UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION, CANTON ----------------------------------------------------------x In re Case No. 17-61735 SCI DIRECT, LLC Chapter 11 Debtor and Chief Judge Russ Kendig Debtor-in-Possession (Employer Tax I.D. No. 27-1695346) -----------------------------------------------------------x In re Case No. 17-61736 SUAREZ CORPORATION INDUSTRIES Chapter 11 Chief Judge Russ Kendig Debtor and Debtor-in-Possession (Employer Tax I.D. No. 34-1132690) ----------------------------------------------------------x In re Case No. 17-61737 RETAIL PARTNER ENTERPRISES, LLC Chapter 11 Debtor and Chief Judge Russ Kendig Debtor-in-Possession (Employer Tax I.D. No. 27-1695537) -----------------------------------------------------------x 17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 1 of 12
In re Case No. 17-61738 MEDIA SERVICE CORPORATION Chapter 11 Debtor and Chief Judge Russ Kendig Debtor-in-Possession (Employer Tax I.D. No. 34-1185822) -----------------------------------------------------------x MOTION OF DEBTOR FOR AN ORDER (A) GRANTING AUTHORITY TO PAY PREPETITION TRUST FUND TAXES AND (B) AUTHORIZING AND DIRECTING FINANCIAL INSTITUTIONS TO HONOR AND PROCESS CHECKS AND TRANSFERS RELATED TO SUCH RELIEF The above-captioned debtor and debtor in possession (the Debtor ) hereby moves the Court for the entry of an order (a) granting authority to the Debtor, in its sole discretion, to pay prepetition trust fund taxes and (b) authorizing and directing applicable banks and other financial institutions to receive, process, and pay any and all checks and transfers related to the payment of prepetition trust fund taxes. In support of this Motion, the Debtor respectfully represents as follows Background 1. On August 7, 2017 (the Petition Date ), the Debtor commenced its reorganization case by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtor is continuing in possession of its property and is operating and managing its business, as debtor in possession, pursuant to sections 1107 and 1108 of the Bankruptcy Code. 2. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2) and venue of the Debtor s chapter 11 case and this Application is proper pursuant to 28 U.S.C. 1408 and 1409 and Local Bankruptcy Rules. -2-17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 2 of 12
3. The Debtor started in business in 1968 when Benjamin Suarez ( Mr. Suarez ) started a small business from his home which eventually became Suarez Corporation Industries ( SCI ), a large and formerly very successful direct marketing company. 4. Following many failures and limited successes, SCI became profitable in 1973 and experienced major growth during the 1990s and 2000s when SCI s annual sales went from approximately $16 million to over $200 million, reaching a high of over $400 million in 2008. 5. Then, like many American businesses, SCI s business suffered because of the 2008-2009 Great Recession. As it started to recover, in 2011, the federal government initiated an extensive investigation of alleged federal campaign finance law violations, which resulted in indictments in 2013 against SCI, Mr. Suarez, and SCI s chief financial officer, Michael Giorgio. 6. Following a month-long trial in 2014, Mr. Suarez was convicted on one count of attempted witness tampering and in January 2015 he began serving a fifteen-month sentence at a federal facility in West Virginia. Mr. Suarez was released in early 2016. 7. Stated plainly, SCI, already wounded by the nationwide economic downturn in 2008-2009, simply has not been able to financially recover from the significant expense and major distraction of the above-mentioned federal investigation and indictments, compounded by Mr. Suarez s lengthy absence from the business during his incarceration, unfortunately leaving it and its related entities insolvent and with no option other than bankruptcy to preserve its business and assets. -3-17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 3 of 12
Request for Authority to Pay Prepetition Trust Fund Taxes 8. In the ordinary course of its business, the Debtor collects certain trust fund taxes (collectively, the Trust Fund Taxes ) from its employees pay, its customers, or otherwise collects taxes from or for other entities, and holds them for a period of time before remitting them to the appropriate taxing authorities (collectively, the Taxing Authorities ). The Trust Fund Taxes include, but are not limited to, certain taxes (such as income and FICA taxes) withheld from their employees paychecks, and sales taxes from its customers. The Debtor hereby seeks authority to pay the Trust Fund Taxes collected prior to the Petition Date but not yet remitted by the Debtor to the applicable Taxing Authority (collectively, the Prepetition Trust Fund Taxes ), to avoid the serious disruption to its reorganization efforts that would result from the nonpayment of any such taxes, including the distractions that could result from liability for nonpayment imposed on the Debtor s officers and directors. For purposes of the relief sought by this Motion, the Prepetition Trust Fund Taxes may include Trust Fund Taxes of the type described in this paragraph or other, similar types of Trust Fund Taxes. 9. The Prepetition Trust Fund Taxes that have been collected or withheld by the Debtor are held in trust for the benefit of those third parties to whom payment is owed or on whose behalf such payment is being made. As such, the Prepetition Trust Fund Taxes are not property of the Debtor s estate within the meaning of section 541 of the Bankruptcy Code, 11 U.S.C. 101-1330 (the Bankruptcy Code ). See, Begier v. Internal Revenue Serv., 496 U.S. 53, 55-56, 59-61, 66-67 (1990)(taxes such as excise taxes, FICA taxes, sales tax, and withholding taxes are property held by a debtor in trust for another and, as such, do not constitute -4-17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 4 of 12
property of its estate); City of Farrell v. Sharon Steel Corp. (In re Sharon Steel Corp.), 41 F.3d 92, 98-103 (3d Cir. 1994)(funds withheld from employees paychecks may be subject to trust, and thus are not property of a debtor s estate, even where such funds were commingled with the debtor s other property); In re American Int l Airways, Inc., 70 B.R. 102, 103 (Bankr. E.D. Pa. 1987)(funds held in trust for federal excise and withholding taxes are not property of a debtor s estate and, therefore, are not available for distribution to creditors). 10. Further, New Jersey (See N.J. Rev. Stat. 5939A-24) provides for the maintenance of its highways through the imposition of a motor fuel tax on all fuel sold in the State. To ensure that large commercial motor vehicles that use New Jersey highways but purchase their fuel outside the State also pay their fair share of the costs of highway maintenance, New Jersey also imposes a highway use tax equivalent to the motor fuel tax called the motor use tax, on commercial vehicles that operate in the State on fuel purchased outside the State. Failure to comply with the IFTA excise tax subjects violators to penalties and interest. Additionally, an IFTA license may be suspended or revoked for failure to file an IFTA report or remit all tax due. 11. Because the Prepetition Trust Fund Taxes do not constitute property of the Debtor s estate, these amounts will not otherwise be available to the Debtor s creditors. Immediate payment of the Prepetition Trust Fund Taxes will not, therefore, adversely affect the Debtor s estate. Accordingly, immediate payment of the Prepetition Trust Fund Taxes is warranted. 12. In addition, many state and local Taxing Authorities impose personal liability on the officers and directors of entities responsible for collecting and paying to the Taxing -5-17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 5 of 12
Authority, Trust Fund Taxes to the extent that any such taxes are collected but not remitted. Thus, if any of the Prepetition Trust Fund Taxes remain unpaid, the Debtor s officers and directors may be subject to lawsuits or even criminal prosecution on account of any such nonpayment during the pendency of this chapter 11 case. Such lawsuits or proceedings obviously would constitute a significant distraction for officers and directors at a time when they should be focused on the Debtor s efforts to stabilize its postpetition business operations and develop and implement a successful reorganization strategy. 13. Moreover, some of the Taxing Authorities may cause the Debtor to be audited if the Prepetition Trust Fund Taxes are not paid promptly. Such audits would further divert attention and resources from the reorganization process. 14. The Debtor has sufficient cash to pay promptly all of its obligations for the Prepetition Trust Fund Taxes in the ordinary course of its business, based on the Debtor s general operating revenue. 15. Relief substantially similar to the relief requested in this Motion has been granted in numerous comparable chapter 11 cases. The Debtor submits that the facts and circumstances of this case warrant similar relief. Request for Authority for Banks to Honor and Pay Checks Issued and Make Other Transfers to Pay Prepetition Trust Fund Taxes 16. The Debtor further requests that all applicable banks and other financial institutions be authorized and directed, when requested by the Debtor and in the Debtor s sole discretion, to receive, process, honor, and pay any and all checks drawn on the Debtor s accounts to pay the Prepetition Trust Fund Taxes, whether those checks were presented prior to or after the Petition Date, and make other transfers provided that sufficient funds are available in the -6-17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 6 of 12
applicable accounts to make the payments. The Debtor represents that each of these checks or transfers can be readily identified as relating directly to the authorized payment of the Prepetition Trust Fund Taxes. Accordingly, the Debtor believes that checks and transfers other than those relating to authorized payments will not be honored inadvertently. 17. The Debtor submits that nothing in this Motion should be construed as impairing the Debtor s rights to contest the validity or amount of any Trust Fund Taxes that may be due to any Taxing Authority, and the Debtor expressly reserves all of its rights with respect thereto. 18. The request to make the payments described in this Motion is wholly dependent on the Debtor obtaining access to cash collateral, or other funds necessary to operate its business. 19. The Debtor has filed a separate consolidated memorandum of law in further support of the Motion. Notice 20. No creditors committee has been appointed in this chapter 11 case. Notice of the Motion has been given to the following parties or, in lieu thereof, to their counsel, if known (a) the United States Trustee; (b) the Debtor s 20 largest unsecured creditors as identified in its chapter 11 petition; (c) the Debtor s prepetition secured creditors; (d) the District Director for Internal Revenue for the Northern District of Ohio; and (e) financial institutions subject to the relief requested in this Motion. In light of the nature of the relief requested herein, the Debtor submits that no other or further notice is required. No Prior Request 21. No prior request for the relief sought in the Motion has been made to this or any other court. -7-17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 7 of 12
WHEREFORE, the Debtor respectfully requests that the Court enter an order, substantially in the form attached hereto as Exhibit A (i) granting authority to the Debtor, in its sole discretion, to pay the Prepetition Trust Fund Taxes, in the ordinary course of its business; (ii) authorizing and directing all applicable banks and other financial institutions to receive, process, honor and pay any and all checks drawn on the Debtor s accounts to make such payments, and make other transfers, whether those checks were presented prior to or after the Petition Date, provided that sufficient funds are available in the applicable accounts to make the payments; and (iii) granting such other and further relief as the Court may deem proper. Respectfully submitted, /s/ Anthony J. DeGirolamo Anthony J. DeGirolamo (0059265) 3930 Fulton Dr., Ste. 100B Canton, Ohio 44718 Telephone (330) 305-9700 Facsimile (330) 305-9713 E-mail ajdlaw@sbcglobal.net PROPOSED COUNSEL FOR THE DEBTORS AND DEBTORS IN POSSESSION -8-17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 8 of 12
EXHIBIT A 17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 9 of 12
UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION, CANTON ----------------------------------------------------------x In re Case No. 17-61735 SCI DIRECT, LLC Chapter 11 Debtor and Chief Judge Russ Kendig Debtor-in-Possession (Employer Tax I.D. No. 27-1695346) -----------------------------------------------------------x In re Case No. 17-61736 SUAREZ CORPORATION INDUSTRIES Chapter 11 Chief Judge Russ Kendig Debtor and Debtor-in-Possession (Employer Tax I.D. No. 34-1132690) ----------------------------------------------------------x In re Case No. 17-61737 RETAIL PARTNER ENTERPRISES, LLC Chapter 11 Debtor and Chief Judge Russ Kendig Debtor-in-Possession (Employer Tax I.D. No. 27-1695537) 17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 10 of 12
-----------------------------------------------------------x In re Case No. 17-61738 MEDIA SERVICE CORPORATION Chapter 11 Debtor and Chief Judge Russ Kendig Debtor-in-Possession (Employer Tax I.D. No. 34-1185822) -----------------------------------------------------------x ORDER (A) GRANTING AUTHORITY TO DEBTOR TO PAY PREPETITION TRUST FUND TAXES AND (B) AUTHORIZING AND DIRECTING FINANCIAL INSTITUTIONS TO HONOR AND PROCESS CHECKS AND TRANSFERS RELATED TO SUCH RELIEF This matter coming before the Court on the Motion of Debtor For an Order (a) Granting Authority to Pay Prepetition Trust Fund Taxes and (b) Authorizing and Directing Financial Institutions to Honor and Process Checks and Transfers Related to Such Relief (the Motion ) filed by the debtor and debtor in possession in the above-captioned chapter 11 cases (the Debtor ); the Court having reviewed the Motion and the Debtor s supporting consolidated memorandum of law (the Memorandum of Law ) and having heard the statements of counsel regarding the relief requested in the Motion at a hearing before the Court (the Hearing ); the Court finding that (a) the Court has jurisdiction over this matter pursuant to 28 U.S.C. 1334 and reference from the District Court for the Northern District of Ohio pursuant to 28 U.S.C. 157; (b) this is a core proceeding pursuant to 28 U.S.C. 157(b)(2); and (c) notice of the Motion and the Hearing was sufficient under the circumstances; and the Court having determined that the legal and factual bases set forth in the Motion and the Memorandum of Law and at the Hearing establish just cause for the relief granted herein; IT IS HEREBY ORDERED THAT 1. The Motion shall be, and hereby is, GRANTED. 2 17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 11 of 12
2. Capitalized terms not otherwise defined herein have the meanings given to them in the Motion. 3. The Debtor is authorized, in its sole discretion, to pay the Prepetition Trust Fund Taxes as requested in the Motion in the ordinary course of its business. 4. All applicable banks and other financial institutions shall be, and hereby are, authorized and directed to receive, process, honor, and pay any and all checks drawn on the Debtors accounts to pay the Prepetition Trust Fund Taxes, including the Debtors prepetition employer payroll taxes, whether those checks were presented prior to or after the Petition Date and make other transfers related to the Prepetition Trust Fund Taxes, provided that sufficient funds are available in the applicable accounts to make the payments. 5. Nothing in the Motion or this Order shall be construed as impairing the Debtors right to contest the validity or amount of any Trust Fund Taxes, that may be due to any Taxing Authority. PREPARED BY Anthony J. DeGirolamo (0059265) 3930 Fulton Dr., Ste. 100B Canton, Ohio 44718 Telephone (330) 305-9700 Facsimile (330) 305-9713 E-mail ajdlaw@sbcglobal.net PROPOSED COUNSEL FOR THE DEBTORS AND DEBTORS IN POSSESSION # # # 3 17-61735-rk Doc 14 FILED 08/07/17 ENTERED 08/07/17 102714 Page 12 of 12