HTML Document View

Full title: Motion to Reject Lease or Executory Contract Fifth Omnibus Motion of Debtors for Entry of an Order (I) Authorizing Debtors to Reject Certain Executory Contracts and Unexpired Leases of Personal Property Effective as of the Rejection Date and (II) Granting Related Relief Filed by YouFit Health Clubs, LLC. Hearing scheduled for 5/25/2021 at 01:00 PM at US Bankruptcy Court, 824 Market St., 5th Fl., Courtroom #4, Wilmington, Delaware. Objections due by 5/18/2021. (Attachments: # 1 Exhibit A - Proposed Order # 2 Notice) (Meloro, Dennis) (Entered: 05/04/2021)

Document posted on May 3, 2021 in the bankruptcy, 10 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 reject certain executory contracts and unexpired leases of personal property effective as of the date set forth in Annex 1 to the Proposed Order (the “Rejection Date”) and (ii) granting related relief.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.[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”).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”).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.

List of Tables

Document Contents

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: May 18, 2021 at 4:00 p.m. (ET) Hearing Date: May 25, 2021 at 1:00 p.m. (ET) FIFTH OMNIBUS MOTION OF DEBTORS FOR ENTRY OF AN ORDER (I) AUTHORIZING DEBTORS TO REJECT CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES OF PERSONAL PROPERTY EFFECTIVE AS OF THE REJECTION DATE AND (II) GRANTING RELATED RELIEF PARTIES RECEIVING THIS MOTION SHOULD LOCATE THEIR NAMES AND THEIR CONTRACT(S) 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 reject certain executory contracts and unexpired leases of personal property effective as of the date set forth in Annex 1 to the Proposed Order (the “Rejection Date”) and (ii) granting related relief. In support of this Motion, the Debtors respectfully state as follows: 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.

1

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 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

2

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”). The Sale closed on February 18, 2021. 6. The Rejected Contracts (as defined below) were not originally identified as assumed agreements under the Stalking Horse Purchase Agreement. The Buyer has indicated that it does not intend to have the Rejected Contracts assigned to it in connection with the Sale and that it has no objection to rejection. As the Debtors are no longer operating a business, the Debtors have no need to for the Rejected Contracts. 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

3

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 to Be Rejected 8. The Debtors seek to reject the executory contracts and unexpired leases set forth on Annex 1 to the Proposed Order (the “Rejected Contracts”) as of the Rejection Date. As noted above, the Rejected Contracts have not been designated for assignment to the Buyer in connection with the Sale. As all of the Debtors’ ongoing business operations have been sold to the Buyer in connection with the Sale, the Debtors have no need for the Rejected Contracts. The Rejected Contracts are vendor contracts and leases relating to the placement and use of certain business equipment by the Debtors in their fitness clubs. The Debtors have stopped performing on the Rejected Contracts, have notified the counterparties of the Debtors’ intent to rejected the Rejected Contracts, have stopped accepting performance from the counterparties to the Rejected Contracts, and have caused the business equipment covered by the Rejected Contract to be returned or made available for return to such counterparties. 9. 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. Relief Requested 10. By this Motion, the Debtors request entry of the Proposed Order (i) authorizing the Debtor to reject the Rejected Contracts effective as of the Rejection Date and (ii) granting related relief.

4

A. Rejection of Each of the Rejected Contracts is a Reasonable Exercise of the Debtors’ Business Judgment. 11. 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 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))). 12. 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

5

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 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”). 13. 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. 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.

6

B. Retroactive Rejection Is Appropriate. 14. 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 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”). 15. 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, that they do not provide any benefit to the estates, and that 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. 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.

7

COMPLIANCE WITH BANKRUPTCY RULE 6006(f) 16. 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. 17. 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; . . . (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). 18. The Debtors respectfully submit that the relief requested in this Motion complies with the requirements of Bankruptcy Rule 6006(f). Reservation of Rights 19. 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.

8

Notice 20. 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; and (e) 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 21. No prior request for the relief sought in this Motion has been made to this or any other court. 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. [Signature Page Follows]

9

Dated: May 4, 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

10