Motion Of Zensar Technologies Inc. For Entry
- Date
- 2024-11-14
Summary
A motion by Zensar Technologies Inc. filed October 31, 2024 as Doc 699 in In re Vyaire Medical, Inc., Case No. 24-11217 (BLS), a Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware, set for hearing on November 14, 2024. Citing sections 105(a), 365(d)(2), 503(b)(1)(A) and 507(a)(2) of the Bankruptcy Code, Zensar asks the court to compel the debtor to assume or reject its IT outsourcing contracts and to allow administrative expenses of $359,244 for postpetition services. The motion recounts an agreed cure amount of $1,901,889.69 and states that the contracts appear on neither the Zoll assumed contracts list nor the Plan Supplement schedules. It argues that the Plan lets the debtors defer the decision for 90 days after effectiveness and asks that payment be compelled. It is signed by Blank Rome LLP as counsel to Zensar.
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Case 24-11217-BLS Doc 699 Filed 10/31/24 Page 1 of 12
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
VYAIRE MEDICAL, Inc.,1 Case No. 24-11217 (BLS)
Debtor. Hearing Date: November 14, 2024 at 10:00 a.m. (ET)
Objection Deadline: November 7, 2024 at 4:00 p.m. (ET)
MOTION OF ZENSAR TECHNOLOGIES INC. FOR ENTRY
OF AN ORDER (I) COMPELLING ASSUMPTION OR
REJECTION OF EXECUTORY CONTRACTS AND (II) ALLOWING
ADMINISTRATIVE EXPENSES AND COMPELLING PAYMENT THEREOF
Zensar Technologies Inc. (“Zensar”) files this motion (“Motion”) for entry of an order
pursuant to sections 105(a), 365(d)(2), 503(b)(1)(A), and 507(a)(2) of title 11 of the United States
Code (11 U.S.C. §§ 101 et seq., “Bankruptcy Code”) (i) compelling Debtor Vyaire Medical, Inc.
(“Vyaire”) to assume or reject its executory contracts with Zensar (“Zensar Executory Contracts”)
and (ii) allowing administrative expenses due and owing to Zensar (“Zensar Administrative
Expenses”) for postpetition services provided to the above-captioned debtors’ estates (collectively,
“Debtors”) pursuant to the Zensar Executory Contracts and compelling payment thereof. In
support of the Motion, Zensar respectfully states as follows:2
1
The last four digits of Debtor Vyaire Medical, Inc.’s federal tax identification number are 6495. A complete list of
each of the Debtors in these chapter 11 cases and each such Debtor’s federal tax identification number may be obtained
on the website of the Debtors’ claims and noticing agent at https://omniagentsolutions.com/Vyaire. The location of
Debtor Vyaire Medical, Inc.’s principal place of business and the Debtors’ service address in these chapter 11 cases
is 26125 North Riverwoods Boulevard, Mettawa, Illinois, USA 60045.
2
Capitalized terms used but not otherwise defined herein shall have the meaning ascribed such terms supra or in the
amended Joint Chapter 11 Plan of Vyaire Medical, Inc. and Its Debtor Affiliates [D.I. 581] (“Plan”), as applicable.
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JURISDICTION AND VENUE
1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334,
and the Amended Standing Order of Reference from the United States District Court for the District
of Delaware dated as of February 29, 2012.
2. This is a core proceeding under 28 U.S.C. §157(b).
3. Venue of these cases and this Motion is proper before this Court pursuant to 28
U.S.C. §§ 1408 and 1409.
4. Zensar consents, pursuant to Rule 9013-1(f) of the Local Rules of Bankruptcy
Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (“Local
Rules”), to the entry of a final order by this Court in connection with this Motion to the extent that
it is later determined that this Court, absent consent of the parties, cannot enter final orders or
judgments in connection herewith consistent with Article III of the United States Constitution.
5. The statutory bases for the relief requested herein are Bankruptcy Code sections
105(a), 365(d)(2), 503(b)(1)(A), 507(a)(2), Rules 6006, 9014 of the Federal Rules of Bankruptcy
Procedure (“Bankruptcy Rules”) and Local Rule 9013-1.
BACKGROUND
Parties’ Relationship Prepetition
6. Zensar and Vyaire entered into that certain IT Outsourcing Agreement dated as of
September 24, 2018 (“IT Agreement”) and certain statements of work (collectively, “SOWs,” and
together with the IT Agreement, “Zensar Agreements”)3 pursuant to which Zensar provides certain
information technology infrastructure support and cybersecurity operations to Vyaire. See
3
Upon information and belief, Debtors have copies of the Zensar Agreements and all related invoices, which
contain confidential and proprietary information. Copies of the Zensar Agreements and the invoices are
available upon reasonable written request and execution of any required confidentiality agreement.
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Declaration of Pratik Maroo in Support of Motion of Zensar Technologies Inc. for Entry of An
Order (I) Compelling Assumption or Rejection of Executory Contracts and (II) Allowing
Administrative Expenses and Compelling Payment Thereof (“Maroo Decl.”) filed
contemporaneously herewith at ¶ 2.
7. Prior to the Petition Date, Vyaire’s payment of Zensar’s invoices was more than six
(6) months in arrears, aggregating in excess of $1.77 million (See Maroo Decl., ¶ 3), thereby
making Zensar the Debtors’ second largest unsecured creditor.
Nature and Stage of Proceedings
8. On June 9, 2024 (“Petition Date”), Vyaire and certain of its subsidiaries filed
voluntary petitions for relief under chapter 11.
9. On June 26, 2024, the United States Trustee for the District of Delaware (“U.S.
Trustee”) appointed an official committee of unsecured creditors (“Creditors Committee”) that
consists of Sunmed Group Holdings, LLC (d/b/a AirLife), Zensar, Cognizant Worldwide Ltd.,
Presidio, Vizient, Inc., David M. Lewis Company, and Data Modul, Inc. See [D.I. 121]
10. In order to alleviate Zensar’s insecurity that Vyaire would fail to perform its
obligations under the Zensar Agreements, Vyaire’s management communicated to Zensar shortly
after the chapter 11 filing that Vyaire considered Zensar an important and critical vendor in the
chapter 11 cases. See Maroo Decl., ¶¶ 4-5.
11. On July 11, 2024, the Debtors filed the First Notice to Contract Parties of
Potentially Assumed and Assigned Executory Contracts and Unexpired Leases [D.I. 256] (“Initial
Potentially Assumed Contracts List”), which purported to list the Zensar Executory Contracts with
cure amounts.
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12. On or about July 26, 2024, Vyaire provided Zensar with a proposed critical vendor
agreement, to which Zensar provided required information and returned it to Vyaire for execution.
See Maroo Decl., ¶ 6.
13. Thereafter, the Debtors did not formally respond to Zensar with respect to execution
of the critical vendor agreement. See Maroo Decl., ¶ 7.
14. On the same day, Zensar timely filed proof of claim numbered 74 (“Zensar POC”).
See Zensar POC. Among other things, the Zensar POC asserts aggregate administrative expenses
in an amount of no less than $284,715.18 for postpetition services provided by Zensar to Vyaire
(i.e., the Zensar Administrative Expenses). Id.
15. On August 24, 2024, after receipt of Zensar’s informal response to the Initial
Potentially Assumed Contract List and further diligence by the Debtors, the Debtors filed the First
Supplemental Notice to Contract Parties of Potentially Assumed and Assigned Executory
Contracts and Unexpired Leases [D.I. 462] (“Potentially Assumed Contracts List”), which sets
forth the parties’ agreement as to which of the Zensar Agreements remain executory (i.e, the
Zensar Executory Contracts) and the respective cure amounts for each as of such date, as follows:
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16. More specifically, the parties agreed the total cure amount owing to Zensar by
Vyaire as of such date was $1,901,889.69, consisting of a prepetition claim in the amount of
$1,807,181.79 and administrative expenses then due and owing in the amount of $94,707.90. See
Maroo Decl., ¶ 10.
17. On September 11, 2024, the Debtors filed the Joint Chapter 11 Plan of Vyaire
Medical, Inc. and Its Debtor Affiliates [D.I. 518] (“Initial Plan”), which was amended by the Plan
filed on September 30, 2024.
18. The Plan provides the following treatment with respect to Executory Contracts and
Unexpired Leases, in relevant part:
…
Plan, Article V.A.
19. On October 4, 2024, the Debtors filed the Notice of Filing Assumed Contracts
Exhibit In Connection With Zoll Asset Purchase Agreement [D.I. 605] (as amended on October 9,
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2024 at D.I. 614, “Zoll Assumed Contracts List”) reflecting the Debtors’ executory contracts to be
assumed and assigned to Zoll Medical Corporation (“Zoll”) under the order [D.I. 496] (“Zoll Sale
Order”) approving the sale of the Debtors’ assets to Zoll. See Zoll Assumed Contract List.
20. The Zensar Executory Contracts do not appear on the Zoll Assumed Contracts List.
Id.
21. Vyaire’s management apprised Zensar of Vyaire management’s recommendation
to Zoll not to assume the Zensar Executory Contracts with respect to the business(es) purchased
by Zoll. See Maroo Decl., ¶ 11.
22. Also on October 4, 2024, the Court entered the order [D.I. 497] (“Trudell Sale
Order”) approving sale of the Debtors’ assets to Trudell Medical Limited (“Trudell”).
23. The Trudell Sale Order does not include a schedule of any Executory Contracts or
Unexpired Leases (never mind the Zensar Executory Contracts) to be assumed and assigned to
Trudell. See Trudell Sale Order, “Assumed Contracts Exhibit” appended as Exhibit 2.
24. Vyaire’s management apprised Zensar of Vyaire management’s recommendation
to Trudell not to assume the Zensar Executory Contracts with respect to the business purchased by
Trudell. See Maroo Decl., ¶ 11
25. On October 28, 2024, the Debtors filed a Plan Supplement [D.I. 689] attaching a
“Rejected Executory Contracts and Unexpired Leases Schedule” as Exhibit “A” and an “Assumed
Executory Contracts and Unexpired Leases Schedule” as Exhibit “B.”
26. The Zensar Executory Contracts do not appear in either of Plan Supplement
exhibits. See Plan Supplement.
27. In fact, the Plan Supplement merely restates the language of Article V.A. of the
Plan, which provides that “the Debtors, the Wind-Down Debtors, and the Plan Administrator, as
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applicable reserve the right to alter, amend, modify or supplement” schedules assuming and/or
rejecting Executory Contracts and Unexpired Leases through and including 90 days after the
Plan’s effectiveness. Id. The effect of this language is to extend the time for the Debtors’ estate to
assume or reject executory contracts beyond the Plan’s confirmation.
28. Zensar has provided and continues to provide postpetition services to Vyaire under
the Zensar Executory Contracts, which have yet to be rejected, assumed, or assumed and assigned.
RELIEF REQUESTED
29. By this Motion, Zensar requests entry of an order (a) compelling the assumption or
rejection of the Zensar Executory Contracts, (b) allowing the Zensar Administrative Expenses in
the amount of $359,244, (c) compelling payment to Zensar in connection with the Plan’s
effectiveness, and (d) granting related relief as the Court may deem just, proper, and necessary.
BASIS FOR RELIEF REQUESTED
I. ZENSAR IS ENTITLED TO ASSUMPTION OR REJECTION OF THE ZENSAR
EXECUTORY CONTRACTS PURSUANT TO BANKRUPTCY CODE SECTION
365(d)(2).
30. Pursuant to Bankruptcy Code section 365(d)(2), a trustee, and by extension a
chapter 11 debtor-in-possession, “may assume or reject an executory contract or unexpired lease
of residential real property or of personal property of the debtor at any time before the confirmation
of a plan but the court, on the request of any party to such contract or lease, may order the trustee
to determine within a specified period of time whether to assume or reject such contract or lease.”
31. Pursuant to Bankruptcy Code section 365(b)(1), if a debtor-in-possession is in
default under an executory contract, the debtor may not assume such contract unless the debtor
“cures or provides adequate assurances that the trustee will promptly cure, such default…;
compensates, or provides adequate assurance that the trustee will promptly compensate, a party
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other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting
from such default; and (C) provides adequate assurance of future performance under such contract
or lease.” 11 U.S.C. § 365(b)(1).
32. Adequate assurance of future performance “is to be given a practical, pragmatic
construction based upon ... the circumstances of [the] case.” In re Prime Motor Inns, Inc., 166 B.R.
993, 997 (Bankr. S.D.Fla. 1994) quoting In re Carlisle Homes, Inc., 103 B.R. 524, 538 (Bankr.
D.N.J. 1988).
33. To provide adequate assurances, a trustee must, in a practical sense, show that it
can promptly cure any default, pay for damages caused by the default and continue in the contract
without immediate subsequent default. In re Texas Health Enterprises, Inc., 246 B.R. 832, 835
(Bankr. E.D. Tex. 2000).
34. While courts generally apply the “business judgment” standard to a decision to
assume or reject, that business judgment must be reasonably exercised. Sharon Steel Corp. v.
National Fuel Gas Distribution, 872 F.2d 36, 39-40 (3d Cir. 1989).
35. The Zensar Executory Contracts are executory contracts because Zensar and the
Debtors each have ongoing duties, which are material such that the breach of those duties would
excuse performance by the other. See Vern Countryman, Executory Contracts in Bankruptcy: Part
I, 57 MINN.L.REV. 439, 442–44 (1973); In Re Exide Technologies, 607 F.3d 957, (3d. Cir. 2010)
(applying Countryman test).
36. On the Petition Date, the Debtors were in default of the Zensar Executory Contracts
due to their failure to make payments when due.
37. The Zensar Executory Contracts have not previously been rejected, assumed, or
assumed and assigned to Zoll or Trudell or another party. Importantly, however, the treatment
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under the Plan allows for the Debtors, Wind-Down Debtors, and/or the Plan Administrator to
continue to demand performance from Zensar even as postpetition administrative expenses remain
outstanding and unpaid but fails to provide a firm deadline by which the Zensar Executory
Contracts must be assumed or rejected -- including for an additional 90 days after Plan
confirmation. Such treatment is utterly unfair and prejudicial to Zensar.
38. Because the Debtors have not cured the postpetition defaults or provided adequate
assurances that it will do so, this Court should require the Debtor to assume or reject the Zensar
Executory Contracts in connection with Plan confirmation.
II. ZENSAR IS ENTITLED TO ALLOWANCE OF ADMINISTRATIVE EXPENSES
PURSUANT TO BANKRUPTCY CODE SECTIONS 503(b)(1)(A) AND 507(a)(2).
39. Bankruptcy Code section 507(a)(2) establishes a second priority for administrative
expenses allowed under Bankruptcy Code section 503(b). See 11 U.S.C. §507(a)(2). These
administrative expenses include the actual and necessary costs and expenses of preserving the
estate. See 11 U.S.C. §503(b)(1)(A).
40. To show that a claimant is entitled to an administrative expenses, “(1) there must
be a post-petition transaction between the creditor and the debtor; and (2) the estate must receive
a benefit from the transaction.” In re Waste Systems Intern., Inc., 280 B.R. 824, 826 (Bankr. D.
Del. 2002). A debtor’s acceptance of a non-debtor party’s post-petition performance under an
executory contract satisfies the transaction-with-the-estate requirement for administrative expense
priority. See In re ID Liquidation One, LLC, 503 B.R. 392, 399 (Bankr. D. Del. 2013) (noting
“administrative expense priority is available to contract parties when the debtor enjoys the benefits
of the contract pending assumption or rejection.”).
41. The purpose of section 503 is to permit the debtor’s business to operate for the
benefit of its prepetition creditors. See In re Transamerican Natural Gas Corp., 978 F.2d 1409,
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1415 (5th Cir. 1992). “The policy behind allowing administrative expense priority is to provide
an incentive for creditors and vendors to continue doing business with the debtor in possession.”
In re ATP Oil & Gas Corp., 2014 Bankr. LEXIS 1050 *6-7 (Bankr. S.D. Tex. Mar. 18, 2014).
Absent such an incentive, third parties would be far more inclined to refrain from dealing with a
debtor in bankruptcy, thereby harming other creditors. Id at *7.
42. The Third Circuit has stated, that “for a claim to be given priority as an
administrative expense under this provision of the Code, it must be (1) a cost or expense that is (2)
actual and necessary to (3) preserving the estate.” Pennsylvania Dep’t of Envt’l. Res v. TriState
Clinical Labs, Inc., 178 F.3d 685, 689 (3d Cir. 1999) (internal quotation marks omitted). In
construing the meaning of these words, the Third Circuit relied upon the Supreme Court’s decision
in Reading Co. v. Brown, 391 U.S. 471, 483 (1968), wherein the Supreme Court observed that
“necessary costs” are those “costs ordinarily incident to operation of a business” but are “not [ ]
limited to costs without which rehabilitation would be impossible.” Id. at 689.
43. The Zensar Administrative Expense was incurred as a result of Zensar’s
postpetition services provided to the Debtors’ estates. Those transactions conferred a benefit on
the Debtors’ estates because without those services, the Debtors’ business would not have been
able to operate during the pendency of these cases. Accordingly, the Zensar Administrative
Expenses are entitled to the resulting administrative priority under Bankruptcy Code section 507.
III. THIS COURT SHOULD COMPEL PAYMENT IN CONNECTION WITH
EFFECTIVENESS OF THE PLAN.
44. Bankruptcy Code section 105(a) provides that this Court may “issue any order,
process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy
Code].” 11 U.S.C. §105(a). The timing of the payment of an administrative claim is within the
discretion of this Court. In re Garden Ridge Corporation, 323 B.R. 136 (Bankr. D. Del. 2005). In
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determining the time of payment, courts consider prejudice to the debtor, hardship to the claimant,
and potential detriment to other creditors. HQ Global Holdings, Inc., 282 B.R. 169, 174 (Bankr.
D. Del. 2002). A review of each of these factors militate in favor of ordering payment to Zensar in
connection with effectiveness of the Debtors’ Plan.
45. First, there is no prejudice to the Debtors because the Plan contemplates payment
of allowed administrative claims upon the Plan’s effectiveness.
46. Second, the Debtors’ failure to pay will cause substantial hardship to Zensar since
the Debtors’ nonpayment of amounts due and owing have effectively forced Zensar to be a lender
to the Debtors (without the ability to have bargained for rights).
47. Third, there will be no detriment to other creditors because the Plan contemplates
payment in full for all allowed administrative expenses. Accordingly, to prevent further hardship
to Zensar – and to avoid Zensar becoming a de facto financier of the Debtors’ chapter 11 cases –
this Court should exercise its discretion to compel payment of the Zensar Administrative Expense
in connection with effectiveness of the Debtors’ Plan.
RESERVATION OF RIGHTS
48. Zensar reserves the right to amend, modify and/or supplement this Motion and to
assert any additional administrative expense claims prior to the hearing on this Motion.
NOTICE
Notice of this Motion will be provided to: (a) the U.S. Trustee; (b) counsel to the
Committee; (c) counsel to the Debtor; and (d) any other party that has requested notice pursuant
to Local Rule 2002-1(b). Zensar respectfully submits that no further notice of this Motion is
required under the circumstances.
CONCLUSION
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Case 24-11217-BLS Doc 699 Filed 10/31/24 Page 12 of 12
WHEREFORE, Zensar respectfully requests this Court enter an order compelling the
Debtor to assume or reject the Zensar Executory Contracts, allowing the postpetition amounts due
as an administrative expense, and directing the Debtors to pay such administrative expenses in
connection with the Plan’s effectiveness, and provide such other and further relief as the Court
deems just and equitable.
Dated: October 31, 2024 BLANK ROME LLP
Wilmington, Delaware
/s/ Stanley B. Tarr
Stanley B. Tarr (DE No. 5535)
Lawrence R. Thomas III (DE No. 6935)
Jordan L. Williams (DE No. 7128)
1201 N. Market Street, Suite 800
Wilmington, Delaware 19801
Telephone: (302) 425-6400
Facsimile: (302) 425-6464
Email: stanley.tarr@blankrome.com
lorenzo.thomas@blankrome.com
jordan.williams@blankrome.com
Counsel to Zensar Technologies Inc.
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