FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 …omnimgt.com/cmsvol2/pub_47031/563556_186-3.pdf · - 2 - 52016904.1 3. The statutory basis for the relief requested herein is section

52016904.1

IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF DELAWARE

)In re: ) Chapter 11

)AFFIRMATIVE INSURANCEHOLDINGS, INC., et al.,1

))

Case No. 15-12136 (CSS)

)Debtors. )

)))

(Jointly Administered)

Objection Deadline: January 11, 2016 at 4:00 p.m. (ET)

Hearing Date: January 19, 2016 at 1:00 p.m. (ET)

)

MOTION OF DEBTORS FOR ENTRY OF AN ORDER AUTHORIZINGREJECTION OR ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY

CONTRACTS AND UNEXPIRED LEASES

Affirmative Insurance Holdings, Inc. and certain of its wholly-owned direct and indirect

subsidiaries, as debtors and debtors in possession (collectively, the “Debtors”) in the above-

captioned chapter 11 cases (these “Chapter 11 Cases”), hereby submit this motion (the “Motion”)

for entry of an order (the “Order”), in substantially the form attached hereto as Exhibit A,

authorizing the Debtors to reject or assume and assign certain executory contracts and unexpired

leases, as described below. In support of this Motion, the Debtors respectfully state as follows:

Jurisdiction

1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b).

2. Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

1 The Debtors, together with the last four digits of each Debtor’s federal tax identification number, are: AffirmativeInsurance Holdings, Inc. (0432); Affirmative Management Services, Inc. (7252); Affirmative Services, Inc. (7255);Affirmative Underwriting Services, Inc. (7250); Affirmative Insurance Services, Inc. (8823); Affirmative GeneralAgency, Inc. (2345); Affirmative Insurance Group, Inc. (7246); and Affirmative, L.L.C. (2347). The location of theDebtors’ corporate headquarters and the service address for all Debtors is 150 Harvester Drive, Suite 250, BurrRidge, Illinois 60527.

Case 15-12136-CSS Doc 186 Filed 12/28/15 Page 1 of 8

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3. The statutory basis for the relief requested herein is section 365(a) of title 11 of

the United States Code (the “Bankruptcy Code”).

4. Pursuant to Rule 9013-1(f) of the Local Rules of Bankruptcy Practice and

Procedure of the United States Bankruptcy Court for the District of Delaware (the “Local

Rules”), the Debtors consent to the entry of a final judgment or order with respect to this Motion

if it is determined that the Court would lack Article III jurisdiction to enter such final order or

judgment absent consent of the parties.

Background

5. On October 14, 2015 (the “Petition Date”), each of the Debtors filed a voluntary

petition for relief under chapter 11 of the Bankruptcy Code.

6. The Debtors continue to operate their business and manage their properties as

debtors in possession pursuant to Bankruptcy Code sections 1107(a) and 1108.

7. On October 30, 2015, the United States Trustee for the District of Delaware

appointed Alesco Preferred Funding X, Ltd., Alesco Preferred Funding VI, Ltd., Trapeza CDO

IX, Ltd., Trapeza Edge CDO, Ltd., and The Bank of New York Mellon Trust Co., N.A. to serve

as members of the official committee of unsecured creditors in these Chapter 11 Cases (the

“Committee”).

8. A description of the Debtors’ business, capital structure, and the circumstances

leading to these Chapter 11 Cases is set forth in the Declaration of Michael J. McClure in

Support of Debtors’ Chapter 11 Petitions and First Day Pleadings [Docket No. 2], filed on the

Petition Date and incorporated herein by reference.


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The Executory Contract and Unexpired Lease

Michigan Leases

9. On February 29, 2012, Affirmative Property Holdings, Inc. (“APHI”), a former

affiliate of the Debtors, as Tenant, entered into that certain Individual Office Lease Agreement –

Offices 202, 203 (the “Office 202 & 203 Lease”) and that certain Individual Office Lease

Agreement – Offices 121, 122, 123, 125, 126, 128, 129 (as modified, the “Suite 120 Lease” and,

together with the Office 202 & 203 Lease, the “Michigan Leases”), with Parkview Properties,

LLC, as Landlord (the “Michigan Landlord”), for certain offices in the building known as the

Parkview Professional Building, located at 409 Plymouth Road, Plymouth, Michigan.

10. On September 10, 2013, Affirmative Management Services, Inc. (“AMSI”),

which is a Debtor in these Chapter 11 Cases, accepted assignment of the Michigan Leases from

APHI pursuant to that certain Assignment and Assumption of Lease Agreement.

11. Following the exercise of certain extensions, the Office 202 & 203 Lease expired

by its terms in 2014. Accordingly, the Office 202 & 203 Lease does not constitute an unexpired

lease of the Debtors.

12. On April 14, 2015, AMSI and the Michigan Landlord entered into that certain

Letter of Modification, Extension and Agreement pursuant to which the term of the Suite 120

Lease was extended through March 31, 2016 and the description of the leased premises was

modified to include only Offices 121, 122, 128, 129, a copy area, and certain common areas (the

“Michigan Premises”). AMSI pays monthly rent in the amount of $2,350.00 to the Michigan

Landlord pursuant to the Suite 120 Lease.

13. Affirmative Insurance Company of Michigan (“AICM”), a regulated, non-debtor

affiliate of the Debtors, occupies the Michigan Premises and reimburses the Debtors for amounts


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owed pursuant to the Suite 120 Lease. As of the date hereof, there are no existing defaults under

the Suite 120 Lease.

Master Services Agreement

14. On October 11, 2013, Affirmative Insurance Holdings, Inc. (“AIHI”) entered into

that certain Master Services Agreement with Navex Global, Inc. (“Navex”) pursuant to which

Navex agreed to provide a whistleblower hotline for employees and other stakeholders of AIHI

to report suspected unethical or unlawful conduct. Such services are provided pursuant to

individual order forms, and the Master Services Agreement is terminable by either party upon

written notice at any time that no order form is then outstanding.

15. Navex’s fee for its services pursuant to the Master Services Agreement is

$2,200.00 per year. AIHI paid this fee in full through October 24, 2015. Although Navex sent

AIHI a renewal form for the time period from October 25, 2015 through October 24, 2016, AIHI

did not complete the renewal form or remit the renewal fee of $2,200.00.

Relief Requested

16. By this Motion, the Debtors seek entry of the Order authorizing the Debtors to (i)

assume the Suite 120 Lease, as modified and currently effective under the Letter of Modification,

Extension and Agreement, and assign the Suite 120 Lease to AICM, effective nunc pro tunc to

December 31, 2015, and (ii) reject the Master Services Agreement, effective nunc pro tunc to

October 25, 2015.

Basis for Relief

17. Bankruptcy Code section 365(a) provides that a debtor in possession, “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); see also Univ. Med. Ctr. v. Sullivan (In re Univ. Med. Ctr.), 973

F.2d 1065, 1075 (3d Cir. 1992). Courts generally authorize debtors to assume or reject


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executory contracts and unexpired leases where the debtors appropriately exercise their

“business judgment.” See, e.g., Sharon Steel Corp. v. Nat’l Fuel Gas Distrib. Corp., 872 F.2d 36,

39-40 (3d Cir. 1989); Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures

Corp.), 4 F.3d 1095, 1098 (2d Cir. 1993); Robertson v. Pierce (In re Chi-Feng Huang), 23 B.R.

798, 800 (B.A.P. 9th Cir. 1982); cf. In re Richmond Metal Finishers, Inc., 756 F.2d 1043, 1047

(4th Cir. 1985) (holding that absent bad faith or abuse of discretion, deference is given to

debtor’s business judgment); Wheeling-Pittsburgh Steel Corp. v. West Penn Power Co. (In re

Wheeling-Pittsburgh Steel Corp.), 72 B.R. 845, 849 (Bankr. W.D. Pa. 1987); In re G Survivor

Corp., 171 B.R. 755, 757 (Bankr. S.D.N.Y. 1994).

18. Courts generally will not second-guess a debtor’s business judgment concerning

the assumption or rejection of an executory contract or unexpired lease. The “business

judgment” test merely requires a showing that either assumption or rejection of the executory

contract or unexpired lease will benefit the debtor’s estate. See In re Trans World Airlines, 261

B.R. 103, 121 (Bankr. D. Del. 2003) (“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.’”) (quoting In re

Wheeling-Pittsburgh Steel Corp., 72 B.R. at 849-50); In re Trans World Airlines, Inc., No. 01-

0056, 2001 Bankr. LEXIS 722, at *7-8 (Bankr. D. Del. Mar. 16, 2001) (noting that the standard

under Bankruptcy Code section 365 requires consideration of the benefit to the debtor’s estate).

19. With respect to rejection of executory contracts or unexpired leases, Bankruptcy

Code section 365(a) enables debtors, for the benefit of the estate, to relieve themselves of future

performance obligations under burdensome agreements. See In re Rickel Home Ctrs., Inc., 209

F.3d 291, 298 (3d Cir. 2000) (stating that Bankruptcy Code section 365 “allows a trustee to


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relieve the bankruptcy estate of burdensome agreements which have not been completely

performed” (internal citations omitted)).

20. The Debtors, in their sound business judgment, have determined that assumption

and assignment of the Suite 120 Lease (as modified pursuant to the Letter of Modification,

Extension and Agreement) to AICM is in the best interest of the Debtors’ estates. AICM, which

currently occupies the Michigan Premises, will continue to do so, and will pay rent directly to the

Michigan Landlord. For this reason, the Debtors seek nunc pro tunc relief so that assumption

and assignment of the Suite 120 Lease is effective as of December 31, 2015. Assumption and

assignment of the Michigan Leases avoids any potential rejection damages claim of the

Michigan Landlord, and enables AICM to continue to occupy the Michigan Premises.

21. The Debtors, in their sound business judgment, have determined that rejection of

the Master Services Agreement is in the best interests of the Debtors’ estates. Because the

Debtors have significantly reduced operations, they no longer have a need for the services

provided by Navex, including the whistleblower hotline. Furthermore, the Debtors never

submitted an order form for the November 25, 2015 to November 24, 2016 time period.

Therefore, the Debtors merely seek an order confirming that the Master Services Agreement is

rejected, nunc pro tunc as of October 25, 2015.

Reservation of Rights

22. Nothing contained herein is intended or should be construed as an admission of

the validity of any claim against the Debtors, a waiver of the Debtors’ or any other party’s rights

to dispute any claim, or an approval or assumption of any agreement, contract, or lease under

Bankruptcy Code section 365 other than those leases and contracts that are subject to this

Motion. If this Court grants the relief sought herein, any payment made pursuant to this Court’s


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order is not intended and should not be construed as an admission of the validity of any claim or

a waiver of the Debtors’ or any other party’s rights to dispute such claim subsequently.

23. Nothing contained herein is intended or should be construed as a request or

authorization to assume or reject any agreements under Bankruptcy Code section 365 other than

the Suite 120 Lease and the Master Services Agreement, a waiver of any party’s rights to assert

that any other party is in breach or default of any agreement, or an admission that any contract is

integrated with any other contract or lease.

Notice

24. The Debtors have provided notice of this Motion to: (a) the Office of the United

States Trustee for the District of Delaware; (b) the Michigan Landlord; (c) AICM; (d) Navex; (e)

counsel to the Committee; (f) JCF AFFM Debt Holdings L.P.; (g) the Internal Revenue Service;

(h) the Securities and Exchange Commission; (i) the Illinois Department of Insurance; (j) the

Louisiana Department of Insurance; (k) the New York Department of Financial Services; (l) the

Michigan Department of Insurance and Financial Services; and (m) all parties entitled to notice

pursuant to Bankruptcy Rule 2002. The Debtors submit that, under the circumstances, no other

or further notice is required.

No Prior Request

25. No prior request for the relief requested herein has been made to this or any other

court.


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WHEREFORE, the Debtors respectfully request that the Court enter the Order,

substantially in the form attached hereto as Exhibit A, granting the relief requested herein and

granting such other relief as the Court deems appropriate.

Dated: December 28, 2015 Respectfully submitted,Wilmington, Delaware

POLSINELLI PC

/s/ Shanti M. KatonaChristopher A. Ward (Del. Bar No. 3877)Shanti M. Katona (Del. Bar No. 5352)Jarrett Vine (Del. Bar No. 5400)222 Delaware Avenue, Suite 1101Wilmington, Delaware 19801Telephone: (302) 252-0920Facsimile: (302) [email protected]@[email protected]

-and-

MCDERMOTT WILL & EMERY LLP

Timothy W. Walsh (admitted pro hac vice)Darren Azman (admitted pro hac vice)340 Madison AvenueNew York, New York 10173-1922Telephone:(212) 547-5400Facsimile: (212) [email protected]@mwe.com

Counsel to the Debtors and Debtors in Possession


52016741.1




))

Case No. 15-12136 (CSS)

)Debtors. )

)))

(Jointly Administered)

Objection Deadline: January 11, 2016 at 4:00 p.m. (ET)

Hearing Date: January 19, 2016 at 1:00 p.m. (ET)

)

NOTICE OF MOTION

PLEASE TAKE NOTICE that Affirmative Insurance Holdings, Inc. and certain of its

wholly-owned direct and indirect subsidiaries, as debtors and debtors in possession (collectively,

the “Debtors”) in the above-captioned chapter 11 cases (these “Chapter 11 Cases”), has filed the

Motion of Debtors for Entry of an Order Authorizing Rejection or Assumption and Assignment of

Certain Executory Contracts and Unexpired Leases (the “Motion”) with the United States

Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).

PLEASE TAKE FURTHER NOTICE that objections, if any, to the Motion must be

filed on or before January 11, 2016 at 4:00 p.m. (ET) (the “Objection Deadline”) with the

Bankruptcy Court, 824 N. Market Street, Wilmington, Delaware 19801. At the same time, you

must serve a copy of the objection upon the undersigned counsel for the Debtors. Only those

objections made in writing and timely filed in accordance with the above procedures will be

considered by the Bankruptcy Court.


Case 15-12136-CSS Doc 186-1 Filed 12/28/15 Page 1 of 2

252016741.1

PLEASE TAKE FURTHER NOTICE that a hearing on the Motion will be held on

January 19, 2016 at 1:00 p.m. (ET) before the Honorable Christopher S. Sontchi at the

Bankruptcy Court, 824 N. Market Street, 5th floor, Courtroom No. 6, Wilmington, Delaware

19801.

PLEASE TAKE FURTHER NOTICE THAT IF YOU FAIL TO RESPOND INACCORDANCE WITH THIS NOTICE, THE COURT MAY GRANT THE RELIEFREQUESTED IN THE MOTION WITHOUT FURTHER NOTICE OR HEARING.

Dated: December 28, 2015 Respectfully submitted,Wilmington, Delaware

POLSINELLI PC

/s/ Shanti M. KatonaChristopher A. Ward (Del. Bar No. 3877)Shanti M. Katona (Del. Bar No. 5352)Jarrett Vine (Del. Bar No. 5400)222 Delaware Avenue, Suite 1101Wilmington, Delaware 19801Telephone: (302) 252-0920Facsimile: (302) [email protected]@[email protected]

-and-

MCDERMOTT WILL & EMERY LLPTimothy W. Walsh (admitted pro hac vice)Darren Azman (admitted pro hac vice)340 Madison AvenueNew York, New York 10173-1922Telephone:(212) 547-5400Facsimile: (212) [email protected]@mwe.com

Counsel to the Debtors and Debtors in Possession


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Exhibit A

Proposed Order


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))

Case No. 15-12136 (CSS)

) (Jointly Administered)Debtors. )

) Re: Docket No. __

ORDER AUTHORIZING REJECTION OR ASSUMPTION AND ASSIGNMENT OFCERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES

Upon the motion (the “Motion”)2 of the above-captioned debtors and debtors in

possession (collectively, the “Debtors”), for entry of an order (this “Order”), authorizing the

Debtors to reject or assume and assign certain executory contracts and unexpired leases, all as set

forth in the Motion; and this Court having found that it has jurisdiction to consider the Motion

pursuant to 28 U.S.C. § 1334; and this Court having found that the Motion is a core proceeding

pursuant to 28 U.S.C. § 157(b); and this Court having found that venue of these Chapter 11

Cases and the Motion in this district is proper pursuant to 28 U.S.C. §§ 1408 and 1409; and this

Court having determined that the relief requested in the Motion is in the best interests of the

Debtors, their estates, their creditors, and other parties in interest; and it appearing that proper

and adequate notice of the Motion has been given and that no other or further notice is necessary;

and this Court having reviewed the Motion and having determined that the legal and factual

bases set forth in the Motion establish just cause for the relief granted herein; and any objections


2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion.


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to the relief requested herein having been withdrawn or overruled on the merits; and after due

deliberation thereon and good and sufficient cause appearing therefor, IT IS HEREBY

ORDERED THAT:

1. The Motion is granted as set forth herein.

2. The Debtors are authorized to assume the Suite 120 Lease, as modified and

currently effective pursuant to the Letter of Modification, Extension and Agreement, and assign

the Suite 120 Lease to AICM, and the Suite 120 Lease (as modified) is hereby assumed and

assigned to AICM pursuant to Bankruptcy Code section 365, effective as of December 31, 2015.

3. Pursuant to Bankruptcy Code section 365(b), the cure amount for the Suite 120

Lease is zero dollars, and the Michigan Landlord shall be forever barred and enjoined from

asserting against the Debtors any defaults, claims, interests, or other default penalties under the

Suite 120 Lease arising before December 31, 2015.

4. The Debtors are authorized to reject the Master Services Agreement, and the

Master Services Agreement is hereby deemed rejected pursuant to Bankruptcy Code section 365,

effective as of October 25, 2015.

5. Any rejection damages claim of Navex under the Master Services Agreement

shall be deemed a general unsecured claim.

6. Notwithstanding the relief granted in this Order and any actions taken pursuant to

such relief, nothing in this Order shall be deemed: (a) an admission as to the validity or amount

of any particular claim against a Debtor; (b) a waiver of the Debtors’ rights to dispute any

particular claim on any grounds; (c) a promise or requirement to pay any particular claim; (d) an

implication or admission that any particular claim is of a type specified or defined in the Motion;

(e) a waiver or limitation of the Debtors’ rights under the Bankruptcy Code or any other


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applicable law; or (f) a request or authorization to assume or reject any agreements under

Bankruptcy Code section 365 other than the Suite 120 Lease and the Master Services

Agreement.

7. Notice of the Motion as provided therein shall be deemed good and sufficient and

the requirements of the Local Rules are satisfied by such notice.

8. The Debtors, the Michigan Landlord, AICM, and Navex are authorized to take all

actions necessary to effectuate the relief granted pursuant to this Order.

9. This Court shall retain exclusive jurisdiction to resolve any dispute arising from

or related to this Order.

Dated: January ___, 2016Wilmington, Delaware

THE HONORABLE CHRISTOPHER S. SONTCHIUNITED STATES BANKRUPTCY JUDGE


Documents

FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 …omnimgt.com/cmsvol2/pub_47031/563556_186-3.pdf · - 2 - 52016904.1 3. The statutory basis for the relief requested herein is section