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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al., Debtors.

1 INNKEEPERS USA TRUST, et al., Plaintiffs, v. CERBERUS SERIES FOUR HOLDINGS, LLC, CHATHAM LODGING TRUST, INK ACQUISITION LLC, AND INK ACQUISITION II LLC, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Chapter 11 Case No. 10-13800 (SCC) Jointly Administered

Adversary Proceeding Case No. 11-02557-SCC

PLAINTIFFS MEMORANDUM OF LAW IN SUPPORT OF MOTION TO EXPEDITE PROCEEDINGS ON THE MERITS The Courts recent confirmation of the Debtors four separate joint plans of reorganization was the culmination of months of efforts by the Debtors and their constituents to achieve what has been referred to throughout these cases as global peace. At the heart of this global peace was the sale of 64 of the Debtors Fixed/Floating Properties to Cerberus and

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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Chatham for $1.12 billion following a public auction.2 However, as explained in detail in the

Plaintiffs Complaint and incorporated herein by reference, that global peace is now being threatened by a calculated effort by Cerberus and Chatham to renegotiate the terms of the parties binding contract. Notwithstanding their binding and irrevocable commitment, Cerberus and Chatham walked away from their obligation to purchase the Fixed/Floating Properties as the parties were on the verge of closing the transaction on August 5, 2011. After the close of business on Friday, August 19, 2011, Cerberus and Chatham sent a letter by facsimile to the Debtors and Midland and their respective counsel purporting to terminate the Binding Commitment Letter and avoid their binding and irrevocable commitment to purchase the Fixed/Floating Properties. Cerberus and Chatham offered no basis no explanation, no detail, no evidence for the purported termination, except to generally reference the material adverse effect (or MAE) provision in the Binding Commitment Letter. The complete absence of any stated support is unsurprising because no material adverse effect has occurred. Because no MAE has occurred, Cerberus and Chathams invocation of that provision is a breach of the parties binding contract. Cerberus and Chathams unexcused breach of the parties contract threatens to upend the Fixed/Floating Plan. Indeed, the Binding Commitment Letter, the Confirmation Order and the Fixed/Floating Plan all provide that the Fixed/Floating Plan will be nullified and the Confirmation Order automatically revoked if Cerberus and Chatham do not close before September 15, 2011. While counsel for Cerberus has informed Plaintiffs that they may agree to extend this September 15, 2011 deadline and may agree to waive any argument based on that
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Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Adversary Complaint, No. 11-02557-SCC, filed by Innkeepers Trust USA, et al. on August 29, 2011 (the Complaint).

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deadline, no such agreement has been reached as of the filing of this Motion. The Proposed Scheduling Order attached as Exhibit A assumes that Cerberus and Chatham will agree to such an extension. If Cerberus and Chatham do not agree to this extension, the proposed schedule will need to be adjusted accordingly to expeditiously resolve this matter by September 14, 2011. The Defendants improper declaration of a material adverse effect on the Fixed/Floating Properties threatens continuing harm to the Fixed/Floating Debtors if not quickly and definitively adjudicated. By publicly and repeatedly claiming in the media that a material adverse effect has occurred when, in fact, no such MAE has occurred, Cerberus and Chatham threaten to impact the Debtors efforts to re-market the Fixed/Floating hotels and maximize value. In other words, the very declaration by Cerberus and Chatham that a MAE has

occurredwhen, in fact, it has notthreatens continuing harm to the Fixed/Floating Properties. It is imperative that the record be set straight as soon as possible that no MAE has occurred. Accordingly, the Plaintiffs respectfully request that the Court enter the scheduling order attached as Exhibit A to the accompanying motion, and expedite proceedings on the merits in this adversary proceeding. STATEMENT OF FACTS Plaintiffs hereby incorporate as the Statement of Facts for this memorandum of law and accompanying motion, the facts as stated in the Adversary Complaint, No. 11-02557-SCC, filed by Innkeepers Trust USA, et al. on August 29, 2011 (the Complaint). ARGUMENT Expedited proceedings, including discovery and trial on the merits, are warranted in this action. Federal Rule of Bankruptcy Procedure 7012 provides defendants with 30 days to answer a complaint except when a different time is prescribed by the court. See Fed. R. Bankr. P. 7012(a). And Courts often set expedited briefing schedules where appropriate. See e.g., Utah v. 3
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Evans, 534 U.S. 1119, 122 S. Ct. 932 (2002) (granting a motion to set an expedited schedule for briefing and oral argument); In re Nextwave Pers. Commcns, Inc., 200 F.3d 43, 50 (2d Cir. 1999) (case considered on expedited basis). The Court should establish an expedited schedule here. Courts have broad power to allow expedited discovery in appropriate cases. Benham Jewelry Corp. v. Aron Basha Corp., 97 CIV. 3841 (RWS), 1997 WL 639037, at *20 (S.D.N.Y. Oct. 14, 1997). Federal Rule of Civil Procedure 26, incorporated by Bankruptcy Rule 7026, permits courts to allow discovery without the need for a Rule 26(f) conference. See Fed. R. Civ. P. 26(d); 8 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure 2046.1 (2d ed. 1994 & Supp. 2002) (The moratorium [on discovery prior to the Rule 26(f) conference] may be removed by court order).3 In deciding a request to expedite discovery, courts in this circuit have determined that it makes sense to examine the discovery request . . . on the entirety of the record to date and the reasonableness of the request in light of all the surrounding circumstances. Ayyash v. Bank Al-Madina, 233 F.R.D. 325, 327 (S.D.N.Y. 2005) (emphasis in original) (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. OConnor, 194 F.R.D. 618, 624 (N.D. Ill. 2000) (setting forth a flexible standard of reasonableness and good cause in assessing application for expedited discovery)). There can be no doubt that good cause exists in this case to warrant expedition of these proceedings. First, absent Court ordered relief, the Commitment Letter (as well as the

Confirmation Order and Plan) states that if the Effective Date for the Fixed/Floating Plan does
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Similarly, Federal Rule of Civil Procedure 34(b), incorporated by Bankruptcy Rule 7034, specifically provides that a court may direct that document production be completed in a shorter or longer time than the 30 days specified in Rule 34(b). See Fed. R. Civ. P. 34(b)(2). And Federal Rule of Civil Procedure 30, incorporated by Bankruptcy Rule 7030, contemplates circumstances where a party may take depositions on an expedited basis. See Fed. R. Civ. P. 30(a)(2)(A)(iii).

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not occur on or before September 15, 2011, the Plan shall be automatically revoked, unless modified or otherwise amended. If Cerberus and Chatham do not agree to modify this date, the Debtors will need the merits of their claims adjudicated before September 15, 2011 and the proposed schedule will need to be adjusted accordingly.4 Second, it cannot credibly be disputed that the Plan Sponsors breach has caused, and will continue to cause, substantial harm to the Fixed/Floating Debtors and their estates. And it also cannot credibly be disputed that these harms are clearly not remote or speculative . . . but actual and imminent. Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979) (quotation omitted). Indeed, Defendants have publicly and repeatedly informed the market that they contend a MAE has occurred when it has not. Left un-redressed or un-adjudicated in short order, Defendants conduct may impact the Debtors efforts to mitigate and maximize value of the Fixed/Floating Properties in any subsequent marketing process. Accordingly, Innkeepers respectfully requests that this Court enter the Order (attached to the Motion as Exhibit A), which sets forth a discovery and trial schedule as such: (i) (ii) (iii) The Parties shall serve discovery as soon as practicable and in no instance later than Friday, September 2, 2011; The deadline for the Cerberus/Chatham Fixed/Floating Plan Sponsors to answer the Complaint shall be Wednesday, September 7, 2011; Documents requested (and not objected to) shall be due on a rolling basis beginning on Friday, September 9, 2011;

As noted above, Counsel for Cerberus has informed Plaintiffs that they may agree to extend this September 15, 2011 deadline and may agree to waive any argument based on that deadline, though no such agreement has been reached as of the filing of this Motion. The Proposed Scheduling Order attached as Exhibit A assumes that Cerberus and Chatham will agree to such an extension. If Cerberus and Chatham do not agree to this extension, the proposed schedule will need to be adjusted accordingly in order to expeditiously resolve this matter by September 14, 2011.

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(iv) (v) (vi) (vii)

Document production shall be substantially completed no later than Tuesday, September 13, 2011; Any witness to be called at trial will be identified by Tuesday, September 13, 2011; Each witness identified by the Parties will be made available for deposition on September 15-16, 2011; A trial on all claims and defenses shall be conducted on September 20-21, 2011.

Although courts issuing recent decisions have chosen not to utilize the more structured standard set forth in Notaro v. Koch, 95 F.R.D. 403, 405 (S.D.N.Y. 1982)5 (requiring a demonstration of (1) irreparable injury; (2) some probability of success on the merits; (3) some connection between the expedited discovery and the avoidance of the irreparable injury; and (4) some evidence that the injury that will result without expedited discovery looms greater than the injury the defendant will suffer if the expedited relief is granted), even under such an analysis, Plaintiffs warrant the relief requested. First, as discussed in detail above, the consequences Innkeepers and its constituents will face if the terms of the Binding Commitment Letter continue to lapse constitute irreparable harm. The Plan for the Fixed/Floating Debtors may have to be eradicated and the company may have to start from scratch in its marketing efforts. See In re Finley et al., 135 B.R. 456, 458 (S.D.N.Y. 1992) (granting expedited review of bankruptcy court appeal upon finding the potential for [] disruption [of the plan] to be significant and to constitute the potential for irreparable harm absent expedited treatment); Archambault v. Hershman (In re Archambault), 174 B.R. 923 (Bankr. W.D. Mich. 1994) (finding irreparable harm where a debtors reorganization efforts may
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See Ayyash v. Bank Al-Madina, 233 F.R.D. 325, 327 (S.D.N.Y. 2005) (many recent cases reject Notaro and apply a more flexible good cause test); see also Stern v. Cosby, 246 F.R.D. 453, 457 (S.D.N.Y. 2007) (More recently, courts have applied a more flexible standard of reasonableness and good cause.); Standard Inv. Chartered, Inc. v. Nat'l Ass'n of Sec. Dealers, Inc., 07 CIV. 2014 (SWK), 2007 WL 1121734, at *5 (S.D.N.Y. Apr. 11, 2007) (applying a good cause test and finding that the Notaro test is not controlling authority).

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be frustrated by actions of creditor). And the Defendants declaration of a MAE is, in itself, a potential continuing harm to the Fixed/Floating Properties. Second, as evidenced by the Complaint, Innkeepers has stated a more than colorable claim. It is without dispute that there exists a Binding Commitment Letter that the Floating Plan Sponsors refuse to adhere to. Third, as discussed above, expediting discovery and reaching the merits on this case is the only way to avoid the irreparable harm to Innkeepers if the Commitment Letter, and the firm commitments therein, were to terminate. Finally, while the potential harm to Innkeepers has been sufficiently established, there is no significant burden, much less injury, that would be inflicted upon the Plan Sponsors by expedited briefing and discovery. See Keybank, Natl Assn v. Quality Payroll Sys., Inc., No. CV 06-3013(JS)(AKT), 2006 WL 1720461, at *5 (E.D.N.Y. June 22, 2006) (granting expedited discovery because injury to plaintiff without expedited discovery was greater than any injury defendants could claim from having to provide the discovery); OMG Fidelity, Inc. v. Sirius Technologies, Inc., 239 F.R.D. 300, 305 (N.D.N.Y. 2006) (granting expedited discovery based on a comparison of the potential prejudice which will be suffered by the defendant if discovery is permitted, and that which will be experienced by the plaintiff if denied the opportunity for discovery at this stage); Twentieth Century Fox Film Corp. v. Mow Trading Corp., 749 F. Supp. 473, 475 (S.D.N.Y. 1990) (granting expedited discovery because [t]he Court also does not find that expedited discovery would pose a substantial hardship to [defendant] or [its principal]). CONCLUSION

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For the foregoing reasons, the Plaintiffs respectfully request that the Court enter the Scheduling Order attached hereto as Exhibit A to ensure the prompt resolution of this matter and avoid further irreparable harm to the Fixed/Floating Debtors and their constituents.

New York, New York Dated: August 31, 2011

/s/ Daniel T. Donovan 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 Anup Sathy, P.C. KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois 60654-3406 Telephone: (312) 862-2000 Facsimile: (312) 862-2200 - And Daniel T. Donovan (admitted pro hac vice) Patrick M. Bryan (admitted pro hac vice) KIRKLAND & ELLIS LLP 655 Fifteenth Street, N.W. Washington, DC 20005-5763 Telephone: (202)879-5000

Counsel to Plaintiffs

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