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Full title: Reply to Objection to Debtor's Fourth Omnibus Objection (Substantive) to Certain Claims Pursuant to 11 U.S.C. Section 502, Fed. R. Bank. P. 3007 and DEL. L.R. 3007-1 (Disallow; Reduce and Allow; Reclassify) (related document(s)792, 823) Filed by Klausner Lumber One LLC (Butz, Daniel) (Entered: 04/12/2021)

Document posted on Apr 11, 2021 in the bankruptcy, 14 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

The Genesis Response also attached certain documentation allegedly supporting its claim, namely three (3) Timber Purchase Agreements between the Debtor and Genesis (each, a “TPA” or collectively, the “TPAs”), fourteen (14) sets of “ticket listings” listing the loading and delivery of certain types of timber to certain parties (the “Delivery Tickets”), a UCC-1 filing (which seems to be identical to the first page of the UCC-1 statement attached to the Genesis Claim), and a spreadsheetThus, because the TPAs do not create a clear legal obligation for the Debtor to purchase the full listed tonnage instead of simply paying for the lumber that was actually delivered, and because Genesis admits that it is not making a claim for timber delivered to the Debtor that remained unpaid, the Genesis Claim must be disallowed.After a careful review of its books and records, the Debtor believes that the Debtor received, and paid for, timber from Genesis in excess of the tonnages listed in the three TPAs during the terms of the TPAs.According to the Debtor’s books and records, the Debtor purchased $2,938,486.71 worth of those three timber types from Genesis during the periods covered by the TPAs (December 2018 through February 2020).3 Without any allegation that the Debtor refused to accept timber that otherwise conformed to the TPAs during the term of the TPAs, Genesis cannot claim damages from the Debtor.

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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 Re: D.I. 792, 823 DEBTOR’S REPLY IN SUPPORT OF ITS FOURTH OMNIBUS OBJECTION (SUBSTANTIVE) TO CLAIM NUMBER 50 FILED BY GENESIS TIMBER LLC Klausner Lumber One LLC, as debtor and debtor in possession (the “Debtor”), hereby submits its reply (this “Reply”) in support of its objection to claim no. 50 filed by Genesis Timber LLC (“Genesis”) as set forth in the Debtor’s Fourth Omnibus Objection (Substantive) to Certain Claims (Disallow; Reduce and Allow; Reclassify) (D.I. 792) (the “Claims Objection”) and in opposition to the Objection to Debtor’s Fourth Omnibus Objection (Substantive) to Certain Claims Pursuant to 11 U.S.C. § 502, Fed. R. Bankr. P. 3007 and Del. L.R. 3007-1 (Disallow; Reduce And Allow; Reclassify) (D.I. 823) (the “Genesis Response”) filed by Genesis. In support of this Reply, the Debtor submits the Declaration of Michael Freeman in Support of the Debtor’s Reply in Support of the Fourth Omnibus Objection (Substantive) to Certain Claims (Disallow; Reduce and Allow; Reclassify) (the “Freeman Reply Declaration”), attached hereto as Exhibit 1 and incorporated by reference, and respectfully states as follows: THE REPLY I. BACKGROUND 1. Prior to the Petition Date, when it was still operating, the Debtor would purchase timber from various logging companies and turn it into construction quality lumber for sale to 1 The last four digits of the Debtor's federal tax identification number are 9109. The Debtor’s mailing address is Klausner Lumber One, LLC, P.O. Box 878 Middleburg, VA 20118.

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customers. Genesis was one of many companies that the Debtor purchased unfinished timber from to process into saleable lumber. The Debtor purchased timber from Genesis through approximately June of 2019. At or around that time, the Debtor stopped purchasing timber due to issues with its machinery and indebtedness. 2. When the Debtor would enter into agreements to purchase timber from logging companies, it traditionally treated the amounts and prices listed in the agreements as a price guarantee for a certain amount of timber rather than as a requirements contract or agreement to purchase a specific amount of timber. The Debtor would only pay for timber when it was actually delivered to the Debtor’s plant for processing into lumber and did not separately book liabilities for the amounts listed in any particular timber purchase agreement nor was the timber received tracked by the tract of land the timber came from. 3. As of the Petition Date, because the Debtor had not purchased logs from Genesis for some time, the Debtor had no claim for Genesis in its books and records. Additionally, the Debtor still had a net prepayment on its books for $26,675.67 noted as being due and owing from Genesis as of the Petition Date (for timber never provided by Genesis). II. THE GENESIS CLAIM 4. On or about July 8, 2020, Genesis filed a claim against the Debtor’s estate (the “Genesis Claim”). The Genesis Claim was designated as claim no. 50 by DRC2, the Debtor’s claim’s agent. The Genesis Claim asserted a claim in the amount of $155,209.30 for a “Timber Purchase” that was purportedly entirely secured by “Timber Purchase Agreements.” The only supporting document accompanying the Genesis Claim was a UCC-1 statement that listed a number of “tracts of Timber.” 2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Debtor’s original Claims Objection.

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5. After reviewing its book and records, the Debtor confirmed that there was no basis for either the asserted amount of the Genesis Claim or the asserted secured status of the Genesis Claim. More specifically, the Debtor and its professionals found no evidence in its books and records that: a. the Debtor had any property interest in the “tracts of Timber” listed in the UCC-1 statement or that the “Timber Purchase Agreements” referenced in the Genesis Claim constituted collateral of Genesis that could secure a claim by Genesis, if any such claim existed; and b. the Debtor had ever failed to pay Genesis for any timber delivered by Genesis to the Debtor (in fact, the Debtor’s books and records reflected that, by the end of the business relationship between the Debtor and Genesis, the Debtor always prepaid for the timber delivered by Genesis) and there was a net deposit held by Genesis and due to the Debtor. Based upon this review and these conclusions, the Debtor filed the Claims Objection seeking to disallow and expunge the Genesis Claim in full. 6. On March 30, 2021, Genesis filed the Genesis Response asserting that the secured claim listed in the Genesis Claim was correct but now alleging that the basis for the Genesis Claim was “rejections damages for the properly secured AG Lien” instead of simply a “Timber Purchase” as listed in the original Genesis Claim. 7. The Genesis Response also attached certain documentation allegedly supporting its claim, namely three (3) Timber Purchase Agreements between the Debtor and Genesis (each, a “TPA” or collectively, the “TPAs”), fourteen (14) sets of “ticket listings” listing the loading and delivery of certain types of timber to certain parties (the “Delivery Tickets”), a UCC-1 filing (which seems to be identical to the first page of the UCC-1 statement attached to the Genesis Claim), and a spreadsheet “incorporating the losses from the ticket listings” (the “Losses Spreadsheet”).

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8. After a thorough review of the Genesis Response and its supporting documentation, the Debtor restates and reaffirms its objection to the Genesis Claim. Nothing in the Debtor’s books and records supports the Genesis Claim. Furthermore, none of the documents attached to the Genesis Response lend support to Genesis’ position, and in many instances appear to undermine its position. III. THE GENESIS CLAIM IS NOT VALID A. The Genesis Claim Cannot Be For Rejection Damages 9. By its response, Genesis now recharacterizes its claim as a “rejection damages” claim. However, there are a number of issues with that assertion. Most importantly, the three TPAs attached to the Genesis Response had all expired prior to the Petition Date. By their clear and unambiguous terms, the first two TPAs each expired on December 3, 2019 and the third TPA expired on February 1, 2020. Therefore, none of the TPAs could have been executory contracts as of the Petition Date, April 30, 2020 and thus there can be no “rejection damages” for the same. B. The TPAs Are Not Requirements Contracts 10. Additionally, while not properly raised in the Genesis Claim or the Genesis Response, the Debtor is also not liable for any prepetition breaches of the TPAs. 11. As noted above, the Debtor treated all agreements such as the TPAs as locking in a specific price for certain amounts and types of timber—not as a binding agreement to purchase a specific amount of timber. Additionally, at no point in time did the Debtor track the specific TPA that a particular delivery of timber related to—and in the Debtor’s understanding, it did not need to. 12. The three TPAs attached to the Genesis Response do not contradict this understanding. Nowhere in the three TPAs or the exhibits attached to the TPAs is it made clear

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that a binding contract to purchase the full listed tonnage was formed as opposed to simply locking in an agreed-upon price for up to a particular tonnage of a particular type of timber. And the Genesis Response does not clearly assert how the TPAs would have created such an obligation in the absence of clear and unequivocal language creating such an obligation. Thus, because the TPAs do not create a clear legal obligation for the Debtor to purchase the full listed tonnage instead of simply paying for the lumber that was actually delivered, and because Genesis admits that it is not making a claim for timber delivered to the Debtor that remained unpaid, the Genesis Claim must be disallowed. C. The Debtor Purchased Sufficient Timber from Genesis 13. But even if the TPAs were enforceable contracts requiring the purchase of the full listed tonnages from Genesis, as Genesis seems to imply (but not explain how), the Debtor would not be liable for a pre-petition breach of the TPAs. 14. After a careful review of its books and records, the Debtor believes that the Debtor received, and paid for, timber from Genesis in excess of the tonnages listed in the three TPAs during the terms of the TPAs. The three types of timber ordered from Genesis in the TPAs were (a) Loblolly Pine, (b) Slash Pine, and (c) Southern Yellow Pine. According to the Debtor’s books and records, the Debtor purchased $2,938,486.71 worth of those three timber types from Genesis during the periods covered by the TPAs (December 2018 through February 2020).3 These purchases (at the prices given in the TPAs) would fulfill the volume requirements, if any, set forth in the three TPAs. And the documents attached by Genesis in the Genesis Response do not support any allegation that the Debtor failed to purchase the required amounts of timber. In fact, the majority of the documents attached to the Genesis Response reference the delivery of timber that 3 Consisting of $1,402,616.46 of Loblolly Pine, $623,003.04 of Slash Pine, and $912,867.21 of Southern Yellow Pine.

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(a) is not of the proper quality specified in the TPAs, (b) was loaded and transported to a buyer long after the expiration of the terms of the TPAs, or (c) was actually delivered to the Debtor. D. The Delivery Tickets Attached to the Response Do Not Support Any Claim 15. More specifically, looking at the fourteen (14) Delivery Tickets attached to the Genesis Response does not lend any support to Genesis’s allegations concerning losses or damages under the TPAs. 16. First, three of the Delivery Tickets (Exhibits D, H, and L) describe timber deliveries to “KLAUS Klausner Lumber One LLC” that the Debtor believes were actually delivered to the Debtor and paid for, in full. In fact, as Genesis claims only damages for losses for lumber hauled to another facility, this would seem to be confirmed by Genesis’s own filings. Certainly, these three Delivery Tickets do not support any allegation that Genesis sold the listed lumber to any party other than the Debtor. 17. Next, two of the Delivery Ticket (Exhibits E and I) indicate deliveries of timber to other destinations in 2020, after the termination date of the relevant TPAs. Under any reasonable interpretation of the language of the TPAs, the Debtor was no longer under any obligation to purchase timber delivered after the expiration of the term of the TPAs. The Debtor cannot be liable for any losses alleged to be represented by these Delivery Tickets. 18. The next seven Delivery Tickets (Exhibits G, J, K, M, O, P, and Q) all list “non-conforming” timber as the product being delivered (in addition to four of them also listing deliveries on dates after the expiration of the TPAs). As noted above, the three types of lumber ordered from Genesis in the TPAs were (a) Loblolly Pine, (b) Slash Pine, and (c) Southern Yellow Pine. This can be seen under the heading “Product and Grade” on the exhibits attached to each of the TPAs. But each of these seven Delivery Tickets listed above do not show delivery of the

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higher-quality “sawtimber” of Loblolly Pine, Slash Pine, or Southern Yellow Pine that each of the TPAs requires to be delivered to the Debtor. Instead, the seven Delivery Tickets list lower quality “pine chip-n-saw” was delivered, for which the Debtor did not pre-negotiate a price pursuant to the TPAs. If the Debtor had wanted “pine chip-n-saw” timber, the TPAs would have reflected such (by including entries under “T/L CNS” or “CTL CNS” under “Product and Grade”). But the TPAs did not include any requests for “pine chip-n-saw.” Thus, because the type of timber was not of the sort that the Debtor had allegedly contracted to buy pursuant to the TPAs, the Debtor cannot be liable for any alleged losses represented by these Delivery Tickets. 19. Finally, the last two Delivery Tickets (Exhibits F and M) list a combination of “sawtimber” and “pine chip-n-saw” timber delivered to other destinations during the time period that the TPAs were in effect. However, the Genesis Response does not provide the reason why the these loads of timber were not delivered to the Debtor in the same manner that the three Delivery Tickets listed in Exhibits D, H, and L were (except perhaps because these Delivery Tickets included non-conforming “pine chip-n-saw” timber). Without any allegation that the Debtor refused to accept timber that otherwise conformed to the TPAs during the term of the TPAs, Genesis cannot claim damages from the Debtor. And as the Delivery Tickets listed in Exhibits D, H, and L demonstrate, the Debtor was accepting deliveries of conforming timber during the relevant time period. 20. At most, even if the small amount of “sawtimber” listed in these last two Delivery Tickets could give rise to a claim, any such claim would likely be eliminated by the $26,675.67 prepayment the Debtor had on its books and records as of the Petition Date as having been paid to Genesis but never returned or used, as noted above.

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E. The Losses Spreadsheet Is Nonsensical or Contains Fatal Errors 21. In addition to the issues with the Delivery Tickets, the last exhibit to the Genesis Response, the Losses Spreadsheet, is also problematic for Genesis. First, the Losses Spreadsheet fails to describe which tickets relate to which alleged losses, and even when it can be puzzled out, questions still remain. 22. For example, a careful review of the Losses Spreadsheet and the various Delivery Tickets seems to indicate that the first four line entries of the Losses Spreadsheet relate to the Delivery Tickets in Exhibit E (for line 1 of the Losses Spreadsheet), the Delivery Tickets in Exhibit F (split between lines 2 and 3 of the Losses Spreadsheet), with line 4 of the Losses Spreadsheet representing the Delivery Tickets in Exhibit G. All of these Delivery Tickets (plus the Delivery Tickets in Exhibit D which represent deliveries to the Debtor) concern timber from the so-called “Higman Tract.” However, the Delivery Tickets in Exhibit D represent a delivered timber tonnage of over 14,100 tons top the Debtor. If Genesis’ own records are accurate, they would not be able to claim losses on more than approximately 9,100 tons (because the alleged “committed tonnage” of timber was 23,200 tons). However, the Losses Spreadsheet claims losses on over 10,100 tons of timber. This makes no sense. 23. A similar and more obvious error can be seen in the fifth and sixth line entries on the Losses Spreadsheet (the first two lines that are designated as “Rayonier SS-…” with alleged committed volumes of 4,900 tons). Aggregated together, the volume contributing to Genesis’ alleged losses is over 6,100 tons, well in excess of the alleged committed volume of 4,900 tons (in fact line 6 exceeds the alleged committed volume all by itself). This also does not make any sense. 24. Furthermore, the next several line entries do not appear to line up with any of the Delivery Tickets attached to the Genesis Response. And the few final entries (each of which are

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subject to an alleged committed volume of 15,000 tons) have the same issue as the first four entries—the Delivery Tickets (in Exhibits H and L), which concern timber delivered to the Debtor from the so-called “Rayonier tract”, aggregate to over 14,400 tones. This would mean that, by Genesis’ own documents, the Debtor could only possibly be liable for losses related to slightly less than 600 tons worth of timber. There appear to be many misstatements in the Losses Spreadsheet. 25. Finally, the total losses of $227,613.70 listed in the Losses Spreadsheet bears no relation to the $155,209.30 amount claimed in the Genesis Claim. There is no explanation for this discrepancy in the Genesis Response (or anywhere else). Simply stated, the alleged losses on Losses Spreadsheet cannot be given any weight. 26. For all of these reasons set forth above, the Genesis Claim should be disallowed and expunged. F. There Is No Theory By Which the Genesis Claim Could Be Secured 27. Finally, Genesis continues to assert that its claim is somehow a secured claim. However, that is impossible. As noted at the beginning of this Reply, the Debtor is unaware of any collateral owned by Debtor as of the Petition Date in which Genesis had any interest. Contrary to the assertion in the Genesis Response, the TPAs the Debtor signed are not a type of collateral recognized by Article 9 of the UCC or any other applicable law (even if they were not expired by their terms prior to the Petition Date). The Debtor does not own any of the tracts of land listed in the UCC-1 statement purportedly filed by Genesis. There is simply no collateral that exists or existed to secure any claim by Genesis. No matter what this Court’s determination as to the merits of the amount of the Genesis Claim (or lack thereof), the Genesis Claim cannot be found to be a secured claim.

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RESERVATION OF RIGHTS 28. This Reply clarifies and further supports the substantive objections to the Genesis Claim. To the extent that an evidentiary hearing on the Claims Objection as it relates to the Genesis Claim is required, the Debtor will seek to have a status conference where the parties can work with this Court to establish a discovery schedule so that the matter can proceed to a fair evidentiary hearing after completion of fact discovery. The Debtor expressly reserves the right to amend, supplement, or withdraw its Claims Objection and this Reply based upon the information uncovered during such fact discovery.

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WHEREFORE, the Debtor respectfully requests that the Court (i) enter an order disallowing the Genesis Claim and (ii) grant such other and further relief as is just and proper. Dated: April 12, 2021 MORRIS, NICHOLS, ARSHT & TUNNELL LLP Wilmington, Delaware /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 N. Market Street, 16th Floor P.O. Box 1347 Wilmington, Delaware 19899-1347 Telephone: (302) 658-9200 Facsimile: (302) 658-3989 dbutz@mnat.com namer@mnat.com - and - WESTERMAN BALL EDERER MILLER ZUCKER & SHARFSTEIN, LLP Thomas A. Draghi (admitted pro hac vice) Alison M. Ladd (admitted pro hac vice) 1201 RXR Plaza Uniondale, NY 11556 Tel: 516-622-9200 tdraghi@westermanllp.com aladd@westermanllp.com Counsel for Debtor and Debtor in Possession

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EXHIBIT 1 Freeman Declaration

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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 DECLARATION OF MICHAEL FREEMAN IN SUPPORT OF THE D DEBTOR’S REPLY IN SUPPORT OF ITS FOURTH OMNIBUS OBJECTION (SUBSTANTIVE) TO CLAIM NUMBER 50 FILED BY GENESIS TIMBER LLC I, Michael Freeman, Chief Restructuring Officer of Klausner Lumber One LLC, declare the following under penalty of perjury hereby declare under penalty of perjury: BACKGROUND 1. I submit this declaration in support of the Debtor’s Reply In Support Of Its Fourth Omnibus Objection (Substantive) To Claim Number 50 Filed By Genesis Timber LLC (the “Reply”).2 2. I am familiar with the Debtor’s day-to-day operations, financing arrangements, business affairs, and Books and Records and am responsible for overseeing the review and analysis of all Claims filed in the Chapter 11 Cases. All facts set forth herein are based on my personal knowledge, my review, or my supervision of the review, of the Claims and other relevant documents or information provided to me by the Debtor’s other agents and advisors. If I were called upon to testify, I could and would testify to each of the facts set forth herein. 1 The last four digits of the Debtor's federal tax identification number are 9109. The Debtor’s mailing address is Klausner Lumber One LLC, P.O. Box 878 Middleburg, VA 20118. 2 Capitalized terms used, but not otherwise defined, herein shall have the meanings set forth in the Reply.

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3. I, or one or more of the Debtor’s agents or advisors operating under my supervision and/or at my direction, have reviewed the factual assertions set forth in the Reply. Based upon this review, I submit that the facts and circumstances set forth in the Reply are true and accurate to the best of my knowledge, information, and belief, and accordingly, the Genesis Claim should be disallowed as requested in the Claims Objection and the Reply. Dated: April 12, 2021 /s/ Michael Freeman Wilmington, Delaware Michael Freeman Klausner Lumber One LLC

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