VML Co. v. Meguiar's, Inc. (In re VML Co.), Case No. 09-24507-E

• Decision Date: 10 March 2017
• Docket Number: Case No. 09-24507-E,Adv. Proc. No. 09-00400
• Parties: In re VML COMPANY, LLC, Debtor. VML COMPANY, LLC, Plaintiff, v. MEGUIAR'S, INC., Defendant.
• Court: U.S. Bankruptcy Court — Western District of Tennessee

In re VML COMPANY, LLC, Debtor.VML COMPANY, LLC, Plaintiff, v. MEGUIAR'S, INC., Defendant.

Case No. 09-24507-E

Adv. Proc. No. 09-00400

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF TENNESSEE

March 10, 2017

The following is SO ORDERED:

Chapter 11

MEMORANDUM OPINION

These matters are before the Court on the motion of the Debtor, VML Company, LLC, ("Debtor"), for partial summary judgment as to Count I and Count II of the Debtor's Complaint, filed with this Court on June 23, 2016. (Chapter 11 Case No. 09-24507; Adv. Proc. No. 09-00400, ECF No. 32). Defendant Meguiar's, Inc., (hereinafter "Defendant") filed its objection to Debtor's motion on October 21, 2016, (Id. ECF No. 42), followed by Debtor's reply on November 8, 2016, (Id. ECF No. 44) and Defendant's reply thereto on November 16, 2016 (Id. ECF No. 45). Following the hearing of this matter on January 10, 2016, counsel for the Debtor was granted the opportunity to file a supplemental brief with this Court. On January 17, 2017, counsel for the Debtor filed a supplemental statement in support of its motion for summary judgment and the Court took the matter under advisement.

28 U.S.C. § 157(a) allows a district court to refer "all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 . . . to the bankruptcy judges for the district." Pursuant to the Standing Order of Reference, Misc. Order No. 84-30, the District Court for the Western District of Tennessee has referred all bankruptcy cases and adversary proceedings to this Court.

I. CHAPTER 11 PROCEEDINGS

VML Company, LLC, a Delaware Corporation d/b/a/ Valley Manufacturing and Logistics Company, LLC, (herinafter "Debtor"), filed a voluntary, but incomplete, Chapter 11 petition on April 24, 2009. On May 21, 2009, the Debtor filed the required schedules and statements and on May 22, 2009, the Debtor filed its disclosure statement.

On June 30, 2009, Defendant filed an unsecured, nonpriority claim in the Debtor's case in the amount of $4,647,143.83. On July 2, 2009, the Order Confirming Plan of Reorganization was signed by the Court and docketed. The plan provided that Class 6, consisting of unsecured, nonpriority claims, was impaired, and that Class 6 claims would be paid on a pro rata basis from excess funds from the sale of assets of the Debtor after payment of Class 2 and 3 in full. At the contested confirmation hearing, the Debtor announced a consensual resolution of the Unsecured Creditors' Committee's ("Committee's") objection that granted the Committee an interest in any preference actions which might have existed, allowed for the establishment of a trust to hold anysuch recoveries in escrow, and provided for a pro rata distribution to Class 6 from any recovered funds, in addition to future payments from the entity purchasing substantially all of the Debtor's assets if the Committee's recoveries did not reach a certain threshold percentage of total Class 6 claims. This agreement was memorialized in the order confirming the Debtor's plan entered in the Debtor's Chapter 11 case. The order confirming Debtor's plan did not address post-petition turnover actions under 11 U.S.C. § 542 or collections of accounts receivable. The Committee's motion for final disbursement alleged that the holders of allowed unsecured claims ultimately received a .005% dividend on allowed claims, and that "[t]he Committee does not expect to receive any further additional funds to be available to pay unsecured creditors." Chapter 11 Case No. 09-24507, ECF No. 255 at 2.

As set forth below, neither the plan or disclosure statement mentions actions for turnover, 11 U.S.C. § 542, or the collection of post-petition accounts receivable owed to the Debtor. The amended disclosure statement indicates that "the Reorganized Debtor will continue under Newco and that the Channel Plant will operate and liquate [sic] under the Chief Restructuring Officer until sale or auction of the remaining assets as quickly as possible." Chapter 11 Case No. 09-24507, ECF No. 88 at 30. There is no mention in the record of the Debtor's intentions with regard to post-petition accounts receivable generated during the period between the filing of the Debtor's Chapter 11 petition and the closing of the Channel Plant.

It should also be noted that the Court granted approval of post-petition financing for the Debtor which granted Regions, as the Debtor's post-petition lender, a lien over all property and assets of the Debtor, and its bankruptcy estate, including "causes of action under chapter 5 of the bankruptcy code," subject to the Committee's preference action carveout. Chapter 11 Case No. 09-24507, ECF No. 34 at 10.

Debtor asserts that the following provisions of the Plan of Reorganization are relevant to these matters:

F.4. Preservation of Causes of Action. In accordance with §1123(b)(3) of the Bankruptcy Code and except as otherwise provided in this Plan, the Reorganized Debtor will retain and may (but shall not be required to) enforce all claims and causes of action of any sort against any party. Debtor or the Reorganized Debtor, in its sole and absolute discretion, will determine whether to bring, settle, release, compromise, or enforce such claims or causes of action (or decline to do any of the foregoing), and will not be required to seek further approval of the Bankruptcy Court for such action. The Reorganized Debtor or any successors may pursue such litigation claims in accordance with the best interest of the Reorganized Debtor or any successors holding such rights of action.

I. Preservation of Rights of Action. Except as otherwise expressly provided herein, any rights or causes of action accruing to the Debtor or its Estate including, without limitation, any rights or causes of action pursuant to 11 U.S.C. §§ 544 through 550, inclusive, or any other statute or legal theory shall become assets of, and vest in, the Debtor.

M. Retention of Jurisdiction. Following Confirmation of this Plan, the Bankruptcy Court shall retain such jurisdiction as is legally permissible after Confirmation, including, without limitation, for the following purposes:

1. To determine the allowability, classification, or priority of claims and interests upon an objection by the Reorganized Debtor or by other parties in interest with standing to bring such objections or proceeding;

2. To construe or to take any action to enforce and execute this Plan, the Confirmation Order, or any other Order of the Bankruptcy Court, issue such Orders as may be necessary for the implementation, execution, performance, and consummation of this Plan and all matters referred to herein, and determine all matters that may be pending before the Bankruptcy Court in the Reorganization Case on or before the Effective Date with respect to any entity;

3. To determine any and all applications for allowance of compensation and expense reimbursement of professionals for services rendered in periods commencing on or before the Effective Date;

4. To determine any other request for payment of administrative expenses;

5. To resolve any dispute regarding the implementation, execution, performance, consummation, or interpretation of this Plan;

6. To determine motions for the rejection, assumption, or assignment ofexecutory contracts or unexpired leases filed before the Effective Date and the allowance of any claims resulting therefrom;

7. To determine all applications, motions, adversary proceedings, contested matters, and any other litigated matters instituted prior to the entry of the Confirmation Order;

8. To determine such other matters and for such other purposes as may be provided in the Confirmation Order;

9. To modify this Plan pursuant to 11 U.S.C. § 1127, to remedy any apparent defect or omission in this Plan or to reconcile any inconsistency in the Plan so as to carry out its intent and purposes;

Chapter 11 Case No. 09-24507, Adv. Proc. No. 09-00400, ECF No. 44 at 4-5, Chapter 11 Case No. 09-24507, Plan of Reorg. ECF No. 50 at 14-15.

On August 19, 2009, Debtor filed this complaint for violation of the automatic stay, turnover of property and damages, and on October 5, 2009, Defendant filed its answer in response. Adv. Proc. No. 09-00400, ECF No. 10. Following discovery and an unsuccessful attempt at mediation, Debtor filed a motion for partial summary judgment on June 23, 2016, and an accompanying memorandum which included, among other supporting documents, a statement of undisputed material facts. Adv. Proc. No. 09-00400, ECF No. 32-2. Defendant filed an objection to Debtor's motion for summary judgment that also included a response to Debtor's statement of undisputed material facts. Id., ECF No. 41-1. Debtor filed a reply to Defendant's objection, followed by Defendant's sur-reply. After oral arguments were held on the motion for summary judgment, Debtor filed a supplemental statement in support of its motion for summary judgment. These matters are now fully briefed.

II. UNDISPUTED FACTS

From the Debtor's statement of undisputed material facts and Defendant's reply thereto, the Court finds that the parties agree that the following facts are not in dispute:

VML was a contract manufacturer of liquid and bar soap. VML had its principal places of business at 2070 Channel Avenue, Memphis, Tennessee 38103 (the "Channel Plant") and 384 E. Brooks Road, Memphis, Tennessee 38109. On June 1, 2007, Debtor and Defendant entered into a Master Supply Agreement ("MSA"). Under the MSA, Debtor made payments to Meguiar's of approximately $6,000,000. On November 14, 2008, Debtor and Defendant entered into a Product Processing Agreement ("PPA") and Amended and Restated Note ("Note"). See Ex. 2 and 4 to Defendant's Answer (Adv. Proc. No. 09-00400, ECF No. 10). The Note provided that part of the payments under the Note would be made by way of a reduction in principal and interest equal to $.045 of the invoice cost for every unit of product that was processed. (The PPA provided...