Reference no: EM131206217

Law of Debtors and Creditors IRAC

Leilani cannot stand cold weather. Growing up in Hawaii, she was used to sun and sand all year round. Now that she has a boring corporate job in New York City, she can't believe it is only warm three months a year. Leilani decides that her best bet is to take FULL advantage of the short east coast summer, so she opens a surf shop. She knows that this will be a seasonal business, so she finds a small retail space on the New York shoreline which she rents from May - September.

Leilani meets Cody and they immediately strike up a friendship. Cody is a fellow water-lover and he has a small workshop where he makes custom surfboards. Leilani starts to sell Cody's surfboards in her shop. They get a great reputation and pretty soon the shop has a decent following. Typically, Cody will drop off boards as soon as they are finished, and he sends Leilani an invoice about once a month for the boards. She promises him that if she ever fails to pay, he can just have the surfboards back. Leilani is good about paying all her bills on time and things are going great.

Unfortunately, in early June, a terrible hurricane hits the eastern shore and floods Leilani's shop. Because of excellent early warning, she managed to save most of the inventory, but the shop is ruined. The beaches have also been hit very hard, and the she is rapidly losing business. By mid-July, Leilani can no longer pay her bills. She wants to avoid liquidating her business, because she is hopeful that next summer will be better, so she files for Chapter 11.

Leilani survives a flurry of first day motions that allow her business to continue operating before a reorganization plan is in place. She decides she wants to move the entire inventory quickly, so she comes up with a new plan. She hires about 20 high school students and has them head to beaches up and down the east coast. She loads their vans up with surfboards and tells them to sell, sell, sell. She makes up huge signs advertising major sales. She hopes to just sell all she can and store up some cash for the long cold winter.

When Cody hears of this plan, he thinks it is a terrible idea. He knows that the surfers on new beaches will not know the quality of his product and will not pay properly. He knows that Leilani's "team" will undersell his product and he is worried he will not get paid for all his hard work. He wants to prevent her from selling her boards this way and wants to just have the boards back instead.

Leilani is advised that since this is an unusual way for her to sell her products, she should file a motion for permission from the court. As soon as Cody learns about the motion he immediately calls Leilani and objects. Leilani promises that she will continue to pay him monthly, and that he will not lose any money on his surfboards.

Will the court allow Leilani to sell the surfboards in this fashion? Please list the factors the court will look at in determining if this is proper. Please also discuss any objections that Cody may raise?

An IRAC-based essay is appropriate for this assignment.