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Prithvi Catalytic, Inc., an IT Consulting and Engineering Firm, Files Ch. 11 in Pittsburgh

prithvi_logo_10By:  Justin Saporito, Law Clerk

On September 10th, 2013 Prithvi Catalytic, Inc. filed a voluntary petition for relief under Chapter 11 in the United States Bankruptcy Court  for the Western District of Pennsylvania, which was incomplete.  Statements A-J, Statement of Operations, Summary of Schedules, and Tax Information are due by September 24th, 2013 and a Chapter 11 Plan is due by January 8th, 2014.  Debtor claimed assets between $1 million to $10 million with liabilities ranging from $10 million to $50 million.

The Debtor is a multi-national IT Consulting and Engineering solutions company that began operations in 1998 with its registered office in Hyderabad, India and opened its first U.S. office near Seattle, WA in 2000.  The Debtor expanded operations with new development centers and sales offices in the U.S., Canada, Brazil, India, South Africa, and the Middle East.  Debtor focuses its strategic business in the healthcare, retail, BFSI (banking, financial services, and insurance), and telecom markets and provides services in Europe in addition to the regions where it maintains offices.

A total of fifty-four creditors are listed on the Debtor’s petition including  the District of Columbia, various Departments from 22 different U.S. states, the federal government, and several private companies.  Click here for  Complete list of Creditors and summary of docket.

Debtor is represented by Louis P. Vitti of Vitti & Vitti & Associates, PC located at 215 Fourth Avenue Pittsburgh, PA 15222.  The Office of the United States Trustee Liberty Center  shall be represented by Kathleen Robb located at Suite 970 1001 Liberty Avenue Pittsburgh, PA 15222.

Stonefront Witch Way Inn Files for Chapter 11

BY: Katie Imler, Law Clerk

On July 26, 2013 , TAM of Allegheny LLC d/b/a Stonefront Witch Way Inn filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Western District of Pennsylvania (assigned No. 13-23143-GLT). The Stone Front Witch Way Inn, located at 2827 California Avenue, Pittsburgh, PA 15212, was a local café and bar that was padlocked by police on June 28, 2013 for not paying the Allegheny County drink taxes totaling more than $22,390. The Allegheny County Treasurer, John Weinstein, has been cracking down on businesses that are not paying the alcoholic beverage tax.

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The case has been assigned to the Honorable Judge Gregory L. Taddonio. Norma Hildenbrand has filed an Notice of Appearance and Request for Notice on behalf of the United States Trustee. A summary of the docket can be found here.

The Debtor listed $50,000-$100,000 in Assets and $0-$50,000 in Liabilities, which are primarily business debts. Although there are less than 50 creditors, the top creditors holding unsecured claims include: Allegheny County ($21,864), BMI ($658.07), Chase Bank ($2,723.39), Dietz Electronics, Inc. ($438.98), IRS ($8,058.44), Joseph J. Brunner, Inc. ($407.80), and Trudy L. Schmitt, President of TAM of Allegheny LLC. All Schedules and Attorney Disclosures are due on August 9, 2013. The Chapter 11 Plan and Disclosure Statements are due November 25, 2013. However, the Government Proof of Claims Bar Date is set for January 22, 2014.

The Debtor is represented by J. Michael Baggett of McCann Garland Ridall & Burke, 11 Stanwix Street, Suite 1030, Pittsburgh PA, 15222. Jodi L. Hause filed a Notice of Appearance on July 29, 2013 to represent Creditor Duquesne Light Company. A Status Conference will be held on October 20, 2013 at 10:00am.

“FORE!” – Beulah Road Land Company Files for Chapter 11

BY: Katie Imler

On July 26, 2013 Beulah Road Land Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Western District of Pennsylvania (Case No. 2:13-bk-23148).  The Debtor, located at 800 Beulah Road, Pittsburgh, Pa 15235, is the new majority owner of the land on which the Churchill Valley Country Club sits.  The Debtor has been fighting with creditors of the club, as to who owns the 147-acre property.   These creditors forced Churchill Valley Country Club into a Chapter 7 bankruptcy (Case No. 13-23122 filed July 25, 2013).  At the same time, Zokaites Properties, Inc. recently purchased the outstanding $1.2 million mortgage held on the club and property from PNC Bank.  A local lawyer and ex-business partner of Zokaites is challenging this transfer.Image

The Beulah bankruptcy case has been assigned to the Honorable Judge Carlota M. Bohm. In the petition signed by the Debtor’s President Richard Hersberger, the Debtor listed $1-$10 million in assets and $1-$10 million in liabilities.  All Schedules are due August 9, 2013.  The Chapter 11 Plan and Disclosure Statement are due November 25, 2013.  On August 1, 2013, creditor Zokaites Properties, Inc. by and through its attorney Jeffrey Hulton, made a motion to dismiss the bankruptcy case.  There will be a hearing regarding the motion to dismiss on August 9, 2013 at 3:00pm.

The largest creditors include several law firms, the Penn Hills School District, PNC Bank, and the Woodland Hill School District.

The Debtor is represented by Donald R. Calaiaro of Calaiaro & Corbett, P.C. located at 310 Grant Street, Suite 1105, Pittsburgh, PA 15219. The US Trustee is represented by Norma Hildenbrand located at Suite 970 Liberty Center, 1001 Liberty Ave., Pittsburgh, PA 15222.

StonePepper’s Grill in Robinson Twp. files for Chapter 11

Settlers Ridge No. 3, L.P. files for Chapter 11

By Katie Imler, Law Clerk

On May 13, 2013, StonePepper’s Grill, formally known as Settlers Ridge No. 3, L.P., of 1738 North Highland Road, Pittsburgh, PA  15241 filed a voluntary Chapter 11 bankruptcy petition in the Bankruptcy Court for the Western District of Pennsylvania, assigned Case No. 13-22082-CMB. The case has been assigned to the Honorable Judge Carlota M. Bohm.

 Stonepepper Grill's LogoStonePepper’s Grill is a restaurant that serves brick-oven pizza and won the 2012 Best Burger in Upper St. Clair Contest. The restaurant chain has three (3) locations in Upper Saint Clair, Mars, and Robinson Township. The only location effected by this filing is the Robinson Township location. Counsel for the Debtor is Robert O. Lampl, located at 960 Penn Avenue, Pittsburgh, PA 15222. Lampl’s disclosed hourly rate is $400/hour.

A summary of the docket for the case can be viewed here.

The Debtor has elected to be considered a “small business debtor, ” defined under Bankruptcy Code § 101(51D)(A) as a person engaged in commercial or business activities who as of the date of petition filing or order of relief has an aggregate non-contingent liquidated secured and unsecured debts in an amount not more than $2,000,000.00 (excluding debts owed to 1 or more affiliates or insiders). See also Bankruptcy Code § 1116. The bankruptcy filing showed liabilities and assets between $100,000.00 -$500,000.00. The Debtor listed the largest unsecured debts as $93,940.00 in Employer Withholding, $78,775.00 in Loans to owner Jeff Joyce, $77,535.00 in PA Sales Tax, and $38,465.00 in Business Debt to CRK Management LLC, who also employs Jeff Joyce. It also has a Business Debt of $77,613.00 payable to Settlers Ridge Leased, LP.

      A hearing will take place on June 25, 2013 in regards to confirmation of employing Debtor’s counsel. The Chapter 11 Small Business Plan and Disclosure Statement are due November 12, 2013.

Bankruptcy Docket Beat: Ashland, KY’s River Cities Glass & Construction Files for Chapter 11 in WV

On May 2, 2013, River Cities Glass & Construction, LLC, a glass and glazing contractors company, located at 4750 Winchester Avenue, Ashland, KY 41101 filed a voluntary Chapter 11 bankruptcy protection in the Southern District of West Virginia (Huntington), assigned case No. 3:13-bk-30226 (RGP).  The case was assigned to the Honorable Judge Ronald G. Pearson.  See docket here.  William Cox signed the Debtor’s Schedules as President of the Debtor.

The Debtor is represented by Mitchell Lee Klein of the Klein Law Office, 3566 Teays Valley Road, Hurricane, WV 25526.  Klein’s disclosed a retainer of $5,000 and an hourly rate of $200/hour.

Chihuly            The Debtor elected to be considered a “small business debtor” pursuant to Bankruptcy Code Section 1116.   Its Chapter 11 Plan is due in 6 months, or by October 29, 2013.  Its Disclosure Statement is also due on October 29, 2013.   The Debtor listed liabilities of $159,936.01 and assets under $50,000 with less than 50 creditors.  Simultaneously with its voluntary petition, the Debtor filed an initial operating report and an application to employ an attorney.  Because this is a “small debtor case”, in addition to filing a petition, schedules and a statement of financial affairs, the Debtor is required to also submit a balance sheet, statement of operation, and a cash flow statement, as well as a federal tax return.

New Bankruptcy Code Section 1116  imposes duties on a small business debtor beyond not required of other Chapter 11 debtors, beginning with the filing of the petition.  Under § 1116(1), the debtor must attach to its petition (or in an involuntary case, file within seven days after the date of the order for relief) either (a) its most recent balance sheet, statement of operations, cash flow statement and federal income tax return or (b) a statement made under oath that such documents have not been prepared and that such tax return has not been filed.

We found this listing on the salespider website for the Debtor; we are not certain when it was ever initially listed.  The listing stated that the company has about 7 employees and estimated yearly revenue of $1,200,000 and that the Debtor’s SIC Code is 5231.  This industry consists of establishments engaged in selling primarily paint, glass, and wallpaper, or any combination of these lines, to the general public.  While these establishments may sell primarily to construction contractors, they are known as retail in the trade.  Establishments that do not sell to the general public or are known in the trade as wholesale are classified in the wholesale trade industries.   See SIC Code article here.

Bankruptcy Docket Beat: Levittown’s Renee’s Pizza & Grill Files for Chapter 11Bankruptcy

pizza                  On April 12, 2013, Debtor Renees LLC, of 8739 Newportville Road, Levittown, PA 19054, filed a Chapter 11 bankruptcy petition in the Bankruptcy Court for the Eastern District of Pennsylvania (Philadelphia), Case No. 13-13236.  Debtor’s counsel is Michael P. Gigliotti of Kashkashian & Associates , 10 Canal Street, Suite 204, Bristol, PA 19007.  The case was assigned to Chief Judge Eric L. Frank.

Renee’s LLC did business as Renee’s Pizza and Grill offering a takeout service and grill.  Assets and liabilities both were in the range of  $0-$50,000.  This Chapter 11 is an asset case and it is anticipated that there will be some distribution to creditors.

Ch. 7 or Ch. 11: Which Bankruptcy Option Is Best For My Business?

CO-AUTHORS: Katie Imler and Salene Kraemer

Let’s face it, all businesses face challenges. Especially when the economy is not a booming bull, financial challenges are in abundance. You are not alone. So what do you do when your company has financial troubles staring you down? What do you do when going to work every day puts you and your family deeper in debt instead of adding money to your bank account? At some point, the best business decision you can make may be the decision to no longer do business.

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What do you do?  Well, there are a few options:  1) Sell the business to a competitor, strategic business, or key employee; 2) File for Chapter 7 bankruptcy; 3) Wind-down the company yourself. We want to talk about the latter two options. Before taking action, both avenues have advantages and disadvantages that must be weighed.

Avenue 7. Filing for Chapter 7 Bankruptcy means that a Bankruptcy Trustee employed by Office of the United States Trustee of the Department of Justice, steps into the shoes of the company and has the burden of winding-down the business.  In doing so, the Trustee is in control of distributing the business assets according to the Bankruptcy Code.

Perks of Chapter 7:

  • Upon filing a petition for Chapter 7, an automatic stay is imposed preventing lawsuits and writs of execution against business assets –think of it as MC Hammer’s “Can’t Touch This.” This preserves the vital business assets and provides peace of mind that the business will not have to defend against future legal actions arising from pre-petition debts
  • The Bankruptcy Court assumes the burden of notifying all creditors of the bankruptcy (sending the “funeral notice”, if you will).  Having this objective third party serve as a buffer between the business owner and the unpaid creditor provides a sense of relief to the business owner
  • Debtor benefits from expertise of an experienced Bankruptcy Trustee
  • Debt forgiveness is not taxable

Downsides of Chapter 7:

  • Business management has no control in the winding-down
  • Trustee will scrutinize the pre-petition financial and operational affairs of the Debtor
  • Instead of finding a strategic buyer who may pay more for business assets, a trustee may liquidate business assets for pennies on the dollar, called a “fire sale”
  • Trustee may abandon certain assets letting creditors with an interest in them duke it out
  • Since the Trustee assumes the place of the debtor, he or she also assumes all of the debtor’s legal claims. The debtor, therefore, may be without standing to pursue a future lawsuit arising out of pre-petition transactions, unless otherwise agreed
  • Furthermore, filing for bankruptcy creates a public record and may pick up media attention, depending upon your business
  • Time and monetary costs are also associated with Chapter 7.  In addition to attorney’s fees, the filing fee alone is $306 and the Debtor will have to pay Trustee’s fees if there are assets for the Trustee to liquidate. Plus, the Trustee’s fees come off the top of liquidation proceeds before any distributions to creditors are made.

The Wind-Down Alternative.  If you are a do-it-yourself personality, then the Wind-down approach may be the approach for you. In this scenario, you control the winding-down process of the company and pay off the debts. However, this do-it-yourself project may require a thick skin and much cooperation from your creditors and lessors.Image

Perks of Non-Bankruptcy Wind-down:

  • Winding-Down the business yourself avoids the legal and bankruptcy fees
  • Business owner retains control and does not expose dirty laundry to the public
  • Business avoids scrutiny by the Trustee
  • Higher likelihood that you, the business owner with the industry know-how, will find a better buyer in the market who is willing to pay more for business assets

Downsides of Non-Bankruptcy Wind-down:

  • Creditors may initiate an involuntary Chapter 7 bankruptcy petition against your business
  • Business must comply with state laws for dissolving which are usually more demanding than the Bankruptcy Code and take longer to execute. If liquidation is done incorrectly, the business can be exposed to lawsuits for dishonoring creditors’ legal rights
  • Business owner personally deals with all of the creditors and is responsible for all issues that arise.
  • Debt forgiveness is taxable outside of bankruptcy

Now, do you file for Chapter 7 or Wind-down? In some cases, a hybrid approach may be best. Go as far as feasible in the liquidation process on your own, and then turn it over to a Trustee or a bankruptcy  lawyer to finish the job.  Weigh which option suits your needs the most, reflecting upon your unique business, the nature and amount of the debt that your business still owes, and your personal capabilities.  And, as always, it is best to first consult with your attorney.

MAZURKRAEMER represents debtors and creditors in bankruptcy courts all over the country. The information, comments and links posted on this blog do not constitute legal advice. No attorney-client relationship has been or will be formed by any communication(s) to, from or with the blog and/or the blogger. For legal advice, contact an attorney at MAZURKRAEMER or an attorney actively practicing in your jurisdiction.

Does Motive Matter in a Preference Lawsuit?

This is the second in a series of blog posts I am writing here about preference lawsuits (I have a 50 page research treatise that I wrote, from which I am pulling to create these posts!).  I will try to make the subject matter as interesting as possible.    

Does the motive of a debtor a creditor matter in a preference law suit?

MOTIVE

MOTIVE

Scenario One: I know our business is not going to make it another 30 days.  I have one $10,000 receivable that we can expect to receive.  We owe our trade creditors about $100,000 and we owe my Aunt Molly $50,000 that she lent to us on an unsecured basis.  We have been making monthly payments in the amount of $500 to her for the past three years.   I want to take the $10,000 once we get it and pay her all of it because she is my favorite Aunt, I feel bad we are going to stiff her, and she use to buy me pink marshmallow peeps for every Easter.

       Scenario Two: My critical supplier knows that we  have been in distress.  He knows that we lost our biggest customer and we are barely making ends meet.  He just recently shortened my payment terms from net 30 to net 7, he has told me he doesn’t care if I cannot pay my electric bill or payroll and that he wants me to pay his aged account receivable now!  He sends me threatening letters, emails, and nasty voicemail messages.  I don’t even answer my phone anymore. 

As set forth in my prior blog post, there are the five basic elements of a preference; basically, a transfer must be made (1) to or for the benefit of a creditor, (2) on account of an antecedent debt, (3) while the debtor is insolvent, (4) within ninety days before bankruptcy (for non-insiders) or 1 year (for insiders); and (5) the transfer must enable the creditor to receive a greater amount had the transfer not occurred and had the creditor received payment in a hypothetical Chapter 7 liquidation.

What is absent from that list is mental state of mind, motive, or intent.   Under the predecessor statute to Bankruptcy Code § 547 (§60 of the Bankruptcy Act of 1898), a plaintiff had to establish that the creditor had “reasonable cause to believe” that a debtor was insolvent before a preferential transfer could be avoided.  But, importantly, a creditor’s state of mind is no longer an element to the preference cause of action.  See Barash v. Public Finance Corp., 658 F.2d 504, 510 (7th Cir. (Ill.) 1981).  In the Barash case, the Seventh Circuit Court of Appeals held that voluntary payments by a debtor to creditor on an installment contract were preferential transfers, and the fact that the creditor had no way of knowing that the debtor was having financial difficulties was irrelevant.   The Barash Court quoted the legislative notes regarding Bankruptcy Code § 547:  “A creditor’s state of mind has nothing whatsoever to do with the policy of equality of distribution ….”.  H.R.Rep.No.95-595, supra, at 178, 5 U.S. Code Cong. & Admin. News at 6139.

Collier on Bankruptcy, the most authoritative secondary authority on bankruptcy law, acknowledges this change as well.  “Intent or motive is not a material factor in the consideration of an alleged preference under §547.  Generally speaking, it is the effect of a transaction, rather than the debtor’s or creditor’s intent, that is controlling.” See 4 COLLIER ON BANKRUPTCY, ¶547.01 at 547.12.

Some courts, however, have attached a significance to the intent, motive or state of mind of either the debtor or a creditor, even though intent is not a “material” or a basic element of a preference,.  In the Eleventh Circuit, for example, see In re Craig Oil Co., 785 F.2d 1563 (11th Cir. (Ga.) 1986)).   The Craig Oil Court held that a pre-Petition payment was a preference, attaching significance to fact that debtor’s motive for making a payment to a creditor was to forestall an involuntary petition and to prevent personal liability on guaranteed debt, but observing that state of mind of the debtor alone, would not establish unusual or extraordinary actions by the debtor, but merely would go to explain unusual payment actions by debtor.  Also, in the  First Software Corp. v. Micro Educ. Corp. of Amer., 103 B.R. 359 (D. Mass. 1988), the United States District Court for Massachusetts held that payments made by a debtor under an agreement with a creditor were not preferences.   The debtor agreed to make larger weekly payments to a creditor until the balance on the account was reduced to zero.  The Court held that the transfers were within the ordinary course of business (and not preferences), where there was no evidence that indicated that the creditor knew that the debtor was on the verge of bankruptcy when the payments at issue were agreed upon and made.

I have had cases in which my creditor clients were guilty of making dunning phone calls to the debtor prior to company’s slide into bankruptcy.  I have also had cases in which my client was a critical supplier and it wanted to keep servicing the debtor during the time of distress.  Often, at moments like that, new deals are struck in order to keep the debtor afloat and the supplier still dealing with the debtor.   Perhaps, the supplier is owed a substantial amount of money from the debtor and the supplier is willing to do anything to keep the debtor as a going concern; otherwise, the supplier faces the threat of its own bankruptcy.

Although the intent, mens rea, state of mind, motive of either the debtor or the creditor is no longer a prima facie element to a preference action, when I conduct diligence surrounding an alleged preferential transfer I always ask the necessary questions to get a better understanding of what was really going on in the business relationship as the debtor became unable to pay its debts as they came due.   Asking these questions is important in order to paint an accurate picture of the course of dealing between the parties and how such dealing may have changed prior to the filing of the case.

I often advise the credit risk groups of all of my clients always to have a pulse on the financial condition of their clients, especially if a client generates revenue from only a handful of customers.  I even advise my clients to put “google alerts” on each such client so that they can catch wind of any distressed circumstances.

Without a doubt, a business should be strategic when dealing with a distressed client, especially if there is a significant amount owed, and especially if you are striking a new deal with the debtor with changed terms.   Even if you are paid in the year or 90 days prior to your customer’s bankruptcy filing, you always run the risk that the payment will be clawed back post-Petition.  You should be prepared for what defenses you will mount in the event that happens.

MAZURKRAEMER represents debtors and creditors in bankruptcy courts all over the country. The information, comments and links posted on this blog do not constitute legal advice. No attorney-client relationship has been or will be formed by any communication(s) to, from or with the blog and/or the blogger. For legal advice, contact an attorney at MAZURKRAEMER or an attorney actively practicing in your jurisdiction.

Inside the Trenches of a Chapter 11 Bankruptcy Case-Preparing the Initial Filing

       In the world of business law, many seem to be mystified by the chapter 11 bankruptcy process.   When I tell my friends and colleagues what I do, they still don’t seem to understand me.  I get that glazed, deer-in-headlights look.   I just recently filed a Chapter 11 case and I decided to write a series of blog posts as we are going through the process.

        The chapter 11 process is expensive but can be a worthwhile option and a financially prudent decision for certain businesses wishing to reorganize, restructure their debts, reject undesirable contracts, and/or orderly liquidate certain assets under the jurisdiction and protection of the bankruptcy court.

Triggering Event.  Usually an event triggers the filing (a pending auction of assets, an inability to payroll, the threat of a shut-off notice for utilities, a impending freezing of bank accounts, a filed lawsuit, etc.).  A debtor can file an emergency petition in such an instance.

Emergency Petition.  To file an emergency petition, at the very minimum a debtor needs to submit the 2-page petition, its list of 20 largest unsecured creditors, and a creditor matrix (listing all of the creditors the debtor believes it currently has).    This sounds like a simple initial filing; but, it might not be.   The preparation of the debtor’s bankruptcy petition and related schedules can be very time-consuming depending upon the nature of the debtor’s business, how orderly its books and records are, and how many divisions or locations, it has etc.

Automatic Stay.  Once the minimal skeletal documents are filed, an “automatic stay” goes into immediate effect; the automatic stay is basically an injunction against any and all actions against the debtor and is property.    If a creditor violates the stay, it is a serious infringement and the bankruptcy court can award sanctions  against the creditor.

After the initial bankruptcy petition is filed, a Ch. 11 debtor has another 14 days within which to file its complete schedules and statement of financial affairs.   This timeframe can be extended for cause.

“Debtor In Possession” Bank and Insurance Information.  Also once the petition is filed, generally within 10 days, the debtor and its counsel have to submit certain bank account and insurance information to the United States Trustee (part of the Department of Justice).    Importantly, a business must close its books as of its bankruptcy “Petition Date” and open up  a new set of financial books and records.  New “Debtor-in-Possession” (“DIP”) Bank accounts must be opened at certain approved banks;  the United States Trustee’s Office has the “approved” list of banks.  The debtor and its counsel also may have an initial debtor interview with the agent for the United States Trustee (depending  upon the district in which you file), at which the debtor discusses its business operations and assets and liabilities.

The Bankruptcy Court Is Watching.  Once a bankruptcy petition is filed, a business will then have to seek bankruptcy court approval prior to taking many actions (paying its lawyers and accountants, paying pre-petition wages, utilizing cash (“cash collateral”) to pay expenses, selling anything outside the ordinary course).   A business debtor post-petition generally CANNOT pay any pre-petition obligations, otherwise serious consequences may ensure, including “avoidance” lawsuits. 

Drama.  The initial filing process can be intense for everyone involved.  Lots of information gathering, document review, fact checking.   Many phone calls may be made to and from creditors about the impact of the filing of the case.

Often, a distressed situation, not surprisingly, involves drama.  In some instances I have had to file the case right before the auction on the courthouse steps, right before the repossession crew found the vehicle, or right after the doors to a business were locked and the business suddenly went dark.  After the petition is filed and is made known to the public, media outlets may starting calling to find out more about the future of the business.

STAY TUNED FOR MORE DETAILS REGARDING INSIDE THE TRENCHES OF A CHAPTER 11 BANKRUPTCY CASE

MAZURKRAEMER represents debtors and creditors in bankruptcy courts all over the country.   The information, comments and links posted on this blog do not constitute legal advice. No attorney-client relationship has been or will be formed by any communication(s) to, from or with the blog and/or the blogger. For legal advice, contact an attorney at MAZURKRAEMER or an attorney actively practicing in your jurisdiction.