1. IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
__________________________________
) Chapter 11
In re: )
HAGGEN HOLDINGS, LLC, et al. ) Case No. 15-11874 (KG)
)
) (Jointly Administered)
)
) Hearing Date: October 19, 2015 at 11 am
_________________________________ ) Re: D.I. 262
OPPOSITION TO DEBTORS' MOTION PURSUANT TO THE 11 U.S.C. 105, 363, 365,
503 AND 507 FOR APPROVAL OF: (I)(A) GLOBAL BIDDING PROCEDURES, (B) BID
PROTECTIONS, (C) FORM AND MANNER OF NOTICE OF SALE TRANSACTIONS
AND SALE HEARING, AND (D) ASSUMPTION ASSIGNMENT PROCEDURES; AND
(II)(A) PURCHASE AGREEMENTS, (B) SALE OF CERTAIN OF THE DEBTORS'
ASSETS FREE AND CLEAR OF LIENS, CLAIMS, INTERESTS AND
ENCUMBRANCES, AND (C) ASSUMPTION AND ASSIGNMENT OF CERTAIN
EXECUTORY CONTRACTS AND LEASES
Sanmon, Inc. ("Sanmon") is the owner of 2627 Lincoln Blvd, Santa Monica, California
(the "Property"). Located at the Property is Store 2166, one of the eight stores included in the
Stalking Horse Bid of Gelson's Markets. While Sanmon supports the bidding procedures to be
used in the event of a sale to Gelson's Markets, Sanmon objects to the procedure to be followed
in the event that an unknown third party is the successful bidder at auction. Further, there are
several substantive objections to the "free and clear" provision in the event of a sale to any party
- - including Gelson's Markets. Based thereon Sanmon hereby opposes the Debtors' Motion (the
"Motion") pursuant to 11 U.S.C. 105, 363, 365, 503 and 507 for approval of: (I)(A) global
bidding procedures, (B) bid protections, (C) form and manner of notice of sale transactions and
sale hearing, and (D) assumption assignment procedures; and (II)(A) purchase agreements, (B)
sale of certain of the debtors' assets free and clear of liens, claims, interests and encumbrances,
and (C) assumption and assignment of certain executory contracts and leases on the following

2. basis:
BACKGROUND
1. Sanmon, Inc. is the owner of an outdoor mixed-use retail shopping center
(with common area parking) located at 2627 Lincoln Blvd, Santa Monica, California (the
"Property"). Albertson's, LLC was an anchor tenant at the Property until early 2015, at which
point the lease (the "Lease") was assigned, without the required written consent of Sanmon, to
Haggen Opco South, LLC. The Lease is a lease of real property in a shopping center as that
term is used in Section 365(b)(3). See In re Joshua Slocum, Ltd., 922 F.2d 1081, 1086-87 (3d
Cir. 1990).
2. Sanmon's objections to the motion fall into four (4) categories:
i. Objections to Notice Procedures In the Event of a Third Party Bidder
ii. Objections to The "Free and Clear" Provisions
iii. Objections in the Event of a Credit Bid; and
iv. Reservations of Rights Issues.
ARGUMENT
The Proposed Global Bidding and Sales/Assumption and Assignment Procedures Do Not
Adequately Protect Sanmon's Rights.
3. The procedures outlined in the Motion are not consistent with the requirements of
§365(b)(3) of the Bankruptcy Code. The Bankruptcy Code requires that the assumption or
assumption and assignment of leases proceed as a contested matter, that the assignee’s finances
be comparable to the debtor’s at the time the lease was entered into, that the intended use be
similar, and that the entire lease be assumed, amongst other provisions. The Code places an
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3. affirmative burden on the Debtors to demonstrate that an assignee complies with Section 365.
The Debtors' auction and sale schedule does not provide Sanmon adequate time nor information
to assess the ability of a successful bidder to perform under the Leases (much less to file any
meaningful objection or conduct discovery). The Debtors' proposed schedule is as follows:
A. Auction to be conducted on November 9, 2015;
B. Adequate Assurance Objections Deadline: November 20, 2015;
C. Date of Sale Hearing In the Event of More than One Qualified Bid:
November 24, 2015.
4. The Motion indicates that Qualified Bidders’ financial information will be shared
as follows:
“60. Here, each Successful Bidder will have provided adequate assurance of
future performance with respect to any Transferred Contract or Additional
Contract because such party will be required to provide evidence to demonstrate
its ability to perform under the applicable contracts. Furthermore, given that the
Debtors will submit evidence that all requirements for the assumption and
assignment of such contracts at the Sale Hearing, the Court and other interested
parties will have the opportunity to evaluate the ability of each Successful Bidder
to provide adequate assurance of future performance.”
[underline added]
Paragraph 60 on pages 34-35 of the Motion.
5. Financial information regarding bidders is apparently not shared with Landlords
until after the Adequate Assurance Objection deadline. Even if all of the information was shared
on the date of the Auction, November 9th
, this would still not give Landlords such as Sanmon
sufficient time to conduct discovery. Given Federal notice periods for setting depositions, and
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4. given the complete lack of any advanced financial disclosures contemplated in the documents as
currently drafted, this is an inadequately short time period. Deposition notices, motions to
compel, and other discovery battles can take months. They do not take 11 days.
6. In order to rectify this issue, the Bidding Procedures must be modified - - both as
to timing and as to the scope of disclosures. The Global Bidding Procedures as described on
pages 13 and 14 of the Motion provide for the disclosure of financial information by potential
bidders to the debtor and its "Consultation Parties". The term "Consultation Parties" is defined
at Docket No. 262-2, Page 39, and does not include Lessors nor Landlords. Yet 11 USC
365(b)(3)(a) specifically provides that:
“the financial condition and operating performance of the proposed assignee and
its guarantors, if any, shall be similar to the financial condition and operating
performance of the debtor and its guarantors, if any, as of the time the debtor
became the lessee under the lease”.
7. How is a landlord able to make this determination without being given access to
the financial information, and intended use, at the same time that it is given to the Debtor?
Fundamental concepts of due process require that "notice must be reasonably calculated to
apprise interested parties of the pendency of an action and to afford them an opportunity to
present objections." Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950).
See also Sullivan v. Barnett, 139 F.3d 158, 171 (3rd Cir. 1998) (due process requires notice and
a meaningful opportunity to be heard). Eleven (11) days in not sufficient to conduct discovery.
8. It is proposed that Sanmon be given access to the financial information of
alternate bidders, and their proposed use of the Property, for the Lease at the same time that it is
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5. given to the Debtor. This can best be accomplished by changing the definition of Consultation
Parties to include Sanmon. There are numerous other modifications to the proposed Global
Bidding Procedures (and the Order thereon) that must be modified consistent herewith:
A. Paragraph (c)(iii) on Page 14 of the Motion provides for the procedure
for submitting alternative bids, including the submissions of redline copies
marked to show any proposed amendments. It is respectfully requested
that these agreements be shared with landlords for the premises at issue.
B. At the top of Page 8 of the Global Bidding Procedures, there is no
indication that a potential bidder must specify his or her intended use of
the property. This must change.
C. Under the Review of Bid Procedures at the bottom Page 8 of the Global
Bidding Procedures all bids should be submitted to respective landlords as
well. Further, the definition of Qualified Bid on Page 9 needs to indicate
that it is only a qualifying bid if the bid is not in violation of the use and
occupancy provisions of current leases.
D. There is a provision stating that debtors will provide copies of each
Baseline Bid to the Consultation Parties This information needs to be
provided to landlords such as Sanmon as well.
E. Likewise the "consultation with the baseline bidder and the
consultation parties" under auction procedures on Page 13 should be
expanded to require consultation with Sanmon as well.
9. In order to satisfy the adequate assurance of future performance burden, Sanmon
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6. must receive (for any bidder), at a minimum, the following information:
(i) the specific name of the proposed bidder, the name of the proposed tenant that
will act as the assignee, and the proposed name under which the assignee
intends to operate the store;
(ii) the potential assignee's intended use for the space;
(iii) audited financial statements and annual reports for the past three (3) years,
including all supplements or amendments thereto;
(iv) cash flow projections for the proposed assignee, the proposed assignee's most
recent business plan, all cash flow projection for the Lease subject to the
assignment request, and any financial projections, calculations and/or proformas
prepared in contemplation of purchasing the Leases;
(v) all documents and other evidence of the potential assignee's retail experience
and experience operating in-line stores in a shopping center; and
(vi) a contact person for the proposed assignee that Landlord may directly contact
in connection with the adequate assurance of future performance.
10. The Debtors cannot carry their burden under Section 365 without providing this
information, and without receipt of such information, Sanmon cannot meaningfully assess the
bona fides of any proposed assignee. Sanmon reserves the right to request further information
that it deems necessary to assess the ability of a potential assignee to satisfy the requirements of
Section 365, once a proposed assignee is identified for any Lease.
11. Sanmon must receive adequate assurance information far enough in advance of
any substantive objection deadline to conduct a meaningful analysis of such information for any
entity seeking the assignment of a Lease. This is especially critical in a lease auction scenario, as
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7. Sanmon has no idea who may bid on the Leases. Any Landlord must have sufficient time to
object to the proposed assignment (if necessary), as well as have time to prepare for an
evidentiary hearing on assumption and assignment, which requires the Landlord to conduct
expedited discovery, arrange for expert testimony, and file supplemental objections and
declarations based upon the information gleaned from the Debtors or proposed assignee.
The requirements of Section 365 are meant to give Landlords the ability to protect the Center
and its other tenants from improper assignments of leases. This Court should require that any
final auction and sale schedule must honor those requirements.
II.
The Sale Cannot Be Free And Clear of The Lease Nor of Obligations Contained In The Lease
12. Paragraph 23(c) of the Motion notes that the stalking horse agreement with
Gelson's Markets provides that stalking horse bidders shall have no liability for any Interests or
Claims relating to the Stores or the transfer of Stores. At the same time, Paragraph 1 (c)
"Assumption of Certain Liabilities" on Page 5 of the Asset Purchase Agreement by and among
Haggen Opco South, LLC and Gelson's Markets (Docket 262-2) specifically provides the buyer
will assume and agree to pay, perform and discharge all Liabilities arising under or relating to
the Store Leases, Assigned Contracts and Assigned Subleases arising after the Effective Time
and related solely to operations and occurrences after the Effective Time;". Paragraph 1(c)(ii).
13. Any order approving any sale must in fact be explicit that this provision of the
Asset Purchase Agreement supersedes the free and clear language of the Order. However, the
limitation to obligations or occurrences “arising after the Effective Time” is objectionable, and
inconsistent with the Bankruptcy Code. Sanmon objects to any sale free and clear of obligations
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8. to satisfy unbilled taxes, reconciliations, percentage rent, or other year-end adjustments or
unbilled charges that may have accrued under the Leases prior to the assignment of the Leases,
but which have not yet been billed. The Debtor continues to be responsible for all such unbilled
charges as they come due under the Lease, and the Debtor or any successful bidder, must agree
to satisfy all charges due under the Lease, including charges not yet been billed, reconciled
and/or adjusted from pre-petition (or even post-petition) periods. Any assumption and
assignment of the Lease cannot cut off Sanmon's right to recover unbilled charges that have
accrued, or are accruing, under the Lease. If the assignment is not subject to these reconciliation
and adjustment claims, it is unlikely that these legitimate lease charges will get paid to Sanmon.
This is consistent with the requirement that: “assumption or assignment of such lease is subject
to all the provisions thereof” contained at 11 U.S.C. 365(b)(3)(C).
14. Further, any assignment must remain subject to all provisions of the Lease,
including those provisions concerning use, radius, exclusivity, tenant mix and balance, etc.
These critical lease terms are enforceable under Section 365(b), and this Court must deny any
attempt to assign a Lease to a party that will fail to comply with such provisions.
15. Further, the Lease has an indemnification and hold harmless provision with
respect to existing claims which may not become known until after the assumption and
assignment of the Leases, examples of which may include claims for personal injuries at the
Premises and damage to the premises. Any assumption and assignment of the Leases must
remain subject to the terms of the Leases, including that any assignee continues to be responsible
for all such indemnification obligations, regardless of when they arose. Alternatively, the Debtor
must prove (by insurance or otherwise) that they can satisfy the indemnification obligations
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9. under the Leases for any such claims that relate to the period prior to assumption and assignment
of the Leases.
16. Sanmon requests that the Court require the Buyer to enter into a short form
assignment agreement (the "Agreement"), in a form acceptable to Sanmon, that will cause such
assignee to become directly obligated to Landlord under the Leases. The Agreement shall
include the name of the tenant entity, and any modification of notice address for the parties. The
Agreement is critical to Landlords for the maintenance of their lease files, and under the laws of
various states, it is critical to establish privity of contract between a landlord and assignee.
III.
Credit Bid Issues
17. Paragraph (n) on Page 13 of the Motion describes the Credit Bid rights of secured
creditors - specifically, PNC Bank. A purchase of the Debtor's lease at the Property by PNC
Bank National Association could - - depending on their intended use of the Property - - represent
a drastic change in use from the current Supermarket at the Property, and is impermissible under
11 USC §365(b)(3). If PNC Bank has a supermarket that is willing to contractually commit to
taking over the premises, PNC Bank should contact Sanmon to discuss. Absent the presentation
of a suitable tenant, a credit bid by PNC Bank cannot be reconciled with §365(b)(3) and must not
be allowed.
IV.
Reservation of Rights
18. Paragraph (h) "Modification of Bidding and Auction Procedures" on Page 18 of
the Motion gives the Debtor the right to modify the global bidding procedures without further
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10. order of the court. In light of the inadequacy of the global bidding procedures to date, it is urged
that this type of "flexibility" not be allowed absent approval of this objecting landlord.
19. As noted previously, Sanmon does not object to an assignment of the lease at
issue to Gelson's Markets. However, to the extent there is a different successful bidder, Sanmon
preserves its right to argue that anti-assignment provisions in the Lease may in fact be
enforceable notwithstanding Section 365(f) of the Bankruptcy Code.
20. Finally, Sanmon opposes the waiver of stay proposed by the debtor in this case
because it is not known whether an appeal will be necessary. Again, to the extent Gelson's
Markets is a successful bidder Sanmon does not object to this provision. To the extent that
unknown bidder is successful, Sanmon vigorously disputes this provision.
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11. V.
Conclusion
21 The Court should modify the procedures to incorporate the objections raised
above and adequately protect the rights of Sanmon, and grant such further relief it deems proper.
Dated: October 15, 2015
Wilmington, Delaware
GELLERT SCALI BUSENKELL & BROWN, LLC
/s/ Michael Busenkell
Michael Busenkell (No. 3933)
913 N. Market St., 10th
Floor
Wilmington, Delaware 19801
Telephone: (302) 425-5800
Facsimile: (302) 425-5814
Email: mbusenkell@gsbblaw.com
and
MERRITT, HAGEN & SHARF, LLP
/s/ Mark M. Sharf
Mark M. Sharf (Cal. Bar No. 140390, admitted Pro Hac Vice)
5950 Canoga Ave, #400
Woodland Hills, CA 91367
Tel: 818-788-4800
Fax: 818-905-6100
Email: mark@sharflaw.com
Counsel for Sanmon, Inc.
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