In a sign of legal battles that could emerge more widely from the coronavirus pandemic, CEC Entertainment Inc., parent to Chuck E. Cheese’s, filed suit this week to prevent a Dallas landlord from evicting the brand after it sought rent forgiveness in the COVID-19 downturn.
Irving, Texas-based CEC Entertainment filed the lawsuit in the 160th District Court of Dallas County, Texas, to prevent the landlord, TX Dallas Midtown LP, from ending its lease and evicting the entertainment restaurant. CEC said it had asked for a rent abatement in mid-March but had since paid its April rent in full.
CEC on April 7 said it had formed a board-level restructuring committee to look at a range of strategic alternatives. In July 2019, CEC terminated a reverse merger plan to take the company public in a deal between CEC owner Apollo Global Management and Leo Holdings Corp.
In the eviction case, CEC claimed that, after it requested an abatement from the landlord, Dallas Midtown countered with a proposed lease amendment that gave it authority to terminate the lease "for any reason or no reason whatsoever,” as first reported by Law360.
CEC said it rejected the offer and paid the rent due on April 22.
“The proposed amendment is a clear attempt to leverage the financial hardship imposed by the COVID-19 pandemic on CEC into a unilateral and costless lease termination provision — a free option — to allow Midtown to escape its lease obligations,” CEC claimed.
The petition said CEC entered into its lease with Dallas Midtown's predecessor, Macerich Valley View Adjacent LP, in August 2010 and the term is to end Dec. 31, 2021, with two possible extensions. CEC said a lease provision required it to give notice of a rent default, but it had 10 days to pay the rent before the eviction process began.
“Importantly, there has been no default," CEC claimed. "When CEC actually received a proper notice from Midtown on April 20, it promptly cured the issue. That should have been the end of the situation. Instead, Midtown has threatened to evict CEC notwithstanding April rent has been paid in full including all fees and charges and there is no default."
CEC is seeking a judgment that it satisfied the default payments as well as unspecified amount of damages and attorney fees.
Earlier in its April 7 Securities and Exchange Commission filing, CEC, which is also parent to the Peter Piper Pizza brand, said same-store sales in the first quarter ended March 29 were down 21.9% as it had closed venues after states and cities restricted in-store dining to stem the spread of the coronavirus.
“The company expects each of its 550 company-operated Chuck E. Cheese and Peter Piper Pizza venues to sustain a loss while on-premise dining, entertainment and arcade rooms are closed,” the company said.
The CEC board also appointed Paul Aronzon as a new director and as chair of a special committee to look at restructuring and financing opportunities.
“The restructuring committee is authorized to, among other things, consider, evaluate and approve strategic alternatives,” the company said, enumerating a wide variety of options including bankruptcy relief.
While it was operating 520 of its 550 Chuck E. Cheese’s and Peter Piper Pizza venues with third-party delivery and take-out, CEC had suspended all operations in 30 of its venues primarily due to sales performance and shopping mall closures stemming from the pandemic.
CEC also said it promoted Sherri Landry to chief marketing officer, succeeding Ashley Zickefoose, who had left the company.
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