Case bjh11 Doc 307 Filed 01/10/19 Entered 01/10/19 16:32:52 Page 1 of 7

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1 Case bjh11 Doc 307 Filed 01/10/19 Entered 01/10/19 16:32:52 Page 1 of 7 Kevin M. Lippman Texas Bar No Deborah M. Perry Texas Bar No MUNSCH HARDT KOPF & HARR, P.C. 500 N. Akard Street, Suite 3800 Dallas, Texas Telephone: (214) Facsimile: (214) klippman@munsch.com dperry@munsch.com Counsel for HC Hill Country Associates, Ltd., H-C Associates, Ltd., HC-RW Associates Ltd., Hidalgo Healthcare Realty, LLC and Socorro Health Realty, LLC IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION In re: SENIOR CARE CENTERS, LLC, et al., Debtors. Chapter 11 Case No (BJH) Jointly Administered Hearing Date: January 14, 2019 Hearing Time: 2:00 p.m. (CT) MEMORANDUM OF LAW IN SUPPORT OF RESPONSE TO MOTION OF DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING THE USE OF CASH COLLATERAL, (II) GRANTING ADEQUATE PROTECTION, (III) MODIFYING THE AUTOMATIC STAY, (IV) SETTING A FINAL HEARING, AND (V) GRANTING RELATED RELIEF TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE: HC Hill Country Associates, Ltd., H-C Associates, Ltd. and HC-RW Associates Ltd. (collectively, the HC Landlords ) and Hidalgo Healthcare Realty, LLC ( Hidalgo ) and Socorro Health Realty, LLC ( Socorro, and collectively with Hidalgo, the Hidalgo Landlords, and collectively with the HC Landlords, the Landlords ), creditors and parties-in-interest in the above named and styled jointly administered bankruptcy cases (the Bankruptcy Case ) of HEARING, AND (V) GRANTING RELATED RELIEF PAGE 1

2 Case bjh11 Doc 307 Filed 01/10/19 Entered 01/10/19 16:32:52 Page 2 of 7 Senior Care Centers, LLC, et al. (collectively, the Debtors ), file this their Memorandum of Law in Support of Response to Motion of Debtors for Entry of Interim and Final Orders (I) Authorizing the Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the Automatic Stay, (IV) Setting a Final Hearing, and (V) Granting Related Relief (the Memorandum of Law ) in connection with the hearing set for January 14, 2018 at 2:00 p.m. (CT) (the Hearing ), on the Debtors Motion of Debtors for Entry of Interim and Final Orders (I) Authorizing the Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the Automatic Stay, (IV) Setting a Final Hearing, and (V) Granting Related Relief [Doc. 24] (the Cash Collateral Motion ) and in support thereof would respectfully show the Court as follows: I. RELEVANT PROCEDURAL BACKGROUND 1. On December 5, 2018 (the Petition Date ), the Debtors each filed their voluntary petitions pursuant to Chapter 11 of Title 11, United States Code (the Bankruptcy Code ). 2. On December 5, 2018, the Debtors filed their Cash Collateral Motion. 3. On December 7, 2018, the Court entered its Interim Order (I) Authorizing the Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the Automatic Stay, (IV) Setting a Final Hearing, and (V) Granting Related Relief [Docket No. 75] (the Interim Cash Collateral Order ). 4. On December 19, 2018, the Landlords filed their Response to Motion of Debtors for Entry of Interim and Final Orders (I) Authorizing the Use of Cash Collateral, (II) Granting Adequate Protection, (III) Modifying the Automatic Stay, (IV) Setting a Final Hearing, and (V) Granting Related Relief [Docket No. 148] (the Response ). 5. A status conference was held in the Bankruptcy Case on December 27, 2018 (the December 27 Status Conference ). At the December 27 Status Conference, the Court set a HEARING, AND (V) GRANTING RELATED RELIEF PAGE 2

3 Case bjh11 Doc 307 Filed 01/10/19 Entered 01/10/19 16:32:52 Page 3 of 7 briefing deadline of January 10, 2019 to brief issues related to the dispute between the Landlords and the Debtors regarding the Debtors obligations to pay rent timely on a post-petition basis [Docket No. 218]. 6. On December 27, 2018, the Debtors filed their Second Omnibus Motion for Entry of an Order (I) Authorizing the Debtors to Reject Certain Unexpired Leases Nunc Pro Tunc to the Petition Date, and (II) Granting Certain Related Relief [Docket No. 209] (the Motion to Reject ). 7. Originally, the Debtors set the Motion to Reject for hearing on February 20, which hearing was then reset to February 21. On January 20, 2019, the Debtors filed a Motion for Expedited Consideration [Docket No. 284] (the Motion to Expedite ) of the Motion to Reject seeking an expedited setting of January 24, The deadline for parties whose leases are the subject of the Motion to Reject to file responses or objections is January 17, As set forth in the Response, each of the Landlords is a landlord for a separate facility leased by one of the Debtors as a tenant. As of the date of the filing of this Memorandum of Law, the Debtors have not paid January rent to Socorro, whose lease is one of the leases the subject of the Motion to Reject. The Bankruptcy Code and the case law is clear that the Debtors must pay rent pursuant to the terms of the leases for all of the locations regardless of the pendency of a motion to reject. By failing to pay post-petition amounts as they come due the Debtors are not complying with the Bankruptcy Code. HEARING, AND (V) GRANTING RELATED RELIEF PAGE 3

4 Case bjh11 Doc 307 Filed 01/10/19 Entered 01/10/19 16:32:52 Page 4 of 7 II. ARGUMENT AND AUTHORITIES 10. As set forth herein, the Debtors should be required to comply with the Bankruptcy Code and timely pay all amounts that come due under the leases regardless of whether there is a pending motion to reject. A. The Plain Language of Section 365(d)(3) of the Bankruptcy Code Requires Timely Payment of Rent 11. Section 365(d)(3) is clear, [t]he trustee shall timely perform all obligations of the debtor,..., arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503(b)(1) of this title. 11 U.S.C. 365(d)(3) (emphasis added). The foregoing provision is mandatory, not optional as evidenced by the use of the term shall. 11 U.S.C. 365(d)(3); In re FFP Operating, L.P., 2004 Bankr. LEXIS 896, *6-7 (Bankr. N.D.Tex. 2004) (Houser). 12. As the Supreme Court has stated, where the statute s language is plain, the sole function of the courts is to enforce it according to its terms. United States v. Ron Pair Enterprises, Inc. (In re Ron Pair Enterprises, Inc.), 489 U.S. 235, 241 (1989) (quoting Caminetti v. United States, 242 U.S. 470, 485 (1917). As the court in In re Amber s Stores stated, The meaning is clear, and it complies with the wishes of the drafters of the statute to ensure timely performance of rental obligations by the debtor and to provide an incentive for a quick decision by the debtor to assume or reject the lease. Therefore, the landlord must be paid its administrative claim for the amount of rent due under the lease agreement for the post-petition, prerejection period and a landlord need not establish its claim for administrative status under Section 503(b)(1)(A). In re Amber s Stores, Inc., 193 B.R. 819, 825 (Bankr. N.D.Tex. 1996) (emphasis added). HEARING, AND (V) GRANTING RELATED RELIEF PAGE 4

5 Case bjh11 Doc 307 Filed 01/10/19 Entered 01/10/19 16:32:52 Page 5 of 7 B. The Legislative History of Section 365(d)(3) of the Bankruptcy Code and the Case Law Interpreting Section 365(d)(3) Are Clear that Rent Payments Should be Timely Made 13. The legislative history of section 365(d)(3) provides in pertinent part: [When the trustee has stopped making payments due under the lease] the landlord is forced to provide current services the use of its property, utilities, security, and other services without current payment. No other creditor is put in this position....the bill will lessen these problems by requiring the trustee to perform all of the obligations of the debtor under a lease of nonresidential real property at the time required in the lease. This timely performance requirement will insure that the debtor-tenants pay their rent, common area, and other charges on time pending the trustee s assumption or rejection of the lease. 130 Cong.Rec. S (daily ed. June 29, 1984) (remarks of Senator Hatch) (emphasis added). 14. Congress enacted 365(d)(3) to insure that the debtor-tenants [of nonresidential property] pay their rent, common area and other charges on time, pending the trustee s assumption or rejection of the lease. 130 Cong.Rec. S8891, 599 (1984) (statement of Senator Hatch). The plain language of 365(d)(3) is clear: the debtor-tenant must fully and timely perform its obligations under the lease. In re Simbaki, Ltd., 2015 Bankr. LEXIS 1142, *6 (Bankr. S.D.Tex. 2015) (quoting In re Gatti s, Inc., 164 B.R. 929, 933 (Bankr. W.D.Tex. 1994) (emphasis added). 15. The Trustee is mandated to timely comply with all obligations of the debtor with regard to any unexpired lease of non-residential real property until it is assumed or rejected regardless of what 503 may require other claimants to do to establish an administrative claim. I fail to see any ambiguity in that language. In re Compuadd Corp., 166 B.R. 862, 864 (Bankr. W.D.Tex. 1994) (emphasis in original). HEARING, AND (V) GRANTING RELATED RELIEF PAGE 5

6 Case bjh11 Doc 307 Filed 01/10/19 Entered 01/10/19 16:32:52 Page 6 of (d)(3) is effectively a remedy in and of itself. The language is mandatory. It says, The trustee shall timely perform all obligations of the debtor. Id. (quoting 11 U.S.C. 365(d)(3)). The clear, unambiguous language of the statute mandates the payment be timely. Compuadd, 166 B.R. at In addressing 365(d)(3) the Bankruptcy Court for the Western District of Texas stated, [t]he clear intent is thus to assure that landlords not be compelled to furnish current services without being compensated on a current basis. In re Food City, Inc., 95 B.R. 451, 455 (Bankr. W.D.Tex. 1988) The debtor s obligations must be performed at the time required in the lease. In re SRT Solutions, LLC, 2016 Bankr. LEXIS 1657, *7 (Bankr. S.D.Tex. 2016). 18. The Shopping Center Amendments were passed in part to ensure that debtors continued to perform obligations under commercial leases, including the obligation to pay rent. In re Imperial Bev. Corp., LLC 457 B.R. 490, 497 (Bankr. N.D.Tex. 2011) (Houser). The Court in Imperial specifically stated that rent that comes due post-petition/pre-rejection should be timely paid under 365(d)(3). Imperial, 457 B.R. at 503. III. RESERVATION OF RIGHTS 19. The Landlords expressly reserve the right to amend and/or supplement this Memorandum of Law. IV. CONCLUSION WHEREFORE, PREMISES CONSIDERED, the Landlords respectfully request that the Court modify any proposed order granting the Cash Collateral Motion as set forth in the Response. HEARING, AND (V) GRANTING RELATED RELIEF PAGE 6

7 Case bjh11 Doc 307 Filed 01/10/19 Entered 01/10/19 16:32:52 Page 7 of 7 Dated: January 10, 2019 MUNSCH HARDT KOPF & HARR, P.C. By: /s/ Deborah M. Perry Kevin M. Lippman Texas Bar No Deborah M. Perry Texas Bar No N. Akard Street, Suite 3800 Dallas, Texas Telephone: (214) Facsimile: (214) klippman@munsch.com dperry@munsch.com Counsel for HC Hill Country Associates, Ltd., H-C Associates, Ltd., HC-RW Associates Ltd., Hidalgo Healthcare Realty, LLC and Socorro Health Realty, LLC CERTIFICATE OF SERVICE The undersigned hereby certifies that on the 10 th day of January, 2019, she caused a true and correct copy of the foregoing document to be served (i) via ECF notification on all parties entitled to ECF notification in this Bankruptcy Case, and (ii) via , on counsel for the Debtors, counsel for the Administrative Agent, counsel for the Committee, and the Office of the United States Trustee. By: /s/ Deborah M. Perry Deborah M. Perry HEARING, AND (V) GRANTING RELATED RELIEF PAGE v.2