Case MFW Doc 206 Filed 09/12/14 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case MFW Doc 206 Filed 09/12/14 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 Phoenix Payment Systems, Inc. Case No (MFW Debtor. Hearing Date: October 28, 11:30 a.m. (EDT Objection Deadline: September 26, 4:00 p.m. (EDT DEBTOR S FIRST OMNIBUS MOTION TO REJECT CERTAIN EXECUTORY CONTRACTS NUNC PRO TUNC TO SEPTEMBER 12, 2014 The Debtor hereby files this motion (the Motion for entry of an order, substantially in the form attached hereto as Exhibit A (the Proposed Order, authorizing and approving the rejection of certain executory contracts set forth in Exhibit 1 to the Proposed Order (the Contracts nunc pro tunc to September 12, In support of this Motion, the Debtor respectfully represents as follows: JURISDICTION AND VENUE 1. This Court has jurisdiction to consider this Motion pursuant to 28 U.S.C. 157 and This is a core proceeding under 28 U.S.C. 157(b. Venue of this case and this Motion in this District is proper under 28 U.S.C and The statutory predicates for the relief requested herein are Sections 105(a and 365 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure BACKGROUND 3. On August 4, 2014 (the Petition Date, the Debtor filed a voluntary chapter 11 petition. The factual background regarding the Debtor, including its business operations, its capital and debt structures and the events leading to the filing of this Chapter 11 case, is set forth in detail in the Declaration of Michael E. Jacoby in Support of Chapter 11 Petition and First

2 Case MFW Doc 206 Filed 09/12/14 Page 2 of 7 Day Motions [Docket No. 3] (the Jacoby Declaration and is fully incorporated herein by reference. 4. The Debtor continues to operate its business and manage its properties as a debtor in possession pursuant to Section 1107(a and 1108 of the Bankruptcy Code (the Sale. On August 19, 2014, the United States Trustee formed an official committee of unsecured creditors (the Committee to serve in this Chapter 11 case. 5. As more fully set forth in the Jacoby Declaration, the Debtor is in the process of selling substantially all of its assets pursuant to Section 363 of the Bankruptcy Code. The Debtor will assign certain of its executory contracts to the purchaser under the Sale (the Purchaser. Other contracts, however, will not be assumed and assigned to the Purchaser because the Purchaser will not require the services or goods provided under those contracts after consummation of the Sale. 6. Following the commencement of the Chapter 11 case, the Debtor, with assistance of its advisors and in conjunction with the expressed needs of the stalking horse purchaser, has been evaluating the necessity and cost efficiency of its executory contracts. As part of this process, the Debtor has determined that the Contracts listed on Exhibit 1 to Exhibit A are contracts that the stalking horse purchaser would not assume, nor would any competing bidder. 7. The Contracts are referral agent agreements, pursuant to which the counter-parties to these contracts refer merchants to the Debtor, and in exchange, the Debtor pays referral fees. The amount and extent of the referral fees varies from contract to contract. Because the Contracts are only useful to the Debtor s current business operations, and neither the stalking horse purchaser nor any competing bidder will assume them, the Debtor will derive no benefit from the Contracts after the consummation of the Sale. Therefore, the Contracts are unnecessary 2

3 Case MFW Doc 206 Filed 09/12/14 Page 3 of 7 and burdensome to the Debtor s estate, and the Debtor has determined that the Contracts should be rejected. RELIEF REQUESTED 8. By this Motion, the Debtor seeks entry of the Proposed Order, pursuant to Sections 105(a and 365(a of the Bankruptcy Code and Bankruptcy Rule 6006, authorizing and approving the rejection of the Contracts nunc pro tunc to September 12, BASIS FOR RELIEF REQUESTED A. The Rejection of the Contracts is an Appropriate Exercise of the Debtor s Business Judgment. 9. Section 365(a of the Bankruptcy Code provides that a debtor, subject to the court s approval, may assume or reject any executory contract or unexpired lease of the debtor. 11 U.S.C. 365(a. Section 365(a allows a debtor to relieve the bankruptcy estate of burdensome agreements which have not been completely performed. In re Phila. Newspapers, LLC, 424 B.R. 178, 182 (Bankr. E.D. Pa (citing Stewart Title Guar. Co. v. Old Republic Nat l Title Co., 83 F.3d 725, 741 (5th Cir Courts defer to a debtor s business judgment when determining whether the rejection of an executory contract or unexpired lease is appropriate under section 365(a. See N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984 (recognizing courts use of the business judgment standard in evaluating whether rejection of executory contracts or leases is appropriate; In re AbitibiBowater Inc., 418 B.R. 815, 831 (Bankr. D. Del ( A debtor s decision to assume or reject an executory contract is a matter within the business judgment of the debtor. (citation omitted; In re Armstrong World Indus., Inc., 348 B.R. 136, 162 (Bankr. D. Del ( Courts have uniformly deferred to the business judgment of the debtor to 3

4 Case MFW Doc 206 Filed 09/12/14 Page 4 of 7 determine whether the rejection of an... unexpired lease by the debtor is appropriate under section 365(a of the Bankruptcy Code Accordingly, a bankruptcy court should approve a debtor s rejection of an unexpired lease if such rejection is supported by a sound business purpose and will benefit the debtor s estate. See Sharon Steel Corp. v. Nat l Fuel Gas Distrib. Corp., 872 F.2d 36, (3d Cir (affirming rejection of service agreement as sound exercise of debtors business judgment where bankruptcy court found rejection would benefit estate; In re AbitibiBowater Inc., 418 B.R. at 831 (finding that the standard for approving rejection of an executory contract is not a difficult standard to satisfy and requires only a showing that rejection will benefit the estate. (citation omitted. 12. The business judgment rule therefore shields a debtor s management from judicial second-guessing, and mandates that a court approve a debtor s business decision unless that decision is a product of bad faith or gross abuse of discretion. Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1047 (4th Cir. 1985, cert. denied, 475 U.S (1986; see also Computer Sales Int l, Inc. v. Federal Mogul (In re Federal Mogul Global, Inc., 293 B.R. 124, 126 (D. Del ( The business judgment test dictates that a court should approve a debtor s decision to reject a contract unless that decision is the product of bad faith or a gross abuse of discretion. (citation omitted; In re Trans World Airlines, Inc., 261 B.R. 103, 121 (Bankr. D. Del ( A debtor s decision to reject an executory contract must be summarily affirmed unless it is the product of bad faith, or whim or caprice. (citation omitted. 13. In this case, the Debtor s rejection of the Contracts clearly is appropriate. As set forth above, the Debtor will have no operating business after the Sale closes, so it obviously does 4

5 Case MFW Doc 206 Filed 09/12/14 Page 5 of 7 not require the services provided through these Contracts. Moreover, no Purchaser will wish to assume the Contracts as part of the Sale. Thus, the Contracts cannot be useful and instead are an economic burden on the Debtor s estate. The economic burden of making payments under the Contracts, which provide little to no benefit to the Debtor s estate, is therefore unjustified. Rejecting the Contracts is therefore a sound exercise of the Debtor s business judgment because such rejection preserves estate assets and maximizes distributions to creditors and interest holders. B. Retroactive Rejection of the Contracts is Appropriate. 14. In authorizing the Debtor s rejection of the Contracts, the Debtor requests that such rejection be effective nunc pro tunc to September 12, Bankruptcy courts are empowered to grant such retroactive rejection of a contract or lease under Sections 105(a 1 and 365(a of the Bankruptcy Code. See, e.g., In re Chi-Chi s, Inc., 305 B.R. 396, 399 (Bankr. D. Del (acknowledging that a bankruptcy court may approve a rejection retroactive to the date the motion is filed after balancing the equities in the particular case; In re Fleming Cos., Inc., 304 B.R. 85, 96 (Bankr. D. Del (stating that rejection has been allowed nunc pro tunc to the date of the motion. 15. Indeed, courts in this jurisdiction have considered and allowed retroactive rejection to dates before entry of the order approving the rejection. See, e.g., In re Energy Future Holdings Corp., Case No (CSS (Bankr. D. Del. June 30, 2014 [Docket No. 1316] (authorizing nunc pro tunc rejection of lease; In re Longview Power, LLC, Case No (BLS (Bankr. D. Del. June 23, 2014 [Docket No. 1309] (authorizing rejection of leases nunc pro tunc to filing date of motion; In re QCE Finance LLC, Case No (PJW (Bankr. D. 1 Section 105 of the Bankruptcy Code provides, in relevant part, that [t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a. 5

6 Case MFW Doc 206 Filed 09/12/14 Page 6 of 7 Del. Apr. 22, 2014 [Docket No. 238] (authorizing rejection of executory contract effective nunc pro tunc to petition date; In re EWGS Intermediary, LLC, Case No (MFW (Bankr. D. Del. Mar. 24, 2014 [Docket No. 326] (authorizing nunc pro tunc rejection of certain real property leases; In re Old FENM Inc., Case No (KJC (Bankr. D. Del. Jan. 23, 2014 [Docket No. 507] (same; In re OnCure Holdings, Inc., Case No (KG (Bankr. D. Del. Aug. 20, 2013 [Docket No. 274] (authorizing rejection of unexpired lease nunc pro tunc to petition date. 16. Here, the equities favor rejection nunc pro tunc to September 12, As set forth above, the Contracts provide no benefit to the Debtor. Absent retroactive rejection, the Debtor could be forced to incur unnecessary administrative charges and obligations under the Contracts without any corresponding tangible benefit to the Debtor s estate. C. The Court Should Waive the Stay Under Bankruptcy Rule 6004(h. 17. The Debtor requests a waiver of any stay of the effectiveness of the order approving this motion under Bankruptcy Rule 6004(h. Pursuant to Bankruptcy Rule 6004(h, [a]n order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. Fed. R. Bankr. P. 6004(h. The Debtor submits that under the circumstances, ample cause exists to justify the waiver of the 14-day stay imposed by Bankruptcy Rule 6004(h, to the extent it applies. RESERVATION OF RIGHTS 18. Nothing in this Motion shall be deemed or construed as a waiver of any claims that the Debtor has or may have against the non-debtor parties to the Contracts, whether or not such claims arise under, are related to the rejection of, or are independent of the Contracts. 6

7 Case MFW Doc 206 Filed 09/12/14 Page 7 of 7 NO PRIOR MOTION 19. No prior motion for the relief requested herein has been made by the Debtor to this or any other court. NOTICE 20. Notice of this Motion will be given to: (a the United States Trustee; (b counsel to the Committee; (c counsel to The Bancorp Bank, the Debtor s post-petition lender; (d counsel to the proposed stalking horse purchaser, a wholly-owned subsidiary of North American Bancard; (e the counterparties to the Contracts (via overnight delivery, facsimile or electronic transmission; and (f all parties that have requested or that are required to receive notice pursuant to Bankruptcy Rule The Debtor respectfully submits that no further notice of this Motion is required. WHEREFORE, the Debtor respectfully requests that the Court enter the Proposed Order, substantially in the form attached hereto as Exhibit A, (i authorizing and approving the rejection of the Contracts listed on Exhibit 1 to the Proposed Order effective as September 12, 2014 (ii granting such other and further relief as is just and proper. Date: September 12, 2014 Wilmington, Delaware RICHARDS, LAYTON & FINGER, P.A. /s/ Marisa A. Terranova Mark D. Collins (No Russell C. Silberglied (No Marisa A. Terranova (No N. King Street Wilmington, Delaware Telephone: Facsimile: collins@rlf.com silberglied@rlf.com terranova@rlf.com Counsel for Debtor and Debtor in Possession 7

8 Case MFW Doc Filed 09/12/14 Page 1 of 2 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re: Chapter 11 Phoenix Payment Systems, Inc. Case No (MFW Debtor. Hearing Date: October 28, 11:30 a.m. (EDT Objection Deadline: September 26, 4:00 p.m. (EDT NOTICE OF MOTION AND HEARING PLEASE TAKE NOTICE that, on September 12, 2014, the above-captioned debtor (the Debtor filed the Debtor s First Omnibus Motion to Reject Certain Executory Contract Nunc Pro Tunc to September 12, 2014 (the Motion with the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court. PLEASE TAKE FURTHER NOTICE that any responses or objections to the Motion must be in writing, filed with the Clerk of the Bankruptcy Court, 824 North Market Street, 3rd Floor, Wilmington, Delaware 19801, and served upon and received by the undersigned proposed counsel for the Debtor on or before September 26, 2014 at 4:00 p.m. (Eastern Daylight Time. PLEASE TAKE FURTHER NOTICE that a hearing to consider the Motion, if required, will be held before The Honorable Mary F. Walrath, United States Bankruptcy Judge for the District of Delaware, at the Bankruptcy Court, 824 North Market Street, 5th Floor, Courtroom 4, Wilmington, Delaware on October 28, 2014 at 11:30 a.m. (Eastern Daylight Time. IF NO OBJECTIONS TO THE MOTION ARE TIMELY FILED, SERVED AND RECEIVED IN ACCORDANCE WITH THIS NOTICE, THE BANKRUPTCY COURT MAY GRANT THE RELIEF REQUESTED IN THE MOTION WITHOUT FURTHER NOTICE OR HEARING. RLF v.1

9 Case MFW Doc Filed 09/12/14 Page 2 of 2 Date: September 12, 2014 Wilmington, Delaware RICHARDS, LAYTON & FINGER, P.A. /s/ Marisa A. Terranova Mark D. Collins (No Russell C. Silberglied (No Paul N. Heath (No Marisa A. Terranova (No N. King Street Wilmington, Delaware Telephone: Facsimile: collins@rlf.com silberglied@rlf.com heath@rlf.com terranova@rlf.com Counsel for Debtor and Debtor in Possession RLF v.1-2 -

10 Case MFW Doc Filed 09/12/14 Page 1 of 4 Exhibit A Proposed Order

11 Case MFW Doc Filed 09/12/14 Page 2 of 4 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 Phoenix Payment Systems, Inc. Case No (MFW Debtor. Re: Docket No. ORDER AUTHORIZING AND APPROVING REJECTION OF CERTAIN EXECUTORY CONTRACT NUNC PRO TUNC TO SEPTEMBER 12, 2014 Upon the motion (the Motion 1 for entry of an order (the Order pursuant to Sections 105(a and 365(a of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure 6006, authorizing and approving the rejection of certain executory contracts set forth on Exhibit 1 to this Order. (the Contracts between the Debtor and various parties nunc pro tunc to September 12, 2014; and due and sufficient notice of the Motion having been provided under the particular circumstances, and it appearing that no other or further notice need be provided; and the Court having jurisdiction to consider the Motion and the relief requested therein in accordance with 28 U.S.C. 157 and 1334; and consideration of the Motion and the relief requested therein being a core proceeding pursuant to 28 U.S.C. 157(b; and venue being proper before this Court pursuant to 28 U.S.C and 1409; and the Court having found and determined that the relief requested in the Motion is in the best interests of the Debtor, its estate and creditors, and all other parties in interest, and that the legal and factual bases set forth in the Motion establish just cause for the relief granted herein; and after due deliberation thereon and sufficient cause appearing therefor, it is hereby ORDERED, ADJUDGED, AND DECREED THAT: 1. The Motion is GRANTED. 1 Terms not otherwise defined herein shall have their respective meanings ascribed to them in the Motion.

12 Case MFW Doc Filed 09/12/14 Page 3 of 4 2. The Contracts listed on Exhibit 1 hereto are rejected by the Debtor effective as of September 12, Nothing in the Motion or this Order shall be deemed or construed as a waiver of any claims that the Debtor has or may have against non-debtor parties to the Contracts, whether or not such claims arise under, are related to the rejection of, or are independent of the Contract. 4. To the extent it may be applicable, the 14-day stay imposed by Bankruptcy Rule 6004(h is hereby waived, and this Order shall be immediately effective and enforceable upon its entry. 5. The Debtor is authorized and empowered to take all actions necessary to implement the relief granted in this Order. 6. This Court shall retain jurisdiction to hear and determine all matters arising from or related to the implementation, interpretation, or enforcement of this Order. Dated:, 2014 Wilmington, Delaware THE HONORABLE MARY F. WALRATH UNITED STATES BANKRUPTCY JUDGE -2-

13 Case MFW Doc Filed 09/12/14 Page 4 of 4 Exhibit 1 The Contracts Contract and Counterparty and Blue Square Resolutions and James Brown and Jason Buck and Anthony Ferguson and Merkin Consulting and SignaPay and United Check Services and Ana V. Velasquez and Wholesale Payment Solutions Notice Address Blue Square Resolutions N. 76 th Street, Suite 100 Scottsdale, AZ James Brown 102 Fairview Lane Landenburg, PA Jason Buck 4779 West North Highland, UT Anthony Ferguson 371A Joseph-Carrier Vaudreuil Dorion, QC J7V 5V5 Canada Merkin Consulting 3570 South Ocean Boulevard, Apt. 309 Palm Beach, FL SignaPay 105 Decker Court, Suite 650 Irving, TX United Check Services 5431 O Neal Rd. Gulport, MS Ana V. Velasquez 2405 Olden Avenue Newark, DE Wholesale Payment Solutions 4320 Marsh Ridge Road #100 Carrollton, TX 75010