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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Case No. 10-13800(SCC)
- - - - - - - - - - - - - - - - - - - - -x In the Matter of:
INNKEEPERS USA TRUST, et al.,
Debtors.
- - - - - - - - - - - - - - - - - - - - -x
United States Bankruptcy Court One Bowling Green New York, New York
December 14, 2010 10:08 AM
B E F O R E: HON. SHELLEY C. CHAPMAN U.S. BANKRUPTCY JUDGE
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Page 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Transcribed by: Lisa Bar-Leib HEARING re Motion of Best Western International, Inc. for Order Terminating Automatic Stay HEARING re Debtors Motion for the Entry of an Order Authorizing the Debtors to Enter into a Premium Financing and Security Agreement with AFCO Credit Corporation HEARING re Debtors Motion for Entry of an Order Authorizing the Debtors to Enter into a Premium Financing and Security Agreement with IPFS Credit Corporation
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Page 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY www.veritext.com BY: LORENZO MARINUZZI, ESQ. MORRISON & FOERSTER LLP Attorneys for the Official Committee of Unsecured Creditors 1290 Avenue of the Americas New York, NY 10104 BY: PATRICK M. BRYAN, ESQ. KIRKLAND & ELLIS LLP Attorneys for Debtors and Debtors-in-Possession 655 Fifteenth Street, N.W. Washington, DC 20005 BY: MARC J. CARMEL, ESQ. A P P E A R A N C E S : KIRKLAND & ELLIS LLP Attorneys for Debtors and Debtors-in-Possession 300 North LaSalle Street Chicago, IL 60654
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DEWEY & LEBOEUF LLP Attorneys for the Ad Hoc Committee of Preferred Shareholders 1301 Avenue of the Americas New York, NY 10019
BY:
TIMOTHY Q. KARCHER, ESQ.
THE HELMS LAW FIRM, P.L.C. Attorneys for Best Western International, Inc. 2600 North Central Avenue Suite 940 Phoenix, AZ 85004
BY:
MICHAEL G. HELMS, ESQ.
KASOWITZ, BENSON, TORRES & FRIEDMAN LLP Attorneys for Five Mile Capital 1633 Broadway New York, NY 10019
BY:
NII-AMAR AMAMOO, ESQ.
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Page 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY www.veritext.com BY: MARK A. FINK, ESQ. (TELEPHONICALLY) KILPATRICK STOCKTON LLP Attorneys for Trimont Real Estate Advisors, Inc. as Special Servicer 1100 Peachtree Street Suite 2800 Atlanta, GA 30309 BY: BRYAN A. JENNINGS, ESQ. (TELEPHONICALLY) PERKINS COIE LLP Attorneys for C-III and CW Capital 1201 Third Avenue Suite 4800 Seattle, WA 98101
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Page 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Carmel? MR. CARMEL: Your Honor, this morning we have a There were four matters put on the THE CLERK: THE COURT: THE CLERK: THE COURT: MR. CARMEL: P R O C E E D I N G S All rise. Good morning. Please be seated.
Innkeepers USA Trust. Good morning. Good morning, Your Honor. We have a -I think we have some folks Okay, Mr. Marc Carmel
for the debtors, Innkeepers. THE COURT: on the phone? Carmel.
Good morning.
Perhaps they're on listen only.
MR. JENNINGS (TELEPHONICALLY): THE COURT: Oh, they're there. I'm sorry.
I'm here.
MR. JENNINGS:
Your Honor, this is Brian
Jennings of Perkins Coie on behalf of CW Capital and C-III. THE COURT: All right. Good morning. Okay. Mr.
relatively light calendar. agenda.
The debtors had intended to file a status report and
to -- and had requested that there be a chambers conference with what we call are the key or the major constituencies. The
history is essentially still being written and so we've asked Your Honor to accommodate us with a chambers conference at 4 p.m. THE COURT: That's fine.
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Page 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 e-mail -THE COURT: MR. CARMEL: Okay. Very well. And so we go to MR. CARMEL: Your Honor did accommodate that and we
very much appreciate that. THE COURT: All right. And you're going to get notice
out to all the usual suspects on that? MR. CARMEL: Yes. We've already sent notice out by
-- for this hearing.
matters B and C on the agenda.
Basically, it's two motions for Your Honor, We tried
approval of insurance premium finance agreements. there was a second day motion that dealt with this.
to convince the premium finance companies that that motion should be acceptable to them. But being premium finance We think it's
companies, they wanted the comfort of an order.
entirely appropriate and consistent with the relief you've entered before and we ask that Your Honor enter orders on the premium finance agreements -- approval of the premium finance agreements and pledging the collateral as described in the motion for the IPFS premium finance motion and the AFCO premium finance motion. THE COURT: All right. No responses or objections
were received, correct? MR. CARMEL: There were no responses or objections. We
There's a very minor change to the order for the AFCO.
literally took out the word "Credit" in AFCO Credit Corporation
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Page 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 morning. MR. HELMS: Good morning, Your Honor. Michael Helms, -THE COURT: MR. CARMEL: Okay. -- 'cause we just had the name wrong. And we intend
But other than that, there were no objections.
to tender orders that are otherwise the same as what we submitted with the motions. THE COURT: MR. CARMEL: All right. Very well. Motion's granted. And we'll submit
Thank you, Your Honor.
an order for each of those two finance agreements -THE COURT: MR. CARMEL: THE COURT: MR. CARMEL: Okay. -- later today. All right. The final matter on the agenda is Best
Western's motion to lift the automatic stay so that they can terminate the membership agreement. This is similar to a
motion that -- or at least similar in terms of what's at stake with the motion that you heard -THE COURT: MR. CARMEL: Right. -- last month. It's Best Western's
motion and so we'll allow them to -THE COURT: Okay. Thank you, Mr. Carmel. Good
Helms Law Firm, Phoenix, Arizona, representing Best Western International, Inc., Your Honor.
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Page 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. HELMS: THE COURT: debtors' papers. like to add. MR. HELMS: Certainly. Your Honor, we filed this Okay. Good morning, Mr. Helms.
Good morning, Your Honor. I've read your papers. I've read the
I'm happy to hear anything further that you'd
motion because the debtor has failed to comply with the membership requirements of the Best Western membership. Best
Western granted membership to a hotel in West Palm Beach, one of the seventy-two hotels in this consolidated proceeding. this debtor has failed to comply with the membership requirements. Best Western granted an extension for the time And
to comply and the particular requirements are design -- hotel design requirements. Those design requirements -- there are
quite a number of deficiencies of this hotel and failure to comply with the requirements of Best Western with regard to that property. The -- Best Western did grant this hotel approximately eight months to comply to bring that hotel into compliance. And on -- that compliance date, by agreement, was April 12th of 2010. On March 31st, just before that, the debtor requested --
or this particular debtor requested an additional ninety days. And Best Western granted that and gave them -- on May 20th granted an extension till August 20th to comply with those design requirements. In the interim, the debtors filed this
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Page 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 bankruptcy proceeding. On August 25th, five days after the
ninety days -- that last ninety-day extension was up, Best Western did an inspection, discovered that this hotel had done nothing to comply with the design requirements and we now seek relief. The problem here, of course, is that Best Western puts out and licensed this hotel to use its name and its trademarks and to promote itself to the public as a Best Western affiliated hotel. The public has come to expect certain
consistencies with regard to various Best Western hotels wherever they go. find that. And when they go to this hotel, they don't
They find something different, something that does
not comply with the Best Western requirements, that is not consistent with those requirements. In addition to that, this
hotel also participates in the Best Western reservation system. Best Western is sending guests to this hotel, guests who under the reservations system go to this hotel expecting certain consistencies, expecting certain design requirements that are consistent with Best Westerns they've stayed at before. these guests go to this hotel, they don't find that. When
And those
guests are taking -- of course, taking business away from other Best Western hotels. industry. The Best Western trademarks and the licensing are not being satisfied. And those requirements of that licensing are This is a very highly competitive
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Page 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 not being satisfied in this hotel. well, but we're paying our bills. quality assurance scores, are high. hotel. Now the debtor says that, And we've got -- our QA, our That is, we clean our
But that's not -- that isn't what -- everything that It requires those things
the membership agreement requires. for certain. requirements.
But it also requires compliance with the design This hotel does not comply with these design -But let me stop you because I think that
THE COURT:
we covered a lot of this ground when we were all last together on your motion to shorten the time for the debtors to assume or reject the contract. The issue is -- the debtors are current
and the issue is that there are what you call historical defaults or failures to comply. MR. HELMS: THE COURT: Absolutely. And the question, it seems to me, is you'd You'd like this contract to
like to get out of this contract. be terminated. MR. HELMS: THE COURT: Absolutely. Right.
So this has been couched as a
motion for relief from the automatic stay but it's really a motion to compel rejection of the agreement. And a lot of your
argument in the pleadings is based on the premise that even if the debtors did want to assume and assign this agreement, they would be unable to do so. I think that's -- you're basically
telling me that you don't believe under any circumstances can
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Page 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 this debtor cause this property to be operated as a Best Western. MR. HELMS: THE COURT: That's correct. But that's not before me now. We -- I
already issued a ruling that there wasn't a basis for me to compel the debtors to make a decision regarding assumption or rejection at this early point in their cases. back for a lift stay. factors. MR. HELMS: THE COURT: MR. HELMS: Sonnax doesn't apply here, Your Honor. Why is that? Sonnax was a case that simply said here And now, you're
You really haven't satisfied the Sonnax
are our factors to follow in order to determine whether litigation shall continue in another forum. litigation here. about. THE COURT: MR. HELMS: Right. Those factors have nothing to do with And that's what we're dealing There's no
There's no other forum that we're talking
adequate protection and cause. with here.
We have cause because this property is in default
of its membership agreement requirements. THE COURT: But how does that take it out from any There's
other -- and we had the same conversation last time.
nothing that distinguishes this from any other contract that comes into bankruptcy in default and the debtor, as it's
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Page 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 required to do, performs during the case. decision about assumption or rejection. And then it makes a And then there is a
cure amount or a procedure, a cure of monetary and nonmonetary defaults. You're telling me but they're not going to be able And there's
to do that as and when they make that decision.
nothing that you've told me that takes this out of the usual rubric of a defaulted contract. I think what -- the basis of
your argument is that there's a trademark and that your brand is being harmed. MR. HELMS: Correct. That's the cause. And the
problem is this membership agreement cannot be assumed. THE COURT: MR. HELMS: THE COURT: dispute that. Well, but again -It cannot be cured. That -- I don't -- I mean, the debtors
The debtors dispute that. I don't know that they do. They certainly
MR. HELMS:
haven't said so in their response. THE COURT: MR. HELMS: THE COURT: footnote 14. I think they said it in their response. No, ma'am. I will point it out to you. Paragraph --
And it's simply -- that is not before me today. The difference between this and what we
MR. HELMS:
typically see in contracts that are in default is the contracts that are typically in default are simply payment defaults most of the time.
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Page 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. HELMS: THE COURT: MR. HELMS: THE COURT: MR. HELMS: occurring today. THE COURT: But it may well be that at a certain point I'm sorry. I --
Most of the time. I categorically -This is not --- disagree. And this is a continuing default that is
when the debtor gets closer to formulating a plan of reorganization, it comes to Best Western and says here's our proposed cure. We're going to refurbish the lobby. We're
going to put in new carpeting. don't know. either.
I'm making this up because I The debtor doesn't know
And that's the point.
But the harm to the debtor is laid out at length in And
their papers regarding the defaults that would ensue.
that's where Sonnax comes in that in this type of a situation where you have an interest of the debtor, you have to do some kind of a balancing of the harms. MR. HELMS: THE COURT: MR. HELMS: Well -Go ahead. Sonnax simply deals with continuing And it specifically says that. And that was the And I --
litigation in another forum.
And it says that those factors apply to that. problem in Sonnax is whether to do that.
The harm that the They say, well,
debtor talks about here are really two-fold.
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Page 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 stay. we're going to encourage other people to bring these kinds of motions and we're just going to have an avalanche of motions. The problem is we've already had those avalanches of motions. THE COURT: MR. HELMS: What avalanche would that be? Well, twenty-one -- the creditor filed a
motion to lift stay on twenty-one of these hotels earlier in this case. The debtor filed motions to assume executory
contracts on forty something of these hotels early in this case. These things are already before -- the creditors know The creditors -I haven't lifted the stay with respect to
what's going on.
THE COURT:
any property in this case. MR. HELMS: Oh, I understand you haven't lifted the
The problem the debtor says is people are going to file And these motions have already been filed. Other people
these motions.
We're not causing other people to file motions. have filed motions. THE COURT: MR. HELMS: THE COURT: MR. HELMS: THE COURT: If the standard --
And they've resolved those -If the basis --- with the debtor. -- for a lift stay -- an order lifting the
stay is simply that there are pre-petition defaults that may or may not be curable, at some point as and when the debtor determines to assume or reject the contract then anyone who
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Page 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 files one of these motions, I have to grant. MR. HELMS: THE COURT: reorganize. MR. HELMS: No, ma'am. The standard is whether the The debtor provides no There's both -And then the debtor doesn't get to
debtor can provide adequate protection.
protection here for Best Western, has not even offered any adequate protection for Best Western. THE COURT: MR. HELMS: Adequate protection of what? Of our trademarks. Of our name. Of
compliance with the Best Western.
There is not only pre-
petition defaults, there are post-petition defaults in the design requirements. resolve that. And the debtor has offered nothing to
There is no protection offered to Best Western
here whatsoever. THE COURT: MR. HELMS: THE COURT: MR. HELMS: MR. CARMEL: Let me hear from Mr. Carmel -Not at all. - or whoever from his team is arguing. Okay. Thank you, Your Honor. I'm going to
focus on a handful of the topics that you focused on although I'm certainly prepared to give a more full argument if you think it's appropriate. THE COURT: No. I think just focus in on Mr. Helms' That will be very helpful.
points in response to mine.
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Page 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. CARMEL: Your Honor. Well, there's a couple of things here,
We agree that this is essentially similar relief And in terms of
to a motion to compel assumption or rejection.
just setting the record straight, there was a single motion to lift the automatic stay filed by Trimont. That motion has been Hasn't gone
essentially continued indefinitely at this point. forward. There was a THE COURT:
But that wasn't a -- that was a more
global motion in the context of the PSA litigation. MR. CARMEL: Right. And that was separate and apart
from having a contract counterparty -THE COURT: MR. CARMEL: THE COURT: MR. CARMEL: Exactly. -- seeking to lift the automatic stay -All right. -- so that they could exercise rights
that they're prevented from exercising as a result of the automatic stay. THE COURT: MR. CARMEL: THE COURT: MR. CARMEL: All right. And then there was the Marriott motion. Right. Again, that's a separate concept that --
it was not a request for assumption or rejection nor has there been any other assumptions. We agree with you, Your Honor,
that there would be an avalanche if the standard is lowered to there just being pre-petition defaults.
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Page 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The question that's before Your Honor is simply that if a pre-petition default justifies lifting the automatic stay. And while we don't think it's nece -- we don't think you necessarily have to agree with us that we are continuing to get good scores. I think it's relevant to the analysis and
relevant to the colloquy that you just had with Mr. Helms that over the prior several months in the post-petition period, the quality scores at this hotel have been very high both relative to what Best Western was willing to tolerate from the debtors pre-petition but also relative to them operating a business and being concerned that their intellectual property is losing value. Now there's not a request for adequate protection. If
there is, we can address that but I'm hoping that we don't -THE COURT: MR. CARMEL: THE COURT: Well, I --- end up having -I think that -- I mean, that was part of
Mr. Helms' argument is that he's entitled to adequate protection. MR. CARMEL: And my response is that we don't believe
that he is entitled to adequate protection because what he's -the argument that he's making today, which is a new one but nonetheless we'll address, is that somehow the intellectual property or the name of Best Western is in jeopardy as we continue through this bankruptcy. And we believe that the
quality scores are a good indication that that's actually not
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Page 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the case. People who are coming to our hotel are actually And I
leaving with -- and providing feedback to Best Western. don't know if Mr. Helms has a witness. We're happy to go
through the quality report with his witness and discuss what the implications are. But nonetheless, we attached to our And there's -- and we
objection the recent quality scores.
have something from, actually, August 25th, 2010 with us that actually show that the scores are in the range of "good" to "very good". And so, in terms of brand identity, we actually
think he's already being adequately protected by the way we're operating the hotel. (Pause) MR. CARMEL: I believe it's Exhibit B is the August And quite frankly,
25th, 2010 Quality Assurance Assessment. there's a bunch of numbers on a page.
So to you and I, it
looks like -- it's all kind of relative to what the scale is. THE COURT: MR. CARMEL: Right. But the scale for at least the top
portion -- or, I guess, that whole first page is a thousand. And we're scoring around 900 in some areas, 987 in some areas, and a thousand out of a thousand in other areas. And so,
again, we don't have evidence before you, quite frankly, at all from Best Western. They submitted a declaration. I'm not sure
if their witness is here.
And if their witness is here, we'd
like to cross-examine him before admitting any of the
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Page 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 testimony. But the debtors have submitted this quality
assurance survey to provide evidence that there actually is high quality. There's been no indications from Best Western
that there's any payment default either in their documents or even today. And so we believe that, on a post-petition basis,
we're continuing to comply with our obligations. THE COURT: Well, I think the essence of what their
argument, if you look at the affidavit of Cheryl Pollack, there are identified a number of property requirements, so to speak, that its alleged the facility doesn't comply with, for example, an exercise room, a lobby of at least 800 square feet, plasma TVs, a refrigerator, things of that nature, all of which, I have to add, would be remediable, if that's a word -- able to be remedied in the event that the debtors determined to assume the contract. MR. CARMEL: Right. And these were clearly -- I mean,
even based on the date of the report, clearly concerns that Best Western had more than a year before we filed for bankruptcy with -- is both relevant in terms of being prepetition default, and also relevant in terms of being defaults that they weren't overly concerned with having remedied, because they gave the debtors a period of time to remedy. And
while I appreciate that Best Western probably wishes that they had those remedied before we filed for bankruptcy, the truth of the matter is we are now a debtor and so it's -- we have the
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Page 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 opportunity to cure these at the time that we're going to assume the contract, and that's a discussion we could have at another day. But not a discussion we should be having today, And, quite frankly,
because we're not seeking to assume these.
not a discussion that we want to engage in on a monthly basis, as we're trying to address a global restructuring of our enterprise, and having to deal with these sorts of issues, and discussing how you remedy it, how much it costs to remedy it, what -- you know, how we're going to pay to remedy it, are things that you deal with typically in a plan context based on the way the Bankruptcy Code works. And we believe that there's no special cause that Best Western has shown. And, in fact, there's no evidence. But
even if you took on faith for just a minute, this declaration, there's still no evidence that Best Western's in a special situation that would warrant or provide the cause for this Court to lift the stay and allow the contracts to be terminated. But they should be rest assured that we are paying our obligations as they come due, and our quality scores are high. And we may be before your court at another time. Hopefully,
this won't be a serial filing where every month we're dealing with different legal theories on the same point, but if -we'll address those if they come up. THE COURT: All right. But --
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Page 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Helms. MR. HELMS: Mr. Carmel talks about the quality scores MR. CARMEL: -- for the reasons in our objection, we
think the motion should be denied. THE COURT: All right, thank you, Mr. Carmel. Mr.
being high, and that has absolutely nothing to do with the design requirements. THE COURT: Those are something entirely different. No, I get that. I get that. But the fact
of the matter is that I still have not heard anything that takes this out of what I would call a garden variety contract situation. I know that you're telling me that it's the brand, But that's not -- to my mind that's not
and I understand that.
a difference that makes a difference in the current context. The debtors have only been in bankruptcy for a relatively short period of time. exclusive period. They're still in their
The fact that they are remaining current and
achieving high quality scores, while does not cure the prepetition design deficiencies if you will, it is evidence of their -- of their good faith attempts to continue to operate the hotel as best they can and to not do anything while they're a debtor to damage the brand, if you will. And your motion, as I've said before, is really a motion to compel them to reject the contract, it's premised on the assumption that they can't cure it. and we do have a failure of proof. And, yet, in the --
I mean, your witness is not
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Page 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 here. These items that are listed can all be fixed. The
debtors could submit, if they were to make a motion to assume the contract, the debtors I think would have to submit to you a plan to remedy each of these issues and we would have to dispose of the motion on that basis. If what -- the historical default case that you cite in your papers is not applicable here. In that case the seven-
day failure to operate the dealership had occurred prepetition, I believe, the contract had terminated, you couldn't resurrect it. But these kinds of historical defaults happen And in the context of a motion to And I just --
all the time in bankruptcy.
assume or reject they get cured or they dont.
I'm trying, but I don't hear anything that takes us out of that rubric, other than your belief that the brand is being somehow irreparably damaged. But the quality assurance scores cut
against that assertion. MR. HELMS: Quality assurance scores have absolutely
nothing to do with this hearing. THE COURT: The quality assurance scores tell me that
when somebody checks into the hotel they're happy. MR. HELMS: Well, actually, this hotel is in the
bottom percentage of Best Western Hotels so far as customer responses; customer satisfaction. not getting what they expect. They're not happy. They're
What they expect is a Best It's
Western Hotel and this is not a Best Western Hotel.
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Page 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 flying a Best Western flag, but it is not what the cust -- what the public expects and what guests expect of a Best Western Hotel. It does not have a sufficient lobby, it does not have
an exercise room, it does not have a business center, it does not have -THE COURT: MR. HELMS: THE COURT: And what am I --- all these required things. And what am I supposed to do about the
fact that if I lift the stay the debtors' DIP agreement -- DIP financing will go into default. MR. HELMS: THE COURT: MR. HELMS: Well, I don't think it will, Your Honor. Why is that? Because the language of that DIP agreement
is that if a franchisor terminates a franchise that would be a default. We're not a franchisor and this is not a franchise. It is significantly
We are a membership organization. different than a franchisor. membership organization. difference.
This is not a franchise, it is a
And that -- there is a significant
Second part of that is that to the extent that the lenders claim that that would be a default the debtor has the right under that DIP agreement to come here and ask for an emergency hearing, and ask the Court to determine whether or not that would be a default under the DIP agreement. Court can determine that. And the
I suggest that it would not, but
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Page 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 damages. that's not an argument for me to make, that's an argument between the debtor and the lenders. But, certainly, on the
language of the DIP agreement, it would not apply to Best Western. THE COURT: Your position is that this contract cannot
be assumed, that these defaults cannot be cured, correct? MR. HELMS: THE COURT: That is correct. All right. So that means that ultimately
you would say that there's going to be an order rejecting the agreement, right? MR. HELMS: Well, actually, the debtors told us
they're going to reject the agreement -THE COURT: MR. HELMS: THE COURT: claim damages? MR. HELMS: The problem is those are immeasurable Okay. -- they just haven't done it. And then don't you get an opportunity to
There's no way to determine what those damages are. THE COURT: So your position is that unless I grant
this motion today the entire Best Western organization is going to come down? MR. HELMS: THE COURT: No, ma'am. I just -- I'm not hearing -- I am not
hearing cause and I don't have any evidence of anything other than you're telling me that Best Western would like this
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Page 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 property to not fly the Best Western flag. MR. HELMS: Because it doesn't qualify for membership
in the Best Western organization. THE COURT: MR. HELMS: THE COURT: It's -It does not meet the design requirements. I have previously refused to grant your
motion to shorten the time for the debtors to assume or reject this agreement. MR. HELMS: THE COURT: That's correct. All right. Having done that, implicitly
if not explicitly, that means that I believe the debtors are entitled to more time to determine what they want to do with this agreement. In the meantime, they're keeping current on Prior to the time that
their post-petition obligations.
there's an assumption or rejection they're not obligated to cure alleged defaults. That's the whole point of their having If at the time they
time to assume or reject the agreement.
make a determination they will proffer a cure, you'll either agree to that or there'll be a determination, or they'll reject the agreement and you'll be entitled to file a damage claim. MR. HELMS: With all due respect, separate and apart
from curing any defaults this debtor is required to adequately protect Best Western's brand. THE COURT: MR. HELMS: What does that mean? That means that they are required while
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Page 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 up. MR. HELMS: Well, they've got to do something. They they're use -- while they're flying that Best Western flag, they're going to have to provide some kind of protection to Best Western, which means satisfaction of the membership requirements. THE COURT: MR. HELMS: THE COURT: But, with all -During the time -With all due respect, you just made that
have not offered any kind of protection. THE COURT: MR. HELMS: protection. THE COURT: MR. HELMS: THE COURT: evidentiary hearing? MR. CARMEL: Your Honor, the answer to that is no. But, of We Mr. Carmel? And that burden is on the debtor. You want to set this over for an But, but -And they're not providing any kind of
don't want to set it up for an evidentiary hearing. course, if that's the request then we will.
We, certainly,
don't want to address substance of that today given that it's a request that we're just hearing today. But I would suggest
that in terms of their interest, they're currently being adequately protected by the way in which we operate the hotel, and there is evidence of that already in the record, in terms
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Page 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 record -THE COURT: Mr. Marinuzzi, how are you? I'm well, Your Honor. Yourself? way. of the quality scores that we've received. And the suggestion
that those quality scores are on the low -- the low end of the spectrum is just not supported by the facts. Your Honor, maybe we have to address this a different But coming back continually before you and spending our
resources on motions that are, essentially, the same relief cloaked with difference code sections is, quite frankly, not an efficient use of the debtors' resources. We'd ask you, certainly, to deny this motion. And if
there's a separate motion, we'll address it in the appropriate way. THE COURT: Helms, anything else? MR. HELMS: THE COURT: Nothing further, Your Honor. Well -I'm sorry, Your Honor. For the All right. Thank you, Mr. Carmel. Mr.
MR. MARINUZZI:
MR. MARINUZZI: THE COURT:
Okay. Good. Your Honor, just an I'm not sure Because if I
MR. MARINUZZI:
observation, in listening to the legal arguments. an evidentiary hearing is really required here.
hear the legal arguments the position of Best Western is adequate protection equals cure. And that can't be the case.
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Page 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 It can't be that you must cure three, four months into a bankruptcy case in order to provide adequate protection. I think that the evidence in front of the Court, as submitted by the debtors in their response, is that the hotel is meeting the quality standards. May not have a microwave
exactly where a Best Western customer expects a microwave to be in the hotel room, but the hotels are not performing terribly, the debtors are current as far as their financial obligations to Best Western. We're not hearing any sort of evidence of I'm hearing we want
their not paying us, or it's a disaster.
them to comply with the pre-petition standards, and that to us equals adequate protection. THE COURT: to de-flag the hotel. MR. MARINUZZI: THE COURT: We know that. We know that. No. I think we're hearing that they want
Right. But as far as the legal argument we're
MR. MARINUZZI:
hearing, it's really we need them to prove today that they could cure. And the only way to do that is for them to
actually cure as opposed to provide adequate protection, which is Your Honor's determination, not theirs. Honor. THE COURT: All right. Thank you. That's all, Your
MR. MARINUZZI: this motion.
We support the debtors, obviously, on
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Page 30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Thank you. Thank you.
MR. MARINUZZI: THE COURT:
Well, I've heard nothing that convinces me I don't
that relief from the automatic stay is warranted here.
believe that Best Western has shown cause based on the record before me. I will deny the motion but without prejudice to its
renewal should the conditions at the hotel deteriorate. I do agree with the statement, and I think I said it at the outset of the hearing, that I believe that this is, essentially, the same motion that we dealt with last month. It's clear that Best Western wants to be relieved from its contractual obligations. But as I said, I don't believe that
there's anything here that takes it out of the usual rubric for the procedure for assuming and rejecting contracts. And I'm not inclined at this still early point in the case, particularly in light of the debtors' post-petition compliance with its financial obligations and the evidence that I have as to the quality assurance scores that there's cause to lift the automatic stay at this juncture. As I said, the
ruling is without merits to its renewal at a subsequent point in the case. In addition, if Best Western wishes to appeal, I reserve my right to file a written opinion with more detailed findings of fact and conclusion of law. Will someone submit an order, please?
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Page 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Helms. MR. CARMEL: Thank you, Your Honor. We'll work to
submit an order with Mr. Helms. THE COURT: All right, thank you. Thank you, Mr.
I think that's it, we'll be back at 4:00 -MR. CARMEL: THE COURT: Right, for the chambers conference. -- for a status conference. All right.
Very well.
Thank you. Thank you, Your Honor. Thank you.
MR. CARMEL: MR. HELMS:
(Whereupon these proceedings were concluded at 10:42 a.m.)
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Page 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DESCRIPTION Debtors Motion for entry of an order authorizing them to enter into a premium financing and security agreement with IPFS Credit Corporation granted Debtors Motion for the entry of an order authorizing them to enter into a premium financing and security agreement with AFCO Corporation Motion denied without prejudice to its renewal should the conditions at the hotel deteriorate 30 7 8 7 R U L I N G S PAGE 8 LINE 7 I N D E X
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Page 33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Date: January 26, 2011 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 I, Lisa Bar-Leib, certify that the foregoing transcript is a true and accurate record of the proceedings. C E R T I F I C A T I O N
Lisa Bar-Leib
LISA BAR-LEIB
___________________________________
Digitally signed by Lisa Bar-Leib DN: cn=Lisa Bar-Leib, o, ou, [email protected], c=US Date: 2011.01.27 11:41:18 -05'00'
AAERT Certified Electronic Transcriber (CET**D-486)
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