IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION -----------------------------------------------------------------------IN RE: ) ) Chapter

11 CHURCH STREET HEALTH MANAGEMENT, LLC, ) ) Case No. 12-01573 et al. 1 ) Debtors ) (Jointly Administered) -----------------------------------------------------------------------EXPEDITED MOTION FOR ENTRY OF ORDERS: (A) AUTHORIZING DEBTOR CHURCH STREET HEALTH MANAGEMENT, LLC TO (i) ENTER INTO A TERMINATION AGREEMENT REGARDING A MANAGEMENT SERVICES AGREEMENT WITH NON-DEBTOR THIRD-PARTY SMALL SMILES DENTAL CENTER OF PUEBLO, P.C., (ii) REJECT THE UNDERLYING MANAGEMENT SERVICES AGREEMENT UPON TERMINATION; (B) SETTING A HEARING DATE AND OBJECTION DEADLINE FOR CONSIDERATION OF THIS MOTION; AND (C) GRANTING RELATED RELIEF By this motion (the Motion), the above-captioned debtors and debtors in possession (collectively, the Debtors), hereby move the Court, pursuant to sections 105(a), 363, and 365 of title 11 of the United States Code (the Bankruptcy Code) and rules 2002, 6004, 9014 and 9019 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules) and Rules 6004-1, 9014-1 and 9075-1 of the Local Rules of Court for the United States Bankruptcy Court for the Middle District of Tennessee (the Local Rules), for entry of orders: (A) authorizing Debtor Church Street Health Management, LLC (CSHM) to (i) enter into a Termination Agreement (as defined below) regarding a Management Services Agreement (as defined below) with nondebtor Small Smiles Dental Center of Pueblo, P.C. (Pueblo), and (ii) out of an abundance of caution, reject the underlying Management Services Agreement upon termination thereof; (B)
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The Debtors in these chapter 11 cases are jointly administered for procedural purposes only under a single case number. The Debtors (with the last four digits of each Debtors federal tax identification number and chapter 11 case number), are: Church Street Health Management, LLC (2335; Case No. 12-01573), Small Smiles Holding Company, LLC (4993; Case No. 12-01574), FORBA NY, LLC (8013; Case No. 12-01575), FORBA Services, Inc. (6506; Case No. 12-01577), EEHC, Inc. (4973; Case No. 12-01576).

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scheduling an expedited hearing and objection deadline to approve the Pueblo Termination (as defined below); and (C) granting related relief. In support of this Motion, the Debtors represent as follows: REQUIRED ITEMS PER LOCAL RULE 9075-1 1. Relief Requested. First and foremost, the Debtors seek an expedited hearing and

objection deadline to consider approval of a transaction whereby CSHM will (i) enter into a Termination Agreement, dated as of April 30, 2012 (the Termination Agreement) whereby Pueblo and CSHM have agreed to terminate that certain Management Services Agreement by and between Pueblo and CSHM (as amended, the Management Services Agreement), and (ii) out of an abundance of caution, reject the Management Services Agreement on the agreed-upon terms contained in the Termination Agreement (collectively, the Pueblo Termination). Second, the Debtors seek approval of the Pueblo Termination as set forth herein. 2. Need for Expedited Relief. The terms of the Termination Agreement require that

the transaction be closed prior to May 29, 2012. Routine notice and hearing timing would require twenty one (21) days notice of the objection deadline and then an additional fourteen (14) days prior to any hearing per Local Rule 9013-1. Such timing would put the approval of the Pueblo Termination outside the required closing date and would prevent a closing on the Termination Agreement. In addition, the Debtors are currently pursuing a sale of substantially all their assets (the 363 Sale), which is anticipated to close on a similar timeframe to the Pueblo Termination. 3. Notice. Notice of this expedited Motion has been provided in accordance with

that certain Expedited Order Granting Expedited Motion of Debtors to Set Notice and Case Management Procedures (Docket No. 85, the Notice Procedures Order). Parties having

consented to CM/ECF service in the CSHM case received notice of this Motion through the
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Courts CM/ECF system. Parties required to receive notice of the Limited Notice Matters (as defined in the Notice Procedures Order) not consenting to CM/ECF service have been served by email, facsimile, personal delivery, messenger, or overnight/Express Mail for parties not signed up for CM/ECF. The Debtors have served this Motion (with exhibits), together with both proposed forms of order (a) setting the hearing & objection deadline and (b) granting the substantive relief of this Motion. The Debtors propose to serve any order setting a hearing and objection deadline on this Motion in accordance with the Notice Procedures Order. 4. Suggested Hearing Date & Objection Deadline. The hearing on approval of the

363 Sale is currently scheduled for Tuesday, May 22, 2012 at 9:00 a.m. The Debtors suggest that the hearing on this expedited Motion be scheduled for that same date, or such other date convenient to the court during that week (but not later than May 25, 2012 so that the Debtors and Pueblo can consummate the Pueblo Termination immediately). The Debtors would further suggest that objections be due prior to 4:00 pm (prevailing central time) on May 21, 2012, which provides approximately 20 days notice to parties to file an objection. To the extent that no objections are timely filed, the Debtors request permission to submit an order granting approval of the Pueblo Termination as soon as such objection deadline set by the court passes. 5. Other Support; Exhibits. The Debtors provide herein additional support of the

requested expedited hearing and the Courts approval of the Pueblo Termination. The Debtors further submit as Exhibit 1 hereto, a copy of the Termination Agreement. JURISDICTION & AUTHORITY 6. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and

1334. This matter is a core proceeding pursuant to 28 U.S.C. 157(b)(2). Venue of these cases is proper in this District pursuant to 28 U.S.C. 1408 and 1409.

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7.

The statutory bases for the relief requested herein are Sections 105, 363 and 365

of the Bankruptcy Code, Bankruptcy Rules 2002, 6004, and 9014, and Local Rules 6004-1, 9014-1 and 9075-1. RELIEF REQUESTED 8. This Motion seeks to implement the Pueblo Termination, whereby Debtor CSHM

will relieve itself of the obligation to provide services under the Management Services Agreement with Pueblo, an owner and operator of a dental practice facility in Pueblo, Colorado. In exchange for the termination of the Management Services Agreement, CSHMs estate will receive a fee of $300,000.00, plus certain accounts receivable (Termination Agreement, 2.). The Debtors submit this is a reasonable resolution to the Pueblo business relationship. The DIP Agent (as defined below) and Stalking Horse Bidder (as defined below) have consented to the termination of this particular Management Services Agreement, as it does not provide significant value, if any, to the Debtors business operations. In connection with the termination, CSHM has obtained terms permitting it to maintain access to certain business information and patient records that could be relevant for business, litigation, or other purposes of CSHM, and a release from Pueblo. (Termination Agreement, 8, 10.) Out of an abundance of caution, the Debtors also seek to reject the Management Services Agreement on the terms set forth in the Termination Agreement, which terms include without limitation a covenant not to compete by CSHM (Termination Agreement, 9.) and dispute resolution procedures (Termination Agreement, 13.) 9. Because of the general benefit to the estates in the form of the Termination Fee

(as defined in the Termination Agreement) and the continued access to important information as needed, while also avoiding the burdens of continuing to provide services under the Management Services Agreement and release of CSHM by Pueblo, the Pueblo Termination is in the best
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interests of the Debtors estates, represents a reasonable exercise of the Debtors business judgment, and should be approved. BACKGROUND FACTS 10. On February 20 and 21, 2012, each of the Debtors filed a voluntary petition for

relief with the Court under chapter 11 of title 11 of the Bankruptcy Code. The Debtors are operating their businesses and managing their property as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No request for the appointment of a trustee or examiner has been made in these chapter 11 cases (the Chapter 11 Cases). On February 22, 2012, the Court entered its order approving the joint administration and procedural consolidation of these Chapter 11 Cases. An official committee of unsecured creditors (the Committee) has been appointed in these Chapter 11 Cases. 11. The Debtor, Small Smiles Holding Company, LLC, formed in Delaware in

September 2006, is the parent of a group of companies headquartered in Nashville, Tennessee that provide dental practice management services to 67 dental centers serving low income and underprivileged families in 22 states across the country. 12. One such dental center located in Pueblo, Colorado, is owned and operated by

Randall W. Ellis, DDS through the entity Small Smiles Dental Center of Pueblo, P.C. Pueblo is unaffiliated with the Debtors except that CSHM and Pueblo were parties to the Management Services Agreement, and are now parties to the Termination Agreement, all of which are the subject matter of this Motion. 13. Shortly after commencement of the Chapter 11 Cases and obtaining from

Garrison Loan Agency Services LLC (and its affiliates) as administrative agent and collateral agent (in such capacities, the DIP Agent) and such other lenders as approved by the Court in

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its final DIP order (Docket No. 187) the necessary post-petition financing to continue operations, the Debtors sought approval to sell substantially all its assets through an auction-style format. The Debtors executed an asset sale agreement with a prospective bidder for substantially all of their assets (the Stalking Horse Bidder), and the Court approved the sale procedures, as set forth more fully in that certain expedited motion to, among other things, sell substantially all of the Debtors assets (Docket No. 106, and together with subsequent motions and orders at Docket Nos. 181, 183, 187, 188, 253, 255 and 271, collectively, the Sale Procedures). The Debtors have begun implementation of the Sale Procedures, which currently contemplate approval of the 363 Sale at a hearing scheduled for May 22, 2012 at 9:00 AM (prevailing central time). 14. The DIP Agent and Stalking Horse Bidder have consented to the relief requested

in this Motion, as the Management Services Agreement does not represent an asset that the Stalking Horse Bidder is interested in acquiring, especially given the burdens of performance compared to the net benefit, if any, to the operations of the Debtors business. ARGUMENTS AND AUTHORITIES I. Entry into the Termination Agreement 15. The Stalking Horse Bidder does not desire to obtain CSHMs rights under the As a result, the value to the Debtors estates of the

Management Services Agreement.

Management Services Agreement is minimal, since it is not contemplated that the Debtors will continue providing health management services after the 363 Sale closes. Simple rejection of the Management Services Agreement would leave Pueblo with a rejection damages claim but no value to the Debtors estates. valuable disposition of this asset. Thus, the Termination Agreement reflects a reasonable and

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16.

In summary2, the Termination Agreement provides that CSHM will agree to

terminate the Master Services Agreement in exchange for the Termination Fee of $300,000.00, plus certain accounts receivable (Termination Agreement, 2). CSHM has also obtained a release of CSHM from Pueblo regarding liabilities associated with the Management Services Agreement and the business relationship generally (Termination Agreement, 10) and continued access to information as needed for reasonable business, tax, or litigation purposes (Termination Agreement, 8). CSHM also agrees not to compete with Manassas for three years within a ten mile radius of the center (Termination Agreement, 9) and to certain dispute resolution procedures (Termination Agreement, 13). 17. The Termination Agreement reflects the product of extensive arms-length

negotiations between Pueblo and CSHM. II. The Pueblo Termination is a Reasonable Exercise of CSHMs Business Judgment 18. To the extent that the Pueblo Termination represents a sale or use of property of

the estate outside the ordinary course of business, the transaction should be approved under 11 U.S.C. 363 (Section 363), which provides, in relevant part, [t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate. 11 U.S.C. 363(b)(1). 19. Although Section 363 does not set forth an express standard for approval, it is the

general rule that the proposed use of property be based upon a sound business purpose. See Stephens Indus., Inc. v. McClung, 789 F.2d 386, 390 (6th Cir. 1986); see also Comm. of Equity

All descriptions of the Termination Agreement are provided for convenience, and to the extent there is discrepancy between the description and the terms of the Termination Agreement included in Collective Exhibit 1 hereto, the terms of the Termination Agreement shall control.

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Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983); In re Nicole Energy Servs., 385 B.R. 201, 210 (Bankr. S.D. Ohio 2008). 20. Once the debtor presents a valid business basis, [t]he business judgment rule is a

presumption that in making the business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action was in the best interests of the company. In re Integrated Res., Inc.,147 B.R. 650, 656 (S.D.N.Y. 1992). A presumption of reasonableness attaches to a debtors management decisions. In re Johns-Manville Corp., 60 B.R. 612, 615-16 (Bankr. S.D.N.Y. 1986). Management decisions should be upheld and

approved under Section 363 unless they are so unreasonable as to suggest bad faith, whim, or caprice. In re Aerovox, Inc, 269 B.R. 74, 81 (Bankr. D. Del. 2001) 21. The Pueblo Termination is justified by a sound business purpose, and is the best

option available to maximize the value of the Management Services Agreement for the Debtors estates. Moreover, the Pueblo Termination represents the result of extensive arms-length

negotiations. For the reasons set forth above, the Pueblo Termination is in the best interests of the Debtors estates and represents the exercise of CSHMs sound business judgment to be upheld pursuant to Section 363. III. The Pueblo Termination Is a Reasonable Settlement 22. To the extent that the Pueblo Termination represents a settlement of the Debtors

right to assume or reject the Management Services Agreement, the transaction should be approved pursuant to Bankruptcy Rule 9019, which provides this Court authority to approve a compromise or settlement upon motion. The approval decision under Bankruptcy Rule 9019 is within the sound discretion of the Court and based upon the facts and circumstances of each particular case. See, e.g., In re Bell & Beckwith, 93 B.R. 569 (Bankr N.D. Ohio).

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23.

The standard for approval is whether the settlement is in the best interests of the

estate. In re Energy Coop., Inc., 886 F. 2d 921, 927 (7th Cir. 1989); In re Media Central, Inc., 190 B.R. 316, 320 (E.D. Tenn. 1994). Such determination is made not by substituting the Courts judgment for that of the movant or even deciding numerous questions of law and fact, but rather to canvass the issues to see whether the settlement falls below the lowest point in the range of reasonableness. In re W.T. Grant Co., 699 F.2d 599, 608 (2d. Cir. 1983); see also In re Tennol Energy Co., 127 B.R. 820 (Bankr. E.D. Tenn. 1991). 24. The balance in settlement is to weigh the probable benefit and potential cost of

pursuing a claim or defense against the costs of the proposed settlement. In re Carson, 82 B.R. 847, 852-55 (Bankr. S.D. Ohio 1987) (listing 4 concerns in settlement analysis: probability of success in litigation, difficulties of collection, complexity of litigation (including expense and delay), and reasonable views of creditors). 25. In the case at hand, the Pueblo Termination provides a net positive benefit to the

estates by obtaining the Termination Fee, whereas a simple rejection of the Management Services Agreement would provide no such recovery and potentially subject the estate to increased claims on account of rejection damages. Moreover, failure to enter into the Pueblo Termination would result in an orphan location in view of the fact that the Stalking Horse Bidder does not intend to assume the Management Services Agreement with the center and the Debtors will not be providing services after the closing of their 363 Sale. Such a result serves none of the Debtors, Pueblo, the Stalking Horse Bidder, or the Debtors estates. Accordingly, entry into the Termination Agreement is in the best interests of the Debtors estates and should be approved under Bankruptcy Rule 9019.

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IV.

Rejection of the Management Services Agreement 26. Out of an abundance of caution, and only to the extent that the Termination

Agreement does not relieve the Debtors of any obligations under the Management Services Agreement, the Debtors seek to reject the Management Services Agreement on the terms contained in the Termination Agreement. 27. Section 365(a) of the Bankruptcy Code provides that a debtor in possession

subject to the courts approval, may assume or reject any executory contract or unexpired lease of the debtor. 11 U.S.C. 365(a). Upon finding that a debtor has exercised its best business judgment in determining to assume or reject an executory contract or unexpired lease, courts will approve such action under 11 U.S.C. 365(a). See Nostas Assocs. v. Costich (In re Klein Sleep Prods., Inc.), 78 F.3d 18, 25-26 (2d Cir. 1996); Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1099 (2d Cir. 1993) 28. In the case at hand, the Debtors seek to avoid any remnant liability associated

with the Management Services Agreement, which will no longer be an asset of the Debtors estates. For the reasons set forth above, rejection of the Management Services Agreement is a reasonable exercise of business judgment in light of the Termination Agreement. The rejection decision is made out of an abundance of caution. V. Relief Under Bankruptcy Rule 6004(h) Is Appropriate 29. Bankruptcy Rule 6004(h) provides an order authorizing the use, sale, or lease of

property is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. The Debtors respectfully request that in light of their limited liquidity and their corresponding need to consummate the Pueblo Termination, the order approving the Pueblo Termination, if granted, be effective immediately upon entry.

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WHEREFORE, the Debtors respectfully request (A) entry of an order (substantially in the form submitted herewith) setting a hearing date and objection deadline in connection with this Motion, (B) entry of an order (substantially in the form submitted herewith) approving the Pueblo Termination as set forth herein, and (C) such other and further relief as the Court deems just and proper. Dated: May 1, 2012 Nashville, Tennessee By: /s/ Katie G. Stenberg_____________ John C. Tishler, BPR No. 13441 Katie G. Stenberg, BPR No. 22301 Robert P. Sweeter, BPR No. 28859 WALLER LANSDEN DORTCH & DAVIS, LLP 511 Union Street, Suite 2700 Nashville, TN 37219 Telephone: (615) 244-6380 Facsimile: (615) 244-6804 Email: john.tishler@wallerlaw.com katie.stenberg@wallerlaw.com robert.sweeter@wallerlaw.com Attorneys for the Debtors and Debtors in Possession

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