In re FKA FC, LLC

545 B.R. 567, 2016 Bankr. LEXIS 547, 62 Bankr. Ct. Dec. (CRR) 63, 2016 WL 690854
CourtUnited States Bankruptcy Court, W.D. Michigan
DecidedFebruary 12, 2016
DocketCase No. GG 15-00643-jtg (Jointly Administered)
StatusPublished

This text of 545 B.R. 567 (In re FKA FC, LLC) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Michigan primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re FKA FC, LLC, 545 B.R. 567, 2016 Bankr. LEXIS 547, 62 Bankr. Ct. Dec. (CRR) 63, 2016 WL 690854 (Mich. 2016).

Opinion

MEMORANDUM DECISION REGARDING ASSUMPTION AND ASSIGNMENT OF UNEXPIRED LEASE

John T. Gregg, United States Bankruptcy Judge

This matter comes before the court upon the request of Family Christian, LLC and its affiliated debtors (collectively, the “Debtors”) to assume and assign an unexpired lease. Los Banos Gravel Co., Inc., the non-debtor-counterparty to the lease (“Los Banos”), objects to assumption and assignment because the proposed cure amount of $0.00 fails to include attorneys’ fees incurred by Los Banos as a result of the Debtors’ bankruptcy. For the following reasons, the court shall approve assumption and assignment of the lease and determine the cure claim to be $0.00.2

JURISDICTION

The court has jurisdiction pursuant to 28 U.S.C. § 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).

BACKGROUND

Prior to the Petition Date (as defined below), the Debtors sold religious merchandise such as books, music, movies and other supplies at more than 250 brick and mortar retail stores throughout the country. The Debtors leased the premises for a retail store located in Bexar County, Texas from Los Banos pursuant to a certain Shopping Center Lease dated May 28, 2003 (as amended, the “Lease”).3 The Lease is characterized as a “triple-net lease,” meaning that the Debtors were responsible for base rent, as well as other charges such as taxes, common area maintenance and insurance.

The Lease provides the following with respect to events of default:

15. Defaults and Remedies.
(A) Any one of the following shall be a default by Tenant: (1) if Tenant fails to pay Rent, Security Deposit, or other money, or to provide a certificate of insurance or to provide an estoppel certificate as required by Article 27 when due, or (2) if Tenant fails to perform or observe any agreement or condition on its part to be performed or observed, other than the defaults mentioned in the preceding clause (1) or in clause (3) through (8) below, or if Tenant defaults under any other lease or agreement be[571]*571tween Tenant and Landlord or an affiliate of Landlord, or (3) if Tenant’s leasehold interest is levied on, attached or taken by any process of law, or (4) if Tenant makes an assignment of its property for the benefit of creditors, or (5) if any bankruptcy, insolvency or reorganization proceeding or arrangement with creditors (whether through court or by proposed composition with creditors) is commenced by or against Tenant, or (6) if a receiver or trustee is appointed for any of Tenant’s property, or (7) if this Lease is transferred to or devolves on, or the Lease Premises is occupied by, anyone other than Tenant except if specifically permitted by this Lease, or (8) if Tenant closes the Leased Premises or ceases doing business at the Lease Premises.

(Lease at Art. 15(A).) The Lease further states that in the event that the Debtors fail to timely pay rent or other money, Los Banos is required to notify the Debtors in writing that they have ten days to cure the monetary default. (Id.) Under the Lease, the Debtors are responsible for any reasonable attorneys’ fees incurred by Los Banos related to specific events. (Lease at Arts. 5(A), 7, 8(F), 10(F), 11(A), 15(C), 18, 22 and 26.)

On February 11, 2015 (the “Petition Date”), the Debtors each filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. As of the Petition Date, the Debtors were current under the Lease in all respects.4 In March 2015, the Debtors filed a motion to sell substantially all of their assets and assume and assign execu-tory contracts and unexpired leases.5 Pursuant to the bidding procedures established by the court [Dkt. No. 597], the Debtors identified certain executory contracts and unexpired leases, including the Lease with Los Banos, that they were seeking to assume and assign as part of the sale, as well as any cure amounts that would be paid in connection therewith [Dkt. No. 694].

Los Banos timely filed a “limited” objection to the proposed assumption and assignment of its Lease [Dkt. No. 813] (the “First Objection”). In the First Objection, Los Banos contended that the cure claim of $0.00 was incorrect because it should have included year-end tax adjustments and CAM reconciliations, the amounts of which would not be determined until January 2016. Nonetheless, Los Banos recognized that “[t]he Debtor is not in default under the terms of the lease at this time,” and that the First Objection was filed to “preserve” the rights of Los Banos under the Lease. (First Obj. at ¶¶ 1, 7.) For all intents and purposes, the First Objection was protective in nature.

On June 9, 2015, the court held a contested hearing regarding the sale motion, which the court ultimately denied. See In re Family Christian, LLC, 533 B.R. 600 (Bankr.W.D.Mich.2015).6 Thereafter, the Debtors reformulated their restructuring strategy and filed a plan of liquidation, as amended [Dkt. Nos. 955, 979, 986 and 991] (the “Plan”). The Plan provided for the sale of substantially all of their assets to FCS Acquisition, LLC n/k/a Family Christian Stores, LLC (the “Buyer”). Although certain parties initially objected to confirmation of the Plan, all such objections were resolved by the Debtors prior to the confirmation hearing.. As such, this court held an uncontested confirmation hearing, [572]*572after which it entered an order confirming the Plan [Dkt. No. 1100]. As contemplated by the Plan, the court separately entered an order approving the sale and establishing procedures for the assumption and assignment of unexpired leases and executory contracts [Dkt. No. 1103] (the “Sale Order”). Consistent with the procedures established by the Sale Order, the Debtors filed a notice of assumption and assignment of executory contracts and unexpired leases [Dkt No. 1150], which included the Lease with Los Banos. The Debtors again identified the proposed cure amount under the Lease as $0.00.

On September 18, 2015, Los Banos filed an objection [Dkt. No. 1178] (the “Second Objection”) to the notice of assumption. In the Second Objection, Los. Banos objected to the proposed cure amount because it failed to include the attorneys’ fees incurred by Los Banos in connection with the First Objection. (Sec. Obj. at ¶¶ 7, 9.) After the Debtors responded [Dkt. No. 1317], Los Banos filed a reply brief in which it attempted to identify defaults under the Lease, as well as the provision of the Lease that purportedly provides Los Banos with a right to reimbursement of attorneys’ fees [Dkt. No. 1323].

On November 3, 2015, the court held a status conference. During the status conference, the court discussed the issues with the parties and informed them that an evidentiary hearing would be held, if necessary, to resolve the dispute. Hoping to avoid the expense associated with an evi-dentiary hearing, the parties advised the court that they would file a stipulation of facts. In a scheduling order entered on November 5, 2015 [Dkt. No.

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Cite This Page — Counsel Stack

Bluebook (online)
545 B.R. 567, 2016 Bankr. LEXIS 547, 62 Bankr. Ct. Dec. (CRR) 63, 2016 WL 690854, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-fka-fc-llc-miwb-2016.