Case MFW Doc 657 Filed 03/22/16 Page 1 of 7

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1 Case MFW Doc 657 Filed 03/22/16 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE X In re: : Chapter 11 : SPORTS AUTHORITY HOLDINGS, INC., et al., 1 : : Case No MFW Debtors. : (Jointly Administered) : Re: Docket Nos. 9, 15, 20 & X E & B GIFTWARE, LLC S AND SPORTLINE INC. S JOINDER IN OMNIBUS OBJECTION OF ASICS AMERICA CORPORATION TO DEBTORS MOTIONS FOR FINAL ORDERS ON THE (1) CONSIGNMENT MOTION; (2) GOB MOTION; AND (3) DIP MOTION E & B Giftware, LLC, doing business as EB Brands, and Sportline, Inc. (collectively E&B ) hereby submits this Joinder (the Joinder ) to the Omnibus Objection of ASICS America Corporation ( ASICS )(the Omnibus Objection ) to the following motions filed by Sports Authority Holdings, Inc. and its affiliated debtors and debtors in possession (collectively, the Debtors ): A. Debtors Motion for Interim and Final Orders (A) Authorizing the Debtors to (I) Continue to Sell Consigned Goods in the Ordinary Course of Business Free and Clear of all Liens, Claims and Encumbrances and (II) Grant Administrative Expense Priority to Consignment Vendors for Consigned Goods Delivered Postpetition; and (B) Grant Replacement Liens to Consignment Vendors with Perfected Security Interests in Consigned Goods and/or Remit the Consignment Sale Price arising from Sale of Consigned Goods to Putative Consignment Vendors [D.I. No. 9] (the Consignment Motion ); 1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Sports Authority Holdings, Inc. (9008); Slap Shot Holdings, Corp. (8209); The Sports Authority, Inc. (2802); TSA Stores, Inc. (1120); TSA Gift Card, Inc. (1918); TSA Ponce, Inc. (4817); and TSA Caribe, Inc. (5664). The headquarters for the above-captioned Debtors is located at 1050 West Hampden Avenue, Englewood, Colorado v v1

2 Case MFW Doc 657 Filed 03/22/16 Page 2 of 7 B. Debtors Emergency Motion for Interim and Final Orders (A) Authorizing the Debtors to Assume the Closing Store Agreement, (B) Authorizing and Approving Store Closing Sales Free and Clear of all Liens, Claims and Encumbrances, (C) Authorizing the Implementation of Customary Employee Bonus Program and Payments to Non-Insiders Thereunder, (D) Approving Dispute Resolution Procedures, and (E) Approving the Debtors Store Closing Plan [D.I. No. 15] (the GOB Motion ); and C. Debtors Motion for Interim and Final Orders (I) Authorizing Debtors to Obtain Post-Petition Secured Financing Pursuant to 11 U.S.C. 105, 362, 363, and 364; (II) Granting Liens and Superpriority Claims to Post-Petition Lenders Pursuant to 11 U.S.C. 364 and 507; (III) Authorizing the Use of Cash Collateral and Providing Adequate Protection to Prepetition Secured Parties and Modifying the Automatic Stay Pursuant to 11 U.S.C. 361, 362, 363, and 364; and (IV) Scheduling a Final Hearing Pursuant to Bankruptcy Rules 4001(B) and (C) And Local Rule [D.I. No. 20] (the DIP Motion and together with the Consignment Motion and GOB Motion, the Motions 2 ). I. BACKGROUND 1. E & B and TSA Stores, Inc. ( TSA ) entered into a series of vendor agreements since as early as 2000, pursuant to which E & B sold and consigned goods to TSA for sale in various Sports Authority stores. The consigned goods primarily consisted of E & B s functional fitness and fitness electronic products for consumers (the Consigned Goods ). E & B s Consigned Goods and the proceeds therefrom that were in the Debtors possession as of the Petition Date are referred to herein collectively as the E & B Property. All E & B Consigned Goods have EB Brands clearly labeled on them. Upon information and belief, the E & B Property with the Debtors totals approximately $1.4 Million. 2. At all times during their consignment relationship, the parties acknowledged and agreed that all right, title, and interest in and to any Consigned Goods, 2 Capitalized terms used herein but not otherwise defined shall have the meaning ascribed to such term in the respective Motions. 2

3 Case MFW Doc 657 Filed 03/22/16 Page 3 of 7 remained with E & B and never transferred to the Debtors. The Agreement expressly provided that: Vendor shall retain title to all goods subject to this agreement until the date of sale at which time title shall pass from Vendor to the purchaser of such goods. See the Agreement attached hereto as Exhibit A. Pursuant to the Agreement, title to any Consignment Goods transfers, if at all, directly from E & B to the ultimate purchaser of such goods. 3. The Agreement s Effective Period ended on January 30, Agreement. E & B submits that the Agreement was terminated, and deliveries of Consigned Goods were discontinued. The Debtors failed to pay for the Consigned Goods and other E & B Goods that were sold under trade terms. 4. As a result, E & B commenced a lawsuit against the Debtors in Westchester County Supreme Court on February 10, 2016, which lawsuit was stayed as a result of the bankruptcy filing. 5. As part of its First Day pleadings, the Debtors filed, among other things, the Consignment Motion, GOB Motion, and DIP Motion. Numerous parties objected to interim relief on the Motions, asserting that the Court had no authority to authorize the Debtors to sell property that had not yet been determined to be property of the Debtors estates. 6. On March 11, 2016, the Court entered that certain Interim Order (a) Authorizing the Debtors to (i) Continue to Sell Consigned Goods in the Ordinary Course of Business Free and Clear of All Liens, Claims and Encumbrances and (ii) Grant 3

4 Case MFW Doc 657 Filed 03/22/16 Page 4 of 7 Administrative Expense Priority to Consignment Vendors for Consigned Goods Delivered Postpetition; and (b) Grant Replacement Liens to Consignment Vendors with Perfected Security Interests in Consigned Goods and/or Remit the Consignment Sale Price Arising from Sale of Consigned Goods to Putative Consignment Vendors (the Interim Consignment Order ) [Dkt. No. 278]. Paragraph 4 of the Interim Consignment Order authorized consignors to direct a notice to the Debtors to cease future sales of any of their consigned property. 7. Pursuant to Paragraph 4 of the Interim Consignment Order, E & B sent notice to the Debtors to immediately stop selling the E & B Property. 8. At the Debtors request for reconsideration, on March 11, 2016, the Court conducted an emergency teleconference amongst the Debtors and certain consignors to address the implementation of Paragraph 4 of the Interim Consignment Order. As a result of such teleconference, the Court issued its Order, deleting the last sentence of Paragraph 4 of the Interim Consignment Order and setting a further hearing on March 16, 2016 to address the issue of what procedures must be followed in the event a consignor provides notice to the Debtors to cease selling consigned goods (the Reconsideration Order ) [Dkt. No. 289]. 9. On March 16, 2016, the Court held a hearing on the Reconsideration Order and authorized the Debtors to sell consigned goods consistent with the terms of any valid consignment agreement existing as of the Petition Date. 10. The Debtors filed an adversary proceeding against Sportline, Inc., on March 15, 2016 under Adversary Proceeding Number (the Adversary Proceeding ). E & B maintains that neither the Debtors nor their secured creditors have 4

5 Case MFW Doc 657 Filed 03/22/16 Page 5 of 7 any interest in the E & B Property. However, until this issue is fully adjudicated through the Adversary Proceeding, there is no authority for the Debtors to continue to sell E & B Consigned Goods at a Going Out of Business Sale or otherwise. II. JOINDER IN OMNIBUS OBJECTION 11. On March 22, 2016, ASICS filed its Omnibus Objection to the Motions referenced above. E & B joins in and adopts the Omnibus Objection as if fully outlined herein. 12. As outlined in the Omnibus Objection, the binding precedent found in In re Whitehall Jewelers Holdings Inc. directly applies to the case at hand. See In Re Whitehall Jewelers, 2008 Westlaw When the Whitehall Jewelers Debtor attempted to sell consignment goods, several consignment vendors (similarly situated to E & B) alleged they had an ownership interest in the goods sufficient to prevent their sale. In finding that a bankruptcy court could not approve the sale of consigned property without first determining whether the property is property of the estate under Section 541, Judge Gross denied the requested relief. The Whitehall Jewelers court noted that it cannot determine whether the consigned goods are property of the estate through a contested matter, such as a sale motion under section 363, and the law is clearly established that adversary proceedings are mandated and each Consignment Vendor is entitled to the protections of the law. Id. 13. Pursuant to the clear terms of the Agreement, the Consigned Goods are not property of the Bankruptcy Estates. As a result, E & B will vigorously defend the Adversary Proceeding and maintains its statutory and common law defenses will prevail. Thus, E & B believes the nature of the consignment relationship between E & B and the 5

6 Case MFW Doc 657 Filed 03/22/16 Page 6 of 7 Debtors will undoubtedly be recognized by the Court in resolving the Adversary Proceeding in favor of E & B. 14. At this juncture, however, the rights in the E & B Property have not been established by the Court. The filing of the Adversary Proceeding is certainly not sufficient to establish that the E & B Property is property of the estate. As a result, in accordance with the precedent established by the Whitehall Jewelers Court, this Court should deny the Consignment Motion and GOB Motion, and preserve the rights and title of E & B (and the other consignors) in the Consigned Goods. 15. Lastly, to the extent any liens being granted by the Debtors to their Post Petition Lenders may impair E & B s ownership interest in the E & B Property, such request for relief must be denied. The Debtors cannot grant any lien on property that is not property of the estate. As a result, the E & B Property should be excluded from any liens being granted to the Post Petition Lenders in the DIP Motion. III. RESERVATION OF RIGHTS Nothing contained herein shall be deemed an admission of any fact or a waiver of any of E & B s rights or remedies in connection with the Motions, the Adversary Proceeding, or any other issue arising under or relating to these Bankruptcy proceedings, whether at law or in equity, all of which rights and remedies are hereby expressly reserved, including but not limited to submitting further objections to the Motions. WHEREFORE, E & B respectfully requests this Court (i) deny the relief requested in the Motions; (ii) reserve all rights of E & B to assert further and other objection to the Motions, and (iii) grant such further relief to E & B as the Court deems appropriate under the circumstances. 6

7 Case MFW Doc 657 Filed 03/22/16 Page 7 of 7 Dated: March 22, 2016 FERRY JOSEPH, P.A. /s/ Jason C. Powell Jason C. Powell, Esq. (No. 3768) 824 Market Street, Suite 1000 P.O. Box 1351 Wilmington, DE Telephone: (302) Facsimile: (302) jpowell@ferryjoseph.com Local Counsel for E&B Giftware LLC -and- Harris Beach PLLC Wendy A. Kinsella, Esq. Lee E. Woodard, Esq. 333 West Washington St. Suite 200 Syracuse, NY (315) (315) (fax) wkinsella@harrisbeach.com lwoodard@harrisbeach.com 7

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11 Case MFW Doc Filed 03/22/16 Page 1 of 2 CERTIFICATE OF SERVICE I, Jason C. Powell, Esquire, hereby certify that on this 22nd day of March, 2016, one copy of the foregoing E&B Giftware, LLC s and Sportline Inc. s Joinder in Omnibus Objection of ASICS America Corporation to Debtors Motions for Final Orders on the (1) Consignment Motion; (2) GOB Motion; and (3) DIP Motion was made upon the following counsel via First Class U.S. Mail and ECF: Michael R. Nestor, Esquire Andrew L. Magaziner, Esquire Young Conaway Stargatt & Taylor, LLP Rodney Square 1000 North King Street Wilmington, DE Bradford J. Sandler, Esquire Pachulski Stang Ziehl & Jones, LLP 919 N. Market Street, 17 th Floor Wilmington, DE Gregory A. Taylor, Esquire Ashby & Geddes 500 Delaware Avenue Wilmington, DE Robert A. Klyman, Esquire Matthew J. Williams, Esquire Gibson, Dunn & Crutcher, LLP 333 South Grand Avenue Los Angeles, CA Office of the United States Trustee Attn. Hannah McCollum, Esquire 844 King Street, Suite 2207 Lockbox 35 Wilmington, DE Robert J. Dehney, Esquire Gregory W. Werkheiser, Esquire Tamara K. Minott, Esquire Morris, Nichols, Arsht & Tunnell, LLP 1201 N. Market Street, 16 th Floor P.O. Box 1347 Wilmington, DE Mark Collins, Esquire Andrew M. Dean, Esquire Richards, Layton & Finger, P.A. One Rodney Square 920 North King Street Wilmington, DE Jeffrey N. Pomerantz, Esquire Pachulski Stang Ziehl & Jones, LLP Santa Monica Blvd., 13 th Floor Los Angeles, CA Robert J. Feinstein, Esquire Pachulski Stang Ziehl & Jones, LLP 780 Third Avenue, 36 th Floor New York, NY Donald E. Rothman, Esquire Riemer & Braunstein, LLP Three Center Plaza Boston, MA 02108

12 Case MFW Doc Filed 03/22/16 Page 2 of 2 Robert J. Stark, Esquire Bennett S. Silverberg, Esquire Brown & Rudnick, LLP Seven Times Square New York, NY Steven B. Levine, Esquire Andreas Andromalos, Esquire Brown Rudnick, LLP One Financial Center Boston, MA Kevin J. Simard, Esquire Choate, Hall & Stewart, LLP Two International Place Boston, MA Upon penalty of perjury I declare that the foregoing is true and correct. /s/ Jason C. Powell Jason C. Powell, Esquire (No. 3768)