Case 18-10601-MFW Doc 219 Filed 04/16/18 Page 1 of 8

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: Chapter 11

The Weinstein Company Holdings LLC, et al., CASE NO. 18-10601 (MFW)
(Jointly Administered)
Debtors.
Obj. Deadline: April 16, 2018 @ 12:00 p.m.
(by agreement)
Hearing Date: April 19, 2018 @ 2:00 p.m.

Ref. D.I. Nos. 11, 76, 91

RESERVATION OF RIGHTS BY THE DIRECTORS GUILD OF AMERICA, INC.,

SCREEN ACTORS GUILD-AMERICAN FEDERATION OF TELEVISION AND RADIO
ARTISTS, THE WRITERS GUILD OF AMERICA, WEST, INC., THEIR RESPECTIVE
PENSION AND HEALTH PLANS, AND THE MOTION PICTURE INDUSTRY
PENSION AND HEALTH PLANS TO DEBTORS’ MOTION FOR AN ORDER (I)
APPROVING POSTPETITION FINANCING, (II) AUTHORIZING USE OF CASH
COLLATERAL, (III) PROVIDING SUPERPRIORITY ADMINISTRATIVE EXPENSE
STATUS, (IV) GRANTING ADEQUATE PROTECTION, (V) MODIFYING
AUTOMATIC STAY, AND (VI) GRANTING RELATED RELIEF

The Directors Guild Of America, Inc., Screen Actors Guild-American Federation of

Television and Radio Artists, the Writers Guild Of America, West, Inc., (collectively, the

“Guilds”), their respective Pension and Health Plans, and the Motion Picture Industry Pension

and Health Plans (collectively, with the Guilds, the “Union Entities”), by and through their

undersigned counsel, hereby file this Reservation of Rights to Debtors’ Motion for an Order (I)

Approving Postpetition Financing, (II) Authorizing Use of Cash Collateral, (III) Providing

Superpriority Administrative Expense Status, (IV) Granting Adequate Protection, (V) Modifying

Automatic Stay, and (VI) Granting Related Relief (“DIP Loan Motion”) [D.I. 11; D.I. 91-1]. In

support of their Reservation of Rights, the Union Entities state as follows:

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BACKGROUND

1. Each Guild is the collective bargaining representative for directors, performers or

writers, respectively, in the television and motion picture industry. A substantial portion of the

compensation payable to Guild-represented employees comes in the form of “Residuals” – fees

payable to such employees as product produced subject to Guild collective bargaining

agreements is exploited in markets beyond the market of initial release. Each Guild pension and

health plan is a multi-employer ERISA fund, supported by contributions based on initial

compensation and fringe payments calculated in the same fashion as Residuals. The Motion

Picture Industry Pension and Health Plans provide pension and health benefits for “below the-

line” employees engaged in various motion picture crafts and trades, and are largely funded by

contributions analogous to Residuals. For most theatrical motion pictures produced under Guild

collective bargaining agreements, one or more Guilds hold valid and perfected security interests,

intended to secure performance of collective bargaining obligations, including payment of

Residuals. Despite disputes concerning proper and timely Residuals payments, the Debtors

nevertheless have annually paid several million dollars in Residuals to Guild-represented

employees and to the pension and health plans.

2. On March 20, 2018 (“Petition Date”), the above-captioned debtors (“Debtors”),

filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code

(“Bankruptcy Code”).

3. On March 20, 2018, the Debtors filed the DIP Loan Motion. On that date, this

Court entered an Interim Order on the DIP Loan Motion (the “Interim Order”) [D.I. 76], and set

April 19, 2018 for hearing on a final Order.

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RESERVATION OF RIGHTS

4. Based on available information and developing discussions with the Debtors and

Union Bank, the Guilds might well be adequately protected against diminution in collateral value

occasioned by the proposed Union Bank DIP Loan. However, making this determination is

requiring triangulation and mirrors, particularly given the Debtors’ long history of failing to

provide basic economic data that producers and distributors routinely make available in normal

course so that compliance with Residuals obligations can be ensured. The resultant issues

concerning quantification of Guild claims cloud assessment of adequate protection, and threaten

further difficulties as this case proceeds toward allocation of proceeds from the hoped-for asset

sale.

5. The Debtors – and an increasing number of creditors and parties in interest – are

generally aware of the scope and relative priority of Guild liens. In his Affidavit/Declaration in

support of First Day Motions, the Debtors’ Chief Reorganization Officer, Robert DelGenio,

noted that “…Guild Obligations are secured through liens on certain personal and intellectual

property associated with the films and television programs giving rise to the obligations.” [D.I.

7, p. 13 of 46]. Similarly, recognition of significant Guild secured positions is implicit in Section

2.7 of the Stalking Horse Asset Purchase Agreement, which envisions a particular allocation of

sale proceeds in connection with senior secured claims and the Domestic-related collateral that is

common to the Guilds and to Union Bank. [D.I. 8, p. 94 of 254].

6. In the motion picture industry, it is well-recognized that Guild security interests

are generally taken prior to commencement of principal photography, and are granted by the

signatory entity and any other entities controlling the right, under Copyright law, to make and

distribute a given picture. [Declaration of Joseph A. Kohanski (the “Kohanski Declaration”),

Par. 4]. To perfect these security interests, each Guild records its security interests with the

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United States Copyright Office (“USCO”) and obtains and files UCC-1 financing statements in

jurisdictions applicable to each covered production. [Kohanski Declaration, Par. 4]. Each Guild

utilizes a standard form security agreement containing substantially identical language

(collectively, the “Guild Security Agreements”). [Kohanski Declaration, Pars. 4 and 5, Exhibit

1, annexed thereto]. Each Guild utilizes a standard form UCC-1 financing statement, containing

substantially identical language (collectively, “Guild Financing Statements”). [Kohanski

Declaration, Pars. 4 and 5; Exhibit 1 annexed thereto]. While the Guilds continue to compile

data concerning secured positions, Exhibit 2 to the Kohanski Declaration summarizes currently

known documentation of Guild lien perfection in select Debtor film rights, at the United States

Copyright Office (“USCO”) and through various UCC-1 filings. [Kohanski Declaration, Par.6;

Exhibit 2, annexed thereto].

7. Given these facts, the Guilds are at a loss regarding their omission from the DIP

Loan Motion. [See., e.g., DIP Loan Motion, D.I. 91-1, pp. 6-13. As secured creditors, the

Guilds are entitled to “adequate protection” of their collateral, meaning that the value of their

collateral must be “maintained at all times.” In re Price, 370 F.3d 362, 373 (3d Cir. 2004). The

burden is on the Debtors to show that they are adequately protecting the Guilds’ interests. In re

Cont’l Airlines, Inc., 146 B.R. 536, 539 (Bankr. D. Del. 1992). Whether this burden has been

met with respect to Guild secured claims remains to be seen.

8. The Guilds have been in discussion with representatives of the Debtors and of

Union Bank in connection with identification and treatment of Guild secured claims, including

principles of adequate protection. Discussion points have included DIP Budget line items for

payment of Post-Petition Residuals, and for reasonable Guild legal fees and costs incurred in

connection with their secured positions. The Guilds also recognize that if their secured positions

constitute “Prepetition Third Party Liens” under the proposed Debtor in Possession Loan and

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Security Agreement [D.I. 91-1, p.68 of 212], then such liens would appear not be primed by the

DIP Loan – however, this position needs to be confirmed. Moreover, perhaps some comfort can

be taken from cocktail-napkin arithmetic that can be derived from the Debtors’ statements

concerning the claims of other secured creditor positions, many of which are likely junior to

Guild positions. [D.I. 91-1, pp. 5-13]. And perhaps adequate protection can be provided in part

by the grant of replacement liens and priority positions that parallel protections for the Pre-

Petition DIP Loan, to attach in order of pre-petition priority as between the Guilds and Union

Bank. But notwithstanding these discussions, these points remain in play and have not yet been

locked in. Meanwhile, adequate protection of secured Guild interests has, at best, been shown

only by implication.

9. Three substantial gaps in knowledge of Debtors’ affairs impede evaluation of

adequate protection. As the Debtors’ schedules have not yet been filed, the Guilds cannot

adequately evaluate the range and quantum of competing secured interests. Next, the peculiar

slicing and dicing of the Debtors’ film rights into separate buckets of collateral [Declaration of

Sheldon Rabinowitz (the “Rabinowitz Declaration”), Par. 5] triggers the need for a degree of lien

research – concerning relative collateral, relative priorities and lien perfection – that does not yet

appear to have been performed by the Debtors or any single party in interest. Consider, for

example the following variables: the existence of Guild liens that are in part senior to all other

creditors; Guild liens that are junior to Union Bank but not to other creditors; and Guild liens that

are junior to Union Bank and to other secured creditors, or simply out of the money. This

complexity is compounded by a variety of collateral buckets that may overlap or that may be

mutually exclusive, thus further complicating assessment of adequate protection until lien

analysis across the Debtors’ body of assets is further advanced.

10. The third problem may be peculiar to the Guilds, but it profoundly affects

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evaluation of adequate protection. Stated simply, despite compliance audit efforts that stretch

back for years and which were redoubled in the months preceding the Petition Date (and

continued thereafter), the Guilds have not been able to obtain normal-course economic data

required to calculate residuals.1 Dating back to December, 2016, the Guilds have sought

normal-course audit access; Guild representatives were persistent in seeking data or fieldwork

entry, but were consistently rebuffed by Debtor representatives. [Kohanski Declaration, Par. 8].

As a result, the Guilds’ Financial Consultant is greatly hampered in evaluating Guild claims;

even with prior experience working with the Guilds in other bankruptcy matters fraught with

difficulties resembling the Weinstein situation, he is not seeing “the range of basic financial

information” required to assess and quantify Guild Residuals, and that data is lacking to “present

a complete picture of the total Guild claims.” [Rabinowitz Declaration, Paragraphs 4 and 5]. It

is difficult to arrange for adequate protection when the measure of the interests to be protected is

unknown or in dispute. Debtors’ present bankruptcy counsel have been attempting to address

these problems, but continuing Debtor intransigence in failing to provide even rudimentary

reports required under each Guild collective bargaining agreement, or of materials regularly

requested and provided in Guild compliance audits, complicates the measure of adequate

protection.2 Adequate protection of Guild secured interests should not be compromised due to

the Debtors’ unwillingness or inability to provide industry-standard reports, prepared and

1
Perhaps the problem of inadequate reporting is shared with other creditors; consider the First
Day objection by Portfolio Funding Company, LLC (“PFC”), which refers to inadequate
reporting, particularly with respect to Residuals payable on PFC product for 2017. [D.I. 68 at
pp. 11-12]
2
The Guilds and Debtors disagree on interpretation of certain contractual provisions applicable
to Residuals calculations on the exploitation data that has been provided to the Guilds. But the
first-level issue of providing basic information limits the ability of the parties to resolve such
disputes, either by consent or through arbitration under each applicable collective bargaining
agreement.
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maintained by the Debtors in the normal course of business, concerning exploitation of Guild-

covered product.

11. Finally, adequate protection should also be considered from the perspective of

Debtors’ operations after the Union Bank DIP Loan expires or terminates. By its own terms, this

loan will not last longer than 125 days and appears engineered to motivate rapid consummation

of an asset sale. [D.I. 91-1 at p. 69 of 212]. If the asset sale proceeds as planned, but allocation

of sale proceeds among secured creditors and other constituencies extends beyond that 125-day

period, or beyond some earlier termination of the DIP Loan, then the Debtors may be looking to

cash collateral in order to fund ongoing resolution of the cases. Given the possibility of this

outcome, adequate protection for all secured creditors should be evaluated with this longer-term

perspective in mind, and the Guilds reserve all rights with respect to such use of cash collateral.

12. In light of the considerations discussed above, the Guilds reserve all rights,

arguments and remedies, particularly as they may relate to information developed between now

and hearing on the Final DIP Loan Order. The Guilds are hopeful that ongoing discussions will

resolve concerns for adequate protection; but if these concerns are not resolved, then the Guilds

request such relief as this Court may order in furtherance of adequate protection for secured

Guild claims, including but not limited to continuance of a final DIP Loan hearing, until

guidance can be provided on relative priorities and identification of collateral in connection with

secured creditors.

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DATED: April 16, 2018 LAW OFFICE OF SUSAN E. KAUFMAN, LLC

/s/ Susan E. Kaufman

Susan E. Kaufman, (DSB# 3381)
919 North Market Street, Suite 460
Wilmington, DE 19801
(302) 472-7420
(302) 792-7420 Fax
skaufman@skaufmanlaw.com

and

Joseph A. Kohanski
BUSH GOTTLIEB, A Law Corporation
801 North Brand Boulevard, Suite 950
Glendale, CA 91203
(818) 973-3200 (telephone)
(818) 973-3201 (facsimile)
jkohanski@bushgottlieb.com

Attorneys for Directors Guild of America, Inc.,

Screen Actors Guild-American Federation of
Television and Radio Artists, the Writers Guild of
America, West, Inc., Directors Guild of America,
Inc.-Producer Pension and Health Plans, Screen
Actors Guild-Producers Pension & Health Plans,
Writers Guild Pension Plan and Industry Health
Fund, and the Motion Picture Industry Pension and
Health Plans