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In re
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
Chapter 11
Case No. 13-11153 (CSS)
Coda Holdings, Inc., et al.,
Debtors.
1
Jointly Administered
Requested Objection Deadline: May 24, 2013
at 11:00 a.m. (EDT)
Requested Hearing Date: May 29, 2013
-----------------' at 10:00 a.m. (EDT)
MOTION OF CODA HOLDINGS, INC. AND ITS AFFILIATED DEBTORS
FOR ORDER, PURSUANT TO 11 U.S.C. 105(a) AND 363(b), AUTHORIZING
THE DEBTORS TO CONDUCT A VOLUNTARY RECALL OF CODA
SEDANS TO REPLACE ROOF-MOUNTED SIDE CURTAIN AIRBAGS
Coda Holdings, Inc. and its affiliated debtors and debtors in possession in the above-
captioned chapter 11 cases (collectively, the "Debtors"), hereby file their motion for an order,
pursuant to sections 105(a) and 363(b) oftitle 11 ofthe United States Code, authorizing the
Debtors to conduct a voluntary recall of CODA Sedans to replace roof-mounted side curtain
airbags (the "Motion"). In support of the Motion, the Debtors respectfully represent:
I. PRELIMINARY STATEMENT
The Debtors hereby request authority to conduct a voluntary recall to address a
potential safety issue in their vehicle marketed as the "CODA Sedan." The total cost of the
contemplated voluntary recall will not exceed $40,000. Although the Debtors believe that the
The Debtors in these chapter II cases, along with the last four digits of their respective federal employer
identification numbers, are: Coda Holdings, Inc. ( 1892); Cocla Automotive, Inc. (6800); Coda Energy LLC (3053);
Coda Automotive (CA), Inc. (91 09); and EnergyCS LLC ( 1359) .
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Docket #0081 Date Filed: 5/13/2013
voluntary recall they propose to conduct is an ordinary course activity, they seek Court
authorization to proceed in an abundance of caution.
The contemplated recall concerns the side curtain airbags in the CODA Sedan. In
the course ofNHTSA crash testing earlier this year, it was observed that the side curtain airbags
in the vehicle did not deploy as intended upon impact. Although the deployment was found to be
compliant with applicable standards, the sub-optimal deployment may result in sub-optimal
protection for vehicle occupants in the event of a crash. There are no known incidents or injuries
relating to this condition. However, given the small cost of performing the recall, the fact that
customer safety is implicated, and the fact that the Debtors' debtor in possession financing
providers have consented to the use of their cash collateral to conduct the voluntary recall, the
Debtors view the voluntary recall as well justified under the circumstances. Conducting the
voluntary recall will be beneficial not only to CODA Sedan owners and other occupants of their
vehicles; but will also serve to protect the Coda name for the benefit of the Debtors' estates.
For all of these reasons, and as more fully set forth herein, the Debtors
respectfully request that the Court grant the Motion.
II. BACKGROUND
A. General Background
1. On May 1, 2013 (the "Petition Date"), each ofthe Debtors filed a voluntary
petition for relief under chapter 11 of the Bankruptcy Code, thereby commencing the above-
captioned chapter 11 cases (the "Chapter 11 Cases"). The Chapter 11 Cases are jointly
administered for procedural purposes only.
2. The Debtors continue to manage their properties as debtors in possession pursuant
to sections 1107(a) and 1108 ofthe Bankruptcy Code.
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3. On May 10,2013, the Office ofthe United States Trustee appointed the Official
Committee of Unsecured Creditors. To date, not trustee or examiner has been appointed in the
Debtors' cases.
4. Prior to the Petition Date, the Debtors developed the CODA Sedan, an all-electric
passenger car that boasts a longer and more dependable range than any non-luxury electric
passenger car currently on the market. Following unanticipated delays in bringing the car to
market, deliveries ofthe CODA Sedan did not begin until March of2012, approximately a year
later than originally scheduled. Due to a variety of factors, including (i) loss of competitive
I" advantage resulting from the delayed release; (ii) insufficient capitalization to effectively market
and sell the CODA Sedan; (iii) slower than anticipated growth in demand for EV s, generally; and
(iv) adverse macroeconomic market conditions; the Debtors sold fewer than 100 CODA Sedans,
falling well short of the Debtors' expectations.
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B. Background Specific to the Motion
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5. The National Highway and Transportation Safety Authority ("NHTSA")
conducted side impact crash testing of the CODA Sedan in March of2013. During the course of
this testing, NHSTA observed that the side curtain airbag on the drivers' side ofthe subject
vehicle did not deploy as intended. Although NHTSA determined that the CODA Sedan tested
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in compliance with applicable side impact standards, the sub-optimal airbag deployment led to
an investigation.
6. Following the investigation into the sub-optimal airbag deployment, investigators
concluded that the roof-mounted side curtain airbags in the CODA Sedan test vehicle were not
assembled correctly by the supplier prior to installation in the vehicle. Specifically, investigators
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detennined that the inflatable fabric pouch contained within the airbag unit was not properly
rolled (in its deflated state) such that it would unroll and inflate as intended upon deployment.
7.
There are no known incidents or injuries relating to improper deployment of a
side curtain airbag installed in any consumer's CODA Sedan. Nonetheless, upon their belief that
the condition identified by investigators may exist in other model year 2012 CODA Sedans, the
Debtors (prior to the Petition Date) ordered replacement side curtain airbag units, certified by the
supplier to be properly rolled, for the purposes of conducting a voluntary recall.
8.
The Debtors detennined to conduct a voluntary recall, without a mandate from
NHSTA, due to the significance ofthe side curtain airbags in the CODA Sedan's suite of safety
features and the relatively low cost of the repair. Specifically, the side curtain airbags in the
CODA Sedan are intended to help minimize or reduce hann to the head of an occupant seated
adjacent to the doors on the side of the impact in the event of a side impact collision requiring
the deployment of the airbag. If a side curtain air bag is not manufactured properly, it may
deploy improperly, thereby reducing its effectiveness. Having already paid for the parts, the
Debtors now estimate that the remaining cost to conduct the voluntary recall will not exceed
$40,000.
9. The Debtors' debtor in possession financing providers (the "DIP Lenders") have
consented to the use of their cash collateral to conduct the voluntary recall in an amount not to
exceed $40,000.
I 0. Upon an order authorizing the Debtors' contemplated voluntary recall of the roof-
mounted side curtain airbags in the CODA Sedan, the Debtors propose to proceed as follows (the
"Voluntary Recall Campaign"):
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PHI 3524184v2 05113113
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11.
a. The Debtors will notify by mail each owner of an affected CODA Sedan of the
suspected defect. The letter will advise the owner to bring the owner's affected
CODA Sedan to any participating current or former CODA dealer (each, a
"Repair Facility"), which will, without charge to the owner, replace both roof-
mounted side curtain airbags in the affected CODA Sedan with supplier-certified
units already obtained by the Debtors.
b. The Debtors will, in turn, reimburse each Repair Facility for the side curtain
airbag replacement work it conducts in connection with the Voluntary Recall
Campaign at such Repair Facility's shop rates in effect at the time of this Motion,
2
provided, however, that the number of hours for which a Repair Facility shall be
entitled to reimbursement shall be capped at 2.4 hours per CODA Sedan as to
which such Repair Facility completes the side curtain airbag replacement work
unless otherwise agreed to in writing with the Debtors.
For the avoidance of doubt, by this Motion, the Debtors do not intend to assume
any agreements or other obligations with current or former CODA Dealers other than as
expressly set forth herein.
I2. For the further avoidance of doubt, by this Motion, the Debtors do not intend to
assume any warranty obligations in respect of the CODA Sedan. To the extent that, during the
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course of these Chapter II Cases, the Debtors determine that it is in the best interests of the
Debtors' estates to conduct any additional recall or other services in respect of the CODA Sedan,
they may seek additional authority from the Court to do so. Any decision to seek such additional
authorization (as it was in respect of the Voluntary Recall Campaign) shall be made on a case-
by-case basis, taking into consideration, among other things, (a) the cost of the service; (b) the
benefits to be provided by the services; (c) any potential adverse impact on the CODA name of
failing to perform the service; and (d) the availability of funds to perform the service (including,
without limitation, those funds authorized for use by the DIP Lenders).
Such rates range from $115 per hour to $142 per hour.
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PHI 3524l84v2 05113/13
III. JURISDICTION AND VENUE
13. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. 157
and 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue is proper before this
Court pursuant to 28 U.S.C. 1408 and 1409.
IV. RELIEF REQUESTED
14.
By the Motion, pursuant to sections 105(a) and 363(b) of the Bankruptcy Code,
the Debtors request entry of an order, substantially in the form attached hereto as Exhibit A,
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authorizing the Debtors to expend an amount not to exceed $40,000 in conducting the Voluntary
Recall Campaign.
V. BASIS FOR RELIEF REQUESTED
15. The Debtors believe that conducting the Voluntary Recall Campaign falls within
, the ordinary course of their businesses such that the authority vested in the Debtors pursuant to
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sections 11 07(a) and 1108 of the Bankruptcy Code is sufficient to permit them to proceed.
However, in order to avoid a potential challenge to the Debtors' actions after the fact, the
Debtors seek authority pursuant to sections 1 05(a) and 363(b)(l) of the Bankruptcy Code in an
abundance of caution.
16. Section 3 63 (b)( 1) of the Bankruptcy Code provides that the debtor in possession,
"after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business,
property of the estate." 11 U.S.C. 363(b)(l). The use, sale, or lease of property of the estate,
other than in the ordinary course of business, is authorized when a "sound business purpose"
justifies such action. In re Montgomery Ward Holding Corp., 242 B.R. 142, 147 (D. Del. 1999);
In re Shubh Hotels Pittsburgh, LLC, 439 B.R. 637,639 (Bankr. W.O. Pa. 2010); see also In re
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Lionel Corp., 722 F.2d 1063, 1071 (2d Cir. 1983); In re Continental Air Lines, Inc., 780 F.2d
1223, 1226 (5th Cir. 1986).
17. The Debtors can easily articulate a sound business reason for conducting the
Voluntary Recall Campaign, and submit that doing so comports with their duties as debtors in
possession to preserve the value of the Debtors' estates. First, the cost of the Voluntary Recall
Campaign is slight in light of the interests at issue. Having already paid the cost of obtaining
replacement roof-mounted side curtain airbags (which are of little value, if any, to the Debtors'
estates if not put to their intended use in the Voluntary Recall Campaign), paying an amount of
up to $40,000 a small price to pay to ensure that this safety system in the CODA Sedan is as
robust as it was designed and intended to be.
18. Second, maintaining a proactive approach with respect to this matter protects the
value of the CODA brand. The CODA name is an asset in which the Debtors have invested
heavily and is likely to represent a valuable asset to a buyer. In order to maximize the value of
the CODA name to buyers, and therefore the Debtors' estates, the Debtors submit that taking
appropriate steps to avoid negative associations with the CODA name that may arise from failure
to address a known potential safety issue in a CODA product makes good business sense .
19. Third, though the Debtors are not currently actively engaged in the automotive
business, the Debtors believe that maintaining favorable relations with NHTSA is in the best
interests of the Debtors and theirs estates. Among other things, preserving favorable relations
with NHTSA preserves optionality to the Debtors and any buyer of their automotive assets to
' ', smoothly resume operations of those assets. Although NHST A has not directed the Debtors to
conduct the Voluntary Recall Campaign, to the extent that their view of the sub-optimal
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deployment of the roof-mounted side curtain air bags may be subject to change, the Debtors and
their relations with NHST A could be adversely affected.
20.
For all of the foregoing reasons, the Debtors submit that the Voluntary Recall
Campaign is an appropriate exercise of their business judgment and request authority to proceed
with such campaign.
VI. WAIVER OF STAY
21.
The Debtors further request a waiver of any stay ofthe effectiveness of the order
approving this Motion to the extent such an order is entered. 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). As set forth above, the relief requested herein is modest and
consented to by the DIP Lenders. Moreover, the relief relates to a potential safety issue affecting
users of the CODA Sedan. Accordingly, the Debtors submit that ample cause exists to justify a
waiver of the fourteen-day stay imposed by Bankruptcy Rule 6004(h), to the extent it applies.
VII. NOTICE
22. Notice of this Motion has been provided to the Office of the United States Trustee
for the District of Delaware, the DIP Agent, the Notes Agent, the Bridge Agent, the Term Loan
Agent, the Second Term Loan Lender (as those terms are defined in the Declaration of John P .
Madden In Support of First Day Motions and Applications [D.I. 10)) and their respective
counsel, the Debtors' 30 largest unsecured creditors on a consolidated basis (including counsel if
known), proposed counsel to the Official Committee ofUnsecured Creditors, and all parties
requesting notices pursuant to Federal Rule of Bankruptcy Procedure Rule 2002. The Debtors
submit that no other or further notice need be provided.
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23. No previous motion for the relief sought herein has been made to this or any other
. ,\ court.
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VIII. CONCLUSION
WHEREFORE, the Debtors respectfully request that the Court (a) enter an order
substantially in the form attached hereto as Exhibit A; and (b) grant such additional relief as the
Court deems just and proper.
Dated: May 13,2013
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FOX ROTHSCHILD LLP
By:
(No. 3047)
John H. Strock (No 4965)
L. John Bird (No. 5310)
91 9 Market Street, Suite 1600
Wilmington, Delaware I 980 I
Telephone: (302) 654-7444
Facsimile: (302) 656-8920
-and-
WHITE & CASE LLP
John K. Cunningham (pro hac vice)
200 South Biscayne Boulevard, Suite 4900
Miami, Florida 33131
Telephone: (305) 995-5252
Facsimile: (305) 358-5744
Roberto J. Kampfner (pro hac vice)
633 West Fifth Street, Suite 1900
Los Angeles, California 90071
Telephone: (213) 620-7700
Facsimile: (213) 452-2329
Proposed Attorneys for the Debtors
and Debtors in Possession
Exhibit A
PHI 3524184v2 05/13/13
In re
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
Chapter 11
Case No. 13-11153 (CSS)
Coda Holdings, Inc., et a!.,
Jointly Administered
Debtors.
1
Related to Docket No.:
ORDER, PURSUANT TO 11 U.S.C. lOS(a) AND 363(b), AUTHORIZING
THE DEBTORS TO CONDUCT A VOLUNTARY RECALL OF CODA
SEDANS TO REPLACE ROOF-MOUNTED SIDE CURTAIN AIRBAGS
Upon consideration of the motion (the "Motion")
2
of Coda Holdings, Inc. and its
affiliated debtors and debtors in possession in the above-captioned chapter 11 cases (collectively,
the "Debtors") for an order, pursuant to sections 105(a) and 363(b) oftitle 11 ofthe United
States Code, authorizing the Debtors to conduct a voluntary recall of CODA Sedans to replace
roof-mounted side curtain airbags; and it appearing that the Court has jurisdiction over this
matter; and it appearing that notice of the Motion is sufficient, and that no other or further notice
need be provided; and it appearing that the relief requested in the Motion is in the best interests
of the Debtors and their estates and creditors; and upon all ofthe proceedings had before the
Court; and after due deliberation and sufficient cause appearing therefor, it is hereby
ORDERED that the Motion is granted as set forth herein; and it is further
The Debtors in these chapter II cases, along with the last four digits of their respective federal employer
identification numbers, are: Coda Holdings, Inc. (1892); Coda Automotive, Inc. (6800); Coda Energy LLC (3053);
Coda Automotive (CA), Inc. (9109); and EnergyCS LLC (1359).
Where the context requires, each capitalized term used but not otherwise defined herein shall have the meaning
ascribed to such term in the Motion.
PH I 3524184v2 05113113
ORDERED that the decision to initiate the Voluntary Recall Campaign is made in
good faith and in the Debtors' reasonable business judgment; and it is further
ORDERED that the Debtors are authorized, but not directed, to expend an amount
not to exceed $40,000 to, as set forth in the Motion, to
a. Notify each owner of a CODA Sedan that is suspected to contain a roof-mounted
side curtain airbag that was not properly manufactured that such owner (a) owns a
CODA Sedan that may contain such a defect; and (b) may bring the affected
CODA Sedan to a Repair Facility, which will, without charge to the owner,
replace both roof-mounted side curtain airbags in the affected CODA Sedan with
supplier-certified units already obtained by the Debtors; and
b. Reimburse each Repair Facility that conducts the side curtain airbag replacement
work in connection with the Voluntary Recall Campaign at a rate of up to 2.4
hours per CODA Sedan as to which such work is completed, at such Repair
Facility's rates in effect as of the date of the Motion, provided that the Debtors
may pay a Repair Facility reimbursement for work in excess of 2.4 hours on a
vehicle-by-vehicle basis where circumstances warrant and the Debtors and the
Repair Facility have agreed to such additional payment in writing in advance of
completion ofthe repair;
and it is further
ORDERED that nothing in this Order does or shall be construed to constitute an
assumption of any warranty or similar obligations ofthe Debtors in respect ofthe CODA Sedan;
and it is further
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ORDERED that nothing in this Order does or shall be construed to constitute an
assumption of any agreement or other obligations with any current or former CODA dealer; and
it is further
ORDERED that, the Debtors are authorized to take all actions necessary to
implement the relief granted in this Order; and it is further
ORDERED that this Court shall and does retain jurisdiction to hear and determine
all matters arising from or related to the implementation of this Order.
Dated: Wilmington, Delaware
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PHI 3524184v2 05113/13
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The Honorable Christopher S. Sontchi
United States Bankruptcy Judge