Flat out crazy ee motion

13-22094-rdd Doc 13 Filed 01/25/13 Entered 01/25/13 18:42:14 Main Document 1/25/2013
Docket #0013 Date Filed:
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Stephen D. Lerner
Elliot M. Smith
Kristin E. Richner
Andrew M. Simon (Pro Hac Vice Pending)
SQUIRE SANDERS (US) LLP
30 Rockefeller Plaza
New York, NY 10112
(212) 872-9800 (Phone)
(212) 872-9815 (Fax)
stephen.lerner@squiresanders.com
elliot.smith@squiresanders.com
kristin.richner@squiresanders.com
andrew.simon@squiresanders.com

Proposed Attorneys for Debtors and
Debtors in Possession

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

In re: Chapter 11
1
Flat Out Crazy, LLC, et al. , Case No. 13-22094 (RDD)
Debtors. Joint Administration Requested

MOTION OF DEBTORS AND DEBTORS IN POSSESSION FOR AN ORDER
AUTHORIZING THEM TO PAY: (A) PREPETITION EMPLOYEE WAGES,
SALARIES AND RELATED ITEMS; (B) PREPETITION EMPLOYEE
PAYROLL DEDUCTIONS AND WITHHOLDINGS; (C) PREPETITION
PAYROLL TAXES; (D) PREPETITION CONTRIBUTIONS TO, AND
BENEFITS UNDER, EMPLOYEE BENEFIT PLANS; AND (E) ALL
COSTS AND EXPENSES INCIDENT TO THE FOREGOING

Flat Out Crazy, LLC (“FOC”) and the above-captioned affiliated debtors (collectively,

the “Debtors”), debtors and debtors in possession in these bankruptcy cases (the “Cases”),

hereby move this court (the “Bankruptcy Court”), pursuant to sections 105(a), 363, 507(a)(4),

1
The Debtors in these cases and the last four digits of their Employer Identification Numbers are: Stir Crazy Café
West Nyack, LLC (5828); Flat Out Crazy, LLC (0160); SCR Operations, LLC (9375); SCR Hospitality, LLC
(4309); SCR Concessions, LLC (6669); Stir Crazy Restaurants, LLC (2289); Stir Crazy Café Oakbrook, LLC
(2976); Stir Crazy Café Northbrook, LLC (7070); Stir Crazy Café Woodfield, LLC (1104); Stir Crazy Café Great
Lakes, LLC (9634); Stir Crazy Café Boca Raton, LLC (9942); Stir Crazy Café Creve Coeur, LLC (0003); Stir Crazy
Café Legacy Village, LLC (8744); Stir Crazy Café Cantera, LLC (4842); and Stir Crazy Operations, LLC (8114).

CINCINNATI/97523.5 ¨1¤@4~-!9 ;r«
1322094130125000000000027

13-22094-rdd Doc 13 Filed 01/25/13 Entered 01/25/13 18:42:14 Main Document
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507(a)(5), 541(b)(7) and 541(d) of the United States Bankruptcy Code (the “Bankruptcy Code”),

for an order authorizing them to pay (a) prepetition employee wages, salaries and related items;

(b) prepetition employee payroll deductions and withholdings; (c) prepetition payroll taxes;

(d) prepetition contributions to, and benefits under, employee benefit plans; and (e) all costs and

expenses incident to the foregoing (the “Motion”).

This Motion is supported by the “Affidavit of Steve DeLong in Support of Chapter 11

Petitions and First Day Motions” (the “DeLong Affidavit”) filed concurrently herewith, the

entire record of these Cases, and by the following memorandum of points and authorities.

JURISDICTION AND VENUE

1. The Bankruptcy Court has jurisdiction over these Cases pursuant to 28 U.S.C.

§§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).

2. Debtor Stir Crazy Café West Nyack, LLC is a limited liability company organized

under the laws of the state of New York and has been so organized for more than 180 days prior

to the petition date in these Cases. Accordingly, venue of its chapter 11 case and the chapter 11

cases of each of the affiliated Debtors, as well as any proceedings arising in these Cases, is

proper in this District under 28 U.S.C. §§ 1408 and 1409.

GENERAL BACKGROUND

3. On January 25, 2013 (the “Petition Date”), each of the Debtors filed a voluntary

petition for relief under chapter 11 of the Bankruptcy Code with the Bankruptcy Court. The

Debtors also filed a motion seeking to have their bankruptcy cases procedurally consolidated and

jointly administered together, which motion currently remains pending before the Bankruptcy

Court.

CINCINNATI/97523.5 2

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4. The Debtors are continuing in possession of their property and are operating and

managing their businesses as debtors in possession pursuant to sections 1107 and 1108 of the

Bankruptcy Code.

5. No trustee, examiner, or committees have been appointed in these Cases.

6. The Debtors hereby incorporate by reference the factual background set forth in

the DeLong Affidavit which includes, among other things, a detailed description of the Debtors’

business and affairs, the Debtors’ capital structure and prepetition indebtedness, and the events

leading to the commencement of these Cases.

RELIEF REQUESTED AND BASIS FOR RELIEF

7. The Debtors respectfully request that the Bankruptcy Court enter an order

authorizing them to pay (a) prepetition employee wages, salaries and related items;

(b) prepetition employee payroll deductions and withholdings; (c) prepetition payroll taxes;

(d) prepetition contributions to, and benefits under, employee benefit plans; and (e) all costs and

expenses incident to the foregoing.

8. The Debtors operate a chain of full-service Asian restaurants and a chain of

create-your-own stir fry restaurants. The success of the Debtors’ operations during these Cases

is largely dependent on the Debtors’ ability to minimize disruptions to their workforce. The

relief sought by this Motion is essential to minimizing possible disruptions.

9. In aggregate, the Debtors employ approximately 1,185 people (the “Employees”),

all of whom are non-union employees. The Employees assist in critical aspects of running the

business. At the Debtors’ restaurants, the Employees include chefs and other food preparers,

servers, bartenders, hosts and hostesses, dishwashers and store managers. The Employees also

include area managers and executives and staff located at the Debtors’ corporate headquarters in


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Chicago. The Employees’ knowledge, expertise, and experience are essential to maintaining the

Debtors’ businesses as a going concern during these Cases. Indeed, without the continued

commitment of the Employees to the Debtors’ business operations, an effective reorganization

would not be possible. Accordingly, by this Motion, the Debtors seek authority, in their sole

discretion, to pay certain outstanding prepetition obligations owed to the Employees, up to

$11,725 per Employee, and related obligations, and to continue to honor, in the ordinary course

of business and the exercise of their business judgment, the Debtors’ prepetition compensation

and benefit programs. The relief requested herein is essential to maintain employee morale and

productivity, thereby preventing unnecessary and harmful disruption in the operation of the

Debtors’ business as they endeavor to pursue successful reorganization.

I. The Debtors’ Workforce

10. As of January 16, 2013, the end of the Debtors’ most recent pay period, the

Debtors’ aggregate workforce consisted of approximately 1,200 Employees, of whom

approximately 1,100 are hourly (the “Hourly Employees”) and 100 are salaried (the “Salaried

Employees”). During the most recent pay period, the Employees worked at eleven full-service

Stir Crazy Fresh Asian Grill restaurants (“Stir Crazy”), eighteen create-your-own stir-fry Flat

Top Grill restaurants (“Flat Top”), one quick service SC Asian restaurant (“SC Asian” and,

together with Stir Crazy and Flat Top, the “Restaurants”) and the Debtors’ corporate

headquarters. Because of the concentration of Restaurants in Illinois, more Employees

(approximately 600) are located in Illinois than in any other state. During the most recent pay

period, the Debtors also had Employees located in Florida, Indiana, Wisconsin, Michigan, Ohio,

New York, Missouri, California, and Alabama.

11. Employees are the lifeblood of any restaurant business and the Debtors’

Employees in the field perform a variety of critical tasks, including preparing and serving food,


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interacting with customers, ordering food and supplies, cleaning dishes and the restaurant

premises, supervising other employees and other tasks. In addition, the Debtors employ a

headquarters staff of approximately 14 persons who provide corporate functions such as

accounting and finance, marketing, human resources and other tasks. The Employees’ skills and

their knowledge and understanding of the Debtors’ operations are essential to the effective

operation and restructuring of the Debtors’ businesses. Without the continued services of the

Employees, an effective restructuring of the Debtors will not be possible.

12. If prepetition wage, compensation, benefit and reimbursement amounts are not

received by the Employees in the ordinary course, they will suffer extreme personal hardship and

in many cases will be unable to pay their basic living expenses. Such a result obviously would

destroy Employee morale and result in unmanageable Employee turnover, causing immediate

and pervasive damage to the Debtors’ ongoing business operations. Any significant

deterioration in Employee morale at this time will substantially and adversely affect the Debtors

and their ability to reorganize, thereby resulting in immediate and irreparable harm to the

Debtors and their estates.

13. The Debtors anticipate that the accrued prepetition obligations owed to the vast

majority of Employees will be substantially less than the statutory maximum of $11,725 for

priority treatment as set forth in sections 507(a)(4) and (a)(5) of the Bankruptcy Code. As

described below, there is one instance where prepetition obligations owing to an Employee

exceeds $11,725 as of the Petition Date, and such amount is relatively small.

14. The relief requested in this Motion will reduce significantly the administrative

burden that might otherwise be imposed in the Cases. The compensation and benefit amounts


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that the Debtors seek to pay the Employees constitute priority claims under sections 507(a)(4)

and (5) of the Bankruptcy Code to the extent of $11,725 per Employee.

15. To minimize the personal hardship that the Employees will suffer if prepetition

employee-related obligations are not paid when due or as expected and to maintain morale and

an essential workforce during this critical time, the Debtors seek entry of an order authorizing,

but not directing, the Debtors in their sole discretion: (a) to pay and honor prepetition claims up

to the statutory maximum for, among other things, (i) wages, salaries, vacation, overtime pay and

other compensation described below; (ii) federal and state withholding taxes and other amounts

withheld or deducted from Employees’ pay (e.g., garnishments, Employees’ share of insurance

premiums, 401(k) contributions, etc.); (iii) payroll taxes owed to local, state and federal

governments on account of the Employees; and (iv) reasonable and customary business expenses

that are reimbursable by the Debtors under company policy, including those incurred by

Employees on corporate credit cards (the “Reimbursable Expenses”) (together, items (i) through

(iv) referred to herein as (the “Prepetition Employee Obligations”); (b) to continue certain

employee benefit programs including health benefits, insurance benefits, retirement savings

benefits, and all other benefits that the Debtors have historically paid or provided to Employees

in the ordinary course of business, as further described below (collectively, the “Employee

Benefits”); (c) to direct banks and other financial institutions to receive, process, honor and pay

all checks presented for payment and electronic payment requests related to any of the foregoing

or, to the extent necessary, issue replacement checks or electronic fund transfers related to the

foregoing Prepetition Employee Obligations and Employee Benefits; and (d) pay all costs and

expenses related to the foregoing.


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II. Prepetition Employee Obligations

16. The Debtors’ Prepetition Employee Obligations include wages and salaries,

overtime pay, certain payroll deductions and withholdings, payroll taxes and Reimbursable

Expenses. Before the Petition Date, the Debtors customarily either paid or withheld all of these

Prepetition Employee Obligations in the ordinary course of business. A description of the

Debtors’ Prepetition Employee Obligations, and the estimated liabilities associated with each, is

set forth below.

A. Wages & Salaries

17. The Debtors’ Employees are paid on a bi-weekly basis (the “Pay Period”). Pay

Periods end on Wednesdays. The Debtors utilize an outside processor, Automatic Data

Processing, Inc. (“ADP”) to perform most payroll functions for the Employees. The Friday after

the end of a Pay Period, the Debtors initiate a wire transfer to ADP (the “Payroll Wire”) to cover

the wages and salaries for the just-ended Pay Period. Employees paid by direct deposit receive

deposits the following business day, usually a Monday. Employees paid by check typically

receive their checks on the first Wednesday after a Payroll Wire is sent.

18. The total wages and salaries for the Pay Period ended January 16, 2013 (the

“Recent Pay Period”) excluding Payroll Taxes, were approximately $525,000. Each Pay Period,

ADP charges the Debtors processing fees of approximately $3,000 (the “Processing Costs”),

which Prepetition Processing Costs are paid by automatic debit from the Debtors’ concentration

bank account 2-3 business days after the Payroll Wire. The Debtors hereby seek authority to pay

the Processing Costs, including any prepetition accrued, unpaid amounts thereof, in the ordinary

course. The payroll system always has at least one week of accrued, unpaid wages and salaries.

Other than the accrual from this inherent lag, the Debtors were current with all payroll

obligations to the Employees through the last completed Pay Period before the Petition Date.


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The Debtors estimate that as of the Petition Date, accrued but unpaid payroll costs, including

wages and salaries, plus benefits and before deducting withholdings such as Payroll Taxes,

aggregate approximately $425,000 (or approximately $313,000, net of Payroll Taxes).

19. The Debtors maintain both quarterly and annual bonus programs for eligible

Employees (the “Bonuses”). These bonuses are mainly linked to achieving sales and

profitability targets at the restaurants. Employees who work as General Managers and Assistant

Managers at Flat Top restaurants are eligible to earn Bonuses on a quarterly basis if their

restaurant achieves year-over-year growth in quarterly profit after controllable expenses

(“PAC”). General Managers at Flat Top are eligible to earn annual Bonuses if their store

achieves annual revenue growth. Management employees at Stir Crazy restaurants (including

Operating Partners, General Managers, Executive Kitchen Managers, Assistant General

Managers, Kitchen Managers, Assistant Managers, and Assistant Kitchen Managers) are eligible

to earn Bonuses on a quarterly basis if their restaurant achieves year-over-year growth in

quarterly PAC. Operating Partners at Stir Crazy are eligible for annual Bonuses if their store

achieves annual revenue growth. Regional Partners are eligible to earn Bonuses on a quarterly

basis if the restaurants in their region achieve year-over-year growth in quarterly PAC on an

aggregate basis. During 2012, the Debtors paid a total of approximately $81,000 in Bonuses.

The Debtors estimate that as of the Petition Date, accrued but unpaid Bonuses aggregate

approximately $75,000. The Debtors consider the continued payment of these Bonuses essential

to maintain the focus of their managers on maximizing the success of their stores as well as for

employee morale. In addition, Bonuses have become an expected part of these Employees’

compensation and could negatively impact the personal finances of eligible Employees if the

programs are not continued.


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B. Overtime Pay and Vacation Time

20. The Debtors’ Hourly Employees are entitled to overtime pay equal to time and a

half for work performed in excess of 40 hours per week or as required by state law. The Debtors

paid approximately $15,000 in overtime pay during the Recent Pay Period. The Debtors

estimate that accrued but unpaid overtime pay is currently approximately $9,000.

21. All full-time Salaried Employees (i.e., those who work at least 40 hours per week)

are eligible to use vacation benefits after they have been employed by the Debtors for 30

consecutive days. Salaried Employees earn vacation days (“Vacation Time”) based on their

consecutive years of service to the Debtors. Those in their first year of service earn one vacation

day per month worked, up to 10 days maximum. Those in years 2-4 earn 10 days. Those in

years 5-9 earn 15 days. Those in years 10 and beyond earn 20 days. Salaried Employees’ full

vacation allotment is available on January 1 each year and no unused vacation days may be

carried over from year to year for any reason. Salaried Employees who terminate are eligible for

payout of earned, unused vacation and are subject to payback for any vacation deficit. Hourly

Employees who average 30 hours of work per week for the entire year receive one week of paid

vacation per year. For tipped Employees, the Vacation Time is paid out at minimum wage. For

front of house and back of house staff, Vacation Time is paid out at their usual hourly rate. For

the Recent Pay Period, the Debtors paid out approximately $3,500 of Vacation Time. The

Debtors estimate that as of the Petition Date, accrued but unpaid Vacation Time aggregated

approximately $5,000.

C. Deductions & Withholdings

22. During each Pay Period, the Debtors routinely deduct certain amounts from

Employees’ paychecks, including: (a) garnishments, child support, personal bankruptcy plan

payments and similar deductions; and (b) other pretax and after-tax deductions payable pursuant


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to certain of the Employee Benefit plans described below (including, without limitation, such

Employees’ share of health care premiums, 401(k) contributions and other miscellaneous

deductions) (those items referenced in (a) and (b) collectively, the “Deductions and

Withholdings”), and forward those amounts (with the exception of amounts owing on account of

self-insured programs) to various third-party recipients. Each Pay Period, the amount of

necessary Deductions and Withholdings are transferred by wire transfer to ADP approximately 4

business days after the Payroll Wire. For the Recent Pay Period, the Debtors withheld a total of

approximately $22,000 from Employees’ pay on account of the Deductions and Withholdings.

The Debtors estimate that as of the Petition Date, accrued but unpaid Deductions and

Withholdings are approximately $14,000.

23. Additionally, the Debtors are required by law to withhold from Employees’ wages

and salaries amounts related to federal, state and local income taxes, social security and

Medicare taxes (collectively, the “Withholding Taxes”) for remittance to the appropriate taxing

authority. The Debtors must also match from their own funds social security and Medicare taxes

so withheld, and pay (based on a percentage of gross payroll) additional amounts for state and

federal unemployment insurance (the “Employer Payroll Taxes”, and, together with the

Withholding Taxes, the “Payroll Taxes”). The Debtors remit all Payroll Taxes to the appropriate

authorities through ADP by a wire transfer made approximately 4 business days after the Payroll

Wire each Pay Period. For the Recent Pay Period, Payroll Taxes totaled approximately

$175,000. The Debtors estimate that as of the Petition Date, accrued but unpaid Payroll Taxes

totaled approximately $112,000.

D. Reimbursable Expenses and Corporate Cards

24. In the ordinary course of business, the Debtors reimburse Employees for certain

reasonable and customary expenses incurred on behalf of the Debtors in the scope of their


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employment, in accordance with IRS regulations. The Reimbursable Expenses are paid each Pay

Period. The Debtors estimate that as of the Petition Date, accrued but unpaid Reimbursable

Expenses, excluding items charged on corporate credit cards totaled approximately $10,000.

25. Additionally, certain Employees incur travel expenses and make purchases on

behalf of the Debtors, which they pay for using corporate credit cards. Ten (10) Employees have

corporate credit cards issued by American Express (the “Amex Cards”) that are primarily used

for work-related travel and certain purchases made on behalf of the Debtors. The Amex Cards

are issued to three (3) Regional Operations Managers, the Marketing Director, the Controller, the

CEO, the Chairman of the Board, the Culinary Director, the Franchising Specialist, and

Operations Support.

26. Although the Debtors receive one consolidated statement each month from

American Express that lists the balances on each of the Amex Cards, the individual Employee

cardholders can be held personally liable by American Express for unpaid amounts on their

Amex Card. Accordingly, the Debtors’ policy is to pay off the full balance of the Amex Cards

monthly. The aggregate balance incurred on the Amex Cards (the “Amex Balance”) is

approximately $60,000 to $80,000 per month, payable on the 28th day of each month.

27. By this Motion, the Debtors seek authority to pay all Reimbursable Expenses and

all business expenses incurred on the Amex Cards in the ordinary course. This relief is essential

to avoid the Employee cardholders from being held personally liable for incurring business

expenses on behalf of the Debtors and to otherwise preserve the continuity of the Debtors’

operations. The Debtors made their regular payment in respect of the prior month’s Amex

Balance immediately before the Petition Date in the amount of approximately $76,000. Because

of the normal billing cycle of credit cards, there is almost always approximately one month of


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expenses outstanding on the Amex Cards. As of the Petition Date, the amount of outstanding

expenses on the Amex Cards was approximately $70,000. By this motion, the Debtors seek

authority to pay outstanding amounts on the Amex Cards as they come due and to direct their

banks to honor any prepetition payments made to American Express prior to the Petition Date in

respect of the Amex Balance.

II. Employee Benefits

28. In the ordinary course of business, the Debtors offer Employees several forms of

insurance programs, including (a) medical and dental insurance coverage (the “Health Insurance

Programs”); (b) long-term disability, short-term disability, group life and accidental death and

dismemberment coverage, (the “Disability and Life Insurance Programs”); and (c) a 401(k)

retirement savings plan (the “401(k) Plan”). Each of the Health Insurance Programs, the

Disability and Life Insurance Programs and the 401(k) Plan are described more fully below.

A. Health Insurance Programs

29. The Debtors offer the Health Insurance Programs for medical, dental and vision

insurance coverage and prescription benefits to full-time Employees (defined as those who

average more than 30 hours per week) who have worked for the Debtors for more than 30

consecutive days. The medical insurance plan is an employer-funded health and welfare plan

providing group health benefits. FOC is the Plan Administrator and UMR, a division of

UnitedHealthcare, is the third party claims administrator. The Debtors also offer prescription

benefits administered by Prescription Solutions. In addition, Employees located in Illinois (other

than Chicago), Michigan or Missouri may add dental coverage offered in the form of an HMO

administered by First Commonwealth. Employees located in Chicago may add dental coverage

offered in the form of a PPO administered by Guardian. Employees may also elect vision

benefits provided by VSP.


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30. Employees included in the Health Insurance Programs are required to make

contributions to the Health Insurance Programs each Pay Period (the “Employee Health

Contributions”). Employee Health Contributions are determined by the number of dependents

included under the individual Employee’s medical coverage, as well as whether an Employee

adds dental coverage. Employee Health Contributions are withheld each Pay Period and

periodically transferred to the various administrators of the Health Insurance Programs.

Approximately $25,000 in Employee Health Contributions was withheld but untransferred as of

the Petition Date. The Debtors seek authority to transfer such untransferred amounts to the

plans’ administrators.

31. The Debtors subsidize the Employees’ cost of participating in the Health

Insurance Programs by paying monthly premiums to the various plan administrators (the

“Debtors’ Responsibility”). Approximately $145,000 in Debtors’ Responsibility was accrued but

untransferred as of the Petition Date. The Debtors seek authority to transfer such untransferred

amounts to the plans’ administrators.

B. Life/AD&D, and Disability Insurance

32. The Debtors offer life insurance and accidental death and dismemberment

insurance (the “Life/AD&D Plan”) through MetLife to all active full-time salaried employees

working at least 40 hours per week (“Full-Time Salaried Employees”). The Debtors pay the

entire premium under the Life/AD&D Plan. The Life/AD&D Plan provides $75,000 of basic life

insurance and $75,000 of accidental death and dismemberment insurance to covered Employees.

Benefits under the Life/AD&D Plan begin are reduced by 35% once the covered Employee

reaches age 65 and are reduced by half at age 70. Premiums under the Life and AD&D Plan are

paid monthly and total approximately $1,250. The next premium payment for the Life/AD&D


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Plans in the amount of $1,213.26 is due on February 1, 2013. The Debtors seek authority to pay

this amount to MetLife when due.

33. The Debtors also offer group short-term disability and long-term disability plans

(together, the “Disability Plans”) to all Full-Time Salaried Employees. The Disability Plans are

offered through MetLife. The Debtors pay the entire premiums under the Disability Plans. If an

eligible Employee is absent from work for a qualifying reason for more than 7 days and less than

12 weeks, the short-term disability plan pays up to 66 2/3% of the Employee’s predisability

weekly earnings, up to a maximum of $300 per week. If an eligible Employee is absent from

work for a qualifying reason for more than 90 days, the long-term disability plan pays up to 60%

of the Employee’s predisability monthly earnings, up to a maximum of $8,000 per month.

Premiums under the Disability Plans are paid monthly and total approximately $1,600. The next

premium payment for the Disability Plans in the amount of $1,574 is due on February 1, 2013.

The Debtors seek authority to pay this amount to MetLife when due.

34. The Debtors hereby seek authority to continue offering the Life and AD&D Plan

and the Disability Plans to their Full-Time Salaried Employees and to continue paying premiums

in respect of these plans in the ordinary course of business. The Life and AD&D Plan and the

Disability Plans are considered a significant part of Full-Time Salaried Employees’

compensation and failure to provide these plans would result in a drastic reduction in such

Employees’ overall compensation. Furthermore, provision of these plans provides affected

Employees with important insurance coverage.

C. 401(k) Plan

35. The Debtors offer a 401(k) retirement savings plan (the “401(k) Plan”) to its

Employees. The Plan Administrator of the 401(k) Plan is Debtor Flat Out Crazy, LLC (the

“401(k) Plan Administrator”). Employees who are over 21 years of age, have been employed by


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the Debtors for more than 1 year, and who have worked more than 1,000 hours during the year

are eligible to participate in the 401(k) Plan beginning on the first day of the first plan year for

which they become eligible to participate or the first day of the seventh month of the plan year

during which they first become eligible.

36. As of September 30, 2012 (the most recent plan reporting date available as of the

Petition Date) there were approximately 123 total participants in the 401(k) Plan, with 113 of the

participants actively contributing to the 401(k) Plan. The total plan asset balances as of

September 30, 2012 was approximately $1.5 million. Each Employee’s contributions to the

401(k) Plan are immediately 100% vested. The Debtors may match Employee contributions (the

“Debtors’ Match”) on a discretionary basis. The Debtors’ Match vests beginning at 20% after 1

year of plan participation and at an increasing rate each year for the first five years during which

the Employee participates in the 401(k) Plan. After a participating Employee completes five

years’ participation in the 401(k) Plan, the Debtors’ Match is 100% vested. As of the Petition

Date, the accrued but unpaid Debtors’ Match totaled approximately $2,000. The Debtors seek

authority to transfer such accrued, unpaid Debtors’ Match to the 401(k) Plan Administrator.

37. Employee contributions and loan repayments to the 401(k) Plan (“Employee

401(k) Contributions”) are withheld each Pay Period. After the Debtors withhold the Employee

401(k) Contributions, the funds are briefly segregated in a separate bank account in the Debtors’

name and then submitted to the 401(k) Administrator via wire transfer. As of the Petition Date,

amounts withheld on account of the 401(k) Plan but not transferred totaled approximately

$6,000. The Debtors seek authority to transfer such untransferred Employee 401(k)

Contributions to the 401(k) Plan Administrator.


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38. By this Motion, the Debtors seek authority to continue transferring Employee

401(k) Contributions in the ordinary course of the Debtors’ businesses. The Debtors also seek

authority to transfer the accrued but unpaid Debtors’ Match to the 401(k) Administrator, along

with any associated administration fees. The 401(k) Plan is an integral part of each Employee’s

compensation package and represents an essential service provided by the Debtors so that their

eligible Employees may plan for their retirement.

III. The Prepetition Employee Obligations are Entitled to Priority Status

39. Pursuant to sections 507(a)(4) and 507(a)(5) of the Bankruptcy Code, a debtor’s

employees’ claims for “wages, salaries, or commissions, including vacation, severance, and sick

leave pay” earned within 180 days before the Petition Date, and claims against the debtors for

contributions to employee benefit plans arising from services rendered within 180 days before

the Petition Date, are afforded unsecured priority status to the extent of $11,725 per employee.

11 U.S.C. § 507(a)(4) and (a)(5). Furthermore, section 363(b)(1) of the Bankruptcy Code

provides, “[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the

ordinary course of business, property of the estate.” 11 U.S.C. § 363(b)(l). Section 105(a) of the

Bankruptcy Code further provides:

The court may issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions of this title.
No provision of this title providing for the raising of an issue by a
party in interest shall be construed to preclude the court from, sua
sponte, taking any action or making any determination necessary
or appropriate to enforce or implement court orders or rules, or to
prevent an abuse of process.

11 U.S.C. § 105(a).

40. The Debtors believe that only one Employee (the “Sullivan Manager”) is owed in

excess of $11,725 on account of Prepetition Employee Obligations and/or Employee Benefits as

of the Petition Date. The Sullivan Manager, who is owed approximately $9,000 of prepetition


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amounts in excess of the priority limit as of the Petition Date, is the General Manager of one of

the Restaurants and remains an important member of the Debtors’ businesses going forward.

Given the relatively small amount owed to this Employee in excess of the statutory limit for

unsecured priority claims, the fact that no other Employees are owed amounts in excess of the

statutory limit, and the importance of this individual to the Debtors’ businesses, the Debtors seek

authority to pay all prepetition obligations to Employees, including all amounts owed to the

Sullivan Manager. The Debtors submit that payment of such amounts at this time is critical to

their continued operation of their businesses in furtherance of their eventual reorganization. See,

e g., In re General Growth Properties, Inc. et al.., No. 09-11977 (ALG) (Bankr. S.D.N.Y May 8,

2009) (order authorizing debtors to, among other things, pay prepetition wages, salaries,

employee benefits and other compensation, maintain employee benefits programs and pay

related administrative obligations pay prepetition wages, reimburse prepetition employee

business expenses and make payments for which payroll deductions were made); In re Chrysler

LLC, et al., No. 09-50002 (AJG) (Bankr. S.D.N.Y. May 1, 2009) (order authorizing the debtors,

among other things, to pay: prepetition regular employee wages, salaries and related items;

prepetition regular employee business expenses; prepetition contributions to, and benefits under,

employee benefit plans; prepetition regular employee payroll deductions and withholdings;

prepetition additional workforce costs; and all related costs and expenses); In re Ionosphere

Clubs, Inc., 98 B.R. 174, 176 (Bankr. S.D.N.Y. 1989); In re Chateaugay Corp., 80 B.R. 279

(S.D.N.Y. 1987).

41. Payment of the Prepetition Employee Obligations is consistent with the “doctrine

of necessity,” which allows bankruptcy courts to authorize the payment of certain prepetition

debts that are deemed needed to facilitate the rehabilitation of the debtor. See Ionosphere Clubs,


Pg 18 of 28

98 B.R. at 175-76 (citing Miltenberger v. Logansport, C. & S.W. R.Co., 106 U.S. 286 (1882)).

This doctrine is consistent with the paramount goal of chapter 11 of “facilitating the continued

operation and rehabilitation of the debtor.” Ionosphere Clubs, 98 B.R. at 176.

42. Any delay in paying Prepetition Employee Obligations will adversely impact the

Debtors’ relationship with their Employees and will irreparably impair the Employees’ morale,

dedication, confidence, and cooperation. The Employees’ support for the Debtors’

reorganization efforts is critical to the success of those efforts. At this early stage, the Debtors

simply cannot risk the substantial damage to their businesses that would inevitably attend any

decline in its Employees’ morale attributable to the Debtors’ failure to pay wages, salaries,

benefits and other similar items.

43. Moreover, absent an order granting the relief requested in this Motion, the

Employees will suffer undue hardship and, in many instances, serious financial difficulties, as

the amounts in question are needed to enable certain of the Employees to meet their own

personal financial obligations. Finally, without the requested relief, the stability of the Debtors

will be undermined, perhaps irreparably, by the possibility that otherwise loyal Employees will

seek other employment alternatives.

44. The Debtors do not seek to alter their compensation, vacation, and other benefit

policies at this time. This Motion is intended only to permit the Debtors, in their sole discretion,

to make payments consistent with those policies to the extent that, without the benefit of an order

approving this Motion, such payments would be inconsistent with the Bankruptcy Code, and to

permit the Debtors, in their discretion, to continue to honor their practices, programs and policies

with respect to their Employees, as such practices, programs and policies were in effect as of the

Petition Date.


Pg 19 of 28

45. Indeed, with respect to Payroll Taxes in particular, the Supreme Court has held

that taxes such as those taxes withheld under the Federal Insurance Contributions Act (“FICA”)

and withholding taxes are property held by a debtor in trust for another and, as such, do not

constitute property of its estate. See Begier v. Internal Revenue Serv., 496 U.S. 53, 55-56, 59-61,

66-67 (1990). Thus, the Bankruptcy Code does not prohibit a debtor from paying such taxes.

46. Accordingly, pursuant to sections 363(b) and 105(a) of the Bankruptcy Code, the

Debtors seek authority to pay the Prepetition Employee Obligations that become due and owing

during the pendency of this case, to ratify Prepetition Employee Obligations paid prior to the

Petition Date and to continue at this time their practices, programs and policies with respect to

their Employees, as such practices, programs and policies were in effect as of the Petition Date

(except to the extent, as described above, that the amounts owed to the Sullivan Manager exceed

the $11,725 priority limit), including allowing vacation for which Employees are eligible but

have not used, as of the Petition Date.

47. Bankruptcy courts in this District and elsewhere have granted similar relief in

many other cases. See, e.g., In re Residential Capital, LLC, No. 12-12020 (MG) (Bankr.

S.D.N.Y. June 15, 2012) (order authorizing debtors to pay prepetition employee obligations,

including wages, salaries, benefits and expenses and maintain employee compensation and

benefit programs); In re Hostess Brands, Inc., No. 12-22052 (RDD) (Bankr. S.D.N.Y. Jan. 27,

2012) (order authorizing debtors, in their sole discretion, to pay prepetition compensation,

business expenses, deductions, benefits and related costs); In re Friendly Ice Cream Corp., No.

11-13167 (KG) (Bankr. D. Del. Oct. 6, 2011) (order authorizing debtors to pay employee wages,

taxes, withholdings and costs, expense reimbursements, and benefit obligations); In re Jennifer

Convertibles, Inc., No. 10-13779 (ALG) (Bankr. S.D.N.Y. July 22, 2010) (order authorizing


Pg 20 of 28

debtors to pay prepetition employee wages, salaries, benefits and related expenses); In re Old

Carco LLC (f/k/a Chrysler LLC), No. 09-50002 (AJG) (Bankr. S.D.N.Y. May 4, 2009) (order

authorizing debtors to pay specified employee obligations).

IV. Certain Deductions and Withholdings Are Not Property of the Debtors’ Estates

48. Pursuant to sections 541(b)(7) and 541(d) of the Bankruptcy Code, certain of the

Deductions and Withholdings are not property of the Debtors’ estates and, accordingly, are not

available for distribution to their creditors. The Bankruptcy Court should authorize the Debtors

to pay or transfer Deductions and Withholdings that are rightfully the property of someone else,

as determined either by express carve out from the Bankruptcy Code definition of property of the

estate (section 541(b)(7) of the Bankruptcy Code) or a trust fund theory (section 541(d) of the

Bankruptcy Code).

49. Items like withholdings related to the 401(k) Plan and Employee Benefits are

explicitly excluded from the definition of property of the estate by section 541(b)(7), which

excludes, in relevant part any amount (a) “withheld by an employer from the wages of

employees for payment as contributions… to … an employee benefit plan that is subject to title

I of the Employee Retirement Income Security Act of 1974…” (§ 541(b)(7)(A)(i)(I)); and

(b) “received by an employer from employees for payment as contributions” (i) “to … an

employee benefit plan that is subject to title I of the Employee Retirement Income Security Act

of 1974…” (§ 541(b)(7)(B)(i)(I)); and (ii) “to a health insurance plan regulated by State law

whether or not subject to such title…” (§ 541(b)(7)(B)(ii)). Contributions by Employees to the

401(k) Plan or in respect of Employee Benefits are not property of the Debtors’ estates, despite

the fact that some of these amounts may have been held in the Debtors’ bank accounts before

and after the Petition Date. In order to avoid irreparable harm to the Debtors’ relationship with


Pg 21 of 28

its Employees, the Bankruptcy Court should authorize the Debtors to continue to pay and

transfer such amounts in the ordinary course of business.

50. Section 541(d) of the Bankruptcy Code provides, in relevant part, that “[p]roperty

in which the debtor holds, as of the commencement of the case, only legal title and not an

equitable interest … becomes property of the estate … only to the extent of the debtor’s legal

title to such property, but not to the extent of any equitable interest in such property that the

debtor does not hold.” 11 U.S.C. § 541(d). Although the Debtors possess the funds related to

Deductions and Withdrawals that were untransferred as of the Petition Date, they do not have

equitable interest in these funds. Rather, these funds belong to other parties including benefit

plan administrators, the 401(k) Administrator and others and the Debtors merely hold them in

trust. The Bankruptcy Court should authorize the Debtors to transfer any such trust funds to the

respective parties holding equitable interests in such funds.

V. Request that Banks be Authorized to Honor Checks Issued to Prepetition Employee
Obligations, Employee Benefits and Costs Related to the Same

51. By this Motion, the Debtors request that any applicable banks or financial

institutions be authorized and directed, when requested by the Debtors in the Debtors’ sole

discretion, to receive, process, honor and pay any and all checks presented for payment of, and to

honor all fund transfer requests made by the Debtors related to the Prepetition Employee Wages

and Employee Benefits, as well as related costs and expenses, whether such checks were

presented or fund transfer requests were submitted prior to or after the Petition Date, provided

that sufficient funds are available in the applicable accounts to make the payments. The Debtors

represent that these checks are drawn on identifiable payroll and disbursement accounts and can

be readily identified as relating directly to the authorized payment of the Prepetition Employee

Obligations and Employee Benefits and the costs related thereto. Accordingly, the Debtors


Pg 22 of 28

believe that there is no risk that checks other than those relating to the payments requested herein

will be honored inadvertently.

52. Contemporaneously herewith, the Debtors have filed emergency motions seeking

authority to fund their postpetition operations using cash collateral (“Cash Collateral”) and to

continue using their existing cash management system and existing checks and other business

forms. The Cash Collateral will provide the Debtors with access to sufficient funds to pay,

among other things, the Prepetition Employee Obligations and Employee Benefits and costs

related thereto, all of which are contemplated in the budget submitted in support of the Debtors’

request for approval of the use of Cash Collateral.

53. Nothing in this Motion is intended, and shall not be deemed or construed, as:

(a) an admission as to the validity of any claim against the Debtors; (b) a waiver of the Debtors’

rights to dispute any claim on any grounds; (c) a promise to pay any claim; (d) an implication or

admission that any particular claim is a claim for Prepetition Employee Obligations, Employee

Benefits or costs related thereto; or (e) a request to assume any executory contract or unexpired

lease, pursuant to section 365 of the Bankruptcy Code.

VI. Requests for Immediate Relief and Waiver of Stay

54. By this Motion, the Debtors seek immediate relief and a waiver of any stay of the

effectiveness of any order granting the relief requested in this Motion. Rule 6003(b) of the

Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) provides that “[e]xcept to the

extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within

21 days after the filing of the petition, issue an order granting … a motion to pay all or part of a

claim that arose before the filing of the petition…”. Fed. R. Bankr. P. 6003(b). Bankruptcy Rule

6004(h) provides that “[a]n order authorizing the use, sale, or lease of property other than cash

collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders


Pg 23 of 28

otherwise.” Fed. R. Bankr. P. 6004(h). As set forth above, the Debtors’ rehabilitation crucially

relies on their ability to exercise discretion and timely pay the Prepetition Employee Obligations,

Employee Benefits and costs related thereto. Delay of these payments could result in potentially

irreparable damage to the Debtors’ operations and is likely to impair their successful

reorganization. Accordingly, the Debtors submit that sufficient cause exists for: (i) entry of the

proposed order attached as Exhibit A hereto immediately, in accordance with the requirements of

Bankruptcy Rule 6003(b); and (ii) waiving the fourteen-day stay imposed by Bankruptcy Rule

6004(h), to the extent that it applies.

NOTICE

55. Notice of this Motion has been given to: (a) each committee appointed to serve in

the case pursuant to 11 U.S.C. § 1102 (or, if no committee has been appointed, to those entities

appearing on the Debtors’ Consolidated List of Top 30 General Unsecured Creditors), (b) the

Office of the United States Trustee for the Southern District of New York; (c) counsel to The

Hillstreet Fund IV, L.P. in its capacity as the Debtors’ prepetition senior and junior secured

lender; (d) counsel to Vogen Funding, L.P.; (e) counsel to U.S. Foods; and (f) the Internal

Revenue Service. In light of the nature of the relief requested herein, the Debtors submit that no

other or further notice is required.

NO PRIOR REQUEST

56. No prior request for the relief sought in this Motion has been made to this

Bankruptcy Court or any other court in connection with these Cases.

WHEREFORE, the Debtors respectfully request that the Court enter an Order in

substantially the form attached: (a) authorizing, but not directing, the Debtors to pay and honor

the Prepetition Employee Obligations specifically as set forth herein; (b) authorizing, but not

directing, the Debtors to continue to provide the Employee Benefits in the ordinary course of


Pg 24 of 28

business; (c) authorizing, but not directing, the Debtors to continue the Reimbursement Programs

in the ordinary course of business; (d) authorizing, but not directing, the Debtors to pay all

related costs and expenses; (e) directing banks to receive, honor and pay all checks and

electronic payment requests related to the foregoing; and (f) granting such further relief as is just

and proper.

Dated: January 25, 2013 Respectfully submitted,

/s/ Stephen D. Lerner
Stephen D. Lerner
Elliot M. Smith
Kristin E. Richner
Andrew M. Simon (Pro Hac Vice pending)
SQUIRE SANDERS (US) LLP
30 Rockefeller Plaza
New York, NY 10112
(212) 872-9800 (Phone)
(212) 872-9815 (Fax)
stephen.lerner@squiresanders.com
elliot.smith@squiresanders.com
kristin.richner@squiresanders.com
andrew.simon@squiresanders.com

Proposed Attorneys for Debtors and
Debtors in Possession


Pg 25 of 28

Exhibit A

Proposed Order

CINCINNATI/97523.5

Pg 26 of 28

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

In re: Chapter 11

Flat Out Crazy, LLC, et al.1, Case No. 13-22094 (RDD)

Debtors. Joint Administration Requested

ORDER, AUTHORIZING, BUT NOT DIRECTING, THE DEBTORS TO PAY: (A)
PREPETITION EMPLOYEE WAGES, SALARIES AND RELATED ITEMS; (B)
PREPETITION EMPLOYEE PAYROLL DEDUCTIONS AND WITHHOLDINGS; (C)
PREPETITION PAYROLL TAXES; (D) PREPETITION CONTRIBUTIONS TO, AND
BENEFITS UNDER, EMPLOYEE BENEFIT PLANS; AND (E) ALL COSTS
AND EXPENSES INCIDENT TO THE FOREGOING

Upon the Motion, pursuant to sections 105(a), 363, 507(a)(4), 507(a)(5), 541(b)(7) and

541(d) of the Bankruptcy Code, for an Order Authorizing Them to Pay: (A) Prepetition

Employee Wages, Salaries and Related Items; (B) Prepetition Employee Payroll Deductions and

Withholdings; (C) Prepetition Payroll Taxes; (D) Prepetition Contributions to, and Benefits

Under, Employee Benefit Plans; And (E) All Costs and Expenses Incident to the Foregoing (the

“Motion”);2 filed by the debtors and debtors in possession (the “Debtors”); the Bankruptcy Court

having reviewed the Motion and the DeLong Affidavit and having heard statements of counsel in

support of the Motion at a hearing before the Bankruptcy Court (the “Hearing”); the Bankruptcy

Court having found that: (i) it has jurisdiction over this matter under 28 U.S.C. §§ 157 and 1334

and venue is proper under 28 U.S.C. §§ 1408 and 1409; (ii) this matter is a core proceeding

1
The Debtors in these cases and the last four digits of their Employer Identification Numbers are: Stir Crazy Café
West Nyack, LLC (5828); Flat Out Crazy, LLC (0160); SCR Operations, LLC (9375); SCR Hospitality, LLC (4309);
SCR Concessions, LLC (6669); Stir Crazy Restaurants, LLC (2289); Stir Crazy Café Oakbrook, LLC (2976); Stir
Crazy Café Northbrook, LLC (7070); Stir Crazy Café Woodfield, LLC (1104); Stir Crazy Café Great Lakes, LLC
(9634); Stir Crazy Café Boca Raton, LLC (9942); Stir Crazy Café Creve Coeur, LLC (0003); Stir Crazy Café
Legacy Village, LLC (8744); Stir Crazy Café Cantera, LLC (4842); and Stir Crazy Operations, LLC (8114).
2
Capitalized terms used but not defined herein shall have the meanings assigned in the Motion.

CINCINNATI/97522.2

Pg 27 of 28

under 28 U.S.C. § 157(b)(2); (iii) due and adequate notice of the Motion and the Hearing has

been given under the circumstances; and (iv) the relief requested in the Motion is in the best

interests of the Debtors, their estates and creditors, and other interested parties; accordingly, after

due deliberation, and good and sufficient cause appearing therefor, it is hereby

ORDERED, ADJUDGED AND DECREED:

1. The Motion is granted.

2. The Debtors are authorized in accordance with their stated policies (as such

policies may be modified from time to time) and in the Debtors’ sole discretion, to pay:

(a) Prepetition Employee Obligations identified in the Motion, including but not limited to

(i) prepetition compensation, (ii) Prepetition Business Expenses, and (iii) Deductions and

Withholdings; and (b) Employee Benefits that accrued but remained unpaid as of the Petition

Date to or for the benefit of the Employees; provided, however, that no such Prepetition

Employee Obligations and Employee Benefits paid pursuant to this Order may exceed $11,725

for any individual Employee, other than as specified below.

3. The Debtors are authorized to pay Prepetition Employee Obligations and

Employee Benefits owed to the Sullivan Manager in excess of $11,725, as described in the

Motion.

4. The Debtors are authorized, in the Debtors’ sole discretion, to pay the prepetition

Processing Costs and any outstanding prepetition Payroll Taxes.

5. The Debtors’ banks and other financial institutions (collectively, the “Banks”) are

authorized and directed, when requested by the Debtors in the Debtors’ sole discretion, to

receive, process, honor and pay all checks presented for payment of, and to honor all fund

transfer requests made by the Debtors related to Prepetition Employee Obligations, Employee

2
CINCINNATI/97522.2

Pg 28 of 28

Benefits and costs related thereto, whether such checks were presented or fund transfer requests

were submitted prior to or after the Petition Date, provided that funds are available in the

Debtors’ accounts to cover such checks and funds transfers. The Banks are authorized to rely on

the Debtors’ designation of any particular check or funds transfer as approved by this Order.

6. Nothing in the Motion or this Order, nor the Debtors’ payment of claims pursuant

to this Order, shall be deemed or construed as: (a) an admission as to the validity of any claim

against the Debtors; (b) a waiver of the Debtors’ rights to dispute any claim on any grounds; (c) a

promise to pay any claim; (d) an implication or admission that any particular claim is a claim for

Prepetition Employee Obligations, Employee Benefits or costs related thereto; or (e) a request to

assume any executory contract or unexpired lease, pursuant to section 365 of the Bankruptcy

Code.

7. Pursuant to Rule 6004(h), to the extent applicable, this order shall be immediately

effective and enforceable upon its entry.

Dated: January ___, 2013 /s/
United States Bankruptcy Judge

3
CINCINNATI/97522.2

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