2009 Chapter 11 Recent Developments (Part I)

July 9, 2008. The landlords asked for payment of the rent and the Debtors refused.

Issues: "The application of § 365(d)(3) to a filing in the middle of the month and a debtor's liability for the so-called 'stub rent' - the rent for the interim period between the day the order for relief was entered in the bankruptcy case and the end of that month... specifically, ... whether § 365(d)(3) requires prorating the rent for the first month of the bankruptcy case or whether the statute precludes such an approach."

Rules: The court is convinced that the "proper construction of § 365(d)(3) in this case is to hold the Debtors responsible for the stub rent measured on a daily basis as it accrued after the date of the orders for relief on July 9, 2008, and until the end of that month."

Holding: The court prorated the stub rent the Debtors owed for the month they filed their bankruptcy petitions. However, the court stayed its order to give the parties time to appeal.

Reasoning: The court recognized that the application of § 365(d)(3) on the month of a debtor's filing is an issue that is split among both the circuit courts and the lower courts. For a number of reasons, the court felt that prorating the amount of rent owed is appropriate and complies with Congressional intent: first, § 365(d)(3) refers to § 365(b)(2), which does not require that debtors cure rent that had not been paid prepetition that relate to the commencement of the case (unless the debtor assumes the lease). Second, as a district court noted "'[n]othing in the legislative history indicates that Congress intended § 365(d)(3) to overturn the long-standing practice under § 503(b)(1) of prorating debtor-tenants' rent to cover only the postpetition, prerejection period, regardless of the billing date... [otherwise, it] would grant landlords a windfall payment, to the detriment of other creditors.'" Third, those courts that refuse to prorate the amount owed under § 365(d)(3) fail to draw the obvious conclusion that "rent for the first month is a pre-petition claim only, based on the billing date approach, and that the debtor has the right to use the leased property during the stub period without further liability." On the other hand, the court denied the Debtors' argument that the entire rent amount for the month of the filing be treated as a prepetition unsecured debt. The court said the Debtors' argument amounted to a rule that required landlords to once again comply with § 503(b)(1) to be paid rent during the stub period, which is clearly against Congressional intent and contradicts the plain language of the statute.

In re Platech Engineered Products, Inc., 2008 WL 5170618 (Bankr. E.D. Mich. Dec. 10, 2008)

Facts: Certain creditors filed § 503(b)(9) claims against the Debtors estates based upon goods and services that were provided to the Debtors 20 days prior to the bankruptcy petition. One creditor (the "Gas Creditor") filed its claim based on the delivery of natural gas to the Debtors. The Debtors objected to the claims and argued that, because the contracts that provided the basis of the claims were for both goods and services, the claims should be disallowed in full.

Issues:

(1)

Whether the claimants delivered 'goods' to the Debtors as required by § 503(b)(9)

(2)

Whether the Gas Creditor that delivered natural gas is precluded from filing a § 503(b)(9) claim because of the provisions of § 366 regarding 'utility services.'

Rules:

(1)

"Absent a definition in the Bankruptcy Code or in controlling case law, the Court is persuaded that the best definition for 'goods' is the definition provided by the Uniform Commercial Code."

(2)

The predominant purpose test, and its 'winner take all' result, is not applicable to a § 503(b)(9) claim. "The only relevant determination under § 503(b)(9) is the value of the 'goods' that were delivered, irrespective of whether the contract also called for the delivery and sale of services."