United States District Court, E.D. Michigan, Southern Division
In re VPH PHARMACY, INC. Debtor
ORDER DENYING APPELLANT'S BRIEF ON APPEAL [Doc.
Victoria A. Roberts United States District Judge
issue presented by this bankruptcy appeal is whether
Appellant Creditor The Winrose Plus Group, LLC
(“Winrose”) was granted super-priority
administrative expense claim, or a priming lien (a lien
either senior or equal to existing liens), on Debtor VPH
Pharmacy, Inc. (“VPH”) assets when it extended
post-bankruptcy credit to VPH. This Court uphold of the
findings by the Bankruptcy Court that non priority status was
granted to Winrose.
filed a petition for Chapter 11 bankruptcy on January 13,
2017. The same day, VPH filed a Financing Motion
(“Motion”) requesting authority to borrow $150,
000 from Winrose. The Motion indicated that pursuant to
Section 364(a)(1) of the Bankruptcy Code, the loan would be
entitled to super-priority administrative expense claim
status. The United States Bankruptcy Court for the Eastern of
District of Michigan issued an order (“Financing
Order”) authorizing VPH to obtain this post-petition
argues that the Financing Order granted it super-priority
status. The United States Trustee appointed the Unsecured
Creditors' Committee (“Committee”), which
objected to the super-priority status urged by Winrose. The
Bankruptcy Court sustained the Committee's objection,
ruling that the Financing Order did not grant either a
super-priority administrative claim, or a priming lien on
VPH's assets. Winrose appealed to this Court.
Bankruptcy Court's ruling is AFFIRMED.
a closed-door pharmacy, meaning it services private entities
including nursing homes and children's foster care
facilities. In the three years prior to filing its petition
for Chapter 11 bankruptcy, VPH averaged about $15 million per
year in annual revenue. In 2016, VPH's revenue began to
decline due to various factors, including the loss of
customer contracts, and an investigation and subsequent
seizure of assets by the Drug Enforcement Agency
(“DEA”): the DEA seized funds on September 22,
2015 that were allegedly used or acquired as a result of a
violation of the Controlled Substances Act. On September 7,
2016, a state court entered judgment against VPH in the
amount of $1, 278, 310.55 after its current owner, Devenkumar
C. Patel (“Patel”) defaulted on payment for stock
purchased from its former owner. After entry of the judgment,
Patel gave his wife, Amee Patel (“Mrs. Patel”)
his power of attorney on December 2, 2016. Patel also began
serving an eighteen month prison sentence in December, 2016.
judgment against VPH had immediate effect. VPH's bank
account was garnished. This affected VPH's cash flow and
its ability to pay creditors. As a result, it sought
protection from the Bankruptcy Court under Chapter 11.
filing its Chapter 11 petition on January 13, 2017, VPH's
suppliers cut off all credit and refused to ship medications
to VPH. Without access to its bank account, VPH could not
operate, and was in need of an emergency loan to meet its
obligations and provide medications to its patients.
Chief Restructuring Officer (“CRO”) attempted to
obtain cash or credit for VPH, but could not. The CRO
contacted Mrs. Patel for an emergency loan of $150, 000. Mrs.
Patel then formed Winrose as a limited liability company, and
borrowed money from family in order to give the requested
filed its Motion, asking the Bankruptcy Court to authorize it
to obtain post-petition financing and use cash collateral,
pursuant to 11 U.S.C. § 364(a)(1), (c)(1), (c)(2),
(c)(3), and (d)(1). The Motion indicated that Winrose, which
was to loan VPH $150, 000, was entitled to a super-priority
administrative claim, and a priming lien on VPH's assets.
The Bankruptcy Court entered various orders authorizing VPH
to obtain interim post-petition financing and use cash
collateral (collectively referred to as “Financing
Order”). The Financing Order stated that Winrose had
“a security interest in and liens on all of”
VPH's assets, which served as collateral. [Designated
Bankruptcy Record, Doc. 63, Pg. 5]. The Financing Order also
stated “to the extent there is a conflict or
inconsistencies between the Motion and this [Financing
Order], the [Financing Order] shall control.”
Id. at 4.
second revised version of the Financing Order permitted VPH
to borrow an additional $150, 000 from Winrose. VPH was
informed that Winrose refused to fund the second $150, 000.
The Committee filed an objection, noting the bad faith
actions of Winrose in refusing to fund the second $150, 000
loan, and claiming that the Financing Order did not grant
Winrose either a super-priority administrative claim or a
priming lien. The parties briefed the issue and the
Bankruptcy Court held a hearing and issued an oral ruling.
ruling, the Bankruptcy Court acknowledged that the Motion
states that Winrose would receive a super-priority
administrative expense claim status. But the Financing Order
did not grant such status. The Bankruptcy Court said that the
Financing Order made clear that the terms of the Financing
Order, not the Motion, control. Accordingly, the Bankruptcy
Court sustained the Committee's objection.
Chapter 11 petition was later converted into a Chapter 7
petition. The Bankruptcy court entered a written order
(“Order Sustaining the Objection”) stating that
the Committee's objection was sustained for the reasons
set forth in the oral ruling, “Winrose was not granted
either a super-priority administrative claim ...