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Pitfalls of Critical Vendor Litigation
The latest development in 'critical vendor' litigation occurred in the case where much of it began ' the Kmart Corporation bankruptcy case. On April 12, 2006, United State Bankruptcy Judge Susan Pierson Sonderby denied motions to dismiss lawsuits seeking the return of critical vendor payments, paving the way for the cases to proceed to trial. See Memorandum Opinion, In re Kmart Corporation, et al., Chapter 11 Case No. 02 B 02472, Adv. Nos. 04 A 00126, 00094, 00087, 02898, 00158, 02775, 02865, 02785, 02875, 02102, 02436, 02005, 02479, 00145, 01970, 02072, 02118, 02395 (Bankr. N.D.Ill. April 12, 2006). Although Judge Sonderby's decision was not published, this latest chapter of the Kmart story is worth noting.
Background
On the first day of its bankruptcy case, Kmart asked for authority to pay prebankruptcy claims of those vendors that it deemed critical to its business, the so-called 'critical vendors.' The bankruptcy court granted Kmart's request over the objection of one of Kmart's creditors, Capital Factors, Inc. Capital Factors appealed the bankruptcy court's decision, but while the appeal was pending, Kmart made some $300 million in critical vendor payments to over 2000 of its vendors.
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