Free Reply to Response to Motion - District Court of Delaware - Delaware

Case 1:05-cv-00876-KAJ

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE : : SUMMIT METALS, INC., : : : Debtor. : : AMBROSE M. RICHARDSON, III, : : Appellant, : : v. : : FRANCIS A. MONACO, JR., TRUSTEE, et al. : : Appellees. : ____________________________________ In re:

Chapter 11 Case No. 98-2870 (KJC)

Appeal No. 05-0876 (KAJ)

APPELLEE, CHAPTER 11 TRUSTEE, FRANCIS A. MONACO, JR.'S REPLY TO APPELLANT'S RESPONSE IN OPPOSITION TO CHAPTER 11 TRUSTEE'S MOTION TO DISMISS APPEAL Appellee, Francis A. Monaco, Jr., the Chapter 11 Trustee to Summit Metals, Inc. ("Trustee"), a party to the order which is the subject of this appeal, by and through his undersigned counsel, hereby submits its reply (the "Reply") to the Appellant's Response in Opposition to Francis A. Monaco, Jr., Chapter 11 Trustee's Motion to Dismiss Appeal (the "Response"). In support of his Reply, the Trustee states as follows: Background 1. Appellant Ambrose M. Richardson, III ("Richardson") has appealed from the

order approving the sale of assets of Riverside Millwork Co. to RHC Acquisition, Inc. (the "Buyer" or "RHC"). Richardson has known that the assets of Summit were in play since the entry of the order

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retaining SSG Capital Advisors, LP as the estate's investment banker ("SSG") over a year ago. As chairman of the unsecured creditors committee (the "UCC") he can hardly be heard to say that he was not aware of this fact. Indeed, during the time Richardson has been chairman of the UCC, Richardson was also part of a group that proposed a plan of reorganization for Summit as far back as 2000. Yet Richardson never presented a proposal to buy the assets of Summit that was backed by firm financing. And all of his purported offers have come at the 11th hour. Yet despite his continuing conflict interest created by his role as the chairman of the UCC and his interest as a potential bidder on Summit's assets, Richardson argues that the Trustee's Motion to Dismiss Appeal (the "Motion") should be denied. Richardson has demonstrated no real interest in the assets of Summit as has been shown by his last minute antics to make a bid on Rivco. Moreover, the Bankruptcy Court has reviewed, analyzed and rejected each and every objection that Richardson has asserted in connection with the Sale. As a result Richardson's true intentions remain unclear. Nonetheless, because Richardson's appeal is statutorily and/or equitably moot, the Motion should be granted.1 The Appeal Is Statutorily Moot 2. Richardson argues that his appeal is not statutorily moot because the

Bankruptcy Court failed to expressly use the term "good faith purchaser" in the Memorandum Opinion or the Sale Order. The decision in In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143 (3rd Cir. 1986) does not support Richardson's argument. Abbotts expressly held that, where the record on appeal establishes that the buyer is a good faith purchaser, the District Court on an appeal may make an independent determination that a buyer is a good faith purchaser. Abbotts, 788 F.2d at 149-150. Consistent with

1

Terms not defined herein shall have the meanings set forth in the Memorandum of Law in Support of Appellee Francis A. Monaco, Jr., Chapter 11 Trustee's Motion to Dismiss Appeal (the "Trustee Memorandum"). 50911 2

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this requirement, the Memorandum Opinion and the transcripts of the hearing on the Sale Motion clearly show that the Bankruptcy Court actively and thoroughly considered the integrity of the sales process and whether RHC's purchase price for the Rivco Assets was fair and reasonable. The Memorandum Opinion and the record on appeal show an engaged judge who was satisfied that the sale process yielded a fair purchase price for Rivco.2 3. As a consequence, the Trustee believes that the Bankruptcy Court determined

that RHC is a good faith purchaser and that RHC is entitled to the protections of Section 363(m). However, if this Court believes that an express holding should be made regarding the Buyer's status as a good faith purchaser for purposes of Section 363(m), then the Trustee requests that this Court make such a determination. Under either approach, the Richardson appeal is statutorily moot because Richardson failed to obtain a stay pending appeal and the Sale Transaction has been fully consummated.

The Appeal is Equitably Moot 4. Richardson argues that his appeal is not equitably moot because: (a) the Trustee

failed to provide any equitable reason why the appeal should be dismissed, (b) the Bankruptcy Court must be blamed for Richardson's failure to seek an emergency or expedited hearing on the Stay Motion, and (c) if the Sale Transaction were overturned, RHC is the only party who would be harmed. Richardson is wrong on each point.

2

Indeed, the Bankruptcy Court found that the purchase price was "fair and reasonable" and that: (a) the Buyer made a binding written offer for a total consideration of $11,990,550, including $1.2 million in cash and the assumption of certain debt (See Memorandum Opinion at p. 1), (b) the Buyer's offer was unconditional and backed by firm financial commitments (Id. at 1 and 3), (c) the Buyer's offer was based upon EBITA of $1.4 million for the trailing 12 months, and the offer price represents a multiple of 6.77 times EBITA (Id. at 4), (d) a fair and reasonable market based offer for the assets could have been established using a multiple of 5 times EBITA ­ thereby proving that the Buyer's offer of 6.77 times EBITA was fair and reasonable (Id.), (e) Richardson's objections to the adequacy of the purchase price were conclusory (Id.), and (f) as a result, the Buyer submitted the highest and best offer for the assets and the purchase price was fair and reasonable (Id. at 6). 50911

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5.

The appeal should be dismissed because this Court cannot provide Richardson

with any effective relief in light of the fact that the Sale Transaction has been consummated and numerous third parties have relied on the Sale Order and Richardson has failed to obtain a stay of the sale order pending appeal. The Sale Transaction cannot now be reversed without causing substantial harm to third parties: (a) the Buyer's lenders have fully funded the Sale Transaction, (b) the Buyer has borrowed at least $7.3 million to finance the Sale, (c) Rivco's prior secured lender has been paid in excess of $6 million, (d) the IRS has discharged its lien against Rivco's assets, (e) Rivco's employees have been transferred to the Buyer, and (f) the Buyer has assumed substantially all of Rivco's debt. See Trustee Memorandum at pp. 5-6, 9-10. 6. Richardson argues that the "equities" are in his favor because the Bankruptcy

Court did not schedule an expedited hearing on the Stay Motion. However, Richardson failed to file an emergency motion for an expedited hearing on his Stay Motion. See Response at p. 5.3 Richardson's blaming of the Bankruptcy Court for his own errors is not credible.

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Richardson should have employed the best practice regarding stays and asked for a stay when Judge Baxter ruled from the bench. If the request was denied, then he could have gone directly to this Court and sought a timely stay pending appeal. 50911 4

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7.

It is clear that the equities favor granting the Motion to Dismiss. Richardson

objected to the sale process on grounds that he was not provided with enough time or information to submit a written bid. As to those objections, the Memorandum Opinion made the following findings: (a) Richardson serves as the Chairman of the Creditors' Committee, a position which even Richardson concedes creates a conflict of interest in his quest to purchase the Rivco Assets at the lowest possible price (see Memorandum Opinion at 2), (b) Richardson was aware of the Debtor's bankruptcy filing as early as the December 1998 petition date (Id. at 3), (c) Richardson was aware of the Rivco Assets as early as the December 1998 petition date (Id.), (d) the Trustee marketed the Rivco Assets for over a year (Id. at 1), (e) RHC submitted the only written offer for the Rivco Assets during the marketing period (Id.), (f) SSG informed Richardson during the marketing period that if Richardson wanted to purchase the Rivco Assets, that Richardson had to take action immediately (Id. at 5), (g) SSG immediately provided Richardson with the 2001, 2002 and 2003 audited Rivco financials when asked and the 2004 audited Rivco financials were provided to Richardson as soon as they were in SSG's possession (Id.), (h) Richardson had only made an oral offer for the Rivco Assets as of the initial hearing on the Sale Motion, which offer was not backed by any firm financial commitment (Id. at 2), and (i) Richardson finally made a formal written offer to acquire the Rivco Assets at the end of the hearing on the Sale Motion, but that offer was subject to various contingencies and by its own terms was not to be considered binding upon Richardson. (Id. at 2-3).

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8.

The equities do not favor Richardson, the Sale Transaction cannot be

unscrambled and this Court cannot grant Richardson any effective relief. As a result, this Court should dismiss Richardson's appeal on equitable grounds. WHEREFORE, for the reasons discussed above, the Chapter 11 Trustee requests that the Court dismiss Richardson's appeal as moot, and grant such other and further relief as is just and proper. Dated: January 9, 2006 MONZACK & MONACO, PA

By: _ /s/Joseph J. Bodnar Joseph J. Bodnar (I.D. #2512) 1201 Orange Street Suite 400 Wilmington, DE 19801 Phone: (302) 652-8162 Facsimile: (302) 652-2769

_

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE In re: SUMMIT METALS, INC., : : : : : : : : : : : : : : :

Chapter 11 Case No. 98-2870 (KJC)

Debtor. AMBROSE M. RICHARDSON, III, Appellant, v.
FRANCIS A. MONACO, JR., TRUSTEE, et al.

Appeal No. 05-0876 (KAJ)

:

Appellees. ____________________________________

CERTIFICATE OF SERVICE I, Heidi E. Sasso, certify that I am not less than 18 years of age, and that service of the foregoing document was made on January 9, 2006 upon:

US Mail or Hand Delivery James E. Huggett, Esquire Harvey, Pennington Ltd. 913 N. Market Street, Suite 702 Wilmington, DE 19801 Jennifer L. Scoliard, Esquire Klehr Harrison Harvey Branzburg & Ellers 919 Market Street, Ste. 1000 Wilmington, DE 19801 J. Scott Victor Managing Director SSG Capital Advisors, L.P. Five Tower Bridge, Suite 420 300 Barr Harbor Drive
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West Conshohocken, PA 19428

Richard Schepacarter, Esq. Office of the United States Trustee 844 King Street, Ste. 2313 Wilmington, DE 19801 Todd Schiltz, Esq. Wolf Block Schorr & Solis-Cohen LLP 1100 N. Market Street, Ste. 1001 Wilmington, DE 19801 Teresa K.D. Currier, Esq. Mary Caloway, Esq. Klett Rooney Lieber & Schorling 1201 Market Street, 15th Floor Wilmington, DE 19899 Bruce A. Harwood Steven E. Boyce SHEEHAN PHINNEY BASS & GREEN, P.A. 1000 Elm Street P.O. Box 3701 Manchester, NH 03105-3701

Under penalty of perjury, I declare that the foregoing is true and correct.

__1/9/2006___________ Date

__/s/ Heidi E. Sasso_________ Heidi E. Sasso

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