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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 Spirit Master Funding X, LLC, Spirit Realty, L.P.. (Attachments: # 1 Exhibit) (Krystinik, Jay)

Document posted on Jan 13, 2021 in the bankruptcy, 12 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

As set forth in the Lease Rejection Motion, Debtor Movie Grill Concepts XXXVIII, LLC and Spirit Realty, L.P. are parties to that certain Marietta Lease, concerning a lease of real property consisting of a 48,787 square foot, 11 auditorium movie theater located at 40 Powers Ferry Road, Marietta, Georgia 30062.Any personal property, furniture, trade fixtures and equipment, signs, decorative items, theater screens, projection and sound systems, shelving, signs, trademarked items and other movable trade fixtures installed in or on the Leased Premises including, but not limited to walk-in coolers, refrigeration units, exhaust hoods, sinks and preparation areas, ovens, and other kitchen equipment (“Tenant’s Property”), shall remain the property of Tenant.The impact of abandonment under § 554 is that abandoned property ceases being property of the estate and cannot be administered by a trustee or debtor-in-possession.The description of the property intended to be sold by Debtors is as follows: “personal property assets located at the premises of unexpired nonresidential real property leases that have been rejected by the Debtors[.]” See Docket No. 406-1, ¶ 2.The Debtors have no present right to occupy the Monrovia, Redlands, and Downey Premises, and conducting a sale of property at such premises is not contemplated by the now-rejected Monrovia, Redlands, and Downey Lease.

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Keith M. Aurzada (SBN 24009880) Michael P. Cooley (SBN 24034388) Jay L. Krystinik (SBN 24041279) REED SMITH LLP 2501 N. Hardwood Street, Suite 1700 Dallas, Texas 75201 T: 469.680.4200 F: 469.680.4299 kaurzada@reedsmith.com mpcooley@reedsmith.com jkrystinik@reedsmith.com Attorneys for Spirit Realty, L.P. and Spirit Master Funding X, LLC IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION In re: § Chapter 11 § STUDIO MOVIE GRILL § HOLDINGS, LLC, et al. § Case No. 20-32633-11 § Debtor. § Jointly Administered OBJECTION OF SPIRIT LANDLORDS 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 Spirit Realty, L.P. and Spirit Master Funding X, LLC (collectively, “Spirit Landlords”) file this 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] (“Motion”)1 and respectfully state as follows: 1 Capitalized terms used but not defined herein have the meanings assigned to them in the Lease Rejection Motion.

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INTRODUCTION 1. On December 22, the Court held a hearing on 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 “Lease Rejection Motion”). At such hearing, the Debtors’ representative testified, among other things, that all of the Debtors’ personal property would be removed from the Spirit Landlords’ premises in California by December 31, 2020. 2. Based on all of the evidence (including such testimony), this Court granted the Debtors’ Lease Rejection Motion, nunc pro tunc to October 23, 2020 (the date of filing the Lease Rejection Motion). The Court also ruled that personal property would be deemed abandoned, subject to certain rights of secured lenders. 3. Despite seeking and obtaining a ruling granting the Lease Rejection Motion, the Debtors have changed course, and now request that this Court approve the Debtors’ continued use and occupation of premises for which the applicable leases have been rejected. The Spirit Landlords object to the Motion because: (i) the Debtors should be judicially estopped from seeking the relief requested, which is contrary to the positions taken during the litigation of the Lease Rejection Motion; (ii) the Debtors may not utilize the Court to sell personal property that the Debtors have abandoned; (iii) the Debtors’ Motion contains no specific description of what personal property the Debtors intend to sell; and (iv) the Debtors have no present right to utilize rejected theater locations to conduct these sales, which interferes with the Spirit Landlords’ right to re-lease its premises. 4. For all of these reasons and those discussed more fully below, the Spirit Landlords request that this Objection be sustained and the Motion denied. BACKGROUND 5. On October 23, 2020 (the “Petition Date”), Studio Movie Grill Holdings, LLC and certain of its affiliates (the “Debtors”) each filed

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voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”), thereby initiating the above-captioned bankruptcy cases (the “Chapter 11 Cases”). The Debtors continue to manage and operate their businesses as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. 6. As set forth in the Lease Rejection Motion, Debtor Movie Grill Concepts XXXVIII, LLC and Spirit Realty, L.P. are parties to that certain Marietta Lease, concerning a lease of real property consisting of a 48,787 square foot, 11 auditorium movie theater located at 40 Powers Ferry Road, Marietta, Georgia 30062. 7. Additionally, As set forth in the Lease Rejection Motion, Debtor Movie Grill Concepts XXXVII, LLC and Spirit Master Funding X, LLC are parties to that certain Monrovia, Redlands, and Downey Lease, concerning the lease of three (3) locations consisting of: (1) a 12 auditorium movie theater located at 410 South Myrtle Avenue, Monrovia, California 91016; (2) a 14 auditorium movie theater located at 340 N. Eureka Street, Redlands, California 92374; and (3) a 10 auditorium movie theater located at 8200 Third Street, Downey California 90241. 8. The location leased pursuant to the Marietta Lease are the “Marietta Premises.” The Debtor concedes the Marietta Premises are still operating. Lease Rejection Motion, at 4. 9. The locations leased pursuant to the Monrovia, Redlands, and Downey Lease are the “Monrovia, Redlands, and Downey Premises.” The Monrovia, Redlands, and Downey Premises are closed. Lease Rejection Motion, at 7. 10. The Marietta Lease and Monrovia, Redlands, and Downey Lease are, collectively, the “Spirit Landlord Leases.” 11. The Marietta Premises and Monrovia, Redlands, and Downey Premises are, collectively, the “Spirit Landlord Premises.” 12. Section 7.2 of the Marietta Lease provides as follows:

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7.2 Condition on Surrender. Tenant agrees that on surrendering possession at the expiration or earlier termination of this Lease Tenant shall repair any damage caused by the removal of Tenant’s personal property and shall leave the Leased Premises clean and in good and working and repair inside and out subject to normal wear and tear, casualty and condemnation. Without limitation of the foregoing, Tenant shall not remove the seats, seat stanchions or other property of Landlord. 13. Section 7.2 of the Monrovia, Redlands, and Downey Lease similarly provides as follows: 7.2 Condition on Surrender. Condition on Surrender. Tenant agrees that on surrendering possession at the expiration or earlier termination of this Lease Tenant shall repair any damage caused by the removal of Tenant’s personal property and shall leave the Leased Premises clean and in good and working and repair inside and out subject to normal wear and tear, casualty and condemnation. Without limitation of the foregoing, Tenant shall not remove or damage the seats, seat stanchions, screens, or other property of Landlord. 14. Section 12.1 of the Marietta Lease provides as follows: 12.1 Tenant’s Property. Any personal property, furniture, trade fixtures and equipment, signs, decorative items, theater screens, projection and sound systems, shelving, signs, trademarked items and other movable trade fixtures installed in or on the Leased Premises including, but not limited to walk-in coolers, refrigeration units, exhaust hoods, sinks and preparation areas, ovens, and other kitchen equipment (“Tenant’s Property”), shall remain the property of Tenant. The Tenant’s Property shall exclude the seats and seat stanchions. Landlord agrees that Tenant shall have the right, at any time, and from time to time, to remove any and all of

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Tenant’s Property. Tenant, at Tenant’s expense, shall repair any damage occasioned by the removal of Tenant’s Property and upon expiration or earlier termination of the Term of this Lease, shall leave the Leased Premises in a neat and clean condition, except for normal wear and tear. . . . 15. Section 12.1 of the Monrovia, Redlands, and Downey Lease similarly provides as follows: 12.1 Tenant’s Property. Any personal property, furniture, trade fixtures and equipment, signs, decorative items, projection and sound systems, shelving, signs, trademarked items and other movable trade fixtures installed in or on the Leased Premises including, but not limited to walk-in coolers, refrigeration units, exhaust hoods, sinks and preparation areas, ovens, and other kitchen equipment (“Tenant’s Property”), shall remain the property of Tenant. The Tenant’s Property shall exclude the seats, seat stanchions, and screens. Landlord agrees that Tenant shall have the right, at any time, and from time to time, to remove any and all of Tenant’s Property. Tenant, at Tenant’s expense, shall repair any damage occasioned by the removal of Tenant’s Property and upon expiration or earlier termination of the Term of this Lease, shall leave the Leased Premises in a neat and clean condition, except for normal wear and tear. . . . 16. On the Petition Date, the Debtors filed the Lease Rejection Motion. On December 22, 2020, the Court held a hearing on the Lease Rejection Motion. At the hearing, the Debtors proceeded with respect to the Monrovia, Redlands, and Downey Premises, but continued the relief requested as to the Marietta Premises. The transcript of such hearing is attached as Exhibit A. 17. At the hearing, the Spirit Landlords objected to the Lease Rejection Motion and specifically questioned the Debtors’ representative about when personal property would be removed from the Monrovia, Redlands, and Downey Premises:

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Q Okay. My question really revolves around the California lease right now, and that is: When will the Debtor remove or commit to remove all of the personal property? A We probably need a week to ten days. We don’t own those projectors in there. Those are leased. So it’s a little less complicated than some of these other stores. So only -- we need to get our personal -- we need to get the alcohol out of here, out of there, pursuant – that’s state law. And we need to get – there’s some frozen food in there. And then there’s those servers. And I think we can get that out by the end of the -- by the end of the month. Q Okay. Thank you. And I want to be clear on one other point, and that is that the Debtors do not seek to take the seats, seat stanchions, or screens, correct? A That’s correct. Or the -- or the projection equipment, which is really important, because they -- sometimes they cut the screens out of the theaters to get the speakers and the projection stuff out. And we’re not going to touch any of that. Exhibit A, at 17:8 – 18:1 (emphasis added). 18. At the conclusion of the hearing, the Spirit Landlords requested, and the Court approved, abandonment of personal property: [THE COURT]: And I don't think there is a dispute with regard to the issue Mr. Aurzada just raised, correct, that the Court will approve abandonment of certain property, I think you said the seats and certain other infrastructure of the theater, but what did you say besides seats? MR. AURZADA: Your Honor, it was seats, seat stanchions, and screens. THE COURT: And screens. Mr. -- MR. WALLANDER: And Your Honor, Bill Wallander. In the prior order, that abandonment is subject to the prior consent of the Agent

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Lenders, so that we can try to deal with property in which we hold liens. I assume that that language will be the same in this order. If not, we need that to be the same. MR. AURZADA: Your Honor, I'm happy to have the same language in the order, but I want to make it clear that the tenant gave up the right to this property and therefore there was nothing for the Agent to take a lien on. And Mr. Wallander is right. That can be raised at a later point. But the way we read the lease, there was nothing -- there was no property for the Debtor to grant a lien on. THE COURT: All right. Well, I'll approve this, with the same language that we had in the prior rejection order. Exhibit A, at 28:15 – 29:12. 19. Although no order has been entered on the Lease Rejection Motion, the Spirit Landlords believe the language referred to by the Court and included in a prior order is as follows: Subject to the prior written consent of the DIP Agent and the Requisite Lenders (as defined in the DIP Order), pursuant to Bankruptcy Code § 554, any property remaining on the premises of the Leases after surrender shall be deemed abandoned as of October 26, 2020, including, without limitation, equipment, fixtures, furniture, and other personal property that may be located on, or have been installed in, the premises that are the subject of the Leases (the “Abandoned Property”); . . . . The landlords may, in their sole discretion, subject to the prior written consent of the DIP Agent, and without further notice or order of this Court, utilize and/or dispose of any Abandoned Property without liability to the Debtors or third parties and, to the extent applicable, the automatic stay is modified to allow such disposition[.]

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See Order Granting Expedited 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. 101], ¶¶ 3, 7. 20. The Court also ruled that the equities of the evidence presented justified retroactive rejection as of the date of filing the Lease Rejection Motion. Id., at 31:16-20 (“So, I am allowing rejection retroactive as of the date of the filing of the motion, which I believe was October 23rd, the petition date. I think the equities here justify it. And, again, I know it’s not an easy situation for anyone, but I think, again, the equities wholly justify it.”). OBJECTION 21. The Spirit Landlords’ objections are fourfold. 22. First, the Debtors should be judicially estopped from seeking the relief requested. 23. Second, the Debtors may not utilize the Court to sell personal property that Debtors have abandoned. 24. Third, the Motion contains no specific description of what personal property the Debtors intend to sell. 25. Finally, the Debtors’ Motion does not specify where the contemplated sales will occur and the language of the proposed Order suggests that Debtors may intend to impermissibly utilize rejected theater locations to conduct these sales, which interferes with the Spirit Landlords’ right to re-lease its premises. A. The Debtors should be judicially estopped from now seeking to sell property that has been abandoned or should have been removed. 26. Judicial estoppel “prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the

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same or some earlier proceeding.” Hall v. GE Plastic Pac. PTE Ltd., 327 F.3d 391, 396 (5th Cir. 2003) (citing Ergo Science, Inc. v. Martin, 73 F.3d 595, 598 (5th Cir.1996)). The purpose of the doctrine is to prevent litigants “from ‘playing fast and loose’ with the courts....” Id. In the Fifth Circuit, “two bases for judicial estoppel” must be satisfied before a party can be estopped. First, it must be shown that “the position of the party to be estopped is clearly inconsistent with its previous one; and [second,] that party must have convinced the court to accept that previous position.” Id. 27. Here, the Debtors testified that all personal property would be removed from the Monrovia, Redlands, and Downey Premises by December 31, 2020. Exhibit A, at 17:8 – 18:1 (“I think we can get that out by the end of the -- by the end of the month.”). The Debtor also did not dispute the Court’s ruling on abandonment of personal property left in the premises. Id., at 28:15 – 29:12. 28. Based on the Debtors’ testimony, including that personal property would be promptly removed, the Court ruled that the equities justified rejection as of the date of filing the Lease Rejection Motion. Id., at 31:16-20. 29. The Debtors’ position now (that personal property remains at leased premises that should, somehow, be marketed and sold on-site) is clearly inconsistent with the Debtors’ previous position and creates a different set of equities that may have necessitated a different outcome on the Lease Rejection Motion. 30. Accordingly, the Debtors should be judicially estopped from seeking the relief requested in the Motion. See Hall, 327 F.3d at 396. B. Debtors May Not Sell Abandoned Property Under § 363 31. Although the Court has not entered a formal order on the Lease Rejection Motion, it did state that personal property would be abandoned. Exhibit A, at 28:15 – 29:12. 32. The impact of abandonment under § 554 is that abandoned property ceases being property of the estate and cannot be administered by

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a trustee or debtor-in-possession. See In re Dewsnup, 908 F.2d 588, 590 (10th Cir. 1990). Following abandonment, “whoever had the possessory right to the property at the filing of bankruptcy again reacquires that right.” Id. “Abandoned property is not property administered by the estate.” Id. 33. Accordingly, the Debtors may not utilize § 363 (or the Court) to sell property that has been abandoned. 34. To the extent the Debtors argue that personal property abandonment was subject to the liens of secured lenders, the Spirit Landlords specifically contested this assertion during the December 22, 2020 hearing, and neither the Debtors nor any lender presented evidence or argument to the contrary. To the extent a secured lender does hold a lien on any of the mystery property the Debtors seek to sell, the relief requested constitutes an impermissible effort by the Debtors to sell abandoned property for the sole benefit of secured lenders and to the harm of the Spirit Landlords. The Court should deny the relief requested. C. The Motion contains no specific description of what personal property the Debtors intend to sell 35. The description of the property intended to be sold by Debtors is as follows: “personal property assets located at the premises of unexpired nonresidential real property leases that have been rejected by the Debtors[.]” See Docket No. 406-1, ¶ 2. This description fails to provide sufficient clarity with respect to what property Debtors intend to sell; indeed, it fails to even state that the property is owned by the Debtors. 36. Given the lack of specificity, it is possible, if not probable, that property the Debtors seek to sell may be (a) the property of the Spirit Landlords, or (b) subject to statutory or contractual landlord liens. 37. To satisfy due process, the Debtors must provide clarity on what property it intends to sell.

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D. The Spirit Landlords object to the use of its premises to sell property 38. Finally, the Debtors’ Motion does not expressly state where it intends to conduct sales of personal property, but suggests that the Debtors may intend to utilize rejected theater locations to accommodate the Debtors’ sale efforts. See Docket No. 406-1, ¶ 2 (“to sell personal property assets located at the premises of unexpired nonresidential real property leases that have been rejected by Debtors”). 39. Simply stated, the Spirit Landlords do not consent to utilization of its real property by the Debtors to conduct a sale of assets. The Debtors rejected the Monrovia, Redlands, and Downey Lease, and obtained the Court’s approval of such rejection nunc pro tunc to the Petition Date. The Debtors have no present right to occupy the Monrovia, Redlands, and Downey Premises, and conducting a sale of property at such premises is not contemplated by the now-rejected Monrovia, Redlands, and Downey Lease. It is not fair to make the Spirit Landlords provide a storage unit for the Debtors where they have previously committed to removing personal property by December 31, 2020. 40. The Spirit Landlords are in active negotiations to re-lease the Monrovia, Redlands, and Downey Premises, and the relief requested in the Motion will interfere with the Spirit Landlords’ ownership rights. The Spirit Landlords object to the use of their real property for the Debtors’ proposed sale of abandoned property. JOINDER 41. To the extent not inconsistent with the foregoing, the Spirit Landlords also joins in the objections filed by other landlords and adopts the arguments and authorities advanced in such objections RESERVATION OF RIGHTS 42. The Spirit Landlords reserve all rights, including without limitation under Sections 365 and 503 of the Bankruptcy Code.

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CONCLUSION AND PRAYER 43. The Spirit Landlords respectfully request the Court condition any order granting the Lease Rejection Motion as requested herein, and grant the Spirit Landlords such other relief to which they may be entitled. Dated: January 14, 2021 Respectfully submitted, REED SMITH LLP By: /s/ Jay L. Krystinik Keith M. Aurzada (SBN 24009880) Michael P. Cooley (SBN 24034388) Jay L. Krystinik (SBN 24041279) 2850 N. Harwood St., Ste. 1500 Dallas, Texas 75201 T: 469.680.4200 F: 469.680.4299 kaurzada@reedsmith.com mpcooley@reedsmith.com jkrystinik@reedsmith.com Attorneys for Spirit Realty, L.P. and Spirit Master Funding X, LLC CERTIFICATE OF SERVICE The undersigned certifies that, on January 14, 2021, a true and correct copy of the foregoing document was served via the Court’s Electronic Case Filing (ECF) system upon all parties registered to receive electronic notices in this case, including the Office of the United States Trustee, the chapter 11 trustee, and counsel for the Official Committee of Unsecured Creditors. /s/ Jay L. Krystinik Jay L. Krystinik