flat out crazy ee motion
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CINCINNATI/97523.5
Stephen D. LernerElliot M. SmithKristin E. RichnerAndrew M. Simon (Pro Hac Vice Pending)SQUIRE SANDERS (US) LLP30 Rockefeller PlazaNew York, NY 10112(212) 872-9800 (Phone)(212) 872-9815 (Fax)stephen.lerner@squiresanders.comelliot.smith@squiresanders.comkristin.richner@squiresanders.comandrew.simon@squiresanders.com
Proposed Attorneys for Debtors andDebtors in Possession
UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK
In re:
Flat Out Crazy, LLC, et al.1,
Debtors.
Chapter 11
Case No. 13-22094 (RDD)
Joint Administration Requested
MOTION OF DEBTORS AND DEBTORS IN POSSESSION FOR AN ORDERAUTHORIZING THEM TO PAY: (A) PREPETITION EMPLOYEE WAGES,
SALARIES AND RELATED ITEMS; (B) PREPETITION EMPLOYEEPAYROLL DEDUCTIONS AND WITHHOLDINGS; (C) PREPETITION
PAYROLL TAXES; (D) PREPETITION CONTRIBUTIONS TO, ANDBENEFITS 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 CaféWest 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 GreatLakes, LLC (9634); Stir Crazy Café Boca Raton, LLC (9942); Stir Crazy Café Creve Coeur, LLC (0003); Stir CrazyCafé Legacy Village, LLC (8744); Stir Crazy Café Cantera, LLC (4842); and Stir Crazy Operations, LLC (8114).
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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.
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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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CINCINNATI/97523.5 15
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 isnecessary or appropriate to carry out the provisions of this title.No provision of this title providing for the raising of an issue by aparty in interest shall be construed to preclude the court from, suasponte, taking any action or making any determination necessaryor appropriate to enforce or implement court orders or rules, or toprevent 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,
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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.
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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
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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
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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 EmployeeObligations, 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
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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
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CINCINNATI/97523.5 23
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
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CINCINNATI/97523.5 24
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. LernerStephen D. LernerElliot M. SmithKristin E. RichnerAndrew M. Simon (Pro Hac Vice pending)SQUIRE SANDERS (US) LLP30 Rockefeller PlazaNew York, NY 10112(212) 872-9800 (Phone)(212) 872-9815 (Fax)stephen.lerner@squiresanders.comelliot.smith@squiresanders.comkristin.richner@squiresanders.comandrew.simon@squiresanders.com
Proposed Attorneys for Debtors andDebtors in Possession
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Exhibit A
Proposed Order
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CINCINNATI/97522.2
UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK
In re:
Flat Out Crazy, LLC, et al.1,
Debtors.
Chapter 11
Case No. 13-22094 (RDD)
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 COSTSAND 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 CaféWest 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); StirCrazy 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 CaféLegacy 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.
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CINCINNATI/97522.22
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
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CINCINNATI/97522.23
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
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