Case 16-10527-MFW Doc 1523 Filed 04/28/16 Page 1 of 8 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: SPORTS AUTHORITY HOLDINGS, INC., et al., 1 Debtors. Chapter 11 Case No. 16-10527 (MFW) Jointly Administered Cure Cost Objection Deadline: April 29, 2016, at 4:00 p.m. ET OBJECTION OF DGH KALAMATH, LLC, TO THE DEBTORS PROPOSED CURE PAYMENT RELATING TO STORE #890 AS SET FORTH IN THE NOTICE OF POSSIBLE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES IN CONNECTION WITH SALES (DOCKET NO. 1210) COMES NOW DGH Kalamath, LLC ( Landlord ), by and through its undersigned attorneys, MOYE WHITE LLP, and files its objection (the Objection ) to the Debtors proposed cure payment relating to Store #890 ( #890 ) as set forth in the Notice of Possible Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection With Sales (Docket No. 1210) (the Cure Notice ). In support of its Objection, Landlord states as follows: INTRODUCTION 1. On April 28, 2016, the Debtors filed their Second Omnibus Motion for Authority to (A) Reject Certain Unexpired Non-Residential Real Property Leases Nunc Pro Tunc to April 30, 2016, and (B) Abandon Any Remaining Property Located at Locations Covered by Such Leases (Docket No. 1519) (the Rejection Motion ). The Rejection Motion identified both the Sublease and Adjacent Property Lease (as defined below) for rejection notwithstanding that the 1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Sports Authority Holdings, Inc. (9008); Slap Shot Holdings, Corp. (8209); The Sports Authority, Inc. (2802); TSA Stores, Inc. (1120); TSA Gift Card, Inc. (1918); TSA Ponce, Inc. (4817); and TSA Caribe, Inc. (5664). The headquarters for the above-captioned Debtors is located at 1050 West Hampden Avenue, Englewood, Colorado 80110. 1
Case 16-10527-MFW Doc 1523 Filed 04/28/16 Page 2 of 8 Sublease is identified on the Cure Notice for possible assumption and assignment. Given the objection deadline in the Cure Notice (April 29, 2016, at 4:00 pm ET), Landlord is filing this Objection out of an abundance of caution in the event that the Debtors subsequently remove Landlord s leases from the Rejection Motion after the objection deadline. OBJECTION 2. On May 26, 1989, Thrift Realty Company (Landlord s predecessor in interest) and Gart Bros. Sporting Goods Company (Debtor TSA Stores, Inc. s, predecessor in interest) ( Gart or Debtor TSA ) entered into a commercial sublease agreement (the Sublease ) of #890 in order for Gart to use the Leased Premises for any lawful purposes. 3. The Sublease has been amended and extended from time to time, with the most recent amendment becoming effective on March 27, 2015. 4. On April 3, 2015, Debtor TSA and Landlord entered into an Adjacent Property Lease (the Adjacent Property Lease ) by which Debtor TSA used the adjacent property as a truck turnaround lot in connection with its operation of #890. 5. On October 28, 2015, Debtor TSA exercised an option which extended the term of both the Sublease and Adjacent Property from June 1, 2016 through May 31, 2017. 6. On March 2, 2016 (the Petition Date ), the Debtors filed their voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code ). (See Docket No. 1.) The Debtors continue to operate their business and manage their properties as debtors-in-possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. 7. Also on the Petition Date, the Debtors filed their Combined Motion for Entry of Orders: (A)(I) Approving Bid Procedures in Connection With the Sale of Substantially all of the 2
Case 16-10527-MFW Doc 1523 Filed 04/28/16 Page 3 of 8 Debtors Assets; (II) Scheduling an Auction for and Hearing to Approve Sale of Assets; (III) Approving Notice of Respective Date, Time and Place for Auction and for Hearing on Approval of Sale; (IV) Approving Procedures for the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; (V) Approving Form and Manner of Notice Thereof; and (B)(I) Approving the Sale of Substantially all of the Debtors Assets Free and Clear of Liens, Claims, Rights, Encumbrances, and Other Interests; (II) the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases, and (III) Related Relief (the Sale Motion ). (See Docket No. 106.) 8. In the Sale Motion, the Debtors seek authority to, inter alia, sell substantially all of the Debtors assets, including assumption and assignment of numerous leases, to interested parties willing to make a bid on the various assets at a competitive auction and sale (the Sale ). 9. On April 14, 2016, the Court entered its order approving the bid procedures set forth in the Sale Motion (the Bid Procedures Order ) (Docket No. 1186). The Bid Procedures Order required the Debtors to file a schedule of cure obligations (the Cure Schedule ) setting forth the Debtors assertions of the amounts necessary to cure any defaults in connection with the assumption, assignment, and subsequent sale of the Debtors numerous leases and executory contracts within one business day from the entry of the Bid Procedures Order. 10. On April 15, 2016, the Debtors filed their Cure Notice, setting forth the various leases which the Debtors sought authority to assume and assign in connection with the Sale. (See Docket No. 1210.) The Debtors identified the Sublease pertaining to #890 as one to be potentially assumed and assigned, and asserted that to cure all defaults the Debtors needed to pay Landlord $73,463.21 (the Proposed Cure Amount ). (See Docket No. 1210-2. at p. 11.) The Debtors, however, did not identify the Adjacent Property Lease to be subject to the potential 3
Case 16-10527-MFW Doc 1523 Filed 04/28/16 Page 4 of 8 assumption and assignment of the Sublease and have not offered to cure any defaults associated therewith. 2 11. Landlord disputes the Proposed Cure Amount, because the appropriate amount due and owing under the Sublease in order to cure all defaults is $264,576.38 (the Correct Cure Amount ). The Correct Cure Amount has the following components: February 2016 Rent: $ 31,250.00 Real Estate Taxes for 2015: $ 84,426.38 Accrued and Owing CAM Charges: $ 143,900.00 Attorneys Fees: 3 $ 5,000.00 TOTAL: $ 264,576.38 ARGUMENT 12. Before assuming any unexpired lease of real property, Section 365 of the Bankruptcy Code obligates the Debtors to promptly cure all defaults then existing. See 11 U.S.C. 365(b)(1)(A) and (B); Elkton Associates v. Shelco Inc. (Matter of Shelco), 107 B.R. 483, 487 (Bankr. D. Del. 1989). The Debtors obligation to promptly cure the existing defaults by paying Landlord the Corrected Cure Amount should be payable, by either the Debtors or any appropriate purchaser of the Debtors interest under the Sublease, immediately upon the assumption and assignment of the Sublease. 13. Furthermore, as set forth above, the Debtors are required under the Sublease to compensate Landlord for its attorneys fees incurred with filing this Objection and protecting its interests under the Sublease. See, In re Crown Books Corp., 269 B.R. 12, 15 (Bankr. D. Del. 2001) (attorneys fees are recoverable as part of a cure claim if the lease specifically provides). Accordingly, as part of the Correct Cure Amount, the Landlord requests that the Court order the 2 The cure amount associated with the Adjacent Property Lease is $5,886.90 consisting of 2015 real estate taxes. 3 Pursuant to the terms of the Sublease, the Debtor is obligated to reimburse the Landlord for all reasonable expenses including a reasonable attorneys fee for having to enforce and protect the Landlord s interests under the Sublease. At this juncture, Landlord estimates its attorneys fees incurred for having to bring this Objection and protect its interests since the Debtors filed this case at $5,000. 4
Case 16-10527-MFW Doc 1523 Filed 04/28/16 Page 5 of 8 payment of the Landlord s attorneys fees in connection with the assumption, assignment, and Sale of the Sublease. RESERVATION OF RIGHTS 14. Landlord reserves all rights, including but not limited to the right to: (i) supplement this Objection with additional costs and fees in its Correct Cure Amount as they accrue under the terms of the Sublease prior to the Sublease being assumed and assigned; (ii) supplement this Objection with additional cure costs and fees related to the Adjacent Property Lease to the extent that any portion of it is being assumed and assigned; (iii) raise all Sale-related objections; (iv) raise all objections related to the assumption and assignment of the Sublease and/or Adjacent Property Lease (to the extent that any portion of it is being assumed and assigned) to any purchaser, including but not limited to all objections to adequate assurance of future performance by any potential purchaser; (v) raise any objection to a request to designate the Sublease or Adjacent Property Lease for further assignment in the event it does not become part of the current Sale; (vi) object to any filed agency agreement, store closing agreement, sale guidelines and/or closing agreements, and liquidation guidelines and/or liquidation agreements pertaining to #890 that are inconsistent with the terms of the Sublease; (vii) require any proposed assumption and assignment to comply with all Sublease and Adjacent Property Lease terms; (viii) raise any and all objections regarding the Debtors obligations under the Sublease and Adjacent Property Lease if the Debtors ultimately choose not to follow through with their decision to reject as set forth in the Rejection Motion; (ix) raise any objections with respect to the relief sought in the Rejection Motion. WHEREFORE Landlord respectfully requests that this Honorable Court order that any assumption and assignment of the Sublease be conditioned upon payment of the Corrected Cure 5
Case 16-10527-MFW Doc 1523 Filed 04/28/16 Page 6 of 8 Amount of $264,576.38 to Landlord, and for such other and further relief this Honorable Court deems just and proper under the circumstances. Dated: April 28, 2016 DGH KALAMATH, LLC /s/ Timothy M. Swanson Timothy M. Swanson, Colorado No. 47267 James T. Burghardt, Colorado No. 10431 Moye White LLP 1400 16th Street, Suite 600 Denver, CO 80202 (303) 292-2900 (303) 292-4510 facsimile tim.swanson@moyewhite.com jim.burghardt@moyewhite.com Counsel for DGH Kalamath, LLC 6
Case 16-10527-MFW Doc 1523 Filed 04/28/16 Page 7 of 8 CERTIFICATE OF SERVICE I, Timothy M. Swanson, an attorney, hereby certify that on April 28, 2016, a true and correct copy of the foregoing OBJECTION OF DGH KALAMATH, LLC, TO THE DEBTORS PROPOSED CURE PAYMENT RELATING TO STORE #890 AS SET FORTH IN THE NOTICE OF POSSIBLE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES IN CONNECTION WITH SALES (DOCKET NO. 1210) was duly served on the following Notice Parties via e- mail transmission and first class mail as required by the Notice of Possible Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection With Sales (Docket No. 1210). /s/ Timothy M. Swanson Timothy M. Swanson Young Conaway Stargatt & Taylor, LLP Michael R. Nestor, Esq. Andrew L. Magaziner, Esq. Rodney Square 1000 North King Street Wilmington, Delaware 19801 bankfilings@ycst.com Counsel to the Debtors Pachulski Stang Ziehl & Jones LLP Bradford J. Sandler, Esq. Jeffery N. Pomerantz, Esq. 919 N. Market Street, 17th Floor Wilmington, DE 1980 bsandler@pszjlaw.com jpomerantz@pszjlaw.com Proposed Counsel to the Committee Riemer & Braunstein LLP Donald E. Rothman, Esq. Three Center Plaza Boston, Massachusetts 02108 drothman@riemerlaw.com Counsel to Bank of America, N.A., in its capacity as (A) DIP Agent under the proposed Debtor-in-Possession Credit Agreement, and (B) Administrative Agent and Collateral Agent under the Second Amended and Restated Credit Agreement, dated as of May 17, 2012 Gibson, Dunn & Crutcher LLP Robert A. Klyman, Esq. Matthew J. Williams, Esq. 333 South Grand Avenue Los Angeles, California 90071 mjwilliams@gibsondunn.com Counsel to the Debtors Office of the United States Trustee for the District of Delaware Hannah J. McCollum, Esq. 844 King Street, Suite 2207 Lockbox 35 hannah.mccollum@usdoj.gov United States Trustee Brown Rudnick LLP Robert J. Stark, Esq. Bennett S. Silverberg, Esq. Seven Times Square New York, NY 10036 bsilverberg@brownrudnick.com rstark@brownrudnick.com Counsel to (A) Wilmington Savings Fund Society, FSB as Administrative Agent and Collateral Agent under the Amended and Restated Credit Agreement, dated as of May 3, 2006 and amended and restated as of 7
Case 16-10527-MFW Doc 1523 Filed 04/28/16 Page 8 of 8 November 16, 2010 and (B) certain Term Lenders under the Amended and Restated Credit Agreement, dated as of May 3, 2006 and amended and restated as of November 16, 2010 Choate, Hall & Stewart LLP Kevin Simard, Esq. Two International Place Boston, Massachusetts 02110 ksimard@choate.com Counsel for Wells Fargo Bank, National Association, in its capacity as FILO Agent under the Second Amendment to Second Amended and Restated Credit Agreement, dated as of November 3, 2015 O Melveny & Meyers LLP John J. Rapisardi, Esq. 7 Times Square, Broadway New York, NY 10036 jrapisardi@omm.com Counsel to certain holders of 11.5% Senior Subordinated Notes Due February 19, 2018 under the Securities Purchase Agreement, dated as of May 3, 2006 8