Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 1 of 21

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 NOTICE OF EMERGENCY MOTION AND EMERGENCY MOTION FOR ORDER AUTHORIZING DEBTOR TO PAY PREPETITION CLAIMS OF SHIPPERS, WAREHOUSEMEN, CUSTOMS BROKERS, AND OTHER TRANSPORTATION LIEN CLAIMANTS; 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 17 18 19 20 21 22 23 24 25 26 27 28

TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE, THE DEBTORS PREPETITION AND POSTPETITION SECURED 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

DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 2 of 21

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 above-captioned debtor and debtor in possession (the Debtor), hereby moves this Court, on an emergency basis, for entry of an order, pursuant to sections 105(a) and 363(b) of title 11 of the United States Code (the Bankruptcy Code), authorizing, but not directing, the Debtor, in its sole discretion, to pay prepetition claims of shippers, warehousemen, customs brokers, and other transportation carriers that have possessory liens against the Debtors goods. 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 after obtaining a hearing date for the Debtors First Day Motions, the annexed Memorandum of Points and Authorities and, the Declaration of M. Freddie Reiss, Proposed Chief Restructuring Officer, in Support of Emergency First Day Motions (the Reiss Declaration), the arguments of counsel, and other admissible evidence properly brought before the Court at or prior to the hearing on this Motion. PLEASE TAKE FURTHER NOTICE that pursuant to Local Bankruptcy Rule 2081-1, this Motion may be heard on less than two days notice. The Debtor requests that the relief sought herein be granted on an emergency basis because the foregoing relief is necessary and appropriate to ensure an orderly transition into chapter 11 and to avoid any operational delays that would result if the Debtors supply and distribution chain necessary for the repair and sales of the Debtors vehicles or motors were disrupted by the assertion of possessory liens. The Debtor respectfully requests that the Court schedule a hearing on this Motion at the same time as other emergency first day motions. PLEASE TAKE FURTHER NOTICE that the Debtor will serve this Notice and Motion, the attached Memorandum of Points and Authorities annexed hereto, and the Reiss Declaration 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 (c) counsel to Suzuki Motor Corporation, the Debtors prepetition and postpetition secured lender, and (d) parties that file with the Court and serve upon the Debtor 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(a)(5) and approve service (in addition to the means of service set forth in

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:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 3 of 21

Desc

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

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. 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 in the Notice of Hearing on Emergency Motions. Your failure to timely object may be deemed by the Court to constitute consent to the relief requested herein. WHEREFORE, the Debtor respectfully requests that the Court grant this Motion and enter an order (i) authorizing the Debtor to pay prepetition claims of shippers, warehousemen, customs brokers, and any other transportation carriers that have or may assert possessory liens on the Debtors goods, and (ii) granting to the Debtor such other relief as the Court deems necessary 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

3
DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 4 of 21

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 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF EMERGENCY MOTION FOR ORDER AUTHORIZING DEBTOR TO PAY PREPETITION CLAIMS OF SHIPPERS, WAREHOUSEMEN, CUSTOMS BROKERS, AND OTHER TRANSPORTATION LIEN CLAIMANTS

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

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

DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 5 of 21 TABLE OF CONTENTS

Desc

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

Page I. Background ........................................................................................................................................ 1

A. Jurisdiction and Venue.............................................................................................................. 1

B. General Background ................................................................................................................. 1

II. Relief Requested .............................................................................................................................. 3

III. The Debtors Lien's Claimants ......................................................................................................... 4

IV. Argument ........................................................................................................................................ 5

A. Payment of Prepetition Claims of the Lien Claimants Is in the Best Interest of the Debtors Estate............................................................................ 5

B. Statutory Liens May Be Unavoidable ....................................................................................... 8 11 12

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

C. Satisfaction of Bankruptcy Rule 6003 and Waiver of Bankruptcy Rule 6004 .......................................................................................................... 8

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

D. Reservation of Rights................................................................................................................ 9

V. Notice ............................................................................................................................................... 9 VI. Conclusion .................................................................................................................................... 10

DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 6 of 21 TABLE OF AUTHORITIES

Desc

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

Page Cases 829 F.2d 1484, 1490 (9th Cir. 1987) (citation omitted) ............................................................................................. 7 Armstrong World Inds., Inc. v. James A. Phillips, Inc., (In re James A. Phillips, Inc.), 29 B.R. 391 (S.D.N.Y. 1983)............................................................................................................ 7 B&W Enterprises, Inc. v. Goodman Oil. Co., (In re B&W Enterprises, Inc.), 713 F.2d 534 (9th Cir. 1983) ............................................................................................................ 6 Burchinal v. Central Washington Bank (In re Adams Apple, Inc.), 829 F.2d 1484 (9th Cir. 1987) ......................................................................................................... 6 In re Boston and Me. Corp., 634 F.2d 1359 (1st Cir. 1980) .......................................................................................................... 6 In re Fleetwood Enterprises, Inc., Case No. 09-14254 (Bankr. C.D. Cal., March 25, 2009) ................................................................. 8 In re Just for Feet, Inc., 242 B.R. 821 (D. Del. 1999) ............................................................................................................ 6 In re Lehigh & N.E. Ry. Co., 657 F.2d 570 (3rd Cir. 1981) ........................................................................................................... 6 In re NVR L.P., 147 B.R. 126 (Bankr. E.D. Va. 1992) .............................................................................................. 6 In re Silicon Graphics, Inc., et al., Case No 06-10977 (BRL) (Bankr. S.D.N.Y. May, 10 2006) .......................................................... 8 In re Structurlite Plastics Corp., 86 B.R. 922 (Bankr. S.D. Ohio 1988).............................................................................................. 7 In re Tropical Sportswear Intl Corp., 320 B.R. 15 (Bankr. M.D. Fla. 2005) .............................................................................................. 7 In re Z Gallerie, 09-18400 (VZ) (Bankr. C.D. Cal. Apr. 10, 2009) ........................................................................... 8 Ionosphere Clubs, Inc., 98 B.R. 174(Bankr. S.D.N.Y. 1989) ............................................................................................ 6, 7 Miltenberger v. Logansport, C. & S. W. R. Co., 106 U.S. 286 (1882) ......................................................................................................................... 6 Weinstein, Eisen & Weiss, LLP v. Gill (In re Cooper Commons, LLC), 424 F.3d 963 (9th Cir. 2005) ............................................................................................................ 7

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

DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 7 of 21

Desc

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

Statutes 11 U.S.C. 105 ............................................................................................................................. 3, 6, 9 11 U.S.C. 362 ................................................................................................................................... 10 11 U.S.C. 363 ..................................................................................................................................... 3 11 U.S.C. 545 ................................................................................................................................... 10 11 U.S.C. 546 ................................................................................................................................... 10 11 U.S.C. 547 ................................................................................................................................... 10 11. U.S.C. 365 .................................................................................................................................. 11 28 U.S.C. 1334 ................................................................................................................................... 1 28 U.S.C. 1408 ................................................................................................................................... 1 28 U.S.C. 1409 ................................................................................................................................... 1 28 U.S.C. 157 ..................................................................................................................................... 1 Other Authorities CAL. CIV. CODE 3051.5 ...................................................................................................................... 7 Rules Fed. R. Bankr. P. 1007 .......................................................................................................................... 9 Fed. R. Bankr. P. 2002 ........................................................................................................................ 10 Fed. R. Bankr. P. 6003 ...................................................................................................................... 8, 9 Fed. R. Bankr. P. 6004 .......................................................................................................................... 9 Fed. R. Bankr. P. 9075 ........................................................................................................................ 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

DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 8 of 21

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), hereby files this Memorandum of Points and Authorities in support of Emergency Motion for Order Authorizing Debtor to Pay Prepetition Claims of Shippers, Warehousemen, Custom Brokers, and Other Transportation Lien Claimants, and respectively represent 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 1409.1 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). 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
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

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.

1
DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 9 of 21

Desc

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

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 Suzuki automotive parts and services to retail customers through a network of parts and service only dealerships that will provide warranty services. 2
DOCS_LA:256749.6 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 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 10 of 21

Desc

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

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 the Motion, the Debtor requests entry of an order, pursuant to sections 105(a) and 363(b) of title 11 of the United States Code (the Bankruptcy Code), authorizing, but not directing, the Debtor to pay prepetition claims of shippers, warehousemen, customs brokers, and other transportation lien claimants that have or are capable of asserting possessory liens against the Debtors goods. A proposed form of order is annexed hereto as Exhibit A.

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:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 11 of 21 III. THE DEBTORS LIEN CLAIMANTS

Desc

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

The Debtor does not manufacture any Suzuki Products. Rather, these products and parts are purchased from SMC or the Debtors non-debtor affiliates who are located overseas in four Asian countries, from its non-debtor domestic affiliate located in Rome, Georgia, and from various thirdparty suppliers. The Debtor markets and resells the Suzuki Products to its authorized dealers in the continental United States and Alaska, which are then made available for sale to consumers. In addition to the shipment of automobiles, motorcycles/ATVs, and marine outboard motors, the Debtor also relies on a steady supply of parts from third party suppliers to ship to its authorized dealers, who then service Suzuki vehicles under various warranty programs issued by the Debtor. The Debtor also exports parts and products to its non-debtor affiliate in Canada to support sales of Suzuki vehicles in Canada. In order to ensure the steady movement of products as noted above, the Debtor relies on a complex and international network of shippers, railroad carriers, freight carriers (the Transporters) who ship the Suzuki Products, parts, and accessories (collectively, the Goods) from their warehouses or to warehouses operated by third-parties (the Warehousemen). Suzuki Products that are received from overseas affiliates are shipped to various ports in the United States, cleared for customs, loaded onto railroad containers, and finally moved onto trucks, which transport the products to the six warehouse facilities located throughout the United States. From the warehouse facilities, the Goods are shipped to the Debtors various authorized dealers. To the extent that Goods are received from international sources, the Debtor is required to pay customs duty charges and the Debtor utilizes the services of customs brokers (the Customs Brokers) who facilitate the payment of the customs duty charges and fees. If the Debtor fails to pay any Customs Broker, Transporter, or Warehouseman (collectively, the Lien Claimants) for charges incurred in connection with the use, storage, or transport of the products, various statutes, tariffs and agreements permit the Lien Claimants to assert liens against the products in their possession. With respect to Suzuki Products purchased from the Debtors non-debtor domestic affiliate, the process is 4
DOCS_LA:256749.6 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 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 12 of 21

Desc

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

similar except that the Suzuki Products do not need to clear customs and are shipped directly by rail or truck from the Rome, Georgia facility to the Debtors U.S. warehouse facilities or directly to authorized dealers. On average, the Debtor pays $2.6 million per month to the Lien Claimants. As of the Petition Date, the Debtor estimates that approximately $2 million is owed on account of such claims. Payment of the foregoing shipping, customs, and storage charges will avoid disruption in the Debtors business and enable the Debtor to realize the value of the Goods. The Debtors business is dependent upon the ability to timely deliver the Goods to its authorized dealers for sale to customers. While the Debtor believes that it is relatively current on its payments to the Lien Claimants, to the extent that additional amounts are found to be outstanding (most likely due to delayed invoicing or the timing of certain shipments), the Debtor must be able to pay such amounts to gain access to the Goods. The Debtor requires timely receipt of the Goods to be able to sell them and to timely service consumers vehicles and marine motors. Any disruption in the Debtors complex movement of Goods could result in devastating consequences to the Debtors business, including potential safety issues for the Debtors ultimate retail customer if critical service and warranty repair work cannot be completed in a timely manner because of any delay in the Debtors supply chain. As such, the Debtor proposes to pay such claims when, in the Debtors business judgment, such creditors exercise of their legitimate remedies would unduly disrupt the Debtors business. Notably, the Debtor only seeks authority, not the direction, to make such payments. IV. ARGUMENT A. Payment of Prepetition Claims of the Lien Claimants Is in the Best Interest of the Debtors Estate The Court may authorize payment of prepetition claims in appropriate circumstances based on section 105 (a) 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 5
DOCS_LA:256749.6 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 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 13 of 21

Desc

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

105(a), courts may permit pre-plan payments of prepetition obligations when essential to the continued operation of a debtors business. See, e.g., In re Just for Feet, Inc., 242 B.R. 821, 824 (D. Del. 1999) (section 105 provides a statutory basis for the payment of pre-petition claims); In re NVR L.P., 147 B.R. 126 (Bankr. E.D. Va. 1992) ([U]nder 11 U.S.C. 105 the court can permit preplan payment of a prepetition obligation when its essential to the continued operation of the debtor.); Ionosphere Clubs, Inc., 98 B.R. 174, 176 (Bankr. S.D.N.Y. 1989) (same). In some instances, courts have labeled their equitable power to satisfy prepetition claims under section 105(a) the Necessity of Payment Doctrine. Id., 98 B.R. at 175-76 (citing Miltenberger v. Logansport, C. & S. W. R. Co., 106 U.S. 286 (1882) (articulating the legal theory later termed doctrine of necessity or necessity of payment rule and holding that payment of a pre-receivership claim prior to reorganization is permitted to prevent stoppage of crucial business relations); In re Lehigh & N.E. Ry. Co., 657 F.2d 570, 581 (3rd Cir. 1981) (interpreting necessity of payment doctrine to mean that if payment of a claim which arose prior to reorganization is essential to the continued operation of the [business] during reorganization, payment may be authorized even if it is made out of corpus); In re Boston and Me. Corp., 634 F.2d 1359, 1382 (1st Cir. 1980) (recognizing existence of judicial power to authorize trustees to pay claims for goods and services that are indispensably necessary to a debtors continued operation). Although the Ninth Circuit refused to extend the Necessity of Payment Doctrine beyond railroad reorganization cases in B&W Enterprises, Inc. v. Goodman Oil. Co., (In re B&W Enterprises, Inc.), 713 F.2d 534 (9th Cir. 1983),3 subsequent Ninth Circuit decisions have 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
3

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

In re B&W Enters., Inc., where the debtor made unauthorized postpetition payments to trade suppliers on prepetition debts, is easily distinguishable because: (i) the debtor did not seek prior court approval for the payments; and (ii) the case was in liquidation, thereby rendering the necessity of such payments moot. 713 F.2d at 535-36.

6
DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 14 of 21

Desc

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

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 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. Gill (In re Cooper Commons, LLC), 424 F.3d 963, 969 (9th Cir. 2005) (citing Adams Apple for its rejection of the fundamental tenet of bankruptcy law that like creditors must always be treated alike). Courts have also authorized payment of prepetition obligations under section 363(b) of the Bankruptcy Code where a sound business purpose exists for doing so. See, e.g., In re Ionosphere Clubs, Inc., 98 B.R. at 175 (finding that a sound business justification existed to justify payment of certain claims); 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) (relying on section 363 to allow contractor to pay prepetition claims); In re Tropical Sportswear Intl Corp., 320 B.R. 15, 20 (Bankr. M.D. Fla. 2005) (Bankruptcy courts recognize that section 363 is a source for authority to make critical vendor payments, and section 105 is used to fill in the blanks.). These courts approach to payment of prepetition claims is particularly appropriate where prepetition creditors here, the Lien Claimants provide vital services to a debtor that would be unavailable if the debtor did not satisfy its prepetition obligations. See In re Structurlite Plastics Corp., 86 B.R. 922, 931 (Bankr. S.D. Ohio 1988) (a bankruptcy court may exercise its equity powers under 105(a) [of the Bankruptcy Code] to authorize payment of prepetition claims where such payment is necessary to permit the greatest likelihood of survival of the debtors and payment of creditors in full or at least proportionately). Paying Lien Claimants will benefit the Debtors estate and its creditors by allowing the Debtors business operations to continue without interruption. Under certain statutes, tariffs, and agreements between the parties, a Lien Claimant may have a lien on the goods in its possession that secures the charges or expenses incurred in connection with the storage and/or transport of the products. See, e.g., CAL. CIV. CODE 3051.5 (granting carriers lien on freight in its possession). The Lien Claimants may be unwilling to release the products in their possession to which they may be entitled to liens, because releasing possession of the products may convert their claims against the 7
DOCS_LA:256749.6 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 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 15 of 21

Desc

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

Debtor from secured to unsecured. Therefore, unless the Court authorizes the Debtor to pay the Lien Claimants, the Debtor will likely not continue to have access to the products in possession of the Lien Claimants. If the Lien Claimants possess lien rights, failure to satisfy the Lien Claimants claims could have a material adverse effect that could have severe repercussions on the Debtors operations and the ability to timely deliver Goods to the Debtors dealers and consumers, which will result in material harm to the Debtors estate and creditors. Paying the prepetition claims of the Lien Claimants will have no negative impact on unsecured creditors. To the extent the Debtor does not pay the claims during this early stage of this chapter 11 case, the claims will likely be paid in full as secured claims pursuant to any plan of reorganization proposed in this case. In virtually all situations pertaining to the Debtor, the Lien Claimants would be over secured by the value of products in their possession. Thus, unsecured creditors will not be prejudiced by the relief requested in the Motion. B. Statutory Liens May Be Unavoidable The Debtor believes that various state laws, including the California Commercial Code, provide the Lien Claimants with statutory liens against the products in their possession which may be the subject of delinquent charges. To the extent not already perfected, such statutory liens may be perfected under section 362(b)(3) and 546(b) and thus exempt from avoidance under sections 545 or 547 of the Bankruptcy Code. Courts have granted similar relief with respect to the payment of prepetition claims secured by possessory liens in other chapter 11 cases. See, e.g., In re Z Gallerie, 09-18400 (VZ) (Bankr. C.D. Cal. Apr. 10, 2009) [Docket No. 47]; In re Fleetwood Enterprises, Inc., Case No. 09-14254 (Bankr. C.D. Cal., March 25, 2009) [Docket No. 113] (authorizing the debtors to pay common carrier and other claims relating to goods and materials in transit); In re Silicon Graphics, Inc., et al., Case No 06-10977 (BRL) (Bankr. S.D.N.Y. May, 10 2006) [Docket No. 46]. C. Satisfaction of Bankruptcy Rule 6003 and Waiver of Bankruptcy Rule 6004 Pursuant to Rule 6003(b) of the Federal Rules of Bankruptcy Procedure, a motion to pay all or part of a claim that arose before the filing of the petition shall not be granted by the Court within 20 days of the Petition Date [e]xcept to the extent that relief is necessary to avoid immediate and 8
DOCS_LA:256749.6 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 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 16 of 21

Desc

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

irreparable harm . . . . Fed. R. Bankr. P. 6003(b). The relief requested in the Motion is necessary to avoid immediate and irreparable harm to the Debtor and its estate. If the Debtor is not able to timely receive Goods in the possession of the Lien Claimants, the Debtor will not be able to complete existing sales of products or enable dealers to perform their critical service and warranty repair work. To the extent the Debtor is required to pay any prepetition claim of a Lien Claimant, for the reasons set forth herein and in the Reiss Declaration, the Debtor submits that the requirements of Rule 6003 have been met. 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. D. Reservation of Rights The Debtor reserves all rights and defenses with respect to the claims of the Lien Claimants or any other claims. Nothing in this Motion is an admission as to any particular possessory lien, and the Debtor seeks merely to exercise its discretion in determining which of the such claims ought to be paid in the ordinary course of the Debtors business. Further, to the extent that any contract or agreement with any of the Lien Claimants is deemed an executory contract within the meaning of section 365 of the Bankruptcy Code, the Debtor does not at this time intend to assume such contract or agreement. As such, the Courts authorization of payment shall not be deemed to constitute postpetition assumption or adoption of such contract or agreement as an executory contract pursuant to section 365 of the Bankruptcy Code. 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 9
DOCS_LA:256749.6 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 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 17 of 21

Desc

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

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 upon the foregoing, the Debtor respectfully requests that the Court grant the Motion and enter an Order authorizing, but not directing, the Debtor to pay prepetition claims of Warehousemen, Transporters, and Customs Brokers that have or are capable of asserting possessory liens on the Debtors Goods and granting such other relief to the Debtor as the Court deems necessary and appropriate.

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

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

10
DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 18 of 21

Desc

EXHIBIT A (Proposed Order)

DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 19 of 21

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 DEBTOR TO PAY PREPETITION CLAIMS OF SHIPPERS, WAREHOUSEMEN, CUSTOMS BROKERS, AND OTHER TRANSPORTATION LIEN CLAIMANTS Hearing Date: Date: ___________, 2012 Time: ___: _.m. Place: U.S. Bankruptcy Court 411 West Fourth Street Courtroom __ Santa Ana, CA 92701-4593 Judge: Honorable ______________

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

Upon the motion (the Motion)2 of the above-captioned debtor and debtor in possession (the Debtor) for entry of an order, pursuant to sections 105(a) and 363(b) of the Bankruptcy Code,
1

The last four digits of the Debtors federal tax identification number are (8739). The Debtors address is: 3251 East Imperial Highway, Brea, CA 92821. 2 Capitalized terms not defined herein shall have the meanings used in the Motion.

1
DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 20 of 21

Desc

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

authorizing, but not directing, the Debtor to Pay Prepetition Claims of Shippers, Warehousemen, Customs Brokers, and other Transportation Lien Claimants (the Motion),3 as set forth 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 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 the prepetition claims of Lien

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

Claimants in the ordinary course of the Debtors business relating to undisputed prepetition claims that the Debtor, in its business judgment, determines are necessary and appropriate to (a) obtain release of critical or valuable products that may be subject to possessory liens, (b) maintain a reliable, efficient, and smooth distribution system, or (c) induce critical Lien Claimants to continue to carry goods and make timely deliveries. 3. Bankruptcy Rule 6003(b) is satisfied because the relief described in this Order is

necessary to avoid immediate and irreparable harm to the estate.

Capitalized terms not defined herein are given the meaning ascribed to them in the Motion.

2
DOCS_LA:256749.6 12832/001

Case 8:12-bk-22808-CB

Doc 9 Filed 11/05/12 Entered 11/05/12 17:46:11 Main Document Page 21 of 21

Desc

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

4. waived. 5.

The stay imposed pursuant to Federal Rule of Bankruptcy Procedure 6004(h) is

This Court shall retain jurisdiction with respect to all matters arising from or related

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:256749.6 12832/001