Case nhl Doc 211 Filed 11/29/18 Entered 11/29/18 15:41:06

Transcription

1 JAFFE RAITT HEUER & WEISS, P.C. Paul R. Hage, Esq. (pro hac vice motion pending) Franklin, Suite 2500 Southfield, Michigan Telephone: (248) and- RIKER DANZIG SCHERER HYLAND & PERRETTI LLP Joseph L. Schwartz, Esq. (pro hac vice motion to be filed) Curtis M. Plaza, Esq. 500 Fifth Avenue, Suite 4920 New York, New York Telephone: (212) Counsel to Crestmark Equipment Finance UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK In re: Seasons Corporate, LLC, et al., 1 Chapter 11 Case No nhl Debtors. (Jointly Administered) OBJECTION AND RESERVATION OF RIGHTS Crestmark Equipment Finance, Inc. ( Crestmark ), by and through its undersigned counsel, states as follows for its Objection and Reservation of Rights (the Objection ) with respect to the Amended Motion for Orders Pursuant to Sections 105(a), 363, 365 and 503 of the 1 The Debtors in these Chapter 11 cases, together with the last four digits of each Debtor s federal tax identification number, are as follows: Blue Gold Equities LLC (7766), Central Avenue Market LLC (7961), Amsterdam Avenue Market LLC (7988), Wilmot Road Market LLC (8020), Seasons Express Inwood LLC (1703), Seasons Lakewood LLC (0295), Seasons Maryland LLC (1895), Seasons Clifton LLC (3331), Seasons Cleveland LLC (7367), Lawrence Supermarket LLC (8258), Upper West Side Supermarket LLC (8895) and Seasons Corporate LLC (2266) (collectively the Debtors ). 1

2 Bankruptcy Code and Bankruptcy Rules 2002, 6004 and 6006: (A)(i) Establishing Bidding Procedures and Bid Protections in Connection with the Sale of Certain of the Assets of the Debtors, (ii) Approving the Form and Manner of Notices, (iii) Approving the Asset Purchase Agreement Subject to Higher and Better Offers and (iv) Setting a Sale Hearing Date; and (B)(i) Approving the Sale of Certain Assets of the Debtors Free and Clear of Liens, Claims and Encumbrances, (ii) Authorizing the Assumption and Assignment of Certain Unexpired Leases and Executory Contracts; and (iii) Granting Related Relief [Doc. No. 109] (the Amended Sale Motion ). Background 1. Crestmark is a secured, pre-petition lender of Debtor Wilmot Road Market, LLC pursuant to, among other documents, Equipment Finance Agreement No (collectively, the EFA ). Specifically, Crestmark holds a first-priority, perfected security interest in and to certain commercial equipment, lighting, signage, a conveyer and an elevator (collectively, the Equipment ) located at the Debtors Scarsdale, New York store location (the Wilmot Location ). 2. Prior to the petition date in this case, the Debtors defaulted on one or more obligations under the EFA. As a result, the indebtedness was accelerated. As of the petition date, the outstanding balance owing under the EFA was approximately $3.2 million. 3. On October 15, 2018, the Debtors filed the Amended Sale Motion seeking, among other things, entry of an order approving certain proposed bidding procedures to be used in connection with the proposed sale of substantially all of the Debtors assets free and clear of any and all liens, claims, encumbrances, security interests and other interests to SSNS Express, LLC 2

3 (the Stalking Horse Bidder ), subject to any higher or better offers for the assets obtained through an auction process. 4. On October 18, 2018, the Court entered an Order Approving Bidding Procedures for the Sale of Substantially All of the Debtors Assets, (B) Scheduling an Auction and a Sale Hearing Related Thereto, (C) Approving the Form and Manner of Notice of the Auction and the Sale Hearing, and (D) Approving Bidding Protections [Doc. No. 132] (the Bidding Procedures Order ). The Bidding Procedures Order established various sale related deadlines, specifically: (i) the deadline for prospective purchasers to submit bids for the Debtors assets was November 21, 2018, (ii) in the event that one or more qualified bids was timely submitted, an auction would be conducted on November 28, 2018, and (iii) the deadline for objections to the relief sought in the Amended Sale Motion was November 29, Consistent with the Bidding Procedures Order, the Stalking Horse Bidder filed a Notice Pursuant to Bidding Procedures Order of (A) Transferred Contracts, (B) Cure Amounts, if any, and (C) Related Procedures in Connection Therewith, as amended [Doc. No. 159] (the Cure Notice ) on November 9, 2018 identifying contracts subject to assumption and assignment by the Debtors to the Stalking Horse Bidder, which notice was subsequently amended on November 13, The Cure Notice contains a category of contracts entitled Equipment Finance Agreements wherein the EFA is listed. With respect to treatment of the EFA, the Cure Notice states: Agreement in Principal Subject to Final Documentation: Payment of arrears in amount of $814,132.00; New Purchaser will satisfy the equipment lessor s secured claim at less than the full amount thereof, in an amount to be agreed upon, with any deficiency claim against the estate to be waived by the counterparty. 3

4 6. On November 16, 2018, Crestmark timely filed its Limited Objection and Reservation of Rights [Doc. No. 179] (the Limited Cure Objection ) wherein Crestmark disclosed, among other things, that: (i) the EFA is not an executory contract subject to assumption or rejection under section 365 of the Bankruptcy Code, (ii) Crestmark was engaged in good faith negotiations with the Stalking Horse Bidder regarding a proposed Binding Term Sheet which would memorialize the terms of a settlement whereby the Stalking Horse Bidder would satisfy Crestmark s secured claim by paying a negotiated amount directly to Crestmark in exchange for, among other consideration, a release of its liens, claims, encumbrances, security interests and other interests with respect to the Equipment located at the Wilmot Location, and (iii) in the event that an agreement is reached with the Stalking Horse Bidder (or, for that matter, other prospective purchasers with respect to the Equipment located at the Wilmot Location) prior to the sale hearing, Crestmark may consent at the sale hearing to the sale of the Equipment free and clear of its liens, claims, encumbrances, security interests and other interests as required to satisfy section 363(f) of the Bankruptcy Code. Crestmark expressly reserved all rights in the Limited Cure Objection. 7. Crestmark understands that one or more qualified bids were received by the Debtors prior to the bid deadline and, thus, an auction sale was conducted on November 28, At this time, Crestmark is unaware of the results of such auction. Applicable Law 8. Section 363(b)(1) of the Bankruptcy Code authorizes a debtor in bankruptcy to sell assets outside the ordinary course of business subject to court approval. 11 U.S.C. 363(b)(1). Subsection (f) of section 363 provides that a sale of property may be free and clear of any interest in such property only if one of five requirements identified in the statute is satisfied: 4

5 The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if 11 U.S.C. 363(f). (1) applicable nonbankruptcy law permits sale of such property free and clear of such interest; (2) such entity consents; (3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property; (4) such interest is in bona fide dispute; or (5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest. 9. The debtor or trustee bears the burden of proving that one or more elements of section 363(f) have been satisfied. See e.g., In re Revel AC, Inc., 802 F.3d 558, 564 (3d Cir. 2015) ( 363(f) places the burden squarely on [the Debtor s] shoulders. ); In re Malavet, 552 B.R. 24, 27 (Bankr. D. P.R. 2016) (noting that the trustee failed to meet its burden of showing that any of the enumerated conditions in Section 363(f) [are applicable] to the facts of this particular case. ); In re Flour City Bagels, LLC, 557 B.R. 53, 88 (Bankr. W.D.N.Y. 2016) (denying debtor s motion to sell because [debtor] has not carried its burden of proof under [11 U.S.C. 363(f)(3)] ). 10. Additionally, section 363(e) of the Bankruptcy Code provides: Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or conduction such use, sale, or lease as is necessary to provide adequate protection of such interest. 11 U.S.C. 363(e). Objection 11. Crestmark files this Objection out of an abundance of caution. Crestmark understands that one or more qualified bids were received by the Debtors prior to the bid 5

6 deadline and, thus, an auction sale was conducted on November 28, At this time, Crestmark is unaware of the results of such auction. 12. Upon information and belief, all bidders, including the Stalking Horse Bidder, desire to purchase the Equipment located at the Wilmot Location that is subject to Crestmark s first-priority, perfected security interest. Crestmark has engaged in good faith negotiations with certain bidders, including the Stalking Horse Bidder, regarding proposed term sheets that would memorialize the terms of a settlement whereby such bidder will satisfy Crestmark s secured claim by paying a negotiated amount directly to Crestmark in exchange for, among other consideration, a waiver and release of its interests with respect to the Equipment. However, no such agreement has yet been finalized. 13. In asserting that a free and clear sale is proper under section 363(f) of the Bankruptcy Code, the Debtors have invoked section 363(f)(3), which authorizes a sale free and clear of liens if the purchase price at which such property is to be sold is greater than the aggregate value of all liens on such property. The Debtors, therefore, have the burden to prove that the proceeds of the sale of the encumbered assets are greater than the aggregate amount of all claims held by creditors with liens in the property being sold. See In re Flour City Bagels, LLC, 557 B.R. 53 (2016). Upon information and belief, the sale proceeds in this case are not sufficient to pay all secured claims in full and, thus, section 363(f)(3) cannot be satisfied. 14. In the event that an agreement is reached with the winning bidder at the auction prior to the sale hearing, Crestmark will consent at the sale hearing to the sale of the Equipment free and clear of its interests in satisfaction of section 363(f)(2) of the Bankruptcy Code. For the avoidance of doubt, absent an agreement, Crestmark expressly does not consent to such a free and clear sale under section 363(f)(2), or any other subsection of section 363(f). 6

7 15. Additionally, to the extent that the Court approves a sale of the Equipment free and clear of Crestmark s liens, Crestmark hereby demands that the Court condition such sale as is necessary to provide adequate protection of Crestmark s interest pursuant to section 363(e) of the Bankruptcy Code. 16. Nothing in this Objection is intended to be, or should be construed as, a waiver by Crestmark of any of its rights under the EFA, the Bankruptcy Code, or applicable law. Crestmark expressly reserves all such rights including, without limitation, the right to supplement and/or amend this filing and to assert additional objections to, among other things, the proposed assumption and assignment of the EFA or the proposed sale of the Equipment free and clear of its liens. [Remainder of page intentionally left blank] 7

8 WHEREFORE, Crestmark respectfully requests that this Court enter an order: (i) sustaining this Objection, and (ii) granting it such other and further relief as this Court deems just and appropriate under the circumstances. Dated: November 29, 2018 Respectfully submitted, Morristown, NJ RIKER, DANZIG, SCHERER, HYLAND & PERRETTI LLP v2 By: /s/ Curtis M. Plaza Curtis M. Plaza, Esq. Joseph L. Schwartz, Esq. (pro hac vice motion to be filed) RIKER DANZIG SCHERER HYLAND & PERRETTI LLP 500 Fifth Avenue, Suite 4920 New York, New York Telephone: (212) and- JAFFE RAITT HEUER & WEISS, P.C. Paul R. Hage, Esq. (pro hac vice motion pending) Franklin, Suite 2500 Southfield, Michigan Telephone: (248) Counsel to Crestmark Equipment Finance 8