memorandum of law in support of (i) response of …

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re BLITZ U.S.A., INC., et al. Debtors.

Chapter 11 Case Nos. 11-13603-PJW, et seq. (Jointly Administered)

MEMORANDUM OF LAW IN SUPPORT OF (I) RESPONSE OF CERTAIN FORMER

EMPLOYEES TO FIRST OMINBUS OBJECTION OF THE BLITZ LIQUIDATING TRUST TO PROOFS OF CLAIM FILED BY FORMER EMPLOYEES FOR BONUSES PURSUANT TO EBITDA BASED BONUS PLAN (SUBSTANTIVE OBJECTION); AND (II) CROSS-MOTION BY CERTAIN FORMER EMPLOYEES FOR ALLOWANCE OF

ADMINISTRATIVE CLAIMS PURSUANT TO 11 U.S.C. § 503(b)

Certain former employees (“Claimants” or the “Employees”)1 of the debtors and debtors-

in-possession (collectively, the “Debtors”) in these proceedings, by the Employees’ undersigned

counsel, hereby file this memorandum of law (the “Memorandum”) in support of their (i)

Response Of Certain Former Employees To First Omnibus Objection To Proofs Of Claim Filed

By Former Employees for Bonuses Pursuant to EBITDA Based Bonus Plan (Substantive

Objection) (the “Response”); and (ii) Cross-Motion By Certain Former Employees For

Allowance Of Administrative Claims Pursuant To 11 U.S.C. § 503(b) (the “Cross-Motion”).

PRELIMINARY STATEMENT

At issue is that the Employees were promised four sets of bonus payments if they reached

certain financial targets in order to coerce their cooperation, then were advised by the estates’

successor after the fact that the estates would no longer pay the latter two bonuses once it

procured the benefit of their promise. The default appears to be both a last-minute and poorly

1 The Employees are identified in the Verified Statement of Attorneys Pursuant to Fed. R. Bankr. P. 2019 filed at D.I. 2314, as amended from time to time.

Case 11-13603-PJW Doc 2317 Filed 06/12/14 of 21

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Docket #2317 Date Filed: 6/12/2014

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documented change-of-heart whereby the Debtors withdrew certain portions of the proposed

bonus program—in response to hostility by the Official Committee of Unsecured Creditors (the

“Committee”)—but upon information and belief, did not advise most of the Employees. This

sudden shift occurred in the latter part the Debtors’ fiscal year and only approximately two

months before the Debtors were due to cease operations. Meanwhile, the Debtors encouraged the

Employees to meet these targets by advertising the bonus program as an inducement. In

response, the Employees worked tirelessly to ensure the success of these bankruptcy proceedings

until a going-concern sale could be consummated, even though their own prospects for future

employment appeared bleak. The Debtors successfully obtained approval of the bonus program

from the Court over the objection of the Committee, and the Court’s opinion approving the value

of the bonus program did not differentiate between the first two sets of bonuses (which were

approved) and the last two sets (for which the Debtors appear to have withdrawn their request for

approval without prejudice). The Debtors actually encouraged and assisted the Employees to file

proofs of claim in connection with their unpaid bonuses.

After the Employees kept the Debtors’ operations afloat while a suitor could be located

and a sale completed, a plan was confirmed and resulted in a control-change over the estate’s

assets. Under the plan, the Blitz Liquidating Trust (the “Trust”) was formed, and the attorneys

previously serving as counsel for the Committee—which had vehemently opposed the Bonus

Motion—became counsel for the Trust. Suddenly, the same estates that had supported the

bonuses over the Committee’s objection were now hostile to the claims of the Employees, and

the first objection to claims filed by the Trust targeted the Employees. Ironically, even though

they had filed proofs of claim in this case, it does not appear that the Employees were given

sufficient notice of the plan or the confirmation process to understand how or if it would affect


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their rights, nor that any significant reference to them was made in the disclosure statement

proposed to the Court in connection with the plan.

Essentially, although they represent over a half million dollars in postpetition claims, this

means that the relatively unsophisticated Employees were totally disenfranchised from the plan

process. This meant that their positions were not solicited in connection with the plan that would

result in their treatment--a plan that resulted in the appointment of a trustee hostile to their

claims. And, the parties that actually voted on the Plan were not given sufficient notice of the

fact that administrative claims in this amount were being asserted.

The bonus program at issue had been in effect for many years before the Petition Date

and was, in the view of both the Debtors and the Employees, an integral part of the Employees’

regular, ordinary compensation package. Despite that the Debtors appear to have withdrawn the

request for approval of the third and fourth bonus payments under pressure by the Committee

and others, the Court’s opinion was explicit about the benefit to the estates of the bonus

program—without distinguishing the first two bonuses from the last two. Even without prior

approval, the Employees are thus ready and able to meet their burden for allowing their

administrative claims under § 503(b) of the Bankruptcy Code. While the Trust has filed its

objection on a substantive basis, aside from asserting that the claims at issue were allegedly

satisfied, the Trust has not shown that the Employees’ claims are otherwise fundamentally

invalid.


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JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157. This

is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (B) and (O). Venue is proper in this

district pursuant to 28 U.S.C. §§ 1408 and 1409. The statutory predicate for the relief requested

herein is § 503 of the Bankruptcy Code.

FACTUAL BACKGROUND

On November 9, 2011 (the “Petition Date”), each of the Debtors filed voluntary petitions

for relief pursuant to Chapter 11 of the Bankruptcy Code.

A. The Bonus Program.

On May 8, 2012, the Debtors filed a motion (Docket No. 418) (the “Bonus Motion”)

seeking approval of an EBITDA-based employee bonus plan for Fiscal Year (“FY”) 2012 (the

“Bonus Plan”). The Bonus Plan was nothing new to the Debtors: it had been around in

substantially the same form for over two decades, other than choosing customized EBITDA

targets to match the companies’ capacity. In the Bonus Motion, the Debtors sought approval of a

bonus program for its employees pursuant to which a bonus incentive payment (each a “Bonus

Incentive”) would be paid based upon four separate EBITDA targets (collectively, the “EBITDA

Targets” with each one an “EBITDA Target”) during FY 20122: (i) $5 million; (ii) $7.5 million;

(iii) $10 million; and (iv) $12.5 million. Bonus Motion at 5. Each Bonus Incentive was

calculated as a percentage of each employee’s annual base salary (excluding overtime) at the

time the Bonus Incentive was earned.3

Throughout the bankruptcy, including in the text of the Bonus Motion itself, the Debtors

touted the benefits of the Bonus Plan and its necessity for maximizing the recovery to creditors:

2 The Debtor’s FY ended September 30th of each calendar year. See Bonus Motion at 7. 3 The percentage calculations categorized employees into five different levels with different percentages.


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The Bonus Plan will continue to incentivize employees to achieve desired EBITDA Targets and the overall profitability of the company. Regardless of the ultimate direction that these Chapter 11 cases take, a more profitable Blitz U.S.A. is in the best interests of all constituents. Increased profitability will allow the Debtors to more quickly pay down the amounts owed to their prepetition lenders and the DIP Lenders under the DIP Credit Facility. Moreover, higher EBITDA levels will make the company more attractive to potential investors and purchasers through either a plan or sale process.

Bonus Motion at 14. In fact, the agent for the prepetition secured lenders, BOKF, NA d/b/a Bank

of Oklahoma (“BOKF”), filed a statement [D.I. 591] in support of the Bonus Motion:

[T]he Court should approve the Bonus Motion now so that the employees of the Debtors are sent a strong message that their efforts in maximizing value for the estate, by manufacturing and selling gas cans working around the clock in excess of the number of shifts normally worked, is encouraged and appreciated. In the absence of approval of the Bonus Motion, the ability to maximize the value of the Debtor’s assets, and the prospects or any recovery for unsecured creditors, is severely reduced. With the exigent circumstances facing Debtors now in maximizing manufacturing and sales activities through July 31, approval of the Bonus Motion as soon as possible is critical to the success of the case.

BOKF Stmt. at 2-3. Further, as pointed out in one joinder and memorandum of law [D.I. 590]

filed by an employee of one of the Debtors, James R. King, the Bonus Plan was a binding

contract and the failure to adhere to, or any alterations to, the Bonus Plan, including any

EBITDA Targets reached or to be reached shortly thereafter, may constitute a violation of state

employment law related to the federal Worker Adjustment and Retraining Notification

(“WARN”) Act.

The Bonus Plan was an integral part of the Debtors’ compensation to their employees,

and there is nothing to suggest that it is not an ordinary course of business transaction. See King

Memorandum at 9. The fact that the Debtors intended to sell their business operations through

this reorganization process did not change the fact that the Court was required to enforce their

contractual rights under the Bonus Plan. Id. Even in the Bonus Motion itself, the Debtors argued


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that approval of the Bonus Plan was not technically required under the Bankruptcy Code but was

being sought by the Debtors in an abundance of caution. Bonus Motion at 11.

The United States Trustee (the “UST”) and the Committee, whose counsel now

represents the Trust, filed objections [D.I. 436, 435, respectively] to the Bonus Motion.4 The

UST argued that the Debtors had not established how the Bonus Motion was an ordinary course

of business transaction. UST Objection at 7. The Court held a contested hearing on the Bonus

Motion on May 31, 2012 and issued an opinion (the “Opinion”) on July 10, 2012 approving the

Bonus Plan and overruling the objections raised at this hearing. Among other findings, the Court

found that:

“[T]he Bonus Plan is an ordinary course transaction that is not subject to the requirements of § 503(c)(3).” Opinion at 11.

As an ordinary course transaction, the Court must determine only whether “it was

taken in good faith and with sound business judgment.” Id.

The Bonus Plan was approved by the Debtors’ board in the same manner as bonus plans in previous years. Id. at 12.

“Where . . . . the employees have known about the [Bonus] Plan since October 2011

(Tr. 39), rewarding them for hard work already done and encouraging them to continue working hard to fill existing orders until operations cease at the end of July does not smack of bad faith or unsound business judgment.” Id. at 14.

For reasons not publicly disclosed, the Debtors changed their request in mid-stride and

sought approval of only the first two EBITDA Targets in the Bonus Motion at the hearing. This

change in strategy was only orally noted on the record and was not otherwise documented by any

public filings prior to this hearing. Consequently, at the time of the May 31, 2012 hearing and

when it issued its Opinion, the Court approved only what the Debtors affirmatively sought—two

tranches of Bonus Incentives with an EBITDA of $7.5 million. It is possible, if not likely, that

4 The Committee appears to have filed its objection under seal, and it does not appear that a copy was served on the Employees.


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the Court would have approved the Bonus Incentives to be paid to Employees under the third and

fourth EBITDA levels (the “Remaining Bonus Incentives”) had the Debtors pressed forward

with this request, and the Opinion does not contain any distinction between the Bonus Incentives

that were approved and those for which the request was withdrawn.

It is noteworthy that around or shortly after the May 31, 2012 hearing, the Debtors

actively encouraged the Employees to file proofs of claim to assert their rights with respect to the

unpaid Bonus Incentives and even assisted many of the Employees listed on the Claim Objection

with preparing and filing them. Each of the Employees’ claims asserted a priority claim based

upon the Debtors’ reaching the four EBITDA levels with such calculations including sums due

for each respective claimant under the Remaining Bonus Incentives and gave notice to the

Debtors, other parties in interest, and the Court of the nature and amounts of their claims. The

Debtors had actual knowledge, and any party reviewing these proofs of claim knew or should

reasonably have known, that although they were filed as priority claims, they were intended to

assert postpetition administrative claims.

It is also worth mentioning that notice has been a significant impediment to the

Employees in this case, both with respect to deficiencies in notice and also in misleading

information relating to the Bonus Plan and other pertinent filings in these bankruptcy

proceedings:

The Employees were not served with copies of the Bonus Motion, the Committee’s objection to the Bonus Motion, any other party’s response to the Bonus Motion, the order granting the Bonus Motion, or the Court’s Opinion.

Upon information and belief, the Employees did not otherwise receive written

notification about any change in their Bonus Plan, nor about the fact that the Debtors had ultimately sought approval of some—but not all—of the Bonus Incentives. This is evidenced by the fact that the Employees filed their claims from June 22, 2012 to July 6, 2012 (some or all with the assistance of the


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Debtors) based upon reaching all four EBITDA Targets notwithstanding the change to the Bonus Motion made orally by the Debtors at the May 31 hearing.

The Employees were not served with copies of the First Amended Plan or the

Amended Disclosure Statement. In fact, despite being a contentious and potentially high-dollar issue in these proceedings in the aggregate, the Amended Disclosure Statement did not contain even a passing reference to the Bonus Program or the fact that approximately 100 former employees of the Debtors had filed proofs of claim evidencing wage claims over $1.6 million in the aggregate. The Employees were also not entitled to vote under the Amended Plan and were not provided with ballots.

Internally, the Debtors communications to the Employees throughout the life of

the case expressly or impliedly promised that the bonuses would be earned upon reaching the Bonus Targets, even after they orally withdrew their request for approval of the Remaining Bonus Incentives at the May 31, 2012 hearing without prejudice.

Upon information and belief, the Debtors’ EBITDA in FY 2012 demonstrate that the

Employees earned the Remaining Bonus Incentives under the Bonus Program. Furthermore,

upon information and belief, the Debtors continued to reserve funds following approval of the

Bonus Motion to pay the Remaining Bonus Incentives.

Finally, it should be mentioned that there was a nexus between the Bonus Plan and the

Employees’ performance. As noted in BOKF’s statement cited above, the Employees worked

longer shifts than required and put in extra effort to maximize revenue and justify further

bonuses. The Debtors’ EBITDA was tracked in a manner available for the Employees to see, as a

means of motivating them to hit further Targets.

B. The Plan Process and Appointment of the Trustee.

On November 12, 2013, the Debtors and the official committee of unsecured creditors

appointed in these proceedings (the “Committee”) jointly filed a plan of liquidation [D.I. 1921]

(the “Plan”) and an accompanying disclosure statement [D.I. 1922]. On December 19, 2013, an

amended plan of liquidation [D.I. 2007] (the “Amended Plan”) and disclosure statement [D.I.


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2008] (the “Amended Disclosure Statement”) were filed. The Court approved by order [D.I.

2005] the Amended Disclosure Statement and procedures for soliciting the Amended Plan. On

January 30, 2014, the Court entered its Findings of Fact, Conclusions of Law and Order

Confirming Debtors’ and Official Committee of Unsecured Creditors’ First Amended Joint Plan

of Liquidation [D.I. 2152] (the “Confirmation Order”).

On March 20, 2014, the Debtors filed a Notice of (A) Occurrence of Effective Date of

Debtors’ And Official Committee of Unsecured Creditors’ First Amended Joint Plan of

Liquidation, And (B) Bar Dates for Filing Administrative Expense Claims And Professional Fee

Claims [D.I. 2224] (the “Bar Date Notice”), setting May 4, 2014 as the deadline for requesting

payment of any administrative expense claim.

Although the Opinion was entered in July 2012, the First Omnibus Objection to Proofs of

Claim Filed by Former Employees for Bonuses Pursuant to EBITDA Based Bonus Plan

(Substantive Objection) (the “Claim Objection”) was not filed until May 9, 2014 (5 days after the

deadline for filing a request for allowance of administrative claim). In the Claim Objection, the

Trust seeks to expunge the proofs of claims filed by the Employees. The Trusts argues that the

Employee’s claims have been satisfied. Further, the Trust asserts that none of the Employees can

show that their claims are actual and necessary to preserve the estate and none of the Employees

filed an administrative claim prior to the expiration of the claims bar date for doing so. For the

reasons set forth below, the Employees timely placed the Debtors and Trust on notice regarding

the existence and amount of their respective administrative claims and those claims should be

allowed and paid under the Plan.


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ARGUMENT

I. The Claim Objection Should Be Overruled.

Under the Claim Objection, the Trust objects to the Employees’ claims under only two

grounds: that the Employee’s proofs of claim should be expunged because they have already

allegedly been paid, and that they purportedly did not confer an actual, necessary benefit upon

the Debtors’ estates. The Trust does not otherwise dispute how the claims thereunder were

calculated, that the Employees would be entitled to the Bonus Incentives, or that the claims fall

within other statutory sub-provisions of § 503(b) of the Bankruptcy Code.

A. The Remaining Bonus Incentive Payments Have Not Been Paid Or Satisfied.

From off-the-record discussions between counsel, the Employees believe that the Trust’s

assertion of satisfaction is based upon the misinterpretation that the Employees’ proofs of claim

were filed to evidence claims solely for the first two bonus payments. The Employees concede

that they received those payments, and upon information and belief, 50% of each of the

Employees’ claims has been satisfied. If the Employees are incorrect, however, and the Trust is

taking the position that even the Remaining Bonus Incentives were previously paid or satisfied,

then the Employees are prepared to introduce evidence contradicting this position.

B. The Employees’ Services Giving Rise To The Remaining Bonus Incentive Payments Conferred An Actual, Necessary Benefit Upon The Debtors’ Estates.

The Trust’s second assertion—that the Employees did not confer an actual, necessary

benefit to the Debtors’ estates—is incorrect, both as a matter of law and as a matter of estoppel

and/or law of the case.


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(1) Standard For Allowance Of An Administrative Claim.

Section 503(b) of the Bankruptcy Code provides, in pertinent part:

(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including— (1) (A) the actual, necessary costs and expenses of

preserving the estate, including—

(i) wages, salaries, and commissions for services rendered after the commencement of the case; and

***

(3) the actual, necessary expenses, other than compensation and reimbursement specified in paragraph (4) of this subsection incurred by—

*** (D) a creditor, an indenture trustee, an equity security

holder, or a committee representing creditors or equity security holders other than a committee appointed under section 1102 of this title, in making a substantial contribution in a case under chapter 9 or 11 of this title . . . .

“Administrative expenses are those which either preserve the estate in a reorganization or

facilitate the winding down in a liquidation . . . . The rationale of providing priority treatment is

that it benefits all creditors by encouraging lenders and others to continue or commence doing

business with the debtor.” In re Powermate Holding Corp., 394 B.R. 765, 771-72 (Bankr. D.Del.

2008).

(2) The Employees Should Be Allowed Administrative Claims For The Remaining Bonus Incentives Under The Bonus Plan Because Their Services Conferred An Actual, Necessary Benefit On The Estates.

Because the Debtors reached their EBITDA Targets under the Bonus Plan, the Court

should allow them administrative claims for the amounts due them as Remaining Bonus


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Incentives, which are set forth on Exhibit 1 to the Cross-Motion. The work performed by the

Employees after the Petition Date constituted an actual and necessary expense for the Debtors’

estates. Their services were necessary for keeping the Debtors’ operations running throughout

this proceeding, and the Employees kept their end of this bargain. Their claims arising from

those services arose in the form of salary or wages, as well as other compensation—including but

not limited to the Bonus Program—although the subsection of § 503(b)(1) applicable to wage

and employment-related claims is also discussed below.

Even though there is a blanket inclusion of employment-related claims in subparagraph

(i) of § 503(b)(1)(A), it is not necessary for the Court to resort to that categorical allowance in

order to find that the Employees’ services constituted an actual, necessary benefit to the Debtors’

estates. The efforts of the Employees after the Petition Date kept the Debtors’ operations intact—

and in fact, thriving—while the Debtors sought to market and sell substantially all of their assets.

Undoubtedly, the Debtors realized more of a recovery for their creditors in this condition than

they would have as a piecemeal liquidation after shuttering operations. The Debtors’ motion to

sell substantially all of its remaining assets [D.I. 574] contains a direct admission of this benefit:

In addition to the cessation of operations as of July 31, 2012 and the sale of the Assets, Blitz intends to continue to manufacture PCGCs [(portable consumer gas cans)] and fulfill orders up to July 31. The Debtors believe that continuing to operate through July 31 is in the best interests of their estates because it will allow the Debtors to maximize sales of PCGSs and thereby increase the prospect of recoveries for all parties, including secured creditors and unsecured creditors. By maximizing sales, coupled with the other asset value maximizing measures taken by the Debtors, the likelihood of paying in full the secured debt and administrative claims is increased, as is the prospect of recovery for general unsecured creditors. Indeed, early indications from Blitz’s customers following the announcement of the Debtors’ decision to operate through July 31 and thereafter shut down operations and sell the Assets, suggest that the Debtors decision is correct.

Sale Motion ¶ 5.


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The Remaining Bonus Incentives are the product of work performed after the Petition

Date by the Employees to enable the Debtors to reach the third and fourth EBITDA Targets in

2012. If the Employees had abandoned the Debtors’ sinking financial ship on the Petition Date,

then an orderly liquidation of the Debtors’ estates in this instance would have been impossible,

as explained in the the Amended Disclosure Statement at p. 83. Instead, the Employees stuck

with the Debtors through this process and substantially contributed to the Debtors’ success in

selling the business as a going concern.

Aside from meeting the legal requirements under § 503(b) of the Bankruptcy Code, there

are equitable considerations favoring the allowance of administrative claims to the Employees

for amounts owed to them under the Remaining Bonus Incentives. It is has been widely

recognized that one fundamental purpose of reorganization under the Bankruptcy Code is the

public policy favoring keeping employees in their jobs. National Labor Relations Board v.

Bildisco and Bildisco Local 408, International Brotherhood of Teamsters, 465 U.S. 513, 528,

104 S.Ct. 1188, 79 L.Ed.2d 482, 11 B.C.D. 564 (1984) (“The fundamental purpose of

reorganization is to prevent a debtor from going into liquidation, with an attendant loss of jobs

and possible misuse of economic resources”). In this case, the Debtors served that purpose by

implementing a plan to retain the employees in their respective positions in order to keep the

business in operation until it could be sold as a going concern. It would be anathema to this

policy, however, to permit the Trust to undo that purpose after having received the benefit of the

jobs that the Bonus Program was intended to preserve.

(3) The Trust Is Estopped From Opposing The Facts Supporting The Allowance Of The Employees’ Administrative Expense Claims.

In addition to the direct evidence supporting the Employees’ claims, it should be noted

that it would be inappropriate for the Trust—which is the successor-in-interest to the Debtors as


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debtors in possession and stands in their shoes—to challenge these basic assertions of fact, based

on the variations of estoppel applicable to these facts.

(I) Promissory Estoppel.

Oklahoma courts “have concluded that unpaid wages are a debt arising out of contract.”

Matthew v. Hamrick, 258 P.3d 509, 513 (Okla. 2011).5 As a matter of contract, Oklahoma law

applies the principle of equitable estoppel to employment claims. See Russell v. Board of County

Com’rs, 952 P.2d 492, 503-04 (Okla. 1997) (issue of detrimental reliance on employee handbook

for overtime and holiday pay). “The elements necessary to establish promissory estoppel are: (1)

clear and unambiguous promise, (2) foreseeability by the promissory that the promise would rely

upon it, (3) reasonable reliance upon the promise to the promisee’s detriment and (4) hardship or

unfairness can be avoided only by the promise’s enforcement.” Id. at 503.

The Debtors made numerous representations to the Employees evidencing the existence

and amount of the Bonus Program for FY 2012 leading up to the May 31, 2012 hearing on

approval of the Bonus Motion. Even after certain aspects of the Bonus Motion were orally

withdrawn at the hearing (only 2 months before the Employees were due to be laid off), upon

information and belief, the Employees were not informed that the Remaining Bonus Incentives

had been withdrawn from the Bonus Motion and were in fact led to believe that the Bonus

Program was in full force and effect. In addition, after the hearing the Employees were

directed—by the Debtors—to file proofs of claim under the impression that they would receive

the Remaining Bonus Incentives as claims against the Debtors’ estates. As noted above, the

Employees were not served with copies of the Bonus Motion and were never otherwise notified

of the change to the Bonus Motion to withdraw the Remaining Bonus Incentives from the

5 The Employees believe that Oklahoma law would apply to any claims based in state law because this is the location where they worked and was the Debtors’ principle place of business.


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explicit request for approval. Nor is there any indication that the Employees were served with

any materials documenting this change, even the Opinion. Furthermore, as supposedly

unimpaired, the Employees were not entitled to vote on the Amended Plan, nor did the Amended

Disclosure Statement (filed over 1 year after the Employees filed their proofs of claim) otherwise

indicate that their claims would become an issue in these proceedings and would become the

threat of impairment post-confirmation by the Claim Objection.

It is certainly foreseeable and reasonable that the Employees—who are not sophisticated

and whose individual claims were not large enough to warrant the retention of separate counsel

when they were assured by the Debtors that their bonuses would be paid—would rely upon

information from their own employer about the Bonus Plan. The Employees, many of whom

have families and were not able to obtain employment with the Debtors’ successor, would suffer

hardship by not receiving their Remaining Bonus Incentives. Denying the Employees their

Remaining Bonus Incentives would be unfair when the Employees have labored under a false

promise of receiving the Remaining Bonus Incentives and have contributed to the Debtors’

success in these proceedings under this illusion.

(II) Collateral Estoppel.

Under the doctrine of collateral estoppel, also known as issue preclusion, an issue once

litigated should not be relitigated. “Collateral estoppel prohibits the relitigation of issues that

have been adjudicated in a prior lawsuit.” In re Docteroff, 133 F.3d 210, 214 (3rd Cir. 1997).

The elements of collateral estoppel are: “(1) the issue sought to be precluded must be the same as

the one involved in the prior action; (2) the issue must have been actually litigated; (3) the issue

must have been determined by a valid and final judgment; and (4) the determination must have

been essential to the prior judgment.” Id.


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That the Employees’ services conferred an actual, necessary benefit on the Debtors’

estates was already found by this Court, as embodied by the Opinion. Although the Debtors had

withdrawn their request for approval of the Remaining Incentive Payments, the Opinion did not

distinguish among the different bonuses target. The Court was called to answer this direct

question and, in rendering its decision, even overruled the Committee’s objection to the Bonus

Motion asserting the very fact now espoused by the Trust. It is therefore inappropriate for the

Trust, which stands in the shoes of the Debtors, to attempt to relitigate these facts already

determined by the Court.

It should also be noted that the Debtors’ withdrawal of the Remaining Bonus Incentives

from the request for approval in the Bonus Motion does not constitute collateral estoppel in this

case. Aside from the fact that the Court made no finding with respect to these latter two bonuses,

the Debtors’ withdrawal of them was made with an express reservation to seek the relief later if

needed, as well as the Court’s acknowledgement of that reservation:

[Counsel for the Debtors]: We’re not seeking relief with respect to any targets above $7.5 million. Now, we reserve our right at a later time to file a subsequent motion or to renotice this motion and seek that relief, but we’re not seeking that here today.

THE COURT: Okay.

Transcript (Supplemental) of May 31, 2014 hearing, 5:10-14.

(III) Judicial Estoppel.

In addition to promissory estoppel and collateral estoppel, the Trust should be barred

from objecting to allowance of the Employees’ claims under the doctrine of judicial estoppel.

The doctrine of judicial estoppel “preclude[s] a party from assuming a position in a legal

proceeding inconsistent with one previously asserted. Oneida Motor Freight v. United Jersey


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Bank, 848 F.2d 414, 419 (3rd Cir. 1988). Judicial estoppel is intended to protect the integrity of

the judicial system and looks to the connection of the litigant to the judicial system (as opposed

to the relationship between the parties under equitable estoppel). Id. As such, the purpose of

judicial estoppel is to prevent a party from playing “fast and loose with the courts.” Scarano v.

Central R. Co. of N.J., 203 F.2d 510, 513 (3rd Cir. 1953). It does not require that the party

seeking judicial estoppel to demonstrate that the party detrimentally relied upon the prior

inconsistent statement. Ryan Operations GP v. Santiam-Midwest Lumber Co., 81 F.3d 355, 360

(3rd. Cir. 1996) (citing Scarano, 203 F.2d at 512). This doctrine does not require the party

seeking estoppel to actually be a party to the prior proceeding itself. Id. at 360. It does not

require that the party to be estopped actually benefitted from the prior position of the party’s

adversary. Id. at 361. Although solely alleging inconsistent positions in litigation by itself is not

sufficient to trigger this doctrine, alleging inconsistent positions to obtain an unfair advantage is

sufficient to result in application of this doctrine. Id. at 362-63.

Furthermore, the fact that a successor (in this case, the Trust) is tasked with taking a

position on the issue of the allowance of an administrative claim does not affect the application

of this doctrine to positions previously taken by the predecessor (in this case, the Debtors) to the

extent that the other requirements are met. See e.g., In re Costal Plains, Inc., 179 F.3d 197, 209-

212 (5th Cir. 1999) (Chapter 7 trustee was judicially estopped from taking a different position

than that previously taken by debtor in possession, and citing numerous cases showing that

parties related to debtors may be judicially estopped).

In this instance, the Debtors—in their capacity as debtors in possession—made numerous

statements in the Bonus Motion (see, e.g., the language quota supra at p.5) and in the Sale

Motion (see, e.g., the language quota supra at p.12), such as the value of the Employees’ services


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and the benefit conferred thereby. The successor representative of the estates, the Trust, should

be judicially estopped from challenging those positions or taking positions inconsistent with

those made by the Debtors, regardless of whether the same persons are in control of the estate or

representing the estate as counsel.

II. Allowance Of An Administrative Claim.

In addition to overruling the Claim Objection, the Court should allow the Employees’

administrative claims in connection with the Remaining Bonus Incentive Payments, in the

respective amounts set forth in their proofs of claim.

A. Allowance Pursuant To § 503(b)(1)(A) of the Bankruptcy Code.

For the reasons described in Section I hereof, the Court should find that the Employees’

services giving rise to the claims for Remaining Bonus Incentive Payments constituted an actual,

necessary benefit to the Debtors’ estates. Therefore, these claims should be allowed as

administrative claims against the estates.

B. Allowance Pursuant To § 503(b)(1)(A)(i) of the Bankruptcy Code.

The Employees have met the standard of “actual, necessary costs and expenses of

preserving the estate” in general terms as stated in § 503(b)(1)(A), but as mentioned above, there

are also specific categorical inclusions of claims that fall within this category. One of them is set

forth in subparagraph (i) of that section: “wages, salaries, and commissions for services rendered

after the commencement of the case . . . .” The Remaining Bonus Incentive Payments fit within

this category and should be allowed as administrative claims without the necessity of making a

separate analysis about the extent of the benefit conferred.


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C. Allowance Pursuant To § 503(b)(1)(A)(iii)(D) of the Bankruptcy Code.

Additionally, the Employees’ claims for Remaining Incentive Payments should be

allowed as administrative claims because they were incurred by the Employees in making a

substantial contribution in this case. The Third Circuit has determined that a substantial

contribution has been made if “the efforts of the applicant resulted in an actual and demonstrable

benefit to the debtor’s estate and the creditors.” Lebron v. Mechem Fin. Inc., 27 F.3d 937, 944

(3rd Cir. 1994). The Remaining Bonus Incentive Payments fall squarely within this category

because the Employees entitled to the Remaining Incentive Payments kept the Debtors’

operations afloat postpetition, which resulted in a higher return to all creditors, and should be

allowed as administrative claims independently of the grounds described in other subsections of

§ 503(b).

B. Allowance Pursuant To § 503(b)(1)(A)(ii).

Finally, the Employees’ claims for Remaining Bonus Incentive Payments should be

allowed as administrative claims under subsection (ii) to the extent that they are federal or state

employment law claims. As stated below, the Employees have not yet brought an action to

determine their claims under federal or state employment law, but the statute of limitations to do

so has not yet passed. To the extent that the Trust is otherwise successful in seeking disallowance

of the administrative claims asserted by the Employees, the Employees are entitled to enforce a

claim under federal or state employment law against the Debtors’ estates, which constitutes a

separate and independent ground for the allowance of these administrative claims pursuant to

§ 503(b)(1)(A)(ii) of the Bankruptcy Code.


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III. Reservation Of Rights.

The Employees are still investigating the facts surrounding this matter and reserve their

rights to assert other remedies, defenses, and grounds for allowance of their claims. For example,

as noted above the Employees have not yet brought a request for allowance of federal or state

employment law claims under § 503(b)(1)(A)(ii) of the Bankruptcy Code, which includes

requests for postpetition wages and benefits awarded from proceedings for violations of federal

and state law. Such claims vest as of the date of the employees’ termination, which would be a

postpetition claim in these proceedings and give rise to the allowance of an administrative claim.

See e.g., In re Powermate Holding Corp., 394 B.R. at 776-77 (federal WARN Act claim accrues

at time of employee termination). The proofs of claim filed by the Employees put the creditors

on notice that these claims were being asserted by virtue of having referenced employment-

related rights that had not been honored by the Debtors at the time of their termination.

Furthermore, the Employees were not allowed to vote on the Amended Plan, nor does it

appear that they were provided actual notice of any releases or injunctions in the Amended Plan

in the form of actual service of it and its accompanying Amended Disclosure Statement. Aside

from the issue of whether such injunctions or releases would even apply to them under these

circumstances as known creditors of these Debtors, the Employees reserve to commence an

adversary proceeding under Fed. R. Bankr. P. 7001 or any applicable proceeding in a court or

tribunal with proper jurisdiction in connection with any violations of federal and state

employment law. Should this occur, the Employees are reserving their right to assert an

additional basis for their administrative claims under § 503(b)(1)(A)(ii) of the Bankruptcy Code.

Moreover, at the time of confirmation of the Amended Plan, the plan proponents were on

notice that the Employees had filed claims (well over a year before confirmation) which included


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the Remaining Bonus Incentives totaling approximately $516,697.95 (as well as other similar

claims by former employees other than the Employees herein). Curiously, they listed certain

claims as unimpaired and estimated them under the Amended Disclosure Statement at only

$100,000 without explaining what those claims were or whether they are the Employees’ claims.

Nor does it appear that the Amended Disclosure Statement described in detail the Bonus Motion,

despite the procedural fireworks surrounding it, or otherwise hinted at any intentions by the Trust

to seek disallowance or expungement of the Employees’ claims as part of the execution of the

Plan. This means that the creditors of the Debtors that voted in favor of the Plan were relying

upon representations about the administrative claims without knowledge that parties were

asserting potential administrative claims over half a million dollars. The Employees therefore

reserve all rights with respect to the plan process. To the extent that confirmation was obtained

through improper or defective representations, the Employees reserve whatever rights may exist

to address that issue.

CONCLUSION

For the foregoing reasons, the Claim Objection should be overruled and the Cross-

Motion should be granted.

Dated: June 12, 2014 Respectfully submitted, Wilmington, Delaware

HILLER & ARBAN, LLC /s/ Adam Hiller Adam Hiller (DE No. 4105) Brian Arban (DE No. 4511) 1500 North French Street, 2nd Floor Wilmington, Delaware 19801 (302) 442-7676 telephone (302) 442-7045 facsimile [email protected] Attorneys for the Employees


IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re BLITZ U.S.A., INC., et al. Debtors.

Chapter 11 Case Nos. 11-13603-PJW, et seq. (Jointly Administered)

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on June 12, 2014, I caused copies of the foregoing

MEMORANDUM OF LAW IN SUPPORT OF (I) RESPONSE OF CERTAIN FORMER

EMPLOYEES TO FIRST OMINBUS OBJECTION OF THE BLITZ LIQUIDATING TRUST

TO PROOFS OF CLAIM FILED BY FORMER EMPLOYEES FOR BONUSES PURSUANT

TO EBITDA BASED BONUS PLAN (SUBSTANTIVE OBJECTION); AND (II) CROSS-

MOTION BY CERTAIN FORMER EMPLOYEES FOR ALLOWANCE OF

ADMINISTRATIVE CLAIMS PURSUANT TO 11 U.S.C. § 503(b) to be served via first-class

mail, postage prepaid, upon the parties listed on the attached matrix.

Dated: June 12, 2014 /s/ Adam Hiller

Wilmington, Delaware Adam Hiller (DE No. 4105) HILLER & ARBAN, LLC 1500 North French Street, 2nd Floor Wilmington, DE 19801 (302) 442-7676 telephone (302) 442-7045 facsimile

Case 11-13603-PJW Doc 2317-1 Filed 06/12/14 Page 1 of 1

Ashby & Geddes PA William P Bowden & Leigh Anne M

Raport 500 Delaware Ave 8th Fl

PO Box 1150 Wilmington, DE 19899-1150

Baker Donelson Bearman Caldwell & Berkowitz PC

James H White IV Wells Fargo Tower

420 N 20th St Ste 1600 Birmingham, AL 35203-5202

BANK OF OKLAHOMA PAUL MESMER

BANK OF OKLAHOMA TOWER TULSA, OK 74192-0001

BEKUM AMERICA CORPORATION ATTN OWEN JOHNSTON 1140 W. GRAND RIVER

WILLIAMSTON, MI 48895-0567

BLITZ USA INC ATTN ROCKY FLICK 309 NORTH MAIN ST

MIAMI, OK 74354

CAVAZOS, HENDRICKS, POIROT & SMITHAM, P.C.

CHARLES B. HENDRICKS 900 JACKSON STREET

SUITE 570, FOUNDERS SQUARE DALLAS, TEXAS 75202-4425

COZEN O'CONNOR MARK E FELGER

1201 N MARKET ST STE 1001 WILMINGTON, DE 19801

CRESTWOOD HOLDINGS C/O BERGAN LLC

27600 SOUTH HIGHWAY 125 MONKEY ISLAND, OK 74331

Cross & Simon LLC Christopher P Simon & Kevin S Mann

913 N Market St 11th Fl PO Box 1380

Wilmington, DE 19899-1380

DAVID CALDER C/O THE ANDERSON LAW FIRM

4245 KEMP SUITE 810

WICHITA FALLS, TX 76308

David Christian Attorneys LLC David Christian

3515 W 75th St Ste 208 Prairie Village, KS 66208

DELAWARE DEPT OF JUSTICE ATTN BANKRUPTCY DEPT 820 N FRENCH ST 6TH FL WILMINGTON, DE 19801

DELAWARE SECRETARY OF THE STATE

DIVISION OF CORPORATIONS FRANCHISE TAX

PO BOX 898 DOVER, DE 19903

DELAWARE SECRETARY OF THE TREASURY

820 SILVER LAKE BLVD STE 100 DOVER, DE 19904

DELAWARE SECRETARY OF THE TREASURY PO BOX 898

DOVER, DE 19903

DIVISION OF UNEMPLOYMENT INS DEPARTMENT OF LABOR 4425 N MARKET STREET WILMINGTON, DE 19802

ENTEC POLYMERS LLC ATTN MELANIE Q. BOURBONNAIS

1900 SUMMIT TOWER BLVD. SUITE 900

ORLANDO, FL 32810

ERIC BALCH C/O WATTS GUERRA & CRAFT

4 DOMINION DRIVE BLDG. ONE

SAN ANTONIO, TX 78257

Foran Glennon PalandechPonzi & Rudloff PC

Susan N.K Gummow 222 N LaSalle St Ste 1400

Chicago, IL 60601

FOX SWIBEL LEVIN & CARROLL LLP MARGARET M ANDERSON ESQ 200 W MADISON ST STE 3000

CHICAGO, IL 60606

GE CAPITAL RETAIL BANK C/O RECOVERY MANAGEMENT

SYSTEMS CORP. ATTN: RAMESH SINGH

25 SE 2ND AVENUE, SUITE 1120 MIAMI, FL 33131-1605

Huang Law LLC Xiaojuan Carrie Huang

3513 Concord Pike Ste 3100 Wilmington, DE 19803

IBM CORPORATION ATTN MARIE-JOSEE DUBE

1360 RENE LEVESQUE W STE 400 MONTREAL, QC H3G 2W6

IKON OFFICE SOLUTIONS OLIVIA MOODY

3920 ARKWRIGHT RD ST 400 MACON, GA 31210

INTERNAL REVENUE SERVICE INSOLVENCY SECTION

31 HOPKINS PLZ RM 1150 BALTIMORE, MD 21201

INTERNAL REVENUE SERVICE CENTRALIZED INSOLVENCY

OPERATION PO BOX 7346

PHILADELPHIA, PA 19101-7346

INTERNAL REVENUE SERVICE CENTRALIZED INSOLVENCY

OPERATION 11601 ROOSEVELT BLVD

MAIL DROP N781 PHILADELPHIA, PA 19255-0002

INTERNATIONAL PAPER COMPANY

MARK A. WIKLUND 4049 WILLOW LAKE

BLDG. MSSC, ROOM 8-008 Mail Code M-19

MEMPHIS TN 38118

JARDEN PLASTIC SOLUTIONS ATTN MARK GETTIG

1303 SOUTH BATESVILLE ROAD GREER, SC 29650

Jones Ward PLC Lawerence L Jones

Marion E Taylor Bldg 312 S Fourth St 6th Fl Louisville, KY 40202


KAREN KORNEGAY C/O BRENEMAN

DUNGAN LLC 929 WALNUT STE 800

KANSAS CITY, MO 64106

KURTZMAN CARSON CONSULTANTS LLC

JOE MORROW 2335 ALASKA AVE

EL SEGUNDO, CA 90245

LANDIS, RATH & COBB LLP ADAM G LANDIS

919 MARKET ST STE 1800 WILMINGTON, DE 19899

LOCKTON, INC. CARLTON D. CALLENBACH

444 WEST 47TH STREET, SUITE 900 KANSAS CITY, MO 64112

LOWENSTEIN SANDLER PC KENNETH A ROSEN & SHARON L

LEVINE & JEFFREY D PROL 65 LIVINGSTON AVENUE

ROSELAND, NJ 07068

MARSHALL, DENNEHEY, WARNER, COLEMAN & GOGGIN

GARY H. KAPLAN 1220 N. MARKET STREET, 5TH FLOOR

P.O. BOX 8888 WILMINGTON, DE 19899

MCGUIREWOODS LLP WHITNEY R. TRAVIS & JOHN H.

MADDOCK III ONE JAMES CENTER

901 EAST CARY STREET RICHMOND, VA 23219

MEAGHER & GEER, P.L.L.P. CHARLES SPEVACEK

33 SOUTH SIXTH STREET, SUITE 4400 MINNEAPOLIS, MN 55402

Morris Haynes Hornsby Wheeles & Knowles

Jeremy Knowles 3500 Colonnade Pkwy Ste 100

Birmingham, AL 35243

MORRIS JAMES LLP BRETT D FALLON ESQ

500 DELAWARE AVE STE 1500 PO BOX 2306

WILMINGTON, DE 19899-2306

OFFICE OF THE UNITED STATES TRUSTEE DELAWARE

RICHARD SCHEPACARTER 844 KING ST STE 2207

LOCKBOX 35 WILMINGTON, DE 19899-0035

OFFICE OF THE US ATTORNEY GENERAL

JOSEPH R. BIDEN III CARVEL STATE OFFICE BUILDING

820 N FRENCH ST WILMINGTON, DE 19801

OMELVENY & MYERS LLP TANCRED SCHIAVONI GARY SVIRSKY

& JOHN B MCDONALD 7 TIMES SQ

NEW YORK, NY 10036

PHILLIPS GOLDMAN & SPENCE PA LISA C MCLAUGHLIN

1200 N BROOM ST WILMINGTON, DE 19806

POLSINELLI PC CHRISTOPHER A. WARD & JUSTIN K.

EDELSON 222 DELAWARE AVENUE SUITE 1101

WILMINGTON, DE 19801

RICHARDS LAYTON & FINDER PA DANIEL J. DEFRANCESCHI & MICHAEL

J. MERCHANT & JULIE A. FINOCCHIARO & AMANDA R. STEELE

ONE RODNEY SQUARE 920 NORTH KING ST

WILMINGTON DE 19801

RONALD W. MILLS C/O RICHARDSON PATRICK

WESTBROOK & BRICKMAN LLC 1730 JACKSON STREET

P.O. BOX 1368 BARNWELL, SC 29812

SECURITIES & EXCHANGE COMMISSION

SECRETARY OF THE TREASURY 100 F ST NE

WASHINGTON, DC 20549


Sharon Binger, Regional Director One Penn Center

1617 JFK Blvd Ste 520 Philadelphia, PA 19103


ALLEN MAIZA REGIONAL DIRECTOR 3 WORLD FINANCIAL CENTER ROOM

4300 NEW YORK, NY 10281


GEORGE S CANELLOS REGIONAL DIR 3 WORLD FINANCIAL CENTER STE 400

NEW YORK, NY 10281-1022

SHOOK HARDY & BACON LLP MARK MOEDRITZER

MISSOURI BAR NO 34687 2555 GRAND BLVD

KANSAS CITY, MO 64108

STATE OF DELAWARE DIVISION OF REVENUE

ZILLAH A FRAMPTON CSOB 8TH FL

820 N FRENCH STREET WILMINGTON, DE 19801

STEVENS & LEE, P.C. 1105 N. MARKET STREET, SUITE 700

WILMINGTON, DE 19801

STEVENS & LEE, P.C. LEONARD P. GOLDBERGER & JOHN C.

KILGANNON 1818 MARKET STREET, 29TH FLOOR

PHILADELPHIA, PA 19103

Stutman Treister & Glatt PC William P Weintraub Michael H Goldstein

Gregory Fox & Eamonn J OHagan 675 Third Ave Ste 2216 NEW YORK, NY 10017

TENNESSEE DEPARTMENT OF REVENUE

C/OTN ATTORNEY GENERAL'S OFFICE, BANKRUPTCY DIVISION

PO BOX 20207 NASHVILLE, TN 37202-0207


US ATTORNEY GENERAL ERIC HOLDER

US DEPARTMENT OF JUSTICE 950 PENNSYLVANIA AVE NW

WASHINGTON, DC 20530-0001

US ATTORNEYS OFFICE CHARLES OBERLY C O ELLEN

SLIGHTS 1007 ORANGE ST STE 700

PO BOX 2046 WILMINGTON, DE 19899-2046

WELTMAN, WEINBERG & REIS CO., L.P.A.

SCOTT D. FINK LAKESIDE PLACE, SUITE 200

323 W. LAKESIDE AVENUE CLEVELAND, OH 44113-1099


WHITE AND WILLIAMS LLP JAMES S. YODER

824 N. MARKET STREET, SUITE 902 P.O. BOX 709

WILMINGTON, DE 19899-0709

WHITTINGTON & AULGUR ROBERT T. AULGUR, JR., ESQ. &

KRISTI J. DOUGHTY, ESQ. 651 N. BROAD STREET, STE 206

P.O. BOX 1040 MIDDLETOWN, DE 19709-1040

WOMBLE CARLYLE SANDRIDGE & RICE

FRANCIS A MONACO JR & KEVIN J MANGAN & THOMAS HORAN

222 DELAWARE AVENUE SUITE 1501

WILMINGTON DE 19801


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