Law360 (June 29, 2020, 9:14 PM EDT) -- Movie theater operator Cinemex Holdings USA Inc. pushed back Monday in Florida bankruptcy court on some of its landlords' objections to its bid for rent relief as it navigates the COVID-19 pandemic, saying there are factors beyond whether government authorities allow it to reopen.
During a videoconference hearing before U.S. Bankruptcy Judge Laurel Isicoff, Cinemex's attorney, Patricia Tomasco, reported that the company has made progress in negotiations with the landlords for its 41 CMX Cinemas theaters to suspend or reduce their rent obligations as well as on language for a proposed order that would authorize it to obtain millions in post-petition financing to help cover rent and other expenses.
Cinemex said in its filings that it is engaged in negotiations with 17 landlords, and eight agreed prior to Monday's hearing to hold off having the court consider their objections until July 30. Tomasco said all of the continuances contain agreements to abate rent collection until then.
But that leaves two landlords — Cobb Lakeside LLC and GT RP Halcyon LLC — that haven't reached any agreements with Cinemex.
They presented similar arguments Monday, telling the court that Cinemex based its motion for rent abatement on its being unable to open and operate due to state and local governments' stay-at-home orders but that such restrictions do not apply to their particular properties.
With respect to Halcyon's property, a recently built Cinemex theater-restaurant complex in Forsyth, Georgia, Cinemex has been "perfectly able to open and operate" since before it even filed its Chapter 11 petition in late April, said Halcyon counsel Harris J. Koroglu of Shutts & Bowen LLP.
Meanwhile, Cinemex has been permitted to operate its theater in a Lakeland, Florida, shopping center owned by Cobb Lakeside at 50% capacity since June 5, Cobb Lakeside counsel Stephen B. Porterfield of Sirote & Permutt PC said, adding that the company also had the capability to operate a restaurant at the theater separately.
Tomasco responded that Cinemex's ability to resume operations is not as simple as the lifting of government restrictions, arguing that rent abatement is warranted under the doctrine of frustration of purpose.
The company's leases contemplate — and in some cases require — it to operate theaters showing first-run movies, she said. But as a result of the global pandemic, the next major movie releases are expected to be Disney's live-action version of "Mulan" on July 24 and director Christopher Nolan's "Tenet" on July 30.
"There is no other content available now," Tomasco said, adding that those release dates are not guaranteed and that Cinemex also will need time to rehire employees and train them on how to avoid the spread of the coronavirus.
While the company could attempt to reopen and show classics such as "Ben Hur" or "Charlie and the Chocolate Factory," that just would not be the same, Tomasco suggested.
"It's not going to be the same profitability, the same foot traffic and the same customer you would get for first-run movies," she said.
Koroglu pushed back, saying, "Any government moratoriums do not impact the debtor's ability to operate theaters. So now what you have is the debtor attempting to rewrite the terms of the lease."
Tomasco also argued that the landlords are conflating "frustration of performance" with "impossibility of performance." A force majeure clause that covers events outside the reasonable control of the parties can foreclose an impossibility of performance clause, but there is no case saying it can foreclose a frustration of purpose clause, she said.
Cinemex also pointed to the frustration of purpose doctrine among arguments it raised in a reply to the other pending objections that it filed Monday morning. The company also pointed out in the filing that while state authorities have allowed it to reopen certain theaters recently, authorities have continued to recommend that people stay home and avoid large gatherings in enclosed spaces, such as theaters.
Judge Isicoff continued her consideration of Cobb Lakeside's and Halcyon's objections until a hearing she set for July 9, expressing hope that the brief deferral might provide time for the parties to resolve the objections. She also indicated that she intends to rule by July 30 on all the objections.
Cinemex, which is jointly owned by Mexican companies Grupo Cinemex SA de CV and Operadora de Cinemas SA de CV, filed for Chapter 11 protection on April 25 and 26 citing government-mandated closures of theaters during the COVID-19 pandemic. Cinemex operates 41 upscale dine-in movie theaters in 12 states under the CMX Cinemas brand.
The company says it has laid off almost all its 2,500 workers, leaving fewer than 20 employees to maintain the business. Its monthly lease obligations are about $3.2 million in rent, plus an additional $700,000 in tax and insurance, according to Cinemex's motion.
Counsel for Cinemex, Halcyon and Cobb Lakeside did not immediately respond to requests for comment after Monday's hearing.
Cinemex is represented by Brett M. Amron, Jeffrey P. Bast and Jaime Burton Leggett of Bast Amron LLP, and Patricia B. Tomasco, Eric Winston and Juan P. Morillo of Quinn Emanuel Urquhart & Sullivan LLP.
Halcyon is represented by Harris J. Koroglu and Ryan C. Reinert of Shutts & Bowen LLP.
Cobb Lakeside is represented by Stephen B. Porterfield and Thomas B. Humphries of Sirote & Permutt PC and Jason A. Weber of Tiffany & Bosco PA.
The case is In re: Cinemex USA Real Estate Holdings Inc. et al., case number 1:20-bk-14695, in the U.S. Bankruptcy Court for the Southern District of Florida.
--Editing by Jack Karp.
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