IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: ) CHAPTER 11
)
PITT PENN HOLDING CO., INC., et al.1, ) Case No. 09-11475 (BLS)
) (Jointly Administered)
Debtors. )
)
)
EMC AEROSOL, LLC n/k/a CC )
PACKAGING, LLC, ) Adversary No. 09-51086
)
Plaintiff, )
)
v. ) Filing Date: July 22, 2010
) Objection Deadline: August 5, 2010
EMC PACKAGING, INC., DEBTOR, ) Reply Deadline: August 12, 2010
) ECF Docket No. 12
Defendant. )
____________________________________)
)
EMC PACKAGING, INC., DEBTOR, )
)
Third-Party Plaintiff, )
)
v. )
)
GEORGE CANNAN, JS REALTY, )
LLC, CAROLINE COSTANTE, )
GEORGE CANNAN, JR. AND )
STACY CANNAN, )
)
Third-Party Defendants. )
____________________________________)

OPPOSITION OF EMC PACKAGING, INC. TO MOTION

OF EMC AEROSOL, LLC n/k/a CC PACKAGING LLC
TO COMPEL ACCOUNTING OF CERTAIN CYLINDERS

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The debtors are: Pitt Penn Holding Co. (Case No. 09-11475), Pitt Penn Oil Co. LLC (Case No. 09-11476),
Industrial Enterprises of America, Inc. (Case No. 90-11508), EMC Packaging, Inc. (Case No. 09-11524), Today’s
Way Manufacturing LLC (Case No. 09-11586), and Unifide Industries LLC (Case No. 09-11587), all of which have
been jointly administered.
 Defendants and third party plaintiff EMC Packaging, Inc. (“EMC” or “Debtor”) by and

through its undersigned counsel, submits the following in opposition to the motion of plaintiff

EMC Aerosol, LLC n/k/a CC Packaging, LLC (“Aerosol”).

JURISDICTION

1. This motion is a core proceeding under 28 U.S.C. § 157(b)(2)(A) as it affects

property of the Debtor’s Estate.

PARTIES

2. On May 3, 2009 EMC filed a petition for relief under chapter 11, title 11 of the

United States Code (the “Bankruptcy Code”) in the United State Bankruptcy Court for the

District of Delaware, Case Nos. 09-11524. This bankruptcy case has been administratively

consolidated with the bankruptcy of affiliated entities. The jointly administered case is styled In

re: Pitt Penn Holding Co., Inc. et al, Case No. 09-11475 (BLS).

3. Movant Aerosol is, upon information and belief, a limited liability company

organized under the laws of New Jersey and has its principal place of business in New Jersey.

4. Upon information and belief, George Cannan, is a principal of Aerosol. Cannan

had been an officer and employee of EMC until he was fired for cause on July 14, 2008.

PROCEDURAL HISTORY

5. On August 6, 2008, Cannan commenced an action against EMC and its parent,

IEAI, in the Chancery Division of the Superior Court of New Jersey, Ocean County by order to

show cause and verified complaint seeking alternatively monetary damages or replevin of certain

cylinders (the “Cylinders”) that are the subject matter of this adversary proceeding. On or about

August 8, 2008, Cannan filed an amended complaint, which now included Aerosol as an

alternative plaintiff. EMC and IEAI filed an answer, counterclaim and third party complaint.

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against another former EMC employee and officer, Caroline Costante, as well as EMC’s former

landlord, JS Realty LLC (owned by George Cannan and others) and Mr. Cannan’s two children,

George Cannan, Jr. and Stacy Cannan. Those claims include claims of fraud, breach of fiduciary

duty, conversion, breach of employment agreements and unjust enrichment. The claims are

based on Mr. Cannan’s and Ms. Costante’s unauthorized overpayment of salaries and other

benefits to themselves; unauthorized health insurance payments for George Cannan, Jr. and

Stacy Cannan; unauthorized payments for George Cannan’s and JS Realty’s legal expenses; and

other improper diversions of substantial corporate funds and corporate opportunities. The

plaintiffs and third party defendants filed answers. The pleadings are annexed as Exhibits A

through E.

6. On October 7, 2008, the parties entered into an order in the state court action,

which allowed EMC to sell the Cylinders which plaintiffs were claiming and which required

EMC to deposit $30 per cylinder into its attorneys’ trust account pending the resolution of what

was now simply a monetary dispute. [A copy of that order is annexed as Exhibit A to Aerosol’s

motion.] By virtue of agreeing to this order, Cannan and Aerosol waived and surrendered any

and all claims they otherwise may have had to any right of possession or title to the subject

Cylinders. As the only remaining issues involved monetary claims, the matter was transferred to

the Law Division of the Superior Court, Ocean County, Docket No. OCN-L-3559-08.

7. After the filing of their bankruptcy petitions, EMC and IEAI removed the state

court action to the District of New Jersey. The case was then transferred to the District Court for

the District of Delaware and then referred to this Court where it is pending as an adversary

proceeding, Adv. Pro. No. 09-52283.

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 8. Only Aerosol filed the instant adversary seeking relief as to the Cylinders.

Cannan has apparently abandoned his claim to the Cylinders. As the adversary complaint

contains the same claims that Aerosol asserted in the state court action, EMC has asserted the

same claims that it made in its counterclaim and third party complaint in the state court action.

Aerosol and the third party defendants have filed answers to those claims.

AS AEROSOL HAS NO SPECIFIC INTEREST IN THE CYLINDERS

IT IS NOT ENTITLED TO AN ACCOUNTING

9. In this adversary proceeding, and in the underlying state court actions, Aerosol

has asserted that it has the right to purchase 9,000 Arctic Air Cylinders from EMC pursuant to a

purchase agreement dated March 26, 2008, negotiated by Cannan, while he was president of

EMC, and James W. Margulies, the president of IEAI, the parent of EMC. It is EMC’s position

that the Purchase Agreement was a product of a fraud perpetrated by Cannan on EMC. A copy

of the Purchase Agreement is annexed as Exhibit F. The Court should be aware that Mr.

Margulies has been indicted in the Supreme Court of the State of New York, County of New

York for his frauds in connections with EMC and its related entities. A copy of the indictment is

annexed as Exhibit G. Upon information and belief, Mr. Cannan is either unindicted co-

conspirator 5 or 6 identified at page 11, paragraphs 11 and 12 of the Sixth Count of the

indictment, as he is one of two individuals who received identical amounts of stock on the same

day.

10. Title to the cylinders never passed to Aerosol, which merely had an agreement to

purchase 9000 unidentified Arctic Air cylinders. There is no bill of sale or other document

identifying particular cylinders to the Purchase Agreement. Thus title to goods did not pass

under a contract for sale prior to their identification to the contract. N.J.S.A. §§ 12A:2-401,

12A:2-501(1).

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 11. The Purchase Agreement did not create a security interest in any cylinders owned

by EMC. As far as EMC is aware, neither Cannan nor Aerosol filed financing statements as to

their purported interest in the Cylinders prior to the Petition Date. Thus, as of the Petition date,

Aerosol was only an unsecured creditor of EMC, which in turn had substantial claims against

Aerosol and its principals, Cannan and his son, George Cannan, Jr.

AEROSOL’S REQUEST FOR AN ACCOUNTING IS MOOT

AS THE PROCEEDS FROM THE SALE OF THE CYLINDERS
ARE SUBJECT TO SENIOR LIENS

12. Any purported claim that Aerosol may assert against the Cylinders is subject to

the interest of senior secured creditors. At the time that the parties entered into the consent order

in the state court action, Sovereign Bank had a blanket security interest on all of EMC’s assets,

including the cylinders. Pursuant to cash collateral orders entered by this Court on notice to all

creditors, the validity, priority and amount of the senior lien of Sovereign has been fixed and

secured by liens on all of the debtors’ assets, whether acquired before or after the filing of the

petitions in this case. (Sovereign was under secured so that Aerosol could not claim a junior

position, even if it a perfected pre-petition security interest.) Omtammott LLC subsequently

purchased the note held by Sovereign and provided debtor in possession (“DIP”) financing. By

order entered on February 16, 2010 this Court approved the final order for the second round of

DIP financing provided by Omtammott II, LP, which is affiliated with Omtammott LLC. Under

the terms of that financing agreement, the DIP lender has subrogated to the secured position of

Sovereign Bank and continues to have a senior security interest in all of EMC’s assets.

13. Although the purchase agreement upon which Aerosol relies refers to 9,000

cylinders, it is undisputed that as of the time that the parties entered in the consent order EMC

had only approximately 7,000 of the Cylinders in its possession. Of that amount approximately

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3,000 were sold shortly before the Petition Date. (A summary of the sales of the Cylinders is

annexed as Exhibit H.) Pitt Penn Holding, Inc. (“PPH”) was acting as sales agent for EMC. The

proceeds from the pre-petition sales were deposited into PPH’s operating account. Sovereign, as

it had the right under its loan agreement, swept the account and applied the funds to its debt. The

remainder of the Cylinders were sold post petition in the ordinary course of business. Under the

terms of the cash collateral orders entered by this Court, the proceeds of the sale of inventory,

which constitute cash collateral, were subject to the replacement and super priority liens of

Sovereign and then Omtammott LLC.

14. In sum, Aerosol’s application for an accounting is moot. The Cylinders have

been sold in the ordinary course of business and the proceeds of those sales were and remain

subject to the claims of senior secured creditors. As of the Petition Date, Aerosol had only an

unsecured claim against EMC, which was and remains subject to EMC’s substantial claims

against Aerosol and its principals.

15. Aerosol’s contention that the sales were not reported in the monthly operating

reports is incorrect. The operating reports do not require line item descriptions of items sold, just

revenues from operations. For example, the April 2010 operating report for EMC identified

$160,600 in gross revenues which represents the sales of Cylinders for that month. The earlier

post petition sales may have been listed in the operating reports for the lead debtor, Pitt Penn

Holding Co., Inc.

REQUEST FOR ORAL ARGUMENT

16. EMC requests oral argument on this motion.

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 WHEREFORE, EMC respectfully requests that the Court deny Aerosol’s motion.

Dated: August 5, 2009

/s/ Christopher D. Loizides
_________________________________
Christopher D. Loizides, Esq. (No. 3968)
LOIZIDES, P.A.
1225 King Street, Suite 800
Wilmington, DE 19801
Telephone: (302) 654-0248
Facsimile: (302) 654-0728
Email: loizides@loizides.com

/s/ Stuart Gold

_________________________________
Charles S. Lorber, Esq. (No. CSL 7785)
Stuart Gold, Esq. (No. SG 4041)
Lance N. Olitt, Esq (No. LO 6193)
MANDELBAUM, SALSBURG, GOLD
LAZRIS & DISCENZA, PC
155 Prospect Avenue
West Orange, NJ 07052
Telephone: (973) 736-4600
Facsimile: (973) 736-4670
Email: clorber@msgld.com

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 VERIFICATION

ROBERT L. RENCK, JR., of full age, states as follows:

I am the president of debtor in possession EMC Packaging, Inc. I have read the

foregoing Opposition to Motion of EMC Aerosol, LLC n/k1a CC Packaging, LLC. As to the

factual statement made in this opposition, I state that they true to the best of my knowledge,

information and belief, my information and belief being based upon the books and records of the

debtor.

I declare that the foregoing is true under the penalty of perjury.

DATED: August 5,2010