Fox Partner Mette Kurth discusses iPic-Gold Class Entertainment, Inc.’s Chapter 11 case in Delaware:

iPic-Gold Class Entertainment, Inc. (IPIC) has filed a Chapter 11 case in Delaware to sell its business through a “363” bankruptcy auction.

iPic is a Florida-based, publicly traded movie theater and restaurant company with 16 locations in 9 states that provide a “luxurious movie-going experience at an affordable price.” After achieving double-digit growth supported by its unique offering and market position, new market entrants and competitive pricing slowed iPic’s growth. But the company believes that its underlying business model remains strong, “bolstered by positive guest experience and loyalty.”

iPic is going forward with a “naked” auction at this time, with no stalking-horse bidder in hand. If a stalking-horse offer (e.g., opening bid) is presented before the auction, it may be possible to negotiate for typical stalking-horse protections such as expense reimbursements and break-up fees. iPic is seeking approval of a 90-day marketing process, with a proposed bid deadline of October 11, 2019 and closing by the first week of November. No minimum bid has been established. The company reports store-level EBITDA of $15.06 million for the year ended December 31, 2018, and $158.7 million in assets at book value.

 

Fox Partner Mette Kurth discusses NovaSom, Inc.’s recent  Chapter 11 case in Delaware:

NovaSom, Inc. has filed a Chapter 11 case in Delaware in order to sell its business through a “363” bankruptcy auction. We are providing you with information about the case that you can forward on if you have clients who may be interested in purchasing any of NovaSom’s assets.

NovaSom is a Maryland-based home sleep testing company. In 2010-2012, it developed a device, AccuSom, that sends sleep data wirelessly rather than requiring patients to return a device to a lab to download data. It is the only in-home sleep test available in the marketplace that provides patient support and next-day test results. Additional information is available here.

Between 2013 and 2017, orders for AccuSom grew 500%. The average sales price, however, dropped by nearly 30% due to market conditions and the general availability of home sleep testing providers. The company’s filings indicate that the significant cost of growing sales has thus far prevented NovaSom from reaching profitability.

At present, one entity, VirtuOx, has expressed interested in buying NovaSom’s assets for an estimated $5.3 million. The bid deadline for competing bidders is September 19, 2019 at 4:00 p.m (Certain qualifications must be met to qualify as a bidder).  If the company receives qualified, competing bids, the auction will be held on September 23, 2019 in Philadelphia, PA.  The sale hearing will be held two days later.

Stephanie Slater writes:

The United States Supreme Court granted certiorari to determine the applicable legal standard for holding a creditor in civil contempt when a creditor attempts to collect a debt that falls within an issued bankruptcy discharge order.  In Taggart v. Lorenzen, 139 S.Ct. 1795 (2019), the Court unanimously decided to adopt an “objective standard,” holding that a court has permission to issue civil contempt sanctions against a creditor where there is “not a fair ground of doubt” in determining whether the creditor’s conduct is lawful under the discharge order.  While holding a creditor in civil contempt for violating a bankruptcy discharge order is not litigated as frequently as other bankruptcy matters, the Supreme Court’s decision could have an effect on how creditors act in bankruptcy and will impact how courts interpret these types of contested issues.

Petitioner Bradley Taggart was a part owner of Sherwood Park Business Center.  The company and two other owners filed a lawsuit against Taggart in Oregon state court.  The lawsuit claimed that Taggart breached the Business Center’s Operating agreement, but Taggart filed for Chapter 7 bankruptcy before the trial began.  As is typical in the conclusion of a bankruptcy proceeding, the Federal Bankruptcy Court granted a discharge order releasing Taggart from liability for his pre-bankruptcy debts.

Oregon state court eventually entered a judgment against Taggart, which prompted Sherwood to seek attorney’s fees incurred after the Chapter 7 bankruptcy petition date.  A point of contention between the parties was whether Taggart “returned to the fray.” If Taggart did return to the fray, a discharge order would not cover post-petition attorney’s fees from pre-petition litigation.  If Taggart did not “return to the fray,” the bankruptcy discharge order would immunize collection of post-petition attorney’s fees that are the result of pre-petition litigation.

This was the beginning of a back and forth battle between Taggart and Sherwood.  Taggart went back to Federal Bankruptcy Court to argue that (1) he did not “return to the fray” in state court based on the definition set in In re Ybarra[1] and (2) that the court should take action and hold Sherwood in civil contempt for violating Taggart’s discharge order.  Ultimately, the court did not agree with either of Taggart’s arguments.  Taggart then appealed to Federal District Court. The court agreed with Taggart’s arguments and remanded the case to the Bankruptcy Court.

The Bankruptcy Court used a standard similar to strict liability and determined that it was appropriate to hold Sherwood in civil contempt.  The Bankruptcy Court decided that Sherwood should be held in civil contempt because Sherwood was “aware of the discharge” order and “intended the actions.”

Sherwood appealed and the Bankruptcy Appellate Panel decided to do away with the sanctions.  The Ninth Circuit agreed with the decision and used a subjective standard that if a creditor has a “good faith belief” that a discharge order “does not apply to the creditor’s claim,” they are not subject to contempt even if the creditor’s belief is unreasonable.

Discharge orders are not detailed or lengthy in nature, but they do have an important effect on creditors and the individual debtor.  Pursuant to §524(a)(2) of the Bankruptcy Code, a discharge order  “operates as an injunction” barring creditors from collecting on any of the debt that has been discharged under the order and §105 allows a court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.”

Justice Breyer delivered the opinion and found it helpful to look at how civil contempt sanctions are used outside of bankruptcy.  In the past, the Court recognized that civil contempt is a severe remedy and that based on principles of fairness, a party should have explicit notice of what they can and cannot do before being held to the extremes of civil contempt.  This standard is generally an objective standard, and when there is a “fair ground of doubt” regarding the wrongfulness of the conduct, civil contempt is not appropriate.  According to the Court, these traditional civil contempt principles are easily transferrable to analyze issues surrounding bankruptcy discharge orders.

The Court first addressed its apprehensions with the Ninth Circuit’s “subjective standard.”  The Court was concerned it placed too much of an emphasis on states of mind that are difficult to prove which would ultimately force parties back into litigation, defeating the purpose of the discharge order.  Next, the Court rejected Taggart’s strict liability “awareness” and “intention” standard and doubted Taggart’s proposed “solution” for creditors to obtain an advance determination from the federal bankruptcy court as to whether the creditor’s debt was discharged.  The Court feared this would create more litigation, additional costs, and delays disadvantaging not only debtors, but creditors as well.

In a desire to strike a “careful balance” between the interests of debtors and creditors, the Court believed that an objective standard was appropriate.  Rooted in traditional principles of civil contempt, a court can use civil contempt sanctions on a creditor for violating a discharge order where there is not a “fair ground of doubt” as to whether the creditor’s conduct is lawful under the discharge order.

[1] In re Ybarra, 424 F. 3d 1018, 1027 (9th Cir. 2005).

Stephanie Slater is a summer associate, resident in the firm’s Wilmington office.

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.

Earlier this month, Mattress Firm, Inc., and its affiliated debtors (collectively, “Mattress Firm”) filed for chapter 11 protection in the United States Bankruptcy Court for the District of Delaware.  Through the bankruptcy, Mattress Firm expects to complete a prepackaged restructuring within 45 to 60 days.

Commercial landlords need to pay close attention to this bankruptcy.  Mattress Firm has already filed court motions for approval to reject up to 700 leases and will begin to close roughly 200 stores in the next few days.

Specifically, the Debtors have filed seven omnibus motions to reject hundreds of unexpired leases of nonresidential property.  The Debtors have also provided notice of “Cure Amounts” to those commercial landlords for which leases have been rejected.  The Debtors’ strategy in this bankruptcy proceeding is to renegotiate their leases or reject them outright.

The rights of Mattress Firm’s commercial landlords will invariably be impacted.  Below is a link to a previous post titled “Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.”  This link provides a brief summary of some of the issues landlords should consider when a commercial tenant such as Pacific Sunwear files for bankruptcy.

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.

Starting on September 14, 2018, George Miller, as Chapter 7 Trustee of the DA Liquidating Corporation, f/k/a Delivery Agent, Inc., et al. (“Debtors”) filed approximately 84 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547 and 550 of the Bankruptcy Code.

Delivery Agent and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on September 15, 2016.  Delivery Agent had originally filed for Chapter 11 protection in September with $80 million in debt, after a struggle with disappointing profitability and a need to increase cash and revenues from online platforms allowing viewers to buy goods from entertainment sites or their televisions.  The case was converted to a chapter 7 proceeding last year.

The various avoidance actions are pending before the Honorable Laurie S. Silverstein.  The Pretrial Conference has been set for November 15, 2018.

For readers looking for more information concerning claims and defenses in preference litigation, attached is a booklet prepared by this firm on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

View of buildings along 11th Street at sunset in downtown Wilmington, DelawareFox Rothschild is pleased to announce that, effective June 11, it will merge with Shaw Fishman Glantz & Towbin LLC, a 23-attorney firm with robust practices in bankruptcy, commercial litigation and real estate. The merger with the Chicago-based firm will also deepen Fox’s capabilities in Wilmington, with the addition of counsel Johnna Darby and partner Tom Horan.

Johnna Darby, Counsel, Fox Rothschild LLPJohnna Darby represents businesses of various sizes and in various contexts, including formation guidance, contract review, corporate governance and business and commercial disputes pending in federal and state courts. Skilled at negotiating resolutions and litigating cases for clients, she is adept at knowing when to do one, the other, or both, and uses these skills to advise clients regarding a clear path forward.

In addition, Johnna’s work takes her into bankruptcy court. There she has represented creditors, an official committee of unsecured creditors, and other interested parties. Johnna has also represented a liquidating trustee in numerous preference actions. She also has had the pleasure of assisting out-of-state counsel with their representations by serving as Delaware counsel.

Thomas Horan, Partner, Fox Rothschild LLPTom Horan is experienced in a wide range of bankruptcy matters, focusing his national practice on the representation of debtors and official unsecured creditors committees in complex Chapter 11 proceedings. In addition to his work on behalf of debtors and official committees of unsecured creditors, Tom regularly represents secured creditors, trustees, unsecured creditors, and debtor-in-possession lenders.

Tom also represents clients in preference and fraudulent transfer proceedings. Beyond his extensive Chapter 11 experience, he frequently provides opinion letters on commercial transactions and represents parties in matters before the State of Delaware’s Court of Chancery and Superior Court.

Over the past several years, Fox Rothschild has grown its national footprint significantly. The firm opened in Minneapolis in 2016, welcoming more than 80 attorneys via a merger with Oppenheimer Wolff & Donnelly LLP. In May of 2017, Fox launched a Seattle office through a merger with 39-attorney law firm Riddell Williams LLP.

On her The Bottom Line 11 blog, Fox partner Mette Kurth discussed the recent bankruptcy filing of Italian restaurant chain owner and operator Bertucci’s Corporation:

Italian and Mediterranean food ingredientsCompany Overview

Bertucci’s  was formerly known as NE Restaurant Company, Inc.  It changed its name to Bertucci’s Corporation in August 2001. Founded in 1981, the company is based in Northborough, MA.  Today Bertucci’s owns and operates a chain of 59 casual dining Italian restaurants in the Northeast and Mid-Atlantic.

A Bankruptcy Sale

The filing sets up a process to sell the company to Right Lane Dough Acquisition, LLC (an affiliate of Right Lane Capital) or an overbidder. The proposed purchase price is $1.7 million in cash and a “credit bid” of up to $4 million.  In addition, the buyer will provide the company with exit financing in the form of $14 million in new second lien notes.

To read Mette’s full viewpoint on the filing, please visit her blog.

On April 5, 2018, VER Technologies Holdco LLC, along with eight subsidiaries and affiliates (collectively, “VER”), filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (Case No. 18-10834).

VER, based in Glendale, CA, is an engineering and equipment company that, among other things, lit the red carpet for the Academy Awards show.  VER filed for bankruptcy after negotiating a proposed restructuring deal with creditors. The Debtors listed $1 billion in liabilities and less than $50,000 worth of assets in its Chapter 11 petition.  According to the Debtors’ petition, VER filed for Chapter 11 having entered into a restructuring support agreement and will be seeking approval of DIP Financing provided by its pre-petition senior lenders.

Bank of America Corp. will act as the agent for lenders providing VER with funding to keep operating while under Bankruptcy Court supervision.  The Debtors in these bankruptcy cases are represented by the law firm of Kirkland & Ellis.  The cases have been assigned to the Honorable Kevin Gross.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

On her The Bottom Line 11 blog, Fox partner Mette Kurth discussed the recent bankruptcy filing of mechanical systems startup Fallbrook Technologies:

Cross section of an automatic transmission.Texas-based Fallbrook Technologies has filed for chapter 11 protection. The committee formation meeting will take place on March 9, 2018 at 10:00 a.m. in Wilmington, Delaware. The formation notice is available here.

World Domination, One Gear At a Time

Fallbrook develops and manufactures the NuVinci continuously variable transmission systems. What is that, you ask? It makes stuff more efficient. So the company’s mission can be summed up as achieving world domination by creating a better mousetrap. Or as it says, setting the new global standard for managing mechanical and electro-mechanical power systems.

And it will do this by “transforming gears to (NuVinci) spheres.” That is, by using a set of rotating and tilting spheres between the input and output components of a transmission. If you have a degree in engineering, perhaps this brings something to mind. For the rest of us, the company has provided a helpful illustration.

Cool! Fallbrook’s system is now commercially available for bicycles and e-bikes. And, Fallbrook says, its technology has exciting applications in machinery, vehicles, and other equipment.

The company has two divisions.

– Its Enviolo-branded bicycle division, which was formed to demonstrate mass market viability and to continue to develop the NuVinci technology.
– Its licensing division, which provides NuVinci technology to “industry leaders” such as Allison Transmission, Dana Limited, TEAM Industries and Conti Temic microelectronics.

To read Mette’s full viewpoint on the filing, please visit her blog.

On her The Bottom Line 11 blog, Fox partner Mette Kurth discussed the recent bankruptcy filing of health care provider HCR ManorCare:

Court Pillars
Copyright: bbourdages / 123RF Stock Photo

HCR ManorCare, Inc. commenced a chapter 11 bankruptcy case on March 4, 2018. It accompanied the filing with a “prepackaged” chapter 11 plan. The company has requested a hearing to approve that plan on April 12, 2018.

The debtor, through its operating subsidiaries, is a Toledo-based provider of short-term, post-hospital services and long-term care. Its operating subsidiaries have not filed for bankruptcy protection.

To read Mette’s full viewpoint on the filing, please visit her blog.