Bankruptcy Case Updates

In a 16 page opinion released January 28, 2016 in the Casino Caribbean, et al. v. Money Centers of America adversary proceeding (Bank. D. Del. Adv. No. 14-50437), Judge Christopher S. Sontchi of the Delaware Bankruptcy Court granted the motion of Quapaw Casino to intervene in the adversary proceeding.  Judge Sontchi’s opinion is available here (the “Opinion”).

Plaintiffs in the adversary proceeding had obtained a court order requiring the Debtors’ to maintain a cash balance of $900,000 or more, in order to compensate the Plaintiffs if it should be determined that the Debtors were holding funds as a ‘mere conduit’ to which the Plaintiffs were entitled.  Opinion at *2.  Quapaw claimed that the Debtors were likewise holding funds to which it was entitled, and moved to intervene in the adversary proceeding, in order to obtain the same relief.  Plaintiffs opposed the motion, fearing that the set-aside funds would be insufficient to compensate them and Quapaw.  Opinion at *2.

The Debtors had entered into an agreement with Quapaw to provide ATM and other cash advance services to Quapaw’s customers, and that any funds advanced to a customer by Quapaw would be reimbursed by the Debtors.  Quapaw is listed on the Debtors’ schedules and filed a proof of claim for $502,018.  Opinion at *4.

The adversary complaint was filed on July 7, 2014.  Quapaw filed its motion to intervene on January 21, 2015.  As of that time, the Debtors had not yet filed an answer in the adversary proceeding.  Pursuant to Fed. R. Civ. P. 24(a) “A movant has an unconditional right to intervene when its motion is timely filed and either (A) a federal statute grants an unconditional right to intervene or (B) the movant claims an interest that is related to the property or transaction that is the subject of the adversary proceeding and disposing of the proceeding impairs or impedes the movant’s ability to protect its interest as a practical matter, unless the parties adequately represent that interest.”  Opinion at *7.  Ultimately, Judge Sontchi found that Quapaw satisfied this requirement.  Opinion at *8.

Judge Sontchi then examined the case under the permissive intervention standard of Fed. R. Civ. P. 24(b), finding that Quapaw also satisfied those requirements.  Opinion at *16.

As this Opinion illustrates, it is difficult to prevent another party from following the path you create and obtaining the same relief, when their claims are practically identical to your own.  In cases like this one, where a finite quantity of funds are available, it may be worth your time to investigate whether your relief would be diminished if another party received identical treatment.  If it would, then you may want to spend a bit more time investigating whether those similarly situated parties exist and take them into account in the relief you seek.

The Court held that QCA had a right to intervene under both Fed. R. Civ. P. 24(a)(1) and (a)(2), and that permissive intervention was warranted under Fed. R. Civ. P. 24(b)(1)(B).  Rule 24(a) has 4 requirements,

On January 26, 2016, the Delaware Bankruptcy Court denied Debtors Noble Logistics Inc., et al.’s (“Debtors” or “Noble Logistics”) motion for summary judgment on their objections to the claims filed by Richard Maximo individually, and on behalf of the Putative Class.  The claims were filed in the amounts of $188,014.13, and $61,292,607.17, respectively (the “Maximo Claims”). A link to the opinion can be found here.

The Maximo Claims are based upon a complaint alleging that Maximo and other members of the Putative Classes were working or had previously worked for Aspen (one of the Debtors’ affiliates) as “Delivery Drivers.” It further alleges that Maximo and other class members were mischaracterized as “independent contractors” by Aspen, and, therefore, were deprived of “premium overtime compensation,” minimum wages, and other protections and benefits to which they would have been entitled if treated as traditional employees.  Maximo asserts Aspen committed multiple violations of the California Labor Code and the California Business and Professions Code.

The Court walked through the analysis of explaining the shifting burdens of proof both on a summary judgment motion, and for establishing proofs of claim in general.  The Court found that genuine issues of material fact clearly existed regarding the Maximo Claims:

[I]ncluding whether the Class members had the right to control and the discretion as to the manner of performance of their services, whether the Class members could complete the route without the Debtors’ direction or supervision, what skills were required, the length of time for which the services were performed, and whether the work was part of the Debtors’ regular business, among other things. Based on the record before the Court, it would be impossible to make such factual determination without developing the evidentiary record.

Accordingly, the Court denied Debtors’ motion for summary judgment as to the Maximo Claims, without prejudice.

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.

The Affirmative Insurance Holdings, Inc. Section 341 meeting has been continued to December 14, 2015, at 1:00 p.m. at J. Caleb Boggs Federal Building, 844 King St., Room 2112, Wilmington, Delaware.  For a prior post on this bankruptcy proceeding, click here.

Carl D. Neff is a bankruptcy attorney 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.

In the Fresh & Easy, LLC bankruptcy proceeding, a Section 341 Meeting of Creditors has been scheduled for Thursday, December 3, 2015 at 10:00 a.m. (ET) at the J. Caleb Boggs Federal Court House, 844 N. King Street, Fifth Fl., Wilmington, DE 19801.

One way in which creditors can assert their interests is to attend the Section 341 Meeting of Creditors, in order to depose the debtor’s representative regarding the assets and liabilities of the bankruptcy estate.  Creditors may retain counsel to conduct such an examination of the debtor’s representative.  The Section 341 meeting of creditors is an integral component of a bankruptcy proceeding.  Creditors often want to know what information is made available, and what procedures are followed, during a typical meeting of creditors.

General topics that are discussed during a Section 341 meeting can include the following issues:

  • The nature of scope of a debtor’s assets and liabilities;
  • The amount of accounts receivable and accounts payable;
  • To what extent the debtor is able to repay its creditors;
  • Whether insurance remains active;
  • The condition and location of goods received in the 20 days before bankruptcy;
  • The condition and location of goods received in the 45 days before bankruptcy;
  • The debtor’s or trustee’s plan to reorganize its debt or liquidate its assets;
  • The debtor’s plan after it emerges from bankruptcy (not applicable to a Chapter 7 debtor);
  • Whether the debtor experienced any changes in revenue since filing for bankruptcy; and
  • Potential avoidance actions to be commenced by the debtor or trustee.

Carl D. Neff is a bankruptcy attorney 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.

In the Wire Company Holdings, Inc. bankruptcy proceeding (Delaware Bankruptcy Case No. 15-12097-LSS), the U.S. Trustee has scheduled a Section 341 Meeting of Creditors for November 17, 2015 at 1:00 p.m. (ET) at the J. Caleb Boggs Federal Building, 844 King Street, Room 5209, Wilmington, DE 19801.

The Section 341 Meeting of Creditors allows creditors to depose the debtor’s representative regarding the assets and liabilities of the bankruptcy estate.  Creditors may retain counsel to conduct such an examination of the debtor’s representative.  The Section 341 Meeting of Creditors is an integral component of a bankruptcy proceeding.

General 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;
  • The condition and location of goods received in the 20-45 days before bankruptcy;
  • The debtor’s or trustee’s plan to reorganize its debt or liquidate its assets;
  • The debtor’s plan after it emerges from bankruptcy (not applicable to a Chapter 7 debtor);
  • Whether the debtor experienced any changes in revenue since filing for bankruptcy; and
  • Potential avoidance actions to be commenced by the debtor or trustee.

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.

 

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.”

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).

One way in which creditors can assert their interests is to attend the Formation Meeting and become a part of the creditors’ committee.  The creditors’ committee is one of the most active participants in a corporate bankruptcy, and has access to a significant amount of information not available to normal creditors.  There are, naturally, trade-offs to gaining access to this information (including limitations on a company’s ability to trade in securities of the debtor), but you will be far better informed of what occurs in the bankruptcy proceeding.

In the IMRIS, Inc. bankruptcy proceeding (Delaware Bankruptcy Case No. 15-11133), a formation meeting has been scheduled for Thursday, June 4, 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 June 2, 2015 at 5:00 p.m. (ET).

According to the Declaration of Jay D. Miller in Support of First Day Pleadings (the “Declaration”), IMRIS came into existence after acquiring Innovative Magnetic Resonance Imaging Systems Inc. in 2005.  IMRIS trades on the NASDAQ under the ticker “IMRS”.  The Debtors design, manufacture and market image guided therapy systems that enhance the effectiveness of therapy delivery, which include multiple field strength Magnetic Resonance systems, X-Ray Fluoroscopy systems, and Computed Tomography (CT) systems.  The Debtors’ products are installed in leading neuroscience centers around the world.  Declaration at *4.

The Debtors had a complex billing cycle as the installation of their products required substantial capital contributions be made by their clients.  Ultimately, the Debtors turned to a financial facility during a slowdown of business, and were unable to comply with their debt covenants.  Declaration at *9-10.  The Debtors have filed for bankruptcy with the belief that that an expedited sale of their business is essential to not only preserving the underlying value of their operations by providing customers and employees with a clear path forward, but in satisfying the Company’s obligations to its creditors.  Declaration at *13.  Thus, it appears that this case, like many in the current bankruptcy environment, will likely involve a 363 sale of assets followed by the proposal and confirmation of a liquidating chapter 11 plan.

One way in which creditors can assert their interests is to attend the Formation Meeting and become a part of the creditors’ committee.  The creditors’ committee is one of the most active participants in a corporate bankruptcy, and has access to a significant amount of information not available to normal creditors.  There are, naturally, trade-offs to gaining access to this information (including limitations on a company’s ability to trade in securities of the debtor), but you will be far better informed of what occurs in the bankruptcy proceeding.

Another way creditors can assert their interests is to attend the Section 341 Meeting of Creditors to depose the debtor’s representative regarding the assets and liabilities of the bankruptcy estate.  Creditors may retain counsel to conduct such an examination of the debtor’s representative.  The Section 341 meeting of creditors is an integral component of a bankruptcy proceeding.

General 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;
  • The condition and location of goods received in the 20-45 days before bankruptcy;
  • The debtor’s or trustee’s plan to reorganize its debt or liquidate its assets;
  • The debtor’s plan after it emerges from bankruptcy (not applicable to a Chapter 7 debtor);
  • Whether the debtor experienced any changes in revenue since filing for bankruptcy; and
  • Potential avoidance actions to be commenced by the debtor or trustee

In the Boston Restaurant Associates, Inc. bankruptcy proceeding (Delaware Bankruptcy Case No. 15-11101), a formation meeting has been scheduled for Tuesday, June 2, 2015 at 10:00 a.m. (ET) at the J. Caleb Boggs Federal Building, 844 King Street, Room 5209, 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 May 29, 2015 at 5:00 p.m. (ET).

In addition, the U.S. Trustee has requested that a Section 341 Meeting of Creditors be scheduled for Friday, June 19, 2015 at 12:00 p.m. (ET) at the J. Caleb Boggs Federal Building, 844 N. King Street, 2nd Fl., Room 5209, Wilmington, DE 19801.

One way in which creditors can assert their interests is to attend the Formation Meeting and become a part of the creditors’ committee.  The creditors’ committee is one of the most active participants in a corporate bankruptcy, and has access to a significant amount of information not available to normal creditors.  There are, naturally, trade-offs to gaining access to this information (including limitations on a company’s ability to trade in securities of the debtor), but you will be far better informed of what occurs in the bankruptcy proceeding.

Another way creditors can assert their interests is to attend the Section 341 Meeting of Creditors to depose the debtor’s representative regarding the assets and liabilities of the bankruptcy estate.  Creditors may retain counsel to conduct such an examination of the debtor’s representative.  The Section 341 meeting of creditors is an integral component of a bankruptcy proceeding.

General 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;
  • The condition and location of goods received in the 20-45 days before bankruptcy;
  • The debtor’s or trustee’s plan to reorganize its debt or liquidate its assets;
  • The debtor’s plan after it emerges from bankruptcy (not applicable to a Chapter 7 debtor);
  • Whether the debtor experienced any changes in revenue since filing for bankruptcy; and
  • Potential avoidance actions to be commenced by the debtor or trustee

On May 5, 2015, Outten & Golden LLP and Loizides, P.A. filed a class action adversary proceeding complaint for violation of the WARN Act in the Corinthian Colleges bankruptcy.  The Corinthian Colleges bankruptcy is case number 15-10952 and this adversary proceeding is number 15-50309.

The Delaware Bankruptcy Court has previously published opinions concerning the WARN Act, as can be seen in our prior posts:

Decision in Powermate Holding Corp. Declines to Grant Administrative Claim Status to Employee WARN Act Claims

Decision in Tweeter Opco, LLC., Holds Non-Debtor Controlling Company Liable for Debtor’s Violation of the WARN Act

The WARN Act provides qualified employees up to sixty (60) days of back pay and benefits due to an employer’s failure to provide proper notice of a potential termination. Congress passed the WARN Act in 1988 following two decades which many workers were terminated without notice as a result of mergers, acquisition and closings.  Exceptions to the WARN Act include terminations due to shut downs that were not reasonably foreseeable, natural disasters or situations where notice to employees might interfere with an employer’s efforts to secure outside investments.

As the Delaware Bankruptcy Court held in Powermate, WARN Act awards are unsecured claims against the bankruptcy estate.  Administrative expense claims are those which either preserve the estate in a reorganization or facilitate the winding-down in a liquidation.  Congress amended § 503(b)(1)(A) in 2005, extending administrative claim status to “(ii.) wages and benefits awarded pursuant to a judicial proceeding or a proceeding of the National Labor Relations Board as back pay attributable to any period of time occurring after commencement of the case under this title.”  Looking at the plain meaning of the statute, § 503 grants administrative status to wages that vest post-petition, [so that] the back pay is attributable to the time occurring after the commencement of the case and therefore it is an administrative expense claim.

Citing In re First Magnus Fin. Corp., 390 B.R. 667, 673 (Bankr. D. Ariz. 2008) the Powermate Court held that rights of employees discharged in violation of the WARN Act accrued upon their termination. In reaching this conclusion, the Court relied upon other opinions that consistently hold that WARN damages are specifically like payment at termination in lieu of notice.  The Powermate employees were terminated prior to the filing of the bankruptcy petition. Because the employees’ claims vested pre-petition, they were not entitled to administrative expense status. Instead, the employees’ damage claims were governed under § 507(a)(4)-(5) granting unsecured claim status to wages.

While any employees of Corinthian Colleges should certainly pursue a recovery based on the WARN Act, they should do so with their eyes open to their likely recovery.  The recovery will be in post-bankruptcy dollars, so the total recovery depends on the percentage recovery of unsecured creditors.  The recovery will also be reduced by the attorneys’ fees earned in pursuing this recovery.  Based on my experience, litigants should try to temper their expectations.  Even if they hit a litigation home run, litigants should keep in mind that the Debtors were required to give them 60-days of notice, and after fees, expenses, and the award of an unsecured claim, they are likely to receive significantly less than 60 days of their salary.