objection of us trustee objection to debtor's application of proposed settlement and compromise...

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UNITED STATES BANKRUPTCY COURT DISTRICT OF SOUTH CAROLINA

In re: Rosie’s of RH, LLC, Debtors.

Case No. 13-06856-hb Chapter 11

OBJECTION OF UNITED STATES TRUSTEE TO DEBTOR’S

APPLICATION OF PROPOSED SETTLEMENT AND COMPROMISE AND MEMORANDUM IN SUPPORT THEREOF

The United States Trustee (the “UST”) files this objection and responds to the debtor’s

application of proposed settlement and compromise filed on December 13, 2013 (the “Motion”).

The UST files this objection pursuant to the authority granted to her by 28 U.S.C. ' 586 and 11

U.S.C. ' 307.

The grounds for this objection are:

1. The debtor filed for relief under chapter 11 of the United States Bankruptcy Code on November 15, 2013. The first meeting of creditors was held on December 23, 2013. The debtor’s bankruptcy pleadings and the contract with Rewards Network1 were signed by Charles Lance. Mr. Lance also testified on behalf of the debtor at the first meeting of creditors. There has been no corporate authorization filed with the Court indicating that Mr. Lance2 has the authority to act on behalf of the debtor. Additionally, Mr. Lance testified that some may dispute whether he has that authority.

2. The Motion provides for Rewards Network to be paid $1,500 per month. However, it is not clear how this amount was reached. The agreement attached to the Motion reflects that the monthly payments due to Rewards Network are based on the amount that members spend and the percentage due to Rewards Network. Schedule D shows $1,500 is the arrears owed to Rewards Network. Thus, it is not clear if the $1,500 is the average amount due under the debtor’s

1 The amendment with Rewards Network was signed by David Green on behalf of the debtor. 2 On March 1, 2013, an order denying Mr. Lance a discharge of his debts in his individual bankruptcy case was entered. The case was filed in the Middle District of Florida, bearing case number 11-19272. The adversary proceeding was 12-00169.

Case 13-06856-hb Doc 25 Filed 01/02/14 Entered 01/02/14 10:03:02 Desc Main Document of 4

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agreement with Rewards Network or an attempt to pay the arrears in one month with possible overpayments thereafter.

3. The proposed order includes a finding that the Agreement constitutes an

executory contract. While the parties may agree to such a conclusion, there has been no evidence before the Court to include a finding that the agreement constitutes an executory contract. The UST requests that this paragraph is deleted. Order at ¶ 13.

The proposed order also includes a finding that the collateral is subject to wear and tear and is declining in value. The UST requests that this paragraph is deleted unless adequate evidence is offered to support the finding and the amount of the decline. Order at ¶ 14.

4. To the extent that the debtor and Rewards Network are seeking to add

collateral securing Rewards Network’s claim, the UST objects. (Order at ¶ D. p. 7). Rewards Network should only be provided a lien on the collateral of the same kind it held pre-petition, in the same priority, and to the extent that there is a diminution to its collateral.

5. The UST objects to Rewards Network receiving a super-priority administrative expense claim. (Order at ¶ B at p. 10). At the first meeting of creditors, Mr. Lance testified that the debtor was not current on its sales taxes, payroll taxes, and had not paid any post-petition rent. There is no evidence that Rewards Network should receive a super-priority claim over other administrative claims.

6. The proposed order allows the debtor to use the cash collateral to pay items in

the budget attached. Mr. Lance testified that payment of expenses for his personal vehicle are included in the budget, and that he is reimbursed by the debtor for the purchase of inventory rather than the debtor paying for the goods directly. The monthly operating report reflected that Mr. Lance was paid for pre-petition amounts due after the bankruptcy case was filed. The use of cash collateral for the items in the budget should not be approved until the debtor adequately demonstrates that the items benefit the estate and are appropriate expenditures.


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The UST asks the Court to deny the relief requested by the debtor unless it adequately

addresses the concerns raised herein.

JUDY A. ROBBINS UNITED STATES TRUSTEE REGION FOUR

By: /s/ Linda K. Barr Linda K. Barr, Id. 6284 Trial Attorney 1835 Assembly Street, Ste. 953 Columbia, SC 29201 (803) 765-5219 (803) 765-5260 (facsimile) [email protected]

Date: 1-2-14


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CERTIFICATE OF SERVICE

I, Linda K. Barr, do hereby certify that on January 2, 2014, I served the below-named documents upon the parties listed below by electronic mail and/or by electronic transmission through the Court=s Electronic Case Filing system to the participants thereof, to include:

OBJECTION OF UNITED STATES TRUSTEE TO DEBTOR’S APPLICATION OF PROPOSED SETTLEMENT AND COMPROMISE AND MEMORANDUM IN SUPPORT THEREOF

CERTIFICATE OF SERVICE L. Showell Blades, IV David C. Kimball Kyle A. Brannon

/s/ Linda K. Barr Linda K. Barr Trial Attorney Office of the United States Trustee 1835 Assembly Street, Ste. 953 Columbia, SC 29201 (803) 765-5219 [email protected]

Date: 1-2-14


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