National R.V. Holdings, Inc. and National R.V., Inc.

OCR transcription for search; preserved printed pages are authoritative

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AUTHENTICATED /

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA
RIVERSIDE DIVISION

Case No. 6:07-17941-PC

In re:

Nee ee”

NATIONAL R.V. HOLDINGS, INC., a
Delaware corporation; and
NATIONAL R.V., INC., a

California corporation,

Chapter 11

Jointly Administered with
Case No. 6:07-17937-PC

Date: February 19, 2008

Time: 10:30 a.m.

Place: United States Bankruptcy Court
Courtroom # 303
3420 Twelfth Street
Riverside, CA 92501

Debtors.

Nene” Sena” “nme” Mma Se” Sng” Somme “ingest” Seg Senge “Seer

MEMORANDUM DECISION

The Ad Hoc Committee of Equity Holders (the “Ad Hoc Committee”)' seeks an order
directing the United States trustee to appoint an Official Committee of Equity Security Holders
pursuant to § 1102(a)(2) of the Code.” National R.V. Holdings, Inc. (“NRVH”), National R.V.,
Inc. (“NRV”), the Official Committee of Unsecured Creditors (the “Creditors’ Committee”), and
the United States trustee (“UST”) oppose the request on the grounds that the appointment of such
a committee is not necessary to assure adequate representation of the equity security holders. At
the hearing, Ali M.M. Mojdehi appeared for the Ad Hoc Committee; Jonathan S. Shenson and
David M. Guess appeared for NRVH and NRV; Hamid R. Rafatjoo appeared for the Creditors’

Committee; and Timothy J. Farris appeared for the UST. The court, having considered the Ad

” The Ad Hoc Committee consists of Milfam II, L.P., Miller Irrevocable A-4, and Millennium
Partners, LLC, Michael Cooney, and Barry A. Shaw, Jr., who collectively hold 19% of the
common stock of National R.V. Holdings, Inc.

oo ke

4 Unless otherwise indicated, all “Code,” “chapter” and “section” references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1330 after its amendment by the Bankruptcy Abuse and
Consumer Prevention Act of 2005, Pub. L. 109-8, 119 Stat. 23 (2005), “Rule” references are to
the Federal Rules of Bankruptcy Procedure (“Fed. R. Bankr. P.”), which make applicable certain
Federal Rules of Civil Procedure (“Fed. R. Civ. P.”).

U.S. GOVERNMENT
INFORMATION
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Hoc Committtee’s motion and the opposition thereto, the evidentiary record, and arguments of
counsel, makes the following findings of fact and conclusions of law’ pursuant to Fed. R. Civ. P.
52, as incorporated into Fed. R. Bankr. P. 7052 and made applicable to contested matters by Fed.
R. Bankr. P. 9014{c).

I. STATEMENT OF FACTS

On November 30, 2007, NRVH, a Delaware corporation, and NRV, a California
corporation, filed voluntary petitions for relief under chapter 11 of the Code. NRVH is a holding
company whose principal asset is 100% of the equity in NRV, the operating entity. For
approximately 48 years prior to the filing of the petitions, NRVH and NRV (collectively, “the
Debtors”) designed, manufactured, and marketed “Class A” gas and diesel recreational vehicles
(“RVs”) at their facility in Perris, California, under various product names, including Dolphin,
Pacifica, Sea Breeze, Surf Side, Tradewinds, and Tropi-Cal. At the time of bankruptcy, the
Debtors were the ninth largest manufacturer of “Class A” RVs in the country distributing 1,500
RVs annually through 75 dealer locations in the United States and Canada. Shortly before the
petition date, the Debtors succumbed to a liquidity crisis which resulted in a 90% workforce
reduction and termination of continued operations. Debtors commenced the cases to preserve the
value of their remaining assets. The cases have been jointly administered since December 12,
2007.

Debtors do not intend to reorganize. Their objective is to maximize the value of their
assets through an orderly and expeditious liquidation. Debtors believe that value for the benefit
of the estate can be derived from three sources: (1) the sale of inventory, both finished and
unfinished RVs, parts and replacements; (2) the collection of accounts receivable and the sale of

furniture, fixtures, and equipment (“FF&E”), intellectual property, and other assets; and (3) the

+ To the extent that any finding of fact is construed to be a conclusion of law, it is hereby
adopted as such. To the extent that any conclusion of law is construed to be a finding of fact, it is
hereby adopted as such. The court reserves the right to make additional findings and conclusions
as necessary or as may be requested by any party.

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successful prosecution of the Kemlite Litigation.’

On December 14, 2007, the UST appointed the Creditors’ Committee in the NRV case
pursuant to § 1102(a)(1). No committee was appointed in the NRVH case. By letter dated
January 15, 2008, Mr. Mojdehi, on behalf of the Ad Hoc Committee, asked the UST to appoint
an Official Committee of Equity Security Holders in the NRVH case reasoning that NRVH was
solvent, the equity security holders were unique and unrepresented, and the cost of an equity
security holders’ committee would not be unduly burdensome. On January 23, 2008, the
Creditors’ Committee advised the UST that it opposed the appointment of an equity security
holders’ committee primarily because the equity security holders were, in the Creditors’
Committee’s opinion, “out of the money.“ After considering the Ad Hoc Committee’s reply, the
UST advised the Ad Hoc Committee , the Creditors’ Committee, NRVH, and NRV on January

30, 2008, of his decision not to appoint an equity security holders’ committee.°

¥ On July 28, 2006, NRV filed a complaint against Crane Co. and Crane Composites, Inc., a/k/a
Kemlite Company, Inc., seeking not less than $8 million in compensatory damages, plus punitive
damages, attorneys fees and costs, for alleged breach of contract, breach of warranty,
misrepresentation, and other causes of action in Case No. EDCV 06-00803 SGL PJWx, styled
National R.V.. Inc. v. Crane Co.. et. al., in the United States District Court, Central District of
California, Eastern Division (the “Kemlite Litigation”), Trial of the case commenced on January
15, 2008.

¥ Peter C. Anderson, United States Trustee for Region 16, arrived at his decision in the following
manner:

In making my decision, I took into account into account the six factors set forth in
Mr. Mojdehi’s initial letter. I took into account that, at the present time, there is evidence
that [NRVH] appears to be insolvent. I took into account that the interests of
shareholders appear to be adequately represented at this time by four separate entities: the
board of directors, who owe them a fiduciary duty; the insiders, especially those who are
shareholders themselves, who owe equity a fiduciary duty as well; the Official Creditots’
Committee, who has every reason to seek a maximum return on the assets of [NRV] ag
well as [NRVH]; and by the efforts of the Ad Hoc Committee itself. 1 determined that the
case is not large or complex when compared to the reported cases in which equity security
holders’ committees have been previously appointed. Further, the cases involve a
liquidation and prosecution of a lawsuit, not a reorganization. I considered that

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On February 4, 2008, the Ad Hoc Committee moved for an order directing the immediate
appointment of an official equity security holders’ committee in the NRVH case “to provide
equity holders with adequate representation in the chapter 11 process.”*° The Ad Hoc
Committee’s Motion was heard on shortened notice and opposed by the Debtors,’ Creditors’
Committee, and UST. After a hearing on February 19, 2008, the matter was taken under
submission.

II. DISCUSSION

This court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 157(a) and
1334(b). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O). Venue is
appropriate in this court. 28 U.S.C. § 1409(a).

Section 1102(a)(1) directs the UST to appoint an unsecured creditors’ committee as soon

as practicable after entry of the order for relief in a chapter 11 case, and authorizes the UST in its

[NRVH]’s stock is not widely held as there are only “well over 100" shareholders, not the
thousands and tens of thousands of holders in those reported cases in which an equity
security holders’ committee has been appointed, and almost half of the shares are reported
to be owned by approximately six holders. I received no information as to how actively
the shares are traded. I concluded that it was at least premature to consider the
appointment of an equity security holders’ committee in [NRVH] at this time, as given
the present status of the case, equity is “still out of the money.” I concluded that the cost
and delay associated with the appointment of an equity security holders’ committee
outweighed the cost of exclusive representation for equity security holders. For all of the
foregoing reasons, I decided not to appoint an equity security holders’ committee at this
time.
Declaration of United States Trustee, Peter C. Anderson in support of United States Trustee’s |

Opposition to Motion of Ad Hoc Committee for Appointment of Official Committee of Equi
Security Holders, p.16, 1.15 to p.17, 1.6.

* Motion of Ad Hoc Committee of Equity Holders for Appointment of Official Committee of
Equity Holders (“Motion”), p.13, 118-19.

¥ Debtors requested that the Ad Hoc Committee’s Motion be continued for 30 days insisting that
the critical question of whether equity was “in the money” hinged upon the outcome of the
Kemlite Litigation.

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discretion to “appoint additional committees of creditors or of equity security holders as {it]
deems appropriate.” If the UST does not appoint a committee of equity security holders, the
court, on the request of a party in interest, may exercise its discretion to order the appointment of
an equity security holders’ committee, but only if the appointment of such a committee is
“necessary to assure adequate representation ... of equity security holders” under the facts and
circumstances of the case.” The UST insists that its discretionary decision not to appoint an
equity security holders’ committee in the NRVH case must be reviewed under an abuse of
discretion standard. The court disagrees.

Section 1102(a)(2) states plainly that “the court may order the appointment of additional
committees .. . if necessary to assure adequate representation” without reference to a standard of

review applicable to any prior decision by the United States trustee. See In re Enron Corp., 279

B.R. 671, 685 (Bankr. 8.D.N.Y. 2003) aff'd sub nom. Mirant Americas Energy Mktg, L.P.v.
Official Comm. of Unsecured Creditors of Enron Corp., 2003 WL 22327118 (S.D.N.Y. Oct. 10,
2003) (“There is no indication, upon review of the plain language of the statute, that the court is

constrained in making such a determination.”); In re McLean Indus., Inc., 70 B.R. 852, 857-58

# Section 1102(a)(1) states:

Except as provided in paragraph (3), as soon as practicable after the order for relief under
chapter 11 of this title, the United States trustee shall appoint a committee of creditors
holding unsecured claims and may appoint additional committees of creditors or of equity
security holders as the United States trustee deems appropriate.

11 U.S.C. § 1102(a)(1) (emphasis added).

+ Section 1102(a)(2) provides:

On request of a party in interest, the court may order the appointment of additional
committees of creditors or of equity security holders if necessary to assure adequate
representation of creditors or of equity security holders. The United States trustee shall
appoint any such committee.

11 U.S.C. § 1102(a)(2) (emphasis added).

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(Bankr. S.D.N.Y. 1987) (“Congress sought primarily to take bankruptcy judges out of the
appointment process and Congress expressly retained in the bankruptcy courts the ability to

decide de novo the question of whether additional committees are necessary to assure adequate

representation.”). As the court explained in In re Texaco, Inc.,

The issue of adequate representation is one which is ultimately entrusted to the
courts to decide upon an application made by a party in interest. This issue is determined
on a de novo basis after the administrative task of appointing committees is performed by
the United States Trustee. An abuse of discretion standard does not apply with respect to
the United States Trustee’s initial exercise of discretion because the concept of adequate
representation is a legal issue which must be resolved judicially. Hence, the court’s
determination as to the adequacy of representation within the meaning of 11 U.S.C. §
1102(a)(2) is not an administrative review because this decision is committed to the court
on ade novo basis. There is no requirement under 11 U.S.C. § 1102(a)(2) that an
interested party must first submit such a request to the United States Trustee. Therefore,
whether or not such a request was first submitted to the United States Trustee, the court
must arrive at its own judgment, although the court may consider reasons advanced by the
United States Trustee in the event that such a request was previously submitted to the
United States Trustee.

79 B.R. 560, 566 (Bankr. S.D.N.Y. 1987). Therefore, the court will review the UST’s decision
not to appoint an official equity security holders’ committee in the NRVH case, as requested by
the Ad Hoc Committee, de novo.

The appointment of an additional committee is an extraordinary remedy. Inre Dana .

Corp., 344 B.R. 35, 38 (Bankr. S.D.N.Y. 2006); In re Winn-Dixie Stores, Inc., 326 B.R. 853, 857

(Bankr. M.D, Fla. 2005); Enron Corp., 279 B.R. at 685. The party moving for an order directing
the appointment of an additional committee has the burden of establishing that it is not

adequately represented.’ Dana Corp., 344 B.R. at 38; Winn-Dixie, 326 B.R. at 857; Enron

4 The Ad Hoc Committee’s Motion is not supported by a declaration or other evidence. The Ad
Hoc Committee simply requests that the court “take judicial notice of all matters of public record
in the Debtors’ above-captioned chapter 11 cases, including the Debtors’ schedules and satin
of financial affairs.” Motion, p.2, n.2. A court has discretion to take judicial notice of |
adjudicative facts, but judicial notice is mandatory “if requested by a party and supplied with the
necessary information.” Fed. R. Evid. 201(c) & (d). In this case, the Ad Hoc Committee did not
supply the necessary information in conjunction with its request for judicial notice. Furthermare,
the court notes that, as of the date of the hearing, there were 54 docket entries in the NRV case
and 258 docket entries in the NRVH case. The Debtors’ schedules and statements alone exceed

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Corp., 279 B.R. at 685.
“Adequate representation” is not defined by the Code. Winn-Dixie, 326 B.R. at 857; In
re Leap Wireless Int’l, Inc., 295 B.R. 135, 137 (Bankr. S.D. Cal. 2003); In re Williams

Comme’ns Group, Inc., 281 B.R. 216, 220 (Bankr. S.D.N.Y. 2002). Courts addressing the issue
of adequate representation generally consider the following non-exclusive factors: (1) the number
of shareholders; (2) the complexity of the case; and (3) whether the cost of the additional
committee significantly outweighs the concern for adequate representation. Leap Wireless, 295
B.R. at 137; Williams Comme’ns, 281 B.R. at 220; In re Wang Laboratories, Inc., 149 B.R. 1, 2

(Bankr. D. Mass. 1992). Other factors that may be considered by the court in determining
adequacy of representation include:

1. Whether the shares are widely held and publicly traded;

2 The size and complexity of the chapter 11 case;

3 The delay and additional cost that would result if the court grants the motion;

4, The likelihood of whether the debtors are insolvent;

5 The timing of the motion relative to the status of the chapter 11 case; and

6. Other factors relevant to the adequate representation issue.

Matter of Kalvar Microfilm, Inc., 195 B.R. 599, 600 (Bankr. D. Del. 1996). “No one factor is

dispositive, and the amount of weight that the court should place on each factor may depend on
the circumstances of the particular Chapter 11 case.” Id. at 600-601; see Dana Corp., 344 BR: at
38. In the final analysis, a court’s decision to order the appointment of an equity security |

holders’ committee is discretionary and turns on the facts of each case. See Dana Corp., 344 |

2,700 pages. NRVH’s schedules and statement of financial affairs are 193 pages in length, and
NRV’s schedules and statement of financial affairs total 2,549 pages. “While the court may, in
its discretion, take judicial notice of matters of public record, it is not the responsibility of the
court to scour the record to make a party’s case for it.” Krol v. North Shore Holdings, Ltd. (In-re
Sorci), 315 B.R. 723, 728 (Bankr. N.D. Ill. 2004). Therefore, the Ad Hoc Committee’s request
for judicial notice is denied.

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B.R. at 38; Willtams Comme’ns, 281 B.R. at 220; Wang Laboratories, 149 B.R. at 2.

The following factors are relevant to the court’s analysis in this case: (1) the likelihood of
whether the Debtors are insolvent; (2) the size and complexity of the cases; (3) whether the
shares are widely held and publicly traded; (4) whether the cost of the additional committee

significantly outweighs the concern for adequate representation; and (5) other factors relevant to

adequate representation.

There is a Likelihood that the Debtors are Insolvent.

The principal issue on any motion for the appointment of an equity security holders’
committee is whether the debtor is solvent or it appears likely that there will be a substantial
return for equity. See Williams Comme’ns, 281 B.R. at 223 (“Such committees should not be |
appointed unless equity holders establish that (i) there is a substantial likelihood that they will |
receive a meaningful distribution in the case under a strict application of the absolute priority |

rule, and (ii) they are unable to represent their interests in the bankruptcy case without an official

committee”); In re Emons Indus., Inc., 50 B.R. 692, 694 (Bankr. S.D.N.Y. 1985) (opining that :

“no equity committee should be appointed when it appears that a debtor is hopelessly insolvent
because neither the debtor nor the creditors should have to bear the expense of negotiating over
the terms of what is in essence a gift”) .

The Ad Hoc Committee asserts that NRVH’s schedules alone indicate equity of at least
$42 million and therefore, a substantial likelihood of a meaningful distribution to equity security
holders in the case. In its schedules filed on January 14, 2008, NRVH disclosed personal |
property valued at $53,876,748"! and debts totaling $10,397,395. However, the schedules do not
tell the whole story. NRVH’s schedules do not accurately identify NR VH’s assets or the fair

market value of its assets. First, the information contained in NRVH’s schedules appears to have

V This valuation includes an “Intercompany Receivable from National R.V., Inc.” in the amount
of $45,101,873 (the “Inter-company Claim’), but does not include either NRVH’s contingent and
unliquidated claim made the basis of the Kemlite Litigation or NRVH’s patents and trademarks
which were each listed in Schedule B as having an “unknown” value.

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been drawn from a consolidated balance sheet dated September 30, 2007, which commingled the
assets and liabilities of NRV and NRVH. Second, NRVH revealed in paragraph 3(a) of a
statement preceding the schedules entitled “Global Notes and Statement of Limitations,
Methodology, and Disclaimer Regarding Debtors’ Schedules and Statements” that the property
identified in the schedules was valued at “book value” or NRVH’s cost basis for the assets, not
market value.'? Finally, NRVH’s schedules do not accurately reflect the prepetition claims that
may ultimately be allowed against NRVH’s assets. For example, Schedule E disclosed 15
holders of unsecured priority tax claims totaling $6,185, but identifies another 89 holders of
contingent, unliquidated, and disputed unsecured priority tax claims of an unknown amount.
Schedule F lists 12 holders of unsecured nonpriority claims totaling $747,635, but an additional
20 holders of contingent, unliquidated, and disputed unsecured nonpriority claims are scheduled
in an unknown amount. The deadline to file proofs of claim does not expire until May 28, 2008.
At this time, there is no evidence that Debtors’ collection of accounts receivable and
liquidation of its inventory, FF&E, intellectual property, and other assets will put the equity
security holders “in the money.” Since the commencement of the case, the Debtors have worked
closely with the Creditors Committee to liquidate the assets of the estate expeditiously but in a:
manner that maximizes value for the estate. A substantial portion of the Debtors’ accounts
receivable were collected prior to the creditors’ meeting and used to pay secured creditors and |
operating expenses. Debtors sold their South Coast Reactive Organic Gas Emission Reduction
Credits for approximately $1.6 million. Nearly $14.5 million is expected from the sale of the .
Debtors’ finished and built-out RVs, but the estate may net only $2.6 million due to claims |
secured by the RVs and costs associated with the sales. Over $2.4 million of the sale proceeds
will be used to reduce the secured claim of Wells Fargo Bank, N.A. and another $8.0 million _

must be set aside to satisfy claims of chassis vendors pending further order of the court.

47 NRVH included a footnote to the total asset value disclosed on the Summary of Schedules
which states: “This amount does not include the items where no book value has been liquidated.”

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Furthermore, the estate has incurred administrative expenses in conjunction with the sale,
including nearly $1.0 million for labor and materials to complete the build-out of at least 61 RVs.
With respect to the FF&E and raw materials, the Creditors’ Committee reports that the highest
minimum guaranteed bid secured by the Debtors for the sale of the assets was only $1.6 million.

On the expense side, the Debtors estimate at least $7 million in administrative claims.
And there are a number of unresolved issues. On December 12, 2007, a class action was
commenced in Adversary No. 07-01305, styled Henry Caouette_y. National R.V. Holdings, Inc.,
et.al., in the United States Bankruptcy Court, Central District of California, Riverside Division,
for recovery of damages by Henry Caouette and other similarly situated employees of the Debtors
in the amount of 60 days’ pay and ERISA benefits for alleged violation of the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et. seq., and California Labor
Code §§ 1400, et. seq. (the “WARN Act Litigation”). The Creditors’ Committee estimates that
the Debtors’ potential liability in the WARN Act Litigation is $4 million. Reclamation claims
must be resolved and the claims of the chassis vendors must be adjudicated. The Debtors also
face a continuing administrative claim for rent in excess of $258,500 per month if they are unable
to exit their leased space in Perris, California, by April 30, 2008.

At the time of submission, the issue of whether equity was “in the money” boiled down to
whether (and to what extent) the Debtors would be successful in the Kemlite Litigation. On
February 26, 2008, the jury returned a verdict in favor of the Debtors for $3.5 million in damages
- $21.5 million short of the amount sought by the Debtors. Even assuming the verdict is reduced
to judgment and paid in full, equity security holders will not be “in the money” given the slim
recovery and the contingent fees and costs payable to Debtors’ special litigation counsel,
O’Melveny & Myers LLP. Based on the foregoing, there is a substantial likelihood that the
Debtors are insolvent and that equity security holders will not receive a meaningful distribution

in the NRVH case.

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Debtors’ Cases are Not Large or Complex.

The jointly administered cases are not large or complex, nor are the interests of creditors
and equity security holders so conflicting as to require the appointment of an equity security
holders’ committee to assure adequate representation. See Williams Comme’ns, 281 B.R. at 222
(concluding that “the Creditors’ Committee has sufficiently aligned or parallel interests with the
Shareholders to preclude the need for an additional committee”). The cases are focused on the
expeditious liquidation of assets. Since the commencement of the case, the Debtors have taken
action to collect accounts receivable, sell emission credits, and liquidate the inventory of RVs
and replacement parts. The sale of substantially all of the Debtors’ remaining RVs should be
completed in approximately 45 days. Debtors intend to sell the FF&E, excess raw materials, and
intellectual property through a liquidator within the next 60 days. The Kemlite Litigation should
conclude shortly in view of the $3.5 million verdict in favor of the Debtors. Once the auction is
completed, the attention will turn to claims adjudication and a plan for distribution on account of
allowed claims. Equity security holders may receive a distribution if, and only if, funds remain
after the payment of administrative expenses and allowed claims.

NRVH’s Shares are Publicly Traded, But Not Widely Held.

NRVH may be a publicly traded company, but it has traded over the counter in the Pink
Sheet market since its withdrawal from the OTC Bulletin Board. The Ad Hoc Committee did not
provide any evidence establishing that NRVH’s shares are actively traded. Nor does it appear
that NRVH stock is widely held. There may be “well over 100" equity holders in NRVH, but it
is undisputed that 50% of the 10,339,484 outstanding shares of common stock in the company
are held by 6 individuals or entities. "Not every case with public shareholders warrants an equity

committee.” Emons Indus., 50 B.R. at 694.

Whether the Cost of an Equity Security Holders’ Committee Significantly Qutweighs the
Concern for Adequate Representation.

The Ad Hoc Committee concedes that the court must balance the potential value of an |

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equity security holders’ committee’s representation against the administrative costs associated -
with appointment of the committee.'? Wang, 149 B.R. at 3 (stating that the “equation requires a
balancing of the cost of the additional committee against the value of the representation to be |
provided”); In re Beker Indus. Corp., 55 B.R. 945, 949 (Bankr. 8.D.N.Y. 1985) (observing that
“the appointment of additional committees is ‘closely followed by applications to retain attorneys
and accountants.’” (citation omitted)). Having determined that the equity security holders will
not be “in the money” and thereby receive a meaningful distribution, this factor weighs heavily
against the appointment of an official committee of equity security holders in the NRVH case.

Other Factors Relevant to Adequate Representation.

The Ad Hoc Committee maintains that Debtors’ executive officers and directors have
little incentive to adequately represent the interests of equity security holders given the fact that
collectively they hold not more than 3% of NRVH’s common stock. However, this argument
ignores the fiduciary obligations of NRVH and NRV, as debtors in possession, to both creditors
and equity security holders.

When the debtor is a corporation, the debtor in possession’s fiduciary obligations to the
corporation, its creditors and shareholders, fall upon the officers and directors. See Commodity

Futures Trading Comm’n vy. Weintraub, 471 U.S. 343, 355 (1985) (stating that “the debtor’s

directors bear essentially the same fiduciary obligation to creditors and shareholders as would the
trustee for a debtor out of possession”); Holta v. Zerbetz (In re Anchorage Nautical Tours, Inc.),
145 BR. 637, 643 (9th Cir. BAP 1992) (“When the debtor is a corporation, corporate officers
and directors are considered to be fiduciaries both to the corporate debtor in possession and to the
creditors.”’).

Corporate officers, as fiduciaries, must protect and preserve estate assets held in trust for

the benefit of creditors. Holta, 145 B.R. at 643; Hirsch v. Penn. Textile Corp. (In re Centennial

Textiles, Inc.), 227 B.R. 606, 612 (Bankr. S.D.N.Y. 1998) (“As fiduciaries, the debtor in

+ Motion, p.i2, 1.28 to p.13, 1.2.

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possession and its managers are obligated to treat all parties to the case fairly, maximize the
value of the estate, and protect and conserve the debtor’s property” (internal citations omitted)).
In this regard, the Ninth Circuit holds the debtor in possession’s corporate officers to the
standards of “officers of the court because of their responsibility to act in the best interests of the
estate as a whole and the accompanying fiduciary duties.” Gumport y. China Int’! Trust & Inv.
Corp. (In re Intermagnetics Am., Inc.), 926 F.2d 912, 917 (9th Cir. 1991); see York Int’l
Building, Inc. v. Chaney (In re York Int’] Building, Inc.), 527 F.2d 1061, 1068 (9th Cir. 1975)

(noting that special masters administering bankruptcy estates “are not acting as private persons,

but as officers of the court”).

The Ad Hoc Committee has the burden to demonstrate the need for adequate
representation and there are no facts to suggest that management is not aligned with non-insider
equity security holders. The Ad Hoc Committee has not presented any evidence that the
Debtors’ officers or directors have either breached their fiduciary duties to the equity security
holders or are incapable of properly discharging their fiduciary duties in these jointly
administered cases.

Nor is there evidence to support the Ad Hoc Committee’s further contention that the
Creditors Committee is bent on disallowing NRVH’s Inter-company Claim for the sole purpose
of maximizing distributions to the holders of other unsecured nonpriority claims of NRV. The
Creditors Committee was appointed by the UST to represent the interests of NRV’s unsecured
creditors. NRVH is an unsecured creditor of NRV by virtue of the Inter-company Claim. The:
Creditors’ Committee and its members have a fiduciary duty to all creditors represented by the
committee, including NRVH. Inre Barney’s, Inc., 197 B.R. 431, 442 (Bankr. 8.D.N.Y. 1996);
see Bohack Corp. v. Gulf & Western Indus., Inc,, 607 F.2d 258, 262 n.4 (2d Cir. 1979) (stating

that a “committee owes a fiduciary duty to the creditors, and must guide its actions so as to i

safeguard as much as possible the rights of minority as well as majority creditors”). While the

committee may be motivated to investigate the inter-company transaction between NRVH and

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NRV, there is no evidence that the Creditors’ Committee is unable to properly discharge its
fiduciary obligations to all of NRV’s unsecured creditors, including NRVH, or that the Creditors’
Committee has an irreconcilable conflict of interest necessitating the formation of an equity
security holders’ committee in NRVH for the sole purpose of protecting NRVH’s general
unsecured claim in the NRV case.
Il. CONCLUSION

In summary, the court finds that the appointment of an official committee under §
1102(a)(2} is not necessary at this time to assure adequate representation of NRVH’s equity
security holders under the specific facts of this case and therefore, the Ad Hoc Committee’s
Motion should be denied. The Ad Hoc Committee is not without recourse. The Ad Hoc !
Committee may continue to appear and be heard on any issue in the case. 11 U.S.C. § 1109(b).
If the court determines that its work results in a substantial contribution to the estate, the Ad Hoc
Committee’s actual, necessary expenses may be reimbursed under § 503(b)(3)(D). 11 U.S.C. §

503(b)(3)(D); see Leap Wireless, 295 B.R. at 146 s Comme’n, 281 B.R. at 223-24.

A separate order will be entered cq

Dated: February 29, 2008

PETER H. CARROLL
United States Bankruptcy Judge

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NOTE TO USERS OF THIS FORM:
Physically attach this form as the fast page of the proposed Order or Judgment.
Do not file this form as a separate document.

Inte NATIONAL R.V. HOLDINGS, INC., CHAPTER _11

Debtor. | CASE NUMBER RS 07-17941 PC

NOTICE OF ENTRY OF JUDGMENT OR ORDER
AND CERTIFICATE OF MAILING

TO ALL PARTIES IN INTEREST ON THE ATTACHED SERVICE LIST:

1. You are hereby notified, pursuant to Local Bankruptcy Rule 9021-1(a}(1)(E), that a judgment or order entitled
(specify); MEMORANDUM DECISION

was entered on (specify date): FEB 29 2008
2. | hereby certify that | mailed a copy of this notice and a true copy of the order or judgment to the persons and
entities on the attached service list on (specify date):
FEB 29 2008
Dated: FE JON D. CERETTO
B25 2008 Clerk of the Bankruptcy Court D

, Deputy Clerk

Rev. 1/01 This form is optional. It has been approved for use by the United States Bankruptcy Court for the Central District of California. F 9021 -1 / 1

Case 6:07-bk-17941-DS Doc 281 Filed 02/29/08 Entered 02/29/08 15:48:27 Desc |

Main Document

National R.V. Holdings, Inc.
3411 N, Perris Blvd.
Perris, CA 92571

Jonathan S. Shenson, Esq.

David M. Guess, Esq.

Klee, Tuchin, Bogdanoff & Stern LLP
1999 Avenue of the Stars, 39” Floor
Los Angeles, CA 90067

Timothy Farris, Esq.
United States Trustee
3685 Main Street, Ste. 300
Riverside, CA 92501

Hamid R. Rafatjoo, Esq.

Pachulski Stang Ziehl & Jones LLP
10100 Santa Monica Blvd., 11" Floor
Los Angeles, CA 90067-4100

Ali M.M. Mojdehi, Esq.

Baker & McKenzie, LLP

12544 High Bluff Drive, Third Floor
San Diego, CA 92130-3051

Service List

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