IN RE BH S & B HOLDINGS LLC
Citation | 426 B.R. 478 |
Decision Date | 07 April 2010 |
Docket Number | No. 08-14604 (MG).,08-14604 (MG). |
Parties | In re BH S & B HOLDINGS LLC, et al., Debtors. |
Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Cahill, Gordon & Reindel LLP, by Joel H. Levitin, Esq., Kevin J. Burke, Esq., New York, NY, Attorneys for the Debtors and Debtors-in-Possession.
Arent Fox LLP, by Robert M. Hirsch, Esq., New York, NY, Attorneys for the Official Committee of Unsecured Creditors.
Matalon Shweky Elman PLLC, by Barbara R. Shweky, Esq., New York, NY, Attorneys for Thor Macomb Mall LLC and Thor Eastpoint Mall LLC.
OPINION & ORDER SUSTAINING DEBTORS' AND COMMITTEE OF UNSECURED CREDITORS' OBJECTIONS TO PROOF OF CLAIM NOS. 580 AND 581
Before the Court are the objections ("Objections") of the debtors and debtors-in-possession (collectively, the "Debtors") and the official committee of unsecured creditors (the "Committee") (collectively, with the Debtors, "Objectors") to Proofs of Claim Nos. 580 and 581, filed by Thor Macomb Mall LLC and Thor Eastpoint Mall LLC (collectively, the "Thor Entities"). Proofs of Claim Nos. 580 and 581 seek administrative expense status for payments due upon the termination of two leases under which the Thor Entities are the landlords, as well as for rent, maintenance, real estate taxes and utility charges allegedly incurred after November 19, 2008 (the "Petition Date"). The only issue currently before the Court is whether the Thor Entities are entitled to administrative expense status for the payments due upon the termination of the two leases. For the reasons explained below, the Court sustains the Objections, and reclassifies the amounts of the payments due upon the termination of the two leases as general unsecured claims.
In August 2008, BH S & B Holdings, LLC ("Debtor"), one of the Debtors in this case, purchased the assets of Steve & Barry's Michigan LLC and Steve & Barry's Maryland LLC (collectively, "Steve & Barry's Entities") as part of a sale under 11 U.S.C. § 363.1 (Case No. 08-12579, ECF No. 628.) As part of the sale, the Debtor assumed certain non-residential real property leases, including the Steve & Barry's Entities' leases with the Thor Entities ("Leases"). Id. Prior to the assignment of the Leases, Steve & Barry's Michigan LLC owed $68,030.73 in back rent to Thor Macomb Mall LLC. (Resp. of Thor Macomb Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 580 ¶ 3.) Steve & Barry's Maryland LLC owed Thor Eastpoint Mall LLC $82,080.50 in back rent prior to the assignment of the Leases. (Resp. of Thor Eastpoint Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 581 ¶ 3.)
To facilitate the assumption of the Leases, the Thor Entities entered into Lease Modification and Landlord Consent Agreements with the Debtors. Under the Landlord Consent Agreements, Thor Macomb Mall LLC agreed to reduce unpaid rent owed by Steve & Barry's Michigan LLC to $15,666.67 (the "Macomb Deferred Payment") (Resp. of Thor Macomb Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 580 ¶ 3), and Thor Eastpoint Mall LLC agreed to reduce unpaid rent owed to Steve & Barry's Maryland LLC to $47,375.00 (the "Eastpoint Deferred Payment") (Resp. of Thor Eastpoint Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 581 ¶ 3). Both Deferred Payments would only become due "on the expiration or earlier termination" of the Leases.
The Debtors filed for chapter 11 relief on November 19, 2008. (ECF No. 1.) On January 16, 2009, the Debtors rejected the Leases. (See ECF Nos. 197, 237.) The parties agree that the rejections triggered the obligations to make the Deferred Payments under the Leases. (See Resp. of Thor Macomb Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 580 ¶ 4; Resp. of Thor Eastpoint Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 581 ¶ 4; Debtors' and Committee's Reply in Further Supp. of the Debtors' and Committee's Joint Objection to Proof of Claim No. 580 ¶ 21; Debtors' and Committee's Reply in Further Supp. of the Debtors' and Committee's Joint Objection to Proof of Claim No. 580 ¶ 21.)
On March 27, 2009, both Thor Entities filed their Proofs of Claim. Proof of Claim No. 580 seeks administrative expenses of $25,441.24, supposedly consisting of (i) $15,666.67 for the Macomb Deferred Payment; (ii) $ 1,834.03 for postpetition rent; and (iii) $7,940.54 for postpetition electric utility charges. Proof of Claim No. 581 seeks administrative expenses of $55,738.83, supposedly consisting of (i) $47,375.00, for the Eastpoint Deferred Payment; (ii) $5,545.98 for postpetition rent; (iii) $ 1,341.66, for common area maintenance charges accruing postpetition; (iv) $ 1,274.59 for real estate taxes accruing postpetition and (v) $201.60, for postpetition water and sewer utility charges.2
The Objections were filed on November 13, 2009. (ECF Nos. 592, 593.) The Thor Entities responded to the Objections on December 11, 2009. (ECF Nos. 627, 628.) On March 11, 2010, the Debtors and the Committee filed replies to the Thor Entities' responses. (ECF Nos. 682 and 683.) The Court held a hearing on the Objections on March 17, 2010 ("Hearing").
On the record at the Hearing, Thor Macomb Mall LLC indicated it had withdrawn its Proof of Claim with respect to the $1,834.03 rent claim, conceding that the Debtors have already paid that amount. (See also Resp. of Thor Macomb Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 580 ¶ 5 n. 1.) The Debtors in turn conceded that electric utility charges of $7,940.54 were entitled to administrative priority assuming the Proof of Claim was timely filed. Similarly, Thor Eastpoint Mall LLC indicated it had withdrawn its Proof of Claim with respect to $5,545.98 in rent previously paid, and the Debtors did not dispute that postpetition common area maintenance charges, real estate taxes, and water and sewer charges totaling $2,817.85 are entitled to administrative priority. (See also Resp. of Thor Eastpoint Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 581 ¶ 5 n. 1.) Accordingly, the only issue before the Court is whether to reclassify the Deferred Payments as general unsecured claims. For the reasons explained below, the Court reduces Proofs of Claim Nos. 580 and 581 by the amount of the postpetition rent payments ($1,834.03 and $5,545.98, respectively), and reclassifies the amounts of the Macomb and Eastpoint Deferred Payments as general unsecured claims, permitting administrative claims of $7,940.54 for Proof of Claim No. 580 and $ 2,817.85 for Proof of Claim No. 581.
Sections 365 and 503 are mutually exclusive provisions of the Bankruptcy Code granting administrative priorities. E.g., In re BH S & B Holdings LLC, 401 B.R. 96, 100, 103-04 (Bankr.S.D.N.Y.2009) (citing 3 COLLIER ON BANKRUPTCY ¶ 365.043g (15th ed. rev.2005)). The Thor Entities only seek administrative priority for the Deferred Payments under section 503(b)(1)(A); however, section 365 may also apply here. (See Resp. of Thor Macomb Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 580 ¶ 2; Resp. of Thor Eastpoint Mall LLC to Debtors' and Committee's Joint Objection to Proof of Claim No. 581 ¶ 2; Debtors' and Committee's Reply in Further Supp. of the Debtors' and Committee's Joint Objection to Proof of Claim No. 580 ¶ 21, 23; Debtors' and Committee's Reply in Further Supp. of the Debtors' and Committee's Joint Objection to Proof of Claim No. 580 ¶ 21, 23.) Section 365 provides for administrative priority for expenses incurred in performing obligations on a nonresidential lease of real property postpetition while the debtor-in-possession decides whether to assume or reject a lease, and general unsecured status for claims arising out of any rejection. Section 503(b)(1)(A), in turn, grants administrative priority to expenses that are "actual and necessary" to preserve the estate. An expense is "actual and necessary" if it "(1) arises out of a postpetition transaction between the creditor and the . . . debtor . . . and (2) . . . the consideration supporting the claimant's right to payment was both supplied to and beneficial to the debtor's estate in the operation of its business." In re A.C.E. Elevator Co., Inc., 347 B.R. 473, 480 (Bankr.S.D.N.Y.2006) (internal quotation marks and citations omitted). If section 365 applies to the Deferred Payments, section 503(b)(1)(A) does not. E.g., In re BH S & B Holdings LLC, 401 B.R. at 100, 103-04 (citing 3 COLLIER ON BANKRUPTCY ¶ 365.043g); see also In re Ames Dep't Stores, Inc., 306 B.R. 43, 69 (Bankr.S.D.N.Y.2004) ("Ames") ( ).3 The Court addresses each section in turn.
Section 365 of the Bankruptcy Code permits a debtor-in-possession to "assume or reject any executory contract or unexpired lease of the debtor," and provides for different priorities for expenses incurred prior to and as a result of rejection of a contract or unexpired lease. Arguably, section 365 applies to the Landlord Consent Agreements because they are part and parcel of the Leases. The Landlord Consent Agreements refer to the Leases, and provide that "all other terms and conditions of the Leases shall remain and continue in full force and effect and shall be deemed...
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