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Full title: Objection to (related document(s): 668 Application for administrative expenses filed by Creditor Bwana Theater Partners, LLC) filed by Debtor Studio Movie Grill Holdings, LLC. (Wright, Frank)

Document posted on Mar 17, 2021 in the bankruptcy, 9 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

HOLDINGS, LLC, et al., § § (Jointly Administered) Debtors.1 § 1The 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 ManagementAll theaters operate under the brand name “Studio Movie Grill.”On February 22, 2021, Bwana filed its Motion, seeking allowance and immediate payment of certain claims including a Post-Petition Rent Claim2 in the amount of $17,380.28 and a Storage Claim of $63,456.96, pursuant to 11 U.S.C. §§ 365(d)(3), 503(a), 503(b), and 507(a)(2).By its Motion, Bwana seeks $17,380.28 as a Post-Petition Rent

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Frank J. Wright Texas Bar No. 22028800 Jeffery M. Veteto Texas Bar No. 24098548 Jay A. Ferguson Texas Bar No. 24094648 LAW OFFICES OF FRANK J. WRIGHT, PLLC 2323 Ross Avenue, Suite 730 Dallas, Texas 75201 Telephone: (214) 935-9100 COUNSEL TO DEBTORS AND DEBTORS-IN-POSSESSION IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION § In re: § Chapter 11 § STUDIO MOVIE GRILL § Case No. 20-32633-SGJ HOLDINGS, LLC, et al., § § (Jointly Administered) Debtors.1 § 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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DEBTORS’ OBJECTION TO BWANA THEATER PARTNERS, LLC’S REQUEST FOR PAYMENT OF ADMINISTRATIVE EXPENSE Studio Movie Grill Holdings, LLC and its debtor affiliates, as debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the “Debtors” or “SMG”), file this Objection (the “Objection”) to Bwana Theater Partners, LLC’s (“Bwana”) Request for Payment of Administrative Expense (the “Motion”), and respectfully state as follows: I. BACKGROUND 1. On October 23, 2020 (the “Petition Date”), the Debtors each filed 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. 2. An official committee of unsecured creditors has been appointed in these Chapter 11 Cases. No trustee or examiner has been requested or appointed in these Chapter 11 Cases. 3. SMG is engaged in the dine-in movie theater business. In addition to its movie offerings, SMG’s theaters include a bar and lounge area, with direct to seat service for guests before and during their movies. As of the Petition Date, SMG operated 33 movies theaters in 10 states, including Arizona, California, Florida, Georgia, Illinois, North Carolina, Pennsylvania, Texas, Indiana, and Virginia. All theaters operate under the brand name “Studio Movie Grill.” 4. A detailed description of the Debtors and their businesses, and the facts and circumstances supporting the Motion and the Debtors’ Chapter 11 Cases are set forth in greater detail in the Declaration of William Snyder, CRO of the Debtors, in Support of the Debtors’ Chapter 11 Petitions and First Day Motion (the “Snyder Declaration”),which was filed on the Petition Date and is incorporated by reference in this Motion.

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5. On February 22, 2021, Bwana filed its Motion, seeking allowance and immediate payment of certain claims including a Post-Petition Rent Claim2 in the amount of $17,380.28 and a Storage Claim of $63,456.96, pursuant to 11 U.S.C. §§ 365(d)(3), 503(a), 503(b), and 507(a)(2). II. OBJECTION 6. By its Motion, Bwana seeks payment of the Post-Petition Rent Claim and Storage Claim, both founded upon the existence of Debtors’ former personal property in the Chicago Theater location – which has now been abandoned to, and is the property of, Bwana. I. Bwana’s Post-Petition Rent Claim 7. By its Motion, Bwana seeks $17,380.28 as a Post-Petition Rent Claim for the period of the Petition Date through October 26, 2020, comprised of alleged line-items of Rent in the amount of $9,252.20, Landscaping in the amount of $500.00, Trash in the amount of $708.00, and Attorneys’ Fees in the amount of $1,740.00. (Motion, Ex. 3). Bwana asserts that these amounts are § 365(d)(3) obligations which arose under the Lease post-petition, until the Lease was rejected. 8. Debtors contend that the alleged line-item for Rent is a pre-petition claim because, pursuant to Article 2 of the Lease, the obligation to pay October rent arose on the first of the month. When determining a debtor’s obligation to pay “stub rent” as a § 365(d)(3) administrative claim, this Court has adopted the “billing theory.” See In re Imperial Beverage Group, LLC, 457 B.R. 490, 501 (Bankr. N.D. Tex. 2011). “Under that theory ‘stub rent is not an obligation that must be timely performed under [§ ] 365(d)(3) [when] the bill [comes] due prior to the order for relief, … [but] the landlord’s claim for stub rent is nevertheless entitled to administrative expense priority under [§ ] 503(b) [ (1)(A) ]’ if the landlord can show the stub rent was an actual and necessary expense of preserving the debtor’s estate.” Id. Because the obligation to pay October rent arose on October 1, 2020, before the Petition 2 All capitalized terms not otherwise defined shall have the meanings ascribed to them in the Motion.

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Date, it is a pre-petition claim. Moreover, Bwana failed to plead, or make a showing, that the stub rent for the period of the Petition Date through October 26, 2020 was an actual and necessary expense under § 503(b)(1)(A). As such, Debtors assert that that the amount of Rent sought as part of the Post-Petition Rent Claim should be denied as an administrative expense. 9. Debtors further contend that the invoice provided by Bwana as to Landscaping indicates a service date of November 2, 2020, which was after the rejection of the theater lease. (Motion, Ex. 3B). Moreover, Debtors contest that while Article 9 of the Lease provides for “lawn care” as part of the tenant’s obligations, there is no mechanism present for the landlord to recoup its expenditures for lawn care. This line-item is a post-rejection claim for maintenance to the leased property and should not be granted. 10. Conversely, the line-item for a Trash expenditure, allegedly paid to an individual name Cedric Bradley for removing garbage around the premises, is dated October 14, 2020, which renders it a pre-petition claim. For such reason, the Trash line item should also be denied. 11. In addition, Debtors contend that Bwana has failed to prove that the Attorneys’ Fees sought are an obligation arising under the Lease within the meaning of § 365(d)(3). Debtors further contend that Bwana has failed to plead, or make a showing, that the attorneys’ fees sought (i) were incurred post-petition; and (ii) benefitted the estate within the meaning of § 503(b)(1)(A). To the extent such entitlement does exist, Debtors contend that Bwana has failed to plead or prove entitlement to the amount of Attorneys’ Fees sought. 12. “Generally speaking, any claimant in a bankruptcy case seeking recovery of postpetition attorneys fees must file a traditional bankruptcy fee application.” In re Nucentrix Broadband Networks, Inc., 314 B.R. 581, 590 (Bank. N.D. Tex. 2004). This is true for debtors’ counsel, trustee’s counsel, committee counsel, and oversecured creditors’ counsel. Id. (internal citations omitted). More importantly, this “is true for unsecured creditors when they are entitled to attorneys’ fees,” including

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landlords’ counsel. Id. (citing In re Independent American Real Estate, Inc., 146 B.R. 546, 556 (Bankr.N.D.Tex.1992); McDonald v. Lorenzo Bancshares, Inc. (In re Lorenzo Bancshares, Inc.), 122 B.R. 270, 272 (Bankr.N.D.Tex.1991) (unsecured claimant must “file an application for attorneys' fees in the usual bankruptcy format”). 13. Further, even if Bwana can demonstrate that the fees were incurred post-petition, benefitted the estate, and that they are entitled to such fees pursuant to their lease, the attorneys’ fees sought by Bwana are subject to analysis of the Johnson factors for determination. See Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717–19 (5th Cir. 1974); See also In re First Colonial Corp. of America, 544 F.2d 1291, 1298–99 (5th Cir. 1977), cert. denied, 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977) (applying the Johnson factors to the analysis of fee awards in bankruptcy cases); Nucentrix, 314 B.R. at 590. In particular, to recover attorneys’ fees from the Debtors’ bankruptcy estate, Bwana must plead and establish the following factors: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the undesirability of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases. Johnson, 488 F.2d at 717–19. 14. Bwana has offered no evidence in support of its claim for attorneys’ fees and therefore, this Court cannot find that these factors have been satisfied through a proper showing. Debtors assert that the amount sought is not justified and should be denied. 15. For such reasons, taken together, Debtors submit that the Motion, with respect to the Post-Petition Rent Claim, should be denied.

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II. Bwana’s Storage Claim 16. Debtors contest Bwana’s request for payment of its Storage Claim. Debtors assert that Bwana is not entitled to storage rent on the personal property now abandoned to it under 11 U.S.C. § 503. 17. Section 503(b)(1)(A) of the Bankruptcy Code sets out the provisions applicable to the allowance of general administrative expense claims in this case. It provides in pertinent part that “[a]fter notice and a hearing, there shall be allowed administrative expenses … including – (1)(A) the actual, necessary costs and expenses of preserving the estate….” 11 U.S.C. § 503(b)(1)(A) (emphasis added). 18. For any costs and expenses to qualify for allowance as an administrative expense claim, they must (i) be actual and (ii) have been necessary to preservation of the estate. Courts have construed these terms narrowly: “[a]n ‘actual and necessary cost’ must have been of benefit to the estate and its creditors . . . The ‘benefit’ requirement has no independent basis in the Code, . . . but is merely a way of testing whether a particular expense was truly ‘necessary’ to the estate: If it was of no ‘benefit,’ it cannot have been ‘necessary.’” State of Texas v. Lowe (In re H.L.S. Energy Co., Inc.), 151 F.3d 434, 437 (5th Cir. 1998); see also Total Minatome Corp. v. Jack/Wade Drilling, Inc. (In re Jack/Wade Drilling, Inc.), 258 F.3d 385, 387 (5th Cir. 2001); In re SGS Studio, Inc., 256 B.R. 580, 582 (Bankr. N.D. Tex. 2000). 27. “In order to qualify as an ‘actual and necessary cost’ under section 503(b)(1)(A), a claim against the estate must have arisen post-petition and as a result of actions taken by the [debtor-in-possession] that benefitted the estate.” Jack/Wade Drilling, Inc., 258 F.3d at 387 (emphasis added). 19. While the necessity of a financial benefit to the estate is not required for an administrative expense to be approved, there must be established some benefit to the estate. See Kimzey v. Premium Casing Equip., LLC, No. 16-CV-01490, 2018 U.S. Dist. LEXIS 42744, at *18-20 (W.D. La. 2018). Bwana is “entitled to post petition payment (i.e., administrative expense treatment for post

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petition performance) under a rejected contract only to the extent of value (benefit) to the estate.” In re Pilgrim's Pride Corp., 467 B.R. 871, FN 7. (Bankr. N.D. Tex. 2012) (citing In re Templeton, 154 B.R. 930, 932 (Bankr. W.D. Tex. 1993); United Trucking Serv., Inc. v. Trailer Rental Co. (In re United Trucking Serv., Inc.), 851 F.2d 159 (6th Cir. 1988)). 20. Bwana bears the burden of proof in relation to these claims. See SGS Studio, Inc., 256 B.R. at 582; see also 11 U.S.C. § 503(b)(1)(A). 21. It is undisputed that Debtors rejected the Bwana lease effective October 26, 2020 via the Order Granting Expedited Motion for 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 (the “Order Rejecting”) [Docket No. 101] entered on October 30, 2020. 22. It is further undisputed that Debtors’ abandonment of the subject personal property was amended from the Order Rejecting by the Second Order (A) Partially Granting Debtors’ Second Motion For 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 Certain Remaining Unexpired Commercial Real Property Leases (the “Second Order Rejecting”) [Docket No. 552] entered on January 27, 2021. The Second Order Rejecting set out an abandonment date of January 20, 2021. 23. It is further undisputed that the Debtors have not operated the Chicago theater location since before the Petition Date. Ultimately, the Debtors have received no benefit or use of the subject personal property during the pendency of their Chapter 11 Cases. Now, Bwana seeks to collect rent for storing personal property that was abandoned to it and belongs to it. 24. A debtor’s estate derives “no actual benefit from having its property sit in the leased premises after rejection of the [l]ease,” when the lessor ultimately becomes the owner of the personal property and receives all of the benefit, leaving none for the debtor’s estate. In re Mainstream Access,

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Inc., 134 B.R. 743, 748-50 (Bankr. S.D.N.Y. 1991). A lessor is not entitled to an administrative expense claim when the debtor’s “only potential for benefit from the outset [is] in preserving the value of the personal property,” because the “mere potential for benefit to the estate does not satisfy the requirement . . . that the estate receive an actual benefit.” Id. at 750 (emphasis added). 25. Debtors submit that Bwana has failed to carry its burden of proof with respect to the benefit conferred that would entitle it to Storage Rent. Further, Debtors assert that Bwana has selected an arbitrary figure for pricing its storage expense and has not demonstrated what the actual fair value of those services would be. 26. For such reasons, taken together, Debtors submit that the Motion, with respect to Storage Rent, should be denied. 27. To the extent that this Court does so grant all or part of the Storage Rent requested by Bwana, Debtors assert that the “warehousing rate per square foot” of $3.00 is not established by evidence as being a fair rate and further that the true value of any storage – in light of Bwana’s present ownership of the same property – should be greatly reduced. III. RESERVATION OF RIGHTS 28. Debtors hereby expressly reserve the right to amend or supplement this Objection prior to any hearing pertaining to its determination for the purposes of asserting additional objections to the Motion, amending this Objection, offering additional support, and as Debtors otherwise deem necessary and appropriate. WHEREFORE, the Debtors respectfully request that this Court deny the relief requested by the Motion and award the Debtors such other and further relief as this Court may deem just and proper.

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DATED: March 18, 2021 Respectfully submitted, LAW OFFICES OF FRANK J. WRIGHT, PLLC By: /s/ Frank J. Wright Frank J. Wright Texas Bar No. 22028800 Jeffery M. Veteto Texas Bar No. 24098548 Jay A. Ferguson Texas Bar No. 24094648 2323 Ross Avenue, Suite 730 Dallas, Texas 75201 Telephone: (214) 935-9100 Emails: frank@fjwright.law jeff@fjwright.law jay@fjwright.law COUNSEL TO DEBTORS AND DEBTORS-IN-POSSESSION CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document was served on all parties consenting to electronic service of this case via the Court’s ECF system for the Northern District of Texas or via United States Mail, first class postage prepaid, on March 18, 2021 on all of the Debtors’ Complex Service List. /s/ Jeffery M. Veteto Jeffery M. Veteto