1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Michael G. Helms (admitted pro hac vice) THE HELMS LAW FIRM, P.L.C. 2600 North Central Avenue, Suite 940 Phoenix, Arizona 85004 Telephone: (602) 358-2060 Fax: (602) 358-2055 mghelms@mghlawfirm.com Attorneys for Best Western International, Inc. IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK In re: Case No. 10-13800 (SCC) INNKEEPERS USA TRUST, et al., Chapter 11 Debtors. Jointly Administered NOTICE OF HEARING ON BEST WESTERN INTERNATIONAL, INC. S MOTION TO TERMINATE THE AUTOMATIC STAY PLEASE TAKE NOTICE that the hearing to consider Best Western International, Inc. s Motion for Relief from the Automatic Stay (the Motion ) will be held before the

17 18 19 20 21 22 23 24 25 26

Honorable Shelley C. Chapman, United States Bankruptcy Judge, in Courtroom No. 610, One Bowling Green, New York, New York on Tuesday, December 14, 2010, at 10:00 a.m. prevailing Eastern Time. PLEASE TAKE FURTHER NOTICE that the deadline to file and serve responses or objections to the Motion is December 7, 2010, at 4:00 p.m. prevailing Eastern Time. PLEASE TAKE FURTHER NOTICE that all responses or objections to the Motion listed in this Notice must: (a) be made in writing; (b) conform to the Federal Rules

1 2 3 4 5

of Bankruptcy Procedure, the Local Bankruptcy Rules for the Southern District of New York, and the Order Establishing Certain Notice, Case Management, and Administrative Procedures, filed July 20, 2010 (the Case Management Order ) [Docket No. 56]; (c) state with particularity the legal and factual basis for the objection; (d) be filed with the Court; and (e) be served in accordance with and upon the parties set forth in the Case Management

6 7 8 9 10

Order. PLEASE TAKE FURTHER NOTICE that failure to file a timely objection may result in entry of an order granting the Motion as requested by Best Western International, Inc.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Dated: November 4, 2010 Phoenix, Arizona

THE HELMS LAW FIRM, P.L.C. By: /s/ Michael G. Helms Michael G. Helms 2600 North Central Avenue Suite 940 Phoenix, Arizona 85004 Telephone: (602) 358-2060 Attorneys for Best Western International, Inc.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Michael G. Helms (admitted pro hac vice) THE HELMS LAW FIRM, P.L.C. 2600 North Central Avenue, Suite 940 Phoenix, Arizona 85004 Telephone: (602) 358-2060 Fax: (602) 358-2055 mghelms@mghlawfirm.com Attorneys for Best Western International, Inc. IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK In re: Case No. 10-13800 (SCC) INNKEEPERS USA TRUST, et al., Chapter 11 Debtors. Jointly Administered MOTION OF BEST WESTERN INTERNATIONAL, INC., FOR ORDER TERMINATING AUTOMATIC STAY

Best Western International, Inc. ( Best Western ), a creditor and interested party herein, hereby moves the Court pursuant to 11 U.S.C. 362(d) to enter an Order herein terminating the automatic stay to permit Best Western to terminate the Best Western Membership Agreement and License Agreement (the Membership Agreement ) with respect to the Best Western West Palm Beach Airport Inn, West Palm Beach, Florida; and to compel the Debtor to perform its non-monetary, post-termination obligations to Best Western as set forth in the Membership Agreement; and in the event the Debtor does not satisfy the post-termination non-monetary obligations to Best Western as set forth in the

24 25 26

Membership Agreement, to grant Best Western the authority to enter upon and inspect

1 2 3 4 5

the Debtor s premises, without interference from the Debtor or its representatives, including the guest rooms and common areas, and remove therefrom any and all signage, supplies or equipment bearing any of Best Western s registered trademarks, service marks, trade names and logos. This motion is supported by the affidavit of Cheryl Pollack attached hereto, and the following:

6 7 8 9 10

Jurisdiction and Venue. 1. This Court has jurisdiction over the subject matter of this Motion pursuant

to 28 U.S.C. 157 and 1334(b) and the standing order of reference of the District Court. This matter is a core proceeding pursuant to 28 U.S.C. 157(b). Venue in this Court is

11 12 13 14 15 16

proper under 28 U.S.C. 1408 and 1409. 2. The statutory and procedural predicates upon which relief is requested are

section 362(d) of the Bankruptcy Code and Bankruptcy Rule 4001(a)(1), respectively. Background. 3. Best Western International, Inc. ( Best Western ) is a non-profit

17 18 19 20 21 22 23 24 25 26

corporation organized under the laws of the State of Arizona with its headquarters located in Phoenix, Arizona. Best Western operates as a membership organization consisting of individually owned and operated hotels (i.e., its members). The rights and obligations of Best Western s members are determined by the membership and are set forth in the Membership Agreement and in Best Western s Bylaws. Additionally, Best Western s Board of Directors, which is comprised of individual Best Western members, establishes Best Western s Rules and Regulations (the Rules and Regulations ).

1 2 3 4 5

4.

Best Western provides its members with a worldwide reservation system and

worldwide marketing campaigns, as well as an option to participate in collective purchasing of hotel equipment, furnishings and supplies (the Best Western Services ). Each Best Western member is authorized to use the Best Western name, logos, trademarks, service marks and collective membership marks in connection with its hotel pursuant to a limited,

6 7 8 9 10

non-exclusive license (the Best Western License ), which is set forth in the Membership Agreement. 5. Grand Prix Floating Lessee, LLC, one of the Debtors herein (hereafter,

Debtor ), owns and operates the hotel known as the Best Western West Palm Beach
11 12 13 14 15 16

Airport Inn located in or near West Palm Beach, Florida (the Hotel ). On or about May 29, 2007, the Debtor executed a Best Western Membership Agreement with respect to the Best Western West Palm Beach Airport Inn. Upon Best Western s approval of Debtor s Membership Agreement, Debtor s hotel became affiliated with Best Western, and the Membership Agreement became the contract controlling the relationship between the

17 18 19 20 21 22 23 24 25 26

Debtor and Best Western. See Membership Agreement attached as Exhibit 1 to affidavit of Cheryl Pollack. 6. Debtor filed its petition for relief under Chapter 11 of the Bankruptcy Code

on or about July 19, 2010. 7. The Best Western Rules and Regulations require that a member hotel

property comply with certain design guidelines. Failure to comply with Best Western design guidelines will subject a member hotel property to termination of its Best Western

1 2 3 4 5

membership. 8. By reason of Debtor s bankruptcy filing and imposition of the automatic stay,

Best Western is unable to enforce the terms and conditions of the Membership Agreement and the Rules and Regulations, the Best Western design guidelines, or to protect its Best Western trademarks, service marks, logos and membership marks from use by Debtor, or to

6 7 8 9 10

assure the traveling public of receiving the high quality of service and lodging the public has come to expect from Best Western affiliated hotels. Default of Membership Agreement. 9. Pursuant to paragraph 11 of the Membership Agreement, Debtor agreed to

11 12 13 14 15 16

abide by all obligations set forth in the Best Western Bylaws and the Best Western Rules and Regulations. The Rules and Regulations provide, among other matters, that failure to comply with Best Western design guidelines is cause for termination of the membership. 10. The Hotel has failed to comply with Best Western design guidelines. In

August, 2009, the Best Western Board of Directors, pursuant to the Best Western Rules and
17 18 19 20 21 22 23 24 25 26

Regulations, reviewed the membership status of the Hotel. The Board of Directors decided to continue the membership of the Hotel, subject to the terms set forth in a conditional extension letter and agreement dated August 12, 2009. The Debtor signed and returned the conditional extension letter on or about August 20, 2009. 11. Pursuant to the terms of the conditional extension agreement, the Debtor

agreed to complete all required design guideline items not later than April 12, 2010. Inspection of the Hotel by a representative of Best Western on August 25, 2010, revealed

1 2 3 4 5

that Debtor has failed to comply with the terms of the conditional extension agreement, and that the hotel property still does not comply with Best Western design requirements. ARGUMENT 12. The filing of a bankruptcy petition operates as a stay of any action to obtain

possession of property of the estate or property from the estate or to exercise control over
6 7 8 9 10

property of the estate. 11 U.S.C. 362(a)(3). However, [t]he fact that the automatic stay suspends termination of [a] license agreement does not prevent termination indefinitely. In re Tudor Motor Lodge Associates, Limited Partnership, 102 B.R. 936, 951 (Bankr.N.J. 1989).

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

13.

An interested party may be granted relief from the automatic stay for cause :

On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay (1) For cause, including lack of adequate protection of an interest in property of such party in interest. 11 U.S.C. 362(d). 14. Cause sufficient to modify the automatic stay is not defined in the

Bankruptcy Code or detailed in applicable legislative history. In re M.J. 7 K. Co., Inc., 161 B.R. 586, 590 (Bankr.S.D.N.Y. 1993). Thus, what constitutes cause for stay relief purposes is an intentionally broad and flexible concept which must, of

necessity, be determined on a case by case analysis. Matter of Holly s Inc., 140 B.R. 643, 687 (Babnkr.W.D.Mich. 1992).

1 2 3 4 5

15.

The moving party has the burden to make an initial showing of

cause for relief from the stay. Once cause is shown to exist, the debtor must prove that it is entitled to the protections afforded by the stay. In re M.J. 7 K. Co., Inc., 161 B.R. at 590. Only where the movant fails to make an initial showing of cause, however, may the court deny relief without requiring any showing from the debtor

6 7 8 9 10 11 12 13 14 15 16

that it is entitled to continued protection of the automatic stay. In re Sonnax Indus., Inc., 907 F.2d at 1285. 16. Bankruptcy Courts and commentators have stated that: The sole duty of the Bankruptcy Court, however, in a Section 362 proceeding is to pass upon the debtor s proposed form of adequate protection. The responsibility of proposing a method of protection is reserved exclusively for the debtor. If a debtor asserts certain means of adequate protection and fails to support these means with competent evidence, the Bankruptcy Court may permissibly lift the stay without further explanation of any viable alternatives. In re Tudor Motor Lodge Associates, Limited Partnership, 102 B.R. at 954. 17. The Debtor is unable to meet its burden of adequately protecting Best

17 18 19 20 21 22 23 24 25 26

Western s interests in its name and trademarks because, among other things, the Debtor s default under the Membership Agreement is historical and unable to be cured. See, In re Herbert, 806 F.2d 892-895 (9th Cir.1986) (Ninth Circuit held that where debtor-franchisee continually defaulted in operation of franchise, default justified termination under relevant law and was incurable; thus, debtor could not assume franchise agreement). Courts have continued to hold that the existence of an incurable default under an executory contract is a bar to assumption of the contract due to the debtor s inability to satisfy the specific statutory

1 2 3 4 5

requirement of 11 U.S.C. 365(b)(1)(A). See e.g., In re Claremont Acquisition Corp., 113 F.3d 1029 (9th Cir.1997); In re New Breed Realty Enterprises, Inc., 278 B.R. 314 (Bankr.E.D.N.Y.2002). These courts hold that 11 U.S.C. 365 does not excuse the debtor from curing non-monetary defaults, even if they are incurable. 18. In Claremont Acquisition Corp., the debtors were parties to franchise

6 7 8 9 10

agreements with General Motors Corporation. On November 7, 1994, the debtors therein ceased operating their automobile dealerships. The bankruptcy cases were not filed until November 20, 1994. The GM Dealer Agreements allowed GM to terminate the franchise for failure to operate the business for seven consecutive business days. The Ninth Circuit

11 12 13 14 15 16

held that: Debtors failure to operate the dealership for two weeks preceding the bankruptcy filing constituted a nonmonetary default. Moreover, this default is a historical fact and, by definition, cannot be cured. The Court held further, the 365(b)(2)(D)

exception does not apply to Debtors default. Debtors failure to operate the franchises for seven consecutive days is not a default of a contractual provision relating to the satisfaction

17 18 19 20 21 22 23 24 25 26

of a penalty rate or the payment of a penalty. Accordingly, Debtors obligation to cure their default is not excused. Because Debtors are unable to now cure their default, the GM Dealer Agreements may not be assumed and assigned. Id., at 1034-1035. 19. The Debtor herein has operated, and continues to operate, its Hotel without

conforming to the Best Western design requirements, in default of the Membership Agreement. Such past operations are a historical fact and cannot be cured. The Membership Agreement cannot be assumed or assigned.

1 2 3 4 5 6 7 8 9 10 11 12 13

20.

Stay relief is the appropriate remedy where an executory contract, such as the

Membership Agreement herein, cannot be assumed because of the existence of an incurable default or otherwise. The Debtor in this matter cannot cure its nonmonetary default, i.e., the operation of its hotel in a condition not conforming to Best Western design standards. Best Western Is Also Entitled to Relief Under 11 U.S.C. 362(d)(1) Because the Membership Agreement Is Not Assignable Under Applicable Non-bankruptcy Law. 21. As noted above, Best Western is entitled to relief to review the status of the

Best Western membership with respect to Debtor s Hotel and, if deemed appropriate, to cancel or terminate the Membership Agreement. Best Western is separately entitled to stay relief under 11 U.S.C. 362(d)(1) because the Membership Agreement cannot be assumed or assigned by the Debtor, even if Debtor s default of the Membership Agreement could be cured.. See, In re Commonwealth Mortgage Co., 149 B.R. 4, 7 (Bankr.D.Mass.1992) (relief

14 15 16 17 18 19 20 21 22 23 24

from the automatic stay under section 362(d)(1) appropriate where contract is not assumable and assignable by the debtor). 22. Under Section 365(c) of the Bankruptcy Code, an executory contract that

cannot be assigned under applicable non-bankruptcy law may not be assumed or assigned without permission of the contracting party. Here, the Debtor holds a non-exclusive, personal membership and license to use the Best Western Marks. Article II, Section 7 of the Best Western Bylaws provides that any change in the ownership of the hotel property will result in the termination of the Membership Agreement. Limited exceptions to such automatic termination are provided, but all such exceptions require that the property be in

25 26

compliance with the current design program at the time of transfer of ownership. In this

1 2 3 4 5

case, Debtor s membership is not transferrable or assignable because the property is not compliant with current design requirements. 23. The plain language of 11 U.S.C. 365(c)(1) requires application of a

hypothetical test, under which a debtor-in-possession may not even assume an executory contract over objection if applicable law bars the assignment of the contract, even if the

6 7 8 9 10

debtor-in-possession does not intend to assign the contract to any other party. In re Catapult Entertainment, Inc., 165 F.3d 747 (9th Cir.), cert.denied, 528 U.S. 924, 120 S.Ct. 369 (1999). Because the Debtor is barred, as a matter of law, from either (a) assuming and assigning the Membership Agreement, or (b) assuming the Membership Agreement, Best Western is

11 12 13 14 15 16

entitled to stay relief. See In re Commonwealth Mortgage Co., 149 B.R. 4, 7 (Bankr.D.Mass.1992) (relief from the automatic stay appropriate where contract not assumable or assignable by debtor). 24. Applicable law includes the Lanham Act. The Lanham Trademark Act,

codified at Chapter 22 of Title 15 of the United States Code, provides that the registrant of a
17 18 19 20 21 22 23 24 25 26

registered mark is entitled to nationwide trademark protection. The Lanham Act prevents the unauthorized use or transfer of a federally registered trademark. In In re Travelot Co., 286 B.R. 447 (Bankr.D.Ga.2002) CNN sought to prevent the debtor from assuming its contract, arguing the Section 365(c)(1) and the Lanham Act precluded such assumption. The Court found that the Lanham Act constituted applicable law and that such statute provided a federal trademark registrant with protection against the unauthorized assignment of a trademark license. Specifically, the Court stated that [i]f the [CNN contract] provided

1 2 3 4 5

for [the debtor] to be a recipient of a trademark license, then applicable trademark law precludes the assignment of that trademark. 25. Given that non-bankruptcy law prohibits the assignment of personal licenses

and non-exclusive intellectual property licenses, most bankruptcy courts and appellate courts, consistent with Section 365(c)(1), refuse to allow debtors-in-possession to assume or

6 7 8 9 10 11 12 13 14 15 16

assign such licenses. [P]revailing case law holds that nonexclusive intellectual property licenses do not give rise to ownership rights and cannot, as a matter of law, be assigned without the consent of the licensor. Golden Books Family Entertainment, 269 B.R. at 310. See also, In re Catapult Entertainment, Inc., 165 F.3d 747 (9th Cir.) (holding nonexclusive licenses do not give rise to ownership rights and are not assignable over the objection of the licensor). 26. The Membership Agreement contains a non-exclusive trademark license

granted by Best Western to the Debtor to use the Best Western Marks. Based on the foregoing, Section 365(c)(1) of the Bankruptcy Code and applicable law (including the

17 18 19 20 21 22 23 24 25 26

Lanham Act and the case law cited herein) prevent the unauthorized assumption or assignment of the Membership Agreement. Because Best Western does not consent, the Debtor can neither assume nor assign the Membership Agreement. Accordingly, cause exists to grant Best Western relief from the automatic stay in order to allow Best Western to exercise its rights under the Membership Agreement. 27. in its entirety. For the foregoing reasons, Best Western requests that this Motion be granted

1 2 3 4 5

WAIVER OF MEMORANDUM OF LAW 28. Because this Motion sets forth the authorities relied upon by Best Western,

Best Western respectfully requests that the Court waive the requirement for filing a separate memorandum of law in support of this Motion pursuant to L.B.R. 9013-1(b). Best Western reserves the right to file a memorandum in reply to any objection to this Motion.

6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Dated this 4th day of November, 2010. THE HELMS LAW FIRM, P.L.C. By: /s/ Michael G. Helms Michael G. Helms 2600 North Central Avenue Suite 940 Phoenix, Arizona 85004 Telephone: (602) 358-2060 Attorneys for Best Western International, Inc.

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 26

PROPOSED ORDER

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK In re: Case No. 10-13800 (SCC) INNKEEPERS USA TRUST, et al., Chapter 11 Debtors. Jointly Administered ORDER APPROVING THE MOTION OF BEST WESTERN INTERNATIONAL, INC., FOR ORDER TERMINATING AUTOMATIC STAY
This matter having come before the Court upon the motion (the Motion ) of Best Western International, Inc., for an Order Terminating the Automatic Stay pursuant to Section 362(d) of the Bankruptcy Code; and this Court having considered the submissions and arguments of counsel, and the opposition thereto, if any; and it appearing that this Court has jurisdiction over the Motion pursuant to 28 U.S.C. 157 and 1334; venue is proper in this district

pursuant to 28 U.S.C. 1408 and 1409; and this is a core proceeding pursuant to 28 U.S.C. 157; and the Court having determined that granting the relief requested in the Motion is warranted; and it appearing that notice of the Motion has been given, and that no other or further notice need be given; and for sufficient cause shown, it is hereby ORDERED THAT:

20 21 22 23 24 25 26

1. 2.

The Motion is GRANTED. The automatic stay of section 362(a) of the Bankruptcy Code is terminated to

permit Best Western International, Inc., to take such action to exercise all rights available, including termination of the Best Western membership with respect to the Best Western West

Palm Beach Airport Inn.

1 2 3 4 5

3.

In the event Best Western terminated the membership with respect to the Best

Western West Palm Beach Airport Inn, the Debtor shall perform all of its non-monetary, post-termination obligations to Best Western as set forth in the Membership Agreement.
4.

This Court shall retain jurisdiction to hear and determine all matters arising

from the implementation of this Order.

6 7 8 9 10

5.

Notwithstanding any possible application of Federal Rules of Bankruptcy

Procedure 4001(a)(3), 7062 or 9014, or otherwise, the terms of this Order shall be immediately effective and enforceable upon its entry.
6.

The requirement pursuant to Rule 9013(b) of the Local Rules of the Southern

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

District of New York that Best Western file a memorandum of law in support of the Motion is hereby waived. Dated:

United States Bankruptcy Judge