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Full title: Objection Carolina Sawmills, L.P.'s: (I) Limited Objection to Joint Motion Pursuant to Sections 105 of the Bankruptcy Code and Bankruptcy Rule 9019 and 7023 for an Order (I) Certifying a Class for Settlement Purposes, (II) Appointing Plaintiff Cornelius Turner as Class Representative and Plaintiff's Counsel as Class Counsel, (III) Preliminarily Approving Settlement, (IV) Approving Class Notice, and (V) Scheduling Fairness Hearing; and (II) Reservation of Rights (related document(s)874) Filed by Carolina Sawmills, LP (Attachments: # 1 Exhibit A # 2 Exhibit B # 3 Exhibit C) (Hehn, Curtis) (Entered: 08/04/2021)

Document posted on Aug 3, 2021 in the bankruptcy, 9 pages and 0 tables.

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However, if claims objections are going to be litigated prior to the resolution of the “ownership” of the “Net Proceeds,” then Carolina Sawmills will have no choice but to object to the fees for such work because the time expended on such work will provide no benefit to the KL2’s estate if Carolina Sawmills lien attaches to the “Net Proceeds.”From the Petition Date, through the start of November, 2020, there was significant disagreement among KL2, the KL2 Committee, Carolina Sawmills, and Halifax County, North Carolina (the “County”) over a variety of issues, including, but not limited to: (i) the secured status of Carolina Sawmills’ liens on substantially all of the assets of KL2; (ii) debtor-in-possession financing (“DIP Financing”), including the alleged subordination of Carolina Sawmills’ lien rights to such DIP Financing; and (iii) the approval of a proposed settlement agreement between KL2 and the County that would allow for the sale of substantially all of KL2’s assets (the “Sale”) free and clear of Carolina Sawmill’s lien rights. “Carved Out Amounts” shall mean the proceeds of the sale of the Sawmill sufficient to allow for the payment in full of the following, free and clear of the CSLP Liens, if any: (a) the amount due to the County from the proceeds of sale under the Amended County Settlement, which includes (i) $4.6 million plus (ii) real and personal property taxes owed to the County plus (iii) reimbursement of previously incurred carrying costs or expenses plus (iv) ongoing reimbursement of expenses, as set forth therein; (b) the outstanding balance of any DIP Financing; (c) any valid liens or allowed secured claims senior to the DIP Financing, including those relating to personal property taxes, real property taxes and mechanics’ liens; (d) all allowed administrative expenses, include the allowed fees and expenses of all Bankruptcy Court-approved retained professionals in the case; (e) all allowed priority claims against the Debtor; (f) any U.S. Trustee fees; and (g) allowed post-effective date fees and expenses incurred in connection with the implementation of a confirmed chapter 11 plan in an amount not to exceed $225,000.At this time, Carolina Sawmills submits that it is impossible in KL2’s case for anyone to know whether the approval of the proposed Settlement Agreement of the Action is in the best interest of KL2’s estate and creditors because there is an ongoing dispute over the ownership of “Net Proceeds” from the sale of KL2’s assets.However, if claims objections are going to be litigated prior to the resolution of the “ownership” of the “Net Proceeds,” then Carolina Sawmills will have no choice but to object to the fees for such work because the time expended on that litigation will provide no benefit to the Debtor’s estate if Carolina Sawmills lien attaches to the “Net Proceeds.

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ____________________________________ ) Chapter 11 In re: ) ) Case No. 20-11518 (KBO) Klausner Lumber Two LLC, ) ) Response Deadline: ) August 4, 2021 at 4:00 p.m. Debtor. ) ) Hearing Date: ) August 11, 2021 at 10:00 a.m. ) ____________________________________ ) Re Docket No. 874 CAROLINA SAWMILLS, L.P.’S: (I) LIMITED OBJECTION TO JOINT MOTION PURSUANT TO SECTION 105 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 9019 AND 7023 FOR AN ORDER (I) CERTIFIYING A CLASS FOR SETTLEMETN PURPOSES, (II) APPOINTING PLAINTIFF CORNELIUS TRUNER AS CLASS REPRESENTATIVE AND PLAINTIFFS’ COUNSEL AS CLASS COUNSEL, (III) PRELIMINARILY APPROVING SETTLMEENT, (IV) APPROVING CLASS NOTICE, AND (V) SCHEDULING FAIRNESS HEARING; AND (II) RESERVATION OF RIGHTS [DOCKET NO. 874] Carolina Sawmills, L.P. (hereafter, referred to as “Carolina Sawmills”) objects upon a limited basis (the “Limited Objection”) to the Joint Motion for two reasons.1 First, at this point in KL2’s case, it’s impossible for anyone to know whether the approval of the proposed Settlement Agreement of the Action– or any settlement – will be in the best interest of the KL2 estate, and further the paramount interest of creditors. This is so because nobody knows if the “ownership” of the remaining $57,671,668 of “Net Proceeds” from the Sale belong to KL2’s estate, or Carolina Sawmills. If the remaining “Net Proceeds” are completely encumbered by Carolina Sawmill’s liens, then there will be no money for general unsecured creditors, and the 1 Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms below or in the Joint Motion.

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proposed Settlement Agreement will literally provide no benefit to KL2’s estate, and will have been a complete waste of time and money by all of the involved parties. Moreover, KL2 is under a fiduciary duty to maximize the value of its estate. KL2 cannot fulfill this duty, while litigating claim objections, if it does not know whether the “Net Proceeds” will belong to its estate or Carolina Sawmills. To date, $16,752,217 have been spent on professional fees in KL2’s case, which includes 1,072.5 hours of professional time for work on claims analysis, management, and objections. Given this significant expenditure of time on claims analysis, the parties know which claims are valid, and do not need to actually litigate the matter to a legal conclusion before the “ownership” issue of the “Net Proceeds” can be resolved. While Carolina Sawmills agreed to the “Carved Out Amounts” provision of the Stipulation to provide for the financing of the KL2 case, it did not sign off on a “blank check” for financing the litigation of claims objections if they do not provide an actual benefit to KL2’s estate. To date, Carolina Sawmills has not objected to the fees of any professional in the KL2 case. However, if claims objections are going to be litigated prior to the resolution of the “ownership” of the “Net Proceeds,” then Carolina Sawmills will have no choice but to object to the fees for such work because the time expended on such work will provide no benefit to the KL2’s estate if Carolina Sawmills lien attaches to the “Net Proceeds.” In further support of this Limited Objection Carolina Sawmills respectfully states as follows: FACTS IN ADDITION TO THOSE SET FORTH IN THE JOINT MOTION KL2’s Bankruptcy Filing and Sale 1. On June 10, 2020 (the “Petition Date”), KL2 filed for bankruptcy under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”).

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2. From the Petition Date, through the start of November, 2020, there was significant disagreement among KL2, the KL2 Committee, Carolina Sawmills, and Halifax County, North Carolina (the “County”) over a variety of issues, including, but not limited to: (i) the secured status of Carolina Sawmills’ liens on substantially all of the assets of KL2; (ii) debtor-in-possession financing (“DIP Financing”), including the alleged subordination of Carolina Sawmills’ lien rights to such DIP Financing; and (iii) the approval of a proposed settlement agreement between KL2 and the County that would allow for the sale of substantially all of KL2’s assets (the “Sale”) free and clear of Carolina Sawmill’s lien rights. 3. All these issues were either resolved or deferred, in whole, or in part, on November 9, 2020, when the Court: ● entered that certain Order Approving Stipulation Regarding Motion to Approve County Settlement [Docket No. 377] (the “Stipulation Order”), which approved, as an Order of the Court, the terms of the Stipulation Regarding Motion to Approve County Settlement [Docket No. 377-1] (the “Stipulation”); and ● entered that certain Order Approving Motion of the Debtor Pursuant to Bankruptcy Rule 9019, Local Rule 9013-1 and 11 U.S.C. §§ 105(a) and 363(b), for Entry of an Order Authorizing Revised Settlement With the County [Docket No. 380] (the “County Settlement Order”). Collectively, the terms of the Stipulation and County Settlement Order, (i) allowed the Sale to proceed, while (ii) preserving the rights of Carolina Sawmills and the KL2 Committee to resolve – consensually, or through litigation – the parties’ respective rights to the “Net Sale Proceeds” from the Sale; and (iii) provided a mechanism for funding the balance of KL2’s bankruptcy case. 4. This funding mechanism was contained in paragraph 3 of the Stipulation, which states: Carved Out Amounts. “Carved Out Amounts” shall mean the proceeds of the sale

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of the Sawmill sufficient to allow for the payment in full of the following, free and clear of the CSLP Liens, if any: (a) the amount due to the County from the proceeds of sale under the Amended County Settlement, which includes (i) $4.6 million plus (ii) real and personal property taxes owed to the County plus (iii) reimbursement of previously incurred carrying costs or expenses plus (iv) ongoing reimbursement of expenses, as set forth therein; (b) the outstanding balance of any DIP Financing; (c) any valid liens or allowed secured claims senior to the DIP Financing, including those relating to personal property taxes, real property taxes and mechanics’ liens; (d) all allowed administrative expenses, include the allowed fees and expenses of all Bankruptcy Court-approved retained professionals in the case; (e) all allowed priority claims against the Debtor; (f) any U.S. Trustee fees; and (g) allowed post-effective date fees and expenses incurred in connection with the implementation of a confirmed chapter 11 plan in an amount not to exceed $225,000. For purposes of subparagraph (a), the initial reimbursement of the County’s expenses is contemplated under the DIP Financing and thus will occur upon Bankruptcy Court approval of the Amended County Settlement. The ongoing expense reimbursement contemplated under the Amended County Settlement will occur in accordance with the budget approved by the DIP Financing Order. The term “Net Proceeds” means the total proceeds from the sale of the Assets less the Carved Out Amounts plus any other Debtor assets remaining after the sale of the Assets that would have been subject to the CSLP Liens as of the Petition Date. Stipulation, pg. 8, ¶3 (emphasis added on subsection (d)). 5. After the entry of the Stipulation Order and the County Settlement Order, the Sale process proceeded. 6. On December 17, 2020, the Court entered that certain Order (I) Approving APA, (II) Authorizing the Sale of Certain of the Debtor’s Assets Free and Clear of Certain Encumbrances, (III) Authorizing the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases, and (IV) Granting Related Relief [Docket No. 507] (the “Sale Order”). 7. Thereafter, KL2 closed upon the sale of substantially all its assets for $83,400,000 (the “Sale Proceeds”) on January 8, 2021. See Notice of Closing of Sale of Substantially all of the Debtor’s Assets [Docket No. 553].

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Claims Filed Against KL2’s Estate 8. The Debtor’s Claim Pool. On December 15, 2020, the Court entered an order [Docket No. 501] (the “Bar Date Order”) establishing January 29, 2021 as the deadline by which general unsecured creditors of the Debtor must file their proofs of claim against the Debtor’s estate. Attached as Exhibit A is a copy of the most current Register of Claims [Docket No. 779] (the “Claim Registry”) filed by Donlin, Recano & Company, Inc. (the “Claims Agent”). As set forth therein, a total of $127,631,519.60 worth of unsecured claims were filed against the Debtor by 80 unsecured creditors. Claims Registry, pg. 10. Included among these claims was the Class Proof of Claim. KL2’s Remaining Sale Proceeds 9. On July 21, 2021, the Debtor filed the Monthly Operating Report [Docket No. 861] (the “June MOR”) for the reporting period ending June 30, 2021. A copy of the June MOR is attached as Exhibit B. Through June 30, 2021, the Debtor has: ● spent $16,752,217 on professional fees; and ● only has remaining Sale Proceeds in the amount of $57,671,668. June MOR, pg. 2, Part 1: Cash Receipts and Disbursements; pg. 3, Part 5: Professional Fees and Expenses. 10. Professional Time Spent on Claims Analysis and Objections. Attached hereto as Exhibit C is a spreadsheet that summarizes all of the time billed by professionals to “Claims,” “Claims Administration,” “Claims Objection and Administration,” and “Claims Admin & Objections” based upon the fee applications filed to date in this case. As set forth on

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Exhibit C, 1,072.5 hours of professional time have been spent on such claims works, for a total cost to the Debtor’s estate of $656,986.50. 11. To date, Carolina Sawmills has not filed a single objection to the fees of any professional in the Debtor’s case. The Proposed Settlement 12. On July 21, 2021, the Proponents filed the Joint Motion Pursuant to Section 105 of the Bankruptcy Code and Bankruptcy Rules 9019 and 7023 for an Order (I) Certifying a Class for Settlement Purposes, (II) Appointing Plaintiff Cornelius Turner as Class Representative and Plaintiff’s Counsel as Class Counsel, (III) Preliminarily Approving Settlement, (IV) Approving Class Notice, and (V) Scheduling Fairness Hearing [Docket No. 874] (the “Joint Motion”). Pursuant to paragraph 5 of the Joint Settlement Agreement of the Action, the Class will “be awarded with an allowed unsecured claim on account of the Class Proof of Claim with the priority set forth in Section 507(a)(4) of the Bankruptcy Code in the amount of $540,000 less” certain amounts. Joint Settlement Agreement of Action, pg. 7, ¶ 5. 13. Pursuant to the Joint Motion, the Proponents seek the preliminary approval of the proposed Settlement Agreement of the Action and related relief thereto. LIMITED OBJECTION AND RESERVATION OF RIGHTS I. Preliminary Approval of the Proposed Settlements is Premature 14. At this time, Carolina Sawmills submits that it is impossible in KL2’s case for anyone to know whether the approval of the proposed Settlement Agreement of the Action is in the best interest of KL2’s estate and creditors because there is an ongoing dispute over the ownership of “Net Proceeds” from the sale of KL2’s assets. If the remaining “Net Proceeds” are

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completely encumbered by Carolina Sawmill’s liens, then there will be no money for general unsecured creditors, much less priority claimants, and the proposed Settlement Agreement of the Action will literally provide no benefit to KL2’s estate and creditors, and will have been a waste of time and money by all the involved parties. 15. This problem of determining whether a proposed settlement will benefit KL2’s estate and creditors will remain in this case until the issue of the “ownership” of the “Net Proceeds” has been resolved, either consensually by way of settlement between Carolina Sawmills and the KL2 Committee, or by adjudication by the Court. 16. Until such resolution, Carolina Sawmills is concerned that significant additional professional resources will be spent upon the filing and prosecution of objections to claims. While Carolina Sawmills agreed to the “Carved Out Amounts” provision of the Stipulation to provide for the financing of KL2’s case, it did not sign off on a “blank check” for financing the litigation of claims objections that do not provide an actual benefit to KL2’s estate. Likewise, KL2 is under a fiduciary duty to maximize the value of the Debtor’s estate. KL2 cannot fulfill this fiduciary duty by litigating/settling unsecured claims and objections to them, without first determining whether the “Net Proceeds” belong to the estate or Carolina Sawmills. 17. Moreover, as set forth on Exhibit C, the KL2 professionals have already billed for 1,072.5 hours of time spent on claims analysis and objections, for a total cost of $656,986.50. When averaged out among the all 102 claims filed in the Debtor’s case, this expenditure equals approximately $6,441.04 of analysis per claim! (i.e. -- $656,986.50 ÷ 102 = $6,441.04). Carolina Sawmills has also reviewed the claims. So all of the major players in this case should have a deep understanding of which claims are valid and which are infirm. Hence

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the issue of claim validity does not need to be litigated before the resolution of the “ownership” of the “Net Proceeds.” 18. Finally, to date, Carolina Sawmills has not objected to the fees of any professional in the KL2 case. However, if claims objections are going to be litigated prior to the resolution of the “ownership” of the “Net Proceeds,” then Carolina Sawmills will have no choice but to object to the fees for such work because the time expended on that litigation will provide no benefit to the Debtor’s estate if Carolina Sawmills lien attaches to the “Net Proceeds.”2 19. For all these reasons, Carolina Sawmills respectfully requests that the Court delay its ruling upon approval of the proposed Settlement Agreement of the Action until after the issue of the “ownership” of the “Net Proceeds” has been resolved. At that point in time, the Court, and all of KL2’s creditors, will know if the approval of the Settlement Agreement of the Action is in the best interest of the Debtor’s estate, and furthers the paramount interest of creditors. II. Reservation of Rights 20. Pursuant to the Joint Motion, the Settlement Agreement of the Action is only before the Court for preliminary approval, and certain relief related thereto. Carolina Sawmills reserves all of its rights to assert additional objections (if any) to the Joint Motion at the final “fairness” hearing on the Settlement Agreement of the Action. [Remainder of Page Intentionally Left Blank] 2 Carolina Sawmills reserves its right to object to the professional fees incurred in connection with any claim litigation, including the Scharpenack Claim and the Deloitte Claim, if such time does not provide an actual benefit to the Debtor’s estate.

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WHEREFORE, for all of the foregoing reasons, Carolina Sawmills respectfully requests that the Court deny the Joint Motion, or, in the alternative, delay the adjudication of the Joint Motion until after the “ownership” of the “Net Proceeds” has been resolved. Date: August 4, 2021 LAW OFFICE OF CURTIS A. HEHN /s/ Curtis A. Hehn Curtis A. Hehn (Bar No. 4264) 1007 N. Orange Street, 4th Floor Wilmington, DE 19801 Telephone: (302) 757-3491 Email: curtishehn@comcast.net and EvansStarrett PLC Attn: K. Stewart Evans, Jr., Esq. 11218 Popes Head Road Fairfax, VA 22030 Telephone: (703) 691-8131 Email: stewart@evansstarrett.com James B. Moloney, Esq. 204 Coral Street Beach Haven, NJ 08008 Telephone: (202) 378-8342 Email: moloneywbc@cs.com Attorneys for Carolina Sawmills, L.P.

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