FILED: NEW YORK COUNTY CLERK 06/22/ :41 AM INDEX NO /2017 NYSCEF DOC. NO. 14 RECEIVED NYSCEF: 06/22/2017

Transcription

1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X EATON VANCE MANAGEMENT, et al., ) ) Plaintiffs, ) Index No. ) -against- ) ) WILMINGTON SAVINGS FUND SOCIETY, FSB, ) as ADMINISTRATIVE AGENT and COLLATERAL ) AGENT, et al., ) ) Defendants. ) X PLAINTIFFS MEMORANDUM OF LAW IN SUPPORT OF THE PROPOSED ORDER TO SHOW CAUSE FOR ENTRY OF A TEMPORARY RESTRAINING ORDER AND FOR A PRELIMINARY INJUNCTION BROWN RUDNICK LLP Sigmund S. Wissner-Gross Robert Stark Seven Times Square New York, New York Counsel for Plaintiffs 1 of 27

2 TABLE OF CONTENTS Page TABLE OF AUTHORITIES... ii PRELIMINARY STATEMENT...1 STATEMENT OF FACTS...3 ARGUMENT...7 I. Plaintiffs Have Standing to Bring this Action....7 II. Plaintiffs Satisfy the Requirements for a Temporary Restraining Order...7 A. A TRO Is Necessary to Preserve the Status Quo...8 B. Plaintiffs Are Likely To Succeed On Their Claims For Violation of the Term Loan Agreement C. Fraudulent Conveyance Claims III. Plaintiffs Will Suffer Irreparable Harm IV. Balance of the Equities Weighs in Favor of Granting an Injunction V. Plaintiffs are Entitled to Expedited Discovery for the Preliminary Injunction...18 CONCLUSION...19 i 2 of 27

3 TABLE OF AUTHORITIES Page(s) Cases Am. Insured Mortg. Investors v. CRI, Inc., Nos. 90 Civ (MBM), (MBM), 1990 WL (S.D.N.Y. Nov. 26, 1990)...14, 17 Barbes Rest. Inc. v. ASRR Suzer 218, LLC, 140 A.D.3d 420, 33 N.Y.S.3d 43 (1st Dep t 2016)...7, 17 Bel Geddes v. Zeiderman, 228 A.D.2d 393, 644 N.Y.S.2d 729 (1st Dep t 1996)...19 Bell & Co., P.C. v. Rosen, 114 A.D.3d 411 (1st Dep t 2014)...17 Brenntag Int l Chemicals, Inc. v. Bank of India, 175 F.3d 245 (2d Cir. 1999)...16 Cruden v. Bank of N.Y., 957 F.2d 961 (2d Cir. 1992)...7 Cypress Assocs., LLC v. Sunnyside Cogeneration Assocs. Project, No. Civ. A N, 2006 WL (Del. Ch. Mar. 8, 2006)...7 Ettlinger v. Persian Rug & Carpet Co., 142 NY. 189 (1894)...7 Flight Options Int l, Inc. v. Flight Options, LLC, No N, 2005 WL (Del Ch. July 11, 2005)...15 Greenlight Capital, L.P. v. Apple, Inc., Nos. 13 Civ. 900(RJS), 13 Civ. 976(RJS), 2013 WL (S.D.N.Y. Feb. 22, 2013)...14, 17 Greenwich Capital Fin. Prods., Inc. v. Negrin, 903 N.Y.S.2d 346 (1st Dep t 2010)...11 HFTP Investments, LLC v. Grupo TMM, S.A., No /2003, 2004 WL (N.Y. Sup. Ct. June 4, 2004)...12 Jacobowitz v. Jacobowitz, 798 N.Y.S.2d 710 (Sup. Ct. Kings Cnty. 2004)...8 ii 3 of 27

4 Kalisch-Jarcho, Inc. v. City of N.Y., 72 N.Y.2d 727, 533N.E.2d 258 (1988)...10 M&A Oasis, Inc. v. MTM Assocs., L.P., 307 A.D.2d 872, 764 N.Y.S.2d 9 (1st Dep t 2003)...16 Madden Int l, Ltd. v. Lew Footwear Holdings Pty Ltd., 36 N.Y.S.3d 48 (Sup. Ct. 2016)...14 Maiorino v. City of N.Y., 39 A.D.3d 601, 834 N.Y.S.2d 272 (2d Dep t 2007)...18 Mayer v. Mayer, 2005 WL (N.Y. Sup. Ct. Dec. 13, 2005)...18 Mr. Natural, Inc. v. Unadulterated Food Prods., Inc., 152 A.D.2d 729, 544 N.Y.S.2d 182 (2d Dep t 1989)...9 Oracle Real Estate Holdings I LLC v. Adrian Holdings Co. I, LLC, 582 F. Supp. 2d 616 (S.D.N.Y. 2008)...15 Orange Cty. Legislature v. Diana, 40 Misc.3d 278, 968 N.Y.S.2d 319 (Sup. Ct. Orange Cnty. 2013)...10 Silvestre v. De Loaiza, 12 Misc. 3d 492 (Sup. Ct. N.Y. Cnty. 2006)...18 Telcom-SNI Investors, L.L.C. v. Sorrento Networks, Inc., 2011 WL (Del. Ch. Sept. 7, 2001), aff d, 790 A.2d 477 (Del. 2002)...15 In re Topps Co., Inc. S holder Litig., No /07, 2007 WL (N.Y. Sup. Ct. June 8, 2007)...19 U.S. Ice Cream Corp. v. Carvel Corp., 136 A.D.2d 626, 523 N.Y.S.2d 869 (2d Dep t 1988)...9 West 120th Realty Corp. v. Cont l Capital Grp. LLC, /05, 2005 WL (Sup. Ct. N.Y. Cnty. Oct. 24, 2005)...8, 11 Statutes New York Debtor & Creditor Law 270, et seq Other Authorities 22 NYCRR (c)...18 CPLR iii 4 of 27

5 CPLR 6301, 6311, and , 19 iv 5 of 27

6 Plaintiffs Eaton Vance Management and its affiliated funds ( Eaton Vance ), and Highland Capital Management LP and its affiliated funds ( Highland, and together with Eaton Vance, Plaintiffs ), respectfully submit this memorandum of law in support of Plaintiffs Proposed Order to Show Cause (the Order to Show Cause ). PRELIMINARY STATEMENT Plaintiffs, who are Lenders under J. Crew Company s Term Loan Agreement, seek a temporary restraining order barring Defendants, including the Administrative Agent retained to act on behalf of Plaintiffs, from amending the Term Loan Agreement to eliminate critical contract rights of Plaintiffs. Section 10.01(e) of the Term Loan Agreement provides that other than in a transaction permitted under sections 7.04 and 7.05 of the Term Loan Agreement, the written consent of each Term Lender is required for any amendment, waiver, or consent, that release[s] all or substantially all of the Collateral in any transaction or series of related transactions.... Despite explicit language in the Term Loan Agreement requiring unanimous consent of the Term Lenders in circumstances applicable here, J. Crew Company seeks to coerce other Lenders and force the Administrative Agent (whose role is and protect the interest of all Lenders) to execute, over Plaintiffs explicit objection, a purported amendment to the Term Loan Agreement in derogation of the limitations on amendment in the Term Loan Agreement. Disregarding this limitation on amendment of the Term Loan Agreement, J. Crew Company has proposed amendments to Sections 7.04 and 7.05, which a majority of the Term Lenders have now directed the Administrative Agent to execute. These proposed amendments ratify prior transfers of assets of borrowers and guarantors under the Term Loan Agreement (the Loan Parties ) that had been encumbered by liens of the Term Lenders and permit the 1 6 of 27

7 disposition of additional of intellectual property assets (the IP Assets ) that, aggregated, constitute all or substantially all the assets of the Loan Parties. The proposed Term Loan Agreement amendments also include a new provision, Section 10.25, whereby the Term Lenders ratify all of the illegal and improper actions taken by J. Crew Company which are the subject of an action for a declaratory judgment, J. Crew Group, Inc., et al. v. Wilmington Savings Fund Society, FSB, Index No /2017, brought preemptively by J. Crew Company against the Administrative Agent (the Agent Litigation ). Section requires the Term Lenders, including Plaintiffs, to waive all of J. Crew Company s defaults under the Term Loan Agreement and dismiss with prejudice the compelling counterclaims that were alleged by the Administrative Agent. Additionally, this section effectuates the release of the Term Lenders liens on the Trademark Collateral that remains the property of Loan Parties and ratifies the prior release of the liens Trademark Collateral that has already been (improperly) transferred by Loan Parties. According to J. Crew Company s public disclosures, the aforementioned amendments and the transactions that will result in the liens on the Term Lenders collateral can be implemented as soon as Friday, June 23, Plaintiffs accordingly seek a temporary restraining order pending a hearing on its motion for a preliminary injunction from this Court. Absent immediate injunctive relief, J. Crew Company may force the execution of the proposed Amendments, rush ahead with consummation of the disputed transactions all in order to make it difficult, if not practically impossible, to fully restore the parties to status quo upon a litigation of the issues that the subject of the Agent Litigation. The equities strongly favor enjoining J. Crew Company from proceeding with the proposed Amendments. The Loan Parties are insolvent. The proposed Amendments and 2 7 of 27

8 transactions are intended to and will release collateral representing substantially all of the value of the Loan Parties. This transfer of this value and the purported relinquishment of any claim to recover it will foreclose any remedy following the full and fair litigation of the issues before the Court in the Agent Litigation to which the Plaintiffs are entitled. The hardship Plaintiffs face significantly outweighs any conceivable prejudice to J. Crew Company from a short delay. Finally, as demonstrated herein, Plaintiffs are likely to succeed on the merits of their claims. STATEMENT OF FACTS 1 The facts, summarized below, relevant to this motion for a temporary restraining order and preliminary injunction are more fully set forth in the Plaintiffs Complaint, to which the Court is respectfully referred. J. Crew Group, Inc. ( J. Crew Group and, together with its wholly-owned subsidiaries, J. Crew Company ) are Loan Parties under the Amended and Restated Credit Agreement ( Term Loan Agreement ), dated March 5, 2014, among J. Crew Group, Chinos Intermediate Holdings B, Inc. ( Holdings B ), Wilmington Savings Fund Society, FSB ( WSFS ) as the successor Administrative Agent under the Term Loan Agreement and successor Collateral Agent under a certain Term Loan Security Agreement, and each lender from time to time party thereto. See Wissner-Gross Aff. Ex. B. Loans in excess of $1.5 billion are outstanding under the Term Loan Agreement. The J. Crew Company, a clothing retailing, has been operating at a loss, reports negative stockholder equity and is insolvent. In view of the poor financial performance of the J. Crew Company, the prospect it continuing as a large retail chain with multiple locations is in doubt. Its remaining value resides principally in J. Crew Group s brands and other intellectual property (the IP Collateral ). 1 All capitalized terms not defined herein have the same definition ascribed to them in the Complaint filed herewith. 3 8 of 27

9 Under the Security Agreement ( Term Loan Security Agreement ), dated March 7, 2011, among J. Crew Group, Holdings B, Inc., and the Subsidiary Guarantors (as defined in the Term Loan Agreement), the Term Lenders received a security interest in substantially all of the assets of J. Crew Group, Holdings B, and the Subsidiary Guarantors (which includes J. Crew International, Inc.), including the IP Collateral. Id. In 2013, an indirect parent company of J. Crew Group, Defendant Chinos Intermediate Holdings A, Inc. ( Holdings A ), issued the PIK Notes in order to fund a dividend to equity owners of the ultimate parent of the J. Crew Group. The PIK Notes mature and become due and payable on May 1, See Compl. 47. The PIK Notes are unsecured and the only material asset of by Holdings A is its indirect ownership interest in the insolvent J. Crew Company. Id. Neither the J. Crew Company nor its direct parent, Holdings B is obligated under the PIK Notes. J. Crew Company has nonetheless engaged in elaborate machinations designed to transfer the value of the IP Collateral from the Loan Parties to the Term Loan Agreement for use in a restructuring of the PIK Notes. Id. 6. These transactions include the transfer in the fourth quarter of 2016 by J. Crew International a Restricted Subsidiary of J. Crew Company and a guarantor of the Term Loan of an undivided 72.04% interest in domestic trademarks to a newly-formed entity. This undivided interest was then immediately retransferred until they ultimately it became the purported property of an indirect subsidiary of J. Crew Company, Domestic Brand, that is free from any restriction or obligation under the Term Loan Agreement. See Wissner-Gross Aff. Ex. A. In February 2017, J. Crew Group, among others, brought an action in this Court against WSFS, in its capacity as Administrative Agent, seeking a declaratory judgment that this series of transfers (the Value Transfers ) was permitted under the Term Loan Agreement and 4 9 of 27

10 accordingly, that they did not constitute a Default or Event of Default. See Wissner-Gross Aff. Ex. C. In response, WSFS asserted counterclaims seeking, inter alia, a declaration of the existence Events of Default arising from the Value Transfers. See Wissner-Gross Aff. Exs. D, F. 2 On June 12, 2017, J. Crew Group announced that it had entered into a Restructuring Support Agreement (the RSA ) that contemplated a series of further interrelated transactions involving the Term Loan Agreement and PIK Notes. These transactions include a proposed transfer of the IP Collateral securing the Term Loans. See Wissner-Gross Aff. Ex. G. The RSA contemplates an exchange of the PIK Notes for debt obligations to be issued by J. Crew Brand, LLC and J. Crew Brand Corp., with an early tender deadline of June 23 and a final tender deadline of July 10. Id. The newly issued obligations are to be secured by, among other things, (i) a first priority lien on the substantially all of the assets of Domestic Brand, including the intellectual assets that had formerly secured the Term Loans. Id. Holders of approximately 67% of the PIK Notes have already agreed to participate in the Exchange Offer (the Proposed PIK Note Exchange ). The RSA also contemplates soliciting Lenders to consent to an amendment ( Amendment No. 1 ) to the Term Loan Agreement which, if implemented, will amend the Term Loan Agreement (the Term Loan Agreement Amendments, together with Amendment No. 1, the Amendments ) and allow for, among other transactions, the release of the lien on remaining IP Collateral owned by Loan Party J. Crew International and the transfer of J. Crew International s remaining intellectual property to Domestic Brand. Consenting Lenders will be 2 Plaintiffs anticipate that they will move to consolidate this action with the Agent Litigation, assuming ITS TRO and preliminary injunction barring dismissal of the Agent Litigation is granted. However, given the time constraints and the upcoming deadline of June 23, 2017, after which the Proposed PIK Note Exchange can move forward, Plaintiffs commenced the instant action and filed the instant Motion of 27

11 eligible to participate, pro rata, in the repurchase by J. Crew Company of $150 million of term loans at par. The Amendments would enable the transaction contemplated by the RSA to proceed without triggering a default under the Term Loan Agreement. The RSA is designed to induce Lenders to consent to consent to the amendments because if they do not, and the transactions contemplated by the RSA nonetheless take place, non-consenting Term Lenders would not share in J. Crew Group s purchase of $150 million of term loans at par at a time when the term loans are trading at less than 70 cents on the dollar, but will nevertheless be subject to the detrimental features of the Proposed Transaction. The deadline for the Term Lenders to opt-in to the Proposed PIK Note Exchange is June 23, See Wissner-Gross Aff, Ex. A. This arbitrary deadline was set by J. Crew Company, and by its own admission, can be extended or adjourned upon consent by the parties. See id. A majority of the Term Lenders have directed WSFS, as agent, to assent to the Amendments. Plaintiffs do not consent to the Amendments. Under Section 10.01(e) of the Term Loan Agreement, no amendment, waiver or consent shall, other than in a transaction permitted under Section 7.04 or Section 7.05, release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender. See Wissner-Gross Aff., Ex. B, 10.01(e). Similarly, subject to the same limitations an amendment to release all or substantially all of the aggregate value of the Guarantee may not be made without unanimous consent of the Lender. Id (f). As discussed herein, under section 10.01(e) and (f) of the Term Loan Agreement, WSFS s ability to act regarding the proposed Amendments and the transactions contemplated by the RSA requires the consent of each Term Lender of 27

12 ARGUMENT I. Plaintiffs Have Standing to Bring this Action. As an initial matter, the no-action clause (section of the Term Loan Agreement) is not applicable to the Plaintiffs causes of action asserted against WSFS. Under long-standing precedent, notwithstanding a no-action clause, a creditor has standing to assert the causes of action against a creditor representative or fiduciary. See Cruden v. Bank of N.Y., 957 F.2d 961, 968 (2d Cir. 1992) (finding that a no action clause did not prohibit a suit by an individual noteholder against the indenture trustee, as it would be absurd to require the debenture holders to ask the Trustee to sue itself ). Due to the doctrine of futility, Plaintiffs may also, under the present circumstances, assert their claims against the J. Crew Group without prior demand on WSFS to institute and pursue these causes of action. See Ettlinger v. Persian Rug & Carpet Co., 142 NY. 189, 193 (1894) ( [A]ny emergency which makes demand upon the trustee futile or impossible, and leaves the right of the bondholder without other reasonable means of redress should justify his appearance as plaintiff in a court of equity. ); see also Cypress Assocs., LLC v. Sunnyside Cogeneration Assocs. Project, No. Civ. A N, 2006 WL , at *6 (Del. Ch. Mar. 8, 2006) (excusing plaintiff s demand on the trustee as futile, where the majority of bondholders supported the amendment challenged by the plaintiff and so the plaintiff could not expert to attain the support of the majority bondholder or expect the trustee to place itself at odds with the majority of bondholders by pressing plaintiff s claim). II. Plaintiffs Satisfy the Requirements for a Temporary Restraining Order Plaintiffs are entitled to injunctive relief pursuant to CPLR 6301, 6311, and 6313 because they are able to satisfy the three well-settled requirements for injunctive relief. See, e.g., Barbes Rest. Inc. v. ASRR Suzer 218, LLC, 140 A.D.3d 420, 33 N.Y.S.3d 43 (1st Dep t 2016) 7 12 of 27

13 (granting preliminary injunction where plaintiff demonstrated a probability of success on the merits, danger of irreparable injury in absence of an injunction, and a balance of the equities in its favor). A. A TRO Is Necessary to Preserve the Status Quo At issue in this case is the potentially irretrievable release of hundreds of millions of dollars of collateral securing $1.5 billion of obligations owed by insolvent entities. The documentation governing the parties legal relationships consists of thousands of pages of complex, interlocking agreements. The factual context of the parties dispute is undeniably complex and involves matters, such as the valuation of intellectual property rights, the resolution of which will require expert testimony. Many other factual matters have been and remain within the exclusive knowledge of the J. Crew Defendants as there has not yet been an opportunity for discovery. What is certain is that the J. Crew Defendants are laser focused on pushing through the Value Transfers with what has every appearance of undue haste. Where injunctive relief is necessary to preserve the status quo or ensure that a subsequent judgment is not rendered ineffectual, it should be granted regardless of the present ability of the movant to demonstrate the likelihood of success on the merits. See 5 West 120th Realty Corp. v. Cont l Capital Grp. LLC, /05, 2005 WL , at *3-4 (Sup. Ct. N.Y. Cnty. Oct. 24, 2005) (granting injunctive relief to preserve status quo even where court could not determine which party was likely to prevail); Jacobowitz v. Jacobowitz, 798 N.Y.S.2d 710 (Sup. Ct. Kings Cnty. 2004) ( [A] preliminary injunction may also be granted where injunctive relief is deemed necessary to maintain the status quo, even if the movant s success on the merits cannot be determined at the time that the application for preliminary injunction is brought. ). Indeed, courts routinely grant injunctive relief to maintain the status quo, despite the fact that the merits are disputed, particularly where the plaintiff has demonstrated irreparable harm and a balance of 8 13 of 27

14 the equities in its favor. See, e.g., Mr. Natural, Inc. v. Unadulterated Food Prods., Inc., 152 A.D.2d 729, 544 N.Y.S.2d 182,183 (2d Dep t 1989) (granting a preliminary injunction to maintain the status quo, despite a factual dispute that made the plaintiff s likelihood of success on the merits difficult to determine because the plaintiff adduced adequate evidence of irreparable injury and a balancing of the equities in its favor ); U.S. Ice Cream Corp. v. Carvel Corp., 136 A.D.2d 626, 523 N.Y.S.2d 869, 871 (2d Dep t 1988) ( In the absence of any proof that Carvel will be harmed by the granting of injunctive relief in order to maintain the status quo, the existence of disputed factual issues should not preclude the remedy. ). Thus, although Plaintiffs can make a substantial showing of likely success on the merits, their entitlement to injunctive relief does not hinge on this showing. Here, Plaintiffs seek injunctive relief to maintain the status quo and, as explained below, risk irreparable harm if an injunction is not granted, while Defendants would suffer at most minimal inconvenience if the requested injunctive relief were granted. Plaintiffs Are Likely To Succeed On Their Claims Against WSFS. The Term Loan Lenders direction to WSFS to consent to amendments to the Term Loan Agreement violates Section 10.01(e) and (f) of the Term Loan Agreement. Section 10.01(e) and (f) of the Term Loan Agreement provide that no amendment or waiver of any provision of the Term Loan Agreement that (i) releases all or substantially all of the Collateral in any transaction or series of related transaction; or (ii) releases all or substantially all of the aggregate value of the Guaranty (as that term is defined in the Term Loan Agreement) may occur without the written consent of each Lender. Plaintiffs have not provided written consent to the proposed amendments, which would complete the transfer of trademark collateral to holders of PIK Notes, 9 14 of 27

15 ratify the release of substantially all of the Collateral and/or the aggregate value of the Guaranty and expand the list of permissible dispositions. Plaintiffs accordingly seek to enjoin WSFS from: (a) agreeing to the proposed Term Loan Agreement Amendments; (b) releasing any liens on IP Collateral owned by Loan Parties in order to complete the Value Transfers; and (c) dismissing the Agent Litigation with prejudice so that the issues raised in that litigation may never be litigated. Plaintiffs have established in the accompanying complaint that their positions are sufficiently meritorious to warrant that there rights should not be extinguished without an opportunity for them to be established. Counts I, II. As against WSFS, Plaintiffs seek a declaratory judgment that WSFS s execution of the proposed Amendments and Proposed Transactions, including dismissing the Agent Litigation, without consent, constitutes a violation of sections 10.01(e) and (f) of the Term Loan Agreement. The majority of the Term Lenders have been pressed into compliance with J. Crew Group s demands out of concern that they will suffer economic harm if they fail to do so. They are, through no action or initiative taken by them embroiled in an actual controversy, that is real, definite, substantial and sufficiently matured and ripe of judicial determination. Orange Cty. Legislature v. Diana, 40 Misc.3d 278, 295, 968 N.Y.S.2d 319, 332 (Sup. Ct. Orange Cnty. 2013); see also CPLR 3001 (authorizing entry of judgments declaring the rights and obligations of parties to a justiciable controversy). A declaratory judgment action may be an appropriate vehicle for settling justiciable disputes as to contract rights and obligations. Kalisch-Jarcho, Inc. v. City of N.Y., 72 N.Y.2d 727,731,533N.E.2d 258, 260 (1988). There is no question that there is an actual controversy here. Interpretation of the Term Loan Agreement whereby a majority of Lenders could amend the Term Loan Agreement to waive the rights of non-consenting Lenders so as to release of 27

16 substantially all of the Loan Parties collateral in the midst of the Loan Parties deepening financial distress runs counter to common sense notions of the purpose of complex secured lending (such as is clearly present here). See Greenwich Capital Fin. Prods., Inc. v. Negrin, 903 N.Y.S.2d 346, 348 (1st Dep t 2010) ( [A] contract should not be interpreted to produce a result that is absurd, commercially unreasonable or contrary to the reasonable expectations of the parties. ) (citation and internal quotation marks omitted). B. Plaintiffs Are Likely To Succeed On Their Claims For Violation of the Term Loan Agreement. Plaintiffs also seek declaratory judgments and assert a claim for breach of contract based on the Value Transfers undertaken by the J. Crew Defendants, which constitute Events of Default and Defaults under the Term Loan Agreement. See Compl. Counts III, IV, V. Section 7.04 of the Term Loan Agreement provides that neither Holdings B nor J. Crew Group may permit any Restricted Subsidiary (as that term is defined in the Term Loan Agreement) to [d]ispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) in favor of any Person. As alleged more fully in the Complaint, the value of the IP Collateral represents substantially all of the value of assets owned by the Loan Parties. If Plaintiffs are correct with regard to the relative value of the IP Collateral and value of all of the Collateral, then the Value Transfers were prohibited under the Term Loan Agreement absent the written consent of each Term Lender and resulted in an Event of Default. Pending a hearing and determination of the merits, Plaintiffs rights should not be extinguished nor should their ability to obtain a remedy be rendered ineffectual. Instead, they should be granted a temporary restraining order to maintain the status quo pending resolution of this dispute. See 5 West 120th Realty Corp., 2005 WL , at * of 27

17 In analyzing whether substantially all of an entity s assets have been transferred, courts consider both the quantitative size of the transfer (i.e., the percentage of assets transferred) and also the quality of the assets transferred. See HFTP Investments, LLC v. Grupo TMM, S.A., No /2003, 2004 WL (N.Y. Sup. Ct. June 4, 2004) ( considering the qualitative aspects of the assets transferred). Where the transferred assets generated a substantial portion of the transferor s revenue and so to transfer those assets would alter the nature of the entity s business, courts have found that a sale of substantially of the assets of the entity has occurred. See id. (finding there to a sale of substantially all of a company s assets where the sale substantially changed the nature or character of the entity s business ). In the case of a clothing retailer that must compete with numerous other retailers offering similar goods to a finite demographic, profitability is unsustainable without a brand to distinguish the product and support the price point. The transfer of the Disposed Trademark Collateral, and the anticipated transfer of the remaining IP assets, constituted a transfer of substantially all of the assets of a Restricted Subsidiary in contravention of Section 7.04 of the Term Loan Agreement. Relatedly, the Security Interest in the Disposed Trademark Collateral could not have been automatically released under Section 7.12(b) of the Term Loan Security Agreement because the Trademark Transfer was not permitted under the Loan Documents. These justiciable controversies meet the requirements for declaratory judgment. The J. Crew Defendants argued in Agent Litigation, that they are subject to certain exceptions of 7.02, 7.05, and 7.08, and thus the Value Transfers were permitted under the Term Loan Agreement. As initially correctly alleged by WSFS, as agent, in the Agent Litigation, these exceptions are inapplicable to the Value Transfers. The exceptions claimed by the J. Crew Defendants rely upon the argument that the Value Transfers were Permitted Investments under of 27

18 the Term Loan Agreement, or were made for substantial value. See Wissner-Gross Aff. Ex. C, As alleged in the Complaint, the Value Transfers were not Permitted Investments because J Crew International purposefully undervalued the Disposed Trademark Collateral to fit within the definition of Permitted Investments and the Trademark Transfer was not an arm s length transaction. 3 C. Fraudulent Conveyance Claims. Plaintiffs have a high probability of success on their claims of constructive and intentional fraudulent transfer under New York Debtor & Creditor Law 270, et seq. The Value Transfers were constructively fraudulent as they were made by insolvent entities without fair consideration. Likewise, the transfer of the Remaining Trademark Collateral, when consummated, would be a fraudulent conveyance as a transfer make without fair consideration. Moreover, the Value Transfers also bears numerous badges of fraud, indicative of intentional fraudulent transfer. These include, inter alia, the inadequate consideration paid; the close relationship between the parties, which are insiders and affiliates, and the fact that the Value Transfers are intended to benefit J. Crew Company s indirect parent holding company (Holdings A) through the PIK Note Transfer, while providing no value or benefit to J. Crew Company. 3 The J. Crew Defendants will likely rely on the valuation performed by Ocean Tomo regarding the Disposed Trademark Collateral. The weight and substance of this valuation is a factual dispute that should be explored in discovery. Further, there is nothing in the Term Loan Agreement that states that the Term Lenders are required to accept and adopt a valuation performed by the Borrower or Guarantor. Thus, the Term Lenders are entitled to conduct their own analysis regarding whether the Disposed Trademark Collateral should be considered a Permitted Investment or a transfer made at arm s length for fair value of 27

19 III. Plaintiffs Will Suffer Irreparable Harm. To demonstrate irreparable harm, a movant must show that harm is imminent and incapable of being fully remedied by monetary damages. See Madden Int l, Ltd. v. Lew Footwear Holdings Pty Ltd., 36 N.Y.S.3d 48, *6 (Sup. Ct. 2016). Where a challenged transaction is imminent and, once consummated, will be virtually impossible to unwind, an injunction has been found to be the only effective remedy. See Greenlight Capital, L.P. v. Apple, Inc., Nos. 13 Civ. 900(RJS), 13 Civ. 976(RJS), 2013 WL , at *9 (S.D.N.Y. Feb. 22, 2013) (finding plaintiffs established irreparable harm where they demonstrated that allowing the vote on a challenged proposal would have consequences that would be an exceedingly difficult egg to unscramble ); Am. Insured Mortg. Investors v. CRI, Inc., Nos. 90 Civ (MBM), (MBM), 1990 WL , at *6 (S.D.N.Y. Nov. 26, 1990) ( [A] preliminary injunction is generally the only effective remedy in cases such as this, since once a tender offer has been consummated, it becomes difficult and sometimes virtually impossible for a court to unscramble the eggs. (citation and internal quotation marks omitted)). Here, amendments and transactions are in the works which, if consummated, would erase Plaintiffs rights and claims under the Term Loan Agreement and render any potential recovery on those claims unavailable or highly impractical. Moreover, the Proposed PIK Note Exchange has a deadline of Friday, June 23, 2017, which, once passed, will permit the Proposed PIK Note Exchange to occur. First, if the amendment to the Term Loan Agreement is effectuated, Plaintiffs stand to lose the benefit of contractually-negotiated rights governing their relationship with the Borrower, the Agent, and Term Loan Lenders. These rights are valuable to Plaintiffs because they affect both the likelihood that Plaintiffs will be repaid what is owed under the Term Loan Agreement of 27

20 If the amendments are not enjoined and the Loan Parties are permitted to disregard Plaintiffs contractually-bargained for rights in an attempt to restructure the Borrower s debt, the Plaintiffs will suffer irreparable harm. See Oracle Real Estate Holdings I LLC v. Adrian Holdings Co. I, LLC, 582 F. Supp. 2d 616, (S.D.N.Y. 2008) (holding that the loss of contract rights constitutes irreparable harm where any remedy for that loss could be rendered meaningless by the end of the litigation absent injunctive relief); Telcom-SNI Investors, L.L.C. v. Sorrento Networks, Inc., 2011 WL , at *10 (Del. Ch. Sept. 7, 2001), aff d, 790 A.2d 477 (Del. 2002) (finding that [t]he denial of the leverage which [the plaintiffs] reasonably believed they had secured through their bargain restructures the commercial relationship between [the plaintiffs] and the [defendant-company] and constitutes a harm that cannot be measured by money damages ). In particular, Section 10.01(e) and 10.01(f) of the Term Loan Agreement require the written consent of each Term Lender as a condition to any amendment that releases all or substantially all Collateral or all or substantially all of the aggregate value of the Guaranty. See Term Loan Agreement The Value Transfers, including the PIK Transfer and the Trademark Transfer, violate these lender protections. The amendment to the Term Loan Agreement, however, ratifies the Value Transfers, releases any lenders claims related to the Value Transfers, and expands the list of permissible dispositions all without the requisite unanimous consent. Second, if the WSFS dismisses all claims asserted in the Agent Litigation with prejudice, that dismissal would likely impair Plaintiffs ability to recover for the injuries suffered in connection with the Value Transfers. This result, essentially restricting the parties against whom Plaintiffs may seek damages, constitutes irreparable harm. See Flight Options Int l, Inc. v. Flight of 27

21 Options, LLC, No N, 2005 WL , at *11 (Del Ch. July 11, 2005) (granting an injunction in part because the challenged agreement would exculpate managers from personal liability and make plaintiff s ability to seek damages problematic ). This extinguishment of Plaintiffs ability to obtain effective relief constitutes irreparable harm. See Brenntag Int l Chemicals, Inc. v. Bank of India, 175 F.3d 245, 250 (2d Cir. 1999) (explaining that irreparable harm exists where, but for the grant of equitable relief, there is a substantial chance that upon final resolution of the action the parties cannot be returned to the positions they previously occupied ); M&A Oasis, Inc. v. MTM Assocs., L.P., 307 A.D.2d 872, , 764 N.Y.S.2d 9 (1st Dep t 2003) (finding that a preliminary injunction was appropriate to assure the efficacy of any declaratory judgment ). Finally, implementation of the Term Loan Amendment is prerequisite for the PIK Note Transfers and the Proposed PIK Note Exchange has an upcoming deadline of June 23, 2017, for all participants to opt-in. If the PIK Note Transfers are consummated and not enjoined, Plaintiffs ability to clawback the Disposed Trademark Collateral becomes infinitely more complex and problematic. At present, the Disposed Trademark Collateral has been transferred to different entities, but it is not encumbered. Thus, it would be fairly simple, should Plaintiffs prevail on their breach of contract or fraudulent conveyance actions to recover the collateral that was wrongfully transferred. However, if the PIK Note Transfers are consummated, the PIK Noteholders will have a lien on the Disposed Trademark Collateral, and any remedy with respect to the Disposed Trademark Collateral would be subject to these new liens and the rights of the PIK Noteholders. Enjoining, in effect, the PIK Note Transfers is the only means to preserve Plaintiffs potential remedies should they success on the breach of contract or fraudulent of 27

22 conveyance actions and prevent irreparable harm. See Greenlight Capital, 2013 WL , at *9; Am. Insured Mortg. Investors, 1990 WL , at *6. IV. Balance of the Equities Weighs in Favor of Granting an Injunction. The balance of the equities also heavily weighs in Plaintiffs favor. The balancing of equities requires the court to determine the relative prejudice to each party accruing from a grant or denial of the requested relief. Barbes Rest., 140 A.D.3d at 432 (finding this factor was met where the harm to plaintiff outweighed potential harm to defendant and where an injunction would maintain the status quo pending a hearing on the merits and prevent the dissipation of property that could render a judgment ineffectual (citation, internal quotation marks and brackets omitted)); Bell & Co., P.C. v. Rosen, 114 A.D.3d 411 (1st Dep t 2014) (enjoining defendant from violating the terms of an agreement where, in contrast to plaintiffs irreparable injury, defendant would not suffer great hardship). If the requested Temporary Restraining Order and Preliminary Injunction are not granted, the harm to Plaintiffs rights and remedies under the Term Loan Agreement will be severe. Conversely, Defendants face no risk of irreparable harm. First, the June 23, 2017 deadline imposed by the J. Crew Defendants is a fiction that is not based on any requirements and is instead a flexible deadline that can be adjourned, likely at the discretion of the J. Crew Defendants. See Wissner-Gross Aff., Ex. A. Defendants will face only a relatively short delay for the Court to decide the merits of this case that will do nothing more than maintain the status quo. WSFS, at the direction of less than all Lenders, is not contractually or legally permitted to amend the Term Loan Agreement to permit the loss of substantially all Collateral and substantially all of the value of the Guaranty. However, the proposed amendments to the Term Loan Agreement seeks to mandate such releases without unanimous consent and would preclude of 27

23 any remedy for the loss of these rights through the dismissal with prejudice of the claims asserted by the Agent in this J. Crew Litigation. It cannot be that equity will reward the violation of contractual and related obligations resulting in the evisceration of Plaintiffs rights. Plaintiffs Are Entitled To A Temporary Restraining Order. Plaintiffs are entitled to the temporary relief requested herein because of the immediate deadline of June 23, 2017, after which the Proposed PIK Note Exchange can be completed and the Disposed Trademark Collateral can be encumbered such that the Plaintiffs will be irreparably harmed. The standard to grant a temporary restraint is substantially similar to the standard for granting a preliminary injunction. See Silvestre v. De Loaiza, 12 Misc. 3d 492 (Sup. Ct. N.Y. Cnty. 2006). As demonstrated herein, Plaintiffs are likely to succeed on the merits of their claims, Plaintiffs would be irreparably harmed in the event the temporary relief is not granted, and the equities favor Plaintiffs as Defendants would not suffer any prejudice by the issuance of the temporary relief. V. Plaintiffs are Entitled to Expedited Discovery for the Preliminary Injunction Trial courts have inherent authority and broad discretion to control the scope and timing of discovery. See Maiorino v. City of N.Y., 39 A.D.3d 601, 602, 834 N.Y.S.2d 272 (2d Dep t 2007) ( [A] trial court is given broad discretion to oversee the discovery process. Indeed, section (c) of the New York Supreme and County Court Rules explicitly provides that the timetable for completion of disclosure proceeding may be shortened or extended by the court depending on the circumstances of the case. 22 NYCRR (c). The trial court s authority and discretion to order expedited discovery turn on the facts and circumstances of each case. See, e.g., Mayer v. Mayer, 2005 WL , at *4 (N.Y. Sup. Ct. Dec. 13, 2005) of 27

24 (granting plaintiff s cross-motion for expedited discovery). Courts routinely permit expedited discovery in advance of hearings on applications for preliminary injunctions to ensure timely determination of factual issues, particularly when the information sought is within the unique possession of a party. See Bel Geddes v. Zeiderman, 228 A.D.2d 393, 644 N.Y.S.2d 729 (1st Dep t 1996) (affirming order granting plaintiff discovery priority where details of an investment arrangement were known only to defendants); In re Topps Co., Inc. S holder Litig., No /07, 2007 WL , at *1 (N.Y. Sup. Ct. June 8, 2007) (permitting expedited discovery in advance of a hearing for preliminary injunction). Here, the merits of Plaintiffs claim that the J. Crew Defendants transfer of the Disposed Trademark Collateral violated section 7.04 of the Term Loan Agreement turns on the value of the Disposed Trademark Collateral and whether it constituted substantially all of the Borrower s assets. The only valuation evidence currently available to Plaintiffs is the made-to-order valuation report prepared by Ocean Tomo. Thus, internal J. Crew documents pertaining to the value of the Disposed Trademark Collateral, as well as any documentation underlying the Ocean Tomo valuation report, are essential to an assessment, possibly by expert report, of the true value of the Disposed Trademark Collateral and, accordingly, the merits of Plaintiffs claim that the transfer Disposed Trademark Collateral constituted a transfer of substantially all assets of the Borrower. CONCLUSION For all the foregoing reasons, Plaintiffs respectfully request that this Court issue an order granting Plaintiffs the following relief pursuant to CPLR 6301, 6311, and 6313: (i) temporarily restraining WSFS and their affiliates and all persons acting on their behalf, under their direction or in combination with them, from: of 27

25 a. dismissing with prejudice all or any part of any claim alleged or that could have been alleged in the Specified Liability Management Transaction Litigation; b. executing any amendments to the Term Loan Agreement substantially similar to Amendment No. 1 and/or approving or executing the proposed Amended Term Loan Agreement; and c. releasing liens on any Collateral, as that term is defined in the Term Loan Agreement, including, but not limited to, liens on (a) the Remaining Trademark Collateral, as that term is defined in the Complaint, (b) trademarks, and (c) other intellectual property; (ii) temporarily restraining the J. Crew Defendants and their affiliates and all persons acting on their behalf, under their direction or in combination with them, from: a. taking any steps to transfer any intellectual property assets of the Borrower or Guarantors, as those terms are defined in the Term Loan Agreement, including any Collateral and the Remaining Trademark Collateral, as that term is defined in the Complaint; b. causing Brand, Brand Corp. or Holdings to exchange the PIK Notes for $250 million of new 13% senior secured notes, $190 million of 7% preferred stock of Chinos Holdings, Inc. and 15% of the equity of Holdings; and c. causing the issuance by any entity of notes secured by: (1) a first priority lien on the Disposed Trademark Collateral and Domestic Brand s rights under the IP License Agreement, as those terms are defined in the Complaint; (2) a first priority lien on substantially all other assets of Brand, Brand Corp., Domestic Brand, International Brand, Brand Intermediate and J. Crew International Brand, of 27

26 LLC; or (3) a pledge of 100% of the stock of Brand, Brand Corp., Domestic Brand and J. Crew International Brand; and d. taking any steps to effectuate or consummate the PIK Transfer or the Proposed PIK Exchange, as those terms are defined in the Complaint, or otherwise granting liens to any party on the Disposed Trademark Collateral; (iii) preliminarily enjoining WSFS and their affiliates and all persons acting on their behalf, under their direction or in combination with them, from: a. dismissing with prejudice all or any part of any claim alleged or that could have been alleged in the Specified Liability Management Transaction Litigation; b. executing any amendments to the Term Loan Agreement substantially similar to Amendment No. 1 and/or approving or executing the proposed Amended Term Loan Agreement; and c. releasing liens on any Collateral, as that term is defined in the Term Loan Agreement, including, but not limited to, liens on (a) the Remaining Trademark Collateral, as that term is defined in the Complaint, (b) trademarks, and (c) other intellectual property; (iv) preliminarily enjoining the J. Crew Defendants and their affiliates and all persons acting on their behalf, under their direction or in combination with them, from: a. taking any steps to transfer any intellectual property assets of the Borrower or Guarantors, as those terms are defined in the Term Loan Agreement, including any Collateral and the Remaining Trademark Collateral, as that term is defined in the Complaint; of 27

27 b. causing Brand, Brand Corp. or Holdings to exchange the PIK Notes for $250 million of new 13% senior secured notes, $190 million of 7% preferred stock of Chinos Holdings, Inc. and 15% of the equity of Holdings; c. causing the issuance by any entity of notes secured by: (1) a first priority lien on the Disposed Trademark Collateral and Domestic Brand s rights under the IP License Agreement, as those terms are defined in the Complaint; (2) a first priority lien on substantially all other assets of Brand, Brand Corp., Domestic Brand, International Brand, Brand Intermediate and J. Crew International Brand, LLC; or (3) a pledge of 100% of the stock of Brand, Brand Corp., Domestic Brand and J. Crew International Brand; and d. taking any steps to effectuate or consummate the PIK Transfer or the Proposed PIK Exchange, as those terms are defined in the Complaint, or otherwise granting liens to any party on the Disposed Trademark Collateral; (v) granting Plaintiffs expedited discovery regarding the value of the Disposed Trademark Collateral in connection with their request for a preliminary injunction; and (vi) granting Plaintiffs such other and further relief as the Court may deem just, proper, and equitable. Dated: New York, New York June 22, 2017 Respectfully submitted, By: /s/ Sigmund S. Wissner-Gross Sigmund S. Wissner-Gross Robert Stark BROWN RUDNICK LLP Seven Times Square New York, NY (212) Counsel for Plaintiffs of 27