On August 26, 2017, Model Reorg Acquisition, LLC, and eighteen of its subsidiaries and affiliates (collectively, “Model Reorg” or “Debtors”), filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (No. 17-11794).

The Debtors, which primarily operate under the brand “Perfumania”, comprise the largest national specialty retailer and distributor of fragrances and beauty products.  According to a press reslease issued by Perfumania Holdings, Inc., Model Reorg “has initiated a recapitalization to be facilitated through a pre-packaged Plan of Reorganization (“the Plan”) to reduce its retail store count to better align with current consumer shopping patterns, increase investments in its e-commerce business, and become a privately-held Company.”   A link to the press release can be found here.

The case has been assigned to the Honorable Christopher S. Sontchi.  The Debtors are represented by the law firm of Skadden Arps Slate Meagher & Flom LLP.  The First Day hearing is noticed to take place today, at 2:00 p.m.

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.

In the recent decision of Klauder v. Echo/RT Holdings LLC (In re Raytrans Holding, Inc.), Adv. No. 15-50273 (CSS) (Del. Bankr. Aug. 10, 2017), Judge Sontchi granted Defendants’ Motion to Dismiss the Trustee’s Second Amended Complaint, dismissing the Trustee’s claims in their entirety either under collateral estoppel or the doctrine of res judicata.

Procedural Background

Prior to the Raytrans bankruptcy proceeding, creditor Spring Capital Real Estate, LLC (“Spring Capital”) commenced a lawsuit in the Court of Chancery against Defendants Echo/RT Holdings LLC and Echo Global Logistics, Inc. (“Echo Defendants”) and RayTrans Distribution on October 31, 2012, seeking to void as fraudulent conveyances the transfers made to defendants by Holdings and RayTrans Distribution.

The Trustee joined the fraudulent transfer action commenced by Spring Capital in the Court of Chancery. On November 3, 2014, the Trustee asserted crossclaims against the defendants, pursuant to Del. Ch. R. 13(g), “seeking to assert the estate’s interest in, and to void as fraudulent conveyances, the transfers made to defendants by Holdings under Delaware and Illinois state law that were being challenged by Spring Capital. As recoverable by a creditor holding an unsecured claim.”

On December 31, 2013, the Court of Chancery dismissed Spring Capital’s claims with prejudice.  The Trustee then filed Amended Cross-Claims against the Echo Defendants, asserting slightly modified fraudulent transfer claims brought by Spring Capital, under both Delaware and Illinois law, that had also been dismissed by the Court of Chancery.  The Echo Defendants moved to dismiss the Trustee’s claims, which was granted on February 18, 2016, and the Court of Chancery both dismissed the Trustee’s entire Amended Cross-Claim with prejudice and denied the Trustee’s request for leave to amend (the “Dismissal Order”).  On December 12, 2016, the Delaware Supreme Court rejected the appeals filed by the Trustee and Spring Capital and affirmed the Dismissal Order.

Before the Court of Chancery granted the Motion to Dismiss, the Trustee filed the instant adversary proceeding against the Echo Defendants on April 24, 2015, asserting (i) three counts for avoidance of fraudulent transfers pursuant to 11 U.S.C. §§ 548 and 550, (ii) a count for avoidance of preferential transfer pursuant to 11 U.S.C. § 547, (iii) one count for recovery of an avoided transfer pursuant to 11 U.S.C. § 550, and (iv) disallowance of all claims pursuant to 11 U.S.C. § 502(d) and (j)

On November 7, 2016, the Trustee sought leave to amend his complaint. On December 28, 2016, the Court granted the Motion to Amend and the Trustee filed his Second Amended Complaint, now asserting two counts for avoidance of fraudulent transfers under Sections 544, 548, and 550 and added a new breach of contract claim (Count V) and a claim for attorneys’ fees (Count VIII). The original breach of contract claim (Count VI) and accounting claim (Count VII) remain in the Second Amended Complaint.

Analysis

The Court found that Counts I and II (for fraudulent transfer under Sections 544 and 548) were barred under the doctrine of collateral estoppel.  The Court of Chancery previously found that the APA was supported by reasonably equivalent value, and that the APA did not amount to a fraudulent transfer.

The Court likewise dismissed Counts III and IV, seeking the avoidance and recovery of preferential transfers under Sections 547 and 550 of the Bankruptcy Code.  Per the Opinion, the Trustee merely stated that Defendants were “insiders” of the Debtor, but offered no factual support for such a conclusion in the Second Amended Complaint.

Finally, the Court dismissed Counts V (breach of contract and judicial estoppel), VI (breach of contract), VII (accounting) and VIII (breach of guaranty and attorneys’ fees) under the doctrine of res judicata.  The Court noted that for the past three years, the Trustee and the defendants have been litigating before the Court of Chancery and then on appeal to the Delaware Supreme Court, and that the “basis of the entire adversary proceeding, and the prior Court of Chancery litigation, was the APA.”  Accordingly, the Court dismissed the Trustee’s Second Amended Complaint in its entirety.

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 July 19-21, 2017, David W. Carickhoff, in his capacity as Chapter 7 Trustee of the Estates of Univita Holdings, et al., filed approximately 46 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547 and 550 of the Bankruptcy Code.

Univita Health, Inc. and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on August 28, 2015 under Chapter 7 of the Bankruptcy Code.  The cases are jointly administered pursuant to Rule 1015(b) of the Bankruptcy Rules.

The various avoidance actions are pending before the Honorable Mary F. Walrath.  The Pretrial Conference has been set for 10/4/2017 at 02:00 PM ET.

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.

On July 6-7, 2017, Craig Jalbert, in his capacity as Trustee for F2 Liquidating Trust, filed approximately 187 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code (depending on the nature of the claims).  In certain instances, the Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

F-Squared Investment Management and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on July 8, 2015 under Chapter 11 of the Bankruptcy Code.   The Court confirmed the Debtors’ Joint Plan of Liquidation.  The Liquidating Trust was established in accordance with the Plan and Confirmation Order.

The various avoidance actions are pending before the Honorable Laurie Selber Silverstein.  As of the date of this post, the pretrial conference has not yet been scheduled.

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.

On June 15, 2017, Curtis R. Smith, as Liquidating Trustee of the Hastings Creditors’ Liquidating Trust, filed approximately 69 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code.  The Liquidating Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

Draw Another Circle, LLC and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on June 13, 2015 under Chapter 11 of the Bankruptcy Code.   On February 14, 2017, the Court confirmed the Debtors’ Plan.  The Trust was established in accordance with the Plan and Confirmation Order.

The various avoidance actions are pending before the Honorable Kevin J. Carey.  As of the date of this post, the pretrial conference has not yet been scheduled.

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.

On June 13, 2017, The Original Soupman, Inc. and its affiliates (collectively “Debtors” or “Original Soupman”) commenced voluntary bankruptcy proceedings under Chapter 11 of the Bankruptcy Code.  According to its petition, Original Soupman estimates that its assets are between $1 million and $10 million, and its liabilities are between $10 million and $50 million.

Shortly after the commencement of the bankruptcy case, the Debtors filed a number of first-day motions, including a critical vendor motion, and a DIP financing motion.  The first-day hearing to consider the interim relief requested in the various first-day motions is scheduled for June 20th at 2:00 p.m.  The case has been assigned to the Honorable Laurie Selber Silverstein.  The law firm of Polsinelli PC represents the Debtors in these bankruptcy proceedings.

A recent press release issued by the Debtors advises that Original Soupman obtain $2 million debtor in possession financing, and that operations of the Debtors will resume during the course of the bankruptcy. Stay tuned for further developments in this case.

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 May 17th, Tidewater, Inc. and its affiliated debtors (“Tidewater” or “Debtors”) filed for chapter 11 protection in the United States Bankruptcy Court for the District of Delaware.

On the same day, the Court entered an Interim Utilities Order (click here), which among other things sets forth deadlines for utility providers to object to the proposed adequate assurance procedures or the amount of adequate assurance.  The proposed Interim Utilities Order establishes the proposed amount of adequate assurance of payment to each utility provider of the Debtors under Section 366 of the Bankruptcy Code.  The adequate assurance amount proposed by the Debtors represents the average amount owed to such utility provider over a two-week period.

Any Tidewater utility provider looking to object to the proposed adequate assurance amount or the procedures should act quickly.  By way of brief background, Section 366 of the Bankruptcy Code was enacted to balance a debtor’s need for utility services from a provider that holds a monopoly of such services, with the need of the utility to ensure for it and its rate payers that it receives payment for providing these essential services.  See In re Hanratty, 907 F.2d 1418, 1424 (3d Cir. 1990). The amount of adequate assurance required is made on a case-by-case determination and, in making such a determination, it is appropriate for the Court to consider “the length of time necessary for the utility to effect termination once one billing cycle is missed.”  In re: Begley, 760 F.2d 46, 49 (3d Cir. 1985).

Per the interim order, a final hearing on the Debtors’ utilities motion has been scheduled for June 14, 2017 at 10:00 a.m.  Objections to the proposed final order must be filed on or before June 7th at 4:00 p.m.  This bankruptcy case is pending before Judge Brendan L. Shannon.

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.

On May 17, 2017, GulfMark Offshore, Inc. (“GulfMark” or “Debtor”) filed a voluntary petition for bankruptcy relief under chapter 11 of the Bankruptcy Code in the United States District Court for the District of Delaware.

According to the first day declaration of Brian J. Fox, the managing director of Alvarez & Marsal North America, LLC, the restructuring advisor to the Debtors, GulfMark will file a prepackaged plan of reorganization.  Through the plan, GulfMark will equitize $400 plus million of its unsecured bond obligations and bolster its liquidity through a rights offering in the amount of $125 million.

The declaration states that general unsecured creditors will not be impacted by the restructuring.  The Debtor’s Petition lists estimated assets of between $100 to $500 million, and its estimated liabilities of between $500 to $1,000 million.

The hearing to consider the Debtor’s proposed Disclosure Statement for the Debtor’s Plan of Reorganization has been scheduled for June 26th. The case has 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.

Starting on April 28, 2017, Craig R. Jalbert, as Distribution Trustee of the Corinthian Distribution Trust, filed approximately 122 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548, 549 and and 550 of the Bankruptcy Code (depending upon the nature of the underlying transactions).  The Distribution Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

Corinthian Colleges and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on May 4, 2015 under Chapter 11 of the Bankruptcy Code.   On August 28, 2016, the Court confirmed the Debtors’ Third Amended and Modified Combined Disclosure Statement and Chapter 11 Plan of Liquidation.  The Corinthian Distribution Trust was established in accordance with the Plan and Confirmation Order.

The various avoidance actions are pending before the Honorable Kevin J. Carey.  As of the date of this post, the pretrial conference has not yet been scheduled.

For preference defendants looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:

Preference Payments: Brief Analysis of Preference Actions and Common Defenses

Minimizing Preference Exposure: Require Prepayment for Goods or Services

Minimizing Preference Exposure (Part II) – Contemporaneous Exchanges

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.

Not uncommonly, a preference complaint fails to adequately allege that the transfers sought to be recovered by the trustee were made “for or on account of an antecedent debt owed by the debtor before such transfer was made”, as required under Section 547(b) of the Bankruptcy Code. Thus, when faced with a complaint to recover alleged preferential transfers, a defendant can proceed in one of two ways: (i) file an answer and raise affirmative defenses, or (ii) move to dismiss under Rule 12(b)(6).

Generally, if a motion to dismiss is filed on this basis, the Court will grant plaintiff leave to amend the complaint to adequately assert that such transfers are recoverable under Section 547(b) of the Bankruptcy Code.  But does the analysis change if the trustee files an amended complaint which continues to fail to meet pleading standards, and defendant once again moves to dismiss?

This question was addressed in the recent Delaware Bankruptcy Court decision of Solmonese v. Shyamsundar, et al. (In re AmCad Holdings, LLC, et al.), Adv. No. 15-51979 (Del. Bankr. Apr. 7, 2017).  There, the Liquidating Trustee commenced a lawsuit against defendants, which included former directors and officers of AmCad Holdings, LLC, et al. (“Debtors” or “AmCad”), for breach of fiduciary duty, preferential transfers, and claim disallowance.  The Court previously dismissed the original complaint because it lacked “related-to” jurisdiction over the fiduciary duty claims, and because the preference claims were not adequately pled.  The Liquidating Trustee was permitted to file an amended complaint to address the deficiencies as it related to the preference claims.

The Liquidating Trustee filed the Amended Complaint seeking to avoid and recover $651,496.50 of alleged preferential transfers made to Visagar M. Shyamsundar (“Defendant”) within one year of the petition date pursuant to sections 547 and 550 of the Bankruptcy Code.  Defendant again moved to dismiss, asserting that the Amended Complaint continued to fail to adequately allege that the transfers were made for or on account of an antecedent debt.

The Court granted dismissal as to five of the alleged transfers to Defendant for “car payments,” “payroll,” and “records storage”, totaling approximately $100,000. The Court held that the allegations did not support a claim that they were made in satisfaction of an antecedent debt owed to the Defendant.

In addition, the Court separately dismissed these transfers from the Amended Complaint because the Liquidating Trustee failed to satisfy his burden of demonstrating insolvency.  While insolvency is presumed within the 90 day period prior to the bankruptcy filing, the burden rests with a trustee to adequately allege insolvency for claims arising before such 90 day period.

Finally, the Court denied the Liquidating Trustee’s request to further amend as to the aforementioned transfers.  The Court noted that the Liquidating Trustee was put on notice of his deficiencies when the Court previously granted dismissal of the original Complaint, and did little to correct the deficiencies.  See Krantz v. Prudential Invs., 305 F.3d 140, 144 (3d Cir. 2002) (denying leave to amend previously amended complaint where motion to dismiss original complaint put plaintiff on notice of deficiencies, yet plaintiff failed to rectify them in his first amended complaint).  Accordingly, dismissal was granted with prejudice as to the five aforementioned transfers.

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.