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In re Southwest Food Distribs., LLC, 561 F.3d 1106 (10th Cir. 2009) (bankruptcy court properly exercised discretion to decline to appoint national firm in additional to local firm to represent credtors' committee because of rates; although rejection was because of fees and could have been dealt with in the fee application process, it would have been inefficient to ignore the issue at the appointment stage and build in a fight later on).
Assume a nondebtor has a lease from the debtor with an option to purchase. The lessee goes into possession under the lease. After the debtor files, it proposes to reject the purchase option and the nondebtor seeks to exercise its purchase rights. Can it do so? Section 365(h)(l)(A)(ii) provides that a lessee in possession under a rejected lease may retain its rights under the lease including the right to possession. And, section 365(i)(2) provides that a purchaser in possession under an executory contract to purchase can exercise its purchase rights notwithstanding rejection of the contract. The question is whether a lessee in possession under the lease is also a purchaser in possession under the purchase option and can exercise its purchase rights notwithstanding rejection of the purchase contract. In In re Nickels Midway Pier, LLC, 2007 WL 4171114, 49 BCD 35 (3d Cir. 2007), the Court said that (a) although the lease and purchase option were in the same contract, they were divisible and should have been treated as divisible, (b) the nondebtor was not in possession under the purchase option portion of the agreement, and (c) the nondebtor could not exercise its rights under section 365(i)(2) to purchase the property. In such cases, the purchaser must probably take a security interest in the property to fully protect its purchase option.
A number of recent cases continue to struggle with issues of which lease expenses are entitled to administrative status. See In re Stone Barn Manhattan LLC, 2008 WL 5265739 (Bk. S.D.N.Y. 2008 )(under lease where rent is due on first day of month, rent for stub period between filing and end of month must be paid under 365(d)(3) by prorating rent; court recognizes split of authority); In re Goody's Family Clothing, Inc., 392 B.R. 604 (Bk. D. Del. 2008) (same issue; lessor entitled to stub rent as an administration expense but not covered by 365(d)(3)); In re Backrach Clothing, Inc., 2008 B.R. 758 (N.D. Ill. 2008) (upon assumption, under lease where lessee must pay taxes, cure costs included taxes accrued post-petition on a daily basis even though the taxing authority hadn't billed for the taxes); In re Lakeshore Const. Co., 50 BCD P 40 (Bk. D.N.H. 2008) (for equipment lessor, administrative expenses for first 60 days denied without prejudice because no showing of actual and necessary use; rent for next 3 periods has administrative status even after lessor obtained stay relief; no administrative rent after repossession because there was an implicit termination of the lease; and no repair expenses because no showing repairs became necessitated during 3 period of actual use); In re Burival, 392 B.R. 793 (Bk. D. Neb. 2008 (for agriculture crop lease where rent is payable every six months, rent prorated notwithstanding 365(d)(3) since lump sum payment every 6 months reflects industry
©2009 Jonathan M. Landers
