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Full title: Reply Debtors' Omnibus Response in Support of Motion to Dismiss (related document(s)929, 940, 945) Filed by YouFit Health Clubs, LLC (Meloro, Dennis) (Entered: 06/18/2021)

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

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[Docket No. 929] (the “Motion”)2 and in response to (i) Maricopa County Treasurer’s Response and Objection to Motion of the Debtors for Entry of an Order (A) Dismissing the Chapter 11 Cases, and (B) Granting With respect to the Debtors’ assets located in the jurisdictions set forth below (collectively, the “Tax Authorities”), to the extent an Acquired Asset, the property shall be conveyed subject to existing senior liens for unpaid ad valorem taxes of the respective Tax Authorities for the 2020 calendar year in the maximum principal amounts set forth below for each Tax Authority, which liens shall be Permitted Liens and to the extent a Liability, such Liabilities shall not be Excluded Liabilities, in each case subject to the resolution of any objections (as discussed below), as follows: 4 Further, should the property subject to the tax liens be conveyed as an Acquired Asset to the Purchaser on or after January 1, 2021, such property shall be conveyed subject to existing senior liens for unpaid ad valorem taxes of the respective Tax Authorities for the 2021 calendar year which liens shall also be Permitted Liens and, to the extent Liabilities, such taxes shall not be Excluded Liabilities, in each case subject to the resolution of any objections (as discussed below).The claims and liens of any Tax Authority shall remain subject to any objections made by any party (including the Debtors and the Buyer) who would otherwise be entitled to raise any objection as to, among other things, the claim amount or the priority, validity, or extent of such liens.761-1] under the Debtors’ DIP financing facility has never permitted payment of personal property taxes; and the Debtors have determined that there is no other viable means in the Chapter 11 Cases, including the Proposed Plan, to satisfy such claims.

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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) DEBTORS’ OMNIBUS RESPONSE IN SUPPORT OF MOTION TO DISMISS The above-captioned debtors and debtors in possession (the “Debtors”) hereby file this omnibus response (this “Response”) in support of the Motion of the Debtors for Entry of an Order (A) Dismissing the Chapter 11 Cases, and (B) Granting Related Relief [Docket No. 929] (the “Motion”)2 and in response to (i) Maricopa County Treasurer’s Response and Objection to Motion of the Debtors for Entry of an Order (A) Dismissing the Chapter 11 Cases, and (B) Granting Related Relief [Docket No. 940] (the “Maricopa Objection”) filed by the Maricopa County Treasurer (“MCT”) and (ii) the late-filed objection (the “Fish Window Cleaning Objection” and, together with the Maricopa Objection, the “Objections”) of Preston’s Genuine Enterprises LLC, DBA Window Cleaning of Tallahassee (“Fish Window Cleaning”). In support of this Response and the Motion, the Debtors state follows: 1. The Debtors have demonstrated that cause exists to dismiss these Chapter 11 Cases and that dismissal is in the best interests of the Debtors’ estates and creditors. Neither 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, 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 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. 2 Capitalized terms used but not otherwise defined herein shall have the same meanings ascribed to them in the Motion.

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Objection disputes this; and none of the other arguments in the Objections warrant denial of the requested relief. Accordingly, the Objections should be overruled and the Motion granted. A. Maricopa Objection 2. MCT asserts a prepetition priority claim for 2020 personal property taxes in the amount of $29,574.98. It also asserts an administrative claim for 2021 personal property taxes in an unknown amount that it alleges accrued on January 1, 2021 but is not due until late 2021 and early 2022. MCT asserts that these claims are secured by liens in certain personal property. MCT does not, however, appear to argue that the Debtors fail to meet the standards for dismissal of the Chapter 11 Cases. Instead, MCT asserts that the Debtors or the Buyers should pay MCT’s asserted claims prior to transferring the Debtors’ remaining cash to the Buyer. As set forth below, the Debtors should not be required to pay the property tax claims as a prerequisite to transferring remaining cash to the Buyer or dismissing the Chapter 11 Cases. 3. First, because the Debtors’ Cash, other than Excluded Cash, is an Acquired Asset purchased by the Buyer,3 it is appropriate for the Debtors to transfer such Cash to the Buyer. Indeed, paragraph 20 of the Sale Order requires the Debtor to transfer to the Buyer all Cash other than Excluded Cash. Moreover, MCT does not have an interest in the Debtors’ cash. Personal property taxes were assessed on equipment and similar personal property located in the Debtors’ gyms in Maricopa County. Under Arizona law, “a tax that is levied on . . . personal property is a lien on the assessed property.” A.R.S. § 42-17153(A). MCT’s lien, therefore, does not extend to the Debtors’ cash. 3 Under section 2.1(o) of the Stalking Horse Purchase Agreement [Docket No. 84-1], the Acquired Assets include “all Cash of any [Debtor] other than Excluded Cash.” Excluded Cash is defined as “the portion of funds provided in connection with debtor-in-possession financing specifically allocated for the wind-down of the [Debtors] or otherwise specifically allocated to the [Debtors] to cover an Excluded Liability, if any, and the costs of any post-Closing obligations provided for in this Agreement and any Transition Services Agreement.”

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4. Second, MCT’s liens on the Debtors’ property have been preserved in these Chapter 11 Cases. In each of the orders authorizing the Debtors to reject leases and abandon related personal property, such abandonment was expressly subject to taxing authorities’ liens.4 Similarly, the order [Docket No. 569] establishing procedures for and authorizing the Debtors to sell de minimis assets required the Debtors to use sale proceeds to pay off any liens on the applicable de minimis assets. Indeed, on December 30, 2020, the Debtors filed a notice [Docket No. 584] of a sale of de minimis assets located in Maricopa County, and on January 12, 2021, the Court entered an order [Docket No. 639] approving the sale. As required by the order, the Debtors transferred a portion of the sale proceeds to MCT to pay the personal property taxes related to the applicable de minimis assets, which payment was confirmed by counsel to MCT. 5. The Sale Order approving the sale of substantially all of the Debtors’ assets to the Buyer also expressly preserved MCT’s rights with respect to both 2020 and 2021 taxes. Paragraph 39 of the Sale Order provides in full: With respect to the Debtors’ assets located in the jurisdictions set forth below (collectively, the “Tax Authorities”), to the extent an Acquired Asset, the property shall be conveyed subject to existing senior liens for unpaid ad valorem taxes of the respective Tax Authorities for the 2020 calendar year in the maximum principal amounts set forth below for each Tax Authority, which liens shall be Permitted Liens and to the extent a Liability, such Liabilities shall not be Excluded Liabilities, in each case subject to the resolution of any objections (as discussed below), as follows: 4 See, e.g., Second Omnibus 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 ¶ 3 [Docket No. 663] (“[T]he Debtors are authorized to abandon any Personal Property located at the Premises . . . free and clear of all liens, claims, interests and encumbrances, other than any liens, claims, interests or encumbrances held by taxing authorities on account of personal property taxes, and all such Personal Property is deemed abandoned as of the Rejection Date. Subject to any liens, claims, interests or encumbrances held by taxing authorities on account of personal property taxes, the applicable counterparty to . . . a Rejected Contract may utilize or dispose of such Personal Property without liability or notice to any third parties.” (emphasis added)); Third Omnibus 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 ¶ 3 [Docket No. 780] (same).

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• Maricopa County, in a principal amount not to exceed $ 29,574.98; • Denton County, in a principal amount not to exceed $1,068.84; • Broward County, in a principal amount not to exceed $ 105,312.63; • Harris County, in a principal amount not to exceed $13,395.98; • Dallas County, in a principal amount not to exceed $ 23,188.56; • Lewisville ISD, in a principal amount not to exceed $ 6,400.62; and • Tarrant County, in a principal amount not to exceed $ 5,579.54. Further, should the property subject to the tax liens be conveyed as an Acquired Asset to the Purchaser on or after January 1, 2021, such property shall be conveyed subject to existing senior liens for unpaid ad valorem taxes of the respective Tax Authorities for the 2021 calendar year which liens shall also be Permitted Liens and, to the extent Liabilities, such taxes shall not be Excluded Liabilities, in each case subject to the resolution of any objections (as discussed below). The foregoing 2020 tax amounts do not constitute an allowance of the claims of the Tax Authorities or of the amounts such Tax Authorities may be entitled to receive. The claims and liens of any Tax Authority shall remain subject to any objections made by any party (including the Debtors and the Buyer) who would otherwise be entitled to raise any objection as to, among other things, the claim amount or the priority, validity, or extent of such liens. Further, in the event such taxes are not paid timely pursuant to applicable non-bankruptcy law, the Tax Authorities may proceed to collect all amounts owed pursuant to their state law remedies, without further order or recourse to this Court, subject to the respective rights and defenses of the Debtors and Buyer. 6. Thus, to the extent MCT had a senior lien in any Acquired Assets, those assets were transferred to the Buyer subject to MCT liens, and the liabilities related to such liens were not Excluded Liabilities. 7. Importantly, nothing in the Motion seeks to alter, impair, or otherwise prejudice the rights of MCT under the Sale Order (or any other orders entered in the Chapter 11 Cases). Nor does MCT identify how dismissal would prejudice its rights, including its rights under the Sale Order. The Debtors respectfully submit that dismissal would not prejudice MCT, particularly given paragraph 6 of the Debtors’ proposed order, which would make clear that all previous orders entered in the Chapter 11 Cases, including the Sale Order, remain in full force and effect.

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8. Finally, to the extent the Maricopa Objection implies that the Chapter 11 Cases cannot be dismissed while MCT’s claims remain unpaid, as noted in the Motion, the Debtors determined that confirmation of the Proposed Plan would not be feasible precisely because of the amount of prepetition priority claims, like MCT’s claims, that would need to be paid under the Proposed Plan.5 The Approved DIP Budget [Docket No. 761-1] under the Debtors’ DIP financing facility has never permitted payment of personal property taxes; and the Debtors have determined that there is no other viable means in the Chapter 11 Cases, including the Proposed Plan, to satisfy such claims. Accordingly, rather than a reason not to dismiss the Chapter 11 Cases, the inability to satisfy MCT and similar claims actually supplies cause for dismissal. See, e.g., In re Horned Dorset Primavera, Inc., 606 B.R. 117, 155 (Bankr. P.R. 2019) (finding cause exists for dismissal based, in part, on debtor’s likely inability to satisfy priority claims); In re Motorworks, Inc., 85 B.R. 661, 662 (Bankr. S.D. Ga. 1988) (explaining that inability to pay certain claims cannot be both cause for dismissal and cause not to dismiss). 9. Accordingly, and for each of the above reasons, the Maricopa Objection should be overruled. B. Fish Window Cleaning Objection 10. In its objection, Fish Window Cleaning asserts what appears to be a general unsecured claim in the amount of $106.44 for window cleaning services and appears to argue that Fish Window Cleaning will suffer undue financial hardship if the Motion is granted. As noted above, the inability to satisfy prepetition claims supports dismissal of a chapter 11 case. 5 As noted above, in addition to a prepetition priority claim for 2020 personal property taxes, MCT also asserts an administrative claim for 2021 taxes that it alleges accrued on January 1, 2021. First, those taxes are not yet due; they are paid in installments at the end of 2021 and beginning of 2022. Second, the Debtors only had two locations in Maricopa County that were open as of January 1, 2021, and both were transferred to the Buyer in connection with the Sale. Thus, with respect to any administrative claim for 2021 taxes, MCT should be fully protected by paragraph 39 of the Sale Order.

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The Debtors have no ability to pay this prepetition general unsecured claim and have no assets that can be administered and liquidated to pay this claim. The Debtors, therefore, respectfully request the Court overrule the Fish Window Cleaning Objection. C. The Debtors Have Met the Standards for Dismissal 11. Pursuant to section 1112(b)(1) of the Bankruptcy Code, a court shall dismiss a bankruptcy case for cause. See, e.g., In re SCO Grp., Inc., Case No. 07-11337, 2009 Bankr. LEXIS 4731, at *14 (Bankr. D. Del. Aug. 5, 2009) (“Section 1112(b) is clear that the Court must dismiss or convert the Debtors’ case if Movants establish ‘cause’ which is defined in Section 1112(b)(4).” (internal citations omitted)). 12. Cause exists, among other circumstances, where the party seeking dismissal shows that there is a “substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation.” 11 U.S.C. § 1112(b)(4)(A). To demonstrate a continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation, the movant, on a motion to dismiss, must establish that: (i) there has been a diminution of the value of the estate, and (ii) the debtor does not have a “reasonable likelihood of rehabilitation.” In re Citi-Toledo Partners, 170 B.R. 602, 606 (Bankr. N.D. Ohio 1994). 13. As is more fully set forth in the Motion, the Debtors have demonstrated both a diminution of the value of the estates in these chapter 11 cases, as the Debtors have sold all of their assets in connection with the Sale, and the lack of a reasonable likelihood of rehabilitation for the Debtors, as there is no longer any business to reorganize in these chapter 11 cases. Moreover, despite the Debtors’ having made every effort to confirm and effectuate the Proposed Plan, the Proposed Plan is no longer a viable path forward in light of the Debtors’ limited resources. See 11 U.S.C. § 1112(b)(4)(M).

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14. Once cause is shown, a showing which the Objections do not contest, the court must consider whether dismissal is in the best interests of the estates. See, e.g., Rollex Corp. v. Associated Materials (In re Superior Siding & Window), 14 F.3d 240, 242 (4th Cir. 1994). The best interests test for dismissal can be met under a number of circumstances, including where a debtor has nothing left to reorganize, see, e.g., Camden Ordinance Mfg. Co. of Ark., Inc. v. U.S. Tr. (In re Camden Ordinance Mfg. Co. of Ark., Inc.), 245 B.R. 794, 799 (E.D. Pa. 2000), where a non-debtor party in interest agrees that dismissal is the proper disposition of a case, see, e.g., id. at 798, and where conversion to a chapter 7 would not serve the interests of the estates or their creditors as there are no remaining assets to liquidate. See, e.g., Rand v. Porsche Fin. Servs. (In re Rand), BAP No. AZ-10-1160, 2010 Bankr. LEXIS 5076, at *31 (9th Cir. B.A.P. Dec. 7, 2010). For the reasons set forth in the Motion, and not contested or challenged by the Objections, all three of the foregoing circumstances are present in these Chapter 11 Cases. 15. Accordingly, because the Debtors have shown cause to dismiss and established that dismissal is in the best interests of the estates and their creditors, and because nothing in the Objections contest or even discuss the foregoing analysis, the Objections should be overruled and the Motion granted. WHEREFORE, the Debtors respectfully request that the Court overrule the Objections and grant the relief requested in the Motion. [Signature Page Follows]

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Dated: June 18, 2021 Respectfully submitted, Wilmington, Delaware GREENBERG TRAURIG, LLP /s/ Dennis A. Meloro Dennis A. Meloro (DE Bar No. 4435) The Nemours Building 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

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