Bloomberg News

Houghton, Ritz Camera, Hostess, Dewey, Bicent: Bankruptcy

June 25, 2012

Houghton Mifflin Harcourt Publishing Co. improperly filed its prepackaged reorganization in New York, the bankruptcy judge ruled on June 22, one day after signing a confirmation order approving the Chapter 11 plan for the Boston- based educational publisher.

The judge said he was “perplexed” why the U.S. Trustee sought to move a case designed to be completed so quickly. To avoid hurting the company or creditors, the judge won’t move the case for about three weeks.

Houghton Mifflin and subsidiaries filed for Chapter 11 protection in Manhattan on May 21, after receiving votes from unsecured creditors and shareholders sufficient to win approval of the previously-negotiated reorganization plan.

The company implemented the reorganization plan on June 22, one day after the judge signed the confirmation order.

With a confirmation hearing already set for June 21, the U.S. Trustee filed a motion on May 30 to move the case to Boston, contending there was no basis for a bankruptcy in New York. U.S. Bankruptcy Judge Robert E. Gerber held a hearing on June 18 to consider the request to move the case and refused to rule on the so-called venue-transfer motion until after confirmation.

In his 27-page opinion on June 22, Gerber said he “reluctantly” adopted the reasoning of a majority of courts by concluding that he’s required to move the case if there isn’t a proper basis for venue in New York under Section 1406 of the federal Judiciary Code.

Gerber analyzed the facts and decided that none of the two dozen Houghton Mifflin companies in bankruptcy had a proper basis for bankruptcy in Manhattan. Although one arguably had a residence in New York, Gerber said that residence rather than principal place of business only applies to individuals.

Although another subsidiary had an asset in New York, Gerber concluded that the principal assets were elsewhere, likely in Boston.

Since no one in the corporate family had a basis for New York venue, Gerber ruled that he had no discretion other than to move the case.

Gerber noted throughout his opinion that improper venue can be waived. Since the prepackaged reorganization was to be completed in a month start to finish, Gerber said it was “perplexing” why the U.S. Trustee “as a matter of prosecutorial discretion” decided to press the venue issue in the Houghton Mifflin case. New York was “exactly” the venue choice creditors wanted, Gerber said.

To avoid unnecessarily hurting the company or creditors, Gerber will allow the case to remain in New York until the plan is implemented. Absent quick consummation of the plan, the case will be transferred in three weeks.

Gerber told the parties to decide where the case should be sent. If they disagree, Gerber will decide.

The U.S. Trustee is the bankruptcy watchdog for the Justice Department. No creditor supported the U.S. Trustee’s effort to move the case.

For details on the plan and the company’s financial condition, click here for the May 22 Bloomberg bankruptcy report. For more on the plan and confirmation, click here for the June 22 Bloomberg bankruptcy report.

Revenue in 2011 was about $1.3 billion. The petition listed assets of $2.68 billion and debt totaling $3.54 billion.

The case is In re Houghton Mifflin Harcourt Publishing Co., 12-12171, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filing

Ritz Camera Revisits Chapter 11, Again in Delaware

Ritz Camera & Image LLC, the operator of 265 camera stores and an Internet business, filed a petition for Chapter 11 reorganization on June 22 in Delaware. The company says it’s the largest camera-store chain in the U.S., with assets and debt both exceeding $50 million.

Based in Beltsville, Maryland, the company said in a statement that it will shrink the chain in bankruptcy by terminating leases for unprofitable stores.

The camera stores generated net sales of $254 million for a year ended in April, according to a court filing. The Internet business had a year’s net sales totaling $36 million.

Crystal Financial LLC, a secured lender with liens on all the assets, is owed $16.3 million. There is agreement to finance the Chapter 11 effort with a $15.6 million revolving credit and a $4.9 million term loan.

Bankruptcy resulted from “a lack of sufficient liquidity and capital to sustain operations with its current store count,” according to a court filing.

The camera-store business and the Internet business were both in bankruptcy previously. Under the name Ritz Camera Centers Inc., the store business filed for Chapter 11 reorganization in February 2009, with 800 stores at the time.

A group including company’s chief executive paid $16.25 million cash and a $7.8 million note in July 2009 to purchase at least 163 of the remaining 375 camera stores through confirmation of a reorganization plan. For details on the plan in the stores’ prior bankruptcy, click here for the April 21, 2010 Bloomberg bankruptcy report.

The stores currently operate under names including Ritz Camera, Wolf Camera, and The Camera Shop.

In February Ritz Camera purchased RitzCamera.com, WolfCamera.com, BoatersWorld.com, and seven other e-commerce web sites from the owner Ritz Interactive Inc. which was in Chapter 11 in Santa Ana, California.

The principal supplier and primary secured creditor, Ritz Camera was owed $3.5 million. It acquired the business through a Chapter 11 plan by subordinating its own claim and providing cash to make payments to creditors. Ritz Camera owned the trademarks.

Ritz Interactive blamed its decline into bankruptcy on the 2009 bankruptcy of the camera-store chain that curtailed the availability of merchandise.

The new case is Ritz Camera & Image LLC, 12-11868, U.S. Bankruptcy Court, District of Delaware (Wilmington).

The prior case for the camera stores was In re RCC Liquidating Corp., 09-10617, U.S. Bankruptcy Court, District of Delaware (Wilmington).

The prior case for the websites was In re Ritz Interactive Inc., 11-21690, U.S. Bankruptcy Court, Central District California (Santa Ana).

Updates

Dewey Proposes Procedures to Dispose of Client Files

Dewey & LeBoeuf LLP, the liquidating law firm, is setting up procedures to rid itself of what the bank lenders previously said were a half-million boxes of client files.

The firm scheduled a hearing on July 9 where the bankruptcy judge in New York will be asked to give his approval for a process where files will be abandoned if not retrieved by the former clients.

In papers filed June 22, Dewey says that “virtually all” files for active matters have been or are being transferred to other law firms. While some inactive files are in the firm’s former offices, “hundreds of thousands of boxes of former client files” are stored in third-party warehouses where storage fees are accruing.

If the judge goes along with the proposal, clients will be given notice and 45 days to request taking possession of their files. Files that aren’t claimed will be deemed abandoned.

Dewey will not turn over files to clients who haven’t paid their bills, the court filing states. While Dewey will charge clients for shipping costs, the firm won’t charge retrieval fees. Warehouses may charge retrieval fees, the firm said.

At the same July 9 hearing, Dewey will ask the court’s permission to terminate leases for 14 office leases in the U.S. and 10 abroad.

Dewey once had 1,300 lawyers. There are two official committees, one representing creditors and the other for former partners. There is secured debt of about $225 million and accounts receivable the firm recently said was $217.4 million. The petition listed assets of $193 million and liabilities of $245.4 million as of April 30.

The case is In re Dewey & LeBoeuf LLP, 12-12321, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Hostess Can’t Bust Some Union Contracts in Chapter 11

Hostess Brands Inc. cannot use the Chapter 11 reorganization to modify wages and benefits under union contracts that expired by their terms, U.S. Bankruptcy Judge Robert Drain said in his formal ruling on June 22.

The baker of Wonder bread filed for bankruptcy reorganization in January with modification of union contracts among the major objectives. After trial, Drain ruled in mid-May that Hostess could modify contracts with the Teamsters union so long as Hostess changed its proposal to comport with conditions the judge outlined in his ruling delivered from the bench.

The bakery workers’ union didn’t oppose Hostess’s efforts to modify collective bargaining agreements so long as they were still in effect. Accordingly, Drain signed an order in early May terminating the contracts that were still alive.

In the same order in early May, Drain ruled that the bankruptcy court lacked the ability to allow changes in union contracts that had already ended by their own terms.

Drain delivered his formal opinion on June 22 explaining his reasons for deciding there was no power for the bankruptcy court to modify contracts that already expired. To read Drain’s opinion, click here.

As to contracts that ended on their own, Drain ruled that Hostess must utilize procedures required by non-bankruptcy labor law to modify the terms of employment and benefits for workers covered by expired contracts. Basically, the company and the union must continue negotiating in good faith until they reach impasse. Only then may the company change benefits or the terms of employment. If there is disagreement over whether one side or the other isn’t bargaining in good faith, the dispute won’t be decided in bankruptcy court.

Hostess argued that the bankruptcy court retained power to modify terms of employment on expired union contracts because the company remains obligated under labor law to abide by the requirements of the expired contracts. Drain disagreed.

Although he said there were “considerable merit” to Hostess’ position, Drain said he didn’t believe that Congress intended “to impose the rejection process on parties to an already expired agreement.”

Drain saw “complete overlap” between provisions in bankruptcy law and the National Labor Relations Act dealing with both parties’ obligations regarding expired contracts.

Responding to Hostess’ contention that NLRA procedures were too slow to save a bankrupt company, Drain said he found it “hard to believe” the NLRA and federal district courts wouldn’t respond to the bankrupt companies’ “need for a quick resolution.”

Drain’s opinion, if followed by other judges in other cases, means that a company can’t file bankruptcy to short circuit the process required under the NLRA for modifying terms of expired union contracts.

For details on Drain’s ruling in May regarding the Teamsters contracts, click here for the May 17 Bloomberg bankruptcy report.

Hostess filed under Chapter 11 for a second time in January, listing assets of $982 million against liabilities totaling $1.43 billion. Brand names included Wonder, Hostess, Merita, Dolly Madison, Drake’s and Butternut.

Hostess has 36 bakeries, 565 distribution centers, and 570 outlets. During the prior bankruptcy, Irving, Texas-based Hostess had 41 bakeries, 600 distribution centers and 730 thrift stores.

The new case is In re Hostess Brands Inc., 12-22052, U.S. Bankruptcy Court, Southern District of New York (White Plains). The prior bankruptcy was In re Interstate Bakeries Corp., 04-45814, U.S. Bankruptcy Court, Western District of Missouri (Kansas City).

Former Owner MeadWestvaco Sues NewPage over Asbestos

MeadWestvaco Corp. (MWV:US) sued NewPage Corp. at the end of last week to compel the paper maker to continue covering asbestos claims arising from the plants NewPage purchased from MeadWestvaco for $2.05 billion cash in 2005.

The lawsuit filed in U.S. Bankruptcy Court in Delaware explains how NewPage had been defending asbestos lawsuits against Richmond, Virginia-based MeadWestvaco as required by the 2005 purchase agreement. After filing for bankruptcy, NewPage served notice that it would reject the 2005 agreements as so- called executory contracts and no longer defend the suits.

MeadWestvaco wants the bankruptcy court to rule that the 2005 contracts were fully performed and thus may no longer be rejected in bankruptcy. It also wants the court to assess damages for breach of the 2005 agreements.

At a hearing on June 22, the bankruptcy court granted NewPage an extension until Sept. 1 of the exclusive right to propose a reorganization plan. The judge turned down a request by the official creditors’ committee to appoint a mediator.

The judge said he would reconsider appointing a mediator when NewPage files a plan in July or August.

Also at the end of the week, the creditors’ committee added to the lawsuits it seeks permission to prosecute against Cerberus Capital Management LP, NewPage’s 80 percent owner.

The committee has identified $3 million in payments for advisory or management fees that were made in the last year before bankruptcy. NewPage refused to assert the preference claims, the committee said.

The committee also wants to bring suit contending that a lease for a paper-making machine is an unperfected financing agreement, not a bona fide lease. There will be a hearing on July 9 regarding the request for bringing the new suits.

The committee previously filed a request for permission to sue secured lenders on claims NewPage characterized as defying “reality to a staggering extent that demonstrates that they are not plausible.” The bankruptcy court held a status conference on the dispute on June 22.

The committee alleges in its draft lawsuit that the debt- financed acquisition of the North American division of Stora Enso Oyj (STEAV) in 2007 was a fraudulent transfer because the assets were pledged to secured lenders to raise cash for the transaction.

NewPage listed assets of $3.4 billion and debt totaling $4.2 billion in the Chapter 11 reorganization begun in September. Liabilities included $232 million on a revolving credit plus $1.77 billion on 11.375 percent senior secured first-lien notes. Second-lien obligations include $802 million in 10 percent secured notes and $225 million in floating-rate notes.

In addition to $200 million in 12 percent senior unsecured notes, $498 million is owing on two issues of floating-rate pay- in-kind notes. The company contends unsecured creditors are “hopelessly out of the money.”

NewPage has 16 paper-making machines operating in seven plants in the U.S. and Nova Scotia. The Canadian affiliate filed for reorganization in Nova Scotia. The company reported a $229 million net loss in the first half of 2011 on revenue of $1.79 billion, following a $674 million net loss in 2010 on revenue of $3.6 billion.

The case is In re NewPage Corp., 11-12804, U.S. Bankruptcy Court, District of Delaware (Wilmington).

NextEra Wins Solar Millennium Blythe Project Auction

NextEra Energy Inc. (NEE:US) won the bankruptcy auction for the 1,000-megawatt facility in Blythe, California, owned by Solar Millennium Inc. (S2M) When completed, it will be the world’s largest solar power plant.

NextEra will pay $10 million in cash plus contingent payment of as much as an additional $40 million when the project is completed. There will be a hearing on June 27 in U.S. Bankruptcy Court in Delaware for approval of the sale.

At the auction in June 21, there were no bids to compete with the offer from BrightSource Energy Inc. (BRSE:US) to buy the 500- megawatt project under development in Desert Center, California, for a price that could be as much as about $30 million, if all contingent payments are made.

Solar Millennium was also offering to sell the 500-megawatt project still in the planning stage in Amargosa Valley, Nevada. Global Finance Corp. started a lawsuit in bankruptcy court on June 13 contending that Solar Millennium lost its ownership interest in the project by not moving forward with development.

For other Bloomberg coverage of the auction, click here.

Solar Millennium is a U.S. subsidiary of Germany’s Solar Millennium AG. Mason Capital Management LLC is providing financing for the Chapter 11 case with a $25 million working capital term loan along with an $18.3 million letter of credit. As a secured lender, New York-based Mason can bid at auction with debt rather than cash.

Solar Millennium, based in Oakland, California, filed in Chapter 11 on April 2 when rent was coming due on the 7,000-acre Blythe project.

The company’s solar-power projects are all in the development stage and generate no income. There is only $200,000 in secured debt. Financing had been provided by the German parent and Ferrostaal AG, the owner of a 30 percent interest in the joint venture developing the U.S. projects.

Ferrostaal provided no financing in two years, and the German parent suspended financing in late 2011 after initiating its own insolvency proceedings in Germany.

The petition listed assets of less than $100 million and liabilities exceeding $100 million.

The case is In re Solar Trust of America LLC, 12-11136, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Ezra Merkin to Pay $410 Million in Madoff Settlement

J. Ezra Merkin agreed to pay $410 million to settle claims by New York Attorney General Eric Schneiderman that he secretly invested more than $2 billion from four funds he controlled into the Ponzi scheme run by Bernard L. Madoff Investment Securities LLC.

Merkin will pay investors $405 million over three years. The other $5 million goes to the state. Investors who didn’t know their money was being invested with Madoff will be paid more.

For the Bloomberg story, click here.

The Madoff trustee is trying to stop California Attorney General Kamala Harris from suing the estate of Stanley Chais on account of investors’ fund he secretly invested with Madoff.

The Madoff firm began liquidating in December 2008, with the appointment of the trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm’s liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.

The New York Attorney General’s suit is People of the State of New York v. Merkin, 450879-2009, New York State Supreme Court, New York County (Manhattan).

The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09- cr-00213, U.S. District Court, Southern District of New York (Manhattan).

AMR Wins in Court on Union Vote, Reduces Demand From Pilots

AMR Corp., the parent of American Airlines Inc., won a victory in court over passenger service agents while it was reducing the demand for concessions sought from the pilots’ union.

A federal district judge in Dallas ruled on June 22 that the National Mediation Board was improperly holding an election by passenger-service agents because the required 50 percent hadn’t shown a desire for representation. The NMB was working on the incorrect belief that 35 percent was sufficient, the judge said.

In negotiations with the pilots’ union, the airline reduced the demand for concessions by 15 percent, to $315 million. The airline lowered its demand in an effort at winning agreement with the pilots before the June 29 deadline when the bankruptcy judge is currently scheduled to rule on whether AMR can modify existing contracts with the pilots, flight attendants and mechanics.

The passenger-service agents aren’t represented by a union.

For Bloomberg stories on negotiations with pilots and the ruling regarding passenger-service agents, click here and here.

AMR, based at the airport midway between Dallas and Fort Worth, Texas, listed assets of $24.7 billion and debt totaling $29.6 billion in the Chapter 11 reorganization begun in November. American Airlines entered bankruptcy with 600 aircraft in the mainline fleet and another 300 with American Eagle, the feeder airline.

The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Bicent Reports $8.6 Million Net Loss on Power Plants

Bicent Holdings LLC reported an $8.6 million net loss from the filing of the Chapter 11 case on April 23 through the end of May.

Bicent scheduled a July 30 confirmation hearing for approval of a reorganization plan worked out before bankruptcy. The plan calls for transferring ownership of its two power plants in California to secured lenders.

The operating statement filed with the bankruptcy court in Delaware shows total revenue of $3.1 million and an operating loss of $3.2 million. The larger net loss was the result of $3.5 million in interest expense and a $2 million unrealized loss on derivative transactions.

The plan is supported by holders of more than two-thirds of the first- and second-lien debt, according to the disclosure statement approved by the bankruptcy court.

First-lien lenders, with Barclays Plc (BARC) as agent, are owed $178.9 million. They are to receive 95 percent of the new stock, for a recovery estimated between 38.3 percent and 60.4 percent.

Second-lien lenders, with U.S. Bank NA (USB:US) as agent for $128.5 million in debt, are to have warrants for 12.5 percent of the new stock plus $1.5 million cash, for an estimated recovery of 4.4 percent.

Holders of mezzanine debt owed $65.2 million are to receive nothing. Likewise, general unsecured creditors with $25.4 million in claims are to have no recovery.

Bicent is based in Lafayette, Colorado. The larger plant, with a 120-megawatt capacity, is coal-fired. The other plant, with a 48-megawatt capacity, uses natural gas.

The case is In re Bicent Holdings LLC, 12-11304, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Northstar Proposes Bonus Program for Managers

Northstar Aerospace (USA) Inc., a manufacturer of gears and gearboxes for military helicopters, is proposing a $420,000 bonus program for 10 executives and managers with payments contingent on completion of a sale of the business to private- equity investor Wynnchurch Capital Ltd.

Northstar filed for Chapter 11 reorganization on June 14, having already negotiated for Wynnchurch to buy the business for $70 million cash. There will be a June 27 hearing in U.S. Bankruptcy Court in Delaware for approval of auction and sale procedures.

The bankruptcy judge will conduct a hearing on July 3 to consider approving the bonus program. The bonuses won’t be paid to executives who accept a job with the buyer.

The four executives can earn a bonus of 10 percent of base annual salary by completion of a sale at a price that isn’t disclosed. There will be another 5 percent bonus if the sale is completed within 75 days of the signing of a contract. A final 3 percent bonus will be earned if the price reaches a specified although undisclosed level.

The six managers at plant sites will earn a bonus of 30 percent of salary by remaining employed until the sale is completed.

Northstar says the principal lender Fifth Third Bank (FITB:US) doesn’t oppose the bonuses. The bank is owed $39.5 million on a revolving credit and $18.9 million on a term loan.

Northstar, with U.S. operations based in Bedford Park, Illinois, makes components and assemblies for Chinook, Apache and Blackhawk helicopters as well as the F-22 Raptor fighter. The company has six facilities in the U.S. and Canada. Revenue in 2011 was $189.6 million. The two largest customers are the U.S. military and Boeing Co. (BA:US)

Northstar said book assets are $165.1 million, with liabilities totaling $147.5 million. Trade suppliers are owed $21.7 million. The Canadian companies filed for reorganization in Canada under the Companies’ Creditors Arrangement Act.

The case is In re Northstar Aerospace (USA) Inc., 12-11817, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Bucyrus Community Hospital Confirms Liquidating Plan

Bucyrus Community Hospital Inc., a 25-bed acute-care hospital in Bucyrus, Ohio, filed for Chapter 11 reorganization in March 2010 in Canton, Ohio and sold the hospital in December of that year to Galion Community Hospital for $10.3 million cash.

Galion was the so-called stalking horse buyer with an offer of $8 million. With the advent of a competing bidder, the auction drove the price up $2.3 million, with Galion as the winner.

Last week the bankruptcy judge signed a confirmation order approving a liquidating Chapter 11 plan. The explanatory disclosure statement approved last year said that the Department of Housing and Urban Development received $5.6 million cash when the hospital was sold. The remainder of HUD’s $21.7 million claim was to be paid along with unsecured creditors.

Unsecured creditors with claims totaling $7.6 million, according to the disclosure statement, were predicted to have a recovery from nothing to 3.3 percent.

The hospital said at the outset of bankruptcy that it owed $25.9 million on a mortgage guaranteed by HUD.

The hospital blamed its problems on the cost of an expansion and high unemployment in the surrounding community that resulted in fewer managed-care patients.

The case is In re Bucyrus Community Hospital Inc., 10-61078, U.S. Bankruptcy Court, Northern District Ohio (Canton).

Watch List

Oil-Field Service Provider Green Field Short on Cash

Green Field Energy Services Inc., an oil-field services provider from Lafayette, Louisiana, has liquidity that “would be insufficient to cover third-quarter expenses and November interest payment without a cut in capital spending or outside financing,” Standard & Poor’s said in a report on June 22.

S&P lowered the corporate rating by one grade to CCC, saying there is “limited liquidity relative to projected capital spending and debt amortization over the next 60 to 90 days.”

S&P attributed limited liquidity to the “rapid deterioration of market conditions for fracturing services during the first quarter.”

Downgrade

Alliance One Downgraded to B3 by Moody’s

Alliance One International Inc. (AOI:US), a tobacco merchant and processor from Morrisville, North Carolina, was dealt a one- notch downgrade on June 22, even though Moody’s Investors Service said the “company’s liquidity profile has improved as a result of the recently amended and extended revolving credit facility.”

The new corporate rating is B3 and the rating for the $635 million in 10 percent senior unsecured notes due in 2016 is the same. The $115 million subordinated convertible debt due in 2014 was lowered one grade to Caa2.

As a result of the revised credit agreement, Moody’s said the “covenant cushion is adequate.”

Moody’s issued the downgrade based on a prediction that “credit metrics” will “not sufficiently improve over the next 12 months.”

Daily Podcast

ResCap Schedule, Madoff, Sexual Harassment: Bankruptcy Audio

The bankruptcy judge told Residential Capital LLC he won’t allow creditors to vote on a reorganization plan until there’s a completed investigation, thus delaying an exit from Chapter 11 until late this year or next, as Bloomberg News bankruptcy columnist Bill Rochelle and Bloomberg Law’s Lee Pacchia discuss on their podcast. The bankruptcy judge blocked the latest attempt by customers of Bernard L. Madoff Investment Securities Inc. to sue the fraudster’s cohorts. For the last item, Rochelle explains why liability for sexual harassment can’t be shed by a bankruptcy filing. To listen, click here.

Advance Sheets

Stay Lifted Automatically on Unscheduled Collateral

When an individual bankrupt doesn’t file a statement of intention to retain property subject to lien within the prescribed time, the automatic stay is automatically terminated as to both listed and unlisted collateral, the U.S. Court of Appeals in San Francisco ruled on June 21.

The ruling by the Ninth Circuit in San Francisco paid a compliment to the Bankruptcy Appellate Panel by adopting the panel’s opinion in full. The appellate panel’s ruling was written in May 2011 by U.S. Bankruptcy Judge Eileen W. Hollowell.

The case involved an interpretation of Sections 521(a)(2) and 362(h) of the Bankruptcy Code. The former requires an individual bankrupt to file a statement of intention about surrendering or retaining property securing a claim. Absent a timely-filed statement, Section 362(h) provides that the automatic stay is terminated as to the collateral.

The trustee in Chapter 7 argued that the stay is terminated only as to property that the bankrupt listed as collateral and wasn’t terminated as to unlisted property. The appellate panel and the Court of Appeals disagreed, based on the language of the applicable sections. The result may be “harsh but it is not absurd,” according to the opinion.

The court rejected the trustee’s argument that vacating the stay as to unlisted property would harm trustees and creditors not aware of the existence of property.

The case is Samson v. Western Capital Partners LLC (In re Blixseth), 11-60042, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

Improper to Rule on the Merits on Unscheduled Lawsuit

When an individual bankrupt failed to list a lawsuit among his assets, the trial court erred in ruling on a motion for summary judgment, the U.S. Court of Appeals in Atlanta said in a June 22 opinion.

An individual was a plaintiff in a lawsuit when he filed for bankruptcy and failed to list the suit among the assets. When the defendants learned the plaintiff was in bankruptcy, they filed a motion to dismiss in the trial court.

The trial court first denied the motion for summary judgment and then granted the motion to dismiss without prejudice.

The 11th Circuit in Atlanta said it was correct for the suit to be dismissed without prejudice because the individual lost standing on filing in bankruptcy, since the suit became the property of the estate under control of the trustee.

It was an error, however, for the trial court to have ruled on the motion for summary judgment, according to the decision. The suit should have been dismissed, leaving the door open for the trustee to prosecute the claim, the court said.

The case is Webb v. City of Riverdale, 11-15649, U.S. 11th Circuit Court of Appeals (Atlanta).

Lawyer’s Statement Controls Over Contrary Plan Term

A secured creditor was held in contempt for failing to pay expenses of a Chapter 11 case its counsel committed to pay at the confirmation hearing for approval of the reorganization plan.

It didn’t matter that the oral statements by counsel were in conflict with the written plan, U.S. Bankruptcy Judge Shelley D. Rucker from Chattanooga, Tennessee said in an 18-page opinion on June 21.

At the confirmation hearing, it was unclear whether there would be sufficient funds to pay administrative expenses, such as fees for the bankrupt company’s lawyers. A lawyer for a secured creditor represented to the court at the confirmation hearing that the lender would supply necessary funds.

When the reorganized company failed to pay the company’s lawyers’ approved compensation after Chapter 11 confirmation, the lawyers sought to hold the secured creditor in contempt. Rucker granted the request and said the lender could purge its contempt by paying the $77,000 in approved fees.

The lender argued that the plan itself said that the lender’s obligations were only optional. Rucker rejected the argument, saying that the lender couldn’t disregard its counsel’s representations made “to obtain the benefits of the confirmation order.”

The case is In re Trinity Communications LLC, 09-13154, U.S. Bankruptcy Court, Eastern District of Tennessee (Chattanooga).

To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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