Case KG Doc 1118 Filed 12/29/15 Page 1 of 6 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case KG Doc 1118 Filed 12/29/15 Page 1 of 6 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ) In re: ) Chapter 11 ) HAGGEN HOLDINGS, LLC, et al., ) Case No (KG) ) Debtors. ) (Jointly Administered) ) ) Hearing Date: January 5, 2016 at 2:00 p.m. (ET) ) Objection Deadline: December 29, 2015 at 4:00 p.m. (ET) ) Re Docket No ISLAND VENTURES, LLC S OBJECTION TO DEBTORS MOTION FOR AN ORDER, PURSUANT TO SECTION 365(d)(4) OF THE BANKRUPTCY CODE, EXTENDING THE DEADLINE FOR THE DEBTORS TO ASSUME OR REJECT UNEXPIRED LEASES OF NON-RESIDENTIAL REAL PROPERTY UNDER WHICH ANY OF THE DEBTORS ARE LESSEES Island Ventures, LLC ( Landlord or Island Ventures ), by its undersigned counsel, hereby submits these Objections (the Objections ) to the Debtor s Motion For An Order, Pursuant To Section 365(d)(4) Of the Bankruptcy Code, Extending The Deadline For The Debtors To Assume Or Reject Unexpired Leases Of Non-Residential Real Property Under Which Any Of The Debtors Are Lessees (the Motion ). The Debtor s lease of property from Landlord expires on February 1, 2016; Debtor may not assume nor assign any greater possessory interest than they have. Consequently, any order allowing the Debtor more time to assume (or reject) the soon to be expired lease must be clear that it is not creating any additional rights, and that any such extension only grants the Debtor authority to assume (or reject) Debtor s remaining interest in the lease (which may be none or holdover, at best after February 1, 2016). In support of its Objections, Landlord states as follows: /

2 Case KG Doc 1118 Filed 12/29/15 Page 2 of 6 JURISDICTION 1. The Court has jurisdiction over a motion to extend the time for a Debtor to assume or reject leases pursuant to 28 U.S.C. 157 and 1334, and the Amended Standing Order of Reference from the United States District court for the District of Delaware, dated as of February 29, 2012 (the Amended Standing Order ) for matters arising under section 365 of the Bankruptcy Code. However, the Court does not have core jurisdiction over matters of State Law and how they affect the parties respective rights under the Debtor s lease with Island Ventures. Those matters are a non-core proceeding pursuant to 28 U.S.C Island Ventures does not consent to the entry of final orders or judgments by the Bankruptcy Court on matters of state and contractual law if it is determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. BACKGROUND 2. Haggen Holdings, LLC (the Debtor ) filed its voluntary petition for relief under Chapter 11 of Title 11 of the United States code (the Bankruptcy Code ) on September 8, 2015 ( Petition Date ). The Debtors are operating their businesses and managing their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. These chapter 11 cases are being jointly administered for procedural purposes pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ). No request for the appointment of a trustee or examiner has been made in these chapter 11 cases. 3. Pursuant to section 365(d)(4) of the Bankruptcy Code, a debtor has an initial 120- day period following the filing of a bankruptcy petition in which to elect to assume or reject unexpired leases of non-residential real property under which the debtor is a lessee. See 11 U.S.C. 365(d)(4). Section 365(d)(4)(B) of the Bankruptcy Code provides, however, that on a / 2

3 Case KG Doc 1118 Filed 12/29/15 Page 3 of 6 motion by the debtor, the Court may extend the initial 120-day deadline by 90 days for cause. See 11 U.S.C. 365(d)(4)(B). Any subsequent extensions of the deadline to assume or reject unexpired leases of non-residential real property under which the debtor is a lessee may only be granted with the prior written consent of the affected lessors. See 11 U.S.C. 365(d)(4)(B)(ii). 4. Pursuant to section 365(d)(4) of the Bankruptcy Code, the Debtors initially have until January 6, 2016 to assume or reject the Real Property Leases (the Assumption/Rejection Period ). By its Motion, the Debtors request the Court enter an Order, extending the Assumption/Rejection Period by ninety (90) days, through and including April 5, 2016, pursuant to section 365(d)(4) of the Bankruptcy Code. 5. On or about May 6, 1980, Landlord s predecessor in interest entered into a written lease with the Debtor s predecessor-in-interest as Tenant, to lease certain real property in a shopping center in Oak Harbor, Washington (the Premises ). See Affidavit of Richard Knight, Exhibit A. 1 The initial lease specified that the term was to be twenty (20) years commencing on May 1, 1980 and expiring on April 30, See id. at 1. The initial lease at Section 16 contained options for additional periods provided that proper notice was given as follows: Id. at Options for renewal. Lessee, at Lessee s option, by giving lessor sixty (60) days written notice before the expiration of the term or option term then in effect, may extend the term of this lease for eight (8) separate additional periods of five (5) years each on the same terms and conditions. 6. The parties subsequently signed a Lease Modification Agreement on December 26, 1979 in which they agreed that the initial lease term would end on February 1, Knight 1 The original lease was between Gary Powlesland and Safeway Stores. Knight Aff. at Exh. A. Island Plaza Limited Partnership became the successor in interest to Powlesland on or about July 12, 1996 (See Knight Aff. at Exhibit C). It is unclear from Landlord s records when Debtor succeeded to Safeway s interests, but an Estoppel Certificate dated February 23, 2015 was addressed and sent to Haggen Holdings LLC. Id. at Exhibit G. Upon information and belief, Debtor refers to it as store number / 3

4 Case KG Doc 1118 Filed 12/29/15 Page 4 of 6 Aff. at Exhibit B at First Paragraph. The initial lease, as properly amended, modified and supplemented is hereafter referred to as the Lease. 7. The Lessee properly exercised the five year option for 2001 through 2006 by timely notice on September 15, Id. at Exhibit D. The Lessee properly exercised the five year option for 2006 through 2011 by timely notice in October Id. at Exhibit E. The Lessee properly exercised the five year option for 2011 through 2016 by timely notice in September Id. at Exhibit F. Debtor has not timely exercised any further option and the time for exercising any such option has passed. The Lease therefore expires on February 1, If Debtor remains in possession of the Premises after the expiration of the Lease, the Debtor may become, under certain circumstances, a month-to-month tenant that may be terminated on thirty (30) days notice. See id. at Exh. A, 17. OBJECTIONS 8. Landlord hereby objects to the Motion insofar as it applies to its Lease. If a Debtor is required to take an action to preserve its rights and the time to take such action has not expired prior to the bankruptcy, the Bankruptcy Code does not eliminate the Debtor s responsibility to still take such action to preserve its rights. Under the Lease, the Debtor was required to give notice of its exercise of the option on or before December 3, 2015, 60 days prior to the February 1, 2016 expiration. 2 The Debtor did not do so, and the lease expires February 1, Once the lease expires, there is no lease or executory contract to assume (or reject). See, e.g., Counties Contracting and Const. Co. v. Constitution Life Ins. Co., 855 F.2d 1054, (3d. Cir. 1988) (where Debtor had filed petition prior to contractual grace period expiring, but 2 The Bankruptcy Code does at section 108(b) give the Debtors the later of the end of such period or 60 days after the Petition Date to take such action. 11 U.S.C. 108(b). However, 60 days after the Petition Date would be in November, so the December 3 deadline under the Lease was the effective deadline / 4

5 Case KG Doc 1118 Filed 12/29/15 Page 5 of 6 still neglected to pay premium during period provided in statute, Debtor s policy lapsed postpetition in accordance with its provisions); In re Clearpoint Business Resources, Inc., 442 B.R. 292, 296 (Bankr. D.Del. 2010) (Chapter 11 filing does not expand a Debtor s rights under the termination provision of a contract, and once a contract ends, a Debtor s rights to assume it end as well). 9. Because the Lease expires on February 1, 2016, and after such time, the Debtor is only a holdover tenant, at best, any order allowing an extension of time to assume or reject should be clear that debtor may only assume or reject whatever its interest may be at the time, if any. The order should also be clear that nothing in the order creates or enhances, directly or indirectly any Debtor interest in the Premises or the Lease, and is without prejudice to Landlord s position that the Lease expires February 1, RESERVATION OF RIGHTS 10. Landlord reserves its right to supplement this Objection and make such other and further objections as it deems necessary or appropriate, and reserves all right to object to the Motion on such additional grounds as, without limitation, may be necessary in response to any position of the Debtor. WHEREFORE, Island Ventures, LLC respectfully requests: (a) that this Court deny the Debtor s Motion insofar as it applies to the Lease; or (b) alternatively, that this Court grant the motion to extend the time to assume or reject, but only until the Lease expires on February 1, 2016; or (c) alternatively, that if this Court does grant the Motion, the Court should include in any order granting an extension of time to assume or reject the Lease, that the order only grants an extension to assume or reject whatever interest or Lease that may then be in effect, if any, that nothing in the order creates or enhances any Debtor interest in the Lease or the Premises, and is / 5

6 Case KG Doc 1118 Filed 12/29/15 Page 6 of 6 without prejudice to Island Venture s position that the Lease expires on February 1, 2016; and (d) that the Court grant Island Ventures such other and further relief as it deems just and proper. Respectfully submitted, Dated: December 29, 2015 MORRIS JAMES LLP /s/ Brett D. Fallon Brett D. Fallon (DE No. 2480) 500 Delaware Avenue, Suite 1500 P.O. Box 2306 Wilmington, DE Tel: (302) Fax: (302) bfallon@morrisjames.com Counsel to Island Ventures, LLC / 6

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44 Case KG Doc Filed 12/29/15 Page 2 of 2 VIA HAND DELIVERY Matthew Lunn, Esq. Robert Poppiti, Jr., Esq. Ian J. Bambrick, Esq. Ashley E. Jacobs, Esq. YOUNG CONAWAY STARGATT & TAYLOR, LLP Rodney Square 1000 North King Street Wilmington, DE [Counsel to the Debtors] Bradford J. Sandler, Esq. PACHULSKI STANG ZIEHL & JONES LLP 919 North Market Street, 17th Floor Wilmington, DE [Counsel to the Official Committee of Unsecured Creditors] Regina Stango Kelbon, Esq. BLANK ROME LLP 1201 Market Street, Suite 800 Wilmington, DE [Counsel PNC Bank, N.A., in its capacity as Agent] Timothy J. Fox, Jr. Trial Attorney OFFICE OF THE UNITED STATES TRUSTEE J. Caleb Boggs Federal Building 844 King Street, Room 2207 Lockbox #35 Wilmington, DE VIA FIRST CLASS MAIL & FACSIMILE Frank A. Merola, Esq. STROOCK & STROOCK & LAVAN, LLP 2029 Century Park East Los Angeles, CA Facsimile: (310) [Counsel to the Debtors] Frank A. Merola, Esq. Sayan Bhattacharyya, Esq. Elizabeth Taveras, Esq. STROOCK & STROOCK & LAVAN, LLP 180 Maiden Lane New York, NY Facsimile: (212) [Counsel to the Debtors] VIA FIRST CLASS MAIL Robert J. Feinstein, Esq. PACHULSKI STANG ZIEHL & JONES LLP 780 Third Avenue, 34 th Floor New York, NY Facsimile: (212) [Counsel to the Official Committee of Unsecured Creditors] Lawrence F. Flick II, Esq. BLANK ROME LLP The Chrysler Building 405 Lexington Avenue New York, NY Facsimile: (212) [Counsel PNC Bank, N.A., in its capacity as Agent] Michael C. Graziano, Esq. Gregory F. Vizza, Esq. BLANK ROME LLP One Logan Square 130 North 18 th Street Philadelphia, PA Facsimile: (215) [Counsel PNC Bank, N.A., in its capacity as Agent]