19-23185-rdd Doc 92 Filed 07/30/19 Entered 07/30/19 16:33:34 Main Document
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`Heather M. Crockett
`Deputy Attorney General
`Justin Clouser
`Deputy Attorney General
`Indiana Office of the Attorney General
`CURTIS T. HILL, JR.
`Indiana Government Center South, 5th Floor
`302 West Washington Street
`Indianapolis, IN 46204-2770
`Telephone: 317-233-6254
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`Attorneys for the State of Indiana
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`UNITED STATES BANKRUPTCY COURT
`SOUTHERN DISTRICT OF NEW YORK
`IN RE:
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`RETRIEVAL-MASTERS CREDITORS BUREAU, INC.1,
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` DEBTOR.
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`CHAPTER 11
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`CASE NO. 19-23185 (RDD)
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`STATE OF INDIANA’S OBJECTION TO MOTION OF DEBTOR FOR ENTRY OF AN
`ORDER PURSUANT TO 11 U.S.C. §§ 105, 361, 362, 363, 364, 503, AND 507: (I)
`AUTHORIZING THE DEBTOR TO OBTAIN SECURED SUPERPRIORITY
`POSTPETITION FINANCING; (II) GRANTING LIENS AND SUPERPRIORITY
`ADMINISTRATIVE EXPENSE CLAIMS; (III) AUTHORIZING USE OF CASH
`COLLATERAL; (IV) GRANTING ADEQUATE PROTECTION; (V) MODIFYING THE
`AUTOMATIC STAY; AND (VII) GRANTING RELATED RELIEF
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`Comes now the State of Indiana, by Indiana Attorney General Curtis T. Hill Jr., and Deputy
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`Attorneys General Heather Crockett and Justin K. Clouser, and hereby does file its Objection to
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`Motion Of Debtor For Entry Of An Order Pursuant To 11 U.S.C. §§ 105, 361, 362, 363, 364, 503,
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`And 507: (I) Authorizing The Debtor To Obtain Secured Superpriority Postpetition Financing; (II)
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`Granting Liens And Superpriority Administrative Expense Claims; (III) Authorizing Use Of Cash
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`1  The last four digits of the Debtor’s taxpayer identification number is 9495. The location of the Debtor’s service 
`address for purposes of this chapter 11 case is 4 Westchester Plaza, Suite 110, Elmsford, NY 10523. The Debtor 
`also does business as American Medical Collection Agency. 
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`Collateral; (IV) Granting Adequate Protection; (V) Modifying The Automatic Stay; And (VII)
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`Granting Related Relief (the “DIP Motion”), and states as follows:
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`1.
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`2.
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`3.
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`4.
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`Debtor filed its Petition for Chapter 11 Bankruptcy on or about June 17, 2019.
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`The Debtor filed its DIP Motion on July 22, 2019.
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`The Debtor has yet to file its schedules, and must do so by July 31, 2019.
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`The Debtor has requested authority to obtain post-petition financing in the form of
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`a delayed draw secured promissory note (“DIP Note”).
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`5.
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`6.
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`The Debtor would borrow $1,000,000.00 from Russell H. Fuchs (“Fuchs”).
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`Fuchs is the founder, Chief Executive Officer, and owns 100% of the equity
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`interests in the Debtor, and is currently the only secured creditor in this bankruptcy. Fuchs
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`previously gave the Debtor a secured loan of $2,500,000.00 shortly prior to the filing of the
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`Chapter 11 Petition.
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`7.
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`Debtor asserts that the only lender available to it is Fuchs, “who has expressed a
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`desire to see the Debtor liquidate in an orderly manner, and in a way that is reasonably responsive
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`to the numerous regulatory and contractual demands that have been made upon the Debtor.”
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`8.
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`Debtor asserts that the determination to move forward with the DIP Note was an
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`exercise of sound business judgment and followed an arm’s length process. Debtor contends that
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`Bradley E. Scher (“Scher”), is an independent director, and Chief Oversight Officer, who
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`negotiated the DIP Note, and has no affiliation with Fuchs, and holds no equity in the Debtor. It
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`should be noted that no information as to the nature of Scher’s employment, who he reports to, or
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`how he is paid, has been provided by Debtor to assure the Court of the “arm’s length” nature of
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`this negotiation.
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`9.
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`The courts typically defer to the business judgment of the debtor, “so long as a
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`request for financing does not ‘leverage the bankruptcy process’ and unfairly cede control of the
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`reorganization to one party in interest.” In re Ames Dep’t Stores, Inc. 115 B.R. 34, 40 (Bankr.
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`S.D.N.Y. 1990).
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`10.
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`“So long as the financing agreement does not contain terms that leverage the
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`bankruptcy process and powers or its purpose is not so much to benefit the estate as it is to benefit
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`a party in interest,” the bankruptcy court has significant discretion in deferring to the business
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`judgment of the Debtor. In re Farmland Indus., Inc., 294 B.R. 855, 881 (Bankr. W.D. Mo. 2003).
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`11.
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`The Debtor fails to recognize the position in which such a post petition DIP Note
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`would put Fuchs in relation to other creditors. In obtaining this DIP Note, Fuchs would become a
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`secured/priority creditor in the amount of $3,500,000.00. The Debtor’s total value is not greater
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`than $3,000,000.00, which means no other creditor will receive any recovery from the estate as a
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`result of the DIP Note. Control of the estate will be undoubtedly ceded to Fuchs as he will be the
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`only secured/priority lien holder, therefore benefitting a singular party in interest.
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`12.
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`The court looks at whether the debtor is unable to obtain unsecured credit by
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`allowing a lender only an administrative claim, the credit transaction is necessary to preserve the
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`assets of the estate, and the terms of the transaction are fair, reasonable, and adequate given the
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`circumstances. In re Ames Dep’t Stores, at 37-40. Debtor states that it meets each part of this test,
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`but that is not the case. Notwithstanding whether the terms are fair and reasonable, Fuchs as the
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`proprietor of the Debtor, and having a personal interest in the disposition of the estate, could easily
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`provide unsecured lending to the Debtor. Additionally, the transaction is not necessary to preserve
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`the assets of the estate as there are little to no assets. In fact, the State of Indiana has filed a Motion
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`to Convert to Chapter 7, or in the alternative appoint a Chapter 11 Trustee (“Motion to Convert”),
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`as there is not going to be a reorganization, but rather a structured liquidation.
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`13.
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`A debtor need only demonstrate, “by a good faith effort that credit was not available
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`without the protections afforded to potential lenders under 11 U.S.C. § 364(c).” In re Snowshoe
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`Co., Inc., 789 F.2d 1085, 1088 (4th Cir. 1986).
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`14.
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`Debtor relies on In re Snowshoe to support its DIP Motion, yet brushes aside the
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`fact that the court in In re Snowshoe states, “debtor must show that it made reasonable efforts to
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`seek other sources of financing under section 364 (a) and (b).” An exhaustive search for financing
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`does not need to be made if the circumstances are such that only a few lenders can or will extend
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`the credit. In re Sky Valley, Inc., 99 B.R. 117, 120 n.4 (N.D. Ga. 1989). In the case at hand, the
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`Debtor has shown zero effort, nor provided any information that any search for financing was
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`made prior to making the requested relief.
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`15.
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`Instead, the Debtor relies on self-serving declarations like, “as noted above, the
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`Debtor does not believe that comparable alternative sources of financing are reasonably available
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`given, among other things, that the Debtor is no longer currently operating its business,” and “third
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`party lenders would certainly be unwilling to provide post-petition financing to the Debtor.” No
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`reference to any specific effort to obtain outside financing is made by the Debtor.
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`16.
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`Debtor has failed to meet the burden required by the Court to justify a loan of this
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`nature. It specifically benefits a party in interest, and no good faith efforts of any sort have been
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`undertaken by the Debtor prior to proposing this DIP Note.
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`17.
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`As the State of Indiana’s Motion to Convert is currently pending before the Court,
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`Indiana requests this matter be heard in conjunction with the Motion to Convert.
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`WHEREFORE, the State of Indiana respectfully requests that the Court DENY Debtor’s
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`DIP Motion and request for a DIP Note, and set this matter for hearing concurrently with the
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`Motion to Convert to Chapter 7, and for all other relief that is just and proper in the premises.
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`Respectfully submitted,
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`CURTIS T. HILL, JR.
`Attorney General of Indiana
`Atty. No. 13999-20
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` By: /s/ Heather M. Crockett
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`Heather M. Crockett, Atty. No. 26325-22
`Deputy Attorney General
`Office of Attorney General
`Indiana Government Center South, 5th Floor
`302 West Washington Street
`Indianapolis, IN 46204-2770
`Telephone: 317-233-6254
`Facsimile: 317-232-7979
`Email: Heather.Crockett@atg.in.gov
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`CERTIFICATE OF SERVICE
`I do hereby certify that a copy of the foregoing State Of Indiana’s Objection To Debtor’s
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`DIP Motion has been duly served upon all counsel of record listed below, by ECF notification on
`July 30, 2019:
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`Jordan Adler jordan.adler@ag.ny.gov
`
`Jessica Boelter jboelter@sidley.com, mlinder@sidley.com;emcdonnell@sidley.com
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`Justin Clouser justin.clouser@atg.in.gov
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` Heather M Crockett heather.crockett@atg.in.gov
` Matthew C. De Re matt@attorneyzim.com
` Christopher R. Donoho chris.donoho@hoganlovells.com
` Derek W. Edwards derek.edwards@wallerlaw.com,
`Nancy.easterling@wallerlaw.com;tapdocketingclerk-nash@wallerlaw.com
` William Hao william.hao@alston.com, leslie.salcedo@alston.com
` Serene K. Nakano serene.nakano@usdoj.gov
` Nicholas A. Pasalides npasalides@reichpc.com
` William S. Sugden will.sugden@alston.com
` United States Trustee USTPRegion02.NYECF@USDOJ.GOV
` Steven Wilamowsky wilamowsky@chapman.com
` Tom Zimmerman tom@attorneyzim.com, firm@attorneyzim.com
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`By: /s/ Heather M. Crockett
` Heather M. Crockett
` Deputy Attorney General
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