Specialty Retail Shops Holding Corp. (Shopko Stores) – Creditor McKesson Corporation Objects to Use of Cash Collateral

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January 16, 2019 – Creditor McKesson Corporation (“McKesson”), filed an objection to the Debtors’ emergency motion for debtor-in-possession (“DIP”) financing [Docket No. 35]. 
The objection states, “McKesson holds a valid reclamation claim against the Debtor in connection with goods delivered to the Debtor prepetition and valued at approximately $67.2 million. McKesson objects to the DIP Financing Motion only to the extent that it (along with the proposed DIP financing agreement and order) impermissibly impairs McKesson’s reclamation rights and it marshalling rights

Prior to the commencement of its bankruptcy case, the Debtor purchased the vast majority of its medical-surgical supplies and equipment from McKesson. During the 45 days immediately prior to the Petition Date (the ‘Reclamation Period’), the Debtor purchased and received over $61,000,000 in pharmaceutical goods from McKesson (the “Reclamation Goods”). On December 30, 2018, 17 days prior to the Petition Date, McKesson transmitted to the Debtor (via facsimile, overnight mail and electronic mail) a demand for the immediate return of the goods received by the Debtor during the Reclamation Period pursuant to Wis. Stat.§ 402.702 (the ‘Reclamation Demand Letter’)….The Debtor failed to comply with McKesson’s lawful demand for return of the Reclamation Goods. Instead, the Debtor continued to sell the Reclamation Goods, causing irreparable harm to McKesson. With no other alternative to preserve its rights to reclaim the goods, on January 4, 2019 McKesson filed a Complaint seeking reclamation of the Reclamation Goods, along with causes of action for replevin and breach of contract (the ‘Complaint’) in the State of Wisconsin Circuit Court for Brown County (the ‘Wisconsin State Court’), commencing case number 19-CV-33 (the ‘State Court Action).

Concurrently with the filing of the Complaint, McKesson filed its Ex Parte Motion for Temporary Restraining Order and Temporary Injunction seeking an order prohibiting the Debtor from selling, moving, relocating, or destroying any pharmaceutical goods delivered by McKesson to any of the Debtor’s stores on or after November 11, 2018 (the ‘TRO Motion’). An initial hearing on the TRO Motion was held on January 7, 2019 (‘the TRO Hearing). Concluding that there could be negative public health effects if the TRO Motion were granted, the Wisconsin State Court denied McKesson’s request and scheduled a hearing to consider a preliminary injunction on January 24, 1019. The DIP Financing Motion seeks approval of the DIP Financing Order and the DIP Financing Agreement. Those documents include provisions that impermissibly impair McKesson’s reclamation rights and marshalling rights by granting to the DIP lender liens securing the Post-Petition Obligations (which include Pre-Petition Obligations) senior in priority to all claims, including McKesson’s Reclamation Rights and marshalling rights.”

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