HTML Document View

Full title: Motion to Reject Lease or Executory Contract Third Omnibus Motion of Debtors for Entry of an Order (I) Authorizing Debtors to (a) Reject Certain Executory Contracts and Unexpired Leases of Nonresidential Real Property and (b) Abandon Certain Personal Property, if Any, Each Effective as of the Rejection Date and (II) Granting Related Relief Filed by YouFit Health Clubs, LLC. Hearing scheduled for 3/3/2021 at 11:30 AM at US Bankruptcy Court, 824 Market St., 5th Fl., Courtroom #4, Wilmington, Delaware. Objections due by 2/24/2021. (Attachments: # 1 Exhibit A - Proposed Order # 2 Notice) (Meloro, Dennis) (Entered: 02/17/2021)

Document posted on Feb 16, 2021 in the bankruptcy, 12 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

(the “Bankruptcy Code”), and Rule 6006 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), seeking entry of an order, substantially in the form attached hereto as Exhibit A (the “Proposed Order”), (i) authorizing the Debtors to (a) reject certain executory contracts and unexpired leases of nonresidential real property, effective as of the dates set forth in Annex 1 to the Proposed Order (the “Rejection Date”) and (b) abandon certain equipment, fixtures, furniture, or other personal property (the “Personal Property”) that 1 The last four digits of YouFit Health Clubs, LLC’s tax identification number are 6607.On February 14, 2021, pursuant to Section 2.6(c) of the Stalking Horse Purchase Agreement and the Sale Order, the Buyer delivered a notice to the Debtors identifying the Rejected Contracts (as defined below) as contracts and leases that the Buyer does not intend to have assigned to it in connection with the Sale.With respect to any Rejected Contracts that are unexpired leases of nonresidential real property, the Debtors, having run a robust sale process, have determined that such leases are unlikely to provide value to the estates if they were separately marketed.In arriving at the decision to abandon any Personal Property remaining at the Premises covered by leases that are Rejected Contracts, the Debtors determined that the costs of moving and storing such Personal Property outweigh any benefit such Personal Property may provide to the Debtors’ estates.Nothing contained herein is intended or shall be construed as (a) an admission as to the validity of any claim against the Debtors, (b) a waiver of the Debtors’ or any appropriate party in interest’s rights to dispute the amount of, basis for or validity of any claim against the Debtors, (c) a waiver of any claims or causes of action which may exist against any creditor or interest holder, (d) an approval, assumption, adoption or rejection of any other agreement, contract, lease, program and policy between the Debtors and any third party under section 365 of the Bankruptcy Code, or (e) a waiver of the Debtors’ rights under the Bankruptcy Code or any other applicable law.

Page 1

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 YOUFIT HEALTH CLUBS, LLC, et al.,1 Case No. 20-12841 (MFW) Debtors. (Jointly Administered) Objection Deadline: Feb. 24, 2021 at 4:00 p.m. (ET) Hearing Date: March 3, 2021 at 11:30 a.m. (ET) THIRD OMNIBUS MOTION OF DEBTORS FOR ENTRY OF AN ORDER (I) AUTHORIZING DEBTORS TO (A) REJECT CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES OF NONRESIDENTIAL REAL PROPERTY AND (B) ABANDON CERTAIN PERSONAL PROPERTY, IF ANY, EACH EFFECTIVE AS OF THE REJECTION DATE AND (II) GRANTING RELATED RELIEF PARTIES RECEIVING THIS MOTION SHOULD LOCATE THEIR NAMES AND THEIR CONTRACT(S) AND/OR LEASE(S) IN ANNEX 1 TO THE PROPOSED ORDER ATTACHED HERETO AS EXHIBIT A. The above-captioned debtors and debtors in possession (collectively, the “Debtors”), submit this motion (the “Motion”), pursuant to sections 105(a) and 365(a) of title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”), and Rule 6006 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), seeking entry of an order, substantially in the form attached hereto as Exhibit A (the “Proposed Order”), (i) authorizing the Debtors to (a) reject certain executory contracts and unexpired leases of nonresidential real property, effective as of the dates set forth in Annex 1 to the Proposed Order (the “Rejection Date”) and (b) abandon certain equipment, fixtures, furniture, or other personal property (the “Personal Property”) that 1 The last four digits of YouFit Health Clubs, LLC’s tax identification number are 6607. Due to the large number of debtor entities in these chapter 11 cases, for which joint administration has been requested, a complete list of the debtor entities and the last four digits of their federal tax identification numbers is not provided herein. A complete list of such information may be obtained on the website of the proposed claims and noticing agent at www.donlinrecano.com/yfhc. The mailing address for the debtor entities for purposes of these chapter 11 cases is: 1350 E. Newport Center Dr., Suite 110, Deerfield Beach, FL 33442.

Page 2

may be located at the premises (the “Premises”) of those certain unexpired leases of nonresidential real property, effective as of the Rejection Date and (ii) granting related relief. In support of this Motion, the Debtors respectfully state as follows: Jurisdiction, Venue and Statutory Predicates 1. The United States Bankruptcy Court for the District of Delaware (the “Court”) has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated February 29, 2012. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). Under Rule 9013-1(f) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the “Local Rules”), the Debtors consent to entry of a final order under Article III of the United States Constitution. Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. 2. The statutory and legal predicates for the relief requested herein are sections 105(a) and 365(a) of the Bankruptcy Code and Bankruptcy Rule 6006. Background 3. On November 9, 2020 (the “Petition Date”), the Debtors each filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in this Court. The Debtors have continued in possession of their properties and are operating and managing their business as debtors in possession under sections 1107(a) and 1108 of the Bankruptcy Code. On November 18, 2020, the United States Trustee appointed an official committee of unsecured creditors in these chapter 11 cases pursuant to section 1102 of the Bankruptcy Code. No trustee or examiner has been appointed in these chapter 11 cases. 4. On the Petition Date, the Debtors filed Debtors’ Motion for Entry of Orders (I)(A) Establishing Bidding Procedures Relating to the Sale of the Debtors’ Assets, (B) Approving the

Page 3

Debtors’ Entry into the Stalking Horse Purchase Agreement, (C) Establishing Procedures Relating to the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases, (D) Approving Form and Manner of Notices Relating Thereto, and (E) Scheduling a Hearing to Consider the Proposed Sale; (II)(A) Approving the Sale of the Debtors’ Assets Free and Clear of All Liens, Claims, Encumbrances, and Interests, and (B) Authorizing the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; and (III) Granting Related Relief [Docket No. 17]. On November 23, 2020, the Court entered an order [Docket No. 136] (the “Bidding Procedures Order”) that, among other things, approved bidding procedures in connection with the sale of the Debtors’ assets (the “Sale”), approved procedures for the assumption and assignment of contracts and leases in connection with the Sale and scheduled a hearing on the Sale. 5. On December 28, 2020, the Court entered an order [Docket No. 564] and on February 9, 2021, the Court entered a supplemental order [Docket No. 735] (collectively, such orders, the “Sale Order”) authorizing the Debtors to sell substantially all of their assets to YF FC Acquisition, LLC (the “Buyer”) in accordance with the Sale Order and that certain Asset Purchase Agreement, dated November 10, 2020, by and between the Debtors and the Buyer (as amended from time to time, the “Stalking Horse Purchase Agreement”). As of the date of this Motion, the Sale is anticipated to close in the coming days. 6. On February 14, 2021, pursuant to Section 2.6(c) of the Stalking Horse Purchase Agreement and the Sale Order, the Buyer delivered a notice to the Debtors identifying the Rejected Contracts (as defined below) as contracts and leases that the Buyer does not intend to have assigned to it in connection with the Sale.

Page 4

7. Additional information regarding the Debtors’ business and operations, as well as the events precipitating the commencement of these chapter 11 cases, is set forth in the Declaration of Brian Gleason in Support of the Debtors’ Chapter 11 Petitions and Requests for First Day Relief (the “First Day Declaration”), filed on the Petition Date. Executory Contracts and Unexpired Leases to Be Rejected 8. The Debtors seek to reject the executory contracts and unexpired leases of nonresidential real property set forth on Annex 1 to the Proposed Order (the “Rejected Contracts”) as of the Rejection Date. As noted above, the Buyer notified the Debtors that it does not intend to have the Rejected Contracts assigned to it in connection with the Sale. Because all of the Debtors’ ongoing business operations are being sold to the Buyer in connection with the Sale, the Debtors have no need for the Rejected Contracts. 9. The Rejected Contracts generally fall into two categories: (i) vendor, supplier, and service contracts or (ii) nonresidential real property leases. a. Vendor, Supplier, and Service Contracts. The Debtors no longer require the goods and/or services provided under vendor, supplier, and service contracts that are Rejected Contracts. The Debtors have stopped performing on those contracts and have stopped accepting performance from the applicable counterparty to those contracts. b. Nonresidential Real Property Leases. With respect to any Rejected Contracts that are unexpired leases of nonresidential real property, the Debtors, having run a robust sale process, have determined that such leases are unlikely to provide value to the estates if they were separately marketed. The Debtors will vacate the

Page 5

premises covered by those leases, and surrender possession to the applicable landlords, by the Rejection Date. 10. Accordingly, the Debtors believe that the Rejected Contracts should be rejected, effective as of the Rejection Date, in order to avoid potentially incurring additional expenses related to agreements that provide no material benefit to the Debtors and their estates. Personal Property to Be Abandoned 11. To the extent feasible, the Debtors will remove all desired Personal Property from the Premises identified on Annex 1 by the Rejection Date. As to any Personal Property remains at the Premises as of the Rejection Date, the Debtors have determined that the potential economic benefits of removing and storing any such Personal Property for future use, marketing, or sale would be outweighed by the attendant costs. 12. Therefore, to avoid the incurrence of potential postpetition administrative costs and in the exercise of the Debtors’ sound business judgment, the Debtors believe that the abandonment of Personal Property that may be located at each of the Premises on the Rejection Date is appropriate and in the best interests of the Debtors, their estates, and their creditors. Relief Requested 13. By this Motion, the Debtors request entry of the Proposed Order (i) authorizing the Debtor to (a) reject the Rejected Contracts, each effective as of the Rejection Date and (b) abandon Personal Property that may be located at the Premises on the Rejection Date and (ii) granting related relief. A. Rejection of Each of the Rejected Contracts is a Reasonable Exercise of the Debtors’ Business Judgment. 14. Section 365(a) of the Bankruptcy Code provides that a debtor in possession, “subject to the court’s approval, may . . . reject any executory contract or unexpired lease of the

Page 6

debtor.” 11 U.S.C. § 365(a); see also id. § 365(d)(2). “This provision allows a [debtor in possession] to relieve the bankruptcy estate of burdensome agreements which have not been completely performed.” L.R.S.C. Co. v. Rickel Home Ctrs., Inc. (In re Rickel Home Ctrs., Inc.), 209 F.3d 291, 298 (3d Cir. 2000) (quoting Stewart Title Guar. Co. v. Old Republic Nat’l Title Ins. Co., 83 F.3d 735, 741 (5th Cir. 1996)); see also Nat’l Labor Relations Bd. v. Bildisco & Bildisco (In re Bildisco), 465 U.S. 513, 528 (1984) (“[T]he authority to reject an executory contract is vital to the basic purpose to a Chapter 11 reorganization, because rejection can release the debtor’s estate from burdensome obligations that can impede a successful reorganization.”), aff’d, 465 U.S. 513 (1984); In re Exide Techs., 607 F.3d 957, 967 (3d Cir. 2010) (“Courts may use § 365 to free a [debtor] from burdensome duties that hinder its reorganization”); Orion Pictures Corp. v. Showtime Networks (In re Orion Pictures Corp.), 4 F.3d 1095, 1098 (2d Cir. 1993) (“The purpose behind allowing . . . rejection of executory contracts is to permit the trustee or debtor-in-possession . . . to ‘renounce title to and abandon burdensome property.’” (quoting 2 COLLIER ON BANKRUPTCY ¶ 365.01[1] (15th ed. 1993))). 15. A debtor’s rejection of an executory contract is governed by the “business judgment” standard, which requires a debtor to have determined that the requested assumption or rejection would be beneficial to its estate. In re Bildisco, 682 F.2d at 79 (“The usual test for rejection of an executory contract is simply whether rejection would benefit the estate, the ‘business judgment’ test.”); accord In re HQ Glob. Holdings, Inc., 290 B.R. 507, 511 (Bankr. D. Del. 2003). The business judgment standard requires that the bankruptcy court approve a debtor’s business decision unless it is shown to be so manifestly unreasonable that the decision could be based only on bad faith, whim, or caprice. See Lubrizol Enters., Inc. v. Richmond Metal Finishes, 756 F.2d 1043, 1047 (4th Cir. 1985) (“Transposed to the bankruptcy context, the [business

Page 7

judgment] rule as applied to a bankrupt’s decision to reject an executory contract because of perceived business advantage requires that the decision be accepted by courts unless it is shown that the bankrupt’s decision was one taken in bad faith or in gross abuse of the bankrupt’s retained business discretion.”); In re Trans World Airlines, Inc., 261 B.R. 103, 121 (Bankr. D. Del. 2001) (“A debtor’s decision to reject an executory contract must be summarily affirmed unless it is the product of ‘bad faith, or whim or caprice.’” (quoting Wheeling-Pittsburgh Steel Corp. v. W. Penn Power Co. (In re Wheeling-Pittsburgh Steel Corp.), 72 B.R. 845, 849-50 (Bankr. W.D. Pa. 1987))); In re Summit Land Co., 13 B.R. 310, 315-16 (Bankr. D. Utah 1981) (holding that absent extraordinary circumstances, court approval of a debtor’s decision to assume or reject an executory contract “should be granted as a matter of course”). 16. The Debtors, exercising sound business judgment, believe that rejection of the Rejected Contracts is in the best interest of their estates and creditors. Absent rejection, the Rejected Contracts could impose ongoing obligations on the Debtors and their estates that constitute an unnecessary drain of the Debtors’ limited resources compared to any benefits associated therewith. Indeed, the Debtors believe that rejecting the Rejected Contracts will result in meaningful savings to their estates. Accordingly, to avoid incurring unnecessary and burdensome, potentially administrative expense claims with respect to the Rejected Contracts, the Debtors seek to reject the Rejected Contracts. The Debtors respectfully represent that rejecting the Rejected Contracts is appropriate under the circumstances and reflects the Debtors’ reasonable business judgment. B. Abandonment of Personal Property Is Appropriate. 17. The abandonment of any Personal Property remaining at the Premises is appropriate and authorized by the Bankruptcy Code. Section 554(a) of the Bankruptcy Code provides that

Page 8

“[a]fter notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.” 11 U.S.C. § 554(a). 18. Courts generally defer to a debtor in possession with respect to its decision to abandon property. See, e.g., In re Vel Rey Props., Inc., 174 B.R. 859, 867 (Bankr. D.D.C. 1994) (“Clearly, the court should give deference to the trustee’s judgment in such matters.”). Unless certain property is harmful to the public, once a debtor has shown that it is burdensome or of inconsequential value to the estate, a court should approve the abandonment. Id. 19. In arriving at the decision to abandon any Personal Property remaining at the Premises covered by leases that are Rejected Contracts, the Debtors determined that the costs of moving and storing such Personal Property outweigh any benefit such Personal Property may provide to the Debtors’ estates. Moreover, the Debtors determined that efforts to move or market the Personal Property would not only be cost prohibitive but would also unnecessarily delay the Debtors’ surrender of the Premises. Accordingly, it is in the best interests of the Debtors and their estates for the Debtors to abandon Personal Property located on the Premises on the Rejection Date. C. Retroactive Rejection Is Appropriate. 20. To avoid potentially incurring unnecessary administrative expenses, the Debtors seek to reject the Rejected Contracts effective as of the Rejection Date. Courts in this district and elsewhere recognize that retroactive rejection is appropriate where the balance of equities favors such relief. See In re Chi-Chi’s, Inc., 305 B.R. 396, 399 (Bankr. D. Del. 2004) (acknowledging that a bankruptcy court may approve a rejection retroactive to the date the motion is filed after balancing the equities in the particular case); In re Fleming Cos., 304 B.R. 85, 96 (Bankr. D. Del. 2003) (stating that rejection has been allowed nunc pro tunc to the date of the motion or the date the premises were surrendered); see also Thinking Machs. Corp. v. Mellon Fin. Servs. Corp. (In

Page 9

re Thinking Machs. Corp.), 67 F.3d 1021, 1028 (1st Cir. 1995) (finding that, in the context of rejections of executory contracts, “bankruptcy courts may enter retroactive orders of approval, and should do so when the balance of equities preponderates in favor of such remediation”). 21. In the instant matter, the balance of the equities favors retroactive rejection of the Rejected Contracts to the Rejection Date. The Debtors have reviewed and analyzed the Rejected Contracts, including the contractual obligations therein, and have determined that the Rejected Contracts are no longer necessary, do not provide significant benefits to the estates, and their rejection would eliminate potential unnecessary expenses. As set forth herein, the Debtors provided adequate notice to the applicable counterparties to the Rejected Contracts that the Rejected Contracts were subject to assumption and assignment to the Buyer or rejection in connection with the Sale. Moreover, with respect to those Rejected Contracts that are unexpired leases of nonresidential real property, the Debtors will vacate and otherwise relinquish control over the applicable premises by the Rejection Date. Furthermore, the Debtors intend to serve this Motion on the counterparties to the Rejected Contracts by the Rejection Date, thereby notifying them that should the Court grant the relief requested herein the Rejected Contracts will be rejected as of the Rejection Date. Accordingly, the Debtors respectfully request that the Court deem the Rejected Contracts rejected effective as of the Rejection Date. COMPLIANCE WITH BANKRUPTCY RULE 6006(f) 22. Bankruptcy Rule 6006(f) establishes requirements for a motion to reject multiple executory contracts or unexpired leases that are not each between the same parties. 23. Bankruptcy Rule 6006(f) states, in relevant part, that such a motion shall: (1) state in a conspicuous place that parties receiving the omnibus motion should locate their names and their contracts or leases listed in the motion; (2) list parties alphabetically and identify the corresponding contract or lease;

Page 10

. . . (5) be numbered consecutively with other omnibus motions to assume, assign, or reject executory contracts or unexpired leases; and (6) be limited to no more than 100 executory contracts or unexpired leases. FED. R. BANKR. P. 6006(f). 24. The Debtors respectfully submit that the relief requested in this Motion complies with the requirements of Bankruptcy Rule 6006(f). Reservation of Rights 25. Nothing contained herein is intended or shall be construed as (a) an admission as to the validity of any claim against the Debtors, (b) a waiver of the Debtors’ or any appropriate party in interest’s rights to dispute the amount of, basis for or validity of any claim against the Debtors, (c) a waiver of any claims or causes of action which may exist against any creditor or interest holder, (d) an approval, assumption, adoption or rejection of any other agreement, contract, lease, program and policy between the Debtors and any third party under section 365 of the Bankruptcy Code, or (e) a waiver of the Debtors’ rights under the Bankruptcy Code or any other applicable law. The Debtors expressly reserve and preserve their rights to contest any claim related to the relief sought herein, and to assume, assign, or reject any other lease or executory contract. Notice 26. Notice of this Motion has been given to the following parties or, in lieu thereof, to their counsel, if known: (a) the Office of the United States Trustee for the District of Delaware; (b) the Debtors’ prepetition and postpetition lenders and administrative and collateral agent; (c) counsel to the official committee of unsecured claims appointed in these cases; (d) counterparties to the Rejected Contracts listed in Annex 1 of the Proposed Order; (e) any known party holding or asserting a lien on the Personal Property at the Premises covered by any Rejected Contract; and

Page 11

(f) any party that has requested notice pursuant to Bankruptcy Rule 2002. The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given. No Prior Request 27. No prior request for the relief sought in this Motion has been made to this or any other court. [Remainder of page intentionally left blank]

Page 12

Conclusion WHEREFORE, the Debtors respectfully request that this Court enter an order granting the relief requested herein and granting such other and further relief as is just and proper. Dated: February 17, 2021 GREENBERG TRAURIG, LLP /s/ Dennis A. Meloro Dennis A. Meloro (DE Bar No. 4435) 1007 North Orange Street, Suite 1200 Wilmington, Delaware 19801 Telephone: (302) 661-7000 Facsimile (302) 661-7360 Email: melorod@gtlaw.com -and- Nancy A. Peterman (admitted pro hac vice) Eric Howe (admitted pro hac vice) Nicholas E. Ballen (admitted pro hac vice) 77 West Wacker Dr., Suite 3100 Chicago, Illinois 60601 Telephone: (312) 456-8400 Facsimile: (312) 456-8435 Email: petermann@gtlaw.com howee@gtlaw.com ballenn@gtlaw.com Counsel for the Debtors and Debtors in Possession