Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 1 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

Richard M. Pachulski (CA Bar No. 90073) James I. Stang (CA Bar No. 94435) Dean A. Ziehl (CA Bar No. 84529) Linda F. Cantor (CA Bar No. 153762) Debra I. Grassgreen (CA Bar No. 169978) PACHULSKI STANG ZIEHL & JONES LLP 10100 Santa Monica Blvd., Suite 1300 Los Angeles, CA 90067-4114 Telephone: 310/277-6910 Facsimile: 310/201-0760 E-mail: rpachulski@pszjlaw.com jstang@pszjlaw.com dziehl@pszjlaw.com lcantor@pszjlaw.com dgrassgreen@pszjlaw.com Proposed Attorneys for Debtor and Debtor in Possession UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SANTA ANA DIVISION In re: Case No.: 12-_____ (___) Chapter 11 NOTICE OF EMERGENCY MOTION AND EMERGENCY MOTION OF THE DEBTOR FOR ORDER AUTHORIZING PAYMENT OF PREPETITION CLAIMS OF CRITICAL VENDORS; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF [Declaration of M. Freddie Reiss, Proposed Chief Restructuring Officer, in Support of Emergency First Day Motions Filed Concurrently Herewith]

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16

American Suzuki Motor Corporation,1 Debtor.

17 18 19 20 21 22 23 24 25 26 27 28
DOCS_LA:256783.9 12832/001

TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE, THE DEBTORS PREPETITION AND POSTPETITION LENDER, THE CREDITORS APPEARING ON THE LIST FILED IN ACCORDANCE WITH RULE 1007(D) OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE, PARTIES REQUESTING SPECIAL NOTICE, AND THE OFFICE OF THE UNITED STATES TRUSTEE:
The last four digits of the Debtors federal tax identification number are (8739). The Debtors address is: 3251 East Imperial Highway, Brea, CA 92821.
1

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 2 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

PLEASE TAKE NOTICE that American Suzuki Motor Corporation, the debtor and debtor in possession in the above-captioned case (the Debtor), hereby moves the Court on an emergency basis pursuant to Local Bankruptcy Rules 2081-1(a)(12) and 9075-1(a) for entry of an order, pursuant to sections 105(a) and 363 of title 11 of the United States Code (the Bankruptcy Code) authorizing, but not directing, the Debtor to pay, in its sole discretion, prepetition claims of essential goods and service providers necessary for the Debtor to operate its business (Critical Vendors). The basis for the relief requested in this Motion is set forth below and in the Declaration of M. Freddie Reiss, Proposed Chief Restructuring Officer, in Support of Emergency First Day Motions (the Reiss Declaration), which is being filed concurrently with this Motion and is incorporated herein by reference. PLEASE TAKE FURTHER NOTICE that the Debtor will experience irreparable harm if the Critical Vendors are not paid as proposed in the attached Memorandum of Points and Authorities. The Debtor requires the goods and services supplied by the Critical Vendors because they are essential to the operation of its ongoing businesses and the preservation of the Debtors business as a going concern enterprise. The Critical Vendors fall into one of these general categories: (i) sole-source suppliers or original equipment manufacturers (OEM) whose goods are irreplaceable in the marketplace and without which the Debtor would not be able to sell its products or provide critical warranty and service repair for its products; (ii) suppliers of parts and accessories who, although the Debtor may be able to eventually replace, because of quality control issues, cannot be replaced without a lengthy approval process, which could take years; (iii) vendors who maintain the Debtors information technology systems, including the Debtors website and its internal dealer network systems, who have gained specialized knowledge of the Debtors operations and cannot be easily replaced without months of disruption to bring another vendor up to speed; and (iv) various vendors or claims relating to government requirements or regulations. PLEASE TAKE FURTHER NOTICE that because the Debtors Critical Vendors are vital to the Debtors ability to continue to operate its business, the Debtor, pursuant to Local Rules 2081-1

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

2
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 3 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

and 9075-1(a),2 requests that this Motion be heard on an emergency basis. Granting the relief requested in this Motion on an emergency basis will benefit the Debtors estate immediately as set forth above. PLEASE TAKE FURTHER NOTICE that the Motion is based on this Notice and Motion, the Notice of Emergency Motions that will be filed and served upon obtaining a hearing date for the Debtors First Day Motions, the attached Memorandum of Points and Authorities, the Declaration of M. Freddie Reiss in Support of Emergency First Day Motions (the Reiss Declaration) filed concurrently herewith, the arguments of counsel and other admissible evidence properly brought before the Court at or before the hearing on this Motion. In addition, the Debtor requests that the Court take judicial notice of all documents filed with the Court in this case. PLEASE TAKE FURTHER NOTICE that any opposition or other response to the Motion must be filed with the Court and served on proposed counsel for the Debtor at the above address any time before the hearing or may be presented at the hearing on the Motion at the time and place set forth above. Failure to timely object may be deemed by the Court to constitute consent to the relief requested herein. PLEASE TAKE FURTHER NOTICE that the Debtor will serve this Notice and Motion and the attached Memorandum of Points and Authorities on: (a) the Office of the United States Trustee, (b) the creditors appearing on the list filed in accordance with Rule 1007(d) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), (c) counsel to Suzuki Motor Corporation, the Debtors prepetition and postpetition lender, and (d) the parties that file with the Court requests for notice of all matters in accordance with Bankruptcy Rule 2002. To the extent necessary, the Debtor requests that the Court waive compliance with Local Bankruptcy Rule 9075-1 and approve service (in addition to the means of service set forth in such Local Bankruptcy Rule) by overnight or electronic delivery. In the event that the Court grants the relief requested by the Motion, the Debtor shall provide notice of the entry of the order granting such relief upon each of the foregoing parties

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Pursuant to Local Bankruptcy Rule 9075-1(a)(3), no separate motion for an expedited hearing is required.

28 3
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 4 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

and any other parties-in-interest as the Court directs. The Debtor submits that such notice is sufficient and that no other or further notice be given. WHEREFORE, for all the foregoing reasons and the reasons stated in the attached Memorandum of Points and Authorities, and such additional reasons as may be advanced at or prior to the hearing on this Motion, the Debtor respectfully requests that this Court enter an order, (a) authorizing, but not directing, the Debtor to pay prepetition claims of the Critical Vendors, (b) authorizing and directing applicable banks and other financial institutions to receive, process, honor and pay all checks presented for payment in connection therewith, and (c) granting such other and further relief as is just and proper under the circumstances. Dated: November 5, 2012 PACHULSKI STANG ZIEHL & JONES LLP By: /s/ Debra I. Grassgreen Richard M. Pachulski James I. Stang Dean A. Ziehl Linda F. Cantor Debra I. Grassgreen Proposed Attorneys for Debtor and Debtor in Possession

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

4
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 5 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

Richard M. Pachulski (CA Bar No. 90073) James I. Stang (CA Bar No. 94435) Dean A. Ziehl (CA Bar No. 84529) Linda F. Cantor (CA Bar No. 153762) Debra I. Grassgreen (CA Bar No. 169978) PACHULSKI STANG ZIEHL & JONES LLP 10100 Santa Monica Blvd., Suite 1300 Los Angeles, CA 90067-4114 Telephone: 310/277-6910 Facsimile: 310/201-0760 E-mail: rpachulski@pszjlaw.com jstang@pszjlaw.com dziehl@pszjlaw.com lcantor@pszjlaw.com dgrassgreen@pszjlaw.com Proposed Attorneys for Debtor and Debtor in Possession UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SANTA ANA DIVISION In re: Case No.: 12-_____ (___) Chapter 11 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF EMERGENCY MOTION OF THE DEBTOR FOR ORDER AUTHORIZING PAYMENT OF PREPETITION CLAIMS OF CRITICAL VENDORS [Declaration of M. Freddie Reiss, Proposed Chief Restructuring Officer, in Support of Emergency First Day Motions Filed Concurrently Herewith]

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16

American Suzuki Motor Corporation,1 Debtor.

17 18 19 20 21 22 23 24 25 26 27 28 1
DOCS_LA:256783.9 12832/001

The last four digits of the Debtors federal tax identification number are (8739). The Debtors address is: 3251 East Imperial Highway, Brea, CA 92821.

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 6 of 20 TABLE OF CONTENTS

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

I. BACKGROUND ............................................................................................................................... 2 A. Jurisdiction and Venue.............................................................................................................. 2 B. General Background ................................................................................................................. 2 II. RELIEF REQUESTED .................................................................................................................... 4 III. THE CRITICAL VENDORS ......................................................................................................... 5 1. Sole-Source Suppliers. .......................................................................................................... 5 2. Parts and Accessories Suppliers............................................................................................ 5 3. Information Technology Vendors. ........................................................................................ 5 4. Government-Related. ............................................................................................................ 6 B. Terms and Conditions of Payment of Critical Vendor Claims. ................................................ 6 IV. ARGUMENT.................................................................................................................................. 7 A. Necessity for Immediate Relief and Effectiveness of Order .................................................... 9 V. NOTICE ......................................................................................................................................... 10 VI. CONCLUSION............................................................................................................................. 10

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 7 of 20 TABLE OF AUTHORITIES

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

Cases Armstrong World Inds., Inc. v. James A. Phillips, Inc., (In re James A. Phillips, Inc.), 29 B.R. 391, 397 (S.D.N.Y. 1983).................................................................................................... 8 Burchinal v. Central Washington Bank (In re Adams Apple, Inc.), 829 F.2d 1484, 1490 (9th Cir. 1987) ................................................................................................ 7 In re Ionosphere Clubs, Inc., 98 B.R. at 175 ................................................................................................................................... 8 In re ISE Corporation, Case No. 10-14198 (Bankr. S.D. Cal., Dec. 8, 2010) ....................................................................... 8 In re Structurlite Plastics Corp., 86 B.R. 922, 931 (Bankr. S.D. Ohio 1988)....................................................................................... 8 In re Tropical Sportswear Intl Corp., 320 B.R. 15, 20 (Bankr. M.D. Fla. 2005) ......................................................................................... 8 In re Victor Valley Community Hospital, Case No. 10-39537 (Bankr. C.D. Cal., Sept. 17, 2010) .................................................................... 8 In re Woodside Group, LLC, Case No. 08-20682 (Bankr. C.D. Cal., Aug. 27, 2008) .................................................................... 9 Weinstein, Eisen & Weiss, LLP v. Gill (In re Cooper Commons, LLC), 424 F.3d 963, 969 (9th Cir. 2005) .................................................................................................... 8

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 8 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

American Suzuki Motor Corporation, the above-captioned debtor and debtor in possession (the Debtor), 1 hereby files this Memorandum of Points and Authorities in support of Emergency Motion of the Debtor for Order Authorizing Payment of Prepetition Claims of Critical Vendors, and respectively represents as follows: I. BACKGROUND A. Jurisdiction and Venue The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2). Venue is proper pursuant to 28 U.S.C. 1408 and 1409. The statutory predicates for the relief requested herein are sections 105(a) and 363(b) of title 11 of the United States Code (the Bankruptcy Code). B. General Background On the date hereof (the Petition Date), the Debtor filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code). The Debtor continues to operate and manage its affairs as a debtor in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No trustee, examiner, or committee has been appointed in this chapter 11 case. The Debtor was established in 1986 as the sole distributor in the continental United States of Suzuki automobiles, motorcycles, all-terrain vehicles, and marine outboard engines (the Suzuki Products). Suzuki Motor Corporation (SMC), the 100% interest holder in the Debtor, manufacturers substantially all of the Suzuki Products2 and is not a debtor in this or any other insolvency proceeding. As of the Petition Date, the Debtor has approximately 295 employees across three divisions: automotive (the Automotive Division), motorcycles and all-terrain vehicles (the Motorcycles/ATV Division), and outboard marine motors and related products (the Marine Division).

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
1 2

Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Reiss Declaration. The ATVs are manufactured by an 80% owned affiliate of the Debtor. An overview of the Suzuki Products manufactured by SMC, its affiliates, and certain unaffiliated entities is included in the Declaration of M. Freddie Reiss, Proposed Chief Restructuring Officer, in Support of Emergency First Day Motions.

2
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 9 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

In the operation of its business, the Debtor purchases Suzuki Products from SMC and certain other non-debtor affiliates. In turn, the Debtor wholesales virtually its entire inventory through a network of independently owned and unaffiliated dealerships located throughout the continental United States. The dealers then market and sell the Suzuki Products to retail customers. As of the Petition Date, there are approximately 220 automotive dealerships, over 900 motorcycle/ATV dealerships, and over 780 outboard marine dealerships. Through dealers, the Debtor also sells a portion of its automotive inventory (less than 10%) to car rental companies and others (less than 2%) that lease the vehicles to retail customers. The Debtor also purchases the majority of its automotive parts from SMC and certain unaffiliated companies and resells them to the automotive dealers and authorized warranty service providers. The Debtor determined that its Automotive Division is facing and will continue to face a number of serious challenges in the highly regulated and competitive automotive industry in the continental U.S. market. The challenges include unfavorable foreign exchange rates, disproportionally high and increasing costs associated with meeting more stringent state and federal automotive regulatory requirements unique to the continental U.S. market, low sales volumes, a limited number of models in its line-up, and existing and potential litigation costs. The Debtor has exhausted all available means to reduce the cost of operating the Automotive Division for it to operate profitably. Accordingly, the Debtor determined that the best way to preserve and enhance the value of its overall business is to wind down new sales of the Automotive Division in the continental U.S. and realign its business focus on the long-term growth of its Motorcycles/ATV and Marine Divisions. Contemporaneous with the filing of this case, the Debtor filed a plan of reorganization (the Plan). Under the proposed Plan, the Motorcycles/ATV and Marine Divisions will remain largely unaffected including the warranties associated with such products. As part of its restructuring, NounCo, Inc., a wholly owned subsidiary of SMC, will purchase the Motorcycles/ATV and Marine Divisions and the parts and service components of the Automotive Division. The restructured Automotive Division intends to honor automotive warranties and authorize the sale of genuine 3
DOCS_LA:256783.9 12832/001

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 10 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

Suzuki automotive parts and services to retail customers through a network of parts and service only dealerships that will provide warranty services. The Debtors Motorcycles/ATV Division is strong and competitively positioned in its market, allowing for long-term growth as economic conditions improve. Similarly, the Marine Division has remained competitive during the recent challenging economic times and the Debtor is working to further build its market share in the marine industry through continued investment in new product development and resuming large-scale marketing events focused on attracting new marine customers. The strategy embodied in the proposed Plan returns the business to its roots in the U.S. market, which began with motorcycles, and is intended to position the overall business for success in the continental U.S. for the benefit of all parties in interest. The Suzuki name is recognized around the world as a brand of quality products that offer reliability and originality. SMC has informed the Debtor that it continues to invest in its operations, improve its overall performance worldwide, and remains committed to manufacturing Suzuki Products for customers around the world. SMCs manufacturing and world-wide distribution of Suzuki automobiles will continue despite the Debtors wind down of the continental U.S. Automotive Division. Additional factual background regarding the Debtor, including its current and historical business operations and the events precipitating its chapter 11 filing, is set forth in detail in the Declaration of M. Freddie Reiss, Proposed Chief Restructuring Officer, in Support of Emergency First Day Motions (the Reiss Declaration) filed contemporaneously with this Motion and incorporated herein by reference. II. RELIEF REQUESTED By this Motion, the Debtor seeks entry of an order, pursuant to sections 105(a) and 363(b) of the Bankruptcy Code, authorizing, but not directing, the Debtor to pay the prepetition claims of certain critical vendors (the Critical Vendors). A proposed form of order is annexed hereto as Exhibit A. 4
DOCS_LA:256783.9 12832/001

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 11 of 20 III. THE CRITICAL VENDORS

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

The Debtor requires the goods and services of a number of Critical Vendors essential to the Debtors ongoing businesses that cannot be readily replaced without severe disruption and irreparable harm to the Debtors business. For the avoidance of doubt, SMC is not a Critical Vendor under any of these categories. The general categories of Critical Vendors are: 1. Sole-Source Suppliers. The Debtor procures automobile and motorized vehicle parts

from sole-source suppliers or OEMs made especially for Suzuki Products that cannot be replaced or duplicated in the marketplace. Without the necessary parts from these suppliers, the Debtor will be unable to provide vital warranty and service repair work that may call for replacement parts manufactured by these suppliers. Thus, the uninterrupted provision of these goods is essential not only to maintain the high quality of Suzuki Products, and hence preserve the Debtors brand, but also to ensure that public safety is protected under the Debtors warranty programs. 2. Parts and Accessories Suppliers. The Debtor purchases goods for resale as

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

components of the Suzuki Products, which are not manufactured by SMC, such as oil, navigation systems, and other component parts. As with the sole source suppliers, the Debtors ability to purchase component parts is essential to the Debtors operations and the ability of the Debtor to timely provide critical service and warranty work for their products. The vendors designated as critical under this category cannot be readily replaced or duplicated without significant delay due to a lengthy approval process of between one to five years on account of quality control requirements. 3. Information Technology Vendors. The Debtor requires the services of specialized

vendors to support its information technology (IT) systems, including its website and dealer network, under which the Debtor receives both credits and debits from and to its authorized dealers. The Debtors IT systems are complex and specifically designed for the Debtors seamless transaction of business between itself and its many dealers. In some cases, these vendors have specifically designed the Debtors systems or have spent months learning the Debtors systems such that any disruption in services provided would cause the Debtors businesses to grind to a halt. 5
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 12 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

4.

Government-Related. The Debtor is required to comply with federal and state

regulations, such as, federal EPA emission standards. In connection with these regulations, the Debtor is required to utilize federally-approved vendors for testing and other services. These vendors enable the Debtor to comply with health and safety regulations. Similarly, the Debtor is required by the federal government to be a member of the Specialty Vehicle Institute of America in order to sell motorcycles/ATVs to the public and may owe dues or fees associated with this organization. If the prepetition dues or fees are not paid, the Debtor will not be permitted to continue to sell motorcycles/ATVs. B. Terms and Conditions of Payment of Critical Vendor Claims. The Debtor believes that it is fairly current with all Critical Vendors and estimates that it may owe Critical Vendors approximately $900,000 as of the Petition Date. Of this amount, the Debtor estimates that a large portion, or 60%, of this amount is entitled to priority under section 503(b)(9) of the Bankruptcy Code as such goods were delivered within 20 days of the Petition Date. The Debtor further estimates that the essential Critical Vendors of services will be willing to continue to provide such services to the Debtor postpetition, on prepetition terms if the Debtor makes payments to the essential Critical Vendors. To avoid undue delay and disruption in the provision of such essential services and goods, and the consequent harm to the Debtors property, estate and creditors, and to maximize the value of the Debtors assets, the Debtor seeks immediate authority, but not direction, to pay, on a case-bycase basis, the claims of Critical Vendors. Subject to the Courts approval, the Debtor intends to pay the Critical Vendor claims only to the extent necessary to preserve its businesses and maximize the value of its assets for the benefit of its estate and creditors. To that end, the Debtor proposes to condition the payment of Critical Vendor claims upon each vendors agreement to continue supplying goods and services on terms that are acceptable to the Debtor. The Debtor will use its reasonable best efforts to require the applicable Critical Vendor to provide trade credit terms for the postpetition delivery of goods and services that are at least as favorable as prepetition trade terms. Specifically, in some circumstances, 6
DOCS_LA:256783.9 12832/001

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 13 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

the Debtor may require certain Critical Vendors to enter into a contractual agreement evidencing such terms. Additionally, the Debtor requests that if a Critical Vendor does not continue to provide goods or services on agreed-upon trade terms, that: (a) any payment to that Critical Vendor on account of a Critical Vendor claim is an improper postpetition transfer, and, therefore, recoverable from the Critical Vendor; and (b) upon recovery of the payment by the Debtor, the Critical Vendor claim shall be reinstated as if the payment had not been made. In lieu of recovery of such payments, if there exists an outstanding postpetition balance due from the Debtor to a Critical Vendor, the Debtor may recharacterize and apply any payment made pursuant to an order granting this Motion to such outstanding postpetition balance and such Critical Vendor will be required to repay to the Debtor such paid amounts that exceed the postpetition obligations then outstanding without the right of any setoffs, claims, provisions for payment of any claims, or otherwise. IV. ARGUMENT The Court may authorize payment of prepetition claims in appropriate circumstances based on sections 105(a) and 363(b) of the Bankruptcy Code. Section 105(a), which codifies the inherent equitable powers of the bankruptcy court, empowers a bankruptcy court to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. Under section 105(a), courts may permit pre plan payments of prepetition obligations when essential to the continued operation of a debtors business. The Ninth Circuit has acknowledged that payment of prepetition claims is appropriate in certain circumstances. For instance, in Burchinal v. Central Washington Bank (In re Adams Apple, Inc.), 829 F.2d 1484, 1490 (9th Cir. 1987) the Ninth Circuit acknowledged the importance of paying certain prepetition claims in a reorganization case, even when the claimants are provided an advantage over other creditors: [A] fundamental tenet rehabilitation of debtors . . . may supersede the policy of equal treatment. Cases have permitted unequal treatment of pre-petition debts when necessary for rehabilitation, in such contexts as (i) pre-petition wages to key employees; (ii) hospital malpractice premiums incurred prior to filing; (iii) debts to providers 7
DOCS_LA:256783.9 12832/001

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 14 of 20

Desc

1 2

of unique and irreplaceable supplies; and (iv) peripheral benefits under labor contracts. 829 F.2d 1484, 1490 (9th Cir. 1987) (citation omitted); see also Weinstein, Eisen & Weiss, LLP v.

3 Gill (In re Cooper Commons, LLC), 424 F.3d 963, 969 (9th Cir. 2005) (citing In re Adams Apple, 4 Inc. for its rejection of the fundamental tenet of bankruptcy law that like creditors must always be 5 treated alike). 6 Courts have also authorized payment of prepetition obligations under section 363(b) of the 7 Bankruptcy Code where a sound business purpose exists for doing so. See, e.g., In re Ionosphere 8 Clubs, Inc., 98 B.R. at 175 (finding that a sound business justification existed to justify payment of 9 certain claims); Armstrong World Inds., Inc. v. James A. Phillips, Inc., (In re James A. Phillips, Inc.), 10 29 B.R. 391, 397 (S.D.N.Y. 1983) (relying on section 363 to allow contractor to pay prepetition
P ACHULSKI S TANG Z IEHL & J ONES LLP

11 claims); In re Tropical Sportswear Intl Corp., 320 B.R. 15, 20 (Bankr. M.D. Fla. 2005) 12 (Bankruptcy courts recognize that section 363 is a source for authority to make critical vendor
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 payments, and section 105 is used to fill in the blanks.). 14 These courts approaches to payment of prepetition claims is particularly appropriate where 15 prepetition creditors here, the Critical Vendors provide vital goods and services to a debtor that 16 would be unavailable if the debtor did not satisfy its prepetition obligations. See In re Structurlite 17 Plastics Corp., 86 B.R. 922, 931 (Bankr. S.D. Ohio 1988) (a bankruptcy court may exercise its 18 equity powers under 105(a) [of the Bankruptcy Code] to authorize payment of prepetition claims 19 where such payment is necessary to permit the greatest likelihood of survival of the debtors and 20 payment of creditors in full or at least proportionately). 21 Bankruptcy courts in the Ninth Circuit authorize payments to vital suppliers and trade 22 creditors where the payment of such claims is essential for the continued operation of the business. 23 See, e.g., In re ISE Corporation, Case No. 10-14198 (Bankr. S.D. Cal., Dec. 8, 2010) [Docket No. 24 276] (authorizing payment of critical vendor prepetition claim); In re Victor Valley Community 25 Hospital, Case No. 10-39537 (Bankr. C.D. Cal., Sept. 17, 2010) [Docket No. 34] (authorizing the 26 debtor to pay prepetition claims of emergency room doctors, medical director doctors, and nursing 27 28 8
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 15 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

registries who were critical vendors); In re Woodside Group, LLC, Case No. 08-20682 (Bankr. C.D. Cal., Aug. 27, 2008) [Docket No. 18] (approving stipulation allowing debtors to pay ordinary course providers of goods and services in the ordinary course of business). Furthermore, pursuant to section 503(b)(9) of the Bankruptcy Code, claims of vendors who delivered goods to the Debtor within 20 days of the Petition Date are afforded priority status for the value of the goods delivered. The Debtor believes that approximately $600,000 of the Critical Vendor Claims relate to the period prior to the Petition Date constitute priority claims under sections 503(b)(9) of the Bankruptcy Code. As administrative expense claims, the Critical Vendor Claims must be paid in full under any plan of reorganization. Accordingly, the relief requested may affect only the timing of the payment of the Debtors administrative obligations, and will not prejudice the rights of general unsecured creditors or other parties in interest. A. Necessity for Immediate Relief and Effectiveness of Order Bankruptcy Rule 6003 provides that [e]xcept to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within 21 days after the filing of the petition, grant . . . (b) a motion to use, sell, lease, or otherwise incur an obligation regarding property of the estate, including a motion to pay all or part of a claim that arose before the filing of the petition . . . . For the reasons discussed herein, if the Debtor is not able to utilize the services and receive goods from the Critical Vendors on an uninterrupted basis, it would cause immediate and irreparable harm to the Debtor and its business operations because the Debtor would not be able to sell parts or provide critical repair or warranty work, among other reasons as set forth above. Accordingly, the interim relief requested herein is consistent with Bankruptcy Rule 6003. Further, to implement the foregoing successfully, the Debtor seeks a waiver of the notice requirements under Bankruptcy Rule 6004(a) and the fourteen-day stay of an order authorizing the use, sale, or lease of property under Bankruptcy Rule 6004(h), to the extent these rules are applicable. Nothing in this Motion should be construed as, or be deemed to be, an assumption or rejection of an executory contract or unexpired lease between the Debtor and any creditor, including,

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

9
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 16 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

but not limited to, the Critical Vendors. Further, the Debtor reserves the right to contest the amount claimed by any of the Critical Vendors to be in the ordinary course of business. V. NOTICE Notice of the Motion and Memorandum of Points and Authorities has been provided to: (a) the Office of the United States Trustee, (b) the creditors appearing on the list filed in accordance with Rule 1007(d) of the Federal Rules of Bankruptcy Procedure, (c) counsel to Suzuki Motor Corporation, and (d) the parties that have filed with the Court requests for notice of all matters in accordance with Bankruptcy Rule 2002. To the extent necessary, the Debtor requests that the Court waive compliance with Local Bankruptcy Rule 9075-1 and approve service (in addition to the means of service set forth in such Local Bankruptcy Rule) by overnight or electronic delivery. In the event that the Court grants the relief requested by the Motion, the Debtor shall provide notice of the entry of the order granting such relief upon each of the foregoing parties and any other parties-in-interest as the Court directs. The Debtor submits that such notice is sufficient and that no other or further notice be given. VI. CONCLUSION Based on the foregoing, the Debtor respectfully requests that the Court enter an order in substantially the form attached hereto granting the Motion and granting such other and further relief as the Court deems just and appropriate. Dated: November 5, 2012 Pachulski Stang Ziehl & Jones LLP By: /s/ Debra I. Grassgreen Richard M. Pachulski James I. Stang Dean A. Ziehl Linda F. Cantor Debra I. Grassgreen Proposed Attorneys for Debtor and Debtor in Possession

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

10
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 17 of 20

Desc

EXHIBIT A

(Proposed Order)

DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 18 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

Richard M. Pachulski (CA Bar No. 90073) James I. Stang (CA Bar No. 94435) Dean A. Ziehl (CA Bar No. 84529) Linda F. Cantor (CA Bar No. 153762) Debra I. Grassgreen (CA Bar No. 169978) PACHULSKI STANG ZIEHL & JONES LLP 10100 Santa Monica Blvd., Suite 1300 Los Angeles, CA 90067-4114 Telephone: 310/277-6910 Facsimile: 310/201-0760 E-mail: rpachulski@pszjlaw.com jstang@pszjlaw.com dziehl@pszjlaw.com lcantor@pszjlaw.com dgrassgreen@pszjlaw.com Proposed Attorneys for Debtor and Debtor in Possession UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SANTA ANA DIVISION In re: American Suzuki Motor Corporation,1 Debtor. Case No.: 12-_____ (___) Chapter 11 ORDER AUTHORIZING THE DEBTOR TO PAY PREPETITION CLAIMS OF CRITICAL VENDORS

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
2

Upon the motion (the Motion)2 of the above-captioned debtor and debtor in possession (the Debtor) for entry of an order (this Order), pursuant to sections 105(a) and 363(b) of the Bankruptcy Code, authorizing, but not directing, the Debtor to pay, in its sole discretion, prepetition claims of essential goods and service providers necessary for the Debtor to operate its business, as set forth in greater detail in the Motion; and the Court having jurisdiction to consider the Motion and the relief requested therein pursuant to 28 U.S.C. 157 and 1334; and consideration of the Motion and the relief requested therein being a core proceeding pursuant to 28 U.S.C. 157(b)(2); and venue being proper pursuant to 28 U.S.C. 1408 and 1409; and it appearing that the relief
The last four digits of the Debtors federal tax identification number are (8739). The Debtors address is: 3251 East Imperial Highway, Brea, CA 92821. Capitalized terms not defined herein shall have the meanings used in the Motion.
1

1
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 19 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

requested in the Motion is in the best interests of the Debtors estate, its creditors, and all other parties in interest; and the Debtor having provided appropriate notice of the Motion and the opportunity for a hearing on the Motion under the circumstances and no other or further notice need be provided; and the Court having reviewed the Motion and having heard the statements in support of the relief requested therein at a hearing before the Court (the Hearing); and the Court having considered the Motion, all pleadings and papers filed in connection with the Motion, including the Declaration of M. Freddie Reiss, Proposed Chief Restructuring Officer, in Support of Emergency First Day Motions and the Memorandum of Points and Authorities filed in support thereof, and the arguments of counsel and evidence proffered at the hearing on the Motion; after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT: 1. 2. The Motion is GRANTED. The Debtor is authorized, but not directed, to pay in its sole discretion the prepetition

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

claims of Critical Vendors in the ordinary course of the Debtors business relating to undisputed prepetition claims that the Debtor, in its business judgment, determines is necessary and appropriate for the operation of its business. 3. The Debtors banks are authorized to rely upon the representation of the Debtor as to

which prepetition payments on account of Critical Vendors are authorized to be paid pursuant to the terms of this Order. 4. If a Critical Vendor accepts payment pursuant to this Order and Motion and thereafter

does not continue to provide goods or services on agreed upon trade terms: (a) any payment to that Critical Vendor on account of a Critical Vendor claim is an improper postpetition transfer, and, therefore, recoverable by the Debtor from Critical Vendors; and (b) upon recovery of the payment by the Debtor, the Critical Vendor Claim shall be reinstated as if the payment had not been made. In lieu of recovery of such payments, if there exists an outstanding postpetition balance due from the Debtor to a Critical Vendor, the Debtor may, in its sole discretion, recharacterize and apply any payment made pursuant to an order granting this Motion to such outstanding postpetition balance and such Critical Vendor will be required to repay to the Debtor such paid amounts that exceed the 2
DOCS_LA:256783.9 12832/001

Case 8:12-bk-22808-CB

Doc 8 Filed 11/05/12 Entered 11/05/12 17:41:14 Main Document Page 20 of 20

Desc

1 2 3 4 5 6 7 8 9 10
P ACHULSKI S TANG Z IEHL & J ONES LLP

postpetition obligations then outstanding without the right of any setoffs, claims, provisions for payment of any claims, or otherwise. 5. Bankruptcy Rule 6003(b) is satisfied because the relief described in this Order is

necessary to avoid immediate and irreparable harm to the estate. 6. waived. 7. This Court shall retain jurisdiction with respect to all matters arising from or related The stay imposed pursuant to Federal Rule of Bankruptcy Procedure 6004(h) is

to the implementation of this Order.

###

11 12
ATTORNEYS AT LAW L O S A N G E L E S , CA

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3
DOCS_LA:256783.9 12832/001