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

Introduction

As more companies file for bankruptcy, creditors and other interested parties of a debtor must quickly familiarize themselves with the automatic stay.  Section 362(a)(1) of the Bankruptcy Code stays "the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement" of a bankruptcy proceeding.  Generally speaking, the automatic stay is intended to give the debtor a "breathing spell" from its creditors.  To do so, the stay stops various forms of collection efforts against the debtor.

The automatic stay is not without limitations, however.  In drafting the Bankruptcy Code, Congress carved out exceptions where the automatic stay does not apply.  Further, the Federal Rules of Bankruptcy Procedure provide procedural safeguards for a party seeking relief from the automatic stay.  Given the frequency with which automatic stay issues arise in bankruptcy proceedings, this post is intended to provide a brief summary of the scope of the automatic stay.  Further, the latter part of this post looks at cases frequently cited by parties seeking relief from the automatic stay in the Delaware Bankruptcy Court.

Scope of the Automatic Stay

Section 362(a)(3) of the Bankruptcy Code defines the scope of the automatic stay.  Under this section, the automatic stay bars any "act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate."  In order to have the stay "lifted,"  section 362(d) authorizes a bankruptcy court to "grant relief from the stay provided
under subsection (a) of this section, such as by terminating, annulling, modifying or conditioning such stay …(1.) for cause, including the lack of adequate protection of an interest in property of such party in interest."

In order to trigger the automatic stay, there must be an act against either the debtor or against property of the debtor or of the estate. The automatic stay does not stay actions taken against non-debtor third parties. The Third Circuit has recognized that although the automatic stay has a broad scope,  the clear language under 362(a) applies only against a debtor.  See McCartney v. Integra Nat’l Bank North, 106 F.3d 506, 509 (3d Cir. 1997).  As a consequence “it is universally acknowledged that an automatic stay of proceedings accorded by § 362 may not be invoked by entities such as sureties, guarantors, co-obligors, or others with a similar legal or factual nexus to the … debtor."  Id.

Relief from Stay

Under section 362(d)(1) of the Bankruptcy Code, the bankruptcy court “shall” lift the automatic stay for “cause.”  If a creditor seeking relief from the automatic stay makes a prima facie case of “cause” for lifting the stay, the burden going forward shifts to the debtor pursuant to Bankruptcy Code § 362(g). See In re 234-6 West 22nd St. Corp., 214 B.R. 751, 756 (Bankr.S.D.N.Y. 1997).  

The Bankruptcy Code does not define “cause.” Instead, whether cause exists to lift the automatic stay should be determined on a case by case basis. See Izzarelli v. Rexene Prod. Co. (In re Rexene Prod. Co.), 141 B.R. 574, 576 (Bankr.D.Del. 1992). See also, In re Texas State Optical, Inc., 188 B.R. 552, 556 (Bankr. E.D.Tex. 1995) (finding that “cause” for modification of the automatic stay is “an intentionally broad and flexible concept that permits … [a] [b]ankruptcy [c]ourt, as a court of equity, to respond to inherently fact-sensitive situations.”) Courts determine what constitutes “cause” based on the totality of the circumstances in each particular case. Baldino v. Wilson (In re Wilson), 116 F.3d 87, 90 (3d Cir. 1997).

In re Rexene provides the “balancing test” to determine whether cause exists to lift the automatic stay. 141 B.R. at 576. Under Rexene, the balancing test looks at three factors to decide whether to lift the automatic stay, including: (a.) whether prejudice will be caused to the estate or the debtor;
(b.) whether hardship to the movant from continuing the stay outweighs any hardship to the debtor; and (c.) whether the movant has a reasonable probability of prevailing on the merits of the suit. Id.

In addition to the factors outlined above, a bankruptcy court may also consider the following general policies when deciding whether to grant a motion to lift the stay. These policies include: (1) whether the court has jurisdiction to hear the underlying claims arising from the underlying action; (2) whether granting movant relief from stay would provide a complete resolution of the issues presented in the underlying action; (3) whether granting the movant relief from the automatic stay would interfere with the debtors’ bankruptcy proceeding; (4) whether the interest of judicial economy and the expeditious and economical resolution of litigation weigh in favor of granting the movant relief from the automatic stay; (5) whether the parties are ready for trial in the underlying action; and, (6) whether the impact the stay has on the movant justifies the relief requested in the motion. In re: SCO Group, Inc., 395 B.R. 852, 857-58 & 859 (Bankr. D. Del. 2007).

Conclusion

Bankruptcy courts consider many factors when deciding whether to lift the automatic stay.  The broad scope of issues that can be considered by the court illustrate the flexibility provided for under the Bankruptcy Code.  Aside from the factors above, the timing of the request to lift the stay (i.e. requesting relief from stay days versus months after the commencement of a bankruptcy proceeding) also plays an important role in whether a court decides to lift the automatic stay.  A future post on this blog will look at recent decisions addressing the automatic stay.

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Jason Cornell is a partner with the law firm Fox Rothschild LLP in Wilmington, Delaware.  You can reach Jason at 302 427 5512, or jcornell@foxrothschild.com

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Those not familiar with the Federal Rules of Bankruptcy Procedure are often surprised to learn that service by mail is sufficient in a bankruptcy proceeding.  Federal Rule of Bankruptcy Procedure 7004(b)(3) authorizes service on a corporation (foreign or domestic) within the United States by first class mail as follows:

... by mailing a copy of the summons and complaint to the attention of an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process and, if the agent is authorized by statute to receive service and the statute so requires, by also mailing a copy to the defendant.

A recent decision in the Custom Food Products ("CFP") bankruptcy discusses what is required in order for service by mail to be deemed proper.  In the CFP bankruptcy, the liquidating trustee (the "Trustee") brought suit against a defendant (the "Defendant"), alleging the Defendant received avoidable transfers under section 547 of the Bankruptcy Code.  After the Trustee commenced the adversary action, he mailed the summons and complaint to Defendant's remittance address (a Chicago address) instead of Defendant's business address in North Carolina.  Defendant's remittance address was a Bank of America lockbox which Defendant set up to receive payments only.  See Decision at *2. 

Defendant never filed a responsive pleading to the complaint, resulting in the court entering a default judgment against the Defendant.  After the court entered a default judgment, the Trustee sent a copy of the judgment to Defendant's business address.  After receiving the default judgment, Defendant filed a motion with the court seeking to have the default judgment set aside.

The court began its analysis by recognizing that Federal Rule of Civil Procedure 60(b)(4) allows the court to set aside a default judgment if the judgment is void.  A default judgment is void if the complaint was never properly served.  Decision at *3, citing Sun Healthcare Group, Inc. v. Mead Johnson Nutritional (In re Sun Healthcare Group, Inc.), 2004 Bankr. LEXIS 572 at *19 (Bankr. D. Del. Apr. 30, 2004).  Pursuant to Federal Rule of Bankruptcy Procedure 7004(b)(3), proper service of a summons and complaint may be made upon a corporation by first class mail if it is sent to an officer or agent of the corporation.  Decision at *3.  Rule 7004(b)(3) requires "strict compliance ... particularly when the plaintiff knows the defendant's business address and the identity of the person designated to receive service of process.  Id., citing In re Golden Books Family Entm't, 269 B.R. 300, 305 (Bankr. D. Del. 2001)(holding that service was not effective where pleadings were sent to a post office box addressed to the "assistant controller"). 

The court in CFP found that the Trustee's attempt to effectuate service by sending the complaint to the Defendant's remittance address "failed to comply with Rule 7004(b)(3)."  Decision at *4.  The court based its decision on the fact that the post office box where the complaint was sent was a lockbox at Bank of America and Bank of America was not authorized to receive service of process for the Defendant.  The court also found significant that the Trustee knew the Defendant's business address. 

Having found that there was no effective service, the court declared the default judgment void.  Given the large number of avoidance actions filed in the Delaware Bankruptcy Court, the CFP decision is worth review as it looks at some of the requirements for proper service of process.  The CFP decision was issued by the Honorable Peter J. Walsh.  Judge Walsh previously served as the Chief Judge of the United States Bankruptcy Court for the District of Delaware.

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Jason Cornell practices with the law firm Fox Rothschild LLP in Wilmington, Delaware.  You can reach Jason at 302 427 5512, or jcornell@foxrothschild.com

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Introduction

In September of this year, the Honorable Mary F. Walrath, the presiding Judge in the DHP Holdings bankruptcy, issued a decision addressing  the effect of a forum selection clause when deciding a motion to change venue.  This issue came before the court in an adversary action filed by DHP against The Home Depot.  After DHP filed for bankruptcy, the company sued Home Depot for $5.5 million alleging Home Depot owed the company for an outstanding account receivable.  Opinion at *2.  In its Answer, Home Depot raised various defenses, one being that venue in Delaware was improper pursuant to a forum selection clause under the parties' Supplier Buying Agreement (the "SBA").  Home Depot filed a motion to transfer venue pursuant to the terms of the SBA.

Analysis

The court began its analysis by noting that motions to transfer venue require consideration of several factors.  Factors for consideration include the parties' forum preferences, where the claims arose, convenience to the parties and witnesses, as well as the location of books and records.  Opinion at *5, n.5.  Even though the court should consider various factors, it nevertheless has discretion to determine on a case by case basis whether convenience and fairness support transfering venue.  Id. at *5. 

Turning first to the SBA's forum selection clause, the court noted that selection clauses are "prima facie valid" and are generally enforced unless there is a strong showing that the clause would be unreasonable under the circumstances.  Id. Other courts have found forum selection clauses unenforceable where the clause was obtained through "fraud or overreaching."  Id. at *5, citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 18 (1972).  DHP argued that the forum selection clause should be given less weight because it was part of a form contract and therefore not a bargained-for contract provision.  The court disagreed, finding that the "lack of actual negotiations over the forum selection clause does not affect its validity."  Opinion at *6, citing Foster v. Chesapeake Ins. Co., Ltd., 933 F.2d 1207, 1219 (3d Cir. 1991). 

Although the court found that the forum selection clause (which supported a change in venue) valid,  it also found that the presence of the forum selection clause was not determinative.  Instead, such provisions are only a significant factor that is included in the court's analysis.  Opinion at *6.  The court next looked at whether the forum selection clause arose in either a core or non-core matter.  This distinction was significant as the court observed that forum selection clauses generally are more likely to be enforced in non-core matters.  Opinion at *7.

In deciding whether a matter is core or non-core, courts often consider two sources - section 157(b) of the Bankruptcy Code, as well as a two-part test under In re Guild & Gallery Plus, Inc., 72 F.3d 1171, 1178 (3d Cir. 1996).  Opinion at *8.  Section 157(b) provides a list of proceedings that may be considered core.  The Third Circuit's decision in Guild & Gallery Plus, on the otherhand, provides that a proceeding is core (1) if it involves substantive rights provided by title 11, or (2) if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case."  Opinion at *8. 

The court next considered whether each of the causes of action brought in the DHP adversary action were core or non-core.  DHP asserted three causes of action against Home Depot: (1) turnover of property under 542(b) of the Bankruptcy Code; (2) breach of contract; and (3) disallowance of claim under 502(d).  Opinion at *2.  Starting first with the turnover claim, the court observed that although such claims are core proceedings, the court must nevertheless determine whether DHP properly invoked this section of the Bankruptcy Code.  On this point, the court found that DHP's claim against Home Depot was non-core because it involved a "disputed" claim.  In doing so, the court recognized that "[m]ost courts require that the debt be undisputed for the action to be core."  Opinion at *11, citing U.S. v. Inslaw, Inc., 932 F.2d 1467, 1472 (D.C. Cir. 1991). 

After finding that all the counts in the complaint were non-core, the court went on to consider the factors for and against transferring venue.  Here, the court found that "most of the factors either favor transfer [of venue] or are neutral."  Opinion at *22.  Having reached this conclusion, the court granted the motion to transfer venue.

Conclusion

The decision in DHP is helpful in several respects.  First, it looks at the effect of a venue selection clause in the context of a motion to transfer venue.  Next, the court distinguishes between core and non-core matters, a common issue in bankruptcy proceedings.  Finally, the decision reviews those factors courts consdier in determining whether to grant a motion to change venue.  A copy of the decision is available here for review.   The DHP bankruptcy is in the United States Bankruptcy Court for the District of Delaware. 

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Jason Cornell practices with the law firm Fox Rothschild LLP in Wilmington, Delaware.  You can reach Jason at 302 427 5512, or jcornell@foxrothschild.com.

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Introduction

On August 20, 2010, Petroflow Energy Ltd. ("Petroflow"), filed a petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  Months prior to Petroflow's filing for bankruptcy, the company's subsidiaries, North American Petroleum Corporation USA and Prize Petroleum LLC, filed petitions for bankruptcy in Delaware.  After Petroflow filed for bankruptcy in August, it filed a motion with the Bankruptcy Court seeking to have the orders entered in the "First Filed Debtors' Cases" (i.e. North American Petroleum's and Prize Petroleum's cases), made applicable to Petroflow's bankruptcy proceeding.

There is nothing extraordinary about the relief Petroflow seeks in its motion.  By filing the motion, the company seeks to save the time and expense of having to file, notice and present the same motions that if filed in the "First Filed Cases." However, in order to obtain such relief, Petroflow requests the Court exercise its equitable powers pursuant to section 105 of the Bankruptcy Code.  This post will look at how the Court can turn back the clock so that the orders entered in a previously filed case will have the full force and effect in a newly filed bankruptcy proceeding.

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Introduction

On August 4, Judge Mary F. Walrath issued an opinion in the Eclipse Aviation bankruptcy that discusses the scope of the Court's subject matter jurisdiction.  This issue - the subject matter jurisdiction of the bankruptcy courts - comes up less frequently in decisions than issues such as plan confirmation, relief from stay or avoidance actions (to name a few).  Often, the subject matter jurisdiction of a proceeding is simply not in dispute.  This reason alone is why Judge Walrath's decision is worth review:  it provides a brief but thorough look at how the Court decides whether it has jurisdiction over a particular matter.

Background

The procedural context of the Eclipse Aviation decision is interesting in itself.  The Plaintiff, a purchaser of aircraft from the Debtor, filed a motion to dismiss the Complaint it had previously filed as an adversary action.  Plaintiff originally filed the Complaint seeking declaratory relief that it possessed certain property interests in undelivered aircraft that were in the Debtor's possession.  During the course of the bankruptcy, Debtor was unable to consummate a sale of its assets and the case quickly converted to a chapter 7 liquidation.  Once a chapter 7 trustee (the "Trustee") was appointed, the Trustee sought to sell the estate assets including the planes that Plaintiff claimed an interest in.

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Introduction

On April 1, 2010, Judge Kevin J. Carey , Chief Judge of the United States Bankruptcy Court for the District of Delaware issued an opinion (the "Opinion") in the Spansion bankruptcy rejecting the Debtor's proposed plan of reorganization.  This post will look at the requirements provided for under the Bankruptcy Code in order for a Court to confirm a plan of reorganization.  Further, the post will look briefly at why the Court in Spansion declined to confirm the Debtor's proposed plan.

Background

As stated in the Opinion, Spansion manufactures and sells semiconductor products ("flash memory") used in cell phones and other consumer and industrial electronics.  In 2008, half of Spansion's sales consisted of flash memory used in wireless products or "embedded applications" such as electronic games and DVD players.  Spansion filed for bankruptcy hoping to restructure its business so that it could focus on the more profitable embedded products, shifting resources from the less profitable wireless business.

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Introduction

Section 548 of the United States Bankruptcy Code allows for the avoidance of transfers that are either intentionally or constructively fraudulent.  Section 548 provides, in relevant part, as follows:

(a)(1)  The trustee may avoid any transfer ... of an interest of the debtor in property, or any obligation ... incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily -- (A) made such transfer or incurred such obligation with actual intent to hinder, delay or defraud any entity to which the debtor was or become, on or after the date that such transfer was made or become, on or after the date that such transfer was made or such obligation was incurred, indebted; or (B)(i) received less than reasonably equivalent value in exchange for such transfer or obligation; and (ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (II) was engaged in a business or a transaction ... for which any property remaining with the debtor was an unreasonably small capital; (III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debtor's matured ...

At first glance, section 548 appears to cast a wide net that would classify many types of transactions as fraudulent transfers.  However, a recent decision by Judge Brendan L. Shannon in the Elrod Holdings bankruptcy shows the evidentiary hurdles a plaintiff must overcome in order to establish a fraudulent transfer claim under section 548. 

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Introduction

Judge Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court, issued a decision recently in the S-Tran Holdings bankruptcy that addresses whether letters of credit constitute property of the bankruptcy estate.  The Court's decision in S-Tran Holdings is worth review as letters of credit are a common part of a debtor's pre and post-petition financing.  Recent decisions hold that certain components of letters of credit (such as the proceeds drawn from the letter of credit) are estate property, while other components (like the collateral pledged for the letter of credit) are not estate property.  S-Tran explains why.  (A copy of the decision in S-Tran is available here).

Background

The debtor in S-Tran sued its insurer in an effort to recover the proceeds from a letter of credit and a cash deposit, both held by the insurer.  In order for the insurer to provide coverage to S-Tran, S-Tran had to provide a $477,000 cash deposit and letters of credit totaling $3.5 million.  A week prior to S-Tran's bankruptcy filing, the debtor's insurer drew on portions of the letter of credit to pay third parties and placed the remaining proceeds from the letter of credit in a loss reserve account.  After filing for bankruptcy, S-Tran demanded the insurer return the proceeds from the letters of credit, however, the insurer refused.

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Introduction

In recent months, bankruptcy auctions went forward in two different bankruptcy proceedings that illustrate the extent to which auctions can vary both procedurally and substantively. One auction involved the sale of a single asset and lasted less than an hour, while the second auction involved the sale of the debtor's entire business and lasted over the course of several days.  This post is intended to provide a brief "compare and contrast" of these two auctions in an effort to provide insight into a process that is a common component of corporate bankruptcies.

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Introduction

On June 25th, the Debtors in the SemCrude bankruptcy present their Motion Approving Debtors' Disclosure Statement (the "Motion").  Debtors' Motion provides a good opportunity to review the standards by which bankruptcy courts often measure the content of a debtor's disclosure statement.  The following provides a summary of some of the frequently cited cases and Bankruptcy Code provisions governing this fundamental component of the bankruptcy reorganization process.

The Code Provisions

A disclosure statement must contain adequate information for creditors and shareholders to make an informed judgment about a plan of reorganization. See In re Scioto Valley Mortgage Co., 88 B.R. 168, 170 (Bankr. S.D. Oh. 1988). Section 1125(b) of the Bankruptcy Code provides the threshold level of information that must be included in a disclosure statement:

An acceptance or rejection of the plan may not be solicited after the commencement of the case under this title from a holder of claim or interest with respect to such solicitation, unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information.
11 U.S.C. § 1125(b).  (Emphasis added).

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Introduction

On May 1, 2009, Magna Entertainment ("Magna") filed a motion in the United States Bankruptcy Court for the District of Delaware whereby it sought authority to schedule an auction, receive approval of auction bid procedures and proceed with the sale of assets (the "Sale Motion").  I have previously written about bankruptcy sale motions on this blog,  however, I wanted to devote this post to the auction procedures that are often used in bankruptcy proceedings.  Specifically, this post is intended to address questions that arise when a chapter 11 debtor seeks to auction of assets.  Among them, how do debtors go about auctioning assets while in bankruptcy, how long does the auction process take, and finally, what are common requirements imposed on parties wishing to bid on a debtor's assets?  Recognizing that no two bankruptcies are the same, this post will look at the auction procedures proposed in Magna in an effort to shed light on the bankruptcy auction process in general.

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Introduction

Section 341 of the Bankruptcy Code requires the United States Trustee to "convene and preside at a meeting of creditors."  Section 341(a) of the Code requires the trustee to convene what is commonly referred to as a "341 meeting" or "meeting of creditors" within a "reasonable time" after a debtor files for bankruptcy.  Bankruptcy Rule 2003(a) requires the Trustee to call a meeting of creditors "no fewer than 20 and no more than 40 days" after the commencement of a bankruptcy proceeding. 

The meeting of creditors is a unique part of bankruptcy proceedings.  Clients and co-counsel often want to know what information is made available, and what procedures are followed, during a typical meeting of creditors.  This post will take a look at the recent meeting of creditors in the Magna Entertainment bankruptcy.  By doing so, the goal is to provide creditors and their counsel with an idea of what to expect in future meetings of creditors. 

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Introduction

On March 10, 2009, the Honorable Christopher S. Sontchi of the United States Bankruptcy Court for the District of Delaware issued a decision addressing the standard for preliminary injunctive relief in bankruptcy.  This post will look at the substantive and procedural issues considered by the Court in Broadstripe LLC v. National Cable Television Cooperative (In re Broadstripe). Specifically, when is injunctive relief appropriate in a bankruptcy proceeding and how does a party go about seeking injunctive relief under the Federal Rules of Bankruptcy Procedure?

Background

Broadstripe filed for bankruptcy in Delaware on January 2, 2009.  In July of 2000, eight years prior to filing for bankruptcy, Broadstripe joined the National Cable Television Cooperative ("NCTC") whereby NCTC agreed to negotiate master programming agreements for Broadstripe.  Under the programming agreements,  Broadstripe paid NCTC the licensing fees for programming services and NCTC distributed the funds paid by Broadstripe to various programmers (such as Fox, Disney, etc.).  In the months leading up to bankruptcy, Broadstripe failed to pay NCTC over $3.4 million in licensing fees.  However, after filing for bankruptcy Broadstripe paid NCTC all licensing fees incurred from the petition date forward. 

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Introduction

The Fairchild Corporation ("Fairchild" or the "Debtor"), filed for bankruptcy in Delaware on March 18, 2009.  Fairchild's bankruptcy proceeding is before the Honorable Christopher S. Sontchi of the United States Bankruptcy Court for the District of Delaware.  According to its press release, Fairchild operates in three markets:  aerospace, real estate and motor cycle apparel.  In the aerospace industry, Fairchild distributes parts and equipment to companies servicing aircraft.  Fairchild's business also includes managing and developing commercial real estate.  Finally,  with its apparel business, Fairchild designs and produces motorcycle apparel for companies such as Harley Davidson and PoloExpress.  (Read Fairchild's Affidavit in Support of Bankruptcy Motions here.)

The DIP Financing Motion and Relief From the Automatic Stay

One of Fairchild's "first day" motions seeks debtor-in-possession ("DIP") financing, refinancing of prepetition debt and modification of  the automatic stay (the "DIP Motion").  As stated in the DIP Motion,  Fairchild's prepetition debt totals $19 million and Fairchild seeks to refinance its debt with a postpetition revolving credit facility up to $23 million (the "DIP Facility").  Under the DIP Facility, PNC, as postpetition lender, would receive a "priming lien" that is senior or equal to previously encumbered property.  Fairchild seeks the priming lien for the DIP Facility pursuant to 11 U.S.C. 364(d)(1)(authorizing a bankruptcy court to approve DIP financing secured by an equal or superior lien on property of the estate already subject to a lien, provided the holder of the primed lien receives adequate protection). 

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Introduction

Bankruptcy lawyers are sometimes asked how a business or individual can be required to defend a lawsuit in Delaware.  Typically, this issue arises when a debtor commences an adversary action, such as filing a preference complaint, and sues a defendant who has no ties to Delaware.  "How can they do this?" is a common question.  Judge Walrath recently issued a decision in the Uni-Marts bankruptcy that addresses this question - the scope of personal jurisdiction under the Bankruptcy Code.  This post looks at the opinion in Uni-Marts and the basis by which bankruptcy courts extend jurisdiction.

Background

Uni-Marts operates company-owned, franchise operated stores throughout the northeast.  Charan Trading Company and Varni LLC ("Plaintiffs") purchased a store from Uni-Marts in 2005, however, by 2008 Plaintiffs filed an adversary action in Uni-Marts' bankruptcy proceeding seeking to rescind the contract and recover damages.  Plaintiffs' sued Uni-Marts, as well as its president,  Henry Sahakian, alleging Sahakian induced Plaintiffs to purchase the Uni-Marts store in Wilkes-Barre, Pennsylvania through fraud or negligent misrepresentation. 

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Introduction

Foamex International Inc. ("Foamex" or "Debtors"), located in Media, Pennsylvania, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on February 18, 2009.  Foamex is one of the largest manufacturers of polyurethane and polymer foam products. (Read Foamex's Declaration in Support of First Day Motions here).  Foamex generated $980 million in revenue for the four quarters ending in September 2008.  Foamex operates facilities in the United States, Canada, Mexico and China and manufactures goods that fall into four categories:  technical products, foam products, automotive products and carpet cushion products.

The Critical Vendor Motion

One of the first motions Foamex filed in its bankruptcy was a Motion to Honor Prepetition Obligations with Critical Vendors (the "Critical Vendor Motion").  Pursuant to the Critical Vendor Motion,  Foamex sought an Order from the Court allowing it to pay prepetition obligations to critical vendors up to $29 million.  Foamex sought to pay the prepetition invoices for those vendors that agree to deal with it during bankruptcy under "normal trade terms." 

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Introduction

In September of last year,  the Honorable Peter J. Walsh, the judge presiding over the NVF Company bankruptcy, issued an opinion regarding the application of section 502(b)(3) of the Bankruptcy Code.  The opinion is interesting in that the Court decided not to apply a strict interpretation to a section of the Bankruptcy Code, but instead apply an interpretation that is consistent with legislative intent.  This post looks at the issues that arise when a party seeks to disallow a claim under 502(b)(3), and look at Judge Walsh's decision not to invoke a strict interpretation when doing so is contrary to the intent and purpose of the Bankruptcy Code.

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Introduction

On January 14, 2009, Gottschalks Inc., the California-based department store, filed for bankruptcy in Delaware (read the Gottschalks bankruptcy petition here).  One of Gottschalks' first motions filed with the Delaware Bankruptcy Court was its Motion Prohibiting Utility Providers from Discontinuing Service (the "Utilities Motion").  The Utilities Motion seeks various forms of relief,  however, the purpose of this post is to look at the statutory basis for prohibiting a utility from discontinuing service.  Additionally, this post looks at some of the issues that arise when a debtor files such a motion.

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