By Nathan Hale

Law360 (October 27, 2020, 10:09 PM EDT) -- A Florida bankruptcy judge said Tuesday that the owner of two Minnesota movie theaters can seek an extension on part of a lien against the parent company of insolvent movie theater operator Cinemex Holdings USA Inc., but delayed ruling on Cinemex stock the parent holds.

During a Zoom hearing, U.S. Bankruptcy Judge Laurel M. Isicoff granted MN Theaters 2006 LLC relief from the automatic stay covering Cinemex's Chapter 11 reorganization case, over objections from the debtor, based on assurances from MN Theaters that it is simply trying to maintain the status quo in a $56 million case it has pending in New York federal court against Cinemex's Mexico-based parent, Grupo Cinemex SA de CV.

The Miami-based bankruptcy judge authorized MN Theaters to seek an extension of a levy on loan payments Cinemex owes its parent company that is part of an "attachment order" the New York court issued allowing the landlord to seize and secure Grupo Cinemex's U.S. assets during the case.

But she gave the parties until Wednesday to research the effect that the attachment order has on Cinemex stock owned by Grupo Cinemex. Cinemex's bankruptcy counsel expressed concern Tuesday that an extension of the levy over the stock could jeopardize the debtor's reorganization plan, which is due to come up for confirmation on Nov. 24.

"The only thing that can happen by continuing the attachment with respect to the shares is pure mischief," Patricia B. Tomasco of Quinn Emanuel Urquhart & Sullivan LLP told the court.

Cinemex, which is jointly owned by Mexican companies Grupo Cinemex and Operadora de Cinemas SA de CV, filed for Chapter 11 protection in April, citing government-mandated closures of theaters during the COVID-19 pandemic. Cinemex operates 41 upscale dine-in movie theaters in 12 U.S. states under the CMX Cinemas brand.

The company previously said it has laid off almost all of its 2,500 workers, leaving fewer than 20 employees to maintain the business. At the time of its bankruptcy filing, its monthly lease obligations were about $3.2 million in rent, plus an additional $700,000 in tax and insurance, according to case filings.

Grupo Cinemex emerged as the only party willing to provide emergency debtor-in-possession financing, advancing nearly $2 million in a first installment to Cinemex to cover its May expenses, according to the company's case filings.

MN Theaters filed its case in New York against Grupo Cinemex on July 28 and obtained the prejudgment order of attachment on July 30, providing the levy on Grupo Cinemex's U.S. assets, according to case filings. When it moved on Aug. 13 to confirm the attachment order to take possession of those assets, Cinemex responded a few days later by filing an adversary proceeding asking the bankruptcy court to rule that the automatic stay applies and to temporarily block MN Theaters from advancing the New York case.

Judge Isicoff granted Cinemex a stay, saying that while the district court proceedings, including the entry of the attachment order, did not violate the automatic stay, "any continuation of proceedings in the district court case to confirm the attachment order or to take any other act that provides MN Theaters with increased rights" with respect to Grupo Cinemex's interest in the DIP financing to Cinemex and its ownership of Cinemex stock is subject to the automatic stay.

MN Theaters said in its motion to the bankruptcy court that it needs relief from the automatic stay or clarification on its applicability because the levy can expire on Nov. 2 without a further order from the New York district court.

During Tuesday's hearing, Tomasco said that with respect to the DIP loan, Cinemex does not necessarily object to an extension of the attachment but wanted it to be clear that any enforcement of the loan would have to come through the bankruptcy court.

In regard to the stock, however, Tamasco argued that with Cinemex's reorganization plan calling for the shares to be canceled, they are worthless to MN Theaters, so an extension makes no sense.

The only thing that could happen as a result of the shares' attachment would be a possible change of management or a transfer of ownership, she said. A change in ownership, would cause problems for Cinemex's reorganization plan, because it would bar the company from using approximately $170 million in net operating losses that it had reported as of the end of 2019 — plus possibly more generated in 2020 — to offset future taxable income.

Scott A. Edelman of Milbank LLP, who is representing MN Theaters, described the net operating losses issues as "murky," arguing that Cinemex could have raised the issue when the judge issued the stay order, but it did not. Edelman said he read the company's proposed disclosure statement as saying it was not going to get that benefit.

"I am suspicious that at the end of this process, that equity interest will not be canceled, and if it's not, then our lien should persist," he said.

Judge Isicoff said she was not clear whether the New York district court's attachment order implied that a change of ownership had already taken place, which she noted would be problematic for Cinemex, and instructed Tamasco to look into that question before a hearing set for Wednesday afternoon at which the court is also set to consider Cinemex's disclosure statement.

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.

MN Theaters is represented by Scott A. Edelman of Milbank LLP and David L. Gay of Carlton Fields.

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. The New York case is MN Theaters 2006 LLC v. Grupo Cinemex SA de CV, case number 1:20-cv-05860, in the U.S. District Court for the Southern District of New York.

--Editing by Haylee Pearl.

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