Case Doc 147 Filed 02/28/19 Entered 02/28/19 20:13:12 Desc Main Document Page 1 of 11

Transcription

1 Document Page 1 of 11 IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In re: TOTAL FINANCE INVESTMENT INC., et al., 1 Debtors. Chapter 11 Case No (CAD) Jointly Administered NOTICE OF MOTION PLEASE TAKE NOTICE that on Thursday, March 14, 2019 at 1:30 p.m., or as soon thereafter as counsel may be heard, we will appear before the Honorable Carol A. Doyle, or any judge sitting in her stead, in Room 742 of the Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago Illinois 60604, and then and there present the Debtors First Omnibus Motion for Entry of an Order (I) Authorizing the Debtors to (A) Reject Certain Unexpired Leases of Nonresidential Real Property and (B) Abandon Certain Personal Property in Connection Therewith and (II) Granting Related Relief (the Motion ), a copy of which is hereby served upon you. An order approving the Motion may be entered without a hearing unless an objection is timely filed and served. PLEASE TAKE FURTHER NOTICE that any objection to the Motion must be filed with the Court by March 7, 2019, at 4:00 p.m. (prevailing Central Time) and served so to be actually received before such deadline by: (a) proposed counsel to the Debtors; (b) the Office of the United States Trustee for the Northern District of Illinois; and (c) any party that has requested notice pursuant to Rule 2002 of the Federal Rules of Bankruptcy Procedure, a schedule of such parties may be found at PLEASE TAKE FURTHER NOTICE that copies of the Motion and all documents filed in these chapter 11 cases are available free of charge by visiting You may also obtain copies of any pleadings by visiting the Court s website at in accordance with the procedures and fees set forth therein. 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are Total Finance Investment Inc. (3753); Car Outlet Holding Inc. (8362); (2282); Full Service Auto Repair AC LLC (6920); Todo Seguro AC LLC (7099); Todo Seguro Premium Finance AC LLC (3775); and Total Finance AC LLC (1965). The Debtors mailing address is 3400 N. Pulaski Rd, Chicago, IL

2 Document Page 2 of 11 Dated: February 28, 2019 Chicago, Illinois SIDLEY AUSTIN LLP /s/ Bojan Guzina Bojan Guzina (ARDC # ) Jackson T. Garvey (ARDC # ) One South Dearborn Street Chicago, Illinois Telephone: (312) Facsimile: (312) PROPOSED ATTORNEYS FOR THE DEBTORS AND DEBTORS IN POSSESSION 2

3 Document Page 3 of 11 IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In re: TOTAL FINANCE INVESTMENT INC., et al., 1 Debtors. Chapter 11 Case No (CAD) Jointly Administered Hearing Date: March 14, 2019 at 1:30 p.m. (CT) Objection Deadline: March 7, 2019 at 4:00 pm (CT) DEBTORS FIRST OMNIBUS MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING THE DEBTORS TO (A) REJECT CERTAIN UNEXPIRED LEASES OF NONRESIDENTIAL REAL PROPERTY AND (B) ABANDON CERTAIN PERSONAL PROPERTY IN CONNECTION THEREWITH AND (II) GRANTING RELATED RELIEF LANDLORDS RECEIVING THIS MOTION SHOULD LOCATE THEIR NAMES AND LEASE(S) ON THE SCHEDULE OF LEASES ATTACHED HERETO AS SCHEDULE 1 TO EXHIBIT A Total Finance Investment Inc. and its affiliated debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the Debtors ) submit this motion (this Motion ), pursuant to sections 105(a), 362(d), 365(a), and 554(a) of title 11 of the United States Code, 11 U.S.C (the Bankruptcy Code ) and rules 6006 and 6007 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), for entry of an order (the Proposed Order ), substantially in the form attached hereto as Exhibit A, (i) authorizing the Debtors to (a) reject certain unexpired leases (including any guarantees thereof and any amendments or modifications thereto or assignments or subleases thereof, collectively, the Rejected Leases ) of nonresidential 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are Total Finance Investment Inc. (3753); Car Outlet Holding Inc. (8362); (2282); Full Service Auto Repair AC LLC (6920); Todo Seguro AC LLC (7099); Todo Seguro Premium Finance AC LLC (3775); and Total Finance AC LLC (1965). The Debtors mailing address is 3400 N. Pulaski Rd, Chicago, IL

4 Document Page 4 of 11 real property located at the addresses of the Debtors dealership locations set forth on Schedule 1 to Exhibit A attached hereto (collectively, the Closed Locations ), and (b) abandon certain furniture, fixtures, equipment and other assets at the Closed Locations (collectively, the Remaining Property ), each effective as of the Rejection Date (as defined below), and (ii) granting related relief. In support of this Motion, the Debtors submit the Declaration of Andrew DeLuca in Support of the Debtors Chapter 11 Petitions and First Day Pleadings [Docket No. 20] (the First Day Declaration ), which is incorporated into this Motion by reference. In further support of this Motion, the Debtors respectfully state as follows: STATUS OF THE CASES AND JURISDICTION 1. On February 13, 2019 (the Petition Date ), each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Court ). The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On February 22, 2019, the United States Trustee for the Northern District of Illinois (the U.S. Trustee ) appointed an official committee of unsecured creditors (the Committee ) pursuant to section 1102 of the Bankruptcy Code [Docket No. 78]. No party has requested the appointment of a trustee or examiner in these cases. BACKGROUND OF THE DEBTORS 2. Additional information regarding the Debtors businesses, capital structure and the circumstances preceding the Petition Date are set forth in the First Day Declaration. THE REJECTED LEASES 3. Prior to the Petition Date, the Debtors operated a chain of buy-here pay-here used automobile dealerships located in Illinois and Wisconsin. An essential aspect of the Debtors 4

5 Document Page 5 of 11 strategy in these chapter 11 cases is to effectuate an orderly liquidation of their auto dealership business, including by ultimately rejecting the leases for all of the dealership locations. The Debtors, in their reasonable business judgment, have decided to reject the Rejected Leases, consisting of leases for ten (10) dealership locations in Illinois and Wisconsin as of February 28, 2019, which is the date by which the Debtors have surrendered possession of the Closed Locations to the respective landlords (such date, with respect to each Rejected Lease, the Rejection Date ). 4. The Rejected Leases provide no benefit to the Debtors estates. The Debtors stopped operating automobile dealerships at the leased locations prior to the Petition Date and are no longer using the leased real estate. By rejecting the Rejected Leases, the Debtors will save approximately $96,000 per month in rent and associated costs. Absent rejection, the Debtors would be obligated to continue to pay rent under the Rejected Leases even though the Debtors will have ceased operations at, and will no longer continue in possession of, the Closed Locations. Moreover, in addition to their obligations to pay rent under the Rejected Leases, the Debtors would also be obligated to pay certain real property taxes, utilities, insurance and similar charges. The Debtors have determined in their business judgment that such costs constitute a waste of estate assets. Moreover, given the terms of the Rejected Leases and current market conditions, the Debtors have concluded, in consultation with their advisors, that the Rejected Leases are not marketable and are unlikely to generate material value for the Debtors estates. THE REMAINING PROPERTY 5. In the ordinary course of business, the Debtors have accumulated certain personal property at the Closed Locations, including certain furniture, fixtures, and equipment of de minimis value. The Debtors have removed most of these assets from the Closed Locations. The Debtors have determined, however, in the exercise of their business judgment, that certain of these assets 5

6 Document Page 6 of 11 will be exceedingly difficult or expensive to remove or store (the Remaining Property ) and are unlikely to generate meaningful sale proceeds for the Debtors estates. Accordingly, the Debtors will not realize any economic benefit by retaining the Remaining Property. Therefore, the Debtors are requesting authority to abandon any Remaining Property at the Closed Locations. RELIEF REQUESTED 6. By this Motion, the Debtors request entry of the Proposed Order, substantially in the form attached hereto as Exhibit A, (i) authorizing the Debtors to (a) reject the Rejected Leases set forth on Schedule 1 to Exhibit A attached hereto as of the Rejection Date and (b) abandon the Remaining Property effective as of the Rejection Date and (ii) granting related relief. The Debtors reserve all rights to modify the schedule of Rejected Leases, including by removing one or more Rejected Leases from Schedule 1 prior to the hearing on this Motion, without prejudice to their rights to reject such Rejected Lease(s) at a later date. BASIS FOR RELIEF I. The Court Should Authorize the Rejection of the Rejected Leases under Section 365(a) of the Bankruptcy Code as a Reasonable Exercise of the Debtors Business Judgment. 7. Section 365(a) of the Bankruptcy Code provides that a debtor, subject to the court s approval, may assume or reject any... executory contract or unexpired lease of the debtor. 11 U.S.C. 365(a). The purpose behind section 365(a) is to permit the trustee or debtorin-possession to use valuable property of the estate and to renounce title to and abandon burdensome property. In re Republic Airways Holdings Inc., 547 B.R. 578, 582 (Bankr. S.D.N.Y. 2016) (quoting Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1098 (2d Cir. 1993)); 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 6

7 Document Page 7 of 11 the debtor s estate from burdensome obligations that can impede a successful reorganization. ); In re StarNet, Inc., 355 F.3d 634, 637 (7th Cir. 2004) (noting that [s]ection 365(a) gives debtors a right to walk away before the contract s end (with the creditor s entitlement converted to a claim for damages ) ). 8. Courts typically apply the business judgment test when determining whether to authorize the assumption or rejection of an unexpired nonresidential lease. See Johnson v. Fairco Corp., 61 B.R. 317, 320 (N.D. Ill. 1986) (noting that the debtor must only demonstrate that rejection will benefit the debtor s estate or reorganization efforts ); In re Edison Mission Energy, No (JPC), 2013 WL , at *5 (Bankr. N.D. Ill. Sept. 16, 2013) ( A debtor s decision to assume or reject an executory contract is governed by the business judgment rule. ). The business judgment test requires a debtor to have determined that the requested assumption or rejection would be beneficial to its estate. See Grp. of Institutional Inv rs, Inc. v. Chi., Milwaukee, St. Paul & Pac. R.R., 318 U.S. 523, 550 (1943) (noting that the question whether a lease should be rejected... is one of business judgment ); In re Bildisco, 682 F.2d 72, 79 (3d Cir. 1982), aff d, 465 U.S. 513 ( The usual test for rejection of an executory contract is simply whether rejection would benefit the estate, the business judgment test. ); see also ReGen Capital I, Inc. v. UAL Corp. (In re UAL Corp.), 635 F.3d 312, 319 (7th Cir. 2011) (same for assumption). 9. The business judgment standard mandates that a court approve a debtor s business decision unless the decision is the product of bad faith, whim, or caprice. See Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.), 756 F.2d 1043, 1047 (4th Cir. 1985); see also Fairco Corp., 61 B.R. at 320 ( Only where the debtor s actions are in bad faith or in gross abuse of its managerial discretion should the decision be disturbed. ); Software Customizer, Inc. v. Bullet Jet Charter, Inc. (In re Bullet Jet Charter, Inc.), 177 B.R. 593, 7

8 Document Page 8 of (Bankr. N.D. Ill. 1995) ( This Court must ascertain whether rejecting such a contract will promote the best interests of Debtor s estate, but only where the debtor acted in bad faith or grossly abused its retained managerial discretion should the decision be disturbed. ); Summit Land Co. v. Allen (In re Summit Land Co.), 13 B.R. 310, 315 (Bankr. D. Utah 1981) (absent extraordinary circumstances, court approval should be granted as a matter of course ). 10. The Debtors rejection of the Rejected Leases is within the Debtors business judgment and will serve the best interests of the Debtors estates. The Debtors currently are engaged in an orderly wind-down of their auto dealership business and, in consultation with their advisors, have determined to cease operations at the Closed Locations. See First Day Declaration 46. To facilitate the wind-down, the Debtors are requesting authority to reject the Rejected Leases to avoid the incurrence of any additional, unnecessary administrative expenses in connection with the Closed Locations. The Debtors have concluded that the cost of maintaining the Closed Locations outweighs any revenues that the Closed Locations currently generate or are likely to generate in the future, and that the costs associated with the Rejected Leases exceed any marginal benefits that could potentially be achieved from the assignment or sublease of the Rejected Leases. For the foregoing reasons, the Debtors believe that rejecting the Rejected Leases is a reasonable exercise of their business judgment and should be approved. II. The Court Should Authorize the Debtors to Abandon the Remaining Property under Section 554(a) of the Bankruptcy Code. 11. Under section 554(a) of the Bankruptcy Code, a debtor, after notice and a hearing, is authorized to 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). In reviewing abandonment under section 554, a court must only make sure that the decision satisfies the business judgment standard. Burns Excavating & Concrete Constr., Inc. v. Associated Bank Nat. Ass'n, No. CIV 08-8

9 Document Page 9 of GPM, 2008 WL , at *2 (S.D. Ill. Nov. 24, 2008) ( In reviewing the Trustee's decision to abandon property of the estate, the court must only examine that decision to ensure it reflects a business judgment made in good faith. (quoting In re Fulton, 162 B.R. 539, 540 (Bankr.W.D.Mo.1993))). The right to abandon property is virtually unfettered, unless (a) abandonment of the property will contravene laws designed to protect public health and safety or (b) the property poses an imminent threat to the public s welfare. See Midlantic Nat l Bank v. N.J. Dep t of Envtl. Prot. 474 U.S. 494, 501 (1986). Neither of these limitations is applicable to the Remaining Property. 12. Any Remaining Property left at the Closed Locations is of inconsequential value to the Debtors estates, and the cost to the Debtors of retrieving, storing, marketing, and reselling the Remaining Property will exceed any realistic economic benefit that might be realized by retaining such property. Moreover, none of the Remaining Property constitutes a threat to the public s welfare or implicates laws designed to protect public health and safety. Accordingly, the Debtors have determined, in the exercise of their sound business judgment, that their decision to abandon any Remaining Property will be in the best interests of the Debtors and their estates. 13. To facilitate the Debtors abandonment of the Remaining Property, the Debtors also request authorization under section 362(d) of the Bankruptcy Code, which permits a modification of the automatic stay for cause, to the extent necessary to permit the relevant landlords to dispose of any Remaining Property without further notice or any liability to the Debtors or any third parties and without waiving any claims that such landlords may have against the Debtors. RESERVATION OF RIGHTS 14. Nothing contained in this Motion or any actions taken by the Debtors pursuant to relief granted in the Order is intended or should be construed as: (a) an admission as to the validity, 9

10 Document Page 10 of 11 priority, or amount of any particular claim against a Debtor entity; (b) a waiver of the Debtors or any other party-in-interest s rights to dispute any particular claim on any grounds; (c) a promise or requirement to pay any particular claim; (d) an implication or admission that any particular claim is of a type specified or defined in this Motion; (e) a request or authorization to assume any agreement, contract, or lease pursuant to section 365 of the Bankruptcy Code; or (f) a waiver or limitation of the Debtors or any other party-in-interest s rights under the Bankruptcy Code or any other applicable law. NOTICE 15. Notice of this Motion will be provided to (i) the landlord for each of the Closed Locations, as specified on Schedule 1 to the Proposed Order (ii) the U.S. Trustee; (iii) counsel for the Committee; (iv) BMO as Administrative Agent under the Prepetition Credit Facility and DIP Facility and counsel thereto; (v) Westlake as Lender under the Prepetition Subordinated Term Loan and counsel thereto; (vi) 11 x 11, LLC as Administrative Agent under the Prepetition Junior Subordinated Term Loan and counsel thereto; (vii) the United States Attorney s Office for the Northern District of Illinois; (viii) the Internal Revenue Service; (ix) the United States Department of Justice; and (x) any party that has requested notice pursuant to Bankruptcy Rule The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given. [Remainder of page intentionally left blank] 10

11 Document Page 11 of 11 WHEREFORE the Debtors respectfully request that the Court enter the Proposed Order, substantially in the form attached hereto, granting the relief requested herein and such other and any further relief as the Court may deem just and proper. Dated: February 28, 2019 Chicago, Illinois SIDLEY AUSTIN LLP /s/ Bojan Guzina Bojan Guzina (ARDC # ) Jackson T. Garvey (ARDC # ) One South Dearborn Street Chicago, Illinois Telephone: (312) Facsimile: (312) PROPOSED ATTORNEYS FOR THE DEBTORS AND DEBTORS IN POSSESSION

12 Case Doc Filed 02/28/19 Entered 02/28/19 20:13:12 Desc Schedule 1 Page 1 of 3 Schedule 1 Rejected Leases

13 Case Doc Filed 02/28/19 Entered 02/28/19 20:13:12 Desc Schedule 1 Page 2 of 3 LEASE COUNTERPARTY AND ADDRESS DEBTOR PROPERTY ADDRESS Rainbow-Aurora, LLC C/O Charles Serlin 2900 West Irving Park Road Chicago, IL Elljeanne, LLC C/O Charles Serlin 2900 West Irving Park Road Chicago, IL Ultimo Elgin, LLC C/O 3015 West Irving Park LLC Attn: Charles Serlin 2900 West Irving Park Road Chicago, IL West North Avenue, LLC C/O Charles Serlin 2900 West Irving Park Road Chicago, IL North Mozart, LLC and 4416 North Mozart, LLC C/O Charles Serlin 2900 West Irving Park Road Chicago, IL David Samuels 1215 Woodbine Avenue Oak Park, IL The 14 th Man, LLC C/O 3015 West Irving Park LLC Attn: Charles Serlin 2900 West Irving Park Road Chicago, IL New York Street, Aurora, IL East Chicago Street, Elgin, IL East Chicago Street, Elgin, IL West North Avenue, Melrose Park, IL West Cermak Road, Cicero, IL , 2767 North Cicero Avenue, Chicago, IL South 27th Street, Milwaukee, WI 53221

14 Case Doc Filed 02/28/19 Entered 02/28/19 20:13:12 Desc Schedule 1 Page 3 of HGH Realty, LLC Series Lawndale and HGH Realty, LLC Series Wrightwood C/O Charles Serlin 2900 West Irving Park Road Chicago, IL Greenwich Time, Ltd. 36 W. Randolph St. Chicago, IL Franklin & Essex, LLC C/O Charles Serlin 2900 West Irving Park Road Chicago, IL Ernest L. Miller and Renee L. Miller 5242 Windsor Parke Boca Raton, FL South Green Bay Road, Waukegan, IL Rand Road, Palatine, IL West Jefferson Street, Joliet, IL North Cicero Avenue, Chicago, IL 60639

15 Form G5 ( _bko) UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS Eastern Division In Re: ) BK No.: ) (Jointly Administered) ) Chapter: 11 TOTAL FINANCE INVESTMENT INC., et ) al. ) Honorable Carol A. Doyle ) Debtor(s) ) FIRST OMNIBUS ORDER (I) AUTHORIZING THE DEBTORS TO (A) REJECT CERTAIN UNEXPIRED LEASES OF NONRESIDENTIAL REAL PROPERTY AND (B) ABANDON CERTAIN PERSONAL PROPERTY IN CONNECTION THEREWITH AND (II) GRANTING RELATED RELIEF Upon the motion (the Motion ) of Total Finance Investment Inc. and its affiliated debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the Debtors ) for entry of an order (this Order ) (i) authorizing the Debtors to (a) reject the Rejected Leases set forth on Schedule 1 attached hereto and (b) abandon the Remaining Property, each effective as of February 28, 2019 and (ii) granting related relief, all as more fully set forth in the Motion; and the Court having subject matter jurisdiction to consider the Motion and the relief requested therein in accordance with 28 U.S.C and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois; and consideration of the Motion and the relief requested therein being a core proceeding pursuant to 28 U.S.C. 157(b)(2); and venue being proper before this Court pursuant to 28 U.S.C and 1409; and appropriate notice of the Motion having been provided and upon all the proceedings had before the Court; and the Court having reviewed the Motion; and the Court being satisfied that the legal and factual bases set forth in the Motion establish just cause for the relief granted herein; and after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT: 1. The Motion is GRANTED as set forth herein. All capitalized terms used but not otherwise defined in this Order have the meanings ascribed to such terms in the Motion. 2. The Debtors are authorized to reject the Rejected Leases set forth on the attached Schedule 1, effective as of February 28, Debtors are authorized, but not directed, to abandon any Remaining Property located at the Closed Locations, in the Debtors sole discretion, free and clear of all liens, claims, encumbrances and rights of third parties, with such abandonment being effective as of February 28, The landlords for the Closed Locations are authorized to dispose of any Remaining Property without further notice or any liability to the Debtors or any third parties and without waiving any claims against the Debtors. The automatic stay is modified to the extent necessary to allow the disposition of any Remaining Property. 4. Within two business days after entry of this Order, the Debtors must serve a copy of this Order and the attached Schedule 1 on the landlords for the Closed Locations. 5. Notwithstanding the relief granted in this Order and any actions taken pursuant to such relief, nothing in this Order will be deemed: (a) an admission as to the validity, priority, or amount of any

16 Form G5 ( _bko) particular claim against a Debtor entity; (b) a waiver of the Debtors or any other party-in-interest s rights to dispute any particular claim on any grounds; (c) a promise or requirement to pay any particular claim; (d) an implication or admission that any particular claim is of a type specified or defined in the Motion; (e) a request or authorization to assume any agreement, contract, or lease pursuant to section 365 of the Bankruptcy Code; (f) a waiver or limitation of the Debtors or any other party-in-interest s rights under the Bankruptcy Code or any other applicable law; or (g) a concession by the Debtors or any other party-in-interest that any liens (contractual, common law, statutory, or otherwise) satisfied pursuant to the Motion are valid and the Debtors and all other parties-in-interest expressly reserve their rights to contest the extent, validity, or perfection, or to seek avoidance of all such liens. 6. The Debtors do not waive any claims that they may have against any counterparty to the Rejected Leases, whether or not such claims arise under, are related to the rejection of, or are independent of the Rejected Leases. 7. Nothing herein will prejudice the rights of the Debtors to argue that any of the Rejected Leases were terminated prior to the Petition Date; that any claim for damages arising from the rejection of any Rejected Lease is limited to the remedies available under any applicable termination provision of such Rejected Lease; or that any such claim is an obligation of a third party and not that of the Debtors or their estates. 8. This Order will be effective and enforceable immediately upon entry, and any stay applicable under the Bankruptcy Rules or the Local Rules are hereby expressly waived and will not apply. 9. The Debtors are authorized to take all actions necessary to effectuate the relief granted in this Order in accordance with the Motion. Enter: Dated: Honorable Carol A. Doyle United States Bankruptcy Judge Prepared by: Bojan Guzina (ARDC # ) Jackson T. Garvey (ARDC # ) One South Dearborn Street Chicago, Illinois Telephone: (312) Facsimile: (312) PROPOSED ATTORNEYS FOR THE DEBTORS AND DEBTORS IN POSSESSION