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Full title: Motion to compel Allowance and Immediate Payment of PACA Claims and Other Relief. Filed by Family Tree Produce, Inc., Hardie's Fruit & Vegetable Company, LP, Piazza Produce, LLC, Royal Food Service, Inc. Objections due by 3/11/2021. (Yaquinto, Robert)

Document posted on Feb 17, 2021 in the bankruptcy, 8 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

MOTION OF CERTAIN PACA CREDITORS TO COMPEL ALLOWANCE AND IMMEDIATE PAYMENT OF PACA CLAIMS AND OTHER RELIEF COME NOW, Family Tree Produce, Inc. (“Family Tree”), Hardie’s Fruit & Vegetable Company, LP (“Hardie’s”), Piazza Produce, LLC (“Piazza”), and Royal Food Service, Inc. 1 The Debtors in these chapter 11 cases include: Studio Movie Grill Holdings, LLC (“SMG Holdings”); OHAM Holdings, LLC; Movie Grill Concepts Trademark Holdings, LLC; Movie Grill Concept I, Ltd.; Movie Grill Concepts III, Ltd.; Movie Grill Concepts IV, Ltd.; Movie Grill Concepts IX, LLC; Movie Grill Concepts VI, Ltd.; Movie Grill Concepts VII, LLC; Movie Grill Concepts X, LLC; Movie Grill Concepts XI, LLC; Movie Grill Concepts XII, LLC; Movie Grill Concepts XIII, LLC; Movie Grill Concepts XIV, LLC; Movie Grill Concepts XIX, LLC; Movie Grill Concepts XL, LLC; Movie Grill Concepts XLI, LLC; Movie Grill Concepts XLII, LLC; Movie Grill Concepts XLIII, LLC; Movie Grill Concepts XLIV, LLC; Movie Grill Concepts, XLV, LLC; Movie Grill Concepts XV, LLC; Movie Grill Concepts XVI, LLC; Movie Grill Concepts XVII, LLC; Movie Grill Concepts XVIII, LLC; Movie Grill Concepts XX, LLC; Movie Grill Concepts XXI, LLC; Movie Grill Concepts XXII, LLC; Movie Grill Concepts XXIV, LLC; Movie Grill Concepts, XXIX, LLC; Movie Grill Concepts XXV, LLC; Movie Grill Concepts XXVI, LLC; Movie Grill Concepts XXVII, LLC; Movie Grill Concepts XXVIII, LLC; Movie Grill Concepts XXX, LLC; Movie Grill Concepts XXXI, LLC; Movie Grill Concepts XXXII, LLC; Movie Grill Concepts XXXIII, LLC; Movie Grill Concepts XXXIV, LLC; Movie Grill Concepts XXXIX, LLC; Movie Grill Concepts XXXV, LLC; Movie Grill Concepts XXXVI, LLC; Movie Grill Concepts XXXVII, LLC; Movie Grill Concepts XXXVIII, LLC; Movie Grill Concepts XXIII, LLC; Studio Club, LLC; Studio Club IV, LLC; Movie Grill Concepts XI, LLC; Movie Grill Concepts XLI, LLC; Movie Grill Concepts XLVI, LLC; Movie Grill Concepts XLVII, LLC; Movie Grill Concepts XLVIII, LLC; Movie Grill Concepts LII, LLC; Movie Grill Concepts LIII, LLC; Movie Grill Concepts LIV, LLC; Movie Grill Concepts LV, LLC; Movie Grill Partners 3, LLC; Movie Grill Partners 4, LLC; Movie Grill Partners 6, LLC; and MGC ManagementI, LLC. (“Royal”) (Family Tree, Hardie’s, Piazza, and Royal are collectively “Certain PACA Creditors”), by and through undersigned counsel, and hereby move to compel allowance and immediate payment of their pre-petition claims under the Perishable Agricultural Commodities Act, 7 U.S.C. § 499e(c) (“PACA”), as well as to increase the escrow established by the Final DIP Order to address PACA claims.Moreover, this Court must qualify and quantify the PACA trust claims of Certain PACA Creditors if the parties cannot agree on the amount of the trust claims of Certain PACA Creditors and similarly situated trust beneficiaries.In ignoring their obligations under PACA, Debtors have confounded the rights of Certa

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Robert Yaquinto, Jr. State Bar No. 22115750 SHERMAN & YAQUINTO, L.L.P. 509 N. Montclair Avenue Dallas, Texas 75208-5498 214/942-5502 Fax: 214/946-7601 ATTORNEYS FOR PACA CREDITORS IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION In re: Chapter 11 STUDIO MOVIE GRILL HOLDINGS, LLC, Case No. 20-32633-SGJ-11 et al.,1 Jointly Administered Debtors. MOTION OF CERTAIN PACA CREDITORS TO COMPEL ALLOWANCE AND IMMEDIATE PAYMENT OF PACA CLAIMS AND OTHER RELIEF COME NOW, Family Tree Produce, Inc. (“Family Tree”), Hardie’s Fruit & Vegetable Company, LP (“Hardie’s”), Piazza Produce, LLC (“Piazza”), and Royal Food Service, Inc. 1 The Debtors in these chapter 11 cases include: Studio Movie Grill Holdings, LLC (“SMG Holdings”); OHAM Holdings, LLC; Movie Grill Concepts Trademark Holdings, LLC; Movie Grill Concept I, Ltd.; Movie Grill Concepts III, Ltd.; Movie Grill Concepts IV, Ltd.; Movie Grill Concepts IX, LLC; Movie Grill Concepts VI, Ltd.; Movie Grill Concepts VII, LLC; Movie Grill Concepts X, LLC; Movie Grill Concepts XI, LLC; Movie Grill Concepts XII, LLC; Movie Grill Concepts XIII, LLC; Movie Grill Concepts XIV, LLC; Movie Grill Concepts XIX, LLC; Movie Grill Concepts XL, LLC; Movie Grill Concepts XLI, LLC; Movie Grill Concepts XLII, LLC; Movie Grill Concepts XLIII, LLC; Movie Grill Concepts XLIV, LLC; Movie Grill Concepts, XLV, LLC; Movie Grill Concepts XV, LLC; Movie Grill Concepts XVI, LLC; Movie Grill Concepts XVII, LLC; Movie Grill Concepts XVIII, LLC; Movie Grill Concepts XX, LLC; Movie Grill Concepts XXI, LLC; Movie Grill Concepts XXII, LLC; Movie Grill Concepts XXIV, LLC; Movie Grill Concepts, XXIX, LLC; Movie Grill Concepts XXV, LLC; Movie Grill Concepts XXVI, LLC; Movie Grill Concepts XXVII, LLC; Movie Grill Concepts XXVIII, LLC; Movie Grill Concepts XXX, LLC; Movie Grill Concepts XXXI, LLC; Movie Grill Concepts XXXII, LLC; Movie Grill Concepts XXXIII, LLC; Movie Grill Concepts XXXIV, LLC; Movie Grill Concepts XXXIX, LLC; Movie Grill Concepts XXXV, LLC; Movie Grill Concepts XXXVI, LLC; Movie Grill Concepts XXXVII, LLC; Movie Grill Concepts XXXVIII, LLC; Movie Grill Concepts XXIII, LLC; Studio Club, LLC; Studio Club IV, LLC; Movie Grill Concepts XI, LLC; Movie Grill Concepts XLI, LLC; Movie Grill Concepts XLVI, LLC; Movie Grill Concepts XLVII, LLC; Movie Grill Concepts XLVIII, LLC; Movie Grill Concepts LII, LLC; Movie Grill Concepts LIII, LLC; Movie Grill Concepts LIV, LLC; Movie Grill Concepts LV, LLC; Movie Grill Partners 3, LLC; Movie Grill Partners 4, LLC; Movie Grill Partners 6, LLC; and MGC Management I, LLC.

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(“Royal”) (Family Tree, Hardie’s, Piazza, and Royal are collectively “Certain PACA Creditors”), by and through undersigned counsel, and hereby move to compel allowance and immediate payment of their pre-petition claims under the Perishable Agricultural Commodities Act, 7 U.S.C. § 499e(c) (“PACA”), as well as to increase the escrow established by the Final DIP Order to address PACA claims. In support thereof and as set forth in more detail in Certain PACA Creditors Objection to Debtors’ Emergency Motion for Entry of Interim and Final Orders Pursuant to 11 U.S.C. §§ 105, 361, 362, 363, and 364 (I) Authorizing Debtors to (A) Use Cash Collateral on a Limited Basis and (B) Obtain Postpetition Financing on a Secured, Superpriority Basis, (II) Granting Adequate Protection, (III) Scheduling a Final Hearing, and (IV) Granting Related Relief (the “Objection”) [Doc. 143], incorporated herein by reference, Certain PACA Creditors respectfully submit the following points and authorities: BACKGROUND 1. On October 23, 2020 (the “Petition Date”), Debtors filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in this Court. 2. Debtors are continuing in possession of their business and property as debtors in possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. 3. Debtors operate subject to licensure under the PACA as a Dealer, because they purchased in excess of $230,000.00 worth of produce in any calendar year and received in excess of 2,000 pounds of produce in a single date. See 7 C.F.R. § 46.2(m) and (x); 7 U.S.C. § 499e(c); see also Doc. 143-5. 4. Certain PACA Creditors are PACA licensees who preserved their respective rights as beneficiaries of the statutory trust created under PACA by placing specified language on their

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invoices to Debtors as authorized by 7 U.S.C. § 499e(c)(4). Prior to the Petition Date, Certain PACA Creditors supplied Debtors with perishable agricultural commodities having an aggregate principal value of $52,273.12, all of which remains unpaid, as follows: Certain PACA Creditors Principal Pre-Petition PACA Trust Balance Family Tree $10,774.19 Hardie’s $35,594.22 Piazza $ 844.22 Royal $ 5,060.49 TOTAL $ 52,273.12 These amounts do not include contractual interest or attorneys’ fees due under the parties’ contracts and as sums due and owing under the PACA trust, with attorneys’ fees incurred in enforcing Certain PACA Creditors trust rights in this proceeding totaling an estimated $17,300.00 through January 31, 2021. 5. True and correct copies of Family Tree’s, Hardie’s, Piazza’s, and Royal’s respective PACA License information, statements of account, and unpaid pre-petition invoices, along with Declarations from representatives of each PACA Creditor, were submitted as Exhibits to the Objection on November 10, 2020. See Doc. 143-1, 143-2, 143-3, and 143-4. 6. On December 1, 2020, the Court approved Debtors’ DIP-Cash Collateral Motion on a final basis and entered the Final Order (I) Authorizing Debtors to (A) Use Cash Collateral on a Limited Basis and (B) Obtain Postpetition Financing on a Secured, Superpriority Basis, (II) Granting Adequate Protection, and (III) Granting Related Relief [Do. 280] (the “Final DIP Order”).

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Paragraph 58 of the Final DIP Order provided for an escrow of $145,379.57 to address the principal aggregate PACA claims of Certain PACA Creditors and U.S. Foods, Inc. See Doc. 280. 7. Subsequently, undersigned counsel made multiple inquiries with Debtors’ counsel regarding whether any disputes existed regarding the principal amounts of Certain PACA Creditors’ PACA claims, and the process by which claims would be resolved and paid. No response has been received to any of counsel’s inquiries, thereby necessitating the filing of the instant Motion and Certain PACA Creditors incurring additional attorneys’ fees to enforce their statutory trust rights. ARGUMENT 8. The federal PACA statute, co-equal with the Bankruptcy Code, requires a produce receiver to hold in trust as a fiduciary its produce-related assets, which includes the produce itself, products derived therefrom, as well as any receivables or proceeds from the sale thereof, until full payment is made to the seller. 7 U.S.C. § 499e(c)(2). See gen., Nickey Gregory Co., LLC v. AgriCap, LLC, 597 F.3d 591, 595 (4th Cir. 2010); Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197 (3d Cir. 1998); Tom Lange Co. v. Kornblum & Co., (In re Kornblum & Co.), 81 F.3d 280 (2d Cir. 1996); Sanzone-Palmisano Co. v. M. Seaman Enters., Inc., 986 F.2d 1010 (6th Cir. 1993) (noting that assets and proceeds from produce should be held in trust until payment in full). The establishment of the trust is an unequivocal declaration that produce-derived assets are distinct and must be used to pay produce suppliers. Produce Alliance v. Let-Us Produce, 776 F.Supp.2d 197, 201 (E.D. Va. 2011) (quoting Reaves Brokerage Co., Inc. v. Sunbelt Fruit & Veg Co., 336 F.ed 410, 413 (5th Cir. 2003). 9. Congress also specifically directed that the failure to maintain the trust and make full payment promptly to the trust beneficiary is unlawful. 7 U.S.C. § 499b(4). Agricultural merchants, dealers and brokers, “are required to maintain trust assets in a manner that such assets are freely

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available to satisfy outstanding obligations to sellers of perishable agricultural commodities[,]” and any act or omission inconsistent with this responsibility, including dissipation of trust assets, is proscribed. 7 C.F.R. § 46.46(d)(1). 10. It is well established that PACA trust assets are not property of a bankruptcy estate and instead must be set aside for distribution to trust beneficiaries. “If a buyer or receiver declares bankruptcy..., trust assets are not to be considered part of the estate to be distributed to other creditors or sold unless all trust beneficiaries have been paid.” 49 Fed. Reg. at 45738. See also In re Delta Produce, L.P., 845 F.3d 609, 613 (5th Cir. 2016); Nickey Gregory Co., LLC v. AgriCap, LLC, 597 F.3d at 595; In re Long John Silver’s Restaurants, Inc., 230 B.R. 29 (Bankr. D. Del. 1999); In re Kelly Food Products, Inc., 204 B.R. 18 (Bankr. C.D. Ill. 1997); Morris Okun, Inc. v. Harry Zimmarman, Inc., 814 F.Supp. 346 (S.D.N.Y. 1993); In re Southland & Keystone, 132 B.R. 632 (9th Cir. BAP 1991); In re Asinelli, Inc., 93 B.R. 433 (M.D.N.C. 1988); In re Carolina Produce Distributors, Inc., 110 B.R. 207 (W.D.N.C. 1990); In re Fresh Approach, Inc., 51 B.R. 412 (Bankr. 1985); In re Milton Poulos, Inc., 94 B.R. 648 (Bankr. C.D. Cal. 1988). “That the corpus of a trust is not property of the estate is so widely accepted as to be beyond dispute.” In re Fresh Approach, Inc., 51 B.R. at 419. In the language of the Bankruptcy Code, Debtors hold no equitable interest in PACA trust assets. 11 U.S.C. § 541(d).2 11. When a produce supplier is not paid, it is entitled to immediate relief in the form of segregation and payment of trust assets. See Frio Ice, S.A. v. Sunfruit, Inc., 918 F.2d 154, 156 (11th Cir. 1990); Dole Fresh Fruit Co. v. United Banana Co., 821 F.2d 106 (2d Cir. 1987); In re Richmond Produce Co., Inc., 112 B.R. 364 (N.D. Cal. 1990); J.R. Brooks & Son v. Norman’s 2 11 U.S.C. § 541(d) states in pertinent part: “Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest,…becomes property of the estate…only to the extent of the debtor’s legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.”

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Country Market, 98 B.R. 47, 50 (N.D. Fla. 1989); In re Kelly Food Products, Inc., 204 B.R. 18 (Bankr. C.D. Ill. 1997) (debtor required to immediately pay trust assets to the PACA trust creditors); In re W.L. Bradley, Inc., 75 B.R. 505 (E.D. Pa. 1987) (automatic stay lifted and immediate payment of trust proceeds required to the PACA trust creditors); In re Monterey House, Inc., 71 B.R. 244, 249 (S.D. Tex. 1986) (PACA defendant ordered to disburse unpaid amounts held in trust, and retain remainder in segregated, interest-bearing account to be used to pay PACA creditors’ interest and attorneys’ fees). 12. Debtors’ secured obligations, ongoing operational expenses and professional fees cannot be paid to the detriment of Debtors’ PACA trust creditors. Certain PACA Creditors and any similarly situated PACA beneficiaries, like U.S. Foods, Inc., must be paid their outstanding pre-petition and any post-petition PACA trust claims in full by an agreed date certain, or in the alternative, the escrow of funds sufficient to satisfy the PACA trust claims in full, including interest and attorneys’ fees, must be set aside by Debtors. Moreover, this Court must qualify and quantify the PACA trust claims of Certain PACA Creditors if the parties cannot agree on the amount of the trust claims of Certain PACA Creditors and similarly situated trust beneficiaries. Debtors have had over ninety (90) days to review the PACA claims asserted in the case at bar by Certain PACA Creditors without providing any indication whether there is a dispute as to any PACA claims or not, or when undisputed claims (or portions thereof) will be paid. In ignoring their obligations under PACA, Debtors have confounded the rights of Certain PACA Creditors to prompt payment of PACA trust assets, and exacerbated the amounts of the trust claims by forcing Certain PACA Creditors to incur attorneys’ fees and costs in enforcing their trust rights. As noted by the court in In re Long John Silver’s Restaurants, Inc., 230 B.R. 29, 32 (Bankr. D. Del. 1999) “[t]hese

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[produce] suppliers are usually the least able to survive the delays and losses attendant to a bankruptcy filing by their buyers.” Id. 13. Certain PACA Creditors reserve the right to assert any and all other claims of whatever kind or nature that they have or may have against Debtors arising pre or post-petition. The filing of this Motion is not (i) a waiver or release of any claims or rights against any other person or entity regarding shipments of produce and other goods to Debtors, (ii) an election of remedies, or (iii) a waiver of any past, present or future default. CONCLUSION WHEREFORE, for the foregoing reasons, Family Tree Produce, Inc., Hardie’s Fruit & Vegetable Company, LP, Piazza Produce, LLC, and Royal Food Service, Inc., respectfully request that this Court enter an Order (i) declaring Certain PACA Creditors’ principal PACA claims in the aggregate amount of $52,273.12 to be allowed in full, (ii) directing the increase of the PACA escrow in the amount of $20,000.00 to address attorneys’ fees and costs incurred by Certain PACA Creditors in enforcing their trust rights, (iii) directing Debtors to make immediate full payment of Certain PACA Creditors principal claims in the aggregate amount of $52,273.12, and (iv) granting to Certain PACA Creditors such other and further relief as the Court deems just and proper. Dated: February 18, 2021 SHERMAN & YAQUINTO, LLP /s/ Robert Yaquinto, Jr.________________ Robert Yaquinto, Jr. State Bar No. 22115750 509 North Montclair Avenue Dallas, Texas 75208 Telephone: (214) 942-5502 Facsimile: (214) 946-7601 rob@syllp.com and

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Mary Jean Fassett McCarron & Diess 4530 Wisconsin Avenue, NW Suite 301 Washington, D.C. 20016 Telephone: (202) 364-0400 Facsimile: (202) 364-2731 mjf@mccarronlaw.com Attorneys for Family Tree Produce, Inc., Hardie’s Fruit & Vegetable Company, LP, Piazza Produce, LLC, and Royal Food Service, Inc. CERTIFICATE OF SERVICE I, Robert Yaquinto, Jr., do hereby certify under penalty of perjury that this 18th day of February, 2021, I caused a copy of the foregoing Motion to be served upon all counsel of record who have subscribed to the Court’s CM/ECF system via electronic transmission. By: /s/ Robert Yaquinto, Jr. Robert Yaquinto, Jr.