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Docket #5380 Date Filed: 10/29/2010

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ____________________________________ ) Case No. 08-11586 (KG) In re ) Chapter 11 ) (Jointly Administered) MERVYNS HOLDINGS, LLC, et al.,1 ) ) Related Docket No. 4824 and 4999 Obj. Deadline: October 29, 2010, 4:00 p.m. Debtors. ) ____________________________________) Hearing Date: November 5, 2010, 9:30 a.m. RESPONSE OF SECURITY TICKETING TO DEBTORS TWENTY-EIGHTH AND THIRTY-FOURTH OMNIBUS OBJECTIONS (SUBSTANTIVE) TO CERTAIN OVERSTATED CLAIMS AND MOTION TO REDUCE OR EXPUNGE SUCH CLAIMS (Claim Nos. 7314 and 7351) COMES NOW, Security Ticketing LLC (Security), by and through undersigned counsel and hereby objects (Security Claim Response) to the Debtors Twenty-Eighth and Thirty-Fourth Omnibus (Substantive) Objections (collectively the Objections) as follows: PRELIMINARY MATTER The Objections seek to disallow claim #7314 (Claim 7314) and claim #7351 (Claim 7351, and collective with Claim 7314 referred to herein as the Claims) filed by Security. BACKGROUND 1. On July 29, 2008, (the Petition Date), each of the Debtors filed with this Court a

voluntary petition for relief under Title 11, Chapter 11 of the Bankruptcy Code. 2. The Debtors are continuing to operate as debtors in possession pursuant to

1107(a) and 1108 of the Bankruptcy Code. 3. No trustee or examiner has been appointed in these Chapter 11 cases.

The Debtors in these cases, along with the last four digits of their federal tax identification numbers, are Mervyns Holdings, LLC (3405), Mervyns LLC (4456) and Mervyns Brands, LLC (8850).

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4.

On October 22, 2008, this Court entered an order [D.I. 634] establishing January

9, 2009 (the Pre-petition Bar Date) as the final date for filing pre-petition claims against the Debtors estates. 5. Based upon review of the applicable Affidavits of Service [D.I. 894, 2488, 2489,

2514, 2516, 2585, 2586, 3591, 4646], Security Ticketing only appears on D.I. 3591 which, although it certifies that copies were mailed on November 18, 2008, was not filed until June 23, 2009. Moreover, upon information and belief, Security Ticketing does not have any record of any associated individual having received formal notice of the Pre-petition Bar Date. 6. On November 1, 2008, Security sent Debtors an invoice for the outstanding

amount owed for goods manufactured specifically for the Debtors pursuant to a pre-petition contract (the Contract). See Contract attached hereto as Exhibit A. 7. On July 6, 2009, Security filed Claim 7314 against the Debtors in the amount of

$112,854.29 for the cost of retail merchandise tags (the Tags) produced by Security pursuant to the Contract. See Proof of Claim and Invoice attached hereto as Exhibit B. 8. On July 7, 2009, Security filed Claim 7351 against the Debtors in the amount of

$112,854.29 for the cost of retail merchandise tags (the Tags) produced by Security pursuant to the Contract.. See Exhibit B. Claim 7351 is a duplicate of Claim 7314 and therefore for the purposes of this objection, Security will agree that if Claim 7314 is allowed, then Claim 7351 can be expunged as a duplicate claim. 9. On April 19, 2010 and June 14, 2010 the Debtors filed the Objections seeking to

disallow, modify and expunge certain claims, including Claim 7314 and Claim 7351. Specifically, the Objections seek to reduce the dollar amount of the claims to zero dollars.

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10.

As support for the Objections, the Debtors made identical statements that, [t]he

Debtors have reviewed their books and records and determined that the amount of the claim is overstated and should be reduced. The Objections as they relate to Claim 7314 and Claim 7351 are improper and should be overruled. ARGUMENT The Claim should be an allowed Pre-petition Claim 11. Section 101 of the Bankruptcy Code defines a claim as a right to payment,

whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. Congress intended the term be given the broadest available definition. In Re: Udell, 18 F.3d 403 (7th Cir. 1994). 12. Section 502(a) and Rule 3001(f) provide that a properly filed proof of claim (like

Claim #7683) is prima facie evidence of the validity of the claim unless a party in interest objects. If there is an objection, the Debtors must introduce evidence as to the invalidity of the claim and the claimant need offer no proof of the merits of the claim. The objecting party bears the burden of going forward with evidence concerning the validity and amount of the claim. In Re: Allegheny Intl Inc., 954 F.2d 167 (3rd Cir. 1992). In short, it is not sufficient that Debtors object generally to a claim. The Debtors must affirmatively establish with evidence that the prima facie claim is invalid. 13. Here, the Objections merely include a general statement contesting the validity of

the Claims. As the Debtors offered no evidence to refute the facts giving rise to the Claims, they have not met their burden to show invalidity so as to warrant disallowance. As such, the

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Objections fail to establish the necessary level of proof to invalidate the Claims and should therefore be overruled. 14. More particularly though in the present case, Security, concurrent with the filing

of the Claims, provided documentation to the objecting parties sufficient to put the estate on notice of the Claims. The invoice attached to the Claims provides sufficient information to identify the basis of the Claims. 15. As such, Security has complied with its obligation to provide notice of the Claims

in a timely manner and therefore, Claim #7314 is prima facie valid and should be allowed in full as a general unsecured pre-petition claim. Securitys Late-filed Claims Should be Permitted 16. Debtors never sufficiently notified Security of the establishment of the Pre-

petition Bar Date in this matter. As such, Security respectfully asserts that Claim 7314 must be allowed because it appears that Debtors failed to provide sufficient notice of the Pre-petition Bar Date; which would violate Securitys inherent right to due process. 17. Federal Rule of Bankruptcy Procedure 2002(a), requires all creditors to receive at

least 20 days notice by mail of (7)the time fixed for filing proofs of claims pursuant to Rule 3003(c). Furthermore, in light of ongoing communications and business dealings with the Debtors, Security was a known creditor who was therefore entitled to actual written notice. Pacificorp and Vancott Bagley Cornwall & McCarthy v. W.R. Grace, et al., 2006 WL 2375371, at *4 (D.Del. Aug. 16, 2006) (noting that the United States Supreme Court defines known creditor as one whose identity is either known or reasonably ascertainable by the Debtor). 18. It appears that Security never received such notice as mandated by Bankruptcy

Rule 2002. Failure to provide such notice under Rule 2002 is a violation of due process

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requirements. See Sheftelman v. Standard Metals Corp., 839 F.2d 1383, 1386 (10th Cir. 1987) (citing Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652 (1950)). The statutory command for notice embodies a basic principle of justicethat a reasonable opportunity to be heard must precede judicial denial of a partys claimed rights. City of New York v. New York, N.H. & H.R. Co., 344 U.S. 293, 297, 73 S.Ct. 299, 301, 97 L.Ed. 33 (1953). Thus, regardless of whether Security had actual knowledge of the Consolidated Bankruptcy proceedings, Security had a right to assume that sufficient statutory notice would be given, along with a reasonable opportunity to be heard, before judicial denial of its rights. Id. 19. This honorable Court has previously held that inadequate notice of the claims bar

date is a defect which precludes discharge of a claim in bankruptcy. In re The Grand Union Co., 204 B.R. 864, 871 (D. Del. 1997); see In re Smidth, 2009 WL 704062 (Bankr. D. Del.) (a known creditor must receive actual notice). Many other courts have also held that in cases where the debtor had knowledge of claims against the estate yet failed to inform the claimants of the pendency of the specific bankruptcy proceedings, such as the claims bar date, the claims may not be discharged under 11 U.S.C. 1141, regardless of whether the creditor had notice of bankruptcy proceedings in general. Broomall Indus., Inc. v. Data Design Logic Sys., Inc., 786 F.2d 401, 403 (Ct. App. 1986). See also, In the Matter of Harbor Tank Storage Co., 385 F.2d 111, 114-115 (3d. Cir. 1967) (rejection of claim when trustee failed to give appropriate notice constitutes a denial of due process); In re Spring Valley Farms, 863 F.2d 832, 835 (11th Cir. 1989) (court held that although creditors had actual notice of chapter 11 debtors bankruptcy, they did not receive mandatory notice of claims bar date, and thus, were not discharged upon confirmation of the debtors chapter 11 plan); Reliable Elec. Co., Inc. v. Olson Constr. Co., 726 F.2d 620 (10th Cir. 1984); Levin v. Maya Constr., (In re Maya Construction Co.) 788 F.3d 1395,

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1399 (9th Cir. 1996) (actual knowledge of chapter 11 bankruptcy proceeding does not obviate the need for notice, and absent formal notice, creditor is not bound by order discharging bankruptcy obligations); Dalton Dev. Project #1 v. Unsecured Creditors Comm. (In re Unioil) 948 F.2d 678, 684 (10th Cir. 1991) (despite actual knowledge of bankruptcy proceedings, claims could not be discharged in bankruptcy absent receipt by creditor of formal notice of deadline for filing proofs of claim, time for filing objections to plan, or the confirmation hearing). 20. The Debtors bear the burden of proving that sufficient notice was provided,

especially in light of the questions raised here by the late-filed affidavit of service. In re The Grand Union Co., 204 B.R. at 871 (receipt of notice becomes a rebuttable presumption upon Debtors showing of proper mailing); Hoffman v. Hoffman, 157 B.R. 580, 584 (E.D.N.C. 1992); Levin v. Maya Constr., 788 F.3d at 1399. 21. In the present case, it appears that Debtors failed to provide Security with

sufficient notice of the Pre-petiiton Bar Date, as required by Rule 2002 for a known claimant. Security respectfully submits that it was denied a meaningful opportunity to participate in the case, which is a direct violation of its right to due process. Grand Union 204 B.R. at 871 (citing Mullane, 339 U.S. at 314 holding that notice must be such that it would reasonably inform the interested parties . . . and . . . allow the parties to choose for themselves whether to appear or default, acquiesce or contest.). Accordingly, the claim should be allowed. B. In the Alternative, Security can Establish Excusable Neglect 22. Moreover, the period for filing a claim should be enlarged under Bankruptcy Rule

9006. Pursuant to Rule 9006(b)(1), the Court can enlarge the time for filing a proof of claim where the failure to act was the result of excusable neglect. See e.g., Pioneer Inv. Servs. Corp. v. Brunswick Assoc. Ltd. Pship, 507 U.S. 380, 113 S. Ct. 1489 (1993) (finding counsels failure

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to file a proof of claim before the bar date was attributable to excusable neglect partly due to the fact that the notice of claims bar date was not prominently announced and accompanied by an explanation of its significance). Security respectfully submits that Debtors apparent failure to provide sufficient statutory notice justifies the allowance of its late filed claim as a simple, faultless omission which qualifies as excusable neglect. See Pioneer, 507 U.S. at 388; see also In re Spring Ford Indus., Inc., 2003 WL 21785960, at *2 (Bankr. .E.D.Pa. July 25, 2003) (noting that Claimants have no duty to inquire about what is procedurally required of them but rather may assume that they will receive effective notice). 23. In Pioneer, the United States Supreme Court held that the following

circumstances should be weighed: (1) the danger of prejudice to the debtor; (2) the length of delay and any potential impact on the proceedings; (3) the reason for the delay, including whether it was within the reasonable control of the movant; and (4) whether the movant acted in good faith. 507 U.S. at 395. 24. Applying the foregoing Pioneer factors to the present case, the balance of equities

weighs in favor of granting Securitys requested relief. 25. First, there is no danger of prejudice to the debtor because Debtors have been

aware and on notice of Securitys claims since before the bar date. In addition, although confirmation of a plan of reorganization would not moot this argument, the fact that the plan has not yet been confirmed in this case further diminishes the possibility of prejudice to the Debtors. See e.g., In re Eagle-Picher Indus., 158 B.R. 713 (Bankr. S.D. Ohio 1993) (no prejudice or delay where reorganization plan has neither been proposed nor confirmed); and see Grand Union, 204 B.R. at 871 (noting that claimant who is not given reasonable notice cannot be bound by the

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legal effects of confirmation). On the contrary, if Security is not allowed to file its claim, it will be unfairly prejudiced by the improper discharge of its rights. 26. Second, the length of delay since the bar date is not material and allowance of a

late filed claim will not hinder the bankruptcy proceedings. Although the matter is in its later stages, the allowance of one claim will not significantly encumber the continued progress in the case. 27. Third, the reason for the delay was not within the control of Security because

having no record of any formal notice of the Pre-petition Bar Date, it was necessarily estopped from filing a claim. See Pioneer, 507 U.S. 380; See Spring Ford, 2003 WL 21785960, at *2. 28. Finally, Security has at all times acted in good faith and has acted in an

expeditious manner to make known to Debtors the basis for its claims. This action was taken despite the fact that Security was entitled to assume that Debtors would satisfy their obligation to provide sufficient notice of any material deadlines and procedures. See Spring Ford, 2003 WL 21785960, at *3 (noting that even where party ignored the docket, lack of diligence in following the progress of the Courts proceedings . . . did not amount to lack of good faith.). 29. Based on the foregoing reasons, Security should not be sanctioned for not having

received sufficient formal notice of the Pre-petition Bar Date.

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CONCLUSION Wherefore, based upon the foregoing, Security respectfully requests that this Court deny Debtors Objections as they apply to Security and grant such other and further relief as this Court deems just and proper. Dated: October 29, 2010 MCCARTER & ENGLISH, LLP By: /s/ Kate Roggio Buck Katharine L. Mayer (DE #3758) Kate Roggio Buck (DE #5140) Renaissance Centre 405 North King Street, 8th Floor Wilmington, DE 19801 Telephone: (302) 984-6300 Facsimile: (302) 984-6399 kmayer@mccarter.com kbuck@mccarter.com Attorneys for Security Ticketing LLC

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CERTIFICATE OF SERVICE I, Kate R. Buck, hereby certify that on the 29th day of October, 2010, I caused a true and correct copy of the foregoing Response of Security Ticketing LLC to the Debtors Twenty-Eighth and Thirty-Fourth Omnibus (Substantive) Objections to Certain Overstated Claims and Motion to Reduce or Expunge Such Claims be served upon the below listed counsel in the manner so indicated.

/s/ Kate Roggio Buck Kate Roggio Buck (#5140)

HAND DELIVERY

U.S. MAIL

Mark D. Collins Daniel J. DeFranceschi Richards, Layton & Finger One Rodney Square, 2nd Floor Wilmington, DE 19899

Howard S. Beltzer Wendy S. Walker Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178

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