Free Reply Brief - District Court of Delaware - Delaware

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 1 of 12

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

In re: NELLSON NURACEUTICAL, INC., et aL.
Debtors.

Bankruptcy Case No. 06-10072 (CSS)

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

NELLSON NUTRACEUTICAL, INC., et ale
Appellees.

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

REPLY IN SUPPORT OF APPELLEES' MOTION TO DISMISS APPEAL ON MOOTNESS GROUNS
PACHUSKI STANG ZIEHL YOUNG JONES & WEINRAUB 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)
9.19 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:
August 15,2007

59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 2 of 12

TABLE OF CONTENTS
Pa2e
PRELIMARY STATEMENT .....................................................................................................1
ARGUMNT...................................................................................................................................3

A. The Doctrine of Constitutional Mootness. ..............................................................3
B. The Doctrine of Equitable Mootness........... ..................... .......... ...... ................... ....6
CONCLUSION ................................................................................................................................9

59903-002\DOCS_SF:554 i o. i

t
l

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 3 of 12

TABLE OF AUTHORITIES
Page(s)
Cases

In re Continental Airlines, 91 F.3d 553 (3d Cir. 1996) ...................................................... 2, 3, 6, 7

In the Matter of Kmart Corp., 359 F.3d 866 (7th Cir. 2004)....................................................... 4,5
Mac Panel Co. v. Virginia Panel Corp., 283 F.3d 622 (4th Cir. 2002)........................................... 7
Offcial Comm. of Unsecured Creditors of LTV Aerospace & Defense Co. Inc. v. Offcial Comm. of Unsecured Creditors of LTV Steel Co., Inc. (In re Chateaugay Corp.), 988 F.2d 322 (2d Cir. 1993)..................................................... 3 U.S. Trustee v. Offcial Comm. of Equity Security Holders (In re Zenith Elecs. Corp.), 329 F.3d 338 (3d Cir. 2003) .................................................... passim

United States v. Palma, 760 F.2d .475 (3d Cir. 1985) .....................................................................4
Zinchiak v. CIT Small Business Lending Corp., 406 F.3d 214 n. 9 (3d Cir. 2005) ........................ 4

Statutes
11 V.S .C. § 549......................................................................................... ..................... ............. 1, 5

11

59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 4 of 12

PRELIMINARY STATEMENT
The United States Trustee (the "UST") and the Official Commttee of Unsecured
Creditors (the "Commttee," and together with the UST, the "Appellants") make two principal

arguments in support of their objections to the pending motion to dismiss this appeal on
mootness grounds, filed by the above-captioned debtors and debtors in possession (collectively,

the Debtors").i The Appellants primarly rely on the Third Circuit's decision in U.S. Trustee v.

Offcial Comm. of Equity Security Holders (In re Zenith Elecs. Corp.), 329 F.3d 338 (3d Cir.
2003), which is distinguishable on varous grounds. First, despite the fact that all amounts owed under the management incentive plan
(the "MIP") at issue in this appeal were distributed more than one year ago, the Appellants argue

that this appeal is not constitutionally moot because this Court could stil fashion a remedy by
forcing the Debtors' employees to disgorge the monies that they eared under the MI. This is
not a viable option. Unlike the bankrptcy professionals in Zenith, the Debtors' employees are

not paries to this appeaL. Most of them have no idea that this appeal is even pending. The
Debtors' employees also cannot be expected to know that the incentive payments that they
eared through their hard work and dedication to the estate could be subject to additional court

scrutiny or possibly even disgorgement years after the fact. Hence, as a matter of due process,
disgorgement is simply not an appropriate remedy in this case. It is also inconceivable that the

Debtors could seek to avoid the payments under the MI as unauthorized postpetition transfers
pursuant to section 549 of the Bankrptcy Code. These payments were expressly authorized by
the Bankrptcy Court and, even if that decision were ever overturned on appeal, there is no way

i Capitalized term not defined herein shall have the meanings set forth in the Debtors' motion to . dismiss.

59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 5 of 12

that such payments could be pl.rsued within the two-year limitations period imposed by the
statute.
Second, the Appellants take the position that this appeal is not equitably moot

because no plan has been confirmed. Although the weight of Third Circuit authority on the
doctrine of equitable mootness focuses on "substantial consummation" of a plan, there is no

requirement or logical basis to limit the scope of this doctrine solely to appeals of plan
confirmation orders. See Zenith, 329 F.3d at 343 (enumerating five factors that "have been

considered by courts in determning whether it would be equitable to reach the merit~ of a
bankrptcy appeal," which "include" whether the plan has been substantially consummated). As
recognized by the Third Circuit in In re Continental Airlines, 91 F.3d 553, 559 (3d Cir. 1996) (en

banc), equitable mootness is a "widely recognized and accepted doctrine" that "an appeal should

be dismissed as moot when, even though effective relief could conceivably be fashioned,
implementation of that relief would be inequitable." See also Zenith, 329 F.3d 343 (same). This
doctrine applies with equal force to the Order that is currently on appeaL.

Ultimately, this appeal should be dismissed as moot because the Appellants sat on
their rights -- they failed to seek a stay pending appeal or to diligently pursue this appeal. The
Order has now been fully consummated and has expired by its own terms. Under these

circumstances, it would be constitutionally improper and wholly unfair to even contemplate that
the Debtors' employees could be forced to pay for the Appellants' lack of diligence.

2 The Commttee claims that the Debtors failed to timely execute a mediation agreement and thereby delayed the prosecution of this appeaL. However, the Debtors merely waited for the Commttee and the UST, the Appellants in this case, to execute the agreement first. That apparently did not happen until
very recently. In the interi, the mediator continued periodically to contact all paries asking them to

sign the agreement. It is disingenuous for the Commttee to suggest that the Debtors somehow delayed this appeal when the Appellants themselves did not bother to proceed with the mediation process.

2
59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 6 of 12

ARGUMNT
A. The Doctrine of Constitutional Mootness.

The doctrine of constitutional mootness is grounded on the principle that an

appeal is moot "if events have taken place during the pendency of the appeal that make it
'impossible for the court to grant any effectual relief whatsoever.'" Continental Airlines, 91
F.3d at 558. The Debtors have cited extensive authority in their opening brief, including the

Second Circuit's frequently-quoted decision in Offcial Comm. of Unsecured Creditors of LTV
Aerospace & Defense Co. Inc. v. Offcial Comm. of Unsecured Creditors of LTV Steel Co., Inc.

(In re Chateaugay Corp.), 988 F.2d 322 (2d Cir. 1993), to the effect that there is no viable

remedy available when the funds at issue in the appeal have already been distributed to
transferees who are not paries to the appeaL.

The Appellants argue, however, that this Court can yet render an effective remedy

in this appeal by requiring that the Debtors' employees disgorge the funds that they re~eived

over one year ago for achieving certain performance objectives under the MI. In support of
their position, the Appellants principally rely on a footnote in the Third Circuit's decision in
Zenith, 329 F.3d at 340 n.!. In that case, the court concluded that the appeal of a fee award to a

commttee's professionals was not constitutionally moot despite the fact that such fees had
already been paid. Id. Zenith is easily distinguishable from the case at hand because the

professionals in Zenith were parties to the appeaL. Id. ("We note that other paries to this appeal

- the Professionals themselves - clearly continue to exist. . . ."). Given that the transferees of
the funds at issue in Zenith were paries to the appeal, it is not surprising that the court concluded
that any fees paid to such professionals could be disgorged, paricularly given that the

3
59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 7 of 12

Bankrptcy Court had specifically retained jurisdiction to act on any request for payment of an
administrative claim.3 Id.

The instant case is very different. The Debtors' employees are not paries to this
appeaL. Contrary to the Appellants' assertions, the Debtors' employees are not the ones pullng

the strings in connection with this appeaL. Most of them do not even know that this appeal is
pending. From the perspective of the Debtors' employees, all payments that were made under

the MI last year should be, for all practical purposes, ancient history. The MIP has served its
purpose. It incentivized employees during calendar year 2006. Certain of the targets under the

MIP were reached; others were not. The Order has now expired by its terms and all payments
thereunder were made over one year ago. Under these circumstances, there is no relief

whatsoever that this Court could now fashion, within the confines of due process, to get money
back from the Debtors' hard working employees who are not parties to this appeal.4

The Appellants also cite the Seventh Circuit's decision in In the Matter of Kmart

Corp., 359 F.3d 866, 869 (7th Cir. 2004), for the proposition that the disbursement of funds to

third pary transferees (i.e., "critical vendors") prior to the resolution of an appeal does not
prevent the court from ordering disgorgement. The decision in Kmart, however, did not involve

the doctrine of constitutional mootness. The court merely concluded that reversing preferential

3 The UST also relies on the Third Circuit's decision in Zinchiak v. CIT Small Business Lending Corp., 406 F.3d 214, 223 n. 9 (3d Cir. 2005), to make the point that an appeal is not constitutionally moot when the remedy of disgorgement is available. Much like Zenith, however, disgorgement was a viable remedy
in Zinchiak because the transferee (a lender) was a pary to the appeaL.

4 The UST argues that the Debtors lack standing to raise due process arguments on behalf of third paries under United States v. Palma, 760 F.2d 475, 477 (3d Cir. 1985). The decision in Palma, however, merely recognized that "a pary has standing to challenge the constitutionality of a statute only insofar as it has an adverse impact on his own rights." Id. (emphasis added). The Debtors do not seek to challenge the
constitutionality of any statute. The Debtors simply point out that it would be impossible for this Court to

fashion a remedy against employees of the Debtors who are not paries to this appeaL.

4
59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 8 of 12

transfers to prepetition creditors was an entirely "ordinary feature of bankrptcy practicer.)" Id.

The critical vendor order that was on appeal in Kmart also expressly contemplated that any
payments thereunder were "provisional" and subject to the rights of any interested person to
object to the amount of any critical vendor claims. A true and correct copy of the Order Under 11 U.S.c. § l05(a) Authorizing the Payment of Prepetition Claims of Certain Critical Vendors,
dated Jan. 26,2002, entered in the Kmart case is attached hereto as Exhibit A.

In the instant case, by contrast, the possibility of seeking disgorgement of courtapproved payments to the Debtors' employees is far from customary. In fact, in Chateaugay and

other cases cited in the Debtors' opening brief, courts have declined to pursue employees or
former employees on the basis that it would be impracticable and inappropriate to do so. It also
bears mention that, unlike the "critical vendors" in Kmart, the Debtors' employees had no notice
by virtue of the Order (and the lack of a stay pending appeal) that their incentive payments could

be subject to further scrutiny years after the fact. Indeed, so much time has passed since the last

payments were made under the MIP in July 2006, that there is no chance (no matter what
happens in this appeal) that such payments could be pursued as avoidable postpetition transfers
within the two year limitations period under section 549 of the Bankrptcy Code.5 See 11 U.S.c.

§ 549. Assuming that this appeal is not dismissed on mootness grounds and given that there is
not even a briefing schedule yet in place, it would take many months, if not years, to complete
the appellate process. By then, the two-year limitations period under section 549 wil have run.

5 Section 549 of the Bankrptcy Code provides, in relevant par, that the trustee may avoid a transfer of property of the estate that occurs after the commencement of the case "that is not authorized under this title or by the cour." The payments under the MIP were expressly authorized by the Bankrptcy Court, but even if that decision were ever overturned on appeal, section 549 provides that any action or proceeding under this section may not be commenced after the earlier of: (1) two years after the date of the transfer sought to be avoided; or (2) the time the case is closed or dismissed.

5
59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 9 of 12

Hence, there is simply nothing that this Court can do, consistent with the

requirements of due process, that would force the Debtors' employees, who are not paries to this

appeal, to refund monies paid to them by the estate over one year ago. In this regard, contrary to

the Commttee's arguments, the Debtors are not taking the position that their employees should
have been made paries to this appeaL. Rather, given that the Debtors' employees are not
properly paries to this appeal and the Order expressly contemplated payments to such

employees under the MIP totaling up to $1.395 millon, the Commttee (and the UST) should
have sought a stay pending appeal to prevent any disbursement of funds. Instead, the Appellants
did nothing to stop this appeal from being rendered moot. They must now face the consequences
of their own inaction. This appeal should be dismissed as constitutionally moot.
B. The Doctrine of Equitable Mootness.

The doctrine of equitable mootness contemplates that an appeal should be
dismissed if granting the requested relief would be "inequitable." Continental Airlines, 91 F.3d
at 559 (citing Chateaugay, 988 F.2d at 325).

The Appellants argue that this doctrine only applies II the event that a
reorganization plan has been substantially consummated, which has not yet occurred in this case.

Admittedly, the factors that the Third Circuit has outlned in Continental Airlines and its progeny
include substantial consummation of a plan as a key consideration. See id. at 5560. There is no

absolute requirement, however, that the doctrine of equitable mootness is limited to appeals of

plan confirmation orders. It also makes intuitive sense that, even outside of a plan, there could

be situations (such as the one here) where permtting an appeal to go forward could have a
disastrous effect on the Debtors' abilty to successfully reorganize.

6
59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 10 of 12

The factors listed in Continental Airlines that courts have considered in

determning whether it would be equitable to reach the merits of an appeal are not meant to be

exhaustive or exclusive. In Continental Airlines (and in Zenith), the Third Circuit stated that
such factors "include" substantial consummation of a plan, but thereby left open the possibilty
that additional, or altogether different, factors could also be considered. Continental Airlines, 91

F.3d at 560; Zenith, 329 F.3d at 434; see also Mac Panel Co. v. Virginia Panel Corp., 283 F.3d
622, 625 (4th Cir. 2002) (noting that "equitable mootness is a pragmatic principle" and

recognizing substantial consumnation of "other equitable relief' outside of a plan as a relevant
inquiry for purposes of the doctrine). The decision in Zenith underscores this point by noting

that the issue of whether a plan has been substantially consummated does not "merely entail a

formalistic inquiry(.)" The key issue is the impact that an appeal could have on the plan and,
ultimately, the debtor's reorganization efforts. See Zenith, 329 F.3d 344-45.

Here, the possibility of overturning the MI at this late stage (over one year after
the last payments were made to employees) could have a disastrous effect on employee morale

and on the Debtors' business. The Debtors have fully implemented the MIP. The Dèbtors'

employees relied on the MIP and worked hard throughout calendar year 2006 towards achieving

the performance targets thereunder. Certain of these targets were met. Consistent with the MIP
and the Bankrptcy Court's Order, the Debtors funded the MI. If the Debtors' key

management employees were hypothetically required to return the money that they eared under

the MI, the Debtors could face a mass exodus of management personnel, which in turn, could

"knock the props out from under" any reasonable effort to successfully reorganize this estate.
See Zenith, 329 F.3d at 344-45 (quotations omitted).

7
59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 11 of 12

In this context, it also bears mention that substantially all of the Debtors'

operating assets are currently up for sale (a sale hearng is presently scheduled for August 23,
2007). The Debtors envision a going concern sale that wil require the buyer to hire the vast

majority of the Debtors' employees, including most of the individuals who were covered by the

MIP. Any rational buyer wil insist that its newly-retained employees cannot be the subject of
any potential litigation claims that may be asserted by the Debtors. Hence, the mere fact that this

appeal is pending and the effect that it could have on transitioning employees may raise serious
issues in the mind of a buyer that could result in bid chiling.

In sum, regardless of whether a plan has been confirmed in this case, the reason
that this appeal should be dismissed is that the Debtors' reorganization could be put at risk if the

Debtors' payments to employees were to be overturned. Simply too much time has passed since

the payments were made. The Debtors are now at a critical juncture where this appeal presents
an unnecessary distraction and risk to the Debtors' reorganization efforts. At the same time, it is
solely the result of the Appellants' lack of dilgence that has brought them to this point. They

did not obtain, or even bother to seek, a stay pending appeaL. They also have taken no
substantive action to prosecute this appeaL. Accordingly, even though the Debtors' bankrptcy

cases are at a late stage and the Debtors' business is on the verge of a sale, this appeal has
progressed little past the point of filing a notice of appeaL.

The Debtors have outlined in their opening brief the remaining factors that
support dismissal of this appeal on equitable grounds. The Debtors urge this Court to consider
the practicalities that the doctrine of equitable mootness was designed to address. The fact that
no plan has been consummated in this case does not change the fact that the Order at issue in this

appeal has been fully implemented and has expired by its own terms. Most importantly, the

8
59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18

Filed 08/15/2007

Page 12 of 12

continuance of this appeal threatens the Debtors' business and reorganization efforts. Under
these unique circumstances, this appeal should be dismissed on equitable grounds.

CONCLUSION
This appeal is moot on the basis of the doctrines of constitutional and equitable

mootness. For the reasons set forth above and in the Debtors' opening brief, the Debtors

respectfully request that this Court dismiss this appeal on mootness grounds.

Dated: August 15,2007

PACHUKI STANG ZIEHL YOUNG JONES &
WEINTRAUB LLP

J)ULJones (Bar No.e¥clef '(- \¡ 2436) Laura Davis
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

9
59903-002\DOCS_SF:554 i o. i

Case 1:06-cv-00521-GMS

Document 18-2

Filed 08/15/2007

Page 1 of 7

EXHIBIT A

Case 1:06-cv-00521-GMS

Document 18-2

Filed 08/15/2007

Page 2 of 7

- 9-nt sa! pi
EOO JAN 26 2U

IN THE UNITED STATES BANKRUPTCY COURT az
FOR TIlE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
In re:
) )
)

Casc No. 02-B02474
(Jointly Administered)
Chapter t t Chief Judge Susan Pierson Sonderby .

KMART CORPORATION, £.il.,

) )

Debtors.

)

ORDER UNDER 1 t U.S.c. § l05(a) AUTHORIZING THR PAYMENT OF PREPETlllON CLAIMS OF CERTAIN ClUTleAL TRADE VENDORS
Upon the motion dated January 22, 2002 (the 1tMotion1t), wherein
Kmar Corpor.iti(ltl ("Kmait") and ceitain of

its domestic subsidiai'ies and affiliates,

debtors and debtors-in-possession in the above-captioned eases (collectively, the
"Debtors" or the "Company"), moved this Court for entry of an order, pursuant to
section i 05( a) authorizing the Debtors to pay Critical Vendor Claims; it appearing to

the Court that (1) it has jurisdiction over the matters raised in the Motion pursuant to

28 U.S.c. §§ i 57 and 1334; (iì) this is a core proceeding pursuant to 28 U.S.c. §
157(b)(2); (iii) the relief

requested in the Motion is in the best interests (lfthe
the

Debtors, their estates and their creditors; (iv) proper and adequate notice of

Molion and thi; hearing thereon has been given and that no other or further notice ìs
necessary; and (v) upon the record herein, inchLding the exhbits attached to the

Notice of Filing of

Exhibits as Ordered by lhe Court at the Januar 22, 2002 Hearing,

iaG-

~

Case 1:06-cv-00521-GMS

Document 18-2

Filed 08/15/2007

Page 3 of 7

fied on 01' about January 25, 2002, afer due deliberation thereon, the relief should be
granted as set forth below,

1. The Debtors are authorized, but not directed, in the reasonable
exercise of their husiness judgment, to pay all, a portion or none of

the prepetition

claims (the "Critical Vendor Claims") of

the following "Critical Vendors": (a)

Fleming Companies, Inc.; (b) Randleman Company; (c) vendors who supply egg and
dairy and (d) cci1ain new~papl;rs, printers, paper suppliers and other vendors who

supply goods and services related to the Debtors' advertising program. The payment

ofthe Critical Vendor Claims shall not exceed those set forth in the Motion upon
such tem1S and in the manner provided in this Order and subject to the provisions or
the Debtors' postpetilion I1nancIiig agreement.
2. Aiiy checks used by the Debtors Lo pay Critical Vendor Claims shall

contain a legend substantially in the following fonn:

By accepting this check, the payee agrees to the tenns ofthat certain the United States Bankruptcy Court for the Northem Districl Order of
oflllinois, dated as of , in the payor's chapter 11 case (Case

No. __... ), entited "Order Under 1 1 U.S.C. § 105(a) Authoniing

the Paymcnt ofPrepetition Claims of Certain Critical Trade Vendors," (including, if applicab Ie, any Trade Agreement entered into pursuant to that Order) and submits to the jurisdiction ofthat Court
for enforcement thereof
3. The Debtors shall

undertake appropriate cftbrts to cause Critical

Vendors to ent~r into an agreement with the Debtors as provided herein as a condition

2

~-------

¡

Case 1:06-cv-00521-GMS

Document 18-2

Filed 08/15/2007

Page 4 of 7

ofpaynient of their Critical Vendor Claims, which agreement shall include the
((Jllowing terms:

( a) The amount of such Critical Vendor's estimated Cri tical V~ndor Claim:-, accounting for any setoffs, other credHs and discounts thereto, shall be as mutually detennined in good faith by the Critical Vendor and the Debtors (but stich amount shall be used only for thc purposes of determining such Critical Vendor's claim under this Order and shall not be deemed a claim allowed by the Court and the rights of all interested persons to object to such claim shall be ftilly preserved until
further order of

this Court);
(b) The Customary Trade Terms between such Critical

Vendor and the Debtors, or such other leni1s as the Critical Vendors and the Debtors may agree;
(e) The Critical Vendors agreement to provide goods and

services to the Deblors based upon Customary Trade Terms or on such other favor~

able terms as the Debtors and lhe Critical Vendor may otherwise agree, for a period at least two (2) years from the Petition Date, and the Debtors' agreement to pay in accordance with such tcrms;
(d) The Critical Vendor's agreement not to fie or otheiwise

the Debtors, their estates or any other person or entity or any ofthcir respective assets or property (real or personal) any lien (a "Lien")) the statute or other legal authority upon which such Lien 1S asserted, regardless of related in any way to any remaining prepetition amounts allegedly owed to the Criiical Vendor by the Debtors arsing from agreements or other arrangemenls enlered into prior to the Petition Date, and, to the extent the Critical Vendor has already obtained or otherwise asseiied such a Lien, the Criilcal Vendor shall take whatever
assert against. aiiy or all of

actions arc necessar to remove such Lien;
(e) The Critical Vendorls acknowledgment that is has
revie\ved the temis and provisions of

this Order and consents to be bound hereby; and

(1) The Critical Vendor's agreement that it wil not

separately seek payment for reclamation claims outside the leniis of this Order unless the Crilical Vendor's paricipation in the program to pay Critical Vendor Claims pursuant to this Order is terminated; provided, however, thai such reclamation claims
3

~

Case 1:06-cv-00521-GMS

Document 18-2

Filed 08/15/2007

Page 5 of 7

shall, ifihereartcr raised by the Critical Vendor as permitted by this Order, be treated this Order. as though raised on tiie date of
An agreement i;xectled by and between the Debtors and a Critical Vendor as set forth
in tItis paragniph shall be refelTed to as a "Trade Agreement." This order is intended

to authorize, but shall not require, the Debtors to enter into Trade Agreements, it

being the express intention olthis Court that the Debtors shall enter into Trade
Agreements only when the Debtors determine, in the exercise ofthcir reasonable
business judgment, that it is appropriate to do so.
4. The Debtors are authoi1zed, in their dÎscretion to make payments on

account of Critical Vendor Claims in the absence of a Trade Agreement after the

Debtors have undertaken dilgent efforts to cause the Critical Vendor holding sueh
Critical Vendor Claim to execute a Trade Agreement and if

the Debtors determine, in

their business judgment, that Jàilure to pay the Cntical Vendor Claim is likely to
result in irreparable harni to the Debtors' bii.siness operations.
5. If a Critical Vendor reruses to supply goods and/or services to the

Debtors on Customary Trade Tenns following receipt of

payment on its Critical

Vendùr Claim, or fails to comply with any Tradc Agreement entered into between
such Ci1tical Vendor and the Debtors, then the Debtors may, in their discrction and
without furter order of

the Court, (a) declare that any Trade Agreement between the

Deblors and such Critical Vendor is LenninaLed (il' applicablc), and (b) declare that

4

Case 1:06-cv-00521-GMS

Document 18-2

Filed 08/15/2007

Page 6 of 7

provisional payments made to Critical Vendors on account of Critical Vendor Claims
be deemed to have been in payment of

then-outstading post-petition claims orsuch

vendors without fuither order urihe Court or action by any person or enlity, and, to
the extent that payments on account of such Critical Vendor Claims exceeù the postpetition claims or such vendors then outstanding without giving erfect to any
rights of setoff, claiins, provision for payment of

reclamation or trust fund claims, or

otherwise. Tn the event a Trade Agreement is terinated or a Critical Vendor refuses

lo supply goods and/or services to the Deblors on Customar Trade Terms following
receipt ofpaynient on its Critical Vendor Claim, it is ihe explicit intention of

this

Court to retum the parties to their position immediately prior to the entry of

the order

approving this MolIoTl with respect to all prepetition claims.
6. The Debtors may, in their sole discretion, reinstate a Trade Agreement

if:
(a) Such determination is subsequently reversed by the

Court, alter notice and a hearing following a motion by the Critical Vendor, for good cause shown that the deteimination was materially incolïeet;
(b) The underlying default under the Trade Agreement was

fully cured by the Critical Vendor not later than five (5) business days following the
Debtors' !loti fie,alÎot\ to the Critical Vendor that a default had occurred; or
(c) The Debtors, in their discretion, reach a ravorable

alternative agreenieiit w~th the Critical Vendor.

5

Case 1:06-cv-00521-GMS

Document 18-2

Filed 08/15/2007

Page 7 of 7

7. Nothing herein shall be constred to limit, or in any way affecl, the
Debtors' abilty to dispute any Critical Vendor Claim.
8. Nothing contained in this order shall be deemed to constitute an

assumptiol1 or rejection of any executory conlract or agreement bctwecn the Debtors
and a Critical Vendor or to require the Debtors to make any of

the payments autho-

iized herein.

9. Notwithstanding the relief granted herein and any actions taken

hcr(:umler, nothing contained herein shall create, nor is it intended to create, any

rights in favor of, or enhance the status of aiiy claim held by, any person.
10. This Court shall Telain jurisdiction to constre and enforce ths Order.

Dat.ed: Chicago, Ilinois

Januar i 0002

30)289-(:hi~¡lgo ~?A

6

Case 1:06-cv-00521-GMS

Document 18-3

Filed 08/15/2007

Page 1 of 3

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELA WAR
In re:

NELLSON NURACEUTICAL, INC., et al.,
Debtors. UNITED STATES TRUSTEE AND THE OFFICIAL COMMITTEE OF UNSECURD CREDITORS,

Appellants,
v.

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

NELLSON NURACEUTICAL, INC., et al.,
Appellees.

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

AFFIDA VIT OF SERVICE
I, Rachel Lowy Werkheiser, hereby certify that on this 15th day of August, 2007,

I caused a true and correct copy of the below-referenced document(s) to be served on the
individuals on the attached service list(s) in the manner indicated thereon:

REPLY IN SUPPORT OF APPELLEES' MOTION TO DISMISS APPEAL ON MOOTNESS GROUNS

~cW '¡ V\evÚ1~ achel Lowy Werkheiser (Bar No. 3753)

59903-001 \DOCS_DE: 130014. 1

Case 1:06-cv-00521-GMS

Document 18-3

Filed 08/15/2007

Page 2 of 3

Neilson 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) Laura Davis Jones, Esquire Rachel Lowy Werkheiser, Esquire Pachulski Stang Ziehl Young Jones & Weintraub LLP
919 North Market Street, 17th Floor

Hand Delivery (Counsel to Fremont Investors VII, LLC) Mark D. Collns, Esquire Richards Layton & Finger One Rodney Square 920 North King Street Wilmington, DE 19801 Hand Delivery (Counsel to Informal Commttee of First Lien Lenders) Robert S. Brady, Esquire Young Conaway Stargatt & Taylor LLP The Brandywine Building 1 000 West Street, 17th Floor Wilmington, DE 19801 Hand Delivery (Counsel to UBS) Richard W. Riley, Esquire Duane Morrs LLP 1100 North Market Street, Suite 1200 Wilmington, DE 19801 Hand Delivery (Counsel to the Official Commttee of Unsecured Creditors) Kurt F. Gwynne, Esquire Reed Smith LLP 1201 Market Street, Suite 1500 Wilmington, DE 19801

P.O. Box 8705 Wilmington, DE 19899-8705

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 94111

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)

First Class Mail

Wiliam Harngton, 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 17th 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 Marel Bradley & Anderson, P.A. 1201 N. Market Street, Suite 900 Wilmington, DE 19801

Los Angeles, CA 90017

Case 1:06-cv-00521-GMS

Document 18-3

Filed 08/15/2007

Page 3 of 3

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 Commttee of First Lien Lenders)
Fred Hodara, Esquire

Akin Gump Strauss Hauer & Feld LLP
590 Madison A venue

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, PA 19103