Case CSS Doc 147 Filed 09/18/14 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE.

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1 Case CSS Doc 147 Filed 09/18/14 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: FCC HOLDINGS, INC., et al., 1 Debtors. Chapter 11 Case No (CSS) (Jointly Administered) Ref. Docket Nos. 9, 120 DEBTORS RESPONSE TO THE LIMITED OBJECTION OF DECADE EXECUTIVE OFFICE BUILDINGS, LLC TO THE MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER (I) AUTHORIZING THE DEBTORS TO REJECT CERTAIN UNEXPIRED LEASES NUNC PRO TUNC AS OF THE PETITION DATE; AND (II) ESTABLISHING DEADLINE FOR FILING OF REJECTION DAMAGE CLAIMS; AND CROSS MOTION FOR ALLOWANCE AND IMMEDIATE PAYMENT OF ADMINISTRATIVE RENT The above-captioned debtors and debtors-in-possession (collectively, the Debtors ) hereby file this response (the Response ) to the Limited Objection of Decade Executive Office Buildings, LLC to the Motion of the Debtors for Entry of an Order (I) Authorizing the Debtors to Reject Certain Unexpired Leases Nunc Pro Tunc as of the Petition Date; and (II) Establishing Deadline for Filing of Rejection Claims and Cross Motion for Allowance and Immediate Payment of Administrative Rent [Docket No. 120] (the Objection ). In support of this Response, the Debtors respectfully state as follows: Preliminary Statement 1. Debtor High-Tech, Institute, Inc. was a party to various leases, including a lease with Decade Executive Office Buildings, LLC ( Decade ) dated as of July 12, 2006, as amended on September 10, 2007, and as further amended on May 23, 2014 (the Lease ) concerning approximately 25,000 square feet of commercial real property located at Executive 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: FCC Holdings, Inc. (6928); Education Training Corporation (1478); High-Tech Institute Holdings, Inc. (4628); EduTech Acquisition Corporation (8490); High-Tech Institute, Inc. (3099); and Florida Career College, Inc. The Debtors business address is 1000 Corporate Drive, Suite 500, Fort Lauderdale, FL

2 Case CSS Doc 147 Filed 09/18/14 Page 2 of 7 Drive, Brookfield, Wisconsin (the Premises ). 2. Prior to the Petition Date, the Debtors surrendered the Premises by turning over the keys to such premises to Decade. Jennifer Khadivar, the Regional President of Anthem College, supervised the return of the keys to the landlord and the removal of equipment and records from the Premises. Then, on the Petition Date, the Debtors filed the Motion of the Debtors for Entry of an Order (I) Authorizing the Debtors to Reject Certain Unexpired Leases Nunc Pro Tunc as of the Petition Date; and (II) Establishing Deadline for Filing of Rejection Damage Claims [Docket No. 9] (the Rejection Motion ), which seeks rejection of certain unexpired leases, including the Decade Lease, nunc pro tunc as of the Petition Date. 3. In response to the Rejection Motion, Decade filed the Objection, which argues that (i) the Debtors have not relinquished possession, (ii) the Debtors sent Decade a written demand to honor the Lease, (iii) the Debtors did not provide notice of abandonment of the Premises, and (iv) the Debtors continue to use and occupy the Premises. On these grounds, the Objection submits that (i) rejection should be conditioned upon removal or abandonment of all property on the Premises, (ii) the Lease should not be rejected retroactively to the Petition Date, and (iii) the Debtors should be liable for administrative rent for the month of September As discussed in more detail below, the Debtors believe that their intent to reject the Lease was clear and unequivocal, and that they did, in fact, surrender the Premises to the Decade despite leaving certain personal property on the Premises. Accordingly, the Debtors believe that the Court should overrule the Objection and grant the relief requested in the Rejection Motion. 2

3 Case CSS Doc 147 Filed 09/18/14 Page 3 of 7 Response I. The Debtors Surrendered the Premises and Abandoned All Property on the Premises 5. Decade submits that rejection of the Lease should not be permitted until the Debtors relinquish possession, and any order permitting rejection should provide that rejection is effective on the later of (i) the date of the order (ii) the date the Debtors relinquish possession in accordance with the terms of the Lease and removes all property that is currently on the Premises. In support of its position, Decade argues that retroactive rejection requires an unequivocal notice of abandonment prior to the filing of the motion. 6. Decade cites to a letter (the Harding Letter ) dated August 26, 2014, which it contends specifically demands that Decade honor the Lease pending action by the Court. Objection at 29. The Harding Letter certainly does not demand that Decade continue to honor the Lease. Rather, the Harding Letter simply states that a non-debtor party to an executory contract or lease is obligated to honor the terms of such contract or lease prior to a determination by the Debtors whether to assume or reject the contract or lease. See Exhibit A to the Objection ( [U]nder the Bankruptcy Code, a non-debtor party to an executory contract, including a lease, with [Debtor] is obligated to continue to provide post-petition goods or services under that contract, prior to any determination by [Debtor] whether to assume or reject the contract under section 365 of the Bankruptcy Code. ). The Debtors turning over of the keys to the Premises, followed by the filing of the Rejection Motion on the Petition Date, is an unambiguous expression of their determination to reject the Lease. Thus, the Debtors submit that at no point did they demand that Decade honor the Lease. The opposite is true the Debtors clearly informed Decade of their determination to reject the Lease upon the filing of the Rejection Motion. 3

4 Case CSS Doc 147 Filed 09/18/14 Page 4 of 7 7. In further support for its position that the Debtors did not surrender the Premises, Decade points out that certain items remain on the Premises. As described above, the Debtors vacated the Premises and returned the keys to Decade prior to the Petition Date. The Debtors believe that such actions constitute sufficient surrender of the Premises. Further, the filing of the Rejection Motion, notice of which was provided to Decade, unequivocally demonstrates the Debtors intent to reject the Lease, as the Debtors determination to reject the Lease is expressly stated in the Rejection Motion. Moreover, had Decade asked for clarification on this issue, the Debtors would have informed them that they had determined to reject the Lease. Accordingly, rejection nunc pro tunc as of the Petition Date is warranted. 8. A debtor s abandonment of personal property on leased premises does not amount to a failure to surrender possession, such that rejection is precluded. See In re Ames Dept. Stores, Inc., 306 B.R. 43, 52 (Bankr. S.D.N.Y. 2004). The Debtors are not storing personal property on the Premises or continuing to use the Premises as Decade suggests the Debtors have simply abandoned certain property on the Premises because they determined that it was too burdensome to remove such property prior to rejection. The ability to reject burdensome postpetition obligations is one of the fundamental rights of a debtor-in-possession under the Bankruptcy Code. See id. (holding that a debtor is allowed to avoid the incurrence of additional administrative expenses which lack a corresponding benefit to the estate ); In re Old Carco LLC, 424 B.R. 633, 639 (Bankr. S.D.N.Y. 2010) ( By rejecting a contract or lease, a debtor is granted the opportunity to be relieved of burdensome obligations. ). Any obligation to leave the Premises free of personal property or other items is one such burdensome obligation that the Debtors may choose to reject, and Decade may not condition rejection upon such an obligation. In re Old Carco, 424 B.R. at 639 ( A debtor s statutory right to reject cannot be qualified by 4

5 Case CSS Doc 147 Filed 09/18/14 Page 5 of 7 requirements not set forth in the Bankruptcy Code itself.... Nor can a debtor be forced to comply with burdensome contractual obligations that may have formed part of the rationale for rejection in the first place. ) (citing In re Ames, 306 B.R. at 51). II. Decade is Not Entitled to an Administrative Expense Claim 9. On the theory that the Debtors continue to use the Premises, Decade also argues that the Debtors are liable for administrative rent. For substantially the same reasons discussed above, if a debtor vacates a property upon rejection of a lease without complying with provisions that require the premises to be surrendered in broom clean condition, the landlord will not be accorded an administrative expense claim, at least where there has been no showing that hazardous materials were left on the premises or that damage to the premises was caused during the post-petition period. In re Ames, 306 B.R. at 60 (explaining that encumbering a debtor with a post-petition obligation would seriously undercut the entire purpose of the rejection process ). A lessor s claim based on a tenant s failure to remove property from the premises is merely a pre-petition rejection claim. Id; see also In re Teleglobe Communications Corp., 304 B.R. 79 (D. Del. 2004) (holding that a debtor s rejection of its commercial lease is not a termination thereof, of a kind that would support a postpetition administrative expense claim for costs of removing property from the premises, but rather is regarded as a breach of the lease which relates back to before the bankruptcy petition, and which gives the lessor a prepetition claim for damages as an unsecured creditor). 10. The case law cited by Decade even supports the conclusion that Decade is not entitled to any administrative expense claim. In In re Goody s Family Clothing, Inc., 610 F.3d 812 (3d Cir. 2010), a case cited by Decade, the Third Circuit explained that [f]or a commercial lessor s claim to get administrative expense treatment under 503(b)(1), the debtor s occupancy 5

6 Case CSS Doc 147 Filed 09/18/14 Page 6 of 7 of the leased premises must confer an actual and necessary benefit to the debtor in the operation of its business. 610 F.3d at 818. Moreover, [a] landlord is entitled to an administrative claim in the amount of the fair market value of the premises when a debtor occupies and uses them post-petition. Id. (quoting In re DVI, Inc., 308 B.R. 703, (Bankr. D. Del. 2004) (emphasis in original). As explained above, the Debtors are neither using nor occupying the Premises. The Debtors vacated the Premises and turned over the keys prior to the Petition Date, and have abandoned any remaining personal property that is left on such premises, as it was too burdensome for the Debtors to remove such property. Accordingly, Decade is not entitled to any administrative expense claim. Conclusion WHEREFORE, the Debtors respectfully request that this Court enter an order granting the relief requested in the Rejection Motion, and such other and further relief as is just and proper. Dated: September 18, 2014 GREENBERG TRAURIG, LLP /s/ Dennis A. Meloro Dennis A. Meloro (DE Bar No. 4435) 1007 North Orange Street, Suite 1200 Wilmington, Delaware Telephone: (302) Facsimile: (302) melorod@gtlaw.com -and- 6

7 Case CSS Doc 147 Filed 09/18/14 Page 7 of 7 Nancy A. Mitchell Maria J. DiConza Matthew L. Hinker (DE Bar No. 5348) GREENBERG TRAURIG, LLP 200 Park Avenue New York, New York Telephone: (212) Facsimile: (212) mitchelln@gtlaw.com diconzam@gtlaw.com hinkerm@gtlaw.com Proposed Counsel for the Debtors and Debtorsin-Possession 7