Case No. 02-12059, (Jointly Administered).United States Bankruptcy Court, N.D. Illinois, Eastern Division.
November 1, 2004
Mark A. Berkoff, Colleen E. McManus, Ann Marie Bredin, PIPER RUDNICK LLP, Chicago, Illinois, Co-Counsel to the Post-Confirmation Committee of Unsecured Creditors.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER SUSTAINING IN PART AND DENYING IN PART OBJECTION OF THE POST-CONFIRMATION COMMITTEE OF UNSECURED CREDITORS OF HA2003, INC., FORMERLY KNOWN AS HA-LO INDUSTRIES, INC., ET AL., TO CLAIM OF GREGORY J. KILREA (CLAIM NO. 2301) PURSUANT TO 11 U.S.C. §§ 105(A), 502(B) AND 502(E), AND FED. R. BANKR. P. 3007
CAROL DOYLE, Bankruptcy Judge
This cause coming to be heard on the Objection of the Post-Confirmation Committee of Unsecured Creditors of HA2003, Inc., Formerly Known as HA-LO Industries, Inc., et al., to Claim of Gregory J. Kilrea (Claim No. 2301) Pursuant to 11 U.S.C. §§ 105(a), 502(b) and 502(e) and Fed.R.Bankr.P. 3007 (the “Objection”), Kilrea having filed a response to the Objection and the Court being fully advised in the premises, the Court hereby (a) makes the following findings of fact and conclusions of law and (b) orders as follows:
FINDINGS OF FACT
1. On July 30, 2001 (the “Petition Date”), HA2003, Inc., formerly known as HA-LO Industries, Inc., LW2003, Inc., formerly known as Lee Wayne Corporation, and Starbelly.com, Inc. (collectively, the “Debtors”) commenced their respective reorganization cases (the “Bankruptcy Cases”) by filing voluntary petitions for relief under §§ 101, et seq. of the Bankruptcy Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the District of Delaware.
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2. The Official Committee of Unsecured Creditors was appointed by the office of the United States Trustee for the District of Delaware on August 20, 2001.
3. On motion of the Official Committee Of Unsecured Creditors, on March 19, 2002, the Bankruptcy Cases were transferred from the District of Delaware to the Northern District of Illinois, Eastern Division (the “Court”) and are being jointly administered under Case No. 02 B 12059.
4. On January 28, 2004, the Court entered an order confirming the Second Amended Plan of Reorganization (Liquidating) Of HA2003, Inc. f/k/a Ha-Lo Industries, Inc., LW2003, Inc. f/k/a Lee Wayne Corporation And Starbelly.com, Inc. As Proposed By The Debtors And Debtors-In-Possession And The Official Committee Of Unsecured Creditors Dated As Of October 30, 2003 (the “Plan”). The Plan became effective on February 10, 2004.
5. The Post-Confirmation Committee of Unsecured Creditors of HA2003, Inc., Formerly Known as HA-LO Industries, Inc., et al. (the “PCC”) was appointed pursuant to Article XII of the Plan and has authority to pursue objections to claims pursuant to Article IX of the Plan. Authority to settle claims objections is provided in Article XI of the Plan.
6. On or about March 1, 2004, Gregory J. Kilrea (the “Claimant”) filed a contingent and unliquidated claim (the “Claim”). The Claim was assigned claim number 2301 by the Debtors’ claims and noticing agent.
7. In the Claim, the Claimant states that he “makes this claim pursuant to Section 8.3 of the Plan of Reorganization of HA-LO, confirmed on January 29, 2004, for damages arising out of the rejection of his contractual indemnity from HA-LO for liabilities arising out of his service as an officer and director of HA-LO.”
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8. The Claim provides that the Claimant “has incurred and continues to incur defense costs” and “may incur additional liability by either a judgment or settlement” in connection with two pending proceedings: (a) a securities class action captione Spagnola et al. v. Gregory J. Kilrea, Lou Weisbach, John R. Kelly Jr., Marc S. Simon, Linden D. Nelson, Bradley Keywell, and Eric Lefkofsky, No. 02 C 0270, pending in the United States District Court for the Northern District of Illinois (the “District Court Case”); and (b) a third party complaint captione J.P. Morgan Partners (SBIC), LLC, Flatiron Fund 1998/99, LLC, Flatiron Associates, LLC, Kenneth G. Pigott, David A. Ramon, Carramore LP, Zebra Investments LP, Coventry Family LP, and Bloomfield Family LP v. John R. Kelley, Jr., Gregory J. Kilrea, Marshall J. Katz, Linden D. Nelson, and Lou Weisbach,
No. 02 A 01601, pending before the Court as an adversary proceeding (the “Adversary Proceeding”).
9. In the Objection, filed on June 9, 2004, the PCC sought disallowance of the Claim in its entirety for a number of reasons, including its assertion that the Claim is a contingent claim for indemnity and thus should be disallowed pursuant to Section 502(e)(1)(B) of the Bankruptcy Code. The PCC expressly reserved its rights to object to the Claim on grounds not stated in the Objection.
10. On or about July 15, 2004, the Claimant filed a response to the Objection, wherein he joined in, adopted and incorporated the responses of (a) Lou Weisbach, who was named a defendant in the District Court Case and a third party defendant in the Adversary Proceeding and (b) Bradley Keywell and Eric Lefkofsky, each of whom was named as a defendant in the District Court Case.
11. On August 18, 2004, the PCC filed a consolidated reply to the responses of the Claimant, Lou Weisbach and Linden D. Nelson, wherein the PCC asserted, among other things,
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that the elements of Section 502(e)(1)(B) have been satisfied and thus the Objection to the Claim should be sustained.
12. On August 25, 2004, counsel to the Claimant and the PCC appeared at the regularly scheduled Omnibus Hearing (the “Hearing”). At the Hearing, the Court read into the record its ruling regarding the relief requested in the Objection and related issues.
CONCLUSIONS OF LAW
13. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).
14. Sufficient notice of the Objection was given.
15. The statutory predicates for the relief provided herein are Sections 105(a), 502(b) and 502(e) of the Bankruptcy Code, and Rule 3007 of the Federal Rules of Bankruptcy Procedure.
ORDER
16. For the reasons stated in the ruling of the Court read into the record at the Hearing, it is hereby ordered that:
A. The Objection is SUSTAINED with respect to any portion of the Claim arising out of or related to the District Court Case. The portion of the Claim arising out of or related to the District Court Case is disallowed and expunged in its entirety.
B. The Objection is DENIED solely with respect to the PCC’s arguments in the Objection based on Section 502(e)(1)(B) of the Bankruptcy Code as such arguments relate to any portion of the Claim arising out of or related to the Adversary Proceeding.
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C. The Objection is CONTINUED for status to November 16, 2004 at 11:00 a.m. before the Hon. Carol Doyle with respect to any and all bases for objection, other than Section 502(e)(1)(B) of the Bankruptcy Code, in connection with the Claim as it relates to the Adversary Proceeding.
17. This Court shall retain jurisdiction over the PCC and the Claimant with respect to any matters related to or arising from the implementation of this Order.
18. This Order is a final Order and shall be effective immediately.
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