Free Reply Brief - District Court of Delaware - Delaware

Case 1:04-cv-01498-KAJ

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UNITED STATES DISTRICT COURT DISTRICT OF DELAWARE --------------------------------------------------------------X In re: ) ) BLAKE OF CHICAGO CORP., et al., ) ) Debtors. ) ---------------------------------------------------------------X MHR CAPITAL PARTNERS LP, MHR ) INSTITUTIONAL PARTNERS LP, MHR ) LP, AND MHR FUND MANAGEMENT LLC, ) ) Appellants, ) ) v. ) ) BLAKE OF CHICAGO CORP., et al,. ) f/k/a A.B. Dick COMPANY, et al., and ) PRESSTEK, INC. ) ) Appellees ) ---------------------------------------------------------------X

Chapter 11 Case Nos. 04-12002 (JLP) (Jointly Administered)

Appeal No. 04-CV-1498

REPLY BRIEF OF APPELLEE PRESSTEK, INC. MONZACK AND MONACO, P.A Francis A. Monaco, Jr. 1201 Orange St., Ste. 400 Wilmington, Delaware 19801 (302) 656-8162 McDERMOTT WILL & EMERY LLP Stephen B. Selbst Lawrence J. Slattery Gary O. Ravert 50 Rockefeller Plaza New York, New York 10020 (212) 547-5400 Of Counsel Attorneys for Presstek, Inc. Dated: May 2, 2005

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TABLE OF CONTENTS TABLE OF CONTENTS ......................................................................................................i TABLE OF AUTHORITIES .................................................................................................ii PRELIMINARY STATEMENT ...........................................................................................1 ARGUMENT ........................................................................................................................2 CONCLUSION......................................................................................................................4

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TABLE OF AUTHORITIES Cases Cinicola v. Scharffenberger, 248 F.3d 110, 112 (3d Cir. 2001) ............................................1, 3 In re Abbotts Dairies of Pa., 788 F.2d 143 (3d Cir. 1986) ...................................................1, 2 In re Continental Airlines, 91 F.3d 553, 558 (3d Cir. 1996) .................................................4 In re Tempo Tech. Corp., 202 B.R. 363 (D. Del. 1996) ........................................................1, 2 In re Polaroid Corp., 2004 U.S. Dist. LEXIS 19822 (D. Del.) .............................................4 In re Trans World Airlines, 2002 U.S. Dist. LEXIS 5951 (D. Del.) .....................................4 In re Rickel Home Centers, 209 F.3d 291 (3d Cir. 2000)......................................................4 Krebs Chrysler-Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490, 499 (3d Cir. 1998) ........................................................................................................................1, 3 Statutes 11 U.S.C. § 363(b) ...............................................................................................................2, 3 11 U.S.C. § 363(m) ...............................................................................................................1, 2, 3 Fed. R. Civ. P. 62(a) .............................................................................................................2 Fed. R. Bankr. P. 7062...........................................................................................................3

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Presstek, Inc. ("Presstek"), by its undersigned counsel, hereby submits this reply brief in further support of its motion to dismiss (the "Motion to Dismiss") as moot the appeal of MHR Capital Partners LP, MHR Institutional Partners LP, MHRM LP and MHR Fund Management LLC (collectively, "MHR" or "Appellants"). PRELIMINARY STATEMENT In its opening papers, Presstek cited the Third Circuit's standard for determining whether an appeal from a sale order issued pursuant to 11 U.S.C. § 363(m) is moot, citing Third Circuit cases, decided in 1998 and 2001, in support of this standard. See Krebs Chrysler-Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490, 499 (3d Cir. 1998) and Cinicola v. Scharffenberger, 248 F.3d 110, 112 (3d Cir. 2001). Appellant's responsive papers ignore the first and barely acknowledge the second. Rather than deal with the controlling Third Circuit law, Appellant asserts that the mootness doctrine does not apply when a party appeals from a bankruptcy court's finding that the Section 363 purchaser was good faith purchaser. To support that proposition, Appellant cites a 1986 Third Circuit opinion that did not address the question of mootness in a Section 363 sale. They also cite a 1996 district court decision held that the appeal was moot and then went on to castigate the appellant for failing to seek and obtain a stay of the sale. MHR cites those cases despite the fact that it obviously is aware of the proper test for mootness in the Third Circuit. In its opening brief on its appeal, MHR attached two cases that granted motions to dismiss appeals from Section 363 sale orders on the grounds of mootness based on Krebs and Cinicola.

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ARGUMENT The Appellants assert in their answering brief that this motion should be governed by opinions in In re Abbotts Dairies of Pa., 788 F.2d 143 (3d Cir. 1986) and In re Tempo Tech. Corp., 202 B.R. 363 (D. Del. 1996). Both decisions predate Cinicola and Krebs. Neither Abbotts Dairies nor Tempo Tech stands for this proposition asserted by Appellant. Abbotts Dairies challenged a Section 363 sale order that did not contain a finding by the Bankruptcy Court that the buyer was a good faith purchaser. 788 F.2d 143. The Third Circuit remanded the case back to the Bankruptcy Court, instructing it to make a finding with respect to the good faith of the purchaser. Id. at 149-50. The Sale Order on the present appeal complied with the Abbotts Dairies holding, as the Bankruptcy Court determined that Presstek was a good faith purchaser. (B269, Sale Order ¶2). The second case cited by Appellant, Tempo Tech., upheld the Bankruptcy Court's finding of good faith and dismissed the appeal as moot pursuant to section 363(m). 202 B.R. 363 (D. Del. 1996). The Tempo Tech. court stated that that failure to obtain a stay of the sale alone does not automatically moot an appeal of the sale. It then went on to excoriate the appellant for not seeking a stay. Id. at 365-66, 373. The Court pointed out that the appellants knew that a Section 363 order was exempt from the automatic stay and therefore should have understood the importance of an appellant immediately and explicitly seeking a stay of a section 363 sale. The court then noted that "[b]y not seeking a stay allowing them to preserve their position on appeal, Appellants must now live with the consequences . . . ." Id. The Tempo Tech court then held that [the appellant] did not bother to file a written stay motion as explicitly required by the bankruptcy court. In light of prevailing precedent, the amended Bankruptcy Rule 7062, and the direction of the bankruptcy court itself, [appellant] should have availed itself of the procedural mechanisms afforded by the Bankruptcy Code on its ultimate quest of appealing the merits of the bankruptcy court's order. In short, although further review is precluded because this appeal is moot, it is moot because the counsel sat on his clients' rights. 2
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Id. at 374. More significantly, MHR's Appeal should be dismissed based on the Third Circuit standard for mootness of a Section 363(b) sale that has been clearly developed subsequent to the Tempo Tech. case. As noted in Presstek's opening papers, an appeal from a Section 363 sale is moot if the underlying sale was not stayed pending appeal and if reversing or modifying the sale order would affect the validity of the sale. Cinicola v. Scharffenberger, 248 F.3d 110, 112 (3d Cir. 2001); Krebs Chrysler-Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490, 499 (3d Cir. 1998). This standard for an appeal of a 363(b) sale clearly applies to appeals challenging the good faith of a 363 sale, as does MHR's Appeal. Appellants cannot deny that this standard for mootness applies to appeals challenging the Bankruptcy Court's determination of the good faith of the purchaser. In fact, MHR cited to and attached two cases to their opening brief that dismissed challenges of good faith status based on this exact test. See In re Polaroid Corp., 2004 U.S. Dist. LEXIS 19822 (D. Del.); In re Trans World Airlines, 2002 U.S. Dist. LEXIS 5951 (D. Del.). In Polaroid, this Court directly stated that the appellant's "challenges to the validity of the Sale Order are statutorily moot under Section 363(m) of the Bankruptcy Code." 2004 U.S. Dist. LEXIS 19822 at *5. Citing Cinicola and Krebs, the court dismissed the appeal as moot because the Bankruptcy Court's findings were supported by the record and the appellant had not obtained a stay and a vacation of the sale order would undermine the validity of the sale. Id. at *6-7; see also Trans World Airlines, Inc. 2002 U.S. Dist. LEXIS 5951 (D. Del. 2002) at *4-6.

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Following this well-established test for statutory mootness, this Court should dismiss MHR's Appeal as moot because MHR failed to obtain a stay of the sale and now requests relief that would affect the validity of the sale.1 Finally, Appellants assert that Presstek failed to produce evidence that the Debtors' assets have been "irreversibly commingled" with Presstek's assets. However, proving "irreversibly commingled" assets is not required in the Third Circuit to obtain a dismissal of an appeal as moot. Case law within the Third Circuit, as stated above, is clear, that without obtaining a stay, if the relief requested would affect the validity of the sale, there can be no reversal of a sale to a good faith purchaser. CONCLUSION For the forgoing reasons, and those set forth within Presstek's memorandum of law in support of the Motion to Dismiss, the Appeal should be dismissed as moot.

As in Polaroid, the Appellant's appeal should additionally be dismissed as equitably moot. Under equitable mootness, "an appeal should . . . be dismissed as moot when, even though effective relief could conceivably be fashioned, implementation of that relief would be inequitable." In re Rickel Home Centers, 209 F.3d 291, 304 (3d. Cir. 2000) (citing In re Continental Airlines, 91 F.3d 553, 558 (3d Cir. 1996)). MHR's failure to obtain a stay immediately subsequent to the approval of the sale order has resulted in substantial commingling of the funds. MHR should not be allowed create the logistical and financial chaos by reversing the sale order months after its approval. A reversal of the sale would not only be difficult to implement, but would unfairly damage the purchased business.

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Dated: May 2, 2005 Respectfully submitted, MONZACK AND MONACO, P.A. By: __/s/ Francis A. Monaco, Jr.__ Francis A. Monaco, Jr. (No. 2078) Joseph J. Bodnar (No. 2512) 1201 Orange Street, Ste. 400 Wilmington, Delaware 19801 [email protected] (302) 656 -8162 - and ­ McDERMOTT WILL & EMERY LLP Stephen B. Selbst Lawrence J. Slattery Gary O. Ravert 50 Rockefeller Plaza New York, New York 10020 (212) 547-5400 Of Counsel Attorneys for Presstek, Inc.

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CERTIFICATE OF SERVICE I, Heidi E. Sasso, certify that I am not less than 18 years of age, and that service of the foregoing document was made on May 2, 2005 upon: Jeffrey Schlerf, Esq. GianClaudio Finizio, Esq. The Bayard Firm 222 Delaware Avenue, Ste. 900 Wilmington, DE 19801 F: (302) 658-6395 (Committee Counsel) McGuirewoods LLP Richard J. Mason, Esquire Michael M. Schmahl, Esq. 77 West Wacker Drive Ste. 4400 Chicago, IL 60601 F: (312) 849-3690 (Committee Counsel) Marshall Beill McGuirewoods LLP 1345 Avenue of the Americas Seventh Floor New York, NY 10105 F: (212) 548-2150 (Committee Counsel) H. Jeffrey Schwartz, Esq. John Gleason, Esq. Benesch Friedlander Coplan & Aronoff LLP 2300 BP Tower 200 Public Square Cleveland, OH 44114 F: (216) 363-4500 (Debtors' Counsel)

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Federick B. Rosner, Esq. Jaspan Schlesinger Hoffman LLP 1201 North Orange Street, Ste. 1001 Wilmington, DE 19801 F: (302) 351-8010 (Debtors' Counsel) David Klauder, Esq. Office of the United States Trustee 844 King Street, 2nd Floor Wilmington, DE 19801 F: (302) 573-6497 Jami B. Nimeroff, Esq. Buchanan Ingersoll PC The Nemours Building 1007 North Orange Street, Ste. 1110 Wilmington, DE 19801 F: (302) 428-3996 (Counsel to Key Bank) Thomas G. Whalen, Jr., Esq. Stevens & Lee PC 300 Delaware Avenue, Ste. 800 Wilmington, DE 19801 F: (302) 654-5181 Bernard G. Conaway, Esq. Fox Rothschild LLP 919 N. Market Street Wilmington, DE 19801 F: (302) 656-8920 (Counsel to Konica Minolta) Christopher D. Loizides, Esq. Loizides & Associates 1200 Pennsylvania Avenue, Ste. 202-A Wilmington, DE 19806 F: (302) 654-0728

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Michael Sage, Esq. Stroock & Stroock & Lavan 180 Maiden Lane New York, NY 10038 F: (212) 806-6006 (Counsel to MHR) Richard Cobb, Esq. Megan Harper, Esq. Landis Rath & Cobb LLP 919 Market Street, Ste. 600 Wilmington, DE 19801 F: (302) 467-4450 (Counsel to MHR)

Under penalty of perjury, I declare that the foregoing is true and correct.

__5/2/2005________ Date

__/s/ Heidi E. Sasso__________ Heidi E. Sasso

Document #: 38120