Coda Recall Motion

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In re

UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF DELAWARE

Chapter 11

Case No. 13-11153 (CSS)Coda Holdings, Inc., et al.,

Debtors. 1Jointly AdministeredRequested Objection Deadline: May 24, 2013at 11:00 a.m. (EDT)Requested Hearing Date: May 29, 2013

- - - - - - - - - - - - - - - - - ' at 10:00 a.m. (EDT)MOTION OF CODA HOLDINGS, INC. AND ITS AFFILIATED DEBTORS

FOR ORDER, PURSUANT TO 11 U.S.C. 105(a) AND 363(b), AUTHORIZINGTHE DEBTORS TO CONDUCT A VOLUNTARY RECALL OF CODASEDANS TO REPLACE ROOF-MOUNTED SIDE CURTAIN AIRBAGS

Coda Holdings, Inc. and its affiliated debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the "Debtors"), hereby file their motion for an order,pursuant to sections 105(a) and 363(b) oftitle 11 ofthe United States Code, authorizing theDebtors to conduct a voluntary recall of CODA Sedans to replace roof-mounted side curtainairbags (the "Motion"). In support of the Motion, the Debtors respectfully represent:

I. PRELIMINARY STATEMENTThe Debtors hereby request authority to conduct a voluntary recall to address a

potential safety issue in their vehicle marketed as the "CODA Sedan." The total cost of thecontemplated voluntary recall will not exceed $40,000. Although the Debtors believe that the

The Debtors in these chapter II cases, along with the last four digits of their respective federal employeridentification numbers, are: Coda Holdings, Inc. ( 1892); Cocla Automotive, Inc. (6800); Coda Energy LLC (3053);Coda Automotive (CA), Inc. (91 09); and EnergyCS LLC ( 1359)

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voluntary recall they propose to conduct is an ordinary course activity, they seek Courtauthorization to proceed in an abundance of caution.

The contemplated recall concerns the side curtain airbags in the CODA Sedan. Inthe course ofNHTSA crash testing earlier this year, it was observed that the side curtain airbagsin the vehicle did not deploy as intended upon impact. Although the deployment was found to becompliant with applicable standards, the sub-optimal deployment may result in sub-optimalprotection for vehicle occupants in the event of a crash. There are no known incidents or injuriesrelating to this condition. However, given the small cost of performing the recall, the fact thatcustomer safety is implicated, and the fact that the Debtors' debtor in possession financingproviders have consented to the use of their cash collateral to conduct the voluntary recall, theDebtors view the voluntary recall as well justified under the circumstances. Conducting thevoluntary recall will be beneficial not only to CODA Sedan owners and other occupants of theirvehicles; but will also serve to protect the Coda name for the benefit of the Debtors' estates.

For all of these reasons, and as more fully set forth herein, the Debtorsrespectfully request that the Court grant the Motion.

II. BACKGROUNDA. General Background1. On May 1, 2013 (the "Petition Date"), each ofthe Debtors filed a voluntary

petition for relief under chapter 11 of the Bankruptcy Code, thereby commencing the abovecaptioned chapter 11 cases (the "Chapter 11 Cases"). The Chapter 11 Cases are jointlyadministered for procedural purposes only.

2. The Debtors continue to manage their properties as debtors in possession pursuantto sections 1107(a) and 1108 ofthe Bankruptcy Code.

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3. On May 10,2013, the Office ofthe United States Trustee appointed the OfficialCommittee of Unsecured Creditors. To date, not trustee or examiner has been appointed in theDebtors' cases.

4. Prior to the Petition Date, the Debtors developed the CODA Sedan, an all-electricpassenger car that boasts a longer and more dependable range than any non-luxury electricpassenger car currently on the market. Following unanticipated delays in bringing the car tomarket, deliveries ofthe CODA Sedan did not begin until March of2012, approximately a yearlater than originally scheduled. Due to a variety of factors, including (i) loss of competitive

advantage resulting from the delayed release; (ii) insufficient capitalization to effectively marketand sell the CODA Sedan; (iii) slower than anticipated growth in demand for EV s, generally; and(iv) adverse macroeconomic market conditions; the Debtors sold fewer than 100 CODA Sedans,falling well short of the Debtors' expectations.,.

!B. Background Specific to the Motion

; 5. The National Highway and Transportation Safety Authority ("NHTSA")conducted side impact crash testing of the CODA Sedan in March of2013. During the course ofthis testing, NHSTA observed that the side curtain airbag on the drivers' side ofthe subjectvehicle did not deploy as intended. Although NHTSA determined that the CODA Sedan tested

' ' in compliance with applicable side impact standards, the sub-optimal airbag deployment led toan investigation.

6. Following the investigation into the sub-optimal airbag deployment, investigatorsconcluded that the roof-mounted side curtain airbags in the CODA Sedan test vehicle were notassembled correctly by the supplier prior to installation in the vehicle. Specifically, investigators

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detennined that the inflatable fabric pouch contained within the airbag unit was not properlyrolled (in its deflated state) such that it would unroll and inflate as intended upon deployment.

7. There are no known incidents or injuries relating to improper deployment of aside curtain airbag installed in any consumer's CODA Sedan. Nonetheless, upon their belief thatthe condition identified by investigators may exist in other model year 2012 CODA Sedans, theDebtors (prior to the Petition Date) ordered replacement side curtain airbag units, certified by thesupplier to be properly rolled, for the purposes of conducting a voluntary recall.

8. The Debtors detennined to conduct a voluntary recall, without a mandate from

NHSTA, due to the significance ofthe side curtain airbags in the CODA Sedan's suite of safetyfeatures and the relatively low cost of the repair. Specifically, the side curtain airbags in theCODA Sedan are intended to help minimize or reduce hann to the head of an occupant seatedadjacent to the doors on the side of the impact in the event of a side impact collision requiringthe deployment of the airbag. If a side curtain air bag is not manufactured properly, it maydeploy improperly, thereby reducing its effectiveness. Having already paid for the parts, theDebtors now estimate that the remaining cost to conduct the voluntary recall will not exceed$40,000.

9. The Debtors' debtor in possession financing providers (the "DIP Lenders") haveconsented to the use of their cash collateral to conduct the voluntary recall in an amount not toexceed $40,000.

I0. Upon an order authorizing the Debtors' contemplated voluntary recall of the roof-mounted side curtain airbags in the CODA Sedan, the Debtors propose to proceed as follows (the"Voluntary Recall Campaign"):

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a. The Debtors will notify by mail each owner of an affected CODA Sedan of thesuspected defect. The letter will advise the owner to bring the owner's affectedCODA Sedan to any participating current or former CODA dealer (each, a"Repair Facility"), which will, without charge to the owner, replace both roofmounted side curtain airbags in the affected CODA Sedan with supplier-certifiedunits already obtained by the Debtors.

b. The Debtors will, in turn, reimburse each Repair Facility for the side curtainairbag replacement work it conducts in connection with the Voluntary RecallCampaign at such Repair Facility's shop rates in effect at the time of this Motion,2provided, however, that the number of hours for which a Repair Facility shall beentitled to reimbursement shall be capped at 2.4 hours per CODA Sedan as towhich such Repair Facility completes the side curtain airbag replacement workunless otherwise agreed to in writing with the Debtors.For the avoidance of doubt, by this Motion, the Debtors do not intend to assume

any agreements or other obligations with current or former CODA Dealers other than asexpressly set forth herein.

I2. For the further avoidance of doubt, by this Motion, the Debtors do not intend to assume any warranty obligations in respect of the CODA Sedan. To the extent that, during the;' l

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course of these Chapter II Cases, the Debtors determine that it is in the best interests of theDebtors' estates to conduct any additional recall or other services in respect of the CODA Sedan,they may seek additional authority from the Court to do so. Any decision to seek such additionalauthorization (as it was in respect of the Voluntary Recall Campaign) shall be made on a case-by-case basis, taking into consideration, among other things, (a) the cost of the service; (b) thebenefits to be provided by the services; (c) any potential adverse impact on the CODA name offailing to perform the service; and (d) the availability of funds to perform the service (including,without limitation, those funds authorized for use by the DIP Lenders).

Such rates range from $115 per hour to $142 per hour.

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III. JURISDICTION AND VENUE13. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. 157

and 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue is proper before thisCourt pursuant to 28 U.S.C. 1408 and 1409.

IV. RELIEF REQUESTED14. By the Motion, pursuant to sections 105(a) and 363(b) of the Bankruptcy Code,

the Debtors request entry of an order, substantially in the form attached hereto as Exhibit A,'' authorizing the Debtors to expend an amount not to exceed $40,000 in conducting the Voluntary

Recall Campaign.V. BASIS FOR RELIEF REQUESTED

15. The Debtors believe that conducting the Voluntary Recall Campaign falls within, the ordinary course of their businesses such that the authority vested in the Debtors pursuant to

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sections 11 07(a) and 1108 of the Bankruptcy Code is sufficient to permit them to proceed.However, in order to avoid a potential challenge to the Debtors' actions after the fact, theDebtors seek authority pursuant to sections 105(a) and 363(b)(l) of the Bankruptcy Code in anabundance of caution.

16. Section 363 (b)( 1) of the Bankruptcy Code provides tha t the debtor in possession,"after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business,property of the estate." 11 U.S.C. 363(b)(l). The use, sale, or lease of property of the estate,other than in the ordinary course of business, is authorized when a "sound business purpose"justifies such action. In re Montgomery Ward Holding Corp., 242 B.R. 142, 147 (D. Del. 1999);In re Shubh Hotels Pittsburgh, LLC, 439 B.R. 637,639 (Bankr. W.O. Pa. 2010); see also In re

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Lionel Corp., 722 F.2d 1063, 1071 (2d Cir. 1983); In re Continental Air Lines, Inc., 780 F.2d1223, 1226 (5th Cir. 1986).

17. The Debtors can easily articulate a sound business reason for conducting theVoluntary Recall Campaign, and submit that doing so comports with their duties as debtors inpossession to preserve the value of the Debtors' estates. First, the cost of the Voluntary RecallCampaign is slight in light of the interests at issue. Having already paid the cost of obtainingreplacement roof-mounted side curtain airbags (which are of little value, if any, to the Debtors'estates if not put to their intended use in the Voluntary Recall Campaign), paying an amount of

up to $40,000 a small price to pay to ensure that this safety system in the CODA Sedan is asrobust as it was designed and intended to be.

18. Second, maintaining a proactive approach with respect to this matter protects thevalue of the CODA brand. The CODA name is an asset in which the Debtors have investedheavily and is likely to represent a valuable asset to a buyer. In order to maximize the value ofthe CODA name to buyers, and therefore the Debtors' estates, the Debtors submit that takingappropriate steps to avoid negative associations with the CODA name that may arise from failureto address a known potential safety issue in a CODA product makes good business sense

19. Third, though the Debtors are not currently actively engaged in the automotivebusiness, the Debtors believe that maintaining favorable relations with NHTSA is in the bestinterests of the Debtors and theirs estates. Among other things, preserving favorable relationswith NHTSA preserves optionality to the Debtors and any buyer of their automotive assets to

' ', smoothly resume operations of those assets. Although NHSTA has not directed the Debtors toconduct the Voluntary Recall Campaign, to the extent that their view of the sub-optimal

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deployment of the roof-mounted side curtain air bags may be subject to change, the Debtors andtheir relations with NHSTA could be adversely affected.

20. For all of the foregoing reasons, the Debtors submit that the Voluntary RecallCampaign is an appropriate exercise of their business judgment and request authority to proceedwith such campaign.

VI. WAIVER OF STAY21. The Debtors further request a waiver of any stay ofthe effectiveness of the order

approving this Motion to the extent such an order is entered. Pursuant to Bankruptcy Rule6004(h), "[a]n order authorizing the use, sale, or lease of property other than cash collateral isstayed until the expiration of 14 days after entry of the order, unless the court orders otherwise."Fed. R. Bankr. P. 6004(h). As set forth above, the relief requested herein is modest andconsented to by the DIP Lenders. Moreover, the relief relates to a potential safety issue affectingusers of the CODA Sedan. Accordingly, the Debtors submit that ample cause exists to justify awaiver of the fourteen-day stay imposed by Bankruptcy Rule 6004(h), to the extent it applies.

VII. NOTICE22. Notice of this Motion has been provided to the Office of the United States Trustee

for the District of Delaware, the DIP Agent, the Notes Agent, the Bridge Agent, the Term LoanAgent, the Second Term Loan Lender (as those terms are defined in the Declaration ofJohn PMadden In Support ofFirst Day Motions and Applications [D.I. 10)) and their respectivecounsel, the Debtors' 30 largest unsecured creditors on a consolidated basis (including counsel ifknown), proposed counsel to the Official Committee ofUnsecured Creditors, and all partiesrequesting notices pursuant to Federal Rule of Bankruptcy Procedure Rule 2002. The Debtorssubmit that no other or further notice need be provided.

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23. No previous motion for the relief sought herein has been made to this or any othercourt.

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VIII. CONCLUSIONWHEREFORE, the Debtors respectfully request that the Court (a) enter an order

substantially in the form attached hereto as Exhibit A; and (b) grant such additional relief as theCourt deems just and proper.Dated: May 13,2013

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FOX ROTHSCHILD LLP

By: ~e f ~ f . s c h i e i J (No. 3047)John H. Strock (No 4965)

L. John Bird (No. 5310)91 9 Market Street, Suite 1600Wilmington, Delaware I 980 ITelephone: (302) 654-7444Facsimile: (302) 656-8920

- a n d -WHITE & CASE LLPJohn K. Cunningham (pro hac vice)200 South Biscayne Boulevard, Suite 4900Miami, Florida 33131Telephone: (305) 995-5252Facsimile: (305) 358-5744Roberto J. Kampfner (pro hac vice)633 West Fifth Street, Suite 1900Los Angeles, California 90071Telephone: (213) 620-7700Facsimile: (213) 452-2329Proposed Attorneys for the Debtorsand Debtors in Possession


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Exhibit A

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In re

UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF DELAWARE

Chapter 11

Case No. 13-11153 (CSS)Coda Holdings, Inc., et a!.,

Jointly AdministeredDebtors. 1 Related to Docket No.:

ORDER, PURSUANT TO 11 U.S.C. lOS(a) AND 363(b), AUTHORIZINGTHE DEBTORS TO CONDUCT A VOLUNTARY RECALL OF CODA

SEDANS TO REPLACE ROOF-MOUNTED SIDE CURTAIN AIRBAGSUpon consideration of the motion (the "Motion") 2 of Coda Holdings, Inc. and its

affiliated debtors and debtors in possession in the above-captioned chapter 11 cases (collectively,the "Debtors") for an order, pursuant to sections 105(a) and 363(b) oftitle 11 ofthe UnitedStates Code, authorizing the Debtors to conduct a voluntary recall of CODA Sedans to replaceroof-mounted side curtain airbags; and it appearing that the Court has jurisdiction over thismatter; and it appearing that notice of the Motion is sufficient, and that no other or further noticeneed be provided; and it appearing that the relief requested in the Motion is in the best interestsof the Debtors and their estates and creditors; and upon all ofthe proceedings had before theCourt; and after due deliberation and sufficient cause appearing therefor, it is hereby

ORDERED that the Motion is granted as set forth herein; and it is further

The Debtors in these chapter II cases, along with the last four digits of their respective federal employeridentification numbers, are: Coda Holdings, Inc. (1892); Coda Automotive, Inc. (6800); Coda Energy LLC (3053);Coda Automotive (CA), Inc. (9109); and EnergyCS LLC (1359).Where the context requires, each capitalized term used but not otherwise defined herein shall have the meaningascribed to such term in the Motion.

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ORDERED that the decision to initiate the Voluntary Recall Campaign is made ingood faith and in the Debtors' reasonable business judgment; and it is further

ORDERED that the Debtors are authorized, but not directed, to expend an amountnot to exceed $40,000 to, as set forth in the Motion, to

a. Notify each owner of a CODA Sedan that is suspected to contain a roof-mountedside curtain airbag that was not properly manufactured that such owner (a) owns aCODA Sedan that may contain such a defect; and (b) may bring the affectedCODA Sedan to a Repair Facility, which will, without charge to the owner,replace both roof-mounted side curtain airbags in the affected CODA Sedan withsupplier-certified units already obtained by the Debtors; and

b. Reimburse each Repair Facility that conducts the side curtain airbag replacementwork in connection with the Voluntary Recall Campaign at a rate of up to 2.4hours per CODA Sedan as to which such work is completed, at such RepairFacility's rates in effect as of the date of the Motion, provided that the Debtorsmay pay a Repair Facility reimbursement for work in excess of 2.4 hours on avehicle-by-vehicle basis where circumstances warrant and the Debtors and theRepair Facility have agreed to such additional payment in writing in advance ofcompletion ofthe repair;

and it is further

ORDERED that nothing in this Order does or shall be construed to constitute anassumption of any warranty or similar obligations ofthe Debtors in respect ofthe CODA Sedan;and it is further

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ORDERED that nothing in this Order does or shall be construed to constitute anassumption of any agreement or other obligations with any current or former CODA dealer; andit is further

ORDERED that, the Debtors are authorized to take all actions necessary toimplement the relief granted in this Order; and it is further

ORDERED that this Court shall and does retain jurisdiction to hear and determineall matters arising from or related to the implementation of this Order.

Dated: Wilmington, Delaware------' 013

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The Honorable Christopher S. SontchiUnited States Bankruptcy Judge

Coda Recall Motion

Documents

Transcript of Coda Recall Motion