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TOGUT, SEGAL & SEGAL LLP One Penn Plaza Suite 3335 New York, New York 10119 (212) 594-5000 Albert Togut Scott E. Ratner Lara R. Sheikh Proposed Counsel to the Debtor and Debtor in Possession

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------X : In re: : : DEWEY & LEBOEUF LLP, : : Debtor. : : ---------------------------------------------------------------X

Chapter 11 Case No. 12-

DEBTORS MOTION FOR INTERIM AND FINAL ORDERS PURSUANT TO BANKRUPTCY CODE SECTIONS 105, 363(b), 507(a), 541, 1107(a) AND 1108, AUTHORIZING, BUT NOT DIRECTING, THE DEBTOR, INTER ALIA, TO PAY PREPETITION WAGES, COMPENSATION, AND EMPLOYEE BENEFITS The debtor and debtor in possession in the above-captioned case (the Debtor) hereby moves this Court (the Motion) for entry of interim and final orders, pursuant to sections 105, 363(b), 507(a), 541, 1107(a) and 1108 of title 11 of the United States Code (the Bankruptcy Code): (a) authorizing, but not directing, the Debtor to pay prepetition wages, salaries, and employee benefits and all costs incident to the foregoing, including without limitation, related prepetition withholding and payrollrelated taxes; (b) authorizing, but not directing, the Debtor to maintain and continue to honor its practices, programs, and policies for its Employees (as defined below), and as such may be modified, amended or supplemented from time to time in the ordinary course, including without limitation, the continuation and maintenance of employee benefit programs in the ordinary course; and (c) authorizing all banks to honor

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prepetition checks for payment of prepetition employee obligations. In support of the Motion, the Debtor relies upon and incorporates by reference the Declaration of Jonathan A. Mitchell submitted in accordance with Local Bankruptcy Rule 1007-2 in support of the Debtors Chapter 11 petition (the Mitchell Declaration) and filed with the Court concurrently herewith [Docket No. 2]. In further support of the Motion, the Debtor, by and through its undersigned proposed counsel, represents: JURISDICTION AND VENUE 1. This Court has jurisdiction to consider this Motion under

28 U.S.C. 157 and 1334. This is a core proceeding under 28 U.S.C. 157(b). Venue of this case and this Motion in this District is proper under 28 U.S.C. 1408 and 1409. 2. The statutory predicates for the relief requested herein are

Bankruptcy Code sections 105, 363(b), 507(a), 541, 1107(a) and 1108. BACKGROUND 3. On the date hereof (the Petition Date), the Debtor filed a

voluntary petition in this Court for relief under Chapter 11 of the Bankruptcy Code. The factual background regarding the Debtor, including its operations, its capital and debt structure, and the events leading to the filing of this bankruptcy case, is set forth in detail in the Mitchell Declaration, which is deemed fully incorporated herein by reference.1 4. The Debtor continues to manage and maintain possession of its

properties as a debtor in possession under Bankruptcy Code sections 1107 and 1108.

Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Mitchell Declaration.

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RELIEF REQUESTED 5. By this Motion, the Debtor requests that this Court enter interim

and final orders, pursuant to Bankruptcy Code sections 105, 363(b), 507(a), 541, 1107(a) and 1108, and subject to and consistent with any order approving the use of cash collateral and any budget related thereto (the Budget): (i) authorizing, but not directing, the Debtor to: (a) pay and/or perform, as applicable, prepetition obligations to current employees (the Employees2), including accrued prepetition wages, salaries, and other cash and non-cash compensation claims (collectively, the Employee Wage Claims); maintain and continue to honor is practices, programs, and policies for its Employees as they were in effect as of the Petition Date, and as such may be modified, amended or supplemented from time to time in the ordinary course, including without limitation, the continuation and maintenance of the Debtors various non-working day policies, employee benefit plans and programs (and to pay all fees and costs in connection therewith, including those that arose prepetition) (collectively, the Employee Benefit Obligations); reimburse Employees for prepetition expenses that the Employees have incurred on behalf of the Debtor in the ordinary course of business (the Employee Expense Obligations); continue to pay and/or contest in good faith, all amounts related to workers compensation claims that arose prepetition (the Workers Compensation Obligations); pay all related prepetition withholdings and payrollrelated taxes (the Employee-Related Taxes3)

(b)

(c)

(d)

(e)

As described in further detail below, the Employees consist of approximately 160 non-lawyer employees and members of the wind-down committee. The Employee Wage Claims, the Employee Benefit Obligations, the Employee Expense Obligations and the Workers Compensation Obligations are collectively referred herein as the Prepetition Employee Obligations.

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associated with the Employee Wage Claims and the Employee Benefit Obligations, all of which are described herein, including any third parties that provide or aid in the monitoring, processing or administration of the Prepetition Employee Obligations; (ii) authorizing the Debtors banks (the Banks) to receive, process, honor and pay all of the Debtors prepetition checks and fund transfers on account of any of the Prepetition Employee Obligations; prohibiting the Debtors Banks from placing any holds on, or attempting to reverse, any automatic transfers to any account of an Employee or other party for the Prepetition Employee Obligations; and authorizing the Debtor to issue new postpetition checks or effect new postpetition fund transfers on account of the Prepetition Employee Obligations to replace any prepetition checks or fund transfer requests that may be dishonored or rejected.

(iii)

(iv)

THE DEBTORS WORKFORCE AND RELATED EMPLOYEE OBLIGATIONS A. Wages and Salaries 6. The number of the Debtors Employees has significantly reduced in

the weeks immediately preceding the Petition Date. As of the Petition Date, there are approximately 150 Employees remaining, who consist primarily of finance and administrative staff, to assist the Debtor with the orderly wind-down of the Debtors affairs and the efficient administration of this Chapter 11 case, including among other things, collection of accounts receivable, assisting the Debtors retained professionals, analyzing proofs of claim filed against the Debtor and supporting any objections to same, analyzing potential claims and causes of action against third parties, and maintaining the Debtors information technologies infrastructure. The Debtor anticipates that the number of Employees will be further reduced to approximately 90 on or about June 1, 2012. The Employees skills, institutional knowledge and

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understanding of the Debtors operations and client relations are essential to the effective administration of all aspects of this Chapter 11 case. 7. The Employees4 are paid on a semi-monthly schedule, on the 15th

and final day of each month (or, in each case, if not a business day, on the immediately preceding business day). Employees who are eligible under applicable law for overtime receive one and one-half times the employees regular hourly rate for time worked over 40 hours in one week. Those who are requested to work in the office on weekends and holidays are guaranteed a minimum of four (4) hours pay, to be paid at their regular hourly rate if they have not exceeded 40 hours of work for the preceding week and at the overtime rate for any time worked that exceeds 40 hours for the preceding week. The Debtor estimates an aggregate amount of approximately $230,000 in accrued Employee Wage Claims. 8. By this Motion, the Debtor seeks authority to pay, in its sole

discretion, subject to and consistent with any order approving the use of cash collateral and the Budget: (i) the outstanding Employee Wage Claims owed to each Employee up to the Priority Wage Cap (defined below); (ii) payments which the Debtor made prepetition, but the checks have not cleared as of the Petition Date; and (iii) amounts that the Debtor is required by law to withhold from Employee payroll checks in respect of federal, state and local income taxes, garnishment contributions, social security and Medicare taxes. B. Other Compensation: Vacation, Holiday, Paid Time Off, and Business Expenses 9. The Debtor offers its Employees other forms of compensation,

including vacation time, paid holidays, other earned time off, and reimbursement of
4

With the exception of the two members of the Wind-Down Committee, who are paid weekly.

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certain business expenses. These forms of compensation are usual, customary and necessary if the Debtor is to retain qualified employees to conduct its wind-down operations. 10. Vacation, Holiday and Paid Time-Off. Employees are eligible to

accrue paid vacation, holidays and paid time-off (PTO) after certain periods of employment. All regular, full-time Employees are generally eligible for 10 paid holidays throughout the year. If a full-time regular employee works on a paid holiday, the full-time regular employee will be given compensatory time equivalent to the number of hours worked on that day which must be taken within 30 days of the holiday. Any time not used within that 30-day period will expire. 11. Employees accrue PTO in various formulas based on their position

and/or length of service with the Debtor. Those Employees hired before January 1, 2011 accrue between 20 and 30 days of PTO per year depending on their length of service with the Debtor. Employees hired after January 1, 2011 accrue between 15 and 25 days of PTO per year depending on their length of service with the Debtor. If an Employees employment ends while they have accrued and unused PTO, they are paid up to a maximum of 20 unused days, except as it applies to employees in California, Illinois, and Massachusetts in compliance with local laws. Employees may carry over 10 unused days to the next calendar year subject to compliance with local laws. PTO cannot otherwise be cashed out. The Debtor estimates an aggregate amount of approximately $700,000 in PTO accrued by the Employees. 12. By this Motion, the Debtor seeks authority to honor in the ordinary

course of business all liabilities to its Employees for vacation, holidays and PTO, including those obligations that arose under such policies or practices existing prior to the Petition Date up to the Priority Wage Cap, as applicable. The Debtor anticipates 6

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that its Employees will utilize accrued vacation time or PTO, in the ordinary course of business without resulting in any material cash flow requirements beyond the Debtors payroll obligations during the wind-down period. 13. Expense Reimbursement. The Debtor routinely reimburses certain

Employees for expenses incurred within the scope of their employment, including expenses for travel, lodging, ground transportation, meals, supplies and other miscellaneous business expenses that are not for luxury items (collectively, the Reimbursable Expenses). The Debtor estimates that there is approximately $14,000 in outstanding Reimbursable Expenses. The Debtor seeks authority to pay, subject to and consistent with any order approving the use of cash collateral and the Budget, all prepetition Reimbursable Expenses in the ordinary course of business up to $1,000 per individual Employee for non-luxury related items only. C. Employee Benefit Plans 14. The Debtor provides a number of Employees and their dependents

with certain employee benefit plans, including Medical, Dental, Vision, Life and Disability Insurances, Flexible Spending Accounts, and pre-tax Transit/Parking program (collectively, the Employee Benefit Plans). 15. Medical Plans. All full-time Employees in the U.S. working 28

hours or more per week, are eligible for benefits on the first of the month following or coinciding with their date of hire. Employees must enroll within 30 days from the date of hire or during open enrollment or within 30 days of a qualifying mid-year family status change. Eligible dependents include spouse, dependent children up to the age of 26 years, disabled dependents of any age, same-sex domestic partners, and dependent children of same-sex domestic partners up to the age of 26 years

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16.

Employee medical benefits in the U.S. are provided by Empire

BlueCross BlueShield. Employees are given the choice between three plans: (i) Empire BlueCross BlueShield EPO; (ii) Empire BlueCross BlueShield PPO; and (iii) Empire Total BlueSM with Health Savings Account (HSA). The plans differ in the amount of deductibles, out of network costs, and tax benefits. Monthly costs to the Employees vary depending on the level of coverage and plan selected, which monthly costs range from $58 to $757. 17. Flexible spending accounts are available for healthcare, dependent

care and commuting. The contribution limits are $5,000 for healthcare and $5,000 for dependent care annual contributions. The parking and commuter contributions are capped at $240 and $125 in monthly contributions, respectively, in accordance with Federal limits. 18. The Debtor pays approximately $89,000 per month on account of

the medical plans for the Employees, which has been paid through May 2012. 19. Dental and Vision Plans. The Debtor offers dental benefits

through either CIGNA HMO or CIGNA PPO which vary in terms of out of network costs and deductibles. Employee contributions ranging from $16 to $104 per month (based on elections) are deducted in equal installments from semi-monthly paychecks. The Debtors share of monthly dental benefits is approximately $2,900, which has been paid through May 2012. 20. The Debtor also provides vision benefits through UnitedHealthcare

Vision. The UHC network is nationwide and offers benefits through most major optic centers. Monthly costs to the Employees vary depending on the level of coverage and plan selected, which range from $5 to $12 per month. Vision plans are paid entirely by Employees. 8

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21.

Life, Short-Term Disability and Long-Term Disability Insurance.

The Debtor provides its Employees life, short-term disability and core long-term disability insurance (collectively, the Life Insurance Plans) under policies issued by MetLife. The Debtor also provides the option of Supplemental Term Life Insurance, which includes Estate Planning and Will Preparation Services, spouse and child life insurance. The Debtor provides basic life and accidental death & dismemberment (AD&D) insurance coverage (1 x salary, up to $500,000), and Core Long-Term Disability. 22. The Debtor provides employer-paid basic term life, and life and

accidental death and dismemberment insurance (AD&D) benefits of 1 times annual salary (capped at $500,000 benefit maximum). Supplemental life insurance coverage for employee, spouse and child and supplemental AD&D for employee only or family coverage is also available for employees at their cost. 23. The Debtor further provides employer paid short-term disability

benefits, which provide weekly coverage in the amount of $170 of weekly eligible salary (maximum weekly benefit is $170 for up to 26 weeks) except in California where the benefit complies with local disability laws. 24. The Debtor also provides paid long-term disability, which provides

monthly coverage in the amount of 40% of monthly eligible salary (maximum monthly benefit is $16,667 for as long as the disability is certified by a physician and the carrier approves). 25. The Debtor provides voluntary Long Term Disability coverage

which Employees can elect to provide an additional 20% income replacement up to a maximum monthly benefit of $18,333. The maximum combined paid benefit is $35,000 a month. This additional coverage is 100% paid for by Employees, with the Debtor only 9

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providing the service of the plan and the mechanism to pay the premiums from Employees paychecks. 26. The Debtor pays an estimated amount of $10,000 per month for its

disability insurance, which has been paid through May 2012. 27. By this Motion, the Debtor seeks authority to pay and/or remit all

amounts owed to third-party providers or administrators under the Employee Benefit Plans in the ordinary course of business, subject to and consistent with any order approving the use of cash collateral and the Budget. D. Savings and Retirement Plans 28. The Debtor offers certain Employees a savings and retirement plan

through which they can accumulate savings for their future. Each year, eligible Employees may contribute a portion of their pre-tax and/or post-tax compensation for investment in a 401(k) plan (the 401(k) Plan) of which Fidelity Investments is the plan's record-keeper and trustee. All Employees who have been employed by the Debtor are eligible to participate on the first day of the month coincident with or following the date of hire. All 401(k) plan fees are paid from participant accounts. 29. By this Motion, the Debtor seeks authority to remit all amounts that

are related to the 401(k) Plan that arose prior to the Petition Date in the ordinary course of the Debtors business, subject to and consistent with any order approving the use of cash collateral and the Budget (although all such amounts are deducted from an Employees Wages and not paid or maintained by the Debtor). E. Workers Compensation 30. The Debtor provides workers compensation benefits to all

Employees under a program administered by Chubb Insurance. Failure to maintain this insurance in New York, where the Debtor will operate until the conclusion of its 10

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wind-down, could result in administrative or legal proceedings against the Debtor. By this Motion, the Debtor seeks authority to continue paying and/or contesting in good faith, as appropriate in the Debtors business judgment, all amounts related to workers compensation claims that arose prior to the Petition Date, as they become due in the ordinary course of the Debtors business, subject to and consistent with any order approving the use of cash collateral and the Budget. F. The Employee-Related Taxes 31. The Debtor routinely withholds from Employee paychecks

amounts that the Debtor is required to transmit to third parties, i.e., the EmployeeRelated Taxes. Examples of such withholding include social security, FICA, federal and state income taxes, and garnishments. The Debtor believes that such withheld funds, to the extent that they remain in the Debtors possession, constitute moneys held in trust and therefore are not property of the Debtors bankruptcy estate. Thus, the Debtor submits that it has authority to direct such funds to the appropriate parties in the ordinary course of business. By this Motion, the Debtor requests authority to pay the Employee-Related Taxes, subject to and consistent with any order approving the use of cash collateral and the Budget (although all such amounts are deducted from an Employees Wages and not paid for separately by the Debtor). G. Direction to Banks 32. Finally, the Debtor seeks an order authorizing and directing the

Banks to receive, process, honor and pay any and all checks drawn on the Debtors payroll and general disbursement accounts related to Prepetition Employee Obligations, whether presented before or after the Petition Date, provided that sufficient funds are on deposit in the applicable accounts to cover such payments.

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APPLICABLE AUTHORITY I. CAUSE EXISTS TO AUTHORIZE PAYMENT OF THE PREPETITION EMPLOYEE OBLIGATIONS A. The Proposed Payments Are Accorded Priority Under Bankruptcy Code Section 507 33. Bankruptcy Code sections 507(a)(4) and 507(a)(5) require that

certain claims for prepetition wages, salaries, vacation, and employee benefit contributions be accorded priority in payment in an amount not to exceed $11,725 for each employee (the Priority Wage Cap). Because some amounts are unknown pending submission of claims, the Debtor does not know the exact amount due each Employee for the prepetition period. Additionally, there may be certain Employees who received payroll checks that have not yet cleared the Debtors bank accounts prior to the Petition Date. The Debtor requests that it be authorized, but not directed, to pay Employee Wage Claims are Employee Benefit Obligations up to the Priority Wage Cap, in the aggregate, during the first 20 days of this Chapter 11 case, subject to and consistent with any order approving the use of cash collateral and the Budget. Once an official committee of unsecured creditors is appointed, the Debtor proposes to consult with such committee and the Debtors secured creditors regarding the payment of Prepetition Employee Obligations in excess of the Priority Wage Cap, which payments are subject to the consent of the Debtors secured creditors and shall be subject to and consistent with any order approving the use of cash collateral and the Budget. Accordingly, granting the relief requested will not adversely affect the Debtors other unsecured creditors and relates solely to the timing of the payment of such claims.

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B.

The Proposed Payments Are Appropriate Under Bankruptcy Code Section 363 34. Under Bankruptcy Code section 363, a bankruptcy court is

empowered to authorize a Chapter 11 debtor to expend funds in the bankruptcy courts discretion outside the ordinary course of business. See 11 U.S.C. 363. In order to obtain approval for the use of estate assets outside the ordinary course of business, the debtor must articulate a valid business justification for the requested use. See In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989). Payment of prepetition claims to preserve and protect a debtors business by retaining its employees and maintaining positive employee morale is a sufficient business justification for such an authorization, even if such payment were deemed to be outside the ordinary course of business. See id. 35. As stated above, approximately 160 Employees remain to assist in

the wind-down effort, with further reductions to occur on or before June 1, 2012. Morale is at an all-time low for the Employees who are necessary to assist the Debtor with the administration of this Chapter 11 case; the confidence of uninterrupted payment of wages and salaries will help to address this issue. As stated above, by retaining the Employees, and their institutional knowledge of the Debtors operations, the value of the Debtors estate will be maximized through an efficient administration of this case. Accordingly, this Court should grant the requested relief under Bankruptcy Code section 363. C. The Payment of the Prepetition Employee Obligations is Appropriate Under Bankruptcy Code Sections 507 and 541 36. The payment of the employee contribution component of the

Employer Taxes and 401(k) Plan or payment of garnished wages will not prejudice the Debtors estate because such withholdings are held in trust for the benefit of the related 13

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payees and, thus, do not constitute property of the Debtors estate under Bankruptcy Code section 541. See Begier v. IRS, 496 U.S. 53 (1990). Moreover, payments which are critical to the retention and morale of the Debtors workforce, such as the 401(k) participation, actually add value to the estate because an unplanned reduction in Employee retention or productivity could have disastrous effects on recoveries to unsecured creditors. D. The Debtor Should Be Authorized To Pay The Prepetition Employee Obligations Under Bankruptcy Code Sections 1107(a) And 1108 37. The Debtor, operating its business as a debtor in possession under

Bankruptcy Code sections 1107(a) and 1108, is a fiduciary holding the bankruptcy estate[s] and operating the business[es] for the benefit of [their] creditors and (if the value justifies) equity owners. In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002). Implicit in the duties of a Chapter 11 debtor in possession is the duty to protect and preserve the estate, including an operating businesss going-concern value. Id. 38. Courts have noted that there are instances in which a debtor in

possession can fulfill its fiduciary duty only . . . by the preplan satisfaction of a prepetition claim. Id. The CoServ court specifically noted that preplan satisfaction of prepetition claims would be a valid exercise of a debtors fiduciary duty when the payment is the only means to effect a substantial enhancement of the estate. Id. at 498. The court provided a three-pronged test for determining whether a preplan payment on account of a prepetition claim was a valid exercise of a debtors fiduciary duty: First, it must be critical that the debtor deal with the claimant. Second, unless it deals with the claimant, the debtor risks the probability of harm, or, alternatively, loss of economic advantage to the estate or the debtors going concern value, which is disproportionate to the amount of the claimants prepetition claim. Third, there is no practical or

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legal alternative by which the debtor can deal with the claimant other than by payment of the claim. Id. at 498. 39. Payment of the Prepetition Employee Obligations meets each

element of the CoServ courts standard. The Debtor is highly mindful of its fiduciary obligations to seek to preserve and maximize the value of its estate. The Debtor is a multi-national law firm that is now engaged in a wind-down of unprecedented proportions and complexity. The goal now is the orderly and efficient administration of the Debtors case and maximizing recoveries for the benefit of all parties in interest. Accordingly, as the Debtor transitions into Chapter 11, it is imperative to ensure that the remaining Employees are confident in the Debtors financial obligations to them. As described above, the Employees likely maintain priority claims against the Debtor for most if not all of its respective Prepetition Employee Obligations. In addition, any failure by the Debtor to pay the Prepetition Employee Obligations would negatively impact the morale of the Debtors remaining Employees and the efficacy of their work product at a critical time for the Debtor. In short, the potential harm and economic disadvantage that would stem from the failure to pay the Prepetition Employee Obligations is grossly disproportionate to the amount of any general unsecured prepetition claim that may be paid. 40. The Debtor has examined other options short of payment of the

Prepetition Employee Obligations and has determined that to avoid significant disruption, there exists no practical or legal alternative to payment of such obligations. Therefore, the Debtor can best satisfy its fiduciary duties as a debtor in possession under Bankruptcy Code sections 1107(a) and 1108 by payment of the Prepetition Employee Obligations.

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E.

Payment Of The Prepetition Employee Obligations Should Be Authorized Under Bankruptcy Code Section 105 And The Doctrine Of Necessity 41. The proposed payment of the Prepetition Employee Obligations

should be authorized under Bankruptcy Code section 105 and under the doctrine of necessity. Bankruptcy Code section 105 authorizes this Court to issue any order . . . necessary or appropriate to carry out the provisions of the Bankruptcy Code. 11 U.S.C. 105. In light of the critical need for the Debtor to orderly and efficiently wind down, which will maximize recoveries to all stakeholders, payment of the wages, benefits and other amounts as requested herein is proper in accordance with Bankruptcy Code section 105. 42. Payment of the Prepetition Employee Obligations is further

supported by the doctrine of necessity. This doctrine recognizes the existence of the judicial power to authorize a debtor in a reorganization case to pay pre-petition claims where such payment is essential to the continued operation of the debtor. In re Ionosphere Clubs, Inc., 98 B.R. at 176 (Bankr. S.D.N.Y. 1989); see also In re Just for Feet, Inc., 242 B.R. 821, 826 (D. Del. 1999) (stating that where the debtor cannot survive absent payment of certain prepetition claims, the doctrine of necessity should be invoked to permit payment);5 In re NVR L.P., 147 B.R. 126, 127 (Bankr. E.D. Va. 1992) ([T]he court can permit pre-plan payment of a pre-petition obligation when essential to
5

The Courts power to utilize the doctrine of necessity in Chapter 11 cases derives from the Courts inherent equity powers and its statutory authority to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a). The United States Supreme Court first articulated the doctrine of necessity over a century ago, in Miltenberger v. Logansport, C & S.W. R. Co., 106 U.S. 286 (1882), in affirming the authorization by the lower court of the use of receivership funds to pay pre-receivership debts owed to employees, vendors and suppliers, among others, when such payments were necessary to preserve the receivership property and the integrity of the business in receivership. See id. at 309-14. The modern application of the doctrine of necessity is largely unchanged from the Courts reasoning in Miltenberger. See In re Lehigh & New Eng. Ry., 657 F.2d 570, 581-82 (3d Cir. 1981) ([I]n order to justify payment under the necessity of payment rule, a real and immediate threat must exist that failure to pay will place the [debtors] continued operation . . . in serious jeopardy.).

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the continued operation of the debtor.); In re Eagle-Picher Indus., Inc., 124 B.R. 1021, 1023 (Bankr. S.D. Ohio 1991) ([T]o justify payment of a pre-petition unsecured creditor, a debtor must show that the payment is necessary to avert a serious threat to the Chapter 11 process.). 43. The doctrine of necessity is a widely accepted component of

modern bankruptcy jurisprudence. See Just For Feet, 242 B.R. at 826 (approving payment of key inventory suppliers prepetition claims when such suppliers could destroy debtors business by refusing to deliver new inventory on eve of debtors key sales season); In re Payless Cashways, Inc., 268 B.R. 543, 546-47 (Bankr. W.D. Mo. 2001) (authorizing payment of critical prepetition suppliers claims when such suppliers agree to provide postpetition trade credit); see also In re Columbia Gas Sys., Inc., 171 B.R. 189, 191-92 (Bankr. D. Del. 1994); In re Ionosphere Clubs, Inc., 98 B.R. at 175. Moreover, courts have recognized the applicability of the doctrine of necessity with respect to the payment of prepetition employee compensation and benefits. See e.g., Mich. Bureau of Workers Disability Comp. v. Chateaugay Corp. (In re Chateaugay Corp.), 80 B.R. 279, 285-89 (S.D.N.Y. 1987) (under necessity of payment doctrine, it is appropriate for bankruptcy court to defer to Debtors business judgment in permitting payment of certain workers compensation claims); In re Ionosphere Clubs, Inc., 89 B.R. at 176 (This rule recognizes the existence of the judicial power to authorize a debtor in a reorganization case to pay pre-petition claims where such payment is essential to the continued operation of the debtor.). 44. It is the Debtors business judgment that the payment or

satisfaction of Prepetition Employee Obligations will result in the efficient administration of this Chapter 11 case, including but not limited to, enhanced creditor recoveries through the maximization of recoveries on its accounts receivable and work 17

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in progress (WIP), claims analysis and prosecution of objections to same, and analysis and prosecution, if warranted, of claims against third parties. Furthermore, permitting the Debtor to make payment on such prepetition claims in the amount and manner described herein satisfies two recognized policies of Chapter 11, namely, maximizing recoveries for a debtors creditors and preserving the going-concern value of the debtors enterprise. See Bank of Am. Natl Trust & Sav. Assoc. v. 203 N. LaSalle St. PShip, 526 U.S. 434, 453 (1999). Accordingly, the Court should allow the payment of the Prepetition Employee Obligations as requested herein, subject to and consistent with any order approving the use of cash collateral and the Budget. 45. Courts have routinely granted to large business debtors the same or

substantially similar relief to that requested in this Motion. See, e.g., In re Loehmanns Holdings, Inc., et al., Case No. 10-16077 (REG) (Bankr. S.D.N.Y. November 15, 2010); In re Finlay Enterprises, Inc., et al., Case No. 09-101983 (JMP) (Bankr. S.D.N.Y. August 5, 2010); In re Lenox Sales, Inc., et al., Case No. 08-14679 (ALG) (Bankr. S.D.N.Y. December 15, 2008); In re Steve & Barrys Manhattan, LLC, Case No. 08-12579 (ALG) (Bankr. S.D.N.Y. July 29, 2008); In re Fortunoff Fine Jewelry and Silverware, LLC, Case No. 08-10353 (JMP) (Bankr. SDNY February 24, 2009); In re Dana Corp., et al., Case No. 06-10354 (BRL) (Bankr. S.D.N.Y. Mar. 3, 2006); In re Musicland Holding Corp., et al., Case No. 06-10064 (SMB) (Bankr. S.D.N.Y. Feb. 23, 2006); In re Refco Inc., et al., Case No. 05-60006 (RDD) (Bankr. S.D.N.Y. Dec. 29, 2005); In re Delphi Corp., et al., Case No. 05-44481 (RDD) (Bankr. S.D.N.Y. Oct. 13, 2005); In re Winn-Dixie Stores, Inc., et al., Case No. 05-11063 (RDD) (Bankr. S.D.N.Y. Mar. 15, 2005); In re Movie Gallery, Inc., et al., Case No. 07-33849 (DOT) (Bankr. E.D. Va. Oct. 17, 2007); In re Tweeter Home Entmt. Group, Inc., et al. Case No. 07-10787 (PJW) (Bankr. D. Del. Jun. 12, 2007).

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46.

As a precaution, the proposed Order provides that the relief

granted therein shall not constitute or be deemed an assumption of any of the employment and service agreements to which the Debtor may be a party or any of the Debtors employee benefit policies, plans, programs, practices and procedures under Bankruptcy Code section 365(a). 47. Accordingly, for all of the foregoing reasons, the Debtor submits

that cause exists for granting the relief requested herein. II. THE DEBTORS BANKS SHOULD BE AUTHORIZED TO HONOR AND PAY CHECKS ISSUED AND MAKE OTHER TRANSFERS TO PAY THE EMPLOYEE OBLIGATIONS 48. The Debtor further requests that the Court authorize the applicable

Banks to receive, process, honor, and pay all prepetition and postpetition checks issued or to be issued, and electronic fund transfers requested or to be requested, by the Debtor in respect of the Prepetition Employee Obligations. The Debtor also seeks authority to issue new postpetition checks, or effect new electronic fund transfers, on account of the Prepetition Employee Obligations to replace any prepetition checks or electronic fund transfer requests that may be dishonored or rejected. 49. As a result of the commencement of the Debtors Chapter 11 case,

and in the absence of an order of the Court providing otherwise, the Banks may reject or dishonor the Debtors checks, wire transfers and direct deposit transfers with respect to the Prepetition Employee obligations. Therefore, the Debtor requests that the Court authorize the Debtors Banks and any other bank authorized by the Court to administer the Debtors bank accounts under the Cash Management Motion6 to receive, process,
6

Simultaneously herewith, the Debtor has filed the Motion Pursuant to Bankruptcy Code Sections 105(a), 345, 363, 364 and 503(b)(1) Authorizing: (I) Continued Maintenance of Existing Bank Accounts; (II) Continued Use of Existing Business Forms; (III) Continued Use of Existing Cash Management System; and (IV) Waiver of Certain Guidelines Relating to Bank Accounts (the Cash Management Motion).

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honor, and pay all prepetition and postpetition checks issued by the Debtor, and funds transfers requested by the Debtor, in each case, with respect to the Prepetition Employee Obligations. 50. The Debtor represents that each of these checks or transfers is or

will be drawn on accounts that can be readily identified as relating directly to payment of the Prepetition Employee Obligations. The Debtor believes that prepetition checks and transfers, other than those for Prepetition Employee Obligations, or those authorized by another order of the court, will not be honored inadvertently. III. INTERIM RELIEF SHOULD BE GRANTED 51. Similarly, Bankruptcy Rule 6003 provides that the relief requested

in this Motion may be granted if the relief is necessary to avoid immediate and irreparable harm. Fed. R. Bankr. P. 6003. The Second Circuit has interpreted the language immediate and irreparable harm in the context of preliminary injunctions. In that context, the court instructed that irreparable harm is a continuing harm which cannot be adequately redressed by final relief on the merits and for which money damages cannot provide adequate compensation. Kamerling v. Massanari, 295 F.3d 206, 214 (2d Cir. 2002) (quoting N.Y. Pathological & X-Ray Labs., Inc. v. INS, 523 F.2d 79, 81 (2d Cir. 1975)). Further, the harm must be shown to be actual and imminent, not remote or speculative. Id. at 214. See also Rodriguez v. DeBuono, 175 F.3d 227, 234 (2d Cir. 1998). 52. The Debtor submits that for the reasons set forth herein, the relief

requested in this Motion is necessary to avoid immediate and irreparable harm as defined by the Second Circuit. 53. The Debtor also requests that the Court waive the stay imposed by

Bankruptcy Rule 6004(h), which provides that [a]n order authorizing the use, sale, or 20

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lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. As described above, the relief that the Debtor seeks in this Motion is immediately necessary for the Debtor to be able to continue to operate its business and preserve value for its estate. The Debtor respectfully requests that the Court waive the fourteen-day stay imposed by Bankruptcy Rule 6004(h), as the exigent nature of the relief sought herein justifies immediate relief. NOTICE 54. Notice of this Motion has been provided by either facsimile,

electronic transmission, overnight delivery, or hand delivery to: (i) the United States Trustee for the Southern District of New York; (ii) the parties listed on the Debtors List of Creditors Holding the 20 Largest Unsecured Claims filed pursuant to Bankruptcy Rule 1007(d); (iii) the parties listed on the Debtors List of the Top 5 Prepetition Secured Creditors; (iv) Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of Americas, New York, New York 10036, Attn: Kenneth Eckstein and Robert Schmidt (as counsel to the Administrative Agent and Collateral Agent), and Bingham McCutchen LLP 399 Park Avenue, New York, NY 10022, Attn: Michael J. Reilly and Ronald J. Silverman (as counsel to the noteholders); (v) the Office of the United States Attorney for the Southern District of New York; and (vi) any parties required to be served under any applicable Bankruptcy Rule or Local Rule. The Debtor submits that, under the circumstances, no other or further notice is necessary. NO PRIOR REQUEST 55. No prior request for the relief requested herein has been made to

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CONCLUSION WHEREFORE, the Debtor respectfully requests this Court enter interim and final orders, substantially in the forms annexed hereto as Exhibit A and B, respectively, granting the relief requested in this Motion and such other and further relief as may be just and proper. Dated: New York, New York May 28, 2012

DEWEY & LEBOEUF LLP By Its Proposed Counsel TOGUT, SEGAL & SEGAL LLP By: /s/ Albert Togut ALBERT TOGUT SCOTT E. RATNER Members of the Firm One Penn Plaza, Suite 3335 New York, New York 10119 (212) 594-5000

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