Mepco Fights Back in US Fidelis Tangle

ST. LOUIS (CN) - "The complaint filed by the Official Committee of Unsecured Creditors for US Fidelis Inc., which amounts to a compilation of innuendo, admitted speculation and baseless assumptions, threatens to spin this bankruptcy case out of control and with it, any timely or meaningful distribution to the consumers and creditors," US Fidelis' largest creditor, Mepco, wrote in seeking dismissal of a complaintagainst it.

The Committee of Unsecured Creditors, as Courthouse News reported on Tuesday, seeks to limit how much money Mepco can be awarded from US Fidelis' $25 million bankruptcy estate.

The creditors say Mepco was closely intertwined with US Fidelis and should have known that US Fidelis' sales were built on fraud, and that US Fidelis owners Cory and Darain Atkinson were stripping the company for millions, making its collapse likely.

In its reply memo, Mepco claims that the creditors complaint does not mention Mepco's A+ rating with the Better Business Bureau; that Mepco was a key player in the development of the Vehicle Protection Association is designed to address issues such as the actions of the Atkinsons'; that Mepco on several occasions requested that US Fidelis stop certain fraudulent activities upon learning of them; and that the committee failed to disclose how US Fidelis employees, vendors and other creditors directly benefited from millions pumped into the company by Mepco in 2009.

Mepco, US Fidelis' lone secured creditor, filed a $57 million proof of claim in March.

Mepco claims it has worked out a deal with several state attorneys general to distribute $13 million to customers cheated by US Fidelis. But Mepco say that agreement could be tossed if the creditors' complaint against it is successful.

"Currently, Mepco is preparing a plan of reorganization which would incorporate that mechanism for funding the payment of consumer claims and, additionally, would provide for a meaningful distribution to other general unsecured creditors," the memo states. "The committee's draft plan, like the Mepco plan, may also call for the creation and funding of a similar consumer trust. However, the filing of the complaint which challenges the validity of Mepco's liens from which the 'carve-out' would be made and seeks to subordinate Mepco's claims to those held by unsecured creditors precludes the confirmation of any plan calling for a 'carve-out' for the consumers. As a result, distribution to consumers and other creditors, if any, will be delayed until such litigation is completed or resolved. Any plan which preserves lien avoidance and subordination claims against Mepco, while treating the various unsecured creditor constituencies differently under the guise of a 'carve-out,' is neither acceptable to Mepco nor confirmable as a matter of law."

US Fidelis was the nation's No. 1 seller of vehicle-service contracts before it collapsed in 2009. Its owners, the Atkinsons, were indicted on June 15 on federal charges of consumer fraud, stealing and illegally selling insurance.

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