IN THE UNITED STATES BANKRUPTCY COURT FOR THE … · Local Rules of Bankruptcy Practice and...
Transcript of IN THE UNITED STATES BANKRUPTCY COURT FOR THE … · Local Rules of Bankruptcy Practice and...
PHIL1 7689056v.1
IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF DELAWARE
)In re: ) Chapter 11
)Z GALLERIE, LLC, et al.,1 ) Case No. 19-10488 (___)
)Debtors. ) (Joint Administration Requested)
)
DEBTORS’ MOTION SEEKING ENTRY OF AN ORDER(I) AUTHORIZING THE DEBTORS TO (A) PAY THEIR
OBLIGATIONS UNDER INSURANCE POLICIES ENTERED INTO PREPETITION, (B) CONTINUE TO PAY BROKERAGE
FEES, AND (C) RENEW, SUPPLEMENT, MODIFY, OR PURCHASE INSURANCE COVERAGE, AND (II) GRANTING RELATED RELIEF
The above-captioned debtors and debtors in possession (collectively, the “Debtors”)
respectfully state as follows in support of this motion (the “Motion”):2
Relief Requested.
1. The Debtors seek entry of an order, substantially in the form attached hereto as
Exhibit A (the “Order”): (a) authorizing, but not directing, the Debtors to (i) continue honoring
their obligations under prepetition Insurance Policies and satisfy payment of prepetition
obligations related thereto, including the payment of related brokerage fees and (ii) renew,
supplement, modify, extend, or purchase insurance coverage, and enter into any bonding in the
ordinary course of business on a postpetition basis; and (b) granting related relief.
1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification
number, are: Z Gallerie, LLC (3816) and Z Gallerie Holding Company, LLC (5949). The location of the Debtors’ service address is: 1855 West 139th Street, Gardena, CA 90249.
2 A detailed description of the Debtors and their business, and the facts and circumstances supporting the Debtors’ chapter 11 cases, are set forth in greater detail in the Declaration of Mark Weinsten, Interim President and Chief Executive Officer of Z Gallerie, LLC, in Support of Chapter 11 Petitions and First Day Motions (the “First Day Declaration”) filed contemporaneously with the Debtors’ voluntary petitions for relief filed underchapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) on March 11, 2019 (the “PetitionDate”). Capitalized terms used but not otherwise defined in this Motion shall have the meanings given to them in the First Day Declaration.
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2. The Debtors estimate that, as of the Petition Date, they have no unpaid premiums
on Insurance Policies and owe approximately $15,000 on account of Broker Fees. For the
avoidance of doubt, the Debtors have received invoices for premiums due under the Insurance
Policies in the amount of approximately $300,000, which are due postpetition. To the extent
required, the Debtors seek authority to make such payment in the ordinary course.
Jurisdiction and Venue
3. The United States Bankruptcy Court for the District of Delaware (the “Court”)
has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended
Standing Order of Reference from the United States District Court for the District of Delaware,
dated February 29, 2012. The Debtors confirm their consent, pursuant to rule 7008 of the
Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rule 9013-1(f) of the
Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the
District of Delaware (the “Local Rules”), to the entry of a final order by the Court in connection
with this motion to the extent that it is later determined that the Court, absent consent of the
parties, cannot enter final orders or judgments in connection herewith consistent with Article III
of the United States Constitution.
4. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
5. The statutory bases for the relief requested herein are sections 105(a) and 363(b)
of the Bankruptcy Code, Bankruptcy Rules 6003 and 6004, and Local Rule 9013-1(m).
The Debtors’ Insurance Policies
6. The Debtors maintain approximately ten insurance policies
(collectively, the “Insurance Policies”) administered by multiple third-party insurance carriers
(collectively, the “Insurance Carriers”). The Insurance Policies provide coverage for, among
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other things, the Debtors’ directors’ and officers’ liability, commercial property, automobile
liability, crime liability, umbrella liability, cyber liability, and workers compensation.3 None of
the Insurance Policies are self-insured by the Debtors. For the twelve months preceding the
Petition Date, the Debtors paid approximately $3,000,000 in the aggregate on account of
premiums under the existing Insurance Policies. A schedule of the Insurance Policies is
attached hereto as Exhibit B.4
7. With the exception of the Debtors’ workers compensation policies (the “Workers
Compensation Policy”)5 the Debtors pay the applicable premiums for the Insurance Policies to
the brokers (as more fully described below) on a monthly or bi-monthly basis. With respect to
the Workers Compensation Policy, the Debtors pay premiums and fees directly to the insurer.
8. Certain of the Insurance Policies are subject to regular audits (the “Insurance
Policy Audits”), which may result in an adjustment of the premiums owed on account thereof.
Insurance Policy Audits for prepetition premium payments will not conclude until after the
Petition Date. As a result, the aggregate amount of the Debtors’ obligation arising from the
Insurance Policy Audits is not known at this time. Accordingly, the Debtors seek the authority,
3 The descriptions of the Insurance Policies set forth in this motion constitute a summary only. The actual terms
of the Insurance Policies and related agreements will govern in the event of any inconsistency with the descriptions set forth in this motion. The Debtors request authority to honor obligations and renew all Insurance Policies, as applicable, regardless of whether the Debtors inadvertently fail to include a particular Insurance Policy on Exhibit B.
4 The Debtors’ policies with respect to, among other things, workers’ compensation, employee health, dental, disability, and life insurance benefits are described, and relief is requested with respect to such policies in the Debtors’ Motion Seeking Entry of Interim and Final Orders (I) Authorizing But Not Directing, the Debtors to (A) Pay Prepetition Employee Wages, Salaries, Other Compensation, Reimbursable Employee Expenses, and Non-Insider Employee Incentive Programs, and (B) Continue Employee Benefits Programs and (II) Granting Related Relief (the “Wages Motion”), filed contemporaneously herewith.
5 For the avoidance of doubt, the term Insurance Policies includes the Workers Compensation Policy.
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but not the direction, to honor any amounts owed on account of any Insurance Policy Audits in
the ordinary course of business.
9. The Debtors’ ability to maintain the Insurance Policies, to extend or reduce those
Insurance Policies, and to enter into new insurance policies as needed in the ordinary course of
business, is essential to the Debtors’ ability to preserving the value of the Debtors’ business,
operations, and assets. Moreover, in many instances, coverage provided by the Insurance
Policies is required by the regulations, laws, and contracts governing the Debtors’ commercial
activities, including the requirements of the Office of the United States Trustee for the District
of Delaware (the “U.S. Trustee”) that a debtor maintain adequate coverage given the
circumstances of its chapter 11 case. Accordingly, the Debtors request authority to maintain
their existing Insurance Policies to the extent appropriate with respect to the Debtors’ go-
forward operations, to pay prepetition obligations related thereto, to extend or reduce those
Insurance Policies, or to enter into new insurance policies, as applicable, in the ordinary course
of business.
Brokerage Fees
10. In connection with the Insurance Policies, except for the Workers Compensation
Policy, the Debtors obtain insurance brokerage services from Lockton Companies, Inc.
(“Lockton”), and JLT Specialty Insurance Services Inc. (“JLT”) (collectively, the “Brokers”).
11. JLT acts as the broker for the Debtors’ directors and officers liability policies (the
“D&O Policies”). The Debtors paid approximately $575,000 in fees and premiums to JLT for
coverage under the D&O Policies. The Debtors do not believe there are any amounts
outstanding under the D&O Policies.
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12. Lockton acts as the Broker for all of the Debtors’ Insurance Policies except the
D&O Policies and the Workers Compensation Policy (such policies the “Lockton Policies”). In
connection with the Lockton Policies, the Debtors pay Lockton approximately $15,000 per
month in brokerage fees (the “Brokerage Fees”) and approximately $50,000 in premiums. In
the twelve months immediately preceding the Petition Date, the Debtors paid an aggregate
amount of approximately $160,000 in Brokerage Fees and $600,000 in premiums. As of the
Petition Date, the Debtors estimate that there is approximately $15,000 due on account of the
Brokerage Fees and no outstanding premiums due.
13. The Brokers assist the Debtors in obtaining comprehensive insurance coverage for
the Debtors’ operations by aiding with the procurement and negotiation of the Insurance
Policies and enabling the Debtors to obtain those policies on advantageous terms at competitive
rates.
14. With the exceptions of the Debtors’ Workers Compensation Policy, all premiums
owed on account of Insurance Policies are paid to the Brokers. The Brokers then remit the
Debtors’ premiums to the applicable insurers. The Brokers’ services in remitting the Debtors’
premiums are essential to the Debtors’ ability to maintain insurance coverage.
15. The Debtors believe that continuation of the services of the Brokers is necessary
to assure the Debtors’ ability to secure Insurance Policies on advantageous terms at competitive
rates, facilitate the proper maintenance of the Debtors’ Insurance Policies postpetition, and
ensure adequate protection of the Debtors’ property for any party in interest. Accordingly, the
Debtors request authority to continue paying the Brokerage Fees.
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The Debtors’ Worker Compensation Policy
16. The Debtors maintain workers compensation insurance with Sompo America
Insurance Services, LLC (“Sompo”).6 The Debtors are required to maintain the Workers’
Compensation Program under the laws of the States in which the Debtors’ operate. The Debtors
pay Sompo approximately $1,000,000 per year in fees and premiums (the “Workers’
Compensation Coverage Fees”) to fund the Workers’ Compensation Program. As of the
Petition Date, the Debtors believe they are current on any fees and premiums related to the
Workers’ Compensation Program. However, out of an abundance of caution, the Debtors’ seek
authority to pay any unpaid prepetition amounts of premiums or fees owed under the Workers
Compensation Policy (the “Unpaid Workers’ Compensation Coverage Fees”).
17. As more fully described in the Wages Motion, under the Workers Compensation
Policy, Sompo negotiates and settles claims against the Debtors by employees. Pursuant to the
Wages Motion, the Debtors are seeking authority to continue to administer the Workers
Compensation Policy and, modify the automatic stay of Section 362 of the Bankruptcy Code to
allow for the continued administration of the Workers Compensation Policy.
The Debtors’ Letters of Credit
18. The Debtors import a majority of their merchandise and goods from foreign
manufacturers. Entities importing goods into the United States are required to provide surety
bonds (the “Customs Surety Bonds”) to the United States Customs and Border Protection
Agency (“U.S. Customs”) to secure payment or performance of certain obligations, including
6 As set forth on Exhibit C, the Debtors’ are party to a Letter of Credit issued by Key Bank, National
Association, on account of previous Workers Compensation Policies.
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duties, taxes, and fees on account of merchandise imported from foreign countries. See 19
U.S.C. § 1623(a) (granting U.S. Customs the authority to require bonds “as they may deem
necessary for the protection of the revenue or to assure compliance with any provision of law,
regulation, or instruction which the Secretary of the Treasury of the Customs Service may be
authorized to enforce.”) As such, failing to provide, maintain, or timely replace Customs Surety
Bonds would prevent an entity from importing merchandise from foreign countries.
19. The Debtors contract with third party logistics providers to arrange for the
importation of merchandise from foreign countries. In lieu of Customs Surety Bonds, the
Debtors maintain letters of credit (the “Letters of Credit”) for the benefit of the surety provider
who maintains a surety bond in favor of the third party logistics providers. Because the vast
majority of the Debtors’ merchandise is imported from foreign countries, maintaining the
Letters of Credit is essential to replenishing the Debtors’ store inventory and, thus, essential to
the Debtors’ operations. A schedule of the Letters of Credit maintained by the Debtors is
attached hereto as Exhibit C and incorporated herein by reference.7
20. Out of an abundance of caution, the Debtors seek authority to enter into Customs
Surety Bonds, or any other surety coverage, in the ordinary course of business, if such actions
would be necessary to comply with applicable law and maintain the Debtors’ ability to import
goods from foreign countries.
7 The Debtors request authority to renew all Letters of Credit, as applicable, regardless of whether the Debtors
inadvertently fail to include a particular Letter of Credit on Exhibit C.
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Basis for Relief
I. Continuation of the Insurance Policies is Required by the Bankruptcy Code and U.S. Trustee Operating Guidelines.
21. Section 1112(b) of the Bankruptcy Code provides that “failure to maintain
appropriate insurance that poses a risk to the estate or to the public” is “cause” for mandatory
conversion or dismissal of a chapter 11 case. 11 U.S.C. § 1112(b)(4)(C). In addition, in many
instances, the coverage provided under the Insurance Policies is required by the regulations,
laws, and contracts that govern the Debtors’ commercial activities, including the operating
guidelines issued by the U.S. Trustee (the “U.S. Trustee Operating Guidelines”). Given this
backdrop, the Debtors believe it is essential to their estates, and consistent with the Bankruptcy
Code and the U.S. Trustee Operating Guidelines, that they maintain and continue to make all
payments required under their Insurance Policies, and have the authority to supplement, amend,
extend, renew, or replace their Insurance Policies as needed, in their judgment, without further
order of the Court.
II. Paying Obligations Under the Insurance Policies and Maintaining Insurance Coverage in the Ordinary Course is Warranted.
22. Section 363 of the Bankruptcy Code provides that “[t]he [debtor], 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)(1). Under section 363(b), courts in this jurisdiction require only
that the debtor “show that a sound business purpose justifies” the proposed use of property.
In re Montgomery Ward Holding Corp., 242 B.R. 147, 153 (D. Del. 1999); see also In re Phx.
Steel Corp., 82 B.R. 334, 335–36 (Bankr. D. Del. 1987) (requiring a “good business reason” for
use under section 363(b) of the Bankruptcy Code). Moreover, “[w]here the debtor articulates a
reasonable basis for its business decisions (as distinct from a decision made arbitrarily or
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capriciously), courts will generally not entertain objections to the debtor’s conduct.” In re
Johns-Manville Corp., 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986); see also In re Tower Air, Inc.,
416 F.3d 229, 238 (3d Cir. 2005) (“Overcoming the presumptions of the business judgment rule
on the merits is a near-Herculean task.”).
23. Thus, if a debtor’s actions satisfy the business judgment rule, then the transaction
in question should be approved under section 363(b) of the Bankruptcy Code. Indeed, when
applying the “business judgment” standard, courts show great deference to a debtor’s business
decisions. See id., 147 B.R. at 656 (“Courts are loath to interfere with corporate decisions
absent a showing of bad faith, self-interest, or gross negligence.”); In re First Wellington
Canyon Assocs., No. 89-593, 1989 WL 106838, at *3 (N.D. Ill. Sept. 8, 1989) (stating that “the
debtor’s business judgment . . . must be accorded deference unless shown that the bankrupt’s
decision was taken in bad faith or in gross abuse of the bankrupt’s retained discretion”).
24. Section 105(a) of the Bankruptcy Code further provides that a court “may issue
any order, process, or judgment that is necessary or appropriate to carry out the provisions of”
the Bankruptcy Code pursuant to the “doctrine of necessity.” 11 U.S.C. § 105(a). The
“doctrine of necessity” functions in a chapter 11 case as a mechanism by which the bankruptcy
court can exercise its equitable power to allow payment of critical prepetition claims not
explicitly authorized by the Bankruptcy Code and further supports the relief requested herein.
See In re Lehigh & New Eng. Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981) (holding that a court
may authorize payment of prepetition claims if essential to the debtor’s continued operation);
see also In re Just for Feet, Inc., 242 B.R. 821, 824–25 (D. Del. 1999) (holding that
section 105(a) of the Bankruptcy Code “provides a statutory basis for payment of prepetition
claims” under the doctrine of necessity); In re Columbia Gas Sys., Inc., 171 B.R. 189, 191–92
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(Bankr. D. Del. 1994) (explaining that the doctrine of necessity is the standard in the Third
Circuit for enabling a court to authorize the payment of prepetition claims prior to confirmation
of a chapter 11 plan).
25. Paying obligations under the Insurance Policies and Brokerage Fees is warranted
under section 363(b) and the doctrine of necessity. As described above, maintaining the
Insurance Policies is necessary to preserve the value of the Debtors’ assets, thereby ensuring the
adequate protection of the Debtors’ property for any party in interest, and to minimize exposure
to risk. Failing to maintain the Insurance Policies would have a material adverse effect on the
ability of the Debtors to maximize the value of their estates.
26. Courts in this district have granted relief similar to the relief requested herein
under sections 105(a) and 363(b) of the Bankruptcy Code. See, e.g., In re Things Remembered,
Inc., No. 19-10234 (KG) (Bankr. D. Del. Dec. 11, 2017) (authorizing debtors to pay prepetition
premiums and enter into new insurance policies pursuant to sections 105(a) and 363(b) of the
Bankruptcy Code); In re Charming Charlie Holdings Inc., No. 17-12906 (CSS) (Bankr. D. Del.
Dec. 11, 2017); In re Bonanza Creek Energy, Inc., No. 17-10015 (KJC) (Bankr. D. Del. Jan. 26,
2017) (same); In re General Wireless Operations Inc. DBA RadioShack, No. 17-10506 (BLS)
(Bankr. D. Del. March 10, 2017) (same); In re American Apparel, LLC, No. 16-12551 (BLS)
(Bankr. D. Del. Nov. 15, 2016) (same); In re Magnum Hunter Resources Corporation, No. 15-
12533 (KG) (Bankr. D. Del. Jan. 11, 2016) (same); In re Dolan Company, No. 14-10614 (BLS)
(Bankr. D. Del. May 25, 2014) (same).8
8 Because of the voluminous nature of the orders cited herein, such orders have not been attached to this motion.
Copies of these orders are available upon request of the Debtors’ proposed counsel.
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III. Entry into Customs Surety Bonds is in the Ordinary Course of the Debtors’ Business.
27. Section 363(c)(1) of the Bankruptcy Code provides that a chapter 11 debtor in
possession “may enter into transactions . . . [or] may use property of the estate in the ordinary
course of business without notice or a hearing.” 11 U.S.C. § 363(c)(1). The Bankruptcy Code
does not define “ordinary course of business.” In re Roth Am., Inc., 975 F.2d 949, 952
(3d Cir. 1992). In determining whether a transaction is in the ordinary course of business, the
Third Circuit has adopted the two-part “horizontal” dimension and “vertical” dimension test.
Id. First, the transaction must be analyzed on the horizontal dimension, where the court looks
at whether, from an industry-wide perspective, the transaction is of the sort commonly
undertaken by companies in that industry. Id. at 953. Second, the transaction must be analyzed
on the vertical dimension, where the court looks at the transaction from the perspective of a
hypothetical creditor and asks whether the transaction subjects such a creditor to different
economic risks from those he accepted when he decided to extend credit. See In re Nellson
Nutraceutical, Inc., 369 B.R. 787, 797 (Bankr. D. Del. 2007). “In other words, the vertical
analysis looks at the ‘debtor’s pre-petition business practices and conduct.’” In re Blitz U.S.A.,
Inc., 475 B.R. 209, 214 (Bankr. D. Del. 2012) (quoting Nellson, 369 B.R. at 797).
28. The Debtors maintain Letters of Credit in the ordinary course of their business, in
lieu of Customs Surety Bonds. Given the uncertainty around the chapter 11 filing, the Debtors
may need to seek Customs Surety Bonds to ensure an uninterrupted supply of goods. The
Debtors assert the entry into Customs Surety Bonds would be consistent with the ordinary
course of the Debtors’ business and would not require court approval. Nonetheless, out of an
abundance of caution, should it become necessary for the Debtors to enter into Customs Surety
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Bonds, the Debtors seek authority to enter into Customs Surety Bonds under sections 105(a) and
363(b) of the Bankruptcy Code.
Processing of Checks and Electronic Fund Transfers Should Be Authorized
29. The Debtors have sufficient funds to pay the amounts described in this motion in
the ordinary course of business by virtue of expected cash flows from ongoing business
operations, the proposed debtor-in-possession financing, and anticipated access to cash
collateral. Under the Debtors’ existing cash management system, the Debtors have made
arrangements to readily identify checks or wire transfer requests relating to an authorized
payment in respect of the Insurance Policies, Brokerage Fees, Letters of Credit, or Customs
Surety Bonds, as applicable. Accordingly, the Debtors believe that checks or wire transfer
requests that are not related to authorized payments will not be honored inadvertently.
Therefore, the Debtors respectfully request that the Court authorize all applicable financial
institutions, when requested by the Debtors, to receive, process, honor, and pay any and all
checks or wire transfer requests in respect of the relief requested in this motion.
Reservation of Rights
30. Nothing contained in this motion or any actions taken by the Debtors pursuant to
relief granted in the Order is intended or should be construed as: (a) an admission as to the
validity, priority, or amount of any particular claim against a Debtor entity; (b) a waiver of the
Debtors’ or any other party-in-interest’s rights to dispute any particular claim on any grounds;
(c) a promise or requirement to pay any particular claim; (d) an implication or admission that
any particular claim is of a type specified or defined in this motion; (e) a request or
authorization to assume any agreement, contract, or lease pursuant to section 365 of the
Bankruptcy Code; (f) a waiver or limitation of the Debtors’ or any other party-in-interest’s
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rights under the Bankruptcy Code or any other applicable law; or (g) a concession by the
Debtors or any other party-in-interest that any liens (contractual, common law, statutory, or
otherwise) satisfied pursuant to this motion are valid and the Debtors and all other parties-in-
interest expressly reserve their rights to contest the extent, validity, or perfection, or to seek
avoidance of all such liens. If the Court grants the relief sought herein, any payment made
pursuant to the Court’s order is not intended and should not be construed as an admission as to
the validity, priority, or amount of any particular claim or a waiver of the Debtors’ or any other
party-in-interest’s rights to subsequently dispute such claim.
Waiver of Bankruptcy Rules 6004(a) and 6004(h)
31. To implement the foregoing successfully, the Debtors request that the Court enter
an order providing that notice of the relief requested herein satisfies Bankruptcy Rule 6004(a)
and that the Debtors have established cause to exclude such relief from the 14-day stay period
under Bankruptcy Rule 6004(h).
Notice
32. The Debtors will provide notice of this motion to: (a) the Office of the U.S.
Trustee for the District of Delaware; (b) the holders of the 50 largest unsecured claims against
the Debtors (on a consolidated basis); (c) the Agent for the Debtors’ prepetition secured credit
facility; (d) counsel to the Agent for the Debtors’ prepetition secured credit facility; (e) counsel
to the DIP Agent; (f) the United States Attorney’s Office for the District of Delaware; (g) the
Internal Revenue Service; (h) the United States Securities and Exchange Commission; (i) the
state attorneys general for all states in which the Debtors conduct business; (j) the Insurance
Carriers; (k) the Brokers; and (l) any party that requests service pursuant to Bankruptcy Rule
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2002. The Debtors submit that, in light of the nature of the relief requested, no other or further
notice need be given.
No Prior Request
33. No prior request for the relief sought in this motion has been made to this or any
other court.
[Remainder of page intentionally left blank]
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WHEREFORE, the Debtors respectfully request entry of an order, substantially in the
form attached hereto as Exhibit A respectively, (a) granting the relief requested herein and
(b) granting such other relief as is just and proper.
Dated: March 11, 2019 /s/ Domenic E. PacittiWilmington, Delaware Domenic E. Pacitti (DE Bar No. 3989)
Michael W. Yurkewicz (DE Bar No. 4165)KLEHR HARRISON HARVEY BRANZBURG LLP919 N. Market Street, Suite 1000Wilmington, Delaware 19801Telephone: (302) 426-1189Facsimile: (302) 426-9193
-and-
Joshua A. Sussberg, P.C. (pro hac vice admission pending)KIRKLAND & ELLIS LLPKIRKLAND & ELLIS INTERNATIONAL LLP601 Lexington AvenueNew York, New York 10022Telephone: (212) 446-4800Facsimile: (212) 446-4900
-and-
Justin R. Bernbrock (pro hac vice admission pending)KIRKLAND & ELLIS LLPKIRKLAND & ELLIS INTERNATIONAL LLP300 North LaSalle Chicago, Illinois 60654Telephone: (312) 862-2000Facsimile: (312) 862-2200
Proposed Co-Counsel for the Debtors and Debtors in Possession
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EXHIBIT A
Proposed Order
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IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF DELAWARE
)In re: ) Chapter 11
)Z GALLERIE, LLC, et al.,1 ) Case No. 19-10488 (___)
)Debtors. ) (Joint Administration Requested)
)) Re: Docket No. _____
ORDER (I) AUTHORIZING THE DEBTORS TO (A) PAY THEIR OBLIGATIONS
UNDER INSURANCE POLICIES ENTERED INTO PREPETITION, (B) CONTINUE TO PAY BROKERAGE
FEES, AND (C) RENEW, SUPPLEMENT, MODIFY, OR PURCHASE INSURANCE COVERAGE, AND (II) GRANTING RELATED RELIEF
Upon the motion (the “Motion”)2 of the above-captioned debtors and debtors in
possession (collectively, the “Debtors”) for entry of an order (this “Order”): (a) authorizing, but
not directing, the Debtors to (i) pay their obligations under the insurance policies entered into
prepetition, (ii) continue to pay certain brokerage fees, (iii) renew, supplement, modify, maintain,
purchase insurance coverage, or enter into any bonding, in the ordinary course, and (b) granting
related relief, all as more fully set forth in the Motion; and upon the First Day Declaration; and
this Court having jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the
Amended Standing Order of Reference from the United States District Court for the District of
Delaware, dated February 29, 2012; and this Court having found that this is a core proceeding
pursuant to 28 U.S.C. § 157(b)(2), and that this Court may enter a final order consistent with
Article III of the United States Constitution; and this Court having found that venue of this
1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification
number, are: Z Gallerie, LLC (3816) and Z Gallerie Holding Company, LLC (5949). The location of the Debtors’ service address is: 1855 West 139th Street, Gardena, CA 90249.
2 Capitalized terms used but not defined herein have the meanings given to such terms in the Motion.
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proceeding and the Motion in this district is proper pursuant to 28 U.S.C. §§ 1408 and 1409; and
this Court having found that the relief requested in the Motion is in the best interests of the
Debtors’ estates, their creditors, and other parties in interest; and this Court having found that the
Debtors’ notice of the Motion and opportunity for a hearing on the Motion were appropriate
under the circumstances and no other notice need be provided; and this Court having reviewed
the Motion and having heard the statements in support of the relief requested therein at a hearing
before this Court (the “Hearing”); and this Court having determined that the legal and factual
bases set forth in the Motion and at the Hearing establish just cause for the relief granted herein;
and upon all of the proceedings had before this Court; and after due deliberation and sufficient
cause appearing therefor, it is HEREBY ORDERED THAT:
1. The Motion is granted on a final basis as set forth herein.
2. The Debtors are authorized, but not directed, on a final basis and in an amount not
exceed $15,000, to:
(i) continue the Insurance Policies identified on Exhibit B to the Motion and to pay any prepetition or postpetition obligations under the Insurance Policies, the Brokerage Fees, and any other amounts related to the Insurance Policies, including any amounts owed to the Broker;
(ii) renew, maintain, amend, supplement, extend, reduce, or purchase insurance policies to the extent that the Debtors determine, in consultation with counsel to the agents under the Debtors’ postpetition financing facilities, that such action is in the best interest of their estates;
(iii) honor any amounts owed on account of any Insurance Policy Audits in the ordinary course of business; and
(iv) maintain the Letters of Credit identified on Exhibit C without interruption, renewal or obtainment of new surety bonds, and execution of other agreements in connection with any such Custom Surety Bonds, as the Debtors determine; provided that the renewal of the Letters of Credit and the obtainment of new surety bonds shall be undertaken in consultation with counsel to the agents under the Debtors’ postpetition financing facilities.
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3. Notwithstanding the relief granted in this Order and any actions taken pursuant to
such relief, nothing in this Order shall be deemed: (a) an admission as to the validity, priority,
or amount of any particular claim against a Debtor entity; (b) a waiver of the Debtors’ or any
other party-in-interest’s right to dispute any particular claim on any grounds; (c) a promise or
requirement to pay any particular claim; (d) an implication or admission that any particular
claim is of a type specified or defined in this Order or the Motion; (e) a request or authorization
to assume any agreement, contract, or lease pursuant to section 365 of the Bankruptcy Code; (f)
a waiver or limitation of the Debtors’ or any other party-in-interest’s rights under the
Bankruptcy Code or any other applicable law; or (g) a concession by the Debtors or any other
party-in-interest that any liens (contractual, common law, statutory, or otherwise) satisfied
pursuant to this Order are valid and the Debtors and all other parties-in-interest expressly
reserve their rights to contest the extent, validity, or perfection or to seek avoidance of all such
liens. Any payment made pursuant to this Order should not be construed as an admission as to
the validity, priority, or amount of any particular claim or a waiver of the Debtors’ or any other
party-in-interest’s rights to subsequently dispute such claim.
4. The banks and financial institutions on which checks were drawn or electronic
payment requests made in payment of the prepetition obligations approved herein are authorized
to receive, process, honor, and pay all such checks and electronic payment requests when
presented for payment, and all such banks and financial institutions are authorized to rely on the
Debtors’ designation of any particular check or electronic payment request as approved by this
Order without any duty of further inquiry and without liability for following the Debtors’
instructions.
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PHIL1 7689056v.1
5. The Debtors are authorized to issue postpetition checks, or to effect postpetition
fund transfer requests, in replacement of any checks or fund transfer requests that are
dishonored as a consequence of these chapter 11 cases with respect to prepetition amounts owed
in connection with any Insurance Policies.
6. Notice of the Motion as provided therein shall be deemed good and sufficient
notice of such Motion and the requirements of Bankruptcy Rule 6004(a) and the Local Rules are
satisfied by such notice.
7. Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of this Order
are immediately effective and enforceable upon its entry.
8. The Debtors are authorized to take all actions necessary to effectuate the relief
granted in this Order in accordance with the Motion.
9. This Court retains exclusive jurisdiction with respect to all matters arising from or
related to the implementation, interpretation, and enforcement of this Order.
Dated: ____________, 2019Wilmington, Delaware UNITED STATES BANKRUPTCY JUDGE
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PHIL1 7689056v.1
EXHIBIT B
Insurance Policies
Case 19-10488-LSS Doc 12-2 Filed 03/11/19 Page 1 of 2
PHIL1 7689056v.1
Insurance Policies
Type of Coverage Insurance Carrier
Policy Numbers
Term Approximate Annualized Gross Premium
Workers
Compensation (AOS)
Sompo International WCDS1036K0
9/1/2018-2019$480,549
Workers
Compensation (WI)
Sompo International WCNS107V30 9/1/2018-2019 $6,447
Property (Includes
Retail Stock)
Allianz SE S 49 DXJ 80990293
9/1/2018-2019 $160,000
Cargo Stock
Throughput (Excludes
Retail Stock)
C.N.A.
OC 249445 9/1/2018-2019 $38,331
General Liability &
Employee Benefits
Liability
Allianz SES 49 DXJ 80990293
9/1/2018-2019 $172,000
Business Auto Allianz SE S 49 DXJ 80990293
9/1/2018-2019 $17,000
Inland Marine Allianz SE S 49 DXJ 80990293
9/1/2018-2019 $50,000
Umbrella Great American (Sterling Risk)
UMB 9999709 9/1/2018-2019$26,000
Foreign Package Chubb PHF D38044035 002
9/1/2018-2019 $2,500
Cyber Beazley W1FEF5180201 9/1/2018-2019 $46,532
Crime & Fiduciary
(FID & CCR)
Chubb8208-6135 9/1/2018-2019 $14,286
D&O Lloyd’s of London/Euclid Executive
ELL0150395 00 11/5/2018-2019 $75,000
D&OLloyd’s of London/Euclid Executive
ELL0150395 003/8/2019-11/5/2025
$500,000
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EXHIBIT C
Letters of Credit
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PHIL1 7689056v.1
Letters of Credit
Type of Letter of Credit
BeneficiaryContact
Amount
US Customs
The Hanover Insurance CompanyMassachusetts Bay Insurance CompanyCitizens Insurance Company of America
440 Lincoln Street, Worcester, MA 01653
645 West Grand River Avenue, Howell, Ml 48843
440 Lincoln Street, Worcester, MA 01653
$400,000
Workers Compensation
Hartford Fire Insurance Company
One Hartford PlazaHartford, CT 06155Attn: Thomas Makuch
$100,000
Case 19-10488-LSS Doc 12-3 Filed 03/11/19 Page 2 of 2