Case Document 678 Filed in TXSB on 07/01/16 Page 1 of 7

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1 Case Document 678 Filed in TXSB on 07/01/16 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS CORPUS CHRISTI DIVISION In re: SHERWIN ALUMINA COMPANY, LLC, et al., 1 Case No Chapter 11 (Jointly Administered) TRINITY, A DIVISION OF BANK OF THE WEST S RESPONSE TO DEBTORS SECOND OMNIBUS OBJECTION TO CERTAIN PROOFS OF CLAIM (NO-LIABILITY CLAIMS AND CLAIMS TO BE RECLASSIFIED) [RELATES TO DOCKET NO. 628] COMES NOW, Trinity, a division of Bank of the West (the Bank ), and files this Response (the Response ) to Debtors Second Omnibus Objection to Certain Proofs of Claim (No-Liability Claims and Claims to Be Reclassified) [Dkt. No. 628] (the Claim Objection ). In support of this Response, the Bank respectfully represents as follows: I. BACKGROUND 1. On January 11, 2016 (the Petition Date ), a voluntary petition for relief was filed under Chapter 11 of Title 11 of the United States Bankruptcy Code (the Bankruptcy Code ) for Sherwin Alumina Company, LLC ( Alumina ) and Sherwin Pipeline, Inc. ( Pipeline and together with Alumina, the Debtors ) in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. The cases are jointly administered under Case No (the Bankruptcy Case ). 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number, are: Sherwin Alumina Company, LLC (2376); and Sherwin Pipeline, Inc. (9047). The debtors service address is: 4633 Highway 361, Gregory, Texas (NO-LIABILITY CLAIMS AND CLAIMS TO BE RECLASSIFIED) Page 1

2 Case Document 678 Filed in TXSB on 07/01/16 Page 2 of 7 A. The Bank s Claim 2. As detailed in Claim No. 153 (the Bank Proof of Claim or the Claim ), 2 prior to the Petition Date, and pursuant to, among other things, that certain Lease, the Debtor leased the Equipment for use in its business. 3. As of the Petition Date and pursuant to the terms of the Lease, the Debtor owed an amount not less than $383, By order of this Court [Dkt. 248] entered on February 10, 2016, the deadline to file a proof of claim against the Debtors was March 11, 2016 (the Bar Date ). 5. As of the Bar Date, the Debtor had failed to pay at least $19, for the Debtor s post-petition use of the Equipment. 6. Therefore, the Bank timely filed its Claim, asserting a claim for no less than $383,438.05, and of which an amount not less than $19, is entitled to administrative priority under the terms of the Lease and applicable law. The Bank s Proof of Claim included supporting documentation on which the Claim was based, including the Lease. 7. The Debtor has continued to use the Equipment after the Petition Date and the Debtor s post-petition use of the Equipment has benefitted and continues to benefit the Debtor s estate. The Debtor has paid the Bank for certain of its post-petition use of the Equipment; however, as of the date of the filing of this Response, the Debtor had failed to pay at least $19, for the Debtor s post-petition use of the Equipment under the terms of the Lease. B. The Debtors Assumption Notice 8. On March 21, 2016, the Debtors filed their Notice to Contract Parties to Potentially Assumed Executory Contracts and Unexpired Leases (the Assumption Notice ) 2 The Bank Proof of Claim (including all attachments and exhibits) is incorporated herein for all purposes. All capitalized terms not herein defined shall have the meanings ascribed to such terms in the Bank Proof of Claim. (NO-LIABILITY CLAIMS AND CLAIMS TO BE RECLASSIFIED) Page 2

3 Case Document 678 Filed in TXSB on 07/01/16 Page 3 of 7 [Dkt. No. 458] wherein the Debtors provided notice that the Debtors may assume and assign to the Successful Bidder certain of the Executory Contracts and Unexpired Leases, including the Lease On April 14, 2016, the Bank filed its Limited Objection to Potential Assumption and Assignment of Lease [Dkt. No. 542] (the Limited Objection ), objecting to the Debtors assumption and assignment of the Lease unless the Debtors or (the purchaser of the Debtors assets) cure all defaults under the Lease as of the date of assumption, compensate the Bank for its actual pecuniary loss, and provide acceptable adequate assurance of future performance to the Bank A hearing regarding the Debtors Assumption Notice has not been set. 11. The Debtors currently have an extension of time through and including August 8, 2016 within which they must assume or reject Unexpired Leases. See, Order Extending the Time Within Which the Debtors Must Assume or Reject Unexpired Leases of Nonresidential Real Property [Dkt. No. 610]. 12. As of the date of this Response, the Debtors have neither assumed nor assigned the Lease and continue to possess and use the Equipment. C. The Debtors Claim Objection 13. On June 2, 2016, the Debtors filed the Claim Objection. In the Claim Objection, the Debtors request that the Bank s Proof of Claim be expung[ed] and disallow[ed] in [its] entirety 5 on the grounds that the Bank s Claim asserts a contingent claim for potential future claims related to the future assumption or rejection of an executory contract or unexpired lease 3 See Assumption Notice, Exhibit A at item The Bank reserves all of its rights in connection with the Debtors Assumption Notice, including, without limitation, its arguments set forth in its Limited Objection. 5 See Claim Objection at 4. (NO-LIABILITY CLAIMS AND CLAIMS TO BE RECLASSIFIED) Page 3

4 Case Document 678 Filed in TXSB on 07/01/16 Page 4 of 7 that the Debtors have not yet assumed. 6 For the reasons detailed herein, the Claim Objection should be overruled with respect to the Bank s Claim. II. ARGUMENT 14. As of the date of this Response, the Debtors have neither assumed nor rejected the Lease. Further, the Equipment remains in the Debtors possession as of the date of this Response, and the Debtors continue to use, operate and benefit from the Equipment. 15. If the Debtors elect to assume the Lease, then the Debtors must assume the entire unexpired Lease without modification and make the Lease payments according to the terms of the Lease. Moreover, the Debtors may assume the Lease only if, among other things, the Debtors cure all defaults and provide adequate assurance of future performance If the Debtors elect to reject the Lease, then the Bank is entitled to immediate turnover of the Equipment and to an unsecured claim as a result of the Debtors rejection of the Lease Regardless of whether the Lease is assumed or rejected, the Bank is entitled to an administrative priority claim for all Lease payments related to the Debtors continued postpetition possession and/or use of the Equipment at the rate specified in the Lease. 9 As of the date of the filing of this Response, the Debtor has failed to pay at least $19, in post-petition obligations owing under the Lease. Additional amounts will become due and owing under the 6 See Claim Objection Schedule U.S.C. 365(b). See also, Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d. 1303, 1311 (5th Cir. 1985). Lease. Section 365(f)(2) of the Bankruptcy Code provides that the Debtors may not assign the Lease and the proposed buyer of the Debtors assets may not acquire the rights of the Debtors in the Equipment, unless, among other things, the Lease is assumed in full and the cure amount is paid. 8 See 11 U.S.C. 365(g), 502(g). 9 See 11 U.S.C. 365(d)(5), 503(b). See also, Matter of Braniff Airways, Inc., 783 F.2d. 1283, (5th Cir. 1986); CIT Commun. Fin. Corp. v. Midway Airlines Corp. (In re Midway Airlines Corp.), 406 F.3d 229 (4th Cir. 2005); In re Eastern Agri-Systems, Inc., 258 B.R. 352, (Bankr. E.D.N.C. 2000). (NO-LIABILITY CLAIMS AND CLAIMS TO BE RECLASSIFIED) Page 4

5 Case Document 678 Filed in TXSB on 07/01/16 Page 5 of 7 Lease prior to the Debtor s assumption or rejection. Under the terms of the Lease, interest accrues at the rate of 1.5% per month on all outstanding amounts. 18. Therefore, the Bank has a valid claim against the Debtor in connection with the Lease and the Debtors request that the Bank s Claim be expunged must be denied. 10 Rather than expunge the Bank s Claim, the Court should enter an order that recognizes that the Bank holds valid claims against the estate arising from the Lease, that the liquidation of such claims is reserved until the Debtors assume or reject the Lease under the Bankruptcy Code, and that does not limit the Bank s rights to assert a claim under applicable law, including Sections 503 and 365 of the Bankruptcy Code, for the Debtors post-petition use of the Equipment prior to the assumption or rejection of the Lease or otherwise. III. RESERVATION OF RIGHTS 19. The Bank expressly reserves its right to amend and/or supplement this Response and to further address the relief requested in the Claim Objection and/or the Assumption Notice and any other related issues either by further submission to this Court, at oral argument or testimony to be presented at any hearing. 20. The Bank also expressly reserves its rights in connection with the Debtors proposed assumption, assignment or rejection of the Lease, as set forth in the Debtors Assumption Notice or otherwise. Nothing contained herein shall constitute (a) a waiver of any of the Bank s rights in connection with its Limited Objection; or (b) acceptance of the Debtors proposed assumption, assignment or rejection of the Lease. 10 See 11 U.S.C. 502 (b)(1) (requiring disallowance if a claim is unenforceable against the debtor for any reason other than because it is contingent or unmatured). (NO-LIABILITY CLAIMS AND CLAIMS TO BE RECLASSIFIED) Page 5

6 Case Document 678 Filed in TXSB on 07/01/16 Page 6 of 7 IV. CONTACT INFORMATION 21. The name, address, telephone number and address of the attorney for the Bank to whom the attorneys for the Debtors should serve a reply to the Response is: Cassandra Sepanik Shoemaker Thompson & Knight LLP 1722 Routh Street; Suite 1500 Dallas, TX Telephone: cassandra.shoemaker@tklaw.com 22. The name, address, telephone number and address of the party with authority to reconcile, settle, or otherwise resolve the objection on the claimants behalf is: Melvin Arterberry, Jr., Vice President Bank of the West Mail Sort: NC-B07-1B-N 2527 Camino Ramon San Ramon, CA Telephone: Melvin.Arterberry@bankofthewest.com The Bank requests that all negotiations be communicated to its attorney of record, Cassandra Sepanik Shoemaker. WHEREFORE, the Bank respectfully requests that the Court deny the Claim Objection, allow the Bank s Claim and grant the Bank such other relief as the Court deems just and appropriate. Dated: July 1, Respectfully submitted, THOMPSON & KNIGHT LLP By: /s/ Cassandra Sepanik Shoemaker Cassandra Sepanik Shoemaker State Bar No Routh Street, Suite 1500 Dallas, TX Telephone: Facsimile: cassandra.shoemaker@tklaw.com (NO-LIABILITY CLAIMS AND CLAIMS TO BE RECLASSIFIED) Page 6

7 Case Document 678 Filed in TXSB on 07/01/16 Page 7 of 7 - and - Demetra L. Liggins State Bar No THOMPSON & KNIGHT LLP 333 Clay Street, Suite 3300 Houston, Texas Telephone: Facsimile: demetra.liggins@tklaw.com ATTORNEYS FOR TRINITY, A DIVISION OF BANK OF THE WEST CERTIFICATE OF SERVICE I hereby certify that on the 1 st day of July, 2016, a true and correct of the foregoing document has been served upon those parties entitled to service via the Court s ECF system and upon the following persons via United States first class mail: Gregory F. Pesce KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 300 North LaSalle Chicago, IL Office of the U.S. Trustee Attn: Steve Statham 606 North Carancahua Street, Suite 1107 Corpus Christi, TX Steven Reisman Curtis, Malled-Prevost, Colt & Mosle LLP 101 Park Avenue New York, NY Robin Russell Andrews Kurth LLP 600 Travis, Suite 4200 Houston, TX /s/ Cassandra Sepanik Shoemaker Cassandra Sepanik Shoemaker (NO-LIABILITY CLAIMS AND CLAIMS TO BE RECLASSIFIED) Page 7

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