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United States Bankruptcy Court for the Southern District of New York
August 26, 2016, Decided
Chapter 11, Case No. 16-11275 (SHL), (Jointly Administered)
[*374] MEMORANDUM OF DECISION
SEAN H. LANE
UNITED STATES BANKRUPTCY JUDGE
Before the Court is a motion by the above-captioned debtors and debtors-in-possession [*375] (collectively, the "Debtors") seeking to (i) equitably subordinate the claims of Aero Investors LLC ("Aero Investors") and MGF Sourcing Holdings, Limited ("MGF Holdings" and, together with Aero Investors, the "Term Lenders"), pursuant to Section 510(c) of the Bankruptcy Code, (ii) disqualify the Term Lenders from credit bidding in a sale of the Debtors' assets, pursuant to Section 363(k) of the Bankruptcy Code, and (iii) recharacterize [**2] the Term Lenders' claims, pursuant to Section 105 of the Bankruptcy Code (the "Motion") [ECF No. 496]. The Debtors seek this relief based on their allegations of inequitable conduct by the Term Lenders and certain of their affiliates and the impact on this case of a credit bid by the Term Lenders.
The Court held a trial with fourteen live witnesses from August 15, 2012 to August 23, 2012 (the "Trial"). In support of its case, the Debtors filed declarations in lieu of direct testimony for six witnesses, together with over 400 accompanying exhibits. Those same six witnesses also presented extensive live testimony: Julian R. Geiger (Chief Executive Officer of Aéropostale, Inc.); David J. *** (Chief Financial Officer of Aéropostale, Inc.); Robert J. Duffy (managing director at Berkeley Research Group, LLC); Deborah Palmer Keiser (founding owner of Rituel Inc. and president of Alabama Chanin); James Doak (managing director at Miller Buckfire & Co., LLC); and Allen Ferrell (economist and Greenfield Professor of Securities Law at Harvard Law School).
In response to the Debtors' case, the Term Lenders presented declarations for seven witnesses, along with some 500 accompanying exhibits. All of these witnesses also presented [**3] live testimony: Stefan Kaluzny (co-founder and managing director of Sycamore Partners); James Schwartz (Chief Executive Officer of MGF Sourcing US, LLC, and member of the board of directors of MGF Sourcing Holdings, Limited); Peter Morrow (co-founder and managing director of Sycamore Partners); Joseph J. Sciametta (managing director at Alvarez & Marsal North America, LLC); Alan D. Bell (certified public accountant and retired Ernst & Young LLP audit partner); Holly Felder Etlin (managing director at AlixPartners, LLP); and Adam C. Pritchard (Frances and George Skestos Professor of Law at the University of Michigan).
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
555 B.R. 369 *; 2016 Bankr. LEXIS 3146 **
In re: AÉROPOSTALE, INC., et al., Debtors.
Disposition: Motion denied.
liquidity, Sourcing, Lenders, Fung, customer, parties, payment terms, subordination, terms, equitable, bidding, orders, review period, projections, term loan, stock, Prepetition, merchandise, credit bid, threshold, exposure, Tranche, vendor, financing, cases, confidential, trading, sales, inequitable conduct, financial condition
Bankruptcy Law, Bankruptcy, Case Administration, Bankruptcy Court Powers, Types of Claims, Unsecured Priority Claims, Subordination, Contracts Law, Contract Interpretation, Ambiguities & Contra Proferentem, Parol Evidence, Contract Interpretation, Commercial Law (UCC), Standards of Performance & Liability, Breach, Excuse & Repudiation, Adequate Assurance of Performance, Administrative Powers, Estate Property Lease, Sale & Use, Sale of Estate Property, Business & Corporate Law, Shareholder Duties & Liabilities, Piercing the Corporate Veil, Alter Ego, Sham Corporations, Claims, Claim Classification