IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION

Transcription

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION In re: Chapter 7 S & A Restaurant Corp., et al. Case No , et seq. Debtors. Jointly Administered LIMITED OBJECTION OF FRANCHISE LOAN TRUST I AND CAPTEC FRANCHISE TRUST TO CHAPTER 7 TRUSTEE S MOTION PURSUANT TO SECTIONS 363, 365, 544, 547, 548 AND 551 OF THE BANKRUPTCY CODE AND RULE 9019 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE TO COMPROMISE OR SETTLE CONTROVERSIES WITH ATALAYA ADMINISTRATIVE LLC, ATALAYA FUNDING LLC AND FORTRESS CREDIT OPPORTUNITIES I LP TO THE UNITED STATES BANKRUPTCY JUDGE: Franchise Loan Trust 1998-I and Captec Franchise Trust (collectively, the Trusts ) file this Limited Objection to the Chapter 7 Trustee s Motion Pursuant To Sections 363, 365, 544, 547, 548 and 551 of the Bankruptcy Code and Rule 9019 of the Federal Rules of Bankruptcy Procedure to Compromise or Settle Controversies With Atalaya Administrative LLC, Atalaya Funding LLC and Fortress Credit Opportunities I LP ( Atalaya Motion ) 1. On or about July 29, 2008, the Debtors each commenced a case under chapter 7 of the Bankruptcy Code. Michelle Chow is the chapter 7 trustee of the Debtors estates (the Trustee ). 2. Upon information and belief, before the commencement of this case, one or more of the Debtors operated restaurants. Upon information and belief, the Debtors closed and are no longer operating a number of Bennigan s and Steak & Ale Restaurants. LIMITED OBJECTION Page 1

2 THE FEE MORTGAGE LOANS 3. The Trusts own, in aggregate, twelve loans (such loans, the Fee Mortgage Loans ) made to S&A Fee Properties SPE 2, L.L.C. ( SPE FEE 2 ), as borrower, in each case evidenced by a promissory note. SPE FEE 2 is not a debtor in these cases. Upon information and belief, one or more of the Debtors may own an equity interest in SPE FEE 2. Attached hereto as Exhibit A is a chart generally identifying the Fee Mortgage Loans by the designation Fee. 4. SPE FEE 2 owns tracts of improved real property in several states. Upon information and belief, SPE FEE 2 (as owner of the fee and in some cases as assignee) was a party to a lease, sublease or use agreement with one or more of the Debtors for many of these sites. Equipment, furniture and fixtures ( FFE ) are located at the sites. The sites were used in connection with the operation of a restaurant. 5. The twelve Fee Mortgage Loans are secured by, among other things, deeds of trust or mortgages ( Fee Mortgages ) executed by SPE FEE 2 granting liens against tracts of improved real property owned by SPE FEE 2 (each, as described in the Fee Mortgages and related Fee Mortgage Loan Documents, a Fee Mortgage Property and collectively, the Fee Mortgage Properties ). The Fee Mortgages also grant security interests in the property described therein. 6. In connection with a Fee Mortgage Loan, typically one of the Debtors executed among other things: (i) a security agreement granting a security interest in, among other things, substantially all personal property, equipment, licenses, receivables, intellectual property, documents and other intangibles relating to the subject property; (ii) a limited collateral LIMITED OBJECTION Page 2

3 assignment of liquor license relating to the subject property; and (iii) an assignment of warranties, contracts and permits relating to the subject property (collectively, with the Fee Mortgages and applicable notes and any related agreements securing the Fee Mortgage Loans, the Fee Mortgage Loan Documents ). In connection with each Fee Mortgage Loan, certain Debtors executed guaranty agreements and other Debtors executed limited guaranty agreements. The Fee Mortgage Loans owned by Franchise Loan Trust I are cross-collateralized. 7. By letter dated July 28, 2008, the Trusts notified SPE FEE 2 and the applicable Debtor guarantors of their default for failure to pay when due amounts owing under the loan documents. SPE FEE 2 and the Debtor guarantors did not cure the defaults under the Fee Mortgage Loans. There is a continuing default under the Fee Mortgage Loan Documents. 8. The Trustee has rejected the Debtors real property leases, if any, related to the Fee Mortgage Properties and has abandoned all FFE and perishables located at the Fee Mortgage Properties. THE LEASEHOLD MORTGAGE LOANS 9. Franchise Loan Trust 1998-I owns eleven loans (such loans, the Leasehold Mortgage Loans ) made to S&A Leased Properties SPE 2, Inc. ( SPE Leased 2 ) as borrower, in each case evidenced by a promissory note. SPE Leased 2 is not a debtor in these cases. Upon information and belief, one or more of the Debtors may own an equity interest in SPE Leased 2. Exhibit A generally identifies the Leasehold Mortgage Loans by the designation Leasehold. LIMITED OBJECTION Page 3

4 10. With respect to the Leasehold Mortgage Loans, SPE Leased 2 is the tenant under lease agreements with third- party landlords for premises in several states (in many cases, the lease was assigned to SPE Leased 2 by a Debtor). Upon information and belief, SPE Leased 2 (as the prime tenant under the lease agreements) is a party to lease/sublease agreements with one or more of the Debtors relating to these sites. FFE is located at the sites. The sites were used in connection with the operation of a restaurant. 11. The eleven Leasehold Mortgage Loans are secured by, among other things, deeds of trust or mortgages ( Leasehold Mortgages ) executed by SPE Leased 2 granting liens against the leasehold interest of SPE Leased 2 in the applicable premises and related property (each, as described in the Leasehold Mortgages and related Leasehold Mortgage Loan Documents, a Leasehold Mortgage Property and collectively, the Leasehold Mortgage Properties ). The Leasehold Mortgages also grant security interests in property described therein. 12. In connection with a Leasehold Mortgage Loan, usually a Debtor (such as the lessee of the Leasehold Mortgage Property from the SPE Leased 2) executed among other things: (i) a security agreement granting a security interest in, among other things, substantially all personal property, equipment, licenses, receivables, intellectual property, documents and other intangibles relating to the subject property; (ii) a limited collateral assignment of liquor license relating to the subject property; (iii) an assignment of warranties, contracts and permits relating to the subject property (collectively, with the Leasehold Mortgages and applicable notes, and related agreements securing the Leasehold Mortgage Loans, the Leasehold Mortgage Loan Documents ). In connection with each Leasehold Mortgage Loan, certain Debtors executed guaranty agreements and other Debtors executed limited guaranty agreements. LIMITED OBJECTION Page 4

5 13. Additionally, one or more of the Debtors are parties to assignment agreements with SPE Leased 2 related to the Leasehold Mortgage Properties. 14. By letter dated July 28, 2008, the Trust notified SPE Leased 2 and the guarantors of the default arising from the failure to pay when due amounts owing under the loan documents. The defaults under the Leasehold Mortgage Loans were not cured. There is a continuing default under the Leasehold Mortgage Loan Documents. 15. The trustee has rejected the Debtors leases related to the Leasehold Mortgage Properties and abandoned all FFE and perishables located at the Leasehold Mortgage Properties. THE RECEIVER 16. This Court has modified the automatic stay, to the extent necessary, to permit the Trusts to exercise all rights and remedies under the applicable loan agreements and applicable law or at equity with respect to: (i) the Fee Mortgage Properties, (ii) the Leasehold Mortgage Properties, and (iii) any FFE or other personal property located at or associated with the Fee Mortgage Properties or the Leasehold Mortgage Properties. 17. The Trusts filed a complaint against SPE FEE 2 and SPE Leased 2 in the United States District Court for the Eastern District of Texas ( Eastern District Court ). By an Order Appointing Receiver dated September 12, 2008, the Eastern District Court appointed William J. Hoffman as the receiver for, among other things, SPE FEE 2 s interest in the Fee Mortgage Properties and SPE Leased 2 s interest in the Leased Mortgage Properties. A copy of the Order Appointing Receiver is attached hereto as Exhibit B. LIMITED OBJECTION Page 5

6 LIMITED OBJECTION 18. In the Atalaya Motion, the Trustee seeks approval of a proposed Settlement Agreement and Mutual Release ( Settlement Agreement ). The Trusts object to the Atalaya Motion and the Settlement Agreement to the extent they: (i) prime or impair any right, claim, interest, security interest or agreement of the Trusts or find or determine the relative priority of any claims, liens or security interests; (ii) authorize the sale, transfer or conveyance of any property to the Secured Party (as defined in the Settlement Agreement) that is collateral securing the Fee Mortgage Loans or the Leasehold Mortgage Loans, including the Fee Mortgage Properties, the Leasehold Mortgage Properties and property, fixtures, equipment or other personal property located on or related to Fee Mortgage Properties or the Leasehold Mortgage Properties; (iii) authorize a sale or transfer of any liquor licenses related to the Fee Mortgage Properties or the Leasehold Mortgage Properties; (iv) authorize the rejection of unidentified inter-company contracts or agreements that are collateral securing the Fee Mortgage Loans or the Leasehold Mortgage Loans or that relate to the Fee Mortgage Properties or the Leasehold Mortgage Properties; or LIMITED OBJECTION Page 6

7 (v) release or impair any claims, rights, or interests of SPE FEE 2 or SPE Leased 2 (even if these entities would constitute Debtor Released Parties under the Settlement Agreement) or the Receiver or his estate. WHEREFORE, the Trusts respectfully request that their limited objections be sustained, that the Atalaya Motion be denied unless these objections are resolved in a manner acceptable to the Trusts, and such other relief as is proper. Dated: October 6, 2008 /s/ Greg Lowry Greg Lowry Melissa S. Hayward LOCKE LORD BISSELL & LIDDELL LLP 2200 Ross Avenue, Suite 2200 Dallas, Texas Telephone: (214) Facsimile: (214) ATTORNEY FOR FRANCHISE LOAN TRUST 1998 I AND CAPTEC FRANCHISE TRUST , THROUGH THE BANK OF NEW YORK MELLON, SOLELY IN ITS CAPACITY AS LOAN SERVICER LIMITED OBJECTION Page 7

8 Certificate of Service I HEREBY CERTIFY that steps were taken to cause a true and correct copy of the foregoing limited objection to be served upon Joe Friedman, counsel for the Trustee, and Kristine M. Shryock, Esq., Paul, Hastings, Janofsky & Walker LLP, 75 East 55th Street, New York, NY by United States mail, first-class postage prepaid, or by ECF service, on this 6th day of October 2008: /s/ Greg Lowry LIMITED OBJECTION Page 8

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