Post on 08-Sep-2020
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THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re: Chapter 11 John Varvatos Enterprises, Inc., et al., Debtors.1
Case No. 20-11043 (MFW) (Jointly Administered)
Hearing Date: August 11, 2020 at 10:30 a.m. Obj. deadline: July 20, 2020 at 4:00 p.m.
MOTION OF JOHN MCDONNELL
FOR RELIEF FROM THE AUTOMATIC STAY TO CONTINUE STATE COURT LITIGATION
John McDonnell (“Mr. McDonnell”) hereby submits, by and through his undersigned
counsel, this motion (the Motion”), pursuant to 11 U.S.C. § 362(d), Federal Rule of Bankruptcy
Procedure 4001 and Rule 4001-1 of the Local Rules of Bankruptcy Practice and Procedure of the
United States Bankruptcy Court for the District of Delaware (the “Local Rules”), for relief from
the automatic stay so that he may continue litigation pending against above-captioned debtor
John Varvatos Enterprises, Inc. (the “Debtor Defendant”) in the Supreme Court of the State of
New York, County of New York (the “State Court”). In support of the Motion, Mr. McDonnell
respectfully states as follows:
JURISDICTION
1. This Court has jurisdiction over this contested 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) and (G). The
statutory predicates for this motion are 11 U.S.C. § 362(d)(1) and Federal Rule of Bankruptcy
Procedure 4001 and Local Rule 4001-1.
1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number are as follows: John Varvatos Enterprises, Inc. (3554); Lion/Hendrix Corporation (8784); and John Varvatos Apparel Corp. (3394). The Debtors’ corporate headquarters and mailing address is 26 West 17th Street, 10th Floor, New York, NY 10011.
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2. Pursuant to Local Rule 9013-1(f), Mr. McDonnell hereby consents to the entry of
a final order or judgment by the Court if it is determined that the Court, absent consent of the
parties, cannot enter a final order or judgment consistent with Article III of the United States
Constitution.
BACKGROUND
3. On May 6, 2020 (the “Petition Date”), the above-captioned Debtors filed
voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Debtors continue to
operate their businesses and manage their properties as debtors in possession pursuant to sections
1107(a) and 1108 of the Bankruptcy Code. On May 18, 2020, the Office of the United States
Trustee for the District of Delaware (the ”U.S. Trustee”) appointed the Official Committee of
Unsecured Creditors (the “Committee”) [D.I. 94].
4. Prior to the Petition Date, on or about March 6, 2019, Mr. McDonnell
commenced an action (the “Action”) in the State Court by filing a complaint, which was later
amended (the “Amended Complaint”) on or about June 17, 2019, against defendants 122 Spring
Green Inc., Jon Pareles and John Varvatos Enterprises, Inc.2 The Action is docketed at Index No.
152366/2019 in the State Court. A copy of the Amended Complaint is attached hereto as Exhibit
A.
5. In the Amended Complaint, Mr. McDonnell states personal injury claims against
each of the defendants in the State Court Action related to an accident on or about November 30,
2018 in which Mr. McDonnell tripped over a metal object while on premises that were, among
2 John Varvatos Enterprises, Inc. is captioned as John Varvatos in the State Court Action.
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other things, allegedly owned, operated, managed, controlled, maintained, repaired and
supervised by defendants. As a result of the negligence of the Debtor Defendant and other
defendants and their respective servants, agents, employees and/or licensees, Mr. McDonnell
alleges, among other things, severe and permanent injuries, pain and suffering and continuing
medical expenses and losses.
6. The State Court Action is currently in the discovery phase. However, as a result of
the automatic stay, Mr. McDonnell cannot proceed against the Debtor Defendant. As a result,
the State Court Action has been effectively hindered.
RELIEF REQUESTED
7. By this Motion, Mr. McDonnell seeks relief from the automatic stay so that he
may pursue the Action to judgment or other resolution in the State Court and satisfy any judgment
or other resolution he may obtain against the Debtor Defendant from the proceeds of applicable
insurance policies available to the Debtor Defendant in the first instance. In addition, Mr.
McDonnell seeks a waiver of Fed.R.Bankr.P. 4001(a)(3) so that he may proceed with the State
Court Action immediately.
8. Section 362(d)(1) of the Bankruptcy Code provides that the Court shall grant
relief from the automatic stay, including terminating, annulling, modifying or conditioning the
stay for “cause.” 11 U.S.C. § 362(d)(1).
9. The term “cause” is not defined in the Bankruptcy Code, but rather must be
determined on a case-by-case basis. In re Rexene Products Co. (Izzarelli v. Rexene Products
Co.), 141 B.R. 574, 576 (Bankr. D. Del. 1992 (internal citations and quotations omitted). “Cause
is a flexible concept and courts often conduct a fact intensive, case-by-case balancing test,
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examining the totality of the circumstances to determine whether sufficient cause exists to lift the
stay.” In re SCO Group, Inc., 395 B.R. 852, 856 (Bankr. D. Del. 2007). Where parties seek to
proceed in another tribunal, “[I]t will often be more appropriate to permit proceedings to
continue in their place of origin, when no great prejudice to the bankruptcy estate would result,
in order to leave the parties to their chosen forum and to relieve the bankruptcy court from any
duties that may be handled elsewhere.” Rexene, 141 B.R. at 576 (quoting H.R.Rep. No. 595, 95th
Cong., 1st Sess., 341 (1977)). Debtor-defendants suffer little prejudice when they are sued by
plaintiffs who seek nothing more than declarations of liability that can serve as predicate for a
recovery against insurers, sureties, or guarantors. Int’l Bus. Machines v. Fernstrom Storage and
Van Co. (In re Fernstorm Storage and Van Co.), 938 F.2d 731, 736 (7th Cir. 1991).
10. Courts rely upon a three-pronged balancing test in determining whether “cause”
exists for granting relief from the automatic stay to continue litigation.
(1) Whether any great prejudice to either the bankrupt estate or the
debtor will result from continuation of the civil suit;
(2) Whether the hardship to the non-bankrupt party by maintenance of
the stay considerably outweighs the hardship to the debtor; and
(3) The probability of the creditor prevailing on the merits.
See In re SCO Group., 395 B.R. at 857.
12. Here, the facts weigh in Mr. McDonnell’s favor under each of the three prongs.
There is no prejudice to the Debtors to the extent the alleged liability in the State Court Action is
covered by insurance policies, as those funds would not inure to the benefit of the Debtors’
estates. Moreover, to the extent Mr. McDonnell’s claims are not covered by the Debtors’
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insurance policies, allowing Mr. McDonnell to pursue the State Court Action will liquidate his
claim, which will assist in the administration of claims in the Debtors’ bankruptcy proceedings
and is necessary in any event since the Bankruptcy Court lacks authority to try personal injury
claims. See 28 U.S.C. §157(b)(5) (“personal injury tort … claims shall be tried in the district
court in which the bankruptcy case is pending, or in … the district in which the claim arose …”).
13. In contrast, Mr. McDonnell will face substantial hardship if the stay is not lifted
and he is potentially required to litigate his claim against the Debtor Defendant in Delaware,
including the cost of bringing attorneys, witnesses and physical evidence to a state far from his
home. Moreover, allowing Mr. McDonnell’s claim to go forward against the Debtor Defendant
in the State Court will allow Mr. McDonnell to liquidate his claim in a forum that has expertise
with personal injury claims and is well suited to determine the value of his claim, further negating
any prejudice to the Debtors or their estates.
14. With respect to the final prong, the likelihood of success on the merits may be
satisfied by “[e]ven a slight probability of success on the merits.” American Airlines, Inc. v.
Continental Airlines, Inc. (In re Continental Airlines, Inc.), 152 B.R. 420, 426 (D. Del. 2006).
This is satisfied here by Mr. McDonnell’s meritorious claims of injury related to the incident
occurring on November 30, 2018.
15. For the reasons set forth above, Mr. McDonnell respectfully submits that ample
cause exists for relief from the automatic stay to permit him to liquidate his claim against the
Debtor Defendant by prosecuting the Action to judgment or other resolution and to satisfy any
such judgment or other resolution from applicable insurance coverage available to the Debtor
Defendant. Mr. McDonnell further submits a waiver of the 14-day period under Fed.R.Bankr.P.
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4001(a)(3) is appropriate in this instance to permit Mr. McDonnell to proceed immediately with
the State Court Action.
NOTICE
16. Mr. McDonnell has provided notice of the relief requested in this Motion to
Debtors’ counsel, the Office of the United States Trustee, the Official Committee of Unsecured
Creditors, and Counsel to the Debtor-in-Possession Lender in accordance with Local Rule 4001-
1.
WHEREFORE, Mr. McDonnell respectfully requests that the Court enter an order
substantially in the form attached hereto modifying the automatic stay to permit continuation of
Mr. McDonnell’s Action in the State Court and granting such other and further relief as the
Court deems appropriate.
Dated: July 6, 2020 ASHBY & GEDDES
_/s/ Benjamin W. Keenan____________ Gregory A. Taylor (ID #4008) Benjamin W. Keenan (ID #4724) 500 Delaware Avenue, 8th Floor P.O. Box 1150 Wilmington, DE 19899 (302) 654-1888 Email: gtaylor@ashbygeddes.com bkeenan@ashbygeddes.com
-and- KRENTSEL & GUZMAN, LLP Kevin Daly, Esq. 17 Battery Place – Suite 604 New York, NY 10004 (212) 227-2900 Email: KDaly@kglawteam.com
Counsel to John McDonnell
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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
John Varvatos Enterprises, Inc., et al.,
Debtors.1
Case No. 20-11043 (MFW) (Jointly Administered)
Hearing Date: August 11, 2020 at 10:30 a.m. Obj. deadline: July 20, 2020 at 4:00 p.m.
NOTICE OF MOTION OF JOHN MCDONNELL FOR RELIEF FROM THE AUTOMATIC STAY TO CONTINUE STATE COURT LITIGATION
PLEASE TAKE NOTICE that on July 6, 2020, John McDonnell filed his Motion for Entry of Order Granting Relief from the Automatic Stay to Continue State Court Litigation (the “Motion”) seeking relief from the automatic stay to continue litigation of a State Court Action (as defined in the Motion) in which Debtor John Varvatos Enterprises, Inc. is a defendant.
PLEASE TAKE FURTHER NOTICE that a hearing to consider approval of the Motion will be held on August 11, 2020 at 10:30 a.m. (prevailing Eastern Time) before The Honorable Mary F. Walrath at the United States Bankruptcy Court for the District of Delaware, 824 North Market Street, 5th Floor, Courtroom #4, Wilmington, Delaware 19801 (the “Hearing”).
PLEASE TAKE FURTHER NOTICE that responses, if any, to the Motion must be in writing in conformity with the Federal Rules of Bankruptcy Procedure and the Local Rules of the United States Bankruptcy Court for the District of Delaware, filed with the Bankruptcy Court, and served so as to be received by the undersigned counsel for Mr. McDonnell on or before July 20, 2020, at 4:00 p.m. (prevailing Eastern Time). Only properly and timely filed responses may be considered at the hearing.
PLEASE TAKE FURTHER NOTICE that the hearing date specified may be for a preliminary hearing or may be consolidated with the final hearing, as determined by the Court.
PLEASE TAKE FURTHER NOTICE that the attorneys for any participating parties shall confer in advance with respect to the issues raised by the Motion for the purpose of determining whether a consent judgment may be entered and/or for the purpose of stipulating to relevant facts.
1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number are as follows: John Varvatos Enterprises, Inc. (3554); Lion/Hendrix Corporation (8784); and John Varvatos Apparel Corp. (3394). The Debtors’ corporate headquarters and mailing address is 26 West 17th Street, 10th Floor, New York, NY 10011.
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Dated: July 6, 2020 ASHBY & GEDDES
_/s/ Benjamin W. Keenan____________ Gregory A. Taylor (ID #4008) Benjamin W. Keenan (ID #4724) 500 Delaware Avenue, 8th Floor P.O. Box 1150 Wilmington, DE 19899
(302) 654-1888Email: gtaylor@ashbygeddes.com
bkeenan@ashbygeddes.com -and-
KRENTSEL & GUZMAN, LLP Kevin Daly, Esq. 17 Battery Place – Suite 604 New York, NY 10004 (212) 227-2900Email: KDaly@kglawteam.com
Counsel to John McDonnell
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Exhibit A
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THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
John Varvatos Enterprises, Inc., et al.,
Debtors.1
Case No. 20-11043 (MFW) (Jointly Administered)
Related D.I.: ________
ORDER GRANTING MOTION OF JOHN MCDONNELL FOR RELIEF FROM THE AUTOMATIC STAY TO CONTINUE STATE COURT LITIGATION
Upon consideration of the Motion of John McDonnell (“Mr. McDonnell”) for Relief
from the Automatic Stay to Continue State Court Litigation (the “Motion”); and having
considered any objections thereto; and due and adequate notice of the Motion having been given;
and it appearing that no further or other notice is required; and after due deliberation and
sufficient cause appearing therefor, it is hereby
ORDERED, that the Motion is granted;
IT IS FURTHER ORDERED, that the automatic stay under 11 U.S.C. §362(a) be lifted
to the extent necessary to allow John McDonnell to liquidate his claim against the Debtor John
Varvatos Enterprises, Inc. in the Action2 pending in the Supreme Court of the State of New
York, County of New York, docketed as Index No. 152366/2019, by continuing to prosecute the
1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number are as follows: John Varvatos Enterprises, Inc. (3554); Lion/Hendrix Corporation (8784); and John Varvatos Apparel Corp. (3394). The Debtors’ corporate headquarters and mailing address is 26 West 17th Street, 10th
Floor, New York, NY 10011
2 Capitalized terms in this order shall have the meaning ascribed in the Motion.
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Action to judgment or other resolution, and to satisfy any such judgment or other resolution from
applicable insurance coverage available to the Debtor Defendant.
IT IS FURTHER ORDERED, that the stay of F.R.B.P. 4001(a)(3) is terminated as of
the date of this Order.
IT IS FURTHER ORDERED that this Court shall retain jurisdiction over any and all
matters arising from or related to the interpretation or implementation of this Order
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CERTIFICATE OF SERVICE
I, Benjamin W. Keenan, hereby certify that on July 6, 2020, I caused one copy of the
foregoing document to be served upon the parties below by e-mail and first class United States
mail, postage prepaid.
Derek C. Abbott Matthew O. Talmo Andrew R. Workman Morris, Nichols, Arsht & Tunnell 1201 N. Market Street P.O. Box 1347 Wilmington, DE 19899 (302) 658-9200 Email: dabbott@mnat.com
mtalmo@mnat.com aworkman@mnat.com
Timothy Jay Fox, Jr. Office of the United States Trustee U. S. Department of Justice 844 King Street, Suite 2207 Lockbox #35 Wilmington, DE 19801 302-573-6491 Email: timothy.fox@usdoj.gov
Eric R. Wilson, Esq. Jason R. Adams, Esq. Maeghan J. McLoughlin, Esq. Kayci G. Hines, Esq. KELLEY DRYE & WARREN LLP 101 Park Avenue New York, New York 10178 Telephone: (212) 808-7800 Facsimile: (212) 808-7897 Email: ewilson@kelleydrye.com jadams@kelleydrye.com mmcloughlin@kelleydrye.com khines@kelleydrye.com
Jeremy W. Ryan (DE Bar No. 4057) R. Stephen McNeill (DE Bar No. 5210) POTTER ANDERSON & CORROON LLP 1313 N. Market Street, 6th Floor Wilmington, Delaware 19801-3700 Telephone: (302) 984-6000 Facsimile: (302) 658-1192 Email: jryan@potteranderson.com
rmcneill@potteranderson.com
James L. Bromley, Esq. Jonathan M. Sedlak, Esq. Benjamin S. Beller, Esq. SULLIVAN & CROMWELL LLP 125 Broad Street New York, NY 10004 Telephone: (212) 558-4000 Email: bromleyj@sullcrom.com sedlakj@sullcrom.com bellerb@sullcrom.com
Pauline K. Morgan, Esq. Sean T. Greecher, Esq. YOUNG CONAWAY STARGATT & TAYLOR, LLP Rodney Square 1000 North King Street Wilmington, DE 19801 Telephone: (302) 571-6600 Email: pmorgan@ycst.com sgreecher@ycst.com
/s/Benjamin W. Keenan______________ Benjamin W. Keenan (#4724)
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