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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re:
VYAIRE MEDICAL, INC., et al.,
Debtors.1
Chapter 11
Case No. 24-11217 (BLS)
(Jointly Administered)
Hearing Date: To Be Determined
Objection Deadline: January 27, 2025 at 4:00 p.m.
MOTION OF CLAYTON CONTROLS REQUESTING ALLOWANCE AND PAYMENT
OF ADMINISTRATIVE EXPENSE CLAIM PURSUANT TO 11 U.S.C. § 503(B)(1)(A)
Clayton Controls2, a creditor in the above-captioned, jointly administered bankruptcy
cases, by and through its undersigned counsel, hereby requests allowance and payment of an
administrative expense pursuant to 11 U.S.C. §§ 503(b)(1)(A) (the “Motion”), and in support
thereof, respectfully states as follows:
JURISDICTION & VENUE
1.
The Court has jurisdiction over the subject matter of the Motion pursuant to 28
U.S.C. §§ 157(b) and 1334(b) and the standing order of reference of the District Court. This is a
core proceeding arising under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§
101 et seq. (the “Bankruptcy Code”), that the Court has authority to hear and determine within
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 Pursuant to Del. Bankr. L.R. 9013-1(f), Clayton Controls does consent to the entry of final orders or judgments by
the Court with respect to the Motion if it is determined that the Court, absent consent of the parties, cannot enter
final orders or judgments consistent with Article III of the United States Constitution.
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the meaning of 28 U.S.C. § 157(b)(2)(8). The statutory predicate for the relief sought herein is 11
U.S.C. §§ 503(b)(1)(A) and 507(a)(2).
FACTUAL BACKGROUND
A.
Pre-Petition Business Between Clayton Controls and the Debtor.
2.
Clayton Controls is an industrial distributor in operation since 1967, servicing
multiple industries. Clayton Controls has been serving Vyaire Medical, Inc. (“Debtor”) for over
30 years, dating back to their previous names of Bird Products and Sensormedics. Clayton
Controls has provided engineering services, contract manufacturing and components for Debtor’s
various medical products it manufactured both prior to and after Debtor filed bankruptcy. See
Declaration of Chris Brown, attached hereto as Exhibit “A” (the “Brown Dec.”) at ¶2.
B.
Debtor’s Bankruptcy Filing, Treatment of Clayton Controls as a “Critical
Vendor”, Post-petition Request for Product from Clayton Controls and
Partial Payment for Such Product
3.
On the June 9, 2024 (the “Petition Date”), each of the Debtors filed a voluntary
petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware (the “Court”) and, thereby, commenced their individual chapter 11
cases (collectively, the “Bankruptcy Cases”).
4.
As of the Petition Date, Debtor owed Clayton Controls $342,690.83. Through
counsel, Clayton Controls learned that it would be treated as a “critical vendor” pursuant to the
Interim Order (I) Authorizing Debtors to Pay Pre-Petition Claims of Certain Critical Vendors,
Foreign Vendors, 503(B)(9) Claimants, and Lien Claimants, (II) Confirming Administrative
Expense Priority to All Undisputed Obligations on Account of Outstanding Orders, and (III)
Granting Related Relief (D.I. 89). As a result, Clayton Controls was paid $342,690.83 in July
2024, which represented the full payment of all amounts owed as of the Petition Date. See Brown
Dec., ⁋ 3.
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5.
On a post-petition basis, Debtor continued to order and confirm orders for goods
from Clayton Controls for which Clayton Controls was paid $382,307.68 between August through
November 2024 for shipments made between July 16, 2024 through November 26, 2024.
6.
One of the products that Debtor ordered from Clayton Controls and paid for post-
petition is a custom “blender” assembly (the “Product”) for one of Debtor’s products called “PTV”
(a name designated by the Debtor for a ventilator), which was ordered pre-petition. See Debtor
Purchase Order dated November 16, 2021, Order #P34417-03, a true and correct copy of which is
attached as Exhibit “1” to the Brown Dec.
7.
Based on the multiple conversations between Clayton Controls’ President/CEO and
controller and Sachin Murthy of the Debtor, Debtor confirmed post-petition on numerous
occasions that it continued to need the Product from Clayton Controls as Debtor considered it a
“critical” part for Debtor’s PTV such that Clayton Controls took the necessary steps to ensure the
post-petition availability of these parts. Attached as Exhibits “2”, “3”, and “4” to the Brown Dec.
are true and correct copies of emails/email strings from Patrick Surface and Sachin Murthy dated
June 14, 2024, Sachin Murthy dated August 29, 2024, and Michael Hiller (with Sachin Murthy
copied) dated September 5, 2024, respectively. See Brown Dec. ⁋ 4.
8.
Although Debtor took post-petition delivery and paid post-petition (albeit late on
post-petition payments due) for some of the Product that Debtor told Clayton Controls it needed,
Debtor failed to pay Clayton Control for all the Product that Debtor represented post-petition to
Clayton Controls that it needed. Attached to the Brown Dec. as Exhibit “5” is a true and correct
copy of the outstanding invoice for $256,568.40 (the “Invoice”) due to Clayton Controls from
Debtor for some of the Product represented to Clayton Controls post-petition as critical to and
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needed by the Debtor and confirmed post-petition by Debtor to Clayton Controls to deliver. See
Brown Dec. ⁋ 4.
RELIEF REQUESTED AND REASONS THEREFOR
9.
Clayton Controls respectfully requests that the Court enter an order
compelling the payment of the Invoice owed under the open book account between Clayton
Controls and the Debtor by a date certain for some of the Product requested post-petition by
the Debtor, but only partially paid for.
10.
Under § 503(b)(1)(A) of the Bankruptcy Code, “[a]n expense is administrative
only if (1) it arises out of a transaction between the creditor and the bankrupt’s trustee or debtor
in possession, and (2) only to the extent that the consideration supporting the claimant’s right to
payment was both supplied to and beneficial to the debtor-in-possession in the operation of the
business.” In re Bethlehem Steel Corp., 479 F.3d 167, 172 (2d Cir. 2007); see also In re Garden
Ridge Corp., 321 B.R. 669, 676 (Bankr. D. Del. 2005) (citing In re Waste Systems Int’l, Inc., 280
B.R. 824, 826 (Bankr. D. Del. 2002)). As to the second requirement, courts have held that an
administrative expense payment should be afforded to those who either assist in the preservation
and administration of the estate, or who aid the debtor's rehabilitation to the benefit of all
creditors. See In re Armorflite Precision, Inc., 43 B.R. 14 (Bankr. D. Me. 1984).
11.
In the Third Circuit, section 503(b)(1)(A) “has been broadly interpreted to include
‘actual, necessary costs and expenses’ that benefit the debtor's estate both directly and
indirectly.” Elsom v. Woodward & Lothrop, Inc., 1997 WL 476091, *3 (E.D. Pa. 1997) (citing,
In re B. Cohen and Sons Caterers, Inc., 143 B.R. 27, 28 (E.D. Pa. 1992)). The policy behind
section 503(b) is to facilitate the rehabilitation of insolvent debtors by encouraging third parties
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to provide those debtors with necessary goods and services. See, In re B. Cohen and Sons
Caterers, Inc., 143 B.R. at 28 (citations omitted).
12.
Administrative expenses can arise not only where the debtors have received a
direct benefit, but where the acts of the debtors have, through post-petition conduct, harmed third
parties and shifted costs that should be borne by the debtors onto such third parties. See Reading
Co. v. Brown, 391 U.S. 471, 88 S. Ct. 1759, 20 L. Ed. 2d 751 (1968). Such claims may be
entitled to administrative priority where a third party relies on the debtors’ negligent
misrepresentations, even in the absence of benefit to the estate. E.g., In re Women First
Healthcare, Inc., 2005 WL 2737436 (Bankr. D. Del. Oct. 21, 2005) (Walrath, J) (stalking horse
bidder entitled to administrative expense claim for damages sustained based on its reasonable
reliance on debtors’ negligent misrepresentation that debtors had properly noticed a sale motion).
13.
Here, due to Debtors’ post-petition conduct, Clayton Controls was asked by
Debtor post-petition (and confirmed such request on numerous occasions post-petition) to
continue to supply the Product (that was “critical” to the production of Debtor’s PTV product),
but then refused to pay all of the Product that Debtor requested. Brown Dec. at ⁋⁋’s 3-5. It is
incontrovertible that the Debtor’s post-petition conduct of representing the intent to pay for all of
the Product that Debtor confirmed it needed post-petition was reasonably relied upon by Clayton
Controls post-petition to the detriment of Clayton Controls with the unpaid Invoice.
Accordingly, the Debtor should be required to pay Clayton Controls the amount of the Invoice.
RESERVATION OF RIGHTS
14.
Clayton Controls expressly reserves the right to amend or supplement this
Motion with affidavits and other supporting documents and, if necessary, an evidentiary
hearing, if a decision from the Court regarding the amount of Clayton Controls’ administrative
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expense claim becomes necessary. Moreover, nothing contained herein shall constitute a
waiver of the Clayton Controls’ right to file another Motion, as necessary.
NOTICE
15.
Notice of this Motion has been provided to (i) the Debtors; (i) counsel to the
Debtors; (ii) (former) counsel to the Official Committee of Unsecured Creditors; (iii) counsel to
the Debtors’ DIP Lenders; (iv) counsel to the Office of the United States Trustee; and (v) all
parties who have noted their appearances electronically pursuant to Rule 2002 of the Federal
Rules of Bankruptcy Procedure. Clayton Controls submits that no further or other notice is
required.
CONCLUSION
16.
Clayton Controls hereby asserts a claim for payment under 11 U.S.C. §
503(b)(1)(A). Accordingly, Clayton Controls respectfully requests allowance and payment of
its administrative expense claim, including, without limitation, the Invoice ($256,568.40).
17.
This request is filed without prejudice to any other claims Clayton Controls may
have asserted, or may hereafter assert, against any of the Debtors in these consolidated cases.
WHEREFORE, Clayton Controls requests that the Court enter an Order: (i) allowing
Clayton Controls an administrative expense including, without limitation, for the Invoice
($256,568.40), and any other post-petition claims that may have or may hereafter arise or become
known; (ii) requiring immediate payment of Clayton Controls’ allowed administrative expense;
and (iii) granting such other and further relief in favor of Clayton Controls as the Court deems just
and proper.
Dated: December 27, 2024
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Wilmington, Delaware
Respectfully submitted,
By: /s/ Christopher D. Loizides
Christopher D. Loizides, Esq. (No. 3968)
LOIZIDES, P.A.
Legal Arts Building
1225 King Street, Suite 800
Wilmington, Delaware 19801
Telephone:
(302) 654-0248
Facsimile:
(302) 654-0728
Email:
loizides@loizides.com
and
Marc C. Forsythe (pro hac vice forthcoming)
California State Bar No. 153854
GOE FORSYTHE & HODGES, LLP
17701 Cowan Avenue, Building D, Suite 210
Irvine, CA 92614
P: 949-798-2460
F: 949-955-9437
Email:mforsythe@goeforlaw.com
Counsel to Movant Clayton Controls
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