In re Dana Corp.

Dana Corporation and several subsidiaries (collectively, Dana) (debtors) filed for Chapter 11 bankruptcy. Dana received hundreds of reclamation claims (i.e., sellers’ claims to recover possession of goods that had been delivered to an insolvent buyer). The largest reclamation claim was worth $9.6 million. Dana asserted a prior-lien defense to many of the claims, contending that the claims were valueless because they were subject to lienholders’ superior rights to the goods. Specifically, Dana had secured $381 million in prepetition debt with liens on assets including the reclaimed goods. Dana had then satisfied that prepetition debt with postpetition debtor-in-possession (DIP) loans obtained under a credit agreement granting the DIP lenders liens on Dana’s property that were substantially identical to the prepetition liens. Twenty-four reclamation claimants objected, arguing that their claims should be valued in full. The claimants asserted that their reclamation rights were subject only to a prior lien, and the reclaimed goods had been freed from the prior lien because Dana had satisfied its prepetition debt with the proceeds of the DIP loans, rather than the proceeds of the reclaimed goods. The claimants based their argument, in part, on a purported federal right of reclamation that they asserted had been established by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The bankruptcy court considered Dana’s motion to value the objectors’ reclamation claims at zero.