Source: https://www.scribd.com/document/141342651/Coda-Recall-Motion
Timestamp: 2017-05-25 19:00:26
Document Index: 60016227

Matched Legal Cases: ['§ 105', '§ 157', '§ 157', '§ 1408', '§ 363', 'art 2']

Coda Recall Motion | Chapter 11 | Bankruptcy
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1 Jointly Administered Requested Objection Deadline: May 24, 2013 at 11:00 a.m. (EDT) Requested Hearing Date: May 29, 2013 -----------------' at 10:00 a.m. (EDT) MOTION OF CODA HOLDINGS, INC. AND ITS AFFILIATED DEBTORS FOR ORDER, PURSUANT TO 11 U.S.C. §§ 105(a) AND 363(b), AUTHORIZING THE DEBTORS TO CONDUCT A VOLUNTARY RECALL OF CODA SEDANS TO REPLACE ROOF-MOUNTED SIDE CURTAIN AIRBAGS Coda Holdings, Inc. and its affiliated debtors and debtors in possession in the above-
captioned chapter 11 cases (collectively, the "Debtors"), hereby file their motion for an order, pursuant to sections 105(a) and 363(b) oftitle 11 ofthe United States Code, authorizing the Debtors to conduct a voluntary recall of CODA Sedans to replace roof-mounted side curtain airbags (the "Motion"). In support of the Motion, the Debtors respectfully represent: I. PRELIMINARY STATEMENT The Debtors hereby request authority to conduct a voluntary recall to address a potential safety issue in their vehicle marketed as the "CODA Sedan." The total cost of the contemplated voluntary recall will not exceed $40,000. Although the Debtors believe that the The Debtors in these chapter II cases, along with the last four digits of their respective federal employer identification numbers, are: Coda Holdings, Inc. ( 1892); Cocla Automotive, Inc. (6800); Coda Energy LLC (3053); Coda Automotive (CA), Inc. (91 09); and EnergyCS LLC ( 1359) . PHI 3524184v2 05/13/13 ¨1¤?+U-%-(3«
1311153130513000000000008
Docket #0081 Date Filed: 5/13/2013
voluntary recall they propose to conduct is an ordinary course activity, they seek Court authorization to proceed in an abundance of caution. The contemplated recall concerns the side curtain airbags in the CODA Sedan. In the course ofNHTSA crash testing earlier this year, it was observed that the side curtain airbags in the vehicle did not deploy as intended upon impact. Although the deployment was found to be compliant with applicable standards, the sub-optimal deployment may result in sub-optimal protection for vehicle occupants in the event of a crash. There are no known incidents or injuries relating to this condition. However, given the small cost of performing the recall, the fact that customer safety is implicated, and the fact that the Debtors' debtor in possession financing providers have consented to the use of their cash collateral to conduct the voluntary recall, the Debtors view the voluntary recall as well justified under the circumstances. Conducting the voluntary recall will be beneficial not only to CODA Sedan owners and other occupants of their vehicles; but will also serve to protect the Coda name for the benefit of the Debtors' estates. For all of these reasons, and as more fully set forth herein, the Debtors respectfully request that the Court grant the Motion. II. BACKGROUND A. General Background 1. On May 1, 2013 (the "Petition Date"), each ofthe Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code, thereby commencing the above-
captioned chapter 11 cases (the "Chapter 11 Cases"). The Chapter 11 Cases are jointly administered for procedural purposes only. 2. The Debtors continue to manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 ofthe Bankruptcy Code. 2 PHI 3524184v2 05113/13 •, .' 3. On May 10,2013, the Office ofthe United States Trustee appointed the Official Committee of Unsecured Creditors. To date, not trustee or examiner has been appointed in the Debtors' cases. 4. Prior to the Petition Date, the Debtors developed the CODA Sedan, an all-electric passenger car that boasts a longer and more dependable range than any non-luxury electric passenger car currently on the market. Following unanticipated delays in bringing the car to market, deliveries ofthe CODA Sedan did not begin until March of2012, approximately a year later than originally scheduled. Due to a variety of factors, including (i) loss of competitive I·" advantage resulting from the delayed release; (ii) insufficient capitalization to effectively market and sell the CODA Sedan; (iii) slower than anticipated growth in demand for EV s, generally; and (iv) adverse macroeconomic market conditions; the Debtors sold fewer than 100 CODA Sedans, falling well short of the Debtors' expectations. ,. ! B. Background Specific to the Motion ; 5. The National Highway and Transportation Safety Authority ("NHTSA") conducted side impact crash testing of the CODA Sedan in March of2013. During the course of this testing, NHSTA observed that the side curtain airbag on the drivers' side ofthe subject vehicle did not deploy as intended. Although NHTSA determined that the CODA Sedan tested '' in compliance with applicable side impact standards, the sub-optimal airbag deployment led to an investigation. 6. Following the investigation into the sub-optimal airbag deployment, investigators concluded that the roof-mounted side curtain airbags in the CODA Sedan test vehicle were not assembled correctly by the supplier prior to installation in the vehicle. Specifically, investigators 3 '', '.: PHI 3524184v2 05/13/13 ·, ·,
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''. '.: ... : ' detennined that the inflatable fabric pouch contained within the airbag unit was not properly rolled (in its deflated state) such that it would unroll and inflate as intended upon deployment. 7. There are no known incidents or injuries relating to improper deployment of a side curtain airbag installed in any consumer's CODA Sedan. Nonetheless, upon their belief that the condition identified by investigators may exist in other model year 2012 CODA Sedans, the Debtors (prior to the Petition Date) ordered replacement side curtain airbag units, certified by the supplier to be properly rolled, for the purposes of conducting a voluntary recall. 8. The Debtors detennined to conduct a voluntary recall, without a mandate from NHSTA, due to the significance ofthe side curtain airbags in the CODA Sedan's suite of safety features and the relatively low cost of the repair. Specifically, the side curtain airbags in the CODA Sedan are intended to help minimize or reduce hann to the head of an occupant seated adjacent to the doors on the side of the impact in the event of a side impact collision requiring the deployment of the airbag. If a side curtain air bag is not manufactured properly, it may deploy improperly, thereby reducing its effectiveness. Having already paid for the parts, the Debtors now estimate that the remaining cost to conduct the voluntary recall will not exceed $40,000. 9. The Debtors' debtor in possession financing providers (the "DIP Lenders") have consented to the use of their cash collateral to conduct the voluntary recall in an amount not to exceed $40,000. I 0. Upon an order authorizing the Debtors' contemplated voluntary recall of the roof-
mounted side curtain airbags in the CODA Sedan, the Debtors propose to proceed as follows (the "Voluntary Recall Campaign"): 4 PHI 3524184v2 05113113 . \ ; ' · ~ 11. a. The Debtors will notify by mail each owner of an affected CODA Sedan of the suspected defect. The letter will advise the owner to bring the owner's affected CODA Sedan to any participating current or former CODA dealer (each, a "Repair Facility"), which will, without charge to the owner, replace both roof-
mounted side curtain airbags in the affected CODA Sedan with supplier-certified units already obtained by the Debtors. b. The Debtors will, in turn, reimburse each Repair Facility for the side curtain airbag replacement work it conducts in connection with the Voluntary Recall Campaign at such Repair Facility's shop rates in effect at the time of this Motion,
2 provided, however, that the number of hours for which a Repair Facility shall be entitled to reimbursement shall be capped at 2.4 hours per CODA Sedan as to which such Repair Facility completes the side curtain airbag replacement work unless otherwise agreed to in writing with the Debtors. For the avoidance of doubt, by this Motion, the Debtors do not intend to assume any agreements or other obligations with current or former CODA Dealers other than as expressly set forth herein. I2. For the further avoidance of doubt, by this Motion, the Debtors do not intend to · · assume any warranty obligations in respect of the CODA Sedan. To the extent that, during the ; ·' l ,, ', ''' course of these Chapter II Cases, the Debtors determine that it is in the best interests of the Debtors' estates to conduct any additional recall or other services in respect of the CODA Sedan, they may seek additional authority from the Court to do so. Any decision to seek such additional authorization (as it was in respect of the Voluntary Recall Campaign) shall be made on a case-
by-case basis, taking into consideration, among other things, (a) the cost of the service; (b) the benefits to be provided by the services; (c) any potential adverse impact on the CODA name of failing to perform the service; and (d) the availability of funds to perform the service (including, without limitation, those funds authorized for use by the DIP Lenders). Such rates range from $115 per hour to $142 per hour. 5 PHI 3524l84v2 05113/13 III. JURISDICTION AND VENUE 13. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409. IV. RELIEF REQUESTED 14. By the Motion, pursuant to sections 105(a) and 363(b) of the Bankruptcy Code, the Debtors request entry of an order, substantially in the form attached hereto as Exhibit A, '' authorizing the Debtors to expend an amount not to exceed $40,000 in conducting the Voluntary Recall Campaign. V. BASIS FOR RELIEF REQUESTED 15. The Debtors believe that conducting the Voluntary Recall Campaign falls within , · the ordinary course of their businesses such that the authority vested in the Debtors pursuant to 'i i ,, ,, '' '', ·.: j ,,_ '',; ) sections 11 07(a) and 1108 of the Bankruptcy Code is sufficient to permit them to proceed. However, in order to avoid a potential challenge to the Debtors' actions after the fact, the Debtors seek authority pursuant to sections 1 05(a) and 363(b)(l) of the Bankruptcy Code in an abundance of caution. 16. Section 3 63 (b)( 1) of the Bankruptcy Code provides that the debtor in possession, "after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. § 363(b)(l). The use, sale, or lease of property of the estate, other than in the ordinary course of business, is authorized when a "sound business purpose" justifies such action. In re Montgomery Ward Holding Corp., 242 B.R. 142, 147 (D. Del. 1999); In re Shubh Hotels Pittsburgh, LLC, 439 B.R. 637,639 (Bankr. W.O. Pa. 2010); see also In re 6 PH I 3524 I 84v2 05113113 ., ·,· .,
\ '', ,, . ·' '•
. ,' Lionel Corp., 722 F.2d 1063, 1071 (2d Cir. 1983); In re Continental Air Lines, Inc., 780 F.2d 1223, 1226 (5th Cir. 1986). 17. The Debtors can easily articulate a sound business reason for conducting the Voluntary Recall Campaign, and submit that doing so comports with their duties as debtors in possession to preserve the value of the Debtors' estates. First, the cost of the Voluntary Recall Campaign is slight in light of the interests at issue. Having already paid the cost of obtaining replacement roof-mounted side curtain airbags (which are of little value, if any, to the Debtors' estates if not put to their intended use in the Voluntary Recall Campaign), paying an amount of up to $40,000 a small price to pay to ensure that this safety system in the CODA Sedan is as robust as it was designed and intended to be. 18. Second, maintaining a proactive approach with respect to this matter protects the value of the CODA brand. The CODA name is an asset in which the Debtors have invested heavily and is likely to represent a valuable asset to a buyer. In order to maximize the value of the CODA name to buyers, and therefore the Debtors' estates, the Debtors submit that taking appropriate steps to avoid negative associations with the CODA name that may arise from failure to address a known potential safety issue in a CODA product makes good business sense . 19. Third, though the Debtors are not currently actively engaged in the automotive business, the Debtors believe that maintaining favorable relations with NHTSA is in the best interests of the Debtors and theirs estates. Among other things, preserving favorable relations with NHTSA preserves optionality to the Debtors and any buyer of their automotive assets to '· ', smoothly resume operations of those assets. Although NHST A has not directed the Debtors to conduct the Voluntary Recall Campaign, to the extent that their view of the sub-optimal 7 PHI 3524184v2 05113/13 'l '• ': '•
' ' . · .;t '; : ' - ~ ' ~ . ''•\ .. ' ' ~ ': ': ' . ' ·.' ·l
. ' ': deployment of the roof-mounted side curtain air bags may be subject to change, the Debtors and their relations with NHST A could be adversely affected. 20. For all of the foregoing reasons, the Debtors submit that the Voluntary Recall Campaign is an appropriate exercise of their business judgment and request authority to proceed with such campaign. VI. WAIVER OF STAY 21. The Debtors further request a waiver of any stay ofthe effectiveness of the order approving this Motion to the extent such an order is entered. Pursuant to Bankruptcy Rule 6004(h), "[a]n order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise." Fed. R. Bankr. P. 6004(h). As set forth above, the relief requested herein is modest and consented to by the DIP Lenders. Moreover, the relief relates to a potential safety issue affecting users of the CODA Sedan. Accordingly, the Debtors submit that ample cause exists to justify a waiver of the fourteen-day stay imposed by Bankruptcy Rule 6004(h), to the extent it applies. VII. NOTICE 22. Notice of this Motion has been provided to the Office of the United States Trustee for the District of Delaware, the DIP Agent, the Notes Agent, the Bridge Agent, the Term Loan Agent, the Second Term Loan Lender (as those terms are defined in the Declaration of John P . Madden In Support of First Day Motions and Applications [D.I. 10)) and their respective counsel, the Debtors' 30 largest unsecured creditors on a consolidated basis (including counsel if known), proposed counsel to the Official Committee ofUnsecured Creditors, and all parties requesting notices pursuant to Federal Rule of Bankruptcy Procedure Rule 2002. The Debtors submit that no other or further notice need be provided. 8 PHI 3524184v2 05/13/13 ' ''. 23. No previous motion for the relief sought herein has been made to this or any other . ·,\ court. ' '.("l .. ; . ' ' .. \! VIII. CONCLUSION WHEREFORE, the Debtors respectfully request that the Court (a) enter an order substantially in the form attached hereto as Exhibit A; and (b) grant such additional relief as the Court deems just and proper. Dated: May 13,2013 9 PHl3524\84v2 05/13/13 FOX ROTHSCHILD LLP By: (No. 3047) John H. Strock (No 4965) L. John Bird (No. 5310) 91 9 Market Street, Suite 1600 Wilmington, Delaware I 980 I Telephone: (302) 654-7444 Facsimile: (302) 656-8920 -and-
WHITE & CASE LLP John K. Cunningham (pro hac vice) 200 South Biscayne Boulevard, Suite 4900 Miami, Florida 33131 Telephone: (305) 995-5252 Facsimile: (305) 358-5744 Roberto J. Kampfner (pro hac vice) 633 West Fifth Street, Suite 1900 Los Angeles, California 90071 Telephone: (213) 620-7700 Facsimile: (213) 452-2329 Proposed Attorneys for the Debtors and Debtors in Possession Exhibit A PHI 3524184v2 05/13/13 In re UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE Chapter 11 Case No. 13-11153 (CSS) Coda Holdings, Inc., et a!., Jointly Administered Debtors.
1 Related to Docket No.: ORDER, PURSUANT TO 11 U.S.C. §§ lOS(a) AND 363(b), AUTHORIZING THE DEBTORS TO CONDUCT A VOLUNTARY RECALL OF CODA SEDANS TO REPLACE ROOF-MOUNTED SIDE CURTAIN AIRBAGS Upon consideration of the motion (the "Motion") 2 of Coda Holdings, Inc. and its affiliated debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the "Debtors") for an order, pursuant to sections 105(a) and 363(b) oftitle 11 ofthe United States Code, authorizing the Debtors to conduct a voluntary recall of CODA Sedans to replace roof-mounted side curtain airbags; and it appearing that the Court has jurisdiction over this matter; and it appearing that notice of the Motion is sufficient, and that no other or further notice need be provided; and it appearing that the relief requested in the Motion is in the best interests of the Debtors and their estates and creditors; and upon all ofthe proceedings had before the Court; and after due deliberation and sufficient cause appearing therefor, it is hereby ORDERED that the Motion is granted as set forth herein; and it is further The Debtors in these chapter II cases, along with the last four digits of their respective federal employer identification numbers, are: Coda Holdings, Inc. (1892); Coda Automotive, Inc. (6800); Coda Energy LLC (3053); Coda Automotive (CA), Inc. (9109); and EnergyCS LLC (1359). Where the context requires, each capitalized term used but not otherwise defined herein shall have the meaning ascribed to such term in the Motion. PH I 3524184v2 05113113 ORDERED that the decision to initiate the Voluntary Recall Campaign is made in good faith and in the Debtors' reasonable business judgment; and it is further ORDERED that the Debtors are authorized, but not directed, to expend an amount not to exceed $40,000 to, as set forth in the Motion, to a. Notify each owner of a CODA Sedan that is suspected to contain a roof-mounted side curtain airbag that was not properly manufactured that such owner (a) owns a CODA Sedan that may contain such a defect; and (b) may bring the affected CODA Sedan to a Repair Facility, which will, without charge to the owner, replace both roof-mounted side curtain airbags in the affected CODA Sedan with supplier-certified units already obtained by the Debtors; and b. Reimburse each Repair Facility that conducts the side curtain airbag replacement work in connection with the Voluntary Recall Campaign at a rate of up to 2.4 hours per CODA Sedan as to which such work is completed, at such Repair Facility's rates in effect as of the date of the Motion, provided that the Debtors may pay a Repair Facility reimbursement for work in excess of 2.4 hours on a vehicle-by-vehicle basis where circumstances warrant and the Debtors and the Repair Facility have agreed to such additional payment in writing in advance of completion ofthe repair; and it is further ORDERED that nothing in this Order does or shall be construed to constitute an assumption of any warranty or similar obligations ofthe Debtors in respect ofthe CODA Sedan; and it is further 2 PHI 3524184v2 05/13/13 ORDERED that nothing in this Order does or shall be construed to constitute an assumption of any agreement or other obligations with any current or former CODA dealer; and it is further ORDERED that, the Debtors are authorized to take all actions necessary to implement the relief granted in this Order; and it is further ORDERED that this Court shall and does retain jurisdiction to hear and determine all matters arising from or related to the implementation of this Order. 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