SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 30 Rockefeller Plaza, 24th Floor New York, NY 10112 Telephone: 212-653-8700

Facsimile: 212-653-8701 Carren B. Shulman Alan M. Feld Attorneys for Marriott International, Inc. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al., Jointly Administered Debtors. MARRIOTT INTERNATIONAL, INC.'S MOTION FOR LIMITED MODIFICATION OF THE AUTOMATIC STAY TO COMPLETE DE-IDENTIFICATION OF A SINGLE HOTEL IN ACCORDANCE WITH THE PREPETITION TERMINATION OF THE FRANCHISE AGREEMENT WHICH IS EFFECTIVE ON AUGUST 30, 2010 Marriott International, Inc. ("Marriott") terminated prepetition the Troy/Central Residence Inn, located at 2600 Livernois Road, Troy, Michigan 48083 (the "Troy Central Hotel" or the "Hotel"), effective on June 28, 2010. On July 15, 2010, Marriott noticed the termination of the Hotel for August 30, 2010, in accordance with a prepetition contract between Marriott and the Debtor Grand Prix Floating Lessee LLC (the "Debtor" or "Franchisee") to ensure a smooth transition of the Hotel out of the Marriott system by allowing the Debtor to de-identify the Hotel, remove all references to Marriott, advise guests of the impending de-identification, and return all Marriott property to Marriott. The Debtor has now indicated that it will not de-identify the Hotel by August 30. Therefore, Marriott is before the Court seeking relief to ensure the completion of the de-identification process that began in June 2010. The Hotel must be out of the Marriott system by August 30, 2010 or Debtor will be in violation of the Lanham Act, 15 U.S.C. 1114, -1Chapter 11 Case No. 10-13800-scc

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et seq., and liable for an administrative claim for all damages that accrue, including attorneys' fees. The Troy Central Hotel is not one of forty-three hotels flagged with Marriott brands contemplated to be part of the restructuring under the June 25, 2010 adequate assurance agreement between the Debtors and Marriott that is now before the Court and reputed to be vital to the reorganization process by the Debtors and their lenders (the "Marriott Agreement"). Dkt No. 15, Exhibit B to Plan Support Agreement. The Troy Central Hotel was intentionally excluded because the related franchise agreement terminated prepetition, and was carved out of the forbearance agreement between the Debtors and Marriott with respect to the forty-three hotels that are the subject of the Marriott Agreement. I. JURISDICTION AND VENUE 1. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. 1334.

This is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). 2. Venue is proper under 28 U.S.C. 1408 and 1409. II. BACKGROUND 3. On July 19, 2010 (the "Petition Date"), Debtors filed voluntary petitions

for relief under Chapter 11 of the Bankruptcy Code. 4. Debtors continue to operate their businesses and manage their properties

as debtors-in-possession, pursuant to Sections 1107 and 1108 of the Bankruptcy Code. A. The Marriott Brand 5. Marriott, its predecessors and its affiliates own and operate resorts, inns,

suites, clubs, apartments, and housing under proprietary trademarks that include, among others, the names "Marriott", "Residence Inn by Marriott", "Courtyard by Marriott", and
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"TownePlace Suites Marriott" (collectively, the "Marks"). See Declaration of Karl Grover, dated August 4, 2010, submitted herewith in support of the Motion ("Grover Decl."), 2. 6. Marriott and/or its affiliates own the Marks, and each of the Marks have

been registered in the United States Patent and Trademark Office. The rights of Marriott in and to use the Marks, and in each of them individually, have become incontestable pursuant to Section 15 of the Lanham Act, 15 U.S.C. 1065. Id., 3. 7. Since the registration of the Marks in the United States Patent and

Trademark Office, Marriott and/or its affiliates have given notice that each of the Marks is registered by displaying with the mark either the letter R enclosed within a circle ("") or the words "Registered in U.S. Patent and Trademark Office" or "Reg. U.S. Pat. & Tm. Off.", pursuant to Section 29 of the Lanham Act, 15 U.S.C. 1111. Id., 4. 8. The products and services of Marriott, through Marriotts operations and

those of its authorized licensees as well as other means and methods, have been extensively advertised, marketed and offered throughout the United States and the world. Marriotts products and services have enjoyed massive commercial success, favorable recognition and acceptance by the public as a result of the expenditure of vast amounts of money, time, corporate energy and hard work. In connection with the operation of the business and all activities associated with its business, Marriott has utilized the Marks throughout the United States and the world to identify its products and services for the purpose of distinguishing them from the products and services of others. Id., 5. 9. The Marks and the goodwill of the businesses associated with them are of

great and inestimable value, are highly distinctive, and have become universally associated in the public mind with products and services of a certain quality and reputation. Id., 6.

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10.

Hotels associated with the Marks include hotels owned and operated by

Marriott, hotels owned by third parties and managed by Marriott pursuant to operating agreements, and franchised hotels owned and managed by third parties who have been licensed by Marriott to use the Marks in compliance with strict standards. Id., 7. 11. Marriott relies on its franchisees to maintain the value and reputation of

the Marks under the Marriott flag in accordance with a certain standard, as guests have come to expect from the name Marriott and Marriotts affiliated flags. Poor guest satisfaction and conditions at hotels under the Marriott flags reflect poorly on Marriott and the entire Marriott hotel system, including hotels owned by Marriott and other third parties. Id., 8. 12. The use of Marriotts Marks is governed by franchise agreements which

set forth strict operating standards requiring, among other things, regular renovations to maintain a certain level of quality in the appearance of the Marriott-branded hotels to meet guest expectations and protect the goodwill associated with the Marks. Id., 9. B. The Troy Central Hotel Defaults 13. The Debtor is the franchisee of the Hotel pursuant to the Residence Inn by

Marriott Relicensing Franchise Agreement (the "Franchise Agreement") dated June 29, 2007. Id., 10. Prior to termination, Marriott served numerous default notices. Id., 12, 13, 14, 16, 20. a. 14. Red Zone Default

On August 22, 2008, Marriott served Franchisee with a Notice of Red

Zone status, notifying Franchisee that the Troy Central Hotel had been in the Red Zone for the July 2007 to December 2007 and January 2008 to June 2008 tracking periods. The "Red Zone" is the worst performance classification for a hotel in the Marriott system pursuant to the Marriott quality assurance program. Id., 12.
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15.

As a result of the Hotel's failure to exit the Red Zone during the July 2008

to December 2008 tracking period, on February 20, 2009, Marriott delivered to Franchisee a notice of default (the "Red Zone Default"), providing notice to Franchisee that if the Hotel remained in the Red Zone for any 6-month tracking period it is subject to termination. Id., 13. 16. The Hotel failed to exit the Red Zone by June 30, 2009 and,

notwithstanding Marriott's right to terminate the Franchise Agreement after June 30, 2009, on September 15, 2009, the Debtor and Marriott entered a forbearance agreement (the "September Forbearance Agreement") to give Debtor one last opportunity to cure the Red Zone Default. Pursuant to the September Forbearance Agreement, Debtor acknowledged that the Franchise Agreement was in default and agreed that if the Hotel did not exit the Red Zone by the end of the January 2010 to June 2010 tracking period, Marriott would terminate the Franchise Agreement in its sole discretion, and the Debtor would enter into Marriott's then current form of termination agreement, causing the Hotel to voluntarily leave the system and de-identify the Hotel within sixty days after receiving notice. The Debtor further agreed that if the Debtor failed to voluntarily leave the system, Marriott could unilaterally terminate the Franchise Agreement and Marriott would be entitled to injunctive relief to cause the de-identification and payment of liquidated damages. Id., 14 and 15. 17. On June 21, 2010 the Troy Central Hotel remained in the Red Zone.

Consequently, Marriott served a Notice of Continuing Default and Termination upon the Franchisee (the "June Termination Notice"). The June Termination Notice reiterated Franchisee's agreement to terminate the Franchise Agreement and notified Franchisee of its election to terminate the Franchise Agreement, pursuant to the September Forbearance

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Agreement, with such termination effective sixty days from receipt of the notice, and requested that Franchisee execute the voluntary termination agreement. Id., 16 and 17. 18. After receipt of June Termination Notice, notwithstanding its obligations

under the September Forbearance Agreement, Franchisee failed to execute a voluntary termination agreement. Id., 18. Thus, pursuant to the September Forbearance Agreement, Marriott was entitled to and did unilaterally terminate the Franchise Agreement, without further notice to Franchisee, and Debtor is contractually obligated to de-identify the Hotel. b. 19. PIP Default

In addition to Franchisee's failure to cause the Hotel to leave the Red

Zone, Franchisee failed to complete a property improvement plan ("PIP Renovation") for the Hotel on or before December 31, 2008 as required under the Franchise Agreement. Id., 19 and 20. Consequently, on March 16, 2010, Marriott served a Notice of Default for Failure to Satisfy Requirements of Property Improvement Plan upon the Debtor (the "March Default Notice"). Simultaneously, Marriott served identical default notices for twenty-two other Marriott branded hotels upon the Debtor. Id., 20. 20. In the March Default Notice, Marriott notified Franchisee that its failure to

complete the PIP Renovation by the specified deadlines constituted a default under the Franchise Agreement (the "PIP Default") and, although the Franchise Agreement did not require Marriott to offer a cure period for a PIP Default, Marriott gave Franchisee ninety days to cure the PIP Default. In the event that Franchisee failed to cure, the Franchise Agreement would automatically terminate on June 14, 2010, with no further action or notice. Id., 20 and 21.

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C.

Exclusion of the Troy Central Hotel From Adequate Assurance Agreement and Forbearance Agreement 21. Prior to the June 14, 2010 termination date set forth in the March Default

Notice, the Debtors and Marriott began negotiating the terms of the Marriott Agreement and the schedule for completion of PIP Renovations for twenty-three Marriott branded hotels (Schedule A to the Marriott Agreement) and for the Debtors' assumption in bankruptcy of the non-defaulted Marriott hotels (Schedule B to the Marriott Agreement). In addition, in a continuing effort to accommodate the Debtors, Marriott entered into a two-week forbearance agreement which extended the June 14, 2010 expiration date to June 28, 2010. Id., 23 and 24. 22. On June 25, 2010, Marriott and the Debtors finalized the Marriott

Agreement; however, the Debtors sought an additional two-week forbearance. Marriott consented to the requested forbearance and extension of the termination date for twenty-two hotels, but drew the line with respect to the Troy Central Hotel by expressly excluding the Hotel from the extension agreement (the "June 25 Forbearance Extension").1 Id., 23 and 24. D. Final Confirmation and Clarification of Termination 23. Out of an abundance of caution and without any obligation to do so,

Marriott sent a confirming Notice of Termination, De-Identification and Closure of Reservation Services to Franchisee, Debtor Owner and guarantor on July 15, 2010 (the "July Notice and Termination"). If there was any doubt left about the termination of the Franchise Agreement whether by virtue of the Red Zone Default or the PIP Default the July Notice and Termination
1

The end of the forbearance period for the Hotel also meant that the Franchise Agreement terminated automatically on June 28, 2010, pursuant to the March Default Notice. Marriott, however, intended to honor its commitment to have the Debtor voluntarily remove the Hotel from the Marriott system in accordance with standard operating procedure, for e.g., requiring the Debtor to first post notice of the change to all guests of the impending change to avoid surprise.

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made it painfully clear, prepetition, that (i) the Franchise Agreement was terminated without further notice or action on the part of Marriott, (ii) the Hotel was to be de-identified effective August 30, 2010, and (iii) that commencing on July 15, all guests were to be notified that the Hotel was leaving the system, and that no further reservations were to be taken after the August 30 termination date in the name of Residence Inn. Id., 20. Indeed, Debtor received the deidentification checklist on July 16 and Marriott closed the reservation system for the Hotel in accordance with its notice for dates after August 31, 2010. III. RELIEF REQUESTED A. The Automatic Stay Does Not Preclude Marriott From Terminating the Franchise Agreement and Completing De-Identification of the Hotel On August 30, 2010 1. Marriott Exercised Its Right To Terminate the Franchise Agreement Prior to the Petition Date 24. Pursuant to the terms of the Franchise Agreement and numerous

prepetition notices of default and termination with respect to the PIP Default and Red Zone Default, Marriott undoubtedly exercised its right to terminate the Franchise Agreements prior to the Petition Date. Such termination occurred on June 28 by virtue of the PIP Default and separately on June 30 by virtue of the Red Zone Default. As a courtesy, Marriott confirmed such termination again through the July Notice and Termination and extended the termination date to August 30, 2010 to provide for an organized de-identification of the Hotel in accordance with its normal practice. 25. Under Maryland contract law,2 where unambiguous, a contract is

interpreted and given effect based on the four corners of the agreement. Cochran v. Norkunas,
2

Section XXVII of the Franchise Agreement provides that the Franchise Agreement shall be interpreted and construed under the laws of the State of Maryland.

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398 Md. 1, 17 (Md. 2007). As set forth in detail above, the Franchise Agreement expressly provided Marriott with a right to terminate the Franchise Agreement upon the occurrence of certain defaults, including, without limitation, the PIP Default and Red Zone Default. 26. Accordingly, prior to the Petition Date, Marriott repeatedly notified

Franchisee and other interested parties of the defaults under the Franchise Agreement and provided cure periods. The termination of the Franchise Agreement, which occurred well before the Petition Date, left only the completion of the de-identification to occur on August 30, 2010 the effective date of the prepetition termination. 2. The Automatic Stay Does Not Preclude Marriotts Completion of the Hotels De-Identification On August 30, 2010 27. Since, pursuant to the express terms of the Franchise Agreement and

subsequent notices, no further action is required by Marriott for the termination to take effect, Franchisees chapter 11 filing does not prevent completion of the de-identification process for the Hotel on August 30, 2010. 28. It is well settled that the automatic stay does not prevent the automatic

termination of a contract by its own terms. See In re Policy Realty Corp., 242 B.R. 121, 126127 (S.D.N.Y 1999) ("the automatic stay does not toll the running of time under a contract and does not prevent the automatic termination of a contract"; where lessor delivered a prepetition notice of termination with termination effective a week later, court stated that a bankruptcy filing upon the receipt of the termination notice would not toll the automatic termination, effective postpetition); In re Diversified Washes of Vandalia, Inc., 147 B.R. 23, 25-26 (Bankr. S.D. Ohio 1992) ("The automatic stay does not toll the mere running of time under a contract, and thus it does not prevent automatic termination of the contract"; where a gas station dealer filed for bankruptcy after receipt of a termination notice from its franchisor with respect to its dealer -9-

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agreement, but prior to the effective termination date, court held that the automatic stay did not prevent the time from running on the termination notice nor the automatic termination of the dealer agreement); In re Matthews Enterprises, Inc., 51 B.R. 333, 338 (Bankr. S.D. Ind. 1985) (where a notice of nonrenewal of a service station franchise was delivered to the franchisee prepetition, with termination effective over two months from the notice date, and the franchisee filed for bankruptcy one month after the notice date, the court held that the chapter 11 filing had no effect on the automatic termination, which required no further action except the passage of time); In re Beck, 5 B.R. 169, 170-171 (Bankr. D. Haw. 1980) ("It is well established that the filing of the petition for relief from the Bankruptcy Court in no way gives rise to a right in the Trustee as Debtor in Possession to extend the time of the License Agreements, which expired by their terms [postpetition] . . . The Automatic Stay provisions of Section 362 did not in any way prevent expiration of the License Agreements [postpetition] in accordance with their terms . . . [where the licensor] gave [prepetition] notice of termination and no further action was necessary to result in the expiration of the License Agreements."). 29. Here, it is undisputed that Franchisee was and continues to be in default

under the terms of the Franchise Agreement pursuant to both the Red Zone Default and the PIP Default. Franchisee agreed to the conditions of the termination in September 2009, and was notified on numerous occasions of Marriotts exercise of its right to terminate the Franchise Agreement. Marriott's clear prepetition termination of the Franchise Agreement on June 28, 2010 with respect to the PIP Default and on June 30, 2010 with respect to the Red Zone Default, followed by the confirming July Notice and Termination resulted in the automatic termination effective August 30, 2010, without any further action or notice of any kind required.

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30.

Thus similar to the foregoing cases, Marriotts decision to terminate the

Franchise Agreement occurred prepetition, with such termination to occur automatically on August 30, 2010 for the sole purpose of the orderly wind-up and de-identification. All that remains is the completion of de-identification of the Hotel by the Debtor at the time when the franchise relationship no longer exists. Under the law set forth above, the automatic stay should not prevent Marriott from requiring the Debtor to complete the de-identification process in accordance with and in furtherance of Marriotts prepetition termination of the Franchise Agreement. IV. CONCLUSION For the foregoing reasons, Marriott respectfully requests that this Court enter an Order granting relief from stay to allow for the continued de-identification of the Hotel with the "Residence Inn by Marriott" brand by August 30, 2010, the effective termination date of the Franchise Agreement, awarding Marriott attorneys' fees and costs for having to pursue this action, and granting such other and further relief as the Court deems just and proper. Dated: August 4, 2010 New York, New York Respectfully submitted, SHEPPARD, MULLIN, RICHTER & HAMPTON LLP

By:

/s/ Carren B. Shulman Carren B. Shulman Alan M. Feld 30 Rockefeller Plaza, 24th Floor New York, New York 10112 Telephone: 212-653-8700 Facsimile: 212-653-8701 Attorneys for Marriott International, Inc

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