James H.M. Sprayregen, P.C. Paul M.

Basta KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York 10022-4611 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 and Anup Sathy, P.C. Marc J. Carmel (admitted pro hac vice) KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois 60654-3406 Telephone: (312) 862-2000 Facsimile: (312) 862-2200 Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al.,1 Debtors. ) ) ) ) ) ) ) Chapter 11 Case No. 10-13800 (SCC) Jointly Administered

DEBTORS OMNIBUS REPLY IN SUPPORT OF THE DEBTORS MOTION TO REJECT THE WEST PALM BEACH AGREEMENTS AND DISPOSE, DONATE, OR ABANDON THE PROPERTY AT THE WEST PALM BEACH HOTEL AND RESPONSES TO OBJECTIONS THERETO Innkeepers USA Trust and certain of its affiliates, as debtors and debtors in possession (collectively, the Debtors), hereby submit this omnibus reply (the Reply) in support of the

The list of Debtors in these Chapter 11 Cases along with the last four digits of each Debtors federal tax identification number can be found by visiting the Debtors restructuring website at www.omnimgt.com/innkeepers or by contacting Omni Management Group, LLC at Innkeepers USA Trust c/o Omni Management Group, LLC, 16161 Ventura Boulevard, Suite C, PMB 606, Encino, California 91436. The location of the Debtors corporate headquarters and the service address for their affiliates is: c/o Innkeepers USA, 340 Royal Poinciana Way, Suite 306, Palm Beach, Florida 33480.

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Debtors Motion for Entry of an Order Authorizing the (A) Rejection of (I) the West Palm Beach Ground Lease, (II) the Membership Agreement with Best Western International, Inc., and (III) Other Executory Contracts and Unexpired Leases Related to the West Palm Beach Hotel, (B) Disposition, Donation, or Abandonment of the Property at the West Palm Beach Hotel, and (C) Modified Notice Procedures Relating to the Abandonment [Docket No. 803] (the Motion) and in response to the Objections thereto.2 In support of this Reply, and in further support of the Motion, the Debtors respectfully state as follows:3 Reply I. The Debtors Have Sound Business Justification to Dispose of or Donate Property at the West Palm Beach Hotel. The Ground Lessors argue in their Objection that abandonmentand not disposal or donationof property at the West Palm Beach Hotel is the only appropriate relief that should be granted by the Court. As an initial matter, the paragraphs of the WPB Ground Lease cited in the Ground Lessor Objection are inapplicable to the present scenario.4 Paragraph VI of the WPB

The following objections have been filed in response to the Motion: Limited Objection of Benenson Capital Company and Rofar Realty Company, Inc. to Debtors Motion to Reject Ground Lease and for Related Relief [Docket No. 846] (the Ground Lessor Objection); Limited Objection to Debtors Motion for Entry of an Order Authorizing the (A) Rejection of (I) the West Palm Beach Ground Lease, (II) the Membership Agreement with Best Western International, Inc., and (III) Other Executory Contracts and Unexpired Leases Related to the West Palm Beach Hotel, (B) Disposition, Donation, or Abandonment of the Property at the West Palm Beach Hotel, and (C) Modified Notice Procedures Relating to the Abandonment [Docket No. 847] (the Restaurant Sublessee Objection and, together with the Ground Lessor Objection, the Objections). Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to such terms in the Motion. Paragraph VI of the Ground Lease (attached to the Ground Lessor Objection at Exhibit A) states as follows: Lessee shall not vacate or abandon the premises at any time during the term hereof; if Lessee shall abandon, vacate or surrender the demised premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee and left on the premises shall be deemed to be abandoned, at the option of Lessor, except such property as may be encumbered to Lessor. Paragraph XXI of the Ground Lease states as follows: The prompt payment of the rent for said demised premises upon the date named, and the faithful observance of the terms, covenants and provisions of this Lease are conditions of this Lease. If the Lessee fails to perform or comply with any of the terms, provisions and conditions of this Lease within thirty (30) days after written notice of default from Lessor, this Lease may be terminated forthwith at the option of the Lessor. If said default shall reasonably require longer than thirty (30) days to cure and if Lessee shall fail to commence a cure of said default within thirty (30) days after notice thereof and prosecute the curing of default to completion with due

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Ground Lease addresses personal property left on the premises after the Debtors vacate or abandon the property. It does not apply to personal property on the premises before the Debtors vacate. For the reasons explained in the Motion, the Debtors respectfully submit that they should have the authority, in their reasonable business judgment, to dispose of or donate the property currently at the West Palm Beach hotel prior to or in connection with vacating the premises. Further, paragraph XXI of the WPB Ground Lease applies only upon a default under the terms of the WPB Ground Lease and after thirty days written notice by the Ground Lessors. There has been neither a default by the Debtors nor written notice provided prior to the rejection. As such, paragraph XXI also does not apply. Notwithstanding the inapplicability of the cited Ground

Lease provisions, application of those provisions leads to nothing more than the conclusion that the Debtors abandon their rights to any property left on the West Palm Beach hotel premises as of the effective date of the rejectionrelief already requested by the Debtors in the Motion. Under applicable case law in this and other jurisdictions, if a debtors proposed use of its assets in accordance with section 363(b) represents a reasonable business judgment, such use should be approved.5 As discussed in greater detail in the Motion, the Debtors decision to dispose of, donate, or abandon property at the West Palm Beach hotel constitutes a sound

diligence, this Lease may be terminated. In the event of such default, the Lessee shall have no claim whatsoever against the Lessor by reason of improvements made upon the demised premises, rents paid or any other cause whatsoever, and the title and right of possession to all personal property situated on the demised premises shall automatically vest in the Lessor.
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See, e.g., Official Committee of Unsecured Creditors v. LTV Corp. (In re Chateauguay Corp.), 973 F.2d 141, 143 (2d Cir. 1992); Committee of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070 (2d Cir. 1983) (requiring some articulated business justification to approve the use, sale, or lease of property outside the ordinary course of business); Myers v. Martin (In re Martin), 91 F.3d 389, 395 (3d Cir. 1996) (citing Fulton State Bank v. Schipper (In re Schipper), 933 F.2d 513, 515 (7th Cir. 1991)); In re Delaware & Hudson Ry. Co., 124 B.R. 169, 175-76 (D. Del. 1991) (courts have applied the sound business purpose test to evaluate motions brought pursuant to section 363(b)); Comm. of Asbestos-Related Litigants v. Johns-Manville Corp. (In re Johns-Manville Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986) (Where the debtor articulates a reasonable basis for its business decisions (as distinct from a decision made arbitrarily or capriciously), courts will generally not entertain objections to the debtors conduct).

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exercise of the Debtors business judgment and is made in good faith upon a reasonable basis.6 Nothing in the Ground Lessor Objection refutes this. If the cost, burden, or difficulty of disposing of or donating the property makes those options cost-prohibitive, the Debtors will abandon the property. The Debtors respectfully submit that their proposed handling of property at the West Palm Beach hotel is a reasonable exercise of their business judgment consistent with sections 363 and 554 of the Bankruptcy Code. II. Any Rights that the Restaurant Sublessee Holds Under Section 365(h) of the Bankruptcy Code Are Rights It Holds Against the Lessor and Not the Debtor Sublessor. Anand Enterprise, Inc. (the Restaurant Sublessee) requests in its Objection that the Court recognize rights under section 365(h) of the Bankruptcy Code to remain in the property it subleases. First, to the extent the Restaurant Sublessee has rights under section 365(h) of the Bankruptcy Code, such rights exist against the Ground Lessors and not against the Debtor lessee/sublessor. See In re Child World, Inc., 142 B.R. 87, 89 (Bankr. S.D.N.Y. 1992) ([T]he debtors rejection of the prime lease also resulted in rejection of the sublease and deprived the sublessee...of any right to occupy the leased premises following such rejection.); Chatlos Systems, Inc. v. Kaplan, 147 B.R. 96 (D. Del. 1992) (holding that when a lease is deemed rejected pursuant to section 365(d)(4) of the Bankruptcy Code, any subleases under that primary lease must also be deemed rejected since the sublessees rights in the property extinguish with those of the sublessor). Second, a state court action involving the prime lessorand not the Bankruptcy Court involving the Debtorsis the proper forum for the Restaurant Sublessee to vindicate any rights it may have. If the relief requested in the Motion is approved, both the WPB Ground Lease and the Restaurant Sublease will be rejected and neither the Debtors nor their
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The Debtors will determine the means of disposition of the personal property at the West Palm Beach hotel in consultation with Lehman, the lender with a security interest in the property.

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estates will have any interest in any dispute regarding any right of the Restaurant Sublessee to remain in the subleased space. See Envireco Intl Motors, Inc. v. Elmhurst Transmission Corp. (In re Elmhurst Transmission Corp.), 60 B.R. 9, 10 (Bankr. E.D.N.Y. 1986) (holding that, if a debtor rejects a lease in bankruptcy, section 365(h) of the Bankruptcy Code affords sublessors no more than their rights under state law); In re Dial-A-Tire, 78 B.R. 13 (Bankr. W.D.N.Y. 1987) (holding that the bankruptcy court should refrain from deciding a property dispute between creditors whose resolution involves purely state law questions having no necessary relation to the bankruptcy proceeding); see also In re Nanodata Computer Corp., 74 B.R. 766, 771 (W.D.N.Y. 1987) (Federal courts acting in the bankruptcy context should deal with state law only to the extent such is necessarily and directly implicated by the bankruptcy issues.) (emphasis in original). The Debtors respectfully submit that the Restaurant Sublessee Objection is more

properly suited for another forum and directed against another party and, as such, should be overruled.

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Conclusion For the foregoing reasons, the Debtors respectfully request that this Court overrule the Objections and grant the relief requested in the Motion. New York, New York Dated: January 25, 2011 /s/ Paul M. Basta James H.M. Sprayregen, P.C. Paul M. Basta KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York 10022-4611 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 and Anup Sathy, P.C. Marc J. Carmel (admitted pro hac vice) KIRKLAND & ELLIS LLP 300 North LaSalle Street Chicago, Illinois 60654-3406 Telephone: (312) 862-2000 Facsimile: (312) 862-2200 Counsel to the Debtors and Debtors in Possession

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