Case GLT Doc 1252 Filed 10/23/17 Entered 10/23/17 15:41:53 Desc Main Document Page 1 of 9

Transcription

1 Document Page 1 of 9 In re: IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA rue21, inc., et al. 1 Case No (GLT) Debtors. KRG Alcoa Hamilton, LLC Chapter 11 (Jointly Administered) v. rue21, inc., et al., Movants, Respondents. Hearing Date: December 6, 2017 at 2:00 p.m. (prevailing Eastern Time) Objection Deadline: November 29, 2017 at 5:00 p.m. (prevailing Eastern Time) KRG ALCOA HAMILTON, LLC S MOTION FOR ALLOWANCE AND PAYMENT OF ADMINISTRATIVE EXPENSE CLAIM KRG Alcoa Hamilton, LLC (the Landlord ), by and through its attorneys, respectfully submits this motion (the Motion ), pursuant to Sections 365(d)(3), 503(a), 503(b)(1)(A) and 507(a)(2) of Title 11 of the United States Code (the Bankruptcy Code ), for an order granting the Landlord s request for allowance and payment of an administrative expense priority claim in an amount not less than $13, In support of the Motion, the Landlord states as follows: 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, include: rue21, inc. (1645); Rhodes Holdco, Inc. (6922); r services llc (9425); and rue services corporation (0396). The location of the Debtors service address is: 800 Commonwealth Drive, Warrendale, Pennsylvania

2 Document Page 2 of 9 JURISDICTION AND VENUE 1. The United States Bankruptcy Court for the Western District of Pennsylvania (this Court ) has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This Motion is a core proceeding under 28 U.S.C. 157(b)(2). 2. Venue is proper in this Court pursuant to 28 U.S.C and BACKGROUND 3. On May 15, 2017 (the Petition Date ), each of the referenced debtors (the Debtors ) filed a voluntary petition for relief under the Bankruptcy Code with this Court. 4. Landlord and one of the Debtors, rue21, inc. (the Tenant ), are parties to an unexpired lease of nonresidential real property (the Lease ) of premises located at the Hamilton Crossing Phase II shopping center in Alcoa, Tennessee (Store #524) (the Premises ). 5. The Premises are located within shopping centers as that term is used in 365(b)(3) of the Bankruptcy Code. See In re Joshua Slocum, Ltd., 922 F.2d 1081, (3d Cir. 1990). 6. On June 13, 2017, the Debtors filed a Notice of Rejection of Certain Unexpired Leases (Dkt. No. 536) (the Notice ), including the Lease which was rejected as of June 28, 2017 (the Rejection Date ). 7. On September 8, 2017, the Court entered an Order (Dkt. No. 1083) confirming the Debtors First Amended Joint Plan of Reorganization (the Plan ). On September 22, 2017, the Effective Date of the Plan occurred (Dkt. No. 1146). Under the Order confirming the Plan, certain creditors are required to file requests for payment of administrative claims by October 23, 2017.

3 Document Page 3 of 9 8. The Tenant/Reorganized Debtor is liable to the Landlord for certain post-petition rent and charges under the Lease that are entitled to administrative expense status, pursuant to Sections 365(d)(3), 503(a), 503(b)(1)(A) and 507(a)(2) of the Bankruptcy Code. As of October 23, 2017, post-petition rent and charges from the Petition Date through the Rejection Date that remain unpaid amount to $13, (exclusive of indemnity obligations, setoff and/or recoupment claims and attorneys fees). A detailed statement of this balance due and owing to Landlord is attached as Exhibit A. RELIEF REQUESTED 9. The Landlord respectfully requests that this Court enter an Order granting this Motion and allowing and compelling payment of an administrative priority expense claim in favor of Landlord in an amount not less than $13,313.38, pursuant to Sections 365(d)(3), 503(a), 503(b)(1)(A) and 507(a)(2) of the Bankruptcy Code. BASIS FOR RELIEF REQUESTED 10. In addressing the interplay between Sections 365(d)(3) and 503(b) of the Bankruptcy Code, the Third Circuit has noted: Post-petition obligations are ordinarily given payment priority as administrative expenses, though such claims must still go through standard procedures of notice and a hearing to demonstrate that the costs were actual, necessary expenses of preserving the estate. See 11 U.S.C. 503(b) ( After notice and a hearing, there shall be allowed administrative expenses,... including... the actual, necessary costs and expenses of preserving the estate. ). Section 365(d)(3) operates to dispense with these requirements of post-petition obligations under an unexpired lease of nonresidential real property, meaning it functions without prevention or obstruction from or by 503(b)(1). In re Goody s Family Clothing Inc., 610 F.3d 812, 817 (3d Cir. 2010). However, 365(d)(3) does not supplant or preempt 503(b)(1)[,] and therefore does not foreclose that landlord s ability to use the more burdensome procedures to recover in situations outside of the scope of

4 Document Page 4 of 9 365(d)(3). Id. That is, [p]ostpetition lease obligations may be allowed as an administrative claim under either 11 U.S.C. 503(b)(1) or 11 U.S.C. 365(d)(3). In re KDA Grp., Inc., 2017 Bankr. LEXIS 3214, at *3 (Bankr. W.D. Pa. Sept. 20, 2017). standard. 11. The difference between Sections 365(d)(3) and 503(b) is in the applicable To prevail under 503(b)(1), a lessor must show the claims were actual, necessary costs and expenses of preserving the estate, which means they must benefit the estate as a whole. A proceeding under 365(d)(3), by comparison, can be much more expedient. It avoids the more rigorous 503(b)(1) analysis and instead requires the trustee to perform obligations as they become due under the terms of the lease regardless of their benefit or detriment to the estate. In re KDA Grp., Inc., 2017 Bankr. LEXIS 3214, at *3 (internal quotation marks omitted). A. The Landlord is Entitled to Payment Pursuant to Section 365(d)(3) of the Bankruptcy Code. 12. Section 365(d)(3) of the Bankruptcy Code requires the Debtors to timely perform all the 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.... [T]he clear and express intent of 365(d)(3) is to require the [debtor] to perform the lease in accordance with its terms[,] and therefore an obligation arises under a lease for the purposes of 365(d)(3) when the legally enforceable duty to perform arises under that lease. In re Goody s Family Clothing Inc., 610 F.3d at To qualify as an administrative expense under 365(d)(3), the obligations must satisfy two temporal requirements. They must arise from or after the order for relief, and the duty continues until such lease is assumed or rejected. In re KDA Grp., Inc., 2017 Bankr. LEXIS 3214, at *3-4 (quoting 11 U.S.C. 365(d)(3)).

5 Document Page 5 of All of the rent and charges set forth in the statement attached hereto as Exhibit A are supported by the express terms of the lease, including base rent, and charges for common area maintenance, insurance and real property taxes, and meet the temporal requirements of 365(d)(3) of the Bankruptcy Code. As such, each is properly included in an administrative expense claim, with a minimum balance due and owing of $13, B. Alternatively, the Landlord is Entitled to Payment Pursuant to Section 503(b)(1) of the Bankruptcy Code. 15. Section 503(b) is directed to obligations arising from the Debtors actual occupancy independent of the lease. In re Goody s Family Clothing Inc., 610 F.3d at 817. When a debtor occupies post-petition non-residential space it leases, that 365(d)(3) provides when the rent obligation arises does not erase when lessors may make 503(b)(1) claims for the value conferred post-petition by that occupancy. We thus conclude that the Landlords may assert a 503(b)(1) claim for stub rent. Id. at For a commercial lessor s claim to get administrative expense treatment under 503(b)(1), the debtor s occupancy of the leased premises must confer an actual and necessary benefit to the debtor in the operation of its business. Id. There is no question, of course, that the payment of rent for the use and occupancy of real estate ordinarily counts as an actual, necessary cost to which a landlord, as a creditor is entitled. In order to survive, a financial entity almost always needs a physical space to occupy. When a debtor owns no suitable real estate of its own, its only choice is to become a tenant, and to assume the obligations of paying periodic rent to a landlord. In such circumstances, therefore, rent is clearly an actual, necessary cost of preserving the estate, since the debtor s survival depends on its ability to pay the landlord for the right to possess the space necessary to conduct its business. Zagata Fabricators, Inc. v Superior Air Products, 893 F.2d 624, 627 (3d Cir. 1990). Therefore, [w]hen third parties are induced to supply goods and services to the debtor-in-possession

6 Document Page 6 of 9 pursuant to a contract that has not been rejected, the purposes of [administrative claims] plainly require that their claims be afforded priority. In re Goody s Family Clothing Inc., 610 F.3d at 818 (quoting In re Mammoth Mart, 536 F.2d 950, 954 (1st Cir. 1976)). 17. Here, the Tenant retained use and occupancy of the Premises through the Rejection Date, thereby inducing post-petition services from the Landlord[], which is sufficient... to be a transaction justifying administrative priority. In re Goody s Family Clothing Inc., 610 F.3d at 819. The Debtors conducted store closing sales at the Premises through a professional inventory liquidator. The Premises provided a physical venue, and remaining in existing premises was just as necessary and beneficial to the estate as leasing new premises specifically for store-closing sales. Id. 18. While the fair market rental value of the Premises controls the amount of the administrative claim, [t]he contract rate is presumed to be the fair market value unless the presumption is rebutted. In re DVI, Inc., 308 B.R. 703, 708 (Bankr. D. Del. 2004). Here, the Landlord submits that the charges for rent and other expenses set forth in the statement attached as Exhibit A evidences fair market value, and requests payment of administrative expenses in the minimum amount of $13, CONCLUSION 19. By reason of the foregoing, the Landlord respectfully requests that this Court enter an Order allowing the Landlord s administrative priority expense claim in the amount of $13,313.38, and directing the Debtors and Reorganized Debtors to forthwith pay such claim.

7 Document Page 7 of 9 WHEREFORE, KRG Alcoa Hamilton, LLC respectfully requests that this Court enter an Order awarding it an administrative expense priority claim against the Debtors estate, directing the Debtors and Reorganized Debtors to forthwith pay such claim, and providing the Landlord with such other and further relief as the Court deems just and proper. Dated: October 23, 2017 Pittsburgh, Pennsylvania Respectfully submitted, By: /s/ Kevin L. Colosimo Kevin L. Colosimo, Esquire (Pennsylvania Bar I.D. No ) FROST BROWN TODD LLC 501 Grant Street, Union Trust Building, Suite 800 Pittsburgh, Pennsylvania Telephone: (412) Facsimile: (412) kcolosimo@fbtlaw.com - a n d - Ronald E. Gold, Esquire (Ohio Bar No ) (Admitted Pro Hac Vice) FROST BROWN TODD LLC 3300 Great American Tower 301 E. Fourth Street Cincinnati, Ohio Telephone: (513) Facsimile: (513) rgold@fbtlaw.com - a n d - Kevin M. Newman (admitted pro hac vice) MENTER, RUDIN & TRIVELPIECE, P.C. Office and Post Office Address 308 Maltbie Street, Suite 200 Syracuse, New York Telephone: (315) Facsimile: (315) knewman@menterlaw.com Attorneys for KRG Alcoa Hamilton, LLC

8 Document Page 8 of 9 CERTIFICATE OF SERVICE I hereby certify under the penalties of perjury that on the 23rd day of October 2017, I caused a copy of the foregoing to be served by electronic means through the ECF system to all registered ECF participants and via regular mail to the parties indicated below. By: /s/ Kevin L. Colosimo Kevin L. Colosimo, Esquire (Pennsylvania Bar I.D. No ) FROST BROWN TODD LLC Union Trust Building 501 Grant Street, Suite 800 Pittsburgh, Pennsylvania Telephone: (412) Facsimile: (412) kcolosimo@fbtlaw.com KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP Attorneys for the Debtors Attn: Jonathan S. Henes, P.C.; Robert A. Britton, Esq.; and George Klidonas, Esq. 601 Lexington Avenue New York, NY The Clerk of the Court United States Bankruptcy Court Western District of Pennsylvania 5414 U.S. Steel Tower 600 Grant Street Pittsburgh, PA COOLEY LLP Attorneys for the Creditor Committee Attn: Jay Indyke, Esq., Cathy Hershcopf, Esq., and Michael Klein, Esq Sixth Avenue New York, NY MILBANK, TWEED, HADLEY & McCLOY LLP Attorneys for the Ad Hoc Cross-Holder Group Attn: Gerard Uzzi, Esq., Eric K. Stodola, Esq., and Matthew R. Koch, Esq. 28 Liberty Street New York, NY REED SMITH LLP Attorneys for the Debtors Attn: Eric A. Schaffer, Esq. and Jared S. Roach, Esq. 225 Fifth Avenue Pittsburgh, PA Office of the United States Trustee Western District of Pennsylvania Attn: Heather Sprague, Esq Liberty Avenue, Suite 970 Pittsburgh, PA FOX ROTHCHILD LLP Attorneys for the Creditors Committee Attn: John R. Gotaskie, Jr., Esq. Bank of New York Mellon Center 500 Grant Street, #2500 Pittsburgh, PA JONES DAY Attorneys for the DIP Term Loan Agent, DIP Term Loan Lenders, Prepetition Term Loan Agent, and Term Loan Steering Committee Attn: Scott J. Greenberg, Esq., and Michael J. Cohen, Esq. 250 Vesey Street

9 Document Page 9 of 9 MORGAN LEWIS & BOCKUS LLP Attorneys for the ABL Agent and the DIP ABL Agent Attn: Julia Frost-Davis, Esq. and Amelia C. Joiner, Esq. One Federal Street Boston, MA SIMPSON THACHER & BARTLETT LLP Attorneys for the Sponsor Entities Attn: Elisha D. Graff, Esq. and Jonathan E. Endean, Esq. 425 Lexington Avenue New York, NY New York, NY BUCHANAN INGERSOLL & ROONEY PC Attorneys for the ABL Agent and the DIP ABL Agent Attn: James D. Newell, Esq. and Timothy Palmer, Esq. One Oxford Centre 301 Grant Street, 20 th Floor Pittsburgh, PA v1

10 Case GLT Doc Filed 10/23/17 Entered 10/23/17 15:41:53 Desc Exhibit A Page 1 of 1

11 Case GLT Doc Filed 10/23/17 Entered 10/23/17 15:41:53 Desc Proposed Order Page 1 of 2 In re: IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA rue21, inc., et al. 1 Case No (GLT) Debtors. KRG Alcoa Hamilton, LLC Movants, Chapter 11 (Jointly Administered) Related to Docket No. v. rue21, inc., et al., Respondents. ORDER ALLOWING KRG ALCOA HAMILTON, LLC S ADMINISTRATIVE EXPENSE CLAIM AND DIRECTING PAYMENT Upon the motion of KRG Alcoa Hamilton, LLC (the Landlord ) for entry of an order (this Order ) pursuant to Sections 365(d)(3), 503(a), 503(b)(1)(A) and 507(a)(2) of Title 11 of the United States Code (the Bankruptcy Code ), allowing an administrative expense priority claim in an amount not less than $13,313.38, as more fully described in the Motion; and this Court having jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334; and this Court having found that this is a core proceeding pursuant to 28 U.S.C. 157(b)(2); and this Court having found that it may enter a final order consistent with Article III of the United States Constitution; and this Court having found that venue of this proceeding and the Motion in this 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, include: rue21, inc. (1645); Rhodes Holdco, Inc. (6922); r services llc (9425); and rue services corporation (0396). The location of the Debtors service address is: 800 Commonwealth Drive, Warrendale, Pennsylvania

12 Case GLT Doc Filed 10/23/17 Entered 10/23/17 15:41:53 Desc Proposed Order Page 2 of 2 district is proper pursuant to 28 U.S.C and 1409; and this Court having found that the Landlord s notice of the Motion and opportunity for a hearing on the Motion were appropriate under the circumstances and that no other notice need be provided; and this Court having reviewed the Motion and the statements in support of the relief requested therein; and this Court having determined that the legal and factual bases set forth in the Motion establish just cause for the relief granted herein; and upon all of the proceedings had before this Court; and after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT: 1. The Motion is granted as set forth herein. 2. The Landlord is allowed an administrative expense priority claim in the amount of $13,313.38, pursuant to Sections 365(d)(3), 503(a), 503(b)(1)(A) and 507(a)(2) of the Bankruptcy Code. 3. The Debtors and Reorganized Debtors shall pay such claim forthwith. 4. This Court retains jurisdiction with respect to all matters arising from or related to the implementation, interpretation, and enforcement of this Order. Pittsburgh, Pennsylvania Dated: December, 2017 THE HONOABLE GREGORY L. TADDONIO UNITED STATES BANKRUPTCY JUDGE