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1 Paul S. Aronzon (CA State Bar No. 88781) Bruce T. Beesley (NV SBN 1164)
Thomas R. Kreller (CA State Bar No. 161922) Laury Macauley (NV SBN 11413)
2 MILBANK, TWEED, HADLEY & McCLOY LLP LEWIS AND ROCA LLP
601 South Figueroa Street, 30th Floor 50 West Liberty Street, Suite 410
3 Los Angeles, California 90017 Reno, Nevada 89501
Telephone: (213) 892-4000 Telephone: (775) 823-2900
4 Facsimile: (213) 629-5063 Facsimile: (775) 823-2929
bbeesley@lrlaw.com; lmacauley@lrlaw.com
5 Reorganization Counsel for
Debtors and Debtors in Possession Local Reorganization Counsel for
6 Debtors and Debtors in Possession

8 UNITED STATES BANKRUPTCY COURT


DISTRICT OF NEVADA
9

10 In re: Chapter 11

11 STATION CASINOS, INC Case No. BK-09-52477


Jointly Administered
12 Affects this Debtor
Affects all Debtors DEBTORS’ MOTION PURSUANT TO
13 Affects Reno Land Holdings, LLC 11 U.S.C. §§ 105(a) AND 363(b) FOR
ORDER AUTHORIZING PAYMENT
Affects River Central, LLC
14 OF EMPLOYEE CONTRACT
Affects Tropicana Station, LLC BONUSES
15 Affects FCP Holding, Inc.
Affects FCP Voteco, LLC Hearing Date: TBD
16 Affects Fertitta Partners LLC Hearing Time: TBD
Affects Northern NV Acquisitions, LLC Place: 300 Booth Street
17 Affects FCP MezzCo Parent, LLC Reno, NV 89509
Affects FCP MezzCo Parent Sub, LLC
18 Affects FCP MezzCo Borrower VII, LLC Motion to Shorten Notice Requested
19 Affects FCP MezzCo Borrower VI, LLC
Affects FCP MezzCo Borrower V, LLC
20 Affects FCP MezzCo Borrower IV, LLC
Affects FCP MezzCo Borrower III, LLC
21 Affects FCP MezzCo Borrower II, LLC
Affects FCP MezzCo Borrower I, LLC
22 Affects FCP PropCo, LLC
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1 TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE, UNITED

2 STATES TRUSTEE AND ALL PARTIES IN INTEREST:

3 Station Casinos, Inc. (“SCI”) and its affiliated debtors and debtors in possession

4 (collectively, the “Debtors”) in the above-captioned chapter 11 cases, hereby submit this motion

5 (the “Motion”) for an order pursuant to sections 105(a) and 363(b) of title 11 of the United States

6 Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”), authorizing SCI to pay certain

7 employee-related contractual salary obligations. In support of the Motion, Debtors submit the

8 declaration of Thomas Friel (the “Friel Declaration”) and respectfully represent as follows:

9 I. Jurisdiction and Venue

10 This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157

11 and 1334. Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409. This is a

12 core proceeding pursuant to 28 U.S.C. § 157(b).

13 II. Factual Background

14 1. The Debtors commenced these chapter 11 cases (the “Chapter 11 Cases”)

15 on July 28, 2009 (the “Petition Date”). SCI and its non-debtor subsidiaries (collectively, the

16 “Station Group”) constitute a gaming entertainment enterprise that owns and operates under the

17 “Station” and “Fiesta” brand names ten major hotels/casinos (two of which are 50% owned) and

18 eight smaller casinos (three of which are 50% owned) in the Las Vegas metropolitan area.

19 2. Previously, as one of its “first day” motions Debtors filed Motion

20 Pursuant to 11 U.S.C. §§ 105(a), 363(b) and 507(a) For Interim and Final Orders (I)

21 Authorizing Payment of Wages, Compensation and Employee Benefits, and (II) Authorizing and

22 Directing Financial Institutions to Honor and Process Checks and Transfers Related to Such

23 Obligations, dated July 28, 2009 (the “Prior Wages & Benefits Motion”).

24 3. In the Prior Wages & Benefits Motion, the Debtors sought and obtained an

25 interim and a final order authorizing the Debtors to pay in the ordinary course of business claims

26 for, inter alia, prepetition wages, accrued vacation, and other benefits, including, but not limited

27 to medical plans, dental plans, disability plans and incidental employee-related costs. The Court

28 granted the Prior Wages & Benefits Motion by interim order [Docket No. 24] and final order
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1 [Docket No. 620]. In the Prior Wages & Benefits Motion, however, the Debtors did not request

2 authority to pay any bonuses to employees under the Debtors’ various prepetition bonus

3 programs, which include, retention bonuses, guaranteed employment contract bonuses, “stretch”

4 bonuses, and discretionary target bonuses. To the contrary, the Debtors specifically excluded a

5 request to pay bonuses from the Prior Wages & Benefits Motion.

6 4. In this Motion, SCI seeks authority to pay three employees their

7 guaranteed employment contract bonuses (collectively, the “Contract Bonuses”) pursuant to the

8 terms of three separate, prepetition employment contracts (the “Employment Contracts”) entered

9 into with the subject employees (collectively, the “Subject Employees”).1

10 5. A chart of the Contract Bonuses to be paid is annexed hereto as Exhibit 1.

11 Redacted copies of the Employment Contracts are annexed hereto as Exhibit 2. The

12 Employment Contracts and the identities of the Subject Employees are redacted to protect the

13 privacy of the Subject Employees and pursuant to the confidentiality provisions of the

14 Employment Contracts. Moreover, redacting the Employment Contracts and maintaining the

15 privacy of the Subject Employees is in SCI’s best interest as it ensures that confidential business

16 information is not available publicly to its competitors.

17 6. None of the Contract Bonuses, denominated either a “supplemental

18 bonus” or a “guaranteed bonus” in the Employment Contracts (see Exhibit 2: Employee “A”

19 Contract, p. 4, para. 3.3 [“supplemental bonus” of $180,000]; Employee “B” Contract, Letter

20 Addendum dated August 2, 2000, para. 1 [“guaranteed bonus” of $33,750]; Employee “C”

21 Contract, p. 5, para. 3.3 [“supplemental bonus” of $50,000]) are conditioned upon the

22 performance of SCI or of the subject employee and are not discretionary. Each of the Contract

23 Bonuses functions as annualized compensation to the respective Subject Employee. The Subject

24 Employees are each corporate vice-presidents of SCI and the Contract Bonuses, combined with

25 their other compensation, constitutes fair and appropriate compensation for the level of services

26

27
1
The Debtors do not seek authority in this Motion to pay any retention bonuses, “stretch” bonuses, or
28 discretionary target bonuses.
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1 provided to SCI. Further, each Contract Bonus automatically becomes payable on its annual

2 payment date.

3 7. In 2009, the same amount of bonuses, $263,750, was paid to the Subject

4 Employees for the year 2008. No guaranteed bonuses remain unpaid for 2008.

5 8. In order to receive a Contract Bonus, each Subject Employee must be

6 employed on December 31, 2009 and also on the date that the Contract Bonus is paid in order to

7 be entitled to payment. Accordingly, Debtors believe the Contract Bonuses are post-petition

8 contract obligations which can be paid in the ordinary course. In an abundance of caution, and in

9 light of the fact that Contract Bonuses were excluded from the Prior Wages & Benefits Motion

10 and cover a twelve-month period of employment that includes several months of services

11 rendered prepetition, SCI now seeks Court authority to pay the Contract Bonuses. By seeking

12 authority to pay the Contract Bonuses, SCI does not seek to deviate in any way from the interim

13 or final orders approving the Prior Wages & Benefits Motion and does not seek to affect, alter or

14 otherwise modify the Employment Contracts. Most important, in the Motion, SCI does not seek

15 to assume the Employment Contracts or otherwise affect its rights (or the rights of the Subject

16 Employees) under the Employment Contracts, including, but not limited to SCI’s rights under

17 section 365 of the Bankruptcy Code.

18 III. Basis for Relief Requested

19 9. The Bankruptcy Code provides a variety of bases for the relief requested

20 herein. As discussed in detail below, pursuant to section 363(b) of the Bankruptcy Code, a

21 debtor is authorized to use property of its estate in the ordinary course of business. The Debtors

22 contend that section 363(b) authorizes SCI to honor and pay the annual compensation set forth in

23 the Employment Contracts, including the Contract Bonuses due and owing to the Subject

24 Employees. Further, the retention of the Subject Employees is necessary for the continued

25 operation of SCI’s business. Consequently, the “necessity of payment” doctrine set forth in

26 section 105 of the Bankruptcy Code also supports the requested relief.

27

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1 A. Paying the Contract Bonuses is Permissible under Section 363(b) of


the Bankruptcy Code
2

3 10. Section 363(b)(1) of the Bankruptcy Code further supports granting the

4 relief request herein. Section 363(b)(1) provides that “[t]he trustee, after notice and a hearing,

5 may use, sell, or lease, other than in the ordinary course of business, property of the estate.” 11

6 U.S.C. § 363(b)(1). Courts acknowledge that a debtor’s relationship with its employees,

7 including the terms and conditions of employment, are matters that are subject to the business

8 judgment of the debtor and may be managed by the debtor in the ordinary course of business.

9 See, e.g., In re Pac. Forest Indus., Inc., 95 B.R. 740, 743 (Bankr. C.D. Cal. 1989) (“debtors’

10 employees do not need court permission to be paid and are usually paid as part of the ongoing

11 operation of the business.”). Courts permit debtors to pay wage claims in the ordinary course of

12 business. See COLLIER ON BANKRUPTCY ¶ l507.05[1], at 507-26 (15th ed. rev. 2006).

13 Accordingly, the Debtors’ employee-relations matters are within the ordinary course of business,

14 including employee compensation and benefits matters.

15 11. Ultimately, payment of the Contract Bonuses in accordance with the

16 Employment Contracts and pursuant to SCI’s business practices is in the best interests of the

17 Debtors’ estates, creditors and all parties in interest and will enable the Debtors to continue to

18 operate their businesses in an economic and efficient manner without disruption. Moreover, the

19 relief sought herein – payment of $263,750 in guaranteed bonuses – does not materially harm the

20 Debtors’ estates or creditors.

21 B. Paying the Contract Bonuses is Necessary for the Debtors’


Rehabilitation
22

23 12. The “necessity of payment” doctrine of section 105 of the Bankruptcy

24 Code supports the request for relief. Under the “necessity of payment” doctrine, first enunciated

25 by the United States Supreme Court in Miltenberger v. Logansport, C. & S.W.R. Co., 106 U.S.

26 286 (1882), a bankruptcy court may use its equitable powers under section 105 of the

27 Bankruptcy Code to permit a debtor in possession to pay prepetition claims when payment is

28 necessary to effectuate the Debtors’ bankruptcy goals. See In re Ionosphere Clubs, Inc., 98 B.R.
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1 174, 175 (Bankr. S.D.N.Y. 1989) (approving payment of prepetition wages due current

2 employees where it is necessary to pay such claims in order to preserve and protect its business

3 and ultimately reorganize and retain its currently working employees and maintain positive

4 employee morale).

5 13. The Ninth Circuit Court of Appeals has acknowledged the doctrine of

6 necessity, stating in dicta: “[c]ases have permitted unequal treatment of pre-petition debts when

7 necessary for rehabilitation, in such contexts as . . . pre-petition wages to key employees . . . .”

8 Burchinal v. Cent. Wash. Bank (In re Adams Apple, Inc.), 829 F.2d 1484, 1490 (9th Cir. 1987).

9 14. The necessity of payment doctrine “teaches no more than, if payment of a

10 claim which arose prior to reorganization is essential to the continued operation of the [business]

11 during [the] reorganization, payment may be authorized even if it is made out of [the] corpus.”

12 In re Lehigh & New England Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981); see also Am.

13 Hardwoods, Inc. v. Deutsche Credit Corp. (In re Am. Hardwoods, Inc.), 885 F.2d 621, 625 (9th

14 Cir. 1989) (section 105 endows the bankruptcy court with general equitable powers, where not

15 inconsistent with more specific law); In re Gulf Air, Inc., 112 B.R. 152, 154 (Bankr. W.D. La.

16 1989) (“[R]etention of skills, organization, and reputation [. . .] must be considered valuable

17 assets contributing to going concern value and aiding rehabilitation.”); In re Chateaugay Corp.,

18 80 B.R. 279, 287 (Bankr. S.D.N.Y. 1987) (explaining that a bankruptcy court may exercise its

19 equity powers under section 105 to authorize the payment of prepetition claims where such

20 payment is necessary to “permit the greatest likelihood of survival of the debtor and payment of

21 creditors in full or at least proportionately”).

22 15. Finally, since the Contract Bonuses are part of the Subject Employees’

23 contractual compensation, any delay in paying the Contract Bonuses will adversely affect SCI’s

24 relationship with the Subject Employees and cause the Subject Employees harm at a time when

25 the dedication, confidence and cooperation of these employees is most critical.

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1 IV. Conclusion

2 WHEREFORE, the Debtors respectfully request entry of an order, substantially

3 in the form attached hereto as Exhibit 3, granting the relief requested herein together with such

4 other and further relief as the Court may deem just and appropriate.

5 Dated: March 8, 2010 Respectfully submitted,

6
By: /s Robert C. Shenfeld
7 Paul S. Aronzon, CA SBN 88781
Thomas R. Kreller, CA SBN 161922
8 Robert C. Shenfeld, CA SBN 228181
MILBANK, TWEED, HADLEY & McCLOY LLP
9
601 South Figueroa Street, 30th Floor
10 Los Angeles, California 90017

11 Reorganization Counsel for


Debtors and Debtors in Possession
12
Bruce T. Beesley, #1164
13 Laury Macauley, #11413
LEWIS AND ROCA LLP
14 50 W. Liberty Street, Ste. 410
Reno, NV 89501
15 bbeesley@lrlaw.com; lmacauley@lrlaw.com

16 Local Reorganization Counsel


For Debtors and Debtors in Possession
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Exhibit 1

Exhibit 1

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Proposed Contract Bonus to Be Paid to


Subject Employees Pursuant to Employment Contracts
The actual names of the employees have been withheld to protect privacy. Debtors will
identify individual employees as required and pursuant to a confidentiality agreement.

Employee Proposed Bonus


Employee “A” $180,000
Employee “B” $33,750
Employee “C” $50,000

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