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Local companies sued in Kodak bankruptcy

A trust fund established as part of Eastman Kodak Co.’s bankruptcy is suing hundreds of businesses around the globe, including many in the Rochester region, as it seeks to claw back potentially hundreds of millions of dollars Kodak paid them in the weeks prior to it filing for bankruptcy.

The suits were filed earlier this month in U.S. Bankruptcy Court.

Whatever money the Kodak General Unsecured Creditors (or GUC) Trust collects is to be divvied up among the legions of unsecured creditors who were left holding unpaid bills and invoices when Kodak filed for Chapter 11 bankruptcy in January 2012. Many of the companies now being sued by the Kodak GUC Trust for money Kodak paid them are also unsecured creditors who had bills that went unpaid.

In a statement, Kodak said the GUC Trust “is an independent third party acting on behalf of the unsecured creditors, and Kodak has no control over its actions.”

“It does seem rather absurd, doesn’t it? It’s like rubbing salt into a wound,” said William Betteridge, president of Mastro Graphic Arts Inc. The Gates company produces industrial labels and overlays for Kodak equipment, and it is being sued for nearly $18,000 allegedly Kodak paid it in the fall and winter of 2011. When Kodak went bankrupt, meanwhile, it left Mastro with a claim for more than $11,000 for unpaid bills.

Such trusts are common in Chapter 11 bankruptcies, with the end goal often being to collect more money for the army of unsecured creditors above what they received through the company’s reorganization. In Kodak’s case, that was 4 to 5 cents on the dollar, plus options to buy Kodak stock.

In Kodak’s case, the GUC Trust apparently is suing pretty much everyone who received a payment from Kodak in the 90 days leading up to its filing for bankruptcy. The targets of the lawsuits are numerous, from a Berkeley, Calif., design studio and specialty chemical manufacturer Champion Photochemistry to economic development non-profit Greater Rochester Enterprise. The dollar amounts range from the thousands of dollars to more than $14 million being sought from financial services giant Prudential Securities Inc. A variety of Rochester-area businesses — from Alton Manufacturing to Rochester Software Associates to Zeller Electric — are among the defendants.

The GUC Trust’s trustee, Alan D. Halperin — a partner at Wall Street law firm Halperin Battaglia Raicht LLP — did not return a message seeking comment. Nor did attorneys serving as legal counsel for Halperin in his work as trustee.

However, Robert J. Rock, senior counsel of Tully Rinckey PLLC’s bankruptcy practice, said the GUC Trust is looking for “preferential payments” — money received from Kodak just before it filed for bankruptcy that was somehow more than would have been received in the bankruptcy proceeding.

One common legal method of winnowing out those preferential treatments is to go after anyone who received payment in the 90 days before the bankruptcy filing, Rock said. “If something on its face appears to be a preferential payment, as trustee you’ve got a fiduciary duty to see if it is,” he said.

“If you’re selling paper towels to Kodak and you give them the paper towels and they pay you, that’s not a preference.”

The overall aim is fairness among unsecured creditors, said John C. Ninfo II, retired U.S. bankruptcy judge for the Western District of New York. “The quality of distribution policy says it is better that everyone gets 8 percent than that some get 20 or 100 percent, and others get 2 percent.”

John Zarwan, who runs a Canadian consultancy specializing in the printing and packaging industries, said that businesses being sued for relatively small amounts like his — in his case, $10,500 — would spend that much if not more just on legal fees trying to defend themselves from the Kodak GUC Trust.

“Where insult is added to injury is people who did the work, delivered the product, whether it’s widgets or silver or whatever, and then to be asked to disgorge that money when they’ve already lost money for invoices not already paid … that’s the problem I have.

“In my particular case … if they’d declared bankruptcy one month later, I’d be OK. If they’d paid me on time, I’d be OK.”

Any business that has to return preferential payments could file a claim and get a small fraction of that money back when repaid as an unsecured creditor, Ninfo said. However, they usually are just asked to pay back an amount that leaves them with what they would receive from an unsecured creditor claim, he said.

And such trusts almost always give a discount to avoid a legal fight and get a quick payment, Ninfo said.

U.S. Bankruptcy Court this week extended the deadline those 700-plus defendants have to respond to the lawsuits to March 31.

In a statement, Kodak said it doesn’t expect the GUC Trust and its mountain of lawsuits to cause any further problems with its suppliers. The company said it “maintains strong lines of communications with our suppliers and has communicated with them about this issue. They understand the issue and it has not impacted our strong relationships with them.”

Zarwan said the GUC Trust lawsuit “doesn’t create question marks for me with Kodak.”

But pointing to the potential financial wallop atop the already big tax and administrative hassles of being an American working in Canada, he said, “It does create a question mark for me in business at all. It’s one more hassle.”

Bob came to Tully Rinckey PLLC with over three decades of legal experience. He joined the team after running his own general practice firm in Albany for a dozen years. Throughout his 30-plus-year legal career, Bob has always practiced law in the Capital Region.

Bob has significant experience in both state and federal courts fighting for clients in the civil litigation arena. His experience includes the representation of both plaintiffs and defendants. When Tully Rinckey PLLC’s clients believe they have been wronged by the action or inaction of another party, they may be entitled to sue for damages. Clients may also find themselves being sued and in need of the kind of proactive defense provided by Bob and the Tully Rinckey PLLC civil litigation team. Together, their experience includes disputes between individuals, businesses, non-profit organizations, municipalities, and the full range of legal entities. Bob and the team can provide aggressive representation to any of these parties to secure the best possible legal outcome for them. 

A long-time ally of distressed and insolvent businesses and individuals throughout New York’s Capital Region, Bob has been expanding Tully Rinckey PLLC’s bankruptcy practice, particularly in the areas of Chapter 11 (business) and Chapter 12 (farm) reorganization. He continues the firm’s tradition of representing debtors and creditors in Chapter 7 and Chapter 13 proceedings and bankruptcy litigation. At the firm, he provides free initial bankruptcy consultations.

Bob has successfully confirmed Chapter 11 plans in diverse cases, including a rural Delaware County acute care hospital, a swimming pool builder and water park developer, a major printing company and an ante-bellum ladder manufacturer. He has also represented creditors committees in a Broome County and Pennsylvania baker, a mid-Hudson building products supplier and a consortium of banks in a case involving a purported investment company behind a massive Ponzi scheme. Bob has represented secured and unsecured creditors as well as Chapter 7 and Chapter 11 trustees in virtually every aspect of bankruptcy.

Bob received a juris doctorate from Albany Law School and a bachelor’s degree in political science from LeMoyne College. His admissions include the New York State Bar, the U.S. District Courts for the Eastern, Southern and Northern Districts of New York, and the 2nd U.S. Circuit Court of Appeals.

When not at work, Bob enjoys hiking in the Adirondacks and Catskills, music, local history and travel.

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