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Full title: Objection to (related document(s): 406 Motion to sell property free and clear of liens under Section 363(f) / Debtors' Expedited Motion for Entry of an Order Authorizing Sale Procedures for Sale of Personal Property Assets Free and Clear of All Liens, Claims, and Encumbrances an filed by Debtor Studio Movie Grill Holdings, LLC) filed by Creditor CH Realty VII/R Houston Easton Commons, L.P.. (Lamberson, Phillip)

Document posted on Jan 13, 2021 in the bankruptcy, 10 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

§ 1 The Debtors in these Chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, include: Studio Movie Grill Holdings, LLC (6546) ("SMG Holdings"); OHAM Holdings, LLC (0966); Movie Grill Concepts Trademark Holdings, LLC (3096); Movie Grill Concepts I, Ltd. (6645); Movie Grill Concepts III, Ltd. (2793); Movie Grill Concepts IV, Ltd. (1454); Movie Grill Concepts IX, LLC (3736); Movie Grill Concepts VI, Ltd. (6895); Movie Grill Concepts VII, LLC (2291); Movie Grill Concepts X, LLC (6906); Movie Grill Concepts XI, LLC (2837); Movie Grill Concepts XII, LLC (6040); Movie Grill Concepts XIII, LLC (5299); Movie Grill Concepts XIV, LLC (4709); Movie Grill Concepts XIX, LLC (9646); Movie Grill Concepts XL, LLC (4454); Movie Grill Concepts XLI, LLC (4624); Movie Grill Concepts XLII, LLC (2309); Movie Grill Concepts XLIII, LLC (9721); Movie Grill Concepts XLIV, LLC (8783); Movie Grill Concepts XLV, LLC (2570); Movie Grill Concepts XV, LLC (4939); Movie Grill Concepts XVI, LLC (1033); Movie Grill Concepts XVII, LLC (1733); Movie Grill Concepts XVIII, LLC (8322); Movie Grill Concepts XX, LLC (7300); Movie Grill Concepts XXI, LLC (1508); Movie Grill Concepts XXII, LLC (6748); Movie Grill Concepts XXIV, LLC (5114); Movie Grill Concepts XXIX, LLC (5857); Movie Grill Concepts XXV, LLC (4985); Movie Grill Concepts XXVI, LLC (5233); Movie Grill Concepts XXVII, LLC (4427); Movie Grill Concepts XXVIII, LLC (1554); Movie Grill Concepts XXX, LLC (1431); Movie Grill Concepts XXXI, LLC (3223); Movie Grill Concepts XXXII, LLC (0196); Movie Grill Concepts XXXIII, LLC (1505); Movie Grill Concepts XXXIV, LLC (9770); Movie Grill Concepts XXXIX, LLC (3605); Movie Grill Concepts XXXV, LLC (0571); Movie Grill Concepts XXXVI, LLC (6927); Movie Grill Concepts XXXVII, LLC (6401); Movie Grill Concepts XXXVIII, LLC (9657); Movie Grill Concepts XXIII, LLC (7893); Studio Club, LLC (3023); Studio Club IV, LLC (9440); Movie Grill Concepts XI, LLC (2837); Movie Grill Concepts XLI, LLC (4624); Movie Grill Concepts XLVI, LLC (2344); Movie Grill Concepts XLVII, LLC (5866); Movie Grill Concepts XLVIII, LLC (8601); Movie Grill Concepts XLIX, LLC (0537); Movie Grill Concepts L, LLC (5940); Movie Grill Concepts LI, LLC (7754); Movie Grill Concepts LII, LLC (8624); Movie Grill Concepts LIII, LLC (3066); Movie Grill Concepts LIV, LLC (2018); Movie Grill Concepts LV, LLC (4699); Movie Grill Partners 3, LLC (4200); Movie Grill Partners 4, LLC (1363); Movie Grill Partners 6, LLC (3334); and MGC ManagementCommon sense would indicate that the Motion does not apply to CH Realty for several reasons: (i) CH Realty's Lease was rejected almost three months ago; (ii) the Debtors' CRO represented to the Court that the Debtor would remove all property left at the Rejected Premises that it needed by the end of the day on December 8, 2020 (and ostensibly did so); (iii) the Debtor turned over possession of the Rejec

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Phillip Lamberson Texas Bar No. 00794134 Jason A. Enright Texas Bar No. 24087475 WINSTEAD PC 500 Winstead Building 2728 N. Harwood Street Dallas, Texas 75201 Phone: (214) 745-5400 Fax: (214) 745-5390 plamberson@winstead.com jenright@winstead.com ATTORNEYS FOR CH REALTY VII/R HOUSTON EASTON COMMONS, L.P. IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION IN RE: § Case No. 20-32633-11 § STUDIO MOVIE GRILL HOLDINGS, LLC, § Chapter 11 et al.,1 § § Jointly Administered DEBTOR. § 1 The Debtors in these Chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, include: Studio Movie Grill Holdings, LLC (6546) ("SMG Holdings"); OHAM Holdings, LLC (0966); Movie Grill Concepts Trademark Holdings, LLC (3096); Movie Grill Concepts I, Ltd. (6645); Movie Grill Concepts III, Ltd. (2793); Movie Grill Concepts IV, Ltd. (1454); Movie Grill Concepts IX, LLC (3736); Movie Grill Concepts VI, Ltd. (6895); Movie Grill Concepts VII, LLC (2291); Movie Grill Concepts X, LLC (6906); Movie Grill Concepts XI, LLC (2837); Movie Grill Concepts XII, LLC (6040); Movie Grill Concepts XIII, LLC (5299); Movie Grill Concepts XIV, LLC (4709); Movie Grill Concepts XIX, LLC (9646); Movie Grill Concepts XL, LLC (4454); Movie Grill Concepts XLI, LLC (4624); Movie Grill Concepts XLII, LLC (2309); Movie Grill Concepts XLIII, LLC (9721); Movie Grill Concepts XLIV, LLC (8783); Movie Grill Concepts XLV, LLC (2570); Movie Grill Concepts XV, LLC (4939); Movie Grill Concepts XVI, LLC (1033); Movie Grill Concepts XVII, LLC (1733); Movie Grill Concepts XVIII, LLC (8322); Movie Grill Concepts XX, LLC (7300); Movie Grill Concepts XXI, LLC (1508); Movie Grill Concepts XXII, LLC (6748); Movie Grill Concepts XXIV, LLC (5114); Movie Grill Concepts XXIX, LLC (5857); Movie Grill Concepts XXV, LLC (4985); Movie Grill Concepts XXVI, LLC (5233); Movie Grill Concepts XXVII, LLC (4427); Movie Grill Concepts XXVIII, LLC (1554); Movie Grill Concepts XXX, LLC (1431); Movie Grill Concepts XXXI, LLC (3223); Movie Grill Concepts XXXII, LLC (0196); Movie Grill Concepts XXXIII, LLC (1505); Movie Grill Concepts XXXIV, LLC (9770); Movie Grill Concepts XXXIX, LLC (3605); Movie Grill Concepts XXXV, LLC (0571); Movie Grill Concepts XXXVI, LLC (6927); Movie Grill Concepts XXXVII, LLC (6401); Movie Grill Concepts XXXVIII, LLC (9657); Movie Grill Concepts XXIII, LLC (7893); Studio Club, LLC (3023); Studio Club IV, LLC (9440); Movie Grill Concepts XI, LLC (2837); Movie Grill Concepts XLI, LLC (4624); Movie Grill Concepts XLVI, LLC (2344); Movie Grill Concepts XLVII, LLC (5866); Movie Grill Concepts XLVIII, LLC (8601); Movie Grill Concepts XLIX, LLC (0537); Movie Grill Concepts L, LLC (5940); Movie Grill Concepts LI, LLC (7754); Movie Grill Concepts LII, LLC (8624); Movie Grill Concepts LIII, LLC (3066); Movie Grill Concepts LIV, LLC (2018); Movie Grill Concepts LV, LLC (4699); Movie Grill Partners 3, LLC (4200); Movie Grill Partners 4, LLC (1363); Movie Grill Partners 6, LLC (3334); and MGC Management I, LLC (3224).

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CH REALTY VII/R HOUSTON EASTON COMMONS, L.P.'S OBJECTION TO DEBTORS' EXPEDITED MOTION FOR ENTRY OF AN ORDER AUTHORIZING SALE PROCEDURES FOR SALE OF PERSONAL PROPERTY ASSETS FREE AND CLEAR OF ALL LIENS, CLAIMS, AND ENCUMBRANCES AND INTERESTS CH Realty VII/R Houston Easton Commons, L.P. ("CH Realty"), a creditor and party in interest in the above-captioned, jointly administered bankruptcy cases (the "Bankruptcy Cases"), hereby files objection to the Debtors' Expedited Motion for Entry of an Order Authorizing Sale Procedures for Sale of Personal Property Assets Free and Clear of All Liens, Claims, and Encumbrances and Interests [Docket No. 406] (the "Motion"), and respectfully states the following: Preliminary Statement2 1. Common sense would indicate that the Motion does not apply to CH Realty for several reasons: (i) CH Realty's Lease was rejected almost three months ago; (ii) the Debtors' CRO represented to the Court that the Debtor would remove all property left at the Rejected Premises that it needed by the end of the day on December 8, 2020 (and ostensibly did so); (iii) the Debtor turned over possession of the Rejected Premises on December 9, 2020; and (iv) since then, the Debtor has had no right of access to the Rejected Premises and has not asked for any right of access. In order to confirm this, CH repeatedly sought clarification from Debtors' counsel regarding whether the Motion applies to CH Realty. Debtors' counsel responded only today (24 hours before the emergency hearing on the Motion) that, in fact, the Motion does apply to CH Realty and its rejected Lease. But Debtor’s counsel has failed to address the myriad of issues with selling property at a rejected location and to which the Debtor has no right of access. CH Realty objects to the Motion for multiple reasons outlined below. 2 Any capitalized terms not otherwise defined in this Preliminary Statement are defined later in this Objection.

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Relevant Background 2. As of the filing of these Bankruptcy Cases, CH Realty, as landlord, and Movie Grill Concepts IV, Ltd. (the "Debtor"), as tenant, were parties that certain Lease Agreement, dated August 22, 2005 (as subsequently amended, the "Rejected Lease"), whereby the Debtor leased certain premises at 8580 Highway 6, North, Houston, Texas 77095 (the "Rejected Premises"), as more particularly described in the Rejected Lease, for the purpose of operating a movie theater under the trade name of Studio Movie Grill. 3. On October 23, 2020 (the "Petition Date"), the Debtor, along with numerous affiliates, filed their voluntary petitions for relief under chapter 11 of 11 U.S.C. § 101 et seq. (the "Bankruptcy Code"), commencing their Bankruptcy Cases. The Debtor continues to manage and operate its businesses as debtor-in-possession under sections 1107 and 1108 of the Bankruptcy Code. An official committee of unsecured creditors has been appointed in these Bankruptcy Cases. 4. On the Petition Date, the Debtor also filed the Debtors' Second Motion for Entry of an Order Under Section 365 and 554 of the Bankruptcy Code (I) Authorizing the Debtors to Reject Certain Unexpired Commercial Real Property Leases Effective as of October 23, 2020; and (II) Granting Related Relief [Docket No. 17] (the "Rejection Motion"), whereby the Debtor requested that the Court authorize rejection of the Rejected Lease, effective as of the Petition Date, and "authorize, but not direct, abandonment of personal property" left at the Rejected Premises. 5. On December 8, 2020, the Court conducted a hearing (the "Rejection Hearing") on the Rejection Motion with respect to CH Realty's Lease. At the Rejection Hearing, while substantial personal property of the Debtor remained at the Rejected Premises and the Debtor had not yet surrendered possession of the Rejected Premises, the Court ordered that the Rejected Lease was retroactively rejected as of the Petition Date—October 23, 2020. With the Court's ruling that

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the Rejected Lease had been rejected more than a month before the Rejection Hearing, CH Realty requested that the Debtor immediately surrender possession of the Rejected Premises—however, the Debtor's CRO responded that it would need the remainder of the day to remove its remaining property at the Rejected Premises, which the Court expressly allowed. CH Realty relied on this representation. 6. At the Rejection Hearing, neither Goldman Sachs nor the Debtor expressed the need for more time than the Court allowed at the hearing to remove any property from the Rejected Premises or to continue using the Rejected Premises. Goldman Sachs also did not object to the abandonment or removal of any property remaining at the Rejected Premises, and it did not object to CH Realty's utilization or disposal of any property abandoned at the Rejected Premises. 7. On December 9, 2020, CH Realty took possession of the Rejected Premises and the property therein. Since CH Realty took possession, the Debtor has had no right of access to the Rejected Premises and has not contacted CH Realty to access the Rejected Premises for any reason. 8. On December 11, 2020, the Court entered its Order (A) Partially Granting Debtors' Second Motion for Entry of an Order Under Section 365 and 554 of the Bankruptcy Code (I) Authorizing the Debtors to Reject Certain Unexpired Commercial Real Property Leases Effective as of October 23, 2020; and (II) Granting Related Relief; and (B) Continuing the Hearing as to Remaining Unexpired Commercial Real Property Leases [Docket No. 333] (the "Rejection Order"). Before submitting the proposed Rejection Order to the Court for entry, Debtors' counsel did not provide CH Realty's counsel with the proposed Rejection Order for review or comment. 9. Because it is unclear from the Rejection Order whether property left by the Debtor at the Rejected Premises was actually abandoned (notwithstanding the representations of the Debtor at the Rejection Hearing) and whether CH Realty may dispose of or otherwise utilize such

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property, on December 28, 2020, CH Realty filed CH Realty VII/R Houston Easton Commons L.P.'s Motion to (I) Clarify or Reconsider Order Partially Granting Second Motion to Reject Unexpired Leases, (II) Alternatively, to Compel Abandonment of Property, and (III) for Related Relief [Docket No. 376] (the "Motion to Clarify"), wherein CH Realty requests that the Court clarify such issues and, if the Debtor did not in fact abandon the property left at the Rejected Premises, in the alternative, CH Realty requests that the Court compel abandonment of such property. 10. The Motion to Clarify is currently set for hearing on February 9, 2021. 11. On January 7, 2021, the Debtor filed Debtors' Expedited Motion for Entry of an Order Authorizing Sale Procedures for Sale of Personal Property Assets Free and Clear of All Liens, Claims, and Encumbrances and Interests [Docket No. 406] (the "Motion"), whereby the Debtor requests emergency authority "to sell personal property assets at each rejected location" pursuant to section 363 of the Bankruptcy Code. The Debtor does not specify to which "rejected locations" the Motion applies. Likewise, the proposed order submitted with the Motion provides that "[t]he Debtors are authorized to take any and all actions as may be necessary, desirable, or appropriate to effect, implement and/or consummate such sales" at the rejected locations. 12. Since the filing of the Motion on an emergency basis, counsel for CH Realty has repeatedly reached out to Debtors' counsel to ask whether the Motion applies to CH Realty. Debtor’s counsel responded only this morning -- 24 hours before the emergency hearing on the Motion -- that the Debtors intended to sell property at the Rejected Premises. CH Realty immediately asked what procedures the Debtor was proposing to effect such a sale, but has not received a response.

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Objection 13. CH Realty objects to the Motion because (i) the Debtor represented to CH Realty and the Court that it would remove all property it needed on December 8, 2020, the Rejected Lease was rejected as of October 23, 2020, and any remaining personal property abandoned; and (ii) the Debtor does not have a right to occupy or access the Rejected Premises and it has not provided any authority or procedures for its ability to do so. 14. With rejection of the Rejected Lease, the Debtor has no right to access the Rejected Premises. The rejection of the Rejected Lease constituted a material breach of such lease as of the Petition Date, and placed the Rejected Lease, and any interest of the Debtor in the Rejected Lease, outside of the bankruptcy estate. See 11 U.S.C. § 365(g) (specifying the effect of rejection); Eastover Bank for Sav. v. Sowashee Venture (In re Austin Dev. Co.), 19 F.3d 1077, 1083-84 (5th Cir. 1994) (distinguishing between rejection and termination of a lease and noting that "after rejection, the debtor's estate is no longer involved in the leasehold transaction"); RPD Holdings, L.L.C. v. Tech Pharm. Servs. (In re Provider Meds, L.L.C.), 907 F.3d 845 n. 56 (5th Cir. 2018). 15. Also, nowhere in the Motion do the Debtors identify to which "rejected locations" the Motion applies. Providing more ambiguity, the Debtors state: "Prior to each rejection, Debtors need to remove personal property from the location in order to preserve its value for the benefit of the Debtors' estates or dispose of the same by sale." Motion ¶ 8 (emphasis added). Based on this language and the Rejection Order, the Debtor ostensibly removed all property from the Rejected Premises that it did not intend to abandon—as the Debtor told the Court it would—by December 8, 2020. And with such abandonment, such property remaining at the Rejected Premises is no longer property of the estate,3 and cannot be subject of the Motion. 3 This is one of the issues raised in the Motion to Reconsider.

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16. Assuming the property at the Rejected Premises was not abandoned (which CH Realty would dispute), the Debtors propose no procedures as to how a sale at the Rejected Premises—which was surrendered on December 9—would occur or be coordinated. For example, as the Debtor has no right to access the Rejected Premises, there is no indication of how appraisers, auctioneers, and potential buyers would access the Rejected Premises to review property, how buyers would remove property from the Rejected Premises, or how CH Realty would be indemnified, including with respect to liability for any damage caused in the removal of sold property, or any requirements to repair the Rejected Premises from such removal. Finally, there is no mention of how CH Realty would be compensated for what is clearly the continued use of its real property to store the Debtor’s property and conduct a sale. 17. If the Debtor is requesting that the Court compel access to the Rejected Premises, this raises significant issues under the 5th Amendment to the U.S. Constitution. The 5th Amendment provides that "No person shall . . . be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation." U.S. Const. amend. V. 18. In 5th Amendment terms, what the Debtors would be requesting is that the Court order "physical invasion" of CH Realty's real property in order to allow the Debtors and possibly numerous other parties (appraisers, auctioneers, buyers, movers) onto the Rejected Premises in order to effect a sale that benefits no one but the Debtors and Goldman Sachs. See Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978) ("A 'taking' may more readily be found when the interference with property can be characterized as a physical invasion by government than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good."); see also Lucas v. S.C. Coastal Council, 505 U.S.

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1003, 1015 (1992); Lorretto v. Teleprompter Manhattan Catv Corp., 458 U.S. 419, 427 (1982). This "physical invasion" may include not just access to the property, but permanent physical damage to CH Realty's property caused by removing sold property. 19. As discussed above, the Debtors have proposed no procedures whatsoever regarding access or removal. The Debtors refused even to admit that its Motion applies to CH Realty's rejected Lease until today. This total lack of notice, if adopted by the Court, clearly violates the Due Process Clause of the 5th Amendment, as well as the explicit requirements of Federal Rule of Bankruptcy Procedure 9014(a). See also United States v. James Daniel Good Real Property, 510 U.S. 43, 62 (1993) (noting that the Due Process Clause of the Fifth Amendment requires that proper notice be afforded as well as a meaningful opportunity to be heard). Further, the lack of any clear and fair procedures controlling such access, again if adopted by this Court, similarly violates the Due Process Clause. If the Court is inclined, over CH Realty's objection, to compel access within the Rejected Premises, the Court should require strict procedures related to: (i) access for potential buyers, auctioneers, and appraisers to review property; (ii) access for buyers to remove property (in both cases including indemnification to CH Realty); (ii) liability for any damage caused in removal and imposing a requirement to repair; and (iv) compensation to CH Realty for the compelled use of its real property. 20. In addition to fundamental due process problems, lack of compensation to CH Realty for the compelled use of its real property would constitute a 5th Amendment taking. As the United States Supreme Court has held repeatedly, the "right to exclude" others from your property is a fundamental property right and constitutes a taking. Nollan v. California Coastal Comm'n, 483 U.S. 825, 831-32 (1987) (physical occupation occurs with public easement that eliminates right to exclude others); Kaiser Aetna v. United States, 444 U.S. 164, 180 (1979)

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(owner's commercially valuable right to exclude others was taken, and requirement amounted to "an actual physical invasion"). See also Caquelin v. United States, 959 F.3d 1360, 1364-67 (Fed. Cir. 2020) (reaffirming that a coerced easement impairs a landowner's right to exclude by allowing others to occupy the property and that "physical takings are compensable, even when temporary"). 21. The Debtor has already used CH Realty's real property for months while paying no compensation whatsoever and with no legal authority to do so, as the Rejected Lease had been rejected and the Debtor's right to possession lost on October 23, 2020. For some reason, even though it had possession of the Rejected Premises for six weeks after rejection and its representations to the Court and CH Realty to the contrary, the Debtor apparently did not remove its (allegedly) valuable property from the Rejected Premises, If the Debtor now wishes to compel further incursions onto the Rejected Premises to try to sell what property it left behind, it cannot Constitutionally be a free endeavor. Reservation of Rights 22. CH Realty reserves all rights with respect to the Rejected Lease, this Objection, and all other pending pleadings in these Bankruptcy Cases, and under the Bankruptcy Code and other applicable law, including the right to file an administrative claim, a substantial contribution claim and a claim under the Tucker Act. CH Realty further reserves the right to amend or supplement this Objection at any time prior to any hearing related to the Motion, and to assert further arguments as the evidence may allow. Prayer CH Realty respectfully requests that this Court: (i) sustain this Objection; (ii) deny the Motion to the extent it applies to CH Realty; and (iii) grant CH Realty such other and further relief as is appropriate and just under the circumstances.

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DATED: January 14, 2021. Respectfully submitted, WINSTEAD PC 500 Winstead Building 2728 N. Harwood Street Dallas, Texas 75201 (214) 745-5400 (Phone) (214) 745-5390 (Facsimile) By: /s/ Phillip Lamberson Phillip Lamberson Texas Bar No. 00794134 Jason A. Enright Texas Bar No. 24087475 ATTORNEYS FOR CH REALTY VII/R HOUSTON EASTON COMMONS, L.P. CERTIFICATE OF SERVICE The undersigned certifies that on January 14, 2021, a true and correct copy of the foregoing document will be electronically mailed to the parties that are registered or otherwise entitled to receive electronic notices in this case pursuant to the Electronic Filing Procedures in this District. /s/ Jason A. Enright One of Counsel