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Full title: Motion to Approve Compromise under Rule 9019 Joint Motion of the Debtors and Official Committees of Unsecured Creditors Pursuant to Bankruptcy Rule 9019, Local Rule 9013-1 and 11 U.S.C. Section 105(A) and 363(B) for Entry of an Order Authorizing and Approving that Certain Settlement Agreement By and Between Klausner Lumber One LLC and Klausner Lumber Two LLC Filed by Klausner Lumber One LLC, Klausner Lumber Two LLC. Hearing scheduled for 8/11/2021 at 10:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 8/4/2021. (Butz, Daniel) (Entered: 07/21/2021)

Document posted on Jul 20, 2021 in the bankruptcy, 13 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

LLC (“KL2”), the debtor and debtor-in-possession in the above-captioned chapter 11 case (the “KL2 Chapter 11 Case”), and the Official Committee of Unsecured Creditors in the KL2 Chapter 11 Case (the “KL2 Committee”, and together with KL1, the KL1 Committee, and KL2, the 1 The last four digits of the Federal EIN of Klausner Lumber One “Proponents”), by and through their undersigned counsel, hereby jointly file this Motion for entry of an order, substantially in the form attached hereto as Exhibit A, authorizing and approving that certain settlement agreement (the “Settlement Agreement”) by and between the KL1 and KL2, a true and correct copy of which is attached hereto as Exhibit B, and, in support of this motion (this “Motion”), KL1 relies on the Declaration of Nat Wasserstein in Support of the Joint Motion of the Debtors and the Official Committee of Unsecured Creditors Pursuant to Bankruptcy Rule 9019, Local Rule 9013-2 and 11 U.S.C. §§ 105(a) and 363(b) for Entry of an Order Authorizing and Approving that Certain Settlement Agreement by and between Klausner Lumber One LLC and Klausner LumberTwo LLC attached hereto as Exhibit C and, in support of this Motion, KL2 relies on the Declaration of Dan Motulsky in Support of the Joint Motion of the Debtors and the Official Committee of Unsecured Creditors Pursuant to Bankruptcy Rule 9019, Local Rule 9013-2 and 11 U.S.C. §§ 105(a) and 363(b) for Entry of an Order Authorizing and Approving that Certain Settlement Agreement by and between Klausner Lumber One LLC and Klausner LumberOne Cents ($8,209,775.21) (the “Allowed Claim”) against KL2 and its estate; (ii) the Allowed Claim shall be paid in accordance with the terms and conditions of any Plan confirmed in the KL2 Chapter 11 Case as an allowed general unsecured claim; (iii) KL1 shall not be required to file any additional proof of claim in the KL2 Chapter 11 Case to memorialize or document the Allowed Claim; and (iv) KL2 shall be entitled to adjust the claims register in the KL2 Bankruptcy Case to reflect the terms of the Settlement Agreement and the Allowed Claim. Finally, with respect to the KL1 Chapter 11 Case, the Settlement Agreement provides that it is expressly contingent on (i) the Court entering an order approving it in the KL1 Chapter 11 Case, (ii) the Court entering an order approving the Settlement Agreement in the KL2 Chapter 11 Case, (iii) confirmation by the Court of the Second Amended Joint Chapter 11 Plan for Klausner Lumber One LLC Proposed by the Debtor and the Official Committee of Unsecured Creditors (the “KL1 Plan”), (iv) the KL1 Plan going effective; and (v) the Court entering an order approving that certain settlement Stipulation to Allow Claims of Mayr-Melnhof Holz Holding AG by and among KL1, the 6 KL1 Creditors’ Committee, KL2, the KL2 Creditors’ Committee and Mayr-Melnhof Holz Holding AG

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 KLAUSNER LUMBER ONE LLC, Case No. 20-11033 (KBO) Debtor.1 In re: Chapter 11 KLAUSNER LUMBER TWO LLC, Case No. 20-11518 (KBO) Debtor.2 Objection Deadline: August 4, 2021, 4:00 p.m. (ET) Hearing Date: August 11, 2021, 10:00 a.m. (ET) JOINT MOTION OF THE DEBTORS AND OFFICIAL COMMITTEES OF UNSECURED CREDITORS 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 AND APPROVING THAT CERTAIN SETTLEMENT AGREEMENT BY AND BETWEEN KLAUSNER LUMBER ONE LLC AND KLAUSNER LUMBER TWO LLC Klausner Lumber One LLC (“KL1”), the debtor and debtor-in-possession in the above-captioned chapter 11 case (the “KL1 Chapter 11 Case”), the Official Committee of Unsecured Creditors in the KL1 Chapter 11 Case (the “KL1 Committee”), Klausner Lumber Two LLC (“KL2”), the debtor and debtor-in-possession in the above-captioned chapter 11 case (the “KL2 Chapter 11 Case”), and the Official Committee of Unsecured Creditors in the KL2 Chapter 11 Case (the “KL2 Committee”, and together with KL1, the KL1 Committee, and KL2, the 1 The last four digits of the Federal EIN of Klausner Lumber One LLC is 9109, and its mailing address is Klausner Lumber One LLC, P.O. Box 878, Middleburg, VA 20118. 2 The last four digits of the federal EIN of Klausner Lumber Two LLC is 4897, and its mailing address is Klausner Lumber Two LLC, P.O. Box C, Redding Ridge, CT 06876.

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“Proponents”), by and through their undersigned counsel, hereby jointly file this Motion for entry of an order, substantially in the form attached hereto as Exhibit A, authorizing and approving that certain settlement agreement (the “Settlement Agreement”) by and between the KL1 and KL2, a true and correct copy of which is attached hereto as Exhibit B, and, in support of this motion (this “Motion”), KL1 relies on the Declaration of Nat Wasserstein in Support of the Joint Motion of the Debtors and the Official Committee of Unsecured Creditors Pursuant to Bankruptcy Rule 9019, Local Rule 9013-2 and 11 U.S.C. §§ 105(a) and 363(b) for Entry of an Order Authorizing and Approving that Certain Settlement Agreement by and between Klausner Lumber One LLC and Klausner Lumber Two LLC attached hereto as Exhibit C and, in support of this Motion, KL2 relies on the Declaration of Dan Motulsky in Support of the Joint Motion of the Debtors and the Official Committee of Unsecured Creditors Pursuant to Bankruptcy Rule 9019, Local Rule 9013-2 and 11 U.S.C. §§ 105(a) and 363(b) for Entry of an Order Authorizing and Approving that Certain Settlement Agreement by and between Klausner Lumber One LLC and Klausner Lumber Two LLC attached hereto as Exhibit D and, in support hereof, the Proponents respectfully state as follows: JURISDICTION AND VENUE 1. This Court has jurisdiction to consider this Motion pursuant to 28 U.S.C. §§ 157 and 1334, and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated February 29, 2012. 2. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2) and, pursuant to Local Rule 9013-1(f), both KL1 and KL2 consent to the entry of a final order by the Court (as defined herein) in connection with this Motion to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. 2

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3. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. 4. The statutory and other legal predicates for the relief requested herein are Bankruptcy Code sections 105(a) and 363(b), Rule 9019 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rule 9013-1 of this Court’s Local Rules of Bankruptcy Practice and Procedure (the “Local Rules”). FACTUAL PREDICATES TO MOTION I. General Background 5. On April 30, 2020 (the “Petition Date”), KL1 filed a voluntary petition under chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware (the “Court”), commencing the KL1 Chapter 11 Case. 6. KL1 continues as a debtor in possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in the KL1 Chapter 11 Case. 7. On May 21, 2020, the United States Trustee (the “U.S. Trustee”) for the District of Delaware appointed the KL1 Committee in the KL1 Chapter 11 Case. 8. On June 10, 2020 (the “KL2 Petition Date”), KL2 filed a voluntary petition under chapter 11 of the Bankruptcy Code with the Court, commencing the KL2 Chapter 11 Case. 9. KL2 continues as a debtor in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in the KL2 Chapter 11 Case. 10. On June 25, 2020, the United States Trustee for the District of Delaware appointed the KL2 Committee in the KL2 Chapter 11 Case. II. Background to Settlement A. The Claim 3

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11. On January 26, 2021, KL1 filed a proof of claim in the KL2 Chapter 11 Case designated as Claim Number 79 (the “Claim”). 12. As set forth in the Claim, KL1 believed that KL2 was, and remains, indebted to KL1 in the aggregate amount of not less than $12,779,771.31. 13. In particular, KL1, prior to the KL1 Petition Date, paid certain third-party vendors on behalf of KL2 in connection with payments due and owing from KL2 to such vendors as well as advanced funds directly to KL2 to pay certain of KL2’s operating expenses (collectively, the “Prepetition Advances”). 14. In addition to the Prepetition Advances, prior to the KL1 Petition Date, KL1 also loaned certain funds to KL2 so that KL2 could fund its payroll and/or paid KL2’s payroll directly or on behalf of KL2 (the “Payroll Loans”). 15. Finally, prior to the KL1 Petition Date, KL1 also paid the law firm of K&L Gates, LLP (“K&L Gates”) on KL2’s behalf in connection with payments due and owing from KL2 to K&L Gates for legal services provided to KL2 (the “K&L Gates Payments” and together with the Prepetition Advances and the Payroll Loans, collectively, the “Outstanding Indebtedness”). 16. The Prepetition Advances, Payroll Loans, and K&L Gates Payments were detailed more fully in the itemized spreadsheet attached as Exhibit A to the Claim (the “Claim Detail”). 4

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17. The Outstanding Indebtedness was calculated in the Claim Detail as follows:
Table 1 on page 5. Back to List of Tables
Clearing Account
(as of 6/10/20)
$2,056,794.55
Short-Term Loans
(as of 6/10/20)
$10,646,179.51
K&L Gates Payments
(as of 6/10/20)
$76,797.25
TOTAL (as of 6/10/20) $12,779,771.31
18. Since the filing of the Claim, KL1 and KL2 have engaged in months of negotiation regarding a possible amicable resolution of the Claim. 19. The parties have now reached an amicable resolution of their issues that is embodied in the Settlement Agreement and described in more detail below. RELIEF REQUESTED 20. Pursuant to sections 105(a) and 363(b) of the Bankruptcy Code, Bankruptcy Rule 9019, and Local Rule 9013-1, KL1 and KL2 seek entry of an order substantially in the form attached hereto as Exhibit A (the “Order”) approving the Settlement Agreement and fixing the Claim. SUMMARY OF SETTLEMENT AGREEMENT TERMS 21. The Settlement Agreement provides for the following:3 (a) Allowed Claim: In full and complete settlement of the Claim, the Parties, upon entry of the Order, agree and acknowledge that: (i) as of the KL2 Petition Date, KL1 shall have a general unsecured claim in the amount Eight Million 3 Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Settlement Agreement. The following summary is qualified in its entirety by the terms of the Settlement Agreement. 5

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Two Hundred and Nine Thousand Seven Hundred and Seventy Five Dollars and Twenty One Cents ($8,209,775.21) (the “Allowed Claim”) against KL2 and its estate; (ii) the Allowed Claim shall be paid in accordance with the terms and conditions of any Plan confirmed in the KL2 Chapter 11 Case as an allowed general unsecured claim; (iii) KL1 shall not be required to file any additional proof of claim in the KL2 Chapter 11 Case to memorialize or document the Allowed Claim; and (iv) KL2 shall be entitled to adjust the claims register in the KL2 Bankruptcy Case to reflect the terms of the Settlement Agreement and the Allowed Claim. (b) Mutual General Release: Except for the Allowed Claim, upon entry of the Order, the Parties will absolutely release, forever discharge and acquit each other of and from any and all claims, demands, causes of action, damages, choses in action and all other claims, counterclaims, defenses, objections, setoff rights, subordination rights, recharacterization rights, deductions, challenges and other liabilities whatsoever, including, without limitation, those claims, counterclaims and defenses relating to or set forth in the Claim, of every kind, name, nature and description, whether known or unknown, at law or equity, that they may now or hereafter own, hold, have or claim against each other arising at any time prior to the entry of the Order (for the avoidance of doubt, the Parties do not waive, release or discharge any rights, claims or causes of action that arise under the terms and provisions of the Settlement Agreement, including without limitation with respect to enforcement thereof). 22. Finally, with respect to the KL1 Chapter 11 Case, the Settlement Agreement provides that it is expressly contingent on (i) the Court entering an order approving it in the KL1 Chapter 11 Case, (ii) the Court entering an order approving the Settlement Agreement in the KL2 Chapter 11 Case, (iii) confirmation by the Court of the Second Amended Joint Chapter 11 Plan for Klausner Lumber One LLC Proposed by the Debtor and the Official Committee of Unsecured Creditors (the “KL1 Plan”), (iv) the KL1 Plan going effective; and (v) the Court entering an order approving that certain settlement Stipulation to Allow Claims of Mayr-Melnhof Holz Holding AG by and among KL1, the 6

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KL1 Creditors’ Committee, KL2, the KL2 Creditors’ Committee and Mayr-Melnhof Holz Holding AG (the “MMH Settlement Stipulation”) in the KL1 Chapter 11 Case. With respect to the KL2 Chapter 11 Case, the Settlement Agreement provides that it is expressly contingent on (i) the Court entering an order approving it in the KL2 Chapter 11 Case, (ii) the Court entering an order approving it in the KL1 Chapter 11 Case, and (iii) the Court entering an order approving the MMH Settlement Stipulation in the KL1 Chapter 11 Case. 23. For the reasons set forth herein, both KL1 and KL2 believe that the Settlement Agreement is in the best interest of each of their respective estates, and, thus, should be approved by this Court. THE SETTLEMENT AGREEMENT SHOULD BE APPROVED PURSUANT TO BANKRUPTCY RULE 9019 AND THE MARTIN FACTORS 24. Bankruptcy Rule 9019(a) provides, in pertinent part, that “[o]n motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement.” Fed. R. Bankr. P. 9019(a). 25. Bankruptcy Rule 9019 empowers bankruptcy courts to approve settlements that are “fair and equitable” and in the best interest of a debtor’s estate. In re Energy Future Holdings Corp., 648 F. App’x 277, 281 (3d Cir. 2016) (citing In re Nutraquest, Inc., 434 F.3d 639, 644 (3d Cir. 2006)); Vaughn v. Drexel Burnham Lambert Grp., Inc. (In re Drexel Burnham Lambert Grp., Inc.), 134 B.R. 499, 505 (Bankr. S.D.N.Y. 1991) (finding that Bankruptcy Rule 9019 “empowers bankruptcy courts to authorize settlements if they are in the best interests of the estate”) (citation omitted). 26. To meet this standard, a settlement agreement need not be the best possible outcome, but must fall above the “lowest point in the range of reasonableness.” In re Capmark 7

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Fin. Grp. Inc., 438 B.R. 471, 475-76 (Bankr. D. Del. 2010); In re Sea Containers Ltd., No. 06-11156 (KJC), 2008 WL 4296562, at *5 (Bankr. D. Del. Sept. 19, 2008). 27. In the Third Circuit, courts consider the Martin factors in determining whether a settlement falls above the lowest point in the range of reasonableness, which consist of: “(1) the probability of success in litigation; (2) the likely difficulties in collection; (3) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (4) the paramount interest of the creditors.” Capmark, 438 B.R. at 476 (citing Myers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir. 1996)). 28. By its terms, the Settlement Agreement will maximize value for the KL1 estate by (a) affording KL1 an allowed unsecured claim in the amount of $8,209,775.21 against KL2 and (b) avoiding the unnecessary delays, uncertainty, and expense associated with negotiating and/or litigating any further and/or piecemeal resolution of the Claim. 29. The Settlement Agreement will similarly benefit the KL2 estate by (a) fixing the Claim at an amount that is approximately sixty five percent (65%) of the initial asserted amount after including this settlement and the settlement embodied in the MMH Settlement Stipulation and (b) avoiding the unnecessary delays, uncertainty, and expense associated with negotiating and/or litigating any further and/or piecemeal resolution of the Claim. 30. Both KL1 and KL2 believe that the Settlement Agreement will provide for full finality of the Claim without the otherwise attendant and expensive litigation costs, in an amount that KL1 believes is reasonable under the circumstances and maximizes the value of its estate for all stakeholders. 8

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31. The Settlement Agreement is the product of months of negotiations and represents an arm’s-length settlement that avoids delays and uncertainty and is supported by both Independent Directors for KL1 and KL2, the KL1 Committee and the KL2 Committee. 32. As such, both KL1 and KL2 believe that the Settlement Agreement certainly falls within the range of reasonableness, is in the best interest of creditors, and satisfies all of the applicable Rule 9019 or Martin factors. THE SETTLEMENT AGREEMENT SHOULD BE AUTHORIZED UNDER BANKRUPTCY CODE SECTION 363(B) AS THE PRODUCT OF THE DEBTORS’ VALID EXERCISE OF SOUND BUSINESS JUDGMENT 33. Authorization of the Settlement Agreement is justified as a valid exercise of both KL1’s and KL2’s business judgment pursuant to section 363(b) of the Bankruptcy Code. 34. Section 363(b)(1) of the Bankruptcy Code provides, in pertinent part, that “[t]he [debtor], after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate.” 11 U.S.C. § 363(b). 35. Under section 363(b), courts only require that a debtor “show that a sound business purpose justifies such actions.” Dai-Ichi Kangyo Bank, Ltd. v. Montgomery Ward Holding Corp. (In re Montgomery Ward Holding Corp.), 242 B.R. 147, 153 (D. Del. 1999) (“In determining whether to authorize the use, sale or lease of property of the estate under [section 363(b)], courts require the debtor to show that a sound business purpose justifies such actions . . . [under the] ‘business judgment test.’”) (citations omitted); In re Ionosphere Clubs, 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989) (noting section 363(b) provides “broad flexibility” to authorize a debtor to honor prepetition claims where supported by an appropriate business justification). 36. Once a debtor has articulated a valid business justification, there “is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in 9

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good faith and in the honest belief that the action taken was in the best interests of the company.” Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 656 (S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985)). 37. Both KL1 and KL2 submit that the Settlement Agreement satisfies the requirements of section 363(b) of the Bankruptcy Code. 38. The terms of the Settlement Agreement were negotiated by KL1 and KL2 in good faith and at arm’s length and is supported by the Independent Directors of both estates and by each estate’s respective Creditors’ Committee. 39. As described above, both KL1 and KL2 believe that the Settlement Agreement will avoid unnecessary delays and uncertainty associated with protracted litigation, and provides a fair and reasonable resolution of the Claim. 40. Both KL1 and KL2 have determined in their sound business judgment and after consulting with their respective professionals, their respective Independent Directors and their respective Creditors’ Committees that the proposed settlement is in the best interest of their respective estates. REQUEST FOR WAIVER OF STAY 41. To implement the Settlement Agreement, both KL1 and KL2 seek a waiver of any stay of the effectiveness of the order approving this Motion. Pursuant to Bankruptcy Rule 6004(h), any “order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise.” 42. Both KL1 and KL2 submit that ample cause exists to justify a waiver of the 14-day stay imposed by Bankruptcy Rule 6004(h) to allow the Settlement Agreement to take effect immediately to enable this case to proceed expeditiously towards a successful conclusion. 10

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Accordingly, both KL1 and KL2 respectfully request a waiver of Bankruptcy Rule 6004(h) to the extent it is deemed applicable. NOTICE 43. Notice of this Motion has been given via first class mail and/or hand delivery, as applicable, to (i) the United States Trustee; (ii) counsel to KL1 and KL2’s secured lenders; and (iii) those persons who have requested notice pursuant to Local Rule 2002-1(b). The Proponents respectfully submit that no other or further notice of this Motion is required under the circumstances. CONCLUSION For all of the foregoing reasons, the Proponents respectfully request that the Court enter an order, substantially in the form of the Order attached to this Motion as Exhibit A, approving the Settlement Agreement attached as Exhibit 1 to the Order and granting the Proponents all other just and proper relief. July 21, 2021 DINSMORE & SHOHL LLP DUANE MORTRraIvSi sL BLaPy er, Esq. /s/ Travis Bayer /s/ Law rence J. Kotler Travis Bayer (admitted pro hac vice) Lawren ce J. Kotler (No. 4181) 255 East Fifth Street, Suite 1900 1201 N . Market Street, Suite 501 Cincinnati, Ohio 45202 Wilmin gton, DE 19801 Phone: (513) 977-8200 Phone: (215) 979-1514 Facsimile: (513) 977-8141 Facsimile: (215) 979-1020 Email: travis.bayer@dinsmore.com Email: ljkotler@duanemorris.com Bankruptcy Conflicts Counsel for Conflicts Counsel and Special Labor and Klausner Lumber Two LLC ERISA Counsel to Klausner Lumber One LLC 11

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MORRIS JAMES LLP ARMSTRONG TEASDALE LLP /s/ Brya M. Keilson /s/ Eric M. Sutty Eric J. Monzo (DE Bar No. 5214) Eric M. Sutty (No. 4007) Brya M. Keilson (DE Bar No. 4643) Jonathan M. Stemerman (No. 4510) 500 Delaware Avenue, Suite 1500 300 Delaware Avenue, Suite 210 Wilmington, DE 19801 Wilmington, DE 19801 Telephone: (302) 888-6800 Telephone: (302) 824-7089 Facsimile: (302) 571-1750 Email: esutty@atllp.com E-mail: emonzo@morrisjames.com jstemerman@atllp.com E-mail: bkeilson@morrisjames.com Counsel to the Official Committee of - and - Unsecured Creditors of Klausner Lumber Two LLC FAEGRE DRINKER BIDDLE & REATH LLP Richard J. Bernard (admitted pro hac vice) 1177 Avenue of the Americas 41st Floor New York, NY 10036 Telephone (212) 248-3140 Facsimile: (212) 248-3141 E-mail: richard.bernard@faegredrinker.com - and - FOLEY & LARDNER LLP Alissa M. Nann (admitted pro hac vice) 90 Park Avenue New York, NY 10016 Tel: (212) 682-7474 Fax: (212) 687-2329 Counsel to the Official Committee of Unsecured Creditors of Klausner Lumber One LLC 12

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MORRIS, NICHOLS, ARSHT & TUNNELL LLP /s/ Daniel B. Butz Robert J. Dehney (No. 3578) Eric D. Schwartz (No. 3134) Daniel B. Butz (Bar No. 4227) Nader A. Amer (Bar No. 6635) 1201 North Market Street, 16th Floor P.O. Box 1347 Wilmington, Delaware 19899-1347 Telephone: (302) 658-9200 Facsimile: (302) 658-3989 Email: dbutz@mnat.com namer@mnat.com Counsel for the Debtors and Debtors in Possession, Klausner Lumber One LLC and Klausner Lumber Two LLC 13

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