Appendix — Handleman Co. v. Capital Factors, Inc.
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APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Nos. 03-1956, 03-1999, 03-2000, 03-2001,
03-2035, 03-2262, 03-2346, 03-2347 &, 03-2348
In the matter of: KMART CORPORATION,
Debdtor-Appellant,
Additional Intervening Appellants.
KNIGHT-RIDDER, INC.; HANDLE- MAN COMPANY:
IRVING PULP & PAPER, LiMITED.
January 22, 2004, Argued.
February 24, 2004, Decided.
JUDGES: Before EASTERBROOK, MANION, and
ROVNER, Circuit Judges.
OPINION
EASTERBROOK, Circuit Judge. On the first day of its
bankruptcy, Kmart sought permission to pay immediately,
and in full, the prepetition claims of all “critical vendors.”
(Technically there are 38 debtors: Kmart Corporation plus 37
of its affiliates and subsidiaries. We call them all Kmart.) The
theory behind the request is that some suppliers may be
unwilling to do business with a customer that is behind in
payment, and, if it cannot obtain the merchandise that its own
customers have come to expect, a firm such as Kmart may be
unable to cerry on, injuring all of its creditors. Full payment
to critical-venaors thus could in principle make even the
disfavored creditors vetter off: they may not be paid in full,
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but they will receive a greater portion of their claims than
they would if the critical-vendors cut off supplies and the
business shut down. Putting the proposition in this way
implies, however, that the debtor must prove, and not just
allege, two things: that, but for immediate full paymert,
vendors would cease dealing; and that the business will gain
enough from continued transactions with the favored vendors
to provide some residual benefii io the remaining, disfavored
creditors, or at least leave them no worse off.
Bankruptcy Judge Sonderby entered a critical-vendors
order just as Kmart proposed it, without notifying any
disfavored creditors, without receiving any pertinent evidence
(the record contains only some sketchy representations by
counsel plus unhelpful testimony by Kmart’s CEO, who
could not speak for the vendors), and without making any
finding of fact that the disfavored creditors would gain or
come out even. The bankruptcy court’s order declared that the
relief Kmart requested—open-ended permission to pay any
debt to any vendor it deemed “critical” in the exercise of
unilaterai discretion, previded that the vendor agreed to
furnish goods on “customary trade terms” for the next two
years—was “in the best interests of the Debtors, their estates
and their creditors”. The order did not explain why, nor did
it contain any legal analysis, though it did cite 11 U.S.C.
§ {05(a). (The bankruptcy court issued two companion orders
covering international vendors and liquor vendors. Analysis
of all three orders is the same, so we do not mention these
two further.)
Kmart used its authority to pay in full the pre-petition debts
to 2,330 suppliers, which collectively received about $300
million. This came froin the $2 billion in new credit (debtor-
in-possession or DIP financing) that the bankruptcy judge
authorized, granting the lenders : aper-priority in post-petition
assets and revenues. See Jn re Qualitech Steel Corp., 276 F.3d
245 (7th Cir. 2001). Another 2,000 or so vendors were not
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deemed “critical” and were not paid. They and 43,000
additional unsecured creditors eventually received about 10
[cent] on the dollar, mostly in stock of the reorganized Kmart.
Capital Factors, Inc., appealed the critical-vendors order
immediately after its zntry on January 25, 2002. A little more
than 14 months later, after all of the critical-vendors had been
paid and as Kmart’s plan of reorganization was on the verge
of approval, District Judge Grady reversed the order author-
izing payment. 291B.R. 818 (N.D. Ill. 2003). He concluded
that neither § 105(a) nor a “doctrine of necessity” supports
the orders.
Appellants insist that, by the time Judge Grady acted, it
was too late. Money had changed hands and, we are told,
cannot be refunded. But why not? Reversing preferential
transfers is an ordinary feature of bankruptcy practice, often
continuing under a confirmed plan of reorganization. See
Mellon Bank, N.A. v. Dick Corp., 351 F.3d 290 (7th Cir.
2003). If the orders in question are invalid, then the critical-
vendors have received preferences that Kmart is entitled to
recoup for the benefit of all creditors. Confirmation of a plan
does not stop the administration of the estate, except to the
extent that the plan itself so provides. Compare /n re Hovis,
356 F.3d 820, 2004 U.S. App. LEXIS 1481, No. 02-2450 (7th
Cir. Feb. 2, 2004), with Jn re UNR Industries, Inc., 20 F.3d
766 (7th Cir. 1994). Several provisions of the Code do forbid
revision of transactions completed under judicial auspices.
For example, the DIP financing order, issued contempor-
aneously with the critical-vendors order, is sheltered by 11
U.S.C. § 364(e): “The reversal or modification on appeal of
an authorization under this section to obtain credit or incur
debt, or of a grant under this section of a priority or a lien,
does not affect the validity of any debt so incurred, or any
priority or lien so granted, to an entity that extended such
credit in good faith, whether or not such entity knew of the
pendency of the appeal, unless such authorization and the
incurring of such debt, or the graiiiing of such priority or lien,
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were stayed pending appeal.” Nothing comparable anywhere
in the Code covers payments made to pre-existing, unsecured
creditors, whether or not the debtor calls them “critical.”
Judges do not invent missing language.
Now it is true that we have recognized the existence of a
long-standing doctrine, reflected in UNR Industries, that
detrimental reliance comparable to the extension of new
credit against a promise of security, or the purchase of assets
in a foreclosure sale, may make it appropriate for judges to
exercise such equitable discretion as they possess in order to
protect those reliance interests. See also Jn re Envirodyne
Industries. Inc., 29 F.3d 301, 304 (7th Cir. 1994). Thus once
action has been taken to distribute assets under a confirmed
plan of reorganization, it would take some extraordinary
event to turn back the clock. These appeals, however, do not
question any distribution under Kmart’s plan; to the contrary,
the plan (which was confirmed after the district court’s
decision) provides that adversary proceedings will be filed to
recover the preferences that the critical vendors have
received. No one filed an appeal, which means that it is
appellants in this court that now wage a collateral attack on
the plan of reorganization.
Appellants say that we should recognize their reliance
interests: after the order, they continued selling goods and
services to Kmart (doing this was a condition of payment for
pre-petition debts). Continued business relations may or may
not be a form of reliance (that depends on whether the
vendors otherwise would have stopped selling), but they are
not dcirimental reliance. The vendors have been paid in full
for post-petition goods and services. If Kmart had become
administratively insolvent, and unable to compensate the
vendors for post-petition transactions, then it might make
sense to permit vendors to retain payments under the critical
vendors order, at least to the extent of the post-petition
deficiency. Because Kmart emerged as an operating business,
Sa
however, no such question arises. The vendors have not
established that any reliance interest—let alone any language
in the Code—blocks future attempts to recover preferential
transfers on account of prepetition debts.
Handleman Company, which received $49 million as
a critical vendor, makes a different procedural objection: that
the district court’s order does not affect it because Capital
Factors’ notice of appeal did not name Handleman as
an appellee. Handleman was not a “party” in the district court
and, consistent with the due process clause of the fifth amend-
ment, cannot be bound by the district judge’s decision— or so
it says. We permitted Handleman to intervene in this court.
Thus it is a party today and will be bound by our decision, so
it is hard to see why it matters whether the district judge’s
resolution would have had independent effect.
Notices of appeal in bankruptcy must name “all parties to
the judgment, order, or decree appealed from”. Fed. R. Bankr.
P. 8001(a)(2). Handleman was not a “party” to the critical-
vendors order; Kmart was the sole party at the time. Kmart
filed an ex parte application that did not specify any
particular creditor. It had notified only 65 creditors of its
impending request, and none of these was among the 2,000
vendors to be left high and dry. The bankruptcy judge’s order
likewise did not identify any creditor that acquired rights, for
no creditor acquired rights. All the order did was authorize
Kmart to pay any vendor that Kmart in its discretion deemed
“critical.” The party that Capital Factors had to name thus
was Kmart itself, and this it did. If the lack of personal notice
about the proceedings before the district judge deprived
Handleman of due process, then Kmart’s application to the
bankruptcy judge deprived about 47,000 unsecured creditors
of due process! That would render the critical-vendors order
void, and Handleman would be worse off—for then it would
have to repay the money even if the order’s entry otherwise
would have been lawful. But there is no constitutional
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obligation to make every creditor a party to every contested
matter in the bankruptcy. As a rule, a trustee or debtor in
possession represents the interests of many stakeholders.
Kmart vigorously represented the interests of Handleman and
the other vendors Kmart deemed “critical”.
Other creditors must look out for their own interests and
intervene if need be—as Handleman could have done had it
devoted to these proceedings the care that a $ 49 million stake
warrants. Handleman will be a party, and receive all the
notice that the Constitution requires, if Kmart initiates a
preference-recovery action against it. As a party in this court,
Handleman will not be allowed to contest matters resolved
here; even the 2,327 critical vendors that are not parties in
this court must accept the precedential effect of our decision.
No ruie of law requires personal notice to all entities that
might be affected by the precedential (as opposed to the
preclusive) force of an appellate decision. Today’s opinion
affects thousands of “critical vendors” and other unsecured
creditors; decisions by the Supreme Court may affect millions
of persons. Only those persons who will be formally bound
by a decision are entitled to individual notice, and then only
when practical (the lesson of many a class action, see
Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 2004 U.S.
App. LEXIS 1326, *14-15, No. 03-1069 (7th Cir. Jan. 29,
2004). So there was no flaw in the notice of appeal or the
district judge’s view that Kmart and Capital Factors were the
only parties to the proceedings.
Thus we arrive at the merits. Section 105(a) allows a
bankruptcy court to “issue any order, process, or judgment
that is necessary or appropriate to carry out the provisions of”
the Code. This does not create discretion to set aside the
Code’s rules about priority and distribution; the power
conferred by § 105(a) is one to implement rather than
override. See Norwest Bank Worthington v. Ahlers, 485 US.
197, 206, 99 L. Ed. 2d 169, 108 S. Ct. 963 (1988); Jn re
Ta
Fesco Plastics Corp., 996 F.2d 152, 154 (7th Cir. 1993). Cf.
United States v. Noland, 517 U.S. 535, 542, 134 L. Ed. 2d
748, 116 S. Ct. 1524 (1996). Every circuit that has considered
the question has held that this statute does not allow a
bankruptcy judge to authorize full payment of any unsecured
debt, unless all unsecured creditors in the class are paid in
full. See In re Oxford Management Inc., 4 F.3d 1329 (Sth Cir.
1993); Official Committee of Equity Security Holders v.
Mabey, 832 F.2d 299 (4th Cir. 1987); In re B&W Enterprises,
Inc., 713 F.2d 534 (9th Cir. 1983). We agree with this view of
§ 105. “The fact that a [bankruptcy] proceeding is equitable
does not give the judge a free-floating discretion to
redistribute rights in accordance with his personal views of
justice and fairness, however enlightened those views may
be.” In re Chicago, Milwaukee, St. Paul & Pacific R.R., 791
F.2d 524, 528 (7th Cir. 1986).
A “doctrine of necessity” is just a fancy name for a power
to depart from the Code. Although courts in the days before
bankruptcy law was codified wielded power to reorder
priorities and pay particular creditors in the name of “neces-
sity’—see Miltenberger v. Logansport Ry., 106 U.S. 286, 27
L. Ed. 117, 1 S. Ct. 140 (1882); Fosdick v. Schall, 99 US.
235, 25 L. Ed. 339 (1878)—today it is the Code rather than
the norms of nineteenth century railroad reorganizations that
must prevail. Miltenberger and Fosdick predate the first
general effort at codification, the Bankruptcy Act of 1898.
Today the Bankruptcy Code of 1978 supplies the rules.
Congress did not in terms scuttle old common-law doctrines,
because it did not need to; the Act curtailed, and then the
Code replaced, the entire apparatus. Answers to contemp-
orary issues must be found within the Code (or legislative
halls). Older doctrines may survive as glosses on ambiguous
language enacted in 1978 or later, but not as freestanding
entitlements to trump the text. See, e.g., Lamie v. United
States Trustee, 157 L. Ed. 2d 1024, 124 S. Ct. 1023, 1031
(U.S. 2004); United States v. Ron Pair Enterprises, Inc., 489
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U.S. 235, 242-46, 103 L. Ed. 2d 290, 109 S. Ct. 1026 (1989);
Bethea v. Robert J. Adams & Associates, 352 F.3d 1125,
1128-29 (7th Cir. 2003). See also Noland (courts lack
authority to subordinate creditors that judges, as opposed to
legislators, believe should be lower in the hierarchy).
So does the Code contain any grant of authority for debtors
to prefer some vendors over others? Many sections require
equal treatment or specify the details of priority when assets
are insufficient to satisfy all claims. F.g., 11 U.S.C.
§§ 507,-422(a), 1123(a)(4). Appellants rely on 11 U.S.C.
§§ 363(b), 364(b), and 503 as sources of authority for unequal
treatment. Section 364(b) reads: “The court, after notice and a
hearing, may authorize the trustee to obtain unsecured credit
or to incur unsecured debt other than under subsection (a) of
this section, allowable under section 503(b)(1) of this title as
an administrative expense.” This authorizes the debtor to
obtain credit (as Kmart did) but has nothing to say about how
the money will be disbursed or about priorities among
creditors. To the extent that Jn re Payless Cashways, Inc., 268
B.R. 543 (Bankr. W.D. Mo. 2001), and similar decisions,
hold otherwise, they are unpersuasive. Section 503, which
deals with administrative expenses, likewise is irrelevant.
Pre-filing debts are not administrative expenses; they are the
antithesis of administrative expenses. Filing a petition for
bankruptcy effectively creates two firms: the debts of the pre-
filing entity may be written down so that the post-filing entity
may reorganize and continue in business if it has a positive
cash flow. See Boston & Maine Corp. v. Chicago Pacific
Corp., 785 F.2d 562 (7th Cir. 1986). Treating pre-filing debts
as “administrative” claims against the post-filing entity would
impair the ability of bankruptcy law to prevent old debts from
sinking a viable firm.
That leaves § 363(b)(1): “The trustee [or debtor in pos-
session], after notice and a hearing, may use, sell, or lease,
other than in the ordinary course of business, property of the
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estate.” This is more promising, for satisfaction of a pre-
petition debt in order to keep “critical” supplies flowing is a
use of property other than in the ordinary course of
administering an estate in bankruptcy. Capital Factors insists
that § 363(b)(1) should be limited to the commencement of
capital projects, such as building a new plant, rather than
payment of old debts—as paying vendors would be “in the
ordinary course” but for the intervening bankruptcy petition.
To read § 363(b)(1) broadly, Capital Factors observes, would
be to allow a judge to rearrange priorities among creditors
(which is what a critical-vendors order effectively does), even
though the Supreme Court has cautioned against such a step.
See United States v. Reorganized CF&I Fabricators. of Utah,
Inc., 518 U.S. 213, 135 L. Ed. 2d 506, 116 S. Ct. 2106
(1996); Noland, supra. Yet what these decisions principally
say is that priorities do not change unless a statute supports
that step; and if § 363(b)(1) is such a statute, then there is no
insuperable problem. If the language is too open-ended, that
is a problem for the legislature. Nonetheless, it is prudent to
read, and use, § 363(b)(1) to do the least damage possible to
priorities established by contract and by other parts of the
Bankruptcy Code. We need not decide whether § 363(b)(1)
could support payment of some pre-petition debts, because
this order was unsound no matter how one reads § 363(b)(1).
The foundation of a critical-vendors order is the belief that
vendors not paid for prior deliveries will refuse to make new
ones. Without merchandise to sell, a retailer such as Kmart
will fold. If paying the critical vendors would enable a
successful reorganization and make even the disfavored
creditors better off, then all creditors favor payment whether
or not they are designated as “critical.” This suggests a use of
§ 363(b)(1) similar to the theory underlying a plan crammed
down the throats of an impaired class of creditors: if the
impaired class does at least as well as it would have under a
Chapter 7 liquidation, then it has no legitimate objection and
cannot block the reorganization. See generally Bank of
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America v. 203 N. LaSalle St. Partners, 526 U.S. 434, 143 L.
Ed. 2d 607, 119 S. Ct. 1411 (1999). For the premise to hold
true, however, it is necessary to show not only that the
disfavored creditors will be as well off with reorganization as
with liquidation—a demonstration never attempted in this
proceeding—but also that the supposedly critical vendors
would have ceased deliveries if old debts were left unpaid
while the litigation continued. If vendors will deliver against
a promise of current payment, then a reorganization can be
achieved, and all unsecured creditors will obtain its benefit,
without preferring any of the unsecured creditors.
Some supposedly critical vendors will continue to do
business with the debtor because they must. They may, for
example, have long term contracts, and the automatic stay
prevents these vendors from walking away as long as the
debtor pays for new deliveries. See 11 U.S.C. § 362. Fleming
Companies, which received the largest critical-vendors
payment because it sold Kmart between $70 million and $
100 million of groceries and related goods weekly, was one
of these. No matter how much Fleming would have liked to
dump Kmart, it had no right to do so. It was unnecessary to
compensate Fleming for continuing to make deliveries that it
was legally required to make. Nor was Fleming likely to walk
away even if it had a legal right to do so. Each new delivery
produced a profit; as long as Kmart continued to pay for new
product, why would any vendor drop the account? That
would be a self-inflicted wound. To abjure new profits
because of old debts would be to commit the sunk-cost
fallacy; well-managed businesses are unlikely to do this.
Firms that disdain current profits because of old losses are
unlikely to stay in business. They might as well burn money
or drop it into the ocean. Again Fleming illustrates the point.
When Kmart stopped buying its products after the contract
expired, Fleming collapsed (Kmart had accounted for more
than 50% of its business) and filed its own bankruptcy
od
———
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petition. Fleming was hardly likely to have quit selling of its
own volition, only to expire the sooner.
Doubtless many suppliers fear the prospect of throwing
good money after bad. It therefore may be vital to assure
them that a debtor will pay for new deliveries on a current
basis. Providing that assurance need not, however, entail
payment for pre-petition transactions. Kmart could have paid
cash or its equivalent. (Kmart’s CEO told the bankruptcy
judge that COD arrangements were not part of Kmart’s
business plan, as if a litigant’s druthers could override the
rights of third parties.) Cash on the barrelhead was not the
most convenient way, however. Kmart secured a $2 billion
line of credit when it entered bankruptcy. Some of that credit
could have been used to assure vendors that payment would
be forthcoming for all post-petition transactions. The easiest
way to do that would have been to put some of the $2 billion
behind a standby letter of credit on which the bankruptcy
judge could authorize unpaid vendors to draw. That would
not have changed the terms on which Kmart and any of its
vendors did business; it just would have demonstrated the
certainty of payment. If lenders are unwilling to issue such a
letter of credit (or if they insist on a letter’s short duration),
that would be a compelling market signal that reorganization
is a poor prospect and that the debtor should be liquidated
post haste.
Yet the bankruptcy court did not explore the possibility of
using a letter of credit to assure vendors of payment. The
court did not find that any firm would have ceased doing
business with Kmart if not paid for pre-petition deliveries,
and the scant record would not have supported such a finding
had one been made. The court did not find that discrimination
among unsecured creditors was the only way to facilitate a
reorganization. It did not find that the disfavored creditors
were at least as well off as they would have been had the
critical-vendors order not been entered. For all the millions at
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stake, this proceeding looks much like the Chapter 13
reorganization that produced Jn re Crawford, 324 F.3d 539
(7th Cir. 2003). Crawford had wanted to classify his creditors
in a way that would enable him to pay off those debts that
would not be discharged, while stiffing the creditors whose
debts were dischargeable. We replied that even though
classification (and thus unequal treatment) is possible for
Chapter 13 proceedings, see 11 U.S.C. § 1322(b), the step
would be proper only when the record shows that the
classification would produce some benefit for the disfavored
creditors. Just so here. Even if § 362(b)(1) allows critical-
vendors orders in principle, preferential payments to a class
of creditors are proper only if the record shows the prospect
of benefit to the other creditors. This record does not, so the
critical-vendors order cannot stand.
AFFIRMED
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APPENDIX B
UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION
No. 02 C 1264 (CONSOLIDATED WITH 02 C
1265, 02 C 2086, 02 C 2088)
CAPITAL FACTORS, INC.,
Appellant,
V.
KMART CORPORATION,
Appellee.
April 8, 2003, Decided
April 10, 2003, Docketed
JOHN F. GRADY, United States District Judge.
MEMORANDUM OPINION
Capital Factors, Inc. appeals from four final orders of the
bankruptcy court that authorized Kmart to pay certain pre-
petition obligations. For the reasons explained below, the
bankruptcy court’s orders are reversed.
BACKGROUND
On January 22, 2002, Kmart Corporation and certain of its
domestic subsidiaries and affiliates, debtors and debtors-in-
possession (collectively, “Kmart”) filed a voluntary petition -
for reorganization pursuant to Chapter 11 of the United States
Bankruptcy Code. As part of its “first day motions” filed on
that date, Kmart sought authority to pay prepetition obli-
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gations to certain “critical vendors” (the “Critical Vendors
Motion”) and certain foreign vendors (the “Foreign Vendors
Motion”). Kmart contended that these payments were neces-
sary to maintain relationships essential to its continued opera-
tion and reorganization, and it invoked the “doctrine of
necessity” and 11 U.S.C. § 105(a) for the bankruptcy court’s
authority to permit these payments.
The same day, the bankruptcy court held a hearing and
heard evidence on these motions. Appellant Capital Factors,
Inc. (“Capital”) objected to both motions. (Capital is a
factoring agent nl for a number of Kmart’s apparel suppliers,
and it holds general unsecured claims against the bankruptcy
estate of approximately $ 20 million.)!
Regarding the Critical Vendors Motion, the court stated:
Motions to pay certain critical trade creditors always
present difficult questions for courts. We’re seeing more
and more of them, and our problem is that we have to
stretch to find some authority to do them. However, I,
after hearing this testimony and reading the affidavit [of
Charles C. Conaway, Kmart’s Chief Executive Officer],
am convinced that Fleming, Handleman and the egg and
dairy vendors—and I would like a list of the specific
vendors that you would like included in this motion--as
well as the advertising concerns, are necessary to keep
this business going as a going concern.
(App. to Appellee’s Brief, Ex. 4A, at 162.) Accordingly, the
bankruptcy court granted the Critical Vendors Motion.
Without reciting specific findings from the bench, the
bankruptcy court also granted the Foreign Vendors Motion.
'A factoring agent purchases accounts receivable from its custo-
mers and assumes the collection responsibilities. See Mr. Furniture
Warehouse, Inc. v. Barclays Am./Commercial Inc., 919 F.2d 1517, 1519
(11th Cir. 1990).
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(/d. at 173.) On January 25, the bankrunicy court entered
written orders granting both motions.
On February 1 and 8, 2002, Kmart filed motions see-
king authority to pay issuers of prepetition letters of credit
(the “Letters of Credit Motion”) and prepetition claims of
certain liquor vendors (the “Liquor Vendors Motion”). On
February 13, the bankruptcy court held a hearing on these
motions, heard evidence, and granted both motions over
Capital’s objections. Regarding the Letters of Credit Motion,
the court stated:
Because the foreign vendors are intesral to the
reorganization of this Debtor and the Court already ruled
on the payment of certain foreign vendors as part of the
critical vendors motions and I believe that this is just a
component of that particular transaction, and further
finding that I may be inconsistent if I do not grant the
relief that is requested here, I am going to go ahead and
sign your order authorizing the reimbursement of the
obligations to the issuers of Letters of Credit.
(/d., Ex. 4B, at 251.) The bankruptcy court also granted
the Liquor Vendors motion, “finding that there [was] a good
business justification for it.” (/d. at 269.) Written orders
granting the motions were entered that same day.
Capital filed notices of appeal from each order, and we
granted Capital’s motion to consolidate the appeals. The
parties’ briefing is complete, and we heard oral argument on
the appeals as well.
DISCUSSION
This court has jurisdiction over the instant appeals pursuant
to 28 U.S.C. § 158(a)(1). On appeal from an order of the
bankruptcy court, we review the bankruptcy court’s factual
findings under a “clearly erroneous” standard and its con-
"7
l6a
clusions of law de novo. See In re Smith, 286 F.3d 461, 464-
65 (7th Cir. 2002); Fed. R. Bankr. P. 8013.
Capital raises the following issues on appeal: (1) whether
11 U.S.C. § 105(a) or the “doctrine of necessity” provides a
bankruptcy court with either statutory authority or equitable
power to allow the payment of selected prepetition unsecured
trade claims prior to confirmation of a Chapter 11 plan’; (2)
whether there was a sufficient evidentiary basis for the
bankruptcy court to allow payment of certain prepetition
claims; and (3) whether state laws prohibiting liquor
wholesalers from selling products to Chapter 11 debtors
legally unable to pay their prepetition debt are invalid or
unenforceable to the extent that they conflict with the
Bankruptcy Code. Kmart raises the additional issue of
whether Capital’s appeals are moot because Kmart has
already paid a substantial portion of the prepetition claims.
A. The Bankruptcy Court’s Power Under § 105
We first examine the question of whether the bankruptcy
court had the power to authorize the pre-plan payment of
prepetition claims. The court relied on 11 U.S.C. § 105(a) to
authorize the payments. Section 105(a) addresses the
equitable powers of bankruptcy courts and provides:
The court may issue any order, process, or judgment that
is necessary or appropriate to carry out the provisions of
this title. No provision of this title providing for the
raising of an issue by a party in interest shall be
? For convenience, we will refer to the time period prior to con-
firmation of a Chapter 11 plan as “pre-plan.”
* Capital also raises what it deems a separate issue of whether “a
bankruptcy court may utilize” § 105(a) or the “doctrine of necessity” “to
circumvent explicit provisions of the Bankruptcy Code.” (Appellant’s
Brief at 2.) We view this issue as being part and parcel of the first issue
listed supra.
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construed to preclude the court from, sua sponte, taking
any action or making any determination necessary or
appropriate to enforce or implement court orders or
rules, or to prevent an abuse of process.
11 U.S.C. § 105(a). Although the bankruptcy court did not
refer specifically to the equitable “doctrine of necessity”
when ruling on the motions in open court or in its written
orders,’ Kmart relies on the doctrine. It is derived from the
“necessity of payment rule,” which was developed and used
in railroad reorganizations “as justification for the payment of
pre-petition debts paid under duress to secure continued
supplies or services essential to the continued operation of the
railroad.” B & W Enters., Inc. v. Goodman Oil Co. (InreB&
W Enters., Inc.), 713 F.2d 534, 537 (9th Cir. 1983). The rule
has subsequently evolved into the “doctrine of necessity,”
which has been applied in non-railroad reorganizations to
justify the pre-plan payment of prepetition claims of creditors
who threaten to withhold goods or services believed critical
to the debtor’s continued viability and reorganization.” The
doctrine is not codified anywhere in the Bankruptcy Code, so
the only way to apply it is through § 105.
The Seventh Circuit has stated that the grant of equitable
power in § 105 is limited in that it “allows [bankruptcy]
Courts to use their equitable powers only as necessary to
enforce the provisions of the Code, not to add on to the Code
as they see fit.” In re Fesco Plastics Corp., 996 F.2d 152, 156
(7th Cir. 1993); see also Gouveia v. Tazbir, 37 F.3d 295, 300
(7th Cir. 1994) (“The Supreme Court has taught that any
grant of authority given to the bankruptcy courts under § 105
* As noted supra, the bankruptcy court did, however, find that the
payments were “necessary,” “integral,” and that there was “good business
justification” for them.
* See 2 William L. Norton, Jr., Norton Bankr. L. & Prac. 2d § 42:11
(Supp. 2002), for a good discussion of the doctrine’s history.
ernment
18a
must be exercised within the confines of the bankruptcy
code.”) (citing Norwest Bank Worthington v. Ahlers, 485 U.S.
197, 99 L. Ed. 2d 169, 108 S. Ct. 963 (1988)).
The Bankruptcy Code sets forth a priority scheme for the
payment of claims. See 11 U.S.C. §§ 503, 507. The Code
does not carve out priority or administrative expense status
for prepetition general unsecured claims based on the
“critical” or “integral” status of a creditor. But the effect of
the bankruptcy court’s orders was to elevate the claims of the
“critical” vendors over those of other unsecured creditors and
to subordinate the claims of non-”critical” unsecured
creditors. The bankruptcy court altered the priority scheme
set forth in the Bankruptcy Code.
There is a split in the courts regarding whether § 105
authorizes bankruptcy courts to permit pre-plan payment of
prepetition unsecured claims. As set forth in Kmart’s briefs,
many bankruptcy courts and a handful of district courts have
held that bankruptcy courts do in fact have this power. See,
e.g., In re Just For Feet, Inc., 242 B.R. 821 (D. Del. 1999);
Michigan Bureau of Workers’ Disability Comp. v.
Chateaugay Corp. (In re Chateaugay Corp.), 80 B.R. 279
(S.D.N.Y. 1987); In re CoServ, L.L.C., 273 B.R. 487 (Bankr.
N.D. Tex. 2002); In re Wehrenberg, Inc., 260 B.R. 468
(Bankr. E.D. Mo. 2001).
On the other hand, as Capital points out, a number of
courts of appeals and a few lower courts have held just the
opposite. See, e.g., Official Comm. of Equity Sec. Holders v.
Mabey, 832 F.2d 299 (4th Cir. 1987); B & W Enters., Inc. v.
Goodman Oil Co. (In re B & W Enters., Inc.), 713 F.2d 534
(9th Cir. 1983); Chiasson v. J. Louis Matherne & Assocs. (In
re Oxford Mgmt. Inc.), 4 F.3d 1329 (Sth Cir. 1993); In re
FCX, Inc., 60 B.R. 405 (E.D.N.C. 1986); In re Timberhouse
PCT Es PL TE AY BE RS SPS ALR AL ITE EPR RN 9 SIG SERENE
Sa OC. de
SLE AT EE eM OE OP
ERT PrP eR Cod AO
19a
Post & Beam, Ltd., 196 B.R. 547 (Bankr. D. Mont. 1996).°
We agree with the latter courts’ view that we cannot ignore
the Bankruptcy Code’s statutory scheme of priority in favor
of “equity,” especially in light of the Seventh Circuit’s
admonition that “the fact that a [bankruptcy] proceeding is
equitable does not give the judge a free-floating discretion to
redistribute rights in accordance with his personal views of
justice and fairness, however enlightened those views may
be.” Jn re Chicago, Milwaukee, St. Paul & Pac. R.R. Co., 791
F.2d 524, 528 (7th Cir. 1986).
We acknowledge that the appiication of the “doctrine of
necessity” through § 105 in this situation is well-intended and
may even have some beneficial results, in that pre-plan
payment of certain prepetition claims allows the debtor to
minimize disruptions in doing business, and thus may further
reorganization. Nevertheless, it is clear that however useful
and practical these payments may appear to bankruptcy
courts, they simply are not authorized by the Bankruptcy
Code. Congress has not elected to codify the doctrine of
necessity or otherwise permit pre-plan payment of prepetition
unsecured claims.
Because we hold that the bankruptcy court did not have
either the statutory or equitable power to authorize the pre-
plan payment of prepetition unsecured claims, we need not
address the second and third issues Capital raises on appeal.
“cs Shapiro v. Saybrook Mfg. Co. (In re Saybrook Mfg Co.), 963 F.2d
1490 (11th Cir. 1992) (bankruptcy court had no authority to allow cross-
collaterization, a method of securing prepetition debt with prepetition and
postpetition collateral); Southern Ry. Co. v. Johnson Bronze Co. (in re
Johnson Bronze Co.), 758 F.2d 138 (3d Cir. 1985) (bankruptcy court had
no authority to grant lien status to a prepetition contractual indem-
nification claim); Crowe & Assocs., Inc. v. Bricklayers & Masons Union
Local No. 2 (In re Crowe & Assocs., Inc.), 713 F.2d 21 1, 216 (6th Cir.
1983) (dictum).
20a
B. “Equitable Mootness”
Kmart does not persuade us that Capital’s appeals are moot
due to the fact that the prepetition claims have been
substantially paid. Kmart makes much of the fact that Capital
did not seek a stay of the bankruptcy court’s orders. It is
highly unlikely, however, that a motion to stay would have
been successful. It would be inconsistent for the bankruptcy
court to enter the orders on the theory that prompt payments
were necessary to keep Kmart operational, and then turn
around and stay those orders.’ In any event, Capital was not
required to seek a stay of the orders in order to preserve its
appellate rights.
Kmart also argues that the appeals are “equitably moot”
because effective relief on appeal has become imprudent and
inequitable. The term “equitable mootness” was “anathema-
tized by Judge Easterbrook”® in the case of In re UNR
Industries, Inc., 20 F.3d 766, 768 (7th Cir. 1994). The
Seventh Circuit in UNR “banished the term ‘equitable
mootness’ from the (local) lexicon,” 20 F.3d at 769, because
it is misleading: “there is a big difference between inability to
alter the outcome (real mootness) and unwillingness to alter
the outcome (‘equitable mootness’).” Jd. Nonetheless, the
“now nameless doctrine” lives on and “is perhaps best
described as merely an application of the age-old principle
that in formulating equitable relief a court must consider the
effects of the relief on innocent third parties.” Envirodyne, 29
F.3d 301 at 304. The basic questions under the doctrine, then,
” See Charles Jordan Tabb, Emergency Preferential Orders in
Bankruptcy Reorganizations, 65 Am. Bankr. L.J. 75, 108 (1991).
® In re Envirodyne Indus., Inc., 29 F.3d 301, 304 (7th Cir. 1994).
2la
are these: is it prudent and fair to undo what the bankruptcy
court did?’ See UNR, 20 F.3d at 769: Envirodyne, 29 F.3d
at 304.
Kmart argues that we should not reverse the orders
allowing payment of the prepetition claims because the
parties receiving the payments have already acted in reliance
on them. As noted Supra note 9, however, this is not a
situation where there has been confirmation of a bankruptcy
plan. Accordingly, it is not too late to order that the monies
paid be returned. Kmart also claims that undoing the
bankruptcy court’s orders would “paralyze” Kmart by forcing
it to “undergo the Herculean task of immediately com-
mencing thousands of lawsuits to collect hundreds of millions
of dollars from thousands of vendors.” (Appellee’s Brief at
45-46.) We are not persuaded by Kmart’s doomsday specu-
lations. It is not evident that Kmart will have to sue to recover
the payments, and in fact, Kmart cites no cases indicating that
the bankruptcy court would not have the power to order the
return of the monies paid.
C. J.P. Morgan Chase’s Brief
J.P. Morgan Chase (“JPM”), which is an “administrative
agent for the lenders under various pre-petition credit
agreements among such lenders and Kmart” (JPM Brief at 1),
has filed a supplemental brief regarding the Letters of Credit
Motion. JPM contends that, even if the bankruptcy court did
not have the authority under § 105 to authorize Kmart to pay
the prepetition claims of the issuers of the letters of credit, the
court “properly allowed those payments [pursuant to § 361 of
* As Capital points out, it is worth noting that most of the cases ad-
dressing or applying the doctrine involved appeals of orders confirming
bankruptcy plans of reorganization. See, e.g., UNR, 20 F.3d 766; Mac
Panel Co. v. Virginia Panel Corp., 283 F.3d 622 (4th Cir. 2002). Those
Cases are distinguishable from the instant proceeding because there has
not yet been a confirmation of Kmart’s plan.
22a
the Bankruptcy Code] on the basis that such payments
constituted adequate protection for the Issuers’ secured
reimbursement claims under the Letters of Credit.” (JPM
Brief at 2.) According to JPM, the issuers had statutory liens
in the documents and the proceeds thereof presented by the
foreign vendors to obtain payment under the letters of credit,
and the issuers were entitled to adequate protection of those
liens under § 361 of the Code. o
In authorizing the payments to the issuers of the letters of
credit, the bankruptcy court did not rely on § 361. We may
affirm the bankruptcy court’s decision on an alternative
ground, but that ground must have been adequately presented
in the bankruptcy court. See Anderson v. U.S.F. Logistics
(IMC), Inc., 274 F.3d 470, 478 (7th Cir. 2001) (citing Logan
v. Caterpillar, Inc., 246 F.3d 912, 924 (7th Cir. 2001)).
Neither Kmart nor the issuers raised the adequate protection
issue at the hearing on the Letters of Credit Motion. The
bankruptcy court was not presented with evidence on whether
the issuers held valid security interests nor whether they were
entitled to adequate protection. There is an insufficient basis
° Section 361 provides:
When adequate protection is required under section 362, 363, or 364
of this title of an interest of an entity in property, such adequate
protection may be provided by—
1) requiring the trustee to make a cash payment or periodic cash
payments to such entity, to the extent that the stay under section 362
of this title, use, sale, or lease under section 363 of this title, or any
grant of a lien under section 364 of this title results in a decrease in
the value of such entity’s interest in such property;
2) providing to such entity an additional or replacement lien to the
extent that such stay, use, sale, lease, or grant results in a decrease in
the value of such entity’s interest in such piuperty; or
3) granting such other relief, other than entitling such entity to
compensation allowable under section 503(b)(1) of this title as
an administrative expense, as will result in the realization by such
entity of the indubitable equivalent of such entity’s interest in
such property.
ee
23a
in the record to allow a finding that the payments to the
issuers constituted adequate protection under § 361 of the
Bankruptcy Code.
CONCLUSION
For the foregoing reasons, the following orders of the
bankruptcy court are reversed: (1) Order Under 11 U.S.C.
§ 105 (a) Authorizing the Payment of Prepetition Claims of
Certain Critical Trade Vendors; (2) Order Pursuant to 11
U.S.C. §§ 105 (a) and 363 Authorizing Payment of Pre-
petition Obligations Necessary to Obtain Imported Merchan-
dise; (3) Order Pursuant to 11 U.S.C. §§ 105(a) and 363
Authorizing the Debtors to Honor Reimbursement Obliga-
tions to Issuers of Pre-Petition Letters of Credit Issued for the
Benefit of the Debtors’ Foreign Vendors; and (4) Order
Under 11 U.S.C. § 105(a) Authorizing the Payment of
Prepetition Claims of Certain Liquor Vendors.
The case is remanded for further proceedings consistent
with this opinion.
DATE: April 8, 2003
ENTER:
John F. Grady, United States District Judge
24a
APPENDIX C
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
[Filed Jan. 26, 2002]
Case No. 02-B02474
(Jointly Administered)
Chapter 11
Chief Judge Susan Pierson Sonderby
In re: KMART CORPORATION, ef al.,
Debtors.
ORDER UNDER 11 U.S.C. 105(a) AUTHORIZING THE
PAYMENT OF PREPETITION CLAIMS OF
CERTAIN CRITICAL TRADE VENDORS
Upon the motion dated January 22, 2002 (the “Motion”),
wherein Kmart Corporation (“Kmart”) and certain of its
domestic subsidiaries and affiliates, debtors and debtors-in-
possession in the above-captioned eases (collectively, the
“Debtors” or the “Company”), moved this Court for entry of
an order, pursuant to section 105(a) authorizing the Debtors
to pay Critical Vendor Claims; it appearing to the Court that
(i) it has jurisdiction over the matters raised the Motion
pursuant to 28 U.S.C. §§ 157 and 1334; (ii) this is a core
proceeding pursuant to 28 U.S.C. 157(b)(2); (iii) the relief
requested in the Motion is in the best interests of the Debtors,
their estates and their creditors; (iv) proper and adequate
notice of the Motion and the hearing thereon has been given
and that no other or further notice is necessary; and (v)
upon the record herein, including the exhibits attached to the
Notice of Filing of Exhibits as Ordered by the Court at the
25a
January 22, 2002 Hearing, filed on or about January 25, 2002,
after due deliberation thereon, the relief should be granted as
set forth below,
1. The Debtors are authorized, but not directed, in the
reasonable exercise of their business judgment, to
pay all, a portion or none of the prepetition claims (the
“Critical Vendor Claims”) of the following “Critical
Vendors”: (a) Fleming Companies, Inc,; (b) Hand-
leman Company; (c) vendors who supply egg and dairy
and (d) certain newspapers, printers, paper suppliers and
other vendors who supply goods and services related to
i the Debtors’ advertising program The payment of the
Critical Vendor Claims shall not exceed those set forth
4 in the Motion upon such terms and in the manner
i provided in this Order and subject to the provisions of the
Debtors’ postpetition financing agreement.
‘ 2. Any checks used by the Debtors to pay Critical Vendor
Claims shall contain a legend substantially in the
following form:
By accepting this check, the payee agrees to the terms
of that certain Order of the United States Bank-
ruptcy Court for the Northern District of Illinois, dated
as of , in the payor’s chapter 11 case (Case No
), entitled “Order Under 11 U.S.C. § 105(a)
Authorizing the Payment of Prepetition Claims of
i Certain Critical Trade Vendors,” (including, if appli-
cable, any Trade Agreement entered into pursuant to that
e
Order) and submits to the jurisdiction of that Court for
enforcement thereof.
3. The Debtors shall undertake appropriate efforts to cause
Critical Vendors to enter into an agreement with the
Debtors as provided herein as a condition of payment of
Sp ats PEN ES pa by
<
*
&
?
26a
their Critical Vendor Claims, which agreement shall in-
clude the following terms:
(a)The amount of such Critical Vendor’s estimated Criti-
cal Vendor Claims, accounting for any setoffs, other
credits and discounts thereto, shall be as mutually
determined in good faith by the Critical Vendor and the
Debtors (but such amount shall be used only for the
purposes of determining such Critical Vendor’s claim
under this Order and shall not he deemed a claim
allowed by the Court and the rights of all interested
persons to object to such claim shall be fully preserved
until further order of this Court);
(b)The Customary Trade Terms between such Critical -
Vendor and the Debtors, or such other terms as the
Critical Vendors and the Debtors may agree;
(c)The Critical Vendor’s agreement to provide goods
and services to the Debtors based upon Customary Trade
Terms or on such other favorable terms as the Debtors
and the Critical Vendor may otherwise agree, for a
period at least two (2) years from the Petition Date,
and the Debtors’ agreement to pay in accordance with
such terms;
(d)The Critical Vendor’s agreement not to file or other-
wise assert against any or all of the Debtors, their estates
or any other person or entity or any of their respective
assets or property (real or personal) any lien (a “Lien”),
regardless of the statute or other legal authority upon
which such Lien is asserted, related in any way to any
remaining prepetition amounts allegedly owed to the
Critical Vendor by the Debtors arising from agreements
or other arrangements entered into prior to the petition
Date, and, to the extent the Critical Vendor has already
obtained or otherwise asserted such a Lien, the Critical
Vendor shall take whatever actions are necessary to
remove such Lien;
Se Pa
27a
(e)The Critical Vendor’s acknowledgment that is has
reviewed the terms and provisions of this order and
consents to be bound hereby; and
(f)The Critical Vendor’s agreement that it will not
Separately seek payment for reclamation claims outside
the terms of this Order unless the Critical Vendor’s
participation in the program to pay Critical Vendor
Claims pursuant to this Order is terminated; provided,
however, that such reclamation claims shall, if thereafter
raised by the Critical Vendor as permitted by this Order,
be treated as though raised on the date of this Order.
An agreement executed by and between the Debtors and a
Critical Vendor as set forth in this paragraph shall be referred
to as a “Trade Agreement.” This order is intended to autho-
rize, but shall not require, the Debtors to enter into Trade
Agreements, it being the express intention of this Court that
the Debtors shall enter into Trade Agreements only when the
Debtors determine, in the exercise of their reasonable busi-
ness judgment, that it is appropriate to do so.
4. The Debtors are authorized, in their discretion to make
payments on account of Critical Vendor Claims in the ab-
sence of a Trade Agreement after the Debtors have under-
taken diligent efforts to cause the Critical Vendor holding
such Critical Vendor Claim to execute a Trade Agreement and
if the Debtors determine, in their business judgment, that
failure to pay the Critical Vendor Claim is likely to result in
irreparable harm to the Debtors’ business operations.
5. If a Critical Vendor refuses to supply goods and/or
services to the Debtors on Customary Trade Terms following
receipt of payment on its Critical Vendor Claim, or fails to
comply with any Trade Agreement entered into between such
Critical Vendor and the Debtors, then the Debtors may, in
their discretion and without further order of the Court, (a)
declare that any Trade Agreement between the Debtors and
such Critical Vendor is terminated (if applicable), and (b)
28a
declare that provisional payments made to Critical Vendors on
account of Critical Vendor Claims be deemed to have been in
payment of then-outstanding post-petition claims of such
vendors without further order or the Court or action by any
person or entity, and, to the extent that payments on account
of such Critical Vendor Claims exceed the postpetition claims
of such vendors then outstanding without giving effect to
any rights of setoff, claims, provision for payment of
reclamation or trust fund claims, or otherwise. In the event a
Trade Agreement is terminated or a Critical Vendor refuses to
supply goods and/or services to the Debtors on Customary
Trade Terms following receipt of payment on its Critical
Vendor Claim, it is the explicit intention of this Court to
return the parties to their position immediately prior to the
entry of the order approving this Motion with respect to all
prepetition claims.
6. The Debtors may, in their sole discretion, reinstate a
Trade Agreement if:
(a)Such determination is subsequently reversed by the
Court, after notice and a hearing following a motion by
the Critical Vendor, for good cause shown that the
determination was materially incorrect;
(b)The underlying default under the Trade Agreement
was fully cured by the Critical Vendor not later than five
(5) business days following the Debtors’ notification to
the Critical Vendor that a default had occurred; or
(c)The Debtors, in their discretion, reach a favorable
alternative agreement with the Critical Vendor.
7. Nothing herein shall be construed to limit, or in any
way affect, the Debtors’ ability to dispute any Critical Ven-
dor Claim.
8. Nothing contained in this order shall be deemed to
constitute an assumption or rejection of any executory contract
or agreement between the Debtors and a Critical Vendor or
29a
to require the Debtors to make any of the payments
authorized herein.
9. Notwithstanding the relief granted herein and any
actions taken hereunder, nothing contained herein shall create,
nor is it intended to create, any rights in favor of, or enhance
the status of any claim held by, any person.
10. This Court shall retain jurisdiction to construe and
enforce this Order.
Dated: Chicago, Illinois January 25, 2002
/s/ SUSAN PIERSON SONDERBY
Chief Judge SUSAN PIERSON SONDERBY
UNITED STATES BANKRUPTCY JUDGE
EXHIBIT A
2002
Ca ee
TO: [Essential Trade Creditor]
[Name]
[Address]
Dear Valued Supplier:
As you are no doubt aware, on , 2002 (the “Petition
Date”), [Debtor], together with certain of its U.S. affiliates
(collectively, the “Debtors’’), filed voluntary petitions under
chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy. Court for the Northern District of
Illinois (the “Bankruptcy Cases” and the “Bankruptcy Court,”
respectively). On the Petition Date, we requested the
Bankruptcy Court’s authority to pay certain suppliers in
recognition of the importance of our relationship with such
suppliers and our desire that the Bankruptcy Cases have as
little effect on them as possible. On , 2002, the
Bankruptcy Court entered an: order (the “Order’“) autho-
rizing us, under certain conditions, to pay pre-bankruptcy
claims of certain trade creditors that agree to the terms set
30a
forth below and to be bound by the terms of the Order. A
copy of the Order is enclosed.
In order to receive payment on pre-bankruptcy claims, each
selected trade creditor must agree to continue supplying
goods to the Debtors based on “Customary Trade Terms,” In
the Order, Customary Trade Terms are defined as the normal
and customary trade terms, practices and programs (includ-
ing, but not limited to, credit limits, pricing, cash discounts,
timing of payments, allowance, rebates, coupon reconcili-
ation, norma! product mix and availability and other ap-
plicable terms and programs) in effect between such trade
creditor and the Debtors on a historical basis prior to the
Petition Date or such other trade terms, practices and pro-
grams that are at least as favorable to the Debtors as those in
effect during such time.
For purposes of administration of this trade program as
authorized by the Bankruptcy Court, the Debtors and you
agree as follows:
1. The estimated balance of the prepetition trade claim
(net of any setoffs, credits or discounts (the “Trade
Claim’) that the Debtors will provisionally pay you is $
2. You will provide open credit terms as follows (if more
space is required, attach continuation pages)
3. The open trade balance or credit line that you will
extend to the Debtors for shipment of postpetition goods
is $ 3 (which shall not be less than the greater of
the open trade balance outstanding: (a) on , 2002,
or (b) on normal and customary terms on a historical basis
for the period prior to the Petition Date).
4. In consideration for the payment described herein, you
agree not to file or otherwise assert against any or all of
the Debtors, their estates or any other person or entity or
any of their respective assets or property (real or personal)
any lien (regardless of the statute or other legal authority
3la
upon which such lien is asserted) related in any way to
any remaining prepetition amounts allegedly owed to you
by the Debtors arising from agreements entered into prior
to the Petition Date. Furthermore, if you have taken steps
to file or assert such a lien prior to entering into this letter
agreement, you agree to take all necessary steps to re-
move such lien as soon as possible.
5. You will hereafter extend to the Debtors all Customary
Trade Terms (as defined in the Order).
Payment of your Trade Claim in the manner set forth in the
Order may only occur upon execution of this letter by a duly
authorized representative of your company and the return of
this letter to the Debtors. Your execution of this letter agree-
ment anti return of the same to the Debtors constitutes an
agreement by you and the Debtors:
(a) to the Customary Trade Terms and, subject to the
reservations contained in the Order, to the amount of the
Trade Claim set forth above;
(b) that, for a period of no less that two (2) years from
the Petition Date, you will continue to supply the Debt-
ors with goods, pursuant to the Customary Trade Terms
and that the Debtors will pay for such goods in accord-
| ance with Customary Trade terms;
(c) that you have reviewed the terms and provisions
of the Order and that you consent to be bound by such
teams;
(d) that you will not separately seek payment for recla-
mation and similar claims outside of the terms of the
Order unless your participation in the trade payment
program authorized by the Order (the’“ ‘Trade Payment
Program’) is terminated; and
(e) that if either the Trade Payment Program or your
participation therein terminates as provided in the Order,
any payments received by you on account of your Trade
32a
Claim will be deemed to have been in payment of then
outstanding postpetition obligations owed to you and
that you will immediately repay to the Debtors any
payments made to you on account of your Trade claim
to the extent that the aggregate amount of such payments
exceed the postpetition obligations then outstand-
ing without the right of any setoffs, claims, provision
for payment of reclamation or trust fund claims or
otherwise.
The Debtors and you also hereby agree that any dispute
with respect to this agreement, the Order and/or your partici-
pation in the Trade Payment Program shall be determined by
| the Bankruptcy Court.
| If you have any questions about this Agreement or our
| financial restructuring, please do not hesitate to call(__) —
—— eee
Sincerely,
[Debtor]
By:
Its:
Agreed. and Accepted by:
[Name of Trade Vendor]
By:
Its:
aaa
33a
APPENDIX D
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
[Filed Feb. 1, 2002]
Chapter 1 1
No. 02 B 02474 (Jointly Administered)
Hon. Susan Pierson Sonderby.
IN RE: KMART CORPORATION, ef al.,
Debtors.
NOTICE OF APPEAL FROM ORDER UNDER
11 U.S.C. § 105(a) AUTHORIZING THE PAYMENT
OF PREPETITION CLAIMS OF CERTAIN
CRITICAL TRADE VENDORS
Pursuant to 28 U.S.C. § 158(a), Capital Factors, Inc.
(“Capital”) appeals from an order dated January 25, 2002,
entitled “Order Under 11 U.S.C. § 105(a) Authorizing The
Payment Of Prepetition Claims Of Certain Critical Trade
Vendors,” a copy of which is annexed hereto as Exhibit A and
incorporated herein by this reference. A list of names of all
parties known to Capital that have filed appearances or
requests for notice in these jointly administered chapter 11
cases is annexed hereto as Exhibit B and incorporated herein
by this reference.
Respectfully submitted,
Capital Factors, Inc.
By: /s/ Steven B. Towbin
One of its attorneys
Dated: February 1, 2002
34a
Steven B. Towbin (#848546)
Peter J. Roberts (#6239025)
Matthew A. Swanson (#6273133)
D’ Ancona & Pflaum LLC
111 E. Wacker Dr., #2800
Chicago, IL 60601
(312) 602-2000
35a
In re Kmart Corporation, Case No.: 02-02474
SERVICE LIST
John Butler, Jr,
Skadden Arps Slate Meagher
& Flom
333 West Wacker Drive
Suite # 2100
Chicago, IL 60606
Fax: (312) 407-0700
Kristin T. Mihelic
Floyd Babbit
Fagelhaber LLC
55 East Monroe Street
40th Floor
Chicago, IL 60603
Fax: (312) 580-2201
Niclas A. Ferland
Ronald J. Cohen
Tyler Cooper & Alcorn, LLP
205 Church Street
P.O. Box 1936
New Haven, CT 06509-1910
Fax: (203) 789-2133
Ronald R. Peterson
Jeffrey L. Gansberg
Jenner & Block, LLC
One IBM Plaza
Chicago, IL 60611
Fax: (312) 527-0484
Michael R. Collins
Collins & Collins
332 S. Michigan Avenue
Suite 605
Chicago, IL 60604
Fax: (312) 663-0234
Office of the U.S. Trustee
227 West Monroe Street
Suite 3350
Chicago, IL 60606
Fax: (312) 886-5794
Richard M. Kremen
Susan K. Datesman
R. Timothy Bryan
Piper Marbury Rudnick &
Wolfe LLP
6225 Smith Avenue
Baltimore, MD 21209-3600
Fax: (410) 580-3001
Chris Fox
Sara Lee Corporation
1000 East Hanes Mill Road
Winston Salem, NC 27105
Fax: (336) 519-7312
Karen R. Goodman
Hinshaw & Culbertson
222 North LaSalle St.,
Suite 300
Chicago, IL 60601
Fax: (312) 704-3001
Michael B. Solow
Sheldon Solow
Mindy Cohn
Kaye Scholer LLP
311 S. Wacker Drive
Suite 6200
Chicago. IL 60606
Fax: (312) 583-2360
Deirdre A. Dillon
Thachcr Proffitt & Wood
11 W. 42nd Street
New York, NY 10036
Fax: (212) 789-3500
Dennis M. Ryan
Faegre & Benson LLP
2200 Wells Fargo Center
90 South 7th Street
Minneapolis, MN 55402
Fax: (612) 766-1600
James E. Spiotto
Ann Acker
Chapman and Cutler
111 W. Monroe Street
Chicago, IL 60603
Fax: (312) 701-2361
Victor A. Sahn
Sulmeyer, Kupetz, Baumann
& Rothman
300 S. Grand Avenue
14th Floor
Los Angeles, CA 90071
Fax: (213) 629-4520
Matthew J. Botica
Winston & Strawn
35 W. Wacker Drive
Chicago, IL 60601
Fax: (312) 558-5700
Scott L. Hazen
Otterbourg, Steindler,
Houston & Rosen, P.C.
230 Park Avenue, 29th Floor
New York, NY 10169-0075
Fax: (212) 682-6104
36a
Lawrence H. Meyers
Meyers Law Firm, P.L.
5395 Park Central Court
Naples, FL 34109
(941) 513-9191
Donald L. Gaffney
Snell & Wilmer L.L.P.
One Arizona Center
400 E. Van Buren
Phoenix, AZ 85004-2202
Fax: (602) 382-6070
David N. Missner
Piper Marbury Rudnick &
Wolfe
203 N. LaSalle Street
Chicago, IL 60601
Fax: (312) 630-7399
Richard N. Golding
Katz Randall Weinberg &
Richmond
333 W. Wacker Drive
Suite 1800
Chicago, IL 60606
Fax: (312) 807-3903
Maria M. Patterson
Bank of New York
1 Wall Street, 29th Floor
New York, NY 10286
Richard M. Cieri
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44114
Fax: (216) 579-0212
37a
Gary T. Holtzer
Weil, Gothal & Manges LLP
767 Fifth Avenue
New York, NY 10153
James S. Carr
Sheila E. Carson
Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Kurt M. Carlson
Tishler & Wald, Ltd.
200 S. Wacker Drive.
Suite 2600
Chicago, IL 60606
Jacob J. Meister
Paul A. Lucey
Jason D. Altman
Michael Best & Friedlieh LLC
401 N. Michigan Avenue
Suite 1900
Chicago, IL 60611
Kurt A. Winiecki
Barnes & Thornburg
10 S. LaSalle Street
2600 Chase Plaza
Chicago, IL 60603
Douglas J. Lipke
Vedder Price Kaufman &
Kammholz
222 N. LaSalle St.
Suite 2600
Chicago, IL 60601
Lance Baker
Capital Factors, Inc.
120 E. Palmetto Park Road
5th Floor
Boca Raton, FL 33432
Fax: (561) 347-9916
Jonathan W. Young
James E. Morgan
T. Kellan Grant
Wildman Harold Allen &
Dixon
225 W. Wacker Drive
Suite 3000
Chicago, IL 60606-1229
Mark Lee
Contrarian Capital Manage-
ment, LLC
411 West Putnam Avenue
Suite 225
Greenwich, CT 06830
David R. Mayo
David M. Neuman
Benesch, Friedlander, Coplan
& Aronoff LLP
2300 BP Tower
200 Public Square
Cleveland, OH 44114-2378
Joseph D. Frank
Frances F. Gecker
Freeborn & Peters
311 S. Wacker Dr.
Suite 3000
Chicago, IL 60606-6677
Gina B. Krol
Cohen & Krol
105 West Madison Street
Suite 1100
Chicago, IL 60602
38a
John S. Delnero
Bell, Boyd & Lloyd LLC
Three First National Plaza
70 West Madison Street
Suite 3300
Chicago, IL 60602
David L. Carbone
Norna Cash
Electronic Arts Inc
209 Redwood Shores
Parkway
Redwood, CA 94065
39a
APPENDIX E
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Case No. 02-B02474
(Jointly Administered)
Chapter 11
Chief Judge Susan Pierson Sonderby
ORDER PURSUANT TO 11 U.S.C. §§ 102 AND
105(a),BANKRUPTCY RULES 2002(m) AND 9907, AND
LOCAL RULES 101, 400, AND 402 ESTABLISHING
OMNIBUS HEARING DATES AND CERTAIN NOTICE.
CASE MANAGEMENT AND ADMINISTRATIVE
PROCEDURES
Upon the motion (the “Motion”), of Kmart Corporation
and 37 of its subsidiaries and affiliates (the “Affiliate
Debtors’), debtors and debtors-in-possession in the above-
captioned cases (collectively, the “Debtors”), for entry of an
order, pursuant to sections 102(1) and 105(a) of chapter 11 of
title 11 of the United States Code, 11 U.S.C. §§ 101, et seg.
(the “Bankruptcy Code ), Rules 2002(m) and 9007 of the
Federal Rules of Bankruptcy Procedure (the “Bankruptcy
Rules”), and Local Rules 101, 401. and 402 (the “Local
Rules”) establishing omnibus hearing dates and certain
notice, case management, and administrative procedures in
the Debtors’ chapter 11 cases; and upon the Affidavit of
Charles C. Conaway in Support of Chapter 11 Petitions and
First Day Orders; it appearing to the Court that (i) it has
jurisdiction over the matters raised in the Motion pursuant to
28 U.S.C. §§ 157 and 1334; (ii) this is a core proceeding
40a
pursuant to 28 U.S.C. § 157(b)(2); (iii) the relief requested in
the Motion is in the best interests of the Debtors, their estates
and their creditors; (iv) proper and adequate notice of the
Motion and the hearing thereon has been given and that no
other or further notice is necessary; and (v) upon the record
herein, after due deliberation thereon, that the relief should be
granted as set forth below,
A. Monthly Omnibus Hearing Dates
1. The Court shall conduct the following omnibus hear-
ings on a monthly basis (or as otherwise set by the
Court) in these cases (the “Omnibus Hearing Dates”):
February 13, 2002 at 11:00 a.m. (Central Time)
March 6, 2002 at 11:00 a.m. (Central Time)
March 20, 2002 at 11:00 a.m. (Central Time)
April 24, 2002 at 11:00 a.m. (Central Time)
May 29, 2002 at 11:00 a.m. (Central Time)
June 26, 2002 at 11:00 aim (Central Time)
July 31, 2002 at 11:00 a.m. (Central Time)
August 29, 2002 at 11:00 a.m. (Central Time)
September 25, 2002 at 11:00 a.m. (Central Time)
October 30, 2002 at 11:00 a.m. (Central Time)
November 20, 2002 at 11:00 a.m. (Central Time)
December 18, 2002 at 11:00 a.m. (Central Time)
2. Omnibus Hearing Dates will occur thereafter as may he
scheduled by the Court, All matters requiring a hearing
in these cases shall be set for and be heard on Omnibus
Hearing Dates unless alternative hearing dates are
approved by the Court for good cause shown.
4la
B. Notice Procedures
3. Every Filing shall be subject to the following Notice
Procedures described herein. All Filings shall be filed
with the Court in accordance with the Local Rules. All
Filings shall be served on any entity with a part-
icularized interest in the subject of the Filing. All Filings
in these cases shall also be served upon the following list
(the “Master Service List”) of parties or entities:
(a)The Debtors at Kmart Corporation, Kmart Resource
Center, 3100 West Big Beaver Road, Troy, Michigan
48084-3163 (Attn: Janet Kelley) and their counsel:
(b)Counsel to the Debtors, Skadden, Arps, Slate,
Meagher & Flom (Illinois), 333 West Wacker Drive,
Suite 2100, Chicago, Illinois 60606 (Attn: John Wm.
Butler, Jr.)
(c)The Office of the United States Trustee, 227 West
Monroe Street, Suite 3350, Chicago, Illinois 60606
(Attn: Kathryn Gleason);
(d)Counsel to any official committee(s) established in
these cases pursuant to section 1102 of the Bankruptcy
Code (the “Committee(s)) (who shall serve a notice of
appearance on the Master Service List promptly after its
retention);
(e)Counsel to the administrative agents for tne Debtors’
postpetition lenders, Morgan Lewis Bockins,101 Park
Avenue, New York, New York 10178 (Attn: Robert H.
Scheibe and Jay Teitelbaum);
(f)Counsel to the Debtors’ prepetition lenders, Simpson,
Thatcher & Bartlett, 425 Lexington Avenue, New York,
New York 10017 (Attn: Peter V. Pantaleo);
(g)In accordance with Local Rule 603A, all Local
Counsel having entered a notice of appearance in these
cases, but in each such case, only one copy the Filing
regardless of how many creditors or parties-in-interest
the Local Counsel represents; and
42a
(h)Those parties that may be added to the Master Service
List upon written request to the Debtors and the
Committee(s) and as ordered by the Court for good and
sufficient cause pursuant to Local Rules 403A(2) and
422 and as required hereby.
. Parties may be added or deleted from the Master Service
List upon written request for good and sufficient cause,
in accordance with the procedures set forth in this Order.
. All initial Filings, complaints and other pleadings filed
in any adversary proceeding commenced in these cases
(the “Adversary Pleadings”) shall be served on (a) the
Debtors and their counsel; (b) the Office of the United
States Trustee; (c) counsel to the Committees; (d)
counsel to the agent for the Debtors’ postpetition credit
facility; (e) counsel to the Debtors’ prepetition lenders,
as well as any parties required to be served under any
applicable Bankruptcy Rule or Local Rule, in the man-
ner provided by the Bankruptcy Rules that govern
adversary proceedings. Subsequent Adversary Pleadings
shall be served on parties to the underlying adversary
proceeding, in the manner provided by the Bankruptcy
Rules that govern adversary proceedings.
. With respect to all Filings for which particular notices
are required by Bankruptcy Rules 2002(a)(2) and (3),
4001, 6004, 6006, 6007 or 9019, parties shall serve all
such Filings on the Master Service List herein and also
in accordance with the following procedures, unless
otherwise authorized by the Court:
(a)Filings related to the use, sale, lease or abandonment
of property other than in the ordinary course of business
shall be served on each entity asserting an interest in the
property.
(b)Filings related to relief from, or otherwise related to,
the automatic stay shall be served on each entity
asserting a lien or encumbrance on the affected property.
43a
(c)Filings relating to the use or cash collateral or obtain-
ing credit shall be served on each adversely affected
entity asserting an interest in the cash collateral or each
adversely affected entity asserting a lien or other inter-
est in property on which a lien is proposed to
be granted.
(d)Filings relating to approval of proposed compromises
or settlements shall be served on any entity that is a
pariy to the compromise or settlement or which may be
directly adversely affected thereby.
(e)Filings relating to rights under section 365 of the
Bankruptcy Code shall be served on each party to the
execulory contract(s) or unexpired lease(s) affected
thereby.
(f)Filings relating to applications for payment of com-
pensation or reimbursement of expenses shall be served
on each professional person who is seeking payment of
compensation or reimbursement of expenses and whose
retention has been authorized by the Court in these cases,
(g)Notice of other matters for which the Bankruptcy
Rules specifically require notice to all parties-in-interest
shall be served on all creditors and equity security
holders of the Debtors and parties-in-interest, except as
set forth herein or as otherwise authorized by this Court.
- Except as set forth, herein or otherwise authorized by
this Court, the noticing procedures set forth above shall
not apply to notices of the matters or proceedings
described in the following Bankruptcy Rules:
(a)Bankruptcy Rule 2002(a)(1) (meeting of creditors
pursuant to section 341 of the Bankruptcy Code).
(5)Bankruptcy Rule 2002(a)(2) (any proposed use, sale
or lease of property of the estate other than in the
ordinary course of business, to the extent that such use,
44a
sale or lease concerns all or substantially all of the
Debtors assets),
(c)Bankruptcy Rule 2002(a)(3) (the hearing on approval
of a compromise or settlement of a controversy other
than approval of an agreement pursuant to Bankruptcy
Rule 4001(d)(i), to the extent that such compromise or
settlement either involves claims between and among the
Debtors and any Committee or a plan of reorganization),
(d)Bankruptcy Rule 2002(a)(4) (a hearing on the dis-
missal of the case or cases, or the conversion of the case
or cases to another chapter).
(e)Bankruptcy Rule 2()02(a)(5) (the time fixed to accept
or reject a proposed modification of a plan of reorga-
nization).
(f)Bankruptcy Rule 2002(b)(1) (the time fixed for filing
objections and any hearing to consider approval of a
disclosure statement).
(g)Bankruptcy Rule 2002(b)(2) (the time fixed for filing
objections and any hearing to consider confirmation of a
plan of reorganization).
(h)Bankruptcy Rule 2002(d) (certain matters for which
notice is to be provided to equity security holders).
(i)Bankruptcy Rule 2002(f)(1) (the entry of an order for
relief).
(j)Bankruptcy Rule 2002(f)(2) (the dismissal or con-
version of a case to another chapter of the Bank-
ruptcy Code).
(k)Bankruptcy Rule 2002(f)(3) (the time allowed for
filing claims pursuant to Rule 3002).
(1)Bankruptcy Rule 2002(f)(6) (the waiver, denial or
revocation of a discharge as provided in Bankruptcy
Rule 4006).
45a
(m)Bankruptcy Rule 2002(f)(7) (the entry of an order
confirming a chapter 11 plan or plans of reorganization)
(n) Bankruptcy Rule 2002(0(8) (a summary of the
trustee’s final report and account should a case be
converted to chapter 7 of the Bankruptcy Code).
8. Any entity submitting a Filing shall serve a notice of
such filing on all 2002 List Parties (defined below). Such
notice shall include the title of the Filing and the time
and date of any objection deadline and the Omnibus
Hearing (hereinafter defined) or other hearing date, as
ordered by the Court at which the Court will consider the
Filing (the “Applicable Hearing Date”). Nothing shall
prejudice (i) the rights of any party in interest to move
the Court to further limit or expand notice of such
matters and proceedings upon a showing of good cause,
including, but not limited to, the right to file a motion
seeking emergency ex parte consideration or consider-
ation upon shortened time; or (ii) the rights of any party
to seek an enlargement or reduction of a time period
under Bankruptcy Rule 9006(b) or (c).
9. All Notice Requests, whether now filed or filed in the
future, for automatic receipt of copies of Filings, Re-
sponses, Adversary Pleadings and other documents or
writings filed in these cases and any adversary pro-
ceeding will be denied except as set forth herein.
10. Parties who file notices of appearance and who desire
to be added to the Master Service List should make a
written request to that effect to the Debtors. In the
written request, the requesting party shall advise the
Debtors of the party’s interest in the bankruptcy cases
and why cause exists for the partys inclusion on the
Master Service List. The Debtors shall have twenty (20)
business days from receipt of such a request to consider
such a request. If the Debtors decline the request or fail
46a
to respond to the same within such 20-day period, the
requesting party may then move the Court in accordance
with the Notice Procedures, for good cause shown, to be
added to the Master Service List.
11. On the last day of each calendar month, or as soon
thereafter as is practicable, a copy of this Order, as it
may be modified or amended from time to time, shall be
served by the Debtors on each party (the “2002 List
Parties”) that filed a notice of appearance or request for
notice in these eases during the preceding month,
12. In the event that a Filing is a motion or application for
relief, the objection deadline shall be (a) no later than the
seventh (7”) calendar date before the Applicable Hearing
Date if the Filing is served at least twenty (20) days prior
to the Applicable Hearing Date; (b) no later than, the
third (3°d) calendar date before the Applicable Hearing
Date if the Filing is served less than twenty (20) but at
least ten (10) days prior to the Applicable Hearing Date;
or (c) otherwise as ordered by the Court. The relief
requested in the Filing will be granted without a hearing
if no objection is timely filed.
13. Pursuant to Loca! Rule 402F, the Hearing Date is the
date of the “request to modify the automatic stay under
section 362 of the Bankruptcy Code (a “Lift Stay
Motion”), In accordance with the deadline and Hearing
Date procedures outlined above, and pursuant to section
362(c) of the Bankruptcy Code, unless the Court orders
otherwise for good cause shown, if a Lift Stay Motion is
filed more than fourteen (14) days before the next
scheduled Omnibus Hearing Date, the preliminary
hearing/“request” with respect to such Motion shall be
such Omnibus Hearing Date. The preliminary hear-
ing/“request” with respect to any Lift Stay Motion filed
less than fourteen (14) days before the next scheduled
Omnibus Hearing Date shall be the Omnibus Hearing
a a a
47a
Date following the next Omnibus Hearing Date. Except
as specifically set forth herein, all other procedures for
Lift Stay Motions shall otherwise conform to the Local
Rules and the Bankruptcy Rules.
14. All persons on the Master Service List shall be served
with Filings by overnight mail. All objections, responses
or statements in support of F ilings as well as any replies
thereto (collectively Responses ) need only be served on
counsel who served such Filings and the parties
described in (a) through (e) of paragraph 4 above,
provided that all such Responses shall be served so as to
be actually received by such parties by the applicable
objection deadline.
15. If any person makes any Filing in contravention of the
Omnibus Hearing Date process by, among other things,
Setting a hearing on such Filing for a date and time other
than an Omnibus Hearing Date without an order from
this \Court authorizing such hearing for cause, the
Debtors shall forward a copy of the Procedures Order to
such person within three (3) business days after receipt. If
such Filing is filed at least twenty (20) days prior to the
next Omnibus Hearing Date, then the hearing with
respect\to such Filing shall be deemed to be on such
Omnibus Hearing Date, If such Filing is filed less than
twenty (20) days prior to the next Omnibus Hearing
Date, then the hearing with respect to such Filing shall
be the next Omnibus Hearing Date thereafter.
C. Official Copy Service
16. Landmark Document Services, 308 West Randolph,
Suite 500, Chicago, IL 60606, tel: (312) 845-1000, fax:
(312) 726-9027 is designated the Official Copy Service.
Any entity, including the Debtors, submitting any Filing,
Response, Adversary Pleadings or other notices or docu-
ments to the Court shall also, on the day such document
48a
is submitted with the Court, provide one copy thereof to
the Official Copy Service. The Official Copy Service
shall monitor the docket in these cases and coordinate
with Debtors’ counsel to ensure that they have copies of
all documents filed in the Debtors’ cases.
17. The Official Copy Service will maintain (or have
access to) a complete set of all documents filed in these
cases henceforth. Upon request of any person, the
official Copy Service will supply a copy of any design-
nated document, at a cost to be paid by the person
requesting it at the prevailing fee being charged by the
Official Copy Service. Any party that desires copies of
every document filed in these eases may obtain such
documents at its own expense by arrangement with the
Official Copy Service.
18. The Court may conduct case status conferences
pursuant to 11 U.S.C. § 105 to review these matters from
time to time with representatives of the Debtors, any
statutory committees, the United States Trustee, and the
Clerk of the Bankruptcy Court. Any statutory com-
mittees shall have five (5) days from its formation to
provide comments to this order. Any dispute shall be
resolved by the Court on notice.
Dated: Chicago, Illinois
January 25, 2002
/s/ SUSAN PIERSON SONDERBY
CHIEF JUDGE SUSAN PIERSON SONDERBY
UNITED STATES BANKRUPTCY JUDGE
49a
APPENDIX F
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Chapter 1 1
Case No.02-__( )
In re: KMART CorpPoRATION, a Michigan Corporation,
Debtor.
CONSOLIDATED LIST OF CREDITORS HOLDING 50
LASGEST UNSECURED CLAIMS
Following is a consolidated list of creditors holding the 50
largest unsecured claims, as of approximately January 18,
2002. The list has been prepared on a consolidated basis,
based upon the books and records of the debtor and certain
affiliated entities that have contemporaneously commenced
chapter 11 cases in this Court (collectively, the “Debtors”).
The Debtors believe that this list is representative of the 50
largest creditors in each of the affiliated cases. The infor-
mation presented in the list shall not constitute an admission
by, nor is it binding on, the Debtors. !
The list is prepared in accordance with Fed. R. Bankr. P.
1007(d) for filing in this chapter 11 case. The list does not
include (1) persons who come within the definition of
“insider” set forth in 11 U.S.C. § 101 or (2) secured creditors
' The Debtors will file schedules of assets and liabilities (the “Sched-
ules”) in accordance with 11 U.S.C. § 521 and Fed. R. Bankr. P. 1007.
The information contained in the Schedules may differ from the infor-
mation set forth below.
50a
unless the value of the collateral is such that the unsecured
deficiency places the creditor among the folders of the 50
largest unsecured claims.”
(1) (2) (3) (4) (5)
NAME OF NAME, TELEPHONE NATURE C | AMOUNT OF
CREDITOR AND NUMBER AND OF CLAIM U CLAIM
COMPLETE COMPLETE MAILING (trade debt, D | (ifsecured also
MAILING ADDRESS INCLUDING bank loan, Ss" state value of
ADRESS ZIP CODE, OF government security)
INCLUDING ZIP EMPLOYEE, AGENT, contract,
CODE DEPARTMENT OF etc.)
CREDOTIR FAMILIAR
WITH CLAIM
Bank of New York | Bank of New York Trustee Notes $2,377,532,000
Trustee as trustee 5 Penn Plaza
for 84% Notes due New York, NY 10119
Soy a 1, 2004; Attn: Paul Schmazel
”, ntures due
March 1, 2005; Phone: 212-896-7172
9.375% Notes due Fax: 212-896-7294
February 1, 2006;
8% Noies due
December 1, 2006;
9% Notes due June
15, 2008; 774%
Debentures due
October 1, 2012;
8'4% Notes due
January 1, 2002;
8%% Debentures
due July 1, 2022;
7.95% Debentures
due February 1,
2023; and Medium
Term Notes Series
A, B, C, and D.
BankBoston, N.A. BankBoston, N.A. Loan $119,910,000
100 Federal Street
Boston, MA 02110
Attn. Kathleen Domock
Phone: 617-434-3830
Fax: 617-434-6685
? The Debtors have not yet identified which of the 50 largest unsecured
claims, if any, are contingent, unliquidated, disputed and/or subject to
setoff. The Debtors reserve the right to identify any of the 50 largest
unsecured claims in their Schedules as contingent, unliquidated, disputed
and/or subject to setoff, as appropriate.
Sla
Chase II
Bank of
New York
Credit Suisse
First Boston
First Union
National Bank
Fleming Companies
John Hancock Life
Insurance Co.
Bank One, NA
Chase II
c/o Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, NY 10081
Attn: Barry Bergman/
Chase II
Phone: 212-270-0203
Fax: 212-270-5646
Bank of New York
One Wall Street
8th Floor
New York, NY 10286
Attn: William Barnum
Phone: 212-635-1019
Fax: 212-635-1483
Credit Suisse First Boston
11 Madison Avenue
10th Floor
New York, NY 10010
Attn: Kristin Lepri/
Credit Suisse First Boston
Phone: 212-325-9058
Fax: 212-325-8309
First Union National Bank
One South Penn Square
12th Floor
Widener Building
Philadelphia, PA 19107
Attn: Margaret J. Gibbons/
First Union National Bank
Phone: 267-321-6613
Fax: 267-321-6700
Fleming Companies
1945 Lakepointe Dr.
PO Box 29913
Lewisville, TX 75029
Attn: Bill Marquard
Phone: 972-906-8860
Fax: 972-906-8424
John Hancock Life
Insurance Co.
200 Clarandon St.
Boston, MA 02116
Attn: Roger G. Nastou
Phone: 617-572-6000
Fax: 617-572-1605
Bank One, NA
1 Bank One Plaza
Suite ILI-0086
Chicago, IL 60670
Attn: Debora K, Oberling/
Bank One, NA
Phone: 312-732-4644
Fax: 312-336-4380
Loan
Loan
Loan
Loan
Trade
Notes
Loan
$117,775,000
$104,470,000
$83,1°98,000
$81,884,000
$75,820,923
$72,674,000
$65,704,000
52a
Buena Vista
Home Video
Comerica Bank
Bank of America
Nonendo of
America Inc.
Mattel Toys
Key Bank National
Association
Handleman Co.
Handleman Co.
500 Kirts Bivd.
Troy, MI 48084
Attn: Steve Strome
Phone: 248-362-4400
Fax: 248-362-3615
Buena Vista Home Video
139 Vista Dr.
Cannonsburg, PA 15317
Attn: Jim Davis
Phone: 724-746-5050
Comerica Bank
500 Woodward Avenue
P.O. Box 75000
MC 3268
Detroit, MI 48275
Attn: Jennifer Pugliano/
Comerica Bank
Phone: 31°3-222-9644
Fax: 313-222-9514
Bank of America
Jon Barnes
100 N. Tryon Street
12th Floor
NIC-007-12-08
Charlotte, NC 28255
Attn: Jon Barnes/
Bank of America
Phone: 704-387-4366
Fax: 704-409-0768
Nontendo of America Inc
4820 15th Ave., NE
Redmond, WA 98052
Attn: Randy Peretzman
Phone: 425-861-2059
Fax: 425-882-3585
Mattel Toys
501 Meacham Blvd.
Fort Worth, TX 76106
Attn: Tom Bonge
Phone: 310-252-6271
Fax: 817-302-3391
Key Bank National
Association
127 Public Square
6th Floor
Cleveland, OH 44114-1306
Attn: J T Taylor/
Key Bank National
Association
Phone: 216-689-3589
Fax: 216-689-4981
Trade
Trade
Loan
Loan
Trade
Trade
Loan
$63,679,560
$56,275,198
$53,631,000
$44,925,000
$44,913,692
$44,120,598
$38,930,000
53a
Mellon Bank, N_A Mellon Bank, N.A. Loan $38,930,000
One Mellon Bank Center
Room 4530
Pittsburgh, PA 15258-0001
Attn: Louis Flori/
Mellon Bank, N.A.
Phone: 412-234-7298
Fax: 412-236-1914
Wells Fargo Bank Wells Fargo Bank
230 West Monroe
Suite 2900
Chicago, IL 60606
Attn: Pete Martinets/
Wells Fargo Bank
Phone: 312-845-8605
Fax: 312-553-4783
Prudential Securities Prudential Securities Loan
Credit Corp. Credit Corp.
One New York Plaza
16th Floor
New York, NY 10292-2016
Attn: Jeffrey K. French/
Prudential Securities
Credit Corp.
Phone: 212-778-1540
Fax: 212-778-2535
Sumitomo Mitsui Sumitomo Mitsui
Banking Banking Corporation
Corporation 233 South Wacker Drive
Suite 4010
Chicago, IL 60606
Attn: John Kemper/
Sumitomo Mitsui Banking
Corporation
Phone: 312-876-7797
Fax: 312-876-6436
Teachers Insurance Teachers Insurance & Notes
& Annuity Annuity Association~-CREF
Association-CREF 730 3rd Ave., Fir. 26
New York, NY 16017
Attn: Michael O’Kane
Phone: 212-490-9000
Fax: 212-916-6690
Mizuho Hg, Inc. Mizuho Holding Inc. Loan $34,577,000
Marunouchi Center Bldg.
6-1 Marunouchi, |-Chome
Chiyoda-ku, Tokyo
100-8240 Japan
Phone: 81-3-224-1111
Fax: 81-3-3215-4616
Loan $38,930,000
$37,205,000
Loan $37,205,000
$36,158,000
54a
Twentieth Century
Fox Home
Entertainment
Bank of Scotland
Firstar Bank, N.A.
Universal Music &
Video
State of Wisconsin
Investment Board-
Intermed. Govt/
Corp Fd.
Sara Lee Corp
National City Bank,
Columbus
Twentieth Century Fox
Home Entertainment
P.O. Box 900
Beverly, Hills, CA 90213
Attn: Mike Weetman
Phone: 310-369-1484
Fax: 310-369-4713
Bank of Scotland
565 Fifth Avenue
5th Floor
New York, NY 10017
Attn: Karim McLean/
Bank of Scotland
Phone: 212-350-0816
Fax: 212-682-5720
Firstar Bank, N.A.
Retail and Approval
Division
Mail Code SL-TW-12MP
St. Louis, Missouri 63101
Attn: Tom Bayer/
Firstar Bank, N.A.
Phone: 314-318-3993
Fax: 314-418-1963
Universal Music & Video
10 Universal City. Plaza,
Suite 400
Universal City, CA 91608
Attn: Joe Flores
Phone: 818-777-4535
Fax: 818-866-1599
State of Wisconsin
Investment Board-
Interned. Govt/Corp Fd.
121 E. Wilson St.
Madison, WI 53703
Attn: Daryl Moe
Phone: 608-266-2381
Fax: 608-266-2436
Sara Lee Corp
P.O. Box 2760
Winston-Salem, NC 27102
Attn: John Piazza
Phone: 910-519-7592
Fax: 336-519-716
National City Bank,
Columbus
155 East Broad Street
Columbus, OH 43251-0019
Attn: Jeffrey L.
Hawthorne/
Nt! City Colum
Phone: 614-463-7298
Fax: 614-463-7191
Trade
Loan
Loan
Trade
Notes
Trade
Loan
$34,219,742
$32,852,000
$31,867,000
$30,750,077
$30,000,000
$28,382,838
$26,774,000
55a
Deutsche Bank AG
Northwestern Mutual
Series Fund
(Balanced)
Lehman Commercial
Paper Inc.
Metropolitan Life
Insurance Co.
(New York, NY)
Vanguard Total Bond
Market Index Fund
Combine
International
Deutsche Bank AG
31 West 53nd Street
New York, NY 10019
Attn: Alexander Karow/
Deutsche Bank AG
Phone: 212-469-8532
Fax: 212-469-8212
Northwestern Mutual
Series Fund (Balanced)
720 E. Wisconsin Ave.
Milwaukee, WI 53202
Attn: Timothy S. Collins
Phone: 414-665-1444
Fax: 414-625-2639
Lehman Commercial
Paper Inc.
Lehman Brothers Inc.
3 World Financial Center
11th Floor
New York, NY 10285
Attn: Michael O’Brien/
Lehman Commercial
Paper Inc.
Phone: 212-526-0437
Fax: 212-526-7691
Metropolitan Life
Insurance Co.
(New York, NY)
1 Madison Ave.
New York, NY 10010
Attn: Thomas E. Lenihan
Phone: 973-254-3000
Fax: 973-254-3052
Vanguard Total Bond
Market Index Fund
100 Vanguard Blvd. #M32
Malvern, PA 19355
Attn: Felix B. Lim
Phone: 610-669-1000
Fax: 610-669-6246
Combine International
354 Indusco Court
Troy, MI 48083
Attn: Shrik Metha
Phone: 248-595-9900
Fax: 248-585-8641
Loan
Notes
Loan
Notes
Notes
Trade
$26,610,000
$25,000,000
$24,885,000
$23,800,000
$23,500,000
$22,962,117
56a
Duracell International
Michigan Nat! Bank
of Detroit
Warner Home Video
Div of Time
Transanmerioca Life
Insurance & Annuity
Co. S/A
Eveready Battery
Company Inc.
General Electric
Teacher Retirement
System of Texas
1000 Red River St.
Austin, TX 78701
Attn: Herman Martina
Phone: 512-397-6400
Fax: 512-370-0568
Duracell International
Prudential Center
10th Floor
Boston, MA 02199
Attn: Don Hoedel
Phone: 800-544-0047
Fax: 617-421-7123
Michigan Nat! Bank
of Detroit
2600 W. Big Beaver
Troy, MI 48084
Attn: Jason W. Bierlein/
Michigan Nat! Bank
of Detroit
Phone: 248-822-5702
Fax: 248-637-5003
Warner Home Video
Div of Time
4000 Warner Blvd.
Burbank, CA 91522
Attn: John Quinn
Phone: 818-954-6677
Fax: 818-954-6102
Transamerica Life
Insurance & Annuity
Co. S/A
433 Edgewood Road NE
Cedar Rapids, [A 54499
Attn: Douglas Kolsrud
Phone: 319-363-5400
Fax: 319-369-2009
Eveready Battery
Company Inc.
16401 Swingley Ridge Rd.
Chesterfield, MO 63017
Attn: Alicia Bryant
Phone: 800-323-8177
Fax: 314-733-4001
General Electric Lamp
2300 Meijer Drive
Troy, MI 48084
AttN; Dave Dobson
Phone: 248-280-4885
Notes
Trade
Loan
Trade
Notes
Trade
Trade
$22,890,000
$22,886,461
$321,518,000
$21,013,625
$20,750,000
$20,002,398
$19,860,502
57a
Fidelity High
Income Fund
Loomis Sayles
Bond Fund
Principal Life
Insurance Co.
Fisher Price Inc
Credit Dept
Fidelity Asset
Manager Fund
(Aggrgtd)
Electronic Arts
New York Life
Insurance Co.
Northwestern Mutual
Life Insurance Co.
Fidelity High Income Fund
82 Devonshire
Boston, MA 02109
Attn: Matthew Conti
Phone: 617-563-7000
Fax: 617-570-0276
Loomis Sayles Bond Fund
1 Financial Center, Fir. 34
Boston, MA 02111
Attn: Daniel J. Fuss
Phone: 617-482-2450
Fax: 617-482-2828
Principal Life
Insurance Co.
711 High St.
Des Moines, [A 50392
Attn: Richard W. Waugh
Phone: 515-247-5111
Fax: 515-248-2490
Fisher Price Inc
Credit Dept
636 Girard Ave.
East Aurora, NY 14052
Attn: Jerry Cleary
Phone: 212-620-8369
Fax: 716-687-3476
Fidelity Asset Manager
Fund (Aggrgtd)
82 Devonshire
Boston, MA 02109
Attn: Matthew Conti
Phone: 617-563-7000
Fax: 617-570-0276
Electronic Arts
209 Redwood Shores
Parkway
Redwood City, CA 94065
Attn: Larry Probst
Phone: 650-628-1500
Fax: 650-628-1414
New York Life Insurance Co.
51 Madison Ave.
New York, NY 10010
Attn: Celia Holtzberg
Phone: 212-576-7000
Fax: 212-576-3418
Northwestern Mutual Life
Insurance Co.
720 E. Wisconsin Ave.
Milwaukee, WI 53202
Attn: Timothy S. Collins
Phone: 414-665-1444
Fax: 414-625-2639
Notes
Notes
Notes
Trade
Notes
Trade
Notes
Notes
$19,572,000
$19,190,000
$19,000,000
$18,477,874
$18,350,000
$18,203,561
$18,071,000
$17,781,000
58a
I, Charles C. Conaway, Chief Executive Officer of Kmart
Corporation, declare under penalty of perjury that I have
read the foregoing list and that it is true and correct as of
January 22, 2002, to the best of my knowledge, information
and belief.
Date: January 22, 2002
Signature: /s/ [Illegible]
Title: Chief Executive Officer
Charles C. Conaway
nn
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.