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KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 AVENUE OF THE STARS, 39TH FLOOR LOS ANGELES, CALIFORNIA 90067-6049 (310) 407-4000
LEE R. BOGDANOFF (State Bar No. 119542) JONATHAN S. SHENSON (State Bar No. 184250) DAVID M. GUESS (State Bar No. 238241) KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 Telephone: (310) 407-4000 Facsimile: (310) 407-9090 Proposed Bankruptcy Counsel for Debtors and Debtors In Possession Debtors Mailing Address 3411 N. Perris Blvd. Perris, CA 92571 National R.V. Holdings, Inc.s Tax I.D. #XX-XXX-1079 National R.V., Inc.s Tax I.D. #XX-XXX-5022 UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION In re NATIONAL R.V. HOLDINGS, INC., a Delaware corporation; NATIONAL R.V., INC., a California corporation, Debtors. Case No.: 6:07-17941-PC Chapter 11 Jointly Administered with Case No.: 6:07-17937-PC EMERGENCY MOTION OF DEBTOR AND DEBTOR IN POSSESSION FOR AUTHORITY TO (1) RECONCILE, ADJUST, AND COLLECT ACCOUNTS RECEIVABLE, (2) SELL EMISSION REDUCTION CREDITS FREE AND CLEAR OF LIENS, CLAIMS AND INTERESTS, AND (3) SELL INVENTORY FREE AND CLEAR OF LIENS CLAIMS AND INTERESTS (INCLUDING A REQUEST FOR SPECIFIC AUTHORITY TO SELL ELEVEN RVS LOCATED IN KENTUCKY); MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF Date: Time: Place: Hearing December 18, 2007 10:30 a.m. Courtroom 303 U.S. Bankruptcy Court 3420 Twelfth Street Riverside, CA 92501-3819
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TABLE OF CONTENTS EMERGENCY MOTION.................................................................................................................. 1 MEMORANDUM OF POINTS AND AUTHORITIES ................................................................... 3 I. INTRODUCTION.................................................................................................................. 3 II. JURISDICTION ..................................................................................................................... 4 III. BACKGROUND.................................................................................................................... 4 IV. RELIEF REQUESTED AND GROUNDS THEREFOR ...................................................... 6 A. Accounts Receivable................................................................................................... 6 B. Sale Of Emission Reduction Credits........................................................................... 8 C. Sale of Inventory....................................................................................................... 10 1. Inventory Sales Procedures, Generally ......................................................... 10 2. Specific Request for Sale of Eleven Finished RVs in Kentucky .................. 12 V. LIENS AND RECLAMATION DEMANDS ...................................................................... 12 VI. NOTICE ............................................................................................................................... 13 VII. LEGAL ARGUMENT ......................................................................................................... 14 A. The Debtors Have Exercised Reasonable Business Judgment In Determining To Collect Their Accounts Receivable and Sell Certain Assets As Proposed. ........ 14 1. Permitting The Debtors To Reconcile, Adjust and Collect Their Accounts Receivable Pursuant To The Proposed Procedures Is Reasonable and Appropriate. ........................................................................ 15 2. Authorizing the Debtors To Sell The ERCs Is Reasonable and Appropriate.................................................................................................... 16 3. Authorizing The Debtors To Sell Inventory Pursuant To The Proposed Procedures Is Reasonable and Appropriate................................... 17 B. The Court Is Authorized To Approve The Sale of the Assets, Free and Clear of All Liens, Claims, and Interests............................................................................ 18 C. Request for Waiver of Bankruptcy Rule 6004(h). .................................................... 20 VIII. CONCLUSION .................................................................................................................... 21
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TO THE HONORABLE PETER H. CARROLL, UNITED STATES BANKRUPTCY JUDGE, THE OFFICE OF THE UNITED STATES TRUSTEE, THE DEBTORS TWENTY LARGEST UNSECURED CREDITORS, THE DEBTORS SECURED CREDITORS AND OTHER PARTIES IN INTEREST: National R.V. Holdings, Inc., a Delaware corporation ("NRVH"), and National R.V., Inc., a California corporation ("NRV", and collectively the "Debtors"), hereby move this Court for an order pursuant to Bankruptcy Code sections 105(a), 363(b), 363(f), and Federal Rule of Bankruptcy Procedure 9019 for authority to (i) reconcile, adjust and collect their accounts receivable, (ii) sell free and clear of liens, claims and interests certain Emission Reduction Credits ("ERCs") issued to the Debtors by the South Coast Air Quality Management District ("SCAQMD"), and (iii) sell free and clear of liens, claims and interests inventory of the Debtors (including completed motor homes, work in progress inventory, parts, and components) and including, as well, a specific request for authority to sell eleven RVs in Kentucky all pursuant to the terms, conditions and procedures more fully described in the annexed Memorandum of Points and Authorities. The Debtors require the relief requested in this Motion on an emergency basis in order to immediately restore the receipt of revenues, to capitalize on immediate opportunities to sell assets of the estates which otherwise may be lost, and, by all of the foregoing, to preserve and maximize the value of the estates. Absent the relief requested in this Motion, and alternative arrangements to fund the estates, the Debtors shortly will be without funds to conduct an orderly liquidation of property of the estates for the benefit of creditors and shareholders. This Motion is supported by these moving papers, the Memorandum of Points and Authorities filed concurrently herewith, the Declaration of Tom J. Martini in Support of this Emergency Motion (the "Martini Declaration") filed concurrently herewith, the previously filed Declaration of Thomas J. Martini In Support of First-Day Motions [Docket # 18] (the "Martini Declaration in Support of the First Day Relief"), the record in these cases, including the pleadings and documents filed on behalf of the parties, the arguments and representations of counsel, and
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any oral or documentary evidence presented at or prior to the time of the hearing. DATED: December 13, 2007 /s/ David M. Guess DAVID M. GUESS, an Attorney with KLEE, TUCHIN, BOGDANOFF & STERN LLP Proposed Bankruptcy Counsel for Debtors and Debtors in Possession
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MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Prepetition, in the ordinary course of their business, the Debtors engaged in the sale of motor homes, motor home parts, and the collection of the receivables generated from that business. On any given day, the Debtors often generated hundreds of thousands of dollars in revenues. Shortly before the commencement of these cases, the Debtors curtailed their operations and began to turn their attention to liquidating their assets. The Debtors' assets are significant, and include about $5 million in gross accounts receivable and $25 million in gross inventory, among other assets. As a result of the cessation of the Debtors' business operations and the filing of these chapter 11 cases, however, the Debtors' collections have ground to a halt. The parties with which the Debtors typically conduct business (including, as to the existing accounts receivable, a relatively small universe of financial institutions that finance dealer inventories) are uncertain as to the extent of the Debtors' authority to continue reconciling and collecting accounts receivable, as well as their authority to continue selling inventory. The Debtors are similarly uncertain, given that their business recently has transitioned from that of a fully operational manufacturer to a manufacturer that is winding down their operations and liquidating their assets. The Debtors filed these chapter 11 cases with approximately $1 million in cash collateral on hand. Since the filing, precious little in the way of revenues have been collected. Absent a change in the status quo, the Debtors very shortly will face a circumstance in which they will be unable to continue their liquidation efforts because they will run out of cash. The Debtors are seeking the relief requested in this Motion in order to eliminate these uncertainties, permit them to reconcile and adjust receivables consistent with past practice, and restore the collection of revenues for the benefit of the estates. The Debtors also seek to generate revenue and maximize the value of the estates by capitalizing on opportunities to (i) sell inventory in a manner consistent with prepetition practice, pending the adoption of a comprehensive auction or liquidation sale process, and (ii) sell ERCs that the Debtors have earned as a result of their good conduct, which credits they have sold in the past. In connection with the relief requested,
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the Debtors are proposing notice procedures to provide the major stakeholders with transparency in respect of the Debtors' activities and an opportunity to be heard if they object to any material transaction proposed by the Debtors. II. JURISDICTION The Court has jurisdiction over the Motion pursuant to 28 U.S.C. 157 and 1334. Venue is proper pursuant to 28 U.S.C. 1408 and 1409. The matter is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(A), (M), (N), and (O). III. BACKGROUND The Debtors commenced these cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code on November 30, 2007 (the "Petition Date"). The Debtors filed these cases in order to conduct an orderly liquidation of their assets, and to maximize the value of those assets for the benefit of the economic stakeholders of their estates. The Debtors' principal business is the manufacture and distribution of recreational vehicles ("RVs") throughout the United States and Canada. Since 1964, from their Perris, California facility, the Debtors have designed, manufactured, and marketed some of the industry's highest quality "Class A" gas and diesel RVs across several branded product lines, including Dolphin, Pacifica, Sea Breeze, Surf Side, Tradewinds, and Tropi-Cal. As of the Petition Date, the Debtors were the ninth largest manufacturer of "Class A" motor homes in the country. Prior to commencing these cases, the Debtors explored a variety of approaches to their continuing liquidity crisis, including a sale, a sale of certain underperforming assets, and the infusion of new equity capital. Despite many efforts, it became increasingly clear that the Debtors simply could not continue to operate for any extended period of time. As a result, the Debtors determined they had no choice other than to pursue an orderly liquidation of their assets. To that end, after having conducted substantial "reductions in force," resulting in more than a 90% reduction of their work force, they commenced these cases.
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The objective of these cases is to maximize value as quickly as possible. This likely will be accomplished through an orderly disposition of the Debtors' assets for the best price. The Debtors believe that value for the benefit of creditors and, with perseverance, shareholders, can be derived from primarily three sources: (a) the successful prosecution of the Kemlite Litigation; 1 (b) the orderly sale of inventory, both finished and unfinished motor homes, parts and replacements, and other valuable items on hand; and (c) the collection of accounts receivable, general intangibles (including intellectual property) and other assets. Before the filing, and during the brief period since these cases were commenced, the Debtors' efforts have been directed toward maximizing their recovery from these assets. As noted, while the Debtors conducted a substantial reduction in force prepetition, the Debtors have nonetheless maintained a skeletal staff comprised of key employees, many of whom have important relationships with dealers and their flooring lenders, vendors, and customers. These relationships should prove to be invaluable to the Debtors as they proceed with an orderly disposition of their assets. Indeed, specific work teams already have been organized to coordinate the liquidation efforts, to work with dealers, and to address customer concerns. Wells Fargo Bank N.A. ("Wells Fargo") is the Debtors' prepetition lender. As of the Petition Date, approximately $9.5 million of principal was outstanding under the Debtors' prepetition loan facility with Wells Fargo, approximately $7.155 million in outstanding letters of credit. The indebtedness owing to Wells Fargo is secured by a security interest in and lien upon all or substantially of the Debtors' personal property. Freightliner Custom Chassis Corporation ("FCCC"), a chassis vendor, may also have a security interest in certain chassis that were manufactured by FCCC, which secures certain obligations of the Debtors to FCCC arising from the sale of such chassis to the Debtors. The Debtors are in the process of determining whether, and to what extent, FCCC has a valid,
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In June 2006, NRV commenced a multi-million lawsuit against Crane Composites, Inc. and its parent company for breach of contract, breach of warranty, misrepresentation and other causes of action. The lawsuit seeks both compensatory and punitive damages. This matter is now pending before District Judge Stephen G. Larson in the U.S. District Court for the Central District of California, and is scheduled to go to trial in Riverside in January 2008. At a hearing held before District Judge Larson on December 1, 2007, the Court reaffirmed that trial would start in January. The Debtors believe that this action represents a valuable asset of the estates and are eager to proceed to trial.
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enforceable and non-avoidable security interest in any FCCC manufactured chassis as well as what amounts, if any, would be subject to any such security interest. Additional information concerning the Debtors, their operations, their turnaround efforts, and the commencement of these cases, can be found in Declaration of Martini in Support of the First Day Relief (sought in these cases). IV. RELIEF REQUESTED AND GROUNDS THEREFOR A. Accounts Receivable.
In the ordinary course of business prepetition, the Debtors reconciled and collected their own accounts receivable; the account debtors typically are institutional flooring lenders to the dealers that sell the Debtors' products. The flooring lenders typically remit payment to the Debtors on a vehicle delivered to that lender's dealer pursuant to standard processes. Following the Debtors' shipment of a vehicle, the flooring lender determines whether in fact the Debtors have delivered the vehicle that the dealer has ordered. Management of the Debtors and
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representatives of the flooring lenders communicate regularly to identify what is owing and to reconcile any differences between the Debtors' books and records and those of the flooring lender or dealer (as well as to deal with any business issues relating to the product that might result in a reduction in the amount via adjustment). Additionally, in order to close the sale of a finished motor home and collect the associated account receivable, the Debtors frequently are required either to provide assurance that the motor home chassis has been paid for or, if it has not been paid for, to remit payment to the chassis vendor so as to have the ability to sell the RVs. The Debtors' institutional purchasers typically insist on such assurance and/or payment in order to be certain that the motor home is being sold free and clear of any liens and interests. Payment then is remitted to the Debtors. For the reasons described above, however, since the filing the Debtors have been unable to effectively continue these processes and collect account receivables. Although the Debtors
believe that they are authorized, in the ordinary course of business in accordance with Bankruptcy Code section 363(c), to continue these processes, and that third parties should be entitled to rely
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on the Debtors' representations in that regard, the Debtors recognize and understand that some third parties have been unwilling to do so. Pursuant to the Motion, therefore, the Debtors seek authority to (i) continue reconciling, adjusting and collecting accounts receivable consistent with prepetition practice, (ii) either remit any chassis payment necessary to collect an account receivable in respect of the sale of a motor home or deduct such amount from the account receivable in order to facilitate collection, and (iii) make such other adjustments with respect to an account receivable as it deems appropriate (in an manner not inconsistent with its prepetition practices) all without further order of the Court, but subject to the following procedures: 1. If, after reconciling and adjusting an account receivable consistent with
prepetition practice (including the making of a chassis payment by the Debtors or the deduction of such amount from the account receivable), the Debtors determine that it is in the best interests of the estates to reduce the amount of the receivable in a discretionary amount in excess of 15% in exchange for payment thereof, then the Debtors shall give Wells Fargo and, upon its formation and retention of counsel, and subject to the entry into a confidentiality agreement, the Committee written notice, via fax or email delivery, of the proposed adjustment, briefly describing the account debtor, the nature of the debt, the proposed reduction and the reason for such reduction. If either Wells Fargo or the
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Committee, however, objects to the proposed compromise, it shall advise the other, and the Debtors, of its objection in writing, briefly stating the basis therefor, no later three (3) business days after the Debtors give the aforementioned notice. The parties will endeavor to resolve the objection informally. If, however, they are unable to do so promptly, the Debtors may seek relief from the Court to resolve the dispute on a shortened-time basis. 2 2. The Debtors may reconcile and adjust any account receivable consistent
with prepetition practice (including the making of a chassis payment by the Debtors or the
The Debtors request that in the event an expedited hearing is necessary to resolve such a dispute, that such dispute be heard as quickly as the Court's calendar would allow. However, rather than propose in this Motion a particular shortened time frame (e.g., two days, three days, etc.), the Debtors intend to seek guidance from the Court at the hearing on this Motion regarding the appropriate time frame for hearing such a dispute.
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deduction of such amount from the account receivable), and may adjust and reduce the amount of the receivable in a discretion amount equal to or less than 15% of such amount, without the consent of any other party, and without providing notice thereof. 3. Collections of account receivable, and any other cash collateral, shall be
deposited into the debtor in possession accounts and may only be used in accordance with orders of the Court. The Debtors respectfully submit that the foregoing relief and related procedures are necessary, reasonable and appropriate. The Debtors need to immediately restore the collection of revenue in order to fund their chapter 11 efforts and maximize the value of their estates. In order to do so, the Debtors require the authority to reconcile, adjust and collect accounts receivable consistent with past practices, and to provide flexibility to the Debtors to further reduce accounts receivable in order to facilitate their collection (to the extent there is a business justification for doing so, other than to simply bring money into the estates). The foregoing procedures ensure that where there are discretionary reductions proposed in excess of 15% of the reconciled amount, Wells Fargo and, upon its formation, the Committee, will be accorded an opportunity to object. This Motion is not requesting that the Court predetermine the outcome of any such dispute should one arise. (The Debtors respectfully submit that until a Committee is organized and operating and executes a confidentiality agreement with the Debtors, the procedures described herein, including notice to Wells Fargo, provide sufficient protections for the time being.) With respect to
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reductions of 15% or less, the procedure seeks to minimize administrative expense by giving the Debtors the ability to make such a de minimis reduction without having to obtain consent or provide prior notice. B. Sale Of Emission Reduction Credits.
Over the years, the Debtors have by their environmentally-conscious conduct earned certain Emission Reduction Credits ("ERCs") issued by the South Coast Air Quality Management District ("SCAQMD"). ERCs are freely transferable subject to the approval of SCAQMD
("SCAQMD Approval") and, from time to time, the Debtors have sold their ERCs for cash in the past. The Debtors seek by this Motion to sell their remaining 100 ERCs, free and clear of any and
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all liens, claims and interests. The Debtors propose that any liens, claims or interests in the ERCs attach to the proceeds of sale. (The only creditor of which the Debtors are aware that may have a lien on this asset is Wells Fargo). ERCs are fungible. Moreover, the number of available ERCs, the identity and address of current ERC owners, the number and nature of ERCs owned by particular entities, and the historical market prices for ERCs are publicly available on the AQMD website. 3 In view of these facts, at any given moment in time, there is a relatively efficient market for the ERCs. Indeed, the Debtors have solicited and received proposals from three different potential buyers (via brokers) all them proposing to purchase the Debtors' ERCs at between $14,000 and $15,005 per unit. At present, the Debtors are proceeding with negotiations to sell their 100 ERCs for $15,005. 4 In order to minimize administrative expense and monetize the ERCs as soon as possible, the Debtors request authority herein to sell the ERCs (in an amount no less than $14,500 per unit), in consultation with Wells Fargo. As the ERCs are fungible and the price of these assets are relatively well-established in the market place (at any point in time), it does not appear from the facts and circumstances presented that the expense of an auction or the adoption of sale procedures would be justified. Rather, the Debtors propose to promptly sell the ERCs by private sale. 5 Moreover, for the same reasons, the Debtors request authority to employ a broker and pay such broker a fee in an amount not to exceed 3.5% of any sale proceeds (and from such proceeds), without the need for further order from or application to this Court authorizing the employment of such broker. 6
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As an aside, while the Debtors expect to have a final agreement (subject to
See http://www.aqmd.gov/permit/ERC.htm. As part of these negotiations, the parties have agreed that 50% of the purchase price would be conditioned upon the SCAQMD Approval. The parties have also agreed that the buyer would be responsible for the entire amount of any broker's commission. Typically, the commission is 7%, with the buyer and seller each being responsible half. The Debtors are not suggesting that the price of the ERCs could not or do not fluctuate. However, under the circumstances, the Debtors do believe they are getting fair market value for the ERCs at this time and, given the Debtors interest in monetizing this asset immediately for liquidity and other reasons, there are sound business justifications for the Debtors to proceed with the sale of the ERCs as requested herein. Typically, there is broker commission of 7.0%, which is split between the buyer and seller. However, the Debtors are in the process of negotiating a provision which would require the Buyer to pay the entire
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Bankruptcy Court approval) with a buyer (via a broker), under which the buyer would pay the entire amount of any broker's commission (all 7%), including the portion ordinarily the responsibility of the seller, the Debtors seek authority to pay a broker's fee consistent with the industry standard in the event its current negotiations fail to result in a final agreement. As with the relief requested above, proceeds from sale shall be deposited into the debtor in possession accounts and may only be used in accordance with orders of the Court. C. Sale of Inventory.
In the ordinary course of its business prepetition, the Debtors engaged in the sale of motor homes, motor home parts and other inventory items. Although the Debtors intend ultimately to propose a comprehensive process for liquidating all of the Debtors remaining assets, on a virtually daily basis the Debtors are being presented with opportunities to dispose of inventory at very attractive prices. The Debtors would be remiss if they did not take advantage of those
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opportunities, while they proceed with a more comprehensive approach to inventory disposition. Accordingly, by this Motion the Debtors seek authority in the interim to sell their inventory postpetition, including completed motor homes, work in progress inventory, parts, and components ("Inventory"), without further order of the Court, with any such sale to be "as is, where is". 7 The Debtors propose that these sales be free and clear of any and all liens, claims and interests, with any such liens, claims and interests attaching to the proceeds. As with the relief requested above, proceeds from sale shall be deposited into the debtor in possession accounts and may only be used in accordance with orders of the Court. 1. Inventory Sales Procedures, Generally
The Debtors propose that they be granted such authority subject to the following procedures: 1. With respect to the sale to a single buyer of Inventory whose aggregate book
value is greater than $5,000, the Debtors shall give Wells Fargo and FCCC and, subject to
broker commission.
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For the avoidance of any doubt, the Debtors will only sell Inventory without any representations or warranties (other than that it has title), and will expressly disclaim any warranties, express or implied, as to use and merchantability.
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the same above-described conditions, counsel to the Committee written notice, via fax or email delivery, of the proposed sale, identifying the buyer, the Inventory, and the reason for the sale. If either Wells Fargo, FCCC or the Committee objects to the proposed compromise, it shall advise the others, and the Debtors, of its objection in writing, briefly stating the basis therefor, no later three (3) business days after the Debtors give the aforementioned notice. The parties will endeavor to resolve the objection informally. If, however, they are unable to do so promptly, the Debtors may seek relief from the Court to resolve the dispute on a shortened-time basis. 8 2. With respect to the sale to a single buyer of Inventory whose aggregate book
value is less than $5,000, the Debtors may effectuate such sale without prior notice, provided that they promptly provide Wells Fargo, FCCC and the Committee written notice of the Inventory sold, the buyer and the sale price following such sale. The Debtors respectfully submit that the foregoing relief and related procedures are necessary, reasonable and appropriate. It is the Debtors' business judgment that if they do not have the authority to immediately sell Inventory, they will lose valuable opportunities to sell inventory to customers who have an immediate need for that Inventory. While such Inventory ultimately may be sold on a liquidation basis pursuant to an auction or other sale later in time, the Debtors anticipate that they will maximize the value of their assets if they have the ability to make sales immediately, as and when customers have the need for those goods. Under the proposed procedures, the stakeholders in the cases will be involved in the process. The procedures will ensure that where goods of a cost in excess of $5,000 are involved, both Wells Fargo, FCCC and the Committee will have an opportunity to object. If an objection is submitted and the parties are unable to resolve the dispute, the Court will determine whether to approve the sale. With respect to de minimis sales (under $5,000), the foregoing procedures will minimize the administrative expenses of the estate by permitting the Debtors to consummate such sales without obtaining
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As noted above in respect of receivables disputes, the Debtors intend to seek guidance from the Court at the hearing on this Motion regarding the appropriate time frame for hearing any dispute regarding a proposed sale of Inventory.
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consent or providing prior notice. 2. Specific Request for Sale of Eleven Finished RVs in Kentucky
In addition, and notwithstanding anything to the contrary in this Section IV.C. (including, without limitation, the procedures contemplated herein for the sale of Inventory generally), the Debtors also seek authority to sell eleven (11) finished RVs currently sitting in storage in Louisville, Kentucky (the "Kentucky RVs") in an amount not less than 75% of the standard, prepetition invoice price for the Kentucky RVs (in the aggregate) of $1,373,180 (reflecting an aggregate discount of $343,295). The Debtors believe there is ample business justification for proceeding with the sale of the Kentucky RVs at 75% of invoice. First and foremost, the Debtors have projected (based upon reasonable assumptions) that they would likely only get between 70 to 75% of invoice price for any finished RV in the context of any orderly liquidation. Moreover, as noted, these RVs are currently sitting in storage in Kentucky, at a cost to the estates (in the approximate amount of $1,300), and, in any event, it would cost more than $20,000 to have these RVs shipped back to Perris, California. In sum, proceeding with a sale of the Kentucky RVs at this time will allow the Debtors to receive proceeds on the higher end of its liquidation projections (at 75%), without incurring any further storage and shipping costs, all of which would otherwise have to be incurred absent such a sale. V. LIENS AND RECLAMATION DEMANDS The Debtors have conducted a search of Uniform Commercial Code financing statement filings and other lien filings (e.g., relating to tax liens, judgment liens and the like) in order to identify parties asserting liens in the Debtors' personal property assets. That search has indicated that in addition to Wells Fargo, which asserts a blanket lien on virtually all personal property of the Debtor, and FCCC, which asserts a security interest in certain FCCC-manufactured chassis; and potentially a handful of other small liens (i.e., capital leases). The Debtors are serving this Motion on all of the parties known to the Debtors that assert liens in such assets (the "Lien
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Parties"). Without prejudice to any defenses in respect of such liens, any valid, perfected and unavoidable lien in the assets that are sold pursuant to this Motion shall attach and continue in the Debtors portion of the proceeds of such sale. Since the commencement of these chapter 11 cases, the Debtors have received several reclamation demands from vendors that delivered goods to the Debtors prepetition. The Debtors are reviewing those demands and, where feasible and appropriate, will attempt to segregate the goods that are the subject of those demands. The Debtors are serving this Motion on all parties that have made written reclamation demands (the "Reclaiming Vendors"). To the extent the Debtors' propose to dispose of Inventory that is subject to a lien or other interest of any entity in addition to Wells Fargo and FCCC (and for which the Debtors' are required to provide notice thereof prior to any such disposition pursuant to the procedures set forth herein), the Debtors will serve such entity with a written notice of such proposed disposition. If any party asserting an interest objects in writing to the proposed sale no later three (3) business days after the Debtors give the aforementioned notice, the Debtors will present the matter to the Court for resolution on a shortened notice basis. VI. NOTICE The Debtors are giving notice of this Motion by overnight delivery on (i) the United States Trustee, (ii) the parties that have requested special notice in these cases, (iii) Wells Fargo, (iv) the Lien Parties, (vi) the Reclaiming Vendors, (vii) creditors included on the Debtors' list of Top Twenty Creditors for these Cases, and (viii) any other party entitled to notice of the Motion pursuant to the notice procedures established by the Court. Promptly upon its appointment, the Debtors will provide a copy of this Motion and any Orders entered with respect thereto to the Committee.
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VII. LEGAL ARGUMENT

A. The Debtors Have Exercised Reasonable Business Judgment In Determining To Collect Their Accounts Receivable and Sell Certain Assets As Proposed.
To some extent, the relief requested in the Motion is within the ordinary course of the Debtors' prepetition business and ordinarily would not require relief, pursuant to Bankruptcy Code section 363(c). Because the nature and posture of the Debtors' business has changed since their prepetition curtailment of operations, the Debtors are seeking an order under Bankruptcy Code section 363(b)(1). That statute provides that "[t]he trustee, 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)(1). Courts repeatedly have held that a bankruptcy court should authorize a debtor to use or sell estate property under section 363(b)(1) whenever the request is supported by some rational, articulated business purpose. See, e.g., Stephens Indus., Inc. v. McClung, 789 F.2d 386, 390 (6th Cir. 1986); In re Continental Air Lines, Inc., 780 F.2d 1223, 1226 (5th Cir. 1986); In re Lionel Corporation, 722 F.2d 1063, 1066 (2d Cir. 1983); Walter v. Sonwest Bank (In re Walter), 83 B.R. 14, 19-20 (B.A.P. 9th Cir. 1987). This was explained by the Bankruptcy Appellate Panel for the Ninth Circuit in In re Walter: [T]here must be some articulated business justification for using, selling, or leasing the property outside the ordinary course of business .... Whether the preferred business justification is sufficient depends on the case. As the Second Circuit held in Lionel, the bankruptcy judge should consider all salient factors pertaining to the proceeding and, accordingly, act to further the diverse interests of Debtor, creditors and equity holders, alike. Id. (quoting In re Continental Air Lines, Inc., 780 F.2d at 1226). See also In re Ernst Home Ctr., 209 B.R. 974, 979 (Bankr. W.D. Wash. 1997) ("The Court may approve the FADCO Transaction if [the debtor] has established some articulated business justification for the transaction.") (internal quotations omitted).
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Where a debtor proffers a rational justification, there is a strong presumption that the decision was made in good faith and in the companys best interests. See, e.g., In re Integrated Resources, Inc., 147 B.R. 650, 656 (Bankr. S.D.N.Y. 1992). Moreover, under the "business judgment rule," there is a presumption that, where the debtors appropriate governing authority implements and follows fair procedures in making a decision, it acts in good faith and for a rational business purpose. See, e.g., In re S.N.A. Nut Co., 186 B.R. 98, 102 (Bankr. N.D. Ill. 1995) ("The Board of Directors is in the business of running the corporation. If the procedures utilized by the Directors were applied fairly, and the Directors do not violate any of their fiduciary duties, then, under the business judgment rule their decision will not be second-guessed.") (citations omitted). Bankruptcy Code section 363 does not require, however, that the Court substitute its own business judgment for that of the debtor. See, e.g., In re Ionosphere Clubs, Inc., 100 B.R. 670, 678 (Bankr. S.D.N.Y. 1989); In re Highway Equip. Co., 61 B.R. 58, 60 (Bankr. S.D. Ohio 1986). Rather, the Court should ascertain whether the debtor has articulated a valid business justification for the proposed transaction. See, e.g., Lewis v. Anderson, 615 F.2d 778, 781 (9th Cir. 1979), cert. denied, 449 U.S. 869 (1980). This is consistent with the "broad authority to operate the business of a debtor ... [which] indicates congressional intent to limit court involvement in business decisions by a trustee ... [so that] a court may not interfere with a reasonable business decision made in good faith by a trustee." In re Airlift Intl, Inc., 18 B.R. 787, 789 (Bankr. S.D. Fla. 1982). 1. Permitting The Debtors To Reconcile, Adjust and Collect Their Accounts Receivable Pursuant To The Proposed Procedures Is Reasonable and Appropriate.
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The Debtors need to immediately restore the collection of revenue in order to fund their chapter 11 efforts and maximize the value of their estates. In aid of this objective, the Debtors are requesting authority to reconcile, adjust and collect accounts receivable consistent with past practices, and to provide flexibility to the Debtors to further reduce accounts receivable in order to facilitate their collection. Such a reduction is consistent with the ability of a debtor in possession to operate its business. In this instance, the Debtors are seeking authority to make such
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adjustments in advance, pursuant to the guidelines proposed herein. Where discretionary reductions are proposed by the Debtors in their business judgment in excess of 15% of the reconciled amount, Wells Fargo and the Committee will be accorded an opportunity to object. If there is a dispute, and the parties are not able to promptly resolve it consensually, the proposed procedures will enable the Court to promptly resolve that dispute. If there is no objection, then the receivable can be collected with a minimum of administrative expenses. Likewise, with respect to proposed reductions of 15% or less, the procedure seeks to minimize administrative expense by giving the Debtors the ability to make such a de minimis reduction without having to obtain consent or provide notice. 2. Authorizing the Debtors To Sell The ERCs Is Reasonable and Appropriate.
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The Debtors have determined in their business judgment to sell their ERCs. ERCs are fungible. Moreover, the number of available ERCs, the identity and address of current ERC owners, the number and nature of ERCs owned by particular entities, and the historical market prices for ERCs are publicly available on the AQMD website. In view of these facts, at any given moment in time, there is a relatively efficient market for the ERCs. Indeed, the Debtors have solicited and received proposals from three different potential buyers (via brokers) all them proposing to purchase the Debtors' ERCs at between: $14,000 and $15,005 per unit. At present, the Debtors are proceeding with negotiations to sell their 100 ERCs for $15,005. Federal Rule of Bankruptcy Procedure 6004(f)(1) provides that a sale under section 363(b) may be made by private sale or public auction. Bankruptcy courts have held that a debtor-inpossession, in its business judgment, has the discretion to determine whether assets of its estate should be sold by public auction or private sale. See, e.g., Scherer v. Federal Natl Mortgage Assn (In re Terrace Chalet Apartments, Ltd.), 159 B.R. 821, 825 (N.D. Ill. 1993); In re Canyon Partnership, 55 B.R. 520, 524 (Bankr. S.D. Cal. 1985). In order to minimize administrative expense and monetize the ERCs as soon as possible, the Debtors request authority herein to sell the ERCs by private sale, in consultation with Wells
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Fargo, is the most appropriate way to maximize the value of these asset because the market for ERCs is well established and relatively efficient at any given point in time. For the same reasons, the Debtors are also requesting authority to employ a broker and pay such broker a fee in an amount not to exceed 3.5% of any sale proceeds, without the need for a further order from or application to this Court authorizing the employment of such broker. 9 Given the relative market efficiencies (already noted), there really is very little, if any, discretion to be exercised by the broker in connection with the consummation of these sale transactions and, therefore, the Debtors seek authority to employ a broker (if necessary) to consummate the sale of their ERCs "[A]pproval must be sought for the employment of a person with a relatively small task but a large measure of discretion in performing it but not sought for a person who is to perform an important but nondiscretionary task." See In re Fretheim, 102 B.R. 298, 299 (Bankr. D. Conn. 1989). 3. Authorizing The Debtors To Sell Inventory Pursuant To The Proposed Procedures Is Reasonable and Appropriate.
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The Debtors determined prior to the commencement of these cases to wind down their operations and liquidate their assets in chapter 11. Although the Debtors intend ultimately to propose a comprehensive process for liquidating all of the Debtors remaining assets, the Debtors seek authority in the interim to sell Inventory without further order of the Court, but subject to the procedures proposed above. It is the Debtors' business judgment that if they do not have the authority to immediately sell Inventory by private sale as proposed, they will lose valuable opportunities to maximize the value of that Inventory by selling to customers with an immediate need for it. The Debtors' business judgment in this regard should be accorded deference. See Scherer v. Federal Natl Mortgage Assn (In re Terrace Chalet Apartments, Ltd.), 159 B.R.at 825; In re Canyon Partnership, 55 B.R. at 524.
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Typically, there is broker commission of 7.0%, which is split between the buyer and seller. However, the Debtors are in the process of negotiating a provision which would require the Buyer to pay the entire broker commission. As an aside, while the Debtors expect to have a final agreement (subject to bankruptcy court approval) with a buyer (via a broker) which would pay the entire amount of any broker's commission (all 7%), the Debtors seek authority to a broker's fees consistent with the industry standard in the event its current negotiations fail to result in a final agreement.
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Under the proposed procedures, the stakeholders in the case will be involved in the process and have the ability to protect their interests. The proposed procedures will ensure that where goods of a cost in excess of $5,000 are involved, Wells Fargo, FCCC and the Committee (as well as any affected Lien Party or Reclaiming Vendor) will have an opportunity to object. With respect to de minimis sales (under $5,000), the foregoing procedures will minimize the administrative expenses of the estate by permitting the Debtors to consummate such sales without obtaining consent or providing prior notice. The Debtors respectfully submit that these
procedures appropriately balance the Debtors' need to sell their Inventory with the rights of the principal stakeholders to be heard if they have a genuine objection to a material transaction. In addition, the Debtors believe that there is ample business justification for proceeding with the sale of the Kentucky RVs in an amount equal to 75% of the invoice amount. Not only is that the high-end of any projected liquidation amount (the Debtors expect to receive from any orderly liquidation), but also selling the Kentucky RVs now will allow the Debtors to avoid incurring any further storage costs relating to these units and not incur any shipping costs that would otherwise be required in order to get these RVs back to Perris California. B. The Court Is Authorized To Approve The Sale of the Assets Free and Clear of All Liens, Claims, and Interests.
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Pursuant to section 363(f) of the Bankruptcy Code, the Debtors request that the Court approve the sale of Inventory free and clear of any and all liens, claims, and interests, with any such liens, claims and interests attaching to the sale proceeds with the same validity (or invalidity) and priority as existed prior to the sales. Bankruptcy Code section 363(f) provides that the Court may authorize a sale of property of the estate, "free and clear of any interest in such property of an entity other than the estate," if: (1) applicable nonbankruptcy law permits sale of such property free and clear of such interest; (2) entity consents;
(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;
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(4)
such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest. 11 U.S.C. 363(f). Under section 363(f), the proposed sale of Inventory free and clear (with any existing liens transferring and attaching to the proceeds) is appropriate for several reasons. First, the Debtors expect that the Debtors principal secured lender, Wells Fargo, will consent to such relief. 11 U.S.C. 363(f)(2). Second, to the extent Wells Fargo, FCCC or any other creditor asserting a lien that received notice of a proposed sale does not object, it will be deemed to have consented to the requested relief and the proposed free and clear sale under Bankruptcy Code section 363(f)(2). See, e.g., In re James, 203 B.R. 449, 453 (Bankr. W.D. Mo. 1997). Third, notwithstanding any objection, the Court should approve a sale free and clear because the parties asserting liens in their Inventory could nevertheless be compelled in these chapter 11 cases to accept a money satisfaction of such interests. See 11 U.S.C. 363(f)(5); In re Grand Slam U.S.A., Inc., 178 B.R. 460, 462 (E.D. Mich. 1995) ("Section 363(f)(5) allows trustees of an estate to sell property free and clear of liens when a legal or equitable proceeding exists that will force the lien holder to accept less than full money satisfaction for their interests."); In re Healthco Intl, Inc., 174 B.R. 174, 176-77 (Bankr. D. Mass. 1994) (same). Several courts have held that the so-called "cramdown" provisions satisfy the requirement of a "legal or equitable proceeding" at which a secured creditor could be compelled to accept a money satisfaction of its interest: Under section 1129(b)(2)(A) of the Bankruptcy Code ... a chapter 11 plan proponent can satisfy a secured claim, over the objection of the claimant, by cash payments having a present value equal to the value of the security interest. Such a "cramdown" proceeding complies with the description of proceedings referred to in subparagraph (f)(5), and many courts have so held. In re Healthco Intl, Inc., 174 B.R. at 176 (citations omitted). See, e.g., In re Grand Slam U.S.A., Inc., 178 B.R. at 462 ("cram downs" are legal proceedings within the meaning of section
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363(f)(5)); In re Terrace Chalet Apartments, Ltd., 159 B.R. 821, 829 (Bankr. N.D. Ill. 1993) (same). A secured (or undersecured) creditor need not receive money satisfaction equal to the full amount of its claim. So long as the lien attaches to the proceeds of the sale: Section 365(f)(5) permits the sale of property free of liens if the lien holder can be compelled to accept a money satisfaction. [An earlier case] interpreted the money satisfaction requirement as "full money satisfaction" in liquidation cases. This interpretation is inconsistent with requirements imposed for money satisfactions in other sections of the Bankruptcy Code. Section 1129 of the Code permits retention of property by debtor and the cram down of objecting creditors upon payment of the actual value of the collateral. ... Since the properties here are to be sold for the best price obtainable under the circumstances, and the liens will attach to the sale proceeds, the proposed sale may be approved. In re WPRV-TV, Inc., 143 B.R. 315, 321 (Bankr. D.P.R. 1991), affd on other grounds, 983 F.2d 336 (1st Cir. 1993), vacated on other grounds, 165 B.R. 1 (D.P.R. 1992). This approach not only complies with the literal meaning of section 363(f)(5), but also makes sense in light of the overall structure of the Bankruptcy Code: Cram down under chapter 11 has been suggested as a means by which an entity could be compelled to accept a money satisfaction. If the holder of a lien could be compelled in a cram down to accept less than full satisfaction, some courts have held that the holder may be compelled to accept such satisfaction under section 363(f)(5).... This approach would assure the lien or interest holder the distribution that it could reasonably expect upon resolution of the bankruptcy case[.] 3 COLLIER ON BANKRUPTCY 363.06[6][a] (15 ed. rev. 2006). Thus, Inventory may be sold free and clear, notwithstanding the objection of any lienholder asserting a lien in those assets. Any such lien will transfer and attach to the proceeds of sale. C. Request for Waiver of Bankruptcy Rule 6004(h).
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In order to allow the immediate realization of value of the assets consistent with their liquidation goals, the Debtors respectfully request that the Order on this Motion be effective
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immediately, notwithstanding the 10-day stay that otherwise would be applicable to thereto under Bankruptcy Rule 6004(h), with respect to the sale of assets. Fed. R. Bankr. P. 6004(h) (formerly Rule 6004 (g)). VIII. CONCLUSION WHEREFORE, the Debtors respectfully request that the Court grant the relief requested in the Motion. DATED: December 13, 2007 /s/ David M. Guess DAVID M. GUESS, an Attorney with KLEE, TUCHIN, BOGDANOFF & STERN LLP Proposed Bankruptcy Counsel for Debtors and Debtors in Possession
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As an aside, while the Debtors expect to have a final agreement (subject to

VII. LEGAL ARGUMENT

such interest is in bona fide dispute; or

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