Free Motion to Dismiss - District Court of Delaware - Delaware

Case 1:06-cv-00521-GMS

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Filed 06/26/2007

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWAR
Civil Action No. 06-00520-GMS, 06-00521-GMS

In re: NELLSON NURACEUTICAL, INC., et aL.
Debtors.
Bankrptcy Case No. 06-10072 (CSS)

UNTED STATES TRUSTEE AND OFFICIAL COMMITTEE OF UNSECURD CREDITORS
Appellants,
v.

NELLSON NUTRACEUTICAL, INC., et al.
Appellees.

APPEAL FROM THE UNTED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE (Christopher S. Sontchi, Judge)

APPELLEES' MOTION TO DISMISS APPEAL ON MOOTNESS GROUNS
PACHUSKI STANG ZIEHL YOUNG JONES & WEINTRAUB LLP Laura Davis Jones (Bar No. 2436) Richard M. Pachulski (CA Bar No. 90073) Brad R. Godshall (CA Bar No. 105438) Maxim B. Litvak (CA Bar No. 215852) Rachel Lowy Werkheiser (Bar No. 3753)
919 North Market Street, 17th Floor

P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801)
Telephone: (302) 652-4100 Facsimile: (302) 652-4400

Counsel for the Appellees
DATED:
June 26, 2007

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Nellson Nutraceutical, Inc., Nellson Holdings, Inc., Nellson Intermediate

Holdings, Inc., Nellson Northern Operating, Inc., Nellson Nutraceutical Eastern Division, Inc.,
Nellson Nutraceutical Powder Division, Inc., and Vitex Foods, Inc. (collectively, the "Debtors"),

pursuant to Rule 8011 of the Federal Rules of Bankrptcy Procedure, hereby bring this Motion to
Dismiss Appeal on Mootness Grounds. In support of this Motion, the Debtors state as follows:

1. On April 28, 2006, the Debtors filed their Motion for Entry of an Order
Authorizing and Approving Payments Under Management Incentive Plan (the "MIP Motion").

By the MIP Motion, the Debtors sought authority to implement, and make payments under, a
performance-based management incentive plan (i.e., the MIP). Payments under the MIP were
tied to the Debtors achieving certain objective earings targets. Appellants, United States

Trustee (the "UST") and the Official Commttee of Unsecured Creditors (the "Committee"),
objected to the MIP on varous grounds.
2. An evidentiary hearng was held on July 10, 2006 and continued to July

13, 2006, at which the Debtors presented two fact witnesses and one expert to substantiate the

Debtors' business judgment in proposing the MI and the reasonableness of the amounts to be

paid under the MIP. The Commttee presented one expert witness. The UST offered no
witnesses. At the conclusion of the hearng on July 13, 2006, the Bankrptcy Court entered an
order (the "Order") granting the MIP Motion. The Order was subsequently entered on the docket

on July 18, 2006. The Order expressly provides that "the Debtors are authorized, but not
directed, to make payments to the Employees, under the Management Incentive Plan, up to an
aggregate amount of $1.395 million."

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3. On July 27, 2006 and July 28, 2006, the UST and the Commttee,

respectively, each filed a notice of appeal of the Order with the Bankrptcy Court. The Notices
of Appeal were docketed to this Court on August 23, 2006.
4. In the nearly one year since this appeal was fied, literally nothing has

been done by Appellants to further the appeaL. Despite the express language of the Order
authorizing the Debtors to "make payments to the Employees," neither of the Appellants ever

moved to stay the Order pending appeaL.
5. The Bankrptcy Court's Order has been fully consummated. Following

entry of the Order, the Debtors promptly implemented the MI for the benefit of the company's
management employees. The MI only covered calendar year 2006.
6. On July 31, 2006, the Debtors made their first payments to employees

under the MIP for achieving the operational benchmarks set forth therein for the first half of
2006. The aggregate sum of $550,000 was paid at that time.
7. The Debtors did not achieve their performance targets for the second half

of 2006. Accordingly, no additional payments under the MI were made and there are no more
payments that wil be made under the MIP. Hence, by its own terms, the MIP has expired.

8. As explained more fully in the simultaneously filed Brief in Support of
Motion to Dismiss Appeal on Grounds of Equitable Mootness (the "Brief'), this is a textbook
case for dismissal of the appeal on mootness grounds. Each of the considerations relevant to

mootness set forth by the Third Circuit in In re Continental Airlines, 91 F.3d 553, 559 (3d Cir.
1996) (en banc), and its progeny, decisively favor dismissaL.

9. Appellants never sought or obtained a stay pending appeaL. The Order has

been not only substantially consummated, but fully implemented. The Debtors' employees have

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been paid in accordance with the MI. Hence, there is no possible form of relief that this Court

could fashion, consistent with the requirements of due process, that could require such
employees, who are not paries to this appeal, to disgorge the funds that they properly received

from the estates nearly one year ago. A reversal of the Order also would be wholly inequitable
and prejudicial to the Debtors' employees and could jeopardize the Debtors' reorganization

efforts.
10. For all of the reasons set forth in the simultaneously filed Brief, the

Debtors respectfully request that the Court dismiss the above-captioned appeal under the
doctrines of constitutional and equitable mootness.

Dated: June 26, 2007

PACHUSKI STANG ZIEHL YOUNG JONES & WEINTRAUB LLP

~~; WM(M~v
Laura Davis Jones (Bar No. 2436) Richard M. Pachulski (CA Bar No. 90073) Brad R. Godshall (CA Bar No. 105438) Maxim B. Litvak (CA Bar No. 215852) Rachel Lowy Werkheiser (Bar No. 3753) 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801)
Telephone: (302) 652-4100

Facsimile: (302) 652-4400 Email: ljones(gpszyjw.com
rpachulski (gpszyjw .com bgodshall (gpszyjw .com

mlitvak(gpszyjw.com rwerkheiser(gpszyjw.com
Counsel for Appellees

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
In re:

NELLSON NUTRACEUTICAL, INC., et aI.,
Debtors. UNITED STATES TRUSTEE AND THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS,

Appellants,
v.

Civil Action No. 06-520 (GMS) Civil Action No. 06-521 (GMS)

NELLSON NUTRACEUTICAL, INC., et aI.,
Appellees.

Banptcy Case No. 06-10072 (CSS)
Appeal No. 06-45

AFFIDAVIT OF SERVICE

STATE OF DELAWARE )
)SS:

COUNTY OF NEW CASTLE )
Karina Yee, being duly sworn according to law, deposes and says that she is employed by the law firm of Pachulski Stang Ziehl Young Jones & Weintraub LLP, counsel for the Appellees, in the above-captioned action, and that on the 26th day of June, 2007, she caused a copy ofthe following document(s) to be served upon the attached service list(s) in the maner indicated:

Appellees' Motion to Dismiss Appeal on Mootness Grounds

1l~ ~ Kia Y ee

otary Public My Commission Expires:

VANESSA A. PRESTON
fi2 _ NitY Public ~ State of Delaware

lU :M mm. Expires March 21, 2008

59903-002\DOCS _DE: i 28606. i

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Nellson Nutraceutical, Inc. Appeal Service List
Case No. 06-10072 (CSS)
Document No. 120478

02 - Interoffice Delivery 06 - Hand Delivery
05 - First Class Mail
(Counsel to the Debtors)

Hand Delivery (Counsel to Fremont Investors VII, LLC) Mark D. Collins, Esquire Richards Layton & Finger One Rodney Square 920 North King Street Wilmington, DE 19801 Hand Delivery
(Counsel to Informal Committee of

Laura Davis Jones, Esquire Rachel Lowy Werkheiser, Esquire Pachulski Stang Ziehl Young Jones &
Weintraub LLP

First Lien

Lenders)
Robert S. Brady, Esquire

919 North Market Street, 1 ih Floor P.O. Box 8705 Wilmington, DE 19899-8705

Young Conaway Stargatt & Taylor LLP The Brandywine Building 1000 West Street, 1 ih Floor Wilmington, DE 19801
Hand Delivery (Counsel to UBS) Richard W. Riley, Esquire Duane Morrs LLP
11 00 North Market Street, Suite 1200

Interoffice Mail
(Counsel to the Debtors)

Maxim B. Litvak, Esquire Pachulski Stang Ziehl Young Jones &
Weintraub LLP 150 California Street, 15th Floor San Francisco, CA 941 i 1

Wilmington, DE 19801
Hand Delivery (Counsel to the Official Committee of
Unsecured Creditors)

Interoffice Mail
(Counsel to the Debtors)

Richard M. Pachulski, Esquire Brad R. Godshall, Esquire Pachulski Stang Ziehl Young Jones &
Weintraub LLP

10100 Santa Monica Boulevard, Suite 1100 Los Angeles, CA 90067
Hand Delivery (United States Trustee)

Kurt F. Gwynne, Esquire Reed Smith LLP 1201 Market Street, Suite 1500 Wilmington, DE 19801

First Class Mail
Wiliam Harrngton, Esquire Office of the United States Trustee J. Caleb Boggs Federal Building
844 N. King Street, Suite 2207
Lockbox 35

(Counsel to UBS) James J. Holman, Esquire Duane Morrs LLP 30 South i ih Street
Philadelphia, P A

First Class Mail
(Counsel to UBS) Gregory A. Bray, Esquire Thomas R. Kreller, Esquire Milbank, Tweed, Hadley & McCloy LLP
601 South Figueroa Street, 30th Floor

Wilmington, DE 19801
Hand Delivery (Mediator) J. Richard Tucker, Esquire Maron Marvel Bradley & Anderson, P .A. 1201 N. Market Street, Suite 900 Wilmington, DE 19801

Los Angeles, CA 90017

Case 1:06-cv-00521-GMS

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First Class Mail
(Counsel to Fremont Investors VII, LLC) Suzzanne Uhland, Esquire O'Melveny & Myers LLP
Embarcadero Center West

275 Battery Street San Francisco, CA 94111-3305

Fist Class Mail
(Counsel to the Ad Hoc Committee of

First

Lien Lenders)
Fred Hodara, Esquire

Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, NY 10022

First Class Mail
(Counsel to the Official Committee of Unsecured Creditors) Claudia Springer, Esquire Reed Smith LLP 2500 One Liberty Place 1650 Market Street Philadelphia, P A 19 103