Case 20-10941-CSS Doc 24 Filed 04/13/20 Page 1 of 11 Docket #24 Date Filed: 04/13/2020 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 TRUE RELIGION APPAREL, INC., et al., Case No. 20-10941 (CSS) 1 Debtors. (Joint Administration Pending) DEBTORS’ OMNIBUS MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING REJECTION OF CERTAIN UNEXPIRED LEASES NUNC PRO TUNC TO THE PETITION DATE AND (II) GRANTING RELATED RELIEF PARTIES RECEIVING THIS MOTION SHOULD LOCATE THEIR NAMES AND THEIR LEASE LISTED ON SCHEDULE 1 TO THE PROPOSED ORDER ATTACHED HERETO AS EXHIBIT B. True Religion Apparel Inc. and certain of its affiliates, as debtors and debtors in possession in the above-captioned cases (collectively, the “Debtors”), hereby move (the “Motion”) this Court for entry of an Order, substantially in the forms attached as Exhibit B, pursuant to sections 105(a) and 365(a) of title 11 of the United States Code, 11 U.S.C. §§ 101- 1532 (the “Bankruptcy Code”) and Rule 6006 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), granting the relief described below. In support thereof, the Debtors refer to and incorporate the contemporaneously filed Declaration of Richard Lynch, Interim Chief Financial Officer, in Support of Chapter 11 Petitions and First Day Pleadings (the “First Day Declaration”). In further support of this Motion, the Debtors submit the Declaration of Richard Lynch in Support of the Debtors’ Omnibus Motion for Entry of an Order (I) Authorizing 1 The Debtors and the last four digits of their respective taxpayer identification numbers are: TRLG Intermediate Holdings, LLC (3150); True Religion Apparel, Inc. (2633); Guru Denim LLC (1785); True Religion Sales, LLC (3441); and TRLGGC Services, LLC (8453). The Debtors’ headquarters is located at 1888 Rosecrans Avenue, Manhattan Beach, CA 90266. 60946/0001-20123773v10 Case 20-10941-CSS Doc 24 Filed 04/13/20 Page 2 of 11 Rejection of Certain Unexpired Leases Nunc Pro Tunc to the Petition Date and (II) Granting Related Relief (the “Lynch Declaration”), attached hereto as Exhibit A, and represent as follows: RELIEF REQUESTED 1. The Debtors seek entry of an order (a) authorizing the rejection of certain unexpired leases, including any guaranties thereof and any amendments, modifications, or subleases thereto (each, a “Lease,” and collectively, the “Leases”), a list of which is annexed as Schedule 1 to Exhibit B, nunc pro tunc to the Petition Date (defined below); and (b) preserving the Debtors’ rights to determine to either retrieve or abandon the property located at the premises. JURISDICTION AND VENUE 2. This Court has jurisdiction to consider this Motion under 28 U.S.C. §§ 157 and 1334, and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated February 29, 2012. This is a core proceeding under 28 U.S.C. § 157(b) and, pursuant to Rule 9013-1(f) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the “Local Rules”), the Debtors consent to the entry of a final order by the Court in connection with this Motion to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. 3. Venue of these cases and the Motion in this District is proper under 28 U.S.C. §§ 1408 and 1409. 4. The statutory and legal predicates for the relief requested herein are sections 105(a) and 365(a) of the Bankruptcy Code and Bankruptcy Rule 6006. 2 60946/0001-20123773v10 Case 20-10941-CSS Doc 24 Filed 04/13/20 Page 3 of 11 BACKGROUND A. The Chapter 11 Cases 5. On April 13, 2020, each Debtor commenced a case by filing a petition for relief under chapter 11 of the Bankruptcy Code (collectively, the “Chapter 11 Cases”). The Debtors have requested that the Chapter 11 Cases be jointly administered. The factual background regarding the Debtors, including their business operations, their capital and debt structure, and the events leading to the filing of the Chapter 11 Cases, is set forth in the First Day Declaration. 6. The Debtors continue to manage and operate their businesses as debtors-in- possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. 7. To date, no creditors’ committee has been appointed in the Chapter 11 Cases by the Office of the United States Trustee for the District of Delaware (the “U.S. Trustee”). No trustee or examiner has been appointed in the Chapter 11 Cases. 8. As described in detail in the First Day Declaration, the Debtors have today filed the Chapter 11 Cases amid an unprecedented health crisis with difficult social, political and economic implications. While the Debtors would have preferred to wait-out the current instabilities of the financial markets and retail industry generally, they simply could not afford to do so. Existing liquidity constraints, accelerated by the COVID-19 pandemic and the attendant government stay-at-home orders and edicts that locked the Debtors out of all their brick-and- mortar retail locations, and the hundreds of brick-and-mortar stores of the Debtors’ wholesale business customers, precipitated the Debtors’ difficult decision to furlough all non-essential employees and commence these cases as the only available means to maximize value for their various stakeholders. The relief sought in this Motion is critical to preserve liquidity and maintain the Debtors’ viability as a going concern. 3 60946/0001-20123773v10 Case 20-10941-CSS Doc 24 Filed 04/13/20 Page 4 of 11 B. The Leases 9. As of the Petition Date, the Debtors are parties to approximately 83 real property leases in 27 states. The leases include 79 retail store locations located in the United States. As part of their ongoing restructuring efforts, the Debtors are engaging in a comprehensive review and analysis of their lease portfolio. After carefully evaluating the earnings, sales trends, occupancy costs, and capital-and business-planning variables surrounding each store, the Debtors have identified fourteen (14) stores that are underperforming (“Underperforming Stores”). As such, the Debtors have determined, in the exercise of their business judgment, that it is in the best interests of their estates to seek authority to reject the Leases of the Underperforming Stores. Rejecting the Leases of the Underperforming Stores will allow the Debtors to avoid the accrual of unnecessary administrative expenses with no foreseeable benefits to the Debtors’ estates. Moreover, given the obligations under the Leases and current market conditions, the Debtors have concluded, in consultation with their advisors, that the Leases are not marketable and are unlikely to generate material value for the Debtors’ estates C. Remaining Property 10. Several of the Underperforming Stores contain property that belongs to the Debtors, including, but not limited to, inventory, books and records, equipment, fixtures, furniture and other personal property (the “Remaining Property”). Certain of the Remaining Property is valuable to the Debtors’ estates, i.e., the inventory. Under ordinary circumstances, the Debtors would have removed the valuable Remaining Property from the premises and would have completely surrendered the properties to the Landlords prior to filing this Motion. However, due to the COVID-19 pandemic and the attendant government travel restrictions and closure of non-essential businesses, the malls and other retail outlets in which the 4 60946/0001-20123773v10 Case 20-10941-CSS Doc 24 Filed 04/13/20 Page 5 of 11 Underperforming Stores are located have been closed and the Debtors have been prevented from entering the stores. Thus, it has been impossible for the Debtors to evaluate the Remaining Property or to retrieve the property that has value to the estates. 11. Nonetheless, the Debtors have no intention of retaining possession of the premises and the only reason that they have not completely abandoned the premises is due to their inability to retrieve the valuable Remaining Property. 12. On April 10, 2020, the Debtors sent letters to each of the landlords (the “Landlords”) of the Leases notifying them of the Debtors’ intent to reject the Leases as of the Petition Date. See Lynch Declaration, Exhibit 1. The Debtors further requested that the Landlords coordinate with the Debtors to facilitate the transport of certain of the Debtors’ property located on the premises and other logistics concerning the surrender of the premises. Id. BASIS FOR RELIEF REQUESTED AND APPLICABLE AUTHORITY I. Rejection of the Leases Reflects the Debtors’ Sound Business Judgment 13. Section 365(a) of the Bankruptcy Code provides that a debtor, “subject to the court’s approval, may assume or reject any…executory contract or unexpired lease of the debtor.” 11 U.S.C. § 365(a). The purpose behind section 365(a) is “to permit the trustee or debtor-in-possession to use valuable property of the estate and to renounce title to and abandon burdensome property.” In re Republic Airways Holdings Inc., 547 B.R. 578, 582 (Bankr. S.D.N.Y. 2016) (quoting In re Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1098 (2d Cir. 1993)); see also In re Exide Techs., 607 F.3d 957, 967 (3d Cir. 2010) (“Courts may use § 365 to free a [debtor] from burdensome duties that hinder its reorganization”); N.L.R.B. v. Bildisco and Bildisco (In re Bildisco), 465 U.S. 513, 528 (1984) (“[t]he authority to reject an executory contract is vital to the basic purpose to a Chapter 11 5 60946/0001-20123773v10 Case 20-10941-CSS Doc 24 Filed 04/13/20 Page 6 of 11 reorganization, because rejection can release the debtor’s estate from burdensome obligations that can impede a successful reorganization.”).