Court Denies Landlord's Request for Section 365(d)(3) Treatment for Obligations Incurred Pre-Petition But Invoiced Post-Petition
In re Pac-West Telecomm, Case No. 07-10562 (BLS), -- B.R. --, 2007 WL 2910093 (Bankr. D. Del. Oct. 5, 2007) (Judge Brendan L. Shannon)
Debtor Pac-West Telecomm, Inc. commenced its bankruptcy case on April 30, 2007. Carlyle One Wilshire II, L.P., a landlord of the debtor, filed a motion under 11 U.S.C. § 365(d)(3) to compel the debtor to pay amounts allegedly coming due post-petition under the leases between the parties. The motion related to two sets of charges. The first was to recapture amounts undercharged for electricity usage prior to the commencement of the case. The second was for late charges and attorneys’ fees allegedly owing under the leases. The United States Bankruptcy Court for the District of Delaware denied the request for payment under section 365(d)(3), finding that the amounts invoiced were pre-petition obligations of the debtor.
The landlord installed an electricity meter to capture the debtor’s usage. The landlord would then issue an invoice on the first day of the month, that was payable within ten days thereof. Upon discovering that the meter malfunctioned, and failed to capture all usage during the pre-petition period, the landlord issued a recapture invoice after the petition date, requesting from the debtor immediate payment of the pre-petition recapture amount of $53,399.67. The debtor did not pay the invoice.
The debtor also failed to pay $6,131.18 in rent for the May 2007 period. In addition, the landlord invoiced the debtor on June 1, 2007 for $9,631.18 in reconciliation charges. Both of those amounts remained unpaid. Pursuant to a lease provision permitting the imposition of late charges for unpaid amounts owed under the leases, the landlord asserted that it was owed $16,021.04 in late charges for the unpaid amounts.
After an exchange of further pleadings, the debtor paid various undisputed amounts. The recapture amount, various late charges and the landlord request for attorneys’ fees remained at issue. The debtor contended that the recapture amount was a pre-petition obligation that was not payable under section 365(d)(3). The debtor also requested that the court extend the time for the debtor to meet its 365(d)(3) financial obligations, nunc pro tunc, excusing any untimely performance and eliminating the basis for most late fees.
The landlord asserted that it was entitled to payment of the recapture amount on a post-petition basis under Montgomery Ward, 268 F.3d 205 (3d Cir. 2001), because the landlord invoiced the recapture amount post-petition. The debtor countered that this was a pre-petition obligation for which the landlord only possessed an unsecured claim because the landlord should have billed for the electricity usage as it came due before the petition date. The Court agreed with the debtor, finding that to the extent that the landlord asserted that the malfunction of the meter could serve to convert its pre-petition claim to a post-petition claim, that assertion was incorrect. The plain language of the leases required that the landlord bill the debtor on a monthly basis for electricity. That the debtor and the landlord were both mistaken as to the actual usage and the amounts that should have been owed did not change the time at which the obligation arose and became due. Moreover, the leases contained no clause allowing for a true-up of the electricity charges at a later point in time.
The Court noted that section 365(d)(3) is intended to protect a landlord during the post-petition period while the debtor decides whether to assume or reject a lease. It is not, however, an invitation to a landlord to scour its books for unpaid pre-petition obligations and seek payment of those obligations through the vehicle of post-petition invoices. Therefore, the Court rejected the landlord’s request for section 365(d)(3) treatment for the recapture amount and denied the landlord’s request for late charges in connection with the recapture amount.
There was a further $10,081.07 in late charges remaining at issue with respect to undisputed post-petition obligations. The debtor requested that the Court decline to impose those charges, invoking the 60-day extension of time to perform obligations under section 365(d)(3) that is available within the court’s discretion, on a showing of cause. The debtor argued that various unspecified circumstances prevented the debtor from reviewing the leases and the landlord’s bills during the first sixty (60) days of the bankruptcy case. The Court rejected the argument that the debtor was “too busy dealing with [its] bankruptcy” to address the issues that were before the Court. In essence, the Court noted, the debtor was arguing that being in bankruptcy was sufficient cause under section 365(d)(3) to extend the time to perform its obligations. Were that so, the Court stated, the extension would become automatic, rather than discretionary. The Court therefore granted the request that the debtor be compelled to pay the late charges.
Finally, the Court deferred consideration of attorneys’ fees until further submission of detailed invoices.
