Case 13-11831-BLS Doc 704 Filed 11/10/14 Page 1 of 26Agreement to sell the Aarlccl oP Aarkel's parent, RWCT. Canada, Ina ("RWCT"), Aarkel's parent, which completed assets by no later

IN THE UNITED STATES BANKRUPTCY COURT

rOR THE DISTRICT OF DELAWARE

In re: ) Chapter 11

TPOP, LLC,~ ) Casa No. 13-11831 (BLS)

Debtor, )Related to Docket No. 689

DEL'TOR'S 08JECTION TO

AMENDED MOTION TO COMPEL IMMEDIATE PAYMENT OF

FIRST PRIORITY SECURED CLAIM OF GENERAL MOTORS LLC

Debtor TPOP, LLC ("TPOP" or the "Debtor"), the debtor and debtor in

possession in the above-captioned chapter 11 case, files this objection (the "Objection") to

General Motors LLC's ("GM") Amended Motzon to Compel Immediate Payynent of ~%zrst Priority

Secur°ed Claim [Docket No. 689 (the "Amended Motion"). In support of this Objection, the

Debtor respectfully states as follows:

Preliminary StateYnent

1. Having obtained the full benefits of its bargain under the Sale Support

Agreement with the Debtor, GM now seeks to avoid its obligation to forgive certain loans to the

Debtor, and thereby extract az~ unwarranted, windfall payment of $13,295,1'75 from the Debtor°s

estate, at the expense of all other creditars,~ GM's effort to avoid its contractual obligations is

based on technical, immaterial alleged defaults that admittedly did nat cause any damages to GM

and, rrzost significantly, did not affect the primary purpose of the Sale Support Agreement or the

benefits CrM obtained as a result of the Debtor's performance under the Sale Support Agrecrnent.

' Tl~e Debtor in this chapter 11 case is 'I'POP, LLC f/k/a M.etavation, LI,C and the last four digits of the Debtor's

federal tax identification numbers is 5884, The location of the Debtor's headquarters is 230 N, Limestone St., Ste,

1.00, Lexington, KY 40507.

2 ̀ I'h~ "Sale Support Agreement" or "SSA" means the Automotive Sale Transaction Support Agreerraent, dated as of

.Tiny 18, 2013, among GM, Chrysler• Group, LLC, Revstone Industries, LLC, .Revstone Transportafron, LI,C,

Contech Castings, LTC, Contech Castings Real Estate Holdings, LLC, Metavation, LLC, Metavation Mexico, T.,I,C,

~ptec S,A. De C.V., Aarkel Tool &Die Inc., Creative Lighting Solutions, I,LC, and Fairfield Casting, I.LC.

DOCS DE:196000.6 73864/002

Case 13-11831-BLS Doc 704 Filed 11/10/14 Page 1 of 26

~1s such, under the Sale Support Agreement, GM is obligated to provide loan forgiveness and to

fund the second installment of the Sale Support Payment, GM's attempt to avoid those

obligations is nothing more tha~1 an attempt to eni'orce a "penalty" liquidated damages provision:

if CxM's Amended Motion is granted, GM will receive the full benefit of the Debtor's

performance, as well as apayment of $13,295,175 from. the Debtor and areprieve franc its loan

forgiveness and Salc Suppol~ Payment obligations, without having suffez•ed any actual darna~;es

under the Sale Support Agreement. The Debtor, on the other hand, will have fully performed

under the Sale Support Agreement, but will be deprived of a substantial benefit it bargained for

(namely, CM's loan forgiveness and the second instalirrient of the Sale Support Yaymeiat3), and

will be fo~~ced to pay penalty damages of $ ~ 3,295,175 in the absence of any actual damages to

GM.

2, It is undisputed that the primary purpose of the Sale Support Agreement

has been achieved, The primary pu~~pose of the funding provided by GM and Chrysler Group,

LLC ("Chrysler", together with GM, the "Customers") through the Sale Support Agreement was

to protect the Customers' supply chain by supporting: (i) the ability of the Debtor and Contech to

continue supplying component parts to the Customers; (ii) the sales of the Debtor and certain

affiliates as going concerns so that the supply of component parts to the Customers would rennain

uninten•upted; and (iii) the removal of Revstone Industries, LLC ("Revstone") and Keystone

ai'lilrates, as controlled by George Hofineister, from the Customers' supply base. The continuous

supply of component parts to the Customers was critical because, as stated in the Stipulation

Regarding Motion to Compel Immediate Payment of First Pr^io~ity Secured Claim of General

Motors LL,C [Docket Na. 684] (the "Stipulation"), "[t]he damages resulting from a temporary

shutdown of any such assembly plants, while difficult to calculate with a degree of cez~tainty,

The Debtor intends to seek payment of the aanount of the Sale Support Payment that is due and owing by GM,

2ROCS DG:196000,6 7386q/002


would have. been substantial and may have included a loss of customer relations and goodwill as

a result of GM's inability to deliver vehicles and replacement parts as ordered by GM's

customers and the ultimate consumers, in additio~l to damage that would have been suffered by

GM's supplies, dealers, vendors, and employees," By virtue of the Debtor's performance under

the Sale Suppoxt Agreement, plant shutdowns were avoided and GM received from the Debtor

and its affiliates the component parts it needed to protect its customer/consumer relations, its

goodwill and its suppliers, dealers, vendors and employees. l~dditionally, all of the sales

contemplated in the Sale Support Agreement were completed to purchasers that GM approved,

ensuxing the Iuture supply of component parts to CAM and further protecting GM's

customer/consumer relations, goodwill, suppliers, dealers, vendors and employees, as well as

eliminating any connections to George IIofineiste~• controlled entities from GM's supply base.

In exchange foz~ the benefits it obtained pursuant to the Sale Support

n greement,

Sale Support Agreement, § 5.2, Such loan forgiveness would be~~

Id. The sale of the last Business, Aarlcel, closed on July 4,

2014, Now, laelcing the ability to claim that it did not obtain the benefit of the Debtor's

performance under the Sale Support Agreement, GM attempts to avoid its agreement to forgive

the Metavation and Contech Pax-ticipations and the Post-Petition Loans by relying on certain

4 Capitalized terms not otherwise defined herein shall have the meanings used in the Sale Suppoz~t Agreement and

the Appendix of Defined Terms attached Lh~reto,

3ROCS I>F::196000,6 73864/002


hypertechzlical, immaterial alleged defaults, GM's alleged defaults and the Debtox's response to

each are set forth belovv.5

GM's Asserted GM's Alleged ~venk5 of Debtior's Res~~ouse

Rcquiremcnt/Milestone Default

Delivery of written certification Never delivered to GM. The information contained in the CRO certification had no

to GM by Revstone's Chief bearing nn either GM's continued receipt of component parts

Restructuring Officer of certain or tike sale processes. Accordingly, the alleged failure to

information. Sale Support deliver the CRO cea•frfication was immaterial, did not causeAgreement § 1,2(a), any harm to GM, and had no effect on GM's ability to

achieve the full benerts of its bargain, namely, the continued

receipt of the component parts and the completion of the sale

rocesses.

Obtaining certain loans from its Loans not obtained, thereby GM fails to cite any provision of the SSA that required the

lender on or around August 1, exceeding the Debtor's I~ebtar to obtain loans from the lender• on or before August 1,

201~~ budget and forcing GM to 2013. 'Phis is not surprising as is tihe~•e is no such basis for

permanently fund more than this alleged default in the SSA or anywhere else. Thus, this

necessar , does not qualify as an event of default.

Compliance with DIP Budget Budget Violation during GM misstates the facts: the Debtor did not fail to comply

week of August 5, 2013 with the UIP Budget. 'T'he one-week shortfall was made up

the following week —hardly an anomaly in a forecasted DIP

Budget— and the Debtor operated th~•ou~h the Debtor's Sale

closing without obtaining additional funding from the

Customers.

Delivery to GM of a fully- Never delivered to GM CrM did not provide. funding to the rptec Non-Damper

executed security agreement and F3usiness, Nor wzs there ever any risk it would not receive

mortgage relating to the Eptec the component parts produced by Eptec. GM was an active

Non-Damper t3usiness. Sale pac•ticipant in the Sale ofthe EptecNon-Damper Business,

Support Agreement §1.2(b). Indeed, GM would only consenC to the sale to the one buyer it

approved. GM's refusal to consider other buyers negativety

affected tihe sale~ce and the realization of i•oeeeds.

Closing the sale of the Lptec Sale closed on March C, As stated above, the delay in closing was caused in part by

Non-Damper Business by 2014, more than six months GM's selection of the buyer, with full knowledge that its

September G, 2013. Sale Support afCer the deadline. choice of buyer would reduce the purchase price of the

Agreement §z.s(fl. Business. GM's actions are a default under §~

~~~~~whose bid would result

in the highest sale price. The T>ebtor reserves all rights to

assert counterclaims and seek discovery on GM's tortious

interference with the ~ tee Non-Dam er Sale rocess.

Payment to UM of the proceeds Never paid Co GM, As GM is well aware, net proceeds were not available for

of the Sale of the Eptec Non- payment to GM at Closing of the Sale of Lptec Non-Damper

Damper Business. Sale Support Business, as cez~tain obligations senior in priority to GM or

Agreement §5.4, which were otherwise required to be paid in order for the sale

to close (PBGC, secured creditors, Mexican revenue

authorities, employees, vendors and minimal reserves) were

paid or reserved, leaving; nothing for GM. Moreover, prior to

the sale, GM resourced business previously handled by Eptec

which in turn negatively impacted the pw~chase price for the

Business. The Debtor• does not owe any amounC to GM

related to the ~ Yee sale oi• otherwise.

Obtain the PI3GC's consent tc~ the Consent not Cimcly obtained, GM is wrong. PBGC consent, which was a condition to

sate of the Bptec Non-DTmper closing, was obtained prior to the Sale closing.

Business free 2nd clear of anyliens and interests of the I'BGCby August 16, 2013. Sale

'S This chart replicates the first two columns of the chart set forth in the Amended Motion at ¶ 36, and adds a third

column that responds to GM's assertions,

4ROCS DE:19(000,6 7386h/002


GM's Asserted GM's Alleged F',vents of Debto►°s ResponseRequircmenUlilestone Deft~ttltSupport Agreement X7.9. u

F~ecutc a binding Asset Purchase The Debtors sold the equiCy GM consented to the sale of equity of Revstone Wallaceburg

Agreement to sell the Aarlccl oP Aarkel's parent, RWCT. Canada, Ina ("RWCT"), Aarkel's parent, which completed

assets by no later than August 7, 'Thus, the Debtor did not, and the sale of Aacl

Custofne7•s will nat forgive, GM alleges that the Debtor owes GM $6,302,130 of Retained

Participations. As set forth below and in Appendix A, not only is GM z~ot entitled to receive the

windfall payment of $13,295,175 or repaymEnt of the Retained Participations but it owes the

Debtor over ~, to

GM Asserted C►aim GM Asserted Aebtor's Position Debtor's ResponseRetained re Balance I)ue

Pa►•ticipations

Pursuant to § S.2 of the SSA, GM agreed,

7'he Sales of TPOP,

Eptec Damper and ConYech closed and GM is required to

$0 forgive the amount oGM's assei~led claim o must be reduced by

~~ Pursuant to ~ 5.2 of the SSA. As GM

is the sole remaining Customer (following Chrysle~~'s

Court approved settlement and release oP claims), and the

SSA does not apportion~~

~~ ~ must he fo~n.

The remaining balance of~ is further• reduced by

because GM failed to use the Credit Agreement

interest rate of 6%and did not apply all the proceeds

received from the sale of real estate owned by Contech,

$1,848,765 leavin a balance o _

GM assents that it is entitled to repayment of its portion

owever, GM owes the Debtor• the second

insCallment of the Sale Support Payment13in the amount

of ~ which offsets the Sale Support

Indebtedness. After offsetting the Sale Support

Indebtedness, the remaining; amount of the Sale Support

$2,500,000 $0 I'a ment, is then a plred a ainst GM's

6DOCS T~~:196000,6 73864/002

10 Attached hereto as Appendix A is a summary of the balance of funds asserted by GM and disputed by the Debtor•.


GM Asserted Claim GM Asserted Debtor's Position pebtor's Response

Retained re I3aMance Drre

Pai•ticiE>at'rons

$1,8 48,765 Retained Participation claim,

GM alleges that this amount represents a participation

interest under tihe Credit Agreement that it purchased and

it is a Retained Participation under § 5.3(a) of the SSA.

GM did nvt purchase this pairticipation interest.

Accordingly, GM is not entitled to recoup the amount of

$1,706,500 pursuant to Section 5.3(a) ofthe SSA.

$1,706,500 $0GM seeks interest applicable to the amounts sct forth in

columns 1 and 2. GM's interest calculations are incorrect

because they rely on i»correct amounts and apply fhe

wrong interest rate to certain balances, At hest, GM is

~ 5~246,86q onl ~ entitled to in interest.

GM defaulted under § 3.0 of the SSA by failing (i) to pay

a significant portion of invoices on time and (ii) to pay

the still out~standin total amount of

After applicaCion of the above offsets, corrected interest

calculations and amounts due and owing from GM for

unpaid invoices, as well as the net Sale Support Payment

$13,295,175 _ $6,302,129 due, GM owes the Debtoz• the amount of

S. GM's remaining two arguments are also meritless. First, GM claims that

it should be paid the full amount of its alleged secured claim, $13,295,175 outside of a plan, but,

in fact, C~-M is not entitled to any distribution, much less a distribution outside of a plan..

Contrary to GM's assertion, proceeds from the sale of a secured creditor's collateral are not

routinely distt~zbuted to a secured creditor outside of a plan. Even if GM had liquidated secured

claims, distribution on account of any such secuz•ed claims prior to confirmation of a plan runs

afoul of the Fundamental chapter 11 principle that distributions to prepetition creditors should not

take place except undex a confirmed plan. Moreover, if allowed in this case, GM's requested

distrzbutian would impact the plan of liquidation that the Debtor intends to file and woriz to the

detriment of anticipated recoveries by the creditors of the Debtor•.

6. Second, and rinally, GM argues that its secured clairris are not subject to

set-off or counterclaims, In making this argument, GM relies on certain express tezms of the

7I>OCS D~:196000.6 73A6~}/002


Ratification Agreement, Final Financing Order and Resignation of Agent Agreement to "make

clear that the Debtor has no good-faith basis to allege claims, defenses, or offsets in an attempt to

impede GM's right to immediate payment of its first priority secured claim," Amended Motion,

~( 55. GM's argument ignores the Debtor's counterclaims that arise from GM's defaults under

the Sale Suppar~t Agreement, First, GM failed to make payments on time to the Debtor and did

not pay invoices in the amount o .The failuxe to deliver payments on time and

nlalce payments for outstanding invoices are breaches of Section 3.6 of the Sale Support

flgreement. Second, GM tortiously interfered wzth certain of the marketzng and sale processes

contemplated by the Sale Support Agreement, The Debtoz• served requests for production of

documents and notices of deposition on GM that pertains to the Debtor's af~rinative defenses

and counterclaims. however, GM refused to provide any discovery, Subsequently, the parties

agreed to stay discovery until the Court has issued a ruling on the issues being adjudicated at the

Preliminary Hearing. The Debtor believes the discovery responses will demonstrate GM's

tortious conduct that gives rise to significant damages claims. Such damages will further offset

any amount GM alleges it is owed. Thus, it is premature for GM to argue that tike Debtor does

not have rights of set-off or counterclaim at this stage of these praceedin~;s.

Ob.iectioii

I. UM Mast Provide the Loan Forgi~~eness I~tequired Under

The Sale Support A~reeinent

A. The Debtor Met the Applicable Sale ~9iiestones That Trigger Forgiveness of its

Loans

GM is seeking immediate payment of ~ 13,295,175 because it contends

that it is not required to forgive its loans to the Debtor. GM's attempt to recover this windfall

payment, and avoid its loan forgiveness obligations, is based an GM's claim that the Debtor

DOCS DE:]96000.673RC~3/002


defaulted nn more than ten separate obligations under the Sale Support Agreement. Amended

Motion, ¶¶ 36, 42.

8. Relying on a faulty interpretation of the Sale Support Agreement, GM

a~•gues that the conditions precedent to loan forgiveness were not xnet. The terms of the Sale

Support Agreement required the

(collectively, the "Section 2.3 Milestones"). Sale

Support Agreement § 2.3(a)-(fl, GM does not dispute that the section 2,3 Milestones were

satisfied.

9. Tl1e terms of the Sale Support Agreement also required the

(collectively, the "Section 2.4 Milestones"

and together with the Section 2.3 Milestones, the "Milestones"). As reflected in the Amended

Motion, GM does not dispute that the Section 2.4 Milestones were satisfied,

pOCS I~~:196000.6 73A64/002


10. By complying with the Milestones, the Debtor was entitled to receive

certain incentives in the form of cash funding, the forgiveness of claims, and the release of other

non-retained claims, ~1s do the claim forgiveness provision, the Sale Support

~1,greemcnt provides the following;

Sale Suppot-t Agreement § 5.2,

11. In addition to the completion of the Milestones (i.e., part (i) of the above

paragz•aph), the Debtor also complied with the distribution restrictions set Iorth in Section S.6 of

the Sale Support Agreement (i.e,, parC (ii) of the above paragraph). GM does not dispute that the

Debtor's performance of these conditions was completed on ox prior to the deadlines set forth by

the Milestones.

12. Provided that the Milestones were satisfied, GM agreed that it vvauld

iaxgive

Sale Support Agreement § 5.2. As set forth above, GM now

seeks to rescind its obligations to forgive the participations and post-petition loans based on

,s

10ROCS DE;196000.6 73864/002


certain technical, non-material defaults that did not prevent UM from receiving the benefits of

the Sale Support Agreement.

13, The effectiveness of GM's loan forgiveness was conditioned on the

closing of separate sales. Specifically, the Sale Support Agreement provides that:

Sale Support Agreement § 5.2, The Debtor satisfied its obligations under

on ar about December 27, 2013.1G On July 4, 2014, the sale of the last

Business, Aarkel, closed. See .l-Markel Sale Order. Thus, GM's loan forgiveness became

effective, and GM's claims were waived when the sale of Aarlcel closed. Accoxdingly, GM is

obligated to forgive the loans.

B. The Debtor Substantially Performed Its Obligations Under the Sa(e Suppoz~t

Agreement and Pex•~nitting GM to Avoid Its Obligations or Receive Payment from.

the Debtor Woald Constitute an Impermissible Penalty

14. In addition to the dispute aver the interpretation of Section 5.2 of the Sale

Support A~reerrzent, CTM contends there are ten defaults under the Sale Support Agreement

which nullify its obligation to forgive its loans, given if the Debtor were to concede the

existence of the technical defaults referenced by GM, such alleged technical defaults do not

relieve GM of its obligations under• the Sale Support Agreement because the Debtor substanfiially

performed its obligations, C1M received the full benefit of the Debtor's performance, and GM has

suffered no damages.

15. The contractual provisions of the Sale Support Agreement are governed by

Michigan law. See Sale Supp'ott Agreement, § 12.6. Michigan law follows the doctrine of

'~ Pursuant to Section 7 of the Sale Support Agreement, following the sale ot'Metavation, Che Debtor,

satisfy its obligations under

not allayed that the Debtor failed to

11DOCS DE:196000,6 73864/002


substantial pexfiormance with respect to contracts. As stated by the Michigan Supreme Court in

its seminal decision, Antonoff v. Basso, 78 N,W,2d 604 (Mich, 1956);

A promisox, it is true, is obligated to perform as he promised, This does z~at mean, however•, that

every deviation from the performance promised so goes to the essence of the contract as to

privilege the other to refuse to render a reciprocally promised performance. Substantial

pe~•formance, however, there must be. ghat amounts to substantial performance? There is [naJ

fixed formula. The question is one of degree, its determination involving the resolution of many_

factors. 3 Corbin on Contracts, § 704, puts the matter well rn these terms:

`It is not easy to lay down rules fox determining what amounts to ̀ substantial performance,'

sufficient to justify a judgment for the contract price (subject to a counterclaim for injury, if

asserted) in any particular case. It is always a question of fact, a matter of degree, a question that

must be determined relatively to all the other complex f actors that exist in every instance. The

variation in these factoxs is such that generalisation is difficult and the use of cases as precedents.

is dangerous.

78 N.W. 2d at 610.

Hence, Michigan law does not compel "exact and precise performance wider acontract" — it is

only necessary that there be substantial performance. Consr~e~ Townsend EnviNodyne L'ngineers

Inc. v, C'iry of'GrandRa~ids, 2009 WL 3013258, at *5 (Mich. Ct.11pp. 2Q09) (citingAntonoff}.

T'erformanc~ is substantial unless the deviation from what is required under the contract is "so

dan~inant or pervasive as ... to frustrate the purpose of the contract," Id.

16. On the other hand, "[i]f'the plaintiff has performed under the contract

valuable services fox the defendant, of which the defendant has reaped the advantage, the

plaintiff is entitled to recover therefor at the rate fixed by the contract, less any damages the

defendant may have suffered by reason of failure in complete performance." Antkiewicz v.

ScNivo, 2000 WL 33407351, at *4 (Mich. Ct. App. 2000) {cztingAntonoff}.

17. here, GM has realized the full benefit of its bargain under the. Sale

Support l~greeinent and suffered no damages from the Debtor's alleged technical defaults

thereunder, ,S'ee Stipulation, ¶ B. The Debtor and certain af~'iliates entered into the Sale Support

12DOGS DL;196000.6 73864/002


Agreement with the Customers (i.e., GM and Chrysler) far the benefit of the Customers, to

protect (among other things), the Customers' supply chain and the Customers' own

customer/consumer relations. The Debtor did not have sufficient liquidity to manufacture the

coznpanent parts it sold to the Customers. Thus, the Customers provided fu~~ding to the Debtor

and certain. affiliates because the Customers (a) wanted to maintain the supply of parts that were

manufactured by thc; Debtor and its affiliates and (b) and support sales processes that, when

completed, would also ensure the .uninterrupted flow of component parts by the purchasers. 7t is

undisputed that the Customers achieved both of their objectives by virtue of the Debtor's

performance under the Sale Suppoz~t Agreement, as well as the Customers' additional Baal of

removing George Iiofineister controlled entities from their• supply base.

18. Despite the fact that UM has obtained the full benefit of the Debtor's

perk

to be enforceable); St Paul Fire &Marine Ins Co v GuaNdian Alarm Co, 11 S Mich App 278, 320

N~V 2d 244 (1982) (same).

19. Simply put, under Michigan law, UM ca~a~~ot rescind it obligations after

reaping the full benefits of the Debtor's performance. Moreover, Michigan law cues not permit

GM to obtain penalty damages — in either the form of GM's refusal to provide loan fox•giveness

or GM's requested payment ar~aounts —where GM has suffered no damages under the Sale

Support Agreement. Accordingly, in light of the substantial benefits realized by GM under the

Sale Support Agreement, and the lack of any damages to GM, UM's request :for a windfall

should be denied, and GM may not avoid its contractual c

and rescind its obligations under• the Sale Suppot•t Agreement, GM's flip-flop should not be

countenanced.

22, As discussed above in Section A, the Debtor was not in default at the time

the milestones were completed. Even if any subsequent material defaults occurred —which did

not happen -- at most GM's remedy would be relief Prom funding; its share of the final sale

support payment under the Section 4.2 of the Sale Support Agr. cement. If GM wanted to limit

the loan forgiveness requirements based an any post-milestone defaults, GM could have

contracted far a similar provision with respect to loan forgiveness, but it did not: nothing in the

Sale support Agreement relieves GM of its loan forgiveness obligations if a default occurs after

completion of the milestones.

23, UM's argument also fails because it is contrary to Michigan contract law,

in that the events of default alleged by GM, even if proven, are not material, In determining

whether a breach of contract is "material", the Michigan couz-ts rely upon the Restatement of

Contracts. See, e, g,, WalkeN & Co. v. Harrison, 3~7 Mich. 630, 635; 81 N.~VJ.2d 3S2 (1957). The

Restatement, in turn, provides the following guidelines for determining whether a breach is

material;

In determining whether a failure to render• or to offer performance is material, the following

circumstances are significant: (a) the extent to which the injured party will be deprived of the

benefit which he reasonably expected; (b) the extent to which the inju~•ed party can be adequately

compensated for the part of that benefit of which he will be deprived; (c) the extent to which. the

party failrng to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the

party failing to perform o~ to offer to perform will cure his failure, taking account of all the

circumstances including any reasonable assurances; (e) the extent to which the behavior of the

party failing; to perform ar to of~'er to perform comports with standaY•ds of good faith and fair

dealing.

Restatement (Second) of Contracts §241 (1981).

15DQCS DE:196000.6 7386G/002


24. As the Michigan Court of Appeals has recognized, one of the key factors

in determining whether a breach is ia~aterial "is whether the noilbreaching party obtained the

benefit which he or she reasonably expected to receive." Holtzlander v, I3rovvnell, 182 Mich.

App. 71C, 722; 4S3 N.W.2d 29S (1990). Applying these rubs to the present case, the Debtor's

alleged events of default were not material,

25. C7M received the benefits under the Sale Suppaz-t Agreement which it

expected to receive. As the Stipulation provides and the Sale Support Agreement makes clear,

GM sought to avoid the irrepaj•able harm that would have been caused by cessation of timely

shipments of Component Parts. GM's list of defaults does not include o~• allege the Debtoz~ failed

to provide Component Parts. While the alleged defaults include the failure to meet certain

deadlines related to the Sales, it does not list any Sale that was not completed. In the end, UM

received exactly what it reasonably expected to receive and the alleged defaults, even if proven,

are not material, Accordingly, GM should not be permitted to rescind its obligations to provide

the second installment of the Sale Support Payment and the loan forgiveness,

26, A review of the ten defaults listed by GM supports this conclusion, The

ten alleged events of default fall into three categories: (i) delivery of Post-Closing Deliverables;

(ii) meeting ce~~ain Sale Process requirements, milestones and deadlines; aiad {iii} DIP financing

matters.

27, The defaults related to Post Closing; Deliverables include the CRO

Certification required by § 1.2{a) of SSA and delivery offully-executed security ag~•eements

relating to tlae Eptec Non-Damper Business and Aa~•kel. GM has not asserted, and cannot, assert

that the Dabtor's failure to deliver the certification. caused it any harm ar that it was a material

default. The CRO Certification:

1(DOCS DE.:196000.6 7386/002


Similarly, GM cannot assert that failure to deliver

the fully-executed security agreements for ~ptec and Aax•Icel were inate~•ial defaults. GM was an

active participant in both the sale processes o~ Eptec and Aarkel. GM was instrumental in the

selection and/ar approval of both successful purchasers and the supply of component parts from

both af'these Businesses vvas never at risk, Moreover, the granting of liens to GM co~.Yld not

have enabled it to receive more proceeds as the Cptec sale could not have closed without paying

the PBGC, secured creditors, Ivlexican revenue authorities, employees and vendors.

28, 'the events of default related to the second category, the sales processes,

milestones and deadlines, were not material, The failure to complete the sales of both Eptec and

Aarkel by the applicable milestones was not material. GM was intimately involved in the Eptec

sale process and ultimately drove the Sale to the only buyer it would support. It was GM's own

action during the course o£the sale process that drove down the sale price of F_,ptec, which, aftex

the distribution of sale proceeds to secured creditors and vendors, xesulted in no net proceeds

available to pay GM.

29. GM's assertion of multiple events of default related to the sale of Aarkel

are also without merit and not material. Indeed, rather than seeking to stop the Aarlccl sale, GM

played an active role in that sale and ultimately consented to it. In its Limited Objection to the

sale of Revstane equity interest zn RWCI, Aarkel's parent, UM stated "[G]M does not object in

principle to the proposed sale by Revstone Industries, LLC of the equity interest of Revstane

Wal]aceburg Canada, Inc., the .parent company of Aarlcel Tool &Die, Inc., toLynik Capital

Corpoz•ation." Limited Objection, ¶ 1. GM's belated effort to concoct a default by asserting that

17DOGS DG:196000,6 73864/002


the sale of the equity of the RWCI as apposed to the assets of Aarkel is an event of default is

specious, The sale of tha RWCI equity divested Revstone ~f the Aarl~el Business, which was

what~~intended and required. Moxeover, as demonstrated by the Limited

Objection and the Aarlcel Sale Order (which addressed the segregation o:Esale proceeds to

resolve GM's abjection), GM was actively involved in tl~e sale of Aarkel and vvas aware of the

timing of the closing. Finally, it is not clear laow GM can maintain that there was an event of

default as a result of the timing of the PBGC consent. The sales discussed above closed and

could not have closed without the full coopexatian o Cthe PBGC, Accordingly, to the extent there

vas any delay with respect to obtaining 1'BGC consent, such delay was not material,

30. With regard to tfic two alleged defaults linked to the DIP Budget, neither

represents a material default under the Sale Support Agreement that impacted UM's benefits.

GM fails to cite any pravzsion of the Sale Support Agreement that z•equired the Debtor to obtain

new loans. by August 1, 2013. As such, this is not an event of default. The second alleged DIP

Budget default concerns a one week shortfall which was remedied the following week.

Moreover, the Debtor did not exceed the cap on amounts it could borrow for the total period at

issue.

31. If GM were truly concerned about the events of default and receiving the

benefits of the Sale Support Agreement, it possessed a very specific remedy to step in and take

over the process. Specifically, the Sale Support Agreement granted GM~

See Sale Support Agreement,

§ 1.2, 9, 5. Despite the alleged multiple events of default detailed by GM, at no time did it

18DOCS DF_,;196000.6 73864/002


See Sale Support Agreement, § 4.2. GM never made the second Sale Support Payment.

Finally, (iM's interest calculation, $246,864, is incorrect as it is based on the wrong amounts and

interest rate. GM may be entitled to interest in the amount of~. Iiawever, that amount is

offset by the funds GM owes for unpaid invoices, which total, and the balance of

the unpaid Sale Support Payment.

3C. In stun, the Debtor does not owe any funds to GM for the Retained

Paz~ticipatians. As the chart set forth above at paragraph 4 shows, the Debtor is entitled to

payment from GM of~.

II. GM is Not Entitled to Recei~~e a Distributiozi Outside of a Plan

37. Contrary to GM's argument that proceeds from a sale are "routinely

distributed to the secured creditor outside of plan", Amended Motion at ¶ ~S, courts have found

that "[t]he general rule is that distribution should not occur except pursuant to a confirmed plan

of reorganization, absent extraordinary circumstances. In re Conroe 1{'orge &Mfg. Corp,, 82

B.R. 781, 784 (Banlcr. W.D. Pa. 1988); See 6A Collier on Bankruptcy, ¶ 11.14 (1.4`" ed. 1977).

See also 11 U,S.C, § 1123{a)(5) (plan must provide adequate means fox implementation) and

Bankruptcy Rule 3Q21. Whe~~eas section 363(b) of the Bankruptcy Code pez7nits the use ar sale

of property of the estate outside the azdinary course of business, sectiion 1123(a)(5)(D) of the

Bankruptcy Code expressly contemplates distribution of sucl~ sale proceeds pursuant to a

canCrmed plan. 11 U.S.C. § 1123(a)(S) ("a plan shall provide adequate means for the plan's

ixnpiementatiozY, such as sale of all or any party of the property of tlae estate, either subject to or

free of azly lien, or the distribution of alI or any party of the propet~ty aI'the estate among those

havi~~g an intexest in such property of the estate.") Banlauptcy Rule 3021 further provides that

20ROCS I)I :196000.6 73864/002


distributions to creditors are to occur alter a ~?lan has been confirmed. Fed. K. Bankr. Pro. 3021

("afte~~ a plan is confiz•~ned, distribution shall be made to c~•editars whose claims have been

allowed. , .. ").

3 8. GM's requested relief —that it be paid prior to confirmation of a plan

runs afoul of the fundamental principle of chapter 11 that distribui:ians to prepetition creditors

should not take place except under a confirmed plan.. Conroe Fa~ge, 82 B,R, at 784-85; see also

In re Swallen's Inc., 269 B.R, 63~, 63'1(6t" Cir. B.A.P. 2001) ("Ordering a full distribution in a

Chapter 11 without having a confirmed plan, therefore, violates the conceptual px•edicate of

Chapter 11."); In re Mabey, 832 F.2d 299, 302 (4tl' Cir, 1987) (hotding that creation of a tort

victims 'fund violated the "clear language of these statutes, as well as the E3ankruptcy Rules

applicable thereto" which prohibit "piecemeal, pre-confirmation payments" outside a pla~l); In Ne

BNaniff Ai~wc~ys, Inc., 700 F.2d 935, 940 (St" Cir, 1983} (same); In re Air Beds, Inc,, 92 B.R. 419,

422 (9tn Cir. BAY 1988) (same).

39. Decisions affecting distributions of the majority of the Debtor's cash on

hand should only be made under the plan which fairly and appropriately addresses the claims of

all creditors. The disputes between the Debtor and GM must be resolved before a distribution

cazi be made. GM's interest is protected as sufficient cash is held by the Debtor to satisfy GM's

secured claim. if it is ultimately successful and funds that allegedly secure GM's claims should

not be distributed pre-confirmation in a manner that would upset the Debtor's plan, which is

expected to be filed shortly. The Debtor requires use ot'the sale proceeds in aid o£its plan of

liquidation to pay all administrative expense claims and undertake distributions to unsecured

creditors. "In a liquidating Chapter 11 whe~~e Debtor has ceased operations and collateral value

21ROCS 1~I ;196000C 73864/002


is not decreasing, ordinarily all property will be necessa~~y for an effective reorganization."

CanNae FoNge, 82 B.R, at 785.

40, In addition, case law makes clear that the reason for requiring creditors to

await confirmation to be paid is that there are substantial protections far creditors in the plan

process that must be observed, so that all parties in interest are able to canside~~ and weigh in on

the proposed distributions. for example, in In re Air Beds, Inc., the bankruptcy count had

allowed the debtor to pay $60,000 as a distribution to the IRS before confirmation of a plan.

Reversing, the Bankruptcy Appellate Panel of the Ninth Circuit stated: "IL is not the propriety of

the sale, bt~i tl~e disposition of the sale proceeds which is at issue in this case. We conclude that

the banl

the sale proceeds, despite the fact that the motion to sell, like the motion in this case, merely

provided that the creditor's lien would attach to the sale proceeds. The court denied the request

for payment, holding that the secured creditors' interest in the proceeds of the sale were

adequately protected, aiad there were no extraordinary circumstances justifying a distribution of

proceeds prior to confirmation of reorganization plan. Xd. at 787.

42. Whore, as here, the secured lender is adequately protected, there is nn

basis to grant a request to pay the secured creditor aver objection. See In Flying J, Case No. 08-

13385 (MFW) (Bankr, D. Del, Nov. 23, 2009) [Docket no, 2295, at p. 24] (denying motion by

secured lender• to pay sale proceeds aver the creditors' committea's ol?jection, finding that the

secured le~~de~~ was adequately protected).

43, The cases GM cites do not stand for any different proposition. in In re

IndustNial Office Bldg. Copp,, 171 F.2d 890 (3d Ciz•. 1949), apre-Act case, the Third Circuit

permitted a distribution in excess oi'thase funds needed for reorganization because the debtor

possessed sufficient funds on hand to operate. However, the Court also Hated "It the interests of

all those concerned in the proceeding are best served by the retention of all assets in the hands of

the Trustee until a plan has been offered, that should be done. , .." Id. at 892. In the instant

matter, the interests of credito~•s v✓ould best he served by allowing all cash to ~•emain in the estate

until the disputes with GM are resolved. The ultimate resolution of the Debtor's and GM's

claims will affect the distribution to all creditors contemplated in the Debtor's proposed plan of

liquidation.

44, Similarly, in Avado Bands, Judge Walrath authorized payment of sale

proceeds to the lender, but only because. the DIP financing order expressly contemplated such

payment. In Ne Avado Brands, Inc., 2007 WL 4994670 (Bonier, D. Del. Dec. 10, 2007). Here,

23ROCS DFi:196000.6 73864/002


GM, along with the other lenders, auihoz~ized the transfer of the net sale proceeds to a segregated

account inaizltained by the Debtor. See Amended Motion, ¶ 31. Finally, In Ne San Jacinto Glass

Industries, Inc., 93 B.R, 934, 943 {Bankr. S.D. Tex. 1988}, the Bankruptcy Court determined to

follow the line of reasoni~lg set forth in the Sth Circuit case of In ~e Continental AiN I roes, Inc.,

780 I~.2d 1223, for "an articulated business reason" to justify payment to a secured creditor

outside of a plan. As noted, courts ii1 the Third Circuit follow the "extraordinary circumstances"

standard. Thus, San Jacinto is inapplicable in this matter as the cauz~t there relied o~~ a different

standard to justify payment to a secured creditor outside of a flan,

III. GM's Claims are Subject to Set-Off and Counterclaims

45, The Debtor has significant counterclaims that it intends to assert against

GM. The Debtor expects that the responses to the Debtoz•'s discovery will show that GM

interfered with the sale of the ~ptec Non-Damper Business. for example, during the sale

process for the Eptec Non-Damper Business (required under Section 2.6 of the Sale Support

Agreement), GM resaureed certain parts previously produced by this affiliate which action

adversely affected revenues and proritability. Tie Debtor believes GM's actions affected the

clasin~ price which benefited GM's handpicked purchaser. accordingly, the Debtor expects that

discovery will show that GM breached its obligation to

See Sale Support

Agreement, § 3.8. GM's interference with the sales of the Businesses substantially harmed the

Debtor and certain affiliates.

46. GM also failed to pay outstanding invoices as required under Section 3.6

of the Sale Support Agreement. GM currently owes ~ in unpaid invoices for

component pa7~ts that were provided to GM. Such amounts a~~e a set-off against any amount GM

24ROCS DE:196000,6 73864/002


alleges it is owed, While GM's argument as to set-offs and countezclair~as references multiple

clauses found in the DIP document, nowhere does GM state where the Sale Support Agreement

pf~avents the assertion of set-offs and counterclaims,

47. Finally, it is the Debtoz•'s position that any discussion of set-off or

counterclaim is premature until the Debto~~ receives responses to ifis discovery requests.

Conclusion

for the foregoing reasons, the Debtor respectfully requests that the Court deny the

Amended Motion and grant such other• relief as is just and proper.

Dated: November 10, 2014 PACI-IULSKI STAND ZIEHL &JONES LLP

~~aura I~~s Jones (Bar Nn, 2436)

Alan J. Kornfeld (CA I3ar No, 130063)

David M. Bertenthal (CA Bar No, 167624)

Colin R. Robinson (Bar No. 5524)

919 North Market Street, 17`" Floor

P.O. Box 8705Wilmington, DE 19899-8705 (Courier 19801)

Telephone; (302) 652-4100

Facsimile: (302) 652-4400Email : Ij ones@pszj law. com

akornfeld@pszj law.comdbertenthal@pszj law.com

crobins~n@pszj law.com

Counsel for Debtor TPOP, LLC

25ROCS DE;196000,6 73864/002


APPS I~~ "A"


1 1


Documents

Case 13-11831-BLS Doc 704 Filed 11/10/14 Page 1 of 26Agreement to sell the Aarlccl oP Aarkel's parent, RWCT. Canada, Ina ("RWCT"), Aarkel's parent, which completed assets by no later