Case DOT Doc 7 Filed 12/12/11 Entered 12/12/11 14:23:43 Desc Main Document Page 1 of 17

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1 Document Page 1 of 17 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: ROOMSTORE, INC., Debtor. Chapter 11 Case No. 11- MOTION OF DEBTOR FOR PURSUANT TO 11 U.S.C. 105(a), 363, 506, 507(a), 553, 1107(a), AND 1108 AND BANKRUPTCY RULES 6003 AND 6004(h) AUTHORIZING CONTINUATION OF CERTAIN CUSTOMER PROGRAMS AND PRACTICES AND GRANTING RELATED RELIEF The debtor and debtor-in-possession (the Debtor ) in the above-captioned chapter 11 case (the Bankruptcy Case ) hereby seeks the entry of an order (the Order ), in the form attached hereto as Exhibit A, pursuant to sections 105(a), 363, 506, 507(a), 553, 1107(a), and 1108 of title 11 of chapter 11 of the United States Code, 11 U.S.C. 101, et seq., as amended (the Bankruptcy Code ), and Rules 6003 and 6004(h) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), authorizing, but not directing, the continuation of prepetition customer practices and programs that the Debtor deems necessary and in the best LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) (Admission Pro Hac Vice Pending) Bruce D. Buechler (NJ Bar No ) (Admission Pro Hac Vice Pending) Mary E. Seymour (NJ Bar No ) (Admission Pro Hac Vice Pending) Cassandra M. Porter (NJ Bar No ) (Admission Pro Hac Vice Pending) Andrew David Behlman (NJ Bar No ) (Admission Pro Hac Vice Pending) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN & FRANK, PLC Troy Savenko (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East 2nd Street ( ) Post Office Box 2470 Richmond, Virginia (804) Proposed Co-Counsel to the Debtor and Debtor-in-Possession

2 Document Page 2 of 17 interests of its estate and granting related relief (the Motion ). In support of the Motion, the Debtor respectfully represents: BACKGROUND 1. On the date hereof (the Petition Date ), the Debtor commenced the Bankruptcy Case by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code. 2. No trustee or examiner has been appointed in the Bankruptcy Case. No official committee of unsecured creditors of the Debtor has yet been appointed. The Debtor continues to manage and operate its business as a debtor-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. 3. The Debtor was founded in 1992 in Dallas, Texas with four retail furniture stores. With over $300 million in net sales for its fiscal year ending 2010, the Debtor is one of the thirty largest furniture retailers in the United States. 4. Currently, the Debtor is headquartered in Richmond, Virginia and operates a chain of sixty-three retail furniture stores, including both large-format stores and clearance centers (collectively the Retail Stores ) in eight states: Pennsylvania, Maryland, Virginia, North Carolina, South Carolina, Florida, Alabama, and Texas. In addition, the Debtor has seven warehouses and distribution centers (the Warehouses ) located in Maryland, North Carolina, Texas, and Virginia that service the Retail Stores. 5. Prior to the Petition Date, the Debtor commenced store closing sales at five of its Retail Stores, located in Hoover, Alabama; Fayetteville, North Carolina; Houston, Texas, Norfolk, Virginia, and Baltimore, Maryland. 6. General information about the Debtor, its business, its capital structure, the events leading to the filing of its Bankruptcy Case, and the relief sought by the Debtor in its various First Day Pleadings is contained in the Declaration of Lewis M. Brubaker, Jr., Senior Vice -2-

3 Document Page 3 of 17 President and Chief Financial Officer of RoomStore, Inc., in Support of Chapter 11 Petition and First Day Pleadings (the Brubaker Declaration ) filed contemporaneously herewith. JURISDICTION 7. This Court has jurisdiction over this Motion under 28 U.S.C. 157 and This is a core proceeding under 28 U.S.C. 157(b). 8. Venue is proper under 28 U.S.C and The statutory predicates for the relief sought herein are sections 105(a), 363, 506, 507(a), 553, 1107(a), and 1108 of the Bankruptcy Code. RELIEF REQUESTED 10. By this Motion, the Debtor seek entry of an order authorizing the Debtor (a) to honor or pay certain prepetition obligations to its customers in the ordinary course of its business and (b) granting related relief. 11. Prior to filing this chapter 11 case, the Debtor engaged in certain programs and practices (the Customer Programs and Practices ), in the ordinary course of its business, to develop and sustain positive customer relationships, and maintain efficient day-to-day operations. 12. Approximately 35% to 40% of the Debtor s sales are made by repeat customers. To continue its successful sales efforts, the Debtor engaged in marketing and sales programs that were used to target and develop a positive reputation for its merchandise. The Debtor s practices included accounting for various payments, cash, and non-cash credits, honoring customer deposits, offering a layaway program, accepting returns, and providing merchandise credits and warranties. The Debtor seeks authority, but not direction, to continue to honor and pay its Customer Programs and Practices post-petition. 13. The Debtor further requests that all banks and other financial institutions on which checks to its customers are drawn be authorized and directed to receive, process, honor -3-

4 Document Page 4 of 17 and pay any and all such checks, whether presented prior to or after the Petition Date, upon the receipt by each such bank of notice of such authorization. CUSTOMER PROGRAMS AND PRACTICES 14. The Customer Programs and Practices (as described below) are employed by the Debtor to account for consumer deposits and credits, allow for payment of merchandise over time (layaway), permit refunds and exchanges, and provide warrantees and protection plans on its goods and services. The continuation of the Customer Programs and Practices post-petition is necessary in order to sustain operation of the Debtor s business, operations and customer good will while the Debtor is in the process of reorganizing its estate. Moreover, the Debtor s reputation would suffer if certain Customer Programs and Practices were not honored and/or maintained. 15. Customer Deposits. The Debtor obtains a deposit (the Customer Deposits ) from a customer towards the purchase of goods not in inventory at the time of sale, specialized goods, and goods paid for over time through the Layaway Program (defined below). The Customer Deposits are not maintained in a separate bank account by the Debtor. As of December 7, 2011, the Debtor estimates it has aggregate Customer Deposits paid by cash, check or credit card from customers totaling $3.2 million. The Debtor requests authorization to use pre-petition Customer Deposits for merchandise, furniture, or other goods delivered post-petition upon a customer remitting the remaining unpaid balance on the purchase, if any, as some orders are fully paid in advance. 16. At the time customers made its Customer Deposits, they had every expectation that the Debtor would apply the Customer Deposits towards the purchase price of the selected products and merchandise. Moreover, the vast majority of Customer Deposits represent only a portion of the final purchase price of the sold goods. Consequently, while the Debtor s delivery of goods may result in satisfaction of a pre-petition claim, it produces an even larger post- -4-

5 Document Page 5 of 17 petition benefit that enhances the Debtor s liquidity and provides a more favorable outcome to the estate. 17. The Debtor s inability to use its reasonable business judgment to continue honoring Customer Deposits as described above would significantly harm the goodwill of the Debtor and its ongoing customer relationships, thereby decreasing the value of its business as a going concern. Accordingly, the Debtor seeks the authority to continue honoring Customer Deposits in the ordinary course of its business and in the exercise of its reasonable business judgment. 18. Layaway Program. Prior to the Petition Date, in the ordinary course of the Debtor s business, the Debtor allowed customers to place merchandise on layaway (the Layaway Program ). Pursuant to the Layaway Program, customers are typically required to make an initial layaway deposit of 20% to 50% of the purchase price of the merchandise (the Layaway Deposit ) and to complete the purchase, through periodic payments, within 3 to 6 months (the Layaway Payment ). The Layaway Deposits and Layaway Payments are not set aside in a separate bank account. 19. Customers are allowed to exchange layaway merchandise for other merchandise; receiving full credit for Layaway Payment(s), and a full refund of the Layaway Deposit. Approximately 4.1% of the Debtor s merchandise is purchased through the Layaway Program. As of December 7, 2011, the Debtor has 2,120 customers with Layaway Programs. 20. The Debtor believes honoring prepetition Layaway Deposits and Layaway Payments, along with maintaining the Layaway Program, is an essential component to maintaining its relationship with its customers. The Debtor s inability to use its reasonable business judgment to continue honoring the Layaway Program would significantly harm the goodwill of the Debtor and its ongoing customer relationships, thereby decreasing the value of its business as a going concern. Moreover, the Debtor anticipates continuing its Layaway -5-

6 Document Page 6 of 17 Program post-petition as it generates a significant number sales. Accordingly, the Debtor requests authority to honor, in its business judgment, all prepetition Layaway Deposits and Layaway Payments. The Debtor also seeks, in its business judgment, to continue the Layaway Program. 21. Refunds or Exchange Policy. If a customer is not satisfied with merchandise purchased in the Debtor s stores or website, the customer has the option to return or exchange the goods within two days after receiving them for a full refund. As a result, certain customers hold contingent claims against the Debtor for refunds, returns, exchanges and other credit balances (collectively, the Refunds ) relating to goods sold to customers in stores and online, in the ordinary course of its business prior to the Petition Date. 22. Ascertaining with precision an estimate of the aggregate amount of requests for Refunds for merchandise purchased prior to the Petition Date is impracticable. However, the Debtor estimates that for the year to date, through December 7, 2011, the approximate percent of merchandise sold that was returned is 6.6%. For that period, approximately 1.3% of the merchandise that was returned was exchanged for other merchandise. 23. The ability to provide Refunds is vital to the Debtor s ongoing relationship with its customers. The Debtor believes that, without the ability to provide the Refunds, many customers would be unwilling to purchase merchandise from the Debtor. Accordingly, the Debtor seeks entry of an order authorizing, but not directing, it to continue to provide Refunds and pay customer claims associated therewith in the ordinary course of business, including claims arising prior to the Petition Date. 24. Warranties and Guarantees. Prior to the Petition Date, the Debtor warranted all merchandise it sold to be free of manufacturing defects in materials and workmanship for a period of one year from the date of delivery to the original purchaser at the original delivery -6-

7 Document Page 7 of 17 address (the One Year Warranty ). The One Year Warranty was provided without additional cost to the Debtor s customers. 25. The Debtor also offered customers an extension of the One Year Warranty through a multi-tiered protection plan (the Protection Plans ) for an additional price. The Debtor offered three types of Protection Plans: Silver, Gold and Platinum. The terms of the Protection Plans varied by plan and type of product purchased. Briefly, the Protection Plan provided a customer with up to 4 year(s) (after the manufacturer s warranty had expired) to have a product repaired and replaced. The Debtor satisfies a customer s claim under the Protection Plans by repairing or replacing (depending on type) of products found to be defective or broken during the warranty period. To date, the Debtor estimates it has 326,475 of Protection Plans outstanding. 26. Price Guarantee. The Debtor also offered a price guarantee. If a customer found merchandise offered by a competitor at a lower price within 30-days of purchasing the same merchandise from RoomStore, the Debtor guaranteed that it will refund or credit the difference in prices to the customer (the 30-Day Price Guarantee, together with the One Year Warranty and the Protection Plans, the Warranties and Guarantees ). 27. Estimating the amount of obligations that may arise through the Debtor s various Warranties and Guarantees is impracticable. However, the ability to continue to provide the Warranties and Guarantees is vital to the Debtor s ongoing relationship with its customers. The Debtor believes that the increase in customer loyalty generated by the Warranties and Guarantees far outweighs the costs of such programs. Accordingly, the Debtor seeks authorization, but not direction, to continue to honor its obligations under the Warranties and Guarantees in the ordinary course of business, including obligations arising prior to the Petition Date. 28. Gift Cards. Prior to the Petition Date, the Debtor sold, in the ordinary course of business, pre-paid gift cards for use at any of the Debtor s stores or to purchase goods through -7-

8 Document Page 8 of 17 the Debtor s website (the Gift Cards ). Customers have the option of purchasing Gift Cards in any denomination. There is currently no expiration on the Gift Cards. At the time customers purchased Gift Cards, customers had every expectation that the Debtor would honor the Gift Cards and utilize the funds in the Gift Cards towards the purchase price of selected products. 29. As of the Petition Date, many customers had not yet redeemed certain of the Gift Cards. The Debtor estimates that, as of December 7, 2011, the approximate amount of outstanding obligations with respect to Gift Cards is $20, Gift Certificate Program and Coupons. The Debtor utilizes two additional programs to maintain customer loyalty and satisfaction: Gift Certificates and Coupons. 31. Under the Gift Certificate Program the Debtor allows its customer service representatives to provide customers with small denomination gift certificates as an incentive to return to the Retail Stores or as amelioration for a poor shopping experience (the Gift Certificates ). The Gift Certificates have no intrinsic cash value and are redeemable only as store credit. The Gift Certificates are not accounted for in the Debtor s books and records as they are rarely used. 32. Another tool used by the Debtor to incentivize customers to do business with it is to offer discount coupons ( Coupons ). Three to four times a year the Debtor issues special promotional Coupons offering customers a percentage discount for purchasing higher valued (or larger quantities of ) merchandise. 33. The Debtor believes continuing to honor the Gift Certificates and Coupons, along with maintaining the Gift Certificate Program, is an essential component to maintaining its relationships with its customers. Accordingly the Debtor requests authority to continue to honor Gift Certificates and Coupons and to maintain the Gift Certificate Program, in its business judgment, regardless of when the Debtor issued the Gift Certificates and Coupons. -8-

9 Document Page 9 of 17 APPLICABLE AUTHORITY A. Bankruptcy Code Sections 507(a)(7) Authorizes Honoring the Customer Programs and Practices. 34. A portion of the obligations of the Debtor to its customers may be entitled to priority treatment pursuant to Bankruptcy Code section 507(a)(7) which grants a seventh-level priority to allowed unsecured claims of individuals, to the extent of $2,600 for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided. 11 U.S.C. 507(a)(7). Money collected prepetition by the Debtor pursuant to the Customer Programs and Practices falls within this priority category. For example, Customer Deposits, Gift Cards, and Protection Plans represent a deposit.... of money in connection with the purchase... of property, or the purchase of services, for the personal, family, or household use of such individual. Furthermore, unless this motion is granted, such deposits will represent payment for goods or services that were not delivered or provided. Thus, the Debtor s customers who participated in the Customer Programs and Practices will likely be entitled to receive payment in full before payment of claims of general unsecured creditors. B. Honoring Customer Programs and Practices is Appropriate Under Bankruptcy Code Sections 506, 553, and 1129(b)(2). 35. The Debtor believes that the certain of its customers who participate in the Customer Programs and Practices have outstanding accounts receivable owed to the Debtor as of the Petition Date. If the Debtor fails to honor valid obligations owed to customers pursuant to the Customer Programs and Practices the Debtor believes customers would assert a right to offset any amounts owed to them by the Debtor against any receivables that such customers owed to the Debtor. -9-

10 Document Page 10 of To the extent that both of such obligations arose prior to the Petition Date, Bankruptcy Code section 553 provides that the Bankruptcy Code has no effect on such setoff rights. See, 11 U.S.C Furthermore, Bankruptcy Code section 506 provides that customers with such setoff rights would be considered secured creditors. See, id. and 11 U.S.C Thus, pursuant to Bankruptcy Code section 1129(b)(2), payment to such customers would be required under any plan of reorganization prior to any payment to the Debtor s unsecured creditors. See e.g., 11 U.S.C. 1129(b)(2)(B)(ii). Such payment does not, therefore, prejudice the Debtor s unsecured creditors. 37. Even if customers cannot exercise rights of setoff because, for example, the Customer Obligation arose only after the customer s purchase of the Debtor s goods, the Debtor believes that certain of its customers with valid customer claims may have a remedy for the recovery of its claims through recoupment. In order for recoupment to apply, the debts owed by the Customer and by the Debtor must arise out of a single integrated transaction so that it would be inequitable for the debtor to enjoy the benefits of that transaction without also meeting its obligations. In re Camellia Food Stores, Inc., 287 B.R. 52, 61 (Bankr. E.D. Va. 2002) (applying the Third Circuit s integrated transaction test as set out in University Medical Ctr. v. Sullivan (In re Univ. Med. Ctr.), 973 F.2d 1065, 1081 (3d Cir. 1992), and noting that the Fourth Circuit has implicitly endorsed this test). 38. Because the customers that might not be able to assert setoff rights may be able to establish a valid remedy through recoupment, such customers would be in the same position as those customers with setoff rights, i.e., entitled to payment in full. Moreover, the automatic stay of Bankruptcy Code section 362 would not prevent such customers from exercising valid recoupment defenses. See, In re Univ. Med. Ctr., 973 F.2d at Thus, the payment of such Customers Claims would likewise be required under any plan of reorganization and would not prejudice the Debtor s unsecured creditors. -10-

11 Document Page 11 of In the event that customer claims are not paid and the customers resort to asserting setoff rights or recoupment defenses, the Debtor would be required to expend time, expenses, and resources either responding to such customers lift stay requests in order to assert setoff rights or otherwise challenging, to the extent appropriate, any invalid recoupment defense asserted by the customers. The Debtor believes that it would thereby incur added and unnecessary administrative expenses in addition to the ill will of its customers, both to the detriment of the Debtor s creditors and other parties in interest. 40. In contrast, payment of valid customer obligations and maintenance of the Customer Programs and Practices as set forth herein will (i) provide the Debtor with a means of efficiently processing the Customer claims and (ii) reducing the administrative expenses the Debtor would otherwise face if compelled to challenge any customers exercise of purported setoff rights or recoupment defenses. In addition, as noted above, such payment will allow the Debtor to maintain positive relations with its customers. 41. Accordingly, the payment contemplated hereby will not diminish the assets of the Debtor s estates to the detriment of unsecured creditors. Moreover, such payment is consistent with the priority of payment of claims under the Bankruptcy Code. C. Honoring Customer Programs and Practices is Appropriate Under Bankruptcy Code Section Under Bankruptcy Code section 363, a bankruptcy court is empowered to authorize a chapter 11 debtor to expend funds in the bankruptcy court s discretion outside the ordinary course of business. See, 11 U.S.C In order to obtain approval for the use of estate assets outside the ordinary course of business, the debtor must articulate a valid business justification for the requested use. See In re Ionosphere Clubs, Inc., 98 B.R. 174, 176 (Bankr. S.D.N.Y. 1985). The necessity of the Debtor to preserve and protect its business, retain customer base and customer loyalty provide sufficient business justifications for any necessary -11-

12 Document Page 12 of 17 payments owed to customer pursuant to the Customer Programs and Practices, even if such payment were deemed to be outside the ordinary course of the Debtor s business. See, id. at 175. section Accordingly, this Court should grant the requested relief under Bankruptcy Code D. Honoring and Maintaining Customer Programs and Practices are Appropriate Under Sections 1107(a) and The Debtor, operating its business as a debtor-in-possession under Bankruptcy Code sections 1107(a) and 1108, is a fiduciary holding the bankruptcy estate and operating the business for the benefit of its creditors and (if the value justifies) equity owners. In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002). Implicit in the duties of a chapter 11 debtorin-possession is the duty to protect and preserve the estate, including an operating business s going-concern value. Id. 45. Courts have noted that there are instances in which a debtor-in-possession can fulfill its fiduciary duty only... by the preplan satisfaction of a prepetition claim. Id. at 497. The CoServ court specifically noted preplan satisfaction of prepetition claims would be a valid exercise of a debtor s fiduciary duty when the payment is the only means to effect a substantial enhancement of the estate. Id. at 498. The CoServ court articulated a three-pronged test for determining whether a preplan payment on account of a prepetition claim was a valid exercise of a debtor s fiduciary duty. First, it must be critical that the debtor deal with the claimant. Second, unless it deals with the claimant, the debtor risks the probability of harm or, alternatively, loss of economic advantage to the estate or the debtor s going concern value, which is disproportionate to the amount of the claimant s prepetition claim. Third, there is no practical or legal alternative by which the debtor can deal with the claimant other than by payment of the claim. Id. at 498; see e.g., In re United American, Inc., 327 B.R. 776, 783 (Bankr. E.D. Va. 2005)(discussing and applying CoServ test). -12-

13 Document Page 13 of Honoring and maintaining the Customer Programs and Practices meets each element of the CoServ standard. First, as described above, the success and ultimate viability of the Debtor s businesses is dependent upon customer loyalty. In the Debtor s business judgment, the uninterrupted maintenance of its Customer Programs and Practices is essential to maintaining such loyalty. Second, the disruption and adverse publicity that would necessarily result from the failure to meet Customer Obligations or from discontinuing the Customer Programs and Practices would threaten the Debtor s customer base and ultimately, its ability to successfully reorganize, thereby causing harm to the Debtor that is grossly disproportionate to the cost of the customer obligations and Customer Programs and Practices. Third, the Debtor examined other options short of payment of the Customer Obligations and continuation of the Customer Programs and Practices and has determined that to avoid significant disruption of the Debtor s business operations there exists no practical or legal alternative to payment of such obligations. 47. Therefore, the Debtor can meet its fiduciary duties as Debtor in possession under Bankruptcy Code sections 1107(a) and 1108 only by maintaining the Customer Programs and Practices and by honoring legitimate Customer Obligations. E. Bankruptcy Code Section 105(a) and the Doctrine of Necessity Support Payment Under and Maintenance of the Customer Programs and Practices. 48. Payment of valid customer claims under, and the continuation of, the Customer Programs and Practices in the ordinary course of the Debtor s business may also be authorized under Bankruptcy Code section 105(a) and the doctrine of necessity. 49. Under Bankruptcy Code section 105, this Court may issue any order... that is necessary or appropriate to carry out the provisions of the Bankruptcy Code. 11 U.S.C. 105(a). For the reasons set forth above, and the Debtor s need to preserve the going concern value of its business through, among other things, the maintenance of the Customer Satisfaction Programs, the relief requested herein is proper and should be granted. -13-

14 Document Page 14 of The continuation of the Customer Programs and Practices is further supported by the doctrine of necessity. The doctrine of necessity is a widely accepted component of modern bankruptcy jurisprudence. See, In re NVR L.P., 147 B.R. 126, 127 (Bankr. E.D.Va. 1992) ( [T]he necessity of payment rule is a narrow exception well-established in bankruptcy common law. ). The doctrine of necessity permits a bankruptcy court to authorize payment of certain prepetition claims prior to the completion of the reorganization process where the payment of such claims is necessary to the reorganization. Id. ( [T]he court can permit pre-plan payment of a pre-petition obligation when essential to the continued operation of the debtor[,] and must show a substantial necessity. ); see also, United American, 327 B.R. at For the reasons discussed herein, it is evident that maintenance of the Customer Programs and Practices, including payment of any prepetition customer obligations and claims associated therewith, is necessary to the Debtor s effective reorganization. In particular, absent continuation of the Customer Programs and Practices, the Debtor s business and operations will be detrimentally impacted due to the resulting injury to the Debtor s reputation and loss of consumer loyalty during a critical time for the Debtor and its business. This impact would be magnified by the fact that it would fall during the holiday season historically one of the peak sales periods for the Debtor. Hence, this Court should exercise its equitable powers to grant the relief requested in this Motion. F. Payment of the Customer Claims and Obligations is Warranted Under Bankruptcy Rules 6003 and 6004(h). 52. Under Bankruptcy Rules 6003 and 6004(h), any motion seeking to use property of the estate pursuant to section 363 of the Bankruptcy Code or to satisfy pre-petition claims within twenty-one days of the petition date, must demonstrate that such relief would prevent immediate and irreparable harm. The Customer Programs and Practices sustain a positive reputation of the Debtor in the marketplace, ensure customer loyalty and satisfaction, and -14-

15 Document Page 15 of 17 prevent the driving away of valuable customers that would result if the Debtor did not honor its obligations to its customers. Therefore, the Debtor submits for the reasons already set forth herein, that the relief requested in this Motion is necessary to avoid immediate and irreparable harm. 53. The relief requested in this Motion has been granted in comparable chapter 11 cases adjudicated in this District. See e.g., In re The Dominion Club, L.C., Case No (KRH) (Bankr. E.D. Va. Jan. 11, 2011); In re Circuit City Stores, Inc., Main Case No (KRH) (Bankr. E.D. Va. Nov. 10, 2008); In re Movie Gallery, Inc., Main Case No (DOT) (Bankr. E.D. Va. Oct.17, 2007). Accordingly, the Court should allow the continuation of the Customer Programs and Practices and payment of valid Customer Obligations. 54. Nothing herein shall be deemed an assumption or adoption of any policy, program, practice, contract or agreement or shall otherwise affect the Debtor s rights under Bankruptcy Code section 365 to assume or reject any executory contract or unexpired lease. 55. The Debtor does not at this time request authorization to assume as executory contracts any prepetition obligations to customers. Rather, the Debtor simply requests authorization to continue the Customer Programs and Practices and satisfy related obligations, as the Debtor believes, in the exercise of its business judgment, are necessary and in the best interests of its estate. NOTICE 56. Notice of this Motion will be given to (i) the Office of the United States Trustee for the Eastern District of Virginia; (ii) counsel to the Debtor s prepetition lender; and (iii) the Debtor s twenty-five largest unsecured creditors. WAIVER OF MEMORANDUM OF LAW 57. Pursuant to Rule (G) of the Local Rules of the Bankruptcy Court and because there are no novel issues of law presented in the Motion and all applicable authority is -15-

16 Document Page 16 of 17 set forth in the Motion, the Debtor respectfully requests that the Court waive the requirement that this Motion be accompanied by a separate memorandum of law. NO PRIOR REQUEST 58. No previous request for the relief sought herein has been made to this or any other Court. CONCLUSION WHEREFORE, the Debtor respectfully requests that the Court enter an Order, substantially in the form annexed hereto as Exhibit A, granting the relief requested in the Motion and such other and further relief as may be just and proper. -16-

17 Document Page 17 of 17 Dated: December 12, 2011 Richmond, Virginia Respectfully submitted, /s/ Troy Savenko LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) (Admission Pro Hac Vice Pending) Bruce D. Buechler (NJ Bar No ) (Admission Pro Hac Vice Pending) Mary E. Seymour (NJ Bar No ) (Admission Pro Hac Vice Pending) Cassandra M. Porter (NJ Bar No ) (Admission Pro Hac Vice Pending) Andrew David Behlman (NJ Bar No ) (Admission Pro Hac Vice Pending) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN & FRANK, PLC Troy Savenko (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East Second Street ( ) Post Office Box 2470 Richmond, Virginia (804) Proposed Counsel to the Debtor and Debtor in Possession -17-

18 Case DOT Doc 7-1 Filed 12/12/11 Entered 12/12/11 14:23:43 Desc Proposed Order Exh. A Page 1 of 3 EXHIBIT A IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: ROOMSTORE, INC., Debtor. Chapter 11 Case No. 11- ORDER PURSUANT TO 11 U.S.C. 105(a), 363, 506, 507(a), 553, 1107(a), AND 1108 AND BANKRUPTCY RULES 6003 AND 6004(h) AUTHORIZING CONTINUATION OF CERTAIN CUSTOMER PROGRAMS AND PRACTICES AND GRANTING RELATED RELIEF Upon the motion (the Motion ) 1 of the Debtor for an order, pursuant to Bankruptcy Code sections 105(a), 363, 506, 507(a)(7), 553, 1107(a), and 1108 and Bankruptcy Rules 6003 and 6004(h), authorizing, but not directing, the continuation of prepetition Customer Programs and Practices that the Debtor deems necessary and in the best interests of its estate; and the Court having reviewed the Motion and the Brubaker Declaration; and the Court having determined that the relief requested in the Motion is in the best interests of the Debtor, its estate and creditors, and other parties in interest; and it appearing that proper and adequate notice of the Motion has 1 Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Motion. LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) (Admission Pro Hac Vice Pending) Bruce D. Buechler (NJ Bar No ) (Admission Pro Hac Vice Pending) Mary E. Seymour (NJ Bar No ) (Admission Pro Hac Vice Pending) Cassandra M. Porter (NJ Bar No ) (Admission Pro Hac Vice Pending) Andrew David Behlman (NJ Bar No ) (Admission Pro Hac Vice Pending) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN & FRANK, PLC Troy Savenko (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East 2nd Street ( ) Post Office Box 2470 Richmond, Virginia (804) Proposed Co-Counsel to the Debtor and Debtor-in-Possession

19 Case DOT Doc 7-1 Filed 12/12/11 Entered 12/12/11 14:23:43 Desc Proposed Order Exh. A Page 2 of 3 been given and that no other or further notice is necessary; and upon the record herein; and after due deliberation thereon; and good and sufficient cause appearing therefor, it is hereby ORDERED, ADJUDGED AND DECREED that: 1. The Motion is GRANTED. 2. The Debtor is authorized, but not directed, to continue those prepetition Customer Programs and Practices and honor any customer obligations that it deems necessary and in the best interests of its estate and creditors, and other parties in interest, in the same manner as such programs and obligations were implemented and honored before the commencement of these chapter 11 cases. 3. The Debtor is authorized, but not directed, to continue, renew, replace, modify and/or terminate the Customer Programs and Practices (including but not limited to Customer Deposits, Layaway Programs, Layaway Deposits, Refunds, Warranties and Guarantees, Gift Cards, Gift Certificates and Coupons) as it deems appropriate, in its discretion, and in the ordinary course of business, without further application to the Court. 4. All applicable banks and other financial institutions are hereby authorized and directed to receive, process, honor and pay any and all checks evidencing amounts paid by the Debtor pursuant to the Motion, whether presented prior to or after the Petition Date. 5. The Court finds and determines that the requirements of Bankruptcy Rule 6003 are satisfied and that the relief requested is necessary to avoid immediate and irreparable harm. 6. Nothing in the Motion shall be deemed a request for authority to assume, and nothing in this Order shall be deemed to constitute post-petition assumption or adoption of any agreement under Bankruptcy Code sections Notwithstanding Bankruptcy Rules 6003 and 6004(h), this Order shall be effective and enforceable immediately upon entry hereof. -2-

20 Case DOT Doc 7-1 Filed 12/12/11 Entered 12/12/11 14:23:43 Desc Proposed Order Exh. A Page 3 of 3 8. The requirement under Local Rule (G) of the Local Rules for the United States Bankruptcy Court for the Eastern District of Virginia to file a memorandum of law in connection with the Motion is hereby waived. 9. This Court shall retain jurisdiction over any and all matters arising from or related to the implementation or interpretation of this Order. ENTERED: WE ASK FOR THIS: UNITED STATES BANKRUPTCY JUDGE LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) (Admission Pro Hac Vice Pending) Bruce D. Buechler (NJ Bar No ) (Admission Pro Hac Vice Pending) Mary E. Seymour (NJ Bar No ) (Admission Pro Hac Vice Pending) Cassandra M. Porter (NJ Bar No ) (Admission Pro Hac Vice Pending) Andrew David Behlman (NJ Bar No ) (Admission Pro Hac Vice Pending) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN & FRANK, PLC Troy Savenko (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East Second Street ( ) Post Office Box 2470 Richmond, Virginia (804) Proposed Counsel to the Debtor and Debtor in Possession CERTIFICATION UNDER LOCAL RULE (C) I hereby certify that notice of the Debtor s intent to seek entry of the foregoing proposed order was provided to the parties identified in the Motion and copy of this proposed order was provided to the Office of the United States Trustee for the Eastern District of Virginia prior to submission to this Court. -3-