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Case KBO Doc 1550 Filed 03/17/21 Page 1 of 5 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In Re: Chapter 11

CELADON GROUP, INC., et al.,1 Case No. 19-12606 (KBO)

Debtors. (Jointly Administered)

_____________________________________/

BLUE RIBBON TRANSPORTATION'S LIMITED OBJECTION TO DEBTORS’ MOTION TO APPROVE SETTLEMENT AGREEMENT BY

AND AMONG THE DEBTORS, SECURED CREDITORS AND THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS

Blue Ribbon Transportation (“BRT”), by and through its undersigned counsel, submits this Limited Objection (the “Objection) to the Motion of the Debtors to Approve the Settlement Agreement by and Among the Debtors, Secured Creditors and the Official Committee of Unsecured Creditors [D.I. 1526] (the “Motion”) on the following grounds:

Background

1. On December 8, 2019 (the “Petition Date”), each Debtor filed with this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Shortly after the Petition Date, the Debtors suspended all operations with the exception of Debtors’ Taylor Express division and Mexican business.

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax

identification number, are: Celadon Group, Inc. (1050); A R Management Services, Inc. (3604); Bee Line, Inc. (5403); Celadon Canadian Holdings, Limited (2539); Celadon E-Commerce, Inc. (2711); Celadon International Corporation (5246); Celadon Logistics Services, Inc. (0834); Celadon Mexicana, S.A. de C.V. (6NL7); Celadon Realty, LLC (2559); Celadon Trucking Services, Inc. (6138); Distribution, Inc. (0488); Eagle Logistics Services Inc. (7667); Hyndman Transport Limited (3249); Jaguar Logistics, S.A. de C.V. (66D1); Leasing Servicios, S.A. de C.V. (9MUA); Osborn Transportation, Inc. (7467); Quality Companies LLC (4073); Quality Equipment Leasing, LLC (2403); Quality Insurance LLC (7248); Servicios Corporativos Jaguar, S.C. (78CA); Servicios de Transportación Jaguar, S.A. de C.V. (5R68); Stinger Logistics, Inc. (3860); Strategic Leasing, Inc. (7534); Taylor Express, Inc. (9779); and Vorbas, LLC (8936). The corporate headquarters and the mailing address for the Debtors listed above is 9503 East 33rd Street, One Celadon Drive, Indianapolis, IN 46235.

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2

2. Prior to the Petition Date, BRT brokered freight through Debtors under a Broker/Carrier Agreement between BRT and Celadon Trucking Services, Inc., dated January 1, 2019 (the “Broker Carrier Agreement”).

3. Debtors breached the Broker Carrier Agreement when Debtors suspended operations.

4. As a consequence of Debtors’ breach, BRT filed a proof of claim in the amount of $1,330,289.84. A copy of BRT’s proof of claim is attached as Exhibit A.2

The Motion

5. On March 3, 2021, Debtors filed the Motion. Among other relief, the Motion seeks approval of a settlement agreement that contemplates the “sale” to Debtors’ prepetition lenders of all Remaining Collateral, defined to include accounts receivable owed Debtors, free and clear of liens and claims. In exchange, the prepetition lenders forgive and release Debtors’ prepetition loans.

6. The Motion asks the Court to enter the proposed order annexed as Exhibit A to the Motion (the “Order”). Section 4 of the Order provides that the “sale” of the Remaining Collateral will be free and clear of any liens, claims, encumbrances and “other interests”, including any “lien (including mechanics’, materialman’s and other consensual and non-consensual liens and statutory liens), contract, right of recoupment or setoff, right of recovery, claim for reimbursement, contribution [or] indemnity...”.

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Basis for Limited Objection 7. BRT does not generally object to the Motion.

8. Instead, BRT seeks to clarify that the “free and clear” sale cannot extinguish or impair any right of recoupment or setoff BRT may have, or may assert by way of affirmative defense, against collection of accounts receivable simply because Debtors transfers the receivable to Debtors’ prepetition lenders.

9. BRT has the right to recoup breach of contract damages under the Broker Carrier Agreement against accounts receivable Debtors claims BRT owes under the Broker Carrier Agreement.3 Because recoupment is an affirmative defense, it is not an “interest” that can be extinguished, even in a free and clear bankruptcy sale. Folger Adam Security, Inc. v. DeMatteis/MacGregor JV, 209 F.3d 252 (3rd. Cir. 2000); In re Trans World Airlines, Inc., 275 B.R. 712 (Bankr. Del. 2002).

10. BRT's right to setoff claims or damages against Debtors, including claims in addition to BRT’s breach of contract damages under the Broker Carrier Agreement, cannot be eliminated here either.

11. 11 U.S.C. § 553 of the Bankruptcy Code recognizes and preserves prepetition setoff rights which are treated as secured claims.4 11 U.S.C. § 506(a)(“[a]n allowed claim of a creditor

3 This comes as no surprise to Debtors. BRT has stated clearly to Debtors’ collection agent Receivables

Control Corporation that BRT will recoup and offset BRT’s breach damages against any unpaid accounts receivable BRT may be found to owe.

4 Section 553 provides in relevant part:

Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement date . . . against a claim of such creditor against the debtor that arose before the commencement date of the case . . .

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. . . that is subject to setoff under section 553 of this title, is a secured claim . . to the extent of the amount subject to setoff”).

12. As a result, Debtor can sell accounts receivable free and clear of BRT’s setoff rights only if Debtor satisfies at least one of the requirements set forth in 11 U.S.C. § 363(f):

(1) applicable non-bankruptcy law permits sale of such property free and clear of such interest;

(2) such 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;

(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.

13. Since BRT does not consent to the sale of any account receivable BRT is alleged to owe free of BRT’s setoff rights, and Debtors concede that the sale proceeds will not pay all secured claims in full, Debtor cannot satisfied any of the conditions set forth in 11 U.S.C. § 363(f). 14. Finally, even if Debtors meet the requirements of 11 U.S.C. § 363(f), Debtors must provide “adequate protection” of BRT’s setoff rights at BRB’s request. 11 U.S.C. §§ 361 and 363(e). BRB requests that the Court require the Debtors to provide BRB adequate protection of it setoff rights. The only adequate protection that Debtors can offer under the circumstances here is the preservation of BRT’s setoff claims.

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5 Conclusion

Wherefore, BRT respectfully requests that the Order be modified to expressly preserve all rights to recoupment or setoff that BRT may have, or may assert by way of affirmative defense, to collection of accounts receivable transferred to the prepetition lenders.

Dated: March 17, 2021 SULLIVAN ꞏ HAZELTINEꞏ ALLINSON LLC

/s/ William A. Hazeltine

William Hazeltine (DE Bar ID No. 3294

919 North Market Street, Suite 1300 Wilmington, Delaware 19801 (302) 428-8191 whazeltine@sha-llc.com -and- Dated: March 17, 2021 Stephen B. Grow (P39622)

WARNER NORCROSS & JUDD LLP

150 Ottawa N.W., Suite 1500 Grand Rapids, Michigan 49503 (616) 752-2000

sgrow@wnj.com

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CERTIFICATE OF SERVICE

I, William A. Hazeltine, hereby certify that on the 17th day of March, 2021, a copy of the Blue Ribbon Transportation's Limited Objection to Debtors’ Motion to Approve Settlement Agreement by and Among the Debtors, Secured Creditors and the Official Committee of Unsecured Creditors was electronically filed and served via CM/ECF on all parties requesting electronic notification in this case in accordance with Del. Bankr. L.R. 9036-1(b) and vie Electronic Mail on the following:

Stuart M. Brown, Esq. Matthew S. Sarna, Esq. DLA PIPER LLP (US)

1201 North Market Street, Suite 2100 Wilmington, DE 19801

stuart.brown@us.dlapiper.com matthew.sarna@us.dlapiper.com

Richard A. Chesley, Esq. Jamila Justine Willis, Esq. DLA PIPER LLP (US)

1251 Avenue of the Americas New York, NY 10020

richard.chesley@us.dlapiper.com jamila.willis@us.dlapiper.com

March 17, 2021 /s/ William D. Sullivan

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