Case BLS Doc 564 Filed 05/09/13 Page 1 of 11 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case BLS Doc 564 Filed 05/09/13 Page 1 of 11 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 ) REVSTONE INDUSTRIES, LLC, et al.,1 ) Case No Debtors. ) ) (Jointly Administered) ) Related to Docket No. 336 DEBTOR S OBJECTION TO PLEX SYSTEMS, INC. S MOTION FOR RELIEF FROM THE AUTOMATIC STAY TO TERMINATE EXECUTORY CONTRACT BETWEEN PLEX SYSTEMS, INC. AND REVSTONE INDUSTRIES, LLC AND TO SHORTEN TIME FOR REVSTONE INDUSTRIES, LLC TO ASSUME OR REJECT EXECUTORY CONTRACT WITH PLEX SYSTEMS, INC. Revstone Industries, LLC, a debtor and debtor in possession (the "Debtor" or "Revstone") in the above captioned bankruptcy proceeding hereby responds (the "Objection") to the Motion for Relieffrom the Automatic Stay to Terminate Executory Contract Between Plex Systems, Inc. and Revstone Industries, LLC and to Shorten Time for Revstone Industries, LLC to Assume or Reject Executory Contract with Plex Systems, Inc. [Docket No. 336] (the "Motion") filed by Plex Systems, Inc. ("Plex"). In support of the Objection, the Debtor respectfully represent as follows: Preliminary Statement Plex seeks relief from the automatic stay in order to terminate its executory contract with Revstone and shorten the time period for Revstone to assume or reject its executory contract with Plex. The Debtor opposes both of Plex s requests because Plex s basis The Debtors in these Chapter 11 Cases and the last four digits of each Debtor s federal tax identification numbers are: Revstone Industries, LLC (7222); Spara, LLC (6613); Greenwood Forgings, LLC (9285); and US Tool & Engineering, LLC (6450). The location of the Debtors headquarters and the service address for each of the Debtors is 2250 Thunderstick Dr., Suite 1203, Lexington, KY DOCSDE: /001

2 Case BLS Doc 564 Filed 05/09/13 Page 2 of 11 for the Motion rests on the fact that the Debtor failed to submit post-petition payments for Plex s post-petitions services. That argument is now moot as the Debtor paid all post-petition amounts due to Plex. Without an argument as to the lack of payment for post-petiton services, Plex cannot demonstrate sufficient "cause" necessary to justify the extraordinary remedy of relief from the automatic stay. Moreover, because the Debtor rectified any discrepancies on postpetition payments there is no compelling reason why Plex s contract should be assumed or rejected by the Debtor in anything other than the normal course of these cases. For these reasons, and the additional reasons set forth in detail below, Plex s request for relief from the automatic stay and to shorten the time for the Debtor to assume or reject executory contract should be denied. Background The Bankruptcy Fifing 2. On December 3, 2012, Debtors Revstone and Spara, LLC ("Spara") commenced their cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code. On January 7, 2013, Greenwood and US Tool & Engineering, LLC ("US Tool", with Revstone, Spara and Greenwood, collectively, the "Debtors") commenced their cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Debtors have continued in the possession of their property and have continued to operate and manage their business as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. The Request for Stay Relief to Terminate the Contract 3. On March 3, 2013, Plex filed the Motion seeking to lift the automatic stay to terminate the "Plex Online Master Subscription Service Agreement" (the "Contract") dated DOCSDE: /001 2

3 Case BLS Doc 564 Filed 05/09/13 Page 3 of 11 August 27, 2010, by and between Revstone and Plex. The Motion also seeks entry of an order shortening the Debtor s time to assume or reject the Contract. 4. In the Motion, Plex seeks stay relief to terminate the Contract and to shorten the time to assume or reject the Contract for "cause" because the Debtor did not make the payments for the post-petition services provided under the Contract. Post-petition Discussions Between the Debtor and Plex 5. Following the filing of the Motion, the Debtor and Plex engaged in discussions to resolve the payment of post-petition monies due and owing under the Contract. 6. The Debtor is now current on its post-petition obligations to Plex, vitiating the need for relief from the automatic stay or to shorten the time to assume or reject the Contract. As discussed in the Debtor s objection (the "Administrative Expense Objection"), filed concurrently, to Plex s Motion for Allowance and Payment ofadministrative Expense Claim for Services Provided to Revstone Industries, LLC Under Executory Contract Between Plex Systems, Inc. and Revstone Industries, LLC (the "Administrative Expense Motion"), the only outstanding dispute as to the post-petition payments is whether Plex should receive a pro-rated payment for a portion of the Contract s subscription fees. As asserted in the Administrative Expense Objection, the Debtor denies that any portion of the subscription fee for the month of December 2012 is entitled to payment as an administrative expense. DOCSDE: /001

4 Case BLS Doc 564 Filed 05/09/13 Page 4 of 11 Argument Plex Has Not Provided Sufficient Grounds to Lift The Automatic Stay 7. The automatic stay is one of the most fundamental protections provided to a debtor under the Bankruptcy Code. See Midatlantic Nat. Bank v. New Jersey Dept. of Envtl. Prot., 474 U.S. 494,503 (1986). As recognized by the Third Circuit, the purpose of the automatic stay is to: prevent certain creditors from gaining a preference for their claims against the debtor; to forestall the depletion of the debtors assets due to legal costs in defending proceedings against it; and, in general, to avoid interference with the orderly liquidation or rehabilitation of the debtor. Borman v. Raymark Indus., Inc., 946 F.2d 1031, 1036 (3d Cir. 1991). Pursuant to section 362(d) of the Bankruptcy Code, a movant must demonstrate sufficient cause to justify lifting or modifying the automatic stay. Although the Bankruptcy Code does not define what constitutes cause, "courts generally consider the policies underlying the automatic stay [and]... the competing interests of the debtor and the movant." American Airlines, Inc. v. Continental Airlines, Inc. (In re Continental Airlines, Inc.), 152 B.R. 420, 424 (D. Del. 1993) (citation omitted). In particular, Delaware courts consider the following three factors in balancing the competing interests of the parties: (a) (b) (c) whether any great prejudice to either the bankrupt estate or the debtors will result from continuation of the civil suit; whether the hardship to the non-bankrupt party by maintenance of the stay considerably outweighs the hardship to the debtor; and the probability of the creditor prevailing on the merits. Continental, 152 B.R at 424; see also Save Power Ltd. v. Pursuit Athletic Footwear, Inc. (In the matter of Pursuit Athletic Footwear, Inc.), 193 B.R. 713, 718 (Bankr. D. Del. DOCSDE: /001 4

5 Case BLS Doc 564 Filed 05/09/13 Page 5 of ) (citing Izzarelli v. Rexene Products Company (In the matter of Rexene Products Company), 141 B.R. 574, 576 (Bankr. D. Del. 1992)). 9. Plex "bear[s] the heavy and possibly insurmountable burden of proving that the balance of hardships tips significantly in favor of granting relief as against the hardships to the debtor in denying relief." In re Micro Design, Inc., 120 B.R. 363,369 (E.D. Pa. 1990); see also In re Metro Transp. Co., 82 B.R. 351, 352 (Bankr. E.D. Pa. 1988) (reviewing precedent establishing the "difficult task" of unsecured creditors in obtaining relief from the stay). The moving party has the initial burden in proving its prima facie case that cause exists to lift the stay. Pursuit Athletic, 193 B.R. at 718 (citation omitted). If the moving party fails to prove its prima facie case, the court should deny the motion for relief from the stay without any showing by the debtor that the stay should remain intact. See, Sonnax Industries, Inc. v. Tn Component Products Corp. (In re Sonnax Industries, Inc.), 907 F.2d 1280, 1285 (2d Cir. 1990). 10. Plex fails to satisfy its burden of proving that cause exists to modify the automatic stay at this time because the basis for the relief it seeks, non-payment of post-petition obligations, has been rectified by the Debtor. Additionally, modification of the automatic stay would impose substantial prejudice on the Debtor because it utilizes the services provided under the Contract. To lift the stay to allow Plex to terminate the Contract would significantly impede the Debtor s business operations at a time that it is continuing to operate its business as a going concern and exploring the sale of its assets and those of its non-debtor affiliates. These efforts should not be disrupted by termination of the Contract at this time. Such diversion and interference with the administration of the Debtors estates should preclude lifting the stay to allow Plex to terminate the Contract. See, Anderson v. Hoechst Celanese Corp. (In re United States Brass Corp.), 173 B.R. 1000, 1006 (Bankr. E.D. Tex. 1994) ("[E]ven slight DOCSDE: /001

6 Case BLS Doc 564 Filed 05/09/13 Page 6 of 11 interference with the administration [of the estate] may be enough to preclude relief [from the automatic stay]."). The Hardship to Plex in Maintaining the Automatic Stay does not Outweigh the Hardship to the Debtor 11. Plex will not suffer any harm if the Motion is denied. Revstone has made post-petition payments to Plex and will continue to make post-petition payments. Thus, other than the dispute over a pro-rated portion of the subscription fee, which will be addressed in the adjudication of the Administrative Expense Motion, Plex cannot articulate substantial harm or prejudice from denial of its requested relief. 12. In contrast, granting relief from the stay at this juncture in the Debtors bankruptcy cases would set a dangerous precedent and would be prejudicial to the interests of both the Debtors and their creditors. If Plex is permitted to terminate the Contract, similarlysituated service providers with executory contracts with the Debtors may seek to terminate their agreements or leverage the threat of stay relief into receiving administrative expense treatment for payments which are otherwise unsecured. The Debtor may be forced to expend additional time and resources defending such motions at a critical time in these proceedings. The Debtors executory contracts are an integral part of the value of these estates and permitting counterparties to seek termination would only harm the Debtors continuing efforts to both reorganize and sell assets that will generate significant returns for these estates. DOCSDE: /001 6

7 Case BLS Doc 564 Filed 05/09/13 Page 7 of 11 The Time Period to Decide to Assume or Reject the Contract Should Not Be Disturbed 13. Section 365(d)(2) of the Bankruptcy Code provides that a debtor may assume or reject an executory contract "at any time prior to the confirmation of a plan of reorganization." 11 U.S.C. 365(d)(2). "Permitting the debtor to make its decision as late as the plan confirmation date enables the debtor to carefully evaluate the possible benefits and burdens of an [executory contract]. It is vitally important to all interested parties that the debtor make a prudent assumption or rejection decision..." In re Physician Health Corp., 262 B.R. 290, 292 (Bankr. D. Del. 2001) (citing In re Wheeling-Pittsburgh Steel Corp., 54 B.R. 385, 388 (Bankr. W.D. Pa. 1985). Until assumption or rejection, an executory contract remains in existence, "enforceable by the debtor [against the non-debtor party] but not against the debtor." In re S.N.A. Nut Co., 191 B.R. 117, 120 (Bankr. N.D. Ill. 1996). 14. Section 365(d)(2) also permits the Court, at the request of a party to an executory contract, to depart from the normal deadline of confirmation and order the debtor "to determine within a specified period of time whether to assume or reject such contract or lease." 11 U.S.C. 365(d)(2). In applying this provision, however, courts have consistently held that a debtor "is entitled to a reasonable time to make a careful and informed evaluation as to possible burdens and benefits of an executory contract." In re American Nat l Trust, 426 F.2d 1059, 1064 (7th Cir. 1970). The Bankruptcy Code mandates that a debtor be allowed this reasonable time for evaluation "to determine whether adoption or rejection of the executory contract would be beneficial to an effective reorganization." In re Whitcomb & Keller Mort. Co., Inc., 715 F.2d 375,379(7 th Cir. 1983). 15. In deciding whether to accelerate a debtor s decision respecting a given executory contract, the court must balance the interests of the contracting party against those of DOCSDE: /001 7

8 Case BLS Doc 564 Filed 05/09/13 Page 8 of 11 the debtor and its bankruptcy estate. Physician Health, 262 B.R. at 292 (finding that balance favored debtors and refusing to shorten deadline); In re Mayer Pollock Steel Corp., 157 B.R. 952, 965 (Bankr. E.D. Pa. 1993) (refusing to shorten deadline for assumption or rejection when balance of factors favors the debtor). Factors customarily considered by courts in determining whether to shorten a debtor s decision period include "(a) the nature of the interests at stake; (b) the balance of the hurt to the litigants; (c) the good to be achieved; (d) the safeguard afforded those litigants; and (e) whether the action to be taken is so in derogation of Congress scheme that the court may be said to be arbitrary." Matter of Dunes Casino Hotel, 63 B.R. 939, 949 (D.N.J. 1986). In fashioning this balancing of factors, the movant seeking the order to compel assumption or rejection on an accelerated basis bears the burden of demonstrating its entitlement to relief under section 365(d)(2). Mayer Pollock, 157 B.R. at Plex asks this Court to set a thirty-day deadline for assumption or rejection of its contract following the entry of an order approving the Motion due to the alleged failure to meet post-petition obligations. This sole reason, as demonstrated below, does not meet Plex s burden to demonstrate a need to depart from the normal deadline of confirmation established by the Bankruptcy Code and as articulated by the Bankruptcy Court for the District of Delaware in Physician Health, supra, nor does it outweigh the Debtor s legitimate need to determine how the Contract would fit into the Debtors future business plans and, ultimately, any plan proposed by the Debtors. 17. As noted herein and in the Debtor s Administrative Expense Objection, the Debtor is now current its post-petiton payment obligations under the Contract. Where a debtor is current in its post-petition obligations on an executory contract, courts have been reluctant to compel assumption or rejection earlier than the normal deadline of confirmation. DOCSDE: /001

9 Case BLS Doc 564 Filed 05/09/13 Page 9 of 11 See Physician Health, 262 B.R. at 294;2 Whitcomb & Keller, 715 F.2d at 379; In re Wheeling- Pittsburgh Steel Corp., 54 B.R. 385, 388 (Bankr. W.D. Pa. 1985) (finding it "significant that [the debtor] is not in post-petition default" of the executory contract at issue); In re New York Deli, Ltd., 41 B.R. 198, 200 (Bankr. D. Haw. 1984) (declining to shorten deadline for assumption or rejection based in part on finding that debtor was paying rent postpetition). In short, Plex does not - and cannot - demonstrate the level of harm necessary to justify a departure from the normal treatment of its contract under the Bankruptcy Code. Indeed, Plex makes no attempt whatsoever in its Motion to balance the relative harm to the parties. 18. Under such an analysis, however, the Debtor has a significant reason for requesting that this Court enforce the normal period for assumption or rejection in this case. First, the Debtor is still in the process of evaluating its executory contracts and has not made determinations as to their assumption or rejection. Second, the Debtor needs to preserve its contracts for any potential sale of assets. Put simply, these cases are at a juncture where decisions on the assumption or rejection of executory contracts is premature. 19. The Debtor has a well-recognized interest in making reasoned determinations about whether to assume or reject all of its executory contracts, including those with Plex. This Court should interpret the "reasonable time" afforded the Debtor to make such decisions as prior courts have, consistent with Bankruptcy Code s goal of permitting the successful rehabilitation of debtors. See Dunes Casino Hotel, 63 B.R. at 949 (citing NLRB v. Bildisco and Bildisco, 465 U.S. 513 (1984); Moody v. Amoco Oil Co., 734 F.2d 1200, 1216 (7th Cir. 1984) (observing that interpreting the Bankruptcy Code "so as to minimize flexibility and DOCSDE: /001 9

10 Case BLS Doc 564 Filed 05/09/13 Page 10 of 11 rush the debtor into what may be an improvident decision does not further the purposes of the reorganization provisions") 20. The balance of factors in this case thus pits the Debtor s right under the Bankruptcy Code to evaluate all of its executory contracts in an organized fashion - rather than in a hurried, piecemeal manner - against Plex s alleged desire not to make continued commitments under such contracts, where it bargained for both the compensation being paid to it and the possibility that its contracts could be terminated in the near term notwithstanding the bankruptcy. Such a balance clearly favors the Debtor, and hence the relief sought by Plex should be denied. Conference Pursuant to Local Rule (d) 21. Counsel for the Debtor and Plex conferred with respect to the issues raised in the Motion prior to the filing of this Objection but were unable to reach agreement on a consensual order. in the Motion. Conclusion 22. For the reasons set forth above, this Court should deny the relief requested DOCSDE: /001 10

11 Case BLS Doc 564 Filed 05/09/13 Page 11 of 11 WHEREFORE, the Debtor respectfully requests that this Court enter an order denying the Motion and for such other and further relief as is just and proper under the circumstances. Dated: May 9, 2013 PAtISTNGZIEHL & JONES LLP Laura Dvis nes (Bar No ) David M. Bertenthal (CA Bar No ) Timothy P. Cairns (Bar No. 4228) Cohn R. Robinson (Bar No. 5524) 919 North Market Street, 17 th Floor P.O. Box 8705 Wilmington, DE (Courier 19801) Telephone: Facsimile: ljonespszjlaw.com tcairnspszj1aw.com crobinsonpszj1aw.com Counsel for Debtors and Debtors in Possession DOCSDE: /001 11

Case BLS Doc 397 Filed 03/18/13 Page 1 of 4 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE. ) Related to Docket No.

Case BLS Doc 397 Filed 03/18/13 Page 1 of 4 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE. ) Related to Docket No. Case 12-13262-BLS Doc 397 Filed 03/18/13 Page 1 of 4 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 REVSTONE INDUSTRIES, LLC, et al, 1 ) Case No. 12-13262 (BLS)