NEC 4 p1

7/30/2019 NEC 4 p1

1/11

UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF MASSACHUSETTS

EASTERN DIVISION____________________________________

)

In re: ))NEW ENGLAND COMPOUNDING ) CHAPTER 11PHARMACY, INC., ) CASE NO. 12-19882-HJB

)Debtor. )

____________________________________)

MOTION OF THE DEBTOR FOR INTERIM AND FINAL ORDERS

(I) PROHIBITING UTILITY COMPANIES FROM DISCONTINUING,

ALTERING OR REFUSING SERVICE, (II) DEEMING UTILITY COMPANIES

TO HAVE ADEQUATE ASSURANCE OF PAYMENT FOR POST-PETITIONSERVICES, AND (III) ESTABLISHING PROCEDURES FOR RESOLVING REQUESTS

FOR ADDITIONAL ASSURANCE

(REQUEST FOR EXPEDITED DETERMINATION)

New England Compounding Pharmacy, Inc., the above-captioned debtor and debtor-in-

possession (the Company), by and through its undersigned counsel, hereby submits this motion

(the Motion) seeking entry of interim and final orders (respectively, the Interim Order and

Final Order) (i) prohibiting providers of water, electricity, gas, heating oil, sewer, waste

management, cable-internet, security monitoring, telecommunications and other similar utility

services to the Company (collectively, the Utility Companies) from discontinuing, altering or

refusing service to the Company; (ii) determining that the Utility Companies have been provided

with adequate assurance of payment for post-petition services on the basis of the establishment

of a Utility Deposit Account (as defined below); and (iii) approving the Companys proposed

procedures for Utility Companies to request additional assurance of payment.

In support of this Motion, the Company respectfully states as follows:

Background

1. On December 21, 2012, the Company filed a voluntary petition for relief under

Case 12-19882 Doc 4 Filed 12/21/12 Entered 12/21/12 18:15:47 Desc MainDocument Page 1 of 11

7/30/2019 NEC 4 p1

2/11

4262091-1 2

chapter 11 of the Bankruptcy Code (the Petition Date).

2. The Company continues to own and manage its assets as a debtor-in-possession

pursuant to 1107(a) and 1108 of the Bankruptcy Code.

3. The Company voluntarily ceased business operations in October, 2012.

Nonetheless, as described more particularly below, the Companys facility still requires utility

service.

4. The Company is a compounding pharmacy which combines ingredients to create

specific formulations of pharmaceutical products. Prior to the Petition Date, numerous

individuals across the country were stricken with fungal meningitis attributed to contaminated

products distributed by the Company. In early October, NECC initiated a nationwide recall of

potentially contaminated product and, in cooperation with regulatory authorities, ceased

operation. More than 100 lawsuits have been filed and hundreds more are expected in

connection with this tragic occurrence.

5. Through this Chapter 11 case, NECC seeks to forge a consensual, comprehensive

resolution of these claims in the form of a Chapter 11 plan establishing a compensation fund for

meningitis claimants based on agreements to be reached among them, the Company, its insurers

and other parties with potential liability for the meningitis cases. To spearhead this effort, the

directors and shareholders appointed Keith D. Lowey of Verdolino & Lowey, P.C. as

independent director and chief restructuring officer with plenary and exclusive authority over

matters related to personal injury claims and the Companys conduct of this Chapter 11 case.

The Companys goal is to provide a greater, quicker, fairer and less expensive payout to its

creditors than they could achieve through piecemeal litigation.

Jurisdiction and Venue

6. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. 1334.


7/30/2019 NEC 4 p1

3/11

4262091-1 3

This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue is proper before this Court

pursuant to 28 U.S.C. 1408 and 1409.

7. The bases for the relief requested herein are 105(a), 363(b), and 366 of title 11

of the United States Code (11 U.S.C. 101 et seq. as amended, the Bankruptcy Code), Rule

6003 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), and Rules 6012-1

and 9013-1(g) of the Local Bankruptcy Rules for the United States Bankruptcy Court for the

District of Massachusetts (the Local Rules).

Relief Requested

8. By this Motion, the Company seeks entry of Interim and Final Orders

(i) prohibiting the Utility Companies from discontinuing, altering or refusing service to the

Company; (ii) determining that the Utility Companies have been provided with adequate

assurance of payment for post-petition services on the basis of the establishment of the Utility

Deposit Account; and (iii) approving the Companys proposed procedures for Utility Companies

to request additional assurance of payment.

9. The Company incurs utility expenses for water, electricity, gas, heating oil, sewer,

waste management, cable-internet, security monitoring, telecommunications and other similar

utility services in the ordinary course of business. These utility services are provided by the

Utility Companies, a non-exhaustive list of which is attached to this Motion as Exhibit A.1 In the

one year period prior to the Petition Date, the Company spent approximately $27,501.68 each

month for utility services. The Company believes that, of this amount, approximately $20,000 is

1 Although the Company believes that Exhibit A includes all of the Utility Companies, the Company reserves theright, without further order of the Court, to supplement the list if any Utility Company has been omitted.Additionally, the listing of any entity on Exhibit A is not an admission that any particular entity is a utility within themeaning of section 366 of the Bankruptcy Code, and the Company reserves the right to contest any suchcharacterization in the future. The relief requested in this Motion is with respect to all Utility Companies and is notlimited only to those identified in Exhibit A.


7/30/2019 NEC 4 p1

4/11

4262091-1 4

attributable to NSTAR and approximately $410 is attributable to Verizon each month.

10. Uninterrupted utility services are essential to the Companys Chapter 11 efforts.

Should one or more of the Utility Companies refuse or discontinue service even for a brief

period, it would severely disrupt the Companys Chapter 11 proceedings, resulting in significant

loss to the value of Companys assets.

11. Even though the Company ceased operations in October 2012, the Company

requires utility service to preserve its assets. An interruption in access to utility services would

impair Companys ability to perform these functions and could damage the Companys value to

the detriment of its estate, creditors, employees and customers. It is critical that the Companys

utility services continue uninterrupted.

12. Section 366(a) of the Bankruptcy Code prevents utility companies from

discontinuing, altering, or refusing service to a debtor during the first twenty (20) days of a

bankruptcy case. Thirty (30) days after the Petition Date, however, a utility company may

discontinue its services to a chapter 11 debtor, pursuant to 366(c)(2) of the Bankruptcy Code, if

the debtor has not provided such utility company with adequate assurance of payment.

13. To provide adequate assurance of payment for future services to its Utility

Companies, the Company proposes to deposit, for the benefit of the Utility Companies, a sum

equal to approximately two months of the Companys estimated historical utility consumption

or $55,003.36into an interest-bearing, newly-created, segregated account (the Utility Deposit

Account) within fourteen days (14) after the entry of the Interim Order.2

If the Company

identifies an Added Utility Company (as defined below), the Company will increase the Utility

2 As the Company has ceased its business operations, it is expected that utility consumption going forward will bediminished. Consequently, the amount of the utility depositwhich is based on a time period during which theCompany was fully operationalshould be more than satisfactory to provide adequate assurance of future paymentto the Utility Companies.


7/30/2019 NEC 4 p1

5/11

4262091-1 5

Deposit Account, if necessary, so that the total amount in the Utility Deposit Account will be

equal to the average of two months utility consumption for all known Utility Companies.

14. In addition, the Company seeks to establish reasonable procedures (the Adequate

Assurance Procedures) by which a Utility Company may request additional assurance of future

payment if such Utility Company believes that the Utility Deposit Account does not provide it

with satisfactory assurances. Such Adequate Assurance Procedures would provide that:

(i) Absent any further order of this Court, Utility Companies may not(a) alter, refuse, or discontinue service to, or discriminate against, theCompany on account of the commencement of the bankruptcy case or anyunpaid prepetition charges, or (b) request payment of a deposit or receipt

of other security in connection with any unpaid prepetition charges.

(ii) The Company will serve a copy of this Motion and signed Interim Ordervia first-class mail, within five (5) business days after the date that suchInterim Order is entered, upon each of the Utility Companies identified inExhibit A. Additionally, the Company will serve a copy of the signedFinal Order via first-class mail, within five (5) business days after the datethat such Final Order is entered, upon each of the Utility Companiesidentified in Exhibit A.

(iii) If the Company learns that a Utility Company was omitted from ExhibitA, the Company shall file a supplement to Exhibit A, adding the name ofsuch Utility Company (the Added Utility Company), and shall promptlyserve such Added Utility Company with a copy of the Motion, InterimOrder and Final Order, as applicable (each such service, a SupplementalService).

(iv) Any Utility Company may request additional adequate assurance ofpayment (an Additional Assurance Request) within thirty (30) days afterthe entry of the Interim Order or, in the case of an Added UtilityCompany, within thirty (30) days of such companys SupplementalService (collectively, the Additional Assurance Request Deadline) bysubmitting a written request to counsel to the Company, the undersigned.

(v) Any Additional Assurance Request must (a) be in writing; (b) set forth thelocation at which utility services are provided; (c) include a summary ofthe Companys payment history relevant to the affected account(s),including any security deposits or other prepayments or assurancespreviously provided by the Company; (d) describe in sufficient detail thereason(s) why the treatment afforded pursuant to the procedures set forth


7/30/2019 NEC 4 p1

6/11

4262091-1 6

in this Motion does not constitute satisfactory adequate assurance ofpayment; and (e) include a proposal for what would constitute adequateassurance of payment from the Company, along with an explanation ofwhy such proposal is considered reasonable.

(vi) If a Utility Company makes a timely Additional Assurance Request thatthe Company believes is reasonable, the Company shall be authorized tocomply, in its sole discretion, with such request without further order ofthis Court.

(vii) If the Company believes that a Utility Companys Additional AssuranceRequest is unreasonable, the Company will attempt to resolve the matterconsensually with the Utility Company and if a resolution cannot bereached, will schedule a hearing within a reasonable time following thesubmission of such Request (a Determination Hearing) to determinewhether additional assurance of payment to such Utility Company is

necessary. If the Utility Company reaches an agreement with theCompany before the Determination Hearing, such agreement shall bedeemed to constitute adequate assurance of payment that is satisfactory tothe Utility Company.

(viii) Pending resolution of a Utility Companys Additional Assurance Request,such party will be prohibited from altering, refusing, or discontinuingservice to the Company or otherwise discriminating against the Company.

(ix) If a Utility Company fails to send an Additional Assurance Request by theAdditional Assurance Request Deadline, such Utility Company will havewaived its right to make an Additional Assurance Request and will bedeemed to have received, by virtue of the Utility Deposit Account,adequate assurance of payment in accordance with 366(c)(l)(A)(vi) ofthe Bankruptcy Code.

(x) Based on the establishment of the Utility Deposit Account, a UtilityCompany will be deemed to have adequate assurance of payment unlessand until a future order of this Court is entered requiring further assuranceof payment.

Basis for Requested Relief

14. This Court has the authority to grant the relief requested in this Motion pursuant

to 105(a) and 366 of the Bankruptcy Code. Section 366 of the Bankruptcy Code is designed

to protect the Company from utility service cutoffs, while also providing utility companies with

adequate assurance that the Company will be able to pay for post-petition services. See H.R.


7/30/2019 NEC 4 p1

7/11

4262091-1 7

Rep. No. 95-595, at 350 (1978), as reprinted in 1978 U.S.C.C.A.N. 5963, 6306. Under 366 of

the Bankruptcy Code, a utility may not, during the first twenty (20) days of the case, alter, refuse,

or discontinue services to a debtor in a chapter 11 case solely because of unpaid, pre-petition

amounts. 11 U.S.C. 366(a). The utility may do so, however, unless the debtor furnishes

adequate assurance of payment (which the Company seeks to do through this Motion), in the

form of a deposit or otherwise, for post-petition services in a form satisfactory to the utility

within thirty (30) days of the Petition Date. 11 U.S.C. 366(c)(2).

15. Section 366(c)(l)(A) of the Bankruptcy Code, as amended by the Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005 (the BAPCPA), provides that

adequate assurance of payment for purposes of such section means (i) a cash deposit; (ii) a

letter of credit; (iii) a certificate of deposit; (iv) a surety bond; (v) a prepayment of utility

consumption; or (vi) another form of security that is mutually agreed on by the utility and the

debtor. Accordingly, while the statute specifies theform of assurance that will be deemed to be

adequate, it leaves the question of the amountof such assurance that must be provided within the

Courts discretion. See 11 U.S.C. 366(b), (c)(3)(A).

16. Leaving the determination as to the amount of assurance that a debtor will need to

provide in the discretion of the Court conforms with the pre-BAPCPA case law, under which

courts generally looked to the facts and circumstances of each case to ensure that utility

companies were not subjected to an unreasonable risk of nonpayment for post-petition services.

See, e.g., In re Keydata Corp., 12 B.R. 156, 158 (B.A.P. 1st Cir. 1981);In re Adelphia Bus.

Solutions, Inc., 280 B.R. 63, 80 (Bankr. S.D.N.Y. 2002). Courts construing section 366 of the

Bankruptcy Code have long recognized that adequate assurance of payment does not constitute

an absolute guaranty of the debtors ability to pay. See, e.g., In re Caldor, Inc., 199 B.R. 1, 3


7/30/2019 NEC 4 p1

8/11

4262091-1 8

(S.D.N.Y. 1996) (Section 366(b) requires [a] [b]ankruptcy [c]ourt to determine whether the

circumstances are sufficient to provide a utility with adequate assurance of payment. The

statute does not require an absolute guaranty of payment.) (internal citation omitted);In re

Steinebach, 303 B.R. 634, 641 (Bankr. D. Ariz. 2004) (observing that [a]dequate assurance of

payment is not, however, absolute assurance);Adelphia Bus. Solutions, Inc., 280 B.R. at 80

(stating that [i]n determining adequate assurance, a bankruptcy court is not required to give a

utility company the equivalent of a guaranty of payment, but must only determine that the utility

is not subject to an unreasonable risk of nonpayment for postpetition services);In re Penn

Jersey Corp., 72 B.R. 981, 982 (Bankr. E.D. Pa. 1987) (stating that section 366 contemplates

that a utility receive only such assurance of payment as is sufficient to protect its interests given

the facts of the debtors financial circumstances). Further, courts have recognized that, in

determining what constitutes adequate assurance, a bankruptcy court must focus upon the

need of the utility for assurance, and . . . require that the debtor supply no more than that, since

the debtor almost perforce has a conflicting need to conserve scarce financial resources. Va.

Elec. & Power Co. v. Caldor, Inc., 117 F.3d 646, 650 (2d. Cir. 1997) (emphasis in original)

(quoting Penn Jersey, 72 B.R. at 985).

17. As set forth above, 366 only prevents the Utility Companies from terminating

utility service to the Company for the first twenty (20) days of this case. If the Company loses

utility service, the Company will be unable to maintain even a minimal level of administrative

functions, and the Companys business and the value of this estate will be irreparably harmed. If

faced with imminent termination of utility services, the Company would be forced to pay

whatever amounts are demanded by the Utility Companies and seek emergency relief from this

Court to avoid the cessation of essential utility services and a severe disruption.


7/30/2019 NEC 4 p1

9/11

4262091-1 9

18. Here, establishing the Utility Deposit Account, consisting of a substantial cash

reserve which corresponds to the Companys estimated two months consumption, provides

adequate assurance of post-petition payment under 366(c) of the Bankruptcy Code. In

addition, the Adequate Assurance Procedures set forth in this Motion, whereby any Utility

Company can request additional adequate assurance if it believes there are facts and

circumstances that would merit greater protection, provide an orderly process for giving

adequate assurance of payment to the Utility Companies without risking irreparable harm to the

estate.

19.

In addition to the express statutory authority set forth in 366, 105(a) of the

Bankruptcy Code provides that the Court may issue any order, process, or judgment that is

necessary or appropriate to carry out the provisions of this title. The purpose of 105(a) is to

assure the bankruptcy courts power to take whatever action is appropriate or necessary in aid of

the exercise of their jurisdiction. See 2 Collier on Bankruptcy 105.01 (15th ed. 2004).

20. The Company respectfully requests that the Court use its 105(a) power to grant

the relief requested in this Motion because such relief is necessary to permit the Company to

comport itself in Chapter 11 and preserve value for the benefit of the estate.

21. Accordingly, based on the foregoing facts and authorities, the Company

respectfully submits that the relief requested in this Motion should be granted.

Request for Expedited Consideration

22. Pursuant to Bankruptcy Rule 6003, the Court may grant relief regarding a motion

to use, sell, lease or otherwise incur an obligation regarding property of the estate within twenty-

one (21) days after the filing of the petition if the relief sought is necessary to avoid immediate

and irreparable harm. Pursuant to Local Rule 9013-1(g), the Court may consider this Motion on

an expedited basis where exigent circumstances are present justifying such relief. As set forth


7/30/2019 NEC 4 p1

10/11

4262091-1 10

above, the value of the Company and its estate could suffer immediate and irreparable harm

absent the relief requested in this Motion. Accordingly, the Company respectfully requests the

entry of the Interim Order, in substantially the form affixed hereto, granting the relief sought in

this Motion in connection with the "first day" hearings in these proceedings.

23. The Company further seeks relief from the fourteen (14) day stay of the Interim

Order and Final Order granting this Motion pursuant to Bankruptcy Rule 6004(h), to the extent

such Bankruptcy Rule is applicable, and requests that the Interim Order and Final Order be

effective immediately upon entry thereof.

Notice

24. The Company has served this Motion by the Courts ECF System, facsimile,

overnight courier and/or electronic mail on (a) the Utility Providers listed on Exhibit A, (b)

taxing authorities, (c) the 20 largest unsecured creditors, (d) the Office of the United States

Trustee, and (e) all parties who have filed a notice of appearance in this case. In light of the

relief requested herein, the Company submits that no other or further notice is required. No

request for the relief requested herein has been made to any other Court.

WHEREFORE, the Company respectfully requests that this Court enter the Interim Order

and Final Order (i) prohibiting the Utility Companies from discontinuing, altering, or refusing

service to the Company except as set forth in the Interim Order and Final Order; (ii) deeming the

Utility Companies to be adequately assured of payment on the basis of the establishment of the

Utility Deposit Account; (iii) establishing the Adequate Assurance Procedures as the exclusive

method for resolving requests for additional assurance by Utility Companies; (iv) scheduling a

final hearing on the Motion; and (v) granting such other and further relief as is just and proper.


7/30/2019 NEC 4 p1

11/11

4262091-1 11

Respectfully submitted,

NEW ENGLAND COMPOUNDING PHARMACY,INC.,

By its attorneys,

/s/ Daniel C. CohnDaniel C. Cohn, Esq. BBO #090780Keri L. Wintle, Esq. BBO #676508Murtha Cullina LLP99 High Street, 20th FloorBoston, MA 02110(617) 457-4000 Telephone(617) 482-3868 [email protected]

Dated: December 21, 2012 [email protected]

Proposed Counsel to New England Compounding

Pharmacy, Inc.

mailto:[email protected]:[email protected]:[email protected]:[email protected]

Documents

NEC 4 p1