in bankruptcy.

Security National's Finances and Operations

Security National owns properties throughout the United States with specific holdings in Alabama, Alaska, Illinois, Kansas, Maine, Michigan, Minnesota, Mississippi, Montana, Nebraska, New York, North Carolina, South Carolina, Texas and Wyoming.  The company acquired most of its properties between 1993 and 2006.  Security National describes its business strategy as acquiring underperforming properties and then implementing a "stabilization of these properties through aggressive leasing and cost-cutting measures."  Decl. at *3. 

In 2009, Security National's lenders conducted an appraisal of the company's properties.  According to the lender's appraisal, the company's real estate portfolio was valued at $176 million.  Since receiving this appraisal, Security National points out that it has improved occupancy rates and income on its properties.  Decl. at *3.

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Introduction

On October 5, 2011, Open Range Communications ("Open Range"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Open Range's CFO (the "Declaration" or "Decl."), the company sought bankruptcy protection in order to either sell its assets as a going concern or wind down operations through a liquidation.  Decl. at *10.  This post will look at Open Range's business and the events leading to its bankruptcy.

Business History

Open Range describes itself as a wireless network provider to "unserved and underserved rural Americans."  Decl. at *2.  Based in Greenwood Village, Colorado, Open Range began operations in 2004.  By 2009, Open Range had secured a $267 million loan with the U.S. Department of Agriculture's Rural Utilities Services program.  Open Range's loan from the Department of Agriculture helped the company fund its buildout of its wireless broadband network.  Id.

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Introduction

As reported in the media, Friendly's Ice Cream Corporation ("Friendly's"), filed petitions for bankruptcy this week in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Friendly's CFO (the "Declaration" or "Decl."), Friendly's and four of its affiliates filed petitions for reorganization under Chapter 11 of the Bankruptcy Code.  Relying primarily on the Declaration, this post will look at Friendly's businesses, why the company filed for bankruptcy as well as what the company's objectives are now that it is in bankruptcy.

Friendly's Business

Friendly's describes itself as a "leading full-service, family-oriented restaurant chain and provider of ice cream products in the Eastern United States."  Decl. at *2.  Going in to bankruptcy, the company operates 490 restaurants in 16 states.  Aside from its restaurant operations, Friendly's also manufactures and sells ice cream in supermarkets and other stores.  Id.  Friendly's owns 250 of its restaurants, whereas the remaining stores operate under franchise agreements.  The company's franchised stores are operated by 40 independent businesses.  Id. at *5.  Restaurant sales reached over $213 million in the first eight months of this year.  Id.

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Last month, Jeoffrey Burtch (the "Trustee"), as Chapter 7 Trustee for the Opus South Bankruptcy, began filing preference complaints seeking to recover what the Trustee alleges are avoidable transfers under the Bankruptcy Code.  For those unfamiliar with the Opus South bankruptcy, the company filed petitions for bankruptcy in the Delaware Bankruptcy Court on April 22, 2009.  The Opus South bankruptcy began as a chapter 11 reorganization.  However,  on August 27, 2010, the Bankruptcy Court entered an order converting the case to a chapter 7 liquidation.  The Trustee was appointed on the same day that the case converted to chapter 7.

When Opus South originally filed for bankruptcy, one of the first documents filed with the Bankruptcy Court was a declaration (the "Declaration") of the company's Chief Restructuring Officer.  As stated in the Declaration, Opus South was a real estate development corporation headquartered in Atlanta, Georgia.  Prior to bankruptcy, the company had developed over 27 million square feet of real estate space.  The company's development projects included office, retail, government and multi-family projects.  Decl. at *4.

Prior to filing for bankruptcy, Opus South contacted its lenders in an effort to either restructure its loans or turnover properties through a deed-in-lieu of foreclosure.  According to the Declaration, the company's pre-bankruptcy efforts "did not result in a resolution of all issues with regard to the Debtors' pre-petition secured loans."  Decl. at *15. 

Opus South went in to bankruptcy hoping it could sell off properties under a section 363 sale of assets.  As the bankruptcy got underway, it became clear that not all of the company's lenders could agree on the terms of a sale of assets.  Unable to reach an agreement with its lenders and unable to fund a reorganization, Opus South eventually sought to convert to chapter 7. 

The Opus South bankruptcy proceeding is before Judge Mary F. Walrath.  Judge Walrath previously served as the Chief Judge of the Delaware Bankruptcy Court.  The Chapter 7 Trustee in Opus South is represented by the law firm Cooch and Taylor P.A. 

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Jason Cornell is an attorney with the law firm Fox Rothschild LLP.  Jason practices before the United States Bankruptcy Courts for the District of Delaware and Southern District of Florida.  You can reach Jason at 302 427 5512, or jcornell@foxrothschild.com.

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Earlier this month, James Carroll in his capacity as the "Wind Down Professional" for the Velocity Express bankruptcy, began filing preference actions against various defendants.  As alleged in the preference complaints, Carroll was appointed as Velocity's Wind Down Professional under a "Wind Down Order" entered by the Delaware Bankruptcy Court in July of last year.  At the time it filed for bankruptcy, Velocity was a package delivery (aka "logistics") provider whose services included customer bulk shipments, pick-up and delivery services as well as "expedited point to point services."  Decl. at *3. 

Velocity began its business as United Shipping & Technology.  In 1999, United acquired Corporate Express Delivery Systems.  Since reorganizing in 2002, United has operated as Velocity Express.  On September 24, 2009, Velocity filed petitions for bankruptcy with the Delaware Bankruptcy Court.  At the time of filing for bankruptcy, the company employed over 1,300 employees and had contracts with approximately 2,400 drivers.  Decl. at *5. 

Velocity attributes its need to file for bankruptcy to the downturn in the U.S. economy.  Many of Velocity's customers cut back on their shipping expenses as their sales declined.  As Velocity lost revenue, it was unable to cut certain expenses.  Commercial leases were just one of the fixed costs that Velocity contends forced it in to bankruptcy.  Decl. at *8.  To address the costs associated with leases, Velocity filed a motion with the Bankruptcy Court authorizing it to reject certain leases.  Velocity filed the lease rejection motion simultaneous with filing its petitions for bankruptcy.  Decl. at *16.

On September 24, 2009, Comvest Velocity Acquisition LLC entered into an asset purchase agreement with Velocity.  Comvest Velocity Acquisition LLC is an affiliate of Convest Investment Partners III, L.P.  The Bankruptcy Court approved the sale to Comvest on November 3, 2009. 

The Velocity Express bankruptcy, as well as the preference actions, are before the Honorable Mary F. Walrath.  Judge Walrath previously served as the Chief Judge of the Delaware Bankruptcy Court.  James Carroll, as the Plaintiff in the Velocity Express preference actions, is represented by the law firm Sullivan Hazeltine Allinson, LLC. 

For readers interested in more information concerning preference litigation, below are some prior posts I have written on the subject:  

Decision in Archway Cookies Grants Summary Judgment Based on Ordinary Course of Business Defense

Using the Solvency Defense in a Preference Action: In re Bernard Technologies

Recent Decision in Pillowtex Addresses Elements of the Ordinary Course of Business Defense in a Preference Action

Defending Avoidance Actions: The "Settlement Payment" Safe Harbor Receives Broad Interpretation Under In re Elrod Holdings

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Jason Cornell is an attorney with the law firm Fox Rothschild LLP and practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Jason at 302 427-5512 or jcornell@foxrothschild.com.

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On September 7, 2011, NewPage Corporation ("NewPage" or "Debtors") filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  As stated in NewPage's Declaration in Support of First Day Motions (the "Declaration" or "Decl."), filed with the Bankruptcy Court, NewPage produces coated paper used in magazines, brochures catalogs and textbooks.  NewPage manufactures its products in paper mills located in Kentucky, Maine, Maryland, Michigan, Minnesota, Wisconsin and in Nova Scotia, Canada.  Decl. at *4.

NewPage sells the majority of products in the United States and Canada.  The company uses three primary sales channels - direct sales to customers, sales to brokers who re-sell the products to end users and specialty sales to packaging and label manufacturers.  Decl. at *7.  Going in to bankruptcy, NewPage's workforce consists of approximately 6,000 employees, 70% of whom are represented by labor unions.  The Debtors have 16 collective bargaining agreements with its unions, most of which are settled and ratified.  One collective bargaining agreement remains open and subject to negotiation as of the Debtors' petition date.

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On June 23, 2011, the Supreme Court issued a ruling that has sent waves through bankruptcy courts across the nation. Stern v. Marshall, 131 S.Ct. 2594 (2011), is the latest opinion in a long running dispute between the estate of Vickie Lynn Marshall, better known as Anna Nicole Smith, and the estate of her late husband’s son, Pierce Marshall.

There have been numerous reviews and analyses of this opinion, so this blog post won’t focus on the specifics of the Stern decision. Rather, this post will attempt to illustrate the effects of the decision on the Delaware Bankruptcy Courts. One review of the Stern decision that I would recommend was written by Brett Axelrod of Fox Rothschild, and is available here: Axelrod Discussion of Stern v. Marshall. 

I do not doubt that the Delaware Judiciary has asked counsel in numerous hearings if Stern v. Marshall affects its ability to rule on the requested relief (I have personally witnessed this). And since the Stern decision was published, three of the sixteen published decisions of the Delaware Bankruptcy Court have explicitly mentioned it.

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Introduction

Yesterday, Solyndra LLC, a California-based manufacturer of solar cells, filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Less than one month ago, another solar cell manufacturer, Evergreen Solar, also filed petitions for bankruptcy in Delaware (my prior post concerning the Evergreen bankruptcy is available here for review).  According to papers filed by Solyndra in its bankruptcy proceeding, several factors attributed to its bankruptcy filing.  Like Evergreen, Solyndra suffered from a worldwide drop in solar panel prices.  This post will look at Solyndra's business, why it filed for bankruptcy, as well as what the company hopes to achieve through the bankruptcy process.

Background

Based in Fremont, California, prior to bankruptcy Solyndra manufactured and sold photovoltaic solar power systems designed for commercial and industrial users.  See Declaration of Solyndra's CFO in Support of First Day Motions (the "Declaration" or "Decl.") at *3.  A copy of Solyndra's Declaration is available here for review. The company began in 2005, focusing on research and development of its products.  By 2007, Solyndra entered into a lease for its first production facility and by July of 2008, it began shipping product.  Decl. at *5

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On August 15, 2011, Evergreen Solar ("Evergreen"), filed chapter 11 petitions for Bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Evergreen's CEO, Michael El-Hillow (the "Declaration" or "Decl."), filed in support of its bankruptcy petitions, Evergreen incorporated in Delaware in 1994 and manufactures "multi-cystalline silicon wafers."  The company uses its silicon wafers in the production of photovoltaic solar cells, which in turn are installed in solar panels under the Evergreen trade name.  Decl. at 3.

Solar panels are the primary source of revenue for Evergreen. In 1997, the company began selling solar panels in Europe.  Evergreen continues to focus its sales on European consumers as governments in Europe traditionally subsidize consumer purchases of solar equipment.  To get its product to market, Evergreen sells through distributors, system integrators and other resellers that incorporate the company's product into an integrated system. Decl. at 4.

In 2007, Evergreen began construction on a manufacturing facility in Devens, Massachusetts.  In 2010, Evergreen began production in its facility in Wuhan, China.  Aside from the Massachusetts and Chinese facilities, Evergreen also manufactures components for its solar panels at a facility in Midland, Michigan.  Earlier this year, Evergreen closed the Devens, Massachusetts facility and plans to stop production at the Michigan facility as well.  Decl. at 5.

Evergreen attributes its bankruptcy filing to "an intensely competitive and rapidly evolving" solar power market.  Decl. at 12.  Further, Evergreen must compete with the Chinese solar industry - an industry it views as highly subsidized, yet unencumbered by high labor costs.  Prices in the solar industry dropped considerably in 2010 and 2011 due to both overcapacity and a general decline in demand.  Decl. at 13. 

Through bankruptcy, Evergreen hopes to market and sell substantially all of its assets.  Certain of the company's noteholders have agreed to a section 363 sale of assets wherein the noteholders will seek to credit bid for the Evergreen's assets.  Decl. at 17.  Through the auction process, the sale of Evergreen would be subject to higher and better offers of third parties, subject to the approval of the Bankruptcy Court.  Decl. at 17. 

The Evergreen bankruptcy is before the Honorable Mary F. Walrath.  Evergreen's bankruptcy counsel is Pachulski Stang Ziehl & Jones LLP.

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Jason Cornell practices before the Delaware Bankruptcy Court with the law firm Fox Rothschild LLP.  You can reach Jason at 302 427-5512 or jcornell@foxrothschild.com.

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