UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------x In re: Chapter 11 METROPARK USA, INC.

, Case No. 11-22866 (RDD) Debtor. ---------------------------------------------------------x OBJECTION OF AVENTURA MALL VENTURE TO DEBTORS PROPOSED ASSUMPTION AND ASSIGNMENT OF UNEXPIRED LEASE OF NONRESIDENTIAL REAL PROPERTY TO COTTON ON USA, INC.

Aventura Mall Venture (the Landlord), by and through its undersigned counsel, submits this objection to the above-captioned debtors (the Debtor) proposed assumption and assignment of the Aventura Mall lease to Cotton On USA, Inc. (Assignee). In support of its objection, the Landlord respectfully states as follows: PRELIMINARY STATEMENT Through the proposed assignment, the Debtor and the Assignee are attempting to eviscerate many of the statutory protections afforded landlords by the Bankruptcy Code, and to redraft significant provisions of the Lease (defined below) without the consent of the Landlord. Specifically: (1) They ignore the statutes requirements concerning adequate assurance, providing no financial information specific to the Assignee. (2) The declarations attached to the Notice offer up the legal conclusions that the Assignee satisfies the use and tenant mix provisions of section 365 of the Bankruptcy Code, in the apparent belief that unsupported and self-serving statements are a substitute for evidence. (3) Most troubling, the proposed order seeks to re-write entire sections of the Lease, eliminating provisions that the Debtor or the Assignee dont like through the dubious practice of labeling such provisions anti-assignment provisions. The Debtor and the Assignee are revising the Bankruptcy Code to include as anti-assignment provisions that can be struck provisions about signage, store hours and minimum sales, among other
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things, and to invalidate such provisions after assignment to the Assignee, on a prospective basis. The Notice also provides incorrect figures for the cure amount owed to the Landlord, and runs roughshod over the Landlords rights with respect to, among other things, tort claims and indemnification. For these reasons, and as more fully set forth below, the Landlord respectfully submits that the Debtors request for authority to assume and assign the lease pursuant to the terms of the proposed order and at the cure amount shown in the Notice should be denied. BACKGROUND 1. The Landlord is the landlord and the Debtor is the tenant pursuant to an

unexpired lease (the Lease) for retail space at the Aventura Mall, in Aventura, Florida (the Premises). The Aventura Mall is a shopping center as that term is used in section 365(b)(3)

of the Bankruptcy Code. 2. On May 19, 2011, the Landlord filed an objection to the Motion of the

Debtor for Order (A) Setting (1) Date to Conduct Auction of Debtors Interests in Certain Real Property Lease and Intellectual Property, and (2) Sale Hearing Date; (B) Approving Bidding Procedures and Terms of Auction; (C) Establishing Cure Amounts; (D) Authorizing Debtor to Enter into Lease Termination Agreements; (E) Approving and Authorizing Sale of Leases and Intellectual Property to Highest or Otherwise Best Bidder Free and Clear of All Liens, Interests, Claims and Encumbrances Pursuant to 363 of the Bankruptcy Code; (F) Waiving the Requirements of Rule 6004-1 and Granting Related Relief [D.N. 132].1 That objection is incorporated herein by reference. 3. The Debtor has since conducted a lease auction, and sought and obtained an

Order of this Court dated June 6, 2011 approving, among other things, the Debtors designation rights agreement with bidder The Cotton On Group (the June 6th Order) [D.N. 190]. The June 6th
1

That objection was filed by the Landlords prior counsel, LeClairRyan, P.C.

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Order permits The Cotton On Group to file and serve a lease assumption notice containing specified information, and provides that landlords may file objections within seven business days of such notice. 4. By Notice of Assumption and Assignment of Unexpired Lease of

Nonresidential Real Property dated June 15, 2011(the Notice) [D.N. 212], the Debtor has served such a notice and seeks to assume the Lease and assign it to Cotton On USA, Inc. (the Assignee). Per the Notice, Debtor asserts a cure amount of $41,113.71 and asks the Court to enter the form of order that is attached to the Notice as Exhibit B. OBJECTION 5. The Notice and the terms of the proposed order are violative of section 365

of the Bankruptcy Code and other applicable law, fail to provide the Landlord with adequate assurance of future performance and incorrectly state the cure amount due the Landlord. For these reasons, all more fully discussed below, the Landlord objects to the assumption and assignment of its Lease and the entry of the form of order proposed by the Debtor, and respectfully submits that the Debtors request for approval of such assumption and assignment should be denied. (a) The Landlord Has Not Been Provided with Adequate Assurance (i) The Assignees Financial Disclosure is Inadequate 6. In its earlier objection, prior to knowing the identity of the proposed

assignee, the Landlord raised and discussed the requirements of section 365(b) and (f) regarding adequate assurance of performance in general terms. The identity of the Assignee has now been disclosed, but the information provided by and about the Assignee is insufficient, and does not provide adequate assurance of performance under the Lease. In particular, the Assignee offers no

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information about its financial condition, and no evidence that percentage rent will not decline substantially. 7. The Assignee is Cotton On USA, Inc., but no financial statements or other

evidence of liquidity have been provided by that entity. Moreover, no information whatsoever has been provided that would assist the Landlord or the Court in assessing whether percentage rents are likely to significantly decline upon assignment, as there has been no disclosure of present or historical operating results for the Assignees other U.S. stores. 8. Instead, the Landlord has been advised (through declarations attached to the

Notice) of the revenues and assets of the group of companies known as Cotton On, which includes the Assignee. This disclosure is of little or no use, as it is only the Assignee that will be obligated under the Lease, and the financial wherewithal of other companies, none of which is the proposed tenant and none of which is located in the United States, does not satisfy the requirements of the statute. 9. Moreover, the sparse information that is provided about the Assignee

indicates that the company is new to the U.S. market and expanding very rapidly. It is therefore reasonable to conclude that the Assignee is also significantly increasing its liabilities very rapidly, and that its cash needs and burn rate are likewise on the rise. The declaration of Michael Hardwick (who is an officer of The Cotton On Group and not the Assignee) states that the Assignee operates 48 stores in the United States, and plans to open 100 more by June 2012. Mr. Hardwick guesses at the Assignees revenues for the year 2012, but provides no information about its actual assets and liabilities, or the bases for his guess. Instead, the Landlord is apparently expected to rely on the unsupported statements of the declarants that the Assignee has the financial resources to meet

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its obligations, in the face of the Assignees stated intent to expand dramatically, incur more debt and increase its cash needs. 10. Unsupported statements do not satisfy the requirements of section 365 of the

Bankruptcy Code. See In re Ionsphere Clubs, Inc., 85 F.3d 992, 999 (2d Cir. 1996); In re Joshua Slocum Ltd., 922 F.2d 1081 (3d Cir. 1990). There has been no meaningful financial disclosure about the Assignee, and there is no evidence that the Assignee is capable of meeting its financial obligations under the Lease or that percentage rents will not significantly decline upon assignment. (ii) The Assignee Cannot Provide Adequate Assurance Concerning Tenant Mix 11. As the Bankruptcy Code recognizes, shopping centers present unique issues,

and the tenant mix, or balance, of a shopping center, is of real importance to the landlord and its tenants. For that reason, section 365(b)(3)(D), in addressing adequate assurance of future performance in a shopping center, requires adequate assurance that the proposed assumption and assignment will not disrupt tenant mix. 12. The declarations attached to the Notice attempt to satisfy the requirement of

the statute with the conclusory statement that Cotton On goods are of like kind and quality as the goods sold by the Debtors and the operation of Cotton On stores will have no negative impact on the tenant mix in the affected shopping centers. Declaration of Sheril Miller, paragraph 5. 13. Mr. Millers statement is inaccurate. As the Debtor has repeatedly stated in

its filings with this Court, the Debtor sold name brand, high-end merchandise aimed at adults aged 25 to 35 years, with a marketing image and mall presence that emphasized the latest trends in fashion and music for that age group. To emphasize the high-end nature of the store and the connection of the Debtors customers to trends in music, the Premises had its own on-site DJ. This was consistent with the use clause contained in the Lease, which requires that the Premises be
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operated as a first-class, high-quality, fashionable store or business (as opposed to a general, promotional or self-service store or business). Lease, Article 9.01(b). A copy of Article 9 of the Lease, which addresses the permitted uses of the Premises, is attached hereto as Exhibit A. 14. By contrast, the Assignee sells its own, much lower priced brand and not

name brand merchandise, and markets itself as an inexpensive, family store, selling cotton sportswear for men, women and children. The Assignee also sells shoes, a use that is not permitted under the lease. This type of store does not satisfy the requirements of the Lease as to the use of the Premises, and does not satisfy the requirements of the statute. (b) The Lease Must Be Assumed and Assigned as Written 15. It is black letter law that a lease must be assumed and assigned as written,

without modification, as provided in section 365(b)(3)(C) of the Bankruptcy Code. In re Rickel Home Centers, Inc., 209 F.3d 291, 299 (3d Cir. 2000), cert. denied, 121 S .Ct. 175 (2000); In re Jamesway Corp., 201 B.R. 73, 76 (Bankr. S.D.N.Y. 1996). While the statute authorizes assignment in the face of anti-assignment provisions, it does not allow parties to cherry pick other lease provisions and effectively re-write the lease to an assignees specifications. 16. Here, that is exactly what the Debtor and the Assignee are attempting to do,

through the vehicle of the proposed order. The following list, while not exhaustive, highlights some of the most troubling provisions of the proposed order: (a) Paragraph 7. The language of this paragraph suggests that the Assignee will not be responsible for post-assignment liabilities, unless it has specifically agreed to be liable for them. As an assignee of an assumed lease, the Assignee should be liable for all post-assignment liabilities and obligations under the Lease. (b) Paragraph 8. The Debtor should not be relieved of its liability for tort claims, as discussed at section (e) of this objection.

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(c) Paragraph 9. This paragraph seemingly re-writes the Lease, through the device of labeling every Lease provision the Assignee does not care for an AntiAssignment Provision. By way of example, paragraph 9(ii)(C) would permit the Assignee to discontinue operations, interrupt business or fail to meet minimum sales requirements all in violation of the Lease without any consequences. While the Bankruptcy Code may permit assignment without a landlords consent, in the face of a lease provision that says otherwise (and provided that the other requirements of section 365 are satisfied) it does not permit the wholesale re-drafting of leases. (d) Paragraph 10. This paragraph repeats the broad and improper definition of Anti-Assignment Provisions and declares all such provisions invalid. 2 (e) Paragraph 12. The parties seek to have the Court modify the use clause of the Lease. The Landlord respectfully submits that the use clause speaks for itself. (f) Paragraph 13. The parties seek to further expand the definition of antiassignment provisions to include Lease provisions concerning signage, construction at the Premises, store closings and hours. Again, the Landlord respectfully submits that the Debtor and the Assignee cannot mischaracterize Lease terms in order to re-draft the Lease without the consent of the Landlord. If the Assignee is not prepared to abide by the Lease terms as written, then assumption and assignment are not proper here. (g) Paragraph 14. This paragraph must be modified to address the Landlords concerns and the Debtors liability for tort claims, as discussed in section (e) below. (h) Paragraph 16. This paragraph seeks to broadly bind third parties who have not been given notice of the Debtors motions or the provisions of the notice and proposed order. While the Landlord understands and sympathizes with the desire of the Debtor and the Assignee to avoid paperwork, the Landlord notes that it does not have the ability to alter the terms of its own financing agreements and mortgages, and all tenants must comply with such terms.

17.

The Landlord respectfully submits that while the Lease can be assigned in

bankruptcy despite non-assignment provisions, provided that other applicable provisions of section 365 and other applicable law are satisfied, all of the terms of the Lease must remain in effect and must be complied with upon assumption and assignment, including provisions governing store hours, signage and minimum sales requirements. These are not anti-assignment provisions and
2

The Landlord has not addressed paragraph 11, primarily because it is uncertain of the meaning of that paragraph.

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the Debtors or the Assignees attempt to label them so does not alter reality. Moreover, though a Bankruptcy Court may allow a debtor to assign a lease that contains anti-assignment language, such assignment does not strip such language from the lease or eliminate the assignees obligation to prospectively comply with such provisions. (c) Cure Amount 18. The Notice incorrectly states that the amount due to the Landlord is

$41,113.71. In fact, the amount due to the Landlord as of June 20, 2011 is $85,152.80, and amounts continue to accrue under the Lease. 19. The correct cure amount has two components. As set forth in the accounts

receivable report attached to this objection as Exhibit B, the amount due under the Lease in rent, CAM, taxes and similar charges totals $75,142.84 through June 20th. The date of the report is June 21, 2011, and amounts continue to accrue. 20. In addition, applicable law permits the Landlord to include its costs,

including attorneys fees, in the amounts payable by the Debtor. The attorneys fees incurred through June 20, 2011 total $10,009.96, making the total cure amount as of that date $85,152.80, and attorneys fees continue to accrue. See Travelers Cas. and Sur. Co. of America v. Pacific Gas and Elec. Co., 127 S. Ct. 1199, 1203 (2007); In re East 44th Realty, LLC, No. 07 Civ. 8799, 2008 U.S. Dist. LEXIS 7337 (S.D.N.Y. 2008)(affirming Bankruptcy Courts finding that $1.7 million settlement of attorneys fees to landlord was reasonable.); In re Entertainment, Inc., 223 B.R. 141,151-54 (Bankr. E.D. Ill. 1998). (d) Adjustments Under the Lease 21. It is customary for shopping center leases to provide that certain charges be

paid by the tenant on an estimated basis, with periodic or year-end adjustments to reflect actual
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charges. In the face of numerous landlord objections, the Debtor added language to the proposed order that became the June 6th Order, addressing how such adjustments (which might relate to both pre- and post-assignment periods) would be treated upon assumption and assignment. The June 6th Order provides that under any order approving the assumption and assignment of a real estate lease: either Cotton On or the applicable [D]esignee shall be liable for accrued but unbilled items under assumed non-residential real property leases (including, but not limited to, unbilled taxes and year-end adjustments to common area maintenance charges, insurance, and real estate taxes) with respect to each [D]esignated [L]ease, and shall be liable for the payment of such charges when same become due in accordance with the terms of such [D]esignated [L]ease. June 6th Order, page 11, paragraph 8(d). 22. The proposed order that accompanies the Notice contains language that is

inconsistent with the terms of the June 6th Order. Paragraph 7 of the proposed order seemingly protects the Assignee from any post-closing liabilities and any pre-closing liabilities, unless otherwise agreed in one of several documents. The language of paragraph 7 obfuscates what should be a straightforward point; the Assignee is liable for all amounts that become due and owing under the Lease post-assignment, including adjustments which may relate to the pre-assignment period. (e) Liability for Tort Claims 23. The assumption and assignment propose to relieve the Debtor of all

liabilities, and to protect the Assignee from any liability for claims relating to the period prior to assignment. This combination of provisions in the proposed order effectively leaves the Landlord without recourse in the event that someone asserts a tort claim relating to the Premises after the assignment of the Lease, but relating to an event or injury allegedly suffered prior to assignment. 24. The Landlord respectfully submits that the Debtor should not be able to

eliminate indemnity obligations enumerated in the Lease through the device of assumption. The Landlord should continue to have the right, post-assignment, to assert claims against the Debtor and
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to pursue such claims against the Debtors insurers. Moreover, the Assignee cannot shirk its own indemnity obligations to the Landlord arising under the Lease after assumption and assignment. Once again, section 365(b)(3) requires that the Lease be assumed subject to all the provisions thereof. 11 U.S.C. 365(b)(3)(C). CONCLUSION Wherefore, the Landlord respectfully requests that the Court (a) deny the Debtors request to assume and assign the Lease to the Assignee, (b) determine that the cure amount is $85,152.80 as of June 20, 2011 and continues to increase, and (c) grant the Landlord such other and further relief as may be just and proper. Dated: New York, New York June 22, 2011 HALPERIN BATTAGLIA RAICHT, LLP Counsel to Aventura Mall Ventures By: /s/ Alan D. Halperin Alan D. Halperin Donna H. Lieberman 555 Madison Avenue, 9th Floor New York, New York 10022 (212) 765-9100

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