in the united states bankruptcy court for the …omnimgt.com/cmsvol2/pub_47282/740218_546.pdf ·...

IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF INDIANA

INDIANAPOLIS DIVISION

In re:

USA GYMNASTICS,1

Debtor.

Chapter 11 Case No. 18-09108-RLM-11

DEBTOR’S MOTION TO REJECT

EXECUTORY CONTRACT WITH MAIN EVENT MERCHANDISE GROUP, LLC

1 The last four digits of the Debtor’s federal tax identification number are 7871. The location of the Debtor’s

principal office is 130 E. Washington Street, Suite 700, Indianapolis, Indiana 46204.

NOTICE IS HEREBY PROVIDED TO MAIN EVENT MERCHANDISE GROUP, LLC THAT ITS EXECUTORY CONTRACT WITH THE DEBTOR MAY BE REJECTED. MAIN EVENT

MERCHANDISE GROUP, LLC SHOULD READ THESE PAPERS CAREFULLY AND DISCUSS THEM WITH ITS ATTORNEY, IF IT HAS ONE.

ANY OBJECTIONS TO THIS MOTION MUST BE FILED, IN WRITING, BY THE

PROPOSED OBJECTION DEADLINE OF JUNE 7, 2019. IF NOT PERMITTED TO FILE ELECTRONICALLY, MAIN EVENT MUST DELIVER ANY OBJECTION BY U.S. MAIL,

COURIER, OVERNIGHT/EXPRESS MAIL, OR HAND-DELIVERY AT:

116 U.S. COURTHOUSE ATTN: CHAMBERS OF THE HONORABLE JUDGE MOBERLY

46 EAST OHIO STREET INDIANAPOLIS, INDIANA 46204

IF MAIN EVENT MAILS ITS RESPONSE TO THE COURT, IT MUST MAIL IT EARLY ENOUGH SO THE COURT WILL RECEIVE IT ON OR BEFORE THE DATE STATED

ABOVE.

MAIN EVENT MUST ALSO SEND A COPY OF ITS OBJECTION TO:

JENNER & BLOCK LLP ATTN: CATHERINE STEEGE AND MELISSA ROOT

353 NORTH CLARK STREET CHICAGO, ILLINOIS 60654

IF MAIN EVENT DOES NOT TAKE THESE STEPS, THE COURT MAY DECIDE MAIN EVENT DOES NOT OPPOSE AN ORDER AUTHORIZING THE REJECTION OF MAIN

EVENT’S EXECUTORY CONTRACT.

Case 18-09108-RLM-11 Doc 546 Filed 05/30/19 EOD 05/30/19 18:45:46 Pg 1 of 7

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USA Gymnastics, as debtor and debtor in possession in the above-captioned chapter 11

case (the “Debtor” or “USAG”), hereby submits this motion (the “Motion”) for the entry of an

order, substantially in the form attached hereto as Exhibit A, pursuant to section 365(a) of title 11

of the United States Code, 11 U.S.C. §§ 101–1532 (the “Bankruptcy Code”), Rule 6006 of the

Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rule 6006-1 of the Local

Rules of the United States Bankruptcy Court for the Southern District of Indiana (the “Local

Rules”), authorizing the Debtor to reject an executory contract with Main Event Merchandise

Group, LLC (“Main Event”), effective as of May 30, 2019. In support of this Motion, the Debtor

respectfully states as follows:

JURISDICTION

1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a

core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), and the Court may enter a final order

consistent with Article III of the United States Constitution. Venue is proper pursuant to 28 U.S.C.

§§ 1408 and 1409. The statutory and legal predicates for the relief requested herein are section

365(a) of the Bankruptcy Code, Bankruptcy Rule 6006, and Local Rule 6006-1.

BACKGROUND

2. On December 5, 2018, USAG filed a voluntary petition for relief under chapter 11

of the Bankruptcy Code.

3. The Debtor remains in possession of its property and continues to operate and

maintain its organization as debtor in possession pursuant to sections 1107(a) and 1108 of the

Bankruptcy Code. No request has been made for the appointment of a trustee or examiner in this

chapter 11 case.

4. On December 19, 2018, the United States Trustee appointed the Additional Tort

Claimants Committee Of Sexual Abuse Survivors.


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I. The Main Event Contract.

5. On September 8, 2017, USAG and Main Event executed that certain Appointment

Of Official USA Gymnastics Merchandiser And License Agreement (the “Main Event Contract”).

The Main Event Contract is attached hereto as Exhibit B.

6. The Main Event Contract grants Main Event a license to sell merchandise bearing

certain USAG trademarks. (See Exhibit B, § 2.) In turn, Main Event is required to pay royalties to

USAG. The royalty rate varies based upon a sale’s location and other characteristics, but USAG

is typically entitled to a 20% royalty from online sales and a 15% to 25% royalty from sales at

gymnastics events. (Id. § 7(a)-(b).)

7. The term of the Main Event Contract runs through December 31, 2020. (Id. § 6.)

RELIEF REQUESTED

8. By this Motion, the Debtor seeks entry of an order, pursuant to section 365(a) of

the Bankruptcy Code, Bankruptcy Rule 6006, and Local Rule 6006-1, authorizing the Debtor to

reject the executory contract with Main Event, effective as of May 30, 2019.

BASIS FOR RELIEF

I. Rejecting The Main Event Contract Is Within The Debtor’s Sound Business Judgment.

9. Section 365(a) of the Bankruptcy Code provides that a debtor in possession,

“subject to the court’s approval, may . . . reject any executory contract or unexpired lease of the

debtor.” 11 U.S.C. § 365(a). Rejection “frees the estate from the obligation to perform an under-

market contract or lease and provides the counterparty with only a non-priority unsecured claim

for the resulting damages.” In re UAL Corp., 346 B.R. 456, 468 (Bankr. N.D. Ill. 2006).

10. The decision to reject an executory contract is a matter within a debtor’s “business

judgment.” Johnson v. Fairco Corp., 61 B.R. 317, 320 (N.D. Ill. 1986); accord In re StarNet, Inc.,


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355 F.3d 634, 637 (7th Cir. 2004); NLRB v. Bildisco & Bildisco (In re Bildisco), 682 F.2d 72, 79

(3d Cir. 1982), aff’d, 465 U.S. 513 (1984).

11. When applying the business judgment standard under section 365 of the

Bankruptcy Code, courts defer to a debtor’s decisions. See In re Armstrong World Indus., 348 B.R.

136, 162 (Bankr. D. Del. 2006) (“Courts have uniformly deferred to the business judgment of the

debtor to determine whether the rejection of an executory contract or unexpired lease is appropriate

under section 365(a).”). Indeed, courts will overturn a debtor’s business decision only when the

decision is the “product of bad faith, or whim or caprice.” In re Trans World Airlines, Inc., 261

B.R. 103, 121 (Bankr. D. Del. 2001) (citation and internal quotation marks omitted). If a debtor’s

business judgment has been exercised reasonably, courts will approve the rejection of an executory

contract.

12. Here, the Debtor has determined in its business judgment that rejecting the Main

Event Contract is in the best interests of the Debtor’s estate. The terms of the Main Event Contract

are not beneficial to the Debtor and the costs of the Main Event Contract outweigh its benefits. As

a result, the Court should authorize the rejection of the Main Event Contract.

II. Rejection Should Be Effective As Of May 30, 2019.

13. The Debtor seeks to reject the Main Event Contract effective as of May 30, 2019.

Bankruptcy courts may authorize the retroactive rejection of an executory contract when the

balance of the equities favors such relief. See In re Joseph C. Spiess Co., 145 B.R. 597, 605-06

(Bankr. N.D. Ill. 1992); accord In re Thinking Machs. Corp., 67 F.3d 1021, 1028 (1st Cir. 1995)

(“a bankruptcy court, when principles of equity so dictate, may approve a rejection of a

nonresidential lease pursuant to section 365(a) retroactive to the motion filing date”). Rejection

may be made effective retroactively to the date on which the debtor took “affirmative steps to


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reject” the contract, because the debtor’s counterparty was on notice of the impending rejection as

of that date. In re Joseph C. Spiess Co., 145 B.R. at 606.

14. This Court and others within the Seventh Circuit have authorized retroactive

rejections. See, e.g., In re hhgregg, Inc., No. 17-01302, Dkts. 961, 965 (Bankr. S.D. Ind. 2017)

(authorizing retroactive rejection of executory contracts to date prior to entry of order); In re

Caesars Entm’t Operating Co., Inc., No. 15-01145, Dkt. 990 (Bankr. N.D. Ill. Mar. 25, 2015)

(same); In re Qualteq, Inc. d/b/a VCT New Jersey, Inc., No. 12-05861, Dkt. 1463 (Bankr. N.D. Ill.

Apr. 10, 2013); In re Edison Mission Energy, No. 12-49219, Dkt. 312 (Bankr. N.D. Ill. Jan. 17,

2013) (same); In re Joseph C. Spiess Co., 145 B.R. at 606 (same).

15. Here, the balance of the equities favors retroactive rejection. Without retroactive

relief, the Debtor may incur additional and unnecessary administrative expenses as costs under the

Main Event Contract continue to accrue pending entry of an order authorizing rejection. Moreover,

as set forth above, continued performance under the Main Event Contract is not in the best interests

of the Debtor’s estate. By contrast, Main Event will not be harmed by retroactive rejection. The

Debtor has already informed Main Event of its intent to seek retroactive rejection. Because Main

Event has received notice of the impending rejection, it has had the opportunity to plan

accordingly, adjust its operations, and mitigate damages. Further, pursuant to the Order Approving

Debtor’s Motion For Order Establishing Deadlines For Filing Proofs Of Claim And Approving

Form And Manner Of Notice Thereof [Dkt. 301], Main Event will be permitted to file a claim

asserting rejection damages, if any. The time to file such a claim is 30 days from the entry of an

order rejecting the Main Event Contract, or another date the Court sets in the rejection order. (See

Dkt. 301 ¶ 8.)


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16. For these reasons, the equities favor rejecting the Main Event Contract on a

retroactive basis, effective as of May 30, 2019.

WAIVER OF BANKRUPTCY RULE 6004(h)

17. To implement the foregoing successfully, the Debtor seeks a waiver of the 14-day

stay of an order authorizing the use, sale, or lease of property under Bankruptcy Rule 6004(h), to

the extent that such rule is applicable.

RESERVATION OF RIGHTS

18. Nothing contained herein is intended to or should be construed as an admission

regarding the validity of any claim against the Debtor, a waiver of the Debtor’s rights to dispute

any claim, or an approval or assumption of any agreement, contract, or lease under section 365 of

the Bankruptcy Code. The Debtor expressly reserves its right to contest any claim related to the

relief sought herein.

NOTICE

19. The Debtor will provide notice of this Motion in accordance with the Order

Granting Debtor’s Motion For Order Establishing Certain Notice, Case Management, And

Administrative Procedures [Dkt. 213]. The Debtor will also serve Main Event by overnight mail

and electronic mail. The Debtor has contemporaneously filed a motion to shorten the notice

required under Local Rule 6006-1. In light of the nature of the relief requested herein, the Debtor

submits that no other or further notice is necessary.

WHEREFORE, the Debtor respectfully requests that the Court enter the order substantially

in the form annexed hereto as Exhibit A, granting the relief requested herein and such further relief

as is just and proper.


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Dated: May 30, 2019 Respectfully submitted,

JENNER & BLOCK LLP

By: /s/ Catherine Steege

Catherine L. Steege (admitted pro hac vice) Dean N. Panos (admitted pro hac vice) Melissa M. Root (#24230-49) 353 N. Clark Street Chicago, Illinois 60654 (312) 222-9350 [email protected] [email protected] [email protected]

Counsel for the Debtor


EXHIBIT A

Proposed Order

Case 18-09108-RLM-11 Doc 546-1 Filed 05/30/19 EOD 05/30/19 18:45:46 Pg 1 of 4

IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF INDIANA

INDIANAPOLIS DIVISION

In re:

USA GYMNASTICS,1

Debtor.

Chapter 11 Case No. 18-09108-RLM-11

ORDER AUTHORIZING THE DEBTOR TO REJECT

EXECUTORY CONTRACT WITH MAIN EVENT MERCHANDISE GROUP, LLC

This matter came before the Court on the Debtor’s Motion To Reject Executory Contract

With Main Event Merchandise Group, LLC (the “Motion”), filed by USA Gymnastics as debtor

and debtor in possession (the “Debtor”), for the entry of an order pursuant to section 365(a) of

1 The last four digits of the Debtor’s federal tax identification number are 7871. The location of the Debtor’s principal office is 130 E. Washington Street, Suite 700, Indianapolis, Indiana 46204.


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title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (the “Bankruptcy Code”), Rule 6006

of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rule 6006-1 of the

Local Rules of the United States Bankruptcy Court for the Southern District of Indiana (the “Local

Rules”); and the Court finds that (i) it has jurisdiction over this matter pursuant to 28 U.S.C.

§ 1334; (ii) this matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A); (iii) the relief

requested in the Motion is in the best interests of the Debtor, its estate, and creditors; and after due

deliberation, and good and sufficient cause appearing therefore, the Court hereby determines that

the Motion should be GRANTED.

IT IS HEREBY ORDERED:

1. The Motion is granted as set forth herein.

2. Pursuant to section 365 of the Bankruptcy Code, that certain Appointment Of

Official USA Gymnastics Merchandise And License Agreement between the Debtor and Main

Event Merchandise Group, LLC (the “Main Event Contract”) is hereby rejected, effective as of

May 30, 2019.

3. The Debtor does not waive any claims that it may have against Main Event

Merchandise Group, LLC, whether or not such claims arise under, are related to the rejection of,

or are independent of the Main Event Contract.

4. Pursuant to the Order Approving Debtor’s Motion For Order Establishing

Deadlines For Filing Proofs Of Claim And Approving Form And Manner Of Notice Thereof

[Dkt. 301], Main Event Merchandise Group, LLC may file a rejection damages claim, if any,

arising from the rejection of the Main Event Contract. (See Dkt. 301 ¶ 8.) Main Event shall file

any rejection damages claim within 30 days of the entry of this Order.


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5. Notwithstanding anything to the contrary, the terms and conditions of this Order

shall be immediately effective and enforceable upon its entry.

6. The Court retains jurisdiction with respect to all matters arising from or related to

the implementation of this Order.

###


EXHIBIT B

Main Event Contract


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