March 21, 2000
Supreme Court Hears Arguments on Administrative Creditor's
Standing
The U.S. Supreme Court heard arguments yesterday in
Hartford Underwriters Insurance Co. v. Union Planters Bank, a
case concerning whether an administrative creditor has standing under
§506(c) of the Bankruptcy Code to surcharge a secured creditor's
collateral. Hartford, the petitioner, provided post-petition workers'
compensation insurance to the debtor during the first year of its failed
chapter 11 proceedings. After the debtor failed to pay its premiums,
Hartford sought allowance and payment of its claim under
§§503(b) and 506(c) of the Code. Union Planters Bank, the
debtor's pre-petition and post-petition secured lender, objected to
Hartford's claim and argued in part that Hartford had no standing under
§506(c) because it was not a trustee. Hartford prevailed in the
bankruptcy and district courts, as well as in the Court of Appeals for
the Eighth Circuit. On rehearing en banc, the Court of Appeals
reversed on the narrow issue of standing. The Supreme Court granted
certiorari on Nov. 8, 1999.
In yesterday's oral argument before the Supreme Court, Hartford
argued that its standing to surcharge the bank's collateral was
consistent with pre-Code practice and the policy of preventing windfalls
in bankruptcy. G. Eric Brunstad Jr. of Bingham Dana
LLP, counsel for Hartford, argued that the text of §506(c) codified
only a part of pre-Code practice, and that the court should not construe
the partial codification of the rule to abrogate the broader equitable
right that permitted administrative creditors to pursue surcharge claims
on their own behalf. Counsel for Union Planters Bank, Robert H.
Brownlee of Thompson Coburn LLP, argued that only a trustee
could pursue claims under §506(c). A decision from the Supreme
Court is expected by June. A detailed discussion of the case will be
featured in the May issue of the ABI Journal.
Diagnostic Health Services Files Chapter 11
Dallas-based Diagnostic Health Services Inc. filed for chapter
11 protection in Dallas yesterday in order to allow the company to
continue normal operations while it continues to restructure operations,
according to a newswire report. The company, a leading provider of
medical outsourcing services to hospitals and other health care
facilities, operates in 17 midwestern, western and southern states.
Currently the company believes that its common stock has essentially no
value.
Value City Announces Acquisition of Filene's Basement
Assets
Value City Department Stores Inc., Columbus, Ohio, announced
today the completion of the Filene's Basement Corp. asset acquisition
effective March 17, according to a newswire report. The assets were
acquired by Value City's wholly-owned subsidiary, Base Acquisition
Corp., which also assumed certain Filene's Basement liabilities. Base
Acquisition has been managing the assets since Feb. 2 under an agreement
approved by the U.S. Bankruptcy Court in Boston following Filene's
Basement's chapter 11 filing last August. Value City plans to continue
operating the remaining 14 Filene's Basement stores but will liquidate
the remaining Aisle 3 stores. The acquisition was funded with a portion
of the proceeds from Value City's renewed and restated $300 million
revolving credit facility.
Grand Court Lifestyles Seeks Bankruptcy Protection
Grand Court Lifestyles Inc., Boca Raton, Fla., which operates
apartment complexes for the elderly, filed for chapter 11 protection
yesterday after defaulting on loan payments, according to a newswire
report. The operator of 53 communities for both sick and elderly,
primarily in the Southeast and central United States, did not provide
details in its news release, other than to say that the filing was made
in the District of New Jersey. On March 6 the company said it had
defaulted on debt payments, that it was behind in rent and that it did
not expect to resume payments because sales of partnership interests in
syndications, its primary source of revenue, have been suspended.
Kimberly-Clark Unit Sues Paragon
KMB.N., a subsidiary of Kimberly-Clark Inc., has sued Paragon
Trade Brands Inc. for allegedly infringing on a Kimberly patent used in
the manufacture of disposable training pants, according to a newswire
report. In papers filed yesterday in the U.S. District Court in
Delaware, Kimberly-Clark Worldwide Inc., said, 'Instead of doing its own
research and development, Paragon's normal practice is to copy the
technology of others.' The company claims that Paragon's disposable
training plants 'embody' Kimberly's patent for a 'method and apparatus
for controlling the cutting and placement of components on a moving
substrate and articles made therewith.' The invention is used to make
Kimberly's Huggies Pull-Ups Training Pants. It is seeking a court order
barring Paragon from further alleged infringement and an award of
unspecified triple damages. On Jan. 28, Paragon emerged from chapter 11
protection. That filing had been triggered by Paragon's loss to Procter
& Gamble in a patent dispute related to disposable diapers.
Heinz Seeks Boost from Boston Market Name
H.J. Heinz Co., Pittsburgh, is introducing the Boston Market
Home Style frozen foods this week, hoping to capitalize on the Boston
Market name, according to the Associated Press. Heinz licensed the
Boston Market label last spring and agreed to pay Golden, Colo.-based
Boston Chicken Inc., which filed chapter 11 in 1998, a royalty based on
sales. The royalty agreement is part of the tentative sale of Boston
Chicken and its 858 Boston Market stores to McDonald's Corp. Boston
Chicken creditors will vote on the sale in May.
ICO Global Seeks $75M Increase in Eagle River DIP
Loan
ICO Global Communications Services Inc. (ICOFQ) is seeking to amend its
$500 million debtor-in-possession credit agreement with Eagle River
Investments LLC to allow its bankrupt affiliate ICO Global
Communications (Holdings) Ltd. to borrow an additional $75 million. The
additional funds would be used solely to pay certain increased costs,
according to the motion. ICO and its three other bankrupt affiliates
would guarantee and provide property to secure Holdings' obligations for
the increased costs.
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