hearing date: february 17,2016 united states … · approve auction results and authorize the...

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HEARING DATE: FEBRUARY 17, 2016UNITED STATES BANKRUPTCY COURT OBJECTION DEADLINE: FEBRUARY 17, 2016

SOUTHERN DISTRICT OF NEW YORK DOCKET REFERENCE: 43, 60, 100, 121, 132, 148

-----------------------------------------------------------------------In re:

Case No. 16-22035-rddJoyce Leslie, Inc.,

Chapter 11 CaseDebtor.

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SUPPLEMENTAL LIMITED OBJECTION OF RPAI PELHAMMANOR, L.L.C. AND INLAND WESTERN CORAM PLAZA, L.L.C.

TO ASSUMPTION AND ASSIGNMENT OF DEBTOR’S LEASES,SALE OF INTELLECTUAL PROPERTY AND CURE AMOUNTS

RPAI Pelham Manor, L.L.C. (“Pelham”) and Inland Western Coram Plaza, L.L.C.

(“Coram” and together, the “Landlords”), by and through their attorneys, Menter, Rudin &

Trivelpiece, P.C., submit this supplemental limited objection (“Supplemental Limited

Objection”) to the bifurcated motion of the above-captioned debtor (the “Debtor”) seeking to

approve auction results and authorize the assumption and assignment of leases and sale of assets.

In support of their Supplemental Limited Objection, the Landlords respectfully represent as

follows:

JURISDICTION

1. The United States Bankruptcy Court for the Southern District of New York (the

“Court”) has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 & 1334. This is a core

proceeding pursuant to 28 U.S.C. § 157(b)(2).

BACKGROUND

2. On January 9, 2016 (the “Petition Date”), the above-captioned debtor (the

“Debtor”) filed a voluntary petition under chapter 11 of title 11 of the United States Code (the

“Bankruptcy Code”) with the Court.

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3. Upon information and belief, the Debtor is operating its business as a debtor in

possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code.

4. The Landlords and the Debtor are parties to unexpired leases of nonresidential

real property (collectively, the “Leases”) of premises (collectively, the “Premises”) as follows:

Landlord Shopping Center Location

RPAI Pelham Manor, L.L.C. Pelham Manor Shopping Plaza Pelham, NY

Inland Western Coram Plaza, L.L.C Coram Plaza Coram, NY

5. The Premises are located within “shopping centers” as that term is used in

§ 365(b)(3) of the Bankruptcy Code. See In re Joshua Slocum, Ltd., 922 F.2d 1081, 1086-87 (3d

Cir. 1990).

6. The Debtor’s Motion for Orders (I)(A) Authorizing Entry into Agency Agreement

with SB Capital, and Approving Proposed Select Lease Agreement with Madrags, (B)

Authorizing Bidding Procedures and Auction and (C) Scheduling Sale Hearing and Approving

Notice Thereof; (II) Authorizing (A) Sale of Assets and (B) Store Closing Sales and (III)

Granting Related Relief (the “Motion”) [Docket No. 43] was filed on January 14, 2016.1

Through the Motion, the Debtor sought authority to conduct store closing sales if a going

concern purchaser could not be located, and to sell between twelve (12) and twenty (20) leases.

7. After consultation with certain parties in interest, the Debtor bifurcated the

Motion.

8. On January 19, 2016, the Landlords filed a Limited Objection to the Motion (the

“Limited Objection to the Motion”) [Docket No. 60].

1 Capitalized terms that are otherwise undefined shall have the meanings given to such terms in the Motion.


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9. On February 2, 2016, the Landlords filed the Limited Objection to Sale of Assets,

Store Closing Sales, Cure Notice, and Reservation of Rights (the “Limited Objection and

Reservation of Rights”) [Docket No. 100].

10. On February 4, 2016, the Court entered the Order Approving Auction Results,

Revised Agency Agreement, and Liquidation Sale to be Conducted by Gordon Brothers Retail

Brothers, LLC (the Store Closing Sale Order”) [Docket No. 121].

11. On February 5, 2016, the Debtor issued its Notice of Second Auction Relating to

Sale of Debtor’s Leases and Intellectual Property and Notice of Hearing to Consider the Debtor’s

Entry into a Proposed Stalking Horse Select Lease Purchase Agreement with Madrag,

Authorizing Revised Bidding Procedures and Auction and Scheduling Sale Hearing and

Approving Notice Thereof (the “Notice of Second Auction and Revised Cure Amounts”)

[Docket No. 132]. Through the Notice of Second Auction and Revised Cure Amounts, the

Debtor included an Amended Cure Notice setting forth revised Cure Amounts of $66,417.71 for

Pelham, and $21,629.17 for Coram.

12. On February 9, 2016, the Court entered the Order (A) Authorizing Conduct of

Second Auction Relating to the Sale of the Debtor’s Leases and Intellectual Property and

Authorizing the Debtor’s Entry into a Proposed Stalking Horse Select Purchase Agreement with

Madrag, (b) Approving Revised Bidding Procedures and Auction, and (C) Scheduling Sale

Hearing and Approving Notice Thereof (the “Second Auction Order”) [Docket No. 148].

Through the Second Auction Notice, the Court approved the bidding procedures (the “Bidding

Procedures”).


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13. Through the Second Auction Order, the deadline for bidders to submit adequate

assurance of future performance information to the Landlords was February 11, 2016 at 5:00

p.m. See Second Auction Order, ¶ 9.

14. Two bidders provided the Landlords with purported adequate assurance of future

performance information: 618 Main Street Corp. (“618”) and Rainbow Northeast Leasing, Inc.

(“Rainbow”). 618 bid only for the Pelham Lease, while Rainbow bid for both Leases.

SUPPLEMENTAL LIMITED OBJECTION

I. 618 Has Failed to Provide Adequate Assurance of Future Performance

15. In their previous objections, the Landlords set forth the legal requirements for

adequate assurance of future performance pursuant to Section 365. Therefore the Landlords

hereby incorporate by reference paragraphs 12-15 of their Limited Objection to the Motion. A

copy of the Limited Objection to the Motion (without exhibits) is attached hereto as Exhibit A.

Additionally, the Landlords hereby incorporate paragraphs 23-24 of their Limited Objection and

Reservation of Rights. A copy of the Limited Objection and Reservation of Rights (without

exhibits) is attached hereto as Exhibit B.

16. This Court required the following adequate assurance of future performance

information from each bidder: “(a) adequate information (in the Debtor’s reasonable business

judgment) about the financial condition of the Potential Bidder, such as federal tax returns for the

previous two years, a current financial statement, and/or current bank account statements; and

(ii) (sic) information demonstrating (in the Debtor’s reasonable business judgment) that the

Potential Bidder has the financial capacity to, inter alia, consummate the proposed assumption

and assignment of Assumed Contracts ….”. See Bidding Procedures (C)(1)(b).


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17. The financial and other information provided by 618 was required to be kept

confidential “to the extent set forth in the Bidding Procedures” and the Landlords will not delve

into the specifics of 618’s failure to provide adequate assurance of future performance. See

Second Auction Order, ¶ 9. However, the Landlords reserve their rights to provide specifics of

618’s adequate assurance information and why it falls short at the hearing, if necessary.

18. 618 failed to specifically identify the assignee entity that would be taking an

assignment of the Lease. However, the Asset Purchase Agreement between the Debtor and 618

allows 618 to “designate one or more entities that are wholly owned by the Buyer as the specific

assignee(s) of the Scheduled Leases.” See Asset Purchase Agreement, § 6. The financial

information provided by 618 is consolidated with multiple other entities, outdated, and there is

no financial information specific to the potential assignee. The financial information does not

include the proposed guarantor, the proposed guarantee is illusory and valueless on its face based

upon its limitations, and is woefully inadequate under section 365(l) of the Bankruptcy Code.

618 failed to designate which trade name would be operated on the Premises. No tax returns or

bank statements were provided, and the financial information that was provided was not audited.

19. 618 has not provided the adequate assurance information required by the Court

pursuant to (C)(1)(b) of the Bidding Procedures and consequently this Court should not approve

any assumption and assignment of the Leases to 618 or any entity it designates. In addition, this

Court should not approve 618 or any entity it designates as the backup bidder for any assumption

and assignment of the Leases.

20. 618 has not followed the Bidding Procedures approved by this Court in other

ways. Pursuant to the Bidding Procedures, 618 was required to provide the identity of the entity

that would be bidding for the Leases and adequate assurance information for that entity. See


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Bidding Procedures, §§ (C)(1)(a) & (C)(1)(b). The Bidding Procedures required 618 to submit

its adequate assurance information to the Landlords, and their counsel, if known by February 11,

2016, 5:00 p.m. See Second Auction Order, ¶ 9. Counsel for the Landlords has filed an

appearance in this case, had previous discussions with counsel for 618 and was therefore known

to 618. Despite this, 618’s adequate assurance information was not timely provided to counsel

for the Landlords by February 11, 2016 at 5:00 p.m., in violation of the Second Auction Order

and counsel did not receive it until he notified the Debtor on February 12, 2016.

21. With respect to 618 or any entity it designates, the Debtor has not sustained its

burden pursuant to section 365 of the Bankruptcy Code to assume and assign either of the

Leases.

II. Potential Assumption and Assignment to Rainbow USA, Inc.

22. The Landlords have come to terms with Rainbow USA, Inc. (“Rainbow USA”)

regarding a consensual assignment of the Leases. The Landlords do not oppose the Debtor’s

assumption and assignment of the Leases to Rainbow USA, so long as such assignment is strictly

in accordance with the terms of the separately executed agreements with Rainbow USA and the

order approving the assignment of the Leases has been approved by the Landlords. To the extent

the Debtor seeks to assume and assign the Leases to any affiliate of Rainbow USA, the

Landlords oppose such an assignment. The Landlords hereby reserve all their rights to object to

the assignment of the Leases to any other Rainbow USA entity, including their rights related to

adequate assurance of future performance pursuant to section 365 of the Bankruptcy Code.


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III. Correct Cure Costs

23. As a condition of any assumption and assignment of the Leases, the Landlords are

entitled to have all defaults cured. 11 U.S.C. § 365(b)(1)(A).2

24. Through the Notice of Second Auction and Revised Cure Amounts, the Debtor

asserts that the proposed cure cost due to RPAI Pelham Manor, L.L.C. is $66,417.71 (the

“Pelham Proposed Cure Cost”) and the proposed cure cost due to Inland Western Coram Plaza,

L.L.C. is $21,629.17 (the “Coram Proposed Cure Cost” and together with the Pelham Proposed

Cure Cost, the “Proposed Cure Costs”).

25. The Landlords object to the Proposed Cure Costs because they are subject to

change and do not include attorneys’ fees. The Proposed Cure Costs and correct cure costs as of

February 12, 2016 (“Correct Cure Costs”) are as follows:

Landlord Proposed Cure Costs Correct Cure Costs

RPAI Pelham Manor, L.L.C. $66,417.71 $60,437.64 plusattorneys’ fees

Inland Western Coram Plaza, L.L.C. $21,629.17 $13,182.57 plusattorneys’ fees

Itemizations of the Correct Cure Costs (without attorneys’ fees) owed by the Debtor pursuant to

the Leases are attached hereto as Exhibit C.

26. The Correct Cure Costs remain subject to change. The Proposed Cure Costs do

not include accrued, but unbilled or not yet due, rent and charges, such as adjustments and

reconciliations. Additionally, the Proposed Cure Costs do not include contractual obligations to

indemnify the Landlords for any events occurring prior to any assumption of the Leases. Such

claims may include, but are not limited to, (i) claims for personal injuries which occur at the

2 The terms of the Landlords’ letter agreements with Rainbow USA shall govern over any contrary provision in thissection related to the cure costs, provided that Rainbow USA is the Successful Bidder and obtains an assignment ofthe Leases in accordance with the terms of the letter agreements.


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Premises where a Landlord is joined as a party defendant; (ii) claims for damage and destruction

to the property by Debtor or its agents; and (iii) claims for environmental damage or

environmental cleanup. Finally, the Proposed Cure Costs do not include attorneys’ fees. All of

these obligations should be assumed by any assignee as part of any assumption and assignment

of the Leases in accordance with the requirement that the Landlords receive adequate assurance

of future performance under the Leases. See 11 U.S.C. § 365(b)(1)(A).

27. The Landlords are entitled to attorneys’ fees under the Leases. Attorneys’ fees

are properly included in the Landlords’ cure amounts as actual pecuniary losses suffered by the

Landlords. In re Child World, 161 B.R. 349, 353 (Bankr. S.D.N.Y. 1993) (“Although attorneys’

fees are not independently recoverable under the Bankruptcy Code, section 365(b)(1)(B) allows

for such recovery if based upon the existence of a separate agreement between the parties.”); In

re Westview 74th Street Drug Corp., 59 B.R. 747, 756 (Bankr. S.D.N.Y. 1986) (Courts “have

consistently recognized that an express contractual provision for attorneys’ fees gives rise to a

right to obtain a reasonable attorney’s fee as part of curing the debtor’s default and in

compensation for the landlord’s actual pecuniary loss under Section 365 of the Code”).

28. As a condition of assumption and assignment of the Leases, the Landlords are

entitled to have all defaults cured thereunder, including payment of the Correct Cure Costs. The

Correct Cure Costs should therefore be paid upon the Debtor’s assumption and assignment of the

Leases.

IV. Proposed Sale Order(s) and Joinder and Reservation of Rights

29. The Debtor has not filed a proposed order approving the auction results, the

assumption and assignment of leases, and the sale of assets. The Landlords have given the


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Debtor some brief comments to a form of order. The Landlords reserve their rights to oppose

entry of any proposed order.

30. The Landlords join in the objection of any other landlords, to the extent such

objections are not inconsistent with this Supplemental Limited Objection.

31. The Landlords reserve their rights to supplement this Supplemental Limited

Objection and make such other and further objections as they deem necessary or appropriate and

object to the auction results, the assumption and assignment of Leases, and the sale of assets to

the party making the highest and best bid or any backup bidder.

WHEREFORE, the Landlords respectfully request that the Court deny the relief

requested in the Motion, or enter an order consistent with this Supplemental Limited Objection

and grant the Landlords any further relief the Court may deem just and proper.

Dated: February 16, 2016 Respectfully submitted,

MENTER, RUDIN & TRIVELPIECE, P.C.

/s/ Kevin M. NewmanKevin M. Newman (KN1451)Jeffrey D. Eaton (pro hac vice pending)308 Maltbie Street, Suite 200Syracuse, New York 13204-1439Telephone: (315) 474-7541Facsimile: (315) 474-4040Email: [email protected]

Attorneys for RPAI Pelham Manor, L.L.C. andInland Western Coram Plaza, L.L.C.


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