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Landlords Seek to Halt Gallery Store Closures

23 Oct, 2007 By: Erik Gruenwedel

Movie Gallery and subsidiary Hollywood Video have faced numerous store closures.

A group of landlords representing 35 Movie Gallery mall locations has filed a motion seeking to halt the bankrupt No. 2 video rental chain from liquidating more than 500 stores.

Dothan, Ala.-based Gallery, which operates 4,200 stores, last week filed Chapter 11 bankruptcy citing debts of more than $1.4 billion and assets of $890 million.

The landlords filed the motion after the bankruptcy court approved Gallery's immediate request to accelerate store closures and commence with lease auctions.

The motion, filed in U.S. Bankruptcy Court in Virginia, claims landlords affected by closures have 10 days to contest the actions.

Landlords contend the bankruptcy court allowed Gallery to “write themselves a free pass to conduct [closures] however they see fit.”

The motion seeks to allow leaseholders enough time to challenge store closures in addition to providing them with unspecified protection and due process.

It also alleges Gallery is utilizing the court-approval to circumvent lease restrictions on store locations earmarked for closure prior to the bankruptcy filing.

“Any store closing that is entered by the court should not apply retroactively to any closings that were in progress on the petition date,” the complaint read.

The plaintiffs contend Gallery has unrestricted terminology that may be used on store closing ads and window dressing in violation of lease guidelines.

Store locations are also permitted to operate during business hours that Gallery — not the landlords — see fit.

A hearing on the motion has not been set.

A Gallery representative, including legal counsel, was not immediately available for comment.

Separately, a company specializing in the sale of credit derivatives Oct. 23 said it successfully auctioned a cash settlement on interest payments for Gallery first lien bondholders.

The auction, which generated 91.5% of asking price, was triggered Sept. 10 when Gallery failed to make an interest payment on existing loans.

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