Court agrees newspapers are not critical vendors in Kmart case

At least 35 Texas newspapers are now in a wait-and-see mode to determine if they have to repay $535,000 to Kmart after a court ruling that allows the company to move forward with a lawsuit related to its bankruptcy case.

The U.S. Seventh Circuit Court of Appeals issued a ruling Feb. 26 affirming the district court’s April 2003 decision that newspapers should return payments received from Kmart. The appeals court agreed that the newspapers should not have been considered “critical vendors” by the bankruptcy court.

The ruling allows Kmart’s lawsuit seek

ing return of the payments to move forward. Newspapers have until March 23 to respond but that date likely will be pushed back, attorney Robert Greenbaum said.

Last summer, newspapers began receiving letters from Kmart demanding a refund of the payments.

In January, Kmart sued about 160 newspapers nationwide seeking about $30 million for payments on advertising placed nearly two years ago. The company made the payments after the bankruptcy court declared newspapers as “critical vendors” in January 2002.

The Texas newspapers affected are primarily small- to medium-size dailies and include several newspaper groups. At least one 4,000 semiweekly newspaper also is affected.

Critical trade vendors included those vendors that the bankruptcy court determined needed to be paid in full and on time in order for Kmart to continue operating throughout, and ultimately beyond, the bankruptcy proceeding.

According to court documents, Kmart paid about $300 million in pre-petition debts to 2,330 suppliers. Another 2,000 vendors were not deemed “critical” and were not paid.

To view the ruling log onto http://www.ca7.uscourts.gov/ and go to Opinions and enter case number 03 (year) 1956 (number).