Delaware Business Bankruptcy Report : Delaware Business Bankruptcy Report : Morris James LLP Lawyers & Attorneys

In re: Ace Mortgage Funding, LLC, Chapter 7, Case No. 08-12645 (CSS) (April 15, 2011) (J. Sontchi)

The Court was asked to decide a landlord’s motion seeking allowance and payment of unpaid post-petition rent as an administrative expense.   The debtor was in default under the terms of the lease for failure to pay rent.  Immediately after the petition date, the landlord took possession and control of the leased premises and only provided limited access to the trustee.   The trustee did not move to reject the lease and did not pay post-petition rent or taxes and insurance on the leased premises.   The trustee objected to the motion on two grounds:  (1) a pre-petition assumption and assignment agreement released the debtor from any obligation under the lease and (2) any rent due under the lease was not entitled to administrative priority because the landlord changed the locks immediately after the petition date and had possession and control over the leased premises.

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In re Goody’s Family Clothing, Inc., Case No. 08-11133 (CSS), Opinion (Bankr. D. Del., Feb. 6, 2009).

The Debtors filed an objection to Section 503(b)(9) (“503(b)(9)”) administrative claims they alleged were misclassified on the basis that the claimant, Added Value Services, Inc. (“AVS”) provided services and not goods, as is required under 503(b)(9) of the Bankruptcy Code. The Court, holding that goods must be “movable,” agreed with the Debtors and found that AVS’s claim was misclassified as a 503(b)(9) claim.

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In re Goody’s Family Clothing, Inc., 392 B.R. 604 (Bankr. D. Del. 2008) (Judge Christopher S. Sontchi)

The Bankruptcy Court held that the court may allow an administrative claim for unpaid post-petition rent under section 503(b)(1), provided that the claim is for an actual, necessary cost and expense of preserving the estate. The amount of the claim is the fair market value of the premises, which is presumed to be the rent due under the lease, unless contrary evidence is presented. However, timing of administrative expense payments remain at the discretion of the court.

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In a decision issued on September 16, 2008, the Honorable Phillip J. Shefferly, a Bankruptcy Judge for the United States Bankruptcy Court for the Eastern District of Michigan, Southern Division, issued an opinion in the Plastech Engineered Products, Inc. et al., bankruptcy cases holding that 502(d) of the Bankruptcy Code was not an impediment to the payment of administrative claims under 503(b)(9).

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In re Winstar Comms., Inc., Nos. 01-1430 (KJC)–01-462(KJC), -- B.R. --, 2007 WL 4268775 (Bankr. D. Del. Dec. 4, 2007) (Judge Kevin J. Carey)

Professionals retained by the Chapter 7 Trustee of the estate of debtor Winstar Communications, Inc. filed a motion to approve a hedging transaction with a lender under which they would receive a fixed price payment from the lender in return for the lender paying all or some of the contingency fees that counsel would receive for representing the trustee in an adversary proceeding.  The United States Bankruptcy Court for the District of Delaware found that this transaction was a form of fee sharing that was prohibited under 11 U.S.C. § 504.  Accordingly, the Court denied the motion, without prejudice to the professionals’ ability to seek the approval of a revised arrangement.

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Forklift LP Corp. v. iS3C, Inc. (In Re Forklift LP Corp.), 363 B.R. 388 (Bankr. D. Del. 2007) (Judge Peter J. Walsh)

In connection with pending litigation over a failed post-petition software upgrade, the plaintiff asserted that even if its challenge to defendant’s right to payment was unsuccessful, the defendant’s administrative claim was subject to the provisions of the confirmed Plan, which, the plaintiff contended, resulted in defendant receiving less than full payment. Defendant moved for partial summary judgment on its right to receive payment in full, arguing that the Plan was ambiguous. The Court agreed, and held that the ambiguity in the Plan would not deny defendant its right to payment in full in light of the clear language of the Confirmation Order, the Disclosure Statement and the doctrine of judicial estoppel.

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Integrated Water Res., Inc. v. Shaw Envntl., Inc. (In re IT Group, Inc.), 361 B.R. 417(Bankr. D. Del. 2007) (Judge Mary F. Walrath)

The Plaintiff in this adversary proceeding sought to amend its complaint to add a claim for breach of contract against the IT Trust. The Plaintiff asserted that the Trust had violated the terms of a settlement agreement and releases contained therein by assigning its claims against the Plaintiff to a third party. The Court granted the motion to amend, finding that there was no undue delay by the Plaintiff, there was no undue prejudice to the Trust, and that the proposed amendment was not futile.

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In re Global Home Prods., LLC, Case No. 06-10340 (KG), 2006 WL 3791955 (Bankr. D. Del. Dec. 21, 2006) (Judge Kevin Gross)

The movant, a creditor of the debtors, with an administrative expense claim for goods delivered to the debtor within the 20 days preceding the date of the debtors’ bankruptcy petitions, moved for allowance and immediate payment of its claim pursuant to11 U.S.C. § 503(b)(9). The court denied the request for immediate payment, finding that the harm to the debtor of being required to make a payment that was not in its budget, and of a type that many other parties had sought, and might in the future seek, outweighed the hardship, if any, to the creditor.

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In re ANC Rental Corp., 341 B.R. 178 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)

The claimant, Joan Martin, filed a motion for allowance and payment of an administrative expense against the estate of the debtors. The claim arose out of a pre-petition agreement under which the claimant rented a car from debtor Alamo Rent-A-Car. Martin was involved in a serious car accident in which two died. Post-petition, representatives of the other parties to the accident sued Martin and the debtors, who were found jointly and severally liable. The Minnesota court presiding over that matter found that the debtors had an indemnity obligation to Martin, and found the debtors primarily liable for payment of damages. Martin paid the settlement amount, and then filed an administrative expense motion against the debtors’ estate. The Bankruptcy Court denied the motion, finding that the indemnity obligation was an implied term of the car rental agreement, and therefore was a pre-petition obligation of the debtors that was not entitled to be allowed and paid as an administrative expense.

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