Old Carco LLC and RJM I, LLC, as Liquidation Trustee for Old Carco L

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
__________________________________________
:
In re 	: 	Chapter 11
:
OLD CARCO LLC 	: 	Case No. 09-50002 (AJG)
(f/k/a CHRYSLER LLC), et al., 	: 	Confirmed Cases
:
Debtors. 	:
__________________________________________:
OPINION (I) DISALLOWING AND EXPUNGING (A) DUPLICATE CLAIM NUMBERS
27949, 27951, 28551 AND 28552 OF DYNASTY INTERNATIONAL LLC, AND (B) CLAIM
NUMBER 28553 OF BRUCE M. ABRAHAMSON; AND (II) RECLASSIFYING SURVIVING
CLAIM NUMBER 28554 OF BRUCE M. ABRAHAMSON
In the matter before the Court, the Old Carco Liquidation Trust (the “Trust”), as
successor in interest to Old Carco LLC f/k/a Chrysler LLC (“Old Carco”) and its affiliated
debtors and debtors in possession (collectively with Old Carco, the “Debtors”) objects to certain
proofs of claim seeking administrative expense priority filed by Dynasty International LLC
(“Dynasty”) and Bruce M. Abrahamson (“Abrahamson” or “Claimant”). Specifically, the Trust
seeks the disallowance and expungement in their entirety of all but one of the proofs of claim, as
duplicative of the remaining claim. 	In addition, the Trust seeks to have the remaining claim
reclassified as an unsecured claim, for later determination, if necessary, of its validity and
amount.
Procedural Background
On April 30, 2009 (the “Petition Date”), Old Carco and certain of its domestic direct and
indirect subsidiaries (the “Original Debtors”) filed for protection under chapter 11 of title 11 of
the United States Code (the “Bankruptcy Code”). On May 19, 2009, an additional affiliate filed
a petition for relief under title 11. Pursuant to orders entered by the Court, the Debtors’ cases
were jointly administered for procedural purposes, in accordance with Rule 1015(a) of the
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Federal Rules of Bankruptcy Procedure. On May 5, 2009, an Official Committee of Unsecured
Creditors (the “Creditors’ Committee”) was formed. By order, dated August 6, 2009, certain
deadlines were set for filing claims against the Debtors’ estates. The deadline to assert pre-
petition claims was set as September 28, 2009. The last date set for filing any claims arising
from or relating to the rejection of an executory contract and unexpired lease, as well as other
claims related to such rejected agreement, including administrative claims under section 503(b)
of the Bankruptcy Code, was set as the later of (a) September 28, 2009, or (b) a date that was 30
days after entry of the order rejecting the relevant contract or lease. On November 19, 2009, the
Court entered an order (the “Claim Procedures Order”) setting forth, among other things,
procedures for settling and objecting to claims. On April 23, 2010, an order confirming the
Second Amended Joint Plan of Liquidation of Debtors and Debtors in Possession, as Modified
(the “Debtors’ Plan”), was entered on the docket of the jointly administered cases. The Debtors’
Plan became effective on April 30, 2010. Pursuant to the Debtors’ Plan, a Liquidation Trust (the
“Trust”) was formed.
The Leased Premises
Prior to the Petition Date, pursuant to a lease, dated October 10, 1972 (the “Lease”), one
of the Debtors, Chrysler Realty Corporation (“CRC”), leased certain premises (the Premises”)
located in Indiana from the Claimant’s predecessors in interest, his parents. The Lease term was
for twenty-five years commencing in October 1972 and ending in September, 1997. The Lease
contained five options to renew, each for an additional five-year term. CRC had availed itself of
the first three renewal options and, as of the Petition Date, the Lease was set to expire in
September 2012 and had two remaining five-year renewal options. The Lease specified that the
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1Paragraph 7 of the Lease, entitled Assignment and Subletting provided that
Tenant shall not assign this lease or sublet the premises without the written consent of the Landlord, such
consent not to be unreasonably withheld, except such assignment or subletting be to a corporation then owned or
controlled by the Tenant or to Chrysler Corporation or to a corporation owned or controlled by Chrysler Corporation
or to any subsidiary of Chrysler Corporation or to a franchised dealer of Chrysler products, or to any other
financially responsible party.
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Premises were to be used “primarily for the unrestricted use as an automobile sales and service
establishment . . or for any other lawful purposes.” The Lease permitted CRC to sublet or assign
the premises [Lease ¶ 7], and CRC availed itself of that privilege, at no relevant time occupying
the Premises.
During the period relevant to this matter, in accordance with ¶ 7 of the Lease, 1 which
permitted CRC to sublet “to a franchised dealer of Chrysler products,” CRC sublet the Premises
to a dealership, Thomas Dodge Chrysler Jeep of Highland, Inc. (the “Subtenant”).
The Lease contained a clause entitled “Covenants to Repair and Take Care of Premises,
which required that the
Tenant shall make all repairs necessary to keep the demised premises and the
buildings and appurtenances situated thereon in as good order and condition as
when delivered to it except exterior and structure repairs, repairs to the roof, and
such other repairs as may be necessary by reason of ordinary wear and tear which
Landlord shall make.
Lease ¶ 4.
Pre-Petition Lawsuit
Also prior to the Petition Date, in 2006, Abrahamson commenced a lawsuit (the “Pre-
Petition Lawsuit”) in an Illinois state court against CRC and other parties, alleging that the
defendants were responsible for severe and intentional damages to the Premises. After the
defendants in the Pre-Petition Lawsuit removed the action to the United States District Court for
the Northern District of Illinois, Abrahamson amended the complaint and, among other things,
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2As the result of a previous omnibus objection filed by the Debtors, the Court entered an order, dated
January 21, 2010, disallowing and expunging two additional duplicative proofs of claim filed by Abrahamson (proof
of claim numbers 27950 and 27952).
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added the Subtenant as a defendant. During the course of this litigation, on January 31, 2007,
CRC and Abrahamson entered into a tolling agreement (the “Standstill Agreement”), pursuant to
which CRC would not make further repairs to the Premises and Abrahamson would not request
any additional repairs be made to the Premises until further agreement of the parties. The
following year, the Illinois District Court granted an oral motion made by Abrahamson at a
hearing it conducted on April 8, 2008, for dismissal, without prejudice, of the Pre-Petition
Lawsuit.
Duplicative Claims
Prior to Confirmation of the Debtors’ Plan, Abrahamson and Dynasty filed numerous
proofs of claim, some against Old Carco and some against CRC. All of the proofs of claim filed
by Abrahamson and Dynasty rely upon sections 503(b) and 507(1)(2) of the Bankruptcy Code to
seek administrative priority for the identical amount, and all of the proofs of claim are based
upon identical damage claims related to the Premises.
The Debtors filed an Objection, dated April 9, 2010, pursuant to sections 105 and 502 of
the Bankruptcy Code, Federal Rule of Bankruptcy Procedure 3007 and the Claim Procedures
Order entered in these cases, seeking to disallow, as duplicative, proof of claim numbers 27949,
27951, 28551, and 28552 (the “Dynasty Claims”), filed by Dynasty; and proof of claim number
28553 (together with the Dynasty Claims, the “Duplicative Claims”), filed by Abrahamson. 2 In
addition, in the Objection, the Debtors sought to have Abrahamson’s proof of claim number
28554 reclassified as a general unsecured, nonpriority claim. As successor to the Debtors, the
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Trust has continued to prosecute the Objection.
The confirmation of the Debtors’ Plan, as relevant here, resulted in the consolidation of
all of the Debtors’ estates for distribution purposes, thereby eliminating the need for claims to be
asserted against multiple Debtors. Abrahamson has not contested that the filed proofs of claim
are identical, nor has he set forth any reason for not disallowing and expunging any duplicative
claims. As such, the Duplicative Claims are disallowed and expunged.
Request for Administrative Priority
In the remaining proof of claim, number 28554, against CRC, the Claimant seeks
administrative priority for its claim based upon alleged damages to the Premises. Although the
damages asserted in the proof of claim appear to reflect the damages that the Claimant sought in
the Pre-Petition Lawsuit, the Claimant asserts that there was additional damage to the Premises
post-petition. The Claimant, however, does not indicate what portion of the alleged damages he
seeks to allocate to the post-petition period.
As noted, the Trust objects to the request for administrative status for the claim, arguing
that the Claimant has not established a basis for administrative priority for his claim. As such,
the Trust maintains that proof of claim number 28554 should be reclassified as a general
unsecured, nonpriority claim, subject to future determination of its proper amount, if any,
pursuant to section 502 of the Bankruptcy Code.
Administrative Expense Priority
Traditional Criteria
Section 503(b)(1)(A) of the Bankruptcy Code provides a priority for “the actual,
necessary costs and expenses of preserving the estate . . . for services rendered after the
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commencement of the case.” Pursuant to section 507(a)(2) of the Bankruptcy Code, these
expenses for administering the estate are afforded a second priority.
Ordinarily, an expense will be accorded administrative status
1) if it arises out of a transaction between the creditor and the bankrupt’s trustee or
debtor-in-possession; and
2) only to the extent that the consideration supporting the claimant’s right to payment
was both supplied to and beneficial to the debtor-in-possession in the operation of the
business.
Amalgamated Ins. Fund v. McFarlin’s Inc., 789 F.2d 98, 101 (2d Cir. 1986), see also Cramer v.
Mammoth Mart, Inc. (In re Mammoth Mart, Inc.), 536 F.2d 950, 954 (1st Cir. 1976).
The services performed by the claimant must have been “induced” by the debtor-in-
possession, not the pre-petition debtor. See In re Old Carco LLC, 424 B.R. 633, 642 (Bankr.
S.D.N.Y. 2010 (citations omitted). Where a “debtor-in-possession elects to continue to receive
benefits from the other party to an executory contract pending a decision to assume or reject the
contract, the debtor-in-possession is obligated to pay for the reasonable value of those services.”
Id. Therefore, the claims of third parties who are induced to supply goods or services to a
debtor-in-possession pursuant to a contract that has not been rejected are afforded administrative
priority to the extent that the consideration supporting the claim was supplied during the
reorganization. Id. The claimant has the burden of establishing entitlement to the priority. See
In re Drexel Burnham Lambert Group Inc., 134 B.R. 482, 489 (Bankr. S.D.N.Y. 1991).
Priority, however, is not afforded a claim merely because the right to payment arises
post-petition. See Amalgamated Ins. Fund, 789 B.R. at 101. Thus, where there is a pre-petition
contract or lease, and the consideration supporting the claim is supplied pre-petition, courts have
determined that those claims are not entitled to administrative priority, even if the right to
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payment arises post-petition. See e.g., Amalgamated Ins. Fund, 789 B.R. at 101-104 (holding
that a required lump sum payment, imposed as liability to withdraw from a multi-employer
pension fund, is not entitled to administrative priority even where the payment was due post-
petition because the consideration supporting the withdrawal liability is the past (pre-petition)
labor of the covered employee).
Moreover, in light of the bankruptcy goal of providing equal distribution of a debtor’s
assets to all creditors, “statutory priorities, such as those resulting from administrative expense
treatment, are narrowly construed.” In re Ames Dept. Stores, Inc., 306 B.R. 43, 54 (Bankr.
S.D.N.Y. 2004) (citing Amalgamated Ins. Fund, 789 F.2d at 101). Strictly construing the terms
“actual” and “necessary” minimizes administrative expense claims, thereby preserving the estate
for the benefit of all creditors. See Drexel, 134 B.R. at 488.
The Reading Co. Line of Cases
An exception to the requirement that there be an actual benefit to the estate before a
claim can be accorded administrative priority has developed in the context of torts committed by
the trustee or debtor-in-possession during the course of a chapter 11 proceeding. See In re
Puerto Rican Food Corp., 41 B.R. 565, 572-73 (Bankr. E.D.N.Y. 1984) (citing Reading Co. v.
Brown, 391 U.S. 471, 482, 88 S. Ct. 1759, 1765, 20 L. Ed.2d 751 (1968)) (other citations
omitted). In addition, courts have accorded administrative priority to certain claims to further
the goal of environmental protection. See Alabama Surface Mining. Comm. v. C. Michael
Stilson (In re N.P. Mining Co., Inc.) 963 F.2d 1449, 1457-59 (11th Cir. 1992) (discussing cases).
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Rejection of Lease
On the Petition Date, the Debtors filed a motion (the “Rejection Motion”) seeking to
reject a number of leases effective as of the Petition Date, including the Lease. The Original
Debtors served notice of the Rejection Motion at the last known address reflected in their records
for the owner of the Premises. By order, dated May 20, 2009 (the “Rejection Order”), the Court
approved the rejection of the Lease.
Section 365(a) of the Bankruptcy Code affords a debtor the statutory right to reject an
unexpired lease, thereby relieving a debtor of the duty of continuing to perform on a burdensome
contract. In re Old Carco LLC, 424 B.R. 633, 638 (Bankr. S.D.N.Y. 2010) (citations omitted).
Further, any claim resulting from the rejection is treated as a pre-petition claim, and afforded
general unsecured status. Id. at 639; 11 U.S.C. § 365(g).
Section 365(d)(3) of the Bankruptcy Code requires a trustee or debtor-in-possession to
timely perform any obligations under an unexpired nonresidential lease “from and after the order
for relief . . . until such lease is assumed or rejected.” 11 U.S.C. § 365(d)(3). Here, however, the
Court approved the Debtors’ rejection of the Lease effective as of the Petition Date. Therefore,
there is no post-petition, pre-rejection period.
Moreover, the Debtor did not occupy the Premises as it had been subleased to a franchise
dealer. Once a debtor rejects a lease in which it is both a lessee under the primary lease and
lessor under a sublease, that debtor cannot be liable for administrative expenses arising pursuant
to such lease post-rejection. Doral Commerce Park, Ltd. v. Teleglobe Communications Corp.
(In re Teleglobe Communications Corp), 304 B.R. 79, 84 (D. Del. 2004) (citing, Chatlos
Systems, Inc v. Kaplan, 147 B.R. 96 (D. De. 1992). The notice provided to a primary landlord of
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a debtor-tenant’s rejection of a lease places the primary landlord in control of the property with
respect to the subtenant. Chatlos 147 B.R. at 100 (citing In re United Cigar Stores, 86 F.2d 629
(2d Cir. 1936). The Chatlos court reasoned that because the debtor-tenant had rejected the
primary lease, it no longer had any “statutory, contractual or possessory rights in the property to
enable it to evict the subtenant and, therefore, once the landlord under the primary lease receives
notice of the order rejecting the primary lease, the debtor-tenant has “done everything possible to
surrender the premises to [the landlord].” Chatlos 147 B.R. at 100. Upon the rejection of the
primary lease concerning certain property by a debtor-tenant who is also a sublessor of that
property, and absent an agreement between the primary landlord and the subtenant that provides
otherwise, the relationship between the primary landlord and the subtenant would be determined
by the law of state where the property is located. As such, the debtor-tenant’s bankruptcy estate
no longer has any “meaningful interest in the ultimate disposition of the Premises.” In re Dial-
A-Tire, Inc., 78 B.R. 13, (Bankr. W.D.N.Y. 1987).
The Debtors sought to reject the Lease immediately upon filing the petitions and were
granted that relief within 20 days of the Petition Date. There are no allegations to suggest that,
since May 20, 2009, the Debtors did not act under the reasonable assumption that the Lease had
been rejected as of the Petition Date. Therefore, once the Lease was rejected, tenant-sublessor
CRC surrendered the Premises to the Claimant. After surrender of the Lease, there is no basis
for a post-petition administrative claim against the Debtors. Any claims based upon alleged
damages to the Premises after the rejection would appear to be against the Sublessor under state
law.
In addition, any claim based upon damages to the Premises occurring pre-petition,
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including those asserted in the Pre-Petition Lawsuit, as well as any damages resulting from the
breach of the lease upon its rejection are not entitled to administrative priority. Rather, any such
claims would be classified as non-priority, general unsecured claims.
The Claimant argues that the claim is entitled to administrative priority, nonetheless,
because CRC benefitted by its rejection of the primary lease. First, the Claimant asserts that the
Debtors benefitted post-petition from two pre-petition events: (i) entering into the Standstill
Agreement in 2007 related to the Pre-Petition Lawsuit, and (ii) exercising the third renewal
option in 2007, pursuant to the Lease. Although both of these events occurred pre-petition, the
Claimant argues that the Debtors continued to reap the benefits of those two events post-petition
because the Standstill Agreement allowed CRC to continue with its possessory interest in the
Premises and the renewal afforded CRC the opportunity to continue to lease the Premises until
September 2012.
Whatever benefits the Debtors derived from the two pre-petition events of entering into
the Standstill Agreement and exercising the renewal option ceased once the Debtors rejected the
Lease. Had CRC’s rejection of the Lease been subsequent to the Petition Date, CRC would have
been obligated for timely payments under the terms of the Lease until the rejection, thereby
providing payment for any post-petition benefits received. Once the Lease is rejected, however,
any claims based upon damages resulting from the breach of the Lease are not entitled to
administrative priority.
Next, the Claimant argues that the Debtors benefitted from any continued use post-
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3While the Claimant at one point asserted that CRC continued to occupy the property post-petition as
tenant, presumably because he referred to the Subtenant’s employees as on-site employees or agents of the Debtors;
at other times, the Claimant asserted that it was the Subtenant that operated out of the Premises. Further, in earlier
pleadings filed with the Court, the Claimant argued that the Debtors could not have properly rejected the Lease as it
was not a “routine dealership lease” because at the time of the rejection in 2009, according to the Claimant, the
Premises had been vacant since 2007.
4The only fact that the Claimant presents concerning the post-petition period is his statement that he became
aware sometime in late July 2009 that the Premises had been abandoned, at which time he inspected the Premises
and saw extensive damage. Thus, he has not presented any facts that would allow for a determination of when either
the Subtenant vacated or any damage may have occurred.
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petition by the Subtenant because the Subtenant was a Chrysler franchise dealer.3 As such, the
Claimant contends that any use of the Premises by the Subtenant for the purpose of having
Chrysler vehicles delivered to the property or prepared and stored there was in furtherance of the
Debtors’ business and therefore benefitted the Debtors’ estates.
The Court previously determined that “the Debtors ceased production and operations as
an automobile manufacturer upon the filing of the petitions . . . [and had] directed their efforts to
maintaining the status quo until the conclusion of a sale of substantially all of the assets to a
purchaser, which occurred within several weeks of the filing.” In re Old Carco LLC, 424 B.R.
633, 646 (Bankr. S.D.N.Y. 2010). The Claimant merely makes a conclusory assertion that the
Debtors’ vehicles were delivered and prepared at the Premises without further factual
enhancement. The Claimant does not even set forth any facts to support the contention that the
Subtenant was operating a franchise on the Premises post-petition.4 Moreover, even if the
Subtenant were operating a franchise at that location, absent any allegations that the Debtors
operated that franchise or controlled it, any benefit to the Debtors would be too remote to confer
administrative priority for a claim based upon alleged post-petition damage to the Premises,
which at all relevant times would have been in the possession and control of the Subtenant, a
non-debtor third-party.
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5It appears that the Claimant is suggesting that any period during which the Subtenant remained operating
on the Premises post-petition benefitted the Debtors because the Debtors would have had a source from which to
offset any amounts due them. The alleged benefit is too remote. Moreover, the Claimant would have been
compensated for any such benefit by receipt of timely payment of the rent. Prior to rejection of the Lease, the
Debtors would have been obligated to make such timely rental payments. After the Lease was rejected, any claims
for the Subtenant’s continued occupation of the Premises would be between the Claimant and the Subtenant under
state law.
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The Claimant also argues that the Debtors benefitted because they filed a counterclaim
against the Subtenant in the Pre-Petition Lawsuit seeking to compel reimbursement from the
Subtenant to the extent the Debtors were found liable in the underlying action. The Claimant
argues that the Debtors benefitted in that regard because the Debtors coerced such
reimbursement by withholding the franchise dealer’s receivables.
The Debtors, however, would only receive reimbursement for damages that they were
required to pay to the Claimant, or for any expenses incurred, and there would be no net benefit
to the Debtors. In any event, all of these claims relate to pre-petition activity and are not entitled
to administrative priority.5
The Claimant makes numerous references to Saddleback Valley Community Church v. El
Toro Materials Co., Inc., 504 F.3d 978 (9th Cir. 2007), as supporting his position. The El Toro
case, however, is inapposite as it concerned whether the cap on rejection damages pursuant to
section 502(b)(6) of the Bankruptcy Code applied to damages that did not necessarily result from
the rejection of the lease. The El Toro court specifically noted that it was not addressing the
issue of the priority of the claim. Id. at 981 n.5 (noting that “[p]rioritization of the claim is a
separate issue from determining the amount of the claim that will be permitted).
Finally, not having shown any benefit to the Debtors’ estates that would warrant granting
an administrative priority to his claim, the Claimant makes an effort to have his claim
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categorized as a post-petition tort claim similar to those granted priority under the Reading Co.
line of cases. The Claimant contends that there was intentional damage inflicted on the Premises
post-petition. The Claimant asserts that this intentional damage was in retaliation for the filing
of the Pre-Petition Lawsuit.
There has not been any plausible showing that the Debtors occupied the Premises Post-
Petition to warrant an evidentiary hearing concerning the issue. Pursuant to Court order, the
Debtors rejected the Lease effective the Petition Date. As a consequence of the sublease
between CRC and the Subtenant, that rejection operated as a surrender of the Premises to the
Claimant. Thereafter, absent any agreement between the Claimant and the Subtenant, their
relationship was governed by state law.
Moreover, the Claimant has made no effort to distinguish the alleged pre-petition and
post-petition damage - he has not specified or even alleged, what portion of the damage should
be allocated to the post-petition period. Further, the Claimant does not set forth any facts to
support his contention that the Debtors caused the damage or to tie the alleged damages to the
post-petition period. Although the Claimant makes the conclusory assertion that the Debtors
inflicted post-petition damage, he only makes allegations concerning the Subtenant’s presence
on the Premises, and his references to employees and agents of the Debtors are also to the
Subtenants’ personnel. The Claimant has not alleged any facts to support his contention that the
Debtors caused any post-petition damage. The Claimant has the burden of establishing
entitlement to administrative priority. The Claimant has neither established that entitlement nor
alleged sufficient facts to warrant an evidentiary hearing on the issue.
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Notice
The Claimant argues that he did not receive proper notice concerning the rejection of the
Lease. The Debtors contend that they sent notice to the last known address for the landlord of
the premises as reflected in their records. In support of the propriety of their notice, the Debtors
refer to one of the Claimant’s exhibits, which was the letter-confirmation that CRC sent to the
Claimant in 2007 exercising the renewal option. That letter was addressed to Abrahmason and
Dynasty Management Group at the same street address as utilized for noticing of the Rejection
Motion. However, although the notice of the Rejection Motion was sent to that street address, it
was actually addressed to Abrahamson’s parents, his predecessors in interest concerning the
Premises. As reflected in the letter exercising the renewal option, Abrahamson and Dynasty
Management Company used that same street address to receive correspondence when the
renewal was effected. The Court notes that it appears that had the Debtors used Abrahamson’s
name on the notice, they still would have used that same street address.
The Debtors argue that, in any event, Abrahamson was aware of the Rejection Motion at
least as early as March 2010, when he referenced that pleading in a submission to the Court filed
that month and never argued before that he had not received notice concerning the Rejection
Motion, or sought reconsideration of the Rejection Order. The Debtors contend that the
Rejection Order is final, that it is too late for reconsideration of it, and that a response to a claim
objection is not a procedurally appropriate vehicle for raising a collateral attack on the Rejection
Order. The Debtors also note that pursuant to section 365(d)(4) of the Bankruptcy Code,
inasmuch as the Lease was never assumed, it would have been deemed rejected, in any event,
120 days after the filing.
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The Rejection Order was entered on May 20, 2009 and is now final and unappealable.
The appropriate vehicle for seeking to vacate the Rejection Order based upon improper notice
would have been a timely motion pursuant to rule 60(b) of the Federal Rules of Civil Procedure.
Here, the Claimant was aware of the entry of the Rejection Motion, at least as early as March
2010, when he filed a pleading objecting to the confirmation of the Debtors’ Plan. In that
submission, the Claimant specifically referenced docket entry no. 75 of the Debtors’ cases,
which is the Rejection Motion. Although the Claimant was aware of the Rejection Motion, at
least as early as March 2010, it was not until the following year, in his May 2011 opposition to
the Debtors’ objection to his seeking administrative priority for his claim, that the Claimant first
asserted that he had not received any notice concerning the Debtors’ intent to reject the Lease.
This was two years after the Rejection Order was entered and over one-year after he
acknowledged the docket entry of the Rejection Motion. An opposition to a claims objection
motion is not the proper vehicle by which to challenge a final order. Further, based upon the
facts, it is too late for the Claimant to seek to vacate the Rejection Order premised upon the
alleged lack of notice. Even if the initial notice to the Claimant concerning the rejection of the
Lease was not adequate, the Claimant neglected to challenge the propriety of the notice of the
Rejection Motion through available procedural mechanisms for more than a year after
confirming knowledge of the Rejection Motion.
Moreover, as a matter of law, even absent the rejection, inasmuch as the Lease was never
assumed, the Lease would have been deemed rejected as a matter of law, pursuant to section
365(d)(4)(i) of the Bankruptcy Code, which provides, in relevant part, that
an unexpired lease of nonresidential real property under which the debtor is the
lessee shall be deemed rejected, and the trustee shall immediately surrender that
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6Moreover, prior to the Lease having been deemed rejected under section 365(d)(4)(i) even if the Claimant
had timely moved for reconsideration of the Rejection Order, the Claimant has not presented any argument to contest
the propriety of the Debtors’ determination to reject the Lease. Under the circumstances, the only issue remaining
would have been the effective date of the rejection.
7Although a post-petition, pre-rejection period would require timely performance of lease obligations
during that time frame, the Claimant’s proof of claim does not assert or adequately allege any such claims.
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nonresidential real property to the lessor, if the trustee does not assume or reject
the unexpired lease by the earlier of –
(i) the date that is 120 days after the order for relief
11 U.S.C. § 365(d)(4)(i). Therefore, even if the Lease was not properly rejected under the
rejection order, it would have been deemed rejected 120 days after the order for relief.6
The only issue before the Court is whether the Claim No. 52884 should be accorded
administrative priority status. By that claim, the Claimant only seeks payment for the alleged
damages to the Premises.
Even accepting the premise of a 120-day post-petition period, the Claimant has not
presented any facts to support his conclusory assertion that there was any damages to the
Premises post-petition. To the contrary, the Claimant maintains that he has no knowledge
concerning the occupancy of the Premises until he was informed that it was abandoned in late
July 2009. The Claimant, who has the burden to establish entitlement to an administrative
priority for his claim, has not presented any facts to plausibly allege that there was any
intentional damage to the Premises post-petition. Further, any claim against the Debtors related
to damages to the Premises occurring pre-petition is properly categorized as a pre-petition, non-
priority, general unsecured claim. As such, even if the Lease were deemed rejected 120-days
after the date of the filing, the Claimant has not plausibly alleged that the claim for damages to
the Premises is entitled to an administrative priority. 7 Absent plausible allegations concerning
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post-petition damage to the Premises, an evidentiary hearing is not warranted.
Conclusion
The Duplicative Claims are disallowed and expunged.
The remaining claim, Claim No. 28554, does not arise out of a post-petition transaction
with any of the Debtors as debtors-in-possession. In addition, any right to payment based upon
Claim No. 28554 is not supported by any consideration that was supplied to the Debtors as
debtors-in-possession. Therefore, Claim No. 28554 is not entitled to an administrative priority.
Further, the Claimant has not set forth any specific and plausible allegations to attribute the
alleged damages to the Premises to the post-petition period that would support administrative
priority for Claim No. 28554.
The Trust is to settle an order consistent with this Opinion.
Dated: New York, New York
October 7, 2011
s/Arthur J. Gonzalez
CHIEF UNITED STATES BANKRUPTCY JUDGE
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