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Full title: Objection to (related document(s): 844 Application for administrative expenses[APPLICATION OF READY CONSTRUCTION SERVICES, LLC AND D&D CABLING SOLUTIONS FOR APPROVAL AND ALLOWANCE OF ADMINISTRATIVE CLAIM OR FOR DISBURSEMENT OF TRUST FUNDS AND FOR RELATED RELIEF] filed by Creditor Ready Construction Services, LLC, Creditor D&D Cabling Solutions) filed by Debtor Studio Movie Grill Holdings, LLC. (Attachments: # 1 Exhibit 1) (Wright, Frank)

Document posted on Apr 15, 2021 in the bankruptcy, 14 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

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 4, 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 ManagementDebtors object to the relief sought under the Application because: (i) the request for administrative expense allowance is barred by the interim administrative claim bar date; (ii) there is no legal or evidentiary basis supporting allowance of an administrative expense claim by either Applicant; (iii) the request for turnover of funds is not properly before this Court; (iv) an inherent conflict exists between Applicants and their respective claims; and (v) no

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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 4, 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). DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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DEBTORS’ OBJECTION TO APPLICATION OF READY CONSTRUCTION SERVICES, LLC AND D&D CABLING SOLUTIONS FOR APPROVAL AND ALLOWANCE OF ADMINISTRATIVE CLAIM OR FOR DISBURSEMENT OF TRUST FUNDS AND FOR RELATED RELIEF Studio Movie Grill Holdings, LLC and its debtor affiliates, specifically Movie Grill Concepts XLIV, LLC (“MGC XLIV”), as debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the “Debtors” or “SMG”), file this Objection (the “Objection”) to the Application of Ready Construction Services, LLC and D&D Cabling Solutions for Approval and Allowance of Administrative Claim or for Disbursement of Trust Funds and for Related Relief (the “Application”) filed by Ready Construction Services, LLC (“RCS”) and D&D Cabling Solutions (“D&D”) (collectively, the “Applicants”), 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.” DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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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 Objection. 5. On March 26, 2021, the Applicants filed their Application, seeking (i) waiver of the interim administrative claim bar date in favor of their Application; (ii) allowance and payment of administrative expense claims of an unclear amount that allegedly arose out of “[a]ny post-petition reduction of the lowest intermediate balance . . . of the [Applicants’] trust funds . . .” including exemplary damages; and (iii) turnover of alleged “trust funds held in the possession of any of the Debtors’ accounts[.]” 6. The Application pertains to certain pre-petition construction activities of one Debtor, MGC XLIV at the Chisholm Trail2 location. The Lease of the Chisholm Trail location has been rejected in the course of these bankruptcy proceedings3 and MGC XLIV is subject to an order of conversion4 under the implementation terms of the confirmed plan of reorganization.57. RCS was the general contractor for MGC XLIV under the RCS Agreement. D&D does not have any similar written agreement with MGC XLIV or any of the other Debtors. 2 Capitalized terms not otherwise defined herein shall have the meanings ascribed to them by the Application. 3 Third 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; and (ii) Granting Related Relief [Docket No. 537]. 4 Order Granting Debtors’ Emergency Motion to Implement Plan and Convert Certain Chapter 11 Cases to Chapter 7 Cases [Docket No. 873]. 5 Findings of Fact, Conclusions of Law, and Order Confirming the Debtors’ Fourth Amended Joint Chapter 11 Plan of Reorganization [Docket No. 875]. DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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II. ARGUMENTS & AUTHORITIES IN OPPOSITION 8. Debtors object to the relief sought under the Application because: (i) the request for administrative expense allowance is barred by the interim administrative claim bar date; (ii) there is no legal or evidentiary basis supporting allowance of an administrative expense claim by either Applicant; (iii) the request for turnover of funds is not properly before this Court; (iv) an inherent conflict exists between Applicants and their respective claims; and (v) no claims upon which any relief can be granted have been pled for D&D. A. The Application is Time Barred by the Interim Administrative Claim Bar Date 9. Pursuant to 11 U.S.C. § 503(a), “an entity may timely file a request for payment of an administrative expense, or may tardily file such request if permitted by the court for cause.” Prior to filing the Application, the Applicants made no request to file a late claim, nor has this Court permitted them to do so. 10. On January 21, 2021, the Court entered its Order Establishing an Administrative Claim Bar Date and Approving the Form and Manner of Notice Thereof [Dkt. No. 532] (the “Bar Date Order”), therein fixing “February 15, 2021 as the deadline for asserting an Administrative Claim incurred or arising on or before January 31, 2021” (the “Interim Administrative Claim Bar Date”). 11. Pursuant to the Bar Date Order: 4. Any holder of an Administrative Claim incurred or arising on or before January 31, 2021 must file on the docket a written administrative expense request which (a) sets forth with specificity the legal and factual basis for the Administrative Claim; and (b) includes any and all supporting documentation the holder relies upon to support its request (an “Administrative Expense Request”). The Administrative Expense Request must be filed on the docket on or prior to the Interim Administrative Claim Bar Date. A request for Administrative Claim may not be submitted by filing or submitting a proof of claim, and any such request pursuant to a proof of claim shall not constitute an Administrative Expense Request under this Order. DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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5. Any holder of an Administrative Claim that is required to submit an Administrative Expense Request, but fails to do so on or before the Interim Administrative Claim Bar Date in strict compliance with the procedures set forth herein, is forever barred, estopped, and enjoined from asserting such claim against the Debtors and their estates, and the Debtors and their estates shall be discharged from all indebtedness and liability with respect to all Administrative Expense Requests that are not timely submitted. 12. Certain categories of administrative claims were specifically excluded from the Interim Administrative Claim Bar Date in the Bar Date Order. The claims in the Application are not so excluded. In fact, the Bar Date Order is unequivocal—any holder of an alleged claim who fails to “file on the docket a written administrative expense request” in “strict compliance” with the Bar Date Order procedures by the Interim Administrative Claim Bar Date “is forever barred, estopped, and enjoined[.]” 13. The deadline for Applicants to timely file any administrative expense claims arising prior to January 31, 2021 was on the Interim Administrative Claim Bar Date. Applicants failed to file any written administrative expense request until March 26, 2021, more than a month after the Interim Administrative Claim Bar Date. Moreover, even the Applicants admitted that their previously filed Proofs of Claim failed to assert any administrative expense claims against the Debtors. In any event, Applicants failed to file such Proofs of Claim until after the Interim Administrative Claim Bar Date. Therefore, pursuant to the terms of the Bar Date Order, Applicants’ administrative expense claims that arose on or before January 31, 2021, if any, are duly barred. 14. Applicants now belatedly request the waiver of this requirement, presumably on the grounds that the Debtors had not yet responded to Applicants’ 2004 Motion. However, Applicants’ 2004 Motion was not even filed until February 24, 2021, nine days after the Interim Administrative Claim Bar Date. Applicants offer no other basis for “cause” related to their tardy filing. There is no assertion that Applicants were not aware or were not properly notified of the Interim Administrative DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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Claim Bar Date. Moreover, the Debtors had filed monthly operating reports and presented information to this Court on the structure of their cash management system. Applicants also failed to file any sort of protective application prior to the Interim Administrative Claim Bar Date. Simply put, Applicants delayed pursuing their alleged claims without justifiable cause. 15. Applicants are sophisticated parties that have been represented by counsel well in advance of entry of the Bar Date Order. In short, there is no equitable argument to support a finding of “cause” to allow a tardy claim. See In re Taco Bueno Rests., Inc., 606 B.R. 289, 304 (Bankr. N.D. Tex. 2019) (finding no equitable argument because applicant had an attorney involved at all relevant times). 16. For such reasons, the Debtors submit that the Application should be denied as to any and all administrative expense claims arising on or before January 31, 2021, for both Applicants. B. No Legal or Evidentiary Basis Exists to Support an Administrative Expense Claim 17. Section 503(b)(1)(A) of the Bankruptcy Code sets out the provisions applicable to the allowance of 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). 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).“In order to qualify as an ‘actual and necessary cost’ under section 503(b)(1)(A), a claim against the estate DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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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). 18. Applicants bear 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). Such claims do not enjoy the same presumption of correctness as that of proofs of claim, and must be shown by a preponderance of the evidence without any such presumption of validity. See In re Cardinal Indus., 151 B.R. 833, 1992 Bankr. LEXIS 2270 (Bankr. S.D. Ohio 1992). 19. As a threshold issue, Applicants allege that MGC XLIV is a “contractor” and therefore that certain tenant improvement dollars paid to MGC XLIV under its Lease – to which Applicants are not parties – are construction trust funds within the meaning of chapter 162 of the Texas Property Code. Section 162.001 states that “[c]onstruction payments are trust funds under this chapter if the payments are made to a contractor or subcontractor or to an officer, director, or agent of a contractor or subcontractor, under a construction contract for the improvement of specific real property in this state.” TEX.PROP.CODE § 162.001(a). 20. Debtors dispute that MGC XLIV is a “contractor” as is required for the applicability of TEX.PROP.CODE § 162.001(a). The RCS Agreement, attached hereto as Exhibit “1”, specifically identifies RCS, not MGC XLIV, as the “Contractor” performing work on the Chisholm Trail project. Further, RCS is not a party to the Lease, from which the tenant improvement dollars arise. Debtors are aware of no existing case law that supports Applicants’ expansive interpretation of the statute. As such, Debtors contend that Applicants have failed to prove that chapter 162 of the Texas Property Code contemplates the tenant improvement dollars in this case being classified as “trust funds.” Moreover, Debtors deny that MGC XLIV is an agent of the owner, and highlight that Applicants have offered no evidence to the contrary. For such reasons, the Debtors submit that the Application should DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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be denied as to any and all administrative expense claims premised upon the allegation that the tenant improvement dollars are construction trust funds. 21. In this case, Applicants have sought an administrative expense claim premised upon their allegations of post-petition misappropriation of constructive trust funds. Applicants rely on the Reading Doctrine, under which “[d]amages resulting from post-petition torts committed by the debtor are [ ] entitled to administrative priority under Bankruptcy Code § 503(b)(1).” In re Lucky's Mkt. Parent Co., No. 20-10166 (JTD), 2021 Bankr. LEXIS 615, at *35-36 (Bankr. D. Del. 2021) (citing In re Phila. Newspapers, LLC, 690 F.3d 161, 173 (3d Cir. 2012) (internal citation omitted) (“[F]airness may call for the allowance of post-petition tort claims as administrative expenses if those claims arise from actions related to the preservation of a debtor’s estate despite having no discernable benefit to the estate.”)). “For a claimant to be entitled to an administrative expense claim under the Reading Doctrine, it must demonstrate that its allegations support a tort cause of action.” Id.; see also Reading Co. v. Brown, 391 U.S. 471, 477, 88 S. Ct. 1759, 20 L. Ed. 2d 751 (1968). 22. Applicants contend that the Debtors committed a post-petition tort because they allegedly misappropriated trust funds under TEX. PROP. CODE § 162.031(a). Applicants seek exemplary damages associated therewith under TEX. CIV. PRAC. & REM. CODE §§ 41.005(5) and 41.005(b)(1). Applicants frame this issue as “whether the Debtors used trust funds commingled in the Cash Concentration Account and when.” 23. Debtors contend that Applicants failed to demonstrate Debtors misapplied trust funds within the meaning of TEX. PROP. CODE § 162.031(a). An affirmative defense exists for the misapplication of construction trust funds if the funds that were not paid to the beneficiaries of the trust were instead used by the trustee to pay actual expenses directly related to the construction. TEX. PROP. CODE § 162.031(b). In the context of dischargeability actions, “[t]he Fifth Circuit has interpreted this affirmative defense to protect a trustee if he uses trust funds to pay overhead expenses DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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of the failing company (such as telephone bills or salaries) or even if he diverts funds to other company projects in order to keep the struggling business alive.” In re Chapman, 2016 WL 2728868, at *8 (Bankr. N.D. Tex. 2016) (citing In re Pledger, 592 F. App’x 296, 299-303 (5th Cir. 2015) (internal citation omitted)). When trust funds are commingled, the creditor bears the burden to disprove the affirmative defense set forth by the trustee by showing that the payments made were not “actual expenses directly related to the construction.” Pledger, 592 F. App’x at 302 (addressing the affirmative defense in the context of a dischargeability action). In particular, the creditor must show that the trustee’s payments (i) were not made on the construction project or overhead expenses, or (ii) were made for the trustee’s own uses rather than to benefit the overall health of the failing business. Id. 24. Any use or diversion of the alleged trust funds by Debtors was in direct response to the COVID-19 government mandates which caused Debtors to close their theaters for then an indefinite amount of time. As stated in Debtors’ discovery responses to Applicants’ 2004 Motion, “[d]ue to the uncertainty as to when re-opening of theaters could occur, the Debtors went into a cash conservation mode to ensure payment of payroll and taxes until resumption of normal operations.” To the extent trust funds were used or diverted, Debtors contend that such use or diversion was necessary to “keep the struggling business alive.” Debtors further contend that Applicants failed to demonstrate that any withheld trust funds were not used on overhead expenses or for the benefit of the overall health of the business. For such reasons, the Debtors submit that the Application should be denied as to any and all administrative expense claims premised upon the allegation that Debtors committed a post-petition tort by using trust funds for purposes other than to pay Applicants. 25. Assuming, arguendo, Applicants can demonstrate that Debtors held trust funds and committed a post-petition tort entitled to administrative expense status, the long followed “lowest intermediate balance rule” provides that where funds were “commingled in accounts that were drawn upon” the claimant is “limited to the lowest balance between the time of deposit of the funds . . . and DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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the filing of the bankruptcy petition.” Blackhawk Network, Inc. v. Alco Stores, Inc. (In re Alco Stores, Inc.), 536 B.R. 383, 414 (Bankr. N.D. Tex. 2015) (internal citations omitted). Such rule contemplates that “when faced with the need to withdraw funds from a commingled account, the trustee withdraws non-trust funds first, thus maintaining as much of the trust’s funds as possible” but when drawn “below the level of the trust fund but not depleted, the claimant is entitled to the lowest intermediate balance in the account.” Id. (internal citations omitted). For purposes of the lowest intermediate balance rule, when the debtor has more than one account, only the account in which the trust funds were originally deposited and “accounts to which [trust funds] might have flowed, should be considered.” United States v. McConnell, 258 B.R. 869, 876 (N.D. Tex. 2001); see In re Erickson Retirement Communities, LLC, 497 B.R. 504, 507 (Bankr. N.D. Tex. 2013) (finding that debtor’s only two bank accounts were subject to the lowest intermediate balance rule when trust funds were initially deposited into one account and then regularly swept into the second account). 26. Here, it is undisputed that tenant improvement dollars were deposited in the Debtors’ Cash Concentration Account and commingled with other funds. To the extent that the Debtors may have used money from the Cash Concentration Account post-petition on expenditures unrelated to construction of the Chisholm Trail property or related overhead and similar expenses (of which there has been no evidence), under the “lowest intermediate balance rule” the maximum possible trust funds existing post-petition have not been used. Further, only the Cash Concentration Account should be considered absent a showing by Applicants that the tenant improvement dollars subsequently flowed to another Debtor account. 27. On September 21, 2020, the Cash Concentration Account balance was $50,980.66, being its lowest intermediate balance since a claim of alleged retainage may have arose. To that end, the Cash Concentration Account has not fallen below $50,980.66 since the Petition Date. DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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28. The Application further alleges that MGC XLIV owes RCS “more than $757,000 of earned and unpaid retainage.” Debtors contend that RCS is not owed any amount of retainage because, pursuant to the RCS Agreement, any withheld retainage is due only after the construction project is completed. The RCS Agreement states: “Final payment (the ‘Final Payment’) constituting the entire unpaid balance of the Contract Sum (including the net amount of any withheld retainage) shall be paid to Contractor . . . after the date the Work is completed . . . and assuming there is no disputed matter or amount.” As stated in Debtors’ discovery responses to Applicants’ 2004 Motion, “[t]he construction at the Chisholm Trail location has not been signed off on, as many of the punch list items have not been completed.” Because RCS has not completed the punch list items for the Chisholm Trail construction project, Debtors do not currently owe any payments for retainage. Further, it is undisputed that the retainage claimed by RCS is related to work performed pre-petition and thus there was no post-petition benefit to the Debtors’ estate. Accordingly, to the extent this Court finds that any amount of retainage is due and owing, such amount does not qualify as a post-petition administrative claim under § 503(b)(1)(A) of the Bankruptcy Code. 29. Thus, even by Applicants’ standard and pleadings, no administrative expense claim exists. There has been no post-petition reduction of the lowest intermediate balance and therefore no post-petition misapplication or misappropriation of the alleged trust funds. As such, Applicants’ remaining allegations on this subject are prepetition issues not subject to priority treatment. 30. Foundationally, Applicants have failed to carry their evidentiary burden to demonstrate the qualification and quantification of any administrative expense claim and failed to carry their evidentiary burden that the estate benefited in a manner outweighing the alleged claims. 31. For such reasons, in addition to being barred as untimely, the Application should be denied on its merits. DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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C. Punitive Damages May Not Be Awarded as Administrative Expenses 32. To the extent that this Court does find cause to allow an administrative expense claim for either Applicant, punitive damages may not be awarded as part of an administrative expense claim. An administrative expense applicant “can recover punitive damages from [an] estate as an administrative expense only if it can prove that this expense was an actual, necessary cost . . . of preserving the estate.” NL Indus., Inc. v. GHR Energy Corp., 940 F.2d 957, 966 (5th Cir. 1991) (internal citations omitted) (finding no way in which allowance of punitive damages in that case would benefit the debtor’s estate). 33. There is no argument made, nor logical conclusion that can be drawn, that punitive damages are an actual or necessary cost of preserving the Debtors’ estates. Likewise, there is not any theoretical benefit that would be received by the Debtors’ estates through such an award. 34. Therefore, in such event and for such reasons, any request for punitive damages as an administrative expense claim should be denied. D. The Alternative Request for Turnover of Funds is not Properly Before this Court 35. In the alternative to their administrative expense claims, Applicants assert that they are entitled to turnover of the alleged construction trust funds under Tex. Prop. Code § 162.001(d). 36. Pursuant to Fed. R. Bank. P. 7001(1) (the “Bankruptcy Rules”), “a proceeding to recover money or property” must be brought as an adversary proceeding, not by motion. 37. Debtors object to turnover being sought by motion in contravention of the Bankruptcy Rules. For such reasons, Debtors submit that this Application should be denied. E. The Inherent Conflict Between Applicants 38. Even if Applicants are able to prove their allegations that certain of the funds held by Debtors constitute trust funds under chapter 162 of the Texas Property Code, the amount of such funds is clearly less than what is being sought by either RCS or D&D individually. DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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39. Applicants wholly fail to address the inherent conflict between them as they jointly pursue what are clearly insufficient funds to pay their combined claims. F. Applicants Fail to Demonstrate D&D’s Relationship to the Application’s Claims 40. While D&D is an applicant on the Application for both administrative expense claims and turnover of the alleged construction trust funds, Applicants fail to explain how D&D is contractually related to such allegation and claims. 41. D&D is not a party to the RCS Agreement from which each of these claims emanate. There is no argument presented that D&D is entitled to a retainage or any alleged construction trust funds. Instead, D&D is merely a prepetition claimant that appears to have been brought along due to a nexus in representation. Without further explanation, there are no grounds before this Court to grant any relief for D&D as requested. For such reasons, the Application should be denied. III. RESERVATION OF RIGHTS 42. 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 Application, 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 Application and award the Debtors such other and further relief as this Court may deem just and proper. DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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DATED: April 16, 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 on the 16th day of April 2021, 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 and via United States Mail, first class postage prepaid on the Debtors’ Complex Service List. /s/ Frank J. Wright Frank J. Wright DEBTORS’OBJECTIONTOAPPLICATIONOFREADYCONSTRUCTIONSERVICES,LLCAND

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