in the united states bankruptcy court for …...headquarters are located at 500 rutherford avenue,...

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re: COSI, INC., et al.,1 Debtors.

) ) ) ) )

Chapter 11 Case No. 20- (Joint Administration Requested)

MOTION OF THE DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS (A) AUTHORIZING THE DEBTORS TO PAY AND PERFORM ALL EMPLOYEE

OBLIGATIONS, (B) DIRECTING BANKS TO HONOR ALL RELATED TRANSFERS, AND (C) GRANTING RELATED RELIEF

The above-captioned debtors and debtors-in-possession (collectively, the “Debtors”) file

this motion (the “Motion”), pursuant to sections 105, 363, 503, 507, 541, 1107, and 1108 of title

11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”) and Rules 6003

and 6004(h) of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), for entry of

interim and final orders: (a) authorizing, but not directing, the Debtors to continue to honor, pay,

and/or perform all Employee Obligations (as defined below); (b) authorizing and directing banks

and financial institutions to honor and process checks and transfers related to such payments and

obligations; and (c) granting related relief. In support of this Motion, the Debtors respectfully state

as follows:

JURISDICTION AND VENUE

1. The Court has jurisdiction over this Motion pursuant to 28 U.S.C. § 1334. Venue

is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. This matter is a core proceeding

within the meaning of 28 U.S.C. § 157(b)(2).

1 The Debtors in these Chapter 11 Cases are the following entities (the last four digits of each Debtor’s respective federal tax identification number, if any, follow in parentheses): Cosi, Inc. (3745); Xando Cosi of Maryland, Inc. (2196); Cosi Sandwich Bar, Inc. (0910); Hearthstone Associates, LLC (6267); Hearthstone Partners, LLC (9433), Cosi Franchise Holdings LLC (6984); and Cosi Restaurant Holdings LLC (3461). The Debtors’ corporate headquarters are located at 500 Rutherford Avenue, Suite 130, Charlestown, MA 02129.

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2. The statutory predicates for the relief requested herein are sections 105(a), 363,

503(b), 507(a)(4), 507(a)(5), 541, 1107, and 1108 of the Bankruptcy Code and Bankruptcy Rules

6003 and 6004(h).

BACKGROUND

3. On today’s date (the “Petition Date”), the Debtors each filed voluntary petitions for

relief under Chapter 11 of the Bankruptcy Code in this Court (the “Chapter 11 Cases”). On the

Petition Date, the Debtors moved for an order of joint administration pursuant to Bankruptcy Rule

1015(b). The Debtors remain in possession of their property and continue in the operation and

management of their business as debtors-in-possession pursuant to sections 1107 and 1108 of the

Bankruptcy Code.

4. The Debtors operate fast-casual restaurants and perform associated catering

activities under the COSI® brand (“COSI”). COSI features flatbread made fresh throughout the

day and specializes in a variety of made-to-order hot and cold sandwiches, salads, bowls, breakfast

wraps, bagels, melts, soups, flatbread pizzas, snacks, desserts, and a large offering of handcrafted,

coffee-based, and specialty beverages.

5. The events leading up to the Petition Date and the facts and circumstances

supporting the relief requested in this Motion are set forth in the Declaration of Vicki Baue, Vice

President & General Counsel, Chief Compliance Officer (CCO) and Secretary, in Support of

Debtors’ Chapter 11 Petitions and First-Day Pleadings [D.I. __] (the “First Day Declaration”),2

which is incorporated herein by reference.

2 Capitalized terms used but not defined herein shall have the meanings provided to them in the First Day Declaration.

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A. Employees

6. As of the Petition Date, the Debtors’ workforce consists of approximately 61 full-

time employees, and approximately 176 part-time employees (the “Employees”), all of whom

receive their compensation and benefits from Cosi, Inc. The Employees are not unionized.

B. Wages and Payroll Obligations

i. Wages

7. The Employees are paid wages or salaries, tips and other compensation

(collectively, the “Wages”) bi-weekly, on every other Thursday for the two preceding weeks.

Payroll is released on the Thursday and, depending on the method of payment (i.e. check, direct

deposit, pay card), funds hit employees’ accounts on the Friday, Saturday, or Monday. The

Debtors utilize Automatic Data Processing, Inc. (“ADP”) as their payroll processor. The Debtors’

most recent payroll was made on February 20, 2020, for the payroll period ending February 17,

2020. The next payroll is scheduled for March 5, 2020. As of the Petition Date, the Debtors’ gross

bi-weekly payroll to all employees is approximately $345,000.00 (including payroll taxes).

8. The Debtors estimate that, as of the Petition Date, approximately $147,857

(including payroll taxes) in Wages were accrued and owed to Employees. By this Motion, the

Debtors request authority to pay all unpaid Wages to the Employees, and to continue to otherwise

pay the Employees in the ordinary course of business.

ii. Payroll Obligations

9. The Debtors, as employers, are required by law to withhold federal, state, and local

taxes from Wages (the “Employee Taxes”) for remittance to appropriate tax authorities (the

“Taxing Authorities”). In addition, the Debtors are required to pay social security and Medicare

taxes as well as additional amounts for state and federal unemployment insurance based on a

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percentage of gross payroll, subject to state-imposed limits (together with the Employee Taxes,

the “Payroll Taxes”).

10. As of the Petition Date, the Debtors have accrued approximately $15,000 in Payroll

Taxes. The Debtors seek authority to honor and process their pre-petition obligations with respect

to the Payroll Taxes, including authority to pay Payroll Taxes to the Taxing Authorities, as needed.

iii. Paid Time Off

11. The Debtors provide all salaried employees with paid time off (“PTO”) in the form

of holiday pay for scheduled holidays and vacation pay for accrued vacation days for full-time

employees. In addition, the Debtors provide up to 40 hours of paid sick/safe time per year to full-

time employees (and to part-time employees if required under applicable sick/safe time laws), and

allow those sick/safe time hours to be rolled-over if required by law. Sick/safe time hours are not

paid-out upon employment termination. The Debtors pay a prorated amount of current year unused

vacation to full-time salaried restaurant-level employees upon termination of employment where

required by law and to all full-time salaried employees above restaurant-level management upon

termination of employment.

12. By this Motion, the Debtors request authority to continue to honor their PTO

policies in the ordinary course of business, and to honor all pre-petition obligations related thereto

in a manner consistent with their pre-petition practices.

iv. ADP

13. As discussed above, the Debtors use ADP as a payroll processor. In connection

with payroll administration, tax management, and compliance services, the Debtors pay ADP

approximately $5,000 per month. As of the Petition Date, the Debtors owe ADP approximately

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$19,000. The Debtors request authorization to continue to pay ADP in the ordinary course of

business, including for pre-petition amounts, due to ADP (collectively, the “ADP Obligations”).

C. Employee Benefit Plans

14. The Debtors have established certain benefit plans for eligible Employees that

provide, among other benefits, medical, dental, and vision plans, workers’ compensation

insurance, life insurance, disability insurance, retirement plans, and other benefits described in

more detail below (collectively, the “Employee Benefit Plans”). All full-time Employees are

eligible to participate in the Employee Benefit Plans. The Employee Benefit Plans include the

following:

i. Self-Funded Group Health Insurance Plan

15. The Debtors maintain a self-insured group health insurance plan to provide eligible

employees with certain health insurance benefits (“Self-Funded Insurance Plan”), and the Debtors

maintain other health insurance plans and similar benefits to provide employees with other benefits

such as medical, dental, and vision coverage, as well as accidental death and dismemberment, and

disability coverage (together with the Self-Funded Insurance Plan, the “Insurance Plans”.

Approximately 65 of the Employees participate in the Self-Funded Insurance Plan. The Self-

Funded Insurance Plan provides that the Debtors are responsible for all covered claims up to a

maximum of $100,000 per participant and an additional aggregate maximum limit of $50,000 per

person for the plan year for the aggregate claims exceeding $100,000 per person for the plan year.

Benefits paid in excess of these limits are reimbursed to the Self-Funded Insurance Plan under a

stop-loss policy. In addition, the Debtors have an aggregate stop-loss policy whereby the Debtors’

liability for total claims submitted cannot exceed a pre-determined dollar factor based upon, among

other things, past years’ claims experience, actual claims paid, the number of plan participants,

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and monthly accumulated aggregate deductibles. Cosi did not exceed this pre-determined

maximum during fiscal year 2019. For the Debtors’ 2020 plan year, this pre-determined dollar

amount is approximately $1 million.

16. The Debtors wish to honor the claims under the self-insured group health insurance

plan of both exiting and continuing employees and have budgeted for payment of such claims in

the Chapter 11 operating budget. Specifically, the Debtors have budgeted in excess of $15,000

per bi-weekly pay period to satisfy such claims.

17. The Debtors seek authority: to continue to provide the Insurance Plans, including

the Self-Funded Insurance Plan; to pay, in the ordinary course of business, any obligations that

may arise, or that may have arisen, under the Insurance Plans, including the Self-Funded Insurance

Plan, whether accrued pre or post-petition; and to continue to pay, in the ordinary course of

business, the premiums for the Insurance Plans, including their stop-loss policies totaling

approximately $12,500 per month and their other policies totaling approximately $4,800.

ii. Flexible Spending Account

18. The Debtors offer Employees the ability to contribute a portion of their pre-tax

Wages into flexible spending accounts for healthcare, dependent care, and eligible commuter

expenses (each an “FSA”). PayFlex Systems USA, Inc. (Aetna) is the provider for the Debtors’

FSAs. The Debtors withhold the Employees’ contributions from each of their paychecks, and the

Debtors pay these funds to PayFlex Systems USA, Inc. when invoiced from the Debtors’ general

operating account. The Debtors are charged $400 per month in administrative costs for their

flexible spending accounts program. Additionally, the Debtors are required to pay invoices as

received for reimbursable FSA claims. By this Motion, the Debtors seek authority to continue

their pre-petition practices with respect to the FSAs, including, without limitation, payment of

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amounts related to the FSAs that may represent obligations accrued pre-petition. As these

transferred funds all represent employee wages, no estate property will be implicated.

iii. Workers’ Compensation Insurance

19. Under applicable law, the Debtors are required to maintain workers’ compensation

insurance to provide Employees with coverage for claims arising from or related to their

employment, and to satisfy the Debtors’ obligations arising under or related to any claims in

connection therewith (the “Workers’ Compensation Insurance”). The Workers’ Compensation

Insurance covers all Employees and is provided through Hartford Casualty Insurance Company.

The Debtors’ total annual Workers’ Compensation Insurance premium is approximately $271,000,

which amount is currently being adjusted downward for recent declines in covered employees, and

which is the equivalent of approximately $22,500 per month. The Debtors’ next periodic premium

payment is due on or about March 15, 2020.

20. It is critical that the Debtors be permitted to continue to provide the Workers’

Compensation Insurance and pay the associated premium, as not doing so would almost certainly

be more costly. In addition, failure to maintain this insurance could result in the institution of

administrative or legal proceedings against the Debtors and their officers and directors, and an

inability of the Debtors to continue as a going concern. By this Motion, the Debtors request

authority to maintain and continue their pre-petition practices with respect to the Workers’

Compensation Insurance, including, without limitation, by paying the premiums in the ordinary

course of business as they come due, and to pay and/or perform any related pre-petition obligations

that may exist.

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iv. 401(k) Plan

21. The Debtors maintain a retirement savings plan for the benefit of eligible

Employees in accordance with the requirements of section 401(k) of the Internal Revenue Code

(the “401(k) Plan”). Employees may contribute funds to the 401(k) Plan through wage deductions

up to the IRS limit. Currently, there is no program for matching Employee contributions.

22. The Debtors use a bundled service provider, Great-West Trust Company,

LLC/Empower, to perform third party administrative, record-keeping, and related services for the

401(k) Plan. Gallagher Benefit Services, Inc. (Arthur J Gallagher & Co) is the Investment Advisor,

and the fees are participant debited. All fees associated with the 401(k) Plan are paid by the

participants themselves from the participants’ own funds invested in the 401(k) Plan. Accordingly,

no estate funds will be used

D. Business and Reimbursable Expenses

23. The Debtors reimburse Employees for certain ordinary course expenses incurred

within the scope of Employees’ employment, including travel, lodging, transportation, meals, and

other miscellaneous expenses (collectively, the “Reimbursable Expenses”). Reimbursable

Expenses incurred by Employees in furtherance of the Debtors’ business are paid directly by

Employees, who then submit expense reports to the Debtors in accordance with the Debtors’

reimbursement policy.

24. Some Employees may not yet have submitted expense reports for Reimbursable

Expenses accrued shortly before the Petition Date. As of the Petition Date, the Debtors estimate

that not more than approximately $10,000 may be outstanding on account of Reimbursable

Expenses.

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25. Additionally, the Debtors provide certain Employees with corporate pre-funded

credit cards (collectively, the “Expense Cards”) that the Employees may use to directly charge the

Debtors for certain ordinary-course business expenses. The Debtors typically add funds to the

Expense Cards directly for anticipated charges. Because the Expenses Cards are pre-funded, as of

the Petition Date, there are no outstanding charges on the Expense Cards. Accordingly, no pre-

petition expenses will be paid using the Expense Cards.

26. Failing to reimburse Employees for Reimbursable Expenses would have a negative

effect on Employee morale, and would cause those employees with outstanding Reimbursable

Expenses to suffer undue hardship. In addition, failing to pay the charges incurred using the

Expense Cards could result in the card issuers denying further use of the Expense Cards, which

could interrupt the ongoing operations of the Debtors.

27. Accordingly, the Debtors seek authority: (i) to continue pre-petition practices with

respect to the Reimbursable Expenses and use of Expense Cards in the ordinary course of business;

and (ii) to pay all pre-petition amounts outstanding in connection with the Reimbursable Expenses

and Expense Cards.

E. Benefits Withholding Obligations

28. As part of the relief requested in this Motion, the Debtors seek authority to pay the

Payroll Taxes, as well as any other amounts that they are legally required to withhold from

Employees’ paychecks3 (collectively, the “Benefits Withholding Obligations”).

29. The Debtors routinely withhold from Employee paychecks the Benefits

Withholding Obligations, and are required to transmit these amounts to third parties. The Debtors

3 While not required for any current Employees, the Debtors could, for example, be required to withhold funds from Employee paychecks on account of tax levies and child support obligations, which would then be remitted to the appropriate third parties.

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believe that such withheld funds, while in their possession, constitute moneys held in trust, and

therefore, are not property of the Debtors’ estates. Accordingly, the Debtors believe that

transmitting such funds to the appropriate parties does not require Court approval. Nevertheless,

out of an abundance of caution, the Debtors seeks authority to pay any outstanding amounts owed

for Benefits Withholding Obligations, including those incurred prior to the Petition Date.

RELIEF REQUESTED

30. To enable the Debtors to maintain morale during this critical time, retain

Employees, and minimize the personal hardship that Employees may suffer if wages and benefits

are not paid when due or honored as expected, the Debtors seek authority, in their sole

discretion, to: (a) pay all unpaid Wages to the Employees; (b) process and pay all of their

obligations with respect to Payroll Taxes; (c) continue to honor their various PTO policies in the

ordinary course of business and honor all pre-petition obligations related thereto in a manner

consistent with pre-petition practices; (d) pay the ADP Obligations; (e) continue to provide the

Employee Benefit Plans for eligible Employees in the ordinary course of business, continue to

honor all of their obligations under the Employee Benefit Plans, and pay all such amounts owed

with respect to the Employee Benefit Plans; (f) continue pre-petition practices with respect to the

Reimbursable Expenses and use of Expense Cards in the ordinary course of business, and pay all

pre-petition amounts outstanding in connection with the Reimbursable Expenses and Expense

Cards; and (g) pay any outstanding amounts owed for Benefits Withholding Obligations, in the

ordinary course of business, including those incurred prior to the Petition Date. All of the

Debtors’ obligations, practices, and policies, whether arising pre or post-petition, and whether

owed to Employees or third parties, with respect to Wages, Payroll Taxes, PTO, ADP

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Obligations, Employee Benefit Plans, Reimbursable Expenses and Expense Cards, and Benefits

Withholding Obligations are collectively referred to herein as the “Employee Obligations.”

31. The Debtors also seek an order authorizing and directing all banks to receive,

process, honor, and pay any and all checks or electronic transfers drawn on their bank accounts to

make the payments contemplated in this Motion, whether presented before or after the Petition

Date, provided that sufficient funds are on deposit in the applicable accounts to cover such

payments.

BASIS FOR RELIEF

32. Courts generally acknowledge that it is appropriate to authorize the payment (or

other special treatment) of pre-petition employee obligations in certain circumstances. Pursuant

to sections 1107(a) and 1108 of the Bankruptcy Code, debtors-in-possession are authorized to

operate their businesses while maintaining “a fiduciary duty to act in the best interest of the estate

as a whole, including its creditors, equity interest holders and other parties in interest.” LaSalle

Nat’l Bank v. Perelman, 82 F. Supp. 2d 279, 292 (D. Del. 2000). Implicit in the fiduciary duties

of any debtor-in-possession is the obligation “to protect and preserve the estate, including an

operating business’s going-concern value.” In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D.

Tex. 2002). Some courts have noted that there are instances in which a debtor can fulfill this

fiduciary duty “by the preplan satisfaction of a prepetition claim.” Id. The CoServ court

specifically noted that preplan satisfaction of pre-petition claims would be a valid exercise of the

debtor’s fiduciary duty when the payment “is the only means to effect a substantial enhancement

of the estate.” Id. In the instant case, the Debtors are operating as debtors-in-possession consistent

with sections 1107(a) and 1108 of the Bankruptcy Code, and payment of the Employee Obligations

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is necessary to protect and preserve the Debtors’ business operations for the benefit of their estates

and creditors. Thus, the Court should authorize the relief requested in this Motion.

33. Consistent with the Debtors’ fiduciary duties, this Court may also grant the relief

requested herein pursuant to sections 105(a), 363(b) and 363(c) of the Bankruptcy Code, and the

“necessity of payment” doctrine (discussed below). Section 363(b)(1) of the Bankruptcy Code

states in part, “The trustee, after notice and a hearing, may use, sell, or lease, other than in the

ordinary course of business, property of the estate . . . .” 11 U.S.C. § 363(b)(1). If a debtor’s

determination to use estate assets represents a reasonable business judgment, the Court should

approve such use. Section 105(a) of the Bankruptcy Code further provides that a “court may

issue any order, process, or judgment that is necessary or appropriate to carry out the provisions

of this title.” 11 U.S.C. § 105(a).

34. Under the “necessity of payment” doctrine, bankruptcy courts can exercise their

equitable powers “to authorize a debtor in a reorganization case to pay pre-petition claims where

such payment is essential to the continued operation of the debtor.” In re Ionosphere Clubs, Inc.,

98 B.R. 174, 176 (Bankr. S.D.N.Y. 1989). See also In re Just for Feet, Inc., 242 B.R. 821, 825-

826 (D. Del. 1999) (“The necessity of payment doctrine recognizes that paying certain pre-

petition claims may be necessary to realize the goal of chapter 11—a successful reorganization.”)

(quoting In re Lehigh & New England Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981)); In re

Columbia Gas Sys., Inc., 171 B.R. 189, 192 (Bankr. D. Del. 1994) (stating that a debtor may pay

pre-petition claims “in advance of a confirmed plan” where such payments are “essential to the

continued operation of the [debtor’s] business”); In re Fin. News Network, Inc., 134 B.R. 732,

735-36 (Bankr. S.D.N.Y. 1991) (stating that the “‘doctrine of necessity’ stands for the principle

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that a bankruptcy court may allow pre-plan payments of pre-petition obligations where such

payments are critical to the debtor’s reorganization.”).

35. This Court routinely approves the payment of pre-petition claims of employees for

wages, salaries, expenses, and benefits on the basis that the payment of such claims is necessary

to effectuate a successful reorganization or liquidation. See, e.g., In re Ryckman Creek Res., LLC,

Case No. 16-10292 (KJC) (Bankr. D. Del. Feb. 29, 2016); In re City Sports, Inc., Case No. 15-

10254 (KG) (Bankr. D. Del. Oct. 28, 2015); In re Natrol, Inc., Case No. 14-11446 (BLS) (Bankr.

D. Del. July 15, 2014); In re Landauer Healthcare Holdings, Inc., Case No. 13-12098 (CSS)

(Bankr. D. Del. Aug. 20, 2013); In re AFA Inv. Inc., Case No. 12-11127 (MFW) (Bankr. D. Del.

Apr. 3, 2012).

36. In addition, the Debtors note that, with little exception, the pre-petition obligations

that are the subject of this Motion would be entitled to priority status under sections 507(a)(4) or

507(a)(5) of the Bankruptcy Code. To the best of the Debtors’ knowledge, the amounts owed to

Employees for wages and benefits were earned, or arise from services rendered, within 180 days

of the Petition Date, and no particular employee is owed more than $13,650 on account of pre-

petition wages or benefits. Accordingly, the relief requested in this Motion would change only the

timing, and not the amounts, of payments to Employees on account of pre-petition wages or

benefits.

37. The “necessity of payment” doctrine, as well as the other authority cited above,

authorizes the relief requested in this Motion, as the Employees are indispensable to both the

Debtors’ operations and the successful completion of these Chapter 11 Cases. The Employees’

morale directly affects their effectiveness and productivity. Because the Debtors rely heavily on

the Employees, their continuing to satisfy the Employee Obligations without disruption is

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essential. Consequently, it is critical that the Debtors continue, in the ordinary course, those

personnel policies, programs and procedures that were in effect prior to the Petition Date. If the

checks issued and electronic fund transfers requested in payment of any of the compensation or

other Employee Obligations are dishonored, or if such obligations are not timely paid post-

petition, the Employees may suffer extreme personal hardship and may be unable to pay their

daily living expenses.

38. A loss of employee morale and goodwill at this juncture would undermine the

Debtors’ stability and would have an adverse effect on the Debtors, their customers, the value of

their assets and business, and their ability to achieve their objectives in these bankruptcy cases.

As noted by the court in In re Equalnet Communications Corp., 258 B.R. 368 (Bankr. S.D. Tex.

2000), “The need to pay [pre-petition employee wage] claims in an ordinary course of business

time frame is simple common sense. Employees are more likely to stay in place and to refrain

from actions which could be detrimental to the case and/or the estate if their pay and benefits

remain intact and uninterrupted.” Id. at 370.

39. As part of their requested relief, the Debtors request authority to pay all Benefits

Withholding Obligations. This request should be approved for the additional reason that the

failure to make such payments may subject the Debtors and their officers to federal or state

liability. See, e.g. City of Farrell v. Sharon Steel Corp., 41 F.3d 92 (3d Cir. 1994) (state law

requiring debtor to withhold city income tax from its employees’ wages created trust relationship

between debtor and city for payment of withheld taxes); DuCharmes & Co. v. Michigan (In re

DuCharmes & Co.), 852 F.2d 194 (6th Cir. 1988) (noting the special liabilities for failure to pay

trust fund taxes). Moreover, monies held in trust, like the Benefits Withholding Obligations,

generally are not property of a debtor’s estate. See Begier v. IRS, 496 U.S. 53, 59 (1990)

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(because the debtor does not own an equitable interest in property he holds in trust for another,

that interest is not “property of the estate”). In addition, the Debtors’ failure to transfer these

withheld funds could result in hardship to the Employees themselves, or others. If the Debtors

cannot make these payments, some Employees may face legal action.

40. Finally, payment of Benefits Withholding Obligations that constitute “trust fund”

taxes will not prejudice general unsecured creditors of the bankruptcy estates, as the relevant

Taxing Authorities would hold priority claims under section 507(a)(8) of the Bankruptcy Code.

41. The relief requested in this Motion is necessary for the viability of the Debtors’

business and maximization of the value of the Debtors’ estates. Accordingly, the Debtors submit

that the relief sought in this Motion is consistent with authority discussed above.

42. Neither this Motion, nor any action taken by the Debtors pursuant to an order

granting this Motion, shall be deemed an assumption or rejection of any executory contract

between the Debtors and any Employee or third party.

BANKRUPTCY RULE 6003 IS SATISFIED AND A STAY SHOULD NOT BE IMPOSED

43. The Debtors submit that because the relief requested in this Motion is necessary to

avoid immediate and irreparable harm to the Debtors for the reasons set forth herein and in the

First Day Declaration, Bankruptcy Rule 6003 has been satisfied and the relief requested in this

Motion should be granted.

Specifically, Bankruptcy Rule 6003 provides:

Except to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within 21 days after the filing of the petition, issue an order granting the following: . . . (b) a motion to use, sell, lease, or otherwise incur an obligation regarding property of the estate, including a motion to pay all or part of a claim that arose before the filing of the petition, but not a motion under Rule 4001 . . . .

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44. The United States Court of Appeals for the Third Circuit has interpreted the

“immediate and irreparable harm” language in the context of preliminary injunctions. In that

context, “irreparable harm” has been interpreted as a continuing harm that cannot be adequately

redressed by final relief on the merits and for which money damages cannot provide adequate

compensation. See, e.g., Norfolk S. Ry. Co. v. City of Pittsburgh, 235 F. App’x 907, 910 (3d Cir.

2007) (citing Glasco v. Hills, 558 F.2d 179, 181 (3d Cir. 1977)). Further, the harm must be shown

to be actual and imminent, not speculative or unsubstantiated. See, e.g., Acierno v. New Castle

Cty., 40 F.3d 645, 653-55 (3d Cir. 1994).

45. The Debtors also seek a waiver of any stay of the effectiveness of an order

approving this Motion. Bankruptcy Rule 6004(h) provides, “An order authorizing the use, sale,

or lease of property other than cash collateral is stayed until the expiration of 14 days after entry

of the order, unless the court orders otherwise.” As set forth above, the relief requested herein is

essential to prevent irreparable damage to the Debtors’ operations, going concern value, and their

efforts to pursue a resolution to these Chapter 11 Cases.

46. Accordingly, the relief requested in this Motion should be granted under Rule

6003, and should be immediately effective notwithstanding Rule 6004(h).

CONSENT TO JURISDICTION

47. Pursuant to Rule 9013-l(f) of the Local Rules of Bankruptcy Practice and Procedure

of this Court, the Debtors consent to the entry of a final order with respect to this Motion if it is

determined that the Court lacks adjudicatory authority under Article III of the United States

Constitution to enter such final order absent consent of the parties.

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NOTICE

48. Notice of this Motion will be given to the following parties: (a) the Office of the

United States Trustee for the District of Delaware; (b) the holders of the twenty (20) largest

unsecured claims against the Debtors (on a consolidated basis); (c) the Debtors’ pre and post-

petition secured lenders; (d) the Securities and Exchange Commission; and (e) the Internal

Revenue Service. As the Motion is seeking “first day” relief, within two (2) business days of the

hearing on the Motion, the Debtors will serve copies of the Motion and any order entered with

respect to the Motion in accordance with the Local Rules. The Debtors submit that, in light of the

nature of the relief requested, no other or further notice need be given.

NO PRIOR REQUEST

49. No prior request for the relief sought in this Motion has been made to this or any

other court.

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CONCLUSION

WHEREFORE, the Debtors respectfully request that the Court enter interim and final

orders granting the relief requested in this Motion, and granting any additional relief as is just and

proper.

Dated: February 24, 2020 COZEN O’CONNOR

/s/ Mark E. Felger Mark E. Felger (No. 3919) Simon E. Fraser (No. 5335) Gregory F. Fischer (No. 5269) 1201 N. Market St., Ste. 1001 Wilmington, DE 19801 Telephone: (302) 295-2000 Facsimile: (302) 295-2013 Email: [email protected] [email protected] [email protected]

Proposed Counsel for the Debtors and Debtors in Possession

Case 20-10417 Doc 11 Filed 02/24/20 of 18

Exhibit A

Proposed Interim Order

Case 20-10417 Doc 11-1 Filed 02/24/20 Page 1 of 4



) ) ) ) )


INTERIM ORDER GRANTING MOTION OF THE DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS (A) AUTHORIZING THE DEBTORS TO PAY AND PERFORM ALL EMPLOYEE OBLIGATIONS, (B) DIRECTING BANKS TO HONOR

ALL RELATED TRANSFERS, AND (C) GRANTING RELATED RELIEF

Upon consideration of the Motion for Entry of Interim and Final Orders (A) Authorizing

the Debtors to Pay and Perform all Employee Obligations, (B) Directing Banks to Honor all

Related Transfers, and (C) Granting Related Relief (the “Motion”)2 filed by the Debtors,

pursuant to sections 105, 363, 503, 507, 541, 1107, and 1108 of the Bankruptcy Code and

Bankruptcy Rules 6003 and 6004(h), seeking entry of interim and final orders: (a) authorizing,

but not directing, the Debtors to continue to honor, pay, and/or perform all Employee

Obligations; (b) authorizing and directing banks and financial institutions to honor and process

checks and transfers related to such payments and obligations; and (c) granting related relief; and

upon the First Day Declaration; and upon the statements of counsel in support of the relief

requested in the Motion at the hearing before the Court; and it appearing that this Court has

jurisdiction to consider the Motion pursuant to 28 U.S.C. § 1334; and it appearing that venue of

these Chapter 11 Cases and the Motion in this district is proper pursuant to 28 U.S.C. §§ 1408

and 1409; and it appearing that this matter is a core proceeding pursuant to 28 U.S.C. §157(b);

1 The Debtors in these Chapter 11 Cases are the following entities (the last four digits of each Debtor’s respective federal tax identification number, if any, follow in parentheses): Cosi, Inc. (3745); Xando Cosi of Maryland, Inc. (2196); Cosi Sandwich Bar, Inc. (0910); Hearthstone Associates, LLC (6267); Hearthstone Partners, LLC (9433), Cosi Franchise Holdings LLC (6984); and Cosi Restaurant Holdings LLC (3461). The Debtors’ corporate headquarters are located at 500 Rutherford Avenue, Suite 130, Charlestown, MA 02129. 2 Capitalized terms not otherwise defined in this Order shall have the meanings provided in the Motion.


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and this Court having determined that the relief requested in the Motion is in the best interests of

the Debtors, their estates, their creditors and other parties-in-interest; and it appearing that proper

and adequate notice of the Motion has been given and that no other or further notice is necessary;

and after due deliberation thereon; and good and sufficient cause appearing therefor,

IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED on an interim basis as set forth herein.

2. A final hearing on the relief sought in the Motion shall be held on ___________

___, 2020 at ______ __.m. (prevailing Eastern Time). Any objections or responses to the Motion

shall be filed on or before 4:00 p.m. (prevailing Eastern Time) on ________________ __, 2020

and served on the parties required by Local Rule 2002-1 (b).

3. Subject to the requirements of 11 U.S.C. sections 507 (a)(4) and (a)(5), the Debtors

are authorized, but not directed, to continue to honor, pay, and/or perform all Employee

Obligations, in accordance with their ordinary policies and pre-petition practices, as described in

the Motion and in the ordinary course of their business.

4. All of the Debtors’ banks are authorized and directed to receive, process, honor,

and pay any and all checks or electronic transfers drawn on the Debtors’ accounts to make the

payments authorized by this Interim Order, whether presented before or after the Petition Date,

provided that sufficient funds are on deposit in the applicable accounts to cover such payments.

5. To the extent that any employment or related agreements may be deemed executory

contracts within the meaning of section 365 of the Bankruptcy Code, the Debtors do not, through

the Motion, seek authority to assume such contracts, and no such relief is granted in this Order.

6. Nothing herein shall be deemed to authorize (i) the payment of any amounts in

satisfaction of bonus or severance obligations, which are subject to section 503(c) of the


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Bankruptcy Code; or (ii) the payment of any amounts owing to any retired or former employees

under any supplemental executive retirement plan or otherwise.

7. Notwithstanding anything in this Order to the contrary, any payment made pursuant

to this Order shall be subject to the requirements imposed on the Debtors under any approved

debtor-in-possession financing facility, any order regarding the Debtors’ post-petition financing

or use of cash collateral, and any budget in connection therewith.

8. Bankruptcy Rule 6003(b) has been satisfied because the relief requested in the

Motion is necessary to avoid immediate and irreparable harm to the Debtors.

9. Notwithstanding any applicability of Bankruptcy Rule 6004(h), this Order shall be

immediately effective and enforceable upon its entry.

10. The Debtors are authorized and empowered to take all actions necessary to

implement the relief granted in this Order.

11. The Court shall retain jurisdiction with respect to all matters arising from or relating

to the interpretation or implementation of this Interim Order.


Exhibit B

Proposed Final Order




) ) ) ) )


FINAL ORDER GRANTING MOTION OF THE DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS (A) AUTHORIZING THE DEBTORS TO PAY AND PERFORM

ALL EMPLOYEE OBLIGATIONS, (B) DIRECTING BANKS TO HONOR ALL RELATED TRANSFERS, AND (C) GRANTING RELATED RELIEF

Upon consideration of the Motion for Entry of Interim and Final Orders (A) Authorizing

the Debtors to Pay and Perform all Employee Obligations, (B) Directing Banks to Honor all

Related Transfers, and (C) Granting Related Relief (the “Motion”)2 filed by the Debtors, pursuant

to sections 105, 363, 503, 507, 541, 1107, and 1108 of the Bankruptcy Code and Bankruptcy Rules

6003 and 6004(h), seeking entry of interim and final orders: (a) authorizing, but not directing, the

Debtors to continue to honor, pay, and/or perform all Employee Obligations; (b) authorizing and

directing banks and financial institutions to honor and process checks and transfers related to such

payments and obligations; and (c) granting related relief; and upon the First Day Declaration; and

upon the statements of counsel in support of the relief requested in the Motion at the hearing before

the Court; and it appearing that this Court has jurisdiction to consider the Motion pursuant to 28

U.S.C. § 1334; and it appearing that venue of these Chapter 11 Cases and the Motion in this district

is proper pursuant to 28 U.S.C. §§ 1408 and 1409; and it appearing that this matter is a core

proceeding pursuant to 28 U.S.C. § 157(b); and it appearing that proper and adequate notice of the

1 The Debtors in these Chapter 11 Cases are the following entities (the last four digits of each Debtor’s respective federal tax identification number, if any, follow in parentheses): Cosi, Inc. (3745); Xando Cosi of Maryland, Inc. (2196); Cosi Sandwich Bar, Inc. (0910); Hearthstone Associates, LLC (6267); Hearthstone Partners, LLC (9433), Cosi Franchise Holdings LLC (6984); and Cosi Restaurant Holdings LLC (3461). The Debtors’ corporate headquarters are located at 500 Rutherford Avenue, Suite 130, Charlestown, MA 02129. 2 Capitalized terms not otherwise defined in this Order shall have the meanings provided in the Motion.


2

Motion has been given and that no other or further notice is necessary; and the Court having

entered that certain Interim Order Granting Motion of the Debtors for Entry of Interim and Final

Orders (A) Authorizing the Debtors to Pay and Perform all Employee Obligations, (B) Directing

Banks to Honor all Related Transfers, and (C) Granting Related Relief [Dkt. No. __]; and a hearing

or hearings having been held to consider the relief requested in the Motion; and upon the record

of such hearing or hearings, and all of the proceedings had before the Court; and this Court having

determined that the relief requested in the Motion is in the best interests of the Debtors, their

estates, their creditors and other parties-in-interest; and after due deliberation thereon, and good

and sufficient cause appearing therefor,

IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED on a final basis as set forth herein.

2. Subject to the requirements of 11 U.S.C. sections 507 (a)(4) and (a)(5), the Debtors

are authorized, but not directed, to continue to honor, pay, and/or perform all Employee

Obligations, in accordance with their ordinary policies and pre-petition practices, as described in

the Motion and in the ordinary course of their business.

3. All of the Debtors’ banks are authorized and directed to receive, process, honor,

and pay any and all checks or electronic transfers drawn on the Debtors’ accounts to make the

payments authorized by the Interim Order and this Final Order, whether presented before or after

the Petition Date, provided that sufficient funds are on deposit in the applicable accounts to cover

such payments.

4. Nothing in the Motion, the Interim Order, or this Final Order, nor as a result of any

payment made pursuant to this Final Order, shall be deemed or construed as an admission as to the

validity or priority of any claim against the Debtors, an approval or assumption of any agreement,


3

contract, or lease pursuant to section 365 of the Bankruptcy Code, or a waiver of the rights of the

Debtors, or shall impair the ability of the Debtors, or any other party in interest, to the extent

applicable, to contest the validity and amount of any payment made pursuant to this Final Order.

5. Nothing herein shall be deemed to authorize (i) the payment of any amounts in

satisfaction of bonus or severance obligations, which are subject to section 503(c) of the

Bankruptcy Code; or (ii) the payment of any amounts owing to any retired or former employees

under any supplemental executive retirement plan or otherwise.

6. Notwithstanding anything in this Order to the contrary, any payment made pursuant

to this Order shall be subject to the requirements imposed on the Debtors under any approved

debtor-in-possession financing facility, any order regarding the Debtors’ post-petition financing

or use of cash collateral, and any budget in connection therewith.

7. Bankruptcy Rule 6003(b) has been satisfied because the relief requested in the

Motion is necessary to avoid immediate and irreparable harm to the Debtors.

8. Notwithstanding any applicability of Bankruptcy Rule 6004(h), this Final Order

shall be immediately effective and enforceable upon its entry.

9. The Debtors are authorized and empowered to take all actions necessary to

implement the relief granted in this Final Order.


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10. The Court shall retain jurisdiction with respect to all matters arising from or relating

to the interpretation or implementation of this Final Order.


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